After a disappointing 2022, expect a ‘wild ride’ next year, says investment strategist – InsuranceNewsNet

2022 was a very promising year in terms of market performance, but instead turned out to be a “disappointing year,” said Rich Sega, global chief investment strategist at Conning.

“And 2023 is going to be another wild year,” he added at a recent webinar held by the American Council of Life Insurers.

Why was a year that started so optimistically so disappointing, and what should we expect in 2023?

Sega said much of the market’s negative performance was responsible for what he called “surprises.”

• Severe economic impact of China’s COVID-19 lockdown, which may soon be lifted.
• An ongoing war in Ukraine with no prospect of resolution.

Cited spending and energy policy

But what wasn’t surprising was US fiscal and regulatory policy, particularly with respect to spending and energy policy, Sega said.

“We initially thought the U.S. economy was headed for a soft landing with modest inflation, but these policies weighed on growth and pushed up consumer prices, especially gasoline. These policies, along with two big surprises, have proven to be overkill for the economy, and we realize that we may be destabilizing markets and peering into the abyss of the economy. ”

According to Sega, recent International Monetary Fund forecasts show continued weakness in all regions of the world. The IMF calls for 2.7% growth in 2023, down from his 6% growth forecast for 2022.

“But while growth has lagged, inflation has not lagged,” he continued. The consumer price index indicator “remains stubbornly high. This is a global challenge.”

According to Sega, the S&P’s quarterly earnings performance has been “interesting” since the COVID-19 global shutdown began in 2020. The S&P will recover in 2021, but has been on a downtrend since then. Conning says he expects 2% growth in the third quarter of 2022, the slowest earnings growth since 2020, but a negative fourth quarter is possible. said.

Forecasts for 2023 call for growth of about 5% on an annualized basis, but with the looming possibility of a recession, there is even a possibility of a downward revision.

“A recession is bad for earnings. But it also presents an opportunity for fundamental investors who value selection over sector rotation,” he said.

“It starts with the economy that drives corporate earnings and underpins market valuations. And 2023 will be another wild race.”

Outlook for life and annuities

The life insurance and annuities industry is another financial services sector that ended 2022 differently than forecasted at the beginning of the year. Scott Hawkins, Conning’s head of insurance research, said early 2022 saw:

• Capital was strong.
• Sales of life insurance and annuities recovered from 2020.
• Profits are up.
• Things were getting back to normal.

Conning’s view at the time was that “the industry was ready for growth,” Hawkins said. He identified the industry growth drivers for 2022 as:

• Demand for new products.
• New coverage gap.
• Economic Growth – Things looked good in early 2022.

Another factor that impacted Conning’s 2022 outlook was the impact the restructuring of the industry’s competitive landscape had on insurers, Hawkins said. The impact is reflected in insurers’ business models and distributions.

Although M&A activity has slowed in 2022 compared to 2021, “we continue to see reinsurance deals announced, especially among annuity insurers.”

Sega said insurers are “moving from warehouses that develop and sell products, underwrite and hold risks, to focus on the parts of the value chain that create the best growth opportunities for specific companies. This will allow them to redeploy capital to higher growth areas.”

But at the same time he said: But unlike his M&A in insurance companies, sales M&A in the first half of 2022 are outpacing his 2021 velocity. This integration presents a significant challenge for insurers. This is because insurers must offer more competitively designed and priced products to gain and retain shelf space. ”

Despite Conning’s predictions for 2022, several issues will affect the industry this year and are expected to continue in 2023, Sega said.

• global anxiety. Geopolitical unrest and COVID-19 are impacting global trade. In addition to the wars between Russia and Ukraine, China’s COVID-19 lockdown has disrupted global supply chains, further fueling inflation and slowing economic growth.

“Beyond these economic impacts, the disruption is causing companies to reassess their exposure to geopolitical risk and whether they should consider reconfiguring their supply chains,” he said. . “Some commentators say the end of globalization may be near. But history shows that global trade has recovered from shocks to the system, including wars, economic crises and pandemics. It may therefore be premature to call for the end of globalization.”

• Inflation has led to higher expenses, but the high interest rates charged to combat inflation “have proven positive for insurers and consumers,” Sega said, adding that universal life insurance and fixed He cited the rise in the credit rate for pensions.

• COVID-19 lingers. Sega says COVID-19 continues to challenge its employees and hinder its business. He cited a study from the Brookings Institution that showed an estimated 3 to 4 million Americans have long-lived COVID-19. Additionally, disability insurance claims are on the rise as people suffering from COVID-19 turn to his DI to make up for lost income.

Sega said several other issues create challenges and opportunities for the industry.

• Competition for talent intensifies. Life/pension employment is starting to pick up in 2022, he said.

He predicted that the industry will change its approach to talent recruitment and retention by responding to employee desires for flexibility, career development and diversity/inclusion.

• Fighting over data usage. Sega predicted that artificial intelligence would take over more mundane functions, allowing staff to focus more on interacting with customers. But consumers and regulators have “expressed genuine concerns about how the technology could be used and discriminated against.”

• Impact of climate change. Climate change risks such as wildfires, floods and droughts may cause policyholders to move to less impacted areas, Sega said. Furthermore, global warming could lead to an increase in tropical diseases and higher mortality from heat-related illnesses. However, the new green economy created in response to climate change is leading to increased investment opportunities.

Susan Rupe is Editor in Chief of InsuranceNewsNet. She previously served as Communications Director for the Association of Insurance Agents and was an award-winning journalist and editor.contact her [email protected]Follow her on Twitter @INNsusan.

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