2014 Annual General Meeting Agenda
MMFI SASKATCHEWAN 2014 ANNUAL GENERAL MEETING Jubilee Centre, Waldheim SK February 27, 2015
1. Call to Order 2. Call for Quorum 3. Approval of Agenda 4. Minutes of the 2013 Annual Meeting held on February 22, 2014. 5. Business Arising out of the Minutes 6. Board of Directors’ Report, Murray Klassen, Chairperson 7. Call for Nomination of Directors 8. Appointment of Balloting Committee 9. Managers’ Reports a. Wes Moroziuk, Claims Manager b. Garth Driedger, Manager of Underwriting and Risk Consulting c. Sheryl Janzen, Accounting Manager - Financial Report 10. President & CEO Report, Valerie Fehr 11. Election of Directors 12. Appointment of Auditors 13. Questions from Policyholders 14. Door Prizes 15. Adjournment
2014 Annual General Meeting Minutes MMFI SASKATCHEWAN Annual General Meeting Jubilee Centre, Waldheim, SK February 28, 2014
1. Call to Order Hildor Braun called the meeting to order at 1:15. He welcomed everyone and thanked them for attending. He announced that it has been 120 years for MMFI. In the span of his 30 years as a member of the board of directors he recognized MMFI as a company with great foresight. 2. Call for Quorum The quorum requirement was met with a count of 37 policyholders in attendance. 3. Approval of Agenda MOTION: Shane Peters moved to accept the Agenda as is. SECONDED by Joanne Dyck. CARRIED. 4. Minutes of the 2013 Annual Meeting held on February 22, 2013 2013 AGM Minutes were read by Karen Klein. MOTION: Karen Klein moved to accept the 2013 AGM Minutes as read. SECONDED by Jason Hogan. CARRIED. 5. Business Arising out of the Minutes There was no business arising out of the minutes. 6. Board of Directors’ Report Hildor Braun, Chairperson, read the Directors’ Report. MOTION: Hildor Braun moved that the Board of Directors’ Report be accepted as read. SECONDED by Bryant van Kuik. CARRIED. 7. Call for Nomination of Directors There was a call for Nominations which will cease at 1:45 p.m. 8. Appointment of Balloting Committee Volunteers for balloting were: Sheryl Janzen, Garth Driedger and Wes Moroziuk. 9. Bylaw Amendment Bylaws were amended to bring the wording of the bylaws into accepted political correct standards.
MMFI Saskatchewan 02-28-14 AGM
2
MOTION: Hildor Braun moved to accept the bylaw amendment. SECONDED by Brent Eliason. CARRIED. 10. Managers’ Reports a. Wes Moroziuk, Claims Manager It was reported that 2013 saw an unprecedented amount of claims made due to ice damning. There were more claims made due to ice damning in one year than in the last 12 years combined. By number of the claims made in Auto, Snowmobile topped the chart but by value it was fire that incurred the most cost. b. Garth Driedger, Manager of Underwriting and Risk Consulting Farm property and associated liability continued to represent the largest segment of our written premium volume by policy type at 51%, non farm increased to approximately 29%, commercial represented only 17%, and auto continued to hold just over 2% of premium volume. Premium growth by class of Business saw non farm at 50%, farm at 32%, auto at 5% and commercial at 1%. 11. Financial Report, Sheryl Janzen, Accounting Manager It was recognized that MNP auditor, Tim Graham, retired after 30 years. Murray Zaleschuck and his team provided a fresh look into the auditors report for MMFI. It was reported that in 2013 MPP (Monthly Payment Plan) made up to 35% of the book of business. 2013 saw a lower amount of claims Sheryl Janzen reviewed the balance sheet and income statement as reported by MNP. She noted that in the last 7 years, even with changes, MMFI has been very stable. MOTION: Sheryl Janzen moved to accept the financial statements as presented. SECONDED by Garth Driedger. CARRIED. 12. President & CEO Report, Valerie Fehr In her report, Valerie Fehr gave credit to the, Staff and the Directors for making MMFI what it is today; the insurer of choice by providing customized, professional and innovative solutions, with a personal touch to the people and businesses of the Prairies. MMFI is driven by the trust that Policy holders and brokers have that MMFI will treat them with fairness, integrity and the service they need. 13. Election of Directors Bryant van Kuik was re-elected. John Wall was accepted by acclamation. Hildor Braun introduced John Wall and welcomed him. John Wall responded with a brief thank you speech.
MMFI Saskatchewan 02-28-14 AGM
3
14. Appointment of Auditors MOTION: Sheryl Janzen moved to stay with MNP for auditors for MMFI for 2014. SECONDED by Bryant van Kuik. CARRIED. 15. Questions from Policyholders In the Premium tax statement it is recorded that 48% of MMFI business is farm; does this not have to be 50% to avoid premium taxes? Response: The legislation does not state a percentage but that farm is to be the largest book. This was confirmed in discussion with Finance Minister Ken Krawetz. What is MMFI’s relationship with FMRP? Response: MMFI’s relationship with FMRP is in good standing and efforts are made to continue this good relationship. Is MMFI investing appropriately? Response: Valerie Fehr reported the interest gained on mortgages and bonds. 16. Door Prizes Barbara Schmidt – Contigo Mug Peter Block – Thermos and Mug set Sheldon Janzen – MMFI Valise Valerie Fehr presented a parting gift from Management and Staff to Hildor Braun. Hildor thanked everyone for the privilege of serving on the Board of Directors for 30 years 17. Adjournment Shane Peters moved to adjourn the meeting at 2:15 p.m. SECONDED by Jason Hogan. CARRIED.
Director’s Report February 19, 2015
Board of Directors Report 2014 It is my privilege to report to our policy holders the results of the operations of MMFI for 2014. While the past year was not without challenges, we are pleased to report a modest profit. For the past several years, weather-related claims have comprised a greater-than-normal portion of our disbursements. In addition, as the Global Economy struggles to gain traction, it has impacted many aspects of our economy, including interest rates for our investments. Over the years, MMFI has undertaken steps to mitigate many of these challenges. We feel confident our company is on track to successfully meet and overcome obstacles such as these that may come our way. Regarding board governance, Hildor Braun has retired from his position after serving with us for over 30 years, including several terms as chairman. We wish him all the best, and we will miss his knowledge of MMFI and its history, as well as, his great dedication to serving our company and policy holders. Filling Hildor's position on the board of directors is John Wall. John brings with him a wealth of good business sense and boardroom experience. We have already benefited from his input in our meetings. MMFI has served our policy holders with integrity and care for 120 years. We, along with our dedicated management and staff, are committed to carrying on this tradition as we strive to "provide quality insurance solutions, service and security to Saskatchewan people."
