August 30, 2013
British Columbia Utilities Commission Sixth Floor 900 Howe Street Vancouver, BC V6Z 2N3
Attention: Ms. Erica M. Hamilton, Commission Secretary
building trust. driving confidence.
CONFIDENTIAL
Re: ICBC's Confidential Filinq of Information related to the Statement of Investment Policy and Procedures dated April 15, 2013 as referenced
in the 2013 Revenue Requirements Application
Dear Ms. Hamilton:
ICBC is filing, on a CONFIDENTIAL basis, Appendix 5 C of the 2013 Revenue Requirements Application. Appendix 5 C contains information related to the Statement of Investment Policy and Procedures dated April 15, 2013. The information, if disclosed, could be harmful to ICBe's financial interest and could cause economic harm to ICBe.
Pursuant to the Commission's Order G-65-10, ICBC must file with any revenue requirements application documentation of any related impacts with respect to any changes in the Statement of Investment Policy and Procedures. The Statement of Investment Policy and Procedures dated April 15, 2013 includes the detailed change in strategiC asset mix, which will be transitioned over the next period into early 2014. Disclosure of this information to market participants may impede ICBe's ability to effectively implement the transition, to the detriment of both ICBC's financial interest and those of Basic insurance policyholders.
ICBC has no objection to sharing this information with intervenors upon their execution of appropriate undertakings of confidentiality. ICBC expects to file its updated Statement of Investment Policy and Procedures in the usual fashion in the next revenue requirements application.
Yours truly,
June Elder Manager, Corporate Regulatory Affairs.
Cc: Geri Prior, B.Comm, FCA, Chief Financial Officer, ICBC
Attachment
151 West Esplanade I North Vancouver I British Columbia I V7M 3H9 I 604-661-2800 I [email protected]
CONFIDENTIAL
Insurance Corporation of British Columbia
August 30, 2013
APPENDIX 5 C
INFORMATION RELATED TO THE
STATEMENT OF INVESTMENT
POLICY AND PROCEDURES
DATED APRIL 15, 2013
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-i
August 30, 2013
Table of Contents
Impact of Changes in the ICBC Statement of Investment Policy and Procedures
(SIPP) ...................................................................................................... 5C-1
Statement of Investment Policy and Procedures Dated April 15, 2013
.............................................................................................. …..Attachment 1
Black Lined Version of Statement of Investment Policy and Procedures Dated
April 15, 2013 ........................................................................ …..Attachment 2
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-ii
August 30, 2013
Table of Figures
Figure 5C.1 – Asset Mix Transition Schedule ............................................................. 5C-2
Figure 5C.2 – Comparison Between Asset Mix Ranges ................................................ 5C-3
Figure 5C.3 – Comparison Between Guidelines for the Diversification of Mortgages by
Property Type ................................................................................................. 5C-4
Figure 5C.4 – Comparison Between Guidelines for the Diversification of Mortgages by
Location ......................................................................................................... 5C-4
Figure 5C.5 – Comparison Between Guidelines for the Diversification of Real Estate by
Property Type ................................................................................................. 5C-5
Figure 5C.6 – Comparison Between Guidelines for the Diversification of Real Estate by
Location ......................................................................................................... 5C-5
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-1
August 30, 2013
IMPACT OF CHANGES IN THE ICBC STATEMENT OF INVESTMENT POLICY AND PROCEDURES (SIPP)
New Strategic Asset Mix
1. In this Appendix the most recent SIPP dated April 15, 2013 (April 2013 SIPP), and
included as Attachment 1, is compared to that dated July 23, 2011 filed in the Revenue
Requirements Application for the 2012 Policy Year (July 2011 SIPP).
2. The April 2013 SIPP indicates that ICBC has adopted a more efficient portfolio
strategic asset mix that is expected to deliver less volatile investment returns at the same
approximate expected return as the previous strategic asset mix reported in the July 2011
SIPP. The new asset mix includes a higher allocation to mortgages and real estate; a new
allocation to high yield bonds and reduced allocations to equities and Canadian bonds.
3. The schedule for transitioning to the new strategic asset mix from the April 2013
SIPP is provided in Figure 5C.1. In particular this schedule reflects that ICBC will in the
short-term be reducing its allocation in US and Europe, Asia, Far East (EAFE) equities and
introducing an allocation in high yield bonds. Although ICBC originally planned to complete
this transition by the end of 2013, it is now expected that this process will take more time
because of associated operational delays in making this change and the requirement to hire
staff with the appropriate knowledge and expertise. ICBC is therefore not proposing to
change the formula for the New Money Rate in the 2013 Revenue Requirement Application.
However, ICBC does see the need to revise the formula once the transition process is
further advanced as part of the next revenue requirement application.
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-2
August 30, 2013
Figure 5C.1 – Asset Mix Transition Schedule
Asset Class
Effective Date
07/28/2011 12/31/2013 12/31/2014 12/31/2015
Target Target Target Target
Fixed Income 72% 72% 72% 72%
Money Market 1% 1% 1% 1%
Canadian Bonds 63% 60% 60% 60%
Mortgages 8% 11% 11% 11%
Equity 23% 17% 16% 15%
Canadian Equities 13% 12% 11% 10%
US Equities 5% 2.5% 2.5% 2.5%
EAFE Equities 5% 2.5% 2.5% 2.5%
Alternatives
Real Estate 5% 6% 7% 8%
High Yield Bonds 0% 5% 5% 5%
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-3
August 30, 2013
Asset Mix Ranges
4. The ranges for the asset classes reflected in the April 2013 SIPP have changed as
indicated in Figure 5C.2. The strategic mix percentages are in line with the asset mix which
is anticipated at the end of the transition period at the end of 2015.
Figure 5C.2 – Comparison Between Asset Mix Ranges
July 2011 SIPP April 2013 SIPP
Asset Class Tactical
Minimum %
Strategic Mix %
Tactical Maximum
%
Tactical Minimum
%
Strategic Mix %
Tactical Maximum
%
Fixed Income
69.0 72.0 76.0 66.0 72.0 78.0
Money Market
0 1.0 5.0 0 1.0 5.0
Canadian Bonds
56.0 63.0 68.0 53.0 60.0 67.0
Mortgages 6.0 8.0 10.0 8.0 11.0 14.0
Equity 20.0 23.0 25.0 12.0 15.0 18.0
Canadian Equities
10.0 13.0 16.0 8.0 10.0 12.0
US Equities 4.0 5.0 6.0 2.0 2.5 3.0
EAFE Equities
4.0 5.0 6.0 2.0 2.5 3.0
Alternatives 4.0 5.0 6.0 10.0 13.0 16.0
Real Estate 4.0 5.0 6.0 6.0 8.0 10.0
High Yield Bonds
0 0 0 4.0 5.0 6.0
Benchmarks for Real Estate and High Yield Bonds
5. The benchmark for real estate has changed from ICREIM/IPD Canadian Index to
Customized REALpac IPD Canadian Property Index. The new benchmark is more reflective
of ICBC’s investment opportunity set for real estate. The benchmark for high yield bonds is
the Bank of America Merrill Lynch BB/B High Yield Cash Pay (J0A4) Index and reflects the
targeted quality profile of its new high yield bond portfolio.
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-4
August 30, 2013
Diversification of Property Type and Location for Mortgages
6. The guidelines for the diversification of mortgages by property type and location
have changed as indicated in Figure 5C.3 and Figure 5C.4.
