Rapidly rising interest rates in the later part of the second quarter is a “net positive” for the P&C industry, according to “Interest Rates, Interest Rates, Interest Rates! (and Other 2Q13 Thoughts),” a report from Keefe, Bruyette & Woods, a securities broker/dealer and investment bank. Other themes affecting financial results for P&C insurers include the sustainably of rate increases and catastrophe losses.
Rising interest rates likely will decrease insurers’ book values by an average of 5.8 percent, the report said, adding that “while many investors value P&C insurers off book value, multiples tend to adjust for AOCI fluctuations.” Rising new money yields are a positive, according to the company, “notwithstanding evaporating unrealized bond gains that were unlikely to ever be realized.” And, because statutory accounting includes unrealized gains, insurers' deployable excess capital would be mostly unchanged, the company said.
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