Daily Update: US Insurance Industry Rests on Longer-Term Trends
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The US insurance industry is confronting secular changes this year. With higher interest rates , greater private equity investment and a slowdown in M&A activity for North American insurance brokers, the future of the industry is becoming clearer.?
This year's biggest trend for US insurers looks to be stubbornly high interest rates and their benefit to investment income. The 10-year Treasury yield, a useful proxy for insurers' new money yields, sat at 3.88% as of Dec. 29, 2023. That’s more than 1.6% higher than at the start of 2022. Higher bond yields tend to generate higher investment income for insurers who have the luxury of time to buy and hold Treasurys. Even as interest rates are expected to decline in the latter half of the year, these higher bond yields will provide a medium- to long-term tailwind for the insurance industry.
The impact of inflation on customer premiums and the industry’s investment exposure to commercial real estate (CRE) will be of greater concern. Some insurance verticals have seen premiums increase well above inflation over the past two years. US life insurance companies have downplayed their exposure to CRE on earnings calls as the value of some office space has declined due to increasing remote work.
Regulatory scrutiny has also increased in the insurance sector, in part due to increasing private equity ownership of insurance companies. Insurance companies are appealing to asset managers as steady premiums provide a predictable flow of capital for investment . However, US regulators have noted the increased presence of private equity and alternative asset managers in the insurance space and have proposed fiduciary rules to protect against systemic risk and shield consumers from so-called junk fees related to retirement products.
M&A in the insurance space declined in the first quarter of 2024 compared with the previous quarter. The fall in dealmaking is broader than just the insurance space since higher interest rates increase borrowing costs for purchasers. But insurance companies remain attractive assets to many investors, so fewer insurance deals could mean a lack of engaged sellers.
Today is Thursday, May 30, 2024, and here is today’s essential intelligence.
Written by Nathan Hunt.
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Perpetual Inventory Clerk at Macy's
5 个月Well said!
Founder & CEO - Pension Pakistan
5 个月The US insurance industry, while seemingly positioned for a clearer future amidst higher interest rates, increased private equity investments, and slowed M&A activity, faces several underlying threats that could destabilize its trajectory. Higher interest rates, though beneficial for investment returns, could strain policyholders’ ability to afford premiums, potentially leading to a drop in new policy sales and renewals. The influx of private equity investment might prioritize short-term gains over long-term stability, potentially compromising underwriting standards and customer service quality. Furthermore, the slowdown in M&A activity, while providing temporary market stability, might limit smaller brokers’ ability to compete, leading to reduced market competition and innovation. These factors collectively pose significant risks that could undermine the perceived clarity and stability of the industry's future.
Saybolt International - Saybolt(Tianjin) Metrology& Inspection co.,Ltd
5 个月nice
Next Trend Realty LLC./wwwHar.com/Chester-Swanson/agent_cbswan
5 个月Thanks for the updates on, The S&P Global Daily ?? ?? ?? ?? ?? ??.