Aurelia Butler

UK motor insurers are expected to swing to an underwriting loss this year and next according to a fresh forecast, as surging inflation reverses the fortunes of a sector that had been one of the winners of the pandemic.Quieter roads continued to boost car insurers last year, with the sector posting a net combined ratio — claims and expenses as a proportion of premiums — of 96.6 per cent, according to data from consultancy EY. Anything under 100 per cent represents an underwriting profit. That followed a record 90.3 per cent touched in 2020.However sharper inflation, especially for second-hand car prices, is already driving claims costs higher. Premium rates, meanwhile, have fallen during the pandemic. The resulting squeeze, EY forecasts, will push the market to a lossmaking combined ratio of 113.8 per cent this year and 111.1 per cent in 2023. Insurers have been “caught cold about just how bad inflation turned out to be”, said Rodney Bonnard, UK insurance leader at EY. Now, he said, there were “quite a few headwinds coming together” with accident frequency rising after the pandemic lull and inflation accelerating, just as insurers respond to a complicated pricing reform.Share prices of motor insurers have fallen this year as the inflation outlook has worsened, with Admiral’s stock down about 27 per cent and Direct Line about 11 per cent, outpacing a wider decline in UK stocks.Insurance chiefs have warned of the inflation threat in recent months. Direct Line’s chief executive Penny James said in May that premiums had not yet “fully factored in” the rise in claims costs expected across the year, and the insurer had cut back marketing efforts in the first quarter. The sector is also coming to terms with new pricing rules, effective from January, which stamped out so-called loyalty penalties for existing customers. The general effect has been to push new business prices up, and renewal prices down. But overall, the cost of insurance actually fell 5 per cent in the first quarter from the previous one, according to EY’s numbers, as insurers navigated the new pricing environment. Profits will also be affected by reserve releases, where insurers bolster their profits by releasing money they had previously set aside for expected claims. Paul De’Ath, head of market intelligence at consultancy Oxbow Partners, said a key question is how much of that Covid-era “war chest” companies will be willing to release to prop up profits. “We’ve got a lot of things going on at the same time,” said De’Ath.EY’s numbers do anticipate greater-than-usual reserve releases for 2022, and assume that accident frequency does not snap back to pre-pandemic levels. More

BENGALURU (Reuters) – Malaysia’s central bank will raise rates by 25 basis points on Wednesday, its first consecutive rise in more than a decade, to rein in inflation stemming in part from a weaker ringgit as the U.S. Federal Reserve hikes aggressively, a Reuters poll found.Bank Negara Malaysia (BNM), although dealing with low inflation compared with many other economies, unexpectedly raised its key overnight policy rate by 25 basis points to 2.00% at its May meeting.All 22 economists in the June 27-July 1 poll forecast rates to rise by another 25 basis points to 2.25% at the July 6 meeting. The central bank last raised rates twice in a row in mid-2010.Still, BNM, which has said it intends to take a “measured and gradual” pace, was expected to go slow compared with other global peers. A slight majority of survey respondents, 12 of 22, predicted another 25 basis point rise in September to 2.50%, while the remaining 10 expected no change after a July hike.Either way, more rate hikes are certainly coming.”BNM will be mindful of potential upside pressure to inflation stemming from recent increases in minimum wages, upward adjustments in price ceilings for certain food products, and a pickup in demand-pull inflation on the back of economic reopening,” noted Derrick Kam, Asia economist at Morgan Stanley (NYSE:MS).Inflation rose to 2.8% in May from 2.3% in April. The Malaysian ringgit lost ground last quarter and has weakened nearly 6% so far this year, raising the prospect of imported inflation pressure.”The Malaysian ringgit has been falling against the greenback due to aggressive rate hikes by the U.S. Federal Reserve, and raising the overnight policy rate will help to shore up the currency by maintaining the interest rate differential,” said Denise Cheok, an economist at Moody’s (NYSE:MCO) Analytics.For the November meeting, 12 of 22 analysts in the poll predicted rates at 2.50%, eight said 2.75% while two said 2.25%.Median forecasts from the poll also predicted 25 basis points hikes in each of the first two quarters of 2023. For Q1 2023, nine of 20 economists expected rates to rise to 2.75%, six forecast 3.00% while five said 2.50%.The overnight rate was expected to reach its pre-pandemic level of 3.00% in the second quarter next year. Around half of respondents, nine of 19, predicted it to have risen to 3.00%, six said 2.75%, three said 2.50% and one said 3.25%.BNM at its May meeting kept its 2022 economic growth forecast between 5.3%-6.3% and projected headline inflation to remain between 2.2%-3.2% this year. More

