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The Insurance Authority has just issued a circular containing FAQs in respect of the Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (Rules) which contains the following points of interest.
Increasing minimum share capital requirement
For the minimum share capital of a licensed insurance broker company, this can be paid up in cash, by capitalisation of retained earnings or conversion of debt into share capital.
Compulsory professional indemnity insurance
| (1) | The compulsory professional indemnity insurance policy for licensed insurer broker companies does not need to be issued by an authorised insurer in Hong Kong. |
| (2) | In respect of the requirement for the deductible under professional indemnity insurance policies not to be more than 50% of the company’s net assets, this should be determined by reference to the audited accounts. But if at the time that the professional indemnity insurance is being put in place, the audited accounts are not available, reference may be made to unaudited accounts adjusted by applicable accounting standards. However, if there is any downward adjustment to the amount of net assets resulting in the deductible not complying with the deductible requirements, the licensed insurance broker company should take steps to reduce the amount of the deductible by arranging an endorsement to the policy. |
Client account
| (1) | It is clarified that a licensed insurance broker company which does not hold any client money is not required to maintain a separate client account. |
| (2) | Monies in the client account in respect of one client may not be used to settle the premiums of another client’s policy. |
| (3) | If a licensed insurance broker company identifies any irregularities in client account which involve a material breach of the Insurance Ordinance or the Rules, they should report those irregularities to the Insurance Authority. |
Applicable accounting standards
In respect of preparation of audited accounts, it is clarified that the accounting standards which should apply in respect of preparation of audited accounts for a Hong Kong company are the HKFRS-PE standards unless the licensed insurance broker company has public accountability and publishes general purpose financial statements for external use. This would include a company whose debt or equity instruments are traded in a public market or where it holds assets in a fiduciary capacity for a broad group of outsiders. In this case, they should apply the HKFRS accounting standards.
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