Financial R&R: From Private to Public - Insurance Strategies for IPO Readiness

Intro (00:01):
Welcome to Financial R&R, a show dedicated to financial insurance and risk management solutions and trends shaping the market today. Here are your hosts, Ron Borys and Ryan Farnsworth.

Ron Borys (00:13):
Welcome, everyone. I'm Ron Borys. I'm here with Ryan Farnsworth, and this is the Financial R&R. Thanks everybody for tuning in today, really excited about our topic. For those of you who have been watching the financial markets closely, we're excited to see some IPO activity and particularly in the financial institution space. Ryan and I have asked two of our colleagues, Jennifer Sylvester and Blake Cramsie, two senior leaders within the financial institutions group who have both recently worked with some clients undergoing an IPO directly, to talk a little bit about some of the things that they're experiencing, some insurance considerations and so on. What does that sound like, Ryan? Sound like a good plan?

Ryan Farnsworth (00:51):
Yes, it does, and we're really looking forward to hearing from Blake and Jen today. I think the other thing that we want to be thinking about that we'll tackle as part of the discussion today is if you represent, or if you work for a company that is considering an IPO, what are some things that you could or should be doing now to get ready for that process? And so, on the Financial R&R as the gentlemen that we are, we always would like to have ladies first. Jen, we'd love to hear from you. What are some of the things that you've seen in the marketplace currently, and what are some of the success stories that you've seen as you've guided clients through the IPO market?

Jennifer Sylvester (01:29):
Yes, I'm going to take a step back and talk about what you were saying at the beginning about getting your client prepared for an IPO. I think that's really the first step. Not only should you be analyzing what limits your client buys as a private company, but who the carriers are on that program and if they are public company insurance carriers, that we would be comfortable writing a primary or excess for a company that is now publicly traded. Another thing you want to look at in terms of the language, in terms of when the client is IPOing and they're still private and the roadshow coverage, you're going to want to make sure that is in your private company policy as well.

Ron Borys (02:13):
Jen, let's talk about that for a second. For clients today that buy D&O, there is an exclusion in the private company policy that typically relates to offering of securities. Maybe you could explain a little bit about some of the things that people should be thinking about because that's a great point. A lot of times people don't think about it that way. They don't think they need coverage for any exposures until they go public.

Jennifer Sylvester (02:35):
Right. Any disclosures that they're going to be making in terms of representations that they're going to be making for when they do go public, that needs to be captured and is happening at the time when they're talking to banks. We need to have that covered somewhere, so you want to make sure and review your policy and make sure that is covered under the private tower.

Ron Borys (02:55):
That's pretty standard, right? I would think most underwriters, especially to your point underwriters who have experience with companies going through IPOs, they're not charging an additional premium for that coverage.

Jennifer Sylvester (03:06):
No, not typically. In most newer forms, it actually may not even be excluded, but we do have carriers that have policy forms that are 20 plus years old. You just have to review the language and make sure the coverage is there. The last thing I would say, and sometimes an afterthought, is NDAs, non-disclosure agreements. That could be a pretty daunting process, and you want to get that done because some of our clients who are thinking about IPOing, they may be filing their S-1 confidentially. It's not readily available to the public. That's something to think about because a client may want to be using their own NDA language, and then that has to go to the insurer's legal team to be reviewed and redlined. That process can be a little timely and especially when we're talking about for D&O markets, 35 plus maybe markets.

Ron Borys (04:01):
Is that all there are right now? I think while we've been on this podcast, at least two new markets have entered the space.

Jennifer Sylvester (04:06):
Yes. One leaves, two enter. But yes, so NDA is also an important first step.

Ron Borys (04:12):
That's all great stuff to think about. Blake, let's talk to you a little bit because you recently had a client who had a successful IPO. The one that Jen's working on is still in the hopper. Can you talk to us about the market? We knew that probably 2020 timeframe, maybe a little year before, maybe year after, you had a lot of SPACs going public, you had a lot of de-SPAC transactions that people were engaging in to avoid the traditional SEC filing, IPO route retentions were really high, carriers were trying to drive pretty significant premiums. Certainly not to say that, we all know having been in this business for a while, public company D&O is without a doubt a massive catastrophic loss exposure. Maybe you can give our listeners a preview or peek into some of the things you experienced as you were working through your IPO scenario with your client.

