Chennai: It is not just the United States that is prone to insurance company failures; the Asia-Pacific sector is likely to follow suit.

According to Standard and Poor’s (S&P) Rating Services, the year 2003 will witness insurance companies failing and duly withdrawing from the market in the Asia-Pacific region.

The rating agency says India and China offer good, though limited, prospects for insurers willing to take a long-term approach. However, the majority of participants’ growth fundamentals in the Asia-Pacific region over the near and medium term will remain challenging.

“The sector is challenging, unsettled, and rife with competition. There are no safe havens anywhere in the region,” says Ian Thompson, credit analyst and head of S&P Asia-Pacific Ratings Group. “Even Australia, the most sophisticated market in the region, has seen significant failures, recently suffering near collapse as a reinsurance centre.”

Weak equity markets, lacklustre property markets, and credit issues in some local capital markets — such as Japan, which continues to suffer from a prolonged erosion of its banks’ operating performance — have added to the region’s woes.

As market participants battle against negative underwriting conditions and volatile investment markets, it is clear that the divide between companies with strong financials and with weak financials is growing.

Trends in the region are not entirely negative, however. “Premium growth is generally good, at levels above that of the gross domestic product (GDP). At the same time, bancassurance and direct selling have modernised distribution in the Asia-Pacific market,” he adds.