TIO 2007 Annual Report

Message From The TreasurerThe Hon Syd Stirling MLATREASURERIt is my pleasure to introduce the 2006/2007Annual Report of the Territory Insurance Office.TIO continues to meet the objectives which ledto its establishment 28 years ago by providingrelevant and competitive insurance and financialservices for Northern Territory residents andbusinesses.TIO holds a responsible position in the communitythrough the provision of cyclone, flood and stormsurge cover, administration of the Motor AccidentsCompensation Scheme and delivery of theHomeNorth program on behalf of the NorthernTerritory Government.It is pleasing to see that TIO continues to play amajor role in community support and developmentthrough its funding and sponsorship of a widerange of community sport, art, and culturalactivities and events as well as road safetyprograms and initiatives.TIO makes a very important contribution to theNorthern Territory economy and community andis an organisation of which all Territorians can bejustifiably proud.I extend my congratulations and appreciation tothe Board, Management and Staff on theirperformance and achievements in 2006/2007.The Hon Syd Stirling MLATREASURER1

TIO ProfileTHOUSANDS OF TERRITORIANS DEAL WITH TIO ON ADAILY BASIS, TRUSTING US, RELYING ON US TO LOOKAFTER THEIR INSURANCE AND FINANCIAL AFFAIRS. WEARE THE LARGEST GENERAL INSURER IN THE NORTHERNTERRITORY, A POSITION REFLECTED BY OUR VERYPROMINENT PROFILE WITHIN THE GENERAL COMMUNITY.Established in 1979 (under the Territory InsuranceOffice Act 1979) TIO quickly evolved, grew andexpanded to become a multi service provider. TIOis now an insurer, provider of banking services, anddeliverer of the Motor Accidents Compensation andHomeNorth Schemes.TIO has become an iconic Territory brand; a respectedand trusted member in both the corporate world andthe community.Nearly thirty years ago TIO started with just a handfulof employees and a couple of shop fronts in Darwinand Alice Springs. Today TIO is a billion dollarbusiness, with two hundred and fifty staff andoperations spread throughout the Territory.But despite the changes, the growth, thediversification into areas like banking, one overridingprinciple has remained the same - TIO exists to lookafter the needs of Territorians, to protect themand help maintain the lifestyle they enjoy.TIO’s most important responsibilities are theprovision of comprehensive household insurancecover which exceeds industry standards by providingcyclone, flood and storm surge protection and theadministration of the Territory Government's MotorAccidents Compensation Scheme and the HomeNorthScheme.TIO is Australia's only Government owned commercialinsurance and banking provider. Its Board membersare responsible to the Minister for its performance.While TIO is "guaranteed" by the Government, theorganisation operates on a commercial basis and iscommitted to complying with industry prudentialstandards and achieving key industry benchmarks.Research shows that TIO possesses an enviablereputation among Territorians. This is no accident.TIO actively engages with the community throughan extensive program of community sponsorships insports, education, arts, health and recreation.As we continue to grow and improve our service weare guided by our position in the Territory; a positionof trust.CORPORATE CITIZENSHIPTIO works to maximise the positive impact of itsbusiness activities and decisions for all itsstakeholders, including employees, customers,the community and its owner. Examples includeoperating ethically, encouraging good conductfrom suppliers, treating employees responsibly,ensuring the safety of employees, ensuring thatmarketing statements are accurate, anddelivering high-quality products and service.TIO contributes to the social and economic wellbeingof the Northern Territory by investingresources in activities that benefit its owner aswell as other stakeholders. Examples includeparticipating voluntarily to support thecommunity in the areas of sports, arts andculture, youth, health, recreation and education.TIO provides the most comprehensive communitysponsorship agenda in the Northern Territory andinvests $3.9 million annually in a broad range ofcommunity activities and road safety programs.TIO builds relationships of trust that involvebeing more transparent and open about theprogress and setbacks we experience in an effortto operate ethically. TIO operates in accordancewith its code of conduct and corporategovernance policies and listens to andcommunicates with stakeholders.TIO’s practice of corporate citizenship isexpressed by the way in which we deliver ourcore values including the values that thecommunity expects us to hold.2

In The CommunityOVER NEARLY THREE DECADES, TIO HAS BUILT ACOMMUNITY PROFILE UNMATCHED IN THE TERRITORY'SCORPORATE SECTOR. WE ARE THE NORTHERNTERRITORY'S NUMBER ONE INSURER. WE OFFERPROTECTION, SECURITY AND CERTAINTY WHENDISASTER STRIKES. OUR BILLION DOLLAR ENTERPRISEAND ITS MULTIPLIER EFFECT, CYCLE MILLIONS OFDOLLARS THROUGH THE LOCAL ECONOMY. THE REACHAND INFLUENCE OF OUR VARIOUS BUSINESSES GIVE USA STAKE IN THE DAILY LIVES OF VIRTUALLY EVERYTERRITORIAN. OUR EXTENSIVE SPONSORSHIP ANDCOMMUNITY SUPPORT SCHEMES HELP SUSTAIN ANDPROTECT A UNIQUE LIFESTYLE. FOR THOSE REASONSAND MORE, TIO HAS A PRESENCE IN THE COMMUNITY, ALEVEL OF RECOGNITION AND BRAND AWARENESS THATIS THE ENVY OF OUR COMPETITORS.In this latest financial year TIO contributed $19.8million to the local economy. An impressive figurecomprising payments to suppliers, the directexpenditure of our large workforce and TIO'ssubstantial sponsorship program.Over $3.9 million was directly invested in communitysponsorship and event support by TIO and the MotorAccidents Compensation Scheme. This money istargeted to reach out and touch the lives of as manyTerritorians as possible.TIO has thirty major sponsorship arrangements thatin their various ways add value to life in the Territory.Our support has helped bring a major sporting teamnorth; secured the appearance of a celebratedentertainer and provided opportunities for eliteTerritory sports people to compete interstate andoverseas. But the bulk of TIO's sponsorship dollarswork hard at the grassroots level. There is financialsupport for fifty community projects includingvolunteer groups and sporting associations. TIOsponsorship supports virtually every sphere of theTerritory’s life be it road safety, health, education,recreation, culture and sport.TIO is proud to be a trusted member of the Territorycommunity. Our philosophy, our guiding principle, ourmission is to protect the lifestyle of Territorians. Afterall, that's our business.THOUSANDS OF TERRITORY CHILDREN BENEFIT FROM TIO’S COMMUNITY SUPPORT3

2006/2007 Financial HighlightsINSURANCE2007$M2006$M2005$MBANKING2007$M2006$M2005$MGROSS WRITTENPREMIUM77.5 72.168.7INTERESTINCOME41.7 35.131.9GROSS CLAIMSPAID38.1 38.936.3INTERESTEXPENSE31.2 25.223.3UNDERWRITINGPROFIT18.9 12.49.4NET INTERESTEARNED10.5 9.98.6NET INVESTMENTINCOME12.2 9.99.0PROFITBEFORE TAX3.0 3.32.9PROFITBEFORE TAX25.1 16.012.5DEPOSITS375.6 507.7460.5TOTALASSETS257.3 234.7205.0LOANS519.0 477.1423.5TOTALLIABILITIES204.3 203.1189.4TOTALASSETS633.0 550.2496.5TOTALEQUITY53.0 31.515.6TOTALLIABILITIES608.4528.3477.3TOTALEQUITY24.6 21.919.2MOTORACCIDENTSCOMPENSATION2007$M2006$M2005$MGROSS WRITTENPREMIUM50.0 47.846.0GROSS CLAIMSPAIDUNDERWRITINGSURPLUSNET INVESTMENTINCOMEOPERATINGSURPLUS30.4 23.77.1 9.341.6 28.142.5 32.136.96.024.726.4TOTALASSETSTOTALLIABILITIESTOTALEQUITY377.7 329.3259.9 254.0117.8 75.3295.8250.245.64

The Year in BriefTIO GROUP• Record financial results including a pre tax profit of $70.7 million – an increaseof more than 37%• Our investment portfolio grew to more than $567.0 million• Increased activity in the community with major sponsorships in all regions• Contributed $19.8 million to the Northern Territory economy• Employer of the Year – Northern Territory Training Awards• National Award for Excellence in Innovation and Business – Australian Training AwardsINSURANCE• Insurance division profitability has increased for the fourth consecutive year• Market share leader for car, home building and contents insurance along with significantmarket share of the commercial market• Improved policy benefits for home building and contents• Introduction of post disaster option to increase home cover by 30%• $38.1 million paid out in insurance claims• Significant increase in capital strength• Continued customer service improvements with on-line quoting and purchase for car andhome insurance• New rural insurance business pack launched• Over 90% of car and home claims authorised for repair or replacement within 2 daysBANKING• 8% growth in home lending• Launch of new lending services including home loan with Qantas Frequent Flyer points,home equity products, rate lock and deposit bond facilities• Successfully implemented a securitisation program• Significant increase in capital strength (11.4% up from 7.0%, over 62.9% increase)• Three new ATM’s installed• Launched a uniquely designed Visa Debit Card with positive customer response• New low fee transaction account launchedMOTOR ACCIDENTS COMPENSATION• Motor Accidents Compensation performance improved for the fourth consecutive year• No premium increases since July 2004• High claimant satisfaction rate of 86%• First year of operation as a Statutory Fund• Appointment of Motor Accidents Compensation member to TIO Board• Significant changes to Motor Accidents Compensation legislation passed• Public awareness campaign commenced with positive results• Substantial increase in road safety funding• Solvency at record levels5

Our vision, Our Values and Key Result AreasOUR VISION“the No.1 provider of Insurance and Banking forTerritorians”.OUR VALUESOur values express the beliefs and attitudes thatguide the actions of the TIO Board, Executives andStaff and provide a standard against which ouractions can be judged.ServiceRespond in a timely, accurate and professionalmanner and to exceed expectations.KEY RESULT AREASWe will achieve our vision through achievementsin our key result areas of performance, customers,people and community.PerformanceThe delivery of consistently profitable andprudentially sound results through exceptionalperformance in everything we do.Profit/Surplus before tax 2007 2006 2005Insurance $25.1m $16.0m $12.5mBanking $3.0m $3.3m $2.9mIntegrityAct in an honest and ethical manner and actuallydo what we say we will do.Motor Accidents CompensationCustomers$42.5m $32.1m $26.4mAccountabilityAccept responsibility for our actions and decisionsand to take ownership for them.ImprovementThink outside the square and focus on outcomesand not only processes.TeamworkEncourage and support others and have a ‘can do’approach to issues.FunEnjoy the work we do and to value the work/lifebalance.The intrinsic value of our business and the reasonfor the service and products we provide.Customer Satisfaction 2007 2006 2005Insurance 80.0% 76.0% 76.0%Banking 81.0% 86.0% 81.0%Motor Accidents Compensation 86.0% 77.4% 78.0%PeopleThe life of the business and our future potential.Community2007 2006 2005Staff Satisfaction 61.3% 63.0% N/AThe people and lifestyle of the Territory that wesupport.In 2006/2007 a community survey revealed that 82% ofTerritorians perceive TIO to be the leading supporter of theNorthern Territory community through its business andsponsorship activities6

072007 ANNUAL REPORT“through theirsupport we’vebeen able to getour footprintinto thecommunities”While the plight of theTerritory's young indigenouspopulation has been makingnational headlines recently,for some time now TIO hasbeen working quietly away todo its bit for youngsters inremote communities. AFLNTChief Executive Officer TonyFrawley says his vision is tospread the Aussie Rulesmessage to indigenouscommunities. "TIO has beenfantastic. Through their supportwe've been able to get our footprints out into thecommunities", he says.A highlight of TIO's support hesays was TIO's sponsorship offledgling AFLNT team the "TiwiBombers". They played thecurtain raiser against"Rumbalara" as part of theMCG's "Dreamtime at the G"celebration. It's anotherexample of how TIO’ssponsorship in sport supportsour community.TIWI BOMBERS CELEBRATE THEIR SUCCESS AT THE MCG IN MELBOURNE7

Chairman's and Chief Executive's ReportJOHN FLYNN, CHAIRMAN AND JOHN TSOUROUTIS, CHIEF EXECUTIVE2006/2007 HAS BEEN ANOTHER YEAR OF SOLID PROFITPERFORMANCE. IT HAS BEEN A HARD WON SUCCESS,ACHIEVED DESPITE INTENSE AND AGGRESSIVEPURSUIT OF MARKET SHARE BY OUR COMPETITORS. WERESPONDED, AND PARTLY BY REDUCING THEINSURANCE PREMIUM RATES OF SOME PRODUCT LINES,TIO MAINTAINED MARKET SHARE. FURTHERMORE, THERESULT FOR MOTOR ACCIDENTS COMPENSATION IS ATERRITORY RECORD; THREE CONSECUTIVE YEARS WITHNO INCREASE TO COMPULSORY THIRD PARTYINSURANCE PREMIUMS. IT IS A PRACTICAL EXAMPLE OFHOW TIO IS DELIVERING VALUE TO TERRITORIANS.TIO's financial performance must be seen incontext. While actual core operating profit was$35.3 million, an additional $35.4 million wasachieved through extraordinary contributions madeby investment and economic factors above whatwe consider normal levels, taking reported Netprofit before tax to $70.7 million.However with the investment market possibly at,or close to, its peak, TIO can't assume the samereturns in future years. That uncertainty onlyreinforces the case for sensible risk management.TIO has a responsibility to ensure its financialposition remains strong so that it can always meet8

072007 ANNUAL REPORTits claims, irrespective of the performance of thefinancial markets. It will use current profits as abuffer against these future risks.The organisation is committed to a prudentialgrowth strategy. In simple terms this means aconservative risk management approach to ourrisk exposures in Insurance and loan exposuresin Banking, ensuring capital targets are met, andongoing operational efficiency. This conservativebusiness model is a reflection of the fact that TIOis Australia's only Government owned commercialinsurance and banking business, and as such isguaranteed by the Government of the NorthernTerritory and ultimately Territory taxpayers.In 2006/2007 TIO produced a strong financialperformance including an improved capitalposition; a major contribution to a buoyantNorthern Territory economy; and not least of all,provided outstanding support to the localcommunity through an extensive program ofsponsorships and community based partnerships.These range from significant financial contributionsto major sporting and cultural events andimportant health, safety and educationalprograms. But TIO's engagement cascades evenfurther, with numerous grassroots partnershipswith a variety of volunteer groups. Our support isspread Territory wide. Cities, towns, regional andremote areas all benefit in some way from TIO’scontribution of over $372,000.FINANCIAL AND OPERATIONAL PERFORMANCEGroup profit after-tax was up 36.3% to $61.5million for the year to 30 June 2007.Pre-tax core operating profit, which disregardsextraordinary investment returns in the Insuranceand Motor Accidents Compensation businessesand economic factors, grew by 75% to $35.3million. This is the fourth successive year of growth.The core operating profit in the following table isthe benchmark against which Management andprofitability performance is measured from yearto year.Operating Results 06/ 05/ 04/ 03/ 02/$million 07 06 05 04 03Core Operating Profit 35 20 22 6 2Impact on profit fromexternal factorsDifference between actualinvestment returns andexpected returns 25 17 21 11 (3)Change in inflation assumptionsand discount rates 11 14 (1) 8 (32)Net profit before tax 71 51 42 25 (33)Tax 9 6 3 4 (4)Net profit after tax 62 45 39 21 (29)The financial performance of TIO’s Insurance andthe Motor Accidents Compensation Scheme ishighly sensitive to external factors beyond ourcontrol. The most significant of these is the stateof the financial markets. In particular changes ininterest rates have a significant impact onprofitability levels. This is because each yearestimates of outstanding long-tail claims for motoraccidents and workers’ compensation arediscounted for future investment returns andinflation rates. Equally, share and property marketconditions are volatile with movements from yearto year unpredictable.The following table demonstrates TIO’s profitsensitivity to investment returns and economicconditions. The calculations shown below arebased on TIO’s investment holdings as at 30 June2007. Due to the size of the TIO InvestmentProfit Sensitivityto external factors Insurance Banking MAC Group$million1% decrease in interest rates (4) (1) (19) (22)1% decrease in inflationassumptions 3 - 17 2020% decrease in equity markets (6) - (25) (31)9

Chairman’s and Chief Executive’s Report (continued)retention in the domestic portfolio and a renewedfocus on growing our commercial business.Total gross written premium (GWP) increased byA respectable 7.5% for the full year. It was anincrease that accommodated a reduction inaverage premium rates across TIO's commerciallines and domestic motor vehicles.The overall result demonstrates how a prudentialgrowth strategy can deliver sustainable benefits toour customers and TIO.BANKINGJOHN TSOUROUTIS, CHIEF EXECUTIVE WITH GREGTROUGHTON, HEAD OF STRATEGY AND BOARD SECRETARYAND LEANNE COBURN, HEAD OF HUMAN RESOURCESportfolio, the impact of a 1% decrease in interestrates in the year would have reduced group profitby $22.0 million. Similarly a 20% decrease in equityreturns would have reduced profits by $31.0 million.It is important to note that while the externalenvironment in 2006/2007 has impactedfavourably on TIO’s profit results, theorganisation's exposure to, and sensitivity tomarket conditions means significant fluctuationsin future profitability is likely. It's against thatbackdrop of future uncertainty that TIO'scommitment to prudential growth and riskmanagement is seen as the best way forward.INSURANCEThe Insurance after-tax profit of $16.3 million isan increase of 59.8% over last year. It wasachieved through a strong underwritingperformance and improvement in claims costs of$15.0 million. The Insurance division's growth wasalso boosted by strategies to improve businessThe Banking division was a primary focus of TIO'sprudential growth strategy. A critical goal wasachieving capital targets. This involvedundertaking a commercial securitisation program.The consequence was a reduction in loanexposures retained on our balance sheet and adiversification of Banking's source of funds. Theassociated target was to achieve sustainablegrowth in lending in conjunction with a disciplinedapproach to pricing and credit risk.Banking realised an after-tax profit of $2.7 million.Although this outcome was slightly below target,further growth this year was inhibited due to twofactors, the impact of the securitisation programand the interest rate environment.Significantly though, the capital position ofBanking has dramatically improved over the year.MOTOR ACCIDENTS COMPENSATIONThe Motor Accidents Compensation Schemerecorded its fourth consecutive year of strongfinancial growth with an operating surplus of$42.5 million transferred to reserves. The resultwas driven by higher investments returns,operational efficiencies, and improved claimsmanagement.The core operating surplus of $14.5 million was upby 88% from last year. This continues a favourabletrend evident since 2004. These strong financials10

072007 ANNUAL REPORTare being driven by lower claims costs and agreater and on-going focus on case management.The Motor Accidents Compensation Schemeperformed well against industry benchmarks, andsignificantly premiums remained unchanged forthe third successive year.As required under new statutory requirements,2006/2007 saw the appointment of aContributions Commissioner to oversee anindependent pricing regime.Significant amendments to the Motor Accidents(Compensation) Act were passed by the LegislativeAssembly during 2006/2007 for commencementon 1 July 2007. Most notably, the abolition ofcommon law for non Territory residents will ensurea more equitable basis for compensation benefitpayments for all claimants.INVESTMENTSLast year we reported the appointment ofinternational firm Watson Wyatt as TIO’s assetconsultants. A review of TIO's investment strategywas subsequently undertaken and resulted inchanges to the organisation's investmentallocations. As at June 2007, the asset classeswere as follows:TIO INVESTMENT ALLOCATIONS 30 JUNE 2007Direct PropertyThe total investment return for the year was13.6% net of expenses (14.3% gross) forInsurance and 14.1% net of expenses(14.8% gross) for Motor Accidents Compensation.Both returns were well above their portfoliobenchmarks.RISK MANAGEMENT AND COMPLIANCE2006/2007 initiatives included:Full implementation of a prudential standardregime based on the Australian PrudentialRegulation Authority (APRA) Standards applyingto financial services industry.• Ongoing refinement of the risk managementframework which facilitates the identification,monitoring and management of all of TIO’s keyrisk exposures.• Revision of TIO’s Business Continuity Plan whichenhances the organisation’s ability to respond tobusiness disruption events and provide continuityof services to customers.• Refinement of the compliance managementframework to respond to the increasingcompliance obligations of the industry includingthe Federal Government’s new Anti-MoneyLaundering legislation.MAC INVESTMENT ALLOCATIONS 30 JUNE 2007Direct PropertyGlobal ListedProperty2.7%19.3%28.1%CashGlobal ListedProperty7.8%11.5%25.9%CashInternationalEquitiesAustralianEquities10.8%10.8%12.2%AustralianLinked Bonds16.0%AustralianFixedInterestInternationalEquities13.8%13.8%AustralianEquities6.8%InternationalInflationLinked BondsAustralian7.0%FixedInterest6.6%Australian6.9%InflationLinked BondsInternationalFixed Interest11

Chairman’s and Chief Executive’s Report (continued)• Development and review of policies for capitalmanagement, liquidity management, largeexposures, credit risk management, reinsuranceand outsourcing activities.CAPITAL MANAGEMENT2006 heralded major changes for theorganisation's capital management strategy.The introduction of TIO's Prudential SupervisionFramework based on the Australian PrudentialRegulatory Authority, increased capitalrequirements, bringing TIO in line with industrystandards.In line with these new requirements, the Boardadopted a new capital management policy in 2006.It prescribes the minimum capital levels for allthree divisions, Insurance, Banking and MotorAccidents Compensation. It also outlines thegoverning principles for capital management.The Insurance Division performed strongly,achieving its long term capital target this year,three years ahead of plan.The Banking Division significantly increased itscapital position this year and will be aboveindustry average within three years.It is pleasing to note that the Motor AccidentsCompensation Scheme capital position continuesto remain well above the industry average.BUSINESS PROCESS IMPROVEMENT ANDSERVICE QUALITYIn recent years operational efficiencies havecontributed handsomely to profitability. But asthe organisation matures and becomes morestreamlined further gains will become harder toidentify. It will take much more effort in futureyears to deliver the same cost savings.However we remain committed to improving ouroperations and service quality across the TIOGroup. In March 2007, we commenced a BusinessProcess Improvement Project. The initial phaseof process mapping was completed in June.As a result a number of core business processesare being redesigned, with improved efficienciesexpected to flow over the coming years.OUR PEOPLEThe success of any organisation is all about itspeople. In an increasingly tight labour market, it’simportant that we continue to seek ways to attract,retain and develop the best people and build astrong performance and service culture. Employeeturnover for the year at 33.8% increased slightlyover last year and remains a constant challenge.In May 2007 Mercer Human Resource Consultingwas appointed to assist TIO with defining optionsand developing a program to meet the challengesof recruitment and retention of employees.Employee engagement, which is measuredannually, remained stable. Continued effort toimprove staff satisfaction and engagement arebeing explored through staff surveys and focusgroups which will assist in the development of aclear plan of action for the coming year.The fact that TIO has three lines of business plustwo shared services divisions means we are ableto provide diverse career opportunities foremployees. We invest heavily in training anddevelopment and this was reflected in TIOrepeating last year's success to again win twoprestigious training awards.• Employer of the Year 2006 - Northern TerritoryTraining Awards.• Industry Award for Excellence in Innovation andBusiness - 2006 Australian Training Awards.12

072007 ANNUAL REPORTLEFT TO RIGHT: BOARD MEMBERS JOHN MESSENGER, JOHN HAND, JOHN TSOUROUTIS, SHEILA O'SULLIVAN, JOHN FLYNN, BRUCECARTER AND JIM NOONANCORPORATE GOVERNANCETIO places great emphasis on good corporategovernance, and always strives to increase valueto its owner – the Northern Territory Government.TIO complies with the Australian SecuritiesExchange (ASX) Corporate Governance Council’sPrinciples and Recommendations. Thesearrangements are summarised later in thisreport.The TIO Board is an effective team that this yearhelped TIO achieve greater financial strength. TIO'score focus is prudential growth, based on a strongcapital position allied with a conservative risk profile.In September 2006 the Board welcomed four newmembers, adding a high level of corporate andbusiness expertise to Board deliberations. Theyare: Mr Bruce Carter, Mr Roger Davis, Ms SheilaO’Sullivan and Mr John Hand. We also thank MsAlison Payne who retired in August 2006, afterthree years Board service.It should be noted that the Minister provided TIOwith a Ministerial Direction pursuant to section7(1) of the Territory Insurance Office Actpermitting TIO to enter into a contract forcommercial Directors and Officers insurance uponterms acceptable to the Board.SUSTAINABILITY - A LONG TERM FOCUSTIO has a responsibility to look after the Insurance,Banking and Motor Accidents Compensation needsof Territorians. To fulfill this role effectively over the13

Chairman’s and Chief Executive’s Report (continued)long term, TIO itself must remain financiallystrong. That means placing a premium oninvestment and management strategies that deliversuperior returns into the future while maintaining aconservative business risk profile.But how we conduct our business is alsoimportant. Independent research carried out inDecember 2006 found that TIO has a reputation inthe community as a true “Territorian” that is:• Territory wide and accessible• Trusted and well established• Responsive and caring with its customers• Knowledgeable with relevant products for localconditions• A good corporate citizen and contributor to thecommunityTHE YEAR AHEADearnings outlook and aim to achieve a prudentreturn in core operating profit. We will continue toprioritise growth in the segments that provide themost attractive risk adjusted returns. At the sametime, we will be maintaining a vigilant approach tocredit risk.We also have a new challenge, moving towards acustomer-centric business model, one that deliversproducts and a level of service even moreresponsive to customer needs.ACKNOWLEDGEMENTSWe thank Board members, Management and Stafffor another year of service and dedication. We alsothank our business partners and service providersfor their contribution to TIO’s success. Finally wethank our customers, clients and the communityfor their continuing support and look forward tostrengthening relationships in the coming year.It is likely that we are moving into a period ofslightly lower economic growth and an uncertaininvestment environment. Inevitably too there willbe more competition. We anticipate growingpressure on profit margins. It means we mustcontinue to innovate, continue to deliverefficiencies and continue to deliver for ourcustomers. In such an environment, profitabilityexpectations are considerably lower for the comingyear. Nevertheless we remain confident about ourJohn FlynnCHAIRMANJohn TsouroutisMANAGING DIRECTORCHIEF EXECUTIVE25 September 200714

072007 ANNUAL REPORT“they’ve madea realdifference”Neighbourhood Watch ChairmanPaul Wyatt reckons TIO makeshis job a whole lot easier."They're always there to helpand get behind the community",he says, referring to TIO'ssponsorship of NeighbourhoodWatch campaigns. He says suchis TIO's level of credibility in thecommunity, just having TIO onboard adds weight to hisorganisation's home andpersonal safety message.The connection between TIOand Neighbourhood Watchdates back to 1989, andincludes a ten percent discountto TIO customers who join thecommunity based organisation."To see TIO continuing to leadthe way is very commendable",Paul says, "TIO recognise theimportance of engaging withthe community, they've made areal difference."NEIGHBOURHOOD WATCH EXECUTIVE OFFICER SERGEANT JEFF MOSEL AND CHAIRMAN, PAUL WYATT15

