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Published byMunicipal Association of Victoria

Level 12, 60 Collins StreetMelbourne 3000

Telephone: 03 9667 5555Facsimile: 03 9667 5550

GPO Box 4326PPMelbourne 3001

E-mail: [email protected]: www.mav.asn.au

INSURANCEMAVINCORPORATING CIVIC MUTUAL PLUS ANDTHE MUNICIPAL OFFICERS FIDELITYGUARANTEE FUND

CONTENTS

1MAV INSURANCE ANNUAL REPORT 2003/4

WelcomeMAV Insurance StatementYear in FocusChairman’s ReportCommitteeCMP SchemeTort ReformClaimsRisk ManagementFidelityAustralian Prudential RegulationAuthorityFidelity MembersCMP MembersFinancial ReportGlossary

24568

1014161820

2224252644

THIS YEAR WAS SOMEWHAT LIKE THEWELCOMECALMAFTER THE STORM. WHILE PREVIOUS YEARS HAD PROVENTOUGH AND, AT TIMES TESTING, 2003/04 SAW THE RETURN TO BALANCEAND ORDER WITH BOTH THE CMP SCHEME AND THE MUNICIPAL OFFICERS FIDELITYGUARANTEE FUND ADJUSTING TO OPERATE EFFECTIVELY AND SMOOTHLY WITHIN ANEW INSURANCE ENVIRONMENT CREATED MOSTLY BY EXTERNAL FACTORS.

Both the CMP Scheme and the Municipal Officers’ Fidelity Guarantee Fund reportedhealthy financial positions. This was partly due to the prudential financial and investmentmanagement by our Committee, an ongoing commitment towards risk management by ourmembers and the Victorian Government’s introduction of tort reform which has greatlyreduced the number of claims.The long and exhaustive process of applying for an Australian Financial Services License(AFSL) commenced in September 2003. A certain positive of the application process hasbeen the creation of documentation relating to risk management including acomprehensive compliance and risk management strategy and disaster recovery plan forMAV Insurance. Under requirements by ASIC to be granted an AFSL, new internal MAVInsurance policies have been developed relating to the operation of the scheme andaccountability of the MAV Insurance Committee.The first year of MAV Insurance’s new three-year reinsurance deal came into effect on1 July 2003. The deal was set after a five-year period of increasing claims far in excess ofthe reinsurance premium in the same period. While CMP negotiated the new ReinsuranceProgram for the 2004, 2005 and 2006 financial years at a substantially increasedpremium, the in-built premium refund provision based on new claims experience overthe three years is already expected to return a healthy profit share to the scheme.

MAV Insurance plans to hold events to discuss ideas for more effective risk management toolsthat will benefit the scheme and its members.Thank you to our members who once again participated in the CMP Customer SatisfactionSurvey, allowing for better assessment of the scheme manager’s performance and resulting inways to continually improve the operation of the scheme.Members of the Municipal Officers’ Fidelity Guarantee Fund completed the annual risk review,data from which contributed once again to ensuring no increase in the underlying rate ofpremium for members.A very sincere thank you to the MAV Insurance Committee, scheme manager and contractmanager for their continued support, expertise and advice during the past 12 months.

ROB SPENCE CEO & JENNY DALE ACTING RESIDENT


INSURANCEMAV“THE ASSOCIATION (MAV) MUST ESTABLISHAND MANAGE A MUTUAL LIABILITYINSURANCE SCHEME FOR THE PURPOSEOF PROVIDING PUBLIC LIABILITY ANDPROFESSIONAL INDEMNITY INSURANCE.”Municipal Association Act 1907

“IT SHALL BE LAWFUL FOR THEASSOCIATION TO ESTABLISH A MUNICIPALOFFICERS FIDELITY GUARANTEE FUND.”Municipal Association Act 1907

Civic Mutual Plus (CMP) and the Municipal Officers FidelityGuarantee Fund (Fidelity) are insurance schemes provided bythe Municipal Association of Victoria (MAV) under the bannerof MAV Insurance. Both schemes have been established inaccordance with the Municipal Association Act 1907.The Act states that the MAV must provide public liability andprofessional indemnity insurance and enables the Associationto provide fidelity insurance to councils and other bodiesconstituted by an Act of Parliament for public or localgoverning purposes.


THIS YEAR WASTHE FOCUS ON NEWYEAR IN FOCUS REGULATORYREGIMES FOR LOCAL GOVERNMENT. THE INTRODUCTION OF TORT REFORM HASHAD A POSITIVE IMPACT ON THE SCHEME’S OPERATING COSTS WHILE THE APPLICATIONTO ASIC FOR A AUSTRALIAN FINANCIAL SERVICES LICENCE, ONCE GRANTED, WILL GIVEPROVISION FOR THE MAV INSURANCE BUSINESS TO GROW.

ASIC LICENSINGThe Financial Services Reform (FSR) legislative package introduced by the Commonwealth required all financialservices’ participants to apply for a new (AFSL) by March 2004. The licence, to be issued by the Australian Securitiesand Investment Commission, will allow the MAV to provide insurance services and operate its insurance business tocompete commercially.Once licensed, the MAV will be able to independently provide public liability, product liability and fidelity insuranceservices in accordance with relevant corporations and securities legislation.As part of the application process, MAV Insurance was required to develop a risk management strategy to includemanaging technology risk, fraud, compliance, outsourcing, business continuity planning, legal risk and key person risk.Once the licence is granted, MAV Insurance will be required to implement and maintain these processes and systems.

ROAD MANAGEMENT PLANSCMP has assisted councils in developing their Road Management Plans to verify that their documents are operational.CMP will audit the end process to substantiate that councils have a defendable position in the event that a claimagainst them is lodged. Councils with road management plans that do not meet CMP’s requirements in relation tospecified inspections, maintenance generation and completed works for proactive and reactive works will receiveassistance to improve their current processes through the MAV’s Step Asset Management Improvement Program.

NOT-FOR-PROFIT COMMUNITY SCHEMEThe MAV Not-for-Profit community insurance scheme continues to go from strength to strength. Of the number ofexisting policy holders, 75% renewed their policies for 2003/04. In addition, a marked increase in the take-up rate ofnew policy holders saw the total scheme pool of groups increase to more than 1000 members. Premiums continue tobe frozen at 2002 levels, due largely to no claims being made since the inception of the scheme. Not-for-profitcommunity groups that have been able to secure insurance coverage under the scheme include senior citizens,festivals, fétes, events, theatre and drama groups.

CMP REACHES 10-YEAR MILESTONEThe CMP scheme reached its 10-year anniversary in 2003/04. Since its establishment the scheme has provided itsmembers not only with a reliable, mutual insurance scheme but also with guidance and a sense of surety in afluctuating market.


CHAIRMAN’S RIS TO PROVIDE PRODUCTS AND COMPETITIVEPRICING APPLICABLE TO OUR MEMBERSHIP BASE, IN A MARKET WHEREMEMBERS ARE CONTINUALLY EXPOSED.

MAV Insurance is pleased to report a very considerable improvement in the scheme’s balance sheet and recovery fromthe challenges that have confronted us over the last three years.Together with local governments across Australia, our scheme managers Jardine Lloyd Thompson entered the market torenew our insurance placements on the international underwriting market. They were successful in negotiatingplacements that met the committees’ expectations in pricing structures with a profit share arrangement based on claimlevels over the three-year period of the contract.New regulatory regimes for local government, negotiated with significant assistance from the MAV, have had a positiveimpact on the schemes’ operating costs.Our partnership with ourcommunity.com.au has provided constructive dividends for community-based organisationsunder the umbrella of our member councils. Resources have been allocated to ensure that facilitation of public liabilityinsurance for these groups is enhanced.The Committee has refined processes for determining member contributions and this will continue to be a high priorityas our audit, claims and administration processes are tailored to respond to both our own and underwriters expectationsand world best practice in risk management applications. Our Risk Management Awards in both Victoria and Tasmaniahave provided some great examples for application across our membership base.We have resourced considerable studies to ensure that the Committee has a comprehensive understanding of publicliability professional indemnity practices that will assist in supporting our compliance with both APRA and ASIC regimes,particularly our application for financial licensing which has been an operational challenge.

THE PRIMARY FOCUS OF MAV INSURANCE


REPORT

The Committee has continued to seek ways of enhancing services to members that willboth meet their expectations and reduce exposures. Operating in an holistic managementmanner has provided enhanced oversight of our operations and greater transparency.Fidelity insurance under the umbrella of the Committee continued to reveal that membersand their audit committees need to focus on cash handling processes as exposures andclaims histories reveal substantive compliance regimes and vigilance are necessary toprevent loss exposures in this area.On behalf of the Committee I wish to extend my thanks to the management and staff atthe MAV and Jardine Lloyd Thompson for their operational support.

ANNE MURPHY CHAIRMAN

COMMITTEEANNE MURPHYDip MRL

COMMITTEE CHAIRMANAPPOINTED 1993Current and past positions held:Consultant; Sessional Member,Planning Panels Victoria; SessionalMember, Architects Registration Board;Past President MAV.

CR JENNY DALEAPPOINTED 17 JUNE 2004Current and past positions held:MAV Board representative of RuralNorth East Region; Councillor, IndigoShire Council 1997 to current; Mayorof Indigo 1997–99 and 2003 tocurrent; Deputy Mayor of Indigo1999–2000; Councillor, Shire ofYackandandah 1992–94.

ROB SPENCEGDip Accounting and FinanceAPPOINTED 1998Current and past positions held:CEO, Municipal Association ofVictoria; CEO, Brimbank City Council1994-97; CEO, City of Footscray1992-94; former Director ofMunicipal Operations, Office ofLocal Government.

JOHN WARBURTONCPA FAIDCAPPOINTED 1995Current and past positions held:Chairman, Good GovernanceAdvisory Group; Director, Vision Super(formerly Local Authorities Super);Director, SMF Funds ManagementLimited; Trustee, Melbourne Exhibitionand Convention Centre Trust; DeputyChair, Victorian Managed InsuranceAuthority 1996-2000; Chair, TandouLimited 1996 to 2003.

CR BRAD MATHESONResigned 17 June 2004

CR CHRIS PAPASResigned 28 June 2004

CR STEVE WARDLAWResigned 30 July 2003

ALLAN GARCIAAPPOINTED 30 JULY 2003Current and past positions held:CEO Local Government Associationof Tasmania (LGAT), LGATRepresentative.

