Insurance claims from the deadly Wang Fuk Court fire in Hong Kong are unlikely to affect the rating of China Taiping Insurance Group (TPG), according to credit ratings agency Fitch Ratings.
A Hong Kong-based subsidiary of TPG underwrites the property and liability policies of the residential estate in Tai Po, in which seven (out of eight) tower blocks were razed on 26 November, claiming the lives of at least 159 people and injuring scores of others.
Fitch said in a 4 December commentary that the blaze could lead to a surge of near-term claims. However, the agency added, "Strong state-linked support, diversified operations and solid capital, alongside extensive reinsurance, underpin our view that net losses will remain within rating sensitivities." Fitch also said, “We expect the group to coordinate claims and recoveries across subsidiaries, limiting the net impact.”
Losses
The agency added that TPG’s capitalisation remains resilient, reflected in a ‘Very Strong’ Fitch Prism Global model capital score and group solvency ratios well above regulatory requirements. Fitch Ratings added that he group’s ability to absorb shocks is supported by diversified earnings across its life, non-life and reinsurance segments.
Fitch also expects a temporary uptick in the group's combined ratio and modest capital erosion, but this will remain tolerable for TPG’s rating. "We believe layered reinsurance and the potential for ultimate parental support from the China government should mitigate the impact," Fitch said.
Still, Fitch warned that "with loss development still unfolding, higher-than-expected third-party liability claims and slower recoveries could heighten earnings volatility." The incident will trigger multiple coverage types, including property, public liability, employee compensation, group personal accident and numerous home contents claims. “It remains too early to quantify total insured losses, but we expect insurers and reinsurers to bear most construction-related costs,” said Fitch.
Earnings
The fire will impact affected insurers’ earnings over the next year, with increased claims and cash outflows for non-life insurers and reinsurers.
Fitch expects the tragedy to tighten conditions, with insurers likely to increase premiums, deductibles and exclusions for high-rise renovations and higher-risk locations. Some, according to Fitch, may also scale back or withdraw underwriting capacity.
The global credit rating agency also said, “We believe insurers will tighten project screening, mandate on-site monitoring during works and raise reserves to account for uncertainty in risk. This incident will likely further shift the industry beyond pure risk transfer to proactive risk mitigation capabilities and stronger operational risk governance to limit future losses and stabilise premiums. We also expect insurers to increase risk diversification across business lines, counterparties and geographies.”
Reinsurance
The impact on credit profiles should be limited, due to reinsurance protection, but the industry is likely to face tighter reinsurance pricing and stricter coverage limits, which could lift operating expenses for primary insurers through 2026-2027. Industry liquidity is supported by short-tail claims that typically settle within one to two years and asset portfolios that predominantly comprise cash, deposits and bonds.