Executive ManagementJohn TsouroutisB. ECON, FAICD, FAIM, FIFSMANAGING DIRECTOR &CHIEF EXECUTIVELes HoldenB. BUS, ANZIIF (FELLOW)GENERAL MANAGERINSURANCEJohn HallF. FIN.GENERAL MANAGER BANKINGDoug WebbB. JURIS, LL.BGENERAL MANAGER, MACAND LEGAL COUNSELJohn joined TIO in March2003 as Chief Executive.He has been a ChiefExecutive Officer andBoard Director of anumber of major financialinstitutions for over 15years and has over 25years industryexperience.Les joined TIO in 1993and was appointed toGeneral Manager in 1998responsible for theInsurance operation. Priorto joining TIO he heldsenior management andunderwriting roles andhas been in the insuranceindustry for 40 years.John joined TIO in 2005.Over his 30 year careerin banking, John has helda number of managementroles in the banking,building society andcredit union industries.Immediately prior tojoining TIO, John wasHead of Products andStrategy with aninternational credit cardorganisation.Doug commenced withTIO in 1987 as in-housesolicitor and wasappointed to his currentrole in 2004. He hasextensive experience inboth the provision ofadvice to, and themanagement of all claimsareas, including reinsuranceand litigation.Michael HoareB A (ACC), FCPA, FAICDGENERAL MANAGERCORPORATE SERVICES &CHIEF FINANCIAL OFFICERGrahame MarshallGENERAL MANAGER SALESAND MARKETINGGreg TroughtonLLB (HONS) B. EC, B. COMM,GCLPHEAD OF STRATEGY ANDBOARD SECRETARYLeanne CoburnB.BUS, GCHRM, FAICDHEAD OF HUMANRESOURCESMichael joined TIO in1998. He has held seniorroles in accounting,technology and bankingand has over 20 yearsexperience in thefinancial services sector.Grahame commencedwith TIO in 2007.Grahame has formerlyheld executive, board andsenior management rolesacross a range of industrysectors including financialservices, banking,insurance, legal andutilities.Greg is a solicitor withexperience in both thepublic and private sectors.Prior to joining TIO in2005 he was GeneralCounsel and GeneralManager Corporate Affairsof a large public sectorinsurance organisation.Greg has a broad range ofexperience in accounting,policy, planning andmanagement.Leanne joined TIO in1986. She has heldseveral positions withinthe HR area. She hasbroad experience in allaspects of HumanResources includingstrategy, recruitment,training & developmentand information systems.16

Organisational StructureWith direction fromReinsuranceCommitteeInvestmentCommitteeThe BoardAudit and RiskCommitteeRemuneration,Nomination andSuccessionCommitteeManaging Director & Chief ExecutiveThrough our Business Divisions and shared internal services:Head of Strategyand BoardSecretaryGeneralManagerGeneralManagerGeneralManagerInsurance Banking Motor AccidentsCompensationGeneralManagerCorporateServicesGeneralManagerSales andMarketingHead ofHumanResourcesTIO ProvidesGroup Strategy andCorporateDevelopmentCorporate ProjectsGroup ManagementInformationCommercialInsuranceWorkers’CompensationHome InsuranceMotor InsurancePleasure craftHome andPersonal loansTransaction,Savings andInvestmentAccountsCredit CardsATMsFinancial Planningand AdviceHomeNorthAdministrationMACAdministrationPremiumRecommendationsFunding of RoadSafety Programsand EducationTreasuryRisk ManagementAccounting and TaxActuarialAudit andAssuranceComplianceRegulatory AffairsInformationTechnologyProperty Investmentand Office ServicesGroup MarketingSales andDistributionBranches andCall CentreWebsiteCorporateRelations andSponsorshipsPeople andPerformanceTraining andDevelopmentTo our stakeholdersNT Government Customers & Clients Employees Community17

Insurance ReviewTIO IS THE NORTHERN TERRITORY’S LARGEST INSURERWITH ANNUAL PREMIUM REVENUE OF $77.5 MILLIONAND OVER 65,000 RISKS.ESTABLISHED IN 1979, TIO IS THE ONLY GOVERNMENT-OWNED COMMERCIAL INSURANCE COMPANY INAUSTRALIA. TIO OPERATES SOLELY WITHIN THEGEOGRAPHICAL BOUNDARIES OF THE NORTHERNTERRITORY, ON A COMMERCIAL BASIS IN ACOMPETITIVE MARKET.TIO PROVIDES TERRITORIANS WITH A BROAD RANGEOF DOMESTIC, COMMERCIAL AND WORKERS’COMPENSATION INSURANCE COVER. IN PARTICULARHOME, CAR AND BOAT COVER POLICIES PROVIDEPROTECTION AGAINST FLOOD, CYCLONE, STORMSURGE, TSUNAMI AND LIGHTNING STRIKES.THE TERRITORY COMMUNITY HAS A STAKE IN OURCONTINUED SUCCESS. WE PROTECT THEIR ASSETS TOPRESERVE THE LIFESTYLE WE ALL ENJOY IN THISUNIQUE PART OF AUSTRALIA.PERFORMANCETIO Insurance performed strongly again in2006/2007, meeting its profitability and capitalgrowth targets.Profit before tax of $25.1 million was 57% higherthan the previous year's figure, and substantiallyabove the $10.6 million target for 2006/2007.The division's profitability has grown consistentlyover the past four years due to a combination ofgood investment returns, premium growth andimproved cost control and claims management.TIO Insurance is well ahead of the five year planestablished in 2006 to increase its MinimumCapital Requirement to twenty percentage pointsabove the industry average. Up from 160.9% lastyear, capital at 30 June 2007 of 252.4% is nowabove the industry average. This pleasing resultreflects TIO's adoption of a prudential growthphilosophy characterised by a focus on long termbusiness sustainability, conservative riskmanagement and vigilant cost control.GROSS WRITTEN PREMIUM$m80787674727068 2002/3 2003/4 2004/5 2005/6 2006/7PERSONAL INSURANCEHome and car insurance accounts for 40% of TIO'sinsurance income. These business lines achievedmodest growth in the year to June 2007. Withextremely competitive conditions, premiums eitherremained unchanged or were reduced in someproduct lines. Importantly market share wasmaintained through effective product managementand customer service. The fact that premiums didnot rise highlights the link between TIO'smanagement strategy and the community. Ourfocus on prudent growth is producing favourablebusiness outcomes, which we in turn can pass onto the community.This year's customer retention figure of 93%matched last year's strong performance. Retentioninitiatives included special offers at policy renewaltime for home building and contents. The option topay premiums by monthly instalment was activelypromoted at the point of sale.According to independent research carried out in2006/2007, TIO has a 43% share of the motorvehicle insurance market. TIO's home building andcontents share is 49%. High figures that havegrown consistently over the past three years.18

072007 ANNUAL REPORTCOMBINED RATIO150%140%130%120%110%100%90%WORKERS COMPENSATIONOur local expertise, knowledge and flexibilityunderpinned a strong performance in Workers’Compensation profitability. The market remainedextremely competitive and rates continued to fall.Revenues remained at similar levels as last yearaided by new business growth. TIO has developeda business tool enabling the creation of earlyintervention strategies for Workers' Compensationclaimants. This innovation has delivered better80%70%2002/3 2003/4 2004/5 2005/6 2006/7COMMERCIAL INSURANCESignificant growth was achieved in commerciallines. Despite a drop in average premiums,revenues grew by 33% and profitability hasremained strong, another practical example ofcommunity benefit and good business outcomesworking together. And despite the emergence oftwo new competitors in the marketplace, TIOincreased customer retention over the year.Over 90% of TIO's commercial insurance businessis sourced through our broker network. TIOmaintains a sharp focus on developing andmaintaining good relations with brokers. This yeara new position was created to specifically fosterand strengthen our broker relationships. A newproject was also commenced to generate an onlinelink between TIO and its brokers.TIO INSURANCE, PROTECTING THE TERRITORY LIFESTYLEIn 2006/2007:• 95% of claims for motor vehicles were authorised for repairs within 2 days.• 90% of home building and contents claims were authorised for repair or replacement within 2 days.Statistics provided by the Insurance Ombudsman show that in 2006/2007 TIO had one dispute forevery 797 claims. This is one of the lowest dispute rates in Australia and places TIO in the top 5% ofinsurers for claimant satisfaction. It's another example of good business practices delivering practicalbenefits to the community.19

Insurance Review (continued)“early return to work” outcomes and a reduction inthe number of lost time claims exceeding 104 weeks.UNDERWRITING PROFIT/LOSS$m20151050(5)(10)(15)(20)2002/3 2003/4 2004/5 2005/6 2006/7OPERATIONS AND INNOVATIONIn 2006/2007 TIO initiated an organisation wideBusiness Process Improvement project. The aim isto further reduce operational costs, improve workpractices and customer service. The project isexpected to deliver sustainable cost reductions inthe years ahead.TIO’s innovative use of Geographical InformationSystems was expanded this year. All home andcommercial property risks are geo-coded withlongitude and latitude co-ordinates and elevations.This allows TIO to perform detailed analysis of itsRON KERSLAKE SENIOR ASSESSOR, WINNELLIE CLAIMSCENTRE2006 2007 2007 Performance IndustryTarget against AveragetargetGROWTH Growth in GWP 5.1% 7.5% 7.0% ✓ 4.2%EFFICIENCY Claims & Expense to NEP % 87.7% 73.2% 93.5% ✓ 90.5%PROFITABILITY Profit before Tax $16.0m $25.1m $10.6m ✓ NAReturn on GWP 22.1% 32.4% 14.0% ✓ 26.4%Return on Equity 67.6% 59.4% 30.1% ✓ 33.2%CAPITAL MCR 165.4% 252.4% 182.8% ✓ 233.0%20

072007 ANNUAL REPORTINSURANCE CUSTOMER BRUCE MCLEOD WITH TIO REPRESENTATIVE KELLY LLOYD AT THE WINNELLIE CLAIMS CENTRE.exposure for losses from cyclone, flood and stormsurge. The technology provides a level ofsophistication that allows TIO to predict andinitiate the claims process prior to customerscontacting us. That's good for the community butgeo-coding also significantly enhances theInsurance division's business model. The systemmakes TIO an industry leader in data quality andprecision. It delivers TIO a capability for superiorbusiness risk management, a critical element ofthe organisation's prudential growth strategy.CUSTOMER SERVICEA new Rural Insurance Business Pack waslaunched early in the year to attract newbusiness from a growing sector of the market.New customer service initiatives included on-linequoting and purchasing of policies for home andcar insurance. This allows customers to getinformation and immediate cover anywhere,anytime.Reflecting our commitment to regional Territorians,a new office was opened at Coolalinga in the outerDarwin area. Although there's been a strongcustomer migration to telephone and internetservices, branches give new customers, especiallynew arrivals to the Territory, an importantopportunity for face to face service. Our branchexpansion initiatives mirror TIO's philosophy ofactive community engagement.TIO undertakes a number of research studies eachyear including the annual measurement ofcustomer satisfaction. Independent marketresearch carried out in June 2007, rated customersatisfaction with Insurance services at 80%, up4% on last year and slightly higher than themarkets mean score of 79%.21

Insurance Review (continued)The average building sum insured with TIO is27% higher than the national average. This isdue to a number of factors such as propertyvalues, higher building replacement costs, andTIO’s policy of automatic indexation whereby thevalue of the building insured under the policy isincreased annually.During the year, TIO introduced an option forhome building customers enabling them toincrease the sum insured by 30% following adisaster for only 10% additional premium.THE AVERAGE BUILDING SUM INSURED WITH TIO IS 27%HIGHER THAN THE NATIONAL AVERAGE.TIO continues to highlight its point of differencein the market through superior claims service.In 2006/2007 TIO settled claims in excess of$38.1 million.The dedicated claims centre in Winnellie whichhandles all claims for property and vehicles,provides a fast and trouble free service. Damagedmotor vehicles are assessed, repairs authorised orthe claim resolved often on the same day. Thereis no running around for customers - the entireprocess of quotes and repairs is managedseamlessly by TIO.UNDER INSURANCEThe level of consumers and businesses eithernon-insured or under-insured continues to be ofsignificant concern to the insurance industry andGovernments around Australia. According to theInsurance Council of Australia 23% of residentialhouseholds do not have a building or contentsinsurance policy. This situation in the NorthernTerritory is worse with an estimated 30% ofhouseholds not having any or adequateinsurance cover.In 2006/2007 TIO undertook a range of initiativesto create community awareness and educateTerritorians about the need for adequate insurancecover. A multi media strategy included pressadvertising in Darwin and Alice Springs and directcommunications through a broad range ofpublications and promotions.THE YEAR AHEADThe Territory's insurance business will continueto be extremely competitive in the coming year.Our focus on claims cost reduction and businessprocess improvements are expected to delivervaluable gains, further improving our ability toremain a cost effective competitor.Next year there will be greater emphasis acrossthe TIO group on service quality as we movetowards a more customer-centric business model.We will be reviewing our services and distributionchannels to better meet the needs of directcustomers, brokers and agents.TIO has a unique position in the Territorycommunity. As a trusted Territorian ourorganisation will use its status in the communityto support campaigns aimed at reducing thenumbers of un-insured and under-insured. It's themost effective way we can work to ensure ourfamilies, friends and our business clients have theprotection they need. The Territory is a specialplace, but it also faces a level of exposure to theforces of nature experienced by few other partsof Australia.22

072007 ANNUAL REPORT“the assessorwasexceptional”You can imagine the scene.Suburban Tiwi, a crane is liftingan excavator into a leafybackyard ready for a bit oflandscaping, maybe even apool. Instead the renovationturns into a partial demolition.The crane topples over crashinginto the townhouse roof,smashing walls, a carport, eventhe wardrobes inside anupstairs bedroom. That wasexactly what happened to TIOcustomer Mal Flack. But oncethe TIO assessor arrived Malsays things quickly improved."The assessor was exceptional,"he said, "once we got onto TIOthings went smoothly." Itincluded arranging temporaryaccommodation for the familyand liaising with all thebuilding, electrical and roofingcontractors needed to repair hishome. "They got things done ontime for us, they've been veryhelpful". A happy ending too;Mal and his family are now backin their home with all repairscompleted.MAL AND NIKI FLACK WITH THEIR CHILDREN ANTHONY AND MICKALA23

Banking ReviewTIO BANKING OFFERS A RANGE OF LENDING SERVICES,SAVINGS AND TRANSACTION ACCOUNTS, INVESTMENTFACILITIES AND FINANCIAL PLANNING ADVICE TOCONSUMERS AND SMALL BUSINESS IN THE NORTHERNTERRITORY.THE COMMITMENT IS TERRITORY WIDE THROUGHSEVEN BRANCHES, A CALL CENTRE, INTERNET ANDTELEPHONE BANKING AND NINE AUTOMATIC TELLERMACHINES (ATMS).HOME LOANS ARE THE FOUNDATION OF TIO’S BANKINGBUSINESS AND REPRESENT OUR MOST IMPORTANT LINKWITH OUR MANY VALUED CUSTOMERS.TIO BANKING ALSO DELIVERS THE TERRITORYGOVERNMENT'S HOMENORTH SCHEME, WHICH ISSPECIFICALLY AIMED AT HELPING INDIVIDUALS,COUPLES AND FAMILIES TO BUY THEIR FIRST HOME.THE BANKING DIVISION IS A PRIMARY FOCUS OF TIO'SPRUDENTIAL GROWTH STRATEGY. INCREASING ITSCAPITAL, MAINTAINING A CONSERVATIVE RISK PROFILEAND COST CONTROL ARE KEY PRIORITIES.IN LINE WITH TIO’S COMMUNITY EMPHASIS, THEBANKING DIVISION WILL CONTINUE TO PURSUE ABLEND OF FINANCIAL SERVICES TAILOREDSPECIFICALLY FOR THE TERRITORY.PERFORMANCEAs at 30 June 2007, TIO Banking has $633.0million in assets under management.Profit before tax of $3.0 million was slightly belowtarget for the year. Growth in profit was modestdue to a combination of factors including reducedmargins as a consequence of securitisation ofassets and lower than expected growth for retaildeposits and personal lending.TIO BANKING REPRESENTATIVE ERINLEE GERAGHTY ASSISTING CUSTOMERS24

072007 ANNUAL REPORTLENDING PORTFOLIO$m550500450400350300250200150100500 2003 2004 2005 2006 2007Residential & Personal Commercial Securitised LoansCAPITAL ADEQUACY8%0% 2003 2004 2005 2006 2007Tier 1 Tier 2TIO's securitisation initiative is a key element ofthe prudential growth strategy to increase capitaladequacy. It's a policy aimed at achieving longterm sustainability. It does mean some adjustmentin the short term however it will deliver long termbenefits.TIO Banking’s key performance objectives for2006/2007 were to increase capital, reduce itsconcentration of wholesale deposits, increase retaildeposits, increase lending and reduce the cost toincome ratio.Through the year these objectives have eitherbeen met, or significant progress has been madetoward achieving them. For example a program tosecuritise assets this year has resulted in anincreased capital adequacy ratio. TIO Bankingis on target to achieve 13.3% for Tier 1 Capitalwithin the next three years. This will place Bankingabove the industry average and in a position ofcapital strength.The securitisation program has also reduced thelevel of deposit funds required. Subsequently theconcentration of deposits sourced throughwholesale markets has decreased.To improve the cost to income ratio a number ofstrategies were implemented. They included afocus on attracting lower cost retail deposits andimproving our business processes.DEPOSITSThe retail deposit market was challenging andgrowth of 5.4% was below target for the year.The Northern Territory’s young population offersa limited source of deposits compared to otherjurisdictions. To compete more effectively for abigger share of retail deposits, in 2006/2007 TIOimplemented a range of targeted products. Theyincluded the Visa Debit Card, a new EverydayTransaction account with low fees and improvedfeatures on the Build Up Saver account aimed atencouraging people to make deposits and developgood savings habits.LENDINGHome lending is a TIO Banking point of strength.Growth in the first half of the year was veryrobust, a reflection of the Territory's strongeconomy. The home loan portfolio increased by8% to $439 million over the 12 months to June2007. Home Loan funding of $161 million achieved122% of target for the year.New initiatives supporting growth included theExtra Miles home loan package with annual QantasFrequent Flyer points, a rate lock facility to guardagainst changes in fixed rates when arranginghome loans and a deposit bond which can be used25

Banking Review (continued)ALAN MERCIECA BANKING ON LINE AT THE PALMERSTON BRANCHby a purchaser instead of paying a deposit onthe exchange of real estate contracts. A new HomeEquity product was also introduced to better meetthe needs and preferences of Territorians.Personal lending and credit cards operate in anintensely competitive market segment. Growth inthese products remained at similar levels to theprevious year. Commercial lending though,performed favourably with an increase of 26% inloan portfolio from $30.6 million to $38.6 millionfor the year. Over 93% of commercial loans aremortgage secured, reflecting our prudential growthand low risk profile themes.There are also some regional trends worth noting.Banking experienced exceptional growth in bothhome and personal lending in the Outer Darwinand Katherine areas. This performance reinforcesthe value of TIO's active engagement withregional communities.Banking continued to maintain low loandelinquencies and write-offs for the year reflectingits strong credit risk management practices.Accounts in arrears by 60 days or more, as at30 June 2007 were just 0.37% of the total loanportfolio compared with 0.56% in 2006representing a favourable improvement.FINANCIAL PLANNINGOur Financial Planning operation achieved 12%sales growth in 2006/2007. The gains, driven bystaff improvements, resulted in a boost in feesflowing from the growth of funds underadministration and management. Funds undermanagement with TIO’s financial planning servicegrew to $71.3 million.Also, during the year a number of retirement andestate planning seminars, pre-retirement financialplanning workshops and market update26

072007 ANNUAL REPORTpresentations were held in Darwin and AliceSprings. These events were held in conjunctionwith Seniors Month and the Council of the Ageing.To ensure our Financial Planning capabilitiescontinue to grow, TIO Banking is mapping outclear career paths and providing staff withprofessional development assistance includingsupport for the attainment of higherqualifications.OPERATIONS AND SERVICE IMPROVEMENTSIn 2006/2007 TIO initiated an organisation widebusiness process improvement project aimed atreducing operating costs and improving servicequality. Put simply we want to become moreefficient and effective in the things we do.Procedural and service improvements implementedin 2006/2007 included:• Proactive home loan service (TIO reviews eachcustomer to ensure they have the mostappropriate products and services to matchtheir needs).• Technological solutions to improve our loanssales and processing capabilities providingquicker and more efficient delivery of customerservice.ACCESS AND DISTRIBUTIONTIO Banking's continued growth and the desireto provide greater access for our customers sawthe expansion of the branch network with newpremises at Coolalinga in Outer Darwin. Three newATMs were installed; at Darwin Private Hospital,Coolalinga Shopping Centre and at the JapeHomemaker Village.The ATM network will continue to expand in thenext year increasing customer access to low costeveryday withdrawal transactions.A comprehensive review of TIO’s distributionmodel including branches, ATMs, telephone andon-line services commenced in 2006/2007 aimedat defining the most efficient and effective way ofmeeting the evolving needs and preferences ofcustomers. Other related projects started duringthe year included an overhaul of TIO’s website andthe definition of branch design principles.Customers can look forward to faster, easier andmore convenient access to services andinformation when the recommendations of theseprojects are rolled out in the coming year.• Electronic archiving of reports; scanning ofcheque signatures providing on-line access tobranches.• Administrative changes and improvements forbetter customer service: eg. Loan approval andturnaround times are now faster.The full benefits of the Business ProcessImprovement and Service Quality project will berealised in future years.TIO undertakes a number of research studies eachyear including the annual measurement ofcustomer satisfaction. Independent marketresearch carried out in June 2007 rated customersatisfaction with Banking services at 81%. This isabove the market mean score of 77%.TIO’S NEW VISA DEBIT CARD27

Banking Review (continued)MARKET SHAREQuantitative research was again conducted in2006/2007 to track and measure TIO’s marketshare in Darwin, Alice Springs and Katherine.TIO performs highly in the home loan market,only marginally behind three of the major banksand with 10% market share, well ahead of nonbankcompetitors. With 12% of personal loans and10% of car loans, TIO ranks third highest in bothmarkets.Qualitative research in 2006/2007 confirmed lowawareness of TIO’s deposit and lending services.Not surprisingly the research found much greatercommunity recognition of TIO Insurance services.Marketing initiatives will play a key role inincreasing awareness of TIO Banking services inthe coming year.our long term capital targets, an emphasis onmanaging credit risk and improving operationalefficiency through business process improvements.In the coming year, there will be greater emphasisacross the TIO group on service quality as wemove towards a more customer-centric businessmodel. We will be reviewing our services anddistribution channels to better meet the needs ofthe community from the customer point of view.The economic outlook for the Northern Territoryremains positive and we expect strong consumerconfidence will maintain a buoyant market forbanking services.THE YEAR AHEADAs a long standing Territory institution employinghundreds of local people, TIO enjoys an enviablestatus in the community. However the emergenceof new competitors in the local market willinevitably present us with even more challenges.Pressure on margins will continue, as will the needto increase non-interest income. In that climateBanking will continue to focus on its core business,capitalising on its strengths as a home lender andproviding related services to meet customer needs.The theme of prudential growth will continue tounderpin Banking operations with the pursuit ofNEW BRANCH AT COOLALINGA SHOPPING CENTRE2006 2007 2007 Performance IndustryTarget against AveragetargetGROWTH Growth in Assets 10.8% 15.1% 3.5% ✓ 11.1%EFFICIENCY Cost to Income % 77.5% 80.6% 80.1% X 71.1%PROFITABILITY Profit before Tax $3.3m $3.0m $3.2m X NAReturn on Assets 0.6% 0.5% 0.6% X 1.1%Return on Equity 16.1% 13.1% 14.0% X 15.3%CAPITAL Capital Adequacy Total % 7.0% 11.4% 11.1% ✓ 13.7%28

072007 ANNUAL REPORT”helpingsomeoneachieve theirdream”Dreams can come true,sometimes they just need helpfrom the right people. For threeyears Lance and Janace Moorehad been trying to break intoDarwin's booming housingmarket. They did what you'dexpect; budgeted, saved andfinally went to the banks. Theresponse was a humblingexperience. "The banks weresaying, you're a single incomefamily, we can't help you, youcan't repay that", Lance recalls.With three kids, the youngest anewborn, Lance and Janaceweren't going to become a twoincome family any time soonand were fast running out ofoptions. Then a mate at worksuggested to Lance he tryHomeNorth Xtra* through TIO.It was a turning point. "They dida great job, we didn't know awhole lot about the whole loanthing", Lance says. He saysHomeNorth's ten thousanddollar interest free loan was atremendous boost. And Lanceand his wife were particularlystruck by the way TIO staffdealt with them. "The girls atTIO actually seemed excitedthat they were helping someoneelse achieve their dream", heremembers, "they looked aftereverything". So for Lance,Janace and their three boys thedream of home ownership finallycame true ...... they moved intothe Moore family home in July.* The HomeNorth Xtra Schemeis delivered by TIO on behalf ofTerritory Housing and theNorthern Territory Government.HOME BUYERS LANCE AND JANACE MOORE WITH THEIR CHILDREN SAMUEL,CHARLIE, CLANCY AND MAJOR THE FAMILY DOG.29

Motor Accidents Compensation1979 WAS A WATERSHED FOR TERRITORY ROAD USERS.IT SIGNALED THE ESTABLISHMENT OF A NO FAULTSCHEME THAT PROVIDED COMPENSATION TO ANYTERRITORIAN INJURED OR KILLED IN A MOTOR VEHICLEACCIDENT IN THE NORTHERN TERRITORY OR ANYWHEREIN AUSTRALIA IF TRAVELLING IN A NORTHERNTERRITORY REGISTERED VEHICLE.THE SCHEME GIVES PROTECTION TO ALL ROAD USERSWHETHER THEY ARE PEDESTRIANS, DRIVERS,PASSENGERS, MOTOR CYCLISTS OR CYCLISTS,PROVIDED A MOTOR VEHICLE IS INVOLVED IN THEACCIDENT. THE SCHEME IS FUNDED BY MOTOR VEHICLEOWNERS THROUGH COMPENSATION CONTRIBUTIONSMADE WHEN REGISTERING THEIR VEHICLES.AS ADMINISTRATOR OF THE MOTOR ACCIDENTSCOMPENSATION SCHEME, TIO ADOPTS PRUDENTIALLYSOUND CLAIMS AND CAPITAL MANAGEMENT PRACTICESTO DELIVER TERRITORIANS THEIR ENTITLEMENTS AT ASUSTAINABLE COST OVER THE SHORT, MEDIUM ANDLONG TERM.PERFORMANCEIn 2006/2007, the Motor Accidents CompensationScheme has recorded an operating Surplus of $42.5million, up 32.4% from $32.1 million in 2005/2006.This is the fourth consecutive year of strongfinancial growth. The result has been driven byhigher investment returns, lower claims costs andan ongoing focus on operational efficiencies.The Motor Accidents Compensation Schemeperformed well against industry benchmarks andsignificantly, all internal targets for the year were met.Despite a positive performance in 2006/2007,Motor Accidents Compensation Scheme continuesto operate in a challenging environment.Reinsurance costs remain significant and medicalcosts continue to escalate. Added to this,investment returns are volatile. It is essential thatthe Motor Accidents Compensation Schemecontinues to deliver surplus results to ensure we$m OPERATING RESULT50403020100-10-20-302003 2004 2005 2006 2007$m UNDERWRITING RESULT100-5-10-15-20-25-302003 2004 2005 2006 2007SOLVENCY60%50%40%30%20%10%02003 2004 2005 2006 2007EXPENSE RATIO20%15%10%5%02003 2004 2005 2006 2007can respond to adverse economic conditions andcontinue to meet claim liabilities into the future.This is in line with the TIO Group’s strategic themesof sustainable growth and long term sustainability.30

