ANNUAL REPORT 2016 INSURANCE COMMISSION OF WESTERN AUSTRALIA
INSURANCE COMMISSION ANNUAL REPORT 2016 1 Welcome to the Annual Report
This report describes the functions and operations of the This report and previous annual reports are available on Insurance Commission of Western Australia (Insurance the Insurance Commission’s website: icwa.wa.gov.au. Commission), shows how the organisation performed and presents the audited financial statements and On request, this report can be made available in performance indicators for the financial year ended alternative formats. 30 June 20161. Statement of Compliance
HON DR MIKE NAHAN MLA TREASURER
In accordance with section 63 of the Financial The Annual Report has been prepared in accordance Management Act 2006, we hereby submit for your with the provisions of the Financial Management information and presentation to the Parliament of Act 2006, the Insurance Commission of Western Western Australia the Annual Report of the Insurance Australia Act 1986, and a resolution of the Board Commission of Western Australia for the financial year of Commissioners of the Insurance Commission of ended 30 June 2016. Western Australia, passed on 13 September 2016.
FRANK COOPER AO ROD WHITHEAR CHAIRMAN CHIEF EXECUTIVE
13 September 2016 13 September 2016
1 The year ended 30 June 2016 is referred to herein as 2016. Similar terminology applies for other years referred to in this Annual Report.
2 INSURANCE COMMISSION ANNUAL REPORT 2016 Table of Contents
1. INTRODUCTION 1 1.1 Chairman’s Report 1 1.2 Chief Executive’s Report 2 1.3 Performance Highlights 5 1.4 Financial Overview 7
2. OVERVIEW 10 2.1 Who We Are 10 2.2 What We Do 10 2.3 Our Approach 11 2.4 Operational Structure 11 2.5 Governance 16 2.6 Performance Management Framework 17
3. PERFORMANCE 19 3.1 Insurance Commission 19 3.2 Motor Injury Insurance 22 3.3 RiskCover 33 3.4 Investments 43 3.5 Fraud Investigations 47
4. SIGNIFICANT ISSUES 49
5. FINANCIAL STATEMENTS 50 5.1 Statements of Compliance 50 5.2 Financial Statements Index 54
6. DISCLOSURES AND LEGAL COMPLIANCE 127 6.1 Ministerial Directions 127 6.2 Other Financial Disclosures 127 6.3 Governance Disclosures 129
Image: provided by the Metropolitan INSURANCE COMMISSION ANNUAL RedevelopmentREPORT 2016 Authority 3 1. Introduction 1.1 CHAIRMAN’S REPORT
On behalf of the Insurance Commission’s Board The Insurance Commission’s solvency at the end of of Commissioners (the Board), I am delighted to 2016 was 131.2%. The Insurance Commission’s major present the Annual Report for the financial year fund, the Third Party Insurance Fund (TPIF), recorded a ended 30 June 2016. solvency level of 137.4% in 2016 and 141.9% in 2015. The TPIF is currently achieving the Board’s long-term th This year is the 90 anniversary of the foundation of the objective to maintain a solvency level of not less than Insurance Commission, which started as an insurance 125% with a target of 135%. provider to miners in the goldfields of Kalgoorlie, Western Australia. Today, the organisation delivers During 2016, the Insurance Commission paid a dividend insurance services to almost two million Western of $112.5 million to Government from the TPIF as a Australians, businesses and public sector agencies. result of its strong investment performance in 2015. This amount included a $90 million special dividend The Insurance Commission, excluding the RiskCover paid as the Insurance Commission’s strong investment Fund that it manages on behalf of the Government of performance meant that it exceeded its solvency target Western Australia (Government), reports a profit after in 2015. tax of $11.8 million for 2016. In 2016, the Insurance Commission divested most CATASTROPHIC MOTOR INJURY INSURANCE of its direct property assets and is in the process of The Insurance Commission engaged extensively with reallocating the sale proceeds into different asset motorists and the disability sector during the year on classes as part of its investment diversification strategy. the expansion of motor injury insurance and to explain The consolidation effect of that divestment and the the scope and costs of that expanded insurance cover. Insurance Commission’s contribution to Government The Western Australian Parliament passed the Motor resulted in a reduction of State Net Debt by $795.4 Vehicle (Catastrophic Injuries) Act 2016 on 14 April million in 2016. The Insurance Commission also paid 2016, and from 1 July 2016 motor injury insurance $61.1 million in insurance duty and $56.3 million in tax expanded for 1.8 million insured motorists and to Government during 2016. 2.8 million registered vehicles they own. ACKNOWLEDGMENT
The expansion of insurance cover ensures that all I would like to acknowledge the contribution of the people catastrophically injured in crashes from Commissioners (Mr Terry Agnew, Dr Christopher 1 July 2016 are provided care. This will increase the Kendall, Mr Stephen Boyle and Ms Ainslie van insurance liabilities of the Insurance Commission by Onselen) who retired from the Board in 2016. These approximately $190 million per year as the Insurance Commissioners along with our new Board, the Chief Commission receives high-cost long-tail claims from Executive and his Executive Team and staff, have done an estimated 44 new claimants each year. an excellent job this year in delivering critical services for Western Australia. GOVERNMENT DIVIDEND AND TAXATION
The Board’s Dividend Policy and the Insurance I look forward to continuing the challenge next year of Commission of Western Australia Act 1986 balance the providing efficient and effective insurance services to Insurance Commission’s objective of delivering efficient motorists and the Government. and equitable insurance services to Western Australian
motorists while providing a basis to deliver a dividend to Government.
FRANK COOPER AO CHAIRMAN
1 INSURANCE COMMISSION ANNUAL REPORT 2016 1.2 CHIEF EXECUTIVE’S REPORT
In 2016, the Insurance Commission and RiskCover The total cost of car crashes to the Insurance received approximately 17,000 insurance claims and Commission in 2016 was $870.8 million, consisting of incurred total costs of over $1.3 billion, combining the $397 million in claims payments to people injured in claims paid to injured people and Government agencies crashes, mostly in prior years, and anticipated future ($637 million), and booked future claims expenses claims expenses of $473.8 million. for new and outstanding claims ($700 million). The net outstanding claims provision for motor injury The Insurance Commission and RiskCover generated claims increased by $104.5 million to $1.9 billion in 2016 more than $900 million in revenue and earnings in 2016. from $1.8 billion in 2015. This increase occurred despite The Insurance Commission’s profit before tax was the number of outstanding claims decreasing by 124 $5.1 million for 2016, which was well short of our target from June 2015. This means that the average cost of by $163.2 million. claims has risen and that claims costs may rise over the life of the claims received to date. Last year, I wrote in this report that investment returns drove the positive financial performance of the This year we delivered the Government’s policy Insurance Commission and RiskCover in 2015, as we to expand motor injury insurance cover to ensure delivered a 9.7% or $402.3 million investment return for all people catastrophically injured in crashes receive that year. That was the reason for our 2015 profit before lifetime treatment, care and support. Legislation was tax result of $265.8 million in 2015. This year investment passed in 2016 to broaden the cover for all people markets have been more challenging, and our profit catastrophically injured in a car crash in Western result is therefore significantly less than the 2015 result. Australia. This will significantly change the lives of an anticipated 44 people and their families each year, as MOTOR INJURY INSURANCE until 1 July 2016 they were uninsured for the cost of care.
In 2016, the Motor Injury Insurance Division of the To effect this, many of our staff were involved in the Insurance Commission recorded an underwriting loss preparation and passage of legislation, development of $5.2 million, compared to an underwriting loss of and delivery of system changes, and communication of $15.1 million in 2015. This was the 16th time in 20 years key changes to our customers. It is pleasing this project that we have recorded an underwriting loss for this was delivered largely by leveraging existing resources, insurance product. as that ensures the cost of motor injury insurance in Western Australia remains one of the most affordable in Motor injury insurance premium revenues are often Australia. insufficient to meet the costs of claims payments and management of the motor injury insurance scheme. We have implemented the expanded insurance cover We will continue to endeavour to reduce or eliminate with little increase to our administrative costs, which is underwriting losses in our Motor Injury Insurance a credit to our staff. We also appreciate the work done Division. by the Department of Transport to help implement the expansion of motor injury insurance. In 2016, we received almost $555 million in revenue in motor injury insurance premium payments for over Even after the price increase of $99 for most cars and 2.8 million insured vehicles. This was less than the motorcycles for this broader insurance cover, the cost forecast premium revenue of $559.3 million as Western of motor injury insurance in Western Australia ($409) Australia experienced slowing demand for new cars. will still be considerably cheaper than the motor injury Despite that lower growth, the fact that Western insurance premium rates in South Australia ($500), Australia has far more vehicles than it has licensed Victoria ($503), the Northern Territory ($547), the drivers helps keep our motor injury insurance premium Australian Capital Territory ($586) and New South lower per vehicle than elsewhere. Wales ($658). The cost of motor injury insurance can be even higher than these average figures for a car owner, as in New South Wales the cost for a standard utility can be over $1,200.
INSURANCE COMMISSION ANNUAL REPORT 2016 2 Providing this expanded insurance cover is forecast at 30 June 2016. The improvement in active claims to add approximately $190 million in liabilities each reflects the better job that Government agencies are year to the Insurance Commission and dramatically doing as a whole in reducing workplace injuries and changes the composition of our claims, as these will supporting staff to return to work earlier. be long-tail claims that may last for up to 90 years. It will be a consistent challenge to estimate the cost I applaud these efforts by agencies, as they have to support a person catastrophically injured many helped keep total premium costs for Government decades after their accident as medical costs rise flat since 2013. These efforts, along with the work well above inflation and technology changes. We will of RiskCover staff, have halted the steep growth in need to provision for these claims by ensuring there is premium costs for agencies since 2007, and have sufficient revenue and assets to meet these future care allowed the RiskCover Fund to re-build its solvency costs. levels to ensure sufficient assets are available to meet future claims costs. RISKCOVER Solid investment returns in the three years leading up The RiskCover Division of the Insurance Commission to 2016 have also contributed to the improved financial achieved its second positive underwriting result in performance of the RiskCover Fund, which has now seven years, $42.8 million ahead of costs in 2016. avoided an underwriting loss for the last two years. This result was $40.7 million better than budget and $21.2 million more than the $21.6 million underwriting Premium revenue in 2016 of $319.6 million was 2.8% result delivered in 2015. The underwriting performance higher than the 2015 result and has remained relatively was led by lower net claims incurred which reduced by stable over the past five years (average $302 million). 13.4% or $28.3 million in 2016 compared to 2015. Net claims incurred in 2016 are $53 million lower than the five-year average ($235.7 million). This is a strong The positive financial result for the year was due to result given inflationary pressures from wage growth RiskCover’s continued focus on improving claims (a significant component of claims costs) and other finalisation rates to reduce the cost of claims. In costs, and will lead to lower contributions to be paid by 2016, the number of finalised claims exceeded new agencies for their insurance cover. or reopened claims by 777, led by the workers’ compensation class of insurance, which finalised 398 Despite the improved performance, public sector more claims than it received or reopened. This resulted agencies continue to have mental stress workers’ in lower net incurred claims, which were $83.2 million compensation claims at a rate well above that seen in lower than budget. Workers’ compensation claims the private sector. Mental stress claims now average delivered a $65 million reduction. almost $50,000 per claim compared to all others that cost between $15,000 and $30,000 per claim. More Also supporting the positive result was a reduction in work is required by the public sector to prevent the the number of new insurance claims received (1,854 incidents that give rise to mental stress claims. fewer than 2015). The lower new claims received were mostly in the short-tail insurance classes with fewer The RiskCover profit for 2016 was a very solid ‘property in transit’ and lost and stolen laptop property $66.3 million, but was $34.2 million lower than the 2015 claims, and fewer motor damage claims. profit of $100.5 million. This was mostly due to the investment return not being able to match last year’s Over the last two years, there have been 3,576 fewer result. This is a good result for RiskCover following a new insurance claims received compared to 2014. period of losses between 2008 and 2012. This is an excellent result and one that we hope will continue. INVESTMENTS
Workers’ compensation insurance claim volumes In 2016, investment performance was less favourable remained relatively flat during 2016 at about 4% less than in recent years. The Insurance Commission than 2014 results. This, combined with strong claims recorded an investment return of 1.6% for 2016, after finalisation efforts has resulted in a 10% (457 claims) last year delivering almost 10%. The investment return reduction in active workers’ compensation claims as result in 2016 represented a $332.2 million reduction in earnings from the 2015 financial year. A drop in 3 INSURANCE COMMISSION ANNUAL REPORT 2016 revenue of this amount from one year to the next can We recently appointed two law firms to assist the cause significant issues for most listed companies Insurance Commission pursue its interests in the and government trading enterprises. The Insurance Bell Group liquidations. These firms and the State Commission is no different. We must continue to better Solicitor’s Office will provide the resources to tackle position our main insurance lines to be supported issues in multiple courts for as long as is necessary. by premium revenue and improved operational efficiencies to reduce the reliance on these investment OUR PEOPLE returns to break even or make a profit. I would like to record my appreciation of the efforts of our staff, the Executive and all Board members guiding DIVERSIFICATION OF INVESTMENT PORTFOLIO the Insurance Commission during 2016. The Insurance Commission’s direct property portfolio represented almost 20% of the total investment Our staff continue to rise to the challenge of improving assets in the portfolio. These assets were all in Perth, service delivery for our customers by seeking to cut Western Australia. red tape and embrace change. Examples of this include the successful delivery of a project to enable The Board decided in 2015 to reduce its exposure service providers to be paid more quickly via Electronic to direct property in a concentrated portfolio, and Funds Transfer rather than cheques, improvements to during 2016, the Insurance Commission sold two our claims letters to simplify customer communication, shopping centres and two commercial office towers. and the implementation of optical character recognition The sale prices for the four properties combined total technology to automate claims document handling and almost $600 million and exceeded property portfolio processing. We have also made a number of structural valuations. changes within the insurance divisions to work more effectively and better meet our customers’ needs. At the end of 2016, the Insurance Commission owns one direct property, Westralia Square, located Our capital works expenditure during the year on at 141 St Georges Terrace, Perth. these service delivery projects and others was kept low at $2.9 million and continues our efforts to deliver Our financial statements include a value for Westralia incremental change to our information technology Square based on an independent valuation. We have infrastructure. accepted the valuation provided for this asset. We recognise the challenges of attracting, retaining As a result of asset allocation decisions and the sale and nurturing a talented and diverse workforce. During of direct property assets, the Insurance Commission’s the year the Insurance Commission, through its cash holdings have increased to approximately 30% of Human Resources Division and its Talent Identification the total investment fund. Committee, has introduced a mentoring program and a women in leadership program to complement existing BELL GROUP RECOVERIES employee development programs. The Insurance Commission continues to pursue its legal rights in the Bell Group liquidations. Litigation is We have improved the ratio of women in management underway in multiple jurisdictions. I am advised this positions in the last few years, but we have more work could take up to 15 years to resolve. to do.
ROD WHITHEAR CHIEF EXECUTIVE
INSURANCE COMMISSION ANNUAL REPORT 2016 4 1.3 Performance Highlights FUND OVERVIEW
Compensation Third Party Government (Industrial Diseases) Insurance Fund Insurance Fund Fund
INSURANCE COMMISSION
Motor Vehicle Insurance Commission RiskCover (Catastrophic Injuries) Not consolidated into Insurance General Fund Fund – commenced 1 July 2016 Commission’s finances.
INSURANCE COMMISSION (TOTAL)
PROFIT TOTAL BEFORE TAX $5.1m ASSETS $4.7b
PREMIUM TOTAL REVENUE $555.1m EQUITY $1.1b
UNDERWRITING LOSS $42.5m SOLVENCY 131.2%
THIRD PARTY INSURANCE FUND RISKCOVER Major fund of the Insurance Commission
PROFIT PROFIT BEFORE TAX $61.4m BEFORE TAX $66.3m
PREMIUM PREMIUM REVENUE $555.0m REVENUE $319.6m
UNDERWRITING UNDERWRITING LOSS $5.2m PROFIT $42.8m
TOTAL TOTAL ASSETS $3.4b ASSETS $963.3m
TOTAL TOTAL EQUITY $932.5m EQUITY $228.7m SOLVENCY 137.4% SOLVENCY 131.1%
5 INSURANCE COMMISSION ANNUAL REPORT 2016 2016 HIGHLIGHTS
CUSTOMERS INSURANCE CLAIMS including RiskCover
16,751 $637m 2,804,703 TOTAL CLAIMS TOTAL PAID TOTAL INSURED VEHICLES
1,805,895 CONTRIBUTION TO THE STATE TOTAL INSURED DRIVERS NET DEBT REDUCTION $795.4m
DIVIDENDS* $112.5m 167 TOTAL GOVERNMENT INSURANCE DUTY $61.1m AGENCIES COVERED
TAX PAID $56.3m
* Dividends paid from the Third Party Insurance Fund for 2015 performance. 123,349 TOTAL GOVERNMENT EMPLOYEES COVERED
JULY EXPANSION OF MOTOR 1 INJURY INSURANCE 2016 START DATE 1 JULY 2016
Cover provided to over 1.8m road users. $54b All people catastrophically injured in crashes will receive care. TOTAL GOVERNMENT Extensive consultation and engagement with motorists and health PROPERTY VALUE COVERED and disability sector.
INSURANCE COMMISSION ANNUAL REPORT 2016 6 1.4 Financial Overview
2016 2015 2014 2013 2012 INSURANCE COMMISSION (TOTAL) $’000 $’000 $’000 $’000 $’000 STATEMENT OF COMPREHENSIVE INCOME Net Premium Revenue 550,057 519,615 491,033 458,828 440,454 Net Claims Incurred (510,279) (491,866) (681,521) (318,075) (607,022) Net Movement in Unexpired Risk Liability - - - 11,230 (11,230) Underwriting and Administration Expenses (82,249) (78,059) (76,350) (68,693) (79,920) Underwriting (Loss)/Profit (42,471) (50,310) (266,838) 83,290 (257,718)
Net Investment and Other Income 47,618 316,131 366,382 340,795 73,041 Profit/(Loss) Before Income 5,147 265,821 99,544 424,085 (184,677) Tax Equivalent (Expense)/Benefit
Income Tax Equivalent Benefit/(Expense) 6,679 (72,328) (23,514) (112,051) 62,705 Profit/(Loss) After Income Tax Equivalent 11,826 193,493 76,030 312,034 (121,972) (Expense)/Benefit
Other Comprehensive Income/(Loss) after Income (238) (5,435) (24,554) 2,098 19,383 Tax Equivalent (Expense)/Benefit Total Comprehensive Income/(Loss) After 11,588 188,058 51,476 314,132 (102,589) Income Tax Equivalent (Expense)/Benefit
STATEMENT OF FINANCIAL POSITION Total Assets 4,692,341 4,675,439 4,257,056 3,915,855 3,465,269 Total Liabilities (3,576,047) (3,438,912) (3,173,519) (2,818,004) (2,681,550) Total Equity 1,116,294 1,236,527 1,083,537 1,097,851 783,719
RISKCOVER STATEMENT OF COMPREHENSIVE INCOME Premium Revenue 319,557 310,964 310,085 314,115 255,742 Reinsurance and Other Adjustments (62,449) (47,631) (76,807) (73,656) 6,914 Net Premium Revenue 257,108 263,333 233,278 240,459 262,656
Claims Expense (195,243) (220,883) (246,245) (283,112) (326,828) Reinsurance and Other Recoveries 12,520 9,901 6,365 10,695 54,331 Revenue/(Expense) Net Claims Incurred (182,723) (210,982) (239,880) (272,417) (272,497)
Underwriting and Administration Expenses (31,585) (30,737) (30,397) (30,441) (29,898) Underwriting Profit/(Loss) 42,800 21,614 (36,999) (62,399) (39,739)
Investment Income 23,540 78,914 77,469 82,675 12,587 Total Comprehensive Income/(Loss) 66,340 100,528 40,470 20,276 (27,152)
STATEMENT OF FINANCIAL POSITION Total Assets 963,265 896,184 776,859 712,685 648,957 Total Liabilities (734,602) (733,861) (715,064) (691,360) (647,908) Total Equity 228,663 162,323 61,795 21,325 1,049
7 INSURANCE COMMISSION ANNUAL REPORT 2016 Actual performance compared to budget Insurance Commission (Total)
ACTUAL $’000 BUDGET $’000 VARIANCE* $’000 Net Premium Revenue 550,057 553,684 (3,627) Net Claims Incurred (510,279) (501,436) (8,843) Underwriting and Administration Expenses (82,249) (86,206) 3,957 Underwriting Loss (42,471) (33,958) (8,513)
Net Investment Income 39,050 217,712 (178,662) Finance Costs - RiskCover Investment Return (23,540) (47,367) 23,827 Other 32,108 31,946 162 Profit before Income Tax Equivalent Expense 5,147 168,333 (163,186)
Income Tax Equivalent Expense 6,679 (50,500) 57,179 Profit After Income Tax Equivalent Expense 11,826 117,833 (106,007)
This comparison excludes the RiskCover Fund.
* For full details, refer Financial Statements section. Detailed explanations of variances are contained in Note 27 ‘Explanatory Statement’ of the financial statements.
Total Equity (as per Statement of Financial Position) 1,116,294
ACTUAL BUDGET VARIANCE* Annual Investment Rate of Return (%) 1.6 5.7 (4.1) Return on Total Assets (%) 0.1 3.8 (3.7) Solvency Level (%) 131.2 137.2 (6.0) Investment Rolling 7 Year Return (%) 8.4 6.0 2.4 Net Loss Ratio (%) ** 91.2 90.6 (0.6) Net Expense Ratio (%) ** 9.8 10.2 0.4 Net Combined Ratio (%) ** 101.0 100.8 (0.2)
This comparison excludes the RiskCover Fund.
* Detailed explanations of variances are contained in the Performance section. ** Third Party Insurance Fund only.
INSURANCE COMMISSION ANNUAL REPORT 2016 8 Actual performance compared to budget Riskcover
ACTUAL $’000 BUDGET $’000 VARIANCE* $’000 Premium Revenue 319,557 321,597 (2,040) Reinsurance and Other Adjustments (62,449) (18,934) (43,515) Net Claims Incurred (182,723) (265,939) 83,216 Underwriting and Administration Expenses (31,585) (34,661) 3,076 Underwriting Profit/(Loss) 42,800 2,063 40,737
Net Investment Income 23,540 47,367 (23,827) Profit 66,340 49,430 16,910
* For full details, refer to Notes 3 and 38 of the Financial Statements.
Total Equity (as per Statement of Financial Position) 228,663
ACTUAL BUDGET VARIANCE* Solvency Level (%) 131.1 121.7 9.4 Net Loss Ratio (%) 71.1 87.9 16.8 Net Expense Ratio (%) 12.3 11.5 (0.8) Net Combined Ratio (%) 83.4 99.4 16.0
* Detailed explanations of variances are contained in the Performance section.
9 INSURANCE COMMISSION ANNUAL REPORT 2016 2. OVERVIEW
2.1 WHO WE ARE
The Insurance Commission is a Government Business The Insurance Commission administers the Motor Enterprise and a statutory corporation owned by the Vehicle (Third Party Insurance) Act 1943 and the Government of Western Australia. Motor Vehicle (Catastrophic Injuries) Act 2016.
Our enabling legislation is the Insurance Commission of The responsible Minister is the Hon Dr Mike Nahan MLA, Western Australia Act 1986. Treasurer, Minister for Energy, Citizenship and Multicultural Interests.
2.2 WHAT WE DO
The Insurance Commission is primarily responsible for: • Insurance Commission General Fund;
• administering, underwriting and managing motor • Government Insurance Fund; and injury insurance; • Compensation (Industrial Diseases) Fund. • managing RiskCover, the self-insurance arrangements on behalf of Government; The Insurance Commission also manages but does not underwrite the: • investing and managing funds to provide assets to meet insurance liabilities; and • RiskCover Fund;
• advising Government about insurance matters. • Employers’ Indemnity Supplementation Fund;
The Insurance Commission manages and • Former Police Officers’ Medical Benefit Scheme; underwrites the: and
• Third Party Insurance Fund; • Indian Ocean Territories Motor Injury Insurance Scheme (on behalf of the Commonwealth). • Motor Vehicle (Catastrophic Injuries) Fund;
INSURANCE COMMISSION ANNUAL REPORT 2016 10 2.3 OUR APPROACH
Our approach to what we do is reflected in our vision, mission and core values.
VISION
A Government Business Enterprise delivering efficient and equitable insurance services to WA motorists and Government Departments and Authorities.
MISSION
To provide high quality and efficient:
• motor injury insurance for WA motorists;
• self-insurance fund management (RiskCover) for Government Departments and Authorities;
• industrial diseases insurance to the mining sector and management of the Insurance Commission General Fund, Employers’ Indemnity Supplementation Fund and Government Insurance Fund; and
• advice to the Government on insurance matters.
CORE VALUES
In everything we do, our Core Values are:
• simplicity; • integrity and openness; and
• teamwork; • respect and compassion.
• accountability;
2.4 OPERATIONAL STRUCTURE
The Insurance Commission delivers services through the following main areas: 1. Motor Injury Insurance; 3. Investments; and 2. RiskCover; 4. Corporate Services.
11 INSURANCE COMMISSION ANNUAL REPORT 2016 2.4.1 Motor Injury Insurance Division
The Insurance Commission is the sole underwriter of motor vehicle crashes. The policy now provides cover motor injury insurance in Western Australia (WA). One to any person catastrophically injured in a crash in WA. motor injury insurance policy is governed by two Acts of The policy is issued to motorists along with the motor Parliament: the Motor Vehicle (Third Party Insurance) vehicle registration by the Department of Transport Act 1943 and the Motor Vehicle (Catastrophic Injuries) (DoT) and its agents who collect premium payments Act 2016. on behalf of the Insurance Commission.
The policy provides owners and drivers of WA registered At 30 June 2016, there were over 2.8 million motor vehicles with an unlimited indemnity against personal vehicles insured in WA (including approximately injury claims for injuries they cause to others in 524,000 caravans and trailers).
INSURED VEHICLE CLASSES
FARMING CARS CARAVANS GOODS MOTOR OTHER & TRAILERS VEHICLES CYCLES VEHICLES
1,567,000 524,000 473,000 136,000 80,000 48,000
The Insurance Commission has delivered Compulsory COMPULSORY THIRD PARTY (CTP) SCHEME Third Party (CTP) insurance in WA for 70 years, which provides compensation to claimants where the fault of Any third party injured as a consequence of the negligent a third party in a crash causing injury can be identified. driving of a WA registered motor vehicle anywhere in From 1 July 2016, the Insurance Commission also Australia is entitled to pursue a claim for personal injury delivers Catastrophic Injuries Support (CIS) insurance, compensation under the CTP scheme. We pay for the which covers the cost of catastrophic injuries suffered cost of personal injuries where a driver injures another by any person in a crash in WA, where they are either person. at fault in the crash or unable to find another person at If fault by another party can be established by an injured fault in the crash. It has been commonly referred to as claimant, interim progressive payments for related ‘no-fault catastrophic motor injury insurance’. medical costs and for proven past economic loss are The combination of CTP and CIS insurance cover is generally made. There is no legal requirement for the now known as motor injury insurance. Insurance Commission to pay for medical care before the claim is settled, but this payment policy aims to The Third Party Insurance Fund (TPIF) is associated with alleviate financial hardship and minimise inconvenience the CTP scheme, and the Motor Vehicle (Catastrophic to claimants and their families. Injuries) Fund is associated with the CIS scheme. The Motor Injury Insurance Division manages the claims The Insurance Commission also assumes the role of a associated with both schemes. ‘Nominal Defendant’ under the Motor Vehicle (Third Party Insurance) Act 1943, where for example, a third party is injured in a motor vehicle crash with another vehicle and either the driver or the vehicle is uninsured and or cannot be identified.
INSURANCE COMMISSION ANNUAL REPORT 2016 12 CATASTROPHIC INJURIES SUPPORT (CIS) SCHEME Insurance premium revenue for the CIS scheme is paid into the Motor Vehicle (Catastrophic Injuries) Fund. From 1 July 2016, any person that is catastrophically Together with investment income, this revenue is to be injured in a crash involving a registered motor vehicle used to pay CIS claims and scheme administration costs in WA and is either at fault in the crash or unable to find incurred from 1 July 2016. another person at fault, can access lifetime treatment, care and support through the CIS scheme. Catastrophic INDIAN OCEAN TERRITORIES MOTOR INJURY injuries are the worst injuries that people receive in car INSURANCE SCHEME crashes (see nowcovered.com.au for definitions of The Insurance Commission, under a Service Delivery catastrophic injuries). Arrangement with the Commonwealth Government, The Motor Vehicle (Catastrophic Injuries) Act 2016 was manages the Indian Ocean Territories Motor Injury passed during the year, and together with amendments to Insurance Scheme, on a fee-for-service basis. the Insurance Commission of Western Australia Act 1986 and the Motor Vehicle (Third Party Insurance) Act 1943, this legislation established the CIS scheme on 1 July 2016.
2.4.2 RiskCover Division
The RiskCover Division manages and administers GOVERNMENT INSURANCE FUND a number of functions for the State Government. The Government Insurance Fund (GIF) is a consolidation of the Government’s superseded self- RISKCOVER FUND insurance arrangements that preceded RiskCover. The RiskCover Fund is the self-insurance arrangement The Fund is in run-off and RiskCover manages claims for WA Government public authorities (agencies). received against it on behalf of Government. RiskCover provides cover for the majority of the agencies’ insurable risk exposures including: The WA Department of Treasury has financial responsibility for any deficit in the GIF and its liabilities • workers’ compensation; via a Right of Indemnity Agreement. • loss or damage to property; COMPENSATION (INDUSTRIAL DISEASES) FUND • legal liability cover for general, professional and The Insurance Commission issues industrial diseases medical treatment; and insurance policies to employers involved in the mining • personal accident. industry and pays claims against these policies. The liabilities are underwritten by the Insurance Commission The RiskCover Division collects fund contributions and claims are paid from the Compensation (Industrial (premiums) from agencies and manages claims. Diseases) Fund (CIDF).
Financial assets are held and invested by the Insurance Commission on behalf of Government to meet insurance liabilities.
13 INSURANCE COMMISSION ANNUAL REPORT 2016 INSURANCE COMMISSION GENERAL FUND liquidation. WorkCover WA invokes a levy on workers’ compensation policyholders to fund EISF liabilities. The Insurance Commission General Fund (ICGF) The majority of existing EISF liabilities arose from the caters for the run-off of non-government liabilities of the collapse of the HIH Group of Companies in 2001. former SGIO. No policies have been issued since 1987. Liabilities relate to workers’ compensation and public RiskCover also manages claims lodged against liability claims, including claims against the mining WorkCover WA’s General Fund, mainly for injured industry for asbestos related diseases (not covered by workers of uninsured employers. the CIDF). FORMER POLICE OFFICERS’ MEDICAL The ICGF acts as the operating fund of the Insurance BENEFIT SCHEME Commission. Investment assets are held within the ICGF The Police (Former Officers’ Medical and Other and then allocated to other funds. Insurance Commission Expenses) Act 2008 was enacted to cater for medical assets for its own use are held within the ICGF. The asset and other expenses incurred post-separation by revaluation reserve for the Forrest Centre, prior to the former Police Officers and Aboriginal Police Liaison sale of that asset, was held in the ICGF. Officers who sustained a work-related injury or disease WORKCOVER WA FUNDS during service and have since left WA Police.
WorkCover WA manages the Employers’ Indemnity The Police Commissioner is liable for the medical and Supplementation Fund (EISF). The Insurance other expenses incurred, and appointed the Insurance Commission manages claims against this Fund when Commission to manage claims on behalf of Western an authorised workers’ compensation insurer goes into Australia Police.
2.4.3 Investments
The Insurance Commission, assisted by its independent The Insurance Commission uses external investment investment consultant, determines an investment managers and directly manages some assets. The strategy to assist it acquire, hold and develop investment Treasurer approves the appointment of external assets to meet its insurance liabilities in line with investment managers. prudential guidelines approved by the Treasurer of The Investments Division invests RiskCover funds and Western Australia. other moneys it holds on behalf of the Government in The Insurance Commission’s investment objectives are to: its investment portfolio under the same arrangements used for the investment of other funds managed by • achieve an investment performance target of the Insurance Commission. The new Motor Vehicle Consumer Price Index plus 3.5% annualised over (Catastrophic Injuries) Fund will use the same rolling seven-year periods; arrangements, but have a different allocation to • achieve a rate of return for each asset class that investment assets. exceeds the relevant performance benchmark over rolling three-year periods;
• maintain a level of liquidity that is sufficient at all times to meet insurance payments; and
• assist the Insurance Commission maintain a fully- funded position.
INSURANCE COMMISSION ANNUAL REPORT 2016 14 2.4.4 Corporate Services
The two core insurance divisions (Motor Injury Insurance some other legal services to the business. The two core and RiskCover) and the Investments Division are insurance divisions are also supported by the business supported by the Executive, Finance and Administration, functions of Fraud Investigations, Business Improvement Information Technology and Human Resource areas. and Services, and Business Systems and Analysis. Legal Services has a primary function to protect and Fraud Investigations focuses on identifying potential pursue the Insurance Commission’s interests in the fraudulent behaviour against our motor injury insurance Bell Group litigation and recovery, but also provides and RiskCover operations.
BUSINESS IMPROVEMENT INITIATIVE
% OF PAYMENTS MADE BY CHEQUE VS EFT 90%
80%
70%
60%
50%
40%
30%
20%
10%
Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Cheque EFT
The Insurance Commission makes over 125,000 the last two years. Today, 85% of payments by the payments each year to claimants, service providers Insurance Commission are now made via EFT. and government agencies. In 2014, over 50% of these payments were made via cheque. During 2016, 2,200 service providers transitioned to EFT payments, reducing cheque payments by In 2015, the Insurance Commission commenced a almost 17,000. This reduction in cheque payments business improvement initiative to transition payments has resulted in estimated savings of over $38,000. from cheque to Electronic Funds Transfer (EFT). This initiative aims to reduce the payment processing costs The Insurance Commission intends to further of both the Insurance Commission and its service reduce the volume of cheque payments in 2017. providers. The Insurance Commission aims to ensure that all payments are made by 30 days of invoice receipt. As a result of this initiative, the number of cheques issued by the Insurance Commission has halved over
15 INSURANCE COMMISSION ANNUAL REPORT 2016 2.5 GOVERNANCE
2.5.1 Board of Commissioners
The Insurance Commission’s Board is responsible The Chief Executive, who is a Commissioner ex officio, for providing effective governance and performing the is responsible for managing the day-to-day operations of functions and duties required of it under the Insurance the Insurance Commission. Commission of Western Australia Act 1986.
Back row from left: Carol Dolan (Commissioner), Rob Bransby (Commissioner), Andrea Hall (Commissioner), and John Scott (Deputy Chairman)
Front row from left: Rod Whithear (Commissioner ex officio), Frank Cooper AO (Chairman) and Yasmin Broughton (Commissioner)
During 2016, former Commissioners Mr Terry Agnew, Mr Stephen Boyle, Dr Christopher Kendall and Ms Ainslie van Onselen retired from the Board.
2.5.2 Executive Team
Back row from left: Bruce Meredith (General Counsel), Glenn Myers (Chief Information Officer), Kane Blackman (Commission Secretary), Rick Howe (Deputy Chief Executive) and Damon de Nooyer (Chief Finance Officer)
Front row from left: Grant Speight (General Manager HR), Julie O’Neill (Chief Investment Officer), Rod Whithear (Chief Executive), Janice Gardner (Acting General Manager RiskCover), Fab Zanuttigh (General Manager Motor Injury Insurance) and Don Williams (former General Manager RiskCover)
During 2016, former General Manager of RiskCover Don Williams retired from the Insurance Commission.
INSURANCE COMMISSION ANNUAL REPORT 2016 16 2.6 PERFORMANCE MANAGEMENT FRAMEWORK 2.6.1 Outcome Based Management Framework
The Insurance Commission contributes to the following two Government goals:
Outcomes based service delivery: greater focus on achieving results in key service delivery Goal 1 areas for the benefit of all Western Australians.
INSURANCE COMMISSION OUTCOMES INSURANCE COMMISSION SERVICES • Fully funded Third Party Insurance Fund; • Provide efficient administration, underwriting and management of the statutory motor injury insurance • affordable premiums for Western Australian scheme; vehicle owners; • provide timely, equitable and efficient motor injury • a motor injury insurance claims system that insurance claims management service; treats claimants fairly and delivers equitable compensation; • collect RiskCover fund contributions (premiums) from agencies; • fully funded RiskCover Fund; • provide agencies with high quality insurance advice • sustainable fund contributions (premiums) to and efficient administration, underwriting and RiskCover agencies; and management of self-insurance via the RiskCover • a RiskCover claims system that treats agencies Division; and and claimants fairly and delivers equitable • provide timely, equitable and efficient RiskCover compensation. claims management services.
Financial and economic responsibility: responsibly managing the State’s finances through Goal 2 the efficient and effective delivery of services, encouraging economic activity and reducing regulatory burdens on the private sector.
INSURANCE COMMISSION OUTCOMES INSURANCE COMMISSION SERVICES Sufficient financial resources to be able to meet Perform Fund management and investment functions commitments. to manage monies and other property to provide assets to meet insurance liabilities.
Image: The Insurance Commission started in 1926 as an insurance provider to miners in the goldfields of Kalgoorlie, Western Australia.
17 INSURANCE COMMISSION ANNUAL REPORT 2016 2.6.2 Shared Responsibilities with other Public Authorities
DEPARTMENT OF TRANSPORT made, which predominantly stem from the collapse of the HIH Group of Companies in 2001, are reimbursed The Department of Transport (DoT) and its agents by WorkCover as per the Employers’ Indemnity issue motor injury insurance policies and collect motor Supplementation Fund Act 1980. injury insurance premiums on behalf of the Insurance Commission. In exchange for this service, the Insurance On behalf of WorkCover WA, RiskCover also manages Commission pays a fee to DoT per transaction. For 2016, claims lodged against WorkCover WA’s General Fund. this fee was $3.92 per transaction. The total amount paid to DoT in 2016 was $21.8 million. WESTERN AUSTRALIA POLICE
The partnership between the Insurance Commission and Online Crash Reporting DoT provides WA motorists a ‘one-step’ process to renew The Online Crash Reporting Facility (OCRF) is a joint vehicle registration and motor injury insurance in an initiative of the Insurance Commission and WA Police, efficient and cost-effective manner. with the Insurance Commission providing customers with an efficient and convenient ‘one-step’ mechanism to The expansion of motor injury insurance from 1 July 2016 report motor vehicle crashes in WA. to cover all people catastrophically injured in crashes was assisted by DoT. The DoT helped communicate changes The facility is a good example of inter-agency to motorists, and implement the new insurance policy. cooperation. No police station visit is required to report a The DoT now issues the Insurance Commission’s ‘plain car crash to trigger insurance claims, saving people time English’ motor injury insurance (CTP and CIS) policy and police resources. that clearly and succinctly states the insurance cover motorists are purchasing when they renew their vehicle As well as providing a more efficient, convenient and registration. customer focused means of reporting crashes, the improved reliability, accuracy and completeness of crash INDIAN OCEAN TERRITORIES data delivered by the OCRF provides better data to inform road safety strategies and initiatives in WA. The Insurance Commission, via a Service Delivery Arrangement with the Commonwealth Government, The Insurance Commission is endeavouring to work with manages the Indian Ocean Territories Motor Injury other agencies to link more tightly the cost of crashes Insurance Scheme on a fee-for-service basis. costing the Insurance Commission nearly half a billion dollars each year and road safety investment efforts. WORKCOVER
The Insurance Commission manages claims from Former Police Officers the Employers’ Indemnity Supplementation Fund Act The Insurance Commission manages claims lodged 1980, Workers’ Compensation and Injury Management by former Police Officers and Aboriginal Police Liaison (Acts of Terrorism) Act 2001 and Waterfront Workers’ Officers under the Police (Medical and Other Expenses (Compensation for Asbestos Related Diseases) Act 1986. for Former Officers) Act 2008. Claims management expenses and claims payments
Image: The Insurance Commission started in 1926 as an insurance provider to miners in the goldfields of Kalgoorlie, Western Australia.
