QUARTERLY VALUATION HIGHLIGHTS · A valuation of the Facility Association Residual Market (“FARM”) as at June 30, 2016 has been completed for Private Passenger Vehicle (PPV) and

QUARTERLY VALUATION HIGHLIGHTS

FACILITY ASSOCIATION RESIDUAL MARKET (FARM)

as at June 30, 2016

FA Actuarial

10/27/2016

Should you require any further information, please call:

Shawn Doherty, FCIA, FCAS

SVP Actuarial & CFO

(416) 644-4968.

Actuarial Highlights – Quarterly Valuation FARM Valuation as at June 30, 2016

All Jurisdictions

file: Qtrly Valuation Highlights - FARM as at 2016 06 30 final.docx

page 1 of 33 printed: 10/26/2016 12:53 PM

Contents

A. Executive Summary .......................................................................................................................... 3

B. General Information ......................................................................................................................... 6

B.1 Appointed Actuary and Hybrid Actuarial Services Model .......................................................................................... 6

B.2 Intended Audience and Use ......................................................................................................................................... 7

B.3 Data .............................................................................................................................................................................. 7

B.3.1 FARM Valuation Data................................................................................................................................................................ 7

B.3.2 Industry AIX Data ...................................................................................................................................................................... 8

B.3.3 Other Data .................................................................................................................................................................................. 8

B.4 Actual vs Projected (AvsP) .......................................................................................................................................... 8

B.5 Uncertainty ................................................................................................................................................................... 9

C. ALL JURISDICTIONS .................................................................................................................. 10

C.1 Valuation Highlights .................................................................................................................................................. 10

C.2 Booked results for month prior to valuation date ....................................................................................................... 11

C.3 Actual vs Projected (AvsP) ........................................................................................................................................ 12

C.4 Current valuation IBNR selections ............................................................................................................................ 14

C.5 Premium Liabilities / Future Accident Years ............................................................................................................. 14

C.6 Actuarial Present Value Adjustments ........................................................................................................................ 14

C.6.1 Selected Claims Payment Patterns ............................................................................................................................................ 15

C.6.2 Selected Discount Rate ............................................................................................................................................................. 15

C.6.3 Selected Margins for Adverse Deviations ................................................................................................................................ 15

D. ONTARIO ........................................................................................................................................ 16

D.1 Valuation Highlights .................................................................................................................................................. 16

D.1.1 Ontario Product Reforms ..................................................................................................................................................... 17

D.2 Actual vs Projected (AvsP) ........................................................................................................................................ 20

D.3 Special IBNR Provisions / Adjustments .................................................................................................................... 21

E. ALBERTA ........................................................................................................................................ 22

E.1 Valuation Highlights .................................................................................................................................................. 22

E.2 Actual vs Projected (AvsP) ........................................................................................................................................ 23

E.3 Special IBNR Provisions / Adjustments .................................................................................................................... 23

F. ATLANTICS .................................................................................................................................... 24

F.1 Valuation Highlights .................................................................................................................................................. 24

F.2 Actual vs Projected (AvsP) ........................................................................................................................................ 25

F.3 Special IBNR Provisions / Adjustments .................................................................................................................... 25

G. TERRITORIES ............................................................................................................................... 26

G.1 Valuation Highlights .................................................................................................................................................. 26


All Jurisdictions



G.2 Actual vs Projected (AvsP) ........................................................................................................................................ 27

G.3 Special IBNR Provisions / Adjustments .................................................................................................................... 27

H. Appendix 1: Changes in process introduced since the September 30, 2015 valuation ............ 28

I. Appendix 2: Recent Regulatory and/or Legislative Initiatives .................................................. 29

I.1 Ontario .......................................................................................................................................................................... 29

I.2 Alberta ........................................................................................................................................................................... 29

I.3 New Brunswick ............................................................................................................................................................. 30

I.4 Nova Scotia ................................................................................................................................................................... 30

I.5 Prince Edward Island .................................................................................................................................................... 30

J. Appendix 3: General description of the FARM valuation process ............................................ 31

K. Appendix 4: Exhibits ...................................................................................................................... 33


All Jurisdictions



A. Executive Summary

A valuation of the Facility Association Residual Market (“FARM”) as at June 30, 2016 has been

completed for Private Passenger Vehicle (PPV) and non-Private Passenger Vehicle (non-PPV) business

segments and all jurisdictions, with the results summarized by jurisdiction in the table below (for

indemnity only). The previous valuation was completed at March 31, 2016 and included both PPV and

non-PPV business segments and all jurisdictions.

In total, the favourable prior accident year change of $8.7 million (column [2] in the table above)

represents 2.8% (column [3]) of the $308.1 million beginning unpaid (column [1])1. This brings the

calendar year-to-date change for prior accident years to $5.2 million favourable (1.6% of the unpaid

estimate as at the beginning of the calendar year) as shown in section C.1 (page 10).

The valuation quarters ending December 31 and June 30 reflect a full valuation update2 of assumptions.

Impacts of these updates tend to be more material since the impact of actual emerged experience from the

last full valuation will be incorporated into the revised assumptions. Further, the Appointed Actuary

reviews MfAD’s and premium and claims expense assumptions annually with the June 30th

valuation and

hence, in general, we expect the June 30th

valuation to reflect all material changes to assumptions in the

current fiscal year, with the exception of the discount rate which is updated at each quarter based on

current risk free interest rates.

The current valuation for all FARM jurisdictions and business segments incorporate updated trend

assumptions and industry loss development factors using AIX Industry PPV and CV 2015-2 data. The

selected loss ratios for accident year 2016 (AY2016; column [4]) decreased in Ontario and Yukon,

partially offsetting the unfavourable impact of increases in all other jurisdictions (column [5]). The

selected loss ratios for accident year 2017 (AY2017; column [7]) increased in Nova Scotia and Northwest

Territories, partially offsetting the favourable impact of decreases in all other jurisdictions (column [9]).

The changes in selected loss ratios for AY2016 and AY2017 were driven by recorded claims experience

(with the Alberta FARM impacted by the Fort McMurray wildfires) and updated a priori loss ratio

selections as a result of using updated claims trend and premium assumptions. The impact of these

changes, in total, relative to projected full year 2016 earned premium, is unfavourable by $2.5 million

1 The beginning unpaid is the sum of the case reserves and selected nominal IBNR as per the valuation completed as at March 31, 2016.

2Under the proposed schedule for fiscal year 2016, the “off-half” valuation quarters ending March 31, 2016 and September 30, 2016 would

not reflect a full valuation update of assumptions, but would rather “roll-forward” key assumptions from the previous valuation. Loss

development factors as brought forward through this process are interpolated assuming linear emergence.

Valuation Summary (Nominal Basis) unfavourable / (favourable)

Jurisdiction

2015 & Prior

Beginning

Indemnity

Unpaid (000s)

2015 & Prior

Accident Year

Indemnity

Change (000s)

% of

Beginning

Unpaid

2016

Indemnity

Loss Ratio

Change

from Prior

Valuation

Change against

2016 Earned

Prem (000s)

2017

Indemnity

Loss Ratio

Change

from Prior

Valuation

Change against

2017 Proj

Earned Prem

(000s)

Selected

Discount

Rate at

Jun/16

Change in

Dsct Rate

from Prior

Valuation

Estimated $ Effect

from sensitivity

analysis (000s)

[1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12]

Ontario 111,115 (1,631) (1.5%) 47.9% (2.0%) (789) 50.6% (1.5%) (581) 0.69% -6 bps 230

Alberta 77,868 (4,895) (6.3%) 58.8% 3.3% 2,015 56.3% (0.1%) (61) 0.69% -6 bps 144

Newfoundland & Labrador 52,075 (1,561) (3.0%) 76.1% 0.7% 196 72.4% (1.7%) (485) 0.69% -6 bps 78

New Brunswick 27,062 992 3.7% 54.5% 0.9% 184 54.5% (1.0%) (212) 0.69% -6 bps 49

Nova Scotia 23,847 (762) (3.2%) 60.0% 3.6% 607 59.8% 4.2% 751 0.69% -6 bps 59

Prince Edward Island 5,438 21 0.4% 53.7% 4.8% 227 46.9% (0.8%) (39) 0.69% -6 bps 14

Yukon Territory 3,401 (107) (3.1%) 51.3% (2.5%) (51) 54.7% (0.2%) (4) 0.69% -6 bps 7

Northwest Territories 5,789 (503) (8.7%) 41.6% 0.8% 38 42.5% 2.5% 117 0.69% -6 bps 14

Nunavut 1,520 (268) (17.6%) 39.6% 0.7% 11 33.8% (2.0%) (30) 0.69% -6 bps 2

Total 308,115 (8,714) (2.8%) 57.9% 1.4% 2,505 57.0% (0.2%) (361) 597


All Jurisdictions



(column [6]) with an anticipated complete accident year 2017 favourable impact of $0.4 million (column

[9]) in relation to the current projected complete AY2017 earned premium level. These changes also

imply an immediate favourable impact in relation to policy liabilities with the valuation’s

implementation3.

As indicated in columns [10] and [11] in the table on the previous page, claims payment emergence

patterns were updated and discount rates were decreased, reflecting June 2016 Government of Canada

yields, with the initial estimated impact of the discount rate selection change (column [12]). The selected

investment income Margin for Adverse Deviation (MfAD), of 25 basis points, was reviewed and

unchanged with the current valuation. The claims development MfADs for all jurisdictions and

business segments were reviewed and updated with the current valuation. In particular, selected

claims development MfADs for older accident years (specifically related to accident years where claims

development MfADs were previously increased due to periods of increased uncertainty, mainly relating

to various recent product reforms) were reviewed and judgmentally reduced to reflect the decreasing

uncertainty over time.

