The past decade has been difficult for the property insurance industry, with the past three years in particular bringing one natural catastrophe after another. Insurance premiums for automobile, collections, and homeowners have also been affected by the increase in claim severity related to the rising costs of repair, led in turn by inflation and supply chain issues. Prolonged claims settlements caused by supply chain issues and shortage of skilled labor also contribute to increased claims costs for loss of use or temporary replacement of housing or vehicles, which then leads to higher premiums.

Additionally, reinsurance costs have been rising steeply, with double-digit increases in the past two years, and they are projected to increase another 25-40% in 2023. (Reinsurance is insurance purchased by carriers to partially insulate themselves from catastrophic claims events.) These costs are passed along to consumers in their policy premiums and are most apparent in catastrophe-prone areas like California, Florida, and remote places where fire department response times are longer or unavailable.

The challenges faced by the industry were further exacerbated by Hurricane Ian’s landfall in September 2022, resulting in an estimated $67 billion of insured losses, surpassing the cost of Hurricane Katrina in 2005.

April marked the first month since April of 2022 where the S&P 500 had positive year-over-year returns. Payroll data came in above expectations and inflation cooled to its lowest level in almost two years. The Fed hiked interest rates again to 5.25% despite ongoing issues within the banking sector. The treasury yield curve continued to get more inverted, but equity markets have shrugged off all signs of distress up to this point as the S&P 500 is up over 9% YTD.

While the pace of inflation has slowed significantly in recent months, it is still quite a bit higher than central banks would like. Investors are trying to gain any advantage they can in this environment by looking for signals of economic improvement or disappointment.