Excellence, Expertise, Experience Every time - The Guarantee · Surety The Guarantee launched the...
40
Excellence, Expertise, Experience ... Every time
Transcript of Excellence, Expertise, Experience Every time - The Guarantee · Surety The Guarantee launched the...
Excellence, Expertise, Experience ... Every time
(Page intentionally left blank)
(Page intentionally left blank)
4
ANNUAL REPORT
Table of Contents
Message from Alister Campbell, President & CEO 6
Message from Stephen C. Ruschak, President & COO, USA 8
Delivering on our Commitments 10
Surety 10GUARANTEE GOLD
® 10
Corporate Insurance 10Personal Lines 11Transportation 11Guarantee SUPERIOR 11
Investing in the Community 12
Community Volunteer Program 12Holiday Card Program 12Read-a-thon Program 12Shaw Festival 13United Way 13Canadian Cancer Society 13Women in Insurance Cancer Crusade (WICC) 13
2014 Consolidated Financial Statements 14
Consolidated Statement of Financial Position 14Consolidated Statement of Comprehensive Income 15Consolidated Statement of Changes in Shareholder’s Equity 16Consolidated Statement of Cash Flows 17Notes to the Consolidated Financial Statements 18
Role of the Actuary and the Auditors 32
Independent Auditors’ Report 33
10 Year Review 34
Shareholder’s Equity 34
Gross Premiums Written 34
Office Locations (Canada & USA) 36
Directors & Officers List 38
5
2014
After a difficult 2013 year characterized by significant catastrophe events in Calgary and Toronto, 2014 was also unfortunately affected by an increased number of large losses in several of our specialized business segments. We started the year with a significant ice storm in Toronto, and all of Central Canada was victimized by a polar vortex that generated significant underwriting losses in our high-value homeowner specialty line. However, every quarter after the first one saw material improvement, and we finished 2014 with an excellent final quarter and strong year-over year growth.
Despite our disappointing underwriting results, an excellent result from our investment team meant that we still were able to generate
positive comprehensive income for our shareholder, thus increasing our already strong capital position for our business partners and shareholder.
We grew several of our business segments significantly during the year, including Commercial and Developer Surety, GUARANTEE GOLD® and our new Transportation specialty segment. We also saw another outstanding year from our US team.
Over the course of 2014, we continued to build on our proud legacy of market leadership and product innovation. We introduced new products or innovations in many lines of business, including our new
AlisterCampbellPresident & Chief Executive Officer,The Guarantee Company of North America
6
ANNUAL REPORT
HEADSTART PERFORMANCE BONDTM for Surety, Miscellaneous Errors and Omissions for Corporate Insurance, and a series of leading-edge enhancements for our GUARANTEE GOLD products.
Despite challenging times, we have also continued to invest in our Information Technology “platform of the future”. Over the next few months, we will launch our new Data Warehouse and our new ClaimCentre. In addition, we are nearing completion of development for our new policy administration and billing system. Many members of the hardworking team here at The Guarantee have been putting in long hours to help make these new systems a reality. The results of their hard work will begin to pay off in the next few
quarters, and position us well to outperform the market in broker and customer service in the years to come.
I would like to close by thanking all our employees for their passion, dedication and commitment in a challenging year. They are all deeply conscious of our accountability to build on the legacy established by the generations of The Guarantee employees before them. I have no doubt that their hard work will pay off in 2015.
7
2014
Stephen C. RuschakPresident & Chief Operating Officer,The Guarantee Company of North America, USA
The Guarantee Company of North America USA is very proud of the excellent results delivered in 2014. The hard work and dedication of our team over the last few years has really paid off. It is very satisfying for all of us to have repaid the long-term confidence and support of our parent company and shareholder. Even better, we believe that The Guarantee US is now poised to deliver sustained profitable growth in the years to come.
In 2014, The Guarantee US generated $7 million USD of Net Underwriting Profit with a Combined Ratio of 79.3%. Our performance was helped by relatively benign claims experience as evidenced by our Net Incurred Loss Ratio of 12.5%. We have also seen the results of our disciplined focus on expense management as a monoline surety company
and reduced our Net Expense Ratio to 66.8%. Our challenge in the near term remains the need to continue profitably growing into our expense structure.
Our recent success is the direct result of the talented team we have assembled and their deep relationships with professional surety agents and brokers. We have been creating a work environment that has allowed us to recruit and retain first-class surety professionals. This has created stability and consistency of underwriting appetite and execution of strategy that fosters our partnerships with producers. This consistent approach to the market is the main reason we have been able to profitably grow over 70% since 2011, including 11.3% in 2014. We believe that we have been responsible in our approach to new business
8
ANNUAL REPORT
opportunities, and we are confident that the same approach will serve us well in the future.
We are not resting on our laurels. As a team, we are continually looking to improve our company. We understand that we must consistently deliver strong underwriting results while evolving into a leading provider of small and middle market surety products. We have invested significantly in technology that will make all of our underwriters more efficient and effective. We also want to continue our investment in people by increasing our efforts to develop new underwriting talent internally.
The surety market has proven to be highly profitable over a sustained period of time. This means that more competition and new competitors will continue to raise new
challenges for us. As a result, it is our primary objective to seek to provide exemplary service to our producer partners and surety principals, so that we may all succeed in the future.
9
2014
SuretyThe Guarantee launched the HEADSTART PERFORMANCE BOND™ in early 2014. Project delay is a significant risk for a general contractor and costly delay damages due to a default can quickly make a project unprofitable. The HEADSTART PERFORMANCE BOND provides a prompt response, transparency and collaboration with the general contractor to get a project back on track as fast as possible after a subcontractor default. We are proud to offer this innovative solution and have received very favourable industry feedback since its launch.
GUARANTEE GOLD®
In September 2014, The Guarantee introduced enhanced GUARANTEE GOLD® wordings across Canada. Based on broker
feedback regarding evolving customer needs, these enhancements demonstrate our dedication to offering customers the very best insurance protection for their most valued assets. Some of these enhancements include coverage for parents in a nursing home and students away from home. New products such as GUARANTEE GOLD Vintage and Reserve (wine
collection insurance) and GUARANTEE GOLD Guard, which goes beyond a homeowner policy to protect customers and their families were also introduced. Additional enhancements were made to homeowner, condo, tenant, secondary and seasonal products, and much more to meet the needs of brokers and VIP customers. In addition, we developed the GUARANTEE GOLD Appraisal and Risk Management Guide, which includes tips on seasonal home maintenance and advice on water damage prevention that brokers can share with their clients.
Corporate InsuranceThe Guarantee introduced Side A DIC Shield in early 2014, providing extra assurance to directors and officers in public, private and not-for-profit organizations in all situations where they are not indemnified by the organization. This additional Side A DIC coverage fills in the gaps under the traditional policy by responding when the traditional policy does not. It protects the individual directors and officers in the face of bankruptcy, and fully protects the personal assets of individual directors and officers.
