COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Financial Statements
(With Independent Auditors’ Report Thereon)
Year ended December 31, 2013
ABCD
KPMG Audit Limited
Crown House
4 Par-la-Ville Road
Hamilton HM 08 Bermuda
Mailing Address:
P.O. Box HM 906
Hamilton HM DX Bermuda
Telephone
Fax
Internet
+1 441 295 5063
+1 441 295 9132
www.kpmg.bm
INDEPENDENT AUDITORS’ REPORT
To the Shareholder of
Colonial Medical Insurance Company Limited
We have audited the accompanying financial statements of Colonial Medical Insurance Company Limited (the
“Company”), which comprise the statement of financial position as at December 31, 2013 and the statements
of comprehensive income, changes in shareholder’s equity and cash flows for the year ended December 31,
2013, and notes, comprising a summary of significant accounting policies and other explanatory information.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance
with International Financial Reporting Standards, and for such internal control as management determines is
necessary to enable the preparation of financial statements that are free from material misstatement, whether
due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our
audit in accordance with International Standards on Auditing. Those standards require that we comply with
ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on our judgment, including the assessment of the risks
of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also
includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting
estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the financial statements present fairly, in all material respects, the financial position of Colonial
Medical Insurance Company Limited as at December 31, 2013, and its financial performance and its cash
flows for the year ended December 31, 2013 in accordance with International Financial Reporting Standards.
Chartered Accountants
Hamilton, Bermuda
April 28, 2014
© 2014 KPMG Audit Limited, a Bermuda limited liability company and a member firm of the KPMG network of independent
member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.
All rights reserved.
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Statement of Financial Position
December 31, 2013
(Expressed in Bermuda Dollars)
Notes
Assets
Cash and cash equivalents
Financial assets at fair value through profit or loss
Financial assets held-to-maturity
Losses recoverable from reinsurers
Insurance and reinsurance balances receivable
Funds withheld
Accounts receivable and accrued interest
Amounts due from related companies
Deferred acquisition costs
Property, plant and equipment
Intangible assets
Prepaid expenses
5(i), 16
5, 10(f), 16
5, 10(f), 16
4, 15, 16
16
6, 16
16
10(a), 16
5(i), 16
9, 10(d), 15, 16
9,610,176
33,882,965
1,117,808
3,772,403
3,027,006
213,478
557,089
22,468,871
9,383
2,169,077
143,353
380,036
$
9,146,941
24,057,217
1,122,680
4,143,622
4,551,410
213,478
582,465
21,942,986
8,885
2,500,862
327,152
227,839
$
77,351,645
$
68,825,537
$
1,153,836
12,713,671
174,297
719,307
1,121,805
2,029,426
$
1,232,963
13,929,334
136,687
412,434
1,477,896
1,615,745
16
10(a), 16
16
Total liabilities
Shareholder’s equity
Share capital
Contributed surplus
Retained earnings
11
12
Total equity attributable to the equity holder of
the Company
Total liabilities and shareholder’s equity
2012
$
7
8
Total assets
Liabilities
Bank overdraft
Outstanding losses and loss expenses
Unearned premiums
Reinsurance balances payable
Amounts due to related companies
Accrued expenses and accounts payable
2013
$
17,912,342
18,805,059
2,000,000
1,500,000
55,939,303
2,000,000
1,500,000
46,520,478
59,439,303
50,020,478
77,351,645
$
68,825,537
See accompanying notes to financial statements
Approved for issuance on behalf of the Board of Directors of Colonial Medical Company Limited on April 28, 2014 by:
3
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Statement of Comprehensive Income
Year ended December 31, 2013
(Expressed in Bermuda Dollars)
Premiums written
Reinsurance premiums assumed
Notes
2013
2012
10(b), 15
10(d)
$ 118,118,365
6,480,271
$ 109,735,233
5,905,624
Total premiums written
Change in unearned premiums
124,598,636
(37,610)
115,640,857
(43,469)
Premiums earned
124,561,026
115,597,388
Reinsurance premiums ceded
4, 15
Net premiums earned
(6,184,061)
15
Claims paid
Change in outstanding loss provisions
Claims recovered and recoverable from reinsurers
Net claims incurred
Reinsurance profit commission and commission income
Commission expense
Other underwriting expenses
118,376,965
87,499,415
(1,215,663)
(1,727,052)
85,040,195
2,315,235
(3,352,920)
15
84,556,700
84,002,510
52,125
(8,404,480)
(4,495,700)
192,550
(8,148,711)
(3,222,814)
20,972,210
14,657,580
5(iv)
1,617,449
2,185,615
13
758,757
868,840
10(e)
2,726,880
2,620,610
(16,656,471)
(15,101,956)
Net underwriting income
Administration fee income
Management fee income
General and administrative expenses
10(c), 14
Net income and comprehensive income for the year
(all attributable to the owner of the Company)
$
See accompanying notes to financial statements
4
109,839,065
9
9
4, 9
10(d)
Net investment income
(5,758,323)
9,418,825
$
5,230,689
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Statement of Changes in Shareholder’s Equity
Year ended December 31, 2013
(Expressed in Bermuda Dollars)
Share
Capital
Balance at December 31, 2011
$
2,000,000
Contributed
Surplus
$
1,500,000
Total Equity
Attributable to the
Retained
Equity holder of
Earnings
the Company
$ 46,289,789
$ 49,789,789
Net income for the year
–
–
5,230,689
5,230,689
Dividend paid (Note 20)
–
–
(5,000,000)
(5,000,000)
46,520,478
50,020,478
9,418,825
9,418,825
$ 55,939,303
$ 59,439,303
Balance at December 31, 2012
2,000,000
Net income for the year
Balance at December 31, 2013
1,500,000
–
$
–
2,000,000
See accompanying notes to financial statements
5
$
1,500,000
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Statement of Cash Flows
Year ended December 31, 2013
(Expressed in Bermuda Dollars)
Notes
Cash flows from operating activities
Net income
Adjustments for:
Depreciation and amortisation
Dividend and interest income net of amortisation
Net unrealized losses (gains) on investments
Realised (gains) losses on sales of investments
Amortisation on investments
Bad debts
2013
$
7, 8
Operating cash flow before changes in non-cash operating
working capital
Change in non-cash operating working capital
17
7
8
Cash flows (used in) provided by investing activities
Cash flows from financing activities
Dividends paid
$
691,017
(1,775,182)
(536,140)
120,835
4,872
694,222
9,988,365
4,430,313
435,938
8,863,087
4,866,251
20,833,258
(30,446,179)
1,409,494
83,464
(178,435)
(22,327)
17,134,053
(21,754,704)
1,775,182
4,024,282
(244,909)
(80,175)
(8,320,725)
20
Cash flows used in financing activities
Increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
5,230,689
716,346
(1,409,494)
98,508
(311,335)
4,872
1,470,643
(1,125,278)
Cash flows provided by operating activities
Cash flows from investing activities
Proceeds from sales of investments
Purchase of investments
Dividend and interest income received
Amounts due from related company
Purchase of property, plant and equipment
Purchase of intangible assets
9,418,825
2012
853,729
–
(5,000,000)
–
(5,000,000)
542,362
719,980
7,913,978
7,193,998
Cash and cash equivalents at end of year
$
8,456,340
$
7,913,978
Cash balances comprise:
Cash and cash equivalents
Bank overdraft
$
9,610,176
(1,153,836)
$
9,146,941
(1,232,963)
$
8,456,340
$
7,913,978
See accompanying notes to financial statements
6
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
1.
General
Colonial Medical Insurance Company Limited (the “Company”) was incorporated in the Islands of Bermuda
on August 9, 1990 and carries on business as an insurance company and holds a Class 3B license under the
Insurance Act, 1978 of Bermuda and related regulations (“the Insurance Act”).
The Company is a wholly owned subsidiary of Colonial Group International Ltd. (“CGI”). It commenced
writing business on January 1, 1991. The registered office and principal place of business of the Company is
Jardine House, 33-35 Reid Street, Hamilton, Bermuda.
