An Illustration of the Impact of Inflation On Insurance Company Operations

As interest rates have risen, so has the level of attention that regulators and other monitors of the insurance industry have paid to the concept of total return in the insurance industry. In determining total return, income from both underwriting and investments is considered. By shifting attention to total return, industry commentators have generally inferred that since investment income is growing as a result of higher yields, underwriting profit margins can be reduced, eliminated, or, in some cases, converted to losses, while total returns are kept constant. In all of this analysis, little attention has been paid to inflation, which is the cause of higher interest rates, or to the impact that inflation has on insurance operations.