Insurers in Asia-Pacific (APAC) will maintain careful asset and liability management when rates rise, according to a research by Moody's Investors Service based on a poll of rated insurers in four Asian markets.

According to Moody's, this will relieve the negative spread risk and balance sheet sensitivity of insurers.

In order to capitalize on growing returns and decrease their asset-liability length mismatches, APAC life insurers expect to boost their allocations to fixed-income investments over the next 12 to 18 months. According to the study, they will also be cautious with their equity allocations and maintain the credit quality of their bond holdings.

However, the majority of insurers do not intend to drastically alter their asset allocation. As insurers prepare for more strict capital requirements under new advanced risk-based capital regimes and IFRS 17, Moody's says companies will need to evaluate the characteristics of their policy obligations when formulating strategies for asset allocation.


In the following 12 to 18 months, the majority of the 16 poll respondents anticipate a decline in their overall investment yields from 2021 levels, since increases in hedging costs will balance increases in bond rates.


Widening disparities between the still-low interest rates in insurers' home markets and the growing rates in the United States are driving up the costs of foreign-currency derivatives, which insurers generally view as outweighing increases in the yields on new money.


In addition, insurers will maintain a systematic approach to liability management. Approximately 94% of respondents do not intend to raise their guaranteed rates within the next 12 to 18 months. Additionally, insurers are hesitant to offer long-term insurance with guaranteed benefits.