2004 – 05 insurance report - mav.asn.au · Web viewLevel 1, 468 St. Kilda Road, Melbourne 3004,...

MAV INSURANCE

Corporate ListingsBankersAustralia and New Zealand Banking Group LtdCommonwealth Bank of AustraliaTreasury Corporation of VictoriaUBS Global Asset Management (Australia) Ltd

AuditorPKF

SolicitorsFreehillsMaddocksMiddleton LawyersSecombs Solicitors

ActuaryCumpston Sarjeant Pty Ltd

Scheme and Fund ManagerJardine Lloyd Thompson Pty Ltd

Legal Panel CMP SchemeThe firms on the Legal Panel are experienced in defendingpublic liability and professional indemnity claims broughtagainst councils.Panel firms are allocated to specific Victorian rural zones.This system enables cooperative relationships to bedeveloped between the panel firm and its allocated councils,

CONTENTS and between individual staff members of the legal firm andcouncil. It has also enabled legal firms to compile archives

Welcome 2 of council documentation on methods and procedures.Year In Review 4 Herbert Geer & RundleChair’s Report 6 Hunt & HuntMAV Insurance CommitteeCMP Scheme

810

Ligeti PartnersPhillips FoxWisewoulds

Risk Management 18Municipal Officers’ FidelityGuarantee Fund 20

Zones and allocated panel firmsHunt & Hunt – North Central Rural

Australian FinancialServices LicenceAustralian PrudentialRegulation Authority

23

24

Ligeti Partners – Geelong/BallaratPhillips Fox – South West RuralWisewoulds – Eastern RuralHerbert Geer & Rundle – Professional indemnity claims

Fidelity Members 26 Loss Adjusting Panel CMP SchemeCMP Members 27 ANPA Investigation ServicesFinancial Report 28 Echelon Loss Adjusting

G Hughes & AssociatesLee Kelly & AssociatesQuest Investigation Services

Loss Adjusting Panel CMP Scheme – TasmaniaMcLaren ToplisThomas Whayman & McCarthyAs a result of wide-ranging tort reforms, job allocation tofirms on the loss adjusting panel has reduced significantlyin the last couple of years.

LEADING THE WAY TO A SAFER FUTURE

INCORPORATINGCivic Mutual PlusAND The MunicipalOfficers’ GuaranteeFund

WELCOMEIronically, our welcome this year begins with a farewell. On 30 June2005, Anne Murphy, whose stewardship of the MAV InsuranceCommittee began in 1993, resigned as Chair.Over the past twelve years, Anne’s contribution and the vast progressmade by the Scheme under her able leadership has been highlyvalued and valuable. Her involvement with MAV Insurance goes

“…the Australian Financial ServicesLicence…was the result of eighteenmonth’s concentrated effort…and…isan achievement we’re very proud of,especially given the fact that we arethe only local government body inAustralia to be granted this licence.”

back to 1992. As a member of the working party formed toinvestigate the viability of a self-insurance scheme to replacetraditional public liability and professional indemnity insurance, Annestrongly argued for the need to investigate new avenues. It isworthwhile remembering that this was an era when councils couldn’tget insurance for some of their high-hazard activities, their onlyalternative being to outlay substantial sums in premiums andincreased excesses. As Anne said at the time, ‘There had to be abetter way.’ There was, and she found it.

2 MAV INSURANCE ANNUAL REPORT 2004/5

The granting of the AFSL to the MAV by ASIC is also a majorachievement for local government in Victoria and is the basis forsetting the strategic direction for MAV Insurance into the future.Another significant achievement for the year relates to renewedefforts to establish a local government industry-based Workcoverself-insurance scheme.

Back in 1993, the CMP Scheme started with a mere $100 million inpublic and products liability insurance and $30 million inprofessional indemnity. In 2005 this has risen to $300 million publicand products liability, and $200 million in professional indemnityinsurance. Importantly, as of 30 June 2005, the surplus registeredfor MAV Insurance was $10.1 million.

Now that the Victorian Workcover Authority (VWA) has completed itsreview of the workcover system as a whole and its more recentreview of self-insurance arrangements in Victoria, we are confidentthat Civic Workers Plus, the name we have given to the proposedlocal government self-insurance scheme will be given seriousconsideration by the State Government in the near future.

Undoubtedly, the most significant achievement for the year occurredin April 2005 when the MAV was granted an Australian FinancialServices Licence (AFSL) by the Australian Securities and InvestmentCommission (ASIC). This was the result of eighteen month’sconcentrated effort by the MAV and the MAV Insurance Committee,

Our confidence is backed by the findings of the Auditor General’srecent investigation, Management of occupational health and safety inLocal Government, and provides further evidence of the need for localgovernment to establish an industry-based self-insurance scheme.

and is an achievement we’re very proud of, especially given the fact We strongly believe that the establishment of the Civic Workers Plusthat we are the only local government body in Australia to be self-insurance scheme will offer councils substantial benefits. It willgranted this licence. ensure that Victoria has the safest possible work places and workIn simple terms, the AFSL allows the MAV to operate an insurancebusiness independently of the private insurance companies. Thismeans that MAV Insurance can compete on equal terms with general

practices for the protection of local government employees andcontractors, and will result in substantial reductions in the cost ofworkers’ compensation to councils.

insurance companies and provide the maximum security available to Finally, we take this opportunity to congratulate the MAV Insurancemembers through the governance structures and protections required Committee, scheme manager, contract manager and staff onby the licence. another year of hard work and dedication. We also extend ourIn addition, the independence provided will ensure that members ofboth Civic Mutual Plus and the Municipal Officers Fidelity GuaranteeFund receive the best possible service with access to the most

thanks to the members of the CMP and Municipal Officers’ FidelityGuarentee Fund for their support, and look forward to anotherchallenging and rewarding year ahead.

competitive premiums. ROB SPENCE CEO & GEOFF LAKE PRESIDENTMAV INSURANCE ANNUAL REPORT 2004/5 3

year inreview

This was a year in which anticipatedand extraordinary success collided.Having recorded a 100% renewalrate for several consecutive years,this came as no real surprise. Theextraordinary achievement, and nomean feat, was being granted theAustralian Financial Services Licence.

MAV only local government bodyto be granted Australian FinancialServices LicenceIn April 2005, Australian Securities and Investment Commission(ASIC) granted MAV Insurance an Australian Financial ServicesLicence (AFSL).

CMP increases public and productsliability coverIn June 2004, CMP provided an additional layer of $100 million in

The AFSL means that MAV Insurance is currently the only local excess of $200 million for public and products liability. This wasgovernment organisation in Australia licenced to operate achieved at premium terms, equivalent to what had previously beenindependently – on an equal commercial basis with general paid for $40 million in excess of $200 million.insurance organisation – to provide public liability and fidelityinsurance services.Having worked towards this achievement for many years, the AFSL

Operating results in line withexpectations

not only provides security, but a strong platform for the development The increase in the cost of insurance was felt across the industryof future strategic direction for the MAV Insurance. during 2004/05. For the Municipal Officers’ Fidelity Guarentee

Fund, the increased cost of reinsurance was combined with aMAV Insurance Committee expandedDuring 2004/05, the MAV Insurance Committee established a newsubcommittee to provide specialist advice. The Claims and Technical

significant increase in the level of recoveries received fromdefendants, and an equally significant level of claims expensespaid by the Fund.

Committee assists in claims management and settlements, with a In line with expectations, the result for the 2004/05 financial yearfocus on technical insurance, and will develop risk management was an operating deficit of $215,289, which decreased the net assetinitiatives for consideration by the Committee. position of the Fund to $146,816 at the end of 2005.4 MAV ANNUAL REPORT 2004/5

Meeting of audit chairs adoptsinteractive approachA meeting of audit chairs was hosted by the Municipal Officers’Fidelity Guarantee Fund in July 2004. Taking an effective interactiveapproach, the meeting reinforced the importance of efficient localgovernment systems and audit processes in protecting council assets.A follow-up meeting, taking a similar approach, is being planned forthe 2006 financial year.

MAV awards promote best practice inrisk managementThe 2004/05 Risk Management Excellence Award was won by theCity of Yarra’s policy on community safety and management of soilcontamination.

Community organisations recogniseMAV contributionDuring the year community groups across the state recognised theinvaluable contribution made by MAV Insurance to the life andhealth of their organisations by providing affordable public liabilityinsurance.

The winner for 2004/05 was the Hobart City Council for its efforts inminimising exposure to wood fibres and dust arising from treemaintenance activities.

Mock trials prove effective training toolA series of mock trials were staged at a range of metropolitan,regional and rural centres throughout the year. The trials simulated a

The Risk Management Excellence Award promotes best practice in typical single-vehicle accident and provided local governmentlocal government risk management by highlighting the potential for officers with direct experience of the rigours and pitfalls of thethe winning initiatives to be applied across other municipalities. adversarial court process.

MAV ANNUAL REPORT 2004/5 5

CHAIR’S REPORT“…after more than a decade of carefulplanning and wise decisionmaking…the MAV InsuranceCommittee can look back withsatisfaction, assured that its hard workhas afforded members continuedprotection and a stable future in theever-changing insurance environment.”In this, my last year as Chair of the MAV Insurance Committee, I ampleased to report a $10.1 million accumulated surplus as at 30 June2005. This satisfying result not only meets the minimum capitalrequirement specified by the Australian Prudential RegulationAuthority but, importantly, reduces the financial risk for members ofthe CMP Scheme and the Municipal Officers’ Fidelity GuaranteeFund – an objective we have all been working hard to achieve.


In July 2004, the Municipal Officers’ Fidelity Guarantee Fund held ameeting of audit committee chairpersons and chief executive officers. Themeeting took an interactive approach and was successful in reinforcingthe importance of effective systems and internal audit processes in theprotection of council assets. Speakers included the Auditor General,Wayne Cameron, and topics ranged from claims statistics and fraud riskprofiles to current trends in audit committee procedures.Feedback was extremely positive and a follow-up meeting of auditcommittee chairs and CEOs is being planned for the 2006 financial year.Finally, I would like to acknowledge the contribution of the MAVInsurance Committee whose hard work and commitment over manymonths has resulted in the granting by the Australian Securities and

So, after more than a decade of careful planning and wise decisionmaking, I believe the MAV Insurance Committee can look back withsatisfaction, assured that its hard work has afforded memberscontinued protection and a stable future in the ever-changinginsurance environment.

Investment Commission of the Australian Financial Services Licence tothe MAV. The fact that we are the only local government body inAustralia to be granted this licence is testament to the talent anddedication of the many people involved in achieving this significantmilestone. This includes the MAV staff whose high level resourcing ofthe Committee throughout the year was of invaluable assistance.

During the 2005 financial year the Municipal Association of VictoriaInsurance Committee (MAVIC) expanded its scope and focus byforming the Claims and Technical Committee. Established as apermanent subcommittee, it will streamline the business of theMAVIC by providing specialist, technical advice. It will berepresented by a minimum of three MAVIC members, with the

Grateful thanks also to CMP and Fidelity members for their ongoingsupport, and to our scheme manager, Jardine Lloyd Thompson andstaff for their hard work – not only during the 2005/06 year – butover the previous twelve years in my role as Chair of the MAVInsurance Committee.

majority being independent. I wish you all well in your future endeavours, confident in theThe role of the committee is to assist the MAVIC in claimsmanagement and settlements, interpreting technical insurance issues,and developing risk management initiatives and services for clients and

knowledge that you have the vision and commitment to continue toimprove performance and provide the protection local governmentneeds and deserves.

local government generally. In September each year, the Committee ANNE MURPHY CHAIRMANwill review its activities carried out during the preceding year. MAV INSURANCE COMMITTEE

MAV INSURANCE ANNUAL REPORT 2004/5 7

MAVINSURANCECOMMITTEEAS AT 30 JUNE 2005 ANNE MURPHY CR GEOFF LAKE RON FARRELL

Committee ChairmanAppointed 1993Current and past positions heldState Manager Kidsafe Victoria IncConsultantSessional Member Planning Panels VictoriaSessional Member Architects RegistrationBoardPast President MAV

Appointed August 2004Current and past positions heldMAV PresidentCouncillor Monash City Council 2000 tocurrent. Mayor Monash City Council2002-03 and 2003-04.

