Private equity firms use transaction liability insurance to manage the risk inherent in mergers and acquisitions. Representation and warranty (R&W) insurance is a type of transaction liability insurance that covers the risk of a target company’s seller breaching representations and warranties in the applicable securities purchase agreement. R&W insurance has become increasingly popular in the past few years, particularly among private equity firms, which use it to facilitate the purchase and sale of portfolio companies.
It is most often the deal team members and the lawyers working on the transaction who purchase an R&W policy, but risk managers should also be prepared to advise their organization concerning such a purchase and to facilitate payment of any claims that arise. Every risk manager should understand five aspects of R&W insurance.
To read the full article: A Guide to Transaction Liability Insurance