2003 – 2004 insurance report by panniuniu

VIEWS: 63 PAGES: 48

									                     Design
          Fr@nk Design Pty Ltd

                Photography
      Steven Diffey Photography

                Published by
Municipal Association of Victoria
     Level 12, 60 Collins Street
              Melbourne 3000
     Telephone: 03 9667 5555
      Facsimile: 03 9667 5550
             GPO Box 4326PP
              Melbourne 3001
  E-mail: inquiries@mav.asn.au
      Website: www.mav.asn.au
MAV
INSURANCECIVIC MUTUAL PLUS AND
INCORPORATING
THE MUNICIPAL OFFICERS FIDELITY
GUARANTEE FUND




                                                         CONTENTS
                                                         Welcome                             2
                                                         MAV Insurance Statement             4
                                                         Year in Focus                       5
                                                         Chairman’s Report                   6
                                                         Committee                           8
                                                         CMP Scheme                         10
                                                         Tort Reform                        14
                                                         Claims                             16
                                                         Risk Management                    18
                                                         Fidelity                           20
                                                         Australian Prudential Regulation
                                                         Authority                          22
                                                         Fidelity Members                   24
                                                         CMP Members                        25
                                                         Financial Report                   26
                                                         Glossary                           44




                                                     1
                MAV INSURANCE ANNUAL REPORT 2003/4
WELCOME
THIS YEAR WAS SOMEWHAT LIKE THE             CALM
AFTER THE STORM. WHILE PREVIOUS YEARS HAD PROVEN
TOUGH AND, AT TIMES TESTING,  2003/04 SAW THE RETURN TO BALANCE
AND ORDER WITH BOTH THE CMP SCHEME AND THE MUNICIPAL OFFICERS FIDELITY
GUARANTEE FUND ADJUSTING TO OPERATE EFFECTIVELY AND SMOOTHLY WITHIN A
NEW INSURANCE ENVIRONMENT CREATED MOSTLY BY EXTERNAL FACTORS.




                          Both the CMP Scheme and the Municipal Officers’ Fidelity Guarantee Fund reported
                          healthy financial positions. This was partly due to the prudential financial and investment
                          management by our Committee, an ongoing commitment towards risk management by our
                          members and the Victorian Government’s introduction of tort reform which has greatly
                          reduced 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 has
                          been the creation of documentation relating to risk management including a
                          comprehensive compliance and risk management strategy and disaster recovery plan for
                          MAV Insurance. Under requirements by ASIC to be granted an AFSL, new internal MAV
                          Insurance policies have been developed relating to the operation of the scheme and
                          accountability of the MAV Insurance Committee.
                          The first year of MAV Insurance’s new three-year reinsurance deal came into effect on
                          1 July 2003. The deal was set after a five-year period of increasing claims far in excess of
                          the reinsurance premium in the same period. While CMP negotiated the new Reinsurance
                          Program for the 2004, 2005 and 2006 financial years at a substantially increased
                          premium, the in-built premium refund provision based on new claims experience over
                          the 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 tools
that will benefit the scheme and its members.
Thank you to our members who once again participated in the CMP Customer Satisfaction
Survey, allowing for better assessment of the scheme manager’s performance and resulting in
ways 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 of
premium for members.
A very sincere thank you to the MAV Insurance Committee, scheme manager and contract
manager for their continued support, expertise and advice during the past 12 months.


                                    ROB SPENCE CEO & JENNY DALE ACTING RESIDENT




                                                                                                      3
                                                                 MAV INSURANCE ANNUAL REPORT 2003/4
MAV
INSURANCE
“THE ASSOCIATION (MAV) MUST ESTABLISH
AND MANAGE A MUTUAL LIABILITY
INSURANCE SCHEME FOR THE PURPOSE
OF PROVIDING PUBLIC LIABILITY AND
PROFESSIONAL INDEMNITY INSURANCE.”
Municipal Association Act 1907



“IT SHALL BE LAWFUL FOR THE
ASSOCIATION TO ESTABLISH A MUNICIPAL
OFFICERS FIDELITY GUARANTEE FUND.”
Municipal Association Act 1907




Civic Mutual Plus (CMP) and the Municipal Officers Fidelity
Guarantee Fund (Fidelity) are insurance schemes provided by
the Municipal Association of Victoria (MAV) under the banner
of MAV Insurance. Both schemes have been established in
accordance with the Municipal Association Act 1907.
The Act states that the MAV must provide public liability and
professional indemnity insurance and enables the Association
to provide fidelity insurance to councils and other bodies
constituted by an Act of Parliament for public or local
governing purposes.




                    4
                    MAV INSURANCE ANNUAL REPORT 2003/4
YEAR IN FOCUS
THIS YEAR WASTHE FOCUS                                                                  ON NEW REGULATORY
REGIMES FOR LOCAL GOVERNMENT. THE INTRODUCTION OF TORT REFORM HAS
HAD A POSITIVE IMPACT ON THE SCHEME’S OPERATING COSTS WHILE THE APPLICATION
TO ASIC FOR A AUSTRALIAN FINANCIAL SERVICES LICENCE, ONCE GRANTED, WILL GIVE
PROVISION FOR THE MAV INSURANCE BUSINESS TO GROW.

ASIC LICENSING
The Financial Services Reform (FSR) legislative package introduced by the Commonwealth required all financial
services’ participants to apply for a new (AFSL) by March 2004. The licence, to be issued by the Australian Securities
and Investment Commission, will allow the MAV to provide insurance services and operate its insurance business to
compete commercially.
Once licensed, the MAV will be able to independently provide public liability, product liability and fidelity insurance
services 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 include
managing 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 PLANS
CMP 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 claim
against them is lodged. Councils with road management plans that do not meet CMP’s requirements in relation to
specified inspections, maintenance generation and completed works for proactive and reactive works will receive
assistance to improve their current processes through the MAV’s Step Asset Management Improvement Program.


NOT-FOR-PROFIT COMMUNITY SCHEME
The MAV Not-for-Profit community insurance scheme continues to go from strength to strength. Of the number of
existing policy holders, 75% renewed their policies for 2003/04. In addition, a marked increase in the take-up rate of
new policy holders saw the total scheme pool of groups increase to more than 1000 members. Premiums continue to
be frozen at 2002 levels, due largely to no claims being made since the inception of the scheme. Not-for-profit
community 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 MILESTONE
The CMP scheme reached its 10-year anniversary in 2003/04. Since its establishment the scheme has provided its
members not only with a reliable, mutual insurance scheme but also with guidance and a sense of surety in a
fluctuating market.




                                                                                                5
                                                           MAV INSURANCE ANNUAL REPORT 2003/4
CHAIRMAN’S R
THE PRIMARY FOCUS OF MAV INSURANCE
IS TO PROVIDE PRODUCTS AND COMPETITIVE
PRICING APPLICABLE TO OUR MEMBERSHIP BASE, IN A MARKET WHERE
MEMBERS ARE CONTINUALLY EXPOSED.




        MAV Insurance is pleased to report a very considerable improvement in the scheme’s balance sheet and recovery from
        the 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 to
        renew our insurance placements on the international underwriting market. They were successful in negotiating
        placements that met the committees’ expectations in pricing structures with a profit share arrangement based on claim
        levels over the three-year period of the contract.
        New regulatory regimes for local government, negotiated with significant assistance from the MAV, have had a positive
        impact on the schemes’ operating costs.
        Our partnership with ourcommunity.com.au has provided constructive dividends for community-based organisations
        under the umbrella of our member councils. Resources have been allocated to ensure that facilitation of public liability
        insurance for these groups is enhanced.
        The Committee has refined processes for determining member contributions and this will continue to be a high priority
        as our audit, claims and administration processes are tailored to respond to both our own and underwriters expectations
        and world best practice in risk management applications. Our Risk Management Awards in both Victoria and Tasmania
        have 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 public
        liability 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.




             6
            MAV INSURANCE ANNUAL REPORT 2003/4
REPORT

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



                                                      ANNE MURPHY CHAIRMAN
COMMITTEE
ANNE MURPHY                                CR JENNY DALE                           ROB SPENCE                             JOHN WARBURTON
Dip MRL                                                                            GDip Accounting and Finance            CPA FAIDC
                                           APPOINTED 17 JUNE 2004
COMMITTEE CHAIRMAN                                                                 APPOINTED 1998                         APPOINTED 1995
                                           Current and past positions held:
APPOINTED 1993                                                                     Current and past positions held:       Current and past positions held:
                                           MAV Board representative of Rural
Current and past positions held:                                                   CEO, Municipal Association of          Chairman, Good Governance
                                           North East Region; Councillor, Indigo
Consultant; Sessional Member,              Shire Council 1997 to current; Mayor    Victoria; CEO, Brimbank City Council   Advisory Group; Director, Vision Super
Planning Panels Victoria; Sessional        of Indigo 1997–99 and 2003 to           1994-97; CEO, City of Footscray        (formerly Local Authorities Super);
Member, Architects Registration Board;     current; Deputy Mayor of Indigo         1992-94; former Director of            Director, SMF Funds Management
Past President MAV.                        1999–2000; Councillor, Shire of         Municipal Operations, Office of        Limited; Trustee, Melbourne Exhibition
                                           Yackandandah 1992–94.                   Local Government.                      and Convention Centre Trust; Deputy
                                                                                                                          Chair, Victorian Managed Insurance
                                                                                                                          Authority 1996-2000; Chair, Tandou
                                                                                                                          Limited 1996 to 2003.




