How does investment income drive an insurer's ROE? An insurer holds $30B of investments against $10B of equity and portfolio yields rise 100bp — quantify the effect.

Investment leverage = investments/equity = 3.0x, so a 100bp yield increase adds $300M of annual investment income — a 3.0 percentage-point lift to PRE-TAX ROE — before any change in underwriting. That gearing is why investment income, not underwriting, is the profit engine at many insurers whose combined ratios hover near 100%. The flip side: the same rate rise marks down the existing bond portfolio through AOCI, hitting reported book value immediately while the income benefit arrives only as the portfolio rolls over — economics improving while optics worsen, which is why analysts watch book value ex-AOCI and new-money yields versus the running portfolio yield.