Glossary
A financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities.
Represents shareholders’ equity at the end of the period divided by the number of outstanding common shares on the same date.
The liability established to reflect the estimated cost of unpaid claims that have been reported and claims expenses that the insurer will ultimately be required to pay.
Cash flow risk is the risk that future cash flows associated with a monetary financial instrument will fluctuate.
A catastrophe is defined as one event leading to aggregate damages of $5.0 million or more.
The direct and indirect expenses of settling claims.
Claims and claims expenses incurred during a defined period, net of reinsurance, expressed as a percentage of net premiums earned for the same period.
The total claims liabilities is made up of two main elements: 1) case reserves and 2) claims that are incurred but not reported (IBNR). Case reserves and IBNR should be sufficient to cover all expected claims liabilities for events that have already occurred, whether reported or not, taking into account a provision for adverse deviation (“PfAD”) and discounting for the time value of money.
The sum of the claims ratio and the expenses ratio. A combined ratio below 100% indicates a profitable underwriting result. A combined ratio over 100% indicates an unprofitable result.
Corporate sustainability represents the way a company achieves enhanced ethical standards and a balance of economic, environmental and social imperatives addressing the concerns and expectations of its stakeholders.
Yield calculated using the interest and dividend income for the period divided by the unamortized cost of the invested assets calculated monthly including cash equivalents but excluding cash balances.
Credit derivatives are over-the-counter contracts that transfer credit risk related to an underlying financial instrument (referenced asset) from one counterparty to another. Some total return swaps are also credit derivatives.
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the company to incur a financial loss. Credit risk mostly arises from assets invested in fixed income securities and preferred shares.
Credit risk from derivative transactions is generated by the potential for the counterparty to default on its contractual obligations when one or more transactions have a positive market value to the company. Therefore, derivative-related credit risk is represented by the positive fair value of the instrument and is normally a small fraction of the contract’s notional amount.
The total amount of premiums for new and renewal policies billed (written) during a specific reporting period from the primary insured.
Underwriting expenses including commissions, premium taxes and all general and administrative expenses, incurred in operating the underwriting business during a defined period and expressed as a percentage of net premiums earned for the same period.
The Facility Association is an entity established by the automobile insurance industry to ensure that automobile insurance is available to all owners and licensed drivers of motor vehicles where such owners or drivers are unable to obtain automobile insurance through the private insurance market. The Facility Association serves the following provinces and territories: Alberta, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Yukon.
Foreign exchange rate risk is the risk that the value of a foreign-denominated financial instrument will fluctuate as a result of changes in foreign exchange rates.
Forward contracts are effectively tailor-made agreements that are transacted between counterparties in the over-the-counter market, whereas futures are standardized contracts with respect to amounts and settlement dates, and are traded on regular future exchanges.
Interest rate forwards and futures are contractual obligations to buy or sell an interest-rate sensitive financial instrument on a predetermined future date at a specified price.
Currency forwards and futures are contractual obligations to exchange one currency for another at a specified price for settlement at a predetermined future date
Total number of claims reported in a specific period.
Reserves for estimated claims that have been incurred but not yet reported and a reserve for future developments on claims which have been reported.
Industry pools consist of the “residual market” as well as risk-sharing pools (“RSP”) in Alberta, Ontario, Quebec, New Brunswick and Nova Scotia. These pools are managed by the Facility Association except for the Quebec RSP.
Financial assets owned by the company including debt and equity securities and loans.
Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet cash flow commitments associated with financial instruments.
Federally regulated property and casualty insurers, including our Canadian insurance subsidiaries, must meet a minimum capital test (“MCT”) that assesses the insurer’s available capital in relation to its required capital and requires that available capital equal at least the minimum capital requirement. OSFI expects insurers to establish a target capital level above the minimum requirement, and maintain ongoing capital, at no less than the supervisory target of 150% of required capital under MCT.
Yield calculated using the interest and dividend income for the period divided by the average fair value of invested assets calculated monthly including cash equivalents but excluding cash balances.
Market yield adjustment
The market yield adjustment (MYA) reflects the impact of changes in the discount rate applied to discount claims liabilities based on the market-based yield of the underlying assets.
Market yield effect
The difference between the market yield adjustment (MYA) and the gains and losses on held-for-trading (HFT) debt securities. The MYA is matched with gains and losses on HFT debt securities. The objective is that these two items offset each other with a minimal overall impact to income.
After-tax net income less net gains on invested assets and other gains. This is a key profitability measure.
The portion of premiums written that is recognized for accounting purposes as revenue during a period.
Direct premiums written for a given period less premiums ceded to reinsurers and retrocessionaries during such period.
The difference between net premiums earned and the sum of net claims incurred, commissions, premium taxes and general expenses. This is a key profitability measure.
The contract amount used as a reference point to calculate payments for derivatives.
A program for the repurchase of our own common shares, for cancellation through a stock exchange, that is subject to the various rules of the relevant stock exchange and securities commission.
Options are contractual agreements under which the seller (writer) grants the purchaser the right, but not the obligation, either to buy (call option) or sell (put option) an interest rate at a predetermined price, at or by a specified future date. The seller (writer) of an option can also settle the contract by paying the cash settlement value of the purchaser’s right. The seller (writer) receives a premium from the purchaser for this right.
Prior year claims development is the change in total claims liabilities in a given period. A reduction to claims liabilities is called favourable prior year claims development. An increase in claims liabilities is called unfavourable prior year claims development.
An amount added to undiscounted case reserves and IBNR to account for adverse deviation from claims reserve estimates.
An insurance company that agreed to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance or reinsurance risks underwritten by the ceding company, under one or more policies.
Net income for the last 12 months divided by the average equity for the same period. The average is calculated by adding the beginning balance and the ending balance and dividing by two. The equity includes accumulated other comprehensive income.
Average cost of a claim calculated by dividing the total cost of claims by the total number of claims.
Capital invested by the shareholders plus retained earnings.
Over-the-counter contracts in which two counterparties exchange a series of cash flows based on agreed upon rates to a notional amount.
Currency swaps
Currency swaps include single currency, cross currency and cross currency interest rate swaps. Single currency swaps are agreements where two counterparties exchange a series of payments based on different interest rates applied to a notional amount in a single currency. Cross currency swaps involve the exchange of fixed payments in one currency for the receipt of fixed payments in another currency. Cross currency interest rate swaps involve the exchange of both interest and principal amounts in two different currencies.
Total return swaps
Total return swaps are contracts in which one counterparty agrees to pay or receive from the other cash flows based on changes in the value of an equity index, a basket of stocks or a single stock.
The number of vehicles in automobile insurance, the number of premises in personal property insurance and the number of policies in commercial insurance (excluding commercial auto insurance).
