rt annual report 2010

Head office Sydney 46 Burwood Road Burwood NSW 2134 Member care centres Sydney 46 Burwood Road Burwood NSW 2134 Wollongong 139 Keira Street Wollongong NSW 2500 Newcastle Shop 2, 28 Donald Street Hamilton NSW 2303 Brisbane 59A Melbourne Street South Brisbane QLD 4101 Contact us Tel 1300 886 123 Fax 1300 887 123 help@rthealthfund.com.au www.rthealthfund.com.au

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2010 Annual Report

Contents

Chair’s Report

01

CEO’s Report

03

Corporate Governance

06

Directors’ Report

08

Auditor’s Independence Declaration

16

Financial Statements

17

57

railway & transport health fund ltd (abn 93 087 648 744)

Chair’s Report

It is my privilege to present rt health fund’s annual report for the year ended 30 June 2010. The year has been a challenging one for rt, marked by significant milestones and changes. As they have done for more than 120 years, the board and management have risen to each new challenge to ensure that you can continue to rely on rt for excellent value health cover, constantly enhanced facilities and genuinely caring service.

The most significant aspect of this year’s report is the fund’s experience of a financial loss for the year.

While the fund remains in financially strong position, with very high solvency, it has experienced an exceptional level of claims over the past 12 months, which has led to this outcome.

The situation is more fully explained in the CEO’s report on page 3, however, I would like to take this opportunity to very briefly detail the issues, and assure you that the board has taken swift action to put in place the measures necessary to address the situation.

Over the past three years, the fund has embarked on a high-growth strategy. Prior to 2007, it had experienced almost two decades of stagnant or declining membership, and had the second oldest membership age profile of any health fund in the country. Without growth, the fund’s sustainability was in doubt. In the past three years it has grown by around 60% and the membership age profile has decreased significantly. One of the consequences of this growth, however, has been an increase in the volume and cost of clams made, and in the 2009/10 year the cost of claims reached an unprecedented high, resulting in an overall loss for the fund. In response, the board and management moved quickly to review the organisation’s objectives and, as we embark on a new financial year, the focus is now on a slow and steady approach to correcting the fund’s course, with a vastly reduced focus on growth and a ‘back to basics’ approach to business.

01

As a member of a health fund in Australia you are protected by a vigilant regulatory process, which has seen the industry regulator take a strong interest in the fund’s results. We have been working closely with the regulator to ensure that the current situation is well managed, monitored and rectified.

In other significant news, you may recall that the fund held an extraordinary general meeting of members on 21 July 2010. The purpose of that meeting was to ask members to support a resolution to make changes to the fund’s constitution that would strengthen the make up of the board and the fund’s corporate governance. The resolution was passed by members present and by proxy.

There have been a number of changes in the membership of your board in the past 12 months: • Victoria Reynolds, who served as chair since 2005, took up the role of deputy chair following the 2009 annual general meeting, and has continued to make a significant and valuable contribution to the organisation in that position.

• Bob Glover, who had served on the board since 2005 ended his term following the 2009 annual general meeting.

• Judith Blake, who had been a member of the board since 2005 resigned her position in July 2010.

• Barry Dredge who has been a board member since 2005 announced that he will not stand for re-election in 2010, and so will vacate his position following this year’s annual general meeting.

On behalf of the board I would like to gratefully acknowledge the contribution that Bob Glover, Judith Blake and Barry Dredge each made to the board during their terms. Finally, I would like to officially welcome Michael Scanlan to the board, Michael was appointed following the 2009 electoral process.

railway & transport health fund ltd (abn 93 087 648 744)

Chair’s Report Continued In another significant change for the organisation, Glenn Campbell, who served as CEO since 2006, and who led the organisation through a period of significant change, growth and reinvigoration resigned his position in August 2010. At the time of writing, the board is recruiting for a new CEO and Michael Prior, who has served on the board since 2006, is currently in the role of acting CEO as an interim measure.

I would like to acknowledge the management and staff of the fund whose commitment, dedication, and passion for making this organisation one that is single-mindedly focused on serving the needs of its members is unwavering. The fund celebrated its 120th year of operation in 2009 – a remarkable and increasingly uncommon milestone, and one of which we are all exceptionally proud. We look forward to continuing to provide value to transport and electricity industry people for many more years to come.

It has been my great pleasure and privilege to serve as the chair of the board during this past 12 months, and I would like to acknowledge the contribution made by each of my fellow directors throughout this challenging year. Their support has been invaluable to me.

As we move into a new financial year, the focus of the board and management is on ensuring that the organisation’s operations deliver stable, solid and conservative results. I am pleased to report that results from the first couple of months of this new financial year, available at the time of writing, indicate that the new plans are working and bringing the fund back into profitability.

Bob Scheuber AM Chair

railway & transport health fund ltd (abn 93 087 648 744)

02

CEO’s Report

This year’s CEO report is presented by director and acting CEO, Michael Prior. Michael was appointed to the position of acting CEO as an interim measure on 16 August 2010 following the resignation of Glenn Campbell. At the time of writing, the board is recruiting for the position of CEO. No organisation reaches as significant a milestone as 120 years of operations without experiencing some challenges along the way. While we’ve been pleased to be able to report many successes over the past three years, this year, as well as a number of important achievements, there is also a significant financial loss to be addressed.

For the 2009/10 financial year, the fund has recorded a loss of $5.07 million. The components of the loss, and how it came to be experienced are significant, and I will detail them here.

As the chair’s report indicated, in 2007, the fund embarked on a high-growth strategy. The strategy was carefully chosen and monitored by the board and management, and was intended to introduce rt health fund to a new generation of younger members, and in doing so, to assure the fund of a more sustainable future. The fundamental basis of any insurance business is to have many people paying into a pool of funds, and in any given year, only relatively few people drawing from the pool of funds.

One of the unforeseen outcomes of the fund’s growth strategy was the different claiming behaviour of the newly recruited members, and in the 2009/10 financial year the fund experienced an unprecedented level of claims. The cost of those claims is one of the key components of this year’s loss. Put simply, one segment of members claimed significantly more money back from the fund than they paid into the fund during the year.