Blake Cramsie (05:02):
Yes sure, Ron, absolutely. I'd say the IPO market for 2025 has shown significant signs of recovery. Pricing, retentions, coverage is as probably as competitive as it's ever been, even particularly for SPACs. That has pushed some of the key IPO markets away to a degree, particularly on SPACs, given that the pricing has decreased dramatically. I would say it is night and day different than what it was a few years ago in a good way for companies that are looking to go IPO, probably to the tune of 30 to 50% less than what companies were seeing, which is making it much more manageable as you look to understand the cost associated with going public.

Jennifer Sylvester (05:47):
Yes, I can echo what Blake is saying. An additional touch point, I think would be the amount, even on a primary response basis from the markets, where I think historically, maybe you were getting five indications for an IPO. I've seen 15 responses from markets to write the primary.

Ryan Farnsworth (06:06):
That's helpful to know and know that that market capacity is robust. I think everyone in the insurance marketplace, including us as brokers, is anxious and excited to see that activity come back. I guess thinking about it, if you're thinking about going public, and Jen, you've already hit on this a little bit in terms of reviewing your current policy lineup and insurers and trying to make sure that you are aligned with the right trading partners going into that process. As you both have gone through the marketing and the broking process with the insurance marketplace, what are some things from an insurance company perspective that you're looking at as you consider a potential insurance company to partner with to help take your company public?

Blake Cramsie (06:53):
Yes, I'd probably say one of the most important things is early engagement. Engaging early with your broker as soon as you're comfortable, I think is really important. We often understand that there's a high degree of confidentiality, and regardless of a NDA or not, the chances of you sharing material details before your S-1 is released is unlikely. As much as you're able to share ahead of time, I think the better because that does allow us to put some things in place early on, identify a carrier that is going to be a good fit, a good trading partner, and start to work that relationship a bit. I'm also very keen on proactively putting robust insurance limits in place as a private company. One, you're building continuity with your trading partners, your insurance carriers. That will help you as you go to become a public company with the hope and the thought that there's continuity across the board as a public company, which will help avoid pitfalls, gaps in coverage and finger pointing issues amongst carriers on the private side versus the public side. Those are things that as you're gearing towards an IPO, we could proactively think about and put in place before things happen.

Ron Borys (08:05):
Yes, that's great Blake. I think to try to hone in on that a little bit further, you both mentioned tons of carriers competing, quoting. What should clients be thinking about? Should the lowest price win? Is claims experience important? We all know that some of the largest claims and the largest frequency and severity of claims in the D&O space come out of 10b-5s and claims involving offerings of securities. Coverage, we know that while it seems to be a relatively soft coverage environment, and carriers seem to be relatively uniform in what they're willing to offer. Certainly some carriers are a lot more flexible when it comes to policy wording than others. What do you think, from your experience in the conversations you had, what were the most important factors, each of you in speaking with your clients, about who is the right fit to potentially be their primary insurer?

Jennifer Sylvester (08:51):
I would say claims, not only ability to pay claims, but willingness to pay claims. You don't want to be getting into litigation with your carrier. Their willingness to actually pay claim and be a true partner, I think is important. I've had a client specifically wanted name recognition. They're going to be dealing with new board members, someone that they're comfortable with, not a new entrant into the space. They really honed in on those two aspects. And of course, language, policy language, which really falls on us to do full policy review and making sure we're getting the adequate coverage for a public company.

Blake Cramsie (09:31):
Yes, to add to that, I would say obviously pricing is always a factor, but it's never been the driving factor for a decision. Ultimately, it comes down to really everything, and Jen hit the nail on the head here. It's really, it's got to be covered first and claims paying ability right there with it, because ultimately the policy's got to perform in the event we have a claim. The likelihood is, particularly in the first three years, there's a high likelihood of there being some form of securities litigation or maybe a derivative matter. I think it's really important for any company that's going public to make sure you're partnering with a carrier that's got a good reputation paying claims, that we have a good working relationship with, one that we're able to get outcomes with, that we're happy with, and that it's a partnership. I think a lot of what we do is build that in as soon as possible, way before the IPO, so that we've established a relationship. That decision makers of our client are meeting decision makers at the carrier side, including claims people. I think as much as that as you can do, the more successful you're going to be in the event you do have an issue.

