Insurance Giant Faces Massive Losses After Deadly Hong Kong Blaze
Shares of China Taiping Insurance Holdings Co. experienced significant volatility on Thursday, dropping as much as 8.1% during early trading following revelations about the company's substantial exposure to a catastrophic fire at a Hong Kong residential project. The stock later recovered some ground, settling at less than 1% down by afternoon.
Massive Insurance Coverage Under Scrutiny
The insurance behemoth faces potential losses totaling approximately HK$2.6 billion ($334 million) from its involvement with Wang Fuk Court in Tai Po, where a devastating fire has been raging for over 18 hours and remains uncontained. China Taiping provided comprehensive insurance coverage for the HK$316 million construction project, which utilized traditional bamboo scaffolding and protective netting.
The company underwrote third-party liability and employee compensation policies for mandatory building inspection work at the complex. Their policy structure includes coverage for the full contract amount plus an additional HK$50 million ($6.4 million) specifically allocated for accident-related claims. Additionally, the insurer committed HK$200 million toward employee compensation for workers involved in the project.
Experts Warn of Serious Underinsurance
According to Philip Mak, Chairman of the Hong Kong Insurance Professionals Federation, both the general property-all-risk policy with HK$2 billion coverage and the specific construction insurance are "seriously underinsured" given the massive scale of the 2,000-unit residential complex. Mak emphasized in a telephone interview that rebuilding costs for communal areas and elevator systems would likely exceed the insured amounts.
"Individual owners can claim death and injury benefits under the HK$50 million accident portion of the policy, but that sum is nowhere near enough given the fatalities and hundreds still unaccounted for," Mak stated, highlighting the inadequate coverage in light of the tragedy's severity.
Bloomberg Intelligence analysts Steven Lam and Joyce Ho calculated that China Taiping's exposure to the complex could reach HK$2.6 billion before reinsurance arrangements. This represents approximately 9.3% of consensus earnings projections for this year or 1.5% of shareholder equity as of June, assuming a 50% reinsurance recovery rate.
The company's representatives have maintained silence regarding the situation, declining to comment when approached. The construction project itself is now under official investigation for its potential role in the deadly blaze that continues to threaten the residential complex.
