Strong capitalization, steady product margins and resilient premium growth underpin a stable outlook for the Asia Pacific insurance sector, according to a new report published by Moody's.
Despite the disruption brought on by the coronavirus pandemic, insurers have achieved modest business and premium growth, while continued strong capitalization offsets their rising allocation to risky assets amid a low interest rate environment, noted Soichiro Makimoto, Vice President and Senior Analyst from Moody’s.
He added, "Still, the pandemic will bring about both short-term and long-term change for the sector, including through rising health awareness, changing social interaction patterns, and digitalization"
The rating agency maintains a stable outlook for Asia-Pacific (APAC) insurers as demonstrated by their resilience during the coronavirus pandemic, which mitigates the risk of prolonged low interest rates.
Here is a summary from the report:
1. Pandemic has short-and long-term impacts
Rebound in insurance sales together with insurers’ growing book of recurring premium polices will support their premium income stability. Rising health awareness and changing social interaction patterns will bring new opportunities.
2. Digitalization is a growing franchise driver
Insurers' technology empowerment will accelerate to allow more products to be sold through online and mobile channels post-pandemic. Customer preference for face-to-face channels remains in some economies.
3. Capitalization remains strong as profit steadies
Capitalization is supported by stable underwriting profit and modest overall business growth. Credit spread rebounds also improve insurers’ capitalization, although there remains uncertainty in capital markets.
4. Higher asset risk still a concern
Low interest rates fuel insurers’ bias to invest in riskier assets, such as equities and overseas credit investments. Insurers in Japan, Korea and Taiwan are receptive to assuming overseas credit risks for yield enhancement.
5. ESG exposure to go beyond natural catastrophe claims
More APAC insurers will incorporate environmental, social and governance (ESG) factors into their business decisions. However, exposure to legacy assets will remain a drag as insurers come under pressure by stakeholders, including investors and regulators.
6. Stable outlook for life insurers in China
Moody’s maintains stable outlooks on property and casualty (P&C) insurers in China, Japan and Korea. However, it maintains stable outlook only on Chinese life insurers. Concerns over prolonged low interest rates and potential capital market volatility are key drivers behind the negative outlooks on life insurers in Japan, Korea and Taiwan.
Moody’s outlook for the Asia Pacific insurance sector reflects its expectations for fundamental business conditions for this sector over the next 12-18 months, and does not reflect its outlook for individual issuers.
Stay in the know via our complimentary weekly newsletter
Check these out:
When High Tech Meets High Touch in the High Net Worth Space - Private Client Services Group CEO
RCEP: Regional Comprehensive Economic Partnership - What is it and what does it mean?
Final Sprint Messages to End the Year Strong III