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Sep 2022

Asia Pacific: Insurers' earnings expected to fluctuate in the wake of Russia-Ukraine war

Source: Asia Insurance Review | Apr 2022

The Russia President Vladimir Putin’s invasion of Ukraine may have a modest direct hit on Asia-Pacific insurers’ financial performance. Regional insurers’ bond and equity investments in Russia, Ukraine and Belarus are a small part of their total assets, according to a report released yesterday by S&P Global Ratings (S&P).
 
That said, should the event trigger significant market volatility in the region, institutions may feel the effects more directly. This could also test insurers with a high allocation to foreign-currency investments, said S&P analyst Eunice Tan.
 
Japan and Taiwan insurers have large holdings of overseas investments compared with regional peers. Taiwan’s life insurance sector is most exposed to turbulence from this event. Ms Tan said, “We believe this exposure is manageable, given the sector has sufficient capital buffer to absorb any hits from the conflict. Russia-based investments account for about 4% of the total-adjusted capital (TAC) of Taiwan insurers, by our estimate. Individual life insurers’ investment exposure in Russia to TAC ranges between 2% and 12%.”
 
However, prolonged market fluctuation would strain insurers’ investment incomes. A likely gradual rise in interest rate differential in the coming year could hike hedging costs. It should also prompt insurers with large holding of overseas investments to revisit their hedging strategies. Greater inflation could also reveal pricing inadequacy for some long-tail business. A 
 

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