Unlocking Cross-Border M&A Opportunities: The Strategic Role of W&I Insurance for Chinese Investors in the UK

Understanding warranty and indemnity insurance for Chinese investors in UK M&A deals

As Chinese investors continue to pursue outbound investment opportunities, the UK remains an attractive destination, particularly in sectors such as renewable energy, consumer, infrastructure, manufacturing and real estate. Yet, cross-border M&A transactions in the UK often involve unfamiliar legal concepts and market norms that can make deal execution challenging.

One such concept is Warranty and Indemnity (W&I) Insurance—a tool that has become increasingly common in UK and European M&A transactions but is still relatively underutilised or misunderstood by many Chinese buyers. Greater awareness and strategic use of W&I insurance could unlock significant opportunities for smoother, more competitive deals.

What Is Warranty and Indemnity (W&I) Insurance?

W&I insurance is a specialised insurance policy that covers financial losses arising from breaches of warranties and indemnities given in a share or asset purchase agreement. There are two main types of policies:

• Buy-side policies, where the buyer is the insured party and can claim directly from the insurer in case of a breach of warranties or indemnities under the share purchase agreement (SPA);
• Sell-side policies, where the seller takes out the policy to protect themselves against claims by the buyer for breach of warranties or indemnities. The buyer brings claims against the seller, rather than directly against the insurer (less common in the UK market today).

Typical coverage includes breaches of warranties relating to financial statements, compliance, tax, and key contracts. However, policies also include standard exclusions (e.g., known issues, forward-looking statements, or fraud).

Why (W&I) Insurance Matters in UK M&A Deals

W&I insurance plays a crucial role in facilitating UK M&A transactions, especially in competitive or auction processes. Here’s how it can support Chinese buyers:

• Clean exit for sellers: UK sellers—particularly private equity funds—often insist on limited post-completion liability. W&I allows the buyers to get recourse without requiring the sellers to give extensive warranties or indemnities.
• Improved competitiveness: Buyers who offer a “clean” deal structure backed by W&I are often more attractive to sellers, especially in a bid process.
• Simplified negotiations: It helps avoid prolonged negotiations over liability caps, escrow accounts, and holdbacks, reducing transaction friction.
• Post-completion certainty: Claims can be made directly against the insurer (usually rated and regulated), providing buyers with greater enforcement confidence.

Common Misunderstandings among Chinese Investors

Despite its benefits, W&I insurance is often overlooked or misunderstood by Chinese acquirers. We have observed several recurring misconceptions:

Perception that W&I insurance is optional or only for large deals

In reality, W&I insurance is becoming standard in mid-market transactions. From our experience, parties of the transactions with the size of £25 million to £100 million tend to use the W&I insurance more frequently;

Concerns over cost and complexity

Total costs for W&I Insurance include:

• Insurance premium: depending on the size, complexity of the deal, the nature of the target business, the premium is typically in the region of 1%–2% of the policy limit. Policy limit refers to the maximum amount that insurers will pay for insured policy claims over the policy excess. It is usually expressed as a percentage of the total transaction value. The percentage will vary depending on the amount of cover required but is often between 10% and 40%.
• Underwriting fee: this is a fixed non-refundable fee paid to the insurer and its legal or financial advisers to review due diligence and draft policy, typically in the region of £15,000.
• Broker fee: depending on the broker, some are remunerated on the basis of broker commission (i.e. a percentage of the premium), whilst others charge a flat fee;
• Taxes: insurance premium tax (IPT) in the UK is currently 12% and applies to the premium.
• Optional add-ons: this will include, for instance, buyers purchase top-up coverage (e.g. top-up for fundamental warranties).

While there is a premium and underwriting process, the cost is often offset by smoother negotiations and risk mitigation.

Unfamiliarity regarding underwriting process

In broad terms, the underwriting typically follows the following process:

1. Broker engagement. Brokers approach multiple insurers to obtain non-binding indications (NBIs) of terms, pricing and risk appetite;
2. Insurer selection. Buyers (in the case of buy-side policy) select a preferred insurer and the formal underwriting process is initiated with underwriting fees agreed;
3. Underwriting review. Insurers review the buyers’ due diligence reports, access virtual data room, circulate underwriting questionnaires and review responses, follow-up calls with relevant parties (buyer or its advisers) to iron out any outstanding issues (if required) and then issue draft policy. Formal underwriting calls via video or in-person is not the norm any more in the UK market. The calls may be arranged when there are sticking points that the insurers seek clarification on but it is not an essential formal step that follows particularly formal format.
4. Policy wording agreed and signed by the insured and the insurer.

Unfamiliarity with the claim process

Claim enforceability could be a concern for Chinese investors. However, in practice, W&I policies are underwritten by reputable global insurers with strong claims track records.

Practical Considerations for Chinese Investors

To approach and navigate the W&I insurance strategically, there are a few tips that could be of help for Chinese investors:

• Engage brokers early: A specialist M&A insurance broker can guide the investors through policy selection and pricing, often within a week or two. It is therefore useful to engage with a few insurance brokers early to understand their speciality and experience as some may find better offers than others. Depending on sectors of the target business, it may be the case that there are limited appetite in the market and if the buyers are based in mainland China, this may further narrow down the competitive offers available to the buyers. Engaging with multiple insurance brokers may help get the best insurance coverage as the brokers compete to achieve the best outcome for the buyers.
• Ensure robust due diligence: Insurers rely heavily on the buyers’ due diligence. High-quality legal, tax, and financial reviews are essential for coverage. Insurers will also want to have clear idea of the materiality of certain aspects of the legal due diligence, as policy de minims (small claim threshold) will be determined by the materiality threshold indicated in the legal due diligence report. To obtain a cost-effective coverage that offers necessary protection to the key focus of the buyers. The buyers need to work out before the commencement of legal due diligence what their focuses are and to what extent that would like the legal due diligence to be conducted. In addition, insurers will typically indicate their underwriting focuses in the NBI.
• Coordinate timelines: The underwriting process typically runs in parallel with deal negotiations. The buyers should factor this into their transaction planning. The whole process may last around 3–4 weeks.
• Work with experienced advisers: Legal teams with experience in UK W&I processes can ensure efficient negotiations and appropriate policy coverage.

Strategic Tips for Chinese Buyers

• Be proactive – Discuss W&I insurance options with experienced advisers at the term sheet stage and build this step in the term sheet and the transaction timeline.
• Understand target business and buyers’ key focuses on due diligence – materiality threshold of legal due diligence will determine small claim threshold of W&I insurance policy.
• Understand UK sellers expectations – Clean exits are the norm in the UK.
• Think globally – W&I insurance is an international norm; using it signals credibility and deal-readiness.
• Don’t overlook small-to-mid-size deals – Deals above £10 million will benefit from W&I solutions.

W&I insurance is not just a legal tool, it is a strategic enabler in cross-border M&A. For Chinese investors looking to expand in the UK, understanding and utilising W&I insurance wisely can offer a competitive edge, reduce deal risks, and help close transactions with greater confidence and efficiency.

How we support Chinese investors

Our dedicated China service team is uniquely positioned to support Chinese investors throughout the M&A lifecycle in the UK. With deep experience advising on complex cross-border transactions, we understand the commercial, regulatory, and cultural dynamics that shape Chinese outbound investment. We have successfully guided Chinese buyers through the strategic use of W&I insurance, helping them mitigate risk, meet seller expectations, and close deals efficiently. By combining legal expertise with local insight, we ensure our clients are well-prepared, competitive, and protected in international M&A transactions.