rt health fund annual report 2012

2012 Annual Report

Contents

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

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

01 03 05 08 15 17

1

Chair’s Report

It is my great privilege to report to you, on behalf of the board of directors, on the operations and results of rt health fund for the year ended 30 June 2012.

For the past two financial years, the board and management have been focused on instituting a strong operational, underwriting and reporting platform. The results achieved during this time have provided the board with great confidence that the sustainability and resilience of the fund have been significantly enhanced. The fund’s key prudential and financial measures of capital adequacy, solvency and operational efficiency are all strong, and demonstrate a return to stability following the financial loss of FY10.

The result for FY12 is a surplus of $8.4 million, which has markedly improved the fund’s solvency and capital measures. Although rt is a not-forprofit fund, owned by its members, it is required to earn and retain a surplus, which ensures that it is financially sound and able to continue paying benefits. This year’s result places the fund firmly within the prudential parametres required by the industry regulator.

The result has been achieved despite a small reduction in the size of the fund’s membership for the second year, and represents the combined effect of appropriate price setting with a reduction in the cost of claims made by the current membership.

The strong growth strategy pursued prior to FY10 attracted a broader, non-traditional membership to the fund which, in some cases, was more likely to make large claims within a short time of joining. The actions taken over the past two years have resulted in some of those members choosing to leave the fund, and as a result, claiming activity is returning to a more historically normal pattern. Carefully sourced, moderate levels of growth in fund membership are a key focus over the coming years, and with the new analytical capability within the fund, the impact of that growth can be carefully monitored.

Other important contributors to the FY12 result have been: • Realisation of further operational improvements resulting from the FY11 organisational restructure.

• Greatly enhanced business analysis, underwriting and modelling capabilities through restructure and recruitment.

• Improved capabilities in benefit cost management through claims analysis and investigation.

• Advances in IT infrastructure to enable better delivery of services to members and information to the board and management.

From this strong operational and financial position, the fund was able to restrict average contribution increases during the year to the second lowest level in the past decade, and is well positioned to seek a similarly low level of increase in the coming year.

The board carefully monitors the balance between prudential soundness (and therefore the longevity of the fund) with the size of contribution increases, and the impact of those increases on our members.

A significant challenge for a not-for-profit fund such as ours is that its role is to help members cover the costs of services provided by a healthcare industry that, for the main part, is aggressively profit focused.

Assisting members to meet escalating healthcare costs, while keeping contributions as low as possible, is an ongoing challenge for the board.

One of the ways the fund participates in the management of healthcare costs is through membership of the Australian Health Services Alliance (AHSA), an organisation that negotiates hospital contracts with private hospitals and day surgeries on behalf of a consortium of funds. The AHSA is the third largest purchaser of healthcare services in Australia, giving member funds the ability to leverage vastly increased negotiating power. In addition to our membership of the AHSA, the fund’s CEO, Matthew Moore, was elected to the AHSA board during the year, enhancing the fund’s role within this important organisation.

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

2

Heading goes here Chair’s Report (cont)

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sub head

I reported last year that work had commenced on rebuilding our Brisbane member care centre following the floods. Like many organisations and individuals, the fund suffered significant property damage in the floods and repair works took many months to commence due to the scale of the disaster and demand on resources. I am pleased to report that the office was reopened in November 2011, and now provides a greatly improved environment for our members and staff in Brisbane. In May 2012, we took the opportunity to rename the Brisbane office, Thallon House, in honour of one of Queensland’s most significant railway commissioners, James Forsayth Thallon. Thallon was chosen as a man who represented many admirable qualities as well as a dedication to issues of care, health and wellbeing.

We were very fortunate to have several members of the Thallon family attend a small dedication ceremony to declare the new Thallon House open.

The board added an new committee during the year: the Business Development Committee. This committee was created to provide specific advice, guidance and assistance to the board through assessing the development and implementation of strategic business initiatives. I look forward to the work of the committee providing advice to the board in the future development of the fund.

I would like to extend the sincere thanks of the board and management to the members of rt health fund for your ongoing commitment and belief in the fund and the values it represents. It is indeed a unique privilege to participate in an organisation now entering its 124th year of operations, and it is the members of the fund that continue to make the organisation relevant today.

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

benefits

I would like to acknowledge the efforts of CEO, Matthew Moore, his executive team and the staff of rt health fund who all demonstrate an unwavering commitment to the goals of the fund and to the service of our members. And I would like to thank my fellow directors for their continued leadership and focus on best practice governance of the fund.

I look forward to the year ahead, confident that the fund has established a sound foundation for continued improvements in services and operations, and that it will remain a valuable organisation in the lives of the members whom it has served for so long.

Bob Scheuber AM Chair

3

CEO’s Report

It is a great pleasure to report to you on the key activities and strong, positive financial and prudential results achieved during the past year.

The significant areas of focus that have contributed to this year’s strong result have included:

Improvements in operational efficiencies Any organisation dedicated to remaining competitive and relevant must maintain a focus on improving its operational efficiencies and service delivery.

Throughout the year, the team has made significant improvements in several key areas, including: • Achieving consistent results in fast and accurate claims processing.

• Increasing the fund’s capability in the management of medical claims and administrative costs, particularly in the area of benefits management to ensure funds are expended correctly.

• Increasing involvement with the Australian Health Services Alliance (AHSA) to improve hospital contracting and reduce pressure on contribution increases.

• Continuing enhancement of skills, capabilities and technologies in the areas of data analysis and modelling.

• Enhancing the provision of IT and infrastructure to enable improved service provision and management decision-making.

• Replacing the fund’s outdated finance system.

• Focusing on programs to enhance staff knowledge, skills and expertise across all areas of the organisation.

Improvements in member services and benefits A significant focus has been placed on product and benefit improvement during the year, and will continue into the coming year. The range of covers currently offered by the fund has remained static for some years, and requires redevelopment to keep pace with market demand and current industry

practice. The first release of new cover options occured in December 2011 with the launch of a new mid-level hospital cover. Additional product range changes are to be introduced in the coming year.

In addition, a range of benefit enhancements were introduced in April 2012, designed to improve benefits for members. Among the enhancements made were increased benefits across a number of commonlyclaimed dental services, and benefits designed to assist members pursue healthy and preventative lifestyle options, such as increased benefits for dietician consultations (to aid weight management) and new benefits for nicotine replacement therapies (to help people quit smoking).

Improvements in capital adequacy and solvency The economic environment of the past few years has presented new challenges to most organisations and individuals, and provided a complex operating and investment environment. Despite this, the fund has performed extremely well and is reporting strong financial and prudential results.