The Company provides health insurance coverage in Bermuda, Cayman, the British Virgin Islands and the
Turks & Caicos Islands for medical, dental, vision, long term disability, short term disability, group life and
accidental death and dismemberment risks. The Company provides coverage with the following maximum
limits:
Maximum Coverage
Limit
Medical
Group life
Accidental death and dismemberment
$ 5,000,000
$ 2,000,000
$ 2,000,000
The medical coverage represents a lifetime maximum limit per insured. The Company has reinsurance
protection which limits losses to $325,000 (2012 - $325,000) per calendar year per insured for medical cover.
The dental cover represents an annual maximum limit and is not reinsured.
For group life, the Company purchases reinsurance for 80% of the first $250,000 per life under a quota share
agreement. In addition, the Company provides group life and accidental death and dismemberment coverage
in excess of $250,000 which is fully reinsured on a quota share basis, and long term disability cover, reinsuring
90% of the associated risk.
In 2011 the Company purchased catastrophic excess of loss life reinsurance for losses in excess of $250,000
per occurrence limited to $5,000,000 each occurrence. This reinsurance provides cover for the loss of six lives
or more that are involved in any one loss.
In 2013 the Company purchased Short Term Disability reinsurance for 60% of the Company’s gross liability to
a maximum gross weekly benefit of $3,500 per person.
The Company assumed and administered all of the group medical, dental, group life and accidental death and
dismemberment business written by British Caymanian Insurance Company Limited, a company incorporated
in the Cayman Islands and related through a common shareholder, up to August 31, 2007. As of September 1,
2007 the Company started writing business directly in Cayman. The coverage provided and reinsurance
purchased since that date is substantially the same as the other business written by the Company.
Effective February 1, 2007, the Company assumed and administered all of the group medical, dental, group
life and accidental death and dismemberment business written by Colonial Insurance (BVI) Limited, a
company incorporated in the British Virgin Islands and related through a common shareholder (see Note
10(d)). The coverage provided and reinsurance purchased is substantially the same as the other business
written by the Company.
The Company also provides administrative services to a number of self-insured programs, under which it
assumes no net underwriting risk but receives an administration fee (Note 13).
7
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
1.
General (continued)
The Company offers international health insurance coverage for medical, dental, life, long term disability and
accidental death and dismemberment risks for individuals and groups working outside their home country. The
maximum annual coverage limit is $2,000,000 per insured, and reinsurance is purchased limiting the
Company’s net exposure to $325,000 per insured.
2.
Basis of preparation
(a)
Statement of Compliance
These financial statements are prepared in accordance with International Financial Reporting Standards
(“IFRS”).
The financial statements were authorised for issue by the Board of Directors on April 28, 2014.
(b)
Basis of measurement
The financial statements are prepared on the historical cost basis, except for financial assets at fair value
through profit or loss, which are stated at fair value and financial assets held-to-maturity which are carried at
amortised cost.
The methods used to measure fair value are discussed further in Notes 3, 5 and 16.
(c)
Functional and presentation currency
The financial statements are presented in Bermuda dollars, the Company’s functional currency.
(d)
Use of estimates and judgements
The preparation of financial statements in conformity with IFRS requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses during the year. The estimates and associated assumptions are
based on historical experience and various other factors that are believed to be reasonable under the
circumstances, and the results of which form the basis of making the judgements about carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from those
estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amounts recognized in the financial statements
are described in Notes 3(a), 3(c), 3(e)(ii), 3(k), 5, 9 and 16.
8
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
3.
Summary of significant accounting policies
The accounting policies set out below have been applied consistently to all periods presented in these financial
statements by the Company.
(a) Investments
Investments comprise managed funds, corporate bonds, common equity securities and preferred shares.
Investments are accounted for on the trade date (the date the Company enters into a commitment to buy or sell
the investment).
The Company classifies its investments as fair value through profit or loss or held-to-maturity. Investments
intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity,
changes in interest rates, exchange rates or equity prices are classified as financial assets at fair value through
profit or loss. Investments with a fixed maturity, where management has both the intent and the ability to hold
to maturity, are classified as financial assets held-to-maturity. Management determines the appropriate
classification of its investments at the time of purchase.
Investments classified as financial assets at fair value through profit or loss are initially recognised at cost in
the statement of financial position and are subsequently re-measured at fair value based upon market
quotations or counterparty prices. Investments in unquoted funds are typically valued using the net asset values
obtained from the administrators of the respective investment entities. These investment entities generally
carry their investments at fair value as determined by their respective investment managers or independent
administrators. For securities in the underlying investment entities which are not actively traded, fair values are
estimated by using values from independent pricing services or based on manager valuations. Due to the
inherent uncertainty of such valuation, the value of investments in unquoted funds held by the Company may
differ significantly from the values that would have been used had a ready market value for the investments
existed, and such differences could be material.
Unrealised gains and losses on financial assets recorded at fair value through profit or loss are included in the
determination of net income in the year in which they arise.
Financial assets held-to-maturity are carried at amortised cost. Premiums and discounts on acquisition are
amortised over the periods remaining to maturity using the straight-line method, which approximates the
effective yield method, and the amortisation is included as an adjustment to interest income. Any impairment
on financial assets held-to-maturity that are considered to be other than temporary, calculated as the difference
between the carrying value and recoverable amount, is included in the determination of net income in the year
in which it arises.
Realised gains and losses on sales of investments are calculated on the average cost basis.
(b) Depreciation
Property, plant and equipment are recorded at cost less accumulated depreciation and impairment losses.
9
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
3.
Summary of significant accounting policies (continued)
(b) Depreciation (continued)
Subsequent costs
The cost of replacing a component of an item of property or equipment is recognized in the carrying amount of
the item if it is probable that the future economic benefits embodied within the part will flow to the Company
and its cost can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of
the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.
Depreciation is charged to net income or loss in the statement of comprehensive income on a straight-line basis
over the estimated useful life of the asset. The estimated useful lives are as follows:
Furniture and fixtures
Computer hardware
Office equipment
Leasehold improvements
5 years
5 years
5 years
10 years
(c) Impairment
Financial assets not recorded at fair value (including receivables)
A financial asset is considered to be impaired if objective evidence indicates that one or more events have had
a negative effect on the estimated future cash flows of that asset.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor,
restructuring of an amount due to the Company on terms that the Company would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy. Individually significant financial assets are tested for
impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share
similar credit risk characteristics.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference
between its carrying amount, and the present value of the estimated future cash flows discounted at the original
effective interest rate. Losses are recognised in income or loss and reflected in an allowance account against
the financial assets. When a subsequent event causes the amount of impairment loss to decrease, the decrease
in impairment loss is reversed through net income or loss in the statement of comprehensive income.
Non-financial assets
The carrying amounts of the Company’s non-financial assets are reviewed at each balance sheet date to
determine whether there is any indication of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset
exceeds its recoverable amount.
The recoverable amount of an asset or cash generating unit (“CGU”) is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their
present value using a discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset or CGU. For the purpose of impairment testing, assets are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or CGUs. Impairment losses are recognised in the statement of comprehensive
income.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been
recognised.
10
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
3.
Summary of significant accounting policies (continued)
(d) Share capital
Share capital represents ordinary shares which are classified as equity.
(e) Insurance contracts
i)
Classification
The Company classifies its insurance contracts as short-term insurance contracts. Short-term insurance
contracts include life and health insurance which is intended to protect the Company’s customers from the
consequences of events (such as death, disability or sickness) that would affect the ability of the customer or
dependants to maintain their current level of income. Guaranteed benefits paid on occurrence of the specified
insurance event are either fixed or linked to the event of the economic loss suffered by the policyholder. There
are no maturity or surrender benefits attached to these contracts.
ii) Recognition and measurement
Premiums
Premiums written and reinsurance premiums assumed are recorded and earned on a monthly basis as premium
is billed, except for the international health insurance coverage, where premiums written are recorded and
earned on a pro-rata basis over the term of the policy. Unearned premium reserves are established to cover the
unexpired portion of premiums written.
Reinsurance premiums ceded are recorded and amortised on a monthly basis as premium is payable, except for
international health insurance coverage, where ceded premiums are similarly pro-rated over the terms of the
contracts with the unexpired portion deferred in the balance sheet.
Claims
Claims are initially recorded based on requests for payment by health care providers and insureds.