Respectfully Submitted, On behalf of the MMFI Board of Directors,
Murray Klassen Board Chairperson
BOARD OF DIRECTORS Murray Klassen {Chairperson), Meadow Lake Bryant Van Kuik (Vice Chairperson), Hepburn Art Klaassen (Executive Member), Rosthern Tina Doell, Aberdeen Brent Eliason, Stewart Valley John Wall, Swift Current
MNN
Mennonite Mutual Fire Insurance Gompany of Saskatchewan Financial Statements December 31, 2014
Prax,itx GLOBAL ALLIANCE OF
INDEPENDENI FINMS
A
Best Employers ¡n Canada
ACCOUNTING ) CONSULTING ) TAX 800, 119 4TH AVENUE S; SASKATOON SK; S7K 5Xz 1-877-500-0778 P: 306-665-6766 F: 306-665-9910 www.MNP.ca
Mennonite Mutual Fire Insurance Company of Saskatchewan Gontents For the year endecl December
31
, 2014
Page
Managemenfs Responsibility I
ndependent Auditors' Report
Financial Statements Statement of Financial Position..,,.....
1
Statement of Comprehensive lncome
2
Statement of Changes in Policyholders' Equity....
3
Statement of Cash F|ows............. Notes to Financial Statements..
4 5
MNP
Management's Responsibility
To the Board of Directors of Mennonite Mutual Fire lnsurance Company of Saskatchewan:
Management is responsible for the preparation of the accompanying financial statements, including responsibility for significant accounting judgments and estimates in accordance with lnternational Financial Reporting Standards and ensuring that all information in the annual report is consistent with the statements This responsibility includes selecting appropriate accounting principles and methods and making decisions affectlng the measurement of transactions in which objective judgement ìs required. ln discharging its responsibilities forthe integrity and fairness of the financial statements, management designs and maìntains
the necessary accounting systems and related internal controls to provide reasonable assurance that transactions are authorized, assets are safeguarded and financial records are properly maintained to provide reliable information for the preparation of financíal statements
The Board of Directors is composed entirely of individuals who are neither management nor employees of the Company. The Board is responsible for overseeing management in the pefformance of its financial reporting responsibilities, and for approving the financial information included in the annual report. The Board fulfils these responsibilities by reviewing the financial information prepared by management and discussing relevant matters with management and external auditors. The Board is also responsible for recommending the appointment of the Company's external auditors.
MNP LLP, an independent firm of Chartered Accountants, is appointed by the Board to audit the financial statements and report directly to them; their report follows. The external auditors have full and free access to, and meet periodically and separately with, both the Board and management to discuss their audit findings.
Chief Executive
February 6,2015
MNN
I
ndependent Aud itors' Report
To the Board of Directors of Mennonite Mutual Fire lnsurance Company of Saskatchewan
We have audited the accompanying financial statements of Mennonite Mutual Fire lnsurance Company of Saskatchewan, which comprise the statement of flnancial position as at December 31 ,20'14 and the statements of comprehensive income, changes in policyholders' equity, cash flows and the schedule of general underwriting expenses for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management's Responsibility for Financial Sfatements
is responsible for the preparation and fair presentation of these financial statements in accordance with lnternational Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Management
Auditors' Responsi bility
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 audit slandards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including lhe assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. ln making those risk assessments, the auditor considers internal controls relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal controls. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
ln our opinion, the fìnancial statements presenl fairly, in all material respects, the financial position of Mennonite Mutual Fire lnsurance Company of Saskatchewan as at December 31,2014, and its financial performance and cash flows for the year then ended in accordance wilh lnternational Financial Reporting Standards.
Saskatoon, Saskatchewan Chartered Accountants
February 6, 2015
Praxitv",i MEMBEN GLOBAL ALLIANCE OF INDEPENDENT FIRMS
Best Employers iñ Cahada
ACCOUNTING ) CONSULTING ) TAX 800, 119 4THAVENUE S; SASKATOON SK; S7K5X2
1-877-500-0778
P:
306-665-6766
F:
306-665-9910 www.MNP.ca
Mennonite Mutual Fire lnsurance Company of Saskatchewan Statement of Financial Position As At December 31, 2014
2014
2013
2,097,475
'1,977,331
Assets Current Cash and cash equivalents Due from reinsurer Premiums receivable
Accrued investment income (Note 7) lnveslments (Note 7) Reinsurefs share of unearned premiums (Note 8) Reinsurer's share of provision for unpaid claims (Note 9) Prepaid commissions (Note 10) Prepaid premium taxes Prepaid expenses Deferred income taxes llVofe 16)
Prooertv and eouioment (Note 111
131,025
244,341
2,958,047
2,847,OO1
32,153
5,008
14,129,665
13,074,132
2,486,005
3,236,287
4,462,554
3,890,727
1,707,888
1,687,104
220,315
198,087
31,948
16,576
14,600
9,800
28,261,675
27:t86,394
386.669
431.936
28,648,3M
27,618,330
Liabilities Accounts payable and accrued liabilities
133,232
Premium taxes payable
414,339
396,174
Due to reinsurer
917,786
1,030,656
56,803
'176,473
165,209
lncome taxes payable Uneamed premiums (Note 8)
8,751,810
8,658,550
Unpaid claims (Note 9)
8,422,733
6,907,971
Unearned reinsurance commissions (Note 11)
963.586
1,337.255
19,660,289
18,672,188
8,988,055
8,946,142
Policyholdens' Equ¡ty Retained earnings
28.648.3¿f4
ON
27,618,330
OF THE BOARD:
Director
The accompanving summaru
Director
of sionificant accountino oolicies and notes are an integral pad of these financialstatements.
