APAC insurers grapple to preserve capital buffers amidst volatility

Low interest rates are pitfalls as it cuts income from investment holdings.

Some insurers in Asia Pacific will struggle to preserve their capital buffers amidst lingering volatility related to COVID-19, a S&P report revealed.

Market volatility can lead to narrow capital buffers over regulatory risk requirements. Low interest rates are another problem as it slashes income from investment holdings, slowing earnings that can go toward rebuilding capital positions.

Claims in some categories fell last year, for example in motor accidents, in part due to limited activity amidst lockdowns, but the business interruption impact is uncertain.

Whilst the region's insurers have largely managed capital, vulnerability remains high, the report said. Other key challenges include rapid investments in technology, delayed claims in health due to mental stress amidst lockdowns, and increased investor expectations on environment, social and governance issues.

For Taiwan, S&P has negative outlooks on 40% of rated life insurers, reflecting their thin buffers to deal with increased market volatility. It has negative outlooks on more than 20% of rated insurers in China, Korea, Thailand, and Australia. In Hong Kong, negative outlooks have been doubled, though the proportion remains low compared with some regional peers.