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Annual Report2009/2010

TIO Annual Report 2009/2010 The Territory way.

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ContentsAbout TIO 4

Purpose of this report 5

Chairman’s Overview 6

Chief Executive’s Overview 8

The Year in Review 11

Motor Accidents Compensation report 15

Governance 17

Board Members 18

Executive Management Team 20

Financial Statements 23


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About TIOOur CharterThe Territory Insurance Office was established under Section 4 of the Territory Insurance Office Act 1979 and commenced operations on 1 July 1979. Its policies and contracts of insurance or indemnity, deposits placed with it and liabilities in relation to the Motor Accidents Compensation business are guaranteed by the Northern Territory Government under Section 30 of the Act. The functions of the Office are defined under Section 5.

They are:

» To act as an insurer in respect of the assets and prospective liabilities of the Territory and statutory corporations.

» To transact workers compensation insurance in respect of persons required by the Workers Rehabilitation and Compensation Act, or any Act replacing that Act, to insure.

» To administer a motor accident compensation scheme in accordance with an Act or an agreement between the Office and the person or body responsible for the scheme.

» To carry out such functions in relation to the management and control of moneys and other assets of the Territory and statutory corporations, and on such terms and conditions as the Minister in writing directs.

» To provide such financial services as are approved by the Minister.

» To transact such general business of insurance as the Minister directs.

» To promote and participate in the promotion of road and industrial safety.

» Such other functions as are, from time to time, imposed upon it by or under any other Act.

Our BusinessTIO is a Government-owned corporation providing insurance and financial services to Territorians and operates on a commercial basis.

It was established by the Northern Territory Government in 1979 to provide insurance cover within the Northern Territory. It particularly focuses on insurance that meets the needs of the Territory’s unique climate.

Over the years, the business has diversified to include financial services as well as administration and delivery of NT schemes for compulsory personal injury motor accidents compensation and Government home loans for low to middle income earners.

While TIO is “guaranteed” by the Government, the organisation operates on a commercial basis and is committed to complying with Australian Prudential Regulation Authority (APRA) standards and achieving key industry benchmarks.

Our PurposeTIO prides itself on its understanding of the Territory way. Our strength is in delivering products and services that meet the unique needs of the Territory.

Our core purpose can be defined as: » helping to build confidence among

Territorians in terms of their possessions and future, and

» helping to build resilience, particularly to extreme weather conditions, motor vehicle accidents and other risks.

In particular, TIO contributes to this purpose through the encouragement of home ownership and education programs on road safety and weather resilience.


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Under Section 27 of the Territory Insurance Office Act 1979, the Board is required to prepare an annual report and financial statements for submission to the Minister, who is required to present them to the Legislative Assembly. This report is prepared in accordance with those requirements.

This report is also intended to inform TIO customers, other stakeholders and interested parties of the performance of TIO during the 2009/2010 year as it relates to our vision, mission, values and strategic goals.

Purpose of this Report

From home loans through to comprehensive and disaster insurance, TIO’s complete range of home products helps to build confidence and resilience among Territorians.


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Chairman’s Overview

The past year has seen a major improvement in the financial performance of our company. While this has been partly the result of the improvement in investments, it is also the result of prudent management. Action taken last year to refocus is now paying dividends and should do so into the future.

The capital strength of the business is a positive result and testament to the consistency of the Board’s investment strategy in investment markets which remained volatile and challenging throughout the year.

The nature of TIO’s business is such that it will continue to be subject to the volatility of investment markets. As can be seen below, markets have a significant impact on the profit result for each of our businesses.

John Flynn

Chairman

Sensitivity to external factors Insurance $m

Banking $m

MAC $m

1% decrease in interest rates (1.9) (0.7) (16.2)

1% decrease in inflation assumptions

3.1 11.2

20% decrease in equity markets (5.3) (18.5)

Profit sensitivity of each business to investment returns and economic conditions*

Solvency and capital adequacy

* Note. This table is based on net returns.

2009 (%)

2010 (%)

2010 Target Range

(%)

Insurance capital adequacy 183.2 178.1 165-175

Banking capital adequacy 10.9 11.4 11-12

MAC solvency 37.3 49.6 >30


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Over the past 10 years, TIO has developed MAC as a strong and healthy scheme with a solvency of 49.6 per cent. This gives great confidence to Territorians that they and their loved ones will be looked after in the event of a road crash involving death or injury. The benefits of the no fault scheme are among the most generous in Australia.

The very positive results for the Motor Accidents Compensation (MAC) scheme this year are testament to the effort put in over the past two years in improving our case management to achieve better outcomes for claimants.

Banking has achieved excellent results this year following a reorganisation and concentration on core business in the local market. The insurance business returned a small profit and strategies have been put in place to improve its performance in the coming year.

TIO has a robust governance structure but in the coming months there will be changes in our Board membership. We have a number of long-serving board members retiring so this will be a time of renewal as new directors are brought on board.

I wish to thank board member David Farquhar who retired this year due to ill health. Although only on the board for a relatively short period, his energy and enthusiasm was appreciated by the board and staff. David’s contribution as part of the MAC review committee as well as his participation on the MAC Appeals and a number of other Committees is testament to his dedication as a board member. TIO staff also benefited from David’s nurturing and constructive style as he freely gave his time as a mentor and coach. He provided wise counsel to all of us and his presence will be missed.

In February this year TIO experienced an unprecedented attack on our Darwin branch which left 19 people injured including six of our staff, some of whom are still working to recover their health and quality of life. No-one wishes to ever experience an event such as this and I am grateful for the level of support the people of Darwin and the Northern Territory have given to their TIO and those injured.

As we look forward to a new year with confidence, I would like to thank the Minister, fellow Board members, the Executive team and staff for their efforts and support over the past 12 months. I also thank our customers and the broader Territory community for placing their faith in TIO to help build confidence and resilience among Territorians.

John FlynnChairman

30 September 2010


It is pleasing to report a return to profit across the business this year, with a group profit of $37 million before tax, against last year’s $59 million loss. Underlying performance significantly improved across most areas with the implementation of our strategy continuing to pay dividends across both Motor Accidents Compensation and Banking.

Chief Executive’s Overview

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Operating Results08/09

$m09/10

$m

Underlying operating performance 12 34

Difference between actual investment returns and expected returns

(66) 23

Change in inflation assumptions and discount rates (3) (17)

Restructure and one-off costs (2) (3)

Net profit before tax (59) 37

Tax 6 (2)

Net profit after tax (53) 35

The performance of Motor Accidents Compensation underlines the importance of improved case management and claims handling. This has only been possible due to the introduction of the new “Pearl” IT System and supporting our people to deliver business results. The winners are Territorians, who can have confidence that TIO is managing their Motor Accidents Compensation scheme in a way that is both fair for claimants and financially viable.

Banking has also achieved a result that reflects our strategy of providing a better fit between our customers and our offer. An increased focus on the interest margin and managing our funding has made a significant financial impact over the year, with banking achieving the best result in the company’s history.


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The customer-led revolution to adopt out-of-branch transactional services has continued this year. While we will always pride ourselves on our commitment to deliver local services, we know that the convenience of internet, telephone and mobile banking is becoming more attractive to our customers every year. We have put a great deal of effort into improving these channels and will continue to do so in the coming year.

While an improvement on last year’s results, the overall profitability of the insurance business was significantly affected by our workers compensation portfolio. Disappointingly the losses in our workers compensation portfolio all but offset the strong performances and return to profitability in other classes such as the home insurance, commercial motor and liability portfolios.

In particular, the workers compensation market is highly demanding. It is clear some of our competitors are under-pricing risk which is not sustainable in the longer term. This approach to pricing is set against the backdrop of a challenging legislative framework and in an Occupational Health and Safety environment which has significant potential for improvement – all combining for testing business conditions.

This year TIO has moved to significantly increase premium rates on poor performing and/or high risk workers compensation accounts. Combined with targeted improvements in workers compensation and property claims finalisations I expect to see positive results in the insurance business in 2011.

None of the achievements of the past 12 months could have been possible without the dedication, hard work and outstanding performance of our staff. We are well advanced in introducing reforms that will move our company forward through our people. Our new performance and competency management systems provide the foundation tools to improve our capability. We refreshed our internal values to provide a framework for cultural and behavioural change and our people can now see real career pathways open to them. TIO and its people will grow together to improve performance and deliver value for our customers.

Divisional Operating Results

* External factors include interest rates and AWE, abnormal cost.

June 2010 $m

Total Profit before tax

Investment Income Budget Variance

External Factors*

Profit from normal

operations

Insurance 0.7 5.4 (4.7) 0.0

Banking 3.8 0.0 0.0 3.8

MAC 32.2 17.2 (14.9) 29.9


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The resilience of our people and the support of Territorians were never better demonstrated than following the fire attack on our Darwin CBD branch earlier this year. We continue to provide support and assistance to our staff and customers affected by this terrible event. Looking back on this now, we can see that the challenges involved helped bring TIO employees closer together and reflected our values through the actions taken and care and mutual support provided to each other. I am pleased to say that the majority of our staff are well on the road to recovery and back working in the business again. With the opening of our new Mitchell Centre CBD branch we are in a position to offer customers our ongoing high level of access and service.

TIO recognises it has a special place in the Territory community. At the most basic level we deliver insurance and banking services that meet the needs of Territorians. However, our role is far broader than this and is best summed up by our core purpose – to help build confidence and resilience among Territorians. Our commitment to this purpose is demonstrated by our advocacy programs including road safety and extreme weather resilience.

We have fundamentally changed the way we support our community by building programs that deliver on this purpose. A good example is Party Safe, an initiative designed to raise awareness of the tragic consequences of drink driving and encourage Territorians to consider safe transport options after drinking, particularly after major events. Party Safe is a fun and engaging way to tell an important story. We also hope it has a lasting impact on the behavior of Territorians. Similarly our support for cyclone, flood and storm safety initiatives reminds Territorians of their responsibility to prepare for extreme weather events. Knowledge and preparation are the key to resilience. Over the coming year, TIO will continue to expand its advocacy role to deliver on our core purpose.

I have great optimism looking forward to the coming year. The return to capital strength and the improvements in underlying financial performance are a sound foundation for continual development of the business for the benefit of Territorians.

I would like to thank those who have contributed to the success of the past year. Our Chairman and Board have provided us with leadership and wise counsel through this period. Our customers and the broader Territory community have continued to support our company and our people. Finally, my leadership team and all at TIO have delivered outstanding results throughout an extraordinary year.

Chief Executive Richard Harding

30 September 2010


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CustomersTIO has continued to focus on customers this year through all parts of the business.

Across the long-tail insurance business, a great deal of effort has been placed on claims management to implement a case management approach which places increased emphasis on restoring health and wellbeing for claimants. Long-tail claims are those involving personal injury and generally mean substantial health costs, significant time off work and resultant loss of quality of life. The shift to a case management approach will improve outcomes for claimants and has been supported by new IT systems and professional employee development.

In banking, TIO made the decision last year to focus business on its core products of home lending and savings. Customers obviously appreciate this move, with improvements across the banking product range. We know one of our advantages in home lending is that decisions are made locally, giving us a competitive edge in approval time.

TIO delivers and manages home loans on behalf of the Northern Territory Government through HomestartNT. This year we helped 77 Territorians into their first homes through this scheme. Changes to both the price caps and income limits for the scheme drove an increase in demand.

Our focus on providing customers with a high level of service has led to a high level of customer satisfaction. Our most recent customer survey shows that the percentage of customers who rate their satisfaction with our service as “high” or “very high” is 80 per cent, against an industry-wide average of 75.5 per cent.

We are creating more opportunities for customers to deal with us in a way that is convenient for them. Customers are turning away from traditional over-the-counter transactional services to take up more mobile, online and telephone services. To support this move, TIO has improved its alternate banking channels, particularly in internet banking.

CommunityTIO has always been a strong advocate for the community of the Northern Territory. This year we have built on our purpose of helping to build confidence and resilience among Territorians through our advocacy programs.

As outlined in the Motor Accidents Compensation report, we have a keen interest in improving road safety through education and awareness. This past year has seen the full implementation of Party Safe and Play Safe, advocacy programs designed to fully engage the community in the road safety message.

Party Safe: Party Safe operates at major entertainment, sporting and cultural events. The central focus is a pink branded marquee that provides information about drink driving and helps people make smarter decisions about getting home safely. Party Safe was launched in August 2009 and within three months around 5000 voluntary breath tests had been undertaken in hot pink Party Safe marquees at major events in Darwin and Alice Springs.

The Year in Review

TIO employees volunteer to promote road safety


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Partnering with St John Ambulance, NT Police and emergency delivers the message

The Party Safe program is operated by trained TIO employees who volunteer their time. The Party Safe program also provides information on alternative methods of transport home and offers overnight car park security after selected major community events. This gives people confidence that their vehicles will remain safe if they choose not to drive home. The Party Safe program continues to expand and will participate in major annual events targeting an audience of more than 100,000 people.

Play It Safe: The Play It Safe program seeks a commitment from sporting bodies to support the delivery of road safety education to young players as part of their sponsorship agreement with TIO. The program includes a commitment from clubs to promote road safety to members, identifying road safety ambassadors and role models in clubs and hosting Play It Safe Club Nights to deliver education sessions. It has been embraced by the AFL (NT), NT Cricket and NT Rugby League and Northern Territory Institute of Sport and aims to engage around 3000 players aged 14-17 each year.

The success of advocacy programs in road safety is now being replicated across other areas of the company. We are participating in programs to help Territorians develop their resilience to extreme weather events. With a cyclone-prone Top End and the rest of the Territory subject to flooding and serious storms, our weather resilience programs will concentrate on preparing for extreme weather events. While our early work in this area has largely concentrated on education and awareness, we are in the process of developing more engaging programs that will have a significant impact on community and business resilience.

The coming year will also see TIO develop programs to increase home ownership in the Territory.

PeopleBuilding the capability of our people has been a key focus over the past 12 months. A great deal of effort has been put into building the foundations of performance and competency management systems that will support the growth of TIO through its people.

Having a clear picture of our purpose and place in the community helps our employees focus on delivering results for Territorians. This year we refreshed our internal values to better align with our core purpose, to build confidence and resilience among Territorians. Our values – accountability, integrity, improvement, teamwork and passion – allow employee behaviours to mirror our corporate direction and drive cultural alignment. Understanding the behaviours we expect from our employees also helps us in attracting and retaining the type of people who will deliver on our core purpose.

Supporting this, we have developed and implemented a new performance management system and processes supported by online and offline tools. The system is based around essential leadership competencies as well as the identification of nine professional pathways. Each pathway is complemented by technical competencies and for the first time provides employees with the tools to manage their career at TIO and build the qualities and skills that will allow them to progress their careers. The result will be a stronger organisation that builds its capacity through its people.


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Much of the work over the past 12 months has been about building the right foundations. The real work will come over the next year as managers and leaders implement the reforms to build a better workplace and TIO.

At the beginning of the year, a staff engagement survey was undertaken to better understand the level of employee engagement with the business, customers and the organisation. The survey helps us understand employee commitment to the organisation and their willingness to exceed the requirements of their role. In response to the survey, a number of initiatives were implemented which lifted employee engagement by 12 per cent over the course of the year.

PerformanceThe overall performance of TIO has much improved over the past year, the result of the implementation of strategies to focus our business on what we do best as well as an improvement in investment markets.

Insurance

Insurance returned a small surplus. Householder and personal line results are excellent with an overall 16 per cent increase in premium income. TIO continues to hold a commanding share of these markets. Customer retention is high as a result of our continued focus on customer and claims service. A focus on servicing small and medium sized businesses has also seen a dramatic improvement in business insurance.

The results of the workers compensation portfolio have been disappointing, although this began to turn around by the end of the year following a careful assessment of risk and pricing. This will necessarily lead to the loss of some business but the result will be a sustainable portfolio.

For many years TIO’s insurance operations may have been in the role of “underwriter of last resort”, with a capacity to take on risks not normally insurable in the market place. With a mandate from our shareholders to operate commercially within a competitive marketplace, this practice is not sustainable.

TIO’s core focus will remain helping Territory mums and dads to protect their homes and other personal assets from the harsh environment and weather conditions that the Territory is renowned for. In the business community we aim to work with small to medium local enterprises to help them protect against the unexpected losses that arise in normal business operations.

Investment performance improved considerably in 2009/2010 with the Insurance investment portfolio achieving a net return of 8.7 per cent

22

27

28

6

10 6

DirectProperty

Cash

InternationalEquities

Listed PropertyTrusts

AustralianEquities

Australian Inflation

Linked Bonds

AustralianFixed Interest

1

Asset Allocation

2009 $’m

2010 $’m

Gross Written Premium 93.3 101.8

Gross Claims Paid 55.1 53.7

Underwriting Profit/(Loss) (6.0) (6.4)

Net Investment Income (3.5) 13.8

Profit/(Loss) before tax (17.3) 0.7

Profit/(Loss) from normal operations before tax

(3.6) 0.0

Total Assets 267.0 297.1

Total Liabilities 196.4 225.7

Total Equity 70.6 71.4


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Banking

Banking achieved its best result in the company’s history, doubling targeted profit. This has been the result of a concerted strategy to streamline product lines to focus on home ownership and deposits.

Home lending returned 150 per cent of its target, while still keeping within appropriate lending practices. This means more Territorians than ever are turning to TIO to help them achieve home ownership. A focus on home lending will continue in the new year, accompanied by a focus on attracting deposits from within the Territory. Our high interest savings and fixed-term deposit accounts are competitive in the marketplace and give Territorians the opportunity to “invest at home”.

2009 $’m

2010 $’m

Interest Income 47.1 41.8

Interest Expense 37.9 29.8

Net Interest Income 9.2 12.0

Profit/(Loss) Before Tax (0.2) 3.8

Profit/(Loss) from normal operations before tax

2.7 3.8

Deposits 448.4 531.3

Loans 544.2 564.1




This year 77 homes have been purchased under the HomestartNT scheme, which TIO manages on behalf of the Northern Territory Government


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Motor Accidents Compensation report

Financial status and solvencyTIO administers the Territory’s Motor Accident Compensation (MAC) Scheme on behalf of the NT Government and acts within the confines of the Motor Accidents (Compensation) Act. The scheme is funded by contributions collected from motorists when registering their vehicles. The assets and liabilities relating to the MAC scheme are held separately from the assets and liabilities of TIO’s commercial business.

Operating results for Motor Accidents Compensation are outstanding this year, with a surplus of $32.2 million. The position reflects not only better investment markets but continued improvement in our case management approach.

The financial status of the scheme is assessed annually with the assistance of advice from the Appointed Actuary. This is necessary to allow for payments to injured claimants that may extend many decades into the future. As at June 2010, the provision for outstanding claims was $237.4 million.

The strength of the Motor Accidents Compensation scheme can be evidenced by the capital solvency. As at 30 June 2010, the solvency of the scheme was 49.6 per cent, compared to a target solvency of 35 per cent and a solvency of 37.3 per cent as at 30 June 2009. This capital strength is fundamental in ensuring the stability of such a small scheme given its exposure to the volatility of investment markets.

The MAC investment portfolio achieving a net return of 10.5 per cent. While equities and listed property trusts achieved the highest returns, all asset classes performed strongly.

2009 $’m

2010 $’m

Gross Written Premium 55.5 60.1

Gross Claims Paid 23.9 37.1

Underwriting Profit/(Loss) (1.7) 6.1

Net Investment Income (31.4) 35.7

Operating (Loss)/Surplus (41.1) 32.2

Operating (Loss)/Surplus from normal operations

13.4 29.9




10 25

16

10

16

3

9 11

CashDirectProperty

Fixed InterestInternational

Equities

Listed PropertyTrusts

Bonds

AustralianEquities

Australian InflationLinked Bonds

MAC Asset Allocation


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Return to health outcomesDuring 2009/10 there were 499 claims lodged in the No Fault component of the scheme and 40 in the Common Law component. This was in line with expectations in both cases. This year the scheme paid $37.1 million in compensation and rehabilitation expenses to victims of motor vehicle accidents.

Case management initiatives during the year reduced the no fault portfolio from a starting point of 1191 claims, and a peak of 1294 claims in September 2009. By 30 June, there were 998 active no fault claims, and 94 active c ommon law claims.

Strategies to transform the basis of the scheme’s case management approach from a transactional to a service culture focus have been implemented this year. The key objective is to integrate enhanced communication within the ongoing management of a claim, while ensuring that claims costs are managed so that the contributions required from motorists are as low as possible. The objective of the scheme is to assist those injured in motor vehicle accidents to recover their lives as much as possible, but at all times the claims decisions must reflect the entitlements provided by the legislation.

Road SafetyWhile compensation is the key role of the scheme, reducing road trauma in the first place should be the goal for us all. The cost of road accidents in the Northern Territory is far too high in human and financial terms. With the worst road toll in Australia as a proportion of registered vehicles, the Northern Territory Government has put a range of measures in place over the past 3-4 years including speed limits, tougher penalties for offences, traffic devices and better training for new drivers. The road toll in 2009 was 31, a significant improvement from the 75 fatalities the previous year. However, these gains have not been maintained, and the number of fatalities is at an alarming level again in the first half of 2010.

MAC has focused its support for road safety on education and awareness initiatives including advertising, the Party Safe and Play Safe programs outlined in the TIO Year in Review and specific initiatives undertaken by Police and the Department of Lands and Planning. A community payment of $3.4 million was made in 2009/10 to fund programs run within the Transport Division and TIO/MAC road safety initiatives.

Talking posters in 25 indigenous languages


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The following chart shows our governance structure.

Investment Committee

With direction from:

MAC AppealsCommittee

ReinsuranceCommittee The Board Audit and Risk

Committee

Remuneration, Nomination

and SuccessionCommittee

Chief Executive

Through our Business Divisions and shared internal services:

GeneralCounsel

General Manager

General Manager

General Manager

General Manager

General Manager

InsuranceMotor

Accidents Compensation

Banking andDistributionSales andMarketing

Legal and RiskManagement

CorporateServices

People andCulture

TIO provides:

To our stakeholdersShareholder (NT Government) | Regulator | Customers and Clients | Employees | Community

Internal Audit

Risk managementand compliance

CommercialInsurance

Workers Compensation

HomeInsurance

MotorInsurance

Pleasure Craft

ClaimsServices

Home Lending

Savings and Investments

Financial Planning

Distribution andaccess networks

Sales and ProductMarketing

CorporateCommunications

Advocacy andsponsorshipprograms

SchemeManagement

Paymentof Benefit

Entitlements

FundInvestments

PremiumRecommendations

Funding of Road Safety Programs and Education

GroupMarketing

Sales and Distribution

Branches and Call Centre

Corporate Relations and Sponsorships

Culture

People and Performance

Training and Development

Organisational

Governance Organisation Chart


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At 30 June 2010

John Flynn AMChairman since 2002, Board member since October 2000, Member of the Investment Committee, Chairman of the Remuneration, Nomination and Succession Committee, Member of MAC Appeals Committee

Between 1979 and 1998, John

was the Public Trustee of the

Northern Territory. He has also

been the Chief Executive Officer

of the Courts Administration

Authority of the NT. Between

1997 and 1999 John was the

Chairman of the Territory Mutual

Building Society. John holds the

position of Chair with the NT

Catholic Church Diocesan Finance

Council and is a member of the

NT Remuneration Tribunal. In

addition John is a director of a

number of companies.