The FARM (All Jurisdictions) favourable prior accident year (PAY) development4 was driven by

favourable development in Ontario and Alberta, specifically related to favourable third party liability

large loss reported claims experience in both the Private Passenger Vehicles (PPV) and Non-Private

Passenger Vehicles (Non-PPV) segments reported in the quarter. The table immediately below shows

historical changes in valuation selected ultimates on an annual fiscal-accident year basis on the left with

changes in the most recent quarterly valuations on a calendar-accident year basis5 on the right.

FARM – All Jurisdictions (All Vehicles) Changes in PAY Selected Ultimates through time

The Ontario FARM favourable PAY development was driven by favourable reported large loss

experience in the Third Party Liability government line partially offset by unfavourable reported large

loss experience in the Accident Benefits government line in both the PPV and Non-PPV segments. The

table at the top of the next page shows that the favourable changes experienced in each of the previous 6

prior year-ends ($14.4 million during the prior year on a calendar-accident year basis), have continued

again for this quarter. However, the magnitude of the current valuation prior accident year changes

3The June 30, 2016 valuation result was implemented into the FARM Participation Results for the month of August 2016. The valuation

implementation impact is discussed in the respective August 2016 Actuarial Highlights.

4The term “development” throughout this document refers to claims activity during the period, and “favourable” or “unfavourable”

development is in relation to projections or underlying assumptions per the previous valuation.

5 Due to FA’s October 31 year-end, the runoff table is shown on a fiscal accident year basis. However, valuations are treated on a calendar

accident year basis. As a result, the “Change in Selected Ultimates from Prior Quarter End” will not necessarily sum to the annual view for

the most recent “prior” accident year. The valuation change discussions focus on the calendar accident basis.


All Jurisdictions



overall and at the individual accident year level appears relatively small compared to more significant

favourable changes experienced during prior valuations.

FARM – Ontario (All Vehicles) Changes in PAY Selected Ultimates through time

A similar summary for the Alberta FARM shows the favourable PAY development spread across

multiple accident years and primarily due to favourable recorded activity related to PPV bodily injury

claims settled in the quarter. The favourable PAY development during the current quarter continues the

favourable changes observed during the current fiscal year, but is in contrast to the unfavourable changes

experienced in each of the previous 4 prior fiscal year-ends.

FARM – Alberta (All Vehicles) Changes in PAY Selected Ultimates through time

Similar tables for other jurisdictions are included with the supporting exhibits provided with this report in

section K (Appendix 4). Caution must be exercised in reviewing the variances as volumes for some

jurisdictions are very low and single claim transactions that are normal course for the business may look

“unusual” and generate relatively “significant” variances that in nominal value terms are not that

significant. With this in mind when reviewing the results, we have attributed the older accident year

large loss experience as “random” and “process variance” driven.

The remainder of this report consists of 10 sections. Section C includes valuation details related to All

FARM Jurisdictions with sections D through G providing detailed sections by jurisdiction, including

valuation highlights and a discussion of actual vs. projected activity. General information about this

report can be found in section B. The final 4 sections are appendices: the valuation process is described

in detail in section J (Appendix 3); a summary of changes to the process during this fiscal year is

provided in section H (Appendix 1); a summary of regulatory changes is provided in section I (Appendix

2); and supporting exhibits are provided in section K (Appendix 4).


All Jurisdictions



B. General Information

This report summarizes the results of the valuation of the Facility Association Residual Market

(“FARM”) as at June 30, 2016 and completed for the following jurisdictions (Private Passenger (PPV)

and non-Private Passenger (non-PPV) business segments):

Ontario;

Alberta;

Newfoundland & Labrador;

New Brunswick;

Nova Scotia;

Prince Edward Island;

Yukon;

Northwest Territories; and

Nunavut.

The results of this valuation were reflected for the first time in the August 2016 FARM Participation

Reports.

The valuations have been prepared according to Accepted Actuarial Practice and comply with the

appropriate Standards of Practice of the Canadian Institute of Actuaries as well as applicable regulatory

requirements. Accepted Actuarial Practice requires all policy liabilities recognize both the time value of

money and provisions for adverse deviations.

Unless specifically noted in this document, no explicit provision has been made for causes of loss which

are not already reflected in the historical data, nor for otherwise unforeseen changes to the legal or

economic environment in which claims are settled, including changes in the interpretation of existing

legislation or regulation on matters currently before the courts.

Automobile insurance product reforms occur from time to time and consideration is given to the

associated impact, if any. Please see Section I for a discussion of recent product reforms considered for

the purposes of this valuation.

For ease of reference, we will use the term “claims amount” in reference to the more proper and

descriptive term “indemnity” and the terms “loss ratio”, “claims ratio”, or “claims amount ratio”

in reference to the ratio of “claims amount” to “earned premium”. (Please see footnote 7 on page 7

for a description of Servicing Carrier claims fees and allowed claims adjustment expenses that are

generally considered separately from indemnity.)

General information regarding the Facility Association and on the FARM in particular can be found on

its website:

www.facilityassociation.com

B.1 Appointed Actuary and Hybrid Actuarial Services Model

Liam McFarlane of Ernst & Young LLP is Facility Association’s Appointed Actuary (effective as of June

1, 2013).

http://www.facilityassociation.com/


All Jurisdictions



Facility Association operates under a “hybrid” model in relation to the management and provision of

actuarial services. Under this model, actuarial services are performed by both Facility Association’s

internal staff and its external actuarial consulting firm. The hybrid model approach maximizes the

efficiency of resource allocation while providing access to additional expertise and capacity as needed.

B.2 Intended Audience and Use

This report is intended for the Member Companies of the Facility Association to provide additional

information on the results of the most recent valuation of the FARM in relation to the results of prior

such valuations. It is not intended, nor necessarily suitable, for any other purpose.

B.3 Data

Two primary data sets were used for the purposes of this valuation:

FARM valuation data, which is aggregated premium and claim information primarily intended for

valuation purposes; and

industry AIX data, which is developed from detailed statistical records reported by insurers to the

Insurance Bureau of Canada (IBC)6 in accordance with the Automobile Statistical Plan.

B.3.1 FARM Valuation Data

Much of this analysis was based on FARM valuation data collected from FARM Servicing Carriers and

aggregated by IBC on behalf of Facility Association. The claims data excludes all loss adjustment

expenses except certain specific reimbursed expenses (“claims fees and allowed claims expenses”)7. The

data is reconciled to information contained in Facility Association’s Participation Reports, the results of

which are reviewed by the Appointed Actuary for reasonableness. Procedures are in place to provide

reasonable assurance that the data used is reliable and sufficient for the proper valuation of the liabilities.

The valuation data, for the purposes of the valuation, is aggregated to the level of:

jurisdiction

business segment

kind-of-loss / coverage

6 IBC is the statistical agent of the General Insurance Statistical Agency (GISA), with responsibility of managing the Automobile Statistical

Plan reporting. In addition, Facility Association outsources its IT to IBC.

7 Servicing Carriers for the Residual Market are compensated via an initial claims fee paid as a percentage of earned premium. This fee is

retroactively adjusted and settled at age 72 months for each accident year based on the formula as laid out in the Plan of Operation. The

claims fee is meant to cover Servicing Carrier costs for claims management and adjudication except for certain categories of claims

expenses (first party legal and professional consulting fees as described in the Facility Association’s “Claims Guide” manual under the

“Legal & Professional Fees” section). These latter fees are reimbursable upon proof of closure of the applicable coverage of the claim, and

upon verification of eligibility.

We refer to these fees/expenses collectively as “claims fees and allowed claims expense”, or alternately as “retro claims expenses”, and

these are generally NOT included in this discussion, although reference is made to them from time to time as deemed appropriate. The

claims fees and allowed claims expenses may be reviewed in the valuation process and any associated changes in unpaid amounts are

reflected in the Participation Report.

At the current time, these “claims expense” type provisions are not adjusted to an actuarial present value basis, as per the practice that has

been in place. This position is being reviewed by management and the Appointed Actuary.


All Jurisdictions



accident year and half-year

development half-year8

Data elements captured include earned premium, claims9 paid, case reserves, recorded claims (being the

sum of claims paid and case reserves), and recorded claim counts.

For the purposes of the valuation described in this report, the valuation data is as at June 30, 2016.

B.3.2 Industry AIX Data

Although the FARM valuation data is the primary source of data for valuation purposes, the following

“Industry AIX” data file prepared by IBC (on behalf of GISA) is used to supplement the FARM

valuation data and is used in the determination of “loss cost trend structures”, being models describing

changes in loss costs (average claim amount per exposure unit) over time, including the impacts of

product reforms:

industry experience (indemnity only) as per the 2015-2 AIX Development Exhibits for Private

Passenger Vehicles and Commercial Vehicles in the applicable jurisdictions, compiled as at

December 31, 2015

IBC (on behalf of GISA) assembles Industry AIX data from the submissions made under the Automobile

Statistical Plan by each of the insurers writing automobile business in the applicable jurisdiction. As

there are many insurers providing this information and due to remoteness from the individual data

elements, it is not practical for IBC to directly put in place audit or audit-like procedures. However, IBC

does perform various data edit checks which are designed to promote data integrity.

Industry AIX data is relied upon without the benefit of any independent audit and has been used without

modification. Nonetheless, the data is deemed to be reliable and appropriate for the purposes of this

valuation and the trend analysis completed in relation to the data.

B.3.3 Other Data

Reliance has also been placed on other quantitative and qualitative information supplied by Facility

Association without audit or independent verification. Wherever possible, such information was

reviewed for reasonableness and internal consistency by the Appointed Actuary.

B.4 Actual vs Projected (AvsP)

With each valuation, we project, by accident year, future claim activity (recorded and paid). Both

projected recorded claim activity and projected paid claim activity is used as a means of providing

feedback on our prior selections of ultimate. In addition, the paid projections are used directly as

projected cash flows for claims in the determination of the discount rate selection for the policy

liabilities.

The challenge in interpreting actual versus projected (AvsP) variances as a feedback mechanism is how

much of the variance is attributed to:

8Development quarter is also available for purposes of performing “roll forward” valuations in relation to valuation periods ending March

31 and September 30.

