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Note 11:  Insurance Expenses

Note 11: Insurance Expenses
Forecast Actual
Original
Budget
$m 		Estimated
Actuals
$m 		30 June 2010
$m 		30 June 2009
$m

By entity

 
3,834 3,058 Accident Compensation Corporation (ACC) 2,922 3,762
39 59 Earthquake Commission 64 88
17 18 Other 20 32
3,890 3,135 Total insurance expenses 3,006 3,882

Claims expense is the sum of claims incurred and claims management expenses relating to claims incurred plus the movement in the outstanding claims liability.

Total claims and other expenses are those related to claims that have occurred prior to reporting date. Within these expenses are expenses relating to actuarial gains/(losses) and operating costs (eg, costs for processing claims and injury prevention promotion) that due to their nature are reported elsewhere in the statement of financial performance (eg, under gains/losses or personnel expenses).

Insurance expenses represents underwriting expenses less those expenses reported elsewhere (ie, insurance expenses largely comprise direct settlement of claims and expected movements in the outstanding liability and unexpired risk liability).

Note 11: Insurance Expenses (continued)

Actual
Analysis of ACC insurance expense 30 June 2010
$m 		30 June 2009
$m

By type

 
ACC claims expense 3,275 8,606
Movement in ACC unexpired risk liability (459) (19)
Other underwriting expenses 81 93
Total ACC claims and other expenses 2,897 8,680
less actuarial gain/(loss) 410 (4,491)
less operating costs relating to claims (385) (427)
Total ACC insurance expenses (excluding losses and operations) 2,922 3,762

Given the uncertainty over insurance claims, it is likely that the final cost will be different from the original liability established. Claims development refers to the adjustment in the liability arising from claims incurred in the current financial year and reassessment of claims incurred in previous years. This reassessment results from new information on these claims (including new claims relating to incidents incurred in previous years) and changes in assumptions.

Note 11: Insurance Expenses (continued)
Actual
30 June 2010
$m 		30 June 2009
$m

Net ACC Underwriting Result

 
Premium revenue 3,261 2,880
Recoveries revenue (including reinsurance recovery) -  - 
ACC underwriting revenue 3,261 2,880
Less claims and other expenses (2,897) (8,680)
Net ACC underwriting surplus/(deficit) 364 (5,800)

The underwriting surplus/(deficit) represents the net effect on the statement of financial performance from claims incurred prior to reporting date. It includes actuarial gains/(losses).

Underwriting revenue is reported separately in the financial statements under other sovereign revenue.

Note 11: Insurance Expenses (continued)
Actual
30 June 2010
$m 		30 June 2009
$m

ACC operating cash flows associated with the
underwriting result are:

 
Cash receipts 3,291 2,792
Cash payments (3,558) (3,403)
Net ACC operating cash flows (267) (611)

Historical Analysis

Note 11: Insurance Expenses (continued)
Actual
30 June 2010
$m 		30 June 2009
$m 		30 June 2008
$m 		30 June 2007
$m

ACC Claims Development

 

Current year net ACC claims incurred

 
Gross claims incurred and related expenses - undiscounted 7,422 7,511 5,804 4,433
Reinsurance and other recoveries - undiscounted -  -  -  - 
Net claims incurred - undiscounted 7,422 7,511 5,804 4,433
Discount and discount movement  
- gross claims incurred (4,286) (3,996) (2,923) (2,126)
- reinsurance and other recoveries -  -  -  - 
Net discount movement (4,286) (3,996) (2,923) (2,126)
Total current year net claims incurred 3,136 3,515 2,881 2,307

Previous years' net ACC claims incurred

 
Gross claims incurred and related expenses - undiscounted 1,188 14,698 6,763 7,423
Reinsurance and other recoveries - undiscounted -  -  -  - 
Net claims incurred - undiscounted 1,188 14,698 6,763 7,423
Discount and discount movement  
- gross claims incurred (1,049) (9,607) (4,522) (6,221)
- reinsurance and other recoveries -  -  -  - 
Net discount movement (1,049) (9,607) (4,522) (6,221)
Total previous years' net claims incurred 139 5,091 2,241 1,202
ACC claims expense 3,275 8,606 5,122 3,509

More detail on insurance liabilities is provided in note 25.

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