The recent catastrophic flooding resulting from Super Typhoon Saola in Hong Kong, and other regions of China, is anticipated to exert additional pressure on upcoming reinsurance renewals, as outlined in a recent analysis by AM Best.
Coming within an already challenging market over the past few years, the 1-in-500-year storm unleashed a quarter of Hong Kong’s annual rainfall within just 24 hours. The AM Best commentary titled “Hong Kong 1-in-500 Year Flood Likely to Have an Earnings Impact” stated that while the gross losses on property and auto lines may not be exceedingly severe, they could approach the HK$3.1 billion (US$400 million) losses caused by Typhoon Mangkhut in 2018.
However, the overall effect of this rainstorm is likely to impact the earnings of insurance companies more than significantly affecting capital adequacy. The heightened impact on reinsurance pricing, already at elevated levels, could also render it prohibitively expensive for certain smaller companies.
Several factors could still offset this impact, the report noted. Notably, East Asia experiences lower inflation in comparison to various other global regions, and supply chains are steadily normalising as the region recovers from the pandemic. The city’s efficient risk management concerning drainage systems and robust contingency planning are expected to play a crucial role in minimising insurance losses.
Hong Kong businesses and vehicle owners are also expected to face higher insurance costs in the future due to the substantial claims resulting from the recent torrential rains.
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