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Note 7. Other information

Defence Service Homes Insurance Scheme
Notes to and forming part of the Financial Statements

for the period ended 30 June 2018

This section provides other disclosures relevant to DSHIS's financial information environment for the year.

Note 7.1. Explanations of Major Budget Variances

The following tables provide a comparison between the 2017–18 Portfolio Budget Statements (PBS) budget and the final financial outcome in the 2017–18 financial statements. The Budget is not audited.

Variances are considered to be 'major' based on the following criteria:

  • the variance between budget and actual is greater than 10%; and
  • the variance between budget and actual is greater than 2% of the relevant category (Income, Expenses and Equity totals); or
  • an item below this threshold but is considered important for the reader's understanding or is relevant to an assessment of the discharge of accountability and to an analysis of performance of an entity.

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Explanation of major variances Affected line items (and statement)
Claims
Claims expenses were lower than budget due to a benign claims experience. There were no major catastrophe events during 2017–18. However due to Cyclone Debbie occurring late in 2016–17 there were a higher than budgeted amount of claim payments paid in 2017–18 as these claims were finalised.
Claims expense (Statement of Comprehensive Income), Claim payments (Cash Flow Statement)
Outstanding Claims Provision
The outstanding claims provision is lower than budget ($7.7m) due to a lack of catastrophe events as discussed above. There are only a small number of claims relating to previous years outstanding which has also reduced the amount of the provision.
Gross claims outstanding (Statement of Financial Position)
Premiums & Unearned Revenue
Premium increases were implemented from 1 January 2018 with an average increase of 4% applied. DSHI also trialled a dedicated sales team which has had great success in selling new policies. This has resulted in higher than budgeted unearned revenue.
Unearned revenue (Statement of Financial Position)
Reinsurance Recoveries
Recoveries from Cyclone Debbie in 2016–17 are still outstanding, there were also some large individual claims which can be recovered through reinsurance. DSHIS is able to recover $0.749m from its reinsurance program which has been taken up under Trade and other receivables.
Reinsurance and other recoveries (Statement of Comprehensive Income), Trade and other receivables (Statement of Financial Position)
Investments
At the time the budget was prepared Cyclone Debbie had not occurred so it was anticipated the investments balance would grow to $66.655m.
Investments (Statement of Financial Position)
Investments Cash Movement
DSHIS has changed the methodology for reporting investment cash movement from net to gross. This has resulted in a significant increase in cash movement and a significant variance to budget.
Investments realised, Purchase of investments (Cash Flow Statement)
Staffing
Due to limited recruitment, DSHIS has been unable to fill all vacant positions. These have been filled by Labour Hires (10 as at 30 June 2018). This has resulted in an underspend in employee expenses and an overspend in suppliers (Contractors).
Employee benefits equivalent, Suppliers (Statement of Comprehensive Income), Employees, Suppliers (Cash Flow Statement)
Interest Rates
The rate of return on the investment portfolio has been higher than budgeted due to recent changes in the investment policy which allows more of the portfolio to be invested in term deposits. Term deposits attract a greater return than negotiable certificates of deposit as they are less liquid.
Interest (Statement of Comprehensive Income), Interest (Cash Flow Statement)
Fire Brigade Contribution
At the time the budget was prepared DSHIS was recognising fire service levy paid on policies whose premium had not yet been earned as prepaid fire service levy (an asset). This treatment was incorrect and has been rectified in 2018. This has resulted in a significant reduction in other non-financial assets.
Other non-financial assets (Statement of Financial Position)
Reinsurance Recoveries
Due to the unpredictable nature of claims that will result in reinsurance recoveries, usually relating to catastrophe weather events, no budget is included for reinsurance recoveries.
Reinsurance and other recoveries (Statement of Comprehensive Income)
Reinsurance Expenses
Reinsurance premiums were lower than budgeted due to an oversupply of capital in the reinsurance market and downward pressure on premiums. This also resulted in the adjustment premium which is paid after the end of the financial year to be lower which resulted in lower than budgeted ‘other payables’.
Reinsurance expense (Statement of Comprehensive Income), Other payables (Statement of Financial Position), Reinsurance premiums (Cash Flow Statement)

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