A copy of this bulletin should be provided to your Chief Financial Officer and Appointed Actuary.

Size: px

Start display at page:

Download "A copy of this bulletin should be provided to your Chief Financial Officer and Appointed Actuary."

Conrad Fisher
5 years ago
Views:

1 ` TO: ATTENTION: MEMBERS OF THE FACILITY ASSOCIATION CHIEF EXECUTIVE OFFICER BULLETIN NO.: F DATE: OCTOBER 28, 2015 SUBJECT: FARM AUGUST 2015 PARTICIPATION REPORT A copy of this bulletin should be provided to your Chief Financial Officer and Appointed Actuary. Please be advised that the August 2015 FARM Participation Report is now available on the Facility Association Portal at New this Month An actuarial valuation as at June 30, 2015 has been completed since last month s Participation Report for the FARM private passenger and non-private passenger business segments for all jurisdictions and the results of that valuation have been incorporated into this month s Participation Report. In addition, projected cash flows for all jurisdictions were updated along with the estimated risk-free yield curve, resulting in an increase from 0.79% to 1.07% in the selected discount rate used in determining actuarial present value adjustments. Further, while the selected investment return margin for adverse deviation was left unchanged at 25 basis points, selected claims development margins 1 were updated from the prior valuation (these margins are customarily reviewed in detail with the June 30 valuation). Finally, as customary, for the June 30 valuation, the allowed claims expenses were reviewed and ultimate ratios updated accordingly. The incorporation of the new valuation, including the discount rate and margin changes, is estimated to account for an overall $10.5 million favourable impact on the month s net result from operations (see the table at the top of the next page), subtracting an estimated 8.0 points to the year-to-date Combined Operating Ratio (ending at 85.8%). 1 Claims development margins are selected by jurisdiction, business segment, coverage, and accident half-year. Page 1 of 7

2 Please see Effect of Quarterly Valuation further in this bulletin for additional detail on the impacts of the updated valuation. Summary of Financial Results The calendar year-to-date Net Result from Operations is $18.8 million and the incurred loss ratio to the end of 8 months is 62.2%, as summarized in the table immediately below. August August Year to date Year to Date Aug 2015 Aug 2014 Written Premiums $16,041 $18,088 $136,056 $143,058 Earned Premiums $16,957 $17,924 $131,272 $137,666 Incurred Losses $1,728 $11,395 $81,564 $107,456 Underwriting Expenses and Others $3,691 $2,644 $30,926 $31,315 Net Result from Operations $11,538 $3,885 $18,782 ($1,105) Ratios: Loss ratio % - Prior Accident Years (72.8%) 3.6% (13.2%) 6.2% - Current Accident Year 83.0% 60.0% 75.4% 71.9% 10.2% 63.6% 62.2% 78.1% Underwriting & Admin Exp.% 21.9% 14.9% 23.6% 22.9% Combined Operating Ratio 32.1% 78.5% 85.8% 101.0% (Amounts in $000 s) Rounding differences may occur. For details on the financial results, please refer to Exhibit 1 Summary of Operations for Calendar Year All jurisdictions by month. A comparable summary by jurisdiction is included in Exhibit 2. Detailed exhibits by jurisdiction are included in a separate folder on our website called Summary of Operations. Updated Projection to Year-end The estimated calendar year Net Result from Operations to December 2015 is $24.5 million and the estimated combined operating ratio to December 2015 is 87.6%. The updated projection to the end of calendar year 2015 has improved by $9.2 million as compared to the projection provided last month ($15.3 million and 92.3%), mainly due to a $9.6 million impact due to the June 30, 2015 valuation, as summarized in the table immediately below. Remaining differences were driven by changes in projected premium volumes, and the associated impacts on claims and expense projections. Page 2 of 7

The updated year-end projections are shown against the December 10, 2014 Outlook in the table immediately below, with the estimated impact of implementing the current valuation in the two far right

