IPO insurance will offer cover for defence costs and damages arising from a misstatement which has mislead an investment decision. Potential IPO insurance claims can be significant if the stock price falls because investors may seek to recoup their losses.
An initial public offering materially changes a company’s risk profile and adds significant exposure to the personal assets of its directors and officers. An IPO insurance policy should be considered in conjunction with a new public directors & officer’s liability insurance policy.
(1) An initial public offering (issuance and sale of a stock to the public for the first time) on any stock exchange (LSE, AIM, Euronext, NYSE, Nasdaq, etc); (2) A secondary offering; (3) A debt or bond offering; (4) A private placement of equity or debt securities; or (4) A stock for stock transaction (merger or acquisition) resulting in issuance of new shares.
Insurance brokers and clients often confuse the offer of prospectus liability under an IPO insurance policy with the separate need for coverage in respect of the Warranties and Indemnities that are contained in a share purchase agreement specifically in connection with the merger or acquisition.
The draft prospectus (with offering price omitted) should be agreed by the insurers before any release to ensure they are comfortable with taking on the exposure. Non-disclosure agreements can be signed by all parties to ensure confidentiality.
It is important for the company and its directors and officers to seek advice early in the process to ensure suitable coverage is identified. Our team can work with you to ensure you identify the most appropriate IPO insurance to meet your needs.
This guide is for information purposes and based on sources which we believe are reliable, the general risk management and insurance information is not intended to be taken as advice with respect to any individual circumstance and cannot be relied upon as such.