Annual Report 2014-2015

Table of contents

 

Financial Statements

 
 

Financial Services Commission of Ontario Financial Statements

For the Year Ended March 31, 2015

Management’s Statement

 

Financial Services Commission of Ontario

 

Chief Executive Officer and Superintendent of Financial Services

5160 Yonge Street
Box 85, 17th Floor
Toronto ON M2N 6L9

Telephone: (416) 590-7000
Facsimile: (416) 590-7078

 

Commission des services financiers de l’Ontario

 

Directeur général et surintendant des services financiers

5160, rue Yonge
boîte 85, 17e étage
Toronto ON M2N 6L9

Téléphone : (416) 590-7000
Télécopieur : (416) 590-7078

 

October 13, 2015

 

Management’s Responsibility for Financial Information

 

The Financial Services Commission of Ontario (Commission) was established under the Financial Services Commission of Ontario Act, 1997. Under the Act the Superintendent is responsible for the financial and administrative affairs of the Commission.

 

Under the direction of the Superintendent, Management of the Commission is responsible for the integrity and fair presentation of all information in the financial statements and notes. The financial statements have been prepared by Management in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations. The preparation of financial statements involves the use of management’s judgment and best estimates particularly when transactions affecting the current period cannot be determined with certainty until future periods.

 

Management of the Commission is dedicated to the highest standards of integrity in provision of its services. Management has developed and maintains financial controls, information systems and practices to provide reasonable assurances on the reliability of financial information and safeguarding of its assets.

 

The financial statements have been audited by the Office of the Auditor General. The Auditor General’s responsibility is to express an opinion on whether the financial statements are fairly presented in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations. They have been approved by the Commission’s Audit and Risk Committee. The Auditor’s report follows.


Signature of Brian Mills, Chief Executive Officer and Superintendent of Financial Services, Financial Services Commission of Ontario

Brian Mills
Chief Executive Officer and Superintendent of Financial Services


Signature of Carolyn Hamilton, Director, Corporate Services Branch


Carolyn Hamilton
Director, Corporate Services Branch

 

Auditor’s Statement

 

Office of the Auditor General of Ontario logo 

Office of the Auditor General of Ontario
Box 105, 15th Floor
20 Dundas Street West
Toronto, Ontario
M5G 2C2
416-327-2381
fax 416-326-3812

 

Bureau du vérificateur general de l’Ontario
B.P. 105, 15e étage
20, rue Dundas ouest
Toronto (Ontario)
M5G 2C2
416-327-2381
télécopieur 416-326-3812

www.auditor.on.ca [New Window]

 

Independent Auditor’s Report

 

To the Financial Services Commission of Ontario and to the Minister of Finance

I have audited the accompanying financial statements of the Financial Services Commission of Ontario, which comprises the statement of financial position as at March 31, 2015, and the statements of operations and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility

My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements.

 

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

 

Opinion

In my opinion, these financial statements present fairly, in all material respects, the financial position of the Financial Services Commission of Ontario as at March 31, 2015 and the results of its operations, and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

 

Toronto, Ontario
October 13, 2015


Signature of Bonnie Lysyk, MBA, CPA, CA, LPA, Auditor General

Bonnie Lysyk, MBA, CPA, CA, LPA
Auditor General

 

 

Statement of Financial Position

As at March 31, 2015

 March 31, 2015
($ 000)
March 31, 2014
($ 000)
ASSETS
Current   
Cash11
Accounts receivable2,956895
Prepaid expenses 396
 2,996902
Due from the Province (Note 7b)31,54040,248
Capital assets, net (Note 3)12,11712,642
 46,65353,792
LIABILITIES AND NET ASSETS
Current  
Accounts payable and accrued liabilities8,34619,349
 8,34619,349
Employee future benefits obligation (Note 7a)13,0908,810
Deferred revenue (Note 4)13,10012,680
Deferred lease inducements (Note 5)0311
Net assets  
Invested in capital assets12,11712,642
 46,653 53,792
Commitment, Significant Contract and Contingencies (Note 9)  

 

See accompanying notes to financial statements

Approved by:

Signature of Brian Mills, Chief Executive Officer and Superintendent of Financial Services, Financial Services Commission of Ontario


 

Chief Executive Officer and Superintendent of Financial Services

 

 

Statement of Operations

For the Year Ended March 31, 2015

 March 31, 2015
($ 000)
March 31, 2014
($ 000)
Revenue (Note 6)
Assessments78,88770,697
Fees, Licenses, registrations and other13,62412,608
 92,51183,305
Expenses
Salaries and wages36,18836,095
Employee benefits (Note 7a)13,4328,060
Transportation and communication629815
Services42,58439,157
Supplies and equipment445535
Amortization3,5373,302
Bad debt expense313
 96,84687,967
Less: Recoveries (Note 8)3,3033,259
 93,54384,708
Deficiency of revenue over expenses absorbed by the Province (Note 6)(1,032)(1,403)

See accompanying notes to financial statements

 

 

Statement of Cash Flows

For the Year Ended March 31, 2015

 March 31, 2015
($ 000)
March 31, 2014
($ 000)
Net inflow (outflow) of cash related to the
following activities
Cash flows from operating activities
Deficiency of revenue over expenses absorbed
by the Province
(1,032)(1,403)
Items not affecting cash
Amortization of capital assets3,5373,302
Amortization of deferred lease inducements(532)(532)
Employee future benefits (Note 7a)4,280(450)
Bad debt expense313
Changes in non-cash working capital
Accounts receivable(2,092)(792)
Prepaid expenses(33)(6)
Accounts payable and accrued liabilities(10,782)4,884
Due from the Province 9,215(1,657)
   
Deferred Revenue4202,190
 3,0125,539
Cash flows from capital activity
Purchase of capital assets(3,012)(5,543)
 (3,012)(5,543)
Net change in cash position(4)
Cash position, beginning of year15
Cash position, end of year11

See accompanying notes to financial statements

 

 

Notes to Financial Statements

March 31, 2015

 

1. OPERATIONS OF THE COMMISSION

 

The Financial Services Commission of Ontario (Commission) was established under the Financial Services Commission of Ontario Act, 1997. The Commission’s mandate through its regulated activities is to protect the public interest and enhance public confidence in insurance, pensions, credit unions, trust companies, caisses populaires, co-operatives and mortgage brokers, and also to make recommendations to the Minister of Finance on matters affecting the regulated sectors. The Commission administers the following legislation: Insurance Act, Pension Benefits Act, Credit Unions and Caisses Populaires Act, Loan and Trust Corporations Act, Mortgage Brokerages, Lenders and Administrators Act and Co-operative Corporations Act. As a regulatory agency of the Province of Ontario, the Commission is exempt from income taxes.

