Cross-Border M&A Insurance: Warranty and Indemnity and Tax Liability Cover for Indian Acquirers

Indian outbound M&A activity has grown substantially over the past decade. According to Grant Thornton's Dealtracker data, Indian companies completed over 350 cross-border acquisitions in FY 2024-25, with a combined deal value exceeding USD 35 billion. Targets span North America, Europe, Southeast Asia, and Africa, across sectors including IT services, pharmaceuticals, auto components, steel, and renewable energy.

In the traditional M&A process, the seller provides warranties and representations about the target company's financial condition, legal compliance, tax position, material contracts, intellectual property, and other matters. If a warranty proves untrue and the buyer suffers a loss, the buyer claims against the seller under the indemnification provisions of the sale and purchase agreement (SPA). However, this traditional model creates several problems in cross-border transactions:

• The seller's indemnification cap is typically negotiated at 10-30% of the enterprise value, leaving the buyer exposed for losses exceeding the cap.
• The indemnification period is usually 12-24 months for general warranties and longer for fundamental and tax warranties, but many warranty breaches do not manifest within these periods.
• In competitive auction processes, a buyer who demands extensive warranty protection is at a disadvantage against buyers who offer cleaner terms.
• In private equity exits, the seller (a PE fund) may be distributing proceeds to its limited partners and may resist retaining indemnification obligations.

Warranty and Indemnity (W&I) insurance addresses these problems by transferring the warranty risk from the seller (or the buyer's claim against the seller) to an insurer. In a buy-side W&I policy (the most common structure), the buyer purchases a policy that covers losses arising from breaches of the seller's warranties in the SPA. If a warranty breach occurs, the buyer claims against the insurer rather than (or in addition to) the seller. The insurer pays the loss up to the policy limit, subject to the policy's retention (deductible) and exclusions.

For Indian acquirers, W&I insurance has shifted from a niche product to a mainstream deal tool. Indian PE firms, including Premji Invest, ChrysCapital, and Kedaara, and corporate acquirers such as Tata Group companies, Mahindra, and Cipla, have used W&I insurance in cross-border transactions. The Indian W&I market is still developing, with most policies placed through London or Singapore specialist underwriters, but Indian insurers and brokers are building capability in this space. ICICI Lombard and HDFC Ergo have participated in W&I placements as co-insurers alongside London leads, and specialized Indian brokers are developing W&I advisory practices.

A buy-side W&I policy is structured around the warranties and representations in the SPA. The policy attaches to the specific warranties that the seller provides, and the coverage scope is defined by reference to the SPA text rather than a standalone insurance policy wording. This means the W&I policy is inherently deal-specific, and the underwriting process involves a detailed review of the SPA, the target's due diligence materials, and the deal dynamics.

The policy limit (the maximum amount the insurer will pay) is typically set at 10-30% of the enterprise value, matching the seller's indemnification cap in the SPA. For a cross-border acquisition with an enterprise value of USD 100 million, a W&I policy with a limit of USD 20 million is common. The policy can be structured with a higher limit, but premiums increase proportionally and underwriter appetite may be constrained for very large limits.

The retention (deductible) is the amount that the buyer must absorb before the policy responds. The retention is usually set at 0.5-1% of the enterprise value, though this varies based on the deal size, the risk profile of the target, and market conditions. For the USD 100 million deal, a retention of USD 500,000 to USD 1 million is typical. Some policies include a de minimis threshold below which individual claims are not counted toward the retention, and a tipping basket mechanism where once the aggregate claims exceed the retention, the insurer covers the full amount from the first dollar (or from the de minimis threshold).

Coverage is divided into fundamental warranties and operational warranties. Fundamental warranties (title to shares, authority to sell, no insolvency) typically receive the broadest coverage, with a longer survival period (often matching the statute of limitations, up to seven years). Operational warranties (accuracy of financial statements, compliance with law, condition of assets, adequacy of insurance, employment matters) receive standard coverage with a survival period matching the SPA indemnification period (typically two to three years).

Exclusions in a W&I policy are deal-specific and reflect the findings of the underwriter's due diligence review. If the buyer's due diligence identified a specific tax risk (for example, an ongoing transfer pricing assessment by the Indian tax authorities targeting the target's subsidiary), the W&I underwriter will typically exclude this known risk from coverage. Known risks, meaning issues identified in due diligence that the buyer is aware of at the time of policy inception, are generally excluded. The W&I policy is designed to cover unknown breaches of warranty, not risks that the buyer has already identified and accepted.

