Uncertainty moderating around evolution of COVID-19

S&P Global Ratings says that it believes there remains high, albeit moderating, uncertainty about the evolution of the coronavirus pandemic and its economic effects.

In its report “APAC Insurance 2021: Managing Higher Volatility”, the global credit rating agency notes that vaccine production is ramping up and rollouts are gathering pace around the world.

Widespread immunisation, which will help pave the way for a return to more normal levels of social and economic activity, looks to be achievable by most developed economies by the end of the third quarter of 2021. However, some emerging markets may only be able to achieve widespread immunisation by year-end or later.

S&P uses these assumptions about vaccine timing in assessing the economic and credit implications associated with the pandemic.

Outlook

The agency says that there is a higher-than-usual negative outlook bias due to COVID-19: on about one-fifth of sector ratings for the region. The APAC life insurance sector is expected to remain hardest hit by COVID-19. Life insurers comprised just under half of negative outlooks while forward views on P/C insurers are mostly tied to the outlook on the rating group. Similarly, positive outlooks declined over the past year, largely driven by the stable outlook on the Japan sovereign rating in June 2020 (from positive).

Market volatility has hit life insurers with high asset risk and thin capital buffers. In APAC, 40% of Taiwan life insurers have a negative outlook. Across APAC, capital resilience has been tested by market volatility and continued low interest rates. The path to recovery for insurers remains uneven.

COVID-19 credit impact

However, pandemic-related losses are so far manageable across APAC, says S&P. Equity market buoyancy has reduced mark-to-market impact on capital adequacy. S&P expects capital adequacy to remain well-managed. Economic conditions and market sentiment are generally improving.

Looking ahead

The insurance industry will accelerate technology investment for efficiency and distribution. There is pressure for continued increases in reinsurance costs. Health insurers' ancillary claims are expected to catch up in 2021. For example, there are latent life claims in Australia, due to lockdown-induced mental stress.

On a brighter note, there are moderating mortgage insurer risks with payment deferrals declining. There have also been improved life sector outlooks for Japan and China in the past month.

Sector outlooks for APAC markets are:

Source: Asia Insurance Review