rt annual report 2010

2010 Annual Report

Head office

Sydney46 Burwood Road Burwood NSW 2134

Member care centres


Wollongong139 Keira Street Wollongong NSW 2500

NewcastleShop 2, 28 Donald Street Hamilton NSW 2303

Brisbane59A Melbourne Street South Brisbane QLD 4101

Contact usTel 1300 886 123 Fax 1300 887 123 [email protected] www.rthealthfund.com.au

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Contents

Chair’s Report 01

CEO’s Report 03

Corporate Governance 06

Directors’ Report 08

Auditor’s Independence Declaration 16

Financial Statements 17

57 railway & transport health fund ltd (abn 93 087 648 744)


It is my privilege to present rt health fund’s annual report for the year ended 30 June 2010. The year has been a challenging one for rt, marked by significant milestones and changes. As they have done for more than 120 years, the board and management have risen to each new challenge to ensure that you can continue to rely on rt for excellent value health cover, constantly enhanced facilities and genuinely caring service.

The most significant aspect of this year’s report is the fund’s experience of a financial loss for the year. While the fund remains in financially strong position, with very high solvency, it has experienced an exceptional level of claims over the past 12 months, which has led to this outcome.

The situation is more fully explained in the CEO’s report on page 3, however, I would like to take this opportunity to very briefly detail the issues, and assure you that the board has taken swift action to put in place the measures necessary to address the situation.

Over the past three years, the fund has embarked on a high-growth strategy. Prior to 2007, it had experienced almost two decades of stagnant or declining membership, and had the second oldest membership age profile of any health fund in the country. Without growth, the fund’s sustainability was in doubt. In the past three years it has grown by around 60% and the membership age profile has decreased significantly. One of the consequences of this growth, however, has been an increase in the volume and cost of clams made, and in the 2009/10 year the cost of claims reached an unprecedented high, resulting in an overall loss for the fund. In response, the board and management moved quickly to review the organisation’s objectives and, as we embark on a new financial year, the focus is now on a slow and steady approach to correcting the fund’s course, with a vastly reduced focus on growth and a ‘back to basics’ approach to business.

As a member of a health fund in Australia you are protected by a vigilant regulatory process, which has seen the industry regulator take a strong interest in the fund’s results. We have been working closely with the regulator to ensure that the current situation is well managed, monitored and rectified.

In other significant news, you may recall that the fund held an extraordinary general meeting of members on 21 July 2010. The purpose of that meeting was to ask members to support a resolution to make changes to the fund’s constitution that would strengthen the make up of the board and the fund’s corporate governance. The resolution was passed by members present and by proxy.

There have been a number of changes in the membership of your board in the past 12 months:• VictoriaReynolds,whoservedaschairsince2005,

took up the role of deputy chair following the 2009 annual general meeting, and has continued to make a significant and valuable contribution to the organisation in that position.

• BobGlover,whohadservedontheboardsince2005endedhistermfollowingthe2009annualgeneral meeting.

• JudithBlake,whohadbeenamemberoftheboardsince2005resignedherpositioninJuly2010.

• BarryDredgewhohasbeenaboardmembersince2005announcedthathewillnotstandforre-election in 2010, and so will vacate his position following this year’s annual general meeting.

On behalf of the board I would like to gratefully acknowledgethecontributionthatBobGlover, JudithBlakeandBarryDredgeeachmadeto the board during their terms. Finally, I would like to officially welcome Michael Scanlan to the board, Michael was appointed following the 2009 electoral process.

Chair’s Report

02railway & transport health fund ltd (abn 93 087 648 744)

In another significant change for the organisation, GlennCampbell,whoservedasCEOsince2006,and who led the organisation through a period of significant change, growth and reinvigoration resigned his position in August 2010. At the time of writing, the board is recruiting for a new CEO and Michael Prior, who has served on the board since 2006, is currently in the role of acting CEO as an interim measure.

I would like to acknowledge the management and staff of the fund whose commitment, dedication, and passion for making this organisation one that is single-mindedly focused on serving the needs of its members is unwavering. The fund celebrated its 120th year of operation in 2009 – a remarkable and increasingly uncommon milestone, and one of which we are all exceptionally proud. We look forward to continuing to provide value to transport and electricity industry people for many more years to come.

It has been my great pleasure and privilege to serve as the chair of the board during this past 12 months, and I would like to acknowledge the contribution made by each of my fellow directors throughout this challenging year. Their support has been invaluable to me.

As we move into a new financial year, the focus of the board and management is on ensuring that the organisation’s operations deliver stable, solid and conservative results. I am pleased to report that results from the first couple of months of this new financial year, available at the time of writing, indicate that the new plans are working and bringing the fund back into profitability.

Bob Scheuber AM Chair

Chair’s ReportContinued


This year’s CEO report is presented by director and acting CEO, Michael Prior. Michael was appointed to the position of acting CEO as an interim measure on 16 August 2010 following the resignation of Glenn Campbell. At the time of writing, the board is recruiting for the position of CEO.

No organisation reaches as significant a milestone as 120 years of operations without experiencing some challenges along the way. While we’ve been pleased to be able to report many successes over the past three years, this year, as well as a number of important achievements, there is also a significant financial loss to be addressed.

For the 2009/10 financial year, the fund has recorded alossof$5.07million.Thecomponentsoftheloss,and how it came to be experienced are significant, and I will detail them here.

As the chair’s report indicated, in 2007, the fund embarked on a high-growth strategy. The strategy was carefully chosen and monitored by the board and management, and was intended to introduce rt health fund to a new generation of younger members, and in doing so, to assure the fund of a more sustainable future. The fundamental basis of any insurance business is to have many people paying into a pool of funds, and in any given year, only relatively few people drawing from the pool of funds.

One of the unforeseen outcomes of the fund’s growth strategy was the different claiming behaviour of the newly recruited members, and in the 2009/10 financial year the fund experienced an unprecedented level of claims. The cost of those claims is one of the key components of this year’s loss. Put simply, one segment of members claimed significantly more money back from the fund than they paid into the fund during the year.

There are a couple of other measures that are significant and require explanation here, too: solvency and capital adequacy.

Solvency is a financial measure that addresses the question, if you stopped doing business today would you have enough money in the bank to pay all of the business’sliabilitiesandclaims.Despitethisyear’sloss, the fund remains in a very strong position from thepointofviewofsolvency.Wemaintain$25millioninmembers’funds,whichrepresentsaround50%more than the industry regulator requires us to hold. The fund remains in a strong financial position.

Capital adequacy is a measure based on the question, if we were to continue to experience the same rate of claims that we are today, how much money would be needed to pay the cost of all those claims into the future. The industry regulator sets a ratio of 1 as the minimum, we currently hold 1.19.

In terms of both solvency and capital adequacy the fund sits above the requirements of the industry regulator, and is both financially and prudentially sound. Notwithstanding this, the financial outcome of the 2009/10 year has been an unusual one. There have been few occasions in the organisation’s history in which it has experienced an end-of-year loss, so this year’s result is one that has caused the board and management to significantly redirect their priorities. The result is a new focus on a ‘back to basics’ approach and a new strategic and business plan focused on slowing the rate of growth, improving the operating efficiencies, and scaling back the costs of managing the fund. At the time of writing we are already starting to see the benefit of this approach. The board and management, working closely with the industry regulator, will be carefully monitoring the fund’s financial performance over the coming year to ensure that the current situation is corrected.

CEO’s Report

railway & transport health fund ltd (abn 93 087 648 744) 04

CEO’s Report Continued

In other news, the management and staff have worked hard to continue to introduce new benefits, services and facilities that add value to your rt health fund membership.

Improved services for membersNew online services – the online member centre now enables members to view information and track the progress of claims. A history of all claims made since 1 January 2009 is available and can be searched by date, by the type of claim or by who made the claim. In addition, members can now also track the progress of current claims through the fund’s processing system, and see when claims are received, logged and paid.

Scanning – this is a behind-the-scenes improvement that will reduce the time taken to process claims and other membership change requests. Scanning technology means that instead of having to manually enter information into the system, it can all happen automatically. This means your claims and requests can be processed faster and our team has the ability to focus more on quality assurance in payments and processes.

Inappropriate claiming – this is another back-of-house improvement that will assist us in managing costs and benefits all members by ensuring that the fund is not subject to incorrect or inappropriate claiming. Several thousand claims ‘rules’ have been overlaid onto our claims processing system to trigger an alert when a claim falls outside of accepted norms. Our staff can then focus on those claims to see whether genuine mistakes have been made or if inappropriate claiming is suspected.

Improved cover for membersIn April this year we introduced a range of enhancements to our covers, including increased optical benefits for members who’ve been with rt for five years or more, new benefits for orthopaedic shoes, increased dental benefits and the removal of the hospital excess for children under the age of 16. In addition, we launched a new ‘family extension’ cover that makes it possible for non-student adult children to remain covered by their parents’ family membershipuntiltheageof25.

Improved member satisfactionAlmost 2,000 members completed our annual member satisfaction survey in February this year. The results of the survey were very pleasing and reflected the areas the fund has been focusing on improving, with members reporting high levels of satisfaction with the fund being competitively priced, having better benefits than other funds and providing value for money.

We were also very pleased to see improvements in satisfaction with the quality of telephone service, written service and speed of claims payments.

Industry recognition for a job well doneThe fund was recognised for two significant achievements during the year. rt was one of three NSWfinalistsintheNSWBusinessChamberAwardsfor Excellence in Community Involvement for its work with the Families Foundation. And on the marketing front, rt was a national finalist in the Australian Institute of Marketing Awards for Excellence for its rebranding project.

railway & transport health fund ltd (abn 93 087 648 744)05

Update on move to Surry Hills Last year we reported that we planned to relocate to our new head office in Sydney’s Surry Hills by mid 2010. As so often happens with refurbishment projects, this one has been delayed due to approvals for the work required to make the building ready. I am pleased to report that the work is now well underway and we are currently scheduled to occupy the building in May 2011.

I’d like to extend my thanks to the management and staff who are so committed to this heath fund and its members; their tireless efforts and endless enthusiasm are appreciated. And finally, thank you to my fellow directors for their support during my brief tenure as acting CEO while we undertake the search for our new CEO.

