WorkCoverSA. Annual Report

Transcription

1 Annual Report -13

2 s mission To achieve the best outcomes for injured workers, employers and the South Australian community. 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. s key values Integrity Achievement Respect Professional excellence

3 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 10 Strategic Plan 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 Annual Report -13 3

4 The year in review - Summary Performance of perfomance As at 30 June : 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 to 63.7 per cent at 30 June the outstanding claims liability was $3.725 billion the unfunded claims liability improved from $1.389 billion at June to $1.366 billion at 30 June. In -13: there were 16,774 claims incurred 1 from workers employed by WorkCover-insured employers 5051 income maintenance claims with more than 10 days lost were incurred 1 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 the investment portfolio recorded a return on investment of 13.1 per cent investment returns totalled $253 million, an increase of $157 million on 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 % per cent per cent 4 Annual Report -13

5 Figure 2: Return to work per cent of workers injured in -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 Figure 3: WorkCover-insured employers Figure 4: Self-insured registrations * ,350 Total 49,604 Total 91 Small Medium Large Private Crown Figure 5: Investment returns *Some self-insured employer registrations include multiple employers. Crown self-insured employers are restricted to agencies that are evaluated by only. $260 million $253 m $160 million $96 m Annual Report -13 5

6 Message from Philip Bentley, WorkCover Board Chair In my last message as Chair of the WorkCover Board, I am pleased to announce that in -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. As part of the new claims agent arrangements, we transitioned the management of serious injury claims back into. Except in unusual circumstances, these injured workers (126 active claims at 30 June ) 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. Following the departure of Rob Thomson as Chief Executive Officer (CEO) in September, the Board, through its Human Resource Committee, set about recruiting a new CEO and assembling a more experienced workers compensation executive team. In December, we were pleased to welcome Greg McCarthy as the new CEO of. 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 Table 1: WorkCover Scheme overview very committed to ensuring a more active management of the Scheme to ensure improved performance. In February, 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 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. The increased focus on Scheme regulation has meant we have strengthened our investigations approach to expose fraudulent activity by providers, workers 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. 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. Financial year Unfunded liability $m (1,366) (1,389) (952) (982) (1,059) Scheme funding ratio % 63.7% 59.2% 64.8% 61.5% 56.7% Overall Profit/(loss) $m 23 (437) (75) Significant drivers of the result Savings on claims liability $m (93) Change in economic factors $m 112 (361) (16) (105) (50) Investment income/(losses) $m (136) 6 Annual Report -13

7 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. -13 also saw the commencement (on 1 July ) 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, 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. Figure 6: Annual Exit Rate of Claims Reaching 2 Years on Benefits (claims exiting in the next year, other than via redemption) 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 return to work culture. 3 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 3 Review of the South Australian Workers Compensation System Report, December 2007 (known as the Clayton Walsh Review) Annual Report -13 7

8 improved to 17 per cent; and at the end of 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, I advised the Board, and subsequently the then Minister, of my intention to retire at the end of. 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 8 Annual Report -13

9 Message from Greg McCarthy, Chief Executive Officer 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. -13 has seen implement a large number of significant reforms to improve the Scheme s performance, the most in recent history. On 1 July, the new Experience Rating System commenced, following nearly two years of consultation with stakeholders across the Scheme. This new premium calculation system provides financial 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. In the first quarter of, 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 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, 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, 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, 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, has provided significant input into the development of many of the initiatives. -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, 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 Annual Report -13 9

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11 About 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, is responsible for managing and regulating the Scheme. Through the Scheme, 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. 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 s behalf. 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 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 in -13, South Australia s Premier Jay Weatherill announced the WorkCover Improvement Project on 27 October to review both the legislation and the administration of the Scheme. 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. The Charter sets out the State Government s strategic objectives, operating arrangements, priorities and requirements for. The Performance Statement outlines the State Government s performance expectations for the coming financial year. An updated Charter and -13 Performance Statement was approved by the Hon. Jack Snelling MP on 29 June and came into effect from 1 July. Annual Report

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13 The Strategic Plan 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 and 30 June. Return to work performance measures for 26 and 52 weeks exceeded the three per cent target. In -14, 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. 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: - 13 return to work performance 4 Measures of success Strategic plan target Implement a new employer premium payment system Experience rated employers Result achieved 26 weeks 3.22% 52 weeks 3% improvement 5.11% over weeks 2.20% On 1 July, 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. 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. 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 10.2% 89.4% 0.34% large employer medium employer small employer 4 In measuring the success of stay at work and return to work, 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. Annual Report

14 s Strategic Plan s 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 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 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, 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. Improve the services, skills and engagement of people who contribute to the delivery of better outcomes for injured workers and employers Stakeholder engagement activities continues its commitment to engage with key stakeholders, business and worker representative groups. In -13, undertook a wide range of stakeholder activities, including: six forums with employers and unions three general stakeholder information sessions one injured worker stakeholder forum three forums for providers eight customer discovery workshops regular communications throughout the year via consultation papers, s and information. A series of customer discovery workshops were facilitated in both metropolitan and regional areas of South Australia in. These workshops aimed to develop a better understanding of the experiences of businesses, workers with a WorkCover claim and healthcare providers. Scheme Workforce Development Strategy In November, 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 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. Industry Scholarship Program 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. s stakeholder engagement is proactive, targeted and timely; providing information and seeking feedback from key impacted groups as Scheme changes and improvements arise. 14 Annual Report -13

15 Service Charter 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. s Service Charter is available at Employer advisory services In -13, 443 rehabilitation and return to work coordinators attended 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. continues to work with coordinators to provide additional information and support initiatives to assist them in performing their roles. launched a new support service to high-risk employers to assist them to better manage their claims experience. Since March, has provided advisory support services to 58 South Australian businesses. Recovery and Return to Work Awards The 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, 235 nominations were received resulting in 110 full applications. For more information on the winners and finalists visit GP Helpline The GP Helpline is a telephone and support service that provides access for General Practitioners to qualified people who can answer Scheme enquiries. Since its launch in July, this service has received 497 queries with 64 per cent of queries relating to fees and services, and claims management. 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. Return to work services Building on the recommendations from the Walsh report, developed a new Return to Work Services Strategy in -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. 5. Outcome model for return to work services. Implementation of the strategy commenced in. 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 -14. Annual Report

16 s Strategic Plan s 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 Injured Worker Training Strategy In -13, 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 -13: Undertake a new agent and legal contract process Claims agent and legal service provider transition 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 August, the Board announced that Employers Mutual SA and Gallagher Bassett Services were chosen to provide claims management services for the Scheme. In October, 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. Following a successful transition to the new arrangements for claims management and claims legal services, is working closely with each of the service providers to improve return to work outcomes and Scheme performance. Stand Up With Confidence by D&S Promotions Being Proactive in Aged Care by Murto Pty Ltd. The Board has approved a further eight projects to commence in Annual Report -13

17 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 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 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 -13. The workshops covered managing musculoskeletal injuries, understanding the Scheme and completing the WorkCover Medical Certificate. In November, 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 -13. In May, published revised guidance on developing a Rehabilitation and Return to Work Plan on its website at 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 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, is communicating a renewed focus on Scheme outcomes, as well as enforcement outcomes, to case managers through formal training and regular communication. Table 3: s injury prevention and management outcomes Measures of success Strategic plan target Result achieved Three-year renewals registrations achieved by self-insurers. Referral of section 58B/C matters. 5% improvement each year. Appropriate actions 5 are undertaken on 95% of section 58B/C matters referred. Target achieved with 14 self-insured employers receiving superior level renewals. 65% of matters referred. In -13 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 -13, achieved an estimated $253,160 6 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. Annual Report

18 s Strategic Plan s Strategic Plan Injury prevention and management Injury prevention and management Regulation of employer obligations Regulation of self-insured employers Claims disputes works closely with South Australian employers to ensure they meet their obligations under the Act. South Australian employers have a legal obligation to provide suitable employment to people with a work-related injury. In -13, 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, there were approximately 4407 employers with a registered coordinator. 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, reported 84 groupings were operational, with their performance monitored through verification audits of their injury management systems. Terms and conditions of self-insurance registrations are based on s Natural Consequences Model which rewards self-insured employers who demonstrate superior performance. The self-insurance fee remained at 5.2 per cent in -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 -13, performed evaluations of self-insured employers work health, safety, and injury management systems to determine whether they conform to the Performance Standards. During -13, 14 Crown reviews and 34 private self-insured renewal applications were conducted. As at 30 June, 14 self-insured employers had achieved a renewal outcome at the highest level. 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 can be found on page 35 and 36 of this report. The Act enables injured workers, employers and providers to dispute decisions made by s claims agents and self-insured employers. 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 -13. This is a decease in dispute numbers from (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. 18 Annual Report -13

19 Financial sustainability Goal 3: A financially sustainable Scheme has an obligation to all South Australians to manage the Scheme in a financially responsible manner. Scheme funding ratio Table 4: s financial sustainability outcomes Measures of success Strategic plan target Result achieved Scheme funding ratio An 80% Scheme funding ratio achieved by , increasing to the % range by June Target achievement is anticipated after the expiry of the Strategic Plan. 63.7% (at June ) 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 valuation has assisted in moderating the increase in the value of claim liabilities for the year. The value of claim liabilities has increased during -13 by $380 million to $3.725 billion at 30 June. 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 compared to 59.2 per cent at 30 June. Annual Report

20 s Strategic Plan s Strategic Plan Financial sustainability Financial sustainability Simplified financial statement s comprehensive profit result of $23 million in -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 -13. Maintain a prudent risk-based investment program Investment policy and strategy s investment strategy is a fundamental component of ensuring the long-term viability of the Scheme. Positive Scheme cash flow and investment returns in -13 resulted in continued growth in our investment portfolio to more than $2.2 billion. Through the investment program, 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. Board approved strategic asset allocation Throughout -13, the Board approved continuation of the moderate risk, balanced portfolio approach. s net investment return for -13 was 13.1 per cent, which is significantly above inflation and the actuarial discount rate. Table 5: Simplified financial statement 8 Simplified income statement -13 $m $m Levy from registered employers Net claims paid (419) (375) Movement in net outstanding claims liability (376) (679) Other claims expenses (52) (51) Underwriting result (180) (466) Investment profits Investment expenses (4) (4) Other income Operating expenses (71) (83) Profit/(loss) 23 (437) Simplified balance sheet -13 $m $m Investments Other assets Total assets Outstanding claims Other liabilities Total liabilities Unfunded liability (1366) (1389) Funding ratio 63.7% 59.2% 8 Figures have been rounded. 20 Annual Report -13

