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Around the D&O world: Regional trends

5 top emerging issues

  • Executive liability can increase rapidly, triggered by a change in attitudes, introduction of new laws or means of litigation

  • Toughened regulatory pressure among countries with exposures in the US

  • Liability regimes being ramped up across Europe including UK, France, Spain and Germany

  • Changing attitudes towards corporate governance and accountability across Asia, the Middle East and Latin America

  • Risks such as cyber breaches and climate change present systemic loss scenarios. Problems at a widely used cloud service provider could impact hundreds of companies

Increasingly litigious markets

Outside of the US and Europe, Japan, China and other Asian markets are moving towards a more litigious culture.

For example, perceived weaknesses in corporate governance and senior management culture recently have been a feature of executive liability in Japan. Senior executives at Japanese electronics company, Olympus, were prosecuted for accounting fraud in 2013 – the scandal only came to light after the CEO was fired for questioning suspicious payments related to an acquisition [1].

A modest growth of securities related litigation in Japan has been due to recent legislative changes making it much easier for investors to sue, especially regarding misrepresentation.

“There is a school of thought that corporate governance practices in Japan lag behind other mature markets and that claims will ultimately result and will likely increase over time,” says Damian Lynch, Regional Head Financial Lines Asia, AGCS. “Checks and balances are only as good as a company’s culture. Most companies look good on paper but values need to be enforced,” says Lynch. “The key for underwriters is to get a feel for the company culture and look to other information sources, such as analyst reports and press articles – anything that suggests how the company actually is, as opposed to how it says it is,” he says.

To date, a larger driver of executive liability and D&O claims in Asia has been exposure to the US through securities and debt listings, as evidenced by several “reverse-takeover” claims in 2011. Almost 25% of class action claims filed against US-listed companies in the first half of 2011 were against companies based in China [2].

Many Asian countries are drifting towards potentially large D&O liabilities, owing to changing attitudes towards corporate governance and accountability, as well as increased regulatory activity and a growing compensation culture. “Shareholders are less likely than in other markets to sue – but this is changing. There is a strong view that jurisdictions like Hong Kong, Thailand and Singapore are becoming more litigious and will become more like the US or Europe,” Lynch says.

Executive liability can increase rapidly, triggered by a change in attitudes or the introduction of new laws or means of litigation. For example, the introduction of shareholder class action laws in Australia has seen exposures skyrocket. “Australia 20 years ago reminds me of Asia today. The market was soft , with few losses. Then there was a wave of serious claims from the financial crisis. Now, arguably, Australia is up with the US in terms of litigiousness,” says Lynch.

Few companies in China buy D&O insurance, with the exception of foreign executives and Chinese companies with US exposure, but risks are significant and executives’ personal assets can be threatened. “The D&O market in China is still a fraction of the size of Australia, despite its much larger economy and population. There are some very different dynamics at play that make it one of the hardest countries in the world in which to underwrite D&O insurance, but the market will grow in China,” says Lynch.

“Claims in Asia are a double-edged sword,” he adds.” The D&O market in Asia could double or triple if we saw claims, as it will lead to a change in buying attitudes.


Regarding Latin America, D&O insurance take-up has increased in many markets due to several specific drivers: increased exposure to US class actions by Latin American companies; enhanced compliance with the Organization for Economic Cooperation and Development (OECD) corporate governance; expansion of global insurers into the marketplace; and several recent high profile corporate scandals such as Petrobas in Brazil. Other Brazilian companies, including Banco Bradesco, Braskem and Electrobras have been named in securities class actions in the US.

“Civil lawsuits in Brazil, as well as securities class actions suits in the US, antitrust violations, a severe and still ongoing financial recession and a strict government regulated environment against companies and their executives is driving increased D&O purchases,” says Diego Assef, Senior Claims Specialist Financial Lines, AGCS.

“As many companies act globally, they face multiple challenges at the same time in different places. Central coordination and local, tailor-made measures and actions have to go hand in hand to ensure that the entire group is protected in a smart and efficient way,” says Bernard Poncin, Global Head of Financial Lines AGCS.

Regional Trends:
Hotspots Snapshot Clyde & Co and AGCS examine the latest D&O developments around the globe

Cross-border and systemic risk

With globalization, executive liability exposures are becoming more complex and interconnected. Many large claims involve regulatory investigations and civil
litigation in multiple jurisdictions.

“International companies are being sued in the US, although claims and litigation growth outside the US has also been significant and is helping drive demand for global D&O insurance programs” says Paul Schiavone, Regional Head Financial Lines North America, AGCS.

The interconnectivity of risk seen in other areas of the corporate world, such as supply chains, is also present in executive liability, as is the potential for systemic risks for executive liability underwriters. “Financial institutions have already shown the potential for industry wide claims, but the emissions testing problems in the automotive industry represent the first potentially systemic loss in the commercial D&O space that I have seen in 22 years of underwriting,” says Schiavone.

Other risks, such as cyber and climate change, also present systemic loss scenarios. For example, problems at a widely used cloud service provider could impact hundreds of companies.

The Panama Papers leaks illustrate how a data breach can impact professional service providers and financial institutions, which could in turn spark multiple claims across several jurisdictions. Following the leak, government agencies and regulators around the world launched investigations into banks and professional service companies to check compliance.

***                                                                                                                 [1] Olympus scandal: Former executives sentenced, BBC
[2] Personal Risks Facing Board Members in Asia Pacific, Financier Worldwide