Janis Berger, Managing Director and Spencer Gluck, Senior Vice President
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The convergence of a variety of pressure points at this time is leading to a set of unique circumstances that present opportunities around business strategy and capital allocations for the insurance industry. Future inflation is one of the pressure points. Inflation and uncertainty about its extent and timing is a function of untested but powerful monetary and fiscal policy actions. In addition to inflation’s potential effect on insurer liability management there is also an impact on the volatility of assets backing the liabilities. A reignition of the kind of severe inflation last seen in the 1970s is most likely not factored into any current insurer management practices for establishing reserves or setting capital levels.

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Spencer Gluck, Senior Vice President
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The last bout of serious inflation in the United States occurred in the late 1970s. In casualty insurance, high inflation coincided with deteriorating reserves and underwriting results. Many believe that the risk of future inflation is higher than it has been in many years. If rising inflation levels impact settlement of claims that are open or are currently unreported, then increased inflation risk leads to increased reserve risk.

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George Carrington, Head of International Casualty Specialty Practice
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Inflation is always a major risk factor for the casualty industry. For the past seven years, monetary inflation has been low across most of Europe, and this has helped keep interest rates low. For casualty insurers, this can lead to a challenge, because the key cost-drivers of long-tail liability claims — salaries and wages, pensions and most notably medical care costs — have been growing much faster than monetary inflation.

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