03

There are a couple of other measures that are significant and require explanation here, too: solvency and capital adequacy.

Solvency is a financial measure that addresses the question, if you stopped doing business today would you have enough money in the bank to pay all of the business’s liabilities and claims. Despite this year’s loss, the fund remains in a very strong position from the point of view of solvency. We maintain $25 million in members’ funds, which represents around 50% more than the industry regulator requires us to hold.

The fund remains in a strong financial position.

Capital adequacy is a measure based on the question, if we were to continue to experience the same rate of claims that we are today, how much money would be needed to pay the cost of all those claims into the future. The industry regulator sets a ratio of 1 as the minimum, we currently hold 1.19.

In terms of both solvency and capital adequacy the fund sits above the requirements of the industry regulator, and is both financially and prudentially sound. Notwithstanding this, the financial outcome of the 2009/10 year has been an unusual one.

There have been few occasions in the organisation’s history in which it has experienced an end-of-year loss, so this year’s result is one that has caused the board and management to significantly redirect their priorities. The result is a new focus on a ‘back to basics’ approach and a new strategic and business plan focused on slowing the rate of growth, improving the operating efficiencies, and scaling back the costs of managing the fund. At the time of writing we are already starting to see the benefit of this approach. The board and management, working closely with the industry regulator, will be carefully monitoring the fund’s financial performance over the coming year to ensure that the current situation is corrected.

railway & transport health fund ltd (abn 93 087 648 744)

CEO’s Report Continued In other news, the management and staff have worked hard to continue to introduce new benefits, services and facilities that add value to your rt health fund membership.

Improved services for members New online services – the online member centre now enables members to view information and track the progress of claims. A history of all claims made since 1 January 2009 is available and can be searched by date, by the type of claim or by who made the claim. In addition, members can now also track the progress of current claims through the fund’s processing system, and see when claims are received, logged and paid.

Scanning – this is a behind-the-scenes improvement that will reduce the time taken to process claims and other membership change requests. Scanning technology means that instead of having to manually enter information into the system, it can all happen automatically. This means your claims and requests can be processed faster and our team has the ability to focus more on quality assurance in payments and processes.

Inappropriate claiming – this is another back-ofhouse improvement that will assist us in managing costs and benefits all members by ensuring that the fund is not subject to incorrect or inappropriate claiming. Several thousand claims ‘rules’ have been overlaid onto our claims processing system to trigger an alert when a claim falls outside of accepted norms. Our staff can then focus on those claims to see whether genuine mistakes have been made or if inappropriate claiming is suspected.

railway & transport health fund ltd (abn 93 087 648 744)

Improved cover for members In April this year we introduced a range of enhancements to our covers, including increased optical benefits for members who’ve been with rt for five years or more, new benefits for orthopaedic shoes, increased dental benefits and the removal of the hospital excess for children under the age of 16.

In addition, we launched a new ‘family extension’ cover that makes it possible for non-student adult children to remain covered by their parents’ family membership until the age of 25.

Improved member satisfaction Almost 2,000 members completed our annual member satisfaction survey in February this year.

The results of the survey were very pleasing and reflected the areas the fund has been focusing on improving, with members reporting high levels of satisfaction with the fund being competitively priced, having better benefits than other funds and providing value for money.

We were also very pleased to see improvements in satisfaction with the quality of telephone service, written service and speed of claims payments.

Industry recognition for a job well done The fund was recognised for two significant achievements during the year. rt was one of three NSW finalists in the NSW Business Chamber Awards for Excellence in Community Involvement for its work with the Families Foundation. And on the marketing front, rt was a national finalist in the Australian Institute of Marketing Awards for Excellence for its rebranding project.

04

Update on move to Surry Hills Last year we reported that we planned to relocate to our new head office in Sydney’s Surry Hills by mid 2010. As so often happens with refurbishment projects, this one has been delayed due to approvals for the work required to make the building ready.

I am pleased to report that the work is now well underway and we are currently scheduled to occupy the building in May 2011.

I’d like to extend my thanks to the management and staff who are so committed to this heath fund and its members; their tireless efforts and endless enthusiasm are appreciated. And finally, thank you to my fellow directors for their support during my brief tenure as acting CEO while we undertake the search for our new CEO.

Michael Prior Director and Acting CEO

05

railway & transport health fund ltd (abn 93 087 648 744)

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.

railway & transport health fund ltd (abn 93 087 648 744)

The board delegates responsibility for the day-today management of the fund to the CEO and senior 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 2009/10 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 • polices 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.

06

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

07

• overseeing the fund’s investments ensuring the correct balance between liquidity, term of investments and interest rates • overseeing the capital management plan • ensuring the fund maintains effective internal control and risk management systems in order to safeguard its financial, physical and intellectual resources.

Remuneration and Nominations The remuneration and nominations 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.

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.

railway & transport health fund ltd (abn 93 087 648 744)

Directors’ Report For the year ended 30 June 2010

Your directors present their report on the company for the financial year ended 30 June 2010.

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.

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 company’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.

Directors The names of the directors in office at any time during or since the end of the year are: Name

Position Held

Date first elected/ Re-elected appointed /re-appointed 24/10/2007

Resigned

Special Responsibilities

B Scheuber

Chair

–

–

Chair, Recovery Committee

V Reynolds

Deputy Chair 21/09/2005

19/8/2009

–

Chair, Remuneration & Nominations Committee Member, Recovery Committee

R Ledger

Director

21/09/2005

24/10/2007

–

Member, Audit & Risk Committee

M Prior

Director

25/05/2006

25/04/2009

–

Member and Former Chair, Audit & Risk Committee Member, Recovery Committee; Acting CEO

B Dredge

Director

21/09/2005

24/10/2008

–

Member, Remuneration & Nominations Committee

J Blake

Director

21/09/2005

24/10/2008

22/07/2010

D Ellis

Director

21/09/2005

24/10/2008

–

R Glover

Director

22/09/2004

22/11/2006

18/11/2009

M Scanlan

Director

18/11/2009

–

–

Member, Remuneration & Nominations Committee

Acting Chair, Audit & Risk Committee Member, Recovery Committee

Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. railway & transport health fund ltd (abn 93 087 648 744)

08

Bob Scheuber

Victoria Reynolds

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

Victoria Reynolds Dip HR Mgt, GAICD, MAHRI, MWOB

Chair & Recovery Committee Bob was chief executive officer of Queensland Rail until 2007 when he established his own consulting business. He currently also serves as chair of the QSuper Board of Trustees and as a director of CRC Rail Ltd. In January 2008, Bob was honoured as a Member of the Order of Australia (AM) for his ‘service to the rail sector in Queensland, particularly through contributions to regulatory and operational reforms’.

