How are APAC insurers rethinking asset-liability management amid changing capital regimes?

Vivian Tang

Head of Institutional – Asia Pacific, Aberdeen Investments

A growing number of insurance companies across APAC are actively modernising their investment portfolios by adopting best practices in asset-liability management (ALM) and closely integrating these practices with allocation decisions and performance measurement. This shift reflects insurers’ responses to evolving capital regimes and the increasing emphasis on embedding capital efficiency requirements into their investment processes.

Adapting to this dynamic environment is no longer optional for insurance companies. Amid heightened market stress, characterised by volatility and ongoing uncertainty, insurers must reassess their exposures to both public and private markets while re-evaluating how they select and collaborate with third-party managers. In essence, navigating and balancing the risks associated with intensified market volatility requires greater diversification, including an expanded focus on alternative asset allocation.

Simultaneously, a rapidly changing regulatory landscape is prompting many APAC insurers to rethink their approach to ALM, ensuring alignment with new requirements and long-term strategic goals.

New Drivers of Investment Decisions: Geopolitical Tensions and Capital Regimes

In the first quarter of 2025, we conducted a survey of over 50 insurance companies across APAC. The results highlight that risk versus return remains the most critical driver of investment decisions this year, with one-third of insurers ranking it as their top priority. This is largely driven by increased market volatility stemming from geopolitical tensions and the potential impact of Trump 2.0 policies.

The evolving insurance capital regime is the second most influential factor shaping investment strategies, as insurers seek to modernise their approaches to gain a competitive edge in the marketplace.

In contrast, considerations related to liquidity and diversification—particularly expanding alternative asset exposure—are currently less prominent in influencing decision-making for insurers across the region.

Putting ALM best-practice at the core

In response to increasingly challenging market conditions and evolving regulations, nearly 80% of survey respondents agree that the most appropriate Key Performance Indicator (KPI) for evaluating investment performance incorporates both liability-matching and risk capital requirement considerations. In contrast, only 2% of respondents focus solely on liability-matching, while 15% prioritise portfolio returns exclusively.

This trend is unsurprising. In today’s turbulent environment, adhering to liability-driven investment principles offers insurance investors better protection. Insurance liabilities provide a natural hedging mechanism. For instance, if the interest rate sensitivities of assets and liabilities are closely aligned, the decline in asset values due to rising risk-free rates can often be offset by a corresponding reduction in liability values. Similarly, minimising net currency mismatches between assets and liabilities can deliver comparable benefits.

This approach is gaining traction across Asia. In our conversation with a senior investment practitioner at one of the region’s leading insurance firms, he shared that their ALM process has become the foundational pillar for defining and implementing investment strategy. By focusing on outcomes, they are able to adjust allocations with liability-matching in mind, effectively freeing up risk budgets for other asset classes.

As such, robust ALM practices should play a central role in measuring investment performance. While traditional strategies like Strategic Asset Allocation (SAA), Tactical Asset Allocation (TAA), and diversification remain important, they should complement—not overshadow—the critical role of effective ALM.

Across insurers in Hong Kong, Singapore, and Korea, our survey reveals that just over one-third have established matching adjustment portfolios that comply with local regulations while also optimising the matching adjustment spread. However, about 40% of insurers in these markets focus solely on regulatory compliance. The remaining respondents are either studying regulations and planning for implementation (18%) or not intending to implement matching adjustments at all (8%).

In Malaysia, Thailand, and Taiwan, the approach is slightly different. Over 90% of insurers report that liability-matching requirements influence their investment decisions, with half of all respondents in these markets focusing on key rate duration or liability cash flows.

In contrast, Europe’s more sophisticated insurers do not view asset allocation and ALM as separate processes. Instead, they consider asset allocation as a core component of a holistic ALM framework. Under such a framework, insurers assess how various assets and liabilities might behave under different future scenarios. This involves evaluating factors such as returns, volatility, diversification, resilience to stress, liquidity, and the potential impacts on the balance sheet and solvency capital requirements.

This integrated approach provides a comprehensive view of risks and opportunities, enabling insurers to make more informed decisions and better prepare for market uncertainties. 