Claims payments and changes in estimates of unpaid claims resulting from the continuous review process and
differences between estimates and payments are recognized in the statement of comprehensive income, in the
period in which the estimates are changed or the payments are made. They include all direct and indirect
claims settlement costs and arise from insured events that have occurred up to the balance sheet date even if
they have not yet been reported to the Company.
Medical – IBNR
The Company establishes a provision for claims reported but not paid and claims incurred but not reported
based on the recommendations of the Company’s actuary, using the Company’s past loss history. The reserves
recommended by the actuary are estimates, and are subject to variability. This variability cannot be evaluated
with absolute certainty since the ultimate liability for loss and loss adjustment expenses is dependent on a
number of factors including, but not limited to, expectations as to future development, expected future
inflationary trends and change in judicial interpretation of policy provisions. Loss reserves are also dependent
on the judgment and opinion of a number of individuals. The process of determining reserves necessarily
involves risks that the actual results will deviate, perhaps substantially, from the best estimate made.
Management believes that the provision for outstanding claims and claim expenses will be adequate to cover
the ultimate net cost of losses incurred to the balance sheet date but the provision is necessarily an estimate and
may ultimately be settled for a significantly greater or lesser amount. Any subsequent differences arising are
recorded in the period in which they are determined.
11
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
3.
Summary of significant accounting policies (continued)
(e) Insurance contracts (continued)
ii) Recognition and measurement (continued)
All provisions are periodically reviewed and evaluated in the light of emerging claim experience and changing
circumstances. It is reasonably possible that changes in future conditions in the near term could require a
material change in the amount estimated. The resulting changes in estimates of the ultimate liability are
recorded as incurred claims in the period they are determined.
Given the short-term nature of expected settlement, the provision estimations do not take into consideration the
time value of money or make explicit provisions for adverse deviation.
iii) Reinsurance contracts held
Contracts entered into by the Company with reinsurers under which the Company is compensated for losses on
one or more contracts issued by the Company and that meet the classification requirements for insurance
contracts, are classified as reinsurance contracts held. The benefits to which the Company is entitled under its
reinsurance contracts are included in losses recoverable from reinsurers.
Amounts recorded as due from reinsurers comprise claims submitted to reinsurers and the reinsured portion of
the reserves for losses on policies issued by the Company. The reinsured portion of the reserves for losses is
estimated in a manner consistent with the estimation of reserves for losses on the policies issued by the
Company.
The Company assesses amounts due from reinsurers for any indication of impairment on a quarterly basis. As
at December 31, 2013, management is of the opinion that all amounts due from reinsurers are recoverable and
there is no indication of impairment.
Reinsurance profit commission is calculated based on past underwriting results and in accordance with the
terms of the reinsurance contracts. The reinsurance profit commission is recorded on the accrual basis.
iv) Premiums receivable and payable related to insurance contracts
Premiums receivable and payable are recognized when due. These include amounts due to and from insurance
contract holders, brokers and agents. Premiums receivable are assessed for doubtful accounts and impairment.
(f) Foreign exchange
Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates in effect at
the balance sheet date. Income and expenses are translated at the rates in effect at the date of the transaction
and exchange gains and losses are included within general and administrative expenses in the statement of
comprehensive income.
(g) Commissions, interest and other expenses
Commission expenses, interest income and expense, and other expenses are recorded on an accrual basis.
Acquisition costs, mainly commissions and brokerage, related to unearned premiums are deferred and
amortised to income over the period in which the premiums are earned. The method followed in determining
deferred acquisition costs limits the amount of the deferral to its realisable value by giving consideration to
losses and expenses and future investment income expected to be incurred as premiums are earned.
12
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
3.
Summary of significant accounting policies (continued)
(h) Defined contribution plan
Contributions to the defined contribution plan are recognized as an expense in net income or loss in the
statement of comprehensive income as incurred.
(i) Taxation
Under the laws of Bermuda there are presently no income, withholding or capital gains taxes payable by the
Company.
(j) Related parties
Related parties include the parent, related companies, that is, fellow subsidiaries, directors and key
management personnel who have the authority and responsibility for planning, directing and controlling the
activities of the Company.
During the year, the Company used Capital G Bank Limited and its wholly owned subsidiaries (“Capital G”)
for certain banking, investment custodian and investment management services. Prior to December 31, 2013,
the Company and Capital G were related by common control. On December 31, 2013, the Company’s ultimate
parent company, Edmund Gibbons Limited (“EGL”), disposed of its controlling interest in Capital G. The
Company and Capital G remained related parties due to a minority equity interest retained by EGL. Capital G
Bank Limited changed its name to Clarien Bank Limited in April 2014.
(k) Provisions
A provision is recognized if, as a result of a past event, the Company has a present legal or constructive
obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be
required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a
rate that reflects current market assessments of the time value of money and, where appropriate, the risks
specific to the liability.
(l) Intangible assets
The Company has classified software costs as intangible assets if they are not an integral part of computer
equipment. Software intangible assets are recorded at cost less accumulated amortization and impairment
losses. Amortisation is provided for on a straight line basis over the estimated useful life of 5 to 10 years.
(m) New standards, interpretations and amendments to published standards
(a) New and amended standards adopted by the Company
IFRS 13, Fair Value Measurement aims to improve consistency and reduce complexity by providing a
definition of fair value and a single source of fair value measurement and disclosure requirements for use
across IFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it
should be applied where its use is already required or permitted by other standards within IFRS. In
accordance with the provisions of IFRS 13, the Company has applied the new fair value measurement
guidance prospectively from January 1, 2013. The change did not have a significant impact on the
Company’s financial statements.
The IASB have also issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS
12 Disclosure of Interest in Other Entities, IAS 27 Separate Financial Statements (2011), which supersedes
IAS 27 (2008) and IAS 28 Investments in Associates and Joint Ventures (2011), which supersedes IAS 28
(2008). All of these standards had an effective date of January 1, 2013. The adoption of these standards had
no impact on the recognized assets, liabilities and income of the Company.
13
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
3.
Summary of significant accounting policies (continued)
(b) New standards, amendments and interpretations not effective for the financial year beginning January 1,
2013 and not early adopted
IFRS 9 Financial Instruments sets out the recognition and measurement requirements for financial
instruments. The IASB has broken the project into three phases, classification and measurement,
impairment methodology and hedge accounting. The IASB continues to add to the standard as it
completes the various phases of its project and it will eventually form a complete replacement for IAS 39:
Financial Instruments Recognition and Measurement.
The IASB issued IFRS 9 Financial Instruments (2009) and IFRS 9 (2010), which contain the
requirements for classification and measurement of financial assets and liabilities. In November 2012, the
IASB issued an exposure draft on limited amendments to the classification and measurement requirements
of IFRS 9.
The IASB has continued to develop its proposals for an expected credit loss approach to impairment of
financial assets and issued an exposure draft in March 2013.
The IASB has tentatively determined that the mandatory effective date of IFRS 9 will be January 1, 2018.
The adoption of IFRS 9 may have an effect on classification and measurement of the Company’s financial
instruments.
The IASB issued an exposure draft proposing changes to IFRS 4, Insurance Contracts in July 2010 as the
first phase in their project to develop a comprehensive standard for insurance contracts. In July 2013, the
IASB issued their second exposure draft for the insurance contracts project. The exposure draft in its
current form will require a number of changes to the measurement and disclosure of insurance contracts.
The Company has not currently assessed the impact of adoption on the financial statements. The exposure
draft does not currently have a mandatory adoption date, however the IASB has stated they will allow at
least three full years from the date of any final standard to actual implementation.
Under an amendment to IAS 32, Offsetting Financial Assets and Financial Liabilities, an entity is required
to offset (i.e. present as a single net amount in the statement of financial position) a recognised financial
asset and a recognised financial liability when it has an unconditional and legally enforceable right of setoff and intends either to settle the asset and liability on a net basis or to realise the asset and settle the
liability simultaneously. The amendment requires an entity to disclose information about offsetting and
related arrangements (such as collateral agreements) to enable users of its financial statements to
understand the effect of those arrangements on its financial position. This amendment is effective for
annual periods beginning on or after January 1, 2014 and is to be applied retrospectively. The Company is
in the process of assessing the impact of this standard on its financial statements.
4.
