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 |
| 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) |
| 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).
