Asia & Pacific

Back to normal? How Asian insurers are responding to rising interest rates

Rising interest rates have resulted in significant losses on the existing portfolios of Asian insurers while the overall impact on their solvency position has been positive. Starving for yield for more than a decade, Asian insurers can now again get a decent return from core fixed income investments.

Thomas Gillmann

Thomas Gillmann

Insurance Strategy & Advisory, APAC
  • Rising interest rates, but not everywhere in Asia
  • Negative impact on existing portfolios but overall improvement of solvency position
  • The renaissance of core fixed income, but demandfor alternative assets remains stable
  • Higher FX hedging costs may weigh on the attractiveness of U.S. fixed income assets
  • The comeback of traditional life insurance policies?

Rising interest rates, but not everywhere in Asia

After more than a decade of ultra-low interest rates, most central banks globally have started to tighten their monetary policy to fight high levels of inflation. Even though not all central banks in Asia-Pacific have started to aggressively hike interest rates, many insurers in the region are still affected by the sharp rise in interest rates in the U.S. given their significant exposure to the U.S. fixed income market.

For the U.S., DWS’s CIO Office still expect additional 25 basis point hikes to bring the Fed Funds rate to a restrictive area, while policy rate cuts might be possible in 2024. Similarly, we expect the European Central Bank (ECB) to further take up deposit rates as the current inflation level is still far above the ECB’s target.

On the contrary, the Bank of Japan (BoJ) remains largely dovish, but changes to the ultra-expansive monetary policy stance might come with the appointment of a new governor and deputy governs in Spring, largely depending on dynamics in prices and wages. A pivot toward more flexibility for long-term yields and a smaller policy rate hike could also be possible. In mainland China, DWS does not expect any changes in policy rates in the near-term; Hong Kong largely mirrors the policy of the U.S. Federal Reserve given the peg of the Hong Kong Dollar to the U.S. Dollar. The Reserve Bank of Australia (RBA) currently keeps a neutral rate (i.e. a rate that neither stimulates nor restricts growth) but further rate hikes are possible. However, their size and timing will depend on incoming data. In both South Korea and Taiwan, the economy has started to slow after some rounds of rate hikes, and we expect no further hikes, or even some initial rate cuts, this year.


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