Public offering of securities insurance (POSI)
A policy covering the liability of the company, its directors and sometimes its selling shareholders for inaccuracies in the prospectus of an IPO or offering, bought for several years at once.
An IPO or a capital increase through a public offering rests on a prospectus that engages the liability of those who prepare it: if the information it contains proves inaccurate or misleading and the share price falls, investors can sue the company, its directors, sometimes the selling shareholders and the banks that placed the securities. Public offering of securities insurance specifically covers claims linked to the transaction. It is bought in one go, for a term of several years matching the period during which actions can be brought, often six years, with a single premium paid at the time of the offering. It differs from the annual directors' liability policy, which often excludes offering-related claims or does not provide enough limit for them, and it can cover the entity itself, which the annual policy does not always do. Its pricing depends on the amount raised, the listing market, the United States being by far the most exposed, the sector and the quality of the documentation. IPOs of highly volatile technology companies have made it a product whose price closely tracks stock market appetite.
Textbook case: a company raises 500 million euros in its IPO and buys a 50 million public offering policy for six years, for a single premium. Eighteen months later, its share price falls 60 percent after the disclosure of a dependence on one customer that the prospectus played down: the investors' class action is handled by this policy, not the annual directors' policy.
POSI, public offering of securities insurance, prospectus liability insurance, IPO insurance
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