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

Transcription

1 TO: ATTENTION: MEMBERS OF THE FACILITY ASSOCIATION CHIEF EXECUTIVE OFFICER ONTARIO RISK SHARING POOL PROJECT MANAGER BULLETIN NO.: F DATE: JANUARY 28, 2015 SUBJECT: ONTARIO RISK SHARING POOL DECEMBER 2014 OPERATIONAL REPORT A copy of this bulletin should be provided to your Chief Financial Officer and Appointed Actuary. Please be advised that the December 2014 Ontario Risk Sharing Pool Operational Report is now available on the Facility Association Portal at New This Month An update of the "Member's Usage" of the Ontario Risk Sharing Pool ( RSP ) was performed since the release of the November 2014 Operational Report, bringing members sharing current to the fourth quarter The usage update is reflected in the December 2014 Operational Report. Summary of Financial Results The calendar yeartodate Net Result from Operations is $66.0 million and the incurred loss ratio to the end of 12 months is 95.6%, as summarized in the table at the top of the next page. Page 1 of 7

2 December December Year to date Year to Date December 2014 December 2013 Written Premiums $20,064 $17,994 $278,587 $277,593 Earned Premiums $23,556 $23,367 $270,458 $299,586 Incurred Losses $29,463 $30,341 $258,517 $295,631 Underwriting Expenses and Others $5,228 $4,882 $77,907 $54,211 Net Result from Operations ($11,135) ($11,856) ($65,966) ($50,256) Ratios: Loss ratio % Prior Accident Years (9.0%) (6.1%) (40.5%) (38.9%) Current Accident Year 134.1% 135.9% 136.1% 137.5% 125.1% 129.8% 95.6% 98.6% Underwriting & Admin Exp.% 22.2% 20.9% 28.8% 18.1% Combined Operating Ratio 147.3% 150.7% 124.4% 116.7% These results are discussed in some detail in the Current Month Results section on the next page. For additional numeric detail, please refer to Exhibit 1 Summary of Operations for Calendar Year 2014 attached to this bulletin. Updated Projection to Yearend An Outlook had been prepared to provide Members with an estimate of Ontario RSP operating results for calendar year 2015 based on the actuarial valuation at June 30, 2014, and reflecting actual experience to date as detailed in the August 2014 Operational Report. This Outlook was posted on September 29, 2014 (please refer to Bulletin F14068), and projected a Net Result from Operations for 2015 of $183.4 million, and a combined operating ratio of 164.9%. This month, the updated calendar year Net Result from Operations to December 2015 is $164.8 million (an $18.6 million improvement relative to the Outlook) and the estimated combined operating ratio to December 2015 is 159.2% (a 5.7 point improvement relative to the Outlook). The improvement is due to a $13.5 million decrease in projected written premium, reducing both the projected earned premium (by $4.6 million) and the ending unearned premium balance (by $8.9 million). Projected total claims incurred have decreased by $14.5 million. As current accident year projected claims levels are determined based on earned premium, the reduction in projected earned premium has resulted directly in a $5.8 million reduction in current accident year incurred claims, prior to actuarial present value adjustments. However, the 2015 accident year loss ratio has also been decreased by 2.3 points (to 123.2%), applicable to the full updated earned premium of $278.1 million, reducing the current accident year claims by a further $6.4 million. An additional $2.3 million reduction in claims incurred as projected is due to actuarial present value adjustment changes (these include the impact of the discount rate decreasing from 1.74% to 1.71%, which would result in an increase in the provision this impact was offset by larger impacts related to nominal unpaid levels projected to the end of the year). Page 2 of 7