 

2. SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements have been prepared by the management of the Commission in accordance with Public Sector Accounting Standards for government not-for-profit organizations (PSA-GNFPO) as issued by the Public Sector Accounting Board (PSAB). The significant accounting policies used to prepare these statements are summarized below.

 

(a) Capital Assets:

Capital assets are recorded at cost less accumulated amortization. Amortization is calculated on a straight-line basis over their estimated useful life. The useful life of the Commission’s capital assets has been estimated as follows:

 

Custom developed software5 - 10 years
Office furniture and equipment5 years
Computer hardware3 - 6 years
Leasehold improvementsover the term of the lease

 

(b) Revenue Recognition

Assessment revenues from the insurance, pension, credit union, caisses populaires and the loan and trust sectors are recognized when the recoverable costs to administer the various Acts governing these sectors are incurred.

Revenues from fees, licenses and registrations are recognized in the year to which they pertain.

 

(c) Financial Instruments

The Commission follows PSA-GNFPO pertaining to financial instruments. Under these standards, all financial instruments are included on the statement of financial position and are measured either at fair value or at cost or amortized cost. The Commission’s Accounts receivable, and the Accounts payable and accrued liabilities are recorded at cost in the financial statements.

 

(d) Use of Estimates

The preparation of financial statements in accordance with PSA-GNFPO requires that management make estimates and assumptions that affect the reported amount of assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses for the period. Actual amounts could differ from these estimates. Significant items subject to such estimates and assumptions include the amortization expense, accrued liabilities and employee future benefits.

 

3. CAPITAL ASSETS

 Cost Accumulated Amortization 2015 Net Book Value 2014 Net Book Value
 ($’000)
Custom developed software15,1707,7257,4454,131
Custom software under development 2,94502,9454,918
Leasehold improvements7,8186,8369822,420
Computer hardware2,3521,869483653
Office furniture and equipment2,2091,947262520
 30,49418,37712,11712,642

 

 

4. DEFERRED REVENUE RELATED TO LICENCES AND REGISTRATION

 

Deferred revenue represents payments received for fees, licences and registrations that cover more than the current fiscal year. The deferred portion is recognized as revenue when the applicable future licence year occurs. The changes in the deferred revenue balances during fiscal 2014–2015 are summarized as follows:

 Balance, beginning of yearReceived during yearRecognized during yearBalance, end of year
 ($’000)
Insurance Agents3,6164,5723,8824,306
Insurance Adjusters3412613525
Mortgage Brokers7,4382,2574,5025,193
Insurance Corporations9371,2521,0731,116
Health Service Providers04,2442,2501,994
Other655415604466
 12,68012,86612,46613,100

 

5. DEFERRED LEASE INDUCEMENTS

 

In April 2008, the Commission’s office accommodation lease was extended from October 31, 2008 to October 31, 2015. The lease extension included a leasehold improvement allowance in the amount of $2.005 million for renovations in the first two years and no base rent payable in the amount of $0.64 million for the first ten months of the lease extension. The Commission has utilized the entire allowance.

 

The deferred lease inducement is made up of the portion of future lease payments attributed to the rent-free period and the leasehold improvements allowance and is recognized as reduced rent expense over the term of the lease on a straight line basis.

 20152014
 ($’000)
Balance, beginning of year8431,375
Less: Lease Inducements Amortization(532)(532)
Deferred Lease Inducements311843
Less: current portion(311)(532)
Balance, end of year0311

 

 

6. REVENUE

 

Under The Financial Services Commission of Ontario Act, the Commission may recover all of its costs through revenue assessments and fees charged to all entities that form part of the regulated sectors. The Commission’s deficiency of $1.0 million (2014 $1.4 million) resulted mostly from the Financial Hardship Program waiver of fees that continued in 2015 and the deficiency from the Co-operatives sector. The deficiency has been absorbed by the Province and is reflected in the Due from the Province on the statement of financial position. For the fiscal year, revenue from the following Acts and regulations made under the Acts administered by the Commission are:

 20152014
 ($’000)
INSURANCE ACT
Insurer assessment62,95252,806
Fees, licenses and other6,6306,624
Health Service provider fees and licences2,2500
PENSION BENEFITS ACT
Pension plan assessment15,25817,268
Registration fees and other7453
CREDIT UNIONS AND CAISSES POPULAIRES ACT
Credit Union assessment516467
Fees and other160115
LOAN AND TRUST CORPORATIONS ACT
Loan and Trust assessment162156
Fees, licenses and registrations14
MORTGAGE BROKERAGES, LENDERS AND ADMINISTRATORS ACT
Fees, Licenses, Registrations and other4,5435,749
CO-OPERATIVE CORPORATIONS ACT
Fees and other1118
 92,51183,305

 

7. RELATED PARTY TRANSACTIONS

 

(a) Employee Benefits

The Commission’s employees are entitled to benefits that have been negotiated centrally for Ontario Public Service employees. The future liability for benefits earned by the Commission’s employees is recognized in the Province’s consolidated financial statements. These benefits are accounted for by the Commission as follows:

 

i. Pension Benefits

The Commission’s full-time employees participate in the Public Service Pension Fund (PSPF) and the Ontario Public Service Employees’ Union Pension Fund (OPSEU-PF), which are defined benefit pension plans for employees of the Province and many provincial agencies. The Province of Ontario, which is the sole sponsor of the PSPF and a joint sponsor of the OPSEU-PF, determines the Commission’s annual payments to the funds. Since the Commission is not a sponsor of these funds, gains and losses arising from statutory actuarial funding valuations are not assets or obligations of the Commission, as the sponsors are responsible for ensuring that the pension funds are financially viable. The Commission’s annual payments of $3.03 million (2014 - $2.97 million) are included in employee benefits in the Statement of Operations.

 

ii. Employee Future Benefits Obligation

 

Employee future benefits include accrued severance entitlements, unused vacation, additional severance for those employees expected to be declared surplus, and other future compensation entitlements earned. The accrued severance entitlements under the Public Service of Ontario Act (2006) were non-actuarially estimated based on one week pay for every year of service for those employees with a minimum of five years of service. The total costs for the year for all termination benefits amount to $5.170 million (2014 - $0.518 million) and are included in employee benefits and salaries and wages in the Statement of Operations. Amounts due within one year totaling $2.74 million (2014 - $2.74 million) are included in accounts payable and accrued liabilities.

 

iii. Other Non-Pension Post-Employment Benefits

 

The cost of other non-pension post-retirement benefits is determined and funded on an ongoing basis by the Ontario Ministry of Government Services and accordingly is not included in these financial statements.

 

(b) Amounts due from the Province

The due from the Province balance reflected in the financial statements is the difference between the cash receipts submitted to the Province and the Commission’s expenses paid, owing or absorbed by the Province.

