Annual Report 2012
Summary
message from the chairman and chief executive officer
4
report of the executive director and head of operations 6
committee reports
10
independent auditor’s report 12 actuary’s certificate
13
financial statements
14
board of directors and committees’ members
38
network 3 9
our VALUES EXCELLENCE TRANSPARENCY DYNAMISM EQUITY OPENNESS RESPECT Cover page photo : Saint-Valentin, Haut-Richelieu RCM Photography: Photo Hélico, Yves Tremblay
Governance
Philosophy 1. THE MUTUAL MEMBERS’ FUNDAMENTAL AUTHORITY
Cloridorme (La Côte-de-Gaspé RCM)
Profile In 2003, La Mutuelle des municipalités du Québec (MMQ) became a fully-owned corporate body governed under the Municipal Code of Québec (R.S.Q. c. C-27.1) and the Cities and Towns Act (R.S.Q. c. C-19), an entity that was placed under the ownership of its mutual members, namely local municipalities and regional county municipalities (RCMs) and intermunicipal boards. The Mutual is the birth child of their members’ will to be self-endowed with long-term available insurance offering the possibility of stabilizing insurance premiums by means of comprehensive loss prevention programs.
2. PRINCIPLES
MMQ offers a continuously evolving range of products that include property and casualty insurance, automobile, boiler and machinery* coverages and a host of complementary protections. These products are distributed via a network of 125 insurance brokerage sales outlets found in all regions throughout Québec.
In keeping with the mutualist culture, the philosophy of governance at La Mutuelle des municipalités du Québec is founded upon compliance with the requisites of law, regulations and standards while drawing its strength from models of democ racy, transparency, efficiency and vigilance.
3. INTEGRITY
La Mutuelle des municipalités du Québec demands of its administrators, directors and employees unswerving commitment to honesty, integrity and equity when they promote its services and conduct its overall business.
4. HEALTHY FINANCIAL ADMINISTRATION
MMQ governance is guided by its Board of Directors made up of representatives from municipalities and the insurance industry. Its activities are framed within two statutory committees and two advisory committees entrusted with overseeing their varied operational vocations. Their outstanding achievement is to be found in the Mutual’s exclusively interactive risk management program that enables the organization to support mutual members’ prevention initiatives and efforts.
The philosophy underlying governance at La Mutuelle des municipalités du Québec rests upon the fundamental authority of its mutual members who impart legitimacy and authority and to whom members of the Board of Directors must give an account of results.
To ensure its institutional dynamics and development, La Mutuelle des municipalités du Québec takes great care in looking after its decision-making procedures based upon sound financial management.
5. RISK MANAGEMENT
Risk is a day-to-day challenge underpinning institutional development. It is the mission of the Board of Directors to understand and approve strategies relating to risk management and it is up to the Directors to develop a dynamic and evolving environment and to implement appropriate policies and procedures.
Mission Enable municipalities, RCMs and intermunicipal boards of Québec to take advantage of the mutual principle and coach them in the search for and implementation of prevention measures so that by reducing the risks associated with their activities, they can benefit from privileged access to insurance products adapted to their needs and under advantageous conditions.
* As of January 1, 2013
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Message from the
Chairman and Chief Executive Officer
The year 2012 was indeed another vintage year for the MMQ, with growth remaining the order of the day and our market share nearing 80%. Our position also continued to be very positive in terms of our rate of claims, which, although having risen slightly, is still low in light of the risk profile of municipal administrations and their prior history with respect to property and casualty insurance. Undeniably, the $8 million that we invested in nine years to help mutual members prevent losses has made all the difference. Overall income during the past fiscal year was satisfactory, although inferior to that posted in 2011, which was at a peak level. However, having placed priority on increasing the equity of mutual members at the end of the last record year, the Board was able to approve an experience refund that was up by $500,000 at the end of 2012. A sum of $2 million was paid to mutual members, bringing the total of refunds paid out since 2008 to $11.5 million. Thanks to our traditional prudence, we remain in an excellent position to meet the challenges of more difficult years. The bottom line is that the MMQ is here to stay!
Our prudent management practices and the preventive measures implemented by our mutual members once again came together in perfect synergy in 2012, clearly testifying to the strength of the MMQ. Our organization is solid and our success sustained, fuelled by steadfast respect for our proven principles and values.
Increasingly Effective Governance In addition to being on a very solid financial footing, the MMQ boasts a governance structure that has proven to be highly effective. During the past year, we developed a number of new mechanisms aimed at assuring our stability and the excellence of our practices. An integrated institutional risk management policy and another governing the manÂagement of compliance were adopted in 2012, and the Board of Directors amended the General Regulation in order to specify the amount of global compensation payable to Directors. The roles of statutory and advisory committees were reviewed as well as were the integrity and competence criteria prescribed for their members. Furthermore, new rules were defined concerning the duration and number of mandates that may be held. The MMQ operates in accordance with a set of coherent policies and regulations which assure mutual members that their organization is managed in full compliance with the regulatory requirements and guide lines to which it is subject. Ultimately, our continuous commitment to improving our governance testifies to our dedication to integrity. GĂŠrard Marinovich Chairman and Chief Executive Officer
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A Flagship to be Safeguarded On November 17, 2012, we embarked upon our 10 th year of activity. Over the years, our ability to curtail losses has enabled us to post results that were not only unanticipated, but served to blur our recollection of the unfavourable conditions that characterized municipal insurance prior to 2003. In fact, for years, limited guarantees, dramatically fluctuating premiums, and the obligation to accept high deductibles constituted the menu being offered to municipal administrations. With the creation of the MMQ, a new order was established. In solidarity, we appropriated this organization and entrusted it with the mission of helping us better manage our risks in order to improve our insurance results. We also chose to adopt a prudent philosophy that advocates the redistribution of experience refunds when our surpluses are sufficient, rather than varying pricing based on claims. The MMQ has succeeded in making municipal insurance profitable because it approaches it differently. We need to always keep that in mind! With time, we see that we must remember the foundations of our solution, particularly in a market that is growing increasingly competitive engendered by our success. It is imperative that we resist the sirens’ song – on the one hand to avoid being confronted again with the unfavourable conditions of the past, and on the other, to safeguard the MMQ as a vital flagship of the municipal milieu.
En Route to Our 10 th Anniversary Marking our first decade of existence this year, our aspirations are as lofty today as they were when our organization was born. Our desire to create a solid Mutual offering a sustainable solution to the insurance problems of municipal administrations has been realized. We must now spare no effort to preserve its profitability and increase its critical mass – most notably by forging an even closer bond with our brokers.
I would also like to underline the excellent work carried out in 2012 by our statutory committees in the area of governance. Of course, I salute the vigilance of our advisory committees as well that are charged with periodically monitoring our different performance indicators. For her part, our Executive Director and Head of Operations, Ms. Linda Daoust, and her dedicated team did an outstanding job to ensure that we could successfully conduct our fundamental activities while continuing to chart our development. Their contribution has been truly indispensable. In addition, I extend my gratitude to the brokerage firms affiliated with the Ultima Group, who apply their extensive expertise with municipalities in representing us. In light of the ever-changing insurance needs of municipal administrations, their exceptional knowledge and advice is greatly appreciated. Finally, I would like to thank our mutual members for their loyalty. Their strong sense of attachment enables the MMQ to pursue its growth, open up its increasingly attended training workshops to more participants, and to enhance its service offerings.
Sights Set on the Future with Pride and Resolve It is certainly gratifying to be moving forward in the knowledge that the MMQ has enjoyed such tremendous success. We must spare no effort to ensure that all of its mutual members continue to share a common sense of pride, and that we can continue to grow so as to make an even greater contribution. The MMQ has liberated us from the insurance problems of the past. Let us stay true to the principles that brought us to where we are today, and let’s not allow anyone to ever put the value of these principles into question.
We recognize that success is not solely defined by posting glowing results. Members demand much more from their Mutual. As such, we will do all that we can to ensure that we meet their expectations through our improvement efforts. To that end, our values of excellence, transparency, dynamism, fairness, openness and respect will continue to fuel all of our actions. Coinciding with our 10 th anniversary, the period that will follow the municipal elections will be one of the high points of 2013. Among the activities underlining our first decade, several will focus on the new cohort of Mayors and Wardens, with our goal being to gain their confi dence and acknowledgement of the fact that the MMQ is the best organization to entrust with the protection of their heritage.
Gérard Marinovich Chairman and Chief Executive Officer
One Big Family There is certainly no shortage of competence and solidarity within the MMQ family. All members of our family deserve our sincere gratitude and recognition. I would like to thank my colleagues on the Board of Directors for their unfailing spirit of collaboration and their dedication to serving the interests of mutual members. I should point out that our Directors adopted a resolution this past year by virtue of which the Board will henceforth only have one Vice-Chairman position, which will continue to be assumed by Mr. Richard Lehoux, Mayor of Saint-Elzéar and Warden of the La Nouvelle-Beauce RCM. I commend his former counterpart, Mr. Jacques Bolduc, Actuary, who now holds the position of Treasurer.
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KEY FINANCIAL RESULTS
Report of the
Executive Director and Head of Operations
The MMQ’s mutual membership grew from 968 to 982 over the past fiscal year. Gross written premium volume totalled $31.7 million as at December 31, 2012, representing an increase of 4% as compared to 2011, while net written premiums equalled $25.8 million, also marking a slight increase from the previous reporting period. With the addition of $1,024,013 in investment revenues, total revenues were at $26.2 million, as compared to $25.2 million in 2011. Although the net loss ratio rose from 41.8% in 2011 to 53.2% in 2012, the year’s results are in line with the average ratio over the past eight years of operations. Several major fires occurred in municipal buildings at the beginning of the year, resulting in a decline in property insurance results. For its part, the value of automobile settlements rose somewhat as compared to 2011, and liability insurance results followed the same trend. With regards to this category, the costs associated with consecutive firefighting claims diminished. Modest, but encouraging, this decrease is in all likelihood attributable to the progress made in the implementation of risk coverage plans.
