Promutuel Assurance | Assureur de dommages au Québec€¦ · members a sound, prudent and...

Financial Report

For the respect of our mutualistic values

G o v e r n a n c e

Our Mutual Association firmly believes that the respect of its mutualistic values necessarily involves the stringent application of the best governance practices. Therefore, everything is done to establish a structure and a rigorous supervision so as to determine its principles and ensure their maintenance.

By giving ourselves the best practices in governance, in regulatory compliance and in risk management, we guarantee our insured members a sound, prudent and efficient management of our operations. To do so, we created a Governance Program that outlines the established policies and processes which govern our ways of doing business and our ways of being.

Roles and responsibilities of the executive officers

Our administrators and executive officers must act with integrity, fairness and ethics. They must possess and develop the skills necessary to fill the roles, responsibilities and duties vested in them.

Enterprise Risk Management

Risk management is an integral part of our organizational culture. It is a continuous, proactive and dynamic management approach that allows us to effectively assess risks and to develop action plans to reduce them.

Internal controls, independent oversight and auditing of operations

Our internal controls are efficient and effective. Specifically, these are based on reports from risk management and regulatory compliance officers and any other reports produced for the Board of Directors.

Furthermore, the assessment of our internal controls is reliant on various independent oversight functions, specifically that of the external auditor.

Finally, an audit committee is formed within the Board of Directors to ensure that financial and non-financial information is reliable and adequately presented.

Ethics and deontology

Under the responsibility of the ethics committee, formed within the Board of Directors, our Mutual Association must implement a code of ethics and deontology. In particular, this code covers potential conflicts of interests as well as perceived conflict of interests. This committee assesses the board of directors’ integrity and collective competence annually.

Evaluating the effectiveness of the governance

To maintain a governance that meets the realities of the market in which the Mutual Association operates, we proceed with the periodic update of our Governance Program as recommended by the Governance Committee of the Federation.

PROMUTUEL LA VALLÉE, SOCIÉTÉ MUTUELLE D’ASSURANCE GÉNÉRALE / PROMUTUEL INSURANCE VALLEY MUTUAL 1

Management Report 2 Independant Auditor’s Report 3 Appointed Actuary’s Report 5 Financial Statements

Income and Comprehensive Income 6 Changes in Equity 7 Cash Flows Statement 8 Balance Sheet 9 Notes to Financial Statements 11 Glossary of Financial Terms 38

Directors On December 31, 2018, the 10 638 members of Promutuel La Vallée are represented on the Board of Directors by: Denis Larivière*, President Campbell’s Bay/Litchfield John Evans**, First Vice-President Waltham Ronald Strutt°, Second Vice-President Clarendon and President of Ethics Committee William Hobbs° Shawville Ron Hodgins* **, Clarendon President of Audit Committee Chris Judd* Shawville Ralph Lang° Clarendon Roy Perrault Sheenboro Ed Rusenstrom* ** Bristol * Member of the Investment and Placement Committee ** Member of the Audit Committee ° Member of the Ethics and Governance Committee

Summary

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Management Report

General Manager,

François Chartier

Shawville, February 25th, 2019

2 2018 ANNUAL REPORT

The actuary is required to provide an opinion on theappropriateness of the policy liabilities at the balancesheet date to meet all policyholder obligations. Thework to form that opinion includes an examination ofsufficiency and reliaility of policy data and an analysisof the ability of the assets to support the policyliabilities.

The actuary is required each year to analyze thefinancial condition of the Company and prepare areport for the Board of Directors. The analysis teststhe capital adequacy of the Company until December31, 2018 under economic and business conditions.

The financial statements have been examined by theAudit Committee and approved by the Board ofDirectors. Moreover, reports from the auditor and theactuary appear on the next pages.

The actuary is appointed by the Board of Directorspursuant to An Act respecting insurance (Quebec).The actuary is responsible for ensuring that theassumptions and methods for the valuation of policyliabilities are in accordance with accepted actuarialpractice in Canada, applicable legislation andassociated regulations and directives.

The Audit Committee is formed of members of theBoard of Directors of the Company, excludingemployees of the Company. The committee hasregular meetings with the auditor and management inorder to discuss their respective roles and thepresentation of the financial report.

The Company maintains an accounting system andappropriate controls within reasonable costs. Themethods used ensure within reason, properbookkeeping, accurate information and the protectionof the assets of the Company.

The auditor is appointed under An Act respectinginsurance (Quebec). His responsibility is to report tothe members, to the directors and to the Autorité desmarchés financiers as to the accuracy of thepresentation of the financial statements of theCompany in accordance with International FinancialReporting Standards. The auditor fulfils his duty byexamining the financial statements according toCanadian generally accepted auditing standards.

The management of the Company assures themembers that the financial statements and all otherinformation contained in this report are fairlyrepresented. These financial statements have beendrawn up according to International FinancialReporting Standards.

PROMUTUEL LA VALLÉE, SOCIÉTÉ MUTUELLE D’ASSURANCE GÉNÉRALE PROMUTUEL INSURANCE VALLEY MUTUAL 3

3PROMUTUEL LA VALLÉE, SOCIÉTÉ MUTUELLE D'ASSURANCE GÉNÉRALE / PROMUTUEL INSURANCE VALLEY MUTUAL

Independent Auditor's Report

Responsibilities of Management and Those Charged With Governance for the Financial Statements

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

In preparing the financial statements, management is responsible for assessing the Company's ability to continueas a going concern, disclosing, as applicable, matters related to going concern and using the going concern basisof accounting unless management either intends to liquidate the Company or to cease operations, or has norealistic alternative but to do so.

To the members of Promutuel La Vallée, société mutuelle d'assurance générale

Opinion

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial positionof the Company as at December 31, 2018, and its financial performance and its cash flows for the year thenended in accordance with International Financial Reporting Standards (IFRS).

Basis for Opinion

Auditor's Responsibilities for the Audit of the Financial Statements

We have audited the financial statements of Promutuel La Vallée, société mutuelle d’assurance générale (the"Company"), which comprise the balance sheet as at December 31, 2018, and the statement of income andcomprehensive income, statement of changes in equity and statement of cash flows for the year ended, and notesto the financial statements, including a summary of significant accounting policies.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilitiesunder those standards are further described in the Auditor's Responsibilities for the Audit of the FinancialStatements section of our report. We are independent of the Company in accordance with the ethicalrequirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our otherethical responsibilities in accordance with these requirements. We believe that the audit evidence we haveobtained is sufficient and appropriate to provide a basis for our opinion.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are freefrom material misstatement, whether due to fraud or error, and to issue an auditor's report that includes ouropinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted inaccordance with Canadian generally accepted auditing standards will always detect a material misstatement whenit exists. Misstatements can arise from fraud or error and are considered material if, individually or in theaggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis ofthese financial statements.

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2018 ANNUAL REPORT

Conclude on the appropriateness of management's use of the going concern basis of accounting and, basedon the audit evidence obtained, whether a material uncertainty exists related to events or conditions that maycast significant doubt on the Company's ability to continue as a going concern. If we conclude that a materialuncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in thefinancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are basedon the audit evidence obtained up to the date of our auditor's report. However, future events or conditions maycause the Company to cease to continue as a going concern.

4

Normand Morin, CPA Auditeur, CA, FPAA

2000, boulevard LebourgneufQuébec (Québec) G2K 0B6

Quebec, February 25th, 2019

Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,and whether the financial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scope andtiming of the audit and significant audit findings, including any significant deficiencies in internal control that weidentify during our audit.

Independent Auditor's Report

Vice-Presidency, Auditing,

Groupe Promutuel Fédération de sociétés mutuelles d'assurance générale

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.

Identify and assess the risks of material misstatement of the financial statements, whether due to fraud orerror, design and perform audit procedures responsive to those risks, and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCompany's internal control.

As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professionaljudgment and maintain professional skepticism throughout the audit. We also:


Appointed Actuary's Report

Frederic Matte, FICAGroupe Promutuel Fédération de sociétés mutuelles d'assurance générale

Québec, February 25th, 2019

PROMUTUEL LA VALLÉE, SOCIÉTÉ MUTUELLE D'ASSURANCE GÉNÉRALE / PROMUTUEL INSURANCE VALLEY MUTUAL 5

To the members of Promutuel La Vallée, société mutuelle d'assurance générale

In my opinion, the amount of policy liabilities makes appropriate provision for all policy obligations and the financialstatements fairly present the results of the valuation.

I have valued the policy liabilities of Promutuel La Vallée, société mutuelle d'assurance générale for its balancesheet as at December 31, 2018 and their change in the statement of income for the year then ended in accordancewith accepted actuarial practice in Canada, including selection of appropriate assumptions and methods.

I am satisfied that the data utilized for the valuation of these liabilities are reliable and sufficient. I verified theconsistency of the valuation data with the insurer financial records.

