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.
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.
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.
For a property and casualty insurer, maintaining adequate liquidity means earning sufficient premiums and investment income to fund underwriting expenses and policy liabilities as they come due. The Dominion maintains liquidity by generating positive cash flow from operations; by managing the maturity profile of bonds to provide a relatively steady cash flow from maturities to fund policy liabilities; by holding high quality marketable investments that may easily be sold prior to maturity, if necessary; and by maintaining a portion of investments in cash and short-term investments. In addition to the liquidity provided by cash and short-term investments, at least 10% of The Dominion’s bonds have a maturity date within one year.
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 of 150% provides a buffer above the legally required minimum MCT of 100%. In addition, since 2010, The Dominion's Board of Directors annually approves an internal capital target MCT which is established following an actuarial analysis of material risks. The internal capital target MCT is reviewed more frequently if material changes in risks are identified, and may be changed accordingly. The Dominion's decisions regarding investments and declaration of dividends are 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 ||2011 ||2012 ||March |
|194% ||206% ||238% ||257% ||227% ||182% ||201% ||220% ||216% ||217% || 228% |
| Board approved internal capital target MCT || 190% ||190% || 190% ||190% |
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. The decrease in the MCT in 2011 is due to a decline in the fair value of common share investments and an increase in capital required for growth in unpaid claims liabilities that exceeded the impact of an increase in capital available from 2011 net income. The increase in the 2012 MCT is mostly due to an increase in capital available from net income and other comprehensive income, partly offset by a dividend of $37.9 million. A further increase in the 2013 MCT mostly reflects an increase in capital available from the first quarter net income and other comprehensive income. The Dominion's March 31, 2013 MCT of 228% represents $148 million of excess capital above the internal capital target MCT of 190% and $305 million of excess capital above OSFI's supervisory target MCT of 150%.
Management regularly monitors the sensitivity of existing 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 March 31, 2013 would decrease shareholder’s equity by $70.6 million (8%) and decrease the MCT by 10 points to 218%.
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 can have 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 available on the OSFI website at http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=568.