Introduction to foreign exchange (FX) impacts in insurance

The insurance marketplace is global, with many companies either writing business across multiple countries and/or partnering with reinsurers domiciled around the world. As a result, many insurers often conduct business in multiple currencies and manage currency fluctuations across multiple markets.

Insurers operating in the global market are subject to global macroeconomic trends. Recently, changing tariff and trade policies in the U.S., the largest insurance market in the world, have complicated global trade, raising significant questions regarding inflation and the stability of the world economy. While it’s beyond the scope of this paper to predict the future trade policies of the current U.S. administration, we can look at how these policies may affect insurers due to changes in the value of the U.S. dollar, perhaps the single most important currency underlying the global insurance industry.

There is a range of operational, strategic, and reporting considerations insurers face as a result of changes in FX rates. Several key topics include:

• An insurer often must summarize its business operations in a single reporting currency for regulatory purposes.
• Insurers often consider hedging some or all of their foreign currency exposure in order to protect against impacts on net income driven by fluctuations in FX rates.
• Insurers may conduct capital allocation exercises across certain international markets or countries, which could be impacted by fluctuations in FX rates.

FX-related topics have come under a particular spotlight recently, as the value of the U.S. dollar has weakened moderately over the start of 2025,^1,2 after having increased 12.4% between 2020 and 2024.³ While explicit links to particular U.S. policies are hard to confirm, the general rise of American protectionism (including tariffs), uncertainty around the U.S.’s trade policies, and concerns around increasing U.S. debt and the stability of the dollar as the world’s “reserve currency” have frequently been cited as factors driving recent reductions in the dollar’s value.^4,5

In this article, the first of two on this topic, we explore the impact FX rate uncertainty has on the global insurance markets. We will also consider the implications for insurers and actuaries if we were to see a significant future fluctuation in the value of the dollar (e.g., a 50% weakening) in a short period of time.

We will conduct two separate elements of a review:

• This article is an operational guide focusing on the impact of fluctuations in FX rates on actuaries’ traditional methods and techniques, as well as reporting considerations when working in multiple currencies.
• A second article will provide a strategic guide for insurance executives, focusing on the broader business-related issues that must be navigated (e.g., capital allocation, hedging) in a market with high amounts of FX volatility.

These conclusions will not only give insight into the challenges faced by insurers in the current markets but also provide a more generalized guide to handling FX-related topics for future reference.

Four ways FX currency fluctuations impact actuarial work

Actuaries rely on past data and outcomes to inform their methodologies and conclusions regarding future events (on both outstanding claims and future written business). It is standard practice to make adjustments to the past data to the extent that it is not fully comparable with present data. For instance, both historical claims and exposures are frequently trended to the present-day level⁶ to account for inflationary impacts. It is also common to adjust past losses to the extent that legislative or regulatory changes would have resulted in differing claim or benefit levels in the present day.

Changes in historical FX rates also pose challenges to an actuary working with a portfolio that includes multiple currencies. There are a range of topics an actuary must be prepared for, including:

• Data quality: What information on historical FX rates and claims is available?
• Ultimate loss estimation: How should an actuary standardize estimated ultimate losses into a single currency?⁷
• Loss development impacts: How should an actuary adjust historical loss development patterns to minimize the potential impacts of FX fluctuations?
• Analysis segmentation and reporting: What are the potential challenges in various regulatory reporting regimes that arise from having a multicurrency portfolio?

We discuss each in turn below.

Data quality and FX fluctuations

A key consideration when working in multiple currencies is to match the losses with a relevant FX rate. The most common industry practice for actuaries is to rely on FX rate information provided as part of their data set, as collected in whichever claims or accounting system the insurer is using to handle claims. Care should be taken, however, to ensure that the data source that the actuary is using is in fact consistent with those being utilized by the intended audience of the actuary’s work or, at a minimum, that a consistent convention (e.g., end-of-day FX rate) is used.

The basics are relatively straightforward:

• Paid losses should be matched with the exchange rate on the day they were paid; notably, for claims on which multiple partial payments have been made, it requires a series of past historical FX rates to align with each of the various days on which payments were made.
• Case reserves and incurred but not yet reported (IBNR) reserves are balance sheet liabilities as of a given date and should use FX rates as of the evaluation date of the analysis.

In general, adjusting reserves to a single currency is not typically challenging. Finding the spot FX rates at a given evaluation date—or indeed, any particular historical evaluation date—is a relatively straightforward exercise with numerous publicly available sources and vendors.⁸ For actuarial standards of practice, it is also relatively straightforward to perform a reasonability check on FX rates that were provided to the actuary if one has questions about their accuracy (although in general, errors in this type of information should hopefully be rare).

