What is reps and warranties insurance?
Reps and warranties insurance — RWI in the US, warranty and indemnity (W&I) insurance in Europe — is a policy that covers financial loss arising from a breach of the representations and warranties a seller makes in a purchase agreement. Instead of pursuing the seller directly when a rep turns out to be false, the buyer claims against the insurer.
The product solves a recurring tension in deals. Sellers want a clean exit with minimal post-close liability; buyers want a creditworthy backstop if the business is not as represented. RWI bridges the gap by shifting the risk to a third party, which is why it has become close to standard in private equity transactions.
Most policies are buyer-side: the buyer is the insured and brings the claim. The underwriting process leans heavily on the quality of the buyer's diligence — an insurer will not cover a risk the buyer should have, or did, identify and choose to ignore.
How reps and warranties insurance works
The policy is arranged alongside the deal and sits on top of the contractual reps.
- Underwriting on diligence. The insurer reviews the buyer's diligence reports and the purchase agreement to understand and price the risk it is taking on.
- Retention and limits. The policy carries a retention — a deductible the insured bears first — and a coverage limit, both negotiated against the policy premium.
- Exclusions. Known issues, items disclosed on the schedule, and certain categories of risk are typically excluded; insurance covers the unknown, not the disclosed.
- Claims against the insurer. If a covered rep is breached and causes loss above the retention, the buyer claims against the policy rather than the seller.