Excerpts from AFR today in an article called 'Chasing Tomorrow's...

Excerpts from AFR today in an article called 'Chasing Tomorrow's Winners'

And while Maple-Brown is cautious about pushing general insurers as they’ve already ‘‘rallied hard’’, he thinks insurance is one of the few sectors in the stockmarket that is positively correlated to higher interest rates.

‘‘Why is that? If you think of your own home and motor policy in your own personal life, you pay NRMA or GIO thousands of dollars up front, they sit on that pile of money and pay out the claim in due course.’’

When those insurers are sitting on that money, and interest rates are near zero, they make ‘‘diddly squat’’, he says. But in a higher interest rate environment, they’re making significantly more.

‘‘The most levered there is QBE, so it’s done the best,’’ Maple-Brown says. ‘‘As long as interest rates stay around this level, they will continue to do okay.’’But, he adds, if interest rates stay higher for longer because of consistently higher inflation, insurers like QBE, which tends to do longer-term insurance, will suffer.

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Ash here.

Even modestly positive interest rates, allowing the bond team to trade yield, maturity and risk, are transformative for QBE's profit performance.

Maple-Brown's caution is about negative real interest rates, where inflation rates are above interest rates, purchasing power falls and insurers lose.

Watch that important detail.

Ash