ANNUAL R E P O R T · 10 > AUMA Member Profiles 2017 Annual Report > 11 Leading through Change >...

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Table of Contents04 President’s Message

05 CEO’s Message

06 About AUMA

07 About AMSC

08 Governance

11Advocacy Services2017 Highlights

23Business Services2017 Highlights

30 AUMA Consolidated Financials

54Alberta Municipal Insurance Exchange (MUNIX) Financials

84APEX Supplementary Pension Plan Financials

Cover photos (top to bottom):Town of Raymond Strathcona County

Photos used throughout the 2017 Annual Report have been generously provided by the noted Alberta municipalities.

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Barry Morishita President

Leading through change was not only the theme for the 2017 AUMA Annual Convention, but a reflection of our organization as well. As we geared up for changes to municipal councils and our own board and committees, we also saw changes within the AUMA administration.

I was honoured to have been appointed as interim CEO, and I know firsthand that change in an organization can create challenges, especially at a leadership level. Having been with the AUMA for 14 years as the Chief Financial Officer, I have seen the AUMA grow from an organization with only 10 people to our current state, with over 80 full time employees. Reaction to change is a matter of perception, and we saw this as an opportunity to focus on priorities and seeking ways to be more effective, efficient, and strategic in how we support our members.

We are fortunate at the AUMA as there is a strong leadership team and talented, committed and capable employees, and this team continues to grow. In 2017, we welcomed Jamie Hotte, Chief Operating Officer, who oversees the services provided by the AMSC team, and Nicole Martel, Executive Officer, Policy and Advocacy, who officially joined the organization in January 2018. Both have extensive experience in their fields of practice and we are fortunate to have them join the AUMA and help to continue to propel us forward.

AUMA continues to evaluate our service offerings and how we can strengthen our own organization to meet our members’ changing needs. In 2017, we saw the launch of some internal initiatives, including exploring Customer Relationship Management (CRM) tools to help us better coordinate the services we provide to our members, and development of a digital strategy to help us make better use of our communication tools, including the AUMA website, newsletters, social media, and more.

From the first day of my appointment as interim CEO, I wanted to ensure it would be business as usual, and I believe we have been successful in this regard. I am very proud of how AUMA staff pulled together, working hard to ensure we could continue to deliver the high level of service our members and clients expect. Despite this success, we cannot rest on our laurels. Change is a constant, and 2017 was a representation of the resiliency of the AUMA, and our capacity to grow as individuals and as an organization, now and into the future.

Dan RudeChief Executive Officer (CEO)

President’s Message CEO’s MessageWe knew going into 2017 it was going to be a busy year for us and our members.

Along with the municipal elections, and the many new people on municipal councils, there were also changes to the AUMA Board of Directors, and I was honoured to have been acclaimed as Board President at our annual convention in Calgary. The board elections brought new faces to the table, and we are inspired by the energy of the new members, and we are grateful for the commitment and service of those who served previously on our Board and committees.

Our members would have to address a number of changes in 2017, including amendments to the Municipal Government Act and the upcoming legalization of cannabis. To help respond to and prepare for these changes, AUMA focused significant time and energy in developing strategies to support our members. This was reflected in various tools and resources, including educational programs, webinars, toolkits, and more, delivered throughout the year.

Events like the Mayors’ Caucus held in March and June, and the convention last November, provided opportunities for us to engage with our members, and also for our members to engage with each other. From my own experience as Mayor for the City of Brooks, I can speak to the importance of networking and creating relationships with colleagues in other municipalities, especially as we all start working through the intermunicipal collaboration framework.

Advocacy is a very important part of what we do at the AUMA, and why we formed as an organization representing municipalities way back in 1905. Over these past 100 plus years, AUMA has been working to ensure that everyone – at every level of government – understands that municipal governments are accountable to their citizens and are trusted to act in the best interest of their respective communities.

We do this through engaging our members and developing strategic partnerships between all orders of government to meet municipal needs. Moving forward, it also means changing the perspective of urban and

rural, how we at a municipal level and at an advocacy level can work together rather than just along parallel streams.

If we are truly going to solidify our relationship with the provincial and federal governments, we have to use solution-based advocacy work that centres around recognition and respect. We must continue to evolve the relationship with the province, to be partners working together to achieve common goals for the betterment of our communities.

2017 set the foundation for this time of change in Alberta and I am confident that this will lead to continued success in 2018 and beyond.

We are fortunate at

the AUMA as there is a

strong leadership team

and talented, committed

and capable employees.

To help respond to

and prepare for these

changes, AUMA focused

significant time and

energy in developing

strategies to support

our members.


The Alberta Urban Municipalities Association (AUMA) along with its wholly-

owned subsidiary, the Alberta Municipal Services Corporation (AMSC), has a

long and proud history of serving members, a history that was built upon a

collaborative spirit and a keen insight into the workings of local government.

The Alberta Municipal Services Corporation (AMSC) delivers a broad range of

service solutions to municipalities, municipally-related organizations, and their

employees. These services include: Insurance & Risk Services, Employee Benefits,

Retirement Services, Utility Services, Short-term Investment Services, and a

Purchasing Program.

VisionAMSC is the leader in

providing innovative business

solutions to municipalities and

community organizations.

MissionAMSC provides competitively

priced, quality services for

municipalities and community

organizations to enhance their

stability and capacity.

VisionAUMA is a change agent that

enables municipalities to

be a fully engaged order of

government with the capacity

to build thriving communities.

MissionAUMA is the voice of urban

municipalities and provides

visionary leadership, solutions-

based advocacy, and service

excellence.

Excellence • Member Focus

Accountability • Collaboration

Communication

Core Values

Excellence • Customer Focus

Accountability • Collaboration

Communication

Core Values

2017/2018 AUMA Board

Back Row: Councillor Peter Demong, Mayor Peter Pellatt, Councillor Buck Buchanan, Mayor Barry Morishita, Mayor Bill Given, Councillor Ward Sutherland, Mayor Charlene Smylie, Mayor Ed Sosnowski

Front Row: Councillor Tony Caterina, Mayor Bruce McLeod, Councillor Tanya Thorn, Mayor Cathy Heron, Deputy Mayor Trina Jones, Mayor Maryann Chichak

About AUMA About AMSC

2017 AUMA Convention & AMSC Trade Show2017 AUMA Convention & AMSC Trade Show


2017/2018 AUMA Board of Directors (President, then alphabetical)Chair, Mayor Barry Morishita* President City of Brooks

Councillor Mohinder Banga Director, Cities over 500,000 City of Edmonton

Councillor Buck Buchanan Director, Cities up to 500,000 City of Red Deer

Councillor Tony Caterina* Vice-President and Director, Cities over 500,000 City of Edmonton

Mayor Maryann Chichak* Vice-President and Director, Towns West Town of Whitecourt

Councillor Peter Demong* Vice-President and Director, Cities over 500,000 City of Calgary

Mayor Bill Given Director, Cities up to 500,000 City of Grande Prairie

Mayor Cathy Heron* Vice-President and Director, Cities up to 500,000 City of St. Albert

Deputy Mayor Trina Jones Director, Towns East Town of Legal

Mayor Bruce McLeod Director, Villages South Village of Acme

Mayor Peter Pellatt Director, Summer Villages Summer Village of Sundance Beach

Mayor Charlene Smylie* Vice-President and Director, Villages West Village of Wabamun

Mayor Ed Sosnowski Director, Villages East Village of Myrnam

Councillor Ward Sutherland Director, Cities over 500,000 City of Calgary

Councillor Tanya Thorn Director, Towns South Town of Okotoks

*Member of AUMA Executive Committee

Board Organization Structure

Mayor Barry Morishita* Chair

Mayor Maryann Chichak Elected Governor

Mayor Peter Pellatt Elected Governor

Mayor Charlene Smylie Elected Governor

Mayor Ed Sosnowski Elected Governor

Councillor Tanya Thorn Elected Governor

Mr. Ron Helmhold External Governor

Ms. Shelley Miller* External Governor

Mr. Al Mondor* External Governor

Ms. Elaine Noel-Bentley External Governor

Mr. Stanley Wong External Governor

*Member of AMSC Governance Committee

2017/2018 APEX Governance Board (Chair, then alphabetical)

Mayor Barry Morishita Chair

Mr. Robert Kallir Independent Member

Ms. Elaine Noel-Bentley Independent Member

Ms. Ellen Nygaard Independent Member

Mr. Garth Sherwin Member Municipality Representative

Mr. Gregory Yeomans Independent Member

2017/2018 AMSC Board Of Governors, AMSCIS Board Of Directors, and MUNIX Advisory Board (Chair, then alphabetical Elected Governor, then External Governor)

Governance Governance

AUMA

Audit and Finance Committee

Small Communities

Committee

Infrastructure and Energy Committee

Municipal Governance Committee

Investment Advisory Committee

Safe and Healthy

Communities Committee

Sustainability and

Environment Committee

Executive Committee

2017 AUMA Convention & AMSC Trade Show

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Leading through Change > Communities in Action

Surrounded by 152 lakes, Lac La Biche County saw the installation and opening of a Lifejacket Loaner Station on the shoreline in McArthur Park. This partnership with the Lifesaving Society of Alberta and Northwest Territories is one of only 23 in Alberta.


Approximately 60 high school students from Athabasca Delta Community School took part in a hands on introduction to many health care professions in Fort Chipewyan. The goal is to plant the seed that a future as a rural health-care professional could be their calling in life.

ADVOCACY S E R V I C E S2017 Highlights

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Overall, the process has resulted in a reworked Act framed to bring about a new era of collaboration for municipalities and more transparent and accountable governance, key themes raised by members that have framed our work this past decade.

Alongside the legislative amendments, the province has also passed a number of associated regulations that set out details as to how policies in the Act will be implemented. AUMA continues to promote the need for further work on the regulations to include more of the input provided by municipalities. As a result of our efforts, the province has agreed to revisit provisions to ensure municipalities are able to fairly and accurately assess and tax cannabis grow operations. As well, the province agreed to delay the implementation of complex changes to the Community Organization Property Tax Exemption Regulation and sections of the Offsite Levies Regulation that pertain to provincial highway connectors until it is certain they are in the best form for municipalities, the development industry, and citizens.

After over a decade’s worth of work, on Thursday, October 26, 2017, the Government

of Alberta proclaimed the new Municipal Government Act (MGA). Throughout this

time, the MGA review has been one of AUMA’s top priorities. AUMA’s input resulted

in a number of key achievements for municipalities.

AUMA President (2015-2017), Lisa Holmes, answers questions at the MGA Proclamation.

Our work started with Munis 101, a two-day course to help new and returning councillors meet the mandatory training requirements set out in the new Municipal Government Act. Topics covered included municipal legislation, the role of elected officials, municipal finance, planning and development, and effective collaboration. The course was delivered in 14 locations across Alberta between September 2017 and January 2018 by AUMA and RMA’s Elected Officials Education Program (EOEP) to approximately 1,125 municipal elected officials and chief administrative officers.

The EOEP also started development of supplementary courses on strategic planning, regional collaboration, land use planning, service delivery and public participation to be offered in 2018.

To further support municipalities in adapting to requirements in the new MGA, AUMA and RMA

developed additional tools, including the Intermunicipal Collaboration Framework Workbook, a Councillor Code of Conduct Guide and draft bylaw, and a Public Participation and Public Notification Guide and templates, which were released in early 2018.

AUMA continues to collaborate with Municipal Affairs and other partners to develop tools to support municipalities on a wide variety of topics including subdivision and development appeal board training, corporate planning, off-site levies, Indigenous-municipal relations, and more.

MGA Change Management AUMA is working hard alongside the Rural Municipalities of Alberta (RMA) and

Municipal Affairs to develop tools and resources that support

municipalities in adapting to changes.

Municipal Government Act Review MGA Legislative

and Regulatory Amendments

Municipal Government Act Review

Munis 101 was delivered to:

1,125 participants


Working with the Federation of Canadian Municipalities (FCM), AUMA has long advocated for a long-term and sustainable federal infrastructure funding. The first phase of the Investing in Canada Plan wrapped up in 2017 with $196.7 million invested in clean water and wastewater projects, $347 million in public transit infrastructure across Canada, as well as grant opportunities through Municipal Asset Management Program, Climate Innovation Fund, and others. The federal government also began negotiations with the provinces on phase two of the Investing in Canada Plan.

AUMA continued its advocacy for a 40/40/20 federal/provincial/municipal cost-sharing formula. We have continued to push for more timely flow of funding and greater transparency in how projects are selected. We have had success in advocating

for a single interface for applying for grant money under phase two, with the province committing to create a single portal for all grant funding under the Investing in Canada Plan.

In 2017, the federal government also finalized the details of the Canada Infrastructure Bank, which was created to assist in the financing of infrastructure in communities across Canada. The initial commitment from the federal government to the Bank was $35 billion. The federal government appointed the Board in November 2017, including former Calgary Mayor David Bronconnier. The Bank plans to spend most of the coming year setting up and expects the first projects to be approved by the end of 2018. AUMA will continue to monitor developments with the Bank as they become available.

Infrastructure FundingIn response to feedback from our members, in 2017, AUMA and RMA jointly managed funding under the Municipal Asset Management Program (MAMP) to deliver capacity-building courses designed for municipal elected officials and chief administrative officers.

Urban Systems was retained to develop full-day and half-day courses on asset management, including courses for elected officials that focused on the basics of asset management, the role of elected officials and CAOs, and asset management policy. Five half-day courses focused on specific areas of asset management, including asset management policy writing, the intersection with climate change, levels of service and communication.

AUMA also partnered with Infrastructure Asset Management Alberta (IAMA) to deliver a two-

day course for municipal staff who are in the process of implementing asset management in their municipality. This course focused on the operational and technical details of asset management, focused on how to engage multiple departments, individual roles and an organizational approach.

AUMA had a successful year supporting our members in implementing asset management and plans to continue working with our partners to find more training opportunities and funding through MAMP.

Asset Management

The Honourable Amarjeet Sohi, Member of Parliament for Edmonton – Mill Woods and Minister of Infrastructure and Communities participated in a “fireside chat” with Tony Caterina, Councillor for the City of Edmonton and AUMA Director for Cities over 500,000, as part of the 2017 AUMA Convention. Minister Sohi provided an update on federal infrastructure funding including Phase 2 of the Investing in Canada Plan, disaster mitigation, and the future of Canada’s energy sector.

AUMA secured funding to deliver capacity-

building courses designed for municipal

elected officials and chief administrative officers.

Asset Management: Fighting Fiction and Fad with Facts2017 AUMA Convention & AMSC Trade Show2017 AUMA Convention & AMSC Trade Show


In early 2017, the federal government tabled legislation to legalize cannabis by summer 2018. AUMA responded by identifying gaps relating to municipal engagement, property protection, taxation, and resources to support municipalities in their new roles when cannabis is legalized. We brought these gaps to the attention of the both the provincial and federal governments, and reminded them of the complex health and safety issues that need to be resolved. We also highlighted challenges with the proposed timeline for legalization, given the need to develop federal and provincial regulations, as well as associated municipal bylaws.

The provincial government initiated consultations to develop their own legislative framework in June 2017. In preparation for this consultation, AUMA issued a member survey and held a working session at our June Mayors’ Caucus. We then used the feedback shared by members to develop a response to consultation. We also participated in a number of roundtable discussions on implementation matters such as managing access

and public health, regulation and supply chain, and municipal concerns.

The draft Alberta Cannabis Framework was released on October 4, 2017, and AUMA was pleased to see many of our recommendations reflected in the proposed legislation. We struck an Administrative Cannabis Working Group to review the draft framework, validate AUMA’s previous policy positions, and develop further recommendations, which we shared with the provincial government. The finalized cannabis framework was released on November 16, 2017, and an education session was held at AUMA’s 2017 Convention.

While AUMA achieved a number of advocacy successes related to cannabis legalization in 2017, there remain outstanding issues that we will work towards resolving in 2018. These include resources to support municipalities in implementing legalization, such as a municipal share of cannabis excise revenue tax, and the appropriate classification of cannabis production facilities for property tax assessment.

Cannabis LegalizationMunicipal Sustainability Initiative

To start the year, AUMA completed a comprehensive review to understand the shortfalls of the MSI program and developed a series of recommendations on how a new program could better serve the needs of both municipalities and the province. The recommendations involved a vision and principles for a new funding framework, including a proposal on how a new funding model could be structured.

AUMA shared its proposal with AUMA members through a working session at the March Mayors’ Caucus. The feedback from the working session confirmed AUMA’s recommendations aligned with members’ needs. At the same time, the province extended the MSI administrative agreements until March 2019.

Based on AUMA’s advocacy, the Minister of Municipal Affairs has committed to working with municipalities to determine an appropriate replacement for MSI. It is AUMA’s top priority moving into 2018 to follow up on our commitment and make concrete steps towards obtaining a replacement for MSI that continues to deliver the funding that municipalities need, while offering more stability and predictability for effective long-term financial planning.

2017 represented the end of the original

10-year commitment by the Government of

Alberta to deliver Municipal Sustainability

Initiative (MSI) funding to municipalities.

Based on AUMA’s

advocacy, the Minister

of Municipal Affairs has

committed to working

with municipalities to

determine an appropriate

replacement for MSI.



AUMA’s Welcoming and Inclusive Communities (WIC) initiative offers tools, education and guidance to support municipal governments to be inclusive employers and better leaders in the effort to overcome issues of social exclusion in Alberta’s communities.

The year started off with WIC hosting a workshop and webinar to create awareness of the issues facing refugees and how municipalities can support the integration process. In March, AUMA partnered with the Alberta Human Rights Commission to co-host a Municipal Inclusion Symposium. The two-day event brought over 50 delegates together to discuss challenges and promising practices, and take part in a half-day education session on gender identity and gender expression.

Following feedback from members, WIC updated its Measuring Inclusion Tool and profiled it at the

June Mayors’ Caucus, where delegates evaluated how inclusive their municipality was in engaging its citizens. Similar sessions were also presented at the Alberta Recreation and Parks Association conference and the Family and Community Support Services Association of Alberta conference.

In October, WIC recorded a webinar featuring the City of Red Deer on the topic of supporting transgender employees. Possibly most important, WIC supported municipal staff in their efforts to advance inclusion projects and engaged with other sectorial partners to advance awareness of tools and resources.

Looking forward to 2018, WIC is excited to be hosting the Come Together Alberta Conference and continuing to advance education and awareness about an issue that impacts all our communities.

Welcoming and Inclusive Communities

As part of the 2017 Summer Mayor’s Caucus, the Municipality of Jasper gave a presentation outlining its strategies in its efforts to become a Welcoming and Inclusive Community.

Women in GovernmentOver the past number of years, AUMA has been working with its partners to help increase the number of women in municipal government with the goal of reaching the United Nations’ target of 30 per cent participation rates. Municipal leaders across the province see value in this initiative and agree a council that takes steps to increase gender parity and make participating on council more welcoming for women is beneficial for all people.

In 2017, AUMA produced videos that featured female AUMA board members discussing their experiences campaigning as a way to help encourage, support, and increase the amount of women running in the municipal election. AUMA was pleased to see that the number of women elected rose from 26 per cent in 2013 to almost 30 per cent in 2017.

Additionally, AUMA provided funding to municipalities and related organizations to host local events for women on campaigning and the municipal election.


Program highlights:

• AMSP: The Alberta Municipal Solar Program provides capital cost rebates for solar photovoltaic (PV) installations in Alberta municipalities. As of December 2017, 36 projects totaling 4 megawatts (MW) had been completed or underway across 23 municipalities.

• NEET: The Non-Profit Energy Efficiency Transition program provides funding to Alberta community non-profit organizations for conducting energy efficiency audits and creating three-to-five year energy management plans (EMPs). As of December 2017, 80 projects were completed or underway across 79 non-profit organizations.

