Rep and Warranty Insurance (RWI) in M&A: Cost, Claims and Coverage (2026)

Rep and Warranty Insurance (RWI) in M&A: Cost, Claims and Coverage (2026)

Last updated: September 2026

Quick answer: Rep and warranty insurance (RWI) pays the buyer when a seller's representation in the purchase agreement turns out to be untrue, replacing most of the seller indemnity and escrow. Limits typically cover about 10% of the purchase price, retentions run 0.5% to 1.0% of enterprise value and drop to about 0.5% after a set period (Euclid Transactional), and premiums are quoted per deal, not from a table. The thing sellers get wrong: the policy only covers what the buyer did not know. Whether a problem was "disclosed" is decided by the data room record, and that record is yours to keep.

I'm Chris Chen. Before joining Peony, I worked in M&A at Moelis & Company across cross-border, healthcare, industrials, and consumer transactions. RWI turned up on almost every private-company sale I worked on, and almost nobody outside the transactional-risk desks could explain how a claim actually gets decided. This is the practitioner's version: what the policy is, how it is sized, what it costs in 2026 with the direction sourced, what three published claims studies say gets paid, and the mechanic the other explainers skip: whether the data room counts as disclosure, and how underwriters and claims teams read it. Every number is from the publisher's own page or PDF, named in-text; where I could not verify a figure, I say so.

What is rep and warranty insurance and who buys it?

Rep and warranty insurance is a policy that pays the buyer in an acquisition when a representation the seller made in the purchase agreement is untrue and the buyer suffers a loss as a result. Euclid Transactional, which describes itself as the industry's largest underwriter of transactional risk, puts it plainly: RWI "provides protection when some of what Buyers are told is untrue by insuring against breaches of those representations," so that "the historical requirement of the seller to hold back sale proceeds for an indemnity is reduced or eliminated entirely."

It covers the unknown. A panelist on Financier Worldwide's 2025 Managing Transactional Risk roundtable drew the line: RWI "is intended to cover unknown liabilities," while tax and contingent-liability insurance "address known, potential exposures." Euclid's Sean Kim, on the same panel, added the caveat that RWI "should not be a substitute for carefully drafting the R&W or proper due diligence." Euclid's claims team described it in 2023 as covering "the unknown unknowns." If you knew about it, or it was disclosed to you, it is not insured. That sentence is the whole post.

The buyer is usually the insured. Sell-side policies exist and I cover them below, but in practice the buy-side policy is the US norm: the buyer takes out the policy, makes the claim and gets paid, and the seller, subject to fraud, walks away with its money. Private equity adopted the product more than a decade ago to make auction bids more competitive by offering sellers a clean exit with no escrow; the users now include strategics competing against sponsors and sellers who write "buyer to obtain RWI, no seller indemnity" into the process letter. Practitioners on Financier Worldwide's 2026 roundtable called RWI "no longer back-end protection" but "a front-end deal driver" that shapes the representations from the letter of intent onward. For where it sits in the timeline, see the M&A process guide.

Outside the US the same product is warranty and indemnity insurance, or W&I; Marsh's claims report uses the labels interchangeably, "also known as warranty and indemnity, or W&I, policies," and so does Euclid. I use RWI throughout and cover the European differences near the end.

How does a buy-side RWI policy work?

A buy-side policy has five moving parts: limit, retention, drop-down, policy period and the subrogation waiver.

Limit. The most the insurer will pay. Tim Grosso, Euclid's deputy chief underwriting officer, told the 2026 roundtable that "R&W insurance limits typically only cover 10 percent of the purchase price with buyers bearing the risk of any additional losses." That is the practitioner norm, not a rule; buyers can buy more through excess layers. Euclid's published FAQ states its minimum limit "is typically $5,000,000, although we have written smaller limits on a limited case-by-case basis."

Retention. The loss the buyer absorbs before the insurer pays anything, like a deductible; in a no-indemnity deal it is the only skin in the game left, and it is the buyer's. Euclid's FAQ: "Retentions typically range from 0.5% to 1.0% of the enterprise value of the acquisition target, depending on overall deal size." Its minimum retention "is typically around $300,000," there is "generally no 'maximum' retention," and "a larger retention (as a percentage of the overall enterprise value of the acquisition target) will result in some discount in the pricing of our premium."