Within this context, the fund has maintained a conservative investment strategy, carefully balancing risks and rewards to ensure its capital is not exposed to unnecessary levels of market volatility.

Within its property holdings, the fund is realising favourable rental yields from floors not occupied by its staff in Surry Hills and Brisbane, as was envisaged in the strategic plan for the fund’s property portfolio.

Other significant events Introduction of rebate income testing This Commonwealth Government legislative change represents one of the most significant, and potentially disruptive, changes to the health insurance legislative environment for more than a decade. The change removes automatic eligibility for the government’s 30% rebate on private health insurance from all members and introduces a sliding-scale rebate Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

4

CEO’s Report (cont) I would like to e x p re s s my app reciation to the r t health fu nd team for their tireless commit m e n job in w t to the hat challeng is a constantly ing envir o nm e nt .

level, based on income. In essence, the higher a person’s income, the lower the level of rebate they may be entitled to. The lead time to introduce the communications, operational changes, technology and training to implement the change was very short, with the announcement being made by the government in April 2012 and implementation on 1 July 2012. This had a significant impact on the resources and operations of the fund during that time.

The program was successfully launched, on time, with members being offered the opportunity to delay the onset of income testing by making a contribution payment in advance. In addition, members were also provided with the facility to nominate their rebate tier through the online member centre from the time the program launched, and can now choose or change rebate tiers as needed. rt was pleased to be one of the very few funds able to offer this service to members in time for the launch of the rebate changes.

Member satisfaction survey The fund participated in the industry member satisfaction survey this year for the seventh time with a record number of members taking the time to share their feedback on the fund’s performance.

The results were positive with overall levels of member satisfaction being maintained, compared with the prior year, and significant improvements being recorded in the areas of member service and communication, in particular. We continue to focus on further improvements in these areas.

I would like to express my appreciation to the rt health fund team for their tireless commitment to the job in what is a constantly challenging environment.

The team has performed exceptionally well in delivering on the FY12 strategy and achieving all that we set out to do.

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

I would like to thank the board, as the representatives of the fund’s membership, for their guidance and strong support as we have continued to work together to consolidate the operations and capital of the fund and ensure its ongoing viability.

As we head into the fund’s 124th year of operations we are in sound financial and operational position.

For the year ahead the fund will be focused on further operational efficiencies, enhanced levels of member service, an increased focus on the special needs of the transport and electricity industries in particular and the launch of new and improved member benefits.

Matthew Moore CEO

5

Corporate Governance

Role of the board The board is responsible for the overall corporate governance of the fund, including determining its strategic direction and financial wellbeing, as well as guiding and monitoring its business and affairs on behalf of the members to whom it is accountable.

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

The board delegates responsibility for the dayto-day management of the fund to the CEO, and to executive management through the CEO, 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 2011/12 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 • workplace health and safety • code of conduct • risk management • audit • policies and procedures • ethical standards and values • board agenda • meeting procedures • directors’ induction and training • board and directors’ evaluation and remuneration • chief executive officer’s evaluation and remuneration • capital management.

The directors recognise that adherence to the charter is fundamental in demonstrating that they are accountable to members and stakeholders, and that they are appropriately overseeing the future direction of the fund and managing its business risks.

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

6

Corporate Governance (cont)

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.

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 any breaches of compliance, regulations or code of conduct by board members are identified.

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

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

• ensuring the quality and accuracy of published financial reports so they present a true and fair view of the fund’s financial position and comply with relevant statutory and regulatory requirements • ensuring the fund adopts, maintains and applies appropriate accounting and business policies and procedures • overseeing the fund’s investments ensuring the correct balance between liquidity, term of investments and interest rates • overseeing the capital management plan • ensuring the fund maintains effective internal control and risk management systems in order to safeguard its financial, physical and intellectual resources.

Remuneration, Nominations and Constitution The remuneration, nominations and constitution committee is responsible for: • assisting the board to achieve its objectives of ensuring that rt has a board of effective composition, size and commitment to adequately discharge its responsibilities and duties • establishing policies and procedures for the annual performance evaluation of the board, each director and management, and recommending performance and salary reviews for the CEO • reviewing and planning professional development and succession with the board and executive management • annual education programs for board members • managing the ‘fit and proper’ policy and procedures for board appointees.

7

Business Development The business development committee was established during the year and is responsible for: • reviewing the development and implementation of strategic business development initiatives, and ensuring initiatives are consistent with the fund’s strategic plan • reviewing, and where appropriate, making recommendations to the board on business growth and diversification opportunities • responding to emerging issues related to business development • reviewing general market conditions and how these may present or limit new business development opportunities • reviewing and assessing appropriate business cases and plans prepared by management • monitoring the outcomes of business development initiatives.

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) industry and director education forums.

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

8

Directors’ Report For the year ended 30 June 2012

Your directors present their report on the company for the financial year ended 30 June 2012.

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 the level of capital for longterm 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.

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

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: B Scheuber AM V Reynolds D Ellis R Ledger J Pascoe (appointed 24/08/11) M Prior M Scanlan Directors have been in office since the start of the financial year to the date of this report unless otherwise stated. Their qualifications, experience and special responsibilities are as follows:

9

Bob Scheuber

Victoria Reynolds

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

Victoria Reynolds Dip HR Mgt, GAICD, MAHRI, MWOB

Chair

Deputy Chair

Age 57

Age 60

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

Term Independent appointed director First appointed 21/09/2005 and last reappointed 19/08/2012

Committees Member, Audit and Risk Committee

Committees Chair, Remuneration, Nominations and Constitution Committee

Directorships Chair, QSuper Board of Trustees; Chair, QSL; Chair, CRC Rail Ltd Experience Former CEO of Queensland Rail.

Awarded Member of the Order of Australia (AM) in January 2008, for ‘service to the rail sector in Queensland, particularly through contributions to regulatory and operational reforms’. Chair of the board since 2009.

Member of rt health fund since 1991.

Directorships None Experience Consultant, Human Resources and Industrial Relations.

Former General Manager, Human Resources for Rail Infrastructure Corporation, concluding 22 years with NSW Rail. Awarded Premier’s Silver Award for Excellence in service delivery. Former chair of the board from 2005 to 2009 overseeing significant constitutional and governance changes.

Member of rt health fund since 1997.

