2004
Annual Report
2004 Board of Directors
Noël M. Després Chairman of the Board, Assumption Life
Paul L. Bourque*, CMA, CA Vice Chairman of the Board, Assumption Life
Denis Losier President and CEO, Assumption Life
Louis Benoit*, CGA, CA Managing Partner, Losier Doiron Benoit Mc Graw
Philippe DesRosiers*
Jeannette Lalonde President, Jeannette Lalonde and Associates Inc.
Gilles LeBlanc President, Assurance Goguen Protection Corp.
Georges Marcoux President and CEO, Belledune Port Authority
Gerald L. Pond* Associate, Mariner Partners Inc.
Maureen E. Reid President, BoardWorks Consulting
Jean-Claude Savoie President, Groupe Savoie 2
* Member of the Audit Committee
Message from the President and Chief Executive Officer For Assumption Life, 2004 was a year propelled by significant financial growth and business success. We successfully launched several innovative life-insurance products, including FlexOptions, Golden Protection and Total Protection. Our sales force provided effective support in the marketing of these new products by expanding its team and distribution network, while the development of our online offerings accelerated our closing process. This helped us lay the groundwork for greater diversification of our products while fully leveraging currently available technologies. As far as I am concerned, this only sets us up for greater success in 2005! For the fourth year in a row, Assumption Life posted net profits exceeding $5 million, and in 2004 that figure reached $5.3 million, for total profits of $21.5 million in the past four years. At the same time, policyholders' equity grew to $59.3 million, up nearly 10%. Total assets under management increased by 8% to $824 million on the strength of a bond portfolio comprising 96% of securities rated A or better. Our solvency ratio climbed to 246% over the same period, well above the minimum requirement of 120% prescribed by Canada’s Office of the Superintendent of Financial Institutions. This already exceeds the objective we had set for 2006. Finally, Louisbourg Investments posted profits of $743,000, some $130,000 more than forecast, for total assets under management of $1.18 billion. Consumer confidence levels in 2004 helped Assumption Life reach $2.6 million in sales, a dramatic 36% increase over results for 2003, with life insurance accounting for 33.5% of the company's net profits. Sales in group insurance were also up significantly, reaching $10.7 million.
Automobile credit insurance gained momentum during 2004, with sales of $13.6 million, or 170% of the amount targeted. Finally, sales of financial services totalled $38.5 million, up 22% over the previous year. This outstanding performance positioned Assumption Life to maintain its rating of A- (excellent) as assigned by the A.M. Best insurance rating agency. Assumption Life's employees demonstrated continued community involvement in 2004, working with the United Way, the Tree of Hope and the Run for the Cure and other events supporting the battle against breast cancer. They also contributed significantly to one-time charity efforts, such as the Red Cross response to the tsunami in late December 2004. The company also served as a major sponsor of the 2004 Congrès mondial acadien, contributed to the Excellence Campaign of the Université de Moncton and the Beauséjour Medical Research Institute and awarded its own annual scholarships. As I have noted, 2004 was a year of major inroads for Assumption Life with regard to business development. Thanks to our employees' tireless efforts, the strength of our distribution network, our development of key products, the use of our technological potential, our delivery of customer services and ongoing market expansion, I have every confidence that our strengths will enable us to rise to whatever new challenges we encounter while continuing to grow Assumption Life in 2005 and throughout the years to come. Because we are always ready to move onwards and upwards!
Denis Losier President and CEO
Message from the Chairman of the Board of Directors
Numerous studies have demonstrated the extent to which sound governance practices influence a company's performance, and Assumption Life's financial results in recent years are clear proof of that. The challenge faced by our company and board of directors has been to seek the best possible equilibrium between increasingly numerous and restrictive regulatory requirements and the general conduct of our daily business. In this regard, we feel that we have established a healthy balance in terms of our confidence in our executive management and our monitoring role. Our board of directors has paid particular attention to the governance of the company’s employee pension plan in light of the difficulties experienced by many pension plans over the last few years. In accordance with the practices recommended by the Canadian Institute of Chartered Accountants, it has overseen the implementation of mechanisms that make it possible to verify the plan's financial soundness on an annual basis and to measure, in a timely fashion, the effects of changes in the plan’s conditions or financing as well as the impact of market fluctuations on the financial statements of both the plan and the company in general. In this age of globalization and high-speed communication, Assumption Life has successfully carved out significant market niches without losing
4
its personal touch and while taking an active role in causes of importance to the communities in which we do business. The commitment of our employees and executive team, all of whom have worked together toward the singular objective of serving our clients, is the driving force behind this achievement. On behalf of the board of directors, I extend my thanks to our employees for the energy they have invested in making Assumption Life one of the leading financial institutions in Atlantic Canada.