SEOUL (Reuters) – South Korea’s finance ministry and central bank said on Monday they had agreed to cooperate in minimizing adverse risks of rising interest rates on vulnerable households and businesses.In a joint statement released after a meeting of finance minister Choo Kyung-ho, Bank of Korea Governor Rhee Chang-yong and others, policymakers said they will closely monitor the impact on currency markets, financial companies and small businesses. More

JAKARTA (Reuters) – A decade ago Indonesia earned the unwelcome label of being among the so-called “Fragile Five” emerging markets, economies highly vulnerable to capital outflows and a currency slump whenever global interest rates rise.But fast forward to a new round of monetary tightening led by the U.S. Federal Reserve, Southeast Asia’s biggest economy and its capital markets have shown remarkable resilience, throwing a spotlight on whether the situation has fundamentally changed.Indonesia’s central bank is among the world’s least hawkish, having given no hint of when it might lift rates, while inflation has only just nudged above the 2%-4% target range and the rupiah is one of emerging Asia’s best performing currencies.This contrasts with 2013, when the Fed’s mere mention of plans to taper stimulus triggered destabilising capital outflows that saw the rupiah drop 20%, forcing Bank Indonesia (BI) to hike rates by 175 basis points.”In Indonesia… there has been no year-to-date increase in the policy rate. Now that’s extremely rare,” Ivan Tan, ratings agency S&P’s financial institutions analyst, told a seminar last week.Notwithstanding some political risks, Indonesia does appear to be weathering economic conditions better than the others lumped in the Fragile Five – India, Turkey, South Africa and Brazil.Policymakers say they have learnt lessons from past crises and devised policies such as setting up a domestic non-deliverable forward foreign exchange market, promoting greater use of other currencies in trade and investment rather than the U.S. dollar and selling more bonds to local investors to avoid over-reliance on foreign hot money.While there is debate about how much these policies have helped, analysts agree record-high exports amid a global commodity boom have helped Indonesia shore up its economic resilience.”Indonesia benefits as a net commodity exporter … it is in a very good place to control some of the supply side inflationary pressures that some of the other economies are grappling with,” S&P’s Tan said.This has not only helped the resource-rich country book current account surpluses, it also helped the government reduce bond sale targets and fund energy subsidies to shield its 270 million population from high global oil prices.Moreover, Indonesia’s stock market is up by more than 5% year-to-date compared with falls in other major Asian equity markets, after having Southeast Asia’s busiest IPO schedules last year.Authorities hope financial market stability will allow the economy to grow by at least 6% per year so Indonesia can achieve a goal of becoming a rich country by 2045, its 100th anniversary since independence. Indonesia’s long-term targets also include squeezing more out of its ample resources including minerals such as nickel ore by processing more at home.BI Governor Perry Warjiyo has said the government’s focus on moving up the commodity processing chain would alter the structure of Indonesia’s external balance, strengthening capital flows with foreign direct investment while diversifying exports.”For the whole year, the (current account) deficit will be small and the balance of payments overall will book a surplus. This means fundamentally, foreign exchange supply is high and it will maintain the rupiah exchange rate stability,” Warjiyo said at BI’s latest policy meeting.TEMPORARY IMPROVEMENT?Clouding Indonesia’s current outperformance are political risks to some of President Joko Widodo’s key reforms and longer-term ambitions to become a rich nation by 2045.These include a court challenge to his flagship Job Creation law, aimed at cutting red tape and the European Union’s objections to Indonesia’s nickel export ban.Questions also remain over whether Indonesia’s stability can sustain with the Fed still expected to aggressively raise rates further, commodity prices cooling and global recession risks looming.”Much of (Indonesia’s) improvement seems of temporary nature,” Thomas Rookmaaker, head of Asia-Pacific sovereigns at Fitch Ratings, told Reuters.Fitch, which affirmed Indonesia’s investment grade ratings last week, expects BI to hike interest rates by 50 bps this year and another 100 bps in 2023 to limit the rate differential with the United States and avoid a sharp rupiah depreciation, he said.S&P’s Tan also expects pressures in the rupiah this year amid the global monetary tightening.But some analysts do not see BI in a hurry to hike rates due to low core inflation.Damhuri Nasution, an economist at BNI Securities, said exports should remain strong for a while, giving BI time to focus on growth and monitor recession risks.Meanwhile, some foreign investors are backing Indonesia’s growth story.Jupiter Asset Management’s head of strategy for global emerging markets Nick Payne is overweight Indonesian equities, and anticipates continued recovery from the pandemic.”Modest inflation, a good current account position and strong commodity prices, all contribute to the stability of the rupiah during the current difficult global environment,” Payne said in e-mailed comments, forecasting a long period of buoyant growth for corporate profits. 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Rules governing childminders and nurseries in England could be relaxed as part of a raft of proposals to reduce the escalating cost of childcare that is increasingly squeezing working families. The Department for Education announced on Monday it would consult on plans to change adult-child ratios for two-year-olds in nurseries from 1:4 to 1:5, a move it said could decrease childcare costs by up to 15 per cent. With the price of childcare outpacing wages and with inflation driving a broader squeeze on incomes, the government pledged the change would drive down costs for parents. But leaders in the sector said it failed to address the long-term underfunding that is pushing up bills.“The government is wasting its time consulting on relaxing ratios, rather than just admitting that if we want to have affordable, quality, sustainable care and early education . . . we need to invest substantially more,” Neil Leitch, chief executive of the Early Years Alliance, a sector membership organisation, said.Unaffordable childcare is fast becoming a hot topic for Downing Street. According to the latest survey by Coram Family and Childcare, a charity that promotes children’s rights, childcare costs have increased 60 per cent in cash terms between 2010 and 2021, twice as fast as average earnings, and a full-time nursery place for an under-two in London is now £19,000 a year.

