rt health fund annual report 2011 by team scope

2011 Annual Report

Cover image: the welcoming rt health fund symbol in the reception of the fund's new home-base, Eveleigh House, Surry Hills, Sydney.

Contents

Chair’s Report CEO’s Report Corporate Governance Directors’ Report Auditor’s Independence Declaration Financial Statements

02 04 07 09 17 18

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Chair’s Report

It is my great pleasure to present to you the Chair’s report on rt health fund for the year ended 30 June 2011.

• rectification of inappropriate pricing for some products, in some states, through the April contribution rate increase.

The fund faced a number of significant challenges during the year – among them, the recruitment of a new CEO and other key senior executives, the move to the new Surry Hills home base, and most importantly, the recovery from the financial loss reported in 2009/10.

Throughout this process, the Board has maintained an active role and, through the establishment of a dedicated Board sub-committee, met monthly with management to monitor the achievement of key milestones, and the numerous improvements necessary to bring about such a significant turnaround. As reported last year, we have also continued to communicate and liaise closely with the industry regulator and the Department of Health and Ageing as another step in ensuring the fund’s progress back to health has been well managed and monitored.

In last year’s report I expressed the seriousness with which the Board was responding to the financial loss in 2009/10. At that time, I made a commitment that the Board and management would share a single focus on addressing the issues that led to the loss, and the actions required to ensure that the operations of the fund were refocused on improving and maintaining efficiencies, and re-establishing a sound operational platform. I am very pleased to report that we have achieved all those things. Perhaps the most significant indicator of the fund’s turnaround is the recovery from a loss of $5.07 million in 2009/10 to an operating surplus of $3.13 million in 2010/11. Even though rt is a not-forprofit fund, owned by its members, it is required to earn and retain a reserve of surplus funds, which ensures that the fund is financially sound and able to continue paying benefits on behalf of its members. The key contributors to this improved position have been the: • refocus by the Board and management on a ‘back to basics’ agenda • recruitment of a number of key management positions, including the CEO and CFO • an internal restructure which has enabled better operating efficiencies and introduced new functions which have led to significant savings through claims analysis • reduction in the fund’s growth agenda, returning to targets well within industry averages

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

I’d like to acknowledge the important role that you, the members of the fund, have played in helping to secure the fund’s sound financial position. You demonstrated your commitment to the fund, and understanding of the issues, through your acceptance of the 2011 rate increase, which for some members was substantial. The increase was necessary to rectify what proved to be unsustainably low pricing in some cases, and the response from members throughout this difficult period was critical to the achievement of a positive result. On behalf of the Board and management, I would like to acknowledge the important role played by our members and express the fund’s sincere gratitude. As mentioned briefly above, the Board appointed a new CEO during the year. Following an extensive national executive search, Matthew Moore was appointed to the role. Matthew was an internal candidate and, as well as more than 20 years’ experience in the health insurance sector, brings with him a detailed knowledge of rt, having worked with the fund since 2007 in the roles of operations manager and general manager strategy, policy and innovation. Matthew’s experience in the industry and knowledge of the fund has been vital in identifying and taking the swift action necessary to establish the foundations for this year’s improved performance.

O n b e ha lf of the and ma nageme Board nt, I like to a cknowle would importa dge the nt role p layed by me mb e our rs and e xpress th fund’s s e incere g ratitude .

I also mentioned briefly above that the fund moved during the year to its new home base in Surry Hills. Eveleigh House – named in honour of the Eveleigh Locomotive Workshops where the fund first began – was declared open by Her Excellency Professor Marie Bashir AC CVO, Governor of NSW. It was an enormous honour to have a guest of such importance declare the building open. Also present to participate in the opening ceremony were three generations of descendants of the fund’s founding secretary. This was a powerful symbol of the long history of this fund and a timely reminder of the important role every member of the Board and every employee has in continuing its operations into the future. Finally, some members will be aware that our member care centre in Brisbane was badly damaged in the January floods. Like many of the individuals and organisations affected, we have had to wait for insurance claims to be settled and builders and other tradespeople to become available. At the time of writing, I am pleased to report that work has commenced, and I hope to be able to advise you at this year’s AGM that the work has been completed and the centre reopened. We thank all those members who have been inconvenienced by the closure for your patience and understanding. In Board news, Barry Dredge, who served on the Board since 2005, retired following the 2010 AGM. Barry was a keen contributor to the Board and a powerful advocate for members. His contribution is gratefully acknowledged. I’d like to welcome Julie Pascoe who was invited to accept a Boardappointed position, and she joined the Board in August 2011. I would like to acknowledge and thank the staff of the fund for their commitment and tireless efforts throughout a very difficult year. The team rose constantly to the new challenges and maintained its focus on delivering for our members. I would also like to acknowledge the fund’s executive management team; under the leadership of our new CEO, Matthew

Moore, the team has produced a very sound result for the fund and stabilised its operations and performance. I would like to thank and acknowledge the efforts of the Board over the past 12 months. It has been a demanding year for the Board, and the contribution and support provided by each member has been invaluable. In particular, I’d like to express the Board’s gratitude to director Michael Prior for his service to the fund in the role of acting CEO while we undertook the recruitment process. I look forward to the year ahead with a sense of optimism that your fund is in a sound position to consolidate the achievements of this year, and to continue to reap the rewards of the many improvements that have been made over the past 12 months.

Bob Scheuber AM Chair

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

CEO’s Report

It is a real privilege for me to present this year’s annual report, my first as CEO of rt health fund, and to be able to report to you on the positive results that have been achieved during the past 12 months. The 2010/11 year has been a challenging one, as well as one filled with significant changes and milestones. The focus and commitment of the executive management team and staff during this period has been fundamental to the fund’s turnaround, and to the fact that today it has returned to a sound financial position. At last year’s annual general meeting, shortly following my appointment as CEO, I outlined an agenda for the year aimed at delivering the fund a strong surplus, while continuing to progress a number of key projects. I am pleased to report that we have been successful in realising every one of the challenges we set ourselves.

Continued focus on managing cost pressures As CEO, I have introduced a number of changes aimed at easing the fund’s cost pressures. The most significant of these have been: • Slowing the rate of membership growth to more closely reflect established industry norms. The impact of this has been to slow the increase in the rate and cost of claims, one of the key contributors to the 2009/10 financial year loss. • Managing benefit payments through more rigorous assessment of hospital claims to identify billing and servicing errors, and increasing the uptake of our hospital at home (hospital substitution) program. Through these activities alone, around $450,000 in savings were achieved. • Postponing a number of non-critical projects, such as the opening of dental and optical clinics, which had been reported as planned in previous years.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

• Correcting pricing issues where some products in some states had been underpriced, resulting in the contribution income received from members not adequately covering the costs of claims. • Restructuring the organisation to enable greater operational efficiencies and improvements.

Continued focus on improving services and benefits for members Throughout the year, we have maintained a keen focus on ensuring we continue to provide members with outstanding health insurance products and exceptional customer service. We have introduced a number of improvements on these fronts and are continuing to focus on product development and service delivery as issues of strategic importance. Of note, over the past year we have introduced: • A range of new and improved benefits. This year, ten new benefits, or enhancements to existing benefits, were introduced on 1 April, and all were the direct result of member feedback. In the coming year, we will be announcing even more improvements to our product range. • A new organisational structure that puts all member communications, services and transactions within the same division of the fund. The objective is to bring the same values of service and member care into all areas of the fund that interact with members. Our goal is to create a fund that is service-led, where members receive the same high quality service with every interaction. • The final phase of our improved paper handling processes through scanning technology. While there were some teething problems which initially caused processing delays, those days are well behind us and the speed and accuracy of claims processing has improved significantly as a result of this new technology.

I am ple a report th sed to at we ha be e n su ve ccessfu l in reali every on sing e of the challeng we set o es urselves .

Continued focus on consolidating the fund’s property holdings This year has seen a significant amount of movement within the fund’s property holdings and office locations. The most anticipated of these has been the move to Eveleigh House, the fund’s new head office in Surry Hills. The purchase of the building was completed and reported in 2008, and over the past three years we have been involved in first securing approval for the development and then refurbishing the building. The project was completed in May this year. As a base for the fund’s head office staff and Sydney-based members Eveleigh House is a building that will provide a suitable home for many decades to come. Among the many benefits of the new location are that it is: • easier and more convenient for members to access (just 100m from Sydney’s Central Station) • positioned close to a number of major transport industry organisations • suitable for locating future new services for members, such as fund-owned dental and optical centres • a modern and spacious environment, large enough to house the fund’s staff today and well into the future. The move into the new office was achieved without disruption to member services, and was a seamless transition from Burwood to Surry Hills. In other property news: • The two fund-owned buildings at 44 and 46 Burwood Road, Burwood, NSW (the fund’s previous head office) were sold in June, in line with the strategy of divesting those properties once the move to Surry Hills was complete. • The fund’s service desk in the Encompass Credit Union branch in Railway Square, Sydney, was also closed, with the area now being serviced by the new Surry Hills member centre. • The member centre in Wollongong was closed following an 18-month assessment of its use by members. It was found that so few members made

use of the facility (on average less than one member per day) that it made sense to absorb those staff positions into the new Surry Hills location. • The Brisbane member centre has been closed since January, following flood damage. At the time of writing, work on the refurbishment has recently commenced.