3 The updated year-end projections are shown against the December 10, 2014 Outlook in the table immediately below, with the estimated impact of implementing the current valuation in the two far right columns. In particular, with four valuations (2014 Q3 & Q4, 2015 Q1 & Q2) and other changes since August 2014 (the actuals used in the Outlook), the projected $17.5 million operating result has been increased to $24.5 million. In total, the operating result projection to year-end has increased by $7.0 million from the Outlook posted December 10, 2014 (to $24.5 million as shown above). This amount is $9.5 million higher than it would have been, if not for the implementation of the June 30, 2015 valuation. (The changes before the impact of the June 30, 2015 valuation are attributable to mix of business and other projection assumptions outside of the valuation process, as well as previous valuations implemented since the valuation used for the Outlook.) One important change relative to the Outlook has been the reduction in the discount rate, offset partially by the 25 basis point reduction in the interest rate margin for adverse deviation. Had the Outlook discount rate of 1.63% and 50 basis point margin still been applicable, the operating result would have been higher by $3.2 million (using the current interest rate sensitivity table and adjusting the 1.63% to 1.38% to account roughly for the margin change). That is, the projected Operating Result would have been approximately $27.7 million (COR of 86.0%) had the discount rate and associated margin remained at the Outlook levels. Current month results The Net Result from Operations in the month of August 2015 is $11.5 million, up $7.7 million from the same month last year. This improvement included an estimated $7.9 million favourable impact from the decrease in the combined ratio (from 78.5% last year to 32.1% this year, applied to this month s $17.0 million earned premium), offset by a $0.2 million unfavourable impact due to the $1.0 million decrease in earned premium (at a combined ratio of 78.5%). This month s results moved the year-to-date combined operating ratio from 93.7% at the end of 7 months to 85.8% at the end of 8 months. The 7.9 percentage point improvement is composed of an 8.8 percentage point decrease in the Prior Accident Year loss ratio combined with a 0.3 percentage point decrease in the expense ratio, offset by a 1.2 percentage point increase in the Current Accident Year loss ratio. Page 3 of 7

Variances from Projections The table below provides a summary of key components of the operating results as compared to the estimates projected last month.

4 Variances from Projections The table below provides a summary of key components of the operating results as compared to the estimates projected last month. August 2015 Actual Projection Difference Difference % Written Premiums $16,041 $18,016 ($1,975) (11.0%) Earned Premiums $16,957 $16,802 $ % Reported Losses Paid Losses $8,529 $12,081 ($3,552) (29.4%) Increase (decrease) in Outstanding Losses $2,371 ($429) $2, % Total Reported Losses $10,900 $11,652 ($752) (6.5%) Increase (decrease) in IBNR * ($9,494) $717 ($10,211) Decrease (increase) in DPAC * ($9) ($125) $116 Increase (decrease) in Retro Claims Expense $322 ($723) $1,045 (Amounts in $000 s) Rounding differences may occur. * Detailed information is included in FARM August 2015 Participation Report - Actuarial Highlights. For the month of August 2015, reported indemnity amounts were $0.2 million lower than projected (allowed claims expenses are included in table above as part of reported losses, explaining why the variance in Total Reported Losses in the table shows -$0.8 million). The Current Accident Year had a $1.4 million unfavourable variance in reported indemnity, while the Prior Accident Years had a favourable variance of $1.6 million. Of the Prior Accident Years, 2014 had the largest variance in reported losses at $1.9 million favourable. No other single Prior Accident Year had a reported indemnity variance in excess of $1.0 million. Effect of Quarterly Valuation The August 2015 Participation Report reflects the results of an updated valuation as at June 30, 2015, with the associated impacts in relation to the results for August 2015 summarized in the table immediately below. The valuation included all jurisdictions and business segments and resulted in updated policy liability cash flow estimates for all jurisdictions that, when applied to the updated risk free yield curve, resulted in an increase in the selected discount rate from 0.79% to 1.07%. The investment return margin for adverse deviation was left unchanged at 25 basis points. As customary for the Page 4 of 7