Thanks to the sustained growth it has posted for close to a decade now, the MMQ serves as the Québec leader today in the area of municipal insurance. An efficient, mature and successful organization, the MMQ is now, more than ever, focusing on its development, with its sights firmly set on the future.
Operating expenses, excluding commissions associated with the acquisition of premiums and investments in loss prevention, rose by 12% in 2012 vis-à-vis 2011. This increase is notably due to the addition of new employees and to the cost of Web hosting. Our net income for the year, before experience refunds, stood at $4.7 million, compared to $6.8 million in 2011. This difference is mainly attributable to the increased number of claims and to the need to amass significant reserves to cover claims in the process of being settled and losses that occurred but were not reported.
FINANCIAL STATUS AT YEAR-END With respect to assets, the MMQ’s investments totalled $45.4 million, up by $6.9 million over 2011. Our portfolio is composed of term deposits and municipal bonds, which generated an average return in 2012 of 2.4%. Linda Daoust Executive Director and Head of Operations
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Premiums receivable, net of commission to be paid, stood at $9.8 million, attributable to the fact that a major portion of policies are renewed on December 31 of each year. Our assets also include an investment of $1.1 million in the development of our information system. This acquisition will be amortized over the years to come. In terms of liabilities, our provisions for unpaid claims and settlement expenses totalled $27.3 million, representing an increase of $2.6 million over fiscal 2011. This increase is due to a greater number of claims in the process of being settled. Finally, deducting a sum of $2 million in experience refunds, mutual members’ equity climbed to $20.5 million, up by $2.7 million from 2011. Thanks to this level of capitalization that exceeds regulatory requirements, the MMQ now possesses the financial flexibility required to further its development.
recently, of a fire prevention technician. In all, the team visited close to 1,400 municipal buildings in 2012, with remote regions also receiving greater coverage. Enriched training offerings The MMQ’s training program underwent further development in 2012, with the addition and enhancement of numerous courses. A total of 72 free sessions were offered, including some in partnership with the Fédération québécoise des municipalités (FQM) and the Association des directeurs municipaux du Québec (ADMQ). At the end of the year, the MMQ adopted a resolution by virtue of which its mutual members will enjoy an appreciable discount on the courses offered by the ADMQ to accredited municipal administrators over the next three years.
MUTUAL members’ equity (in $) 20,524,055 15,609,070
17,844,117
16,588,145
12,969,943
12,543,237
6,915,753 631,957
2004
2,514,462
2005
2006
2007
OVERVIEW OF OPERATIONAL ACTIVITIES A remodelled structure to remain at the forefront Each year, new risks are posed as a result of the diversification of activities conducted within the municipal environment. In order to be able to act even more effectively prior to the occurrence of losses, it became clear that it would be more advantageous to merge the risk management and underwriting teams. Moreover, the underwriting group is henceforth responsible for leading business development efforts. Within today’s increasingly competitive context, the MMQ must continue to grow and find ways to maximize the experience refunds paid to its mutual members. To do so, we intend to work even more closely with our brokerage network, providing it with new soliciting tools and superior coverage options to meet the needs of municipal administrations. Extended inspection efforts In addition to the efforts deployed by staff building inspectors, the MMQ relies on the support of a thermography specialist and, most
2008
2009
2010
2011
2012
Introduction of new benefits A number of improvements were introduced just in time for the many December 31 renewals. For example, the earthquake benefit ceiling was raised from $2 million to $5 million, with no additional cost involved. A new credit rewarding exemplary property and automobile insurance files was also introduced, and optional boiler and machinery coverage, formerly underwritten by a partner insurer, will be added to the range of house products as of 2013. Prompt and expert compensation The steadfast work of the Compensation Department is certainly worthy of note, particularly its efforts aimed at maximizing the rate of file closures. Constantly working on the front line, this expert team is dedicated to limiting problems for mutual members by offering them judicious advice and timely and attentive response, even when the damage amounts to less than the deductible. This team is also responsible for propagating the MMQ’s values so as to ensure that all of its mandated suppliers provide the same level of quality service at the best possible price.
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Les Éboulements (Charlevoix RCM)
OVERVIEW OF FUNCTIONAL ACTIVITIES Promoting best practices and communications Three deserving initiatives were recognized in 2012 under the banner of the MMQ Risk Management Awards. The Bécancour RCM earned first prize for its efforts to accelerate the deployment of its firefighting services. Second prize went to the Pierre-De Saurel RCM for its actions related to cyclist safety, while the Municipality of McMasterville received third prize for its effective building preservation initiatives.
Human resources Continuing its pursuit of complete autonomy, the MMQ created a new department charged with planning, organizing, directing and controlling the management of human resources. Its role consists primarily of assuring that the organization always has a sufficient, talented and effec tive workforce to count on which embodies the MMQ’s values. Indeed, these elements are indispensable for the preservation of excellent service and sustained growth.
In order to promote more timely risk management and stimulate exchange with its mutual members, the MMQ made its debut on Twitter in 2012. This initial foray into the world of social media coincided with our discontinuation of paper versions of regular publications. Primarily undertaken out of our concern for the environment, this decision was also made to increase online traffic at www.mutuellemmq.com, which serves as a gateway to a full spectrum of valuable advice in the area of risk management.
In addition to assuring the continued success of its regular activities, the MMQ has concentrated its focus on a number of other specific areas of endeavour over the past few years. Internal organization, tech nology, governance, compliance and organizational risk management are among the spheres in which significant progress has been made, and we are committed to pursuing our efforts during 2013 since each of these areas is essential to our development.
Governance and compliance In addition to being subject to the laws and regulations governing municipal entities, the MMQ must respect the numerous legal, regulatory and normative obligations imposed on property and casualty insurers, particularly with respect to solvency and management. It must also adopt principles and guidelines for how it conducts its activities. In this regard, the MMQ now has a department devoted exclusively to compliance in order to consolidate the work carried out in recent years and to pursue its successful development. In 2012, an inventory of rules to which the MMQ is subject as an organization was completed. At the same time, continuity plans associated with some 100 critical situations were documented in a formal policy. Technology The work aimed at equipping the MMQ with its own data processing system made significant headway in 2012, with development efforts advancing at a good pace and system functionalities having been presented to our personnel and our brokerage firms. User training and migration of our policy portfolio is expected to be carried out over the course of 2013.
FOCUSED ON ADVANCEMENT
In fact, remaining focused on advancement will continue to be a pivotal strategy in the coming years. Although we have enjoyed ideal conditions in the recent past, with municipal insurance having been relinquished
Evolution of net loss ratio By operating year (in %) 82.5
52.9
47 36.3
2004 2005
8
46.8
2006
53.2
51.9 41.8
39.5
2007 2008 2009
2010
2011
2012
Saint-Michel-de-Bellechasse (Bellechasse RCM)
by traditional insurers, the market is changing markedly today, most notably in terms of growing competition. As is common practice within all successful organizations, the MMQ intends to re-evaluate its offerings in order to optimize its competitive ness. The fact that we have performance data on hand regarding a voluminous municipal insurance portfolio created 10 years ago will enable us to generate reliable results. We certainly do not want to enter blindly into a price war. We must analyze the activities of mutual members, develop benefits accordingly, and establish appropriate risk management plans so as to be able to pursue profitable growth. The MMQ was established in response to prevailing rate escalations. In effect, the factors that make it hard for municipal insurance to achieve profitability were previously neglected. The challenge confronting the MMQ’s management team in 2013 is finding the proper balance between risk, competitive rates, attractive experience refunds and maintaining favourable insurance conditions in the long-term.
HIGHLY APPRECIATED CONTRIBUTIONS Many people joined forces in 2012 to ensure that the MMQ remains a successful organization worthy of confidence. I would like to underline their highly appreciated contributions. Chairman and CEO, Mr. Gérard Marinovich, and his fellow Directors served as inspiring guides throughout 2012. I thank them for their invaluable counsel and ongoing support.
Last, but certainly not least, the MMQ’s mutual members remained a great source of motivation. They regularly look to their Mutual when planning the construction of a sports facility, undertaking road work, or when interpreting an environmental regulation, for example. The 1,400 or so requests for advice registered in 2012 testify to just what extent risk management has been integrated into their culture.
A HOUSE OF GREAT VALUE Thanks to its substantial business volume within its specialized market niche, the MMQ has become a prominent organization with an enviable reputation. I and my team are proud to join the members of the Board of Directors in celebrating our organization’s 10 th anniversary in 2013. Under the theme, Together for the Past Decade, we will be launching a series of initiatives aimed at promoting the accomplishments of mutual members. A house of great value, the MMQ is solid and enduring. Let’s take pleasure in asserting its excellence loud and clear so that future generations of municipal elected officials and administrators recognize the significance of having such a valuable asset, and that they see to its sustainability. I joined the MMQ at a time when we were just laying its foundations. Since then, I have been incessantly nourishing a passion for this organi zation born out of the Québec municipal world’s initiative. Working hand-in-hand with our dedicated personnel and our brokerage network, I am committed to fostering the MMQ’s development so that it can continue to excel on all fronts and that mutual members can always feel right at home in our house.
For their part, the MMQ’s employees were steadfastly dedicated to offering reliable and attentive service. Whether it be in the office or on the ground, their commitment to personifying the organization’s values is truly commendable. I would also like to acknowledge the Ultima Group’s member brokerage firms. Throughout the course of the past year, they continued to actively extend the MMQ’s presence into the various regions of Québec.
Linda Daoust Executive Director and Head of Operations
Moreover, the FQM and ADMQ, our principal partners in the municipal milieu, once again offered their extensive expertise and guidance to help ensure that the MMQ remains well connected in its market. Their contribution is also very much appreciated.
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Committee Reports
The MMQ’s Board of Directors is made up of six incumbent mayors and three insurance experts. It is assisted by two statutory committees as prescribed by the Insurance Act, along with two advisory committees. Made up of Board members and other representatives, these commit tees are responsible for determining the policies governing business operations, assuring that business is conducted effectively, and supporting MMQ management. Special committees may also be formed as needed. Following is an overview of the specific roles played by Board committees and of their respective activities in 2012.
