Healthcare Insurance Reciprocal of Canada Annual Review. The Reciprocal Model: We stay strong by giving back

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1 Healthcare Insurance Reciprocal of Canada R 2015 Annual Review E C I P R The Reciprocal Model: We stay strong by giving back to our partners O C A L

BOARD OF DIRECTORS Cathy Szabo, Board Chair Chief Executive Offi cer Providence Care Kingston, ON HiRoc is governed by a board of Directors elected by subscribers to represent the various types of

2 BOARD OF DIRECTORS Cathy Szabo, Board Chair Chief Executive Offi cer Providence Care Kingston, ON HiRoc is governed by a board of Directors elected by subscribers to represent the various types of organizations, sizes and geographical locations of HiRoc s members. the following Directors left the board in 2015: Murray Martin, trustee, Accreditation canada international; bill boyd, trustee, eastern Regional integrated Health Authority, st. John s, nl; John stinson, chief executive offi cer, interlake-eastern Regional Health Authority, selkirk, Mb; kevin empey, chief executive offi cer, Lakeridge Health corporation, oshawa, on. the following Directors were elected at the 2015 AgM: Jim slater, trustee, Regional Health Authorities of Manitoba, Winnipeg, Mb; Robert Andrews, trustee, eastern Regional integrated Health Authority, st. John s, nl; elizabeth (beth) beader, chief executive offi cer, north Hamilton community mu Health centre, Hamilton, on; and David barlow, trustee, Rouge valley Health system, scarborough, on. Elizabeth Martin, Vice-Chair Sunnybrook Health Sciences Centre Toronto, ON Douglas Anderson, Women s College Health Research Toronto, ON 2 Robert (Bob) Andrews, Eastern Regional Integrated Health Authority St. John s, NL Elizabeth Bardon Chief of Public Relations & Community Engagement Hotel Dieu Hospital Kingston, ON David Barlow, Rouge Valley Health System Scarborough, ON Annual Review Elizabeth (Beth) Beader Chief Executive Offi cer North Hamilton Community Health Centre Hamilton, ON Keith Dewar President and Chief Executive Offi cer Regina Qu Appelle Health Region Regina, SK Remi Ejiwunmi Senior Partner, Registered Midwife Midwifery Care of Peel & Halton Hills Mississauga, ON Robert (Bob) Howard President & CEO St. Michael s Hospital Toronto, ON Wendy Nicklin Healthcare Consultant and Immediate Past President and Chief Executive Offi cer Accreditation Canada Ottawa, ON James (Jim) Slater, Regional Health Authorities of Manitoba Winnipeg, MB Bruce Thompson, Winnipeg Regional Health Authority Winnipeg, MB Eric Vandewall President and Chief Executive Offi cer Joseph Brant Hospital Burlington, ON Richard Wilson Board Member Pembroke Regional Hospital Pembroke, ON

When we set out to partner with our subscribers in creating the safest healthcare system, we never realized how deep and sustaining the bonds of partnership would become.

3 When we set out to partner with our subscribers in creating the safest healthcare system, we never realized how deep and sustaining the bonds of partnership would become. our goal has always been to stand beside you our members in whatever risk and safety challenges you might be facing. We work with you to fi nd new and innovative approaches to manage risk and improve patient safety. being guided by the vision Partnering to Create the Safest Healthcare System has taken us far together and we re proud of that fact! PRIDE IN THE YEAR THAT S PASSED in 2015, you continued to impress us with your commitment to the Risk Register, our new integrated Risk Management (irm) tool and interest in identifying new risks. in one year, almost 80 healthcare organizations have signed on to the Risk Register and 1,100 risks have been entered into the system. Honest, forthright and courageous feedback from the irm advisory committee has reinforced our belief that we re on the right path and need to keep pushing forward to ensure effective risk management practices take hold in our healthcare organizations. We are so grateful for your involvement in this important endeavour. there are many other reasons for us to refl ect with pride on the year that s passed. the Reciprocal s conservative investment approach served subscribers well during the year as the overall fund return was 2.8%, ahead of our benchmark of 2%. in 2015, solid fi nancial results enabled a surplus distribution of $23.7 million to eligible subscribers. this is our highest distribution ever! if our positive fi nancial results continue, we plan to distribute a similar amount in your ideas and input helped us enhance some of our products and tools: cyber Risk insurance coverage enhanced for all subscribers Foreign clinical Research trials insurance is available through HiRoc at improved coverage and pricing Limits of liability insurance now available up to $35 million the advances and changes we re seeing in the healthcare environment are often exciting, incredibly challenging and always interesting. the only sure thing is that these diffi cult transitions will continue. We never underestimate your resilience and together we have the momentum to move our safety agenda forward and keep giving back. Why? because it s in our model and it s in our name. thank you for your trust and your partnership, have a great 2016! peter Flattery chief executive offi cer cathy szabo chair Annual Review 3