21 Table 6: Net investment return 3 years as at 5 years as at 7 years as at 10 years as at 1 year 30 June per annum 30 June per annum 30 June per annum 30 June per annum 13.1% 9.5% 5.7% 5.2% 7.8% Table 7: Strategic asset allocation table Asset As at 30 June. Percentage of total investment portfolio Cash 2% Fixed interest 12% Inflation-linked securities 19% Alternative income 5% Australian equities 11.5% Overseas equities 23% Property 7.5% Real return growth assets 20% Premium disputes and review s dispute resolution process enables employers who are dissatisfied with a decision about a premium or certain related decisions to request a review. In -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 -13, compared with 295 in the previous financial year. A total of 152 dispute and review files were closed during -13: 100 were withdrawn or conceded in favour of the employer after reconsideration 39 were resolved by conciliation two fell outside the jurisdiction of the premium review panel five were determined by the premium review panel six were withdrawn at formal review. The panel conducted 54 directions hearings and three full hearings. Ensure employers are registered and pay the appropriate premium Premium management and compliance collects an appropriate premium from registered employers to fund the Scheme. 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 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 -13: 670 employers were audited $1,328,283 was identified in premium underpayments $1,068,066 was received in overpayments. Annual Report

22 s Strategic Plan s Strategic Plan Organisational professionalism and achievement Organisational professionalism and achievement Organisational professionalism and achievement Goal 4: A professional, achievement-focused organisation 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 Table 8: s organisational professionalism and achievement outcomes Measures of success Achievement of goal 1, goal 2 and goal 3 of the strategic plan Effective management of workplace health and safety and injury management in our workplace aligned with self-insured standards. Implementation of an integrated organisational and capability framework by December. Result achieved Goals partially met to date. Zero lost time injuries and three medical treatment injury 9. On track. 9 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. s Information Communication Technology (ICT) platform continues to support the achievement of strategic business outcomes. During -13, ongoing capability enhancements continued to be delivered to the core business system, Cúram. continued its annual technology refresh program to ensure the ongoing reliability and security of key systems. Key highlights for -13 include the acquisition of a new Storage Area Network (SAN) and data backup solution. 22 Annual Report -13

23 Align, develop and enhance s organisational capability Figure 8: Organisational structure INTERNAL AUDIT WORKCOVER BOARD During -13, 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. CHIEF EXECUTIVE OFFICER SCHEME IMPROVEMENT AND REGULATION CORPORATE SERVICES INSURANCE OFFICE OF THE CEO BOARD SECRETARY/ CORPORATE COUNSEL Annual Report

24 s Strategic Plan s Strategic Plan Organisational professionalism and achievement Organisational professionalism and achievement Employee numbers, gender and status Table 9: Number of employees Table 10: Gender percentage Total number of employees FTEs Persons 300 Gender % Persons % FTEs Male Female Table 11: Change of staff numbers Table 12: Staff numbers at end of year Number of persons during the -13 financial year Separated from 44 Recruited to 49 Number of persons at 30 June On leave without pay 5 Table 13: Number of employees by salary bracket 10 Salary bracket Male Female Total $0 - $53, $53,200 - $67, $67,700 - $86, $86,600 - $109, $109, Total Salary details relate to pre-tax income excluding super and FBT 24 Annual Report -13

25 Table 14: Status of employees in current position Full-time equivalent employees Ongoing Short-term contract Long-term contract Other (Casual) Total Male Female Total Persons Ongoing Short-term 11 contract Long-term 12 contract Other (Casual) Total Male Female Total For a period up to and including one year. 12 For a period which extends beyond one year and up to five years. Executives 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 15: Executives by gender, classification and status Term untenured Total Leave management Table 16: Average days leave taken per full-time equivalent employee Leave type Sick leave Family carer s leave Miscellaneous special leave Classification Male Female Male % Female % Total Chief Executive Officer Executives Total Annual Report

26 s Strategic Plan s Strategic Plan Organisational professionalism and achievement Organisational professionalism and achievement Workforce diversity It is not mandatory for 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 Age bracket Male Female Total Percentage of total Workforce benchmark % 6.2% % 9.7% % 10.9% % 9.8% % 10.1% % 11.8% % 11.2% % 11.3% % 9.2% % 6.1% % 3.7% Total % 100% 13 Source: Australian Bureau of Statistics Australian Demographic Statistics, Labour Force Status (ST LM8) by sex, age, state, marital status employed total from Feb 78 Supertable, South Australia at Feb. Disability action plan and equal opportunity 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 for staff from, claims agents, self-insured employers and other service providers. Workplace modifications for individual staff were organised as required. 26 Annual Report -13

27 Voluntary flexible working arrangements Table 18: Voluntary flexible working arrangements by gender FTEs Male Female Total Purchased leave Eligible for Flexitime Compressed weeks Part-time/job share Working from home Senior staff do not access flexitime arrangements. 15 Some staff work on part-time/job-share arrangements and work from home. 16 Some staff work from home. Performance development Table 19: Documented review of individual performance management Employees with As at 30 June, percentage of total workers A review within the last % months A review older than 12 months 4.25% No review % 17 Includes staff on long-term leave or absences. Table 20: Training expenditure and development 18 Training and development Total cost Percentage of total salary expenditure Training and development Leadership and management development $373, % $111, % 18 Includes staff on long-term leave or absences. Annual Report

28 s Strategic Plan s Strategic Plan Organisational professionalism and achievement Organisational professionalism and achievement Accredited training packages Table 21: Accredited training packages by classification 19 Classification Number of accredited training packages Grade 3 4 Grade 4 5 Grade 5 6 Senior Officer 3 19 Refers only to employees currently enrolled in an accredited training package or who have attained a qualification or statement of attainment in -13. Continuously improve s workplace health, safety and well-being systems Health and safety 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. Table 22: Agency gross workers compensation expenditure for -13 compared to Expenditure -13 ($m) ($m) Variation ($m) + (-) % Change +(-) Income maintenance $229.2 $196.7 $ % Lump sum settlements redemptions $4.2 $4.1 $ % Lump sum settlements permanent $39.9 $36.4 $ % disability Medical/Hospital costs combined 20 $101.4 $96.5 $ % Other $64.1 $58.7 $ % Total claims expenditure 21 $438.8 $392.4 $ % 20 Includes physiotherapy 21 Gross of recoveries Workplace health and safety management systems applies the same performance standards used by self-insured employers to measure its safety effectiveness. In -13, systems, policies and practices were reviewed to incorporate the Work Health and Safety (WHS) legislative requirements and responsibilities. Workplace health and safety is integrated into 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 Annual Report -13

29 maintained a high standard of safety in -13, ensuring the wellbeing of staff is of paramount importance. 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 Variation Workplace fatalities Workplace injury claims Workplace lost time injury claims 0 1 (1) Lost time injury incident rate (0.36) Lost time injury frequency rate (2.22) New psychological injury claims LTI incident rate: Number of LTI/FTE employees x LTI Frequency rate: Number of LTI/hours worked x 1,000,000 Annual Report

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31 Corporate governance and administration Risk management In order for the goals identified in s strategic plan to be successfully achieved, it is critical that risks are identified and managed. has a risk management system that incorporates the corporate perspective (top-down) and operational imperatives (bottom-up). Internal audit and internal fraud has an internal audit plan that is reviewed annually to ensure it continues to reflect current issues impacting, 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 -13, there were no instances of internal fraud detected. Board and Executive Management Team has a Board of Directors who are appointed by the Governor. The Board members in -13 were: Philip Bentley (Chair) Robyn Buckler Noelene Buddle Joanne Denley Peter Malinauskas Peter Vaughan David White Jane Yuile Sandra De Poi (until January ) Adam Lawrence (observer). The Executive Management Team as at 30 June comprised: Greg McCarthy, Chief Executive Officer 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 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. In -13, 1088 applications were received for access to information. Of these, 864 (79 per cent) were lodged under section 107B ( : 810), and 224 (21 per cent) under the FOI Act ( : 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 -13, 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 Annual Report

32 Corporate governance and administration Energy use and efficiency action plans 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 -13, reported tonnes of CO2 emissions, a 78 per cent reduction from tonnes recorded in the previous year. also reported a 64 per cent reduction in energy use in -13 (refer to Table 24). These significant energy and efficiency improvements are largely due to the Corporation s new accommodation at 400 King William Street, Adelaide. 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 24: s energy consumption Year Energy use (MJ) Floor area (m2) -13 1,569, ,976, Overseas travel There was no overseas travel undertaken by any staff in -13. Account payment performance Table 25: Account payment performance 24 Number of accounts paid Percentage of accounts paid (by number) Value of accounts paid $ Percentage of accounts paid (by value) Paid Within 30 Days % 113,173, % Paid within 30 to 60 Days Paid greater than 60 Days Business measures (MJ divided by m2 of floor area) % 610, % % 34, % 24 Excluding amounts paid by Employers Mutual SA and Gallagher Bassett Services. Whistleblowers Protection Act 1993 has appointed an officer for administering the Whistle Blowers Protection Act 1993 (WPA), under Section 7 of the Public Sector Act In -13, there were no instances of disclosure of public interest information to a responsible WorkCover officer under the WPA. 32 Annual Report -13

