Q2 2025 Definity Financial Corp Earnings Call

August 1, 2025

Good morning, ladies and gentlemen, and welcome to the destiny Financial Corporation, second quarter of 2025 Financial results conference call and webcast. At this time, all participant lines are in the listing only mode. Following the presentation, we will conduct a question and answer session and if at any time during this, call, you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Friday, August 1st, 2025, and I would like to turn the conference over to Dennis westall, vice president of investor relations. Please go ahead, sir.

Dennis Westfall: Thank you. Good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at definityfinancial.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO, Philip Mather, EVP and CFO, Paul MacDonald, EVP of Personal Insurance and Digital Channels, and Fabian Richenberger, EVP of Commercial Insurance and Insurance Operations. We'll start with formal remarks from Rowan and Phil, followed by a Q&A session, during which Paul and Fabi will also be available to answer your questions. With that, I will ask Rowan to please begin his remarks.

Thank you. Good morning everyone. Thank you for joining us on the call today, a link to our live webcast and background information for the call is posted on our website at the.com under the investors table.

As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call.

Joining me on the call today are Rowan Saunders, president and CEO Philip mother EVP, and CFO, Paul McDonald EVP of personal insurance, and digital channels, and Fabian rickenberger EVP of commercial insurance, and insurance operations.

We'll start with formal remarks from Rowan and Phil followed by a Q&A session during which Paul and Fabio will also be available to answer your questions.

Rowan Saunders: Thanks, Dennis. Good morning. The Q2 2025 was an exciting one for Definity as we announced an agreement to acquire Travelers Canada, a true milestone for our company and our next step in building a Canadian champion. The addition of Travelers Canada will allow us to surpass our strategic goal of becoming a top 5 P&C insurer in Canada. We believe it'll generate significant shareholder value through scale benefits and enterprise synergies, leading to an enhanced return profile for the combined business. I will provide an update on this acquisition later in the call. In the meantime, we remain focused on delivering the targeted performance of our existing business. Clear progress was made during Q2 on all 3 of our organic operating ROE levers, as you can see on slide 5.

With that, I will ask for 1 to. Please begin his remarks.

Thanks, Dennis and good morning.

The second quarter of 2025 was an exciting 1 for definity. As we announced an agreement to acquire travelers Canada, a true milestone, for our company and our next step in building a Canadian champion,

The addition of travelers, Canada will allow us to surpass our strategic goal of becoming a top 5 PNC, insurer in Canada. And we believe it will generate significant. Share of value through scale benefits and Enterprise synergies leading to an enhanced return profile for the combined business.

I will provide an update on this acquisition later in the call.

Rowan Saunders: We have achieved a break-even level of performance from Sonnet and are well on track to deliver the targeted improvements from expenses by the end of 2026. In addition, we are well positioned to achieve the targeted claims improvements by the end of 2027 and expect to implement Guidewire for property and casualty claims on time and on budget in the Q4. Beyond this, we've said we'd require inorganic growth, which would allow us to deploy our excess capital and introduce leverage into the balance sheet. That is exactly what the Travelers transaction will enable us to do. We can now optimize our previously unlevered balance sheet through the strategic deployment of excess capital and utilization of financial leverage capacity, which we expect will enhance our run rate operating ROE by over 200 basis points.

In the meantime, we remain focused on delivering the targeted performance of our existing business. And clear progress was made during Q2 on all 3 of our organic operating Roe levers, as you can see on slide 5,

We have achieved a break even level of performance from sonnet and are, well on track to deliver the targeted improvements from expenses by the end of 2026.

In addition, we are well positioned to achieve the targeted claims improvements by the end of 2027 and expect to implement guidewire for property and casually claims on time and on budget in the fourth quarter.

Beyond this. We've said we'd require inorganic growth which would allow us to deploy our Access Capital and introduce leverage into the balance sheet.

That is exactly what the Travelers transaction will enable us to do. We can now optimize our previously unlevered balance sheet through the Strategic deployment of excess capital and utilization of financial leverage capacity.

Rowan Saunders: If I put that all together, I'm confident Definity is well on the pathway to a target of sustainable mid-teen operating ROE post-integration. Now turning to the results from Q2 on slide 6. We again delivered on our objectives with gross written premiums up 9.1% from a year ago, adjusted for our exited line, and a better-than-target combined ratio of 92.9%.

Which we expect will enhance our run rate operating Roe by over 200 basis points.

So if I put that all together, I'm confident dfinity is well on the pathway to a target of sustainable mid-teen. Operating Roe post integration

Now turning to the results from the second quarter on slide 6.

We again delivered on our objectives.

With gross written premiums up 9.1% from a year ago, adjusted for our exited line.

Rowan Saunders: A healthy level of underwriting income, more than CAD 50 million in net investment income, and a seasonally strong contribution from our insurance broker platform resulted in operating net income of CAD 98.9 million or CAD 0.84 per share. We ended Q2 with book value per share of CAD 31.39, up 19.9% from a year ago, inclusive of our private placements of common shares to fund part of the Travelers transaction, as well as continued solid financial results. We generated an operating return on equity of 9.6% over the past 12 months, despite the active catastrophe experience from Q3 2024, which continues to weigh on operating ROE. Turning to the industry outlook on slide 7.

And a better than Target combined ratio of 92.9%.

Healthy level of underwriting income more than 50 million in net investment income, and a seasonally strong contribution from our insurance. Broker platform resulted in operating net income of 98.9 million or 84 cents per share.

Well you for share of $1.39 up 19.9% from a year ago, inclusive of our private placements of common shares to fund part of The Travelers transaction as well as continued solid Financial results.

We generated an operating return on Equity of 9.6% over the past 12 months, despite the active catastrophe experience. From Q3 2024, which continues to weigh on operating Roe.

Rowan Saunders: We expect conditions in auto lines to remain firm as insurers aim to keep pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta, and uncertainty related to the extent and impact of potential US tariffs and retaliatory actions. We expect market conditions and personal property to also remain firm over the next 12 months, particularly following last year's record level of industry catastrophe losses and the move to higher reinsurance attachment points. In commercial insurance, while we expect overall market conditions to remain attractive, we are continuing to see that some commercial segments have become more competitive. We expect overall pricing in commercial insurance to keep pace with loss cost trends, which have normalized since their post-pandemic peak to low to mid-single digits. Slide 8 shows our key financial targets for 2025.

Turning to the industry outlook on slide 7, we expect conditions, in order lines to remain firm as insurers. Aim to keep Pace with the combined impact of loss, cost Trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of potential us, tariffs and retaliatory actions.

We expect market conditions and personal property to also remain firm over the next 12 months, particularly following last year's record level of industry catastrophe losses and the move to higher reinsurance attachment points.

In Commercial Insurance. While we expect overall market conditions to remain attractive, We are continuing to see that. Some commercial segments, have become more competitive. We expect overall pricing in commercial insurance to keep Pace with loss cost Trends, which have normalized since their post pandemic Peak.

To low to mid-single digits.

Rowan Saunders: As you can see, both top-line growth and underwriting profitability are at or better than target midway through the year. I have already expressed the confidence we have in the pathway to an improved operating ROE in the coming years. Despite the drag from higher equity levels, we continue to expect to deliver an operating ROE of 10%+ in 2025. Slide 9 illustrates the composition of our national broker platform. Deal activity continued in the quarter, including a strategic acquisition in Nova Scotia, marking our first location in Atlantic Canada. Our progress with M&A activity and solid organic growth has enabled us to close in on our target for at least CAD 1.5 billion of managed premiums by the end of next year.

Slide 8 shows our key financial targets for 2025. As you can see, both Topline growth and underlying profitability are at or better than Target, Midway through the year.

While I have already expressed the confidence we have in the pathway to improved operating ROE in the coming years.

Despite the drag from higher equity levels, we continue to expect to deliver an operating ROE of 10% plus in 2025.

Slide 9 illustrates the composition of our national broker platform.

Rowan Saunders: We continue to view our national broker platform as a vehicle to diversify and strengthen the earnings profile of the business. With that, I'll turn the call over to our CFO, Phil Mather.

Deal activity continued in the quarter, including a strategic acquisition in Nova Scotia, marking our first location in Atlantic Canada, our progress with m&a, activity, and solid. Organic growth has enabled us to close in on our Target for at least 1.5 billion dollars of managed premiums by the end of next year.

We continue to view our national broker platform as a vehicle to diversify and strengthen the earnings profile of the business.

Philip Mather: Thanks, Rowan. I'll begin on slide 11 with personal auto. Gross written premiums were up 9.6% in Q2 2025, excluding the premiums of our excess lines from both periods, driven by an upper single-digit increase in written rates and unit count growth. To maintain target profitability, an additional 5 points of rate for both Sonnet and Vyne in Ontario was implemented effective in late May for new business. While these actions may temporarily affect competitiveness, they strengthen our positioning as market dynamics evolve. For the remainder of 2025, growth is expected to moderate to mid-single digits, reflecting the outsized impact of the portfolio transfers in mid-2024, our proactive rate actions, and ongoing underwriting discipline. Personal auto produced a combined ratio of 94.2% in the quarter, 1 point better than a year ago.

And with that, I'll take the call over to our CFO full mava.

Thanks Rowan. I'll begin on slide 11 with personal Auto.

Rosewood and premiums were up 9.6% in the second quarter of 2025.

Excluding the premiums of our exit lines from both periods. Driven by an upper single digit increase in ridden rates and unit count growth.

To maintain Target profitability and additional 5 Points of rate for both Senate and Vine in. Ontario was implemented. Effective in late May for new business.

while these actions May temporarily affect competitiveness, they strengthen our positioning as market dynamics, evolved

For the remainder of 2025 growth is expected to moderate to Mid single digits reflecting. The outsized impact for portfolio transfers in mid 2024. Our proactive rate actions and ongoing underwriting discipline.

