The operating environment for insurers in the Asia/Pacific region improved in the most recent fiscal period with the significant recovery in asset prices, according to an A.M. Best report on the life and non-life sectors. Insurers benefited from higher investment income and realized and unrealized capital gains that led to improvements in capitalization. However, financial results may not be as strong as in 2009, as asset prices rebounded from such a low point in 2008. In addition, the region’s stock markets have been volatile, and insurers are investing new cash flows at extremely low interest rates, notes A.M. Best.
Other findings from the report:
• Premium growth in most life and non-life markets remained strong, though Japan’s non-life market and Australia’s life market each experienced contractions in premiums.
• Prudent insurers have adjusted to low interest rates. Life companies have tweaked product designs, while non-life insurers have raised premium rates and improved underwriting standards.
• Leading insurers in the region continue to adjust to competitive forces prompted by the emergence of direct sales and distribution through bancassurance.
• On the regulatory front, the pace of growth in China’s life and non-life markets has led regulators to focus on improvements in market discipline, while Japanese insurers face a revised regulation for calculating solvency.
• Asia’s larger players, with limited opportunities for growth in their home markets, continue to look abroad to expand their business.
• Initial public offerings in the past 12 months have set the stage for more companies to seek financial flexibility to remain competitive domestically while expanding overseas.
Similar to other global insurers, life and non-life insurers in the Asia/Pacific region were able to rebound from the financial turmoil in 2008. Premium volume remained strong in most markets highlighted in the A.M. Best report, though Japan’s nonlife market and Australia’s life market each saw premiums contract.
Overall, insurers benefited from the recovery in stock and bond markets in 2009 and for the year through March 2010, resulting in higher investment income and a swing from realized and unrealized capital losses to capital gains, which led to improved capitalization.
Nevertheless, insurers’ financial results may not be as strong as they were in 2009, since asset values rebounded from such a low point in 2008. Insurers also are investing new cash inflows during 2010 at extremely low interest rates, which likely will further pressure investment income. Meanwhile, the performance of benchmark stock indexes in the region has been volatile. Insurers, however, have been coping with extremely low interest rates for the past 18 months or so, and prudent companies have adjusted their business operations to reflect the changing environment. Life companies have tweaked product design, while non-life insurers have raised premium rates and improved their underwriting standards to boost profitability.
A.M. Best notes that competitive pressures remain, however. In non-life markets such as China, India and South Korea, insurers’ top lines are growing rapidly. However, incurred claims, rising expenses and premium rate competition are hampering profitability in the main auto line of business.
The growth of distribution channels outside of tied agents, such as bancassurance, has cut into new business margins in some of the region’s life markets, as well.
Leading insurers in the region continue to adjust to competitive forces and the emergence of direct sales and bancassurance distribution. Newer savings-type products aimed at bancassurance are one way Japan’s life companies are attempting to address fewer sales opportunities with the country’s aging population.
The full report can be obtained at www.ambest.com.
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Corrected November 15, 2010 at 11:13AM: yes