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WorkCoverSA

Annual Report

2012-13


WorkCoverSA’s mission To achieve the best outcomes for injured workers, employers and the South Australian community.

WorkCoverSA’s role • To administer and regulate the South Australian Workers Rehabilitation and Compensation Scheme. • To have overall responsibility for Scheme performance. • To ensure appropriate claims management and related services are provided.

WorkCoverSA’s key values Integrity Achievement Respect Professional excellence


Contents The year in review – Summary of performance

4

Message from Philip Bentley, WorkCover Board Chair

6

Message from Greg McCarthy, Chief Executive Officer

9

About WorkCoverSA 10 WorkCoverSA Strategic Plan 2011-16 12 Recovery and return to work 13 Injury prevention and management 17 Financial sustainability 19 Organisational professionalism and achievement 22

Corporate governance and administration

30

Self-insured employers 34

Appendix A Financial Statements

37

WorkCoverSA Annual Report 2012-13

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The year in review Summary Performance of perfomance In 2012-13:

As at 30 June 2013: • 49,604 employers were insured by the WorkCover Scheme (the Scheme) • there were 66 private and 25 Crown self-insured registrations* • there were 7611 active income maintenance claims for WorkCover-insured employers •

the Scheme funding ratio improved from 59.2 per cent at 30 June 2012 to 63.7 per cent at 30 June 2013

• the outstanding claims liability was $3.725 billion •

the unfunded claims liability improved from $1.389 billion at June 2012 to $1.366 billion at 30 June 2013.

1

• the investment portfolio recorded a return on investment of 13.1 per cent

• there were 16,774 claims incurred from workers employed by WorkCover-insured employers

• investment returns totalled $253 million, an increase of $157 million on 2011-12.

• 5051 income maintenance claims with more than 10 days lost were 1

incurred from workers employed by WorkCover-insured employers • approximately 70 per cent of people with a workplace injury, employed by WorkCover-insured employers either did not lose time off work or returned to work within two weeks of their injury • the average premium rate was 2.75 per cent

1

Incurred means the date of the injury is during the financial year. This number includes an estimate for claims incurred but not yet reported.

Figure 1: Scheme funding

2012-13

63.7%

4

WorkCoverSA Annual Report 2012-13

2011-12

59.2 per cent

2012-13

63.7 per cent


70

2

Figure 2: Return to work. per cent of workers injured in 2012-13 either did not lose time off work or they returned to work within two weeks of their injury (WorkCover-insured employers). 2 Calculated from Finity results as 1-[Ultimate incurred >10 days lost)]/[Ultimate incurred of any type)]=1-(5051/16,774)

Insured employers as at 30 June 2013 Figure 4: Self-insured registrations*

Figure 3: WorkCover-insured employers

167

5087

66 25 44,350

Total 91

Total 49,604 Medium

Small

Large

Private

Crown

*Some self-insured employer registrations include multiple employers. Crown self-insured employers are restricted to agencies that are evaluated by WorkCoverSA only.

Figure 5: Investment returns $253 m

$260 million

$160 million $96 m

2011-12

2012-13 WorkCoverSA Annual Report 2012-13

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Message from Philip Bentley, WorkCover Board Chair

In my last message as Chair of the WorkCover Board, I am pleased to announce that in 2012-13 we achieved an overall profit for the Scheme of $23 million. Our investment strategy achieved a $253 million return which is a very positive result considering the volatility in the global financial markets. The changed outlook in long-term interest rates increased the discount rate used to value future liabilities, resulting in a $112 million improvement. However, as was expected, there was a small deterioration in the claims liability ($93 million) some of which related to the transition in moving from a single claims agent to two agents mid-way through the year. The transition to two claims agents (Employers Mutual and Gallagher Bassett Services) and two legal service providers (Minter Ellison and Sparke Helmore) commenced on 1 January 2013. These new arrangements for claims agents have performance-based incentives for better claims management performance and return to work outcomes aimed at improving Scheme performance. It is imperative that the Corporation and the claims managers remain focused on more effective and efficient front-end management of claims. Early intervention is critical to improving return to work outcomes and reducing the claims liability.

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WorkCoverSA Annual Report 2012-13

As part of the new claims agent arrangements, we transitioned the management of serious injury claims back into WorkCoverSA. Except in unusual circumstances, these injured workers (126 active claims at 30 June 2013) will most likely require significant ongoing treatment and support for the rest of their lives. I believe our initiative is an important step in ensuring these claimants are provided with the best possible service while, at the same time, allowing the claims agents to concentrate on improving outcomes for those injured workers who can return to work.

very committed to ensuring a more active management of the Scheme to ensure improved performance. In February 2013, Rob Cordiner was recruited as General Manager Insurance and Michael Francis was recruited as General Manager Scheme Improvement and Regulation. Rob and Michael have both come from the Queensland workers’ compensation system, bringing more than 40 years’ experience between them in workers’ compensation. Then in April, Gay Wallace was appointed to the executive team as General Counsel/Board Secretary and Julia Oakley’s role as General Manager Corporate Services was enhanced. The Board believes that this executive team is the most experienced and knowledgeable workers’ compensation management team in WorkCoverSA’s history. This new team is well equipped to lead the Corporation into an era of more actively regulating Scheme performance as its number one priority.

Following the departure of Rob Thomson as Chief Executive Officer (CEO) in September 2012, the Board, through its Human Resource Committee, set about recruiting a new CEO and assembling a more experienced workers’ compensation executive team. In December 2012, we were pleased to welcome Greg McCarthy as the new CEO of WorkCoverSA. Greg has more than 35 years’ experience in insurance, and for the last 25 years specifically workers’ compensation and rehabilitation of injured workers. Greg is

The increased focus on Scheme regulation has meant we have strengthened our investigations approach to expose fraudulent activity by providers, workers

Table 1: WorkCover Scheme overview

Financial year

2012-13

2011-12

2010-11

2009-10

2008-09

Unfunded liability $m

(1,366)

(1,389)

(952)

(982)

(1,059)

Scheme funding ratio %

63.7%

59.2%

64.8%

61.5%

56.7%

23

(437)

30

77

(75)

Savings on claims liability $m

(93)

58

47

118

153

Change in economic factors $m

112

(361)

(16)

(105)

(50)

Investment income/(losses) $m

253

96

142

140

(136)

Overall Profit/(loss) $m Significant drivers of the result


and employers operating within the Scheme. This has included recruitment of specialist staff with extensive investigations experience. Our renewed approach and improved data mining techniques to uncover fraud are important steps toward achieving improved regulation of workers’ compensation in South Australia. Furthermore, increased publicity for successful prosecutions will induce greater self-regulation. 2012-13 also saw the commencement (on 1 July 2012) of the new Experience Rating System approach to calculating premiums for medium and large employers. This group represents approximately 10 per cent of employers within the Scheme, yet accounts for about 75 per cent of claim costs against the Scheme. A new approach targeting these employers is necessary to provide the financial incentives for medium and large employers to focus on injury prevention and improving their claims performance. Under experience rating, these employers’ premiums are linked to their claims performance, with those with a worse performance paying more and those performing better paying less when compared to their industry average. In October 2012, the Government announced the establishment of the Workers’ Compensation Improvement Project. This project looked at potential changes to legislation and improvements to the Scheme through changed management practices. The Board and the Executive Management both contributed extensively to this project. In particular the Board proposed a number of legislative reforms to the Government for consideration including: •

amending the medical panels legislation to reflect more the Victorian legislation capping medical entitlements 12 months after cessation of income maintenance except for serious injuries or greater than 30 per cent Whole Person Impairment

strengthening the test defining what constitutes a compensable injury.

Another matter the Board highlighted during this project was the comparative statistics across State and Federal jurisdictions for frequency and length of disputes before the relevant Tribunal. In South Australia’s case it has the highest frequency of disputes per worker and its disputes last far longer than in other jurisdictions. This problem, which exacerbates injured worker return to work rates, can only be addressed through changed legislation and changed procedures at the Workers Compensation Tribunal. The issue of redemptions has long been controversial. In March this year the Board commissioned its actuary to analyse whether relaxing the approach to redemptions for workers aged over 55 would have a positive impact on the Scheme. The report highlighted that the main issue revolves around the existence or otherwise of a ‘lump sum’ culture in the Scheme and what influence this has on return to work (or exit) performance.

The 2008 review found that the then existing redemption arrangements not only did not support a return to work approach, but that they had “…a corrosive effect upon the establishment and maintenance of a 3 return to work culture.” The actuarial advice was there would be no material saving to the breakeven premium rate from re-introducing redemptions. Indeed, if anything, re-introducing redemptions would increase the risk of not being able to successfully implement other strategies designed to reduce the number of claims reaching longer durations on benefits. This is well illustrated by the statistics for the past 20 years. Figure 6 shows the annual exit rate (other than via redemption) of claims reaching two years on benefits. Legislation permitting redemptions was introduced in 1995 and within two years, the exit rate had fallen from 35 per cent to 10 per cent. In 2008, when restrictions on redemptions were flagged, it was 13 per cent; in 2010, when restrictions on redemptions were enforced the exit rate

Figure 6: Annual Exit Rate of Claims Reaching 2 Years on Benefits (claims exiting in the next year, other than via redemption)

3

Review of the South Australian Workers’ Compensation System Report, December 2007 (known as the Clayton Walsh Review)

WorkCoverSA Annual Report 2012-13

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improved to 17 per cent; and at the end of 2012 it was approaching 30 per cent. These statistics do not support the use of redemptions (other than very selectively) as a tool for Scheme improvement. I would like to finish by thanking my Board colleagues. In March 2012, I advised the Board, and subsequently the then Minister, of my intention to retire at the end of 2013. I have been on the WorkCover Board for 10 years, the last five as Chair. It has come with its challenges, but I am pleased to say the Board has worked tirelessly during this time to look at ways to improve the Scheme’s performance. I believe that with the new and enhanced management team and the changed measures that this team has put in place, I am confident that I leave the Board having put the organisation in a place where we will see improvements in the Scheme’s performance. Philip Bentley WorkCover Board Chair

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WorkCoverSA Annual Report 2012-13


Message from Greg McCarthy, Chief Executive Officer incentives for medium and large employers to focus on injury prevention and reduction of claims costs when injuries do occur. These employers’ premiums are linked to their claims history performance.

As I reflect on my first year as Chief Executive, my priority from day one has been to ensure we take a much more active role in managing the performance of the Scheme. One of our key focus areas has been to look at ways to improve our services to assist workers, employers and providers within the Scheme to deliver earlier and better return to work outcomes. We are working closely with the claims agents to ensure we respond earlier in the claims process and support stakeholders to work together to achieve a durable return to work result for everyone within the Scheme. We have implemented a much more active management approach to the Scheme, including closer management and monitoring of the claims agents and the service providers to ensure workers get the right service at the right time. We are committed to delivering effective services, ensuring a stronger focus on recovery and return to work outcomes and delivering better value for money for the Scheme. 2012-13 has seen WorkCoverSA implement a large number of significant reforms to improve the Scheme’s performance, the most in recent history. On 1 July 2012, the new Experience Rating System commenced, following nearly two years of consultation with stakeholders across the Scheme. This new premium calculation system provides financial

In the first quarter of 2013, we transitioned from one claims agent and one legal service provider to two claims agents and two legal service providers. I want to commend all the staff at WorkCoverSA and our two claims agents for their efforts to ensure this transition was as smooth as possible. They strived to minimise the impact on the 50,000 employers within the Scheme and the injured workers whose claims were moved. Two small, yet significant, steps towards improving our service delivery have been the change in names and focus for both our Operations group (which became Insurance) and the Regulation group (which became Scheme Improvement and Regulation). The Insurance group is responsible for the underwriting of premium, claims management and handling enquiries about the Scheme. This group is looking at ways we can improve our approach to both provide services that meet the expectations of an employer paying an insurance premium to WorkCoverSA, and to support injured workers to recover and return to work. Our Scheme Improvement and Regulation group is responsible for researching and developing improvements in the design of the workers’ compensation Scheme, improving return to work services, regulating self-insurers, employer compliance, rehabilitation and medical and allied health providers, and detecting fraud through investigations of workers, employers and providers. This group will also drive our new actuarial and analytics team. I have placed a more significant focus

on a data driven approach to dealing with systemic issues within the Scheme. At WorkCoverSA, we have access to a wealth of information and I am committed to ensuring any initiatives we implement are backed up by evidence. In February 2013, I was pleased to welcome Rob Cordiner as General Manager Insurance and Michael Francis as General Manager Scheme Improvement and Regulation who each have a wealth of workers’ compensation experience. Julia Oakley, who has taken on an expanded role in Corporate Services, rounds out the general management team. I would also like to acknowledge the efforts and achievements of the outgoing executives Gael Fraser and Yvonne Deally. Since the announcement by the Premier of the Government’s Workers’ Compensation Improvement Project in late 2012, WorkCoverSA has provided significant input into the development of many of the initiatives. 2013-14 will see us roll out these initiatives. For example we will shortly roll out our early intervention model that will, with the claims agents, see workplace consultants visiting the workplaces of small business to assist workers and employers in the return to work process. I look forward to continuing to work with the entire team at WorkCoverSA, the claims agents and Scheme stakeholders to ensure we deliver improved return to work outcomes for all South Australians which, in-turn, should see a further improvement in our Scheme’s financial performance. Finally, I wish to thank the Board for their support throughout the year as we went about implementing significant changes to our approach in managing the Scheme. Greg McCarthy Chief Executive Officer

WorkCoverSA Annual Report 2012-13

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About WorkCoverSA WorkCoverSA provides insurance that protects South Australian businesses and their workers in the event of workrelated injury. The Rehabilitation and Compensation Scheme (the Scheme) covers approximately 50,000 registered South Australian businesses, protecting around 500,000 workers. Established in 1987 as a statutory authority, with a Board appointed by the Governor, WorkCoverSA is responsible for managing and regulating the Scheme. Through the Scheme, WorkCoverSA provides support to a worker injured at work to stay at or return to work as quickly as possible. This support includes paying; •

the worker’s wage while they are recovering from an injury

associated medical bills

for treatments and other services that are necessary and appropriate.

WorkCoverSA has overall responsibility for Scheme performance and ensures appropriate claims management and related services are provided. Employers Mutual SA and Gallagher Bassett Services are the appointed claims agents for the State’s registered employers to manage workers rehabilitation and compensation claims on WorkCoverSA’s behalf. WorkCoverSA is also responsible for regulating 66 private self-insured employers and 25 South Australian public sector employers who manage their own claims and associated liabilities, in accordance with the Workers Rehabilitation and Compensation Act 1986 (the Act).

Alignment with Government Objectives WorkCoverSA’s activities support the achievement of South Australia’s Strategic Plan. The State Government’s vision is for all members of the South Australian community to be safe in their homes, community and at work.

Ministerial reviews and directions While there were no Ministerial directions to WorkCoverSA in 2012-13, South Australia’s Premier Jay Weatherill announced the WorkCover Improvement Project on 27 October 2012 to review both the legislation and the administration of the Scheme.

WorkCoverSA Charter and Performance Statement The Minister for Industrial Relations and the Treasurer, in consultation with the WorkCover Board and in accordance with the Act, are required to prepare a Charter and Performance Statement for WorkCoverSA. The WorkCoverSA Charter sets out the State Government’s strategic objectives, operating arrangements, priorities and requirements for WorkCoverSA. The Performance Statement outlines the State Government’s performance expectations for the coming financial year. An updated WorkCoverSA Charter and 2012-13 Performance Statement was approved by the Hon. Jack Snelling MP on 29 June 2012 and came into effect from 1 July 2012.

WorkCoverSA Annual Report 2012-13

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The WorkCoverSA Strategic Plan 2011-16 outlines specific goals and strategies to help the organisation improve the return to work outcomes for South Australian businesses and their workers and the performance of the Scheme.

Recovery and return to work Goal 1: Injured workers remain at work or return to work to their maximum capacity People with a work-related injury remaining at, or returning to work to their maximum capacity, is fundamental to the success of the Scheme. Improvement was made in all return to work measures between 30 June 2012 and 30 June 2013. Return to work performance measures for 26 and 52 weeks exceeded the three per cent target. In 2013-14, WorkCoverSA will implement a range of initiatives to address the Scheme’s poor return to work performance, including the provision of an early intervention service for small employers, where appropriately qualified agent-based professionals meet with workers and employers in the workplace within the first three days of a claim to identify and overcome barriers to return to work. WorkCoverSA will also change the framework for engaging providers to ensure targeted, timely service provision which is heavily focused on return to work outcomes.

Table 2: 2012 - 13 return to work 4

performance Measures

Strategic

Result

of success

plan target

achieved 3.22%

26 weeks 52 weeks 104 weeks

3% improvement over 2011-12

5.11%

The new Experience Rating System targets medium and large employers as they represent approximately 10 per cent of employers registered with the South Australian Scheme, yet they represent 75 per cent of claim costs each year. Figure 7: Registered employers by size, as at 30 June 2013

2.20%

0.34%

Implement a new employer premium payment system

10.2%

Experience rated employers On 1 July 2012, WorkCoverSA introduced the Experience Rating System for premium calculation for medium and large employers in the Scheme. The new system provides a financial incentive to prevent work-related injuries and to support people who are injured at work to remain at or return to work as soon as possible. The Experience Rating System links the claims experience performance of a business compared to other employers in the same industry when calculating their premium.

89.4%

large employer medium employer small employer

The system rewards employers with a better claims cost performance than the industry they operate in. Generally, an employer will pay less in premium if their claims experience is better than their industry’s average claims experience. If the employer’s performance is worse than their industry’s average claims experience, they will pay more. This new system provides incentives for employers to create safer workplaces and to be more active in the management of a worker’s recovery and return to work following an injury.

4

In measuring the success of stay at work and return to work, WorkCoverSA measures return to work durations up to 26 weeks, 27 to 52 weeks and 53 to 104 weeks off work. Measuring the return to work performance in these claim cohorts provides the focus for our claims agents, Employers Mutual SA and Gallagher Bassett Services Workers Compensation South Australia, to deliver strategies to maximise return to work at these critical stages of claims management and rehabilitation.

WorkCoverSA Annual Report 2012-13

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WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan Recovery and return to work Recovery and return to work Influence behaviour of high-cost and/or high-risk employers to improve outcomes The Experience Rating System is one of WorkCoverSA’s major strategies to influence the behaviour of all experience rated employers to improve return to work outcomes and Scheme performance. Retro-Paid Loss Arrangements Under WorkCoverSA’s Retro-Paid Loss Arrangement, an employer’s premium is more closely related to the claim costs they incur, with minimal consideration for their industry risk. While employers under this approach take on additional risk, WorkCoverSA’s Retro-Paid Loss Arrangement provides large employers with an even greater financial incentive to manage their claims costs by preventing injuries and working with their injured workers to obtain the best claim outcome. There were 17 employers that entered into a Retro-Paid Loss Arrangement as at 30 June 2013.

Improve the services, skills and engagement of people who contribute to the delivery of better outcomes for injured workers and employers Stakeholder engagement activities

WorkCoverSA Annual Report 2012-13

In November 2012, WorkCoverSA finalised the Scheme Workforce Development Strategy for an effective and sustainable workforce. This strategy provides a framework for the sectors operating in the Scheme to assist in: • planning the workforce

WorkCoverSA continues its commitment to engage with key stakeholders, business and worker representative groups. In 2012-13, WorkCoverSA undertook a wide range of stakeholder activities, including: • six forums with employers and unions • three general stakeholder information sessions • one injured worker stakeholder forum

• recruiting skilled staff • developing existing workers • retaining workers • fostering innovation and change. By enhancing the workers compensation and rehabilitation skills and knowledge and availability of persons operating within the Scheme the outcomes for injured workers and employers should be improved.

• three forums for providers • eight customer discovery workshops

Industry Scholarship Program

• regular communications throughout the year via consultation papers, emails and information.

WorkCoverSA’s Industry Scholarship Program supports people working in the South Australian workers compensation industry to undertake further study to improve their skills. Now in its third year, the program received a number of high quality applications from industry professionals resulting in four scholarships being awarded.

A series of customer discovery workshops were facilitated in both metropolitan and regional areas of South Australia in 2012. These workshops aimed to develop a better understanding of the experiences of businesses, workers with a WorkCover claim and healthcare providers. WorkCoverSA’s stakeholder engagement is proactive, targeted and timely; providing information and seeking feedback from key impacted groups as Scheme changes and improvements arise.

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Scheme Workforce Development Strategy


WorkCoverSA Service Charter WorkCoverSA’s Service Charter outlines the standard of service that can be expected when contacting the organisation. The Service Charter also includes information on where to find more information about: • premiums or claims • how to make a complaint or provide feedback • worker and employer rights and responsibilities and their obligations in relation to the Scheme. WorkCoverSA’s Service Charter is available at www.workcover.com.

Employer advisory services In 2012-13, 443 rehabilitation and return to work coordinators attended WorkCoverSA’s approved coordinator training sessions. The training provides coordinators with essential skills and knowledge to help direct workplace activity to enable a safe, early return to work. WorkCoverSA continues to work with coordinators to provide additional information and support initiatives to assist them in performing their roles.

Recovery and Return to Work Awards The WorkCoverSA Recovery and Return to Work Awards recognise and reward the outstanding efforts of Scheme participants who are leading the way to improve return to work outcomes. In 2012, 235 nominations were received resulting in 110 full applications. For more information on the 2012 winners and finalists visit www.workcover.com.

Effective implementation of the agreed plan from the 2010 Walsh report In 2010, workers compensation expert, John Walsh, was commissioned to assess the outcomes achieved by the use of vocational rehabilitation service in the Scheme. The report highlighted a number of issues that were contributing to poor return to work outcomes.

GP Helpline Return to work services The GP Helpline is a telephone and email support service that provides access for General Practitioners to qualified people who can answer Scheme enquiries. Since its launch in July 2012, this service has received 497 queries with 64 per cent of queries relating to fees and services, and claims management.

Building on the recommendations from the Walsh report, WorkCoverSA developed a new Return to Work Services Strategy in 2012-13. This strategy is focused on improving return to work outcomes and value for money for the Scheme through more effective use of workplace rehabilitation. The strategy incorporates five streams of work: 1. Provider approval and appointment process. 2. Case manager referrals for return to work services. 3. Monitor and review return to work services. 4. Provider performance measurement.

WorkCoverSA launched a new support service to high-risk employers to assist them to better manage their claims experience. Since March 2013, WorkCoverSA has provided advisory support services to 58 South Australian businesses.

5. Outcome model for return to work services. Implementation of the strategy commenced in 2013. Key components for the first phase include the appointment of workplace rehabilitation providers, implementation of the outcome model for return to pre-injury employer services, and refining case management activities associated with engagement of service providers. The strategy will continue to be rolled out in 2013-14. WorkCoverSA Annual Report 2012-13

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WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan Recovery and return to work Recovery and return to work Leverage training opportunities and labour market gaps for the benefit of injured workers and employers

Undertake a new agent and legal contract process

Injured Worker Training Strategy

In May 2011, the WorkCover Board approved a procurement process for the provision of claims management services and claims legal services for the Scheme.

In 2012-13, WorkCoverSA developed an Injured Worker Training Strategy. Its focus is on quality employment outcomes, how workers can access skill assessment, recognition of prior learning and flexible training methodologies. It also links the process of returning people with a work-related injury to the workforce with the State’s training and skills development system. Return to Work Fund The Return to Work Fund (the Fund) aims to improve the Scheme by testing different ways of assisting injured workers to recover at work as well as improving sustainable return to work arrangements through a more cohesive and connected system. Following a review of the objectives of the Fund, the following two projects were delivered in 2012-13: • Stand Up With Confidence by D&S Promotions • Being Proactive in Aged Care by Murto Pty Ltd. The WorkCoverSA Board has approved a further eight projects to commence in 2013-14.

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WorkCoverSA Annual Report 2012-13

Claims agent and legal service provider transition

In August 2012, the Board announced that Employers Mutual SA and Gallagher Bassett Services were chosen to provide claims management services for the Scheme. In October 2012, the Board announced that Minter Ellison Lawyers and Sparke Helmore Lawyers were chosen as providers of claims legal services for the Scheme. These arrangements commenced on 1 January 2013. Following a successful transition to the new arrangements for claims management and claims legal services, WorkCoverSA is working closely with each of the service providers to improve return to work outcomes and Scheme performance.


