Warranty and Indemnity Insurance in MENA

Warranty and Indemnity (W&I) insurance has evolved from a specialist solution on a handful of high profile cross-border deals to a mainstream risk-allocation tool that now supports more and more global private mergers and acquisitions. The logic behind the product is elegantly simple; rather than leaving sellers exposed to post completion claims, or obliging buyers to accept residual risk, an insurer steps in as the primary obligor for breaches of the warranties set out in the sale and purchase agreement. Save for fraud, the insurer carries the loss, and the buyer’s recourse is redirected away from the seller’s balance sheet. For sellers, that translates into a clean exit and immediate distribution of sale proceeds; for buyers, it delivers certainty of recovery, extended limitation periods, higher caps and, in many cases, broader protection than could realistically be obtained through direct negotiation alone.

Although the United Arab Emirates and the wider GCC region arrived somewhat later to the W&I market than London, Continental Europe, New York or Sydney, uptake has accelerated sharply in recent years. Historically, regional transactions were placed almost exclusively into the London insurance market. That has changed as insurers with meaningful GCC appetite are now underwriting risks locally from Dubai International Financial Centre and Abu Dhabi Global Market platforms, often in parallel with their European capacity. The effect is twofold: premium rates are now more competitive than ever for GCC centric deals, and insurers are increasingly willing to tailor policy terms to the legal and regulatory nuances of on-shore UAE and other GCC jurisdictions. Premiums for straightforward transactions can be well below one per cent of the limit of indemnity, with real estate portfolio deals sometimes pricing closer to half of that figure.

Complex real estate matters illustrate particularly well how W&I insurance can unlock value where negotiations have stalled. A purchaser acquiring a portfolio of income producing assets (in particular immovable property and rights thereon) will commonly press for granular warranties on title, encumbrances, zoning, hidden defects, environmental compliance, tax, lease validity and tenant solvency. Sellers, eager to expedite closing and distribute proceeds, are reluctant to leave a meaningful portion of the price at risk for years. Insert a W&I policy and both objectives are met! The seller is released save for fraud; the purchaser obtains security from an A-rated insurer with claims paying ability measured in hundreds of millions of dollars; and the parties can refocus negotiations on price and commercial synergies rather than on escrow mechanics or warranty caps and de minimis thresholds.

Because real estate risks are relatively homogeneous and data rich, underwriters are able to model exposure with greater confidence than in some operating company contexts. That efficiency feeds directly into lower pricing, streamlined diligence requirements and compressed timetables. Asset or share, single property or multi-jurisdictional platform, standing assets or developmental land – W&I insurers will generally follow the negotiated warranties so long as a coherent legal, technical and tax diligence trail exists. Where blind spots inevitably arise, for example historical planning irregularities or missing building completion certificates, so-called “blind spot cover” may be available or bespoke “no search” or “synthetic” warranties can be drafted and insured, thereby avoiding value eroding price chips or indemnity escrows.

W&I insurance is not, however, a solution for every deal impediment. Certain identified exposures such as large contingent tax assessments, high value legacy litigation or regulatory investigations with binary outcomes, sit outside customary W&I insurance cover. For these, the market has developed a family of contingent risk policies that can ring fence a specific known issue for the life of the risk; in practice up to 10 years, often at a premium of 1.5 per cent to 3 per cent of the insured limit. In a real estate context that might include an unresolved VAT liability on an earlier asset transfer, a disputed municipality fee, or a tenant litigation over a break clause whose potential damages dwarf the annual rent roll. Insuring the contingent exposure removes it from the pricing equation and de-escalates heated negotiations, enabling the parties to transact on the intrinsic value of the underlying asset rather than on speculative downside scenarios.

Malakut Insurance Brokers, headquartered in Dubai and operating across the GCC, has established itself as a leading intermediary in this space. From our vantage point as transaction counsel we have seen Malakut deploy both its London and Continental European market relationships and its on the ground GCC underwriting access to secure competitive terms that align with local law nuances, whether that is ensuring Shari’ah-compliant structuring for certain investors, adapting policy language to fit DIFC or ADGM governing law requirements, or coordinating with regional tax advisers to validate that UAE corporate tax and VAT positions are adequately addressed. Malakut’s boutique model encourages early-stage collaboration with legal and financial advisers; that cooperative dynamic often yields creative risk transfer solutions that a more siloed process would miss.

For clients contemplating complex property transactions, be they sovereign wealth funds acquiring trophy assets, family offices reorganising multi-generational holdings, or private equity sponsors executing value-add strategies, W&I insurance should now form part of the standard toolkit. Early engagement is critical. Ideally, a preliminary call with insurance counsel and a broker such as Malakut takes place while the first draft of the SPA is still open for comment. Doing so allows the parties to calibrate warranty scope, choose an efficient due-diligence pathway and flag any issues that may require a contingent risk wrapper. With insurers increasingly willing to deliver non-binding indications within forty-eight hours, transaction timetables need not suffer; indeed, by removing protracted warranty and indemnity negotiations, overall deal timelines frequently improve.

In the current market, environmental exposures merit special mention. Only a few years ago, underwriters routinely carved out pollution liabilities or demanded prohibitively expensive premiums and exhaustive Phase 2 site assessments. Competitive dynamics and improved data analytics have transformed that stance. Where specialist environmental consultants produce a reasoned desk top review, many carriers will now provide meaningful coverage for unknown contamination, including loss of rental income, remediation costs and diminution in value; protections that go well beyond conventional legislative liability caps. The result is that buyers of industrial or greenfield land can transact with a degree of comfort previously attainable only through heavy price discounts or vendor guarantees.

The definition of recoverable loss has likewise expanded. Modern policies routinely cover not only diminution in share value but also consequential losses such as lost rents, accelerated loan repayments, increased operating costs and, in certain circumstances, professional fees incurred in mitigating or investigating the breach. For GCC property investors who prize predictable income streams, that broad loss rubric is a powerful complement to traditional security packages anchored in mortgage pledges and rental assignments.

The trajectory of the W&I insurance market indicates that coverage will continue to broaden, pricing will remain competitive and carrier appetite for GCC risk will deepen in line with the region’s growing M&A sophistication. For clients and advisers alike, the message is clear: insurance is no longer an afterthought or a mere sign-off item for the risk team. It is a strategic lever that can de-risk negotiations, bridge valuation gaps and protect balance sheets on both sides of the table.

Our firm’s transactional practice stands ready to integrate W&I insurance and contingent risk insurance into the structuring and documentation of your next deal. Working in concert with reputable insurance brokers such as Malakut Insurance Brokers, we can canvas the global insurance market, align policy language with the GCC’s evolving legal framework and deliver binding terms calibrated to your commercial objectives. Engaging at an early stage will ensure that diligence scopes are fit for purpose, warranties are drafted to be insurable and transaction timetables remain on track. For parties seeking the dual goals of safeguarding their investment and securing peace of mind in increasingly sophisticated property transactions, the solution is now clear, accessible and, with the right advisory team, elegantly simple.

This article was co-authored with Philip Frerks (Malakut).