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We have designed and validated key internal controls and procedures to ensure that accurate financial information is available internally to the Board of Directors and senior management, and externally to regulators and policyholders, in a timely and appropriate manner. Inherent limitations exist in all control systems, and as such, an evaluation of those control systems can provide only reasonable assurance that fraud or errors are detected. We continue to monitor, assess, and improve our system of internal controls and procedures.


The preparation of our audited consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities as at the reporting date and the reported amounts of revenues and expenses during the year. Actual results could differ from these estimates. Although some variability is inherent in these estimates, management believes that the amounts provided are reasonable. Our significant accounting policies are discussed in Note 2 — “Summary of significant accounting policies” of the audited consolidated financial statements.

The most complex and significant judgments, estimates and assumptions used in preparing our audited consolidated financial statements are discussed below.


In the process of applying our accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the audited consolidated financial statements.

We have applied judgment in our assessment of control or significant influence over investees, of the identification of objective evidence of impairment for financial instruments, the recoverability and recognition of tax losses, the determination of cash-generating units, the evaluation of current obligations requiring provisions and the identification of the indicators of impairment for property and equipment, goodwill and intangible assets.

Estimates and assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Valuation of claim liabilities

We are required by applicable insurance laws, regulations and IFRS to establish liabilities for payment of claims and claims adjustment expenses that arise from our insurance products. These liabilities represent the expected ultimate cost to settle claims occurring prior to, but still outstanding as of, the reporting date. We establish our claim liabilities by geographic region, product line, type and extent of coverage, and year of occurrence.

Claim liabilities fall into two categories: reserves for reported claims and provision for incurred but not reported losses. Additionally, liabilities are held for claims adjustment expenses, which contain the estimated legal and other expenses expected to be incurred to finalize the settlement of the losses.

Determining the provision for unpaid claims and adjustment expenses and the related reinsurers’ share involves an assessment of the future development of claims. The estimates are principally based on our historical experience. Methods of estimation have been used that we believe produce reasonable results given current information. This process takes into account the consistency of our claim handling procedures, the amount of information available, the characteristics of the line of business from which the claim arises, and the delays in reporting claims. Claim liabilities include estimates subject to variability, which could be material. Changes to the estimates could result from future events such as receiving additional claim information, changes in judicial interpretation of contracts, or significant changes in severity or frequency of claims from past trends.

In general, the longer the term required for the settlement of a group of claims, the greater the potential for variability in the estimate. Any future changes in estimates would be reflected in the consolidated statement of comprehensive income in the year in which the change occurred.

The principal assumptions made in establishing claim liabilities are best estimates. Claim liabilities have been discounted to reflect future investment income in accordance with Canadian accepted actuarial practice. The rate used to discount the claim liabilities is based on the fair value yield of the bond portfolio supporting the claim liabilities. To increase the likelihood that the claim liabilities are adequate to pay future benefits, margins for adverse deviation are required to be included for assumptions regarding future claims development, interest rates and reinsurance recoverables. The Canadian Institute of Actuaries recommends a range of appropriate margins for each of these variables. The combined effect of all the margins produces the provision for adverse deviation.

Reinsurance recoverables include amounts for expected recoveries from reinsurers related to claim liabilities. Amounts recoverable from reinsurers are evaluated in a manner consistent with the provisions of the reinsurance contracts. The failure of reinsurers to honour their obligations could result in losses, as the ceding of insurance does not relieve us of our primary liability to our insured parties.

Impairment of goodwill and intangible assets

We determine whether goodwill and intangible assets are impaired on an annual basis or more frequently if there are indicators of potential impairment. Impairment testing of goodwill and intangible assets requires an estimation of the recoverable amount of the cash-generating units to which the assets are allocated.

Impairment of financial assets

We assess our AFS financial instruments for objective evidence of impairment at each reporting date. Objective evidence of impairment includes a significant or prolonged decline in the fair value or net asset value below cost, or when a loss event that has a reliably estimable impact on the future cash flows of the financial instrument has occurred. Significance of the decline is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. The determination of what is significant or prolonged requires judgment. In making this judgment, we evaluate, among other factors, a decline in current financial position; defaults on debt obligations; failure to meet debt covenants; significant downgrades in credit status; and severity and/or duration of the decline in value.