Drop-down. Per the same FAQ, the retention is "often dropping down to a smaller amount (usually 0.5% of the enterprise value) after a specified period of time." The period is not published as a market statistic, so I will not invent one; your broker will quote it. The effect is that late-emerging claims, which the data says tax claims often are, face a smaller retention than early ones.

Policy period. Market convention is around three years for general representations and longer, commonly six, for fundamental and tax representations. That is convention, not a study number; no insurer publishes it as one. Consistent with it, Marsh's 2022 report treats policies as "matured" once "transactions closed at least three years ago," and AIG's 2023 report notes "a relatively large number of claims notified in the UK after 36 months, which have often been tax-related," adding that "the tail risk on M&A insurance is real."

Subrogation only for fraud. An insurer that pays a claim ordinarily acquires the right to pursue whoever caused the loss. Under a buy-side policy that right is waived against the seller except for fraud. Grosso, in a 2024 interview reprinted by Euclid, described the policy as covering "the representations made in the transaction, excluding known issues," and "noted that fraud by the seller is one exception where subrogation rights could be pursued, although this is rare." That waiver is the seller's real protection: give honest representations, and the insurer's cheque to the buyer ends the matter.

Two trends sharpen this. A 2026 panelist said "over the past five years, average retentions have dropped significantly"; and with "nil seller recourse structures" common, another observed, "sellers have little or no 'skin in the game' outside of common law fraud." Both push the fight toward what the buyer knew, which is where the data room comes in.

How much does rep and warranty insurance cost in 2026?

The cost of a buy-side policy has three components, and only one is what people mean when they quote a number.

1. Premium, quoted as a percentage of the limit purchased; the market calls that percentage the rate on line.
2. Underwriting fee, charged separately by the insurer for reviewing the deal, whether or not the policy binds. No insurer I could verify publishes a figure, so I am not printing one.
3. Premium taxes and surplus-lines fees, which vary by state.

Broker websites publish rate-on-line ranges. I am not repeating them, because none I found is a primary source I could verify and the market has moved since most were written. What I can source is the direction.

In its August 2026 market update, Euclid CEO Jay Rittberg reported "a continued increase in primary ... (RWI) rates-on-line globally, with July premium rate in North America over 50% higher than in the summer of 2024," tying it to losses: "This increase is connected closely to claims results, with Euclid Transactional having now paid over $1.7 billion in RWI claims to clients and counting."

That reverses the recent past. In July 2024 Grosso described how new entrants in 2022 and 2023 "resulted in a decrease in pricing and a broadening of terms," calling it "a great time to be a buyer in this market"; a 2024 roundtable panelist put the longer arc at "premiums have halved for conventional deals" over ten years. By January 2025 Euclid was writing that "RWI rates will need to meaningfully increase over the historic lows seen earlier in 2024."

So the honest 2026 framing is a still-competitive market with many carriers, in which the carriers with the most claims experience are pushing rate up on that experience. Euclid's August 2026 post says pricing is moving away from supply and demand toward "factors such as deal size, policy retention amount, industry, client, and law firm behavior." The buyer's law firm is a pricing factor; underwriters remember who runs a clean process.

Three cost facts from Euclid's FAQ round this out: a larger retention earns a premium discount; minimum limit is typically $5 million and minimum retention around $300,000; and "transactions with values below $25,000,000 often do not meet our minimum premium or diligence process requirements." Selling a $15 million business, RWI may not be available on economic terms and the escrow conversation is still live. For what the rest of the deal costs, see M&A advisor fees.

What does the claims data actually show?

Three published claims studies are open to read: Euclid Transactional's 2025 Global RWI Claims Study (third annual, data through June 30, 2025), AIG's M&A Claims Intelligence Series, 7th edition (2023, policies 2012 to 2021) and Marsh's Transactional Risk Global Claims Report 2022 (more than 1,100 claims notified 2017 to 2021). They are different portfolios over different windows, so I present them side by side, never averaged.

How often do policies receive a claim?

• Euclid (2025 study): "we receive 23 claim notices per 100 policies bound," on a book of 7,666 policies all-time.
• AIG (2023): "a claim on approximately one in six policies" globally for 2012 to 2021, "down from the one in five policies from prior studies," while "the number of claims with loss payments has been increasing."
• Marsh (2022): "the percentage of policies that receive a claim has held steady at a global average of 14% to 16%," rising to "approximately 18% to 20% for matured policies" in North America.