Philip Mather: The performance reflects enhanced profitability in Sonnet and an improvement in the core accident year claims ratio, which continues to benefit from higher earned rates. We expect personal auto to generate a mid-nineties combined ratio in 2025. While we continue to believe the potential impact from tariffs will be manageable, we are continuously monitoring the situation and are ready to take additional actions as necessary to protect our profitability. Turning to personal property on slide 12. Growth of 7.1% in Q2 benefited from continued firm market conditions, driving increases in average written premiums. This was partially offset by ongoing active management of our portfolio to address volatility and risk concentration in regions with a higher propensity for climate-related peril events. We expect this line to grow at a mid to upper single digit pace for the full year, given the conditions prevalent in the industry.

Personal Auto produced a combined ratio of 94.2% in Q1, 1 point better than a year ago.

The performance reflects enhanced profitability in Sonnet and an improvement in the core accident year claims ratio, which continues to benefit from higher earned rates.

We expect personal water to generate a mid-90s combined ratio in 2025.

While we continue to believe the potential impact from tariffs will be manageable, we are continuously monitoring the situation and are ready to take additional actions, as necessary, to protect our profitability.

Turning to personal property on slide, 12 growth of 7.1% in Q2 benefited from continued, firm market conditions, driving increases in average written premiums.

This was partially offset by ongoing active management of our portfolio to address volatility and risk concentration in regions with a higher propensity for climate related. Peril events.

Philip Mather: We reported a combined ratio of 94.3% in Q2, up from the very benign Q2 of 2024, which saw only minimal cat losses. The increase in catastrophe losses was partially offset by a decrease in the expense ratio and the core accident year claims ratio. We continue to target the sub 95% combined ratio for the personal property line of business in 2025. Slide 13 outlines the highlights in the quarter for our commercial business. A strong execution delivered 10% growth in gross written premiums versus the prior year, despite industry growth moderating from recent quarters. Our results was driven by targeted growth across strategic segments with strong retention and rate achievement in our core segments and further expansion of our small business and specialty capabilities.

We expect this line to grow at a mid to upper single-digit pace for the full year, given the conditions prevalent in the industry.

Cut losses.

The increase in catastrophe losses was partially offset by a decrease in the expense ratio and the car accident year claims ratio.

we continue to Target, the sub 95% combined ratio for the personal property line of business in 2025,

Slide 13 outlines the highlights in the quarter for our Commercial Business, as strong execution delivered a 10% growth in gross and premiums versus the prior year, despite industry growth moderating from recent quarters.

Philip Mather: Industry loss trends have normalized since their post-pandemic peak to low to mid-single digits, which has been reflected in growth at the industry level. We expect that we can continue to deliver growth at roughly twice the pace of the industry, which should translate into high single-digit growth in 2025. Commercial lines continue to benefit from our focus on underwriting execution and rate adequacy, with a strong combined ratio of 89.6% in Q2 2025. The combined ratio was higher than last year's very strong 86.6%, driven by a return to more normalized loss frequency and weather, partially offset by a decrease in the expense ratio. The decrease in catastrophe losses and the corresponding increase in the core accident year claims ratio was primarily impacted by the change in definition for a single claim loss in 2025.

Our results was driven by targeted growth across, strategic segments with strong retention and rate achievement in our core segments, and further expansion of our small business and Specialty capabilities.

Industry loss, Trends have normalized since their post-pandemic Peak to low to mid single digits, which has been reflected in growth at the industry level.

We expect that we can continue to deliver growth at roughly twice the pace of the industry, which should translate into high single-digit growth in 2025.

Commercial Alliance continue to benefit from our focus on underwriting execution and rate adequacy with a strong combined ratio of 89.6% in the second quarter of 2025.

The combined ratio is higher than last year's very strong 86.6% driven by a return to more normalized loss frequency. And whether partially offset by a decrease in the expense ratio,

Philip Mather: We continue to operate our commercial insurance business with the intent to sustainably deliver an annual combined ratio in the low nineties. Turning to slide 14, consolidated premiums increased 9.1%, adjusting for exited lines. The disciplined nature of our growth through our underwriting expertise, pricing strategies, and product expansion, along with the continued focus on expense management, resulted in a Q2 combined ratio of 92.9%, up from last year, largely due to high catastrophe losses and the benign non-cat weather from Q2 2024. Our expense ratio of 29.7% was nearly half a point better than the prior year, benefiting from the investments we've made to improve productivity, along with our disciplined expense management.

the decrease in catastrophe losses and the corresponding increase in the core accident. Ear claims ratio was primarily impacted by the change in definition for a single claim loss. In 2025, we continue to operate, our Commercial Insurance business with the intent to sustainably deliver and annual combined ratio in the low 90s.

Turning to slide 14, consolidated premiums increased 9.1%, adjusting for exited lines.

The discipline nature of our growth through our underwriting, expertise pricing strategies and product expansion along with the continued focus on expense management. Resulted in the second quarter combined ratio of 92.9% up from last year largely due to high catastrophe losses and the benign non-cat weather from the second quarter of 2024.

Philip Mather: As Rowan mentioned, our Q2 operating expense ratio of 11.5% is already at the level where we expect to end the year. As you can see on slide 15, our net investment income increased marginally in Q2 due to an increase in interest income driven by higher holdings of bonds, partially offset by lower dividend income as we reduced our common equity holdings in Q1 2025. Given the anticipated contribution of proceeds from our private placements of common shares, we now expect net investment income of approximately CAD 205 million in 2025. Focusing on distribution income, the seasonally strong Q2 contribution of CAD 21.9 million reflects both the ongoing inorganic expansion of the platform and continued strong organic commission growth across the business.

Our expense ratio of 29.7% was nearly half a point better than the prior year, benefiting from the Investments, we've made to improve productivity along with our disciplined expense management.

As Rowan mentioned, our second quarter operating expense ratio of 11.5% is already at the level where we expect to end the year.

As you can see on slide 15 our net investment income. Increased marginally in the second quarter due to an increase in interest income driven by higher Holdings of bonds, partially offset by lower dividend income. As we reduced our common Equity Holdings in the first quarter of 2025

Given the anticipated contribution of proceeds from our private placements of common shares. We now expect net investment income of approximately 205 million in 2025

Philip Mather: As we mentioned on past calls, the full impact from our national broker platform also includes a benefit to consolidated expenses in the form of a commission offset. In aggregate, we've raised our expectations for 2025 growth to 20% over last year's CAD 76 million before finance costs, taxes, and minority interests. We continue to expect it to have a roughly 70/30 split between distribution income and commission offset. As you can see on slide 16, our robust financial position was further strengthened by the net proceeds from our concurrent private placements of common shares as we raised funds in advance of the deal close. The increase in financial capacity was due primarily to our private placements, a change in our leverage capacity calculation to 30% to better reflect anticipated leverage levels to the Travelers transaction, and capital generated from operating net income.

Focusing on distribution income, the seasonally strong second quarter, contribution of 21.9 million, reflects both the ongoing inorganic expansion of the platform and continued strong organic commission, growth across the business.

As we mentioned on past calls, the full impact from our national Brock platform, also includes a benefit to Consolidated expenses in the form of a commission offset.

In aggregate. We've raised our expectations for 2025 growth to 20% over last year's 76 million, before Finance costs, taxes and minority interests.

We continue to expect it to have a roughly 7030 split between distribution income and commission offset.

As you can see on slide 16, our robust financial position was further strengthened by the net proceeds from our concurrent private placements of common shares, as we raised funds in advance of the deal close.

The increase in financial capacity was due primarily to our private placements. A change in our leverage capacity, calculation to 30% to better reflect anticipated, leverage levels to The Travelers transaction.

Philip Mather: These were partially offset by ongoing deployment of capital for broker acquisitions and disciplined deployment of capital to support our organic growth and dividend priorities. Slide 17 shows recent capital management actions primarily related to the financing of the Travelers transaction. With the private placements complete, we will next turn our attention to bond issuances this fall. We also continue to finance our broker acquisitions, which remains a key area for capital deployment in the quarters ahead, and we were pleased to receive a DBRS upgrade on our trends from stable to positive. With that, I will turn the call back over to Rowan.

And capital generated from operating net income. These were partially offset by ongoing deployment of capital for broker Acquisitions, and disciplined deployment of capital to support our organic growth and dividend priorities.

This fall, we also continue to finance our broker acquisitions, which remains a key area for capital deployment in the quarters ahead. We were pleased to receive a DPRS upgrade on our trends from stable to positive.

Rowan Saunders: Thanks, Phil. Let me end with a few more thoughts on the Travelers Canada acquisition on slide 18. We believe this is a concrete demonstration of our commitment to build a Canadian champion in the still fragmented P&C insurance industry. We've been preparing for a transaction like this for years. I'm confident we have the resources, expertise, and talent to execute successfully. Definity's senior leadership team brings a wealth of experience and has deep knowledge and a proven track record in delivering successful integrations. Integration planning is well underway, as we have already put in place a robust transition planning and governance structure. Since the announcement of the transaction, members of the senior leadership team and I have held nearly two dozen town halls with our employees and brokers, and the sentiment has been overwhelmingly positive.

With that, I will turn the call back over to Rowan. Thanks, Paul. Let me end with a few more thoughts on the travelers. Canada acquisition on slide 18.

We believe this is a concrete demonstration of our commitment to build a Canadian champion in the still fragmented PNC. Insurance industry

We've been preparing for a transaction like this for years.

I'm confident we have the resources expertise and talent to execute successfully.

Definitely senior leadership. Team brings a wealth of experience and as deep knowledge and a proven track record in delivering successful Integrations.

Integration planning is well underway, as we have already put in place a robust transition, planning, and governance structure.