The policy is governed by its own law (typically English law or the law of the SPA's governing jurisdiction) and disputes are typically resolved through arbitration. For Indian acquirers, the choice of governing law for the W&I policy should be aligned with the SPA's governing law to avoid conflicts in claim interpretation.

Tax liability insurance is a related but distinct product that covers specific, identified tax risks associated with the acquisition. While W&I insurance covers unknown warranty breaches, tax liability insurance covers known or quantifiable tax exposures that the buyer wants to ring-fence.

In cross-border M&A involving Indian acquirers, common tax risks that lend themselves to tax liability insurance include transfer pricing disputes at the target company (where an ongoing assessment or a structural transfer pricing position creates an exposure that is quantifiable but uncertain in outcome), permanent establishment (PE) risk (where the target's activities in a specific jurisdiction may create a PE for tax purposes, triggering a tax liability that has not been provisioned), withholding tax positions (where the target has applied a treaty-based reduced withholding rate on royalties, dividends, or fees that the tax authority may challenge), and historical tax positions (where the target has taken a filing position that is technically defensible but creates a risk of reassessment).

For Indian companies acquiring targets in Europe or the US, tax liability insurance has become particularly valuable for addressing the following scenarios. Scenario one: an Indian pharma company acquires a US generics company. The US target has a transfer pricing arrangement with its Irish subsidiary that allocates significant profit to Ireland. The arrangement is supported by a transfer pricing study, but the IRS may challenge the allocation. The exposure is estimated at USD 15-25 million. A tax liability insurance policy covers this specific risk, with a premium of 3-5% of the coverage limit.

Scenario two: an Indian IT company acquires a UK software company. The UK target has been claiming R&D tax credits under the SME scheme, but an HMRC enquiry suggests the target may not qualify as an SME due to the ownership structure. The potential clawback is GBP 3-5 million. Tax liability insurance covers the clawback risk.

Scenario three: an Indian conglomerate acquires a German manufacturing company. The acquisition triggers a change-of-control provision in the German Trade Tax Act that could reduce the target's tax loss carryforwards. The value of the at-risk carryforwards is EUR 8 million. Tax liability insurance covers the loss of the carryforwards if the tax authority applies the change-of-control provision.

Pricing for tax liability insurance varies based on the nature of the risk, the jurisdiction, the quantum of exposure, and the strength of the legal opinion supporting the target's tax position. For well-supported positions with a reasonable probability of success, premiums typically range from 2-5% of the coverage limit. For more aggressive positions, premiums can reach 8-12%. The policy period is typically seven years, matching the statute of limitations for tax assessments in most jurisdictions.

Indian acquirers should consider tax liability insurance early in the deal process, ideally during the due diligence phase, because the underwriting process requires access to the target's tax filings, opinions, and correspondence with tax authorities. Waiting until the SPA is nearly signed compresses the underwriting timeline and may result in less favorable terms.

W&I insurance pricing has evolved significantly over the past five years, with increasing competition among underwriters driving premiums down from historical levels. For Indian cross-border acquisitions, pricing depends on the deal size, the target's jurisdiction, the industry sector, the scope of coverage, and the market conditions at the time of placement.

As of early 2026, W&I premium rates for well-diligenced cross-border acquisitions by Indian buyers typically fall in the following ranges. For targets in the US and Canada, premiums range from 1.0-1.5% of the policy limit (rate on line, or ROL). A USD 20 million policy on a US target would cost USD 200,000 to USD 300,000 (approximately INR 1.7-2.5 crore). For targets in Western Europe (UK, Germany, France, Nordics), premiums range from 0.8-1.3% ROL. For targets in Southeast Asia, premiums range from 1.2-2.0% ROL, reflecting the less mature due diligence standards and regulatory environments in some ASEAN countries. For targets in India (where the Indian buyer is also using W&I for a domestic acquisition), premiums range from 1.5-2.5% ROL, as the Indian market is still developing and underwriter familiarity with Indian legal and tax frameworks is more limited.

