Zurich Australian Insurance Limited: Annual Report

ZURICH AUSTRALIAN INSURANCE LIMITED
A.B.N. 13 000 296 640
ANNUAL REPORT
For the year ended 31 December 2020
Contents Page Number
Directors' Report 1-3
Financial Report
Statement of comprehensive income 5
Balance sheet 6
Statement of changes in equity 7
Statement of cash flows 8
Notes to the financial statements 9-54
Directors' declaration 55
Independent auditor's report 56-57
Zurich Australian Insurance Limited is a Company limited by shares, incorporated in and domiciled in Australia. Its registered
office and principal place of business is:
118 Mount Street

North Sydney
NSW2060
A description of the nature of the entity's operations and its principal activities is included in the directors' report on pages 1 - 3.
The annual report was authorised for issue by the directors on 22 March 2021. The directors have the power to amend and reissue
the report.
Directors' report
The directors present their report on Zurich Australian Insurance Limited ("the Company") for the year ended 31 December 2020.
Directors
The following persons were directors of the Company at any time during the financial year and up to the date of this report:
Name Role Appointment date Resignation date

Paul John Bedbrook Director, Chairman 19 November2014
Elaine Collins Director 1 April2013
John Francis Mulcahy Director 24 August 2017
Matthew Reilly Director 22 November 2017
Timothy Paul Plant Director I September2018
The following persons were officers of the Company who held office during financial year 2020:
Name Role Appointment date Resignation date

Cathy Anne Manolios Secretary 16 September2002
David George Hallahan Secretary 11 April 2008
Edmund Ralph Yang Public officer 1 June2019
Principal activities
The principal activity of the Company during the year was underwriting various classes of General Insurance. Following a strategic
review, in the last year the company decided to discontinue underwriting Blue Zebra managing general agency risks effective16
March2020.
During the year the company entered a strategic partnership with the following underwriting agencies:
• On 1 January 2020, the Company entered into a strategic partnership with underwriting agency AFA Pty Ltd. This
partnership has enabled the Company to access AFA's market leading quote and binding tool via eBIND. This opportunity
will grow the Other Accident portfolio and leverage the strengths and capabilities across underwriting, distribution, claims
and technology.
• On17 July2020, the Company entered into a strategic partnership with Marine underwriting agency, NM Insurance. This
partnership has enabled the company to access increased distribution channel and partnering with a market leading
specialist underwriting agency. The partnership is across all segments and brokers, with a primary focus on SME and Mid
Market segments utilising NM's quote and bind platform.
Apart from the above there were no significant change in the nature of the company's principal activities during the year.
Dividends
Dividends paid by the Company to the Australian controlling company, Zurich Financial Services Australia Limited, during the
financial year were as follows:
2020 2019
$'000 $'000
Ordinary dividend paid $60,000
No dividends were paid, declared or recommended to members during the year.

Directors' report (continued)
Review of results and operations
A summary of revenues and results is set out below:

2020 2019
$'000 $'000
Revenues and other income
Direct premium and inwards reinsurance revenue 1,241,988 1,495,970
Reinsurance and other recoveries 677,430 198,011
Investment income 41,420 85,076
Other income 5,797 4,381
Foreign exchange (loss)/gain (821) 1,434
1,965,814 1,784,872
Results
(Loss)/profit for the year (47,271) 61,038
Matters subsequent to the end of the financial year
1) From 19 March 2021 heavy rain and flash flooding has impacted the NSW coastline including the greater Sydney region. At
the time of signing the Annual Report this weather event is continuing and an estimate of the Company's gross and net claims
cannot be determined. The maximum net claims cost to the Company from this event will be $5m, being the amount retained
under the Company's catastrophe reinsurance treaty.
2) In determining the impact of COVID-19 on the 2020 fmancial results, the Company has calculated its claims liability in line
with the critical accounting judgements noted above, but also considered additional factors and assumptions specific to
COVID-19. Given the ongoing impact of this virus, and related uncertainty, market conditions are likely to change and the
impact of these changes will be accounted for in subsequent reporting periods.
3) Following a review the Company has decided to reduce its exposure to the Professional Indemnity insurance market in
Australia and New Zealand by ceasing to renew and offer certain stand-alone professional indemnity policies from I January
2021.
Other than above, the directors are not aware of any matter or circumstance which has arisen since 31 December 2020, other than
dealt with in the financial statements, that has significantly affected or may significantly affect:
a) The operations in future financial years; or

b) The results of those operations in future fmancial years; or
c) The state of affairs in future fmancial years.
Likely developments and expected results of operations

The directors do not make any reference to likely developments and expected results at this time, apart from comments made
elsewhere in this report, as such references could be prejudicial to the interests of policyholders and shareholders. Accordingly, this
information has not been included in this report.
Environmental regulations
The Company has assessed whether there are any particular or significant environmental regulations which apply to it and has
determined that there are none.
Insurance of officers
During the financial year, the Australian parent company, Zurich Financial Services Australia (ZFSA), has paid a premium to insure
all present and past directors, secretaries and executive officers of the Company or a related body corporate. The insurance grants
indemnity against liabilities permitted to be indemnified by the Company under the Corporations Act 2001. In accordance with
normal commercial practice, the insurance policy prohibits disclosure of the tenns of the policy including the nature of the liability
insured against and the amount of the premium.
2
Directors' report (continued)
Agreements to indemnify
The Company's constitution provides that the Company may indemnify, to the extent permitted by law, past and present directors
and secretaries against any liability incurred as an officer of the Company or any subsidiary of the Company together with legal
costs incurred in defending an action for such a liability.
The Company has also entered into various agreements with persons who are current and former officers of the Company and of
certain of the Company's related companies. These agreements variously require the Australian parent company, ZFSA, to
indemnify those persons, to the extent pennitted by the Corporations Act 2001, against liabilities, some claims and legal costs
which they may incur or which are made against them in connection with their position or conduct as officers of the Company and
its related companies. The indemnities provided under those agreements are not limited in amount.
Proceedings on behalf of the comparry

During the financial year, no person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring
proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of
taking responsibility on behalf of the Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the
Corporations Act 200 l.
Rounding of amounts to the nearest thousand dollars

The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the "rounding off' of amounts in the
Directors' Report. Amounts in the Directors' Report have been rounded off to the nearest thousand dollars in accordance with that
Class Order.
Auditor
A copy of the Auditor's Independence Declaration, as required under section 307C of the Corporation Act 2001, is set out on page
4.
This report is made in accordance with a resolution of the directors.
E Collins
Director
Sydney
22 March 2021
3
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Auditor's Independence Declaration

As lead auditor for the audit of Zurich Australian Insurance Limited for the year ended 3r December
2o2o,I declare that to the best of my knowledge and belief, there have been:
(a) no contraventions of the auditor independence requirements of the Corporations Act 2oo1in
relation to the audit; and
(b) no contraventions of any applicable code of professional conduct in relation to the audit.
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4
Statement of comprehensive income

2020 2019
Notes $'000 $'000
Premium revenue
Direct premium revenue 4 b (iii) 1,238,783 1,492,210
Inwards reinsurance revenue 3,205 3,760
Outwards reinsurance expense (306,188) (306,236)
Net premium revenue 935,800 1,189,734
Claims expense 8 (1,427,649) (906,009)

Reinsurance and other recoveries revenue 8 677,430 198,011
Net claims incurred 8 (750,219) (707,998)
Gross movement in unexpired risk liability 20(b) (5,269)

Net movement in unexpired risk liability (5,269)
Acquisition costs (171,871) (326,972)

Other underwriting expenses (132,763) (159,172)
Underwriting expenses (304,634) (486,144)
Underwriting result (124,322) (4,408)
Investment Income 6 41,420 85,076

Other income 7 5,797 4,381
Net foreign exchange (loss)/gain (821) 1,434
(Loss)/profit before income tax (77,926) 86,483
Income tax benefit/(expense) 9(a) 30,655 (25,445)
(Loss)/profit for the year 24(c) (47,271) 61,038
Other comprehensive income
Exchange difference on translating foreign operation 24(b) (959) 280

Other comprehensive (loss)/ income for the year, net of tax (959) 280
Total comprehensive (1oss)/income for the year (48,230) 61,318
The above statement of comprehensive income should be read in conjunction with the accompanying notes.
5
Balance sheet
As at 31 December 2020
Notes 2020 2019

$'000 $'000
Assets
Cash and cash equivalents IO 114,819 176,241

Receivables 11 350,745 403,894
Financial assets at fair value through profit or loss 12 1,511,313 1,471,504
Reinsurance and other recoveries 13 1,304,987 976,969
Deferred acquisition costs 14 49,347 122,166
Other assets 15 166,956 171,446
Deferred tax asset 16 18,6 I I 15,745
Total Assets 3,516,778 3,337,965
Liabilities
Payables 17 153,839 209,777

Provisions 18 10,238 13,222
Unearned premium 19 657,614 815,810
Unexpired risk liability 20(a) 5,269
Outstanding claims 2l(a) 2,199,618 1,760,726
Total Liabilities 3,026,578 2,799,535
Net Assets 490,200 538,430
Equity
Contributed equity 23(a) 97,065 97,065

Reserves 24(a) 6,849 7,808
Retained profits 24(c) 386,286 433,557
Total Equity 490,200 538,430
The above balance sheet should be read in conjunction with the accompanying notes.
6
Statement of changes in equity

Contributed Retained
Equity Reserves profits Total
$'000 $'000 $'000 $'000
Balance at 1 January 2019 97,065 7,528 432,519 537,112
Total comprehensive income for the year 280 61,038 61,318
Transactions with owners in their capacity as owners:

Dividends paid to Australian parent entity (60,000) (60,000)
Balance at 31 December 2019 97,065 7,808 433,557 538,430
Total comprehensive loss for the year (959) (47,271) (48,230)
Balance as at 31 December 2020 97,065 6,849 386,286 490,200
The above statement ofchanges in equity should be read in conjunction with the accompanying notes.
7
Statement of cash flows
Notes 2020 2019

$'000 $'000
Cash flows from operating activities
Net premiums and deposits received 873,166 1,222,570

Net claims and related payments (634,056) (673,035)
Payments to suppliers and employees (280,685) (528,799)
Interest received 2,448 2,765
Fees and commissions received 5,797 4,381
(Payment)/receipt to and from head tax entity (27,310) 28,242
Other payments (800) (500)
Dividends received - non life insurance business 4,708 9,476
Net cash (outflow)/inflow from operating activities 25 (56,732) 65,100
Cash flows from financing activities
Dividend paid to parent entity {60,000}

Net cash outflow from financing activities (60,000)
Cash flows from investing activities
Net cash flows from purchase of investment assets (46,911) (12,789)

Net interest received on investing activities 42,132 47,794
Net cash (outflow)/inflow from investing activities (4,779) 35,005
Net (decrease)/increase in cash held (61,511) 40,105
Cash and cash equivalents at the beginning of the financial year 176,241 136,049
Effects of exchange rate changes on cash and cash equivalents 89 87
Cash and cash equivalents at the end of the financial year 10 114,819 176,241
The above statement of cash flow should be read in conjunction with the accompanying notes.
8
Notes to the financial statements
1. Summary of significant accounting policies
This general purpose financial report has been prepared in accordance with Australian Accounting Standards, other
authoritative pronouncements of the Australian Accounting Standards Board (AASB), Urgent Issues Group
Interpretations and the Corporations Act 2001.
It is prepared in accordance with the historical cost convention, except in the case of certain financial assets, as noted
in the accounting policies below, which are measured on the basis of fair value as required by AASB 139 Financial
Instruments: Recognition and Measurement, and liabilities for long-tail outstanding claims which have been inflated
and discounted as required by AASB 1023 General Insurance Contracts.
Compliance with IFRSs