Rowan Saunders: Our employees are excited at the prospect of our scaled capabilities and the expanded opportunities that they will bring. Our brokers are enthusiastic and are showing a clear interest in our enhanced product offering post-close. We expect the transaction to close in Q1 2026 following a receipt of customary regulatory approvals, and I'm very pleased to say that we have already received unconditional clearance from the Competition Bureau. On the insurance side, we continue to be actively engaged with OSFI, providing them with the information they need to fully assess the transaction. In conclusion, the acquisition of Travelers Canada will enhance and strengthen our mix of business, increase the breadth of our product offering, and provide access to hard-to-source, high-performing talent.

Since the announcement of the transaction members of the senior leadership team, and I have held nearly 2, dozen town halls with our employees and Brokers and the sentiment has been overwhelmingly positive. Our employees are excited at the prospect of our scaled capabilities and the expanded opportunities that they will bring

Our Brokers are enthusiastic and are showing a clear interest in our enhanced product offering post close.

We expect the transaction to close in q1 2026. Following a receipt of customary regulatory approvals. And I'm very pleased to say that we've already received unconditional clearance from the competition Bureau.

On the insurance side, we continue to be actively engaged with OSI, providing them with the information they need to fully assess the transaction.

In conclusion.

Rowan Saunders: The deal is financially compelling with attractive economics. Will allow for the achievement of an optimized capital structure that we expect will sustainably support enhanced returns for shareholders in the years to come. With that, I'll turn the call back over to Dennis to begin the Q&A.

Dennis Westfall: Thanks, Rowan. With that, we are now ready to take questions.

The acquisition of Travis Canada will enhance and strengthen our mix of business. Increase the breadth of our product offering and provide access to Hard To Source. High-performing Talent. The deal is financially compelling with attractive economics and will allow for the achievement of an optimized capital structure that we expect will sustainably support enhanced returns for shareholders in the years to come. And with that, I'll turn the call back over to Dennis to begin the Q&A.

Thanks Rowan.

With that, we are now ready to take questions.

Operator: Thank you. Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, we ask that you please lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. Your first question will be from Paul Holden at CIBC. Please go ahead, Paul.

Thank you, ladies and gentlemen. If you do have any questions at this time, please press star followed by 1 on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the question process, please press star followed by 2. If you're using a speakerphone, we ask that you please lift the handset first.

Before pressing any keys, please go ahead and press star 1. Now, if you do have any questions,

Paul Holden: Thank you. Good morning. First question I'm gonna ask is just sort of on the updated expectations for commercial lines in the industry growth downshifting a bit. Is that intensified competition? Like, is it broadening out to more lines of business, or is it simply just more intense competition within sort of those large accounts you've referred to previously?

And your first question will be from Paul Holden at CIBC, please. Go ahead. Paul.

Thank you, uh, good morning. Uh, first question I'm going to ask is just sort of on the updated, um, expectations for commercial lines in the industry, growth downshifting a bit. Is that intensified competition like, is it

Is it broadening out to more lines of business or is it simply just more intense composite uh competition within sort of those large accounts? You've referred to previously

Rowan Saunders: Good morning, Paul, and thanks for the question. I'll have Fabi give us some more insight into that, but I think our view we'd like to, you know, share in commercial lines is it's really a continuation of what we've been seeing. If you look back over the last couple of years coming out of COVID, there was a lot of inflation and loss cost trends, which is really the primary driver that is now normalizing and slowing. Therefore, when you're rate adequate, and the industry has been in a firm market for a number of years, the required rate changes really reflect the ongoing loss cost. I think, you know, that is the main kind of message. Clearly it varies by segment, and there's a lot more nuance to that.

Good morning, Paul. And thanks for the question, I'll have Fabby, um, give us some more insight into that, but I think macro views would like to, you know, share in commercial lines, is it's really a continuation of what we've been seeing. And if you look back over the last couple of years, coming out of Co, there was a lot of inflation.

Rowan Saunders: Fabi, would you like to just add a bit of color to that?

Fabian Richenberger: Yes, thank you. maybe kind of adding three or four additional insights to your question, Paul. Thank you for that. I think the first one is that indeed we have seen more competition in the large account space, but I would say that overall, the commercial insurance segment overall is still very attractive for us. We are very pleased with the results that we have achieved in that segment in Q2. You've seen that we have a great of 10% that is market leading. Obviously we are very pleased with the combined ratio of 89.6 that we posted in that Q2. Our frontline teams are doing a really good job in executing our business plans.

And loss cost trains, which is really the primary driver. That is now normalizing and slowing. And therefore when you read adequate and the industry has been in a firm market for a number of years, the required rate changes, really reflect the ongoing loss cost. So I think, you know, that is the main kind of message, but clearly it varies by by segments and there's a lot more Nuance to that. So so fab you'd like to just add a bit of color to that. Yes, thank you. Um, so maybe

Q2.

Fabian Richenberger: As a result of that, the underlying profitability that we have in our commercial portfolio remains very sound. I think what I'd like to point out to you as well, and I mentioned that in earlier calls as well, is that if you look at our growth rate of 10%, what is important to note is that about half of that growth rate is being generated with rate and inflation adjustments. That gives us a great deal of confidence that we continue to cover the loss trends that we have in our portfolio. With that, we are very confident that we'll be able to sustain the combined ratio in that 90% range.

Um, our front lines, our Frontline teams are doing a really good job in executing our business plans. And as a result of that, the on the line profitability that we have now commercial portfolio, remains very sounds.

Fabian Richenberger: The other point I want to draw out as well, I mentioned it before as well, is that we continue to benefit from our commercial portfolio being heavily skewed to the lower end of the commercial marketplace in terms of account size and limits. That gives us just a very good opportunity to mitigate the impact of pricing, leveraging the strong digital capabilities that we've built in that segment. Maybe one of the last points I want to share with you, coming back to your question in terms of industry dynamics in commercial insurance, we have more competition in the large account space for sure, but the amount of business that you're writing in large accounts, a very small portion of our overall commercial portfolio. Our strong client underwriters are very disciplined.

I think what uh, I'd like to point out to you as well and I mentioned that in earlier calls as well. Is that if you look at our growth rate of 10%, what is important to note is that about half of that growth rate is being generated with rate and inflation adjustments and that gives us a great deal of confidence that we continue to cover the loss trends that we have in our in our portfolio. And with that we are very confident that we'll be able to sustain the combined ratio in that 90% range. Uh, the other point, Emily will draw out as well. And I mentioned that before, as well, is that we continue to benefit from our commercial portfolio, being heavily skewed to the low end of the commercial Marketplace in terms of account size and limits. And that gives us just a very good opportunity to mitigate the impact of pricing leveraging this strong, digital capabilities that we filled in that segment,

Fabian Richenberger: If the margin equation doesn't make sense for us, in one of those large account renewals, we are guiding them to letting those accounts go. Again, because the makeup of those large accounts in our portfolio is so small, we don't really see the impact of that increased competition, in our portfolio. Overall, I would say that we view the commercial segment very attractive. We are confident that we can grow our commercial portfolio at twice that industry growth rate without compromising our profitability goals, as a result of the strong underwriting and capabilities that we built in small business, middle market, specialties.

And then maybe 1 of the last points on to share with, you coming back to your question in terms of uh industry Dynamics in commercial insurance. We have more competition in the large account space, for sure. But the, the the amount of business that you're writing in large accounts, uh, a very small portion of our overall commercial portfolio and our trunk line on the right is our very disciplined. And if the mortgage creation doesn't make sense to us, in all of those large 2 count, renewals we are guiding them to letting those accounts go and again, because the makeup of those large accounts in our portfolio is so small. We don't really see the impact of that increase the competition in our portfolio. So overall, I, I would say that we view the commercial segment, very attractive. We are confident that we can grow. Our commercial portfolio at twice as industry growth rate.

Fabian Richenberger: With the strong support from our brokers, again, we're confident that we'll be generating growth rates in that higher single digit range and sustain our profitability in that 90% combined ratio range.

Paul Holden: Okay, that's a very helpful answer. Clear. I think that's really the key issue. Can you continue to gain market share, but by at the same time maintaining your, your target margin? Clearly your answer says yes. That's very good. Thanks. Second question. You have a really good slide on the broker platform, I think it's slide 10, highlighting you're now the 10th-largest P&C insurance broker in Canada. I guess kind of two questions related to that. One is like, as you get bigger, does it help with the acquisition accretion in any way? I.e., is there more opportunity for synergies? Two, are there other

Without the compromising our profitability goals, as a result of this strong underwriting and capabilities that we built in small business, Bill markets, um Specialties and with a strong support uh from our Brokers. Again, we are confident that we'll uh be generating growth rates in the highest single digit strange and sustainable profitability in that 90% combination range.

Okay, that's a very helpful answer because I think that's really the key issue. Can you continue to gain market share, but by um at the same time maintaining your your your target margin so clearly your answer says yes. So that's that's that's very good. Thanks. Um, second question.

Bart Gjaerde: -scale benefits associated with the broker business sort of more on a operational basis?

You have a really good slide on the, the broker platform. I think it's slide 10. Uh, highlighting that. You're now the 10th largest uh, PNC, insurance broker in Canada. I guess kind of 2. Questions related to that, 1 is like as you get bigger. Does it help with the acquisition accretion in any way? IE is there more opportunity for synergies? And then to are there, other kind of scale benefits associated with the broker business, sort of more on a operational. Um basis.

Rowan Saunders: Well, I would say the answer is yes. I mean, I think that if you just reflect back on the journey we've gone, right? You know, we this is only a few years ago that we've done this. We've now deployed a little under $1 billion into the channel. As you've noted, we're a top 10 player. We're growing quite quickly. We've done about 20 transactions, another 6, you know, this year. What we're now seeing is that there is benefits of scale. I think as the business grows and it standardizes its technologies in some of the back office functions, there absolutely, you know, is upside in terms of the margin. Now, the margins, the averages that come out of a distribution channel are very attractive and very stable. It's why we like it.