Michael Prior DirectorandActingCEO


Role of the boardThe board is responsible for the overall corporate governance of the fund, including determining its strategic direction and financial wellbeing, as well as guiding and monitoring its business and affairs on behalf of the members to whom it is accountable.

In summary, the board’s accountabilities and responsibilities include:• contributingtothedevelopmentof,approving,

and monitoring the implementation of strategy including identifying and mitigating any risks that may harm the fund

• settingtheoveralldirection,financialobjectivesand operational goals for the fund

• reviewingandapprovingtheannualbudgetandbusiness plan

• delegatingclearresponsibilityandauthorityto the committees of the board and the CEO, and monitoring and regularly reviewing the performance of those who hold delegated powers

• ensuringthatthefundhaseffectiveprocessesandsystems in place to enable the board to monitor its performance and capabilities

• overseeingthefund’scorporategovernanceframework and ensuring effective communication with members and stakeholders

• monitoringthefinancialstateandperformanceofthe fund

• approvingthefund’sfinancialreporting,includingannual reports

• promotingandmaintainingorganisationalvaluesand a culture where transparent and timely information is shared between management and the board

• ensuringeffectivesystemsofinternalcontrolandinternal audit

• reviewingtheperformanceofandmentoring the CEO.

The board delegates responsibility for the day-to-day management of the fund to the CEO and senior managers, but remains responsible for overseeing the performance of the management team. To ensure that responsibility is clearly defined, the board has delegated a range of authorities to management through formal delegations. These include limited expenditure authority, and the authority to enter into certain contracts and to engage staff.

Board charterThe board has continued in 2009/10 to undertake key activities which will ensure all of its policies, practices and procedures reflect good governance and current corporate practice. In line with current best practice, the board’s charter outlines the fund’s approach to such issues as:• corporateculture• codeofconduct• riskmanagement• audit• policesandprocedures• ethicalstandardsandvalues• boardagenda• meetingprocedures• directors’inductionandtraining• boardanddirectors’evaluationandremuneration• chiefexecutiveofficer’sevaluationandremuneration• capitalmanagement.

The directors recognise that adherence to the charter is fundamental in demonstrating that they are accountable to members and stakeholders, and that they are appropriately overseeing the future direction of the fund and managing its business risks.

Changes to election to the boardThe board has adopted a ‘fit and proper’ policy for nominees wishing to be elected to the board. ThepolicyiscompliantwithAPRAregulationsandconsistent with the ASX guidelines.

Corporate Governance


Conflicts of interestDirectorsarerequiredtodiscloseonanongoingbasisany interests that could potentially conflict with those of the fund or its members. In accordance with the Corporations Act 2001, the board ensures that any director with a material personal interest in a matter being considered by the board must not be present when it is under discussion and may not vote on the matter. Processes have also been implemented to ensure we identify any breaches of compliance, regulations or code of conduct by board members.

Board committeesIn line with best practice corporate governance, the board has established standing committees as an efficient mechanism for considering detailed issues and making recommendations for consideration by the entire board. These committees adopt charters setting out the matters relevant to the composition, responsibilities and administration of each committee. Current committees of the board are:

Audit and RiskThe audit and risk committee is responsible for:• facilitatingtheindependenceoftheexternalaudit

process and addressing issues arising from the external audit process

• ensuringthefundmeetsitsobligationstoregulatory agencies

• directingtheinternalauditfunction,ensuringmaximum value to the fund

• ensuringthequalityandaccuracyofpublishedfinancial reports so they present a true and fair view of the fund’s financial position and comply with relevant statutory and regulatory requirements

• ensuringthefundadopts,maintainsandappliesappropriate accounting and business policies and procedures

• overseeingthefund’sinvestmentsensuringthe correct balance between liquidity, term of investments and interest rates

• overseeingthecapitalmanagementplan• ensuringthefundmaintainseffectiveinternalcontrol

and risk management systems in order to safeguard its financial, physical and intellectual resources.

Remuneration and NominationsThe remuneration and nominations committee is responsible for:• assistingtheboardtoachieveitsobjectives

of ensuring that rt has a board of effective composition, size and commitment to adequately discharge its responsibilities and duties

• establishingpoliciesandproceduresfortheannual performance evaluation of the board, each director and management, and recommending performance and salary reviews for the CEO

• reviewingandplanningprofessionaldevelopmentand succession with the board and senior management

• annualeducationprogramsforboardmembers• managingthe‘fitandproper’policyand

procedures for board appointees.

Board performanceA performance evaluation process has been established for the board, individual directors and key executives.Directorscontinuetoundertakeformaltraining through the Australian Institute of Company Directors(AICD)andCharteredSecretariesAustralia(CSA), as required. All directors have attended training during the year and participated in PHIAC (Private Health Insurance Administration Council) and HIRMAA(HealthInsuranceRestrictedMembershipAssociation of Australia) director education forums.


Directors’ ReportFor the year ended 30 June 2010

Your directors present their report on the company for the financial year ended 30 June 2010.

Company objectivesShort term – To operate as a private health insurer and to conduct a health benefits fund or funds for the purposes of carrying on health insurance and health related business for the benefit of members and their dependants.Long term – To operate as a private health insurer and to conduct a health benefits fund or funds for the purposes of carrying on health insurance and health related business for the benefit of members and their dependants.

Company strategyShort term – To consolidate and enhance the efficient operations of the fund to improve capital levels for long term sustainability.

Long term – To achieve a sustainable level of capital to enable the fund to meet current and future members and their dependants needs for private health insurance.Principal activities – The principal activity of the company during the financial year was the provision of private health insurance. There were no significant changes in the nature of the company’s principal activities during the financial year.Measuring performance – The key measures of performances are the gross margin and loss ratio by product, state and channel, benefits paid by member, the management expense ratio and capital adequacy and solvency ratios.

DirectorsThe names of the directors in office at any time during or since the end of the year are:

NamePosition Held

Date first elected/appointed

Re-elected /re-appointed Resigned Special Responsibilities

BScheuber Chair 24/10/2007 – – Chair,RecoveryCommittee

VReynolds DeputyChair 21/09/2005 19/8/2009 – Chair,Remuneration&NominationsCommitteeMember,RecoveryCommittee

RLedger Director 21/09/2005 24/10/2007 – Member,Audit&RiskCommittee

M Prior Director 25/05/2006 25/04/2009 – MemberandFormerChair,Audit&RiskCommitteeMember,RecoveryCommittee;Acting CEO

BDredge Director 21/09/2005 24/10/2008 – Member,Remuneration&NominationsCommittee

JBlake Director 21/09/2005 24/10/2008 22/07/2010

DEllis Director 21/09/2005 24/10/2008 – Member,Remuneration&NominationsCommittee

RGlover Director 22/09/2004 22/11/2006 18/11/2009

M Scanlan Director 18/11/2009 – – ActingChair,Audit&RiskCommitteeMember,RecoveryCommittee

Directorshavebeeninofficesincethestartofthefinancialyeartothedateofthisreportunless otherwise stated.


Bob Scheuber AM, FCPA, FAIM, MAICD, B Ec, B Bus

Chair & Recovery CommitteeBobwaschiefexecutiveofficerofQueenslandRailuntil 2007 when he established his own consulting business. He currently also serves as chair of the QSuperBoardofTrusteesandasadirectorofCRCRailLtd.InJanuary2008,BobwashonouredasaMember of the Order of Australia (AM) for his ‘service totherailsectorinQueensland,particularlythroughcontributions to regulatory and operational reforms’.

Bobholdsdegreesinbusinessandeconomicsandis an FCPA and a Fellow of the Australian Institute of Management. He has been a member of rt health fund sinceitestablishedoperationsinQueenslandin1991.

Bobservedasdeputychairforoneyear,andfollowingthe 2009 annual general meeting was appointed as chair. He was a member of the board’s audit and riskcommitteefrom2008to2009.DuringhistimeontheboardBobhasbeeninvolvedinimprovingboard processes; the development of the capital management policy and plan; business cases for significant expenditure; providing oversight through the audit and risk committee of investments; and assisting in facilitating key industry relationships.

Bob’sobjectiveistocontributehisskillsandexperience as a senior executive manager in the rail industry to help the fund grow through delivering products and services that help members manage their health.

Victoria Reynolds Dip HR Mgt, GAICD, MAHRI, MWOB

Deputy ChairChair, Remuneration & Nominations and Recovery CommitteesVictoriawasemployedwithNSWrailfor22years,retiringasgeneralmanager,humanresourcesforRailInfrastructureCorporation.In2007Victoriaandher HRteamwereawardedtheprestigiousPremier’sSilverAwardforExcellenceinservicedelivery.VictorianowconsultsinHRandIR.

Victoriawaschairoftheboardfrom2005to2009andduring this time has worked to develop and implement initiatives that continue to improve the governance of the fund. She conducted the board evaluation process and reviewed the performance of each director, and has bolstered the independence of the board through constitutional change. As chair of the remuneration and nominations committee she developed the ‘fit and proper’ process for board member selection. She has also guided the team in the development of new charters for the board and the remuneration and nominations committee, as well as an induction programfornewboardmembers.In2009Victoria’sboard appointment was renewed for three years.

Victoria’sobjectivesaretoensurethatrtcontinuesto deliver the best outcomes for members, while continually improving its services. Her goal is to lead the board in strengthening its corporate governance and building on the fund’s proud history to ensure that it is recognised as a leader among private health funds.

BobScheuber VictoriaReynolds


Directors’ Report ContinuedFor the year ended 30 June 2010

Robert Ledger B Elec, Grad Dip Eng Sys, GAICD

Member, Audit and Risk CommitteeRobertbeganhiscareerasanelectricalfitterwith theNSWGovernmentRailwaysin1965.After40years in engineering and engineering management, Robertretiredin2006asthefleetengineerinthepassengerfleetmaintenancesectionofStateRail.