33 Summary of contractual arrangements During -13, was party to the following contractual arrangements of more than $4 million: an extended agreement with International Business Machines (IBM), ending in August, for extended warranty support for the implementation of the Cúram business system for claims management and premium collection a claims management agreement with Employers Mutual SA Pty Ltd, which ended on 31 December, as the sole agent for all registered employer claims 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, 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 a new claims legal services agreement with Sparke Helmore Lawyers, current to 30 June 2017, for advice and representation in relation to worker claims related matters and disputes. Table 26: External consultancies commissioned by in Value Project Total $ Value below $10,000 Two consultancies 12,396 Value $10,000 to $50,000 Bennett Lawrence and Fenn Pty Ltd Chamonix IT Management Consulting (SA) Pty Ltd Contracting & Tendering Services Pty Ltd DeakinPrime Deakin University Strategic Planning IT Consulting Probity and Procurement advice Training and course development Project Advice IT Consulting Return to Work Fund project Return to Work Fund project Investment Consulting Project Advice Return to Work Fund project IT Consulting Research Project Training Advice Research Project Dyson Consulting Group Pty Ltd Enrite Solutions Pty Ltd Interwork Ltd Murto Pty Ltd Paul Laband Radek Stratil SA Unions SAS Institute Australia Pty Ltd The Flinders University of SA The SA Centre for Economic Studies The University of Sydney 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 2,460,471 TOTAL 2,898, Note: Calculated on consultants invoices and does not include accruals. Annual Report

34

35 Self-insured employers Table 28: South Australian 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. revised its model structure with a new approach taking effect from 1 April. Table 27: Natural Consequences Model structure Renewal outcome 1B 7 1C 7 Level 2 5 Level 3 3 Gold 1 Non-conforming 14 Developing 29 Performing 13 Superior 10 Grand Total 89 Count 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) Department of Correctional Services (DCS) Department of Education and Child Development (DECD) Department of Planning,Transport & Infrastructure (DPTI) Department of Premier and Cabinet Department of Treasury and Finance Environment Protection Authority (EPA) Metropolitan Fire Service (MFS) Minda Incorporated Primary Industries & Regions (PIRSA) Royal District Nursing Service of SA Inc SA Forestry Corporation SA Police (SAPOL) SA Water South Australian Country Fire Service (CFS) South Australian Fire and Emergency Services Commission (SAFECOM) State Emergency Service (SES) TAFE SA The Adelaide Convention Centre Annual Report

36 Private self-insured employers Private self-insured employers Accolade Wines Australia Limited Adelaide Brighton Limited Advertiser Newspapers Pty Ltd Aged Care & Housing Group Inc. Australia and New Zealand Banking Group Limited Arnott s Biscuits Limited Arrium Limited Arrowcrest Group Pty Ltd ASC Pty Ltd BHP Billiton Limited Bluescope Steel Limited Boral Limited Bridgestone Australia Pty Ltd Building Supplies Group Holdings Pty Ltd Carl Zeiss Vision Australia Holdings Limited Catholic Church Endowment Society Inc. Coca-Cola Amatil (SA) Limited Coles Group Ltd Competitive Foods Pty Ltd David Jones Limited Detmold Packaging Pty Ltd Drakes Supermarkets Pty Ltd ECH Inc. Eldercare Inc. Electranet Pty Ltd Electrolux Home Products Pty Ltd Flinders Operating Services Pty Ltd GM Holden Limited Healthscope Limited Hills Holdings Limited Holcim (Australia) Holdings Pty Ltd Inghams Enterprises Pty Ltd Intercast & Forge Pty Ltd Kimberly Clark Australia Pty Ltd Lion Pty Ltd Little Company of Mary Health Care Limited Local Government Association of South Australia Monroe Australia Pty Ltd Myer Pty Ltd Nyrstar Port Pirie Pty Ltd Origin Energy Limited Philmac Limited Premium Wine Brands Pty Ltd Randstad Pty Ltd Resthaven Inc. Royal Automobile Association of SA Inc. Samuel Smith & Son Pty Ltd Santos Limited Schneider Electric (Australia) Pty Ltd Skilled Group Limited SMR Automotive Australia Pty Ltd Southern Cross Care (SA) Inc. Stamford Hotels and Resorts Pty Ltd Teys Australia Naracoorte Pty Ltd The Flinders University of South Australia The Smiths Snackfood Company Limited The University of Adelaide Toyoda Gosei Australia Pty Ltd Transfield Services (Aust) Pty Ltd Treasury Wine Estates Vintners Limited University of South Australia Utilities Management Pty Ltd Viterra Limited Walker Australia Pty Ltd Westpac Banking Corporation Woolworths (South Australia) Pty Ltd 36 Annual Report -13

37 Annual Report

38 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 Note 3 Risk management Note 4 Other Funds Note 5 Total income Note 6 Cost of claims Note 7 Investment profit Note 8 Other income Note 9 Employee benefit expenses Note 10 Depreciation, amortisation and other general operating expenses Note 11 Auditor s remuneration Note 12 Cash and cash equivalents Note 13 Trade and other receivables Note 14 Investments Note 15 Property, plant and equipment Note 16 Intangible assets Note 17 Trade and other payables Note 18 Outstanding claims liability Compensation Fund Note 19 Outstanding claims liability Other Funds Note 20 Employee benefits Note 21 Provisions Note 22 Reconciliation of comprehensive result to net cash flows from operating activities Note 23 Related parties transactions Note 24 Remuneration of board and committee members Note 25 Commitments Note 26 Employer financial guarantees Note 27 Contingent liabilities Note 28 Funding ratio Note 29 Transactions with SA Government Note 30 Events after the reporting period Certificate under section 23(2) of the Public Finance and Audit Act WORKCOVERSA FINANCIAL STATEMENTS / FINAL 1

39 Statement of Comprehensive Income for the year ended 30 June Notes Compensation Fund Other Funds Registered employer premium revenue 5 667, , ,212 Cost of claims 6 (809,086) 14,181 (794,905) (1,054,593) Claims management fees (44,371) - (44,371) (42,225) Workers Compensation Tribunal (4,370) - (4,370) (4,710) WorkCover Ombudsman (693) - (693) (718) Medical Panels SA (2,611) - (2,611) (3,153) Underwriting result (193,756) 14,181 (179,575) (466,187) Investment profit 7 236,111 16, ,900 95,931 Investment expenses (3,743) (197) (3,940) (3,543) Self-insured employer fee revenue 5 18,095-18,095 15,882 Net profit / (loss) from disposal of non current assets (28) - (28) (95) Other income 8 6,466-6,466 3,753 Net investment profit and other income 256,901 16, , ,928 Employee benefit expenses 9 (32,940) (147) (33,087) (39,431) Depreciation and amortisation expenses 10 (5,672) - (5,672) (5,090) SafeWork SA (11,281) - (11,281) (11,160) Return to Work Fund (490) - (490) (786) Other general operating expenses 10 (19,883) (813) (20,696) (26,667) Total operating expenses (70,266) (960) (71,226) (83,134) Total comprehensive result (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 / FINAL 2

40 Statement of Financial Position as at 30 June Notes Compensation Fund Other Funds Assets Cash Trade and other receivables 13 97,545 3, , ,125 Investments 3,14 2,112, ,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 Total assets 2,248, ,360 2,397,857 2,013,920 Liabilities Unearned premiums 1,544-1,544 1,704 Trade and other payables 17 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 Total liabilities 3,681,864 82,422 3,764,286 3,403,041 Net (liabilities)/assets (1,433,367) 66,938 (1,366,429) (1,389,121) Equity 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) Commitments 25 Employer financial guarantees 26 Contingent liabilities 27 Notes to and forming part of the financial statements are included on pages 5 to 46. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 3

41 Statement of Changes in Equity for the year ended 30 June Notes Compensation Fund Other Funds Total equity at the start of the year (1,426,246) 37,125 (1,389,121) (951,728) Total comprehensive result (7,121) 29,813 22,692 (437,393) Total equity at the end of the year (1,433,367) 66,938 (1,366,429) (1,389,121) Statement of Cash Flows for the year ended 30 June Notes Compensation Fund Other Funds Cash flows from operating activities Premium receipts 760, , ,397 Claim recoveries 23, ,213 20,994 Other receipts 3,375-3,375 4,334 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 Other payments to suppliers and employees (118,521) (1,067) (119,588) (99,317) GST (paid to) / received from ATO (54,392) 80 (54,312) (50,896) Investment expenses (4,117) (197) (4,314) (3,871) Net cash from operating activities ,757 2, , ,673 Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from the sale of investments 584, , ,624 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 12 61,297-61,297 62,491 period Cash and cash equivalents at the end of the period , ,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 / FINAL 4

42 Notes to and forming part of the financial statements 30 June 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 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 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 for the reporting period ending 30 June. None of these are expected to have a significant effect on the financial statements of, except for AASB 9 Financial Instruments, which becomes mandatory for s 2016 financial statements and could change the classification and measurement of financial assets. 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 (s). 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 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 and the comparative information presented. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 5

43 Notes to and forming part of the financial statements 30 June (c) Reporting entity is a statutory authority constituted under the WorkCover Corporation Act It is domiciled in Australia. For financial reporting purposes four separate funds are recognised as comprising : Compensation Fund Statutory Reserve Fund Insurance Assistance Fund Mining and Quarrying Industries Fund Compensation Fund The Compensation Fund refers to the fund which was established on 30 September 1987 under Section 64 of the Workers Rehabilitation and Compensation Act 1986 (the Act) and excludes the Statutory Reserve Fund, the Insurance Assistance Fund and the Mining and Quarrying Industries Fund. Statutory Reserve Fund The Statutory Reserve Fund was established under the repealed Workers Compensation Act 1971 and came into operation in 1980 against which claims relating to workers compensation could be made in the event of the insolvency of an insurance company or the insolvency of an uninsured employer. The fund was re-established under Schedule 1, Clause 5 of the Act and 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. Insurance Assistance Fund The Insurance Assistance Fund was established under Schedule 1, Clause 5A of the Act and forms a separate part of the Compensation Fund. The Insurance Assistance Fund exists to support policies issued under Section 118 (g) of the repealed Workers Compensation Act These policies provided assistance to employers 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. Mining and Quarrying Industries Fund Amendments to the Act provided for the establishment of the Mining and Quarrying Industries Fund to replace the Silicosis Fund. Funds standing to the credit of the Silicosis Fund were transferred to and credited to a special account entitled Mining and Quarrying Industries Fund which is divided into two parts: Part A - Part B - to satisfy liabilities under the Silicosis Scheme established under the repealed act; and, to be available to the Mining and Quarrying Occupational Health and Safety Committee for the purposes referred to in the Fourth Schedule. With effect from 1 January 2006 the Occupational Health Safety and Welfare (SafeWork SA) Amendment Act transferred the responsibility for the administration of this fund to SafeWork SA. (d) Administered items The financial statements and accompanying notes include all the controlled activities of the. Transactions and balances relating to administered resources are not recognised as corporation income, expense, assets and liabilities. As administered items are insignificant in relation to the s overall financial performance and position, they are disclosed under administered items at Note 29. Except as otherwise disclosed, administered items are accounted for on the same basis and using the same accounting policies as items. (e) Comparative information The presentation and classification of items in the financial statements are consistent 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 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. (f) Foreign currency Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. Amounts payable to and by in foreign currencies have been translated to Australian currency at rates of exchange current at the reporting period with resulting exchange differences brought to account at 30 June. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 6

