ACC announces $8.7 billion deficit for year as interest rates plummet

ACC chair Dame Paula Rebstock says there's no doubt that the fund is still sustainable. Photo / Boris Jancic

ACC has posted an $8.7 billion deficit for the year, with record-low interest rates taking a major chunk of out its long-term forecasts.

But the public accident insurer says that loss is just on paper and there's no need for entitlements to change after also running a $570 million cash operating surplus.

The corporation presented its 2018-19 financial results to Parliament on Wednesday, with a huge increase in its "outstanding claims liability" (OCL) producing its highest-ever deficit and overshadowing other results.

The OCL is the amount of ACC estimates all its current claims will cost over the next 100 years. Lower interest rates mean the fund has to invest more now to cover costs down the track.

In the year to June, the interest figure the ACC uses to calculate its future costs dropped by more than 1 per cent – meaning that its predicted costs until 2119 blew out by $10.8 billion to $53b.

"This is not a cash loss, and the ACC continues to have more than enough funds to cover and support those who are injured in accidents," ACC chairwoman Dame Paula Rebstock told reporters on Wednesday.

"I don't think there is any question that the scheme is sustainable. There's no question at all in my mind … There's certainly no argument for restricting entitlements."

The size of the deficit was not preventable or predictable, Rebstock said.

By comparison, the corporation's deficit was $4.8b after interest rates felling during the GFC – although the fund has grown significantly since and – but shrank a few years later after an increase in yields.

Rebstock said it was too early to say what the deficit would mean for ACC levies when they were reviewed next year, but the corporation would have to "work hard" to limit the need for increases.

"But this is a matter of how much levies need to change at the margin, it is not about whether the scheme is sustainable."

ACC levies are set every two years by the Government, which takes recommendations from the corporation.

In a note, the ACC said it expected in the medium term, levies would rise to cover increasing costs of medical bills, weekly compensation growth driven by the economy and pay rate impacts.

Minister for ACC Iain Lees-Galloway said despite the accounting deficit, the service was secure and there was no reason to panic.

"The strong financial position that ACC is in means that there's no reason over-react and I expect ACC to carry on doing what it has always done," he said.

The Government wanted to take a "measured" response to changes in levies next year, rather than rapidly raising them only to lower them later, Lees-Galloway said.

In other results, the corporation said its investment fund had seen a 13 per cent return and grew $40b to $44b over the year.

That partly buffered it from the interest rate hit.

The corporation also saw a record 2 million claims for the year (compared to 1.98 million the previous year), with the total cost of claims growing from $4.0b to $4.4b.

Among other areas of growth, it saw a 25 per cent increase in claims involving sexual violence, which Rebstock said had been a trend for a number of years after the service was redesigned to improve access for victims.