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 82 Motor Accidents (Compensation) Commission Notes to the Financial Statements 30 June 2015 Motor Accidents (Compensation) Commission Annual Report 2014/2015 69 33. Risk management and financial instruments information continued Cash flow hedges Average contracted fixed interest rate Notional Principal Amount Fair Value 2015 2014 2015 2014 2015 2014 % % $000 $000 $000 $000 TIO Banking Less than 1 year - 2.49% - 265,000 - (43) 1 to 2 years - 2.83% - 44,000 - (111) 2 to 5 years - 3.02% - (20,000) - (79) Greater than 5 years - - - - - - - 289,000 - (233) TIO Insurance 2 to 5 years - - - - - - In 2014, interest rate swaps and the interest payments on the deposits occur simultaneously and the amount deferred in equity was recognised in profit or loss over the period that the floating interest payments on deposits impact profit or loss. The notional value and variable rate resets of the swaps are matched to existing deposits and are therefore considered highly effective. The swaps are valued at fair value and all gains and losses attributable to the hedged risk are taken directly to equity and re-classified into profit and loss section of the Statement of Profit or Loss and Other Comprehensive Income when the interest income or expense is recognised. The cash flow hedge ineffectiveness which is recognised immediately in the profit and loss section of the statement of profit or loss and other comprehensive income was a loss in 2014 of $0.070 million (n/a:2015). Interest rate risk tables The following table sets out MACCs exposure to interest rate risk showing the carrying value of financial instruments and the weighted average effective interest rates, when applicable. The banding is based upon the earlier of the contractual repricing or maturity dates. The interest rate risk table does not disclose financial assets and financial liabilities that are non-interest bearing. Motor Accidents (Compensation) Commission Notes to the Financial Statements 30 June 2015 Motor Accidents (Compensation) Commission Annual Report 2014/2015 68 33. Risk management and financial instruments information continued Financial Risk Management structure The MACC Commissioner (TIO Board: 2014) has ultimate responsibility for risk management and governance, including ensuring an appropriate risk framework is in place and is operating effectively. There are, however, other committees and individuals that manage and monitor financial instrument risks. a) Market Risk Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market factors. Market risk at MACC comprises interest rate risk due to fluctuations in market interest rates, and price risk due to fluctuations in market prices. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return. (i) Interest rate risk MACCs exposure to interest rate risk arises predominantly when a change in the value of the liabilities due to a change in interest rates, does not lead to an exactly offsetting change in the value of the assets. There is no interest rate risk associated with the portion of the home loans that are securitised. The MACC Commissioner (TIO Board in 2014) has approved the use of interest rate swaps, to reduce exposure to unmatched maturity patterns and for hedging purposes. MACC has both internally and externally managed portfolios which are exposed to interest rate risk. For internally or externally managed portfolios, management may use derivatives to manage interest rate risk, but not to leverage or gear the asset. Interest rate swap contracts Under interest rate swap contracts, MACC agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable MACC to mitigate the risk of changing interest rates on the cash flow exposures on the deposit liabilities so that the profit sensitivity of a 1% movement in interest rates is less than 5% of Banking capital. The interest rate swaps settle on a predetermined basis. MACC will settle the difference between the fixed and floating interest rate on a net basis. The following table details the notional principal amounts and remaining terms of interest rate swap contracts outstanding as at 30 June 2014 (nil: 2015).
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