Roberthasbeenamemberofrthealthfundsince1965andamemberoftheBoardsince2005and isamemberoftheBoard’sAuditandRiskCommittee.Robertwasinstrumentalinwritingthecurrent Constitution in 2006 and also in the redrafting of the Constitution in 2007 to protect members from unwelcometakeover.Roberthasalsoplayedakeyrole in the current review of the constitution as part of the fund’s responses to the PHIAC discussion paper,GovernanceStandardforPrivateHealthInsurers.Roberthasbeeninvolvedinthereview of the capital management policy, the strategic plan andnumerousBoardpolicies.

Robert’songoingvisionforrtistoseeitbecomethehealth fund of choice for all transport and electricity industry employees, and to continue to expand to become the premiere industry health fund in Australia. His expectation is for rt to maintain its high standard of corporate governance while continuing to serve the needs of its members.

Barry Dredge MAICD

Member, Remuneration and Nominations CommitteeBarrybeganhiscareerwithQueenslandRailin1964and retired from his position as maintenance planner inRedbankin2005.Hebecameamemberofrthealth fund in 1992, shortly after it began operating inQueensland.Barryhasbeenamemberoftheboardsince2005andisamemberoftheboard’sRemunerationandNominationsCommittee.

Barryhasbeeninvolvedwithamendmentstothefund’s constitution, the ongoing review of the board charter, and the development of ‘fit and proper’ policies and procedures, all of which contribute to ensuring that the operations, management and governance of the fund represent best practice in theindustry.InadditionBarrydevelopedanewpolicyfor nomination and voting procedures for elected board positions (chair, deputy chair and committees).

Barry’sgoalistoensurethatrtcontinuestogrow,delivering value to members through excellent products and generous rebates, while maintaining competitive contributions.

RobertLedger


Michael Prior M Com, Grad Dip Applied Finance (SIA), CPA, FTIA, FINSIA, MAICD

Member, Audit & Risk and Recovery Committees Acting CEOMichael was appointed to the board as an independent director in 2006. Since 16 August 2010, following the resignation of the CEO, Michael has held the position of Acting CEO. He has stood down from the position of chair of the audit and risk committee while he holds this temporary role.

Michael is also a director of Woods Cottage Foundation Limited, a charitable body that assists the intellectually disabled, and was previously an independent member of the board finance and investmentcommitteeoftheGrainGrowersAssociation of Australia, before resigning this position in June 2010.

Michael has drawn on his wealth of risk and financial management experience within the financial sector to ensure the fund’s corporate governance and risk management frameworks allow it to manage its business risks effectively. He has more than 30 years experience within the financial services industry where he held a number of senior executive positions, including chief financial officer of CMC Markets Asia Pacific, general manager of operational risk and compliancewiththeCommonwealthBank,andvarious senior finance positions with Westpac. He was self-employed as a risk management consultant for four years, providing consulting services to major Australian companies, and was a project director for two years with Accenture Singapore.

In 2009 Michael’s board appointment was renewed for three years.

Dennis Ellis MAICD

Member, Remuneration and Nominations CommitteeDennishasworkedwithQueenslandRailfor33years, currently in the position of pollution operator. ThroughouthiscareerDennishasbeenactiveinthe transport industry and was senior vice president oftheRTBU.Dennishasbeenwithrthealthfundsince1997andamemberoftheboardsince2005.He is a member of the board’s remuneration and nominations committee.

Dennishasplayedanactiveroleintherevisionofthe organisation’s constitution and has also been involved in the development of the ‘fit and proper’ policies and procedures. He has contributed to the development of the board charter and other corporate governance improvements. In 2007, he was integral in brokering a major business initiativewiththeRTBU,leadingtotheintroductionoftheRTBUhealthplannationallyandwhichhasbecome the model for other key relationships.

Dennisiscommittedtoensuringthattheboardcontinues to operate under its best practice standards of governance and that it provides support to the CEO, management and staff in helping the fund to achieve its strategic plan goals.

BarryDredge Michael Prior DennisEllis



Mike Scanlan MBA, BEng, Grad Dip Mgt, FAICD, FAIM, FCILT

Acting Chair, Audit & Risk and Recovery CommitteesBeforebecomingaself-employedconsultant, Mikeenjoyed34yearswithQueenslandRailwherehe held a variety of business unit executive positions. He was appointed to the rt board in 2009 and is Acting Chair of the audit and risk committee.

Mike holds degrees in engineering, management and administration. He is a fellow of the Australian InstituteofCompanyDirectors,AustralianInstituteof Management and Chartered Institute of Logistics and Transport. He is also a member of the Institution of Engineers Australia and the Australian Marketing Institute.

Mike is also the current chair of the Westwood SuperannuationFundandadirectoroftheRailwaysCreditUnion.Hisboardexperienceextendstoprevious directorships with the Heritage Train Company(GreatSouthPacificExpress),theTranslinkAdvisoryBoard,aswellastheQueenslandTourismIndustryCouncilBoard,theCityTransManagementCommitteeandtheUITPANZBoard(International Public Transport Association).

Mike has a passion for helping rt achieve the best value for its members.

Robert Glover MAICD

Robert retired from the board on 18 November, 2009.Roberthasbeenamemberofrthealthfundsince 1976, including ten years as a workshop representative for the fund, and was a member of the board since 2004 and was a member of theAuditandRiskCommitteeuntil2008.

Robertwasinvolvedinanumberofprojectsdedicated to pursuing further improvements in the fund’s governance and operations, including the review of the fund’s constitution.

Mike Scanlan


Judith Blake JP, MAICD

Judith resigned from the board on 22 July, 2010.Judith has been an rt health fund member since 1996andaboardmembersince2005.Previously,asamemberoftheAuditandRiskCommitteeJudith contributed to the introduction of procedures to ensure compliance with the requirements of the Private Health Industry Administration Council (PHIAC) as well as disaster recovery procedures for the fund.

John Hartigan BComm, CA, FCIS, GAICD

Company Secretary John was appointed Company Secretary in May 2010. He is a Fellow of Chartered Secretaries Australia,aCharteredAccountantandGraduateMemberoftheInstituteofCompanyDirectors.He has over 16 years experience in corporate governance and secretariat practice in listed and unlisted public companies.

Mark Dayhew BBus, CPA, AAII, CIP

Chief Financial Officer Mark was appointed Chief Financial Officer in August 2010. He brings a depth of more than 30 years experience in the insurance industry, including over 14 in senior executive roles. Mark’s specialization covers financial systems, risk management, corporate governance, and financial reporting.



Operating resultsThe total comprehensive loss of the company for the financial year after providing for income tax amounted to$5,070,000(2009:surplusof$286,000).

Review of operationsMembership of products providing hospital cover increased by 18.6% over the twelve months to 30 June 2010 while membership of products providing cover for general treatment increased by 21.1% over the same period. Total net contributor growth for the year was 3,713.

The Fund reported a comprehensive loss before unexpired risk adjustment of $2,972,000 (2009: surplusof$715,000)andacomprehensiveloss afterunexpiredriskadjustmentof$5,070,000 (2009: surplus of $286,000). A gross margin of 10.15%generatedduringtheyearislowerthanin 2009; being 10.7%. This is due to the ageing membership base of the fund and growth, resulting in a higher rate of claims being paid. While the average contribution rate increase at 1 April 2010 was 8.97%, hospital, medical and general treatment drawingrateinflationincreasedbyabout15.4%based on AHSA data, including membership growth in the twelve months to 30 June 2010.

Management expenses remained consistent to prior years in respect of contribution income, being 11.6% (2009: 11.6%).

Investment income was lower than in the prior year, due partly to unrealised losses incurred on the managed fund portfolio.

Significant changes in state of affairsNo significant changes in the company’s state of affairs occurred during the financial year.

After balance date eventsNo matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company,

the results of those operations, or the state of affairs of the company in future financial years.

Future development, prospects and business strategiesThe company will continue to pursue the business activities as a registered health benefits organisation and in health related businesses.

Environmental issuesThe company’s operations are not regulated by any significant environmental regulation under a law of the Commonwealth or of a state or territory.

Dividends paid or recommendedAs the company is a company limited by guarantee and a not-for-profit organisation, no dividends have been paid, declared or recorded.

OptionsAs the company is limited by guarantee and not shares, no options over issued shares or interests in the company were granted during or since the end of the financial year and there were no options outstanding at the date of this report.

Indemnifying officers or auditorDuringorsincetheendofthefinancialyear,thecompany has paid insurance premiums to insure all directors and officers of the company against liabilities for costs and expenses incurred by them to the extent permitted by the Corporations Act 2001 in defending legal proceedings arising from their conduct while acting in the capacity of director or officer of the company, other than conduct involving a wilful breach of duty in relation to the company.

The contract of insurance prohibits disclosure of the nature of the liabilities and the amount of the premium.

No indemnities have been given or insurance premiums paid during or since the end of the financial year for any person who is or has been an auditor of the company.


Proceedings on behalf of companyNo person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of those proceedings.

The company was not a party to any such proceedings during the year.

Rounding of amountsThe entity has applied relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1,000.

Meetings of directors Duringthefinancialyear,18meetingsofdirectors(including committees of directors) were held. Attendances by each director during the year were as follows:

Director Meetings Committee Meetings

Audit & Risk Committee

Remuneration & Nominations Committee

Name E A E A E A

BScheuber 9 9 3 3 – –

VReynolds 9 9 – – 3 3

RLedger 9 9 6 6 – –

M Prior 9 9 6 6 – –

BDredge 9 9 – – 3 3

JBlake 9 8 – – – –

DEllis 9 8 – – 3 3

M Scanlan 5 5 3 3 – –

RGlover 4 2 – – – –

Table Key: E Number of meetings eligible to attend A Number of meetings attended

SincetheendofthefinancialyeartheBoardapprovedtheformationoftheRecoveryCommittee.ThecommitteeiscomprisedofBScheuber, VReynolds,MPriorandMScanlan.Thecommittee has met once since its formation.

Auditor’s independence declarationA copy of the auditor’s independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 16 and forms part of this report.

