Hong Kong P&C Insurance Sector Faces Strain from Tai Po Fire and Weather Claims

The recent destructive fire at the Tai Po residential complex in Hong Kong is expected to increase the property and casualty (P&C) insurance sector's net combined ratio to 97%-98% in 2025, up from around 93% in 2024. This increase is due to the additional insured losses from the fire, as well as ongoing weather-related losses throughout the year. China Taiping Insurance (HK) Co. Ltd. faces relatively larger claims due to its underwriting of the affected complex, although it benefits from extensive reinsurance coverage. Reinsurers are anticipated to absorb the majority of the impact from these claims because of the sector's robust reinsurance arrangements, particularly in property insurance. The total insured value for the eight tower blocks affected could reach HK$2.6 billion ($334 million). Most losses will derive from the two heavily damaged buildings, alongside individual homeowner claims, further pressuring the market. Primary insurers have significant reinsurance protection through treaties and excess-of-loss programs, expected to mitigate their retained losses. In 2024, the sector's overall reinsurance utilization was about 35%, with approximately 60% utilization in the property line. This protection is crucial as the market faces increasing claims from extreme weather events like Super Typhoon Ragasa. The insurance sector is likely to reassess risk retention and pricing strategies amid falling premium rates caused by intense competition. The frequency and scale of losses related to construction materials and practices, including the recent fire incidents, emphasize the need for such reviews. S&P Global Ratings highlights the sector’s earnings are already diluted from earlier weather-related events, and the fire will further erode underwriting margins. Despite the heightened claim pressures, the sector’s capital positions are expected to manage the impact effectively. Insurers are anticipated to adjust their pricing policies upwards to better reflect the risk profile, especially in highly competitive property insurance markets. This reassessment aligns with an industry-wide focus on mitigating exposure to construction-related risks and enhancing underwriting discipline.