Fund Report 2008

RiskCover Fund Report 2008

A division of the

Insurance Commission

of Western Australia

The Forrest Centre

221 St Georges Terrace

Perth WA 6000

Postal Address: GPO Box K837, Perth WA 6842

Telephone (08) 9264 3333Facsimile (08) 9322 1557

Website www.riskcover.wa.gov.au

About RiskCover 1

Comments from the Under Treasurer 4

Highlights 5

RiskCover Fund Performance 6

Risk Management Services 7

Data Analysis Services 8

Fund Services 9

Claims Services 10

Customer Satisfaction 11

Coverage 12

Fund Contributions Pricing Policy 13

Work Planned for 2009 14

Publications 15

Fund Statements 17

Contents

RiskCover’s Key Aims

To be recognised by our customers as •the best provider of risk management and self-insurance services

To take a leadership role in the minimisation •of the cost of risk for the Government of Western Australia

Fund Report 2008 1

The Government of Western Australia adopted a Managed Fund approach to administer all insurable risks of its public authorities who are RiskCover Fund members (agencies) on a self-insurance basis. The RiskCover Fund is underwritten by the Crown and is managed by the Insurance Commission of Western Australia (Insurance Commission) on behalf of the Government of Western Australia and its participating agencies.

RiskCover’s assets are not owned by the Insurance Commission and are therefore not consolidated in its financial results. The investment assets of the RiskCover Fund are, however, included in the investment pool of the Insurance Commission and are represented by a Floating Rate Promissory Note.

The Insurance Commission’s RiskCover Division facilitates the self-insurance arrangements of Western Australian public authorities (agencies) on behalf of the State Government, and promotes risk management throughout government.

RiskCover’s purpose is to assist the Government of Western Australia minimise its cost of risk. RiskCover does this by working with agencies to focus on their operational, project and strategic business risks. This helps to minimise the impact of adverse risks and maximise opportunities, thereby producing greater business efficiencies.

Functions/Business Activities

The main business activities of RiskCover, as defined by the Insurance Commission of Western Australia Act 1986, are:

to manage and administer insurance and risk management arrangements on behalf of public •authorities, and

to provide services, facilities and advice to public authorities in respect of the management of •claims against them or against funds maintained or administered by them under any written law.

Services

RiskCover provides the following services to Fund Members:

Risk Management•

Fund Management•

Data Analysis •

Claims Management•

About RiskCover

2 RiskCover

RiskCover Service Strategies

RiskCover achieves its key aims through a collaborative approach that delivers a total co-ordinated service to its clients. RiskCover has a Service Delivery Model comprising the following areas:

Loss prevention

Risk management program development and implementation•

Data analysis•

Loss minimisation

Claims management•

Fund management•

All areas are equally important to the success of the RiskCover Division and its clients. Each area is inter-dependent on the other. This inter-dependency is reflected in the RiskCover Service Delivery Model.

RiskCover Service Delivery Model

As an enhancement to RiskCover’s Service Delivery Model, during 2008 we formalised and documented our Service Delivery Strategies which are listed below. These strategies are designed to support RiskCover to achieve its aims.

RiskCover Service Delivery Strategies

Adopt a client-centric culture in the development and delivery of services.•

Ensure all services are targeted to client needs.•

Adopt business processes which are consistent and optimise service delivery.•

Build capability within agencies to achieve self-sufficiency in the management of their risks.•

Manage resources to achieve maximum value for the Government of Western Australia and •its agencies.

Manage the RiskCover scheme structure to minimise the cost of risk to the Government of •Western Australia.

About RiskCover

Claims Management

Risk Management Program Development

and Implementation

Fund Management

Data Analysis

Agency Service Coordination

Risk Management

Loss Prevention Loss Minimisation

Fund Report 2008 3

CustomersMeet customer risk management and self-insurance needs.•To promote and support the growth of risk management practice.•

PeopleTo have a working environment that reflects our Core Values.•

Recruit, retain and develop the right people to their full potential.•

Business ProcessesContinually review and provide quality business processes to better meet customer needs and •increase productivity.

FinancialMinimise direct fund administration expenses.•Achieve targeted funding level.•

RiskCover Goals

4 RiskCover

RiskCover, the Western Australian Government’s self-insurance fund, has delivered an effective risk financing mechanism to the Western Australian State Government since its inception in 1997. During this time, the RiskCover Division of the Insurance Commission of Western Australia, as fund managers, has also provided Government with expert risk management advice and services designed to assist in achieving a real reduction in the cost of risk, together with improved outcomes for Government and in turn the Community.