CR ROD FYFFEBA, Bec, Dip Ed, FSA Scot

APPOINTED 28 JUNE 2004Current and past positions held:MAV Board representative of RuralNorth Central Region; Councillor,Greater Bendigo City Council 1996 tocurrent; Mayor of Greater Bendigo2003 to current; Councillor, City ofBendigo 1983–1994.

CR JIM RYANBA, LLB

APPOINTED AUGUST 2004Current and past positions held:MAV Board representative of RuralSouth West Region; Councillor, Colac-Otway Shire Council 1996 to current;Mayor of Colac-Otway 1996–97,2003 to current; Councillor, City ofColac 1985–94; Mayor of Colac1990–91, 1993–94.


RON FARRELL

APPOINTED 2001Current and past positions held:Non Executive Director, VictorianManaged Insurance Authority; GeneralManager, Australian Eagle InsuranceCo Ltd; Chairman and Non ExecutiveDirector, Utilities Insurance Co Pty Ltd;Non Executive Director,connect.com.au Pty Ltd; NonExecutive Director, Metropolitan Fireand Emergency Services Board to

NICK RENTONFFA, FSIA, FIAA, AIAAAPPOINTED 1995Current and past positions held:Consulting Actuary and Principal ofN E Renton and Associates; FormerDirector, OFM Investment GroupLimited; Executive Director, LifeInsurance Federation of Australia1975-86; Principal Officer, SwitzerlandLife Assurance Society Limited1960-75.

ADRIAN NYEBA (hons), Dip Ed, MBA (Melb), FCPAAPPOINTED MARCH 2004Current and past positions held:Chairman, Victorian ManagedInsurance Authority.

DR MICHAEL KENNEDYBBus DBAAPPOINTED 1995Current and past positions held:CEO, Mornington Peninsula ShireCouncil; former CEO Boroondara CityCouncil; former CEO, Shire ofHastings; former Director/GeneralManager Coastal Expressline; formerExecutive General Manager,Intermodal ANL Limited.

30/6/2003.

ALAN HOLMESBcom, GDip Bus, ACA, FAICD

EX-OFFICIOCurrent and past positions held:MAV Financial and InsuranceConsultant and Contract Manager.

JIM BULLINGLLB

EX-OFFICIOCurrent and past positions held:Partner, Middletons Lawyers;MAV legal adviser.

GRAEME LEMMERDip Fin Serv, QPIB, AAII

EX-OFFICIOCurrent and past positions held:CMP Scheme Manager (JLT).

BOB FALZONDip Fin Serv, QPIB, AAII

EX-OFFICIOCurrent and past positions held:JLT General Manager - Risk Services.


CMP

MAVSCHEMEOF CMP CAME AFTER AMENDMENTS WERE MADE TO THE MUNICIPALASSOCIATION ACT 1907, WHICH REQUIRED THE MAV TO PROVIDE A SELF-INSURANCEPUBLIC LIABILITY AND PROFESSIONAL INDEMNITY SCHEME.

CMP celebrated its 10th anniversary ofproviding reliable and competitively pricedpublic liability and professional indemnityinsurance to members.

COMMUNITY GROUPS INSURANCESCHEMEThe public liability insurance market is showingsigns of stabilising with insurers now reviewingnot-for-profit groups with renewed interest.Through a partnership between the MAV,CMP, Jardine Lloyd Thompson andourcommunity.com, the Community GroupsInsurance Scheme has provided a lifeline tonot-for-profit organisations since its inception in2002. The web based insurance facilityprovides broadform public and products liabilitycoverage to small to medium sized communitygroups, excluding sporting clubs. As at 30 June2004, 600 not-for-profit groups were coveredby the community groups insurance scheme.

NOT-FOR-PROFIT SCHEMEQUESTIONNAIREFor the second consecutive year CMP sent aquestionnaire to not-for-profit organisaitons thathad obtained a quote via the website but hadnot effected cover. Of the 15 organisations thatresponded, the majority said they had notproceeded with any public liability policy at all.The main reason was cost-related, manyorganisations stating a public liability policywas too expensive for their one-off event.The website was rated 8 out of ten for easeof use.

CMP SCHEME10MAV INSURANCE ANNUAL REPORT 2003/4

CIVIC MUTUAL PLUS (CMP) IS THE PUBLICLIABILITY ARM OF INSURANCE. ESTABLISHMENT

PREMIUM DISCOUNTS FOR INCREASEDCOUNCIL EXCESSESDuring 2003/04, the MAV was advised by thereinsurers that they intended increasing theminimum excess from $5,000 to $10,000.The MAV lobbied its reinsurers against thedoubling of the excess. After months ofdiscussions, the reinsurers advised they wouldonly consider a reduction in the minimumexcesses if the scheme was prepared to payan additional preimum. The MAV InsuranceCommittee rejected a proposed additionalpremium of more than $200,000 to reducethe minimum excess from $10,000 to $7,500.The committee did agree, however, to fund thedifference in excess from the scheme surplus.

WATER AUTHORITIES’ ASSESSMENT OFSUPPLY RISKSThe MAV Insurance Committee undertook anassessment of water storage supplies of theregional water authorities that are members tominimise potential public liability, productsliability and professional indemnity exposure.Risk assessment of general public liabilityranged between the consequences of terrorismto being exposed to blue green algae. A SeniorSergeant from the Victorian Policy CounterTerrorism Coordination Unit attended an MAVInsurance Committee meeting to discussdesired outcomes of the risk assessment.

CMP- WORKING FOR OUR MEMBERSCMP continually has its members’ best interests in mind, especially when they are faced with pedestrians claimingfor injuries incurred while tripping or slipping on defective footpaths. Two cases involving Victorian membercouncils were taken to the Victorian Court of Appeal in 2003/04, resulting in judgements being overturned infavour of the councils. Combined, these two cases would have cost the scheme in excess of $350,000. In bothcases the Court of Appeal emphasised that councils’ duty of care is to protect pedestrians who, even if they hadbeen keeping a proper lookout, would not have seen the defect.

MAV INSURANCE ANNUAL REPORT 2003/411 CMP SCHEME

CMP CUSTOMER SATISFACTION SURVEYResults of the 2003 CMP Customer SatisfactionSurvey showed the scheme managersperformed well. The survey was sent to allmember councils. Comments received werediscussed within respective departments andused to further improve the scheme’s operationand performance.

FUTURE DIRECTIONSWORKCOVER INSURANCEMAV Insurance will prepare an applicationto the Workcover Authority to establish aworkcover mutual scheme which wouldprovide significant benefits for CMP members.

MARKETING PLANCMP is currently developing a marketingplan to further enhance communication withits members.

CMP SCHEME12MAV INSURANCE ANNUAL REPORT 2003/4

YEAR BY YEAR FUND PERFORMANCE (1)10000000 Fund Surplus

8,222,0218000000

6000000

4000000 3,502,7892,743,375 2,849,544 3,113,865 2,791,088

2000000

0-573,214 (3) As at June 2004, consolidated Surplus of $8,612,552

-2000000

-2,994,672

-1,734,651 (4) Tasmania joined in June 1996(2) From 1998 through to 2004, Full 100% Reinsurance

-4000000-4,130,547 -3,828,253 (Our reinsurance has been renewed through to 2006)

Fund Deficits-6000000

93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04

(1) This diagram shows the year by year performance ofthe fund with regard to its positionas at 30/06/04.

(2) Effective from 30/06/98, full reinsuranace wasintroduced and from1998 the surpluses are effectively“guarenteed”.

(3) The aggregate position as at 30/06/04 is a fundsurplus of $8,612,552.

(4) In June 1996 Tasmanian councils joined the Scheme.

ACCUMULATED SURPLUS (3)

10,000,000 Scheme carrying $2M Full reinsurance

8,612,554

8,000,000

6,000,000

4,000,000 3,287,0002,867,000

5,821,466

2,000,0001,007,000

1,644,000 1,450,000763,000

2,4220

-756,474-2,000,000

-2,400,557

-4,000,00093/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04


CMP SCHEME

TORTOF REFORMLIMITATION OF ACTIONS (INSURANCEREFORMS) ACT IN MAY 2003 HAS HAD A CONSIDERABLEIMPACT ON THE NUMBER OF CLAIMS BY PEDESTRIANS INJUREDTHROUGH ACCIDENTS CAUSED ON ROADS AND FOOTPATHS.

NEW THRESHOLDS FOR GENERALDAMAGES CLAIMSThe Wrongs & Limitation of Actions (InsuranceReforms) Act 2003 requires claimants injuredon or after 21 May 2003 to obtain a seriousinjury certificate from an accredited medicalpractitioner, certifying permanent whole bodyimpairment of more than 5 percent for physicalinjuries and 10 percent for psychiatric injuries.

IMPACT OF NEW REFORMS ONCMP SCHEMEAt the time of introduction it was thought thattort reform would bring welcome relief to publicliability insurers, particularly to CMP, as theywould only allow the more seriously injuredpersons to bring claims against councils, ifcouncils' negligence was a cause of theirinjuries.As at 30 June 2004 CMP has received just 23notifications of incidents involving personalinjuries from pedestrians who have trippedand/or slipped on roads and footpaths sincethe introduction of tort reform. Of these 23reported incidents, only six claims have beenformally received, and only one has received aserious injury certificate, allowing a claim forgeneral damages for pain and suffering.Serious injury certificates were produced bythree other claimants but were rejected afterthey were referred to Medical Panel for anindependent assessment on the basis that theydid not satisfy the threshold under the newlegislation. The remaining three claims awaitassessment.By comparison, CMP received 176 reportedincidents from pedestrians all involving personalinjuries in the 12 month period prior to tortreform, all were eligible to make a claimagainst the council.

THE INTRODUCTION THE WRONGS &

TORT REFORM


M

NEW REFORMS THE INTRODUCTION OF TORT REFORM CAUSED AN INFLUXIN THE NUMBER OF WRITS DURING THE RELIEF PERIOD.CMP’s external and internal resources were stretched to the limited during September 2003 when a record 124public liability writs were received. This influx of writs was a direct reaction to the introduction of tort reforms inMay 2003. Under the reforms, injuries sustained after 21 May 2003 received a four month relief period to makea claim by 1 October 2003 and avoid the serious injury threshold of more than 5 percent permanent impairmentfor physical injury and 10 percent damage for psychiatric injury. The sudden increase in writs received caused anincrease in claims estimates and resulted in a surge in claims. Before the Victorian Government passed the Wrongs& Limitaton of Actions (Insurance Reforms) Act 2003, the scheme received an average of 20 – 25 writs per month.