Appointed 2001Current and past positions heldNon-executive Director Victorian ManagedInsurance AuthorityGeneral Manager Australian EagleInsurance Co LtdChairman and Non-executive DirectorUtilities Insurance Co Pty LtdNon-executive Director connect.com.auPty LtdNon-executive Director Metropolitan Fire &Emergency Services BoardInsurance Committee Member VictorianWoodworkers AssociationConsultant to other associations

COMMITTEE MEMBERS NOT ADRIAN NYE NICK RENTON AM


PICTURED WHO RETIRED 2004-05CR JENNY DALERetired August 2004CR JIM RYANRetired November 2004CR CHRIS PAPASRetired February 2005

Appointed March 2004Current and past positions heldManagement ConsultantChairman Victorian Managed InsuranceAuthorityChairman Showgrounds RedevelopmentJoint Venture

Appointed 1995Current and past positions heldConsulting Actuary & Principal N E Rentonand AssociatesFormer Director FM Investment Group LtdExecutive Director Life InsuranceFederation of Australia 1975-86Principal Officer Switzerland Life AssuranceSociety Limited 1960-75

CR ROD FYFFE ALLAN GARCIA CR DICK GROSS DR MICHAEL KENNEDYAppointed 2004 Appointed 30 July 2003 Appointed 2005 Appointed 1995Current and past positions held Current and past positions held Current and past positions held Current and past positions heldMAV Board Representative Rural North CEO Local Government Association of MAV Board Representative Metro Inner Region CEO Mornington Peninsula Shire CouncilCentral Region Tasmania (LGAT) Councillor City of Port Phillip 1996 to Former CEO Boroondara City CouncilCouncillor Greater Bendigo City Council1996-currentMayor Greater Bendigo City Council 2003to current

LGAT Representative currentMayor City of Port Phillip 1998-2000

Former CEO Shire of HastingsFormer Director/General Manager CoastalExpresslineFormer Executive General ManagerInternational ANL Limited

Ex-officio members

ROB SPENCE JOHN WARBURTON JIM BULLING BOB FALZON ALLAN HOLMES GRAEME LEMMERAppointed 1998Current and past positions held

Appointed 1995Current and past positions held

Current and pastpositions held




CEO Municipal Association of VictoriaDirector Vision Super (formerly LocalAuthorities Super)CEO Brimbank City Council 1994-97CEO City of Footscray 1992-94

Chairman Good Governance AdvisoryGroupDirector Vision Super (formerly LocalAuthorities Super)Director Select Limited

Partner MiddletonsLawyersMAV Legal Adviser

Jardine LloydThompson GeneralManager RiskServices

Managing DirectorAAR Capital Pty LtdMAV Financial andInsurance Consultantand ContractManager

CMP SchemeManager JardineLloyd Thompson

Former Director Municipal OperationsOffice of Local Government

Trustee Melbourne Exhibition andConvention Centre TrustChairman Port of Hastings CorporationDeputy Chair Victorian ManagedInsurance Authority 1996-2000Chair Tandou Limited 1996-2003


cmp schemeRIDING THE WAVES OFTORT REFORMWith the full impact of tort reformstarting to hit, MAV Insurance haspositioned itself well to derivemaximum benefits from the reforms.Faced with a continuing reductionin claims – but, as yet, no accompanyingreduction in reinsurance premiums –the Association has played a strategicand patient waiting game.


Although not yet tested, the areas of tort reform considered to havethe greatest potential for favourable impact on local government inVictoria and Tasmania, as well as for the CMP Scheme, relate to

· specifying what amounts to a breach of duty of care· codifying the resource and conflicting priorities/responsibilities

defence enunciated by the High Court of Australia in the Brodieand Ghantous decisions

· outlining the circumstances leading to breach of statutory dutyof care thus overriding the High Court of Australia in PyreneesShire Council v Day (1998)

· tightening the test of causation for injury/loss· requiring the court to discount a plaintiff’s entitlements due to

contributory negligence, and the ability of a Victorian court todiscount these entitlements by up to 100%

· reversing the burden of proof from to voluntary assumptionof risk – the plaintiff will now have to prove they did notanticipate any risk associated with the activity which is thesubject of their claim

· codifying the standard of care required of professionals –particularly impacting on municipal planners and building surveyors

· specifying the limits on claims for nervous shock (and in Victoriafor claims for gratuitous care)

· changing the limitation period from 6 to 3 years in Victoria.At this relatively early stage, outcomes are still uncertain, mostnotably in relation to jury actions where printed reasons are neitherrequired nor given. This is due to a number of factors, including thepropensity of the judiciary – particularly in serious injury claimsassociated with spinal injuries – to find against plaintiffs, the inabilityof councils to recover legal costs even in successful actions, and thedifficulties associated with appealing such judgements.As a consequence, large reserves still need to be placed on injuryclaims, with resultant cost implications for both councils and theCMP Scheme.

Contributions register overall increaseThe average overall increase in contributions for 2004/05 was 1.03percent over the 2003/04 reporting period. Other local governmentliability schemes around Australia were

· Western Australia· New South Wales

4.2%5%

Looking forward to the benefits of tortreform in Victoria and TasmaniaAs a result of the nationwide debate on tort reform, legislative

· South Australia 6%The average overall increase in contributions for 2005/06 was 1.49percent over 2004/05. Other local government liability schemes

changes were introduced in Victoria and Tasmania. They relate to around Australia werethe law of negligence and include · Western Australia 3.5%

· a requirement to consider whether the plaintiff was in a state ofintoxication or engaged in illegal activity at the time of the claim

· the fact that apologies can no longer be considered anadmission of liability

· New South Wales· South Australia· Queensland

5%2.4%2.4%

· the introduction of serious injury certificates for common lawgeneral damage claims (Victoria)

· a $4,000 threshold for such common law general damageclaims (Tasmania).

CMP website development underwayThe CMP website is currently being developed in a two-stageprocess as a tool to improve communication and to give memberseasy access to information.


Increase in sum insured achievedSince 2003, CMP’s sum insured has been $240 million for publicand products liability and $200 million for professional indemnity.This compared favourably with other local government schemesaround Australia which were limited to $200 million public, products

Following renewal in June 2004, CMP joined other liability schemesby effecting an additional layer of $100 million in excess of $200million for public and products liability. CMP negotiated participationin this layer at premium terms, similar to what had previously beenpaid for $40 million in excess of $200 million.

and professional indemnity. Given that a reasonable sum insured is CMP members requiring more than $300 million for public anddetermined by anticipating the consequences of a catastrophe – with products liability insurance, or more than $200 million formultiple injuries, including children and major financial loss – this is professional indemnity insurance, can obtain quotes from theirparticularly reassuring. general insurance brokers.12 MAV INSURANCE ANNUAL REPORT 2004/5

Claims historyClaim Trends – Actual Incurred (Paids and Outstandings)INSURANCE YEAR AS AT JUN 94 AS AT JUL 95 AS AT JUN 96 AS AT JUL 97 AS AT JUN 98 AS AT JUN 99 AS AT JUN 00 AS AT JUN 01 AS AT JUN 02 AS AT JUN 03 AS AT JUN 04 AS AT JUN 051993/94 Paid $125,452 $1,117,445 $1,766,642 $3,477,234 $4,449,245 $6,163,845 $6,859,234 $7,205,679 $8,523,046 $9,062,619 $9,302,480 $9,275,84412 mths O/S $1,625,406 $2,117,735 $2,950,103 $2,442,982 $2,069,147 $1,328,640 $831,532 1,985,838 $775,622 $177,735 $191,517 $194,510

$1,750,858(? Claims)

$3,235,180(? Claims)

$4,716,745(1385 Claims)

$5,920,216(1406 Claims)

$6,518,392(1418 Claims)

$7,492,485(1427 Claims)

$7,690,766(1432 Claims)

$9,191,517(1435 Claims)

$9,298,668(1429 Claims)

$9,240,354(1429 Claims)

$9,493,996(1430 Claims)

$9,470,353(1430 Claims)

1994/95 Paid $106,136 $758,321 $3,965,485 $5,779,693 $6,886,598 $7,630,259 $8,168,704 $8,880,579 $9,447,922 $9,560,074 $9,549,1179 mths O/S $1,893,998 $3,405,312 $2,325,756 $1,606,489 $1,003,908 $785,420 $904,149 $809,527 $457,727 $283,360 $77,304

$2,000,134(716 Claims)

$4,163,633(881 Claims)

$6,291,241(915 Claims)

$7,386,182(929 Claims)

$7,890,506(940 Claims)

$8,415,679(944 Claims)

$9,072,853(948 Claims)

$9,690,106(944 Claims)

$9,905,649(945 Claims)

$9,843,434(945 Claims)

$9,626,422(945 Claims)

1995/96 Paid $131,416 $1,159,607 $3,787,064 $5,750,465 $6,634,733 $7,884,499 $8,505,837 $8,926,323 $9,521,411 $9,638,02812 mths O/S $3,424,475 $4,791,866 $2,806,345 $1,519,706 $1,079,797 $1,101,256 $844,177 $879,836 $332,676 $148,096

$3,555,891(547 Claims)

$5,951,473(811 Claims)

$6,593,409(846 Claims)

$7,270,171(865 Claims)

$7,714,530(869 Claims)

$8,985,755(874 Claims)

$9,390,014(879 Claims)

$9,806,159(882 Claims)

$9,854,087(882 Claims)

$9,786,124(882 Claims)

1996/97 Paid $418,258 $1,629,196 $3,521,890 $5,654,516 $6,712,440 $7,724,067 $9,112,628 $10,132,081 $11,165,85412 mths O/S $4,860,994 $4,779,580 $3,388,695 $1,754,597 $1,821,277 $2,782,047 $1,710,096 $1.059,156 $870,827

$5,279,252(556 Claims)

$6,408,776(729 Claims)

$6,910,585(773 Claims)

$7,409,113(799 Claims)

$8,533,717(813 Claims)

$10,506,114(816 Claims)

$10,822,724(824 Claims)

$11,191,237(825 Claims)

$12,036,682(826 Claims)

1997/98 Paid $156,404 $1,143,713 $3,778,844 $5,346,040 $6,451,672 $7,234,230 $8,067,782 $8,632,56812 mths O/S $3,359,981 $6,059,481 $3,019,832 $2,392,145 $3,151,186 $2,720,353 $1,363,533 $896,689

$3,516,385(355 Claims)

$7,203,194(582 Claims)

$6,798,676(628 Claims)

$7,738,185(648 Claims)

$9,602,858(664 Claims)

$9,954,583(674 Claims)

$9,431,315(680 Claims)

$9,529,257(685 Claims)

1998/99 Paid $196,416 $1,395,533 $3,373,104 $4,977,063 $6,983,000 $8,513,053 $10,298,87212 mths O/S $3,979,233 $4,044,996 $3,043,667 $3,204,845 $2794,839 $2,034,154 $1,005,902

