Introduction

Warranty and Indemnityinsurance was for years a tool reserved for large cap PE transactions. That haschanged. In Belgian mid market deals, W&I is now a recurring option on thenegotiation table, pushed by sellers looking for clean exits and accepted bybuyers who want recourse without chasing a former owner. The economics haveimproved, but W&I is not automatic. Below a certain deal size and abovecertain risk profiles, the premium does not pay for itself.

What W&I insurance actually covers

A W&I policy transfersthe financial consequences of a breach of representations and warranties fromthe seller to an insurer. If a warranty proves false after closing, the buyerclaims against the policy rather than against the seller directly. The seller'seconomic exposure is reduced to the retention, or deductible, which istypically set between 0.5% and 1% of enterprise value.

Two structures exist. Buyside policies are the European market standard and cover the buyer directly.Sell side policies exist but are rarer, and cover the seller's liability underthe SPA. In Belgium, buy side is the default.

Premium ranges and deal size thresholds

In the Belgian mid market,premiums have compressed significantly over the last five years. For a cleanindustrial or services deal, premiums typically run between 0.8% and 1.5% ofthe insured limit, with the limit usually set between 15% and 30% of enterprisevalue. Insurers apply minimum premiums, which means W&I is rarely economicbelow an enterprise value of 15 to 20 million euros.

Above 50 million inenterprise value, W&I is close to standard. Between 20 and 50 million, itbecomes a case by case decision driven by deal complexity, risk appetite, andthe seller's profile.

What the policy typically excludes

W&I does not covereverything the SPA covers. Standard exclusions include known issues flagged indue diligence, fraud and criminal acts, transfer pricing, forward lookingstatements, and specific environmental or product liability risks. Pension underfunding,secondary tax liability, and certain regulatory breaches are also frequentlyexcluded or only available as specific enhancements at extra premium.

The consequence isoperational. A W&I policy is not a substitute for due diligence. Insurersrequire a robust due diligence process as a precondition to underwriting.

When W&I makes sense and when it does not

W&I works well whenthe seller is an individual or a family shareholder looking for a clean exitwithout keeping capital tied up in escrow for two years. It also works whenmultiple sellers would otherwise need to provide joint and several warranties.And it works when the buyer wants the warranties package to be worth somethingregardless of the seller's future solvency.

W&I does not work wellwhen the transaction is small, when due diligence is light or rushed, whenknown issues make up a large part of the risk profile, or when the seller is astrategic corporate that will stand behind its warranties without concern.

The Dups approach

At Dups, we treat W&Ias a tool, not a default. On every sell side mandate above the mid marketthreshold, we assess whether W&I structurally improves the deal for ourclient, and we coordinate with brokers and insurers early enough to avoid lastminute pricing surprises. On buy side mandates, we use W&I to turn awarranty package into actual protection, not just contractual language. If youare weighing whether W&I is worth it on your next transaction, let us talk.

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