Underwriting policies and reinsurance agreements
The Company follows the policy of underwriting and reinsuring all contracts of insurance, which limit the
retained liability of the Company to a maximum amount of $325,000 (2012 - $325,000) on any one individual
medical loss per year, 20% (2012 - 20%) of paid claims on all group life losses, 10% (2012 - 10%) of paid
claims on all long-term disability losses and 40% of gross liabilities up to a maximum of $3,500 gross weekly
benefit per person of paid claims on all short-term disability losses. The reinsurance of contracts does not,
however, relieve the Company of its primary obligation to the policyholders.
In the event that the reinsurers are unable to meet their obligations under the reinsurance agreements, the
Company would also be liable for the reinsured amount. The Company evaluates the financial condition of its
reinsurers and monitors the credit risk of the reinsurers to minimize its exposure to significant losses from
reinsurer insolvency.
14
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
5.
Investments
(i) Of the total cash and cash equivalents, 46% (2012 - 47%) is held with Capital G and 45% (2012 - 34%) is held
with unrelated Bermuda banks.
As at December 31, 2013 and 2012, the bank overdraft amount related to the overdrawn balance per the books
and resulted primarily from un-presented cheques.
(ii) Financial assets at fair value through profit or loss comprise the following:
December 31, 2013
Fair
value
Cost
Managed funds
Corporate bonds
Common equity securities
Preferred shares
Total
December 31, 2012
Fair
value
Cost
$ 31,498,571
1,700,000
508,540
175,854
$ 30,968,581
1,715,912
1,578,695
192,977
$ 23,027,655
–
484,136
545,426
$ 22,396,802
–
1,578,695
556,412
$ 33,882,965
$ 34,456,165
$ 24,057,217
$ 24,531,909
Financial assets held-to-maturity comprise preferred shares maturing in 2019 carried at an amortised cost of
$892,808 (2012 - $897,680) and Bermuda government debt instrument maturing in 2020 carried at an
amortised cost of $225,000 (2012 - $225,000) which have coupon rates of 8% and 5.6% respectively. The fair
value of the held-to-maturity investments at the balance sheet date is $1,266,731 (2012 - $1,316,987). The
preferred shares are issued by a local Bermuda bank and are guaranteed by the Government of Bermuda which
has a credit rating of AA-.
The managed funds owned by the Company invest in a number of different types of investments which
include: large cap, small cap and emerging market equity, U.S. bonds, high yield bonds, and alternative
investments which can include private equity. These investments are subject to the conditions and restrictions
as further defined in the terms of the offering of each fund, which are usually contained in a formal Offering
Memoranda. Such Offering Memoranda generally define the nature and types of investments in which a
managed fund can invest and provide for specified procedures regarding further investment in and redemption
from the particular fund.
Whilst investments in managed investment funds can achieve investment diversification, these investments can
also subject the Company to a concentration of risk in one company or investment strategy. Because the
investments in managed investment funds can only be redeemed or transferred in accordance with the terms of
the offering of the particular fund, generally weekly, monthly, or quarterly, the ability of the Company to
realise such investments may be restricted.
For managed funds the Company’s largest concentration in any one investee is 34% of total investments (2012
- 34%). The security is a Bermuda based fund investing in fixed income securities. Corporate bonds represents
a single security with a coupon rate of 1.8% which matured in January 2014.
For equity securities there are no concentrations in any one investee.
Preferred shares have a coupon rate between 6.45% and 8.75% and mature between 2046 and 2069.
15
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
5.
Investments (continued)
The investment portfolio is monitored by management and is subject to investment guidelines approved by the
Board of Directors.
(iii) Fair value of investments
The Company measures fair value using the following fair value hierarchy that reflects the significance of the
inputs used in making the measurements. The fair value hierarchy gives the highest priority to quoted prices in
active markets for identical assets or liabilities (Level 1) and the lowest priority to fair values derived from
unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
Level 1 – Quoted prices for identical instruments in active markets.
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar
instruments in markets that are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets.
Level 3 – Model derived valuations in which one or more significant inputs or significant value drivers are
unobservable. These measurements include circumstances in which there is little, if any, market activity for the
asset or liability. In making the assessment, the Company considers factors specific to the asset or liability and
such an assessment will involve significant management judgment. Because of the inherent uncertainty in the
valuation of these Level 3 investments, fair values of such investments may differ from the values that would
have been used had a ready market for these investments existed, and the differences could be material.
The level in the fair value hierarchy within which the fair value measurement in its entirety falls shall be
determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The Company determined that securities classified as Level 1 would include domestic and foreign exchange
traded equity securities, quoted preferred shares and quoted managed funds. Level 2 would include corporate
debt securities and unquoted preferred shares. Level 3 would include unquoted common equities.
Fair values of the Company’s corporate bonds securities are determined by the Company’s investment
manager who utilizes third party pricing sources. These third party pricing sources determine estimates of fair
value measurement for the securities using the spread above the risk-free yield curve, reported trades,
broker/dealer quotes, benchmark yields and industry and market indicators.
Fair values of the Company’s interests in unquoted managed fund investments are based upon the Net Asset
Values of the underlying investment funds as reported by the investment managers, or their independent
administrators. The Company’s ability to redeem its managed fund investments at the reported net asset value
per share (or its equivalent) determines whether the managed fund investment will be categorized within Level
2 or Level 3 of the fair value hierarchy. If the managed fund can be redeemed within a time period of 3 months
with no gates or other redemption restrictions it will be classified within Level 2. Otherwise the managed fund
will be classified within Level 3.
A review of the fair value hierarchy classifications is conducted on an ongoing basis. Changes in the
observability of valuation inputs may result in a reclassification for certain financial assets and liabilities.
Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3
category as of the beginning of the period in which the reclassifications occur.
16
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
5.
Investments (continued)
(iii) Fair value of investments (continued)
The following table presents the Company’s fair value hierarchy for those assets or liabilities measured at fair
value:
Investments in securities
Quoted prices
in active
markets for
identical assets
(Level 1)
December 31, 2013
Significant
other
Significant
observable
unobservable
inputs
inputs
(Level 2)
(Level 3)
Total
Managed funds
Corporate bonds
Common equity securities
Preferred shares
$
7,961,914
–
470,037
167,973
$ 21,564,339
1,700,000
–
–
$
1,972,318
–
38,503
7,881
$ 31,498,571
1,700,000
508,540
175,854
Total
$
8,599,924
$ 23,264,339
$
2,018,702
$ 33,882,965
There were no reclassifications of investments between Level 1 and Level 2 during the year ended
December 31, 2013.
Investments in securities
Quoted prices
in active
markets for
identical assets
(Level 1)
December 31, 2012
Significant
other
Significant
observable
unobservable
inputs
inputs
(Level 2)
(Level 3)
Total
Managed funds
Common equity securities
Preferred shares
$
5,737,237
445,191
356,451
$ 16,745,982
–
182,575
$
544,436
38,945
6,400
$ 23,027,655
484,136
545,426
Total
$
6,538,879
$ 16,982,557
$
589,781
$ 24,057,217
There were no reclassifications of investments between Level 1 and Level 2 during the year ended December
31, 2012.
17
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
5.
Investments (continued)
(iii) Fair value of investments (continued)
The following table provides a summary of the changes in fair value of the Company’s Level 3 financial assets
(and liabilities) for the year ended December 31, 2013:
Managed
funds
Beginning balance at
January 1, 2013
Total change in unrealized gains
or (losses)
Total purchases, issuances and
settlements
$
Common equity
securities
544,436
$
122,699
1,305,183
Ending balance at
December 31, 2013
$ 1,972,318
$
Total gains for the year included
in income on Level 3 assets
$
$
122,699
18
38,945
Preferred
shares
$
6,400
(442)
1,481
–
–
38,503
(442)
Fair value
measurements
using significant
unobservable
inputs
Total
$
589,781
123,738
1,305,183
$
7,881
$ 2,018,702
$
1,481
$
123,738
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
5.
