APAC insurer credit rating upgrades exceeded downgrades in 2023

Asia experienced a number of natural disasters in 2023, leading to significant insurance claims payouts, underscoring the importance of catastrophe risk management and re/insurance coverage. But most re/insurers in the region remain robust and issuer credit rating upgrades exceeded downgrades for Asia-Pacific re/insurers in 2023.

That is according to a report published on September 23 by AM Best titled “Asia-Pacific Benchmarking: Positive Signs While Navigating Climate and Geopolitical Uncertainty”. The report evaluates companies rated by AM Best in the Asia-Pacific region and details the rating actions that took place in 2023. It considers AM Best’s broad geographical rating coverage across most rated re/insurance groups in Asia and Oceania. 

The report showed that during 2023 10 new ratings were assigned and 10 were withdrawn. In mature markets, issuer credit ratings (ICRs) were clustered in the “a” and “a-” categories, while in emerging markets, where country risk often plays an important role in determining the overall rating assessment, the ICRs ranged more widely, from “a” to “bbb”. 

“Pressure owing to weakened balance sheets generally drove downgrades in 2023.”

Almost 20 percent of the ICRs in Asia-Pacific were for companies in emerging markets, with ratings of “a-” or higher. Most re/insurance groups at the lower end of the rating scale are domiciled in countries characterised by elevated levels of economic, political, and financial system risks.

The majority of favourable ICR changes were driven by improvements to balance sheet strength. For one company whose rating was upgraded, all four building blocks changed as a result of its becoming a member of the lead rating unit. Pressure owing to weakened balance sheets generally drove downgrades in 2023.

Outlooks

The outlooks for the majority of rating units (87 percent) were Stable as of year-end 2023, with a larger proportion of Stable outlooks for mature markets (91 percent) than emerging markets (82 percent).

Positive outlooks were assigned to just 8 percent of all ICRs, up slightly from 2022. The remaining 4 percent of rating units had Negative outlooks or Negative implications, down from 2022. The outlooks for 13 companies were revised to Stable from Negative; 10 were revised to Positive from Stable; and one jumped to Positive from Negative. 

Additionally, the outlooks for four companies were revised downward from Positive to Stable. Mature markets accounted for more than 75 percent of all outlook revisions, with New Zealand and Singapore accounting for most of the changes.

In 2023, eight ICRs were upgraded: three in New Zealand, two in Singapore, and one each in Hong Kong, South Korea, and Vietnam. Improved balance sheet strength and favourable operating performance drove the upward moves. Four ICRs were downgraded, as in 2022: one each in New Zealand, the Philippines, Singapore, and Thailand. A range of factors, such as falling Best’s Capital Adequacy Ratio scores or weakening operating results, were among the drivers.

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