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Annual Report

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					Annual Report




     2010
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Contents




                                                        The VMIA       1
                                                Chairman’s Report      2
                                                    CEO’s Report       4
                                                  About the VMIA       6
                                           Performance Reporting       7
                                            VMIA Financial Report     11
                                               General Information    57
                  Housing Guarantee Claims Fund Financial Report      74
           Domestic Building (HIH) Indemnity Fund Financial Report    90
                                             Corporate Information   107
     September 2010
     The Hon. Tim Holding MP
     Minister for Finance, WorkCover and the Transport Accident Commission
     Level 26/121 Exhibition St
     MELBOURNE VIC 3000

     Dear Minister,

     Victorian Managed Insurance Authority Annual Report 2009/10
     I am pleased to submit the Annual Report for the Victorian Managed Insurance Authority
     for the period 1 July 2009 to 30 June 2010, as required by Section 46 of the Financial
     Management Act 1994.
     In accordance with Section 17H of the House Contracts Guarantee Act 1987, the VMIA has
     included in its Annual Report:
     (a) details of its administration of –
         (i) claims on guarantees given by the Housing Guarantee Fund Limited or the State
               under the House Contracts Guarantee Act 1987; and
         (ii) the Housing Guarantee Claims Fund.
     (b) the audited financial report of the Housing Guarantee Claims Fund.

     In accordance with Section 52 of the House Contracts Guarantee Act 1987, the VMIA has
     also included in its Annual Report:
     (a) details of its administration of –
          (i) the indemnity scheme established under the House Contracts Guarantee Act 1987;
               and
          (ii) the Domestic Building (HIH) Indemnity Fund.
     (b) the audited financial report of the Domestic Building (HIH) Indemnity Fund.


     Yours Sincerely,




     Robert Ray
     Chairman

                                                              Victorian Managed Insurance Authority
                                                                                 ABN 39 682 497 841
                                                   Level 30 / 35 Collins Street Melbourne Victoria 3000
                                                           PO Box 18409 Collins St East Victoria 8003
www.vmia.vic.gov.au                                                P: 03 9270 6900 F: 03 9270 6949
The VMIA



Our Vision                                     Our Values
Victoria manages its risk, enhances its        We are customer focused: Our clients are our priority.
                                               We listen carefully to understand our client needs. We are
value and improves the quality of life         responsive and proactive. We make a difference to our
for Victorians.                                community and to the environment. We have a ‘can do’
                                               attitude. We are open, honest and constructive in our advice.
Our Mission                                    We enthusiastically and passionately deliver consistent
                                               service and advice.
We will achieve our Vision by taking a
                                               We have a passion for excellence: We are accountable
leadership role in reducing Victoria’s total   for what we do and how we do it. We show personal pride
cost of risk.                                  to produce the best possible result. We strive to improve
                                               and are open to new ideas and feedback. We are proud of
We will:                                       our achievements and celebrate our successes. We learn
                                               from our experiences.
• Nurture deep relationships with our          We work with respect and integrity: We foster a positive
  clients based on understanding               environment. We display and expect professionalism.
                                               We follow due process to resolve our differences. We
  and trust.                                   are fair and consistent by treating everyone equally.
                                               We listen to opinions and show interest in one another.
• Continuously develop and apply our           We follow through on actions and comments. We show
  expertise to deliver a wide range of         empathy towards one another and our clients. We
                                               demonstrate trustworthiness.
  best practice products and services.
                                               We work together: We are unified in our purpose and
• Provide integrated solutions that            support each other to achieve common goals. We recognise
                                               and value each other’s skills and experience. We interact
  combine our Insurance Services, Risk         with energy and enthusiasm. We share knowledge. We
  Management and Whole-of-Government           encourage positive participation and growth. We lead and
                                               encourage each other. We appreciate and embrace diversity.
  Advisory roles.




                                                                                                     Page 1
Chairman’s Report



                                      When I was appointed as Chairman of the VMIA in
                                      March this year, it was evident to me that the VMIA was
                                      performing well in both delivering its core business of
                                      insurance and risk management services and maintaining
                                      strong financial management.
                                      Since that time the VMIA has completed a number of
                                      key initiatives to lay the foundation for further service
                                      improvements over future years.
                                      The VMIA has delivered a solid financial result for
                                      2009/10. Despite a volatile environment, our investment
                                      portfolio achieved a return of $101.2 million, or 9.87 per
                                      cent. Notwithstanding this result, our real rate of return on
                                      investments, measured over a rolling five year period, has
                                      deteriorated from 0.49 percent to negative 0.06 percent
                                      over the past twelve months. This deterioration reflects a
                                      less rewarding investment landscape than the conditions
                                      that prevailed a few years ago.
                                      At 30 June 2010, our funding ratio of capital to outstanding
Robert Ray, Chairman                  claims was 96 percent; or two percent ahead of budget. We
                                      are on a steady path to return to the target funding range
                                      within the next two years.

Our new Corporate Plan sets a clear   A key VMIA achievement in 2009/10 was the hosting of
                                      the inaugural Risk Management Conference in October
focus and direction for the future.   2009. This event attracted 36 high-profile local, national
                                      and international speakers and more than 260 attendees
                                      from our clients. It was opened by the Victorian Treasurer,
                                      Hon. John Lenders, who acknowledged the important
                                      role the VMIA is playing in risk management in the State
                                      of Victoria.
                                      The VMIA met a number of key challenges over the year;
                                      particularly the VMIA’s response to the impacts of the Black
                                      Saturday bushfires, which included supporting our clients at
                                      the Bushfire Royal Commission. The VMIA recognised the
                                      imperative to play its part in supporting the community in
                                      the challenging period following the fires, and has worked
                                      to assist its clients in a range of areas.




Page 2 | VMIA Annual Report 2010
                               Funding Ratio1 (Annual Results 2005 to 2010)
                                            Funding Ratio (Annual Results 2005 to 2010)                                                VMIA Investment Return (over rolling five year period 2005 to 2010)

                                                                                                                                       Real Rate of Return (over rolling five year period 2005 to 2010)
                        150%
                                                            142%                                                                 14%
                        140%
                                     131%                                                                                                                                                                 VMIA Actual Return
                                                                                                                                 12%
                        130%                                                                                                                                                                              Target Return (CPI + 4%)
                                                                                                                                                                                                          CPI
     Funding Ratio1 %




                                                                                                                                 10%
                        120%




                                                                                                           Investment Return %
                                                                                118%
                                 Target Range                                                                                    8%
                        110%


                        100%                                                                                                     6%
                                                                                                     96%
                         90%                                                                                                     4%
                                                                                           89%
                         80%                                                                                                     2%

                         70%                                                                                                     0%
                                  2005/06            2006/07             2007/08       2008/09   2009/10                               2005/06           2006/07             2007/08            2008/09              2009/10
                        1 Funding Ratio inclusive of $55M catastrophe reserve




The VMIA has also worked to implement its clinical                                                         A key challenge will be to clearly define, advise and assist
risk management strategy. This strategy is focused on                                                      our clients to reduce their “total cost of risk” – both risks
assisting health sector clients to reduce adverse clinical                                                 that can be insured and those that cannot. The benefits for
events through a range of research and training initiatives.                                               our clients in reducing the cost of risk of their operations
The VMIA balance sheet is heavily weighted to medical                                                      are significant, and importantly, they will flow on to
indemnity claims liabilities associated with adverse clinical                                              all Victorians.
events, which are approaching $600 million and growing.
                                                                                                           The VMIA has been able to perform strongly and deliver
In March 2010, the Minister for Finance announced that                                                     its valued services during a period of continued economic
Victorian domestic building insurance would transition to the                                              challenge which reflects great credit on everyone in
VMIA. We were pleased to accept this responsibility, given                                                 the organisation.
the importance that domestic building plays in the Victorian
economy, as well as the key role of domestic building                                                      I offer my special thanks to our Deputy Chairman, Ian
insurance in builder registration and consumer protection.                                                 Gaudion, for acting in the role as Chairman prior to my
                                                                                                           arrival. I also acknowledge the significant achievements
The knowledge and expertise the VMIA provides its clients                                                  of Adrian Nye during his tenure as Chairman over six
has earned it a seat at the Government management table,                                                   years. Adrian made an invaluable contribution in moulding
both with individual clients and across government. We have                                                the VMIA into the modern and influential organisation it
further increased both our client risk advisory services and                                               is today.
our involvement with key whole-of-government risk planning
committees and initiatives.                                                                                I also wish to thank my fellow Board members for their
                                                                                                           contribution over the past year, and the Minister for Finance
Over the past year, the VMIA has worked to develop a                                                       and his office for their support. Finally, I congratulate
new Corporate Plan to guide the organisation for the next                                                  and thank our CEO, Steve Marshall, his executive
three years. Focused on achieving our mission – To take a                                                  team and each member of the VMIA staff for their
leadership role in reducing Victoria’s total cost of risk – the                                            important contribution.
plan provides a road-map for the delivery of our roles as
State insurer, client risk management adviser and adviser
to Government.



                                                                                                           Robert Ray
                                                                                                           Chairman




                                                                                                                                                                                                                                     Page 3
CEO’s Report



                                          2009/10 saw the final year of our 2007-2010 three year
                                          Corporate Plan. It is pleasing and rewarding to look back
                                          on the achievements over this entire period, with 2009/10
                                          being the culmination of these efforts.
                                          The VMIA’s new vision and mission are an extension of the
                                          foundations we have established as we take a leadership
                                          position in reducing the total cost of risk for the State.
                                          It includes not only financial risk, but also social and
                                          environmental risks. It is an exciting and challenging era
                                          for the VMIA and our clients, with the broader Victorian
                                          community being the ultimate beneficiary.
                                          In the three years prior to 2009/10, our funding ratio
                                          has ranged from 142 percent to 89 percent, however
                                          our Performance from Insurance Operations, which is a
                                          measure of internal performance, has been solid and above
                                          budget in each of the past three years.
                                          This is important, as our premiums need to reflect our clients’
                                          risks and performance, not the fluctuation in investment
Steve Marshall, Chief Executive Officer   returns, and should act as an incentive to drive risk
                                          management initiatives and behaviours.
                                          In 2009/10 we achieved an operating surplus of $51.8
The VMIA has achieved much over           million and a Performance from Insurance Operations result
the past three years, and has set the     of $62.6 million, $14 million better than budget.
foundations for our next three year       We have progressed our whole-of-government risk
Corporate Plan.                           management initiatives and have provided risk management
                                          advice and insurance support for our clients, including
                                          responding to the Black Saturday bushfire impacts and the
                                          March 2010 storms. We have also taken on responsibility
                                          for a major new business in domestic building insurance.
                                          On the operational front, the VMIA has made further
                                          progress in improving our engagement with both staff and
                                          clients, recording a five percent increase in both staff and
                                          client engagement scores. We have monitored these scores
                                          closely over the past three years to ensure that the internal
                                          change program was improving staff engagement, and our
                                          new service delivery model was seen as a better model
                                          by clients.
                                          The VMIA now has one robust insurance system which
                                          combines the underwriting and claims management
                                          functions of our core insurance programs. We also have
                                          a client relationship platform to manage contact and
                                          interaction with clients, which is essential in a service
                                          delivery model that delivers services to different client types
                                          through a range of specialist teams. Given our additional
                                          responsibilities, and to refine our service delivery model, we
                                          realigned areas of responsibility during the year, creating
                                          Chief Financial Officer and Chief Operating Officer roles.

Page 4 | VMIA Annual Report 2010
                                                                                              Client Satisfaction (2007 to 2010)
                                                                                        Staff and Client Engagement (2007 to 2010)

                                                                    100%
                 Performance from Insurance Operations                        91.0%                   92.0%           92.0%            92.0%
                            (2008 to 2010)                          90%

                                                                    80%
                                                                                                                                       71.0%
                                                                    70%
                                                                              61.0%                                   66.0%
                                                                                                      66.0%
                     Annual            Actual            Variance   60%
                    Target $M         Result $M            $M                 57.0%
                                                                    50%
      2009/10          48.6              62.6              14.0                                       47.0%                            49.0%
                                                                    40%                                               44.0%
      2008/09          24.6              25.9              1.3               Client Satisfaction
                                                                    30%      Staff Engagement
      2007/08           27.2             32.6              5.4               Client Engagement
                                                                    20%
                                                                           2007                    2008           2009               2010




As our Chairman has noted, we facilitated the VMIA                  The depth of knowledge and expertise gained through
inaugural Risk Management Conference which was opened               activities such as the collection of this asset data have
by the Victorian Treasurer and included 36 local, national          been a major factor in the VMIA’s successful negotiation of
and international speakers.                                         reinsurance premiums at very competitive rates. This also
                                                                    allowed us to advise clients of their premiums well before their
This was an important milestone in the development and              renewal date. We confirmed these premium rates and provided
maturity of risk management in the public sector, with a            insurance renewal schedules, Certificates of Currency and
community of 268 risk professionals sharing insights and            invoices to over 3,500 clients before 30 June 2010.
experiential learnings. Organising this event was consistent
with our role of facilitating, co-ordinating, and at times,         This year was the first time we aligned our clients’ premium
even agitating discussion on current and emerging risks             notification to their funding submissions, which gave
to mitigate losses and seize the opportunities created by           departments and agencies certainty around premiums.
improved risk management practices.                                 Discussions focused on the reasons for the variations in a risk
                                                                    management conversation, as opposed to simply relating to
During the year we also commenced our series of                     the numbers. It has been very well received by clients.
roundtable forums, with senior public sector executives
coming together with experts from the private sector                We are working closely with major clients to help them improve
and academia. The first session looked at the benefits              their understanding of their insurable risk profile. Strategic
and definition of a good risk culture. This event led to a          Insurance Reviews (SIRs) will be implemented with our major
broader client learning forum and the publication of some           clients, providing them with the information they need to
important insights.                                                 make well-informed risk management decisions, including the
                                                                    appropriate transfer of risk through insurance. The reviews will
Overall in 2009/10 we produced ten Risk Insights, lessons           help reduce the potential for gaps in insurance coverage and
from losses and clinical risk management publications and           ensure optimal limits and retentions are in place.
facilitated 81 training programs which attracted around
2,500 VPS attendees. This is all helping us achieve our goal        The transition of responsibility for domestic building insurance
of increasing public sector risk management awareness and           progressed well over the last three months of 2009/10, with
capabilities to identify and treat risk.                            more than 8,000 builders transferred to VMIA and 3,744
                                                                    certificates issued for works totalling $805 million. To assist
Sixty Risk Framework Quality Reviews (RFQR) and 117                 an orderly transition, the VMIA engaged QBE as its agent and
Site Risk Surveys (SRS) were also conducted to help                 has worked closely to ensure service to the building sector is
clients identify local risks and improvement opportunities          maintained, whilst consumer protection is not compromised.
through an integrated program of reviews.
                                                                    In closing, I wish to thank our Chairman and the Board for their
Working in partnership with key clients, the VMIA has               support and guidance in what continues to be an extremely
developed a new multi-site Strategic Engineering Risk               challenging operating environment. Our executive management
Assessment tool (SERA). This tool will be used to assist            team and the entire VMIA staff also deserve great credit for
clients to gather risk data from large numbers of sites             their commitment to continuing to improve the organisation’s
across Victoria.                                                    capabilities and delivery of services.
Quality asset data is essential for underpinning the VMIA’s         I would like to thank and congratulate our clients for their
insurance and reinsurance business. Through a partnership           openness and willingness to work with the VMIA to help
with the Valuer General’s Office and our clients, the VMIA          ensure that, together, we deliver the best possible assets and
has significantly improved the accuracy and extent of our           services to the Victorian community.
clients’ $108 billion worth of insured assets. This data is
now largely held on a sophisticated geospatial platform
which supports both key reinsurance presentations and
state-wide risk analysis.



                                                                    Steve Marshall
                                                                    Chief Executive Officer


                                                                                                                                               Page 5
About the VMIA



The Victorian Managed Insurance Authority (VMIA) was          The VMIA provides:
established on 1 October 1996 as the ‘captive insurer’ for
the State of Victoria.                                        Insurance cover including:
The VMIA is a statutory body whose operations are             •	 Domestic Building Insurance
governed by the Victorian Managed Insurance Authority         •	 Medical indemnity
Act 1996.                                                     •	 Industrial special risks
The VMIA is successor at law to the State Insurance Office    •	 Public and products liability
(SIO) and assumed certain claims liabilities of the SIO, as   •	 Professional indemnity
well as workers’ compensation liabilities of other defunct    •	 Directors and officers liability
government departments, that are being managed to
                                                              •	 Marine cargo and hull
finalisation. This includes asbestos-related claims.
                                                              •	 Motor vehicle (property damage)
In October 2005 the VMIA assumed responsibility for the       •	 Personal accident
management of the run-off of the builders’ warranty claims
                                                              •	 Contract works
for the Housing Guarantee Fund Ltd (HGFL), the Domestic
Building (HIH) Indemnity Fund and Homesafe Equities           •	 Aviation and travel
Pty Ltd.                                                      •	 Fine art
                                                              •	 Insurance and reinsurance services.
In March 2010 the VMIA was assigned by the State
Government the responsibility for providing Domestic          Risk services including:
Building Insurance to Victorian builders. The VMIA has
put interim arrangements in place to ensure continuity of     •	 Risk Framework Quality Reviews (RFQR)
service to builders.                                          •	 Site Risk Surveys (SRS)
                                                              •	 Strategic Engineering Risk Assessments (SERA)
What the VMIA does                                            •	 Risk advisory services
The VMIA works to protect the assets and services of the      •	 Education and training programs
State of Victoria by providing risk management advice and     •	 Annual conference and client forums
insurance services to a large and diverse client base.
                                                              •	 Publications.
The VMIA is the State’s ‘captive insurer’ for:
                                                              The VMIA also provides other insurance covers and risk
•	 Victorian Government departments                           services, tailored to meet the needs of individual and groups
•	 Statutory authorities and agencies                         of clients. For example:
•	 Public health institutions                                 •	 Rural doctors
•	 Community service organisations.                           •	 Rail programs
                                                              •	 VicFleet
The VMIA also provides Domestic Building Insurance
for the Victorian building industry and the broader           •	 Community service organisations
Victorian community.                                          •	 Major events and iconic sites.
The VMIA’s insurance coverage includes major government       The VMIA has adopted an Operating Model which is
assets and infrastructure, the public healthcare system       focused on achieving the VMIA’s mission to take a
and community service organisations. In excess of 4,500       leadership role to reduce the total cost of risk to the
Victorian entities hold insurance cover through the VMIA.     State and for individual Clients. This model leverages the
The portfolio represents just over $108 billion in insured    combined strength of the VMIA’s three integrated roles:
assets, with annual premium revenue of nearly $175 million;
and $1.5 billion in investments and other assets.             •	 State Insurer
                                                              •	 Enterprise Risk Management Adviser
                                                              •	 Risk Management Adviser to Government.


Page 6 | VMIA Annual Report 2010
Performance Reporting



Corporate Objectives
Table 1 below shows a high level summary of the Corporate Plan objectives and annual milestones which the VMIA has
pursued over the last three years.

Table 1: VMIA Performance against 3 year Corporate Objectives
Themes           Objectives           2007-2008 Year 1         2008-2009 Year 2        2009-2010 Year 3     Overall
                                                                                                            Result
Alert            Deliver timely       Connect and build        Seat at the table for   Government
                 advice to
                 Government
                                      relationships with
                                      strategic partners
                                                               VPS strategic risk
                                                               discussions
                                                                                       recognises value
                                                                                       of the VMIA’s risk
                                                                                       initiatives
                                                                                                              
Prevent          Implement quality  Identify clients’          Satisfy service         Improve risk
                 risk management    agency and
                 advice and support inter-agency risks
                 to clients
                                                               demand in relation
                                                               to risk management
                                                               tools and services
                                                                                       integration and
                                                                                       capability of the
                                                                                       VMIA’s clients
                                                                                                              
Protect          Provide tailored     Clarify the VMIA’s       Align the               Government and
                 and appropriate      service offering and     VMIA product            clients recognise
                 insurance products
                 and services
                                      identify opportunities
                                      for process
                                                               improvements with
                                                               client needs
                                                                                       the value of the
                                                                                       VMIA captive
                                                                                                              
                                      improvement                                      insurance model

Enable           Ensure that          Establish the client     Leverage the client
                 client needs are     centric model            centric model
                 understood and                                to deliver value
                 addressed                                     to clients              Deliver a high

                 Establish and        Develop a capability     Ensure minimum
                                                                                       performance
                                                                                       organisation
                                                                                                              
                 retain an internal   framework                agreed accredited
                 capability                                    training requirements
                                                               are met




                                                                                                                 Page 7
Performance Reporting



Corporate KPIs
The VMIA’s performance against its Corporate KPIs is set out in Table 2 below.
Table 2: 2009-2010 VMIA Performance against Corporate KPIs
 KPI                               2008-2009 Results              2009-2010 Target              2009-2010 Results

 Government satisfaction           86.5%1                         > 80%                         87.9%
 with VMIA’s advice

 Increase in aggregated            •	 53 RFQRs2                   •	 60 RFQRs                  •	 60 RFQRs delivered
 service delivery in risk          •	 121 SRSs3                   •	 125 SRSs                  •	 117 SRSs delivered
 services and client learning
                                   •	 2,693 clients trained,                                   •	 2431 clients trained
                                      (83% attendee               •	 85% attendee satisfaction    (88.9% attendee
                                      satisfaction)                                               satisfaction)
                                   •	 Client Satisfaction with    •	 Client Satisfaction with  •	 Client Satisfaction with
                                      risk services 78%              risk services increases      risk services 78%

 Insurance offerings               •	 < 80% of market price       •	 < 80% of market price
                                                                     _                          •	 < 80% of market price
 below market costs for            •	 > market coverage
                                      _                           •	 > market coverage
                                                                     _                             _
                                                                                                •	 > market coverage
 comparable products
                                   •	 Client Satisfaction with    •	 Satisfaction with          •	 Client Satisfaction with
                                      insurance services 77%         insurance services            insurance services 75%
                                                                     increases

 Improve Client Engagement         •	 92% Client Satisfaction     •	 92% Client Satisfaction •	 92% Client Satisfaction
 rating by 5%                      •	 44% Client Engagement       •	 > 49% Client Engagement •	 49% Client Engagement
                                                                     _
                                   •	 5.3% of phone                  _
                                                                  •	 < 1% of phone calls     •	 1.8% of phone calls
                                      calls abandoned                  abandoned                abandoned

 Improve Staff Engagement          •	 66% staff engagement           _
                                                                  •	 > 71% staff engagement     •	 71% staff engagement
 rating by 5%
                                   •	 12% staff turnover          •	 < 12% staff turnover       •	 12.5% staff turnover
                                   •	 2% absenteeism              •	 < 2% absenteeism           •	 3.2% absenteeism
                                   •	 5% vacancy rate             •	 < 5% vacancy rate          •	 3.5% vacancy rate

 VMIA continues to                 •	 PFIO Actual $25.9 million   •	 PFIO > $48.6 million       •	 PFIO Actual $62.6 million
 operate on a sustainable             (Budget $24.6M)
 financial basis

                                   •	 Funding Ratio4 89%          •	 Funding Ratio > 94%        •	 Funding Ratio 96%



1.   Survey of DTF (Department of Treasury and Finance) key staff
2.   RFQR: Risk Framework Quality Review
3.   SRS: Site Risk Survey
4.   Funding Ratio inclusive of $55M catastrophe reserve


Page 8 | VMIA Annual Report 2010
                                Client Learning Attendance (2008 to 2010)                                             Telephone Calls Answered (2008 to 2010)

                                                                                                                       Telephone Calls Answered (2007 to 2010)



                                                                                                         99%

                   3000
                                                                                                         98%
                          Total Attendees
                   2500
Annual Attendees




                          Training Sessions
                                                                                                         97%
                          Forums




                                                                                      % of Total Calls
                   2000
                                                                                                         96%
                   1500

                                                                                                         95%
                   1000

                   500                                                                                   94%


                    0                                                                                    93%
                          2007/08                   2008/09                 2009/10                               2007/08                     2008/09            2009/10




Key achievements

ALERT                                                                                    PREVENT
•	 The VMIA had a vision to bring together risk management                               •	 Recognising the critical need to ensure health incident
   global leaders with VPS risk professionals into a major                                  data quality and data capture, the Department of Health
   forum to share learnings and insights; and to increase                                   is implementing a major initiative - the Victorian Health
   the awareness and capability of risk management                                          Incident Management System (VHIMS). The system
   across the VPS. After 18 months of planning, the VMIA                                    commenced implementation at key pilot sites at the start
   held its inaugural Risk Management Conference in                                         of 2010. The VMIA is actively supporting the rollout of
   October 2009; attracting 36 high-profile speakers and                                    VHIMS and sees it as a critical contribution to the long
   268 delegates, of which 95 percent said they learned
   something new and 76 percent said they made new                                          term reduction of clinical risk.
   contacts which they will follow up. The successful                                    •	 The risk management profession has increasingly
   conference provided a great start for a VPS-wide
                                                                                            recognised that managing risk is not just about “ticking
   discourse on how to reduce the total cost of risk. The
   VMIA’s second conference will be held in 2011.                                           the boxes”. Getting the risk culture right is equally
                                                                                            critical. A VMIA Risk Round Table was held in June
•	 Victoria and Australia face a future where major risks                                   2010 to examine the topic of “developing a culture of
   are increasingly interconnected and have consequences                                    risk management as part of your organisation’s culture”.
   which go beyond state borders. To support the                                            It was well received and supported by senior client and
   Government in addressing this challenge, the VMIA                                        industry representatives.
   increased its involvement in state-wide risk planning;
   enhanced its reporting on state-wide risks, and continued                             •	 Targeted training and teamwork in hospitals have been
   to chair the State Emergency Mitigation Committee.                                       identified by the VMIA as key priorities in reducing clinical
                                                                                            risk. Two important initiatives commenced during the
•	 The VMIA, through its global reinsurance networks and its                                year were:
   extensive major claims experience, is in a unique position
   to identify both the learnings from specific claims and                                               - The state-wide rollout of the ISBAR (Identify, Situation,
   from emerging systemic risks across government. Over                                                    Background, Assessment, Request) hospital staff
   the year the VMIA worked to ensure that this knowledge                                                  communication training tool, with train the trainer
   and learnings were effectively communicated to its clients                                              sessions delivered to staff of the nine lead hospitals in
   through a range of channels.
                                                                                                           each region.
•	 The VMIA continued to work with key partners and the
                                                                                                         - The PROMPT project (Practical Obstetric
   Institute of Public Administration of Australia (Victoria)
                                                                                                           Multi-Professional Training) is a multi-professional
   (IPAA) to leverage value from international experts visiting
                                                                                                           training course using simulated obstetric emergency
   Australia. In May 2010 a leading global expert in risk
                                                                                                           situations. The first major deliverable was a train
   from Harvard University presented at a well attended
                                                                                                           the trainer day for representatives from several
   forum jointly hosted by the VMIA and IPAA. The topic was
                                                                                                           metropolitan and regional hospitals.
   “Public Sector Integrity”.
•	 Working with key health sector clients, the VMIA                                      •	 The VMIA continued to focus on working with clients
   identified the need for clear and common guidelines                                      to deliver key risk management initiatives through its
   around clinical/medical research, to reduce the risk of                                  successful risk management co-funding program. Ten
   inappropriate and untargeted research outcomes. The                                      risk management partnership projects were completed
   VMIA’s Research Governance Toolkit was released in                                       with funding of $832,986. A further eleven projects
   June 2010 to 55 health sector clients. This tool was                                     were approved, totalling $1,080,600 million in forward
   developed to assist clients engaged in the conduct of                                    commitments. These projects involve in excess of 30
   clinical/medical research in the establishment of good                                   client agencies and provide research tools, templates and
   research governance practices.                                                           new approaches to enhancing risk management across
                                                                                            the VPS.



