A combination of weak growth in advanced economies, persistent inflationary pressures, the Russia-Ukraine conflict, tight financial conditions, and a subdued growth outlook for China will create a difficult environment for emerging markets (EM) in 2023, said Moody's Investors Service.
General insurers in India, China, Indonesia and Vietnam, part of the Asia-Pacific nations, will take a gradual approach in reducing their exposure to coal or coal-related industries, said Moody’s Investors Service in a new report.
According to Moody’s, the plan of Asia-Pacific (APAC) insurers to curtail or even cease underwriting and investment exposures to coal or coal-related industries are credit positive, although their coal exposures are generally small.
According to Moody’s, such initiatives will reduce insurers’ potential liability risk from weather-related claims and stranded asset risk, where insurers’ coal-related investment assets will lose economic value.
“APAC economies’ coal dependency will drive insurers’ pace of coal reduction. China (A1 stable), India (Baa3 stable), Vietnam (Ba3 positive) and Indonesia (Baa2 stable) are more dependent on coal than other APAC economies for their energy consumption. As a result, insurers in these economies are more likely to take a gradual approach in reducing their coal exposures,” said Young Kim, a Moody’s analyst.
By contrast, insurers operating in economies with low coal dependencies, such as Japan (A1 stable), and Korea (Aa2 stable) will take a more progressive approach to lower coal exposures.
Meanwhile, the speed at which different economies can reduce their existing carbon exposure will vary.
This will especially be the case where these economies need to balance environmental concerns that drive carbon emission initiatives with broader policies and socioeconomic considerations.
Foreign insurers operating in APAC markets could incorporate their parent companies’ broader environmental social and governance commitments in their local underwriting and investment practices regarding coal-intensive sectors.
These insurers, with their considerable financial strength and Asian market presence, will influence APAC insurers’ efforts to reduce coal exposures, especially among local, smaller insurers, Moody’s said.