44 Notes to and forming part of the financial statements 30 June (g) Cash and cash equivalents Cash and cash equivalents in the Statement of Financial Position includes cash at bank and on hand and in other short-term, highly liquid investments with maturities of three months or less that are readily converted to cash and which are subject to insignificant risk of changes in value. (h) Trade and other receivables Trade and other receivables are stated at fair value less impairment losses with the exception of claims recoveries receivable. Fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the reporting date. 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 evidence that will not be able to collect the debt. Bad debts are written off when identified. (i) Investments Investments are measured at fair value. Changes in the fair values of investments at the reporting period from the end of the previous reporting period, or from cost of acquisition if acquired during the financial year, are recognised as gains or losses in the Statement of Comprehensive Income. 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 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 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). (j) Insurance contracts Insurance contracts are contracts under which an entity accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified future event (the insured event) adversely affects the policyholder or other beneficiary. s liabilities for outstanding claims are similar in nature to general insurance contracts and accordingly are treated as general insurance contracts for the purpose of AASB 1023 General Insurance Contracts. (k) Events after the reporting period Adjustments are made to amounts recognised in the financial statements, where an event occurs after 30 June and before the date the financial statements are authorised for issue, where those events provide information about conditions that existed at 30 June. Note disclosure is made about events between 30 June and the date the financial statements are authorised for issue where the events 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 The liability for outstanding claims is measured as the central estimate of the present value of expected future payments against claims incurred at the reporting date by, with an additional risk margin to allow for the inherent uncertainty in the central estimate. Under Actuarial Professional Standard 300, Valuations of General Insurance Claims, the central estimate is the best estimate of the expected liabilities for outstanding claims based on information currently available and exhibits no bias either towards a pessimistic or an optimistic outcome. A risk margin is applied to the outstanding claims liability to reflect the inherent uncertainty in the central estimate of the outstanding claims liability. The risk margin increases the probability that the 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, claims incurred but under reported and anticipated claims handling expenses including the run-off provision. The expected 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 for outstanding claims both reported and unreported, including the risk margin and claims handling expenses. (m) Assets backing insurance liabilities The assets backing insurance liabilities (outstanding claims) are those assets required to cover the insurance liabilities. Insurance liabilities are defined as outstanding claims and the liability for unearned premiums recorded in the Statement of Financial Position. As operates solely in one industry and substantially all of its liabilities are insurance liabilities, WORKCOVERSA FINANCIAL STATEMENTS / FINAL 7

45 Notes to and forming part of the financial statements 30 June considers that substantially all of its assets, excluding property, plant and equipment, and intangible assets exist to back these insurance liabilities. As part of its investment strategy seeks to manage its assets allocated to insurance activities having regard to the characteristics of the insurance liabilities. (n) Property, plant and equipment All assets acquired, including leasehold improvements, computer and communications and general office equipment are stated 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 estimated useful life in years used for each class of asset is as follows: Leasehold improvements including office furniture and fittings Computer and communications General office equipment The cost of improvements to leasehold properties is amortised over the shorter of the unexpired period of the lease and 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. (o) Impairment All non-current tangible and intangible assets are tested for indication of impairment at each reporting date. Where there is an indication of impairment, the recoverable amount is estimated. An amount by which the asset s carrying amount exceeds the recoverable amount is recorded as an impairment loss. A financial asset is considered to be impaired if objective evidence 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 Costs incurred in developing products or systems and costs incurred in acquiring software and licenses that will contribute to 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 spent on the project. IT development costs include only those costs directly attributable to the development phase and are only recognised following completion of technical feasibility and where 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 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 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 Trade and other payables are stated at cost. These amounts represent liabilities for goods and services provided to prior to the end of the financial year and which are unpaid. These amounts are unsecured and usually paid within 30 days of recognition. (r) Provisions Provisions are recognised when has a present obligation as a result of a past event, it is probable that an outflow 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. Provisions are measured at the present value of management s best estimate of the expenditure required to settle the present 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. (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 reliably measured. Revenue has been aggregated according to its nature and has not been offset unless required or permitted by a specific 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 Government as at the reporting date, classified according to their nature. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 8

46 Notes to and forming part of the financial statements 30 June Transactions with SA Government entities below the threshold of $100,000 have been included with non-government transactions, classified according to their nature. Premium revenue 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 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. Premiums attributable to future years and received in the current financial year have been classified as unearned premiums. Investment income 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 s right to receive payments is established which in the case of quoted securities is the ex-dividend date. Claims recoveries 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 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. 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 and determined after deducting the proceeds from the carrying amount at the time of disposal. (t) Expenses Expenses are recognised to the extent that it is probable that the flow of economic benefits will occur and can be reliably measured. 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. 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. Transactions with SA Government entities below the threshold of $100,000 have been included with non-government transactions, classified according to their nature. The following are specific recognition criteria: Operating lease payments 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. Claims management fees Claims management fees are determined on an accruals basis in accordance with the respective agreements between and its claims agents. 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 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 including related on costs. Employee benefits - defined contribution superannuation plan Obligations for contributions to defined contribution superannuation funds are recognised as an expense in the Statement of Comprehensive Income as incurred. Employee benefits - defined benefits superannuation plan contributes to two defined benefit superannuation plans. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 9

47 Notes to and forming part of the financial statements 30 June s net obligation is calculated by estimating the amount of future benefits that employees have earned in return for their service in the current and prior periods. That benefit is then discounted to determine its present value from which the fair value of any plan assets is deducted. The discount rate is the yield at the reporting period on government bonds that have maturity dates approximating to the terms of 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 in the Statement of Comprehensive Income on a straight-line basis over the average period until the 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, the recognised asset is limited to the net total of any 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 The liability for long service leave is measured as the present value of expected future payments to 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 departures and periods of service. These assumptions are based on employee data over SA Government entities. Expected future payments are discounted using market yields at the end 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 to defer the settlement of the liability for at least 12 months after reporting date. The unconditional portion of long service leave relates to an unconditional legal entitlement to payment arising after ten years of service. (u) Taxation is not subject to income tax. is liable for payroll tax, 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 Australian Taxation Office (ATO), in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item applicable. Receivables and payables are stated inclusive of GST. The net amount of GST recoverable from, or payable to, the ATO is included as part of receivables or payables in the Statement of Financial Position. Cash flows are included in the Statement of Cash Flows on a gross basis and the GST component of cash 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 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 outstanding contracts as at the reporting period. All open futures contracts mature within 12 months of the reporting period. (w) Segment reporting operates within the insurance industry predominantly providing for the rehabilitation and compensation of workers with respect to injuries and diseases arising from their employment. operates solely in the State of South Australia. Note 2 Critical accounting judgments and estimates makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on and that are believed to be reasonable under the circumstances. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and 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 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 that the final outcome will prove 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 / FINAL 10

48 Notes to and forming part of the financial statements 30 June 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 reporting period. Risk-free rates are used when discounting liabilities to current values. has adopted a risk margin of 5.5% for the Compensation Fund (: 5.5%) and 5.5% for the Statutory Reserve Fund (: 5.5%) and the Insurance Assistance Fund (: 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% (: 25%)) at 65% (: 65%) probability of sufficiency. The risk 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 reporting period, including the cost of claims incurred but not yet reported (IBNR) to. The IBNR which relates principally to claims for asbestos related diseases affects mainly the Statutory Reserve Fund and the Insurance Assistance Fund. The estimated cost of claims includes estimates of the direct expenses to be incurred in settling claims net of the expected recoveries. 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 after the end of the year. Note 3 Risk management (a) Overview s risk management framework is the principal means by which identified risks are managed. has 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 s exposure to risk. The key aspects of the process established in the risk management framework to mitigate risk include: the establishment of a Board Audit and Risk Committee, which is responsible for developing and monitoring risk management policies 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 maintenance and use of management information systems which provide up to date, reliable data relevant to the risks to which the business is exposed the identification of operational risks and the establishment and implementation of processes to address and mitigate those risks. The Board Audit and Risk Committee reports regularly to the Board on its activities. The Committee oversees how management monitors compliance with s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by. A risk management policy is in place to ensure risks are identified, analysed and managed appropriately by. 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 s activities., 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 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. The broad categories of risk faced by are: insurance risk operational and other risk financial risk. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 11