                                                                                                                                                                      Page 9
Performance Reporting



•	 To assist clients to assess their overall risk frameworks       •	 Following engagement of the Australian Grand Prix
   and site specific risks; and to allow the VMIA to identify         Corporation (AGPC) as a client in April 2009, the
   multi-client systemic risks, the VMIA delivered:                   VMIA provided insurance cover for the 2009 Australian
                                                                      Motorcycle Grand Prix at Phillip Island and the 2010
  - Sixty Risk Framework Quality Reviews (RFQR) for                   Formula 1 Grand Prix. The VMIA is continuing to work
    major clients.                                                    closely with the AGPC to review all Grand Prix event
                                                                      insurances, indemnities and risks.
  - Practical support to help clients better manage their
    property, public liability and business interruption risks
    through the VMIA’s Site Risk Survey (SRS) program.
    During the year 117 SRSs were undertaken.                      ENABLE
                                                                   •	 Significant work was completed in the past year to
PROTECT                                                               accurately map the location of the State’s insurable
                                                                      assets. Some 7,500 assets (82 percent of state-owned
                                                                      insurable assets) with a value of more than $86 billion
•	 Following the 2009 Black Saturday bushfires, the VMIA              have been mapped on a geospatial platform. This platform
   moved rapidly to support its clients by working to resolve         will significantly enhance asset risk planning for VMIA
   insurance claims promptly and implement key initiatives            and its clients.
   to reduce bushfire risk. As at 30 June 2010, $34.5
   million has been paid to clients to settle claims, with a       •	 The VMIA developed its Large Loss (Rapid) Response
   forecast total payment of $114.2 million. The VMIA has             Protocols to be implemented immediately following any
   also actively engaged with its clients to support them             major event or large loss. These protocols were adhered
   to address the key challenges highlighted in the Royal             to following the March 2010 hailstorms, and significantly
   Commission’s interim report. This strong support will              assisted our clients to quickly resume their normal
   continue into the future with the Government’s response            business operations.
   to the final Royal Commission recommendations.
                                                                   •	 The client risk assessment tool “Risk Framework Quality
•	 The VMIA provided insurance cover and advisory                     Review” was fully reviewed and enhanced to address
   products for more than $5 billion of major Public Private          both a client’s risk framework and its risk culture. This
   Partnerships and State funded infrastructure projects.             enhanced tool will be used from July 2010.
   This included roads, rail, health and prison projects.
                                                                   •	 More than 300 clients have applied to use the VMIA’s
•	 The VMIA completed its annual insurance renewal                    Risk Register Software. This software supports our
   process and issued over 3,500 insurance renewals prior             clients’ risk recording and reporting efforts.
   to the 30 June 2010 renewal date.
•	 The VMIA identified the need to engage with its major
   clients at a more strategic level, to assist them to identify
   and effectively manage their total cost of insurable risk.
   To assist in this, and to help these clients improve their
   understanding of their insurable risk profiles, Strategic
   Insurance Reviews started in 2009/10 and will be rolled
   out progressively across all of the VMIA’s major clients.
   This work will provide clients with the information they
   need to make well-informed risk management and
   insurance decisions that support their financial objectives.




Page 10 | VMIA Annual Report 2010
VMIA
Financial Report

Contents
Comprehensive Operating Statement                                                                        12
Balance Sheet                                                                                            13
Statement of Changes in Equity                                                                           14
Cash Flow Statement                                                                                      15

Notes to the financial statements
Note 1    Summary of significant accounting policies                                                     16
Note 2    Critical accounting judgements, assumptions and estimates                                      22
Note 3    Revenue and income from continuing activities                                                  26
Note 4    Claims expense and net incurred claims                                                         27
Note 5    Outstanding claims liability                                                                   28
Note 6    Reinsurance                                                                                    32
Note 7    Unexpired risk liability                                                                       32
Note 8    Receivables                                                                                    34
Note 9    Expenses arising from ordinary activities                                                      34
Note 10 Reinsurance and other recoveries                                                                 35
Note 11 Investments                                                                                      35
Note 12 Plant and equipment                                                                              36
Note 13 Unearned premium liability                                                                       37
Note 14 Payables                                                                                         37
Note 15 Equity and reserves                                                                              38
Note 16 Insurance contracts - risk management policies and procedures                                    38
Note 17 Financial risk management                                                                        40
Note 18 Commitments and contingencies                                                                    47
Note 19 Superannuation                                                                                   48
Note 20 Responsible persons                                                                              48
Note 21 Auditor remuneration                                                                             52
Note 22 Notes to the Cash Flow Statement                                                                 52
Note 23 Asbestos funding agreement                                                                       53
Accountable Officer’s and Chief Finance and Accounting Officer’s declaration                             54
Independent Auditor’s Report                                                                             55




This financial report covers the Victorian Managed Insurance Authority as an individual entity.




                                                                                                  VMIA Annual Report 2010 | Page 11
Comprehensive
Operating Statement
for the financial year ended 30 June 2010




                                                                        Note                   2010           2009
                                                                                               $’000          $’000
Insurance
Premium revenue                                                          3(a)                174,935        151,936
Outward reinsurance premium expense                                                          (36,179)       (29,777)
Net premium revenue                                                                          138,756        122,159
Claims expense                                                             4               (155,826)       (471,641)
Reinsurance and other recoveries                                           4                 (17,902)       235,690
Net incurred claims                                                                         (173,728)      (235,951)
Unexpired risk benefit / (expense)                                       7(b)                 11,061         (4,837)
Underwriting expenses                                                    9(b)                (19,460)       (16,914)
Underwriting result                                                                          (43,371)      (135,543)
Investing
Investment income / (loss)                                               3(d)                103,475       (138,875)
Investment expenses                                                      9(b)                 (2,285)        (1,769)
Investing result                                                                             101,190       (140,644)
General and administration
Other revenue                                                            3(c)                      4,701      4,010
Other operating expenses                                                 9(b)                (10,719)       (11,135)
General and administration result                                                             (6,018)        (7,125)
Comprehensive result                                                                          51,801       (283,312)

The Comprehensive Operating Statement should be read in conjunction with the accompanying notes.




Page 12 | VMIA Annual Report 2010
Balance Sheet
as at 30 June 2010




                                                                           Note          2010                     2009
                                                                                         $’000                    $’000


ASSETS
Financial assets
Cash and cash equivalents                                                  22(a)       157,208                 131,678
Receivables                                                                      8       3,866                    6,439
Investments                                                                     11     948,122                  847,758
Claims recoveries                                                               10         270                     304
Total Financial assets                                                                1,109,466                986,179
Non-financial assets
Receivables                                                                      8     212,576                 106,193
Deferred acquisition costs                                                     7(a)        292                         -
Reinsurance and other recoveries                                                10     205,160                 240,067
Prepayments                                                                              5,997                    7,023
Plant and equipment                                                             12       2,631                    3,167
Total Non-financial assets                                                             426,656                 250,257
Total assets                                                                          1,536,122               1,342,629

LIABILITIES
Employee benefits provision                                                               1,780                   1,426
Payables                                                                        14      83,479                  63,810
Outstanding claims                                                             5(a)   1,306,592               1,279,413
Unexpired risk liability                                                       7(b)     11,100                  22,983
Unearned premium liability                                                      13     178,998                  89,225
Total liabilities                                                                     1,581,949               1,456,857
Net Assets                                                                             (45,827)               (114,228)
Equity
Accumulated surplus/(deficit)                                                   15    (266,001)               (283,312)
Solvency and catastrophe reserves                                               15     146,474                 111,984
Contributed capital                                                             15       73,700                  57,100
Net worth                                                                              (45,827)               (114,228)
Commitments for expenditure                                                18(d)         4,588                    5,030
Contingent liabilities and contingent assets                               18(e)              -                        -

The Balance Sheet should be read in conjunction with the accompanying notes.




                                                                                       VMIA Annual Report 2010 | Page 13
Statement of
Changes in Equity
for the financial year ended 30 June 2010




                                                                            Changes due to
                                                       Equity at              Total      Transactions         Equity at
                                                    1 July 2009      comprehensive      with owner in    30 June 2010
                                                                             result    its capacity as
                                            Note                                               owner
2010                                                      $’000                $’000             $’000           $’000
Accumulated surplus / (deficit)              15       (283,312)              51,801                  -       (231,511)
Transfer to reserves                                           -            (34,490)                 -        (34,490)
                                                      (283,312)               17,311                 -       (266,001)
Contribution by owners                       15          57,100                     -           16,600          73,700
                                                         57,100                     -           16,600          73,700
Reserves                                     15        111,984                      -                -        111,984
Transfer from accumulated surplus                              -             34,490                  -         34,490
                                                        111,984              34,490                  -        146,474
Total equity at end of the financial year             (114,228)              51,801             16,600        (45,827)


                                                                            Changes due to
                                                       Equity at              Total      Transactions         Equity at
                                                    1 July 2008      comprehensive      with owner in    30 June 2009
                                                                             result    its capacity as
                                                                                               owner
2009                                                      $’000                $’000             $’000           $’000
Accumulated surplus / (deficit)              15                -           (283,312)                 -       (283,312)
                                                               -           (283,312)                 -       (283,312)
Contribution by owners                       15          57,100                     -                -          57,100
                                                         57,100                     -                -          57,100
Reserves                                     15        111,984                      -                -        111,984
                                                        111,984                     -                -        111,984
Total equity at end of the financial year              169,084             (283,312)                 -       (114,228)

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




Page 14 | VMIA Annual Report 2010
Cash Flow
Statement
for the financial year ended 30 June 2010




                                                                          Note            2010                    2009
                                                                                          $’000                   $’000
Cash flows from operating activities
Premiums and other revenue received                                                    222,427                 182,330
Outwards reinsurance paid                                                              (35,058)                (31,109)
Reinsurance and other recoveries received                                                17,039                   8,442
Claims paid (including claims paid on behalf of others)                                (177,931)              (111,943)
Reimbursement of claims paid on behalf of others                                         41,694                 48,688
Interest received                                                                        22,395                  19,882
Dividends and distributions received                                                     60,953                  38,567
Other income received                                                                       625                   1,207
Stamp duty paid                                                                        (19,544)                 (17,857)
Goods and services tax paid                                                            (12,863)                (10,322)
Payments to suppliers and employees                                                    (32,024)                (30,850)
Net cash provided by operating activities                                22(b)           87,713                  97,035


Cash flows from investing activities
Proceeds from sale of investments                                                     1,346,111                336,884
Purchases of investments                                                             (1,424,281)              (394,722)
Proceeds from sale of plant and equipment                                                   516                     162
Purchases of plant and equipment                                                         (1,129)                  (611)
Net cash used in investing activities                                                   (78,783)               (58,287)


Cash flows from financing activities
Contributions from State Government                                                      16,600                        -
Net cash provided by financing activities                                                16,600                        -


Net increase/(decrease) in cash and cash equivalents                                     25,530                  38,748
Cash and cash equivalents at the beginning of the financial year                        131,678                  92,930
Cash and cash equivalents at the end of financial year                   22(a)          157,208                 131,678

The Cash Flow Statement should be read in conjunction with the accompanying notes.




                                                                                       VMIA Annual Report 2010 | Page 15
Notes to the Financial
Statements
for the financial year ended 30 June 2010




1. Summary of significant accounting policies
(a) Statement of compliance
The financial report is a general purpose financial report prepared on an accrual basis in accordance with the Financial
Management Act 1994, applicable Australian Accounting Standards, in particular Australian Accounting Standard
AASB 1023 ‘General Insurance Contracts’, including Interpretations and other mandatory professional requirements.
For the purposes of compliance with the accounting standards, the Minister for Finance has determined that the
Victorian Managed Insurance Authority (VMIA) is a not-for-profit entity. The impact of the not-for-profit requirements are
summarised in Note 1(c) below. The financial report also complies with relevant Financial Reporting Directions issued by
the Department of Treasury and Finance.
The financial report was authorised for issue by the Board of Directors on 26 August 2010.

(b) Basis of preparation
This financial report is prepared on the basis of historical cost with certain exceptions as described in the accounting
policies below. Accounting policies are selected and applied in a manner which ensures that the resulting financial
information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying
transactions and financial consequences of other events are reported. The accounting policies set out below have been
applied in preparing the financial statements for the year ended 30 June 2010 and the comparative information presented
for the year ended 30 June 2009.
The functional currency of the VMIA is the Australian dollar.

(c) Not-for-profit requirements
Australian Accounting Standards include requirements that apply specifically to not-for-profit entities that are not
consistent with the IFRS requirements. The Minister for Finance has determined that the VMIA is a not-for-profit entity.
Consequently where appropriate, the VMIA applies those paragraphs in accounting standards applicable to not-for-profit
entities. In the case of the VMIA these paragraphs apply to the:
•	 Plant and equipment reflected in the Balance Sheet if there is impairment of the assets concerned.
•	 Quantification of the commercial value of the indemnity provided by the State for the medical indemnity risks
   underwritten by the VMIA (refer Note 2(ii)).
•	 Requirements of AASB 124 ‘Related Party Disclosures’ which are reduced for not-for-profit entities.
(d) Premium revenue
Premium revenue includes amounts charged to policyholders but excludes stamp duty and Goods and Services Tax
(“GST”). Premium revenue is recognised in the Comprehensive Operating Statement when it has been earned. Premium
is treated as earned from the date of attachment of risk and recognised over the policy period, which has been judged as
closely approximating to the pattern of risk.
Unearned premium liability represent the proportion of premiums calculated on a daily pro rata basis, attributable to a
future accounting period.

(e) Unexpired risk liability
The adequacy of the unearned premium liability is assessed by considering current estimates of all expected future cash
flows relating to future claims covered by current insurance contracts and those for which a constructive obligation exists.
The assessment is referred to as the liability adequacy test (LAT) and is carried out in respect of each of the General
Government, Public Healthcare and Domestic Building Insurance programs, with each of the program risks being managed
together as a single portfolio. The Dust Diseases and Workers’ Compensation Program has been in a runoff with no
premium written since 1985, therefore no assessment is required for the LAT.




Page 16 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




If the present value of the expected future cash flows relating to future claims plus additional risk margin to reflect the
inherent uncertainty in the central estimates (refer to Note 1(f)) exceeds the unearned premium liability and any other
future premium cash flows less related deferred acquisition costs, then the unearned premium liability is deemed to be
inadequate.
The entire shortfall is recognised immediately in the Comprehensive Operating Statement both gross and net of
reinsurance where relevant. The shortfall is recognised first by writing down any related deferred acquisition costs, with any
excess being recorded in the Balance Sheet as an unexpired risk liability.

(f) Claims expense, risk margin and outstanding claims liability
Claims expense includes direct and indirect costs of settling claims. The outstanding claims liability, which is actuarially
assessed, comprises claims reported but not yet paid, claims incurred but not reported, the anticipated costs of settling
those claims and a risk margin.
The risk margin is applied to the outstanding claims liability, net of reinsurance and other recoveries, to reflect the inherent
uncertainty in the central estimate. The objective of the risk margin is to achieve a 75% (2009: 75%) probability that the
outstanding claims liability will be sufficient. To estimate the risk margin, the actuaries have analysed the uncertainty of the
claims estimates for each major class of insurance taking into account the potential uncertainties relating to the actuarial
models and assumptions, the quality of the data used, the insurance and economic environments and other available
information. Risk margins are set at each major insurance class and include a 20% allowance for diversification between
classes and programs.
The liability for outstanding claims is subject to independent actuarial assessment and is measured as the central estimate
of the present value of the expected future payments, reflecting the fact that not all the claims will 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, which
reflects trends in court awards and increases in the level of compensation for injury.
The expected future payments are then discounted to a present value using a risk free rate, derived from the interest rates
on Commonwealth Government securities with terms to maturity that match, as closely as possible, the estimated future
claims payments. Details of the inflation and discount rates are disclosed in Note 2. The effect of any adjustment resulting
from the remeasurement of the liability is reflected in the financial statements and is disclosed in Note 5.
Since the liability is based on estimates, the ultimate settlement of losses and the related expenses may vary from the
actuarial assessment.

(g) Reinsurance and other recoveries revenue
Reinsurance and other recoveries receivable on paid claims, reported claims not yet paid, claims incurred but not reported
and unexpired risk liabilities are recognised as revenue during the term of insurance contracts to which these apply .

(h) Outward reinsurance premium expense
Premiums ceded to reinsurers are recognised as an expense in accordance with the indemnity period of the corresponding
reinsurance contract. Accordingly a portion of outward reinsurance premium is treated at balance date as a prepayment.

(i) Investment income
Dividend income is recognised when the VMIA has the right to receive payment. Interest income is recognised on an
accrual basis. Trust distributions are recognised when the market price is quoted ex-distribution for listed trusts or
when the trustee declares a distribution for unlisted trusts. Changes in the fair value of investments (both realised and
unrealised) are recognised as investment income.




                                                                                               VMIA Annual Report 2010 | Page 17
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(j) Assets backing general insurance liabilities
The VMIA has determined that all assets, except for plant and equipment, are held to back general insurance liabilities and
are valued at fair value in the Balance Sheet.
The following policies apply to assets held to back general insurance liabilities.
Financial assets are designated at fair value through profit or loss. Initial recognition is at cost in the Balance Sheet and
subsequent measurement is at fair value with any resultant unrealised gains or losses recognised in the Comprehensive
Operating Statement. Details of fair value for the different types of financial and non financial assets are listed below.
•	 Cash on hand and cash at bank is carried at face value of the amounts deposited or drawn. The carrying amounts of
   cash assets represent their fair values.
•	 Equities, fixed interest securities, derivatives and unit trusts listed on an organised financial market are initially
   recognised at cost and the subsequent fair value is taken as the quoted bid price of the instrument at the balance date.
•	 Unlisted fixed interest securities are recorded at amounts based on valuations using rates of interest equivalent to the
   yields obtainable on comparable investments at balance date.
•	 Units in unlisted unit trusts are recorded at fair value as determined by the fund manager. In determining fair value,
   the manager uses observable market transactions of the units and underlying assets where available and applicable.
   Some of the underlying assets of the trusts are valued using valuation models. The carrying amounts include accrued
   distributions (cum-distribution).
•	 Prepayments and receivables are recognised at fair value and subsequently measured at amortised cost, using the
   effective interest rate method, less any accumulated impairment. The effective interest method is a method of calculating
   the amortised cost of a financial asset and allocating interest income over the relevant period. The effective interest rate
   is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where
   appropriate, a shorter period.
•	 Reinsurance and other recoveries are measured at the present value of expected future receipts and are actuarially
   assessed on a similar basis as the outstanding claims liability (refer Note 1(f)). The details of the discount and inflation
   rates are disclosed in Note 2.
Investments denominated in foreign currencies are translated at the exchange rate existing at the reporting date.
Transactions in foreign currency denominated investments are converted at exchange rates at the date of transactions.
All purchases and sales of financial assets that require delivery of the asset within the timeframe established by regulation
or market convention are recognised at trade date, being the date on which the VMIA commits to buy or sell the asset.
Financial assets are derecognised when the rights to receive future cash flows from the assets have expired, or have been
transferred, and the VMIA has transferred substantially all the risks and rewards of ownership.
Amounts due from policyholders are recognised at fair value, being the amount receivable, which is reduced for
any impairment.
A provision for impairment of receivables is established when there is objective evidence that the VMIA will not be able
to collect all amounts due according to the original terms of the receivables. The amount of the provision is the difference
between the carrying amount of the assets and the present value of estimated future cash flows. The discount is
calculated using a risk free rate. The impairment charge is recognised in the Comprehensive Operating Statement.




Page 18 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(k) Plant and Equipment
Cost and Valuation
Plant and equipment are measured at cost, less accumulated depreciation and any accumulated impairment losses.

Depreciation
Depreciation of plant and equipment is calculated on the straight-line basis over the useful lives of the assets after
appropriate allowance for the estimated resale value, as the following table displays:

Item                                                                         Useful Life
                                                            2010                             2009
Motor vehicles                                              5.0 years                        6.67 years
Computer equipment                                          3.7 years                        3.7 years
Furniture                                                   7.7 years                        7.7 years
Office Machinery                                            7.7 years                        7.7 years
Office Fit out                                              end of lease                     6.0 years


The estimated useful lives, residual values and depreciation method are reviewed at the end of each annual reporting
period.

Impairment
Assets are reviewed annually for evidence of impairment in accordance with AASB 136 ‘Impairment of Assets’ and FRD
106 ‘Impairment of Assets’. If there is an indication of impairment, the assets concerned are tested as to whether their
carrying values exceeds their recoverable amounts. Where an asset’s carrying value exceeds its recoverable amount, the
difference is written off by a charge to the Comprehensive Operating Statement.

(l) Employee benefits
Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave and long service leave
when it is probable that settlement will be required and they are capable of being measured reliably.
Provisions for employee benefits expected to be settled within 12 months, are measured at their nominal values using the
remuneration rates expected to apply at the time of settlement.
Provisions made in respect of employee benefits which are not expected to be settled within 12 months are measured
as the present value of the estimated future cash outflows to be made by the VMIA in respect of services provided by
employees up to the reporting date.
Entitlements to a long service leave become vested after 7 years of continuous service. Non-vested benefits are
recognised as non-current liabilities.
Related on-costs have also been included in respect of annual leave and long service leave. Contributions to complying
superannuation funds are expensed when incurred.

(m) Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash at bank and funds held on the short-term money market (maturity
date less than three months) as these funds are available to meet the VMIA’s financial commitments and subject to an
insignificant risk of changes in value.




                                                                                              VMIA Annual Report 2010 | Page 19
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(n) Taxation
The VMIA is exempt from the income tax. The VMIA is liable to pay Fringe Benefits Tax (“FBT”) and Goods and Services
Tax (“GST”). Revenue, income and expenses are brought to account exclusive of GST. Receivables and payables are stated
inclusive of GST. The net amount of GST recoverable from, or payable to, the Australian Taxation Office is included as part
of receivables or payables. Cash flows relating to the GST are included in the Cash Flow Statement on a gross basis in
accordance with AASB 107 ‘Cash Flow Statements’.

(o) Rounding
All items are rounded and expressed in thousands of dollars in accordance with Ministerial Directions under the Financial
Management Act 1994.

(p) Comparative figures
Where necessary, comparative figures have been restated to conform with the current year’s presentation, in accordance
with AASB101 requirements.

(q) New Accounting Standards and Interpretations
Certain new Accounting Standards and Interpretations have been published that may be applicable to the VMIA but
are not mandatory for the 30 June 2010 reporting period. The VMIA has not, and does not intend to adopt these
Standards early.
•	 AASB 2009-5 Further amendments to Australian Accounting Standards arising from the annual improvements project
   [AASB 5, 8, 101, 107, 117, 118, 136 and 139] which are applicable for the reporting period beginning 1 January
   2010. These changes will result in some amendments for financial report’s presentation, recognition and measurement,
   however, the impact is expected to be insignificant.
•	 AASB 124 Related party disclosures (Dec 2009) which is applicable for the reporting period beginning 1 January 2011.
   The changes will result in some exemptions from the existing disclosure requirements. Preliminary assessment suggests
   that the impact is insignificant.
•	 AASB 9 Financial instruments which is applicable for the reporting period beginning 1 January 2013. This standard
   simplifies requirements for the classification and measurement of financial assets resulting from Phase 1 of the IASB’s
   project to replace IAS 39 Financial instruments: recognition and measurement (AASB 139 financial Instruments:
   recognition and measurement). Detail of the impact is still being assessed.
•	 AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102,
   108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 and 1038 and Interpretations 10 and 12] which is applicable
   for the reporting period beginning 1 January 2013. These amendments give effect to consequential changes arising
   from the issuance of AASB 9 Financial instruments. Detail of the impact is still being assessed.
In addition to those Accounting Standards listed above, the AASB has also released a number of other Accounting
Standards and Australian Interpretations. The application of these Accounting Standards and Australian Interpretations are
not applicable to the VMIA. Consequently, they have not been specifically identified above.

