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Reps & Warranties Insurance – Q4 2023 Update

Friday, November 10, 2023
Mike Richmond
In this article, we will delve into three significant insights that are currently influencing the Reps and Warranties Insurance market.

The world of Reps & Warranties Insurance (RWI) has experienced a slower pace this past year, which has given rise to some intriguing developments that could shape the landscape as we approach 2024.

In this article, we will delve into three significant insights that are currently influencing the RWI market. These three key insights offer a glimpse into the evolving trends and dynamics that are likely to persist in the coming quarters.

Trend #1: Reps & Warranties Insurance Buyer’s Market

One of the noteworthy trends in the RWI market is the continuous decrease in insurance rates. Rates are continuing to decrease and are approaching averages of 2.5 – 4 percent, depending on the industry, target financial condition and quality of diligence. Additionally, terms are improving, making it a little easier to remove exclusions. These are trends that we see continuing for at least the next two quarters. This ongoing reduction in rates may have significant implications for businesses seeking RWI coverage and will likely impact their cost considerations.

Trend #2: Portfolio/Platform Underwriting

In addition to RWI underwriters agreeing to insure smaller transactions, we’re seeing an increase in underwriting across a portfolio, and even across platforms within a portfolio. Under this approach, an underwriter will look to the quality of an entire portfolio/platform in providing terms. This provides several advantages, including:

  • Lower rates due to increased volume
  • Lower underwriting fees
  • The ability to insure smaller transactions
  • Agreed upon terms from the same underwriter, which streamlines the underwriting process

This innovative approach is gaining traction and is expected to gain even more prominence as we head into 2024.

Trend #3: Increase in Secondaries

Secondary transactions (commonly known as secondaries), where private equity firms sell portfolio companies from one fund to investors in another of their funds, are on the rise. What’s particularly interesting is the growing use of RWI to protect these transactions. This trend comes with several benefits, including:

  • Returning more capital to initial investors who are selling their interest
  • Eliminating the need for full third-party diligence
  • Cost-effective pricing (usually around 2%)
  • Coverage for excluded obligations

Given these advantages and the challenges posed by targeting assets and navigating fluctuating interest rates, we anticipate that the adoption of RWI in secondaries will accelerate in 2024.

Final Thoughts

As we move forward into 2024, the Reps & Warranties Insurance market is undergoing a transformation marked by decreasing rates, the emergence of portfolio underwriting, and the increasing use of RWI in secondaries. These trends are reshaping the way businesses approach risk mitigation and insurance coverage, and they underscore the importance of staying informed and adaptable in an ever-evolving insurance landscape. As market dynamics continue to evolve, businesses and investors should closely monitor these trends to make informed decisions and navigate the changing RWI landscape effectively. Contact Horton’s M&A practice to ensure you are selecting the best reps and warranties coverage.


Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.