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Fitch says 2023 recession will mean near-double-digit inflation

American insurers will have to face some harsh economic realities affecting the broader market in the year ahead, analysts say.

A Fitch Ratings overview of the outlook from analysts during Fitch Ratings’ 2022 North American Insurance Conference outlines the uncommon tests for the market ahead.

The conclusions emanate from the view that the US economy is headed towards mild recession next spring, yielding different outcomes for all major insurance sectors.

According to analysts during the conference, insurers face a multitude of headwinds in the coming months, including sharply dropping GDP growth and near-double-digit US and European inflation.

The increasingly difficult task of managing inflationary shock will cascade to insurance, they say.

Fitch managing director Jim Auden said that P/C insurers have built a resiliency to volatility that has served them well through natural disasters, the global financial crisis and, most recently, a global pandemic.

However, this “lessons learnt” approach will be put to an entirely different test that includes rising inflation, ballooning cyber-risk premiums and more hurricanes already making landfall.

That said, market panellists agree that the P/C sector, while not ‘recession-proof’, is ‘recession-resistant’.

Broader inflation and rising rates will have a more muted effect for health insurers, though “pharma inflation” is a concern, with panellists pointing to rising prescription drug costs and, more alarmingly, hospital staffing shortages.

Fitch senior director Brad Ellis said other wild cards top of mind among health insurers headed into 2023 include the redetermination of Medicaid, re-emergence of the flu and future Covid-19 variants and the RSV outbreak that has squeezed capacity at many children’s hospitals.

By contrast, rising rates creates more fallout for life insurers. While rising rates have created more investment portfolio opportunities, Fitch senior director Jamie Tucker said they have also introduced headwinds brought on by a more volatile economic environment.

With the “great financial repression” of 2021 yielding to the more aggressive monetary tightening environment of the past year, panellists said that wage inflation, consumer balance sheets and more concrete signs of disinflation will be primary focuses for the fallout of 2023.

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Published November 20, 2022 at 12:00 pm (Updated November 20, 2022 at 6:44 pm)

Fitch says 2023 recession will mean near-double-digit inflation

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