(r) Reporting Entity
The financial statements cover the VMIA as an individual reporting entity. The VMIA is a Public Financial Corporation,
established on 1 October 1996 by the Victorian Managed Insurance Authority Act 1996 to provide insourced risk
management and multi-line insurance services to its clients across the State of Victoria.
The VMIA’s principal address is Level 30, 35 Collins Street, Melbourne, Vic, 3000.
A description of the nature of the VMIA’s operations and its principal activities is included in the 2010 Annual Report.




Page 20 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(s) Other Revenue
The revenue from other operating activities includes rendering of services and delivery of the service to the customer. The
sale of assets are recognised when the VMIA has passed control of the assets to another party.

(t) Payables
Payables represent liabilities for goods and services provided to the VMIA that are unpaid at the end of the financial year.
Payables are initially measured at fair value, being the cost of the goods and services, and then subsequently measured at
amortised value.

(u) Leases
A lease is a right to use an asset for an agreed period of time in exchange for payment.
Leases are classified at their inception as either operating or finance leases based on the economic substance of the
agreement so as to reflect the risks and rewards incidental to ownership. Leases of plant and equipment are classified
as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership from the
lessor to the lessee. All other leases are classified as operating leases.

Operating leases
Operating lease payments, including any contingent rentals, are recognised as an expense in the Comprehensive
Operating Statement on a straight-line basis over the lease term, except where another systematic basis is more
representative of the time pattern of the benefits derived from the use of the leased asset. The leased asset is not
recognised in the Balance Sheet.

(v) Equity
Additions to net assets which have been designated as contributions by owners are recognised as contributed capital, in
accordance with FRD 119.

(w) Commitments & Contingencies
Commitments are disclosed at their nominal value and are inclusive of the GST. Contingent assets and contingent liabilities
are not recognised in the Balance Sheet, but are disclosed by way of a note and, if quantifiable, are measured at nominal
value. Contingent assets and liabilities are presented inclusive or GST receivable or payable respectively.




                                                                                            VMIA Annual Report 2010 | Page 21
Notes to the Financial
Statements
for the financial year ended 30 June 2010




2. Critical accounting judgements, assumptions and estimates
The VMIA makes judgements, assumptions and estimates in respect of the liabilities and corresponding assets for claims
arising from insurance contracts issued by the VMIA. These are regularly evaluated and are based on historical experience
and expectations of future events that are believed to be reasonable.
Notes 1(f) and 1(g) set out the components considered in establishing the claims liability and reinsurance and other
recoveries receivable.
The VMIA’s business is classified into five main segments being the General Government Program, the Public Healthcare
Program, the Dust Diseases & Workers’ Compensation Program, the Builders’ Warranty Program and the Domestic
Building Insurance Program. The VMIA administers the Builders’ Warranty Program for the Victorian State Government on
a cost recovery basis. Under this Program, the VMIA manages claims for householders that are indemnified in respect of
certain builders’ warranty claims arising from warranties or bonds that had been issued by the former Housing Guarantee
Fund Ltd, HIH Ltd and Homesafe Equities Pty Ltd. As the arrangements do not form part of the VMIA’s liabilities, they are
not considered further in this note.

Description of the Programs for which the VMIA is liable and of the actuarial process for determining the
value of the outstanding claims
(i) General Government Program (GGP)
This Program provides a range of general insurances to:
  - Government departments
  - Participating bodies
  - Non-Government entities as directed by the Minister for Finance.
The liabilities consist of a combination of short-tail property and longer tail liability risks. The estimation of outstanding
claims liabilities involves a variety of actuarial techniques that analyse experience, trends and other relevant factors.

(ii) Public Healthcare Program (PHP)
This program provides a range of general insurances to Victoria’s public health system, including a variety of eligible
healthcare agencies and cemetery trusts which are funded by the Department of Health (DOH). It also includes the
Community Services Program that provides a range of general insurances to Victoria’s eligible community service
organisations which are funded by the Department of Human Services (DHS). The majority of the liability relates to the
Medical Indemnity class of insurance.
The Treasurer on behalf of the State of Victoria has provided an indemnity that limits the VMIA’s liability for Medical
Indemnity claims incurred in any one policy year to a maximum of 120% (2009:120%) of the actuarially estimated claims
expense for that year as estimated before the commencement of that year, and as used in the pricing of the insurance
policies within the Program. The State has not charged the VMIA for this indemnity.
The estimation of outstanding claims’ liabilities involves a variety of actuarial techniques that analyse experience, trends,
exposure (public hospital separations) and other relevant factors. Separate modelling is undertaken for claims that
are classified as “large” with the classification threshold being $689,000 at June 2010 (approximately $662,000 at
June 2009).

(iii) Dust Diseases and Workers’ Compensation Program (DDWC)
This program covers pre-1985 workers’ compensation and public liability claims against the former State Electricity
Commission of Victoria (SECV) and some other State Government entities. Most of these claims are for asbestos related
diseases. The liabilities are very long tail in nature. The estimation of outstanding claims liabilities for this program is based
on a variety of actuarial techniques that analyse experience, trends, historical exposure data and industry data.



Page 22 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(iv) Domestic Building Insurance Program (DBIP)
The VMIA commenced writing domestic building insurance policies from 31 May 2010. As domestic building insurance
premiums are typically earned over a period from 7-10 years, the VMIA’s actuary determined that this premium is unearned
at 30 June 2010, resulting in no outstanding claims liability at 30 June 2010.
The following table summarises the main assumptions used by the actuary in estimating the net outstanding
claims provision.

                                                                   2010                                      2009
                                                                 Program                                   Program
                                                          GG            PH        DDWC              GG            PH        DDWC
Actuarial assumptions
Average weighted term to settlement                     1.8yrs       5.7yrs      13.3yrs          1.8yrs       5.9yrs      14.2yrs
Proportion of claims that are large claims                   -        2.5%              -              -        1.5%               -
Number of incurred but not reported (IBNR) claims            -             -       1,364               -             -      1,302
Claims handling expense                                  6.0%         5.0%        12.0%           6.0%          5.0%        12.0%
Inflation                                                3.5%         3.9%          4.0%          3.8%          4.0%         4.1%
Discount rate                                            4.7%         5.1%          5.5%          5.3%          5.5%         5.9%
Superimposed inflation                                       -        4.0%          2.0%               -        4.0%         2.5%
Risk Margins                                           28.4%         17.3%        30.5%          25.0%        22.5%         25.0%

If a field is left blank in the above table it is either not separately estimated in, or does not have a material impact on, the
valuation of that portfolio.

Process used to determine assumptions
The average weighted term to settlement is calculated separately for each class of business based on historical
settlement patterns.
The proportion of claims that are large claims is calculated by reference to past experience of large claims as a proportion
of all claims and an understanding of the claims management philosophy. As at June 2010 year, this is calculated for
claims with accidents post 30 June 2003 (i.e. the accidents to which VMIA is exposed), whereas this was previously
calculated for all accident periods (i.e. VMIA and DHS accidents).
Number of incurred but not reported (IBNR) claims represents the expected number of asbestos claims that will ultimately
be reported after the balance date. Although the injuries are considered to already have occurred, asbestos related
diseases may take decades to present and hence be reported to the VMIA.
The claims handling expense rates are calculated by reference to past experience of claims handling costs as a
percentage of claims payments.
The inflation assumption is set following consideration of the duration of the liabilities and by reference to both
economic forecasts and historical experience for wage inflation. Short term wage inflation assumptions are set following
consideration of a range of economic forecasts, while medium to long term wage inflation assumptions are set based on
consideration of both economic forecasts and historical average rates of wage inflation.
The discount rate is calculated as the weighted average of the interest rates on Commonwealth Government securities
with terms to maturity that match, as closely as possible, the estimated future cash outflows.
The superimposed inflation assumptions are set by reference to the superimposed inflation indicators present in the
portfolio data and industry trends.




                                                                                                 VMIA Annual Report 2010 | Page 23
Notes to the Financial
Statements
for the financial year ended 30 June 2010




Sensitivity analysis – insurance contracts
The actuary has conducted sensitivity analysis to quantify the impact of movements in key underlying variables on the
outstanding claims liabilities. As VMIA is not subject to income tax, the impact on equity is the same as the impact on the
comprehensive result net of recoveries.

Financial impact of changes in assumptions on the comprehensive result:

Variable                                                                                  Sensitivity       Net of recoveries
                                                                                                   %                   $’000

General Government Program
Inflation (3.5%p.a.)                                                                         +0.50%                   (1,111)
                                                                                             -0.50%                     1,096
Discount rate (4.7% p.a)                                                                     +0.50%                     1,402
                                                                                             -0.50%                   (1,432)
Working loss ratio for long tail classes ( assumed loss ratio                               +20.00%                    10,873
for Liability & PIDO is 60% for latest acc qtr)                                             -20.00%                  (10,883)

Claims handling expense (6.0% of payments)                                                   +1.00%                   (1,218)
                                                                                             -1.00%                     1,218
Risk Margin (28.4% p.a.)                                                                     +1.00%                   (1,293)
                                                                                             -1.00%                     1,293
Public Healthcare Program
Inflation (3.9% p.a.)                                                                        +0.50%                   (9,942)
                                                                                             -0.50%                    10,038
Discount rate (5.1% p.a.)                                                                    +0.50%                    16,195
                                                                                             -0.50%                  (16,994)
Claim frequency non large claims for latest accident year                                    +0.50%                   (1,434)
(5.5% per 100 separations)                                                                   -0.50%                     1,618
Claim frequency large claims                                                                 +0.20%                  (11,403)
(2.5% of total claim numbers)                                                                -0.20%                    11,651
Average claim size large claims                                                              +5.00%                    (9,375)
($2.7 million per claim as at June 2010)                                                     -5.00%                     9,535
Superimposed inflation (4.0% p.a.)                                                           +0.50%                    (9,872)
                                                                                             -0.50%                     9,968
Claims handling expense (5.0% of payments)                                                   +1.00%                   (5,698)
                                                                                             -1.00%                     5,698
Risk Margin (17.3% p.a.)                                                                     +1.00%                   (5,044)
                                                                                             -1.00%                     5,044
Dust Diseases and Workers’ Compensation Program
Inflation (4.0% p.a.)                                                                        +0.50%                 (22,388)
                                                                                             -0.50%                   20,462
Discount rate (5.5% p.a.)                                                                    +0.50%                   20,396
                                                                                             -0.50%                 (22,534)
Number of IBNR claims (1,364 claims)                                                        +10.00%                 (32,330)
                                                                                            -10.00%                   32,330
Average claim size ($145,000 per claim as at 30 June 2010)                                  +10.00%                 (32,330)
                                                                                            -10.00%                   32,330
Claims handling expense (12.0% of claim payments)                                            +1.00%                  (3,081)
                                                                                             -1.00%                     3,081
Risk Margin (30.5% p.a.)                                                                     +1.00%                   (2,643)
                                                                                             -1.00%                     2,643
Page 24 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




 Variable                                  Impact of movement in variable on the comprehensive result

 Inflation and                             Expected future payments are increased to take account of the impact of inflation. Such
 Superimposed Inflation rates              increases include economic and superimposed inflation. Superimposed inflation assumptions
                                           are specific to the individual actuarial models adopted. An increase in an inflation
                                           assumption would increase the claims expense and reduce the comprehensive result. A
                                           decrease in an inflation assumption would decrease the claims expense and increase the
                                           comprehensive result.

 Discount rate                             The outstanding claims liability is calculated by reference to expected future payments.
                                           These payments are discounted to adjust for the time value of money. An increase in
                                           the assumed discount rate will decrease the total claims expense and increase the
                                           comprehensive result. A decrease in the assumed discount rate would increase the claims
                                           expense and decrease the comprehensive result.

 Claims handling expense                   The outstanding claim liability includes the professional and administrative costs of the
                                           future management and settlement of claims. This is usually calculated as a percentage of
                                           the settlement costs based on past experience. An increase in the claims management cost
                                           will increase the total claims expense and decrease the comprehensive result. A decrease
                                           in the claims management cost would decrease the claims expense and increase the
                                           comprehensive result.

 Working loss ratio for claims liability   The working loss ratio is calculated as the cost of claims, excluding catastrophic claims, as a
                                           proportion of the premium for the year. An increase in the working loss ratio will increase the
                                           total claims expense and decrease the comprehensive result. A decrease in the working loss
                                           ratio will decrease the total claims expense and increase the comprehensive result.

 Claim frequency                           Claim frequency is calculated based on past experience. An increase in the frequency of
 (both large and small)                    claims will increase the total claims expense and decrease the comprehensive result. A
                                           decrease in the frequency of claims would decrease the claims expense and increase the
                                           comprehensive result.

 Average claim size large claims           Estimated average claim size is primarily based on historical experience. An increase in the
                                           estimated average will increase the total claims expense and decrease the comprehensive
                                           result. A decrease in the estimated average will decrease the total claims expense and
                                           increase the comprehensive result.

 Number of IBNR claims                     The number of IBNR claims is calculated based on past experience of claim notification
                                           patterns and information on the changes in the profile of risk over time. An increase in the
                                           estimate of the number of IBNR claims will increase the total claims expense and decrease
                                           the comprehensive result. A decrease in the estimate of the number of IBNR claims will
                                           decrease the total claims expense and increase the comprehensive result.

 Risk Margin                               A risk margin is applied to the outstanding claims liability to reflect the inherent uncertainty
                                           in the central estimate of the outstanding claims liability. The risk margin increases
                                           the probability that the clams liability is adequately provided up to a 75% probability
                                           of sufficiency.




                                                                                                        VMIA Annual Report 2010 | Page 25
Notes to the Financial
Statements
for the financial year ended 30 June 2010




3. Revenue and income from continuing activities
                                                                             Note                     2010                       2009
                                                                                                      $’000                      $’000
(a) Premium revenue
General Government Program                                                                           76,064                    58,046
Public Healthcare Program                                                                            98,871                    93,890
Total premium revenue                                                                               174,935                   151,936


(b) Reinsurance and other recoveries
General Government Program                                                                          (25,565)                  231,678
Public Healthcare Program                                                                              7,635                     3,818
DDWC Program                                                                                              28                      194
Total reinsurance and other recoveries / (loss)                                  4                  (17,902)                  235,690


(c) Other revenue
Management Fees                                                                                        4,701                     4,010
Total revenue                                                                                          4,701                     4,010


(d) Investment income
Interest                                                                                             22,395                    19,882
Dividends and distributions                                                                          60,953                    38,567
Other Income                                                                                            625                      5,123
Fair value movements through profit and loss:
    Unrealised gain / (loss)                                                                        (12,222)                (154,917)
    Realised gain / (loss)                                                                           31,724                   (47,530)
Total investment income                                                                             103,475                 (138,875)


Total revenue and income                                                                            265,209                   252,761

All investment income is derived from investments reported at fair value through profit and loss. All financial instruments are measured
at fair value through profit and loss from initial recognition (Note 1(j)).




Page 26 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




4. Claims expense and net incurred claims
                                                                             Note                     2010                        2009
                                                                                                      $’000                       $’000
(a) Net incurred claims
Direct claims costs                                                                                 155,826                   471,641
Reinsurance and other recoveries                                                                     17,902                 (235,690)
Net incurred claims                                                           3(b)                  173,728                  235,951

Current year reinsurance and other recoveries also capture adjustments to prior year’s reinsurance recoveries’ estimates.



                                                                     2010                                         2009
(b) Net incurred claims table                       Current          Prior                      Current           Prior
                                                      Year          Years            Total        Year           Years            Total
                                                      $’000         $’000         $’000           $’000          $’000            $’000
Gross claims incurred and related expenses
Undiscounted                                       225,888       (243,777)     (17,889)        480,239        (129,975)      350,264
Discount movement                                  (59,641)       233,356      173,715        (110,710)        232,087       121,377
Direct claim costs                                 166,247       (10,421)      155,826         369,529         102,112       471,641


Reinsurance and other recoveries
Undiscounted                                       (24,078)        52,561       28,483        (233,490)        (67,195)     (300,685)
Discount movement                                     5,537       (16,118)     (10,581)          48,454         16,541        64,995
Reinsurance and other recoveries                   (18,541)        36,443        17,902       (185,036)       (50,654)      (235,690)


Net claims incurred                                 147,706        26,022       173,728        184,493          51,458       235,951

The total net claims incurred for the 2010 financial year is represented by claim payments and actuarial adjustments for claims
incurred prior to 2010 and claims incurred for the new accident year 2010.




                                                                                                   VMIA Annual Report 2010 | Page 27
Notes to the Financial
Statements
for the financial year ended 30 June 2010




5. Outstanding claims liability
(a) Outstanding claims liability composition
The 2010 outstanding claims liability contained in the financial report is obtained through independent actuarial valuation.

                                                                                                   2010                       2009
                                                                                                   $’000                      $’000
Undiscounted central estimate                                                                 1,602,213                 1,755,358
Discount to present value                                                                      (562,350)                (736,064)
Discounted value of central estimate                                                           1,039,863                1,019,294
Claims handling costs                                                                             61,923                     60,309
Risk margin                                                                                     204,806                  199,810
Liability for outstanding claims                                                               1,306,592                1,279,413
Current                                                                                         166,554                  210,355
Non-current                                                                                   1,140,038                1,069,058
Liability for outstanding claims                                                               1,306,592                1,279,413

(b) Risk margin
The objective of the risk margin is to achieve a 75% probability that the outstanding claims liability will be sufficient.
Risk margin assumptions are disclosed in Note 2.




Page 28 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(c) Reconciliation of movement in discounted outstanding claims liability
                                                                               Gross        Reinsurance              Net
2010                                                                           $’000              $’000            $’000

Outstanding claims provision at 1 July 2009                                 1,279,413          (240,067)       1,039,346
Effect of changes in economic assumptions                                     23,340             (1,180)          22,160
Effect of changes in other assumptions                                       (77,491)            44,961         (32,530)
Effect of claims moving one year closer to settlement                         43,417             (8,151)          35,266
Claims incurred in current accident year                                     166,560             (17,728)       148,832
Incurred claims recognised in the comprehensive operating statement          155,826              17,902         173,728
Net claim payments during the year                                          (128,647)             17,005       (111,642)
Outstanding claims provision at 30 June 2010                                1,306,592          (205,160)       1,101,432

                                                                               Gross        Reinsurance              Net
2009                                                                           $’000              $’000            $’000

Outstanding claims provision at 1 July 2008                                  870,896            (12,932)         857,964
Effect of changes in economic assumptions                                      5,811                (92)           5,719
Effect of changes in other assumptions                                        55,520            (46,604)           8,916
Effect of claims moving one year closer to settlement                         51,796               (577)          51,219
Claims incurred in current accident year                                     358,514           (188,417)        170,097
Incurred claims recognised in the comprehensive operating statement          471,641           (235,690)        235,951
Net claim payments during the year                                           (63,124)              8,555        (54,569)
Outstanding claims provision at 30 June 2009                                1,279,413          (240,067)       1,039,346




                                                                                        VMIA Annual Report 2010 | Page 29
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(d) Claims development tables
The following tables show the development of net undiscounted outstanding claims relative to the ultimate expected cost of
claims for the seven most recent accident years. As all claims for the Dust Diseases and Workers’ Compensation Program
were incurred prior to these accident years, no table has been prepared for that program.

General Government Program
Net claims development table
                                                   2004      2005      2006     2007      2008     2009      2010       Total
                                                   $’000     $’000     $’000    $’000     $’000    $’000     $’000     $’000
Estimate of net ultimate claims cost
at end of the accident year                       27,882    24,603    22,938   25,514    21,695   66,858    35,610
One year later                                    16,912    18,418    15,752    57,175   16,990   66,292
Two years later                                   11,355    11,405    15,165   53,073    15,806
Three years later                                  9,044     9,360    14,951   49,917
Four years later                                   9,766    10,843    28,018
Five years later                                   8,050    10,781
Six years later                                    8,094
Current estimate of net cumulative
claims cost                                        8,094    10,781    28,018   49,917    15,806   66,292    35,610 214,518
Cumulative payments                               (6,321)   (5,716)   (8,462) (39,197)   (5,281) (33,602)   (2,333) (100,912)
Net claims outstanding for claims incurred in
the past seven years - undiscounted                1,773     5,065    19,556   10,721    10,525   32,690    33,277 113,606
Net claims outstanding incurred more than seven
years ago - undiscounted                                                                                              17,049
Total net claims outstanding - undiscounted                                                                          130,655
Discount                                                                                                             (10,661)
Claims handling expense                                                                                                9,266
Risk margin                                                                                                           36,648
Net claims outstanding at 30 June 2010                                                                               165,908




Page 30 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




Public Healthcare Program
Net claims development table
                                                    2004     2005     2006     2007      2008      2009      2010        Total
                                                    $’000    $’000    $’000    $’000     $’000     $’000     $’000      $’000
Estimate of net ultimate claims cost
at end of the accident year                             -        - 125,320 126,340 103,208 125,003 148,717
One year later                                          -   97,976   95,931 118,865     98,283    122,674
Two years later                                    99,420 105,257    99,868 112,915 123,112
Three years later                                  80,591 103,496    86,399 115,041
Four years later                                   83,274 105,267    83,314
Five years later                                   79,593 103,059
Six years later                                    65,568
Current estimate of net cumulative
claims cost                                        65,568 103,059    83,314 115,041 123,112       122,674   148,717 761,485
Cumulative payments                               (26,738) (31,367) (19,766) (16,344)   (4,829)   (2,015)     (251) (101,310)
Net claims outstanding for claims incurred
in the past seven years - undiscounted             38,830   71,693   63,548   98,698 118,283 120,659 148,466 660,175
Net claims outstanding incurred more than seven
years ago - undiscounted                                                                                                   11
Total net claims outstanding - undiscounted                                                                           660,186
Discount                                                                                                             (180,138)
Claims handling expense                                                                                                24,335
Risk margin                                                                                                            87,459
Net claims outstanding at 30 June 2010                                                                                591,842




                                                                                            VMIA Annual Report 2010 | Page 31
Notes to the Financial
Statements
for the financial year ended 30 June 2010




6. Reinsurance
The VMIA provides insurance to State Government departments, participating bodies and other entities as defined under
the Victorian Managed Insurance Authority Act 1996. The VMIA has a policy of purchasing reinsurance to limit financial
exposure to the State, as follows:
•	 Industrial Special Risks - $1.450 billion (2009 - $1.450 billion) excess of the VMIA $50 million (2009-$50 million)
   retention, any one event.
•	 Public and Products Liability - $700 million (2009 - $700 million) excess of the VMIA $50 million retention any one
   occurrence and in the annual aggregate separately for Products Liability and Bushfire Liability.
•	 Principal Controlled Contract Works - Material Damage and Public Liability - $97.5 million (2009 - $97.5 million) for
   property damage in excess of the VMIA retention of $2.5 million (2009 - $2.5 million), and $245 million for Public
   Liability (2009 - $245 million), in excess of the VMIA retention of $5.0 million (2009 - $5.0 million).
•	 Government Rail Insurance Program - Public and Product Liability - $250 million (2009 - $250 million) excess of the
   VMIA $100,000 retention, any one event. Material Damage - $600 million (2009 - $600 million) excess of the VMIA
   retention up to $1.45 million.
In addition, to protect against the potential for a series of losses which in aggregate exceed $50 million in any one
year, the VMIA has obtained for the 2009/10 year the Aggregate Stop Loss reinsurance of $50 million in excess of
an aggregate of $50 million of insured losses incurred under the VMIA’s Industrial Special Risks, Principal Controlled
Construction Risks, Public and Products Liability and Professional Indemnity policies, on a proportional basis of 55%
(2009 - 100%).

7. Unexpired risk liability
The liability adequacy test (Note 1(e)) was undertaken by the actuary for all insurances provided by the VMIA. VMIA’s
actuary has compared the unearned premium liability to the present value of expected future cash flows relating to current
insurance contracts comprising the sum of the following:
  (i) The net present value of future claim settlement costs arising from unearned premiums and premiums for which
      there is a constructive obligation at 30 June 2010.
  (ii) Allowance for expenses to maintain policies after the renewal date.
  (iii) A risk margin to provide a 75% probability of sufficiency which has been set to be consistent with the valuation
        of outstanding claims liabilities.
  (iv) Deferred acquisition costs.
Insurance premiums charged by the VMIA are based on the expected cost of future claims’ costs for the policy year
discounted at risk free rates, reinsurance, administration costs and risk management costs, and a charge for the capital
required to support the business. The result of the liability adequacy test was a deficiency of $6.500 million (2009 -
$22.983 million) for the Public Healthcare Program (PHP), $4.600 million (2009 - surplus of $3.3 million) for the General
Government Program (PHP) and $0.822 million (2009 - nil) for the Domestic Building Insurance Program (DBIP). In
recognising the deficiencies related to PHP and GGP programs, unexpired risk liabilities of $6.5 million and $4.6 million
are recognised in the Balance Sheet. The deficiency resulting from the Domestic Building Insurance Program has been
written off against the deferred acquisition cost, resulting in nil unexpired risk liability.
The estimated deficiencies at 30 June 2010 are not expected to give rise to any related reinsurance assets.




