Articles
May 13, 2025
Trade, geopolitics top risks for APAC insurers in 2025 — S&P Global Ratings
13 May, 2025 Trade, geopolitics top risks for APAC insurers in 2025 — S&P Global Ratings By Rozelle Alyssa Javier ➤ 82% of rated insurers in the Asia-Pacific region have a stable outlook for 2025, while the rest have a positive outlook. ➤ Asia-Pacific insurers with significant international investments experience higher impacts from foreign exchange volatility, particularly life insurers in Taiwan and Japan. ➤ Evolving regulatory and accounting standards for insurers in the region will lead to stronger capital. Global trade and geopolitical conflicts are the top risks for Asia-Pacific insurers in 2025, which could exacerbate market volatility and weigh on their investment returns and foreign exchange hedging costs, according to S&P Global Ratings analysts. Changing global tariff regimes could escalate geopolitical tensions and weigh on capital markets, with dynamic changes to US trade policy expected to have an outsized indirect impact on insurers in the Asia-Pacific region, S&P Global Ratings analyst Andy Chang said during a May 13 webinar. Insurers in certain markets have relatively high allocation to foreign currency bonds in their asset mix, mainly Taiwan and Japan, said S&P Global Ratings lead analyst Toshiko Sekine. That exposes insurers in these two markets to volatile foreign exchange movements. "The equity market experienced significant volatility in early April, which caused earnings volatility for insurers with high equity exposure," Chang noted. The impact of foreign exchange volatility could hurt capital earnings. Currency concerns The New Taiwan dollar, for instance, appreciated more than 6% in two days earlier in May, Chang said, and that triggered concerns as the majority of Taiwanese life insurers' overseas investments are in US dollars. However, S&P Global Ratings expects the credit profile impact to be absorbable. Similarly, the Japanese yen has recently "appreciated a little bit" due to market movements related to the imposition of tariffs in the US, Sekine said. About 20% of Japanese life insurers' total invested assets are denominated in foreign currencies, but between 70% and 80% of their foreign currency exposures are hedged. Sekine said insurers' asset allocations to equities could decline as Japanese insurers accelerate the sales of strategically held equities. Elsewhere in the region, outside of mainland China, insurers are reducing an asset-liability mismatch amid stricter capital regulation that requires tighter asset and liability management. While escalating trade tensions could trigger potential macro-financial shocks for insurers, the ripple effects are expected to be wide but uneven, according to S&P Global Ratings. Nevertheless, the rating agency's credit rating outlooks for insurers in the region are largely stable, with stable outlooks for 82% of rated Asia-Pacific insurers as of April 30. Capital adequacy S&P Global Ratings expects insurers in Asia-Pacific, in aggregate, to maintain a strong capital buffer at a 99.8% confidence level for 2025, according to its midyear outlook report for the region. The rating agency also sees evolving regulatory and accounting standards in the region, with a shift to economic value-based reporting, as bolstering insurers' capital positions. That includes the economic value-based solvency regulation in Japan, which will take effect from the end of March 2026, as well as proposed changes to the risk-based capital framework in Malaysia set to be implemented by January 2027. Evolving regulatory solvency frameworks across the region could present a moderate level of leverage burden risk for insurers as they seek to increase hybrid capital issuance to strengthen capitalization. S&P Global Rating lead analyst Wenwen Chen said insurers also face an elevated risk of higher claims resulting from supply-chain disruption, particularly for claims related to auto insurance, which remains a dominant part of property and casualty insurers' portfolios in several Asia-Pacific markets. Life and health insurers face this risk in the form of medical inflation amid increasing health service usage and medical costs, Chen added.
