Financial Lines

THIS INFORMATION IS INTENDED FOR INSURANCE BROKERS AND OTHER INSURANCE PROFESSIONALS ONLY

Public Offering of Securities Insurance / Charting your way through

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Charting a course to an IPO “Going Public” can be an appealing strategy but we know, as a major
insurer of Initial Public Offerings (IPO), that the journey can be filled
with challenging twists and turns. This brochure looks at the depth and
intensity of some of the risks facing companies and individuals involved
in an IPO. It also highlights the protection that AIG can provide under its
Public Offering of Securities Insurance policy (POSI) together with what
our underwriters would consider when assessing your risk.

The Destination The Team The Exchange & jurisdiction The Deal & Prospectus Structure The Roadshow
You decide an IPO is the best You select a team of professional You choose the best market for You prepare a prospectus with You’re at the roadshow stage of
option for your company. advisors; lawyers, accountants, you and your shareholders. your team describing the risks and your IPO so will be delivering your
We look at the capital increase investment bankers, etc. We look at the jurisdiction and opportunities for your shareholders. message to investors and analysts.
or a selling shareholder and the We look at the underwriting exchange and the levels of We look at the price and size of the We look at how your prospectus
use of proceeds (investment, agreement (hold harmless) and registration, exemption and offering, the relevance of the risk and your presentation are aligned,
refinancing etc). your advisors’ track record. disclosure. factors, what guidance you provide, and the safe harbour preceding
and the controls and experience of your your forward looking statements.
board members and executive team.

Deep Who’s liable? Rules and AIG Claims

exposures regulations Protection scenarios

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Deep Exposures

A new world of deep exposures The exposures can last a long time
By raising capital from the public, a Actions against the people responsible for
company is creating new relationships, and prospectuses can be brought years after
opening up potential liabilities which are the offering, up to the statute of limitations
closely scrutinised by regulators. in the jurisdiction.
Investors who base their investment A POSI policy (unlike an annually
decisions on a prospectus may claim the renewable D&O policy) is set up to provide
full value of their loss if the information in cover for the duration of the transaction’s
the prospectus is proved to be wrong. exposures in the relevant jurisdiction, for
instance six years in the UK and three years
A POSI policy has limits tailored to the
in the US.
specific transaction, rather than relying on
a D&O policy.

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Trustees are personally liable for the running of their scheme, and so CorporateGuard
Pension Trustee provides wide third party liability cover for trustees. And there are some very
good reasons why pension trustees are more in need of this protection than ever before.

The people responsible What can they be liable for?

A prospectus must explicitly confirm that the people People responsible for the prospectus may face civil
responsible for it have taken reasonable care to and criminal liabilities if the prospectus is inaccurate,
Who can be liable? make sure the information is true. incomplete or misleading, particularly if they can’t
prove that proper care was taken preparing it.
Any of the following who have responsibility for the
prospectus can be liable for its content: People responsible for false representation in a
prospectus may also be liable under the Fraud Act
• The company issuing the securities
2006, punishable by a fine or imprisonment of up to
• The company directors at the time the prospectus ten years.
is published
• Any future directors named in the prospectus
• Anyone who is stated as accepting responsibility
in the prospectus
• Anyone who authorised the contents of
the prospectus.

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Rules and
regulations

Detailed rules have to be followed on prospectus Other important requirements on the information in
content the prospectus:
Under the Financial Services and Markets Act companies • It must relate to the particular nature of the company and its
that want to offer their securities to the public, or trade their shares
securities on a regulated market like the stock exchange, have • Information known by the directors that may impact the
to issue a prospectus. There are detailed rules about what has future performance of the company must be disclosed
to be in a prospectus in the Prospectus Regulations (which are
• Information that could be obtained by making enquiries
supplements to an EU directive) and The Prospectus Rules from
must be disclosed
the FSA.
• Omitting material facts can be as prejudicial as providing
A prospectus must contain enough information for the public to false or misleading statements
assess the risks and benefits of investing in the securities – and
• There must be a summary in non-technical language of the
specifically assess the company’s:
key facts and risks
• Financial position
• If any material information changes between FSA approval
• Historical results and trading, the company must publish a supplementary
• Future prospects prospectus
• The company’s rights attaching to the securities being • Anyone responsible for the prospectus must notify the
offered. company and sponsor of any new factor or inaccuracy as
soon as they become aware of it.

