Skip to ContentSkip to Footer

FINANCIAL HIGHLIGHTS FOR THE YEAR:
 

  • Total assets increased by $135.5 million (2.5%) to $5.5 billion
  • Gross claim liabilities increased by $90.0 million (3.9%) to $2.4 billion
  • Total equity increased by $24.1 million (1.4%) to $1.8 billion

Figure 8 shows the significant consolidated balance sheet line items as at December 31.

2016 Consolidated Balance Sheet Line Items
Figure 8
(in millions of dollars, except as otherwise noted) 2016 2015 $ Change
Cash and cash equivalents 189.6 89.0 100.6
Restricted cash 43.5 43.5
Investments 3,914.5 4,064.9 Loss: (150.4)
Premiums receivable 648.0 601.2 46.8
Reinsurance receivable and recoverable 104.7 81.7 23.0
Deferred policy acquisition expenses 216.7 207.8 8.9
Goodwill and intangible assets 167.1 131.6 35.5
Other assets 196.5 168.9 27.6
Total assets 5,480.6 5,345.1 135.5
Unearned premiums 1,077.3 1,022.3 55.0
Claim liabilities 2,399.3 2,309.3 90.0
Accounts payable and other liabilities 200.9 234.5 Loss: (33.6)
Total liabilities 3,677.5 3,566.1 111.4
Retained earnings 1,744.5 1,762.2 Loss: (17.7)
Accumulated other comprehensive income 58.6 16.8 41.8
Total equity 1,803.1 1,779.0 24.1
Total liabilities and equity 5,480.6 5,345.1 135.5

CASH AND INVESTMENTS

Figure 9 shows the composition of our cash and cash equivalents, and investments recorded on the consolidated balance sheet as at December 31.

2016 Cash and Cash Equivalents, and Investments Recorded on the Consolidated Balance sheet
Figure 9 2016 2015
(in millions of dollars,
except as otherwise noted)
Carrying value Percent of
carrying value
Carrying value Percent of
carrying value
Cash and cash equivalents 189.6 4.6% 89.0 2.1%
Restricted cash 43.5 1.0%
Short-term investments 27.0 0.7%
Bonds 2,696.2 65.0% 2,969.9 71.5%
Preferred stocks 377.9 9.1% 370.6 8.9%
Common stocks 639.2 15.4% 558.2 13.4%
Pooled funds 116.1 2.8% 114.2 2.8%
  4,062.5 97.9% 4,128.9 99.4%
Commercial loans 85.1 2.1% 25.0 0.6%
Total cash and investments 4,147.6 100.0% 4,153.9 100.0%

Our investment strategy seeks to generate appropriate levels of income while preserving capital. The strategy focuses on maximizing our long-term capital strength, while seeking to optimize risk-adjusted returns. We have an established investment policy and strategy that is based on our risk appetite, the prudent person approach, regulatory guidelines, and reflects the expected settlement pattern of claim liabilities.

As part of the ongoing optimization of our investment portfolio, our proportionate share of investments in fixed income securities, including cash and cash equivalents, and restricted cash, decreased to 70.6% of the total portfolio compared with 74.3% as at December 31, 2015, driven by a re-deployment to common equity holdings.

Investments decreased primarily due to cash requirements to fund our infrastructure and operational investments, and to fund our acquisition of Western Financial Insurance Company. Commercial loans increased $60.1 million compared to December 31, 2015, primarily due to the issuance of new loans to broker partners which exceeded loan repayments.

Refer to Section 11 — “Financial instruments” for a discussion on the classification and measurement of our financial instruments.

INVESTMENTS

Investment sector mix

Figure 10 summarizes our investments by sector as at December 31.

2016 Investments by Sector
Figure 10 2016 2015
(in millions of dollars,
except as otherwise noted)
Short term investments
and bonds
Preferred
stocks
Common
stocks
Pooled
funds
Total Total
Government 59% 40% 46%
Financials 28% 86% 33% 12% 34% 34%
Energy 2% 11% 22% 7% 7% 5%
Telecommunications 3% 3% 14% 3% 2%
Industrials 4% 10% 9% 5% 4%
Utilities 3% 3% 1% 15% 3% 1%
Consumer discretionary 9% 5% 2% 2%
Materials 6% 3% 1% 1%
Consumer staples 1% 4% 15% 2% 2%
Information technology 8% 7% 2% 2%
Health care 4% 9% 1% 1%
Real estate 4%
Total 100% 100% 100% 100% 100% 100%
Total $2,696.2 $377.9 $639.2 $116.1 $3,829.4 $4,039.9

This figure demonstrates the secure and highly liquid nature of our investment portfolio with a significant concentration in the government and financial sectors.