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Income and Comprehensive IncomeFor the year ended December 31,in thousands of Canadian dollars, except as otherwise noted

INCOME STATEMENT 2018 2017

INCOMEWritten premiums 16 798 $ 15 861 $Decrease (increase) of gross unearned premiums (531) (353)

Gross premiums earned 16 267 15 508Ceded to reinsurer 3 543 3 692

Net premiums earned 12 724 11 816

COST OF LOSSESIndemnities and inherent fees 12 864 9 556Recovery from the reinsurer 3 999 1 580

Net losses 8 865 7 976

CHARGESOperating 4 582 4 602Premium tax 566 540Reinsurance commissions income (916) (873)Other incomes related to transaction costs (7)

Total of net costs 4 225 4 269

INSURANCE EARNINGS (366) (429)Net investment income (Note 6) 400 630Interest revenues (expenses) on pension plans financing (37) (25)Other charges (Note 7) (191) (304)

EARNINGS BEFORE INCOME TAXES (194) (128)Income taxes (Note 9) 26 (13)

NET INCOME (220) $ (115) $

COMPREHENSIVE INCOME STATEMENT

NET INCOME (220) $ (115) $

OTHER COMPREHENSIVE INCOMEItems that will be reclassified subsequently to net income

Unrealized gains (losses) on available for sale financial assets, net of income taxes (2) (64)Reclassification in the net income of the year, realized losses (gains) on available

for sale financial assets, net of income taxes (15) (37)

(17) (101)

Items that will not be reclassified subsequently to net incomeActuarial gains (losses) on pension plans, net of income taxes 121 (201)

Total of other comprehensive income 104 (302)

COMPREHENSIVE INCOME (116) $ (417) $



Changes in EquityFor the year ended December 31,in thousands of Canadian dollars, except as otherwise noted

BALANCE ON DECEMBER 31, 2016 $ 2 228 $ 4 549 $ 150 $ (919) $ 6 008 $

Comprehensive income (115) (101) (201) (417)

Redemption of preferred shares (176) (176)

Interest on preferred shares (107) (107)

Allocation to the reserve 440 (440)

BALANCE ON DECEMBER 31, 2017 440 $ 2 052 $ 3 887 $ 49 $ (1 120) $ 5 308 $

Comprehensive income (220) (17) 121 (116)

Interest on preferred shares (80) (80)

Allocation to the reserve 14 (14)

BALANCE ON DECEMBER 31, 2018 454 $ 2 052 $ 3 573 $ 32 $ (999) $ 5 112 $


Contingency reserve

Accumulated other comprehensive income

Gains (losses) on investments available for

sale

Retained earnings

Preferred shares

TotalActuarial gains

(losses) on

pension plans

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Cash Flows StatementFor the year ended December 31,in thousands of Canadian dollars, except as otherwise noted

2018 2017 OPERATING ACTIVITIESNet income (220) $ (115) $Non cash items

Depreciation of tangible capital assets 73 79Depreciation of intangible assets 191 304Losses (gains) on investments (19) (46)Losses (gains) on disposal of tangible capital assets 39Pension plans charges 243 207Deferred income taxes 26 (47)Capitalized income on investment (5) (236)

289 185

Current income taxes on the other accumulated comprehensive income 4 23Reduction (increase) of other operational assets and liabilities

Operational debtors (1 004) (99)Current income taxes receivable 42 (29)Other asset items, excluding pension plans assets (1 003) 198Provisions 1 961 566Operational creditors (311) (103)Payable income tax liabilities 69 (18)Contributions to pension plans (124) (135)

(77) 588

INVESTING ACTIVITIESAcquisitions

Investments (732) (1 026)Tangible capital assets (36) (86)

DispositionsInvestments 962 714Tangible capital assets 15

194 (383)

FINANCING ACTIVITIESRepayment of the loan (39)Repayment of preferred shares (176)Interest on preferred shares (80) (107)Reimbursement of partnership shares (21)

(101) (322)

Increase (decrease) in cash and cash equivalents 16 (117)Cash and cash equivalents, beginning of year 453 570

CASH AND CASH EQUIVALENTS, END OF YEAR 469 $ 453 $



Balance SheetAs at December 31, in thousands of Canadian dollars, except as otherwise noted

ASSET 2018 2017

LIQUIDITIES AND INVESTMENTSCash and cash equivalents 469 $ 453 $Investments (Note 12) 9 053 9 281

9 522 9 734

PREMIUMS RECEIVABLE AND OTHER DEBTORSInvestment income 21 19Premiums receivable (Note 14) 5 781 5 424Reinsurer 753 128Groupe Promutuel Fédération de sociétés mutuelles d'assurance générale 22 7Other debtors 16 11

6 593 5 589

CURRENT INCOME TAX ASSETS 53 95

OTHER ASSETSShare of the reinsurer in the provisions of:

Claims being settled (Note 18) 2 258 1 060Unearned premiums (Note 19) 1 130 1 355

Deferred charges (Note 15) 321 291Pension plan assets (Note 8) 12

3 721 2 706

DEFERRED INCOME TAX (Note 9) 380 465

TANGIBLE CAPITAL ASSETS (Note 16) 906 943

INTANGIBLE ASSETS (Note 17) 191

21 175 $ 19 723 $

Commitments and contingencies (Note 28)

FOR THE BOARD OF DIRECTORS

Denis Larivière, President*

Gary Thompson, Vice-President*


*Denis Larivière and Gary Thomson are respectively Président et Vice-President of Promutuel Insurance Vallée de l’Outaouais,a mutual insurance association created from the merger between Promutuel L’Outaouais and Promutuel La Vallée on January 3, 2019They are signatories to the financial statements.

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Balance SheetAs at December 31, in thousands of Canadian dollars, except as otherwise noted

LIABILITIES 2018 2017

PROVISIONSClaims being settled (Note 18) 4 779 $ 3 361 $Unearned premiums (Note 19) 8 745 8 214Unearned reinsurance commissions (Note 20) 396 384

13 920 11 959

CREDITORSReinsurer 165 440Groupe Promutuel Fédération de sociétés mutuelles d'assurance générale 212 163Accrued expenses and other suppliers (Note 22) 787 872

1 164 1 475

CURRENT INCOME TAX LIABILITIES 117 48

PENSION PLAN LIABILITIES (Note 8) 862 912

PARTNERSHIP SHARES (Note 23) 21

EQUITY

Preferred shares (Note 24) 2 052 2 052Contingency reserve (Note 25) 454 440Retained earnings 3 573 3 887Accumulated other comprehensive income (Note 26) (967) (1 071)

5 112 5 308

21 175 $ 19 723 $



Notes to Financial StatementsFor the year ended December 31, 2018in thousands of Canadian dollars, except as otherwise noted

1 STATUTE AND NATURE OF OPERATIONS

2 SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF PRESENTATION

- - - -

CASH AND CASH EQUIVALENTS

FINANCIAL INSTRUMENTS – FINANCIAL ASSETS AND LIABILITIES

Classification and Designation

BondsInvestments in limited partnerships *Promutuel investment funds *

*

*


The financial statements have been prepared in accordance with International Financial Reporting Standards(IFRS). The accounting policies and the financial information presented are consistent with therecommendations of the International Accounting Standards Board (IASB).

Held at fair value through profit and loss

financial assets available for salefinancial assets at fair value through profit and lossshare of the reinsurer in the provision of claims being settledprovision of claims being settled

The balance sheet is presented on an unordered basis. The elements indicated for each item may include bothcurrent and non-current balances. Where applicable, the distribution of these balances as current and non-current is shown in the corresponding notes.

The financial statements were approved by the Company’s Board of Directors on February 25th, 2019.

Cash and cash equivalents

The significant accounting policies described below have been applied consistently by the Company to allperiods presented in these financial statements, unless otherwise indicated.

Promutuel La Vallée, société mutuelle d'assurance générale (the « Company »), incorporated under the ActRespecting Insurance (Québec), transacts general insurance with its members. These operations are done inCanada only. The head office is located at 34 Victoria Avenue, Box 179, Shawville, (Quebec), J0X 2Y0,Canada.

Available for sale

Available for sale

The Company's financial statements are presented in Canadian dollars. The Canadian dollar is the Company'sfunctional and presentation currency. The financial statements are rounded to the nearest thousand dollars,unless indicated otherwise. They have been prepared on an historic cost basis except for the following assetsand liabilities that have been measured at fair value or in consideration of the time value of money :

Held to maturityFixed term deposits

The Company classifies its financial instruments by category according to their nature, characteristics and theiruse by the Company at the time of initial recognition. On initial recording, all financial instruments must bemeasured at fair value. After initial recording, the valuation of financial instruments depends on theirclassification :

The cash and cash equivalents include the cash items readily available or convertible into cash and that aresubject to an insignificant risk of changes in value. Cash and cash equivalents consist of cash balance.

Financial assets or liabilities

Available for sale

Loans and accounts receivableAvailable for sale

Promutuel Réassurance and Promutuel GuaranteeFund

Other liabilitiesCreditors and partnership sharesDebtors

With regard to the application of the effective date deferral of IFRS 9 "Financial Instruments" (see note 4below) and according to the preliminary analysis, the contractual terms of these financial assets do notgive rise on specified dates to cash flows that are solely payments of principal and interest on theprincipal amount outstanding.

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2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

a) Assets and liabilities held at fair value through profit and loss

b) Assets held to maturity and loans and accounts receivable

c) Assets available for sale

d) Other financial liabilities


The financial instruments with a standard delivery time are recorded according to the settlement date.Transaction costs related to financial assets held at fair value through profit and loss are recorded in theinvestment income to the income. Transaction costs of other financial instruments are included in the bookvalue at initial recognition. Income on investments is calculated using the accrual accounting method and ispresented net of fees. Gains and losses on disposal are calculated using the average cost.

The interest on debt instruments is calculated according to the effective interest method and is included inthe income statement. Dividends on equity instruments are recognized in the income statement as soon asthe Company's right to receive payment is established. The exchange gains or losses on the financialassets classified as assets available for sale are recognized in the other comprehensive income.

At acquisition, the Company classifies its financial instruments in one of the following categories :

At each financial statement date, the Company considers the issuer’s financial difficulties, a bankruptcy ora failure to pay interest or principal as evidence of depreciation. When there is an indication ofdepreciation, a loss provision is made to adjust the book value. This provision is immediately recognized inthe income statement.

When the fair value of a debt instrument classified as available for sale increases over a subsequentperiod, and such increase may objectively be related to an event occurring after the impairment loss isaccounted for in net income, the said loss is reversed and accounted for in income up to the maximumamount of the loss accounted for previously. However, impairment losses accounted for in income for anequity instrument classified as available for sale are not reversed in income, but are recorded in othercomprehensive income.

A loss in value is considered when there is a decrease of the fair value and when there is objectiveevidence of a continued depreciation of this asset. The amount of the loss is equal to the differencebetween the amortized acquisition cost and the current fair value less any loss in value previouslyrecognized.

The Company classifies as assets available for sale the equity instruments that are not quoted in an activemarket and whose fair value cannot be measured reliably. If there is objective evidence of depreciation ofthese assets, the amount of the loss in value is equal to the difference between the book value and thecurrent value of estimated future cash flows determined at the current interest rate for similar assets.

