E-Business
Allianz: Volatile Markets, US Lawsuits, ESG Issues and SPACs Create New Risks for Managers
Board members and company executives can be held liable for an increasing range of scenarios.
Today’s market volatility, with the increased threat of asset bubbles and inflation, the prospect of a growing number of insolvencies due to the pandemic environment, together with rising scrutiny around the environmental, social and governance (ESG) performance of companies and the urgency for robust cyber resilience are key risks for Directors and Officers (D&Os) to watch in 2022.
Risk managers and their D&O insurers should also closely monitor potential exposures to US derivative actions and other forms of litigation, while also not underestimating the challenges around increasingly popular SPACs (special purpose acquisition companies), according to the latest edition of Allianz Global Corporate & Specialty (AGCS)’ annual D&O report.
“The actions and culture of organizations and their directors and officers are coming under heightened scrutiny from a wide range of stakeholders, with litigation risk a primary concern,” said Shanil Williams, global head of Financial Lines at AGCS.
“This comes against the backdrop of a stabilizing D&O marketplace, although capacity is still tight in some segments and many companies would like to buy more limits than the industry can offer. The market remediation has advanced, including our own portfolio at AGCS, and this will gradually ease the pressure that some of our clients are facing. We are adopting a cautious and disciplined underwriting approach and need to remain wary about the current volatile business environment and closely monitor loss trend patterns. However, the D&O insurance space is slowly, but surely, offering opportunities for profitable growth again in selected pockets – and we are eager to pursue these.”
Uncertain insolvency issues continue to be key topic in the D&O space
The withdrawal of support measures for companies established during the pandemic sets the stage for a gradual normalization of business insolvencies in 2022.
The Euler Hermes Global Insolvency Index is likely to post a +15% y/y rebound in 2022, after two consecutive years of decline (-6% forecast in 2021 and -12% in 2020).
While the wave of insolvencies has so far been milder than anticipated, mixed trends are expected across the world.
In less developed markets, such as Africa or Latin America, the number of insolvencies is expected to increase faster compared to more developed economies, such as France, Germany and the US, where the impact of the governmental support is expected to last for longer.
Traditionally, insolvency is a major cause of D&O claims as insolvency practitioners look to recoup losses from directors.
There are many ways that stakeholders could go after directors following insolvency, such as alleging that boards failed to prepare adequately for a pandemic or for prolonged periods of reduced income.
Market volatility, climate change and digitalization key issues
The financial services industry, but also companies from other sectors, continues to face multiple risk management challenges in the current economic climate.
Markets are likely to become more volatile with the increased risk of asset bubbles and inflation rising in different parts of the world.
At the same time, more banks and insurers are expected to assign individual responsibility for overseeing financial risks arising from climate change, while investors are paying closer attention to the adequate and timely disclosure of the risk that it poses for the company or financial instrument they invest in.
The tightening regulatory environment, the prospect of climate change litigation or ‘greenwashing’ allegations could all potentially impact D&Os.
Meanwhile, digitalization has further accelerated following Covid-19, creating enhanced cyber and IT security exposures for companies.
This requires firms’ senior management to maintain an active role in steering the ICT (information and communication technologies) risk management framework.
“IT outages and service disruptions or cyber-attacks could bring significant business interruption costs and increased operating expenses from a variety of causes including customer redress, consultancy costs, loss of income and regulatory fines. Last, but not least, brand reputation can also suffer. All this can ultimately impact a company’s stock price with management being held responsible for the level of preparedness,” said Pauline Vacher, head of Financial Lines for South Africa and France.
Heightened litigation risk in the US
Litigation risk continues to be a top D&O concern, in particular around shareholder derivative actions which are increasingly being brought on behalf of foreign companies in US courts.
“A number of new lawsuit filings, the recent openness of certain courts to extending long-arm jurisdiction, and a possibly record-breaking settlement announced in October 2021, point to heightened US litigation risk for directors and officers of non-US domiciled companies,” David Ackerman, Global Claims Key Case Management at AGCS emphasizes.
Since early 2020, a group of plaintiffs’ firms has brought more than 10 derivative lawsuits in New York state courts on behalf of shareholders of non-US companies seeking to hold directors and officers legally and financially accountable for various breaches of duty to their corporations.
The financial hurdles to bring suit in the US are significantly lower than in many other countries, while US courts and juries are considered more plaintiff-friendly than many others around the world.
The consequences to directors and officers forced to defend themselves in derivative litigation before US courts can be severe.
