Reps & warranties insurance in India: when the premium is worth paying

Five years ago, reps and warranties insurance in Indian M&A was a footnote. Foreign sponsors used it on inbound deals; domestic buyers didn't.

Today, W&I is a live product on most mid-market and large-cap transactions. ICICI Lombard, HDFC ERGO, AIG India, Tata AIG all underwrite the cover. Brokers — Marsh, Aon, WTW — have built India practice teams. Premiums have come down from 1.5-2.0% to 1.0-1.5% of policy limit.

But W&I is not free, and it doesn't fit every deal. Worth knowing when the premium is earned.

What W&I actually does

A W&I policy is a contract between the insurer and a named beneficiary (usually the buyer) that pays out for losses arising from breach of seller's representations and warranties in the SPA. The seller still gives the reps and warranties; the insurer steps into the seller's shoes on indemnity.

Two main forms in the market:

Buy-side policy. Buyer is the named insured. Premium typically paid by buyer (or shared 50-50 by negotiation). Buyer claims directly against the insurer for breach.

Sell-side policy. Seller is the named insured. Premium paid by seller. Insurer indemnifies seller for indemnity claims paid out to buyer.

Buy-side is more common because it solves the underlying problem more cleanly: the buyer wants credit-worthy recourse for warranty breaches, and a regulated insurer is more credit-worthy than most sellers.

Where W&I makes sense

Five situations where the premium is earned.

Distressed sellers. The seller is exiting under financial pressure or has limited residual operations post-close. Standard indemnity is meaningless because the seller has no balance sheet to claim against. W&I substitutes a regulated insurer for an empty shell.

Escrow-light deals. Some buyers want lower escrow because cash matters at closing. Seller-side, this is attractive — lower escrow means more cash in hand. W&I lets both sides have it: low escrow (typically 1-2% rather than 10-15%) backed by W&I cover for the difference.

Cross-border deals where indemnity enforcement is hard. Indian seller, foreign buyer. If the buyer claims indemnity, enforcement against an Indian seller's assets via Indian courts can take 5-7 years. W&I is a one-step recourse against an insurer with foreign jurisdiction available.

Sellside auctions with multiple bidders. Sellers can require buyers to bid with W&I in place. This standardises the indemnity terms across bids and lets the seller compare bids on price rather than on indemnity structure. Common in PE-led auctions of platform assets.

Specific large risks. Standalone policies cover specific risks — a pending tax assessment, a known litigation, a regulatory dispute. The insurer underwrites the specific risk and prices accordingly. Used to bridge specific gaps that would otherwise kill the deal.

Where W&I doesn't make sense

Equally important to know where it adds friction without value.

Small deals. Below ₹200 crore EV, W&I premiums become disproportionate. Minimum policy size in the Indian market is typically ₹50 crore, premium ₹50-75 lakh. On a ₹150 crore deal, that's 0.4-0.5% of EV — comparable to the indemnity exposure being insured. Doesn't pencil.

Strong indemnity cushion already. If the seller has substantial residual net worth post-close and is willing to back the indemnity with cash escrow at 10-15% for 18-24 months, the insurer is duplicating coverage. The seller's escrow is the cheaper option.

Known material risks. W&I excludes known issues. The insurer underwrites against breaches the parties don't know about. If the deal's main indemnity risk is a known pending tax assessment, W&I won't cover it. The parties need a specific indemnity carve-out (which the insurer might separately underwrite as a standalone policy).

Fraud and anti-bribery exposures. Always excluded. W&I doesn't cover seller fraud or breaches of anti-bribery / sanctions provisions. If these are real risks, the parties need separate mechanisms.

Single-buyer negotiated deals where the parties have a strong commercial relationship. Two known parties, ongoing commercial relationship, mutual incentive to settle disputes commercially — W&I adds insurer friction and underwriting time without solving a real problem.

What the premium looks like

Current Indian market pricing for buy-side W&I:

Premium rate: 1.0-1.5% of policy limit, depending on deal size, sector, and structure. Premiums for distressed-sector deals (real estate, NBFC, distressed assets) run higher, 1.5-2.5%.

Policy limit: typically 10-30% of enterprise value. The limit corresponds to the indemnity cap in the SPA. For a ₹500 crore EV deal, a policy limit of ₹50-150 crore is standard.

Retention (the deductible): 0.5-1.0% of EV. Insurer doesn't pay claims below the retention. Sellers often agree to bear the retention as a residual exposure.

Survival period: matches the SPA. Standard reps survive 18-24 months. Tax reps and fundamental reps (title, authority, capacity) survive longer, typically 5-7 years. W&I premium reflects the longer tail.