CR BRAD MATHESON                           ALLAN GARCIA                            CR ROD FYFFE                           CR JIM RYAN
                                                                                   BA, Bec, Dip Ed, FSA Scot              BA, LLB
Resigned 17 June 2004                      APPOINTED 30 JULY 2003
                                           Current and past positions held:        APPOINTED 28 JUNE 2004                 APPOINTED AUGUST 2004
                                           CEO Local Government Association        Current and past positions held:       Current and past positions held:
CR CHRIS PAPAS
                                           of Tasmania (LGAT), LGAT                MAV Board representative of Rural      MAV Board representative of Rural
Resigned 28 June 2004
                                           Representative.                         North Central Region; Councillor,      South West Region; Councillor, Colac-
                                                                                   Greater Bendigo City Council 1996 to   Otway Shire Council 1996 to current;
CR STEVE WARDLAW                                                                   current; Mayor of Greater Bendigo      Mayor of Colac-Otway 1996–97,
Resigned 30 July 2003                                                              2003 to current; Councillor, City of   2003 to current; Councillor, City of
                                                                                   Bendigo 1983–1994.                     Colac 1985–94; Mayor of Colac
                                                                                                                          1990–91, 1993–94.




                          8
                         MAV INSURANCE ANNUAL REPORT 2003/4
RON FARRELL                                 NICK RENTON                                 ADRIAN NYE                                DR MICHAEL KENNEDY
                                            FFA, FSIA, FIAA, AIAA                       BA (hons), Dip Ed, MBA (Melb), FCPA       BBus DBA
APPOINTED 2001
                                            APPOINTED 1995                              APPOINTED MARCH 2004                      APPOINTED 1995
Current and past positions held:            Current and past positions held:            Current and past positions held:          Current and past positions held:
Non Executive Director, Victorian           Consulting Actuary and Principal of         Chairman, Victorian Managed               CEO, Mornington Peninsula Shire
Managed Insurance Authority; General        N E Renton and Associates; Former           Insurance Authority.                      Council; former CEO Boroondara City
Manager, Australian Eagle Insurance         Director, OFM Investment Group                                                        Council; former CEO, Shire of
Co Ltd; Chairman and Non Executive          Limited; Executive Director, Life                                                     Hastings; former Director/General
Director, Utilities Insurance Co Pty Ltd;   Insurance Federation of Australia                                                     Manager Coastal Expressline; former
Non Executive Director,                     1975-86; Principal Officer, Switzerland                                               Executive General Manager,
connect.com.au Pty Ltd; Non                 Life Assurance Society Limited                                                        Intermodal ANL Limited.
Executive Director, Metropolitan Fire       1960-75.
and Emergency Services Board to
30/6/2003.




ALAN HOLMES                                 JIM BULLING                                 GRAEME LEMMER                             BOB FALZON
Bcom, GDip Bus, ACA, FAICD                  LLB                                         Dip Fin Serv, QPIB, AAII                  Dip Fin Serv, QPIB, AAII

EX-OFFICIO                                  EX-OFFICIO                                  EX-OFFICIO                                EX-OFFICIO
Current and past positions held:            Current and past positions held:            Current and past positions held:          Current and past positions held:
MAV Financial and Insurance                 Partner, Middletons Lawyers;                CMP Scheme Manager (JLT).                 JLT General Manager - Risk Services.
Consultant and Contract Manager.            MAV legal adviser.




                                                                                                                              9
                                                                                      MAV INSURANCE ANNUAL REPORT 2003/4
CMP SCHEME                       MAV
CIVIC MUTUAL PLUS (CMP) IS THE PUBLICLIABILITY ARM OF INSURANCE. ESTABLISHMENT
OF CMP CAME AFTER AMENDMENTS WERE MADE TO THE MUNICIPAL
ASSOCIATION ACT 1907, WHICH REQUIRED THE MAV TO PROVIDE A SELF-INSURANCE
PUBLIC LIABILITY AND PROFESSIONAL INDEMNITY SCHEME.




          CMP celebrated its 10th anniversary of                PREMIUM DISCOUNTS FOR INCREASED
          providing reliable and competitively priced           COUNCIL EXCESSES
          public liability and professional indemnity           During 2003/04, the MAV was advised by the
          insurance to members.                                 reinsurers that they intended increasing the
                                                                minimum excess from $5,000 to $10,000.
          COMMUNITY GROUPS INSURANCE                            The MAV lobbied its reinsurers against the
          SCHEME                                                doubling of the excess. After months of
          The public liability insurance market is showing      discussions, the reinsurers advised they would
          signs of stabilising with insurers now reviewing      only consider a reduction in the minimum
          not-for-profit groups with renewed interest.          excesses if the scheme was prepared to pay
          Through a partnership between the MAV,                an additional preimum. The MAV Insurance
          CMP, Jardine Lloyd Thompson and                       Committee rejected a proposed additional
          ourcommunity.com, the Community Groups                premium of more than $200,000 to reduce
          Insurance Scheme has provided a lifeline to           the minimum excess from $10,000 to $7,500.
          not-for-profit organisations since its inception in   The committee did agree, however, to fund the
          2002. The web based insurance facility                difference in excess from the scheme surplus.
          provides broadform public and products liability
          coverage to small to medium sized community           WATER AUTHORITIES’ ASSESSMENT OF
          groups, excluding sporting clubs. As at 30 June       SUPPLY RISKS
          2004, 600 not-for-profit groups were covered          The MAV Insurance Committee undertook an
          by the community groups insurance scheme.             assessment of water storage supplies of the
                                                                regional water authorities that are members to
          NOT-FOR-PROFIT SCHEME                                 minimise potential public liability, products
          QUESTIONNAIRE                                         liability and professional indemnity exposure.
          For the second consecutive year CMP sent a            Risk assessment of general public liability
          questionnaire to not-for-profit organisaitons that    ranged between the consequences of terrorism
          had obtained a quote via the website but had          to being exposed to blue green algae. A Senior
          not effected cover. Of the 15 organisations that      Sergeant from the Victorian Policy Counter
          responded, the majority said they had not             Terrorism Coordination Unit attended an MAV
          proceeded with any public liability policy at all.    Insurance Committee meeting to discuss
          The main reason was cost-related, many                desired outcomes of the risk assessment.
          organisations stating a public liability policy
          was too expensive for their one-off event.
          The website was rated 8 out of ten for ease
          of use.




CMP SCHEME10
                MAV INSURANCE ANNUAL REPORT 2003/4
CMP-          WORKING FOR OUR MEMBERS
CMP continually has its members’ best interests in mind, especially when they are faced with pedestrians claiming
for injuries incurred while tripping or slipping on defective footpaths. Two cases involving Victorian member
councils were taken to the Victorian Court of Appeal in 2003/04, resulting in judgements being overturned in
favour of the councils. Combined, these two cases would have cost the scheme in excess of $350,000. In both
cases the Court of Appeal emphasised that councils’ duty of care is to protect pedestrians who, even if they had
been keeping a proper lookout, would not have seen the defect.




                                                                                                  11
                                                                                                         CMP SCHEME
                                                             MAV INSURANCE ANNUAL REPORT 2003/4
     CMP CUSTOMER SATISFACTION SURVEY
     Results of the 2003 CMP Customer Satisfaction
     Survey showed the scheme managers
     performed well. The survey was sent to all
     member councils. Comments received were
     discussed within respective departments and
     used to further improve the scheme’s operation
     and performance.


     FUTURE DIRECTIONS
     WORKCOVER INSURANCE
     MAV Insurance will prepare an application
     to the Workcover Authority to establish a
     workcover mutual scheme which would
     provide significant benefits for CMP members.


     MARKETING PLAN
     CMP is currently developing a marketing
     plan to further enhance communication with
     its members.




CMP SCHEME12
            MAV INSURANCE ANNUAL REPORT 2003/4
YEAR BY YEAR FUND PERFORMANCE (1)
10000000                                                                                                                     Fund Surplus


                                                                                                                                                        8,222,021

 8000000



 6000000



 4000000                                                                                          3,502,789
                                                                                                                     2,849,544            3,113,865
                                                                                   2,743,375                                                                             2,791,088

 2000000



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

-2000000                                                                             (4) Tasmania joined in June 1996
                                                          -1,734,651
                                                                                     (2) From 1998 through to 2004, Full 100% Reinsurance

                                            -2,994,672
-4000000                     -3,828,253                                              (Our reinsurance has been renewed through to 2006)
               -4,130,547

                                      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 of
   the fund with regard to its positionas at 30/06/04.
(2) Effective from 30/06/98, full reinsuranace was
   introduced and from1998 the surpluses are effectively
   “guarenteed”.
(3) The aggregate position as at 30/06/04 is a fund
   surplus of $8,612,552.
(4) In June 1996 Tasmanian councils joined the Scheme.


ACCUMULATED SURPLUS (3)

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

                                                                                                                                                                            8,612,554


 8,000,000



                                                                                                                                                             5,821,466
 6,000,000




 4,000,000
                               3,287,000
                                                                                                        2,867,000


 2,000,000                                    1,644,000
                                                           1,450,000
                  1,007,000
                                                                           763,000
                                                                                         2,422
           0


                                                                                                                            -756,474

-2,000,000

                                                                                                                                            -2,400,557


-4,000,000
                     93/94       94/95           95/96        96/97        97/98        98/99             99/00              00/01             01/02            02/03          03/04




                                                                                                                                  13
                                                                                                                                                                    CMP SCHEME
                                                                           MAV INSURANCE ANNUAL REPORT 2003/4
TORT REFORM
THE INTRODUCTION OF WRONGS &
                 THE
LIMITATION OF ACTIONS (INSURANCE
REFORMS) ACT IN MAY 2003 HAS HAD A CONSIDERABLE
IMPACT ON THE NUMBER OF CLAIMS BY PEDESTRIANS INJURED
THROUGH ACCIDENTS CAUSED ON ROADS AND FOOTPATHS.



