Near the end of the year, the directors’ liability insurance market of listed companies is heating up.
According to the reporter’s statistics, since December this year, as of December 21, 16 A-share listed companies have announced the purchase plan of directors’ liability insurance, with a year-on-year increase of nearly 1.7 times (only 6 in the same period last year). From the fourth quarter, since October, as of December 21, 31 A-share listed companies have announced the purchase plan of directors’ liability insurance, with a year-on-year increase of 63% (only 19 in the same period last year).
From the purchase plan of directors’ liability insurance announced by A-share listed companies, the premium budget of 31 listed companies to purchase directors’ liability insurance since October has been less than 1 million yuan. Among them, Fine Made Microelectronics Group Co.Ltd(300671) and Shenzhen Dvision Co.Ltd(300167) have the highest premium budget, and the premium expenditure plan is “no more than 800000 yuan / year”.
The person in charge of relevant business of insurance enterprises such as Ping An Property Insurance told reporters that since the judgment of Kangmei pharmaceutical case, listed companies have been fully aware of the performance risk of Dong Jiangao. The insurance company has recently received a large number of inquiry letters for directors’ liability insurance, and it is expected that the directors’ liability insurance market is expected to grow rapidly in the future.
proposed purchase of directors’ liability insurance company
Directors’ liability insurance is a kind of liability insurance, which can provide a certain degree of protection for enterprises and their directors and supervisors after bringing adverse effects and losses to listed companies, shareholders, customers, competitors, the public and other interested third parties due to “misconduct” (including negligence, error, misleading statement and breach of duty).
As an imported product, Dong liability insurance has a high insurance coverage rate abroad, but the insurance coverage rate in China is relatively low. The towers Watson survey report, one of the world’s largest consulting companies, shows that 97% of Listed Companies in the United States, 80% of Listed Companies in Canada and more than 70% of Listed Companies in Hong Kong have purchased the insurance. However, before 2020, according to the caliber Statistics announced by listed companies, the insurance coverage rate of A-share listed companies has been less than 10%.
However, with the introduction of the new securities law, the directors’ liability insurance coverage rate of A-share listed companies increased rapidly with the help of Ruixing coffee incident. The relevant person in charge of Ping An Property Insurance told reporters that by the end of October this year, more than 650 A-share listed companies had insured for directors’ liability insurance, and the insurance rate rose to about 15%.
In November this year, the first instance judgment of Kangmei pharmaceutical case further heated Dong’s liability insurance. On November 12, the Guangzhou intermediate people’s court made a judgment of first instance, ordering Kangmei pharmaceutical to compensate the securities investors for the loss of 2.459 billion yuan due to the infringement of false statements such as the annual report. Among them, five independent directors were sentenced to bear joint and several liability for civil compensation of up to 369 million yuan, which aroused strong concern in the market.
After the first instance judgment of Kangmei pharmaceutical case, the enthusiasm of listed companies to purchase directors’ liability insurance increased rapidly. Statistics show that since October, as of December 21, 31 A-share listed companies have announced the purchase plan of directors’ liability insurance, with a year-on-year increase of 63%. During this period, the inquiry letters of directors’ liability insurance received by insurance enterprises also increased significantly.
The relevant person in charge of Ping An Property Insurance told reporters that after the first trial of Kangmei pharmaceutical case, the directors’ liability insurance ushered in a wave of consulting peak, and the demand mainly came from the senior management group of listed companies, especially the independent directors, directors’ secretaries and securities representatives. The policyholders are most concerned about five issues: first, the specific protection content of directors’ liability insurance; Second, whether the subjective intentional act of financial fraud similar to Kangmei pharmaceutical can buy director liability insurance; Third, if the directors’ liability insurance is insured, which groups can be protected; Fourth, whether the directors’ liability insurance needs to be registered; Fifth, if there is an insurance accident, whether there is a compensation priority and how to determine the compensation proportion of each executive.
directors’ liability insurance premium may rise
After the first instance judgment of Kangmei pharmaceutical case, listed companies and insurance companies have a deeper understanding of the high risks of directors and supervisors, which is expected to push up the price of directors’ liability insurance.
