1. Beyond Insurance Directors’ & Officers’ Liability Insurance (D&O) Presented by Caroline Yeo

2. The Structure of D&O Insurance

3. Managers can make mistakes, and often are personally legally liable for them Tough, complex decisions, result in huge impacts often on the basis of limited information available e.g. M&A Multinational or International environment with multiple worldwide jurisdictions Monitoring your market, compliance regulations, government bodies, auditors opinions, King III, risk management Why Do Companies Buy D&O Cover?

4. Increased D&O Exposures

5. Coverage

6. The core purpose is to provide financial protection for managers against the consequences of actual or alleged “wrongful acts” when acting in the scope of their managerial duties Wrongful acts:- any error, misstatement, misleading statement, act, omission, negligence, or breach of duly actually or allegedly committed or attempted by an Insured Person, individually or otherwise, in their capacity as such or any other matter claimed solely by reason of serving in such capacity The D&O policy will pay for defence costs and financial losses What Is Covered?

7. Employment practices & HR issues Shareholder actions Reporting errors Inaccurate or inadequate disclosure (e.g. in company accounts) Misrepresentation in a prospectus Decisions exceeding the authority granted to a company officer Failure to comply with regulations or laws Common D&O Risk Scenarios

8. What Is Not Covered? Fraudulent, criminal or intentional non-compliant acts Nevertheless, innocent directors remain fully covered if they are co-defendants, even if the acts of their colleagues were intentional or fraudulent Illegal remuneration or personal profit All activities which are covered by a more specific insurance policy e.g. Professional Indemnity, death and bodily injury

9. Common D&O Exclusions Fraud Intentional non-compliant acts Illegal remuneration or personal profit Property damage and bodily harm (except Corporate Manslaughter) Legal action already taken when policy begins Claims made under a previous policy Claims covered by other insurance

10. Who Is Covered? All past, present and future D&O’s of a company and its subsidiaries. This extends to Non-Executives For securities claims, the policy is further extended to cover claims against the company itself

11. Where Do Claims Come From?

12. Major D&O Settlements - International Claims are typically negotiated and settled in close co-operation with the D&O insurers Most headlines are made by spectacular claims in the US

13. Major D&O Settlements - Local Claims are typically negotiated and settled in close co-operation with the D&O insurers

14. Typical D&O Structures Limits will vary considerably based on the size of a company The policy limit is an “annual aggregate”, meaning that there is only one single limit for all the claims against all the insureds during one policy year

15. What Does A D&O Program Look Like? Excess Layer Structure R1bn 3rd Excess Layer R750m R250m xs R750m 2nd Excess Layer R500m R250m xs R500m 1st Excess Layer R250m R250m xs R250m Primary Layer R0m R250m Policy Limit

16. What Does A D&O Program Look Like?

17. Cost Of D&O Premiums calculated on the basis of estimated claims frequency and severity Assuming a low risk profile, a medium-sized company can generally expect an annual premium to start at R1,000 per million limit Financial institutions or companies with local and abroad listings are calculated very individually. Rate per mille can be as high as R100,000 or more

18. Common Risk Factors Affecting Price Domicile and international activity (especially US exposure) Claims record Industry sector (e.g. FI, Pharmaceuticals considered a higher risk) Stock exchange listing Market capitalisation M&A activity Professional CV’s of the management

19. Claims

20. Most claims against directors are settled out of court which for a long time led to the perception that there were no successful claims against directors This has changed in recent years with a number of high profile cases and enquiries against directors being reported in the press In the past 7 months, 6 new claims reported all in excess of R10m each

21. When Are Claims Most Likely? Mergers, Take-Overs and Disinvestment The attention of existing and new shareholders, employees and labour organisations, suppliers, customers and regulators tend to focus more closely on the entity, specifically regarding misrepresentations and non- disclosure Liquidation Claims resulting from company failure can become lengthy, complex and expensive to defend Share Issues Representations made in public or private share issue documents or prospectus documents and road shows

22. Typical Claims Examples Minority shareholders allege that directors have abused their position in order to favour certain dominant shareholders Competitor alleges that the defendant director (former employee) has misappropriated trade secrets and confidential information Class action complaint from outside investors stating that directors failed to disclose material information, which could have affected their decision to invest in the company Creditors allege that directors utilised the plaintiff's services for the company although the said directors were aware that the company was financially distressed and would not have the ability to pay

23. Typical Claims Examples cont… Certain executives, along with the firm, are named in alleged price-fixing litigation The firm’s board of directors refuses an offer to buy the company (“wrongfully” in the eyes of some of the entity’s stakeholders); litigation ensues In an intellectual property battle, allegations are made that executives at a company intentionally infringed on the intellectual assets of another firm One’s joint venture partner alleges that one’s officers breached their duty of loyalty and duty of care to the joint venture entity

24. Typical Claims Examples cont… Lenders allege fraudulent misrepresentation by a company executive in a loan application, when the firm is unable to repay the monies lent to it Regulators allege that the company and some of its officers misled it concerning various of the firm’s business practices, and that the company’s directors were negligent in their duty A highly placed executive charges that they were wrongfully severed from the organisation due to actions by certain other D&O’s

25. Risk Management Support

26. Value Added Benefits Our D&O risk management services are:- Private arbitration: Tokiso Dispute Settlement keeps sensitive board disputes away from the media, protecting priceless reputations Membership of the IoDSA: Sponsored memberships of The Institute of Directors in Southern Africa Training and education: Director improvement and regulatory compliance through the IoDSA Corporate governance surveys: CGA assesses the current standard of governance in place and highlights any potential risks

27. Questions and Discussion?

28. Thank you For more information:- Visit www.camargueum.co.za Call 011 778 9158 email caroline@camargueum.co.za