Statutory Committees Ethics and Governance The Ethics and Governance Committee is responsible for adopting the appropriate rules related to proper conduct, ethics and conflicts of interest, as well as for assuring the application of these rules. The Committee also works to maintain a democratic, transparent, efficient and ethical governance culture by ensuring that the appropriate management frameworks and mechanisms are in place for compliance with applicable laws and regulations, as well as with Autorité des marchés financiers (AMF) guidelines. Finally, it oversees the annual self-evaluation process for Directors and committee members. In 2012, the Ethics and Governance Committee submitted its Annual Report to the Autorité des marchés financiers. This document, which includes a summary of Directors’ annual declarations, did not cite any cases of conflict of interest or self-dealing. During the past year, the Committee also supervised the development of the Integrated Organizational Risk Management and Compliance Management Policies, both of which were adopted by the Board of Directors. In addition to revising the Directors’ Manual in the area of governance, it reviewed and adopted the general descriptions of the statutory and advisory committees. These descriptions henceforth define the composition of the committees, the duration and successive number of mandates, along with the probity and competence criteria applicable to committee members.
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Finally, the Ethics and Governance Committee reviewed the self-evaluation form for Directors and committee members. Audit and Investment The Audit and Investment Committee is responsible for conducting a thorough review of all financial statements prior to their submission to the Board of Directors. It is also mandated to ensure that all financial risk control and management mechanisms are respected. Moreover, the Committee must report any incident or situation that could harm the MMQ’s financial health to the Board of Directors or the Autorité des marchés financiers if necessary. Finally, it is charged with analyzing the return of investments and with assisting senior manage ment with functions related to the application and evolution of the Investment Policy. At the beginning of the year, in response to the favourable opinions expressed by appointed actuary, Mr. Jean-Pierre Paquet, FCAS, FICA, of Avalon Actuaries, and by the firm Deloitte s.e.n.c.r.l., acting as external auditor, the Committee recommended that the Board of Directors adopt the financial statements for the fiscal year ending December 31, 2011. It then completed a review of the financial statements for each quarter of 2012. The Audit and Investment Committee also oversaw the addition of a quantitative limit to the Investment Policy so as to prevent any risk of concentration. This change was subsequently adopted by the Board of Directors.
Advisory Committees Insurance The Insurance Committee assists senior management with all modifications to underwriting parameters, rates filed, the coverage offered to mutual members, as well as changes to compensation policies. The Committee also sees to it that all underwriting and compensation activities reflect the MMQ’s values. In the event of any dispute concerning a claim settlement or refusal of coverage, the Committee is responsible for reviewing the cases and assuring the fairness of the decisions rendered. Moreover, the Committee can make recommendations to the Board of Directors with regard to the decisions made by the Underwriting and Compensation Departments.
Entrelacs (Matawinie RCM)
In 2012, the Insurance Committee periodically monitored underwriting activities, paying particular attention to various different management indicators. It analyzed the state of claims based on the number of claim notices, the breakdown per category of insurance, and the estimated value of settlements. The Committee also validated the various decisions made by the Technical Committee and monitored the progress of development work on the MMQ’s computer system. Finally, the Insurance Committee supported senior management’s decision to merge the Underwriting and Risk Management Depart ments of mutual members. At the end of the year, the Committee approved the different modifications made to La Municipale TM – more specifically, the addition of boiler and machinery coverage as of January 1, 2013. Mutual Member Risk Management The Mutual Member Risk Management Committee’s mission is to help management define the directions for preventing claims. The Committee recommends tools to offer mutual members, approves training programs, and it evaluates the results of proposed preventive measures. It also recommends the degree of the MMQ’s intervention required in legislative, regulatory, legal and other pertinent matters. The members of the Committee unanimously accepted its new name as proposed by senior management. This new designation was adopted to avoid any confusion with organizational risk management. The Committee conducted a quantitative review last year of the activities of risk management advisors, inspectors, and of the thermog raphy technician. The group also examined the state of claims in order to identify specific trends. Claims involving telecommunication towers belonging to mutual members were the focus of particular attention given their potential impact on liability insurance results. Furthermore, the Committee continued to examine the repercussions of fire risk coverage plans on consecutive firefighting claims. It insisted on the need to promote awareness among mutual members about the risks posed by stormwater management. Finally, the Committee gave its approval to the supervision of mutual member risk management activities by the Underwriting Department.
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Independent Auditor’s Report To the mutual members of La Mutuelle des municipalités du Québec: We have audited the accompanying financial statements of La Mutuelle des municipalités du Québec, which comprise the statement of financial position as at December 31, 2012, the statement of comprehensive income, the statement of surplus and mutual members’ shares as well as the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these financial statements in compliance with International Financial Reporting Standards, and for such internal controls as management deems is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility 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 adhere to the rules of ethics and that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit pro cedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
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We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of La Mutuelle des municipalités du Québec as at December 31, 2012 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Deloitte s.e.n.c.r.l. 1 (signed) February 25, 2013 Brossard, Québec 1 CPA
auditor, CA, public accountancy permit No. A113142
Saint-Antoine-de-l’Isle-aux-Grues (Montmagny RCM)
Actuary’s Certifcate I have evaluated the policy liabilities on the balance sheet of La Mutuelle des municipalités du Québec as at December 31, 2012 and their variation on the statements of earnings for the year then ended in accordance with recognized actuarial practice in Canada, notably by proceeding with the selection of the appropriate assumptions and valuation methods. In my opinion, the data used within the context of the valuation of these provisions are reliable and sufficient. I have verified the consistency of the valuation data with the corporation’s financial documents. In my opinion, the amount of the policy liabilities is an appropriate provision with respect to the totality of the obligations toward policyholders. Moreover, the results are presented fairly in the financial statements. Jean-Pierre Paquet, FICA, FSA (signed) Avalon Actuaires Inc. February 18, 2013
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Statement of Comprehensive Income for the year ended December 31, 2012
2012 ($) 2011 ($) Revenues Written premiums Gross premiums 31,744,825 30,438,595 Ceded premiums (5,938,226) (5,547,193) 25,806,599 (671,902)
24,891,402 (696,276)
Net earned premiums Investment income (Note 11)
25,134,697 1,024,013
24,195,126 1,034,714
Total revenues
26,158,710
25,229,840
Policy benefits and expenses Policyholder benefits and claims expenses (Note 6) Benefits and ceded claims expenses (Note 6)
16,952,948 (3,583,957)
10,768,319 (660,998)
Policyholder benefits and claims expenses – net Commissions Loss prevention (Schedule A) Operating expenses (Schedule B)
13,368,991 4,660,938 903,103 2,553,471
10,107,321 5,264,648 873,230 2,184,914
Total policy benefits and expenses
21,486,503
18,430,113
Income for the year before experience refunds to mutual members
4,672,207
6,799,727
Experience refunds to mutual members (Note 12) Experience refunds to withdrawn mutual members (Note 12)
2,000,000 1,500,247 (6,131) –
Net premiums Net change in unearned premiums
1,993,869 1,500,247 Net income and comprehensive income attributable to mutual members
2,678,338
5,299,480
2012 ($)
2011 ($)
The accompanying notes are an integral part of these financial statements.
Statement of Surplus and of Mutual Members’ Shares for the year ended December 31, 2012
Surplus at beginning Withdrawal of mutual members during the year (Note 13) Net income and comprehensive income Surplus at end
12,447,737 100 5,299,480
20,425,855
17,747,317
Mutual members’ shares at beginning Contributions from mutual members during the year (Note 13) Withdrawal of mutual members during the year (Note 13)
96,800 95,500 1,600 1,400 (200) (100)
Mutual members’ shares at end
98,200
96,800
20,524,055
17,844,117
Total mutual members’ equity The accompanying notes are an integral part of these financial statements.
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17,747,317 200 2,678,338
Statement of Financial Position as at December 31, 2012
2012 ($) 2011 ($) Assets Cash 324,698 1,634,319 Investments (Note 5) 45,353,071 38,450,888 Premiums receivable 9,834,605 9,301,907 Accounts receivable 859,634 605,333 Reinsurers’ share in claims and settlement expenses paid 464,720 403,924 Reinsurers’ share in the provision for unpaid claims and settlement expenses (Note 6) 6,717,313 6,333,000 Prepaid expenses 58,635 3,076 Deferred commission costs (Note 7) 2,396,601 2,295,815 Fixed assets (Note 8) 156,945 174,973 Intangible assets (Note 9) 1,091,794 1,076,249
67,258,016 60,279,484 Liabilities Provision for unpaid claims and settlement expenses (Note 6) Unearned premiums (Note 10) Premiums owed to reinsurers Accounts payable and accrued liabilities Experience refunds payable to mutual members (Note 12)
27,349,000 15,980,344 513,839 890,778 2,000,000
24,719,000 15,308,442 298,884 608,891 1,500,150
46,733,961 42,435,367 Mutual Members’ equity Surplus Mutual members’ shares (Note 13)
20,425,855 98,200
17,747,317 96,800
20,524,055
17,844,117
67,258,016 60,279,484 The accompanying notes are an integral part of these financial statements.
On behalf of the Board, Michel Gilbert, Director Rémi Moreau, Director
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Statement of Cash Flows for the year ended December 31, 2012
2012 ($) Cash flows from operating activities Net income 2,678,338 Items not affecting cash: Depreciation of fixed assets 64,440 Loss on disposal of fixed assets 1,673
2011 ($) 5,299,480 52,452 –
2,744,451 5,351,932 Reinsurers’ share in the provision for unpaid claims and settlement expenses Deferred commission costs Unearned premiums Provision for unpaid claims and settlement expenses Interest income Change in non-cash operating working capital items (Note 14)
(384,313) (100,786) 671,902 2,630,000 (1,004,090) 238,116
2,823,657 699,076 696,276 (2,963,193) (981,747) (1,651,057)
4,795,280 3,974,944 Cash flows from investing activities Acquisition of investments Proceeds from the disposal of investments Interest received Acquisition of fixed assets Acquisition of intangible assets Proceeds from the disposal of fixed assets
(34,452,223) 27,478,000 931,352 (48,850) (15,545) 765
(20,503,781) 17,822,000 938,947 (20,130) (1,076,249) –
(6,106,501) (2,839,213) Cash flows from financing activities Contributions from mutual members Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning Cash and cash equivalents at end The accompanying notes are an integral part of these financial statements.