      NEW THRESHOLDS FOR GENERAL                          IMPACT OF NEW REFORMS ON
      DAMAGES CLAIMS                                      CMP SCHEME
      The Wrongs & Limitation of Actions (Insurance       At the time of introduction it was thought that
      Reforms) Act 2003 requires claimants injured        tort reform would bring welcome relief to public
      on or after 21 May 2003 to obtain a serious         liability insurers, particularly to CMP, as they
      injury certificate from an accredited medical       would only allow the more seriously injured
      practitioner, certifying permanent whole body       persons to bring claims against councils, if
      impairment of more than 5 percent for physical      councils' negligence was a cause of their
      injuries and 10 percent for psychiatric injuries.   injuries.
                                                          As at 30 June 2004 CMP has received just 23
                                                          notifications of incidents involving personal
                                                          injuries from pedestrians who have tripped
                                                          and/or slipped on roads and footpaths since
                                                          the introduction of tort reform. Of these 23
                                                          reported incidents, only six claims have been
                                                          formally received, and only one has received a
                                                          serious injury certificate, allowing a claim for
                                                          general damages for pain and suffering.
                                                          Serious injury certificates were produced by
                                                          three other claimants but were rejected after
                                                          they were referred to Medical Panel for an
                                                          independent assessment on the basis that they
                                                          did not satisfy the threshold under the new
                                                          legislation. The remaining three claims await
                                                          assessment.
                                                          By comparison, CMP received 176 reported
                                                          incidents from pedestrians all involving personal
                                                          injuries in the 12 month period prior to tort
                                                          reform, all were eligible to make a claim
                                                          against the council.




TORT REFORM
          14
               MAV INSURANCE ANNUAL REPORT 2003/4
M




NEW REFORMS        THE INTRODUCTION OF TORT REFORM CAUSED AN INFLUX
IN 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 124
public liability writs were received. This influx of writs was a direct reaction to the introduction of tort reforms in
May 2003. Under the reforms, injuries sustained after 21 May 2003 received a four month relief period to make
a claim by 1 October 2003 and avoid the serious injury threshold of more than 5 percent permanent impairment
for physical injury and 10 percent damage for psychiatric injury. The sudden increase in writs received caused an
increase 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.




                                                                                                      15
                                                                                                             TORT REFORM
                                                                 MAV INSURANCE ANNUAL REPORT 2003/4
CLAIMS
IN 2002/03 THERE APPEAREDBENEFICIAL IMPACT ON THE FIRST TO OFROUNDBE SOME
                                                              THE TORT
REFORM INTRODUCTION. NOW ALL TORT REFORMS HAVE BEEN INTRODUCED THERE
HAS BEEN A CLEAR REDUCTION IN THE NUMBER OF CLAIMS REPORTED IN THE FIRST FULL
YEAR UNDER THE NEW LEGISLATION.

       TORT REFORM LOWERS CLAIMS                                         LATE REPORTED CLAIMS DECREASE
       In 1998/99, CMP’s first year of full                              Late reported claims has always been an issue
       reinsurance, 348 claims were reported.                            for public liability insurers, including CMP.
       In subsequent years, the number of claims                         However, compared to the second year of
       reported fell to between 200 and 300 claims                       operation during 2002/03 (294 claims) and
       per year. In 2003/04, after all tort reforms                      preceding years, the number of later reported
       were introduced, a substantial reduction in the                   claims continues to decline.
       number of claims has been reported for the
                                                                         CMP envisages that under the new tort reform
       first year of operation with a total of just 80
                                                                         legislation that the declining trend should
       claims being made to CMP.
                                                                         continue for the second year of the 2003/04
                                                                         period.
       1993/2004 TOTAL CLAIMS
       INCURRED CLAIMS                                                   CMP would like to see this trend translate into
                                                                         an overall savings in the actual claims amounts.
                                 ROADS & FOOTPATHS $47,992,875           The reality however, is that while the number
                                 PROFESSIONAL                            of claims have reduced, the average cost
                                 INDEMNITY          $16,647,820
                                                                         per claim has increased. This is generally a
                                 NATURAL               $736,801          result of a claimant who meets the threshold
                                                                         requirements for a successful claim under
                                 OTHER                $8,611,195
                                                                         the new legislation being more likely to be
                                 PERSON               $3,203,267
                                                                         awarded a substantial financial payout.

                                 CONSTRUCTION         $1,495,460


                                 ENVIRONMENTAL        $6,389,205


                                 LEISURE            $12,608,170


                                 BUILDING             $4,128,176

                                 PAID              $75,038,142

                                 PLUS O/S          $26,744,827

                                 TOTALLING        $101,812,969



       NUMBER OF CLAIMS

                                  ROADS & FOOTPATHS            3990

                                  PROFESSIONAL
                                  INDEMNITY                        846


                                  NATURAL                           72


                                  OTHER                            483


                                  PERSON                           142


                                  CONSTRUCTION                     252


                                  ENVIRONMENTAL                    779


                                  LEISURE                          696


                                  BUILDING                         325

                                  TOTAL                       7585

CLAIMS          16
               MAV 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     Paid       $125,452      $1,117,445       $1,766,642        $3,477,234       $4,449,245        $6,163,845       $6,859,234        $7,205,679       $8,523,046        $9,062,619          $9,302,480
(12 Months)   O/S      $1,625,406      $2,117,735       $2,950,103        $2,442,982       $2,069,147        $1,328,640         $831,532         1,985,838         $775,622          $177,735            $191,517
                       $1,750,858      $3,235,180       $4,716,745        $5,920,216       $6,518,392        $7,492,485       $7,690,766        $9,191,517       $9,298,668        $9,240,354          $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                      Paid      $106,136          $758,321       $3,965,485        $5,779,693       $6,886,598       $7,630,259        $8,168,704       $8,880,579        $9,447,922          $9,560,074
(9 Months)                     O/S     $1,893,998       $3,405,312        $2,325,756        $1,606,489       $1,003,908         $785,420          $904,149         $809,527          $457,727            $283,360
                                       $2,000,134       $4,163,633        $6,291,241        $7,386,182       $7,890,506       $8,415,679        $9,072,853       $9,690,106        $9,905,649          $9,843,434
                                      (716 Claims)     (881 Claims)      (915 Claims)      (929 Claims)     (940 Claims)     (944 Claims)      (948 Claims)     (944 Claims)      (945 Claims)         (945 Claims)
1995/1996                                       Paid       $131,416       $1,159,607        $3,787,064       $5,750,465       $6,634,733        $7,884,499       $8,505,837        $8,926,323          $9,521,411
(12 Months)                                     O/S     $3,424,475        $4,791,866        $2,806,345       $1,519,706       $1,079,797        $1,101,256         $844,177          $879,836            $332,676
                                                         $3,555,891       $5,951,473        $6,593,409       $7,270,171       $7,714,530        $8,985,755       $9,390,014        $9,806,159          $9,854,087
                                                        (547 Claims)     (811 Claims)      (846 Claims)     (865 Claims)     (869 Claims)      (874 Claims)     (879 Claims)      (882 Claims)         (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                                                                         Paid        $156,404       $1,143,713       $3,778,844        $5,346,040       $6,451,672        $7,234,230          $8,067,782
(12 Months)                                                                        O/S      $3,359,981       $6,059,481       $3,019,832        $2,392,145       $3,151,186        $2,720,353          $1,363,533
                                                                                            $3,516,385       $7,203,194       $6,798,676        $7,738,185       $9,602,858        $9,954,583          $9,431,315
                                                                                           (355 Claims)     (582 Claims)     (628 Claims)      (648 Claims)     (664 Claims)      (674 Claims)         (680 Claims)
1998/1999                                                                                            Paid      $196,416       $1,395,533        $3,373,104       $4,977,063        $6,983,000          $8,513,053
(12 Months)                                                                                          O/S     $3,979,233       $4,044,996        $3,043,667       $3,204,845         $2794,839          $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                                                                                                             Paid      $238,627        $1,700,810       $4,078,899        $6,478,342          $7,905,398
(12 Months)                                                                                                           O/S     $3,659,999        $5,124,696       $4,590,142        $3,133,642          $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                                                                                                                              Paid       $230,442       $1,445,463        $4,704,349          $7,003,918
(12 Months)                                                                                                                            O/S      $3,771,101       $7,282,941        $5,888,631          $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                                                                                                                                                Paid      $101,895        $1,147,278          $3,401,518
(12 months)                                                                                                                                              O/S     $5,262,025        $5,932,095          $5,475,730
                                                                                                                                                                 $5,363,920        $7,079,374          $8,877,248
                                                                                                                                                                (280 Claims)      (444 Claims)         (534 Claims(
2002/2003                                                                                                                                                                 Paid       $239,745          $1,536,477
(12 months)                                                                                                                                                               O/S      $3,142,290          $4,675,668
                                                                                                                                                                                   $3,382,035          $6,212,145
                                                                                                                                                                                   (163Claims)         (294 Claims)
2003/2004                                                                                                                                                                                    Paid         $93,951
(12 months)                                                                                                                                                                                      O/S   $1,707,690
                                                                                                                                                                                                       $1,801,641
                                                                                                                                                                                                        (80 Claims)




                                                                                                                                                   17
                                                                                                                                                                                                  CLAIMS
                                                                                                      MAV INSURANCE ANNUAL REPORT 2003/4
RISK MANAGE
MANAGING THE AND POTENTIALLIABILITY OF MEMBERS IS THE NUMBER
ONE PRIORITY FOR MAV INSURANCE. THIS YEAR FOCUSSED ON
THE DOCUMENTATION OF PROCEDURES, POLICIES AND MONITORING PROCESSES TO MINIMISE
MEMBERS’ EXPOSURE TO RISKS.