Other significant events and developments Removal of Lifetime Health Cover Loading In 2010, the first members to have their Lifetime Health Cover (LHC) Loading removed under the revised LHC legislation were contacted. The new rules allow anyone who has held hospital cover continuously for ten years to have their LHC Loading removed. Over the next ten years some 5,000 rt members will become eligible to have their loadings removed. Member satisfaction survey – positive results This year’s annual member satisfaction survey continued to provide good results and great insights into the things that are important to members. We thank everyone who took the time to respond to the survey and assure you that the results are used throughout the fund as an indication of what we’re doing well, and a guide to where we need to place our efforts to improve the services and facilities we offer. It was particularly pleasing to note a significant improvement in the number of members who recognise, and value, the fund’s not-for-profit status. As the industry changes around us, with more large funds becoming profit-driven, this is an increasingly important distinction that separates funds such as ours, which exist to serve their members, from profit-driven funds which are focused on the delivery of profits to shareholders or corporations. We remain firmly committed to our not-for-profit status and what that means in terms of being in business only to serve the needs of our members.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

CEO’s Report (cont)

Smart Investor names rt covers for the fourth time We were pleased to see rt’s products named for the fourth time in the Australian Financial Review’s Smart Investor magazine annual comparison of health covers. The comparison looks at all products offered by all funds and selects those that represent the best value in terms of offering good benefits, few exclusions or restrictions and a competitive price. Keynote presentation at 10th annual Private Health Insurance Summit In July I was invited to present a keynote address to the Private Health Insurance Summit, on the topic of the ‘Future Structure of the Private Health Insurance Industry’. The summit presented an opportunity to share some perspectives on the continued consolidation within the industry and push toward profit-making funds, and what that means for members and insurers. I would like to express my deep gratitude to the team at rt for their professionalism, commitment, hard work and tenacity in delivering such a great turnaround this year. To achieve all of this amidst the upheaval that inevitably comes with internal restructures as well as building moves, closures and flood evacuations has been an admirable effort, and one that speaks volumes for the team’s desire to achieve results and genuine care for the fund and its members. I would like to thank the Board for its strong support during my first year as CEO, which has helped me enormously as we have worked to address the challenges facing the fund and delivered the turnaround that we had promised.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

As we embark on a new financial year, and head toward the fund’s 123rd year of operations, we are in a sound position, but the demands of an ever-changing industry, with ever-increasing healthcare costs, and an ever-uncertain legislative environment are never far from our minds. I look forward to all that lies ahead and to continuing to build on the solid foundations we have established in this past 12 months.

Matthew Moore CEO

Corporate Governance

Role of the Board The Board is responsible for the overall corporate governance of the fund, including determining its strategic direction and financial wellbeing, as well as guiding and monitoring its business and affairs on behalf of the members to whom it is accountable. In summary, the Board’s accountabilities and responsibilities include: • contributing to the development of, approving, and monitoring the implementation of strategy, including identifying and mitigating any risks that may harm the fund • setting the overall direction, financial objectives and operational goals for the fund • reviewing and approving the annual budget and business plan • delegating clear responsibility and authority to the committees of the Board and the CEO, and monitoring and regularly reviewing the performance of those who hold delegated powers • ensuring that the fund has effective processes and systems in place to enable the Board to monitor its performance and capabilities • overseeing the fund’s corporate governance framework and ensuring effective communication with members and stakeholders • monitoring the financial state and performance of the fund • approving the fund’s financial reporting, including annual reports • promoting and maintaining organisational values and a culture where transparent and timely information is shared between management and the Board • ensuring effective systems of internal control and internal audit • reviewing the performance of and mentoring the CEO.

The Board delegates responsibility for the day-to-day management of the fund to the CEO and executive managers, but remains responsible for overseeing the performance of the management team. To ensure that responsibility is clearly defined, the Board has delegated a range of authorities to management through formal delegations. These include limited expenditure authority, and the authority to enter into certain contracts and to engage staff.

Board charter The Board has continued in 2010/11 to undertake key activities which will ensure all of its policies, practices and procedures reflect good governance and current corporate practice. In line with current best practice, the Board’s charter outlines the fund’s approach to such issues as: • corporate culture • code of conduct • risk management • audit • policies and procedures • ethical standards and values • Board agenda • meeting procedures • directors’ induction and training • Board and directors’ evaluation and remuneration • chief executive officer’s evaluation and remuneration • capital management. The directors recognise that adherence to the charter is fundamental in demonstrating that they are accountable to members and stakeholders, and that they are appropriately overseeing the future direction of the fund and managing its business risks.

Changes to election to the Board The Board has adopted a ‘fit and proper’ policy for nominees wishing to be elected to the Board. The policy is compliant with APRA regulations and consistent with the ASX guidelines. Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Corporate Governance (cont)

Conflicts of interest Directors are required to disclose on an ongoing basis any interests that could potentially conflict with those of the fund or its members. In accordance with the Corporations Act 2001, the Board ensures that any director with a material personal interest in a matter being considered by the Board must not be present when it is under discussion and may not vote on the matter. Processes have also been implemented to ensure we identify any breaches of compliance, regulations or code of conduct by Board members.

Board committees In line with best practice corporate governance, the Board has established standing committees as an efficient mechanism for considering detailed issues and making recommendations for consideration by the entire Board. These committees adopt charters setting out the matters relevant to the composition, responsibilities and administration of each committee. Current committees of the Board are: Audit and Risk The audit and risk committee is responsible for: • facilitating the independence of the external audit process and addressing issues arising from the external audit process • ensuring the fund meets its obligations to regulatory agencies • directing the internal audit function, ensuring maximum value to the fund • ensuring the quality and accuracy of published financial reports so they present a true and fair view of the fund’s financial position and comply with relevant statutory and regulatory requirements • ensuring the fund adopts, maintains and applies appropriate accounting and business policies and procedures • overseeing the fund’s investments ensuring the correct balance between liquidity, term of investments and interest rates • overseeing the capital management plan Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

• ensuring the fund maintains effective internal control and risk management systems in order to safeguard its financial, physical and intellectual resources. Remuneration, Nominations and Constitution The remuneration, nominations and constitution committee is responsible for: • assisting the Board to achieve its objectives of ensuring that rt has a Board of effective composition, size and commitment to adequately discharge its responsibilities and duties • establishing policies and procedures for the annual performance evaluation of the Board, each director and management, and recommending performance and salary reviews for the CEO • reviewing and planning professional development and succession with the Board and senior management • annual education programs for Board members • managing the ‘fit and proper’ policy and procedures for Board appointees. Recovery The recovery committee was convened in response to the 2009/10 financial year result, with the express purpose of addressing the issues that led to the result and overseeing the activities necessary to achieve a turnaround. The committee met monthly with senior executives until such time as a positive result for the year was achieved. The ongoing process of overseeing and monitoring the performance of the fund has now been subsumed into the Board’s ‘business as usual’ activities.

Board performance A performance evaluation process has been established for the Board, individual directors and key executives. Directors continue to undertake formal training through the Australian Institute of Company Directors (AICD) and Chartered Secretaries Australia (CSA), as required. All directors have attended training during the year and participated in PHIAC (Private Health Insurance Administration Council) and HIRMAA (Health Insurance Restricted Membership Association of Australia) director education forums.

Directorsâ&#x20AC;&#x2122; Report For the year ended 30 June 2011

Your directors present their report on the company for the financial year ended 30 June 2011.

Company objectives Short term To operate as a private health insurer and to conduct a health benefits fund or funds for the purposes of carrying on health insurance and health related business for the benefit of members and their dependants. Long term To operate as a private health insurer and to conduct a health benefits fund or funds for the purposes of carrying on health insurance and health related business for the benefit of members and their dependants.

Company strategy Short term To consolidate and enhance the efficient operations of the fund to improve capital levels for long term sustainability.

Directors The names of the directors in office at any time during or since the end of the year are: B Scheuber AM V Reynolds J Blake (resigned 22/7/2010) B Dredge (retired 17/11/2010) D Ellis R Ledger J Pascoe (appointed 24/08/2011) M Prior M Scanlan Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Their qualifications, experience and special responsibilities are as follows:

Long term To achieve a sustainable level of capital to enable the fund to meet current and future members and their dependants needs for private health insurance. Principal activities The principal activity of the company during the financial year was the provision of private health insurance. There were no significant changes in the nature of the companyâ&#x20AC;&#x2122;s principal activities during the financial year. Measuring performance The key measures of performances are the gross margin and loss ratio by product, state and channel, benefits paid by member, the management expense ratio and capital adequacy and solvency ratios.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Bob Scheuber

Victoria Reynolds

Bob Scheuber AM, FCPA, FAIM, MAICD, B Ec, B Bus

Victoria Reynolds Dip HR Mgt, GAICD, MAHRI, MWOB

Board Chair

Deputy Chair

Age 56

Age 59

Term Independent member elected Director First appointed 24/10/2007 and last re-elected 17/11/2010

Term Independent Appointed Director First Appointed 21/09/2005 and last re-appointed 19/08/2009

Committees Chair, Recovery Committee Member, Audit & Risk Committee from 15/12/2010

Committees Chair, Remuneration, Nominations and Constitution Committee Member, Recovery Committee

Directorships Chair, QSuper; Chair, QSL Board of Trustees; Chair, CRC Rail Ltd Experience Principal of consulting business. Chair of the Board since 2009. Former CEO of Queensland Rail. Awarded Member of the Order of Australia (AM) in January 2008, for ‘service to the rail sector in Queensland, particularly through contributions to regulatory and operational reforms’. Member of rt health fund since 1991.