• TAME+: The Taking Action to Manage Energy Plus (TAME+) program provides tools and funding to help municipalities understand how energy is used in their buildings, identify key savings opportunities, and implement retrofit projects. As of December 2017, 45 projects were completed or underway across 25 municipalities.

• TAME Express: TAME Express provides funding to Alberta municipalities for high-efficiency lighting retrofits. As of December 2017, 56 lighting retrofits were completed or underway across 29 municipalities.

• Climate Resilience Express: As of December 2017, MCCAC helped 13 municipalities complete climate adaptation plans to help them plan for and manage the local impacts of climate change.

In 2017, MCCAC allocated $6 million in funding through the following programs to

support energy efficiency, renewable energy, and climate adaptation projects in

Alberta municipalities. These projects will help communities reduce their greenhouse

gas emissions by 200,000 tonnes over the life of the projects. This is equivalent to

taking 43,000 cars off the road for one year.

Municipal Climate Change Action Centre (MCCAC)

Town of Pincher Creek

AUMA advocacy on this issue intensified in 2017, and as a result of our persistence, at the March 2017 Mayors’ Caucus, Minister of Justice and Solicitor General Kathleen Ganley committed verbally to begin the review of police funding models in the fall. However, the Minister’s written response to the resolution did not reiterate the commitment to review funding models, and in meetings with senior Justice and Solicitor General staff, AUMA learned that, although the Ministry had researched options for a new, more equitable funding model, any consultations on police funding were not likely to take place until after the 2019 provincial election.

The AUMA Board felt municipalities have already waited too long for the province to resolve the inequities in police funding, and an issue this urgent in nature could not be put off any longer. Accordingly, the Board approved a letter-writing campaign to signal the importance of this issue to the Minister. The goal of the campaign was to get the province to commit to developing a new funding model, in partnership with municipalities, which enables better policing outcomes. The letter writing campaign kicked off in early 2018, and we look forward to more work on this important advocacy priority in 2018.

Police Funding In fall 2016, AUMA members passed a resolution calling

for a new, more equitable funding model for policing

costs that included the “everyone pays” model.

We look forward

to more work on

this important

advocacy priority

in 2018.




Village of Delburne in partnership with Dr. Muti Kauchali and Red Deer County break ground for a new medical center in Delburne.

In the picture from L to R - Mr. Soni Rudresh (pharmacist), Dr. Muti Kauchali, Delburne Councillor Darlene Dushanek, Red Deer County Councillor Philip Massier, Delburne Councillor Jeff Bourne, Delburne Councillor Daphne Warner, Delburne Councillor Tim Wilson, CAO Karen Fegan, Mayor Bill Chandler, and Andrew Anderson (project coordinator).


Drayton Valley’s newly constructed Discovery Park was opened in September 2017, providing new community green space and accessible recreation opportunities, including walkways, benches with chess tables, outdoor fitness equipment, an outdoor skating rink, and a water feature. It promotes healthy lifestyle that is accessible for everyone and revitalizes the neighbourhood.

B U S I N E S S S E R V I C E S2017 Highlights


As a wholly-owned subsidiary of the AUMA, the Alberta Municipal Services Corporation (AMSC) offers business services specifically designed to meet the unique needs of municipalities and community-related organizations. AMSC Business Services reflect competitive prices and superior customer service that are tailored to fit AUMA members’ needs.

The broad range of service solutions provided include:• Human Resource Services

• Employee Benefits • Retirement Services

• Insurance & Risk Services• General Insurance

Program• Risk Management• Claims Support

• Energy Retail Program• Short-term Investment

Services• Purchasing Program

AMSC Business Services2017 Highlights

$AMSC Procurement

Card spend increased by more than 25%.

The client base of each Retirement

Services offering, APEX Supplementary Pension

Plan, Alberta Communities Pension Plan, MuniSERP, Group RRSPs and TFSAs,

grew in 2017.

MuniFunds return continues to outperform

benchmark.

Over

700

Over

275

Over 275 Alberta municipalities and

over 700 not-for-profit organizations participate

in AMSC Business Services

In 2017, the insurance industry experienced some of the highest insured losses on record globally, paying over $136 billion in claims. In Canada, insurers paid $1.3 billion in property claims. Facing a difficult market, AMSC Insurance & Risk Services was nevertheless able to hold the general insurance program rates stable. Our significant buying power stems from the large group of Alberta municipalities that entrust us with their insurance needs year after year. Additionally, MUNIX, the insurance reciprocal, used a portion of its surplus to absorb premium volatility from the property insurance marketplace.

In addition to providing stability in rates, AMSC Insurance & Risk Services provides AUMA members access to the coverages they need, with tailored risk management resources and expertise in the claim support division unique to municipalities and community-related organizations. As such, recent improvements and opportunities provided to its clients include the following:

• AMSC enhanced the basic liability insurance for all members to ($10 million) at no additional charge.

• Efforts to enhance the wordings/product offerings continued in 2017, with special emphasis on some of the unique challenges members face such as increased property resiliency against changing weather patterns, and rebuilding environmentally-friendly buildings.

• A new Owner Controlled Insurance Program (OCIP) allows AUMA members to access competitive rates for project-specific construction insurance on a wide range of construction and renovation projects. Designed by Alberta Infrastructure, the program has an an emphasis on taxpayer savings with a wide capital project capacity.

• Refined member-service teams for comprehensive insurance program support, risk management resources, and advocacy throughout the claims process.

• AMSC Insurance & Risk Services held a two day AUMA Public Risk Conference in June 2017.

AMSC Insurance & Risk Services provides stability and support

In a year that saw

significant insured loss

in the industry, AMSC

Insurance & Risk Services held

program rates stable along

with making improvements

to coverages, policy wordings

and product offerings.


Along with providing comprehensive employee benefits plans, the AMSC Employee Benefits program offered a number of educational opportunities to its clients and provided timely updates on employment standards changes in 2017.

The Employee Benefits team worked with vendor partners to ensure municipalities were kept informed of significant changes impacting employment standards regulations in a timely manner. An informative summary of Bill 17: the Fair and Family-friendly Workplaces Act was distributed directly to clients to aid in their preparation for the upcoming changes.

Over the course of the year, the Employee Benefits

team delivered education sessions to 35 clients. These sessions allow for engaging discussions with employees who are members of the AMSC Employee Benefits program. Employees receive tailored information regarding what benefits they have access to, how to submit claims for reimbursement, and tips on being smart consumers of dental care and prescriptions. These sessions also support the employer/employee relationship by communicating the investment being made to the overall health and wellness of their employees.

Moving into 2018, the Employee Benefits program will continue to offer educational opportunities and is undertaking the implementation of a benefits administrative support system to enhance the program and better serve clients.

Educating employee benefits clients to better serve their needs

The AMSC Employee Benefits team delivered

35 tailored education sessions to clients in 2017.


The AMSC Energy Retail Program successfully completed RFPs for aggregate wholesale energy, resulting in approximately a 20 per cent savings for electricity customers and a 40 per cent savings for natural gas customers.

The AMSC Energy Retail Program offers energy aggregation as a value-added service to its members.

The recent aggregation process offered by the AMSC Energy

Retail Program resulted in a savings of

approximately:

20%on electricity

40%on natural gas

AMSC manages the aggregation process by

• actively monitoring current and future markets for energy price optimization,

• conducting in-depth analyses of a customer’s individual load requirements to ensure a customized customer profile, and

• carrying out a transparent, fair, and highly competitive procurement process.

Participating in the energy aggregation process saves municipalities money:

• Eliminates the need for members to pay for external energy consultants to coordinate their procurement processes.

• Provides members access to wholesale markets where there is increased competition and lower pricing.

In addition to the aggregation offering, AMSC Energy Retail Program members receive industry-leading service and complimentary benefits including

• timely and accurate billing, including an online web portal for all historical data needs,

• a municipally-focused and personable call centre that offers customized solutions to member inquiries, and

• expert energy advice on a wide variety of energy-related topics including annual budgets, distribution and transmission charge analysis, and energy management best practices.

Economies of scale result in savings for members



In the town of Redwater, Mayor Mel Smith and Hong De Cultural - Lion Dance come together at Redwater’s Canada 150 event. This event centred around multiculturalism with many free performances.


The Village of Edgerton’s 100th Homecoming celebration included a parade of over 100 entries.

FINANCIALS


Administration’s Discussion and Analysis for the year ended December 31, 2017The consolidated financial statements consist of Alberta Urban Municipalities Association (“AUMA”) and its wholly-owned subsidiary Alberta Municipal Services Corporation (“AMSC”), and AMSC Insurance Services Ltd. (“AMSCIS”), a wholly-owned subsidiary of AMSC. AUMA is a non-taxable association.

AUMA generates revenue primarily from membership fees. AUMA also utilizes grants to fund research and program development. AMSC and AMSCIS generate revenue from core business services. AMSC offers a broad range of products and services including energy retail program, retirement services and purchasing program services. AMSC also operates two commercial real estate properties. AMSCIS provides general insurance, employee group benefits and related coverage. The core business services are based on an aggregate business model, allowing AUMA’s members to benefit from cost advantages and negotiation power.

Hereafter in the financial analysis, AUMA represents the consolidated entity, which consists of AUMA, AMSC, and AMSCIS.

2017 AUMA Consolidated Financial Summary

Operating Environment

AUMA operates in a marketplace where the majority of members/customers of AUMA are municipalities in Alberta. The customer base of AUMA is growing across not-for-profits organizations. AUMA’s market position is strong, with municipal market shares ranging from 50% to 63% in major lines of business.

Financial PerformanceExcess of Revenue over Expenses The excess of revenue over expenses amounted to $1.6 million in 2017, down from $4.4 million in 2016. The decrease is mainly driven by the following factors:• Increase in the excess of revenue over expenses from

operations in 2017 to $3.2 million, from $2.2 million in 2016, primarily due to the decline in salaries and benefits of $0.8 million

• Benefits deficit. The deficit from the underwriter is related to the coverage of group life and disability insurance. The deficit due from AUMA was $1.6 million in 2017, compared with a surplus refunded of $2.5 million in 2016.

• In 2016, there was a write-off of capital assets for $0.3 million, which did not occur in 2017.

Revenue and ExpensesBenefit program (Health & Dental underwriting)AUMA assumes the underwriting risk with extended health and dental policies. In 2017, the health and dental underwriting benefit program collected premiums of $34.4 million and incurred the claim and administration costs of $35.1 million, resulting in a loss of $0.7 million. The premiums received and the claim and administration costs incurred in 2016 were $35.3 million and $36.3 million, respectively. The large losses are primarily driven by the increasing trends in claim utilization experience.

Insurance agency commissionsThe insurance agency commissions are reported on a net basis on consolidated statement of operations. The premiums from the general insurance program and employee group benefit plan were $91.2 million in 2017 and $94.0 million in 2016,

respectively. The net commissions were $9.2 million in 2017 after subtracting the underwriter premiums and administrator costs, $0.1 million lower than 2016, reflecting the pressure on margins from market competition.

Energy retailing feesRevenue of energy retail program are reported on a net basis as energy retailing fees on the consolidated statement of operations. The energy retail program provides custom electricity, natural gas, and green power solutions. In 2017, energy sales were $94 million. After subtracting the cost of sales, the energy retailing fees were $2.7 million in 2017, (2016 - $2.6 million) remaining stable year over year.

Customer loyalty programTo reward client loyalty, administration planned to reward clients by issuing rebates of $500,000 every year for three consecutive years. The rebates for fiscal 2016 and 2017 were issued. The three year commitment will end in 2018.

Financial PositionAssets and LiabilitiesTotal assets were $96.8 million as at December 31, 2017, compared with $94.2 million as at December 31, 2016. The increase in assets is mainly driven by AUMA’s investments. The fair value of AUMA’s investments increased by $2.0 million as at December 31, 2017, which is mainly attributed to receipt of $3.0 million for the Non-Profit Energy Efficiency Transition (“NEET”) grant, less payment of grant program expenses.

Total liabilities were $30.9 million as at December 31, 2017, compared with $29.9 million as at December 31, 2016. The increase is mainly due to the unspent portion of the grants in deferred contributions.

Net AssetsNet assets were $65.8 million as at December 31, 2017, up by $1.6 million due to the excess of revenue over expenses earned for the 2017 fiscal year. One major change within net assets was the release of $2.7 million from internally restricted assets to fund the employee group benefits deficit.

To the Members of Alberta Urban Municipalities Association

We have audited the accompanying consolidated financial statements of Alberta Municipalities Association (“the Association”), which comprise the consolidated statement of financial position as at December 31, 2017, the consolidated statements of operations, changes in net assets and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian accounting standards for not-for-profit organizations, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

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

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated 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 consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Alberta Urban Municipalities Association as at December 31, 2017, and its consolidated results of operations and its consolidated cash flows for the year then ended in accordance with Canadian accounting standards for not-for-profit organizations.

Chartered Professional Accountants

May 24, 2018Edmonton, Canada

Independent Auditors’ Report


Financials FinancialsALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA) ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)Consolidated Statement of Financial PositionAs at December 31, 2017, with comparative information for 2016

Note 2017 2016AssetsCurrent assets:

Cash 2 $ 6,196,037 $ 4,957,089Deposits with property manager 142,949 80,368Investments 4 57,127,428 55,119,519Accounts receivable 5, 23 11,207,543 10,241,663

74,673,957 70,398,639

ASO funds held on deposit 3 750,000 900,000Investment in and advances to AEOEPC 6 10,964 10,621Other assets 7 604,582 605,360Capital assets 8 20,751,466 22,404,181

$ 96,790,969 $ 94,318,801

Liabilities and Net AssetsCurrent liabilities:

Accounts payable and accrued liabilities 11, 13, 23 $ 14,581,539 $ 13,583,529ASO funds payable 3 272,410 393,749Deferred revenue 151,506 -Provision for claims incurred but not reported 12 1,419,100 1,830,300Deferred contributions 13 12,710,843 12,051,749Current portion of mortgage loan 14 1,815,987 2,056,969

30,951,385 29,916,296

Retirement plan obligation 15 59,534 239,301Net assets:

Invested in capital assets 16 18,935,479 20,347,212Internally restricted 17 23,134,326 25,922,074Unrestricted 23,710,245 17,893,918

65,780,050 64,163,204Commitments 24Letters of credit 25

$ 96,790,969 $ 94,318,801

See accompanying notes to consolidated financial statements.

On behalf of the Board of Directors:

_____________________________ Director _____________________________ Director

ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)Consolidated Statement of Operations Year ended December 31, 2017, with comparative information for 2016

Note 2017 2016Revenue:

ASO benefit premiums $ 34,353,969 $ 35,311,036Insurance agency commissions 18,23 9,228,397 9,296,842Agency and administration fees 23 3,108,084 3,461,510Energy retailing fees 22 2,717,299 2,631,127Grants and energy management 13 2,431,186 757,383Membership fees and services 1,954,000 1,908,690Rental properties 1,622,558 1,574,225Investment earnings 4 1,386,254 1,579,066Convention and workshops 1,217,824 1,391,061Retirement services revenue 20 234,749 214,805Grant administration recoveries 85,637 65,744MuniFunds management fee 23 50,281 58,039Purchasing program 28,774 93,031Water and wastewater 4,114 8,143

58,423,126 58,350,702

Expenses:ASO claim costs and administration expenses 3 35,064,916 36,306,671Salaries and benefits 15 8,380,924 9,195,102Grants 19 2,431,186 723,332Amortization of capital assets 8 1,752,466 1,747,078Convention and workshops 1,357,160 1,257,031Computer equipment and software licensing 1,274,113 1,220,507Rental properties 24 1,038,392 1,173,170Consultants 904,971 1,032,073Office administration 746,638 781,469Board and committees 593,847 682,414Customer loyalty program 17 500,000 500,000Broker fees 24 300,000 330,000Legal and accounting 234,976 245,172Travel 208,541 235,372Building valuation and risk management programs 98,467 87,514Insurance 91,037 81,698Electronic communication and promotions 78,444 123,056Member services - casual legal & HR 72,495 70,222Interest on mortgage loan 43,444 68,164MuniFunds portfolio management 23 27,566 93,093Other 6 7,383 51,804Program development 2,758 85,083Energy management and development - 34,051

55,209,724 56,124,076Excess of revenue over expenses from operations 3,213,402 2,226,626Other:Add:

Benefits (deficit) surplus 21 (1,596,899) 2,457,594Share of excess of revenue over expenses of AEOEPC 6 343 29,852

Less:Write off of capital asset 9 - 266,848

Excess of revenue over expenses $ 1,616,846 $ 4,447,224



Financials FinancialsALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA) ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)Consolidated Statement of Changes in Net Assets Year ended December 31, 2017, with comparative information for 2016

Note

Invested in capital

assetsInternally restricted Unrestricted 2017 2016

Net assets, beginning of year $ 20,347,212 $ 25,922,074 $ 17,893,918 $ 64,163,204 $ 59,715,980Excess of revenue over expenses 16 (1,752,466) - 3,369,312 1,616,846 4,447,224Investment in capital assets 16 340,733 - (340,733) - -Transfers 17 - (2,787,748) 2,787,748 - -Net assets, end of year $ 18,935,479 $ 23,134,326 $ 23,710,245 $ 65,780,050 $ 64,163,204


ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)Consolidated Statement of Cash Flows Year ended December 31, 2017, with comparative information for 2016

Note 2017 2016Cash provided by (used in):

Operating activities:Excess of revenue over expenses $ 1,616,846 $ 4,447,224

Adjustments for: Interest and dividend income (1,229,849) (1,154,337) Unrealized loss (gain) on investments 94,908 (435,591) Realized gain on sale of investments (432,964) (158,614) Interest on mortgage loan 43,444 68,164 Amortization of capital assets 8 1,752,466 1,747,078 Write off of capital asset 9 - 266,848 Gain on disposal of capital assets (314) - Amortization of other assets 7 115,438 193,994 Change in step-up lease deferred rent (63,092) 16,906 Share of excess of revenue over expenses of AEOEPC (343) 47,852

Change in non-cash operating working capital: (Increase) decrease in deposits with property manager (62,581) 84,179 Increase in accounts receivable (960,548) (422,205) Increase (decrease) in accounts payable and accrued liabilities 997,894 (164,618) Increase (decrease) in deferred revenue 151,506 (383,578) (Decrease) increase in provision for claims incurred but not reported (411,200) 168,000 Increase in deferred contributions 659,094 5,354,170 (Decrease) increase in retirement plan obligation (179,767) 4,909 Loan forgiveness 6 - (45,500)Interest received in cash, net 71,637 6,014

Cash flow provided by operating activities 2,162,575 9,640,895

Investing activities:Purchase of investments (7,954,747) (19,878,658)Proceeds from sale of investments 7,394,446 8,128,262Decrease in ASO funds held on deposit 28,661 492,540Increase in investment in AEOEPC - 13,296Purchase of other assets (51,568) (136,220)Proceeds from disposal of capital assets 400 -Purchase of capital assets (99,837) (647,439)

Cash flow used in investing activities (682,645) (12,028,219)

Financing activities:Repayment of operating line of credit - (80,000)Drawdown of operating line of credit - 80,000Repayment of mortgage loan (240,982) (1,214,474)

Cash flow used in financing activities (240,982) (1,214,474)Increase (decrease) in cash 1,238,948 (3,601,798)Cash, beginning of year 4,957,089 8,558,887Cash, end of year $ 6,196,037 $ 4,957,089



Financials FinancialsALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)Notes to the Consolidated Financial Statements Year ended December 31, 2017, with comparative information for 2016

ALBERTA URBAN MUNICIPALITIES ASSOCIATION (AUMA)Notes to the Consolidated Financial Statements Year ended December 31, 2017, with comparative information for 2016

These consolidated financial statements consist of the assets, liabilities, net assets and operations of Alberta Urban Municipalities Association (“AUMA”), its wholly owned subsidiary Alberta Municipal Services Corporation (“AMSC”), and AMSC Insurance Services Ltd. (“AMSCIS”), a wholly owned subsidiary of AMSC. AUMA also provides administration and agency services to Alberta Municipal Insurance Exchange (“MUNIX”), APEX Supplementary Pension Plan (“APEX”), and MuniFunds Investment Funds (“MuniFunds”), whose results are not included in these consolidated financial statements.

