Asean: Insurers urged to watch economic risk

The development of insurance markets in the major economies of the Association of Southeast Asian Nations (ASEAN) has kept in pace with these countries’ economic growth, according to AM Best in its special report headlined “Insurance Markets Advance as ASEAN Countries’ Economies Grow”.

The report, which outlines the implications for ASEAN insurance industries with respect to the three main country risk categories – political, economic, and financial system – focuses on Indonesia, Malaysia, the Philippines, Thailand and Vietnam. AM Best refers to the five countries as the ASEAN4+Vn. Today’s edaily covers the economic risk.

The international rating agency said that ASEAN4+Vn have moderate to high levels of economic risk. Their macroeconomic fundamentals have strengthened in recent years, and their economic performance has provided momentum for their insurance markets to grow. Demand for insurance increased, driven by factors that include increased urbanisation, industrialisation, an expanded trade network and a growing middle class.

However, AM Best cautioned: “In view of slowing growth in GDP for both 2013 and forecast periods, insurance companies could be influenced in terms of both the top line as demand for insurance may drop, and the bottom line as insurance may become less affordable, inducing more competition in pricing of insurance products.”

With economic linkages between the Southeast Asian countries and other major markets throughout the world strengthening, Southeast Asian economies have become more exposed to global fluctuations, economic uncertainties and the risk of contagion. This volatility brings the increased risk of inflation for ASEAN4+Vn countries and their insurance industries.

“Uncertainty surrounding future inflation is an issue, as the ultra-low global interest rate environment in advanced economies gradually will end, impacting the investment environment and outlook for inflation in emerging markets as well. Insurance companies need to regularly review their investment strategies and allocations in the changing inflationary environment,” said AM Best.

The outlook for inflation also directly influences underwriting strategies, not only for life insurers that carry long-term liabilities on their balance sheets, but also for non-life insurers to carefully manage the uncertain impacts of future claim costs and product pricing.

Source: AIR eDaily