Hong Kong insurers face profit pressure in aftermath of deadly Tai Po fire

The devastating fire in Tai Po is likely to hurt profitability at Hong Kong’s property insurers and could prompt them to review pricing strategies that have led to lower premiums amid fierce competition, according to S&P Global Ratings.\n“Claim losses from last week’s fire at Wang Fuk Court in Tai Po will further erode the sector’s underwriting margins,” said Emily Yi Chang Yoon, credit analyst at S&P, in a report.\nThe city’s property and casualty insurance companies already faced thinner earnings after several extreme weather events earlier this year, she added.\nThe fire last week, which killed at least 151 people and affected at least 3,300 residents, could raise the sector’s net combined ratio – a key measure of profitability – to 97 to 98 per cent this year, an increase of 2 to 3 percentage points, the rating agency said.\nThe metric is calculated by taking net claims and expenses incurred, then dividing by net earned premium. Anything above 100 per cent means insurers are taking a loss on underwriting. In 2024, the ratio for Hong Kong’s property and casualty insurers was 93.2 per cent, according to S&P.\nWhile seven out of the eight towers at Wang Fuk Court were damaged, insured losses would mainly come from the two blocks that suffered the most severe destruction, said S&P. The sum of liable damages for all eight blocks was estimated to be as high as HK$2.6 billion (US$334 million).\nBut additional claims by the homeowners were expected to add further losses to the broader insurance sector, the rating agency noted.\n\n\nChina Taiping Insurance (HK), the insurer for the housing estate’s property damage and third-party liability related to its renovation, was projected to face “relatively larger claims” than other major insurers, S&P said, without offering a specific number.\nOverall, the impact would be “manageable” for insurers, as reinsurance would help primary insurers mitigate losses, according to the report. Reinsurance is insurance for insurance firms, which they use to transfer some of their financial risks.\nThe sector’s overall use of reinsurance stood at about 35 per cent last year, though property insurers logged higher usage at 60 per cent, S&P said.\nSome insurers would also receive financial support from their parent companies, the rating agency added.\nState-owned China Taiping Insurance, parent of CPTI (HK), has vowed to fully support its subsidiary in coordinating reinsurers and establishing mechanisms for rapid claim settlement and advance payments. It also made a HK$10 million donation and offered 60 free housing units in Guangzhou for three months.\nThe fire could push property insurers to rethink their risk appetite and pricing policies, S&P said, after premiums had declined in recent years amid intense competition.\nPrimary insurers could also turn more cautious about future expansion in property coverage, as it could make their profitability more vulnerable to large losses and natural catastrophes, the report said.\n