Fitch: U.S. Insurers to Navigate a More Precarious Economy in 2023

The U.S. economy is headed for a mild recession next spring, with different outcomes for all major insurance sectors.

Source: Fitch Ratings | Published on November 21, 2022

P&C insurance

According to analysts at Fitch Ratings’ 2022 North American Insurance Conference, the U.S. economy is headed for a mild recession next spring, with different outcomes for all major insurance sectors.

Insurers will face a slew of challenges in the coming months, including sharply lower GDP growth and near-double-digit inflation in the United States and Europe. The increasingly difficult task of dealing with inflationary shocks will spill over into insurance.

P/C insurers, according to Managing Director Jim Auden, have developed a resilience to volatility that has served them well through natural disasters, the global financial crisis, and, most recently, a global pandemic. This ‘lessons learned’ approach, however, will be put to the test in the face of rising inflation, ballooning cyber risk premiums, and more hurricanes making landfall in the last year. Nonetheless, market participants agree that the P/C sector, while not “recession-proof,” is “recession-resistant.”

Broader inflation and rising rates will have a more muted impact on health insurers, though ‘pharma inflation,’ as panelists point out, is a concern, with rising prescription drug costs and, more concerningly, hospital staffing shortages. Other wildcards on the minds of health insurers heading into 2023, according to Senior Director Brad Ellis, include Medicaid redetermination, the re-emergence of the flu and future COVID-19 variants, and the RSV outbreak, which has strained capacity at many children’s hospitals.

Rising interest rates, on the other hand, has a greater impact on life insurers. While rising interest rates have increased investment portfolio opportunities, they have also introduced headwinds caused by a more volatile economic environment, according to Senior Director Jamie Tucker. With the ‘great financial repression’ of 2021 giving way to the more aggressive monetary tightening environment of the previous year, panelists said wage inflation, consumer balance sheets, and more concrete signs of disinflation will be primary focuses for the 2023 aftermath.