Consolidated Financial Statements: Note 7 — 2016 Annual Report

7. POLICY LIABILITIES

These consolidated financial statements contain an actuarial estimate of the policy liabilities of the Company. Policy liabilities represent the amount of the obligation of the Company on account of policies effective on or before the reporting date and consist of premium and claim liabilities. Claim liabilities are associated with claims that have occurred on or before December 31, 2016, whether the claim has been reported to the Company at that time or not, whereas premium liabilities are associated with claims that may occur in the future on policies in force on December 31, 2016.

(a) Premium liabilities

Premium liabilities are represented by the amount of net UPR less the amount of net DPAE. Generally, the commissions and premium taxes corresponding to the net UPR are deferrable; however, this amount is written down if the resulting expected future net policy costs are greater than the net UPR. No write-down to DPAE is required for the year ended December 31, 2016 (2015: nil).

The following changes have occurred in UPR during the year:

2016 UPR Changes
(in thousands of dollars)	2016						2015
	Gross		Ceded		Net		Gross		Ceded		Net
UPR, beginning of year	$	1,022,339	$	8,651	$	1,013,688	$	995,486	$	11,495	$	983,991
Premiums written during year		2,084,120		73,168		2,010,952		2,008,387		73,035		1,935,352
Premiums earned during year		Loss: (2,029,156)		Loss: (73,553)		Loss: (1,955,603)		Loss: (1,981,534)		Loss: (75,879)		Loss: (1,905,655)
UPR, end of year	$	1,077,303	$	8,266	$	1,069,037	$	1,022,339	$	8,651	$	1,013,688

The following changes have occurred in the DPAE during the year:

UPR Changes
(in thousands of dollars)	2016		2015
DPAE, beginning of year	$	207,837	$	202,780
Acquisition costs deferred		398,220		386,065
Amortization of acquisition costs		Loss: (389,357)		Loss: (381,008)
DPAE, end of year	$	216,700	$	207,837

The following table presents the Company’s UPR by line of business as at December 31.

UPR by Lines of Business
2016 (in thousands of dollars)
	Gross UPR		Ceded UPR		Net UPR
Personal lines:
Auto	$	477,997	$	–	$	477,997
Property		210,031		–		210,031
		688,028		–		688,028
Commercial lines:
Auto		144,317		1,606		142,711
Property and liability		244,958		6,660		238,298
		389,275		8,266		381,009
	$	1,077,303	$	8,266	$	1,069,037

2016 Premium Liabilities
2015 (in thousands of dollars)
	Gross UPR		Ceded UPR		Net UPR
Personal lines:
Auto	$	440,361	$	–	$	440,361
Property		205,086		–		205,086
		645,447		–		645,447
Commercial lines:
Auto		130,868		1,809		129,059
Property and liability		246,024		6,842		239,182
		376,892		8,651		368,241
	$	1,022,339	$	8,651	$	1,013,688

(b) Claim liabilities

Claim liabilities are established to reflect the estimate of the full amount of all liabilities associated with the insurance contracts at the end of the year, including IBNR. The ultimate cost of these liabilities will vary from the best estimate made for a variety of reasons, including additional information with respect to the facts and circumstances of the claims incurred. Note 4 contains additional information on the judgments, estimates and assumptions used in determining claim liabilities. The discount rate as at December 31, 2016 used to discount the claim liabilities was 1.78% (2015: 1.47%).

The following table presents the movement of the Company’s claim liabilities during the year.

2016 Claim Liabilities
2016 (in thousands of dollars)
	Gross claim liabilities		Ceded claim liabilities		Net claim liabilities
Claim liabilities, beginning of year	$	2,309,265	$	71,446	$	2,237,819
Current year claims incurred		1,513,957		67,557		1,446,400
Prior year favourable claims development		Loss: (31,346)		8,761		Loss: (40,107)
		1,482,611		76,318		1,406,293
Decrease due to discounting (including PfAD)		Loss: (12,508)		1,108		Loss: (13,616)
Claims and adjustment expenses		1,470,103		77,426		1,392,677
Claims paid during the year		1,380,114		50,638		1,329,476
Claim liabilities, end of year	$	2,399,254	$	98,234	$	2,301,020

2015 Claim Liabilities
2015 (in thousands of dollars)
	Gross claim liabilities		Ceded claim liabilities		Net claim liabilities
Claim liabilities, beginning of year	$	2,361,208	$	84,355	$	2,276,853
Current year claims incurred		1,308,049		13,451		1,294,598
Prior year favourable claims development		Loss: (61,830)		11,318		Loss: (73,148)
		1,246,219		24,769		1,221,450
Increase due to discounting (including PfAD)		840		Loss: (648)		1,488
Claims and adjustment expenses		1,247,059		24,121		1,222,938
Claims paid during the year		1,299,002		37,030		1,261,972
Claim liabilities, end of year	$	2,309,265	$	71,446	$	2,237,819

The following table presents the Company’s claim liabilities by line of business as at December 31.

2016 Claim Liabilities bu Lines of Business
2016 (in thousands of dollars)
	Gross claim liabilities		Ceded claim liabilities		Net claim liabilities
Personal lines:
Auto	$	1,409,562	$	10,041	$	1,399,521
Property		112,230		6,682		105,548
		1,521,792		16,723		1,505,069
Commercial lines:
Auto		371,474		20,921		350,553
Property and liability		505,988		60,590		445,398
		877,462		81,511		795,951
	$	2,399,254	$	98,234	$	2,301,020

2015 Claim Liabilities bu Lines of Business
2015 (in thousands of dollars)
	Gross claim liabilities		Ceded claim liabilities		Net claim liabilities
Personal lines:
Auto	$	1,371,705	$	11,181	$	1,360,524
Property		100,060		784		99,276
		1,471,765		11,965		1,459,800
Commercial lines:
Auto		350,385		24,017		326,368
Property and liability		487,115		35,464		451,651
		837,500		59,481		778,019
	$	2,309,265	$	71,446	$	2,237,819