4 2015 FINANCIAL STATEMENTS AND REPORTS 2015 was not without its challenges on the claims and investment fronts, but we are still very satisfi ed with our fi nancial returns. subscribers surplus remained stable at $450 million and we were able to approve surplus distributions of $23.7 million to eligible subscribers. Over the past fi ve years, HIROC has returned over $65 million to eligible subscribers proof of the fi nancial benefi ts Canadian healthcare organizations receive by participating in the Reciprocal. Taking a principled approach to claims Our team of claims examiners works closely with our lawyers and adjusters to effectively manage and mitigate claims costs. HIROC continues to proactively settle matters where appropriate and to resist payment in those cases where there was no culpable negligence. Our principled approach continues to be successful we secured defence verdicts in two major trials in The greatest portion of our work is still centred on allegations of medical malpractice. While privacy issues, fraud and the potential for computer-related losses are still only a small part of the HIROC Risk portfolio, we are seeing an increase in the numbers of these matters and in the concerns about them expressed by our subscribers. Delivering solid returns in a challenging investment market Investment returns during 2015 generated $31 million in realized and unrealized investment income. Although it was a challenging year in the investment markets with Canadian equities in negative return territory, our investment return for the year was 2.8%, which compares favourably to our benchmark return of 2.0%. A conservative investment approach has helped us weather many storms and in fact, enabled us to consistently deliver excellent results. Over the past four years, the portfolio s average is 6.5%, beating the benchmark return of 5.3%. Investment management is a key function of the reciprocal and can generate signifi cant value for subscribers, so we thank our independent investment advisors who have delivered these strong investment results. We have consistently kept our operating expenses below 8% of premiums written which is much lower than the insurance industry average as shown in the Insurance Cost Comparison chart. INVESTMENT RETURN 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% year average HIROC Benchmark 4 Annual Review

5 STATEMENT OF FINANCIAL POSITION As at December 31, 2015, with comparative fi gures as at December 31, 2014 In thousands of Canadian dollars ASSETS Investments: Cash and cash equivalents 6,542 40,492 Investment income due and accrued 5,963 9,172 Bonds 822, ,125 Mortgage pooled fund 67,892 63,824 Common shares 300, ,754 1,203,339 1,155,367 Due from reinsurers 61,240 59,808 Other assets 3,727 4,800 Total assets 1,268,306 1,219, FINANCIAL STATEMENTS AND REPORTS LIABILITIES AND SUBSCRIBERS SURPLUS Foreign exchange forward contracts 7,143 - Accounts payable and accrued liabilities 3,600 3,701 Due to reinsurers 5,872 6,570 Premium taxes payable 3,421 3,593 Unearned premiums 12,008 11,790 Unpaid claims and claims expenses 785, , , ,622 Subscribers surplus 340, ,209 Accumulated other comprehensive income 110, , , ,353 Total liabilities and subscribers surplus 1,268,306 1,219,975 The fi nancial statements included herein are excerpts from the audited fi nancial statements of the Reciprocal for the year ended December 31, INSURANCE COST COMPARISON BASED ON $1 OF CLAIMS* industry 23 Commissions 19 Operating Expenses hiroc 4 Income Tax 8 Operating Expenses 5 Premium Tax 4 Premium Tax $1 Claims $1 Claims Total cost = $1.51 Total cost $1.12 * Based on 4-year average of Property & Casualty industry data ( ). Source: Offi ce of the Superintendent of Financial Institutions Annual Review 5

