Daily Update: February 13, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Insurance (and Reinsurance) Turns a Corner

The devastating earthquake in Turkey and Syria continues a series of severe disasters the world has faced with higher frequency, such as wildfires, floods and storms, as well as COVID-19 and the Russia-Ukraine conflict. These human tragedies usually indicate a mirror impact on insurance companies’ balance sheets, but that narrative may be changing this year. 

Persistent inflation and historically low interest rates resulted in a difficult 2022 for insurers, while reinsurers failed to earn their cost of capital in the last five of six years. 

A majority of the top 15 publicly traded U.S. life insurers are projected to book year-over-year decreases in earnings for the fourth quarter of 2022, according to analyst estimates compiled by S&P Global Market Intelligence.

Higher interest rates have also resulted in unrealized losses on reinsurers’ bond portfolios, chipping away at their capitalization. Aon estimated that global reinsurance capital declined by 17%, or $115 billion, during the first nine months of 2022.

S&P Global Ratings expects property and casualty insurers to report full-year 2022 combined ratios of 101%-102%, which would be the highest since 2017, when the ratio was at 103.9%, and above the 10-year average of 99.6% from 2012 to 2021. A combined ratio above 100% indicates insurers are paying out more in claims than they are receiving in premiums. 

But these sectors seem to be turning the corner in 2023.

This year, significant price increases, along with substantial changes to portfolio underwriting, will boost reinsurers' underwriting performance. Additionally, reinsurers have modified terms and conditions, coverages, and limits to better manage their exposure. 

Global property catastrophe prices increased by 37% Jan. 1, compared with 9% in the previous year, according to data from Howden Broking Group. For aerospace catastrophe programs, where there had been claims, prices went up by between 150% and 200%, according to a renewal report from Arthur J. Gallagher & Co.'s reinsurance arm.

This year’s reinsurance renewals may rival those of 2006, which followed the aftermath of hurricanes Katrina, Rita and Wilma. However, unlike 2006, when increases were mostly in the U.S., January 2023 renewals price increases appear to be global and broad.

In addition, higher interest rates should propel investment income, offsetting the moderating rate increases in U.S. casualty lines that are more complex and take longer to settle. 

Higher inflation and rising prices should also help insurance brokers see organic growth of mid-single digits or better in 2023. But the weakening economy in 2023 will take a toll on the mixed group of insurance servicing companies such as warranty administrators, cost-containment firms and claims managers.

Other changes this year, such as the long-duration targeted improvements, or LDTI, accounting standard, may also affect the financial results for insurance companies. LDTI requires insurers to review and update cash flow assumptions used to measure future policy benefit liabilities on at least an annual basis. 

Prudential Financial, for instance, said in its third-quarter 2022 Form 10-Q that the new standard will have a "significant financial impact." Prudential estimated a decrease in retained earnings of between $2 billion and $3 billion and an increase to accumulated other comprehensive income of approximately $3 billion to $8 billion.

Many insurers have already disclosed initial estimates of the LDTI impact, some including multibillion-dollar changes to GAAP equity, and the market reaction has largely been benign.

Today is Monday, February 13, 2023, and here is today’s essential intelligence.

Written by Ken Fredman.

Economy

Taiwan Economy Hit By Slump In Exports

Taiwan's export-driven economy has been hit by slumping exports, resulting in GDP contracting by 0.9% year-on-year in the fourth quarter of 2022. A key factor driving the export slowdown has been weak demand from mainland China, due to the impact of COVID-19 restrictions during 2022. With the U.S. and European Union also forecast to experience weak growth in 2023, Taiwan's economic outlook is for some moderation in the pace of economic growth in the near-term.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Big 4 Private Equity Portfolios Stem Losses; China Investments Plunge In 2022

Private equity portfolios held by the four largest publicly traded alternative asset managers were losing value in the middle of last year, but the fourth quarter of 2022 appears to have marked a turning point. KKR & Co. Inc. reported no change in value for its private equity investments in the fourth quarter, halting a yearlong slide for its portfolio. Its peers Blackstone Inc., The Carlyle Group Inc. and Apollo Global Management Inc. all saw the value of their private equity portfolios appreciate in the fourth quarter, led by Apollo at 5.4%.

—Read the article from S&P Global Market Intelligence

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Global Trade

OPEC+ January Crude Oil Output Grows, With Russia Still Resilient To Sanctions: Platts Survey

The OPEC+ coalition increased its crude oil production by 40,000 b/d in January, the latest Platts survey by S&P Global Commodity Insights found, as Russian production remained relatively resilient to the impact of sanctions. Russia's volumes fell just 10,000 b/d in the month to average 9.85 million b/d, according to the survey, despite an EU embargo on imports of Russian crude and an accompanying G7 price cap that went into force Dec. 5.

—Read the article from S&P Global Commodity Insights

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Sustainability

Beyond ESG With The Evolving DEI Landscape

The role of Diversity, Equity and Inclusion and Corporate Responsibility teams has evolved in both scope and responsibilities. DEI work has expanded to include a more integrated approach to recruitment and training in addition to increased communication with both stakeholders and investors. The conversation also has broadened to include the financial impact of DEI strategies. Join S&P Global Sustainable1 for the next episode in the Beyond ESG webinar series to hear from market specialists across the global value chain examine critical topics.

—Subscribe for the webinar from S&P Global Sustainable1

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Energy & Commodities

U.S. Power Tracker: ISO New England Power, Gas Prices Retreat In January

ISO New England wholesale power prices followed natural gas prices lower in January, with spot gas prices down around 66% on month and 76% on year, power prices declined by around 57% on month and 66% on year. ISO-NE Internal Hub on-peak day-ahead power prices averaged $52.94/MWh in January, down about 57% from the December 2022 average of $122.94/MWh and down around 66% on year. On-peak real-time prices at the hub averaged $49.71/MWh in January, down 62% on month and about 67% on year.

—Read the article from S&P Global Commodity Insights

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Technology & Media

U.K. Clean-Tech Leadership 'At Risk' As U.S., EU Push Forward With Green Plans

As European and U.S. lawmakers home in on domestic supply chain incentives, U.K. industry players fear being left on the sideline. The U.S. Inflation Reduction Act, a $369 billion climate and energy plan that includes funding for clean technology supply chains, started a global subsidy race for green industries when it was passed in August 2022. Europe followed with the Green Deal Industrial Plan, which intends to relax state-aid rules to allow member states to better support local manufacturing.

—Read the article from S&P Global Market Intelligence

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Upcoming Events

CERAWeek by S&P Global — Navigating A Turbulent World: Energy, Climate and Security

Join global leaders, policymakers and executives from across energy, climate, finance, technology and industry at CERAWeek 2023 for timely dialogue, shared learning and connection.

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