$4,175,649(348 Claims)

$5,440,529(548 Claims)

$6,416,771(587 Claims)

$8,181,908(611 Claims)

$9,777,839(626 Claims)

$10,547,207(643 Claims)

$11,304,774(647 Claims)

1999/2000 Paid $238,627 $1,700,810 $4,078,899 $6,478,342 $7,905,398 $8,768,70012 mths O/S $3,659,999 $5,124,696 $4,590,142 $3,133,642 $4,498,422 $2,085,160

$3,898,626(277 Claims)

$6,825,506(487 Claims)

$8,669,041(575 Claims)

$9,611,985(610 Claiims)

$12,403,820(638 Claims)

$10,853,860(645 Claims)

2000/01 Paid $230,442 $1,445,463 $4,704,349 $7,003,918 $11,233,63612 mths O/S $3,771,101 $7,282,941 $5,888,631 $5,152,921 $3,796,129

$4,001,543(270 Claims)

$8,728,404(514 Claims)

$10,592,980(590 Claims)

$12,156,839(634 Claims)

$15,029,765(648 Claims)

2001/02 Paid $101,895 $1,147,278 $3,401,518 $5,826,40812 mths O/S $5,262,025 $5,932,095 $5,475,730 $10,521,282

$5,363,920(280 Claims)

$7,079,374(444 Claims)

$8,877,248(534 Claims)

$16,347,690(567 Claims)

2002/03 Paid $239,745 $1,536,477 $3,930,68812 mths O/S $3,142,290 $4,675,668 $3,584,562

$3,382,035(163Claims)

$6,212,145(294 Claims)

$7,515,250(344 Claims)

2003/04 Paid $93,951 $1,522,92612 mths O/S $1,707,690 $3,911,187

$1,801,641(80 Claims)

$5,434,113(142 Claims)

2004/05 Paid $235,19312 mths O/S $2,390,652

$2,625,845(92 Claims)

Incurred claims Number of claimsROADS & FOOTPATHS

PROFESSIONALINDEMNITYNATURAL

OTHER

PERSON

CONSTRUCTION

ENVIRONMENTAL

LEISURE

BUILDING

PAIDPLUS O/STOTALLING

$48,085,949

$28,917,686

$900,441

$11,768,764

$3,319,495

$1,550,225

$7,374,328

$12,945,081

$4,698,167

$90,077,834$29,482,301

$119,560,136

ROADS & FOOTPATHS

PROFESSIONALINDEMNITY

NATURAL

OTHER

PERSON

CONSTRUCTION

ENVIRONMENTAL

LEISURE

BUILDING

TOTAL

MAV INSURANCE ANNUAL REPORT 2004/5

4068

902

80

535

144

251

822

717

334

7853

13

MAV lifeline continues to savecommunity organisationsNow in its fourth consecutive year, the MAV Insurance Not-for-ProfitGroup Scheme has seen only one increase – 4 percent in June 2004,followed by a 5 percent discount applicable from 30 June 2005.During the 2004/05 reporting period, 993 organisations wereinsured, with a renewal base of 643 as at 15 August 2005 throughto 30 June 2006. In addition, many other community events will becovered during the course of the year, with an excess of 1000anticipated by the end of 2006.

Community Organisations Insured 2004/05 Community Organisations Renewals to August 2005


ANIMALS

ARTS & CULTURE

CHILDREN & FAMILY

COMMUNITY BUSINESS

COMMUNITY CARE

COMMUNITY CARE/HUMAN SERVICESCOMM EVENTS & FESTIVALS

EDUCATION

ENVIRONMENT CONSERVATION& HERITAGEINDIGENOUS

MULTICULTURAL

OLDER PEOPLE

PUBLIC SAFETY

RECREATION & LEISURE

REGIONAL DEVELOPMENT

SPECIAL EDUCATION

WOMEN

YOUTH

TOTAL

27

126

27

87

40

19

349

9

18

3

74

37

3

137

26

6

2

9

993

ANIMALS

ARTS & CULTURE

CHILDREN & FAMILY

COMMUNITY BUSINESS

COMMUNITY CARE

COMMUNITY CARE/HUMAN SERVICESCOMM EVENTS & FESTIVALS

EDUCATION

ENVIRONMENT CONSERVATION& HERITAGEINDIGENOUS

MULTICULTURAL

OLDER PEOPLE

PUBLIC SAFETY

RECREATION & LEISURE

REGIONAL DEVELOPMENT

SPECIAL EDUCATION

WOMEN

YOUTH

TOTAL

27

92

20

74

34

20

102

6

13

4

63

39

3

117

19

3

1

6

?43

“Our group, the Country Music Association of Victoria, hasvery gratefully been a recipient of the affordable PublicLiability Insurance provided by Civic Mutual Plus for the pastthree years, and we have recently renewed our cover for theperiod 30th June [2005] to 30th June 2006.A non-profit facility of approximately 200 members, wepromote country music, encourage local singers and musiciansand provide great entertainment for members and friends.Each month we like to make a donation to help one of manylocal needy organizations.Without a single doubt, there is no way we could do any ofthis without your support…”COUNTRY MUSIC ASSOCIATION OF VICTORIA

“When the cost of public liability insurance increased sodramatically our model railway club was faced with a financialburden it could not carry. We quickly realised that we wouldhave to close our model railway club and dismantle anddestroy our layouts… How lucky we have been! Civic MutualPlus rode up and put forward a workable insurance scheme.Now we could plan ahead and resume modelling. We are sograteful to all those who worked hard to keep our club aliveand well.”ESSENDON MODEL RAILWAY GROUP INC“The Sunshine Polish Charity Association Inc (SPCA Inc) is acharitable organisation based in the suburb of Ardeer (westernsuburbs) of Melbourne. It has been in existence forapproximately 40 years...The inability to obtain affordable public liability…posed a seriousthreat to SPCA…The unpalatable options of significantlycurtailing or stopping all charitable services was a real possibility.Congratulations & Thanks to the “Not For Profit CommunityInsurance Scheme” for allowing us to continue providingcharitable services to the residents living in the westernsuburbs of Melbourne.”THE SUNSHINE POLISH CHARITY ASSOCIATION INC“The Yarra Curative Home…provides essential support topeople with varying special needs and their families, throughthe provision of respite and short term care in a family-likeresidential context, set within a peaceful and relaxingenvironment and within clients’ own homes...

Not-for-profits recognise MAVcontributionWithout the assistance of MAV Insurance, hundreds of not-for-profitorganisations throughout the state would simply not have been able

Financial resources are very limited, as service fees are minimal.When…the cost of public liability insurance soared to well over$4,000 pa, it posed a grave risk to the ongoing viability of theorganisation.

to continue their crucial role in adding to the life and vibrancy of The [Community Insurance] Scheme is vital to the continuancetheir local communities. Here are some excerpts from just a selection of our service to the community.”of the testimonial letters received by the MAV during the year… YARRA CURATIVE HOME


CMP mock trials provide real-lifeexperienceIn late 2004, CMP – in partnership with Phillips Fox Melbourne –staged a series of mock trials to provide council risk managers,insurance officers, road crews and managers with direct experience ofthe rigours, and pitfalls, of the adversarial court process.CMP Legal Adviser, Michael Beasley, standing in as judge, served‘subpoenas’ on all Victorian CMP municipalities requiring theirattendance at a mock trial. The Traffic Accident Commission (TAC) often litigates againstThe trials held in Pakenham, Shepparton, Horsham and Melbourne(some conducted in former courts) were presented with authenticcourt formality.

municipalities in single vehicle accidents – either as a result of theplaintiff’s legal proceedings, or independently, pursuant to theirstatutory right to seek recovery of no-fault payments made under itsenabling legislation. On this basis, the single vehicle accident

They concentrated on a municipal single-vehicle accident scenario scenario was presented as the plaintiff’s cause of action.involving a driver who lost control of his vehicle along a stretch ofroad where recent road works had been carried out by council.Cameo performances were played by:

· Mr Michael Beasley of CMP, Judge

Highlighting the importance of documenting municipal road works, roadwork sign placement and recording of information at accident scenes,the mock trials also played out a range of roles required of councilwitnesses in court. The audience, playing the part of the jury, determined

· Mr Kieran O’Brien of Phillips Fox, barrister for the plaintiff the extent of council liability as well as the amount to be awarded in· Mr Rob Minc of Phillips Fox, barrister for the defendant council damages, and contributing negligence on the part of the plaintiff.· Mr Ivan Ciardullo of CMP, Senior Constable Ivan Plod Feedback from attendees indicated that the mock trials provided an· Mr Graeme Lemmer of CMP, expert witness Graeme Purfoot. effective learning tool for all who attended.


Year by Year Fund Performance (1)

Fund Surplus

10000000

8000000

6000000

4000000 3,792,646

8,862,279

2000000

2,974,306 3,046,921 3,032,490

1,842,081

459,359

0

-422,762 (3) As at June 2005, consolidated Surplus of $9,994,908

-2000000-2,501,786 (4) Tasmania joined in June 1996

-4000000-4,296,998 -3,779,913

-3,013,715 (2) From 1998 through to 2005, Full 100% Reinsurance

(Our reinsurance has been renewed through to 2008)Fund Deficits

-600000093/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05

(1)(2)(3)(4)(5)

This diagram shows the year by year performance of the Fund to its position as at 30/06/05.Effective from 30 June 1998, full re-insurance was introduced and from1998 the surpluses are effectively ‘guaranteed’.The aggregate position as at 30 June 2005 is a fund surplus of $9.995M.In June 1996 Tasmanian councils joined the Scheme.Each Year is a separate independent Insurance Year.

Accumulated surplus (at the end of each financial year)

10,000,000

Scheme carrying first $2M Full re-insurance

9,994,908

8,612,554

8,000,000

6,000,000

4,000,000 3,287,0002,867,000

5,821,466

2,000,0001,007,000

1,644,000 1,450,000763,000

2,4220

-756,474-2,000,000

-2,400,557

-4,000,00093/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05

The above graph depicts our accumulated surplus as at the endof each 30 June financial year.Unfortunately the HIH/Independent collapse, and the retrospectiveimpact of the nonfeasance decision on past years had acombined detrimental effect on our combined accumulatedsurplus, especially for the 01/02 financial years, however due toour full reinsurance program we have come through those darkyears to now record an accumulated surplus of $9.995M as at30 June 2005.

Despite heavy Reinsurance Premiums, the reinsurance has beenwelcomed, and with the Share of Profit clause as part of ourReinsurance Program, promises even greater accumulatedsurpluses in future years.


risk managementYOU COULD SAYWE’RE NEVER SATISFIEDContinual improvement is theacknowledged keystone of MAVInsurance’s risk managementstrategy. With this year’s focusdirected at refining the audit processeven further, the Associationconsulted its membership and cameup with a streamlined process thatwon widespread endorsement. Soyou could also say that some thingsjust keep getting better.


Risk management awards recogniseexcellenceThe winner of the Victorian Risk Management Excellence Award for2004/05 was the City of Yarra’s policy on community safety andmanagement of soil contamination.Faced with the issue of contaminated soil on sites across themunicipality, the City of Yarra consulted with its officers, community,contractors, other councils, the Environmental Protection Authority

Audit process streamlinedThis year MAV Insurance through Civic Mutual Plus (CMP) – in

(EPA) and industry experts in the development of its policy andprocedures for soil contamination safety and management.

consultation with two committees comprising representatives from The EPA has requested use of the policy, which has been successfullyselected Victorian and Tasmanian councils – developed a new audit applied at a number of sites, as a model for application by otherprocess and questionnaire. The process sought verification, and municipalities.supplied a preliminary risk management score and report, on theactual day of the audit. This substantially reduced the amount ofcouncil documentation required, and gave councils an immediateopportunity to provide further evidence, enabling them to improvetheir risk management score.