072007 ANNUAL REPORTPREMIUMSFor the year ending June 2007, gross writtenpremiums increased to $50.0 million. This wasdriven in large part by the Territory economy'sstrong growth and a resultant increase in thenumber of registered vehicles. At financial yearend, there were 147,288 registered vehicles in theTerritory, an increase of 4.4% over 2006.In 2006/2007 a new premium setting process wasintroduced with the appointment of an independentContributions Commissioner to oversee thepremium setting process. On the basis of the MotorAccidents Compensation Scheme's strong financialperformance and supporting actuarial opinion, theContributions Commissioner accepted the TIO Board’srecommendation that premiums remain unchanged.In fact Territorians haven't faced a premium increasesince July 2004. The standard premium for a privatemotor vehicle remains $426.30.TIO's commitment to the Territory's senior citizensalso remains unchanged, with the continuation ofa $55 discount on the compensation contributionwhen registering a standard private vehicle. Thisyear the Motor Accidents Compensation Schemeseniors discount amount totalled $279,619.The Scheme's claims performance deliveredanother strong result, building on the gains madein 2006/2007. The major efficiency project for theyear was a greater emphasis on finalisation ratesusing actuarial projections as the target. Allaccident years have seen an improvement in thefinalisation rate and this has been reflected in theexperience factors utilised by the ApprovedActuary in setting the outstanding claims provision.The claims management process was furtherstrengthened by the appointment of an additionalInjury Management Adviser and the creation of adedicated New Claims Team.As a result of these initiatives, active files at yearend totalled 1,231 compared to 1,317 last year.During the year work began on a project toautomate claim processing and introduce imagingTHE MOTOR ACCIDENT COMPENSATION DIVISION MAKES ASIGNIFICANT ANNUAL CONTRIBUTION TO DRIVER EDUCATIONAND ROAD SAFETYand workflow systems. Full implementation isexpected over the course of the next financial year.SERVICEIn 2006/2007 the Motor Accidents CompensationScheme recorded a claimant satisfaction rate of86.0% compared to the previous year’s 77.4%.The annual claimant survey continues to providevaluable information and feedback, especiallywhen it comes to identifying ways to improve ourbusiness. Importantly, this year claim forms wereredesigned to be even more user friendly andcommunication with rehabilitation providersimproved. As a result, claimant satisfaction withdocumentation improved to 80.0% from 76.0%,and satisfaction with rehabilitation provisionincreased to 86.8% from 81.0%.Staff administering the Motor AccidentsCompensation Scheme this year exceeded TIO’sinternal service benchmark by 15.0% with adepartmental average of 95.0% satisfaction.ROAD SAFETYThe Motor Accidents Compensation Schemecontinued to provide significant support to roadsafety initiatives with total contributions of $3.3million. Over $1 million was provided to the DriverTraining and Licensing program; $950,000 to the31

Motor Accidents Compensation (continued)Road Safety Branch and over $300,000 to theMotorcycle Education Training and Licensingprogram.LEGISLATIVE CHANGEOn 1 July 2006, legislation creating the MotorAccidents Compensation Scheme as a statutoryFund managed by TIO became effective. As aresult, the financial performance of the Scheme isreported separately from TIO's commercialoperations, including a separate Statement ofCorporate Intent. To improve governance andensure transparency between the Fund and TIO,an additional Board Member was appointed to actin the specific interests of the Fund. It is likely thatthere will be further improvement to thegovernance structure, including prudentialregulation.Significant amendments to the Motor Accidents(Compensation) Act were passed by the LegislativeAssembly during 2006/2007 for commencementon 1 July 2007.The changes to the Motor Accidents CompensationScheme will result in an increase in claim numbersin the future. In anticipation of this a full review ofclaims management processes and procedures wascompleted this year.A campaign to inform Territorians of theseimportant changes was launched in June andincluded television and newspaper advertisingTerritory wide over a period of six weeks.THE YEAR AHEADThe changes to the Motor Accidents(Compensation) Act will commence operation from1 July 2007. The primary change is the abolitionof common law for non-residents involved inaccidents in the Northern Territory. The no faultprovisions of the Act will apply to all personsinjured in the Northern Territory. This meansprovision of medical, hospital and rehabilitationservices at an early stage, as well as access toloss of earning capacity benefits and permanentimpairment benefits. The amendments alsoextend both the availability and the amount ofattendant care benefits and have introducedadditional support in the form of respite care andemergency travel payments.In recognition of the serious consequences of drinkdriving, the alcohol exclusions were extended tofatal claims. Road safety initiatives were furthersupported with a strengthening of provisionsrelating to reckless disregard of individual safety.The amendments are expected to result in areduction of reinsurance rates over the mid tolong term, with the volatility of large lump sumcommon law awards removed from the Scheme.Management's focus will continue to be onmaintaining the long term financial stability of theMotor Accidents Compensation Scheme. Customerservice will remain a high priority with a focus onensuring practices and procedures respond toclaimant needs.2006 2007 2007 Performance IndustryTarget against AveragetargetGROWTH Growth in GWP 3.9% 4.5% 4.5% ✓ 6.5%EFFICIENCY Claims and Expenses to NEP % 83.2% 88.6% 124.3% ✓ 105.5%PROFITABILITY Pre tax surplus $32.1m $42.5m $8.5m ✓ NAReturn on GWP % 67.2% 85.2% 16.9% ✓ 51.8%Return on Equity % 53.2% 44.1% 10.6% ✓ 47.0%CAPITAL Solvency % 36.9% 56.5% 38.2% ✓ 23.7%32

072007 ANNUAL REPORT“I just wantedto get onwith it”Each year thousands of cars,trucks and motorcycles useBagot Road. Nineteen years ago39 year old Michael Pitts wasone such commuter. For Michaelthough, Bagot Road was thescene of a life-changing event.He fell off his motorbike and asa consequence of the injuriesone of his legs was amputated.It ended his motorcycle racingcareer and put his mechanicalapprenticeship on hold. But notone to let life pass him by,Michael was determined to justget on with things. All theseyears later, he says TIO playeda crucial role in allowing him todo that. "When I neededsurgery or a new prosthesisthey've always been there". AndTIO is still helping. Michael hasundergone 34 operations. Atvarious times he's needed bathchairs, wheelchairs, crutchesand workbenches, but whateverhis requirement, Michael saysTIO's been ready to respond."Generally they just give mewhat I need when I need it."Michael says his attitude in theface of adversity has alwaysbeen "just get on with it!". Helikes the fact that TIO shareshis point of view.MOTOR ACCIDENTS COMPENSATION CLAIMANT, MICHAEL PITTS33

Our PeopleTIO'S PEOPLE, OUR STAFF, ARE OUR MOST IMPORTANT,VISIBLE AND VALUABLE ASSET. THEIR PROFESSIONALDEVELOPMENT UNDERPINS THE ORGANISATION'S DRIVEFOR GREATER EFFICIENCIES AND PROFITABILITY.TIO'S HUMAN RESOURCES GROUP HAS THE TASK OFBUILDING OUR HUMAN CAPITAL. IT MEANS HAVING THERIGHT PEOPLE IN THE RIGHT ROLES AND RECRUITINGTHE BEST NEW TALENT. IT MEANS SOLID INVESTMENTIN ON-GOING TRAINING AND CAREER DEVELOPMENTOPPORTUNITIES. IT MEANS PROMOTING A HEALTHYWORK/LIFE BALANCE. IF WE GET ALL THIS RIGHT,EVERYONE BENEFITS; TIO, OUR STAFF AND OURCUSTOMERS.EMPLOYEE RECRUITMENT AND RETENTIONThe Northern Territory's strong economy in2006/2007 pushed the labour market close tocapacity. In an environment of nearly fullemployment, attracting and retaining the bestpeople has been challenging. Recognising this, ourHuman Resource department adopted a proactivestrategy. Recruitment initiatives includedcampaigns targeting schools and universities.Throughout the year training sessions were stagedso that TIO would have a pool of sales and servicestaff ready for timely deployment.We have sought innovative and targeted ways toimprove the effectiveness of recruitment. Forexample, our staff referral policy has proven tobe successful with 13% of appointments in 2006resulting from an existing employee referral.Staff turnover for the year to June 30 was 33.8%,against a target of 24%. Faced with a buoyantlabour market TIO is keenly aware of the needto provide an attractive workplace. Competitivewages and performance based pay incentives areessential tools, but TIO recognises employeesmake decisions based on factors beyond the purelyfinancial. We want our people to feel challengedand valued. We want them to know they work inan environment offering valuable personal growthand professional development opportunities.EARLY CAREER INITIATIVESTIO's recruitment philosophy includes activelyseeking the best and brightest from a young age.This year TIO expanded its intake of VET in Schoolprogram to seven students, including severalindigenous students. It enables students in Years11 and 12 to complete a Certificate II in Businesswhile still at school. Additionally students work oneday a week as interns within TIO.TRAINING AND DEVELOPMENT OFFICER SUE PRATT WITHNEW SALES CONSULTANT LOUISE MCCARTHYIn another school based initiative, TIO is againa mentor for Casuarina Senior College’s “practicefirm” program. This requires vocational studentsto effectively "run" their own business. TIO staffprovide expert advice on the intricacies of theinsurance business. As well as assisting thestudents, the program provides the opportunityfor students to get real work experience withinTIO and for our staff to gain valuable trainingexperience.34

072007 ANNUAL REPORTPERFORMANCE AND CAREER PLANNINGTIO reviewed the organisation's performance andcareer development system this year. The aim ofthis process is to align individual outcomes with ourstrategic plan and the behaviours we value. Eachyear TIO implements a professional developmentplan comprising training objectives for professionaldevelopment, coaching and mentoring.TRAINING AND DEVELOPMENTTIO’s performance and career development systemhelps identify training and development needs,enabling a planned approach. New initiatives thisyear included a “Leadership Essentials” course fornew and existing leaders to build their confidenceand build people management skills.TIO INVEST SIGNIFICANT RESOURCES IN TRAINING ITSEMPLOYEESTwo new trainees joined TIO’s Careers withDirections program in 2007. During their two yearprogram trainees gain experience in at least threedifferent placements within TIO’s various businessdivisions, helping them build their confidence topursue their career aspirations. Upon successfulcompletion of the program, trainees are awardeda Certificate III in Business.ORGANISATIONAL EFFECTIVENESSIn May 2007 we conducted our employeeengagement survey. The purpose is to measurethe extent to which our employees are passionateabout working for TIO. The results will guideour Human Resource strategies in the nextfinancial year.The result, a satisfaction rating of 61.3% wasslightly below the previous year’s 63.0%.Management is currently addressing the issuesof increased pressure on staff due to resourcesshortages, staff turnover and knowledge drain.The survey provides valuable feedback andidentifies opportunities for process and policyimprovements.Training and Development programs put into placethis year included:• Business courses (leadership, business writing,Coaching and PC Software).• Induction and orientation courses (TIO Today,Values Journey).• Compliance courses (Privacy Principles,Complaints and Disputes Resolution, RestrictiveTrade Practices, Fair Trading for FinancialServices, Anti-discrimination and Harassment).• Service, Sales and Procedure training forInsurance, Banking and Motor AccidentsCompensation.• In 2006/2007 TIO implemented a new policyrequiring all Tier 2 compliant employees toundergo an annual training plan. The aim isto ensure knowledge and skill levels areconstantly updated.Additionally TIO continued to support individualdevelopment opportunities for staff. There were afurther 25 graduates from our emerging leadersprogram and other tertiary courses. In 2006/200732 employees were given professionaldevelopment assistance including reimbursementof fees and study leave.35

Our People (continued)EQUAL EMPLOYMENT OPPORTUNITIES (EEO)TIO has comprehensive policy and procedureswhich ensure management and staff maintainan awareness of EEO requirements. All newemployees receive training within the first threemonths of employment on anti-discriminationlegislation. As a consequence in 2006/2007 TIOrecorded another year free of EEO complaints,claims or issues.WORK AND LIFE BALANCEWe recognise that our people have a wide rangeof family obligations and that these impact upontheir ability to manage both their work and theirpersonal responsibilities.Our work and family policies and benefits includeeight weeks paid parental leave and mutualnegotiation of work hours for part-time workarrangements wherever possible.EMPLOYEE KEN HATFIELD CELEBRATING 25 YEARS OFSERVICE WITH TIOWe encourage our people to talk with theirmanager to discuss any concerns they have, andto pursue options such as flexible working hours,In recognition of TIO’s significant contributionto learning and development, the organisationrepeated last year's success by again winningtwo prestigious training awards.• Employer of the Year 2006 - Northern TerritoryTraining Awards.• Industry Award for Excellence in Innovation andBusiness - 2006 Australian Training Awards.INDUSTRIAL RELATIONSTIO’s Certified Agreement is due to expire in June2008 and continues to work effectively in thecurrent employment market. In particularemployees value the flexibility it offers aroundachieving work/life balance.TIO is pleased to report that there were noemployee disputes or any unfair dismissal claimsagainst TIO during the 2006/2007 year.PALMERSTON BRANCH MANAGER, TOMMI HUSBAND, WINNEROF TIO’S OUTSTANDING LEADERSHIP AWARD, 2007.36

072007 ANNUAL REPORTfamily leave or staff counselling services to helpbetter manage work/life obligations.Our employees Assistance Program (EAP) providesconfidential counselling services for our people andtheir immediate families. Five percent ofemployees used the program in 2006/2007.OCCUPATIONAL HEALTH AND SAFETY (OHS)TIO’s OHS policy and procedures continue to beeffective with an extremely low rate of lost timethrough work related injuries. Over the past year,three claims resulted in a total of 29 lost days outof total of 61,200 work days. Two of the threeclaims were injuries sustained by employees ontheir way to or from the workplace. To maintain ourexcellent record of low workplace injuries, in2006/2007 TIO appointed OHS representatives ineach work location. This initiative has increasedworksite work safety assessments which are nowconducted every time a new employee commences.RECOGNITION AND AWARDSThe valuable contribution of employees and workteams is recognised through an Incentive Awards254 EMPLOYEES AS AT 30 JUNE 2007Finance,Administration& IT 44MAC 30FinancialPlanning 5Banking 30Sales & Marketing 57HumanResources 10Insurance 78program. These Awards are used to recogniseemployees demonstrating behaviours that supportTIO’s organisational culture and reinforce the sixvalues of service, integrity, accountability,improvement, teamwork and fun.A new incentive program titled the “Living OurValues Every Day” (LOVED) Awards was introducedin May 2007. Throughout the year, one of TIO’s sixcore values will be the focus of attention fora period of 2 months with employees nominatingwork colleagues who have consistentlydemonstrated a commitment to the values.THE YEAR AHEADStaff retention and attracting talented new recruitswill remain critical priorities in the year ahead.TIO's high profile in the community will assist theseendeavours, as will our on-going engagement withtertiary and secondary educational institutions andcareer expositions. Our focus on professionaldevelopment opportunities and creating achallenging and rewarding workplace will continue,guided by valuable feedback from our staff.EMPLOYEE OF THE YEAR 2006 - DUAL WINNERS BELINDA ARNOLDAND JESSICA MU BOTH FROM THE CLAIMS CENTRE AT WINNELLIEWhile the tightening labour market poses seriouschallenges, TIO remains committed to sourcing itsworkforce from the Territory. It will be Territorianswho take TIO forward.37

Major Community Sponsorships 2006/2007ROAD SAFETYThrough the Motor Accidents CompensationScheme TIO makes a significant contribution todriver education and road safety and this yearinvested $3.3 million in a broad range of programsoperated by the Northern Territory Road SafetyBranch and the Department of EducationEmployment and Training.SPORTAFLNT and Tiwi Bombers – The second year of theagreement between TIO and the AFLNT has seenthis sponsorship expand to sponsorship of the TiwiBombers team to play in the ‘Dreamtime at the G’in Melbourne. Sponsorship of the Tiwi Bombersteam has had a range of well documented positiveimpacts on the Tiwi community in general.The Northern Territory Sports Awards were againrecipients of major sponsorship support from TIO.The Sports Awards provide an opportunity torecognise sporting achievements and encouragejunior and senior sports men and women,administrators and volunteers in their chosen sport.V8 Supercars – This major community eventcelebrated a milestone with 10 years in theTerritory in 2006/2007 and TIO has been a sponsorsince its inception. TIO Motor AccidentsCompensation supports the event through the‘Driving Road Safety’ campaign, which encouragesattendees at the event to take the free bus service.The high profile biannual Arafura Games were heldin Darwin and attracted thousands of athletes fromacross South East Asia and beyond. The eventpromotes Darwin as a major tourist and trainingvenue and TIO has been supporting this eventsince its inception in 1991.ARTS AND CULTUREDarwin Entertainment Centre – TIO continued tosupport the development and appreciation of thearts in the Territory through ongoing funding ofthis major performing arts centre.Darwin Symphony Orchestra – the mission of thisprofessional volunteer orchestra is to contribute tothe development of a strong musical foundation inthe Northern Territory by taking their music to thepeople. Free concerts were held across theTerritory to fulfil this mission.Greek Glenti – TIO continues to support this verysuccessful cultural event which showcases andcelebrates the culture of a large Greek communityin the Northern Territory.Government House Foundation and the National TrustIcons Book – these sponsorships assist to preservethe Territory’s heritage and unique architecture.EDUCATION AND HEALTHCharles Darwin University (“CDU”) Scholarships –TIO’s Remote Scholarships provide Territorians inremote regions with access to CDU’s highlyregarded tertiary facilities to undertake studies intheir chosen field.Top End Life Education – TIO has had a long historyof supporting this primary school based program.The program focuses on promoting and educatingyoung Territorians on lifestyle choices includinghealthy eating and the dangers of drugs and tobacco.COMMUNITYNeighbourhood Watch – TIO is the major sponsor andsupporter of this volunteer organisation that aims toreduce crime across all Territory communities.Baby Capsules – The Motor AccidentsCompensation Scheme provides new parents inDarwin, Alice Springs, Katherine and Nhulunbuywith access to affordable safety capsules that areproven to reduce injury in the case of accidents.The Young Achiever Awards recognise theachievements of young Territorians – across arange of disciplines including sport, science, theenvironment and technology. TIO has had a longterm relationship with these Awards as part of anongoing focus on developing opportunities andsupporting young Territorians.38

Our Other Community Sponsorships 2006/2007AIMAIOPAlice Springs Golf ClubAlice Springs MarathonBarunga FestivalBeat the HeatBusiness Enterprise CentreCasuarina Senior CollegeChinese New YearDarwin Press ClubDarwin Triathlon ClubDuke of Edinburgh AwardsExplain Pain WorkshopFestival of DarwinFoster Care Christmas PartyGarma FestivalGuitar FestivalJunior Pony ClubKatherine Country Music MusterKeep Australia BeautifulKiwanis ClubLeukaemia FoundationLife Be In ItLions Club - Children’s Film FestivalLions Club of DarwinLord's Taverners NT BranchNhulunbuy Rotary ClubNT Breathe Easy StarsNT CricketNT Emergency Services - Alice SpringsNT NetballNT Orchid SpectacularNT Rugby UnionNT Seniors MonthNT Triathlon ClubNTRU - TIO Regional ChampionshipsOrganic Growers & Consumers AssocPalmerston FestivalNT CRICKETDARWIN SYMPHONY ORCHESTRANTRU - REGIONAL CHAMPIONSHIPSARAFURA GAMES39

Corporate GovernanceJOHN FLYNNCHAIRMAN (APPOINTED 2002), BOARD MEMBER SINCE OCTOBER 2000’ MEMBER OF THE INVESTMENTCOMMITTEE, CHAIRMAN OF THE REMUNERATION, NOMINATION AND SUCCESSION COMMITTEEBetween 1979 and 1998, John was the Public Trustee of the Northern Territory. He hasalso been the Chief Executive Officer of the Courts Administration Authority of theNorthern Territory. Between 1997 and 1999, John was the Chairman of the TerritoryMutual Building Society. John is a Director of the Larrakia Development Corporation andholds the position of Chair with the Northern Territory Catholic Church Diocesan FinanceCouncil. Along with being a member of the Northern Territory Parole Board since 1975,he held the position of Chairman of Northern Territory Licensing Commission.JAMES NOONAN LL.BDEPUTY CHAIRMAN (TO 31 JULY 2007), BOARD MEMBER SINCE JULY 1990 – TERM EXPIRED ON 31JULY 2007, CHAIRMAN OF THE AUDIT & RISK COMMITTEE (TO 31 JULY 2007)James has been the principal of Noonan’s Lawyers since inception in 1984. James’ practicehas focused primarily on general commercial advice and litigation, including insuranceand reinsurance matters. James is a member of the Northern Territory Law Society.James has acted for local, national and international companies, Government andGovernment authorities in relation to complex commercial arrangements, negotiationsand commercial litigation. James is also a Director of a number of companies in relationto his legal practice.JOHN TSOUROUTIS B. ECON., FAICD, FAIM, FIFSMANAGING DIRECTOR, CHIEF EXECUTIVE (APPOINTED MARCH 2003), BOARD MEMBER SINCESEPTEMBER 2003, MEMBER OF THE INVESTMENT COMMITTEE, MEMBER OF THE REINSURANCECOMMITTEEJohn has extensive experience in the financial services sector. Between 1991 and 1995,John was Group Managing Director and Chief Executive Officer for the Manchester UnityFinancial Group. John was the Chief Executive Officer for the Savings and Loan CreditUnion between 1995 and 1999. He was previously the General Manager for SharedServices, Australia and Asia Pacific, for BHP Billiton.DENISE FINCHAMBOARD MEMBER SINCE FEBRUARY 2002, MEMBER OF THE AUDIT & RISK COMMITTEEMEMBER OF THE REMUNERATION, NOMINATION AND SUCCESSION COMMITTEEDenise is a member of the East Arnhem Regional Development Board. She is alsocurrently the Managing Director of Gorkkbuy Industrial Supplies in Nhulunbuy, NorthernTerritory. Denise’s involvement in and around the community of Nhulunbuy is wellrecognised having served on several community groups in the past. Denise won theNorthern Territory Telstra Business Woman of the Year in 1996.JOHN MESSENGER ANZIIF (SNR ASSOC), CIPDEPUTY CHAIRMAN (FROM 1 AUGUST 2007), BOARD MEMBER SINCE FEBRUARY 2002, MEMBER OFTHE AUDIT & RISK COMMITTEE, CHAIRMAN OF THE REINSURANCE COMMITTEE, MEMBER OF THEREMUNERATION, NOMINATIONS AND SUCCESSIONS COMMITTEEJohn has extensive international insurance and risk management experience. Between1986 and 1995 John was the Managing Director of MLC Insurance Limited and Director ofLend Lease Learning Pty Ltd. From 1997 until 2001 he was the Chief Executive Officer ofCorporate Risk Management for the Lend Lease Group. John is a Director of Calliden GroupLimited and of Investa Properties Group Limited.40

072007 ANNUAL REPORTRICHARD RYAN AO, FCABOARD MEMBER SINCE DECEMBER 2002, MEMBER OF THE AUDIT & RISK COMMITTEE,MEMBER OF THE REMUNERATION, NOMINATIONS AND SUCCESSIONS COMMITTEERichard is a Fellow of the Institute of Chartered Accountants in Australia, and a Companionof the Institution of Engineers, Australia and a Companion of the Institute of Management(UK). He is Chairman of Editure Limited, Lincoln Minerals Ltd, and Auspep Holdings Ltd.Richard is also Chancellor of Charles Darwin University.BRUCE CARTER B. EC, MBABOARD MEMBER SINCE SEPTEMBER 2006CHAIRMAN OF THE AUDIT AND RISK COMMITTEE (FROM 1 AUGUST 2007)Bruce is the Managing Partner of Ferrier Hodgson in South Australia, a Fellow of theInstitute of Chartered Accountants, Chairman of the WorkCover Corporation SouthAustralia, President of the National Heart Foundation, a Board Member of South AustraliaMotor Sports and various private entities.ROGER DAVIS B. EC (HONS), CPA, M. PHIL (OXON)BOARD MEMBER SINCE SEPTEMBER 2006CHAIRMAN OF THE INVESTMENT COMMITTEE (FROM SEPTEMBER 2006)Roger is a Consulting Director at Rothschild Australia Ltd, is past Chairman of PenganaHedgefunds Ltd and Korea Exchange Bank Australia Ltd and is a Director of MacquarieOffice Management Ltd, Aristocrat Leisure Ltd and Trust Company Ltd. He also hasinterests in several other private companies. His previous Board experience includes theChairmanship of Esanda and Directorships of ANZ (New Zealand) Ltd. Cititrust in Japanand Citicorp Securities Inc in the US.SHEILA O’SULLIVAN BA, FPRIA, MIPRABOARD MEMBER SINCE SEPTEMBER 2006MEMBER OF THE AUDIT AND RISK COMMITTEE (FROM SEPTEMBER 2006)Sheila is Chairman of Socom Pty Ltd, which she founded in 1994. It is now one ofAustralia’s leading Public Relations companies. She is a member of Vision 2020 Australiaand the Museums Board of Victoria. Sheila is the President of the College of Fellows ofthe Public Relations Institute of Australia and the Chairman of the World Jury for theGolden World Awards of the International Public Relations Association. She is the holderof the Centenary of Federation Medal and was listed in 2004 on the Victorian Honour Rollof Women.JOHN HAND AAII CIPBOARD MEMBER SINCE SEPTEMBER 2006 (BEING THE MOTOR ACCIDENTS COMPENSATION MEMBER)MEMBER OF THE INVESTMENT COMMITTEE, MEMBER OF THE AUDIT AND RISK COMMITTEEMEMBER OF THE REINSURANCE COMMITTEEJohn is the Insurance Commissioner with Queensland Treasury. He has 35 years insuranceexperience predominately in liability insurances, personal accident compensation schemesof workers’ compensation and compulsory third party motor vehicle insurance. Since theearly nineties he has been in policy development and involved in reviews of statutoryinsurance schemes.41

Governance PrinciplesAUSTRALIAN SECURITIES EXCHANGE CORPORATE GOVERNANCE COUNCIL’S PRINCIPLESTIO CompliancePrinciple 1 Lay solid foundations for management and oversight ✓Principle 2 Structure the Board to add value ✓Principle 3 Promote ethical and responsible decision-making ✓Principle 4 Safeguard integrity in financial reporting ✓Principle 5 Make timely and balanced disclosure ✓Principle 6 Respect the rights of shareholders ✓Principle 7 Recognise and manage risk ✓Principle 8 Encourage enhanced performance ✓Principle 9 Remunerate fairly and responsibly ✓Principle 10 Recognise the legitimate interest of stakeholders✓THE TERRITORY INSURANCE OFFICE (TIO) IS COMMITTEDTO THE CONTINUAL DEVELOPMENT OF ITS CORPORATEGOVERNANCE PROCESSES. GUIDANCE SUCH ASSTANDARDS AUSTRALIA’S GOOD GOVERNANCE PRINCIPLESAND THE ASX’S PRINCIPLES OF GOOD CORPORATEGOVERNANCE ARE IMPORTANT CONTRIBUTORS TO THEEVOLUTION OF GOVERNANCE PRACTICES WITHIN TIO.WHILE THE ASX PRINCIPLES ARE TARGETED AT LISTEDCOMPANIES AND THEREFORE TIO IS NOT REQUIRED TOCOMPLY, THEY PROVIDE AN INSIGHTFUL FRAMEWORK FORPRESENTING AND BENCHMARKING TIO’S GOVERNANCEINITIATIVES AND PRACTICES.PRINCIPLE 1: LAY SOLID FOUNDATIONS FORMANAGEMENT AND OVERSIGHTRECOGNISE AND PUBLISH THE RESPECTIVE ROLES ANDRESPONSIBILITIES OF THE BOARD AND MANAGEMENT.The functions of TIO are as follows:• Act as the insurer in respect of the assets andprospective liabilities of the Territory andstatutory corporations;• Transact workers compensation insurance inrespect of persons required by the provisions ofthe Work Health Act, or any Act replacing that Act;• Administer a motor accident compensation schemein accordance with an Act or an agreementbetween the Office and the person or the bodyresponsible for the scheme;• Carry out such functions in relation to themanagement and controls of monies and otherassets of the Territory and statutory corporations,and on such terms and conditions as the Minister,in writing, directs;• Provide such financial services as are approved bythe Minister;• Transact such general business of insurance as theMinister directs;• Promote and participate in the promotion of roadand industrial safety; and• Such other functions as are, from time to time,imposed upon it by or under any other Act.The Board is responsible for the overall corporategovernance of TIO including formulating its strategicdirection, approving and monitoring capitalexpenditure, establishing and monitoring the integrityof internal control and management informationsystems. It is also responsible for the appointment,remuneration and performance evaluation of the ChiefExecutive. The Board has delegated responsibility forthe operation and administration of TIO to the ChiefExecutive and executive management. Responsibilitiesare delineated by formal authority delegations.PRINCIPLE 2: STRUCTURE THE BOARD TO ADDVALUEHAVE A BOARD OF AN EFFECTIVE COMPOSITION, SIZEAND COMMITMENT TO ADEQUATELY DISCHARGE ITSRESPONSIBILITIES AND DUTIES.The Board consists of not less than six membersappointed by the Minister pursuant to the Act.Appointments are made by the Minister for a periodnot exceeding three years, after which time they areeligible for reappointment. The expertise of current42