Ron Borys (10:37):
Yes, and I would say Alliant Legal and Claims colleagues are frequent guests on the Financial R&R, and they've certainly shared their perspective on it. We're very fortunate to have the lawyers and the senior claims advocates supporting our financial institution clients in those areas. We have tons of experience working with pretty much every carrier in some way, shape or form. I think as clients are taking everything into consideration, certainly important to have carriers with a good degree of experience, people with a good degree of experience, but also having a broker who has that perspective, who has worked with these carriers through claims. We probably handle over a thousand plus claims a year in financial institutions. Fortunately, many of those don't result in loss payments, but just understanding the behavior, the temperament, I think is just really, really important because again, that's why you're buying this insurance. It's to protect yourself in the event of one of those events. Maybe we can wrap things up with one last thing I wanted to touch on. Clients as they're getting prepared, and they're sharing information with underwriters, Jen, you hit a great point that oftentimes the underwriters will want to see the draft copy of the S-1. We all know that can change. It goes to the SEC, the SEC reviews it, they come back with comments, so on and so forth. What else should clients think about to best present themselves to the insurance marketplace and get underwriters comfortable with their risk as an IPO? What have you all done to help your clients get there?

Jennifer Sylvester (11:59):
Definitely an underwriting meeting. We highly recommend an underwriting meeting because even within the S-1, there's going to be information that the underwriters are going to want to hear about. In some cases it's employee related or cybersecurity readiness, crypto exposure, things like that for financial institutions. Giving the client the opportunity to speak in detail where they can about some of those things is really helpful.

Ron Borys (12:28):
Great. Blake, what does that presentation look like? What should be included in that presentation?

Blake Cramsie (12:33):
Sure, yes. The presentation looks a lot like your roadshow presentation or your investor day presentation. We often use the same presentations and we have our clients walk through that. The biggest thing for D&O underwriters is they're really underwriting the people. That is something that just can't be done by reading an S-1. They like to get a feel for who they're dealing with and make a gut instinct call on, do we think these folks are going to do the right thing? The way they do that is through the underwriting meeting. So very similar to an investor day meeting, keeping it casual, conversational, allowing them to ask questions is really important. I think it's definitely something that is a must, and if it's not happening, I think you're really hurting yourself and probably the outcome of your D&O pricing.

Ron Borys (13:18):
Ryan, I know you and I agree, we could probably spend another 30, 45 minutes talking about this, but we'd like to keep these podcasts succinct, but certainly would invite anybody listening here if they have any questions or want to have any follow-up discussions to reach out to us. Anything in closing you want to mention?

Ryan Farnsworth (13:35):
No, I think that Blake hit the point where a personal interaction is the best way to understand where a company's coming from, how it's going to be managed. I think the personal interaction we've had with Blake and Jen today just continue to reiterate what a strong and deep and experienced team that Alliant has with respect to financial institutions in particular. It's a pleasure to work with Blake and Jen, and we’re confident that as companies think about going public, our team at Alliant is best positioned for the best possible outcome for a successful D&O insurance placement. The advice that we've talked about here on this podcast in such a short period of time can go a long way to driving not just million dollars of savings in the premium process as part of going public, but also putting the policy in the best possible position to respond and potentially save millions of dollars in recoveries because of a solid policy put in place with the right carrier. So, just continues to reiterate what we're building and how we're doing it here at Alliant and couldn't be more proud to work with Blake and Jen.

Ron Borys (14:39):
Yes, and certainly Blake and Jen are great examples of how Alliant is committed to helping our clients find that more rewarding way to manage risk. Again, thank you both for taking time out of your busy days to spend some time with Ryan and I. For those of you listening in, who found something here interesting or would love to learn more about what we're doing here within the financial institutions group at Alliant, you can visit our website at www.Alliant.com or find one of us. We're all over the internet for the most part. But again, really thankful for the work that the both of you have done for these clients who are undergoing these massive changes. It's a really exciting time for clients when they go public. It's a transformation of their business, usually in a very good way. We really appreciate the work that you and your teams have been doing. So with that, we'll wrap up this episode of the Financial R&R. Look forward to having you both on as guests sometime in the near future. Thanks so much guys.