CORRECTED-Tariff tug-of-war causes RWI carriers to scrutinize M&As in the pipeline

By Isha Marathe

April 8 - (The Insurer) - As markets reeled from U.S. President Donald Trump's sudden course reversal on country-specific tariffs, carriers providing representations and warranties insurance (RWI) have been taking stock of the deals they are underwriting, expecting months of volatility ahead.

For RWI, 2025 was poised to be a year of substantial M&A activity, leading to high reps and warrants claims and a spike in premiums after a lull in submissions in 2024.

But Trump's flip-flop on tariff rates – from last Wednesday's 90-day pause that came 12 hours after the policies went effect, to an escalating trade war with China after slapping 145% trade levies on the country's goods on Thursday – has made RWI carriers and brokers wary.

Not only might the market uncertainty lead to lower M&A activity, affecting demand for the product, but buyers and insurers are taking a closer look at certain parts of specific deals, like tariff-exposed supply chains.

"Volatility is not good for M&A. No buyer wants to be in a position where they're overpaying for an asset that will be worth less in a few months, or a few weeks, or a few days," said Eric Ziff, partner and co-practice leader, transaction liability at Lockton.

Similarly, sellers may be more hesitant if businesses are discounted in transactions due to temporary regulatory or political overhang, he said.

On Wednesday, President Trump issued a 90-day pause on tariffs he had imposed about 12 hours earlier on some U.S. trading partners, while escalating the trade war with China by staying at least a 145% rate on the country's goods.

As a result, businesses and their carriers are taking inventory of where geopolitical relationships stand.

"(This) will slow down deals that are pending, maybe delay deals that were contemplated," Ziff said. "But it's hard to say.... we are one tweet away from maybe this being done."

The RWI impact is even more uncertain, Ziff said. But the best analog for the trade uncertainty is likely the market volatility and daily anticipation that came with the COVID-19 pandemic, he said.

Still, while there was an initial M&A slowdown when the pandemic kicked off in the U.S. in 2020, 2021 brought a substantial M&A year along with a surge in de-SPAC transactions that also led to rising demand for RWI, he said.

The current trade climate has led to a similar state of watchfulness.

"People came into this year very, very bullish on how much activity there was going to be (anticipating) a more conducive regulatory environment for it. Now you have a push against that," said Ziff.

Essentially, insurers and brokers are left in a position where there are some headwinds against the factors they were expecting would bring strong demand for the RWI and send rates up.

SUPPLY CHAINS

While there is general M&A recalibration amid the volatility, Ziff said RWI carriers and their policyholders are taking a more keen look at supply chain implications of each deal.

Similar to assessments during the COVID-19 pandemic and the beginning of the Ukraine-Russia war, "I can tell you with certainty that carriers are definitely assessing whether they would be inadvertently covering unknown tariff-related risk in any policies that are binding today or in the not-so-distant future," Ziff said.

Phil Casper, principal at Euclid Transactional, said that he still feels optimistic about M&A activity, and that because trade and tariff policies are shifting so fast, it's difficult to make any predictions on RWI submissions. He added that tariffs are likely to be deal-specific in a similar way in which they are country-specific.

"There are pockets that are not directly impacted... like software and business services that don't directly touch on the physical supply chain," he said.

"So we anticipate those kinds of deals will continue unabated. I think there might be some strategic deal-making with folks trying to get their hands on domestic manufacturing components of the supply chain that are less impacted by tariffs... those are the things that we'll be looking out for in of deal flow."