MAV INSURANCE ANNUAL REPORT 2003/415 TORT REFORM

IN 2002/03 THERE APPEAREDBENEFICIAL IMPACT ON THE FIRST TO OF THE TORTCLAIMSROUNDBE SOMEREFORM INTRODUCTION. NOW ALL TORT REFORMS HAVE BEEN INTRODUCED THEREHAS BEEN A CLEAR REDUCTION IN THE NUMBER OF CLAIMS REPORTED IN THE FIRST FULLYEAR UNDER THE NEW LEGISLATION.

TORT REFORM LOWERS CLAIMSIn 1998/99, CMP’s first year of fullreinsurance, 348 claims were reported.In subsequent years, the number of claimsreported fell to between 200 and 300 claimsper year. In 2003/04, after all tort reformswere introduced, a substantial reduction in thenumber of claims has been reported for thefirst year of operation with a total of just 80claims being made to CMP.

1993/2004 TOTAL CLAIMSINCURRED CLAIMS

ROADS & FOOTPATHS $47,992,875

LATE REPORTED CLAIMS DECREASELate reported claims has always been an issuefor public liability insurers, including CMP.However, compared to the second year ofoperation during 2002/03 (294 claims) andpreceding years, the number of later reportedclaims continues to decline.CMP envisages that under the new tort reformlegislation that the declining trend shouldcontinue for the second year of the 2003/04period.CMP would like to see this trend translate intoan overall savings in the actual claims amounts.The reality however, is that while the number

PROFESSIONALINDEMNITY

NATURAL

OTHER

PERSON

CONSTRUCTION

ENVIRONMENTAL

LEISURE

BUILDING

PAID

PLUS O/S

TOTALLING

NUMBER OF CLAIMS

$16,647,820

$736,801

$8,611,195

$3,203,267

$1,495,460

$6,389,205

$12,608,170

$4,128,176

$75,038,142

$26,744,827

$101,812,969

of claims have reduced, the average costper claim has increased. This is generally aresult of a claimant who meets the thresholdrequirements for a successful claim underthe new legislation being more likely to beawarded a substantial financial payout.

ROADS & FOOTPATHS

PROFESSIONALINDEMNITY

NATURAL

OTHER

PERSON

CONSTRUCTION

ENVIRONMENTAL

LEISURE

BUILDING

TOTAL

3990

846

72

483

142

252

779

696

325

7585

CLAIMS 16MAV INSURANCE ANNUAL REPORT 2003/4

CLAIM TRENDS – ACTUAL INCURRED (PAIDS AND OUTSTANDINGS)

INSURANCE YEAR AS AT JUN 94 AS AT JUL 95 AS AT JUN 96 AS AT JUL 97 AS AT JUN 98 AS AT JUN 99 AS AT JUN 00 AS AT JUN 01 AS AT JUN 02 AS AT JUN 03 AS AT JUN 04

1993/1994(12 Months)

PaidO/S

$125,452$1,625,406$1,750,858

$1,117,445$2,117,735$3,235,180

$1,766,642$2,950,103$4,716,745

$3,477,234$2,442,982$5,920,216

$4,449,245$2,069,147$6,518,392

$6,163,845$1,328,640$7,492,485

$6,859,234$831,532

$7,690,766

$7,205,6791,985,838

$9,191,517

$8,523,046$775,622

$9,298,668

$9,062,619$177,735

$9,240,354

$9,302,480$191,517

$9,493,996(? Claims) (? Claims) (1385 Claims) (1406 Claims) (1418 Claims) (1427 Claims) (1432 Claims) (1435 Claims) (1429 Claims) (1429 Claims) (1430 Claims)

1994/1995(9 Months)

1995/1996(12 Months)

PaidO/S

$106,136$1,893,998$2,000,134

(716 Claims)PaidO/S

$758,321$3,405,312$4,163,633

(881 Claims)$131,416

$3,424,475

$3,965,485$2,325,756$6,291,241

(915 Claims)$1,159,607$4,791,866

$5,779,693$1,606,489$7,386,182

(929 Claims)$3,787,064$2,806,345

$6,886,598$1,003,908$7,890,506

(940 Claims)$5,750,465$1,519,706

$7,630,259$785,420

$8,415,679(944 Claims)$6,634,733$1,079,797

$8,168,704$904,149

$9,072,853(948 Claims)$7,884,499$1,101,256

$8,880,579$809,527

$9,690,106(944 Claims)$8,505,837

$844,177

$9,447,922$457,727

$9,905,649(945 Claims)$8,926,323

$879,836

$9,560,074$283,360

$9,843,434(945 Claims)$9,521,411

$332,676$3,555,891

(547 Claims)$5,951,473

(811 Claims)$6,593,409

(846 Claims)$7,270,171

(865 Claims)$7,714,530

(869 Claims)$8,985,755

(874 Claims)$9,390,014

(879 Claims)$9,806,159

(882 Claims)$9,854,087

(882 Claims)1996/1997 Paid $418,258 $1,629,196 $3,521,890 $5,654,516 $6,712,440 $7,724,067 $9,112,628 $10,132,081(12 Months) O/S $4,860,994 $4,779,580 $3,388,695 $1,754,597 $1,821,277 $2,782,047 $1,710,096 $1.059,156

$5,279,252 $6,408,776 $6,910,585 $7,409,113 $8,533,717 $10,506,114 $10,822,724 $11,191,237(556 Claims) (729 Claims) (773 Claims) (799 Claims) (813 Claims) (816 Claims) (824 Claims) (825 Claims)

1997/1998(12 Months)

1998/1999(12 Months)

PaidO/S

$156,404$3,359,981$3,516,385

(355 Claims)PaidO/S

$1,143,713$6,059,481$7,203,194

(582 Claims)$196,416

$3,979,233

$3,778,844$3,019,832$6,798,676

(628 Claims)$1,395,533$4,044,996

$5,346,040$2,392,145$7,738,185

(648 Claims)$3,373,104$3,043,667

$6,451,672$3,151,186$9,602,858

(664 Claims)$4,977,063$3,204,845

$7,234,230$2,720,353$9,954,583

(674 Claims)$6,983,000$2794,839

$8,067,782$1,363,533$9,431,315

(680 Claims)$8,513,053$2,034,154

$4,175,649 $5,440,529 $6,416,771 $8,181,908 $9,777,839 $10,547,207(348 Claims) (548 Claims) (587 Claims) (611 Claims) (626 Claims) (643 Claims)

1999/2000(12 Months)

PaidO/S

$238,627$3,659,999

$1,700,810$5,124,696

$4,078,899$4,590,142

$6,478,342$3,133,642

$7,905,398$4,498,422

$3,898,626 $6,825,506 $8,669,041 $9,611,985 $12,403,820(277 Claims) (487 Claims) (575 Claims) (610 Claiims) (638 Claims)

2000/2001(12 Months)

PaidO/S

$230,442$3,771,101

$1,445,463$7,282,941

$4,704,349$5,888,631

$7,003,918$5,152,921

$4,001,543 $8,728,404 $10,592,980 $12,156,839(270 Claims) (514 Claims) (590 Claims) (634 Claims)

2001/2002(12 months)

2002/2003(12 months)

PaidO/S

$101,895$5,262,025$5,363,920

(280 Claims)PaidO/S

$1,147,278$5,932,095$7,079,374

(444 Claims)$239,745

$3,142,290

$3,401,518$5,475,730$8,877,248

(534 Claims($1,536,477$4,675,668

$3,382,035(163Claims)

$6,212,145(294 Claims)

2003/2004(12 months)

PaidO/S

$93,951$1,707,690$1,801,641(80 Claims)

MAV INSURANCE ANNUAL REPORT 2003/417 CLAIMS

RISK MANAGEONE PRIORITY FOR MAV INSURANCE. THIS YEAR FOCUSSED ONTHE DOCUMENTATION OF PROCEDURES, POLICIES AND MONITORING PROCESSES TO MINIMISEMEMBERS’ EXPOSURE TO RISKS.

AUDIT PROCESSMAV insurance adopted a tighter audit processduring 2003/04 to further improve riskmanagement by testing the effectiveness ofcouncils’ systems. The audit includedassessment of high risk areas such as themanagement of contracts, trees, roads andfootpaths. Emphasis was also placed on thetraceability of inventories, inspections,maintenance activities and proof of completedworks. Councils were required to providedocumentary evidence that proactive riskmanagement occurs.A more stringent scoring criteria was adoptedto prevent subjectivity of the audits includingincreasing the scoring system to a zero to fiverating to reflect outstanding risk managementperformance.As the benchmark was lifted many councilmembers’ overall risk management scoresdecreased from the 2002/03 assessment.

GOVERNANCEPolicies and procedures were put in place toaddress fitness and propriety of members of theInsurance Committee and the responsibleofficers of the MAV in accordance with criteriaset by APRA.The development of a Risk ManagementStrategy included MAV Insurance policies,procedures, processes and control systemsappropriate to the size, business mix andcomplexity of the organisation’s operations.

RISK MANAGEMENT STRATEGYAs part of the MAV’s application for anAustralian Financial Services License (AFSL) forits insurance business, a Compliance and RiskManagement Strategy was developed for bothCMP and the Municipal Officers FidelityGuarantee Fund. The strategy consists of twomajor components:

RISK MANAGEMENT PLANAs part of the overall strategy for riskmanagement, a Compliance and RiskManagement Plan was developed for CMP andthe Municipal Officers’ Fidelity Guarantee Fundthat sets out specific procedures and keyinformation that MAV Insurance must follow inorder to comply with the spirit of APRA. Theplan also highlights the roles andresponsibilities of the Insurance Committee andthe MAV Insurance Compliance Officer.

