POSI – Public Offering Of Securities Insurance
One of our major specialities is arranging insurance for companies making a public offering of securities in Israel or anywhere else in the world.
Over the last several years, we have arranged insurance for the vast majority of public offerings that have taken place on the Tel Aviv Stock Exchange as well as numerous public offerings of Israeli companies on various global stock exchanges such as the NASDAQ and the London Stock Exchange. In 2018, for example, Leaderim arranged 80% of all insurance policies covering public offerings on the Tel Aviv Stock Exchange.
A public offering of securities creates a very substantial exposure to claims by investors and other parties, including strict liability imposed by the regulatory entities and the potential for investigations and administrative enforcement proceedings. Claims have been on the rise over the last few years, with specific reference to class actions and derivative actions, both against the Israeli companies as well as against their directors and officers in their personal capacity due to events relating to public offerings, predominately on grounds of “misleading statements in a prospectus”. There is also an increasing trend of encouraging investors to use claims as a means to enforce the duties of directors and officers and corporate governance rules.
The most important insurance product for public offerings, designed to provide optimal personal protection for the directors and officers and the issuing company itself, is called Public Offering of Securities Insurance (“POSI”). This insurance product is arranged on a stand-alone basis for a period of 7 years from the date of the offering and provides optimal cover for securities claims related to the prospectus or the public offering process, including in connection with the financial roadshow stage and covering the liability of the parties involved in the offering.
The policy is also designed to fence the risk and cover the main exposures arising from the offering in order to ensure that one of the most important assets of the company officers – the policy covering their liability due to the regular operations of the company – should not be affected in the event of a claim arising from the prospectus.
Such a policy provides cover for such claims arising from the liability of the issuer as well as for its employees, directors and officers. It is also possible to extend the policy to cover the liability of the issuer to indemnify the underwriters and prospectus advisers in connection with the statements contained in the prospectus, to cover the liability of the controlling owners of the issuer (in their capacity as controlling owners and not necessarily as officers) and to cover the liability of the shareholders who are selling the shares of the company as part of the offering.
Another advantage of arranging such a policy is cost efficiency. Taking a long-term view, the cost of arranging a stand-alone policy for a public offering and prospectus for a period of seven years which isolates the risk, together with a regular annual D&O policy that does not cover the offering and the prospectus, will be more cost efficient than arranging an annually renewable policy with an extension for the prospectus and the offering.
It is essential for any company deciding to proceed with a public offering of securities to consider the various issues involved in such a move and the main exposures and risks it presents, bearing in mind that the lion’s share of the risk can be successfully offloaded by arranging a POSI policy.
Tamar Petroleum share flotation on the Tel Aviv Stock Exchange.
Amidar corporate bond offering.
Altshuler Shaham Provident and Pension Funds share flotation.
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