TORONTO, Nov. 4, 2005 – HUNTERS announced today the completion of its first study of Directors & Officers Liability Insurance Limits disclosed by TSX companies.
With the advent of Bill 198, directors, officers and trustees of Canadian publicly traded entities are increasingly concerned about their potential personal liabilities. The amount and quality of this type of insurance has become a critical negotiating point when trying to attract superior board members, trustees and senior officers.
As part of their benchmarking capability, HUNTERS executed a specific insurance limit study of the TSX/S&P 300 companies included in the recently released Report on Business 2005 Governance Rankings published by The Globe & Mail.
Of the 209 companies in that report, 162 companies disclosed Directors & Officers Liability Insurance Limits in their most recent circular.
The Highest limit reported was CDN$400 million and the lowest was CDN$5 million. The average was just under CDN$80 million. The range is due to a number of factors, the most significant being that the market capitalization of the individual companies ranges from just under $50 billion to just under $250 million and that many trade on US exchanges which are considered to be a higher risk.
Of the top 50 companies in the Report on Business Governance Rankings Report, HUNTERS found just over 90% disclosed their insurance limit. Of those companies, the average limit was just over CDN$130 million.
Brooke Hunter, President of HUNTERS, explains, “It is not considered mandatory to disclose the purchase of this type of insurance; yet, it is a relatively common practice in Canada – unlike the United States. I suspect the tradition in Canada evolved from the time when it was unclear as to whether the premium for this type of insurance was considered Director compensation from a tax perspective. I also recall around the same time, a general outcry when a high profile case hit the front page of the Canadian press and allegedly did not disclose an off-shore trust set-up for Director defence costs.”
Whilst HUNTERS also tracks disclosed premiums and other factors, the non-uniformity of reporting made benchmarking of limits the only factor of immediate practical use.
Brooke Hunter highlighted the Canadian perspective, “Earlier this year we decided to collect the information about Liability Insurance, arranged for Directors, Officers and Trustees, from the management information circulars of a wide range of TSX traded companies – in order to give benchmarking capability to our Clients. In essence, we can help them make decisions about how much insurance to buy. To date, very little benchmarking information specific to Canadian companies has been accessible.”
Some companies are now examining insurance only for the directors, officers and trustees without coverage for the actual company itself or other insurance structures like excess “top up” insurance for the independent directors.
Hunter concludes with, “The information in our study can certainly help Canadian boards make a more informed insurance buying decision. However, the numbers cannot speak to the quality of insurance purchased by these companies which may be more important than the amount.”
HUNTERS International Ltd. is headquartered in Toronto, Ontario andspecializes in limiting the liabilities of Directors, Officers and Trustees through insurance brokerage and consulting. For more information about HUNTERS’ services including insurance audit and benchmarking, corporate news and credentials – visit www.hunterscorners.com.