Investment Income
Manitoba Public Insurance’s investment portfolio performed well, though being underweight in equities, which has helped performance over the past two years. Manitoba Public Insurance’s investments are 76 per cent in bonds (fixed income). The majority of this amount is invested in marketable bonds issued by Canadian provinces. The marketable bond portfolio returned 9.5 per cent on a market basis during the year. The portfolio also holds $335 million of non-marketable bonds issued by Manitoba municipalities, school divisions and health facilities that are purchased through the Manitoba Department of Finance. Canadian equities returned 31.3 per cent over the year, under the 36.5 per cent return for the S&P/TSX Composite Index. U.S. equities performed very well, returning 34.3 per cent over the past year, compared to 24.7 per cent for the S&P 500 Index in Canadian dollars. Extra return was generated through the use of a currency hedge that offset major movements in the Canadian dollar during the year.

The corporation earned total investment income of $134.9 million, an increase of $77.3 million from last year. This income was earned from the investment of funds not immediately needed to pay claims and reduced the cost of the average premium by $142 (2003–$59). Public insurance schemes utilize all investment income to reduce rates that would otherwise be payable by policyholders.

Basic Rate Stabilization Reserve (RSR) and Retained Earnings
To maintain financial stability, the corporation strives to maintain adequate levels for the Basic Insurance Rate Stabilization Reserve (RSR) and retained earnings. In 1999, the Canadian Institute of Actuaries adopted a standard for Dynamic Capital Adequacy Testing (DCAT), which requires appointed actuaries to report on the financial strength of property and casualty insurance companies. DCAT is a formal approach to “stress testing” the financial strength of a line of business by estimating the future financial results if various events should occur. To address the adequacy of these reserves, the corporation has established target levels by line of business which have been approved by the Board of Directors. On a regular basis, the DCAT analysis will be undertaken by the corporation’s external actuary to review the RSR and retained earnings targets.

Basic
As at February 29, 2004, the Basic Insurance RSR totaled $42.8 million compared to $35.4 million last year.

The current level is below the established minimum target level of $80.0 million by $37.2 million.

The corporation is committed to rebuilding the RSR to fall within the target level with the principal funding being derived from transfers from the Extension and SRE lines of business. It is anticipated that these transfers will contribute approximately $29.4 million to the RSR in 2004.

Extension
As at February 29, 2004, the retained earnings balance is $43.3 million compared to $35.3 million last year.

The balance of $43.3 million is $4.3 million above the target of $39.0 million established for this line of business. Effective March 1, 2004, approximately $4.3 million will be transferred to the Basic Insurance RSR in accordance with corporate policy.

Special Risk Extension
As at February 29, 2004, the retained earnings balance is $58.1 million compared to $37.1 million last year.

The balance of $58.1 million is in excess of the approved target of $33.0 million by $25.1 million. Effective March 1, 2004, $25.1 million will be transferred to the Basic Insurance RSR in accordance with corporate policy.

...Risk Management