Indian corporates listed in the US bourses are increasingly buying Directors & Officers Liability cover as a means of safeguarding themselves against the severity and size of litigation and settlement values.
This comes in the wake of the US Securities and Exchange Commission becoming more watchful with accounting scandals rocking the corporate world.
Foreign equity issuers in the US market have become a major target of the SEC.
India is among the top 12 countries against whom the SEC has taken action.
With SEC having tightened the noose around foreign issuers in the US, three large Indian corporates have already faced investigation by the US capital market watchdog.
This has however, not deterred the issuers from tapping the US market. In fact, an increasing number of foreign issuers are raising capital in the US market.
In the past four years, 230 private foreign issuers raised capital in the US as compared to 125 foreign issuers in the previous 25 years.
"It is a changing and potentially dangerous marketplace for directors and officers of foreign issuers," said American International Company regional financial lines manager Shane Doyle.
US Securities claims against foreign issuers rose from six in 1996 to 12 in 2000, 44 in 2001 and 18 in the first nine months of 2002. Forty of the foreign issuers claims in 2001 were related to American Depository Receipts or direct listing, stated Doyle.
Foreign issuers have become a major target of the US Sec. What's more, SEC is targeting various sectors including computer services (30 per cent ), telecommunications (11 per cent), healthcare (8 per cent ), pharmaceuticals (8 per cent) and banking (6 per cent).
"Indian companies are seeking Directors & Officers (D&O) Liability cover as they have no other choice. The recent Polaris episode -- where the company CEO was detained in Indonesia -- also focussed on the importance of such a cover," said an industry source.
In 2001, about 100 Indian corporates took out a D&O cover, most of which were companies raising funds from overseas. As of November 2002, 150 D&Os policies were sold, of which Tata AIG General Insurance Company sold 44 covers, and has a leading share of the market today.
Indian corporates are paying greater attention to the need for D&O covers in the light of the number of non-US companies against whom litigation proceedings have been filed.
This figure has risen sharply by 634 per cent over 1996 to 2001, with the average settlement value having shot up by 150 per cent to $17.2 million, according to the data available with PricewaterhouseCoopers.
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