Injury prevention and management Injury prevention and management Goal 2: Employers, workers and providers meet their obligations and actively work together to deliver workplace injury prevention and injury management outcomes WorkCoverSA is committed to ensuring employers, workers, health and medical providers meet their obligations and work together in an integrated and responsive manner that delivers optimal outcomes for employers and workers in the Scheme. Performance is assessed against the measures of success outlined in Table 3.

Focus on regulation and education for employers, workers and providers in meeting their legislative obligations Education framework for providers WorkCoverSA presented a series of six accredited workshops for general practitioners as part of the education framework for providers, in partnership with the South Australian Postgraduate Medical Education Association in 2012-13. The workshops covered managing musculoskeletal injuries, understanding the Scheme and completing the WorkCover Medical Certificate. In November 2012, WorkCoverSA launched the first of its Quarterly Provider Forums. This targeted education initiative for allied health and workplace rehabilitation providers was fully subscribed for each of the three forums held in 2012-13.

Table 3: WorkCoverSA’s injury prevention and management outcomes

Measures of success

Strategic plan target

Result achieved

Three-year renewals registrations achieved by self-insurers.

5% improvement each year.

Target achieved with 14 self-insured employers receiving “superior” level renewals.

Referral of section 58B/C matters.

Appropriate actions5 are undertaken on 95% of section 58B/C matters referred.

65% of matters referred.

In May 2013, WorkCoverSA published revised guidance on developing a Rehabilitation and Return to Work Plan on its website at www.workcover.com which aims to facilitate improved consultation between providers, employers and people with a work-related injury. Prior to the launch of the new guidance, a series of workshops were run to educate workplace rehabilitation providers and claims agent representatives about the refreshed consultative approach. Investigations and prosecutions WorkCoverSA’s new Investigation Unit has recruited specialist staff with extensive experience in both criminal and administrative investigations and has a strong focus on driving improvements in Scheme performance and compliance. Focusing on enforcement and education, WorkCoverSA is communicating a renewed focus on Scheme outcomes, as well as enforcement outcomes, to case managers through formal training and regular communication. In 2012-13 WorkCoverSA achieved a successful prosecution outcome and laid one new complaint. Both matters related to working while receiving income maintenance. The successful prosecution was of a worker who was found guilty. The worker had convictions recorded for dishonesty. The person incurred a fine, costs and restitution which totalled $16,451. In 2012-13, WorkCoverSA achieved an estimated $253,1606 in outcomes, including claim savings due to discontinuances and recoveries.

5

Appropriate actions refers to preliminary decisions made within 20 days. 6

Figure based on adjusted claim estimates following outcome.

WorkCoverSA Annual Report 2012-13

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WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan

Injury prevention management Injury prevention andand management Regulation of employer obligations

Regulation of self-insured employers

Claims disputes

WorkCoverSA works closely with South Australian employers to ensure they meet their obligations under the Act.

Terms and conditions of self-insurance registrations are based on WorkCoverSA’s Natural Consequences Model which rewards self-insured employers who demonstrate superior performance.

The Act enables injured workers, employers and providers to dispute decisions made by WorkCoverSA’s claims agents and self-insured employers.

South Australian employers have a legal obligation to provide suitable employment to people with a work-related injury. In 2012-13, WorkCoverSA received 204 referrals that employers were not providing suitable employment for their injured employees. Of these referrals, approximately 65 per cent of matters resulted in a preliminary decision being made within 20-days of the receipt of advice. Those matters not decided within the 20-day period required further investigation before decisions could be finalised. Under the Act, South Australian employers with 30 or more workers must also appoint a Rehabilitation and Return to Work Coordinator. As at 30 June 2013, there were approximately 4407 employers with a registered coordinator. WorkCoverSA allows groupings of multiple employers supported by a single coordinator with grouping exemptions, for a period of up to two years. As at 30 June 2013, WorkCoverSA reported 84 groupings were operational, with their performance monitored through verification audits of their injury management systems.

The self-insurance fee remained at 5.2 per cent in 2012-13, or 4.2 per cent for those self-insured employers who do not contribute to the Self Insurer Insolvency Contribution Aggregate (SIICA). Self-insured employers make contributions to the SIICA in accordance with the Act, to cover the actual and prospective liabilities arising from the insolvency of employers. In 2012-13, WorkCoverSA performed evaluations of self-insured employers’ work health, safety, and injury management systems to determine whether they conform to the WorkCoverSA Performance Standards. During 2012-13, 14 Crown reviews and 34 private self-insured renewal applications were conducted. As at 30 June 2013, 14 self-insured employers had achieved a renewal outcome at the highest level. WorkCoverSA continues to provide ongoing monitoring, support and guidance to self-insured employers through tailored partnership plans. A list of all self-insured Crown and private employers and total outcomes achieved against the Natural Consequences Model at 30 June 2013 can be found on page 35 and 36 of this report.

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WorkCoverSA Annual Report 2012-13

WorkCoverSA monitors dispute trends in the Workers Compensation Tribunal (the Tribunal) relating to WorkCover-insured employers (i.e. not self-insured employers). As advised by the Tribunal, there were 2309 disputes for 2012-13. This is a decease in dispute numbers from 2011-12 (2368). The majority of disputes relate to: • compensability, inclusive of physical and psychiatric injuries • calculation of average weekly earnings and periods of incapacity • lump sums.


Financial sustainability

Table 4: WorkCoverSA’s financial sustainability outcomes

Goal 3: A financially sustainable Scheme WorkCoverSA has an obligation to all South Australians to manage the Scheme in a financially responsible manner.

Measures of success

Strategic plan target

Result achieved

Scheme funding ratio

An 80% Scheme funding ratio achieved by 2014-15, increasing to the 90-110% range by June 20177

63.7% (at June 2013)

Scheme funding ratio 7

Target achievement is anticipated after the expiry of the 2011-16 Strategic Plan.

WorkCoverSA’s outstanding claim liabilities are valued by the Scheme Actuary every six months and claim liabilities are calculated on a discounted cash flow basis. A reversal of the declining trend in long-term interest rates at the June 2013 valuation has assisted in moderating the increase in the value of claim liabilities for the year. The value of claim liabilities has increased during 2012-13 by $380 million to $3.725 billion at 30 June 2013. This was offset by a $384 million increase in assets to $2.4 billion, primarily due to the strong performance of the investment portfolio during the year. The overall funding ratio improved to be 63.7 per cent at 30 June 2013 compared to 59.2 per cent at 30 June 2012.

WorkCoverSA Annual Report 2012-13

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WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan Financial sustainability Financial sustainability Simplified financial statement

Board approved strategic asset allocation

WorkCoverSA’s comprehensive profit result of $23 million in 2012-13 reflected strong investment earnings, a lower increase in the valuation of claim liabilities, higher employer premium revenue and lower operating expenses. Operating cash flow remained positive at $213 million for 2012-13.

Throughout 2012-13, the Board approved continuation of the moderate risk, balanced portfolio approach. WorkCoverSA’s net investment return for 2012-13 was 13.1 per cent, which is significantly above inflation and the actuarial discount rate.

Table 5: Simplified financial statement8

Maintain a prudent risk-based investment program

Simplified income statement

2012-13 $m

2011-12 $m

Investment policy and strategy

Levy from registered employers

667

639

Net claims paid

(419)

(375)

Movement in net outstanding claims liability

(376)

(679)

Other claims expenses

(52)

(51)

Underwriting result

(180)

(466)

Investment profits

253

96

Investment expenses

(4)

(4)

Other income

25

20

Operating expenses

(71)

(83)

Profit/(loss)

23

(437)

Simplified balance sheet

2012-13 $m

2011-12 $m

Investments

2258

1867

Other assets

140

147

Total assets

2398

2014

Outstanding claims

3725

3345

Other liabilities

39

58

Total liabilities

3764

3403

Unfunded liability

(1366)

(1389)

Funding ratio

63.7%

59.2%

WorkCoverSA’s investment strategy is a fundamental component of ensuring the long-term viability of the Scheme. Positive Scheme cash flow and investment returns in 2012-13 resulted in continued growth in our investment portfolio to more than $2.2 billion. Through the investment program, WorkCoverSA seeks to assist in minimising employer premiums by delivering investment returns that exceed the actuarial discount rate, achieved by adopting a moderate risk, balanced investment portfolio. The investment program also seeks to ensure maintenance of the purchasing power of money held to fund the Scheme’s liabilities by focusing on maximising real (i.e. in excess of South Australian wage inflation) investment returns, measured over rolling, three-year periods.

8

Figures have been rounded.

20

WorkCoverSA Annual Report 2012-13


Premium disputes and review

Table 6: Net investment return

1 year 13.1%

3 years as at

5 years as at

7 years as at

10 years as at

30 June 2013

30 June 2013

30 June 2013

30 June 2013

per annum

per annum

per annum

per annum

9.5%

5.7%

5.2%

7.8%

Table 7: Strategic asset allocation table

Asset

As at 30 June 2013. Percentage of total investment portfolio

WorkCoverSA’s dispute resolution process enables employers who are dissatisfied with a decision about a premium or certain related decisions to request a review. In 2012-13 there was a decrease in the number of disputes due to fewer fines being imposed on employers for late payment of premium. There were 178 new review applications received in 2012-13, compared with 295 in the previous financial year. A total of 152 dispute and review files were closed during 2012-13:

Cash

2%

Fixed interest

12%

Inflation-linked securities

19%

• 100 were withdrawn or conceded in favour of the employer after reconsideration

Alternative income

5%

• 39 were resolved by conciliation

Australian equities

11.5%

Overseas equities

23%

• five were determined by the premium review panel

Property

7.5%

• six were withdrawn at formal review.

Real return growth assets

20%

Ensure employers are registered and pay the appropriate premium Premium management and compliance

• two fell outside the jurisdiction of the premium review panel

The panel conducted 54 directions hearings and three full hearings.

targeted samples to verify an employer’s reported remuneration and reviews the nature of the business to ensure it has the correct classification for a corresponding industry rate. In 2012-13:

WorkCoverSA collects an appropriate premium from registered employers to fund the Scheme.

• 670 employers were audited

WorkCoverSA’s employer compliance program takes a balanced and fair approach by actively pursuing non-compliance anywhere in the Scheme. It undertakes a comprehensive audit program that uses

• $1,068,066 was received in overpayments.

• $1,328,283 was identified in premium underpayments

WorkCoverSA Annual Report 2012-13

21


WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan

Organisational professionalism and achievement Organisational professionalism and achievement Organisational professionalism and achievement

Table 8: WorkCoverSA’s organisational professionalism and achievement outcomes

Goal 4: A professional, achievement-focused organisation WorkCoverSA has set outcome targets that reflect its goal of establishing and maintaining a professional, achievementfocused organisation.

Leverage information, communication and technology systems and capability to support business outcomes WorkCoverSA’s Information Communication Technology (ICT) platform continues to support the achievement of strategic business outcomes. During 2012-13, ongoing capability enhancements continued to be delivered to the core business system, Cúram. WorkCoverSA continued its annual technology refresh program to ensure the ongoing reliability and security of key systems. Key highlights for 2012-13 include the acquisition of a new Storage Area Network (SAN) and data backup solution.

22

WorkCoverSA Annual Report 2012-13

9

Measures of success

Result achieved

Achievement of goal 1, goal 2 and goal 3 of the strategic plan 2011-16.

Goals partially met to date.

Effective management of workplace health and safety and injury management in our workplace aligned with self-insured standards.

Zero lost time injuries and three medical treatment injury9.

Implementation of an integrated organisational and capability framework by December 2013.

On track.

The health and safety and injury management measure is defined as the number of lost time injuries (LTI) and medical treatment injuries (MTI). The target is set at zero.


Align, develop and enhance WorkCoverSA’s organisational capability

Figure 8: Organisational structure

INTERNAL AUDIT

During 2012-13, WorkCoverSA revised its organisational structure. The executive management team aims to lead the Corporation into an era of more proactively regulating Scheme performance and is committed to improving claims management practices and return to work outcomes.

WORKCOVER BOARD

CHIEF EXECUTIVE OFFICER

SCHEME IMPROVEMENT AND REGULATION

CORPORATE SERVICES

INSURANCE

OFFICE OF THE CEO

BOARD SECRETARY/ CORPORATE COUNSEL

WorkCoverSA Annual Report 2012-13

23


WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan

Organisational professionalism and achievement Organisational professionalism and achievement Employee numbers, gender and status Table 10: Gender percentage

Table 9: Number of employees

Gender

Total number of employees FTEs Persons

% Persons

287.8

Male

40.0

41.2

300

Female

60.0

58.8

Table 11: Change of staff numbers

Table 12: Staff numbers at end of year

Number of persons during the 2012-13 financial year

Number of persons at 30 June 2013

Separated from WorkCoverSA

44

On leave without pay

Recruited to WorkCoverSA

49

5

Table 13: Number of employees by salary bracket10

Salary bracket

Male

Female

Total

$0 - $53,199

7

35

42

$53,200 - $67,699

8

45

53

$67,700 - $86,599

33

53

86

$86,600 - $109,299

37

26

63

$109,300+

35

21

56

Total

120

180

300

10

Salary details relate to pre-tax income excluding super and FBT

24

% FTEs

WorkCoverSA Annual Report 2012-13


Table 14: Status of employees in current position

Full-time equivalent employees

Ongoing

Short-term

Long-term

Other

contract

contract

(Casual)

Total

Male

100.4

5.0

12.4

0.8

118.6

Female

148.5

10.0

10.7

0.0

169.2

Total

248.9

15.0

23.1

0.8

287.8

Persons

Ongoing

Short-term11

Long-term12

Other

contract

contract

(Casual)

Male

101

5

13

1

120

Female

159

10

11

0

180

Total

260

15

24

1

300

Total

11

For a period up to and including one year. For a period which extends beyond one year and up to five years.

12

Executives

Leave management

An executive is an employee who receives a total salary of $109,806 per annum or more, or a total remuneration package value equivalent to $138,033 per annum or more, and who has executive responsibilities.

Table 16: Average days leave taken per full-time equivalent employee

Table 15: Executives by gender, classification and status

Term untenured

Total

Classification

Male

Male %

Chief Executive Officer

1

Executives

2

1

2

1

3

Total

3

1

3

1

4

Female

Female %

1

Leave type

2012-13

2011-12

2010-11

Sick leave

5.22

6.81

7.15

Family carer’s leave

1.37

1.21

0.97

Miscellaneous special leave

0.15

0.13

0.06

Total 1

WorkCoverSA Annual Report 2012-13

25


WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan

Organisational professionalism and achievement Organisational professionalism and achievement Workforce diversity It is not mandatory for WorkCoverSA employees to disclose information about their cultural background or disabilities. Therefore some specific information associated with workforce diversity is not available.

Table 17: Number of employees by age and by gender

Workforce

Age bracket

Male

Female

Total

Percentage of total

15-19

0

0

0

0.0%

6.2%

20-24

0

4

4

1.3%

9.7%

25-29

6

11

17

5.7%

10.9%

30-34

11

15

26

8.7%

9.8%

35-39

15

30

45

15.0%

10.1%

40-44

18

32

50

16.7%

11.8%

45-49

18

31

49

16.3%

11.2%

50-54

18

22

40

13.3%

11.3%

55-59

19

20

39

13.0%

9.2%

60-64

12

11

23

7.7%

6.1%

65+

3

4

7

2.3%

3.7%

Total

120

180

300

100%

100%

benchmark13

13 Source: Australian Bureau of Statistics Australian Demographic Statistics, 6291.0.55.001 Labour Force Status (ST LM8) by sex, age, state, marital status – employed – total from Feb 78 Supertable, South Australia at Feb 2013.

Disability action plan and equal opportunity WorkCoverSA continued to promote all externally advertised job vacancies through Disability Works Australia and the Indigenous Information Network of South Australia (Turkindi). A disability awareness session was held on 27 June 2013 for staff from WorkCoverSA, claims agents, self-insured employers and other service providers. Workplace modifications for individual staff were organised as required.

26

WorkCoverSA Annual Report 2012-13


Voluntary flexible working arrangements Table 18: Voluntary flexible working arrangements by gender

FTEs

Male

Female

Total

5

5

10

Eligible for Flexitime

88

158

246

Compressed weeks

0

0

0

Part-time/job share

6

28

34

Working from home16

3

4

7

Purchased leave 14

15

14

Senior staff do not access flexitime arrangements. Some staff work on part-time/job-share arrangements and work from home. 16 Some staff work from home. 15

Performance development Table 19: Documented review of individual performance management

As at 30 June 2013,

Employees with ‌

percentage of total workers

A review within the last 12 months

90.35%

A review older than 12 months

4.25%

No review

5.40%

17

17

Includes staff on long-term leave or absences.

Table 20: Training expenditure and development18

Training and development

Percentage of Total cost

total salary expenditure

Training and development

$373,019

1.5%

Leadership and management development

$111,356

0.45%

18

Includes staff on long-term leave or absences.

WorkCoverSA Annual Report 2012-13

27


WorkCoverSA’s WorkCoverSA’s Strategic Plan2011-16 2011 -16 Strategic Plan

Organisational professionalism and achievement Organisational professionalism and achievement Accredited training packages

Continuously improve WorkCoverSA’s workplace health, safety and well-being systems

Table 21: Accredited training packages by classification19

Number of accredited training

Classification

packages

Grade 3

4

Grade 4

5

Grade 5

6

Senior Officer

3

Health and safety

19 Refers only to employees currently enrolled in an accredited training package or who have attained a qualification or statement of attainment in 2012-13.

Table 22: Agency gross workers compensation expenditure for 2012-13 compared to 2011-12

Expenditure

2012-13

2011-12

Variation

% Change

($m)

($m)

($m) + (-)

+(-)

Income maintenance

$229.2

$196.7

$32.5

16.5%

Lump sum settlements redemptions

$4.2

$4.1

$0.1

2.4%

Lump sum settlements permanent disability

$39.9

$36.4

$3.5

9.6%

Medical/Hospital costs combined20

$101.4

$96.5

$4.9

5.1%

Other

$64.1

$58.7

$5.4

9.2%

Total claims expenditure21

$438.8

$392.4

$46.4

11.8%

20

Includes physiotherapy Gross of recoveries

21

WorkCoverSA is committed to continuously improving its systems for managing safety and striving to attain zero harm. The focus on minimising risk and being proactive with injury management ensures that the number of incidents and associated impacts are kept as low as possible. Workplace health and safety management systems WorkCoverSA applies the same performance standards used by self-insured employers to measure its safety effectiveness. In 2012-13, systems, policies and practices were reviewed to incorporate the 2012 Work Health and Safety (WHS) legislative requirements and responsibilities. Workplace health and safety is integrated into WorkCoverSA’s day-to-day business by: • including WHS expectations in position descriptions and performance and career development process • consulting staff as a cornerstone of the corporation’s approach to safety • early reporting, investigating and involvement to resolve WHS issues • auditing to highlight opportunities for improvement • measuring staff satisfaction regarding safety via an engagement survey.

28

WorkCoverSA Annual Report 2012-13


WorkCoverSA maintained a high standard of safety in 2012-13, ensuring the wellbeing of staff is of paramount importance. WorkCoverSA’s approach has ensured that we have not experienced any significant injuries or incidents in the workplace throughout the financial year.

Meeting safety performance targets Table 23: Meeting safety performance targets

Performance indicator

2012-13

2011-12

Variation

Workplace fatalities

0

0

0

Workplace injury claims

3

1

2

Workplace lost time injury claims

0

1

(1)

Lost time injury incident rate22

0

0.36

(0.36)

23

Lost time injury frequency rate

0

2.22

(2.22)

New psychological injury claims

0

0

0

22

LTI incident rate: Number of LTI/FTE employees x 100 LTI Frequency rate: Number of LTI/hours worked x 1,000,000

23

WorkCoverSA Annual Report 2012-13

29


Corporate governance and administration

The Executive Management Team as at 30 June 2013 comprised: • Greg McCarthy, Chief Executive Officer

Risk management In order for the goals identified in WorkCoverSA’s strategic plan to be successfully achieved, it is critical that risks are identified and managed. WorkCoverSA has a risk management system that incorporates the corporate perspective (top-down) and operational imperatives (bottom-up). Internal audit and internal fraud WorkCoverSA has an internal audit plan that is reviewed annually to ensure it continues to reflect current issues impacting WorkCoverSA, and to prioritise areas of higher risk. Internal auditing services are provided by PricewaterhouseCoopers (PwC) who report to the WorkCover Board Audit and Risk Committee. In 2012-13, there were no instances of internal fraud detected. Board and Executive Management Team WorkCoverSA has a Board of Directors who are appointed by the Governor. The Board members in 2012-13 were: • Philip Bentley (Chair) • Robyn Buckler • Noelene Buddle • Joanne Denley

• Michael Francis, General Manager, Scheme Improvement and Regulation • Julia Oakley, General Manager, Corporate Services • Rob Cordiner, General Manager, Insurance.

Administrative matters Access to information Access to information held by WorkCoverSA can be obtained under section 107B of the Workers Rehabilitation and Compensation Act 1986 and the Freedom of Information Act 1991 (FOI Act). Any person with a workers compensation claim (and/or their representatives) in South Australia has access to information relevant to their claim. The FOI Act gives any person a right of access to documents held by State Government agencies such as WorkCoverSA. In 2012-13, 1088 applications were received for access to information. Of these, 864 (79 per cent) were lodged under section 107B (2011-12: 810), and 224 (21 per cent) under the FOI Act (2011-12: 261). If an applicant is dissatisfied with a determination under section 107B or the FOI Act they can apply for a review of that determination. In 2012-13, WorkCoverSA received four applications for internal review under section 107B and three applications for internal review under the FOI Act. In addition, two applications proceeded to external review with the State Ombudsman and two complaints were lodged with the WorkCover Ombudsman. Further information about Freedom of Information can be found at www.workcover.com.

• Peter Malinauskas • Peter Vaughan • David White • Jane Yuile • Sandra De Poi (until January 2013) • Adam Lawrence (observer).

WorkCoverSA Annual Report 2012-13

31


Corporate governance Corporate governance and and administration administration Energy use and efficiency action plans WorkCoverSA contributes to the goals of South Australia’s Strategic Plan to reduce greenhouse gas emissions by improving the energy efficiency of government buildings, and to reduce energy consumption. In 2012-13, WorkCoverSA reported 397.5 tonnes of CO2 emissions, a 78 per cent reduction from 1839.3 tonnes recorded in the previous year.

Table 24: WorkCoverSA’s energy consumption

Business measures (MJ divided by m2 of floor area)

Year

Energy use (MJ)

Floor area (m2)

2012-13

1,569,873

5248

299

2011-12

7,976,149

9563

834

Overseas travel

WorkCoverSA also reported a 64 per cent reduction in energy use in 2012-13 (refer to Table 24).

There was no overseas travel undertaken by any WorkCoverSA staff in 2012-13.

These significant energy and efficiency improvements are largely due to the Corporation’s new accommodation at 400 King William Street, Adelaide. WorkCoverSA’s building now has a 5 Star Green Star Certified Rating and base building 4.5 Star National Australian Built Environment Rating System (NABERS) energy rating, which are the current standards required by government.

Table 25: Account payment performance24

Account payment performance

Number of

Percentage of

Value of

Percentage of

accounts

accounts paid

accounts

accounts paid

paid

(by number)

paid $

(by value)

Paid Within 30 Days

3442

98.26%

113,173,685

99.43%

Paid within 30 to 60 Days

54

1.54%

610,612

0.54%

Paid greater than 60 Days

7

0.20%

34,199

0.03%

24

Excluding amounts paid by Employers Mutual SA and Gallagher Bassett Services.

Whistleblowers Protection Act 1993 WorkCoverSA has appointed an officer for administering the Whistle Blowers Protection Act 1993 (WPA), under Section 7 of the Public Sector Act 2009. In 2012-13, there were no instances of disclosure of public interest information to a responsible WorkCover officer under the WPA.

