Asia Pacific insurers are reducing their exposure to equity or credit risks, while increasing capital allocations to diversified business growth, says Mr Frank Yuen, VP senior credit officer at Moody's Ratings.
This comment is published in a report on Moody's Capital Tool (M'CT) analysis of capital adequacy of 20 rated insurers in China, Japan, and Taiwan, which together account for more than 60% of total premium income in APAC.
The main points raised by Mr Yuen include:
-
The analysis shows APAC P&C insurers have lower insurance risks and higher asset risks than US peers. Equity risks account for about 30% of the total required capital for most insurers in China, Japan, and Taiwan, almost three times the proportion for their US peers. Conversely, P&C insurers in those APAC markets have lower reserving risks because of shorter durations of their reserves. Among other risks, Japanese P&C insurers are the most susceptible to catastrophe risks, while their spread risks relative to the size of their corporate bond investments are the lowest. Taiwanese insurers are the most exposed to currency and real estate risks.
-
APAC P&C insurers are reducing asset risks and shifting toward more balanced risk profiles, a credit positive. Japanese P&C insurers are reducing their capital requirements for equity risks by divesting strategic shareholdings while allocating more capital to business growth both at home and overseas. Chinese P&C insurers are increasing government bond allocations and reducing capital requirements for credit risks. At the same time, they are allocating more capital to non-motor premium growth for more diversified business mixes. As for Taiwanese P&C insurers, following significant losses from policies related to the coronavirus pandemic, they have not only replenished capital through injections but also materially reduced their capital requirements by cutting equity and bond holdings, as well as catastrophe exposure.