SignedinaccordancewitharesolutionoftheBoardofDirectors:

R ScheuberChairpersonDatedthis15thdayofSeptember2010,Sydney,NSW


Auditor’s Independence Declaration

17

Financial Statements

railway & transport health fund ltd (abn 93 087 648 744)

Statement of Comprehensive Income 18

Statement of Financial Position 19

Statement of Changes in Equity 20

Statement of Cash Flows 21

Notes to the Financial Statements 22

Directors’ Declaration 55

Independent Auditor’s Report 56


Statement of Comprehensive Income For the year ended 30 June 2010

Note2010

$’0002009

$’000

Premium revenue 3 67,419 55,155

Claims expense (74,055) (62,472)

RiskEqualisationTrustFundreceipt 6,385 7,342

GapandAccessGAPrefund 8,053 6,667

State levies (887) (795)

Net claims incurred (60,504) (49,258)

Unexpiredriskliability(increase)/decrease 15 (2,098) (429)

Claims handling expenses 4 (3,684) (2,904)

Write-off of deferred member acquisition costs 4 (2,202) –

Other underwriting expenses 4 (5,383) (3,978)

Underwriting expenses (13,367) (7,311)

Underwriting result (6,452) (1,414)

Investment revenue 3 1,119 1,291

Change in fair value of investment property 3 (243) –

Change in fair value of investments in equity 3 (122) –

Other revenue 3 356 423

(Deficit)/Surplus attributable to members before tax (5,342) 300

Income tax expense 1a. – –

(Deficit)/Surplus attributable to members after tax (5,342) 300

Other comprehensive income

Net gain/(loss) on revaluation of non current assets 272 (14)

Total comprehensive (loss)/income attributable to members (5,070) 286

These financial statements should be read in conjunction with the accompanying notes.

19

Statement of Financial PositionAs at 30 June 2010


Note2010

$’0002009

$’000

Current assets

Cash and cash equivalents 7 7,993 6,339

Trade and other receivables 8 4,674 4,821

Financial assets 9 16,616 13,570

Other current assets 10 121 135

Total current assets 29,404 24,865

Non-current assets

Financial assets 9 961 3,899

Intangible assets 11 261 2,664

Property, plant and equipment 12 12,309 10,747

Investment property 13 3,112 3,354

Total non-current assets 16,643 20,664

Total assets 46,047 45,529

Current liabilities

Trade and other payables 14 1,951 1,206

Short-term provisions 15 11,119 9,063

Other current liabilities 16 7,181 4,435

Total current liabilities 20,251 14,704

Non-current liabilities

Long-term provisions 15 51 10

Total non-current liabilities 51 10

Total liabilities 20,302 14,714

Net assets 25,745 30,815

Equity

Reserves 18 1,727 1,455

Retainedearnings 24,018 29,360

Total equity 25,745 30,815



Statement of Changes in EquityFor the year ended 30 June 2010

Retained earnings$’000

Asset revaluation reserve

$’000Total

$’000

Balance at 1 July 2008 29,060 1,469 30,529

Surplus for the year 300 – 300

Total other comprehensive income – (14) (14)

Balance at 30 June 2009 29,360 1,455 30,815

Deficitfortheyear (5,342) – (5,342)

Total other comprehensive income – 272 272

Balance at 30 June 2010 24,018 1,727 25,745


21

Statement of Cash Flows For the year ended 30 June 2010


Note2010

$’0002009

$’000

Cash flow from operating activities

Receiptsfrommembers’premiums 69,503 55,564

Benefitspaidtomembers (58,323) (47,980)

Receiptsfromcustomers 266 379

Payments to suppliers and employees (7,108) (5,070)

Interest received 788 1,593

Net cash provided by operating activities 23 5,126 4,486

Cash flows from investing activities

Proceeds from disposal of investments 27,917 12,097

Payment for purchase of investments (28,025) (5,158)

Payment for property, plant and equipment (1,485) (7,654)

Payment for intangibles (1,879) (2,882)

Net cash used in investing activities (3,472) (3,597)

Cash flows from financing activities – –

Net cash provided by financing activities – –

Net increase in cash held 1,654 889

Cash at beginning of year 6,339 5,450

Cash at end of year 7 7,993 6,339


Note 1: Statement of significant accounting policiesThe financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting StandardsBoardandtheCorporationsAct2001.

ThefinancialreportcoversRailway&TransportHealth Fund Limited as an individual company. Railway&TransportHealthFundLimitedisacompany limited by guarantee, incorporated and domiciled in Australia.

The financial report complies with Australian Accounting Standards, which include Australian equivalentstoInternationalFinancialReportingStandards(AIFRS).AstatementofcompliancewithInternationalFinancialReportingStandardscannotbemade due to the company applying the not-for-profit sectorspecificrequirementscontainedintheAIFRS.

All amounts presented within the financial report are in Australian dollars unless otherwise stated.

The following is a summary of the material accounting policies adopted by the company in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated.

Basis of PreparationThe accounting policies set out below have been consistently applied to all years presented unless otherwise stated.

Reporting Basis and ConventionsThe financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Accounting Policiesa. Income taxThe company is a private insurer within the meaning of the Private Health Insurance Act 2007 and is exempt from income tax assessment under section 50-30oftheIncomeTaxAssessmentAct1997.

b. RevenuePremium revenue is recorded on an accruals basis, reflecting contributions received adjusted for the opening and closing contributions in advance and in arrears. Contributions received in advance are recorded as a liability and contributions in arrears (to the extent recoverable) are recorded as an asset. Premiums on unclosed business are brought to account using estimates based on payment cycles nominated by the policy holder.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Revenuefromtherenderingofaserviceisrecognisedupon the delivery of the service to the customers.

Lease income from operating leases where the company is the lessor is recognised in the income statement on a straight-line basis over the lease term.

Net fair value gains or losses on financial assets classified as fair value through profit and loss are recognised in the period.

All revenue is stated net of the amount of goods and servicestax(GST).

c. Claims Claims are recorded as an expense in the period in which the service has been provided to the member. The cost of claims therefore represents the claims paid during the period adjusted for the opening and closing provision for unpresented and outstanding claims. The provision for unpresented and outstanding claims provides for claims received but not assessed and claims incurred but not


Notes to the Financial StatementsFor the year ended 30 June 2010

received. The provision is based on an actuarial assessment taking into account historical patterns of claim incidence and processing. No discounting is applied to the provision due to the generally short period between claim incidence and settlement. The provision also provides for the expected payment toorreceiptfromtheRiskEqualisationTrustFund(“RETF”)inrelationtotheamountprovidedforunpresented and outstanding claims. The provision also allows for an estimate of operating expenses to cover the cost of processing the claims.

In addition to the provision for unpresented and outstanding claims, an unearned premium liability is also provided for to meet the costs, including claims handling costs, that will arise under current insurance contracts. The unearned premium liability is calculated by considering current estimates of the present value of expected future cashflows arising from the rights and obligations under current insurance contracts.

d. Risk equalisationAmountsreceivablefromtheRETFarerecordedinthe statement of financial performance in the period for which the receipts relate. Any amounts due at the balance date in relation to the period are brought to account as assets.

e. Outstanding claims liabilityProvision is made at the year end for the liability for outstanding claims which is measured as the central estimate of the expected payments against claims incurred but not settled at the reporting date under insurance contracts issued by the company. The expected future payments include those in relation to claims reported but not yet paid and claims incurred but not yet reported. This ‘central estimate’ of outstanding claims is an estimate which is intended to contain no intentional over or under estimation. For this reason the inherent uncertainty in the central estimate must also be considered and a risk margin is added. Actual results could differ from the estimate.

The expected future payments include those in relation to claims reported but not yet paid and claims incurred but not yet reported, together with allowances forHealthBenefitTrustFund/RiskEqualisationconsequences and claims handling expenses.

f. Cash and cash equivalents Cash and cash equivalents include cash on hand, deposits held at call with banks, and other short-term highly liquid investments with original maturities of three months or less.

g. Unexpired risk liabilityAt each reporting date, the adequacy of the unearned premium liability is assessed by considering the current estimate of all expected future cash flows relating to future claims against current private health insurance contracts.

If the present value of the expected future cashflows relating to future claims plus the additional risk margin to reflect the inherent uncertainty in the central estimate exceeds the unearned premium liability then the premium is deemed to be deficient. The company applies a risk margin to achieve the same probability of sufficiency for future claims as achieved by the estimate of the outstanding claims liability.

h. Unclosed businessUnclosedbusinessisrecognisedonthebalancesheet at year end on premiums in arrears. This is calculated as the remainder of the premium payable.

i. Assets backing private health insurance liabilitiesAs part of the investment strategy, the company actively manages its investment portfolio to ensure that a portion of its investments mature in accordance with the expected pattern of future cash flows arising from private health insurance liabilities. TheBoardhasadoptedaconservativeapproachtomaintain its investment portfolio in Cash and Interest RateSecuritiesexceptforamaximumof5%inAustralian Equities.


Note 1: Statement of significant accounting policies (cont)With the exception of property, plant and equipment, the company has determined that all assets are held to back private health insurance liabilities and their accounting treatment is as follows.

j. Financial instrumentsInitial recognition and measurementFinancial assets and financial liabilities are recognised when the entity becomes a party to the contractual provisions to the instrument. For financial assets, this is equivalent to the date that the company commits itself to either purchase or sell the asset (ie trade date accounting is adopted). Financial instruments are initially measured at fair value plus transactions costs except where the instrument is classified as ‘at fair value through profit or loss’ in which case transaction costs are expensed to profit or loss immediately.

Classification and subsequent measurementFinancial instruments are subsequently measured at either fair value, amortised cost using the effective interest rate method or cost. Fair value represents the amount for which an asset could be exchanged or a liability settled, between knowledgeable, willing parties. Where available, quoted prices in an active market are used to determine fair value. In other circumstances, valuation techniques are adopted.

Amortised cost is calculated as:i. the amount at which the financial asset or financial

liability is measured at initial recognition;ii. less principal repayments;iii. plus or minus the cumulative amortisation of the

difference, if any, between the amount initially recognised and the maturity amount calculated using the effective interest method; and

iv. less any reduction for impairment.