 

(c) Other administrative expenses

The Ontario Ministry of Government Services absorbs the costs of certain administrative expenses. The Ministry of Finance has charged for other administrative costs including costs related to information technology and the Ministry of Attorney General has charged for legal staff provided to the Commission based on the Ministry’s actual costs.

 

8. RECOVERIES

 

The Commission provides administrative and other support services to a number of organizations and recovers the costs of providing these services from the organizations in accordance with the memorandum of understanding or agreement signed with the respective organizations. Details of these recoveries are as follows:

 20152014
 ($’000)
Motor Vehicle Accident Claims Fund (Related Party)1,4071,623
Pension Benefits Guarantee Fund (Related Party)486451
General Insurance Statistical Agency807516
Joint Forum of Financial Market Regulators636
Canadian Association of Pension Supervisory Authorities177190
Canadian Council of Insurance Regulators207222
Mortgage Broker Regulators’ Council of Canada213220
 3,3033,259

 

 

9. COMMITMENTS SIGNIFICANT CONTRACT AND CONTINGENCIES

 

(a) Office Accommodation Lease

In July 2014, the Commission’s office accommodation lease was extended from October 31, 2015 to October 31, 2020 with two further options to extend the term for five years each and the one time right to terminate up to 40,000 square feet on October 31, 2018. As a result the Commission is committed to minimum lease payments for office space as follows if it does not exercise its termination right:

 ($’000)
2015/20164,344
2016/20175,135
2017/20185,211
2018/20195,265
2019/20205,341
2020/20213,116
 28,412

 

(b) Dispute Resolution Services Contract

Bill 15, The Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014 received Royal Assent on November 20, 2014. Bill 15 provides for the Dispute Resolution System to be moved to the Ministry of the Attorney General’s Licence Appeal Tribunal (LAT). The LAT will begin accepting new applications for dispute resolution on April 1, 2016.

 

In August 2012, the Commission entered into a contract with an outside service provider for mediation and arbitration services related to disputes over auto insurance accident benefits. No files were assigned under this contract after May 2014. In June 2014, another contract was signed with the service provider for arbitration services until May 2018. The expenditures for the year for these contracts amount to $25.4 million (2014 - $21.5 million) which are included in services expenses and it is anticipated that annual cost will be $27.0 million in 2015-16. These costs are charged back to the insurance companies that utilize the services. As regulations governing the disposition of files at the time of transition have yet to be developed, the projected contract costs beyond fiscal year 2015-16 are uncertain at this time.

 

(c) Mandate Review

On March 3, 2015, the government announced an Expert Advisory Panel (“Panel”) to conduct the review of the mandates of the Financial Services Commission of Ontario, Financial Services Tribunal and the Deposit Insurance Corporation of Ontario. The Panel conducted a public consultation on the issues being examined. FSCO made a submission to the Panel as part of the consultation process. The government expects the review to be completed by early 2016 and will then consider legislative changes to their mandate based on the outcomes of the review. The impact on the Commission cannot be assessed at this time.

 

(d) Contingencies

The Commission is involved in various legal actions arising out of the ordinary course of business. Settlements paid by the Commission, if any, will be accounted for in the period in which the settlement occurs. The outcome and ultimate disposition of these actions are not determinable at this time.

 

10. FINANCIAL INSTRUMENTS

 

The Commission is exposed to low credit risk in its financial instruments from accounts receivable owing from industry, and is not exposed to any currency, interest rate or liquidity risk.

 

Return to top

 

Pension Benefits Guarantee Fund Financial Statements

For the Year Ended March 31, 2015

Management’s Statement

 

Financial Services Commission of Ontario

 

Deputy Superintendent
Pension Division

5160 Yonge Street
Box 85, 8th Floor
Toronto ON M2N 6L9

Telephone: (416) 226-7784
Facsimile: (416) 226-7787

 

Commission des services financiers de l’Ontario

 

Surintendant adjoint
Division des régimes de retraite

5160, rue Yonge
boîte 85, 8e étage
Toronto ON M2N 6L9

Téléphone : (416) 226-7784
Télécopieur : (416) 226-7787

 

June 23, 2015

 

Pension Benefits Guarantee Fund
Management’s Responsibility for Financial Information

 

The CEO and Superintendent of Financial Services of the Financial Services Commission of Ontario (“FSCO”), pursuant to the Financial Services Commission of Ontario Act, 1997 and specifically, subsection 82(2) of the Pension Benefits Act, is responsible for the administration of the Pension Benefits Guarantee Fund.

 

Under the direction of the Superintendent, FSCO Management (Management) is responsible for the integrity and fair presentation of all information in the financial statements and notes. The financial statements have been prepared by Management in accordance with Canadian Public Sector Accounting Standards. The preparation of financial statements involves the use of Management’s judgment and best estimates particularly when transactions affecting the current period cannot be determined with certainty until future periods.

 

In the administration of the Pension Benefits Guarantee Fund, Management is dedicated to the highest standards of integrity in provision of its services and has developed and maintains financial controls, information systems and practices to provide reasonable assurances on the reliability of financial information and safeguarding of its assets.

 

The financial statements have been audited by the Office of the Auditor General of Ontario. The Auditor’s responsibility is to express an opinion on whether the financial statements are fairly presented in accordance with Canadian Public Sector Accounting Standards for Government Not-For-Profit organizations. They have been approved by the Commission’s Audit & Risk Committee. The Auditor’s report follows.


Signature of Lester J. Wong, Deputy Superintendent, Pensions

Lester J. Wong
Deputy Superintendent,
Pensions


Signature of Kwan Lee, Chief Accountant

Kwan Lee
Chief Accountant

 

Auditor’s Statement

Office of the Auditor General of Ontario logo

Office of the Auditor General of Ontario
Box 105, 15th Floor
20 Dundas Street West
Toronto, Ontario
M5G 2C2
416-327-2381
fax 416-326-3812

 

Bureau du vérificateur general de l’Ontario
B.P. 105, 15e étage
20, rue Dundas ouest
Toronto (Ontario)
M5G 2C2
416-327-2381
télécopieur 416-326-3812

www.auditor.on.ca [New Window]

 

Independent Auditor’s Report

 

To the Financial Services Commission of Ontario and to the Minister of Finance
I have audited the accompanying financial statements of the Pension Benefits Guarantee Fund of the Financial Services Commission of Ontario, which comprise the statement of financial position as at March 31, 2015 and the statements of operations and fund surplus, cash flows and re-measurment gains and losses for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditor’s Responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements.

 

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my opinion.

 

Opinion


In my opinion, the financial statements present fairly, in all material respects, the financial position of the Commission’s Pension Benefits Guarantee Fund as at March 31, 2015, and the results of its operations, its cash flows and its re-measurement gains and losses for the year then ended in accordance with Canadian public sector accounting standards.

