These days insurance firms are not only having to cope with a persistently low-yielding investment environment, but they are doing so against the backdrop of big changes to risk capital rules that affect how they manage their portfolios.
Yesterday, we outlined how investment professionals attending the Insurance Forum in Hong Kong on June 1 were responding to the tricky conditions in terms of their asset allocations.
Today experts at the event, jointly arranged by AsianInvestor and Invesco, focused on developments the insurance industry faces in respect of regulation and technology.
One panel focused on a regulatory change that has received a great deal less coverage than Solvency II and Capital Regulatory Standards: that is IFRS 17, a new accounting measure for insurers launched in May this year, that replaced IFRS 4.
Philip Shu Ying Cheng, adjunct associate professor for finance at the Hong Kong University of Science and Technology, and Jonathan Zhao, managing partner for Asia-Pacific insurance at EY, discussed the cost of implementing the new framework. “A large European insurance company in Germany put $250 million as a budget, and this is on par with that,” said Zhao.
They also discussed the measure’s potential impact in terms of shifting insurance companies’ preferred business from a par to a variable-fee approach.
Ultimately, however, the message was that being ready comes down to remaining aware, and planning for change.
“Most of us worry about year-to-year accounting results, but it’s very important for the long-term success of any company to conduct a thorough planning process so that when new regulations come through you are not surprised,” noted Cheng.
The last session of the day considered the impact of technological change on insurance companies — an area that Magdalena Kotek, chief marketing officer for Asia Pacific at Invesco, said is increasingly important. “We are at an inflection point; there is a huge coming together of data and technology and lower costs on so many [services] that we couldn’t do before.”
Pithan Rojanawong, chief digital officer of Bangkok-based Krungthai AXA Life, noted his business launched a new digital channel to sell life insurance in Thailand last year. “I believe that what can be automated will be automated,” he said, adding that he believes digital distribution will ultimately overtake all other channels.
Charles D’Haussy, head of financial technology at InvestHK, was similarly bullish. He said insure-tech was one of five main sectors the agency focused on, as it encouraged financial technology in the city. “Insurance is a big business and we want to ensure we provide the right ecosystem and tech infrastructure to support it.”
The present is a challenging place for insurer CIOs. But by astutely investing into niche fixed income and alternative assets, carefully considering liability needs and focusing on future changes such as ESG and the advent of fintech, they can still succeed.