The financial assets and liabilities are carried at fair value on the balance sheet and any change in fairvalue as well as all gains and losses on disposal are recognized in the income statement.

Financial instruments classified as loans and receivables and assets held to maturity are carried atamortized cost according to the effective interest method. Interest calculated according to this method aswell as gains and losses on disposal are recognized in the income statement.

The financial assets classified as available for sale are measured at fair value. Gains and losses arerecognized in other comprehensive income until derecognition or until the assets suffer a loss in value. Atthat time, the cumulative gains or losses in the accumulated other comprehensive income are reclassifiedin the income statement.

Financial instruments classified as other financial liabilities are carried at the amortized cost using theeffective interest rate method. Interest calculated using this method is included in the income statement. Ifthere is a derecognition of the financial instrument, gains and losses are recognized in the incomestatement.



2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)REINSURANCE AND SHARE OF THE REINSURER IN THE PROVISIONS

a) Share of the reinsurer in claims being settled

b) Share of the reinsurer in unearned premiums

DEFERRED CHARGES

TANGIBLE CAPITAL ASSETS

Categorie Method Rate or termBuilding Declining balance 4%Leasehold improvements Straight-line 5 yearsFurniture and equipment Declining balance 20%Computer equipment Declining balance 30%Automobile Declining balance 30%

INTANGIBLE ASSETS

Categorie Method Rate or termClientele Straight-line 5 years policy


The amounts of reinsurance that the Company expects to recover in relation with unpaid claims andsettlement costs are recorded as assets at the same time and according to the principles consistent withthe method used by the Company to determine the related liability.

The reinsurer's share in the unearned premiums is recorded as an asset at the same time and according tothe principles consistent with the method used by the Company to determine the liability for unearnedpremiums.

Tangible capital assets are recorded at the historical cost less the accumulated depreciation and theaccumulated losses in value. The historical cost takes into account all the costs directly attributable to theacquisition.

Land is not amortized. The depreciation of other tangible capital assets is calculated on the significantcomponents that have homogenous useful lives, in order to amortize the initial cost on the estimated usefullives, taking into account the residual value. Depreciation methods as well as rates of terms are shown below.

In the ordinary course of business, the Company uses reinsurance to limit its risk exposure. The cededreinsurance means the transfer of an insurance risk and of the premium to its reinsurer. It shows the balancesrelated to the reinsurance on the basis of gross balance in the balance sheet to indicate the extent of the creditrisk associated with the reinsurance as well as its obligations to policyholders.

The useful life, the depreciation methods and the residual value are reviewed annually taking into account thenature of the assets, the intended use and technological changes. The gains or losses on disposal representthe difference between the proceeds of disposal and the book value. They are presented in the charges in theincome statement.

Deferred charges include agent commissions, premium tax and other expenses directly associated with theacquisition of premiums. These costs are deferred and amortized over the term of the related policies to theextent that they are considered recoverable, after taking into account the claims and inherent expenses as wellas the anticipated investment income. They are amortized on the basis of the premium recognition in theincome statement.

The useful life, the depreciation methods and the residual value are reviewed annually taking into account thenature of the assets, the intended use and technological changes. The gains or losses on disposal representthe difference between the proceeds of disposal and the book value. They are presented in the charges in theincome statement.

The intangible assets are recorded at cost and amortized over their useful lives using the following methodsand rates :

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2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)DEPRECIATION OF LONG-TERM ASSETS

PROVISIONSa) Claims being settled

b) Unearned premiums

c) Unearned reinsurance commissions

PREMIUM DEFICIENCY

OTHER PROVISIONS

INCOME TAXES


When major events or circumstances that may indicate a loss in value occur, the Company re-evaluates thebook value of long-term assets. A loss in value exists when the book value of the asset exceeds itsrecoverable amount. The asset’s recoverable amount is considered the highest value between its fair valueless the sale costs and its useful life value. The amount of any loss in value represents the excess of the netbook value over the recoverable fair value and is charged to the income statement.

The Company accounts for income taxes on comprehensive income according to the asset liability method.The provision for income taxes on comprehensive income includes two components: current income taxes anddeferred income taxes. Current income taxes consist of amounts that should be payable or recoverablefollowing the current year’s operations. Deferred income taxes, calculated on an undiscounted basis, resultfrom changes during the year in the cumulative timing differences between the carrying amount of the assetsand liabilities and their respective tax bases, using the income tax rates in effect or substantively enacted ratesfor the annual periods during which the differences are expected to reverse. A deferred income tax asset isrecorded based on the probability of future use of the income tax advantage. The impact on deferred incometaxes of a change in income tax rates is recognized in net income, except for income tax related to othercomprehensive income, in which case, the impact of a change in income tax rates is recognized in othercomprehensive income.

The Company recognizes a provision when there is an obligation to a third party resulting from a past eventand when it is probable that an outflow of economic resources will be required to settle the obligation and whenthe amount related to this obligation can be estimated reliably. The amount of the provision is the bestestimate of the consideration required to the release of the current obligation, given the risks and uncertaintiesrelated to the obligation. The contingent liabilities are disclosed if the future obligation is probable and theamount relating to that obligation cannot be reasonably estimated.

At each date of financial statements, the Company assesses the adequacy of its provision for unearnedpremiums to cover future costs associated with existing contracts. An assessment is performed to estimate thefuture costs of claims and related net costs of the generated investment income. Any shortfall in the provisionis recorded as a reduction of deferred charges. If the deferred charges are insufficient, the excess isrecognized in the income statement and a provision is recorded as a liability.

Premiums are transferred to the income statement during the term of the contracts according to themonthly expiry method. Unearned premiums represent the non-consumed proportion of the contracts at theend of the period.

Unearned reinsurance commissions are recognized as a liability in accordance with principles consistentwith the method used by the Company to determine the deferred sales charges.

Estimates of individual losses are provided for each reported claim. In addition, provisions are made forclaim expenses, the materialization of reported claims and for claims incurred but not reported, based onpast experience and effective insurance policies. The provision is established according to the Canadianmethod, which is consistent with the practice established by the Canadian Institute of Actuaries (CIA). Asrequired by the standards of practice of the Canadian Institute of Actuaries and the regulatoryrequirements, the provision for claims being settled is presented taking into account the time value ofmoney with a margin for adverse deviations. The necessary estimates are reviewed periodically and themodifications that can be made are reflected in the income statements for the year. Recoveries andrecoveries by subrogation are recognized when it is probable that they will arise.



2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)INCOME TAXES (CONTINUED)

PARTNERSHIP SHARES

EQUITIES

PREMIUMS AND INSURANCE CONTRACTS

GROUPEMENT DES ASSUREURS AUTOMOBILES

EMPLOYEE BENEFITSShort-term benefits

Post-employment benefits


The employees and the Company participate in multi-employer defined benefit pension plans that includeGroupe Promutuel Fédération de sociétés mutuelles d'assurance générale and the mutual company membersof the group. The plans provide pension benefits for its employees and managers determined by the number ofyears of service and average salary by the end of the career. The calculation is performed at each balancesheet date and the individual data on employees are reviewed annually by the appointed actuary.

These are benefits payable within twelve months after the balance sheet date other than termination benefits,such as salaries, commissions, social security contributions and certain bonuses. An expense is recognized inrespect of these short-term benefits for the period during which the services giving rise to such benefits wererendered.

Contracts are classified as insurance contracts when they include at least one significant insurance risk. TheCompany determines the significant risk following the analysis of the characteristics of standard contracts.Contracts that do not meet this definition are classified as investment contracts.

All contracts issued by the Company meet the definition of an insurance contract. Premium income frominsurance contracts and contracts accepted for reinsurance are accounted for when the premiums becomedue. Premiums are allocated to income as contracts reach term according to the monthly expiry method. Theportion of premium income corresponding to the unexpired proportion of contracts at year-end is included inunearned premiums under liabilities.

Car owners who are unable to obtain insurance through the voluntary insurance market are insured throughGroupement des assureurs automobiles (GAA). Insurers may also choose to transfer certain risks to the Risksharing plan (RSP) managed by GAA. Risks associated with GAA insurance policies as well as policiesinsurers transfer to the RSP are shared among damage insurers based on their market share and the volumetransferred to the RSP. The corporation applies the same accounting rules to these policies as it does toinsurance policies established directly for policy holders.

There are uncertainties regarding the interpretation of complex income tax rules that affect the amount as wellas the moment of realization of income taxes on the income. Given this complexity, adjustments to incometaxes already recognized may be required to account for differences between actual income statements andthe provisions made. The amount of these provisions is established by taking into account certain factorsincluding the results of tax audits and differing opinions between the Company and the tax authorities as to therules relating to income tax.

Partnership shares are classified as liabilities because there is a contractual obligation to deliver cash at theholder's option.

Preferred shares are presented at the nominal value at which the shares were issued. Interest on preferredshares is included in the equities in the year the payment is approved by the Board of Directors.

The retained earnings include the income statements of previous years and the current one. The accumulatedother comprehensive income consists of unrealized gains and losses on financial assets available for sale andactuarial gains (losses) on pension plans net of income taxes.

Members’ dividends are included in liabilities and in the income statement in the year in which the payment isapproved by the Board of Directors.

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2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)EMPLOYEE BENEFITS (CONTINUED)

LEASE CONTRACTS

FAIR VALUE MEASUREMENT

OPERATIONS WITH GROUPE PROMUTUEL INSTITUTIONS

3 SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS


Service cost, which includes current and past service costs, is recognized in the income statement. Interestexpense is calculated by applying the discount rate to pension plans liabilities or assets for the period. Thediscount rate is determined in reference to the rates of return of the high quality corporate bonds market.Interest expense is posted in the income statement under interest on financing.

The fair value is the amount at which a financial instrument could be exchanged between knowledgeable,willing parties who are under no compulsion to act. The fair value is established on the basis of bid prices in anactive market. If this is not the case, the fair value is based on market prices prevailing for instruments withsimilar risk profiles or characteristics or on internal or external valuation models that use observable marketdata. Note 32 explains these bases for calculation in greater detail.

