WA Treasurer Christian Porter is planning a raid on the reserves of the state’s Insurance Commission and is also considering the introduction of a dividend regime to routinely divert excess funds into consolidated revenue.

The Insurance Commission of Western Australia (ICWA) is the state’s compulsory third party motor vehicle personal injuries insurer and also manages the insurance of government agencies.

Mr Porter wrote to the commission in August suggesting a reduction of its general fund solvency level to 125% and the transfer of any surplus to the Government’s consolidated account.

ICWA’s annual report says Mr Porter has also requested information about the consequences of extracting all or half of the surplus from the Third Party Insurance Fund above a solvency level of 125%.

The WA Treasury has also been asked to examine the introduction of a dividend policy that would result in ICWA paying the Government a regular sum.

ICWA Chairman Michael Wright says the moves could have a “materially adverse impact” on the commission’s future performance.

“The board has an awareness (borne of experience) of the inherent costs and uncertainties involved in conducting litigation,” he says in the commission’s annual report. “It is also conscious of the concerns and abnormal volatility which are currently endemic in global financial markets.”

Acting MD Lew Watts says ICWA made a 9.7% return on its investments and net assets to June 30, achieving a 6.42% increase over the previous financial year to $886.3 million.

The commission made a net profit of $42.7 million, achieved largely through the better-than-expected performance of the investment portfolio.

However, ICWA reported a “disappointing” underwriting loss of $188.7 million, mostly due to a blowout in the outstanding claims provisions in the Third Party Insurance Fund from wage inflation.

The fund made a net profit of $33.6 million due to positive investment returns, but its underwriting loss came in at $151 million.

Wage inflation also cut into the financial results of the state workers’ compensation fund, RiskCover, which reported an $11.4 million loss.

The annual report says the RiskCover fund has insufficient retained earnings and its prudential reserve has been reduced to $29.2 million.

This level is less than half the $59.8 million needed to maintain adequate provision for outstanding claims, Mr Watts says.