Definition:Non-reliance letter
📜 Non-reliance letter is a written acknowledgment — typically issued at the request of professional advisors — in which one party to an insurance M&A transaction confirms that it is not relying on reports, analyses, or opinions prepared by the other party's advisors and will not bring claims against those advisors based on such materials. In insurance deals, these letters are especially prevalent because transactions routinely involve actuarial reports, reserve studies, embedded value calculations, and regulatory capital assessments prepared by actuaries, accountants, or consultants engaged by the seller — work products the buyer inevitably reviews but that were commissioned for the seller's benefit and are subject to assumptions the buyer has not controlled.
🔍 The mechanics are straightforward but consequential. The seller's advisors — whether an actuarial firm that produced a reserve opinion, an accounting firm that prepared quality-of-earnings analyses, or a consulting firm that assessed IT systems — will condition the buyer's access to their reports on receiving a non-reliance letter from the buyer. By signing, the buyer acknowledges that the report was prepared solely for the seller, that the buyer is not a beneficiary of the advisor's duty of care, and that the buyer will conduct its own independent analysis. In practice, this means the buyer's own actuaries and accountants must independently verify reserve adequacy, IBNR estimates, and financial projections rather than taking the seller's commissioned work at face value.
⚠️ Far from being a mere formality, the non-reliance letter has significant ramifications for risk allocation. It effectively prevents the buyer from pursuing professional negligence claims against the seller's advisors if the reports contain errors or omissions — leaving the buyer's recourse limited to warranty and indemnity claims against the seller itself or coverage under a W&I insurance policy. In insurance transactions, where long-tail reserve uncertainty can produce material adverse surprises years after closing, the non-reliance letter underscores why buyers invest heavily in their own due diligence workstreams. Sellers and their advisors, conversely, view the letter as essential liability management — without it, an actuarial or accounting firm could face claims from parties it never contracted with, potentially across multiple jurisdictions.
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