ALBERTA MUNICIPAL INSURANCE EXCHANGE

Notes to the Financial Statements

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

7. Financial risk management (continued): Insurance risk (continued):

Reserving risk:

Reserving risk arises due to the length of time between the occurrence of a loss, the reporting of the loss to the insurer and ultimate resolution of the claim. Claim provisions are expectations of the ultimate cost of resolution and administration of claims based on an assessment of facts and circumstances then known, a review of historical settlement patterns, estimates of trends in claims severity and frequency, legal theories of liability and other factors.

Variables in the reserve estimation process can be affected by receipt of additional claim information and other internal and external factors, such as changes in claims handling procedures, economic inflation, legal and judicial trends, legislative changes and changes in severity or frequency of claims relative to historical trends. Due to the amount of time between the occurrence of a loss, the actual reporting of the loss and the ultimate payment, provisions may ultimately develop differently from the actuarial assumptions made when initially estimating the provision for claims. The Exchange’s provision for claims is reviewed separately by, and must be acceptable to a third party claims adjuster, an internal claims manager, and the independent appointed actuary.

There has been no change to reserving risk from the prior year.

Catastrophic loss risk:

Catastrophic loss risk is the exposure to losses resulting from multiple claims arising out of a single catastrophic event. Property and casualty insurance companies experience large losses arising from man-made or natural catastrophes that can result in significant underwriting losses. Catastrophes can cause losses in a variety of property and casualty lines and may have continuing effects which could delay or hamper efforts to timely and accurately assess the full extent of the damage they cause. The incidence and severity of catastrophes are inherently unpredictable.

The Exchange's catastrophic loss risk is limited to the annual aggregate for each coverage type; any losses over and above these amounts are borne by excess insurers, contracted by AMSCIS.

The loss limits by coverage type are as follows:

Liability insurance

The limit of liability for liability insurance is a maximum amount on any one loss of $5,000,000 (2021 - $5,000,000) in the event of a liability claim and a maximum policy year amount of $5,000,000 (2021 - $5,000,000) in the event of a series of claims. The Exchange does not purchase reinsurance for liability claims.

Property insurance

The limit of liability for property insurance is a maximum amount on any one loss of $3,000,000 (2021 - $3,000,000) in the event of a property claim and a maximum policy year amount of $9,000,000 (2021 - $9,000,000) in the event of a series of claims. In addition, the Exchange purchases reinsurance which increases the maximum policy year amount by an additional $3,000,000 to a total of $12,000,000 (2021 - $3,000,000 and a total of $12,000,000) in the event of a series of claims, but does not increase the maximum amount on any one loss. Of this reinsured amount, the Exchange cedes 77% (2021 - 77%) to third party reinsurers.