2023 a mixed bag for Asian insurers: S&P

S&P also warns Asia insurers to be cautious of the effects of geopolitical risks

Insurers kept a strong suit at the beginning of 2023, however, risks of macroeconomic influences may drive the industry in another direction, said S&P Global Ratings.

The rating agency reported that “challenging capital markets will weigh on earnings” for developed APAC insurers in 2023.

Within eyesight, S&P also warns Asia insurers to be cautious of the effects of geopolitical risks.

Developed Asia-Pacific markets like Japan, Australia, New Zealand, Korea, Hong Kong and Singapore should be prepared for the influences of climate change, geopolitical, and cyber risks.

While in developing Asia, foreign exchange, geopolitical and cyber risks are to be watched out for.

Overall global insurance credit received a financial strength rating of ‘A’, with an 85% stable outlook and 10% negative outlook.

Insurance earnings prospects
“We expect Japanese life insurers to see lower COVID-19-related claims, but foreign-exchange hedging costs will remain high in 2023,” the agency said.

However, Australian and New Zealand insurers will be less likely to be affected by interest rate and longevity risks compared to other markets.

“We expect their profitability to improve in 2023 on the back of sustained premium-rate rises, scale efficiencies, and ongoing reforms of disability income products,” S&P said.

On the other hand, those in the developing APAC market should be on the lookout.

S&P said Taiwanese life insurers are exposed to above-average foreign-exchange risks and rises in hedging costs because of US-Taiwan interest rate gaps.

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Chinese life insurers could also be affected by volatile capital markets and low-interest rates, coupled with “strained value generation due to slow product and distribution channel reform,”

Those in other markets should expect that heightened market volatility could dampen their earnings, S&P warned.

Property and casualty (P&C) earnings of Japanese insurers are expected to improve, considering the effects of the increase in auto insurance losses aggravated by normalised natural calamities and fewer COVID-19 claims.

Australian P&C sector is seeing advantages from 2022’s premium rate hikes, unrealised loss unwinding, balanced by higher reinsurance costs, recent natural disasters and claims inflation.

Stable profits should be expected for Korean P&C insurers amid improving pricing adequacy and tightening claims management which could “ mitigate some pressure from claims inflation and capital market volatility,”

For Singapore, P&C insurance profit will improve due to better inflation rates. Likewise, S&P said Taiwan will see earning volatility to pursue until the first half of 2023 as high claims under pandemic-related policies persist.

Looser mobility restrictions of COVID-19 limits underwriting gains for Chinese P&C insurers, whilst a vulnerability toward investment income risks the sector to earnings volatility. 

“Rising inflation, as well as volatile capital markets, will weigh on the earnings of other developing Asian P&C insurers” S&P added.