2024年，董责险热度被点燃

Transfer from: financial sector

Source of this article: Meicai

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Since 2024, more than 270 companies have announced their plans to purchase or renew directors' liability insurance, while only 74 listed companies have announced their plans in the same period in 2023.

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Article | Daily Financial Report Li Jia

From Kangmei Pharmaceutical to Shanghai Great wisdom Then to Zeda Yisheng, in the capital market, the cases of interest damage caused to small and medium-sized investors due to financial fraud are common, and have become the pain point that enterprises need to solve urgently at present. Without exception, the core of these events is the company's "directors and supervisors".

In recent years, due to the tightening of regulatory policies and the increasing legal awareness of investors, the risk of being sued by the company's senior managers has shown an obvious upward trend.

At the end of last year, the country's first lawsuit involving a special representative of a listed company on the science and technology innovation board was also the first case of settlement of class action litigation in China's securities industry, which finally ushered in the final chapter. Public information shows that on December 26, 2023, the Investor Service Center, on behalf of 7195 investors, successfully mediated the case of seeking compensation from Dong, Jian and Gao, and Zeda Yisheng investors received full compensation of more than 280 million yuan.

The compensation of more than 280 million yuan is not a small amount. It not only has a great impact on listed companies, but also has a certain deterrent effect on directors, supervisors and senior executives.

In the face of complex development environment and more uncertain factors, many enterprises have been caught in financial fraud, scandals, operational errors and other situations due to directors, supervisors and senior executives, which forced them to think about how to better prevent such risks.

As a result, more and more enterprises turned to insurance for "help", and Dong Li Insurance also welcomed the spring from the "niche stage" to the "mass stage", and began to enter the vision of many A-share listed companies' management.

Huge claims happen from time to time, and directors' liability insurance meets new demand

Reviewing the origin of a series of events, it is mainly due to the factors of directors, supervisors and other related parties, and the regulatory punishment for fraudulent issuance, financial fraud, information disclosure violations and other acts, which has damaged some investors' investment.

Specifically, Zeda Yisheng, a listed company on the science and technology innovation board, concealed important illegal facts and fabricated major false contents in the announced securities issuance documents, which belonged to fraudulent issuance and financial fraud, and the illegal acts of false records and major omissions in the 2020 annual report and 2021 annual report seriously damaged the order of the securities market and damaged the legitimate interests of investors. In the end, Zeda Yisheng was forced to delist due to major violations.

After the incident broke out, thousands of investors of Zeda Yisheng successively filed a lawsuit against the company and relevant responsible persons for the liability dispute of securities misrepresentation on the grounds that the above behaviors caused their investment losses. After the court's mediation and judgment, 7195 investors successfully received more than 280 million yuan in full compensation.

At almost the same time last year, in April 2023, Amethyst Storage was fined 36685200 yuan by the CSRC for fraudulent issuance and illegal information disclosure. The punishment also included Zheng Mu, one of the company's actual controllers at that time, and Luo Tiewei, a director. Both were banned from entering the market for life and 10 years respectively. At the same time, General Manager Zhong Guoyu, Chief Financial Officer Li Yanxia and other senior executives were also given relevant warnings and punishments, among which Zhong Guoyu and Li Yanxia respectively took measures to ban market entry for five years.

In this case, the relevant institutions voluntarily paid 1.086 billion yuan to 16986 investors in advance according to law, and Amethyst Storage was forced to delist due to major violations.

Industry analysts said that Zeda Yisheng and Amethyst Storage were both severely punished for major violations of laws and regulations, which can be called "milestone" cases in the history of China's securities regulation. At the same time, they are also listed in the top ten typical cases of investor protection by the CSRC, which has formed a strong law enforcement and control force for listed companies that dare to test the law by example, At the same time, it also has an important demonstration significance for the main responsibilities related to compaction.

Objectively speaking, although the number of cases in which listed companies are sued to bear civil liability for damages to investors' interests has increased significantly in recent years, it is rare for listed companies to claim compensation from directors, supervisors and senior executives after fulfilling their liability for compensation.