Investment credit quality

Figure 11 and Figure 12 illustrate the strong credit quality of our fixed income securities and preferred stocks, respectively, as at December 31.

Credit rating* — bonds

2016 Credit rating* — bonds
Figure 11 2016 2015
(in millions of dollars,
except as otherwise noted)
Carrying
value
Percent of
carrying value
Carrying
value
Percent of
carrying value
AAA 1,435.4 53.3% 1,642.6 55.3%
AA 364.8 13.5% 468.1 15.8%
A 688.6 25.5% 620.3 20.9%
BBB 207.4 7.7% 214.5 7.2%
BB or not rated 24.4 0.8%
Total bonds 2,696.2 100.0% 2,969.9 100.0%

* Using the lowest of Standard & Poor’s and Dominion Bond Rating Service ratings.

Credit rating* — preferred stocks

2016 Credit rating* — preferred stocks
Figure 12 2016 2015
(in millions of dollars,
except as otherwise noted)
Carrying
value
Percent of
carrying value
Carrying
value
Percent of
carrying value
P1 3.2 0.9% 3.7 1.0%
P2 319.4 84.5% 322.6 87.1%
P3 or not rated 55.3 14.6% 44.3 11.9%
Total preferred stocks 377.9 100.0% 370.6 100.0%

* Using the lowest of Standard & Poor’s and Dominion Bond Rating Service ratings.

We continuously monitor the credit ratings of investments within the portfolio and take the necessary actions to ensure that a high level of quality is maintained. This resulted in 92.3% (2015: 92.0%) of our bonds being rated “A-” or better and 85.4% (2015: 88.1%) of the preferred stocks being rated “P2” or better. “A-” and “P2” represent the ratings provided by two recognized rating services for high-grade bonds and preferred stocks, respectively, where both asset and earnings protection are well-assured.

Investment portfolio region of issuer

Figure 13 summarizes the region of issuer of our investment portfolio as at December 31.

2016 Region of Issuer of Our Investment Portfolio
Figure 13 2016 2015
(in millions of dollars,
except as otherwise noted)
Carrying
value
Percent of
carrying value
Carrying
value
Percent of
carrying value
Canada 3,334.1 87.1% 3,537.2 87.5%
US 300.3 7.8% 284.9 7.1%
Europe 77.4 2.0% 71.8 1.8%
Other 117.6 3.1% 146.0 3.6%
Total 3,829.4 100.0% 4,039.9 100.0%

Our investment portfolio is mainly concentrated in Canada. Our estimated exposure to foreign exchange is outlined in Section 12 — “Risk management”.

Unrealized gains on AFS securities

Figure 14 outlines the unrealized gains (losses) on AFS securities by type of security as at December 31.

2016 Unrealized Gains (losses) on AFS Securities
Figure 14
(in millions of dollars, except as otherwise noted) 2016 2015
Bonds 2.0 15.8
Preferred stocks Loss: (57.6) Loss: (63.0)
Common stocks 126.2 62.0
Pooled funds 2.3 0.3
Unrealized gains 72.9 15.1

The unrealized gains on bonds decreased primarily due to an increase in yields of 18 basis points since December 31, 2015 and a lower weighting of bonds in our investment portfolio. A majority of our preferred stock portfolio is comprised of securities whose dividend income is reset every five years based on a spread over the five-year Government of Canada bond yield. The valuation of these securities improved in 2016, mainly due to an increase in bond yields. We continue to view these as high quality preferred stocks, as they are issued by large well-established companies and they generate attractive levels of dividend income. The rebound in the equity markets in the second half of the year, together with an increase in our holdings, resulted in increased unrealized gains on common stocks.

PREMIUMS RECEIVABLE AND UNEARNED PREMIUMS

Premiums receivable and the unearned premiums balance increased, primarily driven by the overall growth in GWP.