16
1,600 (1,309,621) 1,634,319 324,698
1,400 1,137,131 497,188 1,634,319
Notes to the
Financial Statements December 31, 2012
La Mutuelle des municipalités du Québec was incorporated on November 17, 2003 under the Cities and Towns Act as well as under the Municipal Code of Québec. The main activity of La Mutuelle des municipalités du Québec consists of underwriting property and casualty insurance products (P&C) for its mutual members. The head office of La Mutuelle des municipalités du Québec is located at 7100 Jean-Talon Street East, Suite 210, Montréal, Québec, H1M 3S3, Canada.
1 Description of the business
2 Role of the appointed actuary and the independent auditor
Under the Income Tax Act (Canada) and the Taxation Act (Québec), La Mutuelle des municipalités du Québec is exempt from federal and provincial income tax as well as from the compensation tax payable by financial institutions. The publication of these financial statements was authorized by the Board of Directors of La Mutuelle des municipalités du Québec on February 25, 2013.
The appointed actuary is appointed by the Board of Directors of La Mutuelle des municipalités du Québec. The appointed actuary is responsible for making sure that the assumptions and methods used for purposes of valuating policy liabilities comply with recognized actuarial practices, the legislation in force, and any regulations or guidelines in this field. The appointed actuary must also express an opinion regarding the appropriateness of the policy liabilities as at the statement of financial position date with respect to the totality of obligations toward policyholders. This review, which seeks to verify the accuracy and completeness of the valuation data and the analysis of the assets, is an important element to be considered when establishing an opinion. Policy liabilities are made up of two components: the claims liability and the premium liability. The claims liability includes provisions for indemnifications, provisions for non-settlement-related expenses and settlement expenses, provisions for claims incurred but not reported as well as reinsurers’ share in such settlements. The premium liability represents the costs that will have to be incurred to acquire the premiums. The services of the independent auditor were retained by mutual members at the time of the annual general meeting. The engagement of the independent auditor consists in conducting an independent audit of the financial statements in accordance with Canadian generally accepted auditing standards. Within the context of this audit engagement, the independent auditor considers the work of the appointed actuary and his report on the policy liabilities of La Mutuelle des municipalités du Québec. The independent auditor’s report indicates management’s responsibility for the financial statements, the auditor’s responsibility as well as his opinion on the financial statements.
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3 Significant accounting policies
Statement of compliance The financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB) and reflect the following significant accounting policies:
Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and not designated into another category, recognized at amortized cost using the effective interest method.
Basis of preparation The financial statements, reported in Canadian dollars, have been prepared on a historical cost basis, as is explained in the following accounting policies. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.
Held to maturity Financial assets held to maturity are non-derivative financial assets with fixed or determinable payments and fixed maturities, other than loans and receivables, that La Mutuelle des municipalités du Québec has the positive intent and ability to hold until maturity. These financial assets are measured at amortized cost using the effective interest method.
Cash and cash equivalents For the purposes of the statement of cash flows, cash and cash equivalents include cash and term deposits with maturities of three months or less from the acquisition date. As at December 31, 2012 and December 31, 2011, cash and cash equivalents consisted solely of cash. Financial instruments Financial assets and financial liabilities are initially recognized at fair value and their subsequent measurement depends on their classifica tion, as described below. Their classification depends on the purpose for which the financial instruments were acquired or issued, their characteristics and the designation of such instruments by La Mutuelle des municipalités du Québec. Cash
Loans and receivables
Investments – Term deposits
Loans and receivables
Investments – Bonds
Held to maturity
Premiums receivable
Loans and receivables
Accounts receivable
Loans and receivables
Reinsurers’ share in claims and settlement expenses
Loans and receivables
Premiums owed to reinsurers
Other liabilities
Accounts payable and accrued liabilities
Other liabilities
Experience refunds to mutual members payable
Other liabilities
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Other liabilities Other liabilities are recorded at amortized cost using the effective interest method and include all financial liabilities other than derivative instruments. Transaction costs Transaction costs related to financial assets held to maturity, other liabilities, and loans and receivables are added to the carrying value of the asset or netted against the carrying value of the liability and are then recorded in net income over the expected life of the instrument using the effective interest method. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts future cash receipts (including transaction costs, premiums and discounts earned or incurred) through the expected life of an instrument, to the net carrying amount on initial recognition. Impairment of financial assets Financial assets measured at amortized cost are tested for impairment at the end of each financial reporting period. The financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial assets, the estimated future cash flows of the assets have been adversely affected. Objective evidence of impairment includes the following situations: • Significant financial difficulties of the issuer or counterparty; • A breach of contract, such as a default or delinquency in interest or principal payments; • It becoming probable that the borrower will enter bankruptcy or other financial reorganization; • The disappearance of an active market for that financial asset because of financial difficulties.
For certain categories of financial assets, assets that are assessed not to be impaired individually are collectively assessed for impairment. Objective evidence of impairment for a portfolio could include La Mutuelle des municipalités du Québec’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period as well as observable changes in national or local economic conditions that correlate with default on receivables. Sainte-Agathe-des-Monts (Laurentides RCM)
The amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows taking into account guarantees and sureties, discounted at the financial asset’s original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets.
If, in a subsequent period, the amount of the impairment loss decreases, and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impair ment not been recognized. Regular-way purchases or sales of financial assets Regular-way purchases or sales of held-to-maturity financial assets are recorded on the trade date, which is the date on which La Mutuelle des municipalités du Québec commits to buy or sell the asset. Offsetting of financial assets and liabilities Financial assets and liabilities are presented on a net basis when there is a legally enforceable right to set off the recognized amount and La Mutuelle des municipalités du Québec intends to settle on a net basis or to realize the asset and settle the liability simultaneously. Fair value The fair values of cash, premiums receivable, accounts receivable, reinsurers’ share in claims and settlement expenses paid, premiums owed to reinsurers, accounts payable and accrued liabilities, and experience refunds payable to mutual members approximate their carrying amounts due to their short-term maturities. Fixed assets Fixed assets are held for administrative purposes. They are recognized at cost less their residual value. Depreciation is calculated based on their estimated useful lives using the straight-line method over the following terms: Layout
Term of lease (5 years)
Furniture
10 years
Data processing equipment
3 years
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period. The impact of any change in estimates is accounted for on a prospective basis. Derecognition of fixed assets A fixed asset is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising from the disposal or retirement of a fixed asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
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Intangible assets Intangible assets with finite useful lives, which consist of software, and acquired separately are recognized at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives, which is 10 years. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimates being accounted for on a prospective basis. Intangible assets begin to be amortized as soon as they are ready for use. Derecognition of intangible assets An intangible asset is derecognized on disposal or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized. Impairment of fixed assets and intangible assets At the end of each reporting period, La Mutuelle des municipalités du Québec reviews the carrying amounts of its fixed assets and intan gible assets to determine whether there is any indication that those assets have suffered an impairment loss. If such an indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, La Mutuelle des municipalités du Québec estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that
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reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, 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. When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss. Balances related to premiums a) Premiums and unearned premiums Premiums are recorded when they are written and recognized on the statement of comprehensive income over the period covered by the insurance policy.
Unearned premiums represent the portion of written premiums related to the remaining coverage period up to fiscal year-end.
b) Deferred commission costs Commissions associated with the earning of premiums are deferred and amortized over the duration of the related policies insofar as they are deemed recoverable, after having taken into account the claims and the related expenses as well as any expected investment income.
When the undiscounted claims liability is established, it is adjusted to present value. The claims liability is discounted using a rate based on the rate of return of investments held by La Mutuelle des municipalités du Québec, from which a 0.25% margin is deducted. This discount rate is 1.99% as at December 31, 2012 (2.43% in 2011).
Actuarial standards require that a margin for unfavourable variances be considered to take into consideration the uncertainty level of the assumptions used. The rates used to establish the margins for unfavourable variances as at December 31, 2012 vary from 5% (5% in 2011) for short-term risks, such as for property and auto mobiles, and 12.5% (12.5% in 2011) for long-term risks, such as civil liability, errors and omissions.
As mentioned previously, the method used to establish the claims liability is based on a loss ratio. As at December 31, 2012, this ratio varies from 19% to 70% (10% to 75% in 2011) on a net basis.
Les Escoumins (La Haute-Côte-Nord RCM)
Balances related to losses a) Provision for unpaid claims and settlement expenses The provision for unpaid claims and settlement expenses is the estimate of the total cost to settle all claims occurring before the closing of the financial statements, regardless of whether or not they were reported to La Mutuelle des municipalités du Québec. The provision for unpaid claims and settlement expenses has been established in accordance with the generally accepted actuarial principles under the standards set by the Canadian Institute of Actuaries. Since this provision is necessarily based on estimates, the final value may differ from the estimates. A provision for claims and settlement expenses is included for claims incurred but not reported based on past experience. The established methods for making the estimates are periodically revised and updated, and all adjustments are reflected in the year’s results. These adjustments are attributable to events related to the final settlement of claims but which have not yet occurred and which perhaps may not occur for some time. These adjustments may also be caused by additional information concerning the claims, changes in the interpretation of the contracts by the courts or major variances in relation to historical trends in terms of the seriousness or frequency of claims. Consequently, claims and settlement expenses are recognized when incurred. A provision is determined for external and internal settlement expenses.