INSURANCE COMMISSION ANNUAL REPORT 2016 18 3. Performance Image: Provided by Fiona Stanley Hospital.
3.1 INSURANCE COMMISSION
The Insurance Commission’s profit before income Claims expenses of $520 million in 2016 were in line tax (excluding RiskCover) of $5.1 million was with the 2015 result of $519 million. However, the net significantly lower than the targeted profit of outstanding claims provision increased significantly $168.3 million, with revenue of $672.6 million by almost $108 million, largely as a result of increases and expenses of $667.5 million. in provisions for future costs of motor injury insurance claims. The 2016 financial result was considerably lower than the profit before tax result delivered in 2015 Gross investment income for the year was $70.1 million, of $265.8 million and in 2014 of $99.5 million. with the majority of that return attributed to moderate The main reason for the 2016 result is that the growth in Australian equity markets (3.2% return), Insurance Commission’s investment portfolio alternative asset investments (11.5% return) and cash return was lower than budget by $188.1 million. (2.5% return).
Premium revenue received during 2016 increased $30.2 million to $555 million.
3.1.1 Insurance Commission Outcome and Key Performance Indicators
The Office of the Auditor General audits the Insurance Outcome 1 Commission’s key performance indicators (KPIs) annually. Other important indicators providing a broader To have sufficient financial resources to be able to perspective of the Insurance Commission’s performance meet its commitments. are also included in this report.
The Insurance Commission has a combination of Due to the relative size of the TPIF, some Insurance effectiveness and efficiency KPIs to measure its Commission efficiency KPIs (net loss, net expense and performance against the following outcome: net combined ratios) are reported based solely on that Fund’s result as it is by far the largest Fund operated by the Insurance Commission. The TPIF therefore drives the financial results of the Insurance Commission.
19 INSURANCE COMMISSION ANNUAL REPORT 2016 EFFECTIVENESS KPI - RETURN ON TOTAL ASSETS (%)
This KPI is calculated as the Insurance Commission’s and is expressed as a percentage. This KPI measures profit/(loss) before income tax (expense)/benefit how well the Insurance Commission is using its assets divided by its total assets (sum of total assets at start to produce income. of financial year and end of financial year divided by 2)
RETURN ON TOTAL ASSETS (%) 14 12 10 8 % 6 4 2 0 2013 2014 2015 2016
TARGET 3.8
ACTUAL 11.5 2.4 6.0 0.1
In 2016, the profit before income tax of $5.1 million better than target primarily due to a better than was worse than the targeted profit of $168.3 million. expected value of investment assets at the start of the Average total assets were $183.2 million (4.1%) financial year.
EFFECTIVENESS KPI - INVESTMENT ROLLING 7-YEAR RETURN (%)
This KPI calculates the long-term investment This KPI measures whether investment returns have performance, measured over a rolling 7-year period as achieved the Board’s long-term Consumer Price Index a percentage (on a per annum basis) of the amount of (CPI) plus 3.5% investment objective. money invested.
INVESTMENT ROLLING 7-YEAR RETURN (%)
12 10 8
% 6 4 2 0 2013 2014 2015 2016
TARGET 6.0
ACTUAL 7.4 5.5 7.0 8.4
The investment rolling 7-year return was 8.4%, above The increase in the rolling 7-year return reflects one of the target estimate of 6% and above the actual CPI the negative performance years following the Global +3.5% outcome of 5.7%. Financial Crisis dropping out of the calculation period.
INSURANCE COMMISSION ANNUAL REPORT 2016 20 EFFECTIVENESS KPI - ANNUAL INVESTMENT RATE OF RETURN (%)
This KPI calculates the amount of revenue/(loss) the Insurance Commission’s performance compared to a Insurance Commission’s investment strategy generates specific market-related benchmark. The benchmark is a over the financial year as a percentage of the value of mix of Australian and global share market, fixed interest the opening investment assets. This KPI measures the and property indices.
ANNUAL INVESTMENT RATE OF RETURN (%)
16 14 12 10
% 8 6 4 2 0 2013 2014 2015 2016
TARGET 5.7
ACTUAL 14.9 10.5 9.7 1.6
The annual investment rate of return for 2016 of 1.6% Alternative assets performed strongly (11.5%), followed was below the target of 5.7% predominantly due to by Australian shares (3.2%), cash (2.5%), property underperformance in the global shares, fixed interest (1%), fixed interest (0.7%) and global shares (-6.9%). and property asset classes.
EFFECTIVENESS KPI - SOLVENCY LEVEL (%)
This KPI calculates Total Assets as a percentage of This KPI measures the ability of the Insurance Total Liabilities for the Insurance Commission. Commission to meet its long-term financial obligations as they fall due.
SOLVENCY LEVEL (%) 145 140 135 130 % 125 120 115 110 2013 2014 2015 2016
TARGET 137.2
ACTUAL 139.0 134.1 136.0 131.2
The solvency level of 131.2% is lower than the target claims liabilities following the actuarial review at 30 June result of 137.2% for the financial year. This was primarily 2016 for the Third Party Insurance Fund and lower than due to the higher than forecast increase in outstanding expected investment returns.
21 INSURANCE COMMISSION ANNUAL REPORT 2016 EFFICIENCY KPI - INVESTMENT MANAGEMENT EXPENSE RATIO (%)
This KPI calculates the total management costs average of the twelve month end valuations) of the (investment manager fees, custodian fees, investment Insurance Commission’s investment portfolio. This advisor fees, Investment Division administration KPI is a standard industry measure of the Insurance fees, legal fees and audit fees) as a percentage Commission’s efficiency in managing its investments. of the average asset value (calculated as an
INVESTMENT MANAGEMENT EXPENSE RATIO (%) 0.60 0.50 0.40
% 0.30 0.20 0.10 0 2013 2014 2015 2016
TARGET 0.45
ACTUAL 0.43 0.42 0.53 0.54
The investment management expense ratio of 0.54% The higher than target investment manager fees for the year was above the target of 0.45% due to were primarily due to higher than target performance investment manager fees being $4.9 million higher fees paid to an investment manager resulting from a than target. restructure of its fund.
3.2 MOTOR INJURY INSURANCE
TOTAL NEW TOTAL CLAIMS UNDERWRITING DECREASE IN NEW CLAIMS PAYMENTS LOSS CLAIMS RECEIVED 3,029 $397m $5.2m 13%
The Motor Injury Insurance Division recorded an • Lower than forecast number of claims finalisations underwriting loss of $5.2 million for 2016 compared to (finalised 3,153 claims compared to a forecast of losses of $15.1 million in 2015 and $228.8 million in 3,533 claims); 2014. • Falls in risk-free rates over the year due to deflation This underwriting result followed: fears and falling interest rates (ten-year bond yield fell from 3.01% at 30 June 2015 to 1.98% at 30 June • Fewer new motor injury insurance claims received 2016), exacerbated in June 2016 by the decision of (449 fewer new claims in 2016 compared to 2015, the United Kingdom to exit the European Union. and 392 fewer new claims compared to forecast); The net outstanding claims provision for the TPIF • Increased future claims costs (outstanding claims increased from $1.8 billion in 2015 to $1.9 billion in liabilities of the TPIF at 30 June 2016 worsened 2016. This increase has occurred despite the number of following actuarial review, by $104.5 million outstanding claims decreasing by 124 from June 2015. compared to a smaller negative movement of $40.9 million in 2015);
INSURANCE COMMISSION ANNUAL REPORT 2016 22 EXPANDED MOTOR INJURY INSURANCE
Background The implementation of the catastrophic injuries support scheme has provided an opportunity for the A major achievement for the Insurance Commission Insurance Commission to enhance the services it in 2016 has been the expansion of motor injury provides to people catastrophically injured in crashes insurance to cover all people catastrophically injured who can claim through the Compulsory Third Party in motor vehicle crashes. motor injury insurance scheme. After extensive consultation with the public and The Insurance Commission’s care services the health and disability sectors, the Motor Vehicle coordinators now make early contact with all people (Catastrophic Injuries) Act 2016 was passed in April catastrophically injured and their families, and are 2016 and the Catastrophic Injuries Support scheme involved in planning for their discharge from hospital commenced on 1 July 2016. and coordinating ongoing care and support, with a As a result, all people catastrophically injured in strong focus on early intervention and maximising motor vehicle accidents from 1 July 2016 are able to rehabilitation potential. access necessary and reasonable treatment, care and support for the rest of their lives, irrespective of fault.
Increasing this insurance cover brings Western Australia into line with other states and territories that provide care and support to all people catastrophically injured in crashes.
There is a cost to provide the expanded insurance cover. For 2016 it is a maximum of $99 for each vehicle and motorcycle, with smaller increases for tractors, mopeds, vintage cars and farm fire fighting vehicles. There has been no premium increase for caravans or trailers. This cost has been added to the existing motor injury insurance taking the total annual cost for the average motor vehicle to $409, which remains cheaper than similar insurance cover in most other Australian states and territories.
During the year, the Insurance Commission ran an Image: Matt was catastrophically injured in a car crash at the extensive communication and engagement program age of 20. He was not able to claim compensation through to ensure Western Australian motorists were aware of motor injury insurance. Matt is a supporter of the expansion of insurance cover to ensure people with catastrophically injuries the changes to the scope and cost of their motor injury are provided care. insurance.
Actuarial and investment forecasts are both highly performance and an appropriate capital adequacy sensitive to external influences outside the direct position. control of the Insurance Commission. For example, a 1% decrease in discount rates has a $75 million impact The Motor Injury Insurance Scheme’s outstanding claims on the Motor Injury Insurance Scheme’s outstanding liabilities are calculated based on a 75% probability claims liabilities. The Insurance Commission therefore of sufficiency (PoS). The PoS is estimated taking into endeavours to achieve and sustain strong underwriting account potential uncertainties inherent in actuarial assumptions and statistical modelling. Increasing the
23 INSURANCE COMMISSION ANNUAL REPORT 2016 PoS of outstanding claims liabilities to 90% (as required Claims payments for 2016 of $397 million were lower by private insurers regulated by the Australian Prudential than $453.1 million for 2015 and $493.8 million for 2014 Regulation Authority) would increase outstanding claims and primarily reflect a lower than forecast number of liabilities by $135 million and reduce the solvency level of claims finalisations. the TPIF from 137.4% to 130.7% at 30 June 2016. The TPIF profit before tax was $61.4 million in 2016 which Increasing the PoS to 90% would reduce the likelihood was $197.6 million worse than the $258.9 million result of not having sufficient reserves from one in four years in 2015. The dramatic reduction in financial performance to one in ten years and is therefore a higher confidence was due to lower investment income of $101.2 million measure of the solvency position of the Insurance in 2016 compared to $319.7 million in 2015. Commission.
MOTOR INJURY INSURANCE PREMIUM RATES
Actuarial analysis of the outstanding claims liabilities Even with the $99 increase to the premium rate to occurs at the end of each financial year. Unanticipated purchase expanded insurance cover for catastrophic changes in the estimates of liabilities in the actuarial injuries support, the cost of motor injury insurance in WA forecasts can be significant, and are difficult to manage for a family car ($409) remains substantially cheaper when setting budgets 24 months in advance. than in most other states and territories.
The motor injury insurance underwriting loss of Recognising motor injury insurance schemes differ $5.2 million recorded in 2016 was the 16th time in 20 between jurisdictions, the graph below compares WA’s years the TPIF has recorded an underwriting loss. 1 July 2016 motor injury insurance premium rate for a This indicates that motor injury insurance premium family car to the motor injury insurance premium rates revenues are usually insufficient to meet the cost of in other states and territories. This graph also compares claims payments and management of the motor injury motor injury premium rates (inclusive of GST and insurance scheme. insurance duty) as a percentage of one week’s average wages in each state and territory. Western Australia has one of the most affordable motor injury insurance schemes in Australia, and has maintained this position for almost two decades.
MOTOR INJURY INSURANCE PREMIUM OF ONE WEEK OF AVERAGE EARNINGS, BY JURISDICTION, 1 JULY 2016 700 50
45 600 40 500 35 400 30 25 300 20
INSURANCE 200 15 EARNINGS (%) MOTOR INJURY INJURY MOTOR
10 PROPORTION OF AVERAGE WEEKLY WEEKLY AVERAGE PREMIUM RATES ($) PREMIUM RATES 100 5 0 0 WA TAS QLD SA VIC NT ACT NSW ($409) ($338) ($369*) ($500) ($503) ($547) ($586) ($6581)
Family Car Premium Rates Proportion of One Week of Average Earnings (%) Includes insurance duty and GST *From 1 October 2016 1Average
INSURANCE COMMISSION ANNUAL REPORT 2016 24 The price of motor injury insurance is set in an endeavour to balance affordability Crash Claims Paid against motor injury insurance scheme KIMBERLEY viability to ensure there is sufficient revenue to meet the current and future costs of TOTAL NEW TOTAL 44 CLAIMS claims for people injured in motor vehicle $6.2m crashes. Significant motor injury insurance 3,029 TOTAL NEW CLAIMS TOTAL underwriting losses are not sustainable, PAYMENTS TOTAL PAYMENTS especially in an economic environment $397m where investment returns look likely to be lower for longer.
From 1 July 2016, WA motor injury insurance PILBARA premium rates for a family car increased by TOTAL NEW 36 CLAIMS 2.5% as announced in the State Budget in May 2016. This increase responded to rising $21.6m TOTAL wage inflation for medical and allied health PAYMENTS services that make up the majority of motor GOLDFIELDS ESPERANCE injury claims. TOTAL NEW 30 CLAIMS The need for future increases in motor injury $5.9m insurance premiums is reviewed annually MID-WEST TOTAL GASCOYNE PAYMENTS on receipt of independent actuarial analysis. TOTAL NEW This same approach will be undertaken in 42 CLAIMS future years for new catastrophic injuries $9.9m REST OF TOTAL AUSTRALIA support claims to ensure premium rates are PAYMENTS TOTAL NEW sufficient to meet current and future claims 53 CLAIMS costs. $4.8m TOTAL PAYMENTS CLAIMS
In 2016, a total of 3,029 new claims were METROPOLITAN WHEATBELT received, representing a 13% decrease from TOTAL NEW TOTAL NEW 2,492 CLAIMS 71 CLAIMS 3,478 new claims received in 2015, and a $272.2m $23.5m 11% decrease from the 3,421 new claims TOTAL TOTAL budgeted for 2015. This represents the PAYMENTS PAYMENTS largest decrease in new claims received in the last 20 years. GREAT SOUTH WEST SOUTHERN TOTAL NEW The continuation of the decreasing new TOTAL NEW 62 CLAIMS 199 CLAIMS claims trend is welcomed as it reflects $10m fewer people being hurt in car crashes. $42.8m TOTAL TOTAL PAYMENTS That assists the Insurance Commission PAYMENTS balance its financial obligations.
Despite decreasing new claims received, the cost of claims continues to be high.
25 INSURANCE COMMISSION ANNUAL REPORT 2016 In 2016, the Insurance Commission paid out $397 million The box below shows the top ten local Government areas to people injured in motor vehicle crashes. The significant in WA for number of new claims and claims payments. cost of claims paid by the Insurance Commission underpins its programs to seek fewer crashes and less Vehicle growth slowed in 2016 to 1.35%. This is down serious injuries. Since its inception in the mid-1940s, the considerably from 2.2% in 2015 and 3% in each of the Insurance Commission has paid $7 billion to claimants last ten years. Western Australia’s vehicle growth was injured in motor vehicle crashes. In the past four years, the lowest in Australia in 2016. the Insurance Commission made over $1.7 billion of Slower vehicle growth during 2016 resulted in a those payments. smaller increase in motor injury insurance gross written The map on the previous page shows the crash locations premium in 2016 to $555 million compared to budget of across the WA regions by number of new claims and $559.3 million. Vehicle growth below 2% is estimated to the claims payments for crashes in that region. The continue in 2017. metropolitan area recorded the highest number of crashes (2,492) and payments of $272.2 million.
NEW CLAIMS CLAIMS PAYMENTS NEW CLAIMS CLAIMS PAYMENTS STIRLING 357 $37.6m COCKBURN 156 $14.5m SWAN 215 $21.7m GOSNELLS 104 $13.9m JOONDALUP 176 $21.3m PERTH 159 $13.8m
TOP 10 LOCAL 10 LOCAL TOP WANNEROO 169 $17.1m BAYSWATER 119 $10.7m
GOVERNMENT AREAS CANNING 142 $14.7m MELVILLE 112 $8.6m
HIGH COST CLAIMS
Over the past 12 months, 44 large loss injury claims The cost of catastrophic injuries from motor vehicle (total amount paid greater than $1 million) were settled crashes to the Insurance Commission is estimated by the Insurance Commission for approximately to increase by about $190 million per year following $174 million (including interim payments mad e during the introduction of the Catastrophic Injuries Support the life of the claim). The average cost of these claims scheme on 1 July 2016. This is due to an increase was $4 million per injured person. in the number of people catastrophically injured being able to receive care and support from the Of the $397 million paid to injured claimants during Insurance Commission rather than access other the year, approximately $144 million (36%) was paid support mechanisms such as personal accident, to people with catastrophic injuries who make up less superannuation or income protection insurances, than two per cent of claimants. or public health and disability support.
While the number of motor vehicle crashes continues The cost of these claims will continue to place to decrease due to the positive work of the State upward pressure on motor injury insurance premium Government in recent years in improving road safety, rates. Any further inflation in medical and care costs the cost of claims for people catastrophically injured in could accelerate increases in motor injury insurance motor vehicle crashes continues to rise. premium rates.
INSURANCE COMMISSION ANNUAL REPORT 2016 26 The cost of motorcycle crash claims specifically is The box below shows the cost of claims for vulnerable expected to rise significantly in future years as the road users such as motorcyclists, motorcycle pillion Insurance Commission from 1 July 2016 became passengers, pedestrians and cyclists. People injured responsible for paying the cost of catastrophic injuries while riding motorcycles cost the Insurance Commission sustained by motorbike riders in single vehicle crashes. $128.5 million in 2016’. The total costs of motorcycle Previously, CTP insurance did not cover motorbike accidents (motorcyclist rider and pillion passengers) to riders or car drivers in single vehicle crashes as there the Insurance Commission in the past ten years is was no other driver at fault in the crash to make a claim $1.4 billion. against. Currently, motorcycles represent five percent of registered vehicles in Western Australia but account for The total cost of claims paid by the Insurance Commission over a third of catastrophic injuries. to vulnerable road users in the last ten years is $4.6 billion. Vulnerable People Claims 2016 Pedestrian Motorcyclist Pillion Passenger Cyclist
TOTAL COST TOTAL $161.6m $109.7m $18.8m $26.1m
TOTAL COST IN THE LAST 10 YEARS $2.4b $1.1b $158m $933.3m
3.2.1 Motor Injury Insurance Outcomes and Key Performance Indicators
The TPIF has a combination of efficiency and against the following three outcomes. Outcome 1 effectiveness KPIs to measure its performance
Outcome 1 To ensure that the Fund is fully funded. Outcome 2
Outcome 2 To provide affordable premiums to owners of WA vehicles.
Outcome 3 To provide a claims system that treats claimants fairly and delivers equitable compensation. Outcome 3
Outcome 1 To ensure that the Fund is fully funded.
EFFECTIVENESS KPI - SOLVENCY LEVEL (%)
This KPI calculates Total Assets as a percentage TPIF outstanding claims liabilities are calculated based of Total Liabilities in the TPIF. This KPI measures on a 75% Probability of Sufficiency (PoS). The PoS is the ability of the TPIF to meet its long-term financial estimated taking into account potential uncertainties obligations as they fall due. The Insurance Commission relating to various actuarial assumptions and statistical has a long-term objective to achieve and maintain a modelling techniques. solvency level of not less than 125% with a target of 135% for the TPIF. 27 INSURANCE COMMISSION ANNUAL REPORT 2016 SOLVENCY LEVEL (%)
150 145 140 135
% 130 125 120 115 110 2013 2014 2015 2016 TARGET 140.6 ACTUAL (75% PoS) 141.8 137.6 141.9 137.4 ACTUAL (90% PoS) 130.7 Solvency Long Term Target
The solvency level of 137.4% is lower than the target sufficient outstanding claims provision from one in result of 140.6%, primarily due to a higher than four years to one in 10 years and is therefore a higher forecast increase in outstanding claims liabilities. confidence measure of the solvency position of the Increasing the PoS of the outstanding claims liabilities Insurance Commission. At a 90% PoS, the TPIF to 90% would reduce the likelihood of not having a solvency level is 130.7%.
EFFICIENCY KPI - NET LOSS RATIO (%) This KPI calculates net claims incurred (claims A ratio below 100% indicates the Insurance Commission payments and movements in outstanding claims received sufficient net premium revenue to meet the provision) as a percentage of net premium revenue. net cost of claims incurred. A ratio greater than 100% This KPI measures the sufficiency of premium revenue indicates net premium revenue was insufficient to meet compared to the cost of claims incurred. the net cost of claims incurred.
NET LOSS RATIO (%)
160 140 120 100
% 80 60 40 20 0 2013 2014 2015 2016
TARGET 90.6
ACTUAL 71.4 136.0 92.8 91.2
The 2016 net claims incurred result is marginally forecast number of claims settlements, which increases higher than target comprising lower than budget outstanding claims provisions. Claims provisions were claims payments of $66.3 million (14.3%) offset by a further impacted by a fall in discount rates (Australian higher than forecast movement in outstanding claims Government Bonds) in June 2016, flowing from the provisions of $69.4 million (182.6%). The lower than referendum result in the United Kingdom to leave the expected claim payments results from lower than European Union.
INSURANCE COMMISSION ANNUAL REPORT 2016 28 EFFICIENCY KPI - NET EXPENSE RATIO (%) This KPI calculates underwriting and administration A lower expense ratio would contribute to higher expenses as a percentage of net premium revenue. profits/lower losses being generated. This KPI is a measure of operational efficiency.
NET EXPENSE RATIO (%) 12 10 8
% 6 4 2 0 2013 2014 2015 2016
TARGET 10.2
ACTUAL 7.2 10.6 10.1 9.8
The net expense ratio is better than target by 0.4%. collection and administration expenses being 4.3% While net premium revenue was 0.7% lower than lower than budget. forecast, this was offset by underwriting, premium
EFFICIENCY KPI - NET COMBINED RATIO (%) This KPI calculates underwriting and administration It is the combined result of the Net Loss Ratio added to expenses and net claims incurred as a percentage the Net Expense Ratio. A ratio below 100% indicates of net premium revenue. This KPI is a measure of that an underwriting profit has been made, whereas a underwriting profitability used to indicate how well the ratio above 100% indicates an underwriting loss. TPIF is performing.
NET COMBINED RATIO (%)
160 140 120 100
% 80 60 40 20 0 2013 2014 2015 2016
TARGET 100.8
ACTUAL 78.5 146.6 102.9 101.0
The result is marginally worse than budget reflecting a claims provisions. The lower than forecast net premium small underwriting loss, primarily driven by lower than revenue reflects a reduction in the volume of new expected net premium revenue (0.7%) while net claims vehicle purchases and the resultant registration and incurred were in line with expectations, notwithstanding insurance revenue. a higher than expected movement in outstanding
29 INSURANCE COMMISSION ANNUAL REPORT 2016 Outcome 2 To provide affordable premiums to owners of Western Australian vehicles.
EFFECTIVENESS KPI - AFFORDABILITY INDEX (%) The “Affordability Index” calculates the Motor Injury weekly earnings. The target ceiling is to have the Motor Insurance premium (excluding GST and insurance Injury Insurance premium for the average family sedan duty) for the average family sedan as a percentage of at or below 25% of one week’s worth of WA’s average one week’s worth of Western Australia (WA)’s average weekly earnings.
AFFORDABILITY INDEX (%) 30 25 20
% 15 10 5 0 2013 2014 2015 2016
TARGET 25.0
ACTUAL 13.5 14.1 14.8 14.7
WA’s CTP premium price remains the most affordable in Australia using this measure.
EFFICIENCY KPI - GROSS EXPENSE RATIO (%) This KPI calculates total underwriting and administration This KPI measures how efficiently the Insurance costs as a percentage of gross written premiums Commission manages the WA Motor Injury Insurance collected. scheme.
GROSS EXPENSE RATIO (%) 12 11 10 9 % 8 7 6 5 2013 2014 2015 2016
TARGET 10.8
ACTUAL 8.0 11.4 10.8 10.5
The result is marginally better than target, driven by purchases and the resultant registration and insurance lower than forecast underwriting, premium collection, revenue. Underwriting and administration expenses were reinsurance and administration costs (5.1%), offset by lower than budget despite the additional costs incurred to lower than expected gross written premiums (2.2%), expand motor injury insurance to include the catastrophic reflecting a reduction in the volume of new vehicle injuries support scheme.
INSURANCE COMMISSION ANNUAL REPORT 2016 30 Outcome 3 To provide a claims system that treats claimants fairly and delivers equitable compensation.
EFFECTIVENESS KPI - PROPORTION OF CLAIMS PAYMENTS MADE FOR THE DIRECT BENEFIT OF CLAIMANTS (%) This KPI calculates claims payments made for the incurred (approximately 10%). This KPI is a measure direct benefit of claimants as a percentage of the of the proportion of claims costs paid for the direct total claim payments made in a financial year. Claims benefit of claimants and reflects the TPIF’s effectiveness payments that do not go to the direct benefit of the in minimising the financial hardship of claimants and claimant include the Insurance Commission’s claims delivering equitable compensation. management legal and investigation costs ordinarily
PROPORTION OF CLAIMS PAYMENTS FOR THE DIRECT BENEFIT OF CLAIMANTS (%) 92 90 88
% 86 84 82 80 2013 2014 2015 2016
TARGET 90.0
ACTUAL 88.5 91.2 90.3 89.4
The result is marginally below target.
EFFECTIVENESS KPI - TIMELINESS OF LIABILITY DETERMINATION (%) This KPI calculates the timeliness of liability decisions the date of lodgement of the claim to ensure claimants for motor injury Insurance claims. The target requires are treated fairly. that a decision be made on claims within 25 days from
TIMELINESS OF LIABILITY DETERMINATION (%) 80 75 70
% 65 60 55 50 2013 2014 2015 2016
TARGET 75.0
ACTUAL 73.0 73.1 74.7 74.1
The result is marginally below target. While the overall (3.4%), indicative of a generally higher proportion of number of new claims in 2016 was 13% lower than the more complex claims. These claims generally require previous year, the average costs incurred was higher greater scrutiny and can delay liability determinations.
31 INSURANCE COMMISSION ANNUAL REPORT 2016 EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($) This KPI calculates claims administration costs divided This KPI measures the efficiency of claims by the number of claims administered in the period. administration.
CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($)
4,000
3,500
3,000
$ 2,500
2,000
1,500
1,000 2013 2014 2015 2016
TARGET 3,452
ACTUAL 3,174 3,123 3,285 3,548
The result is higher than target primarily driven by a lower claims finalisations (10.8%), offset by lower than lower than expected number of new claims (11.5%), forecast claims administration costs (3.5%).
EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS AS A RATIO OF GROSS CLAIMS PAID (%) This KPI calculates claims administration costs as a This KPI measures the efficiency of claims percentage of the gross claims paid. administration.
CLAIMS ADMINISTRATION COSTS AS A RATIO OF GROSS CLAIMS PAID (%)
9 8 7 6 5 % 4 3 2 1 0 2013 2014 2015 2016
TARGET 7.1
ACTUAL 8.5 6.1 7.0 8.0
The result is worse than target. While claims claims payments were 14.3% lower than forecast driven administration costs were 3.5% lower than budget, by a lower than expected number of claims finalisations.
INSURANCE COMMISSION ANNUAL REPORT 2016 32 3.3 RISKCOVER
WORKERS’ COMPENSATION TOTAL NEW TOTAL CLAIMS UNDERWRITING COST PAID FOR DIRECT CLAIMS PAYMENTS PROFIT BENEFIT OF CLAIMANT 13,592 $233.9m $42.8m 90.6%
In 2016, the RiskCover Fund achieved its second This excellent claims result follows reductions of 1,722 positive underwriting result in seven years of $42.8 new claims received in 2015. There has therefore been million, which was $40.7 million better than budget, a 20.8% reduction in new RiskCover claims in the and an improvement on the $21.6 million positive past two years, 88% of the reduction coming from the underwriting result achieved in 2015. property insurance class.
This positive result means that in the past three years, The reduction in property claims relates primarily to RiskCover has delivered an overall underwriting result fewer property-in-transit claims and laptop loss claims. of $27.4 million, including the loss recorded in 2014 of The reduction in laptop claims is partly attributable $37 million. to changes in Department of Education funding and RiskCover accepting multiple losses as a single claim. The favourable result in 2016, compared to 2015, was primarily from the liability ($17 million) and property RiskCover claims payments also continue to decrease, ($7.4 million) insurance classes, driven by lower net from $276.5 million in 2014 to $233.9 million in 2016, claims incurred which reduced 13.4% ($28.3 million) a difference of $42.6 million. compared to 2015. The positive result to budget was also driven by lower net claims incurred which New workers’ compensation claims remained relatively were $83.2 million below budget, led by workers’ flat during 2016, increasing a modest 0.4% and claim compensation claims which were $65.1 million payments were contained to a 1% increase. The costs below budget. of workers’ compensation claims for body stress, hit by moving object, and falls, slips and trips all continue CLAIMS to rise well above 2014 and 2015 levels. Excluding The 2016 result was supported by the number of Consumer Price Index (CPI), the cost increases are claims finalised during the year exceeding the due to rising wage growth of medical and allied health number of new and re-opened claims by 777 claims. services that RiskCover must pay for workers provision Workers’ compensation claims finalised exceeded of treatment and rehabilitation services to workers’ new and re-opened claims by 398 claims, a significant compensation claimants and an increasing trend in the contributor to the below budget net incurred claims cost. duration of claims.
The positive result in finalisation rates was also The table below shows the number of claims and cost reinforced by fewer new claims received in the short-tail for the major segments of the RiskCover Fund. Each property (1,738 less) and motor (159) insurance classes segment is made up of multiple agencies. compared to 2015. Overall, 1,854 fewer new insurance claims were lodged during 2016.
EDUCATION GENERAL GOVERNMENT HEALTH
TOTAL CLAIMS TOTAL CLAIMS TOTAL CLAIMS WORKERS’ WORKERS’ 1,697 1,636 1,257
COMPENSATION COMPENSATION TOTAL COST TOTAL COST TOTAL COST
COST DISTRIBUTION $39m $54.7m $52.8m
33 INSURANCE COMMISSION ANNUAL REPORT 2016 The cost per claim during 2016 for the health sector was considerably higher Workers’ Compensation at $42,000 compared to $33,440 for the general government sector and $22,980 Claims and Cost for the education sector. Higher average KIMBERLEY wages paid for health professionals TOTAL NEW contribute to that difference, and a TOTAL 87 CLAIMS higher proportion of body stress claims. $3m 4,590 TOTAL CLAIMS LODGED TOTAL The map on this page shows the PAYMENTS TOTAL PAYMENTS workers’ compensation injury locations $146.5m across the WA regions by number of claims lodged and payments (includes previous year claims).The metropolitan PILBARA Perth area recorded the highest number TOTAL NEW of workers’ compensation claims 111 CLAIMS (n=3,314) costing $107.9 million. This $4.3m compares favourably at 70% of total TOTAL PAYMENTS WA claims given 92% of employees are located in the metropolitan Perth area. GOLDFIELDS The Insurance Commission dealt with ESPERANCE eight workers’ compensation claims that TOTAL NEW 101 CLAIMS occurred outside WA in 2016. MID-WEST GASCOYNE $2m TOTAL NEW TOTAL The table overleaf shows the number 204 CLAIMS PAYMENTS and cost of finalised claims made $5.6m during 2016 for each of the workers’ TOTAL PAYMENTS REST OF compensation injury categories. AUSTRALIA AND OVERSEAS TOTAL NEW Mental stress claims continue to have 8 CLAIMS the highest cost per claim. The average $128,300 cost of a mental stress claim in 2016 was TOTAL PAYMENTS almost $50,000. The average cost of METROPOLITAN workers’ compensation claims for body TOTAL NEW WHEATBELT CLAIMS stress, hit by moving object, and falls, 3,314 TOTAL NEW 141 CLAIMS slips and trips are between $15,000 and $107.9m $30,000 per claim. TOTAL $4m PAYMENTS TOTAL PAYMENTS
GREAT SOUTH WEST SOUTHERN TOTAL NEW TOTAL NEW 474 CLAIMS 150 CLAIMS $14.4m $4.7m TOTAL TOTAL PAYMENTS PAYMENTS
INSURANCE COMMISSION ANNUAL REPORT 2016 34 Cause of Injury (Workers’ Compensation Finalised Claims in 2016)
Body Falls, Slips Mental Being Hit by Hitting Objects with a Stressing and Trips Stress Moving Objects Part of the Body
2,247 1,312 614 1,331 441 CLAIM COUNT CLAIM COUNT CLAIM COUNT CLAIM COUNT CLAIM COUNT $84.7m $40m $36.8m $29.5m $7.7m TOTAL COST TOTAL COST TOTAL COST TOTAL COST TOTAL COST
Other and Chemicals and Heat, Radiation and Sound and Biological Unspecified Other Substances Electricity Pressure Factors
139 96 79 18 82 CLAIM COUNT CLAIM COUNT CLAIM COUNT CLAIM COUNT CLAIM COUNT $2.1m $948,500 $815,300 $457,131 $340,900 TOTAL COST TOTAL COST TOTAL COST TOTAL COST TOTAL COST
LIABILITIES catastrophic event, or multiple large events in any one cover period, and events covered by the Fund for which The gross outstanding claims liability for RiskCover reinsurance has not been obtained or is unobtainable. declined by $38.6 million to $595.4 million. This decline is due to fewer new claims received and claims being In 2016, RiskCover’s net assets total $228.7 million. finalised faster than forecast. This was an improvement of $66.3 million from 2015. The Insurance Commission is undertaking further work Workers’ compensation gross outstanding claims to determine an optimal reserve for the RiskCover Fund, liabilities represent $323.9 million of RiskCover’s claims and whether changes to capital adequacy are warranted liability. Total workers’ compensation claim payments to try to bring RiskCover in line with the practices of were $146.5 million and RiskCover received 4,722 private insurers. new workers’ compensation claims in 2016. Workers’ compensation claims payments, net of the reduction INVESTMENT OUTCOME in the outstanding claims liability of $24.1 million and recoveries of $0.5 million, resulted in net claims incurred Investment returns of $23.5 million were $23.8 million of $122 million during 2016. below budget, and $55.4 million lower than 2015.
RiskCover’s solvency level increased from 122.1% in The overall profit for the RiskCover Fund was 2015 to 131.1% in 2016. This solvency position enables $66.3 million, $34.2 million less than the 2015 RiskCover to maintain a prudential reserve of $69.5 profit of $100.5 million. million. A prudential reserve protects the RiskCover Fund against circumstances such as a one-off large or
35 INSURANCE COMMISSION ANNUAL REPORT 2016 Cause of Injury (Workers’ Compensation Finalised Claims in 2016)
CYBER RISKS
Background All agencies within the RiskCover Fund have been provided specific cover to protect them against Cyber risks have become a critical issue for exposure to cyber risks. That cover includes: organisations due to increasing malicious and criminal cyber activity and advancements in cloud computing. • First party coverage
A cyber attack can cause business interruption, create -- Remediation, investigation, notification, third-party liability, and damage an organisation’s monitoring, legal and forensic. reputation. -- Business interruption: data breach, denial of The 2016 World Economic Forum’s Global Risk service and loss of income. Report lists cyber attacks as a top-five concern for doing business. The annual cost to the global -- Loss of data, damaged network and restoration economy from cyber crime is estimated at more than costs. $500 billion. -- Cyber exhortation: threats of virus introduction, Insurance policies have traditionally covered some denial of service or release of personal losses and liabilities from cyber attacks, but gaps information. remained. Until recently, tailored cyber insurance • Third party coverage policies were not available for purchase. -- Network security liability: unauthorised access Cyber Insurance Cover or use, denial of access or virus transmission. In 2016, RiskCover gathered information from -- Privacy liability: identity theft or unauthorised agencies to better understand their cyber risk disclosure of personal information. exposures. The information gathered was used to identify and purchase a suitable cyber risk product -- Media/content liability: libel, slander and that was supported by reinsurance. infringement of intellectual property.
INSURANCE COMMISSION ANNUAL REPORT 2016 36 3.3.1 RiskCover Outcomes and Key Performance Indicators
The RiskCover Fund has a combination of efficiency against the following three outcomes. Outcome 1 and effectiveness KPIs to measure its performance
Outcome 1 To ensure that the Fund is fully funded. Outcome 2
Outcome 2 To provide sustainable Fund contributions (premiums) to agencies insured.
To provide a claims system that treats agencies and claimants fairly Outcome 3 and delivers equitable compensation.
Outcome 1 To ensure that the Fund is fully funded.
EFFECTIVENESS KPI - SOLVENCY LEVEL (%)
This KPI calculates Total Assets as a percentage of Total the ability of the RiskCover Fund to meet its long-term Liabilities in the RiskCover Fund. This KPI measures financial obligations as they fall due.
SOLVENCY LEVEL (%)
140
130
120
110 % 100
90
80
70 2013 2014 2015 2016
TARGET 121.7
ACTUAL 103.1 108.6 122.1 131.1
The solvency level is better than target, as assets are to agencies (reflecting an improvement in workers’ higher than forecast by $62.2 million (6.9%). The ratio compensation finalisation rates) was mostly offset by a improved in 2016 largely due to a $72.4 million (8.5%) $38.6 million (6.1%) decrease in the outstanding claims increase in investment assets supported by $23.5 million liability. The reduction in outstanding claims liability is of net investment income. Compared to 2015, total largely a result of improved claims experience in the liabilities remained at a similar level, as a $43.9 million workers’ compensation and treatment liability classes of (57.8%) increase in premium adjustments refundable insurance.
37 INSURANCE COMMISSION ANNUAL REPORT 2016 EFFICIENCY KPI - NET LOSS RATIO (%) This KPI calculates net claims incurred (claims A ratio below 100% indicates RiskCover received payments and movements in outstanding claims sufficient net premium revenue to meet the net cost of provision) as a percentage of net premium revenue. claims incurred. A ratio greater than 100% indicates net This KPI measures the sufficiency of premium revenue premium revenue was insufficient to meet the net cost compared to the cost of claims incurred. of claims incurred.
NET LOSS RATIO (%)
120 110 100
% 90 80 70 60 2013 2014 2015 2016
TARGET 87.9
ACTUAL 113.3 102.8 80.1 71.1
The net loss ratio is better than target due to lower net net premium revenue. The ratio improved compared claims incurred of $83.2 million (31.3%) partly offset by to 2015 led by a $28.3 million (13.4%) decrease in net lower net premium revenue of $45.6 million (15.1%). claims incurred, slightly offset by a $6.2 million (2.4%) The majority of these variances are due to improved decrease in net premium revenue. The decrease in net claims experience in the workers’ compensation class claims incurred was caused by a drop in the liability of insurance with lower net claims incurred leading to ($14.5 million) and workers’ compensation ($8.6 million) premium adjustments (refunds to agencies) reducing classes of insurance.
