IN SMh todayA big portion - often more than half - of an...

IN SMh today


A big portion - often more than half - of an insurer's earnings comes from income it earns by parking the cash it receives from customer premiums and shareholder funds in low-risk assets.

For QBE, Goldman Sachs is forecasting that as much of $1 billion of an estimated $2.4 billion profit before tax will come from such investments this calendar year.

QBE earns about three-quarters of its revenue from US and Europe and generates similar proportions of its investment earnings from those jurisdictions, the vast majority of it goes into government bonds.

And so it seems the market has responded strongly to the recent collapse in bond yields and especially the US Federal Reserve's announcement on Wednesday that it would keep interest rates near zero for at least two years.

Even so, it is surprising that investors have reacted so strongly (even taking into account the fact that markets currently have a tendency to over-react). Did they expect a quick recovery in the US and Europe?



Read more: http://www.smh.com.au/business/bond-collapse-sends-qbe-shares-south-20110811-1iow0.html#ixzz1UjwyUHFm