The best estimates for incurred, but not reported, claims liabilities on a gross and net basis have been determined based on various actuarial methods, mainly the Bornhuetter-Ferguson method. This method uses the historical development of incurred and reported claims, based on reserves on a case-by-case basis plus benefits paid, per year of accident in order to anticipate changes in claims. It considers the concept of earned premiums to assess future developments, making it possible to introduce a measure of risk exposure and to use an indication of the loss anticipated on the future loss experience. Different assumptions are used to estimate the unreported claims liability on a gross and net basis: the discount rate, the margin for unfavourable variances and the loss ratio).
b) Reinsurers’ share in the provision for unpaid claims and settlement expenses The reinsurance amounts that are expected to be collected in relation to claims and settlement expenses are recorded as assets in accordance with the reinsurance contracts and based on prin ciples consistent with the recognition of the provision for unpaid claims and settlement expenses. The margin for unfavourable variances applied for reinsurance is 1% as at December 31, 2012 (1% in 2011). Investment income Interest earned on a financial asset is recognized when it is probable that the economic benefits will flow to La Mutuelle des municipalités du Québec and that the amount of revenues can be reliably measured. Interest is recognized on a time basis, based on the amount of unpaid capital and the applicable effective interest rate. Experience refunds declared by the financial institution and calculated on interest received is recognized when the right to receive such income has been established. Experience refunds to mutual members Experience refunds are presented on the statement of comprehensive income on the date that they are declared by the Board of Directors. At that time, experience refunds are recorded as experience refunds payable to mutual members on the statement of financial position. Experience refunds disbursed to mutual members that withdraw before the end of the eligibility period are deducted from the current period charge.
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Use of estimates The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contin gent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from management’s best estimates. The most significant estimates are related to the determination of: • the provision for unpaid claims and settlement expenses as well as the reinsurers’ share; • assumptions used for fixed asset and intangible asset impairment tests; • the estimated useful lives of fixed assets and intangible assets. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.
Useful lives of fixed assets and intangible assets La Mutuelle des municipalités du Québec reviews the estimated useful lives of fixed assets at the end of each reporting period. During the current year, management determined that no useful lives need to be modified. Impairment of financial assets At the end of each reporting period, La Mutuelle des municipalités du Québec determines if there is objective evidence of the impact of one or more events that occurred after the initial recognition of the financial assets on the estimated future cash flows of the assets. During the year considered, management determined that no such objective evidence exists. Held to maturity financial assets Management has reviewed the financial assets held to maturity of La Mutuelle des municipalités du Québec based on its capital and liquidity requirements and has confirmed that La Mutuelle des municipalités du Québec has the positive intention and ability to hold these assets to maturity. The financial assets held to maturity are the municipal bonds presented in Note 5.
Critical judgements in applying accounting policies The following are the critical judgements, apart from those involving estimates, that the directors have made in the process of applying the accounting policies of La Mutuelle des municipalités du Québec.
Chesterville (Arthabaska RCM)
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4 Changes in accounting policies
Application of new accounting standards On January 1, 2012, La Mutuelle des municipalités du Québec applied the amendment to IFRS 7, Financial instruments: Disclosures, relating to transfers of financial assets. The additional information provided allows financial statement users to understand the relationship between transferred financial assets that are not fully derecognized and liabilities associated with them. This additional information enables users to assess the nature of links maintained with derecognized financial assets and risks associated with them. This amendment had no impact on La Mutuelle des municipalités du Québec’s disclosures. Future accounting changes On December 16, 2011, the IASB issued an amendment to IFRS 7, Financial instruments: Disclosures concerning the presentation of additional disclosures on offsetting arrangements. These changes will enable financial statement users to understand the impact of such arrangements on La Mutuelle des municipalités du Québec’s financial position. The provisions set out in this amendment will be applied to financial statements for periods beginning on or after January 1, 2013. The amendments must be applied retrospectively. La Mutuelle des municipalités du Québec is currently assessing the impact of these amendments on its financial statements. The IASB published phase I of IFRS 9, Financial Instruments, which replaces IAS 39, Financial Instruments: Recognition and Measurement, for the classification and valuation of financial assets and liabilities. IFRS 9 was to be applied to financial statements for periods beginning on or after January 1, 2013. On December 16, 2011, the IASB issued an amendment to IFRS 9 to defer the mandatory effective date to annual periods beginning on or after January 1, 2015. This amendment also states that entities will not have to restate comparative figures. However, additional disclosure on the impact at transition will be required. La Mutuelle des municipalités du Québec is currently assessing the impact of this new standard on its financial statements. In May 2011, the IASB published IFRS 13, Fair Value Measurement. This standard brings further clarification on fair value measurement and specifies disclosures related to fair value measurement when another IFRS requires or permits fair value measurement. IFRS 13 will apply to financial statements for periods beginning on or after January 1, 2013. La Mutuelle des municipalités du Québec is currently assessing the impact of this new standard on its financial statements. On December 16, 2011, the IASB issued an amendment to IAS 32, Financial instruments: Presentation. The changes clarify the application of rules for offsetting financial assets and liabilities. The following concepts have been clarified: legally enforceable right of set-off, application of simultaneous realization and settlement, offsetting a guaranteed amount
and the unit of accounting for application of the offsetting obligations. This amendment will apply to financial statements for periods beginning on or after January 1, 2014. The amendments must be applied retrospectively. La Mutuelle des municipalités du Québec is currently assessing the impact of these amendments on its financial statements.
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5 Investments
December 31, 2012 Term deposits, $17,600,000 redeemable at all times, bearing interest at the rate of 1.14% to 1.41%, maturing from March 2013 to July 2015 Municipal bonds, stipulated interest rates of 2.25% to 5.40%, effective interest rates of 1.34% to 5.31%, maturing from January 2013 to January 2021 December 31, 2011 Term deposits, $13,600,000 redeemable at all times, bearing interest at 1.00% to 2.00%, maturing from March 2012 to December 2014 Municipal bonds, stipulated interest rates of 2.70% to 5.40%, effective interest rates of 1.65% to 5.31%, maturing from May 2012 to January 2021
Nominal Fair Carrying value value value ($) ($) ($)
22,600,000 22,600,000 22,600,000
22,487,000 23,275,962 22,753,071 45,087,000 45,875,962 45,353,071
18,350,000
18,350,000
18,350,000
19,916,000
20,767,450
20,100,888
38,266,000 39,117,450 38,450,888
The fair value of municipal bonds for which the market is not active is determined by independent valuation services that take into consideration the return or market price of financial instruments that have comparable conditions, such as quality, maturity and type of investment. The fair value of term deposits approximates their carrying amount due to the weak interest rate fluctuations and their relatively short maturities. Mont-Saint-Hilaire (La VallĂŠe-du-Richelieu RCM)
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6 Claims and settlement expenses
The change in the provision for claims and settlement expenses as well as reinsurers’ share in the claims and settlement expenses included on the statement financial position, together with its impact on the claims and settlement expenses shown in the statement of comprehensive income for the years are as follows: December 31, 2012 Provision for unpaid claims and settlement expenses at beginning
24,719,000
Increase in estimated losses and expenses related to claims incurred – during the current year – during previous years
16,066,186 3,074,320 12,991,886 886,762 509,637 377,125
16,952,948
Amounts paid for claims incurred: – during the current year – during previous years
Gross Ceded Net ($) ($) ($)
6,333,000 18,386,000
3,583,957 13,368,991
5,552,898 944,759 4,608,139 8,770,050 2,254,885 6,515,165
14,322,948 3,199,644 11,123,304
Provision for unpaid claims and settlement expenses at end
27,349,000
6,717,313 20,631,687
December 31, 2011 Provision for unpaid claims and settlement expenses at beginning
27,682,193
9,156,657
18,525,536
Increase (decrease) in estimated losses and expenses related to claims incurred – during the current year – during previous years
12,248,382 (1,480,063)
1,213,860 (552,862)
11,034,522 (927,201)
10,768,319
Amounts paid for claims incurred: – during the current year – during previous years
3,537,846 10,193,666
– 3,484,655
13,731,512
3,484,655 10,246,857
Provision for unpaid claims and settlement expenses at end
24,719,000
6,333,000 18,386,000
660,998 10,107,321 3,537,846 6,709,011
Loss ratio sensitivity analysis Given that a loss ratio is used to establish the provision for unpaid claims and settlement expenses, a 5% increase or decrease in the loss ratio would result in an increase or decrease in the provision for unpaid claims and settlement expenses, net of the reinsurers’ share, of approximately $341,000 as at December 31, 2012 ($292,000 as at December 31, 2011).
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Estimated ultimate claims: (in thousands of dollars) At end of year of occurrence
2004 2005 2006 2007 2008 2009 2010 2011 2012
– one year later
4,389
6,972
5,665
7,382
8,992
9,689
12,680
11,034
– two years later
3,723
6,689
5,446
7,883
9,642
11,920
11,998
10,656
– three years later
3,692
6,664
5,367
8,170
11,626
11,624
11,855
– four years later
3,793
6,670
5,902
9,424
11,879
11,590
– five years later
3,741
6,824
6,278
9,200
11,651
– six years later
3,870
7,025
6,318
9,167
– seven years later
3,991
6,993
7,587
– eight years later
4,004 6,891
– nine years later
4,029
Current estimate of cumulative claims
4,029
6,891
7,587
9,167
11,651
11,590
11,855
10,656
12,992
86,418
Less: cumulative payments
3,994
6,789
5,977
8,240
10,332
9,579
9,324
6,943
4,608
65,786
35
102
1,610
927
1,319
2,011
2,531
3,713
8,384
20,632
Provision for unpaid claims and settlement expenses – net
12,992
Reinsurers’ share in the provision for unpaid claims and settlement expenses 6,717 Provision for unpaid claims and settlement expenses – gross
2012 ($)
7 Deferred commission costs
26
27,349
2011 ($)
Balance at beginning
2,295,815
2,994,891
Commission costs deferred during the year Amortization of deferred commission costs during the year
4,761,724
4,565,572
(4,660,938)
(5,264,648)
100,786
(699,076)
Balance at end 2,396,601 2,295,815
8 Fixed assets
2012 ($) Carrying values
2011 ($)
60,042 99,176 50,299 52,483 46,604 23,314
Layout Furniture Data processing equipment
156,945 174,973 Cost Data processing Layout Furniture equipment Total ($) ($) ($) ($) Balance as at January 1, 2011 140,232 55,797 14,126 210,155 Acquisitions – 2,804 17,326 20,130 Balance as at December 31, 2011 Acquisitions Disposals
140,232 58,601 31,452 230,285 – 6,891 41,959 48,850 – (2,756) – (2,756)
Balance as at December 31, 2012
140,232
62,736
73,411
276,379
Accumulated depreciation Balance as at January 1, 2011 Depreciation expense
(1,921) (39,135)
(398) (5,720)
(541) (7,597)
(2,860) (52,452)
Balance as at December 31, 2011 Depreciation expense Elimination related to disposal
(41,056) (39,134) –
(6,118) (6,637) 318
(8,138) (18,669) –
(55,312) (64,440) 318
Balance as at December 31, 2012
(80,190)
(12,437)
(26,807)
(119,434)
2012 ($) Carrying values
2011 ($)
Acquired separately
9 Intangible assets
Software being adapted 1,091,794 1,076,249
Cost Software ($) Balance as at January 1, 2011 – Acquisitions 1,076,249 Balance as at December 31, 2011 1,076,249 Acquisitions 15,545 Balance as at December 31, 2012
1,091,794
As at December 31, 2012, intangible assets had not yet begun to be amortized since the software was not ready for use. No impairment has been recognized to date.
