APAC insurers' capital and profitability metrics were affected by adverse market movements caused by the recent increase in interest rates. Insurers booked large unrealised losses on lower fixed-income and real asset valuations. However, the regulatory capital positions of most of our rated insurers remain above rating sensitivities and well above regulatory minimums. We expect the adverse impact of higher market rates on capital to be mitigated under IFRS 17, as the liability valuations will better reflect prevailing interest rates.

We expect life insurers’ profitability to continue to benefit from the higher interest rates amid continued monetary tightening by central banks to curb inflation. Life insurers with exposure to interest-rate risk due to long-term investment guarantees benefit, while higher investment yields support the overall profitability of both life and non-life insurers.

Losses stemming directly and indirectly from the Covid-19 pandemic continue to reduce. In Japan, changes to rules on "deemed hospitalisation" should boost life insurers' margins, which narrowed on losses caused by a spike in hospitalisation claims in 2022. In China, the easing of restrictions should support premium growth for the life and non-life sectors.

We expect non-life insurers’ profitability to be affected by inflationary pressure and rising reinsurance costs. Pricing adequacy remains key and we expect premium rates to increase, especially for property classes that have been affected by extreme weather-related losses. Reinsurance costs for APAC insurers are rising due to the greater frequency of extreme weather events in the region.