The Citizen, 2000-02-23, Page 6PAGE 6. THE CITIZEN, WEDNESDAY, FEBRUARY 23. 2000.
HOWICK MUTUAL INSURANCE COMPANY
Financial Statement as of December 31, 1999
To the Policyholders of
Howick Mutual Insurance Company
We have audited the balance sheet of Howick Mutual Insurance Company as at December 31, 1999
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 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 materia) misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Ari audit also includes assessing
the accounting principles used and significant estimates made by management, as well 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, 1999 and the results of its operations and the changes in its cash
flows for the year then ended in accordance with generally accepted accounting principles.
Statement of Cash Flows
Wingham, Ontario
January 20, 2000
December 31
Balance Sheet
1999 1998
Assets
Cash and short-term investments $ 78,041 $
Accounts receivable (Note 2)1,409,938 2.443,637
Prepaid expenses 6,832 5,708
Long-term investments (Note 3)9,994,126 9,638,481
Deferred policy acquisition expenses 477,763 490,665
Capital assets (Note 4)204,715 219,666
Investment in related companies (Note 3 )46,493 43,035
Deferred income taxes 120,000 85,000
$ 12,337,908 $12,926,192
Liabilities
Bank indebtedness 244,315
Accounts payable and accrued liabilities 123,944 144,396
Unpaid claims 1,644,707 2,486,831
Income taxes payable 139,612 -
Unearned premiums 2,792,680 2,885,099
4,700,943 5,760,641
Commitments (Note 10)
Members' equity
Reserves required (Note 7)94,757 100,926
Unappropriated members' surplus 7,542,208 7,064,625
7,636,965 7,165,551
$ 12,337,908 $12,926,192
For the year ended December 31 1999 1998
Cash provided by (used in)
Operating activities
Net income for the year $ 471,414 $ 461,763
Adjustments to convert income to cash basis
Amortization of bond discounts 18,032 11,700
Amortization of capital assets 58,005 47,354
Increase (decrease) in accounts payable (20,452)(2.186)
Increase (decrease) in income taxes payable 357,471 (125,551)
Increase (decrease) in provision for unpaid claims (842,124)(7.861)
Increase (decrease) in unearned premiums (92,419)(15.237)
Decrease (increase) in accounts receivable 815,840 (108,475)
Decrease (increase) in deferred policy acquisition expense 12,902 (2,112)
(Gain) loss on disposal of fixed assets -608
(Gain) loss on disposal of investments (88,358)(193,521)
Investment write down 21,541 21,966
Decrease (increase) in prepaid expenses (1,124)4,486
Decrease (increase) in deferred income taxes (35,000)45,029
675,728 137,963
Investing activities
Sale of investments 3,031,908 3,114,703
Purchase of investments (3,342,225)(3,647,780)
Acquisition of capital assets (43,055)(29,550)
Disposal of capital assets -11,582
(353,372)(551,045)
Increase (decrease) in cash during the year 322,356 (413,082)
Cash, beginning of year (244,315)168,767
Cash (deficiency), end of year $ 78,041 $ (244,315)
December 31,1999.
1. Summary of Significant Accounting Policies
Nature of Business
Long-term Investments
Premiums Earned and Deferred
Policy Acquisition Expenses
Notes to Financial Statements
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
earned at cost. Gains and losses on investments are included in
investment income when realized and are calculated on the
basis of average cost.
Statement of Operations and Unappropriated Members' Surplus
For the year ended December 31 ____________________________________1999__________1998
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.
Revenue
Gross premiums written
Less reinsurance premiums cost
$ 5,528,872 $
848,477
5,744,868
895,843
Net premiums written 4,680,395 4,849,025
Decrease (increase) in provision for unearned premiums 92,419 15,237
4,772,814 4,864,262
Service charges 43,823 40,229
-4,816,637 4,904,491
Expenses
Net claims incurred
Commissions
Salaries and directors' fees
Premium tax
Other expenses
3,114,782
1,047,872
360,413
20,421
304,761
3,292,055
1,074,790
376,148
21,267
264,737
4,848,249 5,028,997
Underwriting loss (31,612)(124,506)
Investment income 587,909 723,359
Sundry - refund of premium from FMRP 99,313 -
Income before taxes 655,610 598,853
Income taxes (Note 8)184,196 137,090
Net income for the year 471,414 461,763
Unappropriated members' surplus
Balance, beginning of year 7,064,625 6,587,546
Transfer from reserves required by
Financial Services Commission
7,536,039
6,169
7,049,309
15,316
Balance, end of year $ 7,542,208 $7,064,625
Capital Assets
Reinsurance Ceded
Income taxes
Reserve for Unpaid Claims
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 56.6% for 1998.
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, 1999.
The provision for unpaid claims represents the amounts needed
to provide for the estimated cost of settling claims related to
insured events (both reported 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.
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