Investments (continued)
(iii) Fair value of investments (continued)
The following table provides a summary of the changes in fair value of the Company’s Level 3 financial assets
(and liabilities) for the year ended December 31, 2012:
Managed
funds
Beginning balance at
January 1, 2012
Total realized gains or (losses)
Total change in unrealized gains
or (losses)
Total purchases, issuances and
settlements
Total sales, dispositions and
settlements
$
Common equity
securities
500,410
(78)
$
289
44,479
(664)
37,303
–
Preferred
shares
$
6,400
–
Fair value
measurements
using significant
unobservable
inputs
Total
$
544,113
(78)
1,642
–
1,931
–
–
44,479
–
–
(664)
Ending balance at
December 31, 2012
$
544,436
$
38,945
$
6,400
$
589,781
Total gains for the year included
in income on Level 3 assets
$
211
$
1,642
$
–
$
1,853
Level 3 assets contain investments in unquoted managed funds which have limited observable inputs on which
to measure fair value. The effect of changing one or more inputs used in the measurement of fair value of these
instruments to another reasonably possible assumption would not be significant and no further analysis has
been performed.
19
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
5.
Investments (continued)
(iv) Investment income comprises the following:
2013
Interest and dividend income
Amortisation
Realised gains (losses) on sale of investments
Net unrealized (losses) gains on investments
6.
2012
$
1,409,494
(4,872)
311,335
(98,508)
$ 1,775,182
(4,872)
(120,835)
536,140
$
1,617,449
$ 2,185,615
Funds withheld
Included within funds withheld is a restricted deposit of $210,978 (2012 - $210,978) with a banking institution
in the Turks & Caicos Islands. The money is being held in favour of the Superintendent of Insurance of the
Turks & Caicos Islands as part of that country’s regulatory requirement. This amount is not to be reduced or
removed without the prior written consent of the Superintendent of Insurance.
7.
Property, plant and equipment
Property, plant and equipment as at December 31, 2013 comprise the following:
January 1,
2013
Additions
Disposals
December 31,
2013
Cost
Leasehold improvements
Computer hardware
Furniture and fixtures
Office equipment
$
2,838,801
2,508,378
697,424
680,771
$
962
172,858
4,615
–
$
–
–
–
–
$
2,839,763
2,681,236
702,039
680,771
$
6,725,374
$
178,435
$
–
$
6,903,809
January 1,
2013
Depreciation
expense
Disposals
December 31,
2013
Accumulated depreciation
Leasehold improvements
Computer hardware
Furniture and fixtures
Office equipment
Net book value
$
930,526
1,995,028
683,368
615,590
$
283,880
197,731
4,202
24,407
$
–
–
–
–
$
1,214,406
2,192,759
687,570
639,997
$
4,224,512
$
510,220
$
–
$
4,734,732
$
2,500,862
$
2,169,077
20
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
7.
Property, plant and equipment (continued)
Property, plant and equipment as at December 31, 2012 comprise the following:
January 1,
2012
Additions
Disposals
December 31,
2012
Cost
Leasehold improvements
Computer hardware
Furniture and fixtures
Office equipment
$
2,838,801
2,288,465
689,831
663,368
$
–
219,913
7,593
17,403
$
–
–
–
–
$
2,838,801
2,508,378
697,424
680,771
$
6,480,465
$
244,909
$
–
$
6,725,374
January 1,
2012
Depreciation
expense
December 31,
2012
Disposals
Accumulated depreciation
Leasehold improvements
Computer hardware
Furniture and fixtures
Office equipment
Net book value
$
646,646
1,806,925
680,584
591,002
$
283,880
188,103
2,784
24,588
$
–
–
–
–
$
930,526
1,995,028
683,368
615,590
$
3,725,157
$
499,355
$
–
$
4,224,512
$
2,755,308
$
2,500,862
21
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
8.
Intangible assets
Intangible assets comprising computer software as at December 31, 2013 are detailed below:
January 1,
2013
Additions
Disposals
December 31,
2013
Cost
Computer software
$
1,489,069
$
22,327
$
–
$
1,511,396
$
1,489,069
$
22,327
$
–
$
1,511,396
January 1,
2013
Amortisation
expense
Disposals
December 31,
2013
Accumulated amortisation
Computer software
$
1,161,917
$
206,126
$
–
$
$
1,161,917
$
206,126
$
–
$
1,368,043
1,368,043
Net book value
$
327,152
22
$
143,353
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
8.
Intangible assets (continued)
Intangible assets comprising computer software as at December 31, 2012 are detailed below:
January 1,
2012
Additions
Disposals
December 31,
2012
Cost
Computer software
$
1,408,894
$
80,175
$
–
$
1,489,069
$
1,408,894
$
80,175
$
–
$
1,489,069
January 1,
2012
Amortisation
expense
Disposals
December 31,
2012
Accumulated amortisation
Computer software
Net book value
9.
$
970,255
$
191,662
$
–
$
1,161,917
$
970,255
$
191,662
$
–
$
1,161,917
$
438,639
$
327,152
Outstanding losses and loss expenses
The outstanding claims provision comprises:
Medical and dental
Long-term disability
23
2013
2012
$ 10,570,267
2,143,404
$ 11,881,573
2,047,761
$ 12,713,671
$ 13,929,334
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
9.
Outstanding losses and loss expenses (continued)
Movements in insurance liabilities and reinsurance assets are as follows:
Gross
Loss reserves:
Notified claims
Incurred but not
reported
Total at beginning
of year
$ 4,143,622 $ (4,143,622) $
9,785,712
13,929,334
Movements during
the year:
Claims incurred
- current year
86,492,953
Claims incurred
- prior year
(209,201)
Total claims
incurred
December 31, 2013
Reinsurance
Net
–
–
Gross
December 31, 2012
Reinsurance
Net
$ 2,987,427 $ (2,987,427) $
9,785,712
8,626,672
(4,143,622)
9,785,712
11,614,099
(2,987,427)
8,626,672
(1,615,583)
84,877,370
87,541,502
(2,501,936)
85,039,566
(850,984)
(1,037,056)
(111,469)
(320,670)
(186,072)
–
–
8,626,672
86,283,752
(1,727,052)
84,556,700
87,355,430
(3,352,920)
84,002,510
(87,499,415)
2,098,271
(85,401,144)
(85,040,195)
2,196,725
(82,843,470)
Total at end of year 12,713,671
(3,772,403)
8,941,268
13,929,334
(4,143,622)
Notified claims
Incurred but not
reported
(3,772,403)
4,143,622
(4,143,622)
Claims settled in
the year
Total at end
of year
3,772,403
8,941,268
–
–
8,941,268
9,785,712
–
9,785,712
–
9,785,712
$ 12,713,671 $ (3,772,403) $ 8,941,268 $ 13,929,334 $ (4,143,622) $ 9,785,712
Included in the reinsurance balance of $3,772,403 is paid losses recoverable from reinsurers of $505,883.
The determination of the provision for future policy benefits is dependent on the estimates relating to the
historical monthly lag patterns of claim payment relative to claim incurral date. These lag patterns are used to
develop completion factors which estimate the ultimate level of incurred claims for each month. The Company
also reviews enrollment and patterns of claims paid per employee per month to estimate incurred claims for
months closest to the valuation date. This is referred to as the PEPM method.
The use of the 12-month weighted average Completion Factor method, blended with the PEPM method for
recent months, is selected as it provides stability and reliability in the provision for future policy benefits. With
respect to both methods, paid claims are adjusted for reinsurance recoveries and medical trends.
24
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
9.
Outstanding losses and loss expenses (continued)
The development of insurance liabilities provides a measure of the Company’s ability to estimate the ultimate
value of claims. As claims are typically settled within a one year period, the Company has not included
disclosure about claims development.
Claims paid
Gross claims paid consist of:
Medical
Dental
Vision
Long-term disability
Group life
Other
10.
2013
2012
$ 77,835,714
7,268,616
1,161,469
336,378
596,733
300,505
$ 76,354,086
6,737,444
1,079,764
356,530
376,690
135,681
$ 87,499,415
$ 85,040,195
Related party transactions
(a) The amounts due from companies related through common control comprise the following:
Gibbons Management Services Limited
British Caymanian Insurance Company Limited
Colonial Insurance (BVI) Limited
2013
2012
$ 21,060,910
322,550
1,085,411
$ 21,144,374
110,454
688,158
$ 22,468,871
$ 21,942,986
The amounts due to companies related through common control comprise the following:
2013
Colonial Insurance Company Limited
Colonial Life Assurance Company Limited
Colonial Group International Ltd.
