After a slow start in the first quarter of 2009, the housing market in Ontario and investment markets generally, rebounded and this trend continued throughout 2010. Improving economic conditions together with favourable claim resolutions resulted in positive earnings of $30.2 million and an increase in total equity of $37.0 million.
At 52,531 units, new home enrolments were lower than the historical average of 65,864 but, still considered fairly strong when compared to the 47,649 units enrolled in 2009.
Tarion’s investment portfolio benefited from the global economic recovery, which was helped by expansionary fiscal and monetary policies in Western economies and by strong internal growth in the developing world. An increase of $6.8 million in unrealized gains was achieved through strong returns from the Tarion stock portfolio (compared with $16.1 million in 2009). And, monetary policy played a large role in pushing down bond yields which resulted in an increase of $5.3 million in our bond portfolio (this compares with a $7.6 million increase in 2009).
Corporation expenses decreased from $41.9 million to $20.7 million due to lower net claims incurred and operating expenses:
- Throughout the industry’s continuing recovery, Tarion reported net claims incurred of negative $18.3 million versus positive $3.1 million in 2009. Provisions for new claims were negative $13.9 million largely due to the favourable resolution of large claims at much lower costs than expected. Recoveries decreased from $8.5 million in 2009 to $4.4 million due to a significant decrease in reserves.
- Tight expense management resulted in a reduction of $1.0 million in operating expenses.
Tarion's capital management framework includes a minimum threshold for the Minimum Capital Test (“MCT”) and a minimum total equity test to cover a catastrophic loss as defined in the Dynamic Capital Adequacy Testing (“DCAT”). The MCT is the same test utilized by Canadian property and casualty insurance companies. The company’s MCT of 434% as at December 31, 2010 compares favourably to the threshold minimum of 150%. The company’s total equity of $154.5 million compares favourably to the catastrophic loss threshold scenario of $82 million.
Tarion will continue to be diligent in its management of costs and capital to maintain its financial strength and support new home warranties in the face of a slowly recovering economy.