2022-23 SGI CANADA Annual Report
At the end of each reporting period, a liability adequacy test is performed, in accordance with IFRS, to validate the
adequacy of unearned premiums and deferred policy acquisition costs (DPAC). A premium deficiency would exist
if unearned premiums are deemed insufficient to cover the estimated future costs associated with the unexpired
portion of written insurance policies. A premium deficiency would be recognized immediately as a reduction of DPAC
to the extent that unearned premiums plus anticipated investment income is not considered adequate to cover all
DPAC and related insurance claims and expenses. If the premium deficiency is greater than the unamortized DPAC,
a liability is accrued for the excess deficiency.
Provision for unpaid claims
The provision for unpaid claims represents an estimate of the total cost of outstanding claims to the year-end date.
The estimate includes the cost of reported claims, claims incurred but not reported, and an estimate of adjustment
expenses to be incurred on these claims and a provision for adverse deviation (PFAD) in accordance with Canadian
Institute of Actuaries standards. The estimates are subject to uncertainty and are selected from a range of possible
outcomes. During the life of the claim, adjustments to the estimates are made as additional information becomes
available. The change in outstanding losses plus paid losses is reported as claims incurred in the current year.
In accordance with IFRS 4, the Corporation is required to disclose actual claims experience with previous estimates
for the past 10 years as at the reporting date. Historically, the Corporation's accident year for valuation purposes
was on a calendar year basis as it was aligned with the Corporation's fiscal reporting year end. When the Corporation
moved from a December 31 to March 31 fiscal year-end it decided to continue to complete actuarial evaluations
using a January 1 to December 31 accident year.
As a result, the Corporation has elected to continue to disclose for financial reporting purposes the development
of its estimated net provision for unpaid claims on the same basis of the Corporation's valuation period, being a
calendar year-end, as at December 31 of each prior year. The current year loss development is shown on a 15-month
basis for financial reporting purposes.
The Corporation believes that while this disclosure is not aligned with the Corporation's financial reporting period,
it does provide the user of the consolidated financial statements adequate information to assess the Corporation's
development of the estimated net provision for unpaid claims.
Deferred policy acquisition costs
Premium taxes, commissions and certain underwriting and policy issuance costs are deferred, to the extent they
are recoverable, and charged to expense over the terms of the insurance policies to which such costs relate, no
longer than 12 months.
Reinsurance ceded
The Corporation uses various types of reinsurance to limit its maximum insurance risk exposure. Estimates of
amounts recoverable from reinsurers in respect of insurance contract liabilities and their share of unearned
premiums are recorded as reinsurance assets on a gross basis in the Consolidated Statement of Financial Position.
Unpaid claims recoverable from reinsurers, reinsurers' share of unearned premiums and unearned reinsurance
commissions are estimated in a manner consistent with the method used for determining the provision for unpaid
claims, unearned premiums and DPAC respectively. Insurance ceded does not relieve the Corporation of its primary
obligation to policyholders.
44 2022-23 SGI CANADA Annual ReportView entire presentation