Rt Annual Report 2014

Head office Sydney Eveleigh House 1 Buckingham Street Surry Hills NSW 2010 Newcastle Suite 1, Ground Floor Sky Central, West Tower Cnr Pearson and Smart Streets Charlestown NSW 2290 Brisbane Thallon House 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

Annual Report

2014

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Contents

A message from the Chair and CEO Corporate Governance Directors’ Report Auditor’s Independence Declaration Financial Statements

01 06 09 20 21

1 01

A message from the Chair and CEO

It is our great privilege to report to you, on behalf of the board of directors and our executive, on the operations and results of rt health fund for the year ended 30 June 2014.

This has been a significant year for our fund, in which it has achieved important results in membership growth and member services; continued its focus on maintaining strong operational and underwriting platforms; and opened its first health centres in Charlestown, Newcastle and Surry Hills, Sydney.

Bob Scheuber Chair

AM

The result for FY14 is a net surplus of $1.7 million.

Even though rt is a not-for-profit fund, owned by its members, it is required to earn and retain a surplus, which ensures that the fund is financially sound, and able to continue paying benefits to members and investing in improved member services and facilities.

This year’s result, in terms of both net surplus and key prudential measures, places the fund’s performance well within the parameters required by the industry regulator.

Matthew Moore CEO

The fund earns rental income from its buildings in Surry Hills and Brisbane, and returns on both properties have been strong this year. Share market investments, similarly, experienced strong growth during the year, however, the fund also experienced some decline in investment income with continued downward pressure on interest rates being a key feature of the economy during the last 12 months. The board and the executive understand the need for the fund to generate returns from its investments, but are conservative in investing surplus funds to ensure that the primary purpose of making benefit payments to members is not compromised.

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

02 2

A message from the Chair and CEO (cont.)

Improvements in growth and member service Following three years of modest decline, the fund grew its membership base in FY14. The decline had been a consequence of previous price corrections required to ensure long-term product sustainability, and in response the fund has been investing significantly in building its product range and internal sales capability. It has been pleasing to see both an increase in new membership growth and a decrease in membership attrition during the year.

The private health insurance market continues to be aggressively competitive with numerous new comparator organisations investing heavily in marketing and promotions, in addition to the usual strong media presence of the big five funds. This has encouraged increased membership churn across the industry, to the extent that a majority of growth among funds today comes from fundswitching rather than attracting new people to private health insurance. A majority of health funds, of all sizes, now relies on the services of industry brokers/comparators to provide or support their growth objectives. The previous experience of our fund has been such that the board is committed to building an internal sales capability that is able to deliver the growth required, and will continue to avoid the use of comparators as far as practicable.

Future, modest levels of prudent membership growth will continue to be targeted using the fund’s internal sales resources.

A lower-than-average rate increase, for the second year, assisted in the fund’s return to competitive pricing, and member research this year showed a significant improvement in members’ perceptions of the fund from the perspectives of being competitively priced and value for money.

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

Two important developments during the year that will assist the fund with future growth include the expansion of on-the-ground resources to Far North Queensland, with an account manager based in the area and a change to the fund’s eligibility criteria.

The Far North Queensland region is a significant hub for industries within the fund’s membership categories and there is a strong presence of organisations with which the fund has active corporate and union partnerships.

The Department of Health approved the expansion of the fund’s eligibility from transport and ‘electricity’ to transport and ‘energy’. This change makes it possible for the fund to engage fully with organisations that offer services across the energy industry spectrum and provides for greater clarity in membership eligibility when working with industry.

The fund was recognised for its performance in the delivery of service to members during the year through three significant pieces of research: • In the IPSOS Health Care and Insurance in Australia study, rt health fund received top rankings on almost all member service categories.

The IPSOS study is a highly regarded piece of research and has been widely used by regulators, policymakers, health funds and healthcare providers for the past 27 years.

• In the annual member satisfaction survey, benchmarked against 11 similar-sized funds, rt was recognised as the fund with the greatest overall improvement in member satisfaction, and we were pleased to see no decline in any measure of satisfaction this year.

• T he fund also received the highest score of participating funds in a mystery shopping survey conducted during the year.

03

It has b een ple as to see b oth an in ing crease in new m embers grow th hip and a d ecrease in mem bership during th attrition e year.

New health centres and new insurance services

A new Brisbane office and vision for the future

Some members will recall that plans to open dental and optical centres have been under consideration for a number of years. This year, our fund opened its first optical centre in Charlestown, Newcastle, and dental and optical centre in Surry Hills, Sydney. A third centre, comprising dental and optical services, is scheduled to open in Brisbane during the 2015 financial year.

In readiness to bring dental and optical services to members in Brisbane, the fund purchased a new building at 97 Edward Street, Brisbane, which will serve as the both the operational base and clinic location. The previous Brisbane branch and office at 59 Melbourne Street, South Brisbane was sold immediately following the end of the financial year.

The Edward street location is far more accessible for members and large enough to accommodate the current branch and back office staff as well as the new clinical services. It is planned that the move to the new office and opening of the health centre will be complete within the 2015 financial year.

This represents a very strong move by our fund to ensure that our large member bases in Sydney and Brisbane are provided with new choices of services and value for money.

The optical centres provide full optometric consultations and a range of glasses and contact lenses at favourable member pricing, including nogap products, and the dental centres offer no-gap preventative dental and favourable pricing on dental services. A skilled team of healthcare practitioners, operating under the direction of the fund’s Chief Medical Officer, has been recruited to staff the centres, which are equipped with the newest, stateof-the-art technology and equipment to ensure optimum service to members.

