Readers of this blog are well aware that the D&O insurance in the U.S. and the U.K. has been in a hard market since late 2018. The hard market has apparently affected D&O insurance conditions in other regions as well. According to a May 5, 2021 article on the NewDawnRisk website entitled “Where Next for D&O in the Middle East?” (here), written by Nicky Stokes, Head of Management Liability and Financial Institutions at NewDawnRisk, the current hard market conditions have also had an impact in the Middle East region as well. As a result of overall conditions in the global insurance market and a changing liability exposure environment, Middle Eastern D&O insurance buyers are also facing increased pricing, reduced insurer capacity, and an uncertain insurance landscape.


According to the article, historically there has been less take up for D&O insurance in the Middle East compared to other regions, owing to the “proliferation of large, affluent, family-owned private companies in the area who have simply not seen the need for the product.” In the past as well, the litigation environment “has been comparatively benign.” However, with respect to the liability environment “significant changes are afoot.”


One significant regional development was the Saudi Arabian Capital Market Authority’s December 2017 introduction of a new class action regime for claims by shareholders of listed companies in the country. According to the article in 2020, shareholders filed an action under this new class action regime against the former board of directors of the Al-Mojil Group, as well as its senior management and auditor for alleged legal violations in connection with the company’s 2008 IPO. (For further information about Al-Mojil Group matter, refer here.)


There have been a number of regulatory changes in the region as well, as “Middle East states look to align with global standards and reporting requirements.” For example, Saudi Arabi has led a “massive drive to regulate its financial services industry” as part of several government initiatives, include the Saudi Vision 2020, which is designed to reduce the kingdom’s dependence on oil and diversity its economy. In addition, both Saudi Arabia (in 2018) and the UAE (in 2020) have implemented substantial revisions to their bankruptcy laws in order to try to encourage further participation by both foreign and domestic investors by providing further structure to the business legal framework.


These changes are having a “direct effect on directors and officers as it makes it much easier to identify where obligations have not been met.” Where the duties are codified into law, “it is much more straightforward to bring a claim.”


A number of different drivers have also contributed to an increase in claims in the region. Among other things, there has been “an increase in regulatory investigations across the region.” Of particular concern, “criminal or regulatory actions increasingly relate to allegations of financial irregularities or accounting misstatements.” There has also been an increase in investigations alleging fraud, money laundering and embezzlement. This increase in regulatory and enforcement investigations has “changed the claims landscape for the directors and officers of Middle Eastern companies.”


Indeed, the claims drivers that have been relevant elsewhere in the world are “increasingly present in the Middle East.” Including investor claims of mismanagement against executives of companies in distress or relating to criminal or regulatory action. Claims also involve third parties such as private equity investors alleging financial irregularities prior to investment, and civil claims based on alleged financial wrongdoing where the company has been unable to repay its debt.


These regional developments have arising in the context of developments in the global D&O insurance marketplace that have had an impact in the region. The changing regional liability environment in combination with the changing global insurance marketplace has resulted in a changed market in the Middle East. D&O insurance prices in the region have increased substantially with minimum increases of 20% and some buyers seeing increases in the triple-digits. Insurer appetite has also diminished, leading to a reduction in capacity. Whereas in the past, some insurers might have been willing to provide limits of up to $60 million, those same insurers now might be willing only to provide limits of $10 million. In some placements, insurers have been willing to offer limits as low as $2 million.


These changes in the insurance marketplace have led to “some difficult conversations and pushback from buyers.” The region has “always been a price-sensitive market,” and with the recent price increases, some buyers are purchasing less cover than they might have in the past. Some businesses, according to the article, are “clearly underinsured,” which could “store up trouble for the future.”


Risks that could affect future claims include both Cyber and the Coronavirus. There have been a number of significant cybersecurity incidents in the region, generating “significant losses” with “the potential to impact the D&O market.” The article specifically suggest that “we will also see a string of claims against directors and officers as a result of the coronavirus pandemic” and business in the Middle East “should brace themselves for a likely flood of shareholder lawsuits,” which could represent “a potentially significant exposure to directors and officers,” at least in terms of defense expense. With the current economic and financial uncertainty, “D&O claims resulting from company insolvency are likely to increase.”


The article also notes that there has been “a dramatic increase” in the number of special purpose acquisition companies,” raising the possibilities of “bad deals being negotiated and agreed to in a rush to market.” With rushed deals “comes a very high chance of failure – leading to an uptick in D&O claims.”


Given these circumstances the current market conditions could prevail for some time to come. There could be, the article notes in conclusion, “tough times ahead.”



It is always interesting to me to learn about the D&O insurance marketplace conditions in other regions around the globe. While it is interesting to me in this case to note that the changes in the international D&O insurance marketplace are also having an impact in the Middle East, it is even more interesting to learn that the changes are being driven in part by changes in the liability environment and concerns that the D&O risk exposure has changed.


One aspect of the changing liability environment that is of particular interest is the rise in at least some countries in the region of mechanisms to provide investors with a way to try to seek redress for perceived grievances. I have long thought that these kinds of changes evolve naturally as investors insist that there are means available for them to pursue claims when they believe they have been misled. Over time, investors may simply come to expect the availability of these kinds of procedural alternatives and countries interested in attracting investment capital will find it necessary and appropriate to adopt these kinds of mechanisms. While it is unlikely that any country might adopt a regime resembling that of the U.S. in all respects, it does seem likely that over time many countries will adopt procedural regimes that share certain common features – such as, for example, a way for aggrieved investors to pursue their claims collectively.


It is also interesting to note in reading this article that many of the perceived current and likely future D&O claims risks resemble those in the U.S. For example, any list of current U.S. D&O claims exposures would likely also include such topics as Cyber, coronavirus, and economic and financial uncertainty.


It was particularly interesting to me in that regard that among the specific current risks in the Middle East is the potential exposure arising from the rise of special purpose acquisition companies (SPACs). The rise and proliferation of SPACs clearly is the hottest of hot topics in the U.S. and it noteworthy that the SPAC phenomenon is perceived as a risk in the Middle Eastern region as well. The reference to SPACs in the article is one of the most telling signs in the article that the D&O insurance marketplace increasingly is global in its scope, both in terms of the availability of and pricing for the product, but also in terms of the likely liability exposures that the product must be set up to address.