 

Toronto, Ontario
June 23, 2015


Signature of Bonnie Lysyk, MBA, CPA, CA, LPA, Auditor General

Bonnie Lysyk, MBA, CPA, CA, LPA
Auditor General

 

Statement of Financial Position

As at March 31, 2015

 March 31, 2015
($ 000)
March 31, 2014
($ 000)
ASSETS
Current  
Cash(123)1
Accounts receivable62,014124,088
Investments (Note 4)480,768450,237
 542,659574,326
LIABILITIES AND FUND SURPLUS
Current  
Accounts payable and accrued liabilities4,44911,044
Current portion of loan payable (Note 5)11,00011,000
Claims payable33,84050,916
 49,28972,960
Loan payable (Note 5)121,540125,657
 170,829198,617
Fund surplus from operation371,687375,717
Accumulated remeasurement gains (losses)143(8)
Fund surplus371,830375,709
 542,659574,326

See accompanying notes to financial statements

Approved by:

Signature of Brian Mills, Chief Executive Officer and Superintendent of Financial Services, Financial Services Commission of Ontario


 

 

Brian Mills
Chief Executive Officer and Superintendent of Financial Services
Financial Services Commission of Ontario

 

 

Statement of Operations and Fund Surplus

For the Year Ended March 31, 2015

 March 31, 2015
($ 000)
March 31, 2013
($ 000)
Revenue
Premium revenue (Note 3)(536)138,819
Pension plan recoveries (Note 7)6,4639,424
Investment income (Note 4)5,2834,389
 11,210152,632
Expenses
Claims3,960 18,532
Amortization of loan discount (Note 5)6,8837,081
Pension consulting services (Note 8)3,7566,886
Administration fee (Note 9)485451
Investment management fees (Note 9)155130
 15,23933,080
Excess (deficit) of revenue over expenses(4,029)119,552
Fund surplus, beginning of year375,717256,165
Fund surplus, end of year371,687375,717

 

  See accompanying notes to financial statements

 

 

Statement of Cash Flows

For the Year Ended March 31, 2015

 March 31, 2015
($ 000)
March 31, 2014
($ 000)
Net inflow (outflow) of cash related to the
following activities
Cash flows from operating activities
Excess of revenue over expenses(4,029)119,552
Items not affecting cash:  
Amortization of loan discount (Note 5)6,8837,081
Loss on disposal of investments492116
 3,346126,749
Changes in non cash working capital  
Accounts receivable62,07416,159
Claims payable(17,076)(27,823)
Accounts payable and accrued liabilities(6,595)210
 41,749115,295
Cash flows from investing activities
Purchases of investments(3,258,352)(3,633,576)
Proceeds from sale of investments3,227,4793,528,530
 (30,873)(105,046)
Cash flows from financing activities
Loan repayments(11,000)(11,000)
 (11,000)(11,000)
Change in cash position(124)(751)
Cash position, beginning of year1752
Cash position, end of year(123)1

 

 

 

Statement of Re-measurement Gains and Losses

For the Year Ended March 31, 2015

 March 31, 2015
($ 000)
March 31, 2014
($ 000)
Accumulated re-measurement gains, beginning of year(8)5
Unrealized gains (losses) attributed to portfolio investments(341)(129)
Realized losses reclassified to the statement of operations492116
Accumulated re-measurement gains (losses), end of year143(8)

 

  See accompanying notes to financial statements.

 

 

Notes to Financial Statements

March 31, 2014

 

1. STATUTORY AUTHORITY

 

The Pension Benefits Guarantee Fund (the “Fund”) is continued under the Pension Benefits Act, R.S.O. 1990, c. P.8 (the “Act”).

 

2. FUND OPERATIONS

 

The purpose of the Fund is to guarantee payment of pension benefits of certain defined benefit pension plans that are wound up under conditions specified in the Act and regulations thereto. The regulations also prescribe an assessment payable into the Fund by plan registrants.

 

The Act provides that if the assets of the Fund are insufficient to meet payments for claims, the Lieutenant Governor in Council may authorize the Minister of Finance of Ontario to make loans or grants on such terms and conditions as the Lieutenant Governor in Council directs. The total liability of the Fund to guarantee pension benefits is limited to the assets of the Fund including any loans or grants received from the Province.

 

The CEO and Superintendent of Financial Services of the Financial Services Commission of Ontario (“FSCO”) pursuant to the Financial Services Commission of Ontario Act, 1997 and specifically, subsection 82(2) of the Pension Benefits Act, is responsible for the administration of the Fund, and the Fund reimburses FSCO for the costs of the services provided to the Fund. The investments of the Fund are managed by the Ontario Financing Authority, on a fee-for-service basis which is paid by the Fund.

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements of the Fund have been prepared by the management of FSCO in accordance with Public Sector Accounting Standards for Government Not-For-Profit organizations (PSA-GNFPO) as issued by the Public Sector Accounting Board (PSAB). Accordingly, management has used the following significant accounting policies in their preparation.

 

(a) Financial Instruments

The Fund follows PSA-GNFPO accounting standards relating to financial instruments. Under these standards, all financial instruments are included on the balance sheet and are measured either at fair value or at cost or amortized cost as follows:

 

  • Cash and investments are recorded at fair value, with changes in fair value during the period recognized in the statement of re-measurement gains and losses until realized. Fair value is determined from quoted prices for similar investments.
  • Accounts receivable, account payable and accrued liabilities are valued at cost which approximate fair value given their short term maturities.
  • The non-interest bearing loan payable is reflected at amortized cost using the effective interest rate method due to the concessionary nature of the loan. The initial valuation was determined by discounting future cash flows using the provincial cost of borrowing. The resulting benefit (the difference between the face value of the loan and the net present value) was accounted for as a grant in the year received and is amortized to loan discount expense over the term of the loan.

(b) Claims Payable

Claims payable are estimates of the liabilities in respect of those defined benefit pension plans prescribed by the Act that are wound up or in the process of being ordered wound up under conditions specified in the Act, and the claim amounts can be reasonably estimated. Liabilities are also recognized when there is a high probability that a company will not emerge from creditor protection and the pension plan will be wound up on a specified date and the claim can be reasonably estimated. Claims payable are based on information provided by appointed pension plan administrators from estimates provided by actuarial consultants. These estimates represent the present value of future payments to settle claims for benefits and expenses by pension plans.

 

Differences in the liabilities, if any, between the amounts recognized based on estimates and the actual claims made, will be charged or credited to claims expense in the year when the actual amounts are determined.

 

(c) Premium Revenue

An estimate of the premium revenue due from defined benefit pension plans at rates prescribed by the Act is recorded until receipt of the annual assessment certificate nine months after the plan’s fiscal year end.

 

Differences in premium revenue, if any, between the estimated amounts recognized and the actual revenues due are charged or credited to premium revenue in the year.

