W&I Insurance in Africa: challenges and recent developments

• What is W&I insurance and why use it?

Warranty & Indemnity (W&I) insurance is an insurance product used in M&A transactions to cover losses arising from breaches of warranties or indemnities in a share purchase agreement. While the policy can be taken out by sellers or buyers, in practice, buy‑side cover widely prevails. In that structure, the buyer claims directly against the insurer if a covered breach occurs, instead of seeking recovery from the seller. The policy is designed to replace traditional contractual protections by shifting financial risk from seller to insurer.

The advantages are for both parties. For sellers, W&I insurance allows a “clean exit”, as the seller’s liability under the SPA is often capped to a nominal amount (e.g. EUR 1). The product is especially attractive where the seller’s ability to grant indemnities is constrained – for example PE funds or minority shareholders not involved in day‑to‑day management.

For buyers, W&I offers a more secure / streamlined recourse mechanism. It allows them to seek indemnification from established insurers rather than to engage in costly litigation against potentially insolvent sellers located in remote jurisdictions. Because the risk is shifted to the insurer, sellers tend to accept a broader set of representations and warranties. Also, buyers tend to benefit from higher caps and longer survival periods (which are negotiated directly with the insurer).

• Why has the use of W&I insurance historically been limited in Africa?

Until very recently, many African transactions were viewed as virtually uninsurable from a W&I perspective (other than in a few common law jurisdictions. Several structural factors explain this limited take‑up.

First, insurers’ appetite was limited in a number of African countries and cover was simply unavailable in countries perceived as high risk or subject to sanctions. Outside a short list of more familiar markets (in particular South Africa), cover was typically only available only on a deal‑by‑deal basis.

Also, early policies often contained significant gaps in coverage. Insurers used to carve out entire categories of risk – notably tax (given the perceived unpredictability of tax administrations in some jurisdictions), transfer pricing, foreign exchange, environmental matters, compliance and anti‑bribery issues, and expropriation. Disclosed risks are also excluded from cover under general insurance law principles. This partial cover leaves many risks on the sellers and largely defeats the commercial purpose of the insurance.

Regulatory and market factors compounded these limitations. In many jurisdictions there is no specific regulatory framework for W&I insurance, requiring deals to be underwritten in London or Paris. Local insurers, focused on more traditional segments, have also historically shown little interest in these transactional products.

Finally, low market awareness meant M&A practitioners remained attached to traditional risk‑allocation tools and rarely considered W&I as a credible alternative.

• Recent trends and impact on African M&A practice

In the last few years, we have seen a growing number of international insurers prepared to underwrite African risk, driven in part by slower growth and increased competition in mature markets. Africa has become an attractive lever for developing transactional risk business, with premium levels that remain comparatively appealing.

Territorial appetite has expanded beyond early “core” jurisdictions to include, for example, Morocco, Nigeria, Côte d’Ivoire, Senegal, and other West African jurisdictions. Even though some countries remain off‑limits, insurers are increasingly willing to consider coverage for risks and jurisdictions previously viewed as uninsurable.

In parallel, awareness of W&I products among dealmakers is rising, and insurers are differentiating themselves through policy enhancements (often in return for additional premium and targeted due diligence). By contrast, more specialized solutions like contingent risk, title or standalone tax insurance have so far seen much more limited take‑up.

These developments are starting to reshape how M&A negotiations are conducted on the continent. Where W&I is used, negotiations tend to become more streamlined and less emotional. The focus shifts away from purely distributive arguments over caps and time limits towards a discussion on the coverage of residual, uninsured risk (including through specific indemnities).

Sellers increasingly engage W&I brokers early in the process, using draft SPAs and differentiated sets of representations to test insurers’ appetite and identify coverage gaps.

The use of W&I has finally influenced some civil‑law practices, including for instance through a broader acceptance of data‑room‑based disclosure (data room exonératoire) and the reliance on specific indemnities to cover known risks.

• Remaining challenges

Despite this positive momentum, significant challenges continue to limit the broader use of W&I insurance in African M&A. Pricing remains higher than in more mature markets: premiums around 1.5% to 3% of transaction value are still common, compared with sub‑1% levels often seen in Europe.

A further constraint is the relatively low level of familiarity with W&I products among local players and the lack of regulatory framework limits the use of W&I for pure domestic transactions.

Finally, while progress has been made, certain jurisdictions and sectors are still difficult to insure, and key risks may be only partially covered or excluded altogether.

These structural constraints mean that W&I insurance, although increasingly influential, is not yet a universal solution, and the practice has still room to grow in Africa.