Dental and optical services are by far the most commonly used by health fund members, which means the fund’s claims costs in these areas are substantial. The fund is able to more efficiently provide many of these services through its own facilities, and can operate under a cost structure that, unlike commercial dental and optical practices, is focused on delivering member value rather than profit maximisation. This means a win for the fund in lower costs and a win for our members in terms of comparable or improved services at no gap and preferential pricing.

Additionally, this year the fund entered into an agreement with QBE to provide preferentially priced travel insurance to rt health fund members. Travel insurance is a natural extension of cover for a health fund as it provides comprehensive medical cover for people travelling overseas, when their Australian health insurance cannot be used.

The board and management undertook a significant strategic planning process throughout the year, resulting in a ten-year plan for our fund, which details the key pillars of the future and streams of business to achieve its goals. The opening of member health centres is a key component of our fund’s future plans to enhance services to members, assist in reducing claims costs and diversify the business activities of the company away from the highly regulated and increasingly competitive health insurance business. Supporting our primary business of private health insurance, is the plan is to diversify our fund’s revenue streams into areas that support the health insurance business while enabling it to provide additional valuable services to members outside of the health insurance regulatory environment.

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

04

A message from the Chair and CEO (cont.)

Legislative changes and the privatisation of Medibank Private On 1 April 2014, the government implemented a further change to the rebate program, which was introduced by the previous Labor government. The change ties the rebate to CPI each year rather than actual health insurance rate increases. This is the third in a series of changes to the rebate, which over the past two years have seen it become income tested and removed from any Lifetime Health Cover portion of a person’s contributions. The result of this third change is to effectively abolish the notion of a 30% rebate. It is widely acknowledged that healthcare costs increase more rapidly than CPI, and the effect of this latest change will be to diminish the rebate over time to become a smaller proportion of an individual’s health cover costs.

The impact for people previously entitled to a 30% rebate in this first year has been to reduce the amount of their rebate to 29.04%.

In the 2014 Commonwealth budget the government confirmed its intention to sell Medibank Private by way of an initial public offering. Its intention is to sell the entire company and it will not hold any shares following listing.

The sale presents a number of challenges to the private health insurance sector, but will also potentially enable government to ‘free’ up a number of restrictions on how funds operate once the conflict of being the both the regulator and the owner of the largest health fund in the market is removed.

The board and management have considered the potential impact of the sale on the industry, and rt in particular, and have been involved in communication with government through a number of channels on significant issues of concern, in particular, ensuring that Medibank Private is not

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

given any unfair market advantage during the IPO process. The board and management believe our fund has the necessary plans in place to manage its performance throughout this process.

A number of other significant changes have impacted the regulatory environment over the past year, including changes to the capital requirements and the planned transition of key industry organisations.

Under new capital standards set by PHIAC, funds are enabled to exercise greater control over decisions relating to the amount of prudential capital held. The board has been through a comprehensive process to define the risk tolerances of the fund and to set capital levels that will ensure the stability of the fund under a variety of business-as-usual and extraordinary circumstances.

Changes announced as part of the 2014 Commonwealth budget will significantly impact the key regulatory bodies the fund works with in the coming financial year. The Private Health Insurance Administration Council (PHIAC), the current industry regulator, will be abolished and funds will come under the jurisdiction of APRA by 1 July 2015.

While the details of this transition are still being determined, it is anticipated that the move to APRA will add to the regulatory burden already imposed on health funds, with additional resources likely to be required to comply with APRA standards.

In addition, the Private Health Insurance Ombudsman (PHIO) will be subsumed into the office of the Commonwealth Ombudsman, also by 1 July 2015. It is not expected that there will be any change to the services or relationship with the ombudsman and that it will be a change of office only.

05

This yea r, our fu nd ope ne d its first optical and de n tal centr Charles es in town an d S yd n e with a th y, ird sche duled to open in Brisban e in 201 5.

Managing the cost of healthcare services CEO, Matthew Moore, was appointed deputy chair of the Australian Health Services Alliance (AHSA) during the year, significantly assisting the fund in its processes for managing healthcare costs. The AHSA is an organisation that negotiates hospital contracts with private hospitals and day surgeries on behalf of a consortium of funds. It is the third largest purchaser of healthcare services in Australia, giving member funds the ability to leverage vastly increased negotiating power.

Governance At the 2013 AGM members passed a range of changes to the company’s constitution that enable the board to improve its composition and renewal to better meet the needs of the organisation as the complexity of the business, operating environment and regulatory environment continue to grow.

Also following the 2013 AGM, Bob Scheuber was re-elected to the board and Andy Taylor was appointed to the board by member election, filling a vacancy left by Robert Ledger, who left the board after serving for nine years and contributing significantly to governance during that time. At the upcoming 2014 AGM Dennis Ellis has announced his intention to retire as a director after nine years, having also made a significant contribution to the board in numerous areas during that time. This continues a process by the board of renewal in a considered and measured way and allows for a process of new directors being appointed to replace directors who have made valuable contributions to our fund. The board is conscious of achieving this renewal while maintaining a core group of skilled directors with strong knowledge of our fund.

We would like to extend the sincere thanks of the board and management to the members of rt health fund for your ongoing commitment to the fund.

It is indeed a unique privilege to participate in an organisation now in its 126th year of continuous operations, and it is the members that continue to make our fund relevant today.

We would like to acknowledge the efforts of the board, management and staff, who all demonstrate an unwavering commitment to the goals of the fund and to constantly improving the service it provides to members.

We look forward to the year ahead, to continually improving the experience of all members as they interact with the fund, and to welcoming new members to the fund.

Bob Scheuber AM Chair

Matthew Moore CEO

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

06

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 its annual report • promoting and maintaining organisational values and a culture where transparent and timely information is shared between management and the board • ensuring effective systems of internal control and internal audit • reviewing the performance of, and mentoring, the CEO.