 

The negative revenue for fiscal 2015 is due to an overestimation of premium revenue made during fiscal 2014. Better than estimated plan funding positions of these plans resulted in an overestimation of premium revenue.

 2015
($'000)
2014
($'000)
Estimated revenue59,500121,400
Actual revenue related to current and prior years received in current year61,364136,019
Less prior year’s estimated revenue(121,400)(118,600)
 (536)138,819

 

(d) Use of Estimates

The preparation of financial statements in accordance with PSA-GNFPO accounting standards requires that FSCO’s management make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements and the reported amounts of revenue and expenses for the period. Estimates and assumptions may change over time as new information is obtained or subsequent developments occur. Actual results could differ from these estimates and the differences could be material. Areas where significant estimates must be made include premium revenue and claims payable.

 

(e) Comparative Figures

Certain of the prior year’s comparative figures have been reclassified to conform to the basis of the financial presentation adopted in the current year.

 

4. INVESTMENTS

 

As the administrator, investing the assets of the Fund, FSCO has established a Pension Benefits Guarantee Fund Management Committee. The Committee has developed a Statement of Investment Policies and Guidelines which is reviewed regularly and provides operational objectives, investment principles, policies and guidelines for the management of the investments.

 

Investments consist of:

 2015
($'000)
2014
($'000)
Fair ValueCostFair ValueCost
($’000)
Discounted notes273,097273,097443,819443,819
Government bonds207,671207,5286,4186,426
 480,768480,625450,237450,245

 

Investment income includes interest earned from interest bearing securities and realized gains and losses from the sale of securities.

 

The Fund's investment portfolio is exposed to various risks, which are mitigated by the type of investment and therefore risk is low.

 

The market value sensitivity of the Money Market Portfolio at the end of the last quarter was $0.66M for a 1.00% change in rates. The market value sensitivity of the Government Bond Laddered Portfolio at the end of the last quarter was $0.85M for a 1.00% change in rates.

 

Discounted notes with maturities between April 2015 and July 2015 have yields in the range of 0.528% to 1.230% (2014 – maturities between April 2014 and July 2014 had yields in the range of 0.880% to 1.130%).

 

The government bonds maturing between December 2015 and December 2017 have yields in the range of 1.084 to 1.492% (2014 – maturing in October 2014 had yields of 1.515%).

 

5. LOAN PAYABLE

 

Non-interest Bearing Loan

On March 31, 2004, the Fund obtained a $330M loan from the Province, a related party. The loan is non-interest bearing and repayable to the Province in thirty equal annual installments of $11M. The loan agreement provides for the Minister of Finance to advance any installment payment date depending on the cash position of the Fund. Repayments over the next five years total $55M.

 

The face value of this non-interest bearing loan has been discounted at an effective interest rate of 5.0368% to reflect its amortized cost outstanding as of March 31, 2015 as follows:

 2015
($'000)
2014
($'000)
Face Value209,000220,000
Less: Discount(76,460)(83,343)
Amortized Cost132,540136,657
Classified as:
Current Portion11,00011,000
Long Term Portion121,540125,657
Balance132,540136,657

 

 

The discount of $76.46M is amortized to loan discount expense over the term of the loan, based on the effective interest rate method. The amortization schedule for the subsequent five fiscal years is as follows:

 

Fiscal Year($'000)
20166,676
20176,458
20186,229
20195,989
20205,737

 

 

6. FINANCIAL INSTRUMENTS

 

The main risks that the Fund's financial instruments are exposed to are credit risk, liquidity risk and market risk.

 

Credit risk

Credit risk is the risk that the counterparty to a financial instrument may fail to discharge an obligation or commitment that it has entered into. The Fund is exposed to credit risk relating to the collection of receivables. The Fund considers this risk to be low.

 

The Fund’s accounts receivable consists of premium revenue receivable of $61.3M, investment income receivable of $0.7M and the HST receivable of $0.02M.

 

The premium revenue receivable recorded is based on an assessment formula set out in section 37 of Regulation 909 of the Act and is calculated as follows:

 

  • Base assessment of $5 per Ontario plan beneficiary plus specified percentages of the plans PBGF assessment base.
  • Maximum assessment of $300 per Ontario plan beneficiary and
  • Minimum assessment of $250 for each plan

The probability for a pension plan to become insolvent and not pay the premium within a year is very low. In addition, in the event that a pension plan would become insolvent within a year, there are legal options for the Fund that can be exercised to collect the premiums. Historically, the Fund has been able to collect the amounts estimated as premium receivable.

 

The risk of not collecting the investment income and the HST receivable is considered to be minimal.

 

Liquidity Risk

Liquidity risk is the risk that the Fund will not be able to meet its cash flow obligations as they fall due. The Fund’s exposure to liquidity risk is minimal as the Fund has sufficient funds in its investment portfolio to settle all current liabilities and the Fund’s exposure is limited to the assets of the Fund including any loans or grants received from the Province. As at March 31, 2015, the Fund has an investment balance of $481M (2014 - $450M) to settle current liabilities of $49M (2014 - $73M). In addition, the Fund has the ability to meet sudden and unexpected claims by converting the investment holdings to cash without delay or significant transaction costs.

 

Market risk

Market risk arises from the possibility that changes in market prices will affect the value of the financial instruments of the Fund. Short-term financial instruments (receivables, accounts payable) are not subject to significant market risk. The Fund manages its market risk by investing assets in low-risk and liquid securities. The Fund’s market risk is considered to be low.

 

7. PENSION PLAN RECOVERIES

 

Following the settlement of all benefits, payment of expenses and the submission of the final wind up report, any remaining funds are recovered by the Fund. During fiscal 2015, the Fund had $6.5M (2014 – $9.4M) in recoveries. Approximately $5.0M in recoveries is expected in the fiscal year 2016.

 

8. PENSION CONSULTING SERVICES

 

The Fund periodically engages the services of external experts to represent the Fund’s interests in insolvency proceedings respecting employers who are unable to meet their funding obligations under the Pension Benefits Act. For fiscal 2015, $3.8M was paid to such external experts (2014 - $6.9M paid).

 

9. RELATED PARTY TRANSACTIONS

 

For fiscal 2015, an administration fee of $0.5M (2014 - $0.5M) was incurred and has been paid to FSCO for management salaries and benefits, accounting, information technology, legal, pension and other services. The Fund and FSCO are related parties.

 

Investment Management fees consist mainly of fees paid to the Ontario Financing Authority, a related party.

 

The costs of processing premium revenue transactions are absorbed by FSCO without charge to the Fund.

 

Other related party transactions during the year have been disclosed in note 5.

 

10. CONTINGENT LIABILITIES

 

There is currently a company operating under Companies’ Creditors Arrangement Act protection whose pension plans could make significant claims on the Fund. As these potential claims remain at an early stage, an estimate of the claims which might be incurred, if any, cannot be determined.

