Financial results explained
Net premiums: $115.8 million
LawPRO net earned premiums in 2016 were $115.8 million. Premiums from the mandatory insurance program were lower than in 2015, though still higher than budgeted. The E&O Fund did not make a premium contribution to LawPRO in 2016 as it did in 2015. And although the number of practising lawyer full-time-equivalents (FTEs) was slightly lower than expected, a robust real estate market lifted transaction levy income $3 million over budget.
Net claims: $100.7 million
Incurred claims and adjustment expenses for 2016 were $100.7 million. This increase of $20 million over 2015 reflects a higher number of claims as compared to 2015 and a smaller net reduction to reserves due to favourable development of prior fund years’ loss experience.
The discount rate used to value claims liabilities increased, at December 31, 2016, to 2.40 per cent; up from 2.18 per cent at December 31 of the previous year. In other words, given there was an increase in investment yields, reserves could be lowered as more investment income will be earned between collection of premiums and payment of claims.
General expenses: $19 million
LawPRO’s general expenses of $19 million in 2016 were in-line with budget. Carefully managing general expenses is a key value we offer our insureds. Our expense ratio of 20 per cent is below the 28 per cent industry average for similar small insurance companies that don’t pay commissions.
Investment income: $17.4 million
Investment income in 2016 was $17.4 million, $1.1 million less than in 2015, as rising market investment yields caused bonds to decline in value.
Net income: $8.6 million
LawPRO experienced total net income of $8.6 million in 2016, nearly $20 million less than our net income of $28.4 million in 2015, but still above budget for the year. (Income results for 2015 were exceptional, due to a number of factors, including the implementation of updated actuarial assumptions that allowed for a reduction in reserves retained for future years.)
Other comprehensive income: $6.8 million (after tax amounts quoted)
In the category of other comprehensive income, LawPRO earned $6.8 million in 2016, $5.8 million more than in 2015, due to robust returns in the equities markets.
After including $8.6 million in net income (see E for details), shareholder’s equity was $253.4 million at the end of 2016, up from $238 million at the end of 2015 – for a year-over-year increase of $15.4 million.
Minimum Capital Test: On track in 2016
The Minimum Capital Test (MCT) is designed to ensure that a financial institution’s assets are sufficient to meet its present and future obligations.
For the MCT calculated at December 31, 2016, LawPRO’s score is 253 per cent – down from 268 per cent on December 31, 2015, but still well above the 215-240 per cent range for which the company aims.
2016 was the second year of a three year phase-in to new MCT requirements. Without the benefit of the phase-in, the MCT would have been 242 per cent. LawPRO expects that its MCT score may continue to decrease in coming years as steps are taken to bring its score into the 215-240 per cent range.