The financial statements of Zurich Australian Insurance Limited ("the Company") also comply with International
Financial Reporting Standards (IFRSs) as issued by the International Accounting Standards Board (IASB).
New accounting standards and interpretations
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December
2020 reporting periods. The Company's assessment of the impact of these new standards and interpretations is set
out below:
• AASB 9 Financial Instruments addresses the classification, measurement and de-recognition of financial
assets and financial liabilities, introduces new rules for hedge accounting and a new impairment model for
fmancial assets. This standard became effective from 1 January 2018, however in October 2016, the AASB
published an amendment to AASB 4 which provides an option of temporary exemption from AASB 9 for
entities that meet certain requirements (applied at the reporting entity level).
The Company has assessed the applicability of the exemption and concluded that it meets the necessary
requirements and is therefore exempt from AASB 9. AASB 4 will be superseded by the new insurance
contracts standard AASB 17. Accordingly the temporary exemption is expected to cease to be applicable
when the new insurance standard becomes effective.
• AASB 17 Insurance Contracts was adopted by the Australian Accounting Standards Board in July 2017
and subsequently amended in July 2020.
AASB 17 will apply to the Company from 1 January 2023. AASB 17 will apply to all insurance business
and introduces a 'general model' (or Building Block Approach) for recognition and measurement of
insurance contracts. The standard allows the application of a 'simplified model' if the coverage period of
the contract is 12 months or less or if the liability for remaining coverage under the simplified model would
not materially differ from the general model. The Company expects to adopt the simplified model for all
products.
The Company continues to assess the impact of the new requirements and emerging industry guidance on
the financial statements and is in the process of setting up new systems and reporting processes to cater for
these changes. Whilst the standard does not change the economics of the insurance business, the standard
is expected to impact the Group's profit and loss, however, it is not yet practicable to detennine the
quantum. The relevant key areas of consideration under AASB 17 Insurance Contracts are set out below
and where possible the current proposed approach has been detailed:
Portfolios of contracts (with similar risks which are managed together) require disaggregation into
those that are onerous as well as annual cohorts. This is expected to result in an increase in the
number of portfolios and cohorts under AASB 17 compared to AASB I 023. The profit recognition
is also expected to differ as a result of the more granular level of aggregation of contracts under
IFRS 17;
Risk adjustments, which reflect uncertainties in the amount and timing of future cash flows, are
required for both general and life insurance contracts rather than just general insurance contracts
under the current accounting standards (which refers to a risk margin);
9

1. Summary of significant accounting policies (continued)
New accounting standards and interpretations (continued)
The contract boundary, which is the period over which profit is recognised, is determined based
on the ability to compel the policyholder to pay premiums or the substantive obligation to provide
coverage/services. The main impact for the Company will be for term renewable contracts where
the contract boundary is expected to be shorter than it is currently under AASB l 023. This will
result in different patterns of profit recognition compared to the current standards, the impact of
which is not yet practicable to determine;
Some change to the acquisition cost definition including what may be deferred;
Reinsurance contracts and the associated liability is to be determined separately to the gross
contract liability and may have different contract boundaries;
An election to recognise changes in assumptions regarding discount rate in other comprehensive
income rather that in profit and loss which the Company is expected to make;
An election to recognise changes in the fair value of assets supporting policy liabilities in other
comprehensive income rather than through profit and loss which the Company is expected to
make;
Changes to disclosure requirements.
There are no other standards that are not yet effective and that would be expected to have a material impact on the
entity in the current or future reporting periods and on foreseeable future transactions.
Controlled entities
Controlled entities are all those entities over which the Company has the power to govern the financial and operating
policies, generally accompanying a shareholding of more than one-half of the voting rights. The controlled entity is
summarised in Note 29.
The Company has elected not to prepare a set of consolidated accounts as it is a wholly owned subsidiary of Zurich
Financial Services Australia Limited (ZFSA) which prepares consolidated annual accounts.
Critical accounting estimates
TI1e preparation of financial statements requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Company's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to
the financial statements are disclosed in Notes 2 and 3.
Significant accounting policies
(a) Principles of general insurance contracts

The general insurance operations of the Company comprise the underwriting of various classes of direct and
reinsurance contracts. These contracts transfer risk by agreeing to compensate the insured or reinsured on the
occurrence of a specified insured event, such as damage to property or the crystallisation of a third party liability
(or the reinsurance thereof), with in a given time frame. These contracts are defined as general insurance
contracts.
(b) Insurance premium and related revenue

Direct and inwards reinsurance premium comprises amounts charged to the policyholders, including Emergency
Services Levies (ESL) in Australia, but excluding Stamp Duty (SD), Goods and Services Tax (GST), Fire
Service Levy (FSL) in New Zealand and other amounts collected on behalf of third parties.
10
1. Summary of significant accounting policies (co11ti11ued)
Significant accounting policies (continued)
(b) Insurance premium and related revenue (continued)

Direct and inwards reinsurance premium comprises amounts charged to the policyholders, including Emergency
Services Levies (ESL) in Australia, but excluding Stamp Duty (SD), Goods and Services Tax (GST), Fire
Service Levy (FSL) in New Zealand and other amounts collected on behalf of third parties. Inwards reinsurance
is insurance contracts entered into by the Company under which the contract holder is another insurer. The
earned portion of premiums received and receivable, including bound but not incepted and unclosed business,
is recognised as revenue. Premium revenue is treated as earned from the date of attachment of risk.
The pattern of recognition of income over the policy or indemnity periods is based on time, which closely
approximates the pattern of risks underwritten. The proportion of premiums received and receivable not earned
in the statement of comprehensive income at the reporting date is recognised in the balance sheet as an unearned
premium liability. The unearned portion of commissions and other acquisition costs are also deferred and shown
as deferred acquisition costs in the balance sheet.
(c) Fee and other revenue

Fee and other revenue are recognised at the time services are provided.
(d) Dividend and interest income

Interest income is recognised in the statement of comprehensive income using the effective interest rate method.
Dividends are recognised when the Company obtains control of the right to receive the revenue. This applies
even if they are paid out of pre-acquisition profits.
(e) Insurance claims and related expenses

Claims expense represents payment for claims (and claims related expenses) and the movement in outstanding
claims liabilities.
(t) Outwards reinsurance expense

Amounts paid to reinsurers under insurance contracts held by the Company are recorded as outwards reinsurance
expense and are recognised in the statement of comprehensive income from the attachment date over the period
of indemnity of the reinsurance contract in accordance with the expected pattern of the incidence of the risk
ceded.
Accordingly, a portion of outwards reinsurance expense is treated as a prepayment and presented as deferred
outward reinsurance expense in other assets on the balance sheet as at the reporting date.
(g) Income tax

The income tax expense or benefit for the year is the tax payable/receivable on the current year's taxable income
based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and
liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying
amounts in the financial statements, and unused tax losses.
The current income tax expense or benefit is calculated on the basis of the tax laws enacted or substantively
enacted at the end of the reporting period in the countries where the Company's subsidiaries and associates
operate and generate taxable income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where
appropriate on the basis of amounts expected to be paid to the tax authorities.
11
(h) Income tax (continued)

Deferred tax assets and liabilities are recognised using the liability method for temporary differences at the tax
rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are
enacted or substantively enacted. The relevant tax rates are applied to the cumulative amounts of deductible and
taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain
temporary differences arising from the initial recognition of an asset or liability. No deferred tax asset or liability
is recognised in relation to these temporary differences if they arose in a transaction, other than a business
combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.
Deferred tax assets are recognised for deductible temporary differences only if it is probable that future taxable
amounts will be available to utilise those temporary differences and losses.
Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and
tax bases of investments in controlled entities where the Company is able to control the timing of the reversal of
the temporary differences and it is probable that the differences will not reverse in the foreseeable future.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax
liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net
basis, or to realise the asset and settle the liability simultaneously.
Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised
directly in equity.
Tax consolidation legislation

The head entity, ZFSA and the controlled entities in the tax consolidated group (including the Company) continue
to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in
the tax consolidated group is a separate taxpayer within that group.
In addition to its own current and deferred tax amounts, ZFSA also recognises the current tax liabilities ( or assets)
and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities
in the tax consolidated group.
Assets or liabilities arising under the tax funding agreement with the tax consolidated entities are recognised as
amounts receivable from or payable to other entities in the group.
Under a separate tax funding agreement, the Company fully compensates ZFSA for any current tax payable
assumed and is compensated by ZFSA for any current tax receivable and deferred tax assets relating to unused
tax losses or unused tax credits that are transferred to ZFSA under the tax consolidation legislation.
The funding amounts are determined by reference to the amounts recognised (notional tax) in the Company's
financial statements.
Any difference between the amounts assumed and amounts receivable or payable under the tax funding
agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities
12
I. Summary of significant accounting policies (continued)
(g) Income tax (continued)
Tax consolidation legislation (continued)

The entities in the tax consolidated group have entered into a tax sharing agreement which, in the opinion of the
directors, limits the joint and several liability of the wholly-owned entities in the case of a default by the head
entity, ZFSA.
For further details see Income Tax Note 9.
(i) Goods and services tax (GST)

Revenues, expenses, assets and liabilities are disclosed net of the amount of GST, except where the amount of
GST incurred is not recoverable from the Australian Tax Office (ATO) and New Zealand Inland Revenue
Department (IRD). In these circumstances the GST is recognised as part of the cost of acquisition of the asset
or as part ofan item of the expense.
Receivables and payables are stated with the amount of GST included.
The net amount of GST recoverable from, or payable to, the ATO and IRD is included as a current asset or
current liability in the balance sheet.
Cash flows are included in the cash flow statement on a gross basis. The GST components of cash flows arising
from investing and fmancing activities which are recoverable from, or payable to, the A TO and IRD are
classified as operating cash flows.
(i) Emergency services and other statutory charges

A liability for fire brigade and other statutory charges is recognised on business written to the balance date.
Levies and charges payable are expensed on the same basis as the recognition of premium revenue, with the
portion relating to unearned premium being recorded as a prepayment.
(k) Foreign currency translation

The financial statements of the Company are presented in Australian dollars, which is the functional and
presentation currency. Foreign currency transactions are initially translated into Australian dollars at the rate of
exchange at the date of the transaction. At balance date, amounts payable and receivable in foreign currencies
are translated into Australian dollars at rates of exchange current at that date. Resulting exchange differences
are brought to account in determining the profit or loss for the year.
The results and financial position of foreign operations are translated into the presentation currency as follows:
• Assets and liabilities at closing rate at balance date;
• Income and expenses at year to date average exchange rate; and
• All resulting exchange differences are recognised as a separate component of equity.
(I) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short
term, highly liquid investments with original maturities of three months or less that are readily convertible to
known amounts of cash which are subject to an insignificant risk of change in value, and bank overdrafts. Bank
overdrafts are shown within interest bearing liabilities on the balance sheet.
13
I. Summary of significant accounting policies (continued)
(m) Financial assets

