Super Typhoon Soala to dampen reinsurance renewals in Hong Kong

Effective risk management is expected to minimise insurance losses.

The recent devastating flooding caused by Super Typhoon Saola in Hong Kong and parts of China is expected to add more pressure to upcoming reinsurance renewals, compounding the challenges in an already tough market in recent years, as highlighted by AM Best.

Described as a "1-in-500-year event," this storm dumped a quarter of Hong Kong's annual rainfall in just 24 hours. In the AM Best commentary titled "Hong Kong 1-in-500 Year Flood Likely to Have an Earnings Impact," it is noted that while gross losses on property and auto insurance lines may not be as severe as some other events, they could approach the HK$3.1b (US$400m) in losses incurred during Typhoon Mangkhut in 2018. 

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Nevertheless, the overall impact of this rainstorm is expected to affect insurance companies' earnings rather than significantly impacting their capital adequacy.

However, the increased pressure on reinsurance pricing, which is already high, may make it prohibitively expensive for smaller insurance companies.

There are some mitigating factors, such as lower inflation rates in East Asia compared to other regions and ongoing supply chain normalization as the region recovers from the pandemic. 

Additionally, effective risk management of the city's drainage systems and contingency planning are expected to minimise insurance losses.