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An AIG POSI policy offers protection against some of the risks of ‘going’
public’. Policy highlights can be found below, but for more detail,
AIG protection commentary and an online policy tour visit the POSI area of our website
www.aig.co.uk

Contract certainty Cover that lasts as long as the

For maximum clarity and contract certainty, transaction
our POSI policy explicitly covers an offering’s Our POSI policy is purchased and tailored
potential liabilities including defence costs, specifically for the individual transaction.
damages, settlements, regulatory investigation Limits, conditions and cover for additional
costs, aggravated damages, interest on insureds are all structured around the offering’s
judgements and awards and multiplied portions particular requirements and cover lasts as long
of multiplied damages. as the exposure ( the statute of limitations in the
jurisdiction – up to six years in UK).
Cover for everyone involved in the
transaction “Ring-fenced” cover for non-executive
The wide range of interests involved in an directors
offering can all be covered under our POSI To make sure that non-executive directors have
policy including: current and prospective cover in place, even if the main policy limits
directors, shadow directors, non-executive are eroded by a large POSI claim, we give
directors, selling shareholders, the company, as an additional “ring-fenced” limit of cover up
well as offer underwriters to the extent that the to £1m for each non-executive director. This
company or directors have to indemnify them. is applied automatically and there is no need
to notify us if a new non-executive director is
Automatic cover for follow-on offerings
appointed to the board.
We provide automatic cover (full aggregated
limit) for any follow-on offerings, including Roadshows and negotiations
roadshows, within 12 months of the initial We make sure that any statements made
offering and up to 25% of the initial amount directly in connection with the public offering
raised. This is a valuable facility for projects during a roadshow are covered. Our POSI
such as exploration initiatives that may require policy covers “any direct representations or
multiple offerings. presentations” before the actual closing of the
application of purchase of the securities.

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Did you know that the premium of

the POSI may be deducted from the
proceeds of the offering, thereby
enabling companies to efficiently
manage their insurance budgets?

Crisis response Data protection Portable cover

We cover crisis management fees up to £100,000 Recognising the increasing prevalence of data The terms of a POSI policy are inalterable once
to protect the offering against potential crises protection legislation, we cover the issuer and the terms to cover the offering are in place, which
that could threaten it. These include regulatory insured persons against any breaches of data means that even for claims arising years after the
“raids” (or a public announcement about one), the protection and privacy laws around the world in issuance of the prospectus, former directors will still
unexpected death of an executive, cyber attacks on connection with the issuance of the prospectus, up to be covered just as they would have been at the time
the issuer’s computer systems and the issuer’s loss of a sub-limit of £50,000. of their employment.
a major customer or contract.
Non-avoidance
Emergency pre-approved defence costs For additional reassurance our POSI policy is
To make sure the policyholder’s defence isn’t non-avoidable (following accidental non-disclosure
undermined by any delay in contacting us about a of material facts for example). The only times when
potential claim, our policy provides “pre-approved” we might seek to avoid or rescind the policy are when
defence costs. Up to 10% of the overall policy limit there has been proven deliberate and fraudulent
can be incurred by the insured for professional misrepresentation or non-disclosure by the insured.
advice and defence should they be unable to
contact us.

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To illustrate some of the circumstances that could lead to Redundancy programme

a POSI claim, the scenarios chosen are loosely based on Shortly after its initial public offering of securities, a
actual claims, although details have been changed to ensure manufacturing company announces a major redundancy
confidentiality. programme. The company’s share price falls straight after
Claims scenarios The scenarios show situations where our POSI policy could the announcement, resulting in an immediate loss of value
respond with cover for companies’ and individuals’ liabilities to many of the investors in the IPO. Investors sued the
from prospectuses including; legal and defence costs, company alleging non-disclosure of this material information
damages, settlements and awards. in the prospectus and after two years of civil litigation the
manufacturer agrees a settlement figure in excess of £10m.
Poor quality assets
A manufacturing company initiates a public rights offer, but Missed profit targets
its prospectus fails to adequately report the poor quality of A construction company issues a prospectus for an IPO which
their assets. Shareholders who purchase rights on the basis of includes financial forecasts for the forthcoming year. Following
Some of the following claims scenarios involve investigation this information are disappointed when the share price falls the float the company falls well short of its forecasts, issuing
costs and potential criminal proceedings. Neither of these following listing. several profit warnings and the share price falls dramatically.
Investors who purchased shares on the basis of the prospectus
are unusual in circumstances where the financial amounts Shareholders take legal action against the company claiming pursue legal action to recover their losses, citing, amongst
claimed can be very high. Investigation costs of individuals that it failed to ensure that the prospectus information other things, the company and its directors’ misleading and
was not misleading and that it failed to ensure that the
can easily reach seven figures, whilst criminal proceedings deceptive conduct.
prospectus did not omit any information reasonably required
can, in a worst-case scenario, result in a loss of liberty for for a shareholder to make an informed assessment of the Regulators tipped off
the defendants. company’s financial position. A far eastern company withdraws its public rights offer
shortly before it is due to close after regulators receive a
Frozen proceeds
complaint that the company had failed to disclose that it
A services company is alleged to have materially overstated was in substantial legal disputes over terminated contracts.
its financial position in the issue of its initial public offer Its directors and other individuals involved in preparing the
prospectus. The regulator obtains an interim court order to prospectus face investigation, legal action and possible civil
freeze the funds raised in the offering. During this time the and criminal liabilities for any false and misleading statements
regulator conducts investigations and concludes that investors made in its prospectus.
in the company should be compensated for the financial
losses they sustained for purchasing shares on the basis of the
misleading information. The settlement costs reach in excess of
£100m.

