Annual Report 2015 Motor Accidents (Compensation) Commission (MACC)
Tabled paper 1556
Tabled Papers for 12th Assembly 2012 - 2016; Tabled Papers; ParliamentNT
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Northern Territory Motor Accidents (Compensation) Commission Annual Report 2015 Notes to the Financial Statements - 30 June 2015 Page 44 Motor Accidents (Compensation) Commission Notes to the Financial Statements 30 June 2015 Motor Accidents (Compensation) Commission Annual Report 2014/2015 31 4. Insurance contracts risk management policies and procedures continued b) Terms and conditions of insurance and inwards reinsurance business The terms and conditions attaching to insurance contracts affect the level of insurance risk accepted by MACC. The majority of direct insurance contracts written are entered into on a standard form basis. All inwards reinsurance contracts are subject to substantially the same terms and conditions. There are no special terms and conditions in any non standard contracts that have a material impact on the financial statements. All insurance contracts written in the Northern Territory are subject to substantially the same terms and conditions. c) Concentration of insurance risk MACCs exposure to concentrations of insurance risk is lessened by a portfolio diversified into numerous classes of business. Specific processes for monitoring identified key concentrations are set out below. Risk Source of concentration Risk management measures Natural catastrophes Properties concentrated in regions that are subject to cyclones, floods and storm surges. MACC has modelled aggregated risk by postcode using commercially available catastrophe models with a specific MACC model developed in conjunction with Willis Re. Based on the probable maximum loss per the models, MACC purchases catastrophe reinsurance cover to limit exposure to any single event. d) Development of claims There is a possibility that changes may occur in the estimate of our obligations at the end of a contract period. The tables in note 19 show our estimates of total claims outstanding for each underwriting year at successive year ends. e) Interest rate risk Interest rate risk arises from insurance contracts due to the extent that there is an economic mismatch between the fixed-interest portfolios used to back the outstanding claims liabilities and those outstanding claims. The degree of matching is in accordance with approved risk tolerance. The interest rate risk can be managed by matching the duration profiles of the investment assets and the outstanding claims liability. f) Credit risk Financial assets and liabilities arising from insurance and reinsurance contracts are stated in the Statement of Financial Position at the amount that best represents the maximum credit risk exposure at reporting date. There are no significant concentrations of credit risk. Additional information relating to the ageing of premium debtors is included in note 33 (b). Motor Accidents (Compensation) Commission Notes to the Financial Statements 30 June 2015 Motor Accidents (Compensation) Commission Annual Report 2014/2015 30 4. Insurance contracts risk management policies and procedures Unless stated otherwise the following disclosures relate to both MACC and the MAC Fund. a) Objectives in managing risks arising from insurance contracts and policies for mitigating those risks MACC has an objective to control insurance risk thus reducing the volatility of operating profits. In addition to the inherent uncertainty of insurance risk, which can lead to significant variability in the loss experience, profits from insurance business are affected by market factors, particularly competition and movements in asset values. Short-term variability is, to some extent, a feature of insurance business. The MACC Commissioner, through a management agreement with Allianz has developed, implemented and maintained a sound and prudent Risk Management Strategy (RMS) and a Reinsurance Management Strategy (REMS). The RMS and REMS identify MACC's policies and procedures, processes and controls that comprise its risk management and control systems. These systems address all material risks, financial and non-financial, likely to be faced by MACC. The RMS and REMS put in place by TIO has been adopted by the MACC. Key aspects of these processes established in both the RMS and REMS to mitigate risks include: ! The maintenance and use of management information systems, which provide up to date, reliable data on the risks to which the business is exposed at any point in time. ! Documented procedures are followed for underwriting and accepting insurance risks. ! Natural disasters such as cyclones are more challenging to manage. MACC monitor exposure to such risks through special modelling techniques involving the collation of data on weather patterns which support decisions on limiting exposure. ! Reinsurance is used to limit MACCs exposure to large single claims and catastrophes. When selecting a reinsurer we only consider those companies that provide high security. In order to assess this we use rating information from the public domain or gathered through internal investigations. ! In order to limit concentrations of credit risk, in purchasing reinsurance MACC has regard to existing reinsurance assets and seeks to limit excess exposure to any single reinsurer or group of related reinsurers. ! The mix of assets in which we invest is driven by the nature and term of the insurance liabilities.
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