Deputy Chair Chair, Remuneration & Nominations and Recovery Committees Victoria was employed with NSW rail for 22 years, retiring as general manager, human resources for Rail Infrastructure Corporation. In 2007 Victoria and her HR team were awarded the prestigious Premier’s Silver Award for Excellence in service delivery. Victoria now consults in HR and IR.

Bob holds degrees in business and economics and is an FCPA and a Fellow of the Australian Institute of Management. He has been a member of rt health fund since it established operations in Queensland in 1991.

Victoria was chair of the board from 2005 to 2009 and during this time has worked to develop and implement initiatives that continue to improve the governance of the fund. She conducted the board evaluation process and reviewed the performance of each director, and has bolstered the independence of the board through constitutional change. As chair of the remuneration and nominations committee she developed the ‘fit and proper’ process for board member selection.

She has also guided the team in the development of new charters for the board and the remuneration and nominations committee, as well as an induction program for new board members. In 2009 Victoria’s board appointment was renewed for three years.

Bob served as deputy chair for one year, and following the 2009 annual general meeting was appointed as chair. He was a member of the board’s audit and risk committee from 2008 to 2009. During his time on the board Bob has been involved in improving board processes; the development of the capital management policy and plan; business cases for significant expenditure; providing oversight through the audit and risk committee of investments; and assisting in facilitating key industry relationships.

Bob’s objective is to contribute his skills and experience as a senior executive manager in the rail industry to help the fund grow through delivering products and services that help members manage their health.

09

Victoria’s objectives are to ensure that rt continues to deliver the best outcomes for members, while continually improving its services. Her goal is to lead the board in strengthening its corporate governance and building on the fund’s proud history to ensure that it is recognised as a leader among private health funds.

railway & transport health fund ltd (abn 93 087 648 744)

Directors’ Report Continued For the year ended 30 June 2010

Robert Ledger

Robert Ledger B Elec, Grad Dip Eng Sys, GAICD

Barry Dredge MAICD

Member, Audit and Risk Committee Robert began his career as an electrical fitter with the NSW Government Railways in 1965. After 40 years in engineering and engineering management, Robert retired in 2006 as the fleet engineer in the passenger fleet maintenance section of State Rail.

Member, Remuneration and Nominations Committee Barry began his career with Queensland Rail in 1964 and retired from his position as maintenance planner in Redbank in 2005. He became a member of rt health fund in 1992, shortly after it began operating in Queensland. Barry has been a member of the board since 2005 and is a member of the board’s Remuneration and Nominations Committee.

Robert has been a member of rt health fund since 1965 and a member of the Board since 2005 and is a member of the Board’s Audit and Risk Committee. Robert was instrumental in writing the current Constitution in 2006 and also in the redrafting of the Constitution in 2007 to protect members from unwelcome takeover. Robert has also played a key role in the current review of the constitution as part of the fund’s responses to the PHIAC discussion paper, Governance Standard for Private Health Insurers. Robert has been involved in the review of the capital management policy, the strategic plan and numerous Board policies.

Robert’s ongoing vision for rt is to see it become the health fund of choice for all transport and electricity industry employees, and to continue to expand to become the premiere industry health fund in Australia.

His expectation is for rt to maintain its high standard of corporate governance while continuing to serve the needs of its members.

railway & transport health fund ltd (abn 93 087 648 744)

Barry has been involved with amendments to the fund’s constitution, the ongoing review of the board charter, and the development of ‘fit and proper’ policies and procedures, all of which contribute to ensuring that the operations, management and governance of the fund represent best practice in the industry. In addition Barry developed a new policy for nomination and voting procedures for elected board positions (chair, deputy chair and committees).

Barry’s goal is to ensure that rt continues to grow, delivering value to members through excellent products and generous rebates, while maintaining competitive contributions.

10

Barry Dredge

Michael Prior

Dennis Ellis

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

Dennis Ellis MAICD

FTIA, FINSIA, MAICD

Member, Remuneration and Nominations Committee Dennis has worked with Queensland Rail for 33 years, currently in the position of pollution operator.

Throughout his career Dennis has been active in the transport industry and was senior vice president of the RTBU. Dennis has been with rt health fund since 1997 and a member of the board since 2005.

He is a member of the board’s remuneration and nominations committee.

Member, Audit & Risk and Recovery Committees Acting CEO Michael was appointed to the board as an independent director in 2006. Since 16 August 2010, following the resignation of the CEO, Michael has held the position of Acting CEO. He has stood down from the position of chair of the audit and risk committee while he holds this temporary role.

Michael is also a director of Woods Cottage Foundation Limited, a charitable body that assists the intellectually disabled, and was previously an independent member of the board finance and investment committee of the Grain Growers Association of Australia, before resigning this position in June 2010.

Michael has drawn on his wealth of risk and financial management experience within the financial sector to ensure the fund’s corporate governance and risk management frameworks allow it to manage its business risks effectively. He has more than 30 years experience within the financial services industry where he held a number of senior executive positions, including chief financial officer of CMC Markets Asia Pacific, general manager of operational risk and compliance with the Commonwealth Bank, and various senior finance positions with Westpac. He was self-employed as a risk management consultant for four years, providing consulting services to major Australian companies, and was a project director for two years with Accenture Singapore.