32

WorkCoverSA Annual Report 2012-13


Summary of contractual arrangements During 2012-13, WorkCoverSA was party to the following contractual arrangements of more than $4 million: • an extended agreement with

Table 26: External consultancies commissioned by WorkCoverSA in 2012-1325

Value

Project

Total $

Value below $10,000 Two consultancies

12,396

Value $10,000 to $50,000

International Business Machines

Bennett Lawrence and Fenn Pty Ltd

Strategic Planning

(IBM), ending in August 2013, for

Chamonix IT Management Consulting (SA) Pty Ltd

IT Consulting

system for claims management and

Contracting & Tendering Services Pty Ltd

Probity and Procurement advice

premium collection

DeakinPrime Deakin University

Training and course development

Employers Mutual SA Pty Ltd, which

Dyson Consulting Group Pty Ltd

Project Advice

ended on 31 December 2012, as the

Enrite Solutions Pty Ltd

IT Consulting

sole agent for all registered employer

Interwork Ltd

Return to Work Fund project

claims

Murto Pty Ltd

Return to Work Fund project

Paul Laband

Investment Consulting

Radek Stratil

Project Advice

SA Unions

Return to Work Fund project

SAS Institute Australia Pty Ltd

IT Consulting

The Flinders University of SA

Research Project

The SA Centre for Economic Studies

Training Advice

The University of Sydney

Research Project

extended warranty support for the implementation of the Cúram business

• a claims management agreement with

• a new claims agent agreement with Employers Mutual SA Pty Ltd, current to 30 June 2017, as an agent for registered employer claims • a new claims agent agreement with Gallagher Bassett Services Workers Compensation South Australia, current to 30 June 2017, as an agent for registered employer claims • a contract with Minter Ellison Lawyers, which ended on 31 December 2012, as the principal provider of legal services for advice and representation in relation to worker claims related matters and disputes • a new claims legal services agreement with Minter Ellison Lawyers, current to 30 June 2017, for advice and representation in relation to worker claims related matters and disputes

Total

425,642

Value Above $50,000

Project

Total $

Adelaide Research & Innovation Pty Ltd

Evaluation of RTW Fund

D & S Promotions Pty Ltd

Return to Work Fund Project

Deloitte Touche Tohmatsu

Procurement Advice

Enzyme International

Consultancy Advice

Ernst & Young

Consultancy Advice

Finity Consulting Pty Limited

Actuarial Advice

IntecGroup - ICG Pty Ltd

IT Consulting

Master Builders Association (SA) Inc

Return to Work Fund Project

Michels Warren Pty Ltd

Media Consulting

Neesham Consulting

Business Consulting

PricewaterhouseCoopers

Consultancy Advice

Russell Investment Group Pty Ltd

Investment Consulting

• a new claims legal services agreement with Sparke Helmore Lawyers, current to 30 June 2017, for advice and representation in relation to worker

2,460,471 TOTAL

2,898,509

25

Note: Calculated on consultants invoices and does not include accruals.

claims related matters and disputes. WorkCoverSA Annual Report 2012-13

33


Self-insured employers The following tables represent the level of the Natural Consequences Model (NCM) that private and Crown self-insured employers achieved at the last renewal review. The NCM levels achieved by self-insured employers are current as at 30 June 2013. WorkCoverSA revised its model structure with a new approach taking effect from 1 April 2012.

Table 28: South Australian self-insured employers

Crown self-insured employers Attorney-General's Department Courts Administration Authority Department for Communities and Social Inclusion (DCSI) Department for Environment, Water and Natural Resources Department for Further Education, Employment, Science and Technology (DFEEST) Department for Health and Ageing Department for Manufacturing, Innovation, Trade, Resources and Energy (DMITRE)

Table 27: Natural Consequences Model structure

Department of Correctional Services (DCS) Department of Education and Child Development (DECD) Department of Planning,Transport & Infrastructure (DPTI) Department of Premier and Cabinet

Renewal outcome

Count

1B

7

Environment Protection Authority (EPA)

1C

7

Metropolitan Fire Service (MFS)

Level 2

5

Minda Incorporated

Level 3

3

Primary Industries & Regions (PIRSA)

Gold

1

Royal District Nursing Service of SA Inc

Non-conforming

14

SA Forestry Corporation

Developing

29

SA Police (SAPOL)

Performing

13

SA Water

Superior

10

South Australian Country Fire Service (CFS)

Grand Total

89

South Australian Fire and Emergency Services Commission (SAFECOM)

Department of Treasury and Finance

State Emergency Service (SES) TAFE SA The Adelaide Convention Centre

WorkCoverSA Annual Report 2012-13

35


Private self-insured employers

Private self-insured employers

Accolade Wines Australia Limited

Lion Pty Ltd

Adelaide Brighton Limited

Little Company of Mary Health Care Limited

Advertiser Newspapers Pty Ltd

Local Government Association of South Australia

Aged Care & Housing Group Inc.

Monroe Australia Pty Ltd

Australia and New Zealand Banking Group Limited

Myer Pty Ltd

Arnott’s Biscuits Limited

Nyrstar Port Pirie Pty Ltd

Arrium Limited

Origin Energy Limited

Arrowcrest Group Pty Ltd

Philmac Limited

ASC Pty Ltd

Premium Wine Brands Pty Ltd

BHP Billiton Limited

Randstad Pty Ltd

Bluescope Steel Limited

Resthaven Inc.

Boral Limited

Royal Automobile Association of SA Inc.

Bridgestone Australia Pty Ltd

Samuel Smith & Son Pty Ltd

Building Supplies Group Holdings Pty Ltd

Santos Limited

Carl Zeiss Vision Australia Holdings Limited

Schneider Electric (Australia) Pty Ltd

Catholic Church Endowment Society Inc.

Skilled Group Limited

Coca-Cola Amatil (SA) Limited

SMR Automotive Australia Pty Ltd

Coles Group Ltd

Southern Cross Care (SA) Inc.

Competitive Foods Pty Ltd

Stamford Hotels and Resorts Pty Ltd

David Jones Limited

Teys Australia Naracoorte Pty Ltd

Detmold Packaging Pty Ltd

The Flinders University of South Australia

Drakes Supermarkets Pty Ltd

The Smiths Snackfood Company Limited

ECH Inc.

The University of Adelaide

Eldercare Inc.

Toyoda Gosei Australia Pty Ltd

Electranet Pty Ltd

Transfield Services (Aust) Pty Ltd

Electrolux Home Products Pty Ltd

Treasury Wine Estates Vintners Limited

Flinders Operating Services Pty Ltd

University of South Australia

GM Holden Limited

Utilities Management Pty Ltd

Healthscope Limited

Viterra Limited

Hills Holdings Limited

Walker Australia Pty Ltd

Holcim (Australia) Holdings Pty Ltd

Westpac Banking Corporation

Inghams Enterprises Pty Ltd

Woolworths (South Australia) Pty Ltd

Intercast & Forge Pty Ltd Kimberly Clark Australia Pty Ltd

36

WorkCoverSA Annual Report 2012-13


WorkCoverSA Annual Report 2012-13

37


Contents Statement of Comprehensive Income ............................................................................................................... 2 Statement of Financial Position ......................................................................................................................... 3 Statement of Changes in Equity ........................................................................................................................ 4 Statement of Cash Flows .................................................................................................................................. 4 Note 1 Summary of significant accounting policies ........................................................................................... 5 Note 2 Critical accounting judgments and estimates ...................................................................................... 10 Note 3 Risk management ................................................................................................................................ 11 Note 4 Other Funds ......................................................................................................................................... 21 Note 5 Total income ........................................................................................................................................ 22 Note 6 Cost of claims ...................................................................................................................................... 22 Note 7 Investment profit .................................................................................................................................. 23 Note 8 Other income ....................................................................................................................................... 23 Note 9 Employee benefit expenses ................................................................................................................. 24 Note 10 Depreciation, amortisation and other general operating expenses ................................................... 25 Note 11 Auditor’s remuneration ....................................................................................................................... 25 Note 12 Cash and cash equivalents ................................................................................................................ 26 Note 13 Trade and other receivables .............................................................................................................. 26 Note 14 Investments ....................................................................................................................................... 27 Note 15 Property, plant and equipment ........................................................................................................... 28 Note 16 Intangible assets ................................................................................................................................ 29 Note 17 Trade and other payables .................................................................................................................. 30 Note 18 Outstanding claims liability – Compensation Fund ............................................................................ 31 Note 19 Outstanding claims liability – Other Funds ........................................................................................ 36 Note 20 Employee benefits ............................................................................................................................. 38 Note 21 Provisions .......................................................................................................................................... 41 Note 22 Reconciliation of comprehensive result to net cash flows from operating activities .......................... 41 Note 23 Related parties transactions .............................................................................................................. 42 Note 24 Remuneration of board and committee members ............................................................................. 43 Note 25 Commitments ..................................................................................................................................... 44 Note 26 Employer financial guarantees .......................................................................................................... 44 Note 27 Contingent liabilities ........................................................................................................................... 44 Note 28 Funding ratio ...................................................................................................................................... 45 Note 29 Transactions with SA Government .................................................................................................... 45 Note 30 Events after the reporting period ....................................................................................................... 46 Certificate under section 23(2) of the Public Finance and Audit Act 1987 ...................................................... 47

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 1


Statement of Comprehensive Income for the year ended 30 June 2013

2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

Notes

$’000

$’000

$’000

$’000

Registered employer premium revenue

5

667,375

-

667,375

639,212

Cost of claims

6

(809,086)

14,181

(794,905)

(1,054,593)

(44,371)

-

(44,371)

(42,225)

(4,370)

-

(4,370)

(4,710)

(693)

-

(693)

(718)

Medical Panels SA

(2,611)

-

(2,611)

(3,153)

Underwriting result

(193,756)

14,181

(179,575)

(466,187)

236,111

16,789

252,900

95,931

Claims management fees Workers Compensation Tribunal WorkCover Ombudsman

Investment profit

7

Investment expenses

(3,743)

Self-insured employer fee revenue

5

18,095

Net profit / (loss) from disposal of non current assets

(28)

Other income

8

Net investment profit and other income Employee benefit expenses Depreciation and amortisation expenses

2

15,882

(28)

(95)

6,466

-

6,466

3,753

256,901

16,592

273,493

111,928

(33,087)

(39,431)

10

(5,672)

-

(5,672)

(5,090)

(11,281)

-

(11,281)

(11,160)

(490)

-

(490)

(786)

(19,883)

(813)

(20,696)

(26,667)

(70,266)

(960)

(71,226)

(83,134)

(7,121)

29,813

22,692

(437,393)

Notes to and forming part of the financial statements are included on pages 5 to 46.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

18,095

(147)

10

Total comprehensive result

-

(3,543)

(32,940)

Return to Work Fund Total operating expenses

-

(3,940)

9

SafeWork SA Other general operating expenses

(197)


Statement of Financial Position as at 30 June 2013

2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

Notes

$’000

$’000

$’000

$’000

Cash

12

5

-

5

5

Trade and other receivables

13

97,545

3,914

101,459

103,125

3,14

2,112,198

145,446

2,257,644

1,866,800

Property, plant and equipment

15

8,826

-

8,826

9,667

Intangible assets

16

29,923

-

29,923

34,323

2,248,497

149,360

2,397,857

2,013,920

1,544

-

1,544

1,704

17

19,076

138

19,214

32,597

Outstanding claims

18,19

3,642,841

82,284

3,725,125

3,345,392

Employee benefits

20

17,046

-

17,046

21,097

Provisions

21

1,357

-

1,357

2,251

3,681,864

82,422

3,764,286

3,403,041

(1,433,367)

66,938

(1,366,429)

(1,389,121)

Retained earnings

(1,433,367)

66,938

(1,366,429)

(1,389,121)

Equity

(1,433,367)

66,938

(1,366,429)

(1,389,121)

Assets

Investments

Total assets Liabilities Unearned premiums Trade and other payables

Total liabilities Net (liabilities)/assets Equity

Commitments Employer financial guarantees Contingent liabilities

25 26 27

Notes to and forming part of the financial statements are included on pages 5 to 46.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 3


Statement of Changes in Equity for the year ended 30 June 2013

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

(1,426,246)

37,125

(7,121)

29,813

(1,433,367)

66,938

Total comprehensive result Total equity at the end of the year

2012

Compensation Notes Total equity at the start of the year

2013

(1,389,121)

(951,728)

22,692

(437,393)

(1,366,429)

(1,389,121)

Statement of Cash Flows for the year ended 30 June 2013

2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

Premium receipts

760,268

-

760,268

719,397

Claim recoveries

23,624

589

24,213

20,994

3,375

-

3,375

4,334

Notes Cash flows from operating activities

Other receipts Claim and other related payments

(469,361)

(2,185)

(471,546)

(427,219)

Interest received

35,450

2,521

37,971

35,470

Dividends received

34,431

2,448

36,879

30,781

(118,521)

(1,067)

(119,588)

(99,317)

Other payments to suppliers and employees GST (paid to) / received from ATO Investment expenses Net cash from operating activities

22

(54,392)

80

(54,312)

(50,896)

(4,117)

(197)

(4,314)

(3,871)

210,757

2,189

212,946

229,673

3

-

3

3

584,656

-

584,656

738,624

Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from the sale of investments Acquisition of property, plant and equipment

(237)

-

(237)

(10,181)

Acquisition of investments

(752,697)

(2,189)

(754,886)

(959,313)

Net cash used in investing activities

(168,275)

(2,189)

(170,464)

(230,867)

Net increase/(decrease) in cash and cash equivalents

42,482

-

42,482

(1,194)

Cash and cash equivalents at the beginning of the period

12

61,297

-

61,297

62,491

Cash and cash equivalents at the end of the period

12

103,779

-

103,779

61,297

Cash flows are shown gross of GST with the net GST payment shown as a separate line item. Prior year comparatives have been amended to the same basis. Notes to and forming part of the financial statements are included on pages 5 to 46.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 4


Notes to and forming part of the financial statements 30 June 2013 Note 1 Summary of significant accounting policies (a) Statement of compliance

WorkcoverSA has prepared these financial statements in compliance with section 23 of the Public Finance and Audit Act 1987. The financial statements are general purpose financial statements. The accounts have been prepared in accordance with relevant Australian Accounting Standards (AASBs) and comply with Treasurer’s Instructions and Accounting Policy Statements promulgated under the provision of the Public Finance and Audit Act 1987. The financial statements comply with International Financial Reporting Standards (IFRSs) adopted by the International Accounting Standards Board (IASB). WorkcoverSA has applied Australian Accounting Standards that are applicable for not-for-profit-entities, as WorkcoverSA is a not-for-profit entity. Australian Accounting Standards and interpretations that have recently been issued or amended but are not yet effective have not been adopted by WorkCoverSA for the reporting period ending 30 June 2013. None of these are expected to have a significant effect on the financial statements of WorkCoverSA, except for AASB 9 Financial Instruments, which becomes mandatory for WorkCoverSA’s 2016 financial statements and could change the classification and measurement of financial assets. WorkCoverSA does not plan to adopt this standard early and the extent of the impact has not been determined.

(b) Basis of preparation

The financial statements have been prepared based on a twelve month period and are presented in Australian currency and have been rounded to the nearest thousand dollars ($’000s). The preparation of financial statements requires: •

the use of certain accounting estimates and requires management to exercise its judgement in the process of applying accounting policies. The areas involving a higher degree of judgement or where assumptions and estimates are significant to the financial statements, these are outlined in applicable notes;

accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events are reported; and

compliance with Accounting Policy Statements issued pursuant to section 41 of the Public Finance and Audit Act 1987. In the interest of public accountability and transparency the accounting policy statements require the following note disclosures, which have been included in this financial report: a) revenues, expenses, financial assets and liabilities where the counterparty/transaction is with an entity within the SA Government as at reporting date, classified according to their nature. A threshold of $100,000 for separate identification of these items applies; b) expenses incurred as a result of engaging consultants (as reported in the Statement of Comprehensive Income); c) employees whose normal remuneration is equal to or greater than the base executive remuneration level (within $10,000 bandwidths) and the aggregate of the remuneration paid or payable or otherwise made available, directly or indirectly by the entity to those employees; and d) board/committee member and remuneration information, where a board/committee member is entitled to receive income from membership other than a direct out-of-pocket reimbursement.

Judgments made by management in the application of AASBs that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in Note 2. The Statement of Comprehensive Income, Statement of Financial Position and Statement of Changes in Equity have been prepared on an accrual basis and are in accordance with the historical cost convention, except for financial assets that are stated at their fair value and outstanding claims and related recoveries that are discounted to present value using a risk-free rate. The Statement of Cash Flows has been prepared on a cash basis. The accounting policies set out below have been applied in preparing the financial statements for the year ended 30 June 2013 and the comparative information presented.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 5


Notes to and forming part of Notes to and forming part of the financial statements the financial statements 30 June 2013 30 June 2013

(c) Reporting entity (c) Reporting WorkCoverSA is entity a statutory authority constituted under the WorkCover Corporation Act 1994. It is domiciled in Australia. For

WorkCoverSA is apurposes statutory four authority constituted under the WorkCover Corporation Act 1994. It is domiciled in Australia. For financial reporting separate funds are recognised as comprising WorkCoverSA: financial reporting purposes four separate funds are recognised as comprising WorkCoverSA: • Compensation Fund • Compensation Fund • Statutory Reserve Fund • Statutory Reserve Fund • Insurance Assistance Fund • Insurance Assistance Fund • Mining and Quarrying Industries Fund • Mining and Quarrying Industries Fund Compensation Fund Compensation Fund The Compensation Fund refers to the fund which was established on 30 September 1987 under Section 64 of the Workers The Compensation Fund refers to Act the 1986 fund which wasand established September 1987Fund, underthe Section 64 of Assistance the WorkersFund Rehabilitation and Compensation (the Act) excludes on the30 Statutory Reserve Insurance Rehabilitation Act 1986 (the Act) and excludes the Statutory Reserve Fund, the Insurance Assistance Fund and the Miningand andCompensation Quarrying Industries Fund. and the Mining and Quarrying Industries Fund. Statutory Reserve Fund Statutory Reserve Fund The Statutory Reserve Fund was established under the repealed Workers Compensation Act 1971 and came into operation in The Statutory Reserve Fund was established the repealed Compensation and came into operation in 1980 against which claims relating to workers under compensation couldWorkers be made in the event ofAct the1971 insolvency of an insurance 1980 against which claims relating to workers compensation could made in the event the insolvency of an insurance company or the insolvency of an uninsured employer. The fund wasbere-established underofSchedule 1, Clause 5 of the Act and company or the insolvency an uninsured Fund. employer. The fund was re-established under Schedule 1, Clause 5 of the Act and forms a separate part of theofCompensation forms a separate part of the Compensation Fund. The Compensation Fund is required to meet any liability arising from a shortfall of the Statutory Reserve Fund. The Compensation Fund is required to meet any liability arising from a shortfall of the Statutory Reserve Fund. Insurance Assistance Fund Insurance Assistance Fund The Insurance Assistance Fund was established under Schedule 1, Clause 5A of the Act and forms a separate part of the The Insurance Assistance Fund was Assistance establishedFund underexists Schedule 1, Clause 5A of the Act andSection forms a118 separate partrepealed of the Compensation Fund. The Insurance to support policies issued under (g) of the Compensation Fund. The Insurance Assistance Fund exists to support policies issued under Section 118 (g) of the repealed Workers Compensation Act 1971. These policies provided assistance to employers who were unable to obtain satisfactory Workers compensation Compensationinsurance Act 1971.under Thesethe policies provided to employers workers repealed act atassistance a determined premium. who were unable to obtain satisfactory workers compensation insurance under the repealed act at a determined premium. The Statutory Reserve Fund is required to meet any liability arising from a shortfall of the Insurance Assistance Fund. The Statutory Reserve Fund is required to meet any liability arising from a shortfall of the Insurance Assistance Fund. Mining and Quarrying Industries Fund Mining and Quarrying Industries Fund Amendments to the Act provided for the establishment of the Mining and Quarrying Industries Fund to replace the Silicosis Amendments to the Acttoprovided the transferred Mining and to Quarrying Industries to replace the Silicosis Fund. Funds standing the creditfor ofthe theestablishment Silicosis Fundof were WorkCoverSA andFund credited to a special account Fund. Funds standing to the credit of the Fund’ Silicosis Fund transferred to WorkCoverSA and credited to a special account entitled ‘Mining and Quarrying Industries which is were divided into two parts: entitled ‘Mining and Quarrying Industries Fund’ which is divided into two parts: Part A - to satisfy liabilities under the Silicosis Scheme established under the repealed act; and, Part A - to satisfy liabilities under the Silicosis Scheme established under the repealed act; and, Part B - to be available to the Mining and Quarrying Occupational Health and Safety Committee for the purposes referred to Part B - in to the be available to the Mining and Quarrying Occupational Health and Safety Committee for the purposes referred to Fourth Schedule. in the Fourth Schedule. With effect from 1 January 2006 the Occupational Health Safety and Welfare (SafeWork SA) Amendment Act transferred the With effect from January 2006 theofOccupational Health Safety responsibility for 1the administration this fund to SafeWork SA. and Welfare (SafeWork SA) Amendment Act transferred the responsibility for the administration of this fund to SafeWork SA.

(d) Administered items (d) financial Administered items The statements and accompanying notes include all the controlled activities of the WorkCoverSA. Transactions and

The financial statements and accompanying notes all theascontrolled activities of expense, the WorkCoverSA. balances relating to administered resources are notinclude recognised corporation income, assets andTransactions liabilities. Asand balances relating toare administered resources are as corporation income, expense, assets and liabilities. As administered items insignificant in relation to not the recognised WorkCoverSA’s overall financial performance and position, they are administered items are insignificant the WorkCoverSA’s overall financial performance position, they arethe disclosed under administered items in at relation Note 29.toExcept as otherwise disclosed, administered items and are accounted for on disclosed under administered items at Note policies 29. Except as otherwise disclosed, same basis and using the same accounting as WorkCoverSA items. administered items are accounted for on the same basis and using the same accounting policies as WorkCoverSA items.

(e) Comparative information (e) presentation Comparative information The and classification of items in the financial statements are consistent with prior periods except where specific

The presentation and classification of items in the financial have statements area consistent accounting standards and/or accounting policy statements required change. with prior periods except where specific accounting standards and/or accounting policy statements have required a change. Where presentation or classification of items in the financial statements have been amended, comparative figures have been Where presentation classification of items in the financial statements been amended,unless comparative figures have been adjusted to conform or to changes in presentation or classification in these have financial statements impracticable. adjusted to conform to changes in presentation or classification in these financial statements unless impracticable. The restated comparative amounts do not replace the original financial statements for the preceding period. The restated comparative amounts do not replace the original financial statements for the preceding period.

(f) Foreign currency (f) Foreign currency Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the

Foreign currency transactions areand initially translated intoinAustralian currency have at thebeen rate of exchange the date currency of the at rates transaction. Amounts payable to by WorkCoverSA foreign currencies translated to at Australian transaction. to andperiod by WorkCoverSA in exchange foreign currencies have been translated currency at rates of exchange Amounts current atpayable the reporting with resulting differences brought to accountto atAustralian 30 June 2013. of exchange current at the reporting period with resulting exchange differences brought to account at 30 June 2013. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

6 6


Notes to and forming part of Notes to and forming part of the financial statements the financial statements 30 June 2013 30 June 2013

(g) Cash and cash equivalents (g) and equivalents cash equivalents CashCash and cash in the Statement of Financial Position includes cash at bank and on hand and in other short-term, Cash cash equivalents in maturities the Statement of Financial Position includes cash converted at bank and hand in other short-term, highlyand liquid investments with of three months or less that are readily to on cash andand which are subject to highly liquid investments withinmaturities of three months or less that are readily converted to cash and which are subject to insignificant risk of changes value. insignificant risk of changes in value.

(h) Trade and other receivables (h) Trade and receivables other receivables Trade and other are stated at fair value less impairment losses with the exception of claims recoveries receivable.

Trade and is other receivables statedvalue at fair losses with themarket exception receivable. Fair value estimated at theare present of value futureless cashimpairment flows, discounted at the rate of of claims interestrecoveries at the reporting date. Fair value is estimated at the present value of future cash flows, discounted at thevaluation. market rate of interest at the reporting date. Claim recoveries receivables are stated at the amounts estimated in the actuarial Claim recoveries receivables are stated at the amounts estimated in the actuarial valuation. Collectability of receivables is reviewed on an ongoing basis. An allowance for doubtful debts is raised when there is objective Collectability receivables iswill reviewed on antoongoing basis. AnBad allowance for written doubtfuloffdebts raised when there is objective evidence thatofWorkCoverSA not be able collect the debt. debts are whenisidentified. evidence that WorkCoverSA will not be able to collect the debt. Bad debts are written off when identified.