9For purposes of this report, the terms “claims” or “loss” will refer to “indemnity” unless otherwise indicated.


All Jurisdictions



process variance inherent in the activities themselves (i.e. recorded and paid activity);

model selection (i.e. that our emergence model is not a good representation or predictor of future

emergence even if we’ve correctly estimated ultimate);

parameter selection within the model (i.e. that our emergence model can be a good representation

of emergence, but we selected the “wrong” emergence factors);

our selection of ultimate (i.e. that our emergence model and emergence factors selections are

good, but we’re applying the model and factors to the “wrong” ultimate); and

changes to our model (i.e. refinements to our emergence model to enable better model selection –

for example, with the 2014 Q2 valuation, the model was refined such that emergence was

projected at a coverage level, rather than a government line level).

Nonetheless, the AvsP exercise is an important validation process for us. Our discussion in the by

jurisdiction AvsP section will focus on our interpretation of feedback the variances provide to our prior

selections of ultimate, and how this provides information in relation to our current selections of ultimate.

As provided as an example in the last bullet point above, with the 2014-Q2 valuation, the recorded and

paid emergence models were refined from aggregate Government Line/Accident Year models to

individual Coverage/Accident Half-Year models. We believe this model refinement has improved the

overall explanatory power of our emergence models allowing for better model selection during

subsequent valuations. We are currently reviewing additional model metrics (paid-to-unpaid and

recorded-to-IBNR ratios) as a possible future refinement to our emergence models.

B.5 Uncertainty

The establishment of provisions for the unpaid, unrecorded, and/or unreported claims is based on

numerical data and the interpretation of current and anticipated circumstances. It is a complex and

dynamic process influenced by a large variety of factors. These factors include the experience of the

FARM and the experience of the voluntary market in the associated jurisdiction, claim frequency and

severity, indemnity and allowed claims expense payment patterns, case reserving practices, and lags

between when the event giving rise to the claim occurred, when the claim is reported to a Servicing

Carrier, when the Servicing Carrier records claim information on their own system, and when that

information is transmitted to Facility Association to be recorded. The process of determining the

provisions necessarily involves uncertainty such that the actual results will deviate, perhaps substantially,

from the best estimates made through the valuation process.


All Jurisdictions



C. ALL JURISDICTIONS

C.1 Valuation Highlights

The change in selected ultimate for prior accident years was $8.7 million favourable with this

valuation (2.8% of the unpaid estimate as at last quarter), bringing the calendar year-to-date total

favourable to $5.2 million (1.6% of the unpaid estimate as at the beginning of the calendar year). These

changes are presented by business segment (i.e. vehicle grouping), accident year and government line in

the tables below.

The current valuation incorporates updated trend assumptions and industry loss development factors

selected using industry AIX 2015-2 data for Private Passenger Vehicles and Commercial Vehicles in the

applicable jurisdictions.

The favourable prior accident year development was largely due to favourable bodily injury large loss

recorded claims activity (Ontario, Alberta and Newfoundland & Labrador) partially offset by

unfavourable accident benefits large loss recorded claims activity (Ontario) experienced in the quarter.

Selected loss ratios aggregated across all jurisdictions for accident year 2016 (current accident year)

increased in total while selected loss ratios for accident year 2017 (future accident year) decreased

(+1.4 points to 57.9% for 2016; -0.2 points to 57.0% for 2017). Changes in selected loss ratios were

driven by recorded claims experience (with the Alberta FARM impacted by the Fort McMurray

wildfires) and updated a priori loss ratio selections as a result of using updated claims trend and premium

FARM - All Jurisdictions (All Vehicles) FARM - All Jurisdictions (All Vehicles)

Valuation changes in selected ultimate Valuation changes in selected ultimate

(favourable) / unfavourable during Quarter (favourable) / unfavourable YTD

Accident YearThird Party

Liability

Accident

Benefits

Other

CoveragesTotal Accident Year

Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (1,109) 455 (60) (713) 2011 & Prior (63) 2,147 (87) 1,997

2012 (1,216) 85 (101) (1,232) 2012 (1,491) 202 (94) (1,383)

2013 (2,264) (246) 42 (2,468) 2013 (2,425) 1,011 (10) (1,425)

2014 (1,163) (808) (134) (2,105) 2014 (1,334) (553) (278) (2,166)

2015 (2,735) 1,297 (759) (2,197) 2015 (2,957) 1,471 (696) (2,183)

TOTAL (8,487) 784 (1,012) (8,715) TOTAL (8,272) 4,278 (1,167) (5,161)

FARM - All Jurisdictions (Private Passenger Vehicles) FARM - All Jurisdictions (Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (148) 713 1 566 2011 & Prior 709 2,635 (17) 3,327

2012 (1,476) (334) (2) (1,812) 2012 (1,689) (150) (6) (1,845)

2013 (1,057) (73) 5 (1,125) 2013 (1,521) 593 (56) (984)

2014 (1,307) (235) (20) (1,562) 2014 (1,033) (190) (59) (1,282)

2015 (1,119) 79 (179) (1,219) 2015 (742) 389 (41) (394)

TOTAL (5,107) 150 (195) (5,152) TOTAL (4,276) 3,277 (179) (1,178)

FARM - All Jurisdictions (Non-Private Passenger Vehicles) FARM - All Jurisdictions (Non-Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (961) (258) (60) (1,279) 2011 & Prior (771) (487) (70) (1,328)

2012 259 420 (99) 580 2012 197 352 (89) 460

2013 (1,208) (174) 38 (1,344) 2013 (904) 417 46 (441)

2014 144 (572) (114) (542) 2014 (301) (363) (220) (884)

2015 (1,615) 1,218 (580) (977) 2015 (2,215) 1,081 (656) (1,790)

TOTAL (3,381) 634 (815) (3,562) TOTAL (3,994) 1,000 (989) (3,983)


All Jurisdictions



assumptions. Consideration was given to recent regulatory and legislative initiatives (see summary

descriptions in section I).

The valuation process is described in more detail in section J, and a summary of changes to the process

during this fiscal year is provided in section H.

Policy liability projected cash flows and June 2016 government of Canada bond yields were used to

determine the applicable discount rate. The selected investment income margin for adverse deviation

was reviewed and maintained at 25 basis points with the current valuation.

Selected claims development margins for all jurisdictions and business segments, at the coverage

and accident half-year level, were reviewed and updated with the current valuation. In particular,

selected claims development MfADs for older accident years (related to accident years where claims

development MfADs were previously increased due to periods of increased uncertainty, mainly relating

to various recent product reforms) were judgmentally reduced to reflect the decreasing uncertainty over

time (see Exhibit D for claims development margins).

C.2 Booked results for the prior valuation implementation

It is helpful to consider how the portfolio looked after the prior valuation was implemented. In this case,

the May 2016 booked results were based on assumptions derived from the prior (March 31, 2016)

valuation and were discussed in the associated monthly Actuarial Highlights. The charts immediately

below show the levels of claim liabilities booked by accident year10

on that basis. The left chart displays

life-to-date payments, case reserves, IBNR, and the total including actuarial present value adjustments

against accident year earned premium. The right chart shows the associated dollar amounts for the

components of the claim liabilities and the current projected amount of 2016 full year earned premium

(the red hash-mark line) to provide some perspective.

“M/S” refers to “Member Statement” values – that is, actuarial present value adjustments at the selected discount rate.

The associated policy liabilities are presented and discussed at the top of the next page.

10The loss ratio chart has been limited to show the most recent 20 accident years; the unpaid provision chart has been limited to show the

most recent 20 accident years, and show all accident years older than 20 years collectively as “PRIOR”.

-

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

All Jurisdictions Private Passenger & Non-Private Passenger Accident Year Loss Ratios @ May. 31, 2016

Paid Indemnity as % EP Case Reserves as % EP IBNR for Indemnity (nominal) as % EP Ultimate Indemnity (M/S) as % EP

(20)

-

20

40

60

80

100

120

140

160

180

200

PRIOR 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

All Jurisdictions Private Passenger & Non-Private Passenger Accident Year Unpaid Claim Amounts @ May. 31, 2016

Case Reserves IBNR for Indemnity (nominal) APV Adjustment for Indemnity (M/s) proj. 2016 EP

$ millions

% proj. 2016 EP

apv adj: 18%

nominal unpaid: 182%


All Jurisdictions



The table to the left breaks down the Member

Statement (M/S) unpaid claims liabilities total into its

component parts. The first four rows of this table

reflect indemnity only as indicated, with the majority of

the unpaid in case reserves. The unpaid claims fees

and allowed claims expenses liability is shown in the

row labelled “retro claims adj.” (see footnote 7 on

page 7).

The tables immediately below summarize premium and policy liabilities.

C.3 Booked results for the current valuation implementation

The August 2016 booked results were based on assumptions derived from the current (June 30, 2016)

valuation and are discussed in the associated monthly Actuarial Highlights. The charts immediately

below show the levels of claim liabilities booked by accident year11

on that basis. The left chart displays

life-to-date payments, case reserves, IBNR, and the total including actuarial present value adjustments

against accident year earned premium. The right chart shows the associated dollar amounts for the

components of the claim liabilities and the current projected amount of 2016 full year earned premium

(the red hash-mark line) to provide some perspective.

“M/S” refers to “Member Statement” values – that is, actuarial present value adjustments at the selected discount rate.

The associated policy liabilities are presented and discussed at the top of the next page.

11The loss ratio chart has been limited to show the most recent 20 accident years; the unpaid provision chart has been limited to show the

most recent 20 accident years, and show all accident years older than 20 years collectively as “PRIOR”.

premium liabilities ($000s)

amt %

unearned prem 87,114 107.5%

prem def/(dpac) (6,408) (7.9%)

M/S apv adjust. 317 0.4%

M/S total 81,023 100.0%

policy liabilities ($000s)

amt %

claim 366,003 76.4%

premium 80,706 16.8%

M/S apv adjust. 32,534 6.8%

M/S total 479,243 100.0%

claim liabilities ($000s)

amt %

case 243,241 67.4%

ibnr 85,612 23.7%

M/S apv adj 32,217 8.9%

M/S indemnity 361,070 100.0%

retro claims adj. 37,150

M/S total 398,220


All Jurisdictions



The table to the left breaks down the Member

Statement (M/S) unpaid claims liabilities total into its

component parts. The first four rows of this table

reflect indemnity only as indicated, with the majority of

the unpaid in case reserves. The unpaid claims fees

and allowed claims expenses liability is shown in the

row labelled “retro claims adj.” (see footnote 7 on

page 7).

