A material portion of the gross incurred loss in the deadly Hong Kong apartment fire is to be transferred to reinsurers, which may halt downward pressure on Hong Kong property reinsurance rates amid a global reinsurance softening backdrop, AM Best expects.
In its latest commentary on the 26 November apartment fire, AM Best states that residential property all-risk policies have been viewed as low-severity exposures by Hong Kong insurers. However, this disaster highlights the potential for risk accumulation in high-rise condominiums within a densely populated city. The Hong Kong fire loss is expected to be significant, involving multiple lines of business, including property, engineering, public liability, third-party liability, employee compensation, personal accident, motor and life insurance. Property losses are anticipated to dominate general insurance claims, underscoring significant protection gaps in public liability, third-party liability, and professional indemnity coverage.
According to the commentary, primary insurers typically maintain reinsurance arrangements in various forms—facultative, proportional and non-proportional treaties—to safeguard their balance sheets. Therefore, a material portion of the gross incurred loss is expected to be borne by reinsurers. With reinsurance 1 January 2026 renewals approaching, this event may trigger premium adjustments. Reinsurers also may respond by tightening terms and conditions.
“Loss-impacted proportional treaties will likely see commission reduction in subsequent years as a form of payback, prompting potential restructuring for improved economic and capital efficiency,” said Ms Christie Lee, senior director, head of analytics, AM Best. “The market anticipates stricter underwriting standards ahead, including unbundled coverages, added exclusions, and tighter controls on exposure accumulation.”
The fire in the densely packed Wang Fuk Court in Hong Kong's northern district of Tai Po has underscored the risk concentration in high-rise buildings, and may expose significant protection gaps in public liability, third-party liability and professional indemnity coverage. The fire marks a tumultuous end to 2025 after Hong Kong experienced record-breaking rainfall in August, following a series of Black Rainstorms. Preliminary estimates of $200m or more suggest the gross loss could approach half the scale of Typhoon Mangkhut in 2018, which totalled about $400m, according to the Hong Kong Federation of Insurers.