Workers Comp Markets May Depend On China’s Banking Situation (Really)
The Workers Comp markets in the US have many ratios and market forces that show a soft market. However, (not to be gloom and doom) one of the least discussed or analyzed market forces (as related to insurance) is China’s bank possible future banking crisis or at least a correction of the money markets in the second largest world economy.
I have written a few articles on China as an influence on the Workers Comp market. In 2016 a China banking crisis was a concern. Two years ago, a large selloff of China Treasury Securities became a concern. Some of the money markets in the US were affected overall. The Insurance markets were minimally affected in 2015.
One would think the economy in China would have leveled off by now. Last week, I came across this article, on China’s runaway debt problem. Their debt ratio is 260% of their Gross Domestic Product (GDP). Check out the two charts in the article and the warning from China’ s Central Bank.
The country that finances a huge amount of US debt is China. What happens if China decides to dump or call in that debt? A quick Google search brought up an article on how much debt the US Government owes to China. China actually owns 30% of all US foreign debt. Wow! China even wants to replace the dollar with its currency the yuan as the world currency. Ouch! No, really, that is one of their goals.
The country that holds the world’s currency automatically has a leverage. The saving grace right now is the current return on the stock market. Do not fool yourself to think that insurance companies invest only in 100% low return safe investments. That is just not true.
The workers compensation carriers want to maximize their return on incoming insurance premiums and investments such as annuities.
Think with me on this one, what happens to the workers’ comp markets if the insurance carrier’s #1 foreign investor and the US economy’s #1 investor has a money crisis. Of course they will repatriate their funds causing the investments in insurance carriers and the stock market to drop. If the stock market drops, then insurance carriers cannot reap the profits as they have been able to recently.
A double whammy to the insurance carrier investments and to the stock market where insurance carriers invest heavily would result in the carriers becoming much pickier on who they underwrite. Carriers being picky will result in a hard market.
I will monitor China’s money markets to see if they are going to affect the workers comp markets.
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