RISK ANALYSISSpecific detail about MAV Insurance’sobligations under the Corporation Act, ASICpolicy, AFSL and internal policies was providedto ASIC in the form of a Compliance and RiskAnalysis Table. The table documents the:· Risk of non compliance· Priority of risk· MAV Insurance compliance and monitoring

procedures

FUTURE DIRECTIONSA sub-committee has been established in bothVictoria and Tasmania to review this year’saudit before developing the 2004/05 processand criteria.

MANAGING THE AND POTENTIALLIABILITY OF MEMBERS IS THE NUMBER

RISK MANAGEMENT


EMENT

EXCELLENCE IN RISK MANAGEMEMT THE CITY OF GLEN EIRAWON THE 2003 CMP RISK MANAGEMENT AWARD FOR EXCELLENCE FOR THE DESIGNAND CONSTRUCTION OF THE BIRDIE CAGE PUBLIC GOLF PRACTICE FACILITY ATCAULFIELD PARK IN BALACLAVA.The council’s submission detailed how the golfing facility managed potential risk by recreational golfers topassers-by as well as public and private property. The facility allows golfers of all ages and levels to safely practisetheir sport without posing a threat to others, or infringing local laws. Use of the Birdie Cage is free and includesa hit-off pad fully enclosed within a space supported by a surrounding net, similar to a cricket net. The Birdie CagePublic Golf Practice Facility is an example of a simple application to one of the basic principles of riskmanagement – isolating the hazard from those that may be adversely affected.

MAV INSURANCE ANNUAL REPORT 2003/419 RISK MANAGEMENT

MUNICIPAL OFFICERSFUND IS A MEMBERS’ MUTUAL FUND THAT WAS FORMED IN 1907

MUNICIPAL OFFICERS FIDELITY GUARENTEE FUND

FIDELITYGUARENTEEGBY THE MAV AT A TIME WHEN THE INSURANCE MARKET DID NOT PROVIDE LOCALGOVERNMENT WITH AN APPROPRIATE FIDELITY INSURANCE PRODUCT AT A REASONABLE PRICE.

PROTECTION FOR COUNCILSMembership to the Municipal Officers FidelityGuarantee Fund is open to any Victorian publicor local government body formed by an Act ofParliament, any authority formed under the WaterAct 1989, or any Weights and Measures Union.The fund indemnifies a member against loss ofmoney or other property as a result of thedishonesty or fraud of a person while eithercontinuously employed by a fund member or as amember of a committee of management, advisoryor special committee, subject to certain exclusions.Under the Act, the MAV is empowered to fix therate of contribution to the fund and stipulate theterms and conditions of membership.The Municipal Officers Fidelity Guarantee Fund

RISK REVIEWDuring the year the Fund distributed a riskreview survey to members requiring suminsured’s in excess of $500,000.The information from the Risk Review has beenused to assist in obtaining reinsurance for the2005 financial year. In addition, it has provideddata to support the MAV’s negotiations withthe reinsurance market over reinsurance pricingof the Fund.Collection and interpretation of the informationfrom the selected Fund members through therisk review will provide long-term benefits to allmembers through allowing greater effectivenessin dealing with the reinsurance market.

SEVEN-YEAR ANALYSISis owned and operated by the MAV.Management of the scheme is contracted to

PremiumReceived

ReinsurancePremium Paid

ClaimsExpense

Jardine Lloyd Thompson Pty Ltd.

HIGHLIGHTS· Performance for the 2004 financial year was

affected by significant claims made againstthe Fund, particularly in the area ofelectronic funds transfers and a significantincrease in the level of reinsurance

1999200020012002200320042005 (Est)

156,000158,000221,000248,000373,000382,000464,000

25,00018,00095,000

127,000152,000209,000253,000

8,00050,000

375,000106,000134,000413,00050,000

premiums· The fund again protected its members

against a 37.5% increase in reinsurancepremiums for the 2004 year

REPORTED RESULTSThis year the operating result for the financial yearwas an operating deficit of $111,264. The operatingsurplus for the 2003 financial year was $95,581This year’s result decreased the net assetposition of the fund from $473,369 in 2003 to$362,105 at the end of 2004. This year’sresult has been impacted by:· 37.5% increase in the cost to the fund of

reinsurance· A significant increase in the level of

recoveries received from defendants· A significant increase in claims expenses

paid by the fund

The Fund meets the first $100,000 of each andevery claim and takes out insurance for claimsin excess of the $100,000.

FUTURE DIRECTIONS· There will be no increase in the base

premium rates for members in the 2005financial year

· Members will be provided with protectionfrom the harder insurance market withescalating premiums.

· The Municipal Officers Fidelity GuaranteeFund will comply with the spirit of the APRAregulations

· The Fund will continue to protect membersfrom the vagaries of the insurance market

· Members will continue to be protectedagainst significant increases in insurancecosts levied by reinsurers


MUNICIPAL OFFICERS FIDELITY GUARENTEE FUND

FIDELITY SCHEME- PROTECTING MEMBERS AGAINST EMPLOYEE FRAUDA Victorian member council lodged one of the largest claims to the Municipal Officers Fidelity Guarantee Fundduring 2004. An employee of the member council committed payroll fraud by electronically transferring moneyinto his own account. The theft amounted to more than $1.2 million over a four month period. The MunicipalOfficers Fidelity Guarantee Fund covered the member council for the sum insured of $300,000. The council, withthe assistance of the Fund took legal proceedings against the former employee to recover money stolen.


AUSTRALIAN PRUDENTIALREGULATION AUTHORITY

INTRODUCTION For existing insurance companies, APRA requires thatThe MAV is committed to ensuring that MAV Insurance,through Civic Mutual Plus (CMP) and the MunicipalOfficers Fidelity Guarantee Fund (Fidelity), complies as faras practicable with the Australian Prudential RegulationAuthority (APRA) regulations. Currently, both theseinsurance schemes are specifically excluded fromcomplying with the APRA regulations.The APRA regulations fundamentally require insurers tointroduce and maintain good business practices. Theredoes not appear to be any fundamental practice requiredunder the regulations that the MAV Insurance schemescould not and should not comply with. The only issue ofconjecture is the ability of CMP and Fidelity to meet theminimum capital requirement and the requirements relatingto the approval by and reporting to APRA.It is in the interests of members of the insurance schemesto attempt to meet these requirements, even though boththe CMP liability scheme and Fidelity are mutual funds andtherefore the risk of financial failure is protected somewhat.The four prudential standards released by APRA that arerelevant to CMP are:

insurers increase their capital to this level over atransitional period of five years.CMP does not currently comply with this standard andwould find it difficult to comply within the five-yeartransitional period without establishing significant increasesin premium that would be beyond market expectations.In addition, the minimum capital requirement does nottake into account that CMP is a mutual fund whosemembers are local government authorities and waterauthorities, or that it has no retail operation.

LIABILITY VALUATIONAn insurer must appoint an actuary whose primary role willbe to provide advice on the valuation of insuranceliabilities.The standard sets out a new regime for:· the valuation of insurance liabilities· the estimation of reinsurance recoveries· the involvement of and reporting required by actuaries.To assist with valuation, an insurer must obtain the written

1234

Capital adequacy for general insurers (GPS110)Liability valuation for general insurers (GPS210)Risk management for general insurers (GPS220)Reinsurance arrangements for general insurers(GPS230).

advice of an approved valuation actuary where:a the total insurance liabilities of the insurer at the last

reporting date exceeded $20 million; orb the insurance liabilities of the insurer include an amount

in respect of a class of business, which is long tail, andthe amount is material to the total insurance liabilities.

CAPITAL ADEQUACYThe minimum level of capital required has increased from$2 million to $5 million. In practice, insurers will need tomaintain a buffer above the minimum capital levelaccording to their capital adequacy requirements and/orcatastrophe exposures.In addition, the capital adequacy standard requires that allinsurers will have capital management processes in placeto ensure their continual compliance with the minimumcapital requirement, consistent with the insurer’s overallbusiness plan.The standard provides a prescribed method where theminimum capital requirement is the sum of capital chargesfor:· insurance risk· investment risk· concentration risk.The scheme’s actuary, Richard Cumpston of CumpstonSarjeant, has estimated that the minimum capital requiredby CMP at 30 June 2004 to be $8.2 million (including a

30% buffer of $1.9 million to ensure continuingcompliance).


The actuary has responsibility for ensuring compliance withboth the liability valuation and capital adequacy standardsand must advise the board on the level of provisionsrequired in order to satisfy these standards. The actuaryalso has to report to APRA.In determining the value of an insurer’s insurance liabilities,the standard differentiates between the valuation of:a existing claims (outstanding claims liabilities); andb future claims (premiums liabilities).In each case, it requires liabilities to be valued bydetermining a central estimate and a risk margin. Thevalue of these liabilities is the sum of the central estimateand the risk margin.While the central estimate is similar to that currently used,the standard provides a significant amount of guidance onthe calculation of the risk margin, which is intended tosecure liabilities with a probable sufficiency of 75%.Outstanding claims liabilities must cover all claims incurredprior to the reporting date (whether or not they have beenreported to the insurer), together with the internal expensesthe insurer expects to incur in settling those claims.

The premium liabilities relate to future claim payments from futureevents insured under existing policies, and must include the internalexpenses the insurer expects to incur in administering the policiesand settling relevant claims.The appropriateness of the assumptions and valuation methodadopted must be reassessed at each annual reporting date.Richard Cumpston has advised that CMP currently complies withthe valuation and estimation aspects of the standard and that thereis no reason why the CMP scheme should not continue to comply.Part of the standard relating to the approval by and reporting ofinformation to APRA is not currently met by the CMP scheme.However, to mirror the intent of the rules, the scheme managerwill report to the CMP Committee in respect to this section.

RISK MANAGEMENTThe standard aims to ensure that an insurer is well managed, hasaccess to appropriate independent expertise and has systems foridentifying, managing and monitoring risks that may reduce theability of the insurer to meet its obligations to policyholders.The board and senior management of an insurer must develop,implement and maintain a sound and prudent risk managementstrategy that identifies the insurer’s risk management policies,procedures, processes and controls. The strategy should include abusiness continuity plan and establish a proper information flowbetween the scheme manager, committee of management andboard of directors.Managing operational risk is the responsibility of the board andsenior management. Because of this responsibility, APRA considersthat ‘fit and proper’ person tests should apply to the board andsenior management to ensure that persons occupying key positionswithin the insurer have the degree of probity and competencecommensurate with their responsibilities.Both the approved auditor and approved valuation actuary willhave ‘whistleblowing’ obligations. They will be required to report toAPRA any matters in contravention of regulatory requirements thatthey consider prejudicial to the interests of policyholders.