The tables immediately below summarize premium and policy liabilities.

C.4 Actual vs Projected (AvsP)

Projected recorded and paid emergence are reviewed and selected at a jurisdiction, business segment,

kind of loss/coverage and accident half-year level at each valuation. Total variances in projected

recorded and paid emergence are aggregated and the associated actual emergence is presented in the two

following tables.

As indicated in the table above, total recorded emergence at $24.1 million was $5.7 million (19.2%) less

than the $29.8 million projected. The favourable variance is related to favourable prior accident year

Third Party Liability large loss reported claims activity (Ontario and Alberta) and low levels of actual

recorded claims activity (Atlantics).

The current accident year unfavourable claims experience (other coverages – comprehensive) was

impacted by exposure to the Fort McMurray wildfires. Based on discussion with Servicing Carriers

and review of reported claims in the month of May, we anticipate the total claims amount for the Alberta

FARM to be less than $3 million (PPV and non-PPV combined).

premium liabilities ($000s)

amt %

unearned prem 91,593 107.6%

prem def/(dpac) (6,870) (8.1%)

M/S apv adjust. 433 0.5%

M/S total 85,156 100.0%

policy liabilities ($000s)

amt %

claim 357,576 75.5%

premium 84,723 17.9%

M/S apv adjust. 31,586 6.7%

M/S total 473,885 100.0%

All Vehicles

Accident Year

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 54 (1,419) (1,473) 653 1,577 924 - (59) (59) 707 99 (608)

2012 433 (34) (467) 161 35 (126) - (100) (100) 594 (99) (693)

2013 766 (45) (811) 558 515 (43) - 42 42 1,324 512 (812)

2014 2,021 2,157 136 886 97 (789) 54 (31) (85) 2,961 2,223 (738)

2015 4,715 2,528 (2,187) 1,338 1,038 (300) 547 (412) (959) 6,600 3,154 (3,446)

2016 10,127 10,017 (110) 2,285 1,523 (762) 5,209 6,660 1,451 17,621 18,200 579

Total 18,116 13,204 (4,912) 5,881 4,785 (1,096) 5,810 6,100 290 29,807 24,089 (5,718)

2015 & prior 7,989 3,187 (4,802) 3,596 3,262 (334) 601 (560) (1,161) 12,186 5,889 (6,297)

*projected recorded claims based on recorded emergence model as at 2016-Q1

Third Party Liability Accident Benefits Other Coverages Total

claim liabilities ($000s)

amt %

case 248,445 70.3%

ibnr 73,572 20.8%

M/S apv adj 31,153 8.8%

M/S indemnity 353,170 100.0%

retro claims adj. 35,559

M/S total 388,729


All Jurisdictions



As indicated in the table above, total paid emergence at $29.3 million was $7.9 million (21.2%) less than

the $37.2 million projected.

Further discussion of the Actual versus Projected emergence variances is provided in the by jurisdiction

sections of this report.

C.5 Current valuation IBNR selections

Exhibit B.1.1 summarizes the overall change in ultimate with this valuation and B.1.2 shows selected loss

ratios over the most recent 4 valuations for comparison purposes on an “all coverages basis”. The “B.2”

exhibits provide information for third party liability, “B.3” exhibits for accident benefits, and “B.4”

exhibits for the “other” government line.

C.6 Premium Liabilities / Future Accident Years

In order to provide a basis for estimating the full premium liability level for monthly statements (i.e. the

level of premium deficiency liability / deferred policy acquisition cost asset to carry) we leverage the

a priori loss ratios for the accident year underlying the unearned premium levels.

The test of recoverability leverages assumptions set by the Appointed Actuary. These include the

member expense allowances (taking into account the Board approved allowances) and policy

administration / maintenance expense assumptions.

C.7 Actuarial Present Value Adjustments

Accepted Actuarial Practice requires all policy liabilities recognize both the time value of money and

provisions for adverse deviations. For member statement and financial statement reporting purposes, we

have historically applied actuarial present value adjustments only to the indemnity portion of the claims

and premium liabilities, and explicitly NOT to provisions for certain specific reimbursed loss adjustment

expenses, the “claims fees and allowed claims expenses” (see footnote 7 on page 7), having assessed and

deemed actuarial present value adjustments related to the claims fee and allowed claims expenses as

being not material.

FA management is currently reviewing this practice with the FA Appointed Actuary and may begin to

include actuarial present value adjustments for “claims fees and allowed claims expenses” as part of the

next FARM valuation, as at September 30, 2016 (2016 Q3). If this action is taken, detail will be

provided with the FARM 2016 Q3 valuation highlights and FARM October 2016 participation reports

and associated bulletins.

All Vehicles

Accident Year

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 6,981 5,763 (1,218) 2,702 1,316 (1,386) 120 (51) (171) 9,803 7,028 (2,775)

2012 2,760 2,401 (359) 1,880 1,629 (251) 2 (90) (92) 4,642 3,940 (702)

2013 2,531 1,889 (642) 2,574 478 (2,096) 10 (5) (15) 5,115 2,362 (2,753)

2014 2,949 2,329 (620) 1,192 868 (324) 12 19 7 4,153 3,216 (937)

2015 2,952 2,197 (755) 1,418 1,214 (204) 1,493 604 (889) 5,863 4,015 (1,848)

2016 2,519 3,002 483 476 356 (120) 4,668 5,409 741 7,663 8,767 1,104

Total 20,692 17,581 (3,111) 10,242 5,861 (4,381) 6,305 5,886 (419) 37,239 29,328 (7,911)

2015 & prior 18,173 14,579 (3,594) 9,766 5,505 (4,261) 1,637 477 (1,160) 29,576 20,561 (9,015)

*projected paid claims based on paid emergence model as at 2016-Q1



All Jurisdictions



C.7.1 Selected Claims Payment Patterns

Payment patterns are selected through the emergence models (the same used for projecting future claims

paid and recorded activity for the AvsP process), currently leveraging a “paid to ultimate” metric.

C.7.2 Selected Discount Rate

The projected future claims paid cash flow are aggregated across all jurisdictions and business segments

and matched to a simulated portfolio of Government of Canada benchmark monthly bonds (yields

anchored to the valuation date), and 15 basis point investment expense is assumed.

A discount rate of 0.69% per annum was selected for all jurisdictions for the valuation of the claim

liabilities and premium liabilities at June 30, 2016, down from 0.75% selected with the March 31, 2016

valuation.

Sensitivity to the discount rate assumption is presented in Exhibit C.

C.7.3 Selected Margins for Adverse Deviations

The margin for adverse deviation for investment income was reviewed and maintained at 25 basis

points with the current valuation.

Selected claims development margins were reviewed and updated for all jurisdictions and business

segments at a coverage and accident half year level, the selected margins are summarized in Exhibit D.

The selected claims development MfADs for older accident years (specifically related to accident years

where claims development MfADs were previously increased due to periods of increased uncertainty,

mainly relating to various recent product reforms) were reviewed and judgmentally reduced to reflect the

decreasing uncertainty over time.


All Jurisdictions



D. ONTARIO

D.1 Valuation Highlights

A summary of the valuation results through time is available in the “A” exhibit (see section K), with

detail related to the current valuation provided in the “B” exhibits.


valuation (1.5% of the unpaid estimate as at last quarter), reducing the calendar year-to-date total

unfavourable to $2.7 million (2.3% of the unpaid estimate as at the beginning of the calendar year), and

continuing the favourable changes noted with the prior accident years overall over the last several

valuations. These changes are presented by business segment (i.e. vehicle grouping), accident year and

government line in the tables below.


selected using industry Ontario AIX 2015-2 data for Private Passenger Vehicles and Commercial

Vehicles.

The favourable prior accident year development was largely due to favourable Third Party Liability –

Bodily Injury large loss recorded claims activity partially offset by unfavourable Accident Benefits large

loss recorded claims activity (PPV and Non-PPV) experienced in the quarter – we view this as process

variance.

FARM - Ontario (All Vehicles) FARM - Ontario (All Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (333) 714 3 384 2011 & Prior 898 1,996 (13) 2,881

2012 569 33 - 602 2012 572 475 - 1,047

2013 (1,220) (567) 24 (1,763) 2013 (1,170) 888 56 (226)

2014 (647) (316) 16 (947) 2014 (869) (203) (22) (1,094)

2015 (1,177) 1,345 (78) 90 2015 (1,115) 1,333 (123) 95

TOTAL (2,808) 1,209 (35) (1,634) TOTAL (1,684) 4,489 (102) 2,703

FARM - Ontario (Private Passenger Vehicles) FARM - Ontario (Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (311) 812 1 502 2011 & Prior 585 2,319 (13) 2,891

2012 (106) 55 - (51) 2012 (139) 222 - 83

2013 (416) (89) (10) (515) 2013 (391) 665 (17) 257

2014 (211) (65) - (276) 2014 (291) 50 (11) (252)

2015 (311) 31 2 (278) 2015 (322) 24 6 (292)

TOTAL (1,355) 744 (7) (618) TOTAL (558) 3,280 (35) 2,687

FARM - Ontario (Non-Private Passenger Vehicles) FARM - Ontario (Non-Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (21) (96) - (117) 2011 & Prior 312 (317) - (5)

2012 675 (22) - 653 2012 711 253 - 964

2013 (804) (478) 35 (1,247) 2013 (779) 223 73 (483)

2014 (436) (251) 17 (670) 2014 (578) (253) (11) (842)

2015 (866) 1,314 (80) 368 2015 (793) 1,310 (130) 387

TOTAL (1,452) 467 (28) (1,013) TOTAL (1,127) 1,216 (68) 21


All Jurisdictions



The current valuation also included additional IBNR and a priori loss ratio adjustments for recent product

reforms and regulations. An estimated -$0.3 million retroactive adjustment to bodily injury unpaid

claims amounts for the reform changes to non-pecuniary deductible and threshold was included with

this valuation (consistent with the -$0.7 million12

retroactive adjustment included during the prior, 2016-

Q1, valuation), based on FA’s assessment that these changes apply on a settlement basis, and therefore

apply retroactively. Further discussion on Ontario Product Reform adjustments follows in section D.1.1.