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10 Unearned premiums
2012 ($)
2011 ($)
15,308,442
14,612,166
Balance at beginning Net written premiums during the year Net earned premiums during the year
25,806,599 24,891,402 (25,134,697) (24,195,126) 671,902 696,276
Balance at end 15,980,344 15,308,442
2012 ($)
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Interest Experience refunds on interest received
2011 ($)
1,004,090 981,747 19,923 52,967
Investment income
1,024,013 1,034,714
12
The payment of experience refunds must be approved by the Board of Directors. The amount of the experience refunds is based on the historic performance of La Mutuelle des municipalités du Québec and on the conclusions of the dynamic capital adequacy test prepared annually by the appointed actuary. Among other things, this test determines whether La Mutuelle des municipalités du Québec has the financial capacity to meet adverse situations while remaining financially viable.
Experience refunds to Mutual Members
On December 11, 2012, the Board of Directors approved experience refunds of $2,000,000 for the year ended December 31, 2012 ($1,500,000 for the year ended December 31, 2011). To be eligible for experience refunds for the year ended December 31, 2012, a mutual member must: • Be the holder of an insurance policy that took effect between December 31, 2007 and December 30, 2008, inclusively. • Keep its insurance policy in effect between December 31, 2012 and December 30, 2013. The formula used for calculating each eligible mutual member’s share is a two-step process: • The first portion of $1,000,000 in experience refunds is distributed to eligible mutual members in proportion to the total amount of premiums paid during the period of December 31, 2007 to December 30, 2010. • The second portion of $1,000,000 in experience refunds is based on the mutual member’s contribution to the profitability of La Mutuelle des municipalités du Québec. The latter is established as a function of the insurance records’ quality based upon the loss experience of the corresponding period, which must be below a maximum threshold. Experience refunds for mutual members that withdraw before the end of the eligibility period are presented separately in the statement of comprehensive income.
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13 Mutual Members’ shares
Membership and initial contribution To become a mutual member of La Mutuelle des municipalités du Québec, a municipality must adopt a resolution in which it adheres to the Agreement under sections 465.1 and thereafter of the Cities and Towns Act and sections 711.2 and thereafter of the Municipal Code of Québec signed on April 3, 2003, which is deemed to form an integral part of said resolution, take out insurance with La Mutuelle des municipalités du Québec and pay the initial contribution of $100.
Withdrawal According to the Municipal Code of Québec and the Cities and Towns Act, a mutual member may not withdraw from La Mutuelle des municipalités du Québec within five years of joining La Mutuelle des municipalités du Québec. In addition, a mutual member may not withdraw from La Mutuelle des municipalités du Québec without providing twelve-month prior notice to general management.
The initial contribution is non-refundable. Every member has the right to be invited to the meetings of La Mutuelle des municipalités du Québec, to attend such meetings and to cast a vote in addition to performing any function within La Mutuelle des municipalités du Québec. Annual contribution The Board of Directors can set the amount of the annual contribution, as necessary. If no annual contribution is determined, the amount is considered to be zero.
A mutual member who withdraws from La Mutuelle des municipalités du Québec remains subject to any special contribution as determined by the Board of Directors within a period of two years following the withdrawal. If applicable, the contribution is based on the premium paid by this mutual member and its agencies prior to the withdrawal. In all cases, the departure of a mutual member must be approved by the Autorité des marchés financiers in accordance with the Municipal Code of Québec and the Cities and Towns Act. 2012
Special contribution The Board of Directors may order that a special contribution be paid, as necessary. This contribution is divided among the mutual members in proportion to the amount of the premium written by the mutual member and its agencies. Suspension or expulsion The Board of Directors may order the suspension or expulsion of a mutual member according to the terms and conditions set out in By-law 1.1 of La Mutuelle des municipalités du Québec.
Number of mutual members Contributions from mutual members ($)
982 968 98,200 96,800
During the year ended December 31, 2012, sixteen mutual members (fourteen mutual members in 2011) joined La Mutuelle des municipa lités du Québec and two mutual members (one mutual member in 2011) withdrew.
2012 ($) Change in non-cash operating working capital items
14 Additional cash flow information
2011
Premiums receivable Accounts receivable Reinsurers’ share in claims and settlement expenses Prepaid expenses Premiums owed to reinsurers Accounts payable and accrued liabilities Experience refunds payable to mutual members
2011 ($)
(532,698) (945,581) (109,523) (7,905) (60,796) 88,058 (55,559) 25,262 214,955 (304,276) 281,887 (503,438) 499,850 (3,177)
238,116 (1,651,057)
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15 Commitments
La Mutuelle des municipalités du Québec has concluded a distribution agreement for its insurance products upon payment of a 15% commission on gross written premiums. The agreement expires on December 31, 2026. La Mutuelle des municipalités du Québec has concluded an agreement for the outsourcing of its IT and accounting services in exchange for 1.5% of gross written premiums. The agreement expires on December 31, 2013. La Mutuelle des municipalités du Québec has concluded an agreement with the Association des directeurs municipaux du Québec under which it will be required to pay up to $75,000 annually, mainly for professional development activities. This agreement expires in 2015. It has also made a commitment to the Fédération québécoise des municipalités to pay up to $100,000 annually for the preservation of the liaison committee and related visibility. This agreement expires in 2014. La Mutuelle des municipalités du Québec has concluded an agreement to acquire a data management operating permit and program for processing damage insurance activities. The contract also includes software adaptation, data migration and maintenance and expires in December 2015. Future payments will amount to $366,037 and will be allocated as follows: 2013 ($)
2014 ($)
2015 ($)
118,424
121,977
125,636
16 Contingencies
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La Mutuelle des municipalités du Québec has agreed to pay a total of $304,350 under service agreements expiring on various dates until 2015. Payments due in the forthcoming years are as follows: 2013 ($) 2014 ($) 2015 ($) 185,121
84,162
35,067
La Mutuelle des municipalités du Québec leases automotive equipment and premises under operating leases that expire on various dates until December 2015. Future rental payments will total $188,200 and include the following payments over the forthcoming years: 2013 ($) 2014 ($) 171,526
14,292
2015 ($) 2,382
The recognized costs relating to these operating leases recognized totalled $162,630 in 2012 ($160,623 in 2011). These costs are presented as administrative expenses and as policyholder benefits and settlement expenses.
In the ordinary course of business, various claims are pending against La Mutuelle des municipalités du Québec. Such claims are often subject to much uncertainty and their outcome cannot be predicted. According to management, adequate provision has been made for these claims and their settlement should not have a significant adverse effect on La Mutuelle des municipalités du Québec’s future operating results or financial position.
17 Capital management
La Mutuelle des municipalités du Québec manages its capital funds in such manner as to comply with capital adequacy as required under An Act respecting insurance (R.S.Q. c. A-32) and its financial commitments to stakeholders in the settlement of claims. The regulatory capital differs from the mutual members’ equity as stated in the statement of financial position owing to the fact that it is weighted as a function of the risk associated with the financial situation and insurance activities. Under An Act respecting insurance, La Mutuelle des municipalités du Québec is required to maintain adequate capital funds to ensure sound and prudent management practices. The Autorité des marchés financiers has issued a guideline that limits the minimum capital funds standard according to the minimum capital test (MCT), represented by the ratio of available capital over the minimum required capital (the solvency ratio). The available capital corresponds to mutual members’ equity. The minimum required capital comes from the assessment of the risk of financial assets and liabilities related to policies by the application of various capital factors.
La Mutuelle des municipalités du Québec has set the minimal target ratio at 150%, as filed with the Autorité des marchés financiers. As at December 31, 2012, the MCT stood at 347% (321% as at December 31, 2011). (in thousands of dollars)
2012 ($)
2011 ($)
Total available capital
20,524 17,844
Total capital required
5,922 5,553
Capital surplus Percentage of MCT
14,602 12,291 347% 321%
As at December 31, 2012, La Mutuelle des municipalités du Québec met the MCT requirements.
Sainte-Rose-du-Nord (Fjord-du-Saguenay RCM)
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18 Risk management related to financial instruments and insurance risk
Risk management policies and objectives In the ordinary course of its activities, La Mutuelle des municipalités du Québec is exposed to a variety of financial risks, namely credit, liquidity, interest rate, market and insurance and reinsurance risks. The Board of Directors is in charge of understanding and approving the financial risk management strategies, and management is in charge of implementing these strategies. La Mutuelle des municipalités du Québec’s goal with regard to financial risks is to optimize the risk/return ratio within defined limits throughout all its activities. Risk control is carried out through the application of policies, strategies as well as sound and cautious management procedures that are blended into all of La Mutuelle des municipalités du Québec’s operations. The Board has created an ethics and governance committee, an audit and investment committee, and an insurance and prevention committee to identify, understand, communicate and manage La Mutuelle des municipalités du Québec’s risk exposure. In August 2012, La Mutuelle des municipalités du Québec adopted an integrated risk management policy, which structures and integrates upstream actions to be taken for all types of risk to which it is exposed. La Mutuelle des municipalités du Québec has an Investment Policy whose objectives are prioritized as follows: the safeguarding of capital from risks of losses, neutralizing poor matching of capital with needs for liquidity, maximizing rates of return while minimizing annual fluctuations. The Investment Policy is updated annually or more frequently, if the situation warrants. In December 2012, La Mutuelle des municipalités du Québec adopted a new investment policy. The impact of this policy is described under Credit Risk. The risk exposure, objectives, procedures and risk management processes have not changed significantly during the year, with the exception of the above-mentioned item. Financial risks a) Credit risk Credit risk arises from potential losses involving a borrower’s or a counterparty’s failure to fulfill its contractual duties when impending and outstanding. A counterparty can be any person or entity whose cash resources or other valuable considerations are considered forthcoming in order to extinguish a liability or obligation owed to La Mutuelle des municipalités du Québec.
