S&P gives stable outlook for AsPac insurers

MANILA, Philippines - Standard & Poor’s Ratings Services (S&P) has a stable outlook on the life, non-life, and reinsurance sectors of the Asia Pacific region.

But economic headwinds are expected to make it harder for the region’s insurers to prosper beyond the firm ground that it is presently standing on.

“The region’s insurer credit profile remains on firm footing, and we expect our ratings in insurers overall in the region to be stable for the next 12 to 18 months,” it said in a report.

It further stated that insurers have strong business risk profiles in general, and they have slowly adopted enterprise risk management (ERM) as an important tool in facing more-difficult operating conditions.

S&P reviewed more than 190 insurers in Asia Pacific.

The international rating agency raised the warning flag for the top 10 key credit risks that are facing the region’s insurers although in varying degrees.

These are:

• Slowdown in China and exposure to ongoing European economic stress;

• Capital pressure, especially from continued rapid growth in China, Korea, Malaysia, Thailand, and the Philippines;

• Exposure to natural catastrophe and availability of reinsurance protection;

• Prolonged low interest rates;

• Regulatory standards revising capital requirements on strategy, product, and investments along with their uncertain outcome;

• Equity market volatility;

• Asset-liability mismatch;

• Reinsurers in persistent soft cycle;

• Sustainability of premium rates and underwriting controls in post-catastrophe regions;

• Exposure to pandemic and other emerging risk (e.g., bird flu, pollution).

“Compared to our rated global insurance universe, our rating distribution on Asia-Pacific insurers is heavily skewed toward the ‘A’ range, with significantly less crowding below investment grades,” it said.

It gave two broad explanations why it had a positive view of the region’s insurers.

One is that the region’s rated insurers are small, and secondly, they have strong business risk profiles that are only modestly offset by the financial risk profiles.

“We also observed that many highly rated companies in Asia-Pacific are large insurers or are subsidiaries of strong parents domiciled outside the region,” it added.

The Japanese non-life market has consolidated and the top four non-life insurers in Japan, Korea and China account for more than 70-percent of market share.

The top four Japan life insurers control the in-force block business and are making a more to enter the Asean market.

The strong markets have firm control of the distribution channels, including bancassurance. “We consider these relationships vital to maintaining a competitive advantage that is difficult to replicate,” S&P said.

Meanwhile, it maintains a negative outlook on Thailand on the ongoing claims negotiations among policyholders, insurers and reinsurers, and its impact on the balance sheets of the reinsurers.

It likewise maintains a negative outlook on China’s life sector, as regulators have imposed stiff requirements on bancassurance.

Concern was likewise expressed on the capital issue as many insurers fall below the $1 billion and $250 million thresholds in total adjusted capital. It makes them vulnerable to huge single-event losses.

One positive note however is that regulators are gradually revising risk-based capital level requirements to account for product, investments, and other business risks.

“Although insurers face varying degrees of hurdles, we also think this region offers favorable growth opportunities that can help insurers become more diversified both geographically and demographically. In brief, we believe a company that prudently manages its capital, underwriting, investments, reserves, and risk management is best positioned to capitalize on the region’s growing market, despite the uncertainty ahead,” S&P said.