Reinsurance (October 01, 2009)

RESEARCH BY PARTNERRE SUGGESTS HIKES OF BETWEEN 4% AND 8% TO OFFSET LOW INTEREST RATES

Internal research by PartnerRe suggests a reinsurer would have to increase its rates by 4.3% (for short-term, property, non-proportional business) and 8.9% (for long-tail, motor, non-proportional business) just to account for lower interest rates and no other factors.

PartnerRe presented its findings at 2009 Technical Seminar: Auto Casualty, held on Sept. 14 at the National Club in Toronto.

Grace Lin, PartnerRe’s chief pricing actuary in Canada, presented a report of her findings, which took into account a number of operating assumptions based on the company’s data.

HIGH INFLATION A LONG-TAIL THREAT FOR (RE)INSURERS DURING NEXT 2-5 YEARS

Higher inflation in a variety of forms is expected to develop into a threat to long-tail (re)insurers sometime over the next two to five years, a Guy Carpenter briefing says.

Written by Guy Carpenter managing director David Lewin, the briefing warns that low interest rates right now are bound to result in monetary inflation sometime down the road.

“Rising interest rates over the next two to five years will probably result in monetary inflation, which in itself would make it more expensive for (re)insurers to pay claims,” the Guy Carpenter briefing says.

The threat of inflation comes in a variety of forms and is not limited to monetary inflation, Guy Carpenter says. Other forms of inflation include inflation in legal costs, medical costs and inflated social expectations characterized by a belief that insurers must restore a victim to his or her state immediately prior to a loss occurrence.