Hong Kong’s demand for IPO legal insurance set to rise

New rules may make market an attractive destination for listings once more

Hong Kong’s demand for IPO legal insurance set to rise

Insurance News

By Gabriel Olano

Insurance covering legal issues stemming from initial public offerings (IPOs) is likely to be increasingly in-demand in Hong Kong, following the introduction of new rules regarding stock market listings.

According to Chris Fischer Hirs, group chief executive of Allianz Global Corporate & Specialty SE (AGCS), this type of insurance will cover companies and their directors in case of legal action stemming from failures of disclosure in their IPO prospectuses.

“There are increasing demands in the listing rules of many stock exchanges to add investor protection measures,” Fischer Hirs told the South China Morning Post.

“This has added to the liability and risks for listed companies and their directors, who could face lawsuits for compensation for any disclosure failures. They prefer to get insurance cover for legal costs and other related expenses when their companies go public.”

Fischer Hirs added that Hong Kong’s demand for IPO legal insurance was high in 2015 and 2016 since the special administrative region ranked among the top IPO venues in the world, in terms of funds raised. However, demand went down in 2017 as more companies turned to Shanghai and New York over Hong Kong for their IPOs.

Now, with Hong Kong Exchanges and Clearing adopting new rules in June aimed at attracting more technology-focused companies to list in the market, demand is expected to rise again.

Demand for insurance covering product recalls is also expected to rise, said Fischer Hirs, sparked by the 2016 recall of Samsung’s Galaxy Note 7 smartphones after some batteries exploded.

“The recall cost Samsung a lot of money while it also alerted other Asian companies to be aware of the risks of product recalls,” he said.

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