Apac Insurers Face Tighter Capital Buffers

Fitch Ratings reveals that updates to risk – based capital frameworks for insurers by Asia Pacific (APAC) regulators have sparked discussions regarding private credit investments, mergers and acquisitions (M&A) activity, and shifts in investment strategies.

Monsur Hussain, head of Financial Institutions Research at Fitch, pointed out that insurers in Hong Kong, Japan, Korea, and Taiwan don’t need to hold explicit capital for the illiquidity risk of private debt investments. Consequently, these investments can generate an illiquidity premium compared to actively traded bonds. Terrence Wong, senior director of Insurance Ratings at Fitch, emphasized that smaller insurers with weaker market positions may encounter escalating capital costs that could exceed operational returns. This situation might speed up M&A activity, especially with the implementation of IFRS17 in APAC, which has enhanced the transparency and comparability of insurers’ financial metrics.

Fitch also reported that new capital regimes have likely decreased capital buffers for APAC insurers. This has led to an increase in the issuance of capital bonds to boost adequacy. The speed of this issuance will be determined by market conditions and interest – rate trends.

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