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

10

Dennis Ellis

Robert Ledger

Dennis Ellis MAICD

Robert Ledger BElec, Grad Dip Sys Eng, GAICD

Age 66 Term Independent member-elected director First appointed 21/09/2005 and last reappointed 23/11/2011 Committees Member, Remuneration, Nominations and Constitution Committee Directorships None Experience Former senior Vice President of RTBU. Retired after 34 years with QR National and Queensland Rail Since 2005, provided significant contribution to constitutional and governance changes, including Fit and Proper Person policies and procedures.

Member of rt health fund since 1997.

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

Age 64 Term Independent member-elected director First appointed 21/09/2005 and last reappointed 17/11/2010 Committees Member, Remuneration, Nominations and Constitution Committee Directorships None Experience Former Fleet Engineer, passenger fleet maintenance for NSW Railways. Retired after 40 years with NSW Rail.

Since 2005 instrumental in writing and revising the constitution, and involved in the review of the capital management policy, the strategic plan and numerous board policies.

Member of rt health fund since 1965.

11

Julie Pacoe

Julie Pascoe BA, Grad Dip (Mktg), GAICD, MAMSRS Age 51 Term Independent appointed director Appointed 24/08/2011 Committees Member, Business Development Committee Directorships Director – Pasko Pty Ltd trading as Corporate Property Group

Michael Prior

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

Age 53 Term Independent appointed director First appointed 25/05/2006 and last reappointed 15/04/2012 Committees Chair, Audit and Risk Committee, Member, Business Development Committee

Director – Barnardo’s Children Services

Directorships Director – Woods Cottage Foundation Ltd

Former member and Chair of People and Culture Committee, Church Resources Charitable Trust Foundation

Former independent member of finance and investment committee for the board of Grain Growers Association of Australia

Experience Director of Marketing – marketing strategist and business manager.

Experience Private consultant

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

Over 30 years in finance industry including as former CFO CMC Markets Asia Pacific, and previously GM operational risk and compliance with CBA. Member of rt health fund since 2009.

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

12

Mike Scanlan

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

Matthew W Moore BA, MAICD

FAMI, MIE

Chief Executive Officer

Age 57

Matthew was appointed CEO on 25 October 2010 having joined the rt team as operations manager in 2007, moving to the new role of general manager strategy, policy and innovation in 2009.

Term Independent member-elected director Appointed 18/11/2009 Committees Member, Audit and Risk Committee, Chair, Business Development Committee Directorships Chair – Westwood Superannuation Fund Director – Railways Credit union Former director of each of Heritage Train Company, Translink Advisory Board, Queensland Tourism Industry Council Board, City Trans Management Committee, and International Public Transport Association Experience Private consultant

He was appointed a Director of the Australian Health Service Alliance Ltd on 17 November 2011 and is a member of its Audit Committee.

He has worked in senior executive positions within the private health insurance industry for more than 20 years. These included head of strategy at Medibank Private, then at MBF where he established and implemented fraud and risk analysis systems.

As principal of an innovative business services organisation, he provided outsourced administration and IT&T services to small and medium-sized health funds both in Australia and overseas.

Over 34 years with Queensland Rail including a variety of business unit senior executive positions.

Mark Dayhew BBus, CPA, AAII, CIP

Member of rt health fund since 1993.

Mark was appointed Chief Financial Officer in August 2010. He brings a depth of more than 30 years’ experience in the insurance industry, including over 15 years in senior executive roles.

Mark’s specialisation covers financial systems, risk management, corporate governance and financial reporting.

Chief Financial Officer

John Hartigan BComm, CA, FCIS, GAICD, FCSA Company Secretary John was appointed Company Secretary in May 2010. He is a fellow of Chartered Secretaries Australia, a chartered accountant and graduate member of the Institute of Company Directors.

He has over 17 years’ experience in corporate governance and secretariat practice in listed and unlisted public companies.

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

13

Operating results

Environmental issues

The surplus to members of the company for the financial year ended 30 June 2012 amounted to $8,446,000 (2011: $3,131,000).

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

Review of operations

Dividends paid or recommended

A gross margin of 18.9% generated during the year is higher than in 2011, being 13.5%. This result reflected fewer members making hospital benefit claims over the year.

As the company is a company limited by guarantee and a not-for-profit organisation, no dividends have been paid, declared or recorded.

Membership decreased by 2.6% over the twelve months to 30 June 2012.

As the company is limited by guarantee, no options over issued shares or interests in the company were granted during or since the end of the financial year and accordingly there were no options outstanding at the date of this report.

Management expenses were marginally lower than prior years as a percentage of contribution income, being 11.1% (2011: 12.0%). Following the move to the new head office in Surry Hills, the fund consolidated expenditure, reviewed internal structures and continued streamlining processes to gain operational efficiencies.

Investment income was higher than in the prior year, due to an increase in term deposit rates that was able to be achieved. The managed fund returns however experienced a downturn with the poor performance of the local equity market that had been influenced by the events in overseas markets.

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

After balance date events 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.

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.

Options

Indemnifying officers or auditor During or since the end of the financial year, the company has paid insurance premiums to insure all directors and officers of the company against liabilities for costs and expenses incurred by them to the extent permitted by the Corporations Act 2001 in defending legal proceedings arising from their conduct while acting in the capacity of director or officer of the company, other than conduct involving a wilful breach of duty in relation to the company.

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

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

Proceedings on behalf of company No person has applied for leave of court to bring proceedings on behalf of the company or to 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 company was not a party to any such proceedings during the year.

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

14

Directors’ Report (cont)

Rounding of amounts

Meetings of directors

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.

During the financial year, a total of 23 meetings of directors (including committees of directors) were held. Attendances by each director during the year were as follows

Director Meetings

Committee Meetings

Audit & Risk Committee

Remuneration, Nominations & Constitution Committee

Business Development Committee

Name

E

A

E

A

E

A

E

A

B Scheuber

12

12

5

5

–

–

–

–

V Reynolds

12

10

–

–

4

4

–

–

D Ellis

12

11

–

–

4

4

–

–

R Ledger

12

12

–

–

4

4

–

–

J Pascoe

11

10

–

–

–

–

2

2

M Prior

12

12

5

5

–

–

2

2

M Scanlan

12

12

5

5

–

–

2

2

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

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 8 and forms part of this report.

