According to sigma, the research arm of Swiss Re, insurance markets in Asia are characterised by a “sanguine outlook despite short-term uncertainties.” For many players in the region, however, the short-term is particularly crucial. No sooner have Asia's main insurance markets recovered from the financial crisis – which at last they seem to have accomplished – than a more general, global economic malaise threatens them again.

This time, however, it is not a crisis of the finance sector that looms over Asian insurers and reinsurers, but a global downturn which is set to hit recovering Asia particularly hard. Recent headlines about Asia's economy are replete with superlatives. Bank of Japan calls for action as Nikkei tumbles to 17-year low. Weak dollar spells gloom for Asian exporters. Asia's deep chill could last. Is it all so bad? Undue pessimism clouds south-east Asia outlook, the Financial Times declared recently, arguing that some pundits have failed to give the region the credit it is due for its efforts to date.

Yet it is easy to be pessimistic about Asia's immediate economic future. Japan is teetering on the edge of recession, after GDP contracted in the second quarter. Meanwhile massive bad debt problems and a growing equity collapse have become a major economic crisis that neither central bank governor Masaru Hayami nor charismatic Prime Minister Junichiro Koizumi seem able to solve. At the International Insurance Society's annual conference in Vienna this year, Chairman Kees Storm made the remarkable observation that, “based on American accounting principles, most Japanese [insurance] companies are probably insolvent.”

In Korea Kim Dae-Jung's entire cabinet resigned en masse in early September, in protest over his policies regarding North Korea. But the impact is much wider, giving foreign investors the jitters. Wilber Ross, the financier which with AIG has been negotiating for months to buy three ailing financial businesses from the Hyundai chaebol, says Kim's leadership is one of the key attractions of investing in Korea. The country saw progress falter in 2001, with second quarter GDP growth down to 2.7%, unemployment rising, exports drying up, and bureaucratic bickering once again threatening prosperity.

Astoundingly similar changes of government in Philippines and Indonesia have ousted economically-bungling presidents and replaced them with women who are, so far, proving level-headed economic managers. Yet they have their work cut out for them. Indonesia's trade surplus has fallen by nearly 75%, its currency has continued its relentless decline and is down by 75%, and growth is slowing. Megawati Sukarnoputri must deal with a massive capital outflow, and make nice with the International Monetary Fund. Her first budget, one of prudence, may begin the wheels turning in the right direction.

In Philippines, Gloria Macapagal-Arroyo has put an impressive intellectual resource behind economic reform, but must untangle years of political intrigue which saw business and politics intertwine, and poverty run rampant. Meanwhile the peso has lost more than 10% of its value since her ascension to the presidency, the Manila stock exchange has fallen to lows not seen since before she came to power, foreign investment has been negative, and seven securities trading houses have shut up shop.

Taiwan has perhaps made progress in its relationship with China, as President Chen Shui-bian takes a more conciliatory stance with Beijing than the Kuomintang would ever have considered, but the island republic's economy is in a mess. For the first time ever, gross domestic product is expected to decrease in 2001. Overdue loans have topped T$1,000bn. By June exports were down 17%, and companies including Acer were announcing massive layoffs. With electronics comprising more than 45% of Taiwan's sales abroad, the numbers and workforce are likely to continue their decline.

Malaysia has even more invested in making PCs, mobile phones and other gadgetry for western buyers, relying on electronics for fully 60% of its export income in 2000. Already manufactured exports have slipped nearly 10%. Malaysia is running a gargantuan fiscal deficit, and growth has slumped to well below 2%. It is now up to the banker Azman Yahya to fix the nations woes, as he runs the Corporate Debt Restructuring Committee and the Syarikat Danasaham, which is set to buy beleaguered companies and set them on course either for restructuring or bankruptcy. His task is not easy. On the positive side, Malaysia saw foreign direct investment of US$11.3bn in the year to May, but events such as S&P's downgrade of leading Malaysian banks is a worrying counterbalance.

Sigma is right to highlight the long-term potential of Asian insurance markets. Indeed China, which seems more or less immune to the woes of the economy in its neighbourhood and around the world, offers fabulous potential for insurers. All that will be some time coming, though. Sigma says uncertainty is on the cards, but pain seems more probable since, in the main, Asia's insurance markets are likely to follow their economies. The future looks bright, but getting to it could be a rough road.

Adrian Leonard is a freelance journalist and editor of this special issue of Global Reinsurance.