APAC insurer earnings to fluctuate amidst Russia-Ukraine conflict

The conflict would test insurers with high allocation to foreign-currency investments.

The Russia-Ukraine conflict will likely have a modest direct hit on Asia-Pacific insurers' financial performance, according to a report released by analyst S&P Global.

The analyst said that regional insurers' bond and equity investments in Russia, Ukraine, and Belarus are a small part of their total assets. That said, should the event trigger significant market volatility in the region, institutions may feel the effects more directly. This could also test insurers with a high allocation to foreign-currency investments.

Countries such as Japan and Taiwan, whose insurers have large holdings of overseas investments compared with regional peers may have spillover effects on asset valuations and could heighten volatility.  

“Taiwan's life insurance sector is most exposed to the turbulence from this event. We believe this exposure is manageable, given the sector has sufficient capital buffer to absorb any hits from the conflict. Russia-based investments account for about 4% of the total-adjusted capital (TAC) of Taiwan insurers, by our estimate. Individual life insurers' investment exposure in Russia to TAC ranges between 2% and 12%,” the report said.

Meanwhile, prolonged market fluctuation would strain insurers' investment incomes. A likely gradual rise in interest rate differential in the coming year could hike hedging costs. It should also prompt insurers with large holdings of overseas investments to revisit their hedging strategies. Greater inflation could also reveal pricing inadequacy for some long-tail businesses

The conflict between Russia and Ukraine will however, have insignificant effects on insurance liability, given most market participants remain domestically focused. 

“While reinsurers and some large insurance groups have gradually expanded their international footprints in recent years, the direct exposure to risk underwritten in Russia and Ukraine likely remains small. Any property exposure in affected areas may be subject to war-exclusion language in policies, and therefore not subject to major claim payouts. The termination of coverage of Russian-owned exposures in other countries could entail a small premium loss but no liability hit,” S&P said.

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