Noël M. Després Chairman of the Board
Valuation Actuary’s Report
To the policyholders of Assumption Mutual Life Insurance Company: I have valued the policy liabilities of Assumption Mutual Life Insurance Company for its consolidated balance sheet as at December 31, 2004, and their change in the consolidated statement of income for the year then ended in accordance with accepted actuarial practices, including the selection of appropriate assumptions and methods. In my opinion, the amount of policy liabilities makes appropriate provision for all policyholder obligations and the consolidated financial statements fairly present the results of the valuation.
Luc Farmer Fellow, Canadian Institute of Actuaries Moncton, New Brunswick February 7, 2005
Statement of Management’s Responsibility
The financial statements of Assumption Mutual Life Insurance Company and all the financial information in this annual report are the responsibility of Management and have been approved by the Board of Directors. The financial statements, prepared by Management in accordance with Canadian generally accepted accounting principles, include certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis in order to ensure that the financial statements are presented fairly, in all material respects. Management is of the opinion that internal control mechanisms are adequate to ensure a reasonable degree of reliability pertaining to financial reporting and that the financial statements contained herein present fairly the results of operations of the Company. Assumption Mutual Life Insurance Company’s actuarial liabilities have been reviewed by an actuary appointed by the Board of Directors. He is responsible for ensuring that the assumptions and methods used in the determination of policy liabilities are appropriate to the circumstances and that such reserves will be adequate to meet the Company’s future obligations. The Board of Directors is responsible for ensuring that Management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the financial statements. The Board carries out this responsibility principally through its Audit Committee. 6
The Audit Committee is appointed by the Board and all of its members are outside directors.
The Committee meets periodically with Management, as well as with the internal and external auditors, to discuss internal controls over auditing matters and financial reporting issues. The Committee reviews the annual report, the financial statements and the external auditors’ report and reports its findings to the Board for consideration when approving the financial statements for issuance to the policyholders. The Committee also considers, for review by the Board and approval by the policyholders, the appointment of the external auditors. The financial statements have been audited by LeBlanc Nadeau Bujold, the external auditors, in accordance with Canadian generally accepted auditing standards on behalf of the policyholders. LeBlanc Nadeau Bujold has full access to the Audit Committee. For Management,
Denis Losier, President and Chief Executive Officer February 25, 2005
Auditors’ Report to Policyholders
We have audited the consolidated balance sheet of Assumption Mutual Life Insurance Company as at December 31, 2004, and the consolidated statements of income, surplus and cash flows, as well as the consolidated statements of segregated funds for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2004, and the results of its operations and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles.
LeBlanc Nadeau Bujold Chartered Accountants Dieppe, New Brunswick February 7, 2005
Consolidated Balance Sheet (in thousands of dollars) As at December 31
Notes
2004
2003
3 4 3
$308,516 122,389 26,638 5,986 3,365 3,692 4,770 12,676
$299,734 105,587 25,927 5,978 15,380 3,762 4,182 11,018
$488,032
$471,568
$375,059 4,501 16,248 10,544 7,245 6,066 9,111
$372,483 4,197 15,204 11,003 1,096 4,693 8,907
$428,774
$417,583
Surplus
59,258 $488,032
53,985 $471,568
Assets Under Management
$335,995
$292,954
Assets Marketable securities Mortgages Real estate Loans to policyholders Cash and term deposits Accrued investment income Capital assets Other assets
5 6
Liabilities Policy liabilities: Actuarial liabilities Benefits payable and other provisions Insureds’ deposits Long-term debt Deferred gains and losses Future income taxes Other liabilities
7
8 9 10 11
Policyholders’ Equity
Uncertainties
13
Signed on behalf of the board
Chairman
8
President and CEO
Consolidated Statement of Income (in thousands of dollars) Year ended December 31
Notes
2004
2003
$47,510 21,170 31,263 2,782
$45,126 27,461 30,278 1,903
102,725
104,768
28,053 35,008 5,860 1,711 15,894 5,257 504 1,589
27,295 32,780 15,203 795 14,619 3,767 541 1,127
Revenue Insurance premiums Annuity premiums Investment income Other
14
Expenses Insurance benefits Annuity benefits Increase in actuarial liabilities Other policyholders’ benefits Administration Commissions Interest on long-term debt Other
93,876
96,127
Operating Income Before Dividends and Taxes
8,849
8,641
Dividends
829
847
Income Before Taxes
8,020
7,794
1,400 1,347 2,747
1,687 519 2,206
$5,273
$5,588
Current income taxes Future income taxes
Net Income for the Year
10 10
Consolidated Statement of Surplus (in thousands of dollars) Year ended December 31
2004
2003
Net income for the year
$53,985 5,273
$48,397 5,588
Balance - End of Year
$59,258
$53,985
Balance - Beginning of Year
10
Consolidated Statement of Cash Flows (in thousands of dollars) Year ended December 31
Note
2004
2003
$5,273
$5,588
5,860 1,307 (62) (6,411) 5,967
15,203 1,288 219 (7,535) 14,763
267
(1,320)
6,234
13,443
(459)
(381)
64,666 (81,383) (1,895) 822 (17,790)
45,844 (67,544) (1,332) 258 (22,774)
(12,015)
(9,712)
15,380
25,092
$3,365
$15,380