Figure 5C.3 – Comparison Between Guidelines for the Diversification of Mortgages
by Property Type
July 2011 SIPP April 2013 SIPP
Property Type
Target % Range % Property
Type Target % Range %
Office 25 15-35 Office 30 15-45
Retail 25 15-35 Retail 30 15-45
Industrial 25 15-35 Industrial 25 10-40
Residential 20 10-30 Residential & Other
15 0-30
Figure 5C.4 – Comparison Between Guidelines for the Diversification of Mortgages
by Location
July 2011 SIPP April 2013 SIPP
Location Target % Range % Location Target % Range %
British Columbia
25 15-35 British Columbia
20 10-30
Prairies 25 15-35 Prairies 30 15-45
Ontario 45 30-60 Ontario 45 30-60
Quebec & Maritimes
5 0-10 Rest of Canada
5 0-10
Diversification of Property Type and Location for Real Estate
7. The guidelines for the diversification of real estate by property type and location
have changed as indicated in Figure 5C.5 and Figure 5C.6.
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia 5C-5
August 30, 2013
Figure 5C.5 – Comparison Between Guidelines for the Diversification of Real Estate
by Property Type
July 2011 SIPP April 2013 SIPP
Property Type
Target % Range % Property
Type Target % Range %
Office 35 20-50 Office 30 15-45
Retail 35 20-50 Retail 30 15-45
Industrial 20 10-30 Industrial 25 10-40
Residential 10 0-20 Residential & Other
15 0-30
Figure 5C.6 – Comparison Between Guidelines for the Diversification of Real Estate
by Location
July 2011 SIPP April 2013 SIPP
Location Target % Range % Location Target % Range %
British Columbia
25 15-35 British Columbia
20 10-30
Prairies 25 15-35 Prairies 30 15-45
Ontario 45 30-60 Ontario 45 30-60
Quebec & Maritimes
5 0-10 Rest of Canada
5 0-10
Liquidity of Real Estate Investments
8. The new guidelines for liquidity of real estate investments define a major Canadian
metropolitan area as an urban area with a population base greater than 200,000.
Previously this was 250,000. For urban areas with a population base between 200,000 and
250,000, investments will be limited to 15% of the portfolio at any one time.
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia
August 30, 2013
Attachment 1 – Statement of Investment Policy and Procedures Dated April 15, 2013
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 1
INSURANCE CORPORATION OF BRITISH COLUMBIA
STATEMENT OF INVESTMENT
POLICY AND PROCEDURES
APRIL 15, 2013
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 2
TABLE OF CONTENTS
1 PURPOSE ......................................................................................................................3
2 CORPORATE LIABILITY AND RISK PROFILE .......................................................3
3 REGULATORY FRAMEWORK ..................................................................................4
4 ROLES AND RESPONSIBILITIES .............................................................................4
5 CONFLICT OF INTEREST ..........................................................................................6
6 ASSET ALLOCATION .................................................................................................7
7 INVESTMENT RISK ....................................................................................................8
8 RETURN OBJECTIVES AND PERFORMANCE MEASUREMENT ........................8
9 FUND MANAGEMENT STRUCTURE AND INVESTMENT MANAGER
MANDATES ...............................................................................................................10
10 ELIGIBLE INVESTMENTS .......................................................................................11
10.1 MONEY MARKET INVESTMENTS ........................................................... 11
10.2 BOND INVESTMENTS ................................................................................ 11
10.3 MORTGAGES ................................................................................................ 13
10.4 EQUITIES....................................................................................................... 15
10.5 REAL ESTATE .............................................................................................. 15
10.6 DERIVATIVE INSTRUMENTS ................................................................... 17
10.7 BORROWING AUTHORITY........................................................................ 17
11 VOTING RIGHTS .......................................................................................................18
12 SECURITIES LENDING ............................................................................................18
13 POOLED FUNDS ........................................................................................................18
14 POLICY REVIEW .......................................................................................................18
APPENDIX A ......................................................................................................................19
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 3
INSURANCE CORPORATION OF BRITISH COLUMBIA
Statement of Investment Policy and Procedures
1 PURPOSE
The purpose of this investment policy is to establish guidelines which will ensure ICBC’s
assets are managed prudently. The investment policy will establish eligible investments,
asset allocation ranges and the discretion given to fund managers, and consequently dictate
the portfolio risk return profile.
2 CORPORATE LIABILITY AND RISK PROFILE
ICBC is a Crown corporation offering compulsory basic automobile insurance and optional
extension insurance.
As of December 31, 2009, ICBC’s liabilities were profiled as follows:
Liabilities ($000) Duration in Years
Basic 5,472,655 2.27
Optional 2,212,027 2.47
Total 7,684,682 2.33
For the purposes of prudence and efficiency, ICBC will continue to manage one investment
portfolio for both Basic and Optional insurance businesses since the duration of the
liabilities for each respective business are similar.
Like other insurers, ICBC’s liabilities are subject to inflation risk and can be sensitive to
price increases.
ICBC has significant cash needs due to the volatility of claims payments. However, the
relative predictability and volume of premium cashflows considerably reduce ICBC’s
cashflow risks.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 4
3 REGULATORY FRAMEWORK
The legislative framework with respect to ICBC's obligations and responsibilities in the
management of its investment portfolio is based on the "prudent person rule". This general
prudent person standard is set out in section 492 of the Insurance Companies Act (Canada).
This standard requires ICBC to make investments for its insurance business in the manner
that "a reasonable and prudent person would apply in respect of a portfolio of investments
to avoid undue risk of loss and to obtain a reasonable return".
The specific statutory framework and asset class limits with respect to ICBC’s investments
are outlined in Section 29 of the Insurance Corporation Act and Section 2 of the
Application of Legislation Regulation, BC Reg. 322/03 deposited.
The regulatory asset class limits applicable to ICBC's investment policy are as follows:
1. real estate investments are limited to 10% of total assets, as that term is defined;
2. the value of participating shares or other ownership interests in unincorporated
businesses cannot exceed 25% of total assets;
3. investments in (1) and (2) in the aggregate cannot exceed 35% of assets; and
4. commercial and consumer lending cannot exceed 5% of total assets.
It should be noted that the ICBC investment policy may prescribe more restrictive limits
than those established by the legislative framework.
4 ROLES AND RESPONSIBILITIES
1. ICBC Board of Directors
Under Corporate By-Laws, the Board of Directors has the responsibilities to define
and control strategies, policies and limitations related to the investment of the
Corporation’s funds, exercise voting rights attached to corporate securities, provide
for the custody of assets, registration of securities and the disposition of investments.
The execution of most of these responsibilities has been delegated to Officers of the
Corporation and the ICBC Investment Committee of the Board of Directors. The
Board of Directors still retains responsibility for major changes to investment policies
and procedures.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 5
2. ICBC Investment Committee
The Investment Committee has the following responsibilities:
a) recommends to the Board of Directors investment policies and procedures
regarding:
- return objectives
- risk parameters
- asset allocation parameters
- eligible investments;
b) approves management's recommendation for external investment management
services for the fund;
c) approves performance benchmarks;
d) ensures policy compliance; and
e) monitors investment performance.
3. ICBC Investment Department
The ICBC Investment Department has the following responsibilities:
a) recommends investment policies and procedures to the Investment Committee;
b) develops investment strategies to meet investment objectives;
c) makes all day-to-day investment decisions and handles reporting requirements
as it pertains to internally managed mandates;
d) makes portfolio rebalancing decisions
e) ensures adequate cashflows to meet the Corporation’s payment obligations;
f) monitors the activity of external investment managers and reports on external
investment managers performance to the Investment Committee;
g) recommends the hiring and termination of the external investment managers;
h) ensures policy compliance and investment performance is monitored and
reported independently to the Investment Committee;
i) manages costs associated with the investment portfolio; and
j) arranges custodial and securities lending services.