A notice is not a payment, but between one in seven and one in four buyers will send one, which makes the claim process routine rather than exceptional.

Which representations get claimed on, and which get paid?

The two answers differ, and the gap is the most useful thing in these studies. Euclid: "claim notices asserting a breach of the tax representations have consistently been the most common breach claimed." Marsh: "financial statements and tax breaches remain the most commonly reported claims."

The money goes elsewhere. Euclid: "Looking at our all-time statistics, Financial Statements claims constitute 55% of our loss paid and 41% of our claim payments." In its 2024 Claims Year in Review, Euclid resolved 47 claims for over $306.6 million, with inaccurate financial statements "accounting for about 43% of our 47 paid claims in 2024" and customer and tax claims "each representing about 15%." AIG sees the same "relatively high incidence of claims for breaches of financial statement representations among both deal sizes."

Tax is the most noticed representation because tax problems surface mechanically, through audits, years after close; financial statements are the most expensive because a misstated EBITDA gets multiplied by the deal multiple.

How large are paid claims?

Severity is concentrated at the top. Euclid's 2025 study: "Over 45% of our loss paid from July 1, 2024 to June 30, 2025 arose out of payments of $20M or more"; payments of $10 million and up "are just over 20% of our claim payments" yet "add up to almost two-thirds of our loss paid." Its August 2026 milestone post adds the trend: "Our first $500m in paid claims had six claims of $20m or more. The most recent $500m had 14." AIG's older book shows the same shape at smaller scale: for 2012 to 2021 the average material claim was "$18.7m for the largest claims over $10m, $3.6m for claims of between $1m and $10m, and $380k for smaller claims between $100k and $1m."

The driver of the largest payments is diminution in value. Euclid: "Claim notices that assert diminution-in-value damages, including those based on the EBITDA multiple used in the transaction, have almost doubled in recent years. We have recognized such assertions where warranted, and these payments total $699M, more than two-thirds of our aggregate loss paid." When the buyer paid a multiple of a misstated EBITDA, the loss is the multiple times the misstatement, which is why financial-statements representations carry the policy; the synergies post covers how a multiple gets built into a price.

When do claims arrive and how fast are they paid?

Euclid: "Since 2018, we resolved over 85% of claims within 18 months of receipt of the claim notice," and "nearly half, 48.3%," of payments are made within 12 months of notice. AIG notes that for the largest deals "claims are all made within the first 24 months, but for smaller transactions, those claims can take longer to come in," and flags the UK tax tail past 36 months.

Which deals produce the losses?

Two findings should change how buyers and sellers behave.

Small deals lose more than their share. AIG: "In the 2018-2021 policy period, we saw 60% of loss dollars come from deals smaller than $250m, but only 44% of premium dollars came from those same deals," citing weaker financial controls and "lighter touch diligence by the buyer, particularly on the smallest of deals."

Audited financials and Big Four diligence did not prevent the breaches; they documented them. Euclid's carriers "paid three times more loss in the aggregate, $436M, in Financial Statements claims which arise out of acquisitions where a target's financial statements were audited than the $125M for such claims where the target's financials were not audited," and "each of the deals that resulted in a paid Financial Statements claim had engaged an external financial advisor during the diligence period, with the Big Four accounting firms conducting the diligence on over two-thirds." Sophistication is no shield: "Over 17% of our loss paid has been to the Top 25 private equity firms," above their 13% share of premium.

The lesson is not "skip the QoE." Diligence reports are the record of what the buyer examined and was told, and that record is what a claim is built on. A thorough QoE that missed a revenue-recognition problem supports a strong claim precisely because it proves the problem was not known; a QoE cut short is a diligence gap, and gaps become exclusions.

What does RWI not cover?

RWI does not cover known matters, undiligenced matters, a short list of hard exclusions, and deal-specific exclusions written in after the underwriter reads your diligence. In order of how often they defeat a claim:

Known issues and disclosed matters. The policy "covers the representations made in the transaction, excluding known issues" (Grosso, 2024). Anything the deal team knew at signing, and anything disclosed to it, is out. That is the definition of the product, and it is why the disclosure record matters more than the policy wording.