The Company classifies its fmancial assets into the following categories: financial assets at fair value through
profit or loss and loans and receivables. The classification depends on the purpose for which the investments
were acquired. Management determines the classification of its investments at initial recognition.
The Company assesses at each balance date whether there is objective evidence that a financial asset or group
of financial assets is impaired.
(i) Financial assets atfair value through profit or loss

The investment assets of the Company have been determined as assets backing policy liabilities and are therefore
valued at fair value through profit or loss.
It is considered that the use of fair value through profit or loss results in more relevant information because it
eliminates or significantly reduces a measurement or recognition inconsistency.
The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not
active (and for unlisted securities), the Company establishes fair value by using valuation techniques. These
include reference to the fair values ofrecent arm's length transactions, involving the same instruments or other
instruments that are substantially the same, discounted cash flow analysis, and option pricing models refined to
reflect the issuer's specific circumstances.
Purchases and sales of investments are recognised on trade-date. The trade-date is the date on which the
Company commits to purchase or sell the asset. Financial assets are initially recognised at cost. These assets are
subsequently measured at fair value. Realised and unrealised gains and losses arising from changes in the fair
value of the 'financial assets at fair value through profit or loss' category are included in the statement of
comprehensive income in the period in which they arise.
Financial assets are derecognised when the right to receive cash flows from the financial assets have expired or
have been transferred and the Company has transferred substantially all the risks and rewards of ownership.
(ii) Receivables
Receivables are carried at cost which is the best estimate of fair value, as they are usually settled within twelve
months and subsequently subject to impairment testing. Impairment testing is based on recoverability of
receivables and is reviewed on an ongoing basis. An impairment charge is recognised when there is objective
evidence that the entity will not be able to collect all amounts due according to the original terms of the contracts.
The impairment charge is recognised in the statement of comprehensive income.
(n) Reinsurance and other recoveries

Reinsurance and other recoveries on paid claims, outstanding claims, claims incurred but not reported (IBNR),
claims incurred but not enough reported (IBNER) and unexpired risk liabilities are recognised as revenue.
Recoveries are assessed in a manner similar to the assessment of outstanding claims. Recoveries in relation to
long-tail classes are measured as the present value of the expected future receipts, evaluated on the same basis
as the liability for outstanding claims to which they relate.
(o) Deferred acquisition costs

The fixed and variable costs of acquiring new business, acquisition costs, include commission, advertising,
policy issue and underwriting costs, agency expenses and premium collection costs.
14

(n) Deferred acquisition costs (continued)

The fixed and variable costs of acquiring new business, acquisition costs, include commission, advertising,
policy issue and underwriting costs, agency expenses and premium collection costs.
A portion of acquisition costs relating to unearned premium revenue is deferred and recognised as an asset,
where it can be reliably measured and where it is probable that it will give rise to premium revenue that will be
recognised in future periods. Deferred acquisition costs are measured at the lower of cost and recoverable amount
and are amortised in accordance with the earning pattern of the corresponding premium revenue.
(p) Impairment of assets

Financial assets measured at fair value, where changes in value are reflected in the statement of comprehensive
income, are not subject to impainnent testing. Other assets such as receivables are subject to impairment testing.
Assets that have an indefinite useful life, such as identifiable intangible assets, are not subject to amortisation
and are tested at least annually for impairment. Assets that are subject to amortisation are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the carrying amount of an asset exceeds
its recoverable amount. The recoverable amount is the higher of an asset's fair value (including realisation costs)
and its value in use.
(q) Payables
These amounts represent liabilities for goods and services provided to the Company prior to the end of the
financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of
recognition.
(r) Provisions
Provisions are recognised when the Company has a present legal or constructive obligation as a result of past
events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the
amount can be reliably estimated. Provisions are not recognised for future operating losses.
(s) Dividends
Provision is made for the amount of any dividend declared on or before the end of the fmancial year but not
distributed at balance date.
(t) Outstanding claims

The liability for outstanding claims is measured as the central estimate of the present value of future claim
payments at the reporting date under general insurance contracts issued by the Company, with an additional risk
margin to allow for the inherent uncertainty in the central estimate.
The future payments include those in relation to outstanding claims, IBNR, IBNER and their associated allocated
costs as well as anticipated claims handling costs.
Claims handling costs include those costs that cannot be directly associated with individual claims, such as
claims administration costs.
The future payments are discounted to present value using a risk free interest rate.
15
(u) Unexpired risk liability

At each reporting date the Company assesses whether the unearned premium liability is sufficient to cover all
expected future cash flows relating to future claims against current insurance contracts. This assessment is
referred to as the liability adequacy test and is performed separately for each group of contracts subject to broadly
similar risks and managed together as a single portfolio.
If the present value of the expected future cash flows relating to future claims plus the additional risk margin to
reflect the inherent uncertainty in the central estimate exceeds the unearned premium liability less related
intangible assets and related deferred acquisition costs, net of reinsurance, then the unearned premium liability
is deemed to be deficient. The Company applies a risk margin to achieve the same probability of sufficiency for
future claims as is achieved by the estimate of the outstanding claims liability, see Note 21. The entire deficiency,
net of reinsurance, is recognised immediately in the statement of comprehensive income. The deficiency is
recognised first by writing down any related intangible assets and then related deferred acquisition costs, with
any excess being recorded in the balance sheet as an unexpired risk liability.
(v) Rounding of amounts

The Company is of a kind referred to in ASIC Legislative Instrument 2016/191, relating to the "rounding off'
of amounts in the financial report. Amounts in the financial report have been rounded off to the nearest thousand
dollars in accordance with that class order.
(w) Comparative information

Where necessary, the amounts shown for the previous year have been reclassified to facilitate comparison.
2. Critical accounting judgements and estimates
The Company makes estimates and assumptions in respect of certain key assets and liabilities. Estimates and
judgements are continually evaluated and are based on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the circumstances. The key areas in which critical estimates
are applied are described below.
(a) The ultimate liability arising from claims incurred under insurance contracts
A liability is held at 31 December 2020 for the estimated cost of claims incurred but not settled, including the
cost of claims incurred but not yet reported to the Company.
The estimated cost of claims includes direct expenses to be incurred in settling claims gross of the expected
value of salvage and other recoveries. The Company takes all reasonable steps to obtain appropriate infonnation
regarding its claims exposures. However, given the uncertainty in establishing the outstanding claims liability,
it is likely that the final outcome will prove to be different from the original liability established.
The estimation of claims IBNR is generally subject to a greater degree of uncertainty than the estimation of the
cost of notified claims to the Company, where information about the claim event is generally available. IBNR
claims may not be apparent to the insured until many years after the event giving rise to the claim. In addition,
IBNER is also subject of uncertainty.
The long-tailed classes of business will typically display greater variations between initial estimates and final
outcomes because there is a greater degree of difficulty in estimating IBNR/IBNER. For the short-tailed classes,
claims are typically reported soon after the claim event, and hence tend to display lower levels of uncertainty.
In calculating the estimated cost of outstanding claims the Company uses a variety of estimation techniques,
generally based upon actuarial analyses of historical experience, which assumes that the development pattern of
the current claims will be consistent with past experience.
16
2. Critical accounting judgements and estimates (continued)
(a) The ultimate liability arising from claims incurred under insurance contracts (continued)
Allowance is made, however, for changes or uncertainties which may create distortions in the underlying data or
which might cause the cost of outstanding claims to increase or reduce when compared with the cost of previously
paid claims including:
• Changes in the Company's processes which might accelerate or slow down the development and/or
recording of paid or incurred claims, compared with the data from previous periods;
• Changes in the legal environment;
• The effects of inflation (both economic and superimposed);
• Changes in the mix of business;
• The impact of large losses;
• Movements in industry benchmarks;
• Medical and technological developments; and
• Changes in policyholder behaviour.
A component of these techniques is usually the estimation of the costs of outstanding claims. In estimating the cost
of these the Company has regard to the claim circumstance as reported, any information available from loss adjusters
and information on the cost of settling claims with similar characteristics in previous periods.
Large claims impacting each relevant business class are generally assessed separately, being measured on a case by
case basis or projected separately in order to allow for the effect of the development and incidence of these large
claims.
Where possible the Company adopts multiple techniques to estimate the required level of liabilities. This assists in
giving greater understanding of the trends inherent in the data being projected. The projections given by the various
methodologies also assist in setting the range of possible outcomes. The most appropriate estimation technique is
selected taking into account the characteristics of the business class and the extent of the development of each
accident year.
Liabilities are evaluated gross of any reinsurance and non-reinsurance recoveries. A separate estimate is made of
the amounts that will be recoverable based upon the gross liabilities.
COVID-19
The World Health Organisation declared COVID-19 a pandemic in March 2020. COVID-19 has had a significant
impact on the global economy including the insurance industry, and continues to give rise to uncertainty and
volatility in global economies and markets. In determining the impact of COVID-19 on the 2020 financial results,
the Company has calculated its claims liability in line with the critical accounting judgements noted above, but also
considered additional factors and assumptions specific to COVID-19. Given the ongoing impact of this virus, and
related uncertainty, market conditions are likely to change and the impact of these changes will be accounted for in
subsequent reporting periods.
COVID-19 has impacted gross written premium, which for the Travel product fell by $478m compared to prior
financial year. COVID-19 has also impacted claims, with the company recording estimated losses of $253m gross
and $35m net in the year to 31 December 2020, across business interruption, travel losses, and potential liability
claims. This estimate has been based on a detailed review of the Company's exposures using scenario analysis
under a variety of macroeconomic and legislative outcomes. Uncertainty remains around potential claims
emergence from property business interruption claims and certain long-tail classes and the Company will continue
to closely monitor emerging claims experience, legislative outcomes and wider market developments so that the net
losses are reflective of expected future claims. The impact of COVID-19 on the recoverability of receivables from
insurance and reinsurance contracts has been considered and no recoverability issues have been identified.
(b) Assets arising from reinsurance contracts

Reinsurance recoveries are also computed using the above methods. In addition, the recoverability of these assets
is assessed on a periodic basis so that the balance is reflective of the amounts that will ultimately be received, taking
into consideration factors such as counterparty and credit risk. Impairment is recognised where there is objective
evidence that the Company may not receive amounts due to it and these amounts can be reliably measured.