Denise FinchamBoard Member since February 2002, Member of Audit and Risk Committee, Member of Remuneration, Nomination and Succession and Investment Committees. Denise resigned from the Board on 31 July 2010

Denise is a member of the East Arnhem Regional Development Board. She was formerly the Managing Director of Gorkkbuy Industrial Supplies in Nhulunbuy NT. Denise’s involvement in and around the community of Nhulunbuy is well recognised, having served in several community groups in the past. Denise works with a number of Aboriginal organisations assisting business development and currently sits on the Board of Bunuwal Investments.

Bruce CarterB.Ec, MBA, FCA. Board Member since September 2006, Chairman Audit and Risk Committee, Member of Reinsurance Committee

Bruce is the Managing

Partner of Ferrier Hodgson

in South Australia, a Fellow

of the Institute of Chartered

Accountants, Chairman of the SA

Economic Development Board,

President of the National Heart

Foundation, a Board Member

of SKYCITY Entertainment Group

Ltd and various government

and private entities.

John MessengerANZIIF (Snr Assoc), CIP. Deputy Chairman since August 2007, Board Member since February 2002, Member of Audit and Risk Committee, Chairman of Reinsurance Committee, Member of Remuneration, Nomination and Succession Committee

John has extensive international insurance and risk management experience. Between 1986 and 1995, John was the Managing Director of MLC Insurance Limited and Director of Lend Lease Learning Pty Ltd. From 1997 until 2001 he was the Chief Executive Officer of Corporate Risk Management for the Lend Lease Group. John is a Director of various companies.

Board Members


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David FarquharBA, LL.B, Dip Legal Practice. Board Member February 2008 to March 2010. Member of Audit and Risk Committee, Member of Remuneration, Nomination and Succession Committee, Member of MAC Appeals Committee

David is a former partner at

Cridlands Lawyers, Darwin, and

was the Chairman of the NT

Government Review on Tort

Law and Insurance Law Reform,

and Chaired the Review of the

Motor Accidents (Compensation)

Act in 2007. He was also the

Chairman of the Police Inability

and Disciplinary Appeals Boards,

a former Chairman of the Public

Sector Inability and Disciplinary

Appeals Boards, a former

Chairman of the Northern

Territory Legal Aid Commission,

a former member of the

Legal Practitioners Disciplinary

Tribunal, and a former member

of the Superannuation Review

Board in addition to being a

director of a number of private

sector companies. For health

reasons David regretfully

tendered his resignation from

the TIO Board in March 2010.

Sheila O’SullivanBA, FPRIA, MIPRA. Board Member September 2006 to August 2009, Member of Audit and Risk Committee

Sheila is Chairman of Socom

Pty Ltd, which she founded in

1994. It is now one of Australia’s

leading Public Relations

companies. Sheila is a former

Officer of the College of Fellows

of the Public Relations Institute

of Australia and Chairman of the

World Jury for the Golden World

Awards of the International

Public Relations Association. She

is the holder of the Centenary of

Federation Medal and was listed

in 2004 on the Victorian Honour

Roll of Women.

John HandANZIIF(Snr Assoc), CIP, GAICD. Board Member since September 2006, Member of Investment Committee, Member of Audit and Risk Committee, Member of Reinsurance Committee, Member of MAC Appeals Committee

John is the Insurance Commissioner with Queensland Treasury. He has more than 40 years insurance experience, predominately in liability insurances, personal accident compensation schemes of workers’ compensation and compulsory third party motor vehicle insurance. Since the early nineties he has been in policy development and involved in reviews of statutory insurance schemes.

Roger DavisB.Ec (HONS), CPA, M.PHIL (OXON) Board Member since September 2006, Chairman of Investment Committee

Roger is a qualified certified practicing account (CPA), with over 25 years experience in banking and investment banking in Australia, the US and Japan. Currently a consulting director at Rothschild Australia Limited, Roger was a Managing Director at Citigroup where he worked for over 20 years and more recently was a Group Managing Director at ANZ Bank. Roger is currently a Director of Charter Hall Office REIT Management Ltd, Chartis Australia Ltd, Aristocrat Leisure Ltd, Ardent Leisure Ltd, Bank of Queensland, Ltd and Trust Company Ltd. His previous Board experience includes the Chairmanship of Esanda and Directorships of Pengana Hedgefunds Ltd, Magellan Ltd, Centric Wealth Advisors Ltd, ANZ (New Zealand) Ltd, Cititrust in Japan and Citicorp Securities Inc in the US.


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Richard HardingChief Executive Officer

Richard joined TIO in July 2008, bringing 22 years experience in insurance and financial services. Richard has held both strategic and operational roles including country head for China for Insurance Australia Group. During that time Richard also held the role of CEO of the China Automobile Association (CAA).

Ian FaragherGeneral Manager Motor Accidents Compensation

Ian joined TIO in May 2010 having previously been Managing Director, Edison Morgan Australia based in Sydney. He has previously been Managing Director and Chairman of Lloyd’s Reinsurance company China and has worked in executive management positions throughout Asia.

Michelle GarnautGeneral Manager People and Culture

Michelle joined TIO in December 2008. She has 17 years experience in senior HR roles within a number of industries including airline, energy, agriculture and retail.

Michael HoareGeneral Manager Corporate Services and Chief Financial Officer

Michael joined TIO in 1998. He has held senior roles in accounting, technology and banking and has over 20 years experience in the financial services sector.

At 30 June 2010

Executive Management Team


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Grahame MarshallGeneral Manager Banking and Distribution

Grahame commenced with TIO in 2007. He has held board and executive management roles with national organisations across a range of industry sectors including financial services, banking, insurance, legal and utilities.

William OliverGeneral Counsel

Will joined TIO in December

2008 having previously been

a partner of Minter Ellison

Lawyers. Will has extensive

experience in advising and

acting for insurance companies

across a range of insurance

law matters. He has provided

legal advice and acted for TIO

following his arrival in the

Territory in 2001.

Peter AtkinsonGeneral Manager Insurance

Peter joined TIO in March 2008 as the General Manager Insurance having previously been the Operations Manager for Ansvar Insurance since 2002, having responsibility for operations in Australia and New Zealand. Peter resigned from TIO on 30 July 2010.

Financial Statements

Territory Insurance Office Board Members’ Report

TIO Annual Report 2009/2010 24

Chief Executive Officer and Board Members' Statement The Chief Executive Officer and members of the Board are of the opinion that to the best of their belief:

The Statement of Comprehensive Income, the Statement of Financial Position, the Statement of Changes in Equity, the Statement of Cash Flows and Notes to the Financial Statements of the Territory Insurance Office are drawn up so as to present fairly TIO and the MAC Fund’s financial position as at 30 June 2010 and their performance for the year ended on that date.

The financial statements are drawn up in accordance with Australian Accounting Standards and Interpretations, other mandatory professional reporting requirements, and the Territory Insurance Office Act, as amended.

R Harding Chief Executive Officer

J G Flynn Chairman of the Board

BJ Carter Deputy Chairman of the Board 27 September 2010



Board Members' Report The Board Members present their report on the financial statements for the year ended 30 June 2010 in accordance with a resolution of the Board members and the auditor’s report thereon. Board members The Board Members of the Territory Insurance Office at any time during or since the end of the financial year and up to the date of this report are: J G Flynn B J Carter

P J Caldwell, appointed 31st July 2010 R A Davis D L Fincham, retired 31st July 2010 J F Hand J I Messenger D S Farquhar, retired 31st March 2010 S O’Sullivan, retired 31st August 2009

Details of Board Members, their directorships/experience and any special responsibilities are set out in the front section of the annual report. Corporate structure The Territory Insurance Office is a statutory body established under Section 4 of the Territory Insurance Office Act, and is domiciled in Australia. TIO employed 231 employees as at 30 June 2010 (2009: 255 employees). Principal activities The principal continuing activities during the year of TIO are the administration of the Motor Accidents Compensation Scheme on behalf of the Northern Territory Government and the provision of direct insurance business and related investment activities. TIO also operates a Banking business, which accepts deposits, makes loans, administers the Homestart loan scheme and acts as an agent for financial planning services. There was no significant change in the nature of these activities during the year, with the exception of the sale of the financial planning business to Retire Invest Darwin Pty Ltd in June 2010. Results

2010 2009

TIO TIO

Insurance & Banking

MAC Fund

TIO TIO

Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Net profit / (loss) for the year 35,456 3,290 32,166 (52,936) (11,807) (41,129)

Dividends The Board has not provided for a dividend in respect of the 2009/2010 financial year.



Review of operations Insurance and Banking performance has resulted in an after tax profit for the year of $3.3m compared to an after tax loss of $11.8m for the year ended 30 June 2009. The Motor Accidents Compensation Fund [MAC Fund], managed by TIO, reported a surplus of $32.2m compared to a deficit of $41.1m for the year ended 30 June 2009. Both previous year results were impacted by the performance of investments in the financial market. A full report on the operations of TIO is provided in the Year in Review section. Impact of legislation and other external requirements The Board does not believe that there have been any significant impacts of legislation or other external requirements imposed on TIO during the year that are not otherwise disclosed in this report. Significant changes in the state of affairs In the opinion of the Board Members there have been no significant changes in the state of affairs of TIO that occurred during the year under review not otherwise disclosed in this report. Matters subsequent to the end of the financial year There have been no matters that have arisen in the interval between the end of the financial year and the date of this report any matter or circumstance which has significantly affected or may significantly affect:

(a) TIO’s operations; (b) the results of those operations; or (c) TIO’s state of affairs.

Likely developments and expected results of operations The Board does not believe that it would be in the best interests of TIO to disclose information other than that disclosed elsewhere in this report.

Indemnification and insurance of officers During the financial year ended 30 June 2010, TIO paid an insurance premium in respect of a contract insuring the Board Members and officers of TIO against certain liabilities that may be incurred in discharging their duties and responsibilities as a Board Member or officer of TIO. The insurance contract prohibits the disclosure of the nature of the liabilities insured against and the premium paid in respect of that insurance.



Meetings of board members The number of meetings of the TIO Board and of each Board committee held during the year ended 30 June 2010, and the numbers of meetings attended by each Board Member were:

Meetings of Board Members

Meetings of Audit & Risk Committee

Meetings of Investment Committee

Meetings of Reinsurance Committee

Meetings of Remuneration Nomination & Succession Committee

Meetings of MAC Appeals Committee *

A B A B A B A B A B A B J.G. Flynn 9 9 x x 5 5 x x 1 1 3 3 B.J. Carter 9 9 6 6 x x 3 3 x x x x R.A. Davis 9 7 x x 5 4 x x x x x x D. S. Farquhar 8 5 5 2 x x x x 1 1 2 2 D. L. Fincham 9 7 6 5 3 3 x x 1 1 3 3 J. F. Hand # 9 8 6 6 5 5 3 3 x x 3 2 J. I. Messenger 9 9 6 6 x x 3 3 1 1 x x S. O’Sullivan 1 0 1 0 x x x x x x x x

A = Number of meetings held during the time the board member held office or was a member of the committee during the year.

B = Number of meetings attended

x = Not a member of the relevant committee

# = MAC Member

* = The MAC Appeals Committee has limited tenure ending 30 September 2010.

Board members’ benefits No Board Member of TIO has received, or has become entitled to receive, a benefit (other than a remuneration benefit included in the financial statements) because of a contract that: (a) the Board Member; or (b) a firm of which the Board Member is a member; or (c) an entity in which the Board Member has a substantial financial interest;

has made (during the year ended 30 June 2010 or at any time) with: (i) TIO; or (ii) an entity that TIO controlled, or a body corporate that was related to

TIO, when the contract was made or when the Board Member received, or became entitled to receive, the benefit (if any).

J G Flynn Chairman of the Board

BJ Carter Deputy Chairman of the Board

27 September 2010

Territory Insurance Office Financial Statements


Statement of Comprehensive Income for the year ended 30 June 2010

Notes 2010 2009

TIO TIO

Insurance & Banking

MAC Fund TIO TIO

Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Profit and loss

Revenue 5 280,411 182,797 106,673 181,257 154,806 32,632 Outwards reinsurance premium expense

(45,050) (37,421) (7,629) (41,323) (33,708) (7,615)

Claims expense 22 (130,985) (76,088) (54,897) (114,962) (61,424) (53,538)

Acquisition costs (5,143) (4,461) (682) (8,990) (7,757) (1,233) Grants provided to fund road safety programs

(2,273) - (2,273) (2,743) - (2,743)

Finance costs (29,779) (29,779) - (39,432) (39,432) - Depreciation and amortisation expense

(3,304) (1,224) (2,080) (2,647) (2,245) (402)

Salaries and employee benefits expense

(21,088) (21,088) - (21,244) (21,244) -

Other expenses (6,116) (8,229) (6,946) (8,576) (6,527) (8,230) Profit/(Loss) before income tax

36,673 4,507 32,166 (58,660) (17,531) (41,129)

Income tax benefit/(expense) 10 (1,217) (1,217) - 5,724 5,724 - Net profit/(loss) for the period

35,456 3,290 32,166 (52,936) (11,807) (41,129)

Other comprehensive income

Revaluation of property, plant and equipment

1,395 349 1,046 1,835 1,835 -

Cash Flow Hedges:

Gain/(Loss) taken on Equity 892 892 - - - - Transferred to Statement of Financial Position

(470) (470) - (453) (453) -

Income tax on items of other comprehensive income

(231) (231) - (415) (415) -

Other comprehensive income for the period, net of tax

1,586 540 1,046 967 967 -

Total comprehensive income for the period

37,042 3,830 33,212 (51,969) (10,840) (41,129)

Profit and total comprehensive income for the period are attributable to the owner. The above Statement of Comprehensive Income should be read in conjunction with the accompanying notes.



Statement of Financial Position as at 30 June 2010

Notes 2010 2009

TIO TIO

Insurance & Banking

MAC Fund

TIO TIO

Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

CURRENT ASSETS

Cash and cash equivalents 11 30,215 27,855 2,360 32,780 24,045 8,735

Trade and other receivables 12 52,418 50,486 2,959 46,395 45,271 1,967

Other financial assets 13 567,016 224,803 342,213 487,395 194,804 292,591

Loans 14 14,333 14,333 - 18,373 18,373 - Reinsurance and other recoveries receivable

18 17,439 13,719 3,720 12,399 10,731 1,668

Deferred reinsurance expense 19 27,344 27,344 - 24,661 24,661 -

Deferred acquisition costs 19 4,804 4,559 245 2,373 2,145 228

Current tax assets 10 1,364 1,364 - 2,753 2,753 -

Total Current Assets 714,933 364,463 351,497 627,129 322,783 305,189

NON-CURRENT ASSETS

Other financial assets 13 - - - 1,429 1,429 -

Investment property 15 - - - - - -

Intangible assets 16 1,784 1,390 394 2,929 351 2,578

Loans 14 549,742 549,742 - 525,852 525,852 -

Property, plant and equipment 17 46,282 14,299 31,983 45,546 14,023 31,523 Reinsurance and other recoveries receivable

18 45,043 16,072 28,971 41,788 13,741 28,047

Deferred tax assets 10 5,965 5,965 - 7,152 7,152 -

Total Non-Current Assets 648,816 587,468 61,348 624,696 562,548 62,148

Total Assets 1,363,749 951,931 412,845 1,251,825 885,331 367,337

CURRENT LIABILITIES

Outstanding claims liability 20 71,628 40,106 31,522 71,403 35,111 36,292

Trade and other payables 23 39,054 37,569 2,512 33,950 31,187 3,606

Deposits 24 531,309 531,309 - 448,359 448,359 -

Other financial liabilities 13 102 102 - 995 995 -

Current tax liabilities 10 - - - - - -

Provisions 25 4,742 4,742 - 3,866 3,866 -

Unearned premium liability 21 82,921 58,472 24,449 75,741 52,986 22,755

Securitisation liabilities 26 1,562 1,562 - 2,533 2,533 -

Total Current Liabilities 731,318 673,862 58,483 636,847 575,037 62,653

NON-CURRENT LIABILITIES

Outstanding claims liability 20 327,240 90,647 236,593 299,455 79,328 220,127

Deferred tax liabilities 10 2,345 2,345 - 2,057 2,057 -

Provisions 25 649 649 - 603 603 -

Securitisation liabilities 26 83,948 83,948 - 131,656 131,656 -

Total Non-Current Liabilities 414,182 177,589 236,593 433,771 213,644 220,127

Total Liabilities 1,145,500 851,451 295,076 1,070,618 788,681 282,780

Net Assets 218,249 100,480 117,769 181,207 96,650 84,557

EQUITY

Retained earnings 28 163,881 57,477 116,723 128,425 54,187 84,557

Asset revaluation reserve 28 15,049 3,684 1,046 13,759 3,440 -

Contributed equity 28 39,340 39,340 - 39,340 39,340 -

Hedging Reserve 28 (21) (21) - (317) (317) -

Total Equity 218,249 100,480 117,769 181,207 96,650 84,557

The above statement of financial position should be read in conjunction with the accompanying notes.



Statement of Changes in Equity for the year ended 30 June 2010

TIO Notes

Retained Earnings

Asset Revaluation

Reserve

Contributed Equity

Hedging Reserve

Total

$’000 $’000 $’000 $’000 $’000

Balance as at 1 July 2008 181,361 12,475 16,492 - 210,328 Profit for the period (52,936) - - - (52,936)

Other comprehensive income Revaluation of property, Plant and equipment

- 1,835 - - 1,835

Cash flow Hedges

Gain/(Loss) taken on Equity - - - (2,160) (2,160) Transferred to Statement of Financial Position

- - - 1,707 1,707


- (551) - 136 (415)

Total comprehensive income for the period attributable to the owner

(52,936) 1,284 - (317) (51,969)

Transactions with owners in their capacity as owners:

Subordinated loan converted into contributed equity

27 28

- - 22,848 - 22,848

Balance as at 30 June 2009 128,425 13,759 39,340 (317) 181,207 Profit for the period 35,456 - - - 35,456


- 1,395 - - 1,395

Cash flow Hedges

Gain/(Loss) taken on Equity - - - 892 892 Transferred to Statement of Financial Position

- - - (470) (470)


- (105) - (126) (231)


35,456 1,290 - 296 37,042

Balance as at 30 June 2010 163,881 15,049 39,340 (21) 218,249

The above Statement of Changes in Equity should be read in conjunction with the accompanying notes.



TIO Insurance & Banking Notes

Retained Earnings

Asset Revaluation

Reserve

Contributed Equity

Hedging Reserve

Total

$’000 $’000 $’000 $’000 $’000

Balance as at 1 July 2008 55,675 12,475 16,492 - 84,642 Profit for the period (11,807) - - - (11,807)


- 1,835 - - 1,835

Cash flow Hedges

Gain/(Loss) taken on Equity - - - (2,160) (2,160) Transferred to Statement of Financial Position

- - - 1,707 1,707


- (551) - 136 (415)


(11,807) 1,284 - (317) (10,840)

Sale of re-valued property Plant and equipment – net of tax effect

10,319 (10,319) - - -

Transfers between equity balances 10,319 (10,319) - - - Transactions with owners in their capacity as owners:

Subordinated loan converted into contributed equity

27 28

- - 22,848 - 22,848


Profit for the period 3,290 - - - 3,290


- 349 - - 349

Cash flow Hedges

Gain/(Loss) taken on Equity - - - 892 892 Transferred to Statement of Financial Position

- - - (470) (470)


- (105) - (126) (231)


3,290 244 - 296 3,830





Statement of Changes in Equity for the year ended 30 June 2010 continued…

MAC Fund

Notes Retained Earnings

Asset Revaluation

Reserve

Contributed Equity

Hedging Reserve

Total

$’000 $’000 $’000 $’000 $’000

Balance as at 1 July 2008 125,686 - - - 125,686

Profit for the period (41,129) - - - (41,129) Total comprehensive income for the period attributable to the owner

(41,129) - - - (41,129)

Balance as at 30 June 2009 84,557 - - - 84,557

Profit for the period 32,166 - - - 32,166


- 1,046 - - 1,046


32,166 1,046 - - 33,212

Balance as at 30 June 2010 116,723 1,046 - - 117,769




Statement of Cash Flows for the year ended 30 June 2010 Notes 2010 2009

TIO TIO

Insurance & Banking

MAC Fund TIO TIO

Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Cash flows from operating activities

Premiums received 172,829 107,129 65,700 158,244 97,512 60,732

Outwards reinsurance premiums paid (44,428) (36,945) (7,483) (44,309) (36,650) (7,659)

Claims paid (104,974) (63,620) (41,354) (88,252) (61,331) (26,921)

Reinsurance recoveries received 15,378 11,282 4,096 10,265 10,238 27

Trust distributions received 17,665 3,934 13,731 11,155 2,491 8,664

Interest received 14,227 8,621 5,606 22,504 15,353 7,151

Operating lease income received 2,571 888 1,683 5,964 2,299 3,665

Other income received 8,384 7,813 571 8,695 8,142 553

Acquisition costs paid (8,325) (7,575) (750) (8,211) (6,912) (1,299) General and administration expenses paid

(25,327) (18,918) (6,409) (30,801) (23,915) (6,886)

Funding for road safety programs paid (3,261) - (3,261) (3,731) - (3,731)

Goods and services tax paid (8,502) (5,103) (3,399) (7,211) (3,135) (4,076)

Monies held on trust received / (paid) (3,891) (3,891) - 1,937 1,937 -

Interest expense paid on deposits (30,018) (30,018) - (36,666) (36,666) -

Interest income received from loans 36,554 36,554 - 38,877 38,877 -

Income Tax paid 1,415 1,415 - (2,696) (2,696) - Net cash inflow from/(used in) operating activities 32

40,297 11,566 28,731 35,764 5,544 30,220

Cash flows from investing activities

Net loans extended to customers (19,680) (19,680) - (18,501) (18,501) - Net (payments) / receipts for investments

(59,081) (24,015) (35,066) (73,142) (39,399) (33,743)

Payments for property, plant and equipment

(2,654) (2,615) (39) (4,039) (1,408) (33,981)

Proceeds from sale of investment property

- - - 38,750 - 38,750

Proceeds from sale of embedded derivative

1,320 1,320 - - - -

Proceeds from sale of property, plant and equipment

- - - 173 31,523 -

Net cash flow from/(used in) investing activities

(80,095) (44,990) (35,105) (56,759) (27,785) (28,974)

Cash flows from financing activities Net increase/(decrease) in savings and other deposit accounts

86,021 86,021 - 73,955 73,955 -

Cash received from securitisation funding

- - - - - -

Repayments of securitisation funding (48,786) (48,786) - (48,197) (48,197) - Net cash flow from/(used in) financing activities

37,235 37,235 - 25,758 25,758 -

Net increase/(decrease) in cash held

(2,565) 3,810 (6,375) 4,763 3,517 1,246

Cash at the beginning of the period 32,780 24,045 8,735 28,017 20,528 7,489

Cash at the end of the period 11 30,215 27,855 2,360 32,780 24,045 8,735

The above Statement of cash flows should be read in conjunction with the accompanying notes.