       AUDIT PROCESS                                     RISK MANAGEMENT STRATEGY
       MAV insurance adopted a tighter audit process     As part of the MAV’s application for an
       during 2003/04 to further improve risk            Australian Financial Services License (AFSL) for
       management by testing the effectiveness of        its insurance business, a Compliance and Risk
       councils’ systems. The audit included             Management Strategy was developed for both
       assessment of high risk areas such as the         CMP and the Municipal Officers Fidelity
       management of contracts, trees, roads and         Guarantee Fund. The strategy consists of two
       footpaths. Emphasis was also placed on the        major components:
       traceability of inventories, inspections,
       maintenance activities and proof of completed     RISK MANAGEMENT PLAN
       works. Councils were required to provide          As part of the overall strategy for risk
       documentary evidence that proactive risk          management, a Compliance and Risk
       management occurs.                                Management Plan was developed for CMP and
                                                         the Municipal Officers’ Fidelity Guarantee Fund
       A more stringent scoring criteria was adopted     that sets out specific procedures and key
       to prevent subjectivity of the audits including   information that MAV Insurance must follow in
       increasing the scoring system to a zero to five   order to comply with the spirit of APRA. The
       rating to reflect outstanding risk management     plan also highlights the roles and
       performance.                                      responsibilities of the Insurance Committee and
       As the benchmark was lifted many council          the MAV Insurance Compliance Officer.
       members’ overall risk management scores
                                                         RISK ANALYSIS
       decreased from the 2002/03 assessment.
                                                         Specific detail about MAV Insurance’s
                                                         obligations under the Corporation Act, ASIC
       GOVERNANCE                                        policy, AFSL and internal policies was provided
       Policies and procedures were put in place to      to ASIC in the form of a Compliance and Risk
       address fitness and propriety of members of the   Analysis Table. The table documents the:
       Insurance Committee and the responsible
                                                         · Risk of non compliance
       officers of the MAV in accordance with criteria
                                                         · Priority of risk
       set by APRA.
                                                         · MAV Insurance compliance and monitoring
       The development of a Risk Management                 procedures
       Strategy included MAV Insurance policies,
       procedures, processes and control systems         FUTURE DIRECTIONS
       appropriate to the size, business mix and         A sub-committee has been established in both
       complexity of the organisation’s operations.      Victoria and Tasmania to review this year’s
                                                         audit before developing the 2004/05 process
                                                         and criteria.




RISK MANAGEMENT
         18
               MAV INSURANCE ANNUAL REPORT 2003/4
EMENT




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



                                                                                                      19
                                                                                                           RISK MANAGEMENT
                                                                 MAV INSURANCE ANNUAL REPORT 2003/4
FIDELITY
MUNICIPAL OFFICERSFUND IS A MEMBERS’ MUTUAL FUND THAT WAS FORMED IN 1907
BY THE MAV AT A TIME WHEN THE INSURANCE MARKET DID NOT PROVIDE LOCAL
                                                                                           GUARENTEE                 G
GOVERNMENT WITH AN APPROPRIATE FIDELITY INSURANCE PRODUCT AT A REASONABLE PRICE.


        PROTECTION FOR COUNCILS                                 RISK REVIEW
        Membership to the Municipal Officers Fidelity           During the year the Fund distributed a risk
        Guarantee Fund is open to any Victorian public          review survey to members requiring sum
        or local government body formed by an Act of            insured’s in excess of $500,000.
        Parliament, any authority formed under the Water
                                                                The information from the Risk Review has been
        Act 1989, or any Weights and Measures Union.
                                                                used to assist in obtaining reinsurance for the
        The fund indemnifies a member against loss of           2005 financial year. In addition, it has provided
        money or other property as a result of the              data to support the MAV’s negotiations with
        dishonesty or fraud of a person while either            the reinsurance market over reinsurance pricing
        continuously employed by a fund member or as a          of the Fund.
        member of a committee of management, advisory
                                                                Collection and interpretation of the information
        or special committee, subject to certain exclusions.
                                                                from the selected Fund members through the
        Under the Act, the MAV is empowered to fix the          risk review will provide long-term benefits to all
        rate of contribution to the fund and stipulate the      members through allowing greater effectiveness
        terms and conditions of membership.                     in dealing with the reinsurance market.
        The Municipal Officers Fidelity Guarantee Fund          SEVEN-YEAR ANALYSIS
        is owned and operated by the MAV.                                    Premium     Reinsurance    Claims
        Management of the scheme is contracted to                            Received   Premium Paid    Expense

        Jardine Lloyd Thompson Pty Ltd.                         1999          156,000      25,000         8,000
                                                                2000          158,000      18,000        50,000
        HIGHLIGHTS                                              2001          221,000      95,000       375,000
        · Performance for the 2004 financial year was           2002          248,000     127,000       106,000
            affected by significant claims made against         2003          373,000     152,000       134,000
            the Fund, particularly in the area of               2004          382,000     209,000       413,000
            electronic funds transfers and a significant
                                                                2005 (Est)    464,000     253,000        50,000
            increase in the level of reinsurance
            premiums                                            The Fund meets the first $100,000 of each and
        · The fund again protected its members                  every claim and takes out insurance for claims
            against a 37.5% increase in reinsurance             in excess of the $100,000.
            premiums for the 2004 year

        REPORTED RESULTS                                        FUTURE DIRECTIONS
        This year the operating result for the financial year   · There will be no increase in the base
        was an operating deficit of $111,264. The operating        premium rates for members in the 2005
        surplus for the 2003 financial year was $95,581            financial year
                                                                · Members will be provided with protection
        This year’s result decreased the net asset
                                                                   from the harder insurance market with
        position of the fund from $473,369 in 2003 to
                                                                   escalating premiums.
        $362,105 at the end of 2004. This year’s
                                                                · The Municipal Officers Fidelity Guarantee
        result has been impacted by:
                                                                   Fund will comply with the spirit of the APRA
        · 37.5% increase in the cost to the fund of
                                                                   regulations
            reinsurance
                                                                · The Fund will continue to protect members
        · A significant increase in the level of
                                                                   from the vagaries of the insurance market
            recoveries received from defendants
                                                                · Members will continue to be protected
        · A significant increase in claims expenses
                                                                   against significant increases in insurance
            paid by the fund
                                                                   costs levied by reinsurers


          OFFICERS FIDELITY GUARENTEE FUND
MUNICIPAL 20
                 MAV INSURANCE ANNUAL REPORT 2003/4
FIDELITY SCHEME-                            PROTECTING MEMBERS AGAINST EMPLOYEE FRAUD
A Victorian member council lodged one of the largest claims to the Municipal Officers Fidelity Guarantee Fund
during 2004. An employee of the member council committed payroll fraud by electronically transferring money
into his own account. The theft amounted to more than $1.2 million over a four month period. The Municipal
Officers Fidelity Guarantee Fund covered the member council for the sum insured of $300,000. The council, with
the assistance of the Fund took legal proceedings against the former employee to recover money stolen.




                                                  MUNICIPAL OFFICERS FIDELITY GUARENTEE FUND
                                                                       21
                                                           MAV INSURANCE ANNUAL REPORT 2003/4
AUSTRALIAN PRUDENTIAL
REGULATION AUTHORITY
  INTRODUCTION                                                     For existing insurance companies, APRA requires that
  The MAV is committed to ensuring that MAV Insurance,                           insurers increase their capital to this level over a
  through Civic Mutual Plus (CMP) and the Municipal                              transitional period of five years.
  Officers Fidelity Guarantee Fund (Fidelity), complies as far                  CMP does not currently comply with this standard and
  as practicable with the Australian Prudential Regulation
                                                                                would find it difficult to comply within the five-year
  Authority (APRA) regulations. Currently, both these
                                                                                transitional period without establishing significant increases
  insurance schemes are specifically excluded from
                                                                                in premium that would be beyond market expectations.
  complying with the APRA regulations.
                                                                                In addition, the minimum capital requirement does not
  The APRA regulations fundamentally require insurers to
                                                                                take into account that CMP is a mutual fund whose
  introduce and maintain good business practices. There
                                                                                members are local government authorities and water
  does not appear to be any fundamental practice required
                                                                                authorities, or that it has no retail operation.
  under the regulations that the MAV Insurance schemes
  could not and should not comply with. The only issue of
  conjecture is the ability of CMP and Fidelity to meet the                     LIABILITY VALUATION
  minimum capital requirement and the requirements relating                     An insurer must appoint an actuary whose primary role will
  to the approval by and reporting to APRA.                                     be to provide advice on the valuation of insurance
                                                                                liabilities.
  It is in the interests of members of the insurance schemes
                                                                                The standard sets out a new regime for:
  to attempt to meet these requirements, even though both
  the CMP liability scheme and Fidelity are mutual funds and                    · the valuation of insurance liabilities
  therefore the risk of financial failure is protected somewhat.                · the estimation of reinsurance recoveries
  The four prudential standards released by APRA that are                       · the involvement of and reporting required by actuaries.
  relevant to CMP are:                                                          To assist with valuation, an insurer must obtain the written
  1   Capital adequacy for general insurers (GPS110)                            advice of an approved valuation actuary where:
  2   Liability valuation for general insurers (GPS210)                         a the total insurance liabilities of the insurer at the last
  3   Risk management for general insurers (GPS220)                                reporting date exceeded $20 million; or
  4   Reinsurance arrangements for general insurers                             b the insurance liabilities of the insurer include an amount
      (GPS230).                                                                    in respect of a class of business, which is long tail, and
                                                                                   the amount is material to the total insurance liabilities.
  CAPITAL ADEQUACY                                                              The actuary has responsibility for ensuring compliance with
  The minimum level of capital required has increased from                      both the liability valuation and capital adequacy standards
  $2 million to $5 million. In practice, insurers will need to                  and must advise the board on the level of provisions
  maintain a buffer above the minimum capital level                             required in order to satisfy these standards. The actuary
  according to their capital adequacy requirements and/or                       also has to report to APRA.
  catastrophe exposures.
                                                                                In determining the value of an insurer’s insurance liabilities,
  In addition, the capital adequacy standard requires that all
                                                                                the standard differentiates between the valuation of:
  insurers will have capital management processes in place
  to ensure their continual compliance with the minimum                         a existing claims (outstanding claims liabilities); and
  capital requirement, consistent with the insurer’s overall                    b future claims (premiums liabilities).
  business plan.                                                                In each case, it requires liabilities to be valued by
  The standard provides a prescribed method where the                           determining a central estimate and a risk margin. The
  minimum capital requirement is the sum of capital charges                     value of these liabilities is the sum of the central estimate
  for:                                                                          and the risk margin.
  · insurance risk                                                              While the central estimate is similar to that currently used,
  · investment risk                                                             the standard provides a significant amount of guidance on
  · concentration risk.                                                         the calculation of the risk margin, which is intended to
  The scheme’s actuary, Richard Cumpston of Cumpston                            secure liabilities with a probable sufficiency of 75%.
  Sarjeant, has estimated that the minimum capital required                     Outstanding claims liabilities must cover all claims incurred
  by CMP at 30 June 2004 to be $8.2 million (including a                        prior to the reporting date (whether or not they have been
  30% buffer of $1.9 million to ensure continuing                               reported to the insurer), together with the internal expenses
  compliance).                                                                  the insurer expects to incur in settling those claims.


