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IIQE Paper 1 Regulatory Framework of Insurance Industry question: minimum limit of indemnity (2)

IIQE Paper 1Regulatory Framework of Insurance Industry

A broker company in its third year of operation earned brokerage income of HK$2,000,000 in the 12 months before its PII policy period. The minimum limit of indemnity is:

A HK$2,000,000
B HK$3,000,000
C HK$4,000,000
D HK$7,000,000

Show the answer and explanation

Answer: C. HK$4,000,000

Answer: HK$4,000,000. Working: the greater of 2 x brokerage income (capped at HK$75,000,000) or HK$3,000,000. 2 x HK$2,000,000 = HK$4,000,000, which exceeds HK$3,000,000.Why not the others:• HK$2,000,000: this is 1 x income; the rule uses 2 x.• HK$3,000,000: the floor applies only where 2 x income is lower.• HK$7,000,000: this adds the floor to 2 x income; take the greater, not the sum.Watch out: Applying the HK$3 million floor when 2 x income is higher.Rule: PII limit (per claim and per 12-month period): greater of 2 x prior-year brokerage income (max HK$75m) or HK$3m; first 12 months: at least HK$3m.Source: IA P1 Study Notes 2024 Ed. §6.2.5(g)(ii), p.6/79; Insurance (Financial and Other Requirements for Licensed Insurance Broker Companies) Rules (Cap. 41L) r.3-7 (e-Legislation, checked 31 Oct 2026)

Common mistake

Applying the HK$3 million floor when 2 x income is higher.

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Related IIQE Paper 1 questions

An insurer's salaried direct sales staff advise customers on the coverage of the insurer's products as its representatives. They A broker company earned brokerage income of HK$50,000,000 in the 12 months before its PII policy period. The minimum limit of indemnity is Agent K is appointed by Insurers P and Q, but only Q appoints him for long term business. Selling a life policy, he misleads a client. Under section 68, who is liable?

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Original study material written to the public IIQE Paper 1 syllabus. Independent, not endorsed by the Insurance Authority or the VTC. Verify figures and rules against current guidance before relying on them.