Territory Insurance Office Notes to the Financial Statements

30 June 2010


1. Corporate Information The Territory Insurance Office [TIO] was established in 1979 by virtue of section 4 of the Territory Insurance Office Act [TIO Act]. TIO is domiciled in the Northern Territory. The principal activities of the office are the operation of the following businesses; Insurance, Banking and administration of the MAC Scheme. TIO is only authorised to transact business and carry out functions as provided in the TIO Act or as approved or directed by the Minister. Its policies and contracts of insurance or indemnity and deposits placed with it are fully guaranteed by the Northern Territory Government under section 30 of the TIO Act. TIO Head Office & Principal Place of Business 24 Mitchell Street DARWIN

2. Summary of significant accounting policies 2.1 Basis of Preparation The financial statements are general purpose financial statements which have been prepared in accordance with the requirements of TIO Act, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The principal accounting policies adopted are consistent with those of the previous year, except where otherwise stated. The financial statements comply with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board. These general purpose financial statements were authorised by the Board for issue on 27 September 2010. The financial statements have been prepared in accordance with the fair value basis of accounting with certain exceptions as described in the accounting policies set below at Note 2.3. Balances among TIO Insurance & Banking and the MAC Fund are gross of inter-business transactions and in the TIO balance (which is the combined total of TIO Insurance & Banking and the MAC Fund as a whole) the inter-business transactions are eliminated. Fiduciary Responsibilities in respect of the Motor Accidents Compensation Fund TIO administers the MAC Scheme pursuant to section 5(c) of the TIO Act. The MAC scheme is created by the Motor Accidents (Compensation) Act. TIO Act has established the Motor Accidents Compensation Fund [MAC Fund] and other requirements around the operation of the fund. The establishment of the MAC Fund on 1 July 2006 did not create a trust and TIO, and the Board members are not trustees in relation of the MAC Fund.


30 June 2010


Pursuant to Section 22C of the TIO Act, the assets of the fund must be solely applied for the following purposes • Operating the MAC scheme; • The promotion of road safety; • The acquisition of assets for the MAC Fund; • The discharge of liabilities in relation to the MAC business Amendments to the TIO Act established that the Annual report of TIO must consist of: a) a report for the Territory Insurance Office as a whole; and b) a separate report for the commercial business and c) a separate report for the MAC business. TIO has addressed its obligations under the TIO Act by segregating the assets and liabilities of the MAC Fund and presenting in the financial statements the above information requirements using a 6 column approach. The disclosures for both TIO [Insurance and Banking] and the MAC Fund are their stand alone results and balances and necessarily disclose all transactions that occur between the two business activities. Accounting policies applicable to both TIO and the MAC Fund are outlined throughout Note 2.3. 2.2 New and Revised Accounting Standards The following new and revised Standards and Interpretations have not resulted in significant changes other than the presentation of the financial statements. Amendments Title AASB 1 (revised) First-time Adoption of Australian Accounting Standards AASB 7 (revised) and AASB 2009-2

Amendments to Australian Accounting Standard – Financial instruments: Disclosures

AASB 101 (revised), AASB 2007-8 and 2007-10

Amendments to Australian Accounting Standard – Presentation of financial statements

The following new and revised Standards and Interpretations have recently been issued or amended but are not yet effective; however, are available for early adoption. TIO has elected early adoption for the reporting period ended 30 June 2010. There is no financial impact from the early adoption as the standard relates purely to disclosure.


30 June 2010


Amendments Title Effective on or after

AASB 124 (Revised) and AASB 2009-12

Related Party Disclosures revised standard and the consequential amendments to other standards resulting from its issue.

1 January 2011

AASB 8 (as amended) and AASB 2009-12

Operating Segments as amended and the consequential amendments to other standards resulting from its issue.

1 January 2011

The following new and revised Standards and Interpretations have recently been issued or amended but are not yet effective and have not been adopted for the reporting period ended 30 June 2010. It is expected that there will be no material financial impact from the application of these standards.

Amendments Title Effective on or after

AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process

1 January 2010

AASB 2009-8 Amendments to Australian Accounting Standards – Group Cash-Settled Share-based Payment Transactions

1 January 2010

AASB 2009-9 Amendments to Australian Accounting Standards – Additional Exemptions for First-time Adopters

1 January 2010

AASB 2009-10 Amendments to Australian Accounting Standards – Classification of Rights Issues

1 February 2010

AASB 2009-13 Amendment to Australian Accounting Standards arising from Interpretation 19

1 July 2010

AASB 2009-14 Amendments to Australian Interpretation – Prepayments of a Minimum Funding Requirement

1 January 2011

AASB 9 (revised) and AASB 2009-11

Financial Instruments revised standard and the consequential amendments to other standards resulting from its issue.

1 January 2013

2.3 Significant Accounting Policies In addition to TIO’s primary operations of providing Insurance and Banking services to the Northern Territory, TIO administers the MAC Fund pursuant to the TIO Act. The results and balances are disclosed separately to fulfil the reporting obligations set out by the Act. All accounting policies are consistent between TIO [Insurance and Banking] and the MAC Fund unless otherwise stated below. Accounting policies relating to Banking activities do not apply to the MAC Fund.


30 June 2010


a) Revenue recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and the revenue can be reliably measured. The following specific recognition criteria are also used before revenue is recognised: Premium revenue Premium is comprised of amounts charged to policyholders or other insurers, but excludes stamp duties, GST and other amounts collected on behalf of third parties. The earned portion of premiums received and receivable, including unclosed business, is recognised as revenue. Premium is treated as earned from the date of attachment of risk. Premiums on unclosed business are estimated with reference to the previous year's premium processing delays and the impact of recent trends and events on the pattern of new business and renewals. The pattern of recognition of income over the policy or indemnity periods is in accordance with the pattern of the incidence of risk expected under the insurance contracts. In most cases, time approximates the pattern of risks underwritten. Unearned premium liability, which is the proportion of premium received or receivable not earned in the statement of comprehensive income, is determined by apportioning the premiums written in the year over the periods of indemnity from the attachment of risk, and is treated as a liability on the statement of financial position at the reporting date.

Reinsurance and other recoveries receivable Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid, claims incurred but not reported and unexpired risk liabilities are recognised as revenue. Recoveries receivable are assessed in a manner similar to the assessment of outstanding claims. Recoveries receivable in relation to "long-tail" classes are measured as the present value of the expected future receipts, calculated on the same basis as the provision for outstanding claims. The details of discount and inflation rates applied are included in note 3. Interest, fees and commission Interest income is recognised on an accrual basis. Banking related fees and commissions are brought to account on an accrual basis whilst loan establishment fees are brought to account over the estimated average life of the loan on an effective interest rate basis. Rental revenue Rental revenue is recognised as income on a straight line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income.


30 June 2010


b) Unexpired risk liability

The adequacy of the unearned premium liability is assessed by considering current estimates of all expected future cash flows relating to future claims covered by current insurance contracts. This assessment is referred to as the liability adequacy test and is performed separately for each group of the contracts subject to broadly similar risks and managed together in a single portfolio. If the unearned premium liability less related intangible assets and related deferred acquisition costs is exceeded by 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, then the unearned premium liability is deemed to be deficient. TIO applies a risk margin to achieve the same probability of sufficiency for future claims as is achieved on the outstanding claims liability. The entire deficiency, gross and net of reinsurance is recognised immediately in the statement of comprehensive income. The deficiency is recognised first by writing down any related intangible assets and then related deferred acquisition costs, with any excess being recorded in the statement of financial position as an unexpired risk liability.

c) Outwards reinsurance

Premium ceded to reinsurers is recognised as an expense in the statement of comprehensive income from the attachment date over the period of indemnity of the insurance contract in accordance with the pattern of reinsurance protection received. Where appropriate, an unearned portion of outwards reinsurance is treated at the reporting date as an asset.

d) Outstanding claims liability

The liability for outstanding claims is measured as the central estimate of the present value of expected future payments against claims incurred at the reporting date under insurance contracts issued by TIO, with an additional risk margin to allow for the inherent uncertainty in the central estimate. Claims expense and a provision for outstanding claims are recognised in respect of direct insurance and inwards reinsurance business and the Motor Accidents Compensation Scheme. The provision covers claims reported but not yet paid, incurred but not reported claims ("IBNR") and the anticipated direct and indirect costs of settling those claims. Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate cost of settling claims, IBNRs and settlement costs using statistics based on past experience and trends. Outstanding claims are subject to independent actuarial assessment. The provision for outstanding claims is measured as the present value of expected future payments. These payments are estimated on the basis of the ultimate cost of settling claims, which is affected by factors arising during the period to settlement such as normal and "superimposed" inflation. The expected future payments are discounted to present value at the statement of financial position date using a risk free rate. The details of rates applied are included in note 3.


30 June 2010


e) Receivables Receivables comprise premium receivables, interest receivables, other debtors and reinsurance and other recoveries. These amounts are initially recognised at fair value. Premium receivables and reinsurance and other recoveries, which include amounts due from policy holders, reinsurers and intermediaries, are subsequently measured at fair value through the profit and loss section of the Statement of Comprehensive Income. Interest receivables and other debtors are subsequently measured at amortised cost using the effective interest rate method. An allowance for impairment of receivables is established when there is objective evidence that TIO will not be able to collect all moneys due. The amount of the allowance is equal to the difference between the carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The impairment charge is recognised in the statement of comprehensive income.

f) Deferred acquisition costs

Acquisition costs are costs associated with obtaining and recording general insurance contracts. These costs include commissions and brokerage paid, advertising, underwriting and other selling costs, premium collection costs and other administrative costs. Acquisition costs incurred in obtaining general insurance contracts are deferred and recognised as assets where they can be reliably measured and where it is probable that they will give rise to premium revenue that will be recognised in the statement of comprehensive income in subsequent reporting periods. Deferred acquisition costs are amortised in accordance with the expected pattern of the incidence of risk under the general insurance contracts to which they relate. This pattern of amortisation corresponds to the earning pattern of the corresponding premium revenue. Liability Adequacy Test The liability adequacy test is an assessment of the carrying amount of the unearned premium liability and is conducted at each reporting date. If current estimates of the present value of the expected future cash flows relating to future claims arising from the rights and obligations under current insurance contracts, plus an additional risk margin to reflect the inherent uncertainty in the central estimate, exceed the unearned premium liability (net of reinsurance) less related deferred acquisition costs, then the unearned premium liability is deemed to be deficient. The test is performed at the level of a portfolio of contracts that are subject to broadly similar risks and that are managed together as a single portfolio. Any deficiency arising from the test is recognised in profit or loss with the corresponding impact on the statement of financial position recognised first through the write down of deferred acquisition costs for the relevant portfolio of contracts, with any remaining balance being recognised on the statement of financial position as an unexpired risk liability.


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g) Assets backing insurance liabilities

TIO actively manages its investment portfolio to ensure that investments mature in accordance with the expected pattern of future cash flows arising from insurance liabilities. TIO undertook a process of identifying and matching all assets which arise from the issuing of insurance contracts. This review determined that the following assets are held to back insurance liabilities. These assets comprise: Receivables: Premium receivables, reinsurance and other recoveries. Financial Assets: Investment assets, cash, cash equivalents and overdrafts. Investment property. Owner-occupied property. Receivables Refer to note 2.3(e). Financial Assets Investment assets held to back insurance liabilities, have been categorised as “at fair value through profit and loss”, as they are held for trading. They are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Initial recognition is at cost in the statement of financial position and subsequent measurement is at fair value with any resultant gains or losses recognised in the statement of comprehensive income. Details of fair value for financial assets are listed below: Financial asset Details of how fair value is determined. Listed fixed interest securities, Units in listed unit trusts, Government securities.

Initially recognised at cost and the subsequent fair value is taken as the quoted bid price of the instrument at the reporting date.

Unlisted fixed interest securities.

Initially recognised at cost and the subsequent fair value is measured based on valuations using rates of interest equivalent to the yields obtainable on comparable investments at the reporting date.

Units in unlisted unit trusts.

Initially recognised at cost and the subsequent fair value is measured at fund manager’s valuation at the reporting date.

Cash assets and bank overdrafts.

Initially recognised at cost and the subsequent fair value is measured at face value of the amounts deposited or drawn.

All purchases and sales of financial assets that require delivery of the asset within the time frame established by regulation or market convention (‘regular way’ transactions) are recognised on the date of settlement, being the date the asset is delivered to or by TIO. In cases where the period between trade and settlement exceeds this time frame, the transaction is also recognised at settlement date. Financial assets are derecognised when the rights to receive future cash flows from the assets have expired, or have been transferred, and TIO has transferred substantially all the risks and rewards of ownership or control of the asset.


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Finance revenue, comprising trust distributions and interest, is brought to account on an accruals basis. Revenue on investments in unlisted unit trusts is deemed to accrue on the date the distributions are declared. Investment property [MAC Fund] Investment property, which is property held to earn rentals and for capital appreciation, is stated at fair value at the statement of financial position date. Gains or losses arising from changes in the fair value of investment property are included in the statement of comprehensive income for the period in which they arise. The fair value is based on an external property valuation report conducted annually.

Owner-occupied property accounted for as Property, Plant and Equipment The owner-occupied property is valued using the revaluation model whereby measurement subsequent to initial recognition is at fair value at the date of the latest revaluation less any subsequent accumulated depreciation and accumulated impairment losses. A valuation is conducted annually and is based on an external property valuation report. When a revaluation increases the carrying value of a property, the increase is credited directly to equity under the heading of asset revaluation reserve. However, any increase is recognised in the statement of comprehensive income to the extent that it reverses a revaluation decrease of the same asset previously recognised in the statement of comprehensive income. When an asset’s carrying amount is decreased as a result of a revaluation, the decrease is recognised in the statement of comprehensive income. However, any decrease is debited directly to equity under the heading of asset revaluation reserve to the extent of any credit balance existing in the asset revaluation reserve in respect of that asset. Any remaining balance on the asset revaluation reserve is credited to retained earnings when the corresponding property is realised by sale.

h) Fire service levy and other charges - TIO Insurance & Banking

A liability for fire service levy and other charges is recognised on certain business written to the balance date. Levies and charges payable are expensed on the same basis as the recognition of premium revenue, with the portion relating to unearned premium being recorded as an asset.

i) Taxes

Income tax TIO is assessable for income tax by the Australian Taxation Office under the National Tax Equivalent Regime (NTER). Under this arrangement, TIO is required to be assessed in accordance with the Income Tax Assessment Act (as amended). TIO has elected under S148 (2) of the Income Tax Assessment Act, to have allowed as a deduction reinsurance payments to non-resident reinsurers.


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TIO Insurance & Banking: The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or the liabilities are settled. The tax rate is applied to the cumulative amounts of deductible and assessable temporary differences to measure the deferred tax asset or liability. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. MAC Fund: The MAC Fund is not subject to the Northern Territory Tax Equivalents Regime and accordingly the MAC Fund has no tax related balances or transactions reported.

Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • Where the GST incurred on a purchase of goods and services is not recoverable

from the taxation authority, in which case the GST is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and

• Receivables and payables are stated with the amount of GST included. The net amount of GST recoverable or payable to the taxation authority is included as part of receivables or payables in the statement of financial position. Cash flows are included in the statement of cash flows on a gross basis.

j) Dividend – TIO Insurance & Banking

Pursuant to Section 26 of the Territory Insurance Office Act, the Minister may direct that any amount of funds held by TIO which, in his opinion, is in excess of that required as adequate provision for actual and contingent liabilities or for the reasonable operating and other expenses of TIO shall be paid by TIO to the Consolidated Fund of the Territory.

k) Transportation of accident victims – MAC Fund Pursuant to section 18 of the Motor Accidents (Compensation) Act there is payable to or on behalf of a person entitled to a benefit under this Act all reasonable medical and rehabilitation expenses incurred in relation to treatment for injuries sustained in a motor vehicle accident. "Treatment" includes inter alia, the conveyance of that person to any place for the purpose of his/her receiving any


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treatment or to a hospital. Reimbursements to the Territory during the year to cover intrastate transfer costs have been included in claims expense, along with ambulance conveyance charges.

l) Hospital bed days payments – MAC Fund

Payment for the treatment of MAC Fund patients in Northern Territory public hospitals occurs at the time of treatment.

m) Property, plant and equipment The owner-occupied property located at 24 Mitchell Street is used in the supply of services and for administrative purposes and has been held to back insurance liabilities. It is stated in the statement of financial position at its revalued amount, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed annually at the reporting date. Property, plant and equipment are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any revaluation increase arising on the revaluation of such land and buildings is credited to the asset revaluation reserve, except to the extent that it reverses a revaluation decrease for the same asset previously recognised in the statement of comprehensive income, in which case the increase is credited to the statement of comprehensive income to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land and buildings is charged to the statement of comprehensive income to the extent that it exceeds the balance, if any, held in the asset revaluation reserve relating to a previous revaluation of that asset. Depreciation on revalued buildings is charged to the statement of comprehensive income. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the asset revaluation reserve is transferred directly to retained earnings. The effective useful life of the owner-occupied property has been assessed at 50 years (2009: 50 years). Costs associated with the negotiation of operating leases associated with the owner occupied property are capitalised and amortised over the term of the respective leases. These costs include the costs of fit outs and the accrual of rent during rent free periods of occupation. Plant and equipment are stated at cost less accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost or valuation of assets, other than owner-occupied properties, over their estimated useful lives, using the straight-line method. Leasehold assets are depreciated over the life of the assets or term of the lease, whichever is shorter.


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The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income. The expected useful lives for plant and equipment, other than owner-occupied land and buildings, range from 2.5 to 20 years (2009: 2.5 to 20 years).

n) Investment property

TIO owns properties which are used to not only earn rentals and capital appreciation, but are also used for administrative purposes. When an investment property is also used for administrative purposes, the property is classified as owner-occupied when the floor space occupied by TIO is significant. Any property classified as owner-occupied is accounted for in accordance with the policies stated under Property, Plant and Equipment. Investment property, which is property held to earn rentals and for capital appreciation, is measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value, which reflects market conditions at the reporting date. Revaluations are performed annually at the reporting date. Gains or losses arising from changes in the fair value of investment properties are recognised in the statement of comprehensive income for the period in which they arise.

Costs associated with the negotiation of operating leases associated with these investment properties are capitalised and amortised over the term of the respective leases. These costs include the costs of fit outs and the accrual of rent during rent free periods of occupation. Investment properties are derecognised either when they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the statement of comprehensive income in the period in which they arose. Transfers are made to investment properties when, and only when, there is a change in use, evidenced by ending owner-occupation, commencement of an operating lease to another party or ending of construction of development. Transfers are made from investment property when, and only when, there is a change in use evidenced by commencement of owner-occupation or commencement of development with a view to sale.

o) Financial instruments not held to back insurance liabilities

Financial assets not held to back insurance liabilities include financial instruments used in the provision of banking services and assets not included in note 2.3(g). Financial assets and financial liabilities are recognised on TIO’s statement of financial position when TIO becomes a party to the contractual provisions of the instrument.


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Trade receivables (excluding premium receivables) Trade receivables and other debtors are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in the statement of comprehensive income when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Loans TIO Insurance & Banking All loans are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. The effective interest rate calculation includes the contractual terms of loans together with fees and transaction costs. All loans are kept under continuous management review to assess whether there is any objective evidence that any loan or group of loans is impaired. A specific provision is made for all identified impaired loans when there is reasonable doubt over the collectability of principal and interest in accordance with the loan agreement. All bad debts are written off against the specific provision in the period in which they are classified as not recoverable. An appropriate collective impairment provision is determined by estimation of expected losses in relation to loan portfolios where specific identification is impractical, based on peer group experience. Adjustments to the collective impairment provision are accounted for through the statement of comprehensive income. The provision recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate. Securitisation – TIO Insurance & Banking TIO has a sub origination and management agreement with Integris Securitisation Services Pty Ltd (Master Servicer) and Cuscal Management Pty Limited (Manager) which are wholly owned subsidiaries of Cuscal Limited, to assign securitised home loans with Integrity Trust, which is managed by Perpetual Trustee Company Limited (Trustee of the Trust). These securitised loans are reported as “on statement of financial position” mortgage products under AASB 139, and are subject to mortgage insurance. TIO recognises the financial liability to the Trust as a securitisation liability. The contractual arrangements of the securitisation program do not meet the criteria outlined in AASB139 Financial Instruments: Recognition and Measurement for transferring assets off statement of financial position. TIO is the loan originator and it services and assigns selected loans to the Trustee of the Trust in exchange for cash consideration. TIO passes on all cash flows of the loans to the Trust. TIO will continue to service these securitised loans on behalf of the trust and receives fee income for doing so. TIO receives interest from the loan portfolio and pays interest expense in relation to the funding costs of the securitisation. As loans are not derecognised, TIO will continue to recognise interest income on an accrual basis.


