The Ultimate Guide to Public Offering Securities Insurance (POSI)

Public Offering of Securities Insurance (POSI), also known as Prospectus Liability Insurance or IPO Insurance, is a specialized form of liability insurance designed to protect issuers, directors, officers, and other stakeholders involved in public securities offerings from financial losses arising from claims related to misstatements, omissions, or other inaccuracies in offering documents like prospectuses.

In an era of heightened regulatory scrutiny and shareholder activism, POSI serves as a critical risk management tool, particularly for initial public offerings (IPOs), secondary offerings, debt issuances, or rights issues.

Originating in the U.S. in the 1980s amid rising securities litigation, POSI has evolved into a global product, with demand surging in financial hubs like Hong Kong, London, and New York. As of 2025, the product is non-renewable and transaction-specific, typically lasting 3-6 years to cover the "discovery period" when claims are most likely to emerge. This guide explores POSI's features, coverage, buyers, claims, tips, the Hong Kong market, customizations, providers, premiums, and international comparisons.

POSI Comprehensive Coverage Details

Key Product Features of Public Offering Securities Insurance (POSI)

POSI policies are highly customizable, distinguishing them from broader liability covers like Directors & Officers (D&O) insurance. Core features include:

• Transaction-Specific Design: Policies are tailored to a single offering (e.g., an IPO), with coverage activating upon filing the prospectus and extending post-closing.

• Non-Renewable Structure: Unlike annual D&O policies, POSI is a one-time purchase, often with a 6-year tail to align with statutes of limitations for securities claims.

• Broad Insurable Interest: Protects not just the issuer but also selling shareholders, underwriters, and advisors if named.

• Global Applicability: Covers claims under multiple jurisdictions, including U.S. securities laws (e.g., Section 11 of the Securities Act of 1933), which often apply extraterritorially.

• Duty to Defend: Includes advancement of defense costs, allowing insureds to select counsel without insurer veto in many policies.

These features make POSI a "bespoke" solution, responding specifically to the unique risks of public offerings rather than general corporate liabilities.

Coverage Details

POSI provides first-party and third-party coverage for securities-related claims. Standard inclusions:

• Misrepresentation and Omissions: Losses from inaccurate statements in prospectuses, registration statements, or roadshow materials.

• Shareholder Claims: Class actions or individual suits alleging fraud, negligence, or misleading disclosures leading to stock price drops.

• Regulatory Investigations: Costs from probes by bodies like the U.S. SEC, UK's FCA, or Hong Kong's SFC.

• Defense and Settlement Costs: Legal fees, expert witnesses, and settlement payments, often up to the policy limit (e.g., $10-100 million for large IPOs).

• Entity Coverage: Extends to the company itself for reimbursement of indemnified parties.

Exclusions typically cover intentional fraud, prior known acts, or non-securities claims (e.g., IP disputes). Limits are per-offering, with deductibles starting at $100,000-$500,000.

Typical Buyers of Public Offering Securities Insurance (POSI)

POSI appeals to entities navigating public capital markets:

• Issuing Companies: Especially first-time issuers in high-risk sectors like tech, biotech, or fintech, where disclosure complexities are high.

• Directors and Officers: Individuals seeking personal protection beyond D&O policies.

• Selling Shareholders: Controlling or major holders offloading stakes.

• Underwriters and Advisors: Investment banks or law firms requiring coverage extensions.

• SPACs and Reverse Mergers: Entities in fast-track listings facing accelerated scrutiny.

In 2025, buyers are predominantly mid-to-large cap firms; small-cap issuers may bundle POSI into D&O extensions due to cost.

Claims Process of POSI

Filing a POSI claim is straightforward but time-sensitive:

1. Notification: Report potential claims within 30-60 days of awareness (e.g., SEC inquiry letter).

2. Documentation: Submit offering documents, claim letters, and evidence of loss causation.

3. Insurer Response: Within 14-30 days, the carrier appoints counsel and advances costs (subject to reservation of rights).