‘Premier’s Circular 2006/03 – Business Continuity Planning and Risk Management’, issued in March 2006, has continued to draw focus within Government on the importance of embedding a risk management culture within agencies, and developing and maintaining effective risk management policies and practices that support that culture. RiskCover has continued to work actively with agencies to help them meet the requirements placed upon them under the Circular. This has led Government to a position where most agencies have an active risk management program in operation, which incorporates crisis plans and some form of Disaster Recovery Plan in respect of Information Technology.

However, there are still opportunities to improve on this position, with 50% of agencies still having work to do in establishing an effective Business Continuity Plan.

It is pleasing to report that RiskCover has achieved the majority of its annual performance targets and has maintained its fully funded position. This has been achieved through an ongoing focus on the delivery of effective and efficient risk, fund and claims management services, and importantly, without diminution of the broad coverage enjoyed by fund members. The Fund’s strong financial position places it in a good position to cope with the difficulties currently being experienced by the financial markets in Australia and around the world.

I urge all members of the RiskCover Fund to continue to embrace responsible risk management practices, and work toward the realisation of positive risk management culture within their organisations.

Comments from theUnder Treasurer

TIM MARNEY Under Treasurer

Fund Report 2008 5

The RiskCover Fund, underwritten by the Government of Western Australia, ended the year in a •strong reserve position of $102.5 million.

RiskCover has again been able to return funds to Fund Members totalling $34.7 million by way of •Fund Experience Allowances and Contribution Performance Adjustments.

RiskCover has developed and is in the process of deploying ‘RiskBase’, web-enabled software, •for government agencies to record, monitor and report on risks, controls and treatment action plans as part of their ongoing risk management programs.

Highlights

6 RiskCover

RiskCover FundPerformance

The RiskCover Fund’s result for 2008 was a $27.7 million deficit (2007: $40.8 million surplus). This was largely due to the shared negative net investment return of 0.9% which resulted in a $16.3 million deficit in the value of RiskCover’s share of the overall investment pool, and an underwriting result of an $11.4 million deficit (2007: $41.5 million deficit).

The underwriting result was significantly better than the $31.7 million deficit budgeted. However, this was largely due to a release of funds from the Provision for Premium Adjustments, which was reflected by a corresponding increase in RiskCover’s Net Premium Revenue.

Despite the Fund’s deficit, its strong sustained performance in prior years enabled RiskCover to refund well-performing agencies with favourable Contribution Performance Adjustments in respect of the Workers’ Compensation and Motor Vehicle insurance classes, totalling $14.5 million.

RiskCover Fund members were further rewarded with a $20.2 million Fund Experience Allowance via an offset against their 2008 Property and Liability Fund Contributions.

At 30 June 2008, the RiskCover Fund remains in a fully-funded position, with net assets of $102.5 million (2007: $150.4 million) after the provision of the refunds detailed above totalling $34.7 million.

Fund Report 2008 7

RiskCover continues to support agencies with embedding a risk management culture into their businesses. Most agencies are risk-aware and use risk-thinking to enable them to deliver their services and complete their projects.

The Western Australian public sector also continues to build resilience by actively undertaking business continuity planning to ensure that agencies can maintain critical services should an unexpected event occur. This is being developed at agency-level and is also being worked up to the whole-of-government perspective with the Department of the Premier and Cabinet.

Over the past two years, RiskCover has evaluated each agency’s maturity in both Risk Management and Business Continuity Management. This has involved the collection of evidence to support the assessed status, which has enabled RiskCover and the agency to focus on what needs to be done to improve its Risk Management and Business Continuity Management practices.

Most agencies have an active risk management program, however, more than 50% have work to do on their Business Continuity Plans. The majority of agencies have crisis plans and some form of Disaster Recovery Plan in respect of Information Technology.

A significant area of risk for government is around contracts, both procurement and service purchasing. Inappropriate contract wording has the potential to expose government and this is a key focus for our risk management services. We are pleased to report that all of the Contract Risk seminars held during the past 12 months have been overbooked and have therefore been run many times.

RiskCover’s annual risk management training program covered a range of risk topics and was well received with large numbers attending all sessions. The 2007 Government Risk Management Conference, themed “Managing Risk – More than Compliance”, was attended by 320 delegates. It successfully provided some insight into key issues facing government today.