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In respect of insurance costs associated with mortgage insurance, TIO account for these costs as a prepayment and they will be charged to the statement of comprehensive income over the life of the contract. Loan assets are assessed for impairment. Investments All purchases and sales of financial assets that require delivery of the asset within the time frame established by regulation or market convention (‘regular way’ transactions) are recognised on the date of settlement, being the date the asset is delivered to or by TIO. In cases where the period between trade and settlement exceeds this time frame, the transaction is also recognised at settlement date. Financial assets are derecognised when the rights to receive future cash flows from the assets have expired, or have been transferred, and TIO has transferred substantially all the risks and rewards of ownership. Investment assets other than those held to back insurance liabilities, have been categorised as “at fair value through the profit and loss”, as they are held for trading. They are part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, demand deposits and short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Short term cash equivalents held for investment purposes and not to meet the short term cash commitments of TIO are excluded from cash and cash equivalents. Subordinated loans and deposits Interest-bearing subordinated loan and deposits are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method.

Trade payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Derivative financial instruments - TIO Insurance & Banking TIO’s activities expose it primarily to the financial risk associated with changes in interest rates. TIO uses interest rate swaps to hedge its risks associated with interest rate fluctuations relating to certain loans attracting a fixed rate of interest. TIO’s policy is to convert a proportion of its fixed rate loan assets to a variable rate of interest. TIO’s external investment managers utilise derivatives as part of the management of exposures associated with those portfolios of investments held for trading.


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The use of financial derivatives is governed by the TIO’s policies approved by TIO’s Board, which provide written principles on the use of financial derivatives consistent with the TIO’s risk management strategy. TIO does not use derivative financial instruments for speculative purposes. Derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates. Derivatives are carried as assets when their fair value is positive and as liabilities when their fair value is negative. Hedge accounting TIO designates its interest rate swaps as cash flow hedges. The movement in fair value is recognised in the statement of comprehensive income for all derivatives other than those which qualify for hedge accounting. At the inception of the hedge relationship TIO documents the relationship between the hedging instrument and hedged item, along with its risk management objectives and its strategy for undertaking the hedge transaction. Furthermore, at the inception of the hedge and on an ongoing basis, TIO documents whether the hedging instrument that is used in a hedging relationship is highly effective in offsetting changes cash flows of the hedged item. Note 34 includes details of the fair values of the derivative instruments used for hedging purposes. Movements in the hedging reserve in equity are also detailed in the Statement of Changes in Equity.

Cash flow hedge The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss as part of other expenses or other income. Amounts deferred in equity are recycled in profit or loss in the periods when the hedged item is recognised in profit or loss in the same line of the statement of comprehensive income as the recognised hedged item. Hedge accounting is discontinued when TIO revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in profit or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss.

p) Employee benefits TIO Insurance & Banking: Provision is made for employee benefits accumulated as a result of employees rendering services up to the reporting date. These benefits include wages and salaries, annual leave and long service leave.


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Liabilities arising in respect of wages and salaries, all annual leave, and any other employee benefits expected to be settled within twelve months of the reporting date are measured at their undiscounted amounts based on remuneration rates which are expected to be paid when the liability is settled. All other employee benefit liabilities are recognised, and are measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to the expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates on national government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows.

MAC Fund: The MAC Fund does not employ staff in its own right; accordingly there are no employee benefit liabilities.

q) Translation of foreign currency transactions Foreign currency transactions are initially translated into Australian currency at the rate of exchange at the date of the transaction. At balance date amounts payable and receivable in foreign currencies are translated to Australian currency at rates of exchange at that date. Resulting exchange differences are recognised in the statement of comprehensive income for the year.

r) Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand, demand deposits and short term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Short term cash equivalents held for investment purposes and not to meet the short term cash commitments of TIO are excluded from cash and cash equivalents.

s) Intangible assets Intangible assets are measured at cost. Following initial recognition, the intangible asset is carried at cost less any accumulated amortisation and accumulated impairment losses. TIO amortises intangible assets on a basis which reflects the pattern of when expected economic benefits are likely to be realised. All intangible assets are not internally generated and are considered to have a finite life. Software development expenditure that meets the criteria for recognition as an intangible asset is capitalised on the statement of financial position and amortised over 1-4 years, subject to impairment testing.

t) Funding for road safety programs – MAC Fund Pursuant to Sections 23 and 26 of the Territory Insurance Office Act, TIO provides the Northern Territory Government with funds to meet certain costs in relation to the operation of the road safety programs.

u) Accounts payable

These amounts represent liabilities for goods and services provided to TIO prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.


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v) Deposits TIO Insurance & Banking: Interest-bearing deposits are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. MAC Fund: This policy is not applicable to the MAC Fund.

w) Leases

Leases are classified at their inception as either operating or finance leases based on the economic substance of the agreement so as to reflect the risks and benefits incidental to ownership. Operating leases where TIO is a lessee TIO enters into operating leases for office accommodation. Rentals payable under operating leases are charged to the statement of comprehensive income on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. Operating leases where TIO is a lessor TIO is a lessor in respect of operating leases that are entered into with tenants who occupy properties owned by TIO. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased assets and recognised on a straight-line basis over the lease term.

x) Provisions

A Provision is a liability of uncertain timing or amount which is recognised in the statement of financial position when: TIO has a present obligation (legal or constructive) as a result of a past event; It is probable that an outflow of economic benefits will be required to settle the

obligation; and The amount can be reliably measured.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, when appropriate, the risks specific to the liability.

y) Contingent liabilities and contingent assets

Contingent liabilities are not recognised in the statement of financial position but are disclosed in the financial statements, unless the possibility of settlement is remote, in which case no disclosure is made. If settlement becomes probable, a provision is recognised. Contingent assets are not recognised in the statement of financial position but are disclosed in the financial statements when inflows are probable. If inflows become virtually certain, an asset is recognised.


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The amount disclosed as a contingent liability or contingent asset is the best estimate of the settlement or inflow.

z) Commitments

Commitments are not recorded on the statement of financial position but are disclosed in the financial statements at their face value.

aa) Comparatives

Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosures.

ab) Rounding of amounts Amounts in the financial statements are presented in Australian dollars and have been rounded off to the nearest thousand dollars, or in certain cases, to the nearest dollar.

2.4 Critical accounting judgments and estimates

TIO makes estimates, judgments and assumptions in respect of certain key assets and liabilities. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates are applied are described below and relate to outstanding claims liabilities and reinsurance assets.

a) The ultimate liability arising from claims made under

insurance contracts Provision is made at the year end for the estimated cost of claims incurred but not settled at the statement of financial position date, including the cost of claims incurred but not yet reported to TIO. The estimated cost of claims includes direct expenses to be incurred in settling claims gross of the expected value of salvage and other recoveries. TIO takes all reasonable steps to ensure that it has appropriate information regarding its claims exposures. However, given the uncertainty in establishing claims provisions, it is likely that the final outcome will prove to be different from the original liability established.

The estimation of claims incurred but not reported ('IBNR') is generally subject to a greater degree of uncertainty than the estimation of the cost of settling claims already notified to TIO, where more information about the claim event is generally available. IBNR claims may often not be apparent to the insured until many years after the events giving rise to the claims have happened. In relation to the workers compensation, liability and MAC Fund classes of businesses, there is typically a greater variation between initial estimates and final outcomes due to the uncertainty in estimating the ultimate cost of claims reported.


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For the short-tail personal and domestic classes, claims are typically reported soon after the claim event, are settled within a reasonably short period, and hence tend to display lower levels of volatility. In calculating the estimated cost of unpaid claims TIO uses a variety of estimation techniques, generally based upon statistical analyses of historical experience, which assumes that the development pattern of the current claims will be consistent with past experience. Allowance is made, however, for changes or uncertainties which may create distortions in 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 in TIO processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with the statistics from previous periods

• changes in the legal environment • the effects of inflation • changes in the mix of business • the impact of large losses • movements in industry benchmarks • medical and technological developments

A component of these estimation techniques is usually the estimation of the cost of notified but not paid claims. In estimating the cost of these claims TIO has regard to the claim circumstance as reported, any information available from loss adjusters and information on the cost of settling claims with similar characteristics in previous periods.

Large claims impacting each relevant business class are generally assessed separately, being measured on a case by case basis or projected separately in order to allow for the possible distortive effect of the development and incidence of these large claims.

Where possible TIO adopts multiple techniques to estimate the required level of provisions. This assists in giving greater understanding of the trends inherent in the data being projected. The projections given by the various methodologies also assist in setting the range of possible outcomes. The most appropriate estimation technique is selected taking into account the characteristics of the business class and the extent of the development of each accident year.

Provisions are calculated gross of any reinsurance recoveries. A separate estimate is made of the amounts that will be recoverable from reinsurers based upon the gross provisions.

Details of specific assumptions used in deriving the outstanding claims liability at year end are detailed in note 3.

b) Assets arising from reinsurance contracts Assets arising from reinsurance contracts are also computed using the above methods. The recoverability of these assets is assessed on a periodic basis to ensure that the balance is reflective of the amounts that will ultimately be received, taking into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective evidence that TIO may not receive amounts due to it and these amounts can be reliably measured.


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3. Actuarial assumptions and methods TIO currently writes the following classes of business:

Disclosure category Category of business Class of business Nature

General Insurance Personal lines Home Short Tail

Motor Short Tail

Marine Short Tail

Other Short Tail

Commercial lines Fire and ISR Short Tail

Contractors Short Tail

Marine Short Tail

Motor Short Tail

Other Short Tail

Workers compensation Workers compensation Long Tail

Liability Public liability Long Tail

Indemnity Long Tail

Disclosure category Category of business Class of business Nature

MAC Fund Compulsory Third Party Compulsory Third Party Long Tail

Short Tail – claims are typically settled within one year of being reported. Long Tail – claims are typically settled over a period longer than one year of being reported or are not typically reported within a year of inception of the loss event. The process for determining the value of outstanding claims liabilities in respect of these classes of business categories is described below. Personal and commercial lines (short tail) With personal and commercial lines short tail business, there is not a significant delay between the occurrence of the claim and the claim being reported to TIO. Historic loss ratios are analysed to determine how claims incurred in previous periods have developed over time. In addition, ultimate claims incurred are estimated based on past reporting patterns, and payments per claim incurred models are used to project future payments. Final estimates are adopted taking both loss ratio and payments based models into account.


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Workers compensation, liability and MAC Fund (long tail) Claims estimates for TIO’s long tail business are derived from analysis of the results of several different actuarial methods including claims incurred, payment per active claims, claims estimates, and annuity. Payment reporting patterns and payment experience are analysed to develop a weighting to each method that the actuary expects to best represent likely future payments at that the valuation date. In the latest valuation for TIO more weight has been given to average claims size based results for most accident years. For MAC more weight has been given to claims estimates based results for most accident years.

Claims inflation is incorporated into the resulting projected payments, to allow for both general economic inflation as well as any superimposed inflation detected in the modelling of payments experience. Superimposed inflation arises from non-economic factors such as developments of legal precedent.

Projected payments are discounted to allow for the time value of money. The long tail classes of business are also subject to the emergence of new types of latent claims, but no specific allowance is included for this as at the statement of financial position date. Such uncertainties are considered when setting the risk margin appropriate for this class.

Inwards reinsurance TIO’s inwards reinsurance portfolio is in run-off. Claims estimates for TIO's inwards reinsurance business are derived from an analysis of the historic development of incurred claims, paid claims and loss ratios. For some classes, ultimate loss ratios are applied which reflect the long term expected level. For other classes, estimates are based on case estimates, with appropriate allowance for future development based on historic experience. Allowance is made for inflation and projected payments are discounted to allow for the time value of money.

Actuarial assumptions The following assumptions were made in determining the outstanding claims liabilities. 2010 2009 2010 2009 Insurance Insurance MAC Fund MAC Fund Average weighted term to settlement 3.95 3.90 9.55 8.62 Average claim frequency (latest accident year) 8.98% 9.73% 0.30% 0.31% Average claim size 5,441 5,008 74,437 67,726 Expense rate 6.05% 6.04% 7.50% 7.50% Discount rate 4.5%-5.8% 3.4%-6.2% 4.5%-5.8% 3.4%-6.2% Inflation 4.20% 4.20% 4.20% 4.20%

Process used to determine assumptions A description of the processes used to determine these assumptions is provided below: Average weighted term to settlement The average weighted term to settlement is calculated separately by class of business based on historic payment patterns.


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Average claim frequency Claim frequency is estimated by projecting the number of claims incurred based on past patterns and dividing this by the number of policies in force. Expense rate Claims handling expenses were calculated by reference to past experience, allocated to class of business and compared to past payments. Discount rate Discount rates derived from market yields on Commonwealth Government securities as at the balance date have been adopted. Inflation Economic inflation assumptions are set by reference to current economic indicators. Sensitivity analysis - insurance contracts i) Summary TIO conducts sensitivity analyses 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 TIO. The tables below describe how a change in each assumption will affect the insurance liabilities and show an analysis of the sensitivity of the profit/(loss) and equity to changes in these assumptions both gross and net of reinsurance. Variable Impact of movement in variable Average weighted term to settlement

A decrease in the average term to settlement in the long tail classes of business class would lead to more claims being paid sooner than anticipated. Expected payment patterns are used in determining the outstanding claims liability. An increase or decrease in the average weighted term would have a corresponding increase or decrease on claims expense respectively.

Average claim frequency Claims frequencies are used in determining the level of claims incurred but not reported

(IBNR). An increase or decrease in the assumed average frequency levels would have a corresponding impact on claims expense.

Expense rate An estimate for the internal costs of handling claims is included in the outstanding

claims liability. An increase or decrease in the expense rate assumption would have a corresponding impact on claims expense.

Discount rate The outstanding claims liability is calculated by reference to expected future payments.

These payments are discounted to adjust for the time value of money. An increase or decrease in the assumed discount rate will have an opposing impact on total claims expense.

Inflation Expected future payments are inflated to take account of inflationary increases. In

addition to the general economic inflation rate an amount is superimposed to take account of non- economic inflationary factors, such as increases in court awards. Such rates of inflation are specific to the model adopted. An increase or decrease in the assumed levels of inflation would have a corresponding impact on claims expense, with particular reference to longer tail business.


30 June 2010


ii) Impact of changes in key variables

Effect on Profit/(loss)

before tax

Gross of reinsurance

$’000

Net of reinsurance

$’000 Equity $’000

Variable Movement in

variable Adjusted amounts

Insurance Weighted term to settlement +10% (638) (458) (320) -10% 635 456 319 Average claim frequency – latest accident year

+10% (2,845) (2,534) (1,774)

-10% 2,845 2,534 1,774 Average claim size +10% (11,916) (10,091) (7,064) -10% 11,916 10,091 7,064 Expense rate +1% (1,206) (1,132) (792) -1% 1,206 1,132 792 Discount rate +1% 5,120 3,732 2,612 -1% (5,747) (4,110) (2,877) Inflation +1% (5,768) (4,396) (3,077) -1% 5,231 4,052 2,837 MAC Fund Weighted term to settlement +10% (2,790) (2,216) (2,216) -10% 2,761 2,196 2,196 Average claim frequency – latest accident year

+10% - - -

-10% - - - Average claim size +10% (26,661) (23,721) (23,721) -10% 26,661 23,721 23,721 Expense rate +1% (2,480) (2,480) (2,480) -1% 2,480 2,480 2,480 Discount rate +1% 22,000 19,629 19,629

-1% (26,519) (23,717) (23,717)

Inflation +1% (26,632) (26,632) (26,632) -1% 22,466 22,466 22,466


30 June 2010


4. Insurance contracts – risk management policies and procedures

Unless stated otherwise the following disclosures relate to both TIO and the MAC Fund. a) Objectives in managing risks arising from insurance contracts and

policies for mitigating those risks TIO 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 Board and senior management of TIO have developed, implemented and maintained a sound and prudent Risk Management Framework (RMF) and a Reinsurance Management Strategy (REMS).

The RMF and REMS identify TIO'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 TIO.

The RMF and REMS have been approved by the Board. Key aspects of the processes established in the RMF 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.

• Information from the management information systems, are used to calculate premiums and monitor claims patterns. Past experience and statistical methods are used as part of the process. Actuarial models are also utilised in specific classes and in all claims valuations.

• Documented procedures are followed for underwriting and accepting insurance risks.

• Natural disasters such as cyclones are more challenging to manage. TIO 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 TIO’s 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 TIO 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.

• The diversification of the business over numerous classes of insurance and large numbers of uncorrelated individual risks seeks to reduce variability in loss experience.


30 June 2010


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 TIO. 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

TIO’s 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.

TIO has modelled aggregated risk by postcode using commercially available catastrophe models with a specific TIO model developed in conjunction with Aon Re and Willis.

Based on the probable maximum loss per the models, TIO 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 20 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 interest rate risk is 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 aging of premium debtors is included in note 34 (e).


30 June 2010


g) Reinsurance counterparty risk

TIO reinsures a portion of risks underwritten to control exposure to insurance losses, reduce volatility and protect capital. TIO’s strategy in respect of the selection, approval and monitoring of reinsurance arrangements is addressed by the following protocols, which are overseen by the Reinsurance Committee:

• Treaty or facultative reinsurance is placed in accordance with the requirements

of TIO’s reinsurance management strategy. • Reinsurance arrangements are regularly reassessed to determine their

effectiveness based on current exposures, historical losses and potential future losses based on Realistic Disaster Scenarios and TIO’s Maximum Event Retention.

• Exposure to reinsurance counterparties and the credit quality of those counterparties is actively monitored.

Strict controls are maintained over reinsurance counterparty exposures. Reinsurance is placed with counterparties that have a strong credit rating and concentration of risk is managed by adherence to counterparty limits. Counterparty limits are reviewed by management on a regular basis. Credit risk exposures are calculated regularly and compared with authorised credit limits. The following table provides information about the quality of TIO’s credit risk exposure in respect of reinsurance and other recoveries on outstanding claims at the balance date. The analysis classifies the assets according to Standard & Poor’s counterparty credit ratings. AAA is the highest possible rating.

Credit Ratings AAA AA A Unrated Total

$’000

$’000 $’000 $’000 $’000

Reinsurance and other recoveries on outstanding claims

2010 1,530 22,425 25,187 6,546 55,688

2009 4,934 20,897 20,943 3,946 50,720

Reinsurance and other recoveries on paid claims

2010 1,067 2,221 1,845 2,168 7,301 2009 298 939 2,187 653 4,077

The following table provides further information regarding the ageing of reinsurance and other recoveries on paid claims as at 30 June.

0 to 3

months 3 to 6

months Greater than 6

months

Impaired Total

Reinsurance and recoveries on paid claims

2010

$’000

$’000 $’000 $’000 $’000

Insurance 5,127 (1,666) 1,279 318 5,058 MAC 2,411 (144) (213) 189 2,243 Total TIO 7,538 (1,810) 1,066 507 7,301

2009 Insurance 2,207 (129) 1,666 278 4,022 MAC - - - 55 55 Total TIO 2,207 (129) 1,666 333 4,077


30 June 2010


5. Revenue

2010 2009

$’000 $’000 $’000 $’000 $’000 $’000

TIO TIO Insurance

& Banking MAC Fund TIO TIO Insurance

& Banking MAC Fund

Premium revenue

Direct (note 9) 154,687 96,288 58,399 139,102 85,224 53,878 Inwards reinsurance (note 9) - - - - - -

154,687 96,288 58,399 139,102 85,224 53,878

Reinsurance and other recoveries 26,203 15,279 10,924 18,496 11,669 6,827 Revenue from the rendering of services Revenue from financial assets and liabilities not at fair value through profit and loss 6,714 6,714 - 7,749 7,749 - Other Revenue from the rendering of services 292 72 220 401 183 218 7,006 6,786 220 8,150 7,932 218

Finance revenue

Interest revenue – Banking 41,752 41,752 - 47,118 47,118 - Interest revenue – Non Banking 9,151 3,490 5,661 13,607 6,665 6,942

50,903 45,242 5,661 60,725 53,783 6,942

Financial assets at fair value through profit and loss:

Trust distributions 17,664 3,934 13,730 11,155 2,491 8,664 Change in the fair value of investments held for trading 16,340 4,640 11,700 (39,904) (6,095) (33,809) Net gain on the disposal of investments held for trading 4,081 1,224 2,857 (21,390) (6,190) (15,200) Change in fair value of derivatives – ineffective cash flow hedges 470 470 - (1,095) (1,095) - Change in fair value of derivatives - other 119 119 - (612) (612) - Change in fair value of embedded derivative - - - (407) (407) -

89,577 55,629 33,948 8,472 41,875 (33,403)

Revenue from properties

Rental revenue 2,091 568 2,846 5,281 2,001 3,432 Net gain on disposal of investment property - - - 1,404 - 1,404 Change in the fair value of investment property - - - - - -

2,091 568 2,846 6,685 2,001 4,836

Other income

Bad debts recovered 44 44 - 44 44 - Operating expenses recovered from related party - 7,736 - - 6,029 -

Other miscellaneous income 803 467 336 308 32 276

847 8,247 336 352 6,105 276

Total revenue 280,411 182,797 106,673 181,257 154,806 32,632


30 June 2010


6. Other specific net (losses)/gains and expenses included in the statement of comprehensive income

2010 2009

TIO TIO

Insurance & Banking

MAC Fund TIO TIO

Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Loss on sale of property, plant and equipment

(86) (86) - (31) (31) -

Depreciation – property, plant and equipment

(1,657) (1,103) (554) (1,990) (1,962) (28)

Amortisation of intangible assets (2,526) (342) (2,184) (657) (341) (316) Impairment loss – Loans and receivables

(205) (192) (13) (904) (874) (30)

Interest expense – Banking (29,779) (29,779) - (37,868) (37,868) -

Interest Expense – Non banking - - - (1,564) (1,564) -

Interest Expense - Total (29,779) (29,779) - (39,432) (39,432) - Operating expenses on-charged by related party

- - (7,736) - - (6,029)

Rental expense relating to operating leases – minimum lease payments

(738) (2,016) (45) (1,506) (1,506) (152)

7. Interest revenue and interest expense

The following tables show the average balance for each of the major categories of Banking’s interest-bearing assets and liabilities, the amount of interest revenue or expense and the average interest rate. Monthly averages are used to calculate average balances.

TIO – BANKING Average Balance

$’000 Interest

$’000 Average Interest Rate

%

Interest revenue 2010

From assets carried at amortised cost:

Commercial loans 34,713 2,900 8.35%

Home loans 503,240 31,614 6.28%

Personal loans 19,562 2,039 10.42% From assets at fair value through profit and loss:

Investment securities & Cash at Bank1 74,818 3,102 4.15%

Interest Rate Swaps 48,250 2,096 4.34%

650,583 41,752 6.13%

Interest expense 2010 From liabilities carried at amortised cost:

Customer deposits 489,660 20,535 4.19%

Securitisation 108,541 6,082 5.60% From Liabilities at fair value through profit and loss:


646,451 29,779 4.61%

Net interest income 2010 11,973 1.52%

1. This category includes cash at bank. The short term nature of cash at bank results in the carrying value approximating fair value.