Atlantic Medical Insurance Limited
British Caymanian Agencies Company Limited
25
2012
$
285,846
43,124
300,000
487,502
5,333
$
426,866
24,616
500,000
482,654
43,760
$
1,121,805
$
1,477,896
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
10.
Related party transactions (continued)
The amounts due from related companies are unsecured and repayable on demand. The balance due from
Gibbons Management Services Limited bears interest at 5% per annum. The balance due to Colonial Insurance
Company Limited is repayable on demand and bears interest at a rate of 3% per annum. Included in investment
income is net interest income of $1,040,068 (2012 - $1,642,641) received from related parties. The remaining
balances have no specific settlement terms and carry no interest.
(b) The Company insures the health and life risks of several companies related through common control. These
risks are written at standard rates and are subject to the normal reinsurance protections purchased by the
Company. The premiums written for related companies were $8,370,942 (2012 - $7,985,333).
(c) The Company recorded an expense of $1,159,705 (2012 - $1,128,407), charged by a company related through
common control for the rental of office space and other group overhead expenses during the year. This has
been included in general and administrative expenses.
(d) The Company assumed $6,204,801 (2012 - $5,522,874) of premiums from Colonial Insurance (BVI) Limited,
a company related through a common shareholder. Other balances and costs associated with this reinsurance
business include:
Outstanding losses and loss expenses
Commission expense
Claims incurred
$
$
$
2013
2012
1,061,000
1,056,487
4,887,805
$ 1,102,000
$
966,045
$ 4,587,897
(e) The Company provides management and consultancy services to a medical insurance company related through
common control. Included in management fee income is $2,726,880 (2012 - $2,620,610) in respect of such
services.
(f) Investments with a recorded value of $35,000,773 (2012 - $25,179,897) are held in the custody of Capital G.
(g) At December 31, 2013, the Company had 2 (2012 - 2) positions with an aggregate carrying value of
$15,243,767 (2012 - $11,715,314) in investment funds managed by Capital G.
(h) A director of the Company and significant shareholder of the ultimate parent company is also a director of an
entity in which the Company held an equity investment with a carrying value of $148,662 at December 31,
2013 (2012 - $134,103).
(i) Investment advisory fees, which are incurred on a quarterly basis and calculated as 0.5% of the total net asset
value of the investment portfolio, are included in general and administrative expenses for the year ended
December 31, 2013 and amounted to $180,551 (2012 - $144,897). Such fees are paid to Capital G.
26
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
10.
Related party transactions (continued)
(j) Compensation to key management employees deemed to be related parties under IAS 24 was as follows:
Short term employee benefits
Defined contribution pension and medical insurance expenses
2013
2012
$
2,347,431
369,706
$ 2,650,859
214,804
$
2,717,137
$ 2,865,663
(k) On January 1, 2012 the Company entered into a quota share group life reinsurance agreement with Colonial
Life Assurance Company Limited (“CLAC”), a company related through common control. Under this
agreement, the Company cedes 50% of the net group life insurance premium to CLAC with a 10% ceding
commission earned by the Company. For the year ended December 31, 2013, the Company recognised net
ceded premium in the statement of comprehensive income of $546,721 (2012 - $551,639), commission income
of $57,832 (2012 - $57,659) and net claims recovered of $27,452 (2012 - $18,161).
11.
12.
Share capital
2013
2012
Authorized share capital of par value Bd$1 each:
2,250,000 (2012 - 2,250,000) ordinary shares
$
2,250,000
$ 2,250,000
Issued and fully paid:
2,000,000 (2012 - 2,000,000) ordinary shares
$
2,000,000
$ 2,000,000
Contributed surplus
Contributed surplus represents amounts paid to the Company by the shareholder in addition to its subscription
to the Company’s share capital.
13.
Administration fees
The Company provides administrative services to a number of self-insurance programs. The Company collects
premiums and pays claims on behalf of the self-insurance programs, but does not assume any insurance risk.
27
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
14.
General and administrative expenses
2013
Staff costs (Note 10)
Rent, maintenance, insurance and power
Stamp duty
General and administrative expenses
Advertising
Depreciation & amortisation (Notes 7 and 8)
Professional and legal fees
Communication
Foreign exchange loss
Licenses and permits
Travel
Printing and stationary
Computer expenses
Bad debts
Bank charges
$
9,365,859
1,252,220
22,039
132,075
541,750
716,346
1,086,900
172,415
159,858
472,155
315,879
220,786
538,358
1,470,643
189,188
Total general and administration expenses
$ 16,656,471
2012
$
9,020,377
1,201,079
20,848
148,229
637,884
691,017
952,835
165,560
132,529
314,719
286,866
234,879
419,201
694,222
181,711
$ 15,101,956
Staff related expenses
The Company maintains a defined contribution pension plan for all full time employees. The monthly
contributions by the employees and the Company are based on 5% of the employees’ salaries. The Company’s
portion of the contributions vests over 3 to 5 years. The Company paid contributions for the year amounting to
$178,293 (2012 - $170,055) which are included in staff costs in the general and administrative expenses in the
statement of comprehensive income.
15.
Statutory requirements
The Company must at all times maintain a solvency margin and an enhanced capital requirement in accordance
with the provisions of the Insurance Act, 1978 of Bermuda.
Each year the Company is required to file with the Bermuda Monetary Authority (the “Authority”) a capital
and solvency return within four months of its relevant financial year end (unless specifically extended).
The prescribed form of capital and solvency return comprises the insurer’s Bermuda Solvency Capital
Requirement (“BSCR”) model, a schedule of fixed income investments by rating category, a schedule of net
loss and loss expense provision by line of business, a schedule of premiums written by line of business, a
schedule of risk management and a schedule of fixed income securities.
28
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
15.
Statutory requirements (continued)
As a Class 3B insurer, the Company is required to maintain available statutory capital and surplus in an
amount that is equal to or exceeds the target capital levels based on enhanced capital requirements (“ECR”)
calculated using the BSCR model. The BSCR model is a risk-based capital model introduced by the Authority
that measures risk and determines ECR and a target capital level (defined as 120% of the ECR) based on the
Company’s statutory financial statements. In circumstances where the Authority concludes that the Company’s
risk profile deviates significantly from the assumptions underlying the ECR or the Company’s assessment of
its management policies and practices, it may issue an order requiring that the Company adjust its ECR.
During the year ended and as of December 31, 2013, Colonial Medical Company Limited met the target
capital level required under the BSCR.
The Insurance Act mandates certain actions and filings with the Authority if the Company fails to meet and
maintain its ECR or solvency margin, including the filing of a written report detailing the circumstances giving
rise to the failure and the manner and time within which the insurer intends to rectify the failure. The Company
is prohibited from declaring or paying a dividend if its statutory capital and surplus is less than its ECR, or if it
is in breach of its solvency margin or minimum liquidity ratio, or if the declaration or payment of such
dividend would cause such breach.
At December 31, 2013 the Company’s ECR was $18,891,422 (unaudited).
The Company is required by its license to maintain capital and surplus greater than a minimum statutory
amount determined as the greater of a percentage of outstanding losses (net of reinsurance recoverable) or a
given fraction of net written premiums. At December 31, 2013 the Company was required to maintain a
minimum statutory capital and surplus of $18,062,186. Actual statutory capital and surplus is $56,737,454,
calculated as follows:
Statutory capital and surplus comprises:
Shareholder’s equity
Less non-admitted assets:
Deferred acquisition costs
Property, plant and equipment
Intangible assets
Prepaid expenses
$ 59,439,303
Statutory capital and surplus
$ 56,737,454
(9,383)
(2,169,077)
(143,353)
(380,036)
The Company is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets is
not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and cash equivalents,
investments, accounts receivable and accrued interest, funds withheld, insurance and reinsurance balances
receivable and the amounts due from related companies (to the extent required to meet the liquidity ratio).
Certain categories of assets do not qualify as relevant assets under the statute. The relevant liabilities are total
general business insurance reserves (net of reinsurance recoverable) and total other liabilities.
At December 31, 2013, the Company was required to maintain relevant assets of at least $10,984,367. At that
date, relevant assets were $45,575,697 and the minimum liquidity ratio was therefore met.
29
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
15.
