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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