30 June 2010


TIO – BANKING Average Balance

$’000 Interest

$’000 Average Interest Rate

%

Interest revenue 2009

From assets carried at amortised cost:

Commercial loans 40,645 3,452 8.49%

Home loans 461,100 32,243 6.99%

Personal loans 30,872 3,182 10.31% From assets at fair value through profit and loss:

Investment securities & Cash at Bank1 67,459 3,827 5.67%


682,276 47,118 6.91%

Interest expense 2009 From liabilities carried at amortised cost:

Customer deposits 410,308 21,939 5.35%

Securitisation 159,058 10,271 6.46%


651,566 37,868 5.81%

Net interest income 2009 9,250 1.09%

8. Underwriting result

2010 2009

TIO TIO

Insurance & Banking

MAC Fund TIO TIO

Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000 Premium revenue

154,687 96,288 58,399 139,102 85,224 53,878

Outwards reinsurance premium expense

(45,050) (37,421) (7,629) (41,323) (33,708) (7,615)

Net premium revenue (note 9) 109,637 58,867 50,770 97,779 51,516 46,263

Claims expense (130,985) (76,088) (54,897) (114,962) (61,424) (53,538)

Reinsurance and other recoveries revenue

26,203 15,279 10,924 18,496 11,669 6,827

Net claims incurred (note 22) (104,782) (60,809) (43,973) (96,466) (49,755) (46,711)

Acquisition costs (note 19) (7,238) (6,556) (682) (6,896) (5,663) (1,233)

Deficiency adjustment (note 19) 2,094 2,094 - (2,094) (2,094) -

Underwriting profit/(loss) (289) (6,404) 6,115 (7,677) (5,996) (1,681)


30 June 2010


9. Net premium revenue

2010 TIO

Direct Inwards

Reinsurance Total

$’000 $’000 $’000

Gross written premiums 161,867 - 161,867

Movement in unearned premiums (7,180) - (7,180)

Premium revenue 154,687 - 154,687

Outwards reinsurance premiums (45,050) - (45,050)

Net premium revenue 109,637 - 109,637

2010 TIO Insurance & Banking

2010 MAC Fund

Direct

Inwards Reinsurance Total Direct

Inwards Reinsurance Total

$’000 $’000 $’000 $’000 $’000 $’000

Gross written premiums 101,774 - 101,774 60,093 - 60,093 Movement in unearned premiums (5,486) - (5,486) (1,694) - (1,694)

Premium revenue 96,288 - 96,288 58,399 - 58,399 Outwards reinsurance premiums (37,421) - (37,421) (7,629) - (7,629)

Net premium revenue 58,867 - 58,867 50,770 - 50,770

2009 TIO

Direct Inwards

Reinsurance Total

$’000 $’000 $’000

Gross written premiums 148,804 - 148,804 Movement in unearned premiums (9,702) - (9,702) Premium revenue 139,102 - 139,102 Outwards reinsurance premiums (41,323) - (41,323) Net premium revenue 97,779 - 97,779

2009 TIO Insurance & Banking

2009 MAC Fund

Direct

Inwards Reinsurance Total Direct

Inwards Reinsurance Total

$’000 $’000 $’000 $’000 $’000 $’000

Gross written premiums 93,264 - 93,264 55,540 - 55,540 Movement in unearned premiums (8,040) - (8,040) (1,662) - (1,662) Premium revenue 85,224 - 85,224 53,878 - 53,878 Outwards reinsurance premiums (33,708) - (33,708) (7,615) - (7,615) Net premium revenue 51,516 - 51,516 46,263 - 46,263


30 June 2010


10. Income tax

The following disclosures relate to the operation of the TIO as a whole.

(a) The major components of income tax expense are:

TIO

2010 2009 $’000 $’000

Current income tax

Current income tax charge (644) 350

Adjustment in respect of current income tax of previous years (20) (50) Total current income tax (664) 300

Deferred income tax Relating to originating and reversing temporary differences of deferred tax asset items charged to the statement of comprehensive income. 1,824 (380) Relating to originating and reversing temporary differences of deferred tax liability items charged to the statement of comprehensive income. 57 (5,644) Total deferred income tax 1,881 (6,024)

Income tax (benefit)/expense 1,217 (5,724)

(b) A reconciliation between tax expense and the product of accounting profit before income tax multiplied by TIO’s applicable tax rate is as follows:

TIO

2010 2009

$’000 $’000

Accounting profit for the period before income tax 36,673 (58,660)

Income tax expense calculated at the tax rate of 30% 11,001 (17,598)

Tax effect of permanent differences:

Internal transactions (31) (257)

Div 10D building allowance

- - Net non-assessable overseas reinsurance payments/recoveries - -

Non deductible expenses 7 13

MAC (profit) (9,649) 12,338

Other items (net) 54 66

Income tax expense adjusted for permanent differences 1,382 (5,438)

Adjustments relating to previous years – current income tax (20) 67

Adjustments relating to previous years – deferred income tax (145) (117)

Income tax credits - (236) Income tax expense/(Benefit) 1,217 (5,724)


30 June 2010


(c) Amount Recognised in Other Comprehensive Income

TIO 2010 2009

$’000 $’000 Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss but directly debited to equity

231 414

Net deferred tax - debited (credited) directly to equity is made up of the following:

Revaluation of Property, Plant and Equipment 104 551

Hedging Reserve 127 (137)

231 414

(d) Deferred income tax at 30 June relates to the following:

TIO 2010 2009

$’000 $’000

Deferred tax assets:

Provisions deductible against future taxable income 2,035 1,864

Accrued expenditure deductible against future taxable income 657 571

Claims handling expense deductible against future taxable income 1,095 1,098

Financial Asset losses deductible against future taxable income 1,111 3,304

Tax losses 783 -

Other 284 315 5,965 7,152

Deferred tax assets: Movement

Employee entitlements

Impairment Provisions

Expense accruals

Claims handing

Financial assets

Tax Losses

Other

Total

$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

1 July 2008 1,261 448 672 962 3,064 - 365 6,772 Charged /(credited) to income 80 75 (101) 136 240 - (50) 380

30 June 2009 1,341 523 571 1,098 3,304 - 315 7,152

Charged /(credited) to income 276 (105) 86 (3) (2,193) 145 (31) (1,825) Charged directly to income tax provision - - - - - 638 - 638 30 June 2010 1,617 418 657 1,095 1,111 783 284 5,965


30 June 2010


TIO

2010 2009

$’000 $’000

Deferred tax liabilities:

Interest receivable 249 229

Property, plant and equipment and investment properties 1,759 1,668

Fair value adjustments to financial assets 316 101

Other 21 59 2,345 2,057

Deferred tax liabilities: Movement

Interest receivable

Property, plant and

equipment

Financial assets Other

Total

$’000 $’000 $’000 $’000 $’000

1 July 2008 363 6,163 619 141 7,286

Charged /(credited) to income (134) (5,046) (382) (82) (5,644)

Charged directly to equity - 551 (136) - 415 30 June 2009 229 1,668 101 59 2,057

Charged /(credited) to income 20 (14) 88 (37) 57

Charged directly to equity - 104 127 - 231 30 June 2010 249 1,758 316 22 2,345

(e) Tax payable or prepaid as at 30 June:

TIO

2010 2009

$’000 $’000

Current tax asset/(liability) is comprised of:

Current income tax charge 1,364 2,753 1,364 2,753

11. Cash and cash equivalents

2010 2009

TIO

TIO Insurance & Banking

MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Cash at bank and on hand 30,215 27,855 2,360 32,780 24,045 8,735 30,215 27,855 2,360 32,780 24,045 8,735


30 June 2010


12. Trade and other receivables

2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Premiums receivable – direct insurance 47,734 46,648 1,086 42,684 41,641 1,043

Less: allowance for impairment loss (157) (157) - (135) (135) - Premiums receivable – inwards reinsurance - - - - - -

Less: allowance for impairment loss - - - - - -

47,577 46,491 1,086 42,549 41,506 1,043

Interest receivable 1,658 830 828 1,537 763 774

Related party receivable - - 1,027 - 843 -

Other debtors 3,183 3,165 18 2,309 2,159 150

52,418 50,486 2,959 46,395 45,271 1,967

The table below provides a reconciliation of the allowances for impairment losses as at 30 June.

2010 2009

TIO TIO

Insurance & Banking

MAC Fund

TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000 Opening balance as at 30 June (135) (135) - (156) (156) - Premium receivables written off 69 69 - 90 90 - (Increase)/ Decrease in the allowance for the year charged to the statement of comprehensive income (91) (91) - (69) (69) - Closing balance as at 30 June (157) (157) - (135) (135) -

Refer to Note 34 (b) for further disclosures.


30 June 2010


13. Other financial assets and other financial liabilities

Financial Assets

2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Derivative financial assets

Interest rate swaps 124 124 - 5 5 - Embedded derivative financial instrument - - - 1,429 1,429 -

Total derivative financial assets 124 124 - 1,434 1,434 -

Other financial assets At fair value through profit and loss: Investments held for trading

Securities 566,892 224,679 342,213 487,390 194,799 292,591

Total other financial assets 566,892 224,679 342,213 487,390 194,799 292,591

Total financial assets 567,016 224,803 342,213 488,824 196,233 292,591

Current financial assets

Short term deposits 135,813 98,954 36,859 121,656 84,818 36,838

Floating rate notes 10,305 7,952 2,353 21,003 16,036 4,967

Bonds 59,505 - 59,505 48,368 - 48,368

Other investments 79,649 48,478 31,171 66,643 42,355 24,288

Units in unlisted trusts 281,620 69,295 212,325 229,720 51,590 178,130

Derivative financial assets 124 124 - 5 5 -

Total current financial assets 567,016 224,803 342,213 487,395 194,804 292,591

Non-current financial assets Embedded derivative financial instrument - - - 1,429 1,429 -

Total non-current financial assets - - - 1,429 1,429 -

Total Financial Assets 567,016 224,803 342,213 488,824 196,233 292,591

The investments securities included above represent investments in unlisted unit trusts, bonds and floating rate notes, which offer TIO the opportunity for return through interest income, trust distributions and fair value gains. The fair values of these securities are based on quoted market prices. The derivative financial asset or financial liability represents the fair value of derivatives in existence at year end. TIO is a party to derivative financial instruments in the normal course of business in order to economically hedge exposure to fluctuations in interest rates. Interest rate swaps convert the variable nature of the deposits portfolio into fixed. The embedded derivative asset represented the buy back option of TIO’s right to receive ongoing commission payments under the Central Sourcing Arrangements and Proper Authority Agreement with Commonwealth Financial Solutions Pty Ltd and/or Financial Wisdom Limited. The fair value of this embedded derivative was based on an agreed formula as specified in the contract, updated to reflect current fair value. The embedded derivative is nil as at 30 June 2010 due to the sale of the financial planning business in June 2010.


30 June 2010


Current Financial Liabilities

2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Derivative financial liabilities

Interest rate swaps (102) (102) - (995) (995) -

Inflation linked swaps - - - - - -

Futures - - - - - -

Total derivative financial liabilities

(102) (102) - (995) (995) -

Total financial liabilities (102) (102) - (995) (995) -

14. Loans

2010 2009

TIO

TIO Insurance

& Banking

MAC Fund TIO

TIO Insurance

& Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Loans (i) 564,993 564,993 - 545,278 545,278 -

Less: allowance for impairment loss (918) (918) - (1,053) (1,053) -

564,075 564,075 - 544,225 544,225 -

Loans - Current assets 14,333 14,333 - 18,373 18,373 -

Loans - Non-current assets 549,742 549,742 - 525,852 525,852 -

564,075 564,075 - 544,225 544,225 -

(i) Includes securitised home loans of $86 million (2009: $134 million) which has an associated securitised liability of $86 million (2009: $134 million) Refer to note 34 for the financial instrument disclosures relating to these loans. Refer to note 31 for related party loan disclosures. The table below provides a reconciliation of the allowances for impairment losses as at 30 June: 2010 2009

TIO TIO

Insurance & Banking

MAC Fund

TIO


MAC Fund

$,000 $,000 $,000 $,000 $,000 $,000 Opening balance

(1,053) (1,053) - (1,045) (1,045) -

Loans written off

441 441 - 532 532 -

Increase in the allowance for the year charged to the statement of comprehensive income

(306) (306) - (540) (540) -

Closing balance (918) (918) - (1,053) (1,053) -


30 June 2010


2010 2009

TIO

TIO Insurance &

Banking MAC Fund

TIO

TIO Insurance &

Banking MAC Fund

$,000 $,000 $,000 $,000 $,000 $,000

(a) Maturity analysis

Not longer than three months 3,802 3,802 - 4,524 4,524 -

Longer than three months and not longer than 12 months

10,531 10,531 - 13,849 13,849 -

Longer than one year and not longer than five years

48,719 48,719 - 66,906 66,906 -

Longer than five years 490,039 490,039 - 446,819 446,819 -

No maturity specified 10,984 10,984 - 12,127 12,127 -

564,075 564,075 - 544,225 544,225 -

(b) Loans by purpose

Personal 14,352 14,352 - 24,955 24,955 -

Commercial 33,213 33,213 - 38,626 38,626 -

Home 516,510 516,510 - 480,644 480,644 -

564,075 564,075 - 544,225 544,225 -

(c) Concentration of risk

TIO has an exposure to the following geographical segments:

Northern Territory residents 515,827 515,827 - 493,634 493,634 -

Non-Northern Territory residents 48,248 48,248 - 50,591 50,591 -

564,075 564,075 - 544,225 544,225 -

15. Investment property TIO

Investment properties

Deferred lease

incentives

Total

Fair value of investment property

$’000 $’000 $’000

At 1 July 2008 36,900 37 36,937 Additions to investment property 101 - 101 Disposals from investment properties (37,001) (22) (37,023) Amortisation of lease incentives - (15) (15) Increase in fair value of investment property - - -

At 30 June 2009 - - -

Additions to investment property - - - Disposals from investment properties - - - Amortisation of lease incentives - - - Increase in fair value of investment property - - -

At 30 June 2010 - - -


30 June 2010


TIO Insurance & Banking MAC Fund

Investment property

Deferred lease

incentives

Total

Investment

property

Deferred lease

incentives

Total

Fair value of investment property

$’000 $’000 $’000 $’000 $’000 $’000

At 1 July 2008 - - - 36,900 37 36,937 Additions to investment property - - - 101 - 101 Disposals from investment properties - - - (37,001) (22) (37,023) Amortisation of lease incentives - - - - (15) (15) Increase in fair value of investment property - - - - - -

At 30 June 2009 - - - - - - Additions to investment property - - - - - - Disposals from investment properties - - - - - - Amortisation of lease incentives - - - - - - Increase in fair value of investment property - - - - - -

At 30 June 2010 - - - - - -

Investment property On 29 May 2009 the MAC Fund’s investment property located at 22 Mitchell Street, Darwin was sold. As a result of this sale TIO has not held any investment property during the 2010 financial year.

Deferred lease incentives The amount represents costs associated with lease incentives incurred which arose in connection with the negotiation of operating leases of the MAC Fund’s investment property portfolio, and which are being amortised over the term of those leases. These costs include the costs of fit outs and the accrual of rent during rent free periods of occupation. Any unamortized lease incentives at the time of sale of the investment property were charged to expenses.


30 June 2010


16. Intangible assets TIO


MAC Fund

$’000 $’000 $’000 At 1 July 2008 517 517 - Additions 2,618 189 2,429 Disposals - - - Transfer to property, plant and equipment (14) (14) - Transfer from work in progress 465 - 465 Amortisation charge for the year (657) (341) (316) At 30 June 2009, net of accumulated amortisation 2,929 351 2,578 Additions 1,281 1,281 - Disposals - - - Transfer to property, plant and equipment - - - Transfer from work in progress 100 100 - Amortisation charge for the year (2,526) (342) (2,184) At 30 June 2010, net of accumulated amortisation 1,784 1,390 394

At 30 June 2008 Cost 7,003 7,003 - Accumulated amortisation (6,486) (6,486) - Net carrying amount 517 517 - At 30 June 2009 - Cost 10,072 7,178 2,894 Accumulated amortisation (7,143) (6,827) (316) Net carrying amount 2,929 351 2,578 At 30 June 2010 Cost 11,453 8,559 2,894 Accumulated amortisation (9,669) (7,169) (2,500) Net carrying amount 1,784 1,390 394

Intangible assets consist of software which is not an integral part of related hardware. Software classified in this manner is amortised over a period of 1– 4 years.

All of MAC’s intangible assets are internally generated software assets. No other internally generated assets have met the recognition criteria. TIO has changed the depreciation of MAC Pearl software to better reflect the pattern of when expected economic benefits are likely to be realised rather than on a straight line basis. This has resulted in a reduction in carrying value of $1,460,368.


30 June 2010


17. Property, plant and equipment

TIO Freehold land and buildings

Deferred lease

incentives Plant and

equipment Work in progress Total

$’000 $’000 $’000 $’000 $’000

At 30 June 2008, net of accumulated depreciation 40,665 110 3,713 505 44,993

Additions 9 - 1,278 135 1,422

Additional lease Incentives - - - - - Increase in fair value of owner occupied property 1,835 - - - 1,835

Disposals - - (204) - (204)

Amortisation of lease incentives - (58) - - (58)

Depreciation charge for the year (709) - (1,281) - (1,990) Transfers to property, plant and equipment and intangible assets - - 32 (498) (466)

Transfers to investment property - - 14 - 14 At 30 June 2009, net of accumulated depreciation 41,800 52 3,552 142 45,546

Additions 52 - 1,048 276 1,376

Additional lease Incentives - - - - - Increase in fair value of owner occupied property 1,394 - - - 1,394

Disposals - - (242) - (242)


Depreciation charge for the year (746) - (909) - (1,655) Transfers to property, plant and equipment and intangible assets - - 40 (140) (100)

Transfers to investment property - - - - - Transfers to statement of comprehensive income - - - (3) (3) At 30 June 2010, net of accumulated depreciation 42,500 18 3,489 275 46,282

At 30 June 2008

Cost or fair value 40,665 110 9,974 505 51,254

Accumulated depreciation - - (6,261) - (6,261)

Net carrying amount 40,665 110 3,713 505 44,993

At 30 June 2009




At 30 June 2010





30 June 2010


TIO - Insurance & Banking

Freehold land and buildings

Deferred lease



$’000 $’000 $’000 $’000 $’000

At 1 July 2008 40,665 110 3,713 39 44,527

Additions 9 - 1,116 135 1,260

Additional lease incentives - - - - - Increase in fair value of owner occupied property 1,835 - - - 1,835

Disposals (31,350) (39) (204) - (31,593)


Depreciation charge for the year (709) - (1,253) - (1,962) Transfers to property, plant and equipment and intangible assets - - 32 (32) -

Transfers to investment property - - 14 - 14 At 30 June 2009, net of accumulated depreciation 10,450 13 3,418 142 14,023

Additions 13 - 1,048 276 1,337

Additional lease incentives - - - - - Increase in fair value of owner occupied property 349 - - - 349

Disposals - - (242) - (242)


Depreciation charge for the year (187) - (869) - (1,056) Transfers to property, plant and equipment and intangible assets - - 40 (140) (100) Transfers to statement of comprehensive income - - - (3) (3)

Transfers to investment property - - - - - At 30 June 2010, net of accumulated depreciation 10,625 4 3,395 275 14,299

At 30 June 2008




At 30 June 2009




At 30 June 2010

Cost or fair value 10,625 (21) 10,655 275 21,534

Accumulated depreciation - 25 (7,260) - (7,235)



30 June 2010


MAC Fund Freehold land and buildings

Deferred lease



$’000 $’000 $’000 $’000 $’000

At 1 July 2008 - - - 466 466

Additions 31,350 39 162 - 31,551

Additional lease incentives - - - - - Increase in fair value of owner occupied property - - - - -

Disposals - - - - -

Amortisation of lease incentives - - - - -

Depreciation charge for the year - - (28) - (28) Transfers to property, plant and equipment and intangible assets - - - (466) (466)

Transfers to investment property - - - - - At 30 June 2009, net of accumulated depreciation 31,350 39 134 - 31,523

Additions 39 - - - 39

Additional lease incentives - - - - - Increase in fair value of owner occupied property 1,045 - - - 1,045

Disposals - - - - -


Depreciation charge for the year (559) - (40) - (599) Transfers to property, plant and equipment and intangible assets - - - - -

Transfers to investment property - - - - - At 30 June 2010, net of accumulated depreciation 31,875 14 94 - 31,983

At 30 June 2008

Cost or fair value - - - - -

Accumulated depreciation - - - 466 466

Net carrying amount - - - 466 466

At 30 June 2009

Cost or fair value 31,350 39 162 - 31,551

Accumulated depreciation - - (28) - (28)

Net carrying amount 31,350 39 134 - 31,523

At 30 June 2010

Cost or fair value 31,875 39 134 - 32,048

Accumulated depreciation - (25) (40) - (65)

Net carrying amount 31,875 14 94 - 31,983


30 June 2010


The net carrying amount of all classes of property, plant and equipment is considered a reasonable approximation of the fair value of the assets in the context of the financial statements. The Freehold land and buildings represents the building located at 24 Mitchell Street, Darwin. This building has been classified as Property, plant and equipment by virtue of the fact that a significant portion is occupied by TIO. Portions of this building are however leased out for rental income and any costs incurred in the negotiation and arrangement of leases have been capitalised and amortised over the term of the respective leases and are included as part of the carrying value of the respective asset as “Deferred lease incentives”.

The fair value of TIO’s owner occupied property as at 30 June 2010 has been determined and approved by the Board on the basis of an independent valuation carried out at that date by Bill Linkson; who is a certified practicing valuer of Integrated Valuation Services Pty Ltd, with relevant experience in the valuation of property in Darwin. The fair value of the property represents the amount at which the assets could be exchanged between a knowledgeable willing buyer and a knowledgeable willing seller in an arm’s length transaction at the date of valuation, in accordance with Australian Valuation Standards. Had the freehold land and buildings have been valued as at 30 June 2010 under a cost model, the carrying amount would have been $21.9m (2009: $22.1m). The ownership allocation of the building located at 24 Mitchell Street, Darwin is 25% to TIO Insurance and 75% to the MAC Fund.