4. External Investment Managers
The investment manager(s) have the following responsibilities:
a) selects securities within each permitted asset class for the portion of the
portfolio allocated to the manager, subject to applicable legislation and to any
constraints or directives within the Statement of Investment Policy and
Procedures or established by the ICBC Investment Committee;
b) participates in a review of the Statement of Investment Policy and Procedures
when requested by the Investment Committee;
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 6
c) provides a Statement of Investment Policy and Goals for any pooled fund
investments it makes;
d) provides quarterly performance reports;
e) informs the ICBC Investment Department of any element of the Statement of
Investment Policy and Procedures or any other item that could prevent the
achievement of the mandate objectives, and obtains prior approval to materially
deviate from the Statement of Investment Policy and Procedures;
f) informs the Investment Department of any changes in ownership of the firm or
changes in key personnel, investment process, or style; and
g) reconciles periodically in conjunction with the custodian the list of assets if
managing portfolio assets on a segregated basis, and report any discrepancies to
the Investment Department.
5. Custodian
The custodian has the following responsibilities:
a) carries out the duties of the custodian as set out in the Plan’s custodial
agreement and as required by law or regulation; and
b) processes the security transactions that result from the buy and sell orders
placed by the investment manager(s) or the ICBC Investment Department as
applicable.
6. Performance Measurer
The performance measurer has the following responsibilities:
a) provides the Investment Committee with quarterly reports on the performance
of the portfolio; and
b) attends Investment Committee meetings at the request of the Investment
Committee.
5 CONFLICT OF INTEREST
All actual, potential, or perceived conflicts of interest between all parties associated with
the investment of insurance assets, including officers, directors, designated employees,
employees or agents of ICBC shall be disclosed before any decision regarding the specific
transactions are completed. If a conflict of interest arises, the party shall disclose such a
conflict to the Chair of the Investment Committee or in the Chair's absence, the acting
Chair. The party must be excluded from participating in any discussion or decision related
to the area of conflict.
The Secretary of the Investment Committee will be responsible for recording the
declaration of conflict and will advise the Board of Directors of the details of the conflict.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 7
Guidance on what constitutes conflicts of interest will be provided by:
1. Section 2.04 of the Corporate By-Law No. 6 dated March 3, 2005 of the Insurance
Corporation of British Columbia;
2. The Insurance Corporation of British Columbia, Investment Department, Personal
Trading Rules and Procedures dated November 29, 2007, for designated employees;
and
3. The Insurance Corporation of British Columbia's Code of Ethics for officers and
employees of ICBC.
6 ASSET ALLOCATION Strategic Asset Mix The strategic asset mix is used to set the total return performance benchmark for the portfolio.
It establishes the long-term combination of asset classes normally split into two major groups categorized as fixed income or equities. The fixed income category includes all interest-bearing instruments like bonds, mortgages and money market instruments. The equity category includes investments exhibiting elements of participation in ownership like common stocks and real estate. The optimal strategic asset mix is determined based on expected rate of return for each asset
class for the forecasting period and their associated range of returns expressed in standard
deviations. Liquidity, risk constraints, and cashflow considerations are also incorporated in
the determination of the strategic asset mix.
Tactical Asset Mix
Tactical asset mix focuses on short-term asset allocations that attempt to increase investment
return through these opportunistic shifts in asset weightings. Since tactical asset allocation
can either add or detract from the overall strategic asset mix return, the extent of tactical
asset mix decisions are limited by the following ranges. These ranges are set in
consideration of the overall financial strength of ICBC and its sensitivity to negative or
positive investment returns.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 8
Asset Mix Ranges1
Asset Class Tactical
Minimum
%
Strategic
Mix %
Tactical
Maximum
%
Fixed Income 66.0 72.0 78.0
Money Market 0 1.0 5.0
Canadian Bonds 53.0 60.0 67.0
Mortgages 8.0 11.0 14.0
Equity 12.0 15.0 18.0
Canadian Equities 8.0 10.0 12.0
US Equities 2.0 2.5 3.0
EAFE Equities 2.0 2.5 3.0
Alternatives 10% 13% 16%
Real Estate 6.0 8.0 10.0
High Yield Bonds 4.0 5.0 6.0
7 INVESTMENT RISK
Diversification of investment risk between asset classes is provided through the asset
allocation guidelines set forth in the previous section.
Investment risk guidelines within each asset class are set out in the definitions of eligible
investments.
8 RETURN OBJECTIVES AND PERFORMANCE MEASUREMENT
The return objectives for ICBC’s investment portfolio is to achieve superior investment
returns through management of its assets subject to level of risk deemed appropriate by the
policy.
ICBC will measure individual asset categories against the appropriate index with added
excess returns. Measurement will be assessed net of associated management fees over
four-year moving periods.
Below is a list of the appropriate benchmarks for each asset class and the expected incremental return for active management.
1 The transition schedule to the strategic asset mix is contained in Appendix A
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 9
ASSET CLASS BENCHMARK
BENCHMARK TARGET EXCESS RETURN AFTER
FEES
Fixed Income
Money Market
DEX 91-day T-Bill Index N/A
Canadian Bonds
Weighting of: 85% of DEX Short Term Bond
Index 15% of DEX 91-day T-Bill Index
+17.5 basis points
Mortgages DEX Short Term Bond Index + 100 basis points
N/A
Equities
Canadian Equities
S&P/TSX 10% Capped Composite Index
+75 basis points
US Equities S&P 500 +50 basis points
EAFE Equities
MSCI EAFE Index +100 basis points
Alternatives
Real Estate customized REAL/pac IPD Canadian Property Index
N/A
High Yield Bonds Bank of America Merrill Lynch BB/B High Yield Cash Pay (J0A4) Index
N/A
In addition, the total fund investment return will be expected to exceed the weighted average of benchmark returns for the strategic asset mix plus an excess return over four years, net of management fees and operating expenses, of 0.2175% effective December 31, 2015
2 on a go
forward basis.
2 See APPENDIX A for the value added transition schedule
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 10
Investment returns will be reported to the Investment Committee on a quarterly basis. All
return calculations will be determined using time-weighted rates of return based on market
values derived from independent pricing sources. Investments that are not regularly traded
should be valued at least annually by the custodian in cooperation with each investment
manager. When valuing less liquid assets, the custodian and investment manager shall
consider at least one of the following. The method used will be dependent on the asset
type.
1. bid and ask prices;
2. previous transaction prices;
3. independent appraisal values
4. discounted cash flow;
5. the valuation of comparable publicly-traded investments; and
6. other valuation techniques judged relevant.
The valuation of securities within a pooled fund that are not regularly traded will be
subject to the investment policies of the pooled fund. Performance standards established by the CFA Institute will be applied.
9 FUND MANAGEMENT STRUCTURE AND INVESTMENT MANAGER
MANDATES
Manager Structure
The ICBC Investment Committee has adopted a diversified manager structure which
employs a mix of active and passive styles. Active management has been adopted for a
small portion of assets because it provides the opportunity to outperform market indices
over the long run. Passive management, in the form of index or enhanced index mandates,
has been adopted for a portion of the assets because it minimizes the risk of
underperformance relative to a benchmark index and is less expensive than active
management. Specialist managers are used where there is a potential added value benefit.
Rebalancing
The ICBC Investment Department is responsible for portfolio rebalancing. Portfolio assets
will be rebalanced whenever actual allocations to an asset class fall outside the maximum
and minimum allocation or whenever it is deemed otherwise appropriate. Rebalancing
may be suspended if market conditions, such as excessive volatility or illiquidity, preclude
cost effective rebalancing. Should such conditions occur, the ICBC Investment Committee
and the Board will assess the Fund’s asset allocation and market conditions with regard to
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 11
the appropriateness of rebalancing and approve deviations from the tactical asset mix range
as required.
Evaluation of Investment Managers
Investment managers will be reviewed at least quarterly. All external investment managers will
be monitored in accordance with the ICBC External Investment Manager Selection, Monitoring
and Termination Policy.
