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Foreign ASX tech listings lead to D&O challenges

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Rising numbers of foreign companies joining an Australian Securities Exchange (ASX) technology index introduced last year is creating challenges for directors’ and officers’ (D&O) cover, Gallagher says.

The ASX started the All Technology Index (XTX) to include companies that haven’t qualified for the S&P/ASX300 and to capture those outside the existing information technology sector.

Gallagher National Head, Professional & Financial Risks Michael Herron says emerging global tech companies are now turning to the XTX as an alternative to the Nasdaq or the London Stock Exchange, which require higher market capitalisations to attract investor interest and liquidity.

That creates D&O issues as insurers tend to follow a “blackbox” rule that Australian underwriters only write locally domiciled risk, he says in a Business Insurance and Risk Market Update.

“While insurers have been somewhat liberal in applying this over the years, as global insurance markets tightened up the default position for many D&O insurers was to revert to their rule books which made it difficult for foreign issuer companies seeking cover from Australian insurers for their primary ASX listing,” he says.

Mr Herron says Gallagher has been able to secure D&O cover for a number of foreign-domiciled businesses, but issues include ensuring they are ready for the continuous disclosure obligations that accompany being a listed entity on the ASX.

“Clients need to demonstrate to insurers that they have sufficient local representation to manage this,” he says.

The report says there are 17 non-Australian companies listed on the XTX, with five each from the US and New Zealand, two each from Israel and Malaysia and one from Ireland, Germany and Singapore.

“The expectation is that there’ll be many more foreign-domiciled companies that choose to come to Australia and list on the ASX as their primary listing,” Mr Herron says.