The selected loss ratios for accident year 2016 (current accident year) and accident year 2017 (future

accident year) decreased in total (2.0 points to 47.9% for 2016; 1.5 points to 52.1% for 2017). The

selected loss ratios for accident years 2016 and 2017 were also affected by reforms (prejudgment interest

on non-pecuniary awards, interest rates for overdue payments on statutory accident benefits while in the

dispute resolution process, and statutory accident benefits product changes effective June 1, 2016, and the

bodily injury non-pecuniary deductible and threshold changes) to various extents including the written

premium impact of approved 2016 filings. Further discussion on Ontario Product Reform adjustments

follows in section D.1.1.

Summary descriptions of recent regulatory and legislative initiatives are available in section I.

D.1.1 Ontario Product Reforms

With the September 30, 2015 valuation, various reform adjustments related to changes introduced in

Ontario 2014 Bill 15 (Fighting Fraud and Reducing Automobile Insurance Rates) and Ontario 2015 Bill

91 (Building Ontario Up Act (Budget Measures)) were included. The various reform adjustments were

reviewed during the Ontario Industry PPV and CV 2015-2 trend analysis and incorporated with the

current valuation, as at June 30, 2016. A summary of recent Ontario regulatory and/or legislative

initiatives is included in Section I.1. In the table immediately below, we have included a summary of the

reform adjustments with impact by accident year - further discussion related to selected reform

adjustments follows.

Reform Product reform

changes Adjustment

Ontario

2014 Bill 15

Non-Pecuniary

Bodily Injury PJI

Decrease in AY2015 & subsequent bodily injury a priori loss ratios

SABS Interest Rate

for claims in dispute

Decrease in AY2015 & subsequent accident benefits a priori loss ratios

Ontario

2015 Bill 91

SABS product

change

Increase in AHY2016/2 & subsequent bodily injury a priori loss ratios

Decrease in AHY2016/2 & subsequent accident benefits a priori loss ratios

Bodily Injury Tort

Threshold/Deductible

Decrease in AY2014 & prior bodily injury unpaid amounts

Decrease in AY2015 & subsequent bodily injury a priori loss ratios

Ontario 2014 Bill 15 included changes to the Insurance Company Act, via introduction of Section

258.3(8.1) to move the non-pecuniary13

bodily injury award prejudgment interest calculation to follow

12 The needed adjustment will decrease with each valuation as we anticipate the reform adjustments are reflected in member case reserves.

The $0.4 million difference in the adjustments between valuations is expected to have a neutral effect as we assume that adjustments and

settlements specifically related to the reform would offset the adjustment change.

13 Pecuniary awards are defined on the Ontario Attorney General’s website as “Damages that can be measured in money (i.e., special

damages)” with special damages further defined as “Damages intended to compensate a plaintiff for a quantifiable monetary loss.


All Jurisdictions



that of pecuniary awards as per Ontario’s Court of Justice Act Section 128.1 (where the rate varies

depending on the timing of the action14

) as opposed to Section 128.2 (where the interest rate is set at 5%

via Ontario Rules of Court). Thus, the prejudgment interest rate for non-pecuniary awards is now aligned

with that of pecuniary. This change came into force on January 1, 2015, but it was not clear if this

applied only to actions brought on or after January 1, 2015, or if it applied to all settlements on or after

January 1, 2015.

There have now been two conflicting Ontario Superior Court decisions in relation to the application of

prejudgment interest provisions: Carillo v. Rizzo (April 15, 2015) and El-Khodr v. Lackie et al (July 28,

2015). In the first, the judge ruled that the change to prejudgment interest for non-pecuniary losses from

a set level of 5% to the level that applies to pecuniary losses applies retroactively (i.e. applies to all open

claims), whereas in the second, the judge ruled that the change applies only to claims where notification

was provided to the insurer on or after January 1, 2015. FA’s current view is that the second judgement

supersedes the first, and no adjustments have been made to the provisions for accident years 2014 and

prior as a result. This view is also consistent with recent 2016 Ontario Superior Court decisions.

A reform adjustment related to changes in non-pecuniary prejudgment interest provisions,

introduced in Ontario 2014 Bill 15, was included in the Ontario Industry PPV and CV 2015-2 trend

analysis (and thereby in the calculation of a priori estimates used in the selection of current valuation

estimates of ultimates). The reform adjustment, applied to the bodily injury coverage, resulted in an

estimated 5% reduction on accident years 2015 and subsequent selected loss costs.

Ontario 2014 Bill 15 included changes to the Insurance Company Act, via Ontario Regulation 236/14

changes to Ontario Regulation 34-10 changing Section 51 on Overdue Payments. Ontario Regulation 34-

10 Section 51(4) aligns the interest rate payable for Statutory Accident Benefits Schedule (SABS) claims

in dispute under Section 280 of the Insurance Act with the prejudgment interest rate described in

subsection 128.3 of the Ontario Courts of Justice Act. Thus, the SABS interest rate for overdue

payments while in the dispute resolution process was reduced from a rate of 1% per month to a rate

aligned with current market rates. This change came into force on January 1, 2015.

A reform adjustment related to changes in the SABS Interest Rate for overdue payments while in

the dispute resolution process, introduced in Ontario 2014 Bill 15, was included in the Ontario Industry

PPV and CV 2015-2 trend analysis (and thereby in the calculation of a priori estimates used in the

selection of current valuation estimates of ultimates). The reform adjustment, applied to the Medical

Expense and Disability Income sub-coverages, resulted in an estimated 1% decrease on accident years

2015 and subsequent selected loss costs.


changes to Ontario Regulation 34-10 changing the available benefits payable under the SABS. Changes

Examples of such losses include: lost earnings, medical bills, and repair costs.” In contrast, non-pecuniary awards are defined as

“Damages that cannot be measured in money, but nevertheless are compensated for with money (i.e., general damages)” with general

damages further defined as “Damages for non-monetary losses suffered by a plaintiff. These damages are not capable of exact

quantification. Examples of such losses suffered include pain, suffering, and disfigurement.”

14 Under the Court of Justice Act Section 128.1, the applicable interest rate is based on “the date the cause of action arose”; however, the

Insurance Act Section 258.3(8) states that no prejudgment interest is payable for “.. any period of time before the plaintiff served the

notice..”, thus effectively making prejudgment interest calculated from the date of notice of claim, as opposed to being based on the date of

the accident.


All Jurisdictions



to the SABS include changes to monetary limits and benefit durations payable. These changes came into

force on June 1, 2016.

A reform adjustment related to SABS product changes impacting policies written after June 1, 2016,

introduced in Ontario 2015 Bill 91, was included in the Ontario Industry PPV and CV 2015-2 trend

analysis (and thereby in the calculation of a priori estimates used in the selection of projected future loss

costs). The reform adjustment, applied to the Medical Expense and Disability Income sub-coverages,

resulted in an estimated 13% decrease on selected loss costs for policies written after June 1, 2016. A

corresponding adjustment, applied to the bodily injury coverage, resulted in an estimated 4.5% increase

on selected loss costs for PPV and an estimated 1.6% increase on selected loss costs for CV policies

written after June 1, 2016.


changes to Ontario Regulation 461/96 amending the current tort deductible and monetary threshold

beyond which the tort deductible does not apply. This change came into force on January 1, 2015, but it

was not clear if this applied only to actions brought on or after January 1, 2015, or if it applied to all

settlements on or after January 1, 2015.

There have now been multiple conflicting Ontario Superior Court decisions in relation to the application

of changes to the tort deductible and monetary threshold: Cobb v. Long Estate (November 13, 2015),

Vickers v. Palacious (December 8, 2015) and Corbett v. Odorico (March 22, 2016). In the first, the judge

ruled that the changes to tort deductible and monetary thresholds were substantive in nature such that the

defendant was not entitled to apply the higher deductible, following the reasoning in El-Khodr v. Lackie

et al. The court did note that El-Khodr v. Lackie is currently under appeal, results of which may have an

impact on the court’s decision. In the second and third decisions, the judges concluded the deductible

change is procedural on the grounds that the cap on damages and the statutory deductible were

implemented to achieve particular policy objectives and therefore applied retroactively (i.e. applies to all

open claims), these views are also consistent with recent 2016 Ontario Superior Court decisions.

Two reform adjustments related to changes in bodily injury tort threshold and deductibles,

introduced in Ontario 2015 Bill 91, were included in the Ontario Industry PPV and CV 2015-2 trend

analysis (and thereby in the calculation of a priori estimates used in the selection of current valuation

estimates of ultimates) and was applied retroactively against bodily injury unpaid claims amounts. The

Ontario Industry PPV and CV 2015-2 trend analysis reform adjustments, applied to the bodily injury

coverage, resulted in an estimated 6% decrease in accident years 2015 and subsequent selected loss costs.

The Facility Association view, after discussion with Facility Association legal counsel, is that recent

changes to the bodily injury tort threshold and deductibles are on a settlement date basis, as such, a

second reform adjustment was included. The second reform adjustment, a 3% decrease applied

retroactively (using negative IBNR) against PPV and Non-PPV bodily injury nominal unpaid claims

amounts (outstanding case reserve and selected IBNR) impacting accidents years 2014 and prior, will be

reduced at each successive valuation, assuming the impact of this product reform change will be fully

reflected in outstanding case reserves by the September 30, 2016 valuation (that is, as this adjustment is

unwound, it is anticipated that member settlement and case adjustment activity will occur simultaneously,

neutralizing the adjustment unwind).