3 Finally, projected underwriting expenses have decreased by $8.7 million. As the Member expense allowance is a function of written premium and the premium deficiency provision is a function of the ending unearned premium balance (and loss ratios, including actuarial present value provision changes), changes to these underlying projections have led to the indicated decrease in underwriting expenses. Current month results The Net Result from Operations in the month of December 2014 is $11.1 million, a $0.7 million improvement compared with the same month last year. This improvement is composed of a deterioration of $0.1 million associated with the $0.2 million increase in earned premium (at a combined ratio of 150.7%), offset by $0.8 million favourable impact stemming from the overall decrease in the combined ratio (from 150.7% to 147.3% applied to $23.6 million in earned premium). This month s results moved the yeartodate combined operating ratio from 122.2% at the end of 11 months to 124.4% at the end of 12 months. The 2.2 percentage point increase is composed of a 3.0 percentage point increase in the Prior Accident Year loss ratio, offset by a 0.2 percentage point decrease in the Current Accident Year loss ratio, and further offset by a 0.6 percentage point decrease in the expense ratio. Variances from Projections The table below provides a summary of key components of the operating results as compared to the estimates projected last month. December 2014 Actual Projection Difference Difference% Written Premiums $20,064 $21,688 ($1,624) (7.5%) Earned Premiums $23,556 $23,653 ($97) (0.4%) Reported Losses Paid Losses $24,337 $22,315 $2, % Loss Expenses Paid $2,313 $2,297 $16 0.7% Increase (decrease) in Outstanding Losses ($1,251) $4,132 ($5,383) (130.3%) Total Reported Losses $25,399 $28,744 ($3,345) (11.6%) Increase (decrease) in IBNR * $4,064 $1,116 $2,948 Increase (decrease) in Premium Deficiency * ($1,189) ($611) ($578) (Amounts in $000 s) Rounding differences may occur. * Detailed information is included in Ontario RSP December 2014 Operational Report Actuarial Highlights. Each month, management reviews the variance between reported premium activity and claims activity (actual reported claims payments and changes in case reserves) and the associated Page 3 of 7

4 actuarial projections. The projection process involves many assumptions including claims reporting patterns. Actual reporting patterns vary from monthtomonth, sometimes considerably. Although variances from our projections are expected, management investigates variances above set thresholds and responds as appropriate. For this month, the variances were within the threshold given the monthly reporting volatility. For the month of December 2014, reported losses were $3.3 million lower than projected. Management investigated reported claims activity and is satisfied that the variance is appropriately accounted for in our current booking process. The Current Accident Year had a $4.4 million favourable variance in reported losses, while the Prior Accident Years had a $1.1 million unfavourable variance. Of the Prior Accident Years, 2010 had the largest variance in reported losses at $3.7 million unfavourable, followed by Accident Year 2013 at $1.1 million favourable. No other single Prior Accident Year had a reported loss variance in excess of $1.0 million. Booking IBNR The IBNR booking process this month allowed the nominal IBNR (i.e. before the impact of discounting and changes in provisions for adverse deviation) to vary from projected in order to offset the Prior Accident Years and Current Accident Year variances from projected, including the impact of earned premium variances (as IBNR is based on loss ratios). This is consistent with management s investigation into reported claims variances concluding they were random and not necessarily indicative of a trend. IBNR is discussed in more detail in the Ontario RSP December 2014 Operational Report Actuarial Highlights. Effect of Quarterly Valuation The December 2014 Ontario Risk Sharing Pool Operational Report does not reflect the results of an updated valuation (the most recent valuation is as at September 30, 2014). The actuarial valuation will be updated next as at December 31, 2014 and we anticipate that the results will be reflected in the March 2015 Operational Report. Management Comments For the Ontario RSP, the transfer limit is 5.0% of exposures written in the prior year at the member company group level (that is, within a group under common management or ownership, a single member can transfer the entire transfer limit for the group). System programming prevents member groups from exceeding their transfer limits during a calendar year. However, member groups can transfer their entire limit for a given year at any time throughout the year including, for example, the last day of that year ended with transfers up 0.2% from 2013 or 2.3% of the 2013 industry private passenger vehicle count. Our current projection has the 2015 vehicle count down 5.7% from 2014, being 2.1% of the 2013 industry private passenger vehicle count (as we don t have an industry count yet for 2014, we continue to use the 2013 count as a proxy). Clearly, however, this could change dramatically and quickly if member companies choose to take full advantage of their transfer limits. Page 4 of 7