The winner of the Tasmanian Risk Management Excellence Award for2004/05 was the Hobart City Council, which detailed its efforts tominimise exposure to wood fibres and dust arising from treemaintenance activities.

The audit Rather than reacting to the notification of loss, or claims beingmade, the Hobart City Council demonstrated the application of the

· tested council systems to ensure operational efficiency· relied on councils to provide evidence of documentary trails and

proactive systems that indicated a reduction in the likelihood of losses· ensured that councils were able to mount successful defences in court.

Risk Management Standard, introduction of a high-level risk control,and prevention or minimisation of possible losses prompted by theproactive identification of a risk issue. In so doing, the Citydemonstrated active management of this type of risk before it

On the day of the audit, CMP provided a report outlining became a significant problem.recommendations, while not compulsory, suggested methods for Hobart City Council’s risk management solution demonstrated manygreater risk reduction. Risk management was also the topic of the of the key elements of the risk management process – consultationMay and August best practice forums. and communication, review of the outcome, measurable change inFurther improvements to the audit process are currently beingplanned, including additional guidance for member councils. The

the level of risk (dust readings before and after controls applied),and researching and evaluating possible solutions.

process will be also start earlier to reduce last-minute workload and The Award recognises the potential for this initiative to be appliedgive members additional time to provide evidence and information. across other municipalities.


municipal officers’ fidelityguarantee fund

WHEN THE GOING GETS TOUGH…In the wake of a dramatic rise inreinsurance premiums and the size andnumber of major claims, this was ayear of serious reflection. Having takenthe time to assess the past and plan forthe future, the Fund is poised for apositive and productive year ahead.

Protecting local government since 1907The Municipal Officers’ Fidelity Guarantee Fund (the Fund) is a non-discretionary mutual insurance fund that provides fidelity insurance Active pursuit of perpetrators of fraudfor local government and other statutory authorities. Since 1996 a total of 26 claims have been made where a liabilityThe Fund was established in 1907 following the enactment ‘for has had to be taken up by the Fund.the incorporation of an Association called the Municipal Association These 26 claims have resulted in losses to members ofof Victoria’. approximately $3 million. Unfortunately, because of under insuranceThe Fund is open to any Victorian public or local government bodyformed by an Act of Parliament, any authority formed under the

on the part of members, approximately $902,000 has been paid outby the Fund to its members (net of recoveries).

Water Act 1989, or any Weights and Measures Union. This performance compares with the 18-year period of 1978 to 1996Fidelity insurance is a special risk insurance which indemnifies where nine claims totalling $130,245 were received by the Fund.members of the Municipal Officers' Fidelity Guarantee Fund against The Fund has a strict policy of pursuing the perpetrators of frauda loss of money or other property suffered during the period set out against its members in the strongest possible terms through the courtin the Schedule as a result of the dishonesty or fraud of a person process. The Fund also provides assistance to police officers chargedwhile he or she with any investigation of the fraud, and encourages members to take

· is continuously employed by a member under an uninterruptedcontract of service, or

· is a member of the committee of management, advisorycommittee or special committee of the insured.

proactive action in assisting both these processes.Most of these claims have resulted from poor internal control systemswithin member organisations, particularly in the areas of cash andcheque handling, payment of wages and computer equipmentsecurity. The introduction of electronic funds transfer appears to have

Offering more for lessThe Fund currently has 104 members and continues to offer good

increased the risk of fraud, particularly in the areas of wages andcreditor payment.

value for money. It is administered by the MAV with specialist claims Claims range from the involvement of senior management to thatand other insurance assistance provided under contract by Jardine of clerical staff and other trusted employees involved in the variousLloyd Thompson Pty Ltd. facets of a member organisation’s business. Claims also includePerformance for the 2005 financial year was again affected bysignificant claims made against the Fund, particularly in the area of

fraud by employees working for out-sourced and semi-independentoperations.

electronic funds transfer and cash handling, as well as a further The Fund continues to stress the importance of managementsignificant increase in the level of reinsurance premiums. ensuring that strong internal controls are in place and that internal

auditors check that these controls are appropriate, robust andResults impacted by external factors effective to the particular circumstances of the organisation.The result for the 2004/05 financial year was an operating deficit of$215,289. The operating deficit for the previous financial year was$111,264.

Seven-year analysisPremiumreceived

ReinsurancePremiums Paid

ClaimsExpenses

This year’s result decreased the net asset position of the Fund from$362,105 in 2004 to $146,816 at the end of 2005. This resultedfrom a

1999200020012002

156,000158,000221,000248,000

25,00018,00095,000

127,000

8,00050,000

375,000106,000

· 19% increase in the cost of reinsurance· significant increase in the level of recoveries received from

defendants

200320042005

373,000382,000466,000

152,000209,000259,000

134,000413,000330,000

· significant level of claims expenses paid by the Fund. The Fund meets the first $100,000 of every claim and takes out reinsurance for claimsin excess of the $100,000.


Applying exacting risk managementstrategies to reduce premiumsThe Fund recognises the importance of good risk management practicein containing premium levels, particularly when seeking annualquotations on price and scope of cover from potential reinsurers.Accordingly, the Fund is working with members to reduce risk andimprove reinsurance purchasing power during the coming year.To this end, a review to identify areas of risk within the memberorganisations was conducted in 2005. The information has beenused to both establish a better understanding of the risks facingmembers of the Fund, and to assist in the purchase of reinsuranceat reasonable prices.In addition, current internal audit and risk management functionsprovide assistance in gathering appropriate data for aggregationand analysis. From this, strategies are being developed for bothdiscrete and sector-wide aspects of risk management. Review of

Reinsuring in a harder, more restrictiveenvironmentThe reinsurance provided to the Fund is testament to the increase inrisk through the hardening of the insurance market. As a result,

findings, and the models developed as a result, will be offered tomembers for consideration and implementation within theirbusinesses. Initial discussions indicate the willingness of members tobe involved in this process.

reinsurance increased significantly over the last two years. In the case Investigation and loss adjustment reports provided on past claimsof the Fund, reinsurance was negotiated with Swiss Re for a cover of indicate that a number can be attributed to systemic issues following$500,000, with the Fund carrying the first $100,000 of every claim, the reorganisation of various sectors of local authorities. Anecdotaland Swiss Re taking the risk over the next $400,000. Where a evidence suggests that, although restructuring may have improvedmember requires cover above $500,000, requests are made to efficiencies in a number of areas, further controls may still need toSwiss Re for excess insurance up to the required amount (sum be established.insured). A number of members now have cover of more than$500,000 for each claim.

Actuarial reviews every two yearsFidelity risk management surveyconductedFor the second year, a fidelity property risk management survey was

Due to the size of the Fund, actuarial reviews are undertaken every conducted in conjunction with Jardine Lloyd Thompson (JLT). Of thetwo years, with the last occurring in the 2004/05 reporting year. As 78 member councils, 62 percent responded. The survey includedat 30 June 2005, Fund reserves amounted to $147,000. questions related specifically to funds transfer which was the basis of a

major fraud case that occurred from October 2003 to February 2004.Maintaining premiums with moderateincreases The survey will be repeated in 2005/06, with the aim of achieving a

100 percent response rate.For some years, the Fund has managed to maintain premiums atthe same level, with only moderate increases for the 2004/05 year. Future directionsThis occurred despite the Fund needing to bear the dual impost oflarge increases in reinsurance premiums and a significant increase · Resourcing of appropriate member audit committeesin claims. · Introduction of risk management program for membersHowever, the current level of premium is not sustainable in the shortterm and a review is being undertaken as a result of the significant

· Collection of detailed claims and risk management informationto enable future negotiations and to facilitate reinsurance

increase in claims and the hardening of the Fidelity insurance market · Maintenance of reserves to allow all known debt and provisionsgenerally. The Fund’s reinsurer, Swiss Re, has given an indication that to be metreinsurance premiums are likely to increase more significantly in · Maintenance of Fund to allow for the payment of reinsurance2006 than in previous years. for excess layers of cover, currently $400,000 x $100,000The Fund will continue, to the best of its ability, to protect its · Faster quotations for members seeking cover in excess ofmembers against significant increases in reinsurance premiums in the $500,000future but acknowledges that this has been compromised by the · Review of current policy wording, level of cover and riskrecent adverse claims experience. retention by members and the Fund.22 MAV INSURANCE ANNUAL REPORT 2004/5

australian financialservices licence

HARD WORK IS ITS OWN REWARDFor MAV Insurance, commitment,determination and sheer hard workover a prolonged period certainlypaid off when it became the onlylocal government body in Australia toreceive an Australian FinancialServices Licence.Licence recognises MAV Insurance’sunique statusIn April 2005, the Australian Securities and Investment Commission(ASIC) granted MAV Insurance an Australian Financial ServicesLicence (AFSL).The AFSL entitles MAV Insurance, alone among Australian localgovernment organisations, to operate independent of private insurancecompanies and on an equal basis with general insurance organisations.From the point of view of members, the AFSL means that MAVInsurance can continue to provide maximum security, high qualityservice at the most competitive premiums available Australia-wide.

Ensuring compliance and maintenanceof risk managementAs part of the MAV’s application for an AFSL for its insurancebusiness, a compliance and risk management strategy wasdeveloped for both CMP and the Municipal Officers’ FidelityGuarantee Fund.The MAV’s Compliance and Risk Management Strategy set out thestrategic direction of risk management based on a risk profiledeveloped specifically for MAV Insurance.The strategy included

· compliance and risk management plan· internal operating policies· business continuity plan· reinsurance management strategy· compliance and risk analysis table.

This documentation was supported by an electronic compliancesystem and an internal auditor to ensure compliance was achievedand will be maintained.


australian prudentialregulation authorityTotal commitment, voluntary complianceAlthough not required to do so, MAV Insurance, through Civic MutualPlus (CMP) and the Municipal Officers’ Fidelity Guarantee Fund (Fidelity),is committed to voluntary compliance, where possible, complying with the Meeting APRA capital requirementsAustralian Prudential Regulation Authority (APRA) regulations. For many years MAV Insurance has retained Richard Cumpston ofThe APRA regulations require insurers to introduce and maintaingood business practices. Despite the fact that neither the CMP

Cumpston Sarjeant, to provide advice on the valuation of insuranceliabilities in accordance with APRA regulations.

Scheme nor Fidelity is currently required to comply with the APRA To assist with valuation, an insurer must obtain the written advice ofregulations, there does not appear to be any fundamental practice an approved valuation actuary where thethat the MAV Insurance schemes could not comply with. The only a. total insurance liabilities of the insurer at the last reporting dateissue is the ability of the CMP Scheme and Fidelity to meet the exceeded $20 million, orminimum capital requirement as well as those relating to theapproval by, and reporting to, APRA. b. insurance liabilities of the insurer include an amount in respect

of a class of business, which is long tail, and the amount isAs both the CMP Scheme and Fidelity are mutual funds the risk of material to the total insurance liabilities.financial failure is, to an extent, protected. The actuary has responsibility for ensuring compliance with both theThe four prudential standards released by APRA that are relevant to liability valuation and capital adequacy standards and advises theCMP and the Fund are MAV Board on the level of provisions required to satisfy these

1. Capital adequacy for general insurers (GPS 110) standards.

2. Liability valuation for general insurers (GPS 210) In determining the value of an insurer’s insurance liabilities, the3. Risk management for general insurers (GPS 220) standard differentiates between the valuation of

4. Reinsurance arrangements for general insurers (GPS 230). a. existing claims (outstanding claims liabilities), andb. future claims (premiums liabilities).