(i) Investments (i) Investments Investments are measured at fair value. Changes in the fair values of investments at the reporting period from the end of the

Investments are measured fair value. in the fair values of investments the reporting period as from the or end of thein previous reporting period, oratfrom cost ofChanges acquisition if acquired during the financialatyear, are recognised gains losses previous reporting period, or from Income. cost of acquisition if acquired during the financial year, are recognised as gains or losses in the Statement of Comprehensive the Statement of Comprehensive Income. The fair value of investments represents their net fair value and is determined as follows: The fair value of investments represents their net fair value and is determined as follows: • cash assets are carried at the face value of the amounts deposited or drawn which approximates their fair value • cash assets are carried at the face value of the amounts deposited or drawn which approximates their fair value • receivables are initially recognised at fair value and subsequently at amortised cost less impairment losses (Note 1(o)) • receivables are initially recognised at fair value and subsequently at amortised cost less impairment losses (Note 1(o)) • listed securities and Government securities are valued by reference to market quotations • listed securities and Government securities are valued by reference to market quotations • underlying property assets and investments in unlisted unit trusts are valued by reference to independent third parties. • underlying property assets and investments in unlisted unit trusts are valued by reference to independent third parties. All investments are classified as backing insurance liabilities (outstanding claims liabilities). All investments are classified as backing insurance liabilities (outstanding claims liabilities).

(j) Insurance contracts (j) Insurance contracts Insurance contracts are contracts under which an entity accepts significant insurance risk from another party (the policyholder)

Insurance contracts are contracts under which entity accepts ifsignificant insurance risk from another event) party (the policyholder) by agreeing to compensate the policyholder or an other beneficiary a specified future event (the insured adversely affects by to compensate the policyholder or other beneficiary if a specified future (the insured event) adversely affects theagreeing policyholder or other beneficiary. WorkCoverSA’s liabilities for outstanding claimsevent are similar in nature to general insurance the policyholder or other beneficiary. liabilities for outstanding claims of areAASB similar in nature to general insurance contracts and accordingly are treatedWorkCoverSA’s as general insurance contracts for the purpose 1023 General Insurance contracts Contracts.and accordingly are treated as general insurance contracts for the purpose of AASB 1023 General Insurance Contracts.

(k) Events after the reporting period (k) Events are after the to reporting Adjustments made amounts period recognised in the financial statements, where an event occurs after 30 June and before the

Adjustments are made to amounts recognised the financial statements, event occurs after 30 June and date the financial statements are authorised forinissue, where those events where provideaninformation about conditions that before existedthe at date the financial statements are authorised for issue, where those events provide information about conditions that existed at 30 June. 30 June. Note disclosure is made about events between 30 June and the date the financial statements are authorised for issue where the Note disclosure is condition made about events between June and the date financial statements arethe authorised issue where the events relate to a which arose after 3030 June and which may the have a material impact on results offor subsequent events years. relate to a condition which arose after 30 June and which may have a material impact on the results of subsequent years.

(l) Outstanding claims liability (l) Outstanding claims claims liability The liability for outstanding is measured as the central estimate of the present value of expected future payments against

The liability for outstanding claims is by measured as the central of the value of for expected futureuncertainty payments against claims incurred at the reporting date WorkCoverSA, with anestimate additional risk present margin to allow the inherent in the claims the reporting date by WorkCoverSA, additionalofrisk marginInsurance to allow for the inherent uncertainty in is the central incurred estimate.atUnder Actuarial Professional Standardwith 300,anValuations General Claims, the central estimate central Standard 300, Valuations Insurance Claims, the central estimate is the bestestimate. estimateUnder of the Actuarial expected Professional liabilities for outstanding claims based of onGeneral information currently available and exhibits no bias the best estimate of the expected outstanding claims based on information currently available and exhibits bias either towards a pessimistic or an liabilities optimisticfor outcome. A risk margin is applied to the outstanding claims liability to reflectnothe either towards a pessimistic or an estimate optimisticofoutcome. A risk margin appliedThe to the claims the liability to reflect thethe inherent uncertainty in the central the outstanding claimsisliability. riskoutstanding margin increases probability that inherent uncertainty in theprovided central estimate of the outstanding claims liability. The risk margin increases the probability that the net liability is adequately to approximately a 65% probability of sufficiency. net liability is adequately provided to approximately a 65% probability of sufficiency. The expected future payments include those in relation to claims reported but not yet paid, claims incurred but not yet reported, The expected payments include in relation to claims reported but including not yet paid, notexpected yet reported, claims incurredfuture but under reported and those anticipated claims handling expenses the claims run-off incurred provision.but The claims incurred but reported and anticipated claims expenses the run-off provision. The expected future payments areunder discounted to present value using an handling appropriate risk-freeincluding rate. future payments are discounted to present value using an appropriate risk-free rate. The claims expense or income in the Statement of Comprehensive Income comprise claims paid and the change in the liability The claims expense orboth income in theand Statement of Comprehensive Income comprise claims paid and the change in the liability for outstanding claims reported unreported, including the risk margin and claims handling expenses. for outstanding claims both reported and unreported, including the risk margin and claims handling expenses.

(m) Assets backing insurance liabilities (m) Assetsbacking backing insurance liabilities The assets insurance liabilities (outstanding claims) are those assets required to cover the insurance liabilities.

The assetsliabilities backing are insurance (outstanding thosefor assets required to coverrecorded the insurance liabilities. of Insurance definedliabilities as outstanding claimsclaims) and theare liability unearned premiums in the Statement Insurance liabilitiesAs areWorkCoverSA defined as outstanding claimsinand liabilityand for substantially unearned premiums Statement of Financial Position. operates solely onethe industry all of its recorded liabilities in arethe insurance liabilities, Financial Position. As WorkCoverSA operates solely in one industry and substantially all of its liabilities are insurance liabilities,

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

7 7


Notes to to and and forming forming part part of of Notes the financial financial statements statements the 30 June June 2013 2013 30

WorkCoverSA considers that substantially all of its assets, excluding property, plant and equipment, and intangible assets exist WorkCoverSA considersliabilities. that substantially allits ofinvestment its assets, excluding property, plantseeks and equipment, intangible assets to back these insurance As part of strategy WorkCoverSA to manage and its assets allocated toexist to back these insurance liabilities. As part of its investment strategy WorkCoverSA seeks to manage its assets allocated to insurance activities having regard to the characteristics of the insurance liabilities. insurance activities having regard to the characteristics of the insurance liabilities.

(n) Property, plant and equipment (n) Property, plant and equipment All assets acquired, including leasehold improvements, computer and communications and general office equipment are stated

All assets including leaseholdand improvements, and communications general are stated at cost lessacquired, accumulated depreciation accumulatedcomputer impairment losses, deemed to and be fair value office (Note equipment 1(o)). at cost less accumulated depreciation and accumulated impairment losses, deemed to be fair value (Note 1(o)). Depreciation is calculated on a straight line basis so as to write off the cost of each item over its expected useful life. The Depreciation is calculated on used a straight line class basis of soasset as to is write off the cost of each item over its expected useful life. The estimated useful life in years for each as follows: estimated useful life in years used for each class of asset is as follows: Leasehold improvements including office furniture and fittings Leasehold improvements including office furniture and fittings Computer and communications Computer and communications General office equipment General office equipment

2013 2013 5-10 5-10 4-5 4-5 4-5 4-5

The cost of improvements to leasehold properties is amortised over the shorter of the unexpired period of the lease and the The cost ofuseful improvements to improvements. leasehold properties is amortised over the shorter of the unexpired period of the lease and the estimated lives of the estimated useful lives of the improvements. Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate. Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

(o) Impairment (o) Impairment All non-current tangible and intangible assets are tested for indication of impairment at each reporting date. Where there is an All non-current tangible and assets are is tested for indication of impairment reporting date. Where there isthe an indication of impairment, theintangible recoverable amount estimated. An amount by which at theeach asset’s carrying amount exceeds indication of amount impairment, the recoverable amount isloss. estimated. An amount which thetoasset’s carrying amount exceeds recoverable is recorded as an impairment A financial asset isby considered be impaired if objective evidencethe recoverable recorded an impairment loss. effect A financial is considered to be impaired objective evidence indicates thatamount one or is more eventsashave had a negative on theasset estimated future cash flows of thatifasset. indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

(p) Intangible assets - IT development and software (p) - IT development and software CostsIntangible incurred inassets developing products or systems and costs incurred in acquiring software and licenses that will contribute to

Costs in developing systems and costsand/or incurred in reduction acquiring are software and licenses that and will contribute to future incurred period financial benefitsproducts throughor revenue generation cost capitalised to software systems. Costs future period financial benefits through revenue generation and/or cost reduction are capitalised to software and systems. Costs capitalised include external direct costs of materials and services, direct payroll and payroll related costs of employees’ time capitalised include external direct costs of materials and services, direct payroll and payroll related costs of employees’ time spent on the project. spent on the project. IT development costs include only those costs directly attributable to the development phase and are only recognised following IT development costs include onlyand those costs directly attributable the development only recognised following completion of technical feasibility where WorkCoverSA has antointention and abilityphase to useand the are asset. completion of technical feasibility and where WorkCoverSA has an intention and ability to use the asset. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to Subsequent expenditure capitalisedisonly when it increases the future economic benefits embodied in the specific asset to which it relates. All other is expenditure recognised in the Statement of Comprehensive Income as incurred. which it relates. All other expenditure is recognised in the Statement of Comprehensive Income as incurred. Amortisation is recognised in the Statement of Comprehensive Income on a straight-line basis over the estimated useful life of Amortisation recognised in the Statement Comprehensive Income a straight-line basis overtothe the intangibleisassets, from the date that theyofare available for use. The on estimated useful life is five tenestimated years. useful life of the intangible assets, from the date that they are available for use. The estimated useful life is five to ten years.

(q) Trade and other payables (q) Trade and payables other payables Trade and other are stated at cost. These amounts represent liabilities for goods and services provided to

Trade and otherprior payables cost. These amounts liabilities for goodsare andunsecured services provided to paid within WorkCoverSA to the are end stated of the at financial year and which represent are unpaid. These amounts and usually WorkCoverSA prior to the end of the financial year and which are unpaid. These amounts are unsecured and usually paid within 30 days of recognition. 30 days of recognition.

(r) Provisions (r) Provisions Provisions are recognised when WorkCoverSA has a present obligation as a result of a past event, it is probable that an outflow Provisions are recognised when WorkCoverSA hasrequired a present as a resultand of aapast event, it is probable anofoutflow of resources embodying economic benefits will be to obligation settle the obligation reliable estimate can be that made the of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. amount of the obligation. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present Provisions are the present value management’s best estimate of theprovisions expenditure to settle the present obligation at themeasured reporting at date. If the effect ofof the time value of money is material, arerequired discounted for the time value obligation at the reporting date. If the effect of the time value of money is material, provisions are discounted for the time value of money and the risks specific to the liability. of money and the risks specific to the liability.

(s) Revenue (s) Revenue Revenue is recognised to the extent that it is probable that the flow of economic benefits to WorkcoverSA will occur and can be Revenue is recognised to the extent that it is probable that the flow of economic benefits to WorkcoverSA will occur and can be reliably measured. reliably measured.

Revenue has been aggregated according to its nature and has not been offset unless required or permitted by a specific Revenue been aggregated according to itsthe nature and has nottransaction been offset unlessevent. required or permitted by a specific accountinghas standard, or where offsetting reflects substance of the or other accounting standard, or where offsetting reflects the substance of the transaction or other event. The notes accompanying the financial statements disclose income where the counterparty/transaction is with an entity within SA The notes accompanying the financial statements disclosetoincome where the counterparty/transaction is with an entity within SA Government as at the reporting date, classified according their nature. Government as at the reporting date, classified according to their nature. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

8 8

2012 2012 5-10 5-10 4-5 4-5 4-5 4-5


Notes to to and and forming forming part part of of Notes the financial financial statements statements the 30 June June 2013 2013 30

Transactions with SA Government entities below the threshold of $100,000 have been included with non-government Transactions with SA Government entities below the threshold of $100,000 have been included with non-government transactions, classified according to their nature. transactions, classified according to their nature. Premium revenue Premium revenue Premiums are payable by all registered South Australian employers under the Act. Premiums are payable by all registered South Australian employers under the Act. Premiums are calculated on the total remuneration paid by employers for the financial year, including consideration for claims Premiums are calculated on the total remuneration paid by employers for the financial year, including consideration for claims experience and are recognised on an accruals basis in respect to the financial year for which the remuneration is paid. experience and are recognised on an accruals basis in respect to the financial year for which the remuneration is paid. Estimates are included for premiums relating to the current financial year which are payable following the reporting period. Estimates are included for premiums relating to the current financial year which are payable following the reporting period. Premiums attributable to future years and received in the current financial year have been classified as unearned premiums. Premiums attributable to future years and received in the current financial year have been classified as unearned premiums. Investment income Investment income Interest income is recognised in the Statement of Comprehensive Income as it accrues, using the effective interest method. Interest income is recognised in the Statement of Comprehensive Income as it accrues, using the effective interest method. Dividend income is recognised in the Statement of Comprehensive Income on the date WorkCoverSA’s right to receive Dividend income is recognised in the Statement of Comprehensive Income on the date WorkCoverSA’s right to receive payments is established which in the case of quoted securities is the ex-dividend date. payments is established which in the case of quoted securities is the ex-dividend date. Claims recoveries Claims recoveries Claims recoveries are made from a range of parties in accordance with the Act. Claims recoveries are made from a range of parties in accordance with the Act. Recoveries received are offset against the cost of claims. Recoveries receivable are assessed in a manner similar to the Recoveries received are offset against the cost of claims. Recoveries receivable are assessed in a manner similar to the assessment of outstanding claims in that they are measured as the present value of the expected future receipts, calculated on assessment of outstanding claims in that they are measured as the present value of the expected future receipts, calculated on the same basis as the liability for outstanding claims. Movements in recoveries receivable are also shown as a cost of claims. the same basis as the liability for outstanding claims. Movements in recoveries receivable are also shown as a cost of claims. Net profit/loss on non-current assets Net profit/loss on non-current assets Any profit/loss on disposal of property, plant and equipment is recognised at the date control of the asset is passed to the buyer Any disposal of property, plant and equipment is recognised date control of the asset is passed to the buyer and profit/loss determinedonafter deducting the proceeds from the carrying amount at at thethe time of disposal. and determined after deducting the proceeds from the carrying amount at the time of disposal.

(t) Expenses (t) Expenses Expenses are recognised to the extent that it is probable that the flow of economic benefits will occur and can be reliably

Expenses are recognised to the extent that it is probable that the flow of economic benefits will occur and can be reliably measured. measured. Expenses have been aggregated according to their nature and have not been offset unless required or permitted by a specific Expenses have been aggregated according to their nature and have not been offset unless required or permitted by a specific accounting standard, or where offsetting reflects the substance of the transaction or other event. accounting standard, or where offsetting reflects the substance of the transaction or other event. The notes accompanying the financial statements disclose income where the counterparty/transaction is with an entity within SA The notes accompanying the financial statements disclose income where the counterparty/transaction is with an entity within SA Government as at the reporting date, classified according to their nature. Government as at the reporting date, classified according to their nature. Transactions with SA Government entities below the threshold of $100,000 have been included with non-government Transactions with SA Government entities below the threshold of $100,000 have been included with non-government transactions, classified according to their nature. transactions, classified according to their nature. The following are specific recognition criteria: The following are specific recognition criteria: Operating lease payments Operating lease payments Operating leases are recognised as an expense in the Statement of Comprehensive Income on a straight-line basis over the Operating leases are recognised as an expense in the Statement of Comprehensive Income on a straight-line basis over the lease term. The straight-line method is representative of the pattern of benefits derived from leased assets. lease term. The straight-line method is representative of the pattern of benefits derived from leased assets. Claims management fees Claims management fees Claims management fees are determined on an accruals basis in accordance with the respective agreements between Claims management fees are determined on an accruals basis in accordance with the respective agreements between WorkCoverSA and its claims agents. WorkCoverSA and its claims agents. Employee benefits - wages, salaries, skills and experience retention leave and annual leave Employee benefits - wages, salaries, skills and experience retention leave and annual leave Liabilities for employee benefits for wages, salaries, annual leave and skills and experience retention leave that are expected to Liabilities for employee benefits for wages, salaries, annual leave and skills and experience retention leave that are expected to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to be settled within 12 months of the reporting date represent present obligations resulting from employees’ services provided to reporting date are calculated at undiscounted amounts based on remuneration wage and salary rates expected to be paid as at reporting date are calculated at undiscounted amounts based on remuneration wage and salary rates expected to be paid as at reporting date including related on costs. reporting date including related on costs. Employee benefits - defined contribution superannuation plan Employee benefits - defined contribution superannuation plan Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the Statement of Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the Statement of Comprehensive Income as incurred. Comprehensive Income as incurred. Employee benefits - defined benefits superannuation plan Employee benefits - defined benefits superannuation plan WorkCoverSA contributes to two defined benefit superannuation plans. WorkCoverSA contributes to two defined benefit superannuation plans. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

9 9


Notes to and forming part of Notes to and statements forming part of the financial theJune financial 30 2013statements 30 June 2013 WorkCoverSA’s net obligation is calculated by estimating the amount of future benefits that employees have earned in return for

their service in the and is prior periods.by That benefit is then discounted to benefits determine itsemployees present value from which fair for WorkCoverSA’s netcurrent obligation calculated estimating the amount of future that have earned in the return value of any plan is and deducted. The discount rate is isthe yield at the reporting period its on present government that have their service in theassets current prior periods. That benefit then discounted to determine valuebonds from which the fair maturity dates approximating to the terms of WorkCoverSA’s The calculation by a qualified value of any plan assets is deducted. The discount rate is the obligations. yield at the reporting period isonperformed government bonds that actuary have using thedates projected unit credit to method. maturity approximating the terms of WorkCoverSA’s obligations. The calculation is performed by a qualified actuary using the projected unit credit method. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognised as an expense theimproved, Statementthe of portion Comprehensive Income benefit on a straight-line over the period When the benefits of a planinare of the increased relating to basis past service byaverage employees is until the benefits become Tointhe that the benefits vest immediately, expense is basis recognised immediately in theuntil the recognised as anvested. expense theextent Statement of Comprehensive Income on the a straight-line over the average period Statement of Comprehensive Income. benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in the Statement of Comprehensive Income. Where the calculation results in a benefit to WorkCoverSA, the recognised asset is limited to the net total of any unrecognised past service costs andresults the present value of future refunds the planasset or reductions contributions the plan. Where the calculation in a benefit to any WorkCoverSA, thefrom recognised is limited in tofuture the net total of any to unrecognised past service costs and the present value of any future refunds from the plan or reductions in future contributions to the plan. Employee benefits - long service leave Employee benefits - long service leave The liability for long service leave is measured as the present value of expected future payments to be made in respect of services provided byservice employees the end of periodofusing the projected unit credit The liability for long leaveup is to measured asthe thereporting present value expected future payments to method. be made in respect of services provided by employees up to the end of the reporting period using the projected unit credit method. The estimated liability for long service leave is based on actuarial assumptions over expected future salary and wage levels, experience of employee and periods of service. Theseassumptions assumptionsover are expected based on future employee data over SAlevels, The estimated liability fordepartures long service leave is based on actuarial salary and wage Government Expected future payments are discounted using market yields at the end of the reporting period experience ofentities. employee departures and periods of service. These assumptions are based on employee data over SA on government with durationsfuture that match, as closely as possible, estimated Government bonds entities. Expected payments are discounted usingthe market yieldsfuture at thecash end outflows. of the reporting period on government bonds with durations that match, as closely as possible, the estimated future cash outflows. The unconditional portion of the long service leave provision is classified as current as WorkcoverSA does not have an unconditional right portion to deferofthe of the liability for atisleast 12 months after reporting date. The unconditional The unconditional thesettlement long service leave provision classified as current as WorkcoverSA does not have anportion of long service leave ansettlement unconditional legal entitlement to payment arising ten years service. unconditional right relates to defertothe of the liability for at least 12 months afterafter reporting date.of The unconditional portion of long service leave relates to an unconditional legal entitlement to payment arising after ten years of service.

(u) Taxation WorkCoverSA (u) Taxation is not subject to income tax. WorkCoverSA is liable for payroll tax, fringe benefits tax, goods and services tax

(GST), emergency services land tax and local government WorkCoverSA is not subjectlevy, to income tax.equivalents WorkCoverSA is liable for payrollrate tax,equivalents. fringe benefits tax, goods and services tax (GST), emergency services levy, land tax equivalents and local government rate equivalents. Income, expenses and assets are recognised net of GST, except when the amount of GST incurred on a purchase of goods or services is not recoverable from the Australiannet Taxation Office (ATO), which caseofthe GST is recognised as part of of goods the cost Income, expenses and assets are recognised of GST, except wheninthe amount GST incurred on a purchase or of acquisition of the asset or as part of the expense item applicable. Receivables and payables are stated inclusive of GST. The services is not recoverable from the Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost net amount ofof GST from,oforthe payable to, item the ATO is included as part ofand receivables in the Statement of of acquisition the recoverable asset or as part expense applicable. Receivables payables or arepayables stated inclusive of GST. The Financial Position. flows are included in theto, Statement Flows gross basis and GST component of cashof net amount of GSTCash recoverable from, or payable the ATOof is Cash included as on parta of receivables or the payables in the Statement flows arising from investing andare financing activities which is recoverable from, to, the is classified as part of Financial Position. Cash flows included in the Statement of Cash Flows onor a payable gross basis andATO the GST component of cash operating cash flows. flows arising from investing and financing activities which is recoverable from, or payable to, the ATO is classified as part of operating cash flows. Unrecognised contractual commitments and contingencies are disclosed net of the amount of GST recoverable from, or payable to the ATO. If contractual GST is not payable to, or recoverable from the the commitments and contingencies are disclosed onpayable a Unrecognised commitments and contingencies areATO, disclosed net of the amount of GST recoverable from, or gross to the basis. ATO. If GST is not payable to, or recoverable from the ATO, the commitments and contingencies are disclosed on a gross basis.

(v) Futures contracts Futures contracts are recorded in the financial statements at fair value. The fair value is the unrealised gain/loss on the (v) Futures contracts

outstanding contracts as at the reporting period. All open futures contracts within 12 unrealised months of the reporting period. Futures contracts are recorded in the financial statements at fair value. Themature fair value is the gain/loss on the outstanding contracts as at the reporting period. All open futures contracts mature within 12 months of the reporting period.

(w) Segment reporting WorkCoverSA within the insurance industry predominantly providing for the rehabilitation and compensation of (w) Segmentoperates reporting

workers with respect to injuries andinsurance diseases industry arising from their employment. operates solely in the Stateofof South WorkCoverSA operates within the predominantly providingWorkCoverSA for the rehabilitation and compensation Australia. workers with respect to injuries and diseases arising from their employment. WorkCoverSA operates solely in the State of South Australia.