17
3. Actuarial assumptions and methods
The Company writes both short-tailed and long-tatled business. The process for detennining the value of outstanding
claims liabilities including the cost of claims handling is described below.
The methods used to establish the ultimate cost of claims include the following:
• Projecting ultimate numbers of claims and multiplying by projected ultimate average cost;
• Projecting ultimate claim payments;
• Projecting ultimate incurred claim amounts; and
• Applying plan or forecast loss ratios to earned premiums.
Claims inflation is incorporated into the resulting projected payments, to allow for both general economic inflation
(generally wage inflation) as well as any superimposed inflation detected in the modelling of payments experience.
Superimposed inflation arises from non-economic factors such as legal developments. Future wage inflation is based
on current levels and economic indicators. Future superimposed inflation is assessed based on current trends and
industry information.
Projected reinsurance assets are derived using similar methods or applying net to gross ratios.
Projected payments are discounted to allow for the time value of money, based on current risk free interest rates.
All these methods rely on future development being consistent with historical development and are thus subject to
uncertainty surrounding changes to these patterns from whatever cause. In addition, there is uncertainty arising from
the underlying assumptions for future wage inflation and superimposed inflation and interest rates. Significant events,
such as catastrophes close to the balance sheet date, emergence of Design & Construction claims and Business
Interruption claims arising from COVID-19 required specialized methods, also increasing the level of uncertainty.
The presence of asbestos and silicosis claims in the portfolio and the potential emergence of new types oflatent claim
also increase the potential variability of the outcome.
For these reasons a risk margin is added to the central estimate established above. The establishment of the risk
margin takes into account the variability of the outcome of each line of business and the diversification benefit of
writing a number of lines of business. The Board and Management have decided that the level of risk margin shall
be established to provide a probability of adequacy of85%. (2019: 85%).
(a) Selected key variables

The following indicators reflect the key variables that have been used in determining the outstanding claims
liabilities.
2020 2020 2019 2019

Long-tail Short-tail Long-tail Short-tail
Average weighted term to settlement 3.1 years 0.7 years 3.2 years 0.5 years
Interest rate for discounting 0.22% 0.05% 0.99% 0.89%
Wage inflation 3.75% for NIA 3.75% for NIA
asbestos related asbestos related
reserves reserves
otherwise otherwise
2.00% 3.00%
Superimposed inflation 0 to 6.0% NIA 0 to 6.0% NIA
18
3. Actuarial assumptions and methods (continued)
(b} Sensitivity analysis - insurance contracts

The Company conducts sensitivity analysis to quantify the exposure to risk of changes in the key underlying
variables. The valuations included in the reported results are calculated using certain assumptions about these
variables as disclosed above. The movement in any key variable will impact the profit after tax of the Company.
The table below gives an analysis of the sensitivity of the profit/(loss) for 2020 and 2019.
Impact ofchanges in key variables
As at 31 December 2020 Movement in Profit/(Loss)

Movement in 2020 2019
Variable $'000 $'000
Short-tail and long-tail

Average weighted term to settlement 0.5 years (1,092) 957
-0.5 years 900 (787)
Interest rate for discounting 1% 15,442 12,175

-1% NIA (13,155)
Wage inflation and superimposed inflation rates 1% (4,766) (5,285)

-1% 4,398 4,766
Financial assets
Shift in yield curve 1% (31,130) (23,837)
-1% 31,130 24,073
Equity prices 20% 22,231 21,621

-20% (22,231) (21,621)
19
4. Management of risk
The Company's activities expose it to a variety of risks, including those arising from COVID-19, that could
potentially impact the financial standing of the Company. This note and Note 5 Financial risk management, provide
an overview of the processes and considerations undertaken in managing these risks.
Section (a) below reviews the risk management framework employed so that the management ofrisk is complete,
effective and aligned to the strategic intent of the Company.
The various categories of risk that may impact the financial standing of the Company are outlined as follows:
Section (b) reviews the insurance risk; Section (c) reviews the operational risks, including the specific controls in
place to manage the risk of financial mis-statement; and Note 5 separately details the financial risk management
policies and procedures in place
(a) Risk management framework
The Company's overall risk management framework seeks to manage risks within the board's risk appetite. This
includes a focus on potential adverse effects on the -fmancial performance ofthe Company, in particular capital and
solvency.
The risk management framework comprises the totality of systems, structures, policies, processes and people within
the Company that identify, measure, evaluate, monitor, report and control or mitigate all internal and external sources
of material risk. The key components of the risk management framework are:
• The business plan - which is developed within the Board's risk appetite and having regard for the risk
management strategy of the Company. Capital adequacy implications are taken into account in the business
planning process.
• The Risk Management Strategy (RMS) -which describes the Company's strategy for managing risk and
the key elements ofthe risk management framework that give effect to the strategy.
• The Board's Risk Appetite Statements -which sets out the Board's appetite for risk taking in the pursuit of
its strategic objectives, giving consideration to the interests of policyholders.
• The Internal Capital Adequacy Assessment Process (ICAAP) - which comprises the processes and
procedures for assessing the risks arising from the Company's activities such that capital held is
commensurate with the level of risk; and it also sets out the strategy for maintaining adequate capital over
time, including the setting of capital targets consistent with the risk profile ofthe Company, the Board's risk
appetite and regulatory capital requirements.
The objective of the RMS is to describe and formalise the Company's approach to the management ofrisk by setting
out:
• clear roles and responsibilities for the management of risk;
• an overview of integrated systems, policies and processes that support effective risk management;
• the risk types that impact the Company and its approach to managing those risks;
• the methodology by which the Company identifies, assesses and manages its risks in accordance with its
risk appetite;
• the mechanisms by the Company identifies and manages new and emerging risks; and
• reporting requirements for monitoring risks and the process for escalation where required.
The Company has an ICAAP that addresses the potential impact of all risk types to capital and solvency. The
authority to take risk is clearly delegated through the Board's risk appetite statement. Subject matter experts are
responsible for the management of each category of risk, including the impact of that risk on capital adequacy. Each
category of risk has its own governance stream to leverage that expertise.
20
4. Management of risk (continued)
(a) Risk management framework (continued)
The broadest categorisation ofrisks is:

• Insurance risk
• Strategic risk
• Operational risk
• Financial risk, subcategorised as:
Market risk;
Credit risk;
Liquidity risk.
With the exception of strategic risk, these categories are discussed in the following sections, with financial risks
separately discussed within Note 5. Strategic risk is the risk to profitable market share over a longer time horizon
and is not directly applicable to annual financial statements.
The risks within the business are subject to at least an annual review by the Internal Audit Department, resulting in
an annual Internal Audit plan which is approved by the Risk, Compliance and Audit Committee (RCAC). The
Internal Audit Department is independent of the day to day operational management of the Company. The Internal
Audit Department executes a review of components of the internal control systems in accordance with the annual
audit plan to assess the effectiveness of the internal controls, risk management within the Company and compliance
with the RMS.
The Board requires that an active risk and governance culture development program is in place. This includes
communication, promotion and engagement activities as well as training for new starters, training for managers,
development of additional tools and Executive sponsorship (including modelling of behaviours by Executives and
setting the appropriate 'tone from the top').
The Board requires that the remuneration structures in place across the organisation are appropriate, promote a strong
risk culture and do not incentivise unethical or inappropriate behaviours. To align staff conduct with a strong risk
culture, all staff are required to include in their personal performance objectives a requirement to demonstrate a
strong risk culture through appropriate behavioural attributes.
Behavioural metrics are monitored and reported to the Executive Teams and the RCAC every six months to track
progress and identify areas for improvement. Risk management behaviours are explicitly included in all employees'
performance objectives. The Boards expect that the risk culture initiatives are evaluated and improved over time.
(b) Insurance risk
(i) Objectives in managing risks arising from insurance contracts and policies for mitigating those risks
The Company has an objective to manage insurance risk thus reducing the volatility of operating profits. In addition
to the inherent uncertainty of insurance risk, which can lead to significant variability in the loss experience, profits
from insurance business are affected by market factors, particularly competition and movements in asset values.
Short-term variability is, to some extent, a feature of insurance business. Various procedures are put in place to
control and mitigate the risks faced by the Company depending on the nature of each risk. The Company's general
insurance risk is monitored by the Chief Risk Officer and communicated regularly to the Board via the quarterly
risk reports. Exposure to insurance risk is also monitored by the Appointed Actuary and is reported to the Board in
the Appointed Actuary's Financial Condition Report.
In accordance with Prudential Standards CPS 220 Risk Management and GPS 230 Reinsurance Arrangements,
issued by the Australian Prudential Regulation Authority (APRA), the Board and senior management of the
Company have developed, implemented and maintained a Risk Management Strategy (RMS) and a Reinsurance
Management Strategy (REMS).
21
(b) Insurance risk (continued)
(i) Objectives in managing risks arising from insurance contracts and policies for mitigating those risks
(continued)
The RMS and the REMS identify the Company's policies and procedures, processes and controls that comprise its
risk management and control systems. These systems address all material risks, financial and non-financial, likely
to be faced by the Company. Annually, the Board certifies to APRA that adequate strategies have been put in place
to monitor those risks, that the Company has systems in place to enable compliance with legislative and prudential
requirements and that the Board has satisfied itself as to compliance with the RMS and REMS.
The RMS and REMS have been approved by the Board.
Key aspects of the processes implemented to manage risks arising from insurance contracts include:
• A fonnal annual total risk profiling assessment that focuses on key risks that impact the achievement of
strategic and business objectives, including the development of action plans for the treatment and continuous
monitoring of identified risks. This is bolstered by formal quarterly reviews of risk issues and progress
against action plans;
• The maintenance and use of appropriate management information systems, which provide up to date,
reliable data on the risks to which the business is exposed at any point in time;
• Actuarial models, using infonnation from the management information systems, are used in calculating
premiums and monitoring claims patterns. Past experience and actuarial methods are used as part of the
process;
• Formally delegated authorities and documented guidelines are followed for underwriting and accepting
insurance risks;
• Natural disasters exposure is monitored through use of models involving the collation of the Company's
own exposure and wider environmental data, which support decisions on limiting exposure;
• Reinsurance is used to limit the Company's exposure to large single claims and catastrophes. When selecting
a reinsurer consideration is normally only given to those companies on a list approved by Zurich Group
head office, which assesses reinsurer security using rating information from the public domain or gathered
through internal investigations. If the Company selects a reinsurer not on the approved list, a separate
approval by Zurich Group is required before placing the risk;
• In order to limit concentrations of credit risk in purchasing reinsurance, the Company has regard to existing
reinsurance assets including the level of exposure to any single reinsurer or group of related reinsurers.
• Placing reinsurance with other companies in the Zurich Group is used as an initial step on a significant
portion of the reinsurance program to enable group-wide reinsurance purchasing efficiencies;
• The mix of assets in which the Company invests is driven by the nature and term of the insurance liabilities.
The management of assets and liabilities is closely monitored to broadly align the sensitivity of asset values
to changes in interest rates with the equivalent sensitivity of the expected pattern of claim payments; and
• The diversification of business over various classes of insurance and large numbers of uncorrelated
individual risks reduces variability in loss experience.
22

(b) Insurance risk (co11tinued)
(ii) Terms and conditions of insurance business

The tenns and conditions attaching to insurance contracts affect the level of insurance risk accepted by the Company.
The majority of direct insurance contracts written are entered into on a standard fonn basis. Standard form contracts
are fonnal\y approved through a full due diligence process. Any non-standard terms and conditions are signed off
by appropriately experienced underwriters within a framework, which includes delegated authorities from the Chief
Underwriting Officer.
(iii) Concentration of insurance risk

The Company's exposure to concentration of insurance risk is mitigated by a portfolio of diversified individual risks.
Specific processes for monitoring identified key concentrations are set out below.
Risk Source of concentration Risk mana�ement measures

