An insured distributed dividends from a Spanish entity to a Luxembourg parent entity and sought to rely on a double tax treaty to pay tax in Luxembourg. The insured tax risk arose if the dividends were instead deemed taxable in Spain. The policy was taken out to provide coverage in the event the Spanish Tax Authorities (STA) challenged the tax treatment of the distribution.
Tax Claim
In due course the STA initiated a tax audit, which the insured notified to insurers under the policy terms. The insured engaged with the audit and provided responses to the STA, all with the prior consent of insurers.
The STA duly assessed a liability for withholding tax, alleging that the parent lacked substance in Luxembourg. Insurers provided support for the first instance appeal, which was unsuccessful. Following this, and on the basis the insured was required to pay the alleged tax liability to continue its appeal, insurers paid an Advance Tax Payment to the insured in accordance with the policy terms.
The insured has now filed a second stage appeal in the Spanish Courts and insurers continue to pay defence costs, whilst awaiting a final determination.
Insight
Although early in its life cycle, the specific risk tax product is operating exactly as anticipated, with insurers supporting the dilligenced position by making payments of defence costs and advance tax payments.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
After closing, the Buyer discovers that there are errors in the target company’s financials. These errors include: (1) failing to accrue for costs related to annual plant maintenance; (2) improperly recognizing certain revenue in the trailing twelve months (TTM) period; and (3) overstating the account receivables balance by not writing down impaired collectability risks.
Breach and claims process
The above issues comprise typical breaches of the financial statements representation in the acquisition agreement. The language of the financial statements representation and the standard applied therein (i.e., in accordance with GAAP, industry standard, consistent with past practices, etc.) will control the analysis and claims investigation. The claims process will involve the Insurer’s financial advisor reviewing the material provided by the client’s financial advisor/counsel and then following up with questions aimed at validating breach and the corresponding loss. The challenges that arise during financial statements claims vary greatly but often relate to disagreements over how the breach impacts the buyer’s valuation model, how similar situations may have impacted the purchase price during negotiations, materiality thresholds under GAAP, whether the breach impact is recurring and/or whether the loss valuation is reliant on estimates that were not repped to in the financial statements.
Outcome
Based on our experience, should the above scenario violate the accounting standards provided in the financial statements representation, we would expect the Insurer to recognize breach and loss. Further, we would anticipate that error one (failure to accrue for costs) and error two (improper revenue recognition) would result in more than dollar for dollar loss because those losses are recurring in nature. That recurring loss would likely be based on how the deal was valued. So, for instance, if the deal was valued on an EBITDA multiple then those verified loss amounts would be subject to the same calculation. For error three, we would anticipate that the insurer might take the position that these damages should be reimbursed on a dollar-for-dollar basis, claiming that they are not recurring in nature.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
An insured acquired a target company with several material customers. Following completion, the insured became aware that one of the target’s key customers had in fact terminated its contract with the target prior to signing. The contract represented significant ongoing revenue for the target and was factored into the valuation methodology and the purchase price paid for the target.
The insured submitted its claim to the insurer and breach of the material contracts warranty was quickly established. The policy and SPA were subject to English law and loss was considered on a share-value basis. In order to quantify the loss suffered, both the insured and insurer appointed financial experts, who alongside the parties and their legal advisers considered contemporary evidence of the valuation methodology (which included a multiples basis), the recurring nature of loss given the length of the contract and how the issue would have been dealt with at the time of the transaction, had it been known. Following discussions between insured and insurer, steered by Aon, the parties reached a mutually agreeable commercial compromise and agreed to settle for an eight-figure sum.
Insight
Contemporary evidence of the valuation methodology used in a transaction can be key when advancing a claim with loss on a share value basis. Insurers and insureds will commonly instruct financial experts to consider the quantification of loss, and factors may include the recurring nature of the loss, to what extent the loss is of a type factored into the valuation methodology, how the issue would have been dealt with between the seller and a reasonable buyer had it been known at the time of the transaction as well as the value of the shares and purchase price.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
Post-completion, the insured discovered that there was a third party demand against the target, which was in litigation and where the litigation warranty was considered breached.
The insured submitted its claim to the insurer but did not provide any information or seek the insurer’s consent with regards to significant defence costs being incurred. Aon reminded the insured of the need to involve the insurer in its defence strategy, and the insured settled the third party litigation with the insurer’s involvement and consent to settlement.
Following settlement a discussion followed between insured and insurer on defence costs cover, and Aon assisted the insured in successfully claiming some of its defence costs from the insurer.
Insight
With third party demands it is important for insureds to be aware of insurers’ rights regarding settlement and prior written consent to defence costs, to ensure compliance with policy terms and to avoid curtailing the insured’s own claim.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
Scenario
An insured submitted its claim notice directly to the insurer without first consulting its broker, who it copied in when submitting the notice. In its drafting of the claim notice, the insured had set out the relevant warranties considered to be breached but only as those warranties were covered under the SPA, not reflecting the seller knowledge scrapes which the insured had purchased as part of its cover under the policy.
Claims Process
Following receipt of the claim notice, the insurer raised various requests for information, including the seller’s knowledge of the issue. Aon flagged to the insured that they were not required to demonstrate seller knowledge as a result of the knowledge scrape enhancement provided under the policy, and assisted the insured in preparing its responses to the RFIs, including setting out that seller knowledge was not required. Breach of warranties was established.
Insight
The policy is the contract agreed between insured and insurer, and should be considered as the first source for the bases of warranties covered, both in relation to scrapes and also in relation to warranty qualifiers.