Investment manager(s) will be measured, before fees, on a quarterly basis by an external
performance measurer. Investment manager(s), excluding index managers, will be
expected to exceed their applicable index, including an additional return net of fees for
active management, and exceed the median manager, as applicable. Quarterly and annual
returns will be monitored, but the four year moving average return will be the primary
measurement. All return calculations will be determined using time-weighted rates of
return based on market values derived from independent pricing sources. Performance
standards established through the CFA institute (GIPS standards) will be applied.
10 ELIGIBLE INVESTMENTS
10.1 MONEY MARKET INVESTMENTS
Money market investments will be held for cash management purposes and will be
consolidated with the bond portfolio for the purpose of measuring credit quality, liquidity,
and diversification as outlined in section 10.2. All non-government guaranteed issuers will
be subject to the same due diligence process that is applied to credit in the bond portfolio.
The following investments will be authorized for cash management purposes:
Treasury Bills: Repo; Certificates of Deposit; Bankers Acceptances; Commercial Paper
10.2 BOND INVESTMENTS
ICBC can invest in secured and unsecured floating, fixed rate and inflation linked debt
obligations denominated in Canadian dollars or any major foreign currency of Canadian and
foreign corporations, governments and government agencies, and supranational
development banks.
Private placement bonds are permitted provided it can be demonstrated that they conform
to quality and diversification guidelines. For clarification purposes, private placements are
bond issues that are legally private, subscription based and/or do not have a broad issuance,
liquidity, dealer support, or, are of small deal size.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 12
Canadian Bond Portfolio
All Canadian bond investments will comply with the following guidelines:
Quality
All bonds must be rated a minimum of BBB by a recognized rating agency. In the case of
split ratings, Standard and Poor’s (S&P) will be considered the appropriate rating. The
following minimum quality limits will apply at all times:
25% of the portfolio will be rated AAA or better
50% of the portfolio will be rated AA or better
90% of the portfolio will be rated A or better
100% of the portfolio will be rated BBB or better
Quality constraints do not preclude the bond manager from the responsibility of performing
a credit assessment on bonds purchased.
Diversification Category Limit Individual Limit
Federal no restriction no restriction
Major Province no restriction 33% of total portfolio
(BC, Alta, Ont, & Que)
Minor Province no restriction 16% of total portfolio
Municipal 20% of total portfolio 5% of total portfolio
Corporate 50% of total portfolio 3% of total portfolio
Asset-Backed Securities 20% of total portfolio 2% of total portfolio
Derivatives 10% of total portfolio 2% of total portfolio
Foreign 10% of total portfolio 2% of total portfolio
Liquidity
Liquidity will be maintained by holding at least 25% of the portfolio in Government of
Canada, Government of Canada Agency and major Provincial bonds at all times.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 13
Duration
The duration of the Canadian bond portfolio will not be permitted to deviate from the
benchmark duration by more than 0.5 years. A target duration has been set at 2.5 years and
the performance benchmark is a weighting of 85% of DEX Short Term Bond Index and
15% of DEX 91-day T-Bill Index.
Related Securities
Coupons, residuals, and synthetic securities will fall under the category and guidelines of
the underlying security.
10.3 MORTGAGES
ICBC can invest in long-term mortgages through one or all of the following vehicles: open
or closed end pools, segregated funds, NHA mortgage-backed securities and direct
mortgage loans.
Quality
The quality of the mortgage portfolio will be maintained by adhering to the following
guidelines:
1. Insured mortgage investments will not exceed 85% of the purchase price or appraised
value of the real estate it is secured against.
2. Conventional mortgages will not exceed 75% of the purchase price or appraised value
of the real estate it is secured against.
3. No further encumbrance to the property is allowed, except with approval of ICBC.
4. No investment will be made in second or third mortgages.
Diversification:
1. No single mortgage will account for more than 5% of the market value of the
mortgage portfolio.
2. The aggregate amount of all loans to any one borrower will not be greater than 10% of
the mortgage portfolio.
3. The aggregate amount of all construction loans will not exceed 20% of the Committed
and Funded portfolio.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 14
In addition, diversification will be achieved by property type and location using the
following guidelines:
Property Type Target Range
% %
Office 30 15 – 45
Retail 30 15 – 45
Industrial 25 10 – 40
Residential & Other 15 0 – 30
Location Target Range
% %
British Columbia 20 10 – 30
Prairies 30 15 – 45
Ontario 45 30 – 60
Rest of Canada 5 0 – 10
Liquidity
Liquidity will be maintained by focusing the lending activities on premium loans, in order to
maintain a mortgage portfolio of the highest quality with low inherent risk of default, while
achieving an acceptable investment return.
Duration
The duration of the mortgage portfolio will not be permitted to deviate from the DEX Short
Term Bond Index by more than 1.5 years.
Approvals & Authorities
1. Approval for new loans, renewals, assumptions and the placement of secondary debt or
encumbrances shall be governed by the Mortgage Approval Structure as approved by
the Investment Committee from time to time.
2. Approval of the Investment Committee is required to sell the mortgage portfolio, in
whole or in part, either directly or through securitization to the public market.
3. Management shall be responsible for the day-to-day operations of the mortgage
portfolio. Management has the ability to delegate the mortgage administration
functions to third party managers with appropriate knowledge, ability, experience and
integrity required to complete the assignment competently.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 15
10.4 EQUITIES
Canadian and foreign equity investments will be made through direct holdings of securities
(common shares, convertible preferred shares, convertible debentures, options, warrants,
installment receipts, rights, etc.), stock index futures contracts, equity linked bonds and
swaps or indirectly through pooled and mutual funds or any combination of the above.
Diversification
Diversification will be maintained by restricting the number of equity holdings in any
separate asset class to no less than 20 individual holdings. No single issuer will represent
more than 10% of the portfolio’s equity exposure as calculated by market value.
Liquidity
Liquidity will be maintained by limiting equity holdings to securities listed on major
exchanges. No more than 20% of the equity portfolio will be invested in companies with
market capitalization of less than $100 million.
10.5 REAL ESTATE
Real estate investments will be made on an active basis by investing directly in individual
revenue producing real estate assets or in segregated fund accounts with third party investment
managers who in turn invest in individual revenue producing real estate assets. Real estate
investments may also be in the form of joint ventures or co-ownership vehicles with like-minded
investors.
Quality
1. Investments will focus on good quality core properties of institutional investment quality
that are cash flow yield oriented.
2. Investments will not be made in specialty properties, defined as any property with a
business component such as hotels, motels, retirement homes, and mini warehouses.
3. Investment in opportunistic properties, defined as any property that requires repositioning
or development with a view to creating value, will only be permitted with specific
approval of the full ICBC Board of Directors.
Diversification
1. No single investment will account for more than 15% of the real estate allocation.
2. Properties with a value of less than $5 million will not be considered.
In addition, diversification will be achieved by property type and location using the
following guidelines:
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 16
Geographic Location
Location Target Range
% %
British Columbia 20 10 – 30
Prairies 30 15 – 45
Ontario 45 30 – 60
Rest of Canada 5 0 – 10
Product Type
Property Type Target Range
% %
Office 30 15 – 45
Retail 30 15 – 45
Industrial 25 10 – 40
Residential & Other 15 0 – 30
All diversification measures will be made as if the portfolio allocation was fully funded.
Liquidity
1. Investments will be made in major Canadian metropolitan areas, being defined as urban
areas with a population base greater than 200,000 persons.
2. Investments in urban areas with a population between 200,000 and 250,000 persons will
be limited to 15% of the portfolio at any one time.
3. Due to their illiquid nature, segregated funds will be limited to no more than 20% of the
portfolio.
