Amidst persisting volatility in capital markets, insurers in the Asia-Pacific region are facing uncertainties over earnings, prompting them to actively manage their investments. According to S&P Global Ratings analysts, 98% of rated insurers in Asia-Pacific have a stable outlook, but the ongoing market fluctuations are impacting profitability.
Lead analyst Wenwen Chen highlighted that insurers in the region are reassessing risk-return balances and becoming more selective due to credit stresses, particularly in real estate and alternative investments. Chen also noted that interest rate hikes have helped insurers manage their asset-liability mismatch, with some exceptions like Japanese and Taiwanese insurers exposed to volatile foreign exchange movements.
Patty Wang, another lead analyst, pointed out that Taiwanese life insurers are highly susceptible to capital market volatility and foreign exchange movements. Despite satisfactory capitalization levels, Wang warned that unexpected external shocks could pose challenges for some insurers in Taiwan.
S&P Global Ratings analysis highlighted the challenges posed by higher insurance claims from extreme weather events, impacting earnings for property/casualty reinsurers in the region. Moreover, Japanese insurers are expected to reduce equity holdings and accelerate the sales of strategic equity holdings following regulatory pressure.
In Japan, the Financial Services Agency urged several insurers to expedite the divestment of their cross-shareholdings, citing concerns about market competition distortion. However, lead analyst Toshiko Sekine reassured that governance issues are not expected to impact insurers' ratings significantly.
Meanwhile, Chinese insurers have been reducing their exposure to the real estate sector and diversifying their investments to mitigate risks. Regarding the implementation of IFRS 17, lead analyst Emily Yi highlighted that the impact varies across companies, with South Korean insurers benefiting from reduced insurance liabilities under the new accounting standard.
Overall, the webinar emphasized the need for insurers in the Asia-Pacific region to adapt to the evolving market conditions and manage their investments prudently to ensure long-term profitability and stability.