072007 ANNUAL REPORTand potential Board Members is a key considerationfor appointment to ensure that there is a strongcomplement of skills and experience in the differentareas of TIO’s business. Currently the Board consistsof nine non-executive members and one executivemember. One of the members is designated as theMotor Accidents Compensation Scheme Member withspecial responsibilities to represent the interests of theMotor Accidents Compensation Scheme Fund to theexclusion of the remainder of the TIO Group.Under the Act, the Chairman and Deputy Chairmanare appointed by the Minister with the Chief Executivebeing ineligible for appointment to these offices.Board Members may resign by written notice to theMinister and can have their membership of the Boardterminated by the Minister. The Board has establishedfour committees with specific Terms of Reference(Audit & Risk Committee, Investment Committee,Reinsurance Committee, and a Remuneration,Nomination & Succession Committee) to assistand support the Board in the conduct of its duties.The Committees allow a more concerted focus andconsideration of critical elements of the Board’sresponsibilities.The Board Audit & Risk Committee monitors andreviews the effectiveness of TIO’s control environmentin the areas of financial management and reporting,reinsurance, actuarial valuations, risk management,compliance and internal control. Under theCommittee’s Terms of Reference, the majority ofmembers must be independent, non-executive BoardMembers of TIO. In accordance with good governanceprinciples, the Board Chairman and the ChiefExecutive cannot be members of the Committee butare able to attend.The Auditor-General of the Northern Territory andActuary (PriceWaterhouseCoopers) have the right toattend Audit and Risk Committee meetings exceptin circumstances where there could be a perceivedconflict of interest.The Board Investment Committee is responsible forTIO’s Investment Policy including the establishmentof fund objectives, asset allocation principles,development of risk parameters, diversificationoptions and the setting of investment guidelines.The investment portfolio responsibility relates to the‘commercial business’ (in particular, insurance) andthe Motor Accidents Compensation Scheme Business(relating to the Motor Accidents CompensationScheme). The Committee regularly reviews theperformance of the portfolio and is responsible for theappointment and evaluation of the fund managers.The Board Reinsurance Committee is responsible forTIO’s reinsurance matters, including advising theBoard on appropriate reinsurances consistent withTIO’s operations, relevant prudential standards andthe expectations of the Government. The Committeeregularly reviews the placement and performance ofTIO’s reinsurance program in relation to insuranceand the Motor Accidents Compensation Fund. ThisCommittee was established in March 2007.The Board Remuneration, Succession and NominationCommittee is responsible for providing advice to theBoard relating to the appointment, remuneration andperformance evaluation of the Chief Executive.Further, this Committee ensures that appropriatesuccession plans and executive level remunerationpolicies are in place and are effective. Finally, theCommittee also assists the Minister in relation toproviding recommendations as to potential BoardMembers and their associated expertise designed toassist the Board in the execution of its responsibilities.This Committee was established in March 2007.PRINCIPLE 3: PROMOTE ETHICAL ANDRESPONSIBLE DECISION-MAKINGACTIVELY PROMOTE ETHICAL AND RESPONSIBLEDECISION-MAKING.TIO has adopted a vision and a set of values whichunderpin and provide conceptual guidance in pursuingthe vision. A suite of policies and proceduresadditionally strengthen the decision-making context.TIO is an equal opportunity employer whichrecognizes that its strength lies in the rich diversityand experiences of its employees. Employmentrelated decisions within TIO are consistent with thespecific requirements of Northern Territory andCommonwealth legislation. Board Members,management and employees are expected to actethically and responsibly and with the utmostintegrity. The Board plays a key role in upholdingthe values of TIO and promoting high standards ofcorporate and business ethics.The Board may engage consultants to provideindependent professional advice in any aspect ofTIO’s operations. Under the Act, Board Members havea general duty of disclosure in relation to dealings orcontracts with TIO and directorships of othercompanies. A register of these interests is maintained.Additionally, members must keep the Board informed,43

Governance Principles (continued)on an ongoing basis, of any interest that couldpotentially conflict with those of TIO. Where the Boardbelieves that a significant conflict exists for a BoardMember on a Board matter, the member concernedmust not be present during any deliberation ordecision of the Board in relation to the matter. Inrelation to the Board Audit & Risk Committee, themembers have free and unfettered access to seniormanagement, the Internal Auditor, the heads of allrisk management functions, the Approved Actuaryand the Auditor-General and vice versa.In addition to the corporate values, staff areguided in their behaviour and decision-making byboth industry specific and corporate codes ofconduct. TIO’s Guide to Business Conduct obligesmanagement and employees to report any seriousbreach of legislation, policies or corporateinstructions. To facilitate this, guidance is providedon where to go for assistance, how the disclosurewill be dealt with and the application of naturaljustice principles. TIO is committed toinvestigating any such disclosures and protectingthe “whistleblower” from any adverse behaviour.PRINCIPLE 4: SAFEGUARD INTEGRITY INFINANCIAL REPORTINGHAVE A STRUCTURE TO INDEPENDENTLY VERIFY ANDSAFEGUARD THE INTEGRITY OF THE COMPANY’SFINANCIAL REPORTING.The Board Audit & Risk Committee has oversightresponsibility for TIO’s financial management andreporting. TIO has engaged professional servicesfirm, Deloitte, as its internal audit provider. Theintegrity of information is an underlying foundationof all internal audits with a financial component.Under the Act, external audit of TIO’s financialstatements is conducted by auditors appointed bythe Auditor-General of the Northern Territory. TheAuditor-General prepares an annual Audit Reportdetailing the scope, approach and opinion on TIO’sfinancial accounts. This is supplemented byInterim Audit Reports (Management Letters) whichare produced throughout the year at theconclusion of elements of the audit fieldwork. TIOhas an annual process whereby the GeneralManagers make written representations to theChief Executive regarding the accuracy andintegrity of the financial accounts. Thisrepresentation, along with the Chief Executive’sendorsement, is presented to the Board Audit andRisk Committee.PRINCIPLE 5: MAKE TIMELY AND BALANCEDDISCLOSUREPROMOTE TIMELY AND BALANCED DISCLOSURE OF ALLMATERIAL MATTERS CONCERNING THE COMPANY.Under the Act, the Board is required to meet as manytimes as is necessary for the exercise of its powersand the performance of its functions. The intervalbetween one meeting and the next must not exceedtwo months. Standing agenda items include financialand operational reports for each business unit.Submissions are circulated in advance and executivesare regularly involved in Board discussions. The BoardChairman and the Chief Executive meet regularly withthe Minister to discuss the performance of TIO.TIO reports quarterly to the Treasurer under aprudential standard regime that closely mirrorsrelevant Australian Prudential Regulation Authority(APRA) prudential standards. In addition to the formalprudential reporting, TIO maintains regular liaisonwith the Northern Territory Treasury. TIO produces anannual report and financial statement to the Ministerin accordance with the Act and this is tabled in theLegislative Assembly.PRINCIPLE 6: RESPECT THE RIGHTS OFSHAREHOLDERSRESPECT THE RIGHTS OF SHAREHOLDERS ANDFACILITATE THE EFFECTIVE EXERCISE OF THOSE RIGHTS.TIO is owned by the Northern Territory Governmentand was established as a body corporate under theTIO Act. TIO maintains effective communicationwith the Northern Territory Government through itsmeetings with and reporting to the Minister.TIO maintains Statements of Corporate Intentwhich are rolling three-year plans setting out theobjectives, performance criteria and financialtargets for TIO. A Statement of Corporate Intent isproduced for the ‘commercial business’ (ieInsurance and Banking) as well as one for theMotor Accidents Compensation Scheme Business.Before the commencement of each financial yearthe Statement is reviewed and approved by theBoard and a copy provided to the Minister forapproval. The Minister has the right to direct TIOin the performance of its functions and exercisingof its powers to the extent provided for in theTIO Act and other applicable legislation. Copiesof these directions must be tabled in theLegislative Assembly.44

072007 ANNUAL REPORTIn addition, and as a result of changes to thelegislation in 2006, TIO provides a report to theMinister within 3 months of the end of the financialyear relating to the applicable Statement ofCorporate Intent.PRINCIPLE 7: RECOGNISE AND MANAGE RISKESTABLISH A SOUND SYSTEM OF RISK OVERSIGHT ANDMANAGEMENT AND INTERNAL CONTROL.The Board Audit & Risk Committee has responsibilityfor oversight of TIO’s risk management systems andprocesses. The Committee has adopted a RiskManagement Framework, based on the AustralianStandard, setting out the policies and procedures forrisk management, assessment criteria and tolerance(or acceptance levels).An enterprise-wide approach to identifying the keycorporate risks has been conducted. The resultingrisks are recorded in a risk register and allocated toresponsible officers for management. A rolling threeyearInternal Audit Plan is reviewed annually andbased on the results of the enterprise wide riskassessment. The Board Audit & Risk Committeereviews the status of the Plan at each meeting alongwith audit reports from TIO’s internal audit provider,Deloitte, and other third-party auditing organisations.The representation process detailed in the responseto Principle 4 contains specific assertions regardingthe adequacy and effectiveness of the riskmanagement, internal control and compliancesystems and processes.The Board, in March 2007, further recognised theimportance of managing risks through the creation ofa Reinsurance Committee. This Committee ensuresthat appropriate transfer of risk, through the use ofreinsurance, in order to protect TIO from significantevents that might impact on its insurance or MotorAccidents Compensation Scheme Business.PRINCIPLE 8: ENCOURAGE ENHANCEDPERFORMANCEFAIRLY REVIEW AND ACTIVELY ENCOURAGE ENHANCEDBOARD AND MANAGEMENT EFFECTIVENESS.The business performance of TIO is continuallymonitored and regularly reported at both amanagement and Board level. Through the BoardRemuneration, Nomination & Succession Committee,the Board Chairman annually reviews theperformance of individual Board Members. In turn theCommittee also reviews the performance of the BoardChairman and the Chief Executive annually. Thestructure of the Chief Executive’s evaluation isconsistent with TIO’s Performance Review processunder which every employee’s performance isformally assessed on a biannual basis. A strongcommitment to the professional development of staffin terms of technical and personal effectiveness existsand this is linked to the Performance Review process.PRINCIPLE 9: REMUNERATE FAIRLY ANDRESPONSIBLYENSURE THAT THE LEVEL OF COMPENSATION ISSUFFICIENT AND REASONABLE AND THAT ITSRELATIONSHIP TO CORPORATE AND INDIVIDUALPERFORMANCE IS DEFINED.The remuneration of Board Members is determined bythe Minister and the Chief Executive’s remuneration isdetermined by the Board after consultation with andagreement by the Minister. The Board Remuneration,Nomination & Succession Committee make relevantrecommendations to the Board on this and severalother matters. All general and senior managers areemployed on performance-based contracts.Performance criteria incorporating both corporate andposition accountability elements are encapsulated inagreed annual performance plans. TIO has extendedperformance-based assessment and remuneration toall employees.PRINCIPLE 10: RECOGNISE THE LEGITIMATEINTERESTS OF STAKEHOLDERSRECOGNISE LEGAL AND OTHER OBLIGATIONS TO ALLLEGITIMATE STAKEHOLDERS.TIO has developed a compliance culture and systemsaimed at identifying, actioning and reporting on thelegislative, contractual and other obligations that TIOhas to its stakeholders. The liaison and reportingprocesses between TIO, the Minister and the NorthernTerritory Treasury have been outlined in the precedingPrinciples. Recognising the important role it plays inthe Northern Territory and the lives of Territorians,TIO has adopted a Triple Bottom Line (economic,social and community) approach in the establishmentof its key result areas. TIO acknowledges itsobligations to the Northern Territory community andcontributes in terms of supporting community andsporting events and in the areas of road safety andaccident prevention.45

FinancialStatementsYear ended 30 June 2007IncomeStatementpage 48Statement ofChanges in Equitypage 50Notes to FinancialStatementspage 52BoardMember’s Reportpage 107BalanceSheetpage 49Cash FlowStatementpage 51Chief Executive & BoardMember’s Statementpage 106Auditor General’sReportpage 110Territory Insurance OfficeABN 72 532 995 67847

Income Statement for the year ended 30 June 2007Notes 2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Revenue 5 242,863 150,397 97,659 225,786 145,674 84,925Outwards reinsurancepremium expense (34,162) (25,986) (8,176) (31,515) (23,947) (7,568)Claims expense 22 (68,534) (31,954) (36,580) (82,485) (46,870) (35,615)Acquisition costs (6,428) (5,917) (511) (5,995) (5,189) (806)Grants provided to fund roadsafety programs (3,261) - (3,261) (2,374) - (2,374)Finance costs (32,518) (32,518) - (26,292) (26,243) (49)Depreciation and amortisation expense (2,511) (2,511) - (1,716) (1,716) -Salaries and employee benefits expense (18,556) (18,556) - (17,076) (17,076) -Other expenses (6,203) (4,812) (6,584) (6,929) (5,372) (6,371)Profit before income tax 70,690 28,143 42,547 51,404 19,261 32,143Income tax expense 10 (9,167) (9,167) - (6,266) (6,266) -Net Profit for the year 61,523 18,976 42,547 45,138 12,995 32,143The above Income Statement should be read in conjunction with the accompanying notes.48

Balance Sheet as at 30 June 2007CURRENT ASSETSNotes 2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Cash and cash equivalents 11 29,941 23,681 6,260 23,602 16,923 6,679Trade and other receivables 12 39,717 38,428 1,448 36,830 37,472 1,681Other financial assets 13 528,941 225,296 303,645 420,495 162,271 258,224Loans 14 18,381 18,381 - 17,106 17,106 -Reinsurance and other recoveriesreceivable 18 11,003 9,074 1,929 17,940 16,940 1,000Deferred reinsurance expense 19 17,890 17,890 - 15,613 15,613 -Deferred acquisition costs 19 3,778 3,579 199 3,348 3,348 -Total Current Assets 649,651 336,329 313,481 534,934 269,673 267,584NON-CURRENT ASSETSOther financial assets 13 1,986 1,986 - 2,101 2,101 -Investment property 15 40,564 - 40,564 38,602 - 38,602Intangible assets 16 806 806 - 988 988 -Loans 14 500,590 500,590 - 459,068 459,068 -Property, plant and equipment 17 37,935 37,932 3 34,189 34,171 18Reinsurance and other recoveriesreceivable 18 33,050 9,349 23,701 31,308 8,232 23,076Deferred tax assets 10 3,445 3,445 - 3,092 3,092 -Total Non-Current Assets 618,376 554,108 64,268 569,348 507,652 61,696Total Assets 1,268,027 890,437 377,749 1,104 ,282 777,325 329,280CURRENT LIABILITIESOutstanding claims liability 20 59,616 30,045 29,571 59,905 32,567 27,338Trade and other payables 23 32,386 26,024 6,521 31,969 27,627 6,665Deposits 24 375,565 375,565 - 507,689 507,689 -Other financial liabilities 13 799 799 - - - -Current tax liabilities 10 7,839 7,839 - 4,354 4,354 -Provisions 25 3,770 3,770 - 4,283 3,899 384Unearned premium liability 21 64,918 45,020 19,898 61,010 42,212 18,798Securitisation liabilities 26 3,036 3,036 - - - -Total Current Liabilities 547,929 492,098 55,990 669,210 618,348 53,185NON-CURRENT LIABILITIESOutstanding claims liability 20 279,405 75,465 203,940 283,344 82,521 200,823Deferred tax liabilities 10 4,748 4,748 - 3,947 3,947 -Provisions 25 685 685 - 584 584 -Securitisation liabilities 26 219,995 219,995 - - - -Subordinated loans 27 19,817 19,817 - 18,461 18,461 -Total Non-Current Liabilities 524,650 320,710 203,940 306,336 105,513 200,823Total Liabilities 1,072,579 812,808 259,930 975,546 723,861 254,008Net Assets 195,448 77,629 117,819 128,736 53,464 75,272EQUITYRetained earnings 168,896 51,077 117,819 107,373 32,101 75,272Asset revaluation reserve 10,060 10,060 - 4,871 4,871 -Contributed equity 16,492 16,492 - 16,492 16,492 -Total Equity 195,448 77,629 117,819 128,736 53,464 75,272The above Balance Sheet should be read in conjunction with the accompanying notes.49

Statement of Changes in Equity for the year ended 30 June 2007TIOAssetRetained Revaluation ContributedEarnings Reserve Equity Total$’000 $’000 $’000 $’000Balance at 1 July 2005 62,235 1,708 16,492 80,435Income and expenses recognised directly in equity during the yearRevaluation of property, plant and equipment - 3,163 - 3,163Total income recognised directly in equity - 3,163 - 3,163Net Profit for the year 45,138 - - 45,138Total recognised income and expense for the year 45,138 3,163 - 48,301Balance as at 30 June 2006 107,373 4,871 16,492 128,736Income and expenses recognised directly in equity during the yearRevaluation of property, plant and equipment - 5,189 - 5,189Total income recognised directly in equity - 5,189 - 5,189Net Profit for the year 61,523 - - 61,523Total recognised income and expense for the year 61,523 5,189 - 66,712Balance as at 30 June 2007 168,896 10,060 16,492 195,448TIO Insurance & BankingAssetRetained Revaluation ContributedEarnings Reserve Equity TotalBalance at 1 July 2005 19,106 1,708 16,492 37,306Income and expenses recognised directly in equity during the yearRevaluation of property, plant and equipment - 3,163 - 3,163Total income recognised directly in equity - 3,163 - 3,163Net Profit for the year 12,995 - - 12,995Total recognised income and expense for the year 12,995 3,163 - 12,995Balance as at 30 June 2006 32,101 4,871 16,492 53,464Income and expenses recognised directly in equity during the yearRevaluation of property, plant and equipment - 5,189 - 5,189Total income recognised directly in equity - 5,189 - 5,189Net Profit for the year 18,976 - - 18,976Total recognised income and expense for the year 18,976 5,189 - 24,165Balance as at 30 June 2007 51,077 10,060 16,492 77,629MAC FundAssetRetained Revaluation ContributedEarnings Reserve Equity TotalBalance at 1 July 2005 43,129 - - 43,129Income and expenses recognised directly in equity during the yearRevaluation of property, plant and equipment - - - -Total income recognised directly in equity - - - -Net Profit for the year 32,143 - - 32,143Total recognised income and expense for the year 32,143 - - 32,143Balance as at 30 June 2006 75,272 - - 75,272Income and expenses recognised directly in equity during the yearRevaluation of property, plant and equipment - - - -Total income recognised directly in equity - - - -Net Profit for the year 42,547 - - 42,547Total recognised income and expense for the year 42,545 - - 42,547Balance as at 30 June 2007 117,819 - - 117,819The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.50

Cash Flow Statement for the year ended 30 June 2007Notes 2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Cash flows from operating activitiesPremiums received 137,316 82,737 54,579 130,822 78,204 52,618Outwards reinsurance premiums paid (36,364) (27,814) (8,550) (33,114) (25,205) (7,909)Claims paid (75,376) (42,635) (32,741) (69,253) (43,843) (25,410)Reinsurance recoveries received 16,468 14,543 1,925 11,186 10,117 1,071Trust distributions received 36,877 7,513 29,364 22,716 6,134 16,582Interest received 11,731 8,128 3,603 9,429 5,904 3,525Rentals received 7,473 3,813 5,426 6,455 3,330 4,864Other income received 7,444 7,086 358 6,934 6,540 394Acquisition costs paid (7,392) (6,643) (749) (6,881) (6,054) (827)General and administration expenses paid (26,777) (19,362) (9,181) (23,686) (18,699) (6,726)Funding for road safety programs paid (2,297) - (2,297) (1,857) - (1,857)Goods and services tax paid (7,258) (4,948) (2,310) (6,629) (3,174) (3,456)Monies held on trust received / (paid) (1,588) (1,588) - 2,184 2,184 -Interest expense paid (31,293) (31,293) - (25,533) (25,533) -Interest income received from loans 35,730 35,730 - 30,556 30,556 -Income Tax paid (5,234) (5,234) - - - -Net cash inflow fromoperating activities 31 59,460 20,033 39,427 53,329 20,461 32,869Net Cash flows from investing activitiesNet loans extended to customers (43,039) (43,039) - (53,573) (53,573) -Net (payments) / receipts for investments (104,023) (59,461) (44,562) (36,217) (13,447) (22,765)Payments for property, plant and equipment (1,055) (1,071) 16 (2,332) (2,338) -Proceeds from sale of investment property 4,700 - 4,700 - - -Proceeds from sale of property,plant and equipment 69 69 - 143 143 -Net cash outflow from investing activities (143,348) (103,502) (39,846) (91,979) (69,215) (22,765)Cash flows from financing activitiesNet increase/(decrease) in savings andother deposit accounts (133,391) (133,391) - 48,798 48,798 -Repayment of subordinated loan - - - (11,108) - (11,108)Net funds received from securitisation funding 223,618 223,618 - - - -Net cash flow from/(used in)financing activities 90,227 90,227 - 37,690 48,798 (11,108)Net increase (decrease) in cash held 6,339 6,758 (419) (960) 44 (1,004)Cash at the beginning of the financial year 23,602 16,923 6,679 24,562 16,879 7,683Cash at the end of the financial year 11 29,941 23,681 6,260 23,602 16,923 6,679The above Cash Flow Statement should be read in conjunction with the accompanying notes.51

Notes to the Financial Statements 30 June 20071. CORPORATE INFORMATIONThe Territory Insurance Office (TIO) was establishedin 1979 by virtue of section 4 of the TerritoryInsurance Office Act (TIO Act). TIO is domiciled in theNorthern Territory. The principal activities of the officeare the operation of the following businesses;Insurance, Banking and administration of the MotorAccidents Compensation Fund (MAC Fund).TIO is only authorised to transact business and carryout functions as provided in the TIO Act or asapproved or directed by the Minister. Its policies andcontracts of insurance or indemnity and depositsplaced with it are fully guaranteed by the NorthernTerritory Government under section 30 of the TIO Act.TIO Head Office & Principal Place of Business24 Mitchell Street, DARWIN2. SUMMARY OF SIGNIFICANTACCOUNTING POLICIES2.1 Basis of PreparationThe financial report is a general purpose financialreport which has been prepared in accordance withthe TIO Act, Australian Accounting Standards,including Australian Accounting Interpretations andother authoritative pronouncements of the AustralianAccounting Standards Board (AASB). The principalaccounting policies adopted are consistent with thoseof the previous year, except where otherwise stated.Accounting Standards include Australian Equivalentsto International Financial Reporting Standards(AIFRS). Compliance with AIFRS ensures that thefinancial statements and notes of the TIO comply withInternational Financial Reporting Standards (IFRS).This general-purpose financial report was authorisedby the Board for issue on 25 September 2007.The financial report has been prepared in accordancewith the fair value basis of accounting with certainexceptions as described in the accounting policies setbelow at Note 2.3. Balances among TIO Insurance& Banking and the MAC Fund are gross of interbusinesstransactions and in the TIO balance (whichis the combined total of TIO Insurance & Banking andthe MAC Fund as a whole) the inter-businesstransactions are eliminated.Fiduciary Responsibilities in respect of theMotor Accidents Compensation FundTIO administers the MAC Scheme pursuant to section5(c) of the TIO Act. The MAC scheme is created bythe Motor Accidents (Compensation) Act. Recentamendments to the TIO Act have established theMotor Accidents Compensation Fund (MAC Fund) andother requirements around the operation of the fund.On establishment of the MAC Fund on 1 July 2006, allassets allocated for the MAC business became part ofthe MAC Fund. The establishment of the MAC Funddid not create a trust and TIO, and the Members arenot trustees in relation of the MAC Fund.Pursuant to Section 22C of the TIO Act, the assets ofthe fund must be solely applied for the followingpurposes:• Operating the MAC scheme;• The promotion of road safety;• The acquisition of assets for the MAC Fund;• The discharge of liabilities in relation to the MACbusiness.Amendments to the TIO Act established that theAnnual Report of TIO must consist of:a) a report for the Territory Insurance Office as awhole; andb) a separate report for the commercial business andc) a separate report for the MAC business.TIO has addressed its obligations under the TIO Act bysegregating the assets and liabilities of the MAC Fundand presenting in the financial report the aboveinformation requirements using a 6 column approach.The disclosures for both TIO (Insurance and Banking)and the MAC Fund are their stand alone results andbalances and necessarily disclose all transactions thatoccur between the two business activities.Accounting policies applicable to both TIO and theMAC Fund are outlined throughout Note 2.3.2.2 Australian Accounting Standards issuedbut not yet effectiveThe AASB has issued the following amendments toAustralian Accounting Standards which are applicableto TIO:52

Notes to the Financial Statements 30 June 2007Amendment - AASB 7Title - “Financial Instruments: Disclosures” andconsequential amendments to other standardsresulting from its issueEffective for Annual Reporting periodsBeginning on or after 1 January 2007Amendment - AASB 101Title - “Presentation of Financial Statements” revisedstandardEffective for Annual Reporting periodsBeginning on or after 1 January 2007These amendments are not effective for the annualreporting period ending 30 June 2007 and have notbeen applied in preparing TIO’s financial statements.The nature and impact of the application of thesestandards is disclosure only, and TIO will apply themfor the annual reporting periods beginning on or afterthe operative dates indicated above. It is expectedthat there will be no material financial impact fromthe application of these standards.2.3 Significant Accounting PoliciesIn addition to TIO’s primary operations of providingInsurance and Banking services to the NorthernTerritory, TIO administers the MAC Fund pursuant tothe Territory Insurance Act. The results and balancesare disclosed separately to fulfil the reportingobligations set out by the Act.All Accounting policies are consistent between TIO(Insurance and Banking) and the MAC Fund unlessotherwise stated below. Accounting policies relating toBanking activities do not apply to the MAC Fund.(a) Revenue recognitionRevenue is recognised to the extent that it isprobable that the economic benefits will flow tothe entity and the revenue can be reliablymeasured. The following specific recognitioncriteria are also used before revenue isrecognised:Premium revenuePremium is comprised of amounts charged topolicyholders or other insurers, but excludesstamp duties, GST and other amounts collectedon behalf of third parties. The earned portionof premiums received and receivable, includingunclosed business, is recognised as revenue.Premium is treated as earned from the date ofattachment of risk. Premiums on unclosedbusiness are estimated with reference to theprevious year's premium processing delays andthe impact of recent trends and events on thepattern of new business and renewals.The pattern of recognition of income over thepolicy or indemnity periods is in accordancewith the pattern of the incidence of riskexpected under the insurance contracts.In most cases, time approximates the patternof risks underwritten. Unearned premiumliability, which is the proportion of premiumreceived or receivable not earned in the incomestatement, is determined by apportioning thepremiums written in the year over the periodsof indemnity from the attachment of risk, andis treated as a liability on the balance sheet atthe reporting date.Reinsurance and other recoveriesreceivableReinsurance and other recoveries receivable onpaid claims, reported claims not yet paid,claims incurred but not reported and unexpiredrisk liabilities are recognised as revenue.Recoveries receivable are assessed in a mannersimilar to the assessment of outstandingclaims. Recoveries receivable in relation to"long-tail" classes are measured as the presentvalue of the expected future receipts,calculated on the same basis as the provisionfor outstanding claims. The details of discountand inflation rates applied are included in note 3.Interest, fees and commissionInterest income is recognised on an accrualbasis. Banking related fees and commissionsare brought to account on an accrual basiswhilst loan establishment fees are brought toaccount over the estimated average life of theloan on an effective interest rate basis.53

