2004 TAC Annual Report - Transport Accident Commission

Notes to, and forming part of, the financial reports for the year ended 30 June 2004
3) PROFIT FROM OPERATING ACTIVITIES CONSOLIDATED TAC
2004 2003 2004 2003
Note $000 $000 $000 $000
Premium revenue 919,410 861,676 919,410 861,676
Reinsurance expenses (2,106) (1,527) (2,106) (1,527)
Net premium revenue 917,304 860,149 917,304 860,149
Claims recoveries revenue 6 (5) 3,814 (5) 3,814
Gross claims incurred 6 (720,673) (865,288) (728,206) (873,465)
Administration and program costs (125,278) (123,753) (117,745) (115,576)
Premium collection fees (19,100) (17,748) (19,100) (17,748)
Underwriting profit/(loss) 52,248 (142,826) 52,248 (142,826)
Investment revenue 5 717,004 194,202 717,004 194,202
Profit from operating activities 769,252 51,376 769,252 51,376
(A) Profit from operating activities includes the following expenses:
• Bad and doubtful debts (203) (1,198) (203) (1,198)
• Depreciation on equipment and furniture 2,950 2,692 2,950 2,692
• Employee entitlement provisions 1,726 1,486 1,728 1,181
• Net operating lease rentals 5,228 4,887 5,228 4,887
• Auditor-General’s fees 1 154 160 147 153
• Interest on finance lease 7 – 7 –
1
Fees are for auditing the financial reports.
(B) EXPLANATION OF VOLATILITY OF FINANCIAL RESULTS
This note provides additional analysis of the net profit after tax of $590.0 million (2003: $51.2 million).
Given the long-term nature of the TAC scheme both from an investment and outstanding claims perspective, the annual operating result for the TAC is
significantly affected by market factors external to the organisation. External factors contribute to the difference between actual annual investment returns
and the long-term average expected investment returns advised by the TAC’s asset consultant and also include changes in claims economic assumptions and
changes in legislation impacting the TAC. External factors can cause significant variations in reported results from year to year as illustrated below. The Board
considers that this additional disclosure in the financial report is therefore warranted to explain the impact of external factors on the financial performance.
The TAC has recorded a significant increase in profit after tax for the 2003/04 financial year, with major contribution from external factors. The financial
result was favourably affected by the strong investment returns for the year, which were $300 million above the long-term average expected returns.
The previous financial year’s result was $201 million below the long-term average expected returns. In addition, the claims economic impact from rising
bond yields (discount rates) over the year resulted in a favourable impact of $171 million (2003: $255 million unfavourable) on claims liabilities.
The table below highlights the impact from short-term fluctuations and economic assumptions on the financial result.
2004 2003
($M)
($M)
Short-term investment fluctuations 1 300 (201)
Changes in inflation assumptions and discount rates 2 171 (255)
1
The TAC investment portfolio recorded a return of 13.0%, compared to 3.7% in the previous year. Equity markets produced strong returns in 2003/04 compared to negative
returns in 2002/03.
2
Domestic bond yields rose significantly in 2003/04 resulting in a higher claims discount rate and a corresponding decrease in outstanding claims liability. However, in 2002/03,
domestic bond yields fell resulting in an increase in outstanding claims liability.
40 TAC 2004