Favourable market conditions and strengthening balance sheets have led ratings agency Standard & Poor’s (S&P) to give the Asia-Pacific insurance industry a “stable” outlook, but it says softening rates pose a risk.

S&P’s Asia-Pacific Outlook predicts the credit quality of most insurers in the region will be stable for this year and into next year.

However, Credit Analyst Paul Clarkson says price competition and less-disciplined underwriting could jeopardise profits.

“For the regional non-life insurance industry, the stable outlook reflects the continued expectation of favourable but slightly deteriorated underwriting performances and stable financial profiles, supported by increasing regulatory requirements in reserving control, even though the region is at its softer point in the cycle,” he said.

Other emerging risks identified by the agency are “ferocious” cyclone and tsunami activity, volatile weather patterns, a bird flu pandemic and investment-market volatility.