APAC insurers trim equity risks, increase capital efficiency: Moody's

APAC P&C insurers face different risks compared to their US counterparts. 

Insurers in China, Japan, and Taiwan, which together represent over 60% of total premium income in the Asia-Pacific (APAC) region, are adjusting their capital strategies to reduce exposure to equity and credit risks, Moody's Capital Tool (M'CT) analysis revealed. 

This shift is seen as a positive move, enhancing their capital resilience and efficiency.

In China, insurers follow the China Risk-Oriented Solvency System (C-ROSS), whilst Taiwan uses a risk-based capital (RBC) regime, and Japan adheres to the economic solvency ratio (ESR) system. 

The tool's findings showed that property and casualty (P&C) insurers' M'CT ratios generally align well with reported solvency ratios under these different frameworks.

The analysis also highlighted that APAC P&C insurers face different risks compared to their US counterparts. 

For insurers in China, Japan, and Taiwan, equity risks make up around 30% of their total required capital, nearly three times higher than for U.S. insurers. 

However, reserving risks are lower in APAC due to the shorter durations of reserves. amongst other factors, Japanese P&C insurers are particularly vulnerable to catastrophe risks, whilst Taiwanese insurers face greater exposure to currency and real estate risks.

The report further showed that APAC insurers are actively reducing asset risks. Japanese P&C insurers are lowering capital requirements for equity risks by divesting from strategic shareholdings and focusing more on business expansion, both domestically and internationally. 

Chinese insurers are boosting their government bond allocations whilst reducing credit risk exposures, and are diversifying into non-motor premium growth. 

In Taiwan, after suffering significant losses from COVID-19-related policies, P&C insurers have replenished capital and cut back on equity, bond holdings, and catastrophe exposure to reduce their capital requirements.