Our strong investment returns have helped to offset the impact of falling interest rates on our balance sheet in 2019/20.
In the last financial year, our investment fund exceeded our benchmark and delivered a 7.59% return. This return generated $3.4b of income – $1.8b higher than budgeted – taking our net investment assets to $46.7 billion.
Over the same period, we recorded a $414 million cash operating surplus.
However, this strong performance was not enough to offset the impact falling interest rates had on our balance sheet, something entirely outside of our control. As financial markets reacted to the COVID-19 pandemic, interest rates fell. This significantly increased the valuation of the injury claims on our books – known as the outstanding claims liability, or OCL – to $61 billion. This, along with changes in inflation rates, contributed $5.7 billion towards our net accounting deficit of $5.9 billion for the year ending 30 June 2020.
This deficit is not a cash loss and importantly doesn't affect our ability to pay for injury treatment, rehabilitation, and compensation costs today.
Instead, the impact this has on our balance sheet relates to the amount of money we have invested today, relative to today’s value of the estimated cost of treating injuries decades into the future – which on average won't be paid for another 20 years. Our funding structure is sustainable, robust and able to withstand short-term volatility, including falling interest rates.
To help reduce cost pressures on the scheme, we're continuing our focus on improving performance across the organisation. This includes effective injury prevention, and prudent cost management of claims and weekly compensation. We're also focused on efficient health sector spending, successful rehabilitation, and harvesting the full benefits from the $500 million investment in our organisational transformation.
Supporting New Zealanders through the pandemic
Before COVID-19 hit, we were on track to face a record number of new claims. During the nationwide lockdown, overall claim volumes fell rapidly – by 50% – but bounced back once restrictions were lifted. Around 65% of costs we incur in a year relate to claims from previous years.
Despite these challenges, and through our recent investments in improving technology and processes, we maintained a high level of service to New Zealanders during lockdown. This was reflected in public trust and confidence in ACC increasing to record levels.
We also worked with doctors and health professionals in providing telehealth services to clients. We deferred levy invoicing and debt collection, giving businesses breathing space to focus on their businesses. And we provided practical injury prevention advice to families on staying safe in their bubbles.
Enhancing the way we support our customers
Other customer service improvements in the year included a new client payments platform that pays people on the same day their support is confirmed, and MyACC for Clients.
MyACC for Clients allows injured customers to use mobile devices to book and access services like taxis. More than 32,000 clients are now managing their claims digitally.
This worked well with the nationwide rollout of Next Generation Case Management (NGCM) that replaces the 'one size fits all' approach. It focuses on the specific – and often changing – needs of each of our individual customers. By the end of June 2020, NGCM assisted more than 30,000 clients back to work or independence and supported more than 50,000 injured people in their recovery. NGCM was in full operation by the end of September 2020.
Helping New Zealanders avoid preventable injuries
In 2019/20, we also increased our investment in injury prevention initiatives to $102 million. This was our highest investment to date, delivering an estimated claims' cost reduction of $1.80 for every dollar we invested.
Our commitment to the environment
In June, the ACC Board approved a climate change policy framework that affects our corporate and investment functions. We'll cut corporate emissions by 60% by 2025, and we're aiming for a 50% reduction in the carbon intensity of the Investment team's global equity portfolio by 2030 compared to 2019 levels.
These targets are in line with the intent of the Climate Change Response (Zero Carbon) Amendment Act passed last year. The framework builds on our ethical investment policy. Less than 0.5% ($210 million) of ACC’s total Investment Fund is invested in fossil fuels, and we have around $1 billion invested in renewable energy assets.
We also established a new $50 million 'impact' portfolio combining our role in injury prevention and health and safety, with expertise in investment management. The aim of the portfolio is to invest in companies and funds that align with our purpose of reducing injuries, that provide a commercial return, and positively impact the OCL.
For more on our annual results, you can read our full 2019/20 Annual Report.