Page 32 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(a) Calculation of program deficiencies
                                                                         GGP                 PHP            DBIP
2010                                                                    $’000               $’000           $’000
Net unearned premium liability                                         44,691          123,000              2,476
Net present value of future policy costs                             (36,814)        (100,761)             (1,733)
Risk margins                                                          (12,477)         (28,739)             (451)
Deferred acquisition cost recognised                                         -                  -         (1,114)
Gross Deficiency                                                       (4,600)          (6,500)             (822)
Write down of deferred acquisition cost                                      -                  -            822
Net Deficiency                                                         (4,600)          (6,500)                  -
Deferred acquisition cost reported in Balance Sheet                          -                  -             292



2009
Net unearned premium liability                                         40,497           93,487                   -
Net present value of future policy costs                              (28,557)        (92,892)                   -
Risk Margins                                                           (8,669)         (23,578)                  -
Deferred acquisition cost                                                    -                  -                -
Gross Deficiency                                                             -        (22,983)                   -
Write down of deferred acquisition cost                                      -                  -                -
Net Deficiency                                                               -        (22,983)                   -



(b) Unexpired risk composition
                                                                                   2010                     2009
                                                                                   $’000                    $’000
Unexpired risk liability at 1 July                                                22,983                   18,146
Recognition of unexpired risk liability in the period                             11,100                   22,983
Release of unexpired risk liability recorded in previous periods                 (22,983)                (18,146)
Movement in unexpired risk liability                                             (11,883)                   4,837
Unexpired risk liability at 30 June                                               11,100                   22,983
Deferred acquisition cost write down                                                 822                         -
Unexpired risk (benefit)/expense in the Comprehensive Operating Statement        (11,061)                   4,837




                                                                                 VMIA Annual Report 2010 | Page 33
Notes to the Financial
Statements
for the financial year ended 30 June 2010




8. Receivables
                                                                                                       2010                       2009
                                                                                                       $’000                      $’000
Premium receivable                                                                                   212,576                   105,963
Other receivables                                                                                      3,866                      6,669
Total receivables                                                                                    216,442                   112,632
Receivables - financial asset                                                                          3,866                      6,439
Receivables - non-financial asset                                                                    212,576                   106,193
Total receivables                                                                                    216,442                   112,632
The usual credit period for receivables is 30 days. No interest is charged on invoices not paid within the credit terms. No receivables
were past due at 30 June.

9. Expenses arising from ordinary activities

(a) Expenses by nature:
Loss on sale of plant and equipment                                                                        34                        43
Depreciation of plant and equipment                                                                     1,115                      849
Salaries, wages and long service leave                                                                15,165                    14,106
Post employment benefit - Defined Contribution scheme expense                                          1,240                      1,443
Post employment benefit - Defined Benefit scheme expense                                                   58                        37
Rental expenses relating to operating leases                                                            1,653                     1,597
Program management                                                                                     3,338                      1,394
Consulting and legal                                                                                     650                       988
Investment management fees                                                                              2,285                     1,769
Internal and external audit fees                                                                         328                       519
Funding for clients’ risk management projects                                                            963                        746
Suppliers and other services                                                                            5,633                     6,327
Total expenses                                                                                        32,464                    29,818


(b) Expenses by function:
Underwriting (including claims and risk management services)                                          19,460                    16,914
Investment                                                                                              2,285                     1,769
General and administration                                                                            10,719                    11,135
Total expenses                                                                                        32,464                    29,818




Page 34 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




10. Reinsurance and other recoveries
                                                                                                   2010                     2009
                                                                                                   $’000                    $’000
Expected future recoveries in respect of outstanding claims (undiscounted)                       261,170                  307,666
Discount to present value                                                                        (56,010)                 (67,599)
Reinsurance and other recoveries receivable on outstanding claims                                205,160                 240,067
Recoveries in respect of paid claims                                                                 270                      304
Total reinsurance and other recoveries                                                           205,430                  240,371


Current                                                                                           17,662                   27,220
Non-current                                                                                      187,768                 213,151
Total reinsurance and other recoveries                                                           205,430                  240,371

The majority of the reinsurance and other recoveries relate to the General Government Program.


11. Investments
                                                                                                   2010                     2009
                                                                                                   $’000                    $’000
Australian listed investments                                                                     18,145                         -
Australian debt securities                                                                       254,980                  247,590
Australian managed investments                                                                   626,953                  550,656
Managed investments - foreign currency                                                            51,162                   46,344
Financial derivatives                                                                             (3,118)                   3,168
Total investments                                                                                948,122                  847,758


Current                                                                                             8,425                  50,467
Non-current                                                                                      939,697                  797,291
Total investments                                                                                948,122                  847,758

The VMIA’s investments are classified into current and non-current by the Victorian Funds Management Corporation
(VFMC) in accordance with maturity dates. All equity investments are classified as non-current.
Investments are reported at fair value in accordance with the details contained in Note 1(j). Information on the financial risk
management for the above investments are disclosed in Note 17.




                                                                                                 VMIA Annual Report 2010 | Page 35
Notes to the Financial
Statements
for the financial year ended 30 June 2010




12. Plant and equipment
                                                                                                 2010          2009
                                                                                                 $’000         $’000
Furniture, office machinery and computers at cost                                                 695            590
Accumulated depreciation                                                                         (321)         (264)
                                                                                                  374            326
Motor vehicles at cost                                                                           2,237         2,132
Accumulated depreciation                                                                         (529)         (448)
                                                                                                 1,708         1,684
Capitalised office fit-outs at cost                                                           1,882            1,876
Accumulated depreciation                                                                     (1,334)            (719)
                                                                                                  549          1,157
Total plant and equipment at cost                                                                4,814         4,598
Accumulated depreciation                                                                     (2,183)          (1,431)
Carrying amount at 30 June                                                                       2,631         3,167

Reconciliation:
Reconciliations of the carrying amounts of each class of plant and equipment is set out below:

                                                    Furniture, office
                                                       machinery &
                                                         computers      Motor vehicles   Office fit-outs        Total
                                                               $’000            $’000             $’000        $’000
2010
Carrying amount at 1 July 2009                                  326             1,684              1,157       3,167
Additions                                                       116             1,006                    7     1,129
Disposals                                                         (2)           (548)                     -    (550)
Depreciation expense                                            (66)            (434)               (615)     (1,115)
Carrying amount at 30 June 2010                                  374            1,708                549       2,631


2009
Carrying amount at 1 July 2008                                  535             1,663              1,410       3,608
Additions                                                         21              533                    57      611
Disposals                                                           -           (203)                     -    (203)
Depreciation expense                                           (230)            (309)               (310)      (849)
Carrying amount at 30 June 2009                                 326             1,684              1,157       3,167




Page 36 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




13. Unearned premium liability
                                                                                                2010                    2009
                                                                                                $’000                   $’000
Unearned premium liability at 1 July                                                          89,225                    3,523
Deferral of premiums on contracts written in the period                                       178,766                  87,920
Earning of premiums written in previous periods                                              (88,993)                  (2,218)
Unearned premium at 30 June                                                                  178,998                   89,225


Current                                                                                      176,644                   89,029
Non-current                                                                                     2,354                     196
Total unearned premium liability                                                             178,998                   89,225

14. Payables
Current
Trade creditors and accruals (see Note (i) below)                                              45,447                  26,008
Funds available for claim payments (see Note (ii) below)                                      38,032                   37,802
Total current payables                                                                         83,479                  63,810
Total payables                                                                                 83,479                  63,810

Note:
   (i) The average credit period for trade creditors is 30 days. No interest is usually charged on invoices not paid
       within the credit terms.
   (ii) This relates to the funding of claims the VMIA manages on behalf of the Department of Health/ Department of
        Human Services.
For discussion of the fair value of the above liabilities and details of the interest bearing components refer Note 17(a) and
Note 17(b)(iii).




                                                                                             VMIA Annual Report 2010 | Page 37
Notes to the Financial
Statements
for the financial year ended 30 June 2010




15. Equity and reserves
Changes in equity for the twelve months ended 30 June 2010, including comparatives:

                                          Contributed           Solvency     Catastrophe         Accumulated
                                              Capital            Reserve         Reserve     Surplus / (Deficit)              Total
                                                $’000              $’000           $’000                 $’000               $’000
Equity at 1 July 2008                           57,100             56,984          55,000                      -          169,084
Comprehensive result for the period                   -                  -               -            (283,312)          (283,312)
Equity at 30 June 2009                          57,100             56,984          55,000             (283,312)          (114,228)
Comprehensive result for the period                   -                  -               -              51,801             51,801
State Government capital                        16,600                   -               -                                 16,600
Transfer to/(from) reserves                           -            34,490                -             (34,490)                   -
Equity at 30 June 2010                          73,700             91,474          55,000             (266,001)           (45,827)

Since its formation the VMIA has established Solvency and Catastrophe reserves to ensure it can absorb catastrophic
events, random fluctuations in claims and investment experience and to increase the likelihood of being able to meet
its future liabilities. The Minister for Finance has approved the VMIA adopting, as a measure of solvency, 15% of the
actuarially assessed net outstanding claims liabilities. The Minister has also approved a separate Catastrophe reserve to
meet significant claims from major events, such as bushfires and floods. This capital policy applies to the VMIA as a whole,
rather than to each business Program.
Consistent with the capital policy, the accounting policy establishes the Solvency reserve as equal to any funds required, in
excess of the contributed capital, to achieve the approved level of solvency.
The Catastrophe reserve is equal to the deductible of the VMIA’s reinsurance program for property and public liability risks
plus an allowance for additional premium to reinstate the reinsurance policies for an unexpired period. At 30 June 2010
the Catastrophe reserve was $55 million (2009 - $55 million).
The VMIA has determined that it is appropriate to allocate any comprehensive operating surplus to the Catastrophe
reserve first, then the Solvency reserve, and then to Accumulated surplus/(deficit).
There is no minority interest in the equity of the VMIA. The equity is not represented by share capital with a specified par
value. VMIA received a capital contribution of $16.6 million from the State in June 2010 to support the growing Medical
Indemnity liabilities.

16. Insurance contracts – risk management policies and procedures
The financial condition and operation of the VMIA is affected by a number of key risks including insurance risk, interest
rate risk, credit risk, market risk, liquidity risk, financial risk and operational risk. The VMIA’s policies and procedures in
respect of managing these risks are set out in this note.

(a) Objectives in managing risks arising from insurance contracts and policies mitigating those risks
The VMIA’s purpose is to minimise the impact on the State and clients of the exposure to loss from adverse events
through the provision of risk management and insurance services. It does this in part by accepting the transfer of all or part
of such exposures by way of insurance contracts protected by appropriate reinsurance arrangements. Insurance claims
experience is inherently uncertain, which can lead to significant variability in losses experienced. The VMIA maintains
a sound and prudent risk management strategy that encompasses all aspects of the VMIA’s operations including the
reinsurance risk retention limits. The strategy sets out the VMIA’s policies and procedures, processes and controls in
respect of the management of both financial and non-financial insurance risks likely to be faced by the VMIA.




Page 38 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




Key aspects of the processes established to mitigate risks include:
•	 The maintenance and use of detailed risk exposure surveys, and collection of management information from insured
   entities, which provide reliable data on the risks to which the VMIA is exposed.
•	 Actuarial models that use claims information derived from the loss experience of the VMIA with consideration of industry
   experience. The VMIA has claims data from 1995 for the General Government Program, 1958 for the Dust Diseases
   and Workers’ Compensation Program and the 1950’s for the Public Healthcare Program.
•	 Documented procedures are followed for underwriting, pricing and accepting risk.
•	 Exposures to natural disasters are modelled and the State’s accumulated risks are mainly protected by arranging
   reinsurance to limit the losses arising from an individual event. The retention limits, set out in Note 6, are approved by
   the Board.
•	 Financial exposure to the long-tail medical indemnity class of insurance has been mitigated by a stop-loss arrangement
   provided by the State. The purpose of this arrangement is to minimise any capital strain that might arise from future
   deterioration of the claims experience. Availability of this type of cover from the insurance market is variable both as
   to provision and price and, because of the extremely long claims development period would be subject to significant
   credit risk.
•	 Only reinsurers with credit ratings equal to, or in excess of, those specified in the VMIA Reinsurance Policy, are accepted
   as participants in the VMIA’s reinsurance programs.
•	 The investment allocation strategy, as determined by the VFMC to meet the investment objectives established by the
   Board to optimise the investment returns within acceptable risk parameters.
The liabilities are dominated by certain long-tail classes which tend to contribute to the volatility of the VMIA’s results
over time.

(b) Terms and conditions of insurance business
Insurance contracts for GGP and PHP
Contracts typically commence on 1 July and run for 12 months resulting in almost all premium being received in the first
quarter of the financial year. The terms and conditions of these insurance contracts are established annually in advance of
1 July.

Insurance contracts for DBIP
Contracts commence on the project contract’s start date and run to 6.5 years after the date of the project completion.
Terms and conditions of these insurance contracts are reviewed on an ongoing basis.

(c) Concentration of insurance risk
The portfolio contains some diversity, but is geographically concentrated in Victoria and as such is exposed to the
potentially material property catastrophes of the State, being earthquake, bushfires, storms and floods. Aggregate risk is
modelled annually using a combination of data sorted by global positioning and/or postcode reference, using available
catastrophe models. The reinsurance program is purchased to provide protection in excess of the retention level, which is
typically $50 million. The Board annually reviews the appropriateness of the retention level.
The VMIA provides the Medical Indemnity insurance for all public hospitals in Victoria and many other healthcare providers.
The VMIA is therefore exposed to the consequences of any factor which increases the cost of such cover, for example
legal precedents. As claims may not be settled for many years, such legal precedents can have a flow on effect to many
claims. The stop-loss protection provided by the State to the VMIA limits the potential ultimate cost for any one year of
such events.




                                                                                             VMIA Annual Report 2010 | Page 39
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(d) Interest rate risk
The financial assets or liabilities arising from insurance or reinsurance contracts entered into are directly exposed to
interest rate risk. Changes in interest rates affect the valuation of the VMIA’s assets and liabilities.

(e) Credit risk
Financial assets and liabilities arising from insurance and reinsurance contracts are stated in the Balance Sheet at the
amount that best represents the maximum credit risk exposure at balance date. There are no significant concentrations of
credit risk.

17. Financial risk management
The VMIA’s operating activities expose it to a variety of financial risks including market risk (being foreign currency risk,
interest rate risk and price risk), credit risk and liquidity risk. The VMIA’s investment activity is undertaken pursuant to
the Victorian Managed insurance Authority Act 1996, the Borrowing and Investment Powers Act 1987, the ‘Prudential
Statement for Victorian Public Sector Investments’ and an Order in Council dated 1 February 2009.
The Order in Council defines the responsibilities of the VMIA and the VFMC. The VMIA is responsible for setting the
investment objectives after considering such matters as capital needs, income and expenditure requirements, future
projections of assets and liabilities and risk preferences of the Treasurer. The VFMC has the responsibility to develop
and implement suitable investment strategies and ensure its systems deliver strong internal controls and good corporate
governance. The investment strategy that is determined by the VFMC is documented in a detailed Investment Risk
Management Plan (IRMP) which is approved by the Treasurer.
Each quarter, the VFMC Board certifies to the Department of Treasury and Finance that investments have been managed
within the above mentioned framework and in accordance with the IRMP. The VFMC reports on investment performance,
including comparison to market benchmarks, quarterly. Reports are reviewed by the VMIA Board.
The Department of Treasury and Finance ensures that appropriate structures exist to manage investment risk and
undertakes the prudential supervision of the VFMC.
The administration of the investment portfolio is managed by the VFMC internally and through specialist fund managers
and a Master Custodian. The Custodian holds the investments and conducts settlements pursuant to instructions from the
specialist fund managers.
The investment portfolio is summarised in Note 11.

Derivatives
The use of derivatives form part of the investment strategy set by the VFMC.
The VFMC restricts the Managers of the VMIA’s direct investment portfolio and of the trusts in which the VMIA invests by
permitting the use of derivative investments in the following circumstances:
  (i) Hedging to protect the value of the assets against any significant decline in investment markets.
  (ii) As a means of making adjustments to the asset allocation while minimising transaction costs.
  (iii) Entering or exiting a position at an advantageous price.
The VFMC does not permit Managers to use derivatives for speculative purposes, nor to gear or leverage portfolios or
create net short positions, that is, positions not covered by physical stock creating potential for unlimited downside. At 30
June 2010 the VMIA had exposure to Australian Fixed Interest futures and Australian Share Price Index futures. These
contracts are valued at fair value as determined by their market value at balance date.




Page 40 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(a) VMIA financial instruments classification
The financial instruments are classified by reference to the source of inputs used to derive their fair value. This
classification uses the following three-level hierarchy:
   (i) Level 1 - fair value is determined by using quoted prices (unadjusted) in active markets for identical assets
       or liabilities;
   (ii) Level 2 - fair value is determined by using inputs other than quoted prices included within Level 1 that are
        observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
   (iii) Level 3 - fair value is determined by using inputs for the asset or liability that are not based on observable
         market data.

                                                          Note           Level 1           Level 2            Level 3              Total
                                                                          $’000             $’000              $’000              $’000
2010
Financial assets
Cash and cash equivalents                                 22(a)          157,208                  -                  -          157,208
Investments                                                 11            16,428          931,694                    -          948,122
Receivables                                                   8              475             3,391                   -            3,866
Recoveries in respect of paid claims                        10                 -              270                    -             270
Total financial assets                                                   174,111          935,355                    -       1,109,466
Financial liabilities
Payables                                                    14                  -           83,479                   -           83,479
Total financial liabilities                                                     -           83,479                   -           83,479


2009
Financial assets
Cash and cash equivalents                                 22(a)         131,678                   -                  -          131,678
Investments                                                 11             (660)          848,418                    -          847,758
Receivables                                                   8            3,659             2,780                   -            6,439
Recoveries in respect of paid claims                        10                  -             304                    -             304
Total financial assets                                                   134,677          851,502                    -          986,179
Financial liabilities
Payables                                                    14                  -          63,810                    -           63,810
Total financial liabilities                                                     -          63,810                    -           63,810

The amount of receivables disclosed above exclude statutory receivables being amounts owing from Victorian Government entities.




                                                                                                      VMIA Annual Report 2010 | Page 41
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(b) Market Risk
(i) Equity Price Risk
The VMIA is exposed to equity price risk. This arises from investments held at fair value through profit and loss. The VFMC
limits price risk through diversification of the equity investment portfolio. The majority of the underlying equity investments
are publicly traded on recognised exchanges.
The listed equity sensitivity analysis below has been determined for the directly held Australian equities which are listed
on the Australian Stock Exchange and effective exposure to Futures, which are listed on Sydney Futures Exchange.
International equities and Australian equities that are held through trusts are included in the analysis of unlisted investment
prices. The VMIA does not hold any direct investments in international equities. The following details the VMIA’s sensitivity
to a 10% increase or decrease in markets based on exposures at the reporting date and assumes the change takes place
at the beginning of a financial year and remains constant to the reporting date. This percentage movement represents
the sensitivity rate the VFMC uses when monitoring equity price risk and has advised management that it represents the
VFMC’s assessment of the possible change in equity markets over the next 12 months. It is therefore the percentage that
the custodian reports to management to monitor equity price risk.

Impact on comprehensive result and equity from a movement in: equity prices
                                                                                                  2010                    2009
                                                                                                  $’000                   $’000
Listed equity prices
Decrease of 10%                                                                                 (4,436)                    (151)
Increase of 10%                                                                                   4,436                     151
Unlisted investment prices
Decrease of 10%                                                                                (67,812)                 (65,103)
Increase of 10%                                                                                  67,812                  65,103

(ii) Foreign currency risk
Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in foreign exchange rates. The VMIA is exposed to foreign exchange rate risk through its investments which are
denominated in foreign currencies.
The VFMC invests globally on the VMIA’s behalf to optimise the investment returns and minimise risk in achieving the
VMIA’s investment return objectives. VMIA’s international investments include investments denominated in both Australian
and foreign currencies. The VFMC has established controls to manage currency exposure including limiting the foreign
exchange risk through the use of forward currency contracts. VFMC’s policy, approved under the Investments Risk
Management Plan, is to hedge 50% of international equities exposure and 100% of other international asset exposure.
In accordance with AASB 7 ‘Financial Instruments’, the foreign currency risk disclosure has been prepared on the basis
of the VMIA’s direct investment and not on a look-through basis for investments held indirectly through unit trusts.
Consequently the disclosure of currency risk does not include the currency risk profile of the VMIA arising from the
investments in trusts which in turn have exposure to currency risk.




Page 42 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




The table below summarises the VMIA’s exposure to foreign currency risk and the management of that exposure using
forward exchange contracts outstanding at balance date in Australian dollar equivalents.

                                   Investments in                   Forward                  Futures                        Net
                                 foreign currency             contract cover                contracts                  exposure
                                            $’000                      $’000                   $’000                      $’000
2010
US dollar                                  58,039                   (58,103)                        -                           (64)
British pound                               1,289                     (1,297)                       -                            (8)


2009
US dollar                                  47,617                   (45,027)                     (44)                      2,546
British pound                               1,665                    (1,660)                     (41)                       (36)
Euro                                          251                        (34)                       -                           217
Japanese yen                                  641                           -                       -                           641
Other                                          39                           -                    (10)                            29

The sensitivity analysis below has been determined based on the exposure to foreign exchange rates at the reporting date
and the 10% increase and decrease in the Australian dollar against the relevant foreign currencies, taking place at the
beginning of the financial year and being held constant throughout the year.

                                                                                                        2010               2009
                                                                                                        $’000              $’000
Impact on comprehensive result and equity of a 10% increase in foreign exchange rates                     (7)              (336)
Impact on comprehensive result and equity of a 10% decrease in foreign exchange rates                       8                411

(iii) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of
changes in market interest rates. Fixed interest and indexed linked investments are subject to changes in fair value,
being the impact on quoted bid price if interest rates change. Additionally any other assets valued by discounting future
cash flows will also be subject to interest rate risk. A rise in interest rates results in a decline in the value of existing
investments, while a decrease in interest rates increases the value.
The VFMC and its fund managers seek to manage interest rate risk through an asset allocation strategy for the investment
portfolio, which acts as an economic hedge against the insurance liabilities. As interest rates move, to the extent these
assets and liabilities can be matched, increases or decreases in claims expense arising from remeasurement of the
outstanding claim liability will be offset by the increase or decrease in the fair value of interest bearing investments.




                                                                                               VMIA Annual Report 2010 | Page 43
Notes to the Financial
Statements
for the financial year ended 30 June 2010




A summary of the VMIA’s exposure to interest rate risk on financial instrument follows:

                                                      Variable Rate      Fixed Interest Rate Period to maturity     Total

                                                                           Under             1-5          Over
                                                                           1 year          years       5 years
                                                              $’000        $’000           $’000         $’000      $’000
2010
Financial assets
Cash and cash equivalents                                    97,705       59,503               -              -   157,208
Australian debt securities                                 161,234         5,492          55,397        32,857    254,980
Interest rate derivatives                                    67,362             -              -              -    67,362
Financial assets exposed to interest rate risk             326,301        64,995          55,397        32,857    479,550


Financial liabilities
Payables                                                    38,032              -              -              -    38,032
Interest rate derivatives                                    68,752           71               -              -    68,823
Financial liabilities exposed to interest rate risk        106,784            71               -              -   106,855


Net exposure                                               219,517        64,924          55,397        32,857    372,695


2009
Financial assets
Cash and cash equivalents                                    31,497      100,181               -              -   131,678
Australian debt securities                                 159,450        44,963          19,778       23,398     247,589
Interest rate derivatives                                  136,569              -              -              -   136,569
Financial assets exposed to interest rate risk              327,516      145,144          19,778        23,398    515,836


Financial liabilities
Payables                                                     37,802             -              -              -    37,802
Interest rate derivatives                                  135,428              -              -              -   135,428
Financial liabilities exposed to interest rate risk         173,230             -              -              -   173,230


Net exposure                                               154,286       145,144          19,778        23,398    342,606




Page 44 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




The following sensitivity analysis has been determined based on the direct exposure to interest rates at the reporting date
as detailed above. Interest bearing investments held through trusts have been excluded from this analysis. The analysis
assumes the stipulated change taking place at the beginning of the financial year and is held constant throughout the
reporting period. A 0.5% (2009 - 0.5%) increase or decrease in interest rates is used by the actuaries in the claims
sensitivity analysis of inflation in Note 2. The same percentage has been used here to present the impact on interest
bearing investments. These movements are attributable to the VMIA’s exposure to interest rates on its variable rate
investments and payables, and the fair value movement on its fixed rate investments.

                                                                                                   2010                     2009
                                                                                                   $’000                    $’000

Impact on comprehensive result and equity from a movement in Australian interest rates
Increase of 0.5%                                                                                  (7,728)                  (6,116)
Decrease of 0.5%                                                                                    7,732                   6,116

(c) Credit risk exposures
Credit risk arises from the potential default of a counter party on their contractual obligations resulting in a financial loss
to the VMIA. Financial assets of the VMIA, which have been recognised, at fair value, on the Balance Sheet, comprise
recoveries and receivables, cash and cash equivalents and investments. The total credit risk exposure to the VMIA is
therefore the carrying amount and is detailed in Note 17(a).
Credit risk associated with receivables is minimal because the majority of balances are with other government entities.
The following analysis excludes receivables and recoveries in respect of claims due from other government entities. These
balances have not been assessed for their credit rating because of the relatively large number of low value balances
concerned. No financial assets are past their due date, are impaired, or have been renegotiated (see also Note 16(e)).
Credit risk of the investment portfolio is managed by the appointed fund managers under instructions from VFMC.
The appointed fund managers, through VFMC, manage credit risk by diversifying the exposure among counterparties and
operating in liquid markets. The VMIA does not have any significant concentration of credit risk on an industry, regional or
country basis.




                                                                                                VMIA Annual Report 2010 | Page 45
Notes to the Financial
Statements
for the financial year ended 30 June 2010




Financial assets are held with counterparties with the following Standard and Poor’s credit ratings:

                                          AAA/aaa            AA/aa             A/a      BBB/bbb         Not rated            Total
                                            $’000             $’000          $’000         $’000           $’000            $’000
2010
Cash and cash equivalent (i)                       -        48,108                -              -               -        48,108
Australian debt securities                 151,713          36,377          18,794         43,977           4,119        254,980
Receivables                                        -              -               -              -          3,866          3,866
Recoveries in respect of paid claims               -              -               -              -            270            270
Net exposure                               151,713          36,377          18,794         43,977           8,255        259,116


2009
Cash and cash equivalent (i)                       -        12,915                -              -               -        12,915
Australian debt securities                 120,976          39,422         56,809          10,946          19,437        247,590
Receivables                                        -              -               -              -          6,439           6,439
Recoveries in respect of paid claims               -              -               -              -            304            304
Financial derivatives                              -              -               -              -            587            587
Net exposure                               120,976          52,337          56,809         10,946          26,767        267,835

   (i) Cash and cash equivalents in the above analysis exclude cash on hand and deposits with the Treasury
       Corporation of Victoria for which the credit risk is minimal.