AUMA is a provincial organization aimed to provide leadership in advocating local government interests to the provincial government and other organizations. AMSC and AMSCIS operate as business service delivery providers of shared corporate and networked products and services for municipalities and other local government entities. AMSC offers an energy retail program, casual legal services, an aggregated investment program, retirement services, and purchasing program services. As of 2017, annual convention operations, which were previously part of AMSC, are now administered by AUMA. AMSC also operates two commercial real estate properties. AMSCIS provides general insurance, employee group benefits and related coverage for the members of AUMA.

AUMA is a non-taxable association by virtue of section 149(1)(d.5) of the Income Tax Act.

1. Significant accounting policies:

These consolidated financial statements have been prepared in accordance with Canadian accounting standards for not-for-profit organizations in Part III of the CPA Canada Handbook (“Part III”).

These statements present AUMA’s investments in its subsidiaries subject to significant influence using the cost method. AUMA has prepared general purpose consolidated financial statements, and include the following significant accounting polices:

(a) Cash:

AUMA considers deposits in the bank and deposits in the investment account as cash. Banker’s acceptances and short-term investments with original maturities of three months or less are included within investments as it is not AUMA’s intention to use the funds to meet short term obligations but rather for investing activities.

(b) Deposits with property manager:

Deposits with property manager is cash with a property management company for the purposes of managing Alberta Municipal Place (“AMP”) and Saskatchewan Drive properties.

(c) Other assets:

Other assets include payments for tenant improvements, leasing commissions, as well as deferred costs associated with the “step-up” features of the lease agreements signed with tenants of the AMP and Saskatchewan Drive properties.

The tenant improvements and leasing commissions are amortized using the straight-line method over the applicable non-cancelable lease term and are recorded at the lower of cost less accumulated amortization and net realizable value.

The step-up leases stipulate that the rental rate will increase by predetermined amounts at various points in the future. Rental revenue is recognized on a straight-line basis over the lease term in accordance with Canadian generally accepted accounting principles; as such a deferred rent asset equal to the difference between the actual rent received and the average rent over the lease term will build up in the first half of the lease term and then will be amortized into income over the latter part of the lease term, eventually being reduced to nil.

1. Significant accounting policies (continued):

(d) Capital assets:

Capital assets are recorded at cost. Repairs and maintenance costs are charged to expense. Betterments which extend the estimated life of an asset are capitalized. The cost of a capital asset comprises its purchase price and any directly attributable cost of preparing the asset for its intended use.

When a capital asset no longer contributes to AUMA’s ability to provide services, the remaining carrying amount is written down to its residual value.

Capital assets are comprised of the following:

i) Tangible assets

Tangible assets consisting of buildings, furniture and fixtures, computer equipment, alternative energy equipment, parking lot and landscaping are measured at cost less accumulated amortization.

ii) Intangible assets

Intangible assets consist of computer software, which are measured at cost less accumulated amortization. Computer software includes acquired application software for the general insurance business line and acquired computer application software for the energy retailing business line. Amortization is provided for on a straight-line basis over its estimated useful life, or the term of the license agreement.

iii) Amortization of capital assets

Amortization is provided using the straight-line method at the following annual rates:

Asset RateBuildings 4%Furniture and fixtures 10 - 20%Computer equipment 25%Computer software 10 - 33%Alternative energy equipment 20%Parking lot and landscape 7 - 10%

Interest charges incurred to fund capital projects under construction are expensed as incurred and are recorded as interest on mortgage loan expense on the statement of operations.

Capital projects under construction or development are not amortized until they are put into use.

(e) Revenue recognition:

AUMA follows the deferral method of accounting for contributions. Restricted contributions are recognized as revenue in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is assured.

Insurance agency commissions are recognized as revenue over the term of the related policy period. Deferred revenue relates to premiums received in the current year for the policy period commencing January 1 of the following year.





(e) Revenue recognition (continued):

Agency and administration fees are recognized when services are performed.

Membership fees are recognized at the beginning of each fiscal year when they are invoiced. Membership services are recognized when services are performed.

Rental revenue is recognized on a straight-line basis over the terms of the leases.

Convention and workshops revenue is recognized in conjunction with the occurrence of the event.

Energy retailing fees are earned on an energy consumption basis based on rates included in the Energy Member Master Agreements and are recorded as the energy is delivered. The energy retailing fees include an estimate of the value of electricity and natural gas consumed by customers billed subsequent to the reporting period.

Interest, realized gains on sale of investments and unrealized (losses) gains, less transaction costs, are included in investment earnings and are recognized on an accrual basis when earned. Investment income earned from restricted contributions is recorded as an increase to deferred contributions as accrued, or as investments earnings, in accordance with the terms of the respective grant.

MuniFunds management fee and retirement services revenue are recognized when services are performed.

Grant administration recoveries are recognized as revenue when the service has been provided.

Benefit (deficit) surplus is recorded in the year in which the revenue is fixed or determinable and collection of the amount to be received is reasonably assured.

(f ) Investment in joint ventures:

AUMA uses the equity method as the basis of accounting for its investment in joint ventures. Under the equity method, AUMA records these investments initially at cost and the carrying values are adjusted thereafter to include the investor’s pro rata share of post-acquisition excess of revenue over expenses of the investment. The adjustments are included in the determination of excess of revenue over expenses by the investor, and the investment accounts of the investor are also increased or decreased to reflect the investor’s share of capital transactions and changes in accounting policies and corrections of errors relating to prior period financial statements applicable to post-acquisition periods. Distributions received or receivable from investees reduce the carrying values of the investments. Unrealized inter-entity gains or losses are eliminated.

(g) Provision for claims incurred but not reported:

The group benefits Administrative Services Only (“ASO”) program provides extended health and dental coverage. The incurred but not reported (“IBNR”) provision is comprised of ASO claims estimated to be incurred in the year but not filed or reported to the administrator by the statement of financial position date. Claims incurred in the year must be filed with the program administrator within 180 days of year end. As such, any given plan year IBNR liability, as recorded, has a limited extension life.

The establishment of the provision for unpaid claims is based on known information and the interpretation of future circumstances and events and is influenced by a variety of factors. These factors include AUMA’s experience with historical claim submissions and payment trends, the deadline for claim submissions and an interpretation of past trends extending into the future. Other factors include the continually evolving health and dental industry environment, actuarial studies, the quality of data used for projection purposes, existing claim management practices, including claim handling and settlement practices.


(g) Provision for claims incurred but not reported (continued):

Consequently, the establishment of the provision for unpaid claims relies on the judgment and opinions of a number of individuals, on historical precedent and trends, and an expectation as to future developments. The process of determining the provision necessarily involves risks that the actual results could deviate, perhaps substantially, from the best estimates made.

The estimates are periodically reviewed by an actuary, and as adjustments to these liabilities become necessary, they are reflected in claim costs and claim administration expenses.

(h) Employee future benefits:

AUMA provides pension benefits to its employees through the Local Authorities Pension Plan (“LAPP”), a provincial multi-employer defined benefit plan requiring both employer and employee contributions. Management employees also participate in the APEX Supplementary Pension Plan (“APEX”), which is a supplemental plan to LAPP, and a provincial multi-employer defined benefit plan established under the Alberta Employment Pension Plans Act requiring both employer and employee contributions. LAPP and APEX are accounted for as defined benefit plans.

AUMA has entered into a Master Investment Agent Service Agreement with an investment manager to facilitate the delivery of Investment Agent Services for Supplementals Employee Retirement Plans (“MuniSERP”). The plan provides enhanced retirement benefits covering executive employees who cannot, under the Income Tax Act pension limits, accrue a full 2.0% benefit rate on their earnings. The benefit is based on years of service, the employee’s final average earnings and a 2.0% benefit rate offset by corresponding LAPP and APEX benefits. AUMA accrues its obligations under MuniSERP as the employees render the services necessary to earn the retirement benefits.

AUMA accounts for this employee retirement plan using the immediate recognition method. Under this approach, the accrued benefit obligation at the end of the year is determined based on the most recent actuarial valuation report. The measurement date of the accrued benefit obligation coincides with AUMA’s fiscal year-end. The most recent actuarial valuation of the accrued benefit obligation was as of December 31, 2017, and the next valuation will be as of December 31, 2018. The obligation is unfunded.

At year-end AUMA recognizes, in the statement of financial position, the accrued benefit obligation. Payments made during the course of the year are a reduction to the actuarial obligation. Past service costs arising from plan amendments are immediately recognized into income at the date of the amendment.

(i) Financial instruments:

Financial instruments are recorded at fair value on initial recognition. Investments are subsequently measured at fair value. All other financial instruments are subsequently recorded at cost or amortized cost, unless management has elected to carry the instruments at fair value. AUMA has not elected to carry any such financial instruments at fair value.

Transaction costs incurred including investment management fees on the acquisition of financial instruments measured subsequently at fair value are expensed as incurred. All other financial instruments are adjusted by transaction costs incurred on acquisition and financing costs, which are amortized using the straight-line method.

Financial assets are assessed for impairment on an annual basis. If there is an indicator of impairment, AUMA determines if there is a significant adverse change in the expected amount or timing of future cash flows from the financial asset. If there is a significant adverse change in the expected cash flows, the carrying value of the financial asset is reduced to the highest of the present value of the expected cash flows, the amount that could be realized from selling the financial asset or the amount AUMA expects to realize by exercising its right to any collateral.





(i) Financial instruments (continued):

If events and circumstances reverse in a future period, an impairment loss will be reversed to the extent of the improvement, not exceeding the initial carrying value.

(j) Use of estimates:

The preparation of financial statements in accordance with Part III requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Significant items subject to such estimates and assumptions include the useful lives of capital assets, the energy purchase accrual and IBNR liability, described below. Actual results could differ from those estimates.

A provision has been made for the estimated liability for all reported and outstanding claims plus an estimate for adverse development and for claims incurred to December 31, which have not yet been reported to AUMA. The estimate of IBNR is generally subject to a greater degree of uncertainty than that for reported claims. The computation of these provisions takes into account the time value of money using discount rates based on projected investment income from the assets supporting these provisions.

2. Cash:

Cash balances earn interest at the rate of the respective bank’s prime rate less 1.95% (2016 - 1.95%), $120,298 (2016 - $76,900) of interest was earned on cash held in operating accounts and recorded in investment earnings (note 4).

AUMA holds cash in trust for members who participate in a defined contribution pension plan. Cash is received from the participants and AUMA subsequently transfers this cash to the plan fund holder. The cash is held in a separate bank account that is designated as a trust account for the plan participants.

As at December 31, 2017, cash includes cash held in trust for participants of the defined contribution pension plan of $199,387 (December 31, 2016 - $197,158).

3. ASO funds held on deposit and ASO claim costs and claim administration expenses:

AUMA assumes the underwriting risk with health care and dental policies, under the ASO program, and engages a third party administrator to manage the claim activities.

ASO funds held on deposit classified as non-current on the statement of financial position is the minimum deposit required by the administrator. It is not AUMA’s intent to access these funds within the next year.

2017 2016Total ASO funds held on deposit $ 477,590 $ 506,251Add ASO funds payable 272,410 393,749Non-current portion of ASO funds held on deposit $ 750,000 $ 900,000

3. ASO funds held on deposit and ASO claim costs and claim administration expenses (continued):

ASO claim costs and claim administration expenses are comprised of the following:

2017 2016ASO claim costs $ 33,649,080 $ 34,929,843ASO claim administration expenses 1,415,836 1,376,828ASO claim costs and claim administration expenses $ 35,064,916 $ 36,306,671

ASO funds held on deposit by the claim administrator are interest bearing at the bank’s 90 day treasury bill rate less 0.5% (2016 - 0.5%). Interest earned on ASO funds held on deposit is recorded as a reduction in ASO claim costs and claim administration expenses on the statement of operations.

4. Investments:

AUMA’s investments are measured at fair value and are held in managed investment funds. The investment mix of these funds is as follows:

2017 2016Short-term bond and mortgage fund $ 25,088,194 $ 32,491,858Money market fund 15,522,263 11,903,693Equity fund - Global 7,170,041 6,279,755Mortgage pension trust 5,153,873 -Equity fund - Canadian 4,193,057 4,444,213

$ 57,127,428 $ 55,119,519

Investments include $15,522,263 (December 31, 2016 - $11,903,693) of the MuniFunds Money Market fund, which are investment pools for which AUMA acts as a trustee.

Earnings on investments are recorded in investment earnings and are comprised of the following:

2017 2016Interest and dividends $ 1,138,776 $ 1,082,784Unrealized (loss) gain on investments (90,804) 424,998Realized gain on disposal of investments 424,646 155,877Foreign exchange gain (loss) 402 (5,640)Investment fees (86,766) (78,953)

$ 1,386,254 $ 1,579,066

5. Accounts receivable:

2017 2016 Trade accounts receivable and other $ 10,902,997 $ 9,954,148 Prepaid expenses 344,864 292,054 Less allowance for doubtful accounts (40,318) (4,539)

$ 11,207,543 $ 10,241,663




6. Investment and advances to AEOEPC:

AEOEPC is a 50% joint venture between AUMA and the Rural Municipalities of Alberta, formerly Alberta Association of Municipal Districts & Counties. AEOEPC provides a comprehensive program of study for elected municipal officials in the province of Alberta. AEOEPC was incorporated under the Business Corporations Act of Alberta. It is a non-taxable operation by virtue of section 149(1) (d.6) of the Income Tax Act.

Investment and advances to AEOEPC is made up of the following items:

2017 2016Share capital $ 5 $ 5Accumulated gain 10,959 10,616

$ 10,964 $ 10,621

During the year ended December 31, 2017, AEOEPC recorded excess of revenue over expenses of $686 (2016 - $59,703) of which $343 (2016 - $29,852) has been reported as a share of revenue over expenses of AEOEPC by AUMA. During the year ended December 31, 2016, AUMA forgave $45,500 which was advanced to AEOEPC, as AEOEPC will not generate sufficient profits to repay the loan in the foreseeable future. The loan forgiveness is included in AEOEPC’s results above and is recorded in miscellaneous expense in these consolidated financial statements. The financial statements of AEOEPC are available upon request and the accounting policies of AEOEPC conform with those of AUMA.

Financial summaries of AEOEPC as at December 31 and for the years then ended are as follows:

2017 2016Financial position:

Total assets $ 199,820 $ 36,903

Total liabilities 177,892 15,661Shareholders’ equity 21,928 21,242

$ 199,820 $ 36,903

Results of operations:Total revenue 365,679 144,749Total expenses 364,993 140,046Forgiveness of loan payable - 55,000

Excess of revenue over expenses $ 686 $ 59,703Cash flows used in:

Operating activities (41,896) (555)Decrease in cash $ (41,896) $ (555)

7. Other assets:

As manager of the AMP and Saskatchewan Drive properties, AUMA entered into lease agreements with tenants of these properties. These agreements required AUMA to fund tenant improvements and to pay leasing commissions to the leasing agents involved in arranging the agreements. In addition, there is deferred rent associated with the “step-up” features of the lease agreements signed with tenants.

Cost Accumulated amortization

2017 Net book

value

2016 Net book

value

Tenant improvements $ 1,105,435 $ 868,225 $ 237,210 $ 312,383Leasing commissions 510,247 338,263 171,984 160,681Step-up lease deferred rent 195,388 - 195,388 132,296

$ 1,811,070 $ 1,206,488 $ 604,582 $ 605,360

For the year ended December 31, 2017, amortization of $115,438 (2016 - $193,994) related to tenant improvements and leasing commissions is included in rental property expenses.

8. Capital assets:

Cost Accumulated amortization

2017 Net book

value

2016 Net book

value

Land $ 4,165,000 $ - $ 4,165,000 $ 4,165,000Buildings 21,798,840 8,000,005 13,798,835 14,655,426Furniture and fixtures 3,505,379 2,645,281 860,098 1,108,474Computer equipment 1,237,637 1,074,408 163,229 227,745Computer software 3,669,087 2,341,659 1,327,428 1,746,590Alternative energy equipment 460,912 454,875 6,037 24,720Parking lot and landscaping 680,730 249,891 430,839 476,226

$ 35,517,585 $ 14,766,119 $ 20,751,466 $ 22,404,181

Amortization on capital assets for the year ended December 31, 2017 is $1,752,466 (2016 - $1,747,078).

9. Write off of capital asset:

AUMA incurred $266,848 of costs to begin the acquisition and development of a benefits software system. As the system could not be implemented, these costs did not have a future economic benefit. Accordingly, the costs incurred for the project were expensed during the year ended December 31, 2016.

10. Operating line of credit:

AUMA has an operating line of credit of $3,000,000 which is due on demand, bears interest at the lender’s prime rate and is secured by a general security agreement covering all assets of AUMA and its subsidiaries, a collateral mortgage in the amount of $12,000,000 on land and buildings of AUMA and assignment of rents and insurance. As at December 31, 2017 and 2016, AUMA had not drawn on the line of credit.

In 2014, AUMA secured a line of credit in the amount of $4,000,000. There is no minimum retained balance required, interest is at the lender’s prime rate, and the facility revolves in increments of $10,000. During the year ended December 31, 2017, $nil (2016 - $80,000) was drawn and repaid.




11. Accounts payable and accrued liabilities:

Included in accounts payable and accrued liabilities are government remittances payable of $nil (December 31, 2016 - $47,523), which is comprised of net amounts for GST.

12. Provision for claims incurred but not reported:

The IBNR provision has been calculated and verified using a runoff method of claims tracking, to derive a factor of 5.25% (2016 - 6.25%) for extended health and 2.50% (2016 - 2.50%) for dental claims paid in the 12 month period prior to the IBNR calculation date of December 31, 2017. To this, a margin of 9.56% (2016 - 9.20%) was added. The margin consists of 5.0% (2016 - 5.0%) for adverse deviation and 4.56% (2016 - 4.20%) for adjudication costs. The actuarial methodology has not changed from the prior year.

13. Deferred contributions:

Deferred contributions represent unspent resources externally restricted for special projects. Grants that have expired with unused monies are re-classified to accounts payable and accrued liabilities. At December 31, 2017, accounts payable and accrued liabilities includes $57,956 (December 31, 2016 - $73,328) related to restricted government grants that have expired.