Directorships None Experience Consultant, Human Resources and Industrial Relations Former General Manager, Human Resources for Rail Infrastructure Corporation concluding 22 years with NSW Rail. Awarded Premier’s Silver Award for Excellence in service delivery. Former Chair of Board from 2005 to 2009 overseeing significant Constitutional and Governance changes. Member of rt health fund since 1997.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Dennis Ellis

Robert Ledger

Dennis Ellis MAICD

Robert Ledger B Elec, Grad Dip Sys Eng, GAICD

Age 65

Age 63

Term Independent member elected Director First appointed 21/09/2005 and last re-appointed 24/10/2008

Term Independent member elected Director First appointed 21/09/2005 and last re-appointment 17/11/2010

Committees Member, Remuneration, Nominations and Constitution Committee Member, Recovery Committee from 15/12/2010

Committees Member, Audit and Risk Committee until 15/12/2010 Member, Remuneration, Nominations and Constitution Committee from 15/12/2010

Directorships None Experience Former senior Vice President of RTBU Retired after 34 years with QR National and Queensland Rail Since 2005 provided significant contribution to Constitutional and Governance changes including Fit and Proper Person policies and procedures Member of rt health fund since 1997

Member Recovery Committee from 15/12/2010 Directorships None Experience Former Fleet Engineer â&#x20AC;&#x201C; Passenger Fleet Maintenance for NSW Railways. Retired after 40 years with NSW Rail. Since 2005 instrumental in writing and revising the Constitution, and in addition involved in the review of the capital management policy, the strategic plan and numerous Board policies. Member of rt health fund since 1965.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Julie Pacoe

Michael Prior

Julie Pascoe BA, Grad Dip (Mktg), GAICD

Michael Prior M Com, Grad Dip Applied Finance (SIA),

Age 51

Acting CEO 16/8/2010 until 25/10/2010

Term Independent Appointed Director Appointed 24/08/2011

Age 52

Committees Nil Directorships Director – Pasko Pty Ltd trading as Corporate Property Group Director – Bernardo’s Children Services Former member and Chairman of People and Culture Committee, Church Resources Charitable Trust Foundation.

CPA, FTIA, FINSIA, MAICD

Term Independent Appointed Director First appointed 25/05/2006 and last re-appointed 15/04/2009 Committees Chair, Audit and Risk Committee until appointment as Acting CEO 16/08/2010 then Member until re-appointment as Committee Chair on 25/10/2010. Member Recovery Committee

Experience Director of Marketing - marketing strategist and business manager.

Directorships Director – Woods Cottage Foundation Ltd

Over 20 years in senior management covering a portfolio of industries with emphasis on building strong brands and ensuring high levels of organisational performance and competence.

Former independent member of Finance and Investment Committee for the Board of Grain Growers Assocation of Australia. Experience Private Consultant Over 30 years in finance industry including as former CFO CMC Markets Asia Pacific, and previously GM Operational Risk and Compliance with CBA. Member of rt health fund since 2009.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Mike Scanlan

Judith Blake

Mike Scanlan MBA, BEng, Grad Dip Mgt, FAICD,

Judith Blake JP, MAICD

FAIM, FCILT, FAMI, MIE

Age 56 Term Independent member elected Director Appointed 18/11/2009 Committees Member, Audit & Risk Committee including as Acting Chair between 16/8/2010 until 25/10/2010 Member, Recovery Committee Directorships Chair â&#x20AC;&#x201C; Westwood Superannuation Fund Director â&#x20AC;&#x201C; Railways Credit union.

Age 61 Term Judith resigned as an independent member elected from the Board on 22 July, 2011. She was a Board member since 2005. Committees Previously, as a member of the Audit and Risk Committee Judith contributed to the introduction of procedures to ensure compliance with the requirements of the Private Health Industry Administration Council (PHIAC) as well as disaster recovery procedures for the fund. Member of rt health fund since 1996

Former Director of each of Heritage Train Company, Translink Advisory Board, Queensland Tourism Industry Council Board, City Trans Management Committee, and International Public Transport Association Experience Private Consultant Over 34 years with Queensland Rail including a variety of business unit senior executive positions. Member of rt health fund since 1993

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Barry Dredge

Barry Dredge MAICD Age 63 Term Barry retired as an independent member elected Director on 17 November 2010. Committees Barry was a member of the Board since 2005 and a member of the Board’s Remuneration, Nominations and Constitution Committee until his retirement from the Board. Experience Barry had been involved extensively in contributing to ensuring that the operations, management and governance of the fund represent best practice in the industry, including amendments to the Constitution and development of a ‘fit and proper’ policy. In addition Barry developed a new policy for nomination and voting procedures for elected Board positions (chair, deputy chair and committees). Member of rt health fund since 1992.

Matthew W Moore BA, MAICD Chief Executive Officer Matthew was appointed CEO on 25 October 2010 having joined the rt team as operations manager in 2007, moving to the new role of general manager strategy, policy and innovation in 2009. He has worked in senior executive positions within the Private Health Insurance industry for more than 20 years. These included head of strategy at Medibank Private, then at MBF where he established and implemented fraud and risk analysis systems. As principal of an innovative business services organisation, he provided outsourced administration and IT&T services to small and medium-sized health funds both in Australia and overseas.

Mark Dayhew BBus, CPA, AAII, CIP Chief Financial Officer Mark was appointed Chief Financial Officer in August 2010. He brings a depth of more than 30 years experience in the insurance industry, including over 15 in senior executive roles. Mark’s specialization covers financial systems, risk management, corporate governance, and financial reporting.

John Hartigan BComm, CA, FCIS, GAICD Company Secretary John was appointed Company Secretary in May 2010. He is a Fellow of Chartered Secretaries Australia, a Chartered Accountant and Graduate Member of the Institute of Company Directors. He has over 17 years experience in corporate governance and secretariat practice in listed and unlisted public companies.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Operating results

After balance date events

The total comprehensive profit of the company for the financial year after providing for income tax amounted to $3,131,000 (2010: loss of $5,070,000).

No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years.

Review of operations Membership of products providing hospital cover decreased by 2.3% over the twelve months to 30 June 2011 while membership of products providing cover for general treatment decreased by 1% over the same period. Total net contributor loss for the year was 382.

Future development, prospects and business strategies The company will continue to pursue the business activities as a registered health benefits organisation and in health related businesses.

A gross margin of 13.53% generated during the year is higher than in 2010; being 10.15%.

Environmental issues

While the average contribution rate increase at 1 April 2011 this year was at a higher level than in recent years it also took into account the hospital, medical and general treatment drawing rate inflation that increased by 6.4% during the twelve months to 30 June 2011.

Dividends paid or recommended

Management expenses remained consistent to prior years in respect of contribution income, being 12.0% (2010: 11.6%). During the year the fund undertook a restructure of the organisation, introduced new scanning processes and completed the move to the new head office in Surry Hills, incurring some additional costs. Investment income was higher than in the prior year, due to an increase in term deposit rates and a marginal recovery in the managed fund portfolio over the 12 month period. During the year the Burwood premises were sold, incurring a small loss on the investment portion of that property whilst the investment portion of the Surry Hills property was adjusted downwards by $1.66 million to reflect the current market value.

Significant changes in state of affairs No significant changes in the companyâ&#x20AC;&#x2122;s state of affairs occurred during the financial year.

The companyâ&#x20AC;&#x2122;s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory. As the company is a company limited by guarantee and a not-for-profit organisation, no dividends have been paid, declared or recorded.

Options As the company is limited by guarantee and not shares, no options over issued shares or interests in the company were granted during or since the end of the financial year and there were no options outstanding at the date of this report.

Indemnifying officers or auditor During or since the end of the financial year, the company has paid insurance premiums to insure all directors and officers of the company against liabilities for costs and expenses incurred by them to the extent permitted by the Corporations Act 2001 in defending legal proceedings arising from their conduct while acting in the capacity of director or officer of the company, other than conduct involving a wilful breach of duty in relation to the company. The contract of insurance prohibits disclosure of the nature of the liabilities and the amount of the premium. Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Directors’ Report (cont)

No indemnities have been given or insurance premiums paid during or since the end of the financial year for any person who is or has been an auditor of the company.

Proceedings on behalf of company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

Rounding of amounts The entity has applied relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1,000.

Meetings of directors During the financial year, 29 meetings of directors (including committees of directors) were held. Attendances by each director during the year were as follows:

The company was not a party to any such proceedings during the year. Director Meetings

Committee Meetings

Audit & Risk Committee Name

Remuneration, Nominations & Constitution Committee E

Recovery Committee E

B Scheuber

–

V Reynolds

–

J Blake

–

B Dredge

–

D Ellis

–

R Ledger

J Pascoe

–

M Prior

–

M Scanlan

–

Table Key: E Number of meetings eligible to attend A Number of meetings attended

Signed in accordance with a resolution of the Board of Directors:

Auditor’s independence declaration A copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 17 and forms part of this report.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

R SCHEUBER Chair Dated this 21st day of September 2011, Sydney, NSW

Auditorâ&#x20AC;&#x2122;s Independence Declaration

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Financial Statements

Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directorsâ&#x20AC;&#x2122; Declaration Independent Auditorâ&#x20AC;&#x2122;s Report

20 21 22 23 24 58 59

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Statement of Comprehensive Income For the year ended 30 June 2011

Premium revenue

Note

2011 $’000

2010 $’000

80,126

67,419

Claims expense

(84.167)

(74,055)

Risk Equalisation Trust Fund income

6,652

6,385

Gap and Access GAP refund

9,173

8,053

State levies Net claims incurred Unexpired risk liability decrease/(increase)

(939)

(887)

(69,281)

(60,504)

15e.

