The effects of inflation on insurers’ performance and value

This project has four objectives:

1. To measure the causality effect of the current economic inflation on the insurance industry.
2. To compare insurers from different countries facing different macroeconomic environments and insurance industries, by using OECD data.
3. To compare different types of inflation periods by using aggregate data from A.M. Best.
4. To separate social inflation from economic inflation and analyze its main explanatory factors.

The first three objectives will mainly cover economic inflation, but the claims data will implicitly contain the social inflation effect. The researchers will develop a methodology to separate the two types of inflation because they will entail different management strategies. In particular, social inflation is a long-term, social phenomenon, while economic inflation should be a short-term, more economic phenomenon.

In all four cases, the plan is to update the data to the end of 2024 and also to use that data to evaluate the long-term impact of COVID-19 on the insurance industry during the period from 2020 to 2024. The researchers will try to establish a causal link between COVID-19 and inflation.

This topic is very important because new generations of actuaries and insurance managers, including CEOs and CFOs, do not have extensive experience with inflation. The results of this project will provide information enabling the insurance industry to react appropriately to inflation risk.
 

Fields of research 

Inflation risk, non-life insurance, life insurance, reinsurance, risk management, insurance industry resilience, comparison between OECD countries, comparison between different inflation periods, inflation expectation, real inflation cost, social inflation, economic inflation.

Read the interim report:

"The effect of inflation on US insurance markets" - Interim Report  [EN] | 02.2025 | Authors: G. Dionne, A.-T. Fenou, M. Mnasri |
We analyze the effects of inflation on the US insurance industry. The analysis is based on initially on a VAR (Vector AutoRegressive) model. The shock of the COVID-19 pandemic had a significant positive short-term impact on inflation, probably explained by the recent contractionary of the Fed monetary policy against inflation. We then analyze the characteristics of the U.S. inflation rate series observed over the 1973-2023 period in order to capture and model the effect of inflation on the insurance industry. Two important conclusions emerge from this analysis: The US inflation rate series is characterized by non-linear dynamics (asymmetry) and a random trend. The results obtained led us to select the two-regime Markov model to analyze the impact of inflation on the various fundamental indicators of insurance company performance in the US. We show that performance indicators are differently affected by inflation in the Life and P&C insurance sectors according to the inflation regime considered.

Georges Dionne

Georges Dionne holds the Canada Research Chair in Risk Management and is member of the board of HEC Montréal, Canada. He is President of the Canadian Economics Association and first vice-president of the European Group of Risk and Insurance Economists (EGRIE). Georges' awards include the Les Échos (2001) and Kulp-Wright awards (2002) for his book Handbook of Insurance, the PRMIA award (2006), the Bank of Canada NFA Conference award (2006), an Honorary PhD conferred by the Université d’Orléans, France (2006), the Innis-Gérin Medal from the Royal Society of Canada (2011), and the Marcel-Dagenais award (1991, 2012).

Georges has published extensively, including editing five books and more than 150 articles peer-reviewed. He was the Editor of the Journal of Risk and Insurance from January 2007 to December 2012. One of his main achievements was to propose (with Marcel Boyer) a new model for automobile insurance pricing based on drivers’ demerit points. This model was implemented by the Société de l’assurance automobile du Québec in 1992 and is still used in Quebec.