For the insurance industry in the region generally -- both life and P&C -- asset risk is rising due to increasing allocations to higher-yielding non-traditional assets and widening currency mismatches, says Moody's Investors Service.
Given the likelihood of more volatile economic and capital markets developments in 2019, the investment performance of Asia Pacific insurers will experience pressure.
In the area of regulation, tightening requirements for capital and asset liability management will strengthen the industry's capacity to absorb shocks. Across the region, regulatory changes are raising the bar on capital and internal risk management. Regulators are gradually pushing for more sophisticated capital standards with the implementation of IFRS 17 being a key focus for insurers.
While the changes are expected to be gradual, insurers are stepping up their efforts to:
- improve asset-liability management and internal risk management, and
- embed capital analysis in offerings and asset allocation decisions.
Finally, deeper technology adoption will gradually reshape the industry' business models. Early investment by large players will help offset the competitive threat posed by new entrants.
Despite rising asset risks, the outlook for the life and property and casualty insurance industry in Asia Pacific is stable, supported by solid capital levels and improving product mixes, Moody's says.
"Economic growth among APAC economies will moderate but continue. This plus their ageing populations will support growing demand for long-term investment, health and retirement coverage," said Mr Frank Yuen, a Moody's assistant vice president/analyst.
"At the same time, premium growth is moderating, as insurers shift to protection and investment policies, with profit-sharing features, and away from short-term interest-sensitive products," he said.
Life premium growth will slow as insurers actively adjust their product mixes in response to tighter capital and regulatory requirements; however, long-term demand for life insurance remains strong, underpinned by a growing middle class and significant protection gap.
In the P&C sector, premium growth in Asia Pacific is robust and continues to exceed that of other regions on the back of the region's economic growth, increasing wealth, and the need to build infrastructure. P&C insurers are also searching new growth drivers from non-motor lines, and pricing discipline is becoming increasingly important for defending underwriting margins amid intense competition.
The international credit agency's conclusions are contained in its just-released report, "Insurance -- Asia-Pacific: 2019 Outlook".