Notes To the Financial Statements 30 June 2007Notes to the Financial Statements 30 June 2007(b)(c)Rental revenueRental revenue is recognised as income on astraight line basis over the term of the lease.Unexpired risk liabilityThe adequacy of the unearned premiumliability is assessed by considering currentestimates of all expected future cash flowsrelating to future claims covered by currentinsurance contracts. This assessment isreferred to as the liability adequacy test and isperformed separately for each group of thecontracts subject to broadly similar risks andmanaged together in a single portfolio.If the unearned premium liability less relatedintangible assets and related deferredacquisition costs is exceeded by the presentvalue of the expected future cash flows relatingto future claims plus the additional risk marginto reflect the inherent uncertainty in thecentral estimate, then the unearned premiumliability is deemed to be deficient. TIO appliesa risk margin to achieve the same probabilityof sufficiency for future claims as is achievedon the outstanding claims liability.The entire deficiency, gross and net ofreinsurance is recognised immediately in theincome statement. The deficiency is recognisedfirst by writing down any related intangibleassets and then related deferred acquisitioncosts, with any excess being recorded in thebalance sheet as an unexpired risk liability.Outwards reinsurancePremium ceded to reinsurers is recognised asan expense in the income statement from theattachment date over the period of indemnityof the insurance contract in accordance withthe pattern of reinsurance protection received.Where appropriate, an unearned portion ofoutwards reinsurance is treated at thereporting date as an asset.(d)(e)Outstanding claims liabilityThe liability for outstanding claims is measuredas the central estimate of the present value ofexpected future payments against claimsincurred at the reporting date under insurancecontracts issued by TIO, with an additional riskmargin to allow for the inherent uncertainty inthe central estimate.Claims expense and a provision for outstandingclaims are recognised in respect of directinsurance and inwards reinsurance businessand Motor Accidents Compensation Scheme.The provision covers claims reported but notyet paid, incurred but not reported claims("IBNR") and the anticipated direct and indirectcosts of settling those claims. Claimsoutstanding are assessed by review ofindividual claim files and estimating changes inthe ultimate cost of settling claims, IBNRs andsettlement costs using statistics based on pastexperience and trends. Outstanding claims aresubject to independent actuarial assessment.The provision for outstanding claims ismeasured as the present value of the expectedfuture payments. These payments areestimated on the basis of the ultimate cost ofsettling claims, which is affected by factorsarising during the period to settlement such asnormal and "superimposed" inflation. Theexpected future payments are discounted topresent value at the balance sheet date using arisk free rate. The details of rates applied areincluded in note 3.ReceivablesReceivables comprise premium receivables, andreinsurance and other recoveries. Theseamounts due from policy holders, reinsurersand intermediaries are initially recognised atfair value, being the amounts due.An allowance for impairment of receivables isestablished when there is objective evidencethat TIO will not be able to collect all moneysdue. The amount of the allowance is equal to54

Notes to the Financial Statements 30 June 2007(f)(g)the difference between the carrying amountand the present value of estimated future cashflows. The impairment charge is recognised inthe income statement.Receivables from related parties are recognisedat the nominal amount due. Interest is takenup as income on an accrual basis.Deferred acquisition costsAcquisition costs are costs associated withobtaining and recording general insurancecontracts. These costs include commissions orbrokerage, advertising, underwriting and otherselling costs, premium collection costs andother administrative costs. Acquisition costsincurred in obtaining general insurancecontracts are deferred and recognised as assetswhere they can be reliably measured and whereit is probable that they will give rise to premiumrevenue that will be recognised in the incomestatement in subsequent reporting periods.Deferred acquisition costs are amortised inaccordance with the expected pattern of theincidence of risk under the general insurancecontracts to which they relate. This pattern ofamortisation corresponds to the earningpattern of the corresponding premium revenue.Assets backing insurance liabilitiesTIO actively manages its investment portfolioto ensure that investments mature inaccordance with the expected pattern of futurecash flows arising from insurance liabilities.TIO undertook a process of identifying andmatching all assets which arise from theissuing of insurance contracts. This reviewdetermined that the following assets are heldto back insurance liabilities.Investment properties.Owner-occupied property.ReceivablesRefer to note 2.3(e).Financial AssetsFinancial assets are designated at fair valuethrough the income statement. Initialrecognition is at cost in the balance sheet andsubsequent measurement is at fair value withany resultant gains or losses recognised in theincome statement.Details of fair value for financial assets arelisted below:Financial asset Details of how fair valueis determined.Listed fixed Initially recognised atinterest securities, cost and the subsequentUnits in listed unit fair value is taken astrusts,the quoted bid price ofGovernment the instrument at thesecurities. reporting date.Unlisted fixed Initially recognised at costinterest securities. and the subsequent fairvalue is measured basedon valuations using ratesof interest equivalent tothe yields obtainable oncomparable investmentsat the reporting date.Units in unlisted Initially recognised at costunit trusts. and the subsequent fairvalue is measured at fundmanager’s valuation at thereporting date.These assets comprise:Receivables:Premium receivables.Reinsurance and other recoveries.Financial Assets:Investment assetsCash, cash equivalents and overdrafts.Cash assets andbank overdrafts.Initially recognised at costand the subsequent fairvalue is measured at facevalue of the amountsdeposited or drawn.55

Notes to the Financial Statements 30 June 2007Notes to the Financial Statements 30 June 2007All purchases and sales of financial assets thatrequire delivery of the asset within the timeframe established by regulation or marketconvention (‘regular way’ transactions) arerecognised on the date of settlement, beingthe date the asset is delivered to or by TIO.In cases where the period between trade andsettlement exceeds this time frame, thetransaction is also recognised at settlementdate. Financial assets are derecognised whenthe rights to receive future cash flows from theassets have expired, or have been transferred,and TIO has transferred substantially all therisks and rewards of ownership or control ofthe asset.Investment property (MAC Fund)Investment property, which is property held toearn rentals and for capital appreciation, is statedat fair value at the balance sheet date. Gains orlosses arising from changes in the fair value ofinvestment property are included in the incomestatement for the period in which they arise.The fair value is based on an external propertyvaluation report conducted annually.Owner-occupied property accounted for asProperty, Plant and Equipment(TIO Insurance & Banking)The owner-occupied property is valued usingthe revaluation model whereby measurementsubsequent to initial recognition is at fair valueat the date of the latest revaluation less anysubsequent accumulated depreciation andaccumulated impairment losses.A valuation is conducted annually and is basedon an external property valuation report.When a revaluation increases the carryingvalue of a property, the increase is crediteddirectly to equity under the heading of assetrevaluation reserve. However, any increase isrecognised in the income statement to theextent that it reverses a revaluation decreaseof the same asset previously recognised in theincome statement.When an asset’s carrying amount is decreasedas a result of a revaluation, the decrease isrecognised in the income statement. However,any decrease is debited directly to equity underthe heading of asset revaluation reserve to theextent of any credit balance existing in theasset revaluation reserve in respect of thatasset.Any remaining balance on the asset revaluationreserve is credited to retained earnings whenthe corresponding property is realised by sale.(h) Fire service levy and other charges -TIO Insurance & BankingA liability for fire service levy and othercharges is recognised on certain businesswritten to the balance date. Levies and chargespayable are expensed on the same basis as therecognition of premium revenue, with theportion relating to unearned premium beingrecorded as an asset.(i) TaxesIncome taxTIO is assessable for income tax by theAustralian Taxation Office under the NationalTax Equivalent Regime (NTER). Under thisarrangement, TIO is required to be assessedin accordance with the Income Tax AssessmentAct (as amended). TIO has elected underS148(2) of the Income Tax Assessment Act,to have allowed as a deduction reinsurancepayments to non-resident reinsurers.TIO Insurance & Banking:The income tax expense or revenue for theperiod is the tax payable on the currentperiod’s taxable income based on theapplicable income tax rate adjusted bychanges in deferred tax assets and liabilitiesattributable to temporary differencesbetween the tax bases of assets andliabilities and their carrying amounts in thefinancial statements, and unused tax losses.56

Notes to the Financial Statements 30 June 2007(j)Deferred tax assets and liabilities arerecognised for temporary differences at thetax rates expected to apply when the assetsare recovered or the liabilities are settled.The tax rate is applied to the cumulativeamounts of deductible and assessabletemporary differences to measure thedeferred tax asset or liability.Deferred tax assets are recognised fordeductible temporary differences and unusedtax losses only if it is probable that futuretaxable amounts will be available to utilisethose temporary differences and losses.Current and deferred tax balances attributableto amounts recognised directly in equity arealso recognised directly in equity.MAC Fund:The MAC Fund is not subject to the NorthernTerritory Tax Equivalents Regime andaccordingly the MAC Fund has no tax relatedbalances or transactions reported.Goods and Services Tax (GST)Revenues, expenses and assets are recognisednet of the amount of GST except:• Where the GST incurred on a purchase ofgoods and services is not recoverable fromthe taxation authority, in which case theGST is recognised as part of the cost ofacquisition of the asset or as part of theexpense item as applicable; and• Receivables and payables are stated withthe amount of GST included.The net amount of GST recoverable or payableto the taxation authority is included as part ofreceivables or payables in the Balance Sheet.Cash flows are included in the Cash FlowStatement on a gross basis.Dividend – TIO Insurance & BankingPursuant to Section 26 of the TerritoryInsurance Office Act, the Minister may directthat any amount of funds held by TIO which,in his opinion, is in excess of that required asadequate provision for actual and contingentliabilities or for the reasonable operating andother expenses of TIO shall be paid by TIO tothe Consolidated Fund of the Territory.(k) Transportation of accident victims –MAC FundPursuant to section 18 of the Motor Accidents(Compensation) Act there is payable to or onbehalf of a person entitled to a benefit underthis Act all reasonable medical andrehabilitation expenses incurred in relation totreatment for injuries sustained in a motorvehicle accident. "Treatment" includes interalia, the conveyance of that person to anyplace for the purpose of his/her receiving anytreatment or to a hospital. Reimbursements tothe Territory during the year to cover intrastatetransfer costs have been included in claimsexpense, along with ambulance conveyancecharges.(l) Hospital bed days levy – MAC FundPursuant to Section 25A(1) of the TerritoryInsurance Office Act, the Minister may as soonas practicable after the end of each financialyear, and after seeking and considering theadvice of the TIO Board, determine an amounthe considers should be paid (if any) toreimburse the Territory for the provision toclaimants treatment and accommodation by orin public hospitals in the Territory during thefinancial year, which, but for Section 18(1)(a)or (b) of the Motor Accidents (Compensation)Act, would be payable under that Act. Thehospital bed days levy payable in the year hasbeen included in claims expense.(m) Property, plant and equipmentThe owner-occupied property located at 24Mitchell Street is used in the supply of servicesand for administrative purposes and has beenheld to back insurance liabilities. It is stated inthe balance sheet at it’s revalued amount,being the fair value at the date of revaluation,57

Notes to the Financial Statements 30 June 2007less any subsequent accumulated depreciationand subsequent accumulated impairmentlosses. Revaluations are performed annuallyat the reporting date.Any revaluation increase arising on therevaluation of such land and buildings iscredited to the asset revaluation reserve,except to the extent that it reverses arevaluation decrease for the same assetpreviously recognised in the income statement,in which case the increase is credited to theincome statement to the extent of the decreasepreviously charged.A decrease in carrying amount arising on therevaluation of such land and buildings ischarged to the income statement to the extentthat it exceeds the balance, if any, held in theasset revaluation reserve relating to a previousrevaluation of that asset.Depreciation on revalued buildings is chargedto the income statement. On the subsequentsale or retirement of a revalued property, theattributable revaluation surplus remaining inthe asset revaluation reserve is transferreddirectly to retained earnings. The effectiveuseful life of the owner-occupied property hasbeen assessed at 50 years (2006: 50 years).Costs associated with the negotiation ofoperating leases associated with the owneroccupied property are capitalised and amortisedover the term of the respective leases. Thesecosts include the costs of fitouts and the accrualof rent during rent free periods of occupation.Fixtures and equipment are stated at cost lessaccumulated depreciation and any accumulatedimpairment losses.Depreciation is charged so as to write off thecost or valuation of assets, other than owneroccupiedproperties, over their estimated usefullives, using the straight-line method.Leasehold assets are depreciated over the lifeof the assets or term of the lease, whicheveris shorter.(n)The gain or loss arising on the disposal orretirement of an item of property, plant andequipment is determined as the differencebetween the sales proceeds and the carryingamount of the asset and is recognised in theincome statement.The expected useful lives for plant andequipment, other than owner-occupied landand buildings, range from 2.5 to 20 years(2006: 2.5 to 20 years).Investment propertyTIO Insurance & Banking:TIO owns properties which are used to not onlyearn rentals and capital appreciation, but arealso used for administrative purposes. When aninvestment property is also used foradministrative purposes, the property isclassified as owner-occupied when the floorspace occupied by TIO is significant. Anyproperty classified as owner-occupied isaccounted for in accordance with the policiesstated under Property, Plant and Equipment.MAC Fund:Investment property, which is property held toearn rentals and for capital appreciation, ismeasured initially at cost, including transactioncosts. Subsequent to initial recognition,investment properties are stated at fair value,which reflects market conditions at the reportingdate. Revaluations are performed annually atthe reporting date. Gains or losses arising fromchanges in the fair value of investmentproperties are recognised in the incomestatement for the period in which they arise.Costs associated with the negotiation ofoperating leases associated with theseinvestment properties are capitalised andamortised over the term of the respectiveleases. These costs include the costs of fitoutsand the accrual of rent during rent free periodsof occupation.Investment properties are derecognised eitherwhen they have been disposed of or when the58

Notes to the Financial Statements 30 June 2007(o)investment property is permanently withdrawnfrom use and no future economic benefit isexpected from its disposal.Any gains or losses on the retirement ordisposal of an investment property arerecognised in the income statement in theperiod in which they arose.Transfers are made to investment propertieswhen, and only when, there is a change in use,evidenced by ending owner-occupation,commencement of an operating lease toanother party or ending of construction ofdevelopment. Transfers are made frominvestment property when, and only when,there is a change in use evidenced bycommencement of owner-occupation orcommencement of development with a viewto sale.Financial instruments not held to backinsurance liabilitiesFinancial assets not held to back insuranceliabilities include financial instruments used inthe provision of banking services and assetsnot included in note 2.3(g). Financial assetsand financial liabilities are recognised on TIO’sbalance sheet when TIO becomes a party tothe contractual provisions of the instrument.Trade receivables (excluding premiumreceivables)Trade receivables and other debtors aremeasured at initial recognition at fair value,and are subsequently measured at amortisedcost using the effective interest rate method.Appropriate allowances for estimatedirrecoverable amounts are recognised in theincome statement when there is objectiveevidence that the asset is impaired. Theallowance recognised is measured as thedifference between the asset’s carrying amountand the present value of estimated future cashflows discounted at the effective interest ratecomputed at initial recognition.Loans TIO Insurance & BankingAll loans are measured at initial recognition atfair value, and are subsequently measured atamortised cost using the effective interest ratemethod. The effective interest rate calculationincludes the contractual terms of loanstogether with fees and transaction costs.All loans are kept under continuousmanagement review to assess whether there isany objective evidence that any loan or groupof loans is impaired. A specific provision ismade for all identified impaired loans whenthere is reasonable doubt over the collectabilityof principal and interest in accordance with theloan agreement. All bad debts are written offagainst the specific provision in the period inwhich they are classified as not recoverable.An appropriate collective impairment provisionis determined by estimation of expected lossesin relation to loan portfolios where specificidentification is impractical, based on peergroup experience. Adjustments to the collectiveimpairment provision is accounted for throughthe income statement. The provisionrecognised is measured as the differencebetween the asset’s carrying amount and thepresent value of estimated future cash flowsdiscounted at the effective interest rate.Securitisation – TIO Insurance & BankingTIO has a sub origination and managementagreement with Integris Securitisation ServicesPty Ltd (Master Servicer) and CuscalManagement Pty Limited (Manager) which arewholly owned subsidiaries of Cuscal Limited, toassign securitised home loans with IntegrityTrust, which is managed by Perpetual TrusteeCompany Limited (Trustee of the Trust).These securitised loans are reported as “onbalance sheet” mortgage products under AASB139, and are subject to mortgage insurance.TIO recognises the financial liability to theTrust as a securitisation liability. Thecontractual arrangements of the securitisationprogram do not meet the criteria outlined in59

Notes to the Financial Statements 30 June 2007AASB139 Financial Instruments: Recognitionand Measurement for transferring assets offbalance sheet.TIO is the loan originator and it services andassigns selected loans to the Trustee of theTrust in exchange for cash consideration. TIOpass on all cashflows of the loans to the Trust.TIO will continue to service these securitisedloans on behalf of the trust and receives feeincome for doing so. TIO receives interest fromthe loan portfolio and pays interest expense inrelation to the funding costs of thesecuritisation. As loans are not derecognised,TIO will continue to recognise interest incomeon an accrual basis.In respect of insurance costs associated withmortgage insurance, TIO account for thesecosts as a prepayment and they will becharged to the income statement over the lifeof the contract.Loan assets are assessed for impairment.InvestmentsAll purchases and sales of financial assets thatrequire delivery of the asset within the timeframe established by regulation or marketconvention (‘regular way’ transactions) arerecognised on the date of settlement, being thedate the asset is delivered to or by TIO.In cases where the period between trade andsettlement exceeds this time frame, thetransaction is also recognised at settlementdate. Financial assets are derecognised whenthe rights to receive future cash flows from theassets have expired, or have been transferred,and TIO has transferred substantially all therisks and rewards of ownership.Investment assets other than those held toback insurance liabilities, have beencategorised as held for trading as they are partof a portfolio of identified financial instrumentsthat are managed together and for which thereis evidence of a recent actual pattern of shorttermprofit-taking.Cash and cash equivalentsCash and cash equivalents comprise cash onhand and cash at bank.Subordinated loans and depositsInterest-bearing subordinated loans anddeposits are initially measured at fair value, andare subsequently measured at amortised cost,using the effective interest rate method.Trade payablesTrade payables are initially measured at fairvalue, and are subsequently measured atamortised cost, using the effective interest ratemethod.Derivative financial instruments -TIO Insurance & BankingTIO’s activities expose it primarily to thefinancial risk associated with changes ininterest rates.TIO uses interest rate swaps to hedge its risksassociated with interest rate fluctuationsrelating to certain loans attracting a fixed rateof interest. TIO’s policy is to convert aproportion of its fixed rate loan assets to avariable rate of interest.TIO’s external investment managers utilisederivatives as part of the management ofexposures associated with those portfolios ofinvestments held for trading.The use of financial derivatives is governed bythe TIO’s policies approved by TIO’s Board,which provide written principles on the use offinancial derivatives consistent with the TIO’srisk management strategy. TIO does not usederivative financial instruments for speculativepurposes.Derivative financial instruments are initiallymeasured at fair value on the contract date,and are remeasured to fair value at subsequentreporting dates. Derivatives are carried asassets when their fair value is positive and asliabilities when their fair value is negative.60

Notes to the Financial Statements 30 June 2007Changes in the fair value of derivative financialin foreign currencies are translated to Australianinstruments are recognised in the incomecurrency at rates of exchange at that date.statement as they arise. TIO has elected notResulting exchange differences are recognisedto adopt hedge accounting under AASB 139:in the income statement for the year.(p)Financial Instruments - Recognition andMeasurement.Employee benefits(r)Equity & reserves- Contributed equityThe balance of the Territory Self InsuranceTIO Insurance & Banking:Fund as at 30 June 2003 of $16.49m wasProvision is made for employee benefitsaccumulated as a result of employeesrendering services up to the reporting date.converted to contributed equity inSeptember 2003 by the Northern TerritoryGovernment.These benefits include wages and salaries,- Nature and purpose of reservesannual leave and long service leave.Asset revaluation reserve - The assetLiabilities arising in respect of wages andsalaries, all annual leave, and any otheremployee benefits expected to be settledwithin twelve months of the reporting date aremeasured at their undiscounted amounts basedon remuneration rates which are expected torevaluation reserve is used to record theincreases in the fair value of the owneroccupiedbuilding and decreases to theextent that such decreases relate to anincrease on the same asset previouslyrecognised in equity.be paid when the liability is settled.(s)Cash and cash equivalents(q)All other employee benefit liabilities arerecognised, and are measured as the presentvalue of expected future payments to be madein respect of services provided by employeesup to the reporting date. Consideration is givento the expected future wage and salary levels,experience of employee departures and periodsof service. Expected future payments arediscounted using interest rates on nationalgovernment guaranteed securities with termsto maturity that match, as closely as possible,the estimated future cash outflows.MAC Fund:The MAC Fund does not employ staff in its ownright; accordingly there are no employeebenefit liabilities.Translation of foreign currencytransactionsForeign currency transactions are initiallytranslated into Australian currency at the rateof exchange at the date of the transaction.At balance date amounts payable and receivableFor purposes of the Cash Flow Statement,cash includes cash on hand and cash at bank.(t) Intangible assetsIntangible assets are measured at cost.Following initial recognition, the intangibleasset is carried at cost less any accumulatedamortisation and accumulated impairmentlosses. Internally generated intangible assetsare not capitalised and expenditure is chargedagainst profits in the year in which theexpenditure is incurred. Software developmentexpenditure that meets the criteria forrecognition as an intangible asset is capitalisedon the balance sheet and amortised over 2.5years, subject to impairment testing.(u) Funding for road safety programs –MAC FundPursuant to Sections 23(2) and 26 of theTerritory Insurance Office Act, TIO is requiredto provide the Northern Territory Governmentwith funds to meet certain costs in relation tothe operation of the road safety programs.61

Notes to the Financial Statements 30 June 2007(v)Accounts payable(y)ProvisionsThese amounts represent liabilities for goodsA Provision is a liability of uncertain timingand services provided to TIO prior to the endor amount which is recognised in the balanceof the financial year and which are unpaid.sheet when:The amounts are unsecured and are usuallypaid within 30 days of recognition.• TIO has a present obligation (legal orconstructive) as a result of a past event;(w)Deposits• It is probably that an outflow of economicTIO Insurance & Banking:benefits will be required to settle theInterest-bearing deposits are initially measuredobligation; andat fair value, and are subsequently measuredat amortised cost, using the effective interestrate method.MAC Fund:This policy is not applicable to the MAC Fund.• The amount can be reliably measured.If the effect is material, provisions aredetermined by discounting the expected futurecashflows at a pre-tax rate that reflects currentmarket assessments of the time value of(x)Leasesmoney and, when appropriate, the risksLeases are classified at their inception as eitherspecific to the liability.operating or finance leases based on the(z)Contingent liabilities and contingenteconomic substance of the agreement so asassetsto reflect the risks and benefits incidentalto ownership.Contingent liabilities are not recognised in theBalance Sheet but are disclosed in the financialOperating leases where TIO is a lesseereport, unless the possibly of settlement isTIO enters into operating leases for officeaccommodation. Rentals payable underoperating leases are charged to the incomeremote, in which case no disclosure is made.If settlement becomes probable, a provision isrecognised.statement on a straight-line basis over theContingent assets are not recognised in theterm of the relevant lease. Benefits receivedBalance Sheet but are disclosed in the financialand receivable as an incentive to enter into anreport when inflows are probable. If inflowsoperating lease are also spread on a straight-become virtually certain, an asset isline basis over the lease term.recognised.Operating leases where TIO is a lessorTIO is a lessor in respect of operating leasesthat are entered into with tenants who occupyproperties owned by TIO. Rental income fromoperating leases is recognised on a straight-linebasis over the term of the relevant lease.Initial direct costs incurred in negotiating andarranging operating leases are added to thecarrying amount of the leased assets andrecognised on a straight-line basis over thelease term.The amount disclosed as a contingent liabilityor contingent asset is the best estimate of thesettlement or inflow.(aa) CommitmentsCommitments are not recorded on the BalanceSheet but are disclosed in the financial reportat their face value.(ab) ComparativesWhere necessary, comparatives have beenreclassified and repositioned for consistencywith current year disclosures. Short-termdeposits have been reclassified in the current62

Notes to the Financial Statements 30 June 2007year as Investments (Other financial Assets)which has resulted in a restatement of thecomparatives, reducing cash and cashequivalents (Note 11) and increasing currentand non current Other financial assets (Note13) with consequential adjustments to theCash Flow Statement. In addition, allInvestments held for trading (financial assets)have been classified as Current Assets withcomparatives being adjusted accordingly.The MAC Fund comparatives have beenidentified and separately reported in the2006/07 financial report to enhance analysisand comparability with the current year results.In the prior year these results were includedwithin the amounts reported for TIO as awhole. Accordingly, prior year financialstatements were restated to conform to theserequirements.(ac) Rounding of amountsAmounts in the financial statements arepresented in Australian dollars and have beenrounded off to the nearest thousand dollars,or in certain cases, to the nearest dollar.2.4 Critical accounting judgements andestimatesTIO makes estimates and assumptions in respect ofcertain key assets and liabilities. Estimates andjudgements are continually evaluated and are basedon historical experience and other factors, includingexpectations of future events that are believed to bereasonable under the circumstances. The key areasin which critical estimates are applied are describedbelow and relate to outstanding claims liability andreinsurance assets.(a) The ultimate liability arising from claimsmade under insurance contractsProvision is made at the year end for the estimatedcost of claims incurred but not settled at the balancesheet date, including the cost of claims incurred butnot yet reported to TIO. The estimated cost of claimsincludes direct expenses to be incurred in settlingclaims gross of the expected value of salvage andother recoveries. TIO takes all reasonable steps toensure that it has appropriate information regardingits claims exposures. However, given the uncertaintyin establishing claims provisions, it is likely that thefinal outcome will prove to be different from theoriginal liability established.The estimation of claims incurred but not reported('IBNR') is generally subject to a greater degree ofuncertainty than the estimation of the cost of settlingclaims already notified to TIO, where moreinformation about the claim event is generallyavailable. IBNR claims may often not be apparent tothe insured until many years after the events givingrise to the claims have happened. In relation to theworkers compensation, liability and MAC Fund classesof businesses, there is typically a greater variationbetween initial estimates and final outcomes due tothe uncertainty in estimating IBNR reserves. For theshort-tail personal and domestic classes, claims aretypically reported soon after the claim event, andhence tend to display lower levels of volatility.In calculating the estimated cost of unpaid claimsTIO uses a variety of estimation techniques, generallybased upon statistical analyses of historicalexperience, which assumes that the developmentpattern of the current claims will be consistent withpast experience. Allowance is made, however, forchanges or uncertainties which may create distortionsin the underlying statistics or which might cause thecost of unsettled claims to increase or reduce whencompared with the cost of previously settled claimsincluding:• changes in TIO processes which might accelerateor slow down the development and/or recordingof paid or incurred claims, compared with thestatistics from previous periods• changes in the legal environment• the effects of inflation• changes in the mix of business• the impact of large losses• movements in industry benchmarks• medical and technological developments.63

Notes to the Financial Statements 30 June 2007A component of these estimation techniques isusually the estimation of the cost of notified but notpaid claims. In estimating the cost of these claimsTIO has regard to the claim circumstance as reported,any information available from loss adjusters andinformation on the cost of settling claims with similarcharacteristics in previous periods.Large claims impacting each relevant business classare generally assessed separately, being measured ona case by case basis or projected separately in orderto allow for the possible distortive effect of thedevelopment and incidence of these large claims.Where possible TIO adopts multiple techniques toestimate the required level of provisions. This assistsin giving greater understanding of the trends inherentin the data being projected. The projections given bythe various methodologies also assist in setting therange of possible outcomes. The most appropriateestimation technique is selected taking into accountthe characteristics of the business class and theextent of the development of each accident year.Provisions are calculated gross of any reinsurancerecoveries. A separate estimate is made of theamounts that will be recoverable from reinsurersbased upon the gross provisions.Details of specific assumptions used in deriving theoutstanding claims liability at year end are detailedin note 3.(b) Assets arising from reinsurance contractsAssets arising from reinsurance contracts are alsocomputed using the above methods. Therecoverability of these assets is assessed on aperiodic basis to ensure that the balance is reflectiveof the amounts that will ultimately be received, takinginto consideration factors such as counterparty andcredit risk. Impairment is recognised where there isobjective evidence that TIO may not receive amountsdue to it and these amounts can be reliablymeasured.3. ACTUARIAL ASSUMPTIONSAND METHODSTIO currently writes the following classes of business:Disclosure Category of Class ofcategory business business NatureGeneral Personal Home Short TailInsurance lines Motor Short TailMarine Short TailOther Short TailCommercial Fire and ISR Short Taillines Contractors Short TailMarine Short TailMotor Short TailOther Short TailWorkers Workerscompensation compensation Long TailLiability Public liability Long TailIndemnity Long TailMAC Fund Compulsory CompulsoryThird Party Third Party Long TailShort Tail – claims are typically settled within oneyear of being reported.Long Tail – claims are typically settled over a periodlonger than one year of being reported.The process for determining the value of outstandingclaims liabilities in respect of these classes ofbusiness categories is described below.Personal and commercial lines (short tail)With personal and commercial lines short tailbusiness, there is no significant delay between theoccurrence of the claim and the claim being reportedto TIO. Historic loss ratios are analysed to determinehow claims incurred in previous periods havedeveloped over time. In addition, ultimate claimsincurred are estimated based on past reportingpatterns, and payments per claim incurred modelsare used to project future payments. Final estimatesare adopted taking both loss ratio and paymentsbased models into account.64