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Statement of Gomprehensive lncome For the year ended December 31, 2014
2014
2013
Direct business gross premiums written (Nofe 8)
16,459,211
Deduct, reinsurance ceded
(7,686,038)
16,269,401 (8,314,636)
9,773,173
7,9il,765
Revenue
Net premiums written
lncrease in unearned oremtums
(661,043)
f73.0r r ì
Net premiums earned Service charges
Total underuriting revenue
8,700,162
7,293,722
'140,194
137,886
8,840,356
7,431,608
8,466,475
7,037,283
608,435
608,292
Expenses Claims and adjusting (Note 9) Direct claims
Adjusting expense
9,074,910 (3,747,995)
Deduct, reinsurance ceded recovery
7,645,575 (3,387,243)
5,326,915
Net claims incurred
4,258,332
Commissions (Note 10) Direct business
3,260,613
3,077,966
Reinsurance ceded
Í1.820.3121
t2.681.873)
Net commissions
I,440,301
396,093
Premium laxes (Note 12) General underwriting expenses (Schedule 1)
392,111
198,087
2,061,349
1,764,5',11
Total expenses
9.220.676
6.617.023
Underwriting income for the year
(380,320)
814,585
431,337
236,977
Other income Net investment income (Note 7) Loss on disposal of property and equipment
(3,031)
47,986
lncome before taxes
lncome tax provision (Note 16) Comprehensive income
1,051,562
6,073
121,428
41,913
930,134
The accompanying summary of significant accounting policies and notes are an inteoral oaft of these financial statements
2
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Statement of Ghanges in Policyholders' Equity For the year ended December 31, 2014
2014
8,946,142
Retained earnings, beginning of year
Comprehensive income
4l,913
8,988,055
Retained earnings, end of vear
2013 8,016,008 930,134
8,546,142
The accompanying summary of significant accounting policies and notes are an ¡ntegral pañ of these financial statements
3
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Statement of Gash Flows For the year ended December 31, 2014
2013
2014
Cash provided by (used in) the followíng activities: Operating Activities lnsurance premiums received, net of agent commissions Reinsurance premiums paid
13,977,493
12,860,466
(6,187,1721
(5,604,786)
lnsurance claims paid
(8,131,875)
(7,666,079)
3,696,218
3,549,998
(2,082,300)
(1,556,640)
Reinsurance claims received Cash paid to employees and suppliers lnterest received lncome taxes paid Premium taxes paid
401,161
266,875
(130,543) (396,174)
61,700
I,145,808
1,91
I,534
lnvesting activities Purchase of property and equipment Disposal of property and equipment
(87,758)
(15,63e)
106,627
Purchase of investments, net
lncrease in cash and cash equivalents
(1,055,533)
(1,s51,631)
(1,036,664)
(1,567,270)
110,144
344,264
Cash and cash equivalents, beginning ofyear
1,977,331
1,633,067
Cash and cash equivalents, end ofyear
2,087,475
1,977,331
The accompanying summary of significant accounting policies and notes are an integral paft of these financial stalements.
4
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended Decembar 31, 2014
l.
Reporting entity Mennonite Mutual Fire lnsurance Company of Saskatchewan ("the Company") is incorporated without share capital under the laws of the Province of Saskatchewan and is subject to the Saskatchewan lnsurance Act. The Company is licensed to write property and casualty insurance in Saskatchewan. The Company is domiciled in Canada and its registered office is Box'190, Waldheim, Saskatchewan.
2. Statement of compliance The financial statements have been prepared in accordance with lnternational Financial Reporting Standards ('IFRS'), and inlerpretations, issued by the lnternational Accounting Standards Board ('IASB). These financial statements for the year ended December of Directors on February 6, 2015.
31
, 20'14 were approved and authorized for issue by the Board
3. Ghange in accounting policies Sfandards and interpretations effective in the current perlod The accounting policies adopted are consistent with those of the previous financial year except as follows: /FRS 73 Fair Value Measurement IFRS 13 improves consistency and reduces complexig of fair value measurements by providing a precise definition of
fair value and a single source of fair value measurements and disclosure requirements for use across lFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. ln accordance with the transilional provisions, IFRS 13 has been applied prospectively from January 1,2013. The adoption of IFRS 13 did not have an impact on the measurement of the Company's assets and liabilities but has resulted in additional disclosures. Refer to Note 14. IFRIC 21 Levies
IFRIC 21 provides guidance on accounting for levies within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The main features of IFRIC 21 are identification that the obligating event that gives rise to a liability to pay a levy is the activity that triggers the payment of the levy, as identified by the legislation; and that the liability to pay a levy is recognized progressively if the obligating event occurs over a period of time. IFRIC 21 has been applied prospectively from January 1,2013. The adoption of IFRIC 21 did not have an impact on lhe measurement of lhe Company's liabilities. IAS 36 lmpaírment
of Assets
ln May 2013, the lnternational Accounting Standards Board (IASB) issued an amendment, incorporated into Part I of the CPA Canada Handbook - Accounting by the Accounting Standards Board (AcSB) in September 2013, to IAS 36. These narrow-scope amendments address the disclosure of information about the recoverable amount of impaired assets if that amount is based on fairvalue less costs of disposal. IAS 36 has been applied prospectively from January 1,2013. The amendment d¡d not have an impact on the measurement of the Company's assets.
4. Basis of presentation Basis oî measurement These financial statements have been prepared on the historical cost basis except for the revaluation of certain flnancial instruments. 5
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended December
31 , 201 4
4. Basis of presentation (continued from previous page) Functional and presentation currency All currency amounts are presented in Canadian dollars, which is the functional currency of the Corporation
Significant accounting judgements, esúimates and assumptìons The preparation of the Company's financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, uncertainties about these assumptions and estimates could result in outcomes that would require a material adjustment to the carrying amount of the asset or liability affected in the future.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to account estimates are recognized in the period in which the estimate is revised if revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next fnancial year arc discussed below. Provision for unoaid claims
The estimation of the provision for unpaid claims and the related reinsurers' share are the Company's most critical accounting estimates. There are several sources of uncertainty that need to be considered by the Company in estimating the amount that will ultimately be paid on these claims. The uncertainty arises because all events affecting the ultimate settlement of claims have not taken place and may not take place for some time. Changes in the estimate of the provision can be caused by receipt of additional claim information, changes in judicial interpretation of contracts, of significant changes in severity or frequency of claims from historical trends. The estimates are based on the Company's historical experience and industry experience. Additional details are provided in Note 13. lmpairment of financial assets
The Company assesses whether a financial asset is impaired in accordance with IAS 39 Financial lnstruments: Recognition and Measurement. The delermination requires significant judgement. Management evaluates the duration and extent to which the fair value of an inveslment is less than its cost, and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performances, changes in technology and operational and financing cash flow.
When the fair value declines, management makes assumptions about the decline in value to determine if it is an impairment to be recognized in profit or loss. lmpairment of non-frnancial assets
The Company assesses non-financial assets for impairment at the end of each reporting period. lf impairment indicators exist, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Goodwill acquired in a business combination, intangible assets with indefinite useful lives, and intangible assets not yet available for use are tested for impairment at least annually or whenever impairment indicators exist.
6
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For lhe year ended December 31, 2014
4. Basis of presentatíon (continued from previous page) The recoverable amount is the higher of fair value less costs to sell and value is use. Value in use is the present value of estimated future cash flows discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the eslimates of the future cash flows have not been adjusted. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assels are also allocated to individual cash-generating units. Otherwise corporate assets are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. lf the recoverable amount of an asset or cash-generating unit is less than its carrying amounl, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss unless the relevant asset ¡s carried at a revalued amount in which case the impairment loss is treated as a revaluation decrease.