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

The board delegates responsibility for the 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 FY2014 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 • CEO’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 strategic direction of the fund and managing its business risks.

07

Election to the board The board has adopted a ‘Fit and Proper Person’ policy including minimum qualifying standards and criteria to be met for nominees wishing to be elected to the board.

The policy is compliant with APRA regulations and consistent with the ASX guidelines encouraging attributes necessary to be a director of a public company.

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 • 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 directors • managing the ‘Fit and Proper Person’ policy and procedures for board appointees.

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

08

Corporate Governance (cont.)

Business Development The business development committee 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.

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

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.

09

Directors’ Report For the year ended 30 June 2014

Your directors present their report on the company for the financial year ended 30 June 2014.

Company objectives

Principal activities

Short term and 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.

The principal activity of the company during the financial year was the provision of private health insurance. Additionally the company commenced optical and dental clinic services to members and customers from two locations during the year.

Company strategy

The key measures of performances are: gross margin and loss ratio by product, state and channel; benefits paid by member; management expense ratio; net margin; membership; capital adequacy and solvency ratios. Clinic services net margins are monitored.

Short term To consolidate and enhance the efficient operations of the fund to improve the level of capital for longterm sustainability. Establish dental and optical clinics to enhance member services.

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.

Measuring performance

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 (retired 20 November 2013) J Pascoe M Prior M Scanlan A Taylor 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:

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

10

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

Victoria Reynolds Dip HR Mgt., MAHRI, MWOB, GAICD

Chair

Deputy Chair

Age 59

Age 62

Term Independent member elected director First appointed 24/10/2007, last re-elected 20/11/2013

Term Independent appointed director First appointed 21/09/2005, last re-appointed 19/08/2012

Committees Member, Audit and Risk Committee

Committees Chair, Remuneration, Nominations and Constitution Committee

Directorships QSuper; QSL Board of Trustees; Chair, CRC Rail Ltd Experience Chair of the board since December 2009.

Former CEO of Queensland Rail.

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

Member of rt health fund since 1991.

Directorships Chair – Port Stephens chamber of commerce & industry Experience Operation Site Manager Joblinkplus – a not-for-profit registered charity organisation providing employment and welfare services to the community.

Consultant, human resources and industrial relations.

Former General Manager, Human Resources, 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.

Member of rt health fund since 1991.

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

11

Dennis Ellis MAICD

Robert Ledger B Elec., Grad Dip Sys Eng., GAICD

Age 68

Age 66

Term Independent member elected director First appointed 21/09/2005, last re-elected 23/11/2011

Term Independent member elected director First appointed 21/09/2005, last re-elected 17/11/2010, retired 20/11/2013

Committees Member, Remuneration, Nominations and Constitution Committee

Committees Member, Remuneration, Nominations and Constitution Committee

Directorships None

Directorships None

Experience Former Senior Vice President RTBU Queensland.

Experience Former Fleet Engineer, Passenger Fleet Maintenance, NSW Railways.

Retired after 34 years with QR National and Queensland Rail.

Retired after 40 years with NSW Rail.

Member of rt health fund since 1965.

Member of rt health fund since 1997.

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

12

Julie Pascoe BA, Grad Dip (Mktg), GAICD, QPMR (AMSRS),

Michael Prior M Comm., Grad Dip Applied Finance, Cert

GIA (CERT)

Applied Tax, CPA, CTA, MAICD

Age 53

Age 55

Term Independent appointed director First appointed 24/08/2011; last re-appointed 23/08/2014

Term Independent appointed director First appointed 25/05/2006, last re-appointed 15/04/2012

Committees Member, Business Development Committee

Committees Chair, Audit & Risk Committee Member, Business Development Committee

Directorships Corporate Property Group; Barnardos Australia; Stuart Alexander & Co Pty Ltd

Directorships Woods Cottage Foundation Ltd; PB Advisory Group Pty Ltd

Experience Director of marketing, marketing strategist and business manager.

Former independent member of Finance and Investment Committee, Board of Grain Growers Association of Australia

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

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.

Member of rt health fund since 2014.

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

Experience Public accountant and private consultant.

Over 30 years in finance including as former CFO CMC Markets Asia Pacific, and GM Operational Risk and Compliance, CBA. Member of rt health fund since 2009.

13

Michael Scanlan BEng, Grad Dip Mgt., MBA, FAICD, FAIM, FCILT, FAMI, MIE, MAMI

Age 59 Term Independent member elected director First appointed 18/11/2009, last re-elected 21/11/2012 Committees Chair, Business Development Committee Former Member, Audit and Risk Committee, and Remuneration, Nominations and Constitution Committee Directorships Chair, Railways Credit Union; Chair Westwood Superannuation Fund Company Trustee; Director, Wicet Services, Wicet Holdings, Wiggins Island Coal Export Terminal; former Director of Heritage Train Company; Queensland Tourism Industry Council Board; Translink Advisory Board; City Trans Management Committee; and International Public Transport Association (Aust & NZ)

Andy Taylor BSC (Hons), CEng, MBA, GAICDI Age 56 Term Independent member elected director Elected 20/11/2013 Committees Member, Audit and Risk Committee Directorships Workplace Resource Centre Experience Principal and Partner in Headway Consulting Group.

Formerly held senior roles in Queensland Rail until departing as head of the passenger business in 2008. Leader of the integration team bringing Australian RailRoad Group (ARG) into QR. Member of rt health fund since 2004.

Experience Part-time rail specialist consultant since 2008.

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

Member of rt health fund since 1993.

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

14

Directors’ Report (cont.)

