Claims insights

Claims snapshot

Approximately 20% of buyers discover a breach of warranty and make a claim notification.
Approximately 20% of all claims notifications result in payment, with the top reason for denials being:
- Quantum of the loss suffered being below the de minimis
- Information about the breach being within the “Actual Knowledge” of the insured.
Average claim size remains stable, but tax claims costs are rising.
Top claims drivers:
- Tax errors
- Financial statement misstatements
- Commercial contracts disputes

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it in a clear, readable format.

Key takeaways

Tax events remain the most frequently occurring event type. Although these claims remain on average less costly than events in the commercial, legal and accounting categories, there has been an increase in the average claim payment when compared to the previous year.
The category with the largest total event cost and the third most frequently notified claim type is financial statements/accounting of the target company. A common scenario is a retrospective adjustment to the earnings before interest, tax and depreciation (EBITDA) of the target company. This, in turn, affects the purchase price of the target company if this was based on a multiple of the EBITDA, resulting in potential overpayment by the purchaser. Many insureds therefore, seek to make claims through the financial warranties in order to maximise their potential insurance return.

Key findings and implications for W&I/R&W claims

The graphic to the right shows the W&I/R&W notifications by country of the insured. North America accounted for almost half of the claim notifications included in the dataset. Analysis of reasons for denial provided by insurers varies slightly from the 2023 figures. In particular, denials for there being insufficient evidence that a warranty was breached nearly doubled in comparison to the previous year’s figures. The majority of denials were due to the claim falling below the policy de minimis. Given that the policy de minimis will be set at the higher of the underwriter’s position pursuant to their non-binding indication and the materiality thresholds of the various diligence workstreams, this highlights the importance of setting appropriate diligence and disclosure thresholds. Through engaging with your broker early in the diligence process, such thresholds can be considered in good time and minimise the risk of the policy de minimis restricting an otherwise successful claim.

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Claims relating to (i) matters known or disclosed to the insured before policy inception and (ii) matters which fell below de minimis, both fell by 1% when compared with the previous year’s statistics but both still constitute the majority of claim denials, underlining both the importance of the policy de minimis and what constitutes a known issue, when considering policy dynamics and transaction diligence. In addition to considering due diligence materiality thresholds with your broker, insureds might also consider discussing the benefits of opting for enhancements such as due diligence report scrapes and data room scrapes to help mitigate the likelihood of claims falling within the “known facts” exclusion.

The graph to the right depicts the relative frequency and severity of reported claim types in the US, GB and Europe, along with the average loss associated with each category. Tax loss notifications are the most common but are generally less severe as they typically involve fixed liabilities that do not fluctuate based on business valuation and are rarely subject to valuation multiples. Compliance with laws and legal disputes rank second, followed by financial statements and accounting claims, which, despite being less frequent, result in significantly higher average losses. This is because breaches in financial reporting can directly impact a company's valuation, especially when the valuation is based on an EBITDA multiple.

Commercial and customer contract claims account for a significant share of notifications, as breaches of these warranties can impact target revenue streams, ultimately affecting valuation. Employment-related warranty claims tend to be less severe in GB Europe and the US, as they typically involve isolated incidents. However, when systemic issues arise within a company’s employment practices they can trigger a series of loss events.

Claims in action: Real-world examples from 2025

Our recent cases illustrate how transactional risk policies respond to complex exposures across tax, compliance and accounting claims. In 2025, the most common notifications continue to arise from tax and financial statement issues, with claims frequency steady at around 1 in 5 policies.

Tax – Identifying blind spots

During the course of an acquisition, the insured became aware that a previously acquired subsidiary had been incorrectly taxing income, potentially withholding a significant amount of tax from the government. The insured and subsidiary voluntarily and quickly notified tax regulators to minimise their exposure to fines and penalty payments. Insurers appointed financial auditors and initially contended that the insured had not provided sufficient information to confirm that a breach, as defined by the policy, had occurred. The matter was resolved via mediation with insurers.

Legal disputes/compliance with regulations/laws (acquiring liabilities)

Following the closure of the transaction, the insured discovered the acquired company did not fully maintain licenses and accurately pay a vendor for the use of certain software and products, which were essential to the operations of the business. As part of the license violations, the insured agreed to pay a settlement and executed a two-year going-forward agreement/license fee. Legal costs were incurred and as the insured purchased the company based on a multiple of annualised EBITDA the additional annual expenses meant the insured had overpaid for the company. Insurers paid the full policy limit.

Accounting

The acquired company sought to improve efficiency and effectiveness in its accounting and financial operations through the restructuring of its finance group. The review revealed the company’s financial statements were meaningfully overstated. Discrepancies were identified in cash generation analysis and other accounting concerns were identified. Insurers retained lawyers and a financial advisor to assist with coverage discussions regarding the financials on which the representations were based. Insurers paid the full policy limit.