       22
       MAV INSURANCE ANNUAL REPORT 2003/4
The premium liabilities relate to future claim payments from future      There is no reason why the CMP scheme should not work towards
events insured under existing policies, and must include the internal    implementing the remaining aspects of the standard. If approved by
expenses the insurer expects to incur in administering the policies      the CMP Committee, the remaining aspects of the standard could
and settling relevant claims.                                            be included within the risk management strategy to be developed.
The appropriateness of the assumptions and valuation method
adopted must be reassessed at each annual reporting date.                REINSURANCE ARRANGEMENTS
                                                                         Currently the Insurance Act 1973 requires insurers to have on-
Richard Cumpston has advised that CMP currently complies with
                                                                         going reinsurance arrangements approved by APRA. The standard
the valuation and estimation aspects of the standard and that there      makes it clear that it is the board of directors and management
is no reason why the CMP scheme should not continue to comply.           who should “develop, implement and maintain a reinsurance
Part of the standard relating to the approval by and reporting of        strategy appropriate to the operations of the insurer to ensure it has
information to APRA is not currently met by the CMP scheme.              sufficient capacity to meet obligations as and when they fall due”.
However, to mirror the intent of the rules, the scheme manager           The strategy must be lodged annually (or if it is unchanged,
will report to the CMP Committee in respect to this section.             confirmation to that effect) together with a written report from the
                                                                         board certifying its compliance with the statement of strategy.
                                                                         Responsibility for compliance with the reinsurance management
RISK MANAGEMENT
                                                                         strategy, once set, rests with the board of the insurer. Well-defined
The standard aims to ensure that an insurer is well managed, has
                                                                         management responsibility and control should be the core of the
access to appropriate independent expertise and has systems for
                                                                         strategy. The strategy should, as a minimum, include:
identifying, managing and monitoring risks that may reduce the
ability of the insurer to meet its obligations to policyholders.         · a comprehensive reinsurance policy statement approved by the
The board and senior management of an insurer must develop,                  board
                                                                         · sound systems for selecting and monitoring reinsurance
implement and maintain a sound and prudent risk management
                                                                             programs
strategy that identifies the insurer’s risk management policies,
                                                                         · clearly defined managerial responsibilities and controls
procedures, processes and controls. The strategy should include a
                                                                         · clear methodologies for determining all aspects of a reinsurance
business continuity plan and establish a proper information flow
                                                                             program.
between the scheme manager, committee of management and
board of directors.                                                      The CMP scheme currently does not comply with this standard. In
Managing operational risk is the responsibility of the board and         particular, it does not comply with the reporting or approval
                                                                         requirements set out by APRA. However, there are aspects of the
senior management. Because of this responsibility, APRA considers
                                                                         reporting requirements that could be included in the report of the
that ‘fit and proper’ person tests should apply to the board and
                                                                         CMP scheme. To this end, the completion of a reinsurance
senior management to ensure that persons occupying key positions
                                                                         management strategy is included within CMP’s operational plan for
within the insurer have the degree of probity and competence
                                                                         2004.
commensurate with their responsibilities.
                                                                         There is no reason why the CMP scheme should not work towards
Both the approved auditor and approved valuation actuary will
                                                                         implementing the remaining aspects of the standard. If approved by
have ‘whistleblowing’ obligations. They will be required to report to
                                                                         the CMP Committee, the remaining aspects of the standard could
APRA any matters in contravention of regulatory requirements that
                                                                         be included within the reinsurance management strategy to be
they consider prejudicial to the interests of policyholders.
                                                                         developed.
The board must have at least five directors, a non-executive chair,
and a majority of non-executive directors. The board is also
required to form an audit committee for each scheme under its
control. Each year an insurer must provide APRA with a board
declaration certifying that strategies have been put in place to
monitor all key risks.
The CMP scheme currently does not comply with this standard
other than with the probity aspects relating to members of the
committee, and with the provisions relating to the make-up of
the board and committee.
In particular, the CMP scheme does not comply with the reporting
or approval requirements set out by APRA. There are aspects of the
reporting requirements that will be included in the annual report of
the CMP scheme, for example the board declaration certifying that
strategies have been put in place to monitor all key risks.
The preparation of a risk management strategy was completed and
included in the 2004 operational plan.




                                                                                                         23
                                                                        MAV INSURANCE ANNUAL REPORT 2003/4
FIDELITY MEMBERS
  COUNCILS                                  Moyne Shire Council                OTHERS
  Alpine Shire Council                      Murrindindi Shire Council          Bendigo Cemeteries Trust
  Ararat Rural City Council                 Nillumbik Shire Council            Central Highlands Water
  Ballarat City Council                     Northern Grampians Shire Council   Citywide Service Solutions Pty Ltd
  Banyule City Council                      Port Phillip City Council          City West Water Ltd
  Bass Coast Shire Council                  Pyrenees Shire Council             Coliban Region Water Authority
  Baw Baw Shire Council                     Queenscliffe Borough Council       Corangamite Regional Library Corporation
  Bayside City Council                      South Gippsland Shire Council      Crowlands Water Supply Co-operative
  Benalla Shire Council                     Southern Grampians Shire Council   East Gippsland Water
  Boroondara City Council                   Stonnington City Council           Eastern Regional Libraries
  Brimbank City Council                     Strathbogie Shire Council          First Mildura Irrigation Trust
  Buloke Shire Council                      Surf Coast Shire Council           Geelong Cemeteries Trust
  Cardinia Shire Council                    Swan Hill Rural City Council       Glenelg Region Water Authority
  Casey City Council                        Towong Shire Council               Goulburn Valley Water
  Central Goldfields Shire Council          Wangaratta Rural City Council      Grampians Region Water Authority
  Colac-Otway Shire Council                 Warrnambool City Council           Local Authorities Super Pty Ltd
  Corangamite Shire Council                 Wellington Shire Council           Lower Murray Water
  Darebin City Council                      West Wimmera Shire Council         Melbourne Wholesale Fish Market
  East Gippsland Shire Council              Whitehorse City Council            Municipal Association of Victoria
  Frankston City Council                    Whittlesea City Council            North East Region Water Authority
  Gannawarra Shire Council                  Wodonga City Council               Portland Coast Region Water Authority
  Glen Eira City Council                    Wyndham City Council               Queen Victoria Market
  Glenelg Shire Council                     Yarra City Council                 South Gippsland Region Water Authority
  Golden Plains Shire Council               Yarra Ranges Shire Council         South West Water Authority
  Greater Bendigo City Council              Yarriambiack Shire Council         Tanjil Bren Water Coop Pty Ltd and Committee
  Greater Dandenong City Council                                               of Management Recreational Reserve

  Greater Geelong City Council                                                 West Gippsland Regional Library Corporation

  Greater Shepparton City Council                                              Western Region Water Authority

  Hepburn Shire Council                                                        Westernport Region Water Authority

  Hindmarsh Shire Council                                                      Yarra Valley Water Ltd

  Hobsons Bay City Council
  Horsham Rural City Council
  Hume City Council
  Indigo Shire Council
  Kingston City Council
  Knox City Council
  Latrobe City Council
  Loddon Shire Council
  Macedon Ranges Shire Council
  Manningham City Council
  Mansfield Shire Council
  Maribyrnong City Council
  Maroondah City Council
  Melbourne City Council
  Melton Shire Council
  Mildura Rural City Council
  Mitchell Shire Council
  Moira Shire Council
  Monash City Council
  Moonee Valley City Council
  Moorabool Shire Council
  Moreland City Council
  Mornington Peninsula Shire Council
  Mount Alexander Shire Council




       24
       MAV INSURANCE ANNUAL REPORT 2003/4
CMP MEMBERS
COUNCILS                             Nillumbik Shire Council                          NON-COUNCILS
                                     Northern Grampians Shire Council
VICTORIA                                                                              VICTORIA
Alpine Shire Council                 Port Phillip City Council                        Whitehorse Manningham Regional
Ararat Rural City Council            Pyrenees Shire Council                           Library Corporation
Ballarat City Council                Queenscliffe Borough Council                     Municipal Association of Victoria
Banyule City Council                 South Gippsland Shire Council                    North Central Goldfields Library Service
Bass Coast Shire Council             Southern Grampians Shire Council                 Victorian Water Industry Association Inc.
Baw Baw Shire Council                Stonnington City Council                         West Gippsland Regional Library Service
Bayside City Council                 Strathbogie Shire Council                        Yarra Plenty Regional Library Service
Boroondara City Council              Surf Coast Shire Council                         Eastern Regional Libraries Corporation
Brimbank City Council                Swan Hill Rural City Council                     Goulburn Valley Regional Library
Buloke Shire Council                 Towong Shire Council                             Corporation

