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Rising interest rates a ‘net positive’ for P&C insurers: KBW

1st March 2018 - Author: Matt Sheehan

Investment banking firm Keefe, Bruyette & Woods (KBW) has indicated that they see rising interest rates as a net positive for property and casualty (P&C) insurers.

moneyKBW suggests that this is primarily because, as interest rates rise, P&C insurers will be able to invest new money at higher yields.

The firm note this as particularly important because they consider investment income to be the lowest-risk earnings stream available to insurers.

KBW believes enhanced investment income will likely offset any adverse implications of rate increases. These might include loss cost inflation, lower P&C rates due to regulatory pressure, or pressure on fixed income asset values and hence insurer company book values.

The firm also reports that because it generally views P&C insurance stocks as less sensitive to rising interest rates than other financial sectors, it will not be altering its Earnings Per Share (EPS) estimates and target prices for the P&C sector over the 2018-2019 period.

It estimates that in a high rate scenario, the P&C group’s median estimates for 2018 and 2019 would be increased by 2.1% and 5.0% respectively.

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