49 Notes to and forming part of the financial statements 30 June (b) Insurance risk As set out in Note 1, provides workers compensation coverage, in accordance with the Act, to workers employed in South Australia through the following funds: Compensation Fund Statutory Reserve Fund Insurance Assistance Fund Mining and Quarrying Industries Fund. In accordance with the Act the Compensation Fund is funded by charging premiums to all employers covered by the Act which are calculated 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 Premium Rate. The Average Premium Rate is set annually by the Board in accordance with its funding policy based on an actuarial assessment of the overall funding requirement of the Compensation Fund and an estimate of the likely overall remuneration for all the employers that are required to pay premiums under the Act. The Average Premium Rate is then used as a basis for determining an individual premium rate for individual industry groups according to their South Australian WorkCover Industrial Classification (SAWIC). Under the Act, has the power to set premium rates to recover any shortfalls in premium collections. The funding policy is for to become fully funded as soon as practicable. Full funding is defined by the Board as having a ratio of assets to liabilities of between 90% and 110%. The risk of setting incorrect premium rates is controlled by taking external actuarial advice concerning the funding requirements of the Scheme and through the use of robust and historical models to translate the Average Premium Rate into individual SAWIC premium rates. The number of registered (non self-insured) employers for the financial year was approximately 50,000. The entitlements payable to injured workers are determined by the Act. s approach to determining the outstanding claims provisions and related sensitivities is set out in Notes 2, 18 and 19. relies on the following key controls in seeking to ensure the adequacy of the claims provision: there are established processes for managing claims in accordance with the Act and other relevant legislation the claims provision is reviewed by an external actuary as follows: Compensation Fund every six months Statutory Reserve Fund (excluding IBNR arising from asbestos related matters) every twelve months Insurance Assistance Fund (excluding IBNR arising from asbestos related matters) every twelve months IBNR arising from asbestos related matters every twelve months with a more detailed review every two years Mining and Quarrying Industries Fund every three years. In addition to these key controls the nature of workers compensation means 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 claims taken as a whole. (b) Operational risk Operational risk relates to the risk of loss arising from systems failure, human error or from other circumstances not related to insurance or financial risks. These risks are managed through the risk framework outlined above which includes a system of delegated authorities, effective segregation of duties, access controls and review processes. (c) Financial risk has exposure to the following financial risks: credit risk liquidity risk market risk. s exposure to these risks arises primarily in relation to its investment portfolio but also in relation to its other financial assets. This note presents information about s exposure to each of the above risks, objectives, policies and processes for measuring and managing risk. Further quantitative disclosures are included throughout these financial statements. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 12

50 Notes to and forming part of the financial statements 30 June Investments risk management framework s Investment Policy document defines the investment policies for the management and oversight of s investment portfolio. It overviews the broader context against which the investment program operates, sets forth the specific investment objectives for the portfolio and the Board s governance arrangements for the investment program. The Investment Policy objectives are 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 ensure maintenance of the purchasing power of money held to fund the Scheme s incurred, predominantly inflation indexed, liabilities by focusing on maximising real (i.e. in excess of SA wage inflation) investment returns, measured over rolling three year periods. Achievement of these objectives will be subject to: the expected impact of the investment program on the volatility of the funding ratio being acceptable there being an acceptable risk that the nominal investment return in any one year will be negative assets being sufficiently liquid to meet any Scheme cash outflow requirements. The formal investment policy is reviewed annually by the Board to ensure it remains appropriate to the organisation s current circumstances. Other documents integral to s investment activities are: Investment Strategy this Board approved document incorporates the asset allocation that has been adopted to achieve the Board s investment objectives. This document is reviewed at least annually Fund Manager Guidelines and Credit Limits - these documents outline the detailed operating controls and limitations applying to each investment portfolio. These documents are reviewed at least annually Risk Management Statement and Derivatives Policy this Board Investment, Premiums and WorkCover Finance Committee approved document specifies s policies for the use of derivatives within the Compensation Fund. This document is reviewed annually. The investment portfolio is managed internally by experienced professionals supported by an internationally recognised investment firm that provides advice on asset allocation, selection of external fund managers, and undertakes specialised investment research and performance measurement. In meeting the investment objectives, s investment strategy currently maintains exposure to a range of assets. The management of these assets is conducted on a day to day basis through 20 (: 20) portfolios managed by external specialist fund managers, with the two cash portfolios, managed internally. Exposures within each asset class are maintained within the Board approved target ranges as determined by the Investment Strategy document. The allowable range of investments (and resulting risk exposure) for each fund manager is determined by the Fund Manager Guidelines. Fund manager and each asset group performance are monitored monthly and comprehensively reviewed at least annually. The Investment Guidelines and Fund Manager Guidelines set out for each asset group and portfolio: the desired portfolio characteristics the required performance and variability in relation to a recognised benchmark appropriate to that portfolio the type of assets that can be held the extent and nature of trading and the types of financial instrument that can be utilised by the fund manager. Management, in conjunction with specialist advisors, monitors each fund manager against risk and return criteria and their contractual obligations. The Board Investment, Premiums and WorkCover Finance Committee review investment program risk and compliance activity for individual portfolios and the overall Compensation Fund. has a master custody arrangement with National Australia Bank (NAB). All assets are held by NAB under safe custody, except for the internally managed cash portfolios and a portfolio held under a separate trust agreement. At any particular time the composition of the portfolio will vary from the Board approved investment strategy targets depending on the decisions of individual fund managers and market movements. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 13

51 Notes to and forming part of the financial statements 30 June The composition of each asset group at 30 June was: Deposits With Financial Institutions Government / semi Government Securities Non- Government Debt Instruments Securities listed on the Australian stock exchange Securities listed on overseas stock exchanges Unit Trust Unlisted Property and Debt security Assets Derivatives Total Cash 103, ,774 Fixed interest 5, ,471 81, (72) 247,083 Inflation Linked Securities 203, , ,674 Australian Equities 5, , , ,644 Overseas Equities hedged , ,890 Overseas Equities unhedged , ,613 Property 2, , ,316 57,880 (5,306) 164,271 Real Return Growth Assets 5,713-65,532 69, , ,679 (1,920) 426,603 Alternative Income 7,287 9, , (3,374) 116, , , , , , ,559 (8,763) 2,257,644 The composition of each asset group at 30 June was: Deposits With Financial Institutions Government / semi Government Securities Non- Government Debt Instruments Securities listed on the Australian stock exchange Securities listed on overseas stock exchanges Unit Trust Unlisted Property and Debt security Assets Derivatives Total Cash 61, ,292 Fixed interest 10, ,710 69, ,543 Inflation Linked Securities 116, , ,797 Australian Equities 13, , , ,115 Overseas Equities hedged , ,121 Overseas Equities unhedged , ,338 Property 4, ,960 54, ,437 Real Return Growth Assets 7,478-60,368 41,904 90, ,523 2, ,134 Alternative Income 27,074-63, , , , , , , ,194 4,516 1,866,800 Use of derivatives In the normal course of its investment activities is party to arrangements involving derivatives. Derivatives held within portfolios through s custodian have three main objectives: risk management minimisation or reduction of specific risks within a given portfolio. For example forward exchange contracts are used to hedge currency movements to remove their impact on international investment portfolio returns transactional efficiency derivatives provide effective exposure to markets or individual securities while incurring transaction costs lower than the cost of purchasing the underlying security or basket of securities. In many instances the derivative markets provide much more liquidity than the underlying physical market value added strategies given their low cost and high liquidity, derivatives can be an efficient way of taking active portfolio positions. As there can also be pricing anomalies between derivatives and underlying physical securities there can be opportunities to take advantage of different pricing. Derivative exposures are subject to the same restrictions as physical assets within each portfolio s investment guidelines. Derivatives also need to comply with the fund managers individual Derivative Risk Statement Part B and s Derivative Risk Statement and Derivatives Policy. Where there is inconsistency, the Fund Manager Guidelines will take precedence. Additionally no gearing or leverage is allowed from derivative positions with all net long derivative exposures covered by cash or cash equivalent securities. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 14

52 Notes to and forming part of the financial statements 30 June The use of derivatives is restricted to appropriately credentialed counterparties. Unit Trusts in which invests may use derivative instruments appropriate to the investment markets in which they invest. The use of derivatives within the Unit Trusts in which 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. does not consider that the nature and extent of the use of derivatives warrants separate disclosure of individual contracts., through its separate account investment portfolios, uses derivative instruments as follows: Forward exchange contracts 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, has entered into forward exchange contracts, which require settlement of the net gain or loss at maturity. For diversification purposes 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 if a premium payer, other debtor or counterparty to a financial instrument fails to meet their contractual obligations. 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 s credit risk exposure within the major debt securities asset classes as at balance date. As at 30 June : Short-term issue ratings* Long-term issue ratings** Not rated*** Less than A1+ A1 A2 AAA AA AA- Derivatives Total Cash 87,697 16, ,774 Fixed interest 5, ,259 39,887 26,591 (72) 247,083 Inflation linked securities 186,059 17, , ,674 Alternative income 7, ,384 5,609 66,186 (3,374) 116, ,461 33, ,096 45,496 92,777 (3,446) 867,623 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 15

53 Notes to and forming part of the financial statements 30 June As at 30 June : Short-term issue ratings* Long-term issue ratings** Not rated*** Less than A1+ A1 A2 AAA AA AA- Derivatives Total Cash 45,129 16, ,292 Fixed interest 10, ,461 54,378 11, ,543 Inflation linked securities 116, , ,797 Alternative income 27, ,932 3,196 35, , ,133 16, ,376 57,574 47, ,655 * 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. is able to enforce the collection of any debt due under the Act through a court of competent jurisdiction. has processes in place to monitor all material credit exposures and has an established policy to manage debt recovery. 12.3% of s premium receivables and sundry debtors were past due greater than 30 days ( 14.6%). The ageing of s premium receivables and sundry debtors at the reporting date was: Not past due 4,631 9,200 Past due 1-30 days Past due days Past due 61 days to one year 508 1,495 More than one year ,339 11,182 There were no significant concentrations of credit risk. None of the above amounts are considered impaired. Liquidity risk Liquidity risk is the risk that will not be able to meet its financial obligations as they fall due. 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 s reputation. At least 20% of 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% ( 86.3%) of 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. s asset allocation is such that if required it could be realisable as cash within a few months. Accordingly considers that its short-term liquidity risks are minimal. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 16

