Warranty and Indemnity

Written by Matthew Wood

Key developments in 2025

We predicted last year that W&I insurers would continue to see an uptick in claims activity in 2025, driven by the dealmaking boom in the latter stages of the Covid-19 pandemic and by growing sophistication in the use of the product. That prediction has been borne out, with many carriers seeing a significant increase in notifications. Most frequently implicated have been financial statements and tax warranties, with the former in particular driving claim severity, due in part to the potential for multiplied losses.

Our prediction of increased deal volumes in 2025 was rather less "on the money", with continuing geopolitical and economic headwinds causing many purchasers to keep their powder dry. Tariffs, stubbornly high interest rates, and capital allocation challenges (in the age of AI) have all played a part.

In the short term, the downward pressure on transaction volumes has driven a highly competitive market and increasingly flexible coverage (e.g. enhancements such as non-disclosure of due diligence reports and data rooms, always most prevalent in the US, becoming increasingly common globally). But when viewed through a wider lens, the W&I market is mature, well-capitalised, and in a prime position to benefit as the transaction cycle turns (see below).

As far as legal developments are concerned, following the Finsbury Food and Project Angel Bidco judgments in favour of W&I insurers in 2023 (the latter upheld on appeal in 2024, as covered in last year's update), we are not aware that any W&I insurance claims went to trial in the English courts in 2025. The overwhelming majority of valid claims have continued to be resolved commercially, with litigation rare. This is a clear sign that W&I insurance works and is increasingly well embedded in deal flows, for corporate as well as financial buyers.

What to look out for in 2026

Whilst geopolitical uncertainty makes predictions challenging, it would not be surprising if the market trends described above (i.e. muted transaction volume, coupled with high notification volume) were to flatten out in 2026.

In key jurisdictions, inflation has continued to fall and interest rates are on a downward path, which could provide fresh impetus for M&A markets. Meanwhile, policies issued during the pandemic "M&A rush" in 2021 and early 2022 will largely have expired, insofar as general warranties are concerned. With 2023 and 2024 having been quieter years for dealmaking (and where the lion's share of notifications are made within two years of completion), a stabilisation of notification volume is possible, although we would not bet against W&I claims teams remaining busy.

Our analysis last year highlighted the rapid adoption of generative AI tools and their likely impact on the M&A market and the W&I insurance market. We expect those trends to continue to develop. Many companies acquired in 2026 will have implemented AI tools formally (and some will be AI-centric and valued as such), but the possibility of unauthorised use of public AI tools (and associated risks, including data protection and "hallucination" risks) must also be reckoned with. Those areas will require careful diligence. On the other hand, guided deployment of large language models may streamline the underwriting process itself.