Market thinking

The “great acceleration” intensifies pressure on insurers

When the global pandemic triggered a tailspin in financial markets in March 2020, it intensified the complex set of challenges faced by insurance companies. As the world’s central banks launched a massive intervention in bond markets, they sent already low interest rates to zero or below in some countries, undermining insurers’ profits, capital positions and solvency ratios.

At the same time, the pandemic led to more expensive equity valuations and soaring levels of global debt, including corporate debt , all of which raises the risk of financial market volatility and credit defaults to come.

As the pandemic swept through the economy, it widened the gap between corporate winners and losers, hastening existing trends in what has been termed the “great acceleration” . Within the insurance industry it dramatically deepened the difficulties that were already building. The result is a growing risk that current business models, assetliability management and asset allocation are no longer fit for purpose, especially at a time of mounting regulatory change and a need to fight climate change.

Financial markets in 2021 have responded to optimism around vaccine rollouts and signs of recovery in major economies, leading to a revival in inflationary pressure. Yield curves have reacted to this, especially in the US where the curve has significantly steepened since 2020’s lows.

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