13. Deferred contributions (continued):

Changes in deferred contribution balances are as follows:

December 31, 2017

Balance, beginning

of year

(Less) add: Net contributions

(realignments)

Less: Revenue

recognized in the year

Amounts reclassified

from (to) accounts

payableBalance, end

of year

Restricted government grants:

Training for Elected Officials $ - $ - $ 16,497 $ 16,497(1) $ -

Toolkit for Disclosure 35,000 (10,025)(2) 24,975 - -

Enterprise Risk Management 500 (500)(2) - - -

Chief Administrative Officer (“CAO”) Performance Review 15,200 (15,200)(2) - - -

Strategic Governance 14,117 (14,117)(2) - - -

Municipal Amalgamation 129,413 (129,258)(2) 155 - -

Municipal Annexation 129,413 (129,258)(2) 155 - -

Code of Conduct 67,488 (67,427)(2) 61 - -

Conflict of Interest 67,488 (67,427)(2) 61 - -

Asset Management 600,070 (48,237)(2) 813 - 551,020

Municipal Change Management - 504,874 155,087 - 349,787

Climate Change 2 3,892,153 26,892 1,182,531 - 2,736,514

Municipal Solar Program 4,897,255 36,141 706,529 - 4,226,867

Alberta Community Partnership 150,000 - 128,496 (21,504) -

Welcoming and InclusiveCommunities (“WIC”) Action Partnership 1,022,536 - 120,792 - 901,744

Non-Profit Energy Efficiency (“NEET”) Program - 3,008,829 95,034 - 2,913,795

Other restricted contributions:

Energy Management(3) 1,031,116 - - - 1,031,116

$ 12,051,749 $ 3,095,287 $ 2,431,186 $ (5,007) $ 12,710,843

(1) During the year ended December 31, 2017, an extension of the completion date of the Training for Elected Official grant was received; therefore it was reclassified from accounts payable back to deferred contributions.

(2) During the year ended December 31, 2017, Alberta Municipal Affairs approved the realignment of these grants to fund the Municipal Change Management grant.

(3) Energy management funds were collected through an energy retailer as a component of a customer energy usage fee charged pursuant to an energy agreement which expired in 2008. The purpose of this energy management fund is to develop energy saving initiatives for the energy aggregation program subscribers.




13. Deferred contributions (continued):

December 31, 2016

Balance, beginning

of yearAdd: Net

contributions

Less: Revenue

recognized in the year

Amounts reclassified to accounts

payableBalance,

end of year

Restricted governmentgrants:

Training for Elected Officials $ 77,091 $ - $ 60,594 $ (16,497) $ -

Climate Change 1 327,107 273 306,999 (20,381) -

Eco Trust 36,450 - - (36,450) -

Toolkit for Disclosure 35,000 - - - 35,000

Enterprise Risk Management 500 - - - 500

CAO Performance Review 15,200 - - - 15,200

Strategic Governance 14,117 - - - 14,117

Municipal Amalgamation 127,362 2,371 320 - 129,413

Municipal Annexation 127,362 2,371 320 - 129,413

Code of Conduct 61,512 6,101 125 - 67,488

Conflict of Interest 61,512 6,101 125 - 67,488

Asset Management 584,010 16,948 888 - 600,070

Climate change 2 4,015,189 24,723 147,759 - 3,892,153

Municipal Solar Program - 5,025,993 128,738 - 4,897,255

Alberta Community Partnership 150,000 - - - 150,000

WIC Action Partnership - 1,100,000 77,464 - 1,022,536

Other restricted contributions:

Energy Management(3) 1,065,167 - 34,051 - 1,031,116

$ 6,697,579 $ 6,184,881 $ 757,383 $ (73,328) $ 12,051,749

14. Mortgage loan:

2017 2016Term loans:

2.49% term loan repayable in blended monthly installments of $6,816, maturing December 2018 $ 1,815,987 $ -

2.16% term loan repayable in blended monthly installments of $23,687, maturing December 2017 - 2,056,969

1,815,987 2,056,969 Current portion of mortgage loan 1,815,987 2,056,969

$ - $ -

The term loans are secured by a general security agreement covering all assets of AUMA and its subsidiaries, a collateral mortgage in the amount of $12,000,000 on land and buildings of AUMA, and assignment of rents and insurance.

15. Pension and retirement plans:

During the year ended December 31, 2017, AUMA made employer contributions to two pension plans, totaling $817,400 (2016 - $875,425).

(a) As per LAPP’s annual report for the year ended December 31, 2016, LAPP reported net assets of $37.7 billion (December 31, 2015 - $34.4 billion) and disclosed an actuarial deficiency of $637 million (December 31, 2015 - $637 million). The employer contribution rates for the LAPP are 11.39% (2016 - 11.39%) on earnings up to the yearly maximum pensionable earnings (“YMPE”). The LAPP rates for earnings above the YMPE up to the salary cap are 15.84% (2016 - 15.84%). There is no future accrued liability obligation in reference to the LAPP. Total contributions by AUMA to the LAPP in 2017 were $720,274 (2016 - $788,904) and are included in salaries and benefits expense. Total contributions by the employees of AUMA to the LAPP in 2017 were $669,388 (2016 - $748,449).

(b) Contributions are made to APEX by the employees (2.84%) and by AUMA (3.78%) of pensionable earnings up to $145,722 (2016 - $144,500).

Total current service contributions by AUMA to APEX were $97,126 (2016 - $86,521) and are included in salaries and benefits expense. Total contributions by employees were $72,972 (2016 - $72,099).

The actuarial liability of AUMA’s MuniSERP retirement plan as described in Note 1(h) is as follows:

2017 2016Accrued benefit plan obligation:

Balance, beginning of year $ 239,301 $ 234,392Paid out (75,381) (17,359)Current service cost 46,200 22,268Remeasurement gains due to experience (150,586) -

Retirement plan obligation $ 59,534 $ 239,301

The significant actuarial assumptions used in measuring AUMA’s accrued benefit obligations are as follows:

2017 2016Accrued benefit obligation:

Discount rate 4.75% 4.75%Rate of compensation increase 3.50% 3.50%




16. Investment in capital assets:

(a) Investment in capital assets is calculated as follows:

2017 2016Capital assets $ 20,751,466 $ 22,404,181Amounts financed by:

Mortgage loan (1,815,987) (2,056,969)$ 18,935,479 $ 20,347,212

(b) Change in invested in capital assets is calculated as follows:

2017 2016Excess of revenues over expenses:

Amortization of capital assets $ (1,752,466) $ (1,747,078)Write off of capital asset - (266,848)

$ (1,752,466) $ (2,013,926)Net change in investment in capital assets:

Purchase of capital assets 99,837 647,439Loss on disposal of capital assets (86) -Amounts funded by:Repayment of mortgage loan 240,982 1,214,474

$ 340,733 $ 1,861,913

17. Net assets internally restricted:

The Board of Directors has established certain internally restricted fund balances. These amounts are not available for other purposes without approval of the Board of Directors. The nature of these balances is as follows:

2017 2016Capital:

Facility $ 14,376 $ 14,376Equipment replacement 86,631 86,631

Operating:Convention 200,000 200,000Interest stabilization 196,663 196,663Program development 1,000,000 1,000,000Benefit surplus fund 21,136,656 23,424,404Reserve for future customer rebates 500,000 1,000,000

$ 23,134,326 $ 25,922,074

The amount restricted for the benefit surplus fund is maintained to stabilize rate changes to participants and support the group benefit program. During the year ended December 31, 2017, the Board of Directors authorized the transfer of $2,787,748 from internally restricted net assets to fund the 2016 - 2017 group benefits program deficit.

During the year ended December 31, 2017, the Board of Directors issued customer rebates of $500,000 (2016 - $500,000).

17. Net assets internally restricted (continued):

The amount restricted for facility is for future extensions and major renovations or to be applied towards the acquisition or lease of a new extended facility.

The amount restricted for equipment replacement is to fund the future acquisition of equipment.

The amount restricted for convention is to offset deficits from the convention and trade show.

The amount restricted for interest stabilization is to supplement actual interest earnings in years when they fall short of budgeted interest earnings.

The amount restricted for program development is to fund the development for programs in the future.

18. Insurance agency commissions:

AUMA operates a group benefit plan providing insurance coverage for extended health care, disability and life policies. AUMA also operates an insurance plan providing insurance for liability, property, aviation and automobile policies. AUMA engages third party administrators to manage claim activity.

Commissions represent the net of insurance premiums billed less amounts due to insurance underwriters and are as follows:

2017 2016Gross benefit and insurance premiums $ 91,257,087 $ 93,963,788Less underwriter premiums and administrator costs 82,028,690 84,666,946

$ 9,228,397 $ 9,296,842

19. Grants:

Grants include expenditures on the following items:

2017 2016Program development $ 1,588,630 $ 267,296Salaries and benefits 303,682 229,786Consultants 268,565 126,153Office administration 241,150 79,581Travel 15,058 9,700Electronic communication and promotion 14,101 10,816

$ 2,431,186 $ 723,332

20. MuniSERP administration fee:

AUMA received fees of $47,255 (2016 - $49,960) for coordinating actuarial services and holding investments as an agent on behalf of MuniSERP program subscribers. At December 31, 2017, AUMA holds $10,393,110 (December 31, 2016 - $10,558,137) on behalf of program subscribers.




21. Benefits surplus:

AUMA partners with a third party provider, as the insurer of its group benefits program, related to the coverage of group life and disability insurance. The insurer’s role is to underwrite and adjudicate these coverages, with AUMA acting in the client service role. The benefits are underwritten on a refund accounting basis, meaning that after the insurer has funded its necessary reserves, the remaining surplus is available for refund to AUMA, or if in deficit AUMA must remit the amount to the third party provider. During the year ended December 31, 2017, the deficit totaled $1,596,899 (2016 - surplus of $2,457,594).

22. Energy retailing fees:

AUMA operates an energy retail program providing electricity and natural gas. AUMA engages a third party administrator to manage the distribution of the commodities and customer billing activity. Transactions under this program during the year were as follows:

2017 2016 Energy sales $ 94,008,064 $ 87,428,569 Energy cost of sales 91,290,765 84,797,442

$ 2,717,299 $ 2,631,127

23. Related party transactions:

MUNIX is a self-insurance exchange for members of AUMA. MUNIX was formed under the Reciprocal Insurance Exchange Agreement for Municipalities in the province of Alberta, dated January 1, 2002, by various municipalities subscribing to the agreement. MUNIX is subject to signficant influence and therefore is a related party.

APEX was established on January 1, 2003 to enhance and supplement the LAPP for eligible staff of participating municipalities in Alberta. It is a voluntary, contributory, defined benefit pension plan trust. AUMA is the sponsor of APEX and appoints members of the APEX Board of Governors. APEX is subject to significant influence and therefore is a related party.

AUMA has a trustee relationship involving an investment pool, MuniFunds. MuniFunds is an entity under common control and is a related party. AUMA earns management fees from MuniFunds and incurs portfolio management expenses related to investment fund management fees, custodian fees, record keeping fees and valuation fees.

The following balances with the related parties are outstanding as at December 31:

2017 2016MUNIX

Accounts payable $ 274,993 $ 190,034APEX

Accounts (payable) receivable (22,727) 49,206MuniFunds

Accounts receivable 4,371 3,428

23. Related party transactions (continued):

The following transactions with the related parties occurred during the year ended December 31:

2017 2016MUNIX

Management fees received $ 2,432,285 $ 2,787,873Commissions 3,470,677 3,408,835

APEXManagement fees received 675,799 673,637

MuniFundsManagement fees 50,281 58,039Fund management fees 27,566 93,093

These transactions are in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the related entities.

24. Commitments:

AUMA has an agreement for property management services with a third party for the AMP property. The agreement requires payments of the greater of 4% of the gross receipts from the AMP property or $4,000 per month. In 2010, a second agreement was signed for property management services for the Saskatchewan Drive property. This agreement requires payments of the greater of 5% of the gross receipts from the property or $1,000 per month. Both property management agreements, continue from year to year, unless either party delivers 60 days notice. For the year ended December 31, 2017, total costs incurred relating to these agreements were $91,051 (2016 - $90,244) and are included in rental property expense.

AUMA has an agreement with a third party to maintain and operate an energy retailing system that commenced January 1, 2014 and expires on December 31, 2018, with an option to extend an additional five years beyond 2018. The agreement will average $60,000 per month, with minimum monthly fee of no less than $25,000.

AUMA has entered into a licensing agreement for a group benefits plan administration software application. This agreement expires on August 31, 2018. The annual payment under this agreement is approximately $250,000.

AUMA has ongoing support and maintenance for its general insurance software application, which requires annual payments of USD $85,000. This agreement expires on April 24, 2018.

AUMA has entered into an agreement for consulting service relating to its group benefits plan. This agreement expires on December 31, 2019 and the maxmium annual commitment is $200,000.

AUMA has entered into an agreement for building appraisal and risk inspection consulting services relating to its general insurance program. The agreement expires on June 29, 2019 and the annual commitment is approximately $100,000.

AUMA has entered into an agreement for insurance brokerage services for its general insurance program. The agreement expires on December 6, 2019 and the annual commitment is $300,000.

25. Letters of credit:

In 2010, AUMA was granted status as an accredited energy retailer in the province of Alberta. AUMA has issued $100,000 in letters of credit which are payable on demand should AUMA default on its energy retailer requirements.




26. Financial risks and concentration of credit risk:

(a) Currency risk:

Currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates.

AUMA is exposed to currency risk as a result of exchange rate fluctuations and the volatility of these rates. In the normal course of business, AUMA procures information technology support services in U.S. dollars. AUMA does not currently enter into forward contracts to mitigate this risk.

There has been no change to currency risk from the prior year.

(b) Liquidity risk:

Liquidity risk is the risk that AUMA will be unable to fulfil its obligations on a timely basis or at a reasonable cost. AUMA manages its liquidity risk by monitoring its operating requirements, and by preparing and monitoring budget and cash forecasts to ensure it has sufficient funds to fulfil its obligations.

There has been no change to liquidity risk from the prior year.

(c) Credit risk:

Credit risk refers to the risk that a counterparty may default on its contractual obligations resulting in a financial loss. AUMA is exposed to credit risk with respect to cash on deposit, deposits with property manager, ASO funds held on deposits, investments and trade accounts receivable.

AUMA’s accounts receivable consist of amounts due primarily from various provincial municipalities who are members of AUMA, and billed and unbilled energy retail fees from municipalities participating in the energy retail program. AUMA assesses, accounts receivable on a continuous basis, and provides for any amounts that are not collectible in the allowance for doubtful accounts.

Cash, deposits with property manager, and ASO funds on deposit are maintained with federally regulated financial institutions. Investments include domestic and foreign debt and equity based pooled funds, which are widely held and diversified. Fair value is based on the underlying securities held by the funds which are of commercial and government grade bonds and debentures and shares of publicly traded companies whose shares are traded on domestic and global exchanges. Changes in the credit quality of bond issuers can result in a change in fair value.

There has been no change to credit risk from the prior year.

(d) Interest rate risk:

Interest rate risk arises on interest bearing financial instruments such the bond and mortgage fund. The fund is exposed to this risk to the extent that the value of interest-bearing financial instruments will fluctuate due to changes in the prevailing levels of market interest rates.

AUMA has interest bearing loans at fixed rates. Changes in general market interest rates can increase or decrease the fair value of these loans. AUMA intends to pay the fixed rate loans over the contractual repayment terms and therefore does not consider the risks associated with changes in fair value to be a significant exposure. Changes may occur in AUMA’s future cash flows required to service debt if market rates vary from those currently payable when such fixed rate loans mature and are renewed for additional periods. Changes in prime lending rates can cause fluctuations in cash flow payments to service the operating line of credit if draws on the line are made.

There has been no change to interest rate risk from the prior year.

26. Financial risks and concentration of credit risk (continued):

(e) Market risk:

Market risk is the risk of adverse financial impact as a consequence of market movements such as currency exchange rates, interest rates and other price changes. Market risk arises due to fluctuations in both the value of the assets held and the value of liabilities.

Investments in equity based pooled funds are subject to fair value fluctuation of underlying securities held by the funds traded on domestic and global exchanges. Changes in the foreign exchange rates and market prices can result in a change in fair value.

There has been no change to market risk from the prior year.

27. Comparative figures:

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year.


Administration’s Discussion and Analysis for the year ended December 31, 2017Alberta Municipal Insurance Exchange (the “Exchange” or “MUNIX”) is established for the purpose of permitting the subscribers to exchange a reciprocal contract or inter-insurance. The subscribers to MUNIX are various Alberta Urban Municipalities Association (“AUMA”) members subscribing to the Reciprocal Insurance Exchange Agreement. In 2017, MUNIX had an approximate municipal market share of 63%.

MUNIX offers subscribers protection with broad range of coverages including property, liability, and auto physical damage. MUNIX also reinsures its insurance contracts on excess of loss basis to manage the underwriting risk.

MUNIX loss limits by coverage type for the year ended December 31, 2017 Total Policy limit Retention Reinsured Reinsurance CededSingle claim:

Property insurance $1,750,000 $1,750,000 $0 Liability insurance $5,000,000 $1,250,000 $3,750,000 75% Auto Physical Damage insurance $250,000 $250,000 $0

A series of claims and catastrophes Property insurance $12,000,000 $7,250,000 $4,750,000 90% Liability insurance $10,000,000 $5,000,000 $5,000,000 75% Auto Physical Damage insurance $750,000 $750,000 $0

2017 MUNIX Financial Summary

Operating and Regulatory environmentThe commercial lines of business in property and casualty insurance remain competitive in Canada and the economic conditions in Alberta continue to pressure pricing targets of MUNIX.

Canadian insurance companies are licensed under insurance legislation and subject to the regulatory capital requirements in each of the provinces and territories in which they conduct business. MUNIX is regulated by Alberta Superintendent of Insurance and the Alberta Insurance Act.

Financial PerformancePremiums EarnedPremiums earned for the full year totaled $18.1 million, increasing 2% from 2016.

UnderwritingPerformance of underwriting measures total cost of claims and other expenses versus premiums earned. It is affected by numerous factors such as the pressure of competitive pricing and catastrophic loss. MUNIX had a very strong underwriting performance for the year with a claims loss ratio of 50.1% and expense ratio of 19.4%.

Comprehensive Income Increased by $3.9 million to $5.1 million, mainly due to favourable claims development.

Financial PositionSubscribers’ SurplusSubscribers’ surplus amounted to $24.7 million, reflecting a solid financial position.

Capital Risk Management Capital is defined as subscribers’ surplus. MUNIX capital management objectives consist of maintaining sufficient capital to support claims liabilities, support competitive pricing strategies and meet regulatory capital requirements.

Alberta Superintendent of Insurance has established a Minimum Capital Test guideline (“MCT”), which expresses the MCT ratio as the capital available over the minimum capital required and sets out 210% as the supervisory target. MUNIX has established 260% as a higher internal threshold. As at December 31, 2017, MUNIX’s MCT ratio is 367.6% (December 31, 2016 – 344.5%). MUNIX is also required by the Alberta Superintendent of Insurance to maintain an excess of cash and securities over the Reserve and Guarantee Fund. As at December 31, 2017, MUNIX has an excess of cash and securities over the Reserve and Guarantee Fund of $15.7 million (December 31, 2016 - $10.5 million).

The MCT ratio and excess of cash and securities over the Reserve and Guarantee Fund of MUNIX adequately exceed the regulator’s requirements, reflecting a strong capital base of the Exchange.

To the Subscribers of Alberta Municipal Insurance Exchange and the Alberta Superintendent of Insurance

We have audited the accompanying financial statements of Alberta Municipal Insurance Exchange, which comprise the statement of financial position as at December 31, 2017, the statement of comprehensive income, changes in subscribers’ surplus and cash flows for the year then ended, and notes, comprising 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 International Financial Reporting 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.


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 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 our 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, we consider 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.


Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of Alberta Municipal Insurance Exchange as at December 31, 2017, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.


February 23, 2018 Edmonton, Canada



Financials FinancialsALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX) ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)Statement of Financial Position As at December 31, 2017, with comparative information for 2016

Note 2017 2016AssetsCash $ 2,052,436 $ 1,372,632Investments 5, 7 48,234,625 48,239,498Accounts receivable 7, 9 465,132 300,648Prepaid expenses 110,754 99,072Ceded claims and unreported losses 6, 8 1,434,613 2,312,946

$ 52,297,560 $ 52,324,796

Liabilities and Subscribers’ SurplusLiabilities:

Claims liabilities 6, 7 $ 26,667,641 $ 32,308,343Premium tax payable 723,448 666,485Accounts payable and accrued liabilities 7, 9 191,203 211,499

27,582,292 33,186,327

Subscribers’ Surplus 7 24,715,268 19,138,469

$ 52,297,560 $ 52,324,796

See accompanying notes to financial statements.