All Jurisdictions



D.2 Actual vs Projected (AvsP)

Variances in projected recorded and paid emergence and the associated actual emergence are presented in

the two following tables.

As indicated above, total recorded emergence at $4.5 million was $2.7 million (37.7%) less than the

$7.3 million projected.

The favourable prior accident year development during the current valuation was impacted by older

accident year favourable Third Party Liability (PPV AY2010; Non-PPV AY2011 & AY2013) recorded

claims activity offset by unfavourable Accident Benefits (PPV AY1994; Non-PPV AY2015) claims

settlements and increases in reported case reserves in the quarter.

As indicated above, total paid emergence at $7.2 million was $4.4 million (38.2%) less than the


Volumes in the Ontario FARM have decreased dramatically over recent years (in 2004, Ontario Private

Passenger earned premium was in excess of $520 million or approximately 36 times projected current

accident year 2016 earned premium), older accident year claims experience while moderate as a

proportion of the claims liabilities, may be very significant in relation to the current month and fiscal year

to date earned premiums and can cause large swings in these loss ratios.

Actual emergence in the more recent years, particularly in the Third Party Liability government line,

continues to fall below projected for both recorded and paid. It is not clear at this point the degree to

which this is a result of:

the prior balances (unpaid and IBNR respectively) being too high;

changes in emergence patterns not reflected in the emergence assumptions; and/or

All Vehicles

Accident Year

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

2011 & prior (248) (1,595) (1,347) 623 1,830 1,207 - 2 2 375 237 (138)

2012 (25) 605 630 136 (5) (141) - - - 111 600 489

2013 274 (246) (520) 430 (23) (453) - 25 25 704 (244) (948)

2014 762 636 (126) 617 61 (556) 8 33 25 1,387 730 (657)

2015 1,129 602 (527) 329 658 329 344 (8) (352) 1,802 1,252 (550)

2016 1,733 1,135 (598) 534 234 (300) 620 582 (38) 2,887 1,951 (936)

Total 3,625 1,137 (2,488) 2,669 2,755 86 972 634 (338) 7,266 4,526 (2,740)

2015 & prior 1,892 2 (1,890) 2,135 2,521 386 352 52 (300) 4,379 2,575 (1,804)



All Vehicles

Accident Year

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 2,508 2,638 130 2,002 656 (1,346) 115 10 (105) 4,625 3,304 (1,321)

2012 791 656 (135) 1,261 940 (321) 1 - (1) 2,053 1,596 (457)

2013 534 69 (465) 1,828 398 (1,430) 10 - (10) 2,372 467 (1,905)

2014 408 122 (286) 450 209 (241) 1 6 5 859 337 (522)

2015 201 32 (169) 336 399 63 33 16 (17) 570 447 (123)

2016 568 552 (16) 58 48 (10) 518 434 (84) 1,144 1,034 (110)

Total 5,010 4,069 (941) 5,935 2,650 (3,285) 678 466 (212) 11,623 7,185 (4,438)

2015 & prior 4,442 3,517 (925) 5,877 2,602 (3,275) 160 32 (128) 10,479 6,151 (4,328)




All Jurisdictions



the emergence metric used (paid as % ultimate; recorded as % ultimate) not being a good

predictor for modeling future emergence (as opposed to paid to beginning unpaid; recorded as %

of beginning IBNR, or some other approach).

D.3 Special IBNR Provisions / Adjustments

As discussed in the Highlights section D.1 and in the Ontario Product Reform adjustments section D.1.1.

At September 30, 2015, the Facility Association view, after discussion with Facility Association legal

counsel, is that recent changes to the bodily injury tort threshold and deductibles are on a settlement date

basis and, as such, a special retroactive reform adjustment (using negative IBNR) was included. The

special -3.00% retroactive reform adjustment applied (using negative IBNR) against bodily injury

nominal unpaid claims amounts (outstanding case reserve and selected IBNR) impacting accidents years

2014 and prior, would be reduced at each successive valuation, assuming the impact of this product

reform change will be fully reflected in outstanding case reserves by the September 30, 2016 valuation.

These quarterly adjustments then would be considered “neutral” in that it is assumed the reforms will be

accounted for over time in adjustments to settlements / case reserves.

For this valuation, a -0.75% adjustment was applied, resulting in an adjustment of -$0.3 million,

compared with a -1.50% adjustment applied at the prior valuation, resulting in a -$0.7 million adjustment.

Again, this $0.4 million change in the adjustment is expected to have been offset by settlements and case

reserve changes made during the quarter reflecting the reforms.


All Jurisdictions



E. ALBERTA

E.1 Valuation Highlights







the tables below.


selected using industry Alberta AIX 2015-2 data for Private Passenger Vehicles and Commercial

Vehicles.

The favourable prior accident year development was largely due to favourable Third Party Liability –

Bodily Injury large loss recorded claims activity (PPV) and low levels of Third Party Liability – Bodily

Injury reported claims activity (non-PPV) experienced in the quarter.

The selected loss ratio for accident year 2016 (current accident year) increased (3.3 points to 58.8%)

while the selected loss ratio for accident year 2017 (future accident year) decreased (0.1 points to

56.3%). The increase in AY2016 selected loss ratio was impacted by unfavourable recorded claims

FARM - Alberta (All Vehicles) FARM - Alberta (All Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (1,088) (25) (4) (1,117) 2011 & Prior (1,752) (26) (16) (1,794)

2012 (1,619) 2 (90) (1,707) 2012 (1,744) (287) (90) (2,121)

2013 (964) (24) (4) (992) 2013 (973) (104) (36) (1,113)

2014 519 (116) (45) 358 2014 262 (117) (144) 1

2015 (973) (29) (434) (1,436) 2015 (1,610) (171) (413) (2,194)

TOTAL (4,125) (192) (577) (4,894) TOTAL (5,817) (705) (699) (7,221)

FARM - Alberta (Private Passenger Vehicles) FARM - Alberta (Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (336) - (1) (337) 2011 & Prior (983) (1) (7) (991)

2012 (1,144) (4) - (1,148) 2012 (1,246) (19) - (1,265)

2013 (562) (1) - (563) 2013 (832) (1) (4) (837)

2014 (349) 6 12 (331) 2014 (208) 3 (15) (220)

2015 (239) 23 36 (180) 2015 (241) (47) 43 (245)

TOTAL (2,630) 24 47 (2,559) TOTAL (3,510) (65) 17 (3,558)

FARM - Alberta (Non-Private Passenger Vehicles) FARM - Alberta (Non-Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (752) (25) (4) (781) 2011 & Prior (769) (25) (10) (804)

2012 (475) 6 (89) (558) 2012 (498) (268) (89) (855)

2013 (403) (22) (5) (430) 2013 (141) (102) (33) (276)

2014 868 (122) (58) 688 2014 470 (120) (129) 221

2015 (733) (52) (471) (1,256) 2015 (1,369) (124) (455) (1,948)

TOTAL (1,495) (215) (627) (2,337) TOTAL (2,307) (639) (716) (3,662)


All Jurisdictions



activity experienced in the quarter, including exposure to the Fort McMurray wildfires (further discussion

can be found in section E.2).

Consideration was given to recent regulatory and legislative initiatives (see summary descriptions in

section I).

E.2 Actual vs Projected (AvsP)




$9.7 million projected. The favourable prior accident year development during the current valuation was

impacted by older accident year favourable PPV Third Party Liability (AY2006 & AY2012) large loss

claims experience offset by unfavourable non-PPV Third Party Liability (AY2014) large loss claims

experience in the quarter.

The current accident year unfavourable claims experience (other coverages – comprehensive) was

impacted by exposure to the Fort McMurray wildfires. Based on discussions with Servicing Carriers

and review of reported claims with loss dates in May 2016, we anticipate the total claims amount to be

less than $3 million (primarily impacting the Non-PPV business segment).



E.3 Special IBNR Provisions / Adjustments

There are currently no special IBNR provisions or adjustments.

All Vehicles

Accident Year

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 262 (112) (374) - (25) (25) - (3) (3) 262 (140) (402)

2012 304 (591) (895) 8 - (8) - (89) (89) 312 (680) (992)

2013 409 83 (326) (2) 28 30 - (5) (5) 407 106 (301)

2014 360 1,656 1,296 (45) 16 61 (23) (66) (43) 292 1,606 1,314

2015 1,747 456 (1,291) 338 167 (171) 139 (64) (203) 2,224 559 (1,665)

2016 3,039 3,296 257 378 365 (13) 2,754 4,023 1,269 6,171 7,684 1,513

Total 6,121 4,788 (1,333) 677 551 (126) 2,870 3,796 926 9,668 9,135 (533)

2015 & prior 3,082 1,492 (1,590) 299 186 (113) 116 (227) (343) 3,497 1,451 (2,046)



All Vehicles

Accident Year

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 1,809 1,677 (132) 62 561 499 3 (3) (6) 1,874 2,235 361

2012 725 550 (175) 63 4 (59) - (89) (89) 788 465 (323)

2013 625 545 (80) 442 19 (423) - (5) (5) 1,067 559 (508)

2014 759 712 (47) 175 147 (28) 2 (13) (15) 936 846 (90)

2015 1,173 985 (188) 326 314 (12) 1,132 614 (518) 2,631 1,913 (718)

2016 685 932 247 146 150 4 2,225 3,096 871 3,056 4,178 1,122

Total 5,776 5,401 (375) 1,214 1,195 (19) 3,362 3,600 238 10,352 10,196 (156)

2015 & prior 5,091 4,469 (622) 1,068 1,045 (23) 1,137 504 (633) 7,296 6,018 (1,278)




All Jurisdictions



F. ATLANTICS

F.1 Valuation Highlights




valuation (1.2% of the unpaid estimate as at last quarter), reducing the calendar year-to-date total

unfavourable to $0.5 million (0.4% of the unpaid estimate as at the beginning of the calendar year).