Voluntary increase in level of capital In each case, liabilities are valued by determining a central estimateThe minimum level of capital required has increased from $2 million and risk margin. The value of these liabilities is the sum of theto $5 million. In practice, insurers will need to maintain a buffer central estimate and the risk margin.above the minimum capital level according to their capital adequacyrequirements and/or catastrophe exposure. While the central estimate is similar to that currently used, the

standard is a significant guide in calculating the risk margin which isIn addition, the capital adequacy standard requires that all insurers intended to secure liabilities with a probable sufficiency of 75 percent.have capital management processes in place to ensure continualcompliance with the minimum capital requirement, consistent withthe insurer’s overall business plan.

Outstanding liabilities must cover all claims incurred prior to thereporting date (whether or not they have been reported to theinsurer), together with the internal expenses the insurer expects to

The standard provides a prescribed method where the minimum incur in settling those claims.capital requirement is the sum of capital charges for The premium liabilities relate to future claim payments from future

· insurance risk events insured under existing policies, and must include the internal· investment risk expenses the insurer expects to incur in administering the policies· concentration risk. and settling relevant claims.

The MAV Insurance actuary estimated that the minimum capital required The appropriateness of the assumptions and the valuation methodby MAV Insurance at 30 June 2005 to be $7 million (including a 40 adopted must be reassessed at each annual reporting date.percent buffer of $2 million to ensure continuing compliance). Richard Cumpston advised that MAV Insurance currently complies withFor existing insurance companies, APRA requires that insurers the valuation and estimation aspects of the standard and that there isincrease capital to this level over a transitional period of five years. no reason why the CMP Scheme should not continue to comply.MAV Insurance complied. Part of the capital adequacy standard relating to the approval by andThe minimum capital requirement does not take into account that the reporting of information to APRA is not currently met by the CMPScheme and the Fund are mutual funds whose members are local Scheme. However, to mirror the intention of the rules, the Schemegovernment authorities and water authorities, with no retail operation. manager reports to the MAV Insurance Committee on this section.24 MAV INSURANCE ANNUAL REPORT 2004/5

Maintaining responsible riskmanagementThe capital adequacy standard aims to ensure that an insurer iswell managed, has access to appropriate independent expertiseand has systems for identifying, managing and monitoring risksthat may reduce the ability of the insurer to meet its obligationto policy holders.The MAV Insurance Committee has developed, implemented andmaintained a sound and prudent risk management strategy thatidentifies the insurer’s risk management policies, procedures,processes and controls. The strategy includes a business continuityplan and establishes a proper information flow between the Scheme

Reinsurance management strategycontinually reviewed

manager, committee of management and the board of directors. The Insurance Act 1973 requires insurers to have ongoing reinsuranceManaging operational risk is the responsibility of the Board andsenior management. Because of this responsibility, APRA considersthat ‘fit and proper’ person tests apply to the MAV Board, MAVInsurance Board and senior management, and ensure that thoseoccupying key positions within the insurer organisation have thedegree of probity and competence commensurate with theirresponsibilities.

arrangements approved by APRA. The standard makes it clear that it isthe Board of Directors and management should ‘develop, implementand maintain a reinsurance strategy appropriate to the operations ofthe insurer to ensure it has sufficient capacity to meet obligations asand when they fall due’. The strategy must be lodged annually (or ifunchanged, confirmation provided to that effect). A written report fromthe MAV Insurance Board must accompany the strategy which certifiesits compliance with the reinsurance management strategy. Once set,

Both the approved auditor and approved valuation actuary have this report rests with the reinsurance management, and ultimately with‘whistleblowing’ obligations. They are required to report to the MAV the Board of the insurer.Board matters contravening regulatory requirements that theyconsider to be prejudicial to the interests of policy holders. Well-defined management responsibility and control is the core of

the strategy which, as a minimum, includesThe MAV Insurance Committee must have at least five directors, anon-executive chair, and a majority of non-executive directors. · a comprehensive reinsurance policy statement approved by the

MAV Insurance CommitteeCurrently, MAV Insurance complies with the probity aspects of this · sound systems for selecting and monitoring reinsurancestandard relating to members of the committee, and with the programsprovisions relating to the make-up of the Board and committee. · clearly defined managerial responsibilities and controlsWhile MAV Insurance does not comply with the reporting or · clear methodologies for determining all aspects of a reinsuranceapproval requirements set out by APRA, aspects of the reporting program.requirements will be included in MAV Insurance annual reports, forexample the board declaration certifying that strategies have beenput in place to monitor all key risks.

Currently, MAV Insurance does not comply with this standard, inparticular, with the reporting or approval requirements set out byAPRA. However, a reinsurance management strategy is included

A risk management strategy was completed and included in the within MAV Insurance’s operational plan for 2004 and is subject to2004 operational plan and is continually updated. continual review.


fidelity membersCouncilsAlpine Shire Council Mansfield Shire CouncilArarat Rural City Council Maribyrnong City CouncilBallarat City Council Maroondah City CouncilBanyule City Council Melbourne City CouncilBass Coast Shire Council Melton Shire CouncilBaw Baw Shire CouncilBayside City CouncilBenalla Rural City CouncilBoroondara City CouncilBorough of Queenscliffe

Mildura Rural City CouncilMitchell Shire CouncilMoira Shire CouncilMonash City CouncilMoonee Valley City Council

OthersBendigo Cemeteries TrustCentral Highlands WaterCitywide Service Solutions PtyLtd

Brimbank City Council Moorabool Shire Council Coliban Region Water AuthorityBuloke Shire Council Moreland City Council Corangamite Regional LibraryCardinia Shire Council Mornington Peninsula Shire CorporationCasey City Council Council Crowlands Water Supply Co-Central Goldfields Shire Council Mount Alexander Shire Council operativeColac-Otway Shire Council Moyne Shire Council East Gippsland WaterCorangamite Shire Council Murrindindi Shire Council Eastern Regional LibrariesDarebin City Council Nillumbik Shire Council Geelong Cemeteries TrustEast Gippsland Shire Council Northern Grampians Shire Glenelg Region Water AuthorityFrankston City CouncilGannawarra Shire CouncilGlen Eira City CouncilGlenelg Shire CouncilGolden Plains Shire CouncilGreater Bendigo City CouncilGreater Dandenong City CouncilGreater Geelong City CouncilGreater Shepparton CityCouncil

CouncilPort Phillip City CouncilPyrenees Shire CouncilSouth Gippsland Shire CouncilSouthern Grampians ShireCouncilStonnington City CouncilStrathbogie Shire CouncilSurf Coast Shire CouncilSwan Hill Rural City Council

Goulburn Valley Regional WaterAuthorityGrampians Region WaterAuthorityLower Murray WaterMelbourne Wholesale FishMarketMunicipal Association ofVictoriaNorth East Region WaterAuthority

Hepburn Shire CouncilHindmarsh Shire CouncilHobsons Bay City CouncilHorsham Rural City CouncilHume City CouncilIndigo Shire CouncilKingston City CouncilKnox City CouncilLatrobe City CouncilLoddon Shire CouncilMacedon Ranges Shire Council

Towong Shire CouncilWangaratta Rural City CouncilWarrnambool City CouncilWellington Shire CouncilWest Wimmera Shire CouncilWhitehorse City CouncilWhittlesea City CouncilWodonga Rural City CouncilWyndham City CouncilYarra City CouncilYarra Ranges Shire Council

Portland Coast Region WaterAuthorityQueen Victoria MarketSouth Gippsland Region WaterAuthoritySouth West Water AuthorityTanjil Bren Water Coop Pty Ltdand Committee of ManagementRecreational ReserveWest Gippsland RegionalLibrary CorporationWestern Region Water AuthorityWesternport Region Water

Manningham City Council Yarriambiack Shire Council Authority26 MAV INSURANCE ANNUAL REPORT 2004/5

cmp membersCouncilsVictoriaAlpine Shire CouncilArarat Rural City CouncilBallarat City CouncilBanyule City CouncilBass Coast Shire CouncilBaw Baw Shire CouncilBayside City CouncilBenalla Rural City CouncilBoroondara City CouncilBorough of QueenscliffeBrimbank City CouncilBuloke Shire CouncilCampaspe Shire CouncilCardinia Shire CouncilCasey City CouncilCentral Goldfields Shire CouncilColac-Otway Shire CouncilCorangamite Shire CouncilDarebin City CouncilEast Gippsland Shire CouncilFrankston City CouncilGannawarra Shire CouncilGlenelg Shire CouncilGlen Eira City CouncilGolden Plains Shire CouncilGreater Bendigo City CouncilGreater Geelong City CouncilGreater Shepparton City CouncilHepburn Shire CouncilHindmarsh Shire CouncilHobsons Bay City Council

Mansfield Shire CouncilMaribyrnong City CouncilMaroondah City CouncilMelbourne City CouncilMelton Shire CouncilMildura Rural City CouncilMitchell Shire CouncilMoira Shire CouncilMonash City CouncilMoonee Valley City CouncilMoorabool Shire CouncilMoreland City CouncilMornington Peninsula ShireCouncilMount Alexander Shire CouncilMoyne Shire CouncilMurrindindi Shire CouncilNillumbik Shire CouncilNorthern Grampians ShireCouncilPort Phillip City CouncilPyrenees Shire CouncilSouth Gippsland Shire CouncilSouthern Grampians ShireCouncilStonnington City CouncilStrathbogie Shire CouncilSurf Coast Shire CouncilSwan Hill Rural City CouncilTowong Shire CouncilWangaratta Rural City CouncilWarrnambool City Council

CouncilsTasmaniaBreak O’Day CouncilBrighton CouncilBurnie City CouncilCentral Coast CouncilCentral Highlands CouncilCircular Head CouncilClarence City CouncilDerwent Valley CouncilDevonport City CouncilDorset CouncilFlinders CouncilGeorge Town CouncilGlamorgan/Spring Bay CouncilGlenorchy City CouncilHobart City CouncilHuon Valley CouncilKentish CouncilKingborough CouncilKing Island CouncilLatrobe CouncilLaunceston City CouncilMeander Valley CouncilNorthern Midlands CouncilSorell CouncilSouthern Midlands CouncilTasman CouncilWaratah-Wynyard CouncilWest Coast CouncilWest Tamar Council

West Gippsland RegionalLibrary ServiceYarra Plenty Regional LibraryServiceEastern Regional LibrariesCorporationGoulburn Valley RegionalLibrary Corporation

Non-councilsTasmaniaLocal Government Associationof Tasmania

Water authorities/TrustsVictoriaCentral Gippsland RegionWater AuthorityCentral Highlands Region WaterAuthorityColiban Region Water AuthorityEast Gippsland Water AuthorityFirst Mildura Irrigation TrustGlenelg Region Water AuthorityGoulburn Valley Water AuthorityLower Murray Urban & RuralWater AuthorityNorth East Water AuthorityPortland Coast Region WaterAuthoritySouth Gippsland Region WaterAuthoritySouth West Water AuthorityWestern Region Water Authority

Horsham Rural City Council Wellington Shire Council Non-councils Westernport Region WaterAuthority

Hume City Council West Wimmera Shire Council VictoriaIndigo Shire CouncilKingston City Council

