Mismatched assets and liabilities, as well as investment returns that are insufficient to cover liabilities, are among the major concerns weighing down on insurers in the Asia-Pacific region, according to asset management firm Standard Life Investments.
This was revealed by the asset manager’s survey of insurance companies titled “The Twin Forces Reshaping the Industry”. A total of 51 insurers with combined assets of US$4 trillion from several major markets – Hong Kong, mainland China, Taiwan, South Korea, Japan, and Australia – were surveyed.
Around 55% of insurers said that asset-liability mismatches were a major issue. Also, many insurers from Japan, Korea, and Taiwan have reported that income from their long-duration investments is not enough to cover liabilities.
Meanwhile, firms in Hong Kong and mainland China have reported the highest returns, but according to Dr. Bruce Porteous, investment director for insurance solutions at Standard Life Investments, these are not sustainable and quite risky because these insurers’ short-duration liabilities are backed by long duration assets.
“The insurers in China and Hong Kong have delivered the required return to date; however it is important not to overlook the significant duration and liquidity mismatch between their assets and liabilities,” Dr. Porteous told Asia Asset Management.
The survey also found that Asia-Pacific insurers allocate less in alternative assets such as real estate, infrastructure, and private equity than their European counterparts. Asian insurers invest an average of 8% in these assets, compared to 12% for European firms.
However, Asia-Pacific insurers are open to increasing that allocation in the next three years. Data showed that 78% plan to invest more in infrastructure, while 75% plan to increase exposure to private equity and 68% are looking into real estate.
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