Annual Report 2015
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ANNUAL 2015 REPORT NEW ZEALAND LOCAL AUTHORITY PROTECTION PROGRAMME DISASTER FUND CONTENTS CHAIRMAN’S REPORT 2 INDEPENDENT AUDItor’S REPORT 5 STATEMENT OF FINANCIAL PERFORMANCE 7 STATEMENT OF MOVEMENTS IN EQUITY 8 STATEMENT OF FINANCIAL POSITION 9 STATEMENT OF CASH FLOWS 10 Notes to THE FINANCIAL STATEMENTS 11 TRUSTEE INFORMATION 19 2014 – 2015 FUND YEAR MEMBERSHIP 20 DIRectoRY 21 TRUST DEED 22 PARTICIPATION DEED 33 LAPP 2015 ANNUAL REPORT 1 CHAIRMAN’S REPORT I AM DELIGHTED TO REPORT THAT THE FINANCIAL STRENGTH OF THE FUND CONTINUES TO GROW Prior to being fully utilized to meet the 2010-11 Canterbury earthquake claims, the LAPP Fund was $40 million. Just five years on and allowing for the receipt of its 2015-16 contributions, the Fund now stands at $20 million. This provides members, when combined with the Fund’s reinsurance, with protection covering two events of up to $125m each while still leaving the Fund with a reasonable base to rebuild from. This impressive rate of rebuilding the Fund since the 2010-11 Canterbury earthquakes while still providing members with a good level of cover demonstrates the commitment of members to get themselves appropriately prepared for a possible future major disaster. Membership at 1 July 2015 is 32 I continue to be encouraged by those members who have remained loyal to LAPP. Trustees were pleased to approve a 20% reduction in contributions for the 2015-16 year, because the Fund for 2015-16 was able to negotiate lower reinsurance costs which, added to the investment income from the cash component, meant a more efficient risk to cost benefit. Melville Jessup Weaver, the Fund’s actuary, has forecast that member contributions over time will continue to fall significantly providing there are no significant claims. Christchurch City Council Earthquake Claim Trustees continue to work with the Fund administration manager, Civic Assurance, on the settlement of the Christchurch City Council above-ground claims. The Trustees regularly receive comprehensive reports from Civic and the Fund’s loss adjusters, Cunningham Lindsey, on the activities being conducted to resolve issues. Members will be aware that the Christchurch City Council claim is large and complex and Civic and its reinsurers have challenged the amounts being claimed by the Council. This issue was highlighted in a recent press article where Civic, having commissioned three independent international loss adjusters each with their own engineering experts, explained its position on Lancaster Park (old AMI) stadium; none of these loss adjusting firms support Council’s position that the stadium should be treated as a total loss. I previously reported on Civic’s arbitration success with AIG and the recent arbitration with R+V Versicherung AC. Civic has reported that it considered the arbitration went well and, while there is always ‘litigation risk’, it remains confident of its position. The trustees remained focused on achieving a good and fair settlement for Christchurch City Council. 2 LAPP 2015 ANNUAL REPORT LAPP REINSURANCE Programme for 2015–2016 CENTRAL GOVT. 60% LAPP 40% $40 million funded $75 million less Govt. by reinsurance threshold(s). To be funded by Central Government $10 million funded by LAPP less member deductible(s) Govt. Threshold .0075% Member deductible(s) or .002% of NCV (many based on Govt. threshold) (not to scale) Member forum at Te Papa Trustees enjoyed discussing member issues with the membership at the LAPP member meeting held in April at the Museum of New Zealand Te Papa Tongarewa. The meeting was immediately followed by a Riskpool members’ meeting, and trustees were encouraged to meet non-members and ex-members of LAPP and Riskpool who were keen to learn more about how local government mutual funds, of which there are hundreds around the world, work. Feedback from both member meetings was excellent and the format will be repeated next year. I encourage those who have an interest in risk management and the services of Riskpool and LAPP to attend in 2016. LAPP 2015 ANNUAL REPORT 3 CHAIRMAN’S REPORT (continued) Experts make a difference Risk Management Partners are experts in their field and they have extensive experience in New Zealand and Australia. Dr. Marlene Kanga advises LAPP and is known to many members through her visits and the risk profile reports that identify and measure the risks for each council and their region. Bryan Whitefield is the Managing Director of RMP and an adviser to LAPP where he also brings extensive risk management skills and experience that enhance the Fund and its ability to respond to a disaster. In addition Bryan is the President and Chairman of the Risk Management Institution of Australia; it is this type of specialist expertise that separates the Fund from other forms of protection. The future of LAPP LAPP has operated for 22 years and I am confident it will endure as an important part of local government thinking on risk management and