Wang Wei, assistant general manager of financial risk business department of Huatai Insurance Brokerage, wrote that according to statistics, before the judgment of Kangmei pharmaceutical incident, the policyholders of Dong liability insurance prefer to buy the liability limit of 30 million yuan to 80 million yuan, and the corresponding premium cost is 300000 yuan to 800000 yuan. However, after Kangmei pharmaceutical and relevant responsible persons were awarded high compensation, the policyholders’ demand for the liability limit of directors’ liability insurance increased significantly, and the premium also showed a further upward trend.
Wang Min, who previously worked in insurance institutions and has 17 years of liability insurance experience and is now a senior consultant of Shanghai Jianwei law firm, told reporters that the rate of directors’ liability insurance of A-share listed companies has increased since 2018. The rate level at the end of 2020 is about 0.7%, and the rate in the first half of this year decreased slightly compared with the end of last year. However, after the first instance judgment of Kangmei pharmaceutical case, the rate of directors’ liability insurance is expected to rise sharply.
The relevant person in charge of Chang’an liability insurance also told reporters that the directors’ liability insurance rate of A-share listed companies is low, only about 1%. The rate of directors’ liability insurance of zhonggai shares will generally reach about 15%, and the higher one can reach 30% to 40%. With the fermentation of Kangmei pharmaceutical case, the rate of directors’ liability insurance of A-share listed companies is expected to rise.
According to the reporter’s statistics, since the fourth quarter of this year, among the 31 listed companies that have disclosed the insurance plan of directors’ liability insurance, the premium budget generally fluctuates around 500000 yuan / year. In contrast, in the purchase plans disclosed by Fine Made Microelectronics Group Co.Ltd(300671) and Shenzhen Dvision Co.Ltd(300167) , the premium expenditure plan is “no more than 800000 yuan / year”, and the budget is relatively higher.
the insurance rate is expected to further increase
The relevant person in charge of Chang’an liability insurance told reporters that listed companies belong to public companies and involve information disclosure behavior. In terms of information phi, there is more or less asymmetric information disclosure to minority shareholders. Therefore, A-share listed companies basically need to insure directors’ liability insurance.
Many insurance companies expect that the insurance coverage rate of directors’ liability insurance is expected to be further improved. Wang Wei believes that although Dong liability insurance is a minority product in China, with China’s national economic volume and benchmarking to the international capital market, the A-share market has great development potential and is an incremental market worthy of development. The promotion of directors’ liability insurance is of great significance to promote the long-term and healthy development of China’s capital market, strengthen the corporate governance of listed companies, improve the quality of listed companies and protect the legitimate rights and interests of small and medium-sized investors.
How to improve the coverage rate of directors’ liability insurance? The relevant person in charge of a large insurance enterprise told reporters that the insurance coverage rate of directors’ liability insurance can be improved through three “localization”. First, the localization of product terms. Insurance clauses can be written according to the reading habits of Chinese people. They are straightforward and easy to understand. Second, logic localization. Insurance clauses should be rewritten based on China’s securities laws and regulations and judicial practice to better meet the hedging needs of A-share listed enterprises. Third, guarantee localization. Insurance companies can refer to the latest legal environment in China. In addition to providing traditional investor claim protection, they should also provide comprehensive protection for the risks of risk shareholding exercise, administrative settlement and delisting with Chinese characteristics.
Wang Wei believes that insurance companies can strengthen the underwriting capacity of directors’ liability insurance from four aspects to improve the insurance coverage rate: first, the terms of directors’ liability insurance need to be more easy to understand and have a clear interpretation; Second, the orientation of market publicity should be strengthened to fully explain the scope of protection, exclusions and claim cases, so as to effectively solve the contradiction of customer information asymmetry; Third, compared with the international market, Chinese insurance enterprises have limited underwriting capacity and are willing to provide, so they need greater support from the reinsurance market; Fourth, the insurance involves sensitive issues such as national financial security, economic security, enterprise and personal information security, which still need to be properly and actively addressed.
(Securities Daily)
