8.

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 infl ationary 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:

According to accepted actuarial practice, the discounted reserve includes a provision for adverse deviation of $271.3 million (2007 – $238.2 million) comprised of a claims development component of $158.2 million (2007 – $151.1 million), an interest rate component of $111.3 million (2007 – $87.1 million) and a reinsurance component of $1.8 million (2007 – $ nil).

Net claims incurred and adjustment expenses included losses from catastrophes of $10.0 million (2007 – $ 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 claims liabilities are carried at values that reflect their remaining estimated ultimate costs for all accident years.

Changes in the estimate of net unpaid claims, recognized during the fiscal year ended February 29, 2008 for prior years, are as follows:

Changes in the estimate of net unpaid claims for discontinued operations recognized during the fiscal year ended February 29, 2008 are a decrease of $0.4 million (2007 – decrease of $0.1 million). All of the net unpaid claims relate to loss dates prior to October 1, 1990.

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 totals $142.2 million (2007 – $134.8 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.