AM Best expects a material portion of the gross incurred loss in the deadly Hong Kong apartment fire to be transferred to reinsurers, which may halt downward pressure on Hong Kong property reinsurance rates amid a global reinsurance softening backdrop.

In its Best’s Commentary, “Hong Kong Fire Expected to be Credit Negative for (Re)Insurers,” AM Best states that residential property all-risk policies have been viewed as low-severity exposures by Hong Kong insurers. However, this event 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 arrangement 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 January 1 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 form of payback, prompting potential restructuring for improved economic and capital efficiency,” said 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 after a series of Black Rainstorms. Preliminary estimates of USD 200 million or more suggest the gross loss could approach half the scale of Typhoon Mangkhurt in 2018, which totaled about USD 400 million, according to the Hong Kong Federation of Insurers.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=360450.

AM Best is a global credit rating agency, news publisher and data analytics provider specialising in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

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