Actuarial gains (losses) result from the spread between the actual return and the discount rate of plans overfunded pension plan assets, modifications to the actuarial assumptions used to determine defined benefit planobligations and experience gains or losses on this obligation. All actuarial gains and losses are immediatelyrecognized in the accumulated other comprehensive income.

Defined pension plans assets or liabilities are calculated as the discounted value of the obligation for theseplans net of the fair value of pension plan assets.

Contracts for leasing property that do not expose the Company to virtually all of the risks and rewards inherentto ownership are classified as operating leases. Payments made are expensed on a straight-line basis over theterm of the lease contract under operating expenses.

The Company enters into operations with Groupe Promutuel institutions. These operations are performed inthe ordinary course of business and are measured at the value of exchange established and agreed upon bythe parties. The main operations are presented separately in the financial statements.

The preparation of financial statements in conformity with IFRS requires management to make judgments,estimates and assumptions that can have a significant impact on the reported amounts presented in thefinancial statements. Actual results may differ from the estimates. The estimates and underlying assumptionsare reviewed regularly. Any revisions to accounting estimates are recognized in the year in which estimatesare revised as well as in futures periods affected by these revisions.

The financial statements require management's judgment with respect to the recognition of financialinstruments, the determination of components of fixed assets and the measurement of objective losses.

Significant estimates on the assessment of claims being settled are disclosed in note 18 and thoseconcerning employee benefits are disclosed in note 8.



4 FUTURE CHANGES IN ACCOUNTING STANDARDS

IFRS 9 FINANCIAL INSTRUMENTS

-

-

IFRS 16 LEASES

IFRS 17 INSURANCE CONTRACTS


The provisions of this new standard will apply retrospectively and, if impracticable, using the modifiedretrospective approach or the fair value approach to financial statements beginning on or after January 1,2021. Early adoption is permitted, subject to certain restrictions. The company has initiated a project toimplement IFRS 17. The Company is currently evaluating the impact of this standard on its financialstatements and does not anticipate its application in the future.

In May 2017, the IASB issued IFRS 17 "Insurance Contracts". This new standard replaces the provisions ofIFRS 4 "Insurance Contracts". The objective of this standard is to ensure that the entity provides relevant andrepresentative information about the contracts; establishes the principles of recognition, evaluation,presentation and disclosure. IFRS 17 provides a general model for the recognition of insurance contracts, aswell as a simplified model (premium allocation approach) for short-term contracts, which will be applicable tomost property and casualty insurance contracts.

In November 2018, the IASB voted to propose a one-year deferral of IFRS 17 "Insurance Contracts" forfinancial statements beginning on or after January 1, 2022; the carry forward is not approved yet.

The IASB has issued new standards, and the application of these will be mandatory in future years. Many ofthese new standards will have no impact on the Company’s financial statements and will not be discussedhere. The following are the principal standards issued but not yet effective that could affect the financialstatements :

the deferral approach is an optional temporary exemption from applying IFRS 9 until January 1, 2021 forentities whose predominant activity is issuing contracts within the scope of IFRS 4;

the overlay approach allows entities to adopt IFRS 9 by adjusting some of the effects of this standard ondesignated financial assets. These designated financial assets are related to insurance contract liabilities.

The Company adopted the provisions of this amendment to financial statements beginning on January 1,2018. The Company has analyzed this amendment and has met the qualifying criteria for the deferralapproach; it opted for this exemption. The Company concluded that its activities are predominantly connectedwith insurance; the carrying amount of liabilities arising from contracts within the scope of IFRS 4 is greaterthan 80 per cent and the insurer does not engage in a significant activity unconnected with insurance.Accordingly, IFRS 9 will be effective upon the adoption of IFRS 17 "Insurance contracts" (see below).

In July 2014, the IASB issued IFRS 9 "Financial Instruments". The new standard requires financial assets to bemeasured at amortized cost or fair value based on the entity's economic model for the management of itsassets. The standard also contains changes to the recognition of financial liabilities, recognition of expectedcredit losses and hedge accounting.

In September 2016, the IASB issued an amendment to IFRS 4 "Insurance Contracts" entitled "Applying IFRS 9Financial Instruments and IFRS 4 Insurance Contracts". This amendment provides two options to entitiesapplying IFRS 4 :

In January 2016, the IASB issued IFRS 16 "Leases". This new standard permits the lessee to recognize mostleases on the balance sheet in a single model. The accounting treatment applied by the lessor remainsessentially the same. IFRS 16 will apply entirely retrospectively or using a modified retrospective approach tothe financial statements beginning on or after January 1, 2019. Earlier adoption is permitted only for entitiesthat also apply IFRS 15 "Revenue from contracts entered into with customers ". The company will not applythis standard earlier. The company plans to apply the new standard using the modified retrospective approach.As at January 1, 2019, the expected impact of the first application of the standard on the Company's financialstatements is the recognition of a right-of-use asset and the recognition of a lease obligation estimated at $ 68.

In November 2018, the IASB voted to propose a one-year deferral of this standard for financial statementsbeginning on or after January 1, 2022; the carry forward is not approved yet. The Company is currentlyevaluating the impact of this standard on its financial statements.

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5 TOTAL INCOME2018 2017

Net premiums earned 12 724 $ 11 816 $Reinsurance commissions income 916 873Other incomes related to transaction costs 7Investment income 400 630Total income 14 047 $ 13 319 $

6 NET INVESTMENT INCOME

At fair value Loans,through Held accountsprofit or to Available receivable

loss maturity for sale and others TotalInterest income 12 $ 8 $ 51 $ $ 71 $Premium financing income 315 315Total of interest income 12 8 51 315 386Fees (5) (5)Total net investment income 12 8 46 315 381Unrealized gains (losses) on investments 19 19

12 $ 8 $ 65 $ 315 $ 400 $

At fair value Loans,through Held accountsprofit or to Available receivable

loss maturity for sale and others TotalInterest income 9 $ 8 $ 113 $ $ 130 $Premium financing income 277 277Total interest income 9 8 113 277 407Dividends 17 17Other income 169 169Fees (3) (3)Investment charges (6) (6)Total net investment income 9 8 290 277 584Gains (losses) on disposal of investments 46 46

9 $ 8 $ 336 $ 277 $ 630 $

7 OTHER CHARGES2018 2017

Depreciation of the clientele 191 $ 304 $

8 PENSION PLANS


For the year ended December 31, 2018


The plans are end of career plans based on the average of the best five years of salary. These plans are notindexed.

The employees and the Company participate in multi-employer defined benefit pension plans that includeGroupe Promutuel Fédération de sociétés mutuelles d'assurance générale and the mutual company membersof the group. The plans set up by the mutual are made up of a plan for the employees and a plan for themanaging directors. Employee and employer contributions are paid into the plans. These plans areadministered by retirement committees composed of representatives for the employers, employees andretirees. The retirement committees are charged with the administration of the plans and the establishment ofthe investment strategy.



8 PENSION PLANS (CONTINUED)

The pension plan expense is as follows :2018 2017

Income statementCurrent service cost (employer) 206 $ 183 $Past service cost (employer) (1)Plan administration fees 12 14Net interest on plans financing 37 25Expenses in income statement 255 221

Accumulated Other Comprehensive IncomeReturn of assets, excluding amounts included in net interest on plans financing 319 (348)Actuarial losses (gains) resulting from changes in assumptions

- financial (532) 595 - others 32

Losses (gains) in accumulated other comprehensive income (181) 247

Losses (gains) for the period in the other comprehensive income 74 $ 468 $

Reconciliation Defined benefit plan assetFair value of plans assets at beginning of period 5 883 $ 5 214 $Actual return of plans assets (117) 558Employer contributions 124 135Employee contributions 124 132Benefits paid and settlements (272) (192)Plans transfers 36Fair value of plans assets at end of period 5 742 $ 5 883 $

Defined benefit plan obligationDefined benefit obligation at beginning of period 6 795 $ 5 807 $Service cost for employer (current and past) 206 182Financial cost 239 235Actuarial losses (gains) on changes in assumptions (500) 595Employee contributions 124 132Benefits paid and settlements (272) (192)Plans transfers 36Fair value of defined benefit obligation 6 592 $ 6 795 $

Pension plan assets (liabilities) (850) $ (912) $

Presented in the balance sheet as follow :Pension plan assets 12 $ $Pension plan liabilities (862) $ (912) $

An independent actuary analyzes the individual data on plans members. The actuary determines the minimumcontribution level according to the results of his examination. The employer must erase any plans deficit withina period of five to fifteen years according to the type of deficit.

The Company measures its defined benefit obligations for the current year based on the December 31, 2017actuarials valuations. The next valuations must be carried out as at December 31, 2020.

These pension plans are defined benefit plans and represent the plans in which the Company participates andfor which it formally commits on a level of benefits and assumes the actuarial risk and the investment risk.Since the plans operating methods allow the future evolution of salaries to have an impact on the amount offuture benefits, the cost of the benefits and the fair value of the defined benefit plans obligation is generallydetermined using actuarial calculations according to the projected unit credit method. These calculations aremade according to the most probable assumptions primarily concerning the expected return of plansinvestments and the discount rate of the plans obligations, but also, to a lesser degree, salary increases, theretirement age of employees and the mortality rate. Plan administration fees are payable directly by theemployers. The plan asset management fee is payable directly by the pension plans.

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8 PENSION PLAN (CONTINUED)

Plans assets are composed of the following items :2018 2017

Investments quoted in active marketsEquity 2 757 $ 2 822 $Bonds 1 206 1 230

Real estate 746 677Cash 57 21Transfer of benefits to an insurance company 976 1 081Others 52Fair value of plan assets at end of year 5 742 $ 5 883 $

The effective rate of return of the plans is : -2.14 % 10.44 %

2018 2017

Discount rate 3.90 % 3.44 %Rate of salary increases 3.05 % 3.06 %

Sensitivity of defined benefit plans assets (liabilities)2018 2017

Increase of 1%Change in the discount rate (971) $ (1 079) $Change in the rate of salary 314 $ 376 $

Decrease of 1%Change in the discount rate 1 289 $ 1 488 $Change in the rate of salary (243) $ (289) $

One year increase in life expectancy of retirees at age 65 139 $ 150 $

Expected contributions for the next few periods


The main assumptions used to valuate the obligation and cost of defined benefit plans are as follows (weightedaverage) :

The Company estimates that it must contribute an amount of $128 ($138 in 2017) to its defined benefit plansin the next year.