EFFICIENCY KPI - NET EXPENSE RATIO (%) This KPI calculates underwriting and administration A lower expense ratio would contribute to higher profits/ expenses as a percentage of net premium revenue. lower losses being generated. This KPI is a measure of operational efficiency.
NET EXPENSE RATIO (%) 14
12
10 % 8
6
4 2013 2014 2015 2015
TARGET 11.5
ACTUAL 12.7 13.0 11.7 12.3
INSURANCE COMMISSION ANNUAL REPORT 2016 38 The net expense ratio at 12.3% was above target of of business. The improvement in the estimated cost 11.5% despite other underwriting and administration of workers’ compensation and motor vehicle claims expenses being $3.1 million (8.9%) below target. resulted in a $47.3 million premium adjustment (refunds The variance is due to net premium revenue being to agencies) attributable to current and prior years. $45.6 million (15.1%) lower than target as premium The increase in the ratio since 2015 was due to a adjustments (refunds to agencies) were booked to $6.2 million (2.4%) decrease in net premium revenue reflect the improving trend in claims costs for the and a $0.8 million (2.8%) increase in other underwriting workers’ compensation and motor vehicle classes expenses.
EFFICIENCY KPI - NET COMBINED RATIO (%) This KPI calculates underwriting and administration It is the combined result of the Net Loss Ratio added to expenses and net claims incurred as a percentage the Net Expense Ratio. A ratio below 100% indicates of net premium revenue. This KPI is a measure of that an underwriting profit has been made, whereas a underwriting profitability used to indicate how well the ratio above 100% indicates an underwriting loss. Fund is performing.
NET COMBINED RATIO (%) 130
120
110
% 100
90
80
70 2013 2014 2015 2016 TARGET 99.4 ACTUAL 126.0 115.8 91.8 83.4
The net combined ratio of 83.4% is better than target claims movement was a favourable $24.1 million and the 2015 result reflecting an underwriting profit versus an anticipated adverse movement of $24.7 of $42.8 million compared to a budget of $2.1 million. million. The favourable underwriting and administration Total underwriting and administration expenses were expense result was offset by net premium revenue $86.3 million (28.7%) below target largely due to a being $45.6 million (15.1%) under target. This was positive movement in outstanding claims of $65.6 million largely due to premium adjustments reflecting the (243.3%). This was most prominent in the workers’ improving trend in claims costs for the workers’ compensation class of insurance where the outstanding compensation and motor vehicle classes of business.
39 INSURANCE COMMISSION ANNUAL REPORT 2016 Outcome 2 To provide sustainable funds contributions (premiums) to agencies insured.
EFFECTIVENESS KPI - WORKERS’ COMPENSATION CLAIMS INCURRED PER $100 WAGE ROLL ($) This KPI calculates the actuarial forecast cost of claims This KPI measures the effectiveness of the RiskCover incurred in the renewal period adjusted to their present Division in keeping the cost of workers’ compensation day value x 100 divided by the total wages declared by claims to a minimum. all clients, adjusted to their present day value.
WORKERS’ COMPENSATION CLAIMS INCURRED PER $100 WAGE ROLL ($)
1.50
1.40
1.30 $ 1.20
1.10
1.00 2013 2014 2015 2016
TARGET 1.35
ACTUAL 1.37 1.39 1.31 1.30
The indicator is favourable to target and below the while the actuarial forecast cost of claims incurred for average result of the past three years (1.36). This is the 2016 accident year were contained to $1.1 million because insured public sector agency wages have (0.7%) over the same period. increased by $161.5 million (1.3%) since 2015,
EFFICIENCY KPI - MANAGEMENT FEES AS A PERCENTAGE OF CONTRIBUTIONS (%) This KPI calculates the RiskCover management fee as the efficiency with which the RiskCover Division a percentage of Fund contributions. This KPI measures manages the RiskCover self-insurance scheme.
MANAGEMENT FEE AS A PERCENTAGE OF CONTRIBUTIONS (%)
12 10 8
% 6 4 2 0 2013 2014 2015 2016 TARGET 9.5 ACTUAL 9.5 8.7 8.7 8.5
The favourable 2016 result versus target represents higher fund contributions. The result has improved the combined impact of lower RiskCover administration slightly between 2015 and 2016 mainly due to an costs of $3.1 million (10.2%) and $1.2 million (0.4%) $8.6 million (2.8%) increase in fund contributions.
INSURANCE COMMISSION ANNUAL REPORT 2016 40 To provide a claims system that treats Agencies and claimants fairly and delivers Outcome 3 equitable compensation
EFFECTIVENESS KPI - PROPORTION OF WORKERS’ COMPENSATION CLAIMS PAYMENTS MADE FOR THE DIRECT BENEFIT OF CLAIMANTS (%) This KPI is calculated as workers’ compensation claims claimant include the Insurance Commission’s claims payments made for the direct benefit of claimants as management legal and investigation costs ordinarily a percentage of total workers’ compensation claims incurred. This KPI measures RiskCover’s effectiveness payments made during the financial year. Claims in minimising the financial hardship of claimants and payments that do not go to the direct benefit of the delivering equitable compensation.
PROPORTION OF WORKERS’ COMPENSATION PAYMENTS MADE FOR THE DIRECT BENEFIT OF CLAIMANTS (%)
91 90
% 89 88 87 2013 2014 2015 2016 TARGET 90.0 ACTUAL 89.9 90.1 90.3 90.6
This indicator exceeded target as 90.6% of payments Total workers’ compensation payments increased 0.9% made were for the direct benefit of claimants. The ratio from 2015 while payments that do not go to the direct has improved annually from 2013 due to a continued benefit of the claimant (e.g. legal expenses) decreased focus on claims management practices and the strategic by 3%. objective of providing fair and equitable compensation.
EFFECTIVENESS KPI - WORKERS’ COMPENSATION TIMELINESS OF LIABILITY DETERMINATION (%) This KPI calculates the timeliness of liability decisions that a decision be made on new and recurrent claims for workers’ compensation claims. WorkCover WA’s best within 17 days from the date of lodgement with the practice guideline for insurers and self-insurers requires employer to ensure claimants are treated fairly.
WORKERS’ COMPENSATION TIMELINESS OF LIABILITY DETERMINATION (%) 96 94
% 92 90 88 2013 2014 2015 2016
TARGET 90.0
ACTUAL 94.7 93.5 93.5 94.8
The 2016 result exceeded target as 94.8% of liability workers’ compensation claims with 3,397 (2015: 3,312) determinations were made within 17 days of lodgement. of those determinations made within the targeted The ratio has also improved from 2015 as RiskCover timeframe. made liability determinations on 3,585 (2015: 3,542)
41 INSURANCE COMMISSION ANNUAL REPORT 2016 EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($) This KPI calculates claims administration costs divided This KPI measures the efficiency of claims by the number of claims administered in the period. administration.
CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($) 1,400 1,300 1,200 1,100 $ 1,000 900 800 700 2013 2014 2015 2016 TARGET 1,245 ACTUAL 1,086 1,077 1,250 1,371
The claims administration cost per claim administered is The reduction in property claims relates primarily to $126 (10.1%) above target despite claims administration fewer ‘property in transit’ and Department of Education costs being $3.1 million (8.9%) below target. This is laptop claims. The indicator has increased $121 (9.7%) due to the number of claims administered being 4,815 from 2015 primarily due to the number of claims (17.3%) below target. The reason for this variance is administered decreasing by 1,563 (6.4%), also led by a that the target was set at a time when the number of reduction in property claims (1,480). Growth in claims claims administered were trending upwards. Since then, administration costs have been contained to $0.8 million the trend has reversed, principally due to low value and (2.8%) compared to 2015. short duration claims of the property class of insurance.
EFFICIENCY KPI - CLAIMS ADMINISTRATION COSTS PER CLAIM ADMINISTERED ($) This KPI calculates claims administration costs as a This KPI measures the efficiency of claims percentage of the gross claims paid. administration.
CLAIMS ADMINISTRATION COSTS AS A RATIO OF GROSS CLAIMS PAID (%)
15 14 13 % 12 11 10 2013 2014 2015 2016
TARGET 14.2
ACTUAL 12.7 11.0 13.1 13.5
The 2016 result was favourable to target as gross claims million adverse result in the liability class of business paid and claims administration costs were $10.5 million mostly due to two large treatment liability claims paid in (4.3%) and $3.1 million (8.9%) below budget respectively. the year. The slight increase in this indicator from 2015 The reduction in gross claims paid was led by the workers’ is attributable to a decrease in gross claims paid of $0.9 compensation ($16.9 million) and property ($12.5 million) million (0.4%) and an increase in claims administration classes of insurance. This was partly offset by a $19.1 costs of $0.8 million (2.8%).
INSURANCE COMMISSION ANNUAL REPORT 2016 42 3.4 INVESTMENTS
TOTAL VALUE OF ASSETS INVESTMENT RETURN $4.7b 1.6%
The Insurance Commission’s investment portfolio The September quarter losses for the Insurance delivered a gross return (before fees and expenses) Commission were recovered at the end of 2015 but of 1.6% for 2016. This return fell short of the market markets dropped again in early 2016 amid concerns of benchmark by 3.9% due to underperformance in Central Bank policies and their ability to sustain global Property (down 11.7% against benchmark), Global growth. By February 2016, Australian and US share Shares (down 6.3% against benchmark) and Fixed markets were down 10.3% and 6.3% respectively. Interest (down 6.2% against benchmark). The return net of fees and expenses for the year was 1.1%. Whilst the June quarter brought the most sustained period of market growth for the year, this was reversed The rolling seven-year return was 8.4%, which was on 23 June 2016 as markets reacted negatively to the 2.4% above the Insurance Commission’s Consumer economic turmoil caused by the proposed exit of the Price Index plus 3.5% performance target. United Kingdom from the European Union. During this time, the British pound fell to its weakest point against The 2016 year started strongly for financial markets, the US dollar since 1985. The impact on the Insurance but a sell-off in August and September left Australian Commission was negligible as its exposure to the and US share markets down 6.5% and 6.9% United Kingdom was only 3.2%. respectively for the September quarter 2015.
LONGER TERM PERFORMANCE
Over the rolling three-year period to 30 June 2016, benchmark by 1.8% with underperformance in Global the Insurance Commission has underperformed to its Shares, Property and Fixed Interest.
ASSET CLASS PERFORMANCE OVER ROLLING THREE YEAR PERIOD TO 30 JUNE 2016 16 14 12 10
% 8 6 4 2 0 CASH TOTAL AUSTRALIAN GLOBAL PROPERTY AUST FIXED GLOBAL ALTERNATIVE PORTFOLIO SHARES SHARES INTEREST FIXED ASSETS INTEREST Insurance Commission Benchmark
43 INSURANCE COMMISSION ANNUAL REPORT 2016 The long term growth in the Insurance Commission’s reflecting the underlying quality of the investment investment assets continues to trend up steadily portfolio.
GROWTH IN INVESTMENT ASSETS FROM 1996 TO 2016
5,000 4,500 4,000 3,500 3,000 2,500 2,000 MILLIONS ($) 1,500 1,000 500 0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total Assets = $4.7 billion
ASSET ALLOCATION The Insurance Commission changed its strategic asset of investment funds is shown on the next page. allocation during 2016. The allocation to Global Shares The Insurance Commission is overweight in Cash was increased from 18% to 21% and Alternative Assets (33.1% against 8% benchmark) and underweight in from 9% to 16%. The allocation to Property was reduced Growth Alternatives (3.1% against 12% benchmark) from 25% to 15%. The implementation of the divestment and Australian Fixed Interest (2.6% against 11% of the Insurance Commission’s direct property portfolio benchmark). during the year is outlined on page 46. The neutral allocation to growth assets was retained at 68% and The Insurance Commission has further work to do defensive assets at 32%. ensure it has a sufficiently diversified investment portfolio to meet its insurance liabilities in a future The actual asset allocation relative to the strategic economic environment where returns look lower for benchmark as at 30 June 2016 is shown below, and longer. the value of each asset class and its percentage
ASSET ALLOCATION AT 30 JUNE 2016 35
30
25
20 % 15
10
5
0 AUST GLOBAL GROWTH PROPERTY AUST GLOBAL CPI CASH DEFENSIVE SHARES SHARES ALTERNATIVES FIXED INTEREST FIXED BONDS ALTERNATIVES INTEREST
Actual Asset Allocation Strategic Asset Allocation
INSURANCE COMMISSION ANNUAL REPORT 2016 44 ASSET CLASS Market Value $m % of Fund
Australian Shares $785.0 16.7% Global Shares $960.0 20.5% Alternative Assets $311.1 6.6% Fixed Interest $268.7 5.7% Property $633.5 13.5% Cash $1,457.8 31.1%
Gross Investment Assets $4,416.2 94.1% Non Investment Assets $276.1 5.9%
Total Assets $4,692.3 100%
PORTFOLIO POSITIONING The information below shows the total investment portfolio exposure by geography. Sector
GROSS NON TOTAL EUROPE UK INVESTMENT INVESTMENT AUSTRALIA US JAPAN OTHER ASSETS (ex UK) ASSETS ASSETS
$3,295.4m $508.9m $235.1m $139.1m $12.9m $224.9m $4,416.2m $276.1m $4,692.3m VALUE MARKET
70.2% 10.8% 5.0% 3.0% 0.3% 4.8% 94.1% 5.9% 100% % OF FUND
45 INSURANCE COMMISSION ANNUAL REPORT 2016 DIRECT PROPERTY DIVESTMENT Westralia Plaza
The Insurance Commission holds a diversified Following a decision by the Insurance Commission’s $4.4 billion investment portfolio to offset its Board to reduce its exposure to direct property in a insurance liabilities. At the commencement of 2016, concentrated portfolio, the Insurance Commission the Insurance Commission’s investment portfolio sought offers from the market to purchase its direct contained the following direct property assets: property assets during 2016.
• Forrest Centre, 219 & 221 St Georges Terrace, The Insurance Commission sold three properties Perth; during 2016 – the Forrest Centre, The Shops At Ellenbrook and Livingston Marketplace. The Insurance • Westralia Square, 141 St Georges Terrace, Perth; Commission settled the sale of Westralia Plaza in July • Westralia Plaza, 167 St Georges Terrace, Perth; 2016. The sale prices for the four properties combined total almost $600 million and exceed property portfolio • The Shops At Ellenbrook, 11 Main Street, valuations. Ellenbrook; and The costs associated with the sale of the properties • Livingston Marketplace, 100-104 Ranford Road, equates to 0.6% of the sale price. These costs Canning Vale. primarily consist of financial and legal advisory fees.
The sale proceeds are being reinvested to further diversify the portfolio.
Forrest Centre Westralia Square
Livingston Marketplace The Shops at Ellenbrook
INSURANCE COMMISSION ANNUAL REPORT 2016 46 3.5 FRAUD INVESTIGATIONS
CLAIMS INVESTIGATED CLAIMS ASSESSED TOTAL COSTS AVOIDED & RESOLVED 692 159 $10.4m
Fraud Investigations assessed 692 suspicious motor There were also 23 service provider audits injury insurance and RiskCover claims during the completed by Fraud Investigations in 2016 resulting year. This represented an increased focus of the in reimbursement of $84,000 to the Insurance Fraud Investigations team compared to the Commission. This represented an increase from the 290 assessed claims in 2015. Of the 692 matters, eight service provider audits completed in 2015. 159 were investigated and resolved. The experience of the New South Wales CTP scheme This resulted in avoided claims costs of approximately is that the number of fraudulent claims can increase $10.4 million in 2016, and ensures the Fraud quickly over time and place upward pressure on Investigations function delivers a financial return insurance premiums. The Insurance Commission to the Insurance Commission. continues to examine insurance claims and service provision arrangements to ensure its insurance products remain value for money.
EXAMPLES OF INVESTIGATED MATTERS
The following three examples describe claims settled where claims costs were avoided as a result of the in 2016 after examination by Fraud Investigations and investigation.
EXAMPLE 1
A driver was injured in a motor vehicle crash. The Surveillance showed significant differences between claimant’s vehicle was struck from the rear and the claimant’s presentation at medical appointments pushed into the front vehicle. A medical assessment and everyday mobility. three days after the crash diagnosed several soft The claimant was regularly observed by investigators tissue injuries. exaggerating injuries by wearing a bandage on their Prior to the crash, the claimant was employed in foot and presenting with a limp. On other occasions the Information Technology industry. The claimant the claimant walked freely without a limp, wore no continued in this role after the crash until the claimant bandage, was able to drive and participate in regular stopped attending work two years later as they were exercise. certified by a medical practitioner as unfit to work due In light of the evidence of an exaggerated claim for to injuries from the crash. compensation, the matter was settled in 2016 for Fraud Investigations initiated surveillance of the $268,000 less than the claim amount sought. claimant following suspicions raised by a member of the public about the claimant’s actual versus alleged injuries.
47 INSURANCE COMMISSION ANNUAL REPORT 2016 EXAMPLES OF INVESTIGATED MATTERS CONT. Image: Provided by WA Police.
EXAMPLE 2
A driver was injured in a motor vehicle crash. The Fraud Investigations regularly observed the claimant claimant’s vehicle was struck from the rear at low at work on various building sites. The claimant was speed. The following day the claimant reported pain observed lifting and carrying ladders, metal stands in their lower back. Prior to the crash, the claimant and trestles, climbing through scaffolding, and worked as a labourer in their partner’s business. carrying heavy objects such as plasterboard around the site. The claimant claimed they were unable to bend, lift, carry objects, sit or stand for long periods or work The District Court found the claimant and partner to with their arms raised. This claim was identified for be unreliable witnesses. investigation due to a number of fraud indicators As a result of the evidence gathered, the claim settled found by Insurance Commission staff. Fraud for $773,000 less than the claim amount sought. Investigations examined the validity of the claim.
EXAMPLE 3
A driver was injured drinking alcohol and doing Fraud Investigations received information from a burnouts with friends, who were in separate motor doctor who suspected the claimant was not being vehicles. The claimant collided with the rear of a truthful as to the extent of their head injury. friend’s vehicle which had suddenly come to a stop Fraud Investigations commenced an investigation and after doing the burnouts. The following day, the discovered the claimant was working using a false claimant presented at hospital with various injuries, name. Evidence was obtained from employers citing including an alleged head injury. the claimant engaging in physical work duties on WA Police charged the claimant with careless driving various work sites with no apparent impediment due and driving without a licence. to their alleged injuries. This was further supported by a medical examination and CT scan that concluded Prior to the crash the claimant was employed. The the head injury was mild. claimant made a motor injury insurance claim due to an alleged head injury suffered and a permanent In light of the evidence, the claim was settled for incapacity to work. $1.7 million less than the claim amount sought.
INSURANCE COMMISSION ANNUAL REPORT 2016 48 4. Significant Issues
BELL GROUP LITIGATION AND MEDIATION Three significant issues impacted the Insurance 1. Expansion of Motor Injury Insurance. Commission in addition to its ordinary operations 2. Bell Group Litigation and Mediation. during 2016: 3. Direct Property Divestment.
EXPANSION OF MOTOR INJURY INSURANCE
Background
The State Government expanded motor injury The scheme is to provide treatment, care and support insurance on 1 July 2016. The Motor Vehicle for all people catastrophically injured in motor vehicle (Catastrophic Injuries) Act 2016 was passed to crashes in Western Australia from 1 July 2016, who establish the Catastrophic Injuries Support scheme. are not able to make a Compulsory Third Party motor injury insurance claim. See Section 3.2 on page 23 for further detail.
BELL GROUP LITIGATION AND MEDIATION
The collapse of the Bell Group of Companies (Bell) in It was hoped the various creditors of Bell would the early 1990s left the Insurance Commission with cooperate to bring about a swift and equitable debts of over $185 million owing to it. distribution of those funds. This did not eventuate. Mediation and settlement attempts between creditors The Liquidators of Bell sought funding from creditors have been unsuccessful. to recover Bell Group assets from 20 Australian and international banks that had exercised security over the It is estimated that a further 15 years of litigation may be assets. required to resolve the complex factual and legal issues before creditors receive any return on their investment. After almost two decades of litigation, funded principally by the Insurance Commission who advanced about $200 million to the liquidators of Bell, the litigation settled. The Liquidators hold about $1.8 billion for distribution between creditors.
DIRECT PROPERTY DIVESTMENT
In 2015, the Insurance Commission announced it Four properties have been sold since the announcement. sought to divest its direct property assets to change its See section 3.4 on page 46 for further detail. investment portfolio asset allocation.
49 INSURANCE COMMISSION ANNUAL REPORT 2016 5. Financial Statements 5.1 STATEMENTS OF COMPLIANCE
The accompanying financial statements and At the date of signing, we are not aware of any consolidated financial statements have been prepared circumstances that would render the particulars in accordance with the provisions of the Financial included in the financial statements misleading or Management Act 2006 from proper accounts and inaccurate. records to present fairly the financial transactions for 2016 and the financial position as at 30 June 2016.
FRANK COOPER AO ROD WHITHEAR DAMON DE NOOYER CHAIRMAN CHIEF EXECUTIVE CHIEF FINANCE OFFICER
13 September 2016 13 September 2016 13 September 2016
KEY PERFORMANCE INDICATORS
We hereby certify that the Key Performance Indicators and fairly represent the performance of the Insurance are based on proper records, are relevant and Commission of Western Australia for the financial year appropriate for assisting users to assess the Insurance ended 30 June 2016. Commission of Western Australia’s performance,
FRANK COOPER AO ROD WHITHEAR CHAIRMAN CHIEF EXECUTIVE
13 September 2016 13 September 2016
INSURANCE COMMISSION ANNUAL REPORT 2016 50 51 INSURANCE COMMISSION ANNUAL REPORT 2016 INSURANCE COMMISSION ANNUAL REPORT 2016 52 53 INSURANCE COMMISSION ANNUAL REPORT 2016 5.2 FINANCIAL STATEMENTS INDEX
Statement of Comprehensive Income for the year ended 30 June 2016 55 Statement of Financial Position at 30 June 2016 56 Statement of Changes in Equity for the year ended 30 June 2016 57 Statement of Cash Flows for the year ended 30 June 2016 58 Note 1 Statement of Significant Accounting Policies 59 Note 2 Funds’ Financial Statements 64 Note 3 RiskCover Fund Financial Statements 69 Note 4 Revenue and Income 71 Note 5 Expenses 72 Note 6 Net Claims Incurred 73 Note 7 Income Tax Equivalent 74 Note 8 Receivables 75 Note 9 Investments 76 Note 10 Property, Plant and Equipment 80 Note 11 Investment Property 81 Note 12 Intangibles 83 Note 13 Deferred Premium Collection Costs 83 Note 14 Other Assets 83 Note 15 Property Assets Held For Sale 84 Note 16 Payables 85 Note 17 Financial Liabilities – RiskCover Investments 85 Note 18 Outstanding Claims 86 Note 19 Unearned Premium 94 Note 20 Unexpired Risk Liability 95 Note 21 Provisions 96 Note 22 Employee Benefit Liabilities 96 Note 23 Bell Recovery Action 97 Note 24 Dividends 97 Note 25 Notes to the Statement of Cash Flows 98 Note 26 Financial Instruments 99 Note 27 Explanatory Statement – Insurance Commission 100 Note 28 Expenditure Commitments 102 Note 29 Property Lease Income 102 Note 30 Economic Dependency 102 Remuneration of the Board of Commissioners Note 31 103 and Other Key Management Personnel Note 32 Remuneration of Auditor 104 Note 33 Losses Through Theft, Default and Other Causes 104 Note 34 Critical Accounting Judgements and Estimates 105 Note 35 Actuarial Assumptions and Methods 106 Note 36 Risk Management Policies and Procedures 112 Note 37 Events Occurring After the Reporting Period 121 Note 38 RiskCover Fund Financial Disclosures 122
INSURANCE COMMISSION ANNUAL REPORT 2016 54 STATEMENT OF COMPREHENSIVE INCOME for the year ended 30 June 2016
2016 2015 Notes $'000 $'000
Premium Revenue 4 555,050 524,840 Outwards Reinsurance Premium Expense 5 (5,541) (5,820) Outwards Reinsurance Commission Revenue 4 548 595 Net Premium Revenue 550,057 519,615
Claims Expense 5 (520,395) (519,393) Reinsurance and Other Recoveries Revenue 4 10,116 27,527 Net Claims Incurred 6 (510,279) (491,866)
Premium Collection Costs 5,13 (22,222) (20,794)
Other Underwriting and Administration Expenses 5 (60,027) (57,265) UNDERWRITING LOSS (42,471) (50,310)
Investment Income 4 70,144 402,295 Investment Expenses 5 (31,094) (33,500) Finance Costs - RiskCover Investment Return 5 (23,540) (78,914) Other Income 4 36,780 44,948 Other Expenses 5 (4,672) (18,698) PROFIT BEFORE INCOME TAX EQUIVALENT EXPENSE 5,147 265,821
Income Tax Equivalent Benefit/(Expense) 7 6,679 (72,328) PROFIT AFTER INCOME TAX EQUIVALENT EXPENSE 11,826 193,493
ITEMS THAT WILL NOT BE RECLASSIFIED TO PROFIT/(LOSS): Re-measurement Loss on Defined Benefit Plans (340) (404) Related Income Tax Equivalent Effect 7 102 121 (238) (283) Fair Value Revaluation of Land and Buildings - (7,360) Related Income Tax Equivalent Effect 7 - 2,208 - (5,152) OTHER COMPREHENSIVE LOSS AFTER INCOME TAX (238) (5,435) EQUIVALENT BENEFIT
TOTAL COMPREHENSIVE INCOME AFTER INCOME TAX 11,588 188,058 EQUIVALENT EXPENSE
The Statement of Comprehensive Income should be read in conjunction with the Notes to, and forming part of, the Financial Statements.
The Statement of Comprehensive Income for the Insurance Commission represents an aggregation of the Insurance Commission's Funds. Refer Note 2.
The RiskCover Fund is managed by the Insurance Commission on behalf of the Government of Western Australia. Refer Note 3. This fund is excluded from this Statement of Comprehensive Income.
55 INSURANCE COMMISSION ANNUAL REPORT 2016 STATEMENT OF FINANCIAL POSITION at 30 June 2016
2016 2015 Notes $'000 $'000 ASSETS Current Assets Cash and Cash Equivalents 25 4,174 2,123 Receivables 8 52,629 64,892 Investments 9 3,657,632 3,087,187 Deferred Premium Collections Costs 13 5,723 6,124 Other Assets 14 2,177 2,337 Property Assets Held for Sale 15 87,000 807,989 Total Current Assets 3,809,335 3,970,652
Non-Current Assets Receivables 8 203,445 194,254 Investments 9 447,435 501,177 Property, Plant and Equipment 10 2,243 2,435 Investment Property 11 224,011 - Intangibles 12 5,872 6,921 Total Non-Current Assets 883,006 704,787 TOTAL ASSETS 4,692,341 4,675,439
LIABILITIES Current Liabilities Payables 16 27,940 24,852 Financial Liabilities - RiskCover Investments 17 921,541 849,102 Current Tax Payable 79,076 35,825 Outstanding Claims 18 478,068 494,866 Unearned Premium 19 220,163 212,314 Provisions 21 7,542 7,497 Total Current Liabilities 1,734,330 1,624,456
Non-Current Liabilities Outstanding Claims 18 1,746,769 1,613,015 Provisions 21 10,072 10,205 Deferred Tax Liabilities 7 84,876 191,236 Total Non-Current Liabilities 1,841,717 1,814,456 TOTAL LIABILITIES 3,576,047 3,438,912 NET ASSETS 1,116,294 1,236,527
EQUITY Asset Revaluation Surplus - 106,723 Compensation (Industrial Diseases) Fund Reserve 20,865 21,881 Retained Earnings 2 1,095,429 1,107,923 TOTAL EQUITY 1,116,294 1,236,527
The Statement of Financial Position should be read in conjunction with the Notes to, and forming part of, the Financial Statements. The Statement of Financial Position for the Insurance Commission represents an aggregation of the Insurance Commission's Funds. Refer Note 2. The RiskCover Fund is managed by the Insurance Commission on behalf of the Government of Western Australia. Refer Note 3. This fund is excluded from this Statement of Financial Position.
INSURANCE COMMISSION ANNUAL REPORT 2016 56 STATEMENT OF CHANGES IN EQUITY for the year ended 30 June 2016
2016 2015 Notes $'000 $'000
SUMMARY OF CHANGES IN EQUITY
BALANCE OF EQUITY AT START OF THE YEAR 1,236,527 1,083,537
Profit after Income Tax Equivalent Expense 11,826 193,493 Re-measurement on Defined Benefit Plans after Income Tax Equivalent (238) (283) Fair Value Revaluation of Land and Buildings after Income Tax Equivalent - (5,152) Total Comprehensive Income after Income Tax Equivalent Expense 11,588 188,058 Dividends Paid 24 (131,821) (35,068) BALANCE OF EQUITY AT END OF THE YEAR 1,116,294 1,236,527
RESERVES Asset Revaluation Surplus Balance at Start of the Year 106,723 111,875 Fair Value Revaluation of Land and Buildings after Income Tax - (5,152) Equivalent Expense Transfers to Retained Earnings (106,723) - Balance at End of the Year - 106,723
Compensation (Industrial Diseases) Fund Reserve Balance at Start of the Year 21,881 20,894 Transfer (to)/from Retained Earnings 2(i) (1,016) 987 Balance at End of the Year 20,865 21,881
RETAINED EARNINGS Balance at Start of the Year 1,107,923 950,768 Profit after Income Tax Equivalent Expense 11,826 193,493 Re-measurement on Defined Benefit Plans after Income Tax (238) (283) Equivalent Dividends Paid 24 (131,821) (35,068) Transfer from Asset Revaluation Surplus 106,723 - Transfer from/(to) Compensation (Industrial Diseases) Fund 1,016 (987) Balance at End of the Year 2 1,095,429 1,107,923
The Statement of Changes in Equity should be read in conjunction with the Notes to, and forming part of, the Financial Statements.
The Statement of Changes in Equity for the Insurance Commission in relation to Retained Earnings represents an aggregation of the Insurance Commission's Funds. Refer Note 2.
The RiskCover Fund is managed by the Insurance Commission on behalf of the Government of Western Australia. Refer Note 3. This fund is excluded from this Statement of Changes in Equity.
57 INSURANCE COMMISSION ANNUAL REPORT 2016 STATEMENT OF CHANGES IN EQUITY STATEMENT OF CASH FLOWS for the year ended 30 June 2016 for the year ended 30 June 2016
2016 2015 2016 2015 Notes $'000 $'000 Notes $'000 $'000
SUMMARY OF CHANGES IN EQUITY CASH FLOW FROM OPERATING ACTIVITIES Premium Revenue Received 625,211 587,543 Insurance Duty Received 61,816 58,199 BALANCE OF EQUITY AT START OF THE YEAR 1,236,527 1,083,537 Right of Indemnity Receipts - Government Insurance Fund 2,610 3,897 Right of Indemnity Receipts - WorkCover WA 708 675 Profit after Income Tax Equivalent Expense 11,826 193,493 Interest Received 46,090 50,778 Re-measurement on Defined Benefit Plans after Income Tax Property Income Received 69,289 88,192 Equivalent (238) (283) Dividends Received 65,756 55,097 Fair Value Revaluation of Land and Buildings after Income Tax Reinsurance and Other Recoveries Received 13,076 2,958 Equivalent - (5,152) Management Fees Received 27,443 27,017 Total Comprehensive Income after Income Tax Equivalent Expense 11,588 188,058 Outwards Reinsurance Commission Received 603 655 Other Receipts 630 961 Dividends Paid 24 (131,821) (35,068) Claims Paid (429,774) (492,069) BALANCE OF EQUITY AT END OF THE YEAR 1,116,294 1,236,527 Finance Costs - RiskCover Investment Return (23,540) (78,914) Outwards Reinsurance Paid (6,035) (6,535) RESERVES Premium Collection Costs Paid (24,043) (24,791) Asset Revaluation Surplus Set-up Costs Paid 1,285 (441) Balance at Start of the Year 106,723 111,875 Underwriting and Administration Expenses Paid (49,427) (50,600) Fair Value Revaluation of Land and Buildings after Income Tax Bell Recovery Costs Paid (2,394) (3,993) - (5,152) Equivalent Expense Property Expenses Paid (28,704) (33,619) Transfers to Retained Earnings (106,723) - Goods and Services Tax Paid (32,763) (22,315) Balance at End of the Year - 106,723 Insurance Duty Paid (61,106) (57,544) Other Payments (14,631) (10,723) Compensation (Industrial Diseases) Fund Reserve Net Cash Flow from Operating Activities 25 242,100 94,428 Balance at Start of the Year 21,881 20,894 Transfer (to)/from Retained Earnings 2(i) (1,016) 987 CASH FLOW FROM INVESTING ACTIVITIES Investment Funds Received from RiskCover Fund 72,439 143,094 Balance at End of the Year 20,865 21,881 Payments for Purchase of Investments (945,188) (894,460) Payments for Purchase/Development of Investment Property (8,585) (1,961) RETAINED EARNINGS Proceeds from Sale of Investments and Property Assets Held for Sale 1,388,683 1,088,176 Balance at Start of the Year 1,107,923 950,768 Payments for Purchase of Property, Plant and Equipment (3,703) (10,645) Profit after Income Tax Equivalent Expense 11,826 193,493 Proceeds from Sale of Property, Plant and Equipment 539 410 Re-measurement on Defined Benefit Plans after Income Tax (238) (283) Net Cash Flow from Investing Activities 504,185 324,614 Equivalent Dividends Paid 24 (131,821) (35,068) CASH FLOW TO STATE GOVERNMENT Transfer from Asset Revaluation Surplus 106,723 - Dividends Paid (131,821) (35,068) Transfer from/(to) Compensation (Industrial Diseases) Fund 1,016 (987) Income Tax Equivalent (Paid)/Received (56,328) 10,002 Balance at End of the Year 2 1,095,429 1,107,923 Net Cash Flow to State Government (188,149) (25,066)
The Statement of Changes in Equity should be read in conjunction with the Notes to, and forming part of, the Financial NET INCREASE IN CASH AND CASH EQUIVALENTS 558,136 393,976 Statements. CASH AND CASH EQUIVALENTS AT START OF THE YEAR 1,008,260 614,284 The Statement of Changes in Equity for the Insurance Commission in relation to Retained Earnings represents an aggregation of the Insurance Commission's Funds. Refer Note 2. CASH AND CASH EQUIVALENTS AT END OF THE YEAR 25 1,566,396 1,008,260 The RiskCover Fund is managed by the Insurance Commission on behalf of the Government of Western Australia. Refer Note 3. This fund is excluded from this Statement of Changes in Equity. The Statement of Cash Flows should be read in conjunction with the Notes to, and forming part of, the Financial Statements.
The RiskCover Fund is managed by the Insurance Commission on behalf of the Government of Western Australia. Refer Note 3. This fund is excluded from this Statement of Cash Flows.
INSURANCE COMMISSION ANNUAL REPORT 2016 58 NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The Insurance Commission of Western Australia (c) Disclosure of Prior Period Restatement, (g) Income Tax Effect Accounting The net amount of GST payable to, or recoverable from, (Insurance Commission) is a statutory authority of the Changes in Presentation and Changes in the ATO is included as part of receivables or payables in Government of Western Australia that was established Accounting Policy or Estimates The Insurance Commission operates within the National the Statement of Financial Position. and operates in accordance with the Insurance Tax Equivalent Regime (NTER). All Funds of the Commission of Western Australia Act 1986. There are no mandatory or voluntary prior period Insurance Commission are subject to the NTER, except Cash flows are included in the Statement of Cash Flows restatements, changes in presentation or changes in for the Government Insurance Fund. on a gross basis and the GST component of cash flows (a) Statement of Compliance accounting policies which impact on the financial arising from investing and financing activities, which are statements. Tax is calculated by reference to the amount of tax recoverable from or payable to the ATO, are classified as The financial report is a general purpose financial report equivalent payable, or recoverable, to or from the operating cash flows. which has been prepared in accordance with Australian (d) Initial Application of an Australian Accounting Department of Treasury of Western Australia (Department Accounting Standards (including Australian Interpretations) Standard of Treasury) as calculated under the rules of the NTER. (j) Revenue and Income Recognition adopted by the Australian Accounting Standards Board These rules (with limited exceptions) follow the Income (AASB) as applied by the Treasurerʼs Instructions. The Insurance Commission has reviewed all new Tax legislation and utilise tax rates effective at the end of Revenue is recognised to the extent that it is probable that Australian Accounting Standards and Interpretations the reporting period. As a consequence the Insurance economic benefits will flow to the Insurance Commission Several of these are modified by the Treasurer's effective for the annual reporting period beginning 1 July Commission is required to comply with AASB 112, ʻIncome and the revenue can be reliably measured. The following Instructions to vary application, disclosure, format and 2015. None of these Standards or Interpretations are Taxesʼ. specific criteria must also be met before revenue and other wording. Such modifications are intended to provide considered to have a material impact on the Insurance income is recognised. certainty and ensure consistency and appropriate reporting Commissionʼs Financial Statements. The income tax expense or benefit represents the tax across the public sector. payable or receivable on the current yearʼs taxable income • Premium Revenue (e) Future Impact of Australian Accounting based on the prevailing income tax rate adjusted for Where modification is required and has a material or Standards Not Yet Operative changes in deferred tax assets and liabilities. Premium revenue, including unclosed business, is significant effect upon the reported results, details of that recognised in the Statement of Comprehensive Income modification and the resulting financial effect are disclosed The Insurance Commission cannot early adopt an Deferred tax is accounted for using the balance sheet when it has been earned and is calculated from the in individual notes to the financial statements. Australian Accounting Standard or Interpretation unless liability method in respect of temporary differences arising attachment date over the period of the policy. The pattern specifically permitted by TI 1101. TI 1101 has not from differences between the carrying amount of assets of recognition over the policy period is based on time, The Financial Management Act 2006 and the Treasurer's mandated the early adoption of any Australian Accounting and liabilities in the financial statements and the which closely approximates the pattern of risks Instructions are legislative provisions governing the Standards or Interpretations. The following summary corresponding tax base of those items. Deferred tax underwritten. preparation of financial statements and take precedence outlines the future Standards which may have an impact assets and liabilities are recognised for temporary over Accounting Standards, the Framework, Statements of on the Insurance Commission: differences at the tax rates that are expected to apply • Unearned Premium Accounting Concepts and other authoritative when the assets and liabilities are realised or settled, pronouncements of the AASB. Title Operative Date based on tax rates that have been enacted or substantially The proportion of premium received or receivable which AASB 9 Financial Instruments 1 January 2018 enacted by reporting date. relates to risks for periods of insurance subsequent to the (b) Basis of Preparation AASB 15 Revenue from Contracts 1 January 2018 end of the reporting period and hence not earned in the with Customers Deferred tax assets are recognised to the extent that it is Statement of Comprehensive Income, recognised on a The financial statements have been prepared on the AASB 16 Leases 1 January 2019 probable that sufficient taxable amounts will be available pro-rata basis. accrual basis of accounting using the historical cost against which deductible temporary differences or unused convention, except for certain assets and liabilities which, The Insurance Commission will apply the standards and tax losses and tax offsets can be utilised. However, • Reinsurance and Other Recoveries Revenue as detailed in the remainder of this accounting policies amendments detailed above for the reporting periods deferred tax assets and liabilities are not recognised if the note, are measured at fair value. beginning on the operative dates set out above. An initial temporary differences giving rise to them arise from the Reinsurance and other recoveries revenue on paid claims, assessment of the financial impact of the standards and initial recognition of assets and liabilities which affect claims reported but not paid, claims incurred but not The financial statements are presented in Australian amendments has been undertaken and they are not neither taxable income nor accounting profit. reported (IBNR) and claims incurred but not enough dollars and all values are rounded to the nearest thousand expected to have a material impact on the financial reported (IBNER) are recognised as revenue. Recoveries The carrying amount of deferred tax assets is reviewed at dollars ($ʼ000), unless otherwise stated. statements or accounting policies. receivable for long-tail classes of insurance are measured each balance sheet date and reduced to the extent that it as the present value of the expected future receipts, is no longer probable that sufficient taxable profit will be The judgements that have been made in the process of (f) Basis of Consolidation calculated on the same basis as the liability for outstanding available to allow all or part of the deferred tax asset to be applying the Insurance Commissionʼs accounting policies, claims. The details of inflation and discount rates used are utilised. that have the most significant effect on the amounts The financial statements at 30 June 2016 relate to the set out in Note 35. recognised in the financial statements, are disclosed at Insurance Commission. Deferred tax assets and liabilities are offset as the Note 34, ʻCritical Accounting Judgements and Estimatesʼ. • Investment Income / Loss The financial statements of the RiskCover Fund are not Insurance Commission settles its current tax assets and liabilities on a net basis. Key assumptions made concerning the future, and other consolidated as its assets are controlled by the Interest revenue is recognised as the interest accrues, key sources of estimation uncertainty at the end of the Government of Western Australia and not by the Insurance (h) Dividends based on the effective interest method. Dividends received reporting period, that have a significant risk of causing a Commission. are recognised when the right to receive payment is material adjustment to the carrying amounts of established. Foreign exchange gain/(loss) is the difference outstanding claims liabilities within the next financial year During 2015 the Insurance Commission set up two Dividends are recognised as a liability in the period in which they are declared. between the different exchange rates at date of are disclosed at Note 35, ʻActuarial Assumptions and subsidiaries, BACL (ICWA) Pty Ltd and BAM (ICWA) Pty transactions and reporting date. Income from property Methodsʼ. Ltd as part of the Bell recovery action. The BAM and BACL (i) Goods and Services Tax (GST) rentals is recognised on a receivables basis. Investment subsidiaries did not have any assets, liabilities revenues income includes realised and unrealised gains or losses or expenses during the previous financial year and they Revenues, expenses and assets are recognised net of the on the financial assets which are reported on a combined are not expected to have transactions in the foreseeable basis as fair value gains or losses on financial assets. future financial year. amount of GST except where the GST incurred on a purchase of goods and services is not recoverable from
the Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of GST.