The effective interest method is used to allocate interest income or interest expense over the relevant period and is equivalent to the rate that

exactly discounts estimated future cash payments or receipts (including fees, transaction costs and other premiums or discounts) through the expected life (or when this cannot be reliably predicted, the contractual term) of the financial instrument to the net carrying amount of the financial asset or financial liability.Revisionstoexpectedfuturenetcashflowswill necessitate an adjustment to the carrying value with a consequential recognition of an income or expense in profit or loss.

Financial assets at fair value through profit and loss Financial assets are classified at ‘fair value through profit or loss’ when they are held for trading for the purpose of short-term profit taking, or where they are derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.

Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortised cost.

Loans and receivables are included in current assets, except for those which are not expected to mature within 12 months after the end of the reporting period, which will be classified as non-current assets.

Held-to-maturity investments Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the entity’s intention to hold these investments to maturity. They are subsequently measured at amortised cost.


Notes to the Financial StatementsContinuedFor the year ended 30 June 2010

Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period.

If during the period the company sold or reclassified more than an insignificant amount of the held-to-maturity investments before maturity, the entire held-to-maturity investment would be tainted and reclassified as available-for-sale.

Available-for-sale financial assets Available-for-sale financial assets are non-derivative financial assets that are either not capable of being classified into other categories of financial assets due to their nature, or they were designed as such by management. They comprise investments in the equity of other entities where there is neither a fixed maturity nor fixed or determinable payments.

Available-for-sale financial assets are included in non-current assets, except for those which are expected to be disposed of within 12 months after the end of the reporting period.

Fair valueFair value is determined based on current bid prices forallquotedinvestments.Valuationtechniquesare applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instruments and option pricing models.

ImpairmentAt the end of each reporting period, the entity assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the statement of comprehensive income.

DerecognitionFinancial assets are derecognised where the contractual rights to receipt of cash flows expires or the asset is transferred to another party whereby the entity no longer has any significant continuing involvement in the risks and benefits associated with the asset.

k. Property, plant and equipmentEach class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses.

PropertyStrata title property is shown at fair value (being the amount for which an asset could be exchanged between knowledgeable willing parties in an arm’s length transaction), based on periodic, but at least triennial, valuations by external independent valuers, less any subsequent depreciation. The residual amount of the property is reviewed at least annually to determine whether there is any depreciable amount on which depreciation is then charged.

Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset.

Plant and equipmentPlant and equipment are measured on the cost basis less depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets’ employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.


Note 1: Statement of significant accounting policies (cont)Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

DepreciationThe depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a straight line basis over their useful lives to the company commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements.

The depreciation rates used for each class of depreciable assets are:

Class of Fixed Asset Depreciation Rate

Buildings 2%

Computer equipment 25%

Motor vehicles 12.5%

Plant and equipment 5-20%

Leasehold improvements 20%

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gainsandlossesondisposalsaredeterminedbycomparing proceeds with the carrying amount. These gains or losses are included in the income

statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

l. Investment propertyInvestment property, comprising freehold office complexes, is held to generate long-term rental yields. All tenant leases are on an arm’s length basis. Investment property is carried at fair value, determined by independent valuers and adjusted to reflect the current market value of the property. Changes in fair value of investment property are reflected in the statement of comprehensive income for the year.

m. Impairment of assetsAt each reporting date, the company reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

n. Intangible assetsDeferredmemberacquisitioncostsDeferredmemberacquisitioncostsarerecognisedon commissions paid to iSelect with respect to new members signed through the agency and are measuredatcostofacquisition.Deferredmemberacquisition costs have a finite life and are carried at cost less any accumulated amortisation and impairmentlosses.Deferredmemberacquisitioncosts are amortised over their useful life of 4 years.

AteachreportingperiodDirectorsassesstherecoverability of deferred member acquisition costs and as such any impairment is recognised in the statement of comprehensive income.



Computer softwareComputer software has a finite useful life and is carried at cost less any accumulated amortisation and impairment losses. Amortisation is calculated on a straight-line basis to allocate the cost of the software over their useful lives being three years.

o. LeasesLeases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership, that are transferred to the company are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

p. Provisions Provisions are recognised when the company has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

q. Employee benefitsProvision is made for the company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits

that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

r. Goods and Services Tax (GST)Revenues,expensesandassetsarerecognisednetoftheamountofGST,exceptwheretheamountofGSTincurred is not recoverable from the Australian Taxation Office.Inthesecircumstances,theGSTisrecognisedas part of the cost of acquisition of the asset or as part ofanitemoftheexpense.ReceivablesandpayablesinthebalancesheetareshowninclusiveofGST.

Cash flows are presented in the cash flow statement onagrossbasis,exceptfortheGSTcomponentofinvesting and financing activities, which are disclosed as operating cash flows.

s. Comparative figuresWhen required by accounting standards, comparative figures have been adjusted to conform to changes in presentation for the current financial year.

t. Rounding of amountsThe entity has applied relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest $1,000.

u. Adoption of new and revised Accounting StandardsDuringthecurrentyearthecompanyadoptedall of the new and revised Australian Accounting Standards and Interpretations applicable to its operations which became mandatory.

The adoption of these standards has impacted the recognition, measurement and disclosure of certain transactions. The following is an explanation of the impact the adoption of these standards and interpretations has had on the financial statements of Railway&TransportHealthFundLimited.




Note 1: Statement of significant accounting policies (cont)AASB101:PresentationofFinancialStatementsIn September 2007 the Australian Accounting StandardsBoardrevisedAASB101andasaresult,there have been changes to the presentation and disclosure of certain information within the financial statements.Belowisanoverviewofthekeychangesand the impact on the company’s financial statements.

DisclosureimpactTerminologychanges–TherevisedversionofAASB101 contains a number of terminology changes, including the amendment of the names of the primary financial statements.

Statement of comprehensive income – The revised AASB101requiresallincomeandexpensestobepresented in either one statement, the statement of comprehensive income, or two statements, a separate income statement and statement of comprehensive income. The previous version of AASB101requiredonlythepresentationofasingleincome statement.

The company’s financial statements now contain a statement of comprehensive income.

Other comprehensive income – The revised version ofAASB101introducestheconceptof‘othercomprehensive income’ which comprises of income and expenses that are not recognised in profit or loss as required by other Australian Accounting Standards. Items of other comprehensive income are to be disclosed in the statement of comprehensive income. The previous version of AASB101didnotcontainanequivalentconcept.

v. New Accounting Standards for Application in Future PeriodsTheAASBhasissuednewandamendedaccountingstandards and interpretations that have mandatory application dates for future reporting periods. The company has decided against early adoption of these

standards. A discussion of those future requirements and their impact on the company follows:

AASB9:FinancialInstrumentsandAASB2009-11:Amendments to Australian Accounting Standards arisingfromAASB9[AASB1,3,4,5,7,101,102,108, 112, 118, 121, 127, 128, 131, 132, 136, 139, 1023 & 1038 and Interpretations 10 & 12] (applicable for annual reporting periods commencing on or after 1 January 2013).These standards are applicable retrospectively and amend the classification and measurement of financial assets. The company has not yet determined any potential impact on the financial statements.

The changes made to accounting requirements include:– simplifying the classifications of financial assets into

those carried at amortised cost and those carried at fair value;

– simplifying the requirements for embedded derivatives;

– removing the tainting rules associated with held-to-maturity assets;

– removing the requirements to separate and fair value embedded derivatives for financial assets carried at amortised cost;

– allowing an irrevocable election on initial recognition to present gains and losses on investments in equity instruments that are not held for trading inothercomprehensiveincome.Dividendsinrespect of these investments that are a return on investment can be recognised in profit or loss and there is no impairment or recycling on disposal of the instrument;

– requiring financial assets to be reclassified where there is a change in an entity’s business model as they are initially classified based on (a) the objective of the entity’s business model for managing the financial assets; and (b) the characteristics of the contractual cash flows.


w. Critical accounting estimates and judgmentsThe directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the company. The key areas in which critical estimates are applied are as described below:

Outstanding claims provisionProvision is made at the year end for the liability for outstanding claims which is measured as the central estimate of the expected payments against claims incurred but not settled at the reporting date under insurance contracts issued by the company. The expected future payments include those in relation to claims reported but not yet paid and claims incurred but not yet reported. This ‘central estimate’ of outstanding claims is an estimate which is intended to contain no intentional over or under estimation. For this reason the inherent uncertainty in the central estimate must also be considered and a risk margin is added. The estimated cost of claimsincludesallowancesfortheRiskEqualisationTrustFund(“RETF”)consequencesandclaimshandlingexpense.Giventheinherentuncertaintyinestablishing claims provisions, it is likely that actual results will differ from the original estimate.

In calculating the estimated cost of unpaid claims the company uses estimation techniques based upon statistical analysis of historical data. Allowance is made, however for changes or uncertainties which may distort the underlying statistics or which might cause the cost of unsettled claims to increase or reduce when compared with the cost of previously settled claims, including changes to the company’s processes which might accelerate or slow down the development and/or recording of paid or incurred claims, compared with statistics from previous periods. The calculation was determined as at

30 June 2010, taking into account two months post balance date claims.

The risk margin has been based on an analysis of the past experience of the company. The analysis examined the volatility of the past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of the future volatility. The central estimates are calculated gross of any risk equalisation recoveries. A separate estimate is made of the amounts that will be recoverable from the RETFbaseduponthegrossprovision.

Detailsofspecifickeyestimatesandjudgementsusedin deriving the outstanding claims liability at year end aredetailedinNotes2and15.

UnexpiredriskliabilityThe provision for unexpired risk liability is determined as the excess of benefits, risk equalisation, state levies, claims related expenses plus a risk margin over the premiums for the relevant period. Projected benefits, risk equalisation, state levies and claims related expenses were determined from projections adjusted for recent experience compared to projected and based on no membership growth.

Detailsofspecifickeyestimatesandjudgementsusedin deriving the unexpired risk liability at year end are detailedinNote15e.

Impairment of financial and non-financial assetsThe Company assesses impairment at each reporting date by evaluating conditions specific to the Company that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amountoftheassetisdetermined.Value-in-usecalculations performed in assessing recoverable amounts incorporate a number of key estimates.

