Manager
Attorney at Law (Germany)
M&A Vocabulary – Experts Understand “NBI Report”
- An NBI report provides early, non-binding assessments of W&I insurance.
- Brokers compare offers, coverage amounts, premiums, deductibles, and exclusions.
- It serves as a basis for decision-making before the final underwriting of the insurance.
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The so-called “NBI Report” plays a central role in transactions in which W&I insurance is to be concluded and forms the essential basis for the policyholder's decision when selecting W&I insurance.
An NBI Report – not to be confused with the term “Non-Binding Offer (NBO)” – is a “Non-Binding Indication Report.” The NBI Report is an essential component of a sales process in transactions in which W&I insurance is being considered. The process f or concluding the W&I insurance runs parallel to the negotiation of the purchase agreement. The NBI Report is prepared by the insurance broker, who is ideally involved in the sales process at the earliest possible stage of the transaction. The broker approaches various providers of W&I insurance and obtains non-binding indicative offers, so-called “Non-binding Indications of Cover (NBI),” which he counterposes, evaluates, and compares in the NBI Report. The basis for the NBI Report is – usually prepared by the seller in bidding processes draft purchase agreement, especially of course the guarantees and indemnities contained therein. Based on the NBI Report, the policyholder selects – usually after various renegotiations with individual or all insurance companies – ultimately the W&I insurance that is suitable for him. The NBI Report is based on a preliminary review of the transaction and the draft agreement and serves to provide an initial assessment of whether and under what conditions the requested insurance companies and underwriters would be willing to offer a W&I policy for the planned transaction.
Based on initial transaction information – such as a draft of the purchase agreement, “Information Memorandum” or an early buy-side due diligence, if available – the requested insurers and underwriters analyze whether potential risks are identifiable that could prevent subsequent coverage. At the same time, the NBI Report shows which coverage amounts are possible and the order of magnitude of the expected premium. Likewise, the NBI Report typically contains an indicative assessment of deductibles, potential exclusions, and coverage extension options with which the insurance coverage can be synthetically extended, i.e. without adjusting the purchase agreement. This information enables the buyer and seller to assess at an early stage whether W&I coverage makes economic sense and is practically feasible within the framework of their transaction.
Especially in competitive bidding processes, obtaining an NBI Report in a timely manner can be decisive in order to compare the conditions of different insurers with each other. On this basis, the parties can already before the actual “Underwriting” recognize whether an insurer fundamentally excludes certain risks or whether critical queries are to be expected in the later process.
Despite its non-binding nature, the NBI Report is therefore an essential step on the way to the final W&I policy. Only after presentation of the NBI Report and a corresponding fundamental agreement by the parties do insurers enter into the actual “Underwriting”. The “Underwriting” process involves a comprehensive risk assessment by the insurer – essentially based on the pr oof of the complete due diligence reports as well as the data room content. The NBI Report thus functions as a necessary preliminary stage and provides significant indications of the feasibility of W&I coverage.
The decisive task of the legal advisors in this regard is to support the procurement and legal classification of the NBI Report, to examine the parameters contained therein and to assess the effects on the contract drafting within the framework of the company acquisition. In this way, an non-binding indicative offer becomes a powerful and legally sound insurance instrument that effectively protects transaction risks.