Tag Archives: US economy

Points of View: Insurance

This week I have been looking at the unfolding 2017 hurricane season and the effects that Harvey, Irma and Maria could have on the US economy and the broader insurance sector.  These events have caused devastation across the Caribbean, Texas and Florida.  The financial impact that they will have is difficult to judge this early on.  However, total losses are expected to be between $80 and $125 billion.  Over the short term there will be a negative impact to the US economy. US jobs data has already shown that the number of jobs created by the economy has contracted for the first time since 2010 and the hurricanes have been seen as a large contributor. However, economic activity is expected to return as insurance policies pay out, property is rebuilt and damaged items such as cars are replaced.

Closer to home the impact will be felt by Lloyd’s Insurers, the London based, global insurance market. They have estimated that Harvey and Irma will cause around $4.5bn in losses to their members.  This is expected to lead to an underwriting loss for the year but CEO, Inga Beale, has stated that this is to be expected in such events and that “this is what we are here for”.

Natural disasters are both good and bad for those insurers covering this market. On one hand, they will suffer some large capital pay-outs in the short term. On the other hand, such events inevitably help push future premiums up. This is especially relevant at the moment given that the lack of disasters in recent years has driven premiums down to a level that has caused problems in the market.




Points of View: The End of Tapering in the US

In contrast to my article two weeks ago on the ECB’s plans to implement quantitative easing (QE), the US Federal Reserve’s bond-purchasing programme (tapering) is due to end this month.

Since 2008, the Fed has injected nearly $2.1tn (£1.3tn) into the US economy via three rounds of QE. The latest round (QE3) began in late 2012 at a rate of $85bn per month, until December 2013 when then Chair Ben Bernanke announced it would be steadily reduced by $10bn per month. His successor Janet Yellen has kept this on track, despite the ensuing sharp sell-off in bonds and volatility in equity markets, as data indicated the US to be in a much stronger position to withstand any turbulence.

As the deadline approaches, concerns have been mounting on the impact of tapering on Emerging Markets. Artificially low interest rates in the developed world as a result of QE have exacerbated capital inflows into fast-growing emerging economies as investors sought higher returns on their investment. Year-to-date this has reversed, with significant declines in both equity markets and currencies; and further withdrawals of capital to the US could potentially threaten growth in developing nations.

Closer to home, at the time of writing the UK stock market has fallen by approximately 8% since it peaked at the start of September. Analysts are of the view that companies – the earnings growth of which continues to be anaemic – will start to perform more in line with economic fundamentals, thus delivering single-digit returns rather than the double-digits seen in 2013.

September 2014 Market Review

This edition of the Market Review discusses the effect sterling volatility has on markets, whether past FTSE patterns should be a guide to the future, and why we remain strongly in favour of equities.

September 2014 Market Review