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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Spencer M. Gluck, Senior Vice President
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The merits of enormous stimulus packages are being debated while enormous budget deficits are on the rise. How long will their impacts last? When - if ever — will there be the political will to rein them in? Is there a serious bout of inflation in the future? No one can pretend to know the answer to these questions, and it may be futile to enter the debate. But what is not debatable is the tremendous economic uncertainty faced today. There may be uncertainty about whether inflation will rise, but there is no doubt that the risk of future inflation is at a level not seen in a generation.

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