Reinsurance costs for Asia-Pacific insurers are rising due to frequency of weather losses

Asia-Pacific 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.

APAC insurers’ underwriting fundamentals are likely to remain steady despite short-term volatility in investment markets caused by higher interest rates, Fitch Ratings says. At the same time, headwinds from Covid-19 and related measures are easing.

APAC insurers’ capital and profitability metrics were affected by adverse market movements caused by the recent increase in interest rates. Insurers booked large unrealised losses on lower fixed-income and real asset valuations.

According to Moody’s, APAC 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.

Moody’s survey to rated insurers in four markets in Asia-Pacific, shows that insurers will remain disciplined in asset and liability management as rates continue to rise.

The APAC insurers noted that this will alleviate insurers’ negative spread risk and their balance sheet sensitivity to interest rate movements if insurers act as responded.

The regulatory capital positions of most of our rated insurers remain above rating sensitivities and well above regulatory minimums.

Analyics expect the adverse impact of higher market rates on capital to be mitigated under IFRS 17, as the liability valuations will better reflect prevailing interest rates.

APAC insurers noted that this will alleviate insurers’ negative spread risk

According to GlobalData’s Insurance Market Outlook in Asia-Pacific, the global property insurance industry recorded a CAGR of 4.1%, backed by an increase in weather-related events, which fueled the demand for property insurance.

The motor insurance industry in Asia-Pacific will grow at a CAGR of 5.4% over 2023–2027, supported by the recovery in new vehicle sales and product innovation in motor insurance.

Among all the regions, Asia-Pacific recorded the highest increase in this industry. Its share in global premiums increased from 14.3% to 17.2%.

Fitch expect insurers’ profitability to continue to benefit from the higher interest rates amid continued monetary tightening by central banks to curb inflation.

Life insurers with exposure to interest-rate risk due to long-term investment guarantees benefit, while higher investment yields support the overall profitability of both life and non-life insurers.

Fitch expect non-life insurers’ profitability to be affected by inflationary pressure and rising reinsurance costs. Pricing adequacy remains key and we expect premium rates to increase, especially for property classes that have been affected by extreme weather-related losses.

Reinsurance costs for APAC insurers are rising due to the greater frequency of extreme weather events in the region.

Losses stemming directly and indirectly from the Covid-19 pandemic continue to reduce. In Japan, changes to rules on “deemed hospitalisation” should boost life insurers’ margins, which narrowed on losses caused by a spike in hospitalisation claims. In China, the easing of restrictions should support premium growth for the life and non-life sectors.

Yana Keller   by Yana Keller