S&P Global Ratings, the credit rating agency, has said that while they expect their ratings on Asia-Pacific insurers to remain stable, a combination of economic conditions and underlying changes are “pressuring earnings.”
The agency explained that credit trends in the Asia-Pacific insurance sector remain steady, however prospects vary across regions.
Of the Asia-Pacific insurers the agency rates, 98% have a stable outlook, S&P noted.
Craig Bennett, credit analyst at S&P Global Ratings, commented: “With central banks across Asia-Pacific looking to adjust interest rates at different times, relative value of assets and returns, as well as hedging costs, could move.”
It’s also important to remember, that slowing economic growth can also impact policy retention, new premiums, as well as the credit quality of investments.
“We believe insurers will return to fundamentals by focusing on underwriting and prudent risk selection to navigate headwinds,” Bennett added.
The agency also showcased how a large number of Asia-Pacific markets are experiencing moderation in both policy rates and consumer price index after significant increases seen during 2022.
“We expect this to translate into a slowdown in claims inflation for some lines,” S&P said.
S&P also highlights that with major central banks adjusting monetary policies, this could cause for capital market volatility to rise.
As a result, insurers in Japan and Taiwan face risks of asset and foreign exchange movements, potentially affecting capital buffers, the agency warns.
Meanwhile, as economic growth begins to wind down, insurers will look to focus on investment risk oversight.
S&P explained that due to credit stresses – especially within real estate and alternative investments – this is very likely to lead to insurers reassessing the risk-return balances and becoming more selective.
Lastly, as discussions on climate change and sustainable finance continue to heighten, insurers are facing dual risks in
underwriting and investments, S&P said.
The agency warned that extreme weather events are leading to increased claims, ultimately impacting earnings for property & casualty (P&C) re/insurers, while higher reinsurance costs and growing catastrophe budgets further erode profits too.
