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Context

The financial services sub-sector includes banking, financing, pension and insurance organizations and associated enterprises. They are a major component of the growing services sector of the Canadian economy, providing debt and equity financing for capital projects and underlying insurance instruments that form part of the risk management programs of public and private sector organizations. Directly, and in conjunction with global scale financial services counterparts, these companies are increasingly involved in infrastructure and project finance, under conventional models as well as projects delivered through P3 arrangements. The insurance component of the sector is also extending its scope into areas such as environmental liability risk management, business continuity and disaster management.

Drivers

The lending and equity aspects of the industry’s activities are driven by capital investment and general financing needs. The large investments in resource development, housing, commercial/industrial space and infrastructure that have characterized the Canadian economy since the mid-nineties have driven the banking and finance sub-sector to new heights. Consumer debt has also created a major source of lending activity. The significant infrastructure deficit in Canada is gradually being addressed by senior governments and is expected to balance the anticipated slowdown in housing and consumer debt growth.

Insurance and re-insurance demand is driven by the risk profile of the insured activities. Litigation is becoming a larger factor in business operations, and claims are escalating. Construction and environmental claims are a major concern in most organizations involved with capital projects. And while the insurance industry provides the underlying financial safety-net associated with those risks, they are increasingly involved in claims avoidance through risk management, training and educational programs.

Outlook

Canada’s infrastructure deficit is increasingly being recognized as a key factor in our lower productivity as compared to other jurisdictions. But at the same time, governments are recognizing that they cannot address the backlog through traditional public sector financing vehicles supported from the tax base. Concurrently, the large pools of capital within pension and other equity funds are searching for long-term stable returns that infrastructure can provide, particularly if there is a dedicated revenue stream such as from direct user charges. The confluence of these factors has created a new source of activity for the financial services. Combined with conventional government debt instruments, the outlook for financing of infrastructure in Canada is extremely strong.

Equally, there is a need to ensure such assets will grow at an equal or greater pace, particularly in the areas of construction/project insurance under P3 models, and in response to continued litigation over environmental factors.

Changing Client Needs

The relationship of the technical consultant such as Dillon with the financial services industry is one of technical advisor over a wide range of activities. Directly, we are involved in P3 project delivery programs that often have financial services companies as major players. But the role goes much farther. In these and other construction related programs, the lender/investor often requires an independent assessment of construction risks, revenue potential, progress and quality, or in a dispute or litigation, for an expert opinion. The concept of the “owner’s engineer” is extending towards each major partner in a large capital project retaining their own independent expert. Dillon, with extensive experience in all aspects of capital project development, has responded to these trends with service offerings customized to the particular needs of financial partners.

In the area of environmental liability, risk management through insurance is increasingly being complemented by risk avoidance through due diligence processes during transactions (property and business-to-business). Therefore, both the financing and insurance parties look to consultants to provide the high level strategic advice needed to properly measure risks during such transactions. This requires that we develop the capability to translate technical issues into the language of the financial services industry risk. Formal risk assessment and management expertise has therefore been included in Dillon’s range of expertise available to the financial services industry.