New Dawn Risk Group Limited, the international specialist insurance intermediary, has announced the recent appointment of Charlie Mills as Senior Broker in its Management Liability and Financial Institutions team.
Max Carter, CEO of New Dawn Risk, commented: “At this time of unprecedented turmoil, much of the immediate attention in the insurance industry has been centred on business interruption insurance, but there is a longer tail of impact that sits across the liability spectrum, and will be seen clearly in classes including D&O. As they navigate their way through this challenging environment, clients need strong, close relationships with experienced and dynamic brokers who can deliver them the solutions they need.”
Charlie joins New Dawn from The Hartford where he was a Financial Institutions Underwriter. Prior to that he held roles at Tokio Marine HCC and Sompo Japan Nipponkoa. He holds an honours degree in Environment and Business from the University of Leeds.
Notes to Editors
Established in 2008, New Dawn Risk is a dynamic, specialist insurance intermediary providing bespoke advisory solutions. We focus on complex, international liability and other specialty insurance and reinsurance. Clients large and small profit from our expertise, creativity and responsiveness – from risk assessment through to claims. 95% of our business emanates from outside the United Kingdom.
See below for Max Carter’s recent interview in Insurance Day
New Dawn Risk, the London market specialty lines broking firm, is more than ready to navigate its way through the challenges, and take advantage of the opportunities thrown up by a global insurance market environment which is being transformed by a combination of Covid-19, the rapid consolidation in the specialty lines broking sector, and a hard market which is becoming more entrenched.
According to Max Carter, the firm’s chief executive, operating in challenging market conditions is very much part of New Dawn Risk’s DNA. Founded by Carter in 2008 to focus on emerging risk areas in the US and on the emerging markets of the Middle East and Asia, the firm successfully traded its way through the global financial crisis, which he admits he did not see coming.
Launching the business, Carter says, was about fulfilling a long-standing ambition of setting up and running his own successful company. But it was a very nerve-wracking time, particularly in the autumn of 2008, when Lehmann Brothers collapsed, and there was a period of great uncertainty. “The crisis created a period of disruption and discontinuity in the global insurance market from 2009 to 2011/12, a time when a lot of business changed hands, rates hardened and capacity became scarcer,” Carter adds.
However, for those specialty lines brokers with a strategy, who were not too caught up by the rising sense of crisis, the dust settled reasonably quickly, he says. Companies still needed to buy insurance. Despite the financial pressures, there had not been mass business failures. “So, the client base was still there. The market hardened, particularly in our space, specialty liability lines, which is still the core business for the firm today. There were great opportunities on the professional indemnity and financial lines side of the business, and the crisis led to a raft of D&O claims. For any broking business looking for opportunities, there were plenty around,” he adds.
For Carter, there are a number of similarities between the market today, and the hard markets of 2002 and 2009. “There are other, important dimensions to this hard market which we did not have back then, but I think similar opportunities will present themselves both for insurers and for brokers like us that focus on specialty liability products – for which there will be a growing demand over the next three to five years.”
One of those dimensions is technology. Carter describes New Dawn Risk as a business that has embraced technology from the day it was founded. This was in a large part due to Carter’s involvement in the London market’s earliest attempts at electronic trading and distribution of specialty lines risks. He founded Iwix.net, a business-to-business insurance exchange targeting the specialty insurance marketplace in the US, in 1999 and later served as commercial director for Lloyds.com, the online trading division set up by Lloyd’s in the early 2000s.
As a result, New Dawn Risk has always been a paperless business, Carter says. “We have never had a filing cabinet in our offices. A few days before lockdown started, we were able, with almost no notice, to move out of our offices into a remote working environment. This was well before Lloyd’s shut down, and well before the government required us to do so. At New Dawn Risk, remote working presented no real change in the way things were getting done.”
He sees a number of challenges ahead for wholesale brokers in the London market, who came under significant pressure in 2019 as a result of the Decile-10 measures imposed on the market by Lloyd’s. It meant that last year was quite challenging for the wholesale broking sector in terms of new business. “We did not see as much new business coming into London as we had seen in previous years because the market hardened in London first, before it did in other global markets in the US, Asia and the Middle East.”