(d) Liquidity risk
Liquidity risk arises from VMIA being unable to meet financial obligations as they fall due.
The VFMC uses a combination of cash and futures portfolios plus a largely liquid portfolio of investments to ensure
sufficient liquidity is available at all times to meet the VMIA’s operating requirements. The VMIA is cash flow positive with
premium and investment revenue receipts exceeding claim and operating cost payments.
The VMIA’s liabilities include certain interest bearing balances being funds, advanced to the VMIA, to fund the payment of
claims the VMIA manages on behalf of the Department of Health/ Department of Human Services and other clients. There
is no contractual maturity date for these liabilities of $38.032 million (2009 - $37.802 million), and therefore no maturity
analysis is provided as they are expected to mature as claims are paid. All other payables are incurred in the ordinary
course of trade and are expected to be settled within 30 days.
The fair value of payables, being amounts advanced by the Department of Health/ Department of Human Services plus
interest credited less claims paid to date, is believed to approximate the fair value. This is because of the relatively short
term nature of the liabilities and the variable rate of interest credited to the balances. There are no special terms or
conditions affecting the nature and timing of the financial instruments not otherwise disclosed in this financial report.




Page 46 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




18. Commitments and Contingencies
(a) Statutory Guarantee
The due satisfaction of amounts payable by the VMIA as a result of, or in connection with, liabilities of the VMIA is
guaranteed by the Government of Victoria. The VMIA’s financial objective is to operate essentially as a stand-alone
entity. To this end the VMIA seeks to hold sufficient capital to maintain an acceptable probability that, with appropriate
reinsurance, it will be able to fund its liabilities as they fall due and not have to rely on its guarantee from the Government
of Victoria. It is not anticipated that the VMIA will call on the Statutory Guarantee other than in exceptional circumstances.

(b) Guarantee fee
Pursuant to Section 27 of the Victorian Managed Insurance Authority Act 1996, the Government of Victoria has
guaranteed amounts payable by the VMIA as a result of, or in connection with liabilities of the VMIA. In accordance
with Section 27(3), the VMIA must, in respect of this guarantee, pay to the Treasurer for payment into the Consolidated
Fund from any surplus for the period ending on the preceding 30 June such amount as the Treasurer determines after
consultation with the VMIA. The VMIA has not received any Treasurer’s determination in relation to the payment of a
guarantee fee for the financial year ended 30 June 2010 (2009: nil).

(c) Capital commitments
VMIA has uncalled capital commitments to some investments totalling $24.2 million (2009-$29.5 million) at balance date.

(d) Operating lease commitments
                                                                                                  2010                    2009
                                                                                                  $’000                   $’000
Commitments in relation to operating leases contracted for at the reporting date but
not recognised as liabilities are:

Not later than one year                                                                           1,784                   1,874
Later than one year but not later than 5 years                                                    2,804                   3,156
Later than 5 years                                                                                    -                       -
                                                                                                  4,588                   5,030

The operating lease contract relate to office premises with lease terms to 30 November 2012 and computer equipment.
The VMIA does not have an option to purchase the leased assets at the expiry of the lease period.

(e) Contingencies
The VMIA has no known contingent assets or liabilities.




                                                                                               VMIA Annual Report 2010 | Page 47
Notes to the Financial
Statements
for the financial year ended 30 June 2010




19. Superannuation
Employees of the VMIA are entitled to receive superannuation benefit and the VMIA contributes to both defined
benefit and defined contribution plans. The defined benefit plans provide benefits based on years of service and final
average salary. The VMIA does not recognise any defined benefit liability in respect of these plans because the entity
has no legal or constructive obligation to pay future benefits relating to its employees. The VMIA’s only obligation is to
pay superannuation contributions as they fall due. The Department of Treasury and Finance recognises and discloses
the State’s defined benefit liabilities in its financial report. However, superannuation contributions paid or payable for the
reporting period are included as part of employee benefits in the VMIA’s Comprehensive Operating Statement.

20. Responsible persons
In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act
1994, the following disclosures are made regarding responsible persons for the reporting period.

(a) Responsible persons
The names of persons who were responsible persons at any time during the reporting period are as follows:

Responsible Minister:               The Hon. T. Holding, MP.

Governing Board:                    R. Ray (Chairman and Director appointed 26 March 2010), B. Benger, J. Fitzpatrick,
                                    I. Gaudion (Deputy Chairman), D. Kearsley, S. Moffatt, A. Nye (retired as Chairman 31 December
                                    2009), H. Pinskier and S. Roberts.

Accountable Officer:                S. Marshall, Chief Executive Officer.




Page 48 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(b) Remuneration of responsible persons
The number of responsible persons (other than the Accountable Officer) are shown below in their relevant income bands:

                                                                        30 June 2010                          30 June 2009
$0 - $10,000                                                                        -                                        1
$10,001 - $20,000                                                                   2                                        1
$30,001 - $40,000                                                                   6                                        5
$40,001 - $50,000                                                                   1                                        -
$70,001 - $80,000                                                                   -                                        1

The Directors’ remuneration shown in the above table is as determined by the Minister for Finance.
The Hon. T. Holding, MP did not receive any remuneration from the VMIA and is not included in the above table.
Total remuneration, including the superannuation guarantee contribution, received or receivable by responsible persons
from the reporting entity amounted to $288,829 (2009 - $253,563).
The remuneration of the Accountable Officer who is not a member of the governing Board is reported under
“Remuneration of executive officers” (Note 20(e)).

(c) Retirement benefits of responsible persons
There were no retirement benefits paid by the reporting entity in connection with retirement of the responsible persons of
the reporting entity.

(d) Other transactions of responsible persons and their related entities
During the reporting period, no responsible person received or became entitled to receive any benefit (other than
remuneration disclosed in the financial report) from a contract between the VMIA and that responsible person or firm or
company of which that responsible person is a member or has a substantial interest.
Any transactions or issues that involve parties listed below are dealt with on normal commercial terms and conditions and
without reference to the Director concerned.
Mr Gaudion is involved in a consultancy with:
  (i) Melbourne Central City Studios of which the VMIA provides Directors and Officers Liability Insurance.
  (ii) Parkville Comprehensive Cancer Centre Ltd of which VMIA provides Directors and Officers Liability Insurance.
  (iii) The Department of Primary Industries. VMIA provides insurance and risk management services to the said
        Department on its normal terms and conditions.
Ms Fitzpatrick is the Chief Executive Officer of the Australian New Zealand Institute of Insurance and Finance (ANZIIF).
The VMIA accesses a number of education and training services, and products offered through ANZIIF for professional
development opportunities for the VMIA staff. Ms Fitzpatrick is also a Director of Create Foundation of which the VMIA
provides insurance, on its normal terms and conditions, under the Community Services Organisation program.




                                                                                           VMIA Annual Report 2010 | Page 49
Notes to the Financial
Statements
for the financial year ended 30 June 2010




Mr Kearsley is involved in a consultancy with the Transport Accident Commission (TAC) and the Victorian WorkCover
Authority (VWA). The VMIA transacts the following:
With the VWA:
  (i) The VMIA pays annual WorkCover premium to the VWA through one of the VWA’s authorised agents.
  (ii) VWA has been gazetted by the Minister for Finance as a Participating Body and insures with the VMIA.
       The VMIA provides such insurance on its normal terms and conditions.
  (iii) The VMIA and VWA may from time to time have conflicting interests in insurance claims matters. Any such
        matters are settled on commercial terms.
With the TAC:
  (iv) The VMIA pays annual Motor Vehicle (Third Party Injury) premium to the TAC.
  (v) The TAC has been gazetted by the Minister for Finance as a Participating Body and insures with the VMIA.
      The VMIA provides such insurance on its normal terms and conditions.
  (vi) The VMIA and the TAC may from time to time have conflicting interests in insurance and claims matters.
       Any such matters are settled on commercial terms.
Ms Moffatt was, until 16 February 2010, an independent member of the Audit Committee of the Fawkner Crematorium
and Memorial Park Trust. The VMIA provides insurance, on its normal terms and conditions, to the Fawkner Crematorium
and Memorial Park Trust under the Community Services Organisation program.
Dr Pinskier is a Director of KarmelSonix Pty Ltd and PulmoSonix Pty Ltd which undertake clinical trials at various state
public hospitals which VMIA provides insurance to. He is also a Director of rivusTV Pty Limited. VMIA has entered into a
contract with rivusTV Pty Limited for the lease of a hardware and software platform. The contract has been negotiated on
normal commercial terms.
Ms Roberts is the President of the Kindergarten Parents’ Association of Victoria (KPV). The VMIA provides insurance, on
its normal terms and conditions, to the KPV under the Community Services Organisation program.
Mr Nye (former Director and Chairman of VMIA who retired on 31 December 2009) was the President of the Metropolitan
Fire and Emergency Services Board (MFB) until 22 March 2010. The VMIA pays an annual Fire Services Levy to the MFB
and the VMIA provides insurance, on its normal terms and conditions, to the MFB.
Mr Nye was also a Director of the Adult, Community and Further Education (ACFE) Board until 13 May 2010. The VMIA
provides insurance, on its normal terms and conditions, to ACFE. Mr Nye also provided private consulting services, on
normal commercial terms, from time to time to a number of organisations that are bodies insured by or receiving risk
management services from the VMIA.




Page 50 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




(e) Remuneration of executive officers
The number of officers with executive responsibility and their total remuneration paid and payable during the reporting
period is shown in the first two columns in the table below in the relevant income bands. Base remuneration is shown in
the third and fourth columns and is exclusive of bonus payments, long-service leave payments, redundancy payments and
retirement benefits.
                                                            Total Remuneration                        Base Remuneration
Income Band                                         2010                 2009                 2010                2009
$120,000 - $129,999                                     -                    -                    -                       1
$140,000 - $149,999                                     -                    1                    -                       -
$150,000 - $159,999                                     -                    -                    1                       1
$160,000 - $169,999                                    1                     -                    1                       -
$170,000 - $179,999                                    1                     1                    -                       1
$180,000 - $189,999                                     -                    -                    1                       1
$190,000 - $199,999                                     -                   2                     -                       -
$200,000 - $209,999                                    1                     -                    -                       -
$210,000 - $219,999                                     -                   1                     2                       2
$230,000 - $239,999                                    1                    1                     2                       1
$250,000 - $259,999                                    1                     -                    -                       -
$260,000 - $269,999                                    1                     -                    -                       -
$270,000 - $279,999                                    1                    1                     -                       -
$310,000 - $319,999                                     -                    -                    -                       1
$340,000 - $349,999                                     -                    -                    1                       -
$380,000 - $389,999                                     -                   1                     -                       -
$400,000 - $409,999                                    1                     -                    -                       -
Total number                                           8                     8                    8                       8
Total amount                                  $1,988,004           $1,819,059            $1,748,162           $1,609,099




                                                                                         VMIA Annual Report 2010 | Page 51
Notes to the Financial
Statements
for the financial year ended 30 June 2010




21. Auditor remuneration

                                                                                           2010                    2009
                                                                                              $                       $
Audit of VMIA’s financial report                                                         124,372                118,450

The remuneration paid or payable to the Victorian Auditor-General’s Office for auditing the VMIA financial report was
$124,372 (2009 - $118,450). No remuneration was paid to the Victorian Auditor-General’s Office for any other services.

22. Notes to the Cash Flow Statement
                                                                                            2010                  2009
                                                                                            $’000                 $’000


(a) Reconciliation of cash and cash equivalents:
Cash on hand                                                                                    1                        1
Cash at bank                                                                              48,108                 12,915
Investments in short-term money market                                                   109,099                118,762
Cash and cash equivalents                                                                 157,208               131,678

(b) Reconciliation of comprehensive result to net cash from operating activities:
Net comprehensive result from ordinary activities                                         51,801              (283,312)
Loss on disposal of plant and equipment                                                       34                     43
Depreciation                                                                                1,115                   849
Loss/(gain) on disposal of investments                                                   (31,724)                47,530
Investment revenue - change in net market values                                          12,222                154,917
Interest applied to client escrow accounts                                                (2,692)                        -
Change in provisions for employee entitlements                                               354                    407
Changes in operating assets and liabilities:
(Increase)/decrease in receivables                                                       (68,869)             (338,018)
Increase in deferred acquisition costs                                                      (292)                        -
Decrease/(increase) in prepayments                                                          1,026                 (365)
Increase in payables                                                                      19,669                 15,928
Increase in outstanding claims                                                             27,179               408,517
Increase/(decrease) in unexpired risk liability                                          (11,883)                 4,837
Increase/(decrease) in unearned premiums                                                   89,773                85,702
Net cash provided by operating activities                                                  87,713                97,035




Page 52 | VMIA Annual Report 2010
Notes to the Financial
Statements
for the financial year ended 30 June 2010




23. Asbestos Funding Agreement
The VMIA has entered into an agreement with the Department of Treasury and Finance (DTF) for funding of certain
asbestosis and other claims payable to potential claimants under the Diseases Compensation Act 2008, from 1 July
2008. The Act allows provisional damages to be awarded for asbestos related conditions by enabling individuals to pursue
their initial claims for an asbestos-related condition as well as further claims if they develop a subsequent asbestos-
related condition.
Under the Deed of Agreement signed by VMIA on 23 June 2009, DTF will reimburse VMIA in full for any claims payable
under the agreement. As such, any liabilities related to potential damages payable under the Diseases Compensation Act
2008 will be recognised by DTF.




                                                                                         VMIA Annual Report 2010 | Page 53
VMIA Financial Report
for the financial year ended 30 June 2010




Accountable officer’s and chief finance and accounting officer’s declaration
We certify that the attached financial report for the Victorian Managed Insurance Authority has been prepared in
accordance with Standing Direction 4.2 of the Financial Management Act 1994, applicable Financial Reporting Directions,
Australian Accounting Standards including interpretations and other mandatory professional reporting requirements.
We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Balance Sheet,
Statement of Changes in Equity, Cash Flow Statement and notes to and forming part of the financial statements, presents
fairly the financial transactions during the year ended 30 June 2010 and the financial position of the Victorian Managed
Insurance Authority at 30 June 2010.
We are not aware of any circumstances that would render any particulars included in the financial statements to be
misleading or inaccurate.
We authorise the attached financial report for issue on 26 August 2010.




Robert Ray
Chairman




Steve Marshall                                                        Tony Dudley
Chief Executive Officer                                               Chief Financial Officer




MELBOURNE
26 August 2010




Page 54 | VMIA Annual Report 2010
VMIA Annual Report 2010 | Page 55
Page 56 | VMIA Annual Report 2010
General information


1. Five year financial summary
                                             2009/2010           2008/2009           2007/2008          2006/2007             2005/2006
                                                  $’000              $’000               $’000              $’000                 $’000
Total income1                                   265,209             252,761              70,615            315,370                265,725
less reinsurance, claims, risk
management and operating expenses               213,408             536,073             214,582             201,735              220,821
Operating surplus/(deficit)                       51,801          (283,312)           (143,967)            113,635                 44,904
Net Cash Flow from operating
activities                                        87,713             97,035             131,388            171,117               143,333
Total Assets                                  1,536,122           1,342,629           1,110,550           1,175,280              902,914
Total Liabilities                             1,581,949           1,456,857             941,466            862,229               703,498
Net Assets at end of year                       (45,827)          (114,228)             169,084            313,051               199,416

1. Total income is detailed in Note 3 to the financial statements. These figures are subject to fluctuation in value year on year, as
they include reinsurance recoveries and investment income. The low total income in the 2007/2008 financial year was the result
of investment losses.

2. Current year financial review
After reporting an operating deficit in the preceding two years, the VMIA recorded an operating surplus of $51.801 million
for the 2009/10 financial year, more than $3 million above the budget of $48.616 million.
The key drivers of this positive operating performance were:
•	 An increase in net insurance premium revenue as a result of new clients and premium increases driven by increased
   asset values under the Contract Works insurance program.
•	 A positive contribution from investments, returning 9.87% for 2009/10 as financial markets recovered from the global
   financial crisis.
•	 Savings in general and administration expenditure as a result of decreased administration and professional services
   expenditure compared with budget, and rationalisation of several corporate plan initiatives.
•	 Net insurance claims were above budget as a result of (i) losses suffered during the March hail storm, (ii) an increased
   Medical Indemnity insurance portfolio and (iii) reduction in the discount rates used in valuing the VMIA’s insurance
   liabilities, which contributed to a further liabilities increase across all programs.
At balance date, Total Assets grew in line with 2010/11 premiums invoicing, as well as investment gains for 2009/10.
Total Liabilities also increased at 30 June 2010, compared with the previous year as a result of 2009/10 increases in
outstanding insurance claims’ liabilities and 2010/11 premiums, recognised as unearned revenue in the Balance Sheet.




                                                                                                      VMIA Annual Report 2010 | Page 57
General information


3. Summary of Significant Changes in Operating Result
The VMIA posted an operating surplus of $51.801 million for the financial year ended 30 June 2010, compared with the
previous year’s operating deficit of $283.312 million. The movements contributing to the changes in the operating result
from the previous year included:
•	 A substantial reduction in expenditure compared with the 2008/09 result, which was affected by the abnormally large
   bushfire-related claims provision. The 2009/10 expenditure was driven predominantly by the net claims, which were
   higher than budget across two of the three key insurance programs. Other expense increases resulted mainly from:

  - Reinsurance and underwriting expenses, in line with reinsurance premium increases for catastrophe
    and other major insurance classes.
  - Higher investment fees resulting from the increase in investment funds under management.
•	 Total Income increased marginally compared with 2008/09. The substantial improvement in investment performance
   and increase in insurance premiums were offset by the reduction in reinsurance and other recoveries associated with
   2008/09 bushfire-related losses. The VMIA’s investments achieved a 9.87% return for 2009/10 (investment gain of
   $101.202 million) compared with a negative return of 12.41% for 2008/09 (investment loss of $140.644 million).

4. Summary of Significant Changes in Financial Position
The Total Assets and Total Liabilities have increased compared with the previous financial year by $193.493 million and
$125.092 million respectively.
The increase in Total Assets was driven by:
•	 2010/11 insurance premium cycle with a large majority of premiums for 2010/11 issued prior to the 30 June 2010.
   The invoiced premiums have been recognised as receivable at balance date.
•	 Solid investment gains for 2009/10, with an investment portfolio (after fees) return of $101.202 million.

The increase in Total Liabilities was driven by:
•	 Corresponding adjustments for the 2010/11 insurance premium, with this premium recognised as unearned premium
   liability at 30 June 2010.
•	 The increase in the outstanding claims liability mainly due to the expected growth of the Medical Indemnity
   liability portfolio.

Net assets increased by $68.401 million to a deficit of $45.827 million compared with a deficit of $114.228 million at the
end of 2008/09. The improvement was due to an Operating surplus for 2009/10 as well as State Government capital
contribution of $16.600 million to support the capital required for the growing Medical Indemnity liabilities portfolio.




Page 58 | VMIA Annual Report 2010
General information


5. Cash Flows
The overcall cash balance of $157.208 million for the 2010 financial year was a net increase of $25.530 million compared
to the previous financial year, driven by positive cash flows from operating and financing activities, and somewhat offset by
investing outflows:
•	 The net cash inflow from operating activities was $87.713 million, a 9.6% reduction on the previous year’s position.
   The operating net cash was positively impacted by increased investment distributions and interest as well as premium
   collections compared to the prior financial year. However, these operating inflows were insufficient to offset the higher
   net claim payments and increased current year expenditure in underwriting and on-costs as well as other payments.
•	 The net cash outflow from investing activities was $78.783 million, 35.1% higher than in the prior year. The major
   contributing factor to this variance was the increase in net investment purchases in line with the growth in premium
   revenue. Further, the quantum of investment purchases and sales has tripled compared to the previous financial year.
   The increase in the volume of investing activities was a direct result of investment managers’ rationalisation and
   increased trading activities following the recovery in the global investment markets.
•	 The net cash inflow from financing activities has increased by $16.600 million compared with nil inflow for 2009/10.
   The $16.600 million was a State Government capital contribution to support the Medical Indemnity capital requirements.

6. Operational and Budgetary Objectives and Performance against those Objectives
The VMIA budget forecast for 2009/10 was an operating surplus of $48.616 million. The actual operating surplus of
$51.801 million was a positive variance to budget of $3.185 million. The positive performance against the budget can be
attributed to the following factors:
•	 Higher than budgeted net premium revenue mainly due to premiums from new clients and premium increases driven by
   the increased asset values under the Contract Works insurance program.
•	 Better than budgeted investment performance, with investments outperforming the budget by $3.289 million.
•	 Better than budgeted movement in unexpired risk expense.
•	 Savings in general and administration expenses generated across multiple expenditure lines, with key positive variances
   in administration expenses, information and communications technology and professional services expenditure.
•	 Rationalisation and consolidation of several large corporate plan initiatives.
The underperformance compared with budget was in the area of reinsurance and underwriting, due largely to
(i) increase in reinsurance costs across catastrophe and major insurance classes, (ii) insurance claims provision increases
in two insurance programs due to higher than budgeted claims experience and adverse movements in discount rates used
in valuation of insurance liabilities.

7. Major Changes or Factors Affecting the Achievement of Operational Objectives
There were no major changes or factors affecting the achievement of key operational objectives or the budget for the
financial year.

8. Subsequent Events
No events have occurred subsequent to 30 June 2010 that would require adjustments to, or disclosure in, the financial
report other than those disclosed in the financial report.




                                                                                            VMIA Annual Report 2010 | Page 59
General information


9. Performance from Insurance Operations
Performance from Insurance Operations (PFIO) is a measure of the underlying strength of the VMIA’s internal operations.
The 2010 PFIO result was $62.6 million. This was calculated after removing the effects of external factors such as
investment returns above budget, the impact of unbudgeted major claims and related premium revenue, and changes in
inflation and discount rates.

Performance from Insurance Operations as at 30 June 2010                                                          Actual
                                                                                                                  $000’s
Impact on result from internal factors                                                                            62,632
Impacts on result from external factors:
- Difference between actual and long-term expected investment returns                                                3,289
- Impact of unbudgeted major claims and premiums                                                                  16,780
- Change in inflation and discount rates assumptions                                                            (30,900)
                                                                                                                (10,831)
Operating surplus/(deficit)                                                                                       51,801

10. Financial and non-financial KPIs
Pursuant to the Department of Treasury and Finance Corporate planning and performance reporting requirements for
Government Business Enterprises, VMIA provides the following historical summary of its Key Performance Indicators.

Key Performance Indicator                                        2009/10     2008/09    2007/08    2006/07      2005/06
                                                                   Result      Result     Result     Result       Result
Financial KPIs
Return on Assets %                                                   3.6%     (23.1%)   (12.6%)      10.9%           5.7%
Return on Equity %                                                (64.8%)    (515.1%)   (59.8%)      44.4%        26.2%
Performance from insurance operations (PFIO)
  Actual $M                                                          62.6        25.9      32.6       40.2           (20.4)
  Budget $M                                                          48.6        24.6       27.2      34.7            36.5
Funding Ratio (%) (Capital Structure Ratio)                        96.0%       89.0%    118.0%     142.0%        131.0%
Salaries as percentage of profit (%)1                              24.3%       54.4%      39.0%      19.9%            N/A
Revenue per employee ($’M)                                           0.54        0.23      0.31       0.44            N/A
Return on Investment Portfolios - (before fees, %)                 10.4%      (12.2%)     (7.2%)     13.7%        14.9%
Return on Investment Portfolios - (after fees, %)                    9.9%     (12.4%)     (7.4%)     13.4%        14.6%
Non-Financial KPIs
Client Satisfaction (%)                                            92.0%       92.0%      92.0%      91.0%            N/A
Staff Engagement (%)                                               71.0%       66.0%      66.0%      61.0%            N/A
Number of Complaints                                                    73        26        157        N/A            N/A
Staff Turnover (%)                                                 12.5%       12.0%       9.0%        N/A            N/A
Timeliness of Service                                                N/A         N/A        N/A        N/A            N/A
Number of staff                                                       117        113        106         92              74
Salaries ($’M)                                                       15.2        14.1      12.7         8.0            5.4

1. Salaries as percentage of profit ratio is calculated based on the PFIO.




Page 60 | VMIA Annual Report 2010
General information


11. Governance and organisational structure
Structural changes to the VMIA
2009-10 outputs                                                          Reason for change
The VMIA has put interim arrangements in place to ensure                 In April 2010 the the State Government assigned responsibility
continuity of service for the provision of Domestic Building Insurance   for the VMIA to provide Domestic Building Insurance to
to builders.                                                             Victorian builders.



                                                   Minister responsible for the VMIA
                                                          Hon. Tim Holding, MP


                                                                VMIA Board
 Robert Ray (Chairman)               Ian Gaudion                         Suzanne Roberts                  Joan Fitzpatrick

 Doug Kearsley                       Susan Moffatt                       Henry Pinskier                   Brian Benger


                                                          Chief Executive Officer
                                                              Steve Marshall


                                                              Executive Team
 Jeff Floyd General Manager Strategy and Risk                            Peter Ryan Chief Executive Officer Domestic Building Insurance /
                                                                         Chief General Manager Claims

 Claudio Battilana Chief Operating Officer                               Dana Argyropoulos Corporate Secretary

 Lori Shore Executive Manager Human Resources                            Tony Dudley Chief Financial Officer




12. Corporate governance
Board of Directors
The Board is responsible for the management of the affairs of the VMIA and for exercising the powers conferred on
the VMIA under its legislation, including the power of delegation. The powers and general functions are detailed in
the Victorian Managed Insurance Authority Act 1996. The Directors are appointed by the Governor in Council on the
recommendation of the Minister for Finance. The Minister for Finance determines the terms and conditions applying to the
appointment of a Director. An employee of the VMIA is not eligible to be a Director.

