Private Equity Firms Advised To Revisit Their Insurance Profile

Under renewed scrutiny from the SEC, the risk profile of private equity firms has expanded dramatically and as a result their insurance programs likely need revisiting, says a post from Marsh. The SEC’s increased interest was signaled in the Commission’s own listing of examination priorities, as issued last year. It explicitly singles out private equity.

Since then the Commission has proposed a number of rule changes in line with that priority. They address such matters as fees, disclosures to investors and potential investors, undisclosed preferential treatment of certain investors, and a strengthening of compliance and resiliency programs.

“A robust general partnership liability (GPL) insurance program should be a critical line of defense for these organizations,” the Marsh writer says. He recommends that firms revisit their coverage with regard to errors and omissions, cyber, and representations and warranties, among other areas, as well as considering dedicated coverage for individuals.

He also advised a careful look at coverage limits. “In the face of the SEC’s proposed rules,” he says, “it is especially prudent that PE firms consider the potential that defense expenses would exhaust or substantially deplete the available limits of its private equity professional and management liability insurance program.” He concludes with a list of considerations for determining “limit adequacy.”