The outlook for Asia Pacific’s life insurers has been downgraded to ‘negative’ by S&P Global’s latest report, though the outlook for non-life insurers remains stable.
The report warned that Asia Pacific’s life insurers are “in for a rough ride,” noting that the life sector is more at risk of negative ratings as a result of the COVID-19 pandemic compared to the non-life sector, as it has a greater exposure to the tumult of the financial markets.
The report stated that the pandemic has had “far-reaching implications for the global economy, disrupting supply chains, changing demand for goods, services and commodities, and most importantly, causing fundamental changes to the daily lives of people.” Nonetheless, it predicted that insurance claims during this time should still be “manageable.”
Craig Bennett, director at S&P Global says the extent to which Asia-Pacific insurers are affected will depend on what their leaderships teams do next, how financially stable they are, and how rough the markets get.
“We expect the impact will depend on the extent of market volatility affecting investments, how well managed the companies are and can adapt as well as capital adequacy,” Bennett said.
“The nature of stress is expected to be greatest on market investments, as well as where there are embedded product guarantees.”
“The negative APAC life insurance sector outlook indicates the S&P Global Ratings life insurer ratings in the region are more at risk of negative rating actions, either through outlook changes or downgraded ratings,” he explained.
“The change from a stable outlook has been done to indicate to the market the way we are assessing those ratings, and the potential for current market turmoil to weaken financial performance in that sector - more so than others.”
Overall, the report noted that insurers “appear resilient” - but that the situation was moving quickly, and the pandemic has “caught many by surprise.” However, it said it didn’t expect a huge number of individual financial rating downgrades.
“We believe we have identified the channels through which this evolving event could erode insurers’ creditworthiness,” it stated.
“Although we don’t anticipate widespread downgrades, the companies that are most exposed to the financial market volatility could see targeted downgrades or outlook revisions.”