Proactive and innovative
Painful as it was, Carter’s view is that the market needed a nudge in the direction of improved profitability. But now, with the rest of the world having caught up, the situation has changed, he says. “Rates have been going up quite dramatically in the US, particularly in the D&O space. The volume of demand for capacity is increasing day by day. It is quite extraordinary. So, having had a relatively challenging year for new business last year, we are seeing some great opportunities.”
But to take advantage of many of those opportunities, wholesale brokers, particularly the smaller ones, will need to be a lot more proactive and innovative. Carter believes that London market wholesalers “will have to invest in broadening their knowledge and deepening their expertise in specialist product areas. That is going to be really important for our sector going forward.”
Wholesale brokers will also have to be both bold and nimble, Carter says, if they wish to be at the forefront of innovation in terms of new product development. “In this regard, the opportunities in the pandemic business interruption space will be tremendous. At New Dawn Risk, we are already looking at that as an opportunity.”
But, for the moment, in terms of emerging risks, the firm’s focus is on cyber and cannabis. Carter anticipates a tremendous demand for cyber cover because people will work more remotely than they have done in the past, and will continue to do so over the long term, which will present a host of new challenges to be solved by the insurance market. “And we intend to be ahead of the game in solving those challenges,” he says.
Carter sees the emerging cyber risk market as a great example of the need for innovation on the part of wholesale brokers. His experience with cyber goes back nearly 20 years to the time when he worked as head of business development for specialty lines at Beazley. Carter says when he joined Beazley in 2002, the company had 75 people working for it. “Within five years, it was a business with 800 employees. And that was really off the back of the hard market.” At this time the company was very much leading the market in terms of providing innovative cyber and other emerging risk covers.
Indeed, New Dawn Risk’s focus on cyber has seen it increase its presence in the retail market in the UK. UK business currently accounts for around 5% of New Dawn Risk’s overall brokerage, but the hope is that the firm’s new cyber initiative will help grow the size of that presence.
The demand for cyber cover in the UK is currently low, but Carter is confident that this will change. He describes cyber as possibly the most important cover that any enterprise could buy today, because of the absolute dependence of business on technology. “And it makes absolute sense that the risks associated with those technologies should be mitigated by insurance. We see cyber as a great opportunity. I have no doubt that, as a result of the changes in working practices that we are experiencing now, there will be a growing demand for cyber insurance as we come out of this crisis. Companies are beginning to realise the importance of technology to business continuity.”
There is, however, a great deal of work that still needs to be done by the insurance market in terms of raising awareness. The reality, according to Carter, is that so few businesses today buy cyber insurance in the UK, that the biggest challenge for brokers is persuading clients to buy the cover in the first place rather than competing with other brokers for business. Recruiting the right talent is now an absolute priority for both carriers and brokers, he says. “Who we hire will be critical for the development of the cyber insurance market over the coming years,” he adds.
The other interesting area for Carter is the risks associated with the production and use of cannabis. Indeed, New Dawn Risk has invested time over the last three or four years trying to understand the challenges and the opportunities. Unlike cyber, there is a great demand for insurance cover in the cannabis sector, but that demand is not being met, for all sorts of reasons.
This includes the fact that the US federal government still considers cannabis an illegal substance. “And yet, in 30 states, it is considered to be legal for medicinal purposes. And, in 12 states, it is considered to be legal for recreational purposes. If we, as an industry, can find ways to provide effective forms of cover that work within the constraints that currently exist and that addresses the concerns of companies who are operating in a space which is deemed illegal by the federal government, that will really be of real benefit. The cannabis sector is booming and could be worth $40bn in five years’ time. But it is also sector in which the companies operating in it are desperate for insurance cover, which they can’t get,” Carter says.
New Dawn Risk are currently working with a number of insurers to come up with a solution. “I am not saying we have got all the answers at this point. There is a lot of work that still needs to be done. But we are making progress.”