The availability of childcare has fallen during the pandemic, with only 57 per cent of local authorities reporting enough childcare for under-twos, and the number of parents accessing government support has “plummeted”, according to the charity. To tackle the problem, and encourage women to return to work, the government has pinned its hopes on increasing childcare places by cutting “red tape”. It said relaxing the supervisor-child ratio would give providers more flexibility, driving down costs while maintaining safety, quality and care, and bring England in line with other countries including Scotland. The government pledged to reduce the burden of inspection and quality standards, and provide financial support to reduce the upfront costs of being a childminder. It will also launch a campaign to increase the take-up of tax-free childcare, which is worth up to £2,000 a year but had helped only about one-quarter of the children eligible for it. Will Quince, minister for children and families, said the changes would “allow providers to provide services more flexibly and make sure funding gets where it is needed most”. However Leitch said the idea that “meaningful reform” could be achieved without the government spending “a single extra penny” was “laughable”. The government currently funds 15-30 hours of childcare for three- and four-year-olds, but providers say this falls far short of covering costs, and younger children receive much less support. An investigation by the Early Years Alliance last year found civil servants estimated early-years places cost an average of £7.49 per hour — far less than the £4.89 average received by local authorities. “The government has been knowingly underfunding the early-years sector for years, and it is this — not ‘red tape’ — that is driving up early-years costs, and keeping pay levels in the sector so low that 40 per cent of our workforce are actively considering leaving,” said Leitch. Bridget Phillipson, Labour shadow secretary of state for education, said the announcement was “pathetic” and that tweaking ratios would make no difference to costs for parents. “The government is out of ideas,” she said. More