Depending on how the insurance company collects paid information in their system, converting cumulative paid losses can be more challenging. We have seen instances, particularly in the reinsurance market or for smaller companies, where the full history of payments (and their associated FX rates) was not a straightforward output of the claims system. In these cases, one could convert paid losses (similar to reserves) at the most recent evaluation FX rate as a simplification; although this introduces potential distortions for reporting and other purposes as historical paid values in the reporting currency will vary from evaluation to evaluation.

FX adjustment workflow for ultimate loss estimation

Consider an actuary who is doing an analysis for a reinsurer writing contracts in multiple currencies. The reinsurer reports and aggregates its financials in the “reporting currency” (e.g., in U.S. dollars for an American company). The various contracts are written in multiple currencies around the world— call each the “original currency.”⁹

In general, the workflow recommended for actuaries when estimating ultimate losses in the reporting currency is:

• Conduct actuarial analysis in original policy currencies and estimate ultimate losses in the original currencies.
• Convert estimated reserves in the original currencies to the reporting currency, using the current evaluation FX rates.
• Add a vector of paid losses in the reporting currency (calculated at the various historical payment dates) to the converted reporting currency reserves in order to obtain reporting currency ultimate losses.

This workflow will ensure that the reinsurer will not see revaluations in the reporting currency in paid losses (e.g., on fully paid and closed contracts) to ensure a maximum level of stability across evaluation periods when using the reporting currency.

Currency adjustments for loss triangles

When creating and reviewing loss triangles for the purpose of making loss development factor (LDF) selections, it’s important that the triangle has a reasonably consistent basis for LDF factor selection. Notably, it is well known that this does not mean that triangles need to be fully adjusted for trends that impact accident years across successive evaluation points (e.g., loss trend and/or inflation), as the nature of actuarial development methods allows for this type of future trend to be implicitly included within the development factors.¹⁰

To incorporate FX rates, a slightly different approach might be needed. We will illustrate this with a case study.

Consider a hypothetical triangle of cumulative incurred losses (equaling the sum of paid losses and case reserves). The triangle is selected with values such that not only does each accident period have the same amount of loss (assuming equal exposure and no loss trend), but also that the incremental incurred development factors across each evaluation are the same, for all accident periods and evaluations.

If this triangle were in a single currency, it would be straightforward to analyze.

Now assume that this portfolio is comprised half of U.S. dollar-denominated losses and half of British pound (GBP)-denominated losses. For the sake of Figure 1, also assume a constant FX rate across all periods of the triangle. This assumption regarding FX rates once again makes the triangle quite simple to analyze, but complications begin to arise if the USD-to-GBP FX rate has fluctuated over the history of the triangle.

Figure 2 assumes the same underlying triangle (with constant development patterns and zero trend across the years) but assumes that, instead of using the current FX rate, the triangle was constructed using historical paid losses converted to USD at the time of payment and case reserves at each historical evaluation converted to USD at the rate at that historical evaluation.

We see that variability in the LDFs has been introduced as a result of variability in the historical FX rates. In general, if the GBP-to-USD FX rate has neither cumulatively strengthened nor weakened significantly over the time period covered by the triangle, these fluctuations might tend to even out; however, they still introduce additional variability to the incremental development factors. These factors are also less likely to even out in a real-world scenario, where the volume of exposures per year and inflation trends are not uniform.

Also, FX rate fluctuations cause certain diagonals to have unusually low or high development relative to other diagonals. In the triangle in Figure 2, the second most recent diagonal has development factors that appear to be generally higher than the rest of the triangle, while the third most recent diagonal has the opposite effect. Actuaries frequently look at the latest diagonal to understand changes in the book with regard to case reserving or trends. In this simplified example, it is easy to see that what is actually driving diagonal-based LDF changes is the FX rate; in a practical application overlaid with trends and potential operational changes, this might be more difficult to ascertain.

In addition, the situation may become more complicated if there is either a sustained or material sudden movement in the price of one of the two currencies. Figure 3 shows the same triangle once again, but now under the stress-case assumption that the USD has weakened 50% against the GBP at the beginning of the latest calendar period.

This example shows that in an extreme currency stress scenario, the impacts on a loss development triangle that uses historically based FX rates can impact not only the variability of individual incremental historical development factors but also potentially bias the overall selection of development factors.