Deferredmemberacquisitioncostswasdeemedtobefully impaired for the year ended 30 June 2010.



x. Adoption of the financial reportThefinancialreportwasauthorisedforissueon15September2010bytheboardofdirectors.

Note 2: Actuarial assumptions and methodsActuarial methodsThe outstanding claims estimate is derived based on three valuation classes, namely hospital, medical and general treatment services.

In calculating the estimated cost of unpaid claims a chain ladder method is used, this assumes that the development pattern of the current claims will be consistent with historical experience. Where deemed necessary, manual adjustments were made to the outstanding claims by service month to produce an appropriate estimate of incurred claims for the service month.

Actuarial assumptionsThe following assumptions have been made in determining the outstanding claims liability based on inputs from management and advice from the Appointed Actuary.

2010 2009

Variables Hospital%

Medical%

Ancillary%

Hospital%

Medical%

Ancillary%

Portion paid to date 98.5 97.5 97.4 97.9 97.6 95.9

Expense rate 7.70 7.70 7.70 9.89 9.89 9.89

Discountrate – – – – – –

Riskequalisationrate (12.0) (12.0) – (15.2) (15.2) –

Riskmargin 18.17 18.17 18.17 2.4 2.4 2.4

The risk margin of 18.17% (2009: 2.4%) of the underlying liability has been estimated to equate to a probability of adequacy greaterthan95%(2009:80%).

Process used to determine assumptionsA description of the processes used to determine these assumptions is provided below:

i. Proportion paid to dateThe proportion paid to date summarises the application of the chain ladder method described above to determine the total expected incurred in each service month.

ii. Discount rateAs claims for health funds are generally settled within one year, no discounting of claims is usually applied as the difference between the undiscounted value of claims payments and the present value of claims payments is not likely to be material. An increase in the proportion assumed paid to date, would lead to more claims being paid earlier and therefore a decrease in the liability.


iii. Expense rateClaims handling expenses were calculated by reference to past experience of total claims handling costs as a percentage of total past payments. An increase or decrease in this expense would have a corresponding effect on the claims expense.

iv. Risk equalisation allowanceIn simplified terms, each registered health benefits organisation is required to contribute to the risk equalisation poolorispaidfromthepooltoequalisetheirhospitalclaimsexposuretomembersagedover55yearsofageand in respect of high cost claims. This is an allowance made in respect of the claims incurred but not yet paid. An increase or decrease in this expense would have a corresponding effect on the claims expense.

v. Risk marginThe risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of the future volatility and has been setatalevelestimatedtoequatetoaprobabilityofadequacygreaterthan95%(2009:80%).Anincreaseordecrease in this expense would have a corresponding effect on the claims expense.

Bothoutstandingclaimsriskmarginsfor2010(18.17%)and2009(2.4%)arebasedon2monthsofpaidclaimsin hindsight.

Sensitivity analysis – insurance contractsSummaryThe company conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying variables. The valuations included in the reported results are calculated using certain assumptions about these variables as disclosed above. The movement in any key variable will impact the performance and equity of the company.



Note 2: Actuarial assumptions and methods (cont)Impact on key variables:

Variables

Movement in variable

%

Adjustments on Surplus

$‘000

Adjusted amount

included in Statement of

Comprehensive Income

$‘000

Adjustments on Equity$‘000

Adjusted amount

included in Statement

of Financial Position

$‘000

Grossoutstanding claims provision

+10 -762 -762 -762 -762

-10 762 762 762 762

Expense rate +10 -54 – -54 –

-10 54 – 54 –

Discountrate – – – – –

– – – – –

Riskequalisationrate +10 91 91 91 91

-10 -91 -91 -91 -91

Riskmargin +10 -117 -117 -117 -117

-10 117 117 117 117

Surplus/(Deficit)2010

$’000

Equity2010

$’000

Recognisedamountsinthefinancialstatements (5,070) 25,745


2010$’000

2009$’000

Note 3: RevenuePremium revenue 67,419 55,155

Interest income 1,119 1,291

Change in fair value of investment property (243) –

Change in fair value of investments in equity instruments (122) –

Other income

Rentalincome 309 417

Other income 47 6

Total other income 356 423

Note 4: ExpensesExpenses by function

Claims handling expenses 3,684 2,904

Write-off of deferred member acquisition costs 2,202 –

Other underwriting expenses 5,383 3,978

Total expenses (excluding direct claims expenses) 11,269 6,882

Expenses by nature

Employee benefits 3,684 2,904

Write-off of deferred acquisition costs 2,202 –

Depreciationandamortisation 277 835

Other expenses 5,106 3,143

Total expenses (excluding direct claims expenses) 11,269 6,882



2010$’000

2009$’000

Note 5: Key management personnel compensationShort-term employee benefits

Salary and fees 666 675

Bonus – –

Non-cash benefits 14 13

680 688

Post-employment benefits

Superannuation 60 61

60 61

Other long-term benefits – –

Termination benefits – –

Share-based payments – –

Total key management personnel compensation 740 749

Note 6: Auditors’ remunerationRemunerationoftheauditorfor:

- Audit services 74 60

- Non audit services – –

Total auditor’s remuneration 74 60

Note 7: Cash and cash equivalentsCash on hand 2 2

Cash at bank 7,991 6,337

7,993 6,339


2010$’000

2009$’000

Note 8: Trade and other receivablesCurrent

Premiums in arrears 827 838

Less provision for impairment (66) –

Medicare rebate 1,719 1,418

Riskequalisationtrustfund(“RETF”)quarterlyreceivable 1,588 2,453

Unclosedbusiness 438 –

Investment income receivable – 34

Other receivables 168 78

4,674 4,821

All amounts of receivables are deemed short term. The carrying value of short term receivables is considered a reasonable approximation to fair value. All of the trade and other receivables have been reviewed for indicators of impairment, some of the unimpaired receivables are past due as at the reporting date. The age of financial assets past due but not impaired are as follows:

Past due but not impaired (days overdue)Past due and

impairedGross

amount

< 30 31-60 > 60 $’000

Premiums in arrears

2010 582 115 130 (66) 761

2009 553 95 190 – 838



2010$’000

2009$’000

Note 9: Financial assetsCurrent

(a) Financial assets at fair value through profit or loss:

Held-for-trading Australian listed shares 874 –

(b) Held-to-maturity investments:

Term deposits 14,748 9,570

Fixed interest rate securities – 2,000

Floating rate notes 994 2,000

16,616 13,570

Non Current

Floating rate notes 961 3,899

961 3,899

Note 10: Other current assets

Current

Prepayments 121 135

121 135


2010$’000

2009$’000

Note 11: Intangible assetsComputer software

At cost 412 212

Accumulated amortisation (151) (58)

Total computer software 261 154

Deferred member acquisition costs

At cost – 3,607

Accumulated amortisation – (688)

Movement in unexpired risk liability – (409)

Total deferred member acquisition costs – 2,510

Total intangible assets 261 2,664

Computer software$’000

Deferred member acquisition costs

$’000

Balance at 1 July 2008 50 862

Additions 137 2,745

Disposals – –

Amounts written off from unexpired risk liability – (409)

Amortisation charge (33) (688)

Balance at 30 June 2009 154 2,510

Additions 190 1,689

Disposals – –

Amounts written off from unexpired risk liability – (1,020)

Amortisation charge (83) (977)

Amounts written off – (2,202)

Carrying amount at 30 June 2010 261 –

DuringtheyeartheDirectorsassessedthatthedeferredmemberacquisitioncostswereimpairedandhavewritten down the carrying value to nil.



2010$’000

2009$’000

Note 12: Property, plant and equipmentLand

At fair value (a) 6,019 5,882

Accumulated depreciation – –

Land 6,019 5,882

Buildings

At fair value (a) 5,449 4,371

Accumulated depreciation – (76)

Total buildings 5,449 4,295

Motor vehicles

At cost 20 20

Accumulated depreciation (11) (9)

TotalMotorVehicles 9 11

Plant & equipment

At cost 1,225 793

Accumulated depreciation (393) (234)

Total office furniture and equipment 832 559

Total property, plant and equipment 12,309 10,747

(a)ThefairvalueofthepropertywasindependentlyvaluedbyJohnLHill&Co.(Registeredvaluer#1962)asat30June2010.


Land$’000

Buildings$’000

Motor Vehicle

$’000

Plant & Equipment

$’000Total

$’000

Balance at 1 July 2008 1,483 1,465 12 272 3,232

Additions 4,399 2,838 – 403 7,640

Disposals – – – – –

Revaluationincrements/(decrements) – 14 – – 14

Depreciationexpense – (22) (1) (116) (139)

Accumulated depreciation written – – – – –

Balance at 30 June 2009 5,882 4,295 11 559 10,747

Additions – 1,052 – 433 1,485

Disposals – – – –

Revaluationincrements/(decrements) 137 33 – – 170

Depreciationexpense (32) (2) (160) (194)

Accumulated depreciation written – 101 – – 101

Carrying amount at 30 June 2010 6,019 5,449 9 832 12,309

2010$’000

2009$’000

Note 13: Investment propertyBalanceatbeginningofyear 3,354 3,387

Acquisitions – –

Fair value adjustments (242) (33)

Balanceatendofyear 3,112 3,354



2010$’000

2009$’000

Note 14: Trade and other payablesCurrent

Sundry payables and accrued expenses 1,513 1,206

Unclosedbusiness 438 –

1,951 1,206

Note 15: ProvisionsCurrent

Employee benefits (a) 301 289

Commissions (b) 868 1,326

Member rewards (c) 108 –

Outstanding claims (d) 7,623 6,307

Unexpiredriskliability (e) 2,219 1,141

11,119 9,063

Non-Current

Employee benefits (a) 51 10

51 10


Employee Benefits

$’000Commissions

$’000

Member rewards

$’000

Outstanding claims$’000

Unexpired risk liability

$’000Total

$’000

Movements in provisions

Balanceat1July2009 299 1,326 – 6,307 1,141 9,073

Amounts used during the year – (2,167) – (6,307) – (8,474)

Amounts raised during the year 53 1,709 108 7,623 2,098 11,591Amounts written off from intangible during the year

– – – – (1,020) (1,020)

Balanceat30June2010 352 868 108 7,623 2,219 11,170

(a) Provision for employee benefitsA provision has been recognised for employee entitlements relating to annual and long service leave for employees. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based upon historical data. The measurement and recognition criteria for employee benefits have been included in Note 1.