Well, I would, I would say the answer is. Yes. I mean I think that if you just reflect back on the journey we've been on, right? You know, we, we this is only a few years ago that we've done this. We've now deployed, you know, little under a billion dollars into the channel. As you've noted, we were a top, 10 player growing quite quickly. We've done about 20 uh uh transactions and other 6, you know this year and what we're now seeing is that there is benefits of scale and I think as the business grows and it standardizes ITS Technologies and some of the back office functions there are absolutely, you know is upside in terms of of the

Rowan Saunders: They are attractive, and they're very, you know, as I said, predictable. I think, you know, that whole segment has gone through quite a lot of change in the last couple of years, but it is attractive. I think that there are a couple different models out there for roll-ups or for consolidations. The model that we have under the McDougall Insurance is a little unique. If you remember, it's unique in terms of, we keep the entrepreneurs engaged. They keep equity in the business. As they do roll-ups, they have a lot of value they can bring to their, to the acquired companies, such as, you know, more market access, more specialization, and capabilities. We've kinda seen revenue synergies as companies we acquire increase the organic growth rate.

The margin now the margins, the evidence that come out of a distribution channel are very attractive and very stable that's why we like it. Um they are attractive and they're very, you know, as I said predictable

I think, you know, that whole segment has gone through quite a lot of change in the last couple of years but it is attractive. And I think that there are a couple different models out there for Roll-Ups or for consolidations.

the model that we have under the mcdougall's group is a little unique or if you remember it's Unique in terms of

Rowan Saunders: Of course, we've seen kind of cost synergies. I think that scale play that you referred to will continue. I think just a, you know, a kind of final comment for me is, like, we like this. It's been a very good investment for us and deployment of capital. As you can see, Philip made the comment that we've increased our guidance, you know, this year. We've done more acquisitions. The organic growth rate is strong, we've, you know, we've increased guidance from 15% growth to 20% growth. I can tell you the pipeline's still pretty full for us. You know, that should play out well for the next several years.

Companies such as you know, more Market access more specialization um and capabilities. And so we've kind of seen Revenue synergies as companies we acquire um increase the organic growth rate and of course we've seen kind of cost strategies, so I think that scale play that you referred to will continue and I think just to, you know, a kind of final comment for me is like we're we like this. It it's been a very good um, investment for us and deployment of capital as you can see. Uh, Phil made the comment that we've increased our guidance, you know, this year, we've done more Acquisitions. The organic growth rate is strong. So we've, you know, we've increased guidance from 15% growth to 20% growth and I can tell you the pipelines are still pretty pretty full, um, for us. So so, you know,

Bart Gjaerde: Very good. Okay. I'll leave it to those two questions. Thanks for your time.

Paul MacDonald: Very good. Okay. I'll leave it to those two questions. Thanks for your time.

That that should play out well for the next several years.

Very good. Okay. Okay, I'll leave it to those. Uh, 2 questions, thanks for your time.

Operator: Thank you. Next question will be from Mario Mendonca at TD Securities. Please go ahead, Mario.

Thank you.

Next question will be from Mario.

And Mario.

Mario Mendonca: Good morning. The comments around personal auto and sort of downshifting a little bit, the growth outlook. You're obviously referring to direct written premium, but the growth in net earned premium has obviously been a lot stronger for the last three quarters. What I'm trying to get at is how much longer would you expect the growth in net earned premium to really outpace direct written premium? Presumably, at some point, those two converge, and I'm just trying to figure out when that might be.

Uh, good morning, the comments around personal Auto, and sort of downshifting a little bit. Uh, the growth Outlook you, you're obviously referring to direct written premium but the, the growth in Netter and premium is obviously been a lot stronger for the last 3 quarters. So, what I'm trying to get at is, what, how, how much longer would you expect the growth in net or in premiums?

To really outpace direct agreement. Presumably at some point, those 2 converge. And I'm just trying to figure out when that might be

Paul MacDonald: Thanks, Mario. It's Paul. Yeah, you're right. This is really a reflection of the lag in the industry between the trend that we're seeing and the written rate that we're taking. As the rate starts to catch the trend, and we're essentially near that point now, you would expect to see those elements converge, as you've rightly pointed out. That, of course, assumes a fairly stable environment moving forward. While the inflationary trend has normalized or moved toward normal at that mid-single-digit range, we're still seeing some uncertainty. One element, for example, is theft. Theft has improved your question, but still a little bit elevated relative to pre-pandemic levels. Of course, as Rowan said in his opening remarks, there's still the uncertainty around the tariff environment moving forward.

Thanks Pam. It's Paul.

Yeah, you're you're right and then this is really a reflection of the lag. In the industry between the trend that we are seeing in the written rate that we're taking

Paul MacDonald: I think what you would expect to see in a stable environment is that convergence. As you will see, markets take rate at different times. We don't all take rate on the same day, so there's always a bit of volatility quarter to quarter as one market may take a rate and another then responds a little bit later. In our particular case, we have taken five points of rate in our largest portfolio in Ontario, as Phil has indicated. As we've shown in previous years, when we move ahead of the market like that, we tend to see a bit of a moderation in that, in our pattern as the rest of the market then catches up, and then we gain that competitiveness thereafter.

Great starts to catch the trend and we're essentially near that point. Now, you would expect to see those elements converge as you've rightly pointed out. Um, that of course assumes a fairly stable environment moving forward. While the inflationary trend has normalized or moved toward normal in that mid single digit range. We're still seeing some uh uncertainty 1 element. For example is theft theft, um, has improved your view of question but still a little bit elevated relative to pre-pandemic levels. Um and then, of course, as Rowan said, in his opening remarks, there's still the uncertainty around the Tariff environment moving forward. So I think what you would expect to see in a, in a stable environment is that convergence. Um, but as, as you will see,

Markets, take rate at different times, we don't all take rate on the same day, so there's always a bit of volatility quarter to quarter as um, 1 market may take a rate and, and another then responds a little bit later. In our particular case, we have taken 5 Points of Freight in our largest portfolio in Ontario, as Phil has indicated, and as we've shown in previous,

Previous years when we move ahead of the market like that. Uh, we tend to see a bit of a moderation in that, um, in our pattern, uh, as the rest of the market, then catches up and then we gain that competitiveness thereafter

Mario Mendonca: That's clear. Thank you.

That's clear. Thank you.

Operator: Thank you. Next question will be from Bart Gjaerde at RBC Capital Markets. Please go ahead, Bart.

Thank you. Next question will be from Bartowski at RBC Capital markets. Please go ahead Bart.

Bart Gjaerde: Hi. Good morning. Thanks for taking the question. Just wanted to follow up on the distribution income. Noted on the raised guidance, but when I look at the growth rates, like you're tracking at the guidance 20% already. You had 27% strong growth in Q2, and you're continuing the acquisition. Is there something in the guidance that you're seeing on more cautious, that keeps you at the 20, or is there upside to that going forward?

Bart Gjerde: Hi. Good morning. Thanks for taking the question. Just wanted to follow up on the distribution income. Noted on the raised guidance, but when I look at the growth rates, like you're tracking at the guidance 20% already. You had 27% strong growth in Q2, and you're continuing the acquisition. Is there something in the guidance that you're seeing on more cautious, that keeps you at the 20, or is there upside to that going forward?

Hi, good morning. Thanks for taking the question. I just wanted to follow up on the distribution income noted on the raised guidance. But when I look at the growth rates, like you're tracking at the guidance of 20% already, you had 27% strong growth in Q2 in your continuing operations, the acquisition. So is there something in the guidance that you're seeing that is more cautious, that keeps you at the 20%? Or is there upside to that going forward?

Rowan Saunders: Yeah. No, I think we're very, obviously very pleased with the Q1 that's come through. You know, if you look at the underlying factors that are driving that outperformance in the first half of the year, it's the strong acquisition activity, and it's the, you know, very positive underlying growth that's come through. We have a bit of a true-up that always happens in the first half around CPCs, you know, as you make the estimates and what comes through there, we have a, you know, a contribution that came through in the first half. Generally speaking, I'd say no. We're very positive that, you know, 20% is the bottom end of our view.

Yeah no. I think we're very obviously very pleased uh with the first quarter that's come through. And you know, if you look at the underlying factors that are driving that outperformance in the first half of the year, it's the strong acquisition activity and it's the uh you know very positive underlying growth. Uh that's come through. We have a bit of a true hope that always happens in the first half around cpcs. As you, you know, as you may be estimates and what comes through there and we have a you know a contribution that came through in the first half but generally speaking, I'd say no we're very positive that

Rowan Saunders: We're pretty comfortable that's gonna go forward. In particular, if you look at the acquisition activity that's happened in Q2, you know, that's obviously only just occurred, and therefore, we'll see some pickup going forward. No, I think if you look at the underlying themes, they're continuous. It's good contribution from that acquisition activity, and it's the good positive underlying growth on an organic basis that we're seeing in the operations. You know, a continuation of the same themes, I think, is what we're predicting for the rest of the year.

On an organic basis, we’re seeing in the operations a continuation of the same teams. I think this is what we are predicting for the rest of the year.

David Brown: Okay, great. Thanks. Just on the, on one question on Travelers acquisition. Is there an opportunity for you to port Guidewire into Travelers and get claims transformation benefits there? Like I know organically, you're expecting one to two points, but is that a possibility in terms of using Guidewire with the Travelers business?

Bart Gjerde: Okay, great. Thanks. Just on the, on one question on Travelers acquisition. Is there an opportunity for you to port Guidewire into Travelers and get claims transformation benefits there? Like I know organically, you're expecting one to two points, but is that a possibility in terms of using Guidewire with the Travelers business?

Okay. Great thanks. And then just on the uh, 1 question that Travelers acquisition. So is, is there an opportunity for you to Port guidewire into Travellers and get claims transformation benefits there? Like I know organically, You're Expecting 1 to 2 points but is that a possibility in terms of using guide wire within Travelers business?

