The number of lawsuits in connection with the acquisition of special companies that can trigger claims on board members and executives is expected to increase and can lead to further hardening in the D&O market, experts say.
Although there are still few in number, SPAC lawsuits are filed at a higher rate than other securities cases and concerns about SPACs are already affecting pricing.
SPACs, also called "blank check companies", are listed shell companies formed to raise capital to acquire existing companies and usually have two years to make an acquisition after their IPO.
A de-SPAC transaction occurs when a private company merges with a SPAC as an alternative to having its own IPO or combining with a traditional company. In the next step, the merged entities function as a public company.
The process is often seen as a less costly and cumbersome way to take a business listing.
SPACs underwent explosive growth last year, with 248 IPOs. 2020, compared with 59 in 201
"There is a huge amount of capital that wants to access the capital markets," and people have used the SPACs to access that opportunity, says John C. Marchisi, National Director, SPAC Segments, for Arthur J. Gallagher & Co. in Miami.
Experts say that SPAC activity has seen a temporary lull due to statements by the US Securities and Exchange Commission, which is considering new rules to address material information and investor protection concerns.
"They have thrown some cold water" with their statements, says Kevin LaCroix, vice president of Beachwood, Ohio, for RT ProExec, a division of R-T Specialty LLC.
But there are still many SPACs in progress, and activity is expected to resume, experts say.
"We are really seeing increased disputes over SPAC," said Kristin Kraeger, Boston-based CEO of Aon PLC.
But lawsuits are "a kind of unknown" factor as to whether they will survive layoffs, and insurers "take it into account in their pricing," she said.
However, Mach Millett, Boston-based SPAC and de-SPAC practice leader for Marsh LLC, said that the predicted avalanche of SPAC-related disputes has not materialized. There have only been 14 de-SPAC securities class actions this year, which is a small proportion of the sum.
However, the rate at which SPAC is being sued is higher than the share of the total class action on securities disputes "and this is a fairly telling statistic, which indicates to us that there will be a potential continued increase in the number of cases and prices that occur. with, says Nirali Shah, New York-based FINEX commercial US IPO manager for Willis Towers Watson PLC.
It leaves the question of how this will affect D&O prices.
Priya Cherian Huskins, San Francisco-based partner and senior Vice President of Brokers Sawyer & Co. said the D&O market is more stable than it was years ago, "prices are high," but we do not see it continuing to increase dramatically as we did this time last year. . ” "
However, it is concerned about the impact of SPAC disputes on pricing. In the last quarter, there has been a discrepancy in pricing between traditional IPOs and de-SPAC transactions, with the latter being charged a slightly higher premium," she said. 19659002] "We see what I would describe as a flight to quality" When it comes to insurance companies working with experienced management and boards, Kraeger said.
"It will be interesting to see if we continue to see more airlines actually jump into the D&O space, which will help with pricing and the terms and conditions offered," and alleviate the current pressure, Shah said.
"It is difficult to predict how the market will react" to disputes, says James Rizzo, New York-based guarantor of the US executive risk for Beazley PLC.
"It is easy to imagine that a certain capacity will be pushed down", which will put pressure on pricing. But the insurance industry is resilient, he said, and he expected new devices to come in while those already on the market like Beazley "will stand out."
Experts say it complicates the situation. There are three parties whose D&O coverage may be lost in disputes – private companies, SPACs and entities that have gone through the de-SPAC process, creating potential aggregation issues for insurers.
"The number of policies that can be exposed in this situation" applies, says Jacalyn Kroupa, Denver-based senior vice president at CAC Specialty.