2,219

(2,098)

Claims handling expenses

(4,913)

(3,684)

Write-off of deferred member acquisition costs

–

(2,202)

Other underwriting expenses

(4,738)

(5,383)

Underwriting expenses

(7,432)

(13,367)

Underwriting result

3,413

(6,452)

Investment revenue

1,206

1,119

Change in fair value of investment property

(1,658)

(243)

Change in fair value of investments in equity instruments

109

(122)

Loss on sale of property Other revenue

Surplus/(Deficit) attributable to members before tax Income tax expense

1a.

Surplus/(Deficit) attributable to members after tax

(127)

–

188

356

3,131

(5,342)

–

3,131

(5,342)

–

272

3,131

(5,070)

Other comprehensive income Net gain/(loss) on revaluation of non current assets Total comprehensive income/(loss) attributable to members These financial statements should be read in conjunction with the accompanying notes.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Statement of Financial Position As at 30 June 2011

Note

2011 $’000

2010 $’000

Cash and cash equivalents

3,352

7,993

Trade and other receivables

5,631

4,674

Financial assets

23,043

16,616

121

32,123

29,404

961

Current assets

Other current assets Total current assets Non-current assets Financial assets

–

Intangible assets

644

261

Property, plant and equipment

10,487

12,309

Investment property

6,540

3,112

Total non-current assets

17,671

16,643

Total assets

49,794

46,047

Current liabilities Trade and other payables

1,725

1,951

Short-term provisions

10,586

11,119

Other current liabilities

8,551

7,181

20,862

20,251

Total current liabilities Non-current liabilities Long-term provisions

Total liabilities

20,918

20,302

Net assets

28,876

25,745

Total non-current liabilities

Equity Reserves

767

1,727

Retained earnings

28,109

24,018

Total equity

28,876

25,745

These financial statements should be read in conjunction with the accompanying notes.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Statement of Changes in Equity For the year ended 30 June 2011

Balance at 1 July 2009 Deficit for the year Total other comprehensive income Balance at 30 June 2010 Surplus for the year Total other comprehensive income Transfer from sale of property Balance at 30 June 2011

Retained earnings $’000

Asset revaluation reserve $’000

Total $’000

29,360

1,455

30,815

(5,342)

–

(5,342)

–

272

24,018

1,727

25,745

3,131

–

3,131

–

960

(960)

–

28,109

767

28,876

These financial statements should be read in conjunction with the accompanying notes.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Statement of Cash Flows For the year ended 30 June 2011

Note

2011 $’000

2010 $’000

Cash flow from operating activities Receipts from members’ premiums

81,219

69,503

Benefits paid to members

(67,683)

(58,323)

Receipts from tenants

153

266

Payments to suppliers and employees

(9,914)

(7,108)

Interest received

1,206

788

4,981

5,126

Net cash provided by operating activities

Cash flows from investing activities Proceeds from disposal of investments

65,662

27,917

Payment for purchase of investments

(71,019)

(28,025)

Proceeds from disposals of property, plant and equipment

3,979

–

Payment for property, plant and equipment

(7,870)

(1,485)

(374)

(1,879)

(9,622)

(3,472)

–

Net (decrease) in cash held

(4,641)

1,654

Cash at beginning of year

7,993

6,339

3,352

7,993

Payment for intangibles Net cash used in investing activities Cash flows from financing activities Net cash provided by financing activities

Cash at end of year

These financial statements should be read in conjunction with the accompanying notes.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements For the year ended 30 June 2011

Note 1: Statement of significant accounting policies The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001. The financial report covers Railway & Transport Health Fund Limited as an individual company. Railway & Transport Health Fund Limited is a company limited by guarantee, incorporated and domiciled in Australia. The financial report complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS). A statement of compliance with International Financial Reporting Standards cannot be made due to the company applying the not-for-profit sector specific requirements contained in the AIFRS. All amounts presented within the financial report are in Australian dollars unless otherwise stated. The following is a summary of the material accounting policies adopted by the company in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Basis of Preparation The accounting policies set out below have been consistently applied to all years presented unless otherwise stated. Reporting Basis and Conventions The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Accounting Policies a. Income tax The company is a private insurer within the meaning of the Private Health Insurance Act 2007 and is exempt from income tax assessment under section 50-30 of the Income Tax Assessment Act 1997. b. Revenue Premium revenue is recorded on an accruals basis, reflecting contributions received adjusted for the opening and closing contributions in advance and in arrears. Contributions received in advance are recorded as a liability and contributions in arrears (to the extent recoverable) are recorded as an asset. Premiums on unclosed business are brought to account using estimates based on payment cycles nominated by the policy holder. Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets. Revenue from the rendering of a service is recognised upon the delivery of the service to the customers. Lease income from operating leases where the company is the lessor is recognised in the income statement on a straight-line basis over the lease term. Net fair value gains or losses on financial assets classified as fair value through profit and loss are recognised in the period. All revenue is stated net of the amount of goods and services tax (GST). c. Claims Claims are recorded as an expense in the period in which the service has been provided to the member. The cost of claims therefore represents the claims paid during the period adjusted for the opening and closing provision for unpresented and outstanding claims. The provision for unpresented and outstanding claims provides for claims received but not assessed and claims incurred but not received. The provision

is based on an actuarial assessment taking into account historical patterns of claim incidence and processing. No discounting is applied to the provision due to the generally short period between claim incidence and settlement. The provision also provides for the expected payment to or receipt from the Risk Equalisation Trust Fund (“RETF”) in relation to the amount provided for unpresented and outstanding claims. The provision also allows for an estimate of operating expenses to cover the cost of processing the claims.

The expected future payments include those in relation to claims reported but not yet paid and claims incurred but not yet reported, together with allowances for Health Benefit Trust Fund/Risk Equalisation consequences and claims handling expenses.

In addition to the provision for unpresented and outstanding claims, an unearned premium liability is also provided for to meet the costs, including claims handling costs, that will arise under current insurance contracts. The unearned premium liability is calculated by considering current estimates of the present value of expected future cashflows arising from the rights and obligations under current insurance contracts.

g. Unexpired risk liability At each reporting date, the adequacy of the unearned premium liability is assessed by considering the current estimate of all expected future cash flows relating to future claims against current private health insurance contracts.

d. Risk equalisation Amounts receivable from the RETF are recorded in the statement of financial performance in the period for which the receipts relate. Any amounts due at the balance date in relation to the period are brought to account as assets. e. Outstanding claims liability Provision is made at the year end for the liability for outstanding claims which is measured as the central estimate of the expected payments against claims incurred but not settled at the reporting date under insurance contract issued by the company. The expected future payments include those in relation to claims reported but not yet paid and claims incurred but not yet reported. This ‘central estimate’ of outstanding claims is an estimate which is intended to contain no intentional over or under estimation. For this reason the inherent uncertainty in the central estimate must also be considered and a risk margin is added. Actual results could differ from the estimate.

f. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

If the present value of the expected future cashflows relating to future claims plus the additional risk margin to reflect the inherent uncertainty in the central estimate exceeds the unearned premium liability then the premium is deemed to be deficient. The company applies a risk margin to achieve the same probability of sufficiency for future claims as achieved by the estimate of the outstanding claims liability. h. Unclosed business Unclosed business is recognised on the balance sheet at year end on premiums in arrears. This is calculated as the remainder of the premium payable. i. Assets backing private health insurance liabilities As part of the investment strategy, the company actively manages its investment portfolio to ensure that a portion of its investments mature in accordance with the expected pattern of future cash flows arising from private health insurance liabilities. The Board has adopted a conservative approach to maintain its investment portfolio in Cash and Interest Rate Securities except for a maximum of 10% of noninvestment property assets in Australia Equities.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 1: Statement of significant accounting policies (cont) With the exception of property, plant and equipment, the company has determined that all assets are held to back private health insurance liabilities and their accounting treatment is as follows. j. Financial instruments Initial recognition and measurement Financial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either purchase or sell the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transactions costs except where the instrument is classified as ‘at fair value through profit or loss’ in which case transaction costs are expensed to profit or loss immediately. Classification and subsequent measurement Financial instruments are subsequently measured at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted. Amortised cost is calculated as: i. the amount at which the financial asset or financial liability is measured at initial recognition; ii. less principal repayments; iii. p lus or minus the cumulative amortisation of the difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and iv. l ess any reduction for impairment. The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability. Revisions to expected future net cash flows will necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss. Financial assets at fair value through profit and loss Financial assets are classified at ‘fair value through profit or loss’ when they are held for trading for the purpose of short-term profit taking, or where the are derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with charges in carrying value being included in profit or loss Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost. Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period, which will be classified as non-current assets. Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the entity’s intention to hold these investments to maturity. They are subsequent measured at amortised cost.

Held-to-maturity investments are included in noncurrent asset, except for those which are expected to mature within 12 months after the end of the reporting period. If during the period the company sold or reclassified more than an insignificant amount of the held-tomaturity investments before maturity, the entire held-to-maturity investment would be tainted and reclassified as available-for-sale. Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not capable of being classified into other categories of financials assets due to their nature, or they were designed as such by management. The comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments. Available-for-sale financial assets are included in noncurrent assets, except for those which are expected to be disposed of within 12 months after the end of the reporting period. Fair value Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent armâ&#x20AC;&#x2122;s length transactions, reference to similar instruments and option pricing models. Impairment At the end of each reporting period, the entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of comprehensive income.