The frequent illegal cases of listed enterprises since last year, with the investors winning the lawsuit, not only have a certain deterrent effect on enterprises and directors, supervisors and senior executives, but also have stimulated the urgent demand of enterprises for directors' liability insurance to a certain extent.

In the opinion of Pan Yaobin, the heavy passenger department of Minya Insurance, there are many advantages for enterprises to take out directors' liability insurance: first, improve the company's solvency. When the company needs to bear civil liability for compensation, it can transfer part of the responsibility to the insurance company to reduce its own financial losses; Second, improve the enthusiasm of the management, encourage the company to operate boldly, and the management can make bold decisions to promote the development of the company; Third, improve the level of corporate governance, introduce the external supervision mechanism of insurance companies, and put forward objective suggestions for the operation and management of enterprises. Fourth, attract excellent management talents, create a good performance environment for the company's directors, supervisors and senior executives, attract more excellent talents to join, and promote the company's healthy development.

Directors' liability insurance was heated up, and many listed companies put on "hard hats" for directors, supervisors and senior executives

What is director's liability insurance? As its name implies, it is an insurance to protect directors, supervisors and senior managers from losses caused by compensation claims due to negligence or negligence when performing their duties. In essence, it is a means to disperse risks and fight against risks. It can neither eliminate risks nor guarantee to bring benefits, so companies need to make independent choices according to their own system settings in practice.

In recent years, with the exposure of many financial fraud incidents, a relatively "cold" insurance product has gradually entered the public's vision. Especially after Kangmei Pharmaceutical was sentenced to compensate investors 2.46 billion yuan for financial fraud in 2020, this insurance product aimed at reducing the financial risk caused by the misconduct of directors, supervisors and senior executives has attracted more and more attention of listed companies.

The data shows that in the three years from 2020 to 2022, the insurance coverage rate of directors' liability insurance has achieved rapid growth. The number of listed companies that disclosed plans to purchase directors' liability insurance on public platforms such as Shanghai Stock Exchange and Shenzhen Stock Exchange was 119, 248 and 337, respectively, with year-on-year growth rates of 205%, 108% and 36%.

However, influenced by the gradual digestion of the market's response to the rise of securities litigation risk and the weakening or slowdown of demand, the number of directors' liability insurance coverage fell in 2023 for the first time after three consecutive years of rapid growth. According to the data disclosed in the Market Report on Directors' Liability Insurance of Listed Companies in China (2024), a total of 304 A-share listed companies issued the announcement of purchasing directors' liability insurance last year, with the amount of insurance coverage down 9.79% compared with 2022.

However, it is worth mentioning that in 2024, the popularity of directors' liability insurance will be ignited again. According to incomplete statistics of the Daily Financial Report, since 2024, more than 270 companies have issued announcements about their plans to purchase or renew directors' liability insurance, while only 74 listed companies have issued relevant announcements in the same period of 2023.

According to the insurance information last year, in terms of industry distribution, the number of manufacturing companies purchasing directors' liability insurance is far ahead, accounting for more than 60%. In terms of geographical distribution, the economically developed Pearl River Delta and Yangtze River Delta are the main players in purchasing directors' liability insurance, and Guangdong, Zhejiang, Jiangsu, Beijing and Shanghai rank in the top five.

In addition, in terms of the nature of insurance companies, private enterprises accounted for the majority of listed companies that purchased directors' liability insurance in 2023, accounting for nearly 75%; Chinese foreign joint ventures (including Hong Kong, Macao and Taiwan and domestic joint ventures) accounted for 10.5%; Foreign investment (including investment from Hong Kong, Macao and Taiwan) accounts for 10%; The proportion of state-owned enterprises is only 4.6%. The analysis of the reasons behind it has a lot to do with the professional quality of directors, supervisors and senior managers in private enterprises.

We know that unlike state-owned enterprises, where the market is stable and personnel are fixed, private enterprises have a very high degree of marketization freedom, which determines that most of their directors, supervisors and senior managers are professional managers of the employment system. The legal liability risks faced by individuals will rise significantly, and enterprises will naturally have a stronger demand for directors' liability insurance. In other words, there is a positive relationship between the demand for directors' liability insurance and litigation risk.