5 June 30 valuation, the selected claims development margins 2 were reviewed and some adjustments were made. Also as customary for the June 30 valuation, the allowed claims expenses were reviewed and ultimate ratios updated accordingly. The valuation summary (in relation to indemnity only) is provided in the table immediately below. (Please note that in reference to columns [4] to [9] in that table, the estimated impacts are in relation to a full year estimated earned premium, and are not year-to-date.) June 30, 2015 Valuation Summary (Indemnity Only) The overall impact of implementing the valuation on the results of the Month of August is estimated as favourable by $10.5 million, as summarized in the table at the top of the next page. In that table, column [1] shows indemnity only, and is therefore comparable to the valuation summary table above (columns [2] and [6] in the valuation summary table is comparable to the first row of column [1] in the table below). Differences will emerge due to the differences between data available at June 30, 2015 (used for the valuation) and available for implementation (August 31, 2015). In addition, column [6] of the valuation summary table above estimates the impact of the change in selected current accident year indemnity loss ratio against projected full year 2015 earned premium, whereas the current accident year row, column [1] in the implementation impact table at the top of the next page applies the change to year-to-date earned 2 Claims development margins are selected by jurisdiction, business segment, coverage, and accident half-year. Page 5 of 7

premium at August 31, 2015. An alternate summary of the valuation implementation impact is presented in the table immediately below, including the impact in relation to year-to-date earned premium.

6 premium at August 31, An alternate summary of the valuation implementation impact is presented in the table immediately below, including the impact in relation to year-to-date earned premium. In this table, rows PAYs and CAY (for Prior Accident Years and Current Accident Year respectively), include the changes in indemnity, retroactive claims fee adjustment provision and the provision for allowed claims adjustment expenses. The overall impact prior to the 28 basis point increase in the discount rate (to 1.07%) and changes to margins for adverse deviation was favourable by $5.7 million (Total row, third column in the table above). This was augmented by the $3.2 million favourable impact of the discount rate change (Total row, fourth column). Finally, various changes in selected margins for adverse deviation were overall favourable by $1.6 million (fifth column in the table above). Additional detail of the valuation results and impact is available in FARM August 2015 Participation Report Actuarial Highlights. The actuarial valuation will be updated next as at September 30, 2015 for all jurisdictions and business segments. The results are anticipated to be reflected in the October 2015 Participation Report. Management Comments As shown in the table at the top of the next page, the private passenger annualized vehicle counts decreased by 4.9% overall in August 2015 relative to August On a year-to-date basis, exposure counts are down by 6.8%, decreasing in all jurisdictions except New Brunswick, Nova Scotia and Prince Edward Island. Page 6 of 7

7 FARM Private Passenger Written Car Years Jurisdiction # FARM Vehicles Written Month of August 2015 Calendar YTD as of August Chg % Chg Chg % Chg Ontario (48) (22.0%) 1,480 1,798 (318) (17.7%) Alberta (119) (37.8%) 2,214 2,966 (752) (25.4%) Newfoundland & Labrador 941 1,016 (75) (7.4%) 7,653 8,461 (808) (9.5%) New Brunswick % 5,371 5, % Nova Scotia % 2,526 2, % Prince Edward Island (15) (9.4%) 1,144 1, % Yukon (14) (24.6%) (48) (12.2%) Northwest Territories % 1,843 1,915 (72) (3.8%) Nunavut (15) (19.7%) (86) (14.6%) All Jurisdictions 2,860 3,008 (148) (4.9%) 23,081 24,754 (1,673) (6.8%) Should you require any further information, please call Norm Seeney, Vice President, Finance and Member Services at (416) David J. Simpson, M.B.A., FCIP, C. Dir. President & CEO Related link: FARM August 2015 Participation Report Actuarial Highlights Page 7 of 7