The Guarantee also released an enhancement to the Fiduciary Liability Insurance policy called Fiduciary Shield. These new wordings provide clarity around
Delivering on our CommitmentsThe Guarantee is committed to being an industry leader for surety and specialty insurance in the North American marketplace by strengthening our product lines, focusing on new product innovation, and building on a solid foundation of more than 140 years of experience.
G U A R A N T E E G O L D ®
10
ANNUAL REPORT
coverage definitions and also provides additional contract certainty for target customers.
In October 2014, The Guarantee introduced Miscellaneous Errors and Omissions insurance across Canada. This new offering is designed to provide necessary coverage and defence for financial loss for alleged negligent acts, errors, or omissions arising out of a client’s professional services.
Personal LinesIn March 2014, The Guarantee partnered with Brovada Technologies to launch a new eDocs Solution for personal lines brokers. Designed to save brokers time by allowing for easy download of policy documents to a broker management system, eDocs enables streamlined workflows and increases the ease of doing business with The Guarantee.
TransportationThe Guarantee has partnered with industry experts to provide Transportation clients
with value-added tools and resources to improve their business. Our partnerships include smart monitoring and tracking of assets, cargo security, online driver training, 24-hour claims reporting, legal expense insurance, identity and data risk management, credit insurance, and 24-hour spill reporting.
TransCred was another new product introduced in 2014. It was designed to serve as a flexible product for trucking or logistics companies who need cost-effective solutions for accounts receivable insurance, including the ability to insure top 10 buyers and specific named buyers, or an entire buyer portfolio.
The Guarantee’s Transportation Go-To Solution online portal and mobile app received a refresh in late 2014. New features in the Go-To Solution mobile app bring the power of instant communication, user ID and geo-location to transportation clients, while the refreshed Go-To Solution online portal adds clarity to enhance the user experience — including easy access to our strategic partners. For more information, visit theguaranteegotosolution.com. (Product not available in Quebec.)
Guarantee SUPERIORIn 2014, we introduced the Guarantee SUPERIOR Umbrella Policy, providing extensive additional coverage for residential policyholders in Ontario.
11
2014
Community Volunteer Program The Community Volunteer Program distributed funds to Canadian charities chosen by volunteering employees. Those meeting the eligibility requirements, which include 50 hours of volunteer work in the program year, select a Canadian charity to receive $750. In 2014, the program donated $40,500 to employee-directed charities.
Holiday Card Program This program illustrates The Guarantee’s spirit of giving during the holiday season. In 2014, $50,000 was donated to Girl Guides of Canada in support of a new programming initiative focused on Threat Risk Assessments and Managing Risk E-Learning Training for volunteers. Guiding provides a safe environment that invites girls to challenge themselves, find their voice, meet new friends, and have fun while making a difference in the world. We are pleased to support Girl Guides of Canada for a second year through our Holiday Card Program.
In the US, a donation was also made to The Surety Foundation — an organization that serves as the vehicle to fund internship and scholarship opportunities in the surety and fidelity industry as well as educational and public service program initiatives.
Read-a-thon ProgramIn 2014, The Guarantee re-launched the Read-a-thon Program, which provides an opportunity for employee’s children and grandchildren between the ages of 4 and 15 to raise funds to build a school in Ecuador. Through this program, we raised funds for Free The Children, an international charity and educational partner working to empower and enable youth to be agents of change with a strong focus on education.
Investing in the CommunityThe Guarantee’s support of registered charities demonstrates our aim to make a real difference in the lives of people in our communities. Our partnership with The Cowan Foundation — sustained by the ongoing success of the Princeton Holdings group of companies, including The Guarantee — allows us to focus our charitable efforts on communities where we live, work and do business.
Here is a snapshot of The Guarantee’s 2014 charitable involvement:
12
ANNUAL REPORT
Shaw FestivalIn 2014, The Cowan Foundation supported the Shaw Festival’s Tuesday Q&A Program through a $25,000 donation. The Q&A offered patrons an opportunity to be part of a question and answer session with members of the show. The GUARANTEE GOLD line of business contributed a sponsorship that allowed The Guarantee to offer hospitality benefits and a private theatre tour for our key stakeholders along with employee engagement benefits.
Note: The Community Volunteer Program, Holiday Card Program and Read-a-thon Program are funded through The Cowan Foundation. To learn more about The Cowan Foundation, visit cowanfoundation.ca
The Guarantee also supported other notable charities in 2014. A few of the charitable activities to highlight include:
United Way In 2014, The Guarantee held an employee fundraising campaign on behalf of United Way, and along with a corporate match, donated $137,887. Our donation will help fund United Way programs and services that create opportunities for a better life in communities across Canada.
Canadian Cancer SocietyThe Canadian Cancer Society’s Relay For Life is an inspirational, non-competitive, 12-hour fundraising event where teams take turns walking laps throughout the night — bringing friends, family, and co-workers together to celebrate life and fight cancer. Several employees from The Guarantee participated in Relay For Life events in Ontario and British Columbia, and raised a combined total of $25,000 on behalf of The Guarantee.
Women in Insurance Cancer Crusade (WICC)In 2014, The Guarantee became a national sponsor for WICC Ontario by contributing $15,000 to assist in their mission to support cancer awareness initiatives with their long-standing partner, the Canadian Cancer Society.