Dennis has played an active role in the revision of the organisation’s constitution and has also been involved in the development of the ‘fit and proper’ policies and procedures. He has contributed to the development of the board charter and other corporate governance improvements. In 2007, he was integral in brokering a major business initiative with the RTBU, leading to the introduction of the RTBU health plan nationally and which has become the model for other key relationships.

Dennis is committed to ensuring that the board continues to operate under its best practice standards of governance and that it provides support to the CEO, management and staff in helping the fund to achieve its strategic plan goals.

In 2009 Michael’s board appointment was renewed for three years.

11

railway & transport health fund ltd (abn 93 087 648 744)

Directors’ Report Continued For the year ended 30 June 2010

Mike Scanlan

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

Robert Glover MAICD

Acting Chair, Audit & Risk and Recovery Committees Before becoming a self-employed consultant, Mike enjoyed 34 years with Queensland Rail where he held a variety of business unit executive positions.

He was appointed to the rt board in 2009 and is Acting Chair of the audit and risk committee.

Robert retired from the board on 18 November, 2009.

Robert has been a member of rt health fund since 1976, including ten years as a workshop representative for the fund, and was a member of the board since 2004 and was a member of the Audit and Risk Committee until 2008.

Mike holds degrees in engineering, management and administration. He is a fellow of the Australian Institute of Company Directors, Australian Institute of Management and Chartered Institute of Logistics and Transport. He is also a member of the Institution of Engineers Australia and the Australian Marketing Institute.

Robert was involved in a number of projects dedicated to pursuing further improvements in the fund’s governance and operations, including the review of the fund’s constitution.

Mike is also the current chair of the Westwood Superannuation Fund and a director of the Railways Credit Union. His board experience extends to previous directorships with the Heritage Train Company (Great South Pacific Express), the Translink Advisory Board, as well as the Queensland Tourism Industry Council Board, the City Trans Management Committee and the UITP ANZ Board (International Public Transport Association).

Mike has a passion for helping rt achieve the best value for its members.

railway & transport health fund ltd (abn 93 087 648 744)

12

Judith Blake JP, MAICD

John Hartigan BComm, CA, FCIS, GAICD

Judith resigned from the board on 22 July, 2010.

Judith has been an rt health fund member since 1996 and a board member since 2005. 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.

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 16 years experience in corporate governance and secretariat practice in listed and unlisted public companies.

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 14 in senior executive roles. Mark’s specialization covers financial systems, risk management, corporate governance, and financial reporting.

13

railway & transport health fund ltd (abn 93 087 648 744)

Directors’ Report Continued For the year ended 30 June 2010

Operating results The total comprehensive loss of the company for the financial year after providing for income tax amounted to $5,070,000 (2009: surplus of $286,000).

Review of operations Membership of products providing hospital cover increased by 18.6% over the twelve months to 30 June 2010 while membership of products providing cover for general treatment increased by 21.1% over the same period. Total net contributor growth for the year was 3,713.

The Fund reported a comprehensive loss before unexpired risk adjustment of $2,972,000 (2009: surplus of $715,000) and a comprehensive loss after unexpired risk adjustment of $5,070,000 (2009: surplus of $286,000). A gross margin of 10.15% generated during the year is lower than in 2009; being 10.7%. This is due to the ageing membership base of the fund and growth, resulting in a higher rate of claims being paid. While the average contribution rate increase at 1 April 2010 was 8.97%, hospital, medical and general treatment drawing rate inflation increased by about 15.4% based on AHSA data, including membership growth in the twelve months to 30 June 2010.

the results of those operations, or the state of affairs of the company in future financial years.

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.

Environmental issues The company’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory.

Dividends paid or recommended 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

Significant changes in state of affairs

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.

No significant changes in the company’s state of affairs occurred during the financial year.

The contract of insurance prohibits disclosure of the nature of the liabilities and the amount of the premium.

After balance date events

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.

Management expenses remained consistent to prior years in respect of contribution income, being 11.6% (2009: 11.6%).

Investment income was lower than in the prior year, due partly to unrealised losses incurred on the managed fund portfolio.

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, railway & transport health fund ltd (abn 93 087 648 744)

14

Proceedings on behalf of company

Rounding of amounts

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.

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.

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

During the financial year, 18 meetings of directors (including committees of directors) were held.

Attendances by each director during the year were as follows:

Meetings of directors

Director Meetings

Committee Meetings Audit & Risk Committee

Name

E

A

E

A

Remuneration & Nominations Committee E

A

B Scheuber

9

9

3

3

–

–

V Reynolds

9

9

–

–

3

3

R Ledger

9

9

6

6

–

–

M Prior

9

9

6

6

–

–

B Dredge

9

9

–

–

3

3

J Blake

9

8

–

–

–

–

D Ellis

9

8

–

–

3

3

M Scanlan

5

5

3

3

–

–

R Glover

4

2

–

–

–

–

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

Since the end of the financial year the Board approved the formation of the Recovery Committee.

The committee is comprised of B Scheuber, V Reynolds, M Prior and M Scanlan. The committee has met once since its formation.

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 16 and forms part of this report.

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

R Scheuber Chairperson Dated this 15th day of September 2010, Sydney, NSW 15

railway & transport health fund ltd (abn 93 087 648 744)

Auditor’s Independence Declaration

railway & transport health fund ltd (abn 93 087 648 744)

16

Financial Statements

Statement of Comprehensive Income

18

Statement of Financial Position

19

Statement of Changes in Equity

20

Statement of Cash Flows

21

Notes to the Financial Statements

22

Directors’ Declaration

55

Independent Auditor’s Report

56

17

railway & transport health fund ltd (abn 93 087 648 744)

Statement of Comprehensive Income For the year ended 30 June 2010

Premium revenue

Note

2010 $’000

2009 $’000

3

67,419

55,155

(74,055)

(62,472)

Claims expense Risk Equalisation Trust Fund receipt

6,385

7,342

Gap and Access GAP refund

8,053

6,667

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

(887)

(795)

(60,504)

(49,258)

15

(2,098)

(429)

Claims handling expenses

4

(3,684)

(2,904)

Write-off of deferred member acquisition costs

4

(2,202)

–

Other underwriting expenses

4

(5,383)

(3,978)

(13,367)

(7,311)

(6,452)

(1,414)

Underwriting expenses Underwriting result Investment revenue

3

1,119

1,291

Change in fair value of investment property

3

(243)

–

Change in fair value of investments in equity

3

(122)

–

Other revenue

3

356

423

(5,342)

300

–

–

(5,342)

300

272

(14)

(5,070)

286

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

1a.

