Key risks for Asia-Pacific insurers include China’s economic slowdown, low interest rates and potential catastrophe risks in emerging markets, according to Standard & Poor’s.

Credit trends for the region’s insurers remain stable, except for China’s life insurance market, but the sector faces some challenges, the ratings agency’s third-quarter outlook says.

“While the capital strength of most insurers still underpins the ratings, downward pressure on capitalisation is increasing due to falling earnings amid an economic slowdown, lower and volatile investment performance and tighter profit margins as stiff competition continues.”

The credit trend for reinsurers remains negative, reflecting a continued soft cycle amid a competitive primary market.

“For the reinsurance sector, soft premiums and exposure to unmodelled risks remain a concern,” the report says.

In China, insurance groups face mounting capital pressure as they wrestle with declining interest rates and subdued earnings.

Weaker investment yields from domestic holdings, heightened counterparty credit risks and increasing allocation towards shadow banking-type investments have diluted the insurers’ ability to withstand financial losses, the report says.