13
2014
AssetsCash and cash equivalents 81,650 127,110Financial investments 5 926,803 844,474Accounts receivable 6 110,347 117,864Deferred premium acquisition costs 11 55,944 53,502Provision for recoverable portion of unpaid claims 164,853 156,112Unearned premiums - ceded 37,208 34,195Deferred income taxes 7 8,351 5,545Property and equipment 8 2,577 2,711Intangible assets 9 9,165 8,333
1,396,898 1,349,846Liabilities and shareholder’s equityLiabilitiesAccounts payable 10 38,381 47,019Deferred commissions 12,002 11,440Unpaid claims - gross 11 654,162 625,577Unearned premiums - gross 11 200,491 186,862 905,036 870,898Shareholder’s equityCapital stock 12 936 936Contributed surplus 811 811Accumulated other comprehensive income 20,522 2,871Retained earnings 469,593 474,330 491,862 478,948 1,396,898 1,349,846
See accompanying financial statement notes The Board of Directors approved and signed the Consolidated financial statements on February 25, 2015
Director Maureen Cowan Chairman of the Board
The Guarantee Company of North AmericaConsolidated Statement of Financial Position As at December 31, 2014
(in thousands of Canadian dollars) Notes 2014 2013
Director Alister Campbell President & Chief Executive Officer
14
ANNUAL REPORT
Gross premiums written 422,330 387,816Ceded reinsurance premiums written 108,052 97,219Net premiums written 4 314,278 290,597
Gross premiums earned 410,312 379,433Ceded reinsurance premiums earned 105,378 94,811
Net premiums earned 304,934 284,622Net investment income 5 26,360 52,444 Revenue 331,294 337,066 ExpensesClaims incurred, gross 237,986 264,284Less claims incurred, ceded 48,007 62,493Claims incurred, net 11 189,979 201,791Commissions, net of reinsurance 77,936 58,507Premium taxes 9,783 9,063Other underwriting and administrative 55,554 51,215 333,252 320,576
(Loss) earnings before income tax recovery (1,958) 16,490 Income tax recoveryCurrent (2,772) (1,688)Deferred (2,906) 941 7 (5,678) (747)Net earnings 3,720 17,237Other comprehensive income Items that may be reclassified subsequently to net earningsUnrealized investment gains, net of income taxes 3,551 11,259Unrealized foreign exchange gains on consolidation 14,100 11,385 17,651 22,644Items that will not be reclassified subsequently to net earningsRemeasurement of the net defined benefit liability, net of income taxes (784) 2,853Other comprehensive income, net of income taxes 16,867 25,497Comprehensive income 20,587 42,734Net earnings per common share ($) 19.87 92.10Comprehensive income per common share ($) 110.00 228.34
The Guarantee Company of North AmericaConsolidated Statement of Comprehensive Income For the year ended December 31, 2014
(in thousands of Canadian dollars, except net earnings and comprehensive income per common share) Notes 2014 2013
See accompanying financial statement notes15
2014
Balance at December 31, 2012 936 811 (19,773) 461,913 443,887 Changes in equity for the yearNet earnings - - - 17,237 17,237Dividends paid - - - (7,673) (7,673)Unrealized investment gains, net of $5,534 tax expense - - 11,259 - 11,259Unrealized foreign exchange gains on consolidation - - 11,385 - 11,385Remeasurement of the net defined benefit liability, net of $1,028 tax expense - - - 2,853 2,853 Balance at December 31, 2013 936 811 2,871 474,330 478,948 Changes in equity for the yearNet earnings - - - 3,720 3,720Dividends paid - - (7,673) (7,673)Unrealized investment gains, net of $1,290 tax expense - - 3,551 - 3,551Unrealized foreign exchange gains on consolidation - - 14,100 - 14,100Remeasurement of the net defined benefit liability, net of $282 tax recovery - - - (784) (784) Balance at December 31, 2014 936 811 20,522 469,593 491,862
See accompanying financial statement notes
Accumulated other comprehensive income is comprised of foreign-exchange gains and losses arising from currency translation from functional currencies into the Company’s presentation currency and unrealized gains and losses, net of related income taxes, arising from recording available-for-sale investments at fair value. Included in the December 31, 2014 accumulated other comprehensive income balance is income tax expense of $11,106 (December 31, 2013 – income tax expense of $9,816).
The Guarantee Company of North AmericaConsolidated Statement of Changes in Shareholder’s Equity For the year ended December 31, 2014
(in thousands of Canadian dollars)Capital Stock
Contributed Surplus
Retained Earnings Total
Accumulated other comprehensive income (loss)
16
ANNUAL REPORT
Cash flows provided by (used in) Operating activitiesReceipts (payments) of
Premiums - net of commissions 330,985 298,324Interest and dividends 34,269 33,434Sales of financial instruments 346,390 590,649Purchases of financial instruments (421,838) (516,172)Purchases of equipment (1,895) (2,302)Claims - net of salvage and subrogation (200,307) (221,617)Reinsurance premiums - net of claims paid (51,130) (43,348)Expenses (61,799) (46,837)Income taxes 1,768 (13,850)Other taxes (14,230) (11,630)
(37,787) 66,651Financing activities
Dividends paid (7,673) (7,673) (Decrease) increase in cash and cash equivalents (45,460) 58,978
Cash and cash equivalents - beginning of year 127,110 68,132
Cash and cash equivalents - end of year 81,650 127,110
See accompanying financial statement notes
The Guarantee Company of North AmericaConsolidated Statement of Cash Flows For the year ended December 31, 2014
(in thousands of Canadian dollars) 2014 2013
17
2014
1. REPORTING ENTITY
The Guarantee Company of North America and its wholly owned subsidiary, The Guarantee Company of North America USA, (the “Company”) underwrite property and casualty insurance in both Canada and the United States of America. The Guarantee Company of North America is a wholly owned indirect subsidiary of Princeton Holdings Limited, an Ontario, Canada based company.
2. BASIS OF PREPARATION
Statement of compliance
These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). These consolidated financial statements and the accompanying notes were authorized for issue in accordance with a resolution of the Board of Directors on February 25, 2015.
Basis of measurement
All assets and liabilities are presented on a fair value basis except for property, equipment, intangible assets, and certain financial instruments which are measured at historical or depreciated cost.
Functional and presentation currency
Transactions recorded in the financial statements of each company are measured using the currency of the primary economic environment in which each company operates (the “functional currency”). All amounts in these financial statements are presented in Canadian dollars, which is the parent’s functional currency.
Use of estimates and judgements
Preparation of financial statements in conformity with IFRS requires that management make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Actual results may differ from these estimates. All estimates and underlying assumptions are reviewed annually, and any revisions to accounting estimates are recognized prospectively. Reported claims liabilities, deferred premium acquisition costs, deferred income taxes and employee future benefits require the use of estimates and judgements to determine the amount reported.
3. SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise indicated, the accounting policies set out below have been applied consistently to all periods presented in these financial statements.
Basis of consolidation
An entity is considered a subsidiary of the Company if the Company has the power over the relevant activities of the investee, and is exposed or has the rights to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The results and cash flows relating to subsidiaries acquired or disposed of in the year are included in the consolidated statement of comprehensive income and the consolidated statement of cash flows from the date of acquisition or up to the date of disposal. All inter-company transactions, balances and profits are eliminated.
Business combinations are accounted for using the acquisition method. The acquisition method requires that the acquirer recognize, separately from goodwill, the identifiable assets acquired, the liabilities assumed and any non-
The Guarantee Company of North AmericaNotes to the Consolidated Financial Statements Year ended December 31, 2014 (Unless otherwise stated, all accounts are in thousands of Canadian dollars)
18
ANNUAL REPORT
controlling interest in the acquiree at the acquisition date. Acquisition costs directly attributable to the acquisition are expensed in the year. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value at the date of the acquisition, irrespective of the extent of any non-controlling interest. Contingent consideration is also measured at fair value. The Company measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. After initial acquisition, goodwill is measured at cost less any accumulated impairment losses.
Foreign currency
The assets and liabilities of foreign operations are translated from their functional currencies into the Company’s presentation currency using year end exchange rates, and their income and expenses using average exchange rates for the year. Exchange differences arising from the translation of the net investment in foreign operations are taken to the currency translation reserve within equity. On disposal of a foreign operation, such exchange differences are transferred out of this reserve and are recognized in the consolidated statement of comprehensive income as part of the gain or loss on sale.
Foreign-currency transactions are translated into the functional currency using exchange rates prevailing at the date of the transactions. Exchange gains and losses resulting from the settlement of such transactions, and from the translation of monetary assets and liabilities denominated in foreign currencies, are recognized in the consolidated statement of comprehensive income.