 

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Motor Vehicle Accident Claims Fund

(Established under the Motor Vehicle Accident Claims Act)

Financial Statements

 

March 31, 2015 

Management’s Statement

 

Government of Ontario crest

Financial Services
Commission
of Ontario

Commission des
services financiers
de l’Ontario

 

Motor Vehicle Accident Claims Fund

 

Management Responsibility for Financial Information

 

Management is responsible for the financial statements and all other information presented in the financial statements. Management in accordance with Canadian public sector accounting standards has prepared the financial statements and where appropriate included amounts based on Management’s best estimates and judgements.

 

Management agrees with the work of the specialists in evaluating the Unpaid Claims amount and has adequately considered the qualifications of the specialist in determining amounts and disclosures used in the notes to financial statements. Management did not give any, nor cause any, instructions to be given to specialists with respect to values or amounts derived in an attempt to bias their work, and we are not aware of any matters that have impacted the independence or objectivity of the specialists.

 

The Motor Vehicle Accident Claims Fund is dedicated to the highest standards of integrity in provision of its services. Management has developed and maintains financial controls, information systems and practices to provide reasonable assurances on the reliability of financial information and that the assets were safeguarded. Internal audits are conducted to assess management systems and practices and reports are issued to the CEO and Superintendent of Financial Services of the Financial Services Commission of Ontario (the “FSCO”) and the FSCO Audit and Risk Committee.

 

The financial statements have been audited by the Office of the Auditor General of Ontario. The Auditor’s responsibility is to express an opinion on whether the financial statements are fairly presented in accordance with Canadian public sector accounting standards. The auditor’s report outlines the scope of the auditor’s examination and report.


Signature of Javier Aramayo, Senior Manager (A), Motor Vehicle Accident Claims Fund

Javier Aramayo
Senior Manager (A) Motor Vehicle Accident Claims Fund


Signature of Kwan Lee Chief Accountant Financial Services Commission of Ontario

Kwan Lee
Chief Accountant, Financial Services Commission of Ontario

 

Independent Auditor's Report

 

Auditor General of Ontario logo

Office of the Auditor General of Ontario
Box 105, 15th Floor
20 Dundas Street West
Toronto, Ontario
M5G 2C2
416-327-2381
fax 416-326-3812

 

Bureau du vérificateur general de l’Ontario
B.P. 105, 15e étage
20, rue Dundas ouest
Toronto (Ontario)
M5G 2C2
416-327-2381
télécopieur 416-326-3812

www.auditor.on.ca [New Window]

 

To the Motor Vehicle Accident Claims Fund and the Minister of Finance
I have audited the accompanying financial statements of the Motor Vehicle Accident Claims Fund, which comprise the statement of financial position as at March 31, 2015, the statements of operations and MVACF deficit and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for the financial statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

 

Auditors’ responsibility
My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Canadian generally accepted auditing standards. Those standards require that I comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements.

 

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.

 

Opinion
In my opinion, the financial statements present fairly, in all material respects, the financial position of the Motor Vehicle Accident Claims Fund as at March 31, 2015 and the results of its operations and its cash flows for the year then ended in accordance with Canadian public sector accounting standards.

 

Other Matters
The financial statements of the Motor Vehicle Accident Claims Fund for the year ended March 31, 2014 were audited by another auditor who expressed an unqualified opinion on those statements on June 25, 2014.

 

Toronto, Ontario
June 23, 2015


Signature of Bonnie Lysyk, MBA, CPA, CA, LPA Auditor General

Bonnie Lysyk, MBA, CPA, CA, LPA
Auditor General

 

 

Statement of Financial Position

As at March 31, 2015

MOTOR VEHICLE ACCIDENT CLAIMS FUND
(Established under the Motor Vehicle Accident Claims Act)

 20152014
ASSETS
Current
Funds on deposit with the Ministry of Finance $ 53,707,214$ 44,996.360
Accounts receivable – driver’s licence fees 581,359924,994
Accounts receivable – debtors (Note 3c)44,723,74051,556,928
Less: allowance for doubtful accounts32,644,08638,500,274
 12,079,65413,056,654
Long-term
Capital assets (Note 4) 553,975553,975
Less: accumulated amortization 552,483535,737
 1,4923,238
Unpaid claims recoverable (Note 5) 664,200369,476
Total assets$ 67,033,919$ 59,350,722
LIABILITIES AND MVACF DEFICIT
Accounts payable and accrued expenses$ 501,596$ 1,566,600
Employee future benefits obligation (Note 3h)477,428471,859
Deferred revenue73,398,45470,897,241
Unpaid claims and adjustment expenses (Note 5)153,534,380142,136,047
Total liabilities227,911,858215,071,747
MVACF deficit (Note 2)(160,877,939)(155,721,025)
Total liabilities and MVACF deficit$ 67,033,919$ 59,350,722

See accompanying notes.

Approved:

Signature of Brian Mills, Chief Executive Officer and Superintendent of Financial Services, Financial Services Commission of Ontario


 

 

Brian Mills
Chief Executive Officer and Superintendent of Financial Services
Financial Services Commission of Ontario

 

 

Statement of Operations and MVACF Deficit

For the Year Ended March 31, 2015

MOTOR VEHICLE ACCIDENT CLAIMS FUND
(Established under the Motor Vehicle Accident Claims Act)

 2015
2014
REVENUE
Fees on issue or renewal of driver’s licences$ 29,168,194$ 29,616,255
Prior year recoveries1,171,1411,412,802
Other revenue15,93814
Total revenue30,355,27330,049,076
EXPENSES
Change in net unpaid claims and adjustment expenses11,103,609(271,869)
Accident benefit claims payments13,112,33017,049,530
Administrative expenses
Salaries and wages1,655,6141,733,508
Employees’ benefits290,775128,918
Transportation and communication16,34951,388
Claims (solicitors’ fees, etc.)2,275,0941,736,864
Accident benefit claims expense2,272,8401,708,443
Other services1,021,7011,238,229
Bad debts expense3,745,0475,017,499
Supplies and equipment17,08211,558
Amortization expense1,7469,038
Total expenses35,512,18728,413,106
Excess (deficiency) of revenue over expenses(5,156,914)1,635,970
MVACF deficit, beginning of year(155,721,025)(157,036,707)
MVACF deficit, end of year$ (160,877,939)$ (155,400,737)

See accompanying notes.

