Moody’s outlook for the Asia Pacific insurance sector for 2018 is stable, with re/insurance growth led by China driving demand and steady economic momentum across the region as a whole.
With insurance penetration rates in most Asian economies still low, long-term demand for life insurance will be driven by the region’s population size, ageing demographics, rising income and wealth – thus underwriting performance remains stable across the region.
Moody’s noted that life insurers have taken a more conservative pricing approach by offering lower crediting rates and guarantee rates in response to low interest rates.
Firms have also been raising investment risk by seeking higher yields through non-traditional or foreign assets – which adds additional layers of credit risks and thus weakens asset transparency return stability and liquidity profiles.
“The solvency positions of insurers across Asia Pacific remain solid despite increasing capital requirements, while product margins and asset liability management have improved,” said Qian Zhu, a Moody’s Vice President and Senior Credit Officer.
“The insurers have also adapted to low interest rates by shifting to less interest-sensitive products and increasing their allocation to higher-yielding non-traditional assets, although for some — such as Chinese life and property & casualty (P&C) insurers — the latter has resulted in rising asset risk,” added Zhu.
“And in the case of Chinese life and P&C insurers, the increased asset risk is also reflected in their rising allocation to alternative investments, with often complex transaction structures and a lack of transparent disclosure standards.”
For small to mid-sized players, Chinese P&C insurers’ loss ratios have generally increased as a result of lower premium rates following the liberalization in motor pricing, but expense ratios have improved, reflecting the regulator’s efforts to reign in excessive acquisition costs.
Japanese P&C insurers’s should see underwriting profitability peak as motor rates retreat after a multiyear uptrend, but this coming adjustment will not reverse the significant improvement in their combined ratio in recent years, said Moody’s.
As seen with re/insurers across the globe, deeper adoption of technology is changing the industry’s business model and operations, as well as the delivery of insurance products.
New technology should ease claims processes and broaden insurers’ customer bases and sales channels, spurring demand and helping to close the region’s low protection gap.