Whitehorse City CouncilWhittlesea City Council

Whitehorse ManninghamRegional Library Corporation

Water authoritiesTasmania

Knox City CouncilLaTrobe City CouncilLoddon Shire Council

Wodonga Rural City CouncilWyndham City CouncilYarra City Council

Municipal Association ofVictoriaNorth Central Goldfields LibraryService

Cradle Coast Water AuthorityEsk Water AuthorityHobart Water Authority

Macedon Ranges Shire Council Yarra Ranges Shire Council Victorian Water Industry Rivers and Water SupplyManningham City Council Yarriambiack Shire Council Association Inc. Commission


glossaryAFSL – Australian Financial Services LicenceALGA – Australian Local Government AssociationAPRA – Australian Prudential Regulation AuthorityASIC – Australian Securities and Investment CommissionCMP – Civic Mutual PlusEPA – Environmental Protection AuthorityJLT – Jardine Lloyd ThomponLGAT – Local Government Association of TasmaniaMAV – Municipal Association of VictoriaMAVIC – Municipal Association of Victoria Insurance CommitteeTAC – Traffic Accident Commission

Published byMunicipal Association of VictoriaLevel 12, 60 Collins StreetMelbourne 3000Telephone: 03 9667 5555Facsimile: 03 9667 5550GPO Box 4326Melbourne 3001E-mail: [email protected]: www.mav.asn.auWritersCostigan & Murphy

PhotographySteven Diffey Photography

DesignFrank Design Pty Ltd

MAV INSURANCEFINANCIALREPORT2005

STATEMENT OF FINANCIAL PERFORMANCEAS AT 30 JUNE 2005

COMBINED CIVIC MUTUAL PLUS MUNICIPAL OFFICERSFIDELITY GUARANTEE FUND

NOTE 2005$

2004$

2005$

2004$

2005$

2004$

REVENUE FROM ORDINARYACTIVITIESPremiumsReinsurance Expense

2 30,360,081 29,848,750 29,894,014 29,466,525(23,128,011) (22,511,076) (22,869,187) (22,302,020)

466,067(258,824)

382,225(209,056)

NET INCOME BEFORECLAIMS 7,232,070 7,337,674 7,024,827 7,164,505 207,243 173,169Claims ExpenseExcesses and RecoveriesNet Claims Expense

3(a)2

11

(23,907,535) (13,906,333) (23,577,749) (13,493,500)21,206,941 12,561,825 21,198,791 12,324,561(2,700,594) (1,344,508) (2,378,958) (1,168,939)

(329,786)8,150

(321,636)

(412,833)237,264

(175,569)

UNDERWRITING RESULT 4,531,476 5,993,166 4,645,869 5,995,566 (114,393) (2,400)Investment Income 2 848,927 674,730 824,861 647,948 24,066 26,782Reduction in Provision forDoubtful Reinsurance Recoveries 355,377 36,946 355,377 36,946 - -Administration andGeneral Expenses 3(b) (4,568,713) (4,025,018) (4,443,751) (3,889,372) (124,962) (135,646)OPERATING SURPLUS(DEFICIT) FROMORDINARY ACTIVITIES 1,167,067 2,679,824 1,382,356 2,791,088 (215,289) (111,264)TOTAL CHANGES INEQUITY 12 1,167,067 2,679,824 1,382,356 2,791,088 (215,289) (111,264)

The accompanying notes form an integral part of these statements

MAV INSURANCE FINANCIAL REPORT 2004/5 29

STATEMENT OF FINANCIAL POSITIONAS AT 30 JUNE 2005


NOTE 2005$

2004$

2005$

2004$

2005$

2004$

CURRENT ASSETSCash AssetsReceivablesTOTAL CURRENT ASSETS

7(a)8

21,490,703 16,835,113 21,138,197 16,599,00539,881,151 43,606,839 39,359,092 43,075,46061,371,854 60,441,952 60,497,289 59,674,465

352,506522,059874,565

236,108531,379767,487

NON-CURRENT ASSETSReceivables 8 51,970,077 44,626,583 51,970,077 44,626,583 - -TOTAL NON-CURRENTASSETSTOTAL ASSETS

51,970,077 44,626,583 51,970,077 44,626,583113,341,931 105,068,535 112,467,366 104,301,048

-874,565

-767,487

CURRENT LIABILITIESPayables 3,054,772 3,006,511 2,994,159 2,965,772 60,613 40,739Premiums in Advance 9 29,975,891 29,205,209 29,503,755 28,918,666 472,136 286,543Provision for ClaimsOutstandingTOTAL CURRENT LIABILITIES

10 17,015,589 13,780,202 16,820,589 13,702,10250,046,252 45,991,922 49,318,503 45,586,540

195,000727,749

78,100405,382

NON-CURRENT LIABILITIESProvision for ClaimsOutstanding 10 53,153,955 50,101,954 53,153,955 50,101,954 - -TOTAL NON-CURRENTLIABILITIESTOTAL LIABILITIES

53,153,955 50,101,954 53,153,955 50,101,954103,200,207 96,093,876 102,472,458 95,688,494

-727,749

-405,382

NET ASSETS 10,141,724 8,974,659 9,994,908 8,612,554 146,816 362,105

EQUITY 12 10,141,724 8,974,659 9,994,908 8,612,554 146,816 362,105

The accompanying notes form an integral part of these statements.

30 MAV INSURANCE FINANCIAL REPORT 2004/5

COMBINED STATEMENT OF CASH FLOWSAS AT 30 JUNE 2005


NOTE 2005$

2004$

2005$

2004$

2005$

2004$

CASH FLOW FROMOPERATING ACTIVITIESRECEIPTSSubscriptions, Grants and Fees 36,596,434 37,743,862 35,840,969 37,303,146 755,465 440,716Investment Income 843,766 669,083 819,011 644,956 24,755 24,127Excesses and Recoveries 15,318,370 12,705,898 15,294,304 12,679,570 24,066 26,328

PAYMENTSSuppliersClaim Payments

(31,689,965) (30,441,361) (31,238,227) (29,979,700)(16,413,015) (15,984,093) (16,176,865) (15,670,010)

(451,738)(236,150)

(461,661)(314,083)

NET CASH PROVIDED BY/(USED IN) OPERATINGACTIVITIES 7(b) 4,655,590 4,693,389 4,539,192 4,977,962 116,398 (284,573)

NET INCREASE/(DECREASE) IN CASH HELD 4,655,590 4,693,389 4,539,192 4,977,962 116,398 (284,573)

Cash at Beginning of Year 16,835,113 12,141,724 16,599,005 11,621,043 236,108 520,681CASH AT END OF YEAR 7(a) 21,490,703 16,835,113 21,138,197 16,599,005 352,506 236,108

The accompanying notes form an integral part of these statements.


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

1 SUMMARY OF ACCOUNTING POLICIESThe financial report is a general purpose financial report which has been drawn up in accordance with Accounting Standards, MandatoryProfessional Reporting Requirements (Urgent Issues Group Consensus Views) and other relevant requirements.The principal accounting policies adopted in preparing the financial report are stated to assist in a general understanding of the financial report.Accounting policies have been consistently applied unless otherwise indicated.

(a) Basis of AccountingThe accounts have been prepared on the accruals basis using historical costs and, except where stated, do not take into account currentvaluations of assets.

(b) The Principles of the Combined ReportThe combined financial report relates to MAV Insurance, a division of the Municipal Association of Victoria and of its 100 percent controlledentities the Local Government Mutual Liability Insurance Scheme (trading as Civic Mutual Plus, - CMP), and Municipal Officers’ FidelityGuarantee Fund.The presentation of the combined balances is for management purposes only. The two entities are separate independent legal entities.The affects of all transactons between entities in the Combined entity have been eliminated.

(c) Change in Accounting PolicyThe MAV Insurance Committee in 2003 requested the independent actuary to provide an estimate of the provision required to cover claimssettlement administrative expenses that would be incurred in managing all outstanding claims in the event that Civic Mutual Plus winds down.This practice is consistent with insurance industry standards. In accordance with the recommendation of the independent actuary the Committeehas decided to provide 4% of the gross outstanding claims estimates (including gross IBNR and Development) as the provision for claimssettlement administration costs. This provision has been established over a three year period. As a result of the change in accounting policy thesurplus for the 2005 financial has been reduced by $163,001 (2004 $1,257,798).

(d) Income TaxThe Association is exempt from income tax, in accordance with sections 50-10 and 50-25 of the Income Tax Assessment Act 1997.

(e) Investment IncomeInvestment income is recognised on a time proportionate basis that takes into account the effective yield on the financial asset.

(f) PremiumsPremiums comprise amounts charged to members of the Schemes for policy cover, net of amounts returned to members as bonuses. The earnedportion of premiums received is recognised as revenue. Premiums are treated as earned from date of attachment of risk. The pattern ofrecognition over the policy is based on time, which is considered to closely approximate the pattern of risks undertaken.

(g) Premiums ReceivableDuring the month of June each year, the CMP Scheme issues premium notices to Scheme Members. The risk attaches to the premiums in thenext accounting period and accordingly the revenue is recognised each following year commencing 1 July. Effective 30 June 1995, the CMPScheme resolved to disclose these amounts billed in advance in the balance sheet as “contributions receivable” with an offsetting liabiltydescribed as “contributions billed in advance”.

(h) ClaimsClaims incurred expense and liability for outstanding claims are recognised in respect of direct business. The liability covers claims incurred butnot yet paid, incurred but not yet reported claims, and the anticipated direct and indirect costs of settling those claims. Claims outstanding areassessed by reviewing individual claim files and estimating claims not notified and settlement costs using statistical and actuarial

techniques. Theliability for outstanding claims is measured as the present value of the expected future payments, reflecting the fact that all the claims do nothave to be paid out in the immediate future. The expected future payments are estimated on the basis of the ultimate cost of settling claims,which is affected by factors arising during the period to settlement such as normal inflation and “superimposed inflation”.Superimposed inflation refers to factors such as trends in court awards, for example increases in the level and period of compensation for injury.The expected future payments are then discounted to a present value at the reporting date using discount rates based on the investmentopportunities available to the organisation on the amounts of funds sufficient to meet claims as they became payable. Details of rates appliedare disclosed in note 10.



(i) Other Financial AssetsInvestments are valued at net market value at balance date. Investment income includes interest received and receivable on investments andchanges in net market values of investments in unit trusts. The Schemes have adopted a policy of investing in secure investments backed by fixedinterest securities of amounts and terms broadly matching its liabilities for claims and unearned contributions.

(j) Cash FlowsFor the purposes of the statement of cash flows, cash includes cash on hand and deposits held at call with banks and investments in cashbacked unit trusts.

(k) Excesses and RecoveriesExcesses and other recoveries are brought to account when established at the time of consideration of the claims details and only where adefinite set of circumstances exist which will support the credibility of the justification of obtaining either a recovery of excess from schememember or recovery of claim cost from a third party.

(l) Revenue RecognitionRevenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can be reliably measured.The following specific recognition criteria must also be met before revenue is recognised.

(i) Premiums – recognised in the period the fund is at risk.(ii) Excesses and Recoveries – on an accruals basis.(iii) Investment Income – on an accruals basis including adjustments to bring values of cash backed unit trusts to account as interest income.