Intangible assets
On acquisition of a subsidiary, the Company records as goodwill the excess of the cost of an acquiree over the fair value of the Company’s share of net identifiable assets acquired. Subsequently, the value of goodwill is tested annually for impairment and adjusted accordingly through net earnings.
On acquisition, licences are recorded at their fair value. Subsequently, licenses are measured at cost less all impairment losses. The value of licenses is tested annually for impairment and appropriate adjustments are recorded through net earnings. Such adjustments are never reversed.
Computer software is carried at historical cost less accumulated depreciation. The value of computer software is depreciated over a useful life of between three and five years, using the straight-line method beginning when software is implemented. The amortization charge for the period is included in net earnings within other underwriting and administrative expenses.
Property and equipment
On acquisition, property and equipment are recorded at cost. Subsequently, depreciation is provided over the useful lives of the depreciable assets using the declining balance and straight-line methods at rates ranging from 4% to 33%. Depreciation methods, useful lives and residual values are reviewed at each financial year end and are adjusted if appropriate. The value of land is not depreciated.
Financial instruments
Cash and cash equivalents include cash on hand, deposits with banks, other short-term, highly liquid investments with original maturities of three months or less from the date of acquisition and bank overdrafts.
Cash, cash equivalents and short term money market instruments with maturities up to one year from the date of issue are classified as fair value through profit or loss (FVTPL) and are recorded on the consolidated statement of financial position at fair value with all related gains and losses recorded in net earnings.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Basis of consolidation (continued)
19
2014
Loans, receivables, accounts payable and accrued liabilities are measured at a cost which approximates fair value. Management has designated all other financial assets as available-for-sale.
Available-for-sale financial assets, with quoted prices in an active market, are carried at fair value on the consolidated statement of financial position from the trade date. Changes in fair value of equities are recorded, net of income taxes, in other comprehensive income until the financial asset has been sold, after which time the full amount of gain or loss is recorded in net earnings.
Changes in the difference between the fair value of available-for-sale bonds and the amortized value of such bonds is recorded, net of income taxes, in other comprehensive income until the financial asset has been sold, after which time the full amount of gain or loss is recorded in net earnings. The amortization of premiums and discounts on the purchase of bonds is calculated using the effective interest rate method. When an asset classified as available-for-sale is sold, the accumulated fair-value adjustments recognized in accumulated other comprehensive income are reclassified to net earnings and a corresponding adjustment, net of income taxes, is made to other comprehensive income.
The Company’s financial instruments are priced using quoted, unadjusted bid prices in active markets for identical assets or liabilities.
Interest income is recognized on an accrual basis and dividend income is recognized on the ex-dividend date.
Impairment of financial assets
A financial asset not designated as FVTPL is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
Objective evidence that financial assets are impaired include default or delinquency by the debtor, indications that the issuer of a security will enter bankruptcy, economic conditions that correlate with defaults or the disappearance of an active market for a security, or a significant or prolonged decline in fair value of an equity security below its cost.
Impairment losses on available-for-sale financial assets are recognized by reclassifying losses accumulated in other comprehensive income to net recognized losses included in net investment income. The cumulative loss that is reclassified from accumulated other comprehensive income to net earnings is the difference between the acquisition cost, net of any principal repayment and amortization, and the current fair-value, less any impairment loss recognized previously in net earnings. Changes in impairment provisions attributable to the application of the effective interest rate method are reflected as a component of investment income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized in net earnings, then the impairment loss is reversed, with the amount of the reversal recognized in net earnings. Any subsequent recovery in fair value of an impaired available-for-sale equity security is recognized in other comprehensive income.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments (continued)
20
ANNUAL REPORT
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
Tax expense (recovery) comprises current and deferred tax. Tax is recognized in net earnings except to the extent that it relates to items recognized in other comprehensive income or directly in equity.
Current tax expense (recovery) is based on net earnings for the period as adjusted for items that are not taxable or not deductible. Current tax is calculated using tax rates and laws that were enacted or substantively enacted at the end of the reporting period.
Deferred income taxes are provided in respect of assets and liabilities for which book values differ from tax values at rates expected to be enacted or substantively enacted when differences reverse. They result principally from provisions of the Income Tax Act (Canada) requiring discounting of claims and permitting application of prior year losses against taxable income of future years.
Insurance and reinsurance contracts
The Company’s business comprises short-term, non-participating property and casualty contracts that transfer significant risk. The Company accepts and transfers significant risk in the normal course of business at varying retention limits.
Gross premiums written comprise premiums assumed from other insurers and premiums received directly from insured parties in respect of risks incepting during the financial year. Premiums are stated before the deduction of brokerage and commission but net of taxes and duties paid by the insured. Estimates are included for premiums recorded after period-end in respect of contracts incepting during the accounting period and an allowance is also made for cancellations. Premiums are recognized as revenue (premiums earned) proportionally over the period of coverage. The portion of premium receivable or received in respect of in-force contracts that relates to unexpired risks at the consolidated statement of financial position date is reported as unearned premium liability which represents the Company’s obligation to settle losses that will occur during the unexpired portion of the policy period.
Premiums ceded to reinsurers are accounted for using the same rules of revenue recognition adopted for gross premiums. Deferred premium acquisition costs, including primarily brokers’ commissions and premium taxes are, to the extent that they are considered recoverable, deferred and amortized over the terms of the related premiums. If, in the estimation of management, unearned premiums and investment income on those premiums are insufficient to meet the policy obligations expected in respect of unexpired policies at period-end, the shortfall is deducted from deferred premium acquisition costs. Reinsurance commissions give rise to deferred commission revenue which is accounted for in the same way as deferred premium acquisition costs.
Liabilities for unpaid claims include the Company’s estimates of loss and adjustment expenses for reported and unreported claims less estimated recoveries expected on these claims. These estimates are calculated in accordance with accepted, current actuarial practice for Canadian property and casualty insurers and are based upon past claims experience modified for current trends as well as prevailing economic, legal and social conditions. They are discounted at rates, presently 4.1% (2013 - 4.3%), that are determined by reference to the Company’s rate of return on its invested assets, which adjustment reduces the stated liability by approximately 15.0% (2013 – 15.0%), and increased by actuarially determined provisions intended to allow for uncertainty inherent in the estimation process which adjustment increases the stated liability by approximately 16.0% (2013 – 15.0%). Such estimates are continually reviewed and updated and all resulting adjustments, which can be material, are reflected in current operating results. Methods of estimation have been used which the Company believes produce reasonable results given current information. All movements in claims assets and liabilities are recorded through net earnings.
21
2014
Employee future benefits
The Company maintains pension plans for the benefit of its employees. Every three years, and most recently in respect of the 2013 year end, the Company obtains an actuarial valuation where required for these plans and the Company administers and invests the plan assets primarily in equities and fixed income securities. The Company revises these valuations, using up-to-date estimates of plan yields and discount rates, at each of the two subsequent year ends. The pension costs are assessed using the projected unit credit method whereby the cost of providing pensions is charged to the consolidated statement of earnings so as to spread the regular cost over the service lives of employees.