5. Significant accounting policies lnsurance contracts ln accordance with IFRS 4, lnsurance Contracts, the Company has continued to apply the accounting policies it applied in accordance with Canadian GAAP. a) Premiums eamed and defened oolicv acquisition expenses
lnsurance premiums are included in income on a daily pro rata basis over the life of the policies. Acquisition expenses related to unearned premiums, which are comprised of commissions and premium taxes, are deferred and amortized to income over the periods in which the premiums are earned. The method followed in determining the deferred acquisition expenses limits the amount of the deferral to its realizable value by giving consideration to claims and expenses expected to be incurred as the premiums are earned.
il
Unpaid claims
The provision for unpaid claims represents an estimate for the full amount of all costs, including investigation and the projected final settlements, of claims incurred prior to the statement of financial position date, including claims incurred but not reported ('IBNR) by policyholders. These estimates of future loss activity are necessarily subject to uncertain$ and are selected from a wide range of possible outcomes. The provisions are adjusted up or down as additional information affecting the estimated amounts become known during the course of claims settlement. All changes in estimates are recorded as incurred claims in the current period. Claims liabilities are carried on an undiscounted basis.
d
Reinsurance ceded
Reinsurance premiums ceded and reinsurance recoveries on losses incurred are recorded as reductions of the respective income and expense accounts. A contingent liability exists with respect lo reinsurance ceded which could become a liability of the Company in the event that the reinsurer was unable to meet its obligations under the reinsurance agreements.
ö
Liabilitv adeouacv test
At each reporting date the Company performs a liability adequacy test on its insurance liabilities less deferred policy acquisition expenses to ensure the carrying value is adequate, using current estimates of future cash flows, taking into
account the relevant investment return.
lf that assessment shows that the carrying
amount of the liabilities is
inadequate, any deficiency is recognized as an expense in the statement of comprehensive income initially by writing off the deferred policy acquisition expense and subsequently by recognizing an additional claims liability for claims provisions. 7
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
5. Significant accounting policies (continued from previous page)
The Company enters into reinsurance contracts in the normal course of business in order to limit potential losses arising from certain exposures. Reinsurance premiums are accounled for in the same period as lhe related premiums for the direct insurance business being reinsured. Reinsurance liabilities, comprised of premiums payable for the purchase of reinsurance contracts, are included in accounts payable and accrued to liabilities and are recognized as an expense when due. Expected reinsurance recoveries on unpaid claims and adjustment expenses are recognized as assets at the same time
and using principles consistent with the Company's method for establishing the related liability. Amounts recoverable from reinsurers are assessed for indicators of impairment at the end of each reporting period. An impairment loss is recognized and the amount recoverable from the reinsurers is reduced by the amount by which the carrying value exceeds the expected recoverable amount under the impairment analysis.
Financial instruments
All financial instruments are initially recognized on the statement of financial position at fair value at acquisition. Fair value is determined by the instrument's initial cost in a transaction between unrelated parties. Measurement in subsequent periods depends on whether the financial instrument has been classified as fair value through profit or loss, available-for-sale, held-to-maturity, loans and receivables, or other flnancial liabilities. Transactions to purchase or sell these items are recorded on the settlement date. During the year, there has been no reclassification of financial instruments.
Financial asset at fair value through profit or loss:
The Company has classified cash and cash equivalents, accrued investment income and investments at fair value through profit or loss ("FVTPL"). Fair value is determined by the instrument's initial cost in a transaction between unrelated parties. Financial assets classified as FWPL are subsequently measured at fair value with any resultant gain or loss recognized in net income. Dividend and interest earned are reported in investment income. Bond premiums are amortized over the life of the bond.
Loans and receivables: The Company has classified the following fìnancial assets as loans and receivables: premiums receivable, due from reinsurer and reinsurefs share of provision for unpaid claims.
Loans and receivables are subsequently measured at their amortized cost, using the effective interest method. Amortized cost is the amount at which the financial asset is measured at initial recognition less principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount and the maturity amount, and less any reduction for impairment or uncollectibility. Net gains and losses arising from changes in fair value are recognized in net income upon impairment.
I
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements Fot lhe year ended December 31, 2014
5.
Significant accounting policies (continued from previous page) Financial lnstruments (contínued from previous page) Other financial liabilities:
The Company has classified the following fìnancial liabilities as other financial liabilities: accounts payable and accrued liabilities, due to reinsurer and unpaid claims. Financial liabilities measured at amortized cost are subsequently measured at amortized cost using the effective interest method. Under this method, estimated future cash payments are exactly discounted over the liability's expected life, or other appropriate period, to its net carrying value. Amortized cost is the amount at which the financial liability is measured at initial recoghition less principal repayments, and plus or minus the cumulative amortization using the effective interest method of any difference between that initial amount and the maturity amount. Net gains and losses arising from changes in fair value are recognized in profit (loss) upon derecognition. The carrying amount of the Company's financial instruments by classification is as follows: Fair value through proflt and loss
Loans and receivables
Other financial liabilities
Total
December 31,2014 Cash and cash equivalents Due from reinsurer
Premiums receivable Accrued investment income lnvestments
2,087,475
2,087,475 131,025
131,025
2,958,047
2,958,047
32,153
32,153
14,129,665
14,129,665 4,462,554
4,462,554
Reinsurer's share of provision for unpaid claims
(133,232)
Accounts payable and accrued liabilities
(133,232)
Due to reinsurer
(917,786)
(e17,786)
733)
(8,422,733\
Unpaid claims
16,249,293 7,551,626
(9,473,751\
-
14,327,168
December 31,2013 Cash and cash equivalents Due from reinsurer
Premiums receivable Accrued investment income lnvestments
1,977,331
'1,977,331 244,34',1
24,341
2,847,OO1
2,847,001
5,008
5,008
13,O74,',132
13,074,132 3,890,727
3,890,727
Reinsurer's share of provision for unpaid claims Accounts payable and accrued liabilities Due to reinsurer Unpaid claims 15,056,471
9
6,982,069
(165,209)
(165,20e)
(1,030,656)
(1,030,656)
,871)
(6,907,871)
(8,103,736)
-
13,934,804
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended December
5.
31
, 201 4
Significant accounting policies (continued from previous page) Fair value measurements The company classifies fair value measurements recognized in the statement of financial position using a three-tier fair value hierarchy, which prioritizes inputs used in measuring fair value as follows:
" * *
Level 1: Quoted prices (unadjusted) are available in active markets for identical assets or liabilities; Level 2: lnputs other than quoted prices ¡n active markets that are observable for the asset or liability, either directly or indirectly; and Level 3: Unobservable inputs in which there is little or no market data, which require the Company to develop its own assumptions.