Diligence gaps. Underwriters "expect to see that the diligence and disclosure exercise matches the breadth and scope of the R&W provided in the transaction agreement," as a 2023 roundtable participant put it. Grosso in 2026: "If timing pressures do not allow the buyer to complete that diligence, they should not rely on R&W insurance to fill those gaps; they should instead expect coverage limitations, which can be conditional subject to completion of such diligence." Another panelist: "unexplored or poorly documented uncertainty will often result in exclusions, higher retentions or less favourable terms."

Known tax and contingent exposures. A 2025 roundtable panelist: a separate tax liability policy "is often advisable where there are known tax issues or tax risks that are excluded, explicitly or implicitly, from the R&W and W&I policy." A known lawsuit goes into a special indemnity, not the RWI.

Hard exclusions and sector appetite. Euclid's FAQ lists targets with more than 30% thermal-coal exposure, non-ancillary US marijuana businesses, and sanctioned countries or persons. A 2026 panelist noted that "not many markets are willing to underwrite healthcare and financial institutions, at least not without extensive exclusions."

Emerging scrutiny areas. Panelists on the 2026 roundtable named "cyber security, data use, AI, regulatory compliance and complex tax structures," and called for more use of exclusions for "specific employment and regulatory issues, especially in particular jurisdictions." One 2025 roundtable panelist noted that "certain risks that take little time to diligence have high occurrence rates, for example, in the areas of asset condition, information technology and customer representations," and a 2024 participant flagged "losses under IP representations related to software licensing," so licensing shortfalls are a recurring source of IP-representation claims. If your plan treats AI use and licensing as a checkbox, read AI due diligence first.

Common policy-form exclusions. US buy-side forms commonly exclude projections, loss already recovered through a purchase-price or working-capital adjustment, and certain known-category liabilities such as underfunded pensions. These vary by insurer; take the list from your broker's form.

Buyer's remorse. One 2026 panelist described "claims asserted two to three years after closing that are clearly rooted in buyer's remorse." They get the same test as every other claim: inaccurate representation, loss, not known, not disclosed.

Does the data room count as disclosure?

Sometimes, and that "sometimes" is the most important thing a seller can understand about RWI. Whether the data room is treated as disclosed against the representations depends on the purchase agreement, and the two main drafting traditions answer it differently.

In UK-style agreements, often yes. It is common for the sale and purchase agreement to provide that the contents of the data room are "deemed disclosed" against the warranties, through a general disclosure in the disclosure letter that references an agreed data-room index, fixed at a cut-off date, with an archive copy of the room delivered alongside. Buyers negotiate the scope, arguing disclosure must be "fair" with enough detail for the matter to be identified. But the starting point in many UK-style deals is that if it was in the room by the cut-off, it was disclosed.

In US-style agreements, usually no. The representations are qualified only by the disclosure schedules, item by item. Buyers resist general data-room disclosure, and a seller who wants a document to count puts it on the schedule. The room is the evidence behind the schedules, not a substitute for them.

Under an insured deal this matters because the policy covers unknown breaches. When a claim arrives, the claims team runs the test Euclid's own team described in 2023: check for an exclusion, check the warranty is insured, and check "whether the issue was 'disclosed.'" A 2024 participant said a claim notice should "confirm that this was unknown to the insured, not disclosed to them and not covered in the due diligence."

Three mechanics decide the outcome, and none of them are in the policy.

The index. In a deemed-disclosure regime the agreed index is the boundary of what was disclosed. A document in the room but not on the index, or added after the cut-off, is in a grey zone; a document on the index that the buyer never opened is, in many UK-style deals, still disclosed. Sellers get this wrong in both directions: a problematic contract uploaded into a folder called "Miscellaneous," misnamed as a scan, may still be disclosed under a general disclosure clause, so the buyer's claim on it can fail even though nobody read it. The same upload in a US-style deal, with no schedule entry, discloses nothing.

The cut-off date. Documents uploaded after the cut-off are outside the general disclosure. Sellers who keep uploading between signing and closing, without a bring-down of the disclosure letter, are creating a record of matters the buyer may later argue were known to the seller and not disclosed. The cut-off, the index and the archive copy must line up.

Knowledge versus disclosure. Even where the room is not deemed disclosed, what the buyer's team actually knew is a separate defence. If the QoE provider flagged a revenue-recognition issue in a draft the deal team read, the matter is known whether or not the seller scheduled it. Diligence reports, Q&A answers and the audit trail of who opened what all bear on knowledge.

