Demand for IPO legal insurance set to rise in Hong Kong after bourse adopts new listing rules

Allianz says cover would be against any legal action over disclosure failings, and also sees more need in Asia for product recall insurance

PUBLISHED : Tuesday, 13 February, 2018, 1:36pm
UPDATED : Tuesday, 13 February, 2018, 11:02pm

Demand for insurance covering any possible legal fallout from initial public share offerings in Hong Kong is expected to rise in coming years as a result of listing reform that is expected to attract more companies to the city, according to a leading insurance provider.

Chris Fischer Hirs, group chief executive of Allianz Global Corporate & Specialty SE, said such insurance policies would cover the risks for companies and their directors of legal action if they have any disclosure failures in their listing 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 in an exclusive interview during his recent visit to Hong Kong. 

“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.”

He said that demand for such insurance in Hong Kong was very strong in 2015 and 2016 when the city ranked top among IPO locations worldwide in terms of funds raised. But demand declined last year in tandem with the city’s loss of the top spot to Shanghai and New York.

However, the trend would change and there would be increasing demand in Hong Kong after the market operator, Hong Kong Exchanges and Clearing, adopts new listing rules in June that are expected to draw more tech and new economy companies, as the bourse looks to once again become the destination of choice for listings.

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Fischer Hirs also said that there was increasing demand from Hong Kong companies and those elsewhere in Asia for insurance cover for product recalls, in the wake of the 2016 recall by South Korean electronics company Samsung of over 3 million Galaxy Note 7 smartphones after some batteries exploded. It was the largest ever recall by Samsung.

“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.