Meetings of directors During the financial year, a total of 19 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

9

9

6

6

–

–

–

–

V Reynolds

9

8

–

–

2

1

–

–

D Ellis

9

7

–

1

2

1

–

–

R Ledger

3

3

–

–

1

1

–

–

J Pascoe

9

8

–

–

–

–

2

2

M Prior

9

8

6

6

–

–

2

2

M Scanlan

9

9

2

2

1

1

2

2

A Taylor

6

6

4

4

–

–

–

–

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

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

15

Executive officers Matthew W Moore BA, MAICD Chief Executive Officer Matthew was appointed CEO on 25 October 2010, having joined the rt team as operations manager in 2007, moving to the new role of General Manager Strategy in 2009.

He has been a director of the Australian Health Service Alliance Ltd (AHSA) since November 2012 and is a member of its Audit and Risk Committee and Remuneration and Nomination committee. He was appointed Deputy Chair of AHSA in February 2014.

He has worked in senior executive positions within the private health insurance industry for nearly 25 years. These included head of strategy at Medibank Private, then at MBF where he established and implemented fraud and risk analysis systems.

As CEO 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.

Simone Tregeagle BA (Comm), Grad Cert (Mktg), CPM, MAICD

Chief Operating Officer Simone was appointed Deputy CEO in December 2010 after joining rt in 2006 as a marketing consultant, and being appointed permanently to the position of Manager Sales, Service & Marketing in 2009, a role she continues to fulfil as Chief Operating Officer.

Simone holds the position of Acting CEO in any absence of the CEO. She has held executive positions within the private health industry, including Medibank Private and Grand United, as well as marketing agencies and not-for-profit organisations for more than 22 years.

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

16

Mark Dayhew BBus, CPA, AAII, CIP

John Hartigan BComm, CA, FCIS, GAICD, FCSA

Chief Financial Officer

Company Secretary

Mark was appointed Chief Financial Officer in August 2010. He brings a depth of experience from over 30 years in the insurance industry, including more than 20 in senior executive roles.

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

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

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

17

Jui Tham MBBS (USYD), MCom (UNSW) Chief Medical Officer Jui was appointed Chief Medical Officer and Executive Manager Health Services and Strategy in October 2010. He is a former surgical registrar, spending four years in the NSW hospital system before joining Bain & Company where he worked for over four years in Australia and the USA across a range of projects and industry sectors. Jui is responsible for monitoring the fund’s underwriting performance and providing oversight of the fund’s clinical services and valuable input into medical issues.

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

18

Directors’ Report (cont.)

Operating results The surplus attributable to members of the company for the financial year ended 30 June 2014 amounted to $1,700,000 (2013: $7,518,000).

Review of operations

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

A gross margin of 13.3% generated during the year is a decline from 2013, at 18.8%. This result reflected members making additional hospital benefit claims over the year.

Environmental issues

Membership increased by 0.73% over the 12 months to 30 June 2014.

Dividends paid or recommended

Management expenses were similar to prior years as a percentage of premium income, being 13.4% (2013: 13.1%). Development of internal processes and operational capacity continued throughout the year against a lower than planned revenue that contributed to the increase in this percentage.

Options

Investment income was lower than in the prior year, due to a reduction in term deposits interest rates during the period. The managed fund returns performed well in a buoyed equity market.

Significant changes in state of affairs During the year the company commenced optical and dental clinics in two locations. The fund also undertook negotiations to sell the existing office in Melbourne Street, South Brisbane and purchase a new building in Edward Street Brisbane (CBD). No other 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.

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

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

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

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.

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.

19

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.

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.

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 20 and forms part of this report.

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

R Scheuber AM Chair Dated this 17th day of September 2014 Sydney, NSW

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

20

Auditor’s Independence Declaration

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

21

Financial Statements

Statement of Surplus or Deficit and Other 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

22 23 24 25 26 58 59

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

22

Statement of Surplus or Deficit and Other Comprehensive Income For the year ended 30 June 2014

Note

2014 $’000

2013 $’000

3

90,558

88,778

Claims expense

(98,937)

(92,544)

Risk equalisation trust fund income

10,605

10,948

Gap and Access Gap refund

10,836

10,470

Premium revenue

State levies Net claims incurred

(997)

(954)

(78,493)

(72,080)

Claims handling expenses

4

(6,526)

(6,599)

Other underwriting expenses

4

(5,637)

(5,000)

(12,163)

(11,599)

(98)

5,099 1,669

Underwriting expenses Underwriting result Investment revenue

3

1,494

Change in fair value of investments in equity instruments

3

165

204

Other revenue

3

1,340

546

(1,201)

-

1,700

7,518

-

-

1,700

7,518

(790)

23

910

7,541

Other expenses Surplus attributable to members before tax Income tax expense

1a.

Surplus attributable to members after tax Items that will not be reclassified subsequent to profit or loss – asset revaluation (net of tax) Total comprehensive income attributable to members This statement should be read in conjunction with the notes to the financial statements.

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

23

Statement of Financial Position As at 30 June 2014

Note

2014 $’000

2013 $’000 2,733

Current assets Cash and cash equivalents

7

4,465

Trade and other receivables

8

6,040

7,444

Financial assets

9

31,935

36,570

Other current assets

10

199

175

Inventory

11

125

–

Assets classified as held for sale

12

2,293

–

45,057

46,922

Total current assets Non-current assets Financial assets

9

2,035

–

Intangible assets

13

971

568

Property, plant and equipment

14

16,482

10,861

Investment property

15

5,571

6,540

Total non-current assets

25,059

17,969

Total assets

70,116

64,891

2,624

Current liabilities Trade and other payables

16

1,669

Short-term provisions

17

11,449

7,944

Other current liabilities

18

11,069

9,359

24,187

19,927

156

101

Total non-current liabilities Total liabilities

156 24,343

101 20,028

Net assets

45,773

44,863

Total current liabilities Non-current liabilities Long-term provisions

Equity Reserves

17

–

790

Retained earnings

20

45,773

44,073

Total equity

45,773

44,863

This statement should be read in conjunction with the notes to the financial statements.

