petec Posted February 19, 2015 Share Posted February 19, 2015 I've had a deflationary bias for years, but it is clear that the policy response to deflation is pretty inflationary and inflation is a risk that can't be dismissed lightly. Fairfax is well-prepped for deflation: the swaps, the bonds, and also the likelihood of good combined ratios as costs of claims decline in a deflationary environment. In fact, one could argue that deflation isn't much of a risk to insurance companies anyway given their bond portfolios and the likely impact on the combined ratio. Inflation, on the other hand, could be an absolute killer. This is my one criticism of Prem over the last few years: he's described a lot of what he has done not as outright bets but as protecting the company against a worst-case economic outcome. But I don't think deflation is the worst case economic outcome for insurance companies. I think inflation is. We have plenty of good inflation vs. deflation coverage on other threads, so let's not repeat that here. But what are your thoughts about how Fairfax (and other insurers) would perform in an inflationary environment? Have I missed something? Pete Link to comment Share on other sites More sharing options...
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