Insurance Multi-Asset Outlook —The rising tide of inflation: Risks and opportunities for insurers

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Tim Antonelli, CFA, FRM, SCR, Multi-Asset Strategist; Daniel Cook, CFA, Investment Strategy Analyst

The views expressed are those of the authors at the time of writing. Other teams may hold different views and make different investment decisions. The value of your investment may become worth more or less than at the time of original investment. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.

THERE IS A GROWING SENSE THAT THE WORLD IS “GETTING BACK TO NORMAL,” AND WHAT A RELIEF IT IS! WE SEE MORE PEOPLE VENTURING OUT, DINING AT RESTAURANTS, STAYING AT HOTELS, RETURNING TO THEIR NON-HOME OFFICES, AND MORE. Unfortunately, many countries are still dealing with more contagious and virulent mutations of COVID19 and lower vaccination rates. But in aggregate, the global economy is recovering with the aid of accommodative fiscal and monetary policy, supporting the strong performance of risk assets and the continued rotation from growth to value.

Inflation is the bogeyman now. US inflation leapt 5% in May from a year earlier, well above the Federal Reserve (Fed) forecast for 2021. “Transitory versus persistent” was the central debate at the June Federal Open Market Committee meeting, with recognition of the upside risks to inflation accelerating the Fed’s tightening path from zero rate hikes in 2023 to two anticipated hikes in 2023. Even though the market has priced in earlier hikes, the Fed’s base case is that temporary factors and base effects are still distorting inflation prints. We see an elevated risk that supply/demand imbalances in labor and commodity prices may become more persistent. In housing, for example, structural drivers are contributing to higher prices and could feed into…

Wellington Management
Wellington Management

Insurers have been building investment partnerships with Wellington since 1975. With $150 bn assets under management as of Sept 30, 2021, our goals since then have remained evergreen – to exceed the investment objectives and service expectations of our clients. As an integral part of Wellington’s global investment platform, our dedicated Financial Reserves team offers a breadth and depth of resources and experience to serve our insurance clients as a go-to thought partner, risk manager, and trusted advisor for complex investment challenges. The new decade we have just entered looks more treacherous from a risk perspective than anyone could have imagined. Our collaborative strategic and proactive risk management approach helps our clients to be well-prepared.

Rich Coffman
+1 617 951 5311

Max Davies, CFA
+852 2846 6011

Sarah Marschok
+1 617 790 7170

Bob Sharma, CFA
+44 20 7126 6068

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