 

 

Statement of Cash Flows

For the Year Ended March 31, 2015

 

MOTOR VEHICLE ACCIDENT CLAIMS FUND
(Established under the Motor Vehicle Accident Claims Act)

 20152014
OPERATING ACTIVITIES
Cash inflows
Fees on issue or renewal of driver’s licences$ 32,013,042$ 29,143,659
Repayment by debtors1,173,0311,179,782
Prior year recoveries1,171,1411,412,802
Other revenue15,93814
 34,373,15231,736,257
Cash outflows
Statutory payments(18,160,323)(21,170,616)
Payments to employees(1,934,390)(1,994,587)
Administrative expenses(5,567,585)(5,117,713)
 (25,662,298)(28,282,916)
Net cash outflow from operating activities8,710,8543,453,341
Funds on deposit with the Ministry of Finance, beginning of year44,996,36041,543,019
Funds on deposit with the Ministry of Finance, end of year$ 53,707,214$ 44,996,360

See accompanying notes.

 

Notes to Financial Statements

March 31, 2015

 

1. STATUTORY AUTHORITY

 

The Motor Vehicle Accident Claims Fund (MVACF) operates under the authority of the Motor Vehicle Accident Claims Act (the Act), R.S.O. 1990, Chapter M.41 as amended.

 

2. MVACF OPERATIONS

 

MVACF is a program that was created on July 1, 1947 as the Unsatisfied Judgment Fund. Initially, MVACF was required to respond to victims of uninsured motorists and hit-and-run drivers who could not recover damages awarded by the courts from an automobile insurance company. MVACF legislation was amended in the early 1960s, in 1979 with the Compulsory Automobile Insurance Act, and in 1990 by the Insurance Statute Law Amendment Act which required MVACF to include in its statutory payments, accident benefits on a no-fault basis for the first time. Currently, MVACF responds to claims in the same fashion and with the same exclusions as automobile insurers in Ontario, and provides for two types of coverage: third-party bodily injury and property damage liability (collectively referred to as TPL), and statutory accident benefits or SABS in accordance with legislated requirements. MVACF provides compensation for these types of coverage in claims resulting from automobile accidents involving uninsured or unidentified drivers, when there is no available policy of insurance.

 

The coverage provided by MVACF is analogous to the minimum required coverage under the standard automobile policy (OAP 1) approved by the provincial regulator. Unlike insurance companies, MVACF does not cover claims where the accidents occur outside of Ontario, except in the case of accident benefits where the Ontario insurer is insolvent. In the cases of insurance company insolvencies where MVACF pays claims for accident benefits, MVACF has powers to assess the industry to recover for claims and adjustment expenses and also has claimant rights against the estate of the insolvent insurer.

 

MVACF operates administratively under the direction of the Financial Services Commission of Ontario (FSCO) and reimburses FSCO for the costs of the services it provides to MVACF.

 

The Lieutenant Governor in Council, having regard to the condition of MVACF and the amount paid out of MVACF during any period, may direct payment out of the Province’s Consolidated Revenue Fund of such an amount as may be considered necessary or advisable to subsidize and fund MVACF’s operations.

 

3. SIGNIFICANT ACCOUNTING POLICIES

 

The significant accounting policies used in the preparation of these financial statements in accordance with Canadian Public Sector Accounting Standards for government not-for-profit organizations (PSA-GNFPO) as issued by the Public Sector Accounting Board (PSAB) are summarized as follows:

 

a) Driver’s Licence Fees and Deferred Revenue

MVACF earns a fee of $15.00 on the issuance or renewal of each driver’s five-year licence. The income is earned on a pro-rata basis over the five-year term of the licence and the unearned portion is reflected as deferred revenue.

 

b) Accounts Receivable — Driver's Licence Fees

Under the Act, MVACF receives from the Ministry of Transportation and Serco DES a monthly internal transfer and payment representing the driver's licence fee prescribed by Ontario Regulation 800. Accordingly, unremitted licence fees are reported as accounts receivable.

 

c) Accounts Receivable — Debtors

MVACF maintains an accounts receivable portfolio, accumulated over the years as a result of judgments and claims assigned to the Minister of Finance. MVACF will pay damages to injured, not-at- fault victims who have no recourse to liability insurance, on behalf of defendant uninsured motorists. In accordance with the Act, these amounts are recoverable from the uninsured motorists. Recoverable amounts of $4.4 million (2014 - $5.3 million) are netted against the unpaid claims and adjustment expense in the Statement of Operations and MVACF Deficit.

 

The allowance for doubtful accounts is determined through a process that considers: the age of defendant/debtor, the defendant/debtor’s current monthly installment required under the regulations, the amount paid out of MVACF, the activity on the account since the date of the judgment, and the financial status of the defendant/debtor.

 

The write-off process depends on established criteria that parallel the criteria established by the Ministry of Finance. These criteria are used to select a block of accounts that is reviewed annually by the enforcement and collections staff. The Ministry of Finance, Internal Audit Section audits the identified accounts for potential write-off and provides a certificate of assurance verifying that the established criteria for the write-off have been met. The write-off transaction is authorized by an Order-In–Council (OIC) under the authority set out in the Financial Administration Act.

 

For March 31, 2015, a write-off of $6.4 million was submitted to the Ministry of Finance but has not yet been approved. A write-off of $10.0 million for March 31, 2014 was approved during the year, through an OIC. This write-off is recorded in the current year’s financial statements and represents a reduction of the account receivable debtors and allowance for doubtful accounts. There is no impact in the current year statement of operations.

 

Accounts receivables-debtors and the allowance for doubtful accounts are adjusted on receipt of the OIC approving the write off.

 

d) Accounting Adjustment

The Net Funds Balance for 2013-14 has been restated to correct for an understatement of expenses and overstatement of funds on deposit with the Ministry of Finance originating in fiscal 2005-2012. MVACF has corrected the errors by increasing the opening deficit by $320,288 and decreasing funds on deposit with the Ministry of Finance by $320,288.

 

e) Prior Year Recoveries

Prior year recoveries are generated from three main sources: insurance recoveries, reversionary interest (note 6) and recoveries of court costs. MVACF is required under the Statutory Accident Benefits Schedule (SABS) to satisfy the payment of accident benefits claims within specified periods. The timeframe does not allow for a complete investigation into available insurance coverage and in some instances information is withheld by police because of criminal investigations. Accordingly, when new information is available, MVACF may be required to pursue private insurers for recoveries.

 

From time to time MVACF may also be involved in the defense of uninsured motorists or the Superintendent of the FSCO, where the legal proceedings are deemed frivolous and MVACF is awarded costs by the courts.

 

Prior year recoveries are recorded in the period they are determined. In the current year $1.2 million (2014 - $1.4 million) recoveries were recorded but related to prior year claims.

 

f) Unpaid Claims and Adjustment Expenses

Unpaid claims and adjustment expenses represents the estimated amounts required to settle all unpaid claims, including an amount for unreported claims and claim expenses, and is gross of estimated recoveries and subrogation. Claim liabilities are established according to accepted actuarial practice in Canada as applied to public personal injury compensation plans. They do not reflect the time value of money, because MVACF reports no investment income.

