S&P expects APAC trends to return to fundamentals

Insurers are expected to focus on underwriting and prudent risk selection.

Asia-Pacific insurers' ratings are expected to remain stable, economic conditions and underlying changes are putting pressure on earnings, indicted S&P Global Ratings in a note.

"With central banks across Asia-Pacific looking to adjust interest rates at different times, relative value of assets and returns, as well as hedging costs, could move," said Craig Bennett, credit analyst at S&P Global Ratings.

Slowing economic growth may impact policy retention, new premiums, and investment credit quality. Insurers are expected to focus on underwriting and prudent risk selection to navigate challenges, Bennett added.

According to S&P’s chartbook-style commentary titled "Asia-Pacific Insurance Sector Trends: Returning To Fundamentals As Undercurrents Unfold", credit trends in the region’s insurance sector are stable, with 98% of rated insurers holding a stable outlook.

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Adjustments in monetary policies by major central banks may increase capital market volatility. Insurers in Japan and Taiwan face risks related to asset and foreign exchange movements, potentially affecting capital buffers.

Insurers will prioritise investment risk oversight as economic growth slows. Credit stresses in real estate and alternative investments may prompt insurers to reassess risk-return balances and become more selective.

Discussions on climate change and sustainable finance pose dual risks for insurers in underwriting and investments. Extreme weather events can increase claims for property and casualty re/insurers, while higher reinsurance costs and growing catastrophe budgets further impact profits.