A recent Moody’s Investors Service’s survey to rated insurers in four markets in Asia-Pacific (APAC), shows that insurers will remain disciplined in asset and liability management as rates continue to rise.
In a recent report published by Moody’s, the company noted that this will alleviate insurers’ negative spread risk and their balance sheet sensitivity to interest rate movements if insurers act as responded,
The report also states that APAC life insurers plan to increase asset allocations to fixed-income investments over the next 12-18 months, in order to take advantage of rising yields and reduce their asset-liability duration mismatches.
However, Moody’s noted that it believes insurers would increasingly need to consider the features of their policy liabilities in devising strategies for asset allocations as they prepare for more stringent capital requirements under new advanced risk-based capital regimes, as well as IFRS 17, which is set to be implemented in January 2023.
The majority of the 16 respondents from the investors service survey expect their overall investment yields after hedging costs to fall from 2021 levels in the next 12-18 months.
Moreover, the differentials between the still low interest rates in insurers’ domestic markets, and the rising rates in US are raising costs for foreign-currency derivatives, which insurers generally see outweighing rises in new money yields on bonds.
Lastly, Moody’s concludes that insurers will continue to be disciplined in liability management as around 94% of respondents from the survey do not plan to increase their guaranteed rates over the next 12-18 months.