8 EXHIBIT 1 SUMMARY OF OPERATIONS - CALENDAR YEAR 2015 FACILITY ASSOCIATION RESIDUAL MARKET - ALL JURISDICTIONS BY MONTH Operating Results for the 8 months ended August 31, 2015 (Discounted Basis) Source: Monthly (Accident Year) Member Participation Report as at 08/2015 (thousands of dollars) CY Months CY2014 CY2015 Updated 12 Months January February March April May June July August YTD Projections Actual UNDERWRITING REVENUE: PREMIUMS WRITTEN $15,841 $11,370 $14,071 $17,124 $22,159 $21,730 $17,720 16,041 $136,056 $194,938 $202,233 CHANGE IN UNEARNED PREMIUMS 1,189 3,748 2,463-1,318-5,619-5, , ,689 NET PREMIUMS EARNED $17,030 $15,118 $16,534 $15,806 $16,540 $16,333 $16,954 $16,957 $131,272 $195,907 $206,922 CLAIMS INCURRED PRIOR ACCIDENT YEARS UNDISCOUNTED , ,871-13,583-13,582 5,139 EFFECT OF DISCOUNTING , , ,473-3,789-5, DISCOUNTED -23-1,445 1, , ,344-17,372-19,462 4,788 CURRENT ACCIDENT YEAR UNDISCOUNTED 11,581 10,468 10,958 10,775 12,720 11,458 11,837 13,597 93, , ,901 EFFECT OF DISCOUNTING , ,542 7,811 6,825 DISCOUNTED 12,298 11,049 11,612 11,226 13,975 12,102 12,602 14,072 98, , ,726 CLAIMS INCURRED $12,275 $9,604 $13,296 $10,283 $10,903 $11,356 $12,119 $1,728 $81,564 $127,681 $155,514 UNDERWRITING EXPENSES OPERATING & SERVICE FEES 1,669 1,170 1,434 1,749 2,611 2,257 1,838 1,639 14,367 20,357 20,936 AGENTS COMMISSIONS 1, ,193 1,425 1,827 1,783 1,522 1,374 11,002 15,970 17,070 DRIVER RECORD ABSTRACTS ,342 3,043 3,169 BAD DEBTS PREMIUM DEFICIENCY/(DPAC) UNDISCOUNTED EFFECT OF DISCOUNTING DISCOUNTED UNDERWRITING EXPENSES $3,155 $2,294 $2,669 $3,399 $5,043 $4,087 $3,658 $3,299 $27,604 $39,151 $41,131 NET UNDERWRITING GAIN (LOSS) $1,600 $3,220 $569 $2,124 $594 $890 $1,177 $11,930 $22,104 $29,075 $10,277 ADMINISTRATIVE EXPENSES ,416 4,786 4,923 PREMIUM FINANCE FEE INVESTMENT INCOME OPERATING RESULTS $1,200 $2,854 $88 $1,717 $195 $371 $819 $11,538 $18,782 $24,489 $5,616 RATIOS: Claims & Adj Expenses Incurred (Earned) Prior Accident Year -0.1% -9.6% 10.2% -6.0% -18.6% -4.6% -2.8% -72.8% -13.2% -9.9% 2.3% Current Accident Years 72.2% 73.1% 70.2% 71.0% 84.5% 74.1% 74.3% 83.0% 75.4% 75.1% 72.8% All Accident Years Combined 72.1% 63.5% 80.4% 65.0% 65.9% 69.5% 71.5% 10.2% 62.2% 65.2% 75.1% Underwriting & Admin Exp.(Earned) 20.9% 17.6% 19.1% 24.1% 33.0% 28.3% 23.8% 21.9% 23.6% 22.4% 22.3% COMBINED OPERATING RATIO 93.0% 81.1% 99.5% 89.1% 98.9% 97.8% 95.3% 32.1% 85.8% 87.6% 97.4% Note: Amounts shown above do not reflect costs incurred directly by member companies e.g. income and premium taxes, health levies, association dues, cost of capital as a result of their compulsory participation in Facility Association and investment income earned on Facilty Association premium dollars invested directly by members. Rounding Difference may apply

