Menu Products Sign In search Commentary Canadian Insurers Well Positioned to Manage Rising Inflation Risk, Seen Benefitting From Higher Interest Rates Insurance Organizations click here to login or register a free account. Summary As the world recovers from the Coronavirus Disease (COVID-19) pandemic, most economies are experiencing inflation pressures. Rising inflation can negatively affect Canadian insurers through higher operational and claims expenses. However, insurance products that are most affected by inflation, such as property and casualty (P&C) policies as well as group health insurance, can typically be repriced in a relatively short period of time. Higher inflation can also lead to higher interest rates, which are typically positive for insurers over time even though the earnings and capital impact of higher interest rates may be mixed initially. Key highlights include the following: -- Canadian insurers will face higher costs because of inflation but in most cases will be able to pass them on to customers. -- Higher interest rates will benefit insurers’ performance over time but could have negative capital impacts on Canadian life insurers in the short term. -- Moreover, a sharp surge in interest rates may ultimately do more harm than good if it causes an economic downturn with increased credit defaults and lower asset valuation. “Overall, DBRS Morningstar expects that most of the increase in P&C claims related to inflation will be passed on to policyholders over time, limiting the risk for insurers,” said Patrick Douville, Vice President, Insurance. “For both P&C and life insurers, higher interest rates are usually favourable to the economics of their business models, as insurers collect premiums and invest the proceeds mostly in fixed income instruments to pay claims in the future. While higher interest rates may have the immediate effect of reducing the market value of an insurer’s fixed income portfolio, it allows them to earn higher yields in the future.” Available Documents Canadian Insurers Well Positioned to Manage Rising Inflation Risk, Seen Benefitting From Higher Interest Rates Nov 16, 2021Insurance Organizations Contacts Patrick Douville Vice President, Insurance - Global Financial Institutions Group +1 416 597 7329 patrick.douville@dbrsmorningstar.com Marcos Alvarez Senior Vice President, Head of Insurance - Global Financial Institutions +1 416 597 7553 marcos.alvarez@dbrsmorningstar.com More from DBRS Morningstar Related Events All Events Contact UsCareers Regulatory AffairsCode of ConductPrevious MCR Credit RatingsDisclaimerTerms and ConditionsPrivacy PolicyProprietary Rights The DBRS Morningstar group of companies consists of DBRS, Inc. (Delaware, U.S.)(NRSRO, DRO affiliate); DBRS Limited (Ontario, Canada)(DRO, NRSRO affiliate); DBRS Ratings GmbH (Frankfurt, Germany)(EU CRA, NRSRO affiliate, DRO affiliate); and DBRS Ratings Limited (England and Wales)(UK CRA, NRSRO affiliate, DRO affiliate). For more information on regulatory registrations, recognitions and approvals of the DBRS Morningstar group of companies, please see: http://www.dbrsmorningstar.com/research/highlights.pdf. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply. The DBRS Morningstar group of companies are wholly-owned subsidiaries of Morningstar, Inc. © 2021 DBRS Morningstar. All Rights Reserved dbrsmorningstar.com Privacy Statement By accessing this website you agree to be bound by the DBRS Terms and Conditions and also the Privacy Policy. These are subject to change. Any changes will be incorporated into the Terms and Conditions or Privacy Policy posted to this website from time to time. Privacy (GDPR) Notice DBRS Morningstar reminds all users to consult the Privacy Policy in order to inquire on up to date information laws and new applicable regulations, including EU Directive 2016/679 on the General Data Protection Regulation. In the event you proceed to the website, you agree and consent to access the website, including providing your IP address and the terms and conditions on the usage of this website. OK