Operations Net income for the year Items not affecting cash: Increase in actuarial liabilities Amortization of capital assets and goodwill Amortization related to investment income Other Change in non - cash working capital items related to operations
14
Financing Reimbursement of long-term debt
Investment Marketable securities, mortgages and real estate: Sales, maturities and reimbursements Purchases and loans Acquisition of capital assets Other
Decrease in Cash and Term Deposits During the Year Cash and Term Deposits - Beginning of Year Cash and Term Deposits - End of Year
Consolidated Statements of Segregated Funds (in thousands of dollars) As at December 31
2004
2003
$93,591 49,012 173,212 10,013 12,618 1,054 1,442 340,942
$77,250 44,468 151,944 10,471 8,146 951 889 294,119
Liabilities
4,947
1,165
Participants’ equity
$335,995
$292,954
Net Assets Investments: Bonds Stocks Pooled funds Mortgages Cash and term deposits Accrued investment income Other
Year ended December 31
2004
2003
Change in Net Assets Net Assets – Beginning of Year Net contributions: Contributions Withdrawals Investment income: Change in value of investments Interest and dividends Realized gains (losses)
Management and administrative fees Net Assets
12
–
End of Year
$292,954
$259,447
34,599 (22,147) 12,452
31,698 (28,364) 3,334
18,199 13,808 1,706 33,713
23,641 9,424 (170) 32,895
(3,124)
(2,722)
$335,995
$292,954
Notes to Consolidated Financial Statements (in thousands of dollars) Year ended December 31, 2004
1. Incorporation Assumption Mutual Life Insurance Company, known as Assumption Life, was incorporated under a private law of the Province of New Brunswick’s Legislative Assembly.
2. Significant Accounting Policies These financial statements have been prepared in accordance with the Insurance Act of the Province of New Brunswick and the Company’s incorporating act. This act states that, except as otherwise specified by the Superintendent of Insurance of New Brunswick, the financial statements are to be prepared in accordance with Canadian generally accepted accounting principles. The significant accounting policies used in the preparation of these financial statements, including the accounting requirements of the Superintendent of Insurance of New Brunswick, are described below. These accounting policies conform, in all material respects, to Canadian generally accepted accounting principles. Consolidation These consolidated financial statements include the accounts of the Company and its subsidiaries: Assumption Place Limited Atlantic Holdings (1987) Limited, the parent company of Louisbourg Investments Inc. These statements do not include the accounts of Assumption Mutual Life Foundation Inc.
Marketable Securities Marketable securities include bonds, mortgage pools and stocks. Bonds and mortgage pools are recorded at amortized cost, and gains and losses realized on the sale of these securities are deferred and amortized over the remaining term of the securities sold. Stocks are carried at moving average market value whereby the carrying value is adjusted according to the difference between carrying value and market value at a rate of 5% quarterly. Realized gains and losses on the sale of stocks are deferred and amortized at a rate of 5% quarterly on the declining balance method. When a decline in market value of a marketable security is considered other than temporary, the write-down is immediately charged to income. Mortgages Mortgages are carried at the balance receivable, net of provisions for contingent losses. Provisions for losses on loans in arrears and in the process of being liquidated are immediately charged to income. They are measured by discounting the expected future cash flows using current rates of interest.
Impaired Portfolio Investments Management follows a policy of classifying its fixed term investment portfolio, consisting of bonds, mortgage pools and mortgages, as impaired when, in its opinion, there is reasonable doubt as to the ultimate collectibility of a portion of principal or interest. Interest is not recognized on impaired investments. Impaired investments are restored to an accrual basis only when principal and interest payments are current and there is no longer any reasonable doubt regarding collectibility. Real Estate Real estate includes own-use properties and is carried at moving average market value whereby the carrying value is adjusted towards market value at 3% quarterly. Realized gains and losses on the sale of investments are deferred and amortized at a rate of 3% quarterly on the declining balance method. Market values of each property are established at least every three years by a qualified appraiser. The market value established is an estimate of the net realizable value of each property and thus recognizes any element of amortization. No provision for amortization is therefore recorded in income. If the market value of the real estate portfolio is below the carrying value for a period of three consecutive years, the Company presumes that the decline in value is other than temporary. This presumption can only be rebutted by persuasive evidence to the contrary. 14
When a decline in market value of the real estate portfolio is considered other than temporary, the write-down is immediately charged to income. Cash and Term Deposits Cash and term deposits include deposits in bank and short-term notes with a maturity of three months or less from the date of acquisition. Capital Assets Capital assets are recorded at cost and amortized on their useful lives on the straight-line method over periods of 3 to 10 years. Goodwill Goodwill, arising from acquisitions, is recorded at cost and is submitted to a yearly impairment test that consists of a comparison between the fair value and the carrying value. When the carrying value exceeds the fair value, the carrying value is adjusted and an impairment loss is recognized in the income statement.
