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The fast climb in inflation throughout 2022 has seen the global insurance market become increasingly watchful of the barometer and make multiple portfolio management decisions based on how it has increased.
This is likely to continue in 2023, said May Tong, Portfolio Manager at Principal Asset Allocation, in the report.
"Insurance companies need to establish more resilient strategies
since we cannot predict the future of events, we ought to prepare for them.”
The insights appeared in Clear Path Analysis’ new "Global Insurance Asset Management report", produced in partnership with Principal Asset Management, which contains interviews with dozens of re/insurers from Europe, Australia, North America, and Latin America and charts the biggest challenges and opportunities that senior insurance investment and asset management professionals noted in 2022.
“Many investors have become complacent to low rates and low inflation over the past decade,” said Tong in the report. “To deal with the current inflationary environment, and perhaps a higher for longer rate environment, insurance companies need to establish more resilient strategies since we cannot predict the future of events, we ought to prepare for them.”
The report showed that insurers around the world were concerned about the proposition of higher inflation, though it did also bring some benefits.
Inflation has been one of the most critical strategic considerations of 2022 after the economic recovery from COVID-19 lockdowns saw rates spike globally and continue at increased amounts throughout the next two quarters.
The issue of quickly rising inflation was also exacerbated by the global shock caused by Russia’s invasion of Ukraine in February, followed by extensive sanctions by the west, which then partly caused disruptions to grain imports and massive price increases of a barrel of oil globally.
“According to risk insights from the Swiss insurer Swiss Re, global inflation risk is rising fast,” said the report. “While we see the surge of Consumer Price Index (CPI) as temporary, the risk of higher inflation in the longer term has increased notably,” Jérôme Haegeli, group chief economist at Swiss Re, was quoted as saying.
The survey insurers from around the world showed a varying level of concern about the issue. “Inflation was mentioned by two-thirds of Canadian and half of US respondents as something they watched, it said. “US insurers used stronger language than their Canadian counterparts about the current inflation situation, with one-third describing it as the biggest challenge or hurdle in the market.”
“As central banks remain data-dependent in their response to
achieving price stability, we anticipate continued volatility.”
US inflation in September – the most recent month available – was up a further 0.4%. The Consumer Price Index for All Urban Consumers increase was seasonally adjusted. The rise was 8.2% over the last 12 months, not seasonally adjusted.
Canada's inflation rate slowed to 6.9% in September 2022 (the most recent data available), which was down from 7% in August and 7.6% in July 2022. The slower increase was largely down to the slight fall in global crude oil prices.
The insurers concluded that inflation is therefore a key consideration for insurers over the coming few years due to its effect on their portfolios and cash-on-hand reserves. “As central banks remain data-dependent in their response to achieving price stability, we anticipate continued volatility in the near and medium-term,” concluded Tong.
