The credit quality of most insurers in the Asia-Pacific region will remain stable until next year despite periodic disasters and other industry risks, Standard and Poor's (S&P) said yesterday.
"This prognosis is predicated largely on the strengthened balance sheet of the insurance industry in recent years although there are challenges ahead for life and non-life insurance players in the region," analyst Paul Clarkson said in a press statement.
The Philippines, however, received a "negative" outlook in both the life and non-life sectors from the global credit watchdog, which monitors nearly 250 of the leading insurance players in the region.
China received a "developing" outlook in both sectors, which suggests it could either improve or deteriorate in a few years.
In a report, S&P stressed the importance of favorable investment markets, sensible regulatory reform, level of competition versus consolidation, and appropriate pricing and reserving in determining the outlook of specific firms from now until next year.
WIDE VARIATIONS
It noted wide variations in the industry, from "totally open" markets like Singapore and Hong Kong to tightly regulated Taiwan and China, and said ratings of Asian players ranged from the highest possible "AAA" to the very weak "CCC."
"[In] some of the markets, in particular New Zealand and Malaysia, non-life are strong performers and generate relatively stable profits. Others, including Taiwan, the Philippines and Japan, are volatile, catastrophe-prone, or beleaguered by negative spreads and soft pricing," S&P said.
CONSOLIDATION
It said many of the insurance markets tend to feature "a leading group of companies of sound financial strength" below which there is "a rapid deterioration in strength" among smaller players.
Consolidation can help weed out the weaker players and enhance financial stability, as shown in Japan and Australia.
"However, for many Asian countries, there is an over-abundance of insurance underwriters, leaving a significant number of smaller non-viable riskier companies. With a high degree of private ownership in many Asian countries, consolidation could take several years," it said.
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