Raising the bar in response to new regulatory regimes

A more coordinated and integrated approach to ALM has become essential under the evolving regulatory regimes across APAC. These new frameworks are driving insurance companies to prioritise efficiency by embedding capital requirements more effectively into their investment processes.

Survey findings reveal varied responses. In Hong Kong, Singapore, and Korea, more than half (58%) of respondents report that their investments are subject to a risk capital budget, while only 9% have yet to begin this journey. In contrast, insurers in other surveyed markets report lower adoption rates, with 38% subjecting their investments to a risk capital budget and one-quarter not yet integrating capital efficiency requirements into their processes.

Despite differences in adoption rates, insurers across APAC face similar challenges when incorporating capital efficiency into their investment processes. Management teams often need to review and adapt existing frameworks to include capital efficiency as a core investment objective. Moreover, establishing new working frameworks with departments such as actuarial, finance, and risk is often necessary to achieve alignment and integration.

To achieve favourable capital treatment under the current regulatory regimes, insurance investors across all surveyed markets broadly agree that infrastructure investments—spanning both equity and debt—represent the most critical area for adjustment. This focus underscores the strategic importance of infrastructure as a means to optimise portfolios while meeting capital efficiency requirements.

Allocating to Diversify Risk and Income

Insurance investors across Asia continue to demonstrate strong appetite for private market assets, which are widely regarded as an attractive source of yield and diversification. The growing popularity of private assets in recent years is both logical and strategic, driven by the need for yield enhancement in a persistently low-yield environment and the broader trend of banking disintermediation.

Among private market options, direct lending within the private debt space has emerged as particularly appealing to insurers in APAC—a trend that the survey confirms is gaining significant momentum. For example, respondents across the region are unified in their interest in private debt for the remainder of 2025. In Hong Kong, Singapore, and Korea, over half (55%) rank corporate debt as their preferred investment, while 37% of insurers in Malaysia, Thailand, and Taiwan share this preference.

Within private debt, opportunities exist for insurers to maintain a balanced approach to risk and return. Investment-grade private debt and short-term financing options may align well with the conservative nature of insurance portfolios, offering stable returns while mitigating some of the risks inherent in higher-yielding—but potentially more volatile—direct lending opportunities.

Notably, private debt remains far ahead of other private market assets in terms of preference. In the survey, private equity ranks as the second most favoured asset class among insurers in Hong Kong, Singapore, and Korea, while insurers in other markets exhibit relatively strong interest in infrastructure debt.

When allocating to private debt, insurers place significant emphasis on the attributes of third-party managers they outsource to. Across all markets, the most important characteristic cited by respondents is the manager’s track record, followed by their experience and understanding of the investor’s insurance-specific needs.

These priorities reflect the desire among insurance investors to adopt a balanced approach, leveraging the expertise of third-party managers to navigate capital efficiency and risk management challenges. External managers bring specialised expertise, robust risk frameworks, and access to a wider range of investment opportunities, helping insurers design portfolios that are well-diversified and aligned with their risk tolerance and return objectives.

Additionally, deployment capabilities and access to high-quality deals are key focal points when selecting external managers. While larger firms often have extensive networks, expertise in private debt is not exclusive to size; smaller firms with deep knowledge and specialised skills can be equally effective. Access to exclusive deals, often enabled by strong relationships and established networks, is a critical factor for insurers seeking to maximise their private debt strategies.

The ability to customise deals based on an insurer’s unique liability cash flows is another key consideration when choosing external managers. Effective alignment with matching adjustments is vital, enabling insurers to fully leverage the benefits of private asset investments. Similarly, efficient implementation, high-quality client service, smooth communication, and rapid responsiveness are all essential for successful private market investments.

Insurance investors should ask critical questions when selecting managers: Can they source and construct deals that align with liability cash flows? Do they understand the nuances of matching adjustments? And can they optimise matching adjustment benefits from private asset investments? These factors should weigh heavily in decision-making processes.

The increasingly complex macroeconomic, market, and regulatory environment in APAC is forcing insurers to make tough decisions about adapting allocations, managing capital requirements, rethinking portfolio exposures, and making tactical tilts across public and private markets. Agility will be critical as insurers explore different strategies to navigate new regimes and build portfolios suited for the challenges and opportunities of a new investment era.