Note 17: ACC Claims Liability
Claims Obligation
The ACC claims liability is the amount of funds required to be invested now, so that together with the future investment earnings on those funds ACC has enough funding to meet the estimated future payment obligations on its current claims.
Liability Calculation
PricewaterhouseCoopers Actuarial Pty Limited have prepared the independent actuarial estimate of the ACC claims liability as at 30 June 2005. This estimate includes the expected future payments relating to accidents that occurred prior to balance date (whether or not the associated claims have been reported to, or accepted by, ACC) and also the expected administrative expenses of managing these claims.
The estimate of the claims liability as at 30 June 2005 was $11,384 million. This is an increase of $2,037 million compared with 30 June 2004. The primary drivers of the increase were changes in economic assumptions (mainly a reduction in the discount rate applied from 6.5% at 30 June 2004 to 5.75% at 30 June 2005), revisions to the claim handling expense provision, claim experience and modelling movements.
Valuation Movement Due to Experience and Assumption Changes
If the assumptions underlying the 30 June 2004 valuation were used, the estimated 30 June 2005 valuation would be $9,952 million. The actual valuation for 30 June 2005 was $11,384 million. The difference in the two numbers was $1,432 million. This is shown in the following table:
| As at 30 June 2005 $m | As at 30 June 2004 $m | Change 2005 $m | |
|---|---|---|---|
| 30 June 2004 liability | 9,347 | 9,347 | - |
| 30 June 2005 liability | 11,384 | 9,952 | (1,432) |
| Change in Liability | 2,037 | 605 | (1,432) |
| Change 2005 $m | |
|---|---|
| Changes in economic assumptions | 770 |
| Claim experience and modelling | 443 |
| Revisions to the claim handling expense provision | 219 |
| 1,432 |
| Forecast | Actual | |||
|---|---|---|---|---|
| Original Budget $m | Estimated Actual $m | 30 June 2005 $m | 30 June 2004 $m | |
| ACC Liability and Asset Information | ||||
| Gross ACC Liability | ||||
| 9,763 | 9,347 | Opening gross liability | 9,347 | 9,155 |
| 598 | 2,037 | ACC claims liability movement | 2,037 | 170 |
| - | - | Transfer from other insurers | - | 22 |
| 10,361 | 11,384 | Closing Gross Liability | 11,384 | 9,347 |
| Less Net Assets Available to ACC | ||||
| 5,943 | 5,969 | Opening net asset value | 5,969 | 4,901 |
| 716 | 1,248 | Net change | 1,248 | 1,068 |
| 6,659 | 7,217 | Closing Net Asset Values | 7,217 | 5,969 |
| Net ACC Reserves (net liability) | ||||
| (3,820) | (3,378) | Opening reserves position | (3,378) | (4,254) |
| 118 | (789) | Net change | (789) | 876 |
| (3,702) | (4,167) | Closing Reserves Position (net liability) | (4,167) | (3,378) |
| Actual | ||
|---|---|---|
| 30 June 2005 $m | 30 June 2004 $m | |
| Residual Claims Account | (1,588) | (1,414) |
| Motor Vehicle Account | (1,810) | (1,557) |
| Non-Earners’ Account | (1,278) | (958) |
| Medical Misadventure Account | (332) | (229) |
| Earners’ Account | 433 | 449 |
| Self-Employed Work Account | - | 14 |
| Employers’ Account | 408 | 317 |
| Account Reserves | (4,167) | (3,378) |
The ACC reserves disclosed above represent the net assets and liabilities for each of the various accounts operated by ACC. Details on how the unfunded liability of each account will be managed in the future are contained in the 2005 ACC Annual Report (broadly the policy is to fully fund the major accounts by 2014).
