Financial Strength
Insuring Canadians since 1887, The Dominion of Canada General Insurance Company (The Dominion) has withstood more than a century of economic change to earn a reputation for stability, integrity and strength. The Dominion is 100% owned by E-L Financial Corporation Limited, a company whose shares are publicly traded on the Toronto Stock Exchange.1
Four important factors that underlie our financial strength are: Canada’s strong financial services regulatory environment, our prudent investment policies, our excess capital and backing by high quality global reinsurers.
Regulatory Environment
The Dominion operates under Canada’s world-class financial services regime. As a result of strong regulatory oversight and a sound financial services sector, Canada’s financial institutions fare relatively well in times of global financial crisis. The Dominion is a federal financial institution, subject to the financial and other requirements of The Insurance Companies Act (Canada) (the "Act"). The solvency of The Dominion and other federal financial institutions is regulated by the Office of the Superintendent of Financial Institutions (OSFI), as well as provincial insurance regulators.
Investment Policies
The Dominion's insurance liabilities are backed by a conservative investment portfolio. We invest in high-quality fixed income securities in order to fund ongoing claims payments. These investments consist mainly of government securities and investment-grade corporate bonds, debentures and preferred shares. In addition to the investments held to pay claims, The Dominion has investments supporting shareholder capital, which serve as a buffer for large unusual losses or unexpected increases in existing claims liabilities. Investments supporting The Dominion's shareholder capital are comprised of high quality common stocks from Canadian and foreign “blue chip” corporations, government securities, and corporate bonds and debentures. As a result of the investment in common stocks, The Dominion's shareholder capital fluctuates with changes in global equity market values. The Dominion addresses this volatility by carrying capital in excess of regulatory requirements.
Capital Adequacy
The Act requires The Dominion to maintain adequate levels of capital to fulfill its obligations to policyholders. Capital adequacy is predominantly determined by the Minimum Capital Test ("MCT"), a calculation defined by OSFI2. OSFI's established supervisory target MCT result of 150% provides a buffer above the legally required minimum MCT result of 100%. In 2010, The Dominion's Board of Directors approved an internal capital target MCT ratio of 190%. The internal capital target is based on actuarial analysis of material risks. The internal capital target will be reviewed annually, or more frequently if material changes in risks are identified, and may be changed accordingly. The Dominion's decisions regarding investments and declaration of dividends will continue to be made with the intention of maintaining sufficient regulatory capital.
The Dominion's MCT results, from the time the MCT was first implemented in 2003, are as follows:
| 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | September 2011 |
| 194% | 206% | 238% | 257% | 227% | 182% | 201% | 220% | 222% |
The Dominion's MCT decreased in 2008 as a result of declines in common stock market values. The MCT increased in 2009 as a result of improved market values of bonds and common stocks, as well as The Dominion's decision to reduce its holdings of common stocks and make a corresponding increase in its investment in bonds, which generate lower capital required than common stocks. The MCT increased again in 2010 due to the improvement in earnings and a further reduction in common stocks with the proceeds being reinvested in corporate and government bonds. Continued improvement in 2011 is mainly due to positive net income. The Dominion's September 30, 2011 MCT result of 222% represents over $118 million in excess capital above the internal capital market MCT of 190% and over $264 million in excess capital above OFSI's supervisory target MCT of 150%.
Management regularly monitors the sensitivity of The Dominion’s capital to potential threats from negative claims development, declines in investment values and increases in operating leverage (ratio of premiums to capital). To demonstrate The Dominion’s sensitivity to its most significant risk, investment portfolio risk, a 20% decline in the fair value of the common stock portfolio as at September 30, 2011 would have decreased shareholder’s equity by $51.0 million (6%) and have decreased the MCT by 7 points to 215%.
Quality Global Reinsurers
The Dominion enters into reinsurance agreements with other insurers in order to limit its exposure to significant losses. The Dominion's reinsurance treaties are renewed annually. As part of the annual renewal process, management reviews the financial performance and condition of reinsurers and only those that have at least an ‘A’ credit rating at the time of renewal are accepted on our reinsurance program for the year.
The Dominion's commitment to you comes backed by a strong and stable financial history. When you insure with The Dominion, you have the ongoing confidence that the things you care about are protected.
1 Stakeholders may obtain financial and other information on the System for Electronic Document Analysis and Retrieval (SEDAR) website at www.sedar.com.
2 MCT is the ratio of capital available divided by capital required. Quarterly and annual financial information and information regarding The Dominion's Minimum Capital Test is publicly available on the OSFI website at http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=568.