In these scenarios—or perhaps as a more general practice— the potential corrective action to improve the accuracy of LDF selection is to restate the interior of the loss triangle to adjust all historical incurred amounts (both paid losses and case reserves).¹¹ This is at first an unintuitive practice, as it is standard for “interior diagonals” to be frozen in actuarial triangles once added. However, once all historical evaluations have been restated to the current FX rates, it is simple to show that the historical incremental development factors in our case study will once again be constant and match the theoretical values, allowing for unbiased LDF selection by the actuary.

Impact of FX changes on analysis segmentation and reporting

The challenges posed to actuarial analysis by changing FX rates (particularly in a highly stressed or volatile FX rate environment) lead to one more recommendation for the actuarial practitioner: Avoid multiple-currency analysis segments when doing triangle-based analysis work, to the extent possible. To the extent such analysis is required, the actuary should consider requesting separate data triangles and/or claims runs for each underlying currency that is to be combined in the triangle so that appropriate review can be undertaken to assess the potential impacts of FX rate movements on the resulting historical development factors.

To the extent that triangles are constructed on an FX-standardized basis for analysis purposes, attention should be given to whether separate triangles might need to be produced for reporting use cases where the standard expectation is a frozen triangle interior (e.g., NAIC Schedule P).¹²

Next steps for actuaries

The impact of FX rates on actuarial work has become increasingly relevant given the recent sustained weakening of the U.S. dollar and continued trade and economic uncertainty associated with the country. Simplifications or data limitations when working in multiple currencies are relatively common in the industry, which may pose a challenge to practitioners looking to conduct an analysis of a multicurrency portfolio. Nevertheless, actuaries can make adjustments to historical data to ensure a clean and unbiased analysis process. This provides a powerful tool to ensure accurate analysis in the face of the current uncertain trade and economic environment.

¹ For example, over the period 1/1/25 to 6/30/25, the dollar weakened by 8.4% against the British pound, 11.3% against the euro, and 12.2% against the Swiss franc.

² Martin, M., & Guevara, M. (2025, July 4). Why is the dollar off to a weak start this year? In Morning Edition. National Public Radio. Retrieved September 17, 2025, from https://www.npr.org/2025/07/04/nx-s1-5453739/us-dollar-economy-harvard-university-kenneth-rogoff .

³ According to the U.S. Dollar Index, the value of the dollar increased by 12.4% from 1/1/20 to 12/31/24. Retrieved from https://www.marketwatch.com/investing/index/dxy .

⁴ Towfighi, J. (2025, June 25). Trump’s tariffs were expected to strengthen the dollar. So why is it the weakest it’s been in three years? CNN Business. Retrieved September 17, 2025, from https://www.cnn.com/2025/06/25/investing/us-dollar-decline-currency-markets.

⁵ Matthews, L. (2025, April 3). Dollar sinks as investors grapple with tariff aftermath. Reuters. Retrieved September 17, 2025, from https://www.reuters.com/markets/currencies/dollar-slides-traders-rush-into-safe-havens-after-us-tariffs-2025-04-03/.

⁶ Or to some future projected level, in the case of a prospective pricing exercise.

⁷ And loss adjustment expenses, to the extent analyzed with losses. For the sake of this paper, all loss and loss adjustment expenses that are analyzed on a combined basis are referred to as “losses.”

⁸ See the Federal Reserve Bank of St. Louis’s data repository at https://fred.stlouisfed.org/.

⁹ In certain situations, reinsurance contracts may cover losses in multiple different currencies or potentially have a table of fixed FX rates to be used for the life of the contract. Assume that neither of these situations applies to this example.

¹⁰ Cook, C. F. (1970, May 24–27). Trend and Loss Development Factors. Retrieved September 17, 2025, from https://www.casact.org/sites/default/files/database/proceed_proceed70_70001.pdf .

¹¹ One thing differentiating FX rates from inflationary trend is the broad philosophical expectation that over the long run, the expectation for FX rates has a mean of the current FX rate (that is, that we don’t expect long-term drift in one systematic direction for any given pair of FX rates, like we do for inflationary trend). To the extent that there is a strong belief that, for example, the long-run equilibrium of the GBP-to-USD FX rate is higher (or lower) than the current rate, it may be possible to make an argument to not standardize a triangle to the current FX rate, under the assumption that the “FX rate trend” might emerge naturally in the triangles over time similar to inflationary trend. As it is generally beyond the scope of the actuarial profession to make long-run predictions on equilibrium FX rates, we have excluded this scenario from the scope of this paper.

¹² Piazza, R. (2018, February 15). Schedule P Foreign Exchange and Intercompany Pools: Results from a Survey of Property/Casualty Insurance Companies. Retrieved September 17, 2025, from https://actuary.org/wp-content/uploads/2024/09/COPLFR_Sched_P_Survey_02152018.pdf.