Hong Kong property and casualty insurers face further pressure on underwriting results following last month’s devastating fire at an apartment complex, ratings agencies say.

Insurers have already taken hits from extreme weather this year, including Super Typhoon Ragasa and heavy rainstorms, according to S&P Global Ratings.

“Claim losses from [the] fire at Wang Fuk Court in Tai Po will further erode the sector’s underwriting margins,” credit analyst Emily Yi said. “The impact should be manageable relative to their capital positions.”

Retained losses from the fire could raise the Hong Kong sector’s net combined operating ratio by 2-3 percentage points to 97%-98% this year, the ratings company estimates.

China Taiping Insurance – which underwrote Wang Fuk Court property and third-party liability related to renovation work that was taking place there – could face larger claims than other primary insurers, but reinsurers are likely to bear the brunt of those losses, S&P says. 

Insurers are expected to review property risk retention and pricing policies after rate falls in recent years amid intense competition.

The Tai Po fire started on November 26 and was not extinguished until two days later. The death toll had risen to 159 by late last week.

AM Best says preliminary loss estimates of $US200 million ($302 million) or more suggest the gross amount could approach half those of Typhoon Mangkhut in 2018.

A material proportion of the loss is expected to be borne by reinsurers, which may tighten terms and conditions, it says.

Fitch Ratings says the fire caused major property damage across seven of the complex’s eight blocks, including to common areas.

“The incident will trigger multiple coverage types, including property, public liability, employee compensation, group personal accident and numerous home contents claims,” it said. “It remains too early to quantify total insured losses, but we expect insurers and reinsurers to bear most construction-related costs.”

Fitch says the fire will dent affected insurers’ earnings over the next year, and the tragedy is likely to tighten market conditions, with rising premiums, deductibles and exclusions for high-rise renovations and higher-risk locations. Some insurers may reduce or withdraw capacity, it says.