Why did the economy not slow down more, and why did Fed hikes not result in a rise in unemployment? There are two reasons. First, the post-Covid economy saw surprising strength in the non-cyclical components of the economy, such as eating at restaurants, staying at hotels, and flying on airplanes, etc. Consumers wanted to travel and go to concerts and sporting events after Covid, and this has kept consumer spending strong. Second, financial conditions eased significantly following SVB, and this boosted GDP growth to 4.9% in the third quarter of 2023. Similarly, the rally in the stock market, credit markets, and Treasury markets since October and after the Fed pivot in December have also eased financial conditions significantly, likely boosting the cyclical components of GDP over the coming months. The bottom line is that the non-cyclical components continue to grow steadily because of post-Covid strong demand for consumer services, and the cyclical components are rebounding because of easier financial conditions. The likely scenario is that the economy will reaccelerate over the coming months, which will put renewed upward pressure on inflation and, hence, bring back a more hawkish Fed.
- Date Posted:
- January 10, 2024
As higher returns draw in more capital to reinsurance, it will likely take some pressure off the pricing of coverage. Already, a surge in returns for catastrophe bonds—or securities that pay premium interest rates, but can lose their principal in the event of a stated event or loss—helped spur issuance last year, which hit a record $15 billion. Overall, pricing for global property catastrophe reinsurance, as measured by Guy Carpenter’s Global Rate on Line Index, was up about 5% for the Jan. 1 renewals. That was down from a jump closer to 30% this time last year. Some of the capital coming back into the market is in the form of reinsurance for reinsurers. This is known as retrocession, or “retro.” The risk-adjusted prices for retro declined by as much as 15% for the January 1 renewals.