POSI stands for Public Offering of Securities Insurance. Alternatively, the term IPO policy (Initial Public Offering) is used. The insurance covers the prospectus liability risk when securities are sold and in particular when floated to the capital market. Initially established in the Anglo-saxon countries, POSI has also become increasingly popular in Europe in recent years. As bonds also play an increasingly important role as a financing instrument, the relevance of hedging in this area is also increasing.
The legal basis for prospectus liability under Swiss law is Article 752 of the Swiss Code of Obligations: “Where information that is inaccurate, misleading or in breach of statutory requirements is given in issue prospectuses or similar statements disseminated when the company is established or on the issue of shares, bonds or other securities, any person involved whether wilfully or through negligence is liable to the acquirers of such securities for the resultant losses”.
The core of the POSI policy is the defense against and satisfaction of claims based on the aforementioned law due to incorrect information in the prospectus. All roadshows and the documents, articles and oral and written statements of the persons responsible within the issuer and committed external lawyers and banks used in advance and made public are also insured; claims against the selling shareholders can also be covered. Unlike the company’s D&O risk before and after the issue, the public offering of securities is a one-off event. However, this uniqueness and the regularly considerable amount of the transaction speaks in favour of an increase in the insured sum and an independent policy. The conclusion of a separate POSI policy can also be contractually agreed. The circle of insured persons and companies goes beyond that of a D&O policy. The costs for this policy are added to the issue costs in a similar way to an M&A policy. The POSI also covers the liability risk of companies, whereas the D&O policy essentially covers the directors’ personal liability risk.
The scope of coverage of the POSI policy has undergone significant changes in the last 10 years. The decision of management is usually announced relatively quickly and the sums insured usually require a consortium of insurers. There is often little time for negotiations and coordination between the client, the leading insurer and the insurance consortium requires experience and a certain skill in a hectic time.