The average duration of the defined benefit obligation at the end of the period is 17 years (18 years in 2017).

The mortality table used for the years ended December 31, 2018 and 2017 is named CPM-2014 withprojection in scale CPM-B published by Canadian institute of Actuaries.



9 INCOME TAXES ON THE COMPREHENSIVE INCOME AND DEFERRED INCOME TAXES

2018 2017

Income before income taxes (194) $ (128) $Statutory income tax rates federal and provincial 27 % 27 %

Income tax calculated at statutory tax rates (52) $ (34) $Increase (decrease) of income tax rates resulting from the following items :

Non-taxable income (9) (8)Non-deductible expenses 15 22Small business deduction 2 31Others 70 (24)

Total income tax expense (recovery) in income 26 $ (13) $

The income tax expense is itemized as follows :

Total income tax expense (recovery) in income 26 $ (13) $

Other comprehensive incomeItems that may be reclassified subsequently to net income

Unrealized gains (losses) on the assets available for sale (1) (15)Reclassification in the income of the exercise of the realized losses (gains) on the assets available for sale (4) (8)

Items that will not be reclassified subsequently to net incomeActuarial gains (losses) on pension plans 60 (46)

Total income tax expense (recovery) in other comprehensive income 55 (69)

Total income tax expense (recovery) in comprehensive income 81 $ (82) $

The income tax expense is itemized as follows:Current income taxes

Current period (4) $ 11 $Deferred income taxes

Current period 85 (93)

Total income tax expense (recovery) in comprehensive income 81 $ (82) $

Other Acquisition Balance onBalance on Net comprehensive of December

income income business 31stDeferred income tax asset (liability)

Tangible capital assets 27 $ (8) $ $ $ 19 $Intangible assets 183 (25) 158Net provision for claims being settled 21 (3) 18Asset (liability) of pension plans 169 18 (59) 128Others 65 (8) 57

Total deferred income tax asset (liability) 465 $ (26) $ (59) $ $ 380 $

Total deferred income tax asset 465 $ 380 $


January 1st


All deferred income taxes pertaining to the temporary deductible differences are recorded in the financialstatements. The deferred income taxes are composed of the variances between the fiscal value of an asset ora liability and its book value in the balance sheet. These variances come from :

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9 INCOME TAXES ON THE COMPREHENSIVE INCOME AND DEFERRED INCOME TAXES (CONTINUED)

Other Acquisition Balance on Balance on Net comprehensive of December

income income business 31stDeferred income tax asset (liability)

Tangible capital assets 24 $ 3 $ $ $ 27 $Intangible assets 156 27 183Net provision for claims being settled 17 4 21Asset (liability) of pension plans 110 13 46 169Others 65 65

Total deferred income tax asset (liability) 372 $ 47 $ 46 $ $ 465 $

Total deferred income tax asset 372 $ 465 $

10 INFORMATION ON COMPREHENSIVE INCOME

2018 2017 Comprehensive income includes the following :

Staff salaries and fringe benefits 2 536 $ 2 629 $Depreciation of tangible capital assets 73 79Depreciation on intangible assets 191 304Rental expenses Rental payment 60 67 Equipment 10 13Losses (gains) on disposal of tangible capital assets 39Rental income 5 5

11 CASH FLOWS STATEMENTS

2018 2017

Dividends received $ 17 $Interest received 384 $ 410 $Interest paid (received) on pension plans financing 37 $ 25 $Interest paid on preferred shares 80 $ 107 $Paid premiums tax 537 $ 520 $Current income taxes (recovered) paid (69) $ 91 $


During the year, cash flows from interest, dividends, premium taxes and income taxes were as follows :


January 1st



12 INVESTMENTS

Book Fair Book FairHELD TO MATURITY value value value value

Fixed term deposit 421 $ 416 $ 521 $ 514 $AVAILABLE FOR SALE

Bonds 1 932 1 932 2 268 2 268Investments in limited partnerships Debt security Funds 5 423 5 423 4 759 4 759 Equity security Funds 876 876 1 340 1 340 Capitalization Funds 245 245 237 237Promutuel Réassurance - Equity investments 31 31 31 31Promutuel Guarantee Fund - Equity investments 125 125 125 125

8 632 8 632 8 760 8 760

9 053 $ 9 048 $ 9 281 $ 9 274 $

13 UNREALIZED GAINS AND LOSSES ON ASSETS CLASSIFIED AS AVAILABLE FOR SALE

Amortized Unrealized Unrealized Faircost gains losses value

Bonds 1 935 $ 10 $ 13 $ 1 932 $Investments in limited partnerships Debt security Funds 5 368 55 5 423 Equity security Funds 893 17 876 Capitalization Funds 242 3 245Promutuel Réassurance 31 31Promutuel Guarantee Fund 125 125

8 594 $ 68 $ 30 $ 8 632 $

Amortized Unrealized Unrealized Faircost gains losses value

Bonds 2 260 $ 22 $ 14 $ 2 268 $Investments in limited partnerships

Debt security Funds 4 786 2 29 4 759 Equity security Funds 1 257 83 1 340 Capitalization Funds 241 4 237

Promutuel Réassurance 31 31Promutuel Guarantee Fund 125 125

8 700 $ 107 $ 47 $ 8 760 $

2018 2017

17 $ 4 $Total of unrealized losses on equity instruments 17 $ 4 $


20172018

Impairment loss recognitionUnder IFRS, at the end of the year, the Company determines if there are objective indications as to whethercertain equity instruments available for sale might have suffered a loss of value. An objective indication for anequity instrument available for sale includes, among others, a significant or prolonged decline in the fair valueof the instrument below its cost.

Equity instruments impairment losses classification

2018

2017

Less than 25% below the book value

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14 PREMIUMS RECEIVABLE2018 2017

Premiums receivableMembers Less than 90 days 168 $ 158 $ 90 days and more 13 13Premiums with periodical financing 5 606 5 258

5 787 5 429Provision for doubtful accounts (6) (5)

5 781 $ 5 424 $

The bad debt expenses for the period is $ 18 ($ 19 in 2017) and is recordered in operating charges.

15 DEFERRED CHARGES2018 2017

Balance on January 1st 291 $ 257 $Amortization (291) (257)Deferred charges for the year 321 291BALANCE 321 $ 291 $

16 TANGIBLE CAPITAL ASSETS

Balance on Acqui- Disposal Balance on Cost sition December 31st

Land and building 1 451 $ $ $ 1 451 $Leasehold improvements 18 18Furniture-equipment 245 4 249Computer equipment 95 8 103Automobile 84 24 108Total cost 1 893 $ 36 $ $ 1 929 $

Depreciation DisposalAccumulated depreciation

Building 653 $ 27 $ $ 680 $Leasehold improvements 10 3 13Furniture-equipment 182 13 195Computer equipment 74 6 80Automobile 31 24 55Total accumulated depreciation 950 $ 73 $ $ 1 023 $

Net book valueLand and building 798 $ 771 $Leasehold improvements 8 5Furniture-equipment 63 54Computer equipment 21 23Automobile 53 53

Net book value 943 $ 906 $


The company believes that the provision for doubtful accounts determined on the basis of the historical trendcovers the risk from customers default of payment. The book value of premiums receivable for which thecollection period is more than 90 days constitutes a default risk.

January 1st

2018



16 TANGIBLE CAPITAL ASSETS (CONTINUED)

Balance on Acqui- Disposal Balance onCost sition December 31st

Land and building 1 451 $ $ $ 1 451 $Leasehold improvements 49 31 18Furniture-equipment 229 28 12 245Computer equipment 91 4 95Automobile 113 54 83 84Total cost 1 933 $ 86 $ 126 $ 1 893 $


Building 625 $ 28 $ $ 653 $Leasehold improvements 22 4 16 10Furniture-equipment 172 15 5 182Computer equipment 66 8 74Automobile 58 24 51 31Total accumulated depreciation 943 $ 79 $ 72 $ 950 $

Net book valueLand and building 826 $ 798 $Leasehold improvements 27 8Furniture-equipment 57 63Computer equipment 25 21Automobile 55 53


17 INTANGIBLE ASSETSBalance on Acqui- Disposal Balance on

Cost sition December 31stClientele 1 519 $ $ $ 1 519 $


Clientele 1 328 $ 191 $ $ 1 519 $

Net book value 191 $ $

Balance on Acqui- Disposal Balance onCost sition December 31st

Clientele 1 519 $ $ $ 1 519 $Depreciation Disposal

Accumulated depreciationClientele 1 024 $ 304 $ $ 1 328 $



January 1st

January 1st

January 1st

2017

2018

2017

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18 PROVISION FOR CLAIMS BEING SETTLED

Gross Reinsurer's Netprovision share provision

Provision for claims incurred but not reported as at December 31, 2018Provision 711 $ 55 $ 656 $Effect of discounting at a rate of 2.7% (74) (26) (48)Provision for adverse deviations 268 96 172

Total of the provision for claims incurred but not reported 905 125 780Provision for reported claims as at December 31, 2018 3 874 2 133 1 741Provision as at December 31, 2018 4 779 $ 2 258 $ 2 521 $

Provision for claims incurred but not reported as at December 31, 2017Provision 689 $ 127 $ 562 $Effect of discounting at a rate of 2.5% (61) (17) (44)Provision for adverse deviations 199 50 149

Total of the provision for claims incurred but not reported 827 160 667Provision for reported claims as at December 31, 2017 2 534 900 1 634Provision as at December 31, 2017 3 361 $ 1 060 $ 2 301 $

Gross Reinsurer's Net provision share provision

Provision as at January 1, 2017 3 147 $ 1 289 $ 1 858 $Claims and settlement expenses for the year 2017 10 069 1 643 8 426Variation of the provision for the years prior to 2017 (516) (66) (450)Effect of discounting in 2017 3 3Total claims incurred for the year ended December 31, 2017 9 556 1 580 7 976Claims paid during 2017 (9 342) (1 809) (7 533)Provision as at December 31, 2017 3 361 $ 1 060 $ 2 301 $

Claims and settlement expenses for the year 2018 13 196 4 051 9 145Variation of the provision for the years prior to 2018 (319) (43) (276)Effect of discounting in 2018 (13) (9) (4)Total claims incurred for the year ended December 31, 2018 12 864 3 999 8 865Claims paid during the 2018 (11 446) (2 801) (8 645)Provision as at December 31, 2018 4 779 $ 2 258 $ 2 521 $


The provision for claims being settled is composed of:

The change in the provision for claims being settled is thefollowing:

The provision for claims being settled as well as the reinsurer’s share in this regard are estimates that canundergo significant changes during the year. These variations are due to events affecting the ultimatesettlement of claims that have not yet occurred and that may not even happen for some time. These variationscan also be caused by additional information regarding claims, by changes in the interpretation of the contractsby the courts or by significant deviations from historical trends in terms of severity or frequency of claims. Theestimates are based primarily on the experience of the Company. The estimation methods used produce, inthe opinion of the Company, reasonable results given the data currently known.

