Clifford Chance

A few tips to help you prepare for your R&W Underwriting call

If you participate in mergers and acquisitions (M&A), you may have heard of representation and warranty insurance (RWI). This is a type of insurance that compensates the buyer for breaches of representations and warranties made by the seller in a purchase agreement. While sell side policies are available, this post focuses on buy side policies as buy side policies are more prevalent. RWI can help facilitate a smooth and efficient closing of a deal, as well as protect against post-closing disputes and liabilities.

Before you can obtain RWI, you need to go through an underwriting process which typically involves, in part, a call with the underwriters. The underwriting call is integral to the underwriting process and one of the few instances where the insurer directly interacts with the buyer and its advisors rather than the insurance broker, acting as the conduit for the flow of all information and communications. The underwriting call is an opportunity for the underwriter to ask questions and clarify any issues or concerns the underwriter may have about the deal, the parties, the scope of the due diligence process, issues identified during diligence process and the negotiation of the purchase agreement. The quality and outcome of the underwriting call can have a significant impact on the terms of the RWI policy, particularly as it relates to exclusions from coverage.

So, how can you prepare and conduct a successful underwriting call? Here are some best practices to keep in mind:

• Be prepared. Before the underwriting call, review the deal documents, the due diligence reports, and, if available, the draft RWI policy; however, the RWI policy will likely not be available until after the underwriting call. Review the agenda provided by the underwriter and try to anticipate the questions and issues that the underwriter may raise; have the relevant information and documents ready to address them. If possible, coordinate with your counsel and other advisors to be consistent in the responses provided to the underwriter. Prior to the underwriting call, determine which team member will address which agenda question and consider doing a run through of the underwriting call prior to the underwriting call.
• Be forthright. Answer the question fully and truthfully providing, if appropriate, the basis for any conclusion drawn. Underwriters do not want to hear "we got a representation to cover that matter," they want to understand your independent diligence as they are insuring the accuracy of the representation.
• Be concise. The underwriting call is usually limited to two hours or less. Avoid lengthy introductions and background information; focus on the main points of the deal and the diligence process. Provide clear and accurate answers to the underwriter's questions, and avoid unnecessary details or digressions. If you do not know the answer to a question, do not guess or speculate; instead, say that you will follow up with the information after the underwriting call (if the underwriter so requests).
• Answer the Follow ups Asked. The underwriter will maintain a list of follow up questions it has from the underwriting call and circulate those questions after the underwriting call. Often the underwriter determines that an item indicated on the underwriting call to be a follow up question is no longer needed so no follow up question is posed. Thus, you need only answer the follow up questions asked by the underwriter (which may differ from what is referenced as being subject to follow up on the underwriting call).
• Be patient. Remember that you have spent a lot of time reviewing the materials and understanding the issues related to the transaction. The underwriter has only had a few days to review the materials. The underwriting call is not intended to be a "gotcha" call but rather the underwriter is trying to understand a significant amount of materials in a brief period of time.
• Be consistent. The underwriter will compare the information you provide on the underwriting call with the information in the deal documents and the due diligence reports. Make sure that your answers are consistent and coherent with the written materials. If there are any discrepancies or gaps, explain them clearly. Underwriters do understand that additional diligence is done/information becomes available after a diligence report is provided but before an underwriting call is held and, if that is the case, just explain that to the underwriter.
• Be courteous. The underwriting call is not only a fact-finding exercise, but also a relationship-building one. The underwriter want to get a sense of your credibility, professionalism, and trustworthiness. Be polite and respectful, and avoid being defensive or confrontational.

By following these best practices, you can increase your chances of having a successful RWI underwriting call and ultimately securing a favorable RWI policy (i.e., one with fewer exclusions).