RiskBase

RiskBase® is a risk management reporting tool which has been developed to provide Western Australian government agencies with a means of recording, monitoring and reporting on risks, controls and risk treatment plans.

The RiskBase web application provides an agency with the ability to maintain a comprehensive register of the risks associated with its activities, plans and projects.

It facilitates informed decision making with enhanced management reporting and graphing capabilities.

RiskBase incorporates the agency’s own measures of consequence and likelihood, which can be applied to all risk assessments to assist with the prioritisation of risks.

Risk Management Services

8 RiskCover

Data AnalysisServices

Claims data-analysis is an integral part of the risk management process. It helps to effectively identify across-government and agency-specific risks to minimise the cost of these risks.

During the year, RiskCover conducted numerous claims and data-analysis activities across all classes of insurance cover types. Highlights of RiskCover’s claims-analysis services included the following:

RiskCover delivered more than 50 agency-specific utilisation reports and presentations which •highlighted a range of operational and strategic risks.

RiskCover held claims data-analysis presentations which identified across-government and •organisation-specific risk exposures, trends and benchmark targets. More than 150 agency representatives attended the presentations.

RiskCover completed across-government benchmarking which identified at-risk agencies and •enabled a quick assessment of agencies with higher claims frequencies and/or higher average costs per claim.

A range of data-analysis services were provided to identify risk-prevention and risk-•minimisation opportunities.

RiskCover continues to strive to ensure that the information requirements of agencies are met. In keeping with our ongoing commitment to improve products and services, RiskCover’s data warehouse has undergone a number of enhancements. In conjunction with this, a major version upgrade of the reporting and analysis tools has further expanded RiskCover’s information provision capabilities.

Fund Report 2008 9

Fund Contributions (Premium Revenue) totalled $132.2 million for the year (2007: $117.6 million). Administration Expenses, which include risk management services, increased by $3.6 million to $22.2 million, which is approximately 16% of Fund Contributions. A breakdown of Fund Contributions by risk (i.e. class of cover), is shown in the following diagram.

RiskCover Fund Contributions by Insurable Risk for 2008

At 30 June 2008, RiskCover maintained a Prudential Reserve of $40.5 million.

The RiskCover Fund provides its members with a ‘Fund Experience Allowance’ (i.e. a return of capital) whereby surplus funds in excess of the approved Prudential Reserve are returned to them. A total of $20.2 million was returned to Fund members in 2008 by way of the Fund Experience Allowance which was offset against their Fund Contributions for 2008.

Fund Services

55%, $72.8 million Workers’ Compensation

20%, $26.1 million Liability

18%, $24.2 million Property

6%, $7.5 million Motor

1%, $1.6 million Miscellaneous

10 RiskCover

Claims Services

Claims management and injury services represent the largest part of RiskCover’s operations. RiskCover is focused on delivering quality, cost-efficient claims management and injury services in partnership with our client agencies.

In resource commitment terms, Workers’ Compensation is the largest cover provided to client agencies. RiskCover focuses on providing a service that integrates injury prevention, injury management and claims management.

Through proactive claims management and specialist injury management advice and training, RiskCover has continued to promote the importance of injury management to client agencies. In addition to the regular training programs, we are working with individual agencies to tailor training to meet their needs.

RiskCover continues to enhance claims management processes to: better support agencies’ injury management systems; improve return-to-work outcomes; and reduce claims costs. We are working closely with the Department of Consumer and Employment Protection (DOCEP), through the Public Sector Occupational Safety and Health (OSH) and Injury Management Project. The project has assisted agencies to meet the recently introduced OSH reporting requirements and to comply with the Code of Practice: Occupational Health and Safety in the Western Australian Public Sector 2007.

In 2008, RiskCover made claim payments of $110.4 million (excl. GST) (2007: $97.1 million). A breakdown by insurable risk (cover class) is provided below.

RiskCover Claim Payments by Insurable Risk for 2008

Claims payments in the Property, Motor and Miscellaneous classes were higher than projected. Conversely, the Workers’ Compensation and Liability classes experienced a better than projected result. Claims payments in the Liability class were 61.3% less than budgeted.

