2009-10-27

By Editor, CIR

An increase in the number of companies considering an initial public offering (IPO) or general capital raising is behind a surge in interest in taking out directors' and officers' liability and specialist transaction insurance, according to Marsh.

Commenting on the trend, Matthew Rolph, a managing director in the broker's Financial and Professional Practice, commented: "The global financial crisis has had a lasting impact on the risks faced by individuals within corporations when approaching investors. As capital markets stabilise, many organisations are beginning to look at a potential listing or secondary offering. They are also now considering acquisitions, rather than just divestments.

"While capital from fresh investors will be welcomed, company directors know that the representations they make in any prospectus may leave them exposed to future legal recourse for non-performance. These increased risks have limited cover under conventional annual D&O policies, which cover day-to-day management liabilities.

"Directors are also far more sensitised to personal liability. Over the past two years, we have seen the percentage of our FTSE 100 clients taking out additional cover for directors' personal assets -- where company indemnities are uncertain -- leap from 19% to nearly 50%. We expect that proportion to continue increasing."

To meet these new challenges, Marsh has created an insurance D&O facility to address these exposures, which is available in most countries worldwide. Reflecting the potential time lines for legal action, the facility comes with a six year period of cover, equivalent to the statute of limitations in many parts of the world. Cover is available up to £200 million.

Mr Rolph added: "We expect take up of this product by companies to be significant. In previous years, D&O cover for companies seeking to raise capital was regarded as an optional safety net. Furthermore, specific insurance to ringfence key management decisions was virtually non-existent. With significant returns on investment no longer seen as certain, this kind of cover has become indispensable.

"Insurance is being considered far earlier in the deal process. With the backdrop of increasing regulation, continuing market volatility and new expectations from investors, this new facility will enable directors of companies to seek capital with confidence."

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