REINSURANCE RECEIVABLE AND RECOVERABLE

Reinsurance receivable and recoverable increased as a result of higher recoveries arising from heightened catastrophe (including Fort McMurray) and large loss activity above net retention levels. Losses in excess of our net retention will be recovered through our reinsurance treaties, net of reinstatement premiums.

GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets increased primarily related to the capitalization of costs associated with the replacement of our personal lines policy administration system and the development of Sonnet, including building the supporting infrastructure.

OTHER ASSETS

Total other assets increased from December 31, 2015 mainly due to income taxes receivable increasing by $29.8 million as a result of instalment payments outpacing the income tax expense.

CLAIM LIABILITIES AND ADJUSTMENT EXPENSES

Figure 15 shows the change in our net unpaid claim liabilities as at December 31.

2016 Net Unpaid Claim Liabilities
Figure 15
(in millions of dollars, except as otherwise noted) 2016 2015
Net unpaid claim liabilities, beginning of year 2,237.9 2,276.9
Current year claims incurred 1,446.4 1,294.6
Prior year favourable claims development Loss: (40.1) Loss: (73.1)
Claims and adjustment expenses 1,406.3 1,221.5
Impact of discounting (including PfAD) Loss: (13.6) 1.5
Claims paid during the year Loss: (1,329.5) Loss: (1,262.0)
Net unpaid claim liabilities, end of year 2,301.1 2,237.9

The consolidated net discounted claim liabilities increased by 2.8% or $63.2 million in 2016. The main components of the discounted claim liabilities are case reserves, undiscounted incurred but not reported (“IBNR”), undiscounted internal claims expense, and the discounting impact thereon. While the impact of the increase in the yields on the bond portfolio supporting the claim liabilities would normally have decreased the liabilities, this was more than offset by an overall increase in the quantum of the case reserves and undiscounted IBNR.

The increased case reserves and IBNR were primarily attributable to British Columbia auto liability and Alberta auto bodily injury. The deterioration in current and prior accident year performance led to significant strengthening of the associated IBNR provision for these lines, in order to provide additional coverage for the expected future claims payments on these books of business.

Figure 16 shows the level of favourable claims development as a percentage of opening net unpaid claim liabilities and the impact on the claims ratio by fiscal year.

2016 Net Unpaid Claim Liabilities
Figure 16
(in millions of dollars,
except as otherwise noted)
2016 2015 2014 2013 2012 2011 2010 2009 2008 2007
Net unpaid claim liabilities, beginning of the year, undiscounted 2,122.8 2,163.3 2,108.6 2,052.1 2,122.6 2,220.0 2,200.1 2,155.0 1,932.9 1,776.4
Favourable development on prior year claims, undiscounted 40.1 73.1 2.9 63.0 57.4 128.9 71.8 55.7 1.1 42.3
Favourable development on prior year closing claims, undiscounted 1.9% 3.4% 0.1% 3.1% 2.7% 5.8% 3.3% 2.6% 0.1% 2.4%
Impact on claims ratio 2.1% 3.8% 0.2% 3.6% 3.4% 8.0% 4.3% 3.1% 0.1% 2.3%

2010 – 2016 under IFRS, 2007-2009 under Canadian GAAP.

These favourable trends demonstrate our continued prudent approach to claim reserving, and further supports the financial strength of the organization and its capacity to meet its future claim obligations. In all years presented, our closing claim liabilities have been prudently established and exceeded subsequent actual claims development related to the overall reserves.

ACCOUNTS PAYABLE AND OTHER LIABILITIES

Total accounts payable and other liabilities decreased primarily due to the timing of billing and payment of costs associated with our strategic initiatives.

TOTAL EQUITY

Figure 17 illustrates the change in our total equity over the prior year.

2016 Net Unpaid Claim Liabilities
Figure 17
(in millions of dollars, except as otherwise noted) 2016 2015
Retained earnings 1,744.5 1,762.2
Accumulated other comprehensive income 58.6 16.8
Total equity 1,803.1 1,779.0
Change in total equity 24.1  

Retained earnings decreased $17.7 million since December 31, 2015 primarily due to underwriting losses, which were largely offset by investment income. The increase in accumulated other comprehensive income was primarily due to the increase in unrealized investment gains on the AFS portfolio. Overall, total equity increased 1.4%.