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
| 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
| 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
| Auto |
$ |
477,997 |
$ |
– |
$ |
477,997 |
| Property |
|
210,031 |
|
– |
|
210,031 |
| |
|
688,028 |
|
– |
|
688,028 |
| 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
| Auto |
$ |
440,361 |
$ |
– |
$ |
440,361 |
| Property |
|
205,086 |
|
– |
|
205,086 |
| |
|
645,447 |
|
– |
|
645,447 |
| 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
| 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
| 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
| Auto |
$ |
1,409,562 |
$ |
10,041 |
$ |
1,399,521 |
| Property |
|
112,230 |
|
6,682 |
|
105,548 |
| |
|
1,521,792 |
|
16,723 |
|
1,505,069 |
| 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
| Auto |
$ |
1,371,705 |
$ |
11,181 |
$ |
1,360,524 |
| Property |
|
100,060 |
|
784 |
|
99,276 |
| |
|
1,471,765 |
|
11,965 |
|
1,459,800 |
| 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 |