Fair value measurements are classified in the fair value hierarchy based on the lowest level input that is significant to that fair value measurement. This assessment requires judgement, considering factors specific to an asset or a liability and may affect placement within the fair value hierarchy.
Comprehensive Íncome The Company does not have any items giving rise to other comprehensive income, nor is there any accumulated balance of other comprehensive income. All gains and losses, including those arising from measurement of financial instruments, have been recognized in net income for the period. Cash and cash equivalents Cash and cash equivalents consist of cash in banks less oulstanding cheques.
Property and equipment Property and equipment are stated at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment. Depreciation is provided using the following methods and rates intended to depreciate the cost of the assets over their estimated useful lives: Method
Rate
Buildings
straight-line
5%
Furniture and Equipment
straight-line
1O-2Oo/o
Vehicles
straight-line
2Ùo/o
The useful lives of items of property and equipment are reviewed on an annual basis and the useful life is altered if estimates have changed significantly. Gains or losses on the disposal of property and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in other income.
10
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
5.
Significant accounting policies (continued from previous page) lncome taxes Current tax and deferred tax are recognized in profit or loss except to the exfent that the tax comprehensive income or directly in equity, or the tax arises from a business combination.
is recognized either
in
Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from
or paid to the taxation authorities. The calculation of current tax is based on the tax rates and tax laws lhat have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the assets are realized or the liabilities are settled. The calculation of deferred tax is based on the tax rates and tax laws lhat have been enacted or substantively enacted by the end of the reporting year. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax base, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is nol a business combination and at the time of the transaction affects neither accounting nor taxable income. Recognition of deferred tax assets for unused tax losses, tax credit and deductible temporary differences is restricted to those instances where it is probable that future taxable proflt will be available which allow the deferred tax asset to be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable thet the related tax beneflt will be realized. Approximately 49% (2013 - 50%) of net premiums earned are from farm risks, the Company is exempt under the lncome Tax Act 149(1) (t) on this income. Revenue RecognitÍon Recognition of insurance revenue is discussed in "lnsurance Contracts" above
lnterest income includes the amortization of any discount or premium, transaction cosls and other differences between initial carrying amount of an interest-bearing instrument and its amount at maturity, calculated on an effective interest rate basis.
Accounting standards l'ssued öuú not yet effective The Company has not yet applied the following new standards, interpretations and amendments to standards that have been issued as at December 31,2014 but are not yet effective. Unless otherwise stated, the Company does nol plan to early adopt any of these new or amended standards and interpretations.
11
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
5.
Significant accounting policies (continued from previous page) Account¡ng standards Issued but not yet effective (continued) ,FRS 9 Financial instruments IFRS 9 was issued in November 2009 and subsequently amended as part of an ongoing project to replace ,AS 39 Financial
lnstruments: recognition and measuremenf. The standard requires classification of financial assets into two main categories based on the entity's business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. The categories are those measured at fair value and those measured at amortized cost. The classification and measurement of financial liabilities îs primarily unchanged from IAS 39. However, for financial liabilities measured at fair value, changes in the fair value attributable to changes in an entity's "own credit risk" in now recognized in other comprehensive income instead of proflt or loss. This new standard will also impact disclosures provided under ,FRS 7 F i nancial I n strume nts : disclosures.
ln November 2013, the lnternational Accounting Standards Board (IASB) amended IFRS 9. The amendments result in significant changes to hedge accounting. ln addition, an entity can now apply the "own credit requiremenf in isolation without the need to change any other accounting for financial instruments. The mandatory effective date has been deferred to annual periods beginning on or after January 1,2018. The Company is currently assessing the impact of this standard on its statements. IAS
24 Related Party Disclosures
The amendments to IAS 24, issued in December 2013, clarify that a management entity, or any member of a group of which it is a part, that provides key management services to a reporting entity, or its parent, is a related party of the reporting entity. The amendments also require an entity to disclose amounls incuned for key management personnel services provided by a separate management entity. This replaces the more detailed disclosure by category required for other key management personnel compensation. The amendments will only affect disclosure and are effective for annual periods beginning on or afler July 1,2014. IFRS 4 lnsurance Contracts IFRS 4 is undergoing a review by the IASB. The lnsurance Contract project aims to provide a single principle-based standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds. The project also aims to enhance comparability of flnancial reporting between entities, jurisdictions and capital markets. The proposed effective date of the standard is for annual periods beginning on or after January 1, 2018.
6.
Line of Gredit The Company has access to a line of credit with an authorized limit of $250,000. This line of credit bears interest at a rate of 3.5%. No funds were drawn on the line of credit as at December 31,2O14.
12
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the veat ended December 31, 2014
7.
lnvestments 2013
2014
Credit Union GIC's 956,345
100,000 50,000 50,000
Maturing within one year Maturing within two years Maturing within three years
50,000 50,000 50,000
Maturing within four years
50.000
Matur¡nq within five vears Total Credit Union GIC's
250.000
1
.106.345
Municipal and provincial government bonds 982,087
Maturing within one year Maturing within two years
2,134,864
Maturing within three years Maturing within four years Maturing within five years
3,184,M9
2,764,409
2,090,579
1,375,015
2,162,323
986,016
538,04
Maturing within five to ten years
265,980
Maturinq within ten to twentv vears Total municipal and provincial government bonds
10,376,239
PH&N Short term bond and mortgage fund Addenda commercial mortoaoe oooled fund
3.503,426
Total
14,129,665
Accrued investment income
32,153 14,161,818
Total investments Effective interest rates for the above portfolio ranges from Net investment income is comprised
1
.1
6,',1o7,527
3,409,720 2.450.540 't3,074,132 5.008 13,079,140
5% to 4.60% (2013 - 1 .08% to 3'95%).
of 2014 361,30'l
lnterest income Realized gains (losses) on disposal of investments on investments Unrealized oains
(17,8471
2013 375,558 (13,480)
87,884 431.338
(25.1011
2014
2013
236.977
lnvestment ratings are as follows:
Government grade
9,073,188
6J07,527
1,750,587
1,999,692
802,464
385,298
7'19,451
AAA
AA A
501,229
BBB
Commercial mortoaqes
73
3.503.426
3 .360.935
14.t29.665
13.O74.132
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
8.
lnsurance contracts - earned premiums The table below details the gross written premium, reinsurance ceded, net premiums earned, uneamed premiums and reinsurance unearned premium by line of business.