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Credit risk also includes concentration risk. Concentration risk arises when there is a concentration of investments in entities with similar characteristics, or when a substantial investment is made with a single entity. Based on the valuation performed by La Mutuelle des municipalités du Québec, cash, investments, accounts receivable, amounts receiv able from reinsurers and premiums receivable are the main items that may represent a credit risk.
Cash All cash is held by Desjardins, a reputable financial institution in Québec having an excellent credit rating. La Mutuelle des municipalités du Québec considers that the credit risk related to this financial institution is low. La Mutuelle des municipalités du Québec does not actively manage the concentration risk related to cash. Investments All term deposits are held by Desjardins. La Mutuelle des municipalités du Québec considers that the credit risk relating to this financial institution is low for the same reasons as mentioned above.
The primary objective of the Investment Policy is to safeguard capital funds. To meet this objective and comply with the applicable regulatory provisions, La Mutuelle des municipalités du Québec favours investing in instruments whose credit risk rating is low. The Investment Policy makes it possible to acquire bonds issued or guaranteed by the federal, provincial or municipal government, with preference being given to Québec municipalities. Municipal bond issuers have no credit rating on the market, making it impossible to measure their credit risk.
As at December 31, 2012, its entire bond portfolio was made up of bonds from Québec municipalities. As at December 31, 2012, three municipalities account for 34% of the bond portfolio (three municipalities accounted for 39% in 2011). Since adopting the new Investment Policy in December 2012, La Mutuelle des municipalités du Québec has set quantitative limits on the concen tration of any one security compared to the overall bond portfolio.
Accounts receivable Accounts receivable include interest and taxes receivable. The credit risk associated with interest receivable is the same as for term deposits and municipal bonds.
Due from reinsurers Failure on the part of reinsurers to fulfill their obligations could result in losses for La Mutuelle des municipalités du Québec. La Mutuelle des municipalités du Québec does business with more than one reinsurer, thereby reducing its concentration risk. In addition, more than 90% of the reinsurers with which it does business are certified reinsurers having a credit rating of A- or better, which serves to reduce the credit risk.
Premiums receivable All premiums are receivable from the only broker mandated by La Mutuelle des municipalités du Québec. La Mutuelle des municipalités du Québec has no knowledge of information leading it to believe that the dealer with whom it deals may be faced with insolvency problems. As at December 31, 2012 and December 31, 2011, no premiums receivable were outstanding.
Maximum credit risk The maximum credit risk exposure associated with financial instruments is equivalent to the carrying amount of the financial assets presented on the statement of financial position.
b) Liquidity risk Liquidity risk represents the possibility that La Mutuelle des municipalités du Québec may not be able to gather sufficient cash resources, when required and under reasonable conditions, to meet its financial obligations. The Investment Policy uses the time frame established to settle claims in the dynamic capital adequacy testing to establish acceptable investment terms.
The liquidity risk for current financial items is low. Cash, premiums receivable, accounts receivable and the reinsurers’ share in claims and settlement expenses are sufficient to allow La Mutuelle des municipalités du Québec to meet its financial obligations to settle accounts payable and accrued liabilities, experience refunds payable to mutual members and premiums owed to reinsurers. The liquidity risk relates mainly to the provision for unpaid claims and settlement expenses, net of the reinsurers’ share. The following tables present an estimate of amounts established for each settle ment period and the matching of investment terms.
As at December 31, 2012 (in thousands of dollars)
c) Market risk Market risk occurs when the value of an investment fluctuates because of changes in market prices, whether those changes are caused by factors specific to the investment or its issuer, or by factors affecting all instruments traded in the market. La Mutuelle des municipalités du Québec seeks to minimize this risk by making investments whose market risks are low. The policy of La Mutuelle des municipalités du Québec is to hold on to its bond investments to maturity, thereby limiting market risk. d) Interest rate risk Interest rate risk occurs when interest rates fluctuate and negatively affect the financial position of La Mutuelle des municipalités du Québec, which occurs when market interest rates increase.
Interest rate risk is mainly due to term deposit investments. The policy of La Mutuelle des municipalités du Québec is to invest in term deposits that are redeemable at all times or maturing in less than two years.
Interest rate risk is also attributable to bond investments. The policy of La Mutuelle des municipalités du Québec is to hold on to its bond investments to maturity, thereby limiting market risk since a fluctuation in interest rates would not change the face value received upon maturity of the bond.
Information on the maturity of interest-bearing investments is presented in the Liquidity risk section in this note.
Less than 12 months
1 to 2 years
3 to 4 years
More than 5 years
Provision for unpaid claims and settlement expenses, net of the reinsurers’ share (undiscounted amount)
11,017 4,494 4,396 1,276
Term deposits Bonds
22,600 – – – 4,997 7,662 5,420 4,408
Total
27,597 7,662 5,420 4,408
As at December 31, 2011 (in thousands of dollars) Provision for unpaid claims and settlement expenses, net of the reinsurers’ share (undiscounted amount)
8,85
4,262
4,491
1,471
Term deposit Bonds
18,350 – – – 878 12,181 4,555 2,302
Total
19,228 12,181 4,555 2,302
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e) Interest rate sensitivity When the time value of money is taken into consideration in order to establish provisions for unpaid claims and settlement expenses, an increase or a decrease in the capitalization rate may result in a decrease or increase in the burden of losses and the settlement expenses. A 1% change in the discount rate would have a $249,000 impact on the provision for unpaid claims and settlement expenses as at December 31, 2012 ($290,000 as at December 31, 2011).
Management estimates that an immediate hypothetical 1.0% parallel increase in interest rates would decrease the fair value of bonds by approximately $526,000 as at December 31, 2012 ($569,000 as at December 31, 2011). Conversely, a 1.0% decrease in interest rates would increase the fair value of bonds by approx imately $526,000 as at December 31, 2012 ($569,000 as at December 31, 2011).
Insurance risk La Mutuelle des municipalités du Québec was created for general insurance purposes and in order to manage risk for member municipalities as well as their agencies. The risk in any insurance contract is the possibility that an insured event will occur, together with the uncertainty as to the value of the resulting claim. Due to the very nature of an insurance contract, this risk is random and therefore unpredictable. However, overall, these risks follow prob ability trends making it possible to manage insurance risk. There are three possible types of insurance risk in the normal course of operations: product design and pricing risk, underwriting risk and claims settlement risk. Product design and pricing risk Product design and pricing risk is the financial risk of losses related to insurance operations, namely, when commitments exceed those that were anticipated or when such commitments exceed the price that was set for such products. La Mutuelle des municipalités du Québec is a niche market insurer specializing in the municipal sector. It has acquired insurance expertise in this sector for both insurance products and their application. Since its creation, the insurance committee has validated changes to underwriting parameters or the pricing schedule and submitted them to the Board, as well as any additions, extensions or deletions of guarantees, therefore monitoring profitability. La Mutuelle des municipalités du Québec’s exposure to insurance risk concentration is mitigated by portfolio diversification in various geographical areas and lines of business. La Mutuelle des municipalités du Québec has exposure to catastrophic losses and has sought protec tion by signing reinsurance treaties limiting the losses that could result from each event to $250,000 and providing a guarantee of up to $40 million. Underwriting risk Underwriting risk is the risk resulting from the selection and acceptance of risks to be insured.
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Under its statutes, La Mutuelle des municipalités du Québec’s sole purpose is to insure municipal risks in Québec. This specialization provides greater stability and predictability, thereby reducing the antiselection risk. Moreover, to minimize risks, insurance policies are under written in accordance with La Mutuelle des municipalités du Québec’s management practices taking its risk tolerance and underwriting standards into account. The insurance program is available to local municipalities with a population of less than 30,000, regional county municipalities and intermunicipal boards. Most local municipalities insured with La Mutuelle des municipalités du Québec have fewer than 5,000 inhabitants and there is no urban concentration. La Mutuelle des municipalités du Québec offers property insurance, civil liability insurance, automobile insurance as well as complementary coverage. The insurance portfolio is stable, with a retention rate of more than 99% since its creation. Notwithstanding the fact that a mutual member becomes a member for an initial five-year period, La Mutuelle des municipalités du Québec issues twelve-month insurance contracts that are reviewed annually upon their renewal. Following the initial five-year period, if a mutual member wishes to withdraw, a twelve-month advance notice must be provided to La Mutuelle des municipalités du Québec. These rules allow La Mutuelle des municipalités du Québec to invest substantially in risk management while also enabling it to acquire in-depth knowledge of each municipality being insured. Given its very high rate
Property insurance – The largest claims relating to property insurance involve fires, water damage and natural risks such as storms, floods and earthquakes. As most fires in municipal buildings are electrical in origin, an electrical panel inspection program has been implemented by La Mutuelle des municipalités du Québec’s thermography expert. This way, each risk is verified by a building inspector (TPI). Training is given by the fire protection advisor to encourage mutual members to regularly monitor the condition of their buildings. Civil liability – Civil liability claims often involve a bodily injury suffered on city property, in particular after falling on a sidewalk or having an accident while taking part in a recreational activity. Firefighting activities also result in a large number of claims. Due to climate change, environ mental risks such as sewer backups and ditch overflows are likely to increase.