Actuarial Liabilities Actuarial liabilities regarding insurance and annuity contracts are established in accordance with the Canadian balance sheet method. They represent the amount required to satisfy the payment of the Company’s future commitments towards policyholders. The valuation actuary of these liabilities computes this amount in accordance with the assumptions that he considers appropriate for the policies in force. Taxes The Company provides for income taxes using the liability method of tax allocation. The income tax provision is comprised of current and future income taxes. Current income taxes are based on taxable income. Future income taxes reflect the net tax effect of temporary differences between assets and liabilities reported for financial statement purposes and those reported for income tax purposes. In addition to statutory income taxes, charges to operations include investment income tax, the large corporations’ tax and the tax on capital imposed on financial institutions. Foreign Currency Translation Monetary assets and liabilities in foreign currencies are converted at the rate of exchange in effect at the balance sheet date. Non-monetary assets and liabilities, as well as revenue and expenses, are converted at the historical rate.
Translation gains and losses are charged to income for the year except if they relate to marketable securities, loans to policyholders, actuarial liabilities and insureds’ deposits, in which case they are deferred and amortized over the predetermined or foreseeable life of each of the corresponding items. Actual and Future Costs in Connection with the Operations of the Canadian Life and Health Insurance Compensation Corporation As a member of the Canadian Life and Health Insurance Compensation Corporation (CompCorp), the Company incurs, and will likely incur in the future, certain costs in connection with the operations of CompCorp. CompCorp is responsible for compensating policyholders in the event that a life insurer’s operations must be liquidated. CompCorp annually assesses life insurers on the basis of a five-year average of annual premiums and the assessments are charged to income in the year they are incurred. The Company has agreed to provide CompCorp with a credit facility which can be drawn upon, at CompCorp’s option, should the need arise.
Segregated Funds Investments of the segregated funds are recorded at market value. Realized and unrealized gains and losses are immediately included in investment income. Employee Benefit Plans The Company and its subsidiaries offer to their employees and agents defined benefit pension plans based on final earnings. Employer and employee contributions to these plans are included in the assets of the Company, either in the assets of the consolidated balance sheet or in the net assets of consolidated statements of segregated funds for the benefit of participants. The annual pension cost includes actuarial expenses for current services, the amortization of actuarial adjustments for past services and the amortization of actuarial gains and losses. The Company accrues its obligations under employee benefit plans and the related costs, net of plan assets. The Company has adopted the following policies: The cost of pensions and other retirement benefits including dental, health and
group life insurance earned by employees is actuarially determined using the projected benefit method pro rated on service, using management’s best estimate of expected plan investment performance, salary escalation, retirement age of employees and expected health care costs. For the purpose of calculating the expected return on plan assets, those assets are valued at market value. The excess of the net actuarial loss or gain over 10% of the greater of the benefit obligation and the fair value of plan assets is amortized over the average remaining service period of active employees. The average remaining service periods of the active employees covered by the three pension plans are 22, 19 and 12 years. The average remaining service periods of the active employees covered by the other retirement benefit plans are the same as the pension plans.
2004 Actuarial assumptions utilized to determine benefits obligation under the defined benefit plans. 16
2003
Discount rate 6.00% 6.25% Expected long-term rate of return on plan assets 6.50 to 7.00% 6.50 to 7.25% Rate of compensation increase 3.00% 3.75%
For measurement purposes, a 15% annual rate of increase was assumed to cover healthcare benefits.
3. Marketable Securities and Real Estate
2004 Carrying Value Marketable securities: Bonds Mortgage pools Investment funds Others Real estate
2003 Market Value
Carrying Value
Market Value
$295,329 613 12,272 302 308,516
$356,994 612 12,785 327 370,718
$289,154 663 9,590 327 299,734
$345,919 662 9,900 372 356,853
26,638
29,365
25,927
24,067
$335,154
$400,083
$325,661
$380,920
Ninety-six percent (95% - 2003) of the bond portfolio is comprised of bonds with an A rating or better. Government bonds represent 85% (83% - 2003) of the bond portfolio. The most recent real estate evaluation is dated December 31, 2004.
4. Mortgages
2004 Recorded Investment Mortgages: Non impaired Residential Commercial Impaired Residential Commercial
Allowance for Impairment
2003 Carrying Value
Carrying Value
$51,934 69,980
$– –
$51,934 69,980
$54,127 51,404
207 393
50 75
157 318
56 _
$122,514
$ 125
$122,389
$105,587
Investment income includes a reduction for loan net impairment in the amount of $115 ($10 in 2003). Twelve percent (18% - 2003) of the mortgage loan portfolio is insured while 0.5% (0.2% - 2003) of the portfolio is in arrears by 90 days or more.