62%, $68.5 million Workers’ Compensation

19%, $20.6 million Property

10%, $11.1 million Liability

8%, $9.3 million Motor

1%, $0.9 million Miscellaneous

Fund Report 2008 11

Customer Satisfaction

Each year, a market research organisation conducts an independent survey to measure the level of satisfaction with the service and services provided by RiskCover to its clients. This helps RiskCover to monitor how well it is meeting its clients’ expectations and to plan future services and service delivery.

It is very pleasing that agencies again reported a high level of satisfaction with RiskCover’s performance in the 2008 Customer Satisfaction Survey. The rating of RiskCover’s performance for ‘good’ and above decreased slightly to 96% from 97% last year. However, the percentage of agencies which rated RiskCover’s services as ‘very good’ or ‘excellent’ increased to 66% from 62% last year. Most of this improvement was due to a higher ‘excellent’ rating, to 15% from 10% last year.

Claimant Satisfaction

A separate survey targeting Workers’ Compensation claimants to measure their level of satisfaction with the service they received from RiskCover was again conducted. 75% of respondents reported they were ‘satisfied’ or ‘very satisfied’ with RiskCover’s claims services compared with 72% last year. Claimant dissatisfaction with the RiskCover claims service reduced from 15% in 2007 to 11% in 2008.

12 RiskCover

Coverage

RiskCover continues to provide extensive cover for the majority of State Government insurable risks, including:

Workers’ Compensation;•

Property and Business Interruption;•

Liability, including General, Professional, Medical Treatment and Employment Practices Liability;•

Motor Vehicle Property Damage; and•

Miscellaneous, including Travel, Personal Accident and Special Covers.•

Some of the benefits that the RiskCover Fund provides include:

Extensive coverage;•

Cost-efficient administration in comparison to other funding methods;•

Consistent and systematic approach to risk management across the State Government;•

Consistency in claims and injury management; and•

Buying power in reinsurance markets.•

Fund Report 2008 13

Fund ContributionsPricing Policy

Fund Contributions are set to ensure that sufficient funds are collected to pay for all liabilities. The key outcomes that RiskCover aims to achieve in setting premiums are:

Equity for all public authorities;•

Transparency in the Fund Contributions setting methodology;•

Minimum cross-subsidisation;•

Protection against major surprises; and•

Incentives for risk management.•

As agreed with the Department of Treasury and Finance, claim costs used to determine Fund Contributions do not include a prudential margin as the Government of Western Australia underwrites the Fund.

14 RiskCover

Work Planned for 2009

RiskCover plans for 2009 include:

Developing and implementing Standard Operating Procedures for Workers’ Compensation •and Commercial claims management;

Developing and implementing a Customer Relationship Management System to assist with the •effective and efficient delivery of service to RiskCover Fund members;

Exploring options for the replacement of existing mainframe-based insurance systems which •incorporate workflow and imaging capabilities, similar to that successfully operating in the Insurance Commission’s Motor Vehicle Personal Injury Division;

Expanding existing data-analysis capabilities; and•

Continuing to provide risk consultancy services to agencies, with a major focus on Business •Continuity planning.

Fund Report 2008 15

Publications

All RiskCover publications are published on the RiskCover website – www.riskcover.wa.gov.au

The following publications are prepared by RiskCover and are available upon request.

RiskCover Services and People

This document contains information on the services that RiskCover offers to Western Australian government agencies. It is available to any agency to find out more about RiskCover, its operations and services.

GRM Magazine

GRM is an acronym for ‘Government Risk Management’. The GRM magazine provides information about how to manage and reduce risk. It is produced twice a year and distributed to all State Government agencies. Each issue features articles on risk management practices and concepts, with the aim of helping Western Australian Government agencies better manage risk so that they ultimately reduce their costs.

RiskCover coordinates the production of GRM and welcomes feedback about the magazine and any new issues that could be covered.

Product Disclosure Statement (PDS)

This is intended to provide an overview of the cover provided to agencies as participating members of the RiskCover Fund. For full details of the cover, conditions, limitations and exclusions, reference should be made to the RiskCover Document and Fund Guidelines, Certificates and Variations of Cover.

SPONSORED BY

Professor Newman speaks on SustainabilityStrategic Risk

RiskBase

DotAG: Turning Concepts Into Reality

GOVERNMENT RISK MANAGEMENT VOLUME 8, ISSUE No 17, JULY 2008

© RiskCover 2007 - Product Disclosure Statement (PDS) Release version 5

1 of 21

PRODUCT DISCLOSURE STATEMENT (PDS) RISKCOVER

PLEASE NOTE

This Product Disclosure Statement is intended to provide an overview of the cover provided to your agency as a participating member of the RiskCover Fund. For full details of the cover, conditions, limitations and exclusions, reference should be made to the RiskCover Cover Document and Fund Guidelines, your agency’s specific Certificate of Cover, Variation of Cover (where applicable) and Special Cover (where applicable).

