TD Bank 2014 Annual Report Download - page 191

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 189
Incurred Claims by Accident Year
(millions of Canadian dollars) Accident year
2008
and prior 2009 2010 2011 2012 2013 2014 Total
Net ultimate claims cost at end
of accident year $ 3,335 $ 1,598 $ 1,742 $ 1,724 $ 1,830 $ 2,245 $ 2,465
Revised estimates
One year later 3,366 1,627 1,764 1,728 1,930 2,227
Two years later 3,359 1,663 1,851 1,823 1,922
Three years later 3,422 1,720 1,921 1,779
Four years later 3,527 1,763 1,926
Five years later 3,630 1,753
Six years later 3,612
Current estimates of
cumulative claims 3,612 1,753 1,926 1,779 1,922 2,227 2,465
Cumulative payments to date (3,299) (1,592) (1,630) (1,375) (1,285) (1,323) (1,061)
Net undiscounted provision for
unpaid claims 313 161 296 404 637 904 1,404 $ 4,119
Effect of discount (268)
Provision for adverse deviation 372
Net provision for unpaid claims $ 4,223
SENSITIVITY TO INSURANCE RISK
A variety of assumptions are made related to the future level of claims,
policyholder behaviour, expenses and sales levels when products are
designed and priced, as well as the determination of actuarial liabilities.
Such assumptions require a significant amount of professional judgment.
The insurance claims provision is sensitive to certain assumptions. It
has not been possible to quantify the sensitivity of certain assumptions
such as legislative changes or uncertainty in the estimation process.
Actual experience may differ from the assumptions made by the Bank.
For property and casualty insurance, the main assumption underlying
the claims liability estimates is that the Bank’s future claims development
will follow a similar pattern to past claims development experience.
Claims liabilities estimates are based on various quantitative and
qualitative factors including the discount rate, the margin for adverse
deviation, reinsurance, trends in claims severity and frequency, and
external drivers.
Qualitative and other unforeseen factors could negatively impact
the Bank’s ability to accurately assess the risk of the insurance policies
that the Bank underwrites. In addition, there may be significant lags
between the occurrence of an insured event and the time it is actually
reported to the Bank and additional lags between the time of reporting
and final settlements of claims.
The following table outlines the sensitivity of the Bank’s property and
casualty insurance claims liabilities to reasonably possible movements
in the discount rate, the margin for adverse deviation, and the
frequency and severity of claims, with all other assumptions held
constant. Movements in the assumptions may be non-linear.
Sensitivity of Critical Assumptions – Property and Casualty Insurance Contract Liabilities
(millions of Canadian dollars) As at
October 31, 2014
October 31, 2013
Impact on net Impact on net
income (loss) income (loss)
before Impact on before Impact on
income tax equity income tax equity
Impact of an absolute change of 1% in key assumptions
Discount rate assumption used
Increase in assumption $ 118 $ 87 $ 102 $ 75
Decrease in assumption (126) (93) (110) (81)
Margin for adverse deviation assumption used
Increase in assumption (41) (30) (31) (23)
Decrease in assumption 41 30 31 23
Impact of an absolute change of 5% in key assumptions
Frequency of claims
Increase in assumption (31) (23) (33) (24)
Decrease in assumption 31 23 33 24
Severity of claims
Increase in assumption (200) (147) (180) (133)
Decrease in assumption 200 147 180 133