On behalf of the Board:

_____________________________ Director

_____________________________ Director

ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)Statement of Comprehensive Income Year Ended December 31, 2017, with comparative information for 2016

Note 2017 2016Premiums earned 7 $ 18,086,193 $ 17,764,137Less: Premiums ceded to reinsurers 7, 8 (1,387,500) (1,367,250)

16,698,693 16,396,887

Claims and claims adjustment expenses 6 6,730,297 11,674,551Ceded claims and unreported losses 6, 8 878,333 (690,225)

7,608,630 10,984,326Premium taxes 759,075 666,485

8,367,705 11,650,811 8,330,988 4,746,076

Expenses:Agency and administration fees 9 2,460,881 2,820,297System support 253,875 227,792Property valuation fees 196,933 175,028Professional fees 111,526 99,101Consulting fees 79,378 83,558Administration 54,841 55,900Insurance 51,423 51,424Travel 11,992 18,917Promotions and marketing 11,698 21,298

3,232,547 3,553,315

Income before the undernoted 5,098,441 1,192,761

Net investment income 9, 10 478,358 478,258

Comprehensive income $ 5,576,799 $ 1,671,019



Financials FinancialsALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX) ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)Statement of Changes in Subscribers’ Surplus Year Ended December 31, 2017, with comparative information for 2016

Reserve Funds Surplus Total

Balance at January 1, 2017 $ - $ 19,138,469 $ 19,138,469

Comprehensive income - 5,576,799 5,576,799

Balance at December 31, 2017 $ - $ 24,715,268 $ 24,715,268

Reserve Funds Surplus Total

Balance at January 1, 2016 $ 3,515,160 $ 13,952,290 $ 17,467,450

Transfer (note 7) (3,515,160) 3,515,160 -

Comprehensive income - 1,671,019 1,671,019

Balance at December 31, 2016 $ - $ 19,138,469 $ 19,138,469


ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)Statement of Cash Flows Year Ended December 31, 2017, with comparative information for 2016

Note 2017 2016

Cash provided by (used in):Operating activities:

Comprehensive income $ 5,576,799 $ 1,671,019Adjustments for:

Net realized gain on sale of FVTPL investments 10 (434,727) (140,124)Change in unrealized loss on FVTPL investments 10 770,403 459,118Interest income 10 (904,811) (879,647)

Change in non-cash balances related to operations:Increase in accounts receivable (163,264) (30,933)Increase in prepaid expenses (11,682) (3,074)(Decrease) increase in claims liabilities (5,640,702) 1,446,370Increase in premium tax payable 56,963 113,206Decrease in accounts payable and accrued liabilities (20,296) (274,165)Decrease (increase) in ceded claims from reinsurers 6 878,333 (690,225)

Interest and dividends received from investments 913,637 885,688 1,020,653 2,557,233

Investing activities:Purchase of investments (113,198,975) (136,695,557)Proceeds from sale of investments 112,858,126 133,854,504

(340,849) (2,841,053)Increase (decrease) in cash 679,804 (283,820)Cash at beginning of year 1,372,632 1,656,452

Cash at end of year $ 2,052,436 $ 1,372,632


Financials FinancialsALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)Notes to the Financial Statements Year Ended December 31, 2017, with comparative information for 2016

ALBERTA MUNICIPAL INSURANCE EXCHANGE (MUNIX)Notes to the Financial Statements Year Ended December 31, 2017, with comparative information for 2016


1. Reporting entity:

Alberta Municipal Insurance Exchange (the “Exchange”) was formed on January 1, 2002 under the Reciprocal Insurance Exchange Agreement for Municipalities in the Province of Alberta and the Insurance Act (the “Act”). Its registered office is located at 300-8616 51 Avenue Edmonton, Alberta, Canada T6E 6E6.

The Exchange commenced operations on January 1, 2002 and has 744 (2016 - 746) subscribers. Subscriptions to the Exchange are renewed annually on a rollover basis. The next date for renewal of policies is January 1, 2018.

The Act permits a group of subscribers to exchange reciprocal contracts or inter-insurance with each other through a principal attorney. The principal attorney is authorized by the subscribers under a power of attorney, to sign reciprocal contracts on their behalf and to act on the subscribers’ behalf in respect of any matter specified in the power of attorney related to those contracts.

The Exchange is established for the purpose of permitting the subscribers to exchange a reciprocal contract or inter-insurance as provided for in the Act. The subscribers to the Exchange are various Alberta Urban Municipalities Association (“AUMA”) members subscribing to the Reciprocal Insurance Exchange Agreement for Municipalities in the Province of Alberta dated January 1, 2002.

The affairs of the Exchange are governed by an advisory board established in accordance with the power of attorney.

The majority of the advisory board members are directors of AUMA whose municipalities are subscribers of the Exchange. AMSC Insurance Services Ltd. (“AMSCIS”), a wholly owned subsidiary of AUMA, acts as an agent of the Exchange.

2. Basis of presentation:

(a) Statement of compliance:

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and comply with the requirements for filing with the Superintendent of Insurance for the Province of Alberta.

The financial statements were authorized for issue by the Board of Directors on February 23, 2018.

(b) Basis of measurement:

The financial statements have been prepared on the historical cost basis, except for investments which are measured at fair value.

(c) Functional and presentation currency:

The financial statements are presented in Canadian dollars, which is the Exchange’s functional currency. All financial information presented in Canadian dollars has been rounded to the nearest dollar.

(d) Use of estimates and judgments:

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Refer to note 3(a)(iii) for a description of the significant judgments and estimates made by the Exchange.


The accounting policies set out below have been applied consistently to all periods presented in these financial statements, unless otherwise indicated.

(a) Insurance contracts:

i) Premiums earned:

Premiums are recognized over term of the related policy period. The Exchange’s policy year ends on December 31st.

ii) Net claims and adjustment expenses:

Net claims and adjustment expenses consist of claims paid to policyholders, changes in the valuation of the liabilities arising on policyholder contracts and external claims handling expenses, net of salvage and subrogation recoveries.

iii) Claims liabilities:

A provision has been made for the estimated liability for all reported and outstanding claims using a case-basis evaluation plus an amount for adverse development and for claims incurred to December 31, which have not yet been reported to the Exchange (“incurred but not reported claims” or “IBNR”). The estimate of IBNR is generally subject to a greater degree of uncertainty than that for reported claims. The computation of these provisions takes into account the time value of money using discount rates based on projected investment income from the assets supporting these provisions.

Since the provision is based on estimates of future trends in claim severity and other factors which could vary as the claims are settled, the ultimate liability may be more or less than the estimated amounts. Although it is not possible to measure the degree of variability inherent in such estimates, management believes that the unpaid claims amounts and related adjustment expenses are adequate. The estimates are periodically reviewed by an actuary and, as adjustments to these liabilities become necessary, they are reflected in current operations.

iv) Contract classification:

All contracts issued by the Exchange meet the definition of an insurance contract and are accounted for in accordance with IFRS 4 - Insurance Contracts (“IFRS 4”). Insurance contracts are those contracts where the Exchange has accepted significant insurance risk. A contract is considered to have significant insurance risk if, and only if, an insured event could cause an insurer to make significant additional payments in any scenario, excluding scenarios that lack commercial substance, at the inception of the contract. Insurance contracts issued by the Exchange are subject to the loss limits as described in note 7 under Insurance Risk.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during the period, unless all rights and obligations are extinguished or expire.





(a) Insurance contracts (continued):

v) Liability adequacy test:

At the end of each reporting period, a liability adequacy test (“premium deficiency”) is performed to ensure the adequacy of the contract liabilities, net of related deferred acquisition cost (“DAC”) assets. In performing this test, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets backing such liabilities, are used. Any premium deficiency is immediately charged to comprehensive income initially by writing off DAC and by subsequently establishing a provision for losses arising from the liability adequacy test. No such deficiency has been determined to exist as at December 31, 2017. The Exchange does not incur significant costs that would be considered DAC assets.

vi) Reinsurance contracts:

The Exchange reinsures its contracts on an excess of loss basis. Reinsurance arrangements do not relieve the Exchange of its obligation to policyholders. Contracts entered into by the Exchange with reinsurers under which the Exchange is compensated for losses on one or more contracts issued by the Exchange and that meet the classification requirements for insurance contracts are classified as due from reinsurance.

The benefits to which the Exchange is entitled under its reinsurance contracts held are recognized as reinsurance assets. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from or due to reinsurers are measured consistently with the amounts associated with the reinsured insurance contracts and in accordance with the terms of each reinsurance contract. Reinsurance liabilities are primarily premiums payable for reinsurance contracts and are recognized as an expense when due.

The Exchange assesses its reinsurance assets for impairment on a quarterly basis. If there is objective evidence that the reinsurance asset is impaired, the Exchange reduces the carrying amount of the reinsurance assets to its recoverable amount and recognizes that impairment loss in the statement of comprehensive income. The Exchange fosters the objective evidence that a reinsurance asset is impaired using the same process adopted from non-financial assets. The impairment loss is calculated following the same method used for these assets.

The Exchange reflects reinsurance balances on the statement of financial position on a gross basis to indicate the extent of credit risk related to reinsurance and its obligations to subscribers and on a gross basis in the statement of comprehensive income to indicate the results of its retention of premiums written.

Expected reinsurance recoveries on unpaid claims are recognized as assets at the same time and using principles consistent with the Exchange’s method for establishing the related liability.

(b) Financial instruments:

i) Non-derivative financial assets

The Exchange recognizes financial assets on the trade date, at which the Exchange becomes a party to the contractual provisions on the financial asset contract.

The Exchange de-recognizes a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Exchange neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Exchange recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Exchange retains substantially all the risks and rewards of ownership of a transferred financial asset, the Exchange continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Exchange has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

The Exchange has classified financial assets as either ‘Fair Value Through Profit or Loss’ (“FVTPL”) or loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Financial assets at FVTPL:

A financial asset is classified as FVTPL if it has been acquired principally for the purpose of selling in the near future or is designated as such upon initial recognition. Financial assets are designated as FVTPL upon initial recognition if such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise, and the financial asset forms part of a portfolio of financial assets which is managed and its performance is evaluated on a fair value basis, in accordance with the Exchange’s documented risk management or investment strategy, and information about the portfolio is provided internally on that basis.

The Exchange’s investments are classified as FVTPL. Investments includes debt securities, bankers’ acceptances and treasury bills, as well as money market mutual funds.

Investments at FVTPL are recorded at fair value with realized gains and losses on sale and changes in the fair value recorded in net investment income. Transaction costs, as well as custodian and investment manager fees related to FVTPL financial assets are recognized in income as incurred, as part of general investment expenses.

Loans and receivables:

Loans and other receivables that have fixed or determinable payments that are not quoted in an active market are designated as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Loans and receivables are comprised of accounts receivable.





(b) Financial instruments (continued):

i) Non-derivative financial assets (continued):

Cash:

Cash is comprised of cash on hand and cash managed within the investment portfolio.

Interest income:

Interest income is accrued using the effective interest rate method, which uses the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Income distributions from the money market mutual fund are reinvested in additional units of the fund. Income distributions from the money market mutual funds result in an appreciation of the unit value of each of the fund units.

ii) Non-derivative financial liabilities:

All financial liabilities are recognized initially on the date that the Exchange becomes a party to the contractual provisions of the instrument.

The Exchange derecognizes a financial liability when its contractual obligations are discharged, cancelled or expire.

The Exchange classifies all non-derivative financial liabilities into the Other Financial Liabilities category. Such financial liabilities are recognized initially at fair value along with any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using the effective interest rate method.

Non-derivative financial liabilities are comprised of accounts payable and accrued liabilities and premium tax payable.

iii) Fair value of financial instruments:

The fair value of non-derivative financial assets and liabilities, with standard terms and conditions and traded on active liquid markets, are determined by reference to quoted market prices.

The fair value of other non-derivative financial assets and liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments.

(c) Impairment of financial assets:

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been negatively impacted.

For certain categories of financial assets, such as accounts receivable, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis.


(c) Impairment of financial assets (continued):

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets and the loss is recognized in comprehensive income.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through comprehensive income to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost that would have been recognized had the initial impairment loss not been recognized.

(d) Income taxes:

As an exchange under the Insurance Act of Alberta, the Exchange is not subject to income taxes and, accordingly, no provision for income taxes has been made in these financial statements.

(e) Future changes in accounting policies:

i) IFRS 17 Insurance Contracts (“IFRS 17”):

In May 2017, the International Accounting Standards Board (“IASB”) issued IFRS 17, a comprehensive standard that establishes principles for the recognition, measurement, presentation and disclosure of insurance contracts. The standard introduces consistent accounting for all insurance contracts.

The measurement approach under IFRS 17 is based on (a) a current, unbiased probability-weighted estimate of future cash flows expected to arise as the insurer fulfills the contract; (b) the effect of the time value of money; (c) a risk adjustment that measures the effects of uncertainty about the amount and timing of future cash flows; and (d) a contractual service margin which represents the unearned profit in a contract and that is recognized as the insurer fulfils its performance obligations under the contract. Estimates are required to be re-measured each reporting period.

Certain types of contracts, typically short-duration contracts, will be permitted to use a simplified measurement approach. Additionally, for contracts in which the cash flows are linked to underlying terms, the liability value will reflect that linkage. There will also be a new financial statement presentation for insurance contracts and additional disclosure requirements.

IFRS 17 is effective for annual periods beginning on or after January 1, 2021. IFRS 17 will replace IFRS 4. The Exchange intends to adopt IFRS 17 for the annual period beginning on January 1, 2021. The financial and disclosure impact of adopting IFRS 17 is still be assessed by the Exchange.

ii) IFRS 9 Financial Instruments (“IFRS 9”):

On July 24, 2014, the IASB issued the complete IFRS 9. The mandatory effective date of IFRS 9 is for annual periods beginning on or after January 1, 2018 and must be applied retrospectively with some exemptions. Early adoption is permitted. The restatement of prior periods is not required and is only permitted if information is available without the use of hindsight. IFRS 9 introduces new requirements for the classification and measurement of financial assets. Under IFRS 9, financial assets are classified and measured based on the business model in which they are held and the characteristics of their contractual cash flows. The standard introduces additional changes relating to financial liabilities. It also amends the impairment model by introducing a new ‘expected credit loss’ model for calculating impairment.





(e) Future changes in accounting policies (continued):

ii) IFRS 9 Financial Instruments (“IFRS 9”) (continued):

Applying IFRS 9 with IFRS 4

On September 12, 2016, the IASB issued amendments to IFRS 4 to address accounting mismatches and volatility that may arise in comprehensive income in the period between the effective date of IFRS 9 and IFRS 17. The amendments apply in the same period in which IFRS 9 is adopted. The amendments allow some insurers optional transitional relief until IFRS 17 is available for implementation. The options allow (a) entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4 to defer the implementation of IFRS 9 to as late as January 1, 2021, which allows alignment of the implementation of IFRS 9 with IFRS 17, or alternatively (b) give entities issuing insurance contracts the option to remove from comprehensive income the incremental volatility caused by changes in the measurement of eligible financial assets upon application of IFRS 9. The Exchange intends to defer application of IFRS 9 until the implementation of IFRS 17.

iii) IFRS 15 Revenue from Contracts with Customers (“IFRS 15”):

On May 28, 2014, the IASB issued IFRS 15. The new standard is effective for annual periods beginning on or after January 1, 2018. Earlier application is permitted. IFRS 15 will replace IAS 18 Revenue alongside other standards and interpretations. The standard contains a single model that applies to contracts with customers and two approaches to recognizing revenue: at a point in time or over time. The model features a contract-based five step analysis of transactions to determine whether, how much and when revenue is recognized. New estimates and judgmental thresholds have been introduced, which may affect the amount and/or timing of revenue recognized. The new standard applies to contracts with customers. It does not apply to insurance contracts, financial instruments or lease contracts, which fall in the scope of other IFRSs. IFRS 15 does not impact the Exchange as it does not apply to insurance contracts.

4. Role of the actuary and auditors:

The actuary is appointed by the Board of Directors of the Exchange and is responsible for ensuring that the assumptions and methods for the valuation of the policy liabilities are in accordance with accepted actuarial practice, applicable legislation and associated regulations and directives. The actuary is required to provide an opinion on the appropriateness of the policy liabilities at the statement of financial position date to meet all policyholder obligations of the Exchange. The work to form that opinion includes an assessment of the sufficiency and reliability of policy data and an analysis of the ability of the assets to support the policy liabilities. In carrying out this assessment, the actuary makes use of the work of the external auditor with respect to tests of the data used in the valuation. The actuary’s report outlines the scope of their work and opinion. The actuary is also required each year to analyze the financial condition of the Exchange and prepare a report for the Board of Directors.

The external auditors have been appointed by the Board of Directors of the Exchange pursuant to the Act to conduct an independent and objective audit of the financial statements of the Exchange in accordance with Canadian generally accepted auditing standards and to report thereon to the subscribers. In carrying out their audit, the auditors also make use of the work of the actuary and their report on the Exchange’s policy liabilities. The auditors’ report outlines the scope of their audit and their opinion.

5. Investments:

The fair values of investments classified as FVTPL are summarized as follows:

2017 % of total fair value 2016 % of total

fair value

Bankers’ acceptances and treasury bills $ 6,643,086 13.8% $ 7,317,305 15.2%Money market mutual funds 44,264 0.1% 564,467 1.2%Debt securities

Federal 17,886,165 37.1% 16,379,352 34.0%Provincial 3,558,508 7.4% 5,340,908 11.0%Corporate and other debt 12,691,467 26.3% 18,637,466 38.6%

Equity securities 7,411,135 15.3% - -%Total Investments $ 48,234,625 100.0% $ 48,239,498 100.0%

Bankers’ acceptances, treasury bills and money market mutual funds are managed as a component of the Exchange’s investment portfolio.

The average net annual rate of return, based on the fair value of the Exchange’s investment portfolio for the year ended December 31, 2017 is 0.99% (2016 - 1.02%).

Fair value hierarchy

The Exchange has segregated all financial assets that are measured at fair value into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date. The table below analyzes financial instruments carried at fair value by valuation method.

The different levels have been defined as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

• Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Level 1 Level 2 Level 3 2017 Total

Bankers’ acceptances and treasury bills $ 6,643,086 $ - $ - $ 6,643,086Money market mutual funds - 44,264 - 44,264Debt securities

Federal - 17,886,165 - 17,886,165Provincial - 3,558,508 - 3,558,508Corporate and other debt - 12,691,467 - 12,691,467

Equity securities 7,411,135 - - 7,411,135$ 14,054,221 $ 34,180,404 $ - $ 48,234,625




5. Investments (continued):

Level 1 Level 2 Level 3 2016 Total

Bankers’ acceptances and treasury bills $ 7,317,305 $ - $ - $ 7,317,305Money market mutual funds - 564,467 - 564,467Debt securities

Federal - 16,379,352 - 16,379,352Provincial - 5,340,908 - 5,340,908Corporate and other debt - 18,637,466 - 18,637,466

$ 7,317,305 $ 40,922,193 $ - $ 48,239,498

There were no transfers of assets between levels in the current or prior year.