There is no reason why the CMP scheme should not work towardsimplementing the remaining aspects of the standard. If approved bythe CMP Committee, the remaining aspects of the standard couldbe included within the risk management strategy to be developed.

REINSURANCE ARRANGEMENTSCurrently the Insurance Act 1973 requires insurers to have on-going reinsurance arrangements approved by APRA. The standardmakes it clear that it is the board of directors and managementwho should “develop, implement and maintain a reinsurancestrategy appropriate to the operations of the insurer to ensure it hassufficient capacity to meet obligations as and when they fall due”.The strategy must be lodged annually (or if it is unchanged,confirmation to that effect) together with a written report from theboard certifying its compliance with the statement of strategy.Responsibility for compliance with the reinsurance managementstrategy, once set, rests with the board of the insurer. Well-definedmanagement responsibility and control should be the core of thestrategy. The strategy should, as a minimum, include:· a comprehensive reinsurance policy statement approved by the

board· sound systems for selecting and monitoring reinsurance

programs· clearly defined managerial responsibilities and controls· clear methodologies for determining all aspects of a reinsurance

program.The CMP scheme currently does not comply with this standard. Inparticular, it does not comply with the reporting or approvalrequirements set out by APRA. However, there are aspects of thereporting requirements that could be included in the report of theCMP scheme. To this end, the completion of a reinsurancemanagement strategy is included within CMP’s operational plan for2004.There is no reason why the CMP scheme should not work towardsimplementing the remaining aspects of the standard. If approved bythe CMP Committee, the remaining aspects of the standard couldbe included within the reinsurance management strategy to bedeveloped.

The board must have at least five directors, a non-executive chair,and a majority of non-executive directors. The board is alsorequired to form an audit committee for each scheme under itscontrol. Each year an insurer must provide APRA with a boarddeclaration certifying that strategies have been put in place tomonitor all key risks.The CMP scheme currently does not comply with this standardother than with the probity aspects relating to members of thecommittee, and with the provisions relating to the make-up ofthe board and committee.In particular, the CMP scheme does not comply with the reportingor approval requirements set out by APRA. There are aspects of thereporting requirements that will be included in the annual report ofthe CMP scheme, for example the board declaration certifying thatstrategies have been put in place to monitor all key risks.The preparation of a risk management strategy was completed andincluded in the 2004 operational plan.


COUNCILS OTHERSFIDELITY MEMBERS

Moyne Shire CouncilAlpine Shire CouncilArarat Rural City CouncilBallarat City CouncilBanyule City CouncilBass Coast Shire CouncilBaw Baw Shire CouncilBayside City CouncilBenalla Shire CouncilBoroondara City CouncilBrimbank City CouncilBuloke Shire CouncilCardinia Shire CouncilCasey City CouncilCentral Goldfields Shire CouncilColac-Otway Shire CouncilCorangamite Shire CouncilDarebin City CouncilEast Gippsland Shire CouncilFrankston City CouncilGannawarra Shire CouncilGlen Eira City CouncilGlenelg Shire CouncilGolden Plains Shire CouncilGreater Bendigo City CouncilGreater Dandenong City CouncilGreater Geelong City CouncilGreater Shepparton City CouncilHepburn Shire CouncilHindmarsh Shire CouncilHobsons Bay City CouncilHorsham Rural City CouncilHume City CouncilIndigo Shire CouncilKingston City CouncilKnox City CouncilLatrobe City CouncilLoddon Shire CouncilMacedon Ranges Shire CouncilManningham City CouncilMansfield Shire CouncilMaribyrnong City CouncilMaroondah City CouncilMelbourne City CouncilMelton Shire CouncilMildura Rural City CouncilMitchell Shire CouncilMoira Shire CouncilMonash City CouncilMoonee Valley City CouncilMoorabool Shire CouncilMoreland City CouncilMornington Peninsula Shire CouncilMount Alexander Shire Council


Murrindindi Shire CouncilNillumbik Shire CouncilNorthern Grampians Shire CouncilPort Phillip City CouncilPyrenees Shire CouncilQueenscliffe Borough CouncilSouth Gippsland Shire CouncilSouthern Grampians Shire CouncilStonnington City CouncilStrathbogie Shire CouncilSurf Coast Shire CouncilSwan Hill Rural City CouncilTowong Shire CouncilWangaratta Rural City CouncilWarrnambool City CouncilWellington Shire CouncilWest Wimmera Shire CouncilWhitehorse City CouncilWhittlesea City CouncilWodonga City CouncilWyndham City CouncilYarra City CouncilYarra Ranges Shire CouncilYarriambiack Shire Council

Bendigo Cemeteries TrustCentral Highlands WaterCitywide Service Solutions Pty LtdCity West Water LtdColiban Region Water AuthorityCorangamite Regional Library CorporationCrowlands Water Supply Co-operativeEast Gippsland WaterEastern Regional LibrariesFirst Mildura Irrigation TrustGeelong Cemeteries TrustGlenelg Region Water AuthorityGoulburn Valley WaterGrampians Region Water AuthorityLocal Authorities Super Pty LtdLower Murray WaterMelbourne Wholesale Fish MarketMunicipal Association of VictoriaNorth East Region Water AuthorityPortland Coast Region Water AuthorityQueen Victoria MarketSouth Gippsland Region Water AuthoritySouth West Water AuthorityTanjil Bren Water Coop Pty Ltd and Committeeof Management Recreational ReserveWest Gippsland Regional Library CorporationWestern Region Water AuthorityWesternport Region Water AuthorityYarra Valley Water Ltd

CMP MEMBERS

Nillumbik Shire Council

NON-COUNCILS

VICTORIAAlpine Shire CouncilArarat Rural City CouncilBallarat City CouncilBanyule City CouncilBass Coast Shire CouncilBaw Baw Shire CouncilBayside City CouncilBoroondara City CouncilBrimbank City CouncilBuloke Shire CouncilCampaspe Shire CouncilCardinia Shire CouncilCasey City CouncilCentral Goldfields Shire CouncilColac-Otway Shire CouncilCorangamite Shire CouncilDarebin City CouncilEast Gippsland Shire CouncilFrankston City CouncilGannawarra Shire CouncilGlen Eira City CouncilGolden Plains Shire CouncilGreater Bendigo City CouncilGreater Geelong City CouncilGreater Glenelg Shire CouncilGreater Shepparton City CouncilHepburn Shire CouncilHindmarsh Shire CouncilHobsons Bay City CouncilHorsham Rural City CouncilHume City CouncilIndigo Shire CouncilKingston City CouncilKnox City CouncilLaTrobe City CouncilLoddon Shire CouncilMacedon Ranges Shire CouncilManningham City CouncilMaribyrnong City CouncilMaroondah City CouncilMelbourne City CouncilMelton Shire CouncilMildura Rural City CouncilMitchell Shire CouncilMoira Shire CouncilMonash City CouncilMoonee Valley City CouncilMoorabool Shire CouncilMoreland City CouncilMornington Peninsula Shire CouncilMount Alexander Shire CouncilMoyne Shire CouncilMurrindindi Shire Council

Northern Grampians Shire CouncilPort Phillip City CouncilPyrenees Shire CouncilQueenscliffe Borough CouncilSouth Gippsland Shire CouncilSouthern Grampians Shire CouncilStonnington City CouncilStrathbogie Shire CouncilSurf Coast Shire CouncilSwan Hill Rural City CouncilTowong Shire CouncilWangaratta Rural City CouncilWarrnambool City CouncilWellington Shire CouncilWest Wimmera Shire CouncilWhitehorse City CouncilWhittlesea City CouncilWodonga City CouncilWyndham City CouncilYarra City CouncilYarra Ranges Shire CouncilYarriambiack Shire Council

COUNCILSTASMANIABreak O’Day CouncilBrighton CouncilBurnie City CouncilCentral Coast CouncilCentral Highlands CouncilCircular Head CouncilClarence City CouncilDerwent Valley CouncilDevonport City CouncilDorset CouncilFlinders CouncilGeorge Town CouncilGlamorgan/Spring Bay CouncilGlenorchy City CouncilHobart City CouncilHuon Valley CouncilKentish CouncilKingborough CouncilKing Island CouncilLatrobe CouncilLaunceston City CouncilMeander Valley CouncilNorthern Midlands CouncilSorell CouncilSouthern Midlands CouncilTasman CouncilWaratah-Wynyard CouncilWest Coast CouncilWest Tamar Council

VICTORIAWhitehorse Manningham RegionalLibrary CorporationMunicipal Association of VictoriaNorth Central Goldfields Library ServiceVictorian Water Industry Association Inc.West Gippsland Regional Library ServiceYarra Plenty Regional Library ServiceEastern Regional Libraries CorporationGoulburn Valley Regional LibraryCorporation

NON-COUNCILSTASMANIALocal Government Associationof Tasmania

WATER AUTHORITIES/TRUSTSVICTORIACentral Gippsland Region Water AuthorityCentral Highlands Region Water AuthorityColiban Region Water AuthorityEast Gippsland Water AuthorityFirst Mildura Irrigation TrustGlenelg Region Water AuthorityGrampians Region Water AuthorityGoulburn Valley Water AuthorityLower Murray Region Water AuthorityNorth East Water AuthorityPortland Coast Region Water AuthoritySouth Gippsland Region Water AuthoritySouth West Water AuthorityWestern Region Water AuthorityWesternport Region Water Authority

WATER AUTHORITIESTASMANIAEsk Water AuthorityRivers and Water Supply CommissionHobart Regional Water Authority

COUNCILS


INSURANCEMAV2004 FINANCIAL REPORT

26MAV INSURANCE ANNUAL FINANCIAL 2003/4

STATEMENT OF FINANCIAL PERFORMANCEFOR THE YEAR ENDED 30 JUNE, 2004

COMBINED CIVIC MUTUAL PLUS MUNICIPAL OFFICERSFIDELITY GUARANTEE FUND

NOTE 2004$

2003$

2004$

2003$

2004$

2003$

REVENUE FROM ORDINARYACTIVITIESPremiumsReinsurance Expense

29,848,750 23,076,468 29,466,525 22,703,421(22,511,076) (11,171,940) (22,302,020) (11,019,850)

382,225(209,056)

373,047(152,090)

NET INCOME BEFORECLAIMS 7,337,674 11,904,528 7,164,505 11,683,571 173,169 220,957Claims ExpenseExcesses and RecoveriesNET CLAIMS EXPENSE

3a

11

(13,906,333) (18,479,170) (13,493,500) (18,345,068)12,561,825 16,551,875 12,324,561 16,490,057(1,344,508) (1,927,295) (1,168,939) (1,855,011)

(412,833)237,264

(175,569)

(134,102)61,818

(72,284)

UNDERWRITING RESULTInvestment Income

5,993,166674,730

9,977,233680,595

5,995,566647,948

9,828,560657,103

(2,400)26,782

148,67323,492

Reduction in Provision forDoubtful Reinsurance Recoveries 36,946 426,474 36,946 426,474 - -Administration andGeneral Expenses 3(b) (4,025,018) (2,766,700) (3,889,372) (2,690,116) (135,646) (76,584)OPERATING SURPLUS(DEFICIT) FROMORDINARY ACTIVITIES 2,679,824 8,317,602 2,791,088 8,222,021 (111,264) 95,581TOTAL CHANGES INEQUITY 12 2,679,824 8,317,602 2,791,088 8,222,021 (111,264) 95,581

The accompanying notes form an integral part of these statements.