Fabian Richenberger: On our side, this is Fabi answering your question. As you know from our disclosures, we're in the middle of a major claims transformation to kind of contribute that 1 to 2% ROE expansion range. Last year, we put our own auto claims onto Guidewire, and that's complete. Our auto line of business has about half of our claims count. This year, we're in the middle of completing our claims transformation to Guidewire by kind of transforming our P&C business. We do expect that P&C transformation will be done by the end of the year. With that, we can in-source kind of the travel claims onto a fully end-to-end installed claims Guidewire platform on our side, and that will allow us to drive additional benefits.

Fabian Richenberger: The main benefits from a Guidewire transformation is a better customer experience, better indemnity control, better fraud prevention, better opportunity to leverage AI capabilities going forward as well. We feel that the platform that we've built on our side will help us extracting the benefits that we put into the business case when we made the Travelers acquisition.

So on our side this this will be answering your questions. So uh, as you know, from our exposures be on the middle of May to claim transformation to kind of give you is that 1 to 2% or the expansion range. Last year, we put our own Auto claims on to guide wire and that's complete and our, although line of business has about half of our claims count and this year, we in the middle of completing our claims confirmation trade Wire by kind of Transforming Our PNC business. And we do expect that that PNC transformation will be done by the end of the year. And with that we can insource kind of the travel claims onto a fully end-to-end installed claims guide by the platform on our side and that will allow us to drive additional benefits and the main benefits from a guidewire transformation is by the custom experience better.

Rowan Saunders: Bart, the only thing I would, you know, add to that, when, when we announced, you know, the CAD 100 million of synergies that we expect to come out of the Travelers, you know, integration, I mean, we really there were referring to the cost synergies. As Fabi talks about, you know, when we, when we move the business onto our platforms, and that would be, you know, the Guidewire platform, Vyne and Personal Lines, for example, and for small commercial, but also the claims. You know, what that doesn't capture is any potential indemnity improvements, which we think will likely occur in certain product lines as well. You know, the bottom line is that's all tracking well.

In the community control better flow, prevention, better opportunity to leverage AI cable is going forward as well. So we, we feel that the platform that we've built on our side will help us extracting the benefits that we put into the business case when we made the travels acquisition,

And but the only thing I would, you know, add to that when when we announced, you know, the hundred million dollars of of synergies that we expect to come out of The Travelers. You know, integration. I mean, we really there were referring to the cost Synergy. And so as Fabi talks about, you know, when we, when we move the business onto our platforms and that would be, you know, the guy by platform Vine and personal Alliance For example, and for small commercial. But also the claims you know what that doesn't capture is any potential Indemnity, uh, improvements which we, which we think will likely occur in certain product lines as well. So, you know,

Rowan Saunders: We thought about that in our, you know, in our due diligence, in our valuation, and in picking the synergies. The synergy targets we share with the market are really the kind of cost efficiency, you know, targets. That would occur partly by better technology, moving them onto our digital platforms. What it doesn't address, you know, is the potential benefit of further indemnity, you know, savings. You know, the big point there is that it is important for us to convert onto our platforms. Guidewire claims, you pointed out, but the other benefits apply to other product lines as well.

The bottom line is, that's all tracking. Well, we thought about that in our, you know, in our due diligence in our valuation and then picking the synergies. But the Synergy targets, we share the market are really the kind of cost efficiency, you know, targets and and that would occur partly by better technology moving them on to our digital platforms. But what it does is address, you know, is the potential benefit of further Indemnity, you know savings. So you know it's a big point there is that is important for us to um convert onto our platforms and guidewire.

Claim, as you pointed out, but the other benefits applied to other product lines as well.

David Brown: Great. That's helpful. Thanks, guys.

Bart Gjerde: Great. That's helpful. Thanks, guys.

Great, that's helpful. Thanks guys.

Operator: Thank you. Next question will be from Lemar Persaud at Cormark. Please go ahead, Lamar.

Thank you. Next question will be from the queue.

David Brown: Yeah, thanks. I just wanna come back to distribution, specifically your slide nine there. I'm wondering if you could talk about the pace of broker M&A now that you're absorbing the Travelers deal. You're showing here that you're at CAD 1.3 billion in premiums. You've added CAD 160 million in the first half of 2025. I think in the context of that CAD 1.5 billion target by the end of 2026, it would suggest a slowdown in broker consolidation. Is that what's in the plan here? Is that because of the Travelers deal? Maybe you could provide some color on that.

Lemar Persaud: Yeah, thanks. I just wanna come back to distribution, specifically your slide nine there. I'm wondering if you could talk about the pace of broker M&A now that you're absorbing the Travelers deal. You're showing here that you're at CAD 1.3 billion in premiums. You've added CAD 160 million in the first half of 2025. I think in the context of that CAD 1.5 billion target by the end of 2026, it would suggest a slowdown in broker consolidation. Is that what's in the plan here? Is that because of the Travelers deal? Maybe you could provide some color on that.

Mark, please go ahead Lamar.

Yeah, thanks. Uh I just want to come back to the distribution. I'm specifically your, your slide 9 there. Um, I'm wondering if you could talk about the pace of broker m&a. Now that you're being The Travelers deal. You're showing here that you're at 1.3 billion. In in premiums, you've added 160 million in the first half of 2025, I think, in the context of that 1.5 billion Target by the end of 2026, it would suggest a Slowdown in broker consolidation, is that? Is that what's in, in in, in the plan here? Is that because of The Travelers deal. Uh,

Rowan Saunders: Yeah. Thank you for that. Look, I think the two points I would make, firstly, the Travelers acquisition will not have an impact on building out our broker platform. You know, this really is part of the business that is standalone and not impacted by the Travelers acquisition. You know, we have the funds to keep investing in our broker platform, and we have the management capability to keep that platform building and integrating as they go. Travelers won't impact that. I think the other point I would make there is that we haven't yet updated the guidance that you talk about the CAD 1.5 billion, you know, at the end of 2026.

Maybe you could provide some color on that.

Yeah, thank you for that. Look. Um, and and I think the 2 points I would make firstly, um, The Travelers acquisition would not have an impact on building out our broker platform, you know, this really is part of the business that is Standalone, and not impacted by The Travelers. Acquisition. So, you know, we have the funds to keep investing in our broke up platform, um, and we have the management capability to, uh, to keep that platform building and and integrating as they go, so that was won't impact that. Um, I think the other point I would make there is that we haven't yet updated the guidance that you

Rowan Saunders: Given the success we've had, you know, year to date, that certainly is looking like a, you know, very conservative estimate to us. I think what we would say is that we really are very comfortable in tracking towards that target. That don't read into the fact that we're slowing down our activities. I mean, I think that the broker platform continues to grow very well organically. As I mentioned in my comments, there are significant opportunities in the pipeline. That should continue.

I think that the broker platform continues to grow very well organically. As I mentioned in my comments, there are significant opportunities in the pipeline, so that should continue.

David Brown: Thanks. That's very clear. That's all, that's all for me.

Lemar Persaud: Thanks. That's very clear. That's all, that's all for me.

Thanks, that's very clear. That's all, that's all from me.

Operator: Thank you. Next question will be from Brian Meredith at UBS. Please go ahead, Brian.

Thank you.

Next question will be from Brian Meredith at UBS.

David Brown: Yeah, thanks. Rowan, just follow on with the Travelers acquisition and distribution. I'm just curious, you know, Travelers very committed to the, you know, broker independent agency distribution system in the US. As we look at this acquisition and your conversations with distribution, you know, have any of the agents that Travelers did business with or brokers expressed any concern on channel conflict or something? Maybe they liked being with Travelers because they didn't have the broker presence.

Brian Meredith: Yeah, thanks. Rowan, just follow on with the Travelers acquisition and distribution. I'm just curious, you know, Travelers very committed to the, you know, broker independent agency distribution system in the US. As we look at this acquisition and your conversations with distribution, you know, have any of the agents that Travelers did business with or brokers expressed any concern on channel conflict or something? Maybe they liked being with Travelers because they didn't have the broker presence.

Yeah, thanks, Rowan. Just follow along with the Travelers acquisition and distribution. I'm just curious, you know, Travelers is very committed to the, um, you know, broker independent agency distribution system in the U.S. As we look at this acquisition in your conversations with distribution, you know, have any of the agents that Travelers did business with, their brokers, uh, expressed any concern about channel conflict or something? Maybe they liked being with Travelers because they didn't have the broker presence?

Rowan Saunders: Thanks for that question, Brian. The quick answer to that one is no, there is no concern. I mean, I think that, you know, what we have been able to do in the last, you know, couple of months is, we've engaged, you know, obviously with in town halls, with our employees, with Travelers employees and with brokers. I'd remind you that the vast majority of Travelers brokers also represent Definity. There is a natural overlap. In the discussions that we've had, whether they're in town halls or the one-on-ones with the largest brokers, they are, quite frankly, delighted about this acquisition, and they are really pleased that, you know, Definity is the acquirer.

Thanks for that question, Brian. And uh, and the answer to the quick answer to that 1 is no, there is no concern. I mean, I think that, you know what, we have been able to do in the last, you know, couple of months is, uh, We've engaged, you know, obviously with entitles with our employees, with Travelers employees and with, uh, and with Brokers, and I'd remind you that, uh, the vast majority of Travelers Brokers also represent definity. So, um, there is a natural overlap and in the, um, in the, in the discussions that we've had with, they're in town halls, or the 1 ones with,

Rowan Saunders: They see that this will add capabilities to us and some further, you know, product lines. We've got a high degree of confidence that the channel conflict is not an issue. They're pretty used to it in the marketplace. You know, this is something that's made unique, vertical integration into this, to broker channel in Canada. It's not, you know, it's unique to the Canadian business, and they seem pretty comfortable. We're not really worried about that at all, Brian. It's in fact, it'll be the opposite. I think the feedback we've got from brokers that represent both organizations has actually been extremely positive.