Control or significant influence over investees

We presume that control or significant influence over an investee is evidenced primarily by the ownership percentage held of the investee unless there are other factors which indicate the level of control is not aligned with the ownership percentage. Currently there are no material investments in investees for which the assessment of control or significant influence is not aligned with the ownership percentage.

Valuation of post-employment benefits obligation

We provide certain pension benefits through a pension plan with a defined benefit and a defined contribution component. We also provide a non-pension future benefit plan. The projected cost of defined benefit pension plans and other non-pension future benefits is determined using actuarial valuations performed by external pension actuaries. No estimation is required for the defined contribution pension plan given the plan structure. The actuarial valuation involves making assumptions about discount rates, future salary increases, mortality rate, expected health care costs, inflation and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Actual experience that differs from the assumptions will affect the amounts of the benefit obligation recognized in the consolidated balance sheet, the expense recognized in net (loss) income and actuarial gains or losses recognized in OCI in the consolidated statement of comprehensive income.


Provisions are recognized when we determine that there is a present legal or constructive obligation as a result of a past event or decision, it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Provisions are recorded at the present value of the expenditures expected to be required to settle the obligation. In estimating provisions, we must make assumptions regarding the timing and amount of the expenditures and determine an appropriate discount rate reflective of the current market assessment of the time value of money and the risks specific to the obligations.

Measurement of income taxes

We are subject to income tax laws in various federal and provincial jurisdictions where we operate. Various tax laws are potentially subject to different interpretations by the taxpayer and the relevant tax authority. To the extent that our interpretations differ from those of tax authorities or the timing of realization is not as expected, the provision for income taxes may increase or decrease in future periods to reflect actual experience. We maintain provisions for uncertain tax positions that we believe appropriately reflect the risk of tax positions under discussion, audit dispute or appeal with tax authorities or which are otherwise considered to involve uncertainty.


The following IFRS standards have been issued but are not yet effective.

(a) Financial Instruments: Classification and Measurement

In July 2014, the IASB issued the final version of IFRS 9 — Financial Instruments (“IFRS 9”), which reflects all phases of the financial instruments project and replaces IAS 39 — Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. IFRS 9 sets out the requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. This single, principle-based approach replaces existing rule-based requirements and is intended to improve and simplify the reporting for financial instruments. IFRS 9 is effective for annual periods beginning on or after January 1, 2018. Retrospective application is required with certain exceptions.

Proposed amendments to IFRS 4 — Insurance Contracts were issued in December 2014 and confirmed in May 2016. The amendments propose an optional temporary exemption from applying IFRS 9 that would be available to companies whose predominant activity is to issue insurance contracts. Such a proposal permits deferral of IFRS 9 application until annual periods beginning on or after January 1, 2021 or until the new insurance contract standard becomes effective if this is an earlier date. The amendments also propose an option to apply the “overlay approach” to the presentation of qualifying financial assets, in which an entity would be permitted to remove from profit or loss and present instead in OCI, the impact of measuring financial assets at fair value through profit or loss under IFRS 9 when they would not have been so measured under IAS 39. We plan to use the proposed temporary exemption to defer the application of IFRS 9.

(b) Revenue from Contracts with Customers

In May 2014, the IASB issued IFRS 15 — Revenue from Contracts with Customers, which clarifies the principles for recognizing revenue and cash flows arising from contracts with customers. The standard is effective for annual periods beginning on or after January 1, 2018. We plan to adopt the new standard on the required effective date using the full retrospective method. We have performed a preliminary assessment of IFRS 15 and do not expect the standard to have a material impact on our consolidated financial statements.

(c) Leases

In January 2016, the IASB issued IFRS 16 — Leases, which establishes principles for the recognition, measurement, presentation and disclosure of leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases, unless the lease term is twelve months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019 and is to be applied retrospectively. In 2017, we plan to continue our assessment of the potential effect of IFRS 16 on our consolidated financial statements.