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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 2006. 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 2006 was $12,715 million. This is an increase of $1,331 million compared with 30 June 2005. The primary drivers of the increase were changes in economic assumptions (mainly an increase in future inflation has increased the liability, which is partially offset by an increase in the discount rate applied from 5.75% at 30 June 2005 to 5.83% at 30 June 2006), 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 2005 valuation were used, the estimated 30 June 2006 valuation would be $12,009 million. The actual valuation for 30 June 2006 was $12,715 million. The difference in the two numbers was $706 million. This is shown in the following table:

As at 30 June 2006 $m As at 30 June 2005 $m Change 2006 $m
30 June 2005 liability 11,384 11,384 -
30 June 2006 liability 12,715 12,009 (706)
Change in Liability 1,331 625 (706)
Reconciliation of the 30 June 2006 gross liability valuation:
Changes in economic assumptions 119
Claim experience and modelling 587
706
Note 17: ACC Claims Liability (continued)
Forecast Actual
Original Budget $m Estimated Actual $m 30 June 2006 $m 30 June 2005 $m
ACC Liability and Asset Information
Gross ACC Liability
11,154 11,384 Opening gross liability 11,384 9,347
597 1,187 ACC claims liability movement 1,321 2,037
- 10 Transfer from other insurers 10 -
11,751 12,581 Closing Gross Liability 12,715 11,384
Less Net Assets Available to ACC
6,902 7,217 Opening net asset value 7,217 5,969
823 1,596 Net change 1,663 1,248
7,725 8,813 Closing Net Asset Values 8,880 7,217
Net ACC Reserves (net liability)
(4,252) (4,167) Opening reserves position (4,167) (3,378)
226 399 Net change 332 (789)
(4,026) (3,768) Closing Reserves Position (net liability) (3,835) (4,167)
ACC Reserves by Account
Residual Claims Account (1,882) (1,588)
Motor Vehicle Account (1,660) (1,810)
Non-Earners’ Account (1,309) (1,278)
Medical Misadventure Account (352) (332)
Earners’ Account 532 433
Self-Employed Work Account 76 -
Employers’ Account 757 408
Account Reserves (3,838) (4,167)
Subsidiaries and revaluation reserves 3 -
Total Closing Reserves (3,835) (4,167)

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 2006 ACC Annual Report (broadly the policy is to fully fund the major accounts by 2014).

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