Derecognition Financial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset. k. Property, plant and equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Property Freehold land and buildings are shown at their fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an armâ&#x20AC;&#x2122;s length transaction). Valuations are performed whenever the directors believe there has been a material movement in the value of the assets. Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against the related revaluation reserve directly in equity; all other decreases are charged to the statement of comprehensive income. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Plant and equipment Plant and equipment are measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assetsâ&#x20AC;&#x2122; employment and subsequent disposal. The expected net cash flows have been Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 1: Statement of significant accounting policies (cont) discounted to their present values in determining recoverable amounts. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Depreciation The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the company commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Class of Fixed Asset

Depreciation Rate

Buildings

Computer equipment

25%

Motor vehicles

12.5%

Plant and equipment

5-20%

Leasehold improvements

20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains or losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. l. Investment property Investment property, comprising freehold office complexes, is held to generate long-term rental yields. All tenant leases are on an arm’s length basis. Investment property is carried at fair value, determined by independent valuers and adjusted to reflect the current market value of the property. Changes in fair value of investment property are reflected in the statement of comprehensive income for the year. m. Impairment of assets At each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. n. Intangible assets Deferred member acquisition costs Deferred member acquisition costs are recognised on commissions paid to iSelect with respect to new members signed through the agency and are measured at cost of acquisition. Deferred member acquisition costs have a finite life and are carried at cost less any accumulated amortisation and impairment losses. Deferred member acquisition costs are amortised over their useful life of 4 years. At each reporting period Directors assess the recoverability of deferred member acquisition costs

and as such any impairment is recognised in the statement of comprehensive income. Computer software Computer software has a finite useful life and is carried at cost less any accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis to allocate the cost of the software over their useful lives being three years. o. Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, that are transferred to the company are classified as finance leases. Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term. Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred. Lease incentives under operating leases are recognised as a liability and amortised on a straightline basis over the life of the lease term. p. Provisions Provisions are recognised when the company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured. q. Employee benefits Provision is made for the companyâ&#x20AC;&#x2122;s liability for

employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. r. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST. Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. s. Comparative figures When required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. t. Rounding of amounts The entity has applied relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directorsâ&#x20AC;&#x2122; report have been rounded off to the nearest $1,000. u. New Accounting Standards for Application in Future Periods The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The company has decided against early adoption of these standards. A discussion of those future requirements and their impact on the company follows:

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 1: Statement of significant accounting policies (cont) Standard

Impact

AASB 9 Financial Instruments AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 (applicable for reporting periods ending on or after 31 December 2015)

AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities. AASB 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in AASB 139 and removes the impairment requirement for financial assets held at fair value. In addition, the majority of requirements from AASB 139 for the classification and measurement of financial liabilities has been carried forward unchanged, except in relation to own credit risk where an entity takes the option to measure financial liabilities at fair value. AASB 9 requires the amount of the change in fair value due to changes in the entity’s own credit risk to be presented in other comprehensive income (OCI), unless there is a accounting mismatch in the profit or loss, in which case all gains or losses are to be presented in the profit or loss. No changes are expected to materially affect the Company.

AASB 124 Related Party Disclosures AASB 2009-12 Amendments to Australian Accounting Standards arising from AASB 124 (applicable for reporting periods ending on or after 31 December 2011)

This revision amends the disclosure requirements for government related entities and the definition of a related party. Since the entity is not a government related entity; there is not expected to be any changes arising from this standard.

AASB 2010-2 Amendments to Australian Accounting Standards arising from reduced disclosure requirements (applicable for reporting periods ending on or after 30 June 2014)

This Standard gives effect to Australian Accounting Standards - Reduced Disclosure Requirements. AASB 1053 provides further information regarding the differential reporting framework and the two tiers of reporting requirements for preparing general purpose financial statements. These changes are likely to result in reduced note disclosures in the following main areas: • AASB 7 Financial Instruments; Disclosures • AASB 101 Presentation of Financial Statements • AASB 108 Accounting Policies • AASB 123 Borrowing Costs • AASB 124 Related Party Disclosures • AASB 128 Accounting for Associates

AASB 2010-4 Further Amendments to Australian Accounting Standards arising from the Annual Improvements Project [AASB 1, AASB 7, AASB 101, AASB 134 and Interpretation 13] (applicable for reporting periods ending on or after 31 December 2011)

Emphasises the interaction between quantitative and qualitative AASB 7 disclosures and the nature and extent of risks associated with financial instruments. Clarifies that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. Provides guidance to illustrate how to apply disclosure principles in AASB 134 for significant events and transactions. Clarify that when the fair value of award credits is measured based on the value of the awards for which they could be redeemed, the amount of discounts or incentives otherwise granted to customers not participating in the award credit scheme, is to be taken in account. No changes are expected to materially affect the Company.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Standard

Impact

AASB 1053 Application of Tiers of Australian Accounting Standards (applicable for reporting periods ending on or after 30 June 2014)

This Standard establishes a differential financial reporting framework consisting of two Tiers of reporting requirements for preparing general purpose financial statements: • Tier 1: Australian Accounting Standards; and • Tier 2: Australian Accounting Standards - Reduced Disclosure Requirements. Tier 2 comprises the recognition, measurement and presentation requirements of Tier 1 and substantially reduced disclosures corresponding to those requirements. The following entities apply Tier 1 requirements in preparing general purpose financial statements: • for-profit entities in the private sector that have public accountability (as defined in this Standard); and • the Australian Government and State, Territory and Local Governments. The following entities apply either Tier 2 or Tier 1 requirements in preparing general purpose financial statements: • for-profit private sector entities that do not have public accountability; • all not-for-profit private sector entities; and • public sector entities other than the Australian Government and State. Given that the Company is a Tier 2 entities that prepares general purpose financial reports it is expected that the Company will be able to apply the reduced disclosures within the financial instruments, related parties, accounting policies, borrowing costs, and financial statement disclosures.

AASB 1054 Australian Additional Disclosures (applicable for reporting periods ending on or after 30 June 2012)

This standard is as a consequence of phase 1 of the joint Trans-Tasman Convergence project of the AASB and FRSB. This standard relocates all Australian specific disclosures from other standards to one place and revises disclosures in the following areas: • Compliance with Australian Accounting Standards • The statutory basis or reporting framework for financial statements • Whether the financial statements are general purpose or special purpose • Audit fees • Imputation credits • Reconciliation of net operating cash flow to profit (loss). No changes are expected to materially affect the Company.

AASB 2010-05 Amendments to Australian Accounting Standards [AASB 1, 3, 4, 5, 101, 107, 112, 118, 119, 121, 132, 133, 134, 137, 139, 140, 1023 & 1038 and Interpretations 112, 115, 127, 132 & 1042] (applicable for reporting periods ending on or after 31 December 2011).

The Standard makes numerous editorial amendments to a range of Australian Accounting Standards and Interpretations, including amendments to reflect changes made to the text of International Financial Reporting Standards by the International Accounting Standards Board. No changes are expected to materially affect the Company.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 1: Statement of significant accounting policies (cont) Standard

Impact

AASB 2010-7 Amendments to Australian Accounting Standards arising from AASB 9 (December 2010) [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136, 137, 139, 1023, & 1038 and interpretations 2, 5, 10, 12, 19 & 127] (applicable for reporting periods ending on or after 31 December 2013).

The requirements for classifying and measuring financial liabilities were added to AASB 9. The existing requirements for the classification of financial liabilities and the ability to use the fair value option have been retained. However, where the fair value option is used for financial liabilities the change in fair value is accounted for as follows: •T he change attributable to changes in credit risk are presented in other comprehensive income (OCI) •T he remaining change is presented in profit or loss If this approach creates or enlarges an accounting mismatch in the profit or loss, the effect of the changes in credit risk are also presented in profit or loss. No changes are expected to materially affect the Company.

Disclosure of Interests in Other Entities (applicable for reporting periods ending on or after 31 December 2013).

IFRS 12 includes all disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structures entities. New disclosures have been introduced about the judgements made by management to determine whether control exists, and to require summarised information about joint arrangements, associates and structured entities and subsidiaries with non-controlling interests. No changes are expected to materially affect the Company given that JV’s are not currently recognised.

Fair Value Measurement (applicable for reporting periods ending on or after 31 December 2013).

IFRS 13 establishes a single source of guidance under IFRS for determining the fair value of assets and liabilities. IFRS 13 does not change when an entity is required to use fair value, but rather, provides guidance on how to determine fair value under IFRS when fair value is required or permitted by IFRS. Application of this definition may result in different fair values being determined for the relevant assets. IFRS 13 also expands the disclosure requirements for all assets or liabilities carried at fair value. This includes information about the assumptions made and the qualitative impact of those assumptions on the fair value determined. No changes are expected to materially affect the Company.

