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🔒 '''No-leakage warranty''' is a contractual commitment given by the seller in an insurance [[Definition:Mergers and acquisitions (M&A) | M&A]] transaction — typically structured on a [[Definition:Locked-box mechanism | locked-box]] basis — guaranteeing that no value has been extracted from the target company between the locked-box date and completion. In insurance deals, where cash flows from [[Definition:Premium | premiums]], [[Definition:Insurance claim | claims]] payments, [[Definition:Reinsurance | reinsurance]] settlements, and [[Definition:Commission | commissions]] move continuously through the business, the warranty serves as the buyer's primary protection against the seller siphoning economic value after the reference balance sheet date has been set.

⚙️ Under a locked-box structure, the [[Definition:Purchase price | purchase price]] is fixed by reference to a historical balance sheet — the "locked-box date" — rather than adjusted through [[Definition:Completion accounts | completion accounts]] prepared after closing. The no-leakage warranty plugs the gap between that date and the day the deal actually closes by requiring the seller to warrant that it has not caused or permitted any "leakage": dividends, management fees, intercompany loan repayments, bonus payments, asset transfers, or any other flow of value from the target to the seller or its affiliates. In insurance-specific transactions, the definition of prohibited leakage is often tailored to capture items like upstream [[Definition:Quota share | quota share]] commissions to a parent, extraction of [[Definition:Investment income | investment income]] from the insurance float, acceleration of [[Definition:Profit commission | profit commissions]], or transfers out of [[Definition:Fiduciary fund | fiduciary accounts]]. Permitted leakage — ordinary-course items that both sides agree are acceptable, such as routine salary payments and normal [[Definition:Claims reserve | claims]] settlement — is carved out in a schedule attached to the [[Definition:Share purchase agreement (SPA) | SPA]].

💡 The warranty matters because it gives the buyer certainty that the enterprise value it priced on the locked-box date has not been eroded before it takes control. If leakage is discovered after closing, the seller is liable to refund the amount on a dollar-for-dollar basis, making it a powerful deterrent. For insurance targets, where [[Definition:Regulatory capital | regulatory capital]] adequacy is closely monitored by supervisors — whether under [[Definition:Solvency II | Solvency II]] in Europe, the [[Definition:Risk-based capital (RBC) | RBC]] framework in the United States, or [[Definition:C-ROSS | C-ROSS]] in China — unauthorized extraction of value could also jeopardize the target's solvency position, creating regulatory as well as commercial consequences. As a result, no-leakage warranties in insurance transactions tend to be more granular and heavily negotiated than in other sectors.

'''Related concepts:'''
{{Div col|colwidth=20em}}
* [[Definition:Locked-box mechanism]]
* [[Definition:Completion accounts]]
* [[Definition:Share purchase agreement (SPA)]]
* [[Definition:Net working capital target]]
* [[Definition:Purchase price adjustment]]
* [[Definition:Warranty and indemnity (W&I)]]
{{Div col end}}

Definition:No-leakage warranty - Revision history

PlumBot: Bot: Creating new article from JSON