16 RiskCover

Publications

Risk Management Guidelines

These Guidelines have been produced by RiskCover to assist Western Australian government agencies in developing and implementing effective risk management processes. For assistance in applying these Guidelines to the specific needs of the agency, contact RiskCover.

Business Continuity Management Guidelines

These Guidelines are intended to be used by any Western Australian government agency that is in the process of or intending to develop effective Business Continuity Management processes. These Guidelines should be used in conjunction with the Western Australian Government Risk Management Guidelines. For assistance in applying these Guidelines to the specific needs of the agency, please contact RiskCover.

RiskCover Website

This website contains information about a variety of topics relevant to RiskCover’s operations, functions, customers, publications, claims procedures and training and development services. It can be accessed at www.riskcover.wa.gov.au

First edition

WESTERN AUSTRALIAN GOVERNMENT

RISK MANAGEMENT GUIDELINES

BUSINESS CONTINUITY MANAGEMENT GUIDELINES

First edition

WESTERN AUSTRALIAN GOVERNMENT

RiskCover Fund Statements

18 RiskCover

Fund Statements

The Government of Western Australia has adopted a Managed Fund approach to administer all insurable risks of its participating public authorities on a self-insurance basis.

The RiskCover Fund is underwritten by the State Government of Western Australia, and is managed by the Insurance Commission on behalf of the Government and its participating public authorities, under the supervision of the Department of Treasury and Finance. The Insurance Commission’s appointment to manage the RiskCover Fund is on the basis of a rolling three-year notification of termination period.

The Insurance Commission earns a management fee from this activity representing the proportion of the Insurance Commission’s services used to manage the RiskCover Fund.

Except as stated below, the significant accounting policies adopted in preparing the RiskCover Fund’s financial statements are consistent with both those used in preparing the Insurance Commission of Western Australia’s 2008 financial statements and with those adopted in 2007.

As RiskCover is classified as self-insurance, it is not covered by the requirements of AASB1023 General Insurance Contracts, but rather falls within the requirements of AASB137 Provisions, Contingent Liabilities and Contingent Assets. RiskCover has applied a risk-free discount factor in its estimation of the outstanding claims liability.

The RiskCover Fund’s assets are not owned by the Insurance Commission and are therefore not consolidated. The Investment assets of RiskCover are, however, included in the investment pool of the Insurance Commission, represented by a Floating Rate Promissory Note. RiskCover earns an investment return on its share of the investment pool of the Insurance Commission.

Any retained earnings in RiskCover represent an asset of the State Government of Western Australia and not of the Insurance Commission.

The RiskCover Fund is not liable to pay Income Tax Equivalents under current arrangements with the Department of Treasury and Finance.

Fund Report 2008 19

INCOME STATEMENT 2008 2007 for the year ended 30 June 2008 References $’000 $’000

Fund Contributions Revenue (a) 132,211 117,562

Fund Contributions Adjustments (b) 42,788 1,930

Outwards Reinsurance Expense (13,121) (12,284)

Outwards Reinsurance Commission Revenue 1,277 580

Net Contribution Revenue 163,155 107,788

Claims Expense (156,369) (130,562)

Reinsurance and Other Recoveries Revenue 4,100 (105)

Net Claims Incurred (152,269) (130,667)

Underwriting and Administration Expenses (22,238) (18,647)

UNDERWRITING RESULT (11,352) (41,526)

Investment Income (16,325) 82,331

(DEFICIT)/SURPLUS (27,677) 40,805

Income Statement

The Income Statement should be read in conjunction with the references to and forming part of RiskCover’s financial statements.