(Deficit)/Surplus attributable to members after tax Other comprehensive income Net gain/(loss) on revaluation of non current assets Total comprehensive (loss)/income 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)

18

Statement of Financial Position As at 30 June 2010

Note

2010 $’000

2009 $’000

Cash and cash equivalents

7

7,993

6,339

Trade and other receivables

8

4,674

4,821

Financial assets

9

16,616

13,570

10

121

135

29,404

24,865

3,899

Current assets

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

9

961

Intangible assets

11

261

2,664

Property, plant and equipment

12

12,309

10,747

Investment property

13

3,112

3,354

Total non-current assets

16,643

20,664

Total assets

46,047

45,529

Current liabilities Trade and other payables

14

1,951

1,206

Short-term provisions

15

11,119

9,063

Other current liabilities

16

7,181

4,435

20,251

14,704

51

10

Total current liabilities Non-current liabilities Long-term provisions

15

51

10

Total liabilities

20,302

14,714

Net assets

25,745

30,815

Total non-current liabilities

Equity Reserves

1,727

1,455

Retained earnings

18

24,018

29,360

Total equity

25,745

30,815

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

19

railway & transport health fund ltd (abn 93 087 648 744)

Statement of Changes in Equity For the year ended 30 June 2010

Balance at 1 July 2008 Surplus for the year Total other comprehensive income Balance at 30 June 2009 Deficit for the year Total other comprehensive income Balance at 30 June 2010

Retained earnings $’000

Asset revaluation reserve $’000

Total $’000

29,060

1,469

30,529

300

–

300

–

(14)

(14)

29,360

1,455

30,815

(5,342)

–

(5,342)

–

272

272

24,018

1,727

25,745

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

railway & transport health fund ltd (abn 93 087 648 744)

20

Statement of Cash Flows For the year ended 30 June 2010

Note

2010 $’000

2009 $’000

Cash flow from operating activities Receipts from members’ premiums

69,503

55,564

Benefits paid to members

(58,323)

(47,980)

Receipts from customers Payments to suppliers and employees Interest received Net cash provided by operating activities

23

266

379

(7,108)

(5,070)

788

1,593

5,126

4,486

27,917

12,097

Cash flows from investing activities Proceeds from disposal of investments Payment for purchase of investments

(28,025)

(5,158)

Payment for property, plant and equipment

(1,485)

(7,654)

Payment for intangibles

(1,879)

(2,882)

Net cash used in investing activities

(3,472)

(3,597)

Cash flows from financing activities

–

–

Net cash provided by financing activities

–

–

Net increase in cash held

1,654

889

Cash at beginning of year

6,339

5,450

7,993

6,339

Cash at end of year

7

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

21

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements For the year ended 30 June 2010

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 22

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 contracts 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.

23

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 5% in Australian Equities.

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

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. less 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 they 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 changes 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 subsequently measured at amortised cost.

24

Held-to-maturity investments are included in noncurrent assets, 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 financial assets due to their nature, or they were designed as such by management. They 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.

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 Strata title property is shown at fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less any subsequent depreciation. The residual amount of the property is reviewed at least annually to determine whether there is any depreciable amount on which depreciation is then charged.

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 arm’s length transactions, reference to similar instruments and option pricing models.

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.

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.

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 assets’ employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

25

Plant and equipment Plant and equipment are measured on the cost basis less depreciation and impairment losses.

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 1: Statement of significant accounting policies (cont) 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

2%

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.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount.

These gains or losses are included in the income railway & transport health fund ltd (abn 93 087 648 744)

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.

26

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.

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.

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.

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.

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 company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits 27

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 directors’ report have been rounded off to the nearest $1,000. u. Adoption of new and revised Accounting Standards During the current year the company adopted all of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory.

The adoption of these standards has impacted the recognition, measurement and disclosure of certain transactions. The following is an explanation of the impact the adoption of these standards and interpretations has had on the financial statements of Railway & Transport Health Fund Limited. railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 1: Statement of significant accounting policies (cont)

standards. A discussion of those future requirements and their impact on the company follows:

AASB 101: Presentation of Financial Statements In September 2007 the Australian Accounting Standards Board revised AASB 101 and as a result, there have been changes to the presentation and disclosure of certain information within the financial statements. Below is an overview of the key changes and the impact on the company’s financial statements.

AASB 9: Financial Instruments and AASB 2009-11: Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102, 108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013).

These standards are applicable retrospectively and amend the classification and measurement of financial assets. The company has not yet determined any potential impact on the financial statements.

Disclosure impact Terminology changes – The revised version of AASB 101 contains a number of terminology changes, including the amendment of the names of the primary financial statements.

Statement of comprehensive income – The revised AASB 101 requires all income and expenses to be presented in either one statement, the statement of comprehensive income, or two statements, a separate income statement and statement of comprehensive income. The previous version of AASB 101 required only the presentation of a single income statement.

The company’s financial statements now contain a statement of comprehensive income.

Other comprehensive income – The revised version of AASB 101 introduces the concept of ‘other comprehensive income’ which comprises of income and expenses that are not recognised in profit or loss as required by other Australian Accounting Standards. Items of other comprehensive income are to be disclosed in the statement of comprehensive income. The previous version of AASB 101 did not contain an equivalent concept. v. 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 railway & transport health fund ltd (abn 93 087 648 744)

The changes made to accounting requirements include: – simplifying the classifications of financial assets into those carried at amortised cost and those carried at fair value; – simplifying the requirements for embedded derivatives; – removing the tainting rules associated with held-tomaturity assets; – removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost; – allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading in other comprehensive income. Dividends in respect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument; – requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially classified based on (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows.

