A report issued recently by Guy Carpenter & Company, LLC, says that two economic problems — inflation and the global credit crunch — could put big-time pressure on the global casualty reinsurance industry, especially if a claim lag occurs.
The report first looked at monetary inflation, which it said may not be an immediate concern for reinsurers because a worldwide recession and depressed growth levels are containing inflation risk. However, "quantitative easing" by governments into the financial system could set the stage for inflation within a few years.
The report said that inflation may pose a particular problem for long-tail insurers and quota share reinsurers, unless they have a sufficient time horizon before claims must be paid. It said that carriers could, however, invest the premium they receive and thus counteract the effects of inflation.
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