54 Notes to and forming part of the financial statements 30 June The table below outlines the maturity profile of certain financial liabilities based on the remaining undiscounted obligations. Outstanding claims are covered in notes 18 and 19. As at 30 June : 1 year or less 1 to 3 years 3-5 years Over 5 Years No term Trade and other payables 18, ,214 As at 30 June : Total 1 year or less 1 to 3 years 3-5 years Over 5 Years No term Trade and other payables 32, ,423 Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return. is exposed to market risk primarily through: currency risk interest rate risk market price risk. Total Currency risk is directly exposed to currency risk on purchases and financial instruments that are denominated in a currency other than Australian dollars. 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 infrastructure, and approximately 40% of the international equity securities are covered by forward exchange contracts whilst remaining equities are left intentionally exposed to exchange rate movements. The changes in the valuations of these open contracts are disclosed in the financial statements as unrealised gains or losses as at the reporting period. The analysis below demonstrates the impact on profit and equity of a movement in foreign exchange rates against the Australian dollar on our material un-hedged major currency exposures. This analysis is based on foreign currency exchange rate variances that considered to be reasonably possible at the reporting date and assumes that all other variables, in particular interest rates, remain constant. Residual exposure at 30 June Residual exposure at 30 June Movement in variable against A$ Profit (loss) Equity Profit (loss) Equity US Dollar 160,455 75, % (16,045) (16,045) (7,592) (7,592) -10% 16,045 16,045 7,592 7,592 Euro 33,835 14, % (3,384) (3,384) (1,415) (1,415) -10% 3,384 3,384 1,415 1,415 Sterling 25,781 13, % (2,578) (2,578) (1,318) (1,318) -10% 2,578 2,578 1,318 1,318 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 17

55 Notes to and forming part of the financial statements 30 June 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 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. s fixed interest investments are held predominately in domestic markets. Such holdings form part of s defensive or low risk exposure to provide capital stability and secure income. s investments in interest bearing securities consist of marketable securities which are not held for trading. 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 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 Interest rate movement interest bearing investments Movement in interest rate Profit (loss) Equity Profit (loss) Equity +1% (25,764) (25,764) (27,845) (27,845) -1% 25,764 25,764 27,845 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). 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. 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 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 s equity exposures. Listed Securities Exposure at 30 June Exposure at 30 June Movement in variable Profit (loss) Equity Profit (loss) Equity Domestic equities 253, , % 50,682 50,682 48,934 48,934-20% (50,682) (50,682) (48,934) (48,934) International equities 538, , % 107, ,701 71,892 71,892-20% (107,701) (107,701) (71,892) (71,892) Listed property 109,329 83, % 21,866 21,866 16,792 16,792-20% (21,866) (21,866) (16,792) (16,792) Listed infrastructure 121,587 90, % 24,317 24,317 18,103 18,103-20% (24,317) (24,317) (18,103) (18,103) WORKCOVERSA FINANCIAL STATEMENTS / FINAL 18

56 Notes to and forming part of the financial statements 30 June 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 s investments measured and recognised at fair value. At 30 June : Level 1 Level 2 Level 3 Total Deposits with financial institutions 333, ,104 Government / semi-government securities 367, ,652 Non-government debt instruments 249, ,249 Securities listed on the Australian Stock Exchange 330, ,172 Securities listed on overseas stock exchanges 753, ,671 Unit Trusts unlisted property and debt security assets - 198,024 34, ,559 Derivatives - (8,763) - (8,763) Total investments at fair value through profit and loss 2,033, ,261 34,535 2,257,644 At 30 June : Level 1 Level 2 Level 3 Total Deposits with financial institutions 241, ,109 Government / semi-government securities 383, ,693 Non-government debt instruments 193, ,780 Securities listed on the Australian Stock Exchange 286, ,573 Securities listed on overseas stock exchanges 533, ,935 Unit Trusts unlisted property and debt security assets - 185,084 38, ,194 Derivatives - 4,516-4,516 Total investments at fair value through profit and loss 1,639, ,600 38,110 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 is the current bid price. These instruments are included in level 1. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 19

57 Notes to and forming part of the financial statements 30 June 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 and : Unit Trusts unlistedproperty and debtsecurity- - Opening balance at 1 July ,803 Contributions 1,864 Withdrawals (13,891) Gains / (losses) recognised in investment profit 334 Closing balance at 30 June 38,110 Opening balance at 1 July Contributions Withdrawals 38, (4,472) Gains / (losses) recognised in investment profit 403 Closing balance at 30 June 34,535 Total gains / (losses) for the period included in investment profit that relate to assets held at the end of the reporting period: 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 / FINAL 20

58 Notes to and forming part of the financial statements 30 June Note 4 Other Funds (a) Statement of Comprehensive Income for the year ended 30 June Notes Statutory Reserve Insurance Assistance Mining & Quarrying Industries Fund Total Other Total Other Fund Fund Part A Part B Funds Funds Claims paid 6 (2,185) (2,185) (1,946) Claim recoveries (Increase) / decrease in outstanding claims liability 19 15, ,777 (14,466) Underwriting result 14, ,181 (15,814) Investment profit 7 13,015 2, ,658 16,789 6,799 Investment expense (153) (24) - (20) (197) (259) Net investment profit 12,862 2, ,638 16,592 6,540 Total operating expenses (288) - - (672) (960) (964) Total comprehensive result 26,617 2, ,813 (10,238) (b) Statement of Financial Position as at 30 June Notes Statutory Reserve Insurance Assistance Mining & Quarrying Industries Fund Total Other Total Other Fund Fund Part A Part B Funds Funds Assets Trade and other receivables Investments 3, ,882-18, ,093 3, , ,357 Total assets 116,784 18, , , ,382 Liabilities Payables Outstanding claims , , ,159 Total liabilities 81, ,422 94,257 Net assets / (liabilities) 34,867 17, ,067 66,938 37,125 Equity Retained earnings 34,867 17, ,067 66,938 37,125 Total equity 34,867 17, ,067 66,938 37,125 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 21

59 Notes to and forming part of the financial statements 30 June Note 5 Total income Notes Compensation Fund Other Funds Registered employer premium 666, , ,960 Fines and penalties ,252 Registered employer premium revenue 667, , ,212 Self-insured employer fee - SA Government 8,491-8,491 7,667 Self-insured employer fee - Non SA Government 9,604-9,604 8,215 Self-insured premium revenue 18,095-18,095 15,882 Total premium revenue 685, , ,094 Claim recoveries 6 21, ,065 19,140 Investment profit 7 236,111 16, ,900 95,931 Other income 8 6,466-6,466 3,753 Total income 949,523 17, , ,918 Note 6 Cost of claims (a) Cost of claims Notes Compensation Fund Other Funds Claims paid 438,839 2, , ,352 Claim recoveries 5 (21,476) (589) (22,065) (19,140) Net claims paid 417,363 1, , ,212 Increase / (decrease) in net outstanding claims 18,19 389,266 (15,777) 373, ,471 liability Net self-insurer settlements 2,457-2,457 2,910 Cost of claims 809,086 (14,181) 794,905 1,054,593 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 22

60 Notes to and forming part of the financial statements 30 June (b) Net claims paid Notes Compensation Fund Other Funds Income maintenance 229, , ,003 Redemptions payments under Division 4A of 4,740-4,740 3,560 the Act Non-economic loss payments under Division 5 40,491-40,491 37,678 and Division 6 of the Act 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, ,526 13,552 Other 20,332 1,856 22,188 20,114 Claims paid 438,839 2, , ,352 Less recoveries from other parties 5 (21,476) (589) (22,065) (19,140) Net claims paid 417,363 1, , ,212 Note 7 Investment profit Notes Compensation Fund Other Funds Dividends 34,431 2,448 36,879 30,781 Interest received 35,450 2,521 37,971 35,470 Change in net market values: Investment held at end of the financial year 154,235 10, ,202 18,964 Investment realised during the financial year 11, ,848 10,716 Investment profit 236,111 16, ,900 95,931 Note 8 Other income Notes Compensation Fund Other Funds Defined benefit fund 20(d) 5,087-5, Sundry income 1,379-1,379 2,839 Other income 6,466-6,466 3,753 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 23

61 Notes to and forming part of the financial statements 30 June Note 9 Employee benefit expenses Notes Compensation Fund Other Funds Salaries and wages 27, ,911 26,449 Long service leave 1, , Annual leave ,217 Skills and experience retention leave Expenses relating to defined benefit plans 20(d) 1,158-1,158 8,112 Contributions to defined contribution plans 2, ,343 2,043 Total employee benefits expenses 32, ,087 39,431 The number of employees whose remuneration received or receivable falls within the following bands: $138,000 to $147, $148,000 to $157, $158,000 to $167, $168,000 to $177, $178,000 to $187, $188,000 to $197,999-1 $198,000 to $207, $208,000 to $217, $218,000 to $227, $228,000 to $237,999-1 $238,000 to $247, $248,000 to $257,999-2 $258,000 to $267, $288,000 to $297, $298,000 to $307, $328,000 to $337, $338,000 to $347,999-1 $408,000 to $417,999-1 $508,000 to $517, 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 (: $4.9 million). WORKCOVERSA FINANCIAL STATEMENTS / FINAL 24

62 Notes to and forming part of the financial statements 30 June Note 10 Depreciation, amortisation and other general operating expenses Notes Compensation Fund Other Funds Depreciation property, plant and equipment 1,272-1, 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 Motor vehicle expenses relating to operating leases Consultants 2,899-2,899 4,439 Other operating costs 14, ,591 18,285 Other general operating expenses 19, ,696 26,667 The number and dollar amount of consultancies paid / payable (included in general operating expenses) that fell within the following bands: No. No. Below $10, $10,000 to $50, Above $50, , ,864 Total paid/payable to the consultants engaged 33 2, ,439 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 / FINAL 25

63 Notes to and forming part of the financial statements 30 June Note 12 Cash and cash equivalents Notes Compensation Fund Other Funds Cash Cash equivalents 3 103, ,774 61,292 Cash and cash equivalents in the Statement of Cash Flows 103, ,779 61,297 Note 13 Trade and other receivables Notes Compensation Fund Other Funds Current receivables Premiums, fines and penalty interest 5,237-5,237 11,080 Recoverable claim payments 18,19 17,694 3,902 21,596 17,256 Trade debtors ,001 Sundry debtors and prepayments 1,146-1,146 2,399 Total current receivables 24,252 3,914 28,166 31,736 Non-current receivables Recoverable claim payments 18 73,293-73,293 71,389 Total non-current receivables 73,293-73,293 71,389 Total trade and other receivables 97,545 3, , ,125 Current receivables are net of a provision for doubtful debts. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 26