59 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued)
(g) Income Tax Effect Accounting The net amount of GST payable to, or recoverable from, the ATO is included as part of receivables or payables in The Insurance Commission operates within the National the Statement of Financial Position. Tax Equivalent Regime (NTER). All Funds of the Insurance Commission are subject to the NTER, except Cash flows are included in the Statement of Cash Flows for the Government Insurance Fund. on a gross basis and the GST component of cash flows arising from investing and financing activities, which are Tax is calculated by reference to the amount of tax recoverable from or payable to the ATO, are classified as equivalent payable, or recoverable, to or from the operating cash flows. Department of Treasury of Western Australia (Department of Treasury) as calculated under the rules of the NTER. (j) Revenue and Income Recognition These rules (with limited exceptions) follow the Income Tax legislation and utilise tax rates effective at the end of Revenue is recognised to the extent that it is probable that the reporting period. As a consequence the Insurance economic benefits will flow to the Insurance Commission Commission is required to comply with AASB 112, ʻIncome and the revenue can be reliably measured. The following Taxesʼ. specific criteria must also be met before revenue and other income is recognised. The income tax expense or benefit represents the tax payable or receivable on the current yearʼs taxable income • Premium Revenue based on the prevailing income tax rate adjusted for changes in deferred tax assets and liabilities. Premium revenue, including unclosed business, is recognised in the Statement of Comprehensive Income Deferred tax is accounted for using the balance sheet when it has been earned and is calculated from the liability method in respect of temporary differences arising attachment date over the period of the policy. The pattern from differences between the carrying amount of assets of recognition over the policy period is based on time, and liabilities in the financial statements and the which closely approximates the pattern of risks corresponding tax base of those items. Deferred tax underwritten. assets and liabilities are recognised for temporary differences at the tax rates that are expected to apply • Unearned Premium when the assets and liabilities are realised or settled, based on tax rates that have been enacted or substantially The proportion of premium received or receivable which enacted by reporting date. relates to risks for periods of insurance subsequent to the end of the reporting period and hence not earned in the Deferred tax assets are recognised to the extent that it is Statement of Comprehensive Income, recognised on a probable that sufficient taxable amounts will be available pro-rata basis. against which deductible temporary differences or unused tax losses and tax offsets can be utilised. However, • Reinsurance and Other Recoveries Revenue deferred tax assets and liabilities are not recognised if the temporary differences giving rise to them arise from the Reinsurance and other recoveries revenue on paid claims, initial recognition of assets and liabilities which affect claims reported but not paid, claims incurred but not neither taxable income nor accounting profit. reported (IBNR) and claims incurred but not enough reported (IBNER) are recognised as revenue. Recoveries The carrying amount of deferred tax assets is reviewed at receivable for long-tail classes of insurance are measured each balance sheet date and reduced to the extent that it as the present value of the expected future receipts, is no longer probable that sufficient taxable profit will be calculated on the same basis as the liability for outstanding available to allow all or part of the deferred tax asset to be claims. The details of inflation and discount rates used are utilised. set out in Note 35. Deferred tax assets and liabilities are offset as the • Investment Income / Loss Insurance Commission settles its current tax assets and liabilities on a net basis. Interest revenue is recognised as the interest accrues, (h) Dividends based on the effective interest method. Dividends received are recognised when the right to receive payment is Dividends are recognised as a liability in the period in established. Foreign exchange gain/(loss) is the difference which they are declared. between the different exchange rates at date of transactions and reporting date. Income from property (i) Goods and Services Tax (GST) rentals is recognised on a receivables basis. Investment income includes realised and unrealised gains or losses Revenues, expenses and assets are recognised net of the on the financial assets which are reported on a combined amount of GST except where the GST incurred on a basis as fair value gains or losses on financial assets. purchase of goods and services is not recoverable from the Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of GST.
INSURANCE COMMISSION ANNUAL REPORT 2016 60 NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) 1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued)
• Net Gains/Losses from Sale of Property, Plant (p) Cash and Cash Equivalents financial periods expected to benefit from the expenditure, Fair value is determined by reference to market-based and Equipment which is generally less than one year. Refer Note 13. evidence, having regard to current economic and market Cash and cash equivalents are carried at face value of the conditions and based on an orderly sale between a Net gains/losses from the sale of property, plant and amounts deposited or drawn. The carrying amounts of (u) Property, Plant and Equipment knowledgeable willing buyer and a knowledgeable willing equipment are recognised when the significant risks and cash assets approximate to their fair value. seller in an armʼs length transaction at the end of the rewards of ownership control transfer to the purchaser. Freehold Land and Buildings reporting period. For the purpose of the Statement of Cash Flows, cash (k) Claims Expense includes cash assets on hand and in banks, net of any The Forrest Centre (owner-occupied property) was Gains and losses arising from changes in the fair value of bank account liability, refer Note 1(z), together with short- transferred to property assets held for sale during June Investment Property are included in profit or loss in the Claims expense represents payment for claims and the term discount securities and deposits at call, which are 2015. Assets classified as held for sale are not depreciated year in which they arise. movement in outstanding claims liabilities. investments integral to the Insurance Commissionʼs or amortised. Refer Note 15. general insurance activities (all of which are readily The Freehold Land and Buildings balances were (l) Outwards Reinsurance convertible to cash and are subject to an insignificant risk During February 2016 an agreement was reached to sell reclassified as property assets held for sale during June of change in value). the Forrest Centre. The sale was finalised and settled on 2015. Refer Note 15. Premium ceded to reinsurers is recognised as an expense 10 March 2016. in accordance with the pattern of reinsurance service (q) Receivables On 30 June 2016 the Westralia Square property at 141 St received. Prior to the sale the revaluation surplus was credited to the Georges Terrace was no longer deemed to be classed as Receivables are initially recognised at fair value and are asset revaluation surplus included in equity. a property asset held for sale and was reclassified as (m) Unexpired Risk Liability subsequently measured at amortised cost less provision Investment Property. Refer Note 11. for impairment losses. Upon disposal, the revaluation surplus relating to the At the end of the reporting period, an assessment is made owner-occupied asset was transferred to retained (x) Intangible Assets to determine the sufficiency of the unearned premium (r) Investments earnings. liability to cover all expected future cash flows relating to Intangible Assets are non-monetary assets with no future claims against related unexpired portions of Investment assets are considered to back General Plant and Equipment physical substance, that are separately identifiable, insurance contracts. Liability adequacy testing is Insurance Liabilities of the Insurance Commission. These controlled by the Insurance Commission and have future performed at the level of a portfolio of contracts which are are initially recognised at cost and subsequently measured Plant and equipment is carried at cost less accumulated economic benefits. subject to broadly similar risks and which are managed at fair value. depreciation and any impairment in value. together as a single portfolio. Acquisitions of intangible assets over $1,000 are For financial instruments traded in an active market, the Leasehold Improvements, Office Equipment (including IT capitalised. Internally generated intangible assets that If the present value of the expected future cash flows fair value is determined by reference to quoted market hardware and software), Furniture and Fittings and Motor qualify for recognition are capitalised. relating to future claims plus the additional risk margin prices. Where quoted market prices in active markets are Vehicles are depreciated using the straight line method exceeds the unearned premium liability less any related not available, fair value is determined using valuation over the assetʼs estimated useful life. Estimated useful The intangible assets reported primarily relate to computer intangible assets and related deferred premium collection techniques incorporating inputs that are observable for the lives are between three and eight years for all classes. An software which is not of an essential nature required to costs, then the unearned premium liability is deemed to be asset. In the absence of quoted market prices in active assetʼs carrying amount is written down to its recoverable operate specific items of hardware. Intangible assets deficient. The Insurance Commission applies a risk markets and observable market inputs, valuation amount if the assetʼs carrying amount is greater than its include amounts relating to work in progress on designing margin to achieve the same probability of sufficiency techniques or models which are based on unobservable estimated recoverable amount. and implementing computer software. (75%) for future claims as is achieved by the estimate of inputs may be used. Refer Note 9. the outstanding claims liability. Refer Note 20. (v) Property Assets Held for Sale This software is amortised over four years and tested for The management of financial assets, general insurance impairment whenever there is an indication that the asset The movement in total deficiency, if any, (net of liabilities and policy liabilities are closely monitored to Property assets held for sale are recognised at the lower of may be impaired. reinsurance), is recognised immediately in the Statement ensure that there is always sufficient liquidity in carrying amount and fair value less costs to sell and are of Comprehensive Income. investments to meet cash flows arising from general presented separately from other assets in the Statement of (y) Impairment of Assets insurance liabilities and policy liabilities. Financial Position. Assets classified as held for sale are not (n) Premium Collection Costs depreciated or amortised. Non-current assets are not carried at an amount above (s) Derivative Financial Instruments their recoverable amount. Where the carrying value of an Premium collection costs relate to amounts paid to the Property assets held for sale are intended to be sold within asset exceeds the recoverable amount, the asset is written Department of Transport (DoT) for administering the Derivative financial instruments are initially recognised at the next financial year and have been recognised as current down. The recoverable amount is the higher of fair value, collection of motor injury insurance premiums. Premium fair value and are subsequently remeasured to fair value assets. less cost to sell and value in use. In assessing value in collection costs incurred in obtaining insurance business at the reporting date. For derivatives traded in an active use, estimated future net cash flows are, where applicable, are deferred and recognised as assets where they can be market, the fair value of derivatives is determined by The value of the Property Assets Held for Sale at 30 June discounted to their present value using a market- reliably measured and where it is probable that they will reference to quoted market prices. For derivatives that are 2016 reflects the agreed sale price as per the sale and determined risk-adjusted discount rate. give rise to revenue that will be recognised in the not traded or which are traded in a market that is not purchase agreement signed on 21 June 2016. Refer Note Statement of Comprehensive Income in subsequent sufficiently active, fair value is determined using generally 15. (z) Bank Overdraft reporting periods. accepted valuation techniques. (w) Investment Property Any liability for bank overdraft shown in the Statement of (o) Management Fee The purpose for which derivative transactions are Financial Position represents the general ledger account undertaken is set out in Note 26(a). Freehold Land and Buildings balance and includes the value of cheques drawn but The RiskCover Fund is charged a management fee in unpresented on the bank account at the end of the proportion to its usage of the Insurance Commission's (t) Deferred Premium Collection Costs Freehold Land and Buildings presented within Investment reporting period and equates to fair value. services. A profit element is not included in these Property are Assets Backing General Insurance Liabilities. management fees. At the end of the reporting period, a portion of premium (aa) Payables collection costs (refer Note 1(n)) is deferred in recognition Following initial recognition at cost, Investment Property is that it represents an expense that will give rise to premium revalued annually at the end of the reporting period by an Payables, including accruals not yet billed, are carried at revenue that will be recognised in future reporting periods. independent valuer to fair value, which is based on active cost and recognised when the Insurance Commission Deferred premium collection costs are amortised over the market prices.
61 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) financial periods expected to benefit from the expenditure, Fair value is determined by reference to market-based which is generally less than one year. Refer Note 13. evidence, having regard to current economic and market conditions and based on an orderly sale between a (u) Property, Plant and Equipment knowledgeable willing buyer and a knowledgeable willing seller in an armʼs length transaction at the end of the Freehold Land and Buildings reporting period.
The Forrest Centre (owner-occupied property) was Gains and losses arising from changes in the fair value of transferred to property assets held for sale during June Investment Property are included in profit or loss in the 2015. Assets classified as held for sale are not depreciated year in which they arise. or amortised. Refer Note 15. The Freehold Land and Buildings balances were During February 2016 an agreement was reached to sell reclassified as property assets held for sale during June the Forrest Centre. The sale was finalised and settled on 2015. Refer Note 15. 10 March 2016. On 30 June 2016 the Westralia Square property at 141 St Prior to the sale the revaluation surplus was credited to the Georges Terrace was no longer deemed to be classed as asset revaluation surplus included in equity. a property asset held for sale and was reclassified as Investment Property. Refer Note 11. Upon disposal, the revaluation surplus relating to the owner-occupied asset was transferred to retained (x) Intangible Assets earnings. Intangible Assets are non-monetary assets with no Plant and Equipment physical substance, that are separately identifiable, controlled by the Insurance Commission and have future Plant and equipment is carried at cost less accumulated economic benefits. depreciation and any impairment in value. Acquisitions of intangible assets over $1,000 are Leasehold Improvements, Office Equipment (including IT capitalised. Internally generated intangible assets that hardware and software), Furniture and Fittings and Motor qualify for recognition are capitalised. Vehicles are depreciated using the straight line method over the assetʼs estimated useful life. Estimated useful The intangible assets reported primarily relate to computer lives are between three and eight years for all classes. An software which is not of an essential nature required to assetʼs carrying amount is written down to its recoverable operate specific items of hardware. Intangible assets amount if the assetʼs carrying amount is greater than its include amounts relating to work in progress on designing estimated recoverable amount. and implementing computer software.
(v) Property Assets Held for Sale This software is amortised over four years and tested for impairment whenever there is an indication that the asset Property assets held for sale are recognised at the lower of may be impaired. carrying amount and fair value less costs to sell and are presented separately from other assets in the Statement of (y) Impairment of Assets Financial Position. Assets classified as held for sale are not depreciated or amortised. Non-current assets are not carried at an amount above their recoverable amount. Where the carrying value of an Property assets held for sale are intended to be sold within asset exceeds the recoverable amount, the asset is written the next financial year and have been recognised as current down. The recoverable amount is the higher of fair value, assets. less cost to sell and value in use. In assessing value in use, estimated future net cash flows are, where applicable, The value of the Property Assets Held for Sale at 30 June discounted to their present value using a market- 2016 reflects the agreed sale price as per the sale and determined risk-adjusted discount rate. purchase agreement signed on 21 June 2016. Refer Note 15. (z) Bank Overdraft
(w) Investment Property Any liability for bank overdraft shown in the Statement of Financial Position represents the general ledger account Freehold Land and Buildings balance and includes the value of cheques drawn but unpresented on the bank account at the end of the Freehold Land and Buildings presented within Investment reporting period and equates to fair value. Property are Assets Backing General Insurance Liabilities. (aa) Payables Following initial recognition at cost, Investment Property is revalued annually at the end of the reporting period by an Payables, including accruals not yet billed, are carried at independent valuer to fair value, which is based on active cost and recognised when the Insurance Commission market prices.
INSURANCE COMMISSION ANNUAL REPORT 2016 62 NOTES TO, AND FORMING PART OF, THE FINANCIAL STATEMENTS
1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued)
becomes obliged to make future payments as a result of a reporting period, which most closely match the terms of purchase of assets or services. maturity of the related liabilities, are used.
(bb) Financial Liabilities - RiskCover Investments • Superannuation – Fair Value of Plan Assets
RiskCover Investments relate to a floating rate promissory The Insurance Commission has two defined benefit note, which is measured at fair value. The floating rate superannuation schemes, the Pension Scheme and the promissory note represents RiskCoverʼs share of the superannuation scheme for the pre-transfer benefits for investment pool of the Insurance Commission. Refer Notes employees who transferred to the Gold State 17 and 38. Superannuation Scheme. The value of any excess of accrued superannuation benefits over the net fair value of (cc) Outstanding Claims assets is recorded as a liability of the Insurance Commission. This liability is brought to account on the The liability for outstanding claims is measured as the basis that there is no pre-funding of the employerʼs liability central estimate of the present value of expected future for benefits under this Pension Scheme. Refer Note 22. claims payments plus a risk margin.
The expected future payments include those in relation to claims reported but not yet paid; claims incurred but not reported (IBNR); claims incurred but not enough reported (IBNER); and estimated claims handling costs. The expected future payments are discounted to present value using a risk-free rate.
A risk margin is applied to the outstanding claims liability to reflect the inherent uncertainty in the central estimate of the outstanding claims liability. The risk margin increases the probability that the claims liability is adequately provided for to a 75% probability of sufficiency. RiskCover Fund does not apply a risk margin. Refer Note 38.
Refer Note 35 for details of inflation and discount rates used.
(dd) Provisions
Provisions are recognised when the Insurance Commission has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation; and a reliable estimate can be made of the amount of obligation.
(ee) Employee Benefits
• Salaries, Long Service Leave and Annual Leave
Liabilities in respect of employee entitlements to salaries, long service leave and annual leave, which are expected to be settled within twelve months of the end of the reporting period, are measured at their nominal amounts using the salary rates expected to be paid when the liability is settled.
Liabilities in respect of employee entitlements to long service leave, which are not expected to be settled within twelve months of the end of the reporting period, are measured at the present value of their future estimated cash outflows. In determining the liability, consideration has been given to future increases in salary rates, experience with staff departures and periods of service.
In determining the present value of the future estimated cash outflows, the interest rates attaching to Commonwealth Government securities at the end of the
63 INSURANCE COMMISSION ANNUAL REPORT 2016 - - - - - $'000 7,522 5,521 4,002 (6,604) (1,519) 79,992 12,618 48,904 (38,381) (14,126) (31,777) (78,914) (18,698) - - - - - $'000 8,137 3,866 General Fund General (4,672) (6,971) 39,284 17,479 (37,891) (15,108) (30,920) (31,734) (23,540) (54,687) (37,208) Insurance Commission Insurance ------(95) 509 $'000 4,052 (3,957) (3,397) (1,069) (2,888) ------(90) (830) (929) (830) $'000 1,849 Government (1,759) Insurance Fund Insurance ------131 461 131 987 (925) (591) (926) (376) (130) (362) $'000 2,650 1,349 ------Fund 80 80 767 514 (864) (285) (959) (269) $'000 (2,028) (1,530) (1,149) (1,016) Compensation (Industrial Diseases) (Industrial - - 90 595 $'000 (5,820) 19,185 (15,145) (20,794) (31,591) (45,742) (70,447) 258,951 524,709 319,748 519,484 188,504 (501,429) (482,244) - - 94 548 2016 2015 2016 2015 2016 2015 2016 2015 Third Party $'000 3,094 (5,541) (5,240) 61,364 50,050 Insurance Fund Insurance (22,222) (31,666) (34,691) (11,314) 554,970 101,201 549,977 (501,329) (504,423) 6 4 5 4 5 4 5 4 5 5 4 5 7 5,13 Notes FUNDS' FINANCIAL STATEMENTS FUNDS' FINANCIAL NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 2. STATEMENT OF COMPREHENSIVESTATEMENT INCOME 2016 30 June ended year the for Net ClaimsNet Incurred Reinsurance and Other Recoveries RevenueReinsurance and Other Equivalent Benefit/(Expense) Tax Income Premium Revenue Reinsurance Premium Expense Outwards Reinsurance CommissionOutwards Revenue PremiumNet Revenue Claims Expense Costs Collection Premium and Administration Expenses Underwriting Other LOSS UNDERWRITING Income Investment Expenses Investment Finance RiskCover Return - Costs Investment Income Other Expenses Other PROFIT/(LOSS) BEFORE INCOME TAX EXPENSE EQUIVALENT PROFIT/(LOSS) AFTER INCOME TAX EXPENSE EQUIVALENT
INSURANCE COMMISSION ANNUAL REPORT 2016 64 121 (404) (283) $'000 2,208 (5,152) (5,435) (1,433) (7,360) - - - 102 (340) (238) (238) $'000 General Fund General (37,446) rehensive Income for the ------$'000 ------$'000 Government Government Commission Insurance Insurance Fund Insurance the year that the Forrest Centre was owner-occupied. was Centre Forrest the that year the s: ------987 $'000 ------Fund $'000 (1,016) Compensation (Industrial Diseases) (Industrial als incurred during the part of part the during als incurred ------$'000 188,504 ------2016 2015 2016 2015 2016 2015 2016 2015 Third Party $'000 50,050 Insurance Fund Insurance rance Commission'srance of rent portion Notes FUNDS' FINANCIAL STATEMENTS (continued) STATEMENTS FUNDS' FINANCIAL Other Income of $2.9 million (2015: $6.3 million) for the Insu the million) for $6.3 million (2015: of $2.9 Income Other NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 2. Related Income Tax Equivalent Effect Related Tax Income Related Income Tax Equivalent Effect Related Tax Income ITEMS THAT WILL NOT BE RECLASSIFIED TO NOT BE RECLASSIFIED ITEMS THAT WILL PROFIT/(LOSS): Re-measurement Loss on Defined Benefit Plans ValueFair Revaluation of Land and Buildings and Equipment Property as Plant, presented TAX INCOME AFTER LOSS COMPREHENSIVE OTHER BENEFIT EQUIVALENT INCOME AFTER INCOME/(LOSS) COMPREHENSIVE TOTAL EXPENSE EQUIVALENT TAX Commission. Financial and forming of, the of Insurance to, the Notes part Statements the to above relate references The Note The above Statement Commission eliminations. inter-fund account Insurance into of Funds taking an aggregation the The main represents elimination i of Comprehensive Income for the four Funds is presented without eliminations for inter-fund transactions. The Statement of Comp -
65 INSURANCE COMMISSION ANNUAL REPORT 2016 - - - $'000 2,123 2,337 2,435 6,921 11,319 43,480 807,989 501,177 554,013 3,087,187 3,910,955 1,179,293 (3,285,675) - $'000 4,174 9,853 4,321 2,177 2,243 5,872 General Fund General 87,000 48,580 447,435 224,011 728,141 3,657,632 3,765,157 1,211,776 (3,281,522) Insurance Commission Insurance ------$'000 4,545 4,545 (4,688) 37,676 37,676 37,533 ------$'000 3,587 3,587 Government (4,753) 37,042 37,042 35,876 Insurance Fund Insurance ------245 878 878 245 $'000 25,842 26,965 ------Fund 623 103 623 103 $'000 Compensation 24,853 25,579 (Industrial Diseases) (Industrial ------$'000 6,124 50,135 56,259 112,220 112,220 3,264,521 3,433,000 ------2016 2015 2016 2015 2016 2015 2016 2015 Third Party $'000 5,723 46,013 40,290 Insurance Fund Insurance 117,200 117,200 3,261,422 3,424,635 8 9 8 9 25 13 14 15 10 11 12 Notes FUNDS' FINANCIAL STATEMENTS (continued) STATEMENTS FUNDS' FINANCIAL NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 2. STATEMENT OF FINANCIAL POSITION OF FINANCIAL STATEMENT 2016 30 June at ASSETS Current Assets Cash and Cash Equivalents Receivables Receivable Tax Current Investments Deferred Premium Collection Costs Other Assets Held for Sale Assets Property Total Current Assets Non-Current Assets Receivables Investments and Equipment Plant Property, Property Investment Intangibles Total Non-Current Assets Investments Inter-Fund TOTAL ASSETS TOTAL
INSURANCE COMMISSION ANNUAL REPORT 2016 66 - - 752 $'000 7,497 7,152 12,912 11,027 80,255 10,205 93,668 97,612 849,102 106,723 978,902 881,290 200,391 200,391 - - - - 116 $'000 7,730 7,542 General Fund General 12,316 89,514 10,072 99,702 921,541 162,945 949,129 162,945 162,945 1,048,831 Insurance Commission Insurance lity for the accumulated deficit ------44 $'000 e relate to the Notes to, and forming 4,546 4,590 32,943 32,943 37,533 ------31 $'000 3,584 3,615 Government Government 32,261 32,261 35,876 Insurance Fund Insurance ------295 179 413 887 $'000 2,787 1,410 4,197 5,084 21,881 21,881 21,881 - - - - - Fund 81 92 996 658 165 504 $'000 3,718 3,214 4,714 Compensation 20,865 20,865 20,865 (Industrial Diseases) (Industrial - - - - - $'000 12,953 34,894 478,880 212,314 182,674 739,041 1,014,255 1,497,030 1,014,255 1,679,704 2,418,745 1,014,255 - - - - - 2016 2015 2016 2015 2016 2015 2016 2015 Third Party $'000 21,302 83,305 84,256 Insurance Fund Insurance 786,115 461,510 219,998 932,484 932,484 932,484 1,706,036 1,621,780 2,492,151 7 16 17 18 19 21 18 21 Notes FUNDS' FINANCIAL STATEMENTS (continued) STATEMENTS FUNDS' FINANCIAL NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 2. LIABILITIES Current Liabilities Payables Payable Tax Current Investments RiskCover - Financial Liabilities ClaimsOutstanding PremiumUnearned Provisions Total Current Liabilities Non-Current Liabilities ClaimsOutstanding Provisions LiabilitiesDeferred Tax Total Non-Current Liabilities EQUITY Revaluation Surplus Asset Compensation Diseases) Fund Reserve (Industrial Retained Earnings Funds' TOTAL EQUITY TOTAL LIABILITIES The Government Insurance Fund1996.decisionJunein Cabinet's after 1997 July from1 Fund that in forms part of the financial statementsThe of above the Statement Insurance of Commission. Commission. Financial of, the of Insurance the part Statements Financial Position The Government for of the Western four Australia Funds assumed is liabi presented before eliminations for inter-fund transactions. The Note references abov NET ASSETS
67 INSURANCE COMMISSION ANNUAL REPORT 2016 - - - - - 752 (283) $'000 $'000 4,002 7,497 7,152 93,668 89,949 12,912 11,027 80,255 10,205 93,668 97,612 849,102 106,723 200,391 881,290 978,902 200,391 ------116 (238) $'000 $'000 7,730 7,542 General Fund General General Fund General 93,668 12,316 89,514 10,072 99,702 (37,208) 162,945 106,723 921,541 162,945 162,945 949,129 162,945 Insurance Commission of 1,048,831 Insurance Commission Insurance Insurance Commission Insurance lity for the accumulated deficit ------44 nder the $'000 $'000 e relate to the Notes to, and forming 4,546 4,590 32,943 32,943 37,533 ------31 $'000 $'000 Government 3,584 3,615 Government Government 32,261 32,261 35,876 Insurance Fund Insurance Insurance Fund Insurance ------987 295 179 413 887 (987) $'000 $'000 2,787 1,410 4,197 5,084 21,881 21,881 21,881 ------Fund Fund 81 92 658 165 504 996 $'000 $'000 1,016 3,718 3,214 4,714 (1,016) Compensation Compensation 20,865 20,865 20,865 (Industrial Diseases) (Industrial (Industrial Diseases) (Industrial ------$'000 $'000 12,953 34,894 (35,068) 860,819 188,504 478,880 212,314 182,674 739,041 1,014,255 lus to the actuarial estimate for its outstanding claims liabilities. U 1,014,255 1,679,704 1,497,030 1,014,255 2,418,745 1,014,255 ------2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Third Party $'000 Third Party $'000 50,050 21,302 83,305 84,256 Insurance Fund Insurance Insurance Fund Insurance 932,484 786,115 461,510 219,998 932,484 932,484 932,484 (131,821) 1,014,255 1,706,036 1,621,780 2,492,151 (i) 7 24 16 17 18 19 21 18 21 Notes Notes the Insurance Commission may only transfer the monies in this Reserve to meet, or assist in meeting, any amounts required to be expended by the FUNDS' FINANCIAL STATEMENTS (continued) STATEMENTS FUNDS' FINANCIAL Western Australia Act 1986, Commission ofInsurance industrial diseases. and treatment prevention into the for research The Compensation (Industrial Diseases) Fund Reserve results from funds surp FUNDS' FINANCIAL STATEMENTS (continued) STATEMENTS FUNDS' FINANCIAL NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 2. STATEMENT OF CHANGES IN EQUITY IN CHANGES OF STATEMENT 2016 30 June ended year the for Dividends Paid (i) BALANCE AT END OF THE END OF YEAR AT BALANCE Balance at BeginningBalance at Year of the Amount Transferred from Revaluation Asset Transferred Amount Surplus Profit/(Loss) after Income Tax Equivalent Tax Income after Profit/(Loss) Re-measurement on Defined Benefit Plans after Equivalent Tax Income Compensation from/(to) Transferred Amount Diseases) Fund Reserve (Industrial NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 2. LIABILITIES Current Liabilities Payables Payable Tax Current Investments RiskCover - Financial Liabilities ClaimsOutstanding PremiumUnearned Provisions Total Current Liabilities Non-Current Liabilities ClaimsOutstanding Provisions LiabilitiesDeferred Tax Total Non-Current Liabilities EQUITY Revaluation Surplus Asset Compensation Diseases) Fund Reserve (Industrial Retained Earnings Funds' TOTAL EQUITY The Government Insurance Fund1996. decisionJune in Cabinet's after 1997 July from1 Fund that in forms part of the financial statementsThe of above the Statement Insurance of Commission. Commission. Financial of, the of Insurance the part Statements Financial Position The Government for of the Western four Australia Funds assumed is liabi presented before eliminations for inter-fund transactions. The Note references abov TOTAL LIABILITIES NET ASSETS
INSURANCE COMMISSION ANNUAL REPORT 2016 68 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
3. RISKCOVER FUND FINANCIAL STATEMENTS
The financial statements of the RiskCover Fund are not consolidated as its assets are controlled by the Government of Western Australia and not by the Insurance Commission. Refer Note 38.
STATEMENT OF COMPREHENSIVE INCOME 2016 2015 for the year ended 30 June 2016 Notes $'000 $'000
Premium Revenue 38(a) 319,557 310,964 Premium Adjustment 38(b) (47,281) (33,304) Outwards Reinsurance Premium Expense (15,985) (15,071) Outwards Reinsurance Commission Revenue 817 744 Net Premium Revenue 257,108 263,333
Claims Paid (233,887) (234,835) Movement in Outstanding Claims 38,644 13,952 Reinsurance and Other Recoveries Revenue 12,520 9,901 Net Claims Incurred (182,723) (210,982)
Underwriting and Administration Expenses (31,585) (30,737) UNDERWRITING PROFIT 42,800 21,614
Investment Income 23,540 78,914 TOTAL COMPREHENSIVE INCOME 66,340 100,528
STATEMENT OF FINANCIAL POSITION at 30 June 2016
ASSETS Current Assets Cash and Cash Equivalents 14,942 2,458 Receivables 9,814 21,506 Investments 38(c) 921,541 849,102 Total Current Assets 946,297 873,066
Non-Current Assets Receivables 16,968 23,118 Total Non-Current Assets 16,968 23,118 TOTAL ASSETS 963,265 896,184
LIABILITIES Current Liabilities Payables 43,646 23,922 Outstanding Claims 38(d) 207,079 211,718 Total Current Liabilities 250,725 235,640
Non-Current Liabilities Payables 95,594 75,932 Outstanding Claims 38(d) 388,283 422,289 Total Non-Current Liabilities 483,877 498,221 TOTAL LIABILITIES 734,602 733,861 NET ASSETS 228,663 162,323
EQUITY Retained Earnings 159,193 88,217 Prudential Reserve 38(i) 69,470 74,106 TOTAL EQUITY 228,663 162,323
69 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
3. RISKCOVER FUND FINANCIAL STATEMENTS 3. RISKCOVER FUND FINANCIAL STATEMENTS (continued)
The financial statements of the RiskCover Fund are not consolidated as its assets are controlled by the Government of STATEMENT OF CHANGES IN EQUITY 2016 2015 Western Australia and not by the Insurance Commission. Refer Note 38. for the year ended 30 June 2016 Notes $'000 $'000
STATEMENT OF COMPREHENSIVE INCOME 2016 2015 BALANCE OF EQUITY AT START OF THE YEAR 162,323 61,795 for the year ended 30 June 2016 Notes $'000 $'000 PRUDENTIAL RESERVE Balance at Start of the Year 74,106 61,795 Premium Revenue 38(a) 319,557 310,964 Transfer (to)/from Retained Earnings (4,636) 12,311 Premium Adjustment 38(b) (47,281) (33,304) Outwards Reinsurance Premium Expense (15,985) (15,071) Balance at End of the Year 69,470 74,106 Outwards Reinsurance Commission Revenue 817 744 Net Premium Revenue 257,108 263,333 RETAINED EARNINGS Balance at Start of the Year 88,217 - Total Comprehensive Income for the Year 100,528 Claims Paid (233,887) (234,835) 66,340 Movement in Outstanding Claims 38,644 13,952 Transfer from/(to) Prudential Reserve 4,636 (12,311) Reinsurance and Other Recoveries Revenue 12,520 9,901 Balance at End of the Year 159,193 88,217 Net Claims Incurred (182,723) (210,982) BALANCE OF EQUITY AT END OF THE YEAR 228,663 162,323
Underwriting and Administration Expenses (31,585) (30,737) UNDERWRITING PROFIT 42,800 21,614 STATEMENT OF CASH FLOWS Investment Income 23,540 78,914 for the year ended 30 June 2016 TOTAL COMPREHENSIVE INCOME 66,340 100,528 CASH FLOW FROM OPERATING ACTIVITIES Premium Received 349,563 362,321 Reinsurance and Other Recoveries Received 24,120 20,943 STATEMENT OF FINANCIAL POSITION Outwards Reinsurance Commission Received 899 818 at 30 June 2016 Investment Income Received 23,540 78,914 Outwards Reinsurance Paid (17,584) (16,573) ASSETS Claims Paid (237,028) (243,349) Current Assets Underwriting and Administration Expenses Paid (31,522) (30,888) Cash and Cash Equivalents 14,942 2,458 Goods and Services Tax Paid (27,065) (28,080) Receivables 9,814 21,506 Net Cash Flow from Operating Activities 38(h) 84,923 144,106 Investments 38(c) 921,541 849,102 Total Current Assets 946,297 873,066 CASH FLOW FROM INVESTING ACTIVITIES Investment Funds Transferred to the Insurance Commission (72,439) (143,094) Non-Current Assets Receivables 16,968 23,118 NET INCREASE IN CASH AND CASH EQUIVALENTS 12,484 1,012 Total Non-Current Assets 16,968 23,118
TOTAL ASSETS 963,265 896,184 CASH AND CASH EQUIVALENTS AT THE START OF THE YEAR 2,458 1,446
LIABILITIES CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 38(h) 14,942 2,458 Current Liabilities Payables 43,646 23,922 Outstanding Claims 38(d) 207,079 211,718 Total Current Liabilities 250,725 235,640
Non-Current Liabilities Payables 95,594 75,932 Outstanding Claims 38(d) 388,283 422,289 Total Non-Current Liabilities 483,877 498,221 TOTAL LIABILITIES 734,602 733,861 NET ASSETS 228,663 162,323
EQUITY Retained Earnings 159,193 88,217 Prudential Reserve 38(i) 69,470 74,106 TOTAL EQUITY 228,663 162,323
INSURANCE COMMISSION ANNUAL REPORT 2016 70 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS INSURANCE COMMISSION DISCLOSURE NOTES
4. REVENUE AND INCOME 2016 2015 Notes $'000 $'000
Profit before Income Tax Equivalent Expense includes the following specific revenue items:
Premium Revenue Premium Collected 562,900 533,840 Movement in Unearned Premium (7,850) (9,000) 555,050 524,840
Outwards Reinsurance Commission 548 595
Reinsurance and Other Recoveries Revenue Reinsurance Recoveries Received 214 11,418 Movement in Reinsurance Recoveries Receivable (3,700) 4,080 Other Recoveries Received 795 1,835 Movement in Other Recoveries Receivable 12,807 10,194 10,116 27,527
Investment Income Investment Property 52,180 62,906 Dividends 65,385 57,515 Interest 44,340 50,585 Changes in Fair Values: Unrealised (Loss)/Gain (116,154) 42,343 Changes in Fair Values: Realised (Loss)/Gain (17,997) 109,146 Gain on Disposal of Property Assets held for Sale 49,563 - Realised Loss on Property Lease Incentives Paid (14,092) - Foreign Exchange: Unrealised (Loss)/Gain (34,529) 62,820 Foreign Exchange: Realised Gain 41,016 16,210 Other 432 770 70,144 402,295
Other Income Other Property (i) 6,853 13,251 Management Fees (ii) 27,587 27,246 Right of Indemnity - Government Insurance Fund (iii) 1,849 4,052 Interest 264 208 Net Gains Arising from Disposal of Property, Plant and Equipment 26 - Sundry 201 191 36,780 44,948 Total Revenue and Income 672,638 1,000,205
(i) Other Property Income relates to rental income from owner-occupied property.
(ii) Management Fee Income primarily relates to the amount charged to the Department of Treasury for the costs associated with administering the RiskCover Fund. Refer Note 3.
(iii) The Government of Western Australia assumed liability for any accumulated deficit existing in the Government Insurance Fund after Cabinet's decision in June 1996. This amount represents the movement through profit or loss in the right of indemnity agreement. A physical recoup of funds is not received for movements in outstanding claims provisions or Bell recovery costs.