6. Claims liabilities and reinsurance assets:

The gross claims liabilities, reinsurance recoverable estimates and the discount rate are as follows:

As at December 31, 2017

Undiscounted Discounted Discount rateGross claims liabilities $ 26,271,000 $ 26,667,641 1.92%Ceded unpaid claims and unreported losses (114,000) (115,191) 1.40%

$ 26,157,000 $ 26,552,450


Undiscounted Discounted Discount rateGross claims liabilities $ 31,352,000 $ 32,308,343 1.35%Ceded unpaid claims and unreported losses (1,933,000) (2,312,946) 0.83%

$ 29,419,000 $ 29,995,397

Unpaid claims and claims liabilities consist of the following amounts:


Gross Ceded NetUnpaid claims $ 14,723,641 $ (114,191) $ 14,609,450IBNR provision 8,769,000 (1,000) 8,768,000Internal Claims adjustment expense (“ILAE”) reserve 3,175,000 - 3,175,000

$ 26,667,641 $ (115,191) $ 26,552,450

6. Claims liabilities and reinsurance assets (continued):


Gross Ceded NetUnpaid claims $ 19,153,343 $ (1,932,946) $ 17,220,397IBNR provision 9,440,000 (380,000) 9,060,000ILAE reserve 3,715,000 - 3,715,000

$ 32,308,343 $ (2,312,946) $ 29,995,397

Activity in claims liabilities during the year is summarized as follows:

For the year ended December 31, 2017

Gross Ceded Net

Claims liabilities, beginning of year $ 32,308,343 $ (2,312,946) $ 29,995,397

(Decrease) increase in provisions for prior year claims and changes in actuarial assumptions (1,625,413) 878,333 (747,080)

Provision for losses on current year claims 8,895,710 - 8,895,710

Decrease in ILAE reserve (540,000) - (540,000)

6,730,297 878,333 7,608,630

Incurred losses and expenses

Paid on claims occurring in prior years (10,434,032) 1,319,422 (9,114,610)

Paid on current year claims (1,936,967) - (1,936,967)

(12,370,999) 1,319,422 (11,051,577)

$ 26,667,641 $ (115,191) $ 26,552,450

For the year ended December 31, 2016

Gross Ceded NetClaims liabilities, beginning of year $ 30,861,973 $ (1,622,721) $ 29,239,252

Decrease in provisions for prior year claims and changes in actuarial assumptions (889,617) (690,225) (1,579,842)

Provision for losses on current year claims 12,205,168 - 12,205,168

Increase in ILAE reserve 359,000 - 359,000

11,674,551 (690,225) 10,984,326

Incurred losses and expenses

Paid on claims occurring in prior years (6,934,183) - (6,934,183)

Paid on current year claims (3,293,998) - (3,293,998)

(10,228,181) - (10,228,181)

$ 32,308,343 $ (2,312,946) $ 29,995,397




6. Claims liabilities and reinsurance assets (continued):

As at December 31, reinsurance recoverable is summarized as follows:

2017 2016Ceded paid claims $ 1,319,422 $ -Ceded unpaid claims 114,191 1,932,946Ceded unreported losses 1,000 380,000

$ 1,434,613 $ 2,312,946

The establishment of the provision for claims liabilities is based on known facts and interpretation of circumstances and is therefore a complex and dynamic process influenced by a large variety of factors. These factors include the Exchange’s experience with similar cases and historical trends involving claim payment patterns, loss payments, pending levels of unpaid claims, claims severity and claim frequency patterns.

Other factors include the continually evolving and changing regulatory and legal environment, actuarial studies, professional experience and expertise of the Exchange’s consultants retained to handle individual claims, the quality of the data used for projection purposes, existing claims management practices including claims handling and settlement practices, the effect of inflationary trends on future claims settlement costs, court decisions, economic conditions and public attitudes. In addition, time can be a critical part of the provision determination, since the longer the span between the incidence of a loss and the payment or settlement of the claims, the more variable the ultimate settlement amount can be.

Consequently, the process for establishing the provision for claims liabilities relies on the judgment and opinions of a number of individuals, historical precedent and trends, prevailing legal, economic, social and regulatory trends and expectations as to future developments. This process also necessarily involves the risk that the actual results will deviate, perhaps substantially, from the best estimates made. These provisions are monitored and recalculated annually. All such deviations will cause corresponding changes in amounts receivable from subscribers and in related balances.

The net provision for claims liabilities consists of the case reserves on known claims, the IBNR provision, adjustment expenses including an amount for ILAE and a factor for deviations in the estimated results. The net provision for claims is discounted using rates based on the projected investment income from the assets supporting the provisions and reflecting the estimated timing of payments and recoveries. The discount rate used in the valuation was 1.92% (2016 - 1.35%).

The Exchange strives to establish adequate claims liabilities at the original valuation date. However, as time passes, the ultimate cost of claims becomes more certain. As determined by the appointed actuary, during the year ended December 31, 2017, the Exchange experienced favourable claims development of $1,101,000 (2016 - $703,000) as stated on an aggregate undiscounted basis.

7. Financial risk management:

The primary goals of the Exchange’s financial risk management are to ensure that the outcomes of activities involving elements of risk are consistent with the Exchange’s objectives and risk tolerance, and to maintain an appropriate risk/reward balance while protecting the Exchange’s statement of financial position from events that have the potential to materially impair its financial strength. Balancing risk and reward is achieved through aligning risk appetite with business strategy, diversifying risk, pricing appropriately for risk, mitigating risk through preventative controls and transferring risk to third parties. The Exchange’s exposure to potential loss from financial instruments is primarily due to insurance risk along with market, credit, liquidity and capital management risks.

7. Financial risk management (continued):

Insurance risk:

The Exchange accepts insurance risk through its insurance contracts where it assumes the risk of loss from organizations that are directly subject to the underlying loss. The Exchange is exposed to the uncertainty surrounding the timing, frequency and severity of claims under these contracts.

Insurance risk is the risk that the total cost of claims and acquisition expenses will exceed premiums received and can arise from numerous factors, including price risk, reserving risk and catastrophic loss risk.

Underwriting and Pricing risk:

Underwriting risk is the risk that the total cost of claims and other expenses will exceed premiums received and can arise from numerous factors, including pricing risk, reserving risk, catastrophic loss risk and reinsurance coverage risk.

Pricing risk arises when actual claims experience differs from the assumptions included in pricing calculations. Historically, the underwriting results of the property and casualty industry have fluctuated significantly due to the cyclicality of the insurance market. The market cycle is affected by the frequency and severity of losses, levels of capacity and demand, general economic conditions and price competition. The Exchange focuses on prudent rate setting that considers the requirements for claim aggregates, planned expenses, funding objectives, investment returns, and the current funding status of the Exchange. The pricing process is designed to ensure an appropriate return on capital while also providing long-term rate stability. These factors are set in conjunction with the actuary, and are reviewed and adjusted periodically to ensure they reflect the current environment.

Reserving risk:

Reserving arises due to the length of time between the occurrence of a loss, the reporting of the loss to the insurer and ultimate resolution of the claim. Claim provisions are expectations of the ultimate cost of resolution and administration of claims based on an assessment of facts and circumstances then known, a review of historical settlement patterns, estimates of trends in claims severity and frequency, legal theories of liability and other factors.

Variables in the reserve estimation process can be affected by receipt of additional claim information and other internal and external factors, such as changes in claims handling procedures, economic inflation, legal and judicial trends, legislative changes, changes in severity or frequency of claims relative to historical trends. Due to the amount of time between the occurrence of a loss, the actual reporting of the loss and the ultimate payment, provisions may ultimately develop differently from the actuarial assumptions made when initially estimating the provision for claims. The Exchange’s provision for claims is reviewed separately by, and must be acceptable to a third party claims adjuster, an internal claims manager, and the independent appointed actuary.

Catastrophic loss risk:

Catastrophic loss risk is the exposure to losses resulting from multiple claims arising out of a single catastrophic event. Property and casualty insurance companies experience large losses arising from man-made or natural catastrophes that can result in significant underwriting losses. Catastrophes can cause losses in a variety of property and casualty lines and may have continuing effects which could delay or hamper efforts to timely and accurately assess the full extent of the damage they cause. The incidence and severity of catastrophes are inherently unpredictable.

The Exchange’s catastrophic loss risk is limited to the annual aggregate for each coverage type; any losses over and above these amounts are borne by excess insurers, contracted by AMSCIS.





Insurance risk (continued):

Catastrophic loss risk (continued):

The loss limits by coverage type are as follows:

Liability insurance

The limit of liability for liability insurance is a maximum amount on any one loss of $1,250,000 (2016 - $1,250,000) in the event of a liability claim and a maximum policy year amount of $5,000,000 (2016 - $5,000,000) in the event of a series of claims. In addition the Exchange purchases reinsurance which increases the maximum amount on any one loss by $3,750,000 to a total of $5,000,000 (2016 - $3,750,000 and a total of $5,000,000). The maximum policy year amount is reinsured by an additional $5,000,000 to a total of $10,000,000 (2016 - $5,000,000 and a total of $10,000,000) in the event of a series of claims. Of this reinsured amount, the Exchange retains 25% or $1,250,000 of the claim exposure (2016 - 25% and $1,250,000) and cedes the remaining 75% to third party reinsurers.

Property insurance

The limit of liability for property insurance is a maximum amount on any one loss of $1,750,000 (2016 - $1,750,000) in the event of a property claim and a maximum policy year amount of $7,250,000 (2016 - $7,250,000) in the event of a series of claims. In addition, the Exchange purchases reinsurance which increases the maximum policy year amount by an additional $4,750,000 to a total of $12,000,000 (2016 - $4,750,000 and a total of $12,000,000) in the event of a series of claims, but does not increase the maximum amount on any one loss. Of this reinsured amount, the Exchange retains 10% or $475,000 of the claim exposure (2016 - 10% and $475,000) and cedes the remaining 90% to third party reinsurers.

Auto Physical Damage insurance

The limit of liability for auto physical damage insurance is a maximum amount on any one loss of $250,000 (2016 - $250,000) in the event of a vehicle claim and a maximum policy year amount of $750,000 (2016 - $750,000) in the event of a series of claims. The Exchange does not purchase reinsurance for auto physical damage claims.

Reinsurance risk:

The Exchange relies on reinsurance to manage the underwriting risk, however, reinsurance does not release the Exchange from its primary commitments to its policyholders. The Exchange has adopted a reinsurance risk management policy that is intended to manage its exposure to operational, legal, credit and liquidity risk. The Exchange is exposed to the credit risk associated with the amounts ceded to reinsurers. The Exchange assesses the financial soundness of the reinsurers before signing any reinsurance treaties and monitors their situation on a regular basis. In addition, the Exchange has minimum rating requirements for its reinsurers. Reinsurance coverage risk also exists because reinsurance terms, conditions and/or pricing may change on renewal. The Exchange reviews reinsurance requirements and seeks quotations on a regular basis to ensure that the best price possible is obtained. The Exchange works with well established reinsurers that have expertise in their field as well as an understanding of the business. Exposure risk is managed through the reinsurance risk management policy that limits the amount of capital which can be reinsured. Operational and liquidity risk is managed with continual program review and adherence to reinsurance agreements.

Concentration risk:

The Exchange is exposed to concentration of insurance risk through the geographical proximity and comparable operations of its subscribers, primarily municipalities in the province of Alberta. The concentration of subscribers by geographic area and business operations exposes the Exchange to political, economic, regulatory, and environmental challenges affecting their businesses. The Exchange’s exposure to concentration of insurance risk is mitigated by a portfolio across three business lines (liability, property and auto physical damage). The Exchange also has exposure



Concentration risk (continued):

to catastrophic losses, which as described above is limited to the annual aggregate for each coverage type. The concentration by coverage type at the end of the year is broadly consistent with prior year.

The table below provides a breakdown of net premiums by coverage type:

Gross Premiums 2017

Base Reinsurance TotalLess: Ceded

to ReinsurersNet Premiums

2017Net Premiums

2016

Liability $ 6,032,989 $ 1,316,750 $ 7,349,739 $ 937,500 $ 6,412,239 $ 6,278,069

Property 9,143,426 535,250 9,678,676 450,000 9,228,676 9,109,321

Auto Physical Damage 1,057,778 - 1,057,778 - 1,057,778 1,009,497

$ 16,234,193 $ 1,852,000 $ 18,086,193 $ 1,387,500 $ 16,698,693 $ 16,396,887

Due from Reinsurers:

Credit exposure related to the Exchange’s due from reinsurers balances exists at December 31, 2017 to the extent that any reinsurer may not be able or willing to reimburse the Exchange under the terms of the relevant reinsurance arrangements. The Exchange has policies which limit its exposure to individual reinsurers and a regular review process to assess the creditworthiness of reinsurers with whom it transacts business.

The Exchange makes specific provisions against balances due from reinsurers considered to be in financial difficulty or with whom the Exchange is in dispute. The Exchange has mitigated the risk by including a non-dispute clause within its reinsurance contracts and monitors its reinsurers for credit risk. As at December 31, 2017, $1,319,422 (December 31, 2016 - $nil) was due from reinsurers on ceded paid claims.

Assumptions and sensitivities:

The risks associated with insurance contracts are complex and subject to a number of variables which complicate quantitative sensitivity analysis. The Exchange uses several statistical and actuarial techniques based on past claims development experience. This includes indications such as average claims cost, ultimate claims numbers and expected loss ratios.

The Exchange considers that the liability for insurance claims recognized in the statement of financial position is adequate. However, actual experience will differ from the expected outcome.

For the year ended December 31, 2017, changes in actuarial assumptions have had no material effect on the claims liabilities from the prior year end.






Some results of sensitivity testing by claim year are set out below, showing the impact of a change in assumptions on total comprehensive income and subscribers’ surplus. For each sensitivity analysis, the impact of a change in a single factor is shown, with other assumptions unchanged.

Effect on total comprehensive income/subscribers’ surplus

2017 % change 2016 % change5% increase in loss ratios (1) $ (219,773) (3.9)% (2) $ (528,169) (31.6)%

5% decrease in loss ratios 444,526 8.0% 356,258 21.3%

10% increase in expenses (323,255) (5.8)% (355,332) (21.3)%

10% decrease in expenses 323,255 5.8% 355,332 21.3%

0.5% increase in discount rate used in actuarial calculation of claims liabilities 335,000 6.0% 380,000 22.7%

0.5% decrease in discount rate used in actuarial calculation of claims liabilities $ (261,000) (4.7)% $ (391,000) (23.4)%

(1) For the 2017 policy year, the maximum loss limit for Auto Physical Damage of $750,000 was reached. As such, the sensitivity analysis cannot consider a further 5% increase in the loss ratio for this coverage.

(2) For the 2016 policy year, the maximum loss limit for Auto Physical Damage of $750,000 was reached. As such, the sensitivity analysis cannot consider a further 5% increase in the loss ratio for this coverage.

The Exchange’s method for sensitivity testing has not changed from the prior year.



Claims development tables

The following tables show the development of claims over a period of time. The top half of the table shows how the estimates of total claims for each accident year develop over time. The lower half of the table reconciles the cumulative claims to the amount appearing in the statement of financial position.

The gross estimates of the claims liability ultimates are as follows:

2012 2013 2014 2015 2016 2017 TotalEstimate of ultimates:End of accident year $ 10,827,825 $ 11,750,000 $ 11,750,000 $ 15,429,556 $12,205,168 $ 8,895,710 $ 70,858,259

One year later (313,763) - (1,095,976) 478,604 (624,719) - (1,555,854)Two years later (51,921) - 87,379 (1,003,285) - - (967,827)Three years later (442,949) (445,771) 444,188 - - - (444,532Four years later (415,798) 6,426 - - - - (409,372)Five years later (237,928) - - - - - (237,928)

Current estimate of ultimate claims 9,365,466 11,310,655 11,185,591 14,904,875 11,580,449 8,895,710 67,242,746

Cumulative payments (8,180,820) (9,733,967) (8,327,521) (11,798,767) (7,205,173) (1,936,967) (47,183,215)

1,184,646 1,576,688 2,858,070 3,106,108 4,375,276 6,958,743 20,059,531Provision for prior

years (2002 to 2011) - - - - - - 3,433,110

ILAE reserve - - - - - - 3,175,000

Liability in statement of financial position $ - $ - $ - $ - $ - $ - $ 26,667,641






The net estimates of the claims liability ultimates are as follows:

2012 2013 2014 2015 2016 2017 TotalEstimate of ultimates:End of accident year $ 10,827,825 $ 11,750,000 $ 11,750,000 $ 15,429,556 $ 12,205,168 $ 8,895,710 $ 70,858,259

Reinsurance recoverable - - - (115,191) - - (115,191)

One year later (313,763) - (1,095,976) 478,604 (624,719) - (1,555,854)Two years later (51,921) - 87,379 (1,003,285) - - (967,827)Three years later (442,949) (445,771) 444,188 - - - (444,532)Four years later (415,798) 6,426 - - - - (409,372)Five years later (237,928) - - - - - (237,928)

Current estimate of ultimate claims 9,365,466 11,310,655 11,185,591 14,789,684 11,580,449 8,895,710 67,127,555

Cumulative payments (8,180,820) (9,733,967) (8,327,521) (11,798,767) (7,205,173) (1,936,967) (47,183,215)1,184,646 1,576,688 2,858,070 2,990,917 4,375,276 6,958,743 19,944,340

Provision for prioryears (2002 to 2011) - - - - - - 3,433,110

ILAE reserve - - - - - - 3,175,000

Liability net of ceded claim recoveries $ - $ - $ - $ - $ - $ - $ 26,552,450

Market risk:

Market risk is the risk of adverse financial impact as a consequence of market movements such as currency exchange rates, interest rates and other price changes. Market risk arises due to fluctuations in both the value of assets held and the value of liabilities.

The Exchange has established policies and procedures in order to manage market risk.

Interest rate risk management:

Interest rate risk is the risk that the value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

Fluctuations in interest rates have a direct impact on the market valuation of the Exchange’s fixed income securities portfolio and liability values. Historical data and current information is used to profile the ultimate claims settlement patterns by class of insurance, which is then used in a broad sense to develop an investment policy and strategy. Generally the investment income will move with interest rates over the long-term. Short-term interest rate fluctuations will generally create unrealized gains or losses. Generally, the Exchange’s investment income will be reduced during sustained periods of lower interest rates as higher yielding fixed income securities are called, mature, or are sold and the proceeds are reinvested at lower rates, and will likely result in unrealized gains in the value of fixed income securities the Exchange continues to hold, as well as realized gains to the extent the relevant securities are sold. During periods of rising interest rates, the market value of the Exchange’s existing fixed income securities will generally decrease and unrealized gains on fixed income securities will likely be reduced or result in unrealized losses.


Market risk (continued):

Interest rate sensitivity analysis:

The sensitivity analyses below have been determined based on the theoretical exposure to interest rates at the statement of financial position date.

As at December 31, 2017, management estimates that an immediate hypothetical 100 basis point, or 1%, parallel increase in interest rates would decrease the market value of the fixed income investments (excluding cash) by $818,276 (December 31, 2016 - $1,253,355), representing 2.00% (2016 - 2.60%) of the $40,823,490 (December 31, 2016 - $48,239,498) fair value fixed income investments portfolio. Conversely, a 100 basis point decrease in interest rates would increase the market value of the fixed income investments by the same amount. If it was necessary to complete an unexpected immediate liquidation of assets to meet policy obligations, interest rate fluctuations could result in realized gains or losses greater than the change in reserve values.

Computations of the prospective effects of hypothetical interest rate changes are based on numerous assumptions, including the maintenance of the existing level and composition of fixed income investment assets at the indicated date, and are not indicative of future results. The analysis in this section is based on the following assumptions: 1) the investments in the Exchange’s portfolio are not impaired; 2) interest rates and equity prices move independently; 3) shifts in the yield curve are parallel; and, 4) credit and liquidity risks have not been considered.

The Exchange’s method for assessing sensitivity to interest rate fluctuations has not changed significantly over the year.