27MAV INSURANCE FINANCIAL REPORT 2003/4

STATEMENT OF FINANCIAL POSITIONAS AT 30 JUNE, 2004


NOTE 2004$

2003$

2004$

2003$

2004$

2003$

CURRENT ASSETSCash AssetsReceivablesTOTAL CURRENT ASSETS

7(a)8

16,835,113 12,141,724 16,599,005 11,621,04343,606,839 47,771,163 43,075,460 47,517,79560,441,952 59,912,887 59,674,465 59,138,838

236,108531,379767,487

520,681253,368774,049

NON-CURRENT ASSETSReceivables 8 44,626,583 45,086,770 44,626,583 45,086,770 - -TOTAL NON-CURRENTASSETSTOTAL ASSETS

44,626,583 45,086,770 44,626,583 45,086,770105,068,535 104,999,657104,301,048 104,225,608

-767,487

-774,049

CURRENT LIABILITIESPayables 3,006,511 2,831,721 2,965,772 2,812,256 40,739 19,465Premiums in Advance 9 29,205,209 28,703,707 28,918,666 28,472,492 286,543 231,215Provision for ClaimsOutstandingTOTAL CURRENT LIABILITIES

10 13,780,202 15,611,232 13,702,102 15,561,23245,991,922 47,146,660 45,586,540 46,845,980

78,100405,382

50,000300,680

NON-CURRENT LIABILITIESProvision for ClaimsOutstanding 10 50,101,954 51,558,162 50,101,954 51,558,162 - -TOTAL NON-CURRENTLIABILITIESTOTAL LIABILITIES

50,101,954 51,558,162 50,101,954 51,558,16296,093,876 98,704,822 95,688,494 98,404,142

-405,382

-300,680

NET ASSETS 8,974,659 6,294,835 8,612,554 5,821,466 362,105 473,369

EQUITY 12 8,974,659 6,294,835 8,612,554 5,821,466 362,105 473,369



STATEMENT OF CASH FLOWS30 JUNE, 2004

FOR THE YEAR ENDED


NOTE 2004$

2003$

2004$

2003$

2004$

2003$

CASH FLOW FROMOPERATING ACTIVITIESRECEIPTSSubscriptions, Grants and Fees 37,743,862 28,269,368 37,303,146 27,833,061 440,716 436,307Investment Income 669,083 674,748 644,956 652,677 24,127 22,071Excesses and Recoveries 12,705,898 12,482,804 12,679,570 12,190,214 26,328 292,590

PAYMENTSSuppliersClaim Payments

(30,441,361) (17,427,578) (29,979,700) (17,073,890)(15,984,093) (14,961,582) (15,670,010) (14,555,073)

(461,661)(314,083)

(353,688)(406,509)

NET CASH PROVIDED BY/(USED IN) OPERATINGACTIVITIES 7b 4,693,389 9,037,760 4,977,962 9,046,989 (284,573) (9,229)

NET INCREASE /(DECREASE) IN CASH HELD 4,693,389 9,037,760 4,977,962 9,046,989 (284,573) (9,229)

Cash at Beginning of Year 12,141,724 3,103,964 11,621,043 2,574,054 520,681 529,910CASH AT END OF YEAR 7a 16,835,113 12,141,724 16,599,005 11,621,043 236,108 520,681


NOTES TO AND FORMING PART OF THE FINANCIALSTATEMENTS FOR THE YEAR ENDED 30 JUNE, 2004

1

a

b

c

d

e

f

g

SUMMARY OF ACCOUNTING POLICIESThe financial report is a general purpose financial report which has been drawn up in accordance with AccountingStandards, Mandatory Professional Reporting Requirements (Urgent Issues Group Consensus Views) and other relevantrequirements.The principal accounting policies adopted in preparing the financial report are stated to assist in a general understanding ofthe financial report. Accounting policies have been consistently applied unless otherwise indicated.

Basis of AccountingThe accounts have been prepared on the accruals basis using historical costs and, except where stated, do not take intoaccount current valuations of assets.

The Principles of the Combined ReportThe combined financial report relates to MAV Insurance, a division of the Municipal Association of Victoria and of its 100percent controlled entities the Local Government Mutual Liability Insurance Scheme (trading as Civic Mutual Plus, - CMP),and Municipal Officers’ Fidelity Guarantee Fund.The presentation of the combined balances is for management purposes only. The two entities are separate independentlegal entities.The affects of all transactons between entities in the Combined entity have been eliminated.

Change in Accounting PolicyThe MAV Insurance Committee requested the independent actuary provide an estimate of the provision required to coverclaims settlement administrative expenses that would be incurred in managing all outstanding claims in the event that CivicMutual Plus winds down. This practice is consistent with insurance industry standards. In accordance with therecommendation of the independent actuary the Committee has decided to provide 4% of the gross outstanding claimsestimates (including gross IBNR and Development) as the provision for claims settlement administration costs. This provisionhas been established over the last two years. As a result of the change in accounting policy the surplus for the 2004 financialhas been reduced by $1,257,798 (2003 $1,684,243).

Income TaxThe Association is exempt from income tax, in accordance with sections 50-10 and 50-25 of the Income Tax Assessment Act1997.

Investment IncomeInvestment income is recognised on a time proportionate basis that takes into account the effective yield on the financialasset.

PremiumsPremiums comprise amounts charged to members of the Schemes for policy cover, net of amounts returned to members asbonuses. The earned portion of premiums received is recognised as revenue. Premiums are treated as earned from date ofattachment of risk. The pattern of recognition over the policy is based on time, which is considered to closely approximatethe pattern of risks undertaken.

Premiums ReceivableDuring the month of June each year, the CMP Scheme issues premium notices to Scheme Members. The risk attaches to thepremiums in the next accounting period and accordingly the revenue is recognised each following year commencing 1 July.Effective 30 June 1995, the CMP Scheme resolved to disclose these amounts billed in advance in the balance sheet as“contributions receivable” with an offsetting liabilty described as “contributions billed in advance”.


NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2004

h

i

j

k

l

ClaimsClaims incurred expense and liability for outstanding claims are recognised in respect of direct business. The liability coversclaims incurred but not yet paid, incurred but not yet reported claims, and the anticipated direct and indirect costs of settlingthose claims. Claims outstanding are assessed by reviewing individual claim files and estimating claims not notified andsettlement costs using statistical and actuarial techniques. The liability for outstanding claims is measured as the presentvalue of the expected future payments, reflecting the fact that all the claims do not have to be paid out in the immediatefuture. The expected future payments are estimated on the basis of the ultimate cost of settling claims, which is affected byfactors arising during the period to settlement such as normal inflation and “superimposed inflation”. Advice from the MAV’sactuary has estimated normal and superimposed inflation to be 6% (2003 6%)and the discount rate at 5.5% (2003 4.5%)Superimposed inflation refers to factors such as trends in court awards, for example increases in the level and period ofcompensation for injury. The expected future payments are then discounted to a present value at the reporting date usingdiscount rates based on the investment opportunities available to the organisation on the amounts of funds sufficient to meetclaims as they became payable. Details of rates applied are disclosed in note 10.

Other Financial AssetsInvestments are valued at net market value at balance date. Investment income includes interest received and receivable oninvestments and changes in net market values of investments in unit trusts. The Schemes have adopted a policy of investingin secure investments backed by fixed interest securities of amounts and terms broadly matching its liabilities for claims andunearned contributions.

Cash FlowsFor the purposes of the statement of cash flows, cash includes cash on hand and deposits held at call with banks andinvestments in cash backed unit trusts.

Excesses and RecoveriesExcesses and other recoveries are brought to account when established at the time of consideration of the claims details andonly where a definite set of circumstances exist which will support the credibility of the justification of obtaining either arecovery of excess from scheme member or recovery of claim cost from a third party.

Revenue RecognitionRevenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can bereliably measured. The following specific recognition criteria must also be met before revenue is recognised.

(i) Premiums – recognised in the period the fund is at risk.(ii) Excesses and Recoveries – on an accruals basis.(iii) Investment Income – on an accruals basis including adjustments to bring values of cash backed unit trusts to account as

interest income.

m Comparative FiguresWhere necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

n Provision for Reinsurance RecoveriesDuring the 2001 financial year two of the participants in the Scheme’s reinsurance program were placed into the hands ofliquidators. These companies were part of the reinsurance programs in fund years from 1994 to 1998. The Committee havedetermined that sufficient information to reasonably estimate the extent and timing of the return to the Scheme from theliquidators of these companies is not currently available. The Committee therefore determined in the 2001 year that the mostprudent course of action was to provide against 100% of the estimated future recoveries due from these insurers.

