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D&O insurers approach SPACs cautiously



The explosive growth of specialty acquisition companies, or SPACs, offers opportunities for the market for board members and officer liability insurance, but insurance companies are approaching the issue cautiously.

SPACs was one of the topics of discussion Wednesday at the Minneapolis-based Professional Liability Underwriting Society's annual D&O symposium, which was conducted virtually.

SPACs, also known as "blank check companies", are shell companies formed to raise capital to acquire existing companies and usually have two years to make a

Structures allow privately acquired acquired to be listed without going through a traditional IPO.

SPACs are developed in stages, including prior notification, before making an acquisition, the point at which it merges with the selected private company and after the merger or "de-spac" stage, when there is a combined company. Companies can apply for D&O coverage in all these stages.

SPAC has been "the great story of the financial market", with 2021

SPAC activity already exceeding 2021's 308 SPAC IPOs, says Kevin LaCroix, Vice President of Beachwood, Ohio, for RT ProExec, a division of RT Specialty LLC, which moderated a session on SPAC.

"There are many SPACS out there looking for merger partners right now, with a lot of money and a lot of IPOs going on," he said.

"It's hard to argue that you should not at least consider that approach," which is cheaper and easier than the traditional IPO, says Robert Clark, Maplewood, New Jersey-based senior vice president and CEO of Everest Specialty Underwriters, part of Everest Re Group Ltd., who spoke during a separate session on market conditions. However, the US Securities and Exchange Commission has questioned whether investors get a "fair shake" in this space.

The SEC has already launched an investigation into SPACS and is seeking information from investment firms on how to deal with the risks and the agency has released a statement on issues that should be considered before a private company makes a business combination with a SPAC.

SPAC is an opportunity, but "at the same time, you know you will only see losses due to the large volume of activity," said Allison H. Barrett, New York-based head of North America's financial lines at American International Group Inc. [19659002"Thereisacertainriskinthesetransactions"shesaid"ItisclearthattheSEC"wantstoslowdowntheprocessbutnotstopit"shesaid

"It's sincere where we see a lot of risks," including claims of difficulty concentrating, Barrett said. "There's a lot there and we'll just wait and see."

Stephen Sills, CEO of New York-based Bowhead Specialty Underwriters , said that the accelerated process of companies becoming public under the SPACs "creates a lot of problems.

Usually this means that a long baptism under fire and a lot of training is to bring a company's audience. Now "you just add water and immediately become a public company," Sills said, adding that he is not sure that all business leaders and managers of these companies are accustomed to all the constraints they have to live under in the specific environment. ] There is also a "huge aggregation problem here" from a D&O responsibility perspective, as SPACs go through their stages, he said.

Insurers are concerned about aggregation, with the possibility that they may be affected by the same event several times. , said Jaimie Hunter, Brooklyn-based senior vice president at Guy Carpenter & Co. LLC.

Mr. Clark said we do not know if unrelated parties will be able to claim SPAC. Hopefully, they will not have merits and will not go far, he said.

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