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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


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


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.



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%



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.



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


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


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.



August 30, 2013

Figure 5C.5 – Comparison Between Guidelines for the Diversification of Real Estate

by Property Type


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


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.



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



APRIL 15, 2013


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



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.


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.


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;


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.


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.


Asset Mix Ranges1


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


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


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.


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


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.


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.


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.


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.


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.




Geographic Location


% %

British Columbia 20 10 – 30

Prairies 30 15 – 45

Ontario 45 30 – 60

Rest of Canada 5 0 – 10

Product Type


% %

Office 30 15 – 45

Retail 30 15 – 45



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.



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.


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.


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%



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




JULY 28, 2011APRIL 15, 2013


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


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



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.


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.


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;


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.


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.


Asset Mix Ranges1


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 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.


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


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.


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


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.


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.


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.





% %

Office 2530 15 – 3545

Retail 2530 15 – 3545

Industrial 25 15 10 –

3540

Residential & Other

Other

2015

5

10 0 – 30

0 – 10


% %

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.


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.


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.




Geographic Location


% %

British Columbia 2520 15 10 –

3530

Prairies 2530 15 – 3545

Ontario 45 30 – 60

Québec &

MaritimesCanada

5 0 – 10

Product Type


% %

Office 3530 20 15 –

5045

Retail 3530 20 15 –

5045



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.



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.


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.


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%

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