When Carter moved from US, where he was involved in setting up Beazley US, back to the UK in 2007, his remit was to develop Beazley’s international business, including in the emerging markets of the Middle East and Asia. “I felt very strongly that there was a tremendous opportunity. Things were happening in some of the Middle Eastern markets that really favoured a business like ours that was focused on specialty liability risks. The demand for D&O and professional liability was really growing. Prior to that, liability had not been an issue in the region. Businesses did not sue each other. But that was beginning to change. And liability cover was becoming an important part of insurance buying in the region. It was a very fertile time and we did a lot of business in the Middle East, particularly in the early days of New Dawn Risk.”
London opportunities
But it would have been foolish to ignore the opportunities that were in the US, particularly as it recovered the global financial crisis, Carter says. “We set up the business with a focus on emerging market opportunities, but we also included the new risks that were emerging in the US and being placed into London. “
Indeed, today, New Dawn Risk’s business very much reflects the decisions that were taken back then. “About half of our business comes from the US. The other half is international business, predominantly Middle Eastern and Asian reinsurance business. So, what we did in the early days is still very much in our blood today.”
Going forward, Carter is looking at new opportunities in the agricultural sector on the treaty reinsurance side in India, where New Dawn Risk is already well known. Latin America, where the firm has clients in Mexico, Columbia and Argentina, is another part of the world where Carter sees opportunities to expand. “But the reality is we have to operate within the constraints of our size. It is important that we don’t stretch ourselves too thin. By doing that, there is a risk that you can fail to provide the high level of service essential in our business.”
While the firm’s international business is very much focused on treaty than on facultative reinsurance business, more facultative opportunities are emerging as the market hardens and as the level of local capacity reduces. “In the short term, I am sure, we will see a growth in facultative business coming into London from international emerging markets. But our long-term strategy in the international reinsurance space is to focus on treaty business. We are seeing a number of new opportunities, particularly in Asia, and we are talking to insurance companies in places such as the Philippines, Thailand and Vietnam. Again, it is about making sure we are not stretched too thin on the ground.”
Carter’s vision for New Dawn Risk is to maintain its focus on professional indemnity, financial and specialty liability lines, both on the direct and on the reinsurance sides. “The plan is both to grow our international footprint over the coming few years, but at the same time to deepen our expertise and our capability to provide that high level of service that we believe is essential to success.”
He has no doubt that the way in which business is done in the market will change over the next few years as a result of Covid-19. “But, from my point of view, I think the most important thing that we must hold onto in London is that personal touch, the ability to maintain those personal relationships that allow us to get deals done and make business happen, even as we move into a much more virtual world of business. We have maintained the face-to-face model in the UK very successfully when most of the rest of the world has transitioned to something else. And that brings tremendous value which the market must not underestimate.”
Brokers and underwriters in the London market recognise the value that face-to-face model brings in terms of solving complex and challenging risk issues. “And, frankly, there is no better way of solving those issues than sitting down around a table or at a box in Lloyd’s and working through them. I just don’t think that the face-to-face element is going to go away.”
New Dawn Risk will be firmly rooted in the London market in the coming years, both physically and strategically, according to Carter. “I believe that the London market will continue to be the most important specialist re/insurance market in the world. I think that high volume, purely transactional business will become even less of a feature than it is now in the London market. Complex transactions that require deep expertise will continue to be done in London. To be clear, it won’t be the same market as it is today, but we want to be at the heart of this new London market. And that, as I have said before, will require us to focus on deepening our expertise in our chosen risk areas, have a better product knowledge and a better knowledge of our clients than our competitors.”
The transactional side of the new London market will be much more automated, according to Carter. “It already is. But for a wholesale and reinsurance brokers such as New Dawn Risk, it will come down to our expertise, our personal relationships with clients and our ability to be able to get deals done. Those factors will be central to our success in the next five years or so.”
—Ends–
We would like to thank Insurance Day for giving us permission to produce the above article.
The article below, by Nicky Stokes, Head of Management Liability and Financial Institutions at New Dawn Risk, was originally published in Insurance Day on 15th July 2020.
2020 has been a year of unprecedented turmoil across every aspect of life but for the insurance industry, few classes will feel quite the same impact as directors and officers (D&O). It is easy to forget that even before the onset of the pandemic the D&O market worldwide had already been seeing hardening over the preceding 18 months. This process has subsequently accelerated with D&O rates up 44% in the first quarter of the year according to a study from AM Best, which forecasts triple digit increases in a post-COVID world, as insurers respond to increased litigation and emerging claims. While the accuracy of that prediction remains to be seen, there is no doubt that these are turbulent times.