Natural Properties and motor vehicles The Company's underwriting strategy requires
catastrophes concentrated in regions that are individual risk premiums to be differentiated in order
subject to: to reflect the higher loss frequency in particular
• Earthquakes; geographical areas.
• Cyclones; The Company has modelled aggregated risk using
• Hail storms; and catastrophe models.
• Other significant natural Based on the probable maximum loss of a 1 in 250
events. year event per the models, the Company purchases
catastrophe reinsurance cover to limit exposure to
any single event.
Exposure to concentration of insurance risk is mitigated through diverse product lines. Direct premium revenue by
product line as disclosed in the statement of comprehensive income is in the table below.
2020 2019
$'000 $'000
Property 342,804 309,427

Motor 346,354 350,381
Marine & aviation 44,395 40,462
Public & product liability 126,311 112,367
Employers' liability 53,398 62,228
Professional indemnity 90,227 80,037
Travel 145,991 452,947
Other 89,303 84,361
Total direct premium revenue 1,238,783 1,492,210
(iv) Development of claims

There is a possibility that changes may occur in the estimate of the Company's obligations up until the time they are
settled. The tables in Note 21 show the Company's estimates of total claims outstanding for each accident year at
successive year ends for classes of business that are typically resolved in more than one year.
(v) Impact of investment returns on pricing

The value of an insurance contract to the Company is in part driven by the investment returns achievable on premium
paid. Typically this is estimated by the risk-free interest rate currently available in the market. Prior to business
being written, the risk is managed by regularly repricing product as interest rates materially change. Insurance and
reinsurance contracts are generally entered into annually. At the time of entering into the contract all terms and
conditions are negotiable or, in the case of renewals, renegotiable.
23
(c) Operational risks
Operational risk is the risk of loss or the risk of not achieving business objectives resulting from inadequate or failed
internal processes, people, systems or from external events such as catastrophes, legislation, external fraud, or losses
related to outsourcing. The Company has a comprehensive framework with a common approach to identify, assess,
quantify, mitigate, monitor and report operational risk.
Generally, all business activities contain some aspect of operational risk. Therefore, ongoing initiatives and controls
to manage operational risks are in place. All functional business areas within the Company undertake a risk
assessment to identify, assess, manage and monitor operational risk. Risk registers are developed and recorded in a
central database for each functional business area, including identifying control owners and action plans for
improvement of controls. The risk registers are regularly reviewed, updated and improved. Some functions are also
subject to operational key controls which sets a minimum framework of operational controls. Risk Management
facilitates the formal review of the risk registers on a risk-based approach with a full review of each register at least
once every three years. Projects with an expected budget over a defined threshold undergo a risk assessment.
A key control for operational risk is maintaining and developing capability of the Company's business continuity
and disaster recovery to plan for the event of a major business disruption.
The Company considers controls to be key instruments for monitoring and managing operational risk. Although
primarily focused on important controls over financial reporting, internal control efforts also include related
operational and compliance controls. The Company continues to strengthen the robustness, consistency,
documentation and assessment of internal controls for business processes. Operational effectiveness of key controls
is assessed by self assessment and independent testing on relevant controls supporting the financial statements.
An operational risk of particular relevance to this report is the risk of misstatement of fmancial statements.
24
5. Financial risk management
Financial risks are a broad category of risks, typically found in financial instruments, but impacting other items on
the balance sheet. They are typically divided into market risk, credit risk and liquidity risk.
Financial risks are generally monitored and controlled by selecting appropriate assets to back policy liabilities. The
assets are regularly monitored by the Capital and Investment Management Committee (CIMC) to provide comfort
that there is no material asset and liability mismatching issues and other risks such as liquidity risk and credit risk
are maintained within acceptable limits.
(a) Market risk

Market risk is the risk of diminution in value of the Company's investment portfolio arising from adverse
movements in the levels and volatility of interest rates, foreign exchange rates and equity prices. The risk is
mitigated by transacting all activities in accordance with approved mandates, strategies and limits. Market risk
analysis is conducted on a regular basis and risk management controls provide comfort that positions are
monitored against the portfolio risk limits. Market risk analysis is conducted on a total portfolio basis, including
the effect of market movements on the valuation of insurance liabilities, and other balance sheet items, as well
as the explicit impact on investments.
Refer to Note 3 (b) for an analysis of the impact of changes in key assumptions on reported profit/(loss) and
equity of the Company. The analysis includes the impact of changes on financial assets.
Asset and liability management techniques

A key aspect of market risk is to manage asset and liability mismatching issues. Asset and liability mismatching
risk is the potential for unfavourable changes in the values of assets compared to liabilities that could adversely
affect available financial resources due to movements in market factors such as interest rates, equity prices, credit
spreads or foreign exchange rates.
The Company's management of investments consists of analysis of market value and changes with respect of
previous month and quarter; analysis of exposure and asset allocation; analysis of tail risk (to an expected
shortfall of 99%); analysis of sensitivities (duration, convexity and volatility); stress testing (monetary impact
on assets and liabilities of various interest rate, credit spread and equity index shocks); and analysis of credit
exposures by rating, industry and seniority and portfolio concentration (all credit-sensitive assets are investment
grade).
The management of market risk, including asset and liability management is overseen by the CIMC. The ultimate
controlling entity, Zurich Insurance Group Ltd's, risk policy provides constraints on the mix of investment assets.
On-balance sheet
The aggregate carrying value of financial assets and liabilities approximate their net fair values. The methods
used to determine the carrying values of financial assets and liabilities are included in Note 1.
Off-balance sheet
The Company has potential fmancial liabilities which may arise from certain contingencies disclosed in Note
27. No material losses are anticipated in respect of any of those contingencies, and the net fair value is assessed
as an immaterial amount.
(b) Credit risk

Credit risk is the risk that one party to a financial instrument will cause a fmancial loss for the other party by
failing to discharge an obligations. Credit risk is assumed through three main mechanisms:
25
5. Financial risk management (continued)
(b) Credit risk (continued)
i) The assumption of credit risk through investments in corporate debt;

ii) Credit risk created through reinsurance, where a reinsurance asset represents an obligation of the
reinsurer to the entity; and
iii) Receivables within the business, where the entity is owed payment or services by a third party. Most
typically this is the receipt of invoiced funds.
The management of credit risk is overseen by the CIMC.
i) Financial assets
The carrying amounts of financial assets included in the balance sheet represent the Company's maximum
exposure to credit risk in relation to these assets. Where entities have a right of set-off and intend to settle on a
net basis, this set-off has been reflected in the financial statements in accordance with accounting standards.
Cash andfinancial assets

Standard and Poor' s (S&P) rating for cash at bank disclosed in Note 10 is:
Australia and New Zealand Banking Group Limited Al+ (2019: Al+)
Westpac Banking Corporation A1+ (2019: Al+)
HSBC Bank Australia Ltd Al (2019: Al )
The Company invests substantially in securities traded in an active market and are priced daily. The debt
securities disclosed in Note 12 are analysed in the table below using S&P or Moody's ratings.
2020 2019
$'000 $'000
Debt securities (held directly)
AAA 281,390 320,389
AA 575,227 513,020
A 229,288 218,142
BBB 221,173 222,483
Total debt securities 1,307,078 1,274,034
Current debt securities 331,674 378,986

Non-current debt securities 975,404 895,048
Total debt securities 1,307,078 1,274,034
The table below shows the Company's major concentrations of credit risk(> $50 million, which is approximately
10% of the Company's capital base) in cash and cash equivalents disclosed in Note 10 and debt securities
disclosed in Note 12:
2020 2019
$'000 $'000
Counterparty
Commonwealth Government of Australia 117,102 53,459
South Australia Government of Australia 72,367 49,241
Australia and New Zealand Banking Group 66,584 89,201
Western Australia Treasury Corporation 65,170 79,988
Queensland Treasury Corporation 56,920 95,795
378,143 367,683
26
(b} Credit risk (continued)
ii) Reinsurance
The company monitors its credit risk associated with reinsurance assets with Zurich Group companies and other
reinsurers. Placing reinsurance with companies in the Zurich Group is used as an initial step on a significant
portion of the reinsurance programme to enable group-wide reinsurance purchasing efficiencies. Reinsurance
security is monitored continuously taking advantage of the Group's Security Committee analyses and there are
strict controls around the use of individual reinsurers. Reinsurance accumulations are also monitored closely and
used in deciding the appropriate placement programme at renewal.
Reinsurance receivable on incurred claims disclosed in Note 13 are analysed in the table below using S& Prating.
2020 2019
$'000 $'000
AAA or AA 962,186 730,117

A 59,283 24,885
BBB or unrated 20,512 13,854
Total reinsurance receivable on incurred claims
(excluding risk margin and other recoveries)
1,041,981 768,856
Of the total Reinsurance receivable on incurred claims:
• 10% (2019: 7%) of the reinsurance receivable on incurred claims had a third party reinsurer as a counter
party;and
• 90% (2019: 93%) of the reinsurance receivable on incurred claims had companies in the Zurich Group as a
counterparty.
Irrevocable standby letters of credit for a total of up to $172 million (2019: $192 million) were issued by
Australian banks on behalfof other entities in the Zurich Group in favour of the Company. These letters of credit
relate to all reinsurance contracts entered into between the Company and other entities in the Zurich Group on
or after 31 December 2008. $172 million is valid until amended or cancelled. As at 31 December 2020, $172
million (2019: $192 million) ofreinsurance recoverable due from other entities in the Zurich Group were secured
under these letters of credit.
A collateral trust was established during 2013, by means of a trust deed entered into between the Company,
Zurich Insurance Company (ZIC) and Perpetual Corporate Trust Ltd. The funds of the trust were contributed by
ZIC, to constitute recognised collateral in respect of aged reinsurance recoverable owed by ZIC to the Company.
The total collateral in the trust at 31 December 2020 was $468 million (2019: $423 million). The letters of credit
and collateral trust total of$639 million (2019: $615 million) covers aged reinsurance recoverables from the
second balance dates of$537 million (2019: $529 million).
27
(b) Credit risk (continued)
iii) Business receivables
Premium receivable
General insurance premiums receivable for the Company are disclosed in Note 11, the ageing of which is
disclosed below:
2020 2019
$'000 $'000
Neither past due nor impaired (90 day credit terms) 266,371 263,006
Amounts past due but not impaired to 30 days 27,611 22,089
Amounts past due but not impaired 31 to 90 days 6,502 11,841
Amounts past due but not impaired over 90 days 18,665 30,344
Provisions for impairment (2,442) (2,757)
Total premiums receivable 316,707 324,523
(c) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with
financial liabilities as they come due without incurring unacceptable losses.
Prudent liquidity risk management implies maintaining sufficient cash, marketable securities and the availability
of funding through an adequate amount of committed credit facilities and the ability to close-out market
positions.
The table shows expected cash flows from outstanding claims (notified claims, IBNR and claims handling costs)
and premium liability (expected future claims). Both are net of reinsurance and non-reinsurance recoveries and
before risk margin.
Carrying amount
(undiscounted} Ex11ected cash flows (undiscounted)
2020 0-1 yrs 1-5 yrs 5-10 yrs 10-15 yrs >15yrs
$'000 $'000 $'000 $'000 $'000 $'000
Insurance contracts
Outstanding claims (Note 13, 21)
803,449 326,432 364,106 88,310 15,123 9,478
Premium liability
289,419 119,210 143,498 25,089 1,570 52
Total 1,092,868 445,642 507,604 113,399 16,693 9,530
Carrying amount
{undiscounted} Ex11ected cash flows (undisconnted)
2019 0-1 yrs 1-5 yrs 5-lOyrs 10-15 yrs >15yrs
$'000 $'000 $'000 $'000 $'000 $'000
Insurance contracts
Outstanding claims (Note 13, 21)
733,821 355,822 283,076 65,540 16,176 13,207
Premium liability 384,016 200,248 162,821 19,592 1,307 48
Total 1,117,837 556,070 445,897 85,132 17,483 13,255
A contractual maturity analysis is not provided in respect of other financial liabilities as typically the credit terms
for other financial liabilities are up to 31 days.
28
{d) Derivative holdings