Year ended December 31 20'|.4 Property
Casualty
Auto
Total
Gross written premium
14,788,378
Unearned premium beginning of year Unearned premium end ofyear
7,806,810 (7,882,819)
1,217,561
453,272
16,459,211
631,570
220j70
8,658,550
(644,989)
(224,OO2\
(8,751,810)
Net written premium
14,712,369
1,204,142
4,569,756
78,324
3,585
4,651,665
3,189,438
45,200
1,649
3,236,287
449,440
16,365,951
Reinsurance ceded Quota share ceded Unearned premium beginning of year
(770,531)
Portfolio transfer
Unearned premium end of year
(770,531) t50.1 15)
Net quota share ceded
73,409
2,983
4,631,416
't45
585.899
116.329
3,034,373
169
659.308
119.312
7.665.789
544,834
330,128
8.700j62
14,644,656
1,197,902
426,843
7,018,848
537,075
168,914
7,724,837
e20.170\
(8.658.550)
7,825,200 Year ended December
Gross written premium
Unearned premium beginning of year
t2.486,005)
4,555,024
Excess treaty premiums
Total reinsurance ceded Net premiums earned
e.251\
3l 2013
Unearned oremium end of vear
(7
Net written premium
'13,856,694
0)
t631.570)
1,103,407 375,587
16,269,401
15, 335,688
Reinsurance ceded Quota share ceded Unearned premium beginning of year Unearned premium end of vear
5,985,101
2,972
6,062,603
67,566
2,963,617
(45.200)
(1.649)
ß.236.287)
74,530
2,896,051 (3, 189.438)
Net quota share ceded
5,691,714
Excess treatv oremiums
1
Total relnsurance ceded Net premiums earned
7
.520 '174
14
29,330
68,889
5,789,933
550.325
91.902
2.252.033
579.655
'160. 79'l
8.041.966
523,752
214,796
7.293.722
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements ended Decembet 31, 2014
For the
9.
lnsurance contracts - net claims liabilities Direct claims
liabilities
Reinsurer's share
Net claims
5,326,915
liabilities
2014 Gross claims incurred
9,074,910
3,747,995
Balance beginning of year
6,907,871
3,890,727
3,017,144
í.560.048)
13.176.168)
t4.383.880)
Claims paid
Balance end ofyear
4.462.554
3.960,179
7,645,575
3,387,243
4,258,332
7,381,005
4.U3,357
3,037,648
(8.1 18.709)
t3.839.873)
ø.278.836)
8,422,733
2013 Gross claims incurred Balance beginning of year Claims paid
6,907 ,871
Balance end of year
10.
3.890.727
3.017,144
lnsurance contracts - net commissions
The table below details commissions paid, reinsurance commissions earned, prepaid commissions and unearned
Gross direct business commissions paid Bonus commissions
Prepaid commissions beginning of year
2014
2013
3,209,652
3,169,152
71,745
89,538
1,697,104
1,506,380
1.707.8881
t1.687,104)
Direct business commissions Þa¡d
3,260,613
3,077,966
Reinsurance commissions received Reinsurance profit commissions
1,831,908
2,517,011
1,337,255
1,309,278
Preoaid commissions end of vear
f
225,677
Unearned reinsurance commission beginning of year Portfolio transfer
(385,265)
(32,838)
Unearned reinsurance commission end of year
(963,586)
('t,337,255)
Net reinsurance commissions earned
1.820.312
Net paid commissions
1,4/,0,301
15
2.681.873 396,093
MNP
Mennonite Mutual Fire Insurance Gompany of Saskatchewan Notes to Financial Statements For the year ended Decembet 31, 2014
ll.
Property and equipment 2013
2014
Cost Accumulated depreciation
1,076,934
1,095,803
690,265
663,867
386,669
431,936
Net Book Value 25,000
25,000
Buildings
168,145
207,442
Vehicles
102,194
97,485
91,330
127,009
Land
Furniture and equipment
386,669
Land
Furn¡ture and equipment
Buildings Vehicles
431,936
Total
Cost Balance at January 1,2013
25,000
4'13,452
261,333 840
14,799
15,639
25,000
413,452
262J73
395,178
1,095,803
6,539
64,684 (67,577)
(39.050)
419,991
259,280
372,663
221,273
120,179
221,661
563,113
9,737
44,509
46,508
100,754
164,688
268,169
663,867
35,904
30,737
87,477
(43.506)
(17,573)
(61,07e)
157,086
281,333
690,265
Additions Balance at December 31 , 2013 Additions Disposals
Balance at December 31,2014
25,000
1,080,164
380,379
87,758
16,535
(06,6271 1,076,934
Accumulated depreciation Balance at January 1, 2013 Depreciation expense
231,010
Balance at December 31,2013
20,836
Depreciation expense Disposals
251,846
Balance at December 31,2014
16
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
12. Premium taxes payable
As part of its operations, the Company pays premium taxes to the Province of Saskatchewan based on gross premiums written on non-farm policies as follows:
4o/o 5Yo 4o/o 1o/o
Non- farm property Non- farm vehicles Non- farm other Fire prevention (property)
13. Insurance risk management Nature of risks arisinq from insurance contracts There is uncertainty whether an insured event occurs and to what degree for each policy. By the very nature of an insurance contract, the risk is random and therefore unprediclable. lnsurance companies accept the transfer of uncertainty from policy holders and seek to add value through aggregation and management of insurance risk. The principal risk the Company faces under insurance contracts is that the actual claims and benefit payments or the timing thereof, differ from expectations. This is influenced by the frequency of claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective of the Company is to ensure that sufficient reserves are available to cover lhese liabilities.
The Company writes insurance primarily over a twelve month duration. The most significant risks arise through high severity, low frequency events such as natural disasters and catastrophes. A concentration of risk may arise from insurance contracts issued in a specific geographic location since all insurance contracts are written in Saskatchewan. Underwriting risk, claims risk and product design and pricing risk are also important to the proper management of insurance risk. Underwriting risk is the exposure to financial loss resulting from the selection and approval of risks to be insured. Product design and pricing risk is the exposure to flnancial loss from transacting insurance business where costs and liabilities experienced in respect of a product line exceed the expectation of pricing it. Policies, processes and other internal controls have been established to manage these risks within tolerable levels. Amounts recoverable from a reinsurer is estimated in a manner consistent with the outstanding claims provision and are in accordance with the reinsurance contracts. Although the Company has reinsurance arrangements, it is not relieved of its direct obligations to its policyholders and thus a credit exposure exists with respect to ceded insurance, to the extent that any reinsurer is unable to meet its obligations assumed under such reinsurance agreements.
