The Accident Compensation Corporation has made a paper loss of $5.9 billion after plummeting interest rates pushed up the valuation for its future injury claims.
The Government agency, which released its annual report today, saw its outstanding claims liability balloon out to $61b which along with changes in inflation rates contributed $5.7b to the accounting deficit for the year to June 30.
That was despite a better than expected return on its investment portfolio which rose 7.59 per cent to $46.7b.
ACC chair Dame Paula Rebstock said the deficit was not a cash loss as it was based on an actuarial revaluation of the future cost of claims.
"New Zealanders can be assured the net deficit will not impact our ability to cover injury treatment, rehabilitation and compensation costs today.
"History has shown the scheme is sustainable and able to be managed on a medium to long-term basis and we can respond and reduce the impact on ACC's
balance sheet over the coming years."
Rebstock said over the year ACC recorded a $414m cash operating surplus which demonstrated ACC's funding structure was robust and able to withstand short-term volatility, including falling interest rates.
However, she warned that in the medium term levies would need to increase to reflect the rising cost of medical procedures, weekly compensation claim growth, legislative and pay rate impacts, under-funding in the accounts and the impact of successive deficits from the fall in interest rates.
Levies are assessed every two years and any rate changes were smoothed over 10 years.
Rebstock said it would need to wait until next year to understand all the factors and what had changed.
The levies are set by the Government while the ACC board just makes recommendations. It is due to make its next recommendation in 2021.
Rebstock said the board and management remained focused on making performance improvements to what it could control to address cost pressures on the scheme.
This included injury prevention, prudent cost management of claims and weekly compensation, efficient health sector spending, successful rehabilitation, and gaining benefits from a $500 million investment in transforming the organisation.
Before Covid hit ACC was expecting to face a record number of claims but during the nationwide lockdown in March claim volumes fell by 50 per cent. They had since bounced back.
Around 65 per cent of costs ACC incurs in a year relate to claims from previous years.
Rebstock said despite the challenges ACC had been able to maintain a high level of service during the lockdown.
"We worked with doctors and health professionals in providing telehealth services to clients; deferred levy invoicing and debt collection giving businesses breathing space to concentrate on their businesses; and provided practical injury prevention advice to families on staying safe in their home bubble," she said.