These estimates are then discounted so as to take account of the time value of money. The interest rate usedto discount the provision is based on the rate of return expected by the Company in relation to its investmentportfolio matching its provision.

The discounted amount of the provision for claims being settled shows the assumptions relating to futureinvestment income, to expected cash flow and to the provisioning for the deterioration of the incomestatements. Since the estimates related to provisions for claims are subject to uncertainty related to themeasure, the Company includes provisions for adverse deviations in its valuation assumptions. The inclusionof provisions for adverse deviations is consistent with standards of practice of the Canadian Institute ofActuaries. They ensure that the amounts of the actuarial liability are sufficient to cover future benefits.



18 PROVISION FOR CLAIMS BEING SETTLED (CONTINUED)

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008

Gross initial provision 2 144 1 896 1 819 1 445 1 718 1 481 1 066 2 861 2 896 2 357

Change in the provision :After 1 year 1 629 1 613 1 436 1 102 1 904 1 188 1 182 2 431 2 368 2 006After 2 years 1 557 1 361 1 099 1 875 1 017 1 105 2 395 2 276 1 972After 3 years 1 537 953 1 835 923 1 112 2 461 2 257 1 936After 4 years 951 1 780 912 1 127 2 487 2 099 1 930After 5 years 1 832 909 999 2 522 2 034 1 922After 6 years 908 1 049 2 520 2 317 1 921After 7 years 993 2 475 1 897 1 921After 8 years 2 474 1 887 1 921After 9 years 1 886 1 921After 10 years 1 921

Cumulative change of the gross initial provision in % 24% 18% 16% 34% -7% 39% 7% 14% 35% 18%

2017 2016 2015 2014 2013 2012 2011 2010 2009 2008

1 703 1 176 1 172 1 120 1 280 1 031 864 1 243 1 154 1 455

Change in the provision :After 1 year 1 349 980 1 078 880 1 196 792 789 949 1 026 1 247After 2 years 960 958 880 1 122 697 731 968 1 076 1 220After 3 years 1 076 745 1 091 711 761 975 1 043 1 198After 4 years 744 1 062 700 734 975 1 065 1 192After 5 years 1 052 697 709 1 008 1 030 1 184After 6 years 696 758 1 007 1 050 1 184After 7 years 704 964 1 042 1 183After 8 years 963 1 040 1 183After 9 years 1 040 1 183After 10 years 1 183

Cumulative change of the gross initial provision in % 21% 18% 8% 34% 18% 32% 19% 23% 10% 19%


The method to determine the provision for claims being settled is the same as the one used during theprevious year. As at December 31, 2018, the changes in assumptions have no significant impact on theprovision for claims being settled.

The following table shows the changes in the provisions for claims being settled by year of occurence of loss.This evaluation is based on the settlement of the initial provision, net of the allocation of a portion of theincome generated by the investments matching the provision.

The average change in the net initial provision over the past ten years is a increase of 20%.

The average change in the gross initial provision over the past ten years is a increase of 20%.

Net initial provision

Change in the net provision – by year of occurrence

Change in the gross provision – by year of occurrence

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18 PROVISION FOR CLAIMS BEING SETTLED (CONTINUED)

Less than One to Three to Five to More than Balance sheetone year three years five years ten years ten years value

Provision liabilityProperty policies 2 554 $ 160 $ 5 $ $ $ 2 719 $Liability policies 301 286 67 8 662Automobile 1 048 218 132 1 398

Total 3 903 $ 664 $ 204 $ 8 $ $ 4 779 $

Reinsurer’s share in the provision presented as assetProperty policies 1 915 $ 108 $ 5 $ $ $ 2 028 $Liability policies 58 30 9 97Automobile 105 14 14 133

Total 2 078 $ 152 $ 28 $ $ $ 2 258 $

Less than One to Three to Five to More than Balance sheetone year three years five years ten years ten years value

Provision liabilityProperty policies 883 $ 56 $ 2 $ $ $ 941 $Liability policies 262 281 78 11 632Automobile 1 398 269 121 1 788

Total 2 543 $ 606 $ 201 $ 11 $ $ 3 361 $

Reinsurer’s share in the provision presented as assetProperty policies 412 $ 28 $ $ $ $ 440 $Liability policies 51 59 19 129Automobile 470 14 7 491

Total 933 $ 101 $ 26 $ $ $ 1 060 $

19 UNEARNED PREMIUMS

Reinsurer'sGross share Net

Balance as at January 1, 2017 7 861 $ 1 358 $ 6 503 $Premiums written 15 861 3 689 12 172Premiums earned during the year (15 508) (3 692) (11 816)Unearned premiums as at December 31, 2017 8 214 $ 1 355 $ 6 859 $

Premiums written 16 798 $ 3 318 $ 13 480 $Premiums earned during the year (16 267) (3 543) (12 724)Unearned premiums as at December 31, 2018 8 745 $ 1 130 $ 7 615 $


The reconciliation of the provision for unearned premiums is as follows :

Sensitivity to the development of provisionsThe estimate of the provision for claims being settled is based on different assumptions. The discount rate andthe realization of the provision for claims being settled are two significant variables of the valuation.

The Company estimates that a 1% decrease in the discount rate of the provision for claims being settled wouldreduce the earnings by $19 ($19 in 2017). A 1% increase in the discounting rate of the provision for claimsbeing settled would increase the earnings by $19 ($18 in 2017).

The Company estimates that a 5% increase in the realization of the provision for claims being settled woulddecrease the earnings by $108 ($126 in 2017). A 5% decrease in the realization of the claims being settledwould increase the earnings by $113 ($128 $ in 2017).

The schedule set out in the settlement of the provision for the claims being settled is established as follows :

December 31, 2018

December 31, 2017

Unearned premiums



20 UNEARNED REINSURANCE COMMISSIONS2018 2017

Balance as at January 1st 384 $ 385 $Amortization for the period (384) (385)Unearned reinsurance commissions for the period 396 384Balance 396 $ 384 $

21 BANK INDEBTEDNESS

22 ACCRUED EXPENSES AND OTHER SUPPLIERS2018 2017

Members 40 $ 26 $Accrued salaries and other short-term benefits 99 234Sale taxes 581 538Other 67 74

787 $ 872 $

23 PARTNERSHIP SHARES

24 PREFERRED SHARESAuthorized

Category "A", priority to partnership shares2018 2017

Issued1320 preferred shares of category « A », 3.08% interest 132 $ 132 $17000 preferred shares of category « A », 3.92% interest 1 700 1 7002200 preferred shares of category « A », 4.12% interest 220 220

2 052 $ 2 052 $

25 CONTINGENCY RESERVE

26 ACCUMULATED OTHER COMPREHENSIVE INCOME2018 2017

Assets available for saleUnrealized gains 68 $ 107 $Unrealized losses (30) (47)

38 60Income taxes on unrealized gains (losses) (6) (11)

32 49Actuarial gains (losses) on pension plans (1 193) (1 374)Related income taxes 194 254

(999) (1 120)

Accumulated other comprehensive income (967) $ (1 071) $


The Company has credit facilities provided by agreements of an authorized amount of $700 renewableannually. The availability of the loan is revolving, allowing to borrow again the reimbursed amounts up to theauthorized limit.

The Company is authorized to issue 1 000 000 partnership shares, redeemable at the holder‘s option, non-voting, of a nominal value of 5 dollars each. As at December 31, 2018, the Company has no partnershipshares issued (4 162 in 2017).

Unlimited number of Category "A" preferred shares, non-voting, redeemable at the issuer's option, except forPromutuel Guarantee Fund which has a redemption right in accordance with the Insurance Act, annual interestof priority ranks and cumulative at the Quebec's bonds maximum rate of 10-years, increased by 3 %, of anominal value of $ 100 each :

During the year 2017, the board of Directors of the Company authorized the creation of a contingency reserveof $440 concerning the capitalization needs of Promutuel Guarantee Fund; an equivalent amount has beenallocated to this reserve. In 2018, the Company allocated an additionnal $14 to this reserve.

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27 CAPITAL MANAGEMENT

2018 2017

Available capital 4 449 $ 4 553 $Required capital 1 779 1 817Excess of the available capital over the required capital 2 670 2 736Excess capital of the Company’s target 802 $ 1 010 $Ratio of available capital over the required capital (MCT) 250 % 251 %

28 COMMITMENTS AND CONTINGENCIES

A) Commitments

2018 2017 Expenses for rental of premises

Less than one year 38 $ 39 $From one to five years 35 73Total 73 $ 112 $

2018 2017 Expenses for rental of equipments

Less than one year 9 $ $From one to five years 7Total 16 $ $


As at December 31, 2018, the Company’s MCT meets the regulatory requirements and is composed of thefollowing amounts:

The Company rents a premises whose lease expires on November 30, 2020. There is no renewal option at theend of this contract.

