Insurers in Asia-Pacific (APAC) will remain disciplined in asset and liability management as rates rise, says Moody's Investors Service in a report based on a survey of rated insurers in four markets in the region.
This will alleviate insurers' negative spread risk and their balance sheet sensitivity to interest rate movements, Moody's says.
APAC life insurers plan to moderately increase asset allocations to fixed-income investments over the next 12-18 months to take advantage of rising yields and reduce their asset-liability duration mismatches. And they will generally be cautious about asset allocations to equities and uphold the credit quality of their bond holdings, says the report.
Still, most insurers do not plan to significantly change their allocation to each asset class. Moody's believes insurers would increasingly need to consider the features of their policy liabilities in devising strategies for asset allocations as they prepare for more stringent capital requirements under new advanced risk-based capital regimes and IFRS 17.
The majority of the 16 survey respondents expect their overall investment yields to fall from 2021 levels in the next 12-18 months as increases in hedging costs outweigh rises in bond yields.
The widening differentials between the still-low interest rates in insurers' domestic markets and the rising rates in US are raising costs for foreign-currency derivatives, which insurers generally see outweighing rises in new money yields on bonds.
Furthermore, insurers will continue to be disciplined in liability management. About 94% of the respondents do not plan to increase their guaranteed rates over the next 12-18 months. Insurers are also cautious about offering long-term policies with guaranteed features.