The retention (deductible) affects the premium. A standard retention of 1% of enterprise value attracts the base premium rate. A higher retention (1.5-2%) can reduce the premium by 10-20%. A nil retention (where the insurer covers from the first dollar) is available but increases the premium by 30-50% and may not be available from all underwriters.

Several factors can increase the premium above the base rate. High-risk sectors (pharmaceuticals, chemicals, mining) attract loadings of 10-30% due to the higher probability of environmental and regulatory warranty breaches. Targets with complex tax structures (multi-layered holding companies, significant related-party transactions) attract loadings for tax risk. Targets in litigation-heavy jurisdictions (the US) attract higher rates than targets in less litigious markets. Deals where the buyer's due diligence has been limited (compressed timelines, restricted data room access) attract significant loadings, as the underwriter faces greater uncertainty about the target's risk profile.

For Indian acquirers, the W&I premium should be evaluated not as an isolated cost but as a component of the deal's risk management framework. On a USD 100 million deal, a W&I premium of USD 200,000-300,000 represents 0.2-0.3% of enterprise value, a modest cost to secure USD 20 million of protection against unknown warranty breaches. When compared to the alternative (negotiating a higher seller indemnification cap, which may not be achievable in a competitive auction), W&I insurance is often the more cost-effective and deal-friendly solution.

Indian companies should also consider the tax treatment of the W&I premium. Under Indian tax law, the W&I premium is a deal cost that is typically capitalised as part of the acquisition cost and adds to the buyer's tax basis in the target's shares. It is not deductible as a revenue expense in the year of payment. The accounting treatment under Ind AS 103 (Business Combinations) also requires the premium to be treated as an acquisition cost rather than an operating expense.

Successful W&I placement requires integration into the M&A process timeline from an early stage. Indian acquirers who attempt to obtain W&I coverage at the last minute, after the SPA has been agreed and the deal is about to close, face compressed underwriting timelines, reduced insurer competition, and potentially unfavorable terms.

The optimal timeline for W&I placement in a cross-border acquisition is as follows. Week one to two of the deal process (post-LOI or term sheet): the buyer engages a specialist W&I broker and provides preliminary deal information (target industry, jurisdiction, estimated enterprise value, deal structure). The broker prepares a non-binding indication (NBI) from two to four underwriters, providing indicative pricing, retention levels, and coverage terms. This NBI allows the buyer to incorporate W&I into its financial model and SPA negotiation strategy.

Week three to six: as the buyer's due diligence progresses, the broker shares the SPA draft, due diligence reports, and data room index with the selected underwriter. The underwriter conducts its own review of the due diligence materials (known as the "underwriting call" process) and identifies any issues that may result in exclusions or coverage limitations. The underwriter issues a formal underwriting report and a draft policy wording.

Week six to eight: the buyer and the broker negotiate the policy terms, including the scope of coverage, the retention, any deal-specific exclusions, and the policy limit. The SPA is finalized with the W&I policy reflected in the indemnification provisions (typically reducing the seller's indemnification obligations to match the W&I coverage). The underwriter provides a binding quote.

Closing: the W&I policy is bound simultaneously with the closing of the acquisition. The premium is paid at closing (or within an agreed period post-closing). Coverage attaches as of the closing date and continues for the survival period specified in the policy (typically the same as the SPA warranty survival period for each category of warranty).

For Indian acquirers, two practical considerations affect the timeline. First, the W&I underwriter will want to see the buyer's due diligence reports in English, even if the target is in a non-English-speaking jurisdiction. Translating German, French, or Portuguese due diligence reports adds time and cost. Second, the underwriting call (a conference call between the underwriter, the buyer's deal team, and the buyer's legal and financial advisors) requires coordination across time zones. For an Indian acquirer buying a US target, the underwriting call typically needs to accommodate participants in IST, EST/PST, and London time zones.

Deal exclusivity and competitive dynamics also affect W&I timing. In a competitive auction where multiple bidders are competing, the buyer that has W&I insurance pre-arranged can offer cleaner deal terms (lower seller indemnification, shorter survival periods) that make its bid more attractive to the seller. Indian acquirers competing against PE firms that routinely use W&I should match this capability to avoid being disadvantaged in the bid process.

The value of a W&I policy is ultimately tested when a warranty breach occurs and the buyer files a claim. Understanding the claims process, the typical claim types, and the success rates helps Indian acquirers set realistic expectations.