30 June 2010


18. Reinsurance and other recoveries receivable

2010 2009

TIO TIO Insurance & Banking

MAC Fund

TIO TIO Insurance & Banking

MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Undiscounted on claims paid: 7,301 5,058 2,243 4,077 4,022 55 Expected future recoveries undiscounted on outstanding claims 94,902 38,763 56,139 79,209 26,206 53,003

Discount to present value (39,214) (13,712) (25,502) (28,489) (5,201) (23,288) Discounted expected future recoveries on outstanding claims 55,688 25,051 30,637 50,720 21,005 29,715 Allowance for impairment loss – Reinsurance Receivables (189) - (189) (55) - (55) Allowance for impairment loss – Reinsurance Recoveries (318) (318) - (555) (555) - Total allowance for impairment loss (507) (318) (189) (610) (555) (55)

Reinsurance and other recoveries receivable 62,482 29,791 32,691 54,187 24,472 29,715

Current 17,439 13,719 3,720 12,399 10,731 1,668

Non-current 45,043 16,072 28,971 41,788 13,741 28,047 Reinsurance and other recoveries receivable 62,482 29,791 32,691 54,187 24,472 29,715

Average inflation rates (normal) and discount rates that were used in the measurement of reinsurance and other recoveries receivable were the same as for outstanding claims as per note 3. The table below provides a reconciliation of the allowances for impairment losses as at 30 June.

2010 2009

TIO TIO

Insurance & Banking

MAC Fund

TIO


MAC Fund

$,000 $,000 $,000 $,000 $,000 $,000 Opening balance as at 30 June

(610) (555) (55) (318) (293) (25)

Reinsurance recoveries on paid claims written off

- - - - - -

(Increase)/Decrease in the allowance for the year charged to the statement of comprehensive income

103 237 (134) (292) (262) (30)

Closing balance as at 30 June

(507) (318) (189) (610) (555) (55)


30 June 2010


19. Deferred acquisition and reinsurance costs Deferred acquisition costs

2010 2009

TIO

TIO Insurance & Banking MAC Fund TIO


$’000 $’000 $’000 $’000 $’000 $’000

Deferred acquisition costs as at 1 July 2,373 2,145 228 3,758 3,547 211

Acquisition costs deferred 7,575 6,876 699 7,605 6,355 1,250 Amortisation charged to statement of comprehensive income (7,238) (6,556) (682) (6,896) (5,663) (1,233)

Deficiency Adjustment 1 2,094 2,094 - (2,094) (2,094) - Deferred acquisition costs as at 30 June 4,804 4,559 245 2,373 2,145 228 1. Refer to note 21 for additional disclosure.

Deferred reinsurance expense

2010 2009

TIO



$’000 $’000 $’000 $’000 $’000 $’000

Deferred reinsurance expense as at 1 July 24,661 24,661 - 20,315 20,315 -

Reinsurance expenses deferred 47,733 40,104 7,629 45,668 38,053 7,615 Amortisation charged to statement of comprehensive income (45,050) (37,421) (7,629) (41,323) (33,708) (7,615)

Deferred reinsurance expense as at 30 June 27,344 27,344 - 24,661 24,661 -

20. Outstanding claims liability

a) Outstanding claims liability

2010 2009

TIO



$’000 $’000 $’000 $’000 $’000 $’000

Central estimate (A) 572,146 143,470 428,676 532,825 122,255 410,570

Discount to present value (257,784) (36,332) (221,452) (239,750) (27,333) (212,417)

Central estimate discounted 314,362 107,138 207,224 293,075 94,922 198,153

Claims handling costs (B) 39,346 9,487 29,859 36,674 8,086 28,588

353,708 116,625 237,083 329,749 103,008 226,741

Risk margin (C) 45,160 14,128 31,032 41,109 11,431 29,678

Gross outstanding claims liability 398,868 130,753 268,115 370,858 114,439 256,419

Gross claims incurred – undiscounted (A+B+C) 656,652 167,085 489,567 610,607 141,769 468,838

Current 71,628 40,106 31,522 71,403 35,111 36,292

Non-current 327,240 90,647 236,593 299,455 79,328 220,127

Gross outstanding claims liability 398,868 130,753 268,115 370,858 114,439 256,419

b) Risk margin


30 June 2010


Process for determining risk margin The overall risk margin was determined allowing for diversification between different portfolios and the relative uncertainty of the outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking into account potential uncertainties relating to the actuarial models and assumptions, the quality of the underlying data used in the models, the general insurance environment, and the impact of legislative reform. The assumptions regarding uncertainty for each class were applied to the net central estimates, and the results were aggregated, allowing for diversification in order to arrive at an overall provision which is intended to have a 75% probability of adequacy.

Risk margins applied

Class of business 2010 2009 % % TIO Insurance & Banking 12.057 11.045 MAC Fund 13.089 13.089

c) Reconciliation of movement in discounted outstanding claims liability

TIO 2010 2009

Gross Reinsurance Net Gross Reinsurance Net

$’000 $’000 $’000 $’000 $’000 $’000

Brought forward 370,858 (50,720) 320,138 346,727 (50,521) 296,206

Effect of changes in assumptions 37,912 (18,976) 18,936 20,502 189 20,691 Increase in claims incurred/recoveries anticipated over the year 93,073 (7,227) 85,846 94,459 (18,625) 75,834 Incurred claims recognised in the statement of comprehensive income 130,985 (26,203) 104,782 114,961 (18,436) 96,525

Net claim payments (102,975) 21,234 (81,741) (90,830) 18,237 (72,593)

At 30 June 398,868 (55,689) 343,179 370,858 (50,720) 320,138

TIO (Insurance & Banking)

2010 2009


$’000 $’000 $’000 $’000 $’000 $’000

Brought forward 114,439 (21,005) 93,434 114,895 (24,384) 90,511

Effect of changes in assumptions 14,704 (3,074) 11,630 3,805 2,210 6,015 Increase in claims incurred/recoveries anticipated over the year 61,384 (12,205) 49,179 57,618 (13,819) 43,799 Incurred claims recognised in the statement of comprehensive income 76,088 (15,279) 60,809 61,423 (11,609) 49,814


At 30 June 130,753 (25,052) 105,701 114,439 (21,005) 93,434

MAC Fund

2010 2009



30 June 2010


$’000 $’000 $’000 $’000 $’000 $’000

Brought forward 256,419 (29,715) 226,704 231,832 (26,137) 205,695

Effect of changes in assumptions 23,208 (15,902) 7,306 16,697 (2,021) 14,676 Increase in claims incurred/recoveries anticipated over the year 31,689 4,978 36,667 36,841 (4,806) 32,035 Incurred claims recognised in the statement of comprehensive income 54,897 (10,924) 43,973 53,538 (6,827) 46,711


At 30 June 268,115 (30,637) 237,478 256,419 (29,715) 226,704

d) Claims development tables

The following tables show the development of gross and net undiscounted outstanding claims relative to the ultimate expected claims for the nine most recent accident years.

Ter

rito

ry I

nsu

rance

Offic

e N

ote

s to

th

e F

inan

cial

Sta

tem

en

ts,

30

Ju

ne 2

01

0

TIO

Annual

Rep

ort

2009/2

010

80

(i)

TIO

(In

sura

nce

& B

an

kin

g)

- g

ross

20

02

2

00

3

20

04

2

00

5

20

06

2

00

7

20

08

2

00

9

20

10

T

ota

l A

ccid

en

t year

$’0

00

$

’00

0

$’0

00

$

’00

0

$’0

00

$

’00

0

$’0

00

$

’00

0

$’0

00

$

’00

0

E

stim

ate

of

ult

imate

cla

ims

cost

:

At

end o

f th

e acc

iden

t ye

ar

15,7

59

16,4

49

18,3

21

17,5

22

18,3

92

22,1

27

29,2

48

25,1

73

26,2

65

189,2

56

One

year

late

r 17,0

48

18,1

50

19,4

39

15,1

28

16,3

55

21,5

25

33,7

80

27,1

51

- 168,5

76

Tw

o y

ears

late

r 17,8

82

18,6

47

17,4

67

12,4

66

17,8

46

22,9

54

42,1

48

- -

149,4

10

Thre

e ye

ars

late

r 16,5

58

18,6

37

16,0

82

12,7

14

19,6

01

23,9

39

- -

- 107,5

31

Four

year

s la

ter

16,5

62

17,6

31

16,2

92

12,0

66

21,6

32

- -

- -

84,1

83

Five

yea

rs lat

er

14,2

38

19,5

31

16,4

96

12,0

51

- -

- -

- 62,3

16

Six

yea

rs lat

er

14,1

85

18,2

04

17,6

60

- -

- -

- -

50,0

49

Sev

en y

ears

late

r 14,2

08

20,3

06

- -

- -

- -

- 34,5

14

Eig

ht

year

s la

ter

13,5

28

- -

- -

- -

- -

13,5

28

Cu

rren

t est

imate

of

cum

ula

tive c

laim

s co

sts

13,5

28

20,3

06

17,6

60

12,0

51

21,6

32

23,9

39

42,1

48

27,1

51

26,2

65

204,6

80

Cum

ula

tive

paym

ents

(1

1,1

13)

(13,4

61)

(13,1

75)

(8,8

42)

(12,0

36)

(12,3

55)

(13,9

95)

(10,2

78)

(4,2

60)

(99,5

15)

Ou

tsta

nd

ing

cla

ims

- u

nd

isco

un

ted

2

,41

5

6,8

45

4

,48

5

3,2

09

9

,59

6

11

,58

4

28

,15

3

16

,87

3

2

2,0

05

1

05

,16

5

Dis

count

(638)

(2,8

54)

(1,0

24)

(792)

(2,3

92)

(3,0

05)

(10,9

77)

(3,1

65)

(4,0

57)

(28,9

04)

Cla

ims

han

dlin

g e

xpen

ses

107

239

207

144

431

512

1,0

26

816

1,0

60

4,5

42

To

tal

gro

ss o

uts

tan

din

g c

laim

s 2

00

2-2

00

9

2,0

97

4

,32

1

3,5

92

3

,42

3

7,9

65

1

1,0

31

1

9,5

66

1

7,2

42

1

9,0

08

8

0,8

03

2001 a

nd p

rior

18,6

09

To

tal

ou

tsta

nd

ing

cla

ims

cen

tral

est

imate

99

,41

2

Ris

k m

argin

11,6

28

To

tal

lon

g t

ail o

uts

tan

din

g

Cla

ims

1

11

,04

0

Oth

er s

hort

tai

l outs

tandin

g

claim

s

17,1

92

Oth

er r

ecove

ries

2,5

21

To

tal In

sura

nce

gro

ss

ou

tsta

nd

ing

cla

ims

1

30

,75

3

Ter

rito

ry I

nsu

rance

Offic

e N

ote

s to

th

e F

inan

cial

Sta

tem

en

ts,

30

Ju

ne 2

01

0

TIO

Annual

Rep

ort

2009/2

010

81

(ii)

T

IO (

Insu

ran

ce &

Ban

kin

g)

- n

et

2

00

2

20

03

2

00

4

20

05

2

00

6

20

07

2

00

8

20

09

2

01

0

To

tal

Acc

iden

t year

$’0

00

$

’00

0

$’0

00

$

’00

0

$’0

00

$

’00

0

$’0

00

$

’00

0

$’0

00

$

’00

0

E

stim

ate

of

ult

imate

cla

ims

cost

:

At

end o

f th

e acc

iden

t ye

ar

15,5

41

16,0

90

17,9

46

17,0

82

17,9

67

18,9

32

20,8

71

24,8

52

26,1

58

175,4

39

One

year

late

r 16,8

77

17,8

75

19,4

32

15,1

28

16,3

55

18,9

09

26,1

05

27,1

51

- 157,8

32

Tw

o y

ears

late

r 17,7

08

18,3

86

17,4

60

12,4

66

17,8

46

20,5

43

28,9

05

- -

133,3

14

Thre

e ye

ars

late

r 16,4

68

18,4

74

16,0

75

12,7

14

19,6

01

21,4

36

- -

- 104,7

68

Four

year

s la

ter

16,4

93

17,6

31

16,2

85

12,0

66

21,5

57

- -

- -

84,0

32

Five

yea

rs lat

er

14,1

81

17,4

54

16,4

89

11,0

82

- -

- -

- 59,2

06

Six

yea

rs lat

er

14,1

39

16,5

29

17,3

46

- -

- -

- -

59,2

06

Sev

en y

ears

late

r 14,0

85

18,6

27

- -

- -

- -

- 32,7

12

Eig

ht

year

s la

ter

13,5

28

- -

- -

- -

- -

13,5

28

Cu

rren

t est

imate

of

cum

ula

tive c

laim

s co

sts

13,5

28

18,6

27

17,3

46

11,0

82

21,5

57

21,4

36

28,9

05

27,1

51

26,1

58

185,7

90

Cum

ula

tive

paym

ents

(1

1,1

13)

(13,2

68)

(13,1

68)

(8,8

42)

(12,0

36)

(12,3

55)

(13,9

95)

(10,2

78)

(4,2

60)

(99,3

15)

Ou

tsta

nd

ing

cla

ims

- u

nd

isco

un

ted

2

,41

5

5,3

59

4

,17

8

2,2

40

9

,52

1

9,0

81

1

4,9

10

1

6,8

73

21

,89

8

86

,47

5

Dis

count

(638)

(2,1

74)

(919)

(456)

(2,3

66)

(2,1

15)

(2,9

39)

(3,1

65)

(4,0

34)

(18,8

06)

Cla

ims

han

dlin

g e

xpen

ses

107

239

207

144

431

512

1,0

26

816

1,0

60

4,5

42

To

tal

gro

ss o

uts

tan

din

g c

laim

s 2

00

2-2

00

9

1,8

84

3

,42

4

3,4

66

1

,92

8

7,5

86

7

,47

8

12

,99

7

14

,52

4

1

8,9

24

7

2,2

11

2001 a

nd p

rior

outs

tandin

g c

laim

s

14,3

45

To

tal

gro

ss o

uts

tan

din

g c

laim

s ce

ntr

al

est

imate

86

,55

6

Ris

k m

argin

10,1

33

To

tal

lon

g t

ail o

uts

tan

din

g

Cla

ims

9

6,6

89

O

ther

short

tai

l outs

tandin

g

claim

s

9,0

12

To

tal In

sura

nce

gro

ss

ou

tsta

nd

ing

cla

ims

1

05

,70

1

Ter

rito

ry I

nsu

rance

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30 June 2010


e) The maturity profile of TIO’s discounted net outstanding claims provision is analysed below.

1 year or less

> 1 year and < 5 years > 5 years Total

30 June 2010 $’000 $’000 $’000 $’000 Direct Insurance 30,982 46,753 27,306 105,041 Inwards Reinsurance 145 326 191 662 Total Insurance 31,127 47,079 27,497 105,703 MAC Fund 29,854 74,865 132,759 237,478 Total discounted net outstanding claims 60,981 121,944 160,256 343,181

1 year or less

> 1 year and < 5 years > 5 years Total

30 June 2009 $’000 $’000 $’000 $’000 Direct Insurance 27,191 39,496 23,064 89,751 Inwards Reinsurance 656 1,907 1,120 3,683 Total Insurance 27,847 41,403 24,184 93,434 MAC Fund 34,624 74,940 117,140 226,704 Total discounted net outstanding claims 62,471 116,343 141,324 320,138

21. Unearned premium liability 2010 2009

TIO



$’000 $’000 $’000 $’000 $’000 $’000

Unearned premium liability as at 1 July 75,741 52,986 22,755 66,039 44,946 21,093 Deferral of premiums on contracts written in the period 82,921 58,472 24,449 75,741 52,986 22,755 Earning of premiums written in previous periods (75,741) (52,986) (22,755) (66,039) (44,946) (21,093) Unearned premium liability as at 30 June 82,921 58,472 24,449 75,741 52,986 22,755

The unearned premium liability in respect of long tail classes of business was not found to be deficient as at 30 June 2010 due to the improvement in the loss ratio and the deficiency that was identified as at 30 June 2009 has been reversed. The liability adequacy test has identified a surplus for all other contracts that are subject to broadly similar risks and are managed together as a single portfolio.


30 June 2010


Calculation of deficiency adjustment 2009

$’000 Net unearned premium liabilities relating to long tail 15,811

Less related deferred acquisition costs (2,211)

13,600

Gross central estimate of present value of expected future cash flows arising from future claims on long tail contracts issued.

15,317

Risk Margin 2,480

Gross premium liabilities 17,797

Less reinsurance recoveries on premium liabilities 2,103

Net premium liabilities 15,694

Net deficiency adjustment written down in Deferred Acquisition Costs. (Note 19)

2,094

AASB 1023 requires the inclusion of a risk margin in insurance liabilities, but does not prescribe a minimum level of margin. Whilst there is established practice in the calculation of the probability of adequacy of the claims provision, no such guidance exists in respect of the level of risk margin to be used in determining the adequacy of the net premium liabilities. The TIO Board has adopted a risk margin for the purposes of the liability adequacy test to produce a 75% probability of adequacy in respect of the total insurance liabilities. The 75% basis is a recognised industry benchmark in Australia, being the minimum probability of adequacy required for Australian licensed insurers by APRA.

22. Net claims incurred The following tables show the impact on current year results of over or under estimation of claims provisions relating to prior years. Current year claims relate to risks borne in the current reporting period whilst prior year’s claims relate to a reassessment of the risks borne in all previous reporting years.


30 June 2010


TIO (Insurance & Banking)

2010 2009

Current Year

Prior Years Total

Current Year

Prior Years Total

$’000 $’000 $’000 $’000 $’000 $’000 Direct business

Gross claims incurred – undiscounted 67,771 21,247 89,018 59,335 (8,029) 51,306 Discount movement (4,670) (6,072) (10,742) (4,077) 14,167 10,090 Gross claims incurred – discounted 63,101 15,175 78,276 55,258 6,138 61,396 Reinsurance and other recoveries - undiscounted

(12,527) (11,264) (23,790) (12,570) 1,946 (10,624)Discount movement

26 8,484 8,511 67 (1,112) (1,045)Reinsurance and other recoveries - discounted

(12,501) (2,780) (15,279) (12,503) 834 (11,669)Net claims incurred 50,600 12,395 62,997 42,755 6,972 49,727

MAC Fund

2010 2009

Current Year

Prior Years Total

Current Year

Prior Years Total

$’000 $’000 $’000 $’000 $’000 $’000 Direct business Gross claims incurred– undiscounted 60,911 4,205 65,115 53,966 18,096 72,062 Discount movement (22,396) 12,178 (10,218) (17,458) (1,066) (18,524)Gross claims incurred – discounted 38,515 16,383 54,897 36,508 17,030 53,538 Reinsurance and other recoveries - undiscounted

(1,730) (11,407) (13,137) (3,198) (1,988) (5,186)Discount movement


(1,236) (9,687) (10,924) (2,280) (4,547) (6,827)Net claims incurred 37,279 6,696 43,973 34,228 12,483 46,711

TIO

2010 2009

Current Year

Prior Years Total

Current Year

Prior Years Total

$’000 $’000 $’000 $’000 $’000 $’000 Direct business Gross claims incurred– undiscounted 128,682 25,452 154,133 113,301 10,067 123,368Discount movement (27,066) 6,106 (20,960) (21,535) 13,101 (8,434)Gross claims incurred – discounted 101,616 31,558 133,173 91,766 23,168 114,934Reinsurance and other recoveries - undiscounted

(14,257) (22,671) (36,927) (15,768) (42) (15,802)Discount movement


(13,737) (12,467) (26,203) (14,783) (3,713) (18,496)Net claims incurred 87,879 19,091 106,970 76,983 19,455 96,438


30 June 2010


2010 2009

Current Year

Prior Years Total

Current Year

Prior Years Total

$’000 $’000 $’000 $’000 $’000 $’000

Inwards Reinsurance Business Gross claims incurred– undiscounted - (2,607) (2,607) - (234) (234)Discount movement - 419 419 - 262 262 Gross claims incurred – discounted - (2,188) (2,188) - 28 28 Reinsurance and other recoveries - undiscounted

- - - - - - Discount movement

- - - - - - Reinsurance and other recoveries - discounted

- - - - - - Net claims incurred - (2,188) (2,188) - 28 28

Total net claims incurred for direct and inwards reinsurance business

87,879 16,903 104,782 76,983 19,483 96,466

Total gross claims incurred for direct and inwards reinsurance business 101,616 29,370 130,985 91,766 23,196 114,962

Total reinsurance and other recoveries (13,737) (12,467) (26,203) (14,783) (3,713) (18,496)

Total net claims incurred for direct and inwards reinsurance business 87,879 16,903 104,782 76,983 19,483 96,466

23. Trade and other payables

2010 2009

TIO



$’000 $’000 $’000 $’000 $’000 $’000

Trade payables 17,653 17,224 429 17,790 16,193 1,597

Reinsurance payables 21,003 18,932 2,071 15,769 14,615 1,154

Related party payable - 1,027 - - - 843

Other 398 386 12 391 379 12

39,054 37,569 2,512 33,950 31,187 3,606


30 June 2010


24. Deposits 2010 2009

TIO

TIO Insurance &

Banking MAC Fund TIO

TIO Insurance &

Banking MAC Fund $’000 $’000 $’000 $’000 $’000 $’000

Deposits - current liabilities 531,309 531,309 - 448,359 448,359 -

Deposits - non-current liabilities - - - - - -

Total Deposits 531,309 531,309 - 448,359 448,359 -

Deposits maturity analysis

At call 109,466 109,466 - 135,840 135,840 -

No longer than three months 250,784 250,784 - 216,233 216,233 -Longer than three and not longer than 12 months 114,738 114,738 - 72,730 72,730 -Longer than one and not longer than five years 56,321 56,321 - 23,556 23,556 -

531,309 531,309 - 448,359 448,359 -

2010 2009

TIO

TIO Insurance &


TIO Insurance &

Banking MAC Fund $’000 $’000 $’000 $’000 $’000 $’000 Concentration of deposits Northern Territory residents 393,329 393,329 - 310,608 310,608 -

Non-Northern Territory residents 137,980 137,980 - 137,751 137,751 - 531,309 531,309 - 448,359 448,359 -

25. Provisions 2010 2009

TIO

TIO Insurance &


TIO Insurance &

Banking MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

(a) Current provisions

Employee benefits 4,742 4,742 - 3,866 3,866 -

Other provisions - - - - - -

4,742 4,742 - 3,866 3,866 -

(b) Non-current provisions

Employee benefits 649 649 - 603 603 -

Total provisions 5,391 5,391 - 4,469 4,469 -


30 June 2010


26. Securitisation liabilities 2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Current 1,565 1,565 - 2,533 2,533 -

Non Current 83,944 83,944 - 131,656 131,656 -

Securitisation Liabilities 85,509 85,509 - 134,189 134,189 - Securitisation liabilities maturity analysis

Not longer than three months 396 396 - 611 611 - Longer than three months and not longer than 12 months 1,169 1,169 - 1,922 1,922 - Longer than one year and not longer than five years 7,328 7,328 - 14,870 14,870 -

Longer than five years 76,616 76,616 - 116,785 116,785 -

No maturity specified - - - - - - 85,509 85,509 - 134,189 134,189 -

27. Subordinated loans 2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000 Subordinated loans - - - - - -

The MAC Fund has a subordinated loan agreement with the Northern Territory Government which has a maturity date of June 2013. The loan was subordinated to all outstanding claims liabilities and other liability commitments directly attributable to the MAC Scheme. TIO has the ability to redraw any repayments with the approval of the Minister if required to improve the solvency levels of MAC Fund, prior to the maturity date of the loan. The loan was undrawn as at 30 June 2010.