TheCommittee continues to constantly monitor the position with a view to ensuring that the Scheme takes all reasonable steps toprotect its position and to maximise potential recoveries. The provision made during the 2001 year is being monitored by theCommittee. The information made available by the liquidators to date regarding potential returns to unsecured creditors isnot considered to be sufficient to for the Committee to make any change to the level of provision.The liquidators of HIH have indicated that an initial distribution to creditors will occur soon. However, no final date orconfirmation of any amount is available. Therefore, as at the date of this report the Committee are of the view that thepotential for any recovery is still uncertain and the policy of providing against 100% of the estimated future recoveries duefrom these insurers is continuing.




NOTE 2004$

2003$

2004$

2003$

2004$

2003$

2 REVENUE FROMORDINARY ACTIVITIESREVENUES FROMOPERATING ACTIVITIESPremiums 29,848,750 23,076,468 29,466,525 22,703,421 382,225 373,047Insurance excesses andrecoveries 12,561,825 16,551,875 12,324,561 16,490,057 237,264 61,818TOTAL REVENUE FROMOPERATING ACTIVITIES 42,410,575 39,628,343 41,791,086 39,193,478 619,489 434,865

REVENUES FROMNON-OPERATING ACTIVITIESInvestment Income 674,730 680,595 647,948 657,103 26,782 23,492TOTAL REVENUE FROMOUTSIDE THE OPERATINGACTIVITIES 674,730 680,595 647,948 657,103 26,782 23,492TOTAL REVENUE FROMORDINARY ACTIVITIES 43,085,305 40,308,938 42,439,034 39,850,581 646,271 458,357

3a CLAIMS EXPENSESPaid 17,193,571 16,064,883 16,808,838 15,600,781 384,733 464,102Outstanding claims at endof financial year 10 63,882,156 67,169,394 63,804,056 67,119,394 78,100 50,000Outstanding claims atbeginning of financial yearTOTAL CLAIMS EXPENSES

(67,169,394) (64,755,107) (67,119,394) (64,375,107)13,906,333 18,479,170 13,493,500 18,345,068

(50,000)412,833

(380,000)134,102

3b ADMINISTRATION & GENERALEXPENSESThe following items have beenrecognised in the operatingsurplus (deficit):Stamp DutyAudit FeesAdministrationActuary and Legal FeesScheme Management Fee

1,970,76841,000

388,863146,137

1,478,250

1,008,46729,050

285,76895,478

1,347,937

1,970,76836,490

388,712101,502

1,391,900

1,008,46726,850

285,59891,114

1,278,087

-4,510

15144,63586,350

-2,200

1704,364

69,850

4

TOTAL EXPENDITURE

AUDITORS REMUNERATION

(4,025,018) (2,766,700) (3,889,372) (2,690,116) (135,646) (76,584)

Amounts payable or due andpayable for audit services:AUDIT OF THE ENTITY 41,000 29,050 36,490 26,850 4,510 2,200




2004$

2003$

2004$

2003$

2004$

2003$

5 SCHEME MANAGEMENT FEESIncluded within administrationand general expenses aremanagement fees for:Risk management andadministrative servicesClaims management

1,478,2501,209,478

1,347,9371,102,858

1,391,9001,138,828

1,278,0871,045,708

86,35070,650

69,85057,150

TOTAL SCHEMEMANAGEMENT FEES 2,687,728 2,450,795 2,530,728 2,323,795 157,000 127,000

6

7

a

OTHER FINANCIAL ASSETSAll of the surplus funds of the Civic Mutual Plus Scheme are invested at market rates with UBS Asset Management (Aust) Ltdin their Cash Enhanced Cash Fund and their Australian Bond Fund. Investments are brought to account at net market valueat balance date.

NOTES TO STATEMENT OF CASH FLOWSFor the purposes of the Statement of Cash Flows, cash includes cash in hand, cash at bank, certificates of deposit with shortterms to maturity, bank bills and other financial assets (Note 6).

Cash at balance date as shown in the Statement of Cash Flows is reconciled to the related items in theStatement of Financial Position as follows:


2004$

2003$

2004$

2003$

2004$

2003$

Cash at BankOther Financial Assets

7,389,6469,445,467

2,841,3759,300,349

7,384,0199,214,986

2,832,0498,788,994

5,627230,481

9,326511,355

b

TOTAL CASH

Reconciliation of Net Cash

16,835,113 12,141,724 16,599,005 11,621,043 236,108 520,681

Used In Operating Activitiesto Operating Surplus/(Deficit)Surplus (Deficit) for year 2,679,824 8,317,602 2,791,088 8,222,021 (111,264) 95,581CHANGES IN ASSETSAND LIABILITIES(Increase)/decrease inaccounts receivable 708,473 (3,443,033) 986,484 (3,423,965) (278,011) (19,068)Increase/(decrease) inaccounts payable 174,790 430,178 153,516 417,135 21,274 13,043(Increase) / decrease inprovision for reinsurancerecoveries 3,916,038 (5,232,927) 3,916,038 (5,232,927) - -Increase/(decrease) inoutstanding claims (3,287,238) 2,414,287 (3,315,338) 2,744,287 28,100 (330,000)Increase/(decrease) inunearned revenue 501,502 6,551,653 446,174 6,320,438 55,328 231,215CASH FLOWS FROMOPERATIONS 4,693,389 9,037,760 4,977,962 9,046,989 (284,573) (9,229)



NOTE 2004$

2003$

2004$

2003$

2004$

2003$

8 RECEIVABLESReinsurance and otherrecoveries receivableDiscount to Present Value

1k 79,058,485 76,140,461 78,848,049 76,140,461(12,950,150) (10,492,281) (12,950,150) (10,492,281)66,108,335 65,648,180 65,897,899 65,648,180

210,436-

210,436

---

Provision for DoubtfulReinsurance Recoveries (7,188,040) (7,224,986) (7,188,040) (7,224,986) - -Net Reinsurance and otherRecoveries Receivable 58,920,295 58,423,194 58,709,859 58,423,194 210,436 -Excesses Recoverable 4,935,966 5,719,273 4,935,466 5,719,273 500 -Premiums receivable 1g 24,359,930 28,705,916 24,046,003 28,454,375 313,927 251,541Other Receivables 17,231 9,550 10,715 7,723 6,516 1,827TOTAL RECEIVABLES 88,233,422 92,857,933 87,702,043 92,604,565 531,379 253,368Represented By:

9

CURRENTNON-CURRENTTOTAL

PREMIUMS IN ADVANCE

43,606,839 47,771,163 43,075,460 47,517,79544,626,583 45,086,770 44,626,583 45,086,77088,233,422 92,857,933 87,702,043 92,604,565

531,379-

531,379

253,368-

253,368

Contributions billed inadvance 1g 29,205,209 28,703,707 28,918,666 28,472,492 286,543 231,215

10 OUTSTANDING CLAIMSReported claims outstanding 29,454,174 32,689,154 29,426,074 32,639,154 28,100 50,000Provision for incurred but notreported claims, claimsdevelopment and settlement costsDiscount to present value

47,117,002 43,900,324 47,067,002 43,900,324(12,689,020) (9,420,084) (12,689,020) (9,420,084)

50,000-

--

TOTAL OUTSTANDINGCLAIMS 63,882,156 67,169,394 63,804,056 67,119,394 78,100 50,000Comprising:CURRENTNON-CURRENTTOTAL CLAIMS PROVISION

13,780,202 15,611,232 13,702,102 15,561,23250,101,954 51,558,162 50,101,954 51,558,16263,882,156 67,169,394 63,804,056 67,119,394

78,100-

78,100

50,000-

50,000

Actuarial advice indicates that:(a) The average term to settlement of outstanding claims is 4.9 years (2003: 4.9 years).(b) The following average inflation rates and discount rates were used in measuring the liability

for outstanding claims.Inflation factorDiscount rate

1h 6.0%5.5%

6.0%4.5%




NOTE 2004$

2003$

2004$

2003$

2004$

2003$

11 NET CLAIMS INCURREDAllowance for claimssettlement costs 1c 1,257,798 1,684,243 1,257,798 1,684,243 - -Net claims incurred: currentfinancial year incidentsNet Claims Settlement Costs

164,9911,209,478

391,1961,102,858

60,0721,138,828

376,0621,045,708

104,91970,650

15,13457,150

Reassessment for prior yearsclaims (1,287,759) (1,251,002) (1,287,759) (1,251,002) - -NET CLAIMS INCURRED 1,344,508 1,927,295 1,168,939 1,855,011 175,569 72,284

12 EQUITYBalance at beginning of Year 6,294,835 (2,022,767) 5,821,466 (2,400,555) 473,369 377,788Surplus (Deficit)fromordinary activitiesBALANCE AT END OF YEAR

2,679,8248,974,659

8,317,6026,294,835

2,791,0888,612,554

8,222,0215,821,466

(111,264)362,105

95,581473,369

13 FINANCIAL INSTRUMENTS INTEREST RATE RISK EXPOSUREThe Group’s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set outbelow:


NON-INTERESTEARNING

FLOATING NON-INTERESTINTEREST RATE EARNING


FLOATINGINTEREST RATE

2004$ $ $ $ $ $

FINANCIAL ASSETSBankCash Investments

--

7,389,6469,445,467

--

7,384,0199,214,986

--

5,627230,481

Receivables 88,233,422 - 87,702,043 - 531,379 -TOTAL FINANCIAL ASSETS 88,233,422 16,835,113 87,702,043 16,599,005 531,379 236,108Weighted AverageInterest Rate 5.7% 5.7% 5.2%

2004$ $ $ $ $ $

FINANCIAL LIABILITIESOutstanding claims 63,882,156 - 63,804,056 - 78,100 -Unearned premiums/subscriptions 29,205,209 - 28,918,666 - 286,543 -Accounts payable 3,006,511 - 2,965,772 - 40,739 -TOTAL FINANCIAL LIABILITIES 96,093,876 - 95,688,494 - 405,382 -



NON-INTERESTEARNING



FLOATINGINTEREST RATE

2003$ $ $ $ $ $

FINANCIAL ASSETSBankCash Investments

--

2,841,3759,300,349

--

2,832,0498,788,994

--

9,326511,355

Receivables 92,857,933 - 92,604,565 - 253,368 -TOTAL FINANCIAL ASSETS 92,857,933 12,141,724 92,604,565 11,621,043 253,368 520,681Weighted AverageInterest Rate 5.2% 5.3% 4.2%

2003$ $ $ $ $ $

FINANCIAL LIABILITIESOutstanding claims 67,169,394 - 67,119,394 - 50,000 -Unearned premiums/subscriptions 28,703,707 - 28,472,492 - 231,215 -Accounts payable 2,831,723 - 2,812,258 - 19,465 -TOTAL FINANCIALLIABILITIES 98,704,824 - 98,404,144 - 300,680 -

The carrying amounts of financial assets and financial liabilities represent their approximate net fair value.