Use of Debt (Leverage)
1. Leverage will be permitted for direct investments to a maximum of 75% loan-to-
value at the property level and to a maximum of 45% of the value of the total real
estate portfolio. All new debt will be non-recourse to ICBC.
2. Pre-existing debt at the time of acquisition of a specific property will be permitted to
be assumed.
3. The use of debt or leverage will be permitted in segregated fund investments to a
maximum of 75% loan-to-value at the property level and a maximum of 50% at the
account level.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 17
Approvals & Authorities
1. Approval for acquisitions and disposals shall be governed by the Real Estate
Approval Structure as approved by the Investment Committee from time to time.
2. Approval for capital expenditures shall be governed by the Capital Expenditure
Policy and Procedures as approved by the Investment Committee from time to time.
3. The selection of any investment manager, joint venture partner or co-ownership
vehicle requires the prior approval of the Investment Committee.
4. Management shall be responsible for the day-to-day operations and leasing of the real
estate investment portfolio. Management has the ability to delegate the day-to-day
property management functions to third party property managers with appropriate
knowledge, ability, experience and integrity required to complete the assignment
competently.
10.6 DERIVATIVE INSTRUMENTS
Swaps, options, forwards, future contracts and other derivative instruments are permitted as
long as they are used to hedge portfolio risks or enhance portfolio returns. These strategies
can involve foreign exchange components on a hedged basis.
Derivatives are not permitted to lever the portfolio or increase portfolio risk (speculation).
Derivatives can only be applied to asset classes contemplated in the Investment Policy.
Derivatives will not be used to extend asset class weights outside the stated asset mix
ranges.
The ICBC Investment Department is authorized to post cash or securities as collateral for
ICBC’s obligations under derivative agreements, and to receive cash or securities posted by
counterparties as collateral for their obligations to ICBC under those agreements.
All derivative activity will be disclosed to the Investment Committee on a quarterly basis.
10.7 BORROWING AUTHORITY
In general, neither the Investment Department nor the external managers can borrow funds
directly to make investments. Exceptions include short-term borrowing to finance
temporary cash flow shortfalls, financing techniques to support customer payment plans,
real estate transactions, and derivative transactions where financing techniques are used to
hedge revenue enhancing strategies.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 18
11 VOTING RIGHTS
Portfolio managers will exercise any voting powers and execute any proxies in conjunction
with all the securities held in the Portfolio. Voting rights will be exercised in the best
financial interests of ICBC. The voting policies and practices of each manager are to be
periodically reviewed and each manager will provide written confirmation of adherence to
their voting policy on a quarterly basis.
Issues deemed to be of concern to the Board will be brought to the attention of the Chair of
the Investment Committee.
12 SECURITIES LENDING
The Insurance Portfolio may lend its securities provided that:
1. the loan is secured by collateral that has a market value equal to or greater than 105%
of the value of the loaned securities with the following exception:
a) the loan of US equity securities is secured by collateral that has a market value
equal to or greater than 102% of the value of the loaned securities provided the
loan is fully indemnified by the investment portfolio custodian;
2. the loan and collateral are valued daily on a "marked-to-market" basis;
3. the collateral meets all investment criteria of the Insurance Portfolio;
4. all potential borrowers have been approved by ICBC; and
5. all appropriate agreements and documentation have been completed.
13 POOLED FUNDS
The policies covering conflicts of interest, investment constraints, voting rights and
securities lending for assets invested in pooled funds will be subject to the investment
policies of the said pooled fund.
14 POLICY REVIEW
This investment policy will be reviewed annually to confirm that the existing asset
allocations will result in the best projected investment return for the selected risk level.
Current economic and political conditions will be reviewed to ascertain if the necessary
conditions exist for the investment policies to succeed. Current guidelines will be reviewed
to maintain their relevance and updated if changes are required. The annual review will not
prohibit the interim modification of the investment policy if there have been fundamental
changes which affect the underlying assumptions of the investment policy.
ICBC Statement of Investment Policy and Procedures – April 15, 2013 Page 19
APPENDIX A – ASSET MIX TRANSITION SCHEDULE
Effective Date
12/31/2013
Target
12/31/2014
Target
12/31/2015
Target
Asset Class
Fixed Income 72% 72% 72%
Money Market 1% 1% 1%
Canadian Bonds 60% 60% 60%
Mortgages 11% 11% 11%
Equity 17% 16% 15%
Canadian Equities 12% 11% 10%
US Equities 2.5% 2.5% 2.5%
EAFE Equities 2.5% 2.5% 2.5%
Alternatives
Real Estate 6% 7% 8%
High Yield Bonds 5% 5% 5%
Added Value Objectives 0.2325% 0.2250% 0.2175%
ICBC’s August 30, 2013 Filing with the BC Utilities Commission
Insurance Corporation of British Columbia
August 30, 2013
Attachment 2 – Black Lined Statement of Investment Policy and Procedures Dated April 15, 2013
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 1
INSURANCE CORPORATION OF BRITISH COLUMBIA
STATEMENT OF INVESTMENT
POLICY AND PROCEDURES
JULY 28, 2011APRIL 15, 2013
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 2
TABLE OF CONTENTS
1 PURPOSE ......................................................................................................................3
2 CORPORATE LIABILITY AND RISK PROFILE .......................................................3
3 REGULATORY FRAMEWORK ..................................................................................4
4 ROLES AND RESPONSIBILITIES .............................................................................4
5 CONFLICT OF INTEREST ..........................................................................................6
6 ASSET ALLOCATION .................................................................................................7
7 INVESTMENT RISK ....................................................................................................8
8 RETURN OBJECTIVES AND PERFORMANCE MEASUREMENT ........................8
9 FUND MANAGEMENT STRUCTURE AND INVESTMENT MANAGER
MANDATES ...........................................................................................................1011
10 ELIGIBLE INVESTMENTS ...................................................................................1112
10.1 MONEY MARKET INVESTMENTS ....................................................... 1112
10.2 BOND INVESTMENTS ............................................................................ 1112
10.3 MORTGAGES ............................................................................................ 1314
10.4 EQUITIES................................................................................................... 1516
10.5 REAL ESTATE .......................................................................................... 1516
10.6 DERIVATIVE INSTRUMENTS ............................................................... 1718
10.7 BORROWING AUTHORITY.................................................................... 1718
11 VOTING RIGHTS ...................................................................................................1819
12 SECURITIES LENDING ........................................................................................1819
13 POOLED FUNDS ....................................................................................................1819
14 POLICY REVIEW ...................................................................................................1819
APPENDIX A ......................................................................................................................20
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 3
INSURANCE CORPORATION OF BRITISH COLUMBIA
Statement of Investment Policy and Procedures
1 PURPOSE
The purpose of this investment policy is to establish guidelines which will ensure ICBC’s
assets are managed prudently. The investment policy will establish eligible investments,
asset allocation ranges and the discretion given to fund managers, and consequently dictate
the portfolio risk return profile.
2 CORPORATE LIABILITY AND RISK PROFILE
ICBC is a Crown corporation offering compulsory basic automobile insurance and optional
extension insurance.
As of December 31, 2009, ICBC’s liabilities were profiled as follows:
Liabilities ($000) Duration in Years
Basic 5,472,655 2.27
Optional 2,212,027 2.47
Total 7,684,682 2.33
For the purposes of prudence and efficiency, ICBC will continue to manage one investment
portfolio for both Basic and Optional insurance businesses since the duration of the
liabilities for each respective business are similar.
Like other insurers, ICBC’s liabilities are subject to inflation risk and can be sensitive to
price increases.
ICBC has significant cash needs due to the volatility of claims payments. However, the
relative predictability and volume of premium cashflows considerably reduce ICBC’s
cashflow risks.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 4
3 REGULATORY FRAMEWORK
The legislative framework with respect to ICBC's obligations and responsibilities in the
management of its investment portfolio is based on the "prudent person rule". This general
prudent person standard is set out in section 492 of the Insurance Companies Act (Canada).
