ASSOCIATION OF ALBERTA MUNICIPALITIES

Notes to the Consolidated Financial Statements

Year ended December 31, 2022

1. Significant accounting policies (continued):

(g) Investment in joint ventures:

ABmunis uses the equity method as the basis of accounting for its investment in joint ventures. Under the equity method, ABmunis records these investments initially at cost and the carrying values are adjusted thereafter to include the investor's pro rata share of post-acquisition excess of revenues over expenses of the investment. The adjustments are included in the determination of excess of revenues over expenses by the investor, and the investment accounts of the investor are also increased or decreased to reflect the investor's share of capital transactions and changes in accounting policies and corrections of errors relating to prior period financial statements applicable to post-acquisition periods. Distributions received or receivable from investees reduce the carrying values of the investments. Unrealized inter-entity gains or losses are eliminated.

(h) Provision for claims incurred but not reported:

The group benefits "ASO" program provides extended health and dental coverage. The incurred but not reported ("IBNR") provision is comprised of ASO claims estimated to be incurred in the year but not filed or reported to the administrator by the statement of financial position date. Claims incurred in the year must be filed with the program administrator within 180 days of year end. As such, the IBNR liability recorded in any given plan year has a limited extension life.

The establishment of the provision for unpaid claims is based on known information and the interpretation of future circumstances and events and is influenced by a variety of factors. These factors include ABmunis's experience with historical claim submissions and payment trends, the deadline for claim submissions and an interpretation of past trends extending into the future. Other factors include the continually evolving health and dental industry environment, actuarial studies, the quality of data used for projection purposes, existing claim management practices, including claim handling and settlement practices.

The process of determining the provision necessarily involves risks that the actual results could deviate, perhaps substantially, from the best estimates made.

The estimate of IBNR is generally subject to a greater degree of uncertainty than that for reported claims. The computation of these provisions takes into account the time value of money using discount rates based on projected investment income from the assets supporting these provisions.

The estimate of IBNR is reviewed annually by an actuary, and as adjustments to these liabilities become necessary, they are reflected in claim costs and claim administration expenses.

(i) Employee future benefits:

ABMunis provides pension benefits to its employees through the Local Authorities Pension Plan ("LAPP"), a provincial multi-employer defined benefit plan requiring both employer and employee contributions. Management employees also participate in the APEX Supplementary Pension Plan ("APEX"), which is a supplemental plan to LAPP, and a provincial multi-employer defined benefit plan established under the Alberta Employment Pension Plans Act requiring both employer and employee contributions. LAPP and APEX are accounted for as defined benefit plans.