A derivative transaction is a contract where value is derived from the value of an underlying asset or index. The
Company does not hold any direct derivative contracts.
(e) Fair value measurements

The aggregate carrying values of financial assets and financial liabilities approximate their net fair values. The
methods used to determine the carrying values of financial assets and liabilities are included in the summary of
significant accounting policies in Note 1.
The Company measures and recognises the following assets and liabilities at fair value on a recurring basis:
• Financial assets at fair value through profit or loss

The following tables present the Company's assets and liabilities measured and recognised at fair value.
At 31 December 2020 Levell Level2 Level 3 Total

$'000 $'000 $'000 $'000
Recurring/air value measurement

Financial assets
Equity securities 129,041 129,041
Debt securities 1,257,622 1,257,622
Unit trusts 24,294 5,463 29,757
Term deposit 49,456 49,456
Shares in controlled entities 45,437 45,437
Total investments 202,791 1,263,085 45,437 l,511,313
At 31 December 2019
Recurringfair value measurement
Financial assets

Debt securities 1,274,034 1,274,034
Unit trusts 5,142 26,855 31,997
Total investments 127,544 1,300,889 43,071 1,471,504
Fair value measurements
The fair value of financial instruments traded in active markets (such as trading securities) is based on quoted
market prices at the end of the reporting period. The quoted market price used for financial assets held by the
Company is the current bid price. These instruments are included in level 1.
The fair value of financial instruments that are not traded in an active market (for example, over-the counter
securities) is determined using valuation techniques. These valuation techniques maximise the use of observable
market data where it is available and rely as little as possible on entity specific estimates.
29
(e) Fair value measurements (continued)
If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.
Specific valuation techniques used to value financial instruments include:
• The use of quoted market prices or dealer quotes for similar instruments; and
• Other techniques, such as discounted cash flow analysis, are used to determine fair value for the remaining
financial instruments.
If one or more of the significant inputs is not based on observable market data, the instrument is included in level
3.
The Company's shares in controlled entities represent its 60% investment in a property company. This
investment is valued at 60% of the net asset value of the property company. ZFSA engages external, independent
and qualified valuers to determine the fair value of the Group's property asset at the end of every financial year.
As at 31 December 2020, the fair value of the property asset has been determined by CBRE, which management
adopts as the valuation.
The following table presents the changes in level 3 instruments.
2020 2019
Shares in Shares in
controlled controlled
entities entities
$'000 $'000
Opening balance 1 January 43,071 43,168
Gains recognised in statement of comprehensive income 2,366 (97)
Closing balance 31 December 45,437 43,071
30
12. Financial assets at fair value through profit or loss 2020 2019
$'000 $'000
Current
Tenn deposit (greater than three months) 49,456
Government and semi-government bonds 113,106 208,346
Unit trusts 29,757 31,997
Bonds - Other corporate 169,113 170,640
490,473 533,385
Non-current
Government and semi-government bonds 286,259 347,727
Bonds - Other corporate 689,144 547,321
1,020,840 938,119
Total financial assets at fair value through profit or loss 1,511,313 1,471,504
34
13. Reinsurance and other recoveries 2020 2019

$'000 $'000
Analysis of reinsurance and other recoveries
Expected future reinsurance recoveries undiscounted

- on claims paid 53,064 45,794
- on outstanding claims 994,498 735,985
1,047,562 781,779
Discount to present value (5,581) (12,923)
Reinsurance receivable on incurred claims 1,041,981 768,856
Expected future other recoveries undiscounted

- on outstanding claims 95,543 81,377
Discount to present value (235) (763)
95,308 80,614
Risk Margin 168,474 129,676

Discount to present value (776) (2,177)
167,698 127,499
Reinsurance and other recoveries receivables on incurred claims 1,304,987 976,969
Current 678,262 481,975

Non-current 626,725 494,994
1,304,987 976,969
14. Deferred acquisition costs
Deferred acquisitions costs as at 1 January 122,166 112,852

Acquisition costs deferred 87,193 320,470
Amortisation charged to income (158,072) (300,899)
Write down for premium deficiency (Note 20(b)) (1,940) (10,257)
Deferred acquisitions costs as at 31 December 49,347 122,166
Current 45,803 107,088

Non-current 3,544 15,078
49,347 122,166
2019 comparative for Acquisition costs deferred and Amortisation charged to income have been reclassified by
$6,502,000.
35

15. Other assets

2020 2019
$'000 $'000
Deferred outwards reinsurance expense 153,357 152,192

Related party prepayments 6,000
Other prepaid expenses 1,608 1,125
Emergency services levy 11,991 12,129
166,956 171,446
Current 126,666 136,083

166,956 171,446
16. Deferred tax asset
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss
Provision for impairment (1,894) 302

Accrued expenses 82 78
Provision for deferred acquisition cost write-off and unexpired risk liability 5,946 3,875
Indirect Claim adjustment expense 12,551 11,801
Tax losses 2,063 (350)
Set-off against deferred tax liabilities pursuant to set-off provisions (Note 22) (137) 39
Net deferred tax asset 18,611 15,745
Deferred Tax Assets Movements:
Opening balance at l January 15,745 12,776

Charged to Income Statement (Note 9) 3,044 3,004
Set-off against deferred tax liabilities pursuant to set-off provisions (Note 22) (178) (35)
Closing balance at 31 December 18,611 15,745
The Company only recognises deferred tax assets in respect of unused ta,'<: losses incurred by the New Zealand branch
to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be
utilised. The Company has undertaken a prima-facie analysis of future taxable profits to determine the likelihood of
being able to recover the unused tax losses over the short term. The Company has concluded that, based on profit history
and the uncertainty of future profits, no deferred tax asset should be recognised. The deferred tax asset that has not been
recognised as at 31 December 2020 is $10.5 million (2019: $12.9 million).
36

17. Payables
2020 2019
$'000 $'000
Current
Reinsurance creditors 47,482 29,691
Due to related entities (Note 28 (d)) 62,084 86,126
Commission payable 29,142 43,251
Other payables 15,131 21,169
Intercompany payab le to head tax entity (Note 28 (d)) 29,540
153,839 209,777
Income tax payable has been reclassified to Intercompany payable to head tax entity in the comparative period.
18. Provisions
Current
Emergency services levy 2,614 5,300
Stamp duty 6,821 7,397
Other 803 525
10,238 13,222
2020 Movements in provisions Emergency Stamp duty Other Total

Service
Levy
$'000 $'000 $'000 $'000
Current
Carrying amount at start of year 5,300 7,397 525 13,222
Additional provision recognised 26,037 83,641 379 110,057
Payments/other sacrifices of economic benefits (28,732) (84,217) (99) (113,048)
Exchange rate adjustment 9 2) 7
Carrying amount at end of year 2,614 6,821 803 10,238
2019 Movements in provisions Emergency Stamp duty Other Total

Service
Levy
$'000 $'000 $'000 $'000
Current
Carrying amount at start of year 4,033 1,006 430 5,469
Additional provision recognised 25,623 90,922 324 116,869
Payments/other sacrifices of economic benefits (2 4,354) (84,533) (229) (109,116)
Exchange rate adjustment 2 2
Carrying amount at end of year 5,300 7,397 525 13,222
37

19. Unearned premium liability

2020 2019
$'000 $'000
Unearned premium liability as at 1 January 815,810 732,461

Premiums deferred during the year 1,083,792 1,579,040
Premiums earned during the year (1,241,9882 (1,495,691)
Unearned premium liability as at 31 December 657,614 815,810
Current 600,385 748,931

657,614 815,810
20. Unexpired risk liability
(a) Unexpired risk liability
Recognition of unexpired risk liability in the period 5,269

Unexpired risk liability as at 31 December 5,269
(b) Deficiency recognised in the statement of comprehensive income
Movement in unexpired risk liability (5,269)

Write down of deferred acquisition costs (Note 14) (l,940) (10,257)
Total amount recognised in the Statement of Comprehensive Income (7,209) (10,257)
(c) Liability adequacy test
The liability adequacy test (LAT) has been conducted using the central estimate of the premium liabilities for reporting
toAPRA.
The LAT is conducted at a level of portfolio of contracts that are subject to broadly similar risks. The LAT test is
perfonned at four segment levels beingAustralia short-tail and long-tail classes, and New Zealand short-tail and long
tail classes.
The process for determining the overall risk margin, including the way in which diversification of risks has been allowed
for is discussed in Note 21.As with outstanding claims, the overall risk margin is intended to achieve an 85% probability
of adequacy in 2020 (2019: 85%).
The LAT performed at reporting date resulted in a deficiency of $20.1 million (2019: $12.9 million). The following
tables show the LAT deficiency of theAustralia long-tail and short-tail segments.
38

20. Unexpired risk liability (continued)
(c) Liability adequacy test
Australia New Zealand Total

2020 Long-Tail Long-Tail
$'000 $'000 $'000

Gross unearned premium reserve 186,999 9,291 196,290
Reinsurance unearned premium reserve {50,131) (1,624) (51,755}
Unearned premium liability 136,868 7,667 144,535
Gross deferred acquisition costs (21,879) (1,074) (22,953)

Reinsurance deferred acquisition costs 7,328 485 7,813
Deferred acquisition costs before LAT write down {14,551) {5892 {15,140)
Net premiums liabilities 122,317 7,078 129,395
Discounted central estimate 115,686 6,305 121,991

Discounted risk margin 26,451 1,079 27,530
Expected present value of future cash flows arising from future claims
on insurance contracts including risk margin 142,137 7,384 149,521
Total deficiency (19,820) (306} (20,126}
Australia Australia Total

2019 Long-Tail Short-Tail
$'000 $'000 $'000

Gross unearned premium reserve 176,822 584,328 761,150
Reinsurance unearned premium reserve (55,579} {90,497} (146,076}
Unearned premium liability 121,243 493,831 615,074
Gross deferred acquisition costs (18,473) (137,098) (155,571)

Reinsurance deferred acquisition costs 8,802 15,136 23,938
Deferred acquisition costs before LAT write down {9,671) (121,962) (131,633}
Net premiums liabilities 111,572 371,869 483,441
Discounted central estimate 95,482 339,507 434,989

Discounted risk margin 21,574 39,795 61,369
Expected present value of future cash flows arising from future claims
on insurance contracts including risk margin 117,056 379,302 496,358
Total deficiency (5,484) (7,433} (12,917)
39
21. Outstanding claims
(a) Outstanding claims liability
2020 2019
$'000 $'000
Central estimate 1,851,320 1,512,033