71 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
5. EXPENSES 2016 2015 Notes $'000 $'000 Profit before Income Tax Equivalent Expense includes the following specific expense items:
Claims Expenses Claims Paid 403,109 460,534 Movement in Outstanding Claims 117,291 58,596 Inwards Reinsurance (5) 263 520,395 519,393
Outwards Reinsurance Premium Expense 5,541 5,820
Investment Expenses Investment Property 17,225 23,211 Investment Management and Custodian Fees 8,536 7,956 Administration 5,333 2,333 31,094 33,500
Finance Costs - RiskCover Investment Return 3,(i) 23,540 78,914
Premium Collection Costs 13 22,222 20,794
Other Underwriting and Administration Expenses Accident Prevention and Research 1,200 1,179 Remuneration of Auditor 32 376 377 Board of Commissioners' Fees 325 338 Contractors and Consultants 4,987 4,041 Bell Recovery Costs 2,156 4,251 Amortisation Intangible Assets 3,282 3,410 Depreciation 859 1,029 Employee Benefits: - Annual Leave 2,668 2,567 - Long Service Leave 1,241 1,285 - Salaries and Employee-Related Costs 30,992 29,751 - Superannuation 3,614 3,360 IT Hardware and Software 3,579 3,305 Other 4,748 2,372 60,027 57,265
Other Expenses Other Property (ii) 6,200 15,648 Net Losses Arising from Disposal of Property, Plant and Equipment - 5 Impairment of Assets (1,541) 3,041 Sundry 13 4 4,672 18,698 Total Expenses 667,491 734,384
(i) Represents the RiskCover Fund's share of gains of the investment pool of the Insurance Commission. Refer Note 3.
(ii) Other Property Expenses relate to expenses on owner-occupied property.
INSURANCE COMMISSION ANNUAL REPORT 2016 72 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
NET CLAIMS INCURRED 7. INCOME TAX EQUIVALENT 6. 2016 2015 $'000 $'000 2016 INCOME TAX EQUIVALENT EXPENSE Current Year Prior Years Total Current Income Tax (i) (ii) Current Income Tax Equivalent Expense 99,578 39,188 $'000 $'000 $'000 Current Year Deferred Income Tax Gross Claims Incurred and Related Expenses Relating to Origination and Reversal of Temporary Differences (106,257) 32,689 - Undiscounted 524,374 (29,575) 494,799 Usage of Tax Losses - 451 Income Tax Equivalent (Benefit)/Expense Recognised in the Statement of (6,679) 72,328 Comprehensive Income Reinsurance and Other Recoveries - Undiscounted (29,670) 23,255 (6,415) AMOUNT RECOGNISED IN OTHER COMPREHENSIVE INCOME Deferred Income Tax Related to Items Recognised in Other Comprehensive Net Claims Incurred - Undiscounted 494,704 (6,320) 488,384 Net Revaluation Increment/(Decrement) of Property, Plant and Equipment - (2,208) Re-measurement Losses on Defined Benefit Plans (102) (121) Discount and Discount Movement Income Tax Equivalent Benefit Recognised in Other Comprehensive Income (102) (2,329) - Gross Claims Incurred (31,840) 57,436 25,596
Discount and Discount Movement RECONCILIATION OF INCOME TAX TO PRIMA FACIE TAX PAYABLE - Reinsurance and Other Recoveries 1,990 (5,691) (3,701) Profit before Income Tax Equivalent Expense 5,147 265,821
Net Discount Movement (29,850) 51,745 21,895 Tax at the Statutory Income Tax Rate of 30% 1,544 79,746 Tax-Free Dividends and Utilisation of Foreign Tax Offsets (7,504) (6,669) Net Claims Incurred 464,854 45,425 510,279 Current Year - Building Amortisation (722) (752) Miscellaneous Items 3 3 Income Tax Equivalent (Benefit)/Expense (6,679) 72,328 2015 Current Year Prior Years Total For further details about Income Tax Effect Accounting, refer Note 1(g). (i) (ii) $'000 $'000 $'000 STATEMENT OF FINANCIAL STATEMENT OF Previous Year POSITION COMPREHENSIVE INCOME Gross Claims Incurred and Related Expenses 2016 2015 2016 2015 - Undiscounted 528,144 (34,580) 493,564 $'000 $'000 $'000 $'000 DEFERRED INCOME TAX Reinsurance and Other Recoveries Deferred Income Tax at 30 June relates to the following: - Undiscounted (31,040) 7,113 (23,927) Deferred Tax Liabilities Revaluations of Investment Properties to Fair Value (37,436) (81,301) (43,865) 8,206 Net Claims Incurred - Undiscounted 497,104 (27,467) 469,637 Revaluations of Property, Plant and Equipment - (29,623) (29,623) (1,730) Investments (77,161) (104,762) (27,601) 29,455 Discount and Discount Movement Property Receipts - Other (3,585) (8,123) (4,538) 1,438 - Gross Claims Incurred (46,630) 72,459 25,829 Other (1) (1) - (1) (118,183) (223,810) Discount and Discount Movement - Reinsurance and Other Recoveries 2,910 (6,510) (3,600) Deferred Tax Assets Depreciable Property, Plant and Equipment 1,405 1,567 162 60 Losses Available for Offset Against Future Taxable Income - - - 450 Net Discount Movement (43,720) 65,949 22,229 Trust Income 4,072 3,729 (343) (2,699) Indirect Claims Settlement Costs 22,883 21,523 (1,360) (1,677) Net Claims Incurred 453,384 38,482 491,866 Provisions - Various 4,947 5,305 461 88 Net Receivables Impairment - 450 450 (450) 33,307 32,574 (i) Current Year's claims relate to risks borne in the current year. Net Deferred Income Tax Liability (84,876) (191,236) (ii) Prior Years' claims relate to a re-assessment of the risks borne in all previous years. Deferred Income Tax Equivalent (Benefit)/Expense (106,257) 33,140
73 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
7. INCOME TAX EQUIVALENT 2016 2015 $'000 $'000 INCOME TAX EQUIVALENT EXPENSE
Current Income Tax Current Income Tax Equivalent Expense 99,578 39,188
Deferred Income Tax Relating to Origination and Reversal of Temporary Differences (106,257) 32,689 Usage of Tax Losses - 451 Income Tax Equivalent (Benefit)/Expense Recognised in the Statement of (6,679) 72,328 Comprehensive Income
AMOUNT RECOGNISED IN OTHER COMPREHENSIVE INCOME Deferred Income Tax Related to Items Recognised in Other Comprehensive Net Revaluation Increment/(Decrement) of Property, Plant and Equipment - (2,208) Re-measurement Losses on Defined Benefit Plans (102) (121) Income Tax Equivalent Benefit Recognised in Other Comprehensive Income (102) (2,329)
RECONCILIATION OF INCOME TAX TO PRIMA FACIE TAX PAYABLE Profit before Income Tax Equivalent Expense 5,147 265,821
Tax at the Statutory Income Tax Rate of 30% 1,544 79,746 Tax-Free Dividends and Utilisation of Foreign Tax Offsets (7,504) (6,669) Current Year - Building Amortisation (722) (752) Miscellaneous Items 3 3 Income Tax Equivalent (Benefit)/Expense (6,679) 72,328
For further details about Income Tax Effect Accounting, refer Note 1(g).
STATEMENT OF FINANCIAL STATEMENT OF POSITION COMPREHENSIVE INCOME 2016 2015 2016 2015 $'000 $'000 $'000 $'000 DEFERRED INCOME TAX Deferred Income Tax at 30 June relates to the following:
Deferred Tax Liabilities Revaluations of Investment Properties to Fair Value (37,436) (81,301) (43,865) 8,206 Revaluations of Property, Plant and Equipment - (29,623) (29,623) (1,730) Investments (77,161) (104,762) (27,601) 29,455 Property Receipts - Other (3,585) (8,123) (4,538) 1,438 Other (1) (1) - (1) (118,183) (223,810)
Deferred Tax Assets Depreciable Property, Plant and Equipment 1,405 1,567 162 60 Losses Available for Offset Against Future Taxable Income - - - 450 Trust Income 4,072 3,729 (343) (2,699) Indirect Claims Settlement Costs 22,883 21,523 (1,360) (1,677) Provisions - Various 4,947 5,305 461 88 Net Receivables Impairment - 450 450 (450) 33,307 32,574 Net Deferred Income Tax Liability (84,876) (191,236) Deferred Income Tax Equivalent (Benefit)/Expense (106,257) 33,140
INSURANCE COMMISSION ANNUAL REPORT 2016 74 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
8. RECEIVABLES 2016 2015 Notes $'000 $'000
Current Premiums Receivable 3,873 3,798 Less:Provision for Impairment (1) (1) 3,872 3,797
Discounted Value of Expected Future Reinsurance and Other 39,971 50,351 Recoveries Receivable Less:Provision for Impairment (82) - 39,889 50,351
Right of Indemnity Government Insurance Fund (i) 3,432 4,281 WorkCover WA (ii) 2,616 1,966 6,048 6,247
Other Receivables 2,820 4,497 52,629 64,892
Non-Current Discounted Value of Expected Future Reinsurance and Other Recoveries Receivable 153,336 142,554
Right of Indemnity Government Insurance Fund (i) 35,695 35,607 WorkCover WA (ii) 14,414 16,093 50,109 51,700
203,445 194,254
Movement in Provision for Impairment (excluding Investment Debts) Balance at Start of the Year 1 20 New Provision Made During the Year 82 1 Impairment Written-Off During the Year - (20) Balance at End of the Year 83 1
(i) The Government of Western Australia assumed liability for any accumulated deficit existing in the Government Insurance Fund after Cabinet's decision in June 1996. Indemnity includes movements in outstanding claims provisions and debt recovery costs.
(ii) The Insurance Commission has the right of reimbursement from WorkCover WA for all payments and expenses paid under the Employers' Indemnity Supplementation Fund Act 1980.
75 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
9. INVESTMENTS
2016 2015 Notes $'000 $'000
Current Investments Fixed and Floating Rate Bonds 14,000 14,000 Fixed Interest Unit Trusts 156,658 154,062 Fixed Interest Term Deposits 110,000 - Equities - Listed 1,466,842 1,567,968 Equity Unit Trusts 127,140 133,119 Alternative Assets Unit Trusts 176,688 176,233 Margin Account 7,445 1,477 Cash and Cash Equivalent Assets 25 1,562,222 1,006,137 Receivables 31,496 35,854 Forward Foreign Exchange Contracts 26(c) 5,141 (1,663) 3,657,632 3,087,187
Non-Current Investments Fixed Interest Term Deposits - 118,288 Alternative Assets Unit Trusts 134,401 113,354 Property Trust - Unlisted 308,651 269,535 Receivables 4,383 - 447,435 501,177 4,105,067 3,588,364
(a) Valuation of Investments
The approach to measuring the fair value of investments is described below:
Fixed and Floating Rate Bonds Bonds are priced using brokers quotes, using comparable prices for similar instruments or using pricing techniques set by local regulators or exchanges.
Fixed Interest, Equity, Alternative Assets & Property Trusts Trusts are valued using the current unit price as advised by the responsible entity, trustee or equivalent. A combination of observable market prices, comparable prices for similar instruments where available or other valuation techniques may be used in determining the current unit price.
Fixed Interest Term Deposits Fixed Interest Term Deposits with a maturity up to 12 months are held at cost plus accrued interest which equates to fair value. Fixed Interest Term Deposits with a maturity of greater than 12 months are measured at fair value using market rate valuation techniques.
Equities-Listed Listed equities traded in active markets are valued by reference to quoted bid prices.
Margin Account Cash deposits held at brokers for margins are held at face value of the amount deposited or drawn. The carrying amount of these deposits equates to fair value.
Cash and Cash Equivalent Assets Cash and Cash Equivalent Assets are held at cost plus accrued interest which equates to fair value.
Investment Receivables Due to the nature of these receivables, their carrying value is assumed to approximate their fair value.
Forward Foreign Exchange Contracts The Forward Foreign Exchange Contracts are valued by comparing the contractual rate to the current market rate for a contract with the same remaining period to maturity.
INSURANCE COMMISSION ANNUAL REPORT 2016 76 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 9. INVESTMENTS (continued) 9. INVESTMENTS (continued) (b) Fair Value Hierarchy (b) Fair Value Hierarchy (continued) The Fair Value Hierarchy assigns rankings to the level of judgement which is applied in deriving inputs for valuation techniques used to measure fair value. The three levels of the Fair Value Hierarchy are as follows: Level 1 Level 2 Level 3 Total 2015 Notes $'000 $'000 $'000 $'000 Current Investments Level 1 is the preferred input for valuation and reflects unadjusted quoted prices in active markets for identical assets or Fixed Interest Bonds - 14,000 - 14,000 liabilities which the economic entity can access at the end of the reporting period. A financial instrument is regarded as Fixed Interest Unit Trusts - 154,062 - 154,062 quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry Equities - Listed 1,567,967 - - 1,567,967 group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions Equity Unit Trusts - 133,119 - 133,119 on an arms length basis. Alternative Assets Unit Trusts - 176,233 - 176,233 Margin Account - 1,477 - 1,477 Level 2 is the valuation of assets and liabilities either directly or indirectly based upon market observables other than Cash and Cash Equivalent Assets 25 260,998 745,139 - 1,006,137 quoted prices. For example: Investments with fair values based on broker quotes; investments in unlisted trusts with fair Receivables - 35,855 - 35,855 values obtained via fund managers; and assets that are valued using the economic entity's own models whereby the Forward Foreign Exchange Contracts 26(c) - (1,663) - (1,663) majority of assumptions are market observable. 1,828,965 1,258,222 - 3,087,187 Level 3 relates to inputs that are unobservable. Unobservable inputs means that fair values are determined in whole or in Non-Current Investments part using a valuation technique (model) based on assumptions that are neither supported by prices from observable Fixed Interest Term Deposits - 118,288 - 118,288 current market transactions in the same instrument nor are they based on available market data. Alternative Assets Unit Trusts - - 113,354 113,354 Property Trust - Unlisted - - 269,535 269,535 The following tables detail the valuation of the Insurance Commission's Investments using the Fair Value Hierarchy: - 118,288 382,889 501,177
Level 1 Level 2 Level 3 Total 1,828,965 1,376,510 382,889 3,588,364 2016 Notes $'000 $'000 $'000 $'000 Current Investments There were no significant transfers between Level 1, 2 or 3 during the year. Fixed Interest Bonds - 14,000 - 14,000 Fixed Interest Unit Trusts - 156,658 - 156,658 The following table provides information about the valuation technique and inputs utilised in fair value measurement Fixed Interest Term Deposits - 110,000 - 110,000 (Level 2) : Equities - Listed 1,466,842 - - 1,466,842 Equity Unit Trusts - 127,140 - 127,140 Valuation Technique Inputs Utilised Alternative Assets Unit Trusts - 176,688 - 176,688 Margin Account - 7,445 - 7,445 Fixed Interest Bonds Market Comparison: Quoted prices or comparable Price, Time span, Interest Cash and Cash Equivalent Assets 25 583,206 979,016 - 1,562,222 prices Rates Receivables - 31,496 - 31,496 Fixed Interest Unit Trusts Quoted prices: Unit price quoted by Manager Unit Price, Quantity Forward Foreign Exchange Contracts 26(c) - 5,141 - 5,141 Fixed Interest Term Deposits Income approach: Present Value Cost, Time span, Interest Rates 2,050,048 1,607,584 - 3,657,632 Equity Unit Trusts Quoted prices: Unit price quoted by Manager Unit Price, Quantity Non-Current Investments Alternative Assets Unit Trusts Quoted prices: Unit price quoted by Manager Unit Price, Quantity Alternative Assets Unit Trusts - - 134,401 134,401 Margin Account Cost: Face value of amounts deposited/drawn Face Value Property Trust - Unlisted - - 308,651 308,651 Cash and Cash Equivalents Cost plus Income Face Value, Interest Rate, Receivables - 4,383 - 4,383 Time span - 4,383 443,052 447,435 Receivables Cost Carrying Value of Receivables Forward Foreign Exchange Market Comparison: Comparable contract prices Price, Currency, Time span 2,050,048 1,611,967 443,052 4,105,067 Contracts
The following tables detail the change in value associated with Level 3 Investments:
Opening Transfers Unrealised Realised Purchases/ Closing Balance In/(Out) Gain/(Loss) Gain/(Loss) (Sales) Balance 2016 $'000 $'000 $'000 $'000 $'000 $'000 Non-Current Investments Alternative Assets Unit Trusts 113,354 - 21,047 - - 134,401 Property Trust - Unlisted 269,534 - 18,430 - 20,687 308,651 382,888 - 39,477 - 20,687 443,052
77 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
9. INVESTMENTS (continued)
(b) Fair Value Hierarchy (continued)
Level 1 Level 2 Level 3 Total 2015 Notes $'000 $'000 $'000 $'000 Current Investments Fixed Interest Bonds - 14,000 - 14,000 Fixed Interest Unit Trusts - 154,062 - 154,062 Equities - Listed 1,567,967 - - 1,567,967 Equity Unit Trusts - 133,119 - 133,119 Alternative Assets Unit Trusts - 176,233 - 176,233 Margin Account - 1,477 - 1,477 Cash and Cash Equivalent Assets 25 260,998 745,139 - 1,006,137 Receivables - 35,855 - 35,855 Forward Foreign Exchange Contracts 26(c) - (1,663) - (1,663) 1,828,965 1,258,222 - 3,087,187 Non-Current Investments Fixed Interest Term Deposits - 118,288 - 118,288 Alternative Assets Unit Trusts - - 113,354 113,354 Property Trust - Unlisted - - 269,535 269,535 - 118,288 382,889 501,177 1,828,965 1,376,510 382,889 3,588,364
There were no significant transfers between Level 1, 2 or 3 during the year.
The following table provides information about the valuation technique and inputs utilised in fair value measurement (Level 2) :
Valuation Technique Inputs Utilised Fixed Interest Bonds Market Comparison: Quoted prices or comparable Price, Time span, Interest prices Rates Fixed Interest Unit Trusts Quoted prices: Unit price quoted by Manager Unit Price, Quantity Fixed Interest Term Deposits Income approach: Present Value Cost, Time span, Interest Rates Equity Unit Trusts Quoted prices: Unit price quoted by Manager Unit Price, Quantity Alternative Assets Unit Trusts Quoted prices: Unit price quoted by Manager Unit Price, Quantity Margin Account Cost: Face value of amounts deposited/drawn Face Value Cash and Cash Equivalents Cost plus Income Face Value, Interest Rate, Time span Receivables Cost Carrying Value of Receivables Forward Foreign Exchange Market Comparison: Comparable contract prices Price, Currency, Time span Contracts
The following tables detail the change in value associated with Level 3 Investments:
Opening Transfers Unrealised Realised Purchases/ Closing Balance In/(Out) Gain/(Loss) Gain/(Loss) (Sales) Balance 2016 $'000 $'000 $'000 $'000 $'000 $'000 Non-Current Investments Alternative Assets Unit Trusts 113,354 - 21,047 - - 134,401 Property Trust - Unlisted 269,534 - 18,430 - 20,687 308,651 382,888 - 39,477 - 20,687 443,052
INSURANCE COMMISSION ANNUAL REPORT 2016 78 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
9. INVESTMENTS (continued)
(b) Fair Value Hierarchy (continued)
The following table provides information about the valuation technique and inputs utilised in fair value measurement (Level 3):
Valuation Inputs Range of Unobservable Relationship of Unobservable Technique Utilised Inputs (Weighted Average) Inputs to Fair Value
Alternative Assets Quoted prices: Unit Unit Price Unit Price+/- 20% The fair value would increase/ Unit Trusts Price quoted by Manager (decrease) if the unit price was higher/(lower). Property Trust - Quoted prices: Unit Unit Price Unit Price+/- 20% The fair value would increase/ Unlisted Price quoted by Manager (decrease) if the unit price was higher/(lower).
The table below illustrates the sensitivity of Level 3 fair value to change: Fair Value Fair Value Increase/(Decrease) 2016 2015 2016 2015 Change % $'000 $'000 $'000 $'000 Non-Current Investments +20 26,880 22,671 Alternative Assets Unit Trusts 134,401 113,354 -20 (26,880) (22,671) +20 61,730 53,907 Property Trust - Unlisted 308,651 269,534 -20 (61,730) (53,907)
(c) Other Investments
The Bell Group Ltd (in Liquidation) (TBGL) and Bell Group Finance Pty Ltd (in Liquidation) (BGF)
Convertible Bonds The Insurance Commission previously wrote-off subordinated convertible bonds (Bell bonds) with a face value of $150 million issued by TBGL and BGF and purchased by the Insurance Commission for consideration of $140 million pursuant to an underwriting agreement dated 29 April 1988.
The Board believes that it is appropriate to maintain the carrying value of the Bell bonds at zero, pending the final outcome of the Bell recovery action. Refer Note 23.
79 INSURANCE COMMISSION ANNUAL REPORT 2016 882 Total Total 1,131 8,190 7,477 (2,991) (2,550) (1,583) (1,205) (6,423) 13,090 10,847 14,950 12,515 12,666 (13,783) 220,582) 242,708 ------(8) (7) 76 257 2,435 106 180 2,243 4,047 3,790 4,047 3,684 Leasehold Leasehold Improvements Improvements - - 239 3,859 243 3,790 12,515 598 243 228 680 195 208 (659) (232) (537) (160) 1,359 1,216 Motor Motor Vehicles Vehicles - - 967 1,116 500 547 626 704 917 1,059 e ofe its direct property portfolio that included the freehold 8,347 7,380 8,748 7,703 (1,949) (1,946) (1,027) (1,027) ssets held for sale. Refer Note 15. Hardware Hardware Computer Computer Computer Computer - - - - 5 6 7 7 58 47 (62) (52) 168 6,898121 1,298 5,981 4,039 225 8,347167 1,359 7,380 4,047 14,950 225 167 218 160 2016 ($'000) 2015 ($'000) Fittings Fittings Furniture and Furniture and -----( - - 37 28 25 19 29 40 (19) (18) 687 647 972 935 972 935 972 924 (313) (313) Plant and Plant and Equipment Equipment ------6,858 6,423 (6,423) (15,483) 191,207 Building Freehold Freehold Buildings ------1,700 36,300 (38,000) (182,582) Freehold Land Freehold Land (i) (i) (ii) Notes PROPERTY, EQUIPMENT PLANT AND The Insurance Commission released an Information Memorandum in June 2015 inviting non-binding indicative offers for the purchas land and freehold building assets. In 2015, the Forrest Centre at 219 and 221 St Georges Terrace reclassified was as property a Total movement in Asset Revaluation Surplus before tax. NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS OF THE FINANCIAL FORMING PART NOTES TO AND 10. Carrying Amount at End of the Year the End of at Amount Carrying Current Year Cost or Valuation Balance at Start of the Year Additions Disposals Balance at End of the Year Depreciation Accumulated Balance at Start of the Year Depreciation Expense for the Year Disposals Balance at End of the Year Cost or Valuation Balance at Start of the Year Additions Disposals Net Revaluation Reduction Transfers to Property Assets Held for Sale Balance at End of the Year Depreciation Accumulated Balance at Start of the Year Depreciation Expense for the Year Disposals Net Adjustments from Revaluation Balance at End of the Year AllProperty, Plant Equipmentand is held within the Insurance Commission General Fund. (i) (ii) Carrying Amount at End of the Year End of at Amount Carrying Prior Year (a) Amount of Carrying Reconciliation
INSURANCE COMMISSION ANNUAL REPORT 2016 80 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
11. INVESTMENT PROPERTY
(a) Reconciliation of Carrying Amount 2016 2015 Notes $'000 $'000
Freehold Land and Buildings at Fair Value 224,011 - Balance at End of the Year 224,011 -
RECONCILIATION:
Freehold Land and Buildings at Fair Value Balance at Start of the Year - 548,035 Additions 1,476 3,107 Revaluation (Decrease)/Increase recognised in Profit or Loss (49,867) 21,775 Transfer from/(to) Property Assets Held for Sale (i) 272,402 (572,917) Balance at End of the Year 224,011 -
Property under Planning and Development at Cost Balance at Start of the Year - 1,058 Additions - 26 Transfer to Expense - (1,084) Balance at End of the Year - -
For key valuation assumptions of Investment Property, refer Note 1(w).
(i) The Insurance Commission released an Information Memorandum in June 2015 inviting non-binding indicative offers for the purchase of its property portfolio which includes all of its investment property holdings. In 2015, all investment properties were reclassified as property assets held for sale. At 30 June 2016, the Westralia Square property at 141 St Georges Terrace was no longer deemed to be classified as a property held for sale and was reclassified as Investment Property. Refer Note 15.
(b) Measurement of Fair Value
(i) Fair Value Hierarchy
The fair value of Freehold Land and Buildings at Fair Value was determined by external independent property valuers. The valuers used were Mr M Foster-Key AAPT FRICs and Mr R Jacob AAPI of Savills (WA) Pty Ltd. At the end of reporting period, the value of $224 million reflects the independently assessed value of $230 million adjusted by incentives of $6 million.
The fair value measurement for Investment Property of $224 million had been categorised as a Level 3 fair value based on the inputs to the valuation technique used. Refer Note 9 for fair value hierarchy definitions.
There were no transfers between Level 1, 2 or 3 during the period.
81 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
11. INVESTMENT PROPERTY (continued)
(b) Measurement of Fair Value (continued)
(ii) Information about significant unobservable Level 3 inputs in fair value measurement
2016 The property is an income producing leased investment, comprising commercial offices. The valuation methodologies employed are Discounted Cash Flow, Capitalisation of Net Income and Direct Comparison:
Range of Unobservable Relationship of Significant Inputs Unobservable Unobservable (Weighted Inputs to Valuation Technique Inputs Average) to Fair Value
Discounted Cash Flow The discounted cash flow approach takes into ● Risk adjusted 8.00% - 9.00% The estimated fair value account the ability of the property to generate target discount (8.50%) (market value) would vary if income over a 10 year period based on certain rates for cash flow market transactions indicate a assumptions. Provision is made for leasing up over 10 year variation in adopted discount periods upon the expiry of the various leases investment horizon rates and terminal yields. throughout the 10 year time horizon. Each yearʼs ● Adopted terminal 7.50% - 8.00% net operating income during the period is discounted yield applied to (7.75%) to arrive at the present value of expected future adopted market cash flows. The property's anticipated sale value at income at year 11 the end of the period (i.e. its terminal or reversionary of the cash flow value) is also discounted to its present value and added to the discounted income stream to arrive at the total present market value of the property.
Capitalisation of Net Income The income approach is computed by taking the ● Adopted 7.25% - 7.75% The estimated fair value estimated net market income generated by the capitalisation rates (7.50%) (market value) would vary if asset and dividing it by the capitalisation rate (the based on movement in the risk profile of investor's rate of return). Below the line comparative the asset and general market adjustments are made to reflect items such as evidence sentiment has potential to alter letting up costs for current and pending vacancies, adopted capitalisation rates. immediate capital expenditure and rental reversionary interests.
(iii) Sensitivity Analysis of Level 3 unobservable inputs
Profit/(Loss) and Equity Increase/ Change in (Decrease) Unobservable Inputs Input % $'000
+0.5 (8,337) ● Risk adjusted target discount rates for cash flow over 10 year investment horizon -0.5 8,742
+0.25 (4,344) ● Adopted terminal yield applied to adopted market income at year 11 of the cash flow -0.25 4,633
+0.25 (8,114) ● Adopted capitalisation rates based on comparative evidence -0.25 8,673
INSURANCE COMMISSION ANNUAL REPORT 2016 82 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
12. INTANGIBLES 2016 2015 $'000 $'000 Software at Cost 27,940 26,955 Work in Progress 2,396 1,148 Accumulated Amortisation (24,464) (21,182) Carrying Amount at End of the Year 5,872 6,921
RECONCILIATION:
Software at Cost Balance at Start of the Year 26,955 26,125 Additions 985 830 Balance at End of the Year 27,940 26,955
Work in Progress Balance at Start of the Year 1,148 468 Additions 1,874 1,338 Completed and Transferred to Software at Cost (626) (658) Balance at End of the Year 2,396 1,148
Accumulated Amortisation Balance at Start of the Year (21,182) (17,772) Amortisation Expense for the Year (3,282) (3,410) Balance at End of the Year (24,464) (21,182)
13. DEFERRED PREMIUM COLLECTION COSTS
Balance at Start of the Year 6,124 4,206 Premium Collection Costs paid to Department of Transport 21,821 22,712 Amount recognised as Expense (22,222) (20,794) Balance at End of the Year 5,723 6,124
14. OTHER ASSETS
Current Prepaid Expenses 2,070 2,091 Sundry 107 246 2,177 2,337
83 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
15. PROPERTY ASSETS HELD FOR SALE
(a) Reconciliation of Carrying Amount 2016 2015 Notes $'000 $'000 Current Fair Value of Property Assets - Balance at Start of the Year 809,530 - Additions 6,328 - Lease Incentives Paid 14,092 - Proceeds from Sale of Property Assets Held for Sale (493,400) - Realised Gain on Disposal of Property Assets Held for Sale 4 49,563 - Realised Loss on Property Lease Incentives Paid 4 (14,092) - Revaluation (Decrease) Recognised as Profit/(Loss) (5,021) - Transfer (to)/from Investment Property 11 (272,402) 572,917 Investment Property Incentives transferred (to)/from Investment Receivables (7,598) 14,613 Transfer from Property, Plant and Equipment - 220,582 Property, Plant and Equipment incentives transferred from Other Assets 14 - 1,418 Fair value of Property Assets Held for Sale 87,000 809,530 Less : Aggregate Cost to Sell - (1,541) Balance at End of the Year 87,000 807,989
The Insurance Commission released an Information Memorandum during June 2015 inviting non-binding indicative offers for the purchase of five direct property assets.
The Shops At Ellenbrook and Livingston Marketplace Shopping Centre were sold on 18 December 2015 and the Forrest Centre at 219-221 St Georges Terrace was sold on 10 March 2016.
On 30 June 2016 the Westralia Square property at 141 St Georges Terrace was no longer deemed to be classified as a property asset held for sale and was reclassified as Investment Property.
Westralia Plaza at 167 St Georges Terrace was agreed to be sold as per a sale and purchase agreement signed on 21 June 2016. Westralia Plaza continues to be classified as a property asset held for sale in the 2016 financial statements as the settlement was not finalised until 20 July 2016.
(b) Measurement of Fair Value Less Costs to Sell
Fair Value Hierarchy
2016 The value of property assets held for sale at 30 June 2016 of $87 million is based on the agreed sale price of Westralia Plaza as per the sale and purchase agreement.
There are no material costs to sell as at 30 June 2016.
The fair value less costs to sell measurement for property assets held for sale has been categorised as a level 1 fair value based on the arm's length sales transaction. Refer Note 9 for fair value hierarchy definitions.
2015 The fair value of property assets held for sale was determined by external independent property valuers. The valuers used were Mr M Foster-Key AAPT FRICs, Mr C Walker AAPI and Mr J Cox AAPI of Savills (WA) Pty Ltd.
The costs to sell were calculated as the estimated expenses required in order to sell the assets such as professional fees and marketing expenses.
The fair value less costs to sell measurement for property assets held for sale of $808 million had been categorised as a Level 3 fair value based on the inputs to the valuation technique used. Refer Note 9 for fair value hierarchy definitions.
INSURANCE COMMISSION ANNUAL REPORT 2016 84 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
16. PAYABLES 2016 2015 $'000 $'000
Current Trade Creditors 19,276 13,161 Reinsurance Creditors 492 432 Accrued Employee Benefits 22 - 1,036 Investment Sundry Payables 4,850 7,609 Goods and Services Tax Liability 3,322 2,614 27,940 24,852
17. FINANCIAL LIABILITIES - RISKCOVER INVESTMENTS
2016 2015 $'000 $'000
Current Floating Rate Promissory Note 921,541 849,102 921,541 849,102
Valuation of the Floating Rate Promissory Note
The Floating Rate Promissory Note represents the RiskCover Fund's share of the investment pool of the Insurance Commission. The investment pool of assets and the valuation of its underlying assets is explained in detail in Note 9. The Floating Rate Promissory Note is allocated its share of the monthly movements in the investment pool by means of a valuation model which primarily apportions an amount equal to the investment pools earning rate multiplied by the daily balance of the RiskCover Fund.
Fair Value Hierarchy
The Fair Value Hierarchy assigns rankings to the level of judgment which is applied in deriving inputs for valuation techniques used to measure fair value. The hierarchy is explained in more detail in Note 9.
The fair value of the Floating Rate Promissory Note has been categorised as a Level 2 fair value based on the inputs to the valuation technique used.
There were no significant transfers between Level 1, 2 and 3 during the year.
85 INSURANCE COMMISSION ANNUAL REPORT 2016 $'000 70,822 149,498 494,866 (214,864) 1,958,383 1,613,015 1,887,561 2,107,881 2,107,881 2,102,425 $'000 Commission 74,827 Total Insurance 158,259 478,068 (190,831) 2,066,578 1,746,769 1,991,751 2,224,837 2,224,837 2,182,582 $'000 4,748 17,554 73,728 80,255 11,027 91,282 68,980 91,282 92,062 (23,082) $'000 5,339 General Fund 19,713 82,117 89,514 12,316 76,778 95,346 (18,568) 101,830 101,830 Insurance Commission Insurance $'000 7,370 4,546 2,755 (8,595) 30,119 32,943 37,489 37,489 27,364 35,959 $'000 7,116 3,584 2,622 Government Government (6,244) 28,729 32,261 35,845 35,845 26,107 32,351 Insurance Fund 504 413 699 (707) $'000 3,200 2,696 2,787 3,200 1,997 2,704 Fund 610 658 846 2016 2015 2016 2015 2016 2015 2016 2015 (519) trial Diseases) $'000 3,872 3,262 3,214 3,872 2,416 2,935 Compensation (Indus $'000 62,620 124,070 478,880 (182,480) 1,975,910 1,851,840 1,497,030 1,975,910 1,789,220 1,971,700 2016 2015 Third Party $'000 66,020 Insurance Fund 130,820 461,510 (165,500) 2,083,290 1,952,470 2,083,290 1,886,450 2,051,950 2 1,621,780 2 Notes Outstanding ClaimsLiability Funds by NOTES FORMING AND TO OF THE FINANCIAL PART STATEMENTS 18. CLAIMS OUTSTANDING Risk Margin Non-Current Gross Outstanding Claims Liability Current Claims Management Expenses (discounted) The following are the liabilities following The for outstanding claimsfor eachFund: Discountto Present Value (a) Commission Insurance Central Estimate
INSURANCE COMMISSION ANNUAL REPORT 2016 86 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 18. OUTSTANDING CLAIMS (continued)
(b) Risk Margin
Process for Determining Risk Margin
Although not subject to the Australian Prudential Regulation Authority (APRA) regulatory framework, the Insurance Commission has calculated its risk margin in accordance with APRA guidelines. Under this regime the central estimate is derived using risk-free rates based on yields from Commonwealth Government fixed interest securities. The total provision is required to achieve a 75% probability of sufficiency based solely on liability risk (including inflation risk), but with no allowance for asset risk, or asset returns above risk-free rates.
The 75% probability of sufficiency is estimated taking into account potential uncertainties relating to various actuarial assumptions and statistical modelling techniques, the underlying data quality, the general insurance and legal environments, and changes in social attitudes.