A wave of claims
A number of class actions have already emerged in the US against companies and their managers in connection with COVID-19 that may lead to claims on D&O policies. Norwegian Cruise Lines and its directors are facing a claim brought by shareholders alleging that the company issued false or misleading statements to encourage employees to downplay the virus and keep pressure on customers to maintain bookings, endangering the lives of both customers and crew members. In the days after the claim was brought, the company’s shares fell by almost 53%, causing significant losses for shareholders. A similar class action has since been brought against another cruise ship company, Carnival Corporation. We should expect more to come.
But while the cruise ship industry was one of the first industries to see claims, it is by no means the only one. Video conferencing provider Zoom, which has become a household name since the start of the pandemic, was hit with a class-action lawsuit by one of its shareholders, who alleged the company failed to disclose issues with its platform’s privacy and security.
Elsewhere, in one example in the pharmaceutical industry, biopharma company Sorrento Therapeutics and its officials have been accused of making misleading comments about a COVID-19 “cure”. The firm announced in May 15 that it had discovered an antibody that had “demonstrated 100% inhibition” of the coronavirus infection. This led to a steep rise in the company’s share price but shortly after Sorrento was to make a U-turn to stress that it had “potentially” found a cure. The subsequent major dip in the firm’s share price triggered a securities class action lawsuit on behalf of investors.
Insolvencies to rise
It is still too early to call the depth and length of the recession but it is safe to say it could be the worst in living memory, even without the possibility of a second wave of COVID-19 and a return to a stricter lockdown, with all the economic pressure that would bring. There will be bankruptcies, it is just a question of how many. As a result, directors will face a number of exposures which could see them facing investigations, claims and prosecutions, for example, for wrongful trading, fraudulent trading, misfeasance or breach of fiduciary duty. The courts may see a pandemic of bankruptcy cases.
We can also expect D&O claims from other sources. Management may be exposed to risks related to the way they have dealt with the process of putting staff into furlough, laying them off, or reducing their salaries and working hours. For example, in Mexico, factory workers are suing companies who they say refused to let them stop working even after the Mexican president ordered a lockdown. There may be risks relating to privacy infringement if employees have been asked questions around their personal health and that of their families. There is also the possibility of cases being brought alleging discrimination based on national origin or suspicion of being infected. And we are also seeing claims from workers given insufficient PPE.
Questions are also being asked of businesses’ cyber security now that many have the majority of their staff working from home for the foreseeable future. There has been an increase in attempted cyber breaches – insurers need to know that policyholders are well placed to withstand these. They also want to know that the right processes are in place in terms of monitoring, controls and supervision. Does the company’s working from home protocol ensure that this diligence is maintained?
Suppliers and creditors are also going to be affected. It’s likely we’ll see a number of speculative and opportunistic claims, especially in the more litigious environments. Although these may not succeed, the costs incurred in defending these claims have the potential to be substantial.
A challenging market
Prior to COVID-19, the D&O market was already under pressure with some insurers exiting the market and others putting up premiums exponentially. What we are seeing now is almost unprecedented as D&O insurers impose more restrictions, cut capacity, and look to push rates even further. Many are reserving their capacity for renewals and some underwriters are not considering business in certain countries or sectors.
All of this translates into ever tougher conditions for new and existing purchasers. It is not difficult to see a future in which D&O insurance in certain markets is no longer available or affordable, or provides the coverage expected or required. While Tesla’s decision not to renew its D&O cover generated headlines, it raised an important point: the industry is going to have to think creatively to effectively manage and transfer D&O risk in a sustainable way. This may include greater use of self-insurance and captive insurers, but the D&O market needs to come together to pool its knowledge and experience to deliver innovative solutions.
The original article can be viewed here
Rachel Cohen, Senior Treaty Broker, was recently interviewed by Insurance Day for an article titled: Covid-19 triggers hard market as US cat rates soar.
Rate hikes of up to 45% at June 1 renewals signalled a key turning point for the reinsurance industry but with Covid-19 losses still unfolding, this may just be the beginning.
