Last year has been a busy time in terms of warranty & indemnity insurance for the CEE market, according to W&I Insurance Broker and Advisor and former M&A lawyer Gergely Juhasz.
"A few years back I was the only lawyer from CEE who worked on the global W&I insurance market in London – already having a good knowledge of the CEE M&A market due to my Hungarian legal background," Juhasz begins. "However, ten years ago, W&I insurance was seldomly applied in CEE, compared to the other parts of the world." This trend, according to Juhasz, has now changed – "these days lawyers and investors are increasingly recognizing the benefits of insuring transactions, and in the last few years, the number of deals submitted to insurance has multiplied. There is more interest in W&I insurance everywhere in the CEE than before and I am very happy to see a greater professional interest by lawyers and ex-lawyers alike in legal indemnities insurances."
"RFB Consulting is an advisory entity working as part of UlysseRe for the actual placement of W&I insurance. Together with UlysseRe, we also co-operate with other insurance brokers who do not have their own W&I teams – such as HunInsurance in Hungary, or GrECo in Austria, to mention a few in the CEE. Through broker partners and directly, we are active in all countries in Europe, but among them, we have core markets in Austria, Poland, Hungary, Slovakia, Slovenia, Romania, and the Czech Republic," Juhasz explains. "W&I insurance is applied for both real estate and corporate takeovers but the W&I insurance market is slightly different locally in every country. We work mainly on real estate transactions in, for example, Poland and Hungary, while in Slovenia we are more active on corporate deals." According to him, "this can be explained by local factors such as the structure of the economy and the regulatory environment, but the general investment climate is very positive across the CEE these days for insuring both real estate and corporate takeovers."
Juhasz explains that the increased use of W&I insurance "is accelerated by CEE investors and lawyers becoming more aware of these kinds of products over time. The global transactional liability insurance market has grown and more insurers can underwrite risks in the CEE region. One of the benefits of the product is that it reduces both country and legal forum risks, provides a clean exit for the sellers, and increased protection for buyers," he adds. "A seller wants to incur as few liabilities as possible but avoid the loss of purchase price. In some instances, a state entity or disrupted seller is not even in a position to warrant for their assets. For the buyers, the greatest benefit is that they can have recourse against the insurer when they have concerns about the financial strength of the seller or the targeted company."
Juhasz notes that negotiation is a key element in obtaining a good W&I insurance policy. "The placement of the insurance is almost subject to the same level of complex negotiations as an asset- or share purchase agreement – it is a lengthy process, but working with the right broker makes the lawyers' jobs easier," he adds, explaining that insurers underwrite the risk but brokers manage the clients directly or work with referrals from law firms. "The more general trend is to have a good relationship with law firms as they understand the product better and can make more competent referrals on a deal-to-deal basis," he notes.
Juhasz believes that this pattern is bound to continue. "There is still optimism in global markets about the CEE," he notes. "Of course, with the rise of competition, the insurance services are becoming more sophisticated with time to reflect market demands for different pricing and coverage options." According to him, despite the pandemic and the crisis in Ukraine, insurers are still continuing to be more comfortable with underwriting risks in CEE. "The claims’ question is always relevant to our industry," he adds. "With the expansion of W&I insurance, more claims will be presented and other types of liability products are also likely to become popular, including tax, contingent liability, and environmental insurance. The M&A landscape suggests that not only global investors are coming to CEE, but the CEE investors are also going global, and we also aim to assist the latter with their global ambitions," he concludes.