How we've performed in the last financial year
Each year our performance is reviewed by a Parliament Select Committee.
Today the Parliamentary Education and Workforce Committee reviewed our annual performance.
Alongside a general update on our financial and operational performance, we announced that since late last year, we’ve divested and excluded companies involved in thermal coal production. This is part of a broader package of initiatives regarding climate change we will be announcing later this year.
Below is our statement from the Select Committee meeting. You can also watch the Facebook livestream (the livestream starts at 1 minute).
2018/19 Annual review of ACC (19 February 2020)Statement from ACC Board Chair, Dame Paula Rebstock
“Kia ora – thank you Madam Chair.
With me today are ACC’s Chief Executive Scott Pickering and members of his Executive team.
Before we answer any questions, I thought it would helpful to the committee if I provide a quick overview of the previous financial year and our focus for the year ahead.
Hopefully you have been provided with the slides that I will be talking to.
Strong investment performance
As we noted publicly in September last year, ACC recorded a $570 million cash operating surplus in the 2018/19 Financial Year.
The cash operating surplus demonstrates ACC’s robust funding structure that enables the scheme to withstand volatility, including falling interest rates.
It reflects the strong performance of the organisation during a year that has seen continued growth in claims, wide-ranging improvements in service delivery, and double digit investment returns.
The outstanding performance of ACC’s investment fund made a strong contribution to the result.
The fund achieved a 12.97% investment return, substantially outperforming comparable diversified funds.
This added $5.1 billion to ACC’s assets and increased the fund’s size to $44 billion at the end of the financial year.
Part of the fund’s performance was attributable to the effect of falling interest rates – both globally and domestically. That lifted the value of ACC’s bond portfolio.
The trend of declining interest rates, which was beyond ACC’s control, also impacted the other side of ACC’s balance sheet through a significant revaluation of the Outstanding Claims Liability (OCL).
That liability reflects the estimated present-day value of all claim costs for injuries that have already occurred.
This increased the OCL by $10.8 billion to $53 billion.
Including the valuation influences, ACC’s annual result was a $8.7 billion accounting deficit.
This was not a cash loss, and ACC continues to have more than enough funds to cover and support those who are injured in accidents.
Causes behind our deficit
The size and scale of the deficit were not something ACC could predict, prevent or fully hedge against.
Interest rates have fallen to historical lows and the sustained low rates are impacting the balance sheets of many global insurance companies and pension funds that invest in bonds and have long-term liabilities like ACC.
As the Scheme gets bigger, it becomes more sensitive to changing interest rate conditions. However, the long-term nature of our liabilities means we have time to manage this volatility.
In 2009 the decline in interest rates caused by the Global Financial Crisis contributed to a substantial revaluation of ACC’s claims liability and a $4.8 billion deficit. However, a renewed increase in yields a few years later had the opposite impact.
We learned from that experience the scheme is sustainable and able to be managed on a medium to long-term basis. Therefore, we can respond and reduce the deficit over the coming years.
The numbers continue to bounce around. As at 31 December, an increase in bond yields had resulted in a surplus of $1.9 billion. However, bond yields have since fallen significantly as the market priced in the potential impact of the coronavirus. By the end of January, we were back in deficit.
It is too early to say what implications the 2018/19 result will have for levies, and what the ACC Board’s recommendations to the Government in October this year will be.
In recommending levies, the ACC Board will have regard to the underlying costs of the scheme and the ability to respond to volatility – including falls in interest rates – over many years.
Our operations
Operational highlights for the year included delivering multiple initiatives as part of the organisational transformation, making it easier for customers to engage with ACC and receive our services – including online.
We have delivered multiple initiatives on time and within budget and, in turn, de-risked the business. We have delivered substantial change while maintaining our business operations.
New initiatives include:
- a new claims lodgement system
- an upgraded claims management system
- a new payments function
- an advanced data analytics platform
- a digital interface for business customers and clients (MyACC)
- a new nation-wide case management approach that focuses on the specific – and often changing – needs of an individual client.
Results from the case management pilots have been extremely promising and we look forward to reporting on progress to the committee later this year.
We also increased our investment in injury prevention programmes – from $69 million to $75 million – and strong partnerships allowed us to reach more than 700,000 New Zealanders with our injury prevention messages.
This investment delivered an estimated future claims cost reduction of $1.81 for every dollar we invested – the highest return ever.
I also wanted to acknowledge the significant role ACC staff have played in the last year supporting the victims of the Christchurch Mosque attacks and the eruption on Whakaari/White Island.
The compassion and professionalism in which they have done their work is to be admired.
2018/19 was a significant year for ACC as we received a record number of new claims, passing two million for the first time.
Record new claims
The figures included a 25% growth in sensitive claims.
Weekly compensation claims rose 5.1%.
The cost of treatment and rehabilitation services also increased, with $2.8 billion spent on claims – 7.5% more than the previous year.
We managed 83,737 new weekly compensation claims and returned 55,141 or 66.8% of injured clients to work within 10 weeks.
However, high claims volumes linked to strong economic conditions and a growing labour force, proved challenging in meeting our performance targets.
Meeting our performance targets alongside improving prevention, rehabilitation, and customer experience and outcomes, remain the focus of the year ahead.
Another key priority is developing climate change policy and framework for ACC that includes our role as a significant investor in New Zealand.
Investing ethically
ACC takes our responsibilities regarding climate change and sustainability – alongside ethical investment – extremely seriously.
As a state sector agency, we recognise the leadership role we must play by taking active steps to reduce greenhouse gas emissions, improve energy efficiency and reduce waste.
As a Crown entity, our performance plays a critical role in supporting and improving the wellbeing of New Zealand.
Following passing of the Zero Carbon Act, the ACC Board at its December meeting directed ACC management to:
- ensure further alignment with other groups focused on climate change
- undertake portfolio analysis and monitoring of greenhouse gas emissions
- deliver a policy that excludes from the investment portfolio, businesses that generate more than 30% of their revenue from thermal coal
- deliver further advice to the Board, outlining the steps ACC will need to take as an organisation and a significant investor.
Regarding investments, while policy is being developed, it is likely portfolio reweighting will form part of ACC’s response. This is already occurring. Since late last year ACC has divested and excluded companies involved in thermal coal production.
We have excluded firms that earn more than 30% of their revenue from thermal coal production.
Norges Bank, the world’s largest sovereign wealth fund and manager of the Government Pension Fund of Norway, applies the same criteria.
As a result, this has meant we now have added 54 thermal coal stocks to our exclusion list.
Work on ACC’s overall climate change policy is expected to be presented to the ACC Board in the first half of 2020. Following approval, this will be made public. Our approach will be open and transparent.
It’s important for the Committee to note the climate change actions we are taking on the corporate side of our business.
For example, in 2019 we nearly halved our carbon emissions from fleet vehicles compared with 2018.
There is a lot more work to do. Alongside the New Zealand Super Fund, we are determined to provide leadership on climate change and make considerable progress this year.
We are confident of our ability to continue to earn strong investment returns for levy payers in the future – therefore reducing the cost New Zealanders pay for accident cover – while continuing to meet our legislative, environmental and social responsibilities.
Thank you – happy to take any questions."
More information about our investments
You can read our Ethical Investments Policy.
You can also read about our investments, why we invest, and how we measure our performance.