1,837,366 1,481,546
Claims handling costs 42,170 39,150

Discount to present value (620) (857)
41,550 38,293
Risk margin 323,967 247, I 70

320,702 240,887
Gross outstanding claims liability 2,199,618 1,760,726
Undiscounted expected future claims payments 2,217,457 1,798,353

Liability for outstanding claims 2,199,618 1,760,726
Current 1,034,970 871,172

Non-current 1,164,648 889,554
2,199,618 1,760,726
40

21. Outstanding claims (continued)
(b) Risk margin
Process for determining risk margin

The overall risk margin was detennined allowing for diversification between the different portfolios and the relative
uncertainty of the outstanding claims estimate for each portfolio. Uncertainty was analysed for each portfolio taking
into account potential uncertainties relating to the actuarial models and assumptions, the quality of the underlying data
used in the models, the general insurance environment, and the impact of legislative reform.
The assumptions regarding uncertainty for each class were applied to the net central estimates, and the results were
aggregated, allowing for diversification in order to arrive at an overall outstanding claims liability which is intended to
have an 85% probability of adequacy in 2020 (2019: 85%).
Risk margins applied

APRA class 2020 2019
Net Outstanding Net Outstanding
Claims Margin Claims Margin
Short tail
Domestic motor vehicle 3.5% 4.6%
Commercial motor vehicle 5.4% 5.4%
Houseowners/householders 10.5% 10.2%
Travel 8.8% 8.1%
Fire and ISR (incl inwards treaty) 19.4% 18.5%
Other 13.0% 12.7%
Marine & aviation 12.8% 13.0%
Other accident 12.2% 9.9%
Average short tail 12.4% 10.4%
Long tail
Employers' liability 17.1% 18.8%
Public & product liability (incl inwards treaty) 18.2% 16.9%
Professional indemnity 29.4% 21.0%
Average long tail 21.7% 18.6%
Overall 19.3% 15.8%
41
(c) Reconciliation of movement in discounted outstanding claim liability
2020 2019
Net Net
$'000 $'000
Brought forward 829,551 795,993
Impact of change in assumptions 84,631 765

Margin release on prior periods (1,667) (44,646)
Other 17,742 6,149
Change in prior year estimates 100,706 (37,732)
Claims incurred on events in current year 649,513 745,730
Incurred claims recognised in the income statement 750,219 707,998
Exchange rate adjustment (981) 41
Claim payments during the year (631,094) (674,481)
Carried forward 947,695 829,551
42

(d) Claims development tables
The following tables show the development of gross and net ultimate undiscounted incurred claims for the ten most recent accident years for classes of business that are typically
resolved in more than one year, plus the outstanding claims allowance for short-tail claims. Gross outstanding claims include claims from inwards reinsurance.
(i) Gross incurred
Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
End of accident year 380,324 393,147 426,563 443,477 398,537 341,070 228,280 311,482 234,342 255,985
One year later 398,668 394,685 438,049 469,570 391,080 398,089 294,421 296,458 279,560
Two years later 401,996 374,112 411,003 440,308 340,821 354,391 257,533 312,723
Three years later 393,707 351,830 364,943 407,921 237,272 356,127 324,955
Four years later 390,285 328,221 371,132 350,220 220,725 348,261
Five years later 383,633 308,569 302,424 336,522 226,457
Six years later 372,605 283,404 300,048 364,876
Seven years later 349,247 286,237 302,857
Eight years later 342,209 281,698
Nine years later 372,173
Current estimate of incurred 372,173 281,698 302,857 364,876 226,457 348,261 324,955 312,723 279,560 255,985 3,069,545
Cumulative payments 303,872 268,614 282,186 326,680 189,258 232,716 115,287 82,334 47,274 16,354 1,864,575
Outstanding claims - undiscounted 68,301 13,084 20,671 38,196 37,199 115,545 209,668 230,389 232,286 239,631 1,204,970
Discount (117) (30) (77) (156) (175) (542) (1,099) (1,492) (2,286) (3,291) (9,265)
Claim handling expense 148 319 429 671 797 1,978 2,236 4,236 5,362 6,982 23,158
2010 & Prior 198,064
Outstanding claims - discounted 1,416,927
Short tail outstanding claims 782,691
Total gross 2,199,618
43

(d) Claims development tables (continued)
(ii) Net incurred
Accident year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Total
$'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000
End of accident year 269,628 319,912 330,730 341,669 295,759 252,753 106,483 162,046 149,987 170,496
One year later 253,124 308,711 343,052 343,332 308,130 265,247 108,522 158,814 196,499
Two years later 245,708 303,197 330,480 318,741 270,866 198,067 103,056 167,542
Three years later 259,499 296,662 300,923 290,386 163,271 183,329 109,245
Four years later 253,983 286,685 299,079 209,693 149,075 186,957
Five years later 243,492 274,753 235,297 196,105 158,524
Six years later 244,472 243,743 233,925 198,032
Seven years later 225,526 247,117 235,132
Eight years later 221,008 244,689
Nine years later 221,698
Current estimate of incurred 221,698 244,689 235,132 198,032 158,524 186,957 109,245 167,542 196,499 170,496 1,888,814
Cumulative payments 217,432 236,178 223,361 180,706 136,451 134,325 69,068 66,457 44,405 15,811 1,324,194
Outstanding claims - undiscounted 4,266 8,511 11,771 17,326 22,073 52,632 40,177 101,085 152,094 154,685 564,620
Discount (6) (18) (29) (58) (76) (218) (298) (654) (1,388) (1,874) (4,619)
Claim handling expense 148 319 429 670 797 1,978 2,236 4,236 5,362 6,982 23,157
2010 & Prior 131,329
Outstanding claims - discounted 714,487
Short tail outstanding claims 233,208
Total net 947,695
44

22. Deferred tax liability

2020 2019
$'000 $'000
The balance comprises temporary differences attributable to:
Amounts recognised in profit or loss
Provision for deferred acquisition cost write-off and unexpired risk liability 137 (39)
Set-off of deferred tax assets pursuant to set-off provisions (137) 39
Net deferred tax liability
Deferred tax liabilities movements:
Opening balance at 1 January

Charged to statement of comprehensive income (Note 9) 178 35
Set-off of deferred tax assets pursuant to set off provisions (178) (35)
Closing balance at 31 December
45
23. Contributed equity
2020 2019
$'000 $'000
(a) Share capital
Ordinary shares - fully paid 97,065 97,065
(b) Movements in ordinary share capital
No. of shares
'000
Closing Balance 31 December 2019 13,236
Closing Balance 31 December 2020 13,236
Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in
proportion to the number of and amounts paid on the shares held.
The Company manages its capital so that it will be able to continue as a going concern including compliance with capital
requirements imposed by relevant legislation and the industry regulators, APRA and Australian Securities and
Investments Commission. The Company aims to maintain capital beyond minimum requirements as described below.
The capital structure of the Company consists of issued capital, reserves and retained profits (Note 24). The Board's risk
appetite statement sets out the level of capital to be targeted by the Company.
The Company is required by APRA to maintain capital in excess of its Prescribed Capital Amount (PCA). The PCA is
intended to be broadly commensurate with the full range ofrisks to which an insurer is exposed (including risks relating
to insurance claims, investments, counterparty default, asset-liability mismatches, catastrophic events and operational
errors). Certain assets (such as deferred tax assets, goodwill and other intangibles) cannot be used to meet the PCA.
Refer to Note 30 for calculation of capital base and PCA.
46

24. Reserves and retained profits

2020 2019
$'000 $'000
a) Composition
Foreign currency translation reserve 6,849 7,808
b) Movements:
Foreign currency translation reserve
Balance at beginning of the year 7,808 7,528
Currency translation differences arising during the year (959) 280
Balance at the end of the year 6,849 7,808
c) Retained profits
Retained profits at the beginning of the year 433,557 432,519
(Loss)/profit attributable to the member of Zurich Australian Insurance Limited (47,271) 61,038
Dividend paid (60,000)
Retained profits at the end of the year 386,286 433,557
25. Cash flow statement reconciliation
2020 2019
$'000 $'000
(Loss)/profit from ordinary activities after income tax (47,271) 61,038

Bad and doubtful debts provisions (315) (464)
Net proceeds/(payment) from sale of investments 7,103 (25,551)
Interest relating to investment activities (42,132) (47,794)
Net foreign exchange difference (1,047) 192
(Increase)/decrease in operating assets:

Premiums outstanding 8,130 (20,435)
Outstanding interest, dividends & rents 340 64
Deferred acquisition costs 72,820 (9,314)
Reinsurance and other recoveries (328,019) 123,927
Other receivables 44,993 2,582
Deferred tax asset (2,866) (2,969 )
Other assets 4,490 (23,666)
Increase/(decrease) in operating liabilities:

Provisions for tax (29,541) 27,116
Unearned premiums (158,196) 83,349
Unexpired risk liability 5,269
Claims outstanding 438,892 (88,965)
Other provisions & payables (29,382) (14,010)
Net cash (outflows)/inflows from operating activities (56,732) 65,100
47

26. Remuneration of auditors
2020 2019
$ $
Remuneration for PricewaterhouseCoopers audit or review of the financial reports
of the company
Statutory audit fees 391,518 396,099
391,518 396,099
Remuneration for PricewaterhouseCoopers other services:

Advisory services 17,238
Other regulatory and assurance services 135,191 125,044
Total other services 135,191 142,282
27. Contingent liabilities
(a) Contingent liabilities

2020 2019
$'000 $'000
The company had the following unsecured contingent liabilities for which no
provision had been made in the fmancial statements:
Allstate Insurance Company 89 97
Letter of Credit - ZIC Canada 492 2,251
581 2,348
Details of significant contingent liabilities are as follows:
(a) The Allstate Insurance Company is a bank guarantee from Westpac in favour of the Allstate Insurance Company
for the services of the Company acting as reinsurer for Allstate Insurance Company.
(b) Standby letter of credit issued by RBC Royal Bank (Canada) at the Company's request, in favour of ZIC Canadian
Branch to provide security for reinsurance recoverable under policies issued by ZIC Canada at the Company's request
which are reinsured to the Company.
48
28. Related parties
(a) Directors
The names of persons who were directors of the Company at any time during the financial year are as follows:
Paul John Bedbrook

Elaine Collins
John Francis Mulcahy
Matthew Reilly
Timothy Paul Plant
(b) Key management personnel compensation
Key management personnel compensation for the years ended 31 December 2020 and 31 December 2019 is set out
below.
The key management personnel are all the directors of the Company and their compensation is paid by ZFSA. The amount
disclosed below reflects the total compensation paid/attributable to the key management personnel in their duties as
employees of ZFSA and or directors of various entities. The executive director's compensation is not able to be allocated
to the individual entities whose affairs they manage or control.
Notes 2020 2019

