ALBERTA MUNICIPAL INSURANCE EXCHANGE

Notes to the Financial Statements

Year ended December 31, 2022, with comparative information for 2021

2. Basis of presentation (continued):

(d) Use of estimates and judgments (continued):

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Refer to note 3(a)(iii) for a description of the significant judgments and estimates made by the Exchange.

3. Significant accounting policies:

The accounting policies set out below have been applied consistently to all periods presented in these financial statements, unless otherwise indicated.

(a) Insurance contracts:

(i) Premiums earned:

Premiums are recognized over the term of the related policy period. The Exchange’s policy year ends on December 31st.

(ii) Claims and claims adjustment expenses:

Claims and claims adjustment expenses consist of claims paid to policyholders, changes in the valuation of the liabilities arising on policyholder contracts and external claims handling expenses, net of salvage and subrogation recoveries.

(iii) Claims liabilities:

A provision has been made for the estimated liability for all reported and outstanding claims using a case-basis evaluation plus an amount for adverse development and for claims incurred to December 31, which have not yet been reported to the Exchange (“incurred but not reported claims” or “IBNR”). The estimate of IBNR is generally subject to a greater degree of uncertainty than that for reported claims. A provision has also been made for internal claim adjustment expenses ("ILAE") related to the estimated ultimate expected costs of investigating, resolving and processing these 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. Since the provisions are based on estimates of future trends in claim severity and other factors which could vary as the claims are settled, the ultimate liability may be more or less than the estimated amounts. Although it is not possible to measure the degree of variability inherent in such estimates, management believes that the unpaid claims amounts and related adjustment expenses are adequate. The estimates are periodically reviewed by an actuary and, as adjustments to these liabilities become necessary, they are reflected in current operations.

(iv) Contract classification:

All contracts issued by the Exchange meet the definition of an insurance contract and are accounted for in accordance with IFRS 4 - Insurance Contracts ("IFRS 4”). Insurance contracts are those contracts where the Exchange has accepted significant insurance risk. A contract is considered to have significant insurance risk if, and only if, an insured event could cause an insurer to make significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception of the contract. Insurance contracts issued by the Exchange are subject to the loss limits as described in note 7 under Insurance Risk.