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W&I Insurance in Korea: The Rising Demand for W&I Insurance in the Korean Market

2025.12.01

Introduction
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Warranty and Indemnity Insurance (W&I Insurance) or Representations and Warranties Insurance is a tool that allows the parties to an M&A transaction to transfer the risks arising from breach of representations and warranties in the transaction document (e.g., share sale and purchase agreement) to an insurance company.  It is used in various types of deals in Korea whether it be domestic or cross border M&As, private equity exits, investment, etc., and the demand and interest in such W&I Insurance is increasing in the Korean market as parties to transactions are finding it to be a cost-effective alternative to traditional measures used to hedge risks involved with M&A transactions, such as escrow, purchase price adjustments, or guarantees from affiliated companies.   
 
With the growing demand and use of W&I Insurance in the Korean market, we will take a look at the overall history of W&I Insurance in the Korean market, the benefits of using it, the key considerations, and lastly, the market trends in Korea.  </div>
 
 
1. Overview of W&I Insurance in the Korean Market

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W&I Insurance was first introduced to the Korean market around the late 2000s, but uptake was initially rather slow as sellers and buyers in Korean transactions were unfamiliar with the concept and therefore did not feel the need to utilize it in their transactions.  The fact that there was an overall lack of reputable insurers and underwriters in the market to facilitate W&I Insurance at the time was also a contributing factor to the initial slow uptake.   
 
By about the mid-2010s, W&I Insurance became more and more utilized in Korean transactions.  Initially used in larger cross border transactions that were led by big private equity firms, the use of W&I Insurance in Korea had expanded to pure domestic transactions as well as smaller transactions, and even for acquisitions of minority interests.  The overall increase in reputable international insurers and underwriters such as AIG, Chubb, Allianz, and even Korean insurers such as Dongbu have facilitated the increase in the utilization of W&I Insurance in Korean transactions.  </div>
 
 
2. What are the Benefits of W&I Insurance?

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W&I Insurance helps facilitate the smooth closing of a transaction by providing protection to both buyers and sellers in a transaction as certain risks involved with potential breaches of representations and warranties set forth in the transaction documents are shifted to the insurer.  This allows for the seller to have a clean exit and the buyer to have appropriate and immediate recourse against certain agreed-upon breaches to the representations and warranties covered under the insurance policy.   
 
W&I Insurance speeds up the overall process of the transaction as it streamlines the negotiations involved with the allocation of risks arising from breaches of the representations and warranties transaction document (as they are transferred to the insurer), and it expedites the approval of the board of directors and decision making committees of the buyer and seller.  </div>
 
 
3. What are the Key Considerations and Steps in Utilizing W&I Insurance?

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Parties to a transaction considering W&I Insurance in a Korean M&A Transaction should consider the following:   
 
<ul>
	<li>The parties should evaluate whether utilizing W&I Insurance for the transaction makes sense at an early stage of the transaction considering such factors as the size of the deal, the known and unknown risks involved in the deal, etc.</li>
	<li>The parties need to identify known and unknown risks as W&I Insurance policies usually do not cover known risks and the parties would need to figure out how to deal with unknown risks that are not covered under the Insurance policy (through such measures as purchase price adjustments, escrows, etc.)</li>
	<li>The parties should select a broker, advisors, and insurers experienced in W&I Insurance in Korea, and ideally with M&A legal expertise.  Better understanding of Korean-law exposures, litigation environment, and ability to make claims allows for the parties to put in place a W&I Insurance policy that provides comfort for all parties involved.</li>
	<li>The buyer should carry out a thorough due diligence and the seller should fully cooperate with the buyer so that the due diligence aligns with the investigations conducted by the insurer in preparing the W&I Insurance policy tailor fit for the specific transaction.</li>
	<li>The parties should prepare the transaction document in anticipation of the W&I Insurance as the Insurers would most definitely scrutinize such provisions as the representations and warranties, indemnification, limitation and deductibles on liabilities, etc., in determining the premium and other terms in the insurance policy.</li>
	<li>The parties should negotiate and determine who will bear the premiums and expenses involved in taking out the W&I Insurance.</li>
	<li>The parties should put in place the necessary mechanisms to allow for potential claims to be processed and settled by the insurer.</li>
</ul>
</div>
 
 
4. What are the current Market Trends in Korea?

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Here are some of the recent trends in the Korean W&I insurance market:   
 
<ul>
	<li>Premium rates are declining due to lower deal volumes and greater competition among insurers.</li>
	<li>The coverage language in the insurance policies are becoming more favorable to buyers as competition among insurers increases.</li>
	<li>Insurers are broadening their coverage to more non-traditional deals such as minority investments, smaller domestic transactions, family business transitions, etc.</li>
	<li>As the market matures, legal advisors in Korea are seeing more demand to integrate W&I insurance discussions early in the M&A or transaction planning.</li>
	<li>Insurers are customizing their policies to not only cover local Korean law risks such as employment, tax, regulatory, litigation, but also international risks such as US Tariffs and how such factors affect the acquisition target and the transaction overall.</li>
</ul>
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5. In Closing

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W&I insurance is increasingly becoming a staple tool to cover risks involved in M&A and investment transactions in Korea.  It facilitates to expedite a smooth closing to a transaction by filling in gaps between sellers and buyers as to inherent risks involved in a transaction.  However due to the complexities involved in customizing a W&I Insurance policy, especially in the Korean legal and regulatory environment, we highly recommend that parties considering utilizing it engage experienced advisors at an early stage of the transaction and carefully consider the various insurers and underwriters available in structuring a W&I Insurance policy that is tailor-fit for the contemplated transaction.  </div>

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