20 RiskCover

BALANCE SHEET 2008 2007 at 30 June 2008 References $’000 $’000

ASSETS

Current Assets

Cash and Cash Equivalents 897 3,554

Receivables 10,848 11,518

Financial Assets at Fair Value Through Surplus or Deficit (c) 424,015 464,139

Total Current Assets 435, 760 479,211

Non-Current Assets

Receivables 20,876 12,964

TOTAL ASSETS 456,636 492,175

LIABILITIES

Current Liabilities

Payables 17,983 18,342

Outstanding Claims Liability (d) 126,645 104,143

Total Current Liabilities 144,628 122,485

Non-Current Liabilities

Payables - 33,198

Outstanding Claims Liability (d) 209,537 186,112

Total Non-Current Liabilities 209,537 219,310

TOTAL LIABILITIES 354,165 341,795

NET ASSETS 102,471 150,380

EQUITY

Retained Earnings 61,996 117,674

Prudential Reserve (i) 40,475 32,706

TOTAL EQUITY (ii) 102,471 150,380

Balance Sheet

The Balance Sheet should be read in conjunction with the references to and forming part of RiskCover’s financial statements.

Fund Report 2008 21

The State Government Expenditure Review Committee gave approval for the RiskCover Fund to maintain a separate Prudential Reserve approximately equal to the value of a Prudential Margin, calculated as if it were required to comply with the APRA/IFRS requirements. This amount of $40,475,000 (2007: $32,706,000) was calculated by an independent Actuary and should achieve a 75% likelihood of adequacy with respect to the provision for outstanding claims.

The State Government Expenditure Review Committee gave approval for the RiskCover Fund to introduce a Fund Experience Allowance (return of capital) whereby funds in excess of the approved “Prudential Reserve” will be returned to participating agencies over a four-year period (subject to annual review).

The Fund Experience Allowance for the 2009 year is based on the total equity at 30 June 2007 of $150,380,486, less the surpluses for the Motor Vehicle class ($2,900,003) and the Workers’ Compensation class ($7,469,953) at that date (which result in contribution adjustment provisions for these classes), less the Fund Experience Allowance of $20,231,898 paid during the 2008 year. The resulting net amount of $119,778,632 is then further reduced by the Prudential Reserve of the prior year of $32,706,000, leaving an amount of $87,072,632 available for consideration for the Fund Experience Allowance.

The Fund Experience Allowance (return of capital), equating to 25% of this amount available for consideration is $21,768,158. This amount will be apportioned amongst fund members, based on each members’ proportion of the total contributions received for the Property and Liability classes over the past five years.

(i)

(ii)

22 RiskCover

STATEMENT OF CHANGES IN EQUITY 2008 2007 for the year ended 30 June 2008 $’000 $’000

BALANCE OF EQUITY AT START OF THE PERIOD 150,380 117,145

PRUDENTIAL RESERVE

Balance at Start of the Period 32,706 26,473

Transfer from Retained Earnings 7,769 6,233

Balance at End of the Period 40,475 32,706

RETAINED EARNINGS

Balance at Start of the Period 117,674 90,672

(Deficit)/Surplus for the Period (27,677) 40,805

Transfer to Prudential Reserve (7,769) (6,233)

Fund Experience Allowance Paid during the Year (20,232) (7,570)

Balance at End of the Period 61,996 117,674

BALANCE OF EQUITY AT END OF THE PERIOD 102,471 150,380

The Statement of Changes in Equity should be read in conjunction with the references to and forming part of RiskCover’s Financial Statements.

Statement of Changes in Equity

Fund Report 2008 23

CASH FLOW STATEMENT 2008 2007 for the year ended 30 June 2008 References $’000 $’000

CASH FLOWS FROM OPERATING ACTIVITIES

Fund Contributions Received 145,292 130, 782

Reinsurance and Other Recoveries Received 5,061 12,053

Outwards Reinsurance Commission Received 1,405 638

Interest (Paid)/Received (16,325) 82,331

Outwards Reinsurance Paid (15,023) (12,869)

Claims Paid (112,002) (98,399)

Underwriting and Administration Expenses Paid (20,642) (18,329)

Goods and Services Tax Paid (10,315) (9,249)

Net Cash From Operating Activities (h) (22,549) 86,959

CASH FLOWS FROM OPERATING ACTIVITIES

Investment Funds received from/(paid to) the Insurance Commission 40,124 (76,250)

CASH FLOWS USED IN FINANCING ACTIVITIES

Payments for Fund Experience Allowance (20,232) (7,570)

NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (2,657) 3,139

CASH AND CASH EQUIVALENTS AT THE START OF THE YEAR 3,554 415

CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR (h) 897 3,554

The Cash Flow Statement should be read in conjunction with the references to and forming part of RiskCover’s Financial Statements.

