Managing transactional risk and insurance in Japan
May 2025 | TALKINGPOINT | MERGERS & ACQUISITIONS
Financier Worldwide Magazine
May 2025 Issue
FW discusses transactional risk and insurance in Japan with Kosuke Inada, Toshifumi Kajiwara and Takuya Miyazawa at Time Machine Underwriters.
FW: How prevalent is the use of insurance as part of M&A transactions in Japan? How would you characterise current appetite for this form of risk management?
Kosuke: The use of warranty and indemnity (W&I) insurance in Japan has been steadily increasing. In 2024, approximately 40 to 50 domestic and 20 to 30 cross-border deals were bound, totalling around 60 to 80 transactions. Considering that no domestic W&I insurance deals were bound five years ago, this marks significant growth. However, despite this expansion, the penetration rate remains relatively low. In 2024, there were around 4700 M&A transactions in Japan, including 3702 domestic and 665 cross-border deals. Compared to the overall M&A market, W&I insurance adoption is still limited. As awareness of its benefits grows, the market is expected to expand further. Following global trends, more businesses in Japan are likely to integrate W&I insurance into their M&A transactions to mitigate risks and enhance deal certainty.
FW: Could you outline the key characteristics of warranty and indemnity (W&I) insurance policies in the region? What are the main benefits W&I insurance brings to a transaction for both buyers and sellers?
Takuya: In cross-border M&A, W&I insurance terms in Japan generally align with global standards. However, domestic M&A transactions involve unique policy wordings and underwriting practices, including Japanese-language reviews, policy terms and the frequent omission of underwriting calls. W&I insurance is particularly beneficial in private equity (PE) exits, as it limits the seller’s liability and facilitates smoother deal closure. For buyers, it protects against unknown breaches, reduces reliance on seller indemnities and enhances bid competitiveness. Additionally, it simplifies warranty negotiations, improving deal execution and post-closing relationships. As W&I insurance gains traction in Japan, it is expected to play an increasingly vital role in mitigating risks and improving transaction efficiency for both buyers and sellers.
“As Japan’s W&I market is still maturing, choosing an insurer or MGA with extensive experience is essential to ensure well-structured policies.”
FW: What role do the major insurers, managing general agents (MGAs), brokers and agencies play in the Japanese W&I insurance market?
Kosuke: In Japan’s domestic market, local insurers and a managing general agent (MGA) are essential, as all communication is conducted in Japanese. In particular, the first Japanese MGA specialised in W&I insurance emerged in 2022 and it has significantly contributed to the development of the domestic market. For cross-border transactions, international insurers and MGAs remain key players. Brokers, particularly international firms, play a crucial role in both domestic and cross-border markets. Marsh Japan has held a significant market share, and Aon Japan, WTW Japan, BMS Japan and in-house agencies also have become more active than before.
FW: What considerations should parties in Japan take into account when determining whether a W&I insurance policy is right for their particular situation, and evaluating the pricing, terms and coverage on offer?
Takuya: When evaluating W&I insurance, Japanese parties should consider more than just the premium. Key factors include the insurer’s capacity limit, coverage scope and flexibility, exclusions, experience in underwriting similar deals, and the ability to provide quick responses aligned with the deal schedule. The reputation and expertise of brokers are equally critical. A skilled broker can negotiate favourable terms, recommend suitable insurers, and provide insights into past claims and underwriting practices. As Japan’s W&I market is still maturing, choosing an insurer or MGA with extensive experience is essential to ensure well-structured policies, smooth claims processes and overall transaction efficiency.
“As Japanese companies seek more sophisticated risk management solutions, tax insurance adoption is expected to expand.”
FW: In the event of an actual or alleged breach that may trigger a claim, how is the claims process in Japan likely to unfold, and what is the current situation regarding claim occurrences?
Toshifumi: The W&I insurance claims process in Japan generally follows global standards. Policyholders must promptly notify insurers of any potential breaches. As the market is still developing, claim volumes remain relatively low. However, claim payments are increasing, with a broker report citing an $11.3m payout for a domestic case. Similar to other regions, the most common types of claims in Japan tend to involve financial, tax and regulatory compliance breaches. As the number of insured transactions rises, claims are expected to increase accordingly.
FW: Could you provide an overview of the functions and benefits of tax insurance? Are you seeing greater application of these policies in Japan?
Toshifumi: Tax insurance protects businesses from financial risks related to tax audits and disputes. It covers potential tax liabilities arising from M&A transactions, restructurings or uncertain tax positions, provided specific conditions, such as obtaining a tax opinion, are met. The key benefits of tax insurance include enhancing deal certainty, mitigating financial exposure, and facilitating smoother negotiations between buyers and sellers by replacing escrow or indemnities. In Japan, the use of tax insurance is gradually increasing for both cross-border and domestic deals. Growing awareness, evolving tax regulations and a rising number of complex transactions have driven interest in this coverage. As Japanese companies seek more sophisticated risk management solutions, tax insurance adoption is expected to expand.
“More businesses in Japan are likely to integrate W&I insurance into their M&A transactions to mitigate risks and enhance deal certainty.”
FW: Looking ahead, do you expect to see an uptick in W&I insurance as part of transactions in Japan? What factors are likely to drive future trends?
Kosuke: M&A activity in Japan remains strong. The PE industry has become increasingly active, with the number and value of PE deals rising year by year. Additionally, business succession has emerged as a major social challenge, as the average age of company presidents continues to rise. This trend is expected to drive further M&A activity. However, the penetration rate of W&I insurance remains low, presenting a significant market opportunity. At the same time, awareness of its benefits, along with the capacity of local insurers and MGAs, is steadily increasing. Given these factors, we are highly optimistic about the future growth of the W&I insurance market in Japan.
Kosuke Inada is the founder and chief executive of Time Machine Underwriters, the first MGA in Japan specialised in transactional insurance solutions, backed by Mitsui Sumitomo Insurance Co., Ltd. Prior to this role, he spent over a decade in the Japanese insurance industry including as an executive officer at a general insurance company and its holding company in Japan, and as a deputy director in the insurance department of the Financial Services Agency of the Japanese government. He can be contacted on +81 80 6708 3098 or by email: inada@tmuws.com.
Toshifumi Kajiwara is the chief underwriting officer at Time Machine Underwriters. Prior to this role, he worked at an IT company as the head of the legal & compliance department and served as the data protection officer. Prior to his in-house experience, he spent several years as an attorney at an international law firm. He can be contacted on +81 80 9358 3371 or by email: kajiwara@tmuws.com.
Takuya Miyazawa is an underwriter at Time Machine Underwriters. Prior to joining the firm, he was a senior underwriter at Tokio Marine & Nichido Fire Insurance, one of Japan’s leading general insurance companies, where he played a key role in underwriting financial lines and W&I insurance. He can be contacted on +81 80 9398 3838 or by email: t.miyazawa@tmuws.com.
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