 

The provision for unpaid claims and adjustment expenses consists of estimates that are necessarily subject to uncertainty, and the variability could be material in the near term. The estimates are selected from a range of possible outcomes and are adjusted up or down, as additional information becomes known during the course of loss settlement proceedings. The estimates are principally based on historical experience but variability can be caused by changes in judicial interpretations of contracts or significant changes in severity and frequency of claims from historical trends. All changes in estimates are recorded in the current period.

 

MVACF has obligations to pay certain fixed amounts to claimants on a recurring basis and has purchased annuities from life insurers to provide for those payments in the form of structured settlements. Note 6 contains additional analysis related to structured settlements.

 

Settlements occur when there is an irrevocable direction from MVACF to the life insurer to make all payments directly to the claimant. There are no rights under the non-commutable, non-assignable, non-transferable contract that would provide any current or future benefit to MVACF. MVACF remains liable to make payments only in the event that the life insurer fails and only to the extent that Assuris, the life insurance industry’s insolvency compensation fund, will not cover payments due. The net risk to MVACF is any credit risk related to the life insurers. This credit risk is deemed nil at March 31, 2015 (2014 – nil) as all insurers are rated A+ or above. There exists the possibility of contingent gains based on the fact that MVACF has purchased insurance on some of the measured lives. Such amounts are described in Note 6 – Contingent Gains.

 

g) Use of Estimates

The preparation of financial statements in accordance with Canadian PSA-GNFPO requires that MVACF’s management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities as at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Estimates and assumptions may change over time as new information is obtained or subsequent developments occur. Actual results could differ from these estimates. The most significant estimates relate to the provision for unpaid claims and adjustment expenses, unpaid claims recoverable, contingent liabilities and employee future benefits.

 

h) Employee Future Benefits Obligation

MVACF’s employees are entitled to benefits that have been negotiated centrally for Ontario Public Service employees or required by the Management Board of Cabinet’s Compensation Directive. The future liability for benefits earned by MVACF’s employees is recognized in the Province of Ontario’s (the Province) consolidated financial statements.

 

While the Province continues to accrue for these costs each year and fund them annually when due, MVACF also recognizes the liabilities pertaining to a basic severance entitlement and compensated absences components of its employee future benefits costs in these financial statements. When these costs are funded by the Province when due, MVACF derecognizes these liabilities in the year.

 

The cost of other non-pension post-employment benefits is determined and funded on an ongoing basis by the Ontario Ministry of Government Services and accordingly is not included in these financial statements.

 

4. CAPITAL ASSETS

 

Leasehold improvements, computer equipment, furniture and fixtures, and office equipment are carried at cost less accumulated amortization. MVACF provides for amortization on a straight-line basis over the term of the lease (for leasehold improvements) or over the useful life of the asset. Accordingly, leasehold improvements and furniture and fixtures are amortized over 5 years, while computer equipment and office equipment are amortized over 3 years.

 

(in dollars)2015
 CostAccumulated AmortizationNet Book Value
Computer equipment$ 30,153$ 28,661$ 1,492
Office equipment7,4067,406
Furniture and fixtures16,41616,416
Leasehold improvements500,000500,000
 $ 553,975$ 552,483$ 1,492
(in dollars)2014
Computer equipment$ 30,153$ 27,169$ 2,984
Office equipment7,4067,152254
Furniture and fixtures16,41616,416
Leasehold improvements500,000500,000
 $ 553,975$ 550,737$ 3,238

 

 

5. UNPAID CLAIMS AND ADJUSTMENT EXPENSES

 

a) MVACF's unpaid claims and adjustment expenses and unpaid claims recoverable consist of the following:

 20152014
(in thousands of dollars)GrossRecoverableGrossRecoverable
ACCIDENT BENEFITS
Statutory accident benefits$ 95,899$ 92,291
THIRD-PARTY
LIABILITY (TPL)
Property damage80098785
Bodily injury43,99965545,359364
Total TPL$ 44,799664$ 46,237369
Totals$ 153,534664$ 142,136369

 

 

b) The change in gross provision for unpaid claims and adjustment expenses is as follows:

(in thousands of dollars)20152014
Balance, beginning of year$ 142,136$ 143,256
Increase (decrease) in provision for losses that occurred in prior years3,789(2,003)
Amounts paid during the year on claims of prior years
Statutory payments(15,721)(20,713)
Claims expenses(6,378)(6,228)
Amounts paid during the year on claims of the current year
Statutory payments(592)(256)
Claims expenses(240)(77)
Provision for losses on claims that occurred in the current year30,54028,157
Balance, end of year$ 153,534$ 142,136

 

 

6. CONTINGENT GAINS AND LIABILITIES

 

a) Contingent Gains

Some payments out of MVACF are in the form of structured settlements for accident benefit claims. These claims have guarantee periods ranging from 10 to 30 years and during this period the reversionary interest will be payable to Her Majesty the Queen in right of Ontario, as represented by the Minister of Finance, should the claimant die.

 

Even though the range of probability that the claimant may die during the guarantee period is slight, MVACF nevertheless has calculated the approximate reversionary interest represented by insurance on the claimant lives as at March 31, 2015 for information purposes.

 

As at March 31, 2015, the amount paid out of MVACF for accident benefit claims in the form of structured settlements was approximately $51.2 million (2014 - $50.1 million) with applicable reversionary interest of approximately $35.8 million (2014 - $37.3 million).

 

b) Contingent Liabilities

In accordance with PSA-GNFPO, MVACF makes a provision for a liability when it’s both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed annually and adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Litigation is inherently unpredictable and it is possible that MVACF’s financial position, cash flows or results of operations could be negatively affected by an unfavorable resolution to court decisions.

 

7. ROLE OF THE ACTUARY AND AUDITOR

 

FSCO retains an independent actuary who acts as MVACF’s actuary. The actuary’s responsibility is to carry out an annual valuation of MVACF’s liabilities, which include the provision for unpaid claims and adjustment expenses in accordance with accepted actuarial practice in Canada. In performing the valuation, the actuary makes assumptions as to the future rates of claims frequency and severity, inflation, recoveries, and expenses, taking into consideration the circumstances of MVACF. The actuary in his verification of the underlying data used in the valuation may use of the work of the external auditor. The actuary’s report outlines the scope of his work and opinion.

 

The Auditor General of Ontario is appointed as the external auditor of the MVACF with the responsibility to conduct an independent and objective audit of the financial statements in accordance with Canadian generally accepted auditing standards and report thereon to the Audit and Risk Committee of the FSCO. In carrying out her audit, the Auditor General also considers the work of the actuary and his report on the provision for unpaid claims and adjustment expenses. The auditor’s report outlines the scope of the audit and her opinion.

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