Notes to the Financial Statements 30 June 2007Workers compensation, liability and MAC Fund(long tail)Claims estimates for TIO’s long tail business arederived from analysis of the results of severaldifferent actuarial models. Ultimate numbers of claimsare projected based on the past reporting patterns.Payments experience is analysed by payment typebased on averages paid per claim incurred andaverages paid per active claim. Annuity based modelsare also used to estimate liabilities in respect ofclaims which have been in force for several years.The final adopted liability is a blend of the results ofthese models, giving more weight to annuity basedresults for older accident years and more weight topayments based models for more recent years.Ratios of adopted estimates to case estimates arecompared for reasonableness.Claims inflation is incorporated into the resultingprojected payments, to allow for both generaleconomic inflation as well as any superimposedinflation detected in the modelling of paymentsexperience. Superimposed inflation arises fromnon-economic factors such as developments oflegal precedent.Projected payments are discounted to allow for thetime value of money. The long tail classes of businessare also subject to the emergence of new types oflatent claims, but no specific allowance is included forthis as at the balance sheet date. Such uncertaintiesare considered when setting the risk marginappropriate for this class.Inwards reinsuranceTIO’s inwards reinsurance portfolio is in run-off.Claims estimates for TIO's inwards reinsurancebusiness are derived from an analysis of the historicdevelopment of incurred claims, paid claims and lossratios. For some classes, ultimate loss ratios areapplied which reflect the long term expected level.For other classes, estimates are based on caseestimates, with appropriate allowance for futuredevelopment based on historic experience. Allowanceis made for inflation and projected payments arediscounted to allow for the time value of money.Actuarial assumptionsThe following assumptions have been made indetermining the outstanding claims liabilities.2007 2007Insurance MAC FundAverage weightedterm to settlement 4.71 8.60Average claim frequency(latest accident year) 9.20% 0.32%Average claim size $4,658 $79,755Expense rate 4.49% 7.00%Discount rate 6.2%-6.6% 6.2%-6.6%Inflation 4.25% 4.25%Actuarial assumptions2006 2006Insurance MAC FundAverage weighted termto settlement 5.07 8.24Average claim frequency(latest accident year) 8.74% 0.34%Average claim size $4,248 $85,540Expense rate 4.49% 7.00%Discount rate 5.8%-6.0% 5.8%-6.0%Inflation 4.00% 4.00%Process used to determine assumptionsA description of the processes used to determinethese assumptions is provided below:Average weighted term to settlementThe average weighted term to settlement iscalculated separately by class of business based onhistoric payment patterns.Average claim frequencyClaim frequency is estimated by projecting thenumber of claims incurred based on past patterns anddividing this by the number of policies in force.65

Notes to the Financial Statements 30 June 2007Expense rateClaims handling expenses were calculated byreference to past experience, allocated to classof business and compared to past payments.Discount rateDiscount rates derived from market yields onCommonwealth Government securities as at thebalance date have been adopted.InflationEconomic inflation assumptions are set by referenceto current economic indicators.Sensitivity analysis - insurance contractsi) SummaryTIO conducts sensitivity analyses to quantify theexposure to risk of changes in the key underlyingvariables. The valuations included in the reportedresults are calculated using certain assumptions aboutthese variables as disclosed above. The movementin any key variable will impact the performance andequity of TIO. The tables below describe how achange in each assumption will affect the insuranceliabilities and show an analysis of the sensitivityof the profit/(loss) and equity to changes in theseassumptions both gross and net of reinsurance.VariableAverage weighted term tosettlementAverage claim frequencyExpense rateDiscount rateInflationImpact of movement in variableA decrease in the average term to settlement in the long tail classes ofbusiness class would lead to more claims being paid sooner than anticipated.Expected payment patterns are used in determining the outstanding claimsliability. An increase or decrease in the average weighted term would havea corresponding increase or decrease on claims expense respectively.Claims frequencies are used in determining the level of claims incurred but notreported (IBNR). An increase or decrease in the assumed average frequencylevels would have a corresponding impact on claims expense.An estimate for the internal costs of handling claims is included in theoutstanding claims liability. An increase or decrease in the expense rateassumption would have a corresponding impact on claims expense.The outstanding claims liability is calculated by reference to expected futurepayments. These payments are discounted to adjust for the time value ofmoney. An increase or decrease in the assumed discount rate will have anopposing impact on total claims expense.Expected future payments are inflated to take account of inflationaryincreases. In addition to the general economic inflation rate an amount issuperimposed to take account of non- economic inflationary factors, such asincreases in court awards. Such rates of inflation are specific to the modeladopted. An increase or decrease in the assumed levels of inflation would havea corresponding impact on claims expense, with particular reference to longertail business.66

Notes to the Financial Statements 30 June 2007(ii) Impact of changes in key variablesEffect on Profit/(loss) before taxGross ofNet ofreinsurance reinsurance Equity$’000 $’000 $’000Variable Movement in variable Adjusted amountsInsuranceWeighted term to settlement +10% 239 209 146-10% (240) (210) (147)Average claim frequency– latest accident year +10% (1,425) (1,223) (856)-10% 1,425 1,246 872Average claim size +10% (9,056) (7,947) (5,563)-10% 9,056 7,947 5,563Expense rate +1% (942) (939) (657)-1% 942 939 657Discount rate +1% 3,785 3,450 2,415-1% (4,190) (3,819) (2,674)Inflation +1% (4,215) (3,900) (2,730)-1% 3.872 3,582 2,508MAC FundWeighted term to settlement +10% (1,331) (1,077) (1,077)-10% 1,324 1,071 1,071Average claim frequency– latest accident year +10% (1,572) (1,545) (1,545)-10% 1,572 1,545 1,545Average claim size +10% (22,721) (20,346) (20,346)-10% 22,721 20,346 20,346Expense rate +1% (2,123) (2,123) (2,123)-1% 2,123 2,123 2,123Discount rate +1% 16,876 15,232 15,232-1% (19,740) (17,850) (17,850)Inflation +1% (19,957) (18,273) (18,273)-1% 17,341 15,850 15,8504. INSURANCE CONTRACTS –RISK MANAGEMENT POLICIESAND PROCEDURESUnless stated otherwise the following disclosuresrelate to both TIO and the MAC Fund.(a)Objectives in managing risks arising frominsurance contracts and policies formitigating those risksTIO has an objective to control insurance risk thusreducing the volatility of operating profits. In additionto the inherent uncertainty of insurance risk, whichcan lead to significant variability in the lossexperience, profits from insurance business areaffected by market factors, particularly competitionand movements in asset values. Short-term variabilityis, to some extent, a feature of insurance business.The Board and senior management of TIO havedeveloped, implemented and maintained a sound andprudent Risk Management Framework (RMF) and aReinsurance Management Strategy (REMS).The RMF and REMS identify TIO's policies andprocedures, processes and controls that comprise its67

Notes to the Financial Statements 30 June 2007risk management and control systems. These systemsaddress all material risks, financial and non-financial,likely to be faced by TIO.The RMF and REMS have been approved by theBoard. Key aspects of the processes established inthe RMF to mitigate risks include:• The maintenance and use of managementinformation systems, which provide up to date,reliable data on the risks to which the businessis exposed at any point in time.• Information from the management informationsystems, are used to calculate premiums andmonitor claims patterns. Past experience andstatistical methods are used as part of theprocess. Actuarial models are also utilised inspecific classes and in all claims valuations.• Documented procedures are followed forunderwriting and accepting insurance risks.(b) Terms and conditions of insurance andinwards reinsurance businessThe terms and conditions attaching to insurancecontracts affect the level of insurance risk acceptedby TIO. The majority of direct insurance contractswritten are entered into on a standard form basis.All inwards reinsurance contracts are subject tosubstantially the same terms and conditions. Thereare no special terms and conditions in any nonstandard contracts that have a material impact on thefinancial statements. All insurance contracts written inthe Northern Territory are subject to substantially thesame terms and conditions.(c) Concentration of insurance riskTIO’s exposure to concentrations of insurance risk ismitigated by a portfolio diversified into numerousclasses of business. Specific processes for monitoringidentified key concentrations are set out below:• Natural disasters such as cyclones are morechallenging to manage. TIO monitor exposureRiskSource ofconcentrationRisk managementmeasuresto such risks through special modellingtechniques involving the collation of data onweather patterns which support decisions onlimiting exposure.NaturalcatastrophesPropertiesconcentratedin regions thatare subject toTIO has modelledaggregated risk bypostcode usingcommercially available• Reinsurance is used to limit TIO’s exposure tocyclones,catastrophe models inlarge single claims and catastrophes. Whenfloods andaddition to a specificselecting a reinsurer we only consider thosestorm surges.TIO model developedcompanies that provide high security. In orderin conjunction withto assess this we use rating information fromAon Re.the public domain or gathered through internalinvestigations.Based on the probablemaximum loss per the• In order to limit concentrations of credit risk,models, TIOin purchasing reinsurance TIO has regard topurchases catastropheexisting reinsurance assets and seeks to limitreinsurance cover toexcess exposure to any single reinsurer orlimit exposure to anygroup of related reinsurers.single event.• The mix of assets in which we invest is drivenby the nature and term of the insuranceliabilities.• The diversification of the business overnumerous classes of insurance and largenumbers of uncorrelated individual risks seeksto reduce variability in loss experience.(d) Development of claimsThere is a possibility that changes may occur in theestimate of our obligations at the end of a contractperiod. The tables in note 20 show our estimates oftotal claims outstanding for each underwriting yearat successive year ends.68

Notes to the Financial Statements 30 June 2007(e) Interest rate riskUltimate claim costs and associated recoveries andtheir financial assets and liabilities arising frominsurance or reinsurance contracts entered into byTIO are not directly exposed to interest rate risk.Insurance and reinsurance contracts are entered intoannually. At the time of entering into the contractall terms and conditions are negotiable or, in the caseof renewals, renegotiable.(f) Credit riskFinancial assets and liabilities arising from insuranceand reinsurance contracts are stated in the balancesheet at the amount that best represents themaximum credit risk exposure at reporting date.There are no significant concentrations of credit risk.5. REVENUE2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Premium revenueDirect (note 9) 123,526 74,676 48,849 119,261 72,112 47,149Inwards reinsurance (note 9) - - - 1 1 -123,526 74,676 48,849 119,262 72,113 47,149Reinsurance and other recoveries 11,539 8,060 3,479 22,430 16,244 6,186Revenue from the rendering of services 6,916 6,719 197 6,255 6,026 229Finance revenueInterest revenue 47,346 43,926 3,420 40,072 36,419 3,653Trust distributions 36,877 7,513 29,364 22,716 6,134 16,582Change in the fair value of investmentsheld for trading (4,058) (596) (3,462) 6,398 1,650 4,748Net gain on the disposal of investmentsheld for trading 8,194 3,788 4,406 1,020 230 790Change in fair value of derivatives (442) (442) - 440 440 -Change in fair value of embedded derivative (115) (115) - 45 45 -87,802 54,074 33,728 70,691 44,918 25,773Revenue from propertiesRental revenue 6,024 1,629 4,541 5,929 1,420 4,666Net gain on disposal of investment property 1,277 - 1,277 - - -Change in the fair value of investment property 5,341 - 5,341 741 - 74112,642 1,629 11,159 6,670 1,420 5,407Other incomeBad debts recovered 113 113 - 81 81 -Operating expenses recovered fromrelated party - 5,048 - - 4,656 -Other miscellaneous income 325 78 247 397 216 181438 5,239 247 478 4,953 181Total revenue 242,863 150,397 97,659 225,786 145,674 84,92569

Notes to the Financial Statements 30 June 20076. OTHER SPECIFIC NET (LOSSES)/GAINS AND EXPENSES INCLUDED IN THE INCOMESTATEMENT2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Loss on sale of property, plantand equipment (12) (12) - (1) (1) -Depreciation – property, plantand equipment (1,985) (1,985) - (1,383) (1,383) -Amortisation of intangible assets (526) (526) - (333) (333) -Bad and doubtful debts expense (951) (951) - (285) (285) -Interest expense (32,518) (32,518) - (26,292) (26,292) -Operating expenses on-chargedby related party - - (5,048) - - (4,656)Rental expense relating to operating leases– minimum lease payments (852) (863) (135) (702) (728) (132)7. INTEREST REVENUE AND INTEREST EXPENSEThe following tables show the average balance for each of the major categories of Banking’s interest-bearingassets and liabilities, the amount of interest revenue or expense and the average interest rate. Monthlyaverages are used to calculate average balances.TIO – BANKING Average Balance Interest Average Interest$’000 $’000 Rate %Interest revenue 2007Commercial loans 36,491 2,997 8.21%Home loans 424,377 29,162 6.87%Personal loans 42,685 4,173 9.78%Investment securities & Cash at Bank 76,066 4,978 6.54%579,619 41,310 7.13%Interest expense 2007Customer deposits 531,799 28,983 5.45%Securitisation 31,256 2,182 6.98%563,055 31,165 5.53%Net interest income 2007 16,564 10,145 1.59%Interest revenue 2006Commercial loans 32,572 2,248 6.90%Home loans 391,884 25,516 6.51%Personal loans 31,708 3,066 9.67%Investment securities & Cash at Bank 62,337 3,890 6.24%518,501 34,720 6.70%Interest expense 2006Customer deposits 478,918 25,237 5.27%478,918 25,237 5.27%Net interest income 2006 39,583 9,483 1.43%70

Notes to the Financial Statements 30 June 20078. UNDERWRITING RESULT2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Premium revenue 123,526 74,676 48,850 119,262 72,113 47,149Outwards reinsurance premium expense (34,162) (25,986) (8,176) (31,515) (23,947) (7,568)Net premium revenue (note 9) 89,364 48,690 40,674 87,747 48,166 39,581Claims expense (68,534) (31,954) (36,580) (82,485) (46,870) (35,615)Reinsurance and other recoveries revenue 11,539 8,060 3,479 22,430 16,243 6,187Net claims incurred (note 22) (56,995) (23,894) (33,101) (60,055) (30,627) (29,428)Acquisition costs (note 19) (6,428) (5,917) (511) (5,995) (5,189) (806)Underwriting profit 25,941 18,879 7,062 21,697 12,350 9,3479. NET PREMIUM REVENUETIO 2007InwardsDirect Reinsurance Total$’000 $’000 $’000Gross written premiums 127,434 - 127,434Movement in unearned premiums (3,908) - (3,908)Premium revenue 123,526 - 123,526Outwards reinsurance premiums (34,162) - (34,162)Net premium revenue 89,364 - 89,3642007 2007TIO Insurance & BankingMAC FundInwardsInwardsDirect Reinsurance Total Direct Reinsurance Total$’000 $’000 $’000 $’000 $’000 $’000Gross written premiums 77,485 - 77,485 49,950 - 49,950Movement in unearnedpremiums (2,809) - (2,809) (1,100) - (1,100)Premium revenue 74,676 - 74,676 48,850 - 48,850Outwards reinsurancepremiums (25,986) - (25,986) (8,176) - (8,176)Net premium revenue 74,676 - 48,690 40,674 - 40,67471

Notes to the Financial Statements 30 June 2007TIO 2006InwardsDirect Reinsurance Total$’000 $’000 $’000Gross written premiums 119,942 1 119,943Movement in unearned premiums (681) - (681)Premium revenue 119,261 1 119,262Outwards reinsurance premiums (13,515) - (31,515)Net premium revenue 87,747 1 87,7472006 2006TIO Insurance & BankingMAC FundInwardsInwardsDirect Reinsurance Total Direct Reinsurance Total$’000 $’000 $’000 $’000 $’000 $’000Gross written premiums 72,127 1 72,128 47,815 - 47,815Movement in unearned premiums (15) - (15) (666) - (666)Premium revenue 72,112 1 72,113 47,149 - 47,149Outwards reinsurance premiums (23,947) - (23,947) 7,568 - (7,568)Net premium revenue 48,165 1 48,166 39,581 - 39,58110. INCOME TAXThe following disclosures relate to the operation of the TIO as a whole.(a) The major components of income tax expense are:TIO2007 2006$’000 $’000Current income taxCurrent income tax charge 9,009 4,143Adjustment in respect of current income tax of previous years (289) 211Deferred income taxRelating to originating and reversing temporary differencesof items charged to the income statement (1,109) 963Relating to originating and reversing temporary differencesof items charged directly to equity 1,557 949Total deferred income tax 448 1,912Income tax expense reported in the income statement 9,167 6,26672

Notes to the Financial Statements 30 June 2007(b)A reconciliation between tax expense and the product of accounting profit before income tax multipliedby TIO’s applicable tax rate is as follows:TIO2007 2006$’000 $’000Accounting profit for the period 70,690 51,404Income tax expense calculated at the tax rate of 30% 21,207 15,421Tax effect of permanent differences:Internal transactions (494) (438)Div 10D building allowance - -Net non-assessable overseas reinsurance payments/recoveries - (80)Non deductible expenses 15 14MAC (profit) (12,764) (9,643)Other items (net) 81 80Income tax expense adjusted for permanent differences 8,045 5,354Adjustments relating to previous years – current income tax (289) 211Adjustments relating to previous years – deferred income tax 106 -Income tax credits (252) (248)Revaluation of property, plant and equipment 1,557 949Income tax expense reported in the income statement 9,167 6,266(c)Deferred income tax at 30 June relates to the following:TIO2007 2006$’000 $’000Deferred tax assets:Provisions deductible against future taxable income 1,727 1,562Accrued expenditure deductible against future taxable income 535 578Claims handling expense deductible against future taxable income 867 843Other 316 1093,445 3,092Deferred tax liabilities:Interest receivable 177 162Property, plant and equipment and investment properties 3,840 2,155Fair value adjustments to financial assets 511 1,507Other 220 1234,748 3,947(d)Tax payable as at 30 June:Current tax liability is comprised of:Current income tax charge 7,839 4,143Prior year adjustments - 2117,839 4,35473

Notes to the Financial Statements 30 June 200711. CASH AND CASH EQUIVALENTS2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Cash at bank and on hand 29,941 23,681 6,260 23,602 16,923 6,67929,941 23,681 6,260 23,602 16,923 6,67912. TRADE AND OTHER RECEIVABLES2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Premiums receivable – direct insurance 36,359 35,335 1,024 33,845 32,901 944Less: allowance for impairment loss (225) (225) - (221) (221) -Premiums receivable – inwards reinsurance 5 5 - 26 26 -Less: allowance for impairment loss - - - - - -36,139 35,115 1,024 33,650 32,706 944Interest receivable 810 591 219 941 539 402Related party receivable - 159 - - 2,323 -Other debtors 2,768 2,563 205 2,239 1,904 33539,717 38,428 1,448 36,830 37,472 1,68113. OTHER FINANCIAL ASSETS AND OTHER FINANCIAL LIABILITIES2007 2006TIO TIO MAC TIO TIO MACFinancial Assets Insurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Derivatives financial assetsInterest rate swaps 815 815 - 459 459 -Inflation linked Swaps - - - - - -Futures - - - - - -Embedded derivative 1,986 1,986 - 2,101 2,101 -Total derivative financial assets 2,801 2,801 - 2,560 2,560 -Other financial assetsInvestments held for tradingSecurities 528,126 224,480 303,645 420,036 161,812 258,224Total other financial assets 528,126 224,480 303,645 420,036 161,812 258,224Total financial assets 530,927 227,281 303,645 422,596 164,372 258,224Current financial assetsShort term deposits 147,870 95,480 52,390 115,725 68,129 47,596Floating rate notes 10,299 502 9,797 41,440 18,277 23,163Other investments 86,212 86,212 - - - -Units in unlisted trusts 283,745 42,287 241,458 262,871 75,406 187,465Derivative financial instruments 815 815 - 459 459 -Total current financial assets 528,941 225,296 303,645 420,495 162,271 258,22474

Notes to the Financial Statements 30 June 200713. OTHER FINANCIAL ASSETS AND OTHER FINANCIAL LIABILITIES (CON’T)2007 2006TIO TIO MAC TIO TIO MACFinancial Assets Insurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Non-current financial assetsEmbedded derivative financial instrument 1,986 1,986 - 2,101 2,101 -Total non-current financial assets 1,986 1,986 - 2,101 2,101 -Total Financial Assets 530,927 227,282 303,645 422,596 164,372 258,224The investments securities included above represent investments in unlisted unit trusts, bonds and floatingrate notes, which offer TIO the opportunity for return through interest income, trust distributions and fairvalue gains. The fair values of these securities are based on quoted market prices.The derivative asset or financial liability represents the fair value of derivatives in existence at year end.TIO is a party to derivative financial instruments in the normal course of business in order to economicallyhedge exposure to fluctuations in interest rates. Interest rate swaps convert the fixed nature of the loanportfolio into floating.The embedded derivative asset represents the buy back option of TIO’s right to receive ongoing commissionpayments under the Central Sourcing Arrangements and Proper Authority Agreement with CommonwealthFinancial Solutions Pty Ltd and/or Financial Wisdom Limited. The fair value of this embedded derivative isbased on an agreed formula as specified in the contract.2007 2006TIO TIO MAC TIO TIO MACCurrent Financial Liabilities Insurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Derivative financial liabilitiesInterest rate swaps (660) (660) - - - -Inflation linked swaps (116) (116) - - - -Futures (23) (23) - - - -Embedded derivative - - - - - -Total derivative financial liabilities (799) (799) - - - -Total financial liabilities (799) (799) - - - -During 2006/07 TIO Insurance & Banking outsourced the management of the majority of its non bankingrelated liquid and fixed interest investments to Credit Suisse Asset Management to be managed under a singlemandate with investments in Cash Enhanced, Fixed Interest and Inflation Linked Securities portfolios.In order to effectively manage market risk within this framework Credit Suisse Asset Management areauthorised to use financial derivatives.The increased exposure to financial derivatives in 2007 over 2006 relates solely to the use of theseinstruments by Credit Suisse Asset Management in the performance of its mandated role.75

Notes to the Financial Statements 30 June 200714. LOANS2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Loans (i) 520,043 520,043 - 477,068 477,068 -Less: allowance for impairment loss (1,072) (1,072) - (894) (894) -518,971 518,971 - 476,174 476,174 -Loans - Current assets 18,381 18,381 - 17,106 17,106 -Loans - Non-current assets 500,590 500,590 - 459,068 459,068 -518,971 518,971 - 476,174 476,174 -(i) includes securitised home loans of $224 million (2006: nil) which has an associated securitised liabilityof $223 million (2006: nil)(a) Maturity analysisNot longer than three months 4,635 4,635 - 4,424 4,424 -Longer than three months and notlonger than 12 months 13,746 13,746 - 12,682 12,682 -Longer than one year and not longerthan five years 71,407 71,407 - 61,990 61,990 -Longer than five years 402,445 402,445 - 373,876 373,876 -No maturity specified 26,738 26,738 - 23,202 23,202 -518,971 518,971 - 476,174 476,174 -(b) Loans by purposePersonal 41,307 41,307 - 39,012 39,012 -Commercial 38,473 38,473 - 30,501 30,501 -Home 439,191 439,191 - 406,661 406,661 -518,971 518,971 - 476,174 476,174 -(c) Concentration of riskTIO has an exposure to the followinggeographical segments:Northern Territory residents 483,024 483,024 - 447,127 447,127 -Non-Northern Territory residents 35,947 35,947 - 29,047 29,047 -518,971 518,971 - 476,174 476,174 -76

Notes to the Financial Statements 30 June 200715. INVESTMENT PROPERTYTIOTIODeferredInvestmentleaseproperties incentives Total$’000 $’000 $’000Fair value of property investmentAt 1 July 2005 36,828 298 37,126Additions to investment property 744 60 804Amortisation of lease incentives - (69) (69)Increase in fair value of investment property 741 - 741At 30 June 2006 38,313 289 38,602Additions to investment property 85 69 154Disposals from investment properties (3,423) - (3,423)Amortisation of lease incentives - (110) (110)Increase in fair value of investment property 5,341 - 5,341At 30 June 2007 40,316 248 40,564TIO Insurance & BankingMAC FundDeferredDeferredInvestment lease Total Investment leaseproperty incentives property incentives Total$’000 $’000 $’000 $’000 $’000 $’000Fair value of investment propertyAt 1 July 2005 - - - 36,828 298 37,126Additions to investment property - - - 744 60 804Amortisation of lease incentives - - - - (69) (69)Increase in fair value of investment property - - - 741 - 741At 30 June 2006 - - - 38,313 289 38,602Additions to investment property - - - 85 69 154Disposals from investment properties - - - (3,423) 0 (3,423)Amortisation of lease incentives - - - 0 (110) (110)Increase in fair value of investment property - - - 5,341 0 5,341At 30 June 2007 - - - 40,316 248 40,564Investment propertyAll of the MAC Fund’s investment properties are held under freehold interests. It has been assessed that all ofthe investment properties are held to back insurance liabilities.The fair value of the MAC Fund’s investment properties at 30 June 2007 has been determined and approved bythe Board on the basis of a valuation carried out at that date by Mark Harris and Bill Linkson. Both arecertified practicing valuers of Integrated Valuation Services Pty Ltd, with recent experience in the valuation ofproperty in Darwin.The fair value of the properties represent the amount at which the assets could be exchanged between aknowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date ofvaluation, in accordance with Australian Valuation Standards.77

Notes to the Financial Statements 30 June 2007The property rental income earned by the MAC Fund from its investment properties, all of which are leased outunder operating leases, amounted to $4.5m (2006: $4.6m). Direct operating expenses arising on theinvestment properties in the period amounted to $1.5m (2006: $1.4m).Deferred lease incentivesThe amount represents costs associated with lease incentives incurred which arose in connection with thenegotiation of operating leases of the MAC Fund’s investment property portfolio, and which are beingamortised over the term of those leases. These costs include the costs of fitouts and the accrual of rent duringrent free periods of occupation.16. INTANGIBLE ASSETSTIOTIO Insurance MAC Fund& Banking$’000 $’000 $’000At 1 July 2005, net of accumulated amortisation 474 474 -Additions 847 847 -Disposals - - -Amortisation charge for the year (333) (333) -At 30 June 2006, net of accumulated amortisation 988 988 -Additions 344 344 -Disposals - - -Amortisation charge for the year (526) (526) -At 30 June 2007, net of accumulated amortisation 806 806 -At 1 July 2005Cost 5,569 5,569 -Accumulated amortisation (5,095) (5,095) -Net carrying amount 474 474 -At 30 June 2006Cost 6,359 6,359 -Accumulated amortisation (5,371) (5,371) -Net carrying amount 988 988 -At 30 June 2007Cost 6,702 6,702 -Accumulated amortisation (5,896) (5,896) -Net carrying amount 806 806 -Intangible assets consist of software which is not an integral part of related hardware. Software classified inthis manner is amortised over a period of 2.5 years.78

