The presentation starts with an overview of different types of inflation measurements relevant in an economic and insurance context. After the financial crisis, deflation was the predominant worry, but inflation fears soon resurfaced as government debt levels surged and the major central banks expanded the money supply significantly.

The presentation then analyses impact of inflation on insurers. For non-life insurers, inflation leads to higher claims costs, thereby eroding profitability. It has the greatest effect on long-tail lines. For life insurers, deflation – rather than inflation – poses the biggest risk to liabilities. In the case of deflation, interest rates tend to fall. This makes it more difficult for life insurers with large portfolios of minimum interest rate guarantee savings products to earn the appropriate asset returns.

The effects of inflation on assets can vary significantly. Commodities, real estate and TIPS are the most viable hedges against inflation. Contract design can also be used to reduce the impact of inflation. Insurers may also opt for reinsurance to partially protect themselves against inflation surprises.