Insurance guideline requirements for a company before an IPO
- Directors and Officers insurance
When going public companies can expect to pay significantly more for D&O insurance since there is a potential for an increase in the frequency of claims after an IPO.
The D&O coverage is generally written to provide broader coverage post-IPO. Since the risk of securities claims is so much greater for public companies, Side C coverage will specifically cover those risks.
Three of the basic insuring agreements commonly associated with D&O coverage for an IPO:
- Side A: Protecting the personal assets of your directors and officers by covering the losses of your leaders that result from claims for which the company does not indemnify them.
- Side B: Protecting the company against losses resulting from the company indemnifying an officer or director for claims that were made against them
- Side C: Protecting the company against losses resulting from securities claims made directly against the company\
Directors & Officers Liability
Managers of an enterprise are exposed to considerable risks. That exposure extends to the company?s capital and potentially personal assets. Managers can be held personally liable for improper action, even if mistakes were not made by another person on the team.
What are the coverage terms?
The policy terms are the most critical components to a public company?s D&O insurance program placement. Maximizing coverage in the event of a claim is rooted in contract certainty and broadest and best-in-class terms and conditions. Experienced D&O practitioners can protect from debilitating coverage gaps and exclusions. It takes an IPO-experienced and detail-oriented brokerage tactician to obtain critical coverage enhancements. Coverage topics such as straddle claims, definition of loss and D&O exclusions can be the difference between maximizing policy proceeds and an outright claim denial.
What is the policy structure?
Public company D&O insurance can be markedly different in structure than private company D&O insurance. Two very common examples include the separation of limits and the addition of dedicated Side A difference in conditions (?DIC?) insurance. There are structural considerations, such as entity investigative coverage, the inclusion of DIC limits within the ?A/B/C? tower and the decision to run-off prior coverage or maintain continuity of a program.
What are the limits?
Limits selection can be influenced by various factors, including: expected offering size, market cap, industry risk factors, historical claims activity, merger & acquisition exposure, bankruptcy risk, a company?s risk retention capacity, limits availability relative to budget and board directives.