These changes are presented by business segment (i.e. vehicle grouping), accident year and government

line in the tables below. Further details at a more granular jurisdiction level are available on request.


selected using industry AIX 2015-2 data for Private Passenger Vehicles and Commercial Vehicles in the

applicable jurisdictions.

The favourable prior accident year development was driven by low levels of reported Third Party

Liability and Accident Benefits claims activity in the Newfoundland & Labrador PPV business segment

partially offset by large loss Accident Benefits (AY2012 & AY2013) recorded claims activity in the New

Brunswick non-PPV business segment (driven by increases in case reserves) experienced in the quarter –

we view this as process variance.

FARM - Combined Atlantics (All Vehicles) FARM - Combined Atlantics (All Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior 308 (235) (58) 15 2011 & Prior 710 175 (59) 826

2012 (35) 52 (10) 7 2012 (231) 16 (3) (218)

2013 100 355 22 477 2013 190 244 (30) 404

2014 (792) (359) (13) (1,164) 2014 (431) (218) (14) (663)

2015 (402) (25) (213) (640) 2015 (8) 294 (146) 140

TOTAL (821) (212) (272) (1,305) TOTAL 230 511 (252) 489

FARM - Combined Atlantics (Private Passenger Vehicles) FARM - Combined Atlantics (Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior 482 (100) - 382 2011 & Prior 1,010 319 - 1,329

2012 (125) (383) - (508) 2012 (254) (350) (3) (607)

2013 71 26 15 112 2013 75 (59) (35) (19)

2014 (567) (169) 10 (726) 2014 (311) (236) 16 (531)

2015 (418) 11 (180) (587) 2015 (21) 393 (64) 308

TOTAL (557) (615) (155) (1,327) TOTAL 499 67 (86) 480

FARM - Combined Atlantics (Non-Private Passenger Vehicles) FARM - Combined Atlantics (Non-Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (174) (136) (57) (367) 2011 & Prior (300) (146) (58) (504)

2012 90 435 (10) 515 2012 23 366 - 389

2013 29 328 7 364 2013 115 302 5 422

2014 (226) (191) (23) (440) 2014 (121) 18 (30) (133)

2015 16 (35) (34) (53) 2015 13 (98) (82) (167)

TOTAL (265) 401 (117) 19 TOTAL (270) 442 (165) 7


All Jurisdictions




section I).

F.2 Actual vs Projected (AvsP)







Claims transaction activity is generally volatile and differences between actual and projected claims

emergence are anticipated due to this natural “process variance”. This is particularly true where volumes

are low (as is the case here), so caution must be exercised in reviewing the variances as single claim

transactions that are normal course for the business may look “unusual” and generate relatively

“significant” variances that, in nominal value terms, are not that significant overall. With this in mind

and after our review, we have attributed this older accident year claims experience as “random” and

“process variance” driven.

F.3 Special IBNR Provisions / Adjustments


All Vehicles

Accident Year

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 11 214 203 30 (228) (258) - (57) (57) 41 (71) (112)

2012 93 (48) (141) 17 40 23 - (10) (10) 110 (18) (128)

2013 20 118 98 131 509 378 - 22 22 151 649 498

2014 809 (120) (929) 307 22 (285) 28 (9) (37) 1,144 (107) (1,251)

2015 2,152 1,386 (766) 646 191 (455) (53) (309) (256) 2,745 1,268 (1,477)

2016 4,945 5,446 501 1,352 897 (455) 1,598 1,887 289 7,895 8,230 335

Total 8,030 6,996 (1,034) 2,483 1,431 (1,052) 1,573 1,524 (49) 12,086 9,951 (2,135)

2015 & prior 3,085 1,550 (1,535) 1,131 534 (597) (25) (363) (338) 4,191 1,721 (2,470)



All Vehicles

Accident Year

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 2,548 1,370 (1,178) 638 99 (539) 2 (57) (59) 3,188 1,412 (1,776)

2012 1,207 1,195 (12) 556 685 129 1 - (1) 1,764 1,880 116

2013 1,310 1,275 (35) 297 60 (237) - - - 1,607 1,335 (272)

2014 1,602 1,420 (182) 554 511 (43) - (6) (6) 2,156 1,925 (231)

2015 1,427 1,113 (314) 726 459 (267) 199 (35) (234) 2,352 1,537 (815)

2016 1,146 1,391 245 266 158 (108) 1,677 1,709 32 3,089 3,258 169

Total 9,240 7,764 (1,476) 3,037 1,972 (1,065) 1,879 1,611 (268) 14,156 11,347 (2,809)

2015 & prior 8,094 6,373 (1,721) 2,771 1,814 (957) 202 (98) (300) 11,067 8,089 (2,978)




All Jurisdictions



G. TERRITORIES

G.1 Valuation Highlights







the tables below. Further details at a more granular jurisdiction level are available on request.


selected using industry Alberta AIX 2015-2 data for Private Passenger Vehicles and Commercial

Vehicles.

The favourable prior accident year development was driven by low levels of reported Third Party

Liability claims activity in the Northwest Territories PPV business segment experienced in the quarter.


section I).

FARM - Combined Territories (All Vehicles) FARM - Combined Territories (All Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior 6 - (1) 5 2011 & Prior 78 - 1 79

2012 (130) (1) (2) (133) 2012 (88) (2) (2) (92)

2013 (179) (10) - (189) 2013 (471) (17) - (488)

2014 (243) (16) (92) (351) 2014 (297) (15) (98) (410)

2015 (184) 7 (33) (210) 2015 (224) 14 (13) (223)

TOTAL (730) (20) (128) (878) TOTAL (1,002) (20) (112) (1,134)

FARM - Combined Territories (Private Passenger Vehicles) FARM - Combined Territories (Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior 20 - (2) 18 2011 & Prior 94 - (1) 93

2012 (100) (1) (1) (102) 2012 (50) (2) (1) (53)

2013 (149) (9) - (158) 2013 (371) (11) - (382)

2014 (181) (7) (42) (230) 2014 (224) (8) (49) (281)

2015 (152) 15 (38) (175) 2015 (158) 20 (25) (163)

TOTAL (562) (2) (83) (647) TOTAL (709) (1) (76) (786)

FARM - Combined Territories (Non-Private Passenger Vehicles) FARM - Combined Territories (Non-Private Passenger Vehicles)




Liability

Accident

Benefits

Other


Third Party

Liability

Accident

Benefits

Other

CoveragesTotal

2011 & Prior (14) - - (14) 2011 & Prior (15) - - (15)

2012 (30) - - (30) 2012 (38) - - (38)

2013 (30) (1) - (31) 2013 (100) (6) - (106)

2014 (61) (9) (50) (120) 2014 (72) (7) (50) (129)

2015 (32) (8) 4 (36) 2015 (66) (6) 11 (61)

TOTAL (167) (18) (46) (231) TOTAL (291) (19) (39) (349)


All Jurisdictions



G.2 Actual vs Projected (AvsP)



As indicated in the table above, total recorded emergence at $0.5 million was $0.3 million (39.4%) less

than the $0.8 million projected.



Claims transaction activity is generally volatile and differences between actual and projected claims

emergence are anticipated due to this natural “process variance”. This is particularly true where volumes

are low (as is the case here), so caution must be exercised in reviewing the variances as single claim

transactions that are normal course for the business may look “unusual” and generate relatively

“significant” variances that, in nominal value terms, are not that significant overall. With this in mind

and after our review, we have attributed claims experience variance here as “random” and “process

variance” driven.

G.3 Special IBNR Provisions / Adjustments


All Vehicles

Accident Year

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

Projected

Recorded

Claims in

2016-Q2

Actual

Recorded

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 29 74 45 - - - - (1) (1) 29 73 44

2012 61 - (61) - - - - (1) (1) 61 (1) (62)

2013 63 - (63) (1) 1 2 - - - 62 1 (61)

2014 90 (15) (105) 7 (2) (9) 41 11 (30) 138 (6) (144)

2015 (313) 84 397 25 22 (3) 117 (31) (148) (171) 75 246

2016 410 140 (270) 21 27 6 237 168 (69) 668 335 (333)

Total 340 283 (57) 52 48 (4) 395 146 (249) 787 477 (310)

2015 & prior (70) 143 213 31 21 (10) 158 (22) (180) 119 142 23



All Vehicles

Accident Year

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

Projected

Paid Claims in

2016-Q2

Actual Paid

Claims in

2016-Q2

Actual Less

Projected

2011 & prior 116 78 (38) - - - - (1) (1) 116 77 (39)

2012 37 - (37) - - - - (1) (1) 37 (1) (38)

2013 62 - (62) 7 1 (6) - - - 69 1 (68)

2014 180 75 (105) 13 1 (12) 9 32 23 202 108 (94)

2015 151 67 (84) 30 42 12 129 9 (120) 310 118 (192)

2016 120 127 7 6 - (6) 248 170 (78) 374 297 (77)

Total 666 347 (319) 56 44 (12) 386 209 (177) 1,108 600 (508)

2015 & prior 546 220 (326) 50 44 (6) 138 39 (99) 734 303 (431)




All Jurisdictions



H. Appendix 1: Changes in process introduced since the September 30, 2015 valuation

The September 30, 2015 valuation supported the October 31, 2015 fiscal year-end financial statements.

There have been no significant changes to the valuation process since that valuation.

That said, as discussed in section C.7, FA management and the Appointed Actuary are reviewing the

current practice of not including actuarial present value adjustments in policy liabilities related to claims

fees and allowed claims expenses and may implement a change to this practice with the next valuation

(2016 Q3) which would be implemented with the October 2016 Participation Report and be included in

the fiscal year-end 2016 audited financial statements.

A more detailed description of the current valuation process is presented in section J.