Campaspe Shire Council               Wangaratta Rural City Council

Cardinia Shire Council               Warrnambool City Council                         NON-COUNCILS
Casey City Council                   Wellington Shire Council                         TASMANIA
Central Goldfields Shire Council     West Wimmera Shire Council                       Local Government Association
                                     Whitehorse City Council                          of Tasmania
Colac-Otway Shire Council
Corangamite Shire Council            Whittlesea City Council

Darebin City Council                 Wodonga City Council                             WATER AUTHORITIES/
East Gippsland Shire Council         Wyndham City Council                             TRUSTS
Frankston City Council               Yarra City Council                               VICTORIA
                                     Yarra Ranges Shire Council                       Central Gippsland Region Water Authority
Gannawarra Shire Council
                                     Yarriambiack Shire Council                       Central Highlands Region Water Authority
Glen Eira City Council
                                                                                      Coliban Region Water Authority
Golden Plains Shire Council
Greater Bendigo City Council         COUNCILS                                         East Gippsland Water Authority
                                                                                      First Mildura Irrigation Trust
Greater Geelong City Council         TASMANIA
                                     Break O’Day Council                              Glenelg Region Water Authority
Greater Glenelg Shire Council
                                     Brighton Council                                 Grampians Region Water Authority
Greater Shepparton City Council
                                     Burnie City Council                              Goulburn Valley Water Authority
Hepburn Shire Council
                                     Central Coast Council                            Lower Murray Region Water Authority
Hindmarsh Shire Council
                                     Central Highlands Council                        North East Water Authority
Hobsons Bay City Council
                                     Circular Head Council                            Portland Coast Region Water Authority
Horsham Rural City Council
                                     Clarence City Council                            South Gippsland Region Water Authority
Hume City Council
                                     Derwent Valley Council                           South West Water Authority
Indigo Shire Council
                                     Devonport City Council                           Western Region Water Authority
Kingston City Council
                                     Dorset Council                                   Westernport Region Water Authority
Knox City Council
LaTrobe City Council                 Flinders Council

Loddon Shire Council                 George Town Council                              WATER AUTHORITIES
Macedon Ranges Shire Council         Glamorgan/Spring Bay Council                     TASMANIA
                                     Glenorchy City Council                           Esk Water Authority
Manningham City Council
                                     Hobart City Council                              Rivers and Water Supply Commission
Maribyrnong City Council
                                     Huon Valley Council                              Hobart Regional Water Authority
Maroondah City Council
Melbourne City Council               Kentish Council

Melton Shire Council                 Kingborough Council

Mildura Rural City Council           King Island Council

Mitchell Shire Council               Latrobe Council

Moira Shire Council                  Launceston City Council

Monash City Council                  Meander Valley Council

Moonee Valley City Council           Northern Midlands Council

Moorabool Shire Council              Sorell Council

Moreland City Council                Southern Midlands Council

Mornington Peninsula Shire Council   Tasman Council

Mount Alexander Shire Council        Waratah-Wynyard Council

Moyne Shire Council                  West Coast Council

Murrindindi Shire Council            West Tamar Council



                                                                                  25
                                                 MAV INSURANCE ANNUAL REPORT 2003/4
MAV
INSURANCE
2004 FINANCIAL REPORT




    26
   MAV INSURANCE ANNUAL FINANCIAL 2003/4
STATEMENT OF FINANCIAL PERFORMANCE
FOR THE YEAR ENDED 30 JUNE, 2004
                                                            COMBINED                 CIVIC MUTUAL PLUS          MUNICIPAL OFFICERS
                                                                                                               FIDELITY GUARANTEE FUND
                                                  2004              2003           2004              2003        2004            2003
                                NOTE                    $                 $               $              $              $            $
REVENUE FROM ORDINARY
ACTIVITIES
Premiums                                  29,848,750 23,076,468 29,466,525 22,703,421                         382,225         373,047
Reinsurance Expense                     (22,511,076) (11,171,940) (22,302,020) (11,019,850)                  (209,056)       (152,090)
NET INCOME BEFORE
CLAIMS                                     7,337,674 11,904,528               7,164,505 11,683,571            173,169         220,957
Claims Expense                    3a    (13,906,333) (18,479,170) (13,493,500) (18,345,068)                  (412,833)       (134,102)
Excesses and Recoveries                   12,561,825 16,551,875 12,324,561 16,490,057                         237,264          61,818
NET CLAIMS EXPENSE                11      (1,344,508) (1,927,295) (1,168,939) (1,855,011)                    (175,569)        (72,284)


UNDERWRITING RESULT                        5,993,166          9,977,233       5,995,566        9,828,560       (2,400)        148,673
Investment Income                             674,730           680,595        647,948             657,103     26,782          23,492
Reduction in Provision for
Doubtful Reinsurance Recoveries                36,946           426,474          36,946            426,474               -           -
Administration and
General Expenses                 3(b)     (4,025,018) (2,766,700) (3,889,372) (2,690,116)                    (135,646)        (76,584)
OPERATING SURPLUS
(DEFICIT) FROM
ORDINARY ACTIVITIES                        2,679,824          8,317,602       2,791,088        8,222,021     (111,264)         95,581
TOTAL CHANGES IN
EQUITY                            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.




                                                                                              27
                                                   MAV INSURANCE FINANCIAL REPORT 2003/4
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE, 2004
                                                         COMBINED                 CIVIC MUTUAL PLUS      MUNICIPAL OFFICERS
                                                                                                        FIDELITY GUARANTEE FUND
                                               2004             2003            2004           2003      2004          2003
                              NOTE                   $                 $               $           $         $             $
CURRENT ASSETS
Cash Assets                    7(a)    16,835,113 12,141,724 16,599,005 11,621,043                     236,108       520,681
Receivables                       8    43,606,839 47,771,163 43,075,460 47,517,795                     531,379       253,368
TOTAL CURRENT ASSETS                   60,441,952 59,912,887 59,674,465 59,138,838                     767,487       774,049


NON-CURRENT ASSETS
Receivables                       8    44,626,583 45,086,770 44,626,583 45,086,770                               -             -
TOTAL NON-CURRENT
ASSETS                                 44,626,583 45,086,770 44,626,583 45,086,770                               -         -
TOTAL ASSETS                          105,068,535 104,999,657104,301,048 104,225,608                   767,487       774,049


CURRENT LIABILITIES
Payables                                 3,006,511         2,831,721       2,965,772       2,812,256    40,739        19,465
Premiums in Advance               9    29,205,209 28,703,707 28,918,666 28,472,492                     286,543       231,215
Provision for Claims
Outstanding                     10     13,780,202 15,611,232 13,702,102 15,561,232                      78,100        50,000
TOTAL CURRENT LIABILITIES              45,991,922 47,146,660 45,586,540 46,845,980                     405,382       300,680


NON-CURRENT LIABILITIES
Provision for Claims
Outstanding                     10     50,101,954 51,558,162 50,101,954 51,558,162                               -             -
TOTAL NON-CURRENT
LIABILITIES                            50,101,954 51,558,162 50,101,954 51,558,162                               -         -
TOTAL LIABILITIES                      96,093,876 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


The accompanying notes form an integral part of these statements.




                 28
                MAV INSURANCE ANNUAL FINANCIAL 2003/4
STATEMENT OF CASH FLOWS                                                                       FOR THE YEAR ENDED
30 JUNE, 2004
                                                            COMBINED                 CIVIC MUTUAL PLUS          MUNICIPAL OFFICERS
                                                                                                               FIDELITY GUARANTEE FUND
                                                  2004              2003           2004              2003        2004           2003
                                NOTE                    $                 $               $              $              $           $


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


PAYMENTS
Suppliers                               (30,441,361) (17,427,578) (29,979,700) (17,073,890)                  (461,661)      (353,688)
Claim Payments                          (15,984,093) (14,961,582) (15,670,010) (14,555,073)                  (314,083)      (406,509)
NET CASH PROVIDED BY/(
USED IN) OPERATING
ACTIVITIES                        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        529,910
CASH AT END OF YEAR               7a      16,835,113 12,141,724 16,599,005 11,621,043                         236,108        520,681


The accompanying notes form an integral part of these statements.




                                                                                              29
                                                   MAV INSURANCE FINANCIAL REPORT 2003/4
    NOTES TO AND FORMING PART OF THE FINANCIAL
    STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2004
1   SUMMARY OF ACCOUNTING POLICIES
    The financial report is a general purpose financial report which has been drawn up in accordance with Accounting
    Standards, Mandatory Professional Reporting Requirements (Urgent Issues Group Consensus Views) and other relevant
    requirements.
    The principal accounting policies adopted in preparing the financial report are stated to assist in a general understanding of
    the financial report. Accounting policies have been consistently applied unless otherwise indicated.

a   Basis of Accounting
    The accounts have been prepared on the accruals basis using historical costs and, except where stated, do not take into
    account current valuations of assets.

b   The Principles of the Combined Report
    The combined financial report relates to MAV Insurance, a division of the Municipal Association of Victoria and of its 100
    percent 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 independent
    legal entities.
    The affects of all transactons between entities in the Combined entity have been eliminated.

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

d   Income Tax
    The Association is exempt from income tax, in accordance with sections 50-10 and 50-25 of the Income Tax Assessment Act
    1997.

e   Investment Income
    Investment income is recognised on a time proportionate basis that takes into account the effective yield on the financial
    asset.

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

g   Premiums Receivable
    During the month of June each year, the CMP Scheme issues premium notices to Scheme Members. The risk attaches to the
    premiums 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”.