Risk Margin Applied 2016 2015 % %
Third Party Insurance Fund 6.7 6.7
Compensation (Industrial Diseases) Fund 18.7 18.7
Government Insurance Fund - Workers' Compensation 25.0 25.0 - Public Liability 12.9 12.9
Insurance Commission General Fund - Workers' Compensation and Liability Insurance 25.0 25.0 - EISF Act: Asbestos-Related Diseases 20.4 20.4 Non-Asbestos-Related Diseases 16.8 16.8 - Inwards Reinsurance 12.7 12.7
(c) Reconciliation of Movement in Discounted Outstanding Claims Liability
Reinsurance and Other Gross Recoveries Net Third Party Insurance Fund $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 1,975,910 149,564 1,826,346
Effect of Changes in Assumptions/Experience 23,950 (4,020) 27,970 Increase in Expected Claims Incurred/Recoveries During Year 507,520 33,760 473,760 Incurred Claims Recognised in the Statement of Comprehensive Income 531,470 29,740 501,730
Claim Payments/Recoveries During Year (424,090) (26,830) (397,260) Total Outstanding Claims Liability at 30 June 2016 2,083,290 152,474 1,930,816
Gross Recoveries Net Compensation (Industrial Diseases) Fund $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 3,200 999 2,201
Effect of Changes in Assumptions/Experience 863 (285) 1,148 Increase in Expected Claims Incurred/Recoveries During Year - - - Incurred Claims Recognised in the Statement of Comprehensive Income 863 (285) 1,148
Claim Payments/Recoveries During Year (191) - (191) Total Outstanding Claims Liability at 30 June 2016 3,872 714 3,158
87 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 18. OUTSTANDING CLAIMS (continued)
(c) Reconciliation of Movement in Discounted Outstanding Claims Liability (continued)
Reinsurance and Other Government Insurance Fund Gross Recoveries Net Workers' Compensation $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 36,627 2,301 34,326
Effect of Changes in Assumptions/Experience 4,276 2,030 2,246 Increase in Expected Claims Incurred/Recoveries During Year 817 101 716 Incurred Claims Recognised in the Statement of Comprehensive Income 5,093 2,131 2,962
Claim Payments/Recoveries During Year (6,207) (2,951) (3,256) Outstanding Claims Liability at 30 June 2016 (i) 35,513 1,481 34,032
Reinsurance and Other Gross Recoveries Net Public Liability $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 862 31 831
Effect of Changes in Assumptions/Experience (509) (13) (496) Decrease in Expected Claims Incurred/Recoveries During Year (21) (1) (20) Incurred Claims Recognised in the Statement of Comprehensive Income (530) (14) (516)
Claim Payments/Recoveries During Year - - - Outstanding Claims Liability at 30 June 2016 (ii) 332 17 315 Total Outstanding Claims Liability at 30 June 2016 (i)+(ii) 35,845 1,498 34,347
Reinsurance and Other Insurance Commission General Fund Gross Recoveries Net Workers' Compensation $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 71,685 30,684 41,001
Effect of Changes in Assumptions/Experience 14,709 6,660 8,049 Increase in Expected Claims Incurred/Recoveries During Year - - - Incurred Claims Recognised in the Statement of Comprehensive Income 14,709 6,660 8,049
Claim Payments/Recoveries During Year (3,034) 639 (3,673) Outstanding Claims Liability at 30 June 2016 (iii) 83,360 37,983 45,377
Reinsurance and Other Gross Recoveries Net Public Liability $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 996 25 971
Effect of Changes in Assumptions/Experience (325) (2) (323) Increase in Expected Claims Incurred/Recoveries During Year - - - Incurred Claims Recognised in the Statement of Comprehensive Income (325) (2) (323)
Claim Payments/Recoveries During Year 246 - 246 Outstanding Claims Liability at 30 June 2016 (iv) 917 23 894 Total Outstanding Claims Liability at 30 June 2016 (iii)+(iv) 84,277 38,006 46,271
INSURANCE COMMISSION ANNUAL REPORT 2016 88 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 18. OUTSTANDING CLAIMS (continued)
(c) Reconciliation of Movement in Discounted Outstanding Claims Liability (continued)
Reinsurance Employers' Indemnity Supplementation Act (EISF Act) and Other Gross Recoveries Net Asbestos-Related Claims $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 15,586 245 15,341
Effect of Changes in Assumptions/Experience 539 16 523 Increase in Expected Claims Incurred/Recoveries During Year - - - Incurred Claims Recognised in the Statement of Comprehensive Income 539 16 523
Claim Payments/Recoveries During Year (1,083) (19) (1,064) 15,042 242 14,800
Timing Difference 71 - 71 Outstanding Claims Liability at 30 June 2016 (v) 15,113 242 14,871
Reinsurance Employers' Indemnity Supplementation Act (EISF Act) and Other Gross Recoveries Net Non-Asbestos-Related Claims $'000 $'000 $'000
Outstanding Claims Liability at 1 July 2015 3,724 71 3,653
Effect of Changes in Assumptions/Experience (1,296) (24) (1,272) Increase in Expected Claims Incurred/Recoveries During Year - - - Incurred Claims Recognised in the Statement of Comprehensive Income (1,296) (24) (1,272)
Claim Payments/Recoveries During Year (243) (5) (238) 2,185 42 2,143
Timing Difference 14 - 14 Outstanding Claims Liability at 30 June 2016 (vi) 2,199 42 2,157
EISF Act Total Outstanding Claims Liability at 30 June 2016 (v)+(vi) 17,312 284 17,028
Inwards Reinsurance (vii) 241 - 241
ICGF Total Outstanding Claims Liability (iii)+(iv)+(v)+(vi)+(vii) 101,830 38,290 63,540
89 INSURANCE COMMISSION ANNUAL REPORT 2016 937 $'000 62,915 130,820 250,776 (152,693) 2,083,290 (2,727,084) $'000 479,249 $'000 501,892 480,993 $'000 512,234 487,242 490,863 $'000 462,637 483,024 474,228 451,120 aims for the ten most recent years: recent most ten the for aims $'000 473,855 449,693 462,605 461,711 454,348 (322,848) (249,942) (195,011) (94,903) (48,974) $'000 465,178 463,545 427,448 446,669 446,898 430,957 to the ultimate expected cl expected ultimate the to 2010 2011 2012 2013 2014 2015 2016 Total $'000 404,768 419,377 421,704 410,630 428,953 428,635 463,148 $'000 402,900 393,621 421,265 426,272 403,468 417,150 437,975 440,306 ounted outstanding claims relativeclaims outstanding ounted $'000 423,400 368,186 359,445 365,301 366,870 357,320 406,747 397,484 408,909 2007 2008 2009 $'000 63,910 54,520 63,489 100,059 63,662 131,500 201,178 295,852 386,090 430,275 1,790,535 391,336 410,204 363,308 350,606 352,575 362,551 388,618 396,727 406,733 417,726 417,726 408,909 440,306 463,148 430,957 454,348 451,120 490,863 480,993 479,249 4,517,619 (353,816) (354,389) (376,817) (363,089) (367,295) ed ClaimsCost: NOTES FORMING AND TO OF THE FINANCIAL PART STATEMENTS 18. OUTSTANDING CLAIMS (continued) Third Party Insurance Fund Insurance Party Third developmentthe undisc net and gross of show tables Thefollowing Table Development Claims Gross Year Accident Gross Ultimate Estimated Year Crash of End At Later Year One Later Years Two ThreeLater Years Later FourYears FiveLater Years Later Years Six Later SevenYears Later Years Eight Later Years Nine Cumulativeof Estimate Current Costs Claims Undiscount Claims Outstanding Later) and 2007 Years Crash (on Discount Later) and 2007 Years Crash (on Expenses Management Claims (Discounted) Prior and 2006 Claims Recoveries ThirdTablein Amounts (Gross Recoveries) Thirdof Net are Party Party MarginRisk 2) Note (Refer Position Financial of Statement Funds' per Claims Outstanding Gross CumulativePayments (d) Tables Claims Development
INSURANCE COMMISSION ANNUAL REPORT 2016 90 $'000 62,915 121,241 223,909 (142,305) 1,930,816 (2,553,074) $'000 448,612 $'000 469,804 450,172 $'000 480,464 456,019 459,377 $'000 426,289 452,884 443,766 422,119 $'000 443,567 420,859 433,522 432,054 425,171 (302,104) (233,841) (182,498) (88,841) (45,929) $'000 435,494 428,762 399,988 418,399 418,242 403,332 2010 2011 2012 2013 2014 2015 2016 Total $'000 379,914 392,496 394,599 384,215 401,652 401,169 433,466 $'000 378,224 369,279 394,266 398,907 377,537 390,536 409,872 412,067 $'000 397,688 345,460 336,995 341,841 343,280 334,340 380,792 371,969 382,660 2007 2008 2009 $'000 49,157 51,023 59,417 93,642 59,579 123,067 188,278 276,879 361,331 402,683 1,665,056 362,816 379,697 336,200 324,755 326,296 336,545 364,569 370,947 377,746 381,154 381,154 382,660 412,067 433,466 403,332 425,171 422,119 459,377 450,172 448,612 4,218,130 (331,997) (331,637) (352,650) (339,824) (343,753) ed NOTES FORMING AND TO OF THE FINANCIAL PART STATEMENTS 18. OUTSTANDING CLAIMS (continued) Outstanding Claims Undiscount Claims Outstanding Third Party Insurance Fund Insurance Party Third DevelopmentTable NetClaims Year Accident Cost: Claims Net Ultimate Estimated Year Crash of End At Later Year One Later Years Two ThreeLater Years Later FourYears FiveLater Years Later Years Six Later SevenYears Later Years Eight Later Years Nine Cumulativeof Estimate Current Costs Claims Later) and 2007 Years Crash (on Discount Later) and 2007 Years Crash (on Expenses Management Claims (Discounted) Prior and 2006 Claims MarginRisk Recoveries Other and Reinsurance of Net Claims Outstanding Total CumulativePayments (d) Claims DevelopmentTables (continued)
91 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS $'000 62,915 121,241 223,909
(142,305) 18. OUTSTANDING CLAIMS (continued) 1,930,816 (2,553,074) (d) Claims Development Tables (continued)
$'000 Compensation (Industrial Diseases) Fund 448,612 The long-term nature of the expected term to settlement of these claims, results in claims costs developing many years after the initial policy period. In view of this it is considered that provision of a table referenced to accident years is not appropriate.
$'000 Consequently the table below lists developing claim costs over the past five years. 469,804 450,172 Gross Net Estimated Ultimate Claims Cost at 30 June: $'000 $'000
$'000 2012 30,858 21,545
480,464 456,019 459,377 2013 30,208 20,914 2014 30,241 21,171 2015 30,774 21,270 2016 31,195 22,094 $'000
426,289 452,884 443,766 422,119 Current Estimate of Cumulative Claims Costs 31,195 22,094 Cumulative Payments (28,260) (19,897) Outstanding Claims Undiscounted 2,935 2,197 $'000
443,567 420,859 433,522 432,054 425,171 Discount (519) (378) (302,104) (233,841) (182,498) (88,841) (45,929) Claims Management Expenses 846 841 Risk Margin 610 498 Outstanding Claims per Funds' Statement of Financial Position (Refer Note 2) 3,872 3,158 $'000
435,494 428,762 399,988 418,399 418,242 403,332 Government Insurance Fund
This Fund is closed and has been in run-off since 1 July 1997. The long-term nature of the expected term to settlement of 2010 2011 2012 2013 2014 2015 2016 Total
$'000 these claims is also due to the latency period associated with asbestos-related diseases and the nature of liability insurance. In view of this it is considered that provision of a table referenced to accident years is not appropriate. Consequently, the 379,914 392,496 394,599 384,215 401,652 401,169 433,466 tables below list developing claim costs over the past five years. There are no remaining claims against the fund other than for Workers' Compensation and Liability insurance.
Workers' Compensation
$'000 Gross Net
378,224 369,279 394,266 398,907 377,537 390,536 409,872 412,067 Estimated Ultimate Claims Cost at 30 June: $'000 $'000
2012 986,766 908,901 2013 981,589 906,616 $'000 2014 990,649 914,912
397,688 345,460 336,995 341,841 343,280 334,340 380,792 371,969 382,660 2015 996,313 917,693 2016 994,910 917,152
Current Estimate of Cumulative Claims Costs 994,910 917,152 2007 2008 2009 $'000 Cumulative Payments (962,852) (886,545) 49,157 51,023 59,417 93,642 59,579 123,067 188,278 276,879 361,331 402,683 1,665,056 362,816 379,697 336,200 324,755 326,296 336,545 364,569 370,947 377,746 381,154 381,154 382,660 412,067 433,466 403,332 425,171 422,119 459,377 450,172 448,612 4,218,130 (331,997) (331,637) (352,650) (339,824) (343,753) Outstanding Claims Undiscounted 32,058 30,607
Discount (6,228) (5,963) Claims Management Expenses 2,605 2,581 Risk Margin 7,078 6,807 Workers' Compensation Outstanding Claims 35,513 34,032 ed NOTES FORMING AND TO OF THE FINANCIAL PART STATEMENTS 18. OUTSTANDING CLAIMS (continued) Total Outstanding Claims Net of Reinsurance and Other Recoveries Other and Reinsurance of Net Claims Outstanding Total Third Party Insurance Fund Insurance Party Third DevelopmentTable NetClaims Year Accident Cost: Claims Net Ultimate Estimated Year Crash of End At Later Year One Later Years Two ThreeLater Years Later FourYears FiveLater Years Later Years Six Later SevenYears Later Years Eight Later Years Nine Cumulativeof Estimate Current Costs Claims Later) and 2007 Years Crash (on Discount Later) and 2007 Years Crash (on Expenses Management Claims (Discounted) Prior and 2006 Claims MarginRisk CumulativePayments Outstanding Claims Undiscount Claims Outstanding (d) Claims DevelopmentTables (continued)
INSURANCE COMMISSION ANNUAL REPORT 2016 92 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 18. OUTSTANDING CLAIMS (continued)
(d) Claims Development Tables (continued)
Public Liability Gross Net Estimated Ultimate Claims Cost at 30 June: $'000 $'000
2012 13,948 10,237 2013 14,011 10,298 2014 14,497 10,732 2015 14,430 10,701 2016 13,945 10,230
Current Estimate of Cumulative Claims Costs 13,945 10,230 Cumulative Payments (13,652) (9,953) Outstanding Claims Undiscounted 293 277
Discount (16) (15) Claims Management Expenses 17 17 Risk Margin 38 36 Public Liability Outstanding Claims 332 315 Total GIF Outstanding Claims per Funds' Statement of Financial Position 35,845 34,347 (Refer Note 2)
Insurance Commission General Fund
This fund is responsible for the administration of three claim portfolios: - Run-off claims for Workers' Compensation and Public Liability claims prior to 1 January 1986; and - Workers' Compensation claims to be settled in accordance with the EISF Act specifically relating to the HIH Insurance Group and other failed insurers. - Run-off claims in relation to the Inwards Reinsurance written prior to August 1992.
Run-off Claims
The long-term nature of the expected term to settlement of these claims is due to the latency period associated with asbestos- related diseases and the nature of public liability insurance. In view of this, it is considered that provision of a table referenced to accident years is not appropriate. Consequently, the tables below list developing claim costs over the past five years.
The claims in run-off include an immaterial number of, and values for, potential Public Liability claims reported as a single class of insurance.
Workers' Compensation Gross Net Estimated Ultimate Claims Cost at 30 June: $'000 $'000
2012 566,680 439,318 2013 566,506 439,527 2014 567,556 442,499 2015 573,693 447,566 2016 583,429 451,863
Current Estimate of Cumulative Claims Costs 583,429 451,863 Cumulative Payments (506,011) (412,369) Outstanding Claims Undiscounted 77,418 39,494
Discount (15,670) (8,086) Claims Management Expenses 4,940 4,894 Risk Margin 16,672 9,075 Workers' Compensation Outstanding Claims (i) 83,360 45,377
93 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 18. OUTSTANDING CLAIMS (continued)
(d) Claims Development Tables (continued)
Public Liability Gross Net Estimated Ultimate Claims Cost at 30 June: $'000 $'000
2012 5,434 5,371 2013 4,128 4,097 2014 4,195 4,164 2015 3,812 3,790 2016 3,933 3,914
Current Estimate of Cumulative Claims Costs 3,933 3,914 Cumulative Payments (3,143) (3,143) Outstanding Claims Undiscounted 790 771
Discount (110) (109) Claims Management Expenses 54 53 Risk Margin 183 179 Public Liability Outstanding Claims (ii) 917 894 Total Workers' Compensation and Public Liability Outstanding Claims (i)+(ii) 84,277 46,271
EISF Act Asbestos-Related Claims 15,113 14,871 EISF Act Non-Asbestos-Related Claims 2,199 2,157 Inwards Reinsurance 241 241 Total ICGF Outstanding Claims per Funds' Statement of Financial 101,830 63,540 Position (Refer Note 2)
A claim development table has not been produced for the EISF Act claims as all claims are for events occurring more than ten years ago.
Due to the small size of inwards reinsurance related claims, no claims development table has been produced.
19. UNEARNED PREMIUM 2016 ($'000)
Third Party Compensation Insurance (Industrial Current Year Fund Diseases) Fund Total
Unearned Premium Liability at Start of the Year (212,314) - (212,314) Earning of Premiums Written in Previous Periods 212,314 - 212,314 Premium Written in the Period (562,654) (246) (562,900) Earning of Premiums Written in the Period 342,656 81 342,737 Unearned Premium Liability at End of the Year (219,998) (165) (220,163)
2015 ($'000)
Third Party Compensation Insurance (Industrial Prior Year Fund Diseases) Fund Total
Unearned Premium Liability at Start of the Year (203,206) (108) (203,314) Earning of Premiums Written in Previous Periods 203,206 108 203,314 Premium Written in the Period (533,816) (24) (533,840) Earning of Premiums Written in the Period 321,502 24 321,526 Unearned Premium Liability at End of the Year (212,314) - (212,314)
The Compensation (Industrial Diseases) Fund issued policies on or after 1 July 2015 covering a three-year period, or part thereof, to 30 June 2018.
Unearned Premium Liability is not applicable to the Government Insurance Fund or the Insurance Commission General Fund.
INSURANCE COMMISSION ANNUAL REPORT 2016 94 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
20. UNEXPIRED RISK LIABILITY 21. PROVISIONS Third Party Compensation (Industrial 2016 2015 Insurance Fund Diseases) Fund Notes $'000 $'000 2016 2015 2016 2015 Notes $'000 $'000 $'000 $'000 Current Employee Benefits 22 5,030 4,840 Unexpired Risk Liability On-Costs Relating to Employee Benefits (i) 252 256 Investments 2,130 2,305 Unexpired Risk Liability at Start of the Year - - - - Sundry 130 96 Recognition of Additional Unexpired Risk Liability in the Period - - - - 7,542 7,497 Release of Unexpired Risk Liability Recorded in Previous Periods - - - - Non-Current Unexpired Risk Liability at End of the Year - - - - Employee Benefits 22 9,836 10,000 On-Costs Relating to Employee Benefits (i) 236 205 Movement in Deficiency Recognised in the 10,072 10,205 Statement of Comprehensive Income Gross (Reduction)/Increase in Unexpired Risk - - - - Liability (i) The provision of annual and long service leave liabilities gives rise to the payment of employment on-costs including Increase in Reinsurance and Other Recoveries on superannuation, payroll tax and workers' compensation premiums. The liability for such on-costs is included here. The Unexpired Risk Liability - - - - associated expense is included under Employee Benefits (within Other Underwriting and Administration Expenses). Net Movement in Unexpired Risk (i) - - - - Refer Note 5. Write-down of Deferred Premium Collection 13 - - - - Costs Total Deficiency Recognised in the Statement of 22. EMPLOYEE BENEFIT LIABILITIES Comprehensive Income ---- Current Unearned Premium Liability Adequacy Test Provisions Annual Leave 2,655 2,553 Unearned Premium Liability 219,998 212,314 165 - Long Service Leave 944 1,146 Related Deferred Premium Collection Costs (5,723) (6,124) - - Superannuation Contributions 1,431 1,141 214,275 206,190 165 - 21 5,030 4,840
Central Estimate of Present Value of Expected Payables Future Cash Flows arising from Future Claims 202,000 196,200 68 - Accrued Salaries - 911 Risk Margin 16,900 15,700 19 - Accrued Payroll Tax - 50 Present Value of Expected Future Cash Inflows Accrued Superannuation - 75 Arising from Reinsurance and Other Recoveries on 16 - 1,036 Future Claims (14,600) (14,100) - - 204,300 197,800 87 - Total Current 5,030 5,876
Net Surplus 9,975 8,390 78 - Non-Current Provisions Less: Reinsurance Element of Present Value of Long Service Leave 3,371 2,963 Expected Future Cash Flows for Future Claims (14,600) (14,100) - - Superannuation Contributions 6,465 7,037 Gross (Deficiency)/Surplus (4,625) (5,710) 78 - Total Non-Current 21 9,836 10,000 Total Employee Benefit Liabilities 14,866 15,876 A Liability Adequacy Test was performed for the Third Party Insurance Fund (TPIF) and the Compensation (Industrial Diseases) Fund (CIDF).
The TPIF demonstrated a net surplus (2015: Net Surplus) which resulted in a Nil Unexpired Risk Liability (2015: Nil). The risk As explained in Note 1(ee), the amounts for Non-Current Long Service Leave and superannuation are measured at their margin applied to achieve a 75% probability of sufficiency for the unexpired risk liability of the TPIF is 8.0%. This is more than present values. The following assumptions were adopted in measuring present values: the 6.7% risk margin applied to the outstanding claims as the unexpired risk liability is considered to exhibit higher uncertainty as it relies to a much greater extent on events yet to occur. Long Service Leave Weighted Average Rates of Increase in Annual Employee Benefits (%) 2.2 2.5 The CIDF demonstrated a net surplus in 2016 which resulted in a $Nil Unexpired Risk Liability. Weighted Average Discount Rates (%) 1.7 2.2 Weighted Average Expected Term to Settlement 4 yrs 10 mths 4 yrs 11 mths The Unexpired Risk Liability is not aggregated due to the different nature of the TPIF and the CIDF portfolios.
An Unexpired Risk Liability can only occur in those Funds which carry an Unearned Premium Liability at the end of the reporting period. Unearned Premium Liability is not applicable to the Government Insurance Fund or the Insurance Commission General Fund as those Funds are in run-off and not renewing policies.
(i) The Net Movement in Unexpired Risk represents the gross movement in the Unexpired Risk Liability less any related Reinsurance and Other Recoveries.
95 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
21. PROVISIONS 2016 2015 Notes $'000 $'000
Current Employee Benefits 22 5,030 4,840 On-Costs Relating to Employee Benefits (i) 252 256 Investments 2,130 2,305 Sundry 130 96 7,542 7,497
Non-Current Employee Benefits 22 9,836 10,000 On-Costs Relating to Employee Benefits (i) 236 205 10,072 10,205
(i) The provision of annual and long service leave liabilities gives rise to the payment of employment on-costs including superannuation, payroll tax and workers' compensation premiums. The liability for such on-costs is included here. The associated expense is included under Employee Benefits (within Other Underwriting and Administration Expenses). Refer Note 5.
22. EMPLOYEE BENEFIT LIABILITIES
Current Provisions Annual Leave 2,655 2,553 Long Service Leave 944 1,146 Superannuation Contributions 1,431 1,141 21 5,030 4,840
Payables Accrued Salaries - 911 Accrued Payroll Tax - 50 Accrued Superannuation - 75 16 - 1,036 Total Current 5,030 5,876
Non-Current Provisions Long Service Leave 3,371 2,963 Superannuation Contributions 6,465 7,037 Total Non-Current 21 9,836 10,000 Total Employee Benefit Liabilities 14,866 15,876
As explained in Note 1(ee), the amounts for Non-Current Long Service Leave and superannuation are measured at their present values. The following assumptions were adopted in measuring present values:
Long Service Leave Weighted Average Rates of Increase in Annual Employee Benefits (%) 2.2 2.5 Weighted Average Discount Rates (%) 1.7 2.2 Weighted Average Expected Term to Settlement 4 yrs 10 mths 4 yrs 11 mths
INSURANCE COMMISSION ANNUAL REPORT 2016 96 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
23. BELL RECOVERY ACTION
In 1995, the Insurance Commission agreed to fund the costs of the Liquidators of the Bell Group in the Liquidators' action against 20 Banks. The Insurance Commission advanced $198.5 million to the Liquidators.
This action finally involved an award in favour of the Bell Group of $2.7 billion by the Court of Appeal of the Western Australian Supreme Court. The Banks sought to appeal part of this judgement in the High Court of Australia but a conditional settlement was reached in September 2013. The effect of the settlement was that the Banks relinquished all claims in Bell, leaving a sum that now amounts to approximately $1.8 billion with the Liquidators, for eventual distribution between the remaining creditors.
Since settlement, litigation over the distribution of the settlement funds has commenced and mediation attempts have failed.
The Insurance Commission considers that it has a contingent asset that will eventually materialise from the Bell distribution process. The total amount of the recoveries it will ultimately receive cannot yet be ascertained.
The Insurance Commission has a potential exposure to costs arising from the resumption of litigation and to a range of indemnities associated with funding the Liquidatorsʼ action. Due to the uncertainty of litigation outcomes, it is not practical to estimate the potential financial effect of these indemnities upon the Insurance Commission at the end of the reporting period.
24. DIVIDENDS
The following dividends were declared and paid by the Insurance Commission to the Government of Western Australia during the year ended 30 June:
2016 2015 $'000 $'000
Final Dividend payment for the prior year 22,468 16,211 Special Dividend payment for the prior year 90,000 - Interim Dividend payment for current year 19,353 18,857 131,821 35,068
In light of its strong investment performance in 2015, the Insurance Commission paid a $90 million special dividend in December 2015.
97 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
25. NOTES TO THE STATEMENT OF CASH FLOWS
2016 2015 Notes $'000 $'000
Reconciliation of Profit after Income Tax Equivalent Expense to Net Cash Flow from Operating Activities:
Profit after Income Tax Equivalent Expense 11,826 193,493
Non-Cash Items Depreciation and Amortisation 4,141 10,862 Impairment of Assets 1,541 3,041 Impairment of Receivables 82 (19) Investments Foreign Exchange Gain/(Loss) 34,529 (62,820) Decrease/(Increase) in Fair Value of Investments 116,154 (42,343) Movement in Income Tax Provisions (106,359) 30,811 Other (26) 5
Amounts Recognised Directly in Equity Provision for Deferred Income Tax on Asset Revaluation - 2,208 Provision for Deferred Income Tax on Defined Benefit Plan 102 121 Re-measurement of (Loss) on Defined Benefit Plans (340) (404)
Decrease/(Increase) in Assets Current Receivables 35,324 (6,398) Fair Value of Investments Realised (58,490) (125,356) Deferred Premium Collection Costs 401 (1,918) Other Current Assets 21 (567) Non-Current Receivables (4,811) (8,862) Other Non-Current Assets - 127
Increase/(Decrease) in Liabilities Current Payables 6,322 576 Current Tax Payable 79,076 35,825 Current Outstanding Claims (16,798) (2,830) Current Unearned Premium 7,849 9,000 Current Provisions 220 361 Current Other Liabilities (2,286) 1,314 Non-Current Outstanding Claims Liability 133,755 58,738 Non-Current Provisions (133) (537) Net Cash Flow from Operating Activities 242,100 94,428
Reconciliation of Cash
Cash and Cash Equivalents at the end of the year as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows:
Cash and Cash Equivalents 4,174 2,123 Investments 9 1,562,222 1,006,137 (i) 1,566,396 1,008,260
(i) The Cash detailed above is available to the Insurance Commission without restriction.
INSURANCE COMMISSION ANNUAL REPORT 2016 98 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
26. FINANCIAL INSTRUMENTS
(a) Purpose for Which Derivative Transactions are Undertaken
A derivative financial instrument is a contract whose existence is derived from the value of, or changes in the value of, an underlying investment security. The Insurance Commission's external Investment Managers may utilise derivatives in order to gain access to and allow flexibility in financial markets and to manage and structure the investment portfolio in line with the Insurance Commission's investment strategy.
Derivatives are not utilised in a speculative manner, and Investment Managers are not permitted to leverage the investment portfolio. Derivative instruments are used to economically hedge or minimise risk incurred. Therefore, whenever derivative positions are created, cash or the underlying physical security is held to cover any potential liability. The face value of the underlying security, valued at current market values, is utilised to determine the equivalent dollar value of the derivative product. At the end of the reporting period, all of the Insurance Commission's derivative positions were matched by cash or the underlying security.
The Insurance Commission has appointed an Investment Manager to enter into forward foreign exchange contracts to manage the currency risk associated with overseas equity portfolio exposure. The economic level of the currency hedge varies between 0% and 100% depending on the nature of the underlying equity portfolio. At 30 June 2016, the level of the currency hedge was 50% on the core global equity exposure.
(b) Futures 2016 2015 $'000 $'000 At the end of the reporting period, the details of outstanding contracts are:
Up to 1 year
Equity Futures Notional Principal Amount of Asset 100,843 13,897
The Notional Principal Amount (effective exposure) of the above equity futures is backed by an equal amount of cash. If all futures contracts were exercised at the end of the reporting period, the Insurance Commission could effectively replace the futures with cash holdings. The Notional Principal Amounts shown above are not considered to be materially different to their Fair Value.
All Futures are held within the Insurance Commission General Fund of the Insurance Commission.
(c) Forward Foreign Exchange Contracts
Notional Notional Assets Liabilities Amount Assets Liabilities Amount 2016 2016 2016 2015 2015 2015 $'000 $'000 $'000 $'000 $'000 $'000
Up to 3 months 337,121 (331,980) 337,121 359,794 (361,459) 359,794 Total 337,121 (331,980) 337,121 359,794 (361,459) 359,794
The above contracts are marked to market by comparing the contractual rate to the current market rate for a contract with the same remaining period to maturity. Any unrealised gain or loss is taken to the Statement of Comprehensive Income immediately. At the end of the reporting period, a net unrealised gain on these contracts amounted to $5,141,000 (2015: loss of $1,663,000). Refer Note 9.
All Forward Foreign Exchange Contracts are held within the Insurance Commission General Fund.
99 INSURANCE COMMISSION ANNUAL REPORT 2016 % 5.8 4.8 7.2 5.9 (7.9) (0.2) (6.9) (4.8) 70.2 75.0 (63.3) (82.6) (18.2) (47) 279 $'000 2,406 7,839 15.6 ACTUAL 2015 ACTUAL (1,002) (1,428) (2,762) (8,168) 30,210 55,374 14,026 30,442 (17,411) (18,413) (3.7) (260,674) (98.1) (332,151) % 5.4 4.3 (0.8) (3.3) 12.6 23.3 50.3 68.6 (13.6) (72.8) (21.4) 339.4 FROM ACTUAL 2016 TO ACTUAL FROM PROFIT INCREASE/(DECREASE) PROFIT INCREASE/(DECREASE) (86) 799 $'000 7,814 1,278 2,679 9,421 (8,513) (25.1) (4,340) (8,843) (1.8) (3,627) (0.7) 23,827 10,197 (16,657) (10,035) (163,186) (96.9) (188,083) 595 $'000 (5,820) 27,527 44,948 (20,794) (57,265) (33,500) (78,914) (18,698) (50,310) 265,821 524,840 402,295 519,615 (491,866) (519,393) 634 $'000 2,302 (6,340) 46,815 (23,500) (62,706) (40,515) (47,367) (14,869) 559,390 258,227 (503,738) 548 2016 2016 2015 2016 BUDGET 5,147 168,333 (5,541) (4,672) 10,116 70,144 36,780 (42,471) (33,958) (22,222) (60,027) (31,094) (23,540) 550,057 553,684 555,050 ACTUAL BUDGET ACTUAL (510,279) (501,436) (520,395) $'000 6 4 5 4 5 4 5 4 5 5 4 5 5,13 Notes EXPLANATORY STATEMENT – INSURANCE COMMISSION – INSURANCE STATEMENT EXPLANATORY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 27. Premium Revenue Premium Expense Reinsurance Outwards Revenue Commission Reinsurance Outwards Premium Revenue Net Expense Claims Revenue Recoveries Reinsurance and Other Net Claims Incurred Costs Collection Premium and Administration Expenses Underwriting Other UNDERWRITING LOSS Income Investment Expenses Investment Return Investment RiskCover - Costs Finance Income Other Expenses Other PROFIT BEFORE INCOME TAX EQUIVALENT EQUIVALENT INCOME BEFORE TAX PROFIT EXPENSE
INSURANCE COMMISSION ANNUAL REPORT 2016 100 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
27. EXPLANATORY STATEMENT – INSURANCE COMMISSION (continued)
Explanations are provided below for significance variances between 2016 actual results and 2016 budget and 2015 actual. Significant variances are considered to be those greater than $10 million to 2016 budget.
COMPARISON OF 2016 ACTUAL RESULTS TO 2016 BUDGET AND 2015 ACTUAL
Profit before Income Tax Equivalent Expense The Profit before Income Tax Equivalent Expense for the Insurance Commission of $5.1 million is $163.2 million (96.9%) worse than the budgeted Profit of $168.3 million, and is $260.7 million (98.1%) worse than last year's Profit of $265.8 million. The analysis below highlights the key variances.
Claims Expense Claims expense for the Insurance Commission of $520.4 million is $16.7 million (3.3%) worse than budget ($503.7 million). This is primarily driven by the movement in outstanding claims provisions being $13.6 million worse than budget due to the projected increase in lung disease claims following the actuarial review, arising from the Insurance Commission General Fund.
Claims paid of $397 million for the Third Party Insurance Fund (TPIF) were $66.3 million (14.3%) better than budget and $56 million lower than 2015, driven by a lower than expected number of claims finalisations. This decline in claim payments was more than offset by an increase in TPIF net outstanding claims provisions of $104.5 million in 2016. The increase in outstanding claims liabilities primarily reflects a lower than forecast number of claims finalisations, an increase in average claims costs, and falls in bond rates in June 2016, flowing from the referendum result in the United Kingdom to leave the European Union.
Investment Income The Investment Income of $70.1 million is $188.1 million (72.8%) worse than the budgeted Investment Income of $258.2 million and $332.2 million (82.6%) lower than last year's Investment Income of $402.3 million.
In 2016, the Insurance Commission sold three of its direct properties being the Forrest Centre, Livingston Marketplace Shopping Centre and the Shops at Ellenbrook Shopping Centre which resulted in gain on sale of $35.5 million. This gain was offset by revaluation decrease of $49.9 million for the Westralia Square and a reduction of $5 million in value for the Westralia Plaza.
The Investment Income rate of return was significantly lower than the budgeted income due to underperformance in all asset class returns except Alternative Assets (11.5% against target 7%), Global Shares (-6.9% against target 7.9%), Australian Shares (3.2% against target 6.8%), Australian Fixed Interest (-1.4% against target 3.3%), Global Fixed Interest (2.1% against target 3.9%), Property (1.0% against target 4.8%) and Cash (2.5% against target 3.5%) returns were all below budget.
Finance Costs - RiskCover Investment Return RiskCover Investment Return represents investment income to the RiskCover Fund for its share of gains of the investment pool of the Insurance Commission. In 2016, the Riskcover Fund received an investment return of $23.5 million, which is $23.8 million worse than the budgeted return of $47.4 million. The Insurance Commission's lower than expected investment return has resulted in the RiskCover Fund receiving a lower investment return.
Other Income Other Income of $36.8 million is $10 million (21.4%) worse than the budget of $46.8 million and $8.2 million (18.2%) worse than last year. This is primarily a result of the decline in property rental income arising from the sale of Forrest Centre property in March 2016.
Other Expenses Other Expenses of $4.7 million is $10.2 million (68.6%) better than the budget of $14.9 million and $14 million (75%) better than last year. The favourable result was the outcome of a reduction in property expenses arising from the sale of the Forrest Centre property in March 2016.
101 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
28. EXPENDITURE COMMITMENTS
(a) Capital Expenditure Commitments
Capital expenditure commitments, being contracted capital expenditure additional to the amounts reported in the financial statements, are payable as follows:
2016 2015 $'000 $'000 Not Later than One Year: - Investment Property 268 - - Property Assets Held for Sale - 1,873 268 1,873 Total Capital Expenditure Commitments 268 1,873
(b) Lease Expenditure Commitments
On 10 March 2016 the Insurance Commission signed a 10 year operating lease to rent commercial offices within the Forrest Centre at 221 St Georges Terrace.
2016 2015 $'000 $'000 Less than 1 Year 2,985 - 1 - 5 Years 12,777 - Greater than 5 Years 16,848 - 32,610 -
(c) Medical Research
The Insurance Commission funds research into the early detection, prevention and treatment of industrial diseases caused by asbestos. The funding is $1.9 million between 2014 and 2017.
(d) Road Safety Promotion
The Insurance Commission promotes the road safety Belt Up campaign by sponsoring community country football, netball and rugby. The sponsorship is $1.4 million between 2014 and 2017.
29. PROPERTY LEASE INCOME 2016 2015 $'000 $'000 Less than 1 Year 23,307 27,106 1 - 5 Years 66,577 - Greater than 5 Years 590 - 90,474 27,106
This note shows the future minimum income receivable under non-cancellable operating leases for properties owned by the Insurance Commission. In 2016, income receivable is for the Westralia Square property at 141 St Georges Terrace.
The future property lease income disclosed in 2015 was based on the anticipated sale of all Insurance Commission properties occurring within 12 months.
30. ECONOMIC DEPENDENCY The normal trading activities of the Insurance Commission depend to a significant extent on the Department of Transport, an agency of the Government of Western Australia.
The Department of Transport (as collection agent of the Insurance Commission) is responsible, under the Motor Vehicle (Third Party Insurance) Act 1943 , for issuing the Insurance Commission's Compulsory Third Party insurance policies, collecting premiums for those policies and remitting premiums to the Insurance Commission.
Total Premium Revenue recognised for the Third Party Insurance Fund during 2016 was $555.0 million (2015: $524.7 million), representing most of the Insurance Commission's premium revenue.
INSURANCE COMMISSION ANNUAL REPORT 2016 102 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
31. REMUNERATION OF THE BOARD OF COMMISSIONERS AND OTHER KEY MANAGEMENT PERSONNEL
2016 2015 $$ Total fees, salaries and fringe benefits (short-term benefits) received or due and receivable for the financial year by:
- Board of Commissioners (Board) 704,861 692,213 - Other Key Management Personnel 2,563,484 2,392,553 3,268,345 3,084,766
Total employer's contributions to superannuation (long-term benefits) received or due and receivable for the financial year by:
- Board of Commissioners (Board) 64,983 63,767 - Other Key Management Personnel 242,263 227,963 307,246 291,730 3,575,591 3,376,496
These amounts above are based on a total employment cost incorporating fees, salaries, employer's contributions to superannuation and fringe benefits.
The number of Members of the Board whose total fees, salaries, employer's contributions to superannuation and fringe benefits received, fall within each band of income of $10,000 are as follows:
Income Band ($) Number of Members of the Board 2016 2015 0 - 10,000 1 - 10,001 - 20,000 2 - 20,001 - 30,000 1 - 30,001 - 40,000 4 - 40,001 - 50,000 - 4 60,001 - 70,000 1 - 70,001 - 80,000 - 1 90,001 - 100,000 - 1 100,001 - 110,000 1 - 380,001 - 390,000 - 1 400,001 - 410,000 1 -
The number of Key Management Personnel (excluding members of the Board) whose total fees, salaries, employer's contributions to superannuation and fringe benefits received, fall within each band of income of $10,000 are as follows:
No. of Other Key Management Income Band ($) Personnel 2016 2015 90,001 - 100,000 - 1 130,001 - 140,000 1 - 200,001 - 210,000 - 1 220,001 - 230,000 - 2 230,001 - 240,000 1 - 240,001 - 250,000 2 2 250,001 - 260,000 2 - 270,001 - 280,000 1 5 290,001 - 300,000 4 -
At 30 June 2016, no members (2015: Nil) of the Board or Other Key Management Personnel were members of the State Pension Scheme (as originally defined in the repealed Superannuation and Family Benefits Act 1938 , the provisions of which are now continued in force by Section 26 of the State Superannuation (Transitional and Consequential Provisions) Act 2000).
103 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
32. REMUNERATION OF AUDITOR
Remuneration payable to the Auditor General for the financial year is as follows:
2016 2015 $ $ Auditing the Financial Statements and Performance Indicators 376,000 377,000
33. LOSSES THROUGH THEFT, DEFAULT AND OTHER CAUSES
2016 2015 Notes $'000 $'000
Write-Off of Revenue and Debt (i) 107 23 Recovery of Losses (ii) 1 2
(i) Comprises investment debts of $107,234. (2015: Reinsurance Recoverables Debt of $19,869 and RiskCover Training Debts of $3,496)
(ii) Insurance claims were lodged for plant and equipment lost or stolen and a settlement of $550 (2015: $2,324) was received.
Potential Claims Recoveries Written-Off In relation to the Third Party Insurance Fund, the Insurance Commission has a statutory obligation to pay a third party claim. Where the negligent driver of a vehicle was in breach of the warranties of the policy or where the vehicle was uninsured, or where a third party was at fault, the Insurance Commission seeks to recover the costs of the claim from the driver or the third party.
In accordance with AASB 1023 'General Insurance Contracts', potential recoveries receivable are assessed with regard to the ability of the debtors to meet their obligations. These recoveries have not been brought to account as income because the amount to be recovered could not be reliably measured and consequently the write-off of these debts has not been charged as an expense in the Statement of Comprehensive Income. The TPIF debt write-offs below for the 2016 financial year are shown net of recoveries received from negligent owners or drivers of $145,264 (2015: $203,133).
In accordance with Section 48(3) of the Financial Management Act 2006, potential recoveries were submitted for write-off from the following:
2016 2015 $'000 $'000 Third Party Insurance Fund 15,252 25,174 Total 15,252 25,174
Amounts Written-Off by the Board 15,252 23,152 Amounts Written-Off by the Responsible Minister - 2,022 Amounts Written-Off by the Governor - - 15,252 25,174
INSURANCE COMMISSION ANNUAL REPORT 2016 104 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
34. CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The Insurance Commission makes estimates and assumptions of certain key assets and liabilities, which are continually evaluated based on historical experience and other factors, including expectations of reasonable future events. These are described below:
(a) Liabilities Arising Under Insurance Policies
Provisions are made at the year-end for the outstanding claims liability in the Statement of Financial Position. This is the cost of claims incurred but not settled at the end of the reporting period, including the cost of claims incurred but not yet reported (IBNR) and claims incurred but not enough reported (IBNER). Estimations are made of all recoveries, including reinsurance recoveries and tax credits. Those recoveries appear in the Statement of Financial Position as Receivables (refer Note 8) and are discussed at (b) below. Outstanding claims and recoveries take into account factors such as allowances for future wage increases and superimposed inflation, risk-free investment return, claims administration expenses, and a prudential risk margin.
Whilst all reasonable steps are taken to ensure that adequate information is obtained on outstanding claims exposures, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability. In particular, the estimation of IBNR claims is generally subject to a greater degree of uncertainty than the estimation of claims already notified, where more information about the claim is usually available. IBNR claims may not be lodged until many years after the events giving rise to the claims.
The estimate of liability for outstanding claims is based upon an independent actuarial valuation which utilises statistical analysis of historical experience, and which assume the development pattern of current claims will be consistent with past experience.
Allowances are made, where appropriate, for changes or uncertainties which may create distortions in the underlying statistics or which may cause the cost of outstanding claims to increase or decrease when compared with the cost of previously settled claims. These include:
- Changes in claims management processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods; - Changes in the legal or social environment; - The effects of inflation, superimposed inflation and discount rates; - Estimates of reinsurance recoveries; and - A prudential risk margin.
Refer Note 35 for details of the specific assumptions used in deriving the outstanding claims liability at year-end.
(b) Assets Arising From Reinsurance Contracts
Assets arising from reinsurance contracts are also calculated using the above methods. In addition, the recoverability of these assets is assessed on a periodic basis to ensure the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that the Insurance Commission may not receive amounts due to it and these amounts can be reliably measured.
(c) Property Valuations
A valuation was obtained from an independent licensed valuer for the property presented under Investment Property. The valuation is based on projected future income streams of the property and analysis of comparable sales evidence.
