A global ratings agency said that in a region as diverse as Asia-Pacific, where there is varying levels of capitalisation, regulations, tariffs and enterprise risk management, insurers are facing equally diverse issues and challenges.
In recent briefing, titled
A.M. Best’s Insight on the Asia-Pacific (Re)insurance Market, the ratings agency said one common issue affecting most non-life insurers is the slowdown in organic growth and a growing reliance on insurance lines related to government-led infrastructure problems.
A.M. Best indicated that given these conditions, insurers should place more importance on risk management and operational efficiencies to maintain profitability. But instead, there have been reports of widening terms and condition, such as a trend toward longer cover period for project-related insurance, while expense ratios are expected to remain relatively high.
The report has also noted two other common issues in the Asia-Pac (re)insurance market: one is the regulators’ use of risk-based capital to monitor the financial strength of insurers; and the other is that many Southeast Asian markets remain very small in both absolute and relative terms.
Amidst these issues, A.M. Best noted the proliferation of insurance opportunities in growth economies. In China, for example, the non-life insurance segment continues to post double-digit premium growth despite the nation’s 6%-7% GDP growth. A.M. Best said that in terms of underlying risks, increased concentration of people, physical assets, infrastructure, and economic activities in the cities has probably contributed to said growth.
Furthermore, most Southeast Asian countries, except Singapore, are considered growth economies, with annual GDP growth rates between 3.5%-7%. The insurance industries in these countries, aside from Vietnam, generally did not grow as fast as China’s. A.M. Best suggested that insurers tap into the opportunities in product innovation in these markets.
A.M. Best also sees increases in minimum capital requirement, increased insurance risk in a number of markets in the region. These, the ratings agency said, will likely outstrip internal capital generation and expected sales of government stakes in high-growth markets with relatively high limits for foreign ownership.
Overall, A.M. Best said lower economic growth, negative interest rates, unfavourable demographics in Asia’s two largest economies, and declining interest rates, as well as increased political risk and rise of protectionism as among the risks insurers face in the region.
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