64 Notes to and forming part of the financial statements 30 June Note 14 Investments Deposits with financial institutions 333, ,109 Government / semi-government securities 367, ,693 Non-government debt instruments 249, ,780 Securities listed on the Australian Stock Exchange 330, ,573 Securities listed on overseas stock exchanges 753, ,935 Unit Trusts unlisted property and debt security assets 232, ,194 Derivatives (8,763) 4,516 Total investments at fair value through profit and loss 2,257,644 1,866,800 Current 324, ,625 Non-current 1,933,231 1,621,175 Total 2,257,644 1,866,800 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 27

65 Notes to and forming part of the financial statements 30 June Note 15 Property, plant and equipment Leasehold improvements including office furniture and fittings Computer and communications equipment General office equipment Total Fair value Balance at 1 July ,063 3,598 1,270 19,931 Additions 7,896 1, ,254 Disposals (14,959) (1,198) (1,270) (17,427) Balance at 30 June 8,000 3, ,758 Balance at 1 July 8,000 3, ,758 Additions - 1,122-1,122 Disposals (660) (1,930) - (2,590) Balance at 30 June 7,340 2, ,290 Depreciation Balance at 1 July 2011 (14,937) (2,578) (1,203) (18,718) Depreciation charge (48) (614) (40) (702) Disposals 14,943 1,145 1,241 17,329 Balance at 30 June (42) (2,047) (2) (2,091) Balance at 1 July (42) (2,047) (2) (2,091) Depreciation charge (705) (526) (41) (1,272) Disposals - 1,899-1,899 Balance at 30 June (747) (674) (43) (1,464) Carrying Amounts At 1 July , ,213 At 30 June 7,958 1, ,667 At 1 July 7,958 1, ,667 At 30 June 6,593 2, ,826 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 28

66 Notes to and forming part of the financial statements 30 June Note 16 Intangible assets IT development and software Fair value Balance at 1 July ,880 Additions internal development - Additions external costs - Balance at 30 June 43,880 Balance at 1 July 43,880 Additions internal development - Additions external costs - Balance at 30 June 43,880 Amortisation Balance at 1 July 2011 (5,169) Amortisation charge (4,388) Balance at 30 June (9,557) Balance at 1 July (9,557) Amortisation charge (4,400) Balance at 30 June (13,957) Carrying Amounts At 1 July ,711 At 30 June 34,323 At 1 July 34,323 At 30 June 29,923 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 29

67 Notes to and forming part of the financial statements 30 June Note 17 Trade and other payables Compensation Fund Other Funds Current Creditors 18, ,355 31,906 Employment on-costs Non-current Creditors Employment on-costs Total trade and other payables 19, ,214 32,597 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 30

68 Notes to and forming part of the financial statements 30 June Note 18 Outstanding claims liability Compensation Fund (a) Outstanding claims Notes Expected future gross claims payments (undiscounted) 5,566,092 4,711,965 Discount to present value (2,113,162) (1,630,228) Central estimate 3,452,930 3,081,737 Risk margin 189, ,496 Liability for outstanding claims 3,642,841 3,251,233 Recoveries 13 (90,987) (88,645) Net liability for outstanding claims 3,551,854 3,162,588 Current liability for outstanding claims 471, ,442 Non-current liability for outstanding claims 3,171,791 2,829,791 Total liability for outstanding claims 3,642,841 3,251,233 Change in liability for outstanding claims 391, ,405 Change in claim recoveries receivable (2,342) (5,400) Movement in net outstanding claims liability 389, ,005 Weighted average expected term to settlement 8.9 years 9.1 years The value of the claims liability is determined by 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% (: 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 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 / FINAL 31

69 Notes to and forming part of the financial statements 30 June 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 to 4.4% at 30 June. 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 year Prior years Total Current years Prior years Total Undiscounted Gross incurred 1,205, ,194 1,378,313 1,091,421 (44,564) 1,046,857 Recoveries (18,683) (8,942) (27,625) (18,007) (1,123) (19,130) Net incurred undiscounted 1,186, ,252 1,350,688 1,073,414 (45,687) 1,027,727 Discounted Gross incurred 797,457 71, , , ,474 1,092,595 Recoveries (15,861) (10,026) (25,887) (15,699) (9,674) (25,373) Net incurred discounted 781,596 61, , , ,800 1,067,222 Discount and discount movement Gross incurred discounted (407,662) (101,833) (509,495) (333,300) 379,038 45,738 Recoveries discounted 2,822 (1,084) 1,738 2,308 (8,551) (6,243) Net incurred undiscounted (404,840) (102,917) (507,757) (330,992) 370,487 39,495 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 / FINAL 32

70 Notes to and forming part of the financial statements 30 June (c) Claims development Estimate of ultimate claims cost** Prior years* Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010 Year ended 30 June 2011 Year ended 30 June Year ended 30 June At the end of year - 325, , , , , , , , , , ,173 One year later 812, , , , , , , , , , ,974 Two years later 1,045, , , , , , , , , ,035 Three years later 1,105, , , , , , , , ,973 Four years later 1,162, , , , , , , ,857 Five years later 1,230, , , , , , ,198 Six years later,1,295, , , , , ,395 Seven years later 1,286, , , , ,787 Eight years later 1,285, , , ,890 Nine years later 1,238, , ,813 Ten years later 1,235, ,274 Eleven years later 1,243,176 Twelve years later 1,249,667 Current estimate of cumulative claims costs** 1,249, , , , , , , , , , , ,173 Cumulative payments** 1,133, , , , , , , , , , ,737 63,762 Outstanding payments** 116,611 14,865 25,178 32,811 79, , , , , , , ,411 Discount adjustment*** 82,547 10,357 15,606 17,778 36,719 70,999 67,982 55,751 43,564 44,308 35,111 18,845 Net outstanding claims 199,158 25,222 40,784 50, , , , , , , , ,256 * Development of outstanding claim estimate as at 30 June 2003 for accidents prior to 30 June ** 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 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 33

71 Notes to and forming part of the financial statements 30 June Prior years 199, ,429 Year ended 30 June ,222 24,719 Year ended 30 June ,784 35,801 Year ended 30 June ,589 50,953 Year ended 30 June , ,439 Year ended 30 June , ,451 Year ended 30 June , ,129 Year ended 30 June , ,534 Year ended 30 June , ,152 Year ended 30 June , ,203 Year ended 30 June 496, ,478 Year ended 30 June 620,256 - Net outstanding claims 3,096,180 2,756,288 Claims handling expenses 270, ,426 Risk margin 185, ,874 Net liability for outstanding claims 3,551,854 3,162,588 (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: Economic assumptions Inflation rate income maintenance 3.50% 3.45% Inflation medical, legal and other costs 3.75% 3.70% Superimposed inflation rate - medical payments 2.00% to 4.00% 2.00% to 6.00% Superimposed inflation rate - other Refer below Refer below Discount rate 4.40% 3.80% Duration and severity of claims Refer below Refer below Claims handling expenses 8.50% 8.50% Risk margin 5.50% 5.50% 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 / FINAL 34

72 Notes to and forming part of the financial statements 30 June (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: Economic and modelling assumptions Increase/ (decrease) in net liability $ million Percentage of net liability Increase in inflation rates by 1% % Increase in discount rates by 1% (278.5) (7.8%) 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: $ million $ million Increase in net outstanding claims liability at 75% probability of sufficiency WORKCOVERSA FINANCIAL STATEMENTS / FINAL 35

73 Notes to and forming part of the financial statements 30 June Note 19 Outstanding claims liability Other Funds (a) Outstanding claims SRF and IAF SRF $'000 IAF Combined Combined Open claims 1,021-1,021 1,695 Total incurred but not yet reported (IBNR) 59, ,016 68,243 Claims handling expenses 4, ,883 5,595 Central estimate 65, ,920 75,533 Risk margin 16, ,264 18,526 Liability for outstanding claims 81, ,184 94,059 Recoveries (3,902) - (3,902) - Net liability for outstanding claims 77, ,282 94,059 The value of the claims liability is determined by following an independent actuarial valuation by Finity Consulting Pty Ltd. The claims liability estimate is based on a central estimate and includes a risk margin to bring the estimate of claims to a 65% probability of sufficiency. The IBNR component is primarily made up of the estimated liability of the funds for asbestos related disease claims that will be made after 30 June due to exposure prior to 30 June. Due to the latent nature of the disease there is a significant delay between the time of injury and reporting of the claim. Relatively few claims have been notified at the date of adopting these financial statements. The generally accepted opinion is that this delay is in the order of 40 years on average. The asbestos related disease IBNR component was estimated by Finity Consulting Pty Ltd based on: forecast total future claim numbers derived by fitting projection models to the SRF/IAF claims data by disease recognising the varying nature of the exposure for different claims forecasts of average claim costs derived from analysis of SRF/IAF claims data, external data and information obtained from discussion with key parties. This analysis was based on disease type, size of claim and legal costs, adjusted to allow for the timing of claim payments and for future claims inflation, discounted to their present value. (b) Movement in liability SRF and IAF SRF Change IAF Change Asbestos related - Reported 374 1,038 (664) IBNR / re-opened claims 59,436 67,486 (8,050) (102) 59,810 68,524 (8,714) (102) Non-asbestos related - Reported (10) IBNR / re-opened claims (75) ,040 (85) Central estimate 60,765 69,564 (8,799) (102) Claims handling expenses 4,861 5,565 (704) (8) Risk margin 16,191 18,425 (2,234) (28) Total outstanding claims liability 81,817 93,554 (11,737) (138) WORKCOVERSA FINANCIAL STATEMENTS / FINAL 36

