Annual report on financial institutions - Growth and returns on track in complex economic and technolocigal environment


Montréal - The Autorité des marchés financiers (the "AMF") today released its 2014 annual report on financial institutions (in French only), which addresses the issues, risks and trends that relate to the financial institutions under its supervision.

"Every day, many AMF teams work to ensure that financial services cooperatives, trust companies and savings companies, as well as insurers of persons and damage insurers that carry on business in Québec fulfill their obligations in terms of solvency, sound and prudent management practices and sound business practices," said Louis Morisset, President and CEO of the AMF. "This second edition of our report, which covers the activities of all of these financial institutions, provides a better understanding of the regulatory environment in which they operate and presents the financial data relating to their activities of the past year," he concluded.

Taking stock of the year 2014

Financial institutions experienced growth in their activities and significant returns in a complex economic and technological environment.

  • In Québec, the financial industry had a GDP of $19.4 billion in 2014, representing 6.2% of the province's total real GDP. Deposit institutions and insurers account for 80% of the financial industry's GDP, which grew by 2%, compared with 1.4% for the economy as a whole; this highlights the importance of this industry and the role it plays as an economic driver.
  • Today's historically and persistently low interest rates (a trend that was reaffirmed when the Bank of Canada announced an interest rate cut at the beginning of 2015) constitute a major challenge for financial institutions. Despite that situation, deposit institutions (especially financial services cooperatives) have posted steady growth in their balance sheets.
  • Insurers of persons (life and health insurers) performed well in 2014, with 8.1% growth of premiums collected in Québec, whereas damage (P&C) insurers recorded more modest growth of 1.6%. This slower growth in premiums is partly due to the competitive nature of this market, especially in automobile insurance, and to the trend observed among Québec insurers to diversify and seek growth outside the province. For example, the acquisition of State Farm by Desjardins Group enabled it to practically double its revenues outside Québec, particularly in damage insurance.
  • The average capitalization ratios across all sectors are well above the minimum regulatory requirements. For example, the total capital ratio of Desjardins Group stood at 17.9%. Note that the median ratio of the six largest Canadian banks is 13.9%. In the insurance sector, the average solvency ratios are 239% for insurers of persons (240% in 2013) and 261% for damage insurers (253% in 2013).
  • For all financial institutions, the digital age presents major challenges, while also offering opportunities. Be it the risk of financial loss due to cybercrime, business interruption, theft or loss of confidential data, or the potential effects of social media, the technological environment constitutes a serious source of reputational risk; in the AMF's opinion, this is a real threat facing all financial institutions. At the same time, new technologies also offer opportunities for innovation in the design and offering of financial and insurance products. The AMF continues to closely monitor these realities.
  • Lastly, the AMF is continuing its work in the national and international arenas through its involvement with many financial and prudential regulators. For example, since October 2014, the AMF has chaired a new committee of the International Association of Deposit Insurers which focuses on resolution issues for financial cooperatives.

The 2014 annual report on financial institutions (in French only) is available on the AMF's website.

The Autorité des marchés financiers (the "AMF") is the regulatory and oversight body for Québec's financial sector.

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