9 SUMMARY OF OPERATIONS - CALENDAR YEAR 2015 FACILITY ASSOCIATION RESIDUAL MARKET - ALL JURISDICTIONS Operating Results for the 8 months ended August 31, 2015 (Discounted Basis) Source: Monthly (Accident Year) Member Participation Report as at 08/2015 (thousands of dollars) CY Months CY2014 NFLD & Updated 12 Months Alberta Ontario NS PEI NB LAB Yukon NWT Nunavut Total Projections Actual UNDERWRITING REVENUE: PREMIUMS WRITTEN $48,228 $32,542 $11,701 $3,273 $14,592 $19,470 $1,641 $3,531 $1,078 $136,056 $194,938 $202,233 CHANGE IN UNEARNED PREMIUMS 321-2, , , ,689 NET PREMIUMS EARNED $48,549 $30,393 $10,950 $2,969 $13,486 $18,986 $1,445 $3,438 $1,056 $131,272 $195,907 $206,922 CLAIMS INCURRED PRIOR ACCIDENT YEARS UNDISCOUNTED ,997-1, , ,583-13,582 5,139 EFFECT OF DISCOUNTING , ,789-5, DISCOUNTED -1,238-11,411-2, , ,372-19,462 4,788 CURRENT ACCIDENT YEAR UNDISCOUNTED 31,498 22,089 7,220 2,056 9,229 17,878 1,301 1, , , ,901 EFFECT OF DISCOUNTING 1,738 1, ,542 7,811 6,825 DISCOUNTED 33,236 23,798 7,583 2,174 9,699 18,811 1,386 1, , , ,726 CLAIMS INCURRED $31,998 $12,387 $5,373 $1,388 $10,183 $18,056 $1,070 $494 $615 $81,564 $127,681 $155,514 UNDERWRITING EXPENSES OPERATING & SERVICE FEES 4,856 3,589 1, ,466 2, ,367 20,357 20,936 AGENTS COMMISSIONS 4,179 1,643 1, ,393 1, ,002 15,970 17,070 DRIVER RECORD ABSTRACTS ,342 3,043 3,169 BAD DEBTS PREMIUM DEFICIENCY/(DPAC) UNDISCOUNTED EFFECT OF DISCOUNTING DISCOUNTED UNDERWRITING EXPENSES $9,776 $5,296 $2,702 $778 $3,139 $4,586 $328 $768 $231 $27,604 $39,151 $41,131 NET UNDERWRITING GAIN (LOSS) $6,775 $12,710 $2,875 $803 $164 ($3,656) $47 $2,176 $210 $22,104 $29,075 $10,277 ADMINISTRATIVE EXPENSES 1, ,416 4,786 4,923 PREMIUM FINANCE FEE INVESTMENT INCOME OPERATING RESULTS $5,719 $11,940 $2,588 $697 ($192) ($4,169) ($22) $2,067 $154 $18,782 $24,489 $5,616 RATIOS: Claims & Adj Expenses Incurred (Earned) Prior Accident Year -2.6% -37.5% -20.2% -26.5% 3.6% -4.0% -21.9% -35.3% 6.8% -13.2% -9.9% 2.3% Current Accident Years 68.5% 78.3% 69.3% 73.2% 71.9% 99.1% 95.9% 49.6% 51.4% 75.4% 75.1% 72.8% All Accident Years Combined 65.9% 40.8% 49.1% 46.7% 75.5% 95.1% 74.0% 14.3% 58.2% 62.2% 65.2% 75.1% Underwriting & Admin Exp.(Earned) 22.4% 20.1% 27.4% 29.8% 26.0% 26.9% 27.5% 25.6% 27.2% 23.6% 22.4% 22.3% COMBINED OPERATING RATIO 88.3% 60.9% 76.5% 76.5% 101.5% 122.0% 101.5% 39.9% 85.4% 85.8% 87.6% 97.4% Note: Amounts shown above do not reflect costs incurred directly by member companies e.g. income and premium taxes, health levies, association dues, cost of capital as a result of their compulsory participation in Facility Association and investment income earned on Facilty Association premium dollars invested directly by members. Rounding Difference may apply EXHIBIT 2

A copy of this bulletin should be provided to your Chief Financial Officer and Appointed Actuary.

` TO: ATTENTION: MEMBERS OF THE FACILITY ASSOCIATION CHIEF EXECUTIVE OFFICER BULLETIN NO.: F15 094 DATE: DECEMBER 23, 2015 SUBJECT: FARM OCTOBER 2015 PARTICIPATION REPORT A copy of this bulletin should