April 30, 2012 / 1:45 PM / 5 years ago

TEXT-S&P: the JOBS Act could expand the D&O market

3 Min Read

April 30 - In recent months, Standard & Poor's Ratings Services hasn't been
too optimistic about prospects for the directors and officers (D&O) liability
insurance industry (see "The Heat Is On D&O Insurers To Manage Volatile Market
Risks," published April 11, 2011, on RatingsDirect). Even as rates in a few
property and casualty insurance lines began to increase slightly or stabilize
over the past year, many industry executives expressed concerns that D&O rate
trends for publicly traded companies remained stubbornly negative overall. But
President Obama's signing of the Jumpstart Our Business Startups (JOBS) Act on
April 5, 2012, may finally give D&O practitioners some good news.	
	
In a new report "The JOBS Act Could Expand The D&O Insurance Market, But Can 	
Underwriters Manage The Risks?," published April 30, 2012, Standard & Poor's 	
explores the JOBS Act and its possible implications for the D&O industry. By 	
relaxing certain regulations and providing new means of capital formation, the 	
JOBS Act aims to reduce the burdensome costs of public securities listings and 	
offerings for smaller, growing companies.	
	
"This has both positive and negative effects on D&O industry," said Standard & 	
Poor's credit analyst Jason Porter. "If the JOBS Act meets its goal, privately 	
held companies will have better access to capital through public markets, 144A 	
securities offerings, and even the Internet, and more firms would go public 	
via IPOs--all of which could create additional demand for D&O products. This 	
will give underwriters the opportunity to compete for new business rather than 	
fight for existing renewals."	
	
But while these opportunities may alleviate some of the intense competition in 	
the industry, they don't come without risks. The JOBS Act may allow for the 	
placement of riskier investments in both public and private offerings, which 	
raises the potential liability that underwriters must assume. As such, 	
underwriters that can successfully address and mitigate these risks stand to 	
benefit the most, while those that take on new business too aggressively may 	
be left with additional losses.	
	
The report is available to subscribers of RatingsDirect on the Global Credit 	
Portal at www.globalcreditportal.com. If you are not a RatingsDirect 	
subscriber, you may purchase a copy of the report by calling (1) 212-438-7280 	
or sending an e-mail to research_request@standardandpoors.com. Ratings 	
information can also be found on Standard & Poor's public Web site by using 	
the Ratings search box located in the left column at www.standardandpoors.com.

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