Sellers: run the room as if every document will one day be read by a claims adjuster deciding whether you disclosed something. Name files honestly, keep the index current, freeze an archive at the cut-off, and route every buyer question through a moderated Q&A log; the due diligence data room checklist is the structure to start from. Buyers: insist on the archive copy and index at signing, keep your diligence reports, and treat the room's audit trail as part of the claim file from day one.

How do underwriters use the data room?

Underwriters price the buyer's knowledge, so they read what the buyer read. The process runs like this.

Submission. The broker sends the enterprise value, limit request, coverage sought and identity of the parties, plus, ideally, "marketing materials such as a bankers' book, confidential information memorandum or management presentation," the target's financial statements ("audited financials are preferred") and "the latest draft of the transaction agreement." The insurer returns a non-binding indication with a proposed limit, retention and premium.

Diligence review. Grosso, 2024: "Generally, we're contracting with the buyer, so we'll review all their diligence, have a call with them and their client, really understand the background of the transaction." That means every diligence report, the disclosure schedules and the Q&A record, cross-referenced to the representations. In North America, a 2023 participant noted, "underwriters are generally engaged only after a buyer has exclusivity" and there is often no seller-side diligence beyond a sell-side quality of earnings report.

Underwriting call. A call with the buyer and its advisers walking through each diligence area: what was looked at, what was found, what was not. A 2026 panelist said "underwriting now places increased weight on diligence quality and transparency." Do not spend the call explaining why a gap exists; say what it is and what you will do about it, or the underwriter writes it out as an exclusion.

Binding with conditions. Where an area could not be diligenced in time, the policy can bind with a conditional exclusion that lifts on post-binding diligence. For low-value areas not diligenced at all, a 2024 participant described "blind spot cover," available "only for areas that do expose a small quantum of loss" and only "if a robust disclosure exercise will be sufficient." That last clause means the insurer is relying on the data room to fill a hole in the buyer's diligence.

Everything on that list either comes from the data room or is the data room: the CIM, the financials, the diligence reports citing documents by index number, the Q&A log. An underwriting-quality room is what the underwriter reads through. What that looks like:

• A stable, numbered index that matches the one referenced in the disclosure letter and the diligence reports, so a report citing "3.2.14" points at the same document the claims team will pull two years later.
• Folder-level permissions by bidder group, so the record shows which bidder saw which documents, and a losing bidder's exposure to a sensitive contract is not confused with the winner's knowledge.
• A view log at document and page level, so the buyer can prove what it opened and when. The buyer needs it to show a problem was not known; the seller needs it to show the document was there by the cut-off.
• A moderated Q&A log, every question and approved answer in one exportable file. Seller answers in Q&A are disclosure; buyer questions are evidence of what the buyer was investigating.
• An archive at the cut-off date, downloadable in full, so "the data room as at signing" is a fixed artefact and not a live folder.

To be concrete about Peony: at Peony, a data room company serving 6,800+ customers, visitor groups give each bidder its own permission set down to the folder, page analytics record which pages each visitor opened and for how long, the audit trail timestamps every access, the moderated Q&A workflow holds every answer for review before it reaches a bidder and keeps the log exportable, and archive download on Deal Team freezes the room at the cut-off. Page analytics are on every plan including Free; Smart Q&A, dynamic watermarks and signed NDA are on Data Room at $52 per admin per month billed annually ($75 monthly); redaction and archive download are on Deal Team at $64 ($89 monthly, four-admin minimum); Business is $30 ($44 monthly); full pricing is public. The M&A data room guide covers structure and the Q&A guide covers moderation. None of that is a sales point about insurance; it is a point about evidence. The policy pays on an unknown breach, and the room is how both sides prove what was unknown.

When does RWI make sense versus an escrow, holdback or special indemnity?

RWI makes sense when the deal clears insurer minimums, the risks you are worried about are unknown rather than identified, and the seller's clean exit is worth more to both sides than the premium. It is not a substitute for targeted protection against a problem you can already name.

Grosso's 2024 description of the old world explains why the product won: setting aside "a significant portion of the purchase price in an escrow account" is "really an inefficient use of capital because that money is just sitting there," and RWI let sellers "take their money and walk away with certainty." The 2026 roundtable now describes "no-survival, no-indemnity outcomes for sellers, once limited to public deals," as "expected on most sell-side processes."