At each fiscal year end, the Company estimates the present value of all plan obligations and calculates its net pension liability by subtracting the fair value of assets in the plans from the value of all obligations. The present value of all obligations is determined as the present value of all future inflows of employee contributions and outflows of plan benefits and expenses, discounted using rates of return consistent with those earned on high quality commercial bonds. When the calculation results in a potential asset for the Company, the recognized asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. Any minimum funding requirements are considered when calculating the present value of economic benefits.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized in other comprehensive income and then recognized immediately in retained earnings on the consolidated statement of financial position as they will not be reclassified to net earnings in subsequent periods. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligations at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.
Comprehensive Income
Comprehensive income comprises net earnings and other comprehensive income and includes all changes in equity during the year, except those resulting from investments by and distributions to owners. Changes in unrealized gains and losses on available-for-sale investments are recorded in other comprehensive income and in accumulated other comprehensive income on the consolidated statement of financial position until such time as the underlying asset is sold, at which time the appropriate balances are transferred to net earnings and to retained earnings. The changes in valuation of assets held by the Company’s self-sustaining foreign subsidiaries that occur as a result of translation of these amounts into Canadian currency are recorded in other comprehensive income and in accumulated other comprehensive income.
Adoption of new accounting standards
Effective January 1, 2014, the Company adopted the following accounting standards:
Amendments made to IAS 32 Financial Instruments: Presentation became mandatory for annual periods beginning on or after January 1, 2014. These amendments provide additional clarification as to when a financial asset and liability may be offset and enhance the related disclosure requirements. The adoption of this amended standard did not result in any changes to the Company’s financial statements.
New standards and interpretations not yet adopted
IFRS 9 Financial Instruments will replace IAS 39 Financial Instruments: Recognition and Measurement and will limit the options currently available to determine the classification and measurement of financial assets. The provisions of this standard were to apply to financial statements for accounting periods beginning on or after January 1, 2018.
The impact of the above new and amended standards on the financial statements has not yet been determined.
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
22
ANNUAL REPORT
4. RISK MANAGEMENT
Objectives and policies for mitigating business risk
The Company has identified the following risk areas: insurance, market, credit, liquidity, currency, and capital management. The Company has various procedures in place to manage these exposures. These procedures have been embedded into decision making processes and the culture of the business. They include an overall risk management framework together with a set of clearly defined risk policies which articulate the Company’s risk appetite.
Insurance risk
Insurance risk is the risk that the total cost of claims and adjustment expenses will exceed premiums received. The Company has identified pricing, concentration and reserving as the most significant sources of insurance risk.
Underwriting and pricing controls are in place, underpinned by sound analysis, market expertise, guidelines, policies and procedures. The Company manages risks to limit severity through its underwriting strategy, a comprehensive reinsurance program, and proactive claims handling.
Pricing risk arises when actual claims experience differs from the assumptions included in pricing calculations. The Company focuses on profitable underwriting using a combination of experienced underwriting staff, underwriting risk tolerance guidelines and price adequacy models. The Company’s pricing is designed to ensure an appropriate return on capital while also providing long-term stability.
Concentrations of risk arise when the Company issues policies to many insured’s within groups that are exposed to loss from single events. The Company mitigates concentration risk by diversifying its underwriting across many geographical areas and different lines of business. The Company also maintains a comprehensive programme of proportional and excess of loss reinsurance.
Distribution of gross and net premiums
2014 2013Gross Net Gross Net
Surety and corporate insurance 150,252 109,086 140,401 101,158Property 119,314 94,292 104,910 81,995Auto 99,407 84,796 92,074 81,086Liability 53,357 26,104 50,431 26,358
422,330 314,278 387,816 290,597
Reserving risk arises when actual ultimate incurred claims and adjustment expenses differ from the amounts estimated at the end of prior accounting periods. Claims settlements arising from liability lines of business are difficult to predict. The inherent risk in setting reserves is influenced by external factors such as economic inflation, medical inflation, court interpretations of coverage, the regulatory environment and changes in legislation and jurisprudence.
These factors lead to uncertainty as to when a claim will be settled, and with respect to the amount and timing of any payments. Late notification of claims necessitates holding provisions for events that are unknown to the insurer when the provisions are established.
23
2014
Minimum reserves for certain types of claims, periodic review of all reserves, and an annual actuarial review of the outstanding reserves are among the controls used to mitigate reserving risk. The Company considers the liability for unpaid claims and adjustment expenses to be adequate; however, given the inherent uncertainty in setting reserves, actual experience will differ from the expected outcome. Reserve changes associated with claims from prior years are recognized in net earnings. A 5.0% increase/decrease in the net average claims severity would have a corresponding $24,466 change in net claims liabilities. The changes would be recorded in the claims incurred in the consolidated statement of comprehensive income.
The following loss development tables show the development of undiscounted claims arising from all lines of business except development associated with industry-administered risk sharing pools and unallocated loss adjustment expenses.
Estimate of net ultimate claims at end of :
Market risk
The value of the Company’s investments fluctuates with credit spreads and movements in interest rates, equity markets, and prices of foreign currencies. The Company mitigates these risks by adopting a conservative asset mix and holding a well diversified portfolio.
The Company owns operations in the United States of America and accounts for these as self-sustaining operations. The value of these investments fluctuates depending on the relative value of Canadian and US dollars. This risk is mitigated by the fact that the Company’s operations in the United States and all its obligations from operations are denominated in US dollars.
Should the relevant composite index increase/decrease by 100 basis points, the Company’s portfolio of equity instruments will increase/decrease in value by between nil and $1,514, net of tax, with any change going to other comprehensive income. Should the yield curve for investment quality, fixed-income securities shift upward/downward by 100 basis points, the Company’s debt instruments would suffer a temporary decrease/increase in value of between nil and $8,624, net of tax, with this change going to other comprehensive income. Any change would gradually dissipate, again through other comprehensive income, as the Company’s existing debt instruments mature during the next five years. The same upward shift in the yield curve would enhance the yield on short-term money-market instruments, adding between nil and $1,036 before tax, to net earnings each year. Additionally a 100 basis point
Accident Years
2014 2013 2012 2011 2010 2009 2008 2007
Gross ultimate claimsEstimate of gross ultimate claims at end of:
First accident year 217,910 215,714 233,310 183,243 179,864 154,499 156,699 127,972
Most recent accounting year 217,910 224,880 239,643 189,363 178,192 156,660 165,030 147,943
Net ultimate claimsEstimate of net ultimate claims at end of:
First accident year 163,646 152,817 138,975 134,745 145,394 137,240 138,477 111,114
Most recent accounting year 163,646 165,991 143,007 136,841 147,623 142,033 152,701 133,101
Insurance risk (continued)
4. RISK MANAGEMENT (CONTINUED)
24
ANNUAL REPORT
Market risk (continued)
4. RISK MANAGEMENT (CONTINUED)
increase or decrease in interest rates would have an ($21,309), $23,160 change in net claims liabilities, respectively due to the change in the discount rate. The change would be recorded in claims incurred in the consolidated statement of comprehensive income.