17
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the vøar ended December 31 ,2014
13. lnsurance risk management (continued from previous page)
The Company establishes an unpaid claims and adjustment provision to cover claims incurred but not settled at the end of the reporting period. The unpaid claims provision contains both individual claims est¡mates and an incurred but not reported (IBNR) provision.
lndividual claims estimates are set by claims adjusters on a case-by-case basis and are continually monitored for adequacy. These specialists apply their knowledge and expertise, after taking available information regarding the circumstances of the claim into account, to set individual case reserve estimates. The policy and procedures by which case reserve estimates are set are well documented. The IBNR provision is a bulk provision intended to cover future development on claims that have occurred but have not yet been reported to the Company. Claims that have occurred may not be reported to the Company immediately; therefore, estimates are made as to their value and an amount. The total unpaid claims and adjustment provision is an estimate that is determined using the Company's historical claims development patterns to predict future claims development. ln situations where there has been a signifìcant change in the environment or underlying risks, the historical data is adjusted to account for expected differences.
The Company's underwriting objective is to develop business within its target market on a diversified basis to achieve profitable underuriting results. The Company uses comprehensive underwriting manuals which detail the practices and procedures used in the determination of the insurance risk for each item to be insured and the decision of whether or not to insure the item. The Company underwrites property lines on the basis of physical condition, replacement property values, claims experience, geography and other relevant factors.
ln settling the provision for unpaid claims and adjustment expenses required to cover the estimated liability for claims, the Company's practice is to maintain an adequate margin to ensure future years'earnings are not negatively affected by prior years' claims development and other variable factors such as inflation. The Company monitors fluctuations in reserve adequacy on an ongoing basis. The Company's pricing policy takes into account numerous factors including claims frequency and severity trends, product line expense rates, special risk factors, the capital required to support the product line and the investment income earned on thet capital. The Company's pricing process is designed to ensure an appropriate return on equity while also providing long-term rate stability.
18
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
13. Insurance risk management (continued from previous page)
The Company manages this risk via its underwriting and reinsurance strategy within an overall risk management framework. Exposures are limited by having documented underwriting limits and criteria. Pricing of property, liability and auto policies are based on assumptions in regard to trends and past experience, in an attempt to correctly match policy revenue with exposed risk. Reinsurance is purchased to mitigate the effect of the potential loss to the Company. Reinsurance is placed with Farm Mulual Reinsurance Plan lnc. (FMRP), a Canadian registered retnsurer.
The Company has adopted policies of underwriting and reinsuring through quota share and excess contracts of insurance which limit the exposure of the Company. Quota share contracts limit the Company's exposure lo 70% (2013 - 60%) on any property claim. Commencing with 2013, the Company no longer has quota share in place for automobile claims. During the year, the Company's retention of auto claims was $250,000 (2013 - $250,000). The Company's retent¡on after quota share is $110,000 (2013 - $110,000) on liability claims and $160,000 (2013- $160,000) on property claims. Reinsurance excess of loss coverage limits the exposure on any one property claim to the retention plus 10% of the net claim. The liability and automobile claims are limited to retention plus 50%. The Company has also obtained property catastrophe coverage which limits their exposure to $240,000 (2013 - $240,000).
Results of sensitivig testing based on expected loss ratios are as follows, shown gross and net of reinsurance as impact on pre-tax income:
2014
LiabiliÇ claims
Auto claims
Property claims 2013
2014
2014
2013
2013
5% increase or decrease in loss ratio
Gross Net loss
323,000 226,000
328,000
13,000
11,000
29,000
26,000
196,800
13,000
11,000
29,000
26,000
Claims development
The table below details the original reserve net of reinsurance at the end of each of the last six accident years and the 2013 development and cumulative development to December 31 ,2014. Accident Year fin thousands of dollars)
Original reserve Favourable (unfavourable)
Total 13,110
2013
2012
2,080 2,602
2011 2010 1,825 1,528
(148)
(264)
140
6
Cumulative development
1,290
(264.)
325
235
As a % of original reserve
9.84%
development in2014
(12.6e%)
19
12.49%
12.88%
2009
1,152
2008 & Prior 3,923 (30)
I O.52o/o
294 25.52o/o
692 17.640/o
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
14. Financial instruments
The Company as part of its operations canies a number of financial instruments. lt is management's opinion that the Company is not exposed to significant interest, currency or credil risks arising from these financial instruments except as olherwise disclosed. Credit risk
Credit risk is the possibility that counterparties may not be able to meet payment obligations when they become due. Counterparty is any person or entity from which cash or other forms of consideration are expected to extinguish a liability or obligation to the Company. The Company's credit risk exposure is concentrated primarily in its fixed income portfolio and in its reinsurance recoverables. Reinsurance is placed with Farm Mutual Reinsurance Plan lnc. (FMRP), a Canadian registered reinsurer. Management monitors the creditworthiness of FMRP by reviewing their annual financial stalements and through ongoing communications. Reinsurance treaties are reviewed annually by management prior to renewal of the reinsurance contract.
The Company's risk management strategy and investment policy is to invest in short term debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to any one issuer. The maximum exposure to investment credit risk is outlined in Note 6. There have been no significant changes from the previous period in the exposure to risk or policies, procedures and methods used to measure the risk. Market risk
Market risk is the risk that the fair value of future cash flows of a flnancial instrument will fluctuate because of changes in market prices. Market risk includes interest rate risk and equity risk. lnterest rate risk
lnterest rate risk is the potential for financial loss arising from changes in interest rates. Changes in interest rate levels generally impact the financial results to the extent that reinvested yields are different that the original yields on fixed income securities. Changes in interest rates will affect the fair value of the fixed income securities. During periods of increasing interest rates, lhe market value of the existing fixed income securities will generally decrease. During periods of decreasing interest rates the opposite is true. The primary technique for measuring interest rate risk related to fixed income securities is duration analysis. Management and the board review the duration of investments to ensure they meet acceptable tolerance levels.
At December 3'l, 2014, a I % move in interest rates, with all other variables held constant, could impact the market value of bonds by $141,296.
The Company is not exposed to significant interest rate risk on its cash and cash equivalents, premiums receivable, due from reinsurers, reinsureds share of unpaid claims, accounts payable and accrued liabilities, due to reinsurers and unpaid claims as their estimated market value approximates their carrying value due to the short lerm nature of those instruments.
20
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
14. Financial instruments (continued from previous page) Eouity risk
Equity market lluctuation risk is where fluctuations in the value of equity securities affects the level of recognition of gains and losses on securities held, and causes changes in realized and unrealized gains and losses. General economic conditions, political conditions and many other factors can also adversely affect the stock and bond markets and, consequently, the value of the equity securities and fixed income securities held. The Company's equity portfolios are managed by independent professional investment managers. The Company has investments policies regarding diversification and monitor its individual
issuers equity exposure. Aggregate exposure
to single issuers and total equity positions are
monitored regularly by
Management and the Board. There have been no significant changes from the previous period in the exposure to risk or policies, procedures and methods used to measure the risk. Liouidity risk Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet cash flow commitments associaled with financial instruments. The Company's current liabilities arise as claims are made. Claims payments are funded by current operating cash flow including investment income. To manage its cash flow requirements; the Company maintains a portion of its invested assets in liquid securities. There have been no significant changes from the previous period in the exposure to risk or policies, procedures and methods used to measure the risk.