All Jurisdictions



I. Appendix 2: Recent Regulatory and/or Legislative Initiatives

Consideration and assessment of potential impacts of legal decisions and changes in legislation /

regulation constitutes a regular part of the valuation process. Descriptions of some of the more recent

changes are provided below.

I.1 Ontario

Ontario Bill 15 (Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014) was introduced

into the Legislature by the Minister of Finance on July 15, 2014 and received Royal Assent on November

20, 2014. Bill 15 includes various amendments and provisions such as: moving the Ontario Automobile

Dispute Resolution System (DRS) for statutory accident benefits from the Financial Services

Commission of Ontario to the Ministry of the Attorney General (Licence Appeal Tribunal), regulation of

the Tow and Storage Industry (amendments to the Consumer Protection Act and Repair and Storage

Liens Act), regulations related to licensing of insurance agents and adjusters, changes the applicable

interest rate applied to overdue payments in the Statutory Accident Benefits Schedule (SABS), and

changes to the prejudgment interest rate on general damages for non-pecuniary loss from the rate as set

out in the Courts of Justice Act to rates linked to market conditions. With the current valuation, reform

adjustments (originally introduced with the June 30, 2015 valuation), specifically related to changes in

the non-pecuniary prejudgment interest provision calculation impacting the bodily injury coverage and

the applicable interest rate applied to overdue payments in the SABS impacting the accident benefits

coverage, were included with the updated industry trend analysis (completed using industry data as at

December 31, 2015), impacting the selection of ultimates.

Ontario Bill 91 (Building Ontario Up Act (Budget Measures), 2015) was introduced into the Legislature

by the Minister of Finance on April 23, 2015 and received Royal Assent on June 4, 2015. Bill 91

announced a number of amendments to regulations made under the Insurance Act, including: updating

the Catastrophic Impairment Definition and changes to the standard benefit level under the Statutory

Accident Benefits Schedule (SABS); restrictions on insurance premium increases and lowering of the

maximum interest rate charged on monthly auto insurance premium payments; and adjustments to the

monetary threshold beyond which the tort deductible does not apply to reflect inflation (adjustments to

reflect inflation in the associated tort deductible were undertaken via an update to regulation 461/96). On

August 26, 2015, the Ontario government filed Ontario regulations 250/15 and 251/15 implementing

reforms set out in Bill 91. With the current valuation, reform adjustments (originally introduced with the

September 30, 2015 valuation), specifically related to changes in the tort threshold and deductibles

impacting the bodily injury coverage and changes to the SABS impacting the bodily injury and accident

benefits coverages, were included with the updated industry trend analysis (completed using industry data

as at December 31, 2015) and nominal valuation estimates, impacting the selection of ultimates.

I.2 Alberta

Bill 39 (Enhancing Consumer Protection in Auto Insurance Act) was introduced into the Alberta

Legislature by the Minister of Finance on November 6, 2013, and received Royal Assent on

December 11, 2013. Bill 39 includes various amendments and provisions such as: allowing for both

mandatory and optional auto insurance premiums to be regulated by the independent Automobile

Insurance Rate Board (AIRB), the introduction of an Insurer file and approve system for premium


All Jurisdictions



adjustments instead of an annual industry-wide rate adjustment, improved access to health care after a

collision and strengthened Insurance Company solvency requirements. No specific adjustments have

been made to the current valuation assumptions based on Bill 39.

I.3 New Brunswick

The Government of New Brunswick filed Regulation 2013-37 on May 7, 2013, amending

Regulation 2003-20 (Injury Regulation), made under the Insurance Act. The Regulation introduces a

new Part 2 which applies to all injuries arising from motor vehicle accidents occurring on or after

August 1, 2013. The new Part 2 re-defines “minor personal injury”, raises the maximum non-pecuniary

damages recoverable by those suffering a “minor personal injury”, and sets out a process for annually

indexing the monetary cap for inflation. With the current valuation, reform adjustments (originally

introduced with the June 30, 2014 valuation) were explicitly taken into account with the updated industry

trend analysis (completed using industry data as at December 31, 2015) impacting the selection of

ultimates.

I.4 Nova Scotia

The Government of Nova Scotia introduced a package of auto insurance reforms, known as the “Fair

Auto Insurance Reforms” (FAIR), on November 9, 2011. FAIR was implemented in two phases.

Regulations related to FAIR Phase I (effective April 1, 2012) was published in the Royal Gazette Part 11,

on January 13, 2012. These include provisions for: enhanced mandatory benefits under Section B (these

include medical, rehabilitation, funeral, death and loss of income benefits), prohibiting premium

increases if no claim is made, assistance for volunteer Fire Departments, and periodic review of Auto

Insurance Law. FAIR Phase II (effective April 1, 2013) includes provisions for: diagnostic and treatment

protocols for minor injuries, introduction of direct compensation for property damage, and limited

liability and new priority of pay rules for rental companies. With the current valuation, reform

adjustments (originally introduced with the June 30, 2014 valuation) were explicitly taken into account

with the updated industry trend analysis (completed using industry data as at December 31, 2015)

impacting the selection of ultimates.

I.5 Prince Edward Island

The Government of Prince Edward Island introduced Bill 46 (Minor Injury Definition, Pain and

Suffering Damages Cap, Schedule B and DCPD) into the Legislative Assembly on April 25, 2014 and

received Royal Assent on May 14, 2014. Bill 46 amends the Insurance Act, introducing enhanced

mandatory benefits under Schedule B (these include medical, rehabilitation, funeral, death and loss of

income benefits) and a new section 254.2 that applies to all injuries arising from motor vehicle accidents

occurring on or after October 1, 2014. The new section 254.2 re-defines “minor personal injury”, raises

the maximum non-pecuniary damages recoverable by those suffering a “minor personal injury”, and sets

out a process for annually indexing the monetary cap for inflation. In addition, Bill 46 includes a new

section 254.3 which implements Direct Compensation provisions for Property Damage and has been

proclaimed into force effective October 1, 2015. With the current valuation, reform adjustments

(originally introduced with the June 30, 2014 valuation) were explicitly taken into account with the

updated industry trend analysis (completed using industry data as at December 31, 2015) impacting the

selection of ultimates.


All Jurisdictions



J. Appendix 3: General description of the FARM valuation process

1) select a priori loss ratios

a. start with prior valuation a priori model

b. update with prior valuation final selected ultimates

c. update with trend / rate as available

d. final selection approved by Appointed Actuary

2) collect / prepare / reconcile / validate valuation data

a. results presented for review and acceptance by Appointed Actuary

3) complete Actual vs Projected process

a. prepare exhibits and metrics

b. share with Appointed Actuary for review and consideration

4) calculate ultimate estimates based on incurred link ratio method15

a. prepare triangles and link ratio averages

b. prepare estimates based on pre-determined default link ratio selections

c. final link ratio selections reviewed and accepted by Appointed Actuary

5) calculate ultimate estimates based on a priori loss ratio method

a. prepare estimates

b. final estimates reviewed and accepted by Appointed Actuary

6) calculate ultimate estimates based on Bornhuetter / Ferguson method

a. prepare estimates

b. final estimates reviewed and accepted by Appointed Actuary

7) final IBNR selection

a. prepare summary of IBNR estimates underlying each valuation method at coverage / accident

half-year level

b. Appointed Actuary selects final IBNR by coverage and accident half-year, taking into

consideration IBNR estimated from valuation methods employed and other information

8) complete paid emergence and apv factor models (coverage / accident half-year)

a. load triangles, selected ultimates, current yield curves into model

15 We also calculate ultimate estimates based on 3 additional “link-ratio” valuation methodologies (“Mack”, “Murphy”, and “ICRFS Cape

Cod”), although no selections to date have been based on these additional methods, we are monitoring how well these alternate methods

and the associated statistical ranges for their estimated unpaid claims liabilities work on FA data


All Jurisdictions



b. select initial emergence ratios (currently using initial paid / ultimate ratios to determine

emergence ratios) and calculate associated payment / cash flow estimates

c. select discount rate and investment rate margin

d. select development margins

e. final selections reviewed / accepted by Appointed Actuary

9) select expense ratios for premium liabilities

a. initial selections prepared

b. Appointed Actuary selects final ratios

10) present results to Actuarial Committee

a. prepare and post analysis package (including preliminary implementation impact analysis)

b. update analysis and selections based on discussion and review

c. posted updated analysis package

11) summarize valuation assumptions

a. Appointed Actuary reviews and signs off

b. assumptions given to Facility Association for implementation

c. implementation impact estimated

12) present results to Audit & Risk Committee

a. prepare and post valuation summary and implementation impact package

b. present / review / discuss results

13) complete recorded emergence models (coverage / accident half-year)

a. load triangles, selected ultimates

b. select initial emergence ratios (currently using recorded / ultimate ratios to determine emergence

ratios) and calculate associated recorded emergence

c. final selections reviewed / accepted by Appointed Actuary

14) implement valuation

15) prepare summary of year-on-year change in process and liabilities for review by Accounting

Committee (annual only – occurs in December to align with October Statement preparation)

16) prepare summary of year-on-year change in process and liabilities for review by Audit & Risk

Committee (annual only – occurs in December to align with October Statement preparation)

17) prepare Appointed Actuary Report (annual only – occurs in February/March to align with release of

Board approved Financial Statements)


All Jurisdictions



K. Appendix 4: Exhibits

Summary exhibits are provided by jurisdiction on an all vehicles/all coverages basis. Additional detail

and summary exhibits by jurisdiction; segment (i.e. private passenger vs non-private passenger) and

government line/coverage is available upon request. Exhibits are posted separately on the FA website.

Exhibit A Changes in Ultimate Selection over time

Exhibit B.4 (“All vehicles”; “total” government line/coverage level)

B.4.1 Summary

B.4.2 Loss Ratios over time

Exhibit C Interest Rate Sensitivity

Exhibit D Margins for Adverse Deviations

Documents

QUARTERLY VALUATION HIGHLIGHTS · A valuation of the Facility Association Residual Market (“FARM”) as at June 30, 2016 has been completed for Private Passenger Vehicle (PPV) and