This standard requires ICBC to make investments for its insurance business in the manner
that "a reasonable and prudent person would apply in respect of a portfolio of investments
to avoid undue risk of loss and to obtain a reasonable return".
The specific statutory framework and asset class limits with respect to ICBC’s investments
are outlined in Section 29 of the Insurance Corporation Act and Section 2 of the
Application of Legislation Regulation, BC Reg. 322/03 deposited.
The regulatory asset class limits applicable to ICBC's investment policy are as follows:
1. real estate investments are limited to 10% of total assets, as that term is defined;
2. the value of participating shares or other ownership interests in unincorporated
businesses cannot exceed 25% of total assets;
3. investments in (1) and (2) in the aggregate cannot exceed 35% of assets; and
4. commercial and consumer lending cannot exceed 5% of total assets.
It should be noted that the ICBC investment policy may prescribe more restrictive limits
than those established by the legislative framework.
4 ROLES AND RESPONSIBILITIES
1. ICBC Board of Directors
Under Corporate By-Laws, the Board of Directors has the responsibilities to define
and control strategies, policies and limitations related to the investment of the
Corporation’s funds, exercise voting rights attached to corporate securities, provide
for the custody of assets, registration of securities and the disposition of investments.
The execution of most of these responsibilities has been delegated to Officers of the
Corporation and the ICBC Investment Committee of the Board of Directors. The
Board of Directors still retains responsibility for major changes to investment policies
and procedures.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 5
2. ICBC Investment Committee
The Investment Committee has the following responsibilities:
a) recommends to the Board of Directors investment policies and procedures
regarding:
- return objectives
- risk parameters
- asset allocation parameters
- eligible investments;
b) approves management's recommendation for external investment management
services for the fund;
c) approves performance benchmarks;
d) ensures policy compliance; and
e) monitors investment performance.
3. ICBC Investment Department
The ICBC Investment Department has the following responsibilities:
a) recommends investment policies and procedures to the Investment Committee;
b) develops investment strategies to meet investment objectives;
c) makes all day-to-day investment decisions and handles reporting requirements
as it pertains to internally managed mandates;
d) makes portfolio rebalancing decisions
e) ensures adequate cashflows to meet the Corporation’s payment obligations;
f) monitors the activity of external investment managers and reports on external
investment managers performance to the Investment Committee;
g) recommends the hiring and termination of the external investment managers;
h) ensures policy compliance and investment performance is monitored and
reported independently to the Investment Committee;
i) manages costs associated with the investment portfolio; and
j) arranges custodial and securities lending services.
4. External Investment Managers
The investment manager(s) have the following responsibilities:
a) selects securities within each permitted asset class for the portion of the
portfolio allocated to the manager, subject to applicable legislation and to any
constraints or directives within the Statement of Investment Policy and
Procedures or established by the ICBC Investment Committee;
b) participates in a review of the Statement of Investment Policy and Procedures
when requested by the Investment Committee;
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 6
c) provides a Statement of Investment Policy and Goals for any pooled fund
investments it makes;
d) provides quarterly performance reports;
e) informs the ICBC Investment Department of any element of the Statement of
Investment Policy and Procedures or any other item that could prevent the
achievement of the mandate objectives, and obtains prior approval to materially
deviate from the Statement of Investment Policy and Procedures;
f) informs the Investment Department of any changes in ownership of the firm or
changes in key personnel, investment process, or style; and
g) reconciles periodically in conjunction with the custodian the list of assets if
managing portfolio assets on a segregated basis, and report any discrepancies to
the Investment Department.
5. Custodian
The custodian has the following responsibilities:
a) carries out the duties of the custodian as set out in the Plan’s custodial
agreement and as required by law or regulation; and
b) processes the security transactions that result from the buy and sell orders
placed by the investment manager(s) or the ICBC Investment Department as
applicable.
6. Performance Measurer
The performance measurer has the following responsibilities:
a) provides the Investment Committee with quarterly reports on the performance
of the portfolio; and
b) attends Investment Committee meetings at the request of the Investment
Committee.
5 CONFLICT OF INTEREST
All actual, potential, or perceived conflicts of interest between all parties associated with
the investment of insurance assets, including officers, directors, designated employees,
employees or agents of ICBC shall be disclosed before any decision regarding the specific
transactions are completed. If a conflict of interest arises, the party shall disclose such a
conflict to the Chair of the Investment Committee or in the Chair's absence, the acting
Chair. The party must be excluded from participating in any discussion or decision related
to the area of conflict.
The Secretary of the Investment Committee will be responsible for recording the
declaration of conflict and will advise the Board of Directors of the details of the conflict.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 7
Guidance on what constitutes conflicts of interest will be provided by:
1. Section 2.04 of the Corporate By-Law No. 6 dated March 3, 2005 of the Insurance
Corporation of British Columbia;
2. The Insurance Corporation of British Columbia, Investment Department, Personal
Trading Rules and Procedures dated November 29, 2007, for designated employees;
and
3. The Insurance Corporation of British Columbia's Code of Ethics for officers and
employees of ICBC.
6 ASSET ALLOCATION Strategic Asset Mix The strategic asset mix is used to set the total return performance benchmark for the portfolio.
It establishes the long-term combination of asset classes normally split into two major groups categorized as fixed income or equities. The fixed income category includes all interest-bearing instruments like bonds, mortgages and money market instruments. The equity category includes investments exhibiting elements of participation in ownership like common stocks and real estate. The optimal strategic asset mix is determined based on expected rate of return for each asset
class for the forecasting period and their associated range of returns expressed in standard
deviations. Liquidity, risk constraints, and cashflow considerations are also incorporated in
the determination of the strategic asset mix.
Tactical Asset Mix
Tactical asset mix focuses on short-term asset allocations that attempt to increase investment
return through these opportunistic shifts in asset weightings. Since tactical asset allocation
can either add or detract from the overall strategic asset mix return, the extent of tactical
asset mix decisions are limited by the following ranges. These ranges are set in
consideration of the overall financial strength of ICBC and its sensitivity to negative or
positive investment returns.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 8
Asset Mix Ranges1
Asset Class Tactical
Minimum
%
Strategic
Mix %
Tactical
Maximum
%
Fixed Income 6966.0 72.0 7678.0
Money Market 0 1.0 5.0
Canadian Bonds 5653.0 6360.
0
6867.0
Mortgages 68.0 811.0 1014.0
Equity 2012.0 2315.
0
2518.0
Canadian Equities 108.0 1310.
0
1612.0
US Equities 42.0 2.5.0 63.0
EAFE Equities 42.0 2.5.0 63.0
Alternatives 10% 13% 16%
Real Estate 46.0 58.0 610.0
High Yield Bonds 4.0 5.0 6.0
7 INVESTMENT RISK
Diversification of investment risk between asset classes is provided through the asset
allocation guidelines set forth in the previous section.
Investment risk guidelines within each asset class are set out in the definitions of eligible
investments.
8 RETURN OBJECTIVES AND PERFORMANCE MEASUREMENT
The return objectives for ICBC’s investment portfolio is to achieve superior investment
returns through management of its assets subject to level of risk deemed appropriate by the
policy.
1 The transition schedule to the strategic asset mix is contained in Appendix A
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 9
ICBC will measure individual asset categories against the appropriate index with added
excess returns. Measurement will be assessed net of associated management fees over
four-year moving periods.
