Analysts at Fitch Ratings have assured that its analysts view the US property and casualty (P&C) sector as “recession-resilient,” if not totally “recession-proof,” as challenging economic conditions continue to mount.
It is expected that the US economy is headed towards mild recession next spring, which Fitch suggests will yield “different outcomes” for all major insurance sectors.
But all sectors will surely face a multitude of headwinds in the coming months, among them sharply dropping GDP growth and near-double digit inflation in the US and Europe.
Fitch has previously warned that insurance sector outlooks in several markets across the world could move to deteriorating if both high inflation and rising interest rates continue to persist beyond the rating agency’s latest forecasts.
But looking at the US market specifically, 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 learned’ approach will be put to an entirely different test that includes rising inflation, ballooning cyber risk premiums and more hurricanes making landfall over the last year,” he added.
The rating agency believes that broader inflation and rising rates will have a more muted effect for health insurers, though ‘pharma inflation’ is a concern with some analysts pointing to rising prescription drug costs and, more alarmingly, hospital staffing shortages.
Senior Director Brad Ellis said other wildcards 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.
But while rising rates have created more investment portfolio opportunities for life insurers, they have also introduced headwinds brought on by a more volatile economic environment, Fitch said, pointing to wage inflation, consumer balance sheets and more concrete signs of dis-inflation, which will likely be primary focuses for the fallout of 2023.
