Australia's largest insurer, QBE Insurance, is suffering an earnings decline of 40% because lower interest rates are seriously reducing its investment income.

The company said strong underwriting results ''have been more than offset by significantly lower investment income from reduced interest yields, the fall in equity markets and one-off gains in the first half of 2009''.

This has unnerved the equity markets and its shares have fallen sharply to a 16 month low.

QBE operates in New Zealand mainly through insurance brokers. Its products focus on business insurance.

It is also the major sponsor of North Harbour rugby.

IAG, owner of State, NZI, and Mike Henry Travel Insurance, has also flagged weaker earnings.