Asia-Pacific insurers raise concerns about global outlook

Insurers across the Asia-Pacific region are increasingly concerned about global macroeconomic risks and the investment outlook, with escalating trade tensions and fears of a recession top concerns. 

Blackrock’s Global Insurance Report 2019 reveals 54% of the region’s insurers are concerned by financial market risk as a “driver of change in the industry”, compared to just 39% globally.

Only 23% of Asia-Pacific insurers were prepared to increase their risk exposures amid heightened uncertainty, according to the report. 

Blackrock said Asia-Pacific insurers were “somewhat more cautious” than their global peers.

Only 66% of Asia-Pacific insurers were positive on the global outlook, compared to 78% globally, the report found.

“This more muted optimism is probably a reflection of the region’s greater vulnerability to the risk of escalating US-China trade tensions,” the Blackrock report states. 

Only 39% of global insurers expect a recession before 2022, according to the report, yet Asia-Pacific underwriters and reinsurers maintain a cautious stance on global markets.

Clarence Wong, Swiss Re’s Chief Economist in Asia, said a US recession, escalating trade tensions, and central bank “policy errors” were among the insurance giant’s top risks.

Wong said US economic momentum “is declining” due to external headwinds, and “forward-looking capex indicators” in the country remained soft.

Wond added: “Although key historical recession triggers are not flashing red, the risk of the US economy entering recession in 2020 is relatively elevated at 35%.”

Wong said the “prominent” US-China trade tensions were a source of concern, while the WTO ruling on Airbus subsidies could “complicate US-EU relations.

Wong warned regional trade tensions could also escalate: “The ratification process for USMCA and Japan-Korea trade tension also pose key risks to our investment outlook. 

The economist said “ destabilisation of the EU/Euro area, in particular, Brexit” and “inflation risks, higher in the US than Europe and China”, could also negatively impact the growth outlook.

Swiss Re said it had concerns about the global investment outlook amid a continued period of low interest rates, negative bond yields, and general volatility.

Wong said: “First, market volatility from slowing global growth, the trade war, as well as idiosyncratic shocks (HK unrest, Brexit negotiations, US impeachment proceedings & elections 2020) will continue to weigh on financial markets. Second, interest rates are trending downward again.”

Wong added: The turn-around in US interest rate policy since the beginning of the year, as well as policy actions by the European Central Bank and Asian central banks (RBA, RBNZ, MAS) have again reduced the interest rates on government bonds, which will continue to weigh on the investment returns of investors.”

Wong said high levels of negative-yielding debt would continue to impact returns for insurers in the long-term.

“For insurers reinvesting funds over the last years and again now, these low/negative yields will continue to impact investment returns in the coming decades.”