(b) Provision for commissionsA provision has been recognised for commissions payable to iSelect for new members who sign up to the fund through the iSelect website.

(c) Provision for member rewardsA provision has been recognised for a members’ rewards program which was introduced during the year. This provides for incentives offered to new members for joining as well as existing members for continued loyalty.

(d) Provision for outstanding claims

2010$’000

2009$’000

Outstanding claims – central estimate of the expected future payment for claims incurred 6,708 6,459Riskequalisationcomponent (718) (854)

Claims handling expense 461 554

Gross outstanding claims liability 6,451 6,159

Riskmargin(i) 1,172 148

Net outstanding claims liability 7,623 6,307



Note 15: Provisions (cont)(i)Riskmargin The risk margin of 18.17% (2009: 2.4%) of the underlying liability has been estimated to equate to a probability of adequacy greaterthan95%(2009:80%).

The central estimate of outstanding claims (including those that have been reported but not yet settled and which have been incurred but not yet reported) is an estimate which is intended to contain no intentional over or under estimation. For this reason the inherent uncertainty in the central estimate must also be considered.

The risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past payments that has not been explained by the model adopted to determine the central estimate. This past volatility has been assumed to be indicative of the future volatility.

Theoutstandingclaimsestimateisderivedbasedonthreevaluationclasses,namelyHospital,MedicalandGeneralTreatmentservices.Diversificationbenefitswithinavaluationclassareimplicitlyallowedforthroughthemodeladopted.Thedetermination of the risk margin has also implicitly allowed for diversification between valuation classes based on an analysis of past correlations in deviations from the adopted model.

The Outstanding Claims provision has been estimated using a chain ladder method, based on historical experience and future expectations as to claims. The calculation was determined taking into account two months of actual post balance date claims.

As claims for health funds are generally settled within one year, no discounting of claims is usually applied as the difference between the undiscounted value of claims payments and the present value of claims payments is not likely to be material. Accordingly, reasonable changes in assumptions would not have a material impact on the outstanding claims balance.

Changes in the gross outstanding claims can be analysed as follows:

2010$’000

2009$’000

Grossoutstandingclaimsatbeginningofperiod 6,459 4,323

Riskequalisationcomponent (854) (727)

Administration component 554 265

Central estimate at beginning of period 6,159 3,861

Change in claims incurred for the prior year (336) (134)

Claims paid in respect of the prior year (6,123) (4,189)

Claims incurred during the year (expected) 65,394 60,848

Claims paid during the year (expected) (58,386) (53,927)

Central estimate at end of period 6,708 6,459

Administration component 461 554

Riskequalisationcomponent (718) (854)

Gross outstanding claims at end of period 6,451 6,159


(e) Provision for unexpired risk liability

Unearned premium

$’000

Unearned unclosed business

$’000

Constructive obligation

$’000Total

$’000

2010

Premium (1) 7,181 438 49,266 56,884

Relateddeferredmemberacquisitioncosts – – – –

PremiumlessrelatedDMAC(2) 7,181 438 49,266 56,884

Outflows

Central estimate of future benefits 6,589 401 45,206 52,195

Central estimate of future management expenses 517 31 3,545 4,094

Riskmargin 355 22 2,438 2,814

Total outflows (3) 7,461 454 51,189 59,103

Total deficiency (3) – (2) 280 16 1,923 2,219

Total unexpired risk liability (3) – (1) 280 16 1,923 2,219

Total unexpired risk liability 280 16 1,923 2,219

2009

Premium (1) 3,570 323 31,098 34,991

Relateddeferredmemberacquisitioncosts (42) (4) (363) (409)

PremiumlessrelatedDMAC(2) 3,528 319 30,735 34,582

Outflows

Central estimate of future benefits 3,291 298 28,582 32,171

Central estimate of future management expenses 229 21 1,990 2,240

Riskmargin 176 16 1,529 1,721

Total outflows (3) 3,696 335 32,101 36,132

Total deficiency (3) – (2) 168 16 1,366 1,550

Total unexpired risk liability (3) – (1) 126 12 1,003 1,141

Total unexpired risk liability 126 12 1,003 1,141



Note 15: Provisions (cont)The liability adequacy test for sufficiency is determined as the excess of projected benefits, risk equalisation, state levies, claims related expenses plus a risk margin over the projected contributions less intangible assets and related deferred member acquisition costs for the relevant period.

The provision for unexpired risk liability is determined as the excess of benefits, risk equalisation, state levies, claims related expenses plus a risk margin over the projected contributions for the relevant period. Projected contributions, benefits, risk equalisation, state levies and claims related expenses were determined on a best estimate basis with no membership growth.

Theriskmarginof5.0%forannualreporting(2009:5.0%)isappliedtothebenefits,riskequalisation,stateleviesandclaimsrelatedexpensescashflows.Theriskmarginistoprovidean75%levelofadequacy(2009:80%).

The risk margin has been based on an analysis of the past experience of the company. This analysis examined the volatility of past loss ratios. The adopted risk margin is based on past volatility plus allowances for uncertainty from the economic environment and changes in the risk profile.

2010$’000

2009$’000

Note 16: Other liabilitiesCurrent

Premium received in advance 7,181 4,435

Note 17: Members’ guaranteeThe company is limited by guarantee and hence has no contributed equity. If the company is wound up, the Constitution states that all funds, property and assets that remain after payment of outstanding claims, debtsandliabilitiesshallbeappliedtoanotherorganisationorinstitutionhavingobjectssimilartoRailway& Transport Health Fund Limited, providing similar services which prohibits the distribution of income and assets to its members, and which is exempt from payment of income tax. If the company is wound up and cannot meet its debts, the Constitution states that each member is required to contribute a maximum of $10 each towards meeting any outstanding obligations of the company.

Note 18: ReservesCurrent

Revaluationreserve 1,727 1,455

Theassetrevaluationreserverecordstherevaluationsofnon-currentassets.Duringtheyeararevaluationof$272,000 was carried out on land and buildings.


2010$’000

2009$’000

Note 19: Capital and leasing commitmentsOperating lease commitments

Non-cancellable operating leases contracted for but not capitalised in the financial statements

Payable – minimum lease payments

– not later than 12 months 39 25

–laterthan12monthsbutnotlaterthan5years 67 –

–greaterthan5years – –

106 25

The operating lease commitments relate to non-cancellable premises leases entered for the operation of offices in Newcastle and Wollongong.

Note 20: Contingent liabilities and contingent assetsThe company does not have any contingent liabilities or assets at 30 June 2010.

Note 21: Solvency reserve

Health benefits fund capital (a) 25,745 30,814

Less: Solvency reserve (b) 10,779 10,351

Excess assets 14,966 20,463

(a) This balance represents the capital available at year end to satisfy the solvency reserve required in accordance with the Solvency Standard as set by PHIAC.

(b) The solvency reserve for the company has been calculated in accordance with the Solvency Standard as set by PHIAC and represents the minimum reserve required to be maintained by the company.

Note 22: Segment reportingThe company operates predominantly in one business segment, being the provision of health benefits, and in one geographical segment, being Australia. As part of its activities as a health benefits provider, the company undertakes investments, which are not considered to be a separate operating segment.



2010$’000

2009$’000

Note 23: Cash flow informationReconciliation of Cash Flow from Operations with Surplus after Income Tax

(Loss)/surplus after income tax (5,342) 300

Non-cash flows in surplus

Depreciationandamortisation 1,255 860

Net asset revaluation 242 19

Write-off of intangible 2,202 409

Unexpiredriskliabilitymovement 2,098 20

Changes in assets and liabilities

(Increase)/decrease in trade and term debtors 147 (548)

Decrease/(increase)inotherassets 14 (135)

Increase in payables 745 1,766

Increase in provisions 1,019 1,064

Increase in other liabilities 2,746 731

Cash flows from operations 5,126 4,486

Note 24: Events after the balance sheet dateNo matters or circumstances have arisen since the end of the financial year which significantly affected or may significantly affect the operations of the company, the results of those operations, or the state of affairs of the company in future financial years.


Note 25: Financial instrumentsa. Financial risk managementThe company’s financial instruments consist mainly of deposits with banks, local money market instruments, short-term investments, accounts receivable and payable, bills and leases.

Thetotalsforeachcategoryoffinancialinstruments,measuredinaccordancewithAASB139asdetailedinthe accounting policies to these financial statements, are as follows:

2010$’000

2009$’000

Financial assets

Cash and cash equivalents 7,993 6,339

Loans and receivables 4,674 4,821

Held-to-maturity investments

– Term deposits 14,748 9,570

– Fixed rate notes – 2,000

– Floating rate notes 1,955 5,899

Fair value through profit and loss investments

– Listed securities 874 –

30,244 28,629

Financial liabilities

Financial liabilities at amortised cost

– Trade and other payables 1,951 1,206

– Other Liabilities 7,181 4,435

9,132 5,641

The company does not have any derivative instruments at 30 June 2010.

TheAudit&RiskCommitteehasbeendelegatedresponsibilitybytheBoardofDirectorsfor,amongstotherissues, monitoring and managing financial risk exposures of the company. An investment policy has been developed in order to comply with PHIAC’s requirements.

The fund’s overall investment strategy seeks to assist the fund in meeting its financial targets, while minimising potential adverse effects on financial performance. The main risks the company is exposed to through its financial instruments have been addressed below including; market risks, liquidity risks, credit risks and insurance risks.



Note 25: Financial instruments (cont)Market risks(i) Interest rate riskExposure to interest rate risk arises on financial assets and financial liabilities recognised at reporting date whereby a future change in interest rates will affect future cash flows or the fair value of fixed rate financial instruments. The company is also exposed to earnings volatility on floating rate instruments.