$ $
Short-term employee benefits 1,292,394 1,114,828

Share-based payments / benefits (i) 218,103 375,633
1,510,497 1,490,461
(i) Share based payments/ benefits
The Global long term incentive plan is an executive incentive plans administered globally by a central share holding
vehicle. ZFSA purchases the right to shares from this holding vehicle for Australian resident executives who participate in
the plans. When shares vest with the participants, the central share vehicle transfers those shares directly to the participants.
ZFSA does not bear any exchange or price risk in relation to payments for these rights to shares.
49
28. Related parties (continued)
(c} Aggregate amounts receivable from related entities at balance date
2020 2019
$ $
Current
Ultimate Australian controlling entity 1,728,021
Other related entities 33,340,679
Intercompany receivable from head tax entity 23,944,582
Total receivables from related entities 25,672,603 33,340,679
(d} Aggregate amounts payable to related entities at balance date
Current
Ultimate Australian controlling entity 18,565,633 20,264,860
Other related entities 43,518,159 65,860,652
Intercompany payable to head tax entity 29,540,188
Total payable to related entities 62,083,792 115,665,700
2019 tax payable has been reclassified to Intercompany payable to head tax entity.
Expenses incurred by the parent and recharged to the Company include those related to the cost of human resources,
lease and equipment and other miscellaneous operating expenses. As a consequence, no additional information on the
nature of expenses has been included within the fmancial statements.
50
(e) Aggregate amounts recognised in respect of the following types of

involved were:
2020 2019
$
Reinsurance claims received
Other related entities 270,838,328 220, 182,440
Reinsurance claims Paid

Reinsurance commission received

Reinsurance premium expenses

Reinsurance premium receipts

Other related entities 184,723
Reinsurance receivable on incurred claims

Deferred out,vaT(/S reinsurance expenses

Investment expenses
Other related entities 509,752 471,238
Payment of other expenses

Ultimate Australia controlling entity 141,255,706 141,925,720
Other related entities 856,755
Receipt of other income

Other re lated entities 15,000
Dividend income
Controlled entities l,800,000
Dividend payment
Ultimate Australia controlling entity 60,000,000
51
(t) Related parties of Zurich Australian Insurance Limited fall into the following categories:
(i) Controlling entities

The ultimate controlling entity is Zurich Insurance Group Ltd, incorporated in Switzerland. The ultimate
Australian controlling entity is ZFSA and is incorporated in Australia.
Infonnation in relation to controlled entities is set out in note 29.
(ii) Other related entities

The Reinsurance arrangements for outward treaties ceded to related overseas reinsurers are in accordance with
APRA Prudential Standard GPS 230 - Reinsurance Management.
29. Investments in controlled entities
Class Equity Carrying Principle

of shares holding amount activities
2020 2019 2020 2019
Controlled entities % % $'000 $'000
Zurich Australian Ordinary 60 60 45,437 43,071 Property management

Insurance Properties Pty
Limited
45,437 43,071
Note: All entities are incorporated in Australia.
The directors are satisfied that the carrying value of investments in controlled entities is not in excess of recoverable amount.
The companies are incorporated in Australia. The country of incorporation or registration is also their principal place of business.
52
30. Capital adequacy for Zurich Australian Insurance Limited
(a) Regulatory capital
The Company is an insurance business registered and regulated by the APRA and is subject to its prudential standards.
The Company uses the standardised framework to calculate the regulatory capital requirements to meet policyholder
obligations. It is the Company's policy to maintain an adequate capital position.
The Company set its long-term target capital ranges to a total capital adequacy multiple position equivalent to 1.45-1.65
times the PCA, compared to a proposed regulatory requirement of 1.0 times. The capital adequacy multiple for the
Company for 2020 is 1.54 (2019: 1.80).
2020 2019
$'000 $'000
Eligible tier I capital
Paid-up ordinary shares 97,065 97,065
General reserves 6,847 7,806
Retained earnings brought forward 433,558 372,520
Current years earnings (47,271) 61,038
Excess technical provision - net of tax 77,096 59,196
Total 567,295 597,625
Less: deductions from tier 1 capital (18,312) (15,446)
Total capital base 548,983 582,179
Insurance risk capital charge 174,460 171,134

Asset risk charge 217,965 170,493
Operational risk charge 38,840 47,468
Insurance concentration risk capital charge 17,500 15,000
Less: aggregation benefit (91,973) (80,2082
Prescribed capital amount (PCA) 356,792 323,887
PCA coverage 1.54 1.80
The Company does not have any Tier 2 capital.

The liability required by GPS 115 for prudential reporting purposes differs from accounting purposes primarily because
GPS 115 requires a prudential margin with a sufficiency of 75% for outstanding claims and premium liabilities. The
directors have adopted an amount that exceeds this requirement by $77 .1 million (2019: $59 .2 million).
53
31. Events occurring after reporting date
I) From 19 March 2021 heavy rain and flash flooding has impacted the NSW coastline including the greater Sydney
region. At the time of signing the Annual Report this weather event is continuing and an estimate of the Company's
gross and net claims cannot be detennined. The maximum net claims cost to the Company from this event will be
$Sm, being the amount retained under the Company's catastrophe reinsurance treaty.
2) In determining the impact of COVID-19 on the 2020 financial results, the Company has calculated its claims
liability in line with the critical accounting judgements noted above, but also considered additional factors and
assumptions specific to COVID-19. Given the ongoing impact of this virus, and related uncertainty, market
conditions are likely to change and the impact of these changes will be accounted for in subsequent reporting
periods.
3) Following a review the Company has decided to reduce its exposure to the Professional Indemnity insurance market
in Australia and New Zealand by ceasing to renew and offer certain stand-alone professional indemnity policies
from 1 January 2021.
Apart from the matter above, the directors have not become aware of any matter or circumstance not otherwise dealt
with in the financial statements that has significantly affected or may significantly affect the operations of the Company,
the result of those operations or the state of affairs of the Company in subsequent financial years.
54
}
p,wc
Independent suditor's report
To the members of Zurich Australian Insurance Limited
Our opinion
In our opinion:
The accompanylng financial report of ZurichAustralian Insurance Limited (the Company) is in
accordance with the Corporations Act 2oot, including:
(a) giving a true and fair view of the Company's financial position as at 31 December zozo and of its
financial performance for the year then ended
(b) complying with Australian Accounting Standards and the Corporations Regulations 2oo1.
lMhatuehaae audited
The financial report comprises:
o the Balance sheet as at 31 December zozo
o the Statement of comprehensive income for the year then ended
o the Statement of changes in equity for the year then ended
o the Statement of cash flows for the year then ended
o the Notes to the financial statements, which include significant accounting policies and other
explanatory information
o the Directors' declaration.
Basisfor optnion
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under
those standards are further described in the Audrto r's responsibilities for the audit of the financial
report section ofour report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Ind.epend.ence
We are independent of the Company in accordance with the auditor independence requirements of the
Corporations Act zoot and the ethical requirements of the Accounting Professional & Ethical
Standards Board's APES rro Code of Ethics for Professional Accountants (including Independence
Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also
fulfilled our other ethical responsibilities in accordance with the Code.
Other information
The directors are responsible for the other information. The other information comprises the
information included in the annual report for the year ended 3r December 2o2o, but does not include
the financial report and our auditor's report thereon.
PricewqterhouseCoopers, ABN 5z 78o 4SS 757

One International Touers Sydney, Watermans Quay, Barangaroo, GPO BOX 265o, SYDNEY NSW zoot
T: +6t z 8266 oooo, F: +6t z 8266 9999,wtuu).pwc.com.au
Leuel tt, IPSQ, t6g Macquarie Street, ParramattaNSW zt5o, PO Box ttg5 ParramattaNSW ztz4
T: +6t z 9699 2476, F: +6t z 8266 9999,tvww.pwc.com.au
Liability limited by a scheme approved under Professional Standards Legislation.

56
}
pwe
Our opinion on the financial report does not cover the other information and accordingly we do not
express any form of assurance conclusion thereon.
In connection with our audit of the financial report, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor's report, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report in this regard.
Responsibilities of the dir ector s for the financial report

The directors of the Company are responsible for the preparation of the financial report that gives a
true and fair view in accordance with Australian Accounting Standards and the Corporations Act zoot
and for such internal control as the directors determine is necessary to enable the preparation ofthe
financial report that gives a true and fair view and is free from material misstatement, whether due to
fraud or error.
In preparing the financial report, the directors are responsible for assessing the ability of the Company
to continue as a going concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the directors either intend to liquidate the Company or to
cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financio.I report

Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free
from material misstatement, whether due to fraud or error, and to issue an auditor's report that
includes our opinion. Reasonable assurance is a high level ofassurance, but is not a guarantee that an
audit conducted in accordance with the Australian Auditing Standards will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions ofusers taken on the basis ofthe financial report.
A further description of our responsibilities for the audit of the financial report is located at the
Auditing and Assurance Standards Board website at:
http://www.auasb.gov.au/auditors_responsibilities/ar4.pdf. This description forms part of our
auditor's report.
r''l*
PricewaterhouseCoopers
v1-.
SK Fergusson Sydney
Partner zz March zozr
57

Zurich Australian Insurance Limited: Annual Report

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ZURICH AUSTRALIAN INSURANCE LIMITED

A.B.N. 13 000 296 640

Contents Page Number

Directors' Report 1-3

Statement of comprehensive income 5

Statement of changes in equity 7

Statement of cash flows 8

Notes to the financial statements 9-54

Independent auditor's report 56-57

118 Mount Street

Name Role Appointment date Resignation date

Name Role Appointment date Resignation date

No dividends were paid, declared or recommended to members during the year.

Review of results and operations

A summary of revenues and results is set out below:

Matters subsequent to the end of the financial year

a) The operations in future financial years; or

Likely developments and expected results of operations

Proceedings on behalf of the comparry

Rounding of amounts to the nearest thousand dollars

This report is made in accordance with a resolution of the directors.

Auditor's Independence Declaration

PricewaterhortseCoopers, ABN 52 78o 4Sg 757

Liability limited by a scheme approved under Professional Standards Legislation.

Statement of comprehensive income

Claims expense 8 (1,427,649) (906,009)

Gross movement in unexpired risk liability 20(b) (5,269)

Acquisition costs (171,871) (326,972)

Underwriting result (124,322) (4,408)

Investment Income 6 41,420 85,076

(Loss)/profit before income tax (77,926) 86,483

Income tax benefit/(expense) 9(a) 30,655 (25,445)

(Loss)/profit for the year 24(c) (47,271) 61,038

Other comprehensive income

Exchange difference on translating foreign operation 24(b) (959) 280

Total comprehensive (1oss)/income for the year (48,230) 61,318

Notes 2020 2019

Cash and cash equivalents IO 114,819 176,241

Total Assets 3,516,778 3,337,965

Payables 17 153,839 209,777

Total Liabilities 3,026,578 2,799,535

Net Assets 490,200 538,430

Contributed equity 23(a) 97,065 97,065

Total Equity 490,200 538,430

Statement of changes in equity

Balance at 1 January 2019 97,065 7,528 432,519 537,112

Total comprehensive income for the year 280 61,038 61,318

Transactions with owners in their capacity as owners:

Balance at 31 December 2019 97,065 7,808 433,557 538,430

Total comprehensive loss for the year (959) (47,271) (48,230)

Balance as at 31 December 2020 97,065 6,849 386,286 490,200

Notes 2020 2019

Cash flows from operating activities

Net premiums and deposits received 873,166 1,222,570

Cash flows from financing activities

Dividend paid to parent entity {60,000}

Cash flows from investing activities

Net cash flows from purchase of investment assets (46,911) (12,789)