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

24

Statement of Changes in Equity For the year ended 30 June 2014

Balance at 1 July 2012 Surplus for the year Other comprehensive income Balance at 30 June 2013 Surplus for the year Other comprehensive income Balance at 30 June 2014

Retained earnings $’000

Asset revaluation reserve $’000

Total $’000

36,555

767

37,322

7,518

-

7,518

-

23

23

44,073

790

44,863

1,700

-

1,700

-

(790)

(790)

45,773

-

45,773

This statement should be read in conjunction with the notes to the financial statements.

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

25

Statement of Cash Flows For the year ended 30 June 2014

Note

2014 $’000

2013 $’000

Cash flow from operating activities Receipts from members’ premiums

93,328

86,204

Benefits paid to members

(75,389)

(73,595)

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

23

666

592

(12,664)

(9,675)

1,367

1,733

7,308

5,259

Cash flows from investing activities Proceeds from disposal of investments

58,000

48,000

Payment for purchase of investments

(55,108)

(53,600)

Proceeds from disposals of property, plant and equipment Payment for property, plant and equipment Payment for intangibles Disposal of PPE & Motor vehicle

–

3

(7,812)

(386)

(679)

(383)

23

–

(5,576)

(6,366)

–

–

Net (decrease)/increase in cash held

1,732

(1,107)

Cash at beginning of year

2,733

3,840

4,465

2,733

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

Cash at end of year

7

This statement should be read in conjunction with the notes to the financial statements.

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

26

Notes to the Financial Statements For the year ended 30 June 2014

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-forprofit 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 premiums received adjusted for the opening and closing premiums in advance and in arrears. Premiums received in advance are recorded as a liability, and premiums 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).

27

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.

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.

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.

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

d. Risk equalisation Amounts receivable from the RETF are recorded in the statement of financial performance in the period for which the receipts relate. Any amounts due at the balance date in relation to the period are brought to account as assets. e. Outstanding claims liability Provision is made at the year end for the liability for outstanding claims, which is measured as the central estimate of the expected payments against claims incurred but not settled at the reporting date under insurance contracts issued by the company. The

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.

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 is achieved by the estimate of the outstanding claims liability. h. Unclosed business Unclosed business is recognised on the balance sheet at year end as premiums in arrears. This is calculated as the remainder of the premium payable.

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.) 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.

29

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 surplus or deficit and other 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, or at least every 3 years.

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.

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

30

Notes to the Financial Statements (cont.)

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

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

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of surplus or deficit and other comprehensive income 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.

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

The depreciation rates used for each class of depreciable assets are: Class of fixed asset

Depreciation rate

Buildings

2%

Computer equipment

25/33.33%

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 statement of surplus or deficit and other comprehensive income. 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 surplus or deficit and other comprehensive income for the year.

31

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 statement of surplus or deficit and other comprehensive income. m. Intangible assets Acquired 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. Leased Asset 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 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.

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

32

Notes to the Financial Statements (cont.)

Note 1: Statement of significant accounting policies (cont.) t. New accounting standards for application in future periods The AASB has issued new and amended accounting standards and interpretations that have mandatory application dates for future reporting periods. The Company has decided against early adoption of these standards. A discussion of those future requirements and their impact on the Company follows: Standard

Impact

AASB 9 Financial Instruments

AASB 9 introduces new requirements for the classification and measurement of financial assets and liabilities. These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of AASB 139.

The AASB has already amended the effective date of AASB 9 to ‘1 January 2018’ through its Amending Standard AASB 2014-1 Amendments to Australian Accounting Standards. It is expected that the AASB will issue the remaining amendments arising from IFRS 9 (2014) in the near future.

The entity has not yet assessed the full impact of AASB 9 as this standard does not apply mandatorily before 1 January 2018

The company does not anticipate the early adoption of any of the above Australian Accounting Standards.

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

33

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.

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.

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.

Details of specific key estimates and judgements used in deriving the outstanding claims liability at year end are detailed in notes 2 and 17.

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 2014, taking into account one-month of actual post balance date claims.

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 17d.

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. Directors valuation of property 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 17 September 2014 by the board of directors.

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

34

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, which 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.

2014 Variables

Hospital %

2013

Medical General treatment % %

Hospital %

Medical General treatment % %

Portion paid to date

93.3

96.5

97.7

94.2

96.2

97.6

Expense rate

7.62

7.62

7.62

6.67

6.67

6.67

Discount rate

–

–

–

–

–

–

(19.00)

(19.00)

–

(15.85)

(15.85)

–

5.00

5.00

5.00

5.00

5.00

5.00

Risk equalisation rate Risk margin

The risk margin of 5% (2013: 5%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 75% (2013: 75%).

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 2014) 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.

Discount rate As claims for health funds are generally settled within one year, no discounting of claims is usually applied as the difference between the undiscounted value of claims payments and the present value of claims payments is not likely to be material. An increase in the proportion assumed paid to date would lead to more claims being paid earlier and therefore a decrease in the liability.

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

35

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% (2013: 75%). An increase or decrease in this expense would have a corresponding effect on the claims expense.