New Dawn Risk has become a member of a/e ProNet, a leading network of independent insurance brokers specializing in the professional liability insurance and risk management needs of professional architects and engineers in the US. Membership of a/e ProNet is by invitation only.
Max Carter, CEO of New Dawn Risk, said: “This is a critical time for architects and engineers in the US. Even before the COVID-19 outbreak we were seeing upward pressure on premiums combined with an increase in both the volume and severity of claims, due in part to legal costs and awards inflation. Now those pressures are even greater, so there has never been a better time for us to share our expertise and creativity in professional liability risks with the US design industry.”
Dave Johnston, Executive Director of a/e ProNet, said: “We are delighted to welcome New Dawn Risk to the network. Their experience in placing complex liability and other specialty risks in all major markets worldwide will benefit our members as well as architects and engineers looking for risk transfer solutions across the US.”
Find out more about a/e ProNet at https://aepronet.org/
—Ends–
Notes to Editors
Established in 2008, New Dawn Risk is a dynamic, specialist insurance intermediary providing bespoke advisory solutions. We focus on complex, international liability and other specialty insurance and reinsurance. Clients large and small profit from our expertise, creativity and responsiveness – from risk assessment through to claims. 95% of our business emanates from outside the United Kingdom.
The article below, by Max Carter, CEO at New Dawn Risk, was originally published in Insurance Day magazine on 26th April 2020.
It is self-evident to state that, within insurance, a huge shift has occurred in front of our eyes. Within one month the move to an online insurance market has been forced upon all of us. The shock of COVID-19 social isolation means that face-to-face opportunities to organise and plan complex – or even ordinary – (re)insurance placements are suddenly entirely gone.
It is our good fortune that, through the work of PPL (and its competitors) there is a modern and well-tested technology infrastructure in place for the electronic placement of risks, and with that in existence the UK insurance market has moved smoothly online – after decades of prevarication. This, in itself is cause for celebration. To put it bluntly, London needed a kick (though perhaps no one considered anything of this magnitude) to catch up and adopt.
Many companies in the London Market undertook trial home-working days before mandatory lockdown was introduced, and most have reported full functionality in a matter of a few days. As a test of business continuity preparedness, whilst this transition all happened in relative slow-motion (compared to, say, a major terrorist attack shutting down the City overnight), our clients and our regulators should be satisfied that as an industry we can provide business continuity in the event of a disaster.
But let’s be honest, this is only part of the story. The real challenge is for brokers and insurers to rise to the cultural demands of developing and placing new business in the video-connected world.
The biggest surprise is the almost instantaneous adoption of videoconferencing platforms. At New Dawn Risk, we had already started to use Teams, albeit with little videoconferencing, late in 2019. We now communicate routinely with colleagues, seemingly all day long, using Teams as our video chat platform. This works amazingly well and provides a sense of connection that is close to actually being in the same office.
Cloud-based IT alongside videoconferencing will largely work well alongside the electronic placement systems that are in place for discussions occurring inside the Market, but, more critically, we need to pay attention to the client-side changes that must be made. Yes, we can all now reach clients on screen, and we can still email and phone. But some of the spontaneous relationship building that was possible at events, conferences and client meetings is currently impossible. Renewals will work where a relationship is already in place, but how do you create the sort of trust that can bring in new business when you can’t ever meet face-to-face?
If we make the assumption that social distancing in some form will be with us for at least a year to come, we are forced to come to the conclusion that a new way of building and managing client relationships is now required. Whether it is via formal regular presentations to clients, or informal LinkedIn groups, it is the ability to put yourself and your skill sets in front of your prospective client’s eyes on their desktop that is going to count in the market going forward.
Of course, for many people under thirty-five, living life online is as natural as breathing. If you date online, share your social life online and study online, you are used to building relationships remotely, and this is where I notice real inconsistency of approach, split by the age demographic of users.
Younger users, on the whole, are completely at home with using technology as a tool. They are skilled at developing strong personal relationships without the need to interact face-to-face, and I predict that the new online world could bring to the fore a next generation of stars, based on this sort of talent. It is the older users, particularly with people in their fifties or older, that seem to be struggling. Don’t misunderstand me; there are many older people in our industry who are as fluent at using new technologies as any twenty-something. However, there is a worrying number of otherwise extremely experienced older professionals who appear to be finding it tricky to operate in the new paradigm.
