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Note 11: Insurance Expenses

Note 11: Insurance Expenses
Forecast
30 June 2012 		Actual
Budget 11
$m 		Budget 12
$m 		30 June
2012
$m 		30 June
2011
$m

By entity

 
3,042 3,138 Accident Compensation Corporation (ACC) 3,010 2,979
78 958 Earthquake Commission (EQC) 1,073 11,776
-  347 Southern Response (formerly AMI insurance) 586 151
18 8 Other 20 22
-  -  Inter-segment eliminations (113) (336)
3,138 4,451 Total insurance expenses 4,576 14,592

By type

 
Property damage claims in relation to Canterbury earthquakes 1,612 11,475
Personal accident and injury claims 3,010 2,979
Other insurance expenses (46) 138
Total insurance expenses 4,576 14,592

Insurance expenses include costs associated with insurance claims arising from the Canterbury earthquakes. Note 30 contains further discussion on total costs of the earthquakes to the Crown. These expenses do not include any proceeds from reinsurance. These proceeds are included as "other revenue" in the statement of financial performance (refer note 5).

The remainder of the note provides additional information on the insurance expenses for ACC, EQC, and Southern Response.

An analysis of the insurance liabilities is provided in note 25.

Note 11: Insurance Expenses (continued)
  Actual
Analysis of ACC insurance expense 30 June
2012
$m 		30 June
2011
$m

By type

 
Claims expense 6,186 2,396
Movement in unexpired risk liability 68 (105)
Other underwriting expenses 99 90
Total ACC claims and other expenses 6,353 2,381

Less expenses reported elsewhere in the statement of financial performance

  
    Actuarial gain/(loss) (2,942) 996
    Operating costs relating to claims (401) (398)
Total ACC insurance expenses (excluding losses and operations) 3,010 2,979

Given the uncertainty over insurance claims, it is likely that the final cost will be different from the original liability established. Net claims incurred in the table below 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
2012
$m 		30 June
2011
$m

ACC Claims Incurred

 

Current year net ACC claims incurred

 
Gross claims incurred and related expenses - undiscounted 7,130 7,800
Discount and discount movement (4,144) (4,857)
Total current year net claims incurred 2,986 2,943

Previous years' net ACC claims incurred

 
Gross claims incurred and related expenses - undiscounted (6,789) 348
Discount and discount movement 9,989 (895)
Total previous years' net claims incurred 3,200 (547)
ACC claims expense 6,186 2,396

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 (refer note 2).

Note 11: Insurance Expenses (continued)
Actual
30 June
2012
$m 		30 June
2011
$m

Net ACC Underwriting Result

 
Premium revenue 3,695 3,586
Recoveries revenue (including reinsurance recovery) -  - 
ACC underwriting revenue 3,695 3,586
Less claims and other expenses (6,353) (2,381)
Net ACC underwriting surplus/(deficit) (2,658) 1,205

ACC operating cash flows associated with the underwriting result are:

 
Cash receipts 3,693 3,612
Cash payments (3,059) (3,017)
Net ACC operating cash flows 634 595
Note 11: Insurance Expenses (continued)
  Actual
Analysis of EQC insurance expense 30 June
2012
$m 		30 June
2011
$m

By type

 
Claims expense 1,193 11,446
Movement in unexpired risk liability (192) 281
Other underwriting expenses 72 49
Total EQC claims and other expenses 1,073 11,776

Net EQC Underwriting Result

 
Premium revenue 107 88
Recoveries revenue (including reinsurance recovery) 391 4,185
EQC underwriting revenue 498 4,273
Less claims and other expenses 1,073 11,776
Net EQC underwriting surplus/(deficit) (575) (7,503)

EQC operating cash flows associated with the underwriting result are:

 
Cash receipts 134 88
Cash payments 2,890 1,230
Net EQC operating cash flows (2,756) (1,142)

EQC Claims Incurred

 

Current year net EQC claims incurred

 
Gross claims incurred and related expenses - undiscounted 719 12,337
Discount and discount movement (17) (891)
Total current year net claims incurred 702 11,446

Previous years' net EQC claims incurred

 
Gross claims incurred and related expenses - undiscounted (147) - 
Discount and discount movement 638 - 
Total previous years' net claims incurred 491 - 
EQC claims expense 1,193 11,446
Note 11: Insurance Expenses (continued)
  Actual
Analysis of Southern Response insurance expense 30 June
2012
$m 		30 June
2011
$m

By type

 
Claims expense 609 175
Movement in unexpired risk liability -  - 
Total Southern Response claims and other expenses 609 175
less operating costs relating to claims (23) (24)
Total Southern Response insurance expenses (excluding operations) 586 151

Net Southern Response Underwriting Result

 
Premium revenue 248 85
Recoveries revenue (including reinsurance recovery) -  63
Southern Response underwriting revenue 248 148
Less claims and other expenses 609 175
Net Southern Response underwriting surplus/(deficit) (361) (27)

Southern Response operating cash flows associated with the underwriting result are:

 
Cash receipts 526 101
Cash payments 540 94
Net Southern Response operating cash flows (14) 7

Southern Response Earthquake Services ("Southern Response") manages claims related to the Canterbury earthquakes incurred by AMI Insurance. Comparatives only include costs incurred after 7 April 2011 (when the financial support package for AMI was agreed). As a result, comparatives are for the period between 7 April and 30 June. On 5 April 2012 the on-going insurance business was sold to IAG.

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