Note 25:  Insurance Liabilities

Information on insurance expenses can be found in note 11. Discussion on the Canterbury earthquake is included in note 35.

Insurance obligations arise primarily from the accident compensation scheme provision of personal injury cover for all New Zealand citizens, residents and temporary visitors to New Zealand and the Earthquake Commission's provision of natural disaster insurance to residential property owners.

The objectives, policies and procedures for managing these risks are set out in the governing statutes and policy documents of the Accident Compensation Corporation (ACC) and the Earthquake Commission (EQC).

EQC recognises a liability in respect of outstanding claims and assesses the adequacy of its unearned premium liability. As required by financial reporting standards, a risk margin is applied to a central estimate to increase to 75% the likelihood that claims will be settled within this amount. No discount factor or inflation factor is applied to the EQC claims liability as claims are generally settled within one year.

All assets held by ACC and EQC are considered available to back present and future claims obligations. ACC and EQC have not deferred any acquisition costs in respect of insurance obligations at the reporting date.

Analysis of ACC insurance liability

The material insurance obligations of the Crown at balance date are managed by ACC. The accounting for these claims is made complex by the existence of a long "tail" to these claims. The rest of this note therefore focuses on these claims.

Future expenditure commitments exist in respect of claims made and accepted in the current and previous years (but which will not be fully met until future years), and claims incurred but not notified, or accepted by, ACC at balance date.

PricewaterhouseCoopers Actuarial Pty Limited have prepared the independent actuarial estimate of the ACC outstanding claims liability as at 30 June 2010. The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability.

The outstanding claims liability is the present value of the central estimate of expected payments for claims incurred including a risk margin.

The unearned premium liability represents premiums received in advance of the insured period.

The unearned premium liability deficiency is the extent that the unearned premium liability is insufficient to cover expected future claims (ie, payments for future accidents within the period covered by the premiums received). Unearned premiums relating to residual claims are excluded from this calculation as they relate to accidents that occurred prior to 1999.