Among the contractual risk-allocation tools typically used in M&A transactions, transactional risk insurance policies and, more generally, insurance products specifically tailored for extraordinary transactions have become increasingly widespread.
These instruments are intended to facilitate negotiations between the parties by transferring to the insurer the risk of financial losses inherent in the transaction, thereby pursuing the seller’s interest in achieving a clean exit while protecting the buyer against potential liabilities.
The solutions most commonly adopted in transactional practice include W&I policies, alongside other insurance products of a different nature, including: (i) policies covering specific known and identified risks that may emerge during the due diligence phase (Contingent Risk Policies), (ii) policies covering title to real estate assets (Title Risk Policies), and (iii) policies designed for fund closures (End of Fund Life Wrappers).
In addition, in today’s increasingly sophisticated transactional insurance market, brokers have expanded their range of services to include analyses and assessments of the insurance coverage already in place within target companies. Such assessments are aimed at evaluating the adequacy and completeness of existing coverage, identifying uninsured risks, and determining whether the existing policy limits are appropriate in light of the target company’s business activities.
The use of W&I policies and, more generally, transactional risk insurance products has progressively expanded across European civil law jurisdictions as well, driven by several factors, namely: (i) the gradual simplification of underwriting processes; (ii) the increased affordability of insurance premiums; and, above all, (iii) the introduction of tailored products, including solutions specifically designed for small and mid-sized transactions.
According to the latest available data, the number of policies underwritten in 2024 in connection with M&A transactions in the Italian market totalled nearly 400, meaning that approximately 20% of all Italian M&A transactions were backed by a W&I policy. This growth trend has remained steady in recent years and has also extended to the energy and infrastructure sectors, where insurance products accounted – consistently with broader M&A market trends – for approximately 20% of the total number of W&I policies underwritten in this particular market segment, which is characterised by a significant regulatory impact on generated cash flows.