In what may turn out to be a record-setting settlement for a US derivative lawsuit, in October of this year defendants agreed to pay a minimum of US$300mn to settle litigation brought in a New York state court by shareholders of Renren, a social media corporation based in China, and incorporated in the Cayman Islands, after allegations of corporate misconduct.
Scrutiny over SPACs
Another emerging risk in the global D&O insurance space comes from the growth of so-called Special Purpose Acquisition Companies (SPACs), also known as ‘blank check companies’.
These represent a faster track to public markets. Advantages fueling the growth of SPACs over traditional Initial Public Offerings (IPOs) include smoother procedures, less regulatory and process burdens, easier capital sourcing and shorter timelines to complete a merger with target companies. During the first half of 2021, the number of SPAC mergers in the US, both announced and completed, more than doubled the full year total of 2020 with 359 SPAC filings, garnering a combined US$95bn raised.
The growth of SPACs in Europe may not match the scale of the US boom, but there is still a growing expectation that it will increase despite a less favorable company law environment compared to the US.
In Asia the market is slowly gaining momentum with a significant uptick in companies in China, Hong Kong and Singapore as a new route to accessing capital markets.
SPACs carry a set of specific ‘insurance-relevant’ risks, and losses are already reported to be flowing through to the D&O market as both the SPAC and the private target company typically obtain D&O coverage.
“Exposures could potentially stem from mismanagement, fraud or intentional and material misrepresentation, inaccurate or inadequate financial information or violations of rules or disclosure duties,” said David Van den Berghe, global head of Financial Institutions at AGCS.
In addition, a failure to finalize the transaction within the two-year period, insider trading during the time a SPAC goes public, a wrong selection of a target to acquire or the lack of adequate due diligence in the target company could also come into play. Post-merger the risk of the go-forward company to perform as expected or failure to comply with the new duties of being a publicly-listed company also needs to be considered.
A $60 billion Africa AI Fund is set to be established, leveraging public, private, and philanthropic capital. The goal is to build a secure, inclusive, and competitive African AI economy through foundational and catalytic investment, according to a declaration made at the recent Global AI Summit on Africa in Kigali, Rwanda.
The declaration seeks to leverage the potential of AI to drive innovation and competitiveness to advance Africa’s economies, industries, and societies. Second, to position Africa as a global leader in ethical, trustworthy, and inclusive AI adoption.
The declaration also seeks to foster the sustainable and responsible design, development, deployment, use, and governance of AI technologies in Africa.
The memorandum was facilitated by Qhala, Smart Africa, Rwanda’s Centre for the Fourth Industrial Revolution, and supported by the Gates Foundation.
Qhala is an AI enabler dedicated to driving innovation and digital transformation across Africa.
In a statement, Qhala said the declaration outlines shared commitment among African nations to align national strategies with continental goals, safeguard data sovereignty, build digital infrastructure, and foster a sustainable AI innovation ecosystem.
The organisation went on to say Africa’s AI landscape is changing at a fast pace and it is projected to contribute $2.9 trillion to the African economy by 2030.
Shikoh Gitau, CEO of Qhala, said: “This declaration is timely, as Africa’s AI ecosystem is rapidly evolving but remains fragmented and underfunded. This will ensure that Africa takes its place in a leadership role in global AI development.”
Lacina Koné, CEO of Smart Africa, added: “AI is not just technology to us, it’s an African arrow that, when thrown with the right ethical frameworks and inclusive policies, can pierce the way to African digital prosperity and resilience for the benefit of every citizen.”
Federal government has announced plans to roll out an electronic visa (e-visa) system by May 1, 2025, in a major step towards modernising Nigeria’s immigration processes.
The initiative, a collaborative effort between the Ministry of Aviation and Aerospace Development and the Ministry of Interior, is designed to tighten border security while simplifying travel procedures for visitors.
Speaking at a press conference in Abuja on the implementation of immigration protocols under the Migration Visa Policy (MVP) 2025, Olubunmi Tunji-Ojo, minister of Interior, outlined the far-reaching benefits of the new system.
He explained that the e-visa platform, alongside the automation of landing and exit card processes, would strengthen background checks and deter unauthorised entry into the country.
“With the e-visa, applications will be processed online, and a centralised visa approval centre is already operational at the Immigration headquarters,” Tunji-Ojo revealed.
“Officers have been trained and equipped with integrated solutions connected to global criminal databases such as Interpol, enabling thorough background checks for all incoming travellers.”
