Continued strong growth in the use of Warranty & Indemnity Insurance (“W&I”) in Nordic Real Estate transactions

Increased competition, with new insurers entering the market and existing insurers growing their teams, combined with increased line sizes, has resulted in low and stable pricing, decreased attachment points, and an increased willingness of insurers to develop their product and offer more flexibility in coverage. Below we have summarized a couple of trends for Real Estate that we see in the Nordic / European W&I insurance market.

Low & Stable Pricing

Over that last couple of years the cost of Nordic Real Estate W&I has stabilized around 0.7% to 1% of the limit purchased. Despite a continued soft W&I market we do not foresee a further decrease in premium levels within the space of traditional Real Estate W&I. Notwithstanding the above, for “plain vanilla” transactions, new market entrants are offering simplified underwriting without underwriting fees and minimum premium levels closer to EUR 40 thousand. Further, several insurance markets are looking into the possibility of introducing pre-negotiated W&I facilities for Real Estate with standardized SPAs, a simplified due diligence / underwriting process and lower minimum premiums, thereby opening up the market for smaller transactions. However, to date, we have not seen any successful launch of any such facilities.

Historically Low Attachment Points

Insurers are continuing to offer historically low (€nil or “tipping to €nil”) retention levels for Real Estate transactions. It should however be noted that very low/nil retention require a more extensive due diligence process with very low materiality thresholds being applied. We also see fundamental warranties not being subject to de minimis which we consider to be a natural development given the nature of such warranties.

Coverage Enhancements Available

Due to increased competition and already low pricing, insurers are looking for new ways of refining their competitive edge and distinguishing themselves from their competitors. Coverage enhancements can include e.g:

• Possibility of including “top-up” cover in respect of title to shares/property and assets with an insured limit corresponding to the full consideration value; 
• Increased insurer appetite to include cover for identified property/title risks; 
• Increased insurer appetite to include cover for rent roll and future earnings; and
• Coverage for warranty breaches that both occur and are discovered or disclosed in the interim period between signing and closing (“new breach”).

For more information, please contact:

Fredrik Dock
T: +46 8 5463 5914
fredrik.dock@willistowerswatson.com

Lars Forsstedt
T: +46 8 5870 9574
lars.forsstedt@willistowerswatson.com