In a first for the superannuation industry, Mercer has produced a financial condition report – required by legislation in the insurance industry – for NGS Super assessing the operational risks within the fund, and now plans to roll out the service to other large superannuation funds.
The condition report covered unit pricing, fund liquidity, the adequacy of operational reserves and overall risk management.
Such reports are mandatory in the life insurance, general insurance, health insurance and friendly society sectors, and aim to help boards and management of these companies to set the level of reserves and make sure their pricing, or fee basis, is sustainable.
Mercer’s assessment as at 30 June, 2009 revealed NGS was in a “sound financial condition”, with an appropriate level of operational reserves; an appropriate risk management plan and procedures; sufficient liquidity to withstand most adverse movements in investment markets and or fund cash flows; and a unit pricing process which meets industry standards and has appropriately accounted for asset valuation and tax liability.
Although the consultant noted that was “no guarantee that the fund will not suffer a loss in the future due to a risk event”.
Anthony Rodwell-Ball, chief executive officer of NGS Super, said while the fund has its own internal risk management processes, there was no external body that assessed its entire governance framework.
“We get written reports from the custodian, use fund advisers and tax agents, we have compliance and risk management reports covering a large range of operational risks and compliance issues but then we sit back and say ‘what ties it all together?” he said.
“’What comfort do we as a fund and what comfort do our members have that the whole thing works? Who holistically looks at the risk management framework and internal control and whether or not the organisation is well governed?’ So we started a dialogue with the actuarial side of Mercer a few months ago.”
Mercer’s final report contains an analysis of member behaviour over the past year and the projected assets and cashflow of the fund.
Darren Wickham, principal at Mercer, said the report provides an additional level of comfort to the trustee from an independent source.
“The first report was a trial with NGS Super and together with Anthony Rodwell-Ball from NGS Super, we intend to share our thoughts and experience (and what we learned) at the upcoming ASFA conference,” he said.