Warranty & Indemnity

Written by Matthew Wood

Key developments in 2024 

We predicted last year that 2024 would see deal volumes increase, owing to improving market conditions. Indeed, a pullback in inflation (and stabilisation of the cost of capital) has led to a rising M&A market, with notable growth among larger deals. Among European markets, the UK has been particularly active, reflecting perceived political stability following the decisive general election result (2024 was a bumper year for elections, too).

The data suggest that W&I insurers have had a productive year, with the number of policies bound often running at record or near-record levels. Available capacity has also continued to grow, driving continued strong competition on rates.

We have also observed an uptick in claims volumes, especially in the second half of 2024. Most notifications continue to involve warranties pertaining to financial statements, tax, compliance with laws and material contracts. Our experience is that an increasing proportion of claims (especially financial statements claims) are being made by financial sponsors, who are sophisticated users of W&I insurance and often present claims in a particularly analytical and well-structured manner.

The English case law surrounding W&I claims continues to develop. In May 2024, the Court of Appeal gave judgment in Project Angel Bidco v AXIS & others. Whilst insurers' declinature of the claim under an anti-bribery and corruption (ABC) exclusion was upheld by a two-to-one majority, the court was troubled by the issue of whether the W&I policy "gave with one hand and took away with the other", where ABC warranties were covered, but in practice any claim thereunder would be excluded. Most recent wordings address this concern by making crystal clear that cover afforded under the cover spreadsheet is subject to the operation of the exclusions (albeit that was of course always the case). 

What to look out for in 2025 

Whilst competition in the W&I market remains vigorous, we anticipate that increasing deal volume and claims volume (and the growing sophistication of claims) will lead to some hardening of rates in 2025, and perhaps also to increasingly robust defence of claims, where justified on the merits. 

We expect that claims valuation issues will continue to grow in prominence, especially in financial statements claims (where valuation can be particularly challenging, if breach of warranty is established). Insurers should continue to make sure they have a strong understanding of the buyer's valuation methodology at the underwriting stage, as this assists greatly in the event of valuation debates in the claims context.

The rapid evolution of AI can be expected to make its mark on M&A transactions (and underwriting processes) in 2025. Judicious use of large language models could drive cost efficiencies at the due diligence stage, but insurers will rightly be concerned to ensure that nothing is missed and the accuracy and completeness of due diligence is not compromised. Separately, as generative AI becomes embedded in the operations of target companies themselves, it will be important to ensure that the target's use of AI (and associated risks, such as IP and data protection risks) is robustly diligenced, and that insurers' exposure to AI-adjacent risks is appropriately managed.

Explore Annual Insurance Review 2025