Insurance –Asia-Pacific2018 OutlookDECEMBER 11, 2017OUTLOOK RESEARCH Insurance - Asia-Pacific: 2018 Outlook – December 2017 2ContactsFrank YuenAssistant Vice President –Analystfrank.yuen@moodys.com+852.3758.1460This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see theratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.Sally YimSenior Vice Presidentsally.yim@moodys.com+852.3758.1450Qian ZhuVice President – Senior Credit Officerqian.zhu@moodys.com+86.21.2057.4098Stella NgAssistant Vice President - Analyststella.ng@moodys.com+852.3758.1506Graeme KnowdManaging Directorgraeme.knowd@moodys.com+81.3.5408.4149SoichiroMakimotoVice President – Senior Analystsoichiro.makimoto@moodys.com+81.3.5408.4056Frank MirenziVice President – Senior Credit Officerfrank.mirenzi@moodys.com+612.9270.8176Simon HarrisManaging Directorsimon.harris@moodys.com+44.20.7772.1576 Insurance - Asia-Pacific: 2018 Outlook – December 2017 32018 APAC Insurance Outlook - StableGravitation toward less interest-sensitive products and solid solvency positions allow insurers to manage through the low interest rate environmentNEGATIVESTABLEPOSITIVEWhat could change outlook to negative»Further persistent declines in long-term interest rates by 100bps or more, which could adversely impact solvency capital levels and profitability»Significant increase in asset risk »Steady economic momentum across APAC economies, led by China, to support underlying insurance demand»Industry gravitates toward less interest-sensitive products to lessen impact from persistently low interest rates»Solid solvency position amid increasing capital requirements»Rising investment in non-traditional assets add to risks»Improving product margins and enhanced asset-liability managementWhat could change outlook to positive»A gradual rise in interest rates which reduces the threat of insurers incurring negative spread and lift their investment returns»Adoption of less risky investment strategies»Material improvements in product delivery and sales efficiencies from stronger technologyadoptionThe Industry Outlook (positive, stable or negative) indicates our forward-looking assessment of fundamental credit conditions that will affect the creditworthiness of the property & casualty insurance industry over the next 12-18 months. As such, the outlook provides our view of how the operating environment for the property & casualty insurance industry, including macroeconomic, competitive and regulatory trends, will affect, among other things, asset quality, capital, funding, liquidityand profitability. Since outlooks represent our forward-looking view on credit conditions that factor into our ratings, a negative (positive) outlook suggests that negative (positive) rating actions are more likely on average. However, the outlook does not represent a sum of upgrades, downgrades or ratings under review, or an average of the rating outlooks of issuers in the industry, but rather our assessment of the direction of credit fundamentals overall within the industry broadly. Insurance - Asia-Pacific: 2018 Outlook – December 2017 4APAC insurers are adapting to low interest rates, but asset risks risingKey credit themes»Steady economic prospects across APAC in 2018, led by China, will support premium growth and in turn liquidity for the region’s insurers over the next 12-18 months »More insurers will gravitate their product mix towards less interest-sensitive products such as longer term and variable rate policies to reduce exposure to persistent low interest rates»Solid solvency position amid increasing capital requirements»Improving product margins and asset liability management»Rising asset risk from increasing allocation to higher-yielding non-traditional assets»Deeper technology adoption to change the industry’ business model and operation, and the delivery of insurance products Insurance - Asia-Pacific: 2018 Outlook – December 2017 5Economic growth momentum remains strong in APAC, led by China and IndiaSource: Moody’s Investors Service»Strong growth momentum in major APAC countries will carry into20180.01.02.03.04.05.06.07.08.0JapanAustraliaSouth KoreaChinaIndiaIndonesiaG-20 AdvancedG-20 EmergingG-20 All20162017F2018F2019FReal GDP Growth % Insurance - Asia-Pacific: 2018 Outlook – December 2017 6Aging demographics spur insurance demandSource: Swiss Re Institute sigma No 3/2017 - 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500NorthAmericaLatinAmericaandCaribbeanEuropeAsiaAfricaOceaniaTotal BusinessLife BusinessNon-life business - 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0NorthAmericaLatinAmericaandCaribbeanEuropeAsiaAfricaOceaniaTotal BusinessLife BusinessNon-life businessInsurance density: premiums per capita in USD in 2016Insurance penetration: premiums as a % of GDP in 2016»Aging demographics will have negative impact on economic growth but create opportunities