risk financing. It truly represents the collaborative approach that the sector now embraces and it provides a uniquely focused approach for being prepared for the issues that come from reinstating underground infrastructure following a disaster. While today there are commercial interests that want to sell other options, at a profit of course, LAPP has been designed by local government people for local government people. My appreciation I wish to thank the administration management staff, particularly Tim Sole, Alistair Hanning, Roger Gyles, Frank Heaton and Oliver Gilmore along with Risk Management Partners, Bryan Whitefield and Marlene Kanga, for their skill and determination. The dedication and professionalism of our loss adjusters, Cunningham Lindsey and their co-opted experts, is much appreciated as is the support and contributions of my fellow trustees. Kinsley Sampson Chairman 4 LAPP 2015 ANNUAL REPORT INDEPENDENT AUDItor’S REPORT TO THE MEMBERS OF NEW ZEALAND LOCAL AUTHORITY PROTECTION PROGRAMME DISASTER FUND’S FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2015 The Auditor-General is the auditor of New Zealand Local Uncertainty associated with the gross Authority Protection Programme Disaster Fund (“the claim liabilities and the related reinsurance recoveries Fund”). The Auditor-General has appointed me, Brent Manning, using the staff and resources of KPMG, to carry Without modifying our opinion, we draw your attention out the audit of the financial statements of the Fund on to Notes 5 and 6 to the financial statements, which her behalf. disclose the considerable uncertainty that exists for measuring the gross claim liabilities and the related Opinion reinsurance recoveries arising from the Canterbury We have audited the financial statements of the Fund on earthquakes during 2010 and 2011. We consider the pages 7 to 18, that comprise the statement of financial disclosures in Notes 5 and 6 to be adequate. position as at 30 June 2015, the statement of financial performance, statement of movements in equity and Basis of opinion statement of cash flows for the year ended on that date We carried out our audit in accordance with the Auditor- and the notes to the financial statements that include General’s Auditing Standards, which incorporate the accounting policies and other explanatory information. International Standards on Auditing (New Zealand). Those standards require that we comply with ethical In our opinion, the financial statements of the Fund: requirements and plan and carry out our audit to obtain • present fairly, in all material respects: reasonable assurance about whether the financial – its financial position as at 30 June 2015; and statements are free from material misstatement. – its financial performance and cash flows for the Material misstatements are differences or omissions of year then ended; and amounts and disclosures that, in our judgement, are likely • comply with generally accepted accounting to influence readers’ overall understanding of the financial practice in New Zealand and have been prepared in statements. If we had found material misstatements that accordance with Public Benefit Entity Standards with were not corrected, we would have referred to them in disclosure concessions. our opinion. Our audit was completed on 14 October 2015. This is the An audit involves carrying out procedures to obtain date at which our opinion is expressed. audit evidence about the amounts and disclosures in the The basis of our opinion is explained below. In addition, financial statements. The procedures selected depend we outline the responsibilities of the Trust Board and our on our judgement, including our assessment of risks responsibilities, and explain our independence. of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the preparation of the Fund’s financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control. LAPP 2015 ANNUAL REPORT 5 INDEPENDENT AUDItor’S REPORT (continued) An audit also involves evaluating: Responsibilities of the Auditor • the appropriateness of accounting policies used and We are responsible for expressing an independent opinion whether they have been consistently applied; on the financial statements and reporting that opinion to you based on our audit. Our responsibility arises from • the reasonableness of the significant accounting section 15 of the Public Audit Act 2001 and clause 4.4.1 estimates and judgements made by the Trust Board; of the Trust Deed of the Fund. • the adequacy of the disclosures in the financial statements; and Independence • the overall presentation of the financial statements. When carrying out the audit, we followed the independence requirements of the Auditor-General, We did not examine every transaction, nor do we which incorporate the independence requirements of the guarantee complete accuracy of the financial statements. External Reporting Board. Also, we did not evaluate the security and controls over the electronic publication of the financial statements.