Full report - SGI Canada

8. Provision for Unpaid Claims
Nature of unpaid claims
The establishment of the provision for unpaid claims is based on known facts and interpretation of
circumstances and is therefore a complex process influenced by a variety of factors. Measurement of
the provision is uncertain due to claims that are not reported to the Corporation at the year-end date, and
therefore, estimates are made as to the value of these claims. As well, uncertainty exists regarding the cost
of reported claims that have not been settled, as all the necessary information may not be available at the
year-end date.
Factors used to estimate the provision include the Corporation’s experience with similar cases, historical
claim payment trends, the characteristics of each class of business, claim severity and claim frequency, the
effect of inflation on future claim settlement costs, court decisions and economic conditions. Time is also
a critical factor in determining the provision, since the longer it takes to settle and pay a claim, the more
variable the ultimate settlement amount will be. Accordingly, short-tail claims such as physical damage or
collision claims tend to be more reasonably predictable than long-tail claims such as liability claims.
As a result, the establishment of the provision for unpaid claims relies on a number of factors and on the
judgment and opinions of a number of individuals, which necessarily involves risk that actual results may
differ materially from the estimates.
Changes in the estimate for the provision for unpaid claims are as follows:
2010 2009
(thousands of $)
Net unpaid claims, beginning of year $ 263,949 $ 260,648
Payments made during the year relating to:
Prior year claims (85,463) (77,895)
Prior year Facility Association claims (1,102) (1,291)
Excess relating to:
Prior year estimated unpaid claims (19,914) (25,009)
Prior year estimated unpaid Facility
Association claims (668) (522)
Net unpaid for claims of prior years 156,802 155,931
Provision for unpaid claims occurring in the
current year 114,315 106,569
Development of unpaid claims
The following table shows the development of the estimated net provision for unpaid claims relative to
the current estimate of ultimate claims costs for the four most recent accident years as estimated at each
reporting date:
2007 2008 2009 2010 Total
(thousands of $)
Net Ultimate Loss
At end of accident year $ 177,379 $ 184,394 $ 197,049 $ 241,557
One year later 176,137 178,233 188,851
Two years later 171,591 175,654
Three years later 169,744
Four years later
Cumulative loss development $ 7,635 $ 8,740 $ 8,198 —
Cumulative loss development as a
% of original ultimate loss 4.3% 4.7% 4.2% —
Current estimate of net ultimate loss $ 169,744 $ 175,654 $ 188,851 $ 241,557
Cumulative paid (155,136) (156,479) (152,280) (138,296)
Net provision for unpaid claims for
the four most recent accident years $ 14,608 $ 19,175 $ 36,571 $ 103,261 $ 173,615
Net undiscounted claims outstanding for accident years 2006 and prior 58,866
Internal reinsurance to subsidiaries 14,661
Loss adjusting expense reserve 7,005
Gross subrogation recoveries 6,639
Provision for adverse deviation and discounting 4,705
Unpaid Facility Association claims 4,530
Other reconciling items 2,667
Net provision for unpaid claims $ 272,688
Provision for unpaid Facility Association
claims occurring in the current year 1,571 1,449
Net unpaid claims, end of year $ 272,688 $ 263,949
The fair value of the provision for unpaid claims and unpaid claims recoverable from reinsurers has not
been provided because it is not practicable to determine fair value with sufficient reliability.
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