Weighted Average

Effective Interest Rate

%

Floating Interest Rate

$’000Within Year

$’000

Fixed Interest Rate Maturing

1 to 5 years$’000

Total$’000

2010

Financial Assets

Cash and cash equivalents 4.49 – 7,993 – 7,993

Receivables 0.00 – 4,674 – 4,674

Investments 5.55 1,955 14,748 – 16,703

Total Financial Assets 1,955 27,415 – 29,370

2009

Financial Assets

Cash and cash equivalents 4.12 – 6,339 – 6,339

Receivables 0.00 – 4,821 – 4,821

Investments 6.17 5,899 11,570 – 17,469

Total Financial Assets 5,899 22,730 – 28,629


The following table illustrates sensitivities to the company’s exposures to changes in interest rates. The table indicates the impact on how surplus and equity values reported at balance date would have been affected by changes in the relevant risk variable that management considers to be reasonably possible. These sensitivities assume that the movement in a particular variable is independent of other variables.

2010$’000 $’000

2009$’000 $’000

Interest rate movement (%) +2.00 -2.00 +2.00 -2.00

Impact on net result for the year 337 (337) 417 (417)

Impact on equity 337 (337) 417 (417)

(ii) Foreign currency riskThe fund is not exposed to any material foreign currency risk.

(iii) Commodity price riskThe fund is not exposed to any material commodity price risk.

Liquidity riskLiquidity risk arises from the possibility that the company might encounter difficulty in settling its debts or otherwise meeting its obligations related to financial liabilities. The company manages this risk through the following mechanisms:− preparing forward looking cash flow analysis in relation to its operational, investing and financing activities− monitoring undrawn credit facilities− obtaining funding from a variety of sources− maintaining a reputable credit profile− managing credit risk related to financial assets− investing only in surplus cash with major financial institutions− comparing the maturity profile of financial liabilities with the realisation profile of financial assets

The tables over the page reflect an undiscounted contractual maturity analysis for financial liabilities. Financial guarantee liabilities are treated as payable on demand since the company has no control over the timing of any potential settlement of the liabilities.

Cash flows realised from financial assets reflect management’s expectation as to the timing of realisation. Actual timing may therefore differ from that disclosed. The timing of cash flows presented in the table to settle financial liabilities reflects the earliest contractual settlement dates and does not reflect management’s expectations that banking facilities will be rolled forward.



Note 25: Financial instruments (cont)Financial liability and financial asset maturity analysis

Due within < 1yr$’000

1 – 5yrs$’000

> 5yrs$’000

Total$’000

2010

Financial liabilities due for payment

Trade and other payables (excluding estimated annual leave) 1,951 – – 1,951

Other Liabilities 7,181 – – 7,181

Total contractual outflows 9,132 – – 9,132

Total expected outflows 9,132 – – 9,132

Financial assets — cash flows realisable

Cash and cash equivalents 7,993 – – 7,993

Trade, term and loans receivables 4,674 – – 4,674

Held-for-trading investments 874 – – 874

Held-to-maturity investments 15,742 961 – 16,703

Total Anticipated Inflows 29,283 961 – 30,244

Net (outflow)/inflow on financial instruments 20,151 961 – 21,112

2009

Financial liabilities due for payment

Trade and other payables (excluding estimated annual leave) 1,206 – – 1,206

Other Liabilities 4,435 – – 4,435

Total contractual outflows 5,641 – – 5,641

Total expected outflows 5,641 – – 5,641

Financial assets — cash flows realisable

Cash and cash equivalents 6,339 – – 6,339

Trade, term and loans receivables 4,821 – – 4,821

Held-for-trading investments – – – –

Held-to-maturity investments 13,570 3,899 – 17,469

Total Anticipated Inflows 24,730 3,899 – 28,629

Net inflow on financial instruments 19,089 3,899 – 22,988


Credit riskExposure to credit risk relating to financial assets arises from the potential non-performance by counter parties of contract obligations that could lead to a financial loss to the Fund.

Management monitors credit risk by actively assessing the rating quality and liquidity of counter parties. The below table demonstrates the translation of grading used to assess the investments held by the Fund.

PHIAC Grade Standard & Poor’s Moody’s AM BestMaximum per

investment policy1

1 AAA Aaa A++ N/A

2 AA+ AA AA- Aa1 Aa2 Aa3 A+ N/A

3 A+ A A- A1 A2 A3 A A- N/A

4 BBB+BBBBBB- Baa1Baa2Baa3 B++B+ N/A

5 BB+orbelow Ba1orbelow Borbelow N/A

Unrated – – – N/A

1Duringtheyearthecompanyreviseditsinvestmentpolicytoremovethresholdsplacedoninvestmentsbasedoncreditratings. All ratings are assessed on an individual basis by management prior to approval of investments.

AnalysisofStandard&Poor’sRatings:AAA to AAA- Encompasses the major Australian banks and the Australian governmentA+ to A- Enables exposure to the regional Australian banks that offer good risk/rewardsBBB+toBBB-ProvidesforgreaterexposuretoregionalAustralianbanksandhybridsecurities,butamaximumof30%isset

as a prudent level when combined with liquidity requirementsUnrated EnablesaccesstoawiderangeofASXListednon-banksecuritiessuchascreditunionsandbuildingsocieties



Note 25: Financial instruments (cont)TheinvestmentpolicyadoptedbytheFundisdesignedtomeetthestandardssetbyPHIAC.Belowisananalysis of the credit risk as it stands at year end.

PHIAC Grading 1$’000

2$’000

3$’000

4$’000

5$’000

Unrated$’000

Total$’000

2010

Cash & cash equivalents – 7,805 – – – 186 7,991

Held to maturity investments – 2,010 2,000 2,905 – 9,480 16,395

Fair value investments – – – – – 874 874

Total – 9,815 2,000 2,905 – 10,540 25,260

% of total 0% 39% 8% 11% 0% 42%

Maximum allowable per investment policy N/A N/A N/A N/A N/A N/A2009

Cash & cash equivalents – 6,339 – – – – 6,339

Held to maturity investments – 7,174 3,010 3,899 – 3,386 17,469

Fair value investments – – – – – – –

Total – 13,513 3,010 3,899 – 3,386 23,808

% of total 0% 57% 13% 16% 0% 14%

Maximum allowable per investment policy 100% 100% 80% 50% 0% 30%

Insurance RiskThe provision of private health insurance in Australia is governed by the Act and shaped by a number of regulatory factors.

The first is the principle of community rating. This principle prevents private health insurers from discriminating between people on the basis of their health status, age, race, sex, sexuality, the frequency that a person needs treatment, or claims history. The second is risk equalisation which supports the principle of community rating. Private health insurance averages out the cost of hospital treatment across the industry. The risk equalisation scheme transfers money from private health insurers with younger healthier members with lower average claims payments to those insurers with an older and less healthy membership and which have higher average claims payments.


b. Net fair valuesThe fair values of financial assets and financial liabilities are presented in the following table and can be compared to their carrying values as presented in the balance sheet. Fair values are those amounts at which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction.

Fair values derived may be based on information that is estimated or subject to judgment, where changes in assumptions may have a material impact on the amounts estimated. Areas of judgment and the assumptions have been detailed below. Where possible, valuation information used to calculate fair value is extracted from the market, with more reliable information available from markets that are actively traded. In this regard, fair values for listed securities are obtained from quoted market bid prices. Where securities are unlisted and no market quotes are available, fair value is obtained using discounted cash flow analysis and other valuation techniques commonly used by market participants.

Differencesbetweenfairvaluesandcarryingvaluesoffinancialinstrumentswithfixedinterestratesaredueto the change in discount rates being applied by the market since their initial recognition by the company. Most of these instruments which are carried at amortised cost (ie term receivables, held-to-maturity assets and loan liabilities) are to be held until maturity and therefore the net fair value figures calculated bear little relevance to the company.

2010 Net carrying value

$’000Net fair value

$’000

2009 Net carrying value

$’000Net fair value

$’000

Financial assets

Cash and cash equivalents (i) 7,993 7,993 6,339 6,339

Trade and other receivables (i) 4,674 4,674 4,821 4,821

Investments: held-to-maturity (ii) 17,577 17,577 17,469 17,469

Total financial assets 30,244 30,244 28,629 28,629

Financial liabilities

Trade and other payables (i) 1,951 1,951 1,206 1,206

Other liabilities (iii) 7,181 7,181 4,435 4,435

Total financial liabilities 9,132 9,132 5,641 5,641



Note 25: Financial instruments (cont)(i) Cash and cash equivalents, trade and other receivables and trade and other payables are short-term

instruments in nature whose carrying value is equivalent to fair value.

(ii) Fair values of held-to-maturity investments are based on quoted market prices at reporting date.

(iii) Other liabilities are comprised of contributions in advance and excludes amounts provided for relating to unexpired risk liability, outstanding claims liability and employee benefits, which are not considered to be financial instruments.

Note 26: Company detailsThe registered office and principal place of business of the company is:

Railway&TransportHealthFundLimitedABN9308764874446BurwoodRoadBURWOODNSW2134

55

Directors’ Declaration


The directors of the company declare that:

1.thefinancialstatementsandnotes,assetoutonpages18to55,areinaccordancewiththeCorporationsAct 2001 and:

a.complywithAccountingStandardsandtheCorporationsRegulations2001;and

b. give a true and fair view of the financial position as at 30 June 2010 and of the performance for the year ended on that date of the company.

2. i n the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

ThisdeclarationismadeinaccordancewitharesolutionoftheBoardofDirectors.

R SCHEUBERChairperson

Datedthis15thdayofSeptember2010, Sydney, NSW


Independent Auditor’s Report

Contents

Chair’s Report 01

CEO’s Report 03

Corporate Governance 06

Directors’ Report 08

Auditor’s Independence Declaration 16

Financial Statements 17


2010 Annual Report

Head office


Member care centres


Wollongong139 Keira Street Wollongong NSW 2500

NewcastleShop 2, 28 Donald Street Hamilton NSW 2303

Brisbane59A Melbourne Street South Brisbane QLD 4101

Contact usTel 1300 886 123 Fax 1300 887 123 [email protected] www.rthealthfund.com.au

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