Global risks could squeeze Asia Insurance's profits

Underwriting profits are expected to narrow over the next two years.

Asia Insurance is expected to have a stable outlook, due to its ability to maintain its strong capital and earnings profile, despite higher natural catastrophe risk capital requirements and recalibrated risk charges introduced under a revised capital model, according to S&P Global Ratings.

The insurer has strengthened its capital buffer, primarily due to the recognition of diversification benefits and an increase in net assets following the adoption of the International Financial Reporting Standards (IFRS) 17. 

However, these positive developments are offset by higher capital requirements for natural catastrophe risk.

S&P's stable outlook for Asia Insurance is based on expectations of continued strong capital strength and a solid competitive position with profitable underwriting. 

Over the next 12 to 24 months, the insurer’s sensitivity to market and credit risks will be closely monitored. 

Asia Insurance has demonstrated robust underwriting performance in Hong Kong, which supports its overall credit profile, said S&P.

As a mid-tier player in the highly fragmented property and casualty (P&C) insurance market, the company leverages its local market expertise and strong brand presence to actively manage risk selection. 

Despite this, underwriting profits are expected to narrow over the next two years, as the insurer increases its exposure to global risks through its growing inward reinsurance portfolio. 

This inward business now constitutes over half of Asia Insurance’s underwriting portfolio and has reported strong premium growth in 2023 and the first half of 2024. The portfolio is well protected by reinsurance coverage, but the increased exposure introduces earnings volatility.

Asia Insurance’s capital and earnings remain strong, underpinned by expected premium growth and the company's moderate capital size of approximately $560m. However, heightened investment risk due to holdings in high-risk assets like equities could pose challenges, especially as its overseas business expands.

The insurer continues to be the main operating subsidiary and key financial contributor to its parent company, Asia Financial Holdings, accounting for 57% of the group’s assets and 70% of its net profit in 2023. 

Asia Financial Holdings, a Hong Kong-listed investment holding company, has minimal debt leverage and diversified investments in sectors such as life insurance, healthcare, and retirement services. 

Despite the parent company’s broader business interests, its credit standing is viewed as neutral to the credit profile and ratings of Asia Insurance.