CHAPTER 3: THE OPERATION OF THE SEAFARERS SAFETY NET FUND

 

3.1 The Seafarers Safety Net Fund
3.2 Recent history of the Fund
3.3 Reserves to underwrite claims on the Fund
3.4 Fund administration
3.5 Levy collection
3.6 Claims on the Fund
3.7 A policy of insurance for the Fund
3.8 Fund Profit and Loss Statement

3.1 The Seafarers Safety Net Fund

The Seafarers Safety Net Fund (the Fund) is a safety net “employer” to stand in the place of an extant employer if a default event occurs, enabling injured seafarers to make a claim against the Fund when there is no employer against whom a claim can be made. A default event is defined in the Seafarers Act as happening when:

(a) the employer:

• becomes bankrupt or insolvent; or
  
• applies to take the benefit of any law for the relief of insolvents; or
  
• compounds with the employer’s creditors for their benefit; or
  
• if the employer is a body corporate – is wound up, or, ceases to exist; or
  
• no longer engages in trade or commerce in Australia; and
  

(b) the employer is unable to meet the employer’s liabilities under the Seafarers Act.

In such circumstances, the Fund is substituted as employer and will determine the claim and pay any benefits from the Fund. Where there was a Seacare workers' compensation insurance policy covering the employee, the Fund has the same rights as the employer who took out the policy to recover benefits from that policy.

3.2 Recent history of the Seafarers Safety Net Fund

In the lead up to commencement of levy collection under Seacare Authority management, the Minister, as required by section 7 of the Levy Act, consulted the Seacare Authority on the rate of levy before making a recommendation to the Governor-General that a regulation be made establishing the levy rate. In advising the Minister, the Seacare Authority had to consider its prudential obligations as set out in the Levy Act, namely, that it have regard to:

• the need to ensure that the Fund has adequate financial reserves for the purposes of its prudential management;
  
• reasonable estimates of the Fund’s present and future liabilities under the Seafarers Act; and
  
• the cost of administering the Authority in connection with the performance or exercise of the Fund’s functions, powers and obligations under the Seafarers Act.
  

The Authority obtained actuarial advice from Taylor Fry Pty Ltd, an actuarial firm, to assist the preparation of advice to the Minister. The actuarial advice quantified the risk of a default event occurring and provided options on funding models to meet the costs of the Fund.

The model agreed was a premium equivalent model. In addition, the Authority sought advice from AMICA on its Fund administration costs and from other sources in establishing the likely costs of administering the Fund under Seacare Authority management.

The Authority also sought the views of the Australian Mines and Metals Association (AMMA) and Australian Shipowners Association (ASA). Both AMMA and ASA advised the Authority of their qualified and cautious acceptance of the premium-based levy in the context of there being no alternative. Having regard to actuarial advice, estimated Fund administration costs and the view of employers, the Authority recommended to the Minister that a levy rate of $53 per berth per quarter be set for the commencement of the 2002-03 year. The Minister accepted this advice.

The Seafarers Rehabilitation and Compensation Levy Regulations 2002 commenced on 1 July 2002, setting the rate of levy at $53 per berth per quarter. The Levy Act requires all employers who employ or engage seafarers on prescribed ships to pay the levy. The levy has remained at this rate over the period 1 July 2002 to 30 June 2005.

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3.3 Reserves to underwrite claims on the Fund

During 2004-05, the Seacare Authority sought updated actuarial advice from Taylor Fry Pty Ltd consulting actuaries on what would be a prudent reserve for the Fund, particularly taking into account any increased risk of a default event due to terrorism events, the continuing unavailability of insurance for the Fund and any increased pressure from asbestos related claims on the Fund. This advice had not been finalised by 30 June 2005.

At the present rate of levy, it is estimated that the current recommended reserve accumulation may be achieved in 2005-06. The Authority will keep the rate of levy and the reserve accumulation under review for provision of advice to the Minister as necessary.

3.4 Fund administration

To help maintain industry continuity in the management of the Fund, and to draw on AMICA’s past experience in administering the Fund, the Minister agreed that Comcare contract with AMICA to undertake certain Fund administration services for the Authority. A deed of novation for performance of such services was executed in August 2002, to apply from 1 July 2002.

Under the arrangements established by the deed, AMICA administers Seacare levy collection on behalf of the Australian Government, manages the employer reporting arrangements by receiving and recording employer Levy Returns, provides Fund reconciliation reports to the Seacare Authority via Comcare and provides advice to the Seacare Authority on claims against the Fund.

3.5 Levy collection

In 2004-05, $359 075 was collected in levy receipts from Seacare scheme employers. This levy was collected from 23 employers who reported an average of 1 709 seafarer berths, each quarter. An overview of levy collection details based on AMICA reports to the Seacare Authority is set out in Table 5 below.

Table 5: Levy collection summary – 2002-03 to 2004-05 – key data

	Average number of employers that paid the levy	Average number of berths per quarter reported by employers	Levy rate	Levy collected
2002-03	21	1 438	$53	$293 461
2003-04	22	1 610	$53	$327 593
2004-05	23	1 709	$53	$359 075

Source: AMICA and Seacare Authority

3.6 Claims on the Fund

There were no accepted claims on the Fund during 2004-05.

3.7 A policy of insurance for the Fund

The Seacare Authority has not been successful in securing a policy of insurance for the Fund. Last year insurance brokers Marsh Pty Ltd advised the Seacare Authority that following a comprehensive search in the Australian and global insurance markets it was not able to secure a policy. Late in 2004-05 the Authority engaged Aon Australia Pty Limited through Comcover to seek an insurance policy for the Fund. To date, Aon reports that despite the improvements in the insurance market, particularly the reinsurance market, a potential insurer has not been identified. Aon reports that the market views such insurance for the Fund as ‘employer insolvency’ insurance which the market is not willing to provide. The Authority will continue its search for insurance, but if this proves to be fruitless, will need to consider alternative options for the underwriting of the Fund and provide advice to the Minister. Under the current legislation, the Fund cannot be returned to industry without a policy of insurance. It should be noted that the terms of reference for the independent review of the Seacare scheme included the Levy and Collection Acts and insurance arrangements generally.

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3.8 Seafarers Safety Net Fund – Profit and Loss statement

The following Table is the Profit and Loss statement for the Seafarers Safety Net Fund as at 30 June 2005. The audited financial statements for the Seacare Authority, including for the Seafarers Safety Net Fund, appear at Appendix 1.

Table 6: Seafarers Safety Net Fund – Profit and Loss statement as at 30 June 2005

Seafarers Safety Net Fund Profit & Loss statement as at 30 June 2005	2004-05 Seacare	2003-04 Seacare
Revenue	$	$
Seafarers levies	359,075	354,305
Total Revenue	359,075	354,305
Expenses
Seacare Fund Administration	109,682	110,773
Actuarial services	11,229	10,682
Brokerage services	-	11,973
Legal costs	-	10,432
Bank charges	15	15
Claims expense	70,900	145,100
Write down of assets	5,141	0
Total expenses	196,967	288,975
Operating Result	162,108	65,330

Source: Comcare

 

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