countdown to june 30, page-22

Jossette

"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."

Note that you don't just claim half the benefit because it is a half year report. The claims reserve is marked to market, so if their is a $160m to $200m change to the outstanding claims provision this will all go through the P&L at the half year.

Note 4 to the accounts shows the actual sensitivity of profit to changes to the discount rate. For 2012, a 50 basis point increase in the discount rate would have increased profit by $US 167 million.

In practice, discount rates don't move precisely with the the 10 year yield, but more with the shorter durations. 50 basis points is probably about right. Also, management have the option of increasing their probability of adequacy, so that it won't all necessarily flow through to profit. A 1% increase in their probability of adequacy would reduce profit by about $45 million (it is currently 87.5%, it was 89.8% in 2010). If the results are as good as you predict then I think that they might move on this front.