References
6 All case studies in this report are hypothetical claim scenarios
based on aggregate factors that the Aon team has seen in practice. The
language of the actual representations in the applicable purchase agreement,
the specific facts of a claim and the coverage afforded by the policy
ultimately will determine the outcome of each scenario.
This section reviews the North American M&A environment and highlights how deal conditions, claims activity, and underwriting responses are shaping the current R&W market. It also summarizes key recovery, frequency, severity, timing, and breach trends that help to frame the more detailed analysis in the sections that follow.
Aon clients continue to recover material payments from R&W insurers, with new payment records being set for the last two years in a row. Robust claims activity in recent years has led insurers to focus on key areas of diligence and on appropriate primary pricing for the R&W insurance product, including whether that analysis should vary on the basis of a deal’s enterprise value. While pricing began to increase in 2025 from historic lows, the R&W market remains competitive, with buyer-friendly coverage available.
Key numbers & highlights
Total Loss Recovered
>$1bn
Clients in North America recovered over $1billion on transaction solutions claims in 2025, with approximately $440 million of that paid on R&W insurance claims.
R&W Claim Frequency
18%
Approximately 18% of R&W policies bound between 2019 – 2023 have seen at least one claim notification.
R&W Claim Severity
$8.2mn
For claims resolved in 2025, the median R&W claim payment was approximately $8.2 million, and the average claim payment was over $10 million.
Timing of Notifications
51%
Approximately 51% of R&W claims were notified more than 12 months after closing, continuing a trend of claims being reported later in the policy period and, in many cases, after the seller escrow has expired.
Breach Types by Paid Loss
1. Financial Statements
2. Material Contracts
3. Compliance with laws
4. Intellectual Property
The top breach types by paid loss on policies placed since 2019 are financial statements (38%), material contracts (21%), compliance with laws (15.1%), and intellectual property (11%).
Analysis
Regional M&A Environment and Claims Overview
M&A environment
Despite 2025’s geopolitical volatility, the North American M&A market began to see an upswing in the second half of the year, driven in large part by high value deals. According to Morgan Stanley’s “2025 Year in Review and 2026 Outlook: Update on the M&A Environment”3, the number of transactions with an enterprise value >$1B increased 26% in 2025 compared to 2024, and 2025 concluded with the highest average deal size seen over the last 25 years. The average enterprise value on Aon deals in North America increased 73% in 2025 compared to 2024, and the median increased 12%. Middle market M&A continued to slide in 2025, with dealmakers citing public policy uncertainty, tariff exposure and valuation mismatches as key headwinds. Yet, there remains cautious optimism due to a backlog of over 30,000 companies waiting to be sold and trillions of dollars available for deployment, according to research from Bain & Company.
Overall Claims Picture Vs Last Report
R&W claim frequency has increased marginally in North America since 2023,
after a few years of a reduced claim rate between 2020-2022. Recovery
amounts have increased as well. Since 2023, we have seen an increase in
the average and median claim payments made to Aon clients, reaching a
record high median payment of $8.2M in 2025 (See Figure 1). With the 2025
increase in larger deals, the number of large claims made on R&W policies
could also rise correspondingly.
The Underwriter Perspective and Implications for Deal Risk
Despite the sophistication of M&A professionals and more data-driven due
diligence, a consistent claim rate has ticked back up over the past few
years, with large claims being paid in North America. This suggests that
it remains difficult to discover all potential issues during diligence,
even with a thorough diligence exercise, reaffirming the value of R&W
insurance in appropriate circumstances.
At the same time, significant claims activity provides opportunity for
underwriters to learn from this critical mass of claims data. As a
result, we could see increased focus on addressing areas of particular
concern in diligence. This data could be particularly useful given the
severity around claims involving material customer relationships, large
or subterranean assets, and companies using percentage of completion
accounting. We also could see a gradual increase in utilizing legal
position insurance to solve certain identified issues in an M&A
transaction, where data shows it has performed well, even with
significant challenges around judgment preservation insurance.
With this reality as a backdrop, R&W insurers and reinsurers have become
more vocal about how to ensure the sustainability of the product.
However, we expect that major market shifts will be tempered in 2026 by
the continued competitive environment that exists among R&W insurers in
North America.
Coverage Innovations
One avenue that financial sponsors increasingly have utilized to achieve
liquidity is secondaries transactions. In 2025, Aon launched its Private
Market Liquidity Solutions (PMLS) product, which expands upon its
secondaries expertise to help unlock capital held in illiquid positions.
The innovative solutions include secondaries, LP clawback, and fund
wind-down insurance These are designed to replace or reduce reliance on
traditional seller indemnities and reserves with insurance-backed
protection, enabling faster, cleaner exits and more efficient capital
allocation. This is widely expected to be an increasingly important
growth area for transactional risk markets.
4
In addition, Aon offers many proprietary insurance solutions, such as
the IBEX policy, which provides coverage for interim breaches that are
generally not available in the broader R&W market. In the last few
years, Aon has seen a number of interim breach claims submitted under
IBEX, and in 2025 the first IBEX claim payment was made in connection
with the loss of a customer between sign and close. In other instances,
at the time of noticing a claim, it has not been clear whether an issue
is or is not an interim breach. In these cases, Aon clients have peace
of mind knowing that, even if a matter is determined to be an interim
breach, to the extent it falls within the scope of the policy, it will
be covered under the IBEX policy.
Total Loss Recovered 
R&W Claim Frequency 
R&W Claim Severity 
Timing of Notifications 
Breach Types by Paid Loss 
