Additional Information About Public Offering Insurance
POSI insurance involves a one-time purchase of coverage for claims arising from misstatements or breaches of representations made in the prospectus, the offering, or the roadshow.
The coverage is purchased in advance for a period of seven years, usually matching the statute of limitations. Crucially, the insurer is not entitled to cancel the policy during this period, providing absolute certainty for the leadership team.
Ring-Fencing the Offering Risk
Among other purposes, the policy is intended to hedge risk and ensure that the policy covering the liability of officers for ongoing operations is not impaired. By “ring-fencing” the transaction exposure, POSI prevents a prospectus-related claim from depleting the limits of the standard annual D&O policy.
Under this policy, coverage is provided for the liability of the issuing company, as well as its employees, officers, and directors. The policy may also include:
- The issuer’s obligation to indemnify underwriters and advisors regarding prospectus information.
- The liability of controlling shareholders in their capacity as owners rather than officers.
- The liability of selling shareholders.
The Commercial Advantage
From a long-term perspective, arranging a separate POSI policy is often more cost-effective than extending an annual D&O policy to cover the offering.
- Budget Management – The premium for POSI can often be deducted from the proceeds of the offering.
- Premium Stability – An annual D&O policy that includes offering exposure must be renewed each year at potentially higher rates if market conditions change.
- Independent Hedging – A dedicated seven-year policy independently hedges the offering-related risk at a fixed price, allowing the annual policy to remain focused on “business as usual” risks.