Equity price management:

The Exchange is exposed to equity price risk, which arises from equity securities held within pooled funds. The equity securities are listed on either the S&P/TSX Composite Index or the MSCI World Net Index. Fluctuations in these indices have a direct impact on the market valuation of the Exchange’s equity securities. The Exchange monitors the proportion of equity securities in its investment portfolio and is advised by external investment managers to ensure that the investment portfolio remains stable.

Equity price sensitivity analysis:

As at December 31, 2017, management estimates that an immediate hypothetical 200 basis point, or 2%, parallel increase in the S&P/TSX Composite Index and the MSCI World Net Index would decrease the market value of the equity investments by $121,704 (December 31, 2016 - $nil).

Currency risk and other price risk management:

The Exchange has no significant concentration of currency risk or other price risk.





Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Exchange. The key areas of exposure to credit risk for the Exchange are in relation to its investment portfolio, its reinsurance program, and to a lesser extent amounts due from policyholders.

The Exchange’s risk management strategy is to invest primarily in debt instruments of high credit quality issuers to limit the amount of credit exposure with respect to any one issuer. The Exchange attempts to limit credit exposure by imposing portfolio limits on individual corporate issuers as well as limits based on credit quality.

The following table shows aggregated credit risk exposure for assets with external credit ratings.

December 31, 2017

AAA AA A BBB R1H Carrying amount

Bankers’ acceptances and treasury bills $ - $ - $ - $ - $ 6,643,086 $ 6,643,086

Money marketmutual funds - - - - 44,264 44,264

Debt securities

Federal 17,886,165 - - - - 17,886,165

Provincial - 3,200,123 358,385 - - 3,558,508

Corporate andother debt 1,751,801 3,034,787 7,046,397 858,482 - 12,691,467

$ 19,637,966 $ 6,234,910 $7,404,782 $ 858,482 $ 6,687,350 $ 40,823,490

December 31, 2016

AAA AA A BBB R1H Carrying amount

Bankers’ acceptances and treasury bills $ - $ - $ - $ - $ 7,317,305 $ 7,317,305

Money market mutual funds - - - - 564,467 564,467

Debt securities

Federal 16,379,352 - - - - 16,379,352

Provincial 528,367 4,083,590 728,951 - - 5,340,908

Corporate and other debt 6,011,251 6,637,609 5,988,606 - - 18,637,466

$ 22,918,970 $ 10,721,199 $ 6,717,557 $ - $ 7,881,772 $ 48,239,498


Credit risk (continued):

As at December 31, 2017 and 2016, the carrying values of investments as well as accounts receivable are neither past due nor impaired.

During the years ended December 31, 2017 and 2016, the Exchange invested in the MuniFunds money market mutual fund. The Exchange owned 4,426 units of this fund as at December 31, 2017 (December 31, 2016 - 56,447). The MuniFunds money market fund’s sole investment is in units of the Consolidated Cash Investment Trust Fund (“CCITF”) administered by the Alberta Investment Management Corporation (“AIMCo”). The CCITF is a liquid money market pool which allows AIMCo to offer short-term investment and cash management services to many provincial agencies, funds and investment pools. All CCITF investments must be in high quality marketable fixed income securities and fall within the parameters set by AIMCo. With the exception of government and government-guarantee securities, all investments must have a short-term rating of R-1 or better and a long-term rating of A or better at the time of purchase.

Liquidity risk management:

Liquidity is the risk that the Exchange cannot meet its obligations associated with financial liabilities as they fall due. Liquidity risk arises from the general business activities and in the course of managing the asset and liabilities of the Exchange. The liquidity requirements of the Exchange’s business are met primarily by funds generated from operations, asset maturities and income and other returns received on investments. Cash provided from these sources is used for claim payments and operating expenses. To meet these cash requirements, the Exchange has policies to limit and monitor its exposure to individual issuers. The Exchange also holds a portion of invested assets in liquid marketable investments. All current investment holdings of the Exchange are immediately redeemable.

At December 31, 2017, the Exchange has $8,739,786 (December 31, 2016 - $9,254,404) of cash and cash equivalents which includes $6,687,350 (December 31, 2016 - $7,881,772) of short-term investments. The cash equivalents are included in investments as they are managed as a component of the Exchange’s investment portfolio, and consist of treasury bills and bankers’ acceptances with an original maturity date of one year or less.

The following table (in $000s) shows details of the expected maturity profile of the Exchange’s obligations with respect to its financial liabilities and estimated cash flows of recognized claims liabilities. The table includes both interest and principal cash flows.

December 31, 2017Within 1 year 2 to 5 years 6 to 10 years Over 10 years Total 2017

Claims liabilities $ 9,263 $ 12,552 $ 4,584 $ 269 $ 26,668Premium taxes payable 723 - - - 723

Accounts payable and accrued liabilities 191 - - - 191

$ 10,177 $ 12,552 $ 4,584 $ 269 $ 27,582


Claims liabilities $ 12,238 $ 14,830 $ 4,939 $ 301 $ 32,308Premium taxes payable 666 - - - 666

Accounts payable and accrued liabilities 212 - - - 212

$ 13,116 $ 14,830 $ 4,939 $ 301 $ 33,186





Liquidity risk management (continued):

The following table in (000’s) details the Exchange’s expected maturity for its assets. The tables below have been drawn up based on the contractual maturities of the assets including interest that will be earned on those assets except where the Exchange anticipates that the cash flow will occur in a different period.


Accounts receivable $ 465 $ - $ - $ - $ 465

Bankers’ acceptances and treasury bills 6,643 - - - 6,643

Money marketmutual funds 44 - - - 44

Debt securities 6,057 25,610 2,470 - 34,137Equity securities 7,411 - - - 7,411

$ 20,620 $ 25,610 $ 2,470 $ - $ 48,700


Accounts receivable $ 301 $ - $ - $ - $ 301

Bankers’ acceptances and treasury bills 7,317 - - - 7,317

Money market mutual funds 564 - - - 564

Debt securities 2,51 34,457 3,383 - 40,358$ 10,700 $ 34,457 $ 3,383 $ - $ 48,540

The Exchange expects to meet its obligations from operating cash flows and proceeds of maturing financial assets.

Capital risk management:

The Exchange’s objectives when managing capital consist of maintaining sufficient capital to support claims liabilities and ensure the confidence of policyholders, support competitive pricing strategies and meet regulatory capital requirements. The Exchange is subject to the regulatory capital requirements defined by Alberta Superintendent of Insurance and the Alberta Insurance Act. The Exchange has developed a capital strategy and monitors its capital management status. Alberta Superintendent of Insurance has established a Minimum Capital Test guideline (“MCT”), which sets out 100% as the minimum and 210% as the supervisory target for the Exchange. The Exchange’s internal target ratio which was approved by the board was 240% for 2017. As at December 31, 2017, the Exchange’s MCT ratio was 367.56% (December 31, 2016 - 344.46%). As at December 31, 2017, the Exchange was in compliance with the Alberta Superintendent of Insurance regulations.


Capital risk management (continued):

Capital is defined as subscribers’ surplus. Subscribers’ Surplus represents contributions made by subscribers and the excess of revenue over expenses, and may be used to cover potential future catastrophic claims, reduce future premiums, or be paid out to subscribers.

The development of the capital management strategy to manage and monitor the subscribers’ surplus, replaced the practice of using reserves to restrict funds. As such, the Exchange’s Board of Directors authorized the transfer of $3,515,160 from reserve funds back to surplus during the year ended December 31, 2016.

The Exchange is regulated by the Alberta Superintendent of Insurance and the Alberta Insurance Act. Accordingly, in addition to subscribers’ surplus, the Exchange is required by the Alberta Superintendent of Insurance to maintain an excess of cash and securities over the Reserve and Guarantee Fund.

The Reserve and Guarantee Fund has three components: a reserve fund which consists of 50% of premiums collected in the current fiscal year; a guarantee fund which consists of the Exchange’s total liabilities; and a $50,000 statutory margin. If the Exchange experiences a shortfall of cash and securities over the Reserve and Guarantee Fund, the Alberta Superintendent of Insurance requires the Exchange to produce a plan to eliminate the shortfall. As at December 31, 2017, the Exchange has an excess of cash and securities over the Reserve and Guarantee Fund of $15,740,000 (December 31, 2016 - $10,490,000).

8. Reinsurance:

During the year ended December 31, 2017, the Exchange ceded coverage on an “excess-of-loss” basis to registered reinsurers for premiums of $1,387,500 (2016 - $1,367,250) and as identified in Note 6, claims and claims expenses included in the statement of comprehensive income were increased by $878,333 (2016 - decreased by $690,225). Such reinsurance arrangements limit the Exchange’s liability in the event of large losses. Notwithstanding the reinsurance arrangements, the Exchange maintains the primary liability to the subscribers.

Recoveries from reinsurers is comprised of the following:

2017 2016

Ceded claims and unreported losses (note 6) $ 1,434,613 $ 2,312,946

$ 1,434,613 $ 2,312,946

As at December 31, 2017 and 2016, the recoveries from reinsurers are not past due. Based on historic default rates, the Exchange believes that no impairment allowance is necessary.




9. Related party disclosures:

The affairs of the Exchange are governed by an advisory board. The majority of the advisory board members are also directors of AUMA, and all the subscribers to the Exchange are also members of AUMA. As such, all of the entities that operate under the auspices of AUMA are considered related parties to the Exchange. This includes AMSCIS, a wholly owned subsidiary of AUMA, who acts as agent for the Exchange, and Alberta Municipal Services Corporation (“AMSC”), also a wholly owned subsidiary of AUMA, who is the trustee for MuniFunds, which operates the money market mutual fund which the Exchange invests.

The Exchange does not employ any individuals directly. Agency and administrative services are provided to the exchange by AUMA, for which fees are charged; a portion of which relates to the salaries and benefits of employees. The agency and administrative fees charged in the year related to salaries and benefits are not separately disclosed, but total $1,808,832 (2016 - $2,190,925).

The following balances with related parties exist as at December 31:

2017 2016AUMA

Accounts receivable $ 311,043 $ 198,632AMSC

Accounts payable $ - $ (4,180)AMSCIS

Accounts payable $ (36,050) $ (4,418)Munifunds

Investments in money market mutual funds $ 44,264 $ 564,467

The following transactions with related parties occurred during the year:

2017 2016AUMA

Management fees $ 2,460,881 $ 2,820,297MuniFunds

Net realized gains on sale of FVTPL investments $ 29,797 $ 33,639

10. Net investment income:

Net investment income is as follows:

2017 2016Interest income $ 904,811 $ 879,647Net realized gains on sale of FVTPL investments 434,727 140,124Net unrealized loss on FVTPL investments (770,403) (459,118)General investment expenses (90,777) (82,395)

$ 478,358 $ 478,258

11. Non‑current assets and liabilities:

The following table in (000’s) presents assets and liabilities the Exchange expects to recover or settle after more than twelve months as at December 31, 2017 and 2016:

2017 2016Assets:

Investments $ 28,080 $ 37,840Total non-current assets 28,080 37,840

Liabilities:Claims liabilities 17,405 20,070

Total non-current liabilities 17,405 20,070

Net non-current assets $ 10,675 $ 17,770

12. Comparative figures:

Certain comparative figures have been reclassified to conform to the financial statement presentation adopted for the current year.


Administration’s Discussion and Analysis for the year ended December 31, 2017The APEX Supplementary Pension Plan (“the Plan”, or “APEX”) was established on January 1, 2003, to enhance and supplement the Local Authorities Pension Plan (“LAPP”). It is a voluntary, contributory, defined benefit pension plan for eligible staff of participating municipalities in Alberta. The key features of the Plan are a full 2% benefit accrual rate on all pensionable earnings that correspond to the participating member’s best five years’ of consecutive earnings and a normal form pension that pays two-thirds to the surviving pension partner on the participating member’s death.

The Plan’s AssetsThe fair value of the Plan’s net assets available for benefits (“pension assets”) amounted to $59.6 million as of December 31, 2017, growing from $51.2 million at the end of 2016.

The Plan’s LiabilitiesThe Plan’s accrued pension liability (“pension liability” or “pension obligation”) was $62.0 million as of December 31, 2017, reflecting an $8.5 million increase compared with 2016. The pension liability is based on an extrapolation of the liability determined in the actuarial valuation carried out as at December 31, 2015. The Plan undertakes an actuarial valuation every three years with the next actuarial valuation scheduled to be completed as at December 31, 2018.

The Plan’s Fund Ratio (on a fair value basis)The pension liability grew at a stable rate when compared to the pension assets during 2017. The Plan’s funded ratio on a fair value basis was 96 per cent in 2017 and 2016. The 2015 actuarial valuation shows the Plan has unfunded liability and solvency deficiency due to revision of key assumptions.

Capital Risk ManagementThe Plan seeks to fulfil its pension obligations by adhering to the APEX funding policy, which guides the actions of the Board of Governors based on the Plan’s funding level. One of the purposes of the funding policy is to ensure the contributions required from participating members and employers are set with the objectives of financial stability and benefit security.

To ensure the assets of the Plan are prudently invested, the Board of Governors also endeavours to design an economical investment structure whereby its assets are allocated to optimize the risk/reward relationship of the excess return over going concern liabilities.

Investment Management and PerformanceAPEX engages six investment managers to manage its investment portfolio. The following table summarizes the investment portfolio as at December 31, 2017:

Fund category Fair value as at December 31, 2017 % of totalGlobal Equity Fund $20,966,942 36%Long-term Bond Fund 18,884,033 32%Canadian Equity Fund 12,612,100 21%Real Estate Property Fund 5,726,009 10%

Real Estate Fund 591,878 1%Money Market Fund 3,832 0%Subtotal $58,784,794 100%

Overall, an investment return of 7.6% was achieved for 2017, whereas the discount rate used in the most recent actuarial valuation report is 6%. The discount rate is used to value the cost of pension obligations and it is determined by estimating expected rates of return of pension assets over the long term. The higher return with controlled risk exposure implies an investment margin in the long run.

2017 APEX Financial Summary

To the Governance Boards of APEX Supplementary Pension Plan and Alberta Urban Municipalities Association

We have audited the accompanying financial statements of APEX Supplementary Pension Plan, which comprise the statement of financial position as at December 31, 2017, the statement of changes in net assets available for benefits, changes in accrued pension liability and changes in accumulated deficiency for the year then ended, and notes, comprising of significant 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 accounting standards for pension plans, 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.


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 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 our 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, we consider 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.


Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of APEX Supplementary Pension Plan as at December 31, 2017, and the changes in its net assets available for benefits, the changes in its accrued pension liability and the changes in its accumulated deficiency for the year then ended in accordance with Canadian accounting standards for pension plans.


May 24, 2018Edmonton, Canada


Financials Financials8 6 > A n n u a l R e p o r t 2 0 1 7 2 0 1 7 A n n u a l R e p o r t > 8 7

APEX SUPPLEMENTARY PENSION PLAN (APEX) Statement of Financial Position As at December 31, 2017, with comparative information for 2016

Note 2017 2016Assets:Current assets:

Cash $ 147,409 $ 550,468Prepaid expenses - 1,073Accounts receivable 9 39,846 8,249Contributions receivable: Employer 420,994 354,401 Employee 316,302 295,335

924,551 1,209,526

Investments 4, 11 58,784,794 50,248,050Total assets $ 59,709,345 $ 51,457,576

Liabilities:Accounts payable and accrued liabilities 9 $ 72,463 $ 210,017

Net assets available for benefits 59,636,881 51,247,559

Accrued pension liability 5 62,007,174 53,516,751

Accumulated deficiency $ (2,370,293) $ (2,269,192)


On behalf of the Board of Governors:

_____________________________ Trustee

_____________________________ Trustee

APEX SUPPLEMENTARY PENSION PLAN (APEX) Statement of Changes in Net Assets Available for Benefits Year Ended December 31, 2017, with comparative information for 2016

Note 2017 2016Increase in net assets:

Employer contributions: Current service 9 $ 5,179,543 $ 4,123,595 Past service 462,726 294,543Employee contributions: Current service 9 4,239,165 3,681,781

9,881,434 8,099,919Investment income 6 4,166,993 3,436,640

14,048,427 11,536,559

Decrease in net assets:Benefit payments and transfers 7 4,574,433 4,270,000Administrative expenses 8 1,084,672 1,189,958

5,659,105 5,459,958Increase in net assets available for benefits 8,389,322 6,076,601Net assets available for benefits, beginning of year 51,247,559 45,170,958Net assets available for benefits, end of year $ 59,636,881 $ 51,247,559


Financials Financials8 8 > A n n u a l R e p o r t 2 0 1 7 2 0 1 7 A n n u a l R e p o r t > 8 9

APEX SUPPLEMENTARY PENSION PLAN (APEX) Statement of Changes in Accrued Pension Liability Year Ended December 31, 2017, with comparative information for 2016

Note 2017 2016

Accrued pension liability, beginning of year $ 53,516,751 $ 44,493,940

Interest accrued on pension benefits 3,602,894 2,966,723

Benefits earned 8,818,699 7,086,436

Loss due to Plan experience - 2,004,591

Loss due to changes in assumptions 5 643,263 1,235,061

Benefit payments and transfers 7 (4,574,433) (4,270,000)

Accrued pension liability, end of year $ 62,007,174 $ 53,516,751


APEX SUPPLEMENTARY PENSION PLAN (APEX) Statement of Changes in Accumulated Deficiency Year Ended December 31, 2017, with comparative information for 2016

2017 2016

Accumulated (deficiency) surplus, beginning of year $ (2,269,192) $ 677,018

Increase in net assets available for benefits 8,389,322 6,076,601

Net increase in accrued pension liability (8,490,423) (9,022,811)

Accumulated deficiency, end of year $ (2,370,293) $ (2,269,192)


Financials FinancialsAPEX SUPPLEMENTARY PENSION PLAN (APEX) Notes to the Financial Statements Year Ended December 31, 2017, with comparative information for 2016

APEX SUPPLEMENTARY PENSION PLAN (APEX) Notes to the Financial Statements Year Ended December 31, 2017, with comparative information for 2016


1. Description of the Plan:

The APEX Supplementary Pension Plan (“the Plan”) was established on January 1, 2003 to enhance and supplement the Local Authorities Pension Plan (“LAPP”) for eligible staff of participating municipalities in Alberta. A complete description of the Plan can be found in the Plan documents.

The Plan is a voluntary, contributory, defined benefit pension plan.

The Plan is a registered plan with the Canada Revenue Agency and the Alberta Provincial Government under provisions of the Alberta Employment Pensions Plan Act.

Pursuant to Schedule O.2, Section 1(1) of the Alberta Employment Pension Plan Regulation, the Plan is considered to be a Public Pension Plan, and as a result, the employers are exempt from making solvency deficiency payments.

The key features of the Plan are a full 2% benefit accrual rate on all pensionable earnings that correspond to the participating member’s best five years’ consecutive earnings and a normal form pension that pays two-thirds to the surviving pension partner on the participating member’s death. In the absence of a pension partner, pension benefits payable during the first ten years of retirement shall be paid to the participating member’s beneficiary in the event of death of the participating member during that period.

The Plan is for contributory service on and following January 1, 2003. The Plan contributions are cost shared by employer and employee and are based on pensionable earnings up to $145,722 (2016 - $144,500) based on current Canada Revenue Agency maximum annual pension accrual of $2,914 (2016 - $2,890).

2. Basis of presentation:

(a) Statement of compliance:

These financial statements are prepared on the going concern basis in accordance with Canadian accounting standards for pension plans of the CPA Canada Handbook (‘’Part IV”) present the aggregate financial position of the Plan as a separate financial reporting entity independent of the Plan sponsor, Alberta Urban Municipalities Association (“AUMA”) and Plan members. They are prepared to assist Plan members and others in reviewing the activities of the Plan. They do not purport to indicate whether the assets of the Plan together with investment earnings thereon, plus future contributions, will be sufficient to finance all benefits to be provided under the Plan.