5. Capital Assets
2004
Furniture and equipment Software Leasehold improvements Technology projects under development
2003
Cost
Accumulated Amortization
$2,677 4,087 294 1,930
$1,631 2,426 161 –
$1,046 1,661 133 1,930
$1,305 2,200 128 549
$8,988
$4,218
$4,770
$4,182
Net
Net
Administration expenses include the amortization of capital assets amounting to $1,307 ($1,237 – 2003).
6. Other Assets
Accounts receivable: Clients Reinsurers Premiums receivable Commissions and prepaid expenses Goodwill Other
2004
2003
$4,185 3,151 2,022 2,088 84 1,146
$4,082 1,940 2,508 1,661 84 743
$12,676
$11,018
Administration expenses include no decrease in value of goodwill in 2004 ($51- 2003). 18
7. Actuarial Liabilities
Nature and Composition of Actuarial Liabilities Actuarial liabilities represent the amounts that, together with estimated future premiums and investment income, will be sufficient to pay the estimated future benefits, dividends, and expenses on policies in force. Actuarial liabilities are determined using generally accepted actuarial practices, according to
The composition of the Company’s actuarial liabilities is as follows:
Individual insurance Group insurance Individual annuities Group annuities
standards established by the Canadian Institute of Actuaries. The valuation method used is the Canadian balance sheet method. The Company operates in both Canada and the United States.
2004
2003
Canada
United States
Total
Total
$149,459 17,687 149,521 17,627
$28,797 – 11,968 –
$178,256 17,687 161,489 17,627
$171,274 16,913 166,318 17,978
$334,294
$40,765
$375,059
$372,483
The composition of the assets backing actuarial liabilities and surplus is as follows: 2004 Marketable Securities
Real Estate
Other
– – – – 26,638
$6,950 (444) 6,478 (1,399) 18,904
$178,256 17,687 161,489 17,627 112,973
Mortgages
Total
Carrying value Individual insurance Group insurance Individual annuities Group annuities Other, including surplus
Geographic: Canada United States
$160,912 12,286 72,525 5,180 57,613
$10,394 5,845 82,486 13,846 9,818
$
$308,516
$122,389
$26,638
$30,489
$488,032
$254,608 53,908
$122,389 –
$26,638 –
$25,805 4,684
$429,440 58,592
$308,516
$122,389
$26,638
$30,489
$488,032
$314,575 56,143
$124,281 –
$29,365 –
$25,805 4,684
$494,026 60,827
$370,718
$124,281
$29,365
$30,489
$554,853
Market value Geographic: Canada United States
20
2003 Marketable Securities
Mortgages
$149,979 11,757 81,696 7,752 48,550
$11,073 6,210 75,578 9,590 3,136
$299,734
Real Estate
Other
Total
Carrying value Individual insurance Group insurance Individual annuities Group annuities Other, including surplus
Geographic: Canada United States
$
– – 1,000 1,000 23,927
$10,222 (1,054) 8,044 (364) 23,472
$171,274 16,913 166,318 17,978 99,085
$105,587
$25,927
$40,320
$471,568
$242,714 57,020
$105,587 –
$25,927 –
$34,392 5,928
$408,620 62,948
$299,734
$105,587
$25,927
$40,320
$471,568
$295,953 60,900
$106,824 –
$24,067 –
$34,392 5,928
$461,236 66,828
$356,853
$106,824
$24,067
$40,320
$528,064
Market value Geographic: Canada United States
Assumptions The valuation method implies the selection of assumptions based on the actuaries’ best estimate in order to reflect the risks undertaken by the Company, namely: mortality, disability, investment returns, operating expenses and lapses. These assumptions must be modified by the introduction of margins for adverse deviations that result in an increase in the liabilities. The assumptions are revised annually to make sure they correctly reflect the Company’s experience. Any change in the assumptions impacts the actuarial liabilities and is immediately recognized in income. The following is a description of the methods used to calculate the assumptions and the margins for adverse deviation: a) Mortality For individual life, the Company uses a recently published industry mortality table, modified to take into account the actual experience of the Company over the last five years. Future mortality improvements are not taken into account in the valuation. For annuities, a recent industry mortality table is used taking into account expected future improvements in annuitant mortality.
b) Disability
22
The Company uses disability tables representative of the industry experience, modified to reflect the Company’s own experience.
c) Investment Returns The computation of actuarial liabilities takes into account projected net investment income on assets backing liabilities and on new cash flows to be invested or disinvested in the future. The uncertainty of the interest rates at which future cash flows can be reinvested have been taken into account by testing plausible future interest rate scenarios to determine the sensitiveness of the results. Investment expenses and asset default risks are also considered in the valuation. d) Expenses The administrative expenses per policy are based on the Company’s internal cost analysis, which is updated annually. These unit costs are projected into the future factoring inflation.
e) Lapses Each year, an internal study of the Company’s policy lapse rates is conducted. The valuation assumptions are chosen by considering both this internal study and the published industry experience. f) Policyholder Dividends Actuarial liabilities include the present value of expected future policy dividends reflecting current dividend scales. g) Margins for Adverse Deviations The basic assumptions made in establishing actuarial liabilities represent best estimates for a range of possible outcomes. To recognize the uncertainty in establishing best estimates, to allow for possible deterioration in experience and to provide greater comfort that the actuarial liabilities are adequate to pay future benefits, actuaries are required to include a margin for each assumption. A range of allowable margins is defined by the Canadian Institute of Actuaries and the actuary must choose the margins, within this range, with consideration for each company’s specific situation. In general, the margins are higher for fully guaranteed products while they are lower for adjustable products or participating policies where the dividends can be modified to reflect the Company’s experience.
