Asia-Pacific insurers stay stable as war fuels market swings

S&P expects capital buffers to absorb investment and underwriting strain for now.

Asia-Pacific (APAC) insurance companies are currently managing limited direct exposure to the Middle East conflict, though they remain vulnerable to financial market volatility. 

A report from S&P Global Ratings, titled "Asia-Pacific Insurers: Market Volatility Is The Largest War-Related Impact," suggests that whilst risks are manageable under current conditions, they could intensify if oil market disruptions persist.

The ratings agency operates on a base-case scenario where the conflict’s intensity peaks and the closure of the Strait of Hormuz begins to ease during April. 

Although some disruptions are expected to last for several months, S&P Global Ratings believes insurers possess sufficient capital buffers to absorb the resulting investment and underwriting stresses.

Specific losses may arise from marine and cargo policies as trade flows through Middle Eastern routes are affected. 

However, this segment typically represents a small proportion of the region's overall premiums. 

The more significant threat involves broader macroeconomic shifts. Rising energy costs are currently driving up inflation and putting upward pressure on interest rates. 

Philip Chung, a credit analyst at S&P Global Ratings, stated that a prolonged conflict would lead to higher input costs for insurers and weaker economic conditions. 

For non-life insurers, rising expenses in motor, property, and commercial claims are expected to result in higher premiums for policyholders. 

Whist the general outlook remains stable, the report identifies specific vulnerabilities in a downside scenario. 

If the conflict is prolonged, insurers operating in low-income economies that are net energy importers would be the most at risk. 

At present, however, the primary impact on the industry remains the instability of global financial markets rather than direct underwriting losses.