28

w. 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 contracts 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. The estimated cost of claims includes allowances for the Risk Equalisation Trust Fund (“RETF”) 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 company’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 29

30 June 2010, taking into account two months 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.

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

x. Adoption of the financial report The financial report was authorised for issue on 15 September 2010 by the board of directors.

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.

2010 Variables

2009

Hospital %

Medical %

Ancillary %

Hospital %

Medical %

Ancillary %

Portion paid to date

98.5

97.5

97.4

97.9

97.6

95.9

Expense rate

7.70

7.70

7.70

9.89

9.89

9.89

Discount rate

–

–

–

–

–

–

Risk equalisation rate

(12.0)

(12.0)

–

(15.2)

(15.2)

–

Risk margin

18.17

18.17

18.17

2.4

2.4

2.4

The risk margin of 18.17% (2009: 2.4%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 95% (2009: 80%).

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 described above to determine the total expected incurred in each service month. 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.

railway & transport health fund ltd (abn 93 087 648 744)

30

iii. E xpense 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 registered health benefits organisation 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% (2009: 80%). An increase or decrease in this expense would have a corresponding effect on the claims expense.

Both outstanding claims risk margins for 2010 (18.17%) and 2009 (2.4%) are based on 2 months of paid claims in 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.

31

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 2: Actuarial assumptions and methods (cont) Impact on key variables:

Movement in variable %

Adjustments on Surplus $‘000

Adjusted amount included in Statement of Comprehensive Income $‘000

Gross outstanding claims provision

+10

-762

-762

-762

-762

-10

762

762

762

762

Expense rate

+10

-54

–

-54

–

-10

54

–

54

–

–

–

–

–

–

–

–

–

–

–

Variables

Discount rate Risk equalisation rate Risk margin

Adjustments on Equity $‘000

Adjusted amount included in Statement of Financial Position $‘000

+10

91

91

91

91

-10

-91

-91

-91

-91

+10

-117

-117

-117

-117

-10

117

117

117

117

Recognised amounts in the financial statements

railway & transport health fund ltd (abn 93 087 648 744)

Surplus/(Deficit) 2010 $’000

Equity 2010 $’000

(5,070)

25,745

32

2010 $’000

2009 $’000

67,419

55,155

Note 3: Revenue Premium revenue Interest income

1,119

1,291

Change in fair value of investment property

(243)

–

Change in fair value of investments in equity instruments

(122)

–

309

417

Other income Rental income Other income

47

6

356

423

Claims handling expenses

3,684

2,904

Write-off of deferred member acquisition costs

2,202

–

Other underwriting expenses

5,383

3,978

11,269

6,882

Employee benefits

3,684

2,904

Write-off of deferred acquisition costs

2,202

–

277

835

Total other income

Note 4: Expenses Expenses by function

Total expenses (excluding direct claims expenses) Expenses by nature

Depreciation and amortisation Other expenses Total expenses (excluding direct claims expenses)

33

5,106

3,143

11,269

6,882

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

2010 $’000

2009 $’000

666

675

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

–

–

14

13

680

688

60

61

60

61

Other long-term benefits

–

–

Termination benefits

–

–

Share-based payments

–

–

740

749

74

60

–

–

74

60

Non-cash benefits

Post-employment benefits Superannuation

Total key management personnel compensation

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)

2

2

7,991

6,337

7,993

6,339

34

2010 $’000

2009 $’000

827

838

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

(66)

–

Medicare rebate

1,719

1,418

Risk equalisation trust fund (“RETF”) quarterly receivable

1,588

2,453

Unclosed business

438

–

–

34

168

78

4,674

4,821

Investment income receivable Other receivables

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

> 60

$’000

2010

582

115

130

(66)

761

2009

553

95

190

–

838

Premiums in arrears

35

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

2010 $’000

2009 $’000

874

–

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

14,748

9,570

–

2,000

994

2,000

16,616

13,570

961

3,899

961

3,899

121

135

121

135

Non Current Floating rate notes

Note 10: Other current assets Current Prepayments

railway & transport health fund ltd (abn 93 087 648 744)

36

2010 $’000

2009 $’000

At cost

412

212

Accumulated amortisation

(151)

(58)

Total computer software

261

154

At cost

–

3,607

Accumulated amortisation

–

(688)

Movement in unexpired risk liability

–

(409)

Total deferred member acquisition costs

–

2,510

261

2,664

Computer software $’000

Deferred member acquisition costs $’000

50

862 2,745

Note 11: Intangible assets Computer software

Deferred member acquisition costs

Total intangible assets

Balance at 1 July 2008 Additions

137

Disposals

–

–

Amounts written off from unexpired risk liability

–

(409)

(33)

(688)

Balance at 30 June 2009

154

2,510 1,689

Amortisation charge

Additions

190

Disposals

–

–

Amounts written off from unexpired risk liability

–

(1,020)

Amortisation charge

(83)

(977)

Amounts written off

–

(2,202)

261

–

Carrying amount at 30 June 2010

During the year the Directors assessed that the deferred member acquisition costs were impaired and have written down the carrying value to nil.

37

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

2010 $’000

2009 $’000

6,019

5,882

–

–

6,019

5,882

5,449

4,371

–

(76)

5,449

4,295

At cost

20

20

Accumulated depreciation

(11)

(9)

9

11

Note 12: Property, plant and equipment Land At fair value (a) Accumulated depreciation Land Buildings At fair value (a) Accumulated depreciation Total buildings Motor vehicles

Total Motor Vehicles Plant & equipment At cost

1,225

793

Accumulated depreciation

(393)

(234)

Total office furniture and equipment

832

559

12,309

10,747

Total property, plant and equipment

(a) The fair value of the property was independently valued by John L Hill & Co. (Registered valuer #1962) as at 30 June 2010.

railway & transport health fund ltd (abn 93 087 648 744)

38

Land $’000

Buildings $’000

Motor Vehicle $’000

Plant & Equipment $’000

Total $’000

Balance at 1 July 2008

1,483

1,465

12

272

3,232

Additions

4,399

2,838

–

403

7,640

Disposals

–

–

–

–

–

Revaluation increments/(decrements)