5 change in count 5,000 4,000 3,000 2,000 1,000 (1,000) (2,000) (3,000) (4,000) (5,000) Yronyr Chg in Written Veh Count (by month) The chart on the left shows the yearonyear change in the vehicles transferred to the pool by month, with December reporting an increase of 1,166 written vehicles. Our projection last month (in part based on previous projections provided by select large pool participants) was for an increase of 1,862 written vehicles, indicating a variance of 696 from the actual transfers. This variance was mainly due to one member company transferring a lower number of vehicles to the pool in December than projected. ones 1,500 1, (500) ON Dec 2014 mth chg: 1,166 The chart on the left shows the overall change in the month, broken down by member company group changes (each blue bar represents the change for a single member company group), sorted by magnitude of change. Twelve member company groups transferred fewer vehicles to the pool this month compared to a year ago, while 9 transferred more 1, and 1 remained the same. Of the 12 member company groups transferring fewer vehicles, 1 member company group accounted for 36% of the total transfer decrease for the decliner members. Of the 9 member company groups transferring more vehicles, 3 member company groups accounted for 81% of the total transfer increases for the grower members. thousands (2.0) ON YTD Dec 2014 ytd chg: 342 The chart on the left presents the same information as the previous chart, but on a yeartodate basis. That is, it shows the overall change in transfer counts yeartodate, broken down by member company group changes (each blue bar represents the change for a single member company group), sorted by magnitude of change. (4.0) December s yearonyear change in vehicle count transfers to the pool represents an 11.2% increase from December 2013, and counts were up 0.2% yeartodate. Average written premium was up 0.3% in December compared with the same month in 2013, and up 0.2% yeartodate (see charts at the top of the next page). 1 For the purposes of discussion here, we only include those member company groups that transferred at least one vehicle in either 2013 or Groups that have not transferred vehicles in these two periods are ignored. Page 5 of 7

6 Written Vehicle Count (by month) count in thousands AWP $ 2,000 1,950 1,900 1,850 1,800 1,750 1,700 1,650 1,600 1,550 1,500 1,450 Average Written Premium (by month) Dec14 Dec13 Amt Chg % Chg Dec14 Dec13 Amt Chg % Chg W. Veh curr mth 11,619 10,453 1, % AWP curr mth 1,727 1, % Written Vehicle Count (YTD) count in thousands AWP $ 1,820 1,800 1,780 1,760 1,740 1,720 1,700 1,680 1,660 Avg Written Premium (YTD) Dec14 Dec13 Amt Chg % Chg Dec14 Dec13 Amt Chg % Chg W. Vehicles YTD 157, , % Avg W. Prem YTD 1,769 1, % As a result of the movements in transfer vehicle counts and average written premium, the transferred premium was up 11.5% for the month (last month, we projected an increase of 20.5%), and was up 0.4% yeartodate (see charts at the top of the next page). Page 6 of 7

7 WP in $millions Written Premium (by month) WP in $millions Written Premium (YTD) Dec14 Dec13 Amt Chg % Chg WP ($000s) curr mth 20,064 17,994 2, % Dec14 Dec13 Amt Chg % Chg WP ($000s) YTD 278, , % 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: Ontario RSP December 2014 Operational Report Actuarial Highlights Page 7 of 7

