Directors and Officers
Liability Insurance (D&O)
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2
Who can be sued?
Chief Executive
Officer (CEO)
Chief Financial
Officer (CFO)
Management
Board of Directors
Other officers
Company, including subsidiaries and
their governing bodies
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Insurance coverage (1/2)
Extend coverage for present, future and former Directors of the Group
Provide coverage for the Company and “umbrella-coverage” for Group
subsidiaries, their management teams and Board of Directors,
assuming over 50% ownership
Provide coverage for Directors and Officers, who were appointed by
the Company as directors in the related / affiliated companies
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4
Insurance coverage (2/2)
REGULAR AREAS OF DIRECTORS’ AND OFFICERS’ RESPONSIBILITY
Mergers and acquisitions
Eurobonds issue
Access to new markets
Disputes between the Company and minority shareholders
Potential claims from customers, counterparties, government agencies
Other potential claims against Directors and the Company
D&O POLICE PROTECTS DIRECTORS, OFFICERS AND THE COMPANY FROM THE MISTAKES AND OMISSIONS THAT COULD POTENTIALLY OCCUR IN THE COURSE OF REGULAR MANAGEMENT ACTIVITY
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D&O program consists of 3 levels
Level А
For the Board of Directors and other Directors and Officers
● Insurance of the Insured Person against the obligation to reimburse the losses incurred by other persons
● No deductible amount
Level В For the Company
● Insurance of the Company against the Company’s obligation to reimburse the losses to the Insured Person (related to the claims against the Insured Person)
● Deductible amount:
- 50 000 USD in USA and Canada
- 20 000 USD all other countries
Level С
For the Company: in respect of 3rd parties claims
(securities)
● Insurance of the Company against the Company’s obligation to reimburse the Losses incurred by any other persons
● Deductible amount:
- 100 000 USD in USA and Canada
- 50 000 USD all other countries
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How does reinsurance work
IC
R1
R2
R3
R..n
R1, R2, R3, R... - Pool of reliable international reinsurers (99%) - Broker
IC - (Insurance company) Russian insurer (1%)
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Key criteria of reinsurance program
Russian
Insurer
Pool of international
reinsurers
REQUIREMENTS TO GET GUARANTEED INSURANCE COMPENSATION
Insurance and reinsurance terms and conditions have to be identical
Insurance terms have to be governed by the Russian law
Insurance terms have to comply with the best Russian and international practices
Reinsurance shall be made by the pool of reliable international reinsurers with high financial strength
ratings
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Rationale behind D&O insurance program
Industry 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
All Compa nie s S& P500 5. 0% 9. 9% 20. 2% 24. 1% 28.9% 32.6% 35.1% 38.4% 44.0% 47.3% 49.9%
Mining 3.3% 5.6% 13.9% 17.2% 20.5% 26.7% 28.7% 32.9% 35.0% 37.1% 38.2% Consumer cyclical 7.3% 14.8% 19.7% 22.0% 24.2% 30.7% 32.8% 32.8% 34.8% 39.1% 41.2% Energy 0.0% 0.0% 10.0% 10.0% 19.5% 19.5% 19.5% 19.5% 19.5% 19.5% 30.2% Financial Institutions 4.2% 5.6% 21.9% 26.7% 41.9% 46.8% 48.6% 54.5% 73.7% 79.7% 82.0% Pharmaceutical 2.7% 8.6% 29.2% 36.1% 42.5% 48.4% 55.5% 53.8% 69.8% 69.8% 76.7% Industrial 2.8% 5.5% 9.6% 12.2% 16.2% 18.7% 19.9% 22.4% 25.9% 31.8% 32.9% Informational Technology 9.7% 25.0% 33.9% 37.3% 38.4% 39.5% 44.9% 47.0% 47.0% 47.0% 49.5% Materials 4.1% 4.1% 4.1% 10.9% 10.9% 13.2% 13.2% 13.2% 13.2% 13.2% 13.2% Telecommunications 25.0% 38.6% 49.8% 54.8% 54.8% 54.8% 54.8% 54.8% 54.8% 62.3% 62.3% Consumer non-cyclical 5.0% 10.8% 39.5% 41.6% 43.6% 45.6% 45.6% 47.5% 49.5% 49.5% 49.5% 0% 0%- 25% 25%-50% 50%
The cumulative probability of claims against Directors or Officer for all S&P500 companies has reached up to 49.9% for the eleven years since 1999
Worldwide the probability of claims against directors or officers of telecommunication companies is 62%
D&O insurance is one of the key elements of corporate governance culture for all major public companies in Russia and worldwide
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Key terms and conditions of D&O program
INSURANCE AREA LIMIT OF LIABILITY “Worldwide” 150,000?000 USD RUSSIAN INSURER INTERNATIONAL REINSURANCE OJSC “SOGAZ”
Companies with high financial strength ratings - not lower then S&P A- or equivalent, including (but not limited to) ACE Group, Lloyd’s of London, Zurich-Re, Allianz and other reinsurance companies with high financial strength ratings and experience in Russia
TOTAL INSURANCE COSTS
INSURANCE PERIOD
Shall not exceed 205,000 USD
