Page 40 - The Insurance Times September 2022

Insured against claims arising from error, omission, Protection against the liabilities arising from the issue
misrepresentation, or non-disclosure in the documents of the 'red-herring' prospectus, the roadshow
issued to potential investors and the costs involved in presentation, and any press releases etc
defending such allegations. Many dreams of taking their
Exposures arising from many overseas jurisdictions.
company public. Talent and drive transform the dream into
reality. But the reality is fraught with risk. Suddenly,
Pays -
company performance and decisions are subject to external
Defence Costs.
scrutiny. Investors who helped to achieve the dream can
turn it into a testing reality. Directors of newly floated Regulatory investigation costs/Administrative Expenses
companies run the ever-increasing risk of being sued or
Reputation and Response Costs (Pro - active forensic
investigated if investor expectations are not met.
service cost, repair of individual and company's
reputation, Notification, Monitoring, Electronic Data)
The road to a public offering is hazardous. Investors and
Damages& Settlements.
their advisers must be presented with detailed information
with which to judge the financial position and prospects of Punitive and exemplary damages, interest on
the company being floated. Directors and others face a judgements and awards.
difficult task in ensuring that all relevant information and
material facts regarding the company are presented POSI should be a pre-requisite for every organization
accurately. Is it ever possible to be confident of total planning to raise capital from the public, be it a public
accuracy? Investors experiencing a loss in the value of their offering of securities, debt, or equity rights issues or private
shares will seize upon any mistake and may claim that they placements.
relied upon it when investing in the company.
Difference between D&O & POSI -
Who can sue? A POSI policy operates to ring-fence the transaction
exposure, leaving the D&O policy to respond to "business
Investors may bring an action against management for
as usual" risks faced by the directors. When undertaking
an alleged misrepresentation, error, or omission in the
a public offering, many organizations purchase a POSI
prospectus on which they had relied to make their
investment. policy alongside their existing D&O policy.
Regulatory bodies have authority to initiate proceedings The scope of D&O contracts excludes public offerings.
against the parties to an offering in the event of Even if the cover is extended by paying an additional
allegations of wrongdoing or a breach of the listing rules. premium, there are many benefits of having a stand-
alone POSI cover like a broader set of beneficiaries -
organization, D&O, controlling/selling shareholders,
Coverages:
offering underwriter, etc.
Protection against potential statutory exposures.
POSI are multi-year policies and can be customized to
Other exposures from the transaction.
offer protection for multiple years with a one-off
premium levied for the full period of the policy. Also,
Policy coverage cannot be cancelled by insurers without
the insured's consent.
Thepremium for IPO policy can be capitalized as apart
of the process of fund raising. It can be claimed as an
IPO expense under the Income Tax act.
Automatic cover for follow-on offerings, including
roadshows, within 12 months of the initial offering and
up to 25% of the initial amount raised can be opted for.
Reasons for claims -

Receipt of undisclosed commissions, rendering the
prospectus false and misleading,

40 The Insurance Times, September 2022