74 Notes to and forming part of the financial statements 30 June (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 shown together with those used at 30 June for comparison: Inflation rate - asbestos claims 5.80% 5.50% - non asbestos claims 3.80% 3.50% Discount rate - asbestos IBNR 4.5% 4.00% - other 4.5% 4.00% Claim handling expenses 8.00% 8.00% Risk margin - reported claims 5.50% 5.50% - IBNR claims 25.00% 25.00% 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 under the Mining and Quarrying Industries Fund established for that purpose. At 30 June 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 / FINAL 37

75 Notes to and forming part of the financial statements 30 June (f) Summary of Other Funds Statutory reserve fund 81,817 93,554 Insurance assistance fund Mining and quarrying industries fund Liability for outstanding claims 82,284 94,159 Statutory reserve fund recoveries (3,902) - Net liability for outstanding claims 78,382 94,159 Current liability for outstanding claims 1,853 2,278 Non-current liability for outstanding claims 80,431 91,881 Total liability for outstanding claims 82,284 94,159 Change in liability for outstanding claims (11,875) 14,466 Change in claim recoveries receivable (3,902) - Change in liability for outstanding claims (15,777) 14,466 Note 20 Employee benefits (a) Liability for employee benefits Notes Compensation Fund Other Funds Current Annual leave 1,805-1,805 1,933 Skills and experience retention leave Long service leave 3,386-3,386 2,899 5,259-5,259 4,832 Non-current Recognised liability for defined benefit obligations 20(b) 11,008-11,008 15,594 Long service leave ,787-11,787 16,265 Total employee benefits 17,046-17,046 21,097. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 38

76 Notes to and forming part of the financial statements 30 June (b) Liability for defined benefit obligations Notes Compensation Fund Other Funds Net liability for defined benefit obligations at the (15,594) - (15,594) (9,099) start of the year Contributions received Expenses recognised in the Statement of Comprehensive Income 3,929-3,929 (7,198) Net liability for defined benefit obligation at the end of the year Amounts reflected in the Statement of Financial Position (11,008) - (11,008) (15,594) Assets 14,506-14,506 12,916 Liabilities (25,514) - (25,514) (28,510) Net liability (11,008) - (11,008) (15,594) (c) Changes in the present value of the defined benefit obligation are as follows Notes Compensation Fund Other Funds Opening fair value of fund assets 12,916-12,916 13,462 Expected return Actuarial gains / (losses) 1,174-1,174 (646) Contributions by employer Transfers in Benefits paid (1,129) (1,129) (1,782) Closing fair value of fund assets 14,506-14,506 12,916 Opening liabilities 28,510-28,510 22,561 Service cost Interest cost ,182 Actuarial (gains) / losses (3,025) - (3,025) 6,099 Transfers in 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 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 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 / FINAL 39

77 Notes to and forming part of the financial statements 30 June (d) (Income)/Expense recognised in the Statement of Comprehensive Income Current service costs Interest cost 945 1,182 Expected return on plan assets (888) (914) Actuarial (profit)/loss (4,199) 6,745 (3,929) 7,198 The (income)/expense is recognised in the following lines of the Statement of Comprehensive Income: Notes Employee benefits expenses 9 1,158 8,112 Other income 8 (5,087) (914) expects to contribute $701,000 to the Defined Benefit Superannuation Fund in the -14 financial year. (3,929) 7,198 (e) Defined contribution plans 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 (: $2,042,919). (f) Actuarial assumptions 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 2, (h) Historical information 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 / FINAL 40

78 Notes to and forming part of the financial statements 30 June Note 21 Provisions Balance at the start of the year 2, Provisions made during the year 1,357 2,251 Provisions used during the year (2,125) (870) Provision reversed during the year (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. The redundancy provision is calculated in accordance with the Award and Certified Agreement. expects to extinguish the liability within the next 12 months. Note 22 Reconciliation of comprehensive result to net cash flows from operating activities Compensation Fund Other Funds Comprehensive result (7,121) 29,813 22,692 (437,393) Depreciation 1,272-1, Amortisation 4,400-4,400 4,388 Net (profit) / loss on disposal of non current assets Investment (profit) / loss (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 Increase / (decrease) in creditors (13,650) (40) (13,690) 8,286 (Increase) / decrease in receivables 5,555 (3,889) 1,666 (6,470) Increase / (decrease) in unearned premiums (160) - (160) (266) Increase / (decrease) in outstanding claims 391,608 (11,875) 379, ,871 liability Increase / (decrease) in provisions (894) - (894) 1,381 Increase / (decrease) in employee benefits (4,051) - (4,051) 6,759 Net cash flows from operating activities 210,757 2, , ,673 WORKCOVERSA FINANCIAL STATEMENTS / FINAL 41

79 Notes to and forming part of the financial statements 30 June Note 23 Related parties transactions Ms S De Poi resigned from the WorkcoverSA Board on 21 January. 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 for the provision of rehabilitation services and medical expert services as directed by s claims agents. The expenditure incurred during the period 1 July to 21 January was $4,379,470 including GST, of which $3,528,621 was for rehabilitation services and $850,849 was for medical expert services, (: $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 is a member. No expenditure was incurred during the year ended 30 June (: $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. WorkcoverSA used the services of TAFE SA for both staff and claimant training. The expenditure for the period from 4 October to 30 June 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. 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 was $8,932 including GST (: $10,298). The Shop Distributive and Allied Employees Association provides sponsorship of the Return to Work Awards. The sponsorship income during the year ended 30 June was $3,300 including GST (: $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. The expenditure incurred during the year ended 30 June was $124,726 including GST (: $128,565). At 30 June the balance outstanding to ANZ Bank was $10,163 (: $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. 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. 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 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 / FINAL 42

80 Notes to and forming part of the financial statements 30 June Note 24 Remuneration of board and committee members Members that were entitled to receive remuneration for membership during the /13 financial year were: Member Appointed / Resigned Board Workplace Injury & Scheme Performance Committee Investments, Premiums and WorkCover Finance Committee Audit and Risk Committee Human Resources Committee Mr. P Bentley Chair Chair Member - Member Ms. S De Poi Resigned 21 January Member Member Member - - Mr. P Malinauskas Member - Member - Member Mr. P Vaughan Member Member - - Chair Ms. R Buckler Appointed 12 July 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 - The number of members whose remuneration received and receivable falls within the following bands: $1 - $9, $10,000 - $19, $20,000 - $29, $30,000 - $39, $40,000 - $49, $50,000 - $59, $90,000 - $99,999-1 $100,000 - $109, The total remuneration received and receivable by board members was $481,280 (: $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 (: $21,677) in total for the year ending 30 June. Members during the 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. M Evans and R Cairney were appointed on 26 April. Remuneration for this Committee is not included in the member remuneration table above. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 43

81 Notes to and forming part of the financial statements 30 June Note 25 Commitments 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: Other Office Leases Motor Vehicles Total Other Office Leases Motor Vehicles Within one year 1,331 2, , , ,494 Later than one year but not longer than five years Total - 8, ,197-8, ,012 Later than five years - 9,787-9,787-12, ,009 1,331 20, , , ,515 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. 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. 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, administers financial guarantees lodged by self-insured employers. As at 30 June, 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, 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 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. 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 / FINAL 44

82 Notes to and forming part of the financial statements 30 June 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 with prior year comparative figures is provided below: Compensation Fund Other Funds Funded (unfunded) position (1,433,367) 66,938 (1,366,429) (1,389,121) Funding percentage 61.1% 181.2% 63.7% 59.2% 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 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 retains sufficient funds to meet current expenditure for both claim payments and operating costs 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 and. Revenue Expenses Assets Liabilities SA Government 8,491 24,660-14,195 Non SA Government 958, ,549 2,397,857 3,750, , ,209 2,397,857 3,764,286 Revenue Expenses Assets Liabilities SA Government 8,527 36, ,849 Non SA Government 765,391 1,174,677 2,013,868 3,379, ,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 (: $5.896 million).. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 45

83 Notes to and forming part of the financial statements 30 June 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 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 pays these funds to SafeWork SA whilst retaining a portion of the funds to cover administration costs. Under AASB 1050, should only recognise transactions from activities that it controls. It is considered that except for the portion of funds retained by to cover administration costs, does not control the funds that it collects on behalf of SafeWork SA. Therefore, 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 : Revenue Expenses Assets Liabilities Administered items 7,584 7, Administered Items for the financial year ending 30 June : Revenue Expenses Assets Liabilities Administered items 6,768 7, Note 30 Events after the reporting period There have been no events after the reporting period which would have a material effect on s financial statements at 30 June. WORKCOVERSA FINANCIAL STATEMENTS / FINAL 46

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87 WORKCOVER CORPORATION OF SOUTH AUSTRALIA Actuarial Certificate Outstanding Claim Liabilities at 30 June 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 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 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: Ph: Ph: Fax: Fax: Fax:

88 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 is $3,366.7 million. The Corporation has provided $3,551.9 million in its financial statements as at 30 June 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 WorkCover Scheme Central Estimate Provision $m $m Gross Liability for Outstanding Claims 3,182.4 Future Claims Administration Costs Gross Liability 3, ,642.8 Future Recoveries on Outstanding Claims Net Liability 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 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. The Corporation has provided $78.3 million in its financial statements as at 30 June 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 SRF and IAF Central Estimate Provision $m $m Gross Liability for Outstanding Claims Statutory Reserve Fund 60.8 Insurance Assistance Fund Future Claims Administration Costs 4.9 Gross Liability Future Recoveries on Outstanding Claims Net Liability

89 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 (Scheme) and 19 September (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 Geoff Atkins Andrew McInerney David McNab (Scheme, SRF and IAF) (Scheme) (SRF and IAF) 19 September 19 September 19 September Fellows of the Institute of Actuaries of Australia

90 Enquiries: King William Street Adelaide SA 5000 Fax: (08) The following free information support services are available: If you are deaf or have a hearing or speech impairment you can call through the National Relay Service (NRS): TTY users can phone then ask for Speak & Listen (speech-to-speech) users can phone then ask for Internet relay users can connect to NRS on then ask for For languages other than English call the Interpreting and Translating Centre (08) and ask for an interpreter to call on For Braille, audio or e-text call The information in this publication is compiled by. 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 _CC Published 09/13 ISBN