Signed in accordance with a resolution of the board of directors:

R SCHEUBER Chair Dated this 19th day of September 2012, Sydney, NSW

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

15

Auditor’s Independence Declaration

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

16

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

17

Financial Statements

Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report

18 19 20 21 22 54 55

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

18

Statement of Comprehensive Income For the year ended 30 June 2012

Premium revenue

Note

2012 $’000

2011 $’000

3

86,660

80,126

(87,631)

(84,167)

8,018

6,652

10,293

9,173

(940)

(939)

(70,260)

(69,281)

–

2,219

Claims expense Risk Equalisation Trust Fund income Gap and Access Gap refund State levies Net claims incurred Unexpired risk liability decrease Claims handling expenses

4

(5,342)

(4,913)

Other underwriting expenses

4

(4,316)

(4,738)

(9,658)

(7,432)

6,742

3,413

1,629

1,206

Underwriting expenses Underwriting result Investment revenue

3

Change in fair value of investment property

3

–

(1,658)

Change in fair value of investments in equity instruments

3

(117)

109

–

(127)

3

192

188

8,446

3,131

–

–

8,446

3,131

–

–

8,446

3,131

Loss on sale of property Other revenue Surplus attributable to members before tax Income tax expense Surplus attributable to members after tax Other comprehensive income Total comprehensive income attributable to members

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

1a.

19

Statement of Financial Position As at 30 June 2012

Note

2012 $’000

2011 $’000

Cash and cash equivalents

7

3,840

3,352

Trade and other receivables

8

7,438

5,631

Financial assets

9

30,830

23,043

10

120

97

42,228

32,123

Current assets

Other current assets Total current assets Non-current assets Intangible assets

11

531

644

Property, plant and equipment

12

10,913

10,487

Investment property

13

6,540

6,540

Total non-current assets

17,984

17,671

Total assets

60,212

49,794

1,701

1,725

Current liabilities Trade and other payables

14

Short-term provisions

15

9,331

10,586

Other current liabilities

16

11,791

8,551

22,823

20,862

67

56

Total current liabilities Non-current liabilities Long-term provisions

15

67

56

Total liabilities

22,890

20,918

Net assets

37,322

28,876

767

767

Retained earnings

36,555

28,109

Total equity

37,322

28,876

Total non-current liabilities

Equity Reserves

18

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

20

Statement of Changes in Equity For the year ended 30 June 2012

Balance at 1 July 2010 Surplus for the year

Retained earnings $’000

Asset revaluation reserve $’000

Total $’000

24,018

1,727

25,745

3,131

–

3,131

Transfer from sale of property

960

(960)

–

Other comprehensive income

–

–

–

28,109

767

28,876

8,446

–

8,446

–

–

–

36,555

767

37,322

Balance at 30 June 2011 Surplus for the year Other comprehensive income Balance at 30 June 2012

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

21

Statement of Cash Flows For the year ended 30 June 2012

2012 $’000

2011 $’000

Receipts from members’ premiums

89,248

81,219

Benefits paid to members

(72,506)

(67,683)

192

153

(9,536)

(9,914)

1,629

1,206

9,027

4,981

Proceeds from disposal of investments

60,954

65,662

Payment for purchase of investments

(68,500)

(71,019)

5

3,979

Payment for property, plant and equipment

(783)

(7,870)

Payment for intangibles

(215)

(374)

(8,539)

(9,622)

–

–

488

(4,641)

3,352

7,993

3,840

3,352

Note Cash flow from operating activities

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

22

Cash flows from investing activities

Proceeds from disposals of property, plant and equipment

Net cash used in investing activities Cash flows from financing activities Net cash provided by financing activities Net increase/(decrease) in cash held Cash at beginning of year Cash at end of year

7

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

22

Notes to the Financial Statements For the year ended 30 June 2012

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.

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

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.

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 member. − 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 members. − 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).

23

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 un-presented and outstanding claims. The provision for un-presented and outstanding claims provides for claims received but not assessed and claims incurred but not received. The provision is based on an actuarial assessment taking into account historical patterns of claim incidence and processing. No discounting is applied to the provision due to the generally short period between claim incidence and settlement. The provision also provides for the expected payment to, or receipt from, the Risk Equalisation Trust Fund (RETF) in relation to the amount provided for unpresented and outstanding claims. The provision also allows for an estimate of operating expenses to cover the cost of processing the claims.

In addition to the provision for un-presented 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 cash flows arising from the rights and obligations under current 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 that is intended to contain no intentional over- or underestimation.

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.

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 Risk Equalisation Trust Fund consequences and claims handling expenses. 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. 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.

If the present value of the expected future cash flows 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.

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

24

Notes to the Financial Statements (cont)

Note 1: Statement of significant accounting policies (cont) h. Unclosed business Unclosed business is recognised on the balance sheet at year end on premiums in arrears. This is calculated as the remainder of the premium payable. i. Assets backing private health insurance liabilities As part of the investment strategy, the company actively manages its investment portfolio to ensure that a portion of its investments mature in accordance with the expected pattern of future cash flows arising from private health insurance liabilities. The board has adopted a conservative approach to maintain its investment portfolio in cash and interest rate securities, except for a maximum of 10% of noninvestment property assets in Australian Equities.

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 fair value through the profit and loss in accordance with the policy set out in Note 1 (j). Previously fixed interest rate securities were held to maturity. There is no movement in fair value for both the current and prior year between these classifications and therefore the reclassification is considered immaterial. 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 (i.e. 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.

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

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: − the amount at which the financial asset or financial liability is measured at initial recognition; − less principal repayments; − plus 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 − 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 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.

25

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 charges in carrying value being included in profit or loss.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost.

Loans and receivables are included in current assets, except for those that are not expected to mature within 12 months after the end of the reporting period, which will be classified as non-current assets.

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.

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.

De-recognition 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.

Each class of property, plant and equipment is carried at cost or fair value, less, where applicable, any accumulated depreciation and impairment losses.

Property Freehold land and buildings are shown at their fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction). Valuations are performed whenever the directors believe there has been a material movement in the value of the assets.

Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in equity. Decreases that offset previous increases of the same asset are charged against the related revaluation reserve directly in equity; all other decreases are charged to the statement of comprehensive income.

Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the re-valued amount of the asset.

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

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets.

The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets’ employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

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

26

Notes to the Financial Statements (cont)

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 statement.

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

When re-valued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. k. 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. l. 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. m. Intangible assets 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 its useful life, being three years. n. Leases Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, are transferred to the company are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments including any

27

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. o. 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. p. Employee benefits Provision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. q. Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances, the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense.

Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows. r. Comparative figures When required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year. s. 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. t. New accounting standards for application in future periods At the date of authorisation of these financial statements, certain new standards, amendments and interpretations to existing standards have been published but are not yet effective, and have not been adopted early by the fund.

Management anticipates that all of the relevant pronouncements will be adopted in the fund’s accounting policies for the first period beginning after the effective date of the pronouncement.

