Hong Kong Directors’ Risk Increase
- Survey of HK Chartered Secretaries reveals that 90% see an - increasing threat of legal action against directors
HONG KONG, 1 February 2008 – A survey jointly conducted by The Hong Kong Institute of
Chartered Secretaries (HKICS) and Liberty International Underwriters, part of Liberty Mutual Group, one of the world’s largest insurance underwriters in August 2007 has revealed that almost 90% of those surveyed believed that the risk of legal action against directors had increased in recent years.
The respondents believed that the greatest threat of personal liability for directors and officers of a company is from regulators rather than direct stakeholders. However, the survey has also indicated that corporate awareness towards protecting the interests of directors, its senior executives and officers as well as shareholders may not be sufficient.
Conducted among members of HKICS, the survey revealed that about 80% of the 97 respondents believe that the risk of legal action against directors and officers is at a moderate to high level. Despite this, only 52% of the companies surveyed currently had Directors’ & Officers’ Liability (D&O) Insurance and an alarming 69% do not even have policy and procedures in place to monitor exposure and notify claims to their D&O insurers.
Of those that had D&O Insurance, only 44% had increased the level of coverage during the last three years, but 59% of those surveyed said they would purchase or increase the level of D&O cover if the proposed statutory backing of listing rules is implemented.
“Directors and officers around the world now have a need to pay an increasing level of attention to their corporate governance practices given the greater levels of scrutiny to which companies are being subjected. Companies need to be more transparent, compliant and exercise greater diligence with regard to disclosure compared with the past. Considering the large volume of funds currently being invested in Hong Kong listed companies, it is particularly worrying to see
the lack of proactive risk management being undertaken,” said Richard Head, Senior Vice President for Liberty International Underwriters in Asia Pacific.
“While companies are obviously aware that their level of risk exposure has increased, it seems many are not taking the necessary steps to fully protect directors, both executive and non-executive or its officers,” said Natalia Seng, President of HKICS. “This is not just a risk management issue. It is difficult, in Hong Kong, to attract high calibre independent non-executive directors. A lack of adequate D&O Insurance can make this already difficult task more so.”
“That said risk management is an important element of corporate governance,” continued Natalia Seng. “Regular assessment of risk and appropriate D&O Insurance helps mitigate the risk exposure of directors and officers and is an area that frequently falls under the ambit of the company secretary. Striking the right balance between coverage and cost is not easy but from the results of this survey it would seem that it is something that boards of Hong Kong listed issuers need to pay more attention to in order to get the balance right.”
Some 63% of those surveyed agreed that a heavy reliance was placed on the insurance broker establishing the terms of the D&O Insurance, but this often meant that the policy coverage was not being regularly reviewed and updated to meet developing needs and changing risk profile of the business.
Richard Head continued, “To ensure that Hong Kong remains a financial services hub of choice within Asia and thus continues to attract the level of investment activity it has seen of recent years, it is imperative that companies match, if not exceed, international risk management standards. This is where Chartered Secretaries can play an important role in advising their boards of the areas of risk that the company faces and helping develop suitable strategies to mitigate risk, such as the implementation of effective D&O Insurance”.
LIU has recently published a set of questions aimed at helping companies assess their own specific requirements for D&O Insurance, these include:
What scope of cover does the policy provide and how does that compare to what is available from other insurers in the market?
Is the policy limit adequate – what is the worst case scenario for a claim or claims against the directors and officers during the policy period and what sum insured would be adequate to cover that scenario?
Is the policy excess set at an appropriate level? The company should determine the most appropriate retention it is capable of funding. A lower excess generally means a higher premium.
Is the insurer locally licensed and regulated?
What is the insurer’s financial strength rating with the International Rating Agencies Standard & Poor’s, AM Best and/or Moody’s?
How long has the insurer been underwriting D&O insurance, and does it have a long term commitment to the Hong Kong market? In view of the long tail nature of D&O claims, will the insurer be operating in the Hong Kong market over the long term?
What is the insurer’s experience and reputation in handling D&O claims?
About The Hong Kong Institute of Chartered Secretaries More than Meets the Eye.
The Hong Kong Institute of Chartered Secretaries is an independent professional body with approximately 5,000 members and 2,500 students. It is dedicated to the promotion of its members’ role in the formulation and effective implementation of good corporate governance policies in Hong Kong and throughout China as well as the development of the profession of Chartered Secretary.
The Institute was first established in 1949 as an association of Hong Kong members of the Institute of Chartered Secretaries and Administrators (ICSA) of London. It became a branch of ICSA in 1990 before gaining local status in 1994.
About Liberty International Underwriters (LIU)
Part of Liberty Mutual Group’s strategic business unit, Liberty International, LIU
(www.libertyiu.com) provides a diverse range of specialty products distributed exclusively
through the independent broker network. The LIU staff of over 900 professionals offers core products in marine, energy, engineering, casualty, professional liability and directors & officers liability insurance. LIU’s worldwide operations include 31 offices in the U.S., Australia, Canada, China, Dubai, France, Germany, Hong Kong, Ireland, Singapore, Switzerland and the United Kingdom.
Liberty International provides insurance products and services through two distinct approaches. The first is through locally domiciled insurance companies based around the world, which provide mostly personal insurance products and services. The second approach is through Liberty International Underwriters (LIU).
About Liberty International Underwriters (LIU) Asia Pacific
Headquartered in Sydney, LIU Asia Pacific began its operation in Australia in 1999, and has since established offices in Brisbane, Melbourne, Singapore and Hong Kong. The Company is licensed and regulated in Australia, Singapore and Hong Kong and offers the domestic and regional markets the complete suite of LIU services with the benefits of local market expertise supported by international experience.
About Liberty Mutual Group
Boston-based Liberty Mutual Group is a diversified global insurer and sixth largest property and casualty insurer in the U.S. based on 2006 direct written premium. The Company also ranks 95th on the Fortune 500 list of largest corporations in the U.S. based on 2006 revenue. As of December 31, 2006, Liberty Mutual Group had $85.5 billion in consolidated assets, $74.6 billion in consolidated liabilities, and $23.5 billion in annual consolidated revenue.
Liberty Mutual Group offers a wide range of insurance products and services, including personal automobile, homeowners, workers compensation, commercial multiple peril, commercial automobile, general liability, group disability, fire, surety and a diverse range of specialty products in many classes of business including: marine, energy, engineering, casualty, professional liability and directors & officers insurance.
Liberty Mutual Group (www.libertymutual.com) employs over 39,000 people in more than 900 offices throughout the world.
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Jointly released by HKICS and Professional Public Relations Hong Kong on behalf of Liberty International Underwriters. For further information, please call the following media contacts: PPR Hong Kong
Claire Martin Rachel Lai
3111 9971 / 9686 1076 3111 9963 / 9656 1223