13. Measuring the Board’s performance
Performance evaluations covering the Board and each Board Committee are conducted on a regular basis to identify
potential areas for improvements.

14. Board Committees
The Board has four committees: Audit and Risk Committee, Strategy Committee, Remuneration Committee and the
Capability Committee. Each committee has a charter which sets out its roles and responsibilities. Each charter is reviewed
annually by the Board.



                                                                                                        VMIA Annual Report 2010 | Page 61
General information


Audit and Risk Committee
Members: Ian Gaudion (Chairman), Robert Ray, Doug Kearsley, Susan Moffatt and Brian Benger.
The VMIA conducts regular risk management reviews of its own operations and activities to ensure it identifies and
addresses strategic and operational risk exposure.
This Committee assists the Board with effective and efficient external and internal audit and accounting as well as
budgeting, reserving and financial reporting practices. It is also involved with investment management and performance
issues, enterprise risk management practices (including business continuity planning for the VMIA’s own operations) and
compliance with laws and regulations.
Under 2.2(f) of the Standing Directions of the Minister for Finance issues under the Financial Management Act 1994, at
least two members of an Audit Committee must be independent. Members of the Committee meet this requirement.

Remuneration Committee
Members: Robert Ray (Chairman), Joan Fitzpatrick and Suzanne Roberts.
This Committee assists the Board with developing the remuneration, employment and other human resources policies
and practices required to attract and retain high performance staff. It is also involved in sustaining a high performance
business culture.

Strategy Committee
Members: Henry Pinskier (Chairman), Robert Ray, Brian Benger, Ian Gaudion, Joan Fitzpatrick, Doug Kearsley, Susan
Moffatt and Suzanne Roberts.
This Committee assists the Board with developing strategic plans and monitoring performance against the VMIA’s
Corporate Plan and Business Plan.

Capability Committee
Members: Joan Fitzpatrick (Chairman), Robert Ray, Henry Pinskier and Suzanne Roberts.
This Committee assists the Board with fulfilling its responsibilities to monitor the internal capabilities required to deliver
strategic plans as well as the Corporate Plan and Business Plan.

15. Minister responsible for the VMIA
The Hon. Tim Holding MP was appointed as the Minister for Finance, WorkCover and the Transport Accident Commission
in December 2006. He is also Minister for Water and Minister for Tourism and Major Events.




Page 62 | VMIA Annual Report 2010
General information


The Minister for Finance, WorkCover and the Transport Accident Commission is responsible for:
•	 Managing more than $126 billion in net assets and total revenues of more than $46 billion (as per the 2010-11
   Budget), covering more than 550 financial consolidated reporting entities.
•	 The State’s financial reporting and accountability framework.
•	 Facilitating reuse or disposal of Victorian Government land and property.
•	 Purchasing and procurement arrangements for the Victorian Government.
•	 Overseeing insurance and superannuation policy for the State.
•	 Managing the government’s motor vehicle fleet.

16. The VMIA Board
Robert Ray, Chairman
Robert Ray was appointed in 2010. He is the VMIA Chairman and is a member of the Strategy Committee, the Audit and
Risk Committee and the Capability Committee.
Ian Gaudion, Director
Ian Gaudion was appointed in 2006. He is the VMIA Deputy Chairman and is Chairman of the Audit and Risk Committee.
He is also a member of the Strategy Committee.
Suzanne Roberts, Director
Suzanne Roberts was appointed in 2004. She is a member of the Strategy Committee, the Remuneration Committee and
the Capability Committee.
Doug Kearsley, Director
Doug Kearsley was appointed in 2008. He is a member of the Audit and Risk Committee and the Strategy Committee.
Joan Fitzpatrick, Director
Joan Fitzpatrick was appointed in 2005. She is Chairman of the Capability Committee and is also a member of the
Strategy Committee and the Remuneration Committee.
Susan Moffatt, Director
Susan Moffatt was appointed in 2006. She is a member of the Audit and Risk Committee and the Strategy Committee.
Henry Pinskier, Director
Henry Pinskier was appointed in 2005. He is Chairman of the Strategy Committee and is a member of the
Capability Committee.
Brian Benger, Director
Brian Benger was appointed in 2008. He is a member of the Strategy Committee and a member of the Audit and
Risk Committee.




                                                                                         VMIA Annual Report 2010 | Page 63
General information


17. VMIA Executive team
Steve Marshall Chief Executive Officer
Steve has been the CEO of the VMIA for almost four years. He has a strong insurance background, with over 20 years in
senior roles in both the public and private sectors.
Claudio Battilana Chief Operating Officer
Claudio joined the VMIA in 2008. He has broad experience in the insurance and reinsurance sectors, including corporate
insurance, underwriting, claims and legal.
Peter Ryan Chief Executive Officer Domestic Building Insurance/Chief General Manager Claims
Peter joined the VMIA in 2007. He is a qualified lawyer and has worked as both a solicitor and barrister. He is also an
experienced commercial manager, having spent more than 20 years in claims management and dispute resolution in both
the private and public sectors.
Jeff Floyd General Manager Strategy and Risk
Jeff joined the VMIA in 2009 after an extensive career in both the public and private sectors. His CEO roles include
Tourism Victoria, Parks Victoria and in the private sector.
Lori Shore Executive Manager Human Resources
Lori has been with the VMIA for more than three years. She has over 15 years experience in strategic and operational
human resources and organisational development as both a manager and a consultant.
Tony Dudley Chief Financial Officer
Tony has been with the VMIA for more than three years. He has a strong background in the financial services sector,
having held senior roles with the Health Insurance Commission and Medibank Private.
Dana Argyropoulos Corporate Secretary
Dana has been with the VMIA for almost four years. She has an extensive career in corporate secretariat positions,
primarily within the banking and financial services sector.

18. Occupational Health and Safety
The VMIA has established an Occupational Health and Safety (OH&S) Committee which is chaired by the Executive
Manager Human Resources. The Committee has developed a strategy which aims to ensure all staff remain safe and
healthy at work. During the year, there were 2 WorkCover claims, 10 incident reports and 1 hazard report.

19. Employment and conduct principles
The VMIA is committed to applying merit and equity principles when appointing staff. The selection processes ensure
that applicants are assessed and evaluated fairly and equitably on the basis of the key selection criteria and other
accountabilities without discrimination.

20. Additional Information available on request
To the extent applicable, the information required under Financial Reporting Direction 22B issued by the Minister for
Finance under the Section 8 of the Financial Management Act 1994 has been prepared and is available on request to the
relevant Minister.




Page 64 | VMIA Annual Report 2010
General information


21. Workforce data (Full Time Equivalent employees)
                                                           2009/2010                                                 2008/2009
VMIA                                                               117                                                     113
Average age                                                         44                                                       43

22. Merit and equity policy
The VMIA has documented human resources policies including employment policies, principles and a code of conduct
in accordance with the Public Administration Act 2004 and federal and state legislation which prohibits discrimination,
victimisation and harassment. The VMIA’s human resources policies are reviewed annually to ensure that they reflect
current legislative requirements and workplace practices.

23. Consultancies
The following table lists the consultants engaged in 2009/10, where the cost of the engagement was $100,000 or above.

Consultant           Purpose of           Start Date           End Date             Total Approved fee    Expenditure 2009-10
                     consultancy                                                    (excl GST)            (excl GST)
Aspex Consulting     Clinical Risk Data   20 August 2009       30 March 2011        $117,668              $117,668
Pty Limited          Analysis Project

In addition, in 2009/10, the total for the one consultancy engaged during the year, where the total fees payable to the
consultant was less than $100,000, was $8,000 (excl GST).

24. Disclosure of major contracts
In 2009/10, the VMIA entered into an agreement with QBE Insurance (Australia) Limited, (QBE), under which the VMIA
will provide domestic building insurance to builders and owner builders in Victoria. The agreement follows the decision by
the Victorian Government in March 2010 to transition builders to a State underwritten domestic building insurance scheme,
to be administered by the VMIA. While the value of the QBE contract is under $10 million for 2009/10, it is expected that
for 2010/11, the contract will be valued at over $10 million.
Contractual details have not been disclosed for those contracts for which disclosure is exempted under the Freedom of
Information Act 1982 and/or Government guidelines.

25. Freedom of Information access
Victoria’s Freedom of Information Act 1982 gives members of the public the right to apply for access to information held
by Ministers, State Government departments, local councils, public hospitals, most government agencies and statutory
authorities. For the period 1 July 2009 to June 30 2010, the VMIA received 12 FOI requests. Of these requests three
were granted in full, one was granted partial access, five were for documents that were not in existence and three
applications not yet finalised.

Making a request
People may apply for access to:
•	 Documents relating to their own personal records.
•	 Information relating to the activities of Government (providing it is not exempt material and not older than 5 July 1978).




                                                                                               VMIA Annual Report 2010 | Page 65
General information


A request can be made in writing with an application fee, which is non-refundable. The application fee from 1 July 2009 is
$23.40. The only exception to this is that people suffering hardship can request the application fee to be waived. Fees and
charges are levied in accordance with the Act.
The request should be addressed to:
The FOI Officer
Victorian Managed Insurance Authority
PO Box 18409
Collins Street East
Melbourne Victoria 8003
Telephone enquiries can be made on (03) 9270 6912.

26. Compliance with the Victorian Industry Participation Policy Act 2003
The Victorian Industry Participation Policy aims to boost employment and business growth in Victoria and applies to all
government procurements and projects where the value exceeds $3 million in metropolitan Melbourne or $1 million in
regional Victoria. In the reporting period, the VMIA did not have any procurements or projects that exceeded these amounts.

27. Compliance with the Building Act 1993
The VMIA’s policy with respect to new building works, and the alteration of existing buildings, is to comply with the Building
Act 1993 as if the VMIA is not exempt from compliance as a public authority (as provided in Section 217(3) of the
Building Act 1993). The VMIA is unaware of any material non-compliance with the current building standards for buildings
of their nature and age.

28. Compliance with the Whistleblowers Protection Act 2001
The VMIA is committed to the objectives of the Whistleblowers Protection Act 2001. The VMIA does not tolerate its staff engaging
in improper conduct or taking detrimental action, or taking reprisals against those who come forward to disclose such conduct.
The VMIA has established procedures to facilitate disclosures of improper conduct or detrimental action by the VMIA or
its staff to the Protected Disclosure Coordinator within the VMIA. The Protected Disclosure Coordinator will determine
whether it is a public interest disclosure and will be responsible for appointing an investigator, and coordinating and
overseeing the investigation.
The Coordinator is also responsible for appointing a welfare manager to support the whistleblower and provide protection
from any reprisals, maintaining a confidential filing system and collating and publishing statistics on disclosure rules.

29. Reporting procedures
During 2009/10 there were no disclosures or investigations of improper conduct or detrimental action made by staff to
the VMIA or any referred by the Ombudsman or other person to the VMIA.
The VMIA regularly reminds its staff of the legislation and procedures. A copy of the procedures can be obtained by calling
the Protected Disclosure Coordinator, Peter Heard, on (03) 9270 6912. Alternatively, disclosures of improper conduct or
detrimental action by the VMIA or its staff may also be made directly to the Ombudsman.
The Ombudsman of Victoria
Level 9, 459 Collins Street (North Tower)
Melbourne Victoria 3000
Telephone: (03) 9613 6222
Internet: www.ombudsman.vic.gov.au
Email: ombudvic@ombudsman.vic.gov.au
Further information can be obtained from the VMIA website (www.vmia.vic.gov.au).



Page 66 | VMIA Annual Report 2010
General information


30. Office based environmental impacts
The VMIA has a commitment to actively reduce its environmental impact through an environmental management strategy,
environmental policy and the setting of key objectives to achieve its goals.

The objectives of the strategy include:
•	 Reducing the amount of waste, and maximising the amount reused and recycled.
•	 Separating office waste into general and co-mingled recyclable waste.
•	 Purchasing 25% green power.
•	 Adoption of ISO 14001 Environmental Management System (EMS) guidelines in the development of the
   environmental policy.
•	 Address Victorian Government mandated targets.
•	 Communicating environmental performance through regular reporting.
•	 Encouraging staff to reduce environmental impacts.

In 2009/10 the VMIA reduced its carbon footprint by 37% by implementing a number of environmental
initiatives, including:
•	 Purchasing of 25% green power.
•	 Raising awareness of double-sided photocopying benefits.
•	 Establishing duplex coping as a default on selected printers.
•	 Purchasing 100% recycled white copy paper.
•	 Subscribing to Greenfleet carbon offsets.
•	 Reducing air travel by 44%, resulting in consequential reduction in GHG emissions.
•	 Facilitating recycling waste from the building, with tenants now separating waste into recyclable and general waste.
•	 Installing water saving initiatives including flow minimisers and water efficient urinals in office bathrooms and kitchens.
31. Directions of the Minister for Finance
Government Rail Insurance Program (GRIP)
Direction made under section 25A of the Victorian Managed Insurance Authority Act 1996. I hereby direct the Victorian
Managed Insurance Authority (VMIA) to provide insurance to:
  (a) GRIP entities including, though not limited to, those listed in Schedule 1, but excluding Heritage and Tourist Rail
      Operators and Accredited Rail Operators – for public and products liability, industrial special risks and
      construction risks.
  (b) Heritage and Tourist Rail Operators and Accredited Rail Operators including, though not limited to, those listed
      in Schedule 2 – for public and products liabilities in excess of $10 million up to $250 million.
  (c) GRIP entities listed in Schedule 3, in the event of a declared terrorist incident, as defined in section 6 of the
      Terrorism Insurance Act 2003 (Cth).
On or about the date of this Direction the Treasurer provided an indemnity to the VMIA for the full costs of administering
the insurance for terrorism risks provided in accordance with this Direction. This indemnification is to be provided in
accordance with the separate Deed of Indemnity provided by the Treasurer. The VMIA is to determine the premiums
payable by the entities for their insurance and any other terms and conditions. This Direction is effective from 4.00pm EST
on 30 June 2009 to 4.00pm EST on 30 June 2014.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.




                                                                                               VMIA Annual Report 2010 | Page 67
General information


Australian Grand Prix Corporation
Pursuant to section 25A of the Victorian Managed Insurance Authority Act (1996), I direct the Victorian Managed
Insurance Authority (VMIA) to provide insurance cover as required to those entities that the Australian Grand Prix
Corporation is contractually obliged or has provided an undertaking to insure in respect to Motorcycle Grands Prix and
Formula One Grands Prix. This direction is effective from 4.00 pm EST 1 September 2009 to 4.00 pm EST
1 September 2012.
JOHN LENDERS MP Acting Minister for Finance, WorkCover and the Transport Accident Commission.

Insurance for the members of the Victorian Bushfire Appeal Fund Advisory panel
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I, Tim Holding MP, direct the Victorian
Managed Insurance Authority (VMIA) to provide insurance to the following members of the Victorian Bushfire Appeal Fund
Advisory Panel (the Panel members):
Mr John Landy AC MBE (Chair);
Professor Glyn Davis AC;
The Hon. Pat McNamara;
Cr Lyn Gunter;
The Hon. Robert Tickner; and
Ms Christine Nixon APM.
This direction is effective from 8 February 2009 until 30 June 2010 (both dates inclusive), with the VMIA to determine
the premiums payable by the Panel members, as well as any policy terms and conditions as it sees fit. Insurance is to be
applied retrospectively from 8 February 2009 when the Panel members were appointed.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Heide Museum Of Modern Art
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide insurance to the Heide Museum of Modern Art.
This direction is effective for five years, from 1 July 2009 to 30 June 2014 (both dates inclusive), with the VMIA
to determine the premium payable by the Heide Museum of Modern Art. All other existing terms and conditions
should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Public Transport Industry Ombudsman
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide insurance to the Public Transport Industry Ombudsman. This direction is effective for five years,
from 1 July 2009 to 30 June 2014 (both dates inclusive), with the VMIA to determine the premium payable by the Public
Transport Industry Ombudsman. All other existing terms and conditions should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Public Healthcare Program
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide insurance to the Public Healthcare Program.
This direction is effective for one year, from 1 July 2009 to 30 June 2010 (both dates inclusive), with the VMIA to
determine the premium payable by the Public Healthcare Program. All other existing terms and conditions should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.


Page 68 | VMIA Annual Report 2010
General information


Victoria’s Special Trade Envoys
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide insurance to Victoria’s Special Trade Envoys. This direction is effective from 1 July 2009 to 30
June 2010 (both dates inclusive).
The type of insurance to be provided should be determined through discussions between the VMIA and the Department
of Innovation, Industry and Regional Development. The VMIA should determine the premium payable for this insurance. All
other existing terms and conditions should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

The Emergency Resource Providers Support Scheme
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide insurance to the Emergency Resource Providers Support Scheme (EmRePSS). This direction is
effective from 1 July 2009 to 30 June 2014 (both dates inclusive). The VMIA should determine the premium payable for
this insurance. All other existing terms and conditions should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Insurance For Ms Johanna Barker,
The Independent Chairperson Of The Royal Melbourne Showgrounds Joint Venture
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide Directors’ and Officers’ insurance to Ms Johanna Barker, the independent Chairperson of the
Royal Melbourne Showgrounds Joint Venture (UJV).This direction is effective for three years, from 1 July 2009 to 30
June 2012 (both dates inclusive), with the VMIA to determine the premium payable by UJV. All other existing terms and
conditions should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Australian Synchrotron Project
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide insurance to Australian Synchrotron Holding Company Pty Ltd (ASHCo), and Australian
Synchrotron Company Limited (ASCo). This direction is effective from 1 July 2009 to 30 June 2014 (both dates inclusive).
The type of insurance to be provided should be determined through discussions between the VMIA and the Department
of Innovation, Industry and Regional Development. The VMIA should determine the premium payable for this insurance. All
other existing terms and conditions should continue.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Alliance Professional Indemnity Insurance
Pursuant to Section 25A of the Victorian Managed Insurance Authority Act 1996, I direct the Victorian Managed Insurance
Authority (VMIA) to provide professional indemnity insurance to bodies within a project alliance where those bodies can
demonstrate the following:
  (a) That they have failed to obtain an appropriate level of insurance from a provider, other than from the Victorian
      Managed Insurance Authority, for the duration of the project, or the duration of the project alliance or any related
      period thereafter.
  (b) Having failed to obtain appropriate project alliance insurance from an alternative provider, a representative of the
      project alliance has sought such cover from the Victorian Managed Insurance Authority.
  (c) The steps taken to obtain comparable cover from alternative providers upon request by the Victorian Managed
      Insurance Authority or the Department of Treasury and Finance.


                                                                                            VMIA Annual Report 2010 | Page 69
General information


The Victorian Managed Insurance Authority shall charge such bodies a commercial premium for the insurance provided in
accordance with this Direction. The Victorian Managed Insurance Authority shall provide the insurance on its usual terms,
conditions and exclusions, subject to any deductibles, amendments or variations the Victorian Managed Insurance Authority
agrees or deems necessary. For the purposes of this Direction, a project alliance refers to a commercial/legal framework
between a department, agency, Government-backed-enterprise or other Government-funded body, as owner-participant,
and one or more private sector parties, for the purpose of delivering a capital works project where the project alliance has
the following characteristics: agrees to a collective sharing of project risks; no fault, no blame, no dispute arrangements;
three-limb compensation model; unanimous principle based decision-making on all key project issues; and uses an
integrated project team. This direction is effective from 1 July 2009 to 30 June 2010 inclusive.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Indemnity to Homeowners with Builders Warranty Cover issued by Homesafe Equities Pty Ltd
I, Tim Holding, Minister for Finance, Workcover and the Transport Accident Commission, in accordance with section
25A(1)(b) of the Victorian Managed Insurance Authority Act 1996 and all other powers vested in me thereunder, hereby
direct the Victorian Managed Insurance Authority (VMIA) to establish, operate and administer, in accordance with this
instrument, a scheme to issue indemnities to homeowners whose homes are covered by builders warranty bonds issued
by Homesafe Equities Pty Ltd (‘Homesafe’) between 1 July 2003 and 26 April 2004 (‘the Homesafe bondholders’) to the
extent of the indemnity provided to each homeowner by Homesafe under the Homesafe bondholder’s builders’ warranty
bond. The Authority shall indemnify the Homesafe bondholders subject to the following conditions:
  (a) The Authority shall not charge any premium or other fee to the Homesafe bondholders for the provision of an
      indemnity by the Authority.
  (b) The Homesafe bondholders shall assign to the Authority all rights of recovery against Homesafe under the
      builders warranty cover issued by Homesafe.
The Authority shall provide indemnities to the Homesafe bondholders in accordance with this direction. The power of
the Authority to provide such indemnities expires on 30 June 2011. The Treasurer indemnified the Authority on 29
November 2005 for the full costs (including the Authority’s reasonable administration costs) of providing an indemnity to
Homesafe bondholders.
Dated 30 September 2008.
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

Domestic Building Insurance
Pursuant to section 25A of the Victorian Managed Insurance Authority Act 1996, I hereby direct the Victorian Managed
Insurance Authority to provide domestic building insurance to domestic builders as well as people to whom section 137B
of the Building Act 1993 applies, where such domestic builders or persons can demonstrate the following to the Victorian
Managed Insurance Authority’s satisfaction:
  (a) That the domestic building insurance required is of the type specified by the Domestic Building Insurance
      Ministerial Order published in the Government Gazette No. S 98, dated 23 May 2003 and which took effect
      from 1 July 2003.
  (b) That they comply with such underwriting terms and conditions, including but not limited to conditions relating to
      premium and security, and any other conditions as determined by the Victorian Managed Insurance Authority in
      its absolute discretion, in accordance with this Direction. In setting these terms, the Victorian Managed Insurance
      Authority should have regard to current commercial criteria.
At the date of this Direction, registered builders that have held eligibility with an authorised insurer who issued an eligibility
certificate within the last 15 months (effectively from the start of 2009) are to be provided with underwriting terms and
conditions on comparable terms as their previous provider for a period of at least 12 months or until such time as they can
be commercially assessed as per item (b) above.


Page 70 | VMIA Annual Report 2010
General information


Subject to the variation noted immediately above, the Victorian Managed Insurance Authority is to determine underwriting
terms and conditions, including conditions as to premium and security, and any other conditions, which it might reasonably
require to provide domestic building insurance.
The Victorian Managed Insurance Authority may charge any builder that is provided insurance in accordance with this
Direction a percentage loading in addition to the relevant commercial premium in order to recoup the taxpayer funded
costs for the provision of this insurance product and associated services. The design of this loading is to be developed in
consultation with the Department of Treasury and Finance.
The Direction is effective from 31 March 2010 (date inclusive) to 30 June 2013 (date inclusive).
TIM HOLDING MP Minister for Finance, WorkCover and the Transport Accident Commission.

32. Attestation of compliance with Australian/New Zealand Risk Management Standard
Direction 4.5.5 – Risk Management Compliance
In September 2007, the Minister for Finance issued Direction 4.5.5 on Risk Management Compliance which requires
agencies to provide an annual attestation in their annual report that their risk identification and management plan
is consistent with the Australian/New Zealand Risk Management Standard: AS/NZS ISO 31000 or equivalent.
Satisfactory risk management frameworks and processes currently operate within the VMIA.
•	 Enterprise Risk Management has been progressively implemented across the organisation.
•	 A range of systems and controls are operating to ensure that a strong internal control system is in place supported by
   the internal audit program.
•	 Annual review processes are in place to ensure compliance with Ministerial Directions, the Financial Management
   Compliance Framework (FMCF) and the Taxation Compliance Framework.
•	 The Audit and Risk Committee reviewed VMIA’s attestation process and procedures and verified management’s view
   that VMIA’s risk management frameworks and processes are consistent with the key principles of the Australian/
   New Zealand Risk Management Standard: AS/NZS ISO 31000. KPMG, as VMIA’s internal auditor, also reviewed
   the methodology and supporting evidence for attestation and confirmed that the VMIA was in a position to provide
   attestation. Based on this advice and assurance, the Board approved the Chairman providing the following attestation:


I, Robert Ray, Chairman of the VMIA Board, certify that the Victorian Managed Insurance Authority has
risk management processes in place consistent with the Australian/New Zealand Risk Management Standard
(AS/NZS ISO 31000) and an internal control system is in place that enables the Executive to understand, manage
and satisfactorily control risk exposures. The Audit and Risk Committee verifies this assurance and that the risk profile
of the Victorian Managed Insurance Authority has been critically reviewed within the last 12 months.




Robert Ray
Chairman
Victorian Managed Insurance Authority

26 August, 2010




                                                                                             VMIA Annual Report 2010 | Page 71
General information


33. Disclosure Index
The Annual Report of the VMIA is prepared in accordance with all the relevant Victorian legislation. This index has been
prepared to facilitate identification of compliance with statutory disclosure requirements.

