An insurance company is essentially two businesses – the underwriting business, and the funds management business, explains Charles Leyland, Managing Director of Leyland Asset Management. The underwriters make money by collecting more premiums than are paid out in claims, while the funds management business makes money by investing those funds – the float. The major Australian insurers are all quite different in their underwriting businesses, with IAG focussing on car and home insurance, while the others are more diversified. “We still quite like QBE on valuation grounds… The market’s not pricing in any growth.” One interesting aspect of insurers is that they tend to benefit from rising interest rates. “If interest rates go up 50bps, IAG’s profit goes up 7%, Suncorp’s by 4%, QBE’s by 13%.” In the full video below, he discusses the cyclical nature of the insurance industry and the effect of driverless cars.