Research Overview
- In order to better understand the priorities of – and challenges facing – APAC insurers with respect to their investment strategies. we surveyed 56 senior executives across 43 insurance companies covering 8 markets, including Hong Kong, Singapore, Australia, South Korea, Thailand, Malaysia, Taiwan, and Mainland China. Respondent profiles consisted of both regional and local CEOs, CIOs, CROs, Heads of Investment, Heads of Risk, and various other department heads.
- Our survey questions focused on 6 overarching topics related to insurers’ current and future investment strategies, including: (1) regulatory adoption; (2) ESG / net-zero; (3) investment strategy; (4) hedging strategy; (5) investment-linked product ("ILP") business; and (6) external partnerships.
Key Findings
- Regulatory adoption: the implementation of IFRS 9 / 17 and RBC regulations ranks at the top of APAC insurers’ priority lists. However, most respondents said they were encountering difficulties in adopting – and optimising their businesses for – these regulations. We see considerable scope for insurers to conduct scenario analysis in order to better understand the implications of IFRS 9 / 17 on their existing financial reporting practices, while addressing challenges associated with RBC optimisation by developing a robust optimisation framework and instituting appropriate regulatory initiatives (e.g. matching adjustment).
- ESG / net-zero: regulatory expectations and reputational / branding considerations play crucial roles in driving insurers’ ESG / net-zero integration efforts. However, challenges around data quality and converting ESG / net-zero considerations into clear investment strategies remain key implementation barriers. To address this, we believe insurers must develop a proactive ESG data strategy from the ground up while enhancing their end-to-end ESG investment capabilities. This can be done either in-house or by leveraging the capabilities of third-party ESG specialists, making ESG a true point of strategic differentiation for insurers who embrace it (vs. being a “regulatory box ticking” exercise for the rest).
- Investment strategies: most APAC insurers intend to increase their investment allocations to private assets (e.g. private credit / equity) and international markets in the coming years at the expense of both public equities and digital assets. In addition to engaging the expertise of specialised managers, we believe insurers’ investment processes will need to incorporate additional insurance-specific considerations (e.g. RBC risk charge, liability matching, asset classifications under IFRS 9, etc.) to deliver more capital-efficient returns.
- Hedging strategies: many insurers are struggling to implement effective hedging strategies due to high costs and limited availability of hedging instruments. Given the volatile market environment, we believe there is greater scope for insurers to further optimise their hedging strategies based on their individual risk profiles, asset & liability positions, and internal capabilities, including engaging external partners who are capable of structuring highly tailored hedging solutions.
- Investment-linked product ("ILP") business: ILPs remain a key focus area for many insurers. However, there is a recognition by most respondents that designing an appropriate advisory model and digitalising the ILP value chain are needed in order to unlock the full potential of ILPs. In addition to exploring the strategic, operational, and financial business case for different ILP advisory models, we believe APAC insurers will need to invest considerable time and resources in upskilling their agent workforce (i.e. both technical and soft-skill training) to more effectively pitch ILPs to end customers, given the importance of agents in driving product distribution in Asia.
- External partnerships: given the various challenges facing APAC insurers, a number of firms are outsourcing parts of their investment operations to external partners, particularly ESG integration, investment execution, and hedging, with key selection criteria being a partners’ brand / reputation and performance track record. We see scope for insurers to more holistically review the business case for outsourcing across their entire investment value chain. We believe this will be critical in allowing each firm to focus on delivering its core value proposition(s) in-house, while addressing potential roadblocks in a faster, more cost-efficient, and scalable manner with external partners.
The Way Forward
- As the investment landscape in APAC has become more challenging for insurance companies to navigate, we have outlined numerous recommendations for APAC insurers to further explore in each of the six key areas covered in this report.
- In particular, we see regulatory adoption and ESG integration as high priority focus areas for regional insurers, with a need to move from a reactive, compliance-led mindset to one that is much more proactive, focused on leveraging RBC, IFRS 9 / 17, and ESG as strategic points of differentiation (and, ultimately, to gain a competitive advantage).
- We also believe there is considerable scope for insurers to further digitalise their ILP businesses, given the rising digital-savviness of their customer base and the capability limitations of their agent network in effectively pitching ILP products to target customers.