Note 2 Critical accounting judgments and estimates Note 2 Critical accounting judgments and estimates WorkCoverSA makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition,

seldom equal the related actual results. Estimates concerning and judgments are continually evaluated and are based onwill, historical WorkCoverSA makes estimates and assumptions the future. The resulting accounting estimates by definition, experience and other factors, including of judgments future events may have a financial on WorkCoverSA seldom equal the related actual results. expectations Estimates and arethat continually evaluated andimpact are based on historical and that are believed to befactors, reasonable underexpectations the circumstances. estimates andhave assumptions haveon a significant risk of experience and other including of futureThe events that may a financialthat impact WorkCoverSA and causing material adjustment to the carrying amounts of assets and liabilities within the next financial year are those related that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of to the valuation of outstanding liability and the estimate of the receivable balance. causing material adjustment claims to the carrying amounts of assets andpremiums liabilities within the next financial year are those related to the valuation of outstanding claims liability and the estimate of the premiums receivable balance. Outstanding claims liability Outstanding claims liability WorkCoverSA takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. Given the uncertainty in establishing claims provisions, it is likely theappropriate final outcome will proveregarding to be different from exposures. the original Given liabilitythe WorkCoverSA takes all reasonable steps to ensure thatthat it has information its claims established. details of claims the valuation of theit outstanding liability are will set prove out in Notes 18 and 19. uncertainty inThe establishing provisions, is likely that claims the final outcome to be different from the original liability established. The details of the valuation of the outstanding claims liability are set out in Notes 18 and 19. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

10


Notes toto and forming part ofof Notes and forming part the financial statements the financial statements 3030 June 2013 June 2013

The outstanding claims liability has been established on the basis of independent actuarial assessments of the estimated costs The outstanding claims liability has been established on the basis of independent actuarial assessments of the estimated costs of settlement of claims, inflated for the anticipated effects of inflation and other factors and discounted to a present value at the of settlement of claims, inflated for the anticipated effects of inflation and other factors and discounted to a present value at the reporting period. Risk-free rates are used when discounting liabilities to current values. WorkCoverSA has adopted a risk margin reporting period. Risk-free rates are used when discounting liabilities to current values. WorkCoverSA has adopted a risk margin of 5.5% for the Compensation Fund (2012: 5.5%) and 5.5% for the Statutory Reserve Fund (2012: 5.5%) and the Insurance of 5.5% for the Compensation Fund (2012: 5.5%) and 5.5% for the Statutory Reserve Fund (2012: 5.5%) and the Insurance Assistance Fund (2012: 5.5%) to value all the outstanding claims liabilities (apart from the liabilities relating to asbestos related Assistance Fund (2012: 5.5%) to value all the outstanding claims liabilities (apart from the liabilities relating to asbestos related diseases where the applicable percentage adopted is 25% (2012: 25%)) at 65% (2012: 65%) probability of sufficiency. The risk diseases where the applicable percentage adopted is 25% (2012: 25%)) at 65% (2012: 65%) probability of sufficiency. The risk margins were determined based on advice from Finity Consulting Pty Ltd. margins were determined based on advice from Finity Consulting Pty Ltd. The outstanding claims liability includes a liability in respect of the estimated cost of claims incurred but not settled at the The outstanding claims liability includes a liability in respect of the estimated cost of claims incurred but not settled at the reporting period, including the cost of claims incurred but not yet reported (IBNR) to WorkCoverSA. The IBNR which relates reporting period, including the cost of claims incurred but not yet reported (IBNR) to WorkCoverSA. The IBNR which relates principally to claims for asbestos related diseases affects mainly the Statutory Reserve Fund and the Insurance Assistance principally to claims for asbestos related diseases affects mainly the Statutory Reserve Fund and the Insurance Assistance Fund. Fund. The estimated cost of claims includes estimates of the direct expenses to be incurred in settling claims net of the expected The estimated cost of claims includes estimates of the direct expenses to be incurred in settling claims net of the expected recoveries. recoveries. Premiums receivable Premiums receivable The premiums receivable balance is the balance of premium debtors as at 30 June plus an estimate of premiums receivable The premiums receivable balance is the balance of premium debtors as at 30 June plus an estimate of premiums receivable based on end of year returns from employers, after allowing for the impairment of any of these amounts and for refunds issued based on end of year returns from employers, after allowing for the impairment of any of these amounts and for refunds issued after the end of the year. after the end of the year.

Note 3 Risk management Note 3 Risk management (a) Overview (a) Overview

WorkCoverSA’s risk management framework is the principal means by which identified risks are managed. WorkCoverSA has WorkCoverSA’s risk management framework is the principal means by which identified risks are managed. WorkCoverSA has developed a risk management strategy that supports the risk management framework. Each identified risk is analysed developed a risk management strategy that supports the risk management framework. Each identified risk is analysed according to an established risk management process and appropriate treatment strategies are adopted in order to manage according to an established risk management process and appropriate treatment strategies are adopted in order to manage WorkCoverSA’s exposure to risk. The key aspects of the process established in the risk management framework to mitigate risk WorkCoverSA’s exposure to risk. The key aspects of the process established in the risk management framework to mitigate risk include: include: • the establishment of a Board Audit and Risk Committee, which is responsible for developing and monitoring risk • the establishment of a Board Audit and Risk Committee, which is responsible for developing and monitoring risk management policies management policies • • • •

• • •

the establishment and regular review by the Board Audit and Risk Committee and management of a risk register the establishment and regular review by the Board Audit and Risk Committee and management of a risk register the establishment of a system of internal controls to manage risk the establishment of a system of internal controls to manage risk the maintenance and use of management information systems which provide up to date, reliable data relevant to the the maintenance and use of management information systems which provide up to date, reliable data relevant to the risks to which the business is exposed risks to which the business is exposed

the identification of operational risks and the establishment and implementation of processes to address and mitigate the identification of operational risks and the establishment and implementation of processes to address and mitigate those risks. those risks. The Board Audit and Risk Committee reports regularly to the Board on its activities. The Committee oversees how management The Board Audit and Risk Committee reports regularly to the Board on its activities. The Committee oversees how management monitors compliance with WorkCoverSA’s risk management policies and procedures and reviews the adequacy of the risk monitors compliance with WorkCoverSA’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by WorkCoverSA. A risk management policy is in place to ensure risks are management framework in relation to the risks faced by WorkCoverSA. A risk management policy is in place to ensure risks are identified, analysed and managed appropriately by WorkCoverSA. WorkCoverSA’s risk management framework is part of its identified, analysed and managed appropriately by WorkCoverSA. WorkCoverSA’s risk management framework is part of its governance risk and compliance system which is reviewed regularly to reflect changes in market conditions and in governance risk and compliance system which is reviewed regularly to reflect changes in market conditions and in WorkCoverSA’s activities. WorkCoverSA, through its training and management standards and procedures, aims to maintain a WorkCoverSA’s activities. WorkCoverSA, through its training and management standards and procedures, aims to maintain a disciplined and constructive control environment in which all employees understand their roles and obligations. The Committee disciplined and constructive control environment in which all employees understand their roles and obligations. The Committee is assisted in its oversight by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management is assisted in its oversight by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Board Audit and Risk Committee. controls and procedures, the results of which are reported to the Board Audit and Risk Committee. The broad categories of risk faced by WorkCoverSA are: The broad categories of risk faced by WorkCoverSA are: • • •

• • •

insurance risk insurance risk operational and other risk operational and other risk financial risk. financial risk.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

11

11


Notes to and forming part of the financial Notes to and statements forming part of 30 June 2013statements the financial (b) Insurance 30 Junerisk 2013

As set out in Note 1, WorkCoverSA provides workers compensation coverage, in accordance with the Act, to workers employed (b) Insurance risk in South Australia through the following funds: As set out in Note 1, WorkCoverSA provides workers compensation coverage, in accordance with the Act, to workers employed • South Australia Compensation in throughFund the following funds: ••

Statutory Reserve Fund Compensation Fund

••

InsuranceReserve Assistance Fund Statutory Fund

••

Mining andAssistance Quarrying Fund Industries Fund. Insurance

with Act the Compensation Fund is funded by charging premiums to all employers covered by the Act which •In accordance Mining andthe Quarrying Industries Fund. are calculated as a percentage of the remuneration paid or expected to be paid by each employer. The percentage or premium In accordance the Act the Compensation is funded byon charging premiums to all thethe ActAverage which rate applicablewith to each employer is determinedFund annually based the industry in which theemployers employer covered operatesby and are calculated Premium Rate.as a percentage of the remuneration paid or expected to be paid by each employer. The percentage or premium rate applicable to each employer is determined annually based on the industry in which the employer operates and the Average The Average Premium Rate is set annually by the Board in accordance with its funding policy based on an actuarial assessment Premium Rate. of the overall funding requirement of the Compensation Fund and an estimate of the likely overall remuneration for all the The Average Premium Rate to is set byunder the Board in accordance with its funding policy based employers that are required payannually premiums the Act. The Average Premium Rate is then usedonasan a actuarial basis for assessment determining of overall premium funding requirement of the Compensation and an of the likely overall remuneration forClassification all the anthe individual rate for individual industry groupsFund according to estimate their South Australian WorkCover Industrial employers that are to pay premiums under theto Act. Average Premium Rate is then usedinaspremium a basis for determining (SAWIC). Under therequired Act, WorkCoverSA has the power setThe premium rates to recover any shortfalls collections. an premium rate for individualtoindustry groups according to their Australian WorkCover Industrial Classification Theindividual funding policy is for WorkCoverSA become fully funded as soon as South practicable. Full funding is defined by the Board as (SAWIC). Under the Act,toWorkCoverSA has the90% power to 110%. set premium rates to recover any shortfalls in premium collections. having a ratio of assets liabilities of between and The funding policy is for WorkCoverSA to become fully funded as soon as practicable. Full funding is defined by the Board as The riska of setting incorrect premium is controlled taking external actuarial advice concerning the funding requirements having ratio of assets to liabilities ofrates between 90% andby 110%. of the Scheme and through the use of robust and historical models to translate the Average Premium Rate into individual The risk premium of settingrates. incorrect rates is controlled by taking external actuarial advice concerning theapproximately funding requirements SAWIC Thepremium number of registered (non self-insured) employers for the financial year was 50,000. of theentitlements Scheme and through use of robustare anddetermined historical models to translate the Average Premium Rate into individual The payable tothe injured workers by the Act. SAWIC premium rates. The number of registered (non self-insured) employers for the financial year was approximately 50,000. WorkCoverSA’s determining theare outstanding claims provisions and related sensitivities is set out in Notes 2, 18 and The entitlements approach payable totoinjured workers determined by the Act. 19. WorkCoverSA relies on the following key controls in seeking to ensure the adequacy of the claims provision: WorkCoverSA’s approach to determining the outstanding claims provisions and related sensitivities is set out in Notes 2, 18 and • there are relies established for managing in to accordance the Actofand relevant legislation 19. WorkCoverSA on theprocesses following key controls in claims seeking ensure thewith adequacy theother claims provision: ••

the claims provision isprocesses reviewed by externalclaims actuary follows: with the Act and other relevant legislation there are established for an managing in as accordance

• claimsCompensation Fund – by every six months the provision is reviewed an external actuary as follows: ••

Statutory Reserve Fund (excluding IBNR arising from asbestos related matters) – every twelve months Compensation Fund – every six months

••

InsuranceReserve Assistance Fund (excluding IBNR arising asbestos related matters) – every twelve months Statutory Fund (excluding IBNR arising fromfrom asbestos related matters) – every twelve months

••

IBNR arising from asbestos related matters every twelve months related with a more detailed review every two Insurance Assistance Fund (excluding IBNR–arising from asbestos matters) – every twelve months years IBNR arising from asbestos related matters – every twelve months with a more detailed review every two Mining and Quarrying Industries Fund – every three years. years

• •

In addition• to theseMining key controls the nature of workers compensation means and Quarrying Industries Fund – every three years.that the liability associated with an individual claim, whilst being difficult to determine precisely on an individual basis, is relatively small in relation to the assessed value of all of the In addition to as these key controls the nature of workers compensation means that the liability associated with an individual claim, claims taken a whole. whilst being difficult to determine precisely on an individual basis, is relatively small in relation to the assessed value of all of the (b) Operational risk claims taken as a whole. Operational risk relates to the risk of loss arising from systems failure, human error or from other circumstances not related to (b) Operational riskrisks. These risks are managed through the risk framework outlined above which includes a system of insurance or financial Operational risk relateseffective to the risk of loss arising from access systemscontrols failure, and human errorprocesses. or from other circumstances not related to delegated authorities, segregation of duties, review insurance or financial risks. These risks are managed through the risk framework outlined above which includes a system of (c) Financial risk effective segregation of duties, access controls and review processes. delegated authorities, WorkCoverSA has exposure to the following financial risks:

(c) Financial risk

• credithas riskexposure to the following financial risks: WorkCoverSA ••

liquidity risk credit risk

••

market risk. liquidity risk

to these risks arises primarily in relation to its investment portfolio but also in relation to its other •WorkCoverSA’s market exposure risk. financial assets. This note presents information about WorkCoverSA’s exposure to each of the above risks, objectives, policies WorkCoverSA’s exposure to these risks arises primarily relation to its investment portfolio butthroughout also in relation its other and processes for measuring and managing risk. Furtherinquantitative disclosures are included thesetofinancial financial assets. This note presents information about WorkCoverSA’s exposure to each of the above risks, objectives, policies statements. and processes for measuring and managing risk. Further quantitative disclosures are included throughout these financial statements. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 12


Notes to to and and forming forming part part of of Notes the financial financial statements statements the 30 June June 2013 2013 30   Investments –– risk risk management management framework framework Investments

WorkCoverSA’s Investment Investment Policy Policy document documentdefines defines the the investment investment policies policies for for the the management management and and oversight oversight of of WorkCoverSA’s WorkCoverSA’s investment investment portfolio. portfolio. ItIt overviews overviews the the broader broader context context against against which which the the WorkCoverSA WorkCoverSA investment investment program program WorkCoverSA’s operates, sets sets forth forth the the specific specific investment investment objectives objectives for for the the portfolio portfolio and and the the Board’s Board’s governance governance arrangements arrangements for for the the operates, investment program. program. The The Investment Investment Policy Policy objectives objectives are are to: to: investment ••

assist in in minimising minimising employer employer premiums premiums by by delivering delivering investment investment returns returns that that exceed exceed the the actuarial actuarialdiscount discount rate, rate, assist achieved by by adopting adopting aa moderate-risk, moderate-risk, balanced balanced investment investment portfolio portfolio achieved

••

ensure maintenance maintenance of of the the purchasing purchasing power power of of money money held held to to fund fund the the Scheme’s Scheme’s incurred, incurred, predominantly predominantly inflation inflation ensure indexed, liabilities liabilities by by focusing focusing on on maximising maximising real real (i.e. (i.e. in in excess excess of of SA SA wage wage inflation) inflation) investment investment returns, returns, measured measured indexed, over rolling rolling three three year year periods. periods. over

Achievement of of these these objectives objectives will will be be subject subject to: to: Achievement ••

the expected expected impact impact of of the the investment investment program program on on the the volatility volatility of of the the funding funding ratio ratio being being acceptable acceptable the

••

there being being an an acceptable acceptable risk risk that that the the nominal nominal investment investment return return in in any any one one year year will will be be negative negative there

••

assets being being sufficiently sufficiently liquid liquid to to meet meet any any Scheme Scheme cash cash outflow outflow requirements. requirements. assets

The formal formal investment investment policy policy isis reviewed reviewed annually annually by by the the Board Board to to ensure ensure itit remains remains appropriate appropriate to to the the organisation’s organisation’s current current The circumstances. Other Other documents documents integral integral to to WorkCoverSA’s WorkCoverSA’s investment investment activities activities are: are: circumstances. ••

Investment Strategy Strategy –– this this Board Board approved approved document document incorporates incorporates the the asset asset allocation allocation that that has has been been adopted adopted to to Investment achieve the the Board’s Board’s investment investment objectives. objectives. This This document document isis reviewed reviewedat at least least annually annually achieve

••

Fund Manager Manager Guidelines Guidelines and and Credit Credit Limits Limits -- these these documents documents outline outline the the detailed detailed operating operating controls controls and and limitations limitations Fund applying to to each each investment investment portfolio. portfolio. These These documents documents are are reviewed reviewed at at least least annually annually applying

••

Risk Management Management Statement Statement and and Derivatives Derivatives Policy Policy –– this this Board Board Investment, Investment, Premiums Premiums and and WorkCover WorkCover Finance Finance Risk Committee approved approved document document specifies specifies WorkCoverSA’s WorkCoverSA’s policies policies for for the the use use of of derivatives derivatives within within the the Compensation Compensation Committee Fund. This This document document isis reviewed reviewed annually. annually. Fund.

The investment investment portfolio portfolio isis managed managed internally internally by by experienced experienced professionals professionals supported supported by by an an internationally internationallyrecognised recognised The investment firm firm that that provides provides advice advice on on asset asset allocation, allocation, selection selection of of external external fund fund managers, managers, and and undertakes undertakes specialised specialised investment investment research research and and performance performance measurement. measurement. investment In meeting meeting the the investment investment objectives, objectives, WorkCoverSA’s WorkCoverSA’s investment investment strategy strategy currently currently maintains maintains exposure exposure to to aa range range of of assets. assets. In The management management of of these these assets assets isis conducted conducted on on aa day day to to day day basis basis through through 20 20 (2012: (2012: 20) 20) portfolios portfolios managed managed by by external external The specialist fund fund managers, managers, with with the the two two cash cash portfolios, portfolios, managed managed internally. internally. Exposures Exposures within within each each asset asset class class are are maintained maintained specialist within the the Board Board approved approved target target ranges ranges as as determined determined by by the the Investment Investment Strategy Strategy document. document. The The allowable allowable range range of of within investments (and (and resulting resulting risk risk exposure) exposure) for for each each fund fund manager managerisis determined determined by by the the Fund Fund Manager ManagerGuidelines. Guidelines. Fund Fund investments manager and and each each asset asset group group performance performance are are monitored monitored monthly monthly and and comprehensively comprehensively reviewed reviewed at at least least annually. annually. The The manager Investment Guidelines Guidelines and and Fund Fund Manager Manager Guidelines Guidelines set set out out for for each each asset assetgroup group and and portfolio: portfolio: Investment ••

the desired desired portfolio portfolio characteristics characteristics the

••

the required required performance performance and and variability variability in in relation relation to to aa recognised recognised benchmark benchmark appropriate appropriate to to that that portfolio portfolio the

••

the type type of of assets assets that that can can be be held held the

••

the extent extent and and nature nature of of trading trading and and the the types types of of financial financial instrument instrumentthat that can can be be utilised utilised by by the the fund fund manager. manager. the

Management, in in conjunction conjunction with with specialist specialist advisors, advisors, monitors monitors each each fund fund manager manager against against risk risk and and return return criteria criteria and and their their Management, contractual obligations. obligations. The The Board Board Investment, Investment, Premiums Premiums and and WorkCover WorkCover Finance Finance Committee Committeereview review investment investment program program risk risk contractual and compliance compliance activity activity for for individual individual portfolios portfolios and and the the overall overall Compensation Compensation Fund. Fund. and WorkCoverSA has has aa master master custody custody arrangement arrangement with with National National Australia Australia Bank Bank (NAB). (NAB). All All assets assets are are held held by by NAB NAB under under safe safe WorkCoverSA custody, except except for for the the internally internally managed managed cash cash portfolios portfolios and and aa portfolio portfolio held held under under aa separate separate trust trust agreement. agreement. custody, At any any particular particular time time the the composition composition of of the the portfolio portfolio will will vary vary from from the the Board Board approved approved investment investment strategy strategy targets targets depending depending At on the the decisions decisions of of individual individual fund fund managers managers and andmarket market movements. movements. on

  WORKCOVERSAFINANCIAL FINANCIALSTATEMENTS STATEMENTS2012/2013 2012/2013FINAL FINAL WORKCOVERSA

13 13


Notes to and forming part of the financial statements 30 June 2013  

The The composition composition of of each each asset asset group group at at 30 30 June June 2013 2013 was: was: Deposits Deposits With With Financial Financial Institutions Institutions $’000 $’000 Cash Cash

Government Government // semi semi –– Government Government Securities Securities $’000 $’000

NonNonGovernment Government Debt Debt Instruments Instruments $’000 $’000

Securities Securities listed listed on on the the Australian Australian stock stock exchange exchange $’000 $’000

Securities Securities listed listed on on overseas overseas stock stock exchanges exchanges $’000 $’000

Unit Unit Trust Trust –– Unlisted Unlisted Property Property and and Debt Debt security security Assets Assets $’000 $’000

Derivatives Derivatives $’000 $’000

Total Total $’000 $’000

--

103,774 103,774

103,774 103,774

--

--

--

--

--

5,418 5,418

160,471 160,471

81,266 81,266

--

--

--

203,221 203,221

197,453 197,453

--

--

--

--

--

400,674 400,674

5,323 5,323

--

--

253,412 253,412

--

--

1,909 1,909

260,644 260,644

Overseas Overseas Equities Equities –– hedged hedged

--

--

--

--

209,890 209,890

--

--

209,890 209,890

Overseas Overseas Equities Equities –– unhedged unhedged

--

--

--

--

328,613 328,613

--

--

328,613 328,613

Property Property

2,368 2,368

--

--

7,013 7,013

102,316 102,316

57,880 57,880

(5,306) (5,306)

164,271 164,271

Real Real Return Return Growth Growth Assets Assets

5,713 5,713

--

65,532 65,532

69,747 69,747

112,852 112,852

174,679 174,679

(1,920) (1,920)

426,603 426,603

Alternative Alternative Income Income

7,287 7,287

9,728 9,728

102,451 102,451

--

--

--

(3,374) (3,374)

116,092 116,092

333,104 333,104

367,652 367,652

249,249 249,249

330,172 330,172

753,671 753,671

232,559 232,559

(8,763) (8,763)

2,257,644 2,257,644

Fixed Fixed interest interest Inflation Inflation Linked Linked Securities Securities Australian Australian Equities Equities

(72) (72)

247,083 247,083

The The composition composition of of each each asset asset group group at at 30 30 June June 2012 2012 was: was:

Cash Cash Fixed Fixed interest interest Inflation Inflation Linked Linked Securities Securities Australian Australian Equities Equities Overseas Overseas Equities Equities –– hedged hedged Overseas Overseas Equities Equities –– unhedged unhedged Property Property Real Real Return Return Growth Growth Assets Assets Alternative Alternative Income Income

Deposits Deposits With With Financial Financial Institutions Institutions $’000 $’000

Government Government // semi semi –– Government Government Securities Securities $’000 $’000

NonNonGovernment Government Debt Debt Instruments Instruments $’000 $’000

Securities Securities listed listed on on the the Australian Australian stock stock exchange exchange $’000 $’000

61,292 61,292

--

--

--

--

--

--

61,292 61,292

Securities Securities listed listed on on overseas overseas stock stock exchanges exchanges $’000 $’000

Unit Unit Trust Trust –– Unlisted Unlisted Property Property and and Debt Debt security security Assets Assets $’000 $’000

Derivatives Derivatives $’000 $’000

Total Total $’000 $’000

10,116 10,116

146,710 146,710

69,484 69,484

--

--

--

233 233

226,543 226,543

116,814 116,814

236,983 236,983

--

--

--

--

--

353,797 353,797

13,529 13,529

--

--

244,669 244,669

--

--

1,917 1,917

260,115 260,115

--

--

--

--

187,121 187,121

--

--

187,121 187,121

--

--

--

--

172,338 172,338

--

--

172,338 172,338

4,806 4,806

--

--

--

83,960 83,960

54,671 54,671

--

143,437 143,437

7,478 7,478

--

60,368 60,368

41,904 41,904

90,516 90,516

168,523 168,523

2,345 2,345

371,134 371,134

27,074 27,074

--

63,928 63,928

--

--

--

21 21

91,023 91,023

241,109 241,109

383,693 383,693

193,780 193,780

286,573 286,573

533,935 533,935

223,194 223,194

4,516 4,516

1,866,800 1,866,800

 

Use Use of of derivatives derivatives In In the the normal normal course course of of its its investment investment activities activities WorkCoverSA WorkCoverSA is is party party to to arrangements arrangements involving involving derivatives. derivatives. Derivatives Derivatives held held within portfolios through WorkCoverSA’s custodian have three main objectives: within portfolios through WorkCoverSA’s custodian have three main objectives: ••

risk risk management management –– minimisation minimisation or or reduction reduction of of specific specific risks risks within within aa given given portfolio. portfolio. For For example example forward forward exchange exchange contracts contracts are are used used to to hedge hedge currency currency movements movements to to remove remove their their impact impact on on international international investment investment portfolio portfolio returns returns

••

transactional transactional efficiency efficiency –– derivatives derivatives provide provide effective effective exposure exposure to to markets markets or or individual individual securities securities while while incurring incurring transaction transaction costs costs lower lower than than the the cost cost of of purchasing purchasing the the underlying underlying security security or or basket basket of of securities. securities. In In many many instances instances the the derivative derivative markets markets provide provide much much more more liquidity liquidity than than the the underlying underlying physical physical market market

••

value value added added strategies strategies –– given given their their low low cost cost and and high high liquidity, liquidity, derivatives derivatives can can be be an an efficient efficient way way of of taking taking active active portfolio portfolio positions. positions. As As there there can can also also be be pricing pricing anomalies anomalies between between derivatives derivatives and and underlying underlying physical physical securities securities there there can can be be opportunities opportunities to to take take advantage advantage of of different different pricing. pricing.