Last week, I heard one peer in his fifties complain that he was really struggling with the technology and that he’d much rather be working out the intricacies of a deal face to face. This struggle cannot be ignored as being insignificant, as many of these individuals have a wealth of experience, particularly in dealing with the hard market conditions that are now prevalent. There is a real danger that in these challenging times, experienced brokers and underwriters will find themselves left behind simply because of a lack of experience at building professional relationships online.
One way to address this lack of confidence among older practitioners might be for their employers to acknowledge that this is an issue and arrange coaching and tutorials for those who feel out of the loop. We may be in lockdown for some time to come, but even if life returns to ‘normal’ sooner rather than later there will be changes that have been made in the way we work that will not be reversed. Employers need to recognise this issue and ensure that we do not lose the benefit of our most senior, and experienced, colleagues.
The original article can be viewed here.
New Dawn Risk Group Limited has today launched its white paper analysing insurance cover for the US legal cannabis, CBD and hemp markets.
Download the white paper here.
The report: “Understanding and opening up the US cannabis insurance market”, exposes both the potential premiums and the size of the insurance gap for cannabis-related products in the US. Headline statistics include:
- In 2018 sales of medical and recreational cannabis in the U.S. were nearly nine times higher than sales of Oreo cookies.
- The legal US cannabis industry would pay about $1 billion in annual premiums were it insured to levels normal for other businesses.
- In 2018 the US market saw an estimated $8 billion in legalized cannabis sales. This could rise to over $40 billion by 2025.
The report also looks at the challenging legal environment for insurers, discusses possible coverage solutions and analyses the issues for each category of insurance cover, including: D&O, cyber, product liability, workers compensation, cash and contents insurance, crop insurance and fleet auto and cargo.
Max Carter, CEO of New Dawn Risk, commented: “Legal cannabis is a rapidly growing market, currently with a legal foothold in over thirty US states. Right now, the COVID-19 outbreak has led to increased demand for cannabis in the US and stores in many states have been allowed to reopen or offer curbside sales. However, the crisis has also exposed the financial pressures on many cannabis firms, with many VC-backed cannabis firms struggling already to meet financial projections. A COVID-19 recession, which seems all but a certainty, will only increase such financial pressures for young cannabis businesses.
“The pandemic will make it even tougher for cannabis producers to obtain insurance as providers further tighten terms and conditions and introduce exclusions, while insurers who may have been looking to enter the marker will put their plans on hold. With the Federal Government shut down and the possibility of a change of administration in November’s presidential election, the progress of legislation that would open up the cannabis market to insurers will be delayed.
“This reality fails to reflect the fact that many firms have significant insurance needs that are critical to help them manage the risks that exist in this young industry, with its untried legal and societal framework.
“Despite all this, the growth of the sector is inexorable and New Dawn Risk is committed to working with carriers and clients to share knowledge and insights to help identify and deliver creative solutions for this market. In just one example, we have already successfully placed cyber cover for a number of cannabis businesses. But we want to do more. And that means furthering the discussion, which is where we hope this report can contribute.”
Notes to Editors
Established in 2008, New Dawn Risk is a dynamic, specialist insurance intermediary providing bespoke advisory solutions. We focus on complex, international liability and other specialty insurance and reinsurance. Clients large and small profit from our expertise, creativity and responsiveness – from risk assessment through to claims. 95% of our business emanates from outside the United Kingdom.
Nicky Stokes, Head of Management Liability and Financial Institutions, was recently interviewed by Commercial Risk for an article titled: Exclusions loom as D&O renewals impacted by pandemic.
The article looks at how the coronavirus pandemic is further hardening the D&O market, which is beginning to apply more restrictive terms and conditions, with Covid-19 exclusions on the horizon.
Head of Treaty Placement, Amal Jallouq, was recently interviewed by Middle East Insurance Review magazine for a feature on the reinsurance market titled: Shifting dynamics
The piece looks at the challenging market conditions that have forced some international reinsurers out of the region, but highlights that there are still opportunities aplenty for those players who are focused on innovation.