Change in Actuarial Liabilities
The change in actuarial liabilities for the year is explained as follows:
2004
2003
Actuarial liabilities at the beginning of the year Normal increase in liabilities Changes resulting from revised actuarial assumptions Currency revaluation
$372,483 7,908 (2,048) (3,284)
$367,030 16,154 (951) (9,750)
Actuarial liabilities at the end of the year
$375,059
$372,483
Reinsurance
In order to stabilize the results of the Company, part of the business is ceded to registered reinsurers. The maximum amount that is retained by the Company on any one insured life is $75. Reinsurance ceded does not discharge the Company of its liability towards its insureds. Therefore, failure of reinsurers to honor their obligations
could result in losses for the Company. Each year, the Company ascertains that its reinsurers exceed the minimum capitalization required by the regulatory authorities. According to the existing reinsurance agreements, the actuarial liabilities have been reduced by the following amounts:
Canada United States
24
2004
2003
$54,198 30
$49,181 34
$54,228
$49,215
8. Long-Term Debt
2004
2003
Mortgage Loans Mortgage loans at a rate of 4.66%, maturing in April 2005 and pledging real estate
$10,247
$10,654
297 –
297 52
$10,544
$11,003
2005 2006 2007 2008 2009
$431 $439 $446 $466 $492
Others Loan at prime rate minus 1% without fixed repayment conditions Other
Payments on principal expected in the next five years, including payments required to meet retirement provisions, are as follows: Years ending December 31,
These estimated payments are based on the assumption that the loans maturing in 2005 will be renewed on a yearly basis.
9. Deferred Gains (Losses)
2004 Bonds Mortgage pools Real estate Other investments Foreign exchange
2003
$7,469 69 (178) (200) 85
$805 (34) (201) (252) 778
$7,245
$1,096
10. Taxes
The effective income tax rate in the Company’s consolidated statement of income differs from the Province of New Brunswick‘s statutory tax rate, mainly as a result of the following: Income tax at statutory rate Increase (decrease) in the tax rate resulting from: Investment income tax Large capital tax Prior year adjustments Permanent differences Differences in tax rates in provincial and foreign jurisdictions Capital losses realization Other
2004 $2,815
Canadian income tax expense: Current income taxes Future income taxes Foreign income tax expense: Current income taxes Future income taxes
The Company’s future tax assets and liabilities arise from the following items: Investments Actuarial liabilities Real estate and capital assets Other
26
35.1% $2,732
35.1%
456 125 (177) 9
5.7 1.6 (2.2) 0.1
400 178 (489) (478)
5.1 2.3 (6.3) (6.1)
(119) (220) (142)
(1.5) (2.7) (1.8)
– – (137)
– – (1.7)
$2,747
The income tax expense charged to operations is as follows:
2003
34.3% $2,206
28.4%
2004
2003
$1,328 1,537 2,865
$1,554 544 2,098
72 (190) (118)
133 (25) 108
$2,747
$2,206
2004
2003
$(332) 3,488 2,909 1
$(124) 2,116 2,688 13
$ 6,066
$ 4,693
11. Other Liabilities
Accounts payable: Suppliers Reinsurers Other
2004
2003
$3,070 1,561 4,480
$2,601 2,640 3,666
$9,111
$8,907
12. Employee Benefit Plans
Information about the Company’s defined benefit pension plans is as follows:
Changes in accrued benefit obligation:
2004
2003
$18,674 1,517 1,335 (511) 2,311 23,326
$17,092 1,293 1,119 (699) (131) 18,674
Fair value at end of year
15,366 1,544 1,382 540 (511) 18,321
12,839 1,405 1,305 516 (699) 15,366
Funded status – (deficit)
$(5,005)
$(3,308)
Balance at beginning of year Current service cost Interest cost Benefits paid Actuarial loss (gain)
Balance at end of year Changes in plan assets: Fair value at beginning of year Actual return on plan assets Employer contributions Employees’ contributions Benefits paid
(Continued)
The Company’s net pension plan expense is computed as follows:
2004
2003
Current service cost, net of employees’ contributions Interest cost Expected return on plan assets Amortization of actuarial loss
$977 1,335 (1,115) 71
$777 1,119 (956) 129
Pension expense
$1,268
$1,069
2004
2003
$(297) 377
$(276) 254
$80
$(22)
Other liabilities on the balance sheet are net of an asset of $80 (includes a liability of $22 in 2003) for future employee benefits, as follows: Group insurance benefits liability Pension plan asset
Pension benefit improvements were adopted during the year, which increased the benefit obligations by 2.3 million dollars. Consequently, the actuarial loss increased by the same amount. Normal retirement age decreased from 63 to 62 and the pension benefit limit was increased to follow the annual pension benefit limit prescribed by the Income Tax Act.