Credit risk
The Company is exposed to the risk of credit losses, that is the failure of its debtors to pay amounts owed when due, on its investment portfolio and on amounts owed to it by its policyholders, reinsurers, and intermediaries. In order to mitigate this risk, management regularly reviews the Company’s investment portfolio to ensure that it complies with the Company’s investment policy which includes appropriate concentration limits and requirements for diversification, including a prohibition against holding more than 5% of its assets in the securities of any one issuer. Management also regularly assesses the creditworthiness of its principal debtors, including its reinsurers. The Company’s exposure to credit losses from any one individual policyholder or related group of policyholders is not material.
The Company estimates its aggregate exposure to credit risk as the sum of its reported fixed-income investments, accrued investment income, and insurance balances owing from policyholders and reinsurers as recorded on the statement of financial position. The aggregate gross credit exposure at December 31, 2014 was $444,981 ($401,017 at December 31, 2013).
All investment securities held by the Company at year end are rated investment grade or better. The following table summarizes the ratings of all bonds held by the company as of December 31, as determined by Standard & Poor’s:
2014 2013
AAA 23.4% 16.0%AA or better 22.9% 7.8%A of better 31.2% 49.8%A- 3.5% 9.5%BBB- or better 19.0% 16.9%
100.0 100.0
Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in raising funds to meet obligations associated with financial liabilities. The Company mitigates this risk by always holding sufficient cash equivalents to meet its ongoing claims and other obligations, the maturities of which are disclosed in Note 5.
The Company estimates that its financial liabilities at December 31 will be paid or otherwise discharged according to the following schedule:
2014 2013
Within 1 year 201,517 208,8652-5 years 292,658 282,966
6-10 years 123,150 112,67111 or more years 75,218 68,094
692,543 672,596
25
2014
4. RISK MANAGEMENT (CONTINUED)
Management of capital
The Company is subject to regulatory supervision by the Canadian Office of the Superintendent of Financial Institutions (OSFI). OSFI imposes on all property and casualty insurers a capital management regime called the minimum capital test, which requires the Company to determine its available capital, required capital, and excess capital, being the difference between available and required capital. The Company monitors these measures quarterly and consistently maintains its excess capital at levels in excess of 150% of required capital.
5. FINANCIAL INVESTMENTS
Short term investments - 32,712 32,712Bonds and debentures
Maturing within one year 158,658 - 158,658Maturing in one to five years 145,068 - 145,068Maturing in greater than five years 37,402 37,402
SharesPreferred 359,307 - 359,307Common 193,656 - 193,656
Balance at December 31, 2014 894,091 32,712 926,803
Short term investments - 70,178 70,178Bonds and debentures
Maturing within one year 125,075 - 125,075Maturing in one to five years 164,680 - 164,680
SharesPreferred 305,482 - 305,482Common 179,059 - 179,059
Balance at December 31, 2013 774,296 70,178 844,474
The Company reviewed currently available information for available-for-sale investments with unrealized pre-tax losses amounting to $31,263 (2013 - $12,163), of which $18,253 (2013 - $12,163) in losses have already been charged to other comprehensive income, net-of-tax, and determined that these declines in value do not represent impairments in value. Available for sale assets currently have unrealized gains of $58,750 (2013 - $45,091).
The Company uses a fair value hierarchy to categorize the inputs used in valuation techniques to measure fair value. The categories established under IFRS are use of quoted market prices, internal models using observable market information as inputs, and internal models without observable market information as inputs. The Company’s equity investments and bonds were priced only using quoted, unadjusted bid prices in active markets for identical or similar assets. There were no transfers between categories of the fair value hierarchy during 2014 or 2013.
Available-for-sale FVTPL Total
26
ANNUAL REPORT
5. FINANCIAL INVESTMENTS (CONTINUED)
Net investment income and gains on investments recorded through net earnings are as follows:
2014Interest income 5,678 600 6,278Dividend income 27,082 - 27,082Investment expenses (933) - (933)
Investment income 31,827 600 32,427Net recognized losses (6,260) 193 (6,067)Net investment income 25,567 793 26,360
2013Interest income 4,792 1,510 6,302Dividend income 22,548 - 22,548Investment expenses (930) - (930)Investment income 26,410 1,510 27,920Net recognized gains 23,825 699 24,524Net investment income 50,235 2,209 52,444
6. ACCOUNTS RECEIVABLE 2014 2013Brokers and policyholders 70,845 73,852Taxes recoverable 6,493 6,602Self-insured retentions 12,714 13,020Other insurers 13,527 18,883Accrued investment income and other 6,768 5,507 110,347 117,864
7. INCOME TAXES 2014 2013(Loss) earnings before income taxes (1,958) 16,490Statutory income tax rate - Canada 26.50% 26.50%Provision for (recovery) of income taxes at statutory income taxrate (519) 4,370(Decrease) increase in income taxexpense (recovery) due to: Dividend income (5,554) (5,570)Difference in tax rate on investment gains transferred from accumulated other comprehensive income 118 159 Other 201 179Impact of US Operation 76 115 Recovery of income taxes (5,678) (747)
Available-for-sale FVTPL Total
27
2014
7. INCOME TAXES (CONTINUED)
Components of deferred income taxes
2014 2013 2014 2013Deferred tax assets arising from:
Claims liabilities discount 6,877 6,124 (753) (277)Losses available for carry forward 4,080 1,795 (2,167) 1,128Property and equipment and other 2,394 2,235 3 129Unrealized investment gains in US operation (5,954) (5,292) 182 4,013Pension liability 954 683 (271) 989
Total deferred tax assets 8,351 5,545 (3,006) 5,982Included in:
Net earnings (2,906) 941Other comprehensive income (100) 5,041
8. PROPERTY AND EQUIPMENT
CostBalance at December 31, 2013 3,895 9,865 13,760Acquisitions 126 625 751Disposals - (3,435) (3,435)Foreign exchange movement 3 140 143Balance at December 31, 2014 4,024 7,195 11,219
Accumulated depreciationBalance at December 31, 2013 2,213 8,836 11,049Depreciation for the year 232 791 1,023Disposals - (3,435) (3,435)Foreign exchange movement - 5 5Balance at December 31, 2014 2,445 6,197 8,642
Carrying amount Balance at December 31, 2013 1,682 1,029 2,711Balance at December 31, 2014 1,579 998 2,577
Property Equipment Total
Consolidated statement of comprehensive income
Consolidated statement of financial postion
28
ANNUAL REPORT
9. INTANGIBLE ASSETS
Cost Balance at December 31, 2013 6,516 2,400 8,916Acquisitions 778 - 778Foreign exchange movement 18 218 236Balance at December 31, 2014 7,312 2,618 9,930
Accumulated depreciationBalance at December 31, 2013 583 - 583Depreciation for the year 188 - 188Foreign exchange movement (6) - (6)Balance at December 31, 2014 765 - 765
