Results of Operations

Corporate

The corporation’s financial mandate is to break even over the long term. During the reporting period, for every dollar of revenue earned, the corporation provided Manitobans with 80 cents in claims benefits. Broker commissions and premium taxes accounted for 10 cents of every dollar of revenue earned while other operating expenses including regulatory and appeal expenses cost 10 cents. These expenses were offset by investment income equal to about one cent per dollar of revenue. This resulted in the corporation’s net income being about one cent for every dollar of revenue earned during the year.

CURRENT YEAR AND LAST YEAR

Net income from annual operations reported a decline of $92.4 million to $5.1 million. The improvement in underwriting results of $28.5 million was offset by a $120.9 million drop in investment income.

REVENUE

Total earned revenues increased by 4.2 per cent to $906.5 million in 2008/09 due mainly to increases in the number and value of vehicles insured in Manitoba.

Total earned revenues include $21.0 million received from the Province of Manitoba. This amount is received annually as part of the agreement with the Province of Manitoba for providing services related to driver and vehicle licensing operations.

CLAIMS COSTS

The corporation’s overall claims costs dropped by $5.2 million, a decline of less than one per cent, to $723.4 million. The average Autopac (Basic and Extension) cost per claim increased by $201 to $2,288 while the total number of claims filed decreased by 25,463 from 280,319 last year to 254,856 in 2008/09. Last year’s claims filed included just over 14,000 claims resulting from a severe hailstorm that struck Dauphin and other Manitoba communities in the summer of 2007.

Injury claims incurred increased by $16.1 million or 8.4 per cent from the previous year. Development on prior years’ claims, mainly related to long-tail injury claims, was better than expected. As a result, claims incurred decreased by $35.4 million for the year. In 2007/08 development on prior years’ claims was also better than expected, decreasing claims incurred by $62.5 million.

Physical damage claims incurred decreased by $28.8 million or 6.8 per cent from the previous year. The hailstorm that struck Dauphin and other Manitoba communities increased the 2007/08 claims incurred by $10.0 million, after reinsurance recovery.

Customer service improvement initiatives, including road safety expenditures, contributed to an increase in claims costs of $7.5 million.

EXPENSES

Total corporate expenses increased by $13.5 million to $182.6 million as the corporation continued to integrate driver and vehicle licensing operations and invest in customer service improvements made possible by the October 2004 merger.

INVESTMENT INCOME

Total investment income, net of impairments and investment management fees, was $4.6 million compared to $125.5 million last year. The $120.9 million decrease is primarily due to the high gains on equity investments realized last year along with the impact of the global financial crisis on the equity and bond portfolios this year. Refer to Note 13 of the Financial Statements for a breakdown of investment income by type of investment.

Where Your Premium Dollar has Gone

Manitoba Public Insurance invests money it sets aside for future claim payments and other liabilities. Investment income reduces rates that would otherwise be payable by policyholders. The total fair value of the corporation’s investment portfolio was $2.0 billion at February 28, 2009, a decline of $165.6 million or 7.6 per cent from the previous year. The bond portfolio, which accounts for 72.8 per cent of the investment portfolio, is invested in three types of bonds:

• Marketable bonds, mainly issued by the governments of Manitoba and other provinces, including floating rate notes (40.6 per cent of the total portfolio market value);
• Non-marketable bonds issued by Manitoba municipalities and school divisions and purchased through the Manitoba Department of Finance (20.7 per cent); and
• Real return bonds providing returns linked to the rate of inflation and issued by the Government of Canada and provinces (11.5 per cent).

Manitoba Public Insurance contracts five external investment managers to administer its Canadian equity portfolio, which represents 10.6 per cent of the total investment portfolio. The corporation also has 2.8 per cent of its portfolio in United States equities, which are actively managed by one external investment manager and the corporation has passive exposure to the U.S. equity market through two Exchange Traded Funds. Through the Manitoba Department of Finance, the corporation uses forward contracts to offset the effect of currency movement changes on its U.S. dollar denominated assets. Short-term investments account for 13.4 per cent of the investment fund, and venture capital and private equity investments represent 0.4 per cent of the portfolio’s carrying value.

The total portfolio, on a market-value basis, had a negative 5.8 per cent return during the fiscal year reflecting the general decline in capital markets. Marketable bonds returned 4.0 per cent, non-marketable bonds 6.5 per cent, floating rate notes 2.2 per cent and real return bonds negative 8.1 per cent. Large cap Canadian equities returned negative 37.8 per cent over the same time period, small cap Canadian equities declined by 36.3 per cent and U.S. equities declined by 50.0 per cent, including the currency hedge. Over a four-year period, the investment portfolio has achieved an annualized return of 3.4 per cent.