Manitoba Public Insurance 2003 Annual Report

Notes to Financial Statements
February 29, 2004 and February 28, 2003

Provision for Unpaid Claims

The provision for unpaid claims, including adjustment expenses, represents an estimate for the full amount of all costs and the projected final settlement of claims incurred.

The provision for unpaid claims, including adjustment expenses, is subject to variability. This variability is related to future events that arise from the date the loss was reported to the ultimate settlement of the claims. Accordingly, short-tail claims such as physical damage claims tend to be more reasonably predictable than long-tail claims such as public liability claims. Factors such as the receipt of additional claims information during the claims settlement process, changes in severity and frequencies of claims from historical trends and effects of inflationary trends contribute to this variability.

The determination of the provision for unpaid claims, including adjustment expenses, relies on judgment, analysis of historical claim trends, investment rates of return and expectation on the future development of claims. The process of establishing this provision necessarily involves risks which could cause the actual results to deviate, perhaps substantially, from the best determinable estimate.

The provision for unpaid claims, including adjustment expenses, by major claims category includes:

(IN THOUSANDS OF DOLLARS)	2004		2003

	Gross	Reinsurers’ Share	Gross	Reinsurers’ Share

Automobile Insurance Division
Liability	$ 1,015,966	$ 53,158	$ 884,900	$ 52,791
Physical Damage	101,061	226	89,178	3,866

	1,117,027	53,384	974,078	56,657

Discontinued Operations
Personal/Commercial	8,168	—	8,817	—

	$ 1,125,195	$ 53,384	$ 982,895	$ 56,657

The provision for unpaid claims, including adjustment expenses, is discounted using the following discount rates:

		2004

Benefits		Interest Rate Assumptions

Pre-P.I.P.P. Weekly Indemnity		9.0% for seven years and 3.0% thereafter

All other coverages		By year—6.05%, 5.70%, 5.35% and 5.00% thereafter

P.I.P.P. Other than death and impairment		3.0% per year


		2003

Benefits		Interest Rate Assumptions

Pre-P.I.P.P. Weekly Indemnity		9.0% for eight years and 3.0% thereafter

All other coverages		By year—6.40%, 6.05%, 5.70%, 5.35% and 5.00% thereafter

P.I.P.P. Other than death and impairment		3.0% per year

According to accepted actuarial practice, the discounted reserve includes a provision for adverse deviation of $181.2 million (2003– $138.5 million) comprised of a claims development component of $110.5 million (2003–$84.1 million) and an interest rate component of $70.7 million (2003–$54.4 million).

No catastrophic losses are included in net incurred claims or adjustment expenses during the current fiscal year (2003–$ nil). Catastrophes are an inherent risk to the Corporation and may contribute materially to the year-to-year fluctuations in the Corporation’s results of operations and financial condition when they occur.

Unpaid claim liabilities are carried at values which reflect their remaining estimated ultimate costs for all accident years.

Changes in the estimate of net unpaid claims, for the Automobile Insurance Division, recognized during the fiscal year ended February 29, 2004 for prior years are as follows:

(IN THOUSANDS OF DOLLARS)	2003	2002	2001	2000 AND PRIOR	TOTAL

	Accident Years

Net unpaid claims (valuation estimate as at February 28, 2003)	$ 270,808	$ 127,714	$ 95,269	$ 423,630
Net payments for the year	85,603	17,266	9,535	20,345

	185,205	110,448	85,734	403,285
Net unpaid claims (revised valuation estimate as at February 29, 2004)	150,787	109,459	87,052	434,376

(Redundancy) Deficiency	$ (34,418)	$ (989)	$ 1,318	$ 31,091	$ (2,998)

Prior years (redundancy) deficiency		$ (15,788)	$ (5,177)	$ (5,407)	$ (26,372)

The claims settlement processes may involve the use of structured settlements, which are purchased through various financial institutions. As of the balance sheet date, the present value of expected payments total $122.0 million (2003–$112.8 million) based on various dates of purchase. The Corporation assumes a financial guarantee to make payments to claimants in the event that financial institutions default on payments under the terms of the structured settlement.

Changes in the estimate of net unpaid claims for discontinued operations recognized during the fiscal year ended February 29, 2004 are $0.6 million (2003–$0.2 million). All of the net unpaid claims relate to loss dates prior to October 1, 1990.