–

14

–

–

14

Depreciation expense

–

(22)

(1)

(116)

(139)

Accumulated depreciation written

–

–

–

–

–

5,882

4,295

11

559

10,747

Additions

–

1,052

–

433

1,485

Disposals

–

–

–

–

Balance at 30 June 2009

Revaluation increments/(decrements)

137

33

–

–

170

(32)

(2)

(160)

(194)

–

101

–

–

101

6,019

5,449

9

832

12,309

Depreciation expense Accumulated depreciation written Carrying amount at 30 June 2010

2010 $’000

2009 $’000

3,354

3,387

Note 13: Investment property Balance at beginning of year Acquisitions

–

–

Fair value adjustments

(242)

(33)

Balance at end of year

3,112

3,354

39

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

2010 $’000

2009 $’000

1,513

1,206

438

–

1,951

1,206

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

Note 15: Provisions Current Employee benefits

(a)

301

289

Commissions

(b)

868

1,326

Member rewards

(c)

108

–

Outstanding claims

(d)

7,623

6,307

Unexpired risk liability

(e)

2,219

1,141

11,119

9,063

51

10

51

10

Non-Current Employee benefits

railway & transport health fund ltd (abn 93 087 648 744)

(a)

40

Employee Benefits $’000

Commissions $’000

Member rewards $’000

Outstanding claims $’000

Unexpired risk liability $’000

Total $’000

299

1,326

–

6,307

1,141

9,073

Movements in provisions Balance at 1 July 2009 Amounts used during the year

–

(2,167)

–

(6,307)

–

(8,474)

53

1,709

108

7,623

2,098

11,591

–

–

–

–

(1,020)

(1,020)

352

868

108

7,623

2,219

11,170

Amounts raised during the year Amounts written off from intangible during the year Balance at 30 June 2010

(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 has been recognised for commissions payable to iSelect for new members who sign up to the fund through the iSelect website. (c) Provision for member rewards A provision has been recognised for a members’ rewards program which was introduced during the 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

2010 $’000

2009 $’000

6,708 (718)

6,459 (854)

461

554

6,451

6,159

Risk margin (i)

1,172

148

Net outstanding claims liability

7,623

6,307

41

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 15: Provisions (cont) (i) Risk margin The risk margin of 18.17% (2009: 2.4%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 95% (2009: 80%).

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 two months of actual post balance date claims.

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.

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

2010 $â&#x20AC;&#x2122;000

2009 $â&#x20AC;&#x2122;000

6,459

4,323

Risk equalisation component

(854)

(727)

Administration component

554

265

6,159

3,861

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

(336)

(134)

(6,123)

(4,189)

Claims incurred during the year (expected)

65,394

60,848

Claims paid during the year (expected)

(58,386)

(53,927)

6,708

6,459

Central estimate at end of period Administration component

461

554

Risk equalisation component

(718)

(854)

6,451

6,159

Gross outstanding claims at end of period

railway & transport health fund ltd (abn 93 087 648 744)

42

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

Unearned unclosed business $’000

Constructive obligation $’000

Total $’000

7,181

438

49,266

56,884

–

–

–

–

7,181

438

49,266

56,884

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

31

3,545

4,094

Risk margin

355

22

2,438

2,814

7,461

454

51,189

59,103

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

280

16

1,923

2,219

Total unexpired risk liability (3) – (1)

280

16

1,923

2,219

Total unexpired risk liability

280

16

1,923

2,219

3,570

323

31,098

34,991

(42)

(4)

(363)

(409)

3,528

319

30,735

34,582

2009 Premium (1) Related deferred member acquisition costs Premium less related DMAC (2) Outflows 3,291

298

28,582

32,171

Central estimate of future management expenses

Central estimate of future benefits

229

21

1,990

2,240

Risk margin

176

16

1,529

1,721

3,696

335

32,101

36,132

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

168

16

1,366

1,550

Total unexpired risk liability (3) – (1)

126

12

1,003

1,141

Total unexpired risk liability

126

12

1,003

1,141

43

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

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 (2009: 5.0%) is applied to the benefits, risk equalisation, state levies and claims related expenses cashflows. The risk margin is to provide an 75% level of adequacy (2009: 80%).

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.

2010 $â&#x20AC;&#x2122;000

2009 $â&#x20AC;&#x2122;000

7,181

4,435

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.

Note 18: Reserves Current Revaluation reserve

1,727

1,455

The asset revaluation reserve records the revaluations of non-current assets. During the year a revaluation of $272,000 was carried out on land and buildings.

railway & transport health fund ltd (abn 93 087 648 744)

44

2010 $’000

2009 $’000

– not later than 12 months

39

25

– later than 12 months but not later than 5 years

67

–

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

– greater than 5 years

–

–

106

25

The operating lease commitments relate to non-cancellable premises leases entered for the operation of offices in Newcastle and Wollongong.

Note 20: Contingent liabilities and contingent assets The company does not have any contingent liabilities or assets at 30 June 2010.

Note 21: Solvency reserve Health benefits fund capital

(a)

25,745

30,814

Less: Solvency reserve

(b)

10,779

10,351

14,966

20,463

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.

Note 22: Segment reporting The company operates predominantly in one business segment, being the provision of health benefits, and in one geographical segment, being Australia. As part of its activities as a health benefits provider, the company undertakes investments, which are not considered to be a separate operating segment.

45

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

2010 $â&#x20AC;&#x2122;000

2009 $â&#x20AC;&#x2122;000

Note 23: Cash flow information Reconciliation of Cash Flow from Operations with Surplus after Income Tax (Loss)/surplus after income tax

(5,342)

300

1,255

860

Non-cash flows in surplus Depreciation and amortisation Net asset revaluation

242

19

Write-off of intangible

2,202

409

Unexpired risk liability movement

2,098

20

Changes in assets and liabilities (Increase)/decrease in trade and term debtors Decrease/(increase) in other assets Increase in payables

147

(548)

14

(135)

745

1,766

Increase in provisions

1,019

1,064

Increase in other liabilities

2,746

731

Cash flows from operations

5,126

4,486

Note 24: 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)

46

Note 25: 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: 2010 $’000

2009 $’000

Cash and cash equivalents

7,993

6,339

Loans and receivables

4,674

4,821

Financial assets

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

14,748

9,570

–

2,000

1,955

5,899

874

–

30,244

28,629

Fair value through profit and loss investments – Listed securities

Financial liabilities Financial liabilities at amortised cost – Trade and other payables

1,951

1,206

– Other Liabilities

7,181

4,435

9,132

5,641

The company does not have any derivative instruments at 30 June 2010.

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.

47

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 25: 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

4.49

Receivables

0.00

Investments

5.55

Within Year $’000

Fixed Interest Rate Maturing 1 to 5 years $’000

Total $’000

–

7,993

–

7,993

–

4,674

–

4,674

1,955

14,748

–

16,703

1,955

27,415

–

29,370

6,339

2010 Financial Assets

Total Financial Assets 2009 Financial Assets Cash and cash equivalents

4.12

–

6,339

–

Receivables

0.00

–

4,821

–

4,821

Investments

6.17

5,899

11,570

–

17,469

5,899

22,730

–

28,629

Total Financial Assets

railway & transport health fund ltd (abn 93 087 648 744)

48

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.

2010 $’000

$’000

2009 $’000

$’000

+2.00

-2.00

+2.00

-2.00

Impact on net result for the year

337

(337)

417

(417)

Impact on equity

337

(337)

417

(417)

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 over the page 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.

49

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 25: Financial instruments (cont) Financial liability and financial asset maturity analysis Due within

< 1yr $’000

1 – 5yrs $’000

> 5yrs $’000

Total $’000

1,951

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 (outflow)/inflow on financial instruments

20,151

961

–

21,112

Financial assets — cash flows realisable

2009 Financial liabilities due for payment Trade and other payables (excluding estimated annual leave)

1,206

–

–

1,206

Other Liabilities

4,435

–

–

4,435

Total contractual outflows

5,641

–

–

5,641

Total expected outflows

5,641

–

–

5,641

Financial assets — cash flows realisable Cash and cash equivalents

6,339

–

–

6,339

Trade, term and loans receivables

4,821

–

–

4,821

Held-for-trading investments

–

–

–

–

Held-to-maturity investments

13,570

3,899

–

17,469

Total Anticipated Inflows

24,730

3,899

–

28,629

Net inflow on financial instruments

19,089

3,899

–

22,988

railway & transport health fund ltd (abn 93 087 648 744)

50

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.

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

Maximum per investment policy1 N/A

1

AAA

Aaa

A++

2

AA+ AA AA-

Aa1 Aa2 Aa3

A+

N/A

3

A+ A A-

A1 A2 A3

A A-

N/A

4

BBB+ BBB BBB-

Baa1 Baa2 Baa3

B++ B+

N/A

5

BB+ or below

Ba1 or below

B or below

N/A

–

–

–

N/A

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 AAA- Encompasses the major Australian banks and the Australian government A+ to A- Enables exposure to the regional 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

51

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 25: Financial instruments (cont) 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

Cash & cash equivalents

–

7,805

–

–

–

186

7,991

Held to maturity investments

–

2,010

2,000

2,905

–

9,480

16,395

2010

Fair value investments

–

–

–

–

–

874

874

Total

–

9,815

2,000

2,905

–

10,540

25,260

% of total

0%

39%

8%

11%

0%

42%

Maximum allowable per investment policy 2009

N/A

N/A

N/A

N/A

N/A

N/A

Cash & cash equivalents

–

6,339

–

–

–

–

6,339

Held to maturity investments

–

7,174

3,010

3,899

–

3,386

17,469

Fair value investments

–

–

–

–

–

–

–

Total

–

13,513

3,010

3,899

–

3,386

23,808

0%

57%

13%

16%

0%

14%

100%

100%

80%

50%

0%

30%

% of total Maximum allowable per investment policy

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.

railway & transport health fund ltd (abn 93 087 648 744)

52

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 arm’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.

2010 Net carrying value $’000

Net fair value $’000

2009 Net carrying value $’000

Net fair value $’000 6,339

Financial assets Cash and cash equivalents

(i)

7,993

7,993

6,339

Trade and other receivables

(i)

4,674

4,674

4,821

4,821

Investments: held-to-maturity

(ii)

17,577

17,577

17,469

17,469

30,244

30,244

28,629

28,629

(i)

1,951

1,951

1,206

1,206

(iii)

7,181

7,181

4,435

4,435

9,132

9,132

5,641

5,641

Total financial assets Financial liabilities Trade and other payables Other liabilities Total financial liabilities

53

railway & transport health fund ltd (abn 93 087 648 744)

Notes to the Financial Statements Continued For the year ended 30 June 2010

Note 25: Financial instruments (cont) (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 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 26: Company details The registered office and principal place of business of the company is: Railway & Transport Health Fund Limited ABN 93 087 648 744 46 Burwood Road BURWOOD NSW 2134

railway & transport health fund ltd (abn 93 087 648 744)

54

Directorsâ&#x20AC;&#x2122; Declaration

The directors of the company declare that: 1. the financial statements and notes, as set out on pages 18 to 55, 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 2010 and of the performance for the year ended on that date of the company.

2. i n 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 Chairperson Dated this 15th day of September 2010, Sydney, NSW

55

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)

56

Contents

Chair’s Report

01

CEO’s Report

03

Corporate Governance

06

Directors’ Report

08

Auditor’s Independence Declaration

16

Financial Statements

17

57

railway & transport health fund ltd (abn 93 087 648 744)

Head office Sydney 46 Burwood Road Burwood NSW 2134 Member care centres Sydney 46 Burwood Road Burwood NSW 2134 Wollongong 139 Keira Street Wollongong NSW 2500 Newcastle Shop 2, 28 Donald Street Hamilton NSW 2303 Brisbane 59A Melbourne Street South Brisbane QLD 4101 Contact us Tel 1300 886 123 Fax 1300 887 123 help@rthealthfund.com.au www.rthealthfund.com.au

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2010 Annual Report