Derivative Derivative exposures exposures are are subject subject to to the the same same restrictions restrictions as as physical physical assets assets within within each each portfolio’s portfolio’s investment investment guidelines. guidelines. Derivatives also need to comply with the fund managers individual Derivative Risk Statement Part B Derivatives also need to comply with the fund managers individual Derivative Risk Statement Part B and and WorkCoverSA’s WorkCoverSA’s Derivative Derivative Risk Risk Statement Statement and and Derivatives Derivatives Policy. Policy. Where Where there there is is inconsistency, inconsistency, the the Fund Fund Manager Manager Guidelines Guidelines will will take take precedence. precedence. Additionally Additionally no no gearing gearing or or leverage leverage is is allowed allowed from from derivative derivative positions positions with with all all net net long long derivative derivative exposures exposures covered covered by by cash cash or or cash cash equivalent equivalent securities. securities. WORKCOVERSA WORKCOVERSA FINANCIAL FINANCIAL STATEMENTS STATEMENTS 2012/2013 2012/2013 FINAL FINAL

14 14


Notes to and forming part of the financial statements 30 June 2013

The use of derivatives is restricted to appropriately credentialed counterparties. Unit Trusts in which WorkCoverSA invests may use derivative instruments appropriate to the investment markets in which they invest. The use of derivatives within the Unit Trusts in which WorkCoverSA invests is approved and monitored by the responsible entity or trustee for the respective Unit Trust. No single instrument is individually material to the future cash flows of WorkCoverSA. WorkCoverSA does not consider that the nature and extent of the use of derivatives warrants separate disclosure of individual contracts. WorkCoverSA, through its separate account investment portfolios, uses derivative instruments as follows: Forward exchange contracts •

WorkCoverSA invests in global markets to access the risk reduction benefits of diversification. In order to protect against exchange rate movements for a portion of overseas exposures, WorkCoverSA has entered into forward exchange contracts, which require settlement of the net gain or loss at maturity. For diversification purposes WorkCoverSA intentionally maintains some un-hedged currency exposures

the gain or loss on open contracts as at the reporting period has been taken up in the financial statements as an unrealised gain or loss based on the exchange rate current as at the end of the reporting period

the use of forward exchange contracts for speculative purposes is prohibited.

Credit risk - investments Credit risk is the risk of financial loss to WorkCoverSA if a premium payer, other debtor or counterparty to a financial instrument fails to meet their contractual obligations. WorkCoverSA manages its exposure to credit risk related to fixed interest and cash investments through its Investment Strategy and Investment Guidelines and Investment Credit Limits documents. Credit exposures are monitored against approved limits with breaches notified to the Board Investment, Premiums and WorkCover Finance Committee. These documents impose the following restrictions: •

credit limits are placed on all categories of debt investments on an individual and cumulative basis

for each individual investment and on a cumulative investment category basis minimum credit ratings requirements are imposed based on Standard and Poor’s (or equivalent Moody’s) ratings

maturity constraints are imposed on non-government guaranteed debt instruments.

The following tables outline WorkCoverSA’s credit risk exposure within the major debt securities asset classes as at balance date. As at 30 June 2013: Short-term issue ratings*

Long-term issue ratings**

Not rated***

Less than A1+ Cash Fixed interest Inflation linked securities Alternative income

A1

A2

AAA

AA

AA-

Derivatives

Total

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

87,697

16,077

-

-

-

-

-

103,774

5,418

-

-

175,259

39,887

26,591

186,059

17,162

-

197,453

-

-

7,287

-

-

40,384

5,609

66,186

(3,374)

116,092

286,461

33,239

-

413,096

45,496

92,777

(3,446)

867,623

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 15

(72) -

247,083 400,674


Notes to and forming part of the financial statements 30 June 2013 As at 30 June 2012: Short-term issue ratings*

Long-term issue ratings**

Not rated***

Less than A1+

A1

A2

AAA

AA

AA-

Derivatives

Total

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

Cash

45,129

16,163

-

-

-

-

-

61,292

Fixed interest

10,116

-

-

150,461

54,378

11,355

233

226,543

116,814

-

-

236,983

-

-

-

353,797

27,074

-

-

24,932

3,196

35,800

21

91,023

199,133

16,163

-

412,376

57,574

47,155

254

732,655

Inflation linked securities Alternative income

*

Standard & Poor’s short-term financial strength ratings apply for cash portfolio and short-term investments. A1+ is the highest short-term strength rating.

**

Standard & Poor’s long-term credit ratings. AAA is the highest possible long-term credit rating.

***

Not rated assets for this table are non defensive assets and consist of cash or investments in a pooled fund which is benchmarked against the UBS Composite Index.

Credit risk - other financial assets The only significant exposure to credit risk in relation to assets, other than investments, relates to premiums due and payable from registered and self-insured employers and sundry debtors. WorkCoverSA is able to enforce the collection of any debt due under the Act through a court of competent jurisdiction. WorkCoverSA has processes in place to monitor all material credit exposures and has an established policy to manage debt recovery. 12.3% of WorkCoverSA’s premium receivables and sundry debtors were past due greater than 30 days (2012 14.6%). The ageing of WorkCoverSA’s premium receivables and sundry debtors at the reporting date was: 2013

2012

$’000

$’000

4,631

9,200

Past due 1-30 days

50

354

Past due 31-60 days

48

31

Past due 61 days to one year

508

1,495

More than one year

102

102

5,339

11,182

Not past due

There were no significant concentrations of credit risk. None of the above amounts are considered impaired. Liquidity risk Liquidity risk is the risk that WorkCoverSA will not be able to meet its financial obligations as they fall due. WorkCoverSA’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to WorkCoverSA’s reputation. At least 20% of WorkCoverSA’s investments could be liquidated within seven business days if required. Both the asset and liability liquidity risks are managed through management risk strategies. 86.7% (2012 86.3%) of WorkCoverSA’s liabilities are non-current and consist predominately of estimates of payments of entitlements to workers compensation made over the long-term to individual claimants. WorkCoverSA’s asset allocation is such that if required it could be realisable as cash within a few months. Accordingly WorkCoverSA considers that its short-term liquidity risks are minimal.

WORKCOVERSA FINANCIAL FINANCIAL STATEMENTS STATEMENTS 2012/2013 2012/2013 FINAL FINAL WORKCOVERSA

16 16


Notes to and forming part of the financial statements 30 June 2013 The table table below below outlines outlines the the maturity maturity profile profile of of certain certain financial financial liabilities liabilities based based on on the the remaining remaining undiscounted undiscounted obligations. obligations. The Outstanding claims are covered in notes 18 and 19. Outstanding claims are covered in notes 18 and 19. As at at 30 30 June June 2013: 2013: As Over 55 Over year or or less less 11 year

to 33 years years 11 to

3-5 years years 3-5

Years Years

No term term No

Total Total

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

18,974 18,974

240 240

--

--

--

19,214 19,214

Trade and and other other payables payables Trade As at at 30 30 June June 2012: 2012: As

Over 55 Over year or or less less 11 year

to 33 years years 11 to

3-5 years years 3-5

Years Years

No term term No

Total Total

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

32,297 32,297

126 126

--

--

--

32,423 32,423

Trade and and other other payables payables Trade Market risk risk Market

Market risk risk is is the the risk risk that that changes changes in in market market prices, prices, such such as as foreign foreign exchange exchange rates, rates, interest interest rates rates and and equity equity prices prices will will affect affect Market WorkCoverSA’s income or the value of its holdings of financial instruments. The objective of market risk management is to WorkCoverSA’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and and control control market market risk risk exposures exposures within within acceptable acceptable parameters, parameters, while while optimising optimising the the return. return. manage WorkCoverSA is is exposed exposed to to market market risk risk primarily primarily through: through: WorkCoverSA •• •• ••

currency risk risk currency interest rate rate risk risk interest market price price risk. risk. market

Currency risk risk Currency WorkCoverSA is is directly directly exposed exposed to to currency currency risk risk on on purchases purchases and and financial financial instruments instruments that that are are denominated denominated in in aa currency currency WorkCoverSA other than Australian dollars. WorkCoverSA uses forward exchange contracts for a portion of its international investments to other than Australian dollars. WorkCoverSA uses forward exchange contracts for a portion of its international investments to hedge its exposure to foreign currency fluctuations. All overseas bond securities, overseas listed property, overseas hedge its exposure to foreign currency fluctuations. All overseas bond securities, overseas listed property, overseas infrastructure, and and approximately approximately 40% 40% of of the the international international equity equity securities securities are are covered covered by by forward forward exchange exchange contracts contracts whilst whilst infrastructure, remaining equities equities are are left left intentionally intentionally exposed exposed to to exchange exchange rate rate movements. movements. The The changes changes in in the the valuations valuations of of these these open open remaining contracts are are disclosed disclosed in in the the financial financial statements statements as as unrealised unrealised gains gains or or losses losses as as at at the the reporting reporting period. period. contracts The analysis analysis below below demonstrates demonstrates the the impact impact on on profit profit and and equity equity of of aa movement movement in in foreign foreign exchange exchange rates rates against against the the The Australian dollar dollar on on our our material material un-hedged un-hedged major major currency currency exposures. exposures. This This analysis analysis is is based based on on foreign foreign currency currency exchange exchange Australian rate variances variances that that WorkCoverSA WorkCoverSA considered considered to to be be reasonably reasonably possible possible at at the the reporting reporting date date and and assumes assumes that that all all other other rate variables, in particular interest rates, remain constant. variables, in particular interest rates, remain constant.

US Dollar Dollar US Euro Euro Sterling Sterling

Residual Residual

Residual Residual

exposure at at 30 30 exposure

exposure at at 30 30 exposure

Movement Movement

2013 2013

2013 2013

2012 2012

2012 2012

June 2013 2013 June

June 2012 2012 June

in variable variable in

Profit (loss) (loss) Profit

Equity Equity

Profit (loss) (loss) Profit

Equity Equity

$’000 $’000

$’000 $’000

against A$ A$ against

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

160,455 160,455

75,922 75,922

33,835 33,835 25,781 25,781

14,150 14,150 13,176 13,176

WORKCOVERSA FINANCIAL FINANCIAL STATEMENTS STATEMENTS 2012/2013 2012/2013 FINAL FINAL WORKCOVERSA

17 17

+10% +10%

(16,045) (16,045)

(16,045) (16,045)

(7,592) (7,592)

(7,592) (7,592)

-10% -10%

16,045 16,045

16,045 16,045

7,592 7,592

7,592 7,592

+10% +10%

(3,384) (3,384)

(3,384) (3,384)

(1,415) (1,415)

(1,415) (1,415)

-10% -10%

3,384 3,384

3,384 3,384

1,415 1,415

1,415 1,415

+10% +10%

(2,578) (2,578)

(2,578) (2,578)

(1,318) (1,318)

(1,318) (1,318)

-10% -10%

2,578 2,578

2,578 2,578

1,318 1,318

1,318 1,318


Notes to and forming part of the financial statements 30 June 2013 Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fixed interest securities are exposed to changes in fair value due to fluctuating interest rates whilst floating rate securities are exposed to future cash flow variations as a result of changes to interest rates. The risk management approach adopted by WorkCoverSA to manage such risks is through its asset allocation whereby a mixture of high credit rated and readily liquidated fixed interest securities are held in conjunction with short-term deposits and cash to achieve the desired level of interest rate risk exposure. WorkCoverSA’s fixed interest investments are held predominately in domestic markets. Such holdings form part of WorkCoverSA’s defensive or low risk exposure to provide capital stability and secure income. WorkCoverSA’s investments in interest bearing securities consist of marketable securities which are not held for trading. WorkCoverSA’s sensitivity to movements in interest rates in relation to the value of interest bearing investments is shown in the table below. This analysis is based on interest rate variances that WorkCoverSA considered to be reasonably possible at the reporting date. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. Financial Impact 2013

2013

2012

2012

Movement

Profit (loss)

Equity

Profit (loss)

Equity

in interest rate

$’000

$’000

$’000

$’000

Interest rate movement – interest

+1%

(25,764)

(25,764)

(27,845)

-1%

25,764

25,764

27,845

(27,845)

bearing investments 27,845

Market price risk Market price risk is the risk that the fair value of a financial instrument will fluctuate because of changes in market pricing (other than those arising from interest rate risk or currency risk) whether those changes are caused by factors specific to the individual instrument or its issuer (idiosyncratic risk), or factors affecting all similar financial instruments traded in the market (systematic risk). WorkCoverSA is exposed to market price risk in all asset groups with the highest systematic risk in listed securities. These investments consist of investments listed on the Australian Stock Exchange and other major international exchanges (excluding listed debt). The market price risk in all other asset groups is considered less significant. WorkCoverSA manages its exposure to market risk through the adoption of a longer-term investment strategy based on extensive modelling of the expected return, volatility and correlation of each asset category included in the investment program to maximise returns for a given level of risk. By diversifying investments across a number of lowly correlated markets the volatility of the aggregate investment return is moderated over time. The potential impact of movements in the market value of Australian and overseas listed equities asset groups on WorkCoverSA’s Statement of Comprehensive Income and Statement of Financial Position is shown in the sensitivity analysis below. The calculation assumes that exposures are un-hedged. Industry standard categorisations have been adopted for WorkCoverSA’s equity exposures. Listed Securities

Domestic equities International equities

Listed property

Listed infrastructure

Exposure at 30 June 2013 $’000

Exposure at 30 June 2012 $’000

Movement in variable

2013 Profit (loss) $’000

2013 Equity $’000

2012 Profit (loss) $’000

2012 Equity $’000

253,412

244,669

+20%

50,682

50,682

48,934

48,934

-20%

(50,682)

(50,682)

(48,934)

(48,934)

+20%

107,701

107,701

71,892

71,892

-20%

(107,701)

(107,701)

(71,892)

(71,892)

+20%

21,866

21,866

16,792

16,792

-20%

(21,866)

(21,866)

(16,792)

(16,792)

+20%

24,317

24,317

18,103

18,103

-20%

(24,317)

(24,317)

(18,103)

(18,103)

538,503 109,329 121,587

359,459 83,960 90,516

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 18


Notes to and forming part of the financial statements 30 June 2013 Fair value measurements The fair value of financial assets must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instrument: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: Level 1: quoted prices (unadjusted) in active markets for identical assets Level 2: inputs other than quoted prices included within level 1 that are observable for the asset either directly (as prices) or indirectly (derived from prices) Level 3: inputs for the asset that are not based on observable market data (unobservable inputs) The following tables present WorkCoverSA’s investments measured and recognised at fair value. At 30 June 2013: Level 1

Level 2

Level 3

Total

$’000

$’000

$’000

$’000

Deposits with financial institutions

333,104

-

-

333,104

Government / semi-government securities

367,652

-

-

367,652

Non-government debt instruments

249,249

-

-

249,249

Securities listed on the Australian Stock Exchange

330,172

-

-

330,172

Securities listed on overseas stock exchanges

753,671

-

-

753,671

Unit Trusts – unlisted property and debt security assets

-

198,024

34,535

232,559

Derivatives

-

(8,763)

-

(8,763)

2,033,848

189,261

34,535

2,257,644

Level 1

Level 2

Level 3

Total

$’000

$’000

$’000

$’000

Total investments at fair value through profit and loss  

At 30 June 2012:

Deposits with financial institutions

241,109

-

-

241,109

Government / semi-government securities

383,693

-

-

383,693

Non-government debt instruments

193,780

-

-

193,780

Securities listed on the Australian Stock Exchange

286,573

-

-

286,573

Securities listed on overseas stock exchanges

533,935

-

-

533,935

Unit Trusts – unlisted property and debt security assets

-

185,084

38,110

223,194

Derivatives

-

4,516

-

4,516

1,639,090

189,600

38,110

Total investments at fair value through profit and loss

1,866,800

The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading and available-forsale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by WorkCoverSA is the current bid price. These instruments are included in level 1. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 19


Notes to and forming part of the financial statements 30 June 2013 The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives) is determined using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3. This is the case for unlisted equity securities. Specific valuation techniques used to value financial instruments include: •

The use of quoted market prices or dealer quotes for similar instruments

The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves

The fair value of forward foreign exchange contracts is determined using forward exchange rates at the balance sheet date with the resulting value discounted back to present value

Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining financial instruments.

All of the resulting fair value estimates are included in level 2 except for unlisted equity securities. The following table presents the changes in level 3 instruments for the years ended 30 June 2013 and 2012: Unit Trusts – unlistedproperty and debtsecurity$’000Opening balance at 1 July 2011

49,803

Contributions

1,864

Withdrawals

(13,891)

Gains / (losses) recognised in investment profit

334

Closing balance at 30 June 2012

38,110

Opening balance at 1 July 2012

38,110

Contributions

494

Withdrawals

(4,472)

Gains / (losses) recognised in investment profit

403

Closing balance at 30 June 2013

34,535

Total gains / (losses) for the period included in investment profit that relate to assets held at the end of the reporting period: 2012

334

2013

403

The fair value of level 3 instruments is valued by an independent third party with the appropriate skills, experience and resources. The carrying amounts of trade receivables and payables are assumed to approximate their fair values due to their short-term nature. The fair value of current borrowings approximates the carrying amount, as the impact of discounting is not significant. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 20


Notes to and forming part of the financial statements 30 June 2013 Note 4 Other Funds (a) Statement of Comprehensive Income for the year ended 30 June 2013

Notes

Claims paid Claim recoveries (Increase) / decrease in outstanding claims liability

6

2013

2012

Quarrying

Total

Total

Other

Other

Part B

Funds

Funds

$’000

$’000

(2,185)

(1,946)

Statutory

Insurance

Reserve

Assistance

Fund

Fund

Part A

$’000

$’000

$’000

$’000

-

-

-

(2,185)

Industries Fund

6

589

-

-

-

589

19

15,639

138

-

-

15,777

(14,466)

14,043

138

-

-

14,181

(15,814)

13,015

2,092

24

1,658

16,789

6,799

Underwriting result Investment profit

Mining &

7

Investment expense

(153)

Net investment profit

12,862

Total operating expenses

(288)

Total comprehensive result

26,617

(24)

-

2,068

24

-

-

2,206

24

(20) 1,638 (672) 966

(197) 16,592 (960) 29,813

598

(259) 6,540 (964) (10,238)

(b) Statement of Financial Position as at 30 June 2013 Mining & Statutory

Insurance

Reserve

Assistance

Fund

Fund

Part A

$’000

$’000

3,902

Investments Total assets

2013 Total

Total

Other

Other

Part B

Funds

Funds

$’000

$’000

$’000

$’000

-

-

12

3,914

25

112,882

18,259

212

14,093

145,446

131,357

116,784

18,259

212

14,105

149,360

131,382

100

-

-

38

138

98

81,817

367

100

-

82,284

94,159

Total liabilities

81,917

367

100

38

82,422

94,257

Net assets / (liabilities)

34,867

17,892

112

14,067

66,938

37,125

Retained earnings

34,867

17,892

112

14,067

66,938

37,125

Total equity

34,867

17,892

112

14,067

66,938

37,125

Notes

Quarrying

2012

Industries Fund

Assets Trade and other receivables

Liabilities Payables Outstanding claims

19

Equity

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 21


Notes to to and and forming forming part part of of Notes the financial financial statements statements the 30 June June 2013 2013 30 Note 55 Total Total income income Note 2013 2013

2012 2012

Compensation Compensation

Other Other

Fund Fund

Funds Funds

WorkCoverSA WorkCoverSA

WorkCoverSA WorkCoverSA

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

666,431 666,431

--

666,431 666,431

633,960 633,960

944 944

--

944 944

5,252 5,252

667,375 667,375

--

667,375 667,375

639,212 639,212

Self-insured employer employer fee fee -- SA SA Government Government Self-insured

8,491 8,491

--

8,491 8,491

7,667 7,667

Self-insured employer employer fee fee -- Non Non SA SA Government Government Self-insured

9,604 9,604

--

9,604 9,604

8,215 8,215

18,095 18,095

--

18,095 18,095

15,882 15,882

685,470 685,470

--

685,470 685,470

655,094 655,094

Notes Notes Registered employer employerpremium premium Registered Fines and and penalties penalties Fines Registered employer employerpremium premium revenue revenue Registered

Self-insured premium premium revenue revenue Self-insured Total premium premium revenue revenue Total Claim recoveries recoveries Claim

66

21,476 21,476

589 589

22,065 22,065

19,140 19,140

Investment profit profit Investment

77

236,111 236,111

16,789 16,789

252,900 252,900

95,931 95,931

Other income income Other

88

6,466 6,466

--

6,466 6,466

3,753 3,753

949,523 949,523

17,378 17,378

966,901 966,901

773,918 773,918

2013 2013

2012 2012

Total income income Total

  Note 66 Cost Cost of of claims claims Note (a) Cost Cost of of claims claims (a)

Notes Notes Claims paid paid Claims Claim recoveries recoveries Claim

55

Net claims claims paid paid Net Increase // (decrease) (decrease) in in net net outstanding outstanding claims claims Increase liability liability

18,19 18,19

Net self-insurer self-insurer settlements settlements Net

Other Other

Fund Fund

Funds Funds

WorkCoverSA WorkCoverSA

WorkCoverSA WorkCoverSA

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

438,839 438,839

2,185 2,185

441,024 441,024

394,352 394,352

(22,065) (22,065)

(19,140) (19,140)

(21,476) (21,476)

1,596 1,596

418,959 418,959

375,212 375,212

389,266 389,266

(15,777) (15,777)

373,489 373,489

676,471 676,471

2,457 2,457

2,910 2,910

794,905 794,905

1,054,593 1,054,593

809,086 809,086

22 22

(589) (589)

417,363 417,363

2,457 2,457

Cost of of claims claims Cost

WORKCOVERSAFINANCIAL FINANCIALSTATEMENTS STATEMENTS2012/2013 2012/2013FINAL FINAL WORKCOVERSA

Compensation Compensation

-(14,181) (14,181)


Notes to and forming part of the financial statements 30 June 2013 (b) Net claims paid 2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

229,123

-

229,123

197,003

4,740

-

4,740

3,560

Non-economic loss – payments under Division 5 and Division 6 of the Act

40,491

-

40,491

37,678

Hospital treatment

13,048

-

13,048

13,223

Medical treatment

75,086

-

75,086

70,571

Vocational rehabilitation

27,952

-

27,952

26,247

Physiotherapy

12,870

-

12,870

12,404

Legal costs

15,197

329

15,526

13,552

Other

20,332

1,856

22,188

20,114

438,839

2,185

441,024

394,352

(22,065)

(19,140)

418,959

375,212

2013

2012

Notes Income maintenance Redemptions – payments under Division 4A of the Act

Claims paid Less recoveries from other parties

5

Net claims paid

(21,476) 417,363

Note 7 Investment profit Notes

(589) 1,596

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

Dividends

34,431

2,448

36,879

30,781

Interest received

35,450

2,521

37,971

35,470

Investment held at end of the financial year

154,235

10,967

165,202

18,964

Investment realised during the financial year

11,995

853

12,848

10,716

236,111

16,789

252,900

95,931

2013

2012

Change in net market values:

Investment profit

Note 8 Other income

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

5,087

-

5,087

914

Sundry income

1,379

-

1,379

2,839

Other income

6,466

-

6,466

3,753

Notes Defined benefit fund

20(d)

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 23


Notes to and forming part of the financial statements 30 June 2013 Note 9 Employee benefit expenses 2013

2012

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

Salaries and wages

27,783

128

27,911

26,449

Long service leave

1,136

4

1,140

610

463

4

467

2,217

68

-

68

-

1,158

-

1,158

8,112

2,332

11

2,343

2,043

32,940

147

33,087

39,431

Notes

Annual leave Skills and experience retention leave Expenses relating to defined benefit plans

20(d)

Contributions to defined contribution plans Total employee benefits expenses

Compensation

Other

Fund

The number of employees whose remuneration received or receivable falls within the following bands:

2013

2012

$138,000 to $147,999

5

2

$148,000 to $157,999

5

12

$158,000 to $167,999

7

3

$168,000 to $177,999

4

-

$178,000 to $187,999

3

1

$188,000 to $197,999

-

1

$198,000 to $207,999

2

-

$208,000 to $217,999

1

1

$218,000 to $227,999

1

1

$228,000 to $237,999

-

1

$238,000 to $247,999

2

-

$248,000 to $257,999

-

2

$258,000 to $267,999

2

-

$288,000 to $297,999

1

-

$298,000 to $307,999

1

-

$328,000 to $337,999

1

-

$338,000 to $347,999

-

1

$408,000 to $417,999

-

1

$508,000 to $517,999

1

-

36

26

Total number of employees

The table includes all employees who received Normal Remuneration equal to or greater than the base executive remuneration level during the year (prior year comparatives have been amended to reflect this treatment). The remuneration amounts shown above include all costs of employment including salaries and wages, payments in lieu of leave, superannuation contributions, salary sacrifice benefits and fringe benefits, any fringe benefits tax paid or payable in respect of those benefits, and payments of accumulated annual leave, long service leave, superannuation and eligible termination payments, in respect of certain employees whose employment terminated in the financial year. The total remuneration received by these employees for the year was $7.1 million (2012: $4.9 million).