(m) Comparative FiguresWhere necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

(n) Provision for Reinsurance RecoveriesDuring the 2001 financial year two of the participants in the Scheme’s reinsurance program were placed into the hands of liquidators. Thesecompanies were part of the reinsurance programs in fund years from 1994 to 1998. The Committee have determined that sufficient informationto reasonably estimate the extent and timing of the return to the Scheme from the liquidators of these companies is not currently available. TheCommittee therefore determined in the 2001 year that the most prudent course of action was to provide against 100% of the estimated futurerecoveries due from these insurers. The Committee continues to constantly monitor the position with a view to ensuring that the Scheme takes allreasonable steps to protect its position and to maximise potential recoveries. The provision made during the 2001 year is being monitored by theCommittee. The information made available by the liquidators to date regarding potential returns to unsecured creditors is not considered to besufficient to for the Committee to make any change to the level of provision.The liquidators of HIH have indicated that an initial distribution to creditors will occur soon. However, no final date or confirmation of anyamount is available. Therefore, as at the date of this report the Committee are of the view that the potential for any recovery is still uncertain andthe policy of providing against 100% of the estimated future recoveries due from these insurers is continuing.

MAV INSURANCE FINANCIAL REPORT 2004/5

33



NOTE 2005$

2004$

2005$

2004$

2005$

2004$

2 REVENUE FROMORDINARY ACTIVITIESREVENUES FROMOPERATING ACTIVITIESPremiums 30,360,081 29,848,750 29,894,014 29,466,525 466,067 382,225Insurance excesses andrecoveries 21,206,941 12,561,825 21,198,791 12,324,561 8,150 237,264TOTAL REVENUE FROMOPERATING ACTIVITIES 51,567,022 42,410,575 51,092,805 41,791,086 474,217 619,489

REVENUES FROMNON-OPERATING ACTIVITIESInvestment Income 848,927 674,730 824,861 647,948 24,066 26,782TOTAL REVENUE FROMOUTSIDE THE OPERATINGACTIVITIES 848,927 674,730 824,861 647,948 24,066 26,782TOTAL REVENUE FROMORDINARY ACTIVITIES 52,415,949 43,085,305 51,917,666 42,439,034 498,283 646,271

3(a)CLAIMS EXPENSESPaid 17,620,147 17,193,571 17,407,261 16,808,838 212,886 384,733Outstanding claims at endof financial year (10) 70,169,544 63,882,156 69,974,544 63,804,056 195,000 78,100Outstanding claims atbeginning of financial yearTOTAL CLAIMS EXPENSES

(63,882,156) (67,169,394)(63,804,056) (67,119,394)23,907,535 13,906,333 23,577,749 13,493,500

(78,100)329,786

(50,000)412,833

3(b) ADMINISTRATION & GENERALEXPENSESThe following items havebeen recognised in theoperating surplus (deficit):Stamp DutyAudit FeesAdministrationAFSL expensesActuary and Legal FeesScheme Management FeeScheme Contribution to excess

1,968,55336,090

465,051136,243202,609

1,590,167170,000

1,970,76841,000

388,863-

146,1371,478,250

-

1,968,55333,300

455,004136,243176,834

1,503,817170,000

1,970,76836,490

388,712-

101,5021,391,900

-

-2,790

10,047-

25,77586,350

-

-4,510

151-

44,63586,350

-

4

TOTAL EXPENDITURE

AUDITORS REMUNERATION

(4,568,713) (4,025,018) (4,443,751) (3,889,372) (124,962) (135,646)

Amounts payable or dueand payable for audit services:Audit of the entity 36,090 41,000 33,300 36,490 2,790 4,510




2005$

2004$

2005$

2004$

2005$

2004$

5 SCHEME MANAGEMENT FEESIncluded within administrationand general expenses aremanagement fees for:Risk management andadministrative servicesClaims management

1,590,1671,301,046

1,478,2501,209,478

1,503,8171,230,396

1,391,9001,138,828

86,35070,650

86,35070,650

TOTAL SCHEMEMANAGEMENT FEES 2,891,213 2,687,728 2,734,213 2,530,728 157,000 157,000

6 OTHER FINANCIAL ASSETSAll of the surplus funds of the Civic Mutual Plus Scheme are invested at market rates with UBS Asset Management (Aust) Ltd in their CashEnhanced Cash Fund and their Australian Bond Fund. Investments are brought to account at net market value at balance date.

7 NOTES TO STATEMENT OF CASH FLOWSFor the purposes of the Statement of Cash Flows, cash includes cash in hand, cash at bank, certificates of deposit with short terms to maturity,bank bills and other financial assets (Note 6).


2005$

2004$

2005$

2004$

2005$

2004$

(a) Cash at balance date as shownin the Statement of Cash Flows isreconciled to the related items inthe Financial Position as follows:Cash at BankOther Financial Assets

10,953,58010,537,123

7,389,646 10,946,3099,445,467 10,191,888

7,384,0199,214,986

7,271345,235

5,627230,481

TOTAL CASH 21,490,703 16,835,113 21,138,197 16,599,005 352,506 236,108

(b) Reconciliation of Net CashUsed In Operating Activitiesto Operating Surplus/(Deficit)Surplus (Deficit) for year 1,167,067 2,679,824 1,382,356 2,791,088 (215,289) (111,264)Changes in assets and liabilities(Increase)/decrease inaccounts receivable (5,618,194) 708,473 (5,626,708) 986,484 8,514 (278,011)Increase/(decrease) inaccounts payable 48,261 174,790 28,386 153,516 19,875 21,274(Increase)/decrease in provisionfor reinsurance recoveries 1,999,581 3,916,038 1,999,581 3,916,038 - -

Increase/(decrease) inoutstanding claims 6,287,388 (3,287,238) 6,170,488 (3,315,338) 116,900 28,100Increase/(decrease) inunearned revenue 771,487 501,502 585,089 446,174 186,398 55,328CASH FLOWS FROMOPERATIONS 4,655,590 4,693,389 4,539,192 4,977,962 116,398 (284,573)




NOTE 2005$

2004$

2005$

2004$

2005$

2004$

8 RECEIVABLESReinsurance and otherrecoveries receivableDiscount to Present Value

1(k) 83,837,756 79,058,485 83,837,756 78,848,049(11,115,162) (12,950,150) (11,115,162) (12,950,150)72,722,594 66,108,335 72,722,594 65,897,899

---

210,436-

210,436Provision for DoubtfulReinsurance Recoveries (6,832,663) (7,188,040) (6,832,663) (7,188,040) - -Net Reinsurance and otherRecoveries Receivable 65,889,931 58,920,295 65,889,931 58,709,859 - 210,436Excesses Recoverable 3,690,111 4,935,966 3,690,111 4,935,466 - 500Premiums receivable 1(g) 22,241,911 24,359,930 21,722,562 24,046,003 519,349 313,927Other Receivables 29,275 17,231 26,565 10,715 2,710 6,516TOTAL RECEIVABLES 91,851,228 88,233,422 91,329,169 87,702,043 522,059 531,379Represented By:

9

CURRENTNON-CURRENTTOTAL

PREMIUMS IN ADVANCE

39,881,151 43,606,839 39,359,092 43,075,46051,970,077 44,626,583 51,970,077 44,626,58391,851,228 88,233,422 91,329,169 87,702,043

522,059-

522,059

531,379-

531,379

Contributions billed inadvance 1(g) 29,975,891 29,205,209 29,503,755 28,918,666 472,136 286,543

10 OUTSTANDING CLAIMSReported claims outstanding 35,105,177 29,454,174 34,960,177 29,426,074 145,000 28,100Provision for incurred butnot reported claims,claims development andsettlement costsDiscount to present valueTOTAL OUTSTANDING CLAIMS

45,820,914 47,117,002 45,770,914 47,067,002(10,756,547) (12,689,020) (10,756,547) (12,689,020)70,169,544 63,882,156 69,974,544 63,804,056

50,000-

195,000

50,000-

78,100Comprising:CURRENTNON-CURRENTTOTAL CLAIMS PROVISION

17,015,589 13,780,202 16,820,589 13,702,10253,153,955 50,101,954 53,153,955 50,101,95470,169,544 63,882,156 69,974,544 63,804,056

195,000-

195,000

78,100-

78,100

Actuarial advice indicates that:(a) The average term to settlement of outstanding claims is 2.9 years (2004: 3.6 years).(b) The following average inflation rates and discount rates were used in measuring the liability for outstanding claims.

Inflation factorDiscount rate

1(h) 6.0%5.2%

6.0%5.5%




NOTE 2005$

2004$

2005$

2004$

2005$

2004$

11 NET CLAIMS INCURREDAllowance for claimssettlement costs 1(c) 163,001 1,257,798 163,001 1,257,798 - -Net claims incurred: currentfinancial year incidentsNet Claims Settlement Costs

309,1461,301,046

164,9911,209,478

58,1601,230,396

60,0721,138,828

250,98670,650

104,91970,650

Reassessment for prioryears claims 927,401 (1,287,759) 927,401 (1,287,759) - -NET CLAIMS INCURRED 2,700,594 1,344,508 2,378,958 1,168,939 321,636 175,569

12 EQUITYBalance at beginning of Year 8,974,657 6,294,835 8,612,552 5,821,466 362,105 473,369Surplus (Deficit) fromordinary activitiesBALANCE AT END OF YEAR

1,167,06710,141,724

2,679,8248,974,659

1,382,3569,994,908

2,791,0888,612,554

(215,289)146,816

(111,264)362,105

13 FINANCIAL INSTRUMENTS INTEREST RATE RISK EXPOSUREThe Group’s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set out below:


NON-INTERESTEARNING

FLOATING NON-INTERESTINTEREST RATE EARNING


FLOATINGINTEREST RATE

2005$ $ $ $ $ $

FINANCIAL ASSETSBankCash Investments

7,271 10,946,309- 10,537,123

- 10,946,309- 10,191,888

7,271-

-345,235

Receivables 91,851,228 - 91,329,169 - 522,059 -TOTAL FINANCIAL ASSETS 91,858,499 21,483,432 91,329,169 21,138,197 529,330 345,235Weighted Average Interest Rate 5.8% 5.8% 5.4%

2005FINANCIAL LIABILITIESOutstanding claimsUnearned premiums/subscriptions

70,169,54429,975,891

- 69,974,544- 29,503,755

--

195,000472,136

--

Accounts payable 3,054,772 - 2,994,159 - 60,613 -TOTAL FINANCIAL LIABILITIES 103,200,207 - 102,472,458 - 727,749 -




NON-INTERESTEARNING



FLOATINGINTEREST RATE

2004$ $ $ $ $ $

FINANCIAL ASSETSBankCash Investments

--

7,389,6469,445,467

--

7,384,0199,214,986

--

5,627230,481

Receivables 88,233,422 - 87,702,043 - 531,379 -TOTAL FINANCIAL ASSETS 88,233,422 16,835,113 87,702,043 16,599,005 531,379 236,108Weighted Average Interest Rate 5.7% 5.7% 5.2%

2004FINANCIAL LIABILITIESOutstanding claimsUnearned premiums/subscriptions

63,882,15629,205,209

- 63,804,056- 28,918,666

--

78,100286,543

--

Accounts payable 3,006,511 - 2,965,772 - 40,739 -TOTAL FINANCIAL LIABILITIES 96,093,876 - 95,688,494 - 405,382 -

The carrying amounts of financial assets and financial liabilities represent their approximate net fair value.

Credit Risk ExposureThe maximum credit risk exposure on financial assets is represented by the carrying amounts of assets recognised in the Financial Position.

Concentrations of Credit RiskReceivables due from Debtors in specific industry segments expressed as a percentage of the total balance receivable:


2005$

2004$

2005$

2004$

2005$

2004$

Local GovernmentReinsurersOther

33%67%

-

38%62%

-

33%67%

-

38%62%

-

91%-

9%

59%40%1%

Apart from the foregoing, the entity had no significant concentrations of credit risk with any single ‘counter-party or group of counter-parties’.