Information on new standards, amendments and interpretations that are expected to be relevant to the Fund’s financial statements is provided below.

Certain other new standards and interpretations have been issued but are not expected to have a material impact on the Fund’s financial statements.

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

28

Notes to the Financial Statements (cont)

Note 1: Statement of significant accounting policies (cont)

comprehensive income; however, it will not affect the measurement or recognition of such items.

AASB 9 Financial Instruments (effective from 1 January 2013) AASB 9 aims to replace AASB 139 Financial Instruments: Recognition and Measurement in its entirety. The replacement standard AASB 9 is being issued in phases. To date, the chapters dealing with recognition, classification, measurement and de-recognition of financial assets and liabilities have been issued. These chapters are effective for annual periods beginning 1 January 2013. Further chapters dealing with impairment methodology and hedge accounting are still being developed.

Amendments to AASB 119 Employee Benefits (AASB 119 Amendments) The AASB 119 Amendments include a number of targeted improvements throughout the Standard.

The main changes relate to defined benefit plans.

They: • eliminate the ‘corridor method’, requiring entities to recognise all gains and losses arising in the reporting period in other comprehensive income • streamline the presentation of changes in plan assets and liabilities • enhance the disclosure requirements, including information about the characteristics of defined benefit plans and the risks that entities are exposed to through participation in them.

The fund’s management have yet to assess the impact that this new standard on the fund’s consolidated financial statements. However, they do not expect to implement AASB 9 until all of its chapters have been published and they can comprehensively assess the impact of all changes.

AASB 13 Fair Value Measurements (AASB 13) AASB 13 does not affect which items are required to be fair-valued, but clarifies the definition of fair value and provides related guidance and enhanced disclosures about fair value measurements. It is applicable for annual periods beginning on or after 1 January 2013. The Fund’s management have yet to assess the impact of this new standard.

AASB 2011-9 Amendments to Australian Accounting Standards Presentation of Items of Other Comprehensive Income (AASB 101 Amendments) The AASB 101 amendments require an entity to group items presented in other comprehensive income into those that, in accordance with other AASBs: (a) will not be reclassified subsequently to profit or loss and (b) will be reclassified subsequently to profit or loss when specific conditions are met. It is applicable for annual periods beginning on or after 1 July 2012. The Fund’s management expects this will change the current presentation of items in other Railway & Transport Health Fund Ltd (ABN 93 087 648 744)

The amended version of AASB 119 is effective for financial years beginning on or after 1 January 2013. The Fund’s management have yet to assess the impact of this revised standard on the Fund’s consolidated financial statements.

Amendments to IAS 32 Financial Instruments: Presentation and IFRS 7 Financial Instruments Disclosures The amendments to IAS 32 add application guidance to address inconsistencies in applying IAS 32’s criteria for offsetting financial assets and financial liabilities. Qualitative and quantitative disclosures have been added to IFRS 7 relating to gross and net amounts of recognised financial instruments that are (a) set off in the statement of financial position and (b) subject to enforceable master netting arrangements and similar agreements, even if not set off in the statement of financial position. The amendments are applicable for annual periods beginning on or after 1 January 2014. The Fund’s management have yet to assess the impact of these amendments. The company does not anticipate the early adoption of any of the above Australian Accounting Standards.

29

u. 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 that is intended to contain no intentional over- or underestimation. 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 30 June 2012, taking into account one month of actual 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 past payments, which has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of 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 claimsrelated 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. v. Adoption of the financial report The financial report was authorised for issue on 19th September 2012 by the board of directors.

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

30

Notes to the Financial Statements (cont)

Note 2: Actuarial assumptions and methods Actuarial methods The outstanding claims estimate is derived based on three valuation classes, namely hospital, medical and general treatment services.

In calculating the estimated cost of unpaid claims a chain ladder method is used, this assumes that the development pattern of the current claims will be consistent with historical experience. Where deemed necessary, manual adjustments were made to the outstanding claims by ‘service month’ to produce an appropriate estimate of incurred claims for the service month.

Actuarial assumptions The following assumptions have been made in determining the outstanding claims liability based on inputs from management and advice from the Appointed Actuary.

2012 Variables

Hospital %

2011

Medical General treatment % %

Hospital %

Medical General treatment % %

Portion paid to date

94.1

96.2

97.1

92.7

92.5

97.2

Expense rate

6.89

6.89

6.89

7.59

7.59

7.59

Discount rate

–

–

–

–

–

–

(11.81)

(11.81)

(11.81)

(11.5)

(11.5)

–

5.00

5.00

5.00

18.17

18.17

18.17

Risk equalisation rate Risk margin

The risk margin of 5.00% (2011: 18.17%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 75% (2011: 95%).

Process used to determine assumptions A description of the processes used to determine these assumptions is provided below.

Proportion paid to date The proportion paid to date summarises the application of the chain ladder method (over the 12 months to 30 June 2012) to determine the total expected incurred in each service month.

The proportion paid to date has been determined with one month’s paid claims hindsight.

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

31

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.

Expense rate Claims handling expenses were calculated by reference to past experience of total claims handling costs as a percentage of total past payments. An increase or decrease in this expense would have a corresponding effect on the claims expense.

Risk equalisation allowance In simplified terms, each private health insurer is required to contribute to the risk equalisation pool, or is paid from the pool, to equalise their hospital claims exposure to members aged over 55 years 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.

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 future volatility and has been set at a level estimated to equate to a probability of adequacy greater than 75 % (2011: 95%). An increase or decrease in this expense would have a corresponding effect on the claims expense.

The probability of adequacy implied by the risk margin (2012: 5.00%) has been determined with one month’s paid claims hindsight. The 2011 provision was prepared using one month’s paid claim hindsight.

Sensitivity analysis – insurance contracts Summary The company conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the performance and equity of the company.

