The Italian Insurance Supervisory Authority (the IVASS) has cleared the way for W&I insurance in Italy with its recent FAQ.
Article 4 of Regulation 29 of 16 March 2009 from the previous insurance authority (the ISVAP), entitled “Uninsurable risks,” precludes insurance undertakings from providing coverage for the “reimbursement of contingent liabilities or losses on assets due to assessments resulting from [extraordinary corporate transactions].”
The new FAQ states that this prohibition does not apply to W&I insurance, subject to certain requirements.
In particular, there are no specific restrictions for seller-side policies, as the FAQ simply says that they must insure the risk resulting from the indemnity obligations of the seller in the event of a breach of its representations and warranties ‒ in practice, what they are typically intended to insure.
As for buyer-side polices, the FAQ requires that their scope should be limited to specific and definite obligations “not resulting from valuations,” which can allow an adequate assessment of the risk on an actuarial basis. Further, these policies cannot provide indemnity for an amount equal to the value of the underlying deal.
Although some of the requirements introduced for buyer-side policies are worth further consideration, overall the FAQ should be looked at favorably, as it contributes to remove legal uncertainties and promotes the use of W&I insurance in Italy.