The largest Brokers. They are quite frankly delighted about this acquisition and they are really pleased that uh, you know, definitely is the acquirer they see that, um, this will add capabilities to us and, um, some further, you know, product lines. But we we've got a high degree of confidence that, um, the channel conflict is not an issue. They're pretty used to it in the marketplace, you know? This is something that maybe is so unique vertical integration into this to broker channel uh in Canada. But uh it's not, you know. So it is it's it's Unique to the Canadian business and and they seem pretty comfortable. So we're not really worried about that at all. Brian. It's in fact, you know, being the opposite. I think the

The feedback we've got from uh, from Brokers that represent both organizations. There's actually been extremely positive.

Brian Meredith: Great. That's really helpful. Second question. I'm just curious. Down here in the US, auto claims frequency continues to be quite favorable. Are you seeing anything similar in Canada?

Great. That's really helpful. And then second question, I'm just curious down here in the US. Um, Auto claims frequency continues to be quite favorable. Um, are you seeing anything similar in Canada?

Rowan Saunders: Go ahead, Paul.

Paul MacDonald: Thanks, Brian. We are seeing sort of normal frequency trends seasonally adjusted. Q2 tends to be usually a bit of a better quarter for auto claims. We're seeing that the board. The one area in frequency that we're seeing a market improvement year-over-year is in the theft space, as I mentioned earlier. While theft is still elevated relative to pre-pandemic, that's really more on the severity side of the equation, whereas the actual theft percentages are have seen a pretty significant slowdown due to the actions of the government and the industry combined. I don't want to give you the impression that it's not an issue anymore. It continues to be an issue, but we've priced for that throughout.

Go ahead, Paul. Thanks Brian.

Um, we we are seeing um,

Sort of normal frequency Trends seasonally adjusted. So uh Q2 tends to be uh usually a bit of a better quarter for uh Auto claims and so we're seeing that across

Paul MacDonald: Yeah, normal levels of frequency throughout. No, no issues to speak of.

Brian Meredith: Great. Thanks. If I could squeeze one more just quickly in here, Rowan. MGAs have become incredibly popular down here, in the US. I'm just curious, you know, do you use much MGAs in your own business and kind of thoughts on the MGAs?

Uh, the board, the 1 area in frequency that we're seeing um a marked a market Improvement year-over-year is in the theft space as I mentioned earlier. Uh, while theft is still elevated relative to pre-pandemic, that's really more on the severity side of the equation, whereas the actual theft percentages are. Um, I've seen a pretty significant slowdown due to the actions of the government and the industry combined. Now, I don't want to give you the impression that it's not an issue anymore, it continues to be an issue, but we're we've priced for that, um, throughout but, uh, yeah, normal levels of, um, of frequency throughout no, no, uh, issues to speak of

Great, thanks. If I can squeeze 1 more just quickly in here. Ron. Um uh mgas have become incredibly popular down here, uh, in the US. I'm just curious, you know. Um, do you use much MGA in your own business and kind of thoughts on on the mgas?

Rowan Saunders: As a general rule in a comment, I would say that there is a difference in MGAs and MGUs between Canada and US. You know, in the US, there seems to be more managing general underwriters and less of that in Canada. We're less comfortable distributing. It doesn't mean we don't use MGAs, but it's generally something we're less comfortable with. We would prefer to keep the underwriting pen, as they say, and manage our own capital. We have seen some growth in that segment. It's not something that is a priority for us in terms of distributing through.

As as a general rule is, um, I'll call my dad. I would say that there is a difference in mgas and mgus between Canada and the US and, you know, in the, in the US there seems to be more managing to do little Underwriters, um, and less of that in Canada, were less comfortable Distributing. It it does mean we don't use mgas, but it's generally something we're less comfortable with we, we would prefer to keep the underlying pin as they say, and, and manage our own, uh, Capital. But we have

Rowan Saunders: We have a broad and capable distribution network, and so we feel we can access the segments that we really focus on, you know, quite capably without a high dependency on MGAs.

Brian Meredith: Helpful. Thank you.

In um some growth in the in that segment, it's not something. Um, is a priority for us, in terms of Distributing through we we have a a broad and capable distribution Network and so we feel. We can access the segments that we really focus on, you know, quite capably without uh, a high dependency on mgas.

Rowan Saunders: Go ahead.

Fabian Richenberger: If I may, Rowan, in my experience, and I worked in the States for eight years as well. You use MGAs for two main reasons, either because you don't have the distribution reach or because you don't have the technical expertise to write the business that you want to write. Based on the scale that we have, based on the underwriting expertise that we build, based on the reach that we have in the distribution space coast to coast, we really don't have a need to reach our end customers through MGA networks. As Rowan mentioned, we can sustain the growth numbers with the broker distribution networks that we can place.

Um, helpful. Thank you.

To distribution reach or because you don't have the technical expertise to write the business that you want to write and based on on the scale that we have based on on writing expertise that we failed based on the reach that we have in the distribution Space Coast to Coast, we really don't have a need to reach our end customers through em works. And as row mentioned, we we can sustain, uh, the, the data.

Growth numbers with the broker distribution networks that we can place.

Brian Meredith: Helpful. Thank you.

Helpful. Thank you.

Operator: Thank you. Next question will be from James Roin at National Bank Financial. Please go ahead, James.

Thank you. Next question, will be from James loin at National Bank Financial. Please go ahead James.

James Roin: Yeah, thank you. First question is on the Sonnet. I was just wondering if you could dig into the growth rate that you're getting out of the Sonnet platform today now that it's sort of turned into a profitable venture, excluding Alberta, of course. What level of profitability are you achieving out of Sonnet at this stage? Is it sort of in line with the prior expectations of similar combined ratio to the broader personal auto portfolio with lower expenses, higher loss ratio? Or how has that trended just in the last few quarters here now that we have it in profit?

Jaeme Gloyn: Yeah, thank you. First question is on the Sonnet. I was just wondering if you could dig into the growth rate that you're getting out of the Sonnet platform today now that it's sort of turned into a profitable venture, excluding Alberta, of course. What level of profitability are you achieving out of Sonnet at this stage? Is it sort of in line with the prior expectations of similar combined ratio to the broader personal auto portfolio with lower expenses, higher loss ratio? Or how has that trended just in the last few quarters here now that we have it in profit?

Yeah, thank you. Um, first question is on the, uh, the Sonnet. I was just wondering if you could, uh, dig into the, uh, the growth rate that you're getting out of, uh, the Sonnet platform today. Now that it's sort of turned into a profitable venture, excluding Operate, of course. And, uh, what level of profitability are you achieving out of Sonnet at this stage? Is it? Uh,

Rowan Saunders: James, let me just start before I give that to Paul. I mean, just to remind us of the strategy, we think that the direct to consumer and the digital channel is certainly a growth opportunity in the years to come. It was really important for us to scale up Sonnet and get that to break even. We achieved that late last year, and that continues. I think that's something we're very pleased about. We did also guide that as we changed the model and tightened up and put the right pricing approaches into, you know, we would slow that growth for a period of time to just be sure that it's working as intended, and we can retain and acquire the right quality customers and then look to kind of gradually increasing growth, you know, in the quarters ahead.

Sort of in line with the prior expectations of similar combined ratio, to the broader, personal Auto portfolio with uh, lower expenses, higher loss, ratio, or or how is that trending just in the last uh, few Quarters here, now that we have it in profit.

Rowan Saunders: That's the kind of strategy. I think your point about, you know, the margins, we do think over time that product or that channel will have the same capability and contribution as the broker channel, but only after scaling it, right? As we move into more growth in the coming quarters, you know, we're not gonna be running that at a sub 95%. It's still gonna be high, high 90s. The reason for that is new business is more expensive than a maturer portfolio as you scale up. The main message that we wanted to show is, does this model work? We're comfortable it does. You know, can we acquire and retain profitable customers and then kind of gradually grow that in the quarters ahead is the strategy.

So Jay let me just start before I get that to Paul and just to remind us of all of the strategy. I mean we think that um the direct to Consumer and the digital channel is certainly a growth opportunity in the years to come. He was really important for us to scale up sonnet and get that to break even and we achieve that late last year and that continues. So I think that's that's that, that's something we were very pleased about. We did also guide that as we change the model and tightened up and put the right pricing approaches into, you know, we would slow that growth for a period of time. To just be sure that it's working as intended and we can retain and acquire the right quality customers. And then look to kind of gradually increasing growth, you know, in the quarters ahead. So that's the kind of strategy. I think your point about, you know, the margins we do think over time that product or that channel will have the same capability and contribution as the broker Channel. But only have to scaling it, right? And so as we move into more growth in the coming quarters, you know?

Rowan Saunders: Yes, it will ultimately at scale, have at least the same contribution as we get to the broker model. That's our thesis and that's where we're moving forward. Anything you wanna add, Paul, in terms of the kind of shorter term?

We're not going to be running that at a sub 95%, it's still going to be High, um, High 90s. And the reason for that is new business is more expensive than a mature portfolio as you as you scale up. But the main message that we wanted to show is, does this model work? We're comfortable, that does, you know, can we acquire and retain profitable customers and then kind of gradually grow that in in the quarters ahead um is the strategy and yes it will ultimately at scale of at least the same contribution as we get to the broader model.

Paul MacDonald: Yeah, just a couple of additional points. As we've previously called out, we were very focused on that break-even positioning, and we were deliberately reducing our growth rate to accommodate that to make sure that we had room for the targeted segmentation actions and make sure that our rate was earning through the portfolio. This quarter, we've returned to modest growth, which is positive, and that's really what we were aiming to achieve. As Rowan says, moving forward in the near term, we'll continue to focus on some moderate growth. We don't wanna have outsized growth yet, again, because as Rowan said, we're targeting a high nineties overall core, and we wanna make sure that we're sensitive to the macroeconomic environment.

