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What does a Fed rate hike mean for insurance?

Annual inflation was 8.6% from May 2021 to 2022, according to the US Bureau of Labor Statistics. This represents the highest annual increase in more than four decades.

The biggest interest rate change in four decades is a “big deal,” for insurance and the economy as a whole, according to Amwins’ head of insurance, Mark Bernacki (pictured).

Read more: Amwins appoints first underwriting officer

“With the current inflation at more than 8% and quite high, there is a definite need to really slow down the economy by dampening some demand,” Bernacki said.

“Obviously there is an expectation that this could have some pain in the short term, both for the economy and the insurance industry, but in the long term this should ultimately be good for both the economy and the insurance industry and also boost labor markets which was a vision.”


Bernacki said insurance agents should talk to clients to make sure they have “adequate insurance” on the back of higher loss costs as the Fed seeks to mitigate the effects of inflation.

They should also educate them about what it means to change the interest rate for the insurance market.

“This is a good thing for the insurance industry and ultimately a good thing [for clients] It should lead to the challenging market we’ve been facing now for a number of years to eventually stabilize and mitigate, making insurance easier, more available and more cost-effective,” Bernacki said.

carrier advantages

From a long-to-medium-term perspective, carriers will benefit in particular, since they are likely to be on large balance sheets made up mostly of fixed income assets.

“Any increase in interest rates, even a nominal — and I wouldn’t call 75 basis points nominal — is ultimately good for their business because it leads to much stronger investment returns, which should increase their profitability,” Bernacki said.

Historically, higher interest rates have usually foreshadowed market weakness. However, there are still dynamics operating in the opposite direction.

There is still upward pressure on what Bernacki said has continued to be a “low-price market”, while the interest rate environment remains relatively low compared to previous decades.

From a first-party, or more property-focused, perspective, Bernacki said, there is a “direct relationship” between price increases and increased loss costs. This means that elevation should have positives for this type of business.

With the market operating in what Bernacki described as an “undervalued situation,” the head of the underwriting said it “[brings the] Focus on that both carriers, as well as brokers and customers, need to make a proper evaluation [under scrutiny]. “

For offshore casualty line companies, which can stay on premium income for a longer period, Bernacki said, there should be a “very beneficial effect” because they are able to benefit more from the return on investment income.

Experts told life insurers that life insurers may be close to the line to take advantage of higher interest rates, as they anticipate an increase in private equity and interest from asset managers in snapping up life companies.

Read more: Life Insurance – The Uncertain Future of Private Equity


The Federal Reserve is walking a line between balancing the economy and taking a lot of corrective actions that push the US into recession.

“Honestly, I don’t think he had a choice [but to increase the rate]Bernacki said.

Asked if he feared a possible return to the situation in 2008 – when the US entered its deepest recession since World War II amid a global financial crisis and the bursting of the housing bubble, with insurance giant AIG among the companies bailed out after being deemed “too big” to fail” – he said Bernacki, in his view, “these concerns still loom large”.

However, he said he was not as concerned as he once was, with the stock market already entering bear market territory and financial services companies – including carriers – operating under a “better” regulatory and regulatory environment.

“I am concerned that we will be very close to, if not indulging in, a recession before things turn more positive, from an economic perspective, and we see continued growth in the labor market — even with those concerns mentioned,” Bernacki said, “I remain fully in favor of action. Federal Reserve Bank.

As for what would happen in a recession, it could be a case of short-term pain with long-term gains for the industry.

“If companies perform less, they will require less insurance, and time component values ​​will likely go down, which could lead to a downturn in the industry,” Bernacki said.

“What that results from, from a medium to long-term perspective, should be a stronger economy, and a stronger labor market. And [that should]Ultimately, it benefits P&C.”

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