With the Russian invasion of Ukraine and the resulting humanitarian impact of that invasion, the US and European Union have moved to respond and support Ukraine through, among other avenues, new trade sanctions and restrictions on Russia, Russian firms, and Russian nationals. In the context of the M&A industry, this will directly impact ongoing transactions and, more specifically, how representations and warranties insurance (RWI) providers address risk related to those new sanctions and restrictions. With the Russian military sadly increasing its level of aggression, it may be too early to know exactly how broad the full range of sanctions and restrictions are going to be. However, at this stage, M&A practitioners and RWI insurers can be proactive in addressing the risks this creates for ongoing transactions.

Insurers should consider placing explicit emphasis on due diligence regarding business or transactional relationships in Russia or with Russian nationals when responding to broker submissions for new transactions. This does not always come in the form of obvious commercial relationships. For example, US and European SaaS businesses frequently make use of software developers in Russia or Ukraine, so specific information on the entities or individuals involved will be necessary to effectively underwrite the risk related to the impact of Western sanctions. If that information cannot be provided in sufficient detail, insurers should consider excluding the risk related to the impact of sanctions, at least on a temporary or conditional basis until more information regarding these touchpoints is available. As a secondary concern beyond sanctions impact, insurers should also be on the lookout for increased supply chain stress, if any of the target business’s vendor resources operate in the region and cyber risks due to the increase in incursions and breaches by state and non-state actors that are connected to the ongoing conflict.

Buyers that are seeking RWI coverage on an ongoing transaction should be prepared to supply detailed information regarding touchpoints in Russia or Ukraine, especially if those touchpoints are direct commercial relationships with Russian firms or Russian nationals. Insurers will expect that businesses in key industries like energy extraction and transportation, high-tech devices and components and transportation, to the extent they have any exposure to the impacted region, present heightened compliance risks in underwriting RWI policies. In order to minimize the breadth of any coverage exclusions, buyers should be proactive in undertaking specific due diligence to address the impact of new sanctions and restrictions on the target business. Once in underwriting, buyers should assume that significant insurer time and attention will be devoted to assessing this area of risk, so buyers should consider taking a proactive approach in diligence to understand how effectively the target business has established trade compliance policies and procedures, whether the target business has sufficient recordkeeping in order to quantify the impact of new sanctions and restrictions and whether the target business has already begun the process of disentangling itself from any impacted relationships. Additionally, buyers should expect that this will be a broader diligence exercise than simply addressing trade compliance. Insurers will also focus on labor impacts, to the extent employees or contractors sit in Russia or Ukraine, cybersecurity impacts and supply chain impacts, so members of the buyer’s diligence team specializing in those areas should conduct their review with an eye towards answering conflict-specific questions in their area.

It is still too early to know exactly how the RWI industry is going to approach the risks created by the ongoing conflict, but preparation and specific attention should help both insurers and prospective buyers of RWI insurance navigate the rapidly changing environment. As always, we will continue to monitor the market in this context and provide additional updates.


View our recent publication, "Heightened US sanctions and export restrictions targeting Russia," for an overview of the US government’s series of measures in response to Russia’s actions in Ukraine.

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