Of course, in addition to the increased willingness to take out directors' liability insurance, enterprises still need to improve their choice of policy amount for directors' liability insurance. It is reported that at present, most A-share listed companies choose the policy limit of director's liability insurance from 50 million yuan to 100 million yuan.

The insiders pointed out that the listed companies chose unusually consistent policy amounts when taking out directors' liability insurance, which also showed that the development of directors' liability insurance practice was affected by the difference in legal risk perception between the insurance company and the underwriting subject, and risk education needs to be further strengthened. In combination with the rising investor claim risk background, A-share listed companies should consider purchasing products with higher insurance coverage based on their own actual conditions.

Compensate or not? Risk exposure continues to rise, and rate surges

Although it is a "small and beautiful" insurance product, the role of directors' liability insurance should not be underestimated in the event of major litigation disputes.

To lengthen the time cycle, take Kangmei Pharmaceutical's huge compensation event of 2.46 billion yuan to compensate investors as an example. Affected by this, the former chairman of the company was sentenced, and the company's directors, supervisors, executives and accountants were all jointly and severally held accountable, and were sentenced to bear joint and several liability of 369 million yuan. The company was also in a state of bankruptcy and reorganization. We can guess that if we had the participation of the directors' liability insurance, part of the compensation of Kangmei Pharmaceutical could be covered by the insurance, and the outcome would not be as tragic as it was at the beginning.

Indeed, after this incident, the issue of whether directors' liability insurance can be compensated and how much can be compensated has always been the focus of attention of major enterprises.

In the solvency report for the fourth quarter of 2023, two insurance companies released data related to compensation of directors' liability insurance, involving nearly 100 million yuan of compensation of directors' liability insurance, with a total compensation of about 90.97 million yuan. Among them, Meiya Property and Casualty Insurance has disclosed four major claims originally due to "directors, supervisors and senior officers' liability insurance", with compensation amounts of 32.37 million yuan, 20.4 million yuan, 20.25 million yuan and 10.65 million yuan respectively, totaling 83.67 million yuan; Zurich Property&Casualty Insurance Company disclosed one major claim due to "directors, supervisors and senior officers' liability insurance", with the amount of 7.3 million yuan.

Of course, the fact that directors' liability insurance is insured does not necessarily mean that they can be fully compensated. This is because the core of directors' liability insurance protection is focused on the negligence or misconduct of senior executives, and those who deliberately act or involve major illegal and criminal acts must refuse to compensate. For example, the executives of Amethyst Storage deliberately violated laws and regulations, even if they insured directors' liability insurance, it would not help.

Pan Yaobin, the heavy passenger department of Minya Insurance, told the Daily Financial Report that the directors' liability insurance is not a standard product. The directors' liability insurance mainly covers the personal management fault liability of directors, supervisors and senior executives, corporate securities liability and improper employment liability. The core of directors' liability insurance products in the market is the same. See the underwriting liability agreement made by different insurance companies according to the project.

It can be seen that a series of cases show that the risk of directors, supervisors and senior executives being exposed is increasing, which also means that the rate of directors' liability insurance will also rise. Data shows that the premium rate of A-share directors' liability insurance has shown a rising trend since 2017, which is closely related to the continuous growth of the insurance rate of listed companies and the rising litigation risk exposure they face.

However, as far as China's current directors' liability insurance market is concerned, there is still a certain gap between the insurance coverage rate and that of developed countries in Europe and the United States. At present, the insurance coverage rate of "directors' liability insurance" of listed companies in the United States is as high as 97%, and that of listed companies in Hong Kong is about 80%. However, the relevant insurance coverage rate of listed companies in mainland China is less than 20%, so there is still much room for growth.

In addition, many weaknesses, such as the lack of professionals, insufficient underwriting capacity, and the lack of a large amount of data to support the market rate level, have also virtually restricted the healthy and stable development of directors' liability insurance in China.

However, the more mature the rule of law economy is, the more enterprises will favor the directors' liability insurance, thus promoting its mature development. In the current wave of reform, governance and transformation of China's capital market, directors' liability insurance is like a wave. With the continuous deepening of policies, it turns into a huge wave and continues to move forward.

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