What to know about W&I insurance in Brazil

In recent years, warranty and indemnity (W&I) insurance has become an increasingly important risk allocation tool in Brazilian M&A transactions While still less widely used than in more mature markets such as the United Kingdom or the United States, the product is gaining traction in Brazil, particularly in cross-border transactions and deals involving private equity sponsors or multinational strategic investors.

Brazil remains the largest M&A market in Latin America and continues to attract significant international investment across sectors such as technology, infrastructure, financial services and energy. As transaction structures have become more sophisticated and competitive auction processes more common, parties have increasingly turned to W&I insurance to facilitate deal execution and allocate post-closing risk more efficiently.

Although W&I insurance does not replace traditional contractual protections, it is frequently used alongside mechanisms such as escrows, holdbacks and indemnity caps to manage potential exposure arising from breaches of representations and warranties. In many transactions, the availability of insurance can reduce the level of seller liability required under the transaction documents, enabling sellers to achieve a cleaner exit while providing buyers with additional protection.

The product has proven particularly valuable in transactions involving foreign investors who may be less familiar with the Brazilian legal and regulatory environment. For these buyers, W&I insurance can provide additional comfort in jurisdictions where litigation exposure, regulatory complexity and enforcement practices may differ significantly from those in their home markets.

However, structuring W&I insurance in transactions involving Brazilian targets requires careful consideration of the country’s insurance regulatory framework, reinsurance structures and legal environment. Brazil operates a regulated insurance market supervised by the Superintendência de Seguros Privados (“SUSEP”), and the placement of insurance covering Brazilian risks is subject to specific legal and regulatory requirements.

Against this background, understanding how W&I insurance operates within the Brazilian legal and regulatory framework is essential for underwriters, brokers and transaction advisers involved in deals with Brazilian exposure.

The following sections highlight key considerations when structuring W&I insurance in Brazilian M&A transactions.

1. Market practice in Brazilian transactions

In practice, W&I insurance placements involving Brazilian targets are typically coordinated by international transactional risk brokers and underwritten by insurers operating in the London or US markets. Where the policy is issued locally, a Brazilian insurer authorised by SUSEP may act as a fronting insurer, issuing the policy in Brazil and ceding most of the risk to reinsurers. The underwriting process generally follows international market practice, with insurers reviewing the transaction documentation, disclosure materials and due diligence reports before confirming coverage. However, the structuring of the policy must also consider Brazil’s regulatory framework governing the placement of insurance, reinsurance arrangements and the handling of claims involving Brazilian risks.

2. Brazil is a non-admitted insurance jurisdiction

Brazil operates under a regulated insurance market supervised by SUSEP. As a rule, insurance covering Brazilian risks must be issued by an insurer authorised to operate in Brazil.

Local insurers may cede risk only to reinsurers authorised by SUSEP, which may be registered as local, admitted or occasional reinsurers. As a result, W&I placements involving international underwriters often rely on fronting arrangements with a locally licensed insurer.

Fronting structures are permitted but must comply strictly with Brazilian insurance and reinsurance regulations, including cession rules and preferential rights granted to local reinsurers.

3. W&I policies may be placed abroad in limited circumstances

Brazilian law generally requires Brazilian companies to place insurance covering Brazilian risks with local insurers. Placement abroad is permitted only in specific circumstances and typically requires a regulatory process.

In cross-border M&A transactions involving Brazilian parties, SUSEP must be notified where insurance is placed abroad. Where the target is a Brazilian company, offshore placement is typically permitted only if equivalent coverage is not available in the local market and certain regulatory formalities are observed.
These restrictions do not apply to individuals or entities resident or domiciled outside Brazil, which may obtain insurance in their own jurisdictions even where certain risks or beneficiaries are in Brazil. In practice, however, indemnity payments remitted into Brazil may face operational scrutiny from regulators or financial institutions.

For this reason, early regulatory analysis is advisable when structuring cross-border W&I placements.

4. Reinsurance structures

Brazilian W&I placements with foreign underwriting capacity frequently rely on a fronting insurer licensed by SUSEP, which issues the policy locally and cedes the underlying risk to reinsurers.

In these structures, the local insurer typically retains a small participation while most of the risk is transferred to reinsurers registered with SUSEP. Brazilian regulation also grants preferential rights to local reinsurers in certain cessions, which must be considered when structuring placements.

Practical complexity often arises in aligning the wording of the local fronting policy and the reinsurance agreements. Differences relating to policy formation, claims handling deadlines, arbitration provisions or governing law may create operational friction within the reinsurance stack. As a result, underwriters and brokers typically scrutinise these structures closely to ensure alignment between the insurance and reinsurance layers.

5. Coverage for unknown liabilities

Consistent with international market practice, W&I insurance is designed to cover unknown breaches of representations and warranties. Known or expected liabilities, identified risks or matters excluded during due diligence are generally carved out from coverage. In Brazil, transactions often involve complex tax, labour and regulatory exposures. While contingent risk insurance and tax liability insurance may be used as complementary products, their use remains relatively limited in the Brazilian market compared with more mature jurisdictions. This may represent an area for future market development.

6. Currency

W&I policies covering Brazilian transactions may be issued either in Brazilian Reais or in foreign currency, subject to compliance with Brazilian insurance and foreign exchange regulations.

In cross-border deals, foreign-currency-denominated policies are often preferred by international buyers, particularly where the purchase price or financing structure is denominated in foreign currency..