8 SUMMARY OF OPERATIONS CALENDAR YEAR 2014 Risk Sharing Pool Ontario Operating Results for 12 Months ended December 31, 2014 (Discounted basis) EXHIBIT 1 Source: Monthly Operational Report (thousands of dollars) January February March April May June July August September October November December CY2014 YTD CY MONTHS Updated Projection CY MONTHS Actual Net Premiums Written $18,829 $18,342 $24,382 $22,546 $25,913 $29,379 $19,030 $25,003 $26,345 $25,923 $22,831 $20,064 $278,587 $271,515 $277,593 Decrease (Increase) in Unearned Premiums $4,520 $2,711 ($1,138) ($94) ($3,069) ($6,908) $2,988 ($2,873) ($4,570) ($2,740) ($448) $3,492 ($8,129) $6,536 $21,993 Net Premiums Earned $23,349 $21,053 $23,244 $22,452 $22,844 $22,471 $22,018 $22,130 $21,775 $23,183 $22,383 $23,556 $270,458 $278,051 $299,586 Claims Incurred: Prior Accident Years: Undiscounted ($601) ($304) ($27,717) ($284) ($12,925) ($73) ($64) ($33,862) ($26) ($15,166) $37 ($5) ($90,990) $0 ($87,357) Effect of Discounting (2,824) (1,558) (2,025) (1,512) 3,393 (1,414) (1,585) (2,506) (1,646) (3,275) (1,536) (2,121) (18,609) (22,466) (29,038) Discounted ($3,425) ($1,862) ($29,742) ($1,796) ($9,532) ($1,487) ($1,649) ($36,368) ($1,672) ($18,441) ($1,499) ($2,126) ($109,599) ($22,466) ($116,395) Current Accident Year: Undiscounted $31,416 $28,069 $29,680 $29,492 $29,853 $29,296 $28,691 $18,606 $27,116 $25,032 $27,425 $28,909 $333,585 $342,560 $373,964 Effect of Discounting 3,872 2,877 3,021 2,978 4,003 3,238 2,923 2,326 2,778 1,212 2,623 2,680 34,531 35,727 38,062 Discounted $35,288 $30,946 $32,701 $32,470 $33,856 $32,534 $31,614 $20,932 $29,894 $26,244 $30,048 $31,589 $368,116 $378,287 $412,026 Claims Incurred $31,863 $29,084 $2,959 $30,674 $24,324 $31,047 $29,965 ($15,436) $28,222 $7,803 $28,549 $29,463 $258,517 $355,821 $295,631 Underwriting Expenses: Expense Allowance $5,818 $5,695 $7,621 $7,103 $8,086 $8,988 $6,058 $7,782 $8,236 $8,090 $7,206 $6,289 $86,972 $83,628 $84,145 Change in UPDR/DPAC: Undiscounted (1,411) (732) (1,769) 376 1,419 2,718 (298) (8,746) 1,334 (2,230) 205 (704) (9,838) 2,607 (28,520) Effect of Discounting (695) (402) ,770 1,205 (411) (2,804) (485) (456) (452) (2,809) Discounted (2,106) (1,134) (1,653) 432 3,189 3,923 (709) (11,550) 2,003 (1,780) 280 (1,189) (10,294) 2,155 ($31,329) Underwriting Expenses $3,712 $4,561 $5,968 $7,535 $11,275 $12,911 $5,349 ($3,768) $10,239 $6,310 $7,486 $5,100 $76,678 $85,783 $52,816 Net Underwriting Gain (Loss) ($12,226) ($12,592) $14,317 ($15,757) ($12,755) ($21,487) ($13,296) $41,334 ($16,686) $9,070 ($13,652) ($11,007) ($64,737) ($163,553) ($48,861) Administrative Expenses $85 $96 $93 $83 $125 $86 $111 $105 $91 $113 $113 $128 $1,229 $1,251 $1,395 Net Result from Operations ($12,311) ($12,688) $14,224 ($15,840) ($12,880) ($21,573) ($13,407) $41,229 ($16,777) $8,957 ($13,765) ($11,135) ($65,966) ($164,804) ($50,256) Ratios: Claims & Expenses Incurred (Earned) Prior Accident Years 14.7% 8.8% 128.0% 8.0% 41.7% 6.6% 7.5% 164.3% 7.7% 79.5% 6.7% 9.0% 40.5% 8.1% 38.9% Current Accident Year 151.1% 147.0% 140.7% 144.6% 148.2% 144.8% 143.6% 94.6% 137.3% 113.2% 134.2% 134.1% 136.1% 136.0% 137.5% All Accident Years Combined 136.4% 138.2% 12.7% 136.6% 106.5% 138.2% 136.1% 69.7% 129.6% 33.7% 127.5% 125.1% 95.6% 127.9% 98.6% Underwriting & Administrative Expenses (Earned) 16.3% 22.1% 26.1% 33.9% 49.9% 57.8% 24.8% 16.6% 47.4% 27.7% 33.9% 22.2% 28.8% 31.3% 18.1% Combined Operating Ratio 152.7% 160.3% 38.8% 170.5% 156.4% 196.0% 160.9% 86.3% 177.0% 61.4% 161.4% 147.3% 124.4% 159.2% 116.7% 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