November 1, 2003 by Canadian Underwriter
I have just finished reading/scanning another edition of CU received at our office and left for those of us brokers interested enough to pick it up and read. (I could go on at length about how uninterested and demoralized the brokers in my neck of the woods have become over the past 2 years… maybe another time).
The article that “lit” me up today was Craig Harris’ “Building Boom Insurance Bust” (CU August 2003). Specifically, Mr. Harris trying to play the middle road and not upset either the insurers or the customers, tries to summarize the reasons for recent premium increases and includes, “This argument would hold more water if… in equities, which they are not. An industry portfolio… in bonds is taking its hits mainly from low interest rates.”
I think Mr. Harris should take another look at the relationship between bond pricing and interest rates and then try to contain his own laughter. Bond pricing and interest rates are inversely related. And if the insurance industry is in fact heavily into the bond markets of the world then the argument suddenly backfires on the insurers.
If you are investing in bonds now you are in fact making money not losing money!
Neil Whetham, B.A.