The new procedure mandates that passengers must complete an online landing and exit card before boarding their flight.
This information will be cross-verified by airlines in collaboration with the Nigerian Civil Aviation Authority (NCAA).
According to the minister, this integration ensures that anyone attempting to enter or exit Nigeria without proper clearance will be flagged immediately.
“The responsibility of coordinating and verifying this process rests with the NCAA. They are fully committed, as we all are, to safeguarding our nation’s borders and upholding our sovereignty,” he added.
The collaboration between the ministries has already yielded tangible results through initiatives like the EPIC Solution, an advanced passenger information system that has led to the interception of individuals flagged by Interpol at Nigerian borders.
Furthermore, e-gates have been installed at key terminals in Lagos and Abuja airports to support automated, efficient, and secure passenger clearance.
Tunji-Ojo announced that in the coming weeks, the NCAA and the Nigeria Immigration Service (NIS) will jointly establish a dedicated team to finalise the implementation framework, regulatory guidelines, and protocols for airlines.
“This is not a task for one agency alone. It is an inter-ministerial effort requiring seamless cooperation,” he emphasised.
Mr. Festus Keyamo, SAN, minister of Aviation, described the partnership as a model of effective governmental collaboration. He highlighted that both the e-visa and the automated landing and exit card systems will be free of charge, ensuring accessibility while reinforcing security.
Keyamo provided further details on the operational flow of the new system, explaining that travellers will be required to complete an entry card online before their arrival.
The digital system will store their details, including visa type, entry date, and permitted duration of stay. Upon departure, passengers must present their exit cards at the airline’s check-in desk, where the NCAA’s protocol will be applied.
“As you prepare to leave Nigeria, the first checkpoint will be the airline’s boarding desk,” Keyamo explained.
“If you’re a foreign traveller, they will ask for your exit card. Without it, you won’t be issued a boarding pass.”
The process is designed to trigger automatic verification: once the traveller enters their passport number, the system retrieves their entry data and duration of stay.
Should any irregularities arise—such as overstaying a visa – the airline, following NCAA protocol, will refuse to board the passenger and refer them to immigration authorities.
“When you approach immigration, officers will have complete visibility of your travel history and status. Depending on the nature of the violation, they may issue fines, cancel visas, or impose travel bans of up to 10 years,” Keyamo stated.
Both ministers underscored that the overarching goal is to enhance Nigeria’s national security, curb illegal immigration, and create a seamless, digital travel experience.
With this modernised approach, the country aims to align with global best practices while maintaining its sovereignty.
As preparations advance toward the official launch date, authorities are optimistic that the e-visa system will not only improve efficiency but also bolster Nigeria’s reputation as a secure and welcoming destination for legitimate travellers.
National Identity Management Commission (NIMC), has announced that operatives of the Department of State Security and Nigeria Police Force have arrested suspects involved in the illegal collection of National Identity Numbers (NIN), in Anambra State.
This comes as the commission also warned Nigerians against sharing their National Identity Number with unauthorised persons in exchange for money.
Dr. Kayode Adegoke, spokesman for NIMC issuedthis warning in a statement on Wednesday.
This follows reports of some Anambra residents submitting their NIN to unauthorised individuals in exchange for money.
Reacting, NIMC said the activities contravene NIMC Act No. 23, 2007, the Data Protection Act, and the Cyber Crime Act.
The commission said individuals involved in the act have been arrested by operatives of the Department of State Security and the Nigeria Police Force.
“Upon receiving the information on the activities of the unscrupulous individuals, NIMC, in conjunction with the Department of State Services (DSS) and the Nigeria Police Force (NPF), swiftly arrested the culprits behind the illegal collection of the NIN.
“They are currently being interrogated and will be made to face the full wrath of the law. The commission, therefore, advises Anambra State residents and Nigerians to avoid submitting their NINs to unauthorised individuals, organisations, or platforms, as the Federal Government and NIMC have not authorised this. Anyone caught will be sanctioned appropriately.
“At no time should NIN holders give out their NINs for monetary compensation. This is against the laws of the Federation. Anyone caught will be dealt with appropriately.
“The Commission had earlier issued a statement warning Nigerians against sharing their NIN or data with anyone or on any fictitious sites. The NIN can only be used by the holders to access government or private sector services, and it must be verified.
“The Commission has taken necessary measures to kerb the activities of these unscrupulous individuals,” NIMC stated.
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