Notes to the Financial Statements 30 June 200717. PROPERTY, PLANT AND EQUIPMENTTIO Freehold Deferredland and lease Plant and Work inbuildings incentives equipment progress Total$’000 $’000 $’000 $’000 $’000At 1 July 2005, net of accumulateddepreciation 25,980 422 4,744 41 31,187Additions 30 - 779 1,527 2,336Additional lease incentives - - - - -Increase in fair value of owner occupied property 3,163 - - - 3,163Disposals - - (144) - (144)Amortisation of lease incentives - (120) - - (120)Depreciation charge for the year (453) - (930) - (1,383)Transfers to property, plant and equipment - - 398 (398) -Transfers to investment property - - - (850) (850)At 30 June 2006, net of accumulateddepreciation 28,720 302 4,847 320 34,189Additions 41 - 601 167 809Additional lease Incentives - 18 - - 18Increase in fair value of owner occupied property 5,189 - - - 5,189Disposals - - (57) - (57)Amortisation of lease incentives - (112) - - (112)Depreciation charge for the year (479) - (1,507) - (1,986)Transfers to property, plant and equipment - - 359 (359) -Transfers to investment property - - - (115) (115)At 30 June 2007, net of accumulateddepreciation 33,471 208 4,243 13 37,935At 1 July 2005Cost or fair value 25,980 422 8,042 41 34,485Accumulated depreciation - - (3,298) - (3,298)Net carrying amount 25,980 422 4,744 41 31,187At 30 June 2006Cost or fair value 28,720 302 8,734 320 38,076Accumulated depreciation - - (3,887) - (3,887)Net carrying amount 28,720 302 4,847 320 34,189At 30 June 2007Cost or fair value 33,471 208 9,573 13 43,265Accumulated depreciation - - (5,330) - (5,330)Net carrying amount 33,471 208 4,243 13 37,93579

Notes to the Financial Statements 30 June 2007TIO - Insurance & Banking Freehold Deferredland and lease Plant and Work inbuildings incentives equipment progress Total$’000 $’000 $’000 $’000 $’000At 1 July 2005, net of accumulateddepreciation 25,980 422 4,744 18 31,164Additions 30 - 779 758 1,567Additional lease incentives - - - - -Increase in fair value of owner occupied property 3,163 - - - 3,163Disposals - - (144) - (144)Amortisation of lease incentives - (120) - - (120)Depreciation charge for the year (453) - (930) - (1,383)Transfers to property, plant and equipment - - 398 (398) -Transfers to investment property - - - (76) (76)At 30 June 2006, net of accumulateddepreciation 28,720 302 4,847 302 34,171Additions 41 - 601 67 709Additional lease incentives - 18 - - 18Increase in fair value of owner occupied property 5,189 - - - 5,189Disposals - - (57) - (57)Amortisation of lease incentives - (112) - - (112)Depreciation charge for the year (479) - (1,507) - (1,986)Transfers to property, plant and equipment - - 359 (359) -Transfers to investment property - - - - -At 30 June 2007, net of accumulateddepreciation 33,471 208 4,243 10 37,932At 1 July 2005Cost or fair value 25,980 422 8,042 18 34,462Accumulated depreciation - - (3,298) - (3,298)Net carrying amount 25,980 422 4,744 18 31,164At 30 June 2006Cost or fair value 28,720 302 8,734 302 38,058Accumulated depreciation - - (3,887) - (3,887)Net carrying amount 28,720 302 4,847 302 34,171At 30 June 2007Cost or fair value 33,471 208 9,573 10 43,262Accumulated depreciation - - (5,330) 0 (5,330)Net carrying amount 33,471 208 4,243 10 37,93280

Notes to the Financial Statements 30 June 2007MAC Fund Freehold Deferredland and lease Plant and Work inbuildings incentives equipment progress Total$’000 $’000 $’000 $’000 $’000At 1 July 2005, net of accumulateddepreciation - - - 23 23Additions - - - 769 769Additional lease incentives - - - - -Increase in fair value of owner occupied property - - - - -Disposals - - - - -Amortisation of lease incentives - - - - -Depreciation charge for the year - - - - -Transfers to property, plant and equipment - - - - -Transfers to investment property - - - (774) (774)At 30 June 2006, net of accumulateddepreciation - - - 18 18Additions - - - - -Additional lease incentives - - - - -Increase in fair value of owner occupied property - - - - -Disposals - - - - -Amortisation of lease incentives - - - - -Depreciation charge for the year - - - - -Transfers to property, plant and equipment - - - - -Transfers to investment property - - - (15) (15)At 30 June 2007, net of accumulateddepreciation - - - 3 3At 1 July 2005Cost or fair value - - - 23 23Accumulated depreciation - - - - -Net carrying amount - - - 23 23At 30 June 2006Cost or fair value - - - 18 18Accumulated depreciation - - - - -Net carrying amount - - - 18 18At 30 June 2007Cost or fair value - - - 3 3Accumulated depreciation - - - - -Net carrying amount - - - 3 3The net carrying amount of all classes of property, plant and equipment is considered a reasonableapproximation of the fair value of the assets in the context of the financial statements.The Freehold land and buildings represents the building located at 24 Mitchell Street, Darwin. This building hasbeen classified as Property, plant and equipment by virtue of the fact that a significant portion is occupied byTIO. Portions of this building are however leased out for rental income and any costs incurred in thenegotiation and arrangement of leases have been capitalised and amortised over the term of the respectiveleases and are included as part of the carrying value of the respective asset as “Deferred lease incentives”.81

Notes to the Financial Statements 30 June 2007The fair value of TIO’s owner occupied property as at 30 June 2007 has been determined and approved by theBoard on the basis of a valuation carried out at that date by Mark Harris and Bill Linkson, both are certifiedpracticing valuers of Integrated Valuation Services Pty Ltd, with recent experience in the valuation of propertyin Darwin.The fair value of the property represents the amount at which the assets could be exchanged between aknowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date ofvaluation, in accordance with Australian Valuation Standards.18. REINSURANCE AND OTHER RECOVERIES RECEIVABLE2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Expected future recoveriesundiscounted:on claims paid 3,436 2,855 581 5,744 5,744 -on outstanding claims 66,543 19,231 47,312 64,281 22,975 41,306Discount to present value (25,511) (3,248) (22,263) (20,627) (3,397) (17,230)Discounted expected futurerecoveries on outstanding claims 41,032 15,983 25,049 43,654 19,578 24,076Allowance for impairment loss (415) (415) - (150) (150) -Reinsurance and other recoveries receivable 44,053 18,423 25,630 49,248 25,172 24,076Current 11,003 9,074 1,929 17,940 16,940 1,000Non-current 33,050 9,349 23,701 31,308 8,232 23,076Reinsurance and otherrecoveries receivable 44,053 18,423 25,630 49,248 25,172 24,076Average inflation rates (normal) and discount rates that were used in the measurement of reinsurance andother recoveries receivable were the same as for outstanding claims as per note 3.19. DEFERRED ACQUISITION AND REINSURANCE COSTSDeferred acquisition costs2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Deferred acquisition costsas at 1 July 3,348 3,348 - 2,925 2,925 -Acquisition costs deferred 6,858 6,148 710 6,418 5,612 806Amortisation charged to income statement (6,428) (5,917) (511) (5,995) (5,189) (806)Deferred acquisition costsas at 30 June 3,778 3,579 199 3,348 3,348 -82

Notes to the Financial Statements 30 June 2007Deferred reinsurance expense2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Deferred reinsurance expenseas at 1 July 15,613 15,613 - 15,572 15,572 -Reinsurance expenses deferred 36,439 28,263 8,176 31,556 23,988 7,568Amortisation charged to incomestatement (34,162) (25,986) (8,176) (31,515) (23,947) (7,568)Deferred reinsurance expenseas at 30 June 17,890 17,890 - 15,613 15,613 -20. OUTSTANDING CLAIMS LIABILITY(a)Outstanding claims liability2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Central estimate (A) 505,364 118,352 387,012 471,603 130,382 341,221Discount to present value (236,744) (33,495) (203,249) (192,639) (33,957) (158,682)Central estimate discounted 268,620 84,857 183,763 278,964 96,425 182,539Claims handling costs (B) 32,370 5,278 27,092 30,256 6,370 23,886300,990 90,135 210,855 309,220 102,795 206,425Risk margin (C) 38,031 15,375 22,656 34,029 12,293 21,736Gross outstanding claims liability 339,021 105,510 233,511 343,249 115,088 228,161Gross claims incurred – undiscounted(A+B+C) 575,765 139,003 436,762 535,888 149,045 386,843Current 59,616 30,045 29,571 59,905 32,567 27,338Non-current 279,405 75,465 203,940 283,344 82,521 200,823Gross outstanding claims liability 339,021 105,510 233,511 343,249 115,088 228,161(b)Risk marginProcess for determining risk marginThe overall risk margin was determined allowing for diversification between different portfolios and the relativeuncertainty of the outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfoliotaking into account potential uncertainties relating to the actuarial models and assumptions, the quality of theunderlying data used in the models, the general insurance environment, and the impact of legislative reform.The assumptions regarding uncertainty for each class were applied to the net central estimates, and the resultswere aggregated, allowing for diversification in order to arrive at an overall provision which is intended to havea 75% probability of adequacy.The additional Board provision raised in 2005/06 of $2.0m has been reversed in 2006/07 as an adjusting subsequentevent. This related to an allowance for the risk associated with the potential for workers compensation claimantsto pursue retrospective superannuation benefits. The High Court of Australia delivered an appeal judgment on2nd August 2007 which was in favour of TIO’s workers compensation business. Refer to note 37 for more information.83

Notes to the Financial Statements 30 June 2007Risk margins appliedClass of business 2007 2006% %TIO Insurance & Banking 14.512 12.944MAC Fund 10.745 10.746(c)Reconciliation of movement in discounted outstanding claims liability2007 2006TIO Gross Reinsurance Net Gross Reinsurance Net$’000 $’000 $’000 $’000 $’000 $’000Brought forward 343,249 (43,654) 299,595 327,058 (33,057) 294,001Effect of changes in assumptions 1,054 (1,539) (485) (8,429) 304 (8,125)Increase in claims incurred/recoveriesanticipated over the year 67,481 (10,001) 57,480 90,914 (22,734) 68,180Incurred claims recognised in theincome statement 68,535 (11,540) 56,995 82,485 (22,430) 60,055Net claim payments (72,763) 14,161 (58,602) (66,294) 11,833 (54,461)At 30 June 339,021 (41,033) 297,988 343,249 (43,654) 299,5952007 2006TIO (Insurance & Banking) Gross Reinsurance Net Gross Reinsurance Net$’000 $’000 $’000 $’000 $’000 $’000Brought forward 115,088 (19,578) 95,510 109,901 (14,361) 95,540Effect of changes in assumptions 1,573 (1,117) 456 (6,196) 3,327 (2,869)Increase in claims incurred/recoveriesanticipated over the year 30,384 (6,943) 23,441 53,066 (19,572) 33,494Incurred claims recognised in theincome statement 31,957 (8,060) 23,897 46,870 (16,245) 30,625Net claim payments (41,535) 11,655 (29,880) (41,683) 11,028 (30,655)At 30 June 105,510 (15,983) 89,527 115,088 (19,578) 95,5102007 2006MAC Fund Gross Reinsurance Net Gross Reinsurance Net$’000 $’000 $’000 $’000 $’000 $’000Brought forward 228,161 (24,076) 204,085 217,157 (18,696) 198,461Effect of changes in assumptions (519) (422) (941) (2,233) (3,023) (5,256)Increase in claims incurred/recoveriesanticipated over the year 37,097 (3,058) 34,039 37,848 (3,162) 34,686Incurred claims recognised in theincome statement 36,578 (3,480) 33,098 35,615 (6,185) 29,430Net claim payments (31,228) 2,506 (28,722) (24,611) 805 (23,806)At 30 June 233,511 (25,050) 208,461 228,161 (24,076) 204,08584

Notes to the Financial Statements 30 June 2007(d)Claims development tablesThe following tables show the development of gross and net undiscounted outstanding claims relative to theultimate expected claims for the five most recent accident years.(i)TIO (Insurance & Banking) - gross2002 2003 2004 2005 2006 2007 TotalAccident year $’000 $’000 $’000 $’000 $’000 $’000 $’000Estimate of ultimate claims cost:At end of the accident year 15,759 16,449 18,321 17,522 18,392 22,127 108,570One year later 17,048 18,150 19,439 15,128 16,355 - 86,120Two years later 17,882 18,647 17,467 12,466 - - 66,462Three years later 16,558 18,637 16,082 - - - 51,277Four years later 16,562 17,631 - - - - 34,193Five years later 14,238 - - - - - 14,238Current estimate ofcumulative claims costs 14,238 17,631 16,082 12,466 16,355 22,127 98,899Cumulative payments (9,591) (10,419) (8,912) (5,460) (6,249) (3,454) (44,085)Outstanding claims- undiscounted 4,647 7,212 7,170 7,006 10,106 18,673 54,814Discount (1,361) (2,100) (2,078) (1,971) (2,792) (4,694) (14,996)Claims handling expenses 134 213 212 210 300 559 1,628Total gross outstandingclaims 2002-2007 3,420 5,325 5,304 5,245 7,614 14,538 41,4462001 and prior 37,039Total outstanding claims centralestimate 78,485Risk margin 10,443Total long tail outstanding Claims 88,928Other short tail outstanding claims 16,582Total Insurance grossoutstanding claims 105,51085

Notes to the Financial Statements 30 June 2007(ii) TIO (Insurance & Banking) - net2002 2003 2004 2005 2006 2007 TotalAccident year $’000 $’000 $’000 $’000 $’000 $’000 $’000Estimate of ultimate claims cost:At end of the accident year 15,541 16,090 17,946 17,082 17,967 18,932 103,558One year later 16,877 17,875 19,432 15,128 16,355 - 85,667Two years later 17,708 18,386 17,460 12,466 - - 66,020Three years later 16,468 18,474 16,075 - - - 51,017Four years later 16,493 17,631 - - - - 34,124Five years later 14,181 - - - 14,181Current estimate ofcumulative claims costs 14,181 17,631 16,075 12,466 16,355 18,932 95,640Cumulative payments (9,591) (10,419) (8,905) (5,460) (6,249) (3,454) (44,078)Outstanding claims- undiscounted 4,590 7,212 7,170 7,006 10,106 15,478 51,562Discount (1,346) (2,100) (2,078) (1,971) (2,792) (3,772) (14,059)Claims handling expenses 134 213 212 210 300 559 1,628Total net outstanding claims2002-2007 3,378 5,325 5,304 5,245 7,614 12,265 39,1312001 and prior outstanding claims 29,945Total net outstandingclaims central estimate 69,076Risk margin 9,197Total long tail outstanding claims 78,273Other short tail outstanding claims 11,254Total Insurance netoutstanding claims 89,527(iii) MAC Fund - gross2002 2003 2004 2005 2006 2007 TotalAccident year $’000 $’000 $’000 $’000 $’000 $’000 $’000Estimate of ultimate claims cost:At end of the accident year 32,702 29,938 40,098 40,730 50,710 51,839 246,017One year later 31,448 40,861 38,434 56,104 45,406 - 212,253Two years later 28,627 33,462 37,046 49,490 - - 148,625Three years later 29,001 35,020 33,585 - - - 97,606Four years later 34,237 36,433 - - - - 70,670Five years later 35,309 - - - - - 35,309Current estimate ofcumulative claims costs 35,309 36,433 33,585 49,490 45,406 51,839 252,062Cumulative payments (15,443) (17,974) (10,194) (13,327) (7,507) (4,845) (69,290)Outstanding claims- undiscounted 19,866 18,459 23,391 36,163 37,899 46,994 182,772Discount (10,085) (8,910) (9,307) (16,640) (15,745) (18,842) (79,529)Claims handling expenses 685 668 986 1,367 1,551 1,971 7,228Total gross outstandingclaims 2002-2007 10,466 10,217 15,070 20,890 23,705 30,123 110,4712001 and prior outstanding claims 100,384Total gross outstandingclaims central estimate 210,855Risk margin 22,656Total MAC Fund grossoutstanding claims 233,51186

Notes to the Financial Statements 30 June 2007(iv) MAC Fund - net2002 2003 2004 2005 2006 2007 TotalAccident year $’000 $’000 $’000 $’000 $’000 $’000 $’000Estimate of ultimate claims cost:At end of the accident year 31,856 26,189 37,098 38,580 46,062 47,284 227,069One year later 31,142 32,281 32,974 55,728 45,018 - 197,143Two years later 28,537 29,231 33,032 49,490 - - 140,290Three years later 27,741 30,789 29,053 - - - 87,583Four years later 29,864 32,202 - - - - 62,066Five years later 30,618 - - - - - 30,618Current estimate ofcumulative claims costs 30,618 32,202 29,053 49,490 45,018 47,284 233,665Cumulative payments (15,443) (13,743) (10,194) (13,327) (7,507) (4,845) (65,059)Outstanding claims- undiscounted 15,175 18,459 18,859 36,163 37,511 42,439 168,606Discount (7,581) (8,910) (8,273) (16,640) (15,639) (17,343) (74,386)Claims handling expenses 685 668 986 1,367 1,551 1,971 7,228Total net outstandingclaims 2002-2007 8,279 10,217 11,572 20,890 23,423 27,067 101,4482001 and prior outstanding claims 86,789Total net outstandingclaims central estimate 188,237Risk margin 20,224Total MAC Fund netoutstanding claims 208,46121. UNEARNED PREMIUM LIABILITY2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Unearned premium liabilityas at 1 July 61,010 42,212 18,798 60,478 42,346 18,132Deferral of premiums on contractswritten in the period 64,918 45,020 19,898 61,010 42,212 18,798Earning of premiums writtenin previous periods (61,010) (42,212) (18,798) (60,478) (42,346) (18,132)Unearned premium liabilityas at 30 June 64,918 45,020 19,898 61,010 42,212 18,798The liability adequacy test has identified a surplus for each portfolio of contracts that are subject to broadlysimilar risks and are managed together as a single portfolio. As there is no deficiency in the unexpired riskliability as at the reporting date, no write down of deferred acquisition costs is required (2006: $nil).AASB 1023 requires the inclusion of a risk margin in insurance liabilities, but does not prescribe a minimumlevel of margin. Whilst there is established practice in the calculation of the probability of adequacy of theclaims provision, no such guidance exists in respect of the level of risk margin to be used in determining theadequacy of the net premium liabilities. The TIO Board has adopted a risk margin for the purposes of theliability adequacy test to produce a 75% probability of adequacy in respect of the total insurance liabilities.The 75% basis is a recognised industry benchmark in Australia, being the minimum probability of adequacyrequired for Australian licensed insurers by APRA.87

Notes to the Financial Statements 30 June 200722. NET CLAIMS INCURREDThe following tables show the impact on current year results of over or under estimation of claims provisionsrelating to prior years. Current year claims relate to risks borne in the current reporting period whilst prioryear’s claims relate to a reassessment of the risks borne in all previous reporting years.TIO (Insurance & Banking) 2007 2006Current Prior Current PriorYear Years Total Year Years Total$’000 $’000 $’000 $’000 $’000 $’000Direct businessGross claims incurred – undiscounted 48,919 (10,691) 38,228 51,360 956 52,316Discount movement (5,526) 4,392 (1,134) (4,565) (732) (5,297)Gross claims incurred – discounted 43,393 (6,299) 37,094 46,795 224 47,019Reinsurance and other recoveries- undiscounted (11,493) (794) (12,287) (15,203) (2,611) (17,814)Discount movement 1,044 (523) 521 168 1,077 1,245Reinsurance and other recoveries- discounted (10,449) (1,317) (11,766) (15,035) (1,534) (16,569)Net claims incurred 32,944 (7,616) 25,328 31,760 (1,310) 30,450MAC Fund 2007 2006Current Prior Current PriorYear Years Total Year Years Total$’000 $’000 $’000 $’000 $’000 $’000Direct businessGross claims incurred– undiscounted 64,449 24,683 89,132 58,695 56,519 115,214Discount movement (24,105) (28,447) (52,552) (19,403) (60,196) (79,599)Gross claims incurred – discounted 40,344 (3,764) 36,580 39,292 (3,676) 35,616Reinsurance and other recoveries- undiscounted (5,393) (3,120) (8,513) (5,054) (11,771) (16,826)Discount movement 1,895 3,139 5,034 1,615 9,023 10,638Reinsurance and other recoveries- discounted (3,498) 19 (3,479) (3,439) (2,749) (6,188)Net claims incurred 36,846 (3,745) 33,101 35,853 (6,425) 29,428TIO 2007 2006Current Prior Current PriorYear Years Total Year Years Total$’000 $’000 $’000 $’000 $’000 $’000Direct businessGross claims incurred- undiscounted 113,368 13,992 127,360 110,055 57,475 167,530Discount movement (29,631) (24,055) (53,686) (23,968) (60,928) (84,896)Gross claims incurred- discounted 83,737 (10,063) 73,674 86,087 (3,453) 82,634Reinsurance and other recoveries- undiscounted (16,886) (3,914) (20,800) (20,257) (14,382) (34,640)Discount movement 2,939 2,616 5,555 1,783 10,100 11,883Reinsurance and other recoveries- discounted (13,947) (1,298) (15,245) (18,474) (4,283) (22,756)Net claims incurred 69,790 (11,361) 58,429 67,613 (7,735) 59,87888

Notes to the Financial Statements 30 June 200722. NET CLAIMS INCURRED (CONTINUED)2007 2006Current Prior Current PriorYear Years Total Year Years Total$’000 $’000 $’000 $’000 $’000 $’000Inwards Reinsurance BusinessGross claims incurred– undiscounted - (5,924) (5,924) - (688) (688)Discount movement 784 784 539 539Gross claims incurred – discounted (5,140) (5,140) (149) (149)Reinsurance and other recoveries- undiscounted 4,376 4,376 1,629 1,629Discount movement (670) (670) (1,305) (1,305)Reinsurance and other recoveries- discounted 3,706 3,706 324 324Net claims incurred (1,434) (1,434) 175 175Total net claims incurred for directand inwards reinsurance business 69,790 (12,795) 56,995 67,613 (7,561) 60,053Total gross claims incurred for directand inwards reinsurance business 83,737 (15,203) 68,534 86,087 (3,602) 82,485Total reinsurance and other recoveries (13,947) 2,408 (11,539) (18,474) (3,959) (22,432)Total net claims incurred for directand inwards reinsurance business 69,790 (12,795) 56,995 67,614 (7,561) 60,05323. TRADE AND OTHER PAYABLES2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Trade payables 20,520 15,158 5,362 21,644 18,238 3,406Reinsurance payables 11,532 10,532 1,000 9,967 9,031 936Related party payable - - 159 - - 2,323Other 334 334 - 358 358 -32,386 26,024 6,521 31,969 27,627 6,66589

Notes to the Financial Statements 30 June 200724. DEPOSITS2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Deposits - current liabilities 375,565 375,565 - 507,689 507,689 -Deposits - non-current liabilities - - - - - -Total Deposits 375,565 375,565 - 507,689 507,689 -Deposits maturity analysisAt call 135,171 135,171 - 108,994 108,994 -No longer than three months 134,144 134,144 - 231,116 231,116 -Longer than three and not longerthan 12 months 82,326 82,326 - 112,609 112,609 -Longer than one and not longerthan five years 23,924 23,924 - 54,970 54,970 -375,565 375,565 - 507,689 507,689 -Concentration of depositsNorthern Territory residents 216,704 216,704 - 226,109 226,109 -Non-Northern Territory residents 158,861 158,861 - 281,580 281,580 -375,565 375,565 - 507,689 507,689 -25. PROVISIONS2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000(a) Current provisionsEmployee benefits 3,770 3,770 - 3,899 3,899 -Other provisions (i) - - - 384 - 3843,770 3,770 - 4,283 3,899 384(b) Non-current provisions -Employee benefits 685 685 - 584 584 -Total provisions 4,455 4,455 - 4,867 4,483 384Movement in other provisionsBrought forward 384 - 384 400 - 400Amounts provided during the year - - - - - -384 - 384 400 - 400Reversal during the year (384) - (384) - - -Amounts charged during the year - - - (16) - (16)Other provisions at 30 June - - - 384 - 384(i) Provision for costs in relation to the establishment of MAC Fund as a separate statutory fund.90

Notes to the Financial Statements 30 June 200726. SECURITISATION LIABILITIES2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Current 3,036 3,036 - - - -Non Current 219,995 219,995 - - - -Securitisation Liabilities 223,031 223,031 - - - -Securitisation liabilities maturity analysisNot longer than three months 803 803 - - - -Longer than three months and not longerthan 12 months 2,233 2,233 - - - -Longer than one year and not longerthan five years 15,927 15,927 - - - -Longer than five years 204,068 204,068 - - - -No maturity specified - - - - -223,031 223,031 - - - -27. SUBORDINATED LOANS2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Subordinated Loans 19,817 19,817 - 18,461 18,461 -The subordinated loan for TIO from the Northern Territory Government was varied on the 27th June 2006 andhas a maturity date of 27th June 2016. The loan is subordinated to outstanding claim liabilities and otherliability commitments. Interest on the TIO subordinated loan was capitalised to the loan from the 27th June2006. Interest is charged at 7.215% (2006: 7.215%) on the loan.The MAC Fund has a subordinated loan agreement with the Northern Territory Government which has amaturity date of June 2013. The loan was subordinated to all outstanding claims liabilities and other liabilitycommitments directly attributable to the MAC Scheme. TIO has the ability to redraw any repayments with theapproval of the Minister if required to improve the solvency levels of MAC Fund, prior to the maturity date ofthe loan. There is no subordinated loan balance as at 30 June 2007 (2006: $nil).28. BOARD MEMBER AND EXECUTIVE DISCLOSURESThe following disclosures are for the TIO Board and TIO key management personnel.Details of key management personnel(a)Board membersJohn Flynn – ChairmanJohn Messenger – Deputy ChairmanJohn Tsouroutis – Chief Executive OfficerBruce Carter – appointed 1 September 2006Roger Davis – appointed 1 September 2006Denise FinchamJohn Hand – MAC Fund representative – appointed25 September 2006James Noonan – retired 31 July 2007Sheila O’Sullivan – appointed 1 September 2006Alison Payne – retired 31 August 2006Richard Ryan91

Notes to the Financial Statements 30 June 2007(b) Executive management membersJohn Tsouroutis Chief Executive OfficerTerri Gilden General Manager Sales and Marketing (5th June 2006 to 7th March 2007)John Hall General Manager BankingActing General Manager Sales and Marketing (7th March 2007 to 27th July 2007)Michael Hoare General Manager Corporate Services, Chief Financial OfficerLes Holden General Manager InsuranceRichard Ting Acting General Manager Banking (7th March 2007 to 27th July 2007)Doug Webb General Manager MAC Fund & Legal CounselCompensation of key management personnel2007 2006$’000 $’000Short term benefits 2,041 1,622Post employment benefits 284 285Other long-term benefits 15 14Termination benefits 102 -2,441 1,921The increase in short term benefits has been impacted by having a full complement of key managementpersonnel including Board members for the 2006/07 financial year.Loans to key management personnelThe following loan balances are in respect of loans made to key management personnel of TIO or to theirrelated parties.Balance at Interest Balance atbeginningendof period. Charged Write-off of period NumberYear $’000 $’000 $’000 $’000 in Group2007 1,666 108 - 1,684 92006 978 50 - 785 7TIO makes loans to key management personnel and related parties in its capacity as a provider of financialservices. These loans are made on commercial terms and conditions no more favourable than those made onsimilar loans to other employees or customers. These loans are predominantly secured home loans with someminor unsecured TIO credit card advances.Other transactions and balances with key management personnelTIO sells insurance policies, pays insurance claims, makes loans to and accepts deposits from keymanagement personnel and their related parties in its capacity as a provider of insurance and bankingservices. These transactions are entered into on commercial terms and conditions no more favourable thanthose made on similar transactions to other employees or customers and are trivial or domestic in nature.TIO superannuation schemeThe TIO staff superannuation operates a defined contribution plan through a Master Trust under the ColonialFirst State First Choice Superannuation Plan. Under the plan, TIO makes contributions on behalf of Boardmembers and employees which are charged as an expense as they fall due. The amount of contributionsrecognised in the income statement for the year ended 30 June 2007 is $2.28m (2006: $2.02m).92