                     30
                    MAV INSURANCE ANNUAL FINANCIAL 2003/4
    NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE,
    2004




h   Claims
    Claims incurred expense and liability for outstanding claims are recognised in respect of direct business. The liability covers
    claims incurred but not yet paid, incurred but not yet reported claims, and the anticipated direct and indirect costs of settling
    those claims. Claims outstanding are assessed by reviewing individual claim files and estimating claims not notified and
    settlement costs using statistical and actuarial techniques. The liability for outstanding claims is measured as the present
    value of the expected future payments, reflecting the fact that all the claims do not have to be paid out in the immediate
    future. The expected future 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 inflation and “superimposed inflation”. Advice from the MAV’s
    actuary 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 of
    compensation for injury. The expected future payments are then discounted to a present value at the reporting date using
    discount rates based on the investment opportunities available to the organisation on the amounts of funds sufficient to meet
    claims as they became payable. Details of rates applied are disclosed in note 10.

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

j   Cash Flows
    For the purposes of the statement of cash flows, cash includes cash on hand and deposits held at call with banks and
    investments in cash backed unit trusts.

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

l   Revenue Recognition
    Revenue is recognised to the extent that it is probable that the economic benefit will flow to the entity and the revenue can be
    reliably 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 Figures
    Where necessary, comparative figures have been adjusted to conform with changes in presentation in the current year.

n   Provision for Reinsurance Recoveries
    During the 2001 financial year two of the participants in the Scheme’s reinsurance program were placed into the hands of
    liquidators. These companies were part of the reinsurance programs in fund years from 1994 to 1998. The Committee have
    determined that sufficient information to reasonably estimate the extent and timing of the return to the Scheme from the
    liquidators of these companies is not currently available. The Committee therefore determined in the 2001 year that the most
    prudent course of action was to provide against 100% of the estimated future recoveries due from these insurers. The
    Committee continues to constantly monitor the position with a view to ensuring that the Scheme takes all reasonable steps to
    protect its position and to maximise potential recoveries. The provision made during the 2001 year is being monitored by the
    Committee. The information made available by the liquidators to date regarding potential returns to unsecured creditors is
    not 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 or
    confirmation of any amount is available. Therefore, as at the date of this report the Committee are of the view that the
    potential for any recovery is still uncertain and the policy of providing against 100% of the estimated future recoveries due
    from these insurers is continuing.




                                                                                                31
M
A
V


I
N
S
U
R
A
N
C
E


F
I
N
A
N
C
I
A
L


R
E
P
O
R
T


2
0
0
3
/
4
    NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2004



                                                              COMBINED                 CIVIC MUTUAL PLUS       MUNICIPAL OFFICERS
                                                                                                              FIDELITY GUARANTEE FUND
                                                    2004             2003            2004           2003        2004           2003
                                   NOTE                   $                 $               $           $           $              $


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


    REVENUES FROM
    NON-OPERATING ACTIVITIES
    Investment Income                           674,730           680,595         647,948        657,103      26,782         23,492
    TOTAL REVENUE FROM
    OUTSIDE THE OPERATING
    ACTIVITIES                                  674,730           680,595         647,948        657,103      26,782         23,492
    TOTAL REVENUE FROM
    ORDINARY ACTIVITIES                     43,085,305 40,308,938 42,439,034 39,850,581                      646,271        458,357



3a CLAIMS EXPENSES
    Paid                                    17,193,571 16,064,883 16,808,838 15,600,781                      384,733        464,102
    Outstanding claims at end
    of financial year                10     63,882,156 67,169,394 63,804,056 67,119,394                       78,100         50,000
    Outstanding claims at
    beginning of financial year            (67,169,394) (64,755,107) (67,119,394) (64,375,107)               (50,000)      (380,000)
    TOTAL CLAIMS EXPENSES                   13,906,333 18,479,170 13,493,500 18,345,068                      412,833        134,102



3b ADMINISTRATION & GENERAL
    EXPENSES
    The following items have been
    recognised in the operating
    surplus (deficit):
    Stamp Duty                                1,970,768         1,008,467       1,970,768       1,008,467              -           -
    Audit Fees                                    41,000           29,050          36,490          26,850      4,510          2,200
    Administration                              388,863           285,768        388,712         285,598         151            170
    Actuary and Legal Fees                      146,137            95,478        101,502           91,114     44,635          4,364
    Scheme Management Fee                     1,478,250         1,347,937       1,391,900       1,278,087     86,350         69,850
    TOTAL EXPENDITURE                       (4,025,018) (2,766,700) (3,889,372) (2,690,116)                 (135,646)       (76,584)



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




                     32
                     MAV INSURANCE ANNUAL FINANCIAL 2003/4
    NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE,
    2004




                                                                 COMBINED                 CIVIC MUTUAL PLUS            MUNICIPAL OFFICERS
                                                                                                                      FIDELITY GUARANTEE FUND
                                                       2004             2003            2004              2003          2004            2003
                                                             $                 $               $              $               $             $


5   SCHEME MANAGEMENT FEES
    Included within administration
    and general expenses are
    management fees for:
    Risk management and
    administrative services                      1,478,250         1,347,937       1,391,900        1,278,087         86,350          69,850
    Claims management                            1,209,478         1,102,858       1,138,828        1,045,708         70,650          57,150
    TOTAL SCHEME
    MANAGEMENT FEES                              2,687,728         2,450,795       2,530,728        2,323,795       157,000          127,000



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



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

a   Cash at balance date as shown in the Statement of Cash Flows is reconciled to the related items in the
    Statement of Financial Position as follows:
                                                                 COMBINED                 CIVIC MUTUAL PLUS            MUNICIPAL OFFICERS
                                                                                                                      FIDELITY GUARANTEE FUND
                                                       2004             2003            2004              2003          2004            2003
                                                             $                 $               $              $               $             $
    Cash at Bank                                 7,389,646         2,841,375       7,384,019        2,832,049           5,627          9,326
    Other Financial Assets                       9,445,467         9,300,349       9,214,986        8,788,994       230,481          511,355
    TOTAL CASH                                 16,835,113 12,141,724 16,599,005 11,621,043                          236,108          520,681

b   Reconciliation of Net Cash
    Used In Operating Activities
    to Operating Surplus/(Deficit)
    Surplus (Deficit) for year                   2,679,824         8,317,602       2,791,088        8,222,021      (111,264)          95,581
    CHANGES IN ASSETS
    AND LIABILITIES
    (Increase)/decrease in
    accounts receivable                            708,473 (3,443,033)              986,484 (3,423,965)            (278,011)         (19,068)
    Increase/(decrease) in
    accounts payable                               174,790           430,178        153,516             417,135       21,274          13,043
    (Increase) / decrease in
    provision for reinsurance
    recoveries                                   3,916,038 (5,232,927)             3,916,038 (5,232,927)                       -            -
    Increase/(decrease) in
    outstanding claims                         (3,287,238)         2,414,287 (3,315,338)            2,744,287         28,100        (330,000)
    Increase/(decrease) in
    unearned revenue                               501,502         6,551,653        446,174         6,320,438         55,328         231,215
    CASH FLOWS FROM
    OPERATIONS                                   4,693,389         9,037,760       4,977,962        9,046,989      (284,573)          (9,229)




                                                                                                   33
MAV INSURANCE FINANCIAL REPORT 2003/4
    NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2004



                                                                COMBINED                 CIVIC MUTUAL PLUS      MUNICIPAL OFFICERS
                                                                                                               FIDELITY GUARANTEE FUND
                                                      2004             2003            2004           2003      2004          2003
                                     NOTE                   $                 $               $           $         $             $


8   RECEIVABLES
    Reinsurance and other
    recoveries receivable              1k     79,058,485 76,140,461 78,848,049 76,140,461                     210,436                 -
    Discount to Present Value                (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                 -
    Provision for Doubtful
    Reinsurance Recoveries                    (7,188,040) (7,224,986) (7,188,040) (7,224,986)                           -             -
    Net Reinsurance and other
    Recoveries 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       251,541
    Other Receivables                               17,231            9,550          10,715           7,723     6,516         1,827
    TOTAL RECEIVABLES                         88,233,422 92,857,933 87,702,043 92,604,565                     531,379       253,368
    Represented By:
    CURRENT                                   43,606,839 47,771,163 43,075,460 47,517,795                     531,379       253,368
    NON-CURRENT                               44,626,583 45,086,770 44,626,583 45,086,770                               -         -
    TOTAL                                     88,233,422 92,857,933 87,702,043 92,604,565                     531,379       253,368

9   PREMIUMS IN ADVANCE
    Contributions billed in
    advance                            1g     29,205,209 28,703,707 28,918,666 28,472,492                     286,543       231,215

10 OUTSTANDING CLAIMS
    Reported claims outstanding               29,454,174 32,689,154 29,426,074 32,639,154                      28,100        50,000
    Provision for incurred but not
    reported claims, claims
    development and settlement costs          47,117,002 43,900,324 47,067,002 43,900,324                      50,000                 -
    Discount to present value                (12,689,020) (9,420,084) (12,689,020) (9,420,084)                          -             -
    TOTAL OUTSTANDING
    CLAIMS                                    63,882,156 67,169,394 63,804,056 67,119,394                      78,100        50,000
    Comprising:
    CURRENT                                   13,780,202 15,611,232 13,702,102 15,561,232                      78,100        50,000
    NON-CURRENT                               50,101,954 51,558,162 50,101,954 51,558,162                               -         -
    TOTAL CLAIMS PROVISION                    63,882,156 67,169,394 63,804,056 67,119,394                      78,100        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 factor                   1h             6.0%             6.0%
    Discount rate                                     5.5%             4.5%




                       34
                       MAV INSURANCE ANNUAL FINANCIAL 2003/4
   NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE,
   2004




