Amid elevated inflation and gloomier economic prospects, the outlook for the North American insurance sector is expected to deteriorate, says Fitch Ratings.
The rating agency said the combination of price pressures and the risk of a recession will likely result in the sector’s outlook being revised down by the end of the year.
“The rising rate of inflation and the threat of a modest recession will outweigh the benefits of a rising interest rate environment on investment performance, and the assumption that non-life insurers will be able to adequately reprice business,” said Doug Pawlowski, senior director at Fitch, in a release.
Indeed, inflation represents a bigger risk for non-life insurers, Fitch said, as it affects the driving factors behind claims — such as the cost of property repairs, medical care and litigation — which “creates challenges in adequately pricing business and accurately setting reserves.”
The report noted that inflation is “less of a concern” in the life insurance sector, although certain product lines, such as long-term care, might be impacted.
Additionally, the life insurance sector will benefit from rising interest rates, Fitch said.
However, it cautioned that “a rapid rise in rates… would present challenges for lines of business without strong protection from spikes in lapses or surrenders.”