Warranty and indemnity (W&I) insurance remains less widely used in Japan than in many Western markets. However, as transaction structures evolve and cross-border activity increases, its role in Japanese M&A is beginning to shift.

Langham Hall recently co-hosted a seminar in Tokyo with Howden Group to discuss how W&I insurance is functioning in practice and what that means for sponsors operating in the Japanese market.

Three themes emerged.

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A shift in negotiation dynamics

The introduction of W&I insurance can alter how risk is negotiated. Rather than prolonged debate over liability caps and escrow structures, parties can focus on clarity of drafting and efficient allocation of risk.

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Transaction economics beyond the premium

Whilst the premium is an additional cost, it should be assessed against total transaction economics. Extended negotiations, delayed distributions and capital retained during indemnity periods can materially affect fund outcomes. Cleaner exits can support earlier capital return to LPs and reduce the need for prolonged escrow or indemnity holdbacks, particularly relevant for funds approaching the end of their lifecycle.

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Disclosure discipline and governance

W&I insurance draws a clear distinction between known and unknown risks. Effective disclosure becomes central, reinforcing governance standards and transparency between buyer and seller.

Compared with Europe and the US, adoption in Japan remains at an earlier stage. However, as international sponsors increase activity and investor expectations continue to rise, structured risk transfer mechanisms are likely to attract greater attention.

For fund managers, W&I insurance is increasingly viewed not simply as an insurance product but as a structuring tool with implications for capital management and investor confidence.

Langham Hall continues to monitor developments in Japanese deal structuring and fund operations as the market evolves.