Can You Insure Against Inflation? Meyer Shields of Keefe, Bruyette & Woods Identifies the Problem and the Solution

May 24, 2018

Meyer Shields, Managing Director, joined Keefe, Bruyette & Woods, Inc., in 2013 from Stifel, Nicolaus & Co., Inc., where he worked since 2005. Based out of the Baltimore office, Mr. Shields is a Managing Director covering property/casualty insurance. His awards include The Wall Street Journal Best on the Street Survey, in 2009 ranking number five and in 2012 ranking number two. Prior to joining Stifel, Nicolaus & Co., Inc., Mr. Shields was an Analyst with Legg Mason Capital Markets and J.P. Morgan, and held various actuarial positions within Zurich North America. Mr. Shields graduated with a degree in actuarial science from University of Toronto and is a Fellow of the Casualty Actuarial Society.

In his exclusive interview with the Wall Street Transcript, Meyer Shields identifies a clear threat to increasing profitability at major insurance carriers.

“…The insurance carriers have also benefited significantly from low inflation for a long, long time, because insurance companies have to estimate the costs of claims ahead of time, and if they’ve assumed a higher inflation rate than the one that actually materializes, that difference shows up in the form of prior period loss reserve releases that boost earnings.

If inflation even normalizes — it doesn’t have to be worse than it has been historically — but if inflation normalizes, then that contribution to earnings from revising estimates from prior period losses will come down. I’m not sure, since that has been forecast unsuccessfully for so long.

But because we haven’t seen inflation materialize, if and when it does — whether it’s typical inflation, some insurance-specific issues like legal inflation or medical inflation or even just the overall trend in jury trials — if any or all of those start to normalize or regain historical levels, I think that will be more painful for insurance companies than people seem to anticipate.”

To see which stocks are most at risk from this threat, read the entire interview with Meyer Shields at the Wall Street Transcript.