scorpioncapital Posted November 29, 2018 Share Posted November 29, 2018 So I've observed many of my insurance stocks are not responding upward as I thought as rates rise . Bank stocks do seem to be going up. Why? These insurance stocks are medium to long tail reinsurance & insurance stocks with large bond portfolio with duration of 5 years~. Is the market reducing their BV (unrealized loss position)? Is it in fact weighing whether in 5 years the insurance co will have forfeited income or not (depending what their average 5 year yield is). On the other hand insurance co's have very low cost funding liability if they run a good operation. Basically is the market only temporarily discounting the stock prices now and later will come to their senses? Or is it something else? Likewise with REITS I imagine same dynamic. Pricing the debt cost now and not the future asset value to come. Banks for some reason react much faster to higher rates, probably as they don't pass it on to their clients or because it is 'short term', similar to short-term insurance (like auto insurance). Since nobody knows 5 years from now what these insurance bonds will do or if they misjudged their duration risk, the market is cautious now. Is this a correct interpretation? Link to comment Share on other sites More sharing options...
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