4. Investigation and Settlement: Joint defense strategy; settlements require mutual consent.

5. Payout: Indemnification post-resolution, minus deductible.

Success rates are high (80-90%) for meritorious claims, but delays can occur in cross-border cases. Tip: Engage a broker early for pre-claim advice.

Tips for Buyers and Risk Managers

• Conduct Thorough Due Diligence: Robust prospectus reviews reduce claim likelihood; involve external auditors.

• Layer with D&O: Use POSI for offering-specific risks, D&O for ongoing governance.

• Shop Early: Secure quotes 4-6 weeks pre-filing to avoid rushed pricing.

• Negotiate Tail Length: Opt for 6 years in litigious markets like the U.S.

• Monitor Exclusions: Ensure "innocent misrepresentation" carve-backs for non-fraudulent acts.

• Budget for Add-Ons: Factor in 10-20% extra for custom extensions.

• Post-Offering Review: Analyze claims trends to refine future policies.

The Hong Kong Market for POSI

Hong Kong, as Asia's premier IPO hub (100+ listings in 2024), sees robust POSI demand, though it's a niche within the HK$102 billion general insurance (GI) market in 2025 (projected from Q1 HK$20.8 billion). POSI falls under professional indemnity/financial lines, comprising ~0.4% of GI premiums (~HK$450 million in 2025, up 12.5% YoY).

Growth drivers include Greater Bay Area integrations, AI/green finance IPOs, and SFC's enhanced disclosure rules. Challenges: Geopolitical tensions and U.S. extraterritorial risks for dual-listed firms. Market share leaders: International carriers dominate (90%), with local adaptations for HKEX compliance. 2025 trends show softening premiums amid stable IPO volumes, but rising cyber-securities overlap boosts hybrid demand.

Metric	2023	2024	2025 (Est.)
POSI Premiums (HK$ mn)	300	400	450
% of GI Market	0.45%	0.40%	0.44%
YoY Growth	+2.5%	+33%	+12.5%

Premium Calculation for POSI in Hong Kong

POSI premiums are typically calculated as a percentage of the offering size (e.g., 0.7-1.2% for mid-sized IPOs), adjusted for risk factors. Unlike standard GI policies, POSI is transaction-specific, with underwriters assessing due diligence quality, sector risks, and extraterritorial exposure (e.g., U.S. SEC applicability for dual listings). Key factors include:

Factor	Description	Impact on Premium (2025 Est.)	Example Adjustment
Offering Size	Total value of the public offering (e.g., IPO proceeds). Larger offerings benefit from economies of scale.	Base rate: 0.7-1.2% of size; -10% for >HK$10b offerings.	HK$5b IPO: ~HK$35-60m premium.
Sector Risk Profile	High-risk sectors (e.g., biotech, fintech) face higher rates due to disclosure complexities.	+20-50% for high-risk (biotech); -5% for industrials.	Tech IPO: +30% uplift.
Claims/ Litigation History	Past securities claims or regulatory probes by the issuer or directors.	+15-40% for adverse history; discounts for clean records.	Recent SFC fine: +25%.
Jurisdictional Exposure	Inclusion of U.S./EU laws increases scrutiny; HKEX-only lower.	+10-20% for cross-border (e.g., H-share).	Dual HK-US listing: +15%.
Tail Length & Limits	Coverage duration (3-6 years) and policy limits (HK$50m-500m).	+20-30% for 6-year tail; higher limits scale linearly.	HK$100m limit, 5-year tail: Standard base.
Market Conditions	2025 soft market due to capacity surplus post-RBC regime.	-5-10% YoY softening in PI/FI rates.	Competitive bidding: -8% average.
Deductible Selection	Higher self-insured retention reduces insurer exposure.	-10-15% for HK$1m+ deductible.	HK$500k deductible: -12%.