Cash Flow Statement

24 RiskCover

References to the RiskCover Financial Statements

REFERENCES TO THE RISKCOVER FINANCIAL STATEMENTS

(a) Fund Contributions Revenue

When determining the deposit contributions for the Workers’ Compensation and Motor Vehicle classes, RiskCover relies on claims costs, which have been actuarially assessed at the net central estimate. A prudential margin on the outstanding claims cost is not included.

(b) Fund Contributions Adjustments

The contributions levied for the Workers’ Compensation and Motor Vehicle classes are deposit contributions and are subject to adjustment at the future date (three years after the close of the risk period for Workers’ Compensation and one year for Motor Vehicle) to take into account the actual claims experience of the public authority. This process reflects the conceptual design of the funding mechanism for these classes and enables sanctions to apply to performance.

The amount provided for includes the estimated contributions to be called-up or refunded based on the current claims trend of the 2008, 2007, 2006, and 2005 risk periods. An additional provision of $6.5 million (2007: $12.1 million) has been brought to account at balance date, reflecting surplus funds held in the Workers’ Compensation Class for closed cover periods 1998 to 2004 inclusive. It is anticipated that this amount will be refunded to the relevant public authorities at a future date.

(c) Financial Assets at Fair Value Through Surplus or Deficit

Represented by a Floating Rate Promissory Note owed to RiskCover by the Insurance Commission.

Fund Report 2008 25

REFERENCES TO THE RISKCOVER FINANCIAL STATEMENTS (continued)

(d) Outstanding Claims Liability

2008 2007 $’000 $’000

Central Estimate 373,991 329,090

Discount to Present Value (68,705) (60,741)

305,286 268,349

Claims Handling Costs 30,897 21,906

Liability for Outstanding Claims (discounted) 336,183 290,255

Current 126,645 104,143

Non-Current 209,537 186,112

336,182 290,255

Weighted Average Expected Term to Settlement:

Workers’ Compensation 2 years 7 months

Liability Classes 4 years 4 months

In addition to the long-tail classes of Workers’ Compensation and Liability, RiskCover also has short-tail liabilities for Property and Business Interruption, Motor Vehicle and Personal Accident, and Travel risks. These short-tail liabilities are internally assessed and total $37.2 million at balance date (2007: $29.6 million).

26 RiskCover

(d) Outstanding Claims Liability (continued)

Inflation and Discount Rates

The following rates were used in measuring the liability for long-tail outstanding claims, reinsurance and other recoveries at 30 June 2008 for RiskCover:

%Rates Used -2008 %Rates Used -2007

Year Ending Subsequent Year Ending Subsequent 30 June 2009 Years 30 June 2008 Years

Workers’ Compensation

Inflation Rate (Wage) 5.10 4.90 4.80 4.70

Total Inflation* 5.10 4.90 4.80 4.70

Discount Rate 7.00 6.40 6.50 6.40

Liability

Inflation Rate (Wage) 5.10 4.90 4.80 4.70

Superimposed Inflation 4.00 4.00 4.00 4.00

Total Inflation* 9.10 8.90 8.99 8.89

Discount Rate 7.00 6.50 6.50 6.40

*The total inflation rate is determined by compounding the wage and superimposed inflation rates.

The actual future discount and wage inflation rates used in the actuarial projections are the same for both long-tail outstanding claims and reinsurance and other recoveries in each of the 2008 and 2007 financial years. For the “Subsequent Years” column, a single equivalent discount and wage inflation rate is shown for each class of business in place of the actual rates for each year. The minor variations between the classes arise due to the different weighted average expected terms to settlement for each class.

(e) Claims Recoveries Written Off

Recoveries arise from instances where RiskCover seeks to recover the costs of a claim paid from a third party or the insured.

In accordance with Australian Accounting Standards, recoveries receivable are assessed with regard to the ability of the debtor to meet their obligations. These recoveries have not been brought to account as revenue because the amount to be recovered could not be reliably measured and consequently the write-off of these debts has not been charged as an expense in the Income Statement.

The amount written off in relation to RiskCover claims totalled $21,468 (2007: $4,539) arising out of two motor vehicle claims.

