What’s your opinion on Donald Trump? Whether you think he’s the best thing to happen to the US this century, or whether you think he could trigger a global meltdown, it seems almost everyone has an opinion on one side of the fence or the other.
However, the division in perspective surrounding his election may soon be replaced by one of overriding optimism – at least for the insurance sector.
That’s because, since Trump’s election, shares in many of the largest insurance companies have been notably outperforming the market amid the idea that a squeeze on their returns will soon be coming to an end.
In recent years, the insurance sector has been dealt one blow after another with low interest rates chipping away at returns on fixed income. Insurers have felt the pinch – but a swing towards US fiscal stimulus may prompt a period of higher interest rates, according to a
Financial Times article.
Speaking to the publication, Tod Nasser, the chief investment officer at Pacific Life, explained that insurers will no longer feel as though their backs are against the wall – with two of the largest US-listed insurers, Prudential Financial and
MetLife, both seeing their shares driven forward by around 18% since the election, largely thanks to a leap in bond yields.
It’s not just in the US where shares in insurance companies have jumped, either. British insurer
Prudential Plc has seen its stocks rally by around 19%, while
AXA, of France, has enjoyed a 14% leap. Speaking to
The Financial Times, Michael Siegel, the global head of insurance for Goldman Sachs Asset Management, explained that “this industry is going to benefit from a gradual rise in interest rates.”
Should a period of higher yields become a sustained trend then the industry would be able to reinvest funds at more appealing levels – with life insurers in particular standing to benefit as they make investments over long term periods of around seven-eight years, typically, compared to three-four years among those in the property and casualty segment.
Of course, much of this is dependent on Trump actually following through with his pledge to inject around $1 trillion as part of an economic stimulus deal.
For now, yields remain significantly below their historical highs and insurers will be hoping for much more Trump-led movement to spur their businesses forward.
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