The Israel Securities Authority announced a new relief for public companies regarding directors’ and officers’ liability insurance. This relief will enable companies to include in remuneration policies only the scope of the insurance coverage, without the other parameters required to date.

As a general rule, the entering of a public company into a D&O insurance policy is subject to the approval of the required organs, in accordance with the status of the officer (director, CEO, or an officer subordinate to the CEO) and the officer’s holdings in the company (holder of control or not a holder of control.)

For example, a director’s terms of service and employment (as well as the director’s inclusion in a D&O insurance policy) are subject to the approval of the remuneration committee, the board of directors and the shareholders’ meeting.

At the same time, certain tracks allow for easier approval of an officer’s coverage in a D&O insurance policy.

One such track requires only the approval of the remuneration committee, provided the terms of the insurance policy are set in the company’s remuneration policy, and as long as the insurance policy terms are on par with market conditions and do not materially influence the company’s profitability, assets, or obligations.

Until recently, the position of the ISA’s staff was that in order to make use of this relief, a remuneration policy had explicitly to address the insurance policy’s premium, a framework for changes within three years, the limitation of liability, and a deductible.

However, in early July, the ISA published an update to this staff position. In light of external changes in the insurance market over the years, and the many requests it received on the subject, ISA staff reexamined the necessity of detailing all the above components in the remuneration policy, noting the particular characteristics of the D&O insurance market, whose terms are dictated to a large extent by secondary insurers abroad. After this examination, ISA staff decided to update its position. It is now sufficient for the remuneration policy to address only the scope of the insurance coverage, so long as the cost of the premium and the amount of the deductible match market conditions at the time the policy is drafted and the cost to the company is not significant.

In light of all this, we recommend public companies (and reporting corporations) examine the need to adjust the provisions of their remuneration policies to the more lenient ISA position, be it by revising the existing remuneration policy or by updating the terms in a remuneration policy to be renewed in the future.