                                                               COMBINED                CIVIC MUTUAL PLUS            MUNICIPAL OFFICERS
                                                                                                                   FIDELITY GUARANTEE FUND
                                                    2004              2003           2004              2003          2004          2003
                                  NOTE                    $                 $               $                $             $              $


11 NET CLAIMS INCURRED
   Allowance for claims
   settlement costs                  1c       1,257,798          1,684,243      1,257,798        1,684,243                  -             -
   Net claims incurred: current
   financial year incidents                      164,991           391,196         60,072            376,062      104,919        15,134
   Net Claims Settlement Costs                1,209,478          1,102,858      1,138,828        1,045,708         70,650        57,150
   Reassessment for prior years
   claims                                    (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 EQUITY
   Balance at beginning of Year               6,294,835 (2,022,767)             5,821,466 (2,400,555)             473,369       377,788
   Surplus (Deficit)from
   ordinary activities                        2,679,824          8,317,602      2,791,088        8,222,021       (111,264)       95,581
   BALANCE AT END OF YEAR                     8,974,659          6,294,835      8,612,554        5,821,466        362,105       473,369



13 FINANCIAL INSTRUMENTS INTEREST RATE RISK EXPOSURE
   The Group’s exposure to interest rate risk and the effective average interest rate for the classes of financial assets is set out
   below:
                                                               COMBINED                CIVIC MUTUAL PLUS            MUNICIPAL OFFICERS
                                                                                                                   FIDELITY GUARANTEE FUND
                                            NON-INTEREST           FLOATING NON-INTEREST           FLOATING NON-INTEREST        FLOATING
                                                 EARNING        INTEREST RATE     EARNING       INTEREST RATE     EARNING    INTEREST RATE
                                                                                     2004
                                                           $                $               $                $             $              $


   FINANCIAL ASSETS
   Bank                                                    -    7,389,646                   -    7,384,019                  -     5,627
   Cash Investments                                        -    9,445,467                   -    9,214,986                  -   230,481
   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        236,108
   Weighted Average
   Interest Rate                                                      5.7%                              5.7%                       5.2%


                                                                                     2004
                                                           $                $               $                $             $              $
   FINANCIAL LIABILITIES
   Outstanding 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                 -




                                                                                                35
MAV INSURANCE FINANCIAL REPORT 2003/4
NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE, 2004



                                                          COMBINED                CIVIC MUTUAL PLUS             MUNICIPAL OFFICERS
                                                                                                               FIDELITY GUARANTEE FUND
                                       NON-INTEREST           FLOATING NON-INTEREST            FLOATING NON-INTEREST        FLOATING
                                            EARNING        INTEREST RATE     EARNING        INTEREST RATE     EARNING    INTEREST RATE
                                                                                 2003
                                                      $              $                 $              $             $            $
FINANCIAL ASSETS
Bank                                                  -     2,841,375                   -    2,832,049                 -     9,326
Cash Investments                                      -     9,300,349                   -    8,788,994                 -   511,355
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       520,681
Weighted Average
Interest Rate                                                    5.2%                             5.3%                        4.2%


                                                                                 2003
                                                      $              $                 $              $             $            $
FINANCIAL LIABILITIES
Outstanding 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 FINANCIAL
LIABILITIES                             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 Exposure
The maximum credit risk exposure on financial assets is represented by the carrying amounts of assets recognised in the
Statement of Financial Position.

Concentrations of Credit Risk
Receivables due from Debtors in specific industry segments expressed as a percentage of the total balance receivable:
                                                          COMBINED                CIVIC MUTUAL PLUS           MUNICIPAL OFFICERS
                                                                                                             FIDELITY GUARANTEE FUND
                                               2004              2003           2004              2003         2004          2003
Local Government                                38%               37%            38%               37%          59%           99%
Reinsurers                                      62%               63%            62%               63%          40%             1%
Other                                                 -                 -              -                 -        1%                 -


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




                 36
                MAV INSURANCE ANNUAL FINANCIAL 2003/4
    COMBINED FINANCIAL STATEMENTS
14 INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS)
    The Australian Accounting Standards Board (AASB) is adopting IFRS for application to reporting periods beginning on or
    after 1 January 2005. The AASB will issue AASB equivalents to IFRS, and Urgent Issues Group Abstracts corresponding to
    International Financial Reporting Interpretations adopted by the International Accounting Standards Board. The adoption of
    IFRS will be first reflected in the economic entity’s financial statements for the year ending 30 June 2006. Upon adoption of
    IFRS, entities will be required to restate their comparative financial statement to amounts reflecting the application of IFRS t
    that comparative period. This will require adjustments to be made, retrospectively, against opening retained earnings as at 1
    July 2004.
    As at the date of this Report, analysis of a significant number of the IFRS implications has been undertaken. This analysis has
    identified a number of accounting policy changes that will be required. In some cases, choices of accounting policies are
    available including elective exemptions under AASB 1. First time adoption of Australian International Financial Reporting
    Pronouncements. Some of these choices are still to be analysed to determine the most appropriate accounting policy for the
    economic entity.
    Major changes identified to date that will be required to the economic entity’s existing accounting policies include the
    following:

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

b   Investments
    The AASB has prescribed that insurance companies must account for assets backing insurance liabilities at “fair value
    through the profit and loss account” being one of the options available in Accounting Standard AASB 139; Financial
    Instruments: Recognition and Measurement. This is consistent with current policy of taking market value movements through
    the statement of financial performance. However, changes to this standard are being considered and their impact on the
    financial 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 to
    Australian equivalents to IFRS. Not all standards have been fully analysed at this time and decisions have yet to be made
    where choices of accounting policies are available. For this reason it is not possible to quantify the impact of the transition to
    Australian 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 ensure
    compliance with IFRS. This process is to be overseen by the Association’s Audit Committee.




                                                                                              37
                                                      MAV INSURANCE FINANCIAL REPORT 2003/4
   COMBINED FINANCIAL STATEMENTS



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

   Committee Members During The Year
   A. Murphy (Independent Chairperson)
   G. Lake (MAV – President) Appointed 26 August 2004
   B A Matheson (MAV - President) Resigned 17 June 2004
   Cr. J. Dale (MAV – Acting President) Appointed 17 June 2004
   S. Wardlaw (LGAT Representative) Resigned 30 July 2003
   A. Garcia (LGAT Representative) Appointed 30 July 2003
   N. Renton (Independent)
   J. Warburton (Independent)
   R. Farrell (Independent)
   A. Nye (Independent) Appointed 2 March 2004
   Dr. 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 2004
   Cr. J. Ryan (MAV Representative) Appointed 2 August 2003
   Cr. Rod Fyffe (MAV Representative) Appointed 28 June 2004

                                                           COMBINED           CIVIC MUTUAL PLUS         MUNICIPAL OFFICERS
                                                                                                       FIDELITY GUARANTEE FUND
                                                  2004           2003       2004           2003          2004          2003
                                                       $               $         $             $             $              $
   Independent committee members
   receive remuneration for meeting fees.
   Chairperson receives $750 per
   meeting and other independent
   committee members receive $500
   per meeting.
   Remuneration of Committee
   Members
   Total Income received or receivable
   by Committee Members                         26,000         17,750      26,000        17,750              -              -


   Number of Committee Members
   whose total income falls within
   the following bands:                           2004           2003
   $0 - $9,999                                       14               11



   Loans to Committee Members
   No loans were made to or are payable by Committee Members.



   Other Transactions
   There were no other material transactions with Committee Members.




                   38
                   MAV INSURANCE ANNUAL FINANCIAL 2003/4
    STATEMENT BY COMMITTEE OF MANAGEMENT
    To the best of our knowledge and belief, the accompanying financial statements comprising the Statement of Financial
    Performance, 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 Murphy                                                           Rob Spence
    MAV Insurance Committee Chairman                                      MAV Chief Executive Officer


    Melbourne
    3rd December 2004




                                                                                            39
                                                    MAV INSURANCE FINANCIAL REPORT 2003/4
    STATEMENT BY DIRECTORS
    In 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 of
    Civic 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 of
    Civic 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 Officers
    Fidelity 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 mandatory
    professional reporting requirements.


    Signed in accordance with the resolution of Directors.




    G. Lake                                                               John Chandler
    President                                                             Director


    Melbourne
    3rd December 2004




                     40
                    MAV INSURANCE ANNUAL FINANCIAL 2003/4
    COMBINED FINANCIAL REPORT
    INDEPENDENT AUDIT REPORT
    INDEPENDENT AUDIT REPORT TO THE MEMBERS OF LOCAL GOVERNMENT MUTUAL LIABILITY INSURANCE SCHEME
    AND MUNICIPAL OFFICERS FIDELITY GUARANTEE FUND

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

    Audit Opinion
    In 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 Partner
    Chartered Accountants
    A Victorian Partnership


    3rd December 2004
    Melbourne




                                                                                              41
                                                      MAV INSURANCE FINANCIAL REPORT 2003/4
OTHER INFORMATION
Legal Form
MAV Insurance is the insurance division of the Municipal Association of Victoria. The Municipal Association of Victoria is an
Association Incorporated by the Municipal Association of Victoria Act 1907.

Domicile
Melbourne, Australia

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

Principal Place of Business
Level 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 to
establish 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 Employees
Nil




                 42
                MAV INSURANCE ANNUAL FINANCIAL 2003/4
GLOSSARY
       | Australian Local Government Association

AIG | American Insurance Group
APRA | Australian Prudential Regulation Authority

CMP | Civic Mutual Plus

DSE | Department of Sustainability and Environment

IBNR | Incurred but not reported

JLT | Jardine Lloyd Thompson

MAV | Municipal Association of Victoria

NFPO | Not-for-profit Organisation

STEP | Step Asset Management Improvement Program




                                                                                           43
                                                   MAV INSURANCE FINANCIAL REPORT 2003/4

								
To top