The maximum salary for calculating the maximum pension benefit was increased to follow the maximum salary prescribed by the Income Tax Act. The most recent actuarial evaluations were on December 31, 2003, and on December 31, 2001.
The pension fund monies are invested in the following assets: Assumption Life Balanced Fund Assumption/Montrusco Bolton T-Max Fund Guaranteed investment certificates
28
2004
2003
$17,817 – 504
$13,662 1,207 497
$18,321
$15,366
Assumption Life Balanced Fund The Assumption Life Balanced Fund (the “Balanced Fund”) is a segregated fund established by Assumption Life. The overall objective of the Balanced Fund is a net rate of return, after management fees, that is more than the annual increase in The Consumer Price Index, discounted at the average yearly compound rate over a period of four years. The Balanced Fund portfolio consists of a mix of cash, Canadian bonds and equities, Foreign equities, International bonds or pooled funds or mutual funds invested in any or all of the above asset categories, or future and option contracts on securities, indices or currencies.
The Balanced Fund is eligible as a registered retirement savings plan under the Income Tax Act of Canada. Assumption/Montrusco Bolton T-Max Fund The Assumption/Montrusco Bolton T-Max Fund is a segregated fund established by Assumption Life. The fundamental investment objective of the Fund is to achieve a rate of return that is competitive with prime-rated short-term money market instruments that have a superior credit rating, while maintaining sufficient liquidity. Also, the Fund may occasionally invest in other instruments when necessary to preserve capital.
13. Uncertainties
Taxes The income tax expense is calculated based on rates and laws applicable or known at the time the report is issued. In calculating the tax provision for the United States branch, some of these elements are known only after the publication of the financial statements or may change and affect significantly taxes paid for the year just ended. The difference in taxes ultimately paid
and taxes expended for the year is charged to income in the following year. This may cause unusual variations in taxes compared to profit before taxes for any one year.
14. Investment Income
2004
2003
$20,315 7,827 2,456 765 34 791
$20,115 7,628 2,684 262 35 764
32,188
31,488
268 33 (103) (136)
211 (129) (59) (242)
62
(219)
(987)
(991)
$31,263
$30,278
Earned income Bonds Mortgages Real estate, net amount Investment funds Mortgage pools Other
Amortization of deferred realized gains and losses and recognition of unrealized gains and losses Bonds Investment funds Mortgage pools Real estate
Investment expenses
15. Additional Information on the Statement of Cash Flows
Cash flows related to operating activities include the following elements: Interest paid on financing Income taxes paid Dividends paid 30
2004
2003
$507 $2,210 $215
$545 $2,746 $317
16. Bank Loans The Company has authorized credit margins totaling $2.5 million and bearing interest at the bank’s base rate. These bank loans are renewable annually and are not guaranteed.
17. Financial Stability of the Company Capital Adequacy The regulatory authorities require life insurance companies in Canada to maintain a minimum capitalization ratio in order to carry on business activities. In reference to the guideline imposed by the Office of the Superintendent of Financial Institutions of Canada (OSFI), the Company maintains a ratio above the minimum requirement of 120%. As of December 31, 2004, the Company’s ratio is approximately 246% (226% in 2003). A level of 246% means that the Company has sufficient capitalization to face unexpected negative results of approximately $31 million ($25 million in 2003) while still being able to meet the minimum requirement. Exposure of the Company to Various Risks Each year, the actuary projects the expected results of the Company according to its business plan (three-year plan). This analysis, called the dynamic capital adequacy testing (DCAT), is presented to the board and filed with the regulatory authorities.
The purpose of this analysis is to make sure the Company has enough capital to successfully go through the next few years and face unexpected outcomes. This exercise considers many unfavorable scenarios in order to test the financial strength of the Company. Given the diversity of the Company’s lines of business, this analysis shows that no element of exposure taken separately has any significant impact on its solvency. Also, the combination of these elements to different degrees does not jeopardize the solvency of the Company.
18. Segmented Information
The Company operates principally in the life and health insurance industry, including sales and services with respect to individual and group life and health insurance and annuity products.