The article below, by Nicky Stokes, Head of Management Liability and Financial Institutions at New Dawn Risk, was originally published in Insurance Day magazine on 21st March 2020.
Historically, directors and officers (D&O) insurance has not seen significant demand across markets in the Middle East. There have been a number of factors behind this. Perhaps most significantly, the region is home to a swathe of large and wealthy family-owned private companies who have simply not seen the need for this type of risk transfer product. With demand for D&O insurance low, pricing of the product has been relatively cheap and it has been viewed as something that is a nice-to-have rather than as a necessity. Furthermore, the litigation environment – a potentially key driver for claims to be brought against directors and officers – has been comparatively benign in the Middle East.
Regulatory developments
However, there are signs that the situation is changing. Up until recently, there had been a patchwork of litigation regulation across region; requirements are different under United Arab Emirates’ law and in the Dubai International Financial Centre, for example. But governments across the Middle East are keen to attract inbound investment into emerging markets and to compete with Western economies on a level playing field. In order to achieve this, standards of accountability and responsibility need to be approached in the same way. As a result, the regulatory burden is increasing as Middle Eastern states look to align with global standards and reporting requirements.
In the Kingdom of Saudi Arabia (KSA) there is a massive drive to regulate the financial services industry as part of the government’s National Transformation Plan 2020 and Saudi Vision 2030, designed to reduce Saudi Arabia’s dependence on oil, diversify its economy, and develop public service sectors. One key development among a string of reforms under Vision 2030 was the introduction of a Bankruptcy Law in 2018, to further encourage the participation of foreign and domestic investors by structuring the business legal framework and putting new regulations around businesses operating in KSA. This is having a direct effect on directors and officers as it makes it much easier to identify where obligations have not been met. Where duties are codified into law, it much more straightforward to bring a claim.
In another development in December 2017, in a first for the region, the Capital Market Authority in KSA introduced a new class action regime for claims by shareholders of listed companies in the country. Earlier this year, the first lawsuit filed under the regime was brought against the former Board of Directors of Al-Mojil Group, its senior management and its auditor for alleged violations committed during the subscription in the company’s shares as part of its 2008 IPO. We should expect more to follow.
An international market
Meanwhile, recent events have underlined the global nature of the insurance market. A combination of increasing litigation and regulatory risks, more notifications, and profit pressures following years of premium reductions are prompting underwriters to carefully manage the capital they deploy for D&O risks. This has diminished insurer competition for buyers and resulted in higher rates and less favourable coverage terms for most buyers.
Rates for D&O insurance have been hardening in the UK, and latterly the US, for some time. But in the last few weeks we have seen prices in the Middle East follow suit, broadly in line with US levels with increases ranging between broadly flat up to 15% to 20%. Because the D&O market is comprised of a large number of international insurers, price changes in the region are being driven from a top-down perspective. Those that have been hit hard in terms of losses in the UK and US for example, are looking to remediate their books elsewhere.
Looking ahead, risks facing directors and officers in the Middle East are broadly in line with those that their counterparts are exposed to elsewhere in the world. Cyber is high on the agenda and there been a number of recent cyber events in KSA that have hit both government ministries and petrochemical firms, generating significant losses with the potential to impact the D&O market. Saudi Aramco has seen an increase in attempted cyber attacks since the final quarter of 2019, which the company has so far successfully countered, but is seeing a trend of increasing magnitude and frequency of incidents, a trend it expects to continue.
It is unknown at this early stage, but likely that we will also see a string of claims against directors and officers as a result of the coronavirus pandemic. The situation is changing rapidly but businesses in the Middle East and elsewhere should brace themselves for a likely flood of shareholder lawsuits. We have already seen massive share price drops and if investors feel they were not fully informed about supply chain vulnerabilities or distribution problems, they may choose to litigate. While there is no guarantee that these claims will be upheld, there is a potentially significant exposure to directors and officers in terms of defence costs. Underwriters and brokers alike are tracking D&O developments in the Middle East closely.
Nicky Stokes is Head of Management Liability and Financial Institutions at New Dawn Risk
The original article can be viewed here