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)

36

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

(1,064)

(1,064)

(1,064)

(1,064)

-10

1,064

1,064

1,064

1,064

Expense rate

+10

(90)

(90)

(90)

(90)

-10

90

90

90

90

+10

-

-

-

-

-10

-

-

-

-

+10

212

212

212

212

-10

(212)

(212)

(212)

(212)

+10

(51)

(51)

(51)

(51)

-10

51

51

51

51

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 2014 $’000

Equity 2014 $’000

1,700

45,773

37

2014 $’000

2013 $’000

90,558

88,778

1,494

1,669

165

204

Rental income

607

494

Other income

733

52

1,340

546

Note 3: Revenue Premium revenue Investment revenue Change in fair value of investments in equity instruments Other revenue

Total other revenue

Note 4: Expenses Expenses by function Claims handling expenses

6,526

6,599

Other underwriting expenses

5,637

5,000

12,163

11,599

6,526

6,599

Total expenses (excluding direct claims expenses) Expenses by nature Employee benefits Depreciation and amortisation Other expenses Total expenses (excluding direct claims expenses)

737

759

4,900

4,241

12,163

11,599

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

38

Notes to the Financial Statements (cont.)

Directors 2014 $’000

Other KMP 2013 $’000

2014 $’000

2013 $’000

1,162

Note 5: Directors and key management personnel compensation Short-term employee benefits Salary and fees

254

254

1,058

Cash benefits

2

4

8

8

Non-cash benefits

–

–

19

12

256

258

1,085

1,182

25

23

94

107

–

–

–

70

281

281

1,179

1,359

Post-employment benefits Superannuation

Termination benefits Total directors and key management personnel compensation

2014 $’000

2013 $’000

79

77

5

27

84

104

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

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

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

2

2

4,463

2,731

4,465

2,733

39

2014 $’000

2013 $’000

706

677

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

(52)

(3)

PHI rebate

1,866

2,049

Risk equalisation trust fund (RETF) quarterly receivable

2,729

3,426

Unclosed business

615

1,064

Other receivables

176

231

6,040

7,444

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 (days overdue)

Gross amount

Past due and impaired

Net amount

< 30

31 – 60

> 60

$’000

> 90

$’000

2014

525

91

90

706

(52)

654

2013

419

221

37

677

(3)

674

Premiums in arrears

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

40

Notes to the Financial Statements (cont.)

2014 $’000

2013 $’000

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

2,418

1,645

29,517

34,925

31,935

36,570

2,035

–

2,035

–

199

175

199

175

125

–

125

–

2,293

–

2,293

–

Non Current Financial assets at fair value through profit or loss – term deposits

Note 10: Other current assets Current Prepayments

Note 11: Inventory Current Stock on hand

Note 12: Assets classified as held for sale Current South Brisbane Property

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

41

2014 $’000

2013 $’000

Note 13: Intangible assets Computer software and WIP At cost

2,294

1,616

Accumulated amortisation

(1,323)

(1,048)

Total computer software and WIP

971

568

Total intangible assets

971

568 Computer software $’000

Balance at 1 July 2012

531

Additions

384

Disposals

–

Transfer from property, plant and equipment

–

Amortisation charge

(347)

Amounts written off

–

Balance at 30 June 2013

568

Additions

597

Disposals Transfer to property, plant and equipment

– 81

Amortisation charge

(275)

Amounts written off

–

Carrying amount at 30 June 2014

971

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

42

Notes to the Financial Statements (cont.)

Note

2014 $’000

2013 $’000

(a)

3,569

2,841

–

–

3,569

2,841

9,886

7,051

–

(267)

9,886

6,784

112

74

(11)

(9)

101

65

At cost

3,954

1,899

Accumulated depreciation

(1,028)

(728)

Total office furniture and equipment

2,926

1,171

16,482

10,861

Note 14: Property, plant and equipment Land At fair value Accumulated depreciation Land Buildings At fair value Accumulated depreciation Total buildings

(a)

Motor vehicles At cost Accumulated depreciation Total Motor Vehicles Plant and equipment

Total property, plant and equipment

(a) The fair value of the land and buildings located at 1 Buckingham St Surry Hills was independently valued

by Knight Frank as at 30 June 2014. This valuation has been conducted on the basis of market value and has been performed through a review of sale and rental values of comparable properties within close proximity.

The Directors have used the information contained within this report in addition to direct offers for acquisition in order to assess the fair value as at 30 June 2014. No other land and buildings were revalued during the period and the Directors have determined that no other adjustments to fair value are required during the year.

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

43

Land $’000

Buildings $’000

Motor vehicle $’000

Plant and equipment $’000

Total $’000

2,863

6,890

25

1,135

10,913

–

37

46

303

386

– (22) –

– (24) (142)

– – (6)

(3) – (264)

(3) (46) (412)

–

23

–

–

23

Balance at 30 June 2013

2,841

6,784

65

1,171

10,861

Additions

1,350

4,177

66

453

6,046

Disposals

–

–

(19)

(70)

(89)

(258)

(324)

–

–

(582)

Balance at 1 July 2012 Additions Disposals Reclassification Depreciation expense Accumulated depreciation written back on revaluation

Transfer to asset held for sale Reclassification

–

–

–

1,767

1,767

Depreciation expense

–

(141)

(11)

(395)

(547)

(364)

(610)

–

–

(974)

3,569

9,886

101

2,926

16,482

Revaluation Carrying amount at 30 June 2014

No impairment charge has been recognised during the year (2013: $nil).

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

44

Notes to the Financial Statements (cont.)

Note

2014 $’000

2013 $’000

(a)

5,571

6,540

5,571

6,540

Balance at beginning of year

6,540

6,540

Assets held for sale

(1,711)

–

Fair value adjustments

742

–

Balance at end of year

5,571

6,540

Note 15: Investment property Investment property

(a) The fair value of the investment property located at 1 Buckingham St Surry Hills was independently valued

by Knight Frank as at 30 June 2014. This valuation has been conducted on the basis of market value and has been performed through a review of sale and rental values of comparable properties within close proximity.

The Directors have used the information contained within this report in addition to direct offers for acquisition in order to assess the fair value as at 30 June 2014.

