NEW ZEALAND GAZETTE, No. 22 — 11 MARCH 2016

section 166A requires the Minister for ACC to have regard to the following principles:

• The levies derived for each levied Account should meet the lifetime costs of claims made during the levy year.
• If an Account has a deficit or surplus of funds to meet the costs of claims incurred in past periods, that surplus or deficit is to be corrected by setting levies at an appropriate level for subsequent years.
• Large changes in levies are to be avoided.

These objectives result in a trade-off between funding stability and levy stability. The Board’s funding policy (outlined below) specifies how these objectives are to be balanced.3

The ACC Board’s Funding Policy

The Board’s funding policy identifies the following requirements:

• Levies will be based on new year costs with an adjustment to return or collect any surplus or deficit in the Accounts.
• Accounts will aim to hold assets between 100% and 110% of liabilities and target a funding ratio of 105% over a ten-year horizon.
• The annual average levy increase for any Account must not exceed 15%.

The Board’s funding policy is consistent with the principles in section 166A of the Act.

The levies recommended to the Minister by the Board for 2016/17, as well as those indicated for subsequent out-years, for both the Work Account and the Earners’ Account were consistent with the Board’s funding policy.

Assumptions Underlying the Levy Rate Recommendations for the Work and Earners’ Accounts

The 2016/17 levy rates consulted on and recommended by the Board to the Minister were determined based on the following:

• The claims experience continuing in line with trends as at 31 March 2015;
• estimates of future investment returns given current and expected future market conditions as at 31 March 2015; and
• risk-free interest rates developing as implied by the New Zealand Government bond yield curve at 31 March 2015.

See Appendix C for an explanation of these terms.

Conditions, and particularly economic conditions, underlying ACC’s assumptions are volatile. There has been significant movement in economic factors since the assumptions were set. Overall, the funding ratios for both Accounts are currently higher than was forecast at 31 March 2015. The actual and expected funding ratios are shown in Figure 2 below.

Figure 2: Work and Earners’ Accounts—expected and actual funding ratios

All else being equal, these higher funding ratios would be expected to reduce future levy requirements. However, the levy and funding ratio paths shown in Figures 3 and 4 below are based on the calculations used for levy consultation purposes. ACC will take all new information into account when calculating levy rates for the next levy consultation. The assumptions underlying the levy and funding ratio paths are reasonable.

A. The Work Account

Prescribed Work Account Levy Rates for the 2016/17 Levy Year (1 April 2016 to 31 March 2017)

Following public consultation, the Board recommended that the government reduce the Work Account average levy by 11%, from $0.90 to $0.80 (excl. GST) per $100 liable earnings for the 2016/17 levy year. The recommended rates, as well as the indicative out-year levy rates in the Board’s consultation, were consistent with the Board’s funding policy. Cabinet agreed to the rates recommended by the Board, and the rates have now been prescribed

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