Fitch Ratings delivers verdict on Asian insurance markets
According to Fitch, he expects key credit metrics in these markets to remain resilient over the next 12-24 months, due to revised assumptions about the ongoing economic fallout from the coronavirus pandemic and its impact on the credit quality of insurers.
At the same time, the number of ratings with a negative outlook attributed to insurers in these markets has fallen to less than 20% to date.
The economic environments of China, South Korea and Japan are expected to improve in 2021, thanks to the government’s fiscal stimulus programs and the roll-out of vaccination. Insurers’ solvency buffers are expected to remain resilient, thanks to sustained earnings.
The Chinese life insurance industry is expected to refocus its product line, with more protection and long-term products. Coherent product strategies will allow Chinese life insurers to improve and maintain new business value, Fitch said.
For Korean insurers, the gradual rise in long-term bond yields will help them ease their negative spread and reserve burden. Efforts by these companies to increase their allocation to longer-dated domestic bonds will also alleviate the mismatch issue associated with their asset-liability duration.
Amid prolonged low interest rates, Fitch expects Japanese life insurers to handle the situation more comfortably than those outside of Japan. For more than five years, Japanese life insurers have adapted to a low yielding environment by focusing on profitable protection-type products, which are not significantly affected by low interest rates.
“However, these insurers continue to face credit and asset risks,” Fitch said. “The credit risks of Chinese life insurers are increasing due to the increase in defaults in Chinese credit markets. In addition, we expect their earnings to remain sensitive to increased financial market volatility, which will lead to higher asset depreciation. We also expect the asset risks of Korean insurers to increase as they explore a shift in their asset allocation towards alternative investments, which could weaken their capital strength.
“Some Japanese insurers are actively reducing their exposure to equities, but others maintain their significant exposure to seek high dividend yields and / or diversification of their portfolios, which can lead to a deterioration in capitalization if the stock markets go down. collapse due to a global slowdown. ”