Full report - SGI Canada

Consolidated Statement of Comprehensive Income
2010 2009 Change
(thousands of $)
Net income $ 48,356 $ 52,367 $ (4,011)
Other comprehensive
income 7,169 30,151 (22,982)
Total comprehensive
income $ 55,525 $ 82,518 $ (26,993)
Comprehensive income is the sum of net income and other items that must bypass the statement
of operations because they have not been realized (other comprehensive income or loss). For the
Corporation, this includes unrealized gains and losses from available for sale investments. These
unrealized gains and losses are not part of net income, yet are important enough to be included in
comprehensive income, giving the user a more comprehensive picture of the organization as a whole.
In 2010, other comprehensive income added $7.2 million to net income for total comprehensive income of
$55.5 million. Other comprehensive income decreased $23.0 million compared to 2009. This decrease is a
result of the lower market rate of return in 2010 compared to 2009, in addition to realizing significant gains
in 2010 compared to 2009.
Consolidated Statement of Cash Flows
2010 2009 Change
(thousands of $)
Operating activities $ 52,668 $ 68,432 $ (15,764)
Investing activities 8,478 (44,564) 53,042
Financing activities (50,257) (19,247) (31,010)
Change in cash and
cash equivalents $ 10,889 $ 4,621 $ 6,268
Operating activities
Cash from operations contributed $52.7 million in 2010 compared to $68.4 million in 2009. While net
income year-over-year is relatively similar, the lower underwriting profit in the current year is responsible
for the decline. The significant storm claims impacted cash flows in 2010 compared to 2009, which had
minimal storm activity. However, at $52.7 million, 2010 cash flow from operations is still strong, primarily
due to the continued favourable premium growth from all companies.
Investing activities
Each legal entity’s excess cash from operating activities is invested in its own investment portfolio The
investment manager actively trades each investment portfolio in the capital markets following the
conditions set out in each legal entity’s Statement of Investment Policies and Goals. For 2010, the
investment manager, on a consolidated basis, generated cash through proceeds from the sale of
investments of $543.1 million (2009 – $419.9 million), and reinvested into investments $531.7 million (2009 –
$464.9 million). In addition, there were $3.4 million in purchases of property, plant and equipment in 2010,
resulting in a net generation of cash during the year of $8.5 million (2009 – net use of cash of $44.6 million).
Financing activities
Financing activities during the year related solely to dividends paid during the year of $50.3 million
(2009 – $19.2 million). Dividends paid during 2010 were significantly higher than in 2009 due to the
dividend rate increasing from 65% in 2009 to 90% in 2010. In addition, the 2009 fourth quarter dividend
payment (paid in March 2010) was unusually high at $22.2 million.
Cash and cash equivalents
Of the $61.1 million of cash generated from operations and investing activities, $50.3 million was used to
pay dividends and the remaining $10.9 million was added to cash and cash equivalents. Cash and cash
equivalents was $27.8 million at the end of 2010. Of this balance, $26.4 million is invested in money market
investments with a maturity of 90 days or less from the date of acquisition.
Consolidated Statement of Financial Position
2010 2009 Change
(thousands of $)
Total assets $ 872,815 $ 827,437 $ 45,378
Key asset account changes:
Unpaid claims recoverable
from reinsurers 44,132 29,626 14,506
Investments 591,219 579,730 11,489
Cash and cash equivalents 27,809 16,920 10,889
Deferred policy acquisition costs 56,204 52,412 3,792
Accounts receivable 127,479 125,334 2,145
Unpaid claims recoverable from reinsurers
Unpaid claims recoverable from reinsurers increased $14.5 million in 2010, primarily due to amounts
related to the unusually severe storm activity in Saskatchewan. Amounts due under Saskatchewan 2010
storm catastrophe reinsurance agreements account for $18.8 million of the recoverable balance.
Investments
The carrying value of investments increased by $11.5 million during the year, primarily the result of a
$25.2 million improvement in market values, offset by a net $11.3 million moved from investments into cash.
The Corporation’s investment strategy is based on prudence, regulatory guidelines and claim settlement
patterns, with a view to maximizing long-term returns utilizing a conservative investment portfolio. The
portfolio’s asset mix strategy is set by the Board through a detailed assessment of the Corporation’s risk
tolerance. The asset mix strategy takes into consideration the current and expected conditions of the
capital markets, and the historic return and risk profile of various asset classes. In order to achieve the
long-term investment goals, the portfolio must invest in asset classes that provide an attractive risk-return
profile over the medium to long-term. Over shorter periods, however, performance of these asset classes
can be volatile. In 2010, volatility continued, although at a lower rate, with positive gains building on the
strong reversal that was experienced in 2009. The Corporation believes a diversified asset mix and longerterm
focus remains appropriate, balancing the need for capital preservation in the short term with the
desire for portfolio growth over the longer term.
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