How Insolvent Are We?

Extract

As we grapple with the problems of conducting non-life insurance in a world of high inflation, we should perhaps pause for a moment to look for historical analogies for our present predicament. Let us, then, look back at a distressing period many years ago in the history of the Kingdom of Carmania.

Inflation was by no means new to the citizens of Carmania. Year after year, all prices and incomes had been rising at a steady rate of 5% per annum. The economy functioned quite well, albeit in a rather uninteresting way, and the people were accustomed to the idea that the purchasing power of the Carmanian dollar would fall by roughly 5% every year. There were, however, some economists who argued that inflation was both undesirable and unnecessary, and prevailed upon the King to adopt some measures which, they assured him, would quickly reduce the rate of inflation to zero. The measures were adopted, and the following year the rate of inflation rose to 10%.