6 2015 FINANCIAL STATEMENTS AND REPORTS STATEMENT OF INCOME For the year ended December 31, 2015 with comparative fi gures for 2014 In thousands of Canadian dollars UNDERWRITING REVENUE: Gross premiums written 148, ,274 Less: premiums ceded to reinsurers (9,877) (10,386) Net premiums written 138, ,888 Change in unearned premiums: Gross amount (218) (970) Reinsurers share 17 (375) Net amount (201) (1,345) Net premiums earned 138, ,543 EXPENSES: claims and claims expenses, gross 138, ,138 Ceded claims and claims expenses (6,290) (13,206) Claims and claims expenses, net 132, ,932 Premium taxes 3,906 4,005 Operating expenses 10,914 10, , ,532 Underwriting (loss) profit (9,429) (9,989) Net investment income 55,310 50,601 Net income for the year 45,881 40,612 STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, 2015 with comparative fi gures for 2014 In thousands of Canadian dollars Net income for the year 45,881 40,612 Other comprehensive income: Items that may subsequently be reclassified to net income: Change in unrealized gains and losses 17,622 83,967 Reclassifi cation of realized gains and losses to net income (29,119) (22,606) Reclassifi cation of gains on hedged items (12,770) - (24,267) 61,361 Total other comprehensive income for the year (24,267) 61,361 Total comprehensive income for the year 21, ,973 6 Annual Review

7 STATEMENT OF CHANGES IN SUBSCRIBERS SURPLUS For the year ended December 31, 2015 with comparative fi gures for 2014 In thousands of Canadian dollars Subscribers Surplus Accumulated Other Comprehensive Income Year ended December 31, 2015: Balance at January 1, , ,144 Total comprehensive income for the year: Net income for the year 45,881 - Other comprehensive income for the year - (24,267) 45,881 (24,267) Transactions recorded directly in Subscribers surplus: Surplus contributions Refund of surplus premiums (23,762) - (22,987) - Balance at December 31, , , FINANCIAL STATEMENTS AND REPORTS Year ended December 31, 2014: Balance at January 1, ,197 73,783 Total comprehensive income for the year: Net income for the year 40,612 - Other comprehensive income for the year - 61,361 40,612 61,361 Transactions recorded directly in Subscribers surplus: Surplus contributions Refund of surplus premiums (21,537) - (20,600) - Balance at December 31, , ,144 Annual Review 7

The Risk Register provides our senior leaders with real-time information on how their program

Colleen Petersen, Peterborough Regional Health Centre The fact that we were able to

Jordan Wilcox, William Osler Health System Tackling risk together Once again HIROC has taken

Mike Morrill, Heartland Health Region Head Office: 4711 Yonge Street, Suite 1600, Toronto, ON

8 The Risk Register provides our senior leaders with real-time information on how their program risks are being managed and what support might be needed. Colleen Petersen, Peterborough Regional Health Centre The fact that we were able to capitalize on best practices from our peers has been fantastic. Jordan Wilcox, William Osler Health System Tackling risk together Once again HIROC has taken an onerous process and simplified it. Mike Morrill, Heartland Health Region Head Office: 4711 Yonge Street, Suite 1600, Toronto, ON M2N 6K8 Tel: Fax: Toll-Free: Fax: Western Region: 1200 Rothesay Street, Winnipeg, MB R2G 1T7 Tel: Fax: Toll-Free:

TO CREATE THE SAFEST HEALTHCARE SYSTEM

2 0 0 7 A N N U A L R E P O R T TO CREATE THE SAFEST HEALTHCARE SYSTEM TABLE OF CONTENTS A message from the Chair and CEO of HIROC..................... 2 Achieving Our Vision.......................................