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 24


Notes to and forming part of the financial statements 30 June 2013 Note 10 Depreciation, amortisation and other general operating expenses 2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

Depreciation – property, plant and equipment

1,272

-

1,272

702

Amortisation – intangible assets

4,400

-

4,400

4,388

Depreciation and amortisation expenses

5,672

-

5,672

5,090

Net rental expenses relating to operating leases

2,043

-

2,043

3,707

163

-

163

236

2,899

-

2,899

4,439

Other operating costs

14,778

813

15,591

18,285

Other general operating expenses

19,883

813

20,696

26,667

Notes

Motor vehicle expenses relating to operating leases Consultants

The number and dollar amount of consultancies paid / payable (included in general operating expenses) that fell within the following bands: No.

2013

No.

$’000 Below $10,000

2012 $’000

3

18

7

37

$10,000 to $50,000

19

534

21

538

Above $50,000

11

2,347

17

3,864

Total paid/payable to the consultants engaged

33

2,899

45

4,439

2013

2012

WorkCoverSA

WorkCoverSA

$’000

$’000

479

468

Note 11 Auditor’s remuneration

Audit fees paid / payable to the Auditor-General’s Department Other services

No other services were provided by the Auditor-General’s Department.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 25


Notes to and forming part of the financial statements 30 June 2013 Note 12 Cash and cash equivalents Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

5

-

5

5

103,774

-

103,774

61,292

103,779

-

103,779

61,297

2013

2012

Cash 3

Cash and cash equivalents in the Statement of Cash Flows

Note 13 Trade and other receivables Notes

2012

Compensation Notes

Cash equivalents

2013

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

5,237

-

5,237

11,080

17,694

3,902

21,596

17,256

175

12

187

1,001

1,146

-

1,146

2,399

24,252

3,914

28,166

31,736

73,293

-

73,293

71,389

73,293

-

73,293

71,389

97,545

3,914

101,459

103,125

Current receivables Premiums, fines and penalty interest Recoverable claim payments

18,19

Trade debtors Sundry debtors and prepayments Total current receivables Non-current receivables Recoverable claim payments

18

Total non-current receivables Total trade and other receivables    Current receivables are net of a provision for doubtful debts.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 26


Notes to and forming part of the financial statements 30 June 2013 Note 14 Investments

2013

2012

WorkCoverSA

WorkCoverSA

$’000

$’000

Deposits with financial institutions

333,104

241,109

Government / semi-government securities

367,652

383,693

Non-government debt instruments

249,249

193,780

Securities listed on the Australian Stock Exchange

330,172

286,573

Securities listed on overseas stock exchanges

753,671

533,935

Unit Trusts – unlisted property and debt security assets

232,559

223,194

(8,763)

4,516

2,257,644

1,866,800

324,413

245,625

Non-current

1,933,231

1,621,175

Total

2,257,644

1,866,800

Derivatives Total investments at fair value through profit and loss Current

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 27


Notes to and forming part of the financial statements 30 June 2013 Note 15 Property, plant and equipment Leasehold improvements including office

Computer and

General

furniture and

communications

office

fittings

equipment

equipment

Total

$’000

$’000

$’000

$’000

15,063

3,598

1,270

19,931

Additions

7,896

1,152

206

9,254

Disposals

(14,959)

(1,198)

Balance at 30 June 2012

8,000

3,552

206

11,758

Balance at 1 July 2012

8,000

3,552

206

11,758

-

1,122

-

1,122

(1,930)

-

(2,590)

Fair value Balance at 1 July 2011

Additions Disposals

(660)

Balance at 30 June 2013

(1,270)

206

(17,427)

7,340

2,744

10,290

(14,937)

(2,578)

(1,203)

(18,718)

(48)

(614)

(40)

(702)

Depreciation Balance at 1 July 2011 Depreciation charge Disposals

14,943

1,145

1,241

17,329

Balance at 30 June 2012

(42)

(2,047)

(2)

(2,091)

Balance at 1 July 2012

(42)

(2,047)

(2)

(2,091)

(705)

(526)

(41)

(1,272)

Depreciation charge Disposals

-

Balance at 30 June 2013

(747)

1,899 (674)

-

1,899

(43)

(1,464)

Carrying Amounts At 1 July 2011

126

1,020

67

1,213

At 30 June 2012

7,958

1,505

204

9,667

At 1 July 2012

7,958

1,505

204

9,667

At 30 June 2013

6,593

2,070

163

8,826

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 28


Notes to and forming part of the financial statements 30 June 2013 Note 16 Intangible assets IT development and software $’000 Fair value Balance at 1 July 2011

43,880

Additions – internal development

-

Additions – external costs

-

Balance at 30 June 2012

43,880

Balance at 1 July 2012

43,880

Additions – internal development

-

Additions – external costs

-

Balance at 30 June 2013

43,880

Amortisation Balance at 1 July 2011

(5,169)

Amortisation charge

(4,388)

Balance at 30 June 2012

(9,557)

Balance at 1 July 2012

(9,557)

Amortisation charge

(4,400)

Balance at 30 June 2013

(13,957)

Carrying Amounts At 1 July 2011

38,711

At 30 June 2012

34,323

At 1 July 2012

34,323

At 30 June 2013

29,923

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 29


Notes to and forming part of the financial statements 30 June 2013 Note 17 Trade and other payables 2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

18,217

138

18,355

31,906

619

-

619

565

27

-

27

89

213

-

213

37

19,076

138

19,214

32,597

Current Creditors Employment on-costs Non-current Creditors Employment on-costs Total trade and other payables

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 30


Notes to and forming part of the financial statements 30 June 2013 Note 18 Outstanding claims liability – Compensation Fund (a) Outstanding claims Notes Expected future gross claims payments (undiscounted) Discount to present value Central estimate Risk margin Liability for outstanding claims Recoveries

13

Net liability for outstanding claims

2013

2012

$’000

$’000

5,566,092

4,711,965

(2,113,162)

(1,630,228)

3,452,930

3,081,737

189,911

169,496

3,642,841

3,251,233

(90,987)

(88,645)

3,551,854

3,162,588

471,050

421,442

Non-current liability for outstanding claims

3,171,791

2,829,791

Total liability for outstanding claims

3,642,841

3,251,233

391,608

667,405

Current liability for outstanding claims

Change in liability for outstanding claims Change in claim recoveries receivable

(2,342)

(5,400)

Movement in net outstanding claims liability

389,266

662,005

Weighted average expected term to settlement

8.9 years

9.1 years

The value of the claims liability is determined by WorkCoverSA following an independent actuarial valuation by Finity Consulting Pty Ltd. The value of the outstanding claims liability is based on a central estimate and includes a risk margin of 5.5% (2012: 5.5%) to bring the estimated net liability to a 65% probability of sufficiency. The split of the outstanding claims liability between current and non-current liabilities is based on actuarial advice from Finity Consulting Pty Ltd. Should the timing of cash flows vary from that projected by Finity Consulting Pty Ltd then the proportions of the overall claims liability that are shown as current and non-current may vary. The WorkCoverSA Scheme is a scheme designed in part to provide long-term financial support for those injured at work. In some cases this long-term financial support can be provided over many years. Assumptions adopted in relation to the projected future payments made to claims are detailed below in Note 18 (d). With effect from 1 July 2008 the provisions of the Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 have progressively come into force. The principal changes impacting on the estimate of the claims liability for existing claims were those relating to the amendments to the non-economic loss provisions, the changes to the dispute resolution process, the introduction of work capacity reviews, the introduction of medical panels and the restrictions on the use of redemptions. The estimate of the value of the claims liability is primarily based on the observed post-reform experience to date, although some judgment is still required about the future outworkings of the reform implementation. Any divergence of the experience from the current valuation assumptions, whether favourable or adverse, will be reflected over time in relation to valuation assumptions. Developments which potentially affect the Scheme’s operating environment and the uncertainty of the liability estimate include: •

employer premium changes introduced with the intention of increasing the engagement of employers in the prevention and management of workplace injuries

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 31


Notes to and forming part of the financial statements 30 June 2013 •

the impact of claims agent and legal services provider changes on future claims outcomes

Work Capacity Review experience and the extent to which future outcomes regarding long term benefit claims are affected by the review process

the outcomes for claims with pending disputes

the culture of the scheme and the implications for front-end claim trends and return to work outcomes

future changes in the overall economic environment.

The increase in the outstanding claims liability includes the net impact of the increase in the average discount rate from 3.8% at 30 June 2012 to 4.4% at 30 June 2013. Note 18 (e) sets out the impact of changes in the key assumptions on which the valuation of the outstanding claims liability is based.

(b) Net claims incurred Current

Prior

2013

Current

Prior

2012

year

years

Total

years

years

Total

$’000

$’000

$’000

$’000

$’000

$’000

1,205,119

173,194

1,378,313

1,091,421

Undiscounted Gross incurred Recoveries Net incurred – undiscounted

(18,683)

(8,942)

1,186,436

(27,625)

(18,007)

164,252

1,350,688

1,073,414

(44,564) (1,123)

1,046,857 (19,130)

(45,687)

1,027,727

334,474

1,092,595

Discounted Gross incurred

797,457

71,361

868,818

758,121

Recoveries

(15,861)

(10,026)

(25,887)

(15,699)

Net incurred – discounted

781,596

61,335

842,931

742,422

324,800

1,067,222

(407,662)

(101,833)

(509,495)

(333,300)

379,038

45,738

(9,674)

(25,373)

Discount and discount movement Gross incurred – discounted Recoveries – discounted

2,822

(1,084)

1,738

2,308

(8,551)

Net incurred – undiscounted (404,840) (102,917) (507,757) (330,992) 370,487 The figures for current period claims relate to the risks borne in the current reporting period. The figures for prior period claims relate to the reassessment of the risks borne in all previous reporting periods.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 32

(6,243) 39,495


1,243,176

1,249,667

1,249,667

1,133,056

116,611

82,547

199,158

Eleven years later

Twelve years later

Current estimate of cumulative claims costs**

Cumulative payments**

Outstanding payments**

Discount adjustment***

Net outstanding claims

25,222

10,357

14,865

310,409

325,274

325,274

324,268

325,554

328,029

329,228

339,116

354,287

343,547

333,644

314,439

325,617

Year ended 30 June 2003 $’000

40,784

15,606

25,178

333,635

358,813

358,813

354,263

354,917

357,003

361,281

375,531

387,244

375,409

368,048

332,168

Year ended 30 June 2004 $’000

50,589

17,778

32,811

337,079

369,890

369,890

369,695

368,005

383,879

368,271

406,101

408,008

382,259

395,377

Year ended 30 June 2005 $’000

115,893

36,719

79,174

334,613

413,787

413,787

420,017

417,524

417,646

437,354

452,514

419,758

396,059

Year ended 30 June 2006 $’000

254,487

70,999

183,488

315,907

499,395

499,395

496,736

484,162

475,519

460,605

435,848

422,794

Year ended 30 June 2007 $’000

289,631

67,982

221,649

291,549

513,198

513,198

492,947

457,878

461,964

447,935

445,035

Year ended 30 June 2008 $’000

305,421

55,751

249,670

276,187

525,857

525,857

517,651

489,652

480,472

471,917

Year ended 30 June 2009 $’000

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

33

Development of outstanding claim estimate as at 30 June 2003 for accidents prior to 30 June 2002. Discounted to the beginning of the accident year using actual historical discount rates and the discount rates applied in the estimation. Discount adjustment from beginning of accident year to current valuation date

1,235,883

Ten years later

* ** ***

1,238,986

1,285,326

1,286,078

,1,295,008

1,230,627

1,162,849

1,105,023

1,045,565

812,404

-

Prior years* $’000

Nine years later

Eight years later

Seven years later

Six years later

Five years later

Four years later

Three years later

Two years later

One year later

At the end of year

Estimate of ultimate claims cost**

(c) Claims development

Notes to and forming part of the financial statements 30 June 2013

303,328

43,564

259,764

240,209

499,973

499,973

521,046

487,196

506,902

Year ended 30 June 2010 $’000

395,063

44,308

350,755

211,280

562,035

562,035

586,296

527,850

Year ended 30 June 2011 $’000

496,348

35,111

461,237

155,737

616,974

616,974

625,012

Year ended 30 June 2012 $’000

620,256

18,845

601,411

63,762

665,173

665,173

Year ended 30 June 2013 $’000


Notes to and forming part of the financial statements 30 June 2013 2013

2012

$’000

$’000

199,158

202,429

Year ended 30 June 2003

25,222

24,719

Year ended 30 June 2004

40,784

35,801

Year ended 30 June 2005

50,589

50,953

Year ended 30 June 2006

115,893

129,439

Year ended 30 June 2007

254,487

264,451

Year ended 30 June 2008

289,631

285,129

Year ended 30 June 2009

305,421

328,534

Year ended 30 June 2010

303,328

369,152

Year ended 30 June 2011

395,063

479,203

Year ended 30 June 2012

496,348

586,478

Year ended 30 June 2013

620,256

-

3,096,180

2,756,288

Claims handling expenses

270,506

241,426

Risk margin

185,168

164,874

3,551,854

3,162,588

Prior years

Net outstanding claims

Net liability for outstanding claims

(d) Key assumptions

The key assumptions used by Finity Consulting Pty Ltd in developing the valuation of the claims liability are the economic assumptions relating to inflation and discount rates and the assumptions relating to the duration and severity of claims. The key assumptions have been developed through the actuarial analysis of historic trends in conjunction with analysis of current and likely future economic factors. The following key assumptions were used in the measurement of the outstanding claims liability: 2013

2012

Inflation rate – income maintenance

3.50%

3.45%

Inflation – medical, legal and other costs

3.75%

3.70%

2.00% to 4.00%

2.00% to 6.00%

Refer below

Refer below

4.40%

3.80%

Refer below

Refer below

Claims handling expenses

8.50%

8.50%

Risk margin

5.50%

5.50%

Economic assumptions

Superimposed inflation rate - medical payments Superimposed inflation rate - other Discount rate Duration and severity of claims

Superimposed inflation of between 1.00% and 6.00% per annum has been included in relation to hospital, vocational rehabilitation expenditure, travel, recoveries, and some other minor payment types. Finity Consulting Pty Ltd has made a range of assumptions relating to the projected duration that claimants will remain in receipt of payments and the quantum of those payments having had regard to the particular characteristics of groups of claims including: •

the length of time that a group of claims has been in receipt of payments

the analysis of past claims experience including the cost of claims.

The valuation of the outstanding claims liability is strongly dependent on the assumptions adopted in relation to the duration of claims and in particular long-term claims.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 34


Notes to and forming part of the financial statements 30 June 2013 (e) Sensitivity to changes in key assumptions

The sensitivity of the discounted net outstanding claims estimate and profit / (loss) impact at the 65th percentile (i.e. after allowing for the risk margin) to changes in key assumptions is shown in the following table: Increase/ (decrease)

Percentage

in net liability

of net

$’million

liability

Economic and modelling assumptions Increase in inflation rates by 1%

321.3

9.0%

Increase in discount rates by 1%

(278.5)

(7.8%)

17.5

0.5%

102.0

3.1%

51.1

1.6%

108.1

3.3%

55.9

1.7%

Duration and severity of claims Increase in assumed average lump sum payment for claimants entitled to such payments by 10% Increase in assumed lifetime income maintenance payments by 10% for claims less than 3 years old Increase in assumed other payments by 10% for claims less than 3 years old Increase in assumed income maintenance payments by 10% for claims more than 3 years old Increase in assumed other payments by 10% for claims more than 3 years old

In conducting its valuation, Finity Consulting Pty Ltd modelled a number of scenarios under which the assumptions related to the long-term exit rates or the impact of the introduction of the provisions of the Workers Rehabilitation and Compensation (Scheme Review) Amendment Act 2008 differed from those used in the valuation. Under those scenarios the total value of the liability differed from the central estimate by the order of up to plus or minus $180 million. These scenarios do not reflect either the maximum or minimum increase in the liability but reflect a range of likely scenarios. The selection of the probability of sufficiency has a material impact on the valuation of the outstanding claims liability. The impact on the outstanding claims liability of adopting a 75% probability is shown in the following table:

Increase in net outstanding claims liability at 75% probability of sufficiency

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 35

2013

2012

$’million

$’million

168.3

143.9


Notes to and forming part of the financial statements 30 June 2013 Note 19 Outstanding claims liability – Other Funds (a) Outstanding Outstanding claims claims – – SRF SRF and and IAF IAF (a) 2013 2013

2012 2012

SRF SRF

IAF IAF

Combined Combined

Combined Combined

$'000 $'000

$’000 $’000

$’000 $’000

$’000 $’000

1,021 1,021

--

1,021 1,021

1,695 1,695

59,744 59,744

272 272

60,016 60,016

68,243 68,243

4,861 4,861

22 22

4,883 4,883

5,595 5,595

Central estimate estimate Central

65,626 65,626

294 294

65,920 65,920

75,533 75,533

Risk margin margin Risk

16,191 16,191

73 73

16,264 16,264

18,526 18,526

Liability for for outstanding outstanding claims claims Liability

81,817 81,817

367 367

82,184 82,184

94,059 94,059

Recoveries Recoveries

(3,902) (3,902)

Net liability liability for for outstanding outstanding claims claims Net

77,915 77,915

Open claims claims Open Total incurred incurred but but not not yet yet reported reported (IBNR) (IBNR) Total Claims handling handling expenses expenses Claims

--

(3,902) (3,902)

367 367

--

78,282 78,282

94,059 94,059

The value value of of the the claims claims liability liability is is determined determined by by WorkCoverSA WorkCoverSA following following an an independent independent actuarial actuarial valuation valuation by by Finity Finity Consulting Consulting The Pty Ltd. The claims liability estimate is based on a central estimate and includes a risk margin to bring the estimate of claims to to Pty Ltd. The claims liability estimate is based on a central estimate and includes a risk margin to bring the estimate of claims a 65% probability of sufficiency. a 65% probability of sufficiency. The IBNR IBNR component component is is primarily primarily made made up up of of the the estimated estimated liability liability of of the the funds funds for for asbestos asbestos related related disease disease claims claims that that will will be be The made after 30 June 2013 due to exposure prior to 30 June 2013. Due to the latent nature of the disease there is a significant made after 30 June 2013 due to exposure prior to 30 June 2013. Due to the latent nature of the disease there is a significant delay between between the the time time of of injury injury and and reporting reporting of of the the claim. claim. Relatively Relatively few few claims claims have have been been notified notified at at the the date date of of adopting adopting delay these financial financial statements. statements. The The generally generally accepted accepted opinion opinion is is that that this this delay delay is is in in the the order order of of 40 40 years years on on average. average. these The asbestos asbestos related related disease disease IBNR IBNR component component was was estimated estimated by by Finity Finity Consulting Consulting Pty Pty Ltd Ltd based based on: on: The ••

forecast total total future future claim claim numbers numbers derived derived by by fitting fitting projection projection models models to to the the SRF/IAF SRF/IAF claims claims data data by by disease disease forecast recognising the the varying varying nature nature of of the the exposure exposure for for different different claims claims recognising

••

forecasts of of average average claim claim costs costs derived derived from from analysis analysis of of SRF/IAF SRF/IAF claims claims data, data, external external data data and and information information obtained obtained forecasts from discussion discussion with with key key parties. parties. This This analysis analysis was was based based on on disease disease type, type, size size of of claim claim and and legal legal costs, costs, adjusted adjusted to to from allow for for the the timing timing of of claim claim payments payments and and for for future future claims claims inflation, inflation, discounted discounted to to their their present present value. value. allow

(b) Movement Movement in in liability liability – – SRF SRF and and IAF IAF (b) SRF SRF

IAF IAF

2013 2013

2012 2012

Change Change

2013 2013

2012 2012

Change Change

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

$’000 $’000

374 374

1,038 1,038

(664) (664)

--

--

--

59,436 59,436

67,486 67,486

(8,050) (8,050)

272 272

374 374

(102) (102)

59,810 59,810

68,524 68,524

(8,714) (8,714)

272 272

374 374

(102) (102)

Reported -- Reported

647 647

657 657

(10) (10)

--

--

--

IBNR // re-opened re-opened claims claims -- IBNR

308 308

383 383

(75) (75)

--

--

--

955 955

1,040 1,040

(85) (85)

--

--

--

60,765 60,765

69,564 69,564

(8,799) (8,799)

272 272

374 374

(102) (102)

4,861 4,861

5,565 5,565

(704) (704)

22 22

30 30

(8) (8)

Risk margin margin Risk

16,191 16,191

18,425 18,425

(2,234) (2,234)

73 73

101 101

(28) (28)

Total outstanding outstanding claims claims liability liability Total

81,817 81,817

93,554 93,554

(11,737) (11,737)

367 367

505 505

(138) (138)

Asbestos related related Asbestos Reported -- Reported IBNR // re-opened re-opened claims claims -- IBNR Non-asbestos related related Non-asbestos

Central estimate estimate Central Claims handling handling expenses expenses Claims

WORKCOVERSA FINANCIAL FINANCIAL STATEMENTS STATEMENTS 2012/2013 2012/2013 FINAL FINAL WORKCOVERSA

36 36


Notes to and forming part of the financial statements 30 June 2013 (c) Key assumptions

The key assumptions used in developing the estimate of the outstanding claims liability include economic assumptions relating to inflation and discount rates, the assumptions relating to severity of claims and the assumptions used to estimate the level of claims incurred but not reported. The key assumptions have been developed through the actuarial analysis of historic trends in conjunction with analysis of current and likely future economic factors. The following key assumptions were used in this valuation of the outstanding claims liability as at 30 June 2013 shown together with those used at 30 June 2012 for comparison: 2013

2012

- asbestos claims

5.80%

5.50%

- non asbestos claims

3.80%

3.50%

- asbestos IBNR

4.5%

4.00%

- other

4.5%

4.00%

8.00%

8.00%

5.50%

5.50%

25.00%

25.00%

Inflation rate

Discount rate

Claim handling expenses Risk margin - reported claims - IBNR claims

The significant assumptions underpinning the asbestos related disease IBNR are that the propensity to claim and the basis for compensating claims remain similar to the current situation, specifically: •

the number of diagnosed incidents of asbestos related disease continues to develop in line with past trends

the proportion of incidents compensated by the funds remains similar to current levels but with an allowance for an increase in the proportion of claims which revert to the SRF from uninsured and insolvent employers

there are no additional failures of insurance companies.

(d) Sensitivity to changes in key assumptions - SRF and IAF

The key sensitivity for the SRF and the IAF is in relation to the ultimate value of the IBNR for asbestos related claims.