Paul MacDonald: We have some positive segmentation activity flowing through that portfolio, which is giving us positive momentum in the segments that we're targeting. We'll continue to look at that on a province by province and line by line basis. One other comment too, around the profitability you asked around the makeup of profitability versus expense ratio as an example. In the near to medium term, we expect the expense ratio to continue being better than our broker portfolio. Of course, we don't pay, we don't have a commission structure on that. That expense ratio benefit should increase over time as we scale the business because many of the expenses on that direct side are more fixed in nature. That does give us scale benefits as we move forward.

So that that's our thesis and that's what we're moving forward. Um anything you want to add short for in terms of the kind of shorter term. Yeah. Just a couple of additional points. So as we've previously called out, we were very focused on that break even positioning. And we were deliberately reducing our growth rate to accommodate that to make sure that we had room for the targeted segmentation actions and make sure that our rate was earning through the portfolio. Uh, this quarter, we've returned to uh, modest growth, which is a positive and that's really what we were aiming to achieve. And as Rowan says, moving forward in the near-term, we'll continue to focus on some moderate growth. We don't want to have outsized growth yet. Uh, again, because as Rowan said, we're targeting a, a high 90s, um, overall core. And we want to make sure that, uh, we're sensitive to the mark macroeconomic environment. So, uh, we have some positive segmentation activities following to that portfolio, uh, which is giving us positive momentum in the segments that we're targeting and and so we'll continue to look at that. Um,

Uh, on a province by province in line by line basis and 1 other comment to uh around the profitability. You asked around the makeup of profitability versus uh expense ratios as an example. So in the near to medium-term, we expect the expense ratio to continue being um better than our uh, broker portfolio. Of course, we don't pay, we don't have a commission structure on that, um, that expense ratio benefit should increase over time as we scale the business because many of the expenses on that do.

Paul MacDonald: The one variable expense in there that can be significant and can be quite variable is the marketing investment, and that depends a lot on what is being bid on in the marketplace by competing organizations. Depending what's happening in the economic environment, the advertising environment, that can move around just a bit. For now, obviously with the exit of Sonnet Alberta, that reduced some of our top line. Moving forward, we continue to focus quite heavily on investing in this, but also using this as a real innovating mechanism for some of the rest of our business.

But also using this as a real innovating uh, mechanism for some of the rest of our business.

James Roin: Okay, great. Second question, just on the shift in the property mix. I guess, you know, avoiding some of the more catastrophe exposed areas of the country. You know, how is that shift mostly done at this stage? Have you implemented everything that you would like to achieve? I mean, that's not necessarily the most active weather cat quarter, but is there anything you can speak to that, you know, gives confidence in the success of those shifts geographically to avoid, you know, potentially higher claims costs?

Jaeme Gloyn: Okay, great. Second question, just on the shift in the property mix. I guess, you know, avoiding some of the more catastrophe exposed areas of the country. You know, how is that shift mostly done at this stage? Have you implemented everything that you would like to achieve? I mean, that's not necessarily the most active weather cat quarter, but is there anything you can speak to that, you know, gives confidence in the success of those shifts geographically to avoid, you know, potentially higher claims costs?

Hey, great. Um, second question, just on the, uh, the shift in the property mix and so, I guess.

You know, avoiding some of the more uh, catastrophe exposed areas of the country. Um you know how how is that shift mostly done at this stage? Have you implemented everything that you would like to achieve? And then I mean it's not necessarily the the most active whether uh, cat quarter. But is there anything you can speak to that uh you know, gives confidence in the success of those. Uh, those shifts geographically to avoid uh

you know, potentially higher claims costs.

Paul MacDonald: Yeah. A couple of points I'll bring on that. The bulk of our activity around depopulation to avoid cat losses in certain peril zones, I'd say is behind us. That being said, I wanna highlight that this is an ongoing activity. This isn't a point in time activity. As we've said before, we use models, peril models, wildfire models, flood models, for example, and those models constantly get updated as the environment and climate changes. We go through a continuous process of updating our models, updating the science, and then organizing our distribution around where we want to write business. That should return much more to a normal optimization approach.

Yeah, and a couple of points, I'll bring on that. So, um, the bulk of our activity around depopulation, uh, to avoid, uh, cat losses in in certain Peril zones. I'd say, is behind us. That being said, I want to, I want to highlight that this is an ongoing activity. This isn't a 1 a point in time, activity. Um, as we've said before we use models model models, Wildfire models flood models, for example, and those models constantly get updated as the environment and climate changes. So, we go through a continuous process of updating, our models, updating the science. Um, and then organizing our distribution,

Around to where we want to write business. So that, that should.

Paul MacDonald: The second thing I'd like to say is that certain perils, winter storms and severe convective storms, for example, are not conducive to updated models in the industry. These are areas where we have to work at leveraging what is available and our expertise to try and minimize exposure to that. That's not always the easiest thing, it is an ongoing exercise that we continue to make and invest through data and analytics. Maybe the third point I'd make is you mentioned really around the property portfolio with regard to peril management. I'd also like to highlight that we are taking significant steps to improve the mix of our business as well to reduce volatility and improve long-term retention and profitability.

Paul MacDonald: As an example, even though in this quarter, the majority on an overall basis, the majority of our growth came from rate. Underlying that, we've actually had positive unit growth in areas like homeowners and condo, which are better more profitable, longer sustainment categories and are associated with multi-policies because we often have an associated auto with them.

Um, return much more to a normal optimization approach. The second thing I'd like to say is that certain perils, um, winter storms and severe convective storms, for example, are not conducive to updated models in the industry. And so these are areas where we have to work at leveraging what is available and our expertise to try and minimize exposure to that. That's not always the easiest thing. Uh, it is an ongoing exercise that we continue to make and invest through, um, data and analytics. And then maybe the third point I'd make is you mentioned really around the, um, property portfolio with regard to peril management, but I'd also like to highlight that, uh, we are taking significant steps to improve the mix of our business as well to reduce volatility and improve long-term um, retention and profitability.

Fabian Richenberger: We deliberately moderated our growth in the tenant and rental space. Even within that, there's an ongoing improvement in the mix to optimize our overall portfolio to help hit our overall targets and to maintain that sub 95 direction.

And so as an example even though in this quarter uh the majority on the overall basis, the majority of our growth came from rates underlying that we've actually had positive unit growth in areas like homeowners and condo, which are better Pro more profitable longer sustainable. Um, categories. And there are associated with multi policies because we often have an Associated Auto with them and we've deliberately moderated our growth in the tenant uh and rental space. So, even within that there's an

Rowan Saunders: Jim, I mean, I guess the way I think about this is that you've got to be really good at managing cat exposure. I mean, that trend is pretty clear. I think that we've demonstrated that our ability to do so. As Paul, you know, was saying, the team has really worked on that cat management. They have developed very sophisticated underwriting and models. The benefit we have is we have the Vyne platform that can actually take that to the front of the business. That agility gives us confidence to keep growing. I think that, you know, the rate that we're getting today is essentially all of the growth. There really isn't been any unit count growth to speak of, and it's been pricing.

Ongoing Improvement in the mix, uh, to optimize our overall portfolio portfolio, to help, um, hit our overall targets and to maintain that sub 95 Direction.

Rowan Saunders: As we look forward, while there's still ongoing optimization that Paul talks about, we'll be expecting not just rate, but more unit count growth as we continue to outperform the industry in combined ratio as well. That's the line of business we like. We feel very good about it. The market is certainly a firm to hard market, and that will be a source of our growth in the coming years.

Jam. I mean, I guess the way I think about this is that you've got to be really good at managing cat, cat the exposure. I mean, that, that trend is pretty clear, and I think that we've demonstrated that our ability to do so. So as Paul, you know, we're saying the team has really worked on that cat management. They have developed very sophisticated underwriting and models and the benefit we have is we have the vine platform that can actually take that to the front of the business. And so that agility gives us confidence to keep growing. I think that, you know, the rate that we get in today is is essentially all of the growth. There really isn't been any unit count growth to speak of and it's been pricing as we look forward. Why is there still ongoing optimization that Paul talks about? Will be expecting, not just rate but more unit, count growth as we continue to outperform the industry in Combined ratio as well. So that's a line of business. We like we feel very good about it. The market is, certainly a firm to hard Market.

Um, and that will be a source of our growth in the coming years.

Fabian Richenberger: Great. Thank you very much.

Jaeme Gloyn: Great. Thank you very much.

Great, thank you very much.

Operator: Thank you. Next question will be from Tom MacKinnon at BMO Capital. Please go ahead, Tom.

Thank you.

Next question, will be.

More capital. Please go ahead, Tom.

Tom MacKinnon: Yeah, thanks. Just a question again here on the distribution income and outlook there. Shouldn't the organic growth in distribution income, shouldn't that just be a function of industry premium growth or, at least, for the bulk of it, and then perhaps a function to some extent of your own premium growth, given that some of this business is placed with you as well? Is that the way we should be thinking about the organic growth in distribution income?

Yes. Thanks. Um just

Rowan Saunders: Yeah, I think that's right. I think that the way we think about this business is the platform is has proven to be strong at organic growth. That means that they and their producers build their revenue. That's a combination of their renewal portfolio as well as new business wins. As they introduce more sales practices into the businesses that they acquire and have more product to offer, that helps them organically grow. I think the way you think about that is there is largely influenced by the industry growth rates as well as the profitability. Some brokers are more profitable and therefore enjoy higher CPCs. They have more weight and clout as a top 10 underwriter than others in the marketplace and can benefit from higher commission year new yields from insurers.

At some of this business is placed with you as well. Um, is that the way we should be thinking about the organic growth and distribution income?

Yeah, I think that's right. I think that the way we think about this, this business is...

