Hong Kong Fire Liability Triggers Drop at Taiping Insurance

(Bloomberg) -- China Taiping Insurance Holdings Co. shares fell Thursday on concerns over the insurer’s estimated HK$2.6 billion ($334 million) exposure to a Hong Kong residential project at the center of a deadly fire.

The company’s shares fell as much as 8.1% in early trading before paring losses to less than 1% as of 1:58 p.m. in Hong Kong. China Taiping underwrote third-party liability and employee compensation for mandatory building and window inspection work at Wang Fuk Court in Tai Po.

The HK$316 million construction project, which relied on bamboo scaffolding and protective netting, is under investigation for its role in a blaze that erupted 18 hours ago and has yet to be extinguished. 

China Taiping’s policy covers the full contract sum plus an additional HK$50 million ($6.4 million) for accidents. The insurer also provides HK$200 million in employee compensation for the project.

Separately, China Taiping holds a general property-all-risk policy with coverage of HK$2 billion. A representative for the company declined to comment.  

The general property-all-risk policy and the specific construction coverage are both “seriously underinsured” given the scale of work on the roughly 2,000-unit complex, Hong Kong Insurance Professionals Federation Chairman Philip Mak said in a phone interview. 

Rebuilding costs for communal areas and elevator steel cables will almost certainly exceed the insured amount, Mak said. 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, he added.

China Taiping’s exposure to the complex could be HK$2.6 billion before reinsurance — about 9.3% of consensus earnings this year or 1.5% of shareholder equity as of June, assuming 50% reinsurance recovery, according to a Bloomberg Intelligence analysts Steven Lam and Joyce Ho. 

--With assistance from Kelly Li, Felix Tam, Jiyeun Lee and Zhang Dingmin.

(Updates with comments from Bloomberg Intelligence.)

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