Lloyd’s CFO sees rate dilemma: claims inflation bears unknown unknowns

Insurance rates could run well afoul of runaway inflation given the arguably unprecedented degree to which the price outlook has been clouded by a myriad of uncertainties,  Lloyd’s CFO Burkhard Keese (pictured) has said.

Insurers have faced off against inflation before, but could easily discount a forecasted rate of price growth in their rates and rely on central banks to pad their investment earnings with higher yields.

“The level of uncertainty is much higher” this time around, Keese argued in an interview for Bloomberg Television.

“All of this uncertainty can create more inflation and therefore I think people have been too prudent in their pricing, put up too much pricing, fostering even further inflation and I think this can end up in a vicious cycle which can then be dangerous and end up in recession possibly,” Keese warned.

Keese’s uncertainties run to the very macro data itself. “Do we really have 7.9% inflation in the US?  I struggle to believe it,” he said. Between post-Covid supply-side issues, base effects, anticipated war impacts and more, Keese asks “is the number even correct?”

“I think the uncertainty is really the difficult stuff,” he said.

Keese might be calmer if interest rates showed signs of succumbing to the upward pressure so overly visible in prices.

“Is there even an economic term for a situation where you have inflation on the one side and really low interest rates on the other side?” Keese lamented. “You must earn money with the assets otherwise insurance doesn’t work and therefore I believe yield [increases are] absolutely needed for insurance.”

Asked about sector losses stemming from the Russian invasion of Ukraine, Keese reiterated prior statement that it remains too early to estimate losses. “Nobody knows this, really.”

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