countdown to june 30, page-17

Bengraham,

Qbe's policy of only buying short term govt bonds I.e. 3 to 6 month bonds eliminates the risk of the recent falls in bond prices.

The big upside is the higher discounting to future claim reserves that aust accountant standards necessitate from the upwards movement of 10 year govt yields or risk free rates.

In my analysis 6 days ago, I made an error in regards to the future claim reserves that would benefit from higher govt yields. I only considered one years claims allowance and not the long tail insurance premiums which cover multiple years. The upside of a 80 to 100 point increase in risk free rates on $20 billion future claim reserves is closer to $160 to $200 million on an annual basis. So, on a half year basis, $80 to $100 million.

This might get us to $1 billion cash net profit for 1st half 2013.

On another note, Macquarie upgraded qbe to outperform today. I think this will be the start of many upgrades from brokers over the next few weeks.