Author: Emily Maier
In our recent discussion of Representations and Warranties insurance (RWI) limits, we highlighted how the RWI market continues to evolve in response to shifting deal dynamics, pricing trends and buyer/seller leverage.
In this followup, we tackle a related — and often hotly negotiated — topic: Who pays for the RWI premium, and who shoulders the retention?
While these questions may seem straightforward, the answers have changed meaningfully over the past seven years. Using a robust dataset largely composed of midmarket US tech transactions ranging from $27 million to $2 billion over the last few years,1 we observe clear directional trends, with some nuances.
This dataset isn't intended to be a literal proxy for the entire RWI market. It skews toward midmarket — tech-heavy deals with sophisticated repeat buyers. But it's an excellent window into where deal terms have moved — and what's likely to continue shaping negotiation norms heading into 2026 and beyond.
Premium: The shift toward buyer payment
If we step back to 2018-2019, RWI premium allocation was far more varied. Sellers often paid for the policy, or parties split the cost in what many practitioners saw as a "fairness-based" approach. But as the data clearly shows, that world is largely behind us.
By 2021, split premium structures had all but disappeared, and the market settled decisively into a new norm: Buyers cover the premium. Obviously, this trend aligns with a market that's favorable to sellers. Since 2021, the market has evolved from seller-favorable to mixed, and premium payment is now highly dependent on the strength of the target.
Even today, sellers still pay occasionally — about 17% of the time as of 2025 — but the directional trend is unmistakable. Three forces explain this shift.
Declining premium pricing. Premiums fell meaningfully between 2018 and 2021. When premium prices dropped, buyers became more willing to absorb the cost, especially as the expense became a smaller proportion of the overall transaction value.
Competitive deal dynamics. In competitive auction processes, buyers gained an advantage by offering clean, seller-friendly terms, often including paying 100% of the premium. Even as the froth in the deal market has moderated since 2021, this concession has proven sticky. Additionally, competition for attractive deals is still enormously fierce.
The "clean exit" expectation. Many sellers, particularly in private equity, have grown accustomed to walking away from deals with minimal post-closing liability. Asking them to fund the buyer's insurance purchase has simply become less market standard.
Taken together, these factors have pushed premium allocation firmly onto the buyer's side in most deals — although, as with all things in mergers and acquisitions (M&A), context matters.
Retention: A more nuanced and deal-size-sensitive story
While RWI premium allocation shows a strong directional trend, retention allocation tells a more complex story.
In the early days of RWI, sellers were often expected to retain some liability in the event of a breach, a practice often referred to as "skin in the game." The seller often had to bear some or all the loss until the retention was met.
Fast forward to 2026, and the market has changed dramatically:
- The pricing difference for zero seller indemnity deals versus partial seller indemnity deals is now largely immaterial.
- Many sellers, especially in competitive processes, expect a true walkaway, sometimes with de minimis indemnity or none.
- Underwriters have become more comfortable with low seller indemnity structures as long as disclosure quality remains high.
That last point is critical: Underwriters now focus on full seller disclosure, even when sellers have no post-closing liability. But they no longer insist on seller retention involvement as a pricing or underwriting requirement.
Who bears the RWI retention today?
The answer to who bears the RWI retention depends significantly on deal size and, more importantly, on the ratio of retention to enterprise value.
From 2018 to 2025, the average retention dropped from as high as 2.77% for smaller deals to around 0.5%. When retention amounts shrink, buyers become much more willing to cover them because the financial burden is more manageable, and the concession can help them win an attractive deal.
So, while the data doesn't show a consistent directional trend as we saw with premiums, it does show a clear pattern: The lower the retention as a percentage of enterprise value, the more likely the buyer is to take it on.
Heading into 2026, we expect this dynamic to continue — even as premiums have begun to tick upward again.
Premium and retention together: Do they move in tandem?
You might expect that whoever pays the premium would also tend to cover the retention. But the correlation here is only modest.
With a correlation coefficient under 35%, the premium payer and the party that bears the retention don't strongly correlate. The data indicates:
- If the buyer pays the premium, they're slightly more likely to cover the retention.
- Larger transaction values correlate with buyers paying both the premium (18%+) and the retention (35%+).
- No factor is deterministic.
Ultimately, the interplay between these elements reflects broader deal context — competition level, buyer appetite, seller negotiating leverage and the overall give-and-take of deal terms.
What do these trends mean for buyers and sellers in 2026?
Here's the bottom line when it comes to determining who pays for RWI:
- Stats are helpful, but not dispositive. Numbers can tell us what the market tends to do, but not whether your counterparty will accept that norm. Retention and premium allocation are still bargaining chips, just smaller ones than they used to be.
- Buyer leverage determines much more than the charts do. A strategic buyer aggressively pursuing an important acquisition will often absorb both the premium and the retention to streamline negotiations. In a softer market with fewer bidders, sellers may accept more of the cost.
- Lower retentions make the buyer more likely to bear them. If retentions remain 0.5% of enterprise value — or even continue to shrink — buyers will likely keep absorbing them.
- Clean exits remain the norm. Whether or not sellers contribute to retention, the trend toward limited or no seller indemnity continues to be a major force in dealmaking.
Final takeaway
While the market has converged around buyers paying for the RWI premium, retention allocation remains situational and sensitive to deal size, retention percentage and negotiating leverage. The dominant trend is clear: Buyers are more frequently absorbing both costs, especially in competitive processes and when retentions are small. But as with all deal points, the "market standard" is only one piece of the puzzle. Appetite, leverage and context remain the true drivers of how cost allocation plays out in any individual transaction.
If you'd like help assessing your specific deal or benchmarking it against similar transactions, reach out to your Gallagher representative. We're always happy to walk through the current market data in more detail.