Note 16: Trade and other payables Current Sundry payables and accrued expenses Unclosed business contributions

1,054

1,560

615

1,064

1,669

2,624

530

Note 17: Provisions Current Employee benefits

(a)

646

Member rewards

(b)

162

115

Outstanding claims

(c)

10,641

7,299

Unexpired risk liability

(d)

–

–

11,449

7,944

156

101

156

101

Non Current Employee benefits

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

(a)

45

Employee benefits $’000

Member rewards $’000

Outstanding claims $’000

Total $’000

631

115

7,299

8,045

Movements in provisions Balance at 1 July 2013 Amounts used during the year

(54)

(1)

(6,120)

(6,175)

Amounts raised during the year

225

48

9,462

9,735

Amounts reversed during the year

–

–

–

–

802

162

10,641

11,605

Balance at 30 June 2014

(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. 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

2014 $’000

2013 $’000

11,299 (2,026)

7,545 (1,097)

861

503

10,134

6,951

507

348

10,641

7,299

5%

5%

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

46

Notes to the Financial Statements (cont.)

Note 17: Provisions (cont.) (c) Provision for outstanding claims (cont.) i. Risk margin The risk margin of 5% (2013: 5%) of the underlying liability has been estimated to equate to a probability of adequacy greater than 75% (2013: 75%).

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 overor 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 further analysed as follows: 2014 $â&#x20AC;&#x2122;000

2013 $â&#x20AC;&#x2122;000

Gross outstanding claims at beginning of period

7,545

8,410

Risk equalisation component

(1,097)

(910)

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

503

517

6,951

8,017

129

(995)

(3,887)

(7,414)

Claims incurred during the year (expected)

91,387

83,507

Claims paid during the year (expected)

(83,281)

(75,570)

Central estimate at end of period

11,299

7,545

Administration component

861

503

Risk equalisation component

(2,026)

(1,097)

Gross outstanding claims at end of period

10,134

6,951

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

47

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

Unearned unclosed business $’000

Constructive obligation $’000

Total $’000

11,069

615

60,663

72,347

–

–

–

–

11,069

615

60,663

72,347

Central estimate of future benefits

9,294

510

51,296

61,100

Central estimate of future management expenses

1,105

60

6,119

7,284

416

23

2,297

2,736

10,815

593

59,712

71,120

Total deficiency (3) – (2)

–

–

–

–

Total unexpired risk liability (3) – (1)

–

–

–

–

Total unexpired risk liability

–

–

–

–

9,359

1,064

62,999

73,422

–

–

–

–

9,359

1,064

62,999

73,422

63,109

2014 Premium (1) Related deferred member acquisition costs Premium less related DMAC (2) Outflows

Risk margin Total outflows (3)

2013 Premium (1) Related deferred member acquisition costs Premium less related DMAC (2) Outflows Central estimate of future benefits

8,020

910

54,179

Central estimate of future management expenses

536

60

3,632

4,228

Risk margin

342

39

2,312

2,693

8,898

1,009

60,123

70,030

Total deficiency (3) – (2)

–

–

–

–

Total unexpired risk liability (3) – (1)

–

–

–

–

Total unexpired risk liability

–

–

–

–

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 premiums, less intangible assets and related deferred member acquisition costs for the relevant period.

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

48

Notes to the Financial Statements (cont.)

Note 17: Provisions (cont.) d) Provision for unexpired risk liability (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 premiums for the relevant period.

Projected premiums, benefits, risk equalisation, state levies and claims-related expenses were determined on a best estimate basis with no membership growth.

The risk margin of 4 – 4.5% for annual reporting (2013: 4%) 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 (2013: 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.

2014 $’000

2013 $’000

11,069

9,359

11,069

9,359

Note 18: Other liabilities Current Premium received in advance

Note 19: Members’ 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)

49

2014 $’000

2013 $’000

–

790

Balance at beginning of year

790

767

Revaluation increase/(decrease) on property

(790)

23

–

790

Note 20: Reserves Current Revaluation reserve Movement of reserves

Balance at end of year

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

Note 21: Capital and leasing commitments Operating lease commitments Non-cancellable operating leases contracted for but not capitalised in the financial statements Payable – minimum lease payments – not later than 12 months – later than 12 months but not later than 5 years – greater than 5 years

90

14

277

–

–

–

367

14

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

Note 22: Contingent liabilities and contingent assets The company does not have any contingent liabilities or assets at 30 June 2014.

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

50

Notes to the Financial Statements (cont.)

2014 $’000

2013 $’000

1,700

7,541

Depreciation and amortisation

822

760

Net asset revaluation

230

–

Fair value adjustment of investments

(165)

(204)

Fair value adjustment of investments in equity

(790)

23

66

–

1,277

110

Note 23: Cash flow information Reconciliation of cash flow from operations with surplus after income tax Surplus/(loss) after income tax Non-cash flows in surplus

Net loss on disposal of property, plant and equipment Changes in assets and liabilities Decrease/(increase) in trade and term debtors Decrease/(increase) in inventory (Increase)/decrease in other assets Increase/(decrease) in payables

(125)

–

(24)

(54)

(955)

870

Increase in provisions

3,559

(1,354)

Increase in other liabilities

1,713

(2,433)

Cash flows from operations

7,308

5,259

Note 24: Events after the balance sheet date No matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years.

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

51

Note 25: 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: 2014 $’000

2013 $’000

Cash and cash equivalents

4,465

2,733

Loans and receivables

6,040

7,444

Financial assets

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

2,418

1,645

31,552

34,925

44,475

46,747

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

1,669

2,624

11,069

9,359

12,738

11,983

The company does not have any derivative instruments at 30 June 2014.

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 company’s overall investment strategy seeks to assist the company 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)

52

Notes to the Financial Statements (cont.)