Below is a list of the appropriate benchmarks for each asset class and the expected incremental return for active management.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 10
ASSET CLASS BENCHMARK
BENCHMARK TARGET EXCESS RETURN AFTER
FEES
Fixed Income
Money Market
DEX 91-day T-Bill Index N/A
Canadian Bonds
Weighting of: 85% of DEX Short Term Bond
Index 15% of DEX 91-day T-Bill Index
+17.5 basis points
Mortgages DEX Short Term Bond Index + 100 basis points
N/A
Equities
Canadian Equities
S&P/TSX 10% Capped Composite Index
+75 basis points
US Equities S&P 500 +50 basis points
EAFE Equities
MSCI EAFE Index +100 basis points
Alternatives
Real Estate ICREIM/IP Canadian Index
customized REAL/pac IPD Canadian Property Index
N/A
High Yield Bonds Bank of America Merrill Lynch BB/B High Yield Cash Pay (J0A4) Index
N/A
In addition, the total fund investment return will be expected to exceed the weighted average of benchmark returns for the strategic asset mix plus an excess return over four years, net of management fees and operating expenses, of 0.282752175% effective July 28, 2011December 31, 2015
2 on a go forward basis.
2 See APPENDIX A for the value added transition schedule
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 11
Investment returns will be reported to the Investment Committee on a quarterly basis. All
return calculations will be determined using time-weighted rates of return based on market
values derived from independent pricing sources. Investments that are not regularly traded
should be valued at least annually by the custodian in cooperation with each investment
manager. When valuing less liquid assets, the custodian and investment manager shall
consider at least one of the following. The method used will be dependent on the asset
type.
1. bid and ask prices;
2. previous transaction prices;
3. independent appraisal values
4. discounted cash flow;
5. the valuation of comparable publicly-traded investments; and
6. other valuation techniques judged relevant.
The valuation of securities within a pooled fund that are not regularly traded will be
subject to the investment policies of the pooled fund. Performance standards established by the CFA Institute will be applied.
9 FUND MANAGEMENT STRUCTURE AND INVESTMENT MANAGER
MANDATES
Manager Structure
The ICBC Investment Committee has adopted a diversified manager structure which
employs a mix of active and passive styles. Active management has been adopted for a
small portion of assets because it provides the opportunity to outperform market indices
over the long run. Passive management, in the form of index or enhanced index mandates,
has been adopted for a portion of the assets because it minimizes the risk of
underperformance relative to a benchmark index and is less expensive than active
management. Specialist managers are used where there is a potential added value benefit.
Rebalancing
The ICBC Investment Department is responsible for portfolio rebalancing. Portfolio assets
will be rebalanced whenever actual allocations to an asset class fall outside the maximum
and minimum allocation or whenever it is deemed otherwise appropriate. Rebalancing
may be suspended if market conditions, such as excessive volatility or illiquidity, preclude
cost effective rebalancing. Should such conditions occur, the ICBC Investment Committee
and the Board will assess the Fund’s asset allocation and market conditions with regard to
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 12
the appropriateness of rebalancing and approve deviations from the tactical asset mix range
as required.
Evaluation of Investment Managers
Investment managers will be reviewed at least quarterly. All external investment managers will
be monitored in accordance with the ICBC External Investment Manager Selection, Monitoring
and Termination Policy.
Investment manager(s) will be measured, before fees, on a quarterly basis by an external
performance measurer. Investment manager(s), excluding index managers, will be
expected to exceed their applicable index, including an additional return net of fees for
active management, and exceed the median manager, as applicable. Quarterly and annual
returns will be monitored, but the four year moving average return will be the primary
measurement. All return calculations will be determined using time-weighted rates of
return based on market values derived from independent pricing sources. Performance
standards established through the CFA institute (GIPS standards) will be applied.
10 ELIGIBLE INVESTMENTS
10.1 MONEY MARKET INVESTMENTS
Money market investments will be held for cash management purposes and will be
consolidated with the bond portfolio for the purpose of measuring credit quality, liquidity,
and diversification as outlined in section 10.2. All non-government guaranteed issuers will
be subject to the same due diligence process that is applied to credit in the bond portfolio.
The following investments will be authorized for cash management purposes:
Treasury Bills: Repo; Certificates of Deposit; Bankers Acceptances; Commercial Paper
10.2 BOND INVESTMENTS
ICBC can invest in secured and unsecured floating, fixed rate and inflation linked debt
obligations denominated in Canadian dollars or any major foreign currency of Canadian and
foreign corporations, governments and government agencies, and supranational
development banks.
Private placement bonds are permitted provided it can be demonstrated that they conform
to quality and diversification guidelines. For clarification purposes, private placements are
bond issues that are legally private, subscription based and/or do not have a broad issuance,
liquidity, dealer support, or, are of small deal size.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 13
Canadian Bond Portfolio
All Canadian bond investments will comply with the following guidelines:
Quality
All bonds must be rated a minimum of BBB by a recognized rating agency. In the case of
split ratings, Standard and Poor’s (S&P) will be considered the appropriate rating. The
following minimum quality limits will apply at all times:
25% of the portfolio will be rated AAA or better
50% of the portfolio will be rated AA or better
90% of the portfolio will be rated A or better
100% of the portfolio will be rated BBB or better
Quality constraints do not preclude the bond manager from the responsibility of performing
a credit assessment on bonds purchased.
Diversification Category Limit Individual Limit
Federal no restriction no restriction
Major Province no restriction 33% of total portfolio
(BC, Alta, Ont, & Que)
Minor Province no restriction 16% of total portfolio
Municipal 20% of total portfolio 5% of total portfolio
Corporate 50% of total portfolio 3% of total portfolio
Asset-Backed Securities 20% of total portfolio 2% of total portfolio
Derivatives 10% of total portfolio 2% of total portfolio
Foreign 10% of total portfolio 2% of total portfolio
Liquidity
Liquidity will be maintained by holding at least 25% of the portfolio in Government of
Canada, Government of Canada Agency and major Provincial bonds at all times.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 14
Duration
The duration of the Canadian bond portfolio will not be permitted to deviate from the
benchmark duration by more than 0.5 years. A target duration has been set at 2.5 years and
the performance benchmark is a weighting of 85% of DEX Short Term Bond Index and
15% of DEX 91-day T-Bill Index.
Related Securities
Coupons, residuals, and synthetic securities will fall under the category and guidelines of
the underlying security.
10.3 MORTGAGES
ICBC can invest in long-term mortgages through one or all of the following vehicles: open
or closed end pools, segregated funds, NHA mortgage-backed securities and direct
mortgage loans.
Quality
The quality of the mortgage portfolio will be maintained by adhering to the following
guidelines:
1. Insured mortgage investments will not exceed 85% of the purchase price or appraised
value of the real estate it is secured against.
2. Conventional mortgages will not exceed 75% of the purchase price or appraised value
of the real estate it is secured against.
3. No further encumbrance to the property is allowed, except with approval of ICBC.
4. No investment will be made in second or third mortgages.
Diversification:
1. No single mortgage will account for more than 5% of the market value of the
mortgage portfolio.
2. The aggregate amount of all loans to any one borrower will not be greater than 10% of
the mortgage portfolio.
3. The aggregate amount of all construction loans will not exceed 20% of the Committed
and Funded portfolio.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 15
In addition, diversification will be achieved by property type and location using the
following guidelines:
Property Type Target Range
% %
Office 2530 15 – 3545
Retail 2530 15 – 3545
Industrial 25 15 10 –
3540
Residential & Other
Other
2015
5
10 0 – 30
0 – 10
Location Target Range
% %
British Columbia 2520 15 10 –
3530
Prairies 2530 15 – 3545
Ontario 45 30 – 60
Quebec &
MaritimesRest of
Canada
5 0 – 10
Liquidity
Liquidity will be maintained by focusing the lending activities on premium loans, in order to
maintain a mortgage portfolio of the highest quality with low inherent risk of default, while
achieving an acceptable investment return.
