Full report - SGI Canada

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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. 76 | 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010 | 77
Gross Type of unpaid claims The provision for unpaid claims is summarized by line of business as follows: 2010 2009 Reinsurance Recoverable Net (thousands of $) Gross Reinsurance Recoverable Automobile $ 150,711 $ 16,642 $ 134,069 $ 148,528 $ 21,234 $ 127,294 Property 86,363 23,203 63,160 62,958 4,146 58,812 Liability 67,447 4,287 63,160 69,546 4,246 65,300 Assumed 7,769 — 7,769 7,813 — 7,813 Facility Association (note 19) 4,530 — 4,530 4,730 — 4,730 Total $ 316,820 $ 44,132 $ 272,688 $ 293,575 $ 29,626 $ 263,949 Included in the provision for unpaid claims are discounted amounts for certain injury accident benefits in the amount of $15,096,000 (2009 – $13,920,000). These claims have been discounted using a rate of 3% (2009 – 6%), which reflects the expected claim settlement patterns and SGI’s projected rate of return on its investment portfolio. The provision for unpaid claims on these injury accident benefits also includes a provision for adverse development in the amount of $1,714,000 (2009 – $1,530,000). Assumed claims The provision for unpaid claims includes a provision for unpaid reinsurance assumed claims of $7,769,000 (2009 – $7,813,000). The Corporation discontinued its practice of underwriting reinsurance assumed business in 1985, but remains financially responsible for claims run-off on assumed contracts. Structured settlements The Corporation settles some long-term disability claims by purchasing annuities from various financial institutions. The settlements legally release the Corporation from its obligations to the claimants. Consequently, neither the annuities purchased nor the claim liabilities are recognized on the Consolidated Statement of Financial Position. However, as part of the settlement, the Corporation provides a financial guarantee to the claimants in the event the financial institutions default on the scheduled payments. As at December 31, 2010, no information has come to the Corporation’s attention that would suggest any weakness or failure in the financial institutions from which it has purchased annuities. The net present value of the scheduled payments as of the year-end date is $49,174,000 (2009 – $49,488,000). Net 10. Underwriting Policy and Reinsurance Ceded The Corporation seeks to reduce losses that may arise from catastrophes or other events that cause unfavourable underwriting results by reinsuring certain levels of risk with other insurers. The policy of underwriting and reinsuring contracts of insurance limits the liability of the Corporation to a maximum amount on any one loss as follows: 2010 2009 (thousands of $) Dwelling and farm property $ 750 $ 750 Unlicensed vehicles 750 750 Commercial property 1,000 1,000 Automobile and general liability 1,500 1,500 (subject to filling an annual aggregate deductible of) 1,500 1,500 Property catastrophe (health care) 7,500 7,500 Property catastrophe (non-health care) 8,500 8,500 The Corporation evaluates and monitors the financial condition of its reinsurers to minimize its exposure to significant losses from reinsurer insolvency. The following table sets out the amount by which reinsurance ceded has reduced (increased) the premiums earned, claims incurred, commissions, premium taxes and administrative expenses: 2010 2009 (thousands of $) Premium earned $ 37,645 $ 30,664 Claims incurred 39,968 10,626 Commissions and premium taxes 4,588 4,594 Administrative expenses (1,092) (1,766) 9. Equity Advances The Corporation does not have share capital. However, the Corporation has received equity advances from its parent, CIC, to form its equity capitalization. The advances reflect an equity investment in the Corporation by CIC. 78 | 2010 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2010 | 79
Page 1 and 2: SGI CANADAANNUAL REPORT
Page 3 and 4: LeTTer of transmittal Regina, Saska
Page 5 and 6: President’s message In the insura
Page 7 and 8: We’re here for brokers SGI CANADA
Page 9 and 10: We’re here to be good corporate c
Page 11 and 12: Five-year review ManaGEMenT’S dis
Page 13 and 14: Recent disasters around the world h
Page 15 and 16: The following table summarizes the
Page 17 and 18: 2010 2009 Source: SGI CANADA and MS
Page 19 and 20: All jurisdictions were profitable i
Page 21 and 22: Due to the strength of the capital
Page 23 and 24: The asset mix strategy is formally
Page 25 and 26: Impact of New Accounting Standards
Page 27 and 28: Off-Balance Sheet Arrangements SGI
Page 29 and 30: Distribution channel - broker partn
Page 31 and 32: ANNUal STATEMenT of management resp
Page 33 and 34: Consolidated sTatement of operation
Page 35 and 36: Notes to the consolidated financial
Page 37 and 38: Property, plant and equipment Prope
Page 39: As at December 31, 2010, the cost o
Page 43 and 44: 13. Financial Risk Management The n
Page 45 and 46: Carrying amount The Corporation’s
Page 47 and 48: The asset allocation of the defined
Page 49 and 50: 19. Facility Association Participat
Page 51 and 52: National Policy 58-201 Corporate Go
Page 53 and 54: National Policy 58-201 Corporate Go
Page 55 and 56: oard of directors Vice- presidents
Page 57: SGI CANADA head office 2260 - 11th

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