(e) Mining and Quarrying Industries Fund – Silicosis liability

As at 30 June 1989 the balance of the Silicosis Fund established under the repealed Act was transferred to WorkCoverSA under the Mining and Quarrying Industries Fund established for that purpose. At 30 June 2013 Finity Consulting Pty Ltd estimated the extent of the existing and prospective liabilities for the Silicosis Scheme under the repealed Act as being $100,000.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 37


Notes to and forming part of the financial statements 30 June 2013 (f)

Summary of Other Funds 2013

2012

$’000

$’000

81,817

93,554

Insurance assistance fund

367

505

Mining and quarrying industries fund

100

100

Liability for outstanding claims

82,284

94,159

Statutory reserve fund – recoveries

(3,902)

Net liability for outstanding claims

78,382

94,159

1,853

2,278

Non-current liability for outstanding claims

80,431

91,881

Total liability for outstanding claims

82,284

94,159

(11,875)

14,466

(3,902)

-

(15,777)

14,466

Statutory reserve fund

Current liability for outstanding claims

Change in liability for outstanding claims Change in claim recoveries receivable Change in liability for outstanding claims

-

Note 20 Employee benefits (a) Liability for employee benefits

Notes

2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

1,805

-

1,805

1,933

68

-

68

-

3,386

-

3,386

2,899

5,259

-

5,259

4,832

11,008

-

11,008

15,594

779

-

779

671

11,787

-

11,787

16,265

17,046

-

17,046

21,097

Current Annual leave Skills and experience retention leave Long service leave

Non-current Recognised liability for defined benefit obligations

20(b)

Long service leave

Total employee benefits

.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 38


Notes to and forming part of the financial statements 30 June 2013 (b) Liability for defined benefit obligations

Notes Net liability for defined benefit obligations at the start of the year

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

(15,594)

Contributions received

2013

-

(15,594)

(9,099)

657

-

657

3,929

-

3,929

(7,198)

(11,008)

-

(11,008)

(15,594)

14,506

-

14,506

12,916

Liabilities

(25,514)

-

(25,514)

(28,510)

Net liability

(11,008)

-

(11,008)

(15,594)

Expenses recognised in the Statement of Comprehensive Income Net liability for defined benefit obligation at the end of the year

703

Amounts reflected in the Statement of Financial Position Assets

(c) Changes in the present value of the defined benefit obligation are as follows

Notes Opening fair value of fund assets Expected return Actuarial gains / (losses) Contributions by employer Transfers in

2013

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

12,916

-

12,916

13,462

888

-

888

914

1,174

-

1,174

657

-

657

703

-

-

-

265

Benefits paid

(1,129)

Closing fair value of fund assets

14,506

Opening liabilities

(646)

(1,129)

(1,782)

-

14,506

12,916

28,510

-

28,510

22,561

Service cost

213

-

213

185

Interest cost

945

-

945

1,182

Actuarial (gains) / losses

(3,025)

Transfers in

-

-

(3,025) -

6,099 265

Expected benefits

(1,129)

-

(1,129)

(1,782)

Closing liabilities

25,514

-

25,514

28,510

Employees who participate in the defined benefit superannuation fund are deemed to be members of the defined benefit categories of the State Superannuation Scheme. The defined benefit superannuation fund has been closed to new members since May 1994. The State Superannuation Scheme’s assets are under Funds SA’s management and invested in its Growth Sector Fund. The Growth Sector Fund was created on 1 April 2005. The net market value of individual assets or portfolios that comprise the Growth Sector Fund may vary from time to time due to movements in financial markets and/or capital placements and redemptions made in accordance with investment strategy. Funds SA uses external fund managers to manage its growth portfolio. The investments are in wholesale pooled unit trusts or managed funds offered by each manager. WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 39


Notes to and forming part of the financial statements 30 June 2013 (d) (Income)/Expense recognised in the Statement of Comprehensive Income

Current service costs Interest cost Expected return on plan assets

2013

2012

WorkCoverSA

WorkCoverSA

$’000

$’000

213

185

945

1,182

(888)

Actuarial (profit)/loss

(914)

(4,199)

6,745

(3,929)

7,198

The (income)/expense is recognised in the following lines of the Statement of Comprehensive Income:

Notes

2013

2012

WorkCoverSA

WorkCoverSA

$’000

$’000 8,112

Employee benefits expenses

9

1,158

Other income

8

(5,087)

(914)

(3,929)

7,198

WorkCoverSA expects to contribute $701,000 to the Defined Benefit Superannuation Fund in the 2013-14 financial year.

(e)

Defined contribution plans

(f)

Actuarial assumptions

WorkCoverSA makes contributions to the various superannuation schemes as defined contributions. The amount recognised as an expense was $2,343,351 for the year ended 30 June 2013 (2012: $2,042,919).

2013

2012

WorkCoverSA

WorkCoverSA

Discount rate at 30 June

4.3%

3.4%

Expected return on plan assets at 1 July

7.0%

7.0%

Salary increases

4.0%

4.0%

Inflation

2.5%

2.5%

Assumptions regarding future mortality are based on published statistics and mortality tables.

(g) Actual return on scheme assets

Actual return on scheme assets

2013

2012

WorkCoverSA

WorkCoverSA

$’000

$’000

2,062

269

(h) Historical information 2013

2012

2011

2010

2009

$’000

$’000

$’000

$’000

$’000

Present value of defined benefit obligation

25,514

28,510

22,561

22,412

20,845

Fair value of plan assets

14,506

12,916

13,462

13,343

12,157

Deficit in the plan

11,008

15,594

9,099

9,069

8,688

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 40


Notes to and forming part of the financial statements 30 June 2013 Note 21 Provisions 2013

2012

WorkCoverSA

WorkCoverSA

$’000

$’000

Balance at the start of the year

2,251

870

Provisions made during the year

1,357

2,251

Provisions used during the year

(2,125)

Provision reversed during the year

(870)

(126)

Balance at the end of the year

-

1,357

2,251

The provision relates to redundancies arising from internal restructuring activities decided upon prior to 30 June 2013. The redundancy provision is calculated in accordance with the WorkCoverSA Award and Certified Agreement. WorkCoverSA expects to extinguish the liability within the next 12 months.

Note 22 Reconciliation of comprehensive result to net cash flows from operating activities 2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

29,813

22,692

(7,121)

Comprehensive result

2013

(437,393)

Depreciation

1,272

-

1,272

702

Amortisation

4,400

-

4,400

4,388

28

-

28

95

Net (profit) / loss on disposal of non current assets

(236,111)

(16,789)

(252,900)

(95,931)

Interest received

35,450

2,521

37,971

35,470

Dividends received

34,431

2,448

36,879

30,781

(13,690)

8,286

1,666

(6,470)

Investment (profit) / loss

Increase / (decrease) in creditors

(13,650)

(Increase) / decrease in receivables

5,555

Increase / (decrease) in unearned premiums

(160) 391,608

Increase / (decrease) in outstanding claims liability Increase / (decrease) in provisions Increase / (decrease) in employee benefits Net cash flows from operating activities

41

(3,889) (11,875)

(160) 379,733

(266) 681,871

(894)

-

(894)

1,381

(4,051)

-

(4,051)

6,759

210,757

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL

(40)

2,189

212,946

229,673


Notes to and forming part of the financial statements 30 June 2013 Note 23 Related parties transactions Ms S De Poi resigned from the WorkcoverSA Board on 21 January 2013. In relation to Ms S De Poi, a company in which she has an interest, De Poi Consulting Pty Ltd, has a current contract with WorkCoverSA for the provision of rehabilitation services and medical expert services as directed by WorkCoverSA’s claims agents. The expenditure incurred during the period 1 July 2012 to 21 January 2013 was $4,379,470 including GST, of which $3,528,621 was for rehabilitation services and $850,849 was for medical expert services, (2012: $8,618,125). The terms and conditions of the transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-board member related entities on an arm’s length basis. In relation to board member Mr P Vaughan, he is a State Councillor on the Council for Economic Development of Australia of which WorkCoverSA is a member. No expenditure was incurred during the year ended 30 June 2013 (2012: $6,030). No amounts were outstanding at the end of the current or prior year end. Mr Vaughan was appointed as Chair of the TAFE SA Board of Directors on 4 October 2012. WorkcoverSA used the services of TAFE SA for both staff and claimant training. The expenditure for the period from 4 October 2012 to 30 June 2013 was $53,249 including GST. No amounts were outstanding at the end of the current year end. The terms and conditions for transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to/from non-board member related entities on an arm’s length basis. In relation to board member Mr P Malinauskas, he is an employee of the Shop Distributive and Allied Employees Association. WorkCoverSA has a current contract with Shop Distributive and Allied Employees Association for the provision of services. The expenditure incurred during the year ended 30 June 2013 was $8,932 including GST (2012: $10,298). The Shop Distributive and Allied Employees Association provides sponsorship of the WorkCoverSA Return to Work Awards. The sponsorship income during the year ended 30 June 2013 was $3,300 including GST (2012: $2,750). No amounts were outstanding at the end of the current or prior year end. The terms and conditions of the transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to/from non-board member related entities on an arm’s length basis. In relation to board member Ms J Yuile, she is ANZ Chairman for South Australia. ANZ Bank provides merchant services to WorkCoverSA. The expenditure incurred during the year ended 30 June 2013 was $124,726 including GST (2012: $128,565). At 30 June 2013 the balance outstanding to ANZ Bank was $10,163 (2012: $10,437). The terms and conditions of the transactions were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to/from non-board member related entities on an arm’s length basis. In relation to board member Ms N Buddle, she was appointed to the TAFE SA Board of Directors on 4 October 2012. Details of WorkcoverSA’s transactions with TAFE SA are disclosed above in the paragraph relating to Mr P Vaughan. In relation to board member Ms J Denley, she was appointed to the TAFE SA Board of Directors on 4 October 2012. Details of WorkcoverSA’s transactions with TAFE SA are disclosed above in the paragraph relating to Mr P Vaughan. Board member related entities pay premiums in accordance with the Act. Apart from the details disclosed in this note, no board member has entered into a material contract with WorkCoverSA since the end of the previous financial year and there were no material contracts involving board members’ interests existing at year end.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 42


Notes to and forming part of the financial statements 30 June 2012 Note 24 Remuneration of board and committee members Members that were entitled to receive remuneration for membership during the 2012/13 financial year were: Board

Workplace Injury & Scheme Performance Committee

Investments, Premiums and WorkCover Finance Committee

Audit and Risk Committee

Human Resources Committee

Chair

Chair

Member

-

Member

Member

Member

Member

-

-

Mr. P Malinauskas

Member

-

Member

-

Member

Mr. P Vaughan

Member

Member

-

-

Chair

Member

Member

-

-

-

Ms. J Yuile

Member

-

-

Chair

-

Ms. N Buddle

Member

-

Chair

Member

-

Ms. J Denley

Member

Member

-

Member

Member

Mr. D White

Member

-

Member

Member

-

Member

Appointed / Resigned

Mr. P Bentley Ms. S De Poi

Ms. R Buckler

Resigned 21 January 2013

Appointed 12 July 2012

The number of members whose remuneration received and receivable falls within the following bands: 2013

2012

$1 - $9,999

-

-

$10,000 - $19,999

-

-

$20,000 - $29,999

-

-

$30,000 - $39,999

2

1

$40,000 - $49,999

-

-

$50,000 - $59,999

6

7

$90,000 - $99,999

-

1

$100,000 - $109,999

1

-

The total remuneration received and receivable by board members was $481,280 (2012: $497,720) which includes superannuation contributions. The Workers Rehabilitation and Compensation Advisory Committee is established under the Act and gives advice direct to the Minister and not the Board. The members remuneration paid/payable was $24,991 (2012: $21,677) in total for the year ending 30 June 2013. Members during the 2013 financial year were: J Camillo (presiding member), D Black, A Costa, T Earls, S Myatt and J Szakacs. D Frith resigned on 22 February and V Lecky resigned on 28 March 2013. M Evans and R Cairney were appointed on 26 April 2013. Remuneration for this Committee is not included in the member remuneration table above.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 43


Notes to and forming part of the financial statements 30 June 2013 Note 25 Commitments WorkCoverSA has entered into agreements to lease office accommodation and motor vehicles for terms in excess of one year. The aggregate non-cancellable lease commitments not provided for in the financial statements, were as follows: Office

Motor

2013

Office

Motor

2012

Other

Leases

Vehicles

Total

Other

Leases

Vehicles

Total

$’000

$’000

$’000

$’000

$’000

$’000

$’000

$’000

1,331

2,075

199

3,605

325

1,995

174

2,494

Later than one year but not longer than five years

-

8,952

245

9,197

-

8,810

202

9,012

Later than five years

-

9,787

-

9,787

-

12,004

5

12,009

1,331

20,814

444

22,589

325

22,809

381

23,515

Within one year

A Memorandum of Understanding is in place between WorkcoverSA and, the Department of Planning, Transport and Infrastructure on behalf of the Minister for Transport and Infrastructure, regarding the lease of office space at 400 King William Street Adelaide. WorkCoverSA leases motor vehicles under non-cancellable operating leases expiring from between one to three years. Other commitments relate to expenditure on the Return to Work Fund initiative. WorkCoverSA established the $15 million Return to Work Fund initiative to implement initiatives that contribute to the improved return of injured workers to work. The amounts above represent known future funding commitments.

Note 26 Employer financial guarantees Under section 60 of the Act, WorkCoverSA administers financial guarantees lodged by self-insured employers. As at 30 June 2013, WorkCoverSA held security to the value of $364.7 million in financial guarantees for self-insured employers. These guarantees are held in trust for the purpose of extinguishing the claim liabilities under the Act of the self-insured employer in the event of that employer no longer being able to meet these liabilities. Under the terms of the retro paid loss contracts, WorkcoverSA administers financial guarantees lodged by retro paid loss employers. As at 30 June 2013 , WorkcoverSA held security to the value of $32.7 million in financial guarantees for retro paid loss employers. These guarantees are held in trust for the purpose of extinguishing the premium liabilities under the terms of the retro paid loss contracts of the retro paid loss employer in the event of that employer no longer being able to meet these liabilities.

Note 27 Contingent liabilities The SRF and the IAF have exposure to claims in failed insurance companies and uninsured insolvent employers. No specific allowance is made in the claims provision for future new insolvencies. The SRF and the IAF have exposure to claims for asbestos related injuries incurred until 30 September 1987. The outstanding claims liabilities for the SRF and IAF funds were estimated, including an IBNR component, on the basis of claims reported to date. There are inherent uncertainties associated with estimating the outstanding claims liability for asbestos related diseases as set out in Note 19. If at any time the SRF and IAF are unable to meet their liabilities, the Compensation Fund is obliged to provide financial support to enable them to do so. WorkCoverSA has a number of legal cases pending with the Workers Compensation Tribunal. At the time of this report the outcome of these cases is not known and the effects are not quantifiable.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 44


Notes to and forming part of the financial statements 30 June 2013 Note 28 Funding ratio The Board approved policy requires a funding range of 90% to 110% with any shortfall in funding to be recovered over a Board approved time frame. The unfunded position at June 2013 with prior year comparative figures is provided below:

Funded (unfunded) position

2012

Compensation

Other

Fund

Funds

WorkCoverSA

WorkCoverSA

$’000

$’000

$’000

$’000

(1,433,367)

Funding percentage

2013

61.1%

66,938

(1,366,429)

(1,389,121)

63.7%

59.2%

181.2%

The mechanism for managing the funding position is the Average Premium Rate. Each year the Average Premium Rate is reviewed and future projections of Scheme liability and cost are analysed to determine the most appropriate Average Premium Rate to achieve WorkCoverSA’s desired long-term funding policy. A component of Average Premium Rate is an allowance to recoup the unfunded position. The Board has considered the following matters in preparing the financial statements on a going concern basis: •

the long-term view of the funding position

WorkCoverSA retains sufficient funds to meet current expenditure for both claim payments and operating costs

WorkCoverSA continues to manage its funding position through the Average Premium Rate by setting that rate at a level which includes a contribution to the recovery of the unfunded position and this rate is assessed each year.

Note 29 Transactions with SA Government The table below details the transactions with SA Government departments and agencies for the financial years ending 30 June 2013 and 2012.

SA Government Non SA Government

SA Government Non SA Government

2013 Revenue $’000

2013 Expenses $’000

2013 Assets $’000

2013 Liabilities $’000

8,491

24,660

-

14,195

958,410

919,549

2,397,857

3,750,091

966,901

944,209

2,397,857

3,764,286

2012 Revenue $’000

2012 Expenses $’000

2012 Assets $’000

2012 Liabilities $’000

8,527

36,634

52

23,849

765,391

1,174,677

2,013,868

3,379,192

773,918

1,211,311

2,013,920

3,403,041

Capital payments for leasehold improvements with SA Government departments amounted to $0.563 million in the year ending 30 June 2013 (2012: $5.896 million). .

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 45


Notes to and forming part of the financial statements 30 June 2013 Administered items Section 67A of the Occupational Health Safety and Welfare Act 1986 (OHSW Act) requires employers to register and make payments in the form of fees. The registration and collection of these fees is administered by WorkCoverSA for SafeWork SA (being part of the Department of Premier and Cabinet) in conjunction with the registration of employers under the Workers Rehabilitation and Compensation Act 1986. WorkCoverSA pays these funds to SafeWork SA whilst retaining a portion of the funds to cover administration costs. Under AASB 1050, WorkCoverSA should only recognise transactions from activities that it controls. It is considered that except for the portion of funds retained by WorkCoverSA to cover administration costs, WorkCoverSA does not control the funds that it collects on behalf of SafeWork SA. Therefore, WorkCoverSA does not recognise the fees collected and subsequent payments made in relation to Safework SA in its Statement of Comprehensive Income or Statement of Financial Position. Administered Items for the financial year ending 30 June 2013:

Administered items

2013 Revenue $’000

2013 Expenses $’000

2013 Assets $’000

2013 Liabilities $’000

7,584

7,241

-

101

2012 Revenue $’000

2012 Expenses $’000

2012 Assets $’000

2012 Liabilities $’000

6,768

7,010

242

-

Administered Items for the financial year ending 30 June 2012:

Administered items

Note 30 Events after the reporting period There have been no events after the reporting period which would have a material effect on WorkCoverSA’s financial statements at 30 June 2013.

WORKCOVERSA FINANCIAL STATEMENTS 2012/2013 FINAL 46


WORKCOVER CORPORATION OF SOUTH AUSTRALIA Actuarial Certificate Outstanding Claim Liabilities at 30 June 2013 Finity Consulting has been requested by the WorkCover Corporation (“the Corporation”) to estimate the outstanding claim liabilities of the WorkCover (registered employers) Scheme under the Workers Rehabilitation and Compensation Act 1986 (“the Act”). We have also been requested to estimate the outstanding claim liabilities of WorkCover’s Statutory Reserve Fund (“SRF”) and Insurance Assistance Fund (“IAF”).

Data We have relied on the accuracy and completeness of the data and other information (qualitative, quantitative, written and verbal) provided to us by the Corporation for the purpose of making our estimates. We have not independently verified or audited the data but we have reviewed it for general reasonableness and consistency, including reconciliations to the previous actuarial review reports and to the Corporation’s financial statements. In our view there were no data deficiencies which would have a material effect on our estimates.

Basis of Our Estimates The Scheme’s outstanding claim liabilities are the value of payments to be made after 30 June 2013 in respect of claims which, under the provisions of the Act, arose on or before that date. The SRF and IAF liabilities relate to workers compensation claims arising from uninsured and insolvent employers (SRF), insolvent insurance companies (SRF) and employers which were unable to obtain insurance under the 1971 Act (IAF). We have calculated a central estimate of the outstanding claim liabilities, meaning that our assumptions have been selected to yield estimates which are not knowingly above or below the ultimate liabilities. Our estimates are discounted, i.e. they allow for the time value of money using risk free discount rates, they include allowance for future expenses incurred in the management of the outstanding claims and they are net of expected recoveries in relation to the outstanding claims.

Legislative Changes Changes to the Act were passed by Parliament on 17 June 2008. These were the most significant changes to the Scheme for many years. The full package of reforms was expected to improve claim outcomes and, over time, reduce the Scheme’s liabilities and ongoing costs. Our current valuation basis is primarily based Finity Consulting Pty Limited

Sydney

Melbourne

Auckland

ABN

Level 7, 155 George Street

Level 3, 30 Collins Street

Level 27, 188 Quay St

The Rocks NSW 2000

Melbourne VIC 3000

Auckland 1010

Ph:

+61 2 8252 3300

Ph:

+61 3 8080 0900

Ph:

+64 9 363 2894

Fax:

+61 2 8252 3399

Fax:

+61 3 8080 0999

Fax:

+64 9 363 2895

89 111 470 270

www.finity.com.au www.finityconsulting.co.nz


on the observed post-reform experience to date, although some judgement is still required about the future outworkings of the reform implementation. Any divergence of the experience from the current valuation assumptions, whether favourable or adverse, will be reflected over time in adjustments to our valuation assumptions.

Valuation Results and Provisions WorkCover Scheme Our central estimate of the Corporation’s net outstanding claim liabilities for the WorkCover Scheme as at 30 June 2013 is $3,366.7 million. The Corporation has provided $3,551.9 million in its financial statements as at 30 June 2013 for the net outstanding claim liabilities, having added to our net central estimate a risk margin of 5.5% which is intended to increase the probability of adequacy of the provision to 65%. These amounts are made up as follows: Table 1 - Outstanding Claim Liabilities at 30 June 2013 – WorkCover Scheme Central Estimate Provision $m $m Gross Liability for Outstanding Claims 3,182.4 Future Claims Administration Costs 270.5 Gross Liability 3,452.9 3,642.8 Future Recoveries on Outstanding Claims -86.2 -91.0 Net Liability 3,366.7 3,551.9

Other Funds Our central estimate of the Corporation’s net outstanding claim liabilities for the SRF and IAF as at 30 June 2013 is $62.0 million. Most of this liability is in respect of unreported (IBNR) asbestos-related disease claims, for which an actuarial valuation is carried out every two years; the basis for establishing the provision for unreported asbestos-related disease claims has been updated at 30 June 2013. The Corporation has provided $78.3 million in its financial statements as at 30 June 2013 for the net outstanding claim liabilities, having added to our net central estimate risk margins (25% for asbestos and other IBNR claims, 5.5% for known claims) which are intended to increase the probability of adequacy of the provision to 65%. These amounts are made up as follows: Table 2 - Outstanding Claim Liabilities at 30 June 2013 – SRF and IAF

Gross Liability for Outstanding Claims Statutory Reserve Fund Insurance Assistance Fund Future Claims Administration Costs Gross Liability Future Recoveries on Outstanding Claims Net Liability

Central Estimate $m

60.8 0.3 61.0 4.9 65.9 -3.9 62.0

Provision $m

82.2 -3.9 78.3


Uncertainty It is not possible to put a value on outstanding claim liabilities with certainty. We have prepared our estimates on the basis that they represent our current assessment of the likely future experience of the Scheme and the other Funds. However, deviations of the actual experience from our estimates are normal and to be expected. Sources of uncertainty include difficulties caused by limitations of historical information, as well as the fact that outcomes remain dependent on future events, including legislative, social and economic forces, and behaviour by stakeholders such as Corporation management, claimants and claims Agents. It is quite possible that one or more changes to the environment could produce a financial outcome materially different from our estimates. In the case of asbestos-related disease liabilities in the SRF and IAF, additional sources of uncertainty are the extremely long-term nature of such claims, the risk of significant changes in the way in which claims are litigated and compensated by courts, and potential changes in the behaviour of claimants, defendants, legal principles, settlement practices and medical developments. We have considered the range of uncertainties regarding the central estimates in deriving our recommended risk margins, which WorkCover has adopted in its provisions.

Reports Full details of the data, methodology, assumptions and results of our valuation are set out in our reports to the Corporation dated 19 September 2013 (Scheme) and 19 September 2013 (SRF and IAF).

Relevant Standards Our estimates and reports have been prepared in accordance with the Institute of Actuaries of Australia’s Professional Standard 300 and with our understanding of the relevant Australian Accounting Standard AASB 1023.

Geoff Atkins (Scheme, SRF and IAF) 19 September 2013

Andrew McInerney (Scheme) 19 September 2013

David McNab (SRF and IAF) 19 September 2013

Fellows of the Institute of Actuaries of Australia


WorkCoverSA Enquiries: 13 18 55 400 King William Street Adelaide SA 5000 Fax: (08) 8233 2466 info@workcover.com www.workcover.com The following free information support services are available: If you are deaf or have a hearing or speech impairment you can call WorkCoverSA through the National Relay Service (NRS): • TTY users can phone 13 36 77 then ask for 13 18 55. • Speak & Listen (speech-to-speech) users can phone 1300 555 727 then ask for 13 18 55. • Internet relay users can connect to NRS on www.relayservice.com.au then ask for 13 18 55. For languages other than English call the Interpreting and Translating Centre (08) 8226 1990 and ask for an interpreter to call WorkCoverSA on 13 18 55. For Braille, audio or e-text call 13 18 55. The information in this publication is compiled by WorkCoverSA. The data and facts referred to are correct at the time of publishing and provided as general information only. It is not intended that any opinion as to the meaning of legislation referred to is to be relied upon by readers. You should seek independent or legal advice as to any specific issues that are relevant to you, your workplace or organisation. © WorkCoverSA 2013. 2586_CC Published 09/13 ISBN 978-1-922112-16-3

WorkCoverSA Annual Report 2012-13  

WorkCoverSA Annual Report 2012-13

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