The line of business and geographic segmented information is as follows:
2004
Premiums Individual Insurance Group Insurance Financial Services Other Canadian Total United States
2003
Investment Income Assets
$21,698 $10,753 $149,459 25,371 1,436 17,687 20,841 11,580 167,148 – 4,377 95,146 67,910 770
28,146 3,117
429,440 58,592
$68,680 $31,263 $488,032
Premiums
Investment Income
Assets
$19,564 24,990 26,981 –
$9,996 $139,308 1,267 16,913 11,540 170,546 3,872 81,853
71,535 1,052
26,675 408,620 3,603 62,948
$72,587 $30,278 $471,568
19. Foreign Exchange
All liabilities in United States dollars are matched with assets of the same currency. If the value of the Canadian dollar relative to the US currency decreases, the Company earnings are increased and vice versa.
An amortization formula is used for unrealized gains and losses on currency translation in order to even the impact on the results of operations.
20. Comparative Figures
32
Certain comparative figures have been reclassified in order to conform with the
presentation adopted for the year ended December 31, 2004.
A Recognition of Excellence Congratulations to all employees who went above and beyond in 2004 President's Award:
Lise Bellefleur Group Insurance Clerk
Management Award:
Nathalie Allaire Communications and Marketing Advisor
Volunteer Award:
Jacqueline Goguen Mailroom Clerk
Recruit of the Year Award:
Gisèle Babineau Medical Underwriter
Customer Service Award:
Nathalie Allaire Communications and Marketing Advisor
Thérèse Cormier Switchboard Operator
Stéphane Haché Database Administrator
Florence Hardy Executive Assistant
Dominique Poirier Mortgage Officer
Linda Savoie Customer Service Officer
Derrick Smith IT Director
Community Involvement : a corporate affair
Assumption Life remains true to its roots. The sincere commitment shown to their community by the company, its employees and its representatives has enabled Assumption Life to provide financial support to numerous causes. In 2004, the company participated actively in the Congrès mondial acadien as a major sponsor. It also made a $600,000 contribution to the Excellence Campaign conducted by the Université de Moncton. Last but not least, the company donated more than a $100,000 in a single year to the efforts of the Beauséjour Medical Research Institute. This is not to mention the more than $35,000 in academic bursaries that Assumption Life awards annually in addition to a number of other annual donations and sponsorships allocated to many charitable initiatives.
34
Bike ride in Edmundston
1
Presentation of cheque for the Université de Moncton Excellence Campaign
2
Mr. Bobby Orr at the Bobby Orr Benefit Golf Tournament
3
Golf tournament in Pokemouche
4
Children's start at the Dieppe run
5
Presentation of cheque for the Dieppe 10k run
6
Assumption Mutual Life Insurance Company
Atlantic Holdings (1987) Ltd.
Assumption Place Ltd.
100% Assumption Mutual Life Insurance Company $913
100% Assumption Mutual Life Insurance Company $10,052
Louisbourg Investments Inc.
Place Beauséjour Inc.
51% Atlantic Holdings (1987) Ltd.
% value = percentage of voting rights held $ value = book value (in thousands of Canadian dollars)
51% Assumption Place Ltd.
Assumption Mutual Life Insurance Company P.O. Box 160 / 770 Main Street Moncton, New Brunswick Canada E1C 8L1
Telephone: Fax: Toll free:
(506) 853-6040 (506) 853-5428 1 800 455-7337
Atlantic Holdings (1987) Ltd. 770 Main Street Moncton, New Brunswick Canada E1C 1E7
Telephone: Fax:
(506) 853-5420 (506) 853-5449
Louisbourg Investments Inc. P.O. Box 160 / 770 Main Street Moncton, New Brunswick Canada E1C 8L1
Telephone: Fax:
(506) 853-5410 (506) 853-5457
Assumption Place Ltd. 770 Main Street Moncton, New Brunswick Canada E1C 1E7
Telephone: Fax:
(506) 853-5420 (506) 853-5449
Place Beauséjour Inc. 770 Main Street Moncton, New Brunswick Canada E1C 1E7
Telephone: Fax:
(506) 853-5420 (506) 853-5449
Baie des Chaleurs Assumption Financial Centre 235, J. D. Gauthier Blvd Shippagan, New Brunswick Canada E8S 1N2
Telephone: Fax:
(506) 336-4734 (506) 336-2143
Dieppe Assumption Financial Centre 451, Paul Street, Suite 200 Dieppe, New Brunswick Canada E1A 6W8
Telephone: Fax:
(506) 857-9400 (506) 857-4737
Edmundston Assumption Financial Centre 121, de l'Église Street Edmundston, New Brunswick Canada E3V 1J9
Telephone: Fax: :
(506) 735-3322 (506) 739-4439
36
For further information on Assumption Mutual Life Insurance Company or one of its subsidiaries, please contact Assumption Life’s Head Office.
Design: Stratégies Design & Communication 1.888.382.9100 CA-2041-07-2005
P.O. Box 160 / 770 Main Street Moncton, New Brunswick Canada E1C 8L1 Telephone: (506) 853-6040 Fax: (506) 853-5428 1 800 455-7337 www.assumption.ca