Carrying amount Balance at December 31, 2013 5,933 2,400 8,333Balance at December 31, 2014 6,547 2,618 9,165
10. ACCOUNT PAYABLE
Accrued expenses 3,355 3,210Reinsurance payable 9,662 15,030Taxes payable 1,394 1,910Investment payable - 5,588Accrued pension liability 3,596 2,572Deposits payable 7,205 7,794Other 13,169 10,915 38,381 47,019
11. POLICY LIABILITIESUnearned premiums Gross Net Gross NetUnearned premiums - opening 186,862 152,667 177,588 145,998Written premiums 422,330 314,278 387,816 290,597Earned premiums (410,312) (304,934) (379,433) (284,622)Foreign exchange movement 1,611 1,272 891 694 Unearned premiums - closing 200,491 163,283 186,862 152,667
Software and licenses Goodwill Total
2014 2013
2014 2013
29
2014
Deferred premium acquisition costs Gross Net Gross NetBalance deferred - opening 53,502 42,062 50,095 39,152Acquisition costs incurred 117,928 89,725 111,124 85,386Acquisition costs recognized in net earnings (115,486) (87,845) (107,717) (82,476)Balance deferred - closing 55,944 43,942 53,502 42,062
Claims liabilities Gross Net Gross NetUnpaid claims - opening 625,577 469,465 601,674 449,028
Current accounting-year losses incurred on current accident year 226,414 165,286 225,246 152,770Discounting on current-year losses (19,245) (12,601) (19,028) (10,988)Provision for adverse deviation on current-year losses 18,851 13,542 18,240 11,576 Current accounting-year losses incurred on prior accident years 21,518 23,918 35,673 37,242Change in discounting on prior-year losses 13,499 10,384 14,536 10,376 Change in provision for adverse deviation on prior-year losses (13,617) (10,550 (951) 815
Total losses incurred 247,420 189,979 273,716 201,791 Paid losses on prior accident years 145,914 109,224 173,300 117,529Paid losses on current accident year 72,921 60,911 76,513 63,825
Total paid losses 218,835 170,135 249,813 181,354 Unpaid claims - closing 654,162 489,309 625,577 469,465
12. CAPITAL STOCK 2014 2013AuthorizedUnlimited number of preference sharesUnlimited number of common shares
Issued187,147 common shares 936 936
13. RELATED - PARTY TRANSACTIONSThe Company conducts normal business transactions through related insurance intermediaries. All such business is transacted on a basis consistent with other similar intermediaries and represents net premiums written of $77,054 (2013 - $81,446). The Company participates in a cost sharing arrangement with its parent and affiliated companies to obtain management and administrative services as a group amounting to $2,811 (2013 - $1,420).Key management personnel are those individuals having authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including directors of the Company and its subsidiaries. Total compensation recognized for key management personnel in the year was $7,974 (2013 - $8,797).
11. POLICY LIABILITIES (CONTINUED)
2014 2013
2014 2013
30
ANNUAL REPORT
14. EMPLOYEE FUTURE BENEFITS 2014 2013Present value of future pension obligations 28,638 24,294Less: fair value of plan assets 25,042 21,722 Accrued pension liability in accounts payable 3,596 2,572
Movement in employee future benefit expense and other comprehensive income: Service cost 1,863 1,919Net interest on the net defined benefit liability 160 319Remeasurements of the net defined benefit liability 1,066 (3,881)Net pension plan costs recognized 3,089 (1,643)
Movement in present value of future defined-benefit pension obligations: 2014 2013Benefit obligation - opening 24,294 23,214Cost of benefits 1,597 1,792Interest on benefit obligation 1,278 1,108Actuarial (gain) loss 2,116 (1,045)Benefits paid (647) (775)Benefit obligation - closing 28,638 24,294
Assumptions: 2014 2013Discount rate 4.3% 5.0%Expected annual yield on plan assets 5.0% 4.5%Future annual salary increases 3.5% 3.5%Life expectancy for male pensioners Life expectancy for 85.9 yrs 84.6 yrsfemale pensioners 88.4 yrs 87.0 yrs
Composition of pension plan assets, at fair value: 2014 2013Cash and cash equivalents 10.6% 12.3%Debt instruments 32.0% 30.7%Equities 57.4% 57.0% Total 100.0% 100.0%
15. RATE REGULATIONAutomobile insurance, which accounts for approximately 25.0% (2013 – 26.0%) of the Company’s net written premium volume, is subject to rate regulation for all insurers in most jurisdictions. With respect to individually rated, private-passenger, automobile insurance, the Company is subject to provincial, prior-approval rate regulation that could result in the imposition of government mandated, retrospective rate reductions or modifications to standard policy terms and conditions.
31
2014
Role of the Actuary and the AuditorsThe actuary is appointed by the Board of Directors. With respect to preparation of the annual financial statements, the actuary is required to carry out a valuation of the policy liabilities and to report thereon to the policyholders and shareholders. The valuation is carried out in accordance with accepted actuarial practice in Canada and regulatory requirements. The scope of the valuation encompasses the policy liabilities as well as any other matter specified in any direction that may be made by the Superintendent of Financial Institutions. The policy liabilities consist of a provision for unpaid claims and adjustment expenses on the expired portion of policies and of future obligations on the unexpired portion of policies. In performing the valuation of the liabilities for these contingent future events, which are by their very nature inherently variable, the actuary makes assumptions as to future rates of claim frequency and severity, inflation, reinsurance recoveries, expenses and other contingencies, taking into consideration the circumstances of the Company and the nature of the insurance policies. The valuation is necessarily based on estimates, and consequently, the final values may vary significantly from those estimates. The actuary also makes use of management information provided by the Company and relies on the work of the auditors with respect to the verification of the underlying data used in the valuation.
The external auditors are appointed by the shareholder pursuant to the Insurance Companies Act (Canada). Their responsibility is to conduct an independent and objective audit of the financial statements in accordance with Canadian generally accepted auditing standards and report thereon to the shareholder regarding the fairness of presentation of the Company’s consolidated financial statements in accordance with International Financial Reporting Standards.
In carrying out their audit, the auditors make use of the work of the actuary and the actuary’s report on the claim and premium liabilities. The auditors’ report outlines the scope of their audit and their opinion.
Opinion of the ActuaryI have valued the policy liabilities of The Guarantee Company of North America for its consolidated balance sheet at December 31, 2014 and their change in the consolidated statement of income for the year then ended in accordance with accepted actuarial practice in Canada, including selection of appropriate assumptions and methods.
In my opinion, the amount of policy liabilities makes appropriate provision for all policy obligations and the consolidated financial statements fairly present the results of the valuation.