It also rents equipments whose leases expire between February 28, 2020 and November 30, 2023. There is norenewal option provided for these contracts at maturity.

The future minimum payments to make under these simple non-cancellable lease agreements are thefollowing:

In 2016, the Company signed an investment agreement with Promutuel Investment Fund to participate inPromutuel Capital Fund. The Company will be required to pay an amount of $ 485 as a compulsoryparticipation. Under the terms and conditions of the capital agreement, the Company will be required to pay theamount to Promutuel Investment Fund when its minimum capital test (MCT) will be greater than 300 %.

As at November 30, 2018, Groupe Promutuel Fédération de sociétés mutuelles d'assurance générale had aaccumulated deficit of 2 million dollars (accumulated deficit of 9 millions dollars as at November 30, 2017).Groupe Promutuel Fédération de sociétés mutuelles d'assurance générale has the power, under An ActRespecting Insurance (Québec), to levy general or special contributions from the member companies in orderto pay down this deficit. The Company’s premiums written represent 2% of the premiums written of GroupePromutuel Fédération de sociétés mutuelles d'assurance générale.

The Company must comply with capital requirements under An Act Respecting Insurance (Québec). Autoritédes marchés financiers (AMF) requires that the Company set a new internal capital target reflecting its riskprofile and that it be in compliance with a minimum capital test (MCT). The new target the Company has set,based on the designated actuary's report on dynamic capital adequacy testing, is to maintain a minimumcapital test level above 205 % (195 % en 2017).

The Company’s capital management is done in order to maintain adequate capital to enable optimaldevelopment. It is also aimed at meeting the requirements for capital dictated by the Autorité des marchésfinanciers. The policies and procedures of the Company are established to manage and limit the risks theCompany is exposed to. The Company's Board of directors approved a policy for managing capital.Compliance with this policy is monitored periodically.

The Company defines its capital as items that are presented in the equitiy.



28 COMMITMENTS AND CONTINGENCIES (CONTINUED)B) Contingencies

29 IMPACT OF THE REINSURANCE PROGRAMS ON THE INCOME STATEMENTREINSURANCE PROGRAM

2018 2017

Ceded premiums to reinsurer (3 543) $ (3 692) $Recovery of claims from reinsurer 3 999 1 580Reinsurance commissions 916 873Increase (decrease) of earnings before income tax 1 372 $ (1 239) $

30 CONCENTRATION OF INSURANCE RISKGeographical information

Key customers

Premiums written by line of business are as follows:2018 2017

Direct premiums writtenAutomobile 7 179 $ 6 485 $Property and liability 9 619 9 376

Total of premiums written 16 798 $ 15 861 $

The net premiums earned by line of business are as follows:2018 2017

Net direct premiums earnedAutomobile 6 167 $ 5 613 $Property and liability 6 557 6 203

Total of net premiums earned 12 724 $ 11 816 $

31 SENSIVITY TO INSURANCE RISKS BY LINE OF BUSINESS

Gross ratios Gross Gross Gross Gross Gross Grossloss expense combined loss expense combinedratio ratio ratio ratio ratio ratio

Direct premiumsAutomobile 84 % - - 79 % - - Property and liability 76 % - - 50 % - -

Total 79 % 32 % 111 % 62 % 32 % 94 %

Net ratios Net Net Net Net Net Netloss expense combined loss expense combinedratio ratio ratio ratio ratio ratio

Direct premiumsAutomobile 89 % - - 84 % - - Property and liability 51 % - - 52 % - -

Total 70 % 33 % 103 % 68 % 36 % 104 %


The Company’s products come from many policyholders. No holder generates more than 10% of the totalincome.

Insurance activities are conducted in the Province of Quebec exclusively. Most of the Company’s insurancepolicies are concentrated in the territory established by the Groupe Promutuel Fédération de sociétésmutuelles d'assurance générale.

In the normal course of business, the Company reinsures certain risks with its reinsurer in order to limit itsresponsibility in case of a claim or of a series of claims arising from the same event. The impact of thereinsurance disposal on the Company’s comprehensive income is the following:

The Company is subject to certain litigation in the ordinary course of its business. The Company'smanagement is of the opinion that the Company has established adequate provisions to cover any losses inrespect of such litigation.

2018 2017

2018 2017

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31 SENSIVITY TO INSURANCE RISKS BY LINE OF BUSINESS (CONTINUED)

Before income taxes

Income taxes

Net

5% increase on the net loss ratio on the direct premiums Automobile 308 $ 82 $ 226 $ Property and liability 328 88 240Total 636 $ 170 $ 466 $

1% increase of the total net expense ratio 127 $ 34 $ 93 $

Before income taxes

Income taxes

Net

5% increase on the net loss ratio on the direct premiums Automobile 281 $ 75 $ 206 $ Property and liability 310 83 227Total 591 $ 158 $ 433 $

1% increase of the total net expense ratio 118 $ 32 $ 86 $

A decrease of the same percentage would have the opposite impact on the net earnings of the Company.

32 RISK MANAGEMENT

A) Interest rate risk

2018 2017

Net income 57 $ 52 $Other comprehensive income (168) (231)Members' equity (111) $ (179) $

A decrease of the same percentage would have the opposite effect on the Company's comprehensive income.


Moreover, the interest rate fluctuations modify the estimate of the value of the provision for claims beingsettled. This estimate is made according to the expected return on assets held for matching purposes.

1% increase of the interest rate

As at December 31, 2018, the Company believes that a fluctuation of more or less 1% would be consideredprobable according to the recent changes in the financial market’s conditions. It considers that a 1% variationin the interest rates would have the following effect on the comprehensive income of the Company :

An interest rate risk exists when a financial asset is invested in a financial instrument bearing interest at a fixedrate. These financial assets are exposed to the risk that the value of the financial instruments bearing interestvaries in consequence of the market interest rates’ fluctuation. Some financial assets, such as shares, do notbear interest, thus, the Company is less exposed to the risk arising from the fluctuations of the effectiveinterest rate on these financial instruments.

As at December 31, 2018, the Company estimates that a change in the net loss ratio or in the net expenseratio would have the following impact on the earnings:

For the year ended December 31, 2017Decrease of the earnings

Decrease of the earnings For the year ended December 31, 2018

The Company’s investment policy defines the objectives, the allocation, the constraints, the responsibilitiesand criteria for evaluating performance. The compliance to this policy is subject to a periodic follow-up.

Sensitivity analyses do not include the impact of the variation of risks related to the Company's pension plans.



32 RISK MANAGEMENT (CONTINUED)A)

Less than One to Three to Five to Over Balance sheetone year three years five years ten years ten years value

InvestmentsTerm deposits 303 $ 118 $ $ $ $ 421 $Bonds 595 1 011 326 1 932

898 $ 1 129 $ 326 $ $ $ 2 353 $

Total (in percentage) 38 % 48 % 14 % - % - % 100 %

Effective interest rate 1.86 % 2.27 % 2.38 % % % 2.13 %


InvestmentsTerm deposits 100 $ 303 $ 118 $ $ $ 521 $Bonds 447 949 872 2 268

547 $ 1 252 $ 990 $ $ $ 2 789 $

Total (in percentage) 20 % 45 % 35 % - % - % 100 %

Effective interest rate 1.33 % 1.83 % 2.22 % % % 1.87 %

B) Foreign exchange risk

C) Other market risk


Interest rate riskThe maturity and interest rates investments, except those with no specific maturity, are as follows:

Maturities as at December 31, 2018

To manage the risk of the fluctuation of interest rates, the Company has an investment policy approved by itsBoard of directors, which provides the matching of its assets and liabilities. The investments of the Companymust follow the structure of its financial commitments.


The foreign exchange risk is the risk that the value of a financial instrument denominated in foreign currencywill fluctuate because of changes in the exchange rates.

The Company's operations are conducted entirely in Canadian currency except for $63 ($122 in 2017) inassets invested in foreign currencies. As at December 31, 2018, the Company estimates that a 10% increasein the exchange rate of foreign currencies relative to the Canadian dollar would cause a decrease of $5 ($7 in2017) of the comprehensive income and equities. A 10% decrease in the exchange rate represents anequivalent amount to the opposite effect.

The Company believes that 10% rate, based on average volatility relative to foreign currencies in the mostrecent year represents a reasonable potential change in exchange rate risk.

A change of 10% is considered probable according to the recent change in stock market conditions.

Another market risk is the risk that the value of the financial instruments varies as a result of fluctuations in themarket prices other than those arising from interest rate or exchange rate risk. These fluctuations may be dueto factors specific to the issuer or to factors affecting all instruments traded on the market. The maximum riskarising from the financial instruments is equivalent to their fair value. The Company manages this risk throughdiversification of the securities held.

As at December 31, 2018, the Company believes that a 10% rise in the stock market would increase thecomprehensive income and the members’ equity of $73 ($109 in 2017). A decrease of 10 % would have theopposite equivalent impact.

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32 RISK MANAGEMENT (CONTINUED)D) Liquidity risk


Claims being settled 3 903 $ 664 $ 204 $ 8 $ $ 4 779 $ Unearned premiums 8 745 8 745 Unearned reinsurance

commissions 396 396Creditors 1 164 1 164

TOTAL 14 208 $ 664 $ 204 $ 8 $ $ 15 084 $


Claims being settled 2 543 $ 606 $ 201 $ 11 $ $ 3 361 $ Unearned premiums 8 214 8 214 Unearned reinsurance

commissions 384 384Creditors 1 475 1 475Partnership shares 21 21

TOTAL 12 637 $ 606 $ 201 $ 11 $ $ 13 455 $

E) Credit risk and diversification


The maximum credit risk associated with financial instruments corresponds to the book value of the financialassets less any allowance for losses. Consequently, the book value on the balance sheet for financialinstruments represents the maximum credit exposure of the Company.


Provisions for

The liquidity risk is the risk that sources of liquidity become insufficient to meet scheduled payments onfinancial liabilities. To manage its cash flow requirements, the Company maintains cash and a portion of itsinvestments in the form of highly liquid money market securities to compensate for any liquidity risk.

