Warranty and Indemnity Insurance

New Zealand market conditions are currently “ripe” for people looking to sell their business, with indicators including predicted earnings and corporate appetite for deals on a continued positive trend¹. With lower regulatory hurdles than other countries, and a stable political and legal environment, New Zealand is also an attractive environment for offshore investors. These factors support the current buoyant M&A activity² in New Zealand.

As in all markets, however, there are a number of risk factors that can hinder the successful implementation of a merger, acquisition or restructure, including potential inaccuracies in the warranties and indemnities to be given by a seller.

Warranties and indemnity insurance provides protection from the financial losses that may arise from such inaccuracies through the transfer of the risk of losses being incurred in the case of a breach of warranty or indemnity.  This solution can significantly reduce or remove transaction risk facilitating the completion of the proposed transaction.

¹ KPMG New Zealand M&A Predictor, September 2014

² Ibid.

A buyer-side policy allows the buyer to recover losses from inaccuracies in the warranties and indemnities directly from AIG without first pursuing recovery from the seller.

A seller-side policy reimburses the seller for losses from warranty and indemnity claims by the buyer.

Each policy is tailored to meet the specific needs of the transaction, with coverage designed to:

• work back-to-back with the recourse and risk allocation agreed between the buyer and seller in the acquisition agreement;
• mirror the minimum claim provisions (de minimis and retention thresholds) and other limitation language in the acquisition agreement;
• match the warranty survival period under the acquisition agreement (including any extended period for tax) – extendable if required; and
• cover first and third party claims and associated defence costs. Cover on a buyer-side policy will also respond to fraud by the seller.

• Businesses involved in  corporate acquisitions or disposals seeking protection from financial loss resulting from inaccuracies in warranties and indemnities given by a seller as part of a transaction.
• The named insured under a W&I policy can be the seller or buyer of a business, or other interested parties, including a new company, special purpose vehicle or a guarantor.

• Bespoke products designed for M&A transactions, based on over 40 years’ experience working with New Zealand businesses, and over 95 years serving customers around the world. 
• Local expertise backed by a worldwide network of highly-skilled insurance professionals, helping to make complex deals a reality.
• Financial strength and stability – large capacities available, reducing the need for multiple insurers.
• Access to our highly-skilled and specialised team of claims professionals who will process your claim efficiently and professionally.