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Collective action legislation in relation to securities litigation

is spreading in Europe , exposing companies to potentially
large settlements and high legal costs. High profile cases by
investors on the basis of misleading prospectuses, against
Dutch and German companies in the oil and communications
industries, are testament to this new environment.

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100
POSI at AIG

Underwriting experience Claims expertise

Our UK underwriters have provided dedicated cover The POSI underwriting expertise is underpinned by
for over 200 IPOs in the last five years. As well as UK
listings we have the expertise to provide cover for US
the strength and depth of our financial lines claims
team – consisting of 9 dedicated handlers based
countries and jurisdictions
IPOs for foreign issuers too. within the Financial Lines department in London,
and with several decades of combined experience
AIG has worldwide capabilities and can underwrite
between them. The team have personally dealt
from any country where we are licensed to operate
with several high profile crisis exposures that have
(and we have the largest owned global network of
impacted the financial market of recent years.
any insurance company).
Our strong internal UK network allows us to provide
our brokers and clients with a dedicated and
collaborative service.
More details can be found at: www.aig.com
In the broker section of the website within the
financial lines pages you can find more detailed
information including policy details and product
profiles.

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Unmatched global presence Our Values

As a company AIG aims to deliver excellent We see ourselves as enterprising but measured,
service across a large global network. We delivering insurance solutions that are effective
currently serve clients in over 130 countries as well as innovative, and listening carefully
and jurisdictions. and working transparently with our business
partners and clients. At the heart of everything
we do is an unshakeable commitment to
fairness and respect.
We meet client needs with confidence because
we’re driven by a long history of industry
leadership and expertise.

For more information, including links

to sample policy wordings, please visit
our website www.aig.co.uk where you
can find details of POSI and our other
financial lines products.

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 www.aig.co.uk
BELFAST CROYDON LEEDS MANCHESTER
Enterprise House 2-8 Altyre Road Yorkshire House 4th Floor,
55/59 Adelaide Street, Croydon, Greek Street, 201 Deansgate
Belfast BT2 8FE Surrey CR9 2LG Leeds LS1 5SX Manchester M3 3NW
Tel: 02890 726002 Tel: 020 8681 2556 Tel: 0113 242 1177 Tel: 0161 832 8521
Fax: 02890 726085 Fax: 020 8680 7158 Fax: 0113 242 1746 Fax: 0161 832 0149

BIRMINGHAM GLASGOW LONDON

Embassy House 4th Floor, 58 Fenchurch Street
60 Church Street, 69 Wellington Street London EC3M 4AB
Birmingham B3 2DJ Glasgow G2 6HJ Tel: 020 7954 7000
Tel: 0121 236 9471 Tel: 0141 303 4400 Fax: 020 7954 7001
Fax: 0121 233 3597 Fax: 0141 303 4440

American International Group, Inc. (AIG) is a leading global insurance organisation. Founded in 1919, today AIG member companies provide a wide range of property
casualty insurance, life insurance, retirement products, and other financial services to customers in more than 80 countries and jurisdictions. These diverse offerings include
products and services that help businesses and individuals protect their assets, manage risks and provide for retirement security. AIG common stock is listed on the New York
Stock Exchange and the Tokyo Stock Exchange.
Additional information about AIG can be found at www.aig.com and www.aig.com/strategyupdate | YouTube: www.youtube.com/aig | Twitter: @AIGinsurance |
LinkedIn: http://www.linkedin.com/company/aig.
AIG is the marketing name for the worldwide property-casualty, life and retirement, and general insurance operations of American International Group, Inc. For additional
information, please visit our website at www.aig.com. All products and services are written or provided by subsidiaries or affiliates of American International Group, Inc.
Products or services may not be available in all countries, and coverage is subject to actual policy language. Non-insurance products and services may be provided by
independent third parties.
American International Group UK Limited is registered in England: company number 10737370. Registered address: The AIG Building, 58 Fenchurch Street,
London EC3M 4AB. American International Group UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and
Prudential Regulation Authority (FRN number 781109). This information can be checked by visiting the FS Register (www.fca.org.uk/register).

GBL435881 FLS CI 1218

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