                                                                                                                              Page
Charter and purpose
FRD 22B                             Manner of establishment and relevant Minister                                          6, 62, 63
FRD 22B                             Objectives, functions, powers and duties                                                    1, 7
FRD 22B                             Nature and range of services provided                                                         6


Management and structure
FRD 22B                             Names of governing Board members and Chief Executive Officer                             61- 63
FRD 22B                             Organisational structure                                                                     61


Financial and other information
FRD 15B                             Executive Officers Disclosures                                                               51
FRD 22B                             Workforce data and application of merit and equity principles                                65
FRD 22B                             Application and operation of the Freedom of Information Act 1982                             65
FRD 22B                             Application and operation of the Whistleblowers Protection Act 2001                          66
FRD 22B                             Compliance with the Building Act 1993                                                        66
FRD 22B                             Summary of financial results for the year with comparative results for the preceding         57
                                    four years
FRD 22B                             Summary of significant changes in financial position during the year                         58
FRD 22B                             Major changes or factors affecting performance                                               59
FRD 22B SD4.2(k)                    Operational and budgetary objectives for the year and performance against                    59
                                    these objectives
FRD 22B                             Subsequent events                                                                            59
FRD 22B                             Details of consultancy expenditure                                                           65
FRD 12A                             Disclosure of Major Contracts                                                                65
FRD 22B                             Occupational health and safety                                                               64
FRD 22B                             Statement of availability of other information                                               64
FRD 24C                             Reporting of office-based environmental impact                                               67
FRD 10                              Disclosure Index                                                                         72, 73
FRD 25                              Victorian Industry Participation Policy disclosures                                          66
SD 4.5.5                            Risk Management Compliance Attestation                                                       71




Page 72 | VMIA Annual Report 2010
General information


                                                                                                                               Page
VMIA Financial statements required under Part 7 of the Financial Management Act 1994
SD 4.2(c)                        Statement of compliance with Australian Accounting Standards and other mandatory                 16
                                 professional reporting requirements, Financial Reporting Directions and Business Rules
SD 4.2(b)                        Comprehensive Operating Statement                                                                12
SD 4.2(b)                        Balance Sheet                                                                                    13
SD 4.3(a)                        Statement of Changes in Equity                                                                   14
SD 4.2(b)                        Cash Flow Statement                                                                              15
SD 4.2(b)                        Notes to the Financial statements                                                            16-53
SD 4.2(c)                        Compliance with Ministerial Direction                                                            67
SD 4.2(c)                        Certification of Financial information                                                           54
SD 4.2(d)                        Rounding of Amounts                                                                              20


Other disclosures in notes to the VMIA financial statements
FRD 21A                          Responsible person and executive officer disclosures                                         48-50
FRD 11                           Disclosure of ex-gratia payments                                                               N/A
FRD 103D                         Non-current physical assets                                                                      36
FRD 106                          Impairment of assets                                                                             36
FRD 110                          Cash flow statements                                                                             52
FRD 112B                         Defined benefit superannuation obligations                                                       48
FRD 119                          Contribution by Owners                                                                           38



Legislation
Victorian Managed Insurance Authority Act 1996                                                                       6, 40, 47, 67-70
Financial Management Act 1994                                                                                                     16
Freedom of Information Act 1982                                                                                                   65
House Contracts Guarantee Act 1987                                                                                                75
Victorian Industry Participation Act 2003                                                                                         66
Whistleblowers Protection Act 2001                                                                                                66
Building Act 1993                                                                                                                 66
House Contracts Guarantee (Amendment) Act 2005                                                                                75, 81
House Contracts Guarantee (HIH) Act 2001                                                                                  91, 95, 99
Diseases Compensation Act 2008                                                                                                    53




                                                                                                 VMIA Annual Report 2010 | Page 73
Housing Guarantee Claims
Fund Financial Report

Contents
Comprehensive Operating Statement                                              76
Balance Sheet                                                                  76
Statement of Changes in Equity                                                 77
Cash Flow Statement                                                            78

Notes to the financial statements
Note 1    Summary of significant accounting policies                           79
Note 2    Net results from operations                                          82
Note 3    Operating expenses                                                   82
Note 4    Cash and cash equivalents                                            82
Note 5    Provisions                                                           82
Note 6    Auditor remuneration                                                 83
Note 7    Notes to the Cash Flow Statement                                     83
Note 8    Financial Instruments                                                84
Note 9    Related parties                                                      85
Accountable Officer’s and Chief Finance and Accounting Officer’s declaration   87
Independent Auditor’s report                                                   88




Page 74 | VMIA Annual Report 2010
Housing Guarantee Claims
Fund Financial Report

Housing Guarantee Claims Fund
On 7 September 2005, the House Contracts Guarantee (Amendment) Act 2005 (the Act) was passed by the Victorian
Parliament. The legislation was effective 1 February 2006 and amended the House Contracts Guarantee Act 1987 to:
  (i) Establish the Housing Guarantee Claims Fund (the Fund).
  (ii) Confer on the Victorian Managed Insurance Authority (“VMIA”) the responsibility for the administration of the
       Fund and for the management of claims on guarantees given by the Housing Guarantee Fund Limited (HGFL).
       Prior to the commencement of the Domestic Contracts and Tribunal Act 1995, HGFL was the sole body to
       provide recompense to consumers, through a guarantee system, for defective or incomplete domestic building
       work. Such work was guaranteed for a period of 7 years from the earlier of the contract being entered into or
       the date the building approval granted.
  (iii) Transfer the responsibility for the administration of the Domestic Building (HIH) Indemnity Fund (DBIF) from
        HGFL to the VMIA.
  (iv) Provide for the transfer of the property, rights and liabilities of HGFL to the State, thereby making the State of
       Victoria the successor in law to HGFL.
The VMIA acts on behalf of the State in administering the Fund. On 1 February 2006, the assets of $6,871,352 of the
former HGFL vested in the State and formed part of the Fund. The assets of the Fund are available to meet the liabilities
relating to managing and settling claims and the costs incurred in the administration of the Fund.
The legislation provided for the transfer of staff from HGFL to VMIA and stipulated that staff employed by HGFL would
be employed by VMIA with the same terms and conditions and with the same accrued and accruing entitlements which
applied to them as employees of HGFL. On 1 February 2006, 18 (17.31 full time equivalent) staff transferred from HGFL
to the VMIA on the same employment terms and conditions as had applied at HGFL. These staff administer the builders’
warranty claims of the former HGFL and those arising under the State Government’s HIH rescue package paid by DBIF.
To 30 June 2010, 16 staff had been paid redundancies in accordance with their original contracts. At 30 June 2010, 3
staff (2 full time equivalents) (2009 - 4 staff (2.3 full time equivalents)) were primarily employed in settling the claims of
the Fund and DBIF. Costs are apportioned between the two funds on the basis of work performed.
The VMIA has maintained the procedures for handling and resolving claims and apportioning costs that were in operation
at the former HGFL.
As at 30 June 2010 there were no open claims (2009 – 0 claims). The Fund is required to continue in operation until
such time as the Minister is satisfied that no further claim can be made. No more claims are expected to be reported.
Under the Act, when all claims have been dealt with and no further claim can be made on a guarantee given under the
Act, the Minister may close the Fund and the remaining money must be paid into the Domestic Builders Fund established
under the Domestic Building Contracts Act 1995.




                                                                                              VMIA Annual Report 2010 | Page 75
Comprehensive
Operating Statement
For the financial year ended 30 June 2010




                                                                                Note                 2010          2009
                                                                                                        $             $
INCOME
Interest                                                                                          243,791       332,726
Proceeds from liquidators                                                                          43,820              -
EXPENSES
Net claims recoveries/(payment)                                                                            -      4,040
(Increase)/decrease in provisions for claims related expense                         2            101,375       112,509
Operating expenses                                                                   3            (52,000)     (164,184)
Comprehensive result                                                                              336,986       285,091

The above Comprehensive Operating Statement should be read in conjunction with the accompanying notes.




Balance Sheet
as at 30 June 2010
                                                                                Note                 2010          2009
                                                                                                        $             $
Financial assets
Cash and cash equivalents                                                            4          6,555,404      6,338,668
Receivables                                                                                              235       3,785
Total assets                                                                                    6,555,639      6,342,453


Liabilities
Payables                                                                                           23,120        30,183
Provisions                                                                           5            175,415       292,152
Total Liabilities                                                                                 198,535       322,335


Net assets                                                                                       6,357,104     6,020,118


Equity
Contributed Capital                                                                             6,871,352      6,871,352
Accumulated surplus/ (deficit)                                                                  (514,248)      (851,234)
Total Equity                                                                                     6,357,104     6,020,118

The above Balance Sheet should be read in conjunction with the accompanying notes.




Page 76 | VMIA Annual Report 2010
Statement of
Changes in Equity
For the financial year ended 30 June 2010




                                                                                  Changes due to

                                                                                 Total       Transactions with
                                                            Equity at    Comprehensive             owner in its       Equity as at
                                                         1 July 2009            Result       capacity as owner       30 June 2010
2010                                                               $                 $                        $                 $
Accumulated surplus/(deficit)                              (851,234)             336,986                       -         (514,248)


Contribution by owners                                     6,871,352                    -                      -         6,871,352

Total equity as at the end of the financial year           6,020,118             336,986                       -         6,357,104


                                                                                  Changes due to


                                                                                 Total       Transactions with
                                                            Equity at    Comprehensive             owner in its       Equity as at
                                                         1 July 2008            Result       capacity as owner       30 June 2009
2009                                                               $                 $                        $                 $
Accumulated surplus/(deficit)                            (1,136,325)             285,091                       -         (851,234)


Contribution by owners                                     6,871,352                    -                      -         6,871,352


Total equity as at the end of the financial year           5,735,027             285,091                       -         6,020,118

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




                                                                                                  VMIA Annual Report 2010 | Page 77
Cash Flow Statement
for the financial year ended 30 June 2010




                                                                                  Note         2010        2009
                                                                                                  $           $
Cash Flows from Operating Activities
Builder recoveries received                                                                        -      4,447
Payments to suppliers                                                                       (81,868)   (264,476)
Goods and Services Tax recovered from the ATO                                                10,993      20,618
Other income                                                                                 43,820            -
Interest received                                                                           243,791     332,726
Net cash inflow/(outflow) from operating activities                                  7      216,736      93,315
Cash and cash equivalents at beginning of financial year                                   6,338,668   6,245,353
Cash and cash equivalents at end of financial year                                         6,555,404   6,338,668

The above Cash Flow Statement should be read in conjunction with the accompanying notes.




Page 78 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




1. Summary of Significant Accounting Policies
(a) Statement of compliance
Since 1 February 2006, the Housing Guarantee Claims Fund (the Fund) has been administered by the Victorian Managed
Insurance Authority (VMIA), which was established under the Victorian Managed Insurance Authority Act 1996 and is
within the portfolio of the Minister for Finance.
The financial report is a general purpose financial report which has been prepared on an accrual basis in accordance with
the Financial Management Act 1994, Australian Accounting Standards, Interpretations and other mandatory professional
requirements. For the purposes of compliance with the accounting standards the Minister for Finance has determined that
the Fund is a not-for-profit entity. The financial report also complies with relevant Financial Reporting Directions (FRDs)
issued by the Department of Treasury and Finance.
The financial report was authorised for issue by the VMIA Board on 26 August 2010.

(b) Basis of preparation
The financial report is prepared on the basis of historical cost. Cost is based on the fair values of the consideration given
in exchange for assets.
In the application of accounting standards, management is required to make judgements, estimates and assumptions about
the carrying value of assets and liabilities that are not readily determined from other sources. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revisions and future periods if the revision affects both current and future periods.
Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies
the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions and financial
consequences of other events are reported. The accounting policies set out below have been applied in preparing the
financial report for the period ended 30 June 2010 and the comparative information presented for period ended
30 June 2009.

(c) Objective of the Fund
On 7 September 2005, the House Contracts Guarantee (Amendment) Act 2005 was passed by the Victorian Parliament.
The effect of the legislation was to amend the House Contracts Guarantee Act 1987:
  (i) To establish the Housing Guarantee Claims Fund.
  (ii) To confer on the VMIA the responsibility for the administration of the above fund, as well as the Domestic
       Building (HIH) Indemnity Fund (DBIF).
  (iii) To provide for the transfer of the property, rights and liabilities of HGFL to the State, thereby making the State of
        Victoria the successor in law to HGFL.
  (iv) The address of the Victorian Managed Insurance Authority, the administrator of the Fund and the principal place
       of business of the Fund is: Level 30, 35 Collins Street, Melbourne Victoria 3000.
The amended legislation was effective from 1 February 2006.




                                                                                              VMIA Annual Report 2010 | Page 79
Notes to the Financial
Statements
For the financial year ended 30 June 2010




(d) Measurement of claim related assets and liabilities
The Fund has a policy of measuring claim-related assets and liabilities at the present value of expected future payments
and receipts. In doing so, an actuary assists management to determine these values, using a risk-free rate of return.

(e) Provision for outstanding claims
Management uses the services of the internal actuary to estimate the value of the provision for outstanding claims.
The provision for outstanding claims covers claims reported but not yet approved for payment (including costs of reopened
claims). The actuary’s assessment is that there are Nil (2009 – 0) open claims and no more claims are expected to be
reported. Hence nil outstanding claims provision is recognised in the financial report (2009 – $26,594).

(f) Provision for claims handling costs
Management also uses the services of the internal actuary to estimate the provision for claims handling costs. The
provision for claims handling costs is measured as the present value of expected future payments, being direct and indirect
costs. The actuary’s assessment is that as there are Nil provision for claims handling costs for the current financial year
(2009 - $74,781). No more claims are expected to be reported which give rise to claim handling costs.

(g) Receivables
Management uses the services of the internal actuary to estimate the value of the builder recoveries relating to
outstanding claims at year end. The actuary’s assessment is that there are Nil builder recoveries receivable for the current
financial year (2009- $0). The Fund does not recognise any other receivables other than receivables related to net amount
of GST. There is no provision for doubtful debts.

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

(i) Cash and cash equivalents
Cash and cash equivalents comprise of cash at bank and funds held at call as these funds are available to meet the
HGCF’s financial commitments.
The Treasury Corporation of Victoria (TCV) is currently the Fund’s manager. The Fund invests in a short-term deposit
product (Guaranteed Bill Index Deposits) offering guaranteed returns over 90 days determined by reference to the
Warburg Dillion Read 90 day Bank Bill Index. The funds are held at call.

(j) Goods and services tax (GST)
Revenue, income and expenses are brought to account exclusive of GST. The net amount of GST recoverable from or
payable to the Australian Taxation Office is included as part of receivables or payables. Cash flows relating to the GST
are included in the Cash Flow Statement on a gross basis in accordance with AASB 107 “Cash Flow Statements”.




Page 80 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




(k) Provision for management charge
The Fund assumed the liabilities of HGFL in accordance with the provisions of the House Contracts Guarantee Act 1987.
This included terms to protect redundancy benefits of staff transferred to VMIA in accordance with the Act. This provision
recognises the potential cost of such entitlements and has been calculated taking into account the wages, length of
service and all entitlements accruing at the date of transfer. All calculations are based on future expected redundancy
payments that are discounted to present value at 30 June 2010, using a risk-free rate of return. The redundancy
entitlements are to be paid by the Fund’s administrator VMIA and will be charged to the Fund as a management fee.
The liability which is payable when employees cease to be employees of VMIA has been recognised as provision for
management charge in the financial statements (refer Note 5).

(l) Income tax
The Fund is exempt from income tax. Accordingly, no provision for income tax is made in these accounts.

(m) Revenue
Interest revenue is recognised as it accrues taking into account the interest rates applicable to the financial assets.
Proceeds from liquidators are recognised as they are received in the Fund’s bank account.

(n) New accounting standards and interpretations
Certain new Accounting Standards and Interpretations have been published that were not mandatory for the 30 June
2010 reporting period. The Fund has not and does not intend to adopt the following standards early:
•	AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Project
  [AASB 5, 8, 101, 107, 117, 118, 136 and 139] which are applicable for the reporting period beginning 1 January 2010.
  These changes will result in some amendments for financial report’s presentation, recognition or measurement, however,
  the impact is expected to be insignificant.
•	AASB 124 Related party disclosures (Dec 2009) which is applicable for the reporting period beginning 1 January 2011.
  The changes will result in some exemptions from the existing disclosure requirements. Preliminary assessment suggests
  that the impact is insignificant.
•	AASB 9 Financial instruments which is applicable for the reporting period beginning 1 January 2013. This standard
  simplifies requirements for the classification and measurement of financial assets resulting from Phase 1 of the IASB’s
  project to replace IAS 39 Financial instruments: recognition and measurement (AASB 139 Financial Instruments:
  recognition and measurement). Detail of the impact is still being assessed.
•	AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102,
  108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 and 1038 and Interpretations 10 and 12] which is applicable
  for the reporting period beginning 1 January 2013. These amendments give effect to consequential changes arising from
  the issuance of AASB 9 Financial instruments. Detail of the impact is still being assessed.
In addition to those Accounting Standards listed above, the AASB has also released a number of other Accounting
Standards and Australian Interpretations. The application of these Accounting Standards and Australian Interpretations are
not relevant to the Fund. Consequently, they have not been specifically identified above.




                                                                                              VMIA Annual Report 2010 | Page 81
Notes to the Financial
Statements
For the financial year ended 30 June 2010




2. Net Results From Operations
                                                                            Note           2010                 2009
                                                                                              $                    $

Net results from operations have been determined after:
Claims related expense
(Reduction) / Increase in provision for outstanding claims                    1(e)      (26,594)             (33,628)
(Reduction) / Increase in recoveries estimate                                                   -              3,919
(Reduction) / Increase in provision for claims handling costs                 1(f)       (74,781)           (82,800)
                                                                                       (101,375)           (112,509)

3. Operating Expenses
VMIA Management Fee                                                                      29,293              117,743
Other operating expenses                                                                  22,707              46,441
                                                                                          52,000             164,184

4. Cash and cash equivalents
Current
Managed funds at call                                                                  6,312,151            6,077,119
Cash at Bank                                                                            243,253              261,549
                                                                                       6,555,404           6,338,668

5. Provisions
The Fund administers the statutory guarantees in accordance with Division 1A of Part XLIX of the Local Government Act
1958 and the House Contracts Guarantee Act 1987. The guarantee extends for a period of not less than seven years from
the date of the building approval or contract, whichever came first.
Current
Provision for management charge                                               1(k)      175,415              190,777
Outstanding claims                                                            1(e)              -             26,594
Claims handling costs                                                         1(f)              -             74,781
                                                                                        175,415              292,152

Movement in Provisions
Claim handling costs
Balance at the beginning of financial year                                                74,781             157,581
Increase/ (decrease) resulting from actuarial assessment of the liability   1(f), 3      (74,781)           (82,800)
Balance as at end of financial year                                                             -             74,781




Page 82 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




5. Provisions (Continued)
                                                                               Note                  2010                2009
                                                                                                        $                   $
Provision for management charge
Balance at the beginning of period                                                                190,777             270,960
Increase/ (decrease) on valuation of liability                                  1(k)                2,228               46,430
Payment of liability                                                          8,1(k)              (17,590)           (126,613)
Balance as at end of financial year                                                               175,415              190,777


Provision for outstanding claims
Balance at the beginning of financial year                                                         26,594               60,222
Increase/(decrease) in actuarial assessment                                     1(e)              (26,594)            (33,628)
Balance as at end of financial year                                                                      -              26,594

6. Auditor Remuneration
Audit of the Fund’s financial report                                                               20,477               20,056


7. Notes to the Cash Flow Statement
Reconciliation of cash flows from operations to the comprehensive result for the financial year
Net result for the financial year                                                                   336,986            285,091
Non cash movements:
Increase/(decrease) in claims handling cost provision                                               (74,781)           (82,800)
Decrease in outstanding claims provision                                                           (26,594)            (33,628)
Decrease in management charge provisions                                                           (15,362)            (80,183)
Changes in assets and liabilities
Decrease in receivables                                                                               3,550               1,094
(Decrease)/increase in trade and other payables                                                      (7,063)              3,741
Net cash inflow/ (outflow) from operations                                                          216,736             93,315




                                                                                              VMIA Annual Report 2010 | Page 83
Notes to the Financial
Statements
For the financial year ended 30 June 2010




8. Financial Instruments
Financial instruments are used in the course of a business. The Fund has no significant exposure to market risk. Financial
instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual
rights and obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Recognised Financial Instrument         Accounting Policy                                Terms & Conditions

a) Financial assets

Cash and cash equivalents               Cash is carried at its recoverable amount.       Cash balance in bank account receives the bank
                                                                                         benchmark interest rates.
                                        Managed funds at call are carried at its
                                        recoverable amount.                           Managed funds at call receives the GBID
                                                                                      interest rate.
Trade and other receivables             Debtors are carried at their nominal amounts. Debtors are generally expected to be recovered
                                                                                      within 30 days.
b) Financial liabilities

Payables                                Recognised for amounts to be settled in the      Trade creditors are ordinarily settled on 30-day
                                        future, whether invoiced to the Fund or not.     terms.

The financial instruments are classified by reference to the source of inputs used to derive the fair value. This classification
uses the following three-level hierarchy:
   (i) Level 1 - fair value is determined by using quoted prices (unadjusted) in active markets for identical assets
       or liabilities.
   (ii) Level 2 - fair value is determined by using inputs other than quoted prices included within level 1 that are
        observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).
   (iii) Level 3 - fair value is determined by using inputs for the asset or liability that are not based on observable
         market data.
Cash and cash equivalents are classified as Level 1 financial instruments. All payables and provisions are classified as
Level 2 financial instruments.
There are no financial instruments not recognised in the financial report at balance date.
The Fund is not subject to currency risk and other price risk.

Interest Rate Risk
The Fund’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of
changes in market interest rates, is as follows:
                                                                     Floating Interest Rate                        Non Interest Bearing
                                                            2010                     2009                 2010                    2009
                                                               $                         $                   $                        $
Financial Assets
Cash and cash equivalents                              6,555,404                6,338,668                      -                            -
Receivables                                                      -                       -                 235                       3,785
Financial Liabilities
At amortised cost:
Payables                                                         -                       -              23,120                     30,183



Page 84 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




Sensitivity Disclosure Analysis
The following sensitivity analysis has been determined based on the direct exposure to interest rates at the reporting
date. The analysis assumes the stipulated change taking place at the beginning of the financial year and is held constant
throughout the reporting period. A 0.5% increase or decrease in interest rates is used by the actuary in monitoring claims.
The same percentage has been used here to present the impact on interest bearing investments. These movements are
attributable to the Fund’s exposure to interest rates on its variable rate cash and cash equivalent deposits.
                                                                                                2010                          2009
                                                                                                   $                             $
Impact on Comprehensive operating result and equity
from a movement in Australian interest rates
Increase of 0.5%                                                                               32,777                     31,693
Decrease of 0.5%                                                                              (32,777)                  (31,693)

Credit Risk
Credit risk arises from the financial assets of HGCF which comprise cash and cash equivalents and receivables have the
potential default of counterparty. The Fund’s maximum exposure to credit risk at balance date, in relation to each class of
recognised financial asset, is the carrying amount of those assets noted in the Balance Sheet.
No financial assets are either past due or impaired. All cash and cash equivalent balances are held by the Government
financial and authorised deposit taking institutions and thus have negligible credit risk. There are no other material credit
exposures.

Liquidity Risk
Liquidity risk arises if the Fund is unable to meet its financial obligations as they fall due. The Fund has sufficient net
assets to meet its liabilities. The Fund’s assets are invested at call and are therefore available to discharge the Fund’s
liabilities when they fall due.

Net Fair Values
All financial assets and liabilities recognised in the financial statements are carried at amounts that approximate their
net fair values. The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and
financial liabilities of the Fund approximates their carrying amount. For other assets and other liabilities, net fair value
approximates their carrying value. No financial assets or financial liabilities are readily traded on organised markets in a
standardised form.

9. Related parties
The VMIA is engaged by the State of Victoria to administer and manage the claims on guarantees of the Fund.
In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act
1994, the following disclosures are made regarding responsible persons for the reporting period.




                                                                                               VMIA Annual Report 2010 | Page 85
Notes to the Financial
Statements
For the financial year ended 30 June 2010




(a) Responsible persons
The names of persons who were responsible persons at any time during the reporting period are as follows:
Responsible Minister:                          The Hon. T Holding, MP.
Governing Board:                               R. Ray (Chairman and Director appointed 26 March 2010), B. Benger, J.
                                               Fitzpatrick, I. Gaudion (Deputy Chairman), D. Kearsley, S. Moffatt, A. Nye
                                               (retired as Chairman 31 December 2009), H. Pinskier and S. Roberts.
Accountable Officer:                           S. Marshall, Chief Executive Officer.

(b) Remuneration of responsible persons
The Hon. T. Holding, MP did not receive any remuneration from the Fund. None of the responsible persons received any
remuneration from the Fund.

(c) Retirement benefits of responsible persons
There were no retirement benefits paid by the reporting entity in connection with retirement of the responsible persons of
the reporting entity.

(d) Other transactions of responsible persons and their related entities
During the reporting period, no responsible person received or became entitled to receive any benefit from a contract
between the Fund and that responsible person or firm or company of which that responsible person is a member or has a
substantial interest.

(e) Remuneration of executive officers
No executive officers received any remuneration from the Fund.

(f) Other transactions with related entities
The net management fee paid to the VMIA for 2010 financial year was $46,883 (2009:$244,356). It represented both
the recoveries of redundancy payments paid by VMIA to former employees of HGFL of $17,590 (2009:$126,613) which
were previously provided for by HGCF in accordance with the policy outlined in note 1(k). The management fee also
included recoveries incurred by VMIA for operational and administration expenses of $29,293 (2009: $117,743), which
were expensed by the Fund in the Comprehensive Operating Statement.
At financial year-end, the outstanding management fee payable to VMIA is $2,643 (2009: $30,183).




Page 86 | VMIA Annual Report 2010
Housing Guarantee Claims
Fund Financial Report
For the financial year ended 30 June 2010




Accountable Officer’s and Chief Finance and Accounting Officer’s declaration
We certify that the attached Financial Report has been prepared in accordance with Standing Direction 4.2 of the Financial
Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards and other mandatory
professional reporting requirements.
We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Balance Sheet,
Statement of Changes in Equity, Cash Flow Statement and Notes to the Financial Statements present fairly the financial
transactions during the year ended 30 June 2010 and the financial position as at 30 June 2010.
We are not aware of any circumstances that would render any particulars included in the Financial Report to be misleading
or inaccurate.
We authorise the attached Financial Report for issue on the 26 August 2010.




