Hong Kong P&C Insurers Face Underwriting Pressure After Wang Fuk Court Fire

The property and casualty (P&C) insurance sector in Hong Kong is expected to face increased pressure on underwriting results due to claim losses from a recent fire at Wang Fuk Court in Tai Po. This incident follows a challenging period for the sector, which has already incurred higher claims from Super Typhoon Ragasa and severe black rainstorms earlier this year. Despite these strains, the sector's overall solvency remains stable because of robust capital positions held by insurers. S&P Global Ratings highlighted that the fire will weaken underwriting margins, adding to diluted earnings but is unlikely to jeopardize the financial health of insurers. China Taiping Insurance (HK) anticipates bearing the largest claims share, given its coverage of property damage and third-party liability related to the building's renovation. However, reinsurance arrangements are expected to absorb most losses, mitigating direct impacts on primary insurers. S&P projects that the fire could increase the sector's net combined ratio by 2 to 3 percentage points, raising it near 97% to 98% in 2025 from 93.2% in 2024. Although this points to a reduction in underwriting profits, ratios under 100% still indicate positive technical performance. Reinsurance treaties and excess-of-loss programs play a pivotal role in containing losses, with the sector's reinsurance utilization at approximately 35%, rising to around 60% for property lines. The ratings agency noted that the recent events, including a scaffolding fire on a separate office building, have underscored risks associated with construction materials and practices. Consequently, insurers are expected to reassess risk retention and pricing strategies in the property insurance market, where premium competition has driven rates downward in recent years. Moreover, primary insurers may adopt a more cautious approach toward increasing inward reinsurance exposure for property risks to limit vulnerabilities to large-scale losses and natural catastrophes. The support from parent companies also provides additional financial stability to many rated insurers within the sector. These developments highlight ongoing adjustments in underwriting and risk management approaches within the Hong Kong P&C insurance market.