7. Governing law and dispute resolution

Brazilian insurance regulation imposes restrictions on governing law in certain circumstances. Brazilian law must apply where:

• the policy is issued in Brazil;
• the insured is resident or domiciled in Brazil; or
• the insured assets or risks are located in Brazil.

The recently enacted Brazilian Insurance Law (Law No. 15,040/2024) introduces additional interpretive considerations regarding insurance contracts and may affect certain aspects of dispute resolution and policy interpretation. Arbitration remains available but may be subject to mandatory application of Brazilian law in specific scenarios.

These developments reinforce the importance of careful policy drafting in cross-border placements.

Payment of claims in Brazil

The new Brazilian Insurance Law introduces statutory timelines for claims adjustment, which may affect the handling of W&I claims where the policy is issued locally.
Claims typically require documentation such as:

• the transaction agreement and disclosure schedules
• evidence of breach of warranty
• financial quantification of loss
• supporting due diligence reports and relevant corporate documentation.

Where indemnities are paid from abroad, insurers must comply with Brazilian Central Bank foreign exchange rules governing remittance of funds into Brazil. Regulators and financial institutions may review these transactions to confirm compliance with insurance placement rules.

Proper documentation and regulatory alignment at the structuring stage can significantly reduce operational delays when claims arise.

9. M&A’s most common risks in Brazil: 

Tax and Employment matters

Tax and labour exposures remain among the most frequent sources of post-closing disputes in Brazilian transactions. Brazil’s tax system operates across Federal, State and Municipal levels, creating a complex compliance environment with extensive reporting obligations and frequent regulatory changes. Tax litigation is common, and companies often maintain significant tax contingencies on their balance sheets. 

Brazilian labour courts are traditionally protective of employees, and employment-related claims are frequent. Buyers and underwriters therefore pay close attention to labour litigation history, benefits structures and compliance with collective bargaining agreements.

Environmental and corruption risks 

Environmental liability and anti-corruption exposure also feature prominently in Brazilian transactions.
Brazilian environmental law imposes strict liability for environmental damage, and enforcement by environmental authorities and public prosecutors can generate significant remediation obligations and financial penalties.

Anti-corruption enforcement has intensified since the enactment of the Brazilian Clean Company Act (Law No. 12,846/2013). Investigations by federal prosecutors and administrative authorities can lead to substantial fines, debarment from public contracts and reputational damage. These risks are therefore carefully assessed during underwriting and frequently result in specific exclusions or tailored policy terms.

10. Sectors to watch 

Certain sectors in Brazil tend to attract heightened underwriting scrutiny due both to their regulatory profile and to the level of M&A activity they generate. Transactions involving assets in these industries frequently require more detailed analysis of regulatory compliance, operational risks and potential liabilities during underwriting:

• Manufacturing and industrial: Transactions involving industrial assets often require careful assessment of environmental licensing, potential contamination and waste management liabilities, particularly where legacy operations are involved.
• Oil, gas and infrastructure: These sectors are subject to extensive regulatory oversight and concession frameworks, often involving multiple governmental authorities. Compliance with licensing, concession agreements and operational regulations is therefore a key underwriting consideration.
• Technology and data-driven businesses: Companies handling significant volumes of personal data face increasing exposure under Brazil’s General Data Protection Law (Lei Geral de Proteção de Dados – LGPD), including administrative enforcement by the National Data Protection Authority, in addition to exposure to cyber security issues.
• Healthcare and life sciences: Transactions involving healthcare providers, pharmaceutical companies or medical device manufacturers typically require careful analysis of regulatory compliance with ANVISA, product liability exposure and operational licensing requirements.

In these sectors, insurers generally place particular emphasis on the scope and quality of regulatory, environmental and operational diligence when determining policy coverage and exclusions.

11. Importance of Compliance structures

Robust compliance frameworks can materially influence the underwriting of W&I policies in Brazilian transactions.

Effective governance around regulatory, tax, labour, environmental and anti-corruption matters reduces the likelihood of undisclosed liabilities and provides underwriters with greater confidence in the quality of the target’s risk management processes. As a result, transactions supported by well-documented compliance programmes and internal controls often benefit from greater underwriting certainty and more efficient policy placement.
Conversely, weak compliance structures or limited documentation may lead insurers to impose specific exclusions, higher retentions or additional underwriting enquiries before confirming coverage.

Conclusion 

Although the use of W&I insurance in Brazil remains less widespread than in more mature markets, in ourexperience, it is steadily becoming an established feature of complex M&A transactions involving Brazilian targets. As international investors, private equity sponsors and strategic buyers continue to deploy capital in the region, the demand for efficient risk allocation mechanisms is expected to increase.

The structuring of W&I coverage involving Brazilian risks, however, requires careful consideration of the country’s regulatory framework, reinsurance structure and litigation environment. Matters such as the placement of insurance with locally authorised insurers, governing law requirements and the handling of tax, labour and environmental exposures can materially affect policy design and underwriting outcomes.

For underwriters, brokers and transaction advisers, a detailed understanding of the Brazilian legal and regulatory landscape remains essential to structuring effective coverage and ensuring that W&I insurance operates as intended in cross-border transactions. As the Brazilian transactional risk market continues to mature, greater familiarity with these issues is likely to support broader adoption of W&I insurance in the years ahead.