The Company does not anticipate the early adoption of any of the above Australian Accounting Standards. v. Critical accounting estimates and judgments The directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the company. The key areas in which critical estimates are applied are as described below: Outstanding claims provision Provision is made at the year end for the liability for outstanding claims which is measured as the central estimate of the expected payments against claims incurred but not settled at the reporting date under insurance contract issued by the company. The expected future payments include those in relation to claims reported but not yet paid and claims incurred but not yet reported. This ‘central estimate’ of outstanding claims is an estimate which is intended to contain no intentional over or under estimation. For this reason

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

the inherent uncertainty in the central estimate must also be considered and a risk margin is added. The estimated cost of claims includes allowances for the Risk Equalisation Trust Fund (â&#x20AC;&#x153;RETFâ&#x20AC;?) consequences and claims handling expense. Given the inherent uncertainty in establishing claims provisions, it is likely that actual results will differ from the original estimate. In calculating the estimated cost of unpaid claims the company uses estimation techniques based upon statistical analysis of historical data. Allowance is made, however for changes or uncertainties which may distort the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims, including changes to the companyâ&#x20AC;&#x2122;s processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with statistics from previous periods. The calculation was determined as at 30 June 2011, taking into account one month post balance date claims. The risk margin has been based on an analysis of the past experience of the company. The analysis examined the volatility of the past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of the future volatility. The central estimates are calculated gross of any risk equalisation recoveries. A separate estimate is made of the amounts that will be recoverable from the RETF based upon the gross provision. Details of specific key estimates and judgements used in deriving the outstanding claims liability at year end are detailed in Notes 2 and 15. Unexpired risk liability The provision for unexpired risk liability is determined as the excess of benefits, risk equalisation, state levies, claims related expenses plus a risk margin over the premiums for the relevant period. Projected benefits, risk equalisation, state levies and claims related expenses were determined from projections adjusted for recent experience compared to projected and based on no membership growth. Details of specific key estimates and judgements used in deriving the unexpired risk liability at year end are detailed in Note 15e. Impairment of financial and non-financial assets The Company assesses impairment at each reporting date by evaluating conditions specific to the Company that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates. Deferred member acquisition costs was deemed to be fully impaired for the year ended 30 June 2010. w. Adoption of the financial report The financial report was authorised for issue on 21 September 2011 by the Board of directors.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 2: Actuarial assumptions and methods Actuarial methods The outstanding claims estimate is derived based on three valuation classes, namely hospital, medical and general treatment services. In calculating the estimated cost of unpaid claims a chain ladder method is used, this assumes that the development pattern of the current claims will be consistent with historical experience. Where deemed necessary, manual adjustments were made to the outstanding claims by service month to produce an appropriate estimate of incurred claims for the service month. Actuarial assumptions The following assumptions have been made in determining the outstanding claims liability based on inputs from management and advice from the Appointed Actuary. 2011 Variables

Hospital %

2010

Medical General treatment % %

Hospital %

Medical General treatment % %

Portion paid to date

92.7

92.5

97.2

98.5

97.5

97.4

Expense rate

7.59

7.70

Discount rate

–

Risk equalisation rate Risk margin

(11.5)

–

(12.0)

–

18.17

The risk margin of 18.17% (2010: 18.17%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 95% (2010: 95%).

Process used to determine assumptions A description of the processes used to determine these assumptions is provided below: i. Proportion paid to date The proportion paid to date summarises the application of the chain ladder method (over the 12 months to 30 June 2011) described above to determine the total expected incurred in each service month. The proportion paid to date has been determined with one month’s paid claims hindsight.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

ii. Discount rate As claims for health funds are generally settled within one year, no discounting of claims is usually applied as the difference between the undiscounted value of claims payments and the present value of claims payments is not likely to be material. An increase in the proportion assumed paid to date, would lead to more claims being paid earlier and therefore a decrease in the liability. iii. Expense rate Claims handling expenses were calculated by reference to past experience of total claims handling costs as a percentage of total past payments. An increase or decrease in this expense would have a corresponding effect on the claims expense. iv. Risk equalisation allowance In simplified terms, each private health insurer is required to contribute to the risk equalisation pool or is paid from the pool to equalise their hospital claims exposure to members aged over 55 years of age and in respect of high cost claims. This is an allowance made in respect of the claims incurred but not yet paid. An increase or decrease in this expense would have a corresponding effect on the claims expense v. Risk margin The risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of the future volatility and has been set at a level estimated to equate to a probability of adequacy greater than 95% (2010: 95%). An increase or decrease in this expense would have a corresponding effect on the claims expense. The probability of adequacy implied by the risk margin (2011: 18.17%) has been determined with one month’s paid claims hindsight. The 2010 provision was prepared using two month’s paid claim hindsight. Sensitivity analysis – insurance contracts Summary The company conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the performance and equity of the company.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 2: Actuarial assumptions and methods (cont)

Movement in variable %

Adjustments on Surplus $‘000

Adjusted amount included in Statement of Comprehensive Income $‘000

Gross outstanding claims provision

+10%

(987)

-10%

987

Expense rate

+10%

(70)

-10%

–

Variables

Discount rate Risk equalisation rate Risk margin

Adjustments on Equity $‘000

Adjusted amount included in Statement of Financial Position $‘000

+10%

117

-10%

(117)

+10%

(152)

-10%

152

Recognised amounts in the financial statements

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Surplus/(Deficit) 2011 $’000

Equity 2011 $’000

3,131

28,876

2011 $’000

2010 $’000

80,126

67,419

Investment revenue

1,206

1,119

Change in fair value of investment property

(1,658)

(243)

109

(122)

186

309

Note 3: Revenue Premium revenue

Change in fair value of investments in equity instruments Other revenue Rental income Other income Total other revenue

188

356

4,913

3,684

Note 4: Expenses Expenses by function Claims handling expenses Write-off of deferred member acquisition costs

–

2,202

Other underwriting expenses

4,738

5,383

Total expenses (excluding direct claims expenses)

9,651

11,269

4,913

3,684

–

2,202

Expenses by nature Employee benefits Write-off of deferred acquisition costs Depreciation and amortisation

451

277

Other expenses

4,287

5,106

Total expenses (excluding direct claims expenses)

9,651

11,269

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

2011 $’000

2010 $’000

1,050

666

Note 5: Key management personnel compensation Short-term employee benefits Salary and fees Bonus

–

Non-cash benefits

1,137

680

105

159

–

1,401

740

Post-employment benefits Superannuation

Termination benefits Total key management personnel compensation

The number of executive staff included in the key management personnel compensation amount increased from 3 in 2010 to 7 during the 2011 year following an organisational restructure. Of the 7 executives’ positions in 2011, 1 departed in August 2010, 4 came from existing staff and 2 additional positions were created. The amount also includes compensation paid to directors of the company.

Note 6: Auditors’ remuneration Remuneration of the auditor for: - Audit services - Non audit services Total auditor’s remuneration

–

Note 7: Cash and cash equivalents Cash on hand Cash at bank

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

3,350

7,991

3,352

7,993

2011 $’000

2010 $’000

977

827

Note 8: Trade and other receivables Current Premiums in arrears Less provision for impairment

(87)

(66)

Medicare rebate

1,866

1,719

Risk equalisation trust fund (“RETF”) quarterly receivable

2,233

1,588

Unclosed business

439

438

Other receivables

203

168

5,631

4,674

All amounts of receivables are deemed short term. The carrying value of short term receivables is considered a reasonable approximation to fair value. All of the trade and other receivables have been reviewed for indicators of impairment, some of the unimpaired receivables are past due as at the reporting date. The age of financial assets past due but not impaired are as follows: Past due but not impaired (days overdue)

Past due and impaired

Gross amount

< 30

31-60

61-90

>90

$’000

2011

700

119

158

(87)

890

2010

582

115

130

(66)

761

Premiums in arrears

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

2011 $’000

2010 $’000

939

874

21,120

14,748

984

994

23,043

16,616

–

961

–

961

121

Note 9: Financial assets Current (a) Financial assets at fair value through profit or loss: Held-for-trading Australia listed shares (b) Held-to-maturity investments: Term deposits Floating rate notes

Non Current Floating rate notes

Note 10: Other current assets Current Prepayments

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

2011 $’000

2010 $’000

Note 11: Intangible assets Computer software At cost

1,017

412

Accumulated amortisation

(373)

(151)

Total computer software

644

261

Total intangible assets

644

261

Computer software $’000

Deferred member acquisition costs $’000

Balance at 1 July 2009

154

2,510 1,689

Additions

190

Disposals

–

Amounts written off from unexpired risk liability

–

(1,020)

Amortisation charge

(83)

(977)

–

(2,202)

Balance at 30 June 2010

261

–

Additions

374

–

Disposals

(1)

–

Amounts written off from unexpired risk liability

–

Transfer from property, plant & equipment

236

–

Amortisation charge

(226)

–

Amounts written off

–

644

–

Amortisation additional charge

Carrying amount at 30 June 2011

The Directors assessed that the previously impaired deferred member acquisition costs remain impaired. The impairment in 2010 considered the benefits associated with the deferred member acquisition costs and the costs associated with these on a discounted cash flow basis. The arrangement associated with deferred member acquisition costs was extinguished in the prior year and as such no future assessment is required.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note

2011 $’000

2010 $’000

(a)

2,863

6,019

–

2,863

6,019

6,958

5,449

(8)

–

6,950

5,449

Note 12: Property, plant and equipment Land At fair value Accumulated depreciation Land Buildings At fair value Accumulated depreciation Total buildings

(a)

Motor vehicles At cost

Accumulated depreciation

(14)

(11)

Total Motor Vehicles Plant & equipment At cost

958

1,225

Accumulated depreciation

(290)

(393)

Total office furniture and equipment

668

832

10,487

12,309

Total property, plant and equipment

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Balance at 1 July 2009 Additions Revaluation increments/(decrements) Depreciation expense Accumulated depreciation written back on disposal Balance at 30 June 2010

Land $’000

Buildings $’000

Motor Vehicle $’000

Plant & Equipment $’000

Total $’000

5,882

4,295

559

10,747

–

1,052

–

433

1,485

137

33 (32)

– (2)

– (160)

170 (194)

–

101

–

101

6,019

5,449

832

12,309

Additions

–

7,438

–

432

7,870

Disposals

(1,340)

(1,235)

–

(181)

(2,756)

Transfer to intangibles

–

(236)

(1,816)

(4,670)

–

(6,486)

Depreciation expense

–

(43)

(3)

(179)

(225)

Accumulated depreciation written back on revaluation

–

2,863

6,950

668

10,487

Transfer to investment property

Carrying amount at 30 June 2011

(a) At reporting date, the Board considered the fair value of land and buildings. The fair value of the Surry Hills property which is held at $6.9m was based on value in use calculations. Value in use is calculated based on present value of cash flow projections over a 5 year period. The key assumptions used in the value in use calculation include a total contributions growth rate of 9.65% and a pre-tax weighted average cost of capital (WACC) of 4.75%. No impairment charge has been recognised on plant and equipment during the year.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note

2011 $’000

2010 $’000

6,540

3,112

6,540

3,112

Note 13: Investment property Investment property

Balance at beginning of year

3,112

3,354

Transfer from property, plant & equipment

6,486

–

Disposals

(1,400)

–

(1,658)

(242)

6,540

3,112

Fair value adjustments

(a)

Balance at end of year

(a) At year end, a valuation was completed on the Surry Hills property by Knight Frank. As a result of this valuation, impairment of $1,658,000 was recognised and booked to the Statement of Comprehensive Income.