The valuation of Property Assets held for Sale at 30 June 2016 is based on the agreed sale price of the property as per the sale and purchase agreement signed on 21 June 2016. Refer Note 15.
(d) Superannuation
The Pension Scheme and the pre-transfer benefit for employees who transferred to the Gold State Superannuation Scheme are unfunded and the liability for future payments is provided for at the end of the reporting period. The present value of the liabilities is determined following an independent actuarial assessment on behalf of GESB.
(e) Unlisted Investments
The Insurance Commission's investment portfolio includes unlisted items. The valuations of these are subject to estimation. Fair values of units in unlisted Equity, Fixed Interest and Alternative Assets Trusts are determined using the Net Asset Value (NAV) per unit applicable for redemption on the last day of the financial year. The NAV is calculated by deducting the value of its liabilities from the value of the unlisted unit trust's gross assets. Unit values denominated in foreign currency are converted to Australian dollars at rates of exchange current at the end of the reporting period. Unlisted Property Trusts are valued by the Trustee of the Trusts at market values based upon independent valuations of the properties held. A unit price is advised to unit holders, which forms the basis for the calculation of market value at the end of the reporting period which equates to fair value.
105 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
35. ACTUARIAL ASSUMPTIONS AND METHODS
The Insurance Commission underwrites a number of insurance classes through its funds. The ultimate liability for outstanding claims is estimated by:
- projecting future claim payments in current values using a variety of actuarial models; - adjusting the projected claim payments to allow for the effect of future inflation from current values to the date of payment; - discounting inflated claim payments to allow for an investment return at a risk-free rate; - deducting the estimated effect of tax credits; - adding an amount to provide for associated claims management expenses; - reducing the amount by an allowance for reinsurance and other recoveries; and - adding an allowance for a prudential risk margin.
Processes Used To Determine Assumptions A description of the factors used to determine these assumptions is provided below:
Inflation Rates: based on forecasts of an independent research firm.
Discount Rates: risk-free rates derived from the market yields on traded Commonwealth Treasury Bonds at 30 June 2016.
Claims Management Expenses: derived from past experience and breakdown of expenses.
Reinsurance Recoveries: based on expected recoveries from claims that have exceeded, or are estimated to exceed, the reinsurance retentions.
Superimposed Inflation: derived from actuarial modelling based on the long-term average of past experience.
Risk Margin: based on benchmark studies. Refer Note 18(b) for more detail.
Other Factors: such as Third Party Recoveries, Number of Claims, Average Claim Size, Average Term to Settlement, IBNR, Development of Case Estimates and Projected Case Estimates Payment Factors are based on past experience.
THIRD PARTY INSURANCE FUND (TPIF)
Outstanding claims estimates (including IBNR and IBNER) for the TPIF are assessed by an independent actuary. Ultimate numbers of claims are projected based upon past monthly data and the model allows for growth in the number of registered vehicles, seasonal variations in monthly experience, trends in claim frequency, and patterns in the delay of reporting. Payments experience is analysed based on past experience and projections of future claims payments. Cash flows are made based upon aggregate, individual and historic case estimate models. Separate predictions are made in respect of each combination of crash year and financial year of payment.
Actuarial Assumptions The following table provides key actuarial assumptions made in determining the outstanding claims liability:
Third Party Insurance Fund 2016 2015 Inflation Rate Varies from 2.8% for 2017, 3.0% for 2018, Varies from 2.5% for 2016, rising to 2.7% for 2.9% for 2019 and decreasing to 2.5% by 2021 2018, 2.9% for 2019 and thereafter gradually and thereafter gradually increasing to the long increasing to the long term rate of 4.5% by term rate of 4.5% by 2067 2066 Discount Rate Varies from 1.6% for 2017 and increasing to Varies from 2.0% for 2016 and 2017, 2.2% for 3.1% for 2029 and thereafter gradually 2018, 2.6% for 2019, increasing to 4.2% by increasing to the long term rate of 6.0% by 2028 and thereafter gradually increasing to 2067 the assumed long term rate of 6.0% by 2066 Claims Management Expenses 3.5% of gross claim payments 3.5% of gross claim payments Reinsurance Recoveries 1.0% of gross claim payments 1.5% of gross claim payments Superimposed Inflation Approximately 2.8% p.a. assumed although Approximately 2.9% p.a. assumed although this varies according to the different actuarial this varies according to the different actuarial models models Risk Margin 6.7% of central estimated liability for 75% 6.7% of central estimated liability for 75% probability of sufficiency probability of sufficiency Third Party Recoveries 0.05% of gross claim payments 0.06% of gross claim payments Number of Claims Approximately 3,100 for accident year Approximately 3,387 for accident year Average Claim Size Approximately $140,000 for accident year Approximately $135,000 for accident year Average Term to Settlement 4.0 years 3.3 years
INSURANCE COMMISSION ANNUAL REPORT 2016 106 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
35. ACTUARIAL ASSUMPTIONS AND METHODS (continued) COMPENSATION (INDUSTRIAL DISEASES) FUND (CIDF) As the claims for this fund are limited to pneumoconiosis, lung cancer, mesothelioma and diffuse pleural fibrosis resulting from exposure to harmful mineral dust, the models and valuation used are similar to those used for the ICGF workers' compensation lung disease claims. The following table provides the key actuarial assumptions made in determining the outstanding claims liability:
Compensation (Industrial 2016 2015 Diseases) Fund Inflation Rate Varies from 2.8% for 2017, 3.0% for 2018, Varies from 2.5% for 2016, rising to 2.7% for 2.9% for 2019 and decreasing to 2.5% by 2021 2018, 2.9% for 2019 and gradually increasing before gradually increasing to 3.1% in 2029 to 3.6% by 2028 Discount Rate Varies from 1.6% for 2017, 1.5% for 2018 and Varies from 2.0% for 2015 and increasing to gradually increasing to 3.1% for 2029 and later 4.3% for 2028 and later Claims Management Expenses 35.0% of gross claim payments 35.0% of gross claim payments Risk Margin 18.7% of net outstanding claims for 75% 18.7% of net outstanding claims for 75% probability of sufficiency probability of sufficiency Third Party Recoveries 18.0% of gross claim payments 31.0% of gross claim payments Average Term to Settlement 7.1 years 7.7 years GOVERNMENT INSURANCE FUND (GIF) Outstanding claims estimates including IBNR and IBNER are assessed by an independent actuary based on a number of actuarial models. The ultimate number of claims and their associated costs are projected on past yearly data used to determine trends in the anticipated reporting and payment patterns. As the GIF has been in a state of run-off since 1997, the remaining outstanding claims on which the Insurance Commission obtains actuarial valuations are the long-tail classes of Workersʼ Compensation and Public Liability. The following tables provide the key actuarial assumptions made in determining the outstanding claims liabilities:
Government Insurance Fund: 2016 2015 Workers' Compensation Inflation Rate Varies from 2.8% for 2017, 3.0% for 2018, Varies from 2.5% for 2016, rising to 2.7% for 2.9% for 2019 and decreasing to 2.5% by 2021 2018, 2.9% for 2019 and gradually increasing before gradually increasing to 3.1% in 2029 to 3.7% by 2030 Discount Rate Varies from 1.6% for 2017 and increasing to Varies from 2.0% for 2015 and increasing to 3.1% for 2029 and later 4.3% for 2030 and later 12.0% of net claim payments for non-asbestos 10.0% of net claim payments Claims Management Expenses liabilities, 10.0% of net claim payments for asbestos related liabilities Superimposed Inflation 2.0% p.a. assumed for payments per claim 2.0% p.a. assumed for payments per claim incurred for education and health components incurred for education, health and general and 0.0% p.a. assumed for payments per government components and 2.0% p.a. claim handled for government component assumed for payments per claim handled for education component Risk Margin 25.0% of central estimated liability for 75% 25.0% of central estimated liability for 75% probability of sufficiency probability of sufficiency Third Party Recoveries 5.0% of gross claim payments for 5.0% of gross claim payments for mesothelioma claims, 10.0% of gross claim mesothelioma claims, 10.0% of gross claim payments for lung cancer and other lung payments for lung cancer and other lung disease claims, and 10.0% of net claim disease claims, and 10.0% of net claim payments for other claims payments for other claims Average Term to Settlement 7.6 years 6.9 years
Government Insurance Fund: 2016 2015 Public Liability Inflation Rate Varies from 2.8% for 2017, 3.0% for 2018, Varies from 2.5% for 2016, rising to 2.7% for 2.9% for 2019 and decreasing to 2.5% by 2021 2018, 2.9% for 2019 and rising to 3.6% by before gradually increasing to 3.1% in 2029 2018 Discount Rate Varies from 1.6% for 2017 and increasing to Varies from 2.0% for 2016, 2.2% for 2018, 3.1% for 2029 and later 2.6% for 2019 and rising to 4.2% by 2028 Claims Management Expenses 6.0% of gross claim payments 6.0% of gross claim payments Superimposed Inflation 4.0% p.a for public liability 4.0% p.a for public liability Risk Margin 12.9% of central estimated liability for 75% 12.9% of central estimated liability for 75% probability of sufficiency probability of sufficiency Average Term to Settlement 3.2 years 2.4 years
107 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
35. ACTUARIAL ASSUMPTIONS AND METHODS (continued)
INSURANCE COMMISSION GENERAL FUND (ICGF)
The outstanding claims liability of the ICGF incorporates claims on policies in run-off pre 1987, claims made under the Employers Indemnity Supplementation Fund Act 1980 (EISF Act), and claims relating to inwards reinsurance which were transferred to the ICGF upon the closure of the State Government Insurance Corporation.
RUN-OFF CLAIMS LIABILITIES - PRE-1987
Outstanding liabilities for claims in run-off for the ICGF are assessed by an independent actuary using models applicable to the nature of the incident by which the liability under the fund has been incurred. Claims in the ICGF are assessed within the claims categories of Workers' Compensation and Public Liability. Workers' Compensation liabilities include those relating to common law risks and asbestos-related lung disease (which includes incidents of mesothelioma, lung cancer and other diseases of the respiratory system).
Workers' Compensation - Lung Disease Claims Lung disease claims are assessed using actuarial models based on those developed by Professor Geoffrey Berry ("Prediction of mesothelioma, lung cancer, and asbestosis in former Wittenoom asbestos workers", British Journal of Industrial Medicine; 48: 793- 802) utilising ICGF data. The models predict the total number of claims likely to emerge over time and also determine likely average cost per claim.
Workers' Compensation - Non-Lung Disease Claims The majority of these claims are extremely long-tail in nature and the actuarial models rely heavily on the case estimates of each claim to determine the total outstanding liabilities.
Public Liability The majority of these claims are extremely long-tail in nature and the actuarial models rely heavily on the case estimates of each claim to determine the total outstanding liabilities.
Actuarial Assumptions The following table provides key actuarial assumptions made in determining the outstanding claims liabilities:
Insurance Commission General 2016 2015 Fund Inflation Rate Varies from 2.8% for 2017, 3.0% for 2018, Varies from 2.5% for 2016, rising to 2.7% in 2.9% for 2019 and decreasing to 2.5% by 2021 2018, 2.9% in 2019 and gradually increasing before gradually increasing to 3.1% in 2029 to 3.6% by 2028 Discount Rate Varies from 1.6% for 2017 and increasing to Varies from 2.0% for 2016 and increasing to 3.1% for 2029 and later 4.2% for 2028 and later Claims Management Expenses 8.0% of gross claim payments 8.0% of gross claim payments Risk Margin 25.0% of net outstanding claims for 75% 25.0% of net outstanding claims for 75% probability of sufficiency probability of sufficiency Third Party Recoveries 44.0% of gross claim payments 42.0% of gross claim payments Average Term to Settlement 8.4 years 7.4 years
EISF ACT LIABILITIES
The outstanding liabilities for claims in run-off under the EISF Act are assessed by an independent actuary using models applicable to the nature of the incident by which the liability under the fund has been incurred. Claims under the EISF Act are assessed under the categories of asbestos-related claims (which includes incidents of mesothelioma, lung cancer and other diseases of the respiratory system) and non-asbestos-related claims.
Workers' Compensation - Asbestos-Related Claims Asbestos-related claims are assessed using actuarial models based on those developed by Professor Geoffrey Berry utilising ICGF data. The models predict the total number of claims likely to emerge over time and also determine likely average cost per claim.
Workers' Compensation - Non-Asbestos-Related Claims The majority of these claims are long-tail in nature and the actuarial models rely heavily on the case estimates placed on each claim to determine the total outstanding liabilities.
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35. ACTUARIAL ASSUMPTIONS AND METHODS (continued) 35. ACTUARIAL ASSUMPTIONS AND METHODS (continued)
Actuarial Assumptions Profit/(Loss) Compensation (Industrial Diseases) Fund The following tables provide key actuarial assumptions made in determining the outstanding claims liabilities: Increase/(Decrease) Net of EISF Act : Asbestos-Related 2016 2015 Reinsurance Claims Variable Change in and Other Inflation Rate 3.0% for 2017 and later 3.8% for 2016 and later Variable Recoveries Gross Discount Rate Varies from 1.6% for 2017, 1.5% for 2018 Varies from 2.0% for 2016 then up to 4.5% for % $'000 $'000 before gradually increasing to 3.4% for 2032 2031 and later Inflation +1 (166) (208) Claims Management Expenses 10.5% of claim payments 10.5% of claim payments Inflation -1 142 179 Discount +1 142 179 2.0% for 2016 and later 2.0% for 2015 and later Superimposed Inflation Discount -1 (166) (208) Risk Margin 20.4% of estimated gross liability 20.4% of estimated gross liability Superimposed Inflation +2 (351) (440) Increasing Base numbers of Mesothelioma Claims by 2 for over-65's and by 1 for EISF Act : Non-Asbestos-Related under-65's n/a (159) (253) 2016 2015 Claims Increasing Decay Rates in Annual Number of Future Mesothelioma Cases Reported every Future Year Inflation Rate 3.0% for 2017 and later 3.8% for 2016 and later +5 (225) (359) Increasing Base numbers of 'Other' Claims by 2 for over-65's and by 1 for under- Discount Rate Varies from 1.6% for 2017, 1.5% for 2018 Varies from 2.0% for 2016 then up to 4.5% for 65's n/a (669) (826) before gradually increasing to 3.4% for 2032 2031 and later Increasing Decay Rates in Annual Number of Future 'Other' Cases Reported every Claims Management Expenses 10.5% of claim payments 10.5% of claim payments Future Year +5 (572) (706) Superimposed Inflation 0% for 2016 and later 2.0% for 2015 and later Movement in Outstanding Risk Margin 16.8% of estimated gross liability 16.8% of estimated gross liability Government Insurance Fund: Workers' Compensation Claims Liability Net of INWARDS REINSURANCE Reinsurance Variable Change in and Other Due to the small size of the inwards reinsurance claims, an internal model is used to calculate the outstanding claims liability. Variable Recoveries Gross % $'000 $'000 SENSITIVITY ANALYSIS Inflation +1 3,000 3,100 Inflation -1 (2,500) (2,600) The tables below illustrate how changes in key assumptions would impact equity and profit after tax (assumed at a tax rate of 30%) Discount +1 (2,500) (2,600) gross and net of all recoveries except for: Discount -1 3,000 3,100 Number of Asbestos-Related Claims +20 6,000 6,200 Number of Asbestos-Related Claims -20 (6,000) (6,200) - The GIF is exempt from the National Tax Equivalent Regime and is indemnified by the Government of Western Australia via Development of Case Estimates a Right of Indemnity (refer Note 8), therefore changes in the actuarial assumption variables will have no impact at all upon +10 100 100 Development of Case Estimates profit. For disclosure purposes the impact upon outstanding claims liabilities is disclosed instead of impact upon after-tax -10 (100) (100) profit. Movement in Outstanding Government Insurance Fund: Liability - EISF Act liabilities are indemnified by WorkCover WA via a Right of Indemnity (refer Note 8), therefore changes in the Claims Liability actuarial assumption variables will have no impact at all upon profit after-tax. For disclosure purposes the impact upon Net of outstanding claims liabilities is disclosed instead of the impact upon after-tax profit. Reinsurance Variable Change in and Other Note that the impact of change in the variables upon outstanding claim liabilities moves in a direction opposite to the impact upon Variable Recoveries Gross profits. % $'000 $'000 Inflation +1 10 10 Inflation -1 (10) (10) Profit/(Loss) Third Party Insurance Fund Discount +1 (10) (10) Increase/(Decrease) Discount -1 10 10 Net of Development of Case Estimates +10 150 150 Reinsurance Development of Case Estimates -10 (90) (90) Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 (54,180) (54,460) Inflation -1 50,260 50,470 Discount +1 50,190 50,470 Discount -1 (55,230) (55,510) Superimposed Inflation +1 (19,250) (19,250) Superimposed Inflation -1 18,620 18,620 IBNR +10 (11,760) (11,690) IBNR -10 11,620 11,620 Development of Case Estimates +1 (32,130) (32,060) Development of Case Estimates -1 27,720 27,650 Projected Case Estimates (PCE) Payment Factors +1 2,240 2,240 Projected Case Estimates (PCE) Payment Factors -1 (2,450) (2,450) Shorten Projection of PCE Model to 16 years (from 20) -4 770 770 Lengthen Projection of PCE Model to 24 years (from 20) +4 (4,760) (4,690)
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35. ACTUARIAL ASSUMPTIONS AND METHODS (continued)
Profit/(Loss) Compensation (Industrial Diseases) Fund Increase/(Decrease) Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 (166) (208) Inflation -1 142 179 Discount +1 142 179 Discount -1 (166) (208) Superimposed Inflation +2 (351) (440) Increasing Base numbers of Mesothelioma Claims by 2 for over-65's and by 1 for under-65's n/a (159) (253) Increasing Decay Rates in Annual Number of Future Mesothelioma Cases Reported every Future Year +5 (225) (359) Increasing Base numbers of 'Other' Claims by 2 for over-65's and by 1 for under- 65's n/a (669) (826) Increasing Decay Rates in Annual Number of Future 'Other' Cases Reported every Future Year +5 (572) (706)
Movement in Outstanding Government Insurance Fund: Workers' Compensation Claims Liability Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 3,000 3,100 Inflation -1 (2,500) (2,600) Discount +1 (2,500) (2,600) Discount -1 3,000 3,100 Number of Asbestos-Related Claims +20 6,000 6,200 Number of Asbestos-Related Claims -20 (6,000) (6,200) Development of Case Estimates +10 100 100 Development of Case Estimates -10 (100) (100)
Movement in Outstanding Government Insurance Fund: Liability Claims Liability Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 10 10 Inflation -1 (10) (10) Discount +1 (10) (10) Discount -1 10 10 Development of Case Estimates +10 150 150 Development of Case Estimates -10 (90) (90)
INSURANCE COMMISSION ANNUAL REPORT 2016 110 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
35. ACTUARIAL ASSUMPTIONS AND METHODS (continued) Profit/(Loss) Insurance Commission General Fund: Workers' Compensation Increase/(Decrease) Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 (2,847) (5,195) Inflation -1 2,426 4,432 Discount +1 2,426 4,432 Discount -1 (2,847) (5,195) Superimposed Inflation +2 (6,047) (11,026) Increasing Base numbers of Mesothelioma Claims by 2 for over-65's and by 1 for under-65's n/a (2,974) (7,991) Increasing Decay Rates in Annual Number of Future Mesothelioma Cases Reported every Future Year +5 (6,094) (17,306) Increasing Base numbers of 'Non-CSR EI Lung' Claims by 2 for over-65's and by 1 for under-65's n/a (2,049) (2,345) Increasing Decay Rates in Annual Number of Future 'Non-CSR EI Lung' Cases Reported every Future Year +5 (11,827) (13,234) Profit/(Loss) Insurance Commission General Fund: Liability Increase/(Decrease) Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 (45) (46) Inflation -1 40 41 Discount +1 40 41 Discount -1 (45) (46) Superimposed Inflation +2 (92) (95) Movement in Outstanding EISF Act: Asbestos-Related Claims Claims Liability Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 1,131 1,236 Inflation -1 (1,010) (1,103) Discount +1 (1,075) (1,174) Discount -1 1,230 1,343 Superimposed Inflation +1 1,142 1,248 Superimposed Inflation -1 (1,019) (1,113) Number of Claim Lodgements +10 1,321 1,442 Number of Claim Lodgements -10 (1,321) (1,442) Average Claim Size +10 1,321 1,442 Average Claim Size -10 (1,321) (1,442) Claims Management Expenses +1 144 158 Claims Management Expenses -1 (144) (158) Movement in Outstanding EISF Act: Non-Asbestos-Related Claims Claims Liability Net of Reinsurance Variable Change in and Other Variable Recoveries Gross % $'000 $'000 Inflation +1 130 134 Inflation -1 (135) (138) Discount +1 (137) (140) Discount -1 134 137 Superimposed Inflation +1 120 123 Superimposed Inflation -1 (123) (126) Number of Claim Lodgements +10 168 172 Number of Claim Lodgements -10 (199) (203) Average Claim Size +10 168 172 Average Claim Size -10 (199) (203) Claims Management Expenses +1 19 20 Claims Management Expenses -1 (19) (20)
111 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
36. RISK MANAGEMENT POLICIES AND PROCEDURES
(a) GOVERNANCE FRAMEWORK
The Insurance Commission strives to achieve best practice in the management of risks that impact on the Insurance Commission, its customers, people, assets, finances, functions, reputation, objectives, operations and stakeholders.
The Insurance Commission is subject to a number of insurance contract risks and financial risks including market risk, liquidity risk, interest rate risk, foreign exchange risk and credit risk.
Management of risk forms a part of operational and supervisory responsibilities and is integrated into business planning cycles.
The Board and Executive have overall responsibility for risk management. The Insurance Commissionʼs Executive Committee determines and communicates Risk Management Policy, Objectives, Procedures and Guidelines and monitors its implementation, practice and performance. The Audit and Risk Committee of the Board has oversight of risk management and reports on a regular basis to the Board. Each business unit is responsible for identifying, analysing and assessing operational and strategic risks.
Internal Audit, which is provided by an independent external provider, assists in the identification, monitoring and evaluation of risk and gives assurance to the Audit and Risk Committee and Board of higher risk categories.
(b) EXTERNAL REGULATORY FRAMEWORKS AND CAPITAL MANAGEMENT
Unlike private insurers, the Insurance Commission is not subject to regulation by the Australian Prudential Regulatory Authority (APRA) due to the Insurance Act 1973 not being applicable to State Insurance.
Reporting by the Insurance Commission is subject to AASB Standards as amended by Treasurer's Instructions. Refer Note 1 (a). Many of the AASB standards mirror best practice requirements such as those incorporated in APRA guidelines. Where matters relevant to the Insurance Commission relate to APRA guidelines which are not covered by AASB Standards (such as APRA Prudential Capital Requirements), the Board will consider what risk mitigation practices may be required. The Insurance Commission considers its retained earnings as its core capital. A review of movements in capital is undertaken periodically and submitted to the Board for consideration.
(c) INSURANCE AND REINSURANCE CONTRACTS
(i) Objectives in Managing Risks arising from General Insurance Contracts and Policies for Mitigating those Risks
The Insurance Commission's activities primarily involve the issuing of insurance policies and managing claims. In doing this, the Insurance Commission seeks to minimise the cost of risk to the insured and to efficiently manage claims.
The Insurance Commission has a framework for the identification, assessment and management of risks. Key processes for the mitigation of risks faced in business operations of the Insurance Commission include:
- Use of information systems to provide up-to-date, reliable data on the risks to which the Insurance Commission is exposed. - Independent Actuarial assessments, are used to monitor claims trends, and develop statistical models to predict the outstanding claims liabilities for the various Funds. - The mix of assets and Investment Managers in which the Insurance Commission invests is driven by the nature and term of the insurance liabilities. Management monitors assets and liabilities to ensure claim payments can be met when required.
(ii) Concentration Risk
Third Party Insurance Fund (TPIF) A motor vehicle policy provides for an unlimited indemnity in respect to the death or bodily injury to any person directly caused by, or by the driving of, a Western Australian registered motor vehicle within the Commonwealth of Australia. Most of the risk, however, is concentrated within Western Australia.
Compensation (Industrial Diseases) Fund (CIDF) The CIDF has an exposure to concentration risk as it is restricted to one class of business and operates solely within Western Australia. This risk is mitigated by the surplus held by the Fund and the decreased exposure to harmful mineral dust in modern mining operations, resulting in lower incidence rates.
Government Insurance Fund (GIF) During the years that GIF contracts of insurance were being issued, exposure to significant concentration risk was mitigated by having a diversified portfolio across the large geographic area of Western Australia. As this fund has been in run-off for a considerable time, the concentration risk has increased as the majority of outstanding liabilities at the end of the reporting period arise from risks associated with common law liability and long-tail workersʼ compensation claims.
The Insurance Commission has secured an indemnification from the Government of Western Australia for Fund deficits from the run- off of the GIF.
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36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued) 36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
Insurance Commission General Fund (ICGF) The Board has overall responsibility for the establishment and oversight of the Insurance Commissionʼs risks for its investment During the years ICGF contracts of insurance were issued, exposure to significant concentration risk was mitigated by having a activities. diversified portfolio across the large geographic area of Western Australia. As this fund has been in run-off for a considerable time, the concentration risk has increased as the majority of outstanding liabilities at the end of the reporting period arise from risks associated The Insurance Commissionʼs investment portfolio is managed by a combination of external and internal investment managers. The with common law liability and long-tail workersʼ compensation claims. Investments Division is responsible for managing Direct Property, a portion of Fixed Interest and Cash portfolios. Managers with discrete portfolios have investment mandates which set out risk parameters restricting their investment activities. Managers of pooled To mitigate the risk contained in the ICGF, the majority of which stems from the common law liability resulting from asbestos mining investment vehicles are selected having regard to the risk parameters of each Trust Deed. activities at Wittenoom between 1943 and 1966, a Deed of Agreement has been entered into between the Insurance Commission, CSR Limited and Midalco Pty Ltd providing the Insurance Commission with a reimbursement for a set proportion of losses incurred Compliance monitoring is undertaken on a daily basis by the external Custodian. The Custodian reports to the Investments Division on from these activities. compliance of discrete portfolios with respect to each individual investment mandate. This includes compliance with authorised investments, limits on allocations relating to the size of individual investments, issuers or sectors and credit rating requirements as set Employersʼ Indemnity Supplementation Fund (EISF) out in the PGIs. Any findings/breaches are immediately confirmed with the external investment manager and steps are taken to rectify. At the end of the reporting period, all claims made against the Insurance Commission under the EISF Act result from insurance All material compliance incidents are reported to the Audit and Risk Committee. contracts restricted to risks associated with the workersʼ compensation class of business and as a result there is considerable concentration risk. This risk is mitigated by a requirement under the EISF Act that the Insurance Commission has a right of External investment managers provide the Investments Division with a Risk Management Statement which sets out their processes reimbursement from WorkCover WA for all costs associated with the run-off of claims under this Fund. and procedures for managing derivatives. Derivatives are not used in the internally managed investment portfolios.
(iii) Development of Outstanding Claims Liability Each external investment manager is requested on an annual basis to provide the Investments Division with an audit sign-off relating to adherence with its internal policies and procedures. The Insurance Commissionʼs internal auditors review the policies and Given that the majority of insurance contracts under the management of the Insurance Commission deal with classes of insurance procedures relating to internally managed investment portfolios. where the estimate of liability is subject to material change following the close of the contract period, Claims Development Tables have been provided in Note 18(d) which detail outstanding claims estimates for underwriting years at successive year-ends. All investment managers are required to meet performance targets based on market indices (benchmarks) for their respective asset classes. The Investments Division continually monitors (qualitatively and quantitatively) the performance of all managers including its To ensure the adequacy of outstanding claims provisions, all active claims have estimates placed by a Claims Officer, and own performance. independent actuaries review the outstanding claims provisions at least annually. The Insurance Commission has adopted a prudential margin which is sufficient to achieve a 75% level of adequacy based solely on liability risk (i.e. with no allowance for asset (i) Market Risk risk, or asset returns above risk-free rates). The central claims estimate is first discounted to present value using risk-free rates. The prudential margin is then added to this to arrive at the provision for outstanding claims liability. Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the Insurance Commissionʼs income or the value of its holdings of financial instruments. Market risk comprises three types of risk: Nevertheless the provision for outstanding claims liability is subject to significant uncertainty, related to: currency risk (due to fluctuations in foreign exchange rates); interest rate risk (due to fluctuations in market interest rates); and price risk (due to fluctuations in market prices). The objective of market risk management is to manage and control market risk exposures - Future trends in claim frequency; within acceptable parameters while optimising the return on investments. - Future changes in social and judicial attitudes; - Changes in legislation; and Currency Risk - Changes in economic conditions (e.g. inflation, investment returns). The Insurance Commission is exposed to currency risk of net foreign currency exposures, and is managed as follows:
(iv) Financial Risk - A currency overlay is used to passively hedge 50% (2015: 50%) core Global Equities exposures. - Where possible, unit trust investments domiciled in Australian dollars are utilised. The Insurance Commission is subject to insurance contract risks and a number of key financial risks which include market risk, liquidity risk, interest rate risk, foreign exchange risk and credit risk. The Investments Division is responsible for providing the currency overlay manager with updated portfolio values to be hedged.
To minimise exposure to these risks, which can affect assets and liabilities backing insurance contracts, the Insurance Commissionʼs The effectiveness of the currency management processes and the related use of derivatives are actively monitored by the Chief investment decisions are undertaken in accordance with Prudential Guidelines for Investments (PGIs) approved by the Treasurer of Investment Officer and the external Custodian. Western Australia. The analysis below demonstrates the impact on profit after tax (assumed at a tax rate of 30%) and equity of a movement in foreign (d) FINANCIAL RISK MANAGEMENT currency exchange rates against the Australian dollar on major currency exposures within the investment portfolio at the end of the reporting period. The analysis shows the total currency exposure before the currency hedge overlay (where applicable) has been The Insurance Commissionʼs investment portfolio consists of financial instruments which include quoted and non-quoted Alternative applied: Assets, Equity, Fixed Interest, Property and Cash investments. These investments are managed in accordance with the PGIs. Profit/(Loss) and Equity Exposure Change in Variable The PGIs clearly set out the authorised investments which the Insurance Commission may hold in its investment portfolio along with Increase/(Decrease) minimum credit rating requirements for Cash, Fixed Interest and over-the-counter derivative instruments. The PGIs set out the 2016 2015 2016 2015 2016 2015 Insurance Commissionʼs investment powers, asset allocation and manager configuration. $'000 $'000 % % $'000 $'000 +20 +20 70,993 64,507 United States Dollars 507,095 460,767 The Board, in consultation with its independent asset consultant and input from the Investments Division, determines investment -20 -20 (70,993) (64,507) +20 +20 11,783 9,593 strategy, asset allocation mix, investment manager configuration and recommends investment manager appointments to the WA Great British Pounds 84,165 68,522 Treasurer. The allocation of assets between the various types of financial instruments is determined so as to achieve the Insurance -20 -20 (11,783) (9,593) +20 +20 8,764 10,031 Commission's investment objectives. Divergence from target asset allocations and the composition of the portfolio is monitored by the Euros 62,601 71,651 Chief Investment Officer. -20 -20 (8,764) (10,031) +20 +20 5,550 5,472 Japanese Yen 39,638 39,084 The Insurance Commissionʼs investing activities expose it to market risk, credit risk and liquidity risk from its use of financial -20 -20 (5,550) (5,472) +20 +20 4,195 13,763 instruments. Hong Kong Dollars 29,966 98,311 -20 -20 (4,195) (13,763) +20 +20 2,958 5,676 South Korean Won 21,123 40,546 -20 -20 (2,958) (5,676)
These figures are inclusive of RiskCover Fund's share of the investment pool of the Insurance Commission. The RiskCover Fund's share is offset by a liability in the accounts of the Insurance Commission. Refer Notes 3 and 17.
113 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
The Board has overall responsibility for the establishment and oversight of the Insurance Commissionʼs risks for its investment activities.
The Insurance Commissionʼs investment portfolio is managed by a combination of external and internal investment managers. The Investments Division is responsible for managing Direct Property, a portion of Fixed Interest and Cash portfolios. Managers with discrete portfolios have investment mandates which set out risk parameters restricting their investment activities. Managers of pooled investment vehicles are selected having regard to the risk parameters of each Trust Deed.
Compliance monitoring is undertaken on a daily basis by the external Custodian. The Custodian reports to the Investments Division on compliance of discrete portfolios with respect to each individual investment mandate. This includes compliance with authorised investments, limits on allocations relating to the size of individual investments, issuers or sectors and credit rating requirements as set out in the PGIs. Any findings/breaches are immediately confirmed with the external investment manager and steps are taken to rectify. All material compliance incidents are reported to the Audit and Risk Committee.
External investment managers provide the Investments Division with a Risk Management Statement which sets out their processes and procedures for managing derivatives. Derivatives are not used in the internally managed investment portfolios.
Each external investment manager is requested on an annual basis to provide the Investments Division with an audit sign-off relating to adherence with its internal policies and procedures. The Insurance Commissionʼs internal auditors review the policies and procedures relating to internally managed investment portfolios.
All investment managers are required to meet performance targets based on market indices (benchmarks) for their respective asset classes. The Investments Division continually monitors (qualitatively and quantitatively) the performance of all managers including its own performance.
(i) Market Risk
Market risk is the risk that changes in market prices, such as interest rates, foreign exchange rates and equity prices will affect the Insurance Commissionʼs income or the value of its holdings of financial instruments. Market risk comprises three types of risk: currency risk (due to fluctuations in foreign exchange rates); interest rate risk (due to fluctuations in market interest rates); and price risk (due to fluctuations in market prices). The objective of market risk management is to manage and control market risk exposures within acceptable parameters while optimising the return on investments.
Currency Risk The Insurance Commission is exposed to currency risk of net foreign currency exposures, and is managed as follows:
- A currency overlay is used to passively hedge 50% (2015: 50%) core Global Equities exposures. - Where possible, unit trust investments domiciled in Australian dollars are utilised.
The Investments Division is responsible for providing the currency overlay manager with updated portfolio values to be hedged.
The effectiveness of the currency management processes and the related use of derivatives are actively monitored by the Chief Investment Officer and the external Custodian.
The analysis below demonstrates the impact on profit after tax (assumed at a tax rate of 30%) and equity of a movement in foreign currency exchange rates against the Australian dollar on major currency exposures within the investment portfolio at the end of the reporting period. The analysis shows the total currency exposure before the currency hedge overlay (where applicable) has been applied:
Profit/(Loss) and Equity Exposure Change in Variable Increase/(Decrease) 2016 2015 2016 2015 2016 2015 $'000 $'000 % % $'000 $'000 +20 +20 70,993 64,507 United States Dollars 507,095 460,767 -20 -20 (70,993) (64,507) +20 +20 11,783 9,593 Great British Pounds 84,165 68,522 -20 -20 (11,783) (9,593) +20 +20 8,764 10,031 Euros 62,601 71,651 -20 -20 (8,764) (10,031) +20 +20 5,550 5,472 Japanese Yen 39,638 39,084 -20 -20 (5,550) (5,472) +20 +20 4,195 13,763 Hong Kong Dollars 29,966 98,311 -20 -20 (4,195) (13,763) +20 +20 2,958 5,676 South Korean Won 21,123 40,546 -20 -20 (2,958) (5,676)
These figures are inclusive of RiskCover Fund's share of the investment pool of the Insurance Commission. The RiskCover Fund's share is offset by a liability in the accounts of the Insurance Commission. Refer Notes 3 and 17.
INSURANCE COMMISSION ANNUAL REPORT 2016 114 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
Interest Rate Risk The Insurance Commission invests in short and long-dated fixed interest securities. Cash and cash equivalents are invested in short- term securities with a maturity of less than one year.
The analysis below demonstrates the impact on profit after tax (assumed at a tax rate of 30%) and equity of movements in interest rates in relation to the base value of interest-bearing investments: Profit/(Loss) and Equity Exposure Change in Variable Increase/(Decrease) 2016 2015 2016 2015 2016 2015 $'000 $'000 % % $'000 $'000 +1 +1 20 15 Cash and Cash Equivalent 4,174 2,123 -1 -1 (20) (15) Investments - Current +1 +1 98 98 Fixed Interest Bonds 14,000 14,000 -1 -1 (98) (98) +1 +1 (143) (150) Fixed Interest Unit Trusts 156,658 154,062 -1 -1 143 150 +1 +1 10,935 7,043 Cash and Cash Equivalent 1,562,222 1,006,137 -1 -1 (10,935) (7,043) Investments - Non-Current +1 +1 - (1,291) Fixed Interest Term Deposits - 118,288 -1 -1 - 1,325
Fixed Interest Term Deposits with a maturity up to 12 months are held at cost plus accrued interest. The interest rate on these Term Deposits is fixed, a fluctuation in the prevailing level of market interest rates will have no impact on profit after tax and movements in equity and therefore these have been excluded from the Investments - Current section of the above table.
These figures are inclusive of RiskCover Fund's share of the investment pool of the Insurance Commission. RiskCover Fund's share is offset by a liability in the accounts of the Insurance Commission. Refer Notes 3 and 17.
Price Risk Price risk is the risk that the value of the instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate or currency risk), whether caused by factors specific to the individual investment, its issuer, or other factors broadly affecting all instruments in the market. Since the majority of investments are reported at fair value, a change in market conditions will directly affect net investment income.
Price risk is mitigated by the Insurance Commission holding a diversified investment portfolio. Diversification is achieved across instruments, issuers, asset classes, geographies and investment managers.
At 30 June 2016, 33.2% (2015: 35.7%) of the Insurance Commissionʼs investment assets were listed equities and 16.9% (2015: 15.8%) were unlisted trusts. The analysis below demonstrates the impact on profit after tax (assumed at a tax rate of 30%) and equity of movements in the price of listed equities and unlisted trusts:
Profit/(Loss) and Equity Exposure Change in Variable Increase/(Decrease) 2016 2015 2016 2015 2016 2015 $'000 $'000 % % $'000 $'000 +20 +20 106,565 98,676 ASX 761,175 704,827 -20 -20 (106,565) (98,676) +20 +20 37,858 49,370 Dow Jones 270,416 352,645 -20 -20 (37,858) (49,370) +20 +20 18,716 14,440 NASDAQ 133,684 103,140 -20 -20 (18,716) (14,440) MSCI Emerging Market Future +20 +20 12,760 - 91,138 - Index -20 -20 (12,760) - +20 +20 11,389 9,468 FTSE 81,351 67,627 -20 -20 (11,389) (9,468) +20 +20 5,349 5,471 Tokyo 38,208 39,077 -20 -20 (5,349) (5,471) +20 +20 5,203 2,941 SIX Swiss Exchange 37,165 21,011 -20 -20 (5,203) (2,941) +20 +20 4,155 13,651 Hong Kong 29,677 97,506 -20 -20 (4,155) (13,651) +20 +20 104,563 96,914 Unlisted Trusts 746,880 692,241 -20 -20 (104,563) (96,914)
115 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
The figures shown are inclusive of the RiskCover Fund's share of the investment pool of the Insurance Commission. The RiskCover Fund's share is offset by a liability in the accounts of the Insurance Commission. Refer Notes 3 and 17.
(ii) Credit Risk
Credit risk refers to the risk that a counterparty to a financial instrument will default on its contractual obligations resulting in financial loss to the Insurance Commission. The Insurance Commissionʼs credit policy is contained in the PGIs and sets out the minimum credit rating requirements for cash, fixed interest and over-the-counter derivatives. Credit risk in these securities is mitigated by predominantly investing in rated instruments issued by rated counterparties with credit ratings of at least 'A2-' or better as determined by Standard and Poor's for securities up to 12 months maturity and 'A-' for securities more than 12 months to maturity.