Statutory requirements (continued)
The Company must separately disclose Cayman risk according to the insurance laws of the Cayman Islands.
Premiums Written
Reinsurance Premiums Ceded
Net Premium Earned
Net Claims Incurred
2013
2012
$ 49,775,246
$ 2,145,352
$ 47,629,894
$ 34,341,787
$ 47,099,796
$ 1,887,922
$ 45,211,874
$ 34,130,048
Included in Outstanding Loss and loss expenses is $4,288,000 (2012 - $3,419,388) which represents Cayman
Risk. The reasonableness of Cayman outstanding loss reserves are supported by a separate independent
actuarial study in accordance with the Company’s accounting policies stated in Note 3(e)(ii).
Losses recoverable from reinsurers amounting to $473,445 (2012 - ($45,075)) represents the net amounts for
Cayman recoveries. These reinsurers have been rated as A- or higher by AM Best.
The Company’s bankers issued a letter of credit of $4,500,000 (2012 - $4,500,000) in favor of the Cayman
Islands Monetary Authority in order to comply with the insurance laws of the Cayman Islands. The letter of
credit is guaranteed by Colonial Group International Ltd, the parent Company. The Company is rated AExcellent by AM Best.
With the exception of Note 6, there are no other liens or encumbrances on the Company’s assets.
16.
Risk management and financial instruments
The activities of the Company involve the use of insurance contracts and financial instruments. As such, the
Company is exposed to insurance risks and financial risks. This note presents information about the
Company’s exposure to each of the above risks, the objectives, policies and processes for measuring and
managing risk and the Company’s management of capital. Further quantitative disclosures are included
throughout these financial statements.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk
management framework. The Company is also guided by the risk management framework of its ultimate
parent. The Board and the Company’s parent have established the Investment Committee, the Risk Oversight
Committee and the Audit Committee, which along with the President and Chief Operating Officer, Health
(“COO”) of the Company are responsible for developing and monitoring the Company’s risk management
policies. The committees, President and COO report regularly to the Board of Directors on their activities.
The risk management policies are established to identify and analyse the risks faced by the Company, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities. The
Company, through its training and management standards and procedures, aims to develop a disciplined and
constructive control environment in which all employees understand their roles and obligations.
The Audit Committee and Risk Oversight Committee of the parent are standing committees of the Board of
Directors and assists the Board in fulfilling its oversight responsibilities relating to the financial reporting
process, internal accounting and financial controls, audit and risk review process, risk assessment and risk
management and compliance with legal and regulatory requirements. The Audit Committee, Risk Oversight
Committee and the Investment Management Committee meet at least three times per annum and report to the
Board on their performance with respect to their respective terms of reference.
30
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
16.
Risk management and financial instruments (continued)
Insurance risk
The principles used by the Company in managing its risks are set out below.
The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of
the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and
therefore unpredictable.
For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the
principal risk that the Company faces under its insurance contracts is that the actual claims payments exceed
the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims
is greater than estimated. Insurance events are random and the actual number and amount of claims will vary
from year to year from the level established using statistical techniques.
Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk,
geographical location and type of industry covered. The Company insures the risks of individuals located in
Bermuda, British Virgin Islands, The Cayman Islands, Turks and Caicos and internationally, therefore there is
a diversification of geographic risk. There is a concentration of industry risk which is managed through its
underwriting strategy and reinsurance arrangements. The Company’s underwriting strategy includes the
requirement for clients to enroll at least 75% of all employees on the group health plans, so as to minimize
anti-selection and to subject all new members to underwriting. The Company actively manages and pursues
early settlements of claims to reduce its exposure to unpredictable developments. In addition, the Company
places a ceiling on its exposure by establishing life-time maximum payouts for medical claims.
The following factors are likely to affect the sensitivity of the Company’s reserves:



changes to the loss ratios for the underlying business
changes to the reporting pattern of losses
changes to the severity of losses
The Company predominantly funds its net insurance liabilities (net of reinsurance recoveries) through its cash
and in the normal course of its operations. In the event of a catastrophe, the net insurance liabilities may
require to be funded through the disposal of the Company’s portfolio of investments.
The mean duration of liabilities is calculated using historical claims data to determine the expected settlement
pattern for claims arising from insurance contracts in force at the statement of financial position date (both
incurred claims and future claims arising from the unexpired risks at the balance sheet date). The mean
durations are:
Net short-term insurance liabilities
2013
2012
3mths
3mths
Short-term insurance liabilities are estimated using standard actuarial claims projection techniques. These
methods extrapolate the claims development for each underwriting year based on the observed development of
earlier years. In most cases, no explicit assumptions are made as projections are based on assumptions implicit
in the historic claims development on which the projections are based.
As such, the sensitivity of short-term insurance liabilities is based on the financial impact of changes to the
reported loss ratio.
31
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
16.
Risk management and financial instruments (continued)
Insurance risk (continued)
The sensitivity analyses below are based on a change in one assumption while holding all other assumptions
constant.
Sensitivity factor
Description of sensitivity factor applied
Underwriting expenses
Loss ratios
The impact of a change in underwriting expenses by 5%
The impact of a change in loss ratios by 5%
Underwriting
expenses +5%
Underwriting
Loss
expenses -5%
ratios +5%
Increase/(Decrease)
Loss
ratios -5%
At December 31, 2013
Impact on profit*
Impact on shareholder’s equity*
$
(645,009)
(645,009)
$
645,009
645,009
$
(6,228,051)
(6,228,051)
$
6,228,051
6,228,051
At December 31, 2012
Impact on profit*
Impact on shareholder’s equity*
$
(568,576)
(568,576)
$
568,576
568,576
$
(5,779,869)
(5,779,869)
$
5,779,869
5,779,869
* Net of reinsurance
As outlined in Note 1 to the financial statements, the Company uses reinsurance to manage its insurance risk.
Financial risk
The Company has exposure to the following risks from its use of financial instruments:



credit risk
liquidity risk
market risk
The nature and extent of the financial instruments outstanding at the balance sheet date and the risk management
policies of the Company are discussed below.
Credit risk
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or
commitment that it has entered into with the Company. The Company’s maximum credit risk exposure is the
carrying value of assets less any provisions for irrecoverable amounts. The Company is exposed to credit risk in
the following areas:
Cash and investments
Investment asset allocation is determined by the Company’s investment manager who manages the distribution
of the assets to achieve the Company’s investment objectives. Divergence from target asset allocations and the
composition of the portfolio is monitored by the Company’s Board of Directors and the parent’s Investment
Committee. Details of concentrations of cash and cash equivalents and investments are disclosed in Note 5.
32
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
16.
Risk management and financial instruments (continued)
Credit risk (continued)
Premiums receivable
The Company’s exposure to credit risk is influenced by the financial stability of entities that purchase insurance
products. This credit risk is controlled by monitoring the aging of all amounts outstanding on an ongoing basis
and monitoring the customers’ financial health by reference to the media and discussions with the customers. A
provision is made for non-recovery, if considered necessary.
As at December 31, 2013 approximately $526,665 (2012 - $624,821) of premiums receivable due to the
Company were from four major groups. Management is of the opinion that this concentration will not have a
significant impact on the Company’s financial condition.
Collateral is not held against any of the outstanding balances, however the Company has the right to cancel the
policy for non-payment. Based on the Company’s current aging procedure, all premiums receivable over 30 days
are considered to be past due but not impaired. Customer accounts that become past due over 60 days are placed
on-hold and those that are over 90 days past due are considered for impairment by management. Steps taken to
cancel or extend the terms of credit are instituted on a case by case basis.
Due from reinsurers
Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers
to honour their obligations could result in losses to the Company; consequently, allowances are established for
amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of
its reinsurers to minimise the exposure to significant losses from reinsurer insolvencies. At December 31,
2013, losses recoverable from reinsurers were due from one reinsurer who has an A.M. Best rating of A.
The Company reviews the creditworthiness of reinsurers on an annual basis and only enters into contracts with
reinsurers that (1) have been rated as A- or higher by the AM Best credit rating agency and (2) have in excess
of $500 million in capital and surplus. Current financial statements for the reinsurers are reviewed annually.
Based on the individual reinsurance agreements, the Company may have the right to offset amounts due to
reinsurers against any amounts due from reinsurers.
