Reinsurers may absorb a large share of Hong Kong’s recent apartment fire losses, a development that could slow declining property reinsurance rates ahead of the January 1 renewals.
AM Best said primary insurers in Hong Kong generally cede risk through facultative, proportional and non-proportional treaties, and reinsurers are expected to take on a material portion of the gross incurred loss. The rating agency said the claims are projected to cover property, engineering, public liability, third-party liability, employee compensation, personal accident, motor and life business.
In its commentary, AM Best pointed to longstanding treatment of residential all-risk policies in Hong Kong as low-severity exposures. The event revealed the potential for loss accumulation in high-rise buildings in dense areas and pointed to existing protection gaps in public liability, third-party liability and professional indemnity cover.
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The fire affected seven of the eight buildings at Wang Fuk Court in Tai Po. The housing estate provides close to 2,000 units for about 4,600 residents. Industry estimates indicate insurers may face claims of HK$2.6 billion ($334 million).
China Taiping Insurance underwrites the estate’s policies. The building and common-area property coverage is HK$2 billion, while third-party liability cover includes HK$20 million per incident for property and HK$10 million per incident for bodily injury.
Bloomberg reported that the insurer also provides coverage tied to renovation work under investigation for its role in the blaze, including employee compensation of HK$200 million and HK$50 million accident coverage for the project.
AM Best suggested the loss may influence renewal negotiations. Commission terms on proportional treaties could be reduced, which Christie Lee, senior director, head of analytics, said may prompt restructuring for economic and capital efficiency. She said market participants anticipate unbundled coverages, exclusions and tighter accumulation controls ahead.
Local insurers have activated contingency measures. The Hong Kong Federation of Insurers has set up special inquiry services to guide affected policyholders on life, home, building, medical and personal accident benefits.
HKFI chief executive Selina Lau Pui-ling previously said compensation would likely rely on the estate’s policy for residents without home or fire insurance. She also noted some contracts provide temporary accommodation benefits when homes are uninhabitable.
The Insurance Authority formed a task force to support claims processing and ensure resources remain available to handle inquiries.
Preliminary estimates from the Hong Kong Federation of Insurers indicate losses of $200 million or more, placing the gross loss at about half of the roughly $400 million impact from Typhoon Mangkhurt in 2018.
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