Two corrections. The escrow has not vanished: SRS Acquiom, whose 2026 M&A Deal Terms Study analyses "2,300+ private-target acquisitions, valued at $569 billion that closed between 2020 and 2025," notes that "RWI usage has been declining since its peak in 2021 as deal parties are taking a closer look at whether RWI is best suited to meet the specific needs of their transaction," and frames the product as adding "time and complexity to post-closing M&A claims." And the buyer still bears the retention, so a small escrow sized to the retention is a common compromise.

The decision tree I use: below roughly $25 million of enterprise value, RWI may not be available on economic terms, so negotiate the escrow; if the risks are identified, RWI will exclude them, so use a special indemnity, a specific escrow or a tax policy; if diligence cannot match the scope of the representations before signing, expect conditional exclusions and price them against a larger escrow; and if the seller demands no indemnity, RWI is the buyer's only recourse and the fight moves to the retention and to disclosure.

Where the price rather than the representations is uncertain, the tool is an earnout, not insurance; see how to structure an earnout.

What is the difference between sell-side and buy-side RWI?

A buy-side policy insures the buyer against the seller's breaches; a sell-side policy insures the seller against its own indemnity obligation. The buy-side form is the US norm and is what everything above describes. A sell-side policy sits behind an indemnity the seller has agreed to give: the buyer claims against the seller, the seller pays and recovers from its insurer. It is used where the buyer insists on a seller indemnity and the seller wants to cap its real exposure, or where a fund seller must distribute proceeds.

Under a buy-side policy the buyer controls the claim and the insurer waives subrogation against the seller except for fraud; under a sell-side policy the seller remains in the chain, its own knowledge is what is underwritten, and its fraud is uninsurable. In market practice, buy-side policies also typically outlast the survival period in the agreement, which the sell-side form cannot do because it responds only to what the seller owes.

In an auction the sell-side team usually arranges a buy-side policy in advance ("stapled" insurance): the seller's broker obtains indications, the winning bidder takes over the policy, and the process letter tells bidders to price on that basis. Choosing that adviser is part of picking the bank; see best M&A advisors.

What is different about W&I insurance in the UK and Europe?

Warranty and indemnity insurance is the same policy under a different name, but deal practice differs. Naming: RWI and R&W in the US; W&I in the UK, Europe, the Middle East and Asia-Pacific, with Euclid publishing its claims study in an RWI edition and an EMEA edition titled "Global Warranties & Indemnities Insurance ('W&I') Claims Study" with identical numbers. Disclosure: UK-style agreements commonly deem the data room disclosed against the warranties by reference to an agreed index and cut-off, so the room does the work the schedules do in a US deal, and sellers commonly give warranties on a nil-recourse basis beyond fraud. Claims mix: the EMEA edition of Euclid's 2025 study reports that tax claims "remain our most frequently cited representation, at nearly 40% of our claims," while financial-statements claims are only 16% of notices but the majority (62% in its Figure 9) of incurred loss, the same notice-versus-money gap as North America, only wider. The market is growing: Euclid received 1,151 EMEA and APAC W&I submissions in Q1 2026, its highest first quarter on record, has incurred nearly $200 million of EMEA loss, and reports that "just over 40% of all our open claims are on EMEA and APAC policies."

What does an RWI claim look like in numbers?

An illustration with invented, labelled numbers; nothing below is a quote or a market rate.

The deal. A sponsor buys a specialty-distribution business for $120 million of enterprise value at 8.0x adjusted EBITDA of $15 million, with a buy-side policy carrying a $12 million limit (10% of price) and a retention of 1.0% of enterprise value, $1.2 million, dropping to 0.5%, $600,000, after the period specified in the policy. The seller gives no indemnity beyond fraud, ran a moderated Q&A and archived the room at signing.

Claim one, month 9: a sales-tax assessment. A state audit assesses $900,000 of uncollected sales tax for the three years before closing. The tax representation is breached, the buyer did not know, and nothing disclosed the exposure. The $900,000 sits inside the $1.2 million retention, so the buyer bears it: the most common kind of notice in the studies, and no payment. The buyer still notifies, because the $900,000 erodes the retention, leaving $300,000 of the original $1.2 million.

