The Accident Compensation Corporation (ACC) has become fully funded for the first time since it was founded 41 years ago, off the back of it making a $1.6 billion surplus in the past year.
It now has enough money to meet the future costs of injuries that have already occurred.
In its annual report released today, the Minister for ACC Nikki Kaye says the achievement should give New Zealanders confidence the agency will have sufficient funds to provide ongoing support should they get injured.
The ACC board chair Paula Rebstock explains: “The surplus means there is now no gap between the scheme’s financial assets and claims liabilities.
“In the past ACC has required a surplus to bring the scheme to a point of being fully funded. Now that we have achieved this, under a proposed new funding policy we expect to set levies to allow us to only meet the cost of current claims. In the future this will mean that we do not expect to see large surpluses.
“Our strong financial performance is one of the reasons why we’re consulting on levy cuts for New Zealanders in 2016/17. It follows on from substantial levy cuts – particularly for vehicles levies – in 2015/16.”
Having grown its assets from $10 billion in 2008/9 to around $31 billion, the ACC board is now proposing to cut work, earners’ and motor vehicle levies by $450 million in 2016/17.
These proposals, coupled with ACC’s decision to remove the residual levy, would see around 75% of businesses pay a lower work levy, while around 25% would see their work levy increase as a result of paying a fairer share of injury costs in their industry.
There will also be a small reduction to the earners’ levy paid by all salary and wage earners, to fund out-of-work injury costs.
Rebstock says: “The investments team had another outstanding year, beating market benchmarks for the 20th year in a row. This is a remarkable accomplishment by global standards. Every $100 that ACC invested 23 years ago has grown to be worth $934 today.”
ACC’s Reserves Portfolios delivered an average return of 14.6% in 2014/15. This contributed toward its net investment revenue increasing by 152% from 2013/14, to $3.9 billion.
ACC reports: “Although most of this return was due to general market effects, it was nonetheless a good result for ACC even after taking account of the effects of changes in bond, equity and currency markets.”
It notes the effect interest rates have on its bank balance. Had interest rates been a percentage point higher in the past year, it would’ve made a $5.5 billion surplus. Had they been a percentage point lower, it would’ve suffered a $3.6 billion deficit.
It also recognises the New Zealand sharemarket outperformed most other markets when expressed in local currency terms over the past year.
“The New Zealand dollar declined against most major currencies over the year, which enhanced the New Zealand dollar returns from holding unhedged investments in offshore markets. Hence, ACC’s investments in global equities delivered returns of over 30% prior to currency hedging,” it says.