ACC's 14.5% investment return beats benchmark as NZ, global bonds and equities outperform

Wednesday 7th October 2015

Accident Compensation Corp continued a two decade run of beating benchmarks with its investment returns, as the the state owned accident insurer squeezed more profit from its holdings of New Zealand and global bonds and stocks.

The return from ACC's $31.4 billion reserves portfolio was 14.5 percent in the 12 months ended June 30, compared to a benchmark of 13.9 percent. The portfolio grew from $27 billion a year earlier, mainly reflecting investment returns. The corporation's net surplus was $1.6 billion, which was $700 million ahead of budget but down from $2.1 billion a year earlier.

Net levy and other revenue fell about 9 percent to $$4.3 billion while net investment revenue jumped 150 percent to $3.9 billion. Total claim costs almost doubled to $6.1 billion.

Board chair Paula Rebstock said that since the ACC scheme had reached the point where it is fully funded it is able to set levies at a level to meet the cost of current claims and so in future it doesn't expect to generate large surpluses. ACC's future costs are estimated at $81 billion, while the investment income it earns on its outstanding claims liability of $30 billion, will provide for the total lifetime costs.

"Our strong performance is one of the reasons why we're consulting on levy cuts for New Zealanders in 2016/17," she said.

The biggest out-performance versus benchmark was for New Zealand equities, which returned 14.6 percent against a target of 12.7 percent. ACC said the performance reflected "a large number of distinct positions", with the biggest contributions coming from holdings in Chorus and Infratil.

Global equities returned 31.4 percent versus a benchmark of 31.1 percent, which ACC said reflected being underweight emerging markets while favouring portfolios focussed on growth and lower risk companies. A stronger performance from its internally managed global equities made up for weaker returns from those that were farmed out, and overall global equity returns were swelled by the declining New Zealand dollar.

A chart of ACC's 50 biggest investments shows its biggest bet was on Fletcher Building, with a direct investment of about $187 million, closely followed by Infratil at $186.9 million. It held $75 million of Chorus shares. A year earlier its Infratil holding was valued at about $117 million and its Chorus holding at $52.8 million.

Its biggest offshore holding was about $108 million in Commonwealth Bank of Australia, followed by $84 million of Nestle. ACC's $6.1 billion of New Zealand index-linked bonds returned 8.8 percent against an 8.6 percent benchmark and its $12 billion of other New Zealand bonds, mainly government issues, returned 11.8 percent against a benchmark of 11.1 percent. It had $938 million of global bonds, returning 24.8 percent and beating its benchmark of 23.3 percent.

ACC said its internally managed bond portfolios benefitted 'from a further narrowing in yield spreads on non-government bonds."

The corporation's annual report includes a chart that shows how sensitive its finances are to movements in interest rates. For example, a 1 percent increase in interest rates would have lifted the $1.6 billion 2015 surplus to $5.5 billion, while a 1 percent decline would have left ACC facing a $3.6 billion deficit.

The annual report shows ACC had 594 workers earnings $100,00 or more, up from 464 a year earlier. The highest-paid was in a salary band of $810,000 to $820,000 and it had 17 employees earning $500,000 or more.

BusinessDesk.co.nz

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