Fitch Ratings says Australian insurers have managed to achieve double-digit rate hikes in recent periods, without affecting their business retention, which in turn has supported overall underwriting profitability.

Asia Pacific (APAC) non-life insurers’ profitability overall is expected to be affected by inflationary pressure and rising reinsurance but Fitch says in a report that companies have been able to pass on higher premium rates to customers.

"Pricing adequacy remains key and we expect premium rates to trend up, especially for property classes that have been affected by extreme weather-related losses,” it says.

Global reinsurance prices rose sharply in the January renewals in response to losses due to the Russia-Ukraine war, high inflation and increasing natural catastrophe claims.

Exposure of APAC-based insurers to the war is limited but many markets including China, Japan and Australia were hit by extreme weather last year and New Zealand has been affected in the first quarter of this year.

The report notes that slowing economic activity in several markets, like Korea, Australia and Indonesia, is likely to create temporary growth headwinds, but the improving outlook for inflation later in the year should help alleviate affordability related concerns.

"The easing of Covid-19 related mobility restrictions and continued challenges from extreme weather activity, will support demand for non-life products, while aging populations and high household debt levels continue to underpin demand for life products,” it says. 

On the life side, the report says Australian insurers regulatory capital profiles have remained stable in recent periods, as the impact of unrealised investment losses have been offset by lower liability valuations. 

Fitch Ratings expects Asia Pacific insurers’ underwriting fundamentals will remain steady amid short-term volatility in investment markets caused by higher interest rates, while at the same time headwinds related to covid are easing.

“We maintain neutral sector outlooks for key APAC insurance markets,” it says.