HomeMy WebLinkAboutThe Citizen, 2002-02-27, Page 8PAGE 8. THE CITIZEN, WEDNESDAY, FEBRUARY 27, 2002.
HOWICK MUTUAL INSURANCE COMPANY
Financial Statements for the year ended December 31, 2001
To the Policyholders of
Howick Mutual Insurance Company
We have audited the balance sheet of Howick Mutual Insurance Company as at December 31, 2001
and the statements of operations and unappropriated members' surplus and cash flows for the year
then ended. These financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing standards: Those
standards require that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as welt as
evaluating the overall financial statement presentation.
In our opinion, these financial statements present fairly, in all material respects, the financial position
of the company as at December 31, 2001 and the results of its operations and the changes in its cash
flows for the year then ended in accordance with Canadian generally accepted accounting principles.
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Chartered Accourftbnts
Wingham, Ontario
January 24, 2002
December 31
Balance Sheet
2001 2000
Assets
Cash and short-term investments $ 164,618 $
Accounts receivable (Note 2) 4,026,717 3,411,897
Income taxes recoverable 246,156 302,565
Prepaid expenses 8,019 9,183
Long-term investments (Note 3) 9,895,221 10,566,383
Investment in related companies (Note 3) 61,872 33,174
Deferred policy acquisition expenses 381,786 489,426
Capital assets (Note 4) 181,276 162,006
Deferred income taxes 60,000 80,000
$ 15,025,665 $ 15,054,634
Liabilities
Bank indebtedness $ 360,846
Accounts payable and accrued liabilities 178,247 100,907
Unpaid claims 4,854,623 4,285,550
Unearned premiums 3,242,220 2,880,972
Automobile loan (Note 7). 24,114
8,299,204 7,628,275
Members' equity
Reserves required (Note 8) 107,193 82,573
Unappropriated members' surplus 6,619,268 7,343,786
6,726,461 7,426,359
$ 15,025,665 $ 15,054,634
On behalf of the Board:
Director
Director
Statement of Operations and Unappropriated Members' Surplus
For the year ended December 31 2001 2000
Revenue
Gross premiums written $ 6,479,590 $ 5,759,339
Less reinsurance premiums cost 988,299 886,345
Net premiums written 5,491,291 4,872,994
Decrease (increase) in provision for unearned premiums (361,248) (101,234)
5,130,043 4,771,760
Service chirges 57,499 53,025
5,187,542 4,824,785
Expenses
Net claims incurred 4,662,905 4,512,394
Commissions 1,299,474 1,046,057
Salaries and directors' fees 469,872 362,077
Premium tax 25,714 17,450
Other expenses 315,354 297,464
6,773,319 6,235,442
Underwriting loss (1,585,777) (1,410,657)
investment income 582,532 1,031,800
Sundry - refund of premium from FMRP 108,285 103,023
Loss before taxes (894,960) (275,834)
Income taxes (Note 9) (195,062) (65,228)
Net loss for the year (699,898) (210,606)
Unappropriated members' surplus
Balance, beginning of year 7,343,786 7,542,208
6,643,888 7,331,602
Transfer from (to) reserves required by
Financial Services Commission (24,620) 12,184
Balance, end of year $ 6,619,268 $ 7,343,786
Statement of Cash Flows
For the year ended December 31 2001 2000
Cash provided by (used in)
Operating activities
Net income for the year $ (699,898) $ (210,606)
Adjustments to convert income to cash basis
Amortization of bond discou-nts 150 4,723
Amortization of capital assets 41,546 53,522
Increase (decrease) in accounts payable 77,340 (23,037)
Increase (decrease) in income taxes payable 56,409 (442,177)
Increase (decrease) in provision for unpaid claims 569,073 2,640,843
Increase (decrease) in unearned premiums 361,248 88,292
Decrease (increase) in accounts receivable (614,820), (2,001,959)
Decrease (increase) in deferred policy acquisition expense 107,640 (11,663)
(Gain) loss on disposal of investments (101,051) (228,726)
Investment write down 11,302 28,319
Decrease (increase) in prepaid expenses 1,164 (2,351)
Decrease (increase) in deferred income taxes 20,000 40,000
(169,897) (64,820)
Investing activities
Sale of investments 4,792,899 2,889,258
Purchase of investments (4,020,836) (3,237,512)
Acquisition of capital assets (67,256) (10,813)
Sale of capital assets 6,440
Investment in related companies (40,000) (15,000)
Bank advances (repayments) (360,846) 360,846
310,401 (13,221)
Financing activities
Automobile loan advance 25,757
Automobile loan repayments (1,643)
24,114
Increase (decrease) in cash during the year 164,618 (78,041)
Cash, beginning of year 78,041
Cash, end of year $ 164,618 $
Notes to Financial Statements
December 31, 2001
1. Summary of Significant Accounting Policies
The company is incorporated under the laws of Ontario and is
subject to the Ontario Insurance Act. It is licensed to write
property, auto and liability insurance in Ontario. The company's
products are marketed through independent agents and brokers
located throughout Ontario.
The company records its investments in debt securities at
amortized cost with discounts and premiums being amortized to
income using the constant yield method over the period to
maturity. Investments in common and preferred shares are
carried at cost. Gains and losses on investments are included in
investment income when realized and are calculated on the
basis of average cost.
Insurance premiums are included in income on a daily pro-rata
basis over the life of the policies. Acquisition expenses related
to unearned premiums, which expenses comprise commissions,
premium taxes, association fees and certain identified business
development costs, are deferred and amortized to income over
the periods in which the premiums are earned. The method
followed in determining the deferred acquisition expenses limits
the amount of deferral to its realizable value by giving
consideration to claims and expenses expected to be incurred as
the premiums are earned.
Rates of depreciation applied to write-off the cost of property and
equipment over their estimated lives are as follows:
Building 2.5%, straight line
Automobile 20.0%, straight line
Computer equipment 20,0%, straight line
Equipment
20.0%, straight line
Reinsurance premiums ceded and reinsurance recoveries on
losses incurred are recorded as reductions of the respective
income and expense accounts. Estimates of the amounts
recoverable from the reinsurer on unpaid claims and adjustment
expenses are recorded as accounts receivable. A contingent
liability exists with respect to reinsurance ceded which could
become a liability of the company in the event that the reinsurer
might be unable to meet its obligations under the reinsurance
agreements
The company follows the tax allocation method in providing for
income taxes. Timing differences between earnings and taxable
income arise from differences between deferred policy
acquisition expenses, unpaid claims, unearned premiums and
investment income for tax and accounting purposes.
The company is responsible for income taxes on the portion of
its premiums that relate to non-farm business. The non-farm
portion is 62% for 2001(60%for 2000).
Unpaid claims and related adjustment expenses are determined
using cash-basis evaluations plus an amount for adverse
development and are estimates of the ultiMate cost of all
insurance claims incurred to December 31, 2001.
The provision for unpaid claims represents the amounts needed
to provide for the estimated cost of settling claims related to
Insured events (both repgrted and unreported) that have
occurred on or before each balance sheet date. All provisions
are periodically evaluated in light of emerging claim experience
and changing circumstances. The resulting changes in
estimates of the ultimate Claim liability are reflected in current
operations. Continued on page 9
Nature of Business
Long-term Investments
Premiums Earned and Deferred
Policy Acquisition Expenses
Capital Assets
Reinsurance Ceded
Income taxes
Reserve for Unpaid Claims