Further regulatory scrutiny and the sharp increase in SPAC business during the first quarter of this year have increased the caution of the few insurers willing to write off the principals 'and executives' coverage for the sector, experts say.
There were 308 SPAC IPO transactions this year on April 26, compared to 248 for the whole of 2020, according to SPACInsider.
Some of the most recent IPAC IPOs have begun to include information on risk factors related to D&O insurance in their registration statements, says Thomas P. Conaghan, a partner at McDermott Will & Emery LLP in Washington.
"The risk revealed is that SPAC will not be able to obtain or will have to pay high prices for D&O insurance, because the market has become so tight and prices have risen," says Conaghan.
SPAC is a special class with a limited number of insurers willing to offer coverage, says Kevin LaCroix, vice president of Beachwood, Ohio, for RT ProExec, a division of RT Specialty LLC. Corp. in September, "an alarm clock for the D&O insurance community," he said.
"During the third quarter of 2020, pricing began to escalate, so that pricing for a SPAC IPO in Q4 was more than twice as high as it would have been. been just two quarters earlier, "said LaCroix.
While SPACs are becoming the path of choice for many listed companies, they face the same challenges as all other publicly traded companies. surface to D&O risk, says Jeff Kurz, Columbus, Ohio-based CEO, Internal Insurance and Consulting, North America, at Artex Risk Solutions.
"It's a tough market ̵
In general, insurers are withdrawing capacity and increasing premiums, but with an "increased interest" in the unique potential risks that SPAC has, says Kurz.
Given the SPAC boom, "we are now at the point where sponsorship teams at their second, third and even fourth SPACs are asking:" Why did the price double? Why did detention increase? Why are my boundaries more restrictive? ", Says Jonathan Selby, head of the broker Foundershield LLC in New York.
Retention for a SPAC IPO, which ended in 2020 at about $ 5 million, is now potentially as high as $ 10 million to $ 12.5 million, says LaCroix. Not surprisingly, there is a lot of interest in using alternative vehicles to fund detention, he said.