Note 14: Trade and other payables Current Sundry payables and accrued expenses Unclosed business contributions

1,286

1,513

439

438

1,725

1,951

Note 15: Provisions Current Employee benefits

(a)

402

301

Commissions

(b)

–

868

Member rewards

(c)

318

108

Outstanding claims

(d)

9,866

7,623

Unexpired risk liability

(e)

–

2,219

10,586

11,119

Non-Current Employee benefits

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

(a)

Employee Benefits $’000

Commissions $’000

Member rewards $’000

Outstanding claims $’000

Unexpired risk liability $’000

Total $’000

352

868

108

7,623

2,219

11,170

Movements in provisions Balance at 1 July 2010 Amounts used during the year Amounts raised during the year

(16)

(868)

(32)

–

(916)

122

–

242

2,243

–

2,607

–

(2,219)

458

–

318

9,866

–

10,642

Amounts reversed during the year Balance at 30 June 2011

(a) Provision for employee benefits A provision has been recognised for employee entitlements relating to annual and long service leave for employees. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based upon historical data. The measurement and recognition criteria for employee benefits have been included in Note 1. (b) Provision for commissions A provision was recognised for commissions payable to iSelect for new members who signed up to the fund through the iSelect website. This channel was extinguished in the prior year and no current provision is required. (c) Provision for member rewards A provision has been recognised for a members’ rewards program which was introduced during the prior year. This provides for incentives offered to new members for joining as well as existing members for continued loyalty. (d) Provision for outstanding claims

Outstanding claims – central estimate of the expected future payment for claims incurred Risk equalisation component Claims handling expense Gross outstanding claims liability

2011 $’000

2010 $’000

8,678 (918)

6,708 (718)

589

461

8,349

6,451

Risk margin (i)

1,517

1,172

Net outstanding claims liability

9,866

7,623

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 15: Provisions (cont) (i) Risk margin The risk margin of 18.17% (2010: 18.17%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 95% (2010: 95%). The central estimate of outstanding claims (including those that have been reported but not yet settled and which have been incurred but not yet reported) is an estimate which is intended to contain no intentional over or under estimation. For this reason the inherent uncertainty in the central estimate must also be considered. The risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of the future volatility. The outstanding claims estimate is derived based on three valuation classes, namely hospital, medical and general treatment services. Diversification benefits within a valuation class are implicitly allowed for through the model adopted. The determination of the risk margin has also implicitly allowed for diversification between valuation classes based on an analysis of past correlations in deviations from the adopted model. The outstanding claims provision has been estimated using a chain ladder method, based on historical experience and future expectations as to claims. The calculation was determined taking into account one month of actual post balance date claims. As claims for private health insurers are generally settled within one year, no discounting of claims is usually applied as the difference between the undiscounted value of claims payments and the present value of claims payments is not likely to be material. Accordingly, reasonable changes in assumptions would not have a material impact on the outstanding claims balance.

Changes in the gross outstanding claims can be analysed as follows:

Gross outstanding claims at beginning of period

2011 $â&#x20AC;&#x2122;000

2010 $â&#x20AC;&#x2122;000

6,708

6,459

Risk equalisation component

(718)

(854)

Administration component

461

554

6,451

6,159

Central estimate at beginning of period Change in claims incurred for the prior year Claims paid in respect of the prior year

658

(336)

(7,109)

(6,123)

Claims incurred during the year (expected)

73,958

65,394

Claims paid during the year (expected)

(65,280)

(58,386)

8,678

6,708

Central estimate at end of period Administration component

589

461

Risk equalisation component

(918)

(718)

8,349

6,451

Gross outstanding claims at end of period

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

(e) Provision for unexpired risk liability Unearned premium $’000

Unearned unclosed business $’000

Constructive obligation $’000

Total $’000

8,551

439

57,371

66,361

8,551

439

57,371

66,361

2011 Premium (1) Related deferred member acquisition costs Premium less related DMAC (2) Outflows 7,299

379

48,738

56,416

Central estimate of future management expenses

Central estimate of future benefits

651

4,380

5,064

Risk margin

398

2,656

3,075

8,348

433

55,774

64,555

Total deficiency (3) – (2)

–

Total unexpired risk liability (3) – (1)

–

Total unexpired risk liability

–

7,181

438

49,266

56,884

–

7,181

438

49,266

56,884

Total outflows (3)

2010 Premium (1) Related deferred member acquisition costs Premium less related DMAC (2) Outflows Central estimate of future benefits

6,589

401

45,206

52,195

Central estimate of future management expenses

517

3,545

4,094

Risk margin

355

2,438

2,814

7,461

454

51,189

59,103

Total outflows (3) Total deficiency (3) – (2)

280

1,923

2,219

Total unexpired risk liability (3) – (1)

280

1,923

2,219

Total unexpired risk liability

280

1,923

2,219

The current year liability adequacy test has identified a surplus and as such no provision for unexpired risk liability has been recognised.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 15: Provisions (cont) The liability adequacy test for sufficiency is determined as the excess of projected benefits, risk equalisation, state levies, claims related expenses plus a risk margin over the projected contributions less intangible assets and related deferred member acquisition costs for the relevant period. The provision for unexpired risk liability is determined as the excess of benefits, risk equalisation, state levies, claims related expenses plus a risk margin over the projected contributions for the relevant period. Projected contributions, benefits, risk equalisation, state levies and claims related expenses were determined on a best estimate basis with no membership growth. The risk margin of 5.0% for annual reporting (2010: 5.0%) is applied to the benefits, risk equalisation, state levies and claims related expenses cashflows. The risk margin is to provide a 75% level of adequacy (2010: 75%). The risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past loss ratios. The adopted risk margin is based on past volatility plus allowances for uncertainty from the economic environment and changes in the risk profile. 2011 $â&#x20AC;&#x2122;000

2010 $â&#x20AC;&#x2122;000

8,551

7,181

8,551

7,181

Note 16: Other liabilities Current Premium received in advance

Note 17: Membersâ&#x20AC;&#x2122; guarantee The company is limited by guarantee and hence has no contributed equity. If the company is wound up, the Constitution states that all funds, property and assets that remain after payment of outstanding claims, debts and liabilities shall be applied to another organisation or institution having objects similar to Railway & Transport Health Fund Limited, providing similar services which prohibits the distribution of income and assets to its members, and which is exempt from payment of income tax. If the company is wound up and cannot meet its debts, the Constitution states that each member is required to contribute a maximum of $10 each towards meeting any outstanding obligations of the company.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

2011 $’000

2010 $’000

767

1,727

Note 18: Reserves Current Revaluation reserve Movement of reserves Balance at beginning of year

1,727

Transfer from sale of property to retained earnings

(960)

Balance at end of year

767

The asset revaluation reserve records the revaluations of non-current assets.

Note 19: Capital and leasing commitments Operating lease commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable – minimum lease payments – not later than 12 months

– later than 12 months but not later than 5 years

–

106

– greater than 5 years

The operating lease commitments relate to a non-cancellable premise lease entered for the operation of the office in Newcastle.

Note 20: Contingent liabilities and contingent assets The company does not have any contingent liabilities or assets at 30 June 2011.

Note 21: Solvency reserve Health benefits fund capital

(a)

28,876

25,745

Less: Solvency reserve

(b)

18,422

10,779

10,454

14,966

Excess assets

(a) This balance represents the capital available at year end to satisfy the solvency reserve required in accordance with the Solvency Standard as set by PHIAC. (b) The solvency reserve for the company has been calculated in accordance with the Solvency Standard as set by PHIAC and represents the minimum reserve required to be maintained by the company. Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

2011 $’000

2010 $’000

3,131

(5,342)

451

1,255

Note 22: Cash flow information Reconciliation of Cash Flow from Operations with Surplus after Income Tax Surplus/(Loss) after income tax Non-cash flows in surplus Depreciation and amortisation Depreciation write back on revaluation Net asset revaluation Write-off of assets

(11)

–

242

182

2,202

Unexpired risk liability movement

(2,219)

2,098

Fair value adjustment of investment property

1,658

–

(109)

–

(4)

–

(957)

147

Fair value adjustment of investments in equity Net (gain)/loss on disposals of property Changes in assets and liabilities (Increase)/decrease in trade and term debtors Decrease/(increase) in other assets (Decrease)/Increase in payables

(226)

745

Increase in provisions

1,691

1,019

Increase in other liabilities

1,370

2,746

Cash flows from operations

4,981

5,126

Note 23: Events after the balance sheet date No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Note 24: Financial instruments a. Financial risk management The company’s financial instruments consist mainly of deposits with banks, local money market instruments, short-term investments, accounts receivable and payable, bills and leases. The totals for each category of financial instruments, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: 2011 $’000