Claim two, month 20: a revenue-recognition misstatement. The buyer's finance team finds that $1.5 million of the $15 million of adjusted EBITDA came from a rebate programme booked as revenue when it should have reduced cost of goods sold, a policy management had applied for years. The financial-statements representation is breached and the buyer claims diminution in value: 8.0x times $1.5 million, $12 million. The claims team runs the tests. Excluded? No. Known or disclosed? The rebate agreements were in the index at signing, so the seller argues disclosure. But the agreements did not say how rebates were booked; the Q&A log shows the buyer asked about rebate accounting and received an answer describing the policy incorrectly, and the page analytics show the buyer's team opened the agreements only before that answer. Not known. Multiple appropriate? Negotiated to 7.0x because not all the misstated EBITDA was recurring: $10.5 million of loss. The retention has dropped to $600,000 by month 20, and claim one already eroded $900,000, so nothing remains: the insurer pays the full $10.5 million, eleven months after notice.

What decided it. Not the wording; every clause was standard. The claim turned on whether the rebate accounting was known or disclosed, and that was decided by the archived index, the Q&A log and the view record. Reverse one fact, say the seller's Q&A answer had accurately described the policy and the buyer read it, and the same claim fails as a known matter; the seller's honest answer, on the record, is what protects the seller. RWI is a bet on the unknown; the data room is the record of the known.

Frequently asked questions

What is rep and warranty insurance?

Rep and warranty insurance (RWI, or R&W insurance) is a policy that pays the buyer in an M&A deal when a representation the seller made in the purchase agreement turns out to be untrue and the buyer suffers a loss. It replaces most or all of the seller indemnity and escrow. In practice the buyer is the insured: it claims against the insurer, not the seller, and the seller walks away with its proceeds. The policy covers unknown problems only; anything the buyer knew, or that was disclosed to it, is outside the policy. The same product is called warranty and indemnity (W&I) insurance in the UK, Europe and Asia.

How much does rep and warranty insurance cost?

The cost has three parts: a premium quoted as a percentage of the policy limit (the rate on line), a separate underwriting fee, and premium taxes or surplus-lines fees that vary by state. No insurer publishes a rate table; the rate is set deal by deal on size, retention, industry, the buyer and its advisers, and claims experience. Direction matters more than a stale range: Euclid Transactional, which describes itself as the industry's largest underwriter of transactional risk, reported in August 2026 that its North American premium rate in July 2026 was over 50% higher than in the summer of 2024. A larger retention earns a discount. Euclid's minimum limit is typically $5 million, its minimum retention around $300,000, and deals under $25 million often do not meet its minimum premium.

What does RWI not cover?

RWI does not cover anything the buyer knew about before signing or that was disclosed to it, because the policy exists for unknown breaches. It does not cover matters the buyer failed to diligence: an uninvestigated area draws an exclusion, or a conditional exclusion that lifts once the diligence is done. Known tax exposures go to a separate tax liability policy and known contingent risks to a special indemnity. Insurers also carry hard exclusions (Euclid lists targets with more than 30% thermal-coal exposure, non-ancillary US marijuana businesses, and sanctioned countries or persons) and scrutinise cyber, data use, AI and complex tax structures. Projections and amounts already recovered through a purchase-price adjustment are commonly excluded in US forms.

Does the data room count as disclosure under an RWI policy?

It depends on the purchase agreement. In UK-style agreements it is common for the entire contents of the data room, frozen at a cut-off date and identified by an agreed index, to be deemed disclosed against the warranties, so a document in the room can defeat a claim even if nobody on the buyer side read it. In US-style agreements only the disclosure schedules qualify the representations. Under either regime the insurer covers only unknown breaches, so the first questions on a claim are whether the matter was disclosed and whether the buyer knew. The data-room index, upload timestamps, Q&A answers and the diligence reports built on them are the evidence.

What is the difference between RWI and W&I insurance?

They are the same product under two names. RWI (or R&W insurance) is the US term; warranty and indemnity insurance (W&I) is used in the UK, Europe, the Middle East and Asia-Pacific, and Euclid Transactional and Marsh both treat the labels as interchangeable. The differences are in deal practice: in UK-style transactions the data room is commonly deemed disclosed against the warranties and the seller gives warranties with no recourse beyond fraud, so the policy carries the whole risk. Claims mix differs too: in Euclid's EMEA book, tax is the most frequently cited warranty at nearly 40% of claims, while financial-statement claims are 16% of notices but 62% of incurred loss.