14 CONTINGENT ASSET

Reinsurance Share of ProfitThe Scheme, in conjunction with similar Local Government Self Insured Mutual Liability Schemes around Australia has entered into a profitsharing arrangement with its primary reinsurers, based on the National Local Government claims experience. The arrangement enables anysurplus per each year over the five-year reinsurance period to be shared between the various Schemes and the reinsurers on a proportionalbasis.No amount is payable until June 2007 and, some of the surplus can only be redeemed on the commutation of the reinsurance policy. Theactuary has calculated the potential value of the CMP Scheme’s profit share for the first two years of the five-year program, at balance date, tobe $3.4 million.There is significant potential for future events to impact the profit share receivable and a number of variable factors involved in the final

determination of the Scheme’s profit share. Accordingly the directors are not satisfied at 30 June 2005 that the potential benefit is an asset thatis probable of receipt and reliably measurable. The financial statements do not include any value attributable to the share of profit. The positionwill be monitored on an annual basis.


COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

15 CONTINGENT LIABILITYMAV Insurance provides cover to members up to a sum insured of $2million each and every claim and then arranges for insurance cover witheach member with various insurers up to a sum insured of $300 million each and every claim. The $2million sum insured provided by MAVInsurance is reinsured through the international reinsurance market. There is uncertainty as to whether a portion of the premium paid to overseasbased insurers for the insurance cover provided to each member in excess of the $2million sum insured provided by MAV Insurance is subject towithholding tax. If withholding tax is payable the amount of withholding tax liability has been estimated at $1.5 million. There is significantuncertainty in relation to whether withholding tax liability exists and if so as to the amount of any such liability.

16 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)MAV Insurance is required to prepare financial statements that comply with Australian equivalents to International Financial Reporting Standards(“A-IFRS”) for annual reporting periods beginning on or after 1 January 2005. Accordingly, MAV Insurance first annual financial report preparedunder A-IFRS will be for the year ended 30 June 2006.In 2004, the Municipal Association of Victoria established a process to manage the transition to A-IFRS. In consultation with the external auditorsstaff of the Association have completed the process set out and agreed in the document “Identifying the impact of AASB standards for 2005(IFRSs Equivalents) on the financial reports of Australian entities.” This process is now completed.

Likely Impacts of A-IFRS on the results and the financial position of Civic Mutual Plus, Municipal Officers Fidelity Guarantee Fundand MAV Insurance combined.The following reconciliation outlines the likely impacts on the current year result and financial position of Civic Mutual Plus, Municipal OfficersFidelity Guarantee Fund and MAV Insurance combined had the financial statements been prepared using A-IFRS, based on the accounting policydecisions current at the date of this financial report. Readers of the financial report should note that further developments in A-IFRS (for example,the release of further pronouncements by the Australian Accounting Standards Board and the Urgent Issues Group), if any, may result in changesto the accounting policy decisions made by MAV Insurance and, consequently, the likely impacts outlined in the following reconciliation.


NOTE $’000 $’000 $’000RECONCILIATION OFOPERATING SURPLUSOperating Surplus (Deficit)(AGAAP) 1,167 1,382 (215)Net Claims aa (57) (34) (23)Operating Surplus (Deficit)(A-IFRS)

NOTE

1,110

COMBINED$’000

1,348

CIVIC MUTUAL PLUS$’000

(238)

MUNICIPAL OFFICERSFIDELITY GUARANTEE FUND

$’000RECONCILIATION OFOPERATING NET ASSETSNet Assets (AGAAP) 10,142 9,995 147Provision for ClaimsOutstandingNet Assets (A-IFRS)

aa (96)10,046

(57)9,938

(39)108

aa. Net Claims

Under 5.1.8 of the revised accounting standard AASB 1023 for the reporting year ending 30 June 2006 a risk margin is required to be addedto the central estimate of the present value of expected future payments. AASB 1047 requires disclosure of the impact of adopting this standardin the 2005 financial statements. Actuarial advice from the independent actuary to MAV Insurance has advised that a prudential margin of 20%of the net provision for outstanding claims is appropriate.These estimates have been included as an adjustment in the “Reconciliation of Operating Surplus” and the “Reconciliation of net assets”.


COMBINED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2005

17 Related PartiesThe Municipal Association of Victoria is a body corporate established under the Municipal Association Act 1907 to provide services for and therepresentation of Local Government authorities in Victoria. The Association and its wholly-owned controlled entities, including MAV Insurance,trade with its members in the normal course of business and on an arm’s length basis. The discreet nature of these transactions is not material.Total expenses of $472,000 (2004 $352,000) payable to the Municipal Association of Victoria being payment for Administrative support, andoverseeing the management of the insurance activities, including the conduct of bi-monthly Committee Meetings. Other than this there were nomaterial related party transactions during the year.

Committee Members During The YearA. Murphy (Independent Chairperson)G. Lake (MAV – President) Appointed August 2004Cr. J. Dale (MAV – Acting President) Appointed June 2004 Resigned August 2004A. Garcia (LGAT Representative)J. Warburton (Independent)N. Renton (Independent)R. Farrell (Independent)A. Nye (Independent)Dr. M. Kennedy (CEO, Mornington Peninsula Shire Council)R. Spence (MAV - Chief Executive Officer)Cr. J. Ryan (MAV Representative) Resigned November 2004Cr. Rod Fyffe (MAV Representative)Cr. R. Gross (MAV Representative) Appointed March 2005Cr. C. Papas (MAV Representative) Resigned March 2005


2005$

2004$

2005$

2004$

2005$

2004$

Independent committee membersreceive remuneration for meetingfees. Chairperson receives $750per committee meeting and otherindependent committee membersreceive $500 per committeemeeting plus $1,000 per annumfor claims and technical andother meetings.

Remuneration of CommitteeMembersTotal Income received or receivableby Committee Members 20,250 26,000 20,250 26,000 - -

Number of Committee Memberswhose total income falls within thefollowing bands:$0 - $9,999

200513

200414

Loans to Committee MembersNo loans were made to or are payable by Committee Members.

Other TransactionsThere were no other material transactions with Committee Members.


STATEMENT BY COMMITTEE OF MANAGEMENTIn the opinion of the members of The MAV Insurance Committee:

(a) the accompanying Statements of Financial Performance is drawn up so as to give a true and fair view of the results of Civic Mutual Plus and the

Municipal Officers Fidelity Guarantee Fund for the year ended 30 June 2005;(b) the accompanying Statement of Financial Position is drawn up so as to give a true and fair view of the state of affairs of Civic Mutual Plus and

the Municipal Officers Fidelity Guarantee Fund as at that date;(c) at the date of this statement there are reasonable grounds to believe that Civic Mutual Plus and the Municipal Officers Fidelity Guarantee Fund

will be able to pay its debts as and when they fall due; andThe financial statements have been made out in accordance with applicable Accounting Standards and other mandatory professional reportingrequirements.Signed in accordance with the resolution of Committee members

John WarburtonMAV Insurance Committee Chairman

Melbourne29 September 2005

Rob SpenceMAV Chief Executive Officer


STATEMENT BY DIRECTORSIn the opinion of the Directors of The Municipal Association of Victoria:

(d) the accompanying Statements of Financial Performance is drawn up so as to give a true and fair view of the results of Civic Mutual Plus and the

Municipal Officers Fidelity Guarantee Fund for the year ended 30 June 2005;(e) the accompanying Statement of Financial Position is drawn up so as to give a true and fair view of the state of affairs of Civic Mutual Plus and

the Municipal Officers Fidelity Guarantee Fund as at that date;(f) at the date of this statement there are reasonable grounds to believe that Civic Mutual Plus and the Municipal Officers Fidelity Guarantee Fund

will be able to pay its debts as and when they fall due; andThe financial statements have been made out in accordance with applicable Accounting Standards and other mandatory professional reportingrequirements.Signed in accordance with the resolution of Directors.

G. LakePresident


John ChandlerDirector

COMBINED FINANCIAL STATEMENTSINDEPENDENT AUDIT REPORTINDEPENDENT AUDIT REPORT TO THE MEMBERS OF LOCAL GOVERNMENT MUTUAL LIABILITY INSURANCE SCHEME ANDMUNICIPAL OFFICERS FIDELITY GUARANTEE FUND

ScopeWe have audited the individual financial statements of the Local Government Mutual Liability Insurance Scheme (“the Scheme”) and theMunicipal Officers Fidelity Guarantee Fund (“the Fund”) for the financial year ended 30 June 2005 as set out on pages 29 to 42. The MunicipalAssociation of Victoria is responsible for the financial statements. We have conducted an independent audit of these financial statements in orderto express an opinion on them to the respective members of the Scheme and the Fund.Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whether the financial reportsare free of material misstatement. Our procedures included examination, on a test basis, of evidence supporting the amounts and otherdisclosures in the financial statements, and the evaluation of accounting policies and significant accounting estimates. These procedures havebeen undertaken to form an opinion whether, in all material respects, the financial reports are presented fairly in accordance with AccountingStandards and other mandatory professional requirements (Urgent Issues Group Consensus Views) and statutory requirements in Australia so asto present a view which is consistent with our understanding of the Scheme’s and the Fund’s financial positions, and the results of theiroperations and their cash flows.The audit opinion expressed in this report has been formed on the above basis.

Audit OpinionIn our opinion,

(a) the financial statements of the Scheme are properly drawn up:(i) so as to give a true and fair view of the Scheme’s state of affairs as at 30 June 2005 and its profit and cash flows for the financial yearended on that date;(ii) in accordance with the provisions of the Trust Deed dated 31 August 1993; and(iii) in accordance with applicable Accounting Standards and other mandatory professional reporting requirements; and

(b) the financial report of the Fund presents fairly the financial position of the Fund as at 30 June 2005 and the results of its operations and its cash

flows for the year then ended.

PKFChartered AccountantsA Victorian Partnership


R. A. Dean Partner


43

OTHER INFORMATIONLegal FormMAV Insurance is the insurance division of the Municipal Association of Victoria. The Municipal Association of Victoria is an AssociationIncorporated by the Municipal Association of Victoria Act 1907.

Domicile:Melbourne, Australia

Address of Registered Office:Level 12, 60 Collins Street, Melbourne, 3000, Australia

Principal Place of BusinessLevel 1, 468 St. Kilda Road, Melbourne 3004, Australia

Nature of the Operation and principal activities:The Municipal Association of Victoria has the power provided to it by the Municipal Association of Victoria Act 1907 to establish Civic MutualPlus and the Municipal Officers Fidelity Guarantee Fund in order to provide public liability, professional indemnity and fidelity insurance to LocalGovernment and Water Authorities.

Number of EmployeesNil

glossaryAFSL – Australian Financial Services LicenceALGA – Australian Local Government AssociationAPRA – Australian Prudential Regulation AuthorityASIC – Australian Securities and Investment CommissionCMP – Civic Mutual PlusEPA – Environmental Protection AuthorityJLT – Jardine Lloyd ThomponLGAT – Local Government Association of TasmaniaMAV – Municipal Association of VictoriaMAVIC – Municipal Association of Victoria Insurance CommitteeTAC – Traffic Accident Commission

Published byMunicipal Association of VictoriaLevel 12, 60 Collins StreetMelbourne 3000Telephone: 03 9667 5555Facsimile: 03 9667 5550GPO Box 4326Melbourne 3001E-mail: [email protected]: www.mav.asn.auWritersCostigan & Murphy

PhotographySteven Diffey Photography

DesignFrank Design Pty Ltd

2004 – 05 insurance report - mav.asn.au · Web viewLevel 1, 468 St. Kilda Road, Melbourne 3004,...

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