Full report - SGI Canada

SGI CANADA’s brokers are well-known in the communities in which they operate and they actively
promote the Corporation’s products and services. To support its brokers, the Corporation is continually
enhancing broker web interfaces to make it easier for them to promote its products and to provide them
with the self-service capabilities they have requested. Through 2010, the Corporation will continue to
implement and monitor its comprehensive eServices strategy to ensure projects are implemented on time,
on budget and that they deliver specified benefits. The Corporation provides other services to ensure a
strong commitment between brokers and SGI CANADA. This business model has brought the Corporation
success in seven different markets in Canada, and it will continue to market its products this way, building
its broker relationships into the future.
Technology
SGI CANADA relies on technology and systems to maintain its in-house underwriting system. Its general
insurance system is flexible and can adapt to the changing competitive environment that SGI CANADA
operates in. The Corporation has developed a large database of information in this system that provides
valuable information in assessing insurable risks. Management reporting systems are utilized to ensure
management receives timely information regarding operations and to provide complete and accurate
reporting to stakeholders and regulators. The Corporation monitors and responds to changes in
technology to ensure that key areas are upgraded in a timely manner.
In 2009, a business intelligence project was approved to further leverage the data in the Corporation’s
general insurance system in order to produce timely, sophisticated and consistent information for the
decision-making support required to succeed in a competitive environment. This is an important project
for the Corporation and will expand its ability to:
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Focus on key performance indicators, ensuring alignment with corporate objectives and strategies, and
a quicker response to changes in the business environment.
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Focus on obtaining more profitable business and more accurately pricing risks.
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Better manage and control claim costs.
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Have consolidated views of customers, brokers and issuers.
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Reduce the risk associated with using incomplete, inconsistent or inaccurate information.
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Allow easier access to information in a self-service reporting environment.
Work on this initiative began in early 2010, with implementation of aspects of this system expected to
begin in 2011.
Financial capital
Adequate capitalization is crucial for insurers competing in the P&C insurance market in Canada. Not only
is it important to ensure adequate funding is available to pay policyholder claims, but it allows a company
to be flexible in its product offering mix in a competitive marketplace. In addition, regulators have certain
capital requirements that must be met in order to sell P&C insurance in each province. Without adequate
capitalization, SGI CANADA would not be capable of meeting its growth targets.
The Corporation’s main sources of capital are retained earnings and cash injections in the form of equity
advances from its parent, CIC. These equity advances form the Corporation’s equity capitalization. There
were no new equity advances to SGI from its parent in 2010 and there were no changes to the capital of the
Corporation’s subsidiaries during the same time period.
In Canada, either the Office of the Superintendent of Financial Institutions or provincial regulators regulate
P&C insurers. Regulators require insurers to maintain a level of capital sufficient to achieve a minimum
capital test target of 150%. SGI CANADA uses this test to assess its capital adequacy, as discussed in the
Corporate Strategies section of this report. Management of the Corporation believes SGI CANADA and
each of its subsidiaries is adequately capitalized to meet capital targets, as well as to achieve targets for
premium growth for the next five years.
Financial liquidity represents the ability of SGI CANADA’s companies to fund future operations, pay claims
in a timely manner and grow. A main indicator of liquidity is the cash flow generated from operating
activities. This is a Canadian generally accepted accounting principle (GAAP) measurement and is
reported on the Consolidated Statement of Cash Flows. For 2010, SGI CANADA generated consolidated
operating cash flows of $52.7 million. This cash flow is invested so that it is available to pay claims as they
come due and also to meet its dividend requirements to its parent, CIC.
For the cash flow the Corporation retains, its enabling legislation requires it to follow the same investment
criterion that federally regulated P&C companies must follow. This means the majority of the Corporation’s
investments are in highly liquid securities that can be sold in a timely manner in order to satisfy financial
commitments. As at December 31, 2010, 45% (2009 – 44%) of the investment portfolio was in treasury
bills and highly liquid bonds and debentures issued by the federal and provincial governments. The
Corporation also invests in corporate bonds, a pooled mortgage fund, publicly traded North American
equities and a non-North American pooled equity fund.
During the current year, dividends of $43.5 million (2009 – $34.0 million) were declared, which represents
a dividend rate of 90% of consolidated net income (2009 – 65%). At the same time, adequate capital has
been maintained within the Corporation to meet its capital targets and its financial obligations as they
come due.
2010 Financial Results
For the year ended December 31, 2010
Overview of operations
SGI CANADA’s consolidated net income before income taxes and non-controlling interest was
$51.3 million in 2010, $2.0 million lower than 2009. However, the 2010 profit is significant when considering
the exceptional storm activity experienced during the year and that the 2009 result was a record profit
for the Corporation. The 2010 return resulted from a consolidated underwriting profit of $13.1 million
combined with $38.3 million in investment earnings. The breakdown by operating segment follows:
Pre-tax profit (loss) by operating segment
2010
% of pre-tax
profit
(thousands of $)
2009
% of pre-tax
profit (loss)
SGI CANADA - Saskatchewan $ 43,284 84.3% $ 49,539 92.8%
SGI CANADA - Manitoba and Alberta 4,130 8.1% 4,404 8.2%
ICPEI (Maritimes) 2,739 5.3% 205 0.4%
Coachman (Ontario) 1,192 2.3% (761) (1.4%)
Pre-tax profit $ 51,345 100.0% $ 53,387 100.0%
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