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.
APAC’s transactional risk market is now a mature class of insurance, with W&I usage expanding beyond Australia and New Zealand and generating a growing body of claims data.
Over the past decade, transactional risk products in APAC have evolved into a mature and established class of insurance. There has been an influx of underwriting capacity and specialist intermediaries into the region, with international insurers, MGAs, and brokers expanding their dedicated transactional risk teams in key hubs such as Sydney, Melbourne, Singapore, and Hong Kong.
Australia was an early adopter of the W&I product, albeit concentrated in the relatively smaller number of Australian and New Zealand transactions. The past two decades has seen product usage spread across the wider APAC region, with a corresponding increase in claim numbers providing more meaningful data around claim frequency, severity, and breach trends.
Analysis
Regional M&A Environment and
Claims Overview
With a growing body of W&I and tax notifications across Australia, New Zealand and the broader Asian markets, patterns are slowly emerging through the regional claims experience. This section distils insights—from deal environment and product usage through to breach trends, claim timing and sector specific hotspots—to highlight what is driving loss in APAC and what that means for buyers, sellers, and insurers.
In contrast to North America and EMEA, where large volumes of historic data are available, APAC claims are characterised by early experience primarily in Australia and New Zealand, where W&I was first readily adopted and where the market has already seen multiple eight and nine-figure claims on largecap transactions.
A second wave of growth in the use of transaction solutions products has been observed more recently in India, Korea, and South East Asia, where both W&I and standalone tax liability products are being used on increasingly complex, crossborder deals.
The Expansion of W&I and Tax Insurance
The transactional risk market in APAC has evolved unevenly with early adoption in Australia and New Zealand, and more recent growth in the use of the W&I and tax insurance products in Asia. Australia and New Zealand have a more mature W&I market featuring high value transactions (including multiple deals above USD 500 million and USD 1 billion) where W&I insurance is used on both sponsor backed and corporate acquisitions.
Representations regarding Disclosure, Compliance with Laws, Financial Statements and Tax breaches feature consistently among the leading causes of claims and claim payments.
APAC’s claims experience is now broadly consistent with global trends, with breaches of disclosure and information, financial statements, compliance with laws and tax representations featuring as the most prevalent and consequential categories across the region.
Broader Asia (notably India, Korea, Singapore, Hong Kong/PRC and the Philippines) is in a phase of accelerated adoption where W&I has become a reliable tool on larger or more complex deals in these markets - particularly where sellers seek clean exits or where local law uncertainties make enforcement of negotiated indemnities challenging.
Standalone tax liability policies are now a regular feature in India and, to a lesser extent, in other Asian jurisdictions to manage specific known exposures (such as treaty positions, capital gains, withholding, customs and indirect taxes). There has been a notable increase in multi insurer, multi layer towers for APAC policies, reflecting growing deal sizes, higher claim exposures, greater buyer comfort with the product and an influx of capacity into the region over the past five years.
Clients have seen that the product does respond when tested, and that W&I and tax policies can be effective in protecting value in complex transactions.
Figure 38. Australia and New Zealand Breach Types (2012 - 2025)
Chapter 3.1
APAC
Claim Frequency, Severity and Deal Size Dynamics
As the W&I market matures, claims data is beginning to show clear patterns in frequency and severity, with larger and more complex transactions driving many of the region’s most material losses.