Anaemic personal income growth in the UK since 2005 has left many households “brutally exposed” to rising inflation and the cost of living crisis, according to a leading think-tank.The Resolution Foundation concluded in a report published on Monday that real household disposable income growth for working-age families averaged just 0.7 per cent a year in the 15 years leading up to the Covid-19 pandemic, sharply down from the 2.3 per cent per year between 1961 and 2005. The most vulnerable groups were families in rental accommodation, single parents and those with young children, whose incomes on the eve of the pandemic were all significantly lower than the recorded median. “Britain’s poor recent record on living standards — notably the complete collapse of income growth for poor households over the past 20 years — must be turned around in the decade ahead,” said Adam Corlett, principal economist at the Resolution Foundation.In the UK, consumer price inflation surged to 9.1 per cent in May, the highest in three decades and above that of any other G7 country.As a result, real household disposable income in the UK fell in the first quarter of this year for the fourth consecutive time. The Bank of England expects high inflation to persist longer than in other countries and rise to double digits in the autumn when the new energy bill price cap kicks in. Ofgem predicts the cap will rise by 42 per cent in October, after April’s 54 per cent increase. Last month, chancellor Rishi Sunak announced a £15bn package of support for weaker households to help them cope with the cost of living crisis, including a one-off payment of £650 to around 8mn households in receipt of welfare payments.But Corlett suggested that the only permanent solution to declining living standards was to raise “pay and productivity levels” as well as to strengthen the “social safety net” and reduce “housing costs”. 

Wage growth — which is usually strongly linked to improvements in productivity — has slumped, with Resolution Foundation analysis showing that the typical pay packet is no higher now than before the 2008-09 financial crisis. This represents a loss of £9,200 per year, compared to a world in which pay growth had continued on its pre-financial crisis trend.The figures chime with Financial Times analysis which showed that in the last decade UK living standards grew at the lowest rate since the second world war, reflecting a lack of productivity growth.The UK was one of the worst performers in Europe over the period from 2007-2018, with only households in Greece and Cyprus seeing less growth in the typical household income than those in Britain, according to the Resolution Foundation report. Despite falls in living standards, the report noted that the UK had a good “recent record” on jobs growth for poorer households.It found that between 2007-08 and 2019-20, the employment rate rose by 6 percentage points among the poorest half of the working-age population, compared to 2 per cent among the richest half. Despite this success, the report concluded that it would be “practically impossible” for Britain to turn around its trend of declining living standards with sustained higher employment levels alone. More

The British Chambers of Commerce (BCC) said 54% of more than 5,700 companies it surveyed between May 16 and June 9 expected turnover to increase over the next 12 months. This is down from 63% in the previous survey and the lowest share since late 2020, when many businesses were under some form of COVID restrictions.A record 65% of companies said they planned to raise their prices in the next three months. Forecasters like the IMF and OECD think Britain will be hit harder by rising prices than other countries.Three quarters of firms said they had no plans to increase investment, and most no longer expected profits to rise.A survey published by S&P Global (NYSE:SPGI) on Friday showed reports of rising costs were more widespread among British manufacturers than anywhere else in Europe.Bank of England Governor Andrew Bailey said last week that the central bank might not need to act “forcefully” to get inflation under control, adding there were signs of an economic slowdown taking hold in Britain.”The red lights on our economic dashboard are starting to flash. Nearly every single indicator has seen a deterioration since our last survey in March,” BCC Director General Shevaun Haviland said.The BCC said the government should reduce value-added tax on business energy bills to 5% from 20%, bringing it in line with the rate paid by households. More