2010 $’000

Cash and cash equivalents

3,352

7,993

Loans and receivables

5,631

4,674

21,120

14,748

Financial assets

Held-to-maturity investments - Term deposits - Fixed rate notes

–

984

1,955

939

874

32,026

30,244

- Trade and other payables

1,725

1,951

- Other Liabilities

8,551

7,181

10,276

9,132

- Floating rate notes Fair value through profit and loss investments - Listed securities

Financial liabilities Financial liabilities at amortised cost

The company does not have any derivative instruments at 30 June 2011. The Audit & Risk Committee has been delegated responsibility by the Board of Directors for, amongst other issues, monitoring and managing financial risk exposures of the company. An investment policy has been developed in order to comply with PHIAC’s requirements. The fund’s overall investment strategy seeks to assist the fund in meeting its financial targets, while minimising potential adverse effects on financial performance. The main risks the company is exposed to through its financial instruments have been addressed below including; market risks, liquidity risks, credit risks and insurance risks.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 24: Financial instruments (cont) Market risks (i) Interest rate risk Exposure to interest rate risk arises on financial assets and financial liabilities recognised at reporting date whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The company is also exposed to earnings volatility on floating rate instruments. Weighted Average Effective Interest Rate %

Floating Interest Rate $’000

Cash and cash equivalents

4.23%

Receivables

0.00%

Investments

5.95%

Within Year $’000

Fixed Interest Rate Maturing 1 to 5 years $’000

Total $’000

–

3,352

–

3,352

–

5,631

–

5,631

984

21,120

–

22,104

984

30,103

–

31,087

7,993

2011 Financial Assets

Total Financials Assets 2010 Financial Assets Cash and cash equivalents

4.49%

–

7,993

–

Receivables

0.00%

–

4,674

–

4,674

Investments

5.55%

1,955

14,748

–

16,703

1,955

27,415

–

29,370

Total Financials Assets

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

The following table illustrates sensitivities to the company’s exposures to changes in interest rates. The table indicates the impact on how surplus and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. These sensitivities assume that the movement in a particular variable is independent of other variables. 2011

2010

$’000

+2.00%

-2.00%

+2.00%

-2.00%

Impact on net result for the year

383

(383)

337

(337)

Impact on equity

383

(383)

337

(337)

Interest rate movement

(ii) Foreign currency risk The fund is not exposed to any material foreign currency risk. (iii) Commodity price risk The fund is not exposed to any material commodity price risk. Liquidity risk Liquidity risk arises from the possibility that the company might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The company manages this risk through the following mechanisms: − preparing forward looking cash flow analysis in relation to its operational, investing and financing activities − monitoring undrawn credit facilities − obtaining funding from a variety of sources − maintaining a reputable credit profile − managing credit risk related to financial assets − investing only in surplus cash with major financial institutions − comparing the maturity profile of financial liabilities with the realisation profile of financial assets The tables below reflect an undiscounted contractual maturity analysis for financial liabilities. Financial guarantee liabilities are treated as payable on demand since the company has no control over the timing of any potential settlement of the liabilities. Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 24: Financial instruments (cont) Financial liability and financial asset maturity analysis Due within

< 1yr $’000

1 – 5yrs $’000

> 5yrs $’000

Total $’000

2011 Financial liabilities due for payment Trade and other payables (excluding estimated annual leave)

1,725

–

1,725

Other Liabilities

8,551

–

8,551

Total contractual outflows

10,276

–

10,276

Total expected outflows

10,276

–

10,276

Cash and cash equivalents

3,352

–

3,352

Trade, term and loans receivables

5,631

–

5,631

Held-for-trading investments

939

–

939

Held-to-maturity investments

22,104

–

22,104

Total Anticipated Inflows

32,026

–

32,026

Net inflow on financial instruments

21,750

–

21,750

1,951

Financial assets — cash flows realisable

2010 Financial liabilities due for payment Trade and other payables (excluding estimated annual leave)

1,951

–

Other Liabilities

7,181

–

7,181

Total contractual outflows

9,132

–

9,132

Total expected outflows

9,132

–

9,132

Cash and cash equivalents

7,993

–

7,993

Trade, term and loans receivables

4,674

–

4,674

Held-for-trading investments

874

–

874

Held-to-maturity investments

15,742

961

–

16,703

Total Anticipated Inflows

29,283

961

–

30,244

Net inflow on financial instruments

20,151

961

–

21,112

Financial assets — cash flows realisable

Credit risk Exposure to credit risk relating to financial assets arises from the potential non-performance by counter parties of contract obligations that could lead to a financial loss to the Fund.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Management monitors credit risk by actively assessing the rating quality and liquidity of counter parties. The below table demonstrates the translation of grading used to assess the investments held by the Fund. PHIAC Grade

Standard & Poor’s

Moody’s

AM Best

AAA

Aaa

A++

Fitch AAA

AA+ AA AA-

Aa1 Aa2 Aa3

A+

AA+ AA AA-

A+ A A-

A1 A2 A3

A A-

A+ A A-

BBB+ BBB BBB-

Baa1 Baa2 Baa3

B++ B+

BBB+ BBB BBB-

BB+ or below

Ba1 or below

B or below

BB+ or below

–

Unrated

During the year the company revised its investment policy to remove thresholds placed on investments based on credit ratings. All ratings are assessed on an individual basis by management prior to approval of investments. 1

Analysis of Standard & Poor’s Ratings: AAA to AA- Encompasses the major Australian banks and the Australian government A+ to A- Enables exposure to the region Australian banks that offer good risk/rewards BBB+ to BBB- Provides for greater exposure to regional Australian banks and hybrid securities, but a maximum of 30% is set as a prudent level when combined with liquidity requirements Unrated Enables access to a wide range of ASX Listed non-bank securities such as credit unions and building societies

The investment policy adopted by the Fund is designed to meet the standards set by PHIAC. Below is an analysis of the credit risk as it stands at year end. PHIAC Grading

1 $’000

2 $’000

3 $’000

4 $’000

5 $’000

Unrated $’000

Total $’000

2011 Cash & cash equivalents

–

2,915

–

437

3,352

Held to maturity investments

–

9,073

7,022

1,993

–

4,016

22,104

Fair value investments

–

939

Total

–

11,988

7,022

1,993

–

5,392

26,395

% of total

45%

27%

20%

Maximum allowable per investment policy 2010

N/A

Cash & cash equivalents

–

7,805

–

186

7,991

Held to maturity investments

–

2,013

2,024

2,974

–

9,692

16,703

Fair value investments

–

874

Total

–

9,818

2,024

2,974

–

10,752

25,568

% of total

39%

11%

42%

Maximum allowable per investment policy

N/A

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Notes to the Financial Statements (cont)

Note 24: Financial instruments (cont) Insurance Risk The provision of private health insurance in Australia is governed by the Act and shaped by a number of regulatory factors. The first is the principle of community rating. This principle prevents private health insurers from discriminating between people on the basis of their health status, age, race, sex, sexuality, the frequency that a person needs treatment, or claims history. The second is risk equalisation which supports the principle of community rating. Private health insurance averages out the cost of hospital treatment across the industry. The risk equalisation scheme transfers money from private health insurers with younger healthier members with lower average claims payments to those insurers with an older and less healthy membership and which have higher average claims payments. b. Net fair values The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an armâ&#x20AC;&#x2122;s length transaction. Fair values derived may be based on information that is estimated or subject to judgment, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgment and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants. Differences between fair values and carrying values of financial instruments with fixed interest rates are due to the change in discount rates being applied by the market since their initial recognition by the company. Most of these instruments which are carried at amortised cost (ie term receivables, held-to-maturity assets and loan liabilities) are to be held until maturity and therefore the net fair value figures calculated bear little relevance to the company.

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

2011 Net carrying value $’000

Net fair value $’000

2010 Net carrying value $’000

Net fair value $’000

Financial assets Cash and cash equivalents

(i)

3,352

7,993

Trade and other receivables

(i)

5,631

4,674

Investments: fair value to profit or loss

(ii)

939

874

Investments: held-to-maturity

(ii)

22,104

16,703

32,026

30,244

Total financial assets Financial liabilities Trade and other payables Other liabilities

(i)

1,725

1,951

(iii)

8,551

7,181

10,276

9,132

Total financial liabilities

(i) Cash and cash equivalents, trade and other receivables and trade and other payables are short-term instruments in nature whose carrying value is equivalent to fair value. (ii) Fair values of held-to-maturity and fair value to profit or loss investments are based on quoted market prices at reporting date. (iii) O ther liabilities are comprised of contributions in advance and excludes amounts provided for relating to unexpired risk liability, outstanding claims liability and employee benefits, which are not considered to be financial instruments.

Note 25: Company details The registered office and principal place of business of the company is: Railway & Transport Health Fund Limited ABN 93 087 648 744 Eveleigh House 1 Buckingham Street SURRY HILLS NSW 2010

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Directorsâ&#x20AC;&#x2122; Declaration

The directors of the company declare that: 1. t he financial statements and notes, as set out on pages 20-57, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001; and b. give a true and fair view of the financial position as at 30 June 2011 and of the performance for the year ended on that date of the company. 2. in the directorsâ&#x20AC;&#x2122; opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. This declaration is made in accordance with a resolution of the Board of Directors.

R SCHEUBER Chair Dated this 21st day of September 2011, Sydney, NSW

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Independent Auditorâ&#x20AC;&#x2122;s Report

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Independent Auditorâ&#x20AC;&#x2122;s Report

Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

Head office Sydney 1 Buckingham Street Surry Hills NSW 2010 Newcastle Shop 2, 28 Donald Street Hamilton NSW 2303 Brisbane 59A Melbourne Street South Brisbane QLD 4101

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