Inflation does not come and does not go on its own
Although many actors on financial markets hoped for a temporary inflation caused by supply chain disruptors, things have changed due to uncertainty from a geopolitical and financial markets perspective. Interest rate curves are now starting to be inverse and recessions are potentially only off the table due to the strong demand on the labour market.
However, the core inflation is Europe is further increasing, which is causing concern. Salary increases start to become far higher than in the past, although it is not compensating for the full inflation losses.
What are the main drivers for the change of opinion? Without being exhaustive the following points can be mentioned:
- Central Bank’s quantitative easing actions
- Increase of energy prices (esp. oil and gas)
- Increase of Wheat prices
- Increase of prices of semiconductors
These effects were significantly stressed by:
- The war in the Ukraine
- The ESG effects (Carbon certificates and pricing increases due to tax effects over CO2 levies).
Inflation comes with many challenges for businesses in general and insurance business in particular. Due to the long term nature of the business inflation can be very toxic. This is especially true for situation of negative real interest rates, which seems to be over now. The situation has changed since the Ukraine war. The FED and the ECB have increased interest rates recently. Real rates are still negative.
Why should you attend this course?
If one of the following descriptions fits to your situation, the course might be exactly right for you:
- You are responsible in the second line for (financial) risk management and you want a handle on inflation risk,
- You have senior management responsibility and you would like to understand your options to mitigate inflation,
- You are working in general insurance and you would like to understand where your business is vulnerable to inflation,
- You are responsible for product management in your organisations and you would like to understand the impact of inflation on your product settings,
- You need to reflect the inflation risk in your ORSA.
What approach do we take?
In order to have a common understanding of inflation we start with the historic background and pick up recent research on hyperinflation. We also look at the consequences of inflation for our customers, especially in the retirement age. In the second part we analyse the various impacts of inflation in workshops and discuss potential mitigating actions.
Organised by the EAA – European Actuarial Academy GmbH.