28. Equity and Reserves Contributed equity Contributed equity represents equity contributed by the Northern Territory Government. This totals $39m as at 30 June 2010. The contributed equity for 2009 includes the balance of the Subordinated Loan at 30 June 2009 that was converted to contributed equity by the Northern Territory Government.


30 June 2010


Nature and purpose of reserves Asset revaluation reserve The asset revaluation reserve is used to record the increments and decrements in the fair value of the owner-occupied land and building net of tax, to the extent that such decrements relate to a net increment on the same asset previously recognised as equity.

Hedging Reserve The hedging reserve represents hedging gains and losses recognised on the effective portion of cash flow hedges. The cumulative deferred gain or loss on the hedge is recognised in profit or loss when the hedged transaction impacts the profit or loss, consistent with the applicable accounting policy.

29. Board member and executive disclosures The following disclosures are for the TIO Board and TIO key management personnel. Details of key management personnel (a) Board members John Flynn Chairman John Messenger Deputy Chairman Bruce Carter Roger Davis David Farquhar Retired 31 March 2010 Denise Fincham Retired 31 July 2010 John Hand MAC Fund representative Shelia O’Sullivan Retired 31 August 2009

(b) Executive management members

Name Position

From To

Richard Harding Chief Executive officer 14 July 2008 Peter Atkinson General Manager Insurance Michelle Garnaut General Manager People and

Culture 10 December 2008

Michael Hoare General Manager Corporate Services, Chief Financial Officer

Grahame Marshall General Manager Banking and Distribution

11 March 2009

Will Oliver General Counsel 1 December 2008 Andrew Fronsko General Manager MAC Fund 8 February 2009 24 March 2010 Ian Faragher General Manager MAC Fund 17 May 2010

The key management personnel held their positions for the entire financial year unless otherwise stated.


30 June 2010


Compensation of key management personnel 2010 2009

$’000 $’000 Short term benefits 2,408 2,265 Post employment benefits 266 323 Other long-term benefits 5 10 Termination benefits 4 1,039 2,683 3,637

Loans to key management personnel The following loan balances are in respect of loans made to key management personnel of TIO or to their related parties.

Year

Balance at beginning of period

$’000

Interest Charged

$’000

Write-off

$’000

Balance at end of the period

$’000 Number in

Group 2010 1,420 58 - 1,375 10 2009 2,645 54 - 1,180 9

TIO makes loans to key management personnel and related parties in its capacity as a provider of financial services. These loans are made on commercial terms and conditions no more favourable than those made on similar loans to other employees or customers. These loans are predominantly secured home loans with some minor unsecured TIO credit card advances. Other transactions and balances with key management personnel TIO sells insurance policies, pays insurance claims, makes loans to and accepts deposits from key management personnel and their related parties in its capacity as a provider of insurance and banking services. These transactions are entered into on commercial terms and conditions no more favourable than those made on similar transactions to other employees or customers and are trivial or domestic in nature TIO superannuation scheme The TIO staff superannuation operates a defined contribution plan through a Master Trust under the Colonial First State First Choice Superannuation Plan. Under the plan, TIO makes contributions on behalf of Board members and employees which are charged as an expense as they fall due. The amount of contributions recognised in the statement of comprehensive income for the year ended 30 June 2010 is $1.86m (2009: $2.76m).


30 June 2010


30. Remuneration of auditors The auditor of TIO is the Auditor-General for the Northern Territory.

2010 2009

$ $

Amounts paid, or due and payable to the NT Government for services provided by the Northern Territory Auditor-General for:

327,664 296,054 ° Audit of TIO financial statements ° Other services in relation to TIO

- assurance related - special audits required by regulators

2,508

111,028

2,682

120,498

441,200 419,234

31. Related party disclosure The Northern Territory Government is the ultimate parent entity of TIO. Companies and/or agencies that have the Northern Territory Government as a common parent are considered related parties to TIO. The following is a list of transactions that TIO enters into with related parties at market price and on normal commercial terms. Income

Related Party Details

Workers Compensation Fee

Management fee from NT Government for workers compensation

Home Builders Certification Fee

Management fee for the administration of Home Builders Certification Fund

Department of Housing Administration Fee

Fees from Department of Housing for the administration of the Homestart Scheme

Motor Vehicle Registry Gross earned premiums collected from motor vehicle registrations to fund the MAC Scheme


30 June 2010


Expenses

Related Party Details

PAWA Electricity transactions

Receiver of Territory Monies

METAL funding, Road safety funding and DTAL reimbursement

NT Chamber of Commerce

Membership and various transactions

Motor Vehicle Registry Gross commission paid for the collection of premiums relating to the MAC Scheme

Outstanding balances at year end are unsecured, interest free and settlement occurs in cash. For the year ended 30 June 2010, TIO has not made any allowance for doubtful debts relating to amounts owed by related parties as the payment history does not warrant an allowance (2009: $nil). Pursuant to the TIO Act, TIO administers the MAC Fund in accordance with the Motor Accidents (Compensation) Act. TIO provides key management personnel, systems and all administration functions to operate the MAC Scheme pursuant to a Service Level Agreement.


30 June 2010


32. Reconciliation of net profit to net cash inflow from operating activities

2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

Net Profit 35,456 3,290 32,166 (52,936) (11,807) (41,129) Depreciation and amortisation expense 4,183 1,372 2,811 2,647 2,303 344 Provision for impairment (216) (350) 134 279 249 30 Changes in net market value of investments (17,346) (5,647) (11,699) 39,956 6,147 33,809 Changes in net market value of investment properties - - - - - - Profit on Sale of Investment Securities (4,081) (1,224) (2,857) 21,390 6,190 15,200 Profit on Sale of Investment Properties - - - (1,404) - (1,404) Loss on sale of non-current assets 488 488 - 31 31 - Selling expenses charged directly to profit and loss on sale of investment properties (137) (137) - (345) - (345) Changes in operating assets and liabilities: (Increase)/Decrease in receivables (6,046) (6,080) 34 (4,352) (4,572) 220 (Increase)/Decrease in reinsurance and other recoveries receivable (8,191) (5,082) (3,109) (2,019) 1,476 (3,495) (Increase)/Decrease in deferred acquisition costs (2,431) (2,414) (17) 1,386 1,403 (17) Increase/(Decrease) in outstanding claims 28,009 16,315 11,694 24,228 (246) 24,474 Increase/(Decrease) in derivatives 418 418 - 2,215 2,215 - (Increase)/Decrease in net deferred broker charges (34) (34) - 22 22 - (Increase)/Decrease in lease incentives 34 34 - 95 58 38 Increase/(Decrease) in unearned premiums 7,181 5,486 1,694 9,702 8,040 1,662 Increase/(Decrease) in payables (486) 1,372 (1,858) 3,082 2,012 1,070 Increase/(Decrease) in employee benefits and other liabilities 922 922 - (215) (215) - Increase/(Decrease) in provision for income tax payable 1,389 1,389 - (2,397) (2,397) - Increase/(Decrease) in deferred tax liabilities 57 57 - (5,644) (5,644) - (Increase)/Decrease in deferred tax assets 1,186 1,186 - (380) (380) - Increase/(Decrease) in GST payable (164) 99 (262) 183 420 (237) Increase/(Decrease) in fixed rate repricing adjustment 106 106 - 239 239 - Net cash inflow from operating activities 40,297 11,566 28,730 35,764 5,544 30,220


30 June 2010


Related party investing activities On 30 June 2009, 75% of the building located at 24 Mitchell Street was transferred from Insurance to the MAC fund. The amount of $31.35m was included in payments for plant and equipment in the Statement of Cash Flow for the MAC fund and was included as proceeds from sale of plant and equipment in the Statement of Cash Flow for Insurance and Banking. Non - Cash financing activities On 30 June 2009 the Northern Territory Government converted the subordinated loan to contributed equity. This resulted in an amount of $22.848m being transferred from the subordinated loan to contributed equity.

33. Financing arrangements 2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000 Unrestricted access was available at balance date to the following lines of credit

Total facilities

Bank multiple option facility 20,000 20,000 - 20,000 20,000 -

20,000 20,000 - 20,000 20,000 -

Used at balance date

Bank multiple option facility - - - - - -

- - - - - -

Unused at balance date

Bank multiple option facility 20,000 20,000 - 20,000 20,000 -

20,000 20,000 - 20,000 20,000 -

This multiple option facility may be drawn at any time and may be terminated by the bank without notice. Interest rates on this facility are variable. The Board has undertaken to inform the Minister in the event of a draw-down.


30 June 2010


34. Risk management and financial instruments information

Classes of Financial Instruments 2010 2009

TIO

TIO Insurance &



MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000 Financial Assets Cash at Bank and on hand 30,215 27,855 2,360 32,780 24,045 8,735 Non-insurance receivables 4,842 3,995 1,873 3,846 3,765 924 Insurance receivables premiums 47,576 46,491 1,086 42,549 41,506 1,043 Insurance recoveries on claims paid 62,482 29,791 32,691 54,187 24,472 29,715 Short Term Securities 135,813 98,954 36,859 121,656 84,818 36,838 Floating Rate Notes 10,305 7,952 2,353 21,003 16,036 4,967 Bonds 59,505 - 59,505 48,368 - 48,368 Other instruments 79,649 48,478 31,171 66,643 42,355 24,288 Units in unlisted unit trusts 281,620 69,295 212,325 229,720 51,590 178,130 Loans and advances 564,075 564,075 - 544,225 544,225 - Derivative financial assets 124 124 - 5 5 - Embedded derivatives - - - 1,429 1,429 - Financial Liabilities Non-insurance creditors and accruals 18,051 17,610 441 18,181 16,572 2,452 Insurance creditors and accruals 21,003 18,932 2,071 15,769 14,615 1,154 Deposits 531,309 531,309 - 448,359 448,359 - Derivative financial liabilities 102 102 - 995 995 - Subordinated loans - - - - - - Securitisation liabilities 85,510 85,510 - 134,189 134,189 -

Financial Risk Management objectives TIO has exposure to the following key financial risks through the use of financial instruments:

• Market risk (interest rate risk and price risk) • Credit risk • Liquidity risk

Exposure to these financial risks is managed in accordance with the Treasury Policy (TP). The principal objective of TIO’s TP is to establish a robust structure for the measuring, monitoring and reporting of financial risks. TIO seeks to manage financial risks to:

• Ensure there is sufficient cash flow available to meet contractual obligations. • Outperform an asset allocation strategy benchmark set by the Board based on the

expected growth in the liability portfolio.


30 June 2010


The TIO Board has overall responsibility for the establishment and oversight of the risk management framework. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and TIO’s activities. TIO through training and management standards and procedures aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. Financial Risk Management structure The TIO board 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 TIO 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 TIO’s 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 Board has approved the use of interest rate swaps, to reduce exposure to unmatched maturity patterns and for hedging purposes. TIO 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.


30 June 2010


Interest rate swap contracts Under interest rate swap contracts, TIO agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable TIO to mitigate the risk of changing interest rates on the cash flow exposures on the deposit liabilities held to an interest rate sensitivity of less than 5% of Banking capital. For Banking deposit related swaps, TIO will pay as at 30 June 2010 a contracted average fixed interest rate of 5.16% and the average contracted floating rate (Australian BBSW) TIO will receive as at 30 June 2010 is 4.92%. The interest rate swaps settle on a predetermined basis. TIO 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.

Cash flow hedges Average contracted

fixed interest rate Notional Principal

Amount Fair Value 2010 2009 2010 2009 2010 2009 % % $’000 $’000 $’000 $’000 Banking Less than 1 year 6.26% 6.60% 19,000 53,000 (70) (826) 1 to 2 years 3.54% 5.05% 18,000 14,000 92 78 2 to 5 years 5.89% 5.14% 11,250 18,950 (124) (247) Greater than 5 years - - - - - - 5.16% 5.73% 48,250 85,950 (102) (995) Insurance 2 to 5 years 5.57% 5.05% 7,500 16,250 124 5

The interest rate swaps and the interest payments on the deposits occur simultaneously and the amount deferred in equity is 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 Comprehensive Income when the interest income or expense is recognised.

Cash flow hedge ineffectiveness recognised immediately in profit and loss section of the Statement of Comprehensive Income was a gain of $0.47 m (2009: loss of $1.1m).


30 June 2010


Interest rate risk tables The following table sets out TIO’s 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.

TIO

Fixed or floating

1 year or less

> 1 year

and <2 years

>2 years

and <3 years

>3 years

and <4 years

>4 years

and <5 years

More than 5 years Total

Weighted average effective interest

rate

30 June 2010

$’000 $’000 $’000 $’000 $’000 $’000 $’000 %

Financial assets Cash at Bank and on Hand Floating 30,215 - - - - - 30,215 4.50%

Short term securities Floating - - - - - - - 0.00%

Short term securities Fixed 135,813 - - - - 135,813 5.13%

Bonds Fixed - - - - - 59,505 59,505 5.82%

Floating rate notes Floating 3,344 1,957 3,668 1,337 - - 10,305 5.11%

Other instruments Floating 6,974 - - - - - 6,974 4.50%

Other instruments Fixed 10,857 - - - - 61,818 72,675 4.16%

Loans and advances Floating 417,750 - - - - - 417,750 7.18%

Loans and advances Fixed 68,520 34,957 33,540 5,931 3,376 - 146,324 7.40%

Total 673,473 36,914 37,208 7,268 3,376 121,322 879,561

Derivative Financial Instruments

Interest rate swaps 21,750 (18,000) (8,000) 4,250 - - - 5.45%

Total 21,750 (18,000) (8,000) 4,250 - - -

Total Financial Assets 695,223 18,914 29,208 11,518 3,376 121,322 879,561

Financial liabilities

Deposits Floating 109,467 - - - - - 109,467 3.73%

Deposits Fixed 365,522 28,808 27,512 - - - 421,843 5.51%

Securitisation liabilities Floating 50,488 - - - - - 50,488 6.38%

Securitisation liabilities Fixed 19,753 8,343 6,633 292 - - 35,021 7.26%

Subordinated loans Fixed - - - - - - - 0.00% Total Financial Liabilities 545,230 37,152 34,145 292 - - 616,819


30 June 2010


TIO

Fixed or floating

1 year or less

> 1 year

and <2 years

>2 years

and <3 years

>3 years

and <4 years

>4 years

and <5 years



rate

30 June 2009

$’000 $’000 $’000 $’000 $’000 $’000 $’000 %



Short term securities Fixed 121,656 - - - - - 121,656 3.42%

Bonds Fixed - - - - - 48,368 48,368 5.59%



Other instruments Fixed 16,927 2,390 - - - 44,641 63,958 4.48%


Loans and advances Fixed 68,896 63,808 25,688 23,333 5,668 342 187,736 7.84%

Total 606,039 71,866 30,413 27,336 5,668 93,352 834,674


Interest rate swaps Floating 16,700 (14,000) (7,000) 8,250 (3,950) - - 6.25%

Total 16,700 (14,000) (7,000) 8,250 (3,950) - -




Deposits Fixed 288,963 10,246 13,310 - - - 312,519 4.00%


Securitisation liabilities Fixed 29,354 20,344 7,543 5,906 371 - 63,519 7.22%

Subordinated loans Fixed - - - - - - - 0.00% Total Financial Liabilities 524,827 30,590 20,853 5,906 371 - 582,548


30 June 2010


TIO – Insurance and Banking

Fixed or floating

1 year or less

> 1 year

and <2 years

>2 years

and <3 years

>3 years

and <4 years

>4 years

and <5 years



rate

30 June 2010 $’000 $’000 $’000 $’000 $’000 $’000 $’000 %




Floating rate notes Floating 991 1,957 3,668 1,337 - - 7,952 5.25%




Loans and advances Fixed 68,520 34,957 33,540 5,931 3,376 - 146,324 7.40%

Total 625,566 36,914 37,208 7,268 3,376 36,982 747,314


Interest rate swaps 21,750 (18,000) (8,000) 4,250 - - - 5.45%

Total 21,750 (18,000) (8,000) 4,250 - - -




Deposits Fixed 365,522 28,808 27,512 - - - 421,843 5.51%


Securitisation liabilities Fixed 19,753 8,343 6,633 292 - - 35,201 7.26%

Subordinated loans Fixed - - - - - - - 0.00% Total Financial Liabilities 545,230 37,152 34,145 292 - - 616,819


30 June 2010



Fixed or floating

1 year or less

> 1 year

and <2 years

>2 years

and <3 years

>3 years

and <4 years

>4 years

and <5 years



rate

30 June 2009 $’000 $’000 $’000 $’000 $’000 $’000 $’000 %


Short term securities Floating - - - - - - - -




Other instruments Fixed 8,961 2,390 - - - 25,583 36,934 4.49%


Loans and advances Fixed 68,896 63,808 25,688 23,333 5,668 342 187,736 7.84%

Total 550,270 71,866 30,413 27,336 5,668 25,925 711,479


Interest rate swaps Floating 16,700 (14,000) (7,000) 8,250 (3,950) - - 6.25%

Total 16,700 (14,000) (7,000) 8,250 (3,950) - -




Deposits Fixed 288,963 10,246 13,310 - - - 312,519 4.00%


Securitisation liabilities Fixed 29,354 20,344 7,543 5,906 371 - 63,519 7.22%

Subordinated loans Fixed - - - - - - - - Total Financial Liabilities 524,827 30,590 20,853 5,906 371 - 582,548


30 June 2010


MAC Fund

Fixed or floating

1 year or less

> 1 year

and <2 years

>2 years

and <3 years

>3 years

and <4 years

>4 years

and <5 years



rate

30 June 2010 $’000 $’000 $’000 $’000 $’000 $’000 $’000 %

Financial assets Cash at Bank and on Hand Floating 2,360 - - - - 2,360 4.50%



Floating rate notes Floating 2,353 - - - - - 2,353 4.62%

Bonds Fixed - - - - - 59,505 59,505 5.82%



Loans and advances Floating - - - - - - - 0.00%

Loans and advances Fixed - - - - - - - 0.00%

Total Financial Assets 47,909 - - - - 84,340 132,249


Deposits Floating - - - - - - -

Deposits Fixed - - - - - - -

Securitisation liabilities Floating - - - - - - -

Securitisation liabilities Fixed - - - - - - -

Subordinated loans Fixed - - - - - - - Total Financial Liabilities - - - - - - -


30 June 2010


MAC Fund

Fixed or floating

1 year or less

> 1 year

and <2 years

>2 years

and <3 years

>3 years

and <4 years

>4 years

and <5 years



rate

30 June 2009 $’000 $’000 $’000 $’000 $’000 $’000 $’000 %


Short term securities Floating - - - - - - - -


Floating rate notes Floating 4,967 - - - - - 4,967 3.48%

Bonds Fixed - - - - - 48,368 48,368 5.59%

Other instruments Floating (2,736) - - - - - (2,736) 3.00%


Loans and advances Floating - - - - - - - -

Loans and advances Fixed - - - - - - - -

Total Financial Assets 55,770 - - - - 67,426 123,196


Deposits Floating - - - - - - -

Deposits Fixed - - - - - - -

Securitisation liabilities Floating - - - - - - -

Securitisation liabilities Fixed - - - - - - -

Subordinated loans Fixed - - - - - - - Total Financial Liabilities - - - - - - -


30 June 2010


Interest Rate Risk Sensitivity Analysis

The following table demonstrates TIO’s sensitivity to movement in interest rates in relation to the value of interest bearing financial assets and liabilities.

2010 2009

TIO Change in interest rate

Impact on profit after tax

Impact on Equity


Impact on Equity

$’000 $’000 $’000 $’000 Interest bearing financial assets and liabilities

+100 basis points

14,127 14,306 (5,988) (5,864) Interest bearing financial assets and liabilities

-100 basis points (17,820) (18,003) 6,496 6,369

TIO - Insurance and Banking Interest bearing financial assets and liabilities

+100 basis points


-100 basis points (1,651) (1,834) 1,205 1,078

MAC Fund Interest bearing financial assets and liabilities

+100 basis points


-100 basis points (16,169) (16,169) 5,291 5,291

The effect of interest rate movements on TIO’s provision for outstanding claims is included in note 3. (ii) Currency Risk TIO does not have any exposure to currency risk, as there are no sales, purchases, liabilities or assets denominated in a currency other than the Australian dollar. (ii) Price Risk TIO is exposed to price risk through the holding of units in unlisted unit trusts. Price risk arises due to the changes in the market value of the units as advised by respective fund managers. Price risk is managed through the use of strictly monitored allocation limits for units held in each class of managed fund. TIO invests in a diverse range of managed funds thereby limiting the impact of any one underlying variable affecting unit prices. Returns achieved by appointed fund managers are continuously assessed by the Board in relation to their stated objectives and the objectives of each business unit and are compared to returns earned by a suitable peer group of other professional fund managers.


30 June 2010


Price Risk Sensitivity Analysis The analysis below demonstrates the impact of a movement in the prices of units held in unlisted unit trusts. It is assumed that any relevant price change occurs as at the reporting date.