In selecting or changing accounting policies that do not relate to its investment portfolio or pension obligations, the Plan has a choice to comply on a consistent basis with either International Financial Reporting Standards (“IFRS”) in Part I of the CPA Canada Handbook, or Canadian accounting standards for private enterprises in Part II of the CPA Canada Handbook, to the extent that those standards do not conflict with the requirements under Section 4600. The Plan has chosen to comply on a consistent basis with IFRS in Part I of the CPA Canada Handbook.

(b) Basis of measurement:

The financial statements have been prepared on a historical cost basis except for investments, which are recorded at fair value through profit or loss.

(c) Functional presentation and currency:

These financial statements are presented in Canadian dollars, which is the Plan’s functional currency.

2. Basis of presentation (continued):

(d) Use of estimates and judgments:

The preparation of the financial statements in accordance with Part IV requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the statement of financial position and the reported amounts of changes in net assets available for benefits during the year. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future years affected.

While best estimates have been used in the valuation of the Plan’s pension liability, management considers that it is possible, based on existing knowledge, that changes in future conditions could require a material change in the recognized amounts.

Differences between actual results and expectations in the Plan’s pension liability are disclosed as assumption or other changes and net experience gains or losses in the statement of changes in accrued pension liability in the year when actual results are known.


(a) Cash:

Cash is comprised of cash on hand.

(b) Foreign currency:

Transactions in foreign currencies are translated into Canadian dollars at the exchange rate at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into Canadian dollars at the exchange rate at that date.

(c) Investment transactions, income recognition and transaction costs:

i) Investment transactions:

Investment transactions are accounted for on a trade date basis.

ii) Income recognition:

Investment income is recorded on an accrual basis and includes interest income and pooled investment income.

(a) Interest:

Interest income, including interest income from non-derivative financial assets at fair value through profit and loss are recognized in the statement of changes in net assets available for benefits, using the effective interest method.

(b) Pooled investment income:

Income earned within the pooled investment funds is comprised of interest, dividends, realized and unrealized gains and losses from Canadian and foreign sources and is recognized in the statement of changes in net assets available for benefits when earned.





(c) Investment transactions, income recognition and transaction costs (continued):

iii) Transaction costs:

Brokers’ commissions and other transaction costs are recognized in the statement of changes in net assets available for benefits when incurred.

(d) Financial assets and financial liabilities:

i) Non-derivative financial assets:

Financial assets are recognized initially on the trade date, which is the date that the Plan becomes a party to the contractual provisions of the instrument. The Plan derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Plan neither transfers nor retains substantially all the risks and rewards of ownership and does not retain control of the financial asset. On derecognition of a financial asset, the difference between the carrying amount of the asset, and consideration received is recognized in the statement of changes in net assets available for benefits as investment income.

The Plan classifies all of its financial assets at fair value through the statement of changes in net assets available for benefits if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through the statement of changes in net assets available for benefits if the Plan manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Plan’s documented risk management or investment strategy. Upon initial recognition, attributable transaction costs are recognized in the statement of changes in net assets available for benefits as incurred. Financial assets at fair value through the statement of changes in net assets available for benefits are measured at fair value and changes therein are recognized in the statement of changes in net assets available for benefits.

ii) Non-derivative financial liabilities:

All financial liabilities are recognized initially on the trade date at which the Plan becomes a party to the contractual provisions of the instrument.

The Plan derecognizes a financial liability when its contractual obligations are discharged, cancelled or expired.

Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Plan has a legal right to offset the amounts and it intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

The Plan considers its accounts payable and accrued liabilities to be a non-derivative financial liability.

(e) Fair value measurement:

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.

In determining fair value, the Plan follows the guidance in IFRS 13 - Fair Value Measurement (“IFRS 13”), in Part I of the CPA Canada Handbook. As allowed under IFRS 13, if an asset or a liability measured at fair value has a bid and an ask price, the price within the bid-ask spread that is the most representative of fair value in the circumstances


(e) Fair value measurement (continued):

shall be used to measure fair value. The Plan uses closing market price as a practical expedient for fair value measurement.

When available, the Plan measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.

If a market for a financial instrument is not active, then the Plan establishes fair value using valuation techniques. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When the transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in the statement of changes in net assets available for benefits on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.

All changes in fair value, other than interest and dividend income, are recognized in the statement of changes in net assets available for benefits as part of the change in net unrealized gains.

Fair values of the pooled fund investments are determined at the unit values supplied by the pooled fund administrator, which represent the fund’s proportionate share of underlying net assets at fair values determined using closing market prices.

(f ) Income taxes:

The Plan is a registered pension plan as defined by the Income Tax Act (Canada) (“ITA”), accordingly, is not subject to income taxes.

4. Investments:

The following table summarizes investments as at December 31:

2017 2016 Global Equity Fund $ 20,966,942 $ 18,273,349Long-term Bond Fund 18,884,033 16,336,426Canadian Equity Fund 12,612,100 10,508,668Real Estate Property Fund 5,726,009 2,006,400Real Estate Fund 591,878 3,119,401Money Market Fund 3,832 3,806

$ 58,784,794 $ 50,248,050

Investments consist of mutual funds that are managed by third parties. The fund administrator is Sun Life Company. The fund name, manager and summary of each of the funds’ investment objectives and composition is as follows:





Global Equity Fund (Hexavest World Segregated Fund)

Manager - Hexavest Inc.

The fund’s investment objective is to provide a broadly diversified portfolio that invests primarily in equities of companies located in developed markets around the world. The fund conforms to a long-term investment horizon. The asset mix of the underlying fund consists of approximately 51% of North American equities (2016 - 50%), 40% of International equities (2016 - 49%) and 9 % of cash and cash equivalents (2016 - 1%).

Long‑Term Bond Fund (TDAM Canadian Long Bond Index Segregated Fund)

Manager - TD Asset Management Inc.

The fund’s investment objective is to provide performance similar to the performance of the FTSE TMX Canada Long Bond Index. The fund intends to achieve its objective by investing primarily in Canadian issued bonds and debentures that are selected and weighted mathematically to approximate the overall risk and return characteristics of the FTSE TMX Canada Long Bond Index. A large portion of the fund is invested in government and corporate bonds of maturity of more than ten years. Investments have a minimum “A” credit rating and are liquid allowing restructuring as expectations and relative values change.

Canadian Equity Fund (CC&L Group Canadian Q Growth Segregated Fund)

Manager - Connor Clark & Lunn Financial Group

The fund’s investment objective is to generate returns equal to or greater than the return of the benchmark S&P/TSX Composite Index plus 2.0% over rolling four-year periods. The focus is on companies within the Canadian equity category with strong fundamental characteristics in sector categories of the benchmark index. The fund’s liquidity strategy aims to align with investors who require regular processing of cash flows.

Real Estate Property Fund (BK Prime Canadian Property L.P. Segregated Fund)

Manager - BKC Capital Inc.

The fund’s investment objective is to provide a stable income return with an emphasis on capital preservation and long-term growth that meets or exceeds the Consumer Price Index. The fund invests in a diversified portfolio of properties that are primarily income-producing; office, industrial, retail and multi-family residential properties with strong underlying cash flows located in major Canadian markets. Minimum investment threshold for a single real estate property is $5 million. The fund’s equity investment in a single real estate property is limited to 10% of the fund’s total equity value, while maximum total investment is limited to 10% of the fund’s total assets. Cash and short term investments are normally less than 10% of the market value of the total portfolio.

Real Estate Fund (Bentall Kennedy Canadian Real Estate Plus Segregated Fund)

Manager - BKC Capital Inc.

The fund’s investment objective is to provide strong stable income returns, combined with value appreciation potential through investments in a diversified mix of office, industrial, retail, multi-family residential, land and other income producing properties located in Canada. The fund’s investment strategy is to invest up to 80% of its assets (targeted minimum 70%) in the Bentall Kennedy Prime Canadian Property Fund Limited Partnership. In addition, the fund invests 20% - 30% of its assets in cash and/or publicly-traded Canadian Real Estate Investment Trusts, through the use of (an) exchange traded fund(s). This ensures greater liquidity available for investors.


Money Market Fund (Sun Life Financial Money Market Segregated Fund)

Manager - Sun Life Global Investments (Canada) Inc.

The fund’s investment objective is to provide investors with a modest level of income, while preserving principal. The Money Market Fund’s investment strategy is to invest in low-risk short-term money market investments, such as cash, treasury bills, banker’s acceptances, short-term corporate paper issued by Canadian companies and certificates of deposits. The fund may also invest up to 10% of the assets in Canadian dollar-denominated money market instruments of foreign issuers. The fund’s dollar-weighted average term to maturity does not exceed 90 days, and each debt security’s remaining term to maturity is 365 days or less.

5. Accrued pension liability:

An actuarial valuation of the Plan was carried out as at December 31, 2015 by the Plan’s actuarial consultants, Aon Hewitt, and was extrapolated to December 31, 2017. The pension liabilities were determined using the projected accrued benefit cost method prorated on service.

The assumptions used in the extrapolation were developed as the best estimate of expected future market conditions and other future events. After consultation with the Plan’s actuary, the Board of Governors adopted this best estimate.

The major assumptions used in the extrapolation are as follows:

2017 Extrapolation applied to 2015 Valuation data

2016 Extrapolation applied to 2015 Valuation data

Investment return (discount rate) 6.0% 6.0%Asset real rate of return 3.75% 3.75%Inflation 2.25% 2.25%Interest credited on employee contributions 2.50% 2.50%Salary increases 3.5% 3.5%Indexing of annual pensions 60% of inflation 60% of inflationIncrease in the year's maximum pensionable

earnings (YMPE) 2.75% 2.75%

Mortality 90% of CPM2014 Public with generational improvements

using scale CPMB2D2014 (sex-distinct rates)

90% of CPM2014 Public with generational improvements


Deferred Pension take up 40.0% 40.0%Settlement assumptions for commuted value

transfers*3.4% per year discount

CPM2014 Combined with generational improvement


3.5% per year discount CPM2014 Combined with

generational improvement using scale CPMB2D2014

(sex-distinct rates)Pension Partner at Retirement 80.0% 80.0%Retirement 100 % at age 60 100 % at age 60ITA maximum pension:

2014 $ 2,7702015 2,8192016 2,8902017 2,9142018 2,944Subsequent years 1/9 the money purchase limit




5. Accrued pension liability (continued):

The investment return is net of all investment and administrative expenses.

*Changes in assumptions for the year ended December 31, 2017 from the year ended December 31, 2016.

The next actuarial valuation is required to be completed as at December 31, 2018.

The changes in actuarial assumptions for the years ended December 31 resulted in the following losses to the accrued pension liability:

2017 2016Discount rate for commuted value transfers $ (643,263) $ (1,447,827)Interest on member contributions - 212,766

$ (643,263) $ (1,235,061)

The Plan’s future experience will inevitably differ, perhaps significantly, from these assumptions. Any differences between the actuarial assumptions and future experience will emerge as gains or losses in future valuations and may materially affect the financial position of the Plan. The following sensitivity analysis demonstrates the effects of changes in assumptions on the actuarial liability.

Current actuarial

assumptions

Accrued pension liability as at

December 31, 2017

Adjusted actuarial

assumptions

Adjusted accrued pension liability as at

December 31, 2017Percentage

change

Investment return 6.0% $ 62,007,174 5.5% $ 65,651,798 5.88%

6.5% 58,780,175 (5.20)%

Salary increases 3.5% 62,007,174 3.0% 61,444,056 (0.91)%

4.0% 62,462,884 0.73%

Inflation rate 2.25% 62,007,174 1.75% 59,577,586 (3.92)%

2.75% 64,602,186 4.19%

Increase in YMPE and 2.75% 62,007,174 2.25% 57,980,501 (6.49)%

ITA limit rate 3.25% 65,842,532 6.19%

Proportion for 40.0% 62,007,174 30.0% 64,174,791 3.50%

pension take-up 50.0% 59,839,556 (3.50)%

6. Investment income:

2017 2016Interest income $ 5,050 $ 4,830Pooled investment income:

Global Equity Fund 1,434,974 1,496,484Canadian Equity Fund 1,230,189 1,510,220Long-Term Bond Fund 1,207,048 258,082Real Estate Property Fund 219,609 6,400Real Estate Fund 70,093 156,388Money Market Fund 30 4,236

$ 4,166,993 $ 3,436,640

7. Benefit payments and transfers:

2017 2016Termination benefit payments $ 4,151,467 $ 2,561,617Retirement benefit payments 392,723 735,072Death benefit payments 27,643 203,843Transfer to other pension funds 2,600 769,468

$ 4,574,433 $ 4,270,000

8. Administrative expenses:

2017 2016Agency and administration fees (note 9) $ 679,396 $ 677,368Investment management fees 166,424 171,537Consulting 100,786 89,706Actuary fees 54,629 173,529Board of Governors 21,106 16,541Audit fees 20,057 23,005Insurance 12,500 12,500Memberships and administration 11,401 4,001Travel expenses 7,213 4,602Pension administration fees 6,551 11,715Pension filing fee 4,609 5,454

$ 1,084,672 $ 1,189,958




9. Related party transactions:

The Plan’s Board of Governors consists of five members, who are appointed by the Board of Directors of AUMA.

Alberta Municipal Services Corporation (“AMSC”) and AMSC Insurance Services Ltd. (“AMSCIS”) are under common management with APEX and are therefore related parties.

These transactions are measured at the exchange amount, which is the value agreed upon by both parties, and are in the normal course of operations.

The following balances with the related parties are outstanding as at December 31:

2017 2016AUMA

Accounts receivable (payable) $ 22,727 $ (44,693)AMSC

Accounts payable - 4,513

The following transactions with related parties occurred during the year ended December 31:

2017 2016AUMA

Agency and administration fees $ 679,396 $ 677,368Pension contribution: Employer portion 97,126 86,521 Employee portion 72,972 72,099

170,098 158,620

10. Capital risk management:

The main objective of the Plan is to provide Plan members with supplemental retirement benefits. To achieve this objective and meet the pension obligations of the Plan, it must sustain a certain level of net assets.

The Plan seeks to fulfil its pension obligations by adhering to a funding policy which guides the actions of the Board of Governors based on the Plan’s funding level. To ensure that the assets of the Plan are prudently invested, the Board of Governors also endeavours to economically design an investment structure whereby its assets are allocated to optimize the risk/reward relationship of the excess return over going concern liabilities. This investment structure is reflected in the Plan’s Statement of Investment Policy and Goals (the “SIP&G”) which is reviewed annually by the Plan’s Board of Governors.

The Plan is required to file audited financial statements with the Government of Alberta, Ministry of Finance within 180 days after the Plan year end.

11. Financial instruments:

(a) Fair value:

The fair values of investments are determined as described in note 3(e). The fair values of other financial assets and liabilities, such as cash, accounts receivable, contributions receivable and accounts payable and accrued liabilities approximate their carrying values due to the short-term nature of these financial instruments.

11. Financial instruments (continued):

(a) Fair value: (continued):

Fair value measurements recognized in the statement of net assets available for benefits are categorized using a fair value hierarchy that reflects the significance of inputs used in determining the fair values.

• Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities;

• Level 2 - inputs other than quoted prices in Level 1 that are observable for the assets or liabilities, either directly or indirectly; and

• Level 3 - inputs for assets and liabilities that are not based on observable market data.

Investments are classified within Level 2 of the fair value hierarchy. There were no transfers of assets between levels in the current or prior year.

(b) Associated risks:

i) Market price risk:

Market price risk is the risk that the value of an instrument will fluctuate as a result of changes in market prices, whether caused by factors specific to an individual investment, its issue or all other factors affecting all instruments traded in the market. As all of the Plan’s financial instruments are carried at fair value with fair value changes recognized in the statement of changes in net assets available for benefits, all changes in market conditions will directly affect the change in net assets available for benefits. Market price risk is managed through construction of a diversified portfolio of instruments traded on various markets and across various industries. The Plan does not use derivative instruments to alter the effects of market risk.

The Plan’s investments in equity funds are sensitive to market fluctuations. A $1 change in the unit price of the equity funds would change the fair value by $1,447,002 (December 31, 2016 - $1,351,687).

There has been no change to market price risk from the prior year.

ii) Liquidity risk

Liquidity risk is the risk that the Plan will not be able to meet its obligations as they become due. The Plan maintains an investment policy, which contains asset mix guidelines which help to ensure the Plan is able to liquidate investments to meet its pension benefit or other obligations. The investments are held in pooled funds and the underlying debt and equity instruments are in liquid securities traded in public

2 0 1 7 A n n u a l R e p o r t > 1 0 1

FinancialsAPEX SUPPLEMENTARY PENSION PLAN (APEX) Notes to the Financial Statements Year Ended December 31, 2017, with comparative information for 2016

1 0 0 > A n n u a l R e p o r t 2 0 1 7

11. Financial instruments (continued):

(b) Associated risks (continued):

ii) Liquidity risk (continued):

markets. Although market events could lead to some investments becoming illiquid and affecting the unit values of the funds, the diversity of the Plan’s portfolios should ensure that liquidity is available for benefit payments. The Plan also maintains cash for liquidity purposes and to pay accounts payable and accrued liabilities.

Accounts payable and accrued liabilities totaling $2,040 as at December 31, 2017 (December 31, 2016 - $91,346) are due within 30 days or less. The Plan has cash as at December 31, 2017 in the amount of $147,409 (December 31, 2016 - $550,468).

There has been no change to liquidity risk from the prior year.

iii) Foreign currency risk:

Foreign currency risk is the risk that fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency rates. Consequently, the Plan is exposed to risks that the exchange rate of the foreign currency may change in a manner that has an adverse effect on the value of the portion of the Plan’s assets or liabilities denominated in currencies other than the Canadian dollar. The Plan’s overall currency positions and exposures are monitored on a regular basis.

There has been no change to foreign currency risk from the prior year

iv) Credit risk:

Credit risk is the risk than an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Plan. The underlying equity investments of the Canadian and Global Equity Funds are exchange traded, which reduces credit risk as counterparties are backed by an exchange clearing house. The underlying fixed income investments of the Plan’s Long-term Bond Fund are primarily Canadian-issued instruments and are diversified among Government 74% (2016 - 75%) and Corporate 26% (2016 - 25%). The underlying properties of the Plan’s Real Estate Fund are diversified by location and tenant-type; as well, investment in a single property is limited to 10% of overall holdings. In order to minimize the exposure to credit risk, a comprehensive investment policy has been developed. There were no significant concentrations of credit risk in the portfolios in either 2017 or 2016. The maximum credit risk exposure as at December 31, 2017 is $777,142 (December 31, 2016 - $657,985) and is comprised of contributions receivable and accounts receivable.

There has beeen no change to credit risk from the prior year.

v) Interest rate risk:

Interest rate risk is the risk that the market value of the Plan’s investments will fluctuate due to changes in market interest rates. To properly manage the Plan’s interest rate risk, appropriate guidelines on duration for the Long-term Bond Fund are set and monitored. The Plan’s investment in the Long-term Bond Fund is sensitive to interest rate movements. An immediate hypothetical 100 basis point or 1% increase in interest rates, with all other variables held constant, would impact fixed income investments by an estimated loss of $2,813,721 (2016 - $2,385,118).

There has been no change to interest rate risk from the prior year.

Alberta Urban Municipalities Association

Alberta Municipal Services Corporation

300 - 8616 51 Avenue Edmonton, Alberta • T6E 6E6

780.433.4431 • 310.AUMA

auma.ca

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