Notes: Calculations involve actuarial modeling under IA's Risk-Based Capital (RBC) framework (effective July 2024), incorporating stress tests for litigation scenarios. Brokers like Marsh recommend early quoting (4-6 weeks pre-filing) to leverage competition.

Premium Trends for POSI in Hong Kong

POSI premiums have stabilized in 2025 amid a competitive PI/FI market, with rates declining 5-10% due to abundant capacity and moderated IPO volumes (~90-100 listings projected). Overall GI premiums grew 49% YoY in Q1 2025 to HK$31.2b, driven by RBC adjustments, but liability/PI segments lag at 3-5% growth. POSI-specific estimates (as ~0.4% of GI) show modest expansion tied to Greater Bay Area IPOs and green finance.

Year/Period	POSI Est. Premiums (HK$ m)	% of GI Total	YoY Growth (%)	Key Drivers
2023 Full Year	300	0.45%	+2.5	Post-COVID IPO recovery; stable rates.
2024 Full Year	400	0.40%	+33.0	IPO rebound (100+ listings); RBC implementation boosted capacity.
2025 Q1	110 (annualized ~440)	0.35%	+10.0	Soft rates (-8% in FI/PI); AI/green IPO surge.
2025 Full Year (Proj.)	450	0.44%	+12.5	Continued softening; 5.1% GI CAGR to 2029.
2026-2029 (Proj.)	500-600 (avg.)	0.5%	+3.4 (Liability CAGR)	Medical inflation spillover; cyber-POSI hybrids.

Notes: Liability insurance (including POSI) is projected to hold 22.1% of GI GWP in 2025 (HK$22.1b total liability segment), growing at 3.4% CAGR through 2029. Global influences (e.g., McKinsey's 8% Asia PI growth) support HK trends, but geopolitical risks could firm rates by 5% in H2 2025.

Recent Hong Kong Claims Examples

Claims in POSI in Hong Kong

POSI claims are infrequent (5-8% of policies, per industry estimates) but high-severity, often involving SFC investigations or shareholder suits over prospectus misstatements. In 2024, GI claims totaled HK$53b (52.7% claims ratio), with General Liability (including PI) contributing ~HK$12.1b in GWP but lower payouts due to strong underwriting profits (HK$1.2b). Specific POSI claims data is aggregated under PI, with no public breakdowns; examples highlight regulatory focus.

Metric	2024 Full Year	Q1 2025 (Est.)	Trends/Notes
Total GI Claims Paid	HK$53b (gross); HK$28.1b (direct)	HK$7.5b (annualized ~30b)	52.7% claims ratio; up 12% YoY from economic recovery.
Liability/PI Claims Paid	~HK$6-7b (est. 50% of segment GWP HK$12.1b)	~HK$1.5b (annualized)	Low frequency; average severity HK$10-50m per claim.
POSI-Specific Claims Frequency	5-8% of policies (est.)	Stable at 6%	Tied to IPO volume; 10% of 2024 claims involved disclosure issues.
Average Payout per Claim	HK$20-40m	HK$25m (est.)	Defense costs 60%; settlements 40%; U.S. exposure inflates.
Claims Ratio (PI/FI)	45-55%	48%	Profitable; RBC stress tests cap exposure.

Claim Examples (2024-2025):

• SFC Probe on Biotech IPO (2024): HK$15m claim for prospectus omission on clinical trial risks; settled via POSI defense costs (anonymous, per Charltons Law report).

• Shareholder Suit vs. Fintech Firm (Q1 2025): HK$30m payout for alleged revenue overstatement in HKEX filing; covered underwriter extensions.

• Cross-Border Case (H2 2024): Dual-listed firm faced SEC/HK$25m joint claim; POSI tail coverage activated after 18-month delay.

Notes: Claims process under IA guidelines requires 30-day notification; 80-90% success for valid claims. Rising trends: 15% increase in securities probes (SFC data), driven by AI disclosures. For mitigation, firms emphasize "innocent misrepresentation" carve-backs.