Underwriting time: 4-6 weeks from broker engagement to policy bind. The insurer runs its own diligence on the SPA reps and the data room, in parallel with the buyer's commercial diligence.

The underwriting reality

Insurers don't write policies blind. The underwriter's diligence is a real exercise — they want to see the buyer's commercial QoE, legal due diligence report, and tax due diligence report. They review the SPA reps for scope and survival. They want to see the data room (or at least an indexed summary).

What gets excluded as a result of underwriting:

Known issues. Anything flagged in the buyer's due diligence reports is excluded from cover, on the principle that it's no longer a 'breach' if both parties knew about it.

Forward-looking statements. Projections, forecasts, business plans. W&I covers historical facts and present condition, not future performance.

Specific industry exclusions. Environmental risks in some sectors. Cyber risks unless specifically scheduled. Product liability in some manufacturing contexts.

Tax exposures above a defined materiality threshold. Underwriter may decline tax cover or sublimit it to a specific quantum.

Sellers and buyers often discover at underwriting that the cover they expected to have is meaningfully narrower than the SPA reps. The W&I policy is not a substitute for negotiating the reps carefully — it's a backstop for breaches of those reps, after exclusions.

The cross-border use case

Single most common reason Indian sellers buy into W&I: cross-border deals with foreign buyers.

An Indian seller exits to a US strategic. SPA is governed by English law. Indemnity claims would be enforced in English courts, with secondary enforcement via Indian courts against Indian assets. Empirical timeline: 5-9 years.

With W&I in place, the buyer's recourse is against AIG India or Tata AIG or whichever insurer underwrites. Single-step claim, regulated insurer, defined claim handling process. Buyer gets credit-worthy recourse; seller gets cleaner exit.

Premium of 1.2-1.5% on a ₹500 crore deal is ₹6-7.5 crore. Worth it for both sides when the alternative is multi-year cross-border litigation.

What we negotiate when running W&I

Five positions we hold to when structuring W&I for a sell-side client.

First, who pays. Default in the Indian market is buyer pays. But premium can be allocated as part of deal economics — seller pays, with premium added to seller's net proceeds. Or 50-50 split. Worth negotiating because the premium is real money.

Second, retention bearing. The retention is the insurer's deductible. Standard is seller bears it (post-close, this means the first 0.5-1.0% of any indemnity claim is on the seller). Some structures push retention to buyer. Worth being explicit.

Third, SPA reps must be insurer-friendly. The insurer reads the reps for scope and survival. Aggressive seller-favourable reps (heavy materiality qualifiers, narrow knowledge qualifiers) get excluded from cover. The seller has to choose: easier reps with broader W&I cover, or harder reps with narrower cover. We typically push for cleaner reps with broader cover — the W&I is the point.

Fourth, claim cooperation clause. The SPA needs to require the seller to cooperate with the buyer in pursuing W&I claims. Seller might have information the insurer needs. Without a cooperation clause, the seller can stonewall and the buyer's claim weakens.

Fifth, tail period and survival alignment. SPA reps survival should align with W&I policy survival. Mismatches create coverage gaps where the SPA has expired but a claim is still possible (rare) or the W&I has expired but the SPA reps still apply (more common). Both should expire together.

The Indian carriers and brokers

Carriers underwriting W&I in India:

AIG India — historically the most active, deepest deal team.

Tata AIG — significant volume, competitive pricing.

ICICI Lombard — Indian deal focus, conservative underwriting.

HDFC ERGO — emerging, competitive on mid-market.

Brokers:

Marsh — largest India W&I practice, dominant on large-cap.

Aon — strong on cross-border and PE-led deals.

WTW (Willis Towers Watson) — growing India practice.

JLT (now part of Marsh) — historical presence.

Pricing competition between carriers is real. A broker who runs a competitive process can typically save 10-25 basis points on premium. The broker fee is roughly 20-25% of premium, paid by the carrier.

W&I is a coordination device, not a magic indemnity. It replaces seller balance sheet exposure with insurer balance sheet exposure, at a price. Whether the price is worth paying depends entirely on the specific deal — not on whether W&I is fashionable.

What ready looks like

By LOI signing, the seller's banker should have indicated whether W&I is being considered, run an initial broker quote, and identified which insurer is likely to lead. The buyer's deal team should have the same.

By SPA negotiation, the W&I policy structure should be agreed in parallel — premium split, retention bearing, policy limit, scope of cover. The SPA reps should be drafted with insurer review.

By signing, the policy is bound. Post-close, the cover is live for 18-24 months on commercial reps, longer on fundamental and tax reps.

Run cleanly, W&I adds 2-3 weeks to the process and 1.0-1.5% of policy limit to deal costs. Run badly, it adds 6-8 weeks and doesn't bind.