Robert Ray
Chairman




Steve Marshall                                                        Tony Dudley
Chief Executive Officer                                               Chief Financial Officer




MELBOURNE
26 August 2010




                                                                                          VMIA Annual Report 2010 | Page 87
Page 88 | VMIA Annual Report 2010
VMIA Annual Report 2010 | Page 89
Domestic Building (HIH)
Indemnity Fund Financial
Report
Contents
Comprehensive Operating Statement                                               92
Balance Sheet                                                                   92
Statement of Changes in Equity                                                  93
Cash Flow Statement                                                             94

Notes to the financial statements
Note 1   Summary of significant accounting policies                             95
Note 2   Revenue                                                                97
Note 3   Net claims paid                                                        97
Note 4   Movement in claims reported not paid                                   97
Note 5   Operating expenses                                                     98
Note 6   Cash and cash equivalents                                              98
Note 7   Payables and provisions                                                98
Note 8   Contingent liabilities                                                 98
Note 9   Contingent assets                                                      99
Note 10 Auditor remuneration                                                    99
Note 11 Related parties                                                         99
Note 12 Cash flow information                                                  100
Note 13 Financial instruments                                                  101
Accountable Officer’s and Chief Finance and Accounting Officer’s declaration   104
Independent Auditor’s report                                                   105




Page 90 | VMIA Annual Report 2010
Domestic Building (HIH)
Indemnity Fund Financial
Report
Domestic Building (HIH) Indemnity Scheme
In 2001 the Victorian Government implemented a package to assist those house owners whose builders’ warranty
insurance cover had been adversely affected by the collapse of the HIH Insurance Group. The Parliament passed the
House Contracts Guarantee (HIH) Act 2001 and amended the House Contracts Guarantee Act 1987 to:
  (i) Establish a State indemnity scheme to take over builders’ warranty HIH claims.
  (ii) Established the Domestic Building (HIH) Indemnity Fund (the Fund).
  (iii) Allow for the costs of the scheme to be met by contributions from the building industry and the Government.
  (iv) Provide for an additional building levy of 0.032 cents in every dollar of the cost of domestic building work to all
       domestic building work over $10,000 for which a building permit is sought.
The scheme has been administered on behalf of the State by the former Housing Guarantee Fund Ltd up until 1 February
2006 and by the VMIA thereafter. The VMIA processes claims from home owners who held valid builders’ warranty
insurance policies with either FAI or HIH that were issued between May 1996 and March 2001. The types of claims
are either:
•	Where the domestic building work was not able to be completed, or
•	Where for a period of 6.5 years after completion of the domestic building work, construction defects occur that are
  attributable to the builder’s workmanship.
The maximum indemnity on any single claim is $100,000.
The VMIA has maintained the procedures for handling and resolving claims and apportioning costs that were in operation
at the former HGFL.
Any deficit will be funded from the additional levy on domestic building permits collected by the Building Commission and
future contributions from the State Government, if required. The Building Commission advised the Fund that the building
levies will not be collected past 30 June 2010. Nevertheless, all monies received that relates to the pre-June 2010 will be
forwarded to the fund in due course.
As at 30 June 2010 there were 78 open claims (2009 – 150). The Fund’s assets amounted to $6,371,517
(2009 - $3,271,322) with liabilities of $2,962,536 (2009- $2,398,354) resulting in a surplus of net assets of $3,408,981
(2009- $872,968).




                                                                                             VMIA Annual Report 2010 | Page 91
Comprehensive
Operating Statement
For the financial year ended 30 June 2010




                                                                              Note                2010         2009
                                                                                                     $            $
Income
Revenue                                                                          2            4,718,471    3,664,632
Expenses
Net claims paid                                                                  3          (1,160,322)   (1,875,532)
Movement in claims reported not paid                                             4            (643,100)    1,582,900
Operating expenses                                                               5            (379,036)    (924,580)
Comprehensive result                                                                         2,536,013     2,447,420

The above Comprehensive Operating Statement should be read in conjunction with the accompanying notes.




Balance Sheet
As at 30 June 2010
                                                                              Note            2010             2009
                                                                                                 $                $
Financial assets
Cash and cash equivalents                                                        6       5,575,488         2,676,482
Building levies receivable                                                                 750,324          588,683
Other receivables                                                                           45,705             6,157
Total financial assets                                                                   6,371,517         3,271,322
Total Assets                                                                             6,371,517         3,271,322


Liabilities
Payables and provisions                                                          7       2,962,536         2,398,354
Total Liabilities                                                                        2,962,536         2,398,354
Net assets                                                                               3,408,981           872,968


Equity
Accumulated surplus                                                                      3,408,981           872,968
Total Equity                                                                             3,408,981           872,968

The above Balance Sheet should be read in conjunction with the accompanying notes.




Page 92 | VMIA Annual Report 2010
Statement of
Changes in Equity
For the financial year ended 30 June 2010




                                                                                Changes due to
                                                                              Total         Transactions with
                                                          Equity at   Comprehensive       owner in its capacity    Equity as at
                                                       1 July 2009           Result                   as owner    30 June 2010
2010                                                             $                $                           $              $
Accumulated surplus/(deficit)                              872,968          2,536,013                         -      3,408,981


Total equity at the end of the financial year              872,968          2,536,013                         -      3,408,981



                                                                                Changes due to


                                                                              Total         Transactions with
                                                          Equity at   Comprehensive       owner in its capacity    Equity as at
                                                       1 July 2008           Result                   as owner    30 June 2009
2009                                                             $                $                           $              $
Accumulated surplus/(deficit)                           (1,574,452)          2,447,420                        -        872,968


Total equity at the end of the financial year           (1,574,452)          2,447,420                        -        872,968

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




                                                                                              VMIA Annual Report 2010 | Page 93
Cash Flow
Statement
For the financial year ended 30 June 2010




                                                                            Note          2010           2009
                                                                                             $              $
Cash Flows from Operating Activities
Fees received                                                                         4,404,174     3,602,509
Claims paid                                                                          (1,270,752)   (2,076,949)
Other operating payments                                                              (457,954)    (1,062,448)
Net recoveries                                                                            4,779        26,038
GST recovered from ATO                                                                   66,103       192,537
Interest received                                                                      152,656        105,010
Net cash inflow/(outflow) from operating activities                           12      2,899,006       786,697


Net increase/(decrease) in cash held                                                  2,899,006       786,697


Cash and cash equivalents at the beginning of financial year                          2,676,482     1,889,785
Cash and cash equivalents at the end of financial year                         6      5,575,488     2,676,482

The Cash Flow Statement should be read in conjunction with the accompanying notes.




Page 94 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




1. Summary of Significant Accounting Policies
(a) Statement of compliance
The Domestic Building (HIH) Indemnity Fund (the Fund) was administered by the Housing Guarantee Fund Limited
(HGFL), until 1 February 2006. From that date it has been administered by the Victorian Managed Insurance Authority (the
VMIA), which was established under the Victorian Managed Insurance Authority Act 1996 and is within the portfolio of the
Minister for Finance.
The financial report is a general purpose financial report which has been prepared on an accrual basis in accordance with
the Financial Management Act 1994, Australian Accounting Standards, Interpretations and other mandatory professional
requirements. For the purposes of compliance with the accounting standards the Minister for Finance has determined that
the Fund is a not-for-profit entity. The financial report also complies with relevant Financial Reporting Directions (FRDs)
issued by the Department of Treasury and Finance.
The financial report was authorised for issue by the Board of the VMIA on 26 August 2010.

(b) Basis of preparation
The financial report is prepared on the basis of historical cost. Cost is based on the fair values of the consideration given
in exchange for assets.
In the application of accounting standards, management is required to make judgements, estimates and assumptions about
the carrying value of assets and liabilities that are not readily determined from other sources. The estimates and associated
assumptions are based on historical experience and various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis of making the judgements. Actual results may differ from these
estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the
revisions and future periods if the revision affects both current and future periods.
Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the
concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions and financial consequences
of other events are reported. The accounting policies set out below have been applied in preparing the financial report for the period
ended 30 June 2010 and the comparative information presented for period ended 30 June 2009.

(c) Objective of the Fund
The Fund was established under the House Contracts Guarantee (HIH) Act 2001, and is the Government’s assistance
package for homeowners affected by the collapse of the HIH Insurance Group.
The address of the Victorian Managed Insurance Authority, the administrator of the Fund, and the principal place of
business of the Fund is: Level 30, 35 Collins Street, Melbourne Vic 3000.

(d) Contingent assets and liabilities
The total potential liability for unreported claims has previously been disclosed in Note 8 to the accounts as a contingent
liability. The contingent liability included claims incurred but not reported at the end of the financial period. Claims incurred
but not reported had not been included in the financial report as they could not be reliably estimated, given the lack of
adequate information about the risks accepted by the HIH Insurance Group. As at 30 June 2010 it is believed all claims
eligible for indemnity have now been reported, and are reflected in the Balance Sheet. There is therefore no contingent
liability at 30 June 2010 in respect of claims incurred but not reported.
Costs expected to be incurred in future periods to manage the settlement of claims are reported as contingent liabilities.
Claims handling costs are measured as the present value of expected future payments, being direct and indirect costs.
These liabilities are based on an assessment by Management of the staff and other resources required for future handling
of claims. This assessment is then provided to the Actuary. The liabilities take into account inflation in the periods during
which the outstanding claims are anticipated to be settled. The expected future payments have been discounted to present
values at balance date using a risk-free rate of return.

                                                                                                   VMIA Annual Report 2010 | Page 95
Notes to the Financial
Statements
For the financial year ended 30 June 2010




Liabilities are liabilities of the State and the State will provide support to the Fund by continuing future contributions in
addition to the levies receivable from the Building Commission to meet future claims. However, as future proceeds from
the State Government cannot be reliably estimated for the reasons set out in Note 9 these amounts have been disclosed
in the financial report as contingent assets.

(e) Measurement of claims reported
The Fund has a policy of measuring the cost of reported claims at the present value of expected future payments. The
VMIA’s actuary estimates these future payments based on existing claims history. The expected future payments are then
discounted using risk free rates.
Given the lapse of time since the HIH insolvency, and the terms of the original policies for which DBIF provides indemnity,
it is believed that almost all claims for which indemnity will be provided have been notified to DBIF at the balance date.
As such there is no quantification of a contingent liability for unreported claims and the claims provision is believed to
represent the discounted value of all future claim payments. Management uses the services of an internal actuary to derive
the amount of claims reported not paid.
The assumptions adopted for measuring claims reported is an inflation rate of 0.00% (2009–0.00%) and discount rate of
4.50% (2009–3.00%).

(f) Payables and provisions
These amounts represent liabilities for goods and services provided to the Fund prior to the end of the period and which
are unpaid. With the exception of claims, the amounts are unsecured and are usually paid within 30 days of recognition.
Claims are paid on completion of rectification work, as such there is no contractual date for the payment of the liabilities.

(g) Cash and cash equivalents
Cash and cash equivalents comprise of cash at bank as these funds are available to meet the Fund’s
financial commitments.

(h) Receivables
Receivables consist predominantly of amounts owing from the Building Commission and GST input tax credits. Receivables
that are contractual are classified as financial instruments and recognised at fair value.

(i) Goods and services tax (GST)
Revenue, income and expenses are brought to account exclusive of GST. The net amount of GST recoverable from or
payable to the Australian Taxation Office is included as part of receivables or payables. Cash flows relating to the GST are
included in the Cash Flow Statement on a gross basis in accordance with AASB 107 “Cash Flow Statements”. The GST
relating to the Fund’s recovery rights arising from claims settlement is recognised as an expense.

(j) Income tax
The Fund is exempt from income tax. Accordingly, no provision for income tax is made in these accounts.

(k) Revenue
Interest revenue is recognised as it accrues taking into account the interest rates applicable to the financial assets.
Building levies are recognised on the basis of total levies receivable from the Building Commission for the period.
Recoveries are recognised in respect of paid claims as they are received.




Page 96 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




(l) New accounting standards and interpretations
Certain new Accounting Standards and Interpretations have been published that are not mandatory for the 30 June 2010
reporting period. The Fund has not and does not intend to adopt the following Standards early:
•	AASB 2009-5 Further amendments to Australian Accounting Standards arising from the Annual Improvements Project
  [AASB 5, 8, 101, 107, 117, 118, 136 and 139] which are applicable for the reporting period beginning 1 January 2010.
  These changes will result in some amendments for financial report’s presentation, recognition or measurement, however,
  the impact is expected to be insignificant.
•	AASB 124 Related party disclosures (Dec 2009) which is applicable for the reporting period beginning 1 January 2011.
  The changes will result in some exemptions from the existing disclosure requirements. Preliminary assessment suggests
  that the impact is insignificant.
•	AASB 9 Financial instruments which is applicable for the reporting period beginning 1 January 2013. This standard
  simplifies requirements for the classification and measurement of financial assets resulting from Phase 1 of the IASB’s
  project to replace IAS 39 Financial instruments: recognition and measurement (AASB 139 Financial Instruments:
  recognition and measurement). Detail of the impact is still being assessed.
•	AASB 2009-11 Amendments to Australian Accounting Standards arising from AASB 9 [AASB 1, 3, 4, 5, 7, 101, 102,
  108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 and 1038 and Interpretations 10 and 12] which is applicable
  for the reporting period beginning 1 January 2013. These amendments give effect to consequential changes arising from
  the issuance of AASB 9 Financial instruments. Detail of the impact is still being assessed.
In addition to those Accounting Standards listed above, the AASB has also released a number of other Accounting
Standards and Australian Interpretations. The application of these Accounting Standards and Australian Interpretations are
not relevant to the Fund. Consequently, they have not been specifically identified above.

2. Revenue
                                                                             Note                 2010                 2009
                                                                                                     $                    $
Operating activities
Building Levies                                                                              4,565,815             3,559,622
Interest                                                                                       152,656              105,010
Total revenue                                                                                4,718,471             3,664,632

3. Net claims paid
Claims paid                                                                                  1,149,056             1,904,168
Cost of Recoveries/ (Recoveries received)                                                       11,266              (28,636)
Net claims paid                                                                              1,160,322             1,875,532


4. Movement in claims reported not paid
Opening claims reported not paid                                                             2,253,900             3,836,800
Net claim payments                                                               3          (1,160,322)          (1,875,532)
Additional claims estimates                                                                  1,803,422              292,632
Movement in claims reported not paid                                                           643,100           (1,582,900)
Closing claims reported not paid                                                 7            2,897,000            2,253,900




                                                                                            VMIA Annual Report 2010 | Page 97
Notes to the Financial
Statements
For the financial year ended 30 June 2010




5. Operating Expenses
                                                                                   Note                  2010                   2009
                                                                                                            $                      $
VMIA Management Fee                                                                                   341,447                902,507
Other operating expenses                                                                                37,589                22,073
Total Operating Expenses                                                                               379,036               924,580

6. Cash and cash equivalents
Current assets
Cash at bank                                                                                         5,575,488             2,676,482

7. Payables and provisions
Current liabilities
Payables                                                                                                65,536               144,454
Claims reported not paid                                                                             2,897,000             2,253,900
                                                                                                     2,962,536             2,398,354

There is no contractual maturity date for these liabilities, which are expected to be paid as rectification work is completed.
Therefore no maturity analysis is provided for these liabilities.


8. Contingent Liabilities
Estimates of the potential financial effect of contingent liabilities that may become payable:
Current
Claims handling costs                                                              1(d)              608,000                 589,600
                                                                                                     608,000                 589,600
Non Current
Claims handling costs                                                              1(d)              548,000                 649,000
Payable to State Government1                                                                       2,252,981               3,090,368
                                                                                                   2,800,981               3,739,368

1. Funding for the cost of settling claims was planned to be provided through equal contributions from the State Government and
   by a levy on new building permits. Any surplus remaining upon finalisation of Fund operations is expected to be paid back to the
   State Government and is a contingent liability as at 30 June 2010.




Page 98 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




9. Contingent Assets
                                                                                                 2010                   2009
                                                                                                    $                      $
Estimates of the amounts of contingent assets that may become receivable:
Current                                                                                              -             3,456,000
Building levies                                                                                      -             3,456,000

Additional Levies on Building Permits
The Victorian Government passed the House Contracts Guarantee (HIH) Act 2001 to provide financial assistance to
homeowners with builders’ warranty insurance claims against the HIH Insurance Group. This Act introduced a levy on
building permits. This levy covers part of the cost of meeting claims on the Fund from homeowners whose builders’
warranty cover was provided by the HIH Insurance Group.
The building levies have been repealed as of 30 June 2010. Since the payments are remitted to the Fund two months in
arrears, no contingent asset is recognised but a receivable representing an estimate of 2 months building levies have been
recognised in the accounts.

10. Auditor remuneration
                                                                                                  2010                  2009
                                                                             Note                    $                     $
Audit of the Fund’s financial statements                                                         27,240               26,770

11. Related parties
The VMIA is engaged by the State of Victoria to administer and manage the claims from home-owners who held valid
builders’ warranty insurance policies with either FAI or HIH that were issued between May 1996 and March 2001.
The VMIA responsible persons oversee the administration of the Fund.
In accordance with the Ministerial Directions issued by the Minister for Finance under the Financial Management Act
1994, the following disclosures are made regarding responsible persons for the reporting period.

(a) Responsible persons
The names of persons who were responsible persons at any time during the reporting period are as follows:
Responsible Minister:                         The Hon. T Holding, MP.
Governing Board:                              R. Ray (Chairman and Director appointed 26 March 2010), B. Benger,
                                              J. Fitzpatrick, I. Gaudion (Deputy Chairman), D. Kearsley, S. Moffatt, A. Nye
                                              (retired as Chairman 31 December 2009), H. Pinskier and S. Roberts.
Accountable Officer:                          S. Marshall, Chief Executive Officer.

(b) Remuneration of responsible persons
The Hon. T. Holding, MP did not receive any remuneration from the Fund. None of the responsible persons received any
remuneration from the Fund.




                                                                                            VMIA Annual Report 2010 | Page 99
Notes to the Financial
Statements
For the financial year ended 30 June 2010




(c) Retirement benefits of responsible persons
There were no retirement benefits paid by the reporting entity in connection with retirement of the responsible persons of
the reporting entity.

(d) Other transactions of responsible persons and their related entities
During the reporting period, no responsible person received or became entitled to receive any benefit from a contract
between the Fund and that responsible person or firm or company of which that responsible person is a member or has a
substantial interest.

(e) Remuneration of executive officers
No executive officers received any remuneration from the Fund.

(f) Other transactions with related entities
The management fee paid to the VMIA during the 2010 financial year for the administration of the Fund was $341,447
(2009: $902,507). It represented the costs incurred by the VMIA for operational and administration expenses. This fee
was expensed in the Fund’s Comprehensive Operating Statement.
At financial year-end, the outstanding management fee payable to the VMIA is $38,296 (2009: $144,454).

12. Cash Flow Information
                                                                                                 2010                 2009
                                                                                                    $                    $
Reconciliation of cash flows from operations with results for the financial year
Net result for the financial year                                                            2,536,013            2,447,420
Changes in assets and liabilities
Decrease)/(Increase) in receivables                                                          (201,189)               70,042
(Decrease)/Increase in payables and provisions                                                564,182            (1,730,765)
                                                                                              362,993           (1,660,723)
Net cash inflow/(outflow) from operations                                                    2,899,006             786,697




Page 100 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




13. Financial Instruments
Financial instruments are used in the course of operation.
Financial instruments are initially measured at cost which includes transaction costs, when the related contractual
rights and obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Recognised Financial Instrument               Accounting Policy                              Terms & Conditions
(a) Financial assets
Cash and cash equivalents                     Cash is carried at its recoverable amount.     Cash is at call and receives interest at a
                                                                                             rate determined by reference to the official
                                                                                             bank rate.
Receivables                                   Debts are carried at their nominal amounts.    Debts are expected to be received within
                                                                                             30 to 60 days.
(b) Financial liabilities
Payables                                      Recognised for amounts to be settled in the    Trade creditors are ordinarily settled on
                                              future, whether invoiced to the Fund or not.   30-day terms.
Claims reported not paid                      Recognised at fair value through               Once approved claims are generally settled
                                              comprehensive result as calculated by          within a 30-day period.
                                              the actuary.

The financial instruments are classified by reference to the source of inputs used to derive their fair value. This
classification uses the following three-level hierarchy:
   (i) Level 1 - fair value is determined by using quoted prices (unadjusted) in active markets for identical assets or
       liabilities;
   (ii) Level 2 - fair value is determined by using inputs other than quoted prices included within Level 1 that are
        observable for asset or liability, either directly ( i.e., as prices) or indirectly (i.e., derived from prices); and
   (iii) Level 3 - fair value is determined by using inputs for the asset or liability that are not based on observable
         market data.
Cash and cash equivalents are classified as Level 1 financial instruments. All trade receivables and payables are classified
as Level 2 financial instruments while claims reported not paid, as calculated by the actuary are classified as Level 3
financial instruments.
There are no financial instruments not recognised in the financial report at balance date.
The Fund is not subject to other price risk or foreign currency risk.




                                                                                                    VMIA Annual Report 2010 | Page 101
Notes to the Financial
Statements
For the financial year ended 30 June 2010




Interest Rate Risk
The Fund’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in
market interest rates, is as follows:


                                                                          Floating Interest Rate                          Non Interest Bearing
                                                                 2010                      2009                  2010                       2009
Financial Assets                                                    $                         $                     $                          $
Cash and cash equivalents                                   5,575,488                 2,676,482                       -                        -
Receivables                                                           -                        -              796,029                 594,840
Financial Liabilities
At amortised cost:
Payables                                                              -                        -               65,536                 144,454
At fair value on recognition:
Claims reported not paid                                              -                        -            2,897,000               2,253,900

Sensitivity Disclosure Analysis
Interest rate risk is insignificant as funding receipts are held in interest bearing deposits at call for the payment of claims
as they fall due.
The following sensitivity analysis has been determined based on the direct exposure to interest rates at the reporting
date. The analysis assumes the stipulated change taking place at the beginning of the financial year and is held constant
throughout the reporting period. A 0.5% increase or decrease in interest rates is used by the actuary in monitoring claims.
The same percentage has been used here to present the impact on interest bearing investments. These movements are
attributable to the Fund’s exposure to interest rates on its variable rate cash and cash equivalent deposits.

                                                                                                            2010                            2009
                                                                                                               $                               $
Impact on comprehensive result and equity from a movement in Australian interest rates
Increase of 0.5%                                                                                          27,877                        13,382
Decrease of 0.5%                                                                                         (27,877)                     (13,382)




Page 102 | VMIA Annual Report 2010
Notes to the Financial
Statements
For the financial year ended 30 June 2010




Credit Risk
Credit risk arises from the financial assets of the Fund which comprise cash and cash equivalents and receivables with the
potential default of any counter party.
The Fund’s maximum exposure to credit risk at balance date is the carrying amount of those assets disclosed in the
Balance Sheet.
No financial assets are either past due or impaired. All cash and cash equivalent balances are held by a Financial
Institution with an AA (S&P) rating.
The credit risk in respect of receivables is minimal as the debtor is another State Government entity.

Liquidity Risk
Liquidity risk arises if the Fund is unable to meet its financial obligations as they fall due. Expected cash flows are
monitored in detail to ensure adequate funding will be received in advance to meet future payment obligations as they
fall due. Liquidity risk is deemed to be minimal as cash and cash equivalents are held at call in an authorised deposit
taking institution.

Net Fair Values
All financial assets and liabilities recognised in the Financial Report are carried at amounts that approximate their net fair
values. The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial
liabilities of the Fund approximates their carrying amount. No financial assets or financial liabilities are readily traded on
organised markets in a standardised form.




                                                                                              VMIA Annual Report 2010 | Page 103
Domestic Building
(HIH) Indemnity Fund
Financial Report
For the financial year ended 30 June 2010



Accountable Officer’s and Chief Finance and Accounting Officer’s declaration
We certify that the attached Financial Report has been prepared in accordance with Standing Direction 4.2 of the Financial
Management Act 1994, applicable Financial Reporting Directions, Australian Accounting Standards and other mandatory
professional reporting requirements.
We further state that, in our opinion, the information set out in the Comprehensive Operating Statement, Balance Sheet,
Statement of Changes in Equity, Cash Flow Statement and notes to the Financial Statements present fairly the financial
transactions during the year ended 30 June 2010 and the financial position as at 30 June 2010.
We are not aware of any circumstances that would render any particulars included in the Financial Report to be misleading
or inaccurate.
We authorise the attached Financial Report for issue on the 26 August 2010.




Robert Ray
Chairman




Steve Marshall                                                         Tony Dudley
Chief Executive Officer                                                Chief Financial Officer




MELBOURNE
26 August 2010




Page 104 | VMIA Annual Report 2010
VMIA Annual Report 2010 | Page 105
Page 106 | VMIA Annual Report 2010
Corporate
Information
As at 30 June 2010




Victorian Managed Insurance Authority                                 Investment Funds Manager
Level 30, 35 Collins Street,                                          Victorian Funds Management Corporation
Melbourne 3000                                                        Level 13, 101 Collins Street
                                                                      Melbourne 3000
Phone: 03 9270 6900
Fax: 03 9270 6949
                                                                      Bankers
E-mail: clientfeedback@vmia.vic.gov.au
Internet: www.vmia.vic.gov.au                                         Westpac Banking Corporation
                                                                      Level 10, 360 Collins Street
                                                                      Melbourne 3000
Relevant Minister
The Hon. Tim Holding, MP
                                                                      External Auditor
Minister for Finance, WorkCover and
the Transport Accident Commission                                     Victorian Auditor-General’s Office
                                                                      Level 24, 35 Collins Street
                                                                      Melbourne 3000
Board of Directors
Chairman
                                                                      Internal Auditor
Robert Ray
                                                                      KPMG
                                                                      147 Collins Street,
Directors
                                                                      Melbourne 3000
Brian G. Benger
Joan Fitzpatrick
                                                                      Actuaries
Ian C. Gaudion
Doug Kearsley                                                         Finity Consulting Pty Limited
Susan J. Moffatt                                                      Level 6, 30 Collins Street
Henry Pinskier                                                        Melbourne 3000
Suzanne E. Roberts

Chief Executive Officer
Steve Marshall




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