ALBERTA MUNICIPAL INSURANCE EXCHANGE

Notes to the Financial Statements

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

7. Financial risk management (continued):

Market risk (continued):

Equity price management:

The Exchange is exposed to equity price risk, which arises from equity securities held within pooled funds. The equity securities are listed on either the S&P/TSX Composite Index or the MSCI World Net Index. Fluctuations in these indices have a direct impact on the market valuation of the Exchange's equity securities. The Exchange monitors the proportion of equity securities in its investment portfolio and is advised by external investment managers to ensure that the investment portfolio remains stable.

Equity price sensitivity analysis:

As at December 31, 2022, management estimates that an immediate hypothetical 200 basis point, or 2%, parallel increase in the S&P/TSX Composite Index and the MSCI World Net Index would increase the market value of the equity investments by $134,314 (December 31, 2021$203,060).

Currency risk and other price risk management:

The Exchange has no significant concentration of currency risk or other price risk.

Credit risk:

Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss. The key areas of exposure to credit risk for the Exchange are in relation to its investment portfolio, its reinsurance program, and to a lesser extent amounts due from policyholders. There is minimal concentration of credit risk regarding reinsurance, since 7 reinsurers are used and risk is further mitigated by the financial strength of these reinsurers, which is evaluated on an annual basis. The actuarial estimate of the gross carrying value of unpaid claims and adjustment expenses recoverable from the reinsurer subject to credit exposure is $2,191,000 as at December 31, 2022 (2021 - $0).

The Exchange's risk management strategy is to invest primarily in debt instruments of high credit quality issuers and to limit the amount of credit exposure with respect to any one issuer. The Exchange attempts to limit credit exposure by imposing portfolio limits on individual corporate issuers as well as limits based on credit quality.

The following table shows aggregated credit risk exposure for assets with external credit ratings.