As the global economy seemingly recovers, inflation may damage reinsurers’ future profitability on all lines of business, according to Stamford, Conn.-based Towers Perrin.
The time between when a reinsurance premium is paid and a claim is settled is highly susceptible to inflation. For example, Towers Perrin estimates that a 3% rate of inflation would mean that claims that cost $1 million today would cost a reinsurer $1.113 million on average to settle at a later date. Projecting 5% inflation mean that same claim would end up costing the reinsurer $1.195 million to settle.
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