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

32

Notes to the Financial Statements (cont)

Note 2: Actuarial assumptions and methods (cont)

Movement in variable %

Adjustments on Surplus $‘000

Adjusted amount included in Statement of Comprehensive Income $‘000

Gross outstanding claims provision

+10

(842)

(842)

(842)

(842)

-10

842

842

842

842

Expense rate

+10

(55)

(55)

(55)

(55)

-10

55

55

55

55

–

–

–

–

–

–

–

–

–

–

+10

102

102

102

102

-10

(102)

(102)

(102)

(102)

+10

(40)

(40)

(40)

(40)

-10

40

40

40

40

Variables

Discount rate Risk equalisation rate Risk margin

Recognised amounts in the financial statements

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

Adjustments on Equity $‘000

Adjusted amount included in Statement of Financial Position $‘000

Surplus 2012 $’000

Equity 2012 $’000

8,446

37,322

33

2012 $’000

2011 $’000

86,660

80,126

Note 3: Revenue Premium revenue Investment revenue

1,629

1,206

–

(1,658)

(117)

109

187

186

5

2

192

188

5,342

4,913

Other underwriting expenses

4,316

4,738

Total expenses (excluding direct claims expenses)

9,658

9,651

5,342

4,913

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

Note 4: Expenses Expenses by function Claims handling expenses

Expenses by nature Employee benefits Depreciation and amortisation

662

451

Other expenses

3,654

4,287

Total expenses (excluding direct claims expenses)

9,658

9,651

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

34

Notes to the Financial Statements (cont)

2012 $’000

2011 $’000

1,332

1,050

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

–

73

16

14

1,348

1,137

119

105

65

159

1,532

1,401

Post-employment benefits Superannuation

Termination benefits Total key management personnel compensation

During the year ended 30 June 2011 the fund completed an organisational restructure which involved the appointment of a number of new executives, some of which were for part year only. During 2012 the whole year compensation costs were incurred, including additional costs to cover one executive currently on maternity leave. The amount also includes compensation paid to directors of the company.

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

73

70

–

–

73

70

2

2

3,838

3,350

3,840

3,352

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

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

35

2012 $’000

2011 $’000

885

977

Note 8: Trade and other receivables Current Premiums in arrears

(181)

(87)

Medicare rebate

Less provision for impairment

2,833

1,866

Risk equalisation trust fund (“RETF”) quarterly receivable

3,031

2,233

Unclosed business

443

439

Other receivables

427

203

7,438

5,631

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 is as follows: Past due but not impaired (days overdue)

Gross amount

Past due and impaired

Net amount

< 30

31 - 60

>60

$’000

>90

$’000

2012

570

105

210

885

(181)

704

2011

700

119

158

977

(87)

890

Premiums in arrears

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

36

Notes to the Financial Statements (cont)

2012 $’000

2011 $’000

851

939

29,979

21,120

–

984

30,830

23,043

120

97

120

97

Note 9: Financial assets Current Financial assets at fair value through profit or loss – held-for-trading Australian listed shares – term deposits – floating rate notes

Note 10: Other current assets Current Prepayments

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

37

2012 $’000

2011 $’000

1,232

1,017

Accumulated amortisation

(701)

(373)

Total computer software

531

644

Total intangible assets

531

644

Note 11: Intangible assets Computer software At cost

Computer software $’000 Balance at 30 June 2010

261

Additions

374

Disposals

(1)

Transfer from property, plant & equipment

236

Amortisation charge

(226)

Amounts written off

–

Balance at 30 June 2011

644

Additions

215

Disposals

–

Transfer from property, plant & equipment

–

Amortisation charge

(328)

Amounts written off

–

Carrying amount at 30 June 2012

531

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

38

Notes to the Financial Statements (cont)

2012 $’000

2011 $’000

2,863

2,863

–

–

2,863

2,863

7,038

6,958

(148)

(8)

6,890

6,950

28

20

(3)

(14)

25

6

Note 12: Property, plant and equipment Land At fair value Accumulated depreciation Land Buildings At fair value Accumulated depreciation Total buildings Motor vehicles At cost Accumulated depreciation Total Motor Vehicles Plant & equipment At cost Accumulated depreciation Total office furniture and equipment Total property, plant and equipment

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

1,600

958

(465)

(290)

1,135

668

10,913

10,487

39

Land $’000

Buildings $’000

Motor Vehicle $’000

Plant & Equipment $’000

Total $’000

6,019

5,449

9

832

12,309

–

7,438

–

432

7,870

Disposals Transfer to intangibles

(1,340) –

(1,235) –

– –

(181) (236)

(2,756) (236)

Transfer to investment property

Balance at 1 July 2010 Additions

(1,816)

(4,670)

–

–

(6,486)

Depreciation expense

–

(43)

(3)

(179)

(225)

Accumulated depreciation written back on revaluation

–

11

–

–

11

2,863

6,950

6

668

10,487

Additions

–

80

28

674

782

Disposals

–

–

(20)

(28)

(48)

Transfer to intangibles

–

–

–

–

–

Transfer to investment property

–

–

–

–

–

Depreciation expense

–

(140)

(3)

(191)

(334)

Accumulated depreciation written back on revaluation

–

–

14

12

26

2,863

6,890

25

1,135

10,913

Balance at 30 June 2011

Carrying amount at 30 June 2012

No impairment charge has been recognised during the year.

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

40

Notes to the Financial Statements (cont)

Note

2012 $’000

2011 $’000

6,540

6,540

6,540

6,540

6,540

3,112

Note 13: Investment property Investment property

Balance at beginning of year Transfer from property, plant & equipment

–

6,486

Disposals

–

(1,400)

Fair value adjustments

–

(1,658)

Balance at end of year

6,540

6,540

1,258

1,286

443

439

1,701

1,725

463

402

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

Note 15: Provisions Current Employee benefits

(a)

Member rewards

(b)

450

318

Outstanding claims

(c)

8,418

9,866

Unexpired risk liability

(d)

–

–

9,331

10,586

67

56

67

56

Non-Current Employee benefits

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

(a)

41

Employee Benefits $’000

Member rewards $’000

Outstanding claims $’000

Total $’000

Balance at 1 July 2011

458

318

9,866

10,642

Amounts used during the year

(143)

(3)

(5,319)

(5,465)

Amounts raised during the year

215

194

3,871

4,280

–

(59)

–

(59)

530

450

8,418

9,398

Movements in provisions

Amounts reversed during the year Balance at 30 June 2012

(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 member rewards A provision has been recognised for a member rewards program, which was introduced during the prior year.

This provides for incentives offered to new members for joining as well as existing members for continued loyalty. (c) 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 Risk margin (i) Net outstanding claims liability

2012 $’000

2011 $’000

8,410 (910)

8,678 (918)

517

589

8,017

8,349

401

1,517

8,418

9,866

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

42

Notes to the Financial Statements (cont)

Note 15: Provisions (cont) (i) Risk margin The risk margin of 5.00% (2011: 18.17%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 75 % (2011: 95%).

The central estimate of outstanding claims (including those that have been reported but not yet settled and which have been incurred but not yet reported) is an estimate that is intended to contain no intentional over or underestimation. 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 future volatility.

