Transactional risk insurance (TRI) is designed to protect parties from financial loss when conducting mergers and acquisitions (M&A) or other complex deal-related transactions. Losses may result from inaccuracies, breaches, or unforeseen liabilities.
Who might need transactional risk insurance
Different types of TRI
Additional non-standard coverage is available in a TRI policy for which insurers will charge extra premium. Elmore recommends the following covers are included when seeking quotations:
Synthetic warranties. Given directly from insurer to insured under the policy if the seller does not give an indemnity. US-style policy enhancements. EU Insurers now offer wide coverage with more all-risk type coverage. New breach cover. Covers breaches that both occur and are discovered or disclosed in the interim period between signing and closing.TRI due diligence
Do you know your transaction risks?
To optimise the potential for success and avoid delays and complications, you should assess your risks before transacting and seek appropriate protection against liabilities.
Take the first step and apply for a TRI due diligence review from Elmore.
Management liability (D&O) insurance FAQs
Why should I use transactional risks insurance?
- Bridges buyer and seller risk allocation gaps
- Provides additional comfort to investors and lenders
- Protects against unexpected post-deal losses
- Reduces the need for escrow or price reductions
- Enables cleaner exits for sellers
- Enhances competitive bids
Who typically purchases TRI?
Buyers and sellers in M&A deals. Buy-side policies protect buyers from warranty breaches. Sell-side policies protect sellers from future warranty claims.
What isn’t covered by TRI?
Common exclusions include:
- Known issues or matters identified during due diligence
- Forward-looking statements or projections
- Fraud by the insured party
- Certain high-risks such as transfer pricing (unless specified).
What information is required to underwrite TRI?
Insurers normally review:
- The SPA or transaction agreement
- Legal, financial, tax and other due diligence reports
- Management presentations and disclosure letters
How common is TRI?
It is standard practice in mid-to-large M&A transactions, particularly private M&A transactions and private equity deals. It is common in sectors such as technology, manufacturing, real estate, energy, and healthcare.