Considering public offerings of securities or merger & acquisition activity? Make sure you are covered.



31 January 2022

Considering public offerings of securities or merger & acquisition? Make sure you are covered.

If your company is considering a public offering of its securities or merger & acquisition activity, you should make sure you check your Directors’ & Officers’ policy cover carefully. It is not always straight forward and many coverage issues can arise. 


For Initial Public Offerings (IPOs)

For a privately owned company undertaking an IPO on a public securities exchange such as the Australian Securities Exchange (ASX), the company’s current D&O insurance will not cover the newly listed company or its directors.

At the same time as the listing, the private company’s D&O policy will cease to provide cover except for claims arising from wrongful acts occurring prior to the listing date at most (known as ‘run-off’ cover) until the date the policy expires.

What’s more, any new D&O cover arranged for the newly listed company will not provide cover for wrongful acts resulting from the prospectus document unless cover has expressly been negotiated with the insurers to be included in the D&O policy (and at considerable additional cost).

For existing publicly listed companies 

Even for an existing publicly listed company, most D&O policies will not provide cover for public offerings of its securities on any securities exchange in order to raise capital. Some D&O policies go further and also exclude debt raisings.

For mergers & acquisitions

When a company is sold or merges with another company (i.e. top-company down), the company’s D&O policy will cease to provide forward moving cover from the transaction completion date, converting instead to providing run-off cover until the policy expires.


For IPO’s

Public Offering of Securities Insurance (POSI) is a product that has been specifically designed as a one off transaction insurance purchase (similar to Warranty & Indemnity for a trade sale).

POSI is a multi-year (7+ years), single insurance purchase for primary and sometimes secondary offerings on a public securities exchange.
Cover responds specifically to the risks associated with the offering faced not only by the directors but also the company and by extension of cover potentially to any controlling or selling shareholders.

For an IPO, new D&O cover will usually be arranged for the newly listed company, providing forward moving cover from the listing date (but no prior listing cover). The prospectus and associated documents can in most cases be added to cover by specific agreement with the insurers but will incur significant additional costs and conditions of cover. 

For existing publicly listed companies 

Public securities offerings can usually be added in to cover under the company’s current D&O program by specific agreement with the insurers and for additional cost as can debt raisings (if excluded currently).   

For mergers & acquisitions

New D&O coverage should be arranged for a new organisation, providing forward moving cover once the transaction completes on the sale of the company and all its subsidiaries in circumstances where the new organisation has an independent ownership and control structure.

If however the acquisition is being made by another organisation and is controlled by that organisation, forward moving cover (i.e. from the acquisition date and not before) can usually be arranged under the acquiring company’s existing D&O insurance.  Additional costs and conditions of cover will usually be incurred unless the acquisition is relatively small e.g. the assets and annual revenue of the acquired company are less than 10% of the consolidated group’s total assets and revenue.

For the selling organisation

In most cases the seller will be expected to assume the pre-transaction liabilities, however it is prudent for the buyer to ensure this is clearly stated in the sale and purchase agreement or equivalent agreement. 

The seller should ensure that D&O run-off cover is purchased for the exiting directors to cover the pre-transaction liabilities, usually paid for out of the sale proceeds, for a 7+ year policy period.  

The run-off cover is usually provided by the seller’s D&O insurers prior to the sale as an extension of the current policy (often referred to as ‘an Extended Reporting Period’ or ‘Discovery Period’ extension of cover) with the premium calculated at a multiple of the current annual D&O premium.

In summary

The insurance market for D&O and POSI has changed considerably over the past decade with pricing and availability of coverage becoming increasingly difficult in recent years.  

Howden strongly recommends that a thorough review of your cover is conducted early in the transaction process – not doing so or leaving it to the last moment could prove very costly.

Insight by Seth Corthine

Partner Financial Lines

T + 61 437 428 537

E [email protected]