Notes to the Financial Statements 30 June 200729. REMUNERATION OF AUDITORSThe auditor of TIO is the Auditor-General for the Northern Territory.2007 2006$ $Amounts paid, or due and payable to the NT Government forservices provided by the Northern Territory Auditor-General for:• Audit of TIO financial statements 385,711 364,265• Other services in relation to TIO- assurance related 2,010 319- special audits required by regulators 2,118 87,194389,839 451,76930. RELATED PARTY DISCLOSUREBalances and transactions with related partiesRevenue/ Amounts AmountsReceipts from Purchases owed by owed torelated from related related relatedparties parties parties partiesRelated party Year $’000 $’000 $’000 $’000Entity with control over TIONorthern TerritoryGovernment 2007 54,058 4,425 1,470 4,1352006 52,385 3,689 1,251 4,389Other NorthernTerritory Governmentcontrolled entitiesPowerWater 2007 - 914 - 752006 - 937 - 73Outstanding balances at year-end are unsecured, interest free and settlement occurs in cash.For the year ended 30 June 2007, TIO has not made any allowance for doubtful debts relating to amountsowed by related parties as the payment history does not warrant an allowance (2006: $nil).The Northern Territory Government transfers motor vehicle registration receipts relating to insurance receivedfrom Northern Territory residents to MAC Fund as administered by TIO.Pursuant to the TIO Act, TIO administers the MAC Fund in accordance with the Motor Accidents(Compensation) Act. TIO provides key management personnel, systems and all administration functions tooperate the MAC Scheme pursuant to a Service Level Agreement.93

Notes to the Financial Statements 30 June 200731. RECONCILIATION OF NET PROFIT TO NET CASH INFLOW FROM OPERATING ACTIVITIES2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Net Profit 61,523 18,976 42,547 45,138 12,995 32,143Depreciation and amortisation expense 2,511 2,511 - 1,716 1,716 -Provision for impairment 447 447 - 158 158 -Changes in net market value of investments 4,057 595 3,462 (6,398)) (1,650) (4,748)Changes in net market value of investmentproperties (5,341) - (5,341) (741) - (741)Profit on Sale of Investment Securities (8,207) (3,801) (4,406) - (229) (790)Profit on Sale of Investment Properties (1,277) - (1,277) - - -Loss on sale of non-current assets (12) (12) - 1 1 -Changes in operating assets and liabilities:(Increase)/Decrease in receivables (2,891) (1,350) 235 (4) 669 (108)(Increase)/Decrease in reinsuranceand other recoveries receivable 4,929 6,483 (1,554) (11,244) (6,129) (5,115)(Increase)/Decrease in deferredacquisition costs (430) (231) (199) (423) (423) -Increase/(Decrease) in outstanding claims (4,232) (9,579) 5,347 16,191 5,187 11,004Increase/(Decrease) in derivatives 557 557 - (485) (485) -(Increase)/Decrease in net deferredbroker charges 65 65 - 34 34 -(Increase)/Decrease in lease incentives 153 112 41 129 120 9Increase/(Decrease) in unearned premiums 3,908 2,809 1,099 532 (135) 667Increase/(Decrease) in payables 983 (507) (286) 3,504 2,467 473Increase/(Decrease) in employee benefitsand other liabilities (411) 362 (773) 213 217 (4)Increase/(Decrease) in provision forincome tax payable 3,485 3,485 - 4,354 4,354 -Increase/(Decrease) in deferred taxliabilities 800 800 - 2,036 2,036 -(Increase)/Decrease in deferred tax assets (353) (353) - (123) (123) -Increase/(Decrease) in GST payable (217) (749) 532 (240) (319) 79Increase/(Decrease) in fixed raterepricing adjustment (587) (587) - - - -Net cash inflow from operatingactivities 59,460 20,033 39,427 53,329 20,461 32,86994

Notes to the Financial Statements 30 June 200732. FINANCING ARRANGEMENTS2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Unrestricted access was available atbalance date to the following lines of creditTotal facilitiesBank net setoff overdraft 150 150 - 150 150 -Bank standby facility 20,000 20,000 - 20,000 20,000 -20,150 20,150 - 20,150 20,150 -Used at balance dateBank net setoff overdraft - - - - - -Bank standby facility - - - - - -- - - - - -Unused at balance dateBank net setoff overdraft 150 150 - 150 150 -Bank standby facility 20,000 20,000 - 20,000 20,000 -20,150 20,150 - 20,150 20,150 -The bank overdraft facility has a gross setoff of $1.2m and a net setoff of $0.15m respectively. It may bedrawn at any time and may be terminated by the bank without notice. Interest rates on all facilities arevariable. The Board has undertaken to inform the Minister in the event of a draw-down on the standby facility.33. FINANCIAL REPORTING BY SEGMENTSBusiness Insurance Banking MAC Fund Eliminations Consolidatedsegments 2007 2006 2007 2006 2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000RevenueRevenue fromoutside customers 98,367 100,852 46,848 40,034 97,648 84,900 - - 242,863 225,786Intersegment income 6,803 6,346 - - 11 25 (6,814) (6,371) - -Total Income 105,170 107,198 46,848 40,034 97,659 84,925 (6,814) (6,371) 242,863 225,786ResultSegment profit/(loss) 25,096 15,949 3,047 3,312 42,547 32,143 - - 70,690 51,404Income taxrevenue/(expense) (8,792) (5,702) (375) (564) - - - - (9,167) (6,266)Net profit after tax 16,304 10,247 2,672 2,748 42,547 32,143 - - 61,523 45,138Segment Assets and LiabilitiesSegment assets 257,319 234,679 633,044 550,250 377,749 329,281 (85) (9,929) 1,268,027 1,104,281Segment liabilities 204,292 203,146 608,442 528,320 259,930 254,008 (85) (9,929) 1,072,579 975,545Other Segment InformationAcquisition of property, plantand equipment,intangible assets and othernon-current assets 914 1,421 139 912 154 850 - - 1,207 3,183Depreciation andamortisation 2,073 1,460 438 256 - - - - 2,511 1,716Non-cash expenses otherthan depreciation andamortisation (8,340) 5,660 (107) 294 6,044 12,322 - - (2,403) 18,27695

Notes to the Financial Statements 30 June 2007Segment products and locationTIO operated predominantly in two industries -Insurance and Banking. The Insurance operationscomprise the provision of insurance to the public andthe MAC Fund which provides administration of theMotor Accident (Compensation) Act. The Bankingoperations provide financial services to the public.Risks insured and financial services activities arepredominantly located in Australia.Segment accounting policiesInter-segment sales and transactions are generallyaccounted for as if the sales were to third parties atcurrent market prices.Segment results, assets and liabilities include itemsdirectly attributable to a segment as well as thosethat can be allocated on a reasonable basis.Segment accounting policies are the same as theconsolidated entity's policies described in note 2.3.During the financial year, there were no changes insegment accounting policies that had a materialeffect on the segment information.34. FINANCIAL RISK MANAGEMENTOBJECTIVES AND POLICIESTIO’s financial assets can be divided into those assetsheld to back insurance liabilities and those not held toback insurance liabilities. The main purpose of thosefinancial assets held to back insurance liabilities is togenerate investment returns for the payment ofcurrent and future insurance claims. For a listingof which financial assets have been designated asbacking insurance liabilities see note 2.3 (g).The primary financial instruments not held to backinsurance liabilities comprise short-term investments,cash, loans and deposits. The purpose of thesefinancial instruments is for the management of TIO’sBanking operational requirements, primarily liquidity.In addition to the above financial instruments, TIOhas other financial assets and financial liabilities suchas trade receivables and trade payables, which arisedirectly from its operations.TIO enters into derivative transactions such asinterest rate swaps, which are used for hedgingpurposes against interest rate movements, toimprove investment returns and to alter cashflow.TIO will not enter into derivative transactions thatcannot be matched against an underlying exposureattributable to the asset or liabilities held. Thereforein normal circumstances TIO will enter into derivativecontracts to reduce the cost of the underlyingexposure or to protect the performance of fundsunder management due to asset allocation.The main risks arising from TIO’s financialinstruments are interest rate risk, liquidity risk, andcredit risk. The Board reviews and agrees policies formanaging each of these risks and they aresummarised below.Details of the significant accounting policies andmethods adopted, including the criteria forrecognition, the basis of measurement and the basison which income and expenses are recognised, inrespect of each class of financial asset and financialliability are disclosed in note 2.3 to the financialstatements.Interest rate riskThe exposure to interest rate risk results from theholding of financial assets and liabilities in the normalcourse of business. Fixed interest rate assets andliabilities create exposure to fair value interest raterisk. Financial assets and liabilities with floatinginterest rates create exposure to cash flow interestrate risk.TIO’s exposure to interest rate risk arisespredominantly when a change in the value of theliabilities due to a change in interest rates, does notlead to an exactly offsetting change in the value ofthe assets. There is no interest rate risk associatedwith the portion of the home loans that aresecuritised.The Board has approved the use of interest rateswaps, to reduce exposure to unmatched maturitypatterns and for hedging purposes.96

Notes to the Financial Statements 30 June 2007An interest rate swap is a transfer of interest rateobligations of the two parties to the swap. Noprincipal amount is exchanged, merely interest rateobligations. TIO enters into interest rate swapagreements whereby TIO pays a fixed rate andreceives a floating rate. At 30 June, TIO had interestrate swap agreements with a notional amount of$88 million (2006: $83 million).TIO’s internally managed portfolios are exposed tointerest rate risks, which are mitigated by the shortterm nature of the investments within these portfolios.TIO’s externally managed portfolios are managed inaccordance with an investment mandate which restrictsthe use of derivatives to leverage the portfolio.Derivatives are utilised to manage exposures.During 2006/07 TIO Insurance & Banking outsourcedthe management of the majority of its non bankingrelated liquid and fixed interest investments to CreditSuisse Asset Management to be managed under asingle mandate with investments in Cash Enhanced,Fixed Interest and Inflation Linked Securities portfolios.In order to effectively manage market risk within thisframework Credit Suisse Asset Management areauthorised to use financial derivatives.The increased exposure to financial derivatives in2007 over 2006 relates solely to the use of theseinstruments by Credit Suisse Asset Management inthe performance of its mandated role.At year end TIO held derivative exposures to manageexposure on the investments held for trading portfolio,these included Futures with a nominal value of $0.1million (2006: $nil) and a fair value of ($23,413)(2006: $nil), Inflation Linked Swaps with a nominalvalue of $4.24 million (2006: $nil) and a fair value of($115,660) (2006: $nil) and Interest Rate Swaps witha net nominal value of $34.48 million (2006: $nil) anda fair value of ($659,536) (2006: $nil).Credit riskGeneralCredit risk represents the loss that would berecognised if counterparties failed to perform ascontracted.Credit risk on wholesale activities, including derivativefinancial instruments, is minimised through dealingwith only counterparties which are reputable financialintermediaries with acceptable credit ratingsdetermined by a recognised rating agency. In addition,TIO also manages credit risk by the setting and reviewof credit limits and the monitoring of limit usage.Receivable balances are monitored on an ongoingbasis with the result that TIO’s exposure to bad debtsis not significant.With respect to credit risk arising from other financialassets of TIO, which comprise cash and cashequivalents, held for trading financial assets andcertain derivative instruments, TIO’s exposure tocredit risk arises from default of the counter party,with a maximum exposure equal to the carryingamount of each financial asset, including derivatives,on the balance sheet.Since TIO trades only with recognised third parties,there is no requirement for collateral, other than thatdetailed for loans.At the reporting date there were no significantconcentrations of credit risk.BankingThe credit risk associated with our retail financial loanassets including securitized loans are managed by theBanking operations as follows:• Clearly defined credit policies for the approval andmanagement of credit risk associated with retailloans and advances.• The established credit policies set out specificrequirements for different loan types based on thepurpose for which they are made and includes anassessment of a counter party’s repaymentcapacity and security (where applicable).• The established policies specify the acceptableterms and conditions for all loan types.• The Credit Policy incorporates Delegated LendingAuthorities (DLA) according to different classes ofsecurity and the lending officer’s experience.• The regular monitoring of compliance with creditrisk policy.97

Notes to the Financial Statements 30 June 2007The Banking operations manage all loan arrears on adaily basis. The nature of credit risk varies betweenbusiness and retail loans and is managed accordingly.With the securitisation program in place over somehome loans, TIO has taken out insurance contracts onevery loan that has been securitised to cover the riskof borrowers defaulting on their loan repayments.Although credit risk associated with these loans isinsured with a third party there is the residual riskthat TIO may not be eligible in some exceptionalcases to seek recovery under the policy.Liquidity riskLiquidity is the ability to access funds at short notice,via internal or external sources to the organisation.Liquidity risk is the risk that TIO will be unable tomeet its obligations in an orderly manner as andwhen they fall due. This includes the risk that TIOmay not be able to borrow funds when required or atan acceptable cost.Liquidity risk is due to unanticipated obligationsarising. This may occur when anticipated receipts donot eventuate, or when short term sources of fundsare withdrawn, or where TIO is exposed to oneparticular market sector.The three main elements of managing Liquidityrisk are:Day-to-day cash management involves the use ofworking cash and investment balances. The keytool used to manage cash balances involves theuse of cashflow forecasts.Short Term Liquidity management involves theuse of both internal and external tools andfacilities. TIO utilises tools including cashflowforecasts and investment maturity profiles toensure liquidity does not fall below prudentiallimits. The external facilities include committedand uncommitted stand-by lines for planned andemergency funding requirements.Long Term Liquidity management involves the useof budgets and business plans to protect against aliquidity problem in the future. TIO maintain closerelationships with bankers and financialintermediaries to ensure the availability ofcommitted and uncommitted funds from a numberof sources.35. FINANCIAL INSTRUMENTSFair valuesSet out below is a comparison by category of carryingamounts and fair values of all of TIO’s financialinstruments recognised in the financial statements.The fair values of listed held for trading financialassets have been determined using market values.The fair values of derivatives and subordinated loanshave been calculated by discounting the expectedfuture cash flows at prevailing interest rates. The fairvalues of other financial assets have been calculatedusing the market interest rates.98

Notes to the Financial Statements 30 June 2007TIOCarrying amountFair value2007 2006 2007 2006$’000 $’000 $’000 $’000Financial assetsCash at Bank and on hand 29,941 23,602 29,941 23,602Non-insurance receivables 3,578 3,180 3,578 3,180Insurance receivables premiums 36,138 33,650 36,138 33,650Insurance receivables claims paid 3,021 5,594 3,021 5,594Short Term Deposits 147,870 115,725 147,870 115,725Floating Rate Notes 10,299 41,440 10,299 41,440Other instruments 86,212 - 86,212 -Units in unlisted unit trusts 283,745 262,871 283,745 262,871Loans and advances 518,971 476,174 518,971 476,174Derivative financial assets 815 459 815 459Embedded derivatives 1,986 2,101 1,986 2,101TIOCarrying amountFair value2007 2006 2007 2006$’000 $’000 $’000 $’000Financial liabilitiesNon-insurance creditors and accruals 14,568 16,287 14,568 16,287Insurance creditors and accruals 17,820 15,682 17,820 15,682Deposits 375,565 507,689 375,565 507,689Derivative financial liabilities 799 - 799 -Subordinated loans 19,817 18,461 19,817 18,461Securitisation liabilities 223,031 - 223,031 -TIO Insurance & BankingMAC FundCarrying Amount Fair Value Carrying Amount Fair Value2007 2006 2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Financial assetsCash at Bank and on hand 23,681 16,923 23,681 16,923 6,260 6,679 6,260 6,679Non-insurance receivables 3,313 4,377 3,313 4,377 424 737 424 737Insurance receivablespremiums 35,115 32,706 35,115 32,706 1,023 944 1,023 944Insurance receivablesclaims paid 2,439 5,594 2,439 5,594 581 - 581 -Short Term Deposits 95,480 68,129 95,480 68,129 52,390 47,596 52,390 47,596Floating Rate Notes 502 18,277 502 18,277 9,797 23,163 9,797 23,163Other instruments 86,212 - 86,212 - - - - -Bonds - - - - - - - -Units in unlisted unit trusts 42,287 75,406 42,287 75,406 241,458 187,465 241,458 187,465Loans and advances 518,971 476,174 518,971 476,174 - - - -Derivative financial assets 815 459 815 459 - - - -Embedded derivatives 1,986 2,101 1,986 2,101 - - - -99

Notes to the Financial Statements 30 June 2007TIO Insurance & BankingMAC FundCarrying Amount Fair Value Carrying Amount Fair Value2007 2006 2007 2006 2007 2006 2007 2006$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000Financial liabilitiesNon-insurance creditorsand accruals 11,699 15,173 11,699 15,173 3,028 3,112 3,028 3,112Insurance creditorsand accruals 14,325 12,454 14,325 12,454 3,495 3,164 3,495 3,164Deposits 375,565 507,689 375,565 507,689 - - - -Derivative financial liabilities 799 - 799 - - - - -Subordinated loans 19,817 18,461 19,817 18,461 - - - -Securitisation liabilities 223,031 - 223,031 - - - - -Interest rate riskThe following table sets out TIO’s exposure to interest rate risk showing the carrying value of financialinstruments and the weighted average effective interest rates, when applicable. The banding is based upon theearlier of the contractual repricing or maturity dates.The interest rate risk table does not disclose financial assets and financial liabilities that are non interestbearing.WeightedaverageFixed or >1 year >2 years >3 years 4 years More effectivefloating 1 year and

Notes to the Financial Statements 30 June 2007Interest rate risk (continued)WeightedaverageFixed or >1 year >2 years >3 years 4 years More effectivefloating 1 year and

Notes to the Financial Statements 30 June 2007Interest rate risk (continued)WeightedaverageFixed or >1 year >2 years >3 years 4 years More effectivefloating 1 year and

Notes to the Financial Statements 30 June 2007Interest rate risk (continued)WeightedaverageFixed or >1 year >2 years >3 years 4 years More effectivefloating 1 year and

Notes to the Financial Statements 30 June 200736. COMMITMENTS FOR EXPENDITURE2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000(a) Capital commitmentsCommitments for miscellaneous buildingworks contracted for at reporting datebut not recognised as liabilities, payable:Within one year 47 47 - 272 272 -Later than one year but not laterthan five years - - - - - -47 47 - 272 272 -(b) Non-cancellable operating leases where TIO/ MAC Fund is a lesseeWithin one year 811 811 - 689 689 -Later than one year but not laterthan five years 1,286 1,286 - 951 951 -Later than 5 years 5 5 - - - -2,102 2,102 - 1,640 1,640 -(c) Non-cancellable operating leases where TIO/ MAC Fund is a lessorCommitments for leases receivable in relation to direct property held by TIO:Within one year 5,447 1,605 3,841 5,551 4,122 1,429Later than one year but not laterthan five years 8,410 2,721 5,689 11,603 8,812 2,791Later than five years 610 226 384 761 761 -14,467 4,552 9,914 17,915 13,695 4,220Certain properties, where TIO is a lessee or a lessor, are leased under non-cancellable operating leases.Most leases are subject to annual reviews with increases subject to a set percentage or based upon eithermovement in consumer price indices or market criteria. Where appropriate, a right of renewal has beenincorporated in the lease agreements. There are no options to purchase the relevant assets on expiry of the lease.37. EVENTS SUBSEQUENT TO BALANCE DATEOn the 2nd August 2007, the High Court of Australia delivered an appeal judgment in the matter of Attorney-General of the Northern Territory and Chaffey: Santos Limited v Chaffey (2007) HCA 24. Judgment was infavour of TIO’s workers’ compensation business. In 2005/06, the Board had made a provision for $2.0m for anallowance for the risk associated with the potential for workers compensation claimants to pursue retrospectivesuperannuation benefits. The Board provision of $2.0m has been reversed as a result of the High Court’sjudgment and this adjustment has been treated as an adjusting subsequent event under AASB 110 “Eventsafter balance sheet date”.104

Notes to the Financial Statements 30 June 200738. CONTINGENT LIABILITIES AND CONTINGENT ASSETS(a) Contingent liabilitiesTIO Insurance & Banking:The nature of the insurance business is such that in the normal course of operation, rejected claims may bethe subject of legal challenges. TIO will defend these vigorously however the outcome and quantum of anyliabilities is contingent upon the court’s decisions.MAC Fund:The MAC Fund has legal matters in progress which arise in the normal course of business. TIO, on behalf ofthe MAC Fund, defends such matters; however the outcome and quantum of any liabilities are contingent uponthe Courts’ decisions.(b) Contingent assetsTIO Insurance & Banking:TIO has no contingent assets.MAC Fund:The MAC Fund has no contingent assets.105

Chief Executive Officer and Board members’ statementThe Chief Executive Officer and members of the Board are of the opinion that to the best of their belief:the Income Statement, the Balance Sheet, the Statement of Changes in Equity, the Cash Flow Statementand Notes to the Financial Statements of the Territory Insurance Office are drawn up so as to present fairlyTIO and the MAC Fund’s financial position as at 30 June 2007 and their performance for the year ended onthat date.The financial statements are drawn up in accordance with Australian Accounting Standards andInterpretations, other mandatory professional reporting requirements, and the Territory Insurance Office Act,as amended.J I TsouroutisChief Executive OfficerJ G FlynnChairman of the BoardJ I MessengerDeputy Chairman of the Board25 September 2007106

Board Members’ ReportThe Board Members present their report on the financial statements for the year ended 30 June 2007 and theauditor’s report thereon.Board MembersThe Board Members of the Territory Insurance Office at any time during or since the end of the financial yearand up to the date of this report are:J G FlynnJ M Noonan, retired 31 July, 2007J I TsouroutisB J Carter, appointed 1 September, 2006R A Davis, appointed 1 September 2006D L FinchamJ F Hand, appointed 25 September 2006J I MessengerS M O’Sullivan, appointed 1 September 2006A L Payne, retired 31 August 2006R V RyanDetails of Board Members, their directorships/experience and any special responsibilities are set out in thefront section of the annual report.Corporate StructureThe Territory Insurance Office is a statutory body established under Section 4 of the Territory Insurance OfficeAct, and is domiciled in Australia. TIO employed 254 employees as at 30 June 2007 (2006: 255 employees).Principal ActivitiesThe principal continuing activities during the year of TIO are the administration of the Motor AccidentsCompensation Scheme on behalf of the Northern Territory Government and the provision of direct insurancebusiness and related investment activities. TIO also operates a Banking arm which accepts deposits, makesloans, administers the HomeNorth loan scheme and acts as an agent for financial planning services.There was no significant change in the nature of these activities during the year.Results2007 2006TIO TIO MAC TIO TIO MACInsurance Fund Insurance Fund& Banking& Banking$’000 $’000 $’000 $’000 $’000 $’000Net profit for the year 61,523 18,976 42,547 45,138 12,995 32,143DividendsThe Board has not provided for a dividend in respect of the 2006/2007 financial year.107

Board Members’ ReportReview of operationsInsurance and Banking have had a successful year of operations resulting in an after tax profit for the year of$19.0m compared to $13.0m the year before. The Motor Accidents Compensation Fund (MAC Fund), managedby TIO, also reported a surplus of $42.5m compared to $32.1m in the previous year.Overall total operating revenue increased 7.6% from $225.8m in 2006 to $242.9m in 2007.The improvements to the results of operations were mainly due to increased investment income, controlledclaims development and the favourable impact of market interest movements on claims expenses.A full report on the operations of TIO is provided in the Group Overview.Impact of legislation and other external requirementsEffective 1 July 2006, the MAC Scheme was established as a statutory fund by virtue of Section 22B of the TIOAct. The changes to the TIO Act require separate reporting of the MAC Scheme, accordingly the format of theannual financial report of TIO has been changed to reflect fully the activities of the MAC Fund.In addition, the Northern Territory Government has made reforms to the Motor Accident (Compensation) Actwhich modifies the operating parameters of the Scheme. The changes include, but are not limited to, with theprovision of statutory entitlements available under the Motor Accident (Compensation) Act to all interstate andinternational drivers, amendments to the definition of catastrophically injured and the expansion of attendantcare. The changes are effective from 1 July 2007.Significant changes in the state of affairsIn the opinion of the Board Members other than the amendments to the enabling legislation in respect of theestablishment of a statutory fund as outlined above in ’Impact of legislation and other external requirements’there have been no significant changes in the state of affairs of TIO that occurred during the year underreview not otherwise disclosed in this report.Matters subsequent to the end of the financial yearOther than stated below, there has not arisen in the interval between the end of the financial year and thedate of this report any matter or circumstance which has significantly affected or may significantly affect:(a)(b)(c)TIO's operations;the results of those operations; orTIO's state of affairs.Refer to note 37 in relation to an adjusted subsequent event in relation to a High Court judgment in TIO’sfavour.Likely developments and expected results of operationsOther than the above developments, the Board does not believe that it would be in the best interests of TIOto disclose information other than that disclosed elsewhere in this report.Indemnification and Insurance of officersDuring the financial year ended 30 June 2007, TIO paid an insurance premium in respect of a contract insuringthe Board Members and officers of TIO against certain liabilities that may be incurred in discharging theirduties and responsibilities as a Board Member or officer of TIO. The insurance contract prohibits the disclosureof the nature of the liabilities insured against and the premium paid in respect of that insurance.108

Board Members’ ReportMeetings of Board MembersThe number of meetings of the TIO Board and of each Board committee held during the year ended 30 June2007, and the numbers of meetings attended by each Board Member were:Meetings ofRemunerationMeetings of Meetings of Meetings of Meetings of Nomination &Board Audit & Risk Investment Reinsurance SuccessionMembers Committee Committee Committee CommitteeA B A B A B A B A BJ G Flynn 7 7 * * 4 4 * * 1 1J M Noonan 7 7 6 6 3 2 * * * *J I Tsouroutis 7 7 * * 4 4 2 2 * *B J Carter, appointed 1 September 2006 6 6 4 4 * * * * * *R A Davis, appointed 1 September 2006 6 5 * * 3 3 * * * *D L Fincham 7 7 6 6 3 3 * * 1 1J F Hand, appointed 25 September 2006 # 5 5 4 4 3 3 2 2 * *J I Messenger 7 7 6 6 3 3 2 2 1 1S M O’Sullivan, appointed 1 September 2006 6 6 4 4 * * * * * *A L Payne, retired 31 August 2006 1 1 1 1 1 1 * * * *R V Ryan 7 7 6 6 3 3 * * 1 1P J Caldwell ** 1 1 - - - - - - * *A = Number of meetings held during the time the board member held office or was a member of thecommittee during the year.B = Number of meetings attended* = Not a member of the relevant committee# = MAC Member** = Mr P Caldwell is the MAC Nominee who attends meetings when the MAC Member is unable to attendBoard Members’ BenefitsNo Board Member of TIO has received, or has become entitled to receive, a benefit (other than a remunerationbenefit included in the financial statements) because of a contract that:(a)(b)(c)the Board Member; ora firm of which the Board Member is a member; oran entity in which the Board Member has a substantial financial interest;has made (during the year ended 30 June 2007 or at any time) with:(d)(e)TIO; oran entity that TIO controlled, or a body corporate that was related to TIO, when the contract wasmade or when the Board Member received, or became entitled to receive, the benefit (if any).J G FlynnChairman of the BoardJ I MessengerDeputy Chairman of the Board25 September 2007109

AUDITORSAuditor GeneralCONSULTING CONTRACTORSPricewaterhouseCoopersSOLICITORSCridlandsMorgan BuckleyHunt and HuntWard KellerMinter EllisonTAX AGENTKPMGBANKERWestpacCOPYWRITING AND EDITINGTIO Marketing ServicesPhillip Willmington, Write Communication (07) 38785751DESIGN, LAYOUT AND PRODUCTIONMOF Advertising 08 8363 7766

072007 ANNUAL REPORTALICE SPRINGS12 Gregory TerraceCASUARINACasuarina Shopping SquareCOOLALINGACoolalinga Shopping CentreDARWINCBD Plaza47 Cavenagh StreetKATHERINE42 Katherine TerraceNHULUNBUYShop 2 Endeavour SquarePALMERSTONPalmerston Shopping CentreCLAIMS CENTRE24 Mataram StreetWinnellieTERRITORY INSURANCE OFFICE (TIO)ABN 72 532 995 678HEAD OFFICE24 Mitchell StreetDarwin NT 0800GPO Box 770Darwin NT 0801CALL 1300 301 833www.tiofi.com.auABN 72 532 995 678TIO is Government guaranteed and not regulated by APRA