NEW YORK (Bloomberg) — Reinsurance companies may face higher claims costs because of inflation, an insurance consulting group said.

Several years can pass between when rates are set and when claims pay out, causing inflation to add to costs for rebuilding property, treating injuries or paying legal claims, Towers Perrin said on Friday in a statement. Casualty reinsurance, which typically has a longer lag before paying out, would face larger increases than property coverage, the consulting firm said. Casualty coverage protects against liability costs.

"It doesn't take an awful lot on the inflation side for it to become an issue on the business," Ross Howard, chief operating officer at Towers Perrin's reinsurance business in Europe, said in an interview. "The concern this time is that insurers are saying we don't see prices going up."

Reinsurance prices have fallen amid the recession even as the companies that sell the coverage lost money on investments. Swiss Re, the world second-largest reinsurer, posted a 36 percent revenue decline in its casualty segment in 2008 and said last month it will sell less of the coverage in favour of its property business. General Re's pretax net income fell 38 percent to $342 million in 2008.

Prices in casualty reinsurance "have yet to adjust to the lower rates environment and still do not adequately reflect years of premium reductions and anticipated loss trends", Michel Lies, Swiss Re's head of client markets, said in a September statement.

Investors expect 1.58 percent annual inflation over the next five years, based on to the difference between yields on inflation protected Treasuries and conventional government debt.