SIDE C cover provides cover for the company itself, as distinct from its directors and officers, in relation to claims arising from wrongful acts associated with the offer, sale or purchase or trading of its shares or securities (i.e. shareholder class actions).
D&O insurers of ASX companies have implemented remedial underwriting strategies and continue to tread cautiously when deploying capacity in an attempt to deliver a substantial uplift of the Australian D&O premium and profit. Insurers are taking this action in the face of on-going profitability issues originating from the Australian securities class actions and other significant claims activity.
Due to significant pressure on loss ratios (i.e. higher claims costs), insurers are looking to increase premiums and deductibles as well as taking a much more prudent approach to underwriting.
Sub $70M limits have been the subject of significant premium increases i.e. between 70% – 400%.
Capacity from insurers has also declined particularly with respect to Side C cover with the maximum capacity from some insurers reducing to $5M to $10M. Deductibles have also significantly increased.
Most ASX insureds should expect minimum deductibles for Side C cover of $250,000 to $1,000,000 any one claim.
Excess insurers are also responding because they are now experiencing securities class claims hitting their levels of cover and so are pricing cover higher as well.
The changes in the market has placed an increased importance on insurer selection, particularly excess insurers because the excess insurers have a significant say in the conduct of claims and so excess insurers’ experience in handling these types of claims must be taken into consideration.
We recommend insurance renewal planning commence early to ensure that an informed strategy for renewal of D&O be agreed and early market engagement undertaken. Given the upward pressure on pricing, insurers are seeing a significant increase in the number of submissions, which in turn has created congestion with insurers.
Early engagement with the insurers together with face-to-face meetings, where appropriate, are essential to differentiating risk profiles and ensuring best outcomes.
Renewal strategy discussions should consider reassessing adequacy of limits (Sides A, B + C) purchased as well as the appropriateness of ring fencing those limits so to protect directors from non-indemnified loss.
McCullough Robertson and our insurance advisory service, Allegiant IRS, can assist you with ensuring directors’ Deeds of Indemnity, Access and Insurance are drafted in concert with your company’s D&O insurance obligations. We can also guide you through the process of placement and renewal strategy of the D&O insurance program that strikes the right balance of risk transfer and retention in line with your company’s appetite to risk.