The credit ratings of securities in the Australian fixed interest portfolios are monitored daily by the Custodian to ensure compliance with the PGIs. Breaches are reported to the Investments Division. The average credit rating of holdings within the overseas fixed interest unit trust is monitored quarterly by the Investments Division. Breaches of the credit rating policy are rectified immediately. All credit rating breaches are reported to the Audit and Risk Committee.
Emerging market fixed interest securities are restricted to 20% of the total overseas fixed interest exposure and must be securities issued by Sovereign Governments with a credit rating of at least ʻBB-ʻ or better as determined by Standard and Poor's or Moody's.
Credit risk arising on transactions with brokers is managed by investment managers. The investment managers minimise concentration risk by transacting with numerous brokers.
The Insurance Commission has the following significant credit risk exposures to single counterparties with similar characteristics: National Australian Bank 16%; Commonwealth Bank 15%. The Insurance Commission also has 74.6% (2015: 70%) of its recognised investments in Australia.
The carrying amount of the Insurance Commission's investments is the best representation of the maximum credit risk exposure.
The following table relates to the market values of officially rated bonds, short-term discount securities, deposits at call and debtors in respect of unsettled transaction trades as per Standard and Poor's ratings. AAA is the highest possible rating. Rated assets falling outside the range of AAA to BBB are classified as speculative grade. The table excludes listed and unlisted equities, non-fixed interest unit trusts and alternative assets which are subject to market risk rather than credit risk. In addition, this table excludes reinsurance and other recoveries which are shown separately later in this Note. Right of Indemnities (refer Note 8) related to government agencies are also excluded from this analysis.
2016 2015 $'000 $'000 AA+ to AA- ratings 124,000 132,288 A1 to A2 (short-term) rating 1,562,222 1,006,137 Credit Risk Exposure 1,686,222 1,138,425
Insurance and Reinsurance related Credit Risk The Insurance Commission also has exposure to credit risk for the reinsurance and other recovery arrangements in which it enters to offset insurance contract risk. The Insurance Commission reinsures to protect capital and reduce volatility in the event of catastrophic loss. The strategy used for the selection, approval and monitoring of reinsurance arrangements is as follows:
- Reinsurance is approved and placed in accordance with Board delegations and authorisations, which include minimum financial credit ratings for reinsurance counterparties. - The Department of Treasury endorse the retention limits and the limit of reinsurance cover purchased for the RiskCover Fund. - Reinsurance arrangements are reviewed annually to monitor their effectiveness and suitability of coverage, based on historical losses and the potential for future losses. The financial capacity of the Funds to withstand loss and the cost of reinsurance protection are factors taken into account in determining the level of risk retention. - The credit quality of current and past reinsurance counterparties is actively monitored.
INSURANCE COMMISSION ANNUAL REPORT 2016 116 2 2 4 17 23 714 Total 1,481 1,498 37,983 38,290 152,474 ssifies the assets - - 8 ose which cannot be tralian Taxation Office on claims already paid 3,004 1,238 1,230 3,004 6,548 192,976 2,306 Grade Speculative Speculative - - - - 695 BBB+ 34,544 34,544 - - - - CONSOLIDATED 2016 ($'000) CONSOLIDATED ------4 ------2 ------9 42 19 23 AAA AA+ to AA- A+ to A- 435 251 742 260 242 128,057 12,465 10,667 35,239 127,036 12,465 10,667 RISK MANAGEMENT POLICIES AND PROCEDURES (continued) POLICIES AND RISK MANAGEMENT - Public Liability - Public Liability Claims Asbestos-Related Act: EISF - Claims Non-Asbestos-Related Act: EISF - - Workers'- Compensation - Workers'- Compensation NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FORMING OF FINANCIAL THE NOTESTOAND PART 36. and on claims whichaccording remained to outstanding Standard at and Poor'sreliably the counterparty rated, end credit such of ratings. as AAA the as AAA rating. been classified have all estimates is reporting of the period, highest unknown but possible third not rating. party yet Ratings recoveries, 'invoiced' that are fall or outside classified claimed the as from range the speculative AAA relevant grade. to party. BBB Input and The th tax analysis credits cla recoverable from the Aus Recoveries Other and Reinsurance Total Compensation (Industrial Diseases) Fund Diseases) (Industrial Compensation Recoveries and Other Reinsurance Total GIF Fund General Commission Insurance Recoveries and Other Reinsurance Total ICGF Reinsurance and Other Recoveries and Other Reinsurance Fund Insurance Party Third Government Insurance Fund Insurance Government The following tables provide information about the quality of the Insurance Commission's credit risk exposure for reinsurance and other recoveries
117 INSURANCE COMMISSION ANNUAL REPORT 2016 25 50 31 999 244 Total 2,332 2,301 31,003 30,684 149,564 183,898 ------9 2,042 1,818 1,818 3,720 2,051 7,589 Grade Speculative Speculative
------986 BBB 28,480 28,480 29,466
------2015 ($'000) 14,576 14,576
------10,938 10,938
- 50 13 25 22 AAA AA+ to AA- A+ to A- 259 386 705 244 281 121,329 120,330
RISK MANAGEMENT POLICIES AND PROCEDURES (continued) POLICIES AND RISK MANAGEMENT - Workers'- Compensation - Workers'- Compensation - Public Liability - Inwards Reinsurance Inwards - - EISF Act: Asbestos-Related Claims Asbestos-Related Act: EISF - Claims Non-Asbestos-Related Act: EISF - - Public Liability NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FORMING OF FINANCIAL THE NOTESTOAND PART 36. Compensation (Industrial Diseases) Fund Diseases) (Industrial Compensation Recoveries and Other Reinsurance Total GIF Fund General Commission Insurance Recoveries and Other Reinsurance Total ICGF Recoveries Other and Reinsurance Total Reinsurance and Other Recoveries and Other Reinsurance Fund Insurance Party Third Fund Insurance Government
INSURANCE COMMISSION ANNUAL REPORT 2016 118 2 2 98 261 256 361 Total Total 8,995 9,253 - - 1 83 81 ecoveries on paid claims
7 8- 1 11 12 105 1 Year * Impaired 1 Year * Impaired Greater than than Greater than Greater
- - - 5 5 6 to 12 6 to 12 6 to Months Months 2016 ($'000) 2015 ($'000)
- - - 20 20 3 to 6 3 to 6 3 to Months Months Past Due but Not Impaired Not Due but Past Impaired Not Due but Past
----1 33 131 131 0 to 3 0 to 3 0 to 8,994 9,027 Months Months
- ---9 - ----2 ------1 42 187 Due nor nor Due nor Due Impaired Impaired Neither Past Past Neither Past Neither
RISK MANAGEMENT POLICIES AND PROCEDURES (continued) POLICIES AND RISK MANAGEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FORMING OF FINANCIAL THE NOTESTOAND PART 36. The following table providesimpaired. due nor past neither are Assets Financial other further All period. reporting end of the the at information about the ageing of amounts 'invoiced' and receivable for premium debtors, reinsurance and other r Fund Insurance Party Third Fund Diseases) (Industrial Compensation Fund Insurance Government Fund General Commission Insurance due ($1,320). past 1 year than greater is receivable Fund impaired Diseases) (Industrial *Compensation Total 42 *Compensation (Industrial Diseases) Fund impaired receivables are greater than 1 year past due ($1,650). past 1 year than greater are receivables Fund impaired Diseases) (Industrial *Compensation overdue. 1 year than less are receivables Fund impaired General commission Insurance *All Fund Insurance Party Third Fund Diseases) (Industrial Compensation Fund Insurance Government Fund General Commission Insurance 188 Total
119 INSURANCE COMMISSION ANNUAL REPORT 2016 2 2
98 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 261 256 361 Total Total 8,995 9,253 36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
(iii) Liquidity Risk
Liquidity risk refers to the risk that the Insurance Commission will not be able to meet its financial obligations as they fall due. - - 1 81 83 The Cash Portfolio is managed to meet the day-to-day liquidity requirements of the insurance business. The target cash allocation is ecoveries on paid claims 8% of the total portfolio. Cash flows are monitored daily. Cash requirements are met by redeeming investments with the Insurance Commissionʼs Equity and/or Fixed Interest managers. These securities are considered to be liquid.
At 30 June 2016, the mean term to maturity of the Cash Portfolio was 96 days (2015: 128 days). 7 1 8- 11 12 The following tables detail the maturity profile of the Insurance Commission's gross undiscounted outstanding claims liability and 105 certain other key financial liabilities, at the end of the reporting period: 1 Year * Impaired 1 Year * Impaired
2016 ($'000)
Greater than than Greater than Greater Maturity in
Less than 1 to 2 2 to 5 More than 1 Year Years Years 5 Years Total - - - 5 5 Outstanding Claims Liability Third Party Insurance Fund 464,883 408,713 752,040 640,430 2,266,066 6 to 12 6 to 12 6 to Months Months Compensation (Industrial Diseases) Fund 663 471 978 2,591 4,703 2016 ($'000) 2015 ($'000)
Government Insurance Fund - Workers' Compensation 3,531 3,243 9,221 27,823 43,818 - - - 20 20 - Public Liability 81 63 115 91 350
3 to 6 3 to 6 3 to GIF Total Outstanding Claims Liability 3,612 3,306 9,336 27,914 44,168 Months Months Insurance Commission General Fund - Workers' Compensation 9,388 8,106 20,582 66,438 104,514 Past Due but Not Impaired Not Due but Past Impaired Not Due but Past
- Public Liability 104 94 231 637 1,066 - EISF Act: Asbestos-Related Claims 1,767 802 2,381 9,820 14,770 ----1
33 - EISF Act: Non-Asbestos-Related Claims 246 218 581 11,479 12,524 131 131
0 to 3 0 to 3 0 to - Inwards Reinsurance 241 ---241 8,994 9,027
Months Months ICGF Total Outstanding Claims Liability 11,746 9,220 23,775 88,374 133,115
Total Insurance Commission Outstanding 480,904 421,710 786,129 759,309 2,448,052
Claims Liability ------9 ------2 ------1
42 Other Financial Liabilities 187 Payables 27,940 - - - 27,940
Due nor nor Due nor Due Financial Liabilities - RiskCover Investments 921,541 - - - 921,541 Impaired Impaired Total 1,430,385 421,710 786,129 759,309 3,397,533 Neither Past Past Neither Past Neither
RISK MANAGEMENT POLICIES AND PROCEDURES (continued) POLICIES AND RISK MANAGEMENT NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FORMING OF FINANCIAL THE NOTESTOAND PART 36. Total 42 Third Party Insurance Fund Insurance Party Third Fund Diseases) (Industrial Compensation Fund General Commission Insurance The following table provides impaired. due nor past neither are Assets Financial other further All period. reporting end of the the at information about the ageing of amounts 'invoiced' and receivable for premium debtors, reinsurance and other r Fund Insurance Government due ($1,320). past 1 year than greater is receivable Fund impaired Diseases) (Industrial *Compensation Total 188 Total *Compensation (Industrial Diseases) Fund impaired receivables are greater than 1 year past due ($1,650). past 1 year than greater are receivables Fund impaired Diseases) (Industrial *Compensation overdue. 1 year than less are receivables Fund impaired General commission Insurance *All Fund Insurance Party Third Fund Diseases) (Industrial Compensation Fund Insurance Government Fund General Commission Insurance
INSURANCE COMMISSION ANNUAL REPORT 2016 120 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
36. RISK MANAGEMENT POLICIES AND PROCEDURES (continued)
2015 ($'000) Maturity in Less than 1 to 2 2 to 5 More than 1 Year Years Years 5 Years Total Outstanding Claims Liability Third Party Insurance Fund 483,376 429,909 755,144 508,996 2,177,425
Compensation (Industrial Diseases) Fund 418 343 838 2,734 4,333
Government Insurance Fund - Workers' Compensation 4,375 3,877 10,674 29,438 48,364 - Public Liability 216 166 303 246 931 GIF Total Outstanding Claims Liability 4,591 4,043 10,977 29,684 49,295
Insurance Commission General Fund - Workers' Compensation 8,752 7,657 19,470 59,957 95,836 - Public Liability 121 109 267 737 1,234 - EISF Act: Asbestos-Related Claims 1,339 766 2,415 11,983 16,503 - EISF Act: Non-Asbestos-Related Claims 302 270 734 2,055 3,361 - Inwards Reinsurance 246 - - - 246 ICGF Total Outstanding Claims Liability 10,760 8,802 22,886 74,732 117,180
Total Insurance Commission Outstanding 499,145 443,097 789,845 616,146 2,348,233 Claims Liability
Other Financial Liabilities Payables 24,852 - - - 24,852 Financial Liabilities - RiskCover Investments 849,102 - - - 849,102 Total 1,373,099 443,097 789,845 616,146 3,222,187
37. EVENTS OCCURRING AFTER THE REPORTING PERIOD
On 1 July 2016, motor injury insurance was expanded to ensure that all people catastrophically injured in motor vehicle crashes in Western Australian from this date are covered for necessary and reasonable treatment, care and support. To cater for this expanded insurance cover, a new Motor Vehicle (Catastrophic Injuries) Fund has been established.
On 20 July 2016, the Insurance Commission settled the sale of Westralia Plaza. The sale price of $87 million was reflected as the asset value at 30 June 2016, therefore no further adjustment to the financial statements is required.
121 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
38. RISKCOVER FUND FINANCIAL DISCLOSURES
The Government of Western Australia adopted a Managed Fund approach to administer insurable risks of its participating public authorities on a self-insurance basis. The RiskCover Fund is underwritten by the Government of Western Australia, and is managed by the Insurance Commission on behalf of the Government and its participating public authorities. The Insurance Commission has been appointed to manage the RiskCover Fund on the basis of a rolling three-year notification of termination period.
The Insurance Commission recovers its costs of the proportion of the Insurance Commission's services used by the RiskCover Fund.
Except as stated below, the significant accounting policies adopted in preparing the RiskCover Fund's financial statements are consistent with those used in preparing the Insurance Commission's financial statements. Refer Note 1.
As the RiskCover Fund is a State Government self-insurance vehicle, it is not bound by AASB 1023, 'General Insurance Contracts' or by the requirements of the Australian Prudential Regulatory Authority (APRA).
In determining the outstanding claims liability the RiskCover Fund follows the requirements of AASB 137 'Provisions, Contingent Liabilities and Contingent Assets'. Like AASB 1023 this standard also requires the use of a risk-free discount factor when determining the outstanding claims liability however it differs significantly in that it does not require the inclusion of a prudential margin.
In 2006, the State Government Expenditure Review Committee authorised the RiskCover Fund to maintain a separate Prudential Reserve equivalent in value to an APRA prudential margin sufficient to achieve a 75% likelihood of adequacy for the provision for outstanding claims.
The RiskCover Fund's assets are not owned by the Insurance Commission and are therefore not consolidated. The investment assets of the RiskCover Fund are, however, included in the investment pool of the Insurance Commission, represented by a Floating Rate Promissory Note. Refer Note 17. The RiskCover Fund earns an investment return or shares investment losses in proportion to its share of the investment pool of the Insurance Commission. Refer Note 5.
Any retained earnings or losses in the RiskCover Fund represent an asset or liability of the Government of Western Australia and not of the Insurance Commission.
The RiskCover Fund is not liable to pay income tax equivalents under current arrangements with the Department of Treasury.
REFERENCES TO THE RISKCOVER FUND FINANCIAL STATEMENTS (Refer Note 3)
(a) Premium Revenue When determining the premiums for the Workers' Compensation and Liability classes, the RiskCover Fund relies on claims costs that have been actuarially assessed at the net central estimate.
Premiums initially charged to client agencies at the beginning of each year for the Workers' Compensation and Motor Vehicle classes represent premium deposits. These premiums are subject to adjustment at a later date (two years after the close of the risk period for Workers' Compensation and at the end of the risk period for Motor Vehicle) to take into account the forecast ultimate claims costs, claims administration expenses and associated investment income outcomes as these develop for each cover year. This adjustment enables rewards and sanctions to be applied to agency performance.
The performance adjustment settled with agencies during the 2015-16 year was a charge of $3.1 million (2015: $21.1 million). The 2014-15 premium revenue has been reclassified from $332.1 million to $311.0 million to more accurately reflect the performance adjustment settled with agencies which was provided for in prior year accounts and the premium charged for the current year.
(b) Premium Adjustment Total outstanding premiums are recalculated periodically based on new actuarial data. The updated data allows for a re- estimation of the outstanding premium receivable from or payable to client agencies for all unadjusted years. Premium adjustment reflects the movement in this premium receivable or payable. In 2016, outstanding premium payable to agencies increased by $47.3 million (2015: $33.3 million). This represents continuing improvement of claims experience in the Workers' Compensation class. The 2015 premium adjustment has been reclassified from -$54.5 million to -$33.3 million to remove the portion attributable to the performance adjustment settled during the year, that was previously accounted for in prior years premium revenue, as detailed in the above note. (c) Investments
Represented by a Floating Rate Promissory Note owed to the RiskCover Fund by the Insurance Commission. Refer Note 17.
INSURANCE COMMISSION ANNUAL REPORT 2016 122 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
38. RISKCOVER FUND FINANCIAL DISCLOSURES (continued)
REFERENCES TO THE RISKCOVER FUND FINANCIAL STATEMENTS (continued)
(d) Outstanding Claims 2016 2015 $'000 $'000
Central Estimate 580,026 636,090 Discount to Present Value (36,139) (57,107) 543,887 578,983 Claims Handling Costs 51,475 55,024 Liability for Outstanding Claims (discounted) 595,362 634,007
Current 207,079 211,718 Non-Current 388,283 422,289 595,362 634,007
Weighted Average Expected Term to Settlement: Workers' Compensation 2 yrs 7 mths 2 yrs 7 mths Liability Classes 4 yrs 7 mths 4 yrs 7 mths
In addition to the long-tail classes of Workers' Compensation and Liability, the RiskCover Fund also has short-tail liabilities for Property and Business Interruption, Motor Vehicle, Personal Accident, and Travel risks. These short-tail liabilities are assessed by an actuary and total $41.3 million at the end of the reporting period (2015: $37.5 million).
Inflation and Discount Rates
The following rates were used in measuring the liability for long-tail outstanding claims, reinsurance and other recoveries at 30 June 2016 for the RiskCover Fund:
% Rates Used - 2016 % Rates Used - 2015 Year Ending Subsequent Year Ending Subsequent 30 June 2017 Years 30 June 2016 Years Workers' Compensation Inflation Rate (Wage) 2.8 2.5 to 4.5 2.5 2.5 Total Inflation* 2.8 2.5 to 4.5 2.5 2.5 Discount Rate 1.6 1.5 to 6.0 2.0 2.0
Liability Inflation Rate (Wage) 2.8 2.5 to 3.5 2.5 2.5 Superimposed Inflation 4.0 4.0 4.0 4.0 Total Inflation* 6.8 6.5 to 7.5 6.5 6.5 Discount Rate 1.6 1.5 to 4.1 2.0 2.0
* The total inflation rate is determined by compounding the wage and superimposed inflation rates.
The actual future discount and wage inflation rates used in the actuarial projections are the same for both long-tail outstanding claims and reinsurance and other recoveries in each of the 2016 and 2015 years.
(e) Claims Recoveries Written-Off
Recoveries arise from instances where the RiskCover Fund seeks to recover the costs of a claim paid from a third party or the insured.
In accordance with Australian Accounting Standards, recoveries receivable are assessed against the ability of the debtor to meet their obligations. These recoveries have not been brought to account as revenue because the amount to be recovered could not be reliably measured and consequently the write-off of these debts has not been charged as an expense in the Statement of Comprehensive Income.
In 2016, there was $257,378 of claim recoveries written-off in the RiskCover Fund (2015: $89,917).
123 INSURANCE COMMISSION ANNUAL REPORT 2016 3,870 9,643 3,954 12,889 14,241 15,534 26,402 33,729 869 iably rated, such as 2,075 1,078 2,248 Grade Total Grade Total 10,012 11,150 sets according to Standard Speculative Speculative Speculative s already paid and on claims
have all been classified as AAA - 13,165 - 14,267 ------BBB BBB - - 2 3 3,314 8,018 3,312 8,015 2016 ($'000) 2015 ($'000)
- - 15 20 869 854 1,954 1,934
AAA AA+ to AA- A+ to A- AAA AA+ to AA- A+ to A- 9,054 9,490 1,778 2,877 4,399 1,683 3,091 4,716
Fund's credit risk exposure of reinsurance and other recoveries on claim rade. Input tax credits recoverable from the Australian Taxation Office e highest possible rating. Ratings that fall outside the range AAA to BBB and those which cannot be rel DISCLOSURES (continued) DISCLOSURES RISKCOVER FUND FINANCIAL - Property, Motor and Miscellaneous Motor - Property, Workers'- Compensation - Liability and Miscellaneous Motor - Property, Workers'- Compensation - Liability NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 38. REFERENCES TO THE RISKCOVER FUND FINANCIAL STATEMENTS (continued) STATEMENTS REFERENCES TO THE RISKCOVER FUND FINANCIAL (f) Credit Risk Recoveries and Other Total Reinsurance Recoveries and Other Total Reinsurance The following tables provide information about the quality of the RiskCover which remained outstanding atand the Poor's end counterparty of creditestimates the of ratings. reporting unknown period, AAA third but is party not recoveries th are yet classified 'invoiced' as or speculative claimed g from relevant parties. The analysis classifies the as rating.
INSURANCE COMMISSION ANNUAL REPORT 2016 124 17 4,017 - - ms at the end of the reporting - 5 1 Year Impaired Total 1 Year Impaired Total Greater than Greater than Greater - 5 6 to 12 6 to 12 Months Months 2016 ($'000) 2015 ($'000) - - 3 to 6 3 to 6 Months Months Past Due but Not Impaired but Not Past Due Impaired but Not Past Due - - 0 to 3 0 to 3 Months Months eceivable for premium debtors and reinsurance recoveries on paid clai 12 4,012 Due nor Due nor Impaired Impaired Neither Past Neither Past Neither DISCLOSURES (continued) DISCLOSURES RISKCOVER FUND FINANCIAL NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FINANCIAL THE OF PART FORMING AND TO NOTES 38. REFERENCES TO THE RISKCOVER FUND FINANCIAL STATEMENTS (continued) STATEMENTS REFERENCES TO THE RISKCOVER FUND FINANCIAL (f) Credit Risk (continued) The following table provides further information about the ageing of amounts r period:
125 INSURANCE COMMISSION ANNUAL REPORT 2016 NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS 38. RISKCOVER FUND FINANCIAL STATEMENTS (continued)
REFERENCES TO THE RISKCOVER FUND FINANCIAL STATEMENTS (continued)
(g) Liquidity Risk
The following tables detail the maturity profile of the RiskCover Fund's gross undiscounted outstanding claims liability at the end of the reporting period:
2016 ($'000) Maturity in Less than 1 to 2 2 to 5 More than 1 Year Years Years 5 Years Total Outstanding Claims Liability - Property, Motor and Miscellaneous 41,275 - - - 41,275 - Workers' Compensation 128,588 73,186 80,600 58,602 340,976 - Liability 38,611 37,022 82,898 94,216 252,747 Total Outstanding Claims Liability 208,474 110,208 163,498 152,818 634,998
2015 ($'000) Maturity in Less than 1 to 2 2 to 5 More than 1 Year Years Years 5 Years Total Outstanding Claims Liability - Property, Motor and Miscellaneous 37,522 - - - 37,522 - Workers' Compensation 135,235 78,848 91,950 68,800 374,833 - Liability 40,870 39,728 93,917 109,769 284,284 Total Outstanding Claims Liability 213,627 118,576 185,867 178,569 696,639
(h) Reconciliation of Profit to Net Cash Flow from Operating Activities
2016 2015 $'000 $'000
Profit 66,340 100,528
(Increase)/Decrease in Assets Current Receivables 11,692 18,676 Non-Current Receivables 6,150 6,105
Increase/(Decrease) in Liabilities Current Payables 19,724 (7,981) Current Outstanding Claims (4,639) (2,869) Non-Current Payables 19,662 40,730 Non-Current Outstanding Claims (34,006) (11,083) Net Cash Flow from Operating Activities 84,923 144,106
Reconciliation of Cash
Cash and Cash Equivalents at the end of the year as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows:
Cash and Cash Equivalents 14,942 2,458
(i) Prudential Reserve
In 2016, the Prudential Reserve was calculated using an actuarial determined factor applied to a manual estimation of outstanding claims to be $69.5 million (2015: $74.1 million).
INSURANCE COMMISSION ANNUAL REPORT 2016 126 6. Disclosures and Legal Compliance 6.1 MINISTERIAL DIRECTIONS
No Ministerial directions were received during the year.
6.2 OTHER FINANCIAL DISCLOSURES 6.2.1 Pricing Policies The pricing philosophy for the Insurance Commission The price effect of these changes is that the cost of and RiskCover is based on regular WA inflation-linked motor injury insurance in Western Australia is $409 for average weekly earnings increases. Average weekly a family vehicle and motorcycle, which is considerably earnings is the most relevant index for motor injury more affordable than the cost of similar insurance in insurance and workers’ compensation schemes as the most other states and territories. majority of claims costs (i.e. claims for loss of income, medical and allied health costs) are directly linked to RISKCOVER wage inflation. Fund contributions are set to ensure sufficient funds are collected to pay all liabilities and administration costs. MOTOR INJURY INSURANCE Individual contributions are determined by agency per Each financial year, the Insurance Commission makes class of business. an assessment of the extent to which the premium revenue, together with other income expected to be The key outcomes that RiskCover aim to achieve in received, will be sufficient to meet the claims costs and setting agency contributions are: other expenses anticipated to arise or be incurred. • equity for member authorities; From 1 July 2016, CTP premium rates increased by • transparency in the fund contribution methodology; 2.5%.The increase responds to rising cost pressures on • minimum cross-subsidisation; the scheme, and is in line with wage inflation. Also from • protection against major events; and 1 July 2016, the insurance cover has been expanded to • incentives for risk management. ensure all people catastrophically injured in car crashes are provided care. To pay for the increased insurance cover, insurance premiums increased by a maximum of $99 per vehicle.
6.2.2 Capital Works
In 2016, the Insurance Commission invested in three internal capital works programs.
FOXPRO REPLACEMENT
EXPECTED COMPLETION DATE 30 April 2016
EXPECTED COST $626,382
The RiskCover Division has used the FoxPro system to manage claims for approximately 20 years. FoxPro is an aged technology that presented a risk to the business. Replacement of the system commenced during the year and in June 2015 the replacement system, iCLAIMS, went live for all internal users. The external claims submission functionality, for Commercial Motor and Property claims, went live in April 2016. This project has now been completed.
127 INSURANCE COMMISSION ANNUAL REPORT 2016 BUSINESS SERVICES TRANSFORMATION
EXPECTED COMPLETION DATE 30 September 2016
EXPECTED COST $778,673
The Business Services Transformation Project enables the automation of claims related document and data capture along with the automation of payment processing for the insurance functions within the Insurance Commission. This has been enabled through the implementation of an Optical Character Recognition (OCR) solution integrated with the Insurance Commission’s claims management systems. The OCR capability was successfully implemented in June 2015 (see Business Services Enhancements below). Work continues on the automation of payment processing.
EXPANSION OF MOTOR INJURY INSURANCE
EXPECTED COMPLETION DATE 30 November 2016
EXPECTED COST $2,057,328
The expansion of motor injury insurance on 1 July 2016 required software changes to the existing insurance systems to enable the new business processes for the scheme. This project commenced in June 2015 and the first phase was successfully implemented in June 2016 to enable claims notification and eligibility along with the processes required to make payments from the newly established scheme fund.
BUSINESS SERVICES ENHANCEMENTS
Background Outcome
In July 2015, the Insurance Commission implemented After one year of using the OCR technology, 63% of the first stage of OCR technology to automate claims documents are being automatically captured. the capturing of claims documentation. This This exceeds the first-year target of 42% and is initiative will address the rising amount of claims already near the three-year target of 64%. The documentation received by the Insurance Commission savings from the introduction of this technology are to ensure efficient processing and minimise claims estimated at approximately $1.5 million between 2015 administration costs. The Insurance Commission and 2018. Staff time taken in processing documents experienced a 6.3% increase in claims documentation has decreased making claims administration more during 2016 to 1,054,800 documents. efficient.
INSURANCE COMMISSION ANNUAL REPORT 2016 128 6.3 GOVERNANCE DISCLOSURES 6.3.1 Employment and Industrial Relations
The Insurance Commission’s Statement of Corporate WORKFORCE DEVELOPMENT Intent (SCI) and Strategic Development Plan (SDP) articulate the importance the organisation places Attracting and retaining talent is core to our successful on a skilled and engaged workforce. The Insurance delivery of insurance services. Commission’s workforce is employed under section The Insurance Commission is a member of the Personal 12 of the Insurance Commission of Western Australia Injury Education Foundation (PIEF) providing injury Act 1986. Remuneration and other working conditions management education and professional development are determined by the Insurance Commission, subject opportunities to our staff and promoting the insurance to the Government Officers (Insurance Commission of profession to prospective employees. Twenty-four Western Australia) Award 1987 and the Government employees were supported in studying a nationally Officers (Insurance Commission of Western Australia) recognised injury management or insurance profession General Agreement 2014. qualification with PIEF or the Australian and The Insurance Commission operated within the full time New Zealand Institute of Insurance and Finance equivalent (FTE) budget throughout the year and as at (ANZIIF). 30 June 2016, the total FTE count was 348.6. The Insurance Commission’s Corporate Training and A Workforce and Diversity Plan that is linked to the SCI Development Plan details our commitment to training and SDP forecasts internal labour demand and supply and development of our employees. together with strategies to ensure the right people Enhanced performance development processes were are recruited with the right skills, when the business implemented during the year to improve resource requires them. planning and to facilitate employee career development.
STAFF PROFILE WORKFORCE DIVERSITY The Insurance Commission strives to be a ‘great place to work’ and achieved an employee retention rate of 92% for the second consecutive year. The five-year average retention rate is 90%. The Insurance Commission continues its commitment 58% 42% to attracting and retaining a diverse and talented Women Men workforce, focusing particularly on women in senior leadership and youth; areas where improvement can be made. Due to our positive staff retention rate, Women in Senior effecting change will be gradual and therefore a 13.7% Leadership long-term commitment.
A Gender Diversity Action Plan (GDAP) was developed and published in 2016. The GDAP sets out the strategies, desired outcomes and resources 1.5% 21.1% required to improve the pipeline of talented women 2.3% People with Cultural preparing for senior roles by identifying any barriers disability Youth Diversity to, and opportunities for, the promotion of women into senior roles. The GDAP also articulates strategies for improving the attraction and retention of young people 0.8% into the Insurance Commission. Indigenous Australians
129 INSURANCE COMMISSION ANNUAL REPORT 2016 6.3.2 Contracts with Senior Officers
At the date of reporting, no senior officers, or firms any interests in existing or proposed contracts with the of which senior officers are members, or entities in Insurance Commission other than normal employment which senior officers have substantial interests, had contracts of service.
6.3.3 Board and Committee Remuneration and Attendance
Premier’s Circular 2010/02 – State Government Boards and Committees, requires that Board remuneration is reported.
AUDIT AND RISK BOARD ATTENDANCE COMMITTEE GROSS POSITION NAME AT 6 SCHEDULED ATTENDANCE AT ANNUAL MEETINGS 6 SCHEDULED REMUNERATION* MEETINGS
Chairman, Member of Frank Cooper AO 6 6 $102,053 Audit and Risk Committee Deputy Chairman, Chairman John Scott 6 6 $68,407 of Audit and Risk Committee Commissioner, Member of Andrea Hall 5 4 $34,774 Audit and Risk Committee
Commissioner Carol Dolan 5 N/A $34,774
Commissioner Rob Bransby 5 N/A $34,774
Commissioner Yasmin Broughton 5 N/A $34,774
Chief Executive Rod Whithear 6 6 $402,271 Commissioner ex officio Former Deputy Chairman Ainslie van Onselen 1 N/A $24,377 and Commissioner#
Former Commissioner# Terry Agnew 1 N/A $16,253
Former Commissioner# Stephen Boyle 1 N/A $16,253
Former Commissioner1 Dr Christopher Kendall 0 N/A $1,134
* Includes superannuation and Fringe Benefits Tax. # Ainslie van Onselen, Terry Agnew and Stephen Boyle ceased as Commissioners on 18 October 2015. 1Dr Christopher Kendall resigned as Commissioner on 26 June 2015.
INSURANCE COMMISSION ANNUAL REPORT 2016 130 6.3.4 Compliance with Public Sector Standards and Ethical Codes
Section 31(1) of the Public Sector Management Act 1994, During 2016, the Insurance Commission conducted a the Public Sector Commissioner’s (PSC) Instruction review of public sector compliance obligations affecting (Number 7) – Code of Ethics and the Insurance its operations. This review included about 150 public Commission’s Code of Conduct (the Code) requires that sector compliance documents. Compliance performance the Insurance Commission is committed to continuous was strong but further work is required as the number of improvement of its governance function. obligations on public sector agencies is increasing.
During the year, the Insurance Commission has taken Existing controls provide reasonable assurance of a number of steps to improve its governance function. compliance with public sector standards and ethical Four new members of the Insurance Commission Board codes. The Code is integrated into the induction program joined the organisation in 2016, which renewed focus on and available to staff through an intranet. An internal risk and compliance management. A governance review audit function is maintained as part of a best practice were undertaken of the Management Committees of assurance approach. Awareness training is undertaken the Insurance Commission during the year and of the for key aspects of the Code, including the PSC’s Insurance Commission’s performance against good Accountable and Ethical Decision Making training. governance principles. No claims for breach of public sector standards were received during the year.
6.3.5 Market Research and Advertising Expenditure
Complying with section 175ZE of the Electoral Act communicate changes to the scope and cost of motor 1907, the Insurance Commission incurred $362,779 injury insurance, and to undertake client surveys for the total expenditure for 2016 to advertise job vacancies RiskCover and Motor Injury Insurance Divisions. and motor injury insurance premium rates, to
TYPE ORGANISATION TOTAL Advertising Agencies Adcorp, Seek and State Law Publisher $4,583 Media Advertising Gatecrasher Advertising $305,080 Market Research Painted Dog Research, Faster Horses $53,116
TOTAL $362,779 * No expenses incurred for polling organisations or direct mail organisations.
131 INSURANCE COMMISSION ANNUAL REPORT 2016 6.3.6 Disability Access and Inclusion The Insurance Commission is committed to raising Our Disability Access and Inclusion Plan (DAIP) awareness of access and inclusion issues and improving 2014-17 provides the framework and practical strategies our services to the community. to improve access and inclusion for people with disability. Our 2016 actions to meet the seven DAIP outcomes are listed below.
OUTCOME 1 OUTCOME 5
People with disability have the same opportunities as People with disability have the same opportunities other people to access the services of, and any events as other people to make complaints to the Insurance organised by the Insurance Commission. Commission.
ACTION ACTION
Review completed of the Customer Commitment brochure Reviewed the Insurance Commission’s customer feedback to ensure inclusion and better focus on customer feedback. documentation to improve service delivery for people with Review completed of training venues used by the Insurance disability. Commission to ensure improved accessibility. New Insurance Commission website is now accessible via mobile devices including screen reading. Complaints can OUTCOME 2 made via the new website, phone or in person.
People with disability have the same opportunity as other people to access the buildings and facilities of OUTCOME 6 the Insurance Commission. People with disability have the same opportunities as ACTION other people to participate in any public consultation that the Insurance Commission may undertake. Upgrade in progress of building gymnasium and end of trip facilities which will make them universally accessible. ACTION This includes installation of a lift to access facilities. Conducted extensive public consultation on the expansion of insurance cover to people with catastrophic injuries from OUTCOME 3 car crashes. This involved the release of a Green Paper, numerous meetings with health and disability providers People with disability receive information from the and advocates, and co-hosting consultation forums with Insurance Commission in a format that will enable them National Disability Services. to access the information as readily as other people are able to access it. OUTCOME 7 ACTION People with disability have the same opportunities as Completed upgrade of Insurance Commission website. other people to obtain and maintain employment with New website content meets disability design and access the Insurance Commission. (WCAG 2.0) standards including an in-built disability access audit tool. Feedback sought from National Disability ACTION Services during website development. Recruitment and selection processes have been reviewed to ensure inclusive recruitment practices and improved OUTCOME 4 awareness for employing people with disability. People with disability receive the same level and quality of service as other people from Insurance Commission employees.
ACTION
Consultation completed with people with disabilities and disability service providers to design the most effective and efficient care and support service delivery model in the expansion of motor injury insurance. Held information sessions for claims officers on the National Relay Service to improve customer service delivery to people with hearing or speech impairments. Promotion of the DAIP in employee inductions.
INSURANCE COMMISSION ANNUAL REPORT 2016 132 6.3.7 Recordkeeping Plan
Section 19 of the State Records Act 2000 requires the employee roles and responsibilities for compliance with Insurance Commission to maintain a Recordkeeping the organisation’s Recordkeeping Plan. The Insurance Plan approved by the State Records Commission. The Commission’s intranet houses the Recordkeeping Recordkeeping Plan sets out the recordkeeping system, Plan and related documentation. Routine reporting training program and reporting for the organisation. is undertaken on the performance of recordkeeping Recordkeeping training continues to be undertaken systems and training delivered. for all new staff via an induction program which details
6.3.8 Substantive Equity
Our employment practices align with the PSC’s Employment Standards and are designed to be transparent based on the principles of merit and equity.
6.3.9 Use of Credit Cards
The Treasurer’s Instructions TI 321 Credit Cards – There have been no instances in 2016 of Insurance Authorised Use and TI 903 Agency Annual Reports Commission credit cards being used for personal use. require public sector agencies to publish details in their annual report where Government credit cards are used for personal use.
6.3.10 Occupational Safety and Health
The Insurance Commission has a longstanding high Four workers’ compensation claims were lodged during level commitment to maintain a positive safety culture the year, three of which resulted in lost time. Injured in which our Occupational Safety and Health (OSH) employees are supported in their return to work under systems do more than just aim for compliance. Our the Workers’ Compensation and Injury Management Act OSH goal is to ensure no employee, contractor or visitor 1981. is harmed at work. Our OSH Policy and OSH Business Plan were reviewed in 2016. Performance against the targets of the PSC’s Circular 2012-05: Code of Practice: OSH in the WA Public The Insurance Commission’s OSH Committee performs Sector are listed below. an important role providing a forum for employees to be engaged on OSH matters.
ACTUAL RESULTS RESULTS AGAINST TARGET MEASURE 2015 2016 TARGET COMMENT
Number of fatalities 0 0 0 Achieved
Lost time injury and/or disease incidence rate 0.56 0.86 0 or 10% reduction Slight Increase
Lost time injury and/or disease severity rate 50% 0% 0 or 10% reduction Achieved
Percentage of (i) within 13 weeks 50% 100% Actual result Achieved injured workers Greater than or equal to returned to work (ii) within 26 weeks 50% 100% Achieved 80% within 26 weeks Percentage of managers trained in Not achieved. 86% of Greater than or occupational safety, health and injury 13% 49% all staff completed equal to 80% management responsibilities OSH Training.
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INSURANCE COMMISSION ANNUAL REPORT 2016 134 icwa.wa.gov.au
Insurance Commission of Western Australia Forrest Centre, 221 St Georges Terrace Perth WA 6000 GPO Box U1908 Perth WA 6845 T: +61 8 9264 3333 E: [email protected]
135 INSURANCE COMMISSION ANNUAL REPORT 2016