How often are RWI claims made?

Between roughly one in seven and one in four policies receives a claim notice, depending on whose book you read. Euclid Transactional's 2025 Global RWI Claims Study reports 23 claim notices per 100 policies bound. AIG's 2023 M&A Claims Intelligence Series, covering 2012 to 2021, reports a claim on approximately one in six policies. Marsh's Transactional Risk Global Claims Report 2022, covering more than 1,100 claims notified from 2017 to 2021, reports 14% to 16% globally and 18% to 20% for North American policies matured at least three years. These are different portfolios over different windows and should not be averaged. A notice is not a payment.

What is the retention on an RWI policy?

The retention is the loss the buyer absorbs before the policy pays, and it works like a deductible. Euclid Transactional's published FAQ says retentions typically range from 0.5% to 1.0% of the target's enterprise value, depending on deal size, and often drop down to about 0.5% of enterprise value after a specified period. Its minimum retention is typically around $300,000; there is no maximum, and a larger retention earns a premium discount. Practitioners on Financier Worldwide's 2026 roundtable said average retentions have dropped significantly over the past five years, pushing the diligence materiality threshold down with them.

How long does an RWI policy last?

Market convention, rather than any published statistic, is that a buy-side policy covers breaches of general representations for around three years after closing and fundamental and tax representations for longer, commonly six years. Marsh's 2022 claims report treats policies as matured once the transaction closed at least three years ago, consistent with the shorter period for general reps. AIG's 2023 report notes a relatively large number of UK claims notified after 36 months, often tax related. In market practice, the policy period typically outlasts the survival period a seller would accept in an uninsured deal, which is one reason buyers accept the product.

Who pays for rep and warranty insurance, the buyer or the seller?

On a buy-side policy the buyer is the insured, but who funds the premium is a negotiated deal term. In a competitive auction the seller often expects the buyer to bear the cost as part of a bid that offers no or minimal seller indemnity. Where the seller pushed for the insurance to replace an escrow, the premium, underwriting fee and taxes are often split or netted against the price. The cost the seller almost always avoids is the capital cost of an escrow sitting idle for years; that is the trade the product was built around.

Does RWI replace an escrow or holdback?

Largely, for unknown breaches. The product was adopted so sellers could take their proceeds at closing instead of leaving a slice of the price in escrow for years, and practitioners now describe no-survival, no-indemnity outcomes for sellers as expected on most sell-side processes. It does not replace protection for known problems: a known tax exposure, pending lawsuit or disputed contract will be excluded and belongs in a special indemnity, a specific escrow, a price reduction or a separate tax policy. SRS Acquiom notes that RWI usage has been declining since its 2021 peak as deal parties look more closely at fit, so the escrow has not disappeared.

Can an insurer sue the seller after paying an RWI claim?

Generally no. On a buy-side policy the insurer typically waives subrogation against the seller except in cases of fraud. That waiver is why sellers agree to the structure: if a representation proves wrong the insurer pays the buyer and does not pursue the seller. Euclid Transactional's deputy chief underwriting officer has described seller fraud as the one exception where subrogation rights could be pursued, and noted that it is rare. A seller who knowingly gives a false representation is still exposed.

How does a data room help with an RWI claim?

Because the policy covers only unknown breaches, a claim is decided on what was in the room, when, and who opened it. At Peony, a data room company serving 6,800+ customers, page analytics show which documents each visitor opened and for how long, the moderated Q&A log records every answer the seller gave, and archive download on the Deal Team plan freezes the room at the cut-off date. Pricing is Free at $0, Business at $30 per admin per month billed annually ($44 monthly), Data Room at $52 ($75 monthly) with Smart Q&A, dynamic watermarks and signed NDA, and Deal Team at $64 ($89 monthly, four-admin minimum) with redaction and archive download. Peony is rated 4.8 on G2 and 4.9 on Capterra.

Related resources

• M&A process guide — where RWI sits from process letter to close
• M&A due diligence process guide — the workstreams the underwriter reads
• How to structure an earnout — when the price, not the representations, is uncertain
• Due diligence data room checklist — the structure behind a clean index and cut-off archive
• M&A advisor fees — what the rest of the deal costs
• Best M&A advisors — the bankers who run stapled-insurance processes
• Synergies in M&A — how the multiple behind diminution-in-value claims gets built