2010 2009

TIO Change in unit price


Impact on Equity


Impact on Equity

$’000 $’000 $’000 $’000 Upside Australian equities +20% 9,289 9,289 8,436 8,436 International equities +20% 14,126 14,126 11,349 11,349 Global listed properties +20% 2,844 2,844 2,245 2,245 Cash +2% - - - - Australian fixed interest +2% 1,300 1,300 985 985 International fixed interest +2% - - - - Australian inflation linked +2% 1,291 1,291 1,097 1,097 International inflation linked +2% - - - - Total 28,850 28,850 24,112 24,112 Downside Australian equities -20% (9,289) (9,289) (8,436) (8,436) International equities -20% (14,126) (14,126) (11,349) (11,349) Global listed properties -20% (2,844) (2,844) (2,245) (2,245) Cash -2% - - - - Australian fixed interest -2% (1,300) (1,300) (985) (985) International fixed interest -2% - - - - Australian inflation linked -2% (1,291) (1,291) (1,097) (1,097) International inflation linked -2% - - - - Total (28,850) (28,850) (24,112) (24,112)

2010 2009


Change in unit price


Impact on Equity


Impact on Equity

$’000 $’000 $’000 $’000 Upside Australian equities +20% 1,541 1,541 1,586 1,586 International equities +20% 2,447 2,447 2,108 2,108 Global listed properties +20% 363 363 - - Cash +2% - - - - Australian fixed interest +2% 535 535 353 353 International fixed interest +2% - - - - Australian inflation linked +2% - - - - International inflation linked +2% - - - - Total 4,886 4,886 4,047 4,047


30 June 2010


2010 2009


Change in unit price


Impact on Equity


Impact on Equity

$’000 $’000 $’000 $’000 Downside Australian equities -20% (1,541) (1,541) (1,586) (1,586) International equities -20% (2,447) (2,447) (2,108) (2,108) Global listed properties -20% (363) (363) - - Cash -2% - - - - Australian fixed interest -2% (535) (535) (353) (353) International fixed interest -2% - - - - Australian inflation linked -2% - - - - International inflation linked -2% - - - - Total (4,886) (4,886) (4,047) (4,047)

2010 2009

MAC Fund Change in unit price


Impact on Equity


Impact on Equity

$’000 $’000 $’000 $’000 Upside Australian equities +20% 7,748 7,748 6,850 6,850 International equities +20% 11,679 11,679 9,241 9,241 Global listed properties +20% 2,481 2,481 2,245 2,245 Cash +2% - - - - Australian fixed interest +2% 765 765 632 632 International fixed interest +2% - - - - Australian inflation linked +2% 1,291 1,291 1,097 1,097 International inflation linked +2% - - - - Total 23,964 23,964 20,065 20,065

Downside

Australian equities -20% (7,748) (7,748) (6,850) (6,850) International equities -20% (11,679) (11,679) (9,241) (9,241) Global listed properties -20% (2,481) (2,481) (2,245) (2,245) Cash -2% - - - - Australian fixed interest -2% (765) (765) (632) (632) International fixed interest -2% - - - - Australian inflation linked -2% (1,291) (1,291) (1,097) (1,097) International inflation linked -2% - - - - Total (23,964) (23,964) (20,065) (20,065)

b) Credit risk

Credit risk represents the loss that would be recognised if counterparties failed to perform as contracted. Trade and other receivables Trade receivable balances are monitored on an ongoing basis to ensure that TIO’s exposure to bad debts is not significant. A provision for impairment is recognised when there is objective evidence that the receivable is impaired. Other receivable balances do not contained impaired assets and are not past due, as they are expected to be received when due.


30 June 2010


Interest bearing Investments The credit risk associated with interest bearing investments is managed by TIO as follows: • The setting and review of credit limits as they relate to recognised external

credit assessment institution’s ratings. • The setting and review of credit limits as it relates to exposures to individual

entities. • The monitoring of limit usage for both the credit ratings and the individual entities.

TIO has a maximum exposure equal to the carrying amount of each financial asset, including derivatives, on the statement of financial position. Units held in unlisted unit trusts Fund managers are selected pursuant to a strategic asset allocation approved by the Board. Fund managers manage applicable credit risk in accordance with their product disclosure statements. Their approach to credit risk is one of the factors in the selection process and their compliance with their product disclosure statements is confirmed annually. Loans and advances The credit risk associated with our retail financial loan assets including securitised loans are managed by the Banking operations as follows:

• Clearly defined credit policies. • The established credit policies set out specific requirements for different loan

types based on the purpose for which they are made and includes an assessment of a counter party’s repayment capacity and security (where applicable).

• The established policies specify the acceptable terms and conditions for all loan types.

• The Credit Policy incorporates Delegated Lending Authorities (DLA) according to different classes of security and the lending officer’s experience.

• The regular monitoring of compliance with the credit risk policy.

The Banking operations manage all loan arrears on a daily basis. The nature of credit risk varies between business and retail loans and is managed accordingly. With the securitisation program in place over some home loans, TIO has taken out insurance contracts on every loan that has been securitised to cover the risk of borrowers defaulting on their loan repayments. Although credit risk associated with these loans is insured with a third party, there is the residual risk that TIO may not be eligible in some exceptional cases to seek recovery under the policy. At the reporting date there were no significant concentrations of credit risk. The following tables provide information regarding the aggregate credit risk exposure of TIO as at 30 June in respect of the major classes of financial assets, excluding units in unlisted unit trusts, loans and receivables. The analysis classifies the assets according to recognised counterparty credit ratings.


30 June 2010


Credit Ratings

TIO AAA or A1+

AA or A1

A or A2 Unrated Total

30 June 2010

$’000 $’000 $’000 $’000 $’000

Cash at bank and on hand 29,713 - - 502 30,215 Short Term Securities and Floating rate notes 87,092 32,809 22,951 3,266 146,118 Other instruments 78,892 - - 757 76,649 Bonds 52,264 7,241 - - 59,505 Derivative financial instruments 124 - - - 124 Total 248,085 40,050 22,951 4,525 315,611 30 June 2009

Cash at bank and on hand 32,342 - - 438 32,780 Short Term Securities and Floating rate notes 73,201 32,619 31,117 5,722 142,659 Other instruments 62,801 2,370 417 1,055 66,643 Bonds 45,524 2,844 - - 48,368 Derivative financial instruments 5 - - - 5 Total 213,873 37,833 31,534 7,215 290,455

Credit Ratings


AAA or A1+

AA or A1


30 June 2010

$’000 $’000 $’000 $’000 $’000

Cash at bank and on hand 27,353 - - 502 27,855 Short Term Securities and Floating rate notes 62,747 28,842 12,051 3,266 106,906 Other instruments 47,852 - - 626 48,478 Bonds - - - - - Derivative financial instruments 124 - - - 124 Total 138,076 28,842 12,051 4,394 183,363 30 June 2009

Cash at bank and on hand 23,607 - - 438 24,045 Short Term Securities and Floating rate notes 43,317 30,633 21,182 5,722 100,854 Other instruments 39,256 1,627 417 1,055 42,355 Bonds - - - - - Derivative financial instruments 5 - - - 5 Total 106,185 32,260 21,599 7,215 167,259

Credit Ratings

MAC Fund AAA or A1+

AA or A1


30 June 2010

$’000 $’000 $’000 $’000 $’000

Cash at bank and on hand 2,360 - - - 2,360 Short Term Securities and Floating rate notes 24,345 3,967 10,900 - 39,212 Other instruments 31,040 - - 131 31,171 Bonds 52,264 7,241 - - 59,505 Derivative financial instruments - - - - - Total 110,009 11,208 10,900 131 132,248 30 June 2009

Cash at bank and on hand 8,735 - - - 8,735 Short Term Securities and Floating rate notes 29,884 1,986 9,935 - 41,805 Other instruments 23,545 743 - - 24,288 Bonds 45,524 2,844 - - 48,368 Derivative financial instruments - - - - - Total 107,688 5,573 9,935 - 123,196


30 June 2010


The following table provides further information regarding the carrying balance of TIO’s financial assets that have been impaired and the aging of those that are past due but not impaired at the balance date. Information relating to the aging of reinsurance financial assets on paid claims is disclosed in note 4 (g). TIO

Past due but not impaired

30 June 2010 Neither past due nor impaired

0 to 3 months

3 to 6 months

Greater than 6 months

Impaired

Total

Insurance receivables -premiums 21,819 24,613 663 481 157 47,733 Non-insurance receivables - 3,183 - - - 3,183 Investment receivables 1,659 - - - - 1,659 Loans and advances 539,710 24,028 338 - 918 564,994 Total 563,188 51,824 1,001 481 1,075 617,569 30 June 2009 Insurance receivables -premiums 19,682 21,943 920 4 135 42,684 Non-insurance receivables - 2,309 - - - 2,309 Investment receivables 1,537 - - - - 1,537 Loans and advances 532,599 11,556 70 - 1,053 545,278 Total 553,818 35,808 990 4 1,188 591,808




0 to 3 months

3 to 6 months


Impaired Total

Insurance receivables -premiums 21,819 23,528 663 481 157 46,648 Non-insurance receivables - 3,165 - - - 3,165 Investment receivables 830 - - - - 830 Loans and advances 539,710 24,028 338 - 918 564,994 Total 562,359 50,721 1,001 481 1,075 615,637 30 June 2009 Insurance receivables -premiums 19,683 20,899 920 4 135 41,641 Non-insurance receivables - 3,002 - - - 3,002 Investment receivables 763 - - - - 763 Loans and advances 532,599 11,556 70 - 1,053 545,278 Total 553,045 35,457 990 4 1,188 590,684

MAC Fund



0 to 3 months

3 to 6 months


Impaired Total

Insurance receivables -premiums - 1,086 - - - 1,086 Non-insurance receivables - 1,045 - - - 1,045 Investment receivables 828 - - - - 828 Loans and advances - - - - - - Total 828 2,131 - - - 2,959 30 June 2009 Insurance receivables -premiums - 1,043 - - - 1,043 Non-insurance receivables - 150 - - - 150 Investment receivables 774 - - - - 774 Loans and advances - - - - - - Total 774 1,193 - - - 1,967


30 June 2010


(c) Liquidity risk Liquidity is the ability to access funds at short notice via internal or external sources to the organisation. Liquidity risk is the risk that TIO will be unable to meet its obligations in an orderly manner as and when they fall due. This includes the risk that TIO may not be able to borrow funds when required, or at an acceptable cost.

Liquidity risk arises due to unanticipated obligations arising. This may occur when anticipated receipts do not eventuate, or when short term sources of funds are withdrawn, or where TIO is exposed to one particular market sector.

The three main elements of managing Liquidity risk are:

Day-to-day cash management: Involves the use of working cash and investment balances. The key tool used to manage cash balances involves the use of cash flow forecasts.

Short Term Liquidity management: Involves the use of both internal and external tools and facilities. TIO utilises tools including cash flow forecasts and investment maturity profiles to ensure liquidity does not fall below prudential limits. The external facilities include committed and uncommitted stand-by lines for planned and emergency funding requirements.

Long Term Liquidity management: Involves the use of budgets and business plans to protect against a liquidity problem in the future. TIO maintain close relationships with bankers and financial intermediaries to ensure the availability of committed and uncommitted funds from a number of sources.

The following table summarises the maturity profile of TIO’s liabilities. This is based on contractual undiscounted repayment obligations, which includes estimated interest repayments. The maturity profiles of Insurance contract liabilities are determined on the basis of discounted estimated timing of net cash outflows and are disclosed in note 20 (e). Repayments that are subject to notice are treated as if notice were to be given immediately.

Maturity profiles of undiscounted financial liabilities.

TIO 1 year or less

> 1 year and < 5 years > 5 years No term Total

30 June 2010 $’000 $’000 $’000 $’000 $’000 Deposits 430,255 1 - 116,983 547,239 Securitisation liabilities 4,444 17,702 80,924 - 103,070 Subordinated loans - - - - - Trade and other payables 39,054 - - - 39,054 Interest rate swaps (103) 6 - - (97) Total undiscounted financial liabilities 473,650 17,709 80,924 116,983 689,266

30 June 2009 Deposits 293,245 26,687 - 135,840 455,772 Securitisation liabilities 11,098 44,328 209,766 - 265,192 Subordinated loans - - - - - Trade and other payables 33,950 - - - 33,950 Interest rate swaps 1,245 (12) - - 1,233 Total undiscounted financial liabilities 339,538 71,003 209,766 135,840 756,147


30 June 2010


TIO – Insurance and Banking 1 year or less

> 1 year and < 5 years > 5 years No term Total

30 June 2010

$’000 $’000 $’000 $’000 $’000

Deposits 430,255 1 - 116,983 547,239 Securitisation liabilities 4,444 17,702 80,924 - 103,070 Subordinated loans - - - - - Trade and other payables 37,568 - - - 37,568 Related party payable - - - - - Interest rate swaps (103) 6 - - (97) Total undiscounted financial liabilities 472,164 17,709 80,924 116,983 687,780

30 June 2009 Deposits 293,245 26,687 - 135,840 455,772 Securitisation liabilities 11,098 44,328 209,766 - 265,192 Subordinated loans - - - - - Trade and other payables 31,187 - - - 31,187 Related party payable - - - - - Interest rate swaps 1,245 (12) - - 1,233 Total undiscounted financial liabilities 336,775 71,003 209,766 135,840 753,384

MAC Fund

1 year or less > 1 year and

< 5 years > 5 years No term Total 30 June 2010

$’000 $’000 $’000 $’000 $’000

Trade and other payables 2,512 - - - 2,512 Total undiscounted financial liabilities 2,512 - - - 2,512 30 June 2009 Trade and other payables 2,762 - - - 2,762 Related party payable 843 - - - 843 Total undiscounted financial liabilities 3,605 - - - 3,605


30 June 2010


d) Derivative financial instruments TIO uses derivative financial instruments to hedge financial risk from movements in interest rates. All such transactions are carried out within the parameters set by the TP. Derivative financial instruments are carried at fair value and recorded in the Statement of financial position as assets and liabilities. Changes in values of derivative financial instruments, other than interest rate swaps designated as cash flow hedges, are recognised in the statement of comprehensive income. The accounting treatment of interest rate swaps designated as cash flow hedges is described in note 34 a (i). At year end TIO held derivative exposures to manage exposure on the investments held for trading portfolio, and deposit portfolio, of Interest Rate Swaps with a net notional value of $40.8 million (2009: $69.7 million) and a fair value of $0.02 million (2009: ($0.9 million)).

e) Capital Management

TIO manages its capital requirements by assessing capital levels on a regular basis. The capital management objectives have been determined to protect policy holders, depositors and creditors from unexpected losses, and to avoid premium volatility for the MAC scheme. The capital policy has been designed to: • Ensure compliance with the TIO Act, TIO Regulations and prudential standards of

the regulator (Northern Territory Government), • Provide policies that will be consistent with an APRA regulated organisation. Banking measures a capital adequacy ratio in accordance with APRA prudential standard APS 110, and has at all times exceeded the minimum regulatory capital adequacy ratio of 10% for the current financial year. Insurance measures a minimum capital requirement (MCR) ratio in accordance with APRA prudential standard GPS 110, and has at all times exceeded the minimum regulatory MCR ratio of 120% for the current financial year. The adequacy of the MAC fund’s capital is measured as a solvency ratio of retained earnings to net outstanding claims. Although there is no minimum regulatory capital ratio to which the MAC fund is required to comply, the minimum target set by the Northern Territory Government has been exceeded at all times during the current financial year.


30 June 2010


The following table provides information about TIO’s capital resources:

2010 2009

TIO


MAC Fund TIO


$’000 $’000 $’000 $’000 $’000 $’000 Contributed Equity (note 28)

39,340 39,340 - 39,340 39,340 - Asset revaluation reserve

15,049 3,684 1,046 13,759 3,440 - Retained earnings

163,881 57,477 116,723 128,425 54,187 84,557 Interest bearing subordinated liabilities (note 27) - - - - - - Hedging Reserves (21) (21) 0 (317) (317) - Total capital resources 218,249 100,480 117,769 181,207 96,650 84,557

Insurance and Banking The Board requires TIO to maintain the minimum levels as determined by the prudential standards as well as a capital requirement for each business unit. Although TIO Insurance and Banking divisions are not regulated by APRA, the Northern Territory Government has imposed compliance requirements in line with APRA regulations. MAC Fund The Board requires MAC to maintain the minimum levels of capital taking into account regulation 19 (2) (b) of the Motor Vehicles Regulations. These regulations set a minimum solvency level which the MAC Scheme must comply with.

f) Fair values

The fair values of listed held for trading financial assets have been determined using market values. The fair values of derivatives and subordinated loans have been calculated by discounting the expected future cash flows at applicable interest rates. The fair values of other financial assets have been calculated using the market interest rates. The carrying amount of receivables, cash at bank, insurance recoveries and creditors approximate their fair value due to their short term nature. The carrying amount of loans and advances and deposits are not materially different from their fair values.


30 June 2010


The following table provides an analysis of financial instruments that are measured at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable. Level 1 – the fair value is calculated using quoted prices in active markets. Level 2 – the fair value is estimated using inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices). Level 3 – the fair value is estimated using inputs for the asset or liability that are not based on observable market data. There are no transfers between levels during 2010.

2010

$’000 $’000 $’000 $’000

TIO Level 1 Level 2 Level 3 Total

Financial Assets

Derivative instruments

Interest rate swaps - 124 - 124

Non-derivative instruments

Short term deposits - 135,813 - 135,813

Floating rate notes 10,305 - - 10,305

Other floating rate investments

- 79,649 - 79,649

Bonds 59,505 - - 59,505

Units in unlisted trusts 281,620 - - 281,620

Total 351,430 215,586 - 567,016

Financial Liabilities


Interest rate swaps - (102) - (102)

Total - (102) - (102)


30 June 2010


2010

$’000 $’000 $’000 $’000

TIO – Insurance & Banking

Level 1 Level 2 Level 3 Total

Financial Assets


Interest rate swaps - 124 - 124





- 48,478 - 48,478

Bonds - - - -


Total 77,247 147,555 - 224,802



Interest rate swaps - (102) - (102)

Total - (102) - (102)

2010

$’000 $’000 $’000 $’000

MAC Fund Level 1 Level 2 Level 3 Total

Financial Assets


Interest rate swaps - - - -





- 31,171 - 31,171

Bonds 59,505 - - 59,505


Total 274,183 68,030 - 342,213



Interest rate swaps - - - -

Total - - - -


30 June 2010


The fair values of financial assets and liabilities are determined as follows: • The fair values of financial assets and liabilities with standard terms and

conditions and traded on active markets are determined with reference to quoted market prices (includes, floating rate notes, bonds and units in unlisted trusts).

• The fair values of other financial assets and liabilities are determined using prices from observable current market data and other relevant models used by market participants (includes short term deposits, other floating rate investments and interest rate swaps).

• Financial instruments that do not have an active market are based on valuation techniques using market data that is not observable,

35. Commitments for expenditure

2010 2009

TIO


MAC Fund TIO


MAC Fund

$’000 $’000 $’000 $’000 $’000 $’000

(a) Capital commitments

Commitments for miscellaneous building works contracted for at reporting date but not recognised as liabilities, payable:

Within one year 46 46 - 23 23 - Later than one year but not later than five years - - - - - -

46 46 - 23 23 -

(b) Non-cancellable operating leases where TIO/ MAC Fund is a lessee Future minimum lease payments for rent payable:

Within one year 610 610 - 642 642 - Later than one year but not later than five years 840 840 - 1,014 1,014 -

Later than 5 years - - - - - -

1,450 1,450 - 1,656 1,656 -

(c) Non-cancellable operating leases where TIO/ MAC Fund is a lessor

Future minimum lease payments for rent receivable in relation to direct property held by TIO:

Within one year 1,620 405 1,215 1,904 476 1,428 Later than one year but not later than five years 3,085 771 2,314 2,565 641 1,924 Later than five years 1,804 451 1,353 2,228 557 1,671 6,509 1,627 4,882 6,697 1,674 5,023

Certain properties, where TIO is a lessee or a lessor, are leased under non-cancellable operating leases. Most leases are subject to annual reviews with increases subject to a set percentage or based upon either movement in consumer price indices or market criteria. Where appropriate, a right of renewal has been incorporated in the lease agreements. There are no options to purchase the relevant assets on expiry of the lease.


30 June 2010


36. Events subsequent to balance date There are no events subsequent to balance date.

37. Contingent liabilities and contingent assets

a) Contingent liabilities TIO Insurance & Banking: The nature of the insurance business is such that in the normal course of operation, rejected claims may be the subject of legal challenges. TIO will defend these vigorously however the outcome and quantum of any liabilities is contingent upon the court’s decisions. MAC Fund: The MAC Fund has legal matters in progress which arise in the normal course of business. TIO, on behalf of the MAC Fund, defends such matters; however the outcome and quantum of any liabilities are contingent upon the Courts’ decisions. b) Contingent assets TIO Insurance & Banking: TIO has no contingent assets. MAC Fund: The MAC Fund has no contingent assets.

Territory Insurance Office Appendices


Appendix 1 of the Annual Report Regulatory Capital Under the Territory Insurance Act, TIO is regulated for prudential purposes by the Northern Territory Government through Treasurer Determinations that state that from 1 January 2009, TIO businesses (Insurance, Banking and the MAC Fund) must separately comply with all APRA prudential standards unless any standard is specifically exempted. The regulatory capital position of TIO is as follows: MAC Fund The MAC fund is exempted from the APRA prudential standards GPS110 to GPS 116. The solvency of the MAC Fund is measured as ratio of Retained Earnings to Net Outstanding Claims. As at 30 June 2010, the Solvency ratio was 49.6%. Banking The supervisory capital adequacy ratio of Banking under APRA prudential standard APS 110 as at 30 June 2010 was estimated at 11.4% which exceeds the minimum ratio of 10%. Insurance The supervisory capital adequacy position of Insurance as measured under APRA prudential standard GPS 110 as at 30 June 2010 is estimated as follows: $’000 2010 Statutory capital Tier 1 capital Fundamental tier 1 capital Contributed equity 39,340 Regulatory retained earnings 31,361 Deductions from tier 1 capital Intangible assets (1,261) Net deferred tax assets (4,561) Total Tier 1 Capital 64,879 Tier 2 capital Upper tier 2 capital Asset revaluation reserve 2,368 Lower tier 2 capital Subordinated term loan - Total Tier 2 Capital 2,368 Total Statutory Capital 67,247

$’000 2010 Minimum capital requirement (MCR) Insurance risk capital charge 20,475 Investment risk capital charge 14,277 Catastrophe concentration risk capital charge 3,000 Total MCR 37,752 MCR coverage ratio 178.1%


Contact usAlice Springs 12 Gregory Terrace

Darwin CBD Plaza 47 Cavenagh Street

Katherine 42 Katherine Terrace

Palmerston Palmerston Shopping Centre 10 Temple Terrace

Claims Centre 24 Mataram Street Winnellie

Head Office 24 Mitchell Street Darwin

Postal Address GPO Box 770 Darwin NT 0801

Call 1300 301 833tiofi.com.au

ABN 72 532 995 678TIO is Government guaranteed and not regulated by APRA

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