Public offering of securities insurance (POSI)

Public offering of securities insurance (POSI)

The term “POSI” (Public Offering of Securities Insurance) mainly stands for the concept for securing against prospectus liability risk in the case of a capital market issue. When it comes to the public placement of securities, the issuer is legally obliged to publish a security prospectus containing extensive information about the opportunities and risks associated with the security. If security prospectuses possibly contain incorrect or incomplete information regarding risks, investors may experience financial losses. This can result in compensation claims by these investors. POSI is a third party insurance, i.e. it offers corresponding cost protection for the examination of third party liability and defending against unjustified claims, while also satisfying justified claims.

The initial public offering (IPO) is particularly risky for issuers of securities, as they find themselves in uncharted territory. As well as the IPO, other capital market measures that require prospectuses, in particular SPOs (Secondary Public Offerings), recapitalisations or debt issuance (bonds) are subject to prospectus liability risk.

Based on current case law (specifically: the Telekom/ German development bank judgement) and a more stringent legal position, in particular a limitation period of up to 10 years, issuers are increasingly purchasing higher insured sums. Industry experts assume that this trend is set to continue. The need for consulting with these hedging products is very high indeed.

What is insured?
POSI insurance provides special cover against liability risks associated with capital market measures. Other insurance held by the company issuing securities, in particular D&O insurance, does not offer sufficient protection and also cannot protect the wide ranging interests of the participants (e.g. first party damages sustained by the issuer, claims from banks)
Accordingly, the following cover elements can be insured:

  • Roadshows and other events
  • Co-insurance of consortium banks released in the “underwriting agreement”
  • Insurance protection for selling shareholders

Who is insured?

  • The company as issuer
  • The company’s officers and employees
  • Any relevant third parties

Who provides the insurance?
Unlike the bond issue market, which is now busy all year round, the market for equity capital issues (IPOs, SPOs, etc.) has really only returned to activity since the end of 2012, although the market for so-called mini-bonds (bonds from medium-sized enterprises) has ground to a standstill. However, the current phase of low interest rates among the central banks means that this alternative funding method using the capital market continues to have its attractions for businesses alongside regular bank loans.
In Germany, the leading D&O insurers are also POSI insurers. The maximum placeable capacity in the German market at present is currently approx. EUR 450 Million.