Signature of ActuaryFCIA
André Racine, FCAS, FCIA Printed name of Actuary
February 25, 2015Date opinion was rendered
32
ANNUAL REPORT
Independent Auditors’ ReportTo the Shareholder of The Guarantee Company of North America
We have audited the accompanying consolidated financial statements of The Guarantee Company of North America, which comprise the consolidated statement of financial position as at December 31, 2014 and the consolidated statements of comprehensive income, changes in shareholder’s equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.
Management’s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of The Guarantee Company of North America as at December 31, 2014 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.
Other matter The consolidated financial statements of The Guarantee Company of North America for the year ended December 31, 2013 were audited by another auditor who expressed an unqualified opinion on those consolidated financial statements on February 26, 2014.
Kitchener, Canada February 25, 2015
Chartered Professional Accountants Licensed Public Accountants
33
2014
Gross premiums written 333,837 337,462 309,458 325,342 343,266 356,043 363,689 374,296 387,816 422,330
Net premiums earned 280,418 276,184 266,425 264,706 274,450 283,531 274,392 278,252 284,622 304,934
Loss ratio 56.9% 54.1% 53.1% 57.5% 72.2% 65.5% 63.6% 60.2% 70.9% 62.3%
Underwriting profit (Loss) 23,098 27,933 28,408 7,961 (32,832) (15,097) (15,984) (3,105) (35,954) (28,318)
Net earnings & comprehensive income*
37,581 46,997 22,192 21,372 42,417 9,960 3,019 42,891 42,734 20,587
Dividends 7,673 7,673 7,673 163,941 7,673 7,673 7,673 7,673 7,673 7,673
Shareholder’s Equity 430,045 469,939 519,161 376,592 411,336 413,323 408,669 443,887 478,948 491,862
($ 000) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
10 Year Review
Shareholder’s Equity ($ 000,000)
600
500
400
300
200
100
0
400
300
200
100
0
50
150
250
350
450
20092005 20102006 20112007 20122008 20142013
Gross Premiums Written ($ 000,000)
*Net earnings from 2005 to 2006 and comprehensive income thereafter.
34
ANNUAL REPORT
35
2014
THE GUARANTEE COMPANY OF NORTH AMERICA 4950 Yonge Street, Suite 1400 Madison Centre Toronto, ON M2N 6K1 theguarantee.com
Edmonton, ABTel: 780-424-2266 1-800-268-9957
Halifax, NSTel: 902-425-4700 1-800-565-0013
Montreal, QCTel: 514-866-6351 1-800-361-8603
Quebec City, QCTel: 418-652-1676 1-800-463-5350
Vancouver, BCTel: 604-687-7688 1-800-663-2022
Woodstock, ONTel: 519-539-9868 1-800-265-4262
CANADA
TORONTO, Ontario (Head Office)
Tel: 416-223-9580 Fax: 416-223-6577 1-800-268-6617
36
ANNUAL REPORT
THE GUARANTEE COMPANY OF NORTH AMERICA USA One Towne Square, Suite 1470 Southfield, Michigan 48076 theguaranteeus.com
USA
Atlanta, GATel: 843-367-1572
Birmingham, ALTel: 205-460-1300
Charlotte, NCTel: 980-207-1658
Chicago, ILTel: 630-799-8177
Columbus, OHTel: 614-392-2104
Dallas, TXTel: 469-250-4487
Denver, COTel: 303-898-6848
Houston, TXTel: 832-446-3350
Indianapolis, INTel: 317-757-8975
Kansas City, MOTel: 816-407-1141
Los Angeles, CATel: 818-936-2844
Minneapolis, MNTel: 763-496-1033
Morristown, NJTel: 973-515-3102
Philadelphia, PATel: 973-515-3102
Phoenix, AZTel: 602-906-8714
Salt Lake City, UTTel: 801-999-4178
San Francisco, CA Tel: 925-566-6040
Tampa, FLTel: 813-321-7696
DETROIT, Michigan (Home Office)
Tel: 248-281-0281 Fax: 248-750-0431 1-866-328-0567
37
2014
The Guarantee Company of North America
The Guarantee Company of North America USA
Maureen CowanChairman of the BoardChairman, Investment Committee
Alister CampbellPresident & Chief Executive Officer
Jules R. QuennevillePresident & Co-Chief Executive Officer Princeton Holdings LimitedChairman, Risk Committee
André Bureau, O.C.Counsel Chairman, Corporate Governance and Conduct Review Committee
Bruno Desjardins, Q.C.Lawyer
Thomas C. MacMillanChairman Blair Franklin Asset Management Inc.
Michael C. PetersPresident, Safeco Surety, Retired
Mark RamCorporate Director Chairman, Human Resource & Compensation Committee
Terry ReidelCorporate Director Chairman, Audit Committee
DIRECTORS
Alister CampbellPresident &Chief Executive Officer
Dean BastVice President National DistributionManagement & RegionalGeneral Manager, Ontario/AtlanticRegion
Ron BurnsVice President, Guarantee SUPERIOR
Alex CampbellVice President & Regional General Manager, Western Canada
Michael J. ConlonVice President Claims, Woodstock Branch
Sean DeakinNational Vice President, Surety Underwriting
Marissa DrummondController
Frank FaietaNational Vice President, Claims
François ForgetVice President Surety, Quebec Region
Paul HollingworthVice President Surety,Prairie Region
Marilyn HorrickNational Vice President, GUARANTEE GOLD®
Michael KosmalskiVice President Investments
Richard LonglandNational Vice President, Commercial and Developer Surety
Angelique MagiNational Vice President Transportation and Strategic Initiatives
Randall L. MusselmanChief Risk Officer and Corporate Secretary
Norman NemetzVice President Reinsurance and Business Analysis
Josie PachisVice President Claims, Public Entity
Richard PouliotNational Vice President Operations and Distribution Management
Alan RabinVice President Finance
Yves RaymondChief Actuary
Daniel RichardVice President and Regional General Manager, Quebec Region
David SmithSenior Vice President and Head of Canadian Surety
Tara WishartVice President Claims, Toronto Branch
Glenn WoodardNational Vice President, Corporate Insurance
OFFICERS
Officers
Alister CampbellChief Executive Officer
Stephen RuschakPresident and Chief Operating Officer, USA
Jeffrey S. JuberaVice President Claims
Bill KingVice President, Surety Eastern Region
Randall L. MusselmanCorporate Secretary
Alan RabinAssistant Treasurer
Sara J. SchraubenTreasurer and Chief Financial Officer
Brent SnelgroveVice President Surety, Western Region
Joseph A. SprysVice PresidentReginal Surety Manager
Cynthia TakaiAssistant Secretary
Ed WoodsVice President, National Underwriting
38
ANNUAL REPORT
© 2015 The Guarantee Company of North America. All rights reserved.theguarantee.com
Excellence, Expertise, Experience ... Every time
1667-6172015-1553