La Pocatière (Kamouraska RCM)
of market penetration, La Mutuelle des municipalités du Québec under writes a dozen new business opportunities annually in accordance with the standards of La Mutuelle des municipalités du Québec as well as prices in effect. Moreover, La Mutuelle des municipalités du Québec has created two committees to oversee underwriting activities. The insurance technical committee reviews, on a weekly basis, the more complex applications submitted by brokers representing mutual members. This committee consists of the following members: the underwriting department manager and supervisor, the indemnification department manager, the risk management and compliance department manager, the underwriters, and the general manager and chief operating officer. The committee reaches a decision regarding applications following their analysis. On another level, the Board of Directors’ insurance committee, chaired by a Board member and composed of internal personnel as well as external members, proposes changes to the underwriting guide to the Board of Directors, among other things. As mentioned previously, underwriting risk is also mitigated by a comprehensive risk management program. All mutual members undergo periodic inspections and new risks are inspected upon request to enable underwriters to make informed decisions. Claims settlement risk The claims settlement risk is influenced by the frequency and seriousness of claims as well as by the uncertainty in estimating future claims payments.
The general civil liability related risks are mitigated by the risk management program. An expert in the prevention of recreational and sport accidents is available to mutual members to plan activities or the use of specialized equipment and to put in place risk mitigation measures. The experts go on site to assess the location, establish relevant standards and best practices or to provide training regarding matters involving high or particular risks. Where firefighting activities are concerned, municipalities that have a fire risk coverage diagram and that have put in place the measures in their implementation plan in accordance with the established timetable will be granted immunity under the Fire Safety Act. In addition, the fire safety expert travels around the regions to support mutual members in implementing their diagram. La Mutuelle des municipalités du Québec also has an environmental specialist who informs municipalities regarding the application of the many legislative parameters relating to environmental matters. Errors and omissions – Most claims relating to errors and omissions result from alleged errors relating to the issuance of permits or the awarding of a contract being contested by certain bidders. La Mutuelle des municipalités du Québec has developed a range of training activities given by internal experts or in collaboration with municipal associations. Automobile insurance – This risk is rather low since, in Québec, automobile risk is limited to vehicle damage. Bodily injuries are covered by government insurance. Theft and embezzlement – Given the nature of mutual members’ activities, theft is not a major concern for La Mutuelle des municipalités du Québec. La Mutuelle des municipalités du Québec prepares many publications on risk management, which are emailed to mutual members, posted on its website, or included in specialized magazines for the municipal sector. Its many training activities are held annually in meeting rooms in most regions on an annual basis and via web conference so as to reach as many mutual members as possible.
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Causes of uncertainty in estimating future claims payments In addition to managing the underwriting risk resulting from the selection and acceptance of risk to be insured, the reserve valuation risk is monitored specifically. Provisions for claims payable must be estab lished as soon as the claim is reported. La Mutuelle des municipalités du Québec has a reserves policy to which analysts refer daily. These reserves are valued individually for each case by the indemnification department. In addition to a regular follow-up, each file is reviewed annually by the department manager. Although the department analysts spare no effort in preparing reliable financial data, this is not an exact science and surpluses or deficiencies in provisions may occasionally occur in spite of the control methods put in place to limit them. Moreover, insurers will always have to face changes in legal decisions, which can sometimes complicate the outcome of disputes anticipated. Any loss of more than $100,000 is examined by the executive committee. Additional provisions for claims incurred but that have not yet been reported and provisions for claims that have arisen and been reported but for which inadequate provisions exist are also recognized. Reinsurance The significance of claims is limited by reinsurance treaties in which each loss or event is limited to $250,000. Moreover, La Mutuelle des municipalités du Québec optimizes its reinsurance strategies to limit certain exposure. Beyond this retention, a grouping of excess, catastrophic and facultative loss treaties makes it possible to bring together the reinsurance capacity needed for the operations of La Mutuelle des municipalités du Québec.
The insurance limits per claim authorized by reinsurers are as follows: Civil liability – excluding automobile
$3,000,000
Civil liability – automobile
$5,000,000
Misappropriation
$1,000,000
Buildings and content
$5,000,000
Other
$1,000,000
La Mutuelle des municipalités du Québec does not negotiate directly with the reinsurance market. It is represented by reinsurance brokers. The following criteria are used to select reinsurers: a) Any professional reinsurer involved in the reinsurance programs of La Mutuelle des municipalités du Québec must have a Standard & Poor’s and/or A.M. Best’s rating of A- or better when the treaty in question takes effect. b) A reinsurer’s total commitment for all reinsurance treaties in effect throughout an entire year cannot exceed 25% of the total amount of all commitments of all reinsurers involved in all reinsurance treaties.
Reinsurance operations do not relieve La Mutuelle des municipalités du Québec of its obligations toward policyholders.
c) Where treaties relating to “All branches in excess of claims,” “Property according to risk in excess of claims,” and “Facob property in excess of claims” are concerned, at least 90% of the commitments ceded or reinsured will have to be with certified reinsurers.
La Mutuelle des municipalités du Québec has treaties in all lines of business, which, in addition to its retention of $250,000, provide a limit of $10 million. It also has a catastrophe treaty for property and auto mobile insurance with a limit of $30 million in excess of $10 million. Moreover, for buildings valued at more than $5 million, La Mutuelle des municipalités du Québec has a facultative-obligatory excess of loss treaty with a $28 million limit.
d) “Certified reinsurer” refers to any reinsurer recognized as being “certified” by the Autorité des marchés financiers and/or the Office of the Superintendent of Financial Institutions and/or any reinsurer that declares on La Mutuelle des municipalités du Québec’s reinsur ance riders in which it is participating, that the reinsurance accepted is recognized as “ insuring risks in Canada” in accordance with Part XIII of the Insurance Companies Act (Canada). Moreover, La Mutuelle des municipalités du Québec does not use non-traditional ceded reinsurance treaties such as obligations in the event of a disaster.
19 Compensation of key management personnel
Compensation of key management personnel, i.e., the directors and executive committee members, are detailed below: 2012 ($) Short-term benefits Executive committee Directors’ fees
36
2011 ($)
885,511 671,633 52,369 49,660
Notes to the Financial Statements December 31, 2012
2012 ($) Schedule A – Loss prevention Prevention advisors 453,773 Prevention events 151,450 Travel expenses 98,253 Relations with mutual members 75,521 Professional fees 66,144 Inspections 57,962
2011 ($) 365,771 135,972 85,754 88,346 143,410 53,977
903,103 873,230 Schedule B – Operating expenses Salaries and corporate benefits 1,180,525 1,032,697 Outsourcing of accounting and IT services 499,981 479,408 Professional fees 140,737 44,855 Administrative outlays 101,344 103,870 Creative writing 83,793 76,312 Advertising 80,155 83,905 IT system hosting expenses 75,328 – Depreciation of fixed assets 64,440 52,452 Committee expenses 59,250 53,250 Dues and subscriptions 53,238 45,191 Conferences 49,362 34,545 Travel expenses 43,309 35,772 Insurance 42,074 44,970 Business partnerships 29,628 35,836 Entertainment expenses 26,703 28,815 Stationery and printing 15,882 28,044 Website 8,537 14,128 Loss on the disposal of fixed assets 1,673 – Bank charges 727 910 Assigned risk-sharing plan (3,215) (10,046)
2,553,471 2,184,914 The schedules are an integral part of the notes to the financial statements.
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Board
Jacques Bolduc
of Directors
Treasurer Consulting Actuary
Gérard Marinovich Chairman and Chief Executive Officer Mayor of Eastman
Richard Lehoux
Rémi Moreau
Vice-Chairman Mayor of Saint-Elzéar and Warden of the La Nouvelle-Beauce RCM
Administrator Editor in Chief, Insurance and Risk Management, HEC Montréal
Linda Daoust*
Danielle Henri Allard
Secretary Executive Director and Head of Operations
Administrator Warden of the Montcalm RCM
Jacques Riopel Administrator Mayor of Saint-Marc-de-Figuery and Warden of the Abitibi RCM
Guy Diamond Administrator Mayor of Charette
Michel Gilbert Administrator Mayor of Mont-Saint-Hilaire
Raymond Medza Administrator Retired Executive Director of the Insurance Bureau of Canada
Committees’ Members Statutory committees
Advisory committees
Ethics and Governance Raymond Medza (Chairman) Michel Gilbert Richard Lehoux Gérard Marinovich Rémi Moreau
Audit and Investment Jacques Bolduc (Chairman) Guy Diamond Danielle Henri Allard Jacques Riopel
* Non-administrator 1 Former MMQ administrator 2 Mayor of Weedon
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3 President, DLR services conseils 4 General Director, of Les Îles-de-la-Madeleine
Insurance Rémi Moreau (Chairman) Michel Giroux 1 Danielle Henri Allard Richard Lehoux Pierre Mireault 1 Jean-Noël Ouellet 1
Mutual Members’ Loss Prevention Michel Gilbert (Chairman) Guy Diamond Jean-Claude Dumas 2 Michel Fernet 3 Gérard Marinovich Hubert Poirier 4 Jacques Riopel
The Ultima Brokerage Firm Network Experience Serving MMQ Mutual Members La Mutuelle des municipalités du Québec forms a team with insurance broker members of Groupe Ultima, combining networked expertise in municipality insurance with 30 years of experience. These brokerage firms blanket Québec from end to end such that each mutual member may localize its needs for the most appropriate coverage and best suited counselling.
EDITOR IN CHIEF Louise Desjardins Director, Communications and Public Relations EDITOR Manon Allaire
ISBN 978-2-9811401-4-2 Legal Deposit - Bibliothèque et Archives nationales du Québec, 2013 Legal Deposit - Library and Archives Canada, 2013
CREATIVE DESIGN AND PRODUCTION Lajeunesse communication marketing PRINTING Quadriscan
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Your peace of mind may rest easy,
MMQ is standing by.
A trustworthy insurance mutual serving Québec’s municipalities La Mutuelle des municipalités du Québec 7100 Jean-Talon Street East, Suite 210 Montréal, Québec H1M 3S3 Telephone: 1-866-662-0661 • Fax: 1-800-808-8418 mutuellemmq.com info@mutuellemmq.com