References to the RiskCover Financial Statements

Fund Report 2008 27

REFERENCES TO THE RISKCOVER FINANCIAL STATEMENTS (continued)

(f) Credit Risk

The following tables provide information about the quality of the RiskCover Fund’s credit risk exposure in respect of reinsurance and other recoveries on claims already paid and on claims which remained outstanding at balance date, but not yet “invoiced” or claimed from relevant parties. The analysis classifies the assets according to Standard & Poor‘s counterparty credit ratings. AAA is the highest possible rating. Ratings that fall outside of the range AAA or BBB and those which cannot be reliably rated, such as estimates of unknown third party recoveries are classified as speculative grade. Income Tax credits recoverable from the Australian Taxation Office have all been classified as AAA rating.

CONSOLIDATED 2008 ($’000)

Speculative AAA AA+ to AA- A+ to A- BBB Grade Total

Fire & General 2,824 2,576 950 - 714 7,064

Workers’ Compensation 1,755 - - - 7,356 9,111

Public Liability 2,538 - - 1,454 2,923 6,915

Total Reinsurance and Other Recoveries 7,117 2,576 950 1,454 10,993 23,090

CONSOLIDATED 2007 ($’000)

Speculative AAA AA+ to AA- A+ to A- BBB Grade Total

Fire & General 2,258 2,966 628 - 1,411 7,263

Workers’ Compensation 1,505 - - - 6,668 8,173

Public Liability 2,289 - - 1,830 3,913 8,032

Total Reinsurance and Other Recoveries 6,052 2,966 628 1,830 11,992 23,468

28 RiskCover

(f) Credit Risk (continued)

The following table provides further information regarding the ageing of amounts receivable for fund contribution debtors, reinsurance and other recoveries on paid claims at the balance date:

CONSOLIDATED 2008 ($’000) Past Due But Not Impaired

Neither Past Due 0 to 3 3 to 6 6 to 12 Greater than nor Impaired Months Months Months 1 Year Impaired Total

90 - - 2 9 - 101

CONSOLIDATED 2007 ($’000) Past Due But Not Impaired

Neither Past Due 0 to 3 3 to 6 6 to 12 Greater than nor Impaired Months Months Months 1 Year Impaired Total

678 2 - 135 5 - 820

References to the RiskCover Financial Statements

Fund Report 2008 29

REFERENCES TO THE RISKCOVER FINANCIAL STATEMENTS (continued)

(g) Liquidity Risk

The following tables detail the maturity profile of the RiskCover Fund’s net discounted outstanding claims liability and other key financial liabilities, at balance date:

CONSOLIDATED 2008 ($’000) Maturity in

Less than 1 to 2 2 to 5 More than 1 Year Years Years 5 Years Total Total

Outstanding Claims Liability Fire and General 30,126 - - - 30,126 Workers’ Compensation 72,012 39,147 49,512 33,369 194,040 Public Liability 17,072 17,126 37,247 33,507 104,952

Total Outstanding Claims Liability 119,210 56,273 86,759 66,876 329,118

CONSOLIDATED 2007 ($’000) Maturity in

Less than 1 to 2 2 to 5 More than 1 Year Years Years 5 Years Total Total

Outstanding Claims Liability Fire and General 22,316 - - - 22,316 Workers’ Compensation 61,132 34,989 44,752 25,533 166,406 Public Liability 14,553 18,282 31,578 29,857 94,270

Total Outstanding Claims Liability 98,001 53,271 76,330 55,390 282,992

30 RiskCover

(h) Reconciliation of (Deficit)/Surplus to Net Cash from Operating Activities

2008 2007 $’000 $’000

(Deficit)/Surplus (27,677) 40,805

Decrease/(Increase) in Assets Current Receivables 670 8,728 Non-Current Receivables (7,912) 3,393

Increase/(Decrease) in Liabilities Current Payables (359) (9,348) Current Outstanding Claims Liability 22,502 18,979 Non-Current Payables (33,198) 9,931 Non-Current Outstanding Claims Liability 23,425 14,471

Net Cash From Operating Activities (22,549) 86,959

Reconciliation of Cash

Cash and Cash Equivalents at the end of the year as shown in the Cash Flow Statement is reconciled to the related items in the Balance Sheet as follows:

Cash and Cash Equivalents 897 3,554

References to the RiskCover Financial Statements

A division of the

Insurance Commission

of Western Australia

The Forrest Centre

221 St Georges Terrace

Perth WA 6000

Postal Address: GPO Box K837, Perth WA 6842

Telephone (08) 9264 3333Facsimile (08) 9322 1557

Website www.riskcover.wa.gov.au