The Indian capital markets are witnessing an unprecedented boom and corporate India is all set to leverage this opportunity to raise funds and achieve their corporate objectives. However, this increased market exposure leads to increased stakeholder litigation and with this increase in litigation comes a growing awareness of the responsibilities incumbent on the directors and officers of companies. This is especially true when the company makes a public offering of its securities. Signatories of a public prospectus have a personal responsibility for its contents and could therefore be found personally liable for the losses of securities holders arising from misrepresentations within the prospectus. These potential liabilities arising out of the issue of a prospectus can be very large. Most securities actions are fuelled by unfulfilled investor expectations, so as well as being substantial, legal actions can also occur much after the transaction. IPO Insurance (also known as Public Offering of Securities Insurance - POSI) addresses these uncertainties by ring-fencing securities exposures in a single premium, transaction-specific policy.
Why take a Tata AIG General Insurance Company Limited POSI policy?
- POSI gives companies the opportunity to ring-fence the significant and long-term exposure presented by securities offerings.
- POSI being a transaction specific product ensures suitable coverage to the insureds and protects the existing D&O contracts.
- Accounting rules may allow for the POSI premium to be capitalized against the offer proceeds, without being considered as a bottom line deduction from the company's profit and loss account.
- POSI is a transaction specific product and the policy period can be customized to provide protection for upto six years.
- Prospectus Liability
- Underwriter exposure from the Actual or alleged untrue or misleading statement or information from the Prospectus
- Defence Cost
- Controlling and Selling Shareholder Liability from the Actual or alleged untrue or misleading statement or information from the Prospectus
- Prior Claims and Known Circumstances
- Bodily Injury/Property damage
- Dishonest/Fraudulent Act
- Major shareholder exclusion.
Raising capital in a risky world
Investors and analysts have always scrutinized the prospectuses of companies raising capital for Stock exchange listings, mergers, expansions, etc. The scrutiny does not stop once the transaction has been completed. Shareholders and investors want to know how well their money has been invested and that also in an unforgiving environment.
The need for specialist insurance protection for issuers of securities has never been greater, and yet an alarming number of public offerings go ahead without suitable protection for the issuing company and its directors, officers and employees.
What does POSI cover?
- POSI protects the insureds against securities claims arising from an offering of a company's securities.
- POSI can also cover liabilities arising from negotiations, discussions and decisions in connection with the offering.
- Cover includes punitive and exemplary damages.
Who can buy a POSI policy?
POSI is designed for any company that is raising capital through the publication of a prospectus. It can provide cover for introductory offerings (IPO), secondary offerings and can also cover private placements.
The POSI policy covers to the company and its directors, officers and employees for securities claims brought against them in connection with the offering.
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