Credit Risk ExposureThe maximum credit risk exposure on financial assets is represented by the carrying amounts of assets recognised in theStatement of Financial Position.

Concentrations of Credit RiskReceivables due from Debtors in specific industry segments expressed as a percentage of the total balance receivable:


2004 2003 2004 2003 2004 2003Local GovernmentReinsurersOther

38%62%

-

37%63%

-

38%62%

-

37%63%

-

59%40%1%

99%1%

-

Apart from the foregoing, the entity had no significant concentrations of credit risk with any single ‘counter-party or group ofcounter-parties’.


COMBINED FINANCIAL STATEMENTS14 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)

The Australian Accounting Standards Board (AASB) is adopting IFRS for application to reporting periods beginning on orafter 1 January 2005. The AASB will issue AASB equivalents to IFRS, and Urgent Issues Group Abstracts corresponding toInternational Financial Reporting Interpretations adopted by the International Accounting Standards Board. The adoption ofIFRS will be first reflected in the economic entity’s financial statements for the year ending 30 June 2006. Upon adoption ofIFRS, entities will be required to restate their comparative financial statement to amounts reflecting the application of IFRS tthat comparative period. This will require adjustments to be made, retrospectively, against opening retained earnings as at 1July 2004.As at the date of this Report, analysis of a significant number of the IFRS implications has been undertaken. This analysis hasidentified a number of accounting policy changes that will be required. In some cases, choices of accounting policies areavailable including elective exemptions under AASB 1. First time adoption of Australian International Financial ReportingPronouncements. Some of these choices are still to be analysed to determine the most appropriate accounting policy for theeconomic entity.Major changes identified to date that will be required to the economic entity’s existing accounting policies include thefollowing:

a

b

Insurance ContractsRevised Accounting Standard AASB 1023; General Insurance Contracts defines an insurance contract and requiresadditional disclosures. The main accounting changes are the requirement to include a prudential margin on insuranceliabilities, the introduction of an adequacy test for insurance liabilities and an impairment test for reinsurance assets. Theentity has a long held policy of maintaining prudential margins in outstanding claims and a robust approach to the valuationof insurance liabilities and reinsurance assts and therefore no significant impact is expected. The fundamental changes toinsurance recognition and measurement proposed in phase II of the IASB insurance contracts project due in 2007 are beingmonitored.

InvestmentsThe AASB has prescribed that insurance companies must account for assets backing insurance liabilities at “fair valuethrough the profit and loss account” being one of the options available in Accounting Standard AASB 139; FinancialInstruments: Recognition and Measurement. This is consistent with current policy of taking market value movements throughthe statement of financial performance. However, changes to this standard are being considered and their impact on thefinancial statements of the combined entity will be assessed when the exposure draft is finalised.

The above should not be regarded as a complete list of changes in accounting policies that will result from the transition toAustralian equivalents to IFRS. Not all standards have been fully analysed at this time and decisions have yet to be madewhere choices of accounting policies are available. For this reason it is not possible to quantify the impact of the transition toAustralian equivalents to IFRS on the combined financial position and reported results of MAV Insurance.The Management of the Association with the assistance of the Association’s advisers is to develop a process to ensurecompliance with IFRS. This process is to be overseen by the Association’s Audit Committee.

COMBINED FINANCIAL STATEMENTS

15 RELATED PARTIESThe Municipal Association of Victoria is a body corporate established under the Municipal Association Act 1907 to provideservices for and the representation of Local Government authorities in Victoria. The Association and its wholly-ownedcontrolled entities, including MAV Insurance, trade with its members in the normal course of business and on an arm’s lengthbasis. The discreet nature of these transactions is not material. Total expenses of $352,000 (2003 $289,450) payable to theMunicipal Association of Victoria being payment for Administrative support, and overseeing the management of theinsurance activities, including the conduct of bi-monthly Committee Meetings. Other than this there were no material relatedparty transactions during the year.

Committee Members During The YearA. Murphy (Independent Chairperson)G. Lake (MAV – President) Appointed 26 August 2004B A Matheson (MAV - President) Resigned 17 June 2004Cr. J. Dale (MAV – Acting President) Appointed 17 June 2004S. Wardlaw (LGAT Representative) Resigned 30 July 2003A. Garcia (LGAT Representative) Appointed 30 July 2003N. Renton (Independent)J. Warburton (Independent)R. Farrell (Independent)A. Nye (Independent) Appointed 2 March 2004Dr. M. Kennedy (CEO, Mornington Peninsula Shire Council)R. Spence (MAV - Chief Executive Officer)Cr. C. Papas (MAV Representative) Appointed 2 August 2003 Resigned 28 June 2004Cr. J. Ryan (MAV Representative) Appointed 2 August 2003Cr. Rod Fyffe (MAV Representative) Appointed 28 June 2004


2004$

2003$

2004$

2003$

2004$

2003$

Independent committee membersreceive remuneration for meeting fees.Chairperson receives $750 permeeting and other independentcommittee members receive $500per meeting.Remuneration of CommitteeMembersTotal Income received or receivableby Committee Members 26,000 17,750 26,000 17,750 - -

Number of Committee Memberswhose total income falls withinthe following bands:$0 - $9,999

200414

200311

Loans to Committee MembersNo loans were made to or are payable by Committee Members.

Other TransactionsThere were no other material transactions with Committee Members.


STATEMENT BY COMMITTEE OF MANAGEMENTTo the best of our knowledge and belief, the accompanying financial statements comprising the Statement of FinancialPerformance, Statement of Financial Position, Statement of Cash Flows and Notes to the Accounts:

(a) give a true and fair view of the financial transactions for the year ended 30 June 2004 and the state of affairs as at that

date;(b) are drawn up in accordance with the provisions of the trust deed dated 31 August 1993; and(c) are in accordance with Accounting Standards and the other mandatory professional reporting requirements (Urgent Issues

Group Consensus Views)(d) at the date of this statement there are reasonable grounds to believe the scheme will be able to pay its debts as an when

they become due and payable.

Anne MurphyMAV Insurance Committee Chairman

Rob SpenceMAV Chief Executive Officer

Melbourne3rd December 2004

STATEMENT BY DIRECTORSIn the opinion of the Directors of The Municipal Association of Victoria:

(a) the accompanying Statements of Financial Performance is drawn up so as to give a true and fair view of the results ofCivic Mutual Plus and the Municipal Officers Fidelity Guarantee Fund for the year ended 30 June 2004;

(b) the accompanying Statement of Financial Position is drawn up so as to give a true and fair view of the state of affairs ofCivic Mutual Plus and the Municipal Officers Fidelity Guarantee Fund as at that date;

(c) at the date of this statement there are reasonable grounds to believe that Civic Mutual Plus and the Municipal OfficersFidelity Guarantee Fund will be able to pay its debts as and when they fall due; and

The financial statements have been made out in accordance with applicable Accounting Standards and other mandatoryprofessional reporting requirements.

Signed in accordance with the resolution of Directors.

G. LakePresident

Melbourne3rd December 2004


John ChandlerDirector

COMBINED FINANCIAL REPORTINDEPENDENT AUDIT REPORTINDEPENDENT AUDIT REPORT TO THE MEMBERS OF LOCAL GOVERNMENT MUTUAL LIABILITY INSURANCE SCHEMEAND MUNICIPAL OFFICERS FIDELITY GUARANTEE FUND

ScopeWe have audited the individual financial statements of the Local Government Mutual Liability Insurance Scheme (“theScheme”) and the Municipal Officers Fidelity Guarantee Fund (“the Fund”) for the financial year ended 30 June 2004 as setout on pages 27 to 38. The Municipal Association of Victoria is responsible for the financial statements. We have conductedan independent audit of these financial statements in order to express an opinion on them to the respective members of theScheme and the Fund.Our audit has been conducted in accordance with Australian Auditing Standards to provide reasonable assurance whetherthe financial reports are free of material misstatement. Our procedures included examination, on a test basis, of evidencesupporting the amounts and other disclosures in the financial statements, and the evaluation of accounting policies andsignificant accounting estimates. These procedures have been undertaken to form an opinion whether, in all materialrespects, the financial reports are presented fairly in accordance with Accounting Standards and other mandatoryprofessional requirements (Urgent Issues Group Consensus Views) and statutory requirements in Australia so as to present aview which is consistent with our understanding of the Scheme’s and the Fund’s financial positions, and the results of theiroperations and their cash flows.The audit opinion expressed in this report has been formed on the above basis.

Audit OpinionIn our opinion,

(a) the financial statements of the Local Government Mutual Liability Insurance Scheme are properly drawn up:(i) so as to give a true and fair view of the Scheme’s state of affairs as at 30 June 2004 and its profit and cash flows for the

financial year ended on that date;(ii) in accordance with the provisions of the Trust Deed dated 31 August 1993; and(iii) in accordance with applicable Accounting Standards and other mandatory professional reporting requirements; and

(b) the financial report of the Municipal Officers Fidelity Guarentee Fund presents fairly the financial position of the Fund as at

30 June 2004 and the results of its operations and its cash flows for the year then ended.

PKF R. A. Dean PartnerChartered AccountantsA Victorian Partnership

3rd December 2004Melbourne

OTHER INFORMATIONLegal FormMAV Insurance is the insurance division of the Municipal Association of Victoria. The Municipal Association of Victoria is anAssociation Incorporated by the Municipal Association of Victoria Act 1907.

DomicileMelbourne, Australia

Address of Registered Office:Level 12, 60 Collins Street, Melbourne, 3000, Australia

Principal Place of BusinessLevel 1, 468 St. Kilda Road, Melbourne 3004, Australia

Nature of the Operation and principal activities:The Municipal Association of Victoria has the power provided to it by the Municipal Association of Victoria Act 1907 toestablish Civic Mutual Plus and the Municipal Officers Fidelity Guarantee Fund in order to provide public liability,professional indemnity and fidelity insurance to Local Government and Water Authorities.

Number of EmployeesNil


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