15. Fair value measurements Recurring fair value measurements The Company's assets and liabilities measured at fair value on a recurring basis have been categorized into the fair value hierarchy as follows:
December
31,2014
Level
I
Level
2
Level 3
Level
2
Level 3
Assets Financial assets at falr value through profit or loss 2,087,451
Cash and cash equivalents
32,153
32,153
14,129,665
't4129,665
Accrued investment income lnvestments
2,087,451
'16,249,269 16,249,269
Total recurring fair value measurements
December
31,2013
Level
I
Assets Financial assets at fair value through profit or loss 1,977,331
Cash and cash equivalents Accrued investment income lnvestments Total recurring fair value measurements
21
1,977,33'l
5,008
5,008
13,O74,132
13,O74:132
15,056,471
15,056,471
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the year ended December
31
, 2014
15. Fair value measurements (continued from previous page) Assefs and liabilitles îor which fair value is only disclosed The Company's assets and liabilities not measured at fair value at December 31, 2014 but for which fair value is disclosed have been categorized into the fair value hierarchy as follows:
31,2014
December
Level
I
Level
2
Level 3
Assets 131,025
131,O25
Premiums receivable
2,958,O47
2,958,O47
Reinsure/s share of provision for unpaid claims
4,462,554
4,462,554
7,551,626
7,551,626
Due from reinsurer
Total assets
Liabilities (133,232)
Accounts payable and accrued liabilities
(133,2321
Due to reinsurer
(917,786)
(917,786)
(8,422,733\
(8,422,733\
(9,473,7511
(9,473,751)
Unpaid claims
Total liabilities
December
31,2013
Level
I
Level
2
Level 3
Assets 244,341
244,341
Premiums receivable
2,847,001
2,847,O01
Reinsure/s share of provision for unpaid claims
3,890,727
3,890,727
6,982,069
6,982,069
Due from reinsurer
Total assets
Liabilities (165,209)
(r6s,209)
Due to reinsurer
(1,030,656)
Unpaid claims
(6,907,871
(1,030,656) (6.907 ,87 1)
(8, 103,736)
(8, 103,736)
Accounts payable and accrued liabilities
Total liabilities
22
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Notes to Financial Statements For the year ended December 31, 2014
16. lncome taxes The total provision for income taxes in the statement of comprehensive income
is
reconciled
to combined federal
and
provincial statutory income tax rates as follows:
Combined federal and provincial statutory income tax rates Deduction for small businesses Reduction for non-taxable farm premiums Non-deductible and other items lncome taxes as reported
2014
2013
27.OO%
27.OOo/o
-7.20%
-6.97o/o
-13.110/o
-'t3.57%
5.98%
5.',\10/o
12.670/0
11.57o/o
The tax effects of temporary differences which give rise to the deferred tax liability reported on the statement of financial position is from differences between accounts deducted for accounling and income tax purposes for property and equipment and policy reserves. Net deferred income tax assets are comprised of the following: 2014
2013
13,200
9,740
I,400
60
14,600
9,800
Deferred income tax assets Policy reserves Property and equipment
17. Related party transact¡ons Directors and kev manaoement personnel Key management personnel ('KMP) consists of the Chief Executive Officer, Accounting Manager, Underwriting Manager and Claims Manager.
Policies written with directors and key managers are approved under the same underwriting criteria applicable to policy holders. Directors and employees receive a 20% discount as no commission is paid to agents.
There are no benefits or concessional terms and conditions applicable to the family members of Directors and Key Management Personnel,
2014 132
lncurred claims by Directors and KMP
23
2013 1,186
MNP
Mennonite Mutual Fire lnsurance Gompany of Saskatchewan Notes to Financial Statements For the Year ended Decenber 31, 2014
17. Related party transactions (continued from previous page) During the year the aggregate value or policy premiums written to Directors and KMP amounted lo:
2014 13,269
Gross premium wr¡tten Aggregate compensation of directors and KMP during the year consisted
2013 13,663
oÍ 2014
2013
Salary and short term benefits
- Directors - Key management Personnel
41,826
32,588
424,743
403,330
466,569
435,918
Transactions with directors, committee members, management and staff are at terms and conditions as set out in the underwriting and claims settlement policies of the Company-
18. Capital Management The Company,s objectives when managing capital is to safeguard the entity's ability to continue as a going concern, so that it to can continue to provide services to potióyholders by pricing lroducts and services commensurately with the level of risk and the management, purpose of capital For the requirements. regulatory exceed maintain a capital base that is structured to Company has defined capital as retained earnings.
The Company is subject to a minimum capital test (MCT) imposed by the Superintendent of lnsurance in the Province of as Saskatchewan at a minimum supervisory target of 150%. The MCT is the excess of capital available minus capital required 31'2014 December MCT at Company's The measured by industry guidelines under ã risk-based capital adequacy framework. was b03 W iZOll -7\1o/o). The Company has adopted a plan that conforms to regulatory requirements. are The Company does not distribute earnings to its policyholders by way of dividends or other distribution' All earnings retained to grow caPital.
There have been no signiflcant changes from the previous period in capital management policies and procedures'
24
MNP
Mennonite Mutual Fire lnsurance Company of Saskatchewan Schedule
I - General Underwriting For the vear ended
2014
Expenses 31.2014
2013
65,600
78,277
Depreciation
87,477
100,754
Directors' remuneration
41,826
32,588
Licenses, insurance and property taxes Postage, stationery and office supplies
50,711
52,004
224,365
194,291
Professional fees
129,994
82,639
Advertising
Telephone Travel Utilities
Waoes and
benefìts
20,039
18,648
95,012
90,981
16,171
13,267
't,722,354 2,453,549
1,572.912
(392.2001
Reclassification to internal adiustino expenses Net qeneral
2,051,349
25
2,236,361
A 71 .850) 1,764,51'l
MNP
Mission Statement Insurance Professionals dedicated to providing quality insurance solutions, service and security to Saskatchewan people.
Vision Statement To be the Insurer of choice by providing customized, professional and innovative insurance solutions, with a personal touch, to the people and businesses of the Prairies.
Goals 1. People To build and maintain an organization of people who have the vitality, strength, capacity, diversity and versatility to carry out its purposes.
2. Financial Security and Stability To build and maintain an appropriate profit and surplus.
3. Policyholders To make appropriate insurance products available and to provide excellent service.
4. Corporate Images To develop, maintain and project a positive, well-respected corporate image.
5. Facilities To plan and provide for appropriate buildings, transportation and equipment for the ongoing needs of the company.