Special Tailored and Add-On Features

Special Tailored or Add-On Features

POSI's flexibility shines in customizations:

• Underwriter Extensions: Covers banks for due diligence failures.

• Selling Shareholder Side-A: "Burning cost" coverage for non-indemnifiable losses.

• Roadshow/Media Liability: Protects oral statements or marketing materials.

• Regulatory Fines Add-On: Reimburses penalties (where insurable).

• Crisis Management: PR and forensic accounting support.

• Hybrid D&O Integration: Seamless blending with existing policies.

In Hong Kong, tailored features often include SFC investigation cover and bilingual policy wording for cross-border offerings.

Top Providers

Global and Hong Kong leaders emphasize expertise in financial lines:

• Global: Marsh (broking leader, bespoke POSI placement), AIG (transaction-tailored policies), Chubb (broad limits up to $200M), Hiscox (UK/EU focus), and Gallagher (advisory-integrated).

• Hong Kong-Specific: AIG Hong Kong (strong in PI for securities), Chubb Asia Pacific (IPO specialist), Zurich (local compliance), and Allianz (rising in Asia financials).

In 2025, AIG holds ~25% global POSI market share, per industry estimates.

Premium Factors and Calculation

Premium Factors and Trends

Premiums range from 0.5-2% of offering size (e.g., $500K for a $100M IPO), influenced by:

• Offering Risk Profile: Sector (biotech > tech > industrials), size, and jurisdiction.

• Insured History: Past claims or litigation exposure.

• Market Conditions: Capacity abundance in 2025 softens rates by 5-10% YoY.

• Deductible/Limits: Higher deductibles lower costs.

• Tail Length: Longer tails add 20-30%.

2025 Trends: Global POSI premiums up 8% annually (McKinsey), driven by 15% IPO rebound. In Asia, rates stabilize at 1.2% of limits amid RBC regimes; U.S. sees hikes from litigation surges.

Factor	Impact on Premium
High-Risk Sector	+30-50%
Large Offering	Economies of scale (-10%)
Soft Market (2025)	-5-10% YoY

Comparison Across Countries

POSI varies by litigation culture and regulation:

Aspect	US	UK/EU	Hong Kong/Asia
Market Maturity	High (60% global premiums); SEC-driven.	Mature; FCA/EBA focus on disclosure.	Growing (10-15% share); HKEX/SFC emphasis.
Avg. Premium	1.5-3% of offering (litigation-heavy).	0.8-1.5% (class actions rarer).	0.7-1.2% (cost-competitive).
Coverage Scope	Broad (Section 11/10b-5); 6-yr tails standard.	Prospectus Directive; 5-yr tails.	HK + U.S. extraterritorial; bilingual options.
Claim Frequency	High (20% of IPOs sued).	Medium (10%).	Low-Medium (5-8%, rising with dual-listings).
Trends 2025	Rate hikes +15% from SPAC fallout.	Stable; green IPO add-ons.	+12% growth; cyber-POSI hybrids.

U.S. leads in volume but highest costs; Hong Kong offers value for Asia gateways.

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Conclusion

POSI is indispensable for mitigating the "black swan" risks of public offerings, blending precision coverage with strategic peace of mind. In 2025's dynamic markets, proactive buyers—especially in Hong Kong—can leverage softening premiums and innovations like AI-due diligence tools. Consult a specialist broker for tailored quotes, and remember: The best policy prevents claims through diligence. For personalized advice, reach out to EverBright.

For comprehensive actuarial and broker services tailored to POSI and other financial liability needs, consider Everbright Actuarial and Broker Services. With a proven track record in Hong Kong's vibrant insurance market, Everbright offers expert guidance on premium optimization, risk assessment, and customized policy placements, ensuring seamless integration with your IPO strategies.

Our team of seasoned actuaries and brokers leverages cutting-edge analytics and deep market insights to deliver cost-effective solutions that safeguard your business against evolving regulatory and litigation risks—contact them today to elevate your risk management approach.