Rowan Saunders: The next piece of that is the bigger the broker gets, the network, both from organic growth plus what they acquire, because Definity is one of the leading insurance companies in their stable of insurers, we grow as well. And that's the second part of the equation that Phil talked about, where distribution income gets benefited by a commission offset as they continue to grow with ourselves. That's why when you just step back, you know, this has traditionally been a platform of brokers that grow in the upper single digits organically. That continues, and then on top of that, they're adding size and scale by acquisitions.

the platform is has proven to be strong at organic growth and so that means that they and their producers build their revenue. That's a combination of the renewal portfolio as well as new business wins. And as they introduced more sales practices into the businesses that they acquire and have more product to offer that helps them organically grow. So I think the the way you think about that is there is largely influenced by the industry growth rates as well as the profitability. Some Brokers are more profitable and therefore enjoy higher cpcs and um, they have more weight and clouds as a top 10, underwriter than others in the marketplace and can can benefit from a higher commission. Ian Noe yields from insurers. Um, so and then the next piece of that is the bigger the broker gets. The, the network both from organic growth, plus what they acquire because dfinity is 1 of the leading insurance companies.

In their, uh, stable of insurers. We grow as well. And that's, that's the second part of the equation that Phil talked about where distribution income, um, gets better by commission offset as they continue to grow, uh, with ourselves. So, that's all when you just step back, you know, this has traditionally been a platform of Brokers that grow in the upper single digit organically.

Fabian Richenberger: Yeah. We are very pleased with the organic growth rates that we have in our broker network, as Paul mentioned. We are very selective in terms of who we are inviting to be part of the network. Many brokers that have joined us over the last three, four years have longstanding roots in their regional communities so that the retention numbers are very strong, both in PI and CI. We have low nineties retention numbers. In PI, we are focusing on driving growth with VIP customers and group and are making very good success, have very good traction in that regard. On the commercial side, we are leveraging underwriting skill sets from one broker to another, and we are seeing an uptick in that organic growth rate as well.

That continues. And then, on top of that, they are adding size and scale through acquisitions.

Fabian Richenberger: Overall, that is coming through with what we would think is above average organic growth. In addition to that, every year, we are having an additional EBITDA margin benefit from scaling the back office operations as well. The returns of our investments are very much trending in line with the business cases that we put together when we deployed our capital.

Now we we we are very pleased with the organic growth rates that we have in our world connect as we mentioned and and we are very selective in terms of who we are. We are inviting to be part of the network and many Brokers that have joined us over the last 3 or 4 years have long-standing roots in their Regional communities so that the retention numbers are very strong. Both in pi and CI we have low 90s retention numbers and in pi. We are focusing on driving growth with VIP customers and group and are making medical success. Have very good sections in that regard and on the commercial side, uh we we are leveraging on the rising skill sets from 1 broker to another and we are seeing an uptick in that organic growth rate as well. So overall that is coming through with what we would think is above average organic growth and analyzation to that. Every year we are having an additional ebita March and benefits from scaling the back office operations as well. So the the returns

Tom MacKinnon: So if the 15% growth you see in 2024, nearly half of that is acquisition related and probably the other half would be organic. Who do you fund some of the growth that McDougall would be doing through acquisitions? How does that influence the, you know, your distribution income? I mean, someone's got to pay to buy these things.

Of our investments, we are very much trending in line with the business cases that we put together when we deployed our capital.

Fabian Richenberger: it can.

And who? So it it be if the 15% growth you see in 2024 nearly half of that is uh, um, is or is acquisition related and probably and in the other half would be uh organic. Who who um do you fund? Some of the growth that McDougall would be doing through Acquisitions? Or how does that in? How does that influence the you know, your distribution income. I mean, someone's got to pay to buy these things.

[Company Representative] (Definity): Yeah. Tom MacKinnon, in terms of the individual deals, oftentimes we'll provide funding through intercompany loan structures, or the broker platform may draw on the debt facilities that we already have there. Actually, if you look at the debt draw that's on the balance sheet right now, a lot of that is actually associated, or in fact, all of it's associated with the broker platform. What we also see that happens quite often is that the brokers that are being acquired often have an appetite to roll over equity through that transaction as well. What you also see happen is not the entire amount is monetized through exits. Quite often we'll see, you know, 25, 30% roll over their equity into the McDougall platform. We tend to see pretty good uptick on that.

Fabian Richenberger: Yeah. Tom MacKinnon, in terms of the individual deals, oftentimes we'll provide funding through intercompany loan structures, or the broker platform may draw on the debt facilities that we already have there. Actually, if you look at the debt draw that's on the balance sheet right now, a lot of that is actually associated, or in fact, all of it's associated with the broker platform. What we also see that happens quite often is that the brokers that are being acquired often have an appetite to roll over equity through that transaction as well. What you also see happen is not the entire amount is monetized through exits. Quite often we'll see, you know, 25, 30% roll over their equity into the McDougall platform. We tend to see pretty good uptick on that.

And then yeah. So Tom in terms of the individual deals um often times, we'll provide funding through into company uh loan structures. Or the broker platform May draw on the uh, debt facilities that we already have there. So actually, if you look at the uh, the debt drawer, that's on the balance sheet right now, a lot of that is actually Associated up. In fact, all of its associated with the broker, uh, platform. But what we also see that happens quite often is that, um, the Brokers that are being acquired often, have an appetite to roll over Equity. Uh, it's through that transaction as well. So what you also see, uh, happen is not the entire amount. Uh, is monetized through exits, quite often. We'll see, you know, 25 30% roll over, um, their Equity into the McDougall platform. So we tend to see pretty good.

[Company Representative] (Definity): If you look at the overall ownership that we have in the broker platform, it's hovered between the, you know, 22% to 28% range. It moves around as new acquisitions come through and as principals depart, quite often, existing shareholders of McDougall will pick that up. It's really a blended approach. Yes, we do have intercompany debt structures with the broker platform, and they also draw on the external funding.

Fabian Richenberger: If you look at the overall ownership that we have in the broker platform, it's hovered between the, you know, 22% to 28% range. It moves around as new acquisitions come through and as principals depart, quite often, existing shareholders of McDougall will pick that up. It's really a blended approach. Yes, we do have intercompany debt structures with the broker platform, and they also draw on the external funding.

Tom MacKinnon: Okay. One final quick one. What percentage of the business that these brokers write get placed with Definity? Is it like 30%? Are you trying to get more of that or less of that? Are there any regulatory issues around that?

Uh, uptick on that. And if you look at the overall ownership, uh, that we have in the Bronco platform, it's hovered between the, you know, 22, 20. 28% range. It moves around as new acquisitions come through and as principals, depart are quite often uh, existing shareholders of Google will pick that up. So it's it's really a blended approach, but yes, we do have intercompany debt structures, uh, with the broker platform. And they also draw on the external funding.

Okay, and one final quick one. What percentage of the, uh, um,

With, uh, um, getting placed with Definity, is it like 30%? And are you trying to get more of that or less of that? And are there any regulatory issues around that?

Rowan Saunders: No, Tom, I think the point we make there. Firstly, we don't disclose that, in our disclosures what it is. The, the way I would describe that is that we expect the national broker platform to act as an independent broker, and as such, they have multiple and many markets that they deal with. If Definity is the right product at the right price, it gets placed with Definity. If somebody else has a better product at a better price, it gets placed there. We make the distribution income. I think we're, you know, that's, that's our model, and, we go forward with that.

Rowan Saunders: That being said, we, you know, if you just step back at the overall market, we are a top three insurance company in Canada, you know, behind just two others in terms of the intermediated part of the business, and we are large with many of our brokers. We'd be a leading underwriter in the National Bank broker platform as well, along with a couple other major insurers.

Tom MacKinnon: Wouldn't that percentage be around 30%, given the commission offset is 30%?

No, Tom. I think the point we make their so firstly we don't disclose that, uh, and our disclosures what it is. Um, the, the way I would describe that is that we expect the national broker platform to act as an independent broker and as such, they have multiple and many markets that they deal with. Um, if dfinity is the right product at the right price, it gets placed within Affinity. If somebody else has a better product and a better price it gets placed there we make the distribution income. So I think we're you know that that's that's our model and we go forward with that. That being said we you know if you just step back at the overall Market, we are a top 3 insurance company in Canada, you know behind uh just 2 others. In terms of the inter inter intermediate part of the business and we are large with many of our Brokers and so it would be a leading underwriter in the national black. Local platform as well, along with a couple of other major insurers.

Wouldn't that percentage be around 30%? Given that the commission offset is 30%.

[Company Representative] (Definity): Not necessarily. If the commission offset would include CPC structures on the profitability of the business. It can have different rates depending on the commercial lines and personal property, personal auto mix. It can be variable through the different constitution parts, and then also just the degree of profitability that we're seeing coming out of that program as well.

Rowan Saunders: Not necessarily. If the commission offset would include CPC structures on the profitability of the business. It can have different rates depending on the commercial lines and personal property, personal auto mix. It can be variable through the different constitution parts, and then also just the degree of profitability that we're seeing coming out of that program as well.

Rowan Saunders: You know, maybe just give, just giving you more insights on your question. Looking at our value creation plan for our broker network, that the main driver, key drivers are organic growth, CPC, and override expansion and margin, EBITDA expansion. That drives the maturity of the value creation plan. We are working very closely with our broker partners to help them grow their business, as much as they can. The trading relationship that we have with them, very much in line with Rowan's point, is one of a independent broker, and the trading relationship, kind of has the least impact on the overall value creation plan, our capital deployment into the network.

Uh, not necessarily. Um, if you this commission offset would include CPC structures. On the profitability of the business, it can have different um, rates depending on the commercial lines and personal property, personal portal mix. So it can be variable uh, through the different Constitution parts and then also just the degree of profitability that we're seeing coming out of that program as well. Yeah, maybe just give

Rowan Saunders: This is why we are so happy that their organic growth is above, market average, and that helps us generating those good returns.

Tom MacKinnon: All right. Thank you very much for the color. Appreciate it. Thanks.

Me more in on, on your question, for looking at our value creation plan, for our Booker Network that the main driver can drivers or organic growth, uh