Industry data from major W&I underwriters indicates that approximately 18-25% of W&I policies result in a notification (the buyer informing the insurer of a potential warranty breach) within the first three years of the policy period. Of these notifications, approximately 60-70% result in a paid claim. The most common claim categories are breaches of financial statement warranties (inaccurate or incomplete accounts), tax warranties (undisclosed tax liabilities or incorrect tax positions), compliance with law warranties (regulatory violations that were not disclosed), and material contract warranties (undisclosed breach of or issues with key customer or supplier contracts).

The claims process under a W&I policy is relatively straightforward but requires diligent documentation. When the buyer discovers a potential warranty breach, it must notify the insurer within the notification period specified in the policy (typically 30-60 days of becoming aware of the breach). The notification should describe the breach, the warranty affected, the estimated loss, and the evidence supporting the claim. The buyer must then cooperate with the insurer's investigation, which may include the insurer engaging its own legal counsel and forensic accountants to verify the breach and quantify the loss.

The insurer has the right to control or participate in the defence of any underlying claim against the buyer (for example, if the warranty breach relates to a third-party claim against the target company). This is analogous to the insurer's right to control defence in a standard liability policy. Indian acquirers should negotiate the policy's claims cooperation provisions carefully, ensuring that the buyer retains a meaningful say in settlement decisions for claims that affect the target's ongoing business.

Claim settlement timelines vary. Simple claims involving quantifiable financial losses (such as a tax assessment) may be settled within three to six months of notification. Complex claims involving disputed facts, multiple warranty breaches, or interrelated issues may take 12-24 months. Indian acquirers should factor this timeline into their post-acquisition planning and ensure that the target company's management team cooperates fully with the claims process.

The policy's definition of 'buyer's knowledge' (whether it is limited to the deal team's actual knowledge or extends to constructive knowledge based on information available in the data room) is a critical negotiation point that Indian acquirers must address during policy placement.

While the W&I market in India is less mature than in the US and Europe, the use of W&I insurance in domestic Indian M&A transactions is growing, driven by PE exits, family business succession sales, and transactions where the seller's financial strength to back indemnification is uncertain.

The challenges of placing W&I for domestic Indian targets include the relative unfamiliarity of Indian legal concepts among international W&I underwriters, the complexity of Indian tax law (particularly indirect tax provisions under GST and direct tax provisions on capital gains), the prevalence of contingent liabilities (pending litigation, tax assessments, regulatory proceedings) at Indian companies, and the quality of Indian corporate due diligence, which may not meet the standards expected by London or Singapore underwriters.

Despite these challenges, several transactions in the Indian market have successfully used W&I insurance. Notable examples include PE-to-PE secondary buyouts where the exiting fund uses W&I to provide a clean exit, family-to-PE transactions where the family sellers are unwilling to provide extensive post-closing indemnification, and public-to-private transactions where the delisting structure limits the availability of post-closing warranty recourse against the former public shareholders.

For Indian companies acquiring targets in other emerging markets, such as Southeast Asia, Africa, or Latin America, W&I insurance serves a particularly valuable function because the seller's ability to honour indemnification obligations may be uncertain, the legal framework for warranty claims may be undeveloped, and cross-border enforcement of indemnification claims is difficult and expensive. W&I insurance transfers the warranty risk to a creditworthy insurer, removing the need to pursue the seller across jurisdictions.

The premium rates for emerging market targets are typically 20-50% higher than for US or European targets, reflecting the underwriter's perception of higher risk. However, the absolute premium remains modest relative to the deal value and the protection provided. An Indian company acquiring a Southeast Asian manufacturing company for USD 50 million might pay a W&I premium of USD 150,000-250,000 (INR 1.25-2.1 crore) for a USD 15 million policy, providing meaningful protection against warranty breaches that would otherwise require pursuing a seller in a foreign jurisdiction with uncertain legal enforcement mechanisms.

Looking ahead, the Indian W&I market is poised for significant growth. IRDAI has signaled its interest in developing the transactional risk insurance market in India, and GIFT City's IFSCA regulations already permit IFSCA-registered insurers to underwrite W&I policies. As Indian insurers build underwriting expertise in transactional risk, pricing for Indian domestic W&I is expected to converge toward international levels, making the product accessible to mid-market deals where it is currently used less frequently.