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):

Catastrophic risk loss (continued):

Auto physical damage insurance

The limit of liability for auto physical damage insurance is a maximum amount on any one loss of $250,000 (2021 - $250,000) in the event of a vehicle claim and a maximum policy year amount of $1,250,000 (2021 - $1,250,000) in the event of a series of claims. The Exchange does not purchase reinsurance for auto physical damage claims.

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

Reinsurance risk:

The Exchange relies on reinsurance to manage the underwriting risk, however, reinsurance does not release the Exchange from its primary commitments to its policyholders. The Exchange has adopted a reinsurance risk management policy that is intended to manage its exposure to operational, legal, credit and liquidity risk. The Exchange is exposed to the credit risk associated with the amounts ceded to reinsurers. The Exchange assesses the financial soundness of the reinsurers before signing any reinsurance treaties and monitors their situation on a regular basis. In addition, the Exchange has minimum credit rating requirements for its reinsurers. Reinsurance coverage risk also exists because reinsurance terms, conditions and/or pricing may change on renewal. The Exchange reviews reinsurance requirements and seeks quotations on a regular basis to ensure that the best price possible is obtained. The Exchange works with well established reinsurers that have expertise in their field as well as an understanding of the business. Exposure risk is managed through the reinsurance risk management policy that limits the amount of capital which can be reinsured. Operational and liquidity risk is managed with continual program review and adherence to reinsurance agreements.

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

Concentration risk:

The Exchange is exposed to concentration of insurance risk through the geographical proximity and comparable operations of its subscribers, primarily municipalities in the province of Alberta. The concentration of subscribers by geographic area and business operations exposes the Exchange to political, economic, regulatory, and environmental challenges affecting their businesses. The Exchange’s exposure to concentration of insurance risk is mitigated by a portfolio across three business lines (liability, property and auto physical damage). The Exchange also has exposure to catastrophic losses, which as described above is limited to the annual aggregate for each coverage type. The concentration by coverage type at the end of the year is broadly consistent with the prior year.