Whether you think the causes included timing, animal spirits or the JOBS Act, it’s indisputable that 2013 was a great year for IPOs. However, as the year draws to a close the D&O insurance markets’ appetite for IPOs has not matched that of the financial markets.
“We have seen higher pricing for the D&O insurance for IPOs as the year has progressed, compared to Q1 of 2013. Insurance market appetite for the first $15 million in coverage has waned. This constrained supply of capital has allowed the few insurers willing to quote the critical first few layers of a company’s D&O insurance program to increase premiums at a steady clip. Eventually we’ll see other insurers jump in as premiums increase, but for now there is concern in the insurance carrier community that all the “good” IPOs have already gone out. Some insurers have even started giving the soft message that they are essentially taking a break when it comes to quoting the first $5 or $10 or even $15 million for technology IPOs,” says Carolyn Polikoff. And she’s in a position to know. As the D&O practice leader at Woodruff Sawyer, she’s had a direct view into more than 40% of all CA-based IPOs that have priced thus far in 2013. Adding in all of the Woodruff Sawyer IPOs outside of California, Carolyn’s had a view directly into almost 10% of all IPOs nationally.
If you are thinking of doing an IPO in the next 4-12 months, what’s the take-away? When it comes to obtaining insurance in this kind of market, a systematic process is critical. First, it makes sense to choose your insurance broker in a timely way. Before your first filing is ideal, and it’s worth switching to an IPO specialist later in the process to take advantage of the needed expertise. Outside counsel—both corporate attorneys and securities litigators—can be a great source of referrals.
Second, you want to be sure that your D&O IPO insurance broker specialist understands not just insurance but also corporate governance. Your company’s outcomes will be enhanced if you approach the insurance market in a manner that denotes a level of savvy sophistication. This includes being able to speak to corporate governance issues that are meaningful indicators of a seriousness of purpose when it comes to risk mitigation.
Finally, know what you need to know when it comes to the basics of D&O insurance for an IPO. Here’s a D&O Insurance for Your IPO primer that can serve as a useful guide on this point.
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And speaking of IPOs . . . A big shout out to Pillsbury for their wonderfully produced video “Nuts & Bolts of IPOs Panel: Moderator’s Key Takeaways.” It’s a succinct summary of the wisdom the original panel shared at the live event. Also check out this video of featured Pillsbury partner & panelist Gabriella Lombardi. And this one of Pillsbury partner (not to mention the host of the last several Pillsbury Liquidity Summits), Jorge Del Calvo.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: firstname.lastname@example.org.