Duration
The duration of the mortgage portfolio will not be permitted to deviate from the DEX Short
Term Bond Index by more than 1.5 years.
Approvals & Authorities
1. Approval for new loans, renewals, assumptions and the placement of secondary debt or
encumbrances shall be governed by the Mortgage Approval Structure as approved by
the Investment Committee from time to time.
2. Approval of the Investment Committee is required to sell the mortgage portfolio, in
whole or in part, either directly or through securitization to the public market.
3. Management shall be responsible for the day-to-day operations of the mortgage
portfolio. Management has the ability to delegate the mortgage administration
functions to third party managers with appropriate knowledge, ability, experience and
integrity required to complete the assignment competently.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 16
10.4 EQUITIES
Canadian and foreign equity investments will be made through direct holdings of securities
(common shares, convertible preferred shares, convertible debentures, options, warrants,
installment receipts, rights, etc.), stock index futures contracts, equity linked bonds and
swaps or indirectly through pooled and mutual funds or any combination of the above.
Diversification
Diversification will be maintained by restricting the number of equity holdings in any
separate asset class to no less than 20 individual holdings. No single issuer will represent
more than 10% of the portfolio’s equity exposure as calculated by market value.
Liquidity
Liquidity will be maintained by limiting equity holdings to securities listed on major
exchanges. No more than 20% of the equity portfolio will be invested in companies with
market capitalization of less than $100 million.
10.5 REAL ESTATE
Real estate investments will be made on an active basis by investing directly in individual
revenue producing real estate assets or in segregated fund accounts with third party investment
managers who in turn invest in individual revenue producing real estate assets. Real estate
investments may also be in the form of joint ventures or co-ownership vehicles with like-minded
investors.
Quality
1. Investments will focus on good quality core properties of institutional investment quality
that are cash flow yield oriented.
2. Investments will not be made in specialty properties, defined as any property with a
business component such as hotels, motels, retirement homes, and mini warehouses.
3. Investment in opportunistic properties, defined as any property that requires repositioning
or development with a view to creating value, will only be permitted with specific
approval of the full ICBC Board of Directors.
Diversification
1. No single investment will account for more than 15% of the real estate allocation.
2. Properties with a value of less than $5 million will not be considered.
In addition, diversification will be achieved by property type and location using the
following guidelines:
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 17
Geographic Location
Location Target Range
% %
British Columbia 2520 15 10 –
3530
Prairies 2530 15 – 3545
Ontario 45 30 – 60
Québec &
MaritimesCanada
5 0 – 10
Product Type
Property Type Target Range
% %
Office 3530 20 15 –
5045
Retail 3530 20 15 –
5045
Industrial 2025 10 – 3040
Residential & Other 1015 0 – 2030
All diversification measures will be made as if the portfolio allocation was fully funded.
Liquidity
1. Investments will be made in major Canadian metropolitan areas, being defined as urban
areas with a population base greater than 250200,000 persons.
2. Investments in urban areas with a population between 200,000 and 250,000 persons will
be limited to 15% of the portfolio at any one time.
2.3. Due to their illiquid nature, segregated funds will be limited to no more than 20% of the
portfolio.
Use of Debt (Leverage)
1. Leverage will be permitted for direct investments to a maximum of 75% loan-to-
value at the property level and to a maximum of 45% of the value of the total real
estate portfolio. All new debt will be non-recourse to ICBC.
2. Pre-existing debt at the time of acquisition of a specific property will be permitted to
be assumed.
3. The use of debt or leverage will be permitted in segregated fund investments to a
maximum of 75% loan-to-value at the property level and a maximum of 50% at the
account level.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 18
Approvals & Authorities
1. Approval for acquisitions and disposals shall be governed by the Real Estate
Approval Structure as approved by the Investment Committee from time to time.
2. Approval for capital expenditures shall be governed by the Capital Expenditure
Policy and Procedures as approved by the Investment Committee from time to time.
3. The selection of any investment manager, joint venture partner or co-ownership
vehicle requires the prior approval of the Investment Committee.
4. Management shall be responsible for the day-to-day operations and leasing of the real
estate investment portfolio. Management has the ability to delegate the day-to-day
property management functions to third party property managers with appropriate
knowledge, ability, experience and integrity required to complete the assignment
competently.
10.6 DERIVATIVE INSTRUMENTS
Swaps, options, forwards, future contracts and other derivative instruments are permitted as
long as they are used to hedge portfolio risks or enhance portfolio returns. These strategies
can involve foreign exchange components on a hedged basis.
Derivatives are not permitted to lever the portfolio or increase portfolio risk (speculation).
Derivatives can only be applied to asset classes contemplated in the Investment Policy.
Derivatives will not be used to extend asset class weights outside the stated asset mix
ranges.
The ICBC Investment Department is authorized to post cash or securities as collateral for
ICBC’s obligations under derivative agreements, and to receive cash or securities posted by
counterparties as collateral for their obligations to ICBC under those agreements.
All derivative activity will be disclosed to the Investment Committee on a quarterly basis.
10.7 BORROWING AUTHORITY
In general, neither the Investment Department nor the external managers can borrow funds
directly to make investments. Exceptions include short-term borrowing to finance
temporary cash flow shortfalls, financing techniques to support customer payment plans,
real estate transactions, and derivative transactions where financing techniques are used to
hedge revenue enhancing strategies.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 19
11 VOTING RIGHTS
Portfolio managers will exercise any voting powers and execute any proxies in conjunction
with all the securities held in the Portfolio. Voting rights will be exercised in the best
financial interests of ICBC. The voting policies and practices of each manager are to be
periodically reviewed and each manager will provide written confirmation of adherence to
their voting policy on a quarterly basis.
Issues deemed to be of concern to the Board will be brought to the attention of the Chair of
the Investment Committee.
12 SECURITIES LENDING
The Insurance Portfolio may lend its securities provided that:
1. the loan is secured by collateral that has a market value equal to or greater than 105%
of the value of the loaned securities with the following exception:
a) the loan of US equity securities is secured by collateral that has a market value
equal to or greater than 102% of the value of the loaned securities provided the
loan is fully indemnified by the investment portfolio custodian;
2. the loan and collateral are valued daily on a "marked-to-market" basis;
3. the collateral meets all investment criteria of the Insurance Portfolio;
4. all potential borrowers have been approved by ICBC; and
5. all appropriate agreements and documentation have been completed.
13 POOLED FUNDS
The policies covering conflicts of interest, investment constraints, voting rights and
securities lending for assets invested in pooled funds will be subject to the investment
policies of the said pooled fund.
14 POLICY REVIEW
This investment policy will be reviewed annually to confirm that the existing asset
allocations will result in the best projected investment return for the selected risk level.
Current economic and political conditions will be reviewed to ascertain if the necessary
conditions exist for the investment policies to succeed. Current guidelines will be reviewed
to maintain their relevance and updated if changes are required. The annual review will not
prohibit the interim modification of the investment policy if there have been fundamental
changes which affect the underlying assumptions of the investment policy.
ICBC Statement of Investment Policy and Procedures – July 28, 2011April 15, 2013 Page 20
APPENDIX A – ASSET MIX TRANSITION SCHEDULE
Effective Date
12/31/2013
Target
12/31/2014
Target
12/31/2015
Target
Asset Class
Fixed Income 72% 72% 72%
Money Market 1% 1% 1%
Canadian Bonds 60% 60% 60%
Mortgages 11% 11% 11%
Equity 17% 16% 15%
Canadian Equities 12% 11% 10%
US Equities 2.5% 2.5% 2.5%
EAFE Equities 2.5% 2.5% 2.5%
Alternatives
Real Estate 6% 7% 8%
High Yield Bonds 5% 5% 5%
Added Value Objectives 0.2325% 0.2250% 0.2175%