Note 25: Financial instruments measured at fair value (cont.) a. Financial risk management (cont.)

Market Risk (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

Within year $’000

Fixed interest rate maturing 1 to 5 years $’000

Total $’000

2014 Financial assets Cash and cash equivalents

2.60%

4,465

–

4,465

Receivables

0.00%

6,040

–

6,040

Investments

3.76%

29,517

2,035

31,552

40,022

2,035

42,057

2,733

Total financials assets 2013 Financial assets Cash and cash equivalents

2.85%

2,733

-

Receivables

0.00%

7,444

-

7,444

Investments

4.36%

34,925

-

34,925

45,102

–

45,102

Total financials assets

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

53

The following table illustrates sensitivities in 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.

2014

2013

$’000

$’000

$’000

$’000

+2.00%

-2.00%

+2.00%

-2.00%

Impact on net result for the year

655

(655)

640

(640)

Impact on equity

655

(655)

640

(640)

Interest rate movement

Foreign currency risk The company is not exposed to any material foreign currency risk.

Commodity price risk The company 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 following tables 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)

54

Notes to the Financial Statements (cont.)

Note 25: Financial instruments measured at fair value (cont.) a. Financial risk management (cont.)

Liquidity risk (cont.)

Financial liability and financial asset maturity analysis Due within

< 1yr $’000

1 – 5yrs $’000

> 5yrs $’000

Total $’000

Financial liabilities due for payment Trade and other payables (excluding estimated annual leave) Other liabilities Total contractual outflows

1,669 11,069 12,738

– – –

– – –

1,669 11,069 12,738

Total expected outflows

12,738

–

–

12,738

Financial assets — cash flows realisable Cash and cash equivalents Trade, term and loans receivables Held-for-trading investments Total anticipated Inflows

4,465 6,040 31,935 42,440

– – 2,035 2,035

– – – –

4,465 6,040 33,970 44,475

Net inflow on financial instruments

29,702

2,035

–

31,737

Financial liabilities due for payment Trade and other payables (excluding estimated annual leave) Other liabilities Total contractual outflows

2,624 9,359 11,983

– – –

– – –

2,624 9,359 11,983

Total expected outflows

11,983

–

–

11,983

Financial assets — cash flows realisable Cash and cash equivalents Trade, term and loans receivables Held-for-trading investments Total anticipated Inflows

2,733 7,444 36,570 46,747

– – – –

– – – –

2,733 7,444 36,570 46,747

Net inflow on financial instruments

34,764

–

–

34,764

2014

2013

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 company.

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

55

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 company.

PHIAC Grade

Standard & Poor’s

Moody’s

1

AAA AA+ AA AA-

Aaa Aa1 Aa2 Aa3

A++ A+

2

A+ A A- BBB+ BBB BBB-

A1 A2 A3 Baa1 Baa2 Baa3

A A- B++ B+

3

BB + BB BB- B+ B B-

Ba1 Ba2 Ba3 B1 B2 B3

BB+ BB BB- B+ B B-

4

Below B-

Below B3

Below B-

–

–

–

Unrated

AM Best

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 company 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

Unrated $’000

Total $’000

2014 Cash and cash equivalents

–

4,463

–

–

2

4,465

Fair value investments

11,737

18,805

–

–

3,428

33,970

Total

11,737

23,268

–

–

3,430

38,435

30%

61%

0%

0%

9%

N/A

N/A

N/A

N/A

N/A

% of total Maximum allowable per investment policy 2013* Cash and cash equivalents

–

2,731

–

–

2

2,733

Fair value investments

–

6,097

10,605

15,167

4,701

36,570 39,303

–

8,828

10,605

15,167

4,703

% of total

0%

22%

27%

39%

12%

Maximum allowable per investment policy

N/A

N/A

N/A

N/A

N/A

Total

* it is noted that PHIACs gradings have changed during the period. The ratings disclosed within the financial statements relates to the current year. No adjustment has been made to comparative figures to reflect the current year grades.

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

56

Notes to the Financial Statements (cont.)

Note 25: Financial instruments measured at fair value (cont.) a. Financial risk management (cont.)

Insurance risk The provision of private health insurance in Australia is governed by the Private Health Insurance Act 2007 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)

57

2014 Net carrying value $’000

2013 Net fair value $’000

Net carrying value $’000

Net fair value $’000 2,733

Financial assets Cash and cash equivalents

(i)

4,465

4,465

2,733

Trade and other receivables

(i)

6,040

6,040

7,444

7,444

Investments: fair value to profit or loss (iii)

33,970

33,970

36,570

36,570

Total financial assets

44,475

44,475

46,747

46,747

Financial liabilities Trade and other payables

(i)

1,669

1,669

2,624

2,624

Other liabilities

(ii)

11,069

11,069

9,359

9,359

12,738

12,738

11,983

11,983

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 premiums 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 2014.

Note 26: Company details The registered office and principal place of business of the company is: Railway & Transport Health Fund Limited ABN 93 087 648 744 Eveleigh House 1 Buckingham Street SURRY HILLS NSW 2010

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

58

Directorsâ&#x20AC;&#x2122; Declaration

The directors of the company declare that: 1. the financial statements and notes, as set out on pages 21 to 57, are in accordance with the Corporations Act 2001 and: a. comply with Accounting Standards and the Corporations Regulations 2001; and b. give a true and fair view of the financial position as at 30 June 2014 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 AM Chair Dated this 17th day of September 2014 Sydney, NSW

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

59

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

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

60

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

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

Head office Sydney Eveleigh House 1 Buckingham Street Surry Hills NSW 2010 Newcastle Suite 1, Ground Floor Sky Central, West Tower Cnr Pearson and Smart Streets Charlestown NSW 2290 Brisbane Thallon House 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

Annual Report

2014

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