Amounts due from reinsurers relating to medical and AD&D and group life are assessed monthly and
quarterly, respectively, for any indication of impairment. At December 31, 2013 there was no significant credit
risk associated with any of the Company’s reinsurers.
33
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
16.
Risk management and financial instruments (continued)
Credit risk (continued)
Related party and other receivables
Amounts due from related parties and other receivables are assessed and monitored on a monthly basis for any
indication of impairment. As at December 31, 2013, $21,060,910 (2012 - $21,144,374) of amounts due from
related parties were due from Gibbons Management Services Limited, representing 94% (2012 - 96%) of total
amounts due from related parties. As at December 31, 2013, all amounts were considered to be collectible.
The following table analyses the aging of the Company’s receivables:
December 31, 2013
Insurance
and
reinsurance
balances
receivable
$
Amounts not currently due
–
Up to 30 days
2,137,813
31 – 60 days
828,896
61 – 90 days
72,740
Over 90 days
(12,443)
3,027,006
Accounts
receivable
and accrued
interest
$
Losses
recoverable
from
reinsurers
$
Due from
related
parties
$
Total
$
–
349,358
–
61,114
146,617
3,266,521
506,314
–
–
–
22,468,871
–
–
–
–
25,735,392
2,993,485
828,896
133,854
134,174
557,089
3,772,835
22,468,871
29,825,801
December 31, 2012
Insurance
and
reinsurance
balances
receivable
$
Accounts
receivable
and accrued
interest
$
Losses
recoverable
from
reinsurers
$
Due from
related
parties
$
Total
$
Amounts not currently due
–
Up to 30 days
2,363,979
31 – 60 days
899,934
61 – 90 days
477,800
Over 90 days
809,697
–
129,144
7,000
144,527
301,794
2,782,693
1,360,929
–
–
–
21,942,986
–
–
–
–
24,725,679
3,854,052
906,934
622,327
1,111,491
4,551,410
582,465
4,143,622
21,942,986
31,220,483
Insurance and reinsurance balances receivable is presented net of an allowance for doubtful accounts of
$1,159,469 (2012 - $957,747).
Included in insurance and reinsurance balances receivable are amounts past due of $60,297 (2012 - $1,287,497)
that are not considered to be impaired.
34
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
16.
Risk management and financial instruments (continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they become due.
The Company is exposed to daily calls on its available cash resources for the payment of claims and operating
expenses. In order to manage liquidity, management seeks to maintain levels of cash and short-term deposits
sufficient to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable
losses or risking damage to the Company’s reputation.
The following summarizes the contractual recovery or settlement of other assets held (within 12 months from
the balance sheet date) and the maturity profile of the Company’s liabilities relating to financial instruments
and insurance contracts:
Year ended
December 31, 2013
Current Non-current
$
$
Financial assets
Cash at bank in hand
9,610,176
Investments
33,882,965
Due from reinsurers
3,772,403
Insurance and reinsurance
balances receivable 3,027,006
Funds withheld
213,478
Accounts receivable
557,089
Due from related
parties
22,468,871
Total
Year ended
73,531,988
–
1,117,808
–
Total
$
December 31, 2012
Current Non-current
$
$
9,610,176
35,000,773
3,772,403
9,146,941
24,057,217
4,143,622
–
–
–
3,027,006
213,478
557,089
4,551,410
213,478
582,465
–
–
–
4,551,410
213,478
582,465
–
22,468,871
21,942,986
–
21,942,986
74,649,796
64,638,119
1,117,808
December 31, 2013
Current Non-current
$
$
Total
$
–
1,122,680
–
Total
$
1,122,680
9,146,941
25,179,897
4,143,622
65,760,799
December 31, 2012
Current Non-current
$
$
Total
$
Financial liabilities
Bank overdraft
Outstanding losses
and loss expenses
Due to reinsurers
Due to related parties
Accrued expenses
1,153,836
–
1,153,836
1,232,963
–
1,232,963
12,713,671
719,307
1,121,805
2,029,426
–
–
–
–
12,713,671
719,307
1,121,805
2,029,426
13,929,334
412,434
1,477,896
1,615,745
–
–
–
–
13,929,334
412,434
1,477,896
1,615,745
Total
17,738,045
–
17,738,045
18,668,372
–
18,668,372
Liquidity margin
55,793,943
56,911,751
45,969,747
1,117,808
35
1,122,680
47,092,427
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
16.
Risk management and financial instruments (continued)
Market risk
Market risk is the risk that changes in market prices such as equity prices, interest rates and foreign exchange
rates will affect the Company’s income or the value of its holdings of financial instruments. The objective of
the Company’s market risk management is to manage and control market risk exposures within acceptable
parameters, while optimizing the return.
Interest-rate risk
The Company invests in managed funds, the fair values of which are affected by changes in interest rates.
Details of interest rate risk on related party balances are disclosed in Note 10. The Company’s interest rate
risk exposure on its corporate bond securities is not considered significant.
Currency risk
The majority of the Company’s financial assets and liabilities are denominated in Bermuda dollars therefore
the Company is not normally exposed to significant currency risk.
Equity price risk
The Company is subject to equity price risk due to daily changes in the market values of securities in its fund
and equity portfolios. Equity price risk is actively managed in order to mitigate anticipated unfavorable
market movements where this lies outside the risk appetite of the parent company’s Investment Committee.
Diversified portfolios of assets are held in order to reduce exposure to individual equities. At the balance sheet
date management estimates that a 10% increase in prices for securities held, with all other variables held
constant, would increase net income by approximately $3,200,000. A 10% decrease in equity prices would
have a corresponding decrease in net income.
Limitations of sensitivity analysis
The sensitivity information included in this note demonstrates the estimated impact of a change in a major
input assumption while other assumptions remain unchanged. In reality, there are normally significant levels
of correlation between the assumptions and other factors. It should also be noted that these sensitivities are
non-linear and larger or smaller impacts should not be interpolated or extrapolated from these results.
Furthermore, estimates of sensitivity may become less reliable in unusual market conditions such as instances
when risk free interest rates fall towards zero.
36
COLONIAL MEDICAL INSURANCE COMPANY LIMITED
Notes to Financial Statements
December 31, 2013
17.
Change in non-cash operating working capital
2013
(Increase)/decrease in:
Losses recoverable from reinsurers
Insurance and reinsurance balances receivable
Amounts due to/from related companies (net)
Funds withheld
Accounts receivable and accrued interest
Deferred acquisition costs
Prepaid expenses
$
Increase/(decrease) in:
Outstanding losses and loss expenses
Unearned premiums
Reinsurance balances payable
Accrued expenses and accounts payable
$
(1,215,663)
37,610
306,873
413,681
$
18.
371,219
53,761
(965,440)
–
25,376
(498)
(152,197)
2012
(1,125,278)
(1,156,195)
(2,314,087)
2,161,224
(1,265)
(465,251)
(2,367)
125,505
2,315,235
43,469
52,796
(323,126)
$
435,938
Capital management
The Company’s capital base is structured to exceed regulatory and internal capital targets while maintaining an
effective capital structure. The Board of Directors is responsible for designing the Company’s capital plan with
management responsible for the implementation of the plan. The policy is designed to ensure that adequate
capital is maintained to provide the flexibility necessary to take advantage of growth opportunities, to support
the risks associated with the business and to provide returns to shareholders. The policy is also designed to
provide an appropriate level of risk management over capital adequacy risk, which is defined as the risk that
capital is not or will not be sufficient to withstand adverse economic conditions, to maintain financial strength
or to allow the Company to take advantage of opportunities for expansion.
The Company is required by the Bermuda Monetary Authority to maintain certain levels of capital and surplus.
At the balance sheet date the Company has met these requirements (See Note 15).
The Company’s capital base consists of common shares, contributed surplus and retained earnings.
19.
Letter of credit
The Company’s bankers issued a letter of credit of $4,500,000 (2012 - $4,500,000) in favor of the Cayman
Islands Monetary Authority in order to comply with the insurance laws of the Cayman Islands (see Note 15).
The parent company has pledged assets as security for this letter of credit.
20.
Dividends
During the year, the Company declared a dividend payable to its sole shareholder of $Nil (2012 - $5,000,000).
37