For life and health insurance, critical assumptions used in the measurement of insurance contract liabilities are determined by the Appointed Actuary. The processes used to determine critical


assumptions are as follows: • Mortality, morbidity and lapse assumptions are based on industry and historical company data.


• Expense assumptions are based on an annually updated expense study that is used to determine expected expenses for future years.


• Asset reinvestment rates are based on projected earned rates, and liabilities are calculated using the Canadian Asset Liability Method (CALM).


A sensitivity analysis for possible movements in the life and health insurance business assumptions was performed and the impact is not significant to the Bank’s Consolidated Financial Statements.


CONCENTRATION OF INSURANCE RISK


Concentration risk is the risk resulting from large exposures to similar risks that are positively correlated.


Risk associated with automobile, residential and other products may vary in relation to the geographical area of the risk insured. Exposure to concentrations of insurance risk, by type of risk, is mitigated by ceding these risks through reinsurance contracts, as well as careful


NOTE 24 SHARE-BASED COMPENSATION STOCK OPTION PLAN


The Bank maintains a stock option program for certain key employees. Options on common shares are periodically granted to eligible employees of the Bank under the plan for terms of ten years and vest over a four-year period. These options provide holders with the right to purchase common shares of the Bank at a fixed price equal to the closing market price of the shares on the day prior to the date the


Stock Option Activity (millions of shares and Canadian dollars)


Number


Number outstanding, beginning of year Granted Exercised


Forfeited/cancelled


Number outstanding, end of year Exercisable, end of year


2.5


(4.9) (0.6)


15.4 5.5


The weighted average share price for the options exercised in 2016 was $54.69 (2015 – $53.98; 2014 – $52.15).


The following table summarizes information relating to stock options outstanding and exercisable as at October 31, 2016.


Range of Exercise Prices (millions of shares and Canadian dollars)


Number of shares


$32.99 – $36.63 $36.64 – $40.22 $40.54 – $44.61 $44.74 – $47.59 $52.46 – $53.15


outstanding 2.5


2.4 2.9 2.9 4.7


Options outstanding


Weighted- average


remaining contractual


4.3 6.0 6.0 8.5


Weighted- average


life (years) exercise price 3.7


35.35 37.23 40.55 47.02 52.80


Number of shares


2.4 –


0.6 –


Weighted- average


exercisable exercise price 2.5


35.35 37.23 –


44.74 –


Options exercisable


options were issued. Under this plan, 21.7 million common shares have been reserved for future issuance (October 31, 2015 – 23.6 million). The outstanding options expire on various dates to December 9, 2025. The following table summarizes the Bank’s stock option activity and related information, adjusted to reflect the impact of the stock dividend on a retrospective basis, for the years ended October 31.


selection and implementation of underwriting strategies, which is in turn largely achieved through diversification by line of business and geographical areas. For automobile insurance, legislation is in place at a provincial level and this creates differences in the benefits provided among the provinces.


As at October 31, 2016, for the property and casualty insurance business, 67.3% of net written premiums were derived from automobile policies (October 31, 2015 – 68.9%) followed by residential with 32.2% (October 31, 2015 – 30.6%). The distribution by provinces show that business is mostly concentrated in Ontario with 57.6% of net written premiums (October 31, 2015 – 59.0%). The Western provinces represented 28.6% (October 31, 2015 – 28.8%), followed by the Atlantic provinces with 7.8% (October 31, 2015 – 6.3%), and Québec at 6.0% (October 31, 2015 – 5.9%). Concentration risk is not a major concern for the life and health insurance business as it does not have a material level of regional specific characteristics like those exhibited in the property and casualty insurance business. Reinsurance is used to limit the liability on a single claim. Concentration risk is further limited by diversification across uncorrelated risks. This limits the impact of a regional pandemic and other concentration risks. To improve understanding of exposure to this risk, a pandemic scenario is tested annually.


2016


Weighted- average


of shares exercise price 18.4


$ 40.65 53.15 35.21 48.29


$ 44.18 $ 37.19


Number of shares


19.4 2.6


(3.3) (0.3)


18.4 7.0


2015


Weighted- average


exercise price $ 36.72


52.46 30.31 44.25


$ 40.65 $ 35.90


Number of shares


22.0 2.6


(5.0) (0.2)


19.4 7.1


2014


Weighted- average


exercise price $ 33.89


47.59 31.32 39.60


$ 36.72 $ 31.18


178 TD BANK GROUP ANNUAL REPORT 2016 FINANCIAL RESULTS


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