Provisions for


The maturity of the Company’s financial liabilities, claims liabilities and sales taxes is as follows:

The credit risk is the risk that counterparties or debtors do not fulfill their obligations to the Company. Theinvestment and premium financing policies of the Company aim to reduce this risk by ensuring a diversificationof counterparties or debtors, and limited exposure to any single issuer. In addition, the investment policyimposes minimums standards for the credit rating of issuers.



32 RISK MANAGEMENT (CONTINUED)

The following table provides information on the credit quality of investments.

Bonds and fixed term deposit by credit quality : 2018 2017Credit ratingAAA 270 $ 268 $AA 3 078 3 080A 3 296 3 374BBB 770 663R-1 154 68Not rated 223 110Total 7 791 $ 7 563 $

Shares and Preferred shares by credit quality : Credit ratingP2 228 $ 348 $P3 52 63Other 239 231Total 519 $ 642 $

F) Pricing risk

G) Underwriting risk

H) Reinsurance risk


The reinsurance contract indicates that the Company is subject to a net retention of $150 ($115 in 2017) perevent. In addition, all member mutual associations of Groupe Promutuel Fédération de sociétés mutuellesd'assurance générale are collectively covered for up to $ 260,000 ($ 240,000 in 2017) in the case that a singleevent were to give rise to a series of claims.

The risk associated with pricing is the risk that a fixed price is insufficient to ensure an adequate return formembers compared to the profitability goals of the Company. This risk may arise from an inadequate valuationof the market or of the costs related to claims.

The Company has a policy of reinsuring its insurance contracts to limit its exposure to significant losses.Reinsurance does not relieve the Company of its obligations towards its policyholders. Therefore, theCompany is exposed to the credit risk related to amounts ceded to the reinsurer. However, the Companyregularly monitors the financial position of its reinsurer.

The Company manages this risk through regular analysis of its pricing compared to its recent experience andto the market rate. The assumptions surrounding pricing are updated regularly and take into account the costsof reinsurance.

The underwriting risk is the risk resulting from the selection of risks and from the management of the clausesof insurance contracts. The Company has adopted underwriting and risk inspection policies that define itsretention limits and its risk tolerance. When the retention limits of the Company are met, the Company cedesthe excess risk to its reinsurer.

As at December 31, 2018, no financial assets represented more than 10 % of the total investments of theCompany.

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32 RISK MANAGEMENT (CONTINUED)I) Fair value measurement risk

Level 1 Level 2 Level 3 TotalFinancial assets on the balance sheet estimated at the fair value:

Cash and cash equivalents 469 $ $ $ 469 $Investments available for sale 8 231 401 8 632

469 $ 8 231 $ 401 $ 9 101 $

Level 1 Level 2 Level 3 TotalFinancial assets on the balance sheet estimated at the fair value:

Cash and cash equivalents 453 $ $ $ 453 $Investments available for sale 8 367 393 8 760

453 $ 8 367 $ 393 $ 9 213 $

Assets estimated at fair value according to Level 3 : 2018 2017r 2018

Balance at beginning of year 393 $ 156 $Total of gains or losses recognized :

Net income 1Other comprehensive income 8 (4)

Acquisitions 481Disposals (241)Balance as at December 31 401 $ 393 $

J) Fair value measurement

Determination of fair value of financial instruments

-

-

-

-

Sensitivity of financial instruments classified as Level 3 :


The Company performs sensitivity analyzes to measure the fair value of financial instruments classified asLevel 3. The effect of the substitution of unobservable inputs by one or more assumptions does not result in asignificant change in fair value.

The fair value of cash, premiums receivable, other accounts receivable and creditors is assumed tocorrespond to their book value, considering their short-term maturity or the fact that the interest rate for theinstrument is close to the observable current market rates.

The fair value of the share in the capital of Promutuel Réassurance and the Promutuel Guarantee Fund isdetermined based on the redemption value of the share since these are redeemable at a pricedeterminable at the time of issue and cannot be modified by subsequent financial results.

The fair value of financial instruments is determined according to the following methods :

2017

There were no transfers between Levels 1, 2 and 3 for the years ended December 31, 2018 and 2017.

Term deposits are valued with techniques based on the contractual cash flows discounting using marketinterest rates for instruments under similar terms.

Bonds and limited partnerships are valued using valuation techniques based on a significant portion ofobservable market parameters.

The Company uses a fair value hierarchy to categorize data used in valuation techniques to measure fairvalue. The hierarchy has three levels :

Level 1: valuation based on quote prices in active markets (unadjusted);Level 2: valuation techniques based on a significant portion of observable market parameters;

2018

Level 3: valuation techniques based on a significant portion of unobservable market parameters.



33 RELATED PARTIES TRANSACTIONS

- Promutuel Fonds d'obligations 2A S.E.C.- Promutuel Fonds d'actions 3A S.E.C.- Promutuel Fonds d'actions privilégiées 4A S.E.C.- Promutuel Fonds d'actions mondiales 8A S.E.C.- Promutuel Fonds d'obligations court terme 10A S.E.C.- Promutuel Fonds d'obligations corporatives 11A S.E.C.- Promutuel Fonds de capitalisation D S.E.C.

2018 2017

Indemnities and inherent fees 137 $ 116 $Operating expenses 1 584 1 412Investment charges 5 9Investment income 19 286

Board of ManagerialAs at December 31, 2018 directors staff Total

Short-term benefits 111 $ 95 $ 206 $Post-employment benefits 12 12Total compensation as at December 31, 2018 111 $ 107 $ 218 $

Board of ManagerialAs at December 31, 2017 directors staff Total

Short-term benefits 69 $ 301 $ 370 $Post-employment benefits 21 21Total compensation as at December 31, 2017 69 $ 322 $ 391 $

34 SUBSEQUENT EVENT


On January 3, 2019, the Company merged with Promutuel L'Outaouais, société mutuelle d'assurance généraleunder the name Promutuel Vallée de L'Outaouais, société mutuelle d'assurance générale.

The Company is a member of Groupe Promutuel Fédération de sociétés mutuelles d’assurance générale. Itparticipates in the capital of Promutuel Réassurance and Promutuel Guarantee Fund. Effective June 1, 2017,the Company holds units in limited partnerships for the purpose of managing the investment portfolio.Previously, through Promutuel investment funds, the Company held a participation in Promutuel developmentfund and in mutual funds composed of debt and equity securities. The limited partnerships are :

Others transactions between related parties, concluded in the normal course of business, are as follows :

The reinsurance operations are entered into with Promutuel Réassurance. The Company participates in multi-employer defined benefit pension plans that include Groupe Promutuel Fédération de sociétés mutuellesd'assurance générale. Details on pension plans are presented in note 8.

The key management personnel comprise all members of the Board of Directors as well as the managerialstaff of the Company. The cumulative compensation of the key management personnel is :

Compensation of key management personnel

Institutions of the Groupe Promutuel Fédération de sociétés mutuelles d'assurance générale

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Glossary of Financial Terms

COST OF LOSSES i)

ii)


REINSURANCE TREATY An agreement underwhich an insurer purchases its own insurance fromanother insurer to cover all or part of the risk itinsures. Notwithstanding any such agreement, theinsurer remains fully responsible for its commitmentsto its policyholders.

NET PREMIUMS EARNED In property and casualtyinsurance, the premiums earned on a time proportionbasis after deduction of reinsurance premiums.

UNEARNED PREMIUMS In property and casualtyinsurance, unearned premiums represent theproportion of premiums written in relation to thecoverage period remaining at year-end. This is aliability for the company since, if the policy iscancelled, the unearned premium is repayable to theinsured.

Indemnities and inherent fees (gross) Totalamount of claims incurred under an insurancepolicy further to a loss related to a coveredevent, including settlement costs, such as expertfees, internal expenses and legal fees.

Recovery from the reinsurer In accordancewith the reinsurance treaty in force, the totalamounts recovered from the reinsurer withregard to claims settlement.

FAIR VALUE MEASUREMENT A measurementused to determine the values at which financialinstruments could be traded in a current transactionbetween willing parties.

Certain terms found in this financial report are used with the meaning defined below, which is either specific to theCanadian insurance market or to Groupe Promutuel.

CEDE A reinsurance term used to describe thepurchase of insurance by a primary insurer from areinsurer, which then undertakes to cover part or allof a risk insured by the primary insurer.

CESSION TO THE REINSURER For every premiumwritten, an amount is paid to the reinsurer accordingto the reinsurance treaty in force.

PREFERRED SHARES Components of thecompany’s equity, issued in accordance with the ruleauthorizing the issue of preferred shares in thecomnpany.

GROSS PREMIUMS EARNED In property andcasualty insurance, the premiums earned on a timeproportion basis without taking reinsurance intoaccount.

OPERATIONAL CHARGES Include operatingexpenses (primarily administration costs) andacquisition costs (sales costs).

RETURN ON EQUITY Net income expressed as apercentage of the average equity from the beginningto the end of the year.

INSURANCE RESULT Income from insuranceoperations for the current period. Also referred to as“technical result”. Represents premiums (-) expensesfor claims incurred (-) costs (operations, premium taxand reinsurance commission income).

MINIMUM CAPITAL TEST (MCT) Minimum capitalstandards for property and casualty insurancecompanies to comply with, determined according toAutorité des marchés financiers (AMF) guidelines.

REINSURANCE COMMISSION INCOME Amounts received from the reinsurer under the reinsurancetreaty in effect as compensation for the premiumsceded by the mutual association.

UNSETTLED CLAIMS An amount accounted forunder liabilities in order to cover the ultimateestimated cost of settling claims, including claimsincurred but not reported resulting from eventsoccurring before the end of the period, afterdeduction of the amounts paid out for such claims.

PREMIUM TAX This mandatory provincial tax iscalculated based on written premiums for the period.

WRITTEN PREMIUMS In damage insurance,premiums stipulated in the insurance policies signedduring the year, including transactions made withinsurer groups plus the accepted reinsurance.

REINSURER An insurer that undertakes to cover allor part of a risk initially covered by the primaryinsurer.


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