Being faced with long-term claims, New Zealand’s ACC has invested in infrastructure and property, including public private partnerships and, more recently, social infrastructure investments, to match its liabilities
In 2012, the New Zealand government selected a consortium known as SecureFuture that included the country’s no-fault insurer, the Accident Compensation Corporation (ACC), to run the country’s first public private partnership (PPP) prison on a 25-year contract, worth approximately NZ$840 million.
The facility, known as Auckland South Correctional Facility, was developed in the south Auckland suburb of Wiri. The privately-run prison began operations in 2015 to house some 960 prisoners.
It has since been part of ACC’s social infrastructure portfolio, valued at around NZ$650 million – somewhat smaller than its $900m real estate portfolio.
“In my view, the prison is the most successful PPP project in the country,” Ian Purdy, Head of Property and Infrastructure at the ACC, says.
“When you look at PPP projects, the capital costs can be very high and operational costs very low. In this project the operational cost is relatively high percentage of the project (cost) and that means a lot of effort went into the design of the prison to minimise the whole-of-life cost and to make sure that it is efficient to operate.
“Thanks to the good performance of our contractors Fletcher Building and Serco the investment has delivered a good outcome,” he says.
When it comes to infrastructure in New Zealand, it is difficult to have a strategy
The Wiri Prison is the insurer’s first social infrastructure investment. More recently, ACC partnered a Māori iwi business cooperative, Te Kawerau a Maki, to buy four schools in Auckland.
At the time, Edward Ashby, Chair of Te Kawerau Iwi Investment Trust, said the investment value was between NZ$50 million and NZ$60 million. The New Zealand Ministry of Education leases back all four sites in perpetuity, paying rent to Te Kawerau a Maki for the schools.
Purdy says that through the Treaty of Waitangi settlement process, iwi are often given the right to buy land under government buildings and the government leases the property back.
But they often don’t have the capital to purchase the assets. In this instance, ACC provided the financing that is necessary for Te Kawerau a Maki to purchase the land back from the government. The loan is expected to be repaid over three decades.
Asked if there were plans to increase the school portfolio, Purdy says: “We are always interested to have the discussion.” So far, a fresh opportunity has yet to surface.
Availability Roads
ACC’s current portfolio of PPPs includes two so-called “availability” roads – the Puhoi to Warkworth motorway and Transmission Gully motorway. They were completed and open to traffic in 2023 and 2022 respectively.
Transmission Gully motorway, costing NZ$1.25 billion, is the first motorway in New Zealand to be constructed on behalf of the New Zealand Government under a PPP contract, between the government and the Wellington Gateway Partnership.
The proposal for the inland road was first mooted in 1919 and passed down to successive governments before the government of former NZ Prime Minister John Key kicked it off in 2014. Even then, work was delayed because of earthquake and Covid.
The Puhoi to Warkworth toll road, developed at the cost of NZ$877.5 million, is an 18.5-kilometre motorway. It has been described as a crucial connection for freight and people and improves connection between the Northland region with Auckland and beyond.
When you look at the existing injuries we are responsible for – the high-value claims where people who have brain injury, or become quadriplegic, paraplegic or injured at birth – some of those claims will be on our books for the lifetime of that person, including medical costs and loss wages
Purdy explains that they are called availability roads because the owners get a payment every quarter from the government as long as the roads are operating as they should be.
ACC and its consortium partners bid for the PPP projects under a competitive tender system, he says. The ACC is part of the Wellington Gateway Partnership, which includes CPB Contractors (associated with CIMIC Group), and Ventia, a NZ essential services company.
The 25-year concession for the Puhoi to Warkworth motorway is held by the Northern Express Group, with the ACC investing alongside global infrastructure manager, Morrison.
Asked if he is satisfied with the returns from these PPP investments, Purdy says: “That is my job, to make sure we achieve the returns necessary to compensate for the risk taken.”
It is, however, “fairly well-known” that getting some of those projects off the ground has been challenging. As is typical of infrastructure generally, these PPP projects suffered from delays and cost overruns in part because of the outbreak of COVID-19 in 2020 and 2021.
“When it comes to infrastructure in New Zealand, it is difficult to have a strategy,” he says, explaining that one reason is the scarcity of available assets. If, for instance, he says, he wants to include airports in the portfolio, the reality is there are very few airports available for investment.
“Take Wellington Airport as an example. It is owned by Wellington Council, and by the Trans-Tasman listed infrastructure company, Infratil (managed by Morrison), and the local government. Auckland Airport is listed and, therefore, majority publicly owned.
The insurer does not have private market infrastructure or property investment outside New Zealand, although it does own some private equity investment in Australia. According to its latest annual report, private equity had yet another year of returns above 10 per cent, outperforming both real estate and infrastructure.
Injury Compensation
The ACC was set up in 1975 to compensate New Zealanders (and visitors to New Zealand) who are injured either at work or elsewhere. In return, however, no one in New Zealand can sue as a result of the injury.
“But when you look at the existing injuries we are responsible for – the high-value claims where people who have brain injury, or become quadriplegic, paraplegic or injured at birth – some of those claims will be on our books for the lifetime of that person, including medical costs and loss wages.
Those long-term claims also tend to be expensive on an annual basis. This results in an average duration of our claims that is greater than 20 years. Property and infrastructure with long-term leases or concession arrangements is an ideal match for those claims.
Based on 2023 data, the ACC pays out about NZ$5 billion a year in compensation. The corporation collects almost NZ$6 billion a year in levies from individuals (to cover for injuries occurred outside work), employers (for injuries which happened at work), while the government provides funding to cover the costs of injuries for all people who aren’t in the workforce.
The level of levies is commensurate with the risk of getting injured, so construction companies, for instance, pay a higher levy for its workers than an accounting firm does.
The scheme has been designed to be used as hedge against the future cost of injury claims. At the end of 2023 financial year, total assets under management rose 2.4 per cent to NZ$46.9 billion, However, that was less than the NZ$52.5 billion liability of outstanding claims.
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