The outstanding claims estimate is derived based on three valuation classes, namely hospital, medical and general treatment services. Diversification benefits within a valuation class are implicitly allowed for through the model adopted. The determination of the risk margin has also implicitly allowed for diversification between valuation classes, based on an analysis of past correlations in deviations from the adopted model.

The outstanding claims provision has been estimated using a chain ladder method, based on historical experience and future expectations as to claims. The calculation was determined taking into account one month of actual post balance date claims.

As claims for private health insurers are generally settled within one year, no discounting of claims is usually applied as the difference between the undiscounted value of claims payments and the present value of claims payments is not likely to be material. Accordingly, reasonable changes in assumptions would not have a material impact on the outstanding claims balance.

Changes in the gross outstanding claims can be analysed as follows: 2012 $â&#x20AC;&#x2122;000

2011 $â&#x20AC;&#x2122;000

8,678

6,708

Risk equalisation component

(918)

(718)

Administration component

589

461

8,349

6,451

Gross outstanding claims at beginning of period

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

(424)

658

(7,925)

(7,109)

Claims incurred during the year (expected)

78,921

73,958

Claims paid during the year (expected)

(70,511)

(65,280)

8,410

8,678

517

589

Central estimate at end of period Administration component Risk equalisation component Gross outstanding claims at end of period

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

(910)

(918)

8,017

8,349

43

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

Unearned unclosed business $’000

Constructive obligation $’000

Total $’000

11,791

443

57,322

69,556

2012 Premium (1) Related deferred member acquisition costs Premium less related DMAC (2)

–

–

–

–

11,791

443

57,322

69,556

9,781

366

47,671

57,818

Outflows Central estimate of future benefits Central estimate of future management expenses

705

27

3,431

4,163

Risk margin

524

20

2,555

3,099

11,010

413

53,657

65,080

Total deficiency (3) – (2)

–

–

–

–

Total unexpired risk liability (3) – (1)

–

–

–

–

Total unexpired risk liability

–

–

–

–

8,551

439

57,371

66,361

Total outflows (3)

2011 Premium (1) Related deferred member acquisition costs

–

–

–

–

8,551

439

57,371

66,361

7,299

379

48,738

56,416

Central estimate of future management expenses

651

33

4,380

5,064

Risk margin

398

21

2,656

3,075

8,348

433

55,774

64,555

Total deficiency (3) – (2)

–

–

–

–

Total unexpired risk liability (3) – (1)

–

–

–

–

Total unexpired risk liability

–

–

–

–

Premium less related DMAC (2) Outflows Central estimate of future benefits

Total outflows (3)

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

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.

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

44

Notes to the Financial Statements (cont)

Note 15: Provisions (cont) 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 5.00% for annual reporting (2011: 5.00%) is applied to the benefits, risk equalisation, state levies and claims-related expenses cash flows. The risk margin is to provide a 75% level of adequacy (2011: 75%). The risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past loss ratios. The adopted risk margin is based on past volatility, plus allowances for uncertainty from the economic environment and changes in the risk profile 2012 $â&#x20AC;&#x2122;000

2011 $â&#x20AC;&#x2122;000

11,791

8,551

11,791

8,551

Note 16: Other liabilities Current Premium received in advance

It is noted that the contributions in advance has increased by $3,240k as at 30 June 2012. This increase is mainly due to the changes in the Private Health Insurance Rebate Scheme which came into effect from 1 July 2012.

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 toward meeting any outstanding obligations of the company.

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

45

2012 $’000

2011 $’000

767

767

767

1,727

–

(960)

767

767

Note 18: Reserves Current Revaluation reserve Movement of reserves Balance at beginning of year Transfer from sale of property to retained earnings Balance at end of year

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

Note 19: Capital and leasing commitments Operating lease commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable – minimum lease payments 18

26

– later than 12 months but not later than 5 years

– not later than 12 months

–

18

– greater than 5 years

–

–

18

44

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

Note 20: Contingent liabilities and contingent assets The company does not have any contingent liabilities or assets at 30 June 2012.

Note 21: Solvency reserve Health benefits fund capital

(a)

37,322

28,876

Less: Solvency reserve

(b)

(11,261)

(18,422)

26,061

10,454

Excess assets

(a) This balance represents the capital available at year end to satisfy the solvency reserve required in accordance with the Solvency Standard as set by PHIAC. (b) The solvency reserve for the company has been calculated in accordance with the Solvency Standard as set by PHIAC and represents the minimum reserve required to be maintained by the company.

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

46

Notes to the Financial Statements (cont)

2012 $’000

2011 $’000

8,446

3,131

662

451

Note 22: Cash flow information Reconciliation of cash flow from operations with surplus after income tax Surplus/(loss) after income tax Non-cash flows in surplus Depreciation and amortisation Write-off of assets Unexpired risk liability movement Fair value adjustment of investment property Fair value adjustment of investments in equity Net (gain)/loss on disposals of property

16

182

–

(2,219)

–

1,658

117

(109)

–

(15)

(2,163)

(957)

(23)

24

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

(24)

(226)

Increase in provisions

(1,244)

1,691

Increase in other liabilities

3,240

1,370

Cash flows from operations

9,027

4,981

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

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

47

Note 24: Financial instruments measured at fair value (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 instrument, measured in accordance with AASB 139 as detailed in the accounting policies to these financial statements, are as follows: 2012 $’000

2011 $’000

Cash and cash equivalents

3,840

3,352

Loans and receivables

7,438

5,631

851

939

29,979

21,120

–

984

42,108

30,026

Financial assets

Fair value through profit and loss investments – listed securities – term deposits – floating rate notes

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

1,701

1,725

11,791

8,551

13,492

10,276

The company does not have any derivative instruments at 30 June 2012.

The Audit and Risk Committee has been delegated responsibility by the board of directors for, among other issues, monitoring and managing financial risk exposures of the company. An investment policy has been developed in order to comply with PHIAC’s requirements.

The fund’s overall investment strategy seeks to assist the fund in meeting its financial targets, while minimising potential adverse effects on financial performance. The main risks the company is exposed to through its financial instruments have been addressed below, including market risks, liquidity risks, credit risks and insurance risks.

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

48

Notes to the Financial Statements (cont)

Note 24: Financial instruments measured at fair value (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

5.26

–

Receivables

0.00

Investments

5.79

Within Year $’000

Fixed Interest Rate Maturing 1 to 5 years $’000

Total $’000

3,840

–

3,840

–

7,438

–

7,438

–

29,979

–

29,979

–

41,257

–

41,257

–

3,352

–

3,352

2012 Financial Assets

Total Financial Assets 2011 Financial Assets Cash and cash equivalents

4.23

Receivables

0.00

–

5,631

–

5,631

Investments

5.95

984

21,120

–

22,104

984

30,103

–

31,087

Total Financial Assets

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

49

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.

2012

2011

$’000

$’000

$’000

$’000

+2.00%

-2.00%

+2.00%

-2.00%

Impact on net result for the year

511

(511)

383

(383)

Impact on equity

511

(511)

383

(383)

Interest rate movement

(ii) Foreign currency risk The fund is not exposed to any material foreign currency risk. (iii) Commodity price risk The fund is not exposed to any material commodity price risk.

Liquidity risk Liquidity risk arises from the possibility that the company might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The company manages this risk through the following mechanisms: − preparing forward-looking cash flow analysis in relation to its operational, investing and financing activities − monitoring undrawn credit facilities − obtaining funding from a variety of sources − maintaining a reputable credit profile − managing credit risk related to financial assets − investing only in surplus cash with major financial institutions − comparing the maturity profile of financial liabilities with the realisation profile of financial assets The tables below reflect an undiscounted contractual maturity analysis for financial liabilities. Financial guarantee liabilities are treated as payable on demand since the company has no control over the timing of any potential settlement of the liabilities.

Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation.

Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward.

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

50

Notes to the Financial Statements (cont)

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

< 1yr $’000

1 – 5yrs $’000

> 5yrs $’000

Total $’000

1,701

–

–

1,701

Other liabilities

11,791

–

–

11,791

Total contractual outflows

13,492

–

–

13,492

Total expected outflows

13,492

–

–

13,492

2012 Financial liabilities due for payment Trade and other payables (excluding estimated annual leave)

Financial assets — cash flows realisable Cash and cash equivalents

3,840

–

–

3,840

Trade, term and loans receivables

7,438

–

–

7,438

Held-for-trading investments

30,830

–

Total anticipated Inflows

42,108

–

–

30,830 42,108

Net inflow on financial instruments

28,616

–

–

28,616

1,725

–

–

1,725

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

8,551

–

–

8,551

Total contractual outflows

Other liabilities

10,276

–

–

10,276

Total expected outflows

10,276

–

–

10,276

3,352

–

–

3,352

Financial assets — cash flows realisable Cash and cash equivalents Trade, term and loans receivables

5,631

–

–

5,631

Held-for-trading investments

23,043

–

–

23,043

Total anticipated Inflows

32,026

–

–

32,026

Net inflow on financial instruments

21,750

–

–

21,750

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 table below demonstrates the translation of grading used to assess the investments held by the fund.

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

51

PHIAC Grade

Standard & Poor’s

Moody’s

AM Best

Fitch

1

AAA

Aaa

A++

AAA

2

AA+ / AA / AA-

Aa1/ Aa2 / Aa3

A+

AA+ / AA / AA-

3

A+ / A / A-

A1 / A2 / A3

A / A-

A+ / A / A-

4

BBB+ / BBB / BBB-

Baa1 / Baa2 / Baa3

B++ / B+

BBB+ / BBB / BBB-

5

BB+ or below

Ba1 or below

B or below

BB+ or below

–

–

–

–

Unrated

During the year ended 30 June 2011 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.

Analysis of Standard & Poor’s Ratings: AAA to AA- Encompasses the major Australian banks and the Australian government.

A+ to A- Enables exposure to the 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.

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

–

3,838

–

–

–

2

3,840

Fair value investments

–

16,248

6,599

6,118

–

1,865

30,830

Total

–

20,086

6,599

6,118

–

1,867

34,670

% of total

0%

58%

19%

18%

0%

5%

Maximum allowable per investment policy 2011

N/A

N/A

N/A

N/A

N/A

N/A

2012

Cash & cash equivalents

–

2,915

–

–

–

437

3,352

Fair value investments

–

9,073

7,022

1,993

–

4,955

23,043 26,395

–

11,988

7,022

1,993

–

5,392

% of total

0%

45%

27%

8%

0%

20%

Maximum allowable per investment policy

N/A

N/A

N/A

N/A

N/A

N/A

Total

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

52

Notes to the Financial Statements (cont)

Note 24: Financial instruments measured at fair value (cont) Insurance Risk The provision of private health insurance in Australia is governed by the Act and shaped by a number of regulatory factors.

The first is the principle of community rating. This principle prevents private health insurers from discriminating between people on the basis of their health status, age, race, sex, and 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, which have higher average claims payments. (b) Net fair values The fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an armâ&#x20AC;&#x2122;s length transaction.

Fair values derived may be based on information that is estimated or subject to judgment, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgment and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants.

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

53

2012 Net carrying value $’000

Net fair value $’000

2011 Net carrying value $’000

Net fair value $’000

3,840

3,840

3,352

3,352

Financial assets Cash and cash equivalents

(i)

Trade and other receivables

(i)

7,438

7,438

5,631

5,631

Investments: fair value to profit or loss (iii)

30,830

30,830

23,043

23,043

Total financial assets

42,108

42,108

32,026

32,026

Financial liabilities Trade and other payables

(i)

1,701

1,701

1,725

1,725

Other liabilities

(ii)

11,791

11,791

8,551

8,551

13,492

13,492

10,276

10,276

Total financial liabilities

(i) Cash and cash equivalents, trade and other receivables and trade and other payables are short-term instruments in nature whose carrying value is equivalent to fair value. (ii) Other liabilities are comprised of contributions in advance and exclude amounts provided for relating to unexpired risk liability, outstanding claims liability and employee benefits, which are not considered to be financial instruments. (iii) Financial assets measured at fair value in the statement of financial position are grouped into three levels of fair value hierarchy. This grouping is determined based on the lowest level of significant inputs used in fair value measurement, as follows: Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices) Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The financial assets held at fair value, fall entirely within Level 1 as at 30 June 2012.

Note 25: Company details The registered office and principal place of business of the company is: Railway & Transport Health Fund Limited ABN 93087 648 744 Eveleigh House 1 Buckingham Street SURRY HILLS NSW 2010

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 53, 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 2012 and of the performance for the year ended on that date of the company.

2. in the directorsâ&#x20AC;&#x2122; opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

This declaration is made in accordance with a resolution of the board of directors.

R SCHEUBER Chair Dated this 19th day of September 2012 Sydney, NSW

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

55

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

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

56

Independent Auditorâ&#x20AC;&#x2122;s Report (cont)

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

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

Contact us Tel 1300 886 123 Fax 1300 887 123 help@rthealthfund.com.au www.rthealthfund.com.au

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