REP & WARRANTY INSURANCE UPDATE
June 28, 2019
by a professional from Furman University in Atlanta, GA, USA
We get lots of questions around Rep and Warranty Insurance. It's a popular product that continues to evolve, so thought it would be helpful to share some of the highlights from AIG's recent report:
- Because of the increasing popularity and demand for Rep and Warranty Insurance, there is a record number (25+) of carriers in the RWI marketplace. As a result of increased supply, coverage is broader and rates are lower.
- Claims frequency is about 1 in 5 policies. Claims around financial statements (tax breach, for example) are the most common.
- Quality third party diligence (QoE, Tax, Legal, Information Technology, etc) is critical to Rep and Warranty underwriters and will make all the difference
You can read the full report at https://www.aig.com/mandaclaims
from Furman University in Atlanta, GA, USA
There is a minimum premium, however. Buyers generally purchase a RWI limit that is 10% of the enterprise value (3M limit for a 3oM EV deal, for example). 3M is the market floor, so it doesn't matter if the deal size is less than 30M, the lowest R&W limit we would be able to secure would be 3M. Pricing has come down since the deal we did a few months ago, but we worked on a 10M EV business and were able to secure a 3M limit for $115,000. The underwriting fee (which pays for the carriers diligence effort and third party consultants) was an additional 25K.
So long answer to your question, the market is less concerned with enterprise value as long the third party diligence is quality. And you are willing to pay a minimum premium.
from Harvard University in San Francisco, CA, USA