Insurance covers reserves and inflation – Business Insurance

Commercial insurance businesses remain strong and generally continue to make good progress, despite rising inflation, industry sources say.

Long-term inflation, however, can change the calculations of insurers as they monitor the effects of higher costs.

Looking at the rate of inflation that allows for inflation and inflation “establishes a way to analyze the changes in inflation in the past and the future events of the changes in the business,” said Bill Miller, CEO of Aspen Insurance Holdings Ltd. Bermuda.

“One has to think about inflation which has a big impact on the business. For example, in the car business, increasing the cost of car maintenance and leasing is important,” said Mr. Miller.

The consumer price index and premium prices are economic indicators, “but insurers look at the cost,” such as rising drug prices and drug costs, said James Auden, managing director of insurance in Chicago at Fitch Ratings Inc.

Inflation, Miller said, is more difficult to measure, “but recent, significant increases in the historical context of communities are related to culture.” He also said that “the recent practice of fearing lawsuits by some insurance companies has brought not only large villages but also a quick settlement compared to our history. Therefore, we also need to be aware of possible changes. “

Mr. Auden pointed to the large verdicts and many claims that were criticized as components of inflation, which he said had been difficult “for some time” before the recent rise in inflation.

Aspen has created an inflation working group, including claims and legal experts, to help assess how the IBNR database includes both the inflation rate that exists and the rate of inflation that is embedded in it.

“We are working together with the underwriting to understand the change in limits and ADDITIONAL history and claims to be close to the answer to inflation and their opinion of the tort environment to change the line of business,” Mr. Miller said.

While there were concerns that lines such as the automotive industry and technology services could be preserved, strength in other areas such as workers’ compensation offset potential weaknesses, leaving the reserves of all companies “bright,” at the end of 2021, Fitch’s. Mr. Auden said.

The increase in prices in the business over the past few quarters has allowed some insurers and insurers to be “stable” in setting up reserves, he added.

John Iten, director of New York and S&P Global Ratings, said that the positive development for 2021 rose to $ 14.5 billion, after $ 7 billion to $ 8 billion for several years, and “there are no signs of a lack of storage.”

Of the 22 lines of commercial insurance that the insurer is reporting, only seven had negative growth in 2021, including commercial vehicles, which have been a “problem” for years, Mr. Iten said. Regular lines also experienced negative growth in 2021.

It has been difficult for insurers to identify claims for motor vehicle damage, he said.

The market has responded with an increase in volume in lines such as commercial vehicles, said Mr. Auden.

The long queues could be at a greater risk if inflation continues to rise above expectations, Mr. Iten said.

It all depends on their expectations. If (inflation) is what they expect, they have already saved. “When these trends change, “researchers have to go back and change their thinking,” he said.

Most companies factor 5% to 6% depreciation into their actuarial assumptions, Mr. Iten said.

In a recent report, “US Property/Casualty Insurance Loss Reserve Risk,” Fitch noted that “Prolonged inflation creates significant pricing errors and shortfalls in future reserves.”