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Note 25: Insurance Liabilities

Note 25: Insurance Liabilities
Forecast
30 June 2012 		Actual
Budget 11
$m 		Budget 12
$m 		30 June
2012
$m 		30 June
2011
$m

By entity

  
27,687 29,433 ACC liability 30,648 26,939
2,785 8,643 EQC property damage liability 8,877 10,570
-  1,764 Southern Response (formerly AMI insurance) 2,062 2,082
61 65 Other insurance liabilities 48 59
-  -  Inter-segment eliminations (449) (336)
30,533 39,905 Total insurance liabilities 41,186 39,314

By component

  
Outstanding claims liability 38,695 36,422
Unearned premium liability 2,293 2,572
Unearned premium liability deficiency 198 320
Other -  - 
Total insurance liabilities 41,186 39,314

By maturity

 
8,152 9,425 Expected to be settled within one year 8,850 8,880
22,381 30,480 Expected to be outstanding for more than one year 32,336 30,434
30,533 39,905 Total insurance liabilities 41,186 39,314

Assets arising from insurance obligations are:

 
Receivables for premiums 2,898 3,101
Reinsurance claim recoveries 5,003 5,381

Information on insurance expenses can be found in note 11. Additional information on the risks and uncertainties in relation to the Canterbury earthquakes can be found in note 30.

The Crown acquired effective control of AMI on 7 April 2011. On 5 April 2012 the on-going insurance business was sold to IAG while Southern Response continues to hold claims in relation to the Canterbury earthquakes.

The objectives, policies and procedures for managing these risks are set out in the governing statutes and policy documents of each entity.

All assets held by the three insurance entities are considered available to back present and future claims obligations. There are no deferred acquisition costs (eg, marketing costs) in respect of insurance obligations at the reporting date.

Analysis of insurance liabilities

The remainder of the note provides a detailed analysis of the ACC, EQC and Southern Response insurance liabilities. Further information on these liabilities may also be found in the annual reports of each of these entities and on their respective websites. The analysis includes a breakdown of the outstanding claims liability, unearned premium liability, and the unearned premium liability deficiency.

The outstanding claims liability is the present value of the central estimate of expected payments for claims incurred plus 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 injuries within the period covered by the premiums received).

Analysis of ACC insurance liability

ACC's 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.

An independent actuarial estimate by PricewaterhouseCoopers, consulting actuaries, has been made of the future expenditure relating to injuries which occurred prior to balance date, whether or not the claims have been reported to or accepted by ACC. The PricewaterhouseCoopers actuarial report was signed by Mr Paul Rhodes and Mr Ross Simmonds, Fellows of the Institute and Faculty of Actuaries (UK), and Mr Chris Latham, a Fellow of the Institute of Actuaries of Australia. Mr Rhodes, Mr Simmonds and Mr Latham are also Fellows of the New Zealand Society of Actuaries.

The actuary is satisfied with the nature, sufficiency and accuracy of the data used to determine the outstanding claims liability.

Analysis of ACC insurance liability
Actual
30 June
2012
$m 		30 June
2011
$m
The ACC liability comprises:  
ACC outstanding claims liability 28,396 24,510
ACC unearned premium liability 2,183 2,429
ACC unearned premium liability deficiency 69 - 
Total ACC liability 30,648 26,939

Analysis of Outstanding ACC Claims Liability

 
Undiscounted outstanding claims liability 73,151 74,895
Discount adjustment (47,997) (53,174)
Risk margin 3,242 2,789
Total outstanding ACC claims liability 28,396 24,510
Expected future claims payments - central estimate 23,497 20,374
Claims handling expenses 1,657 1,347
Outstanding claims liability before risk margin 25,154 21,721
Risk margin 3,242 2,789
Total outstanding ACC claims liability 28,396 24,510

Movement in Outstanding ACC Claims Liability

 
Opening balance 24,510 24,430
Claims incurred for the year 3,234 3,652
Claims paid out in the year (2,918) (2,896)
Discount rate unwind 727 832

Experience adjustments (actuarial gains and losses):

  
- actual and assumed claim experience (1,933) (1,966)
- change in discount rate 5,084 862
- change in inflation rate (209) 108
- change in other economic assumptions -  - 
Other movements (99) (512)
Closing outstanding ACC claims liability 28,396 24,510

Movement in ACC Unearned Premium Liability

 
Opening balance 2,429 2,462
Earning of premiums previously deferred (2,429) (2,462)
Deferral of premiums on current year contracts 2,183 2,429
Other -  - 
Closing ACC unearned premium liability 2,183 2,429

Claims development historical analysis

The following table shows the development of ACC's undiscounted claims cost estimates for the seven most recent accident years.

Claims development historical analysis
2006
$m 		2007
$m 		2008
$m 		2009
$m 		2010
$m 		2011
$m 		2012
$m 		30 June
2012
$m
Estimate of ultimate claims costs:  
At the end of the  
  accident year 3,200 3,873 5,502 7,103 7,035 7,517 6,877  
One year later 3,613 4,868 6,709 6,733 6,739 6,288 -   
Two years later 4,358 5,860 6,470 6,714 5,939 -  -   
Three years later 5,034 5,944 6,412 6,045 -  -  -   
Four years later 5,207 6,230 5,736 -  -  -  -   
Five years later 5,186 5,768 -  -  -  -  -   
Six years later 4,925 -  -  -  -  -  -   
Current estimate of cumulative claim costs 4,925 5,768 5,736 6,045 5,939 6,288 6,877 41,578
Cumulative payments (1,472) (1,643) (1,725) (1,592) (1,267) (1,093) (699) (9,491)
Outstanding claims undiscounted 3,453 4,125 4,011 4,453 4,672 5,195 6,178 32,087
Discount (22,130)
Claims handling costs 1,866
2005 and prior claims 16,558
Short tail outstanding claims 15
Total outstanding ACC claims liability 28,396
Claims development historical analysis (continued)
Actual
30 June
2012
$m 		30 June
2011
$m

Analysis of ACC unearned premium liability deficiency

 
Unearned premium liability 2,183 2,429
Adjusted for unearned premium relating to residual claims and premium liabilities without deficiency (339) (2,429)
Adjusted ACC unearned premium liability 1,844 - 
Central estimate of discounted cash flows for future claims 1,636 - 
Central estimate of discounted future reinsurance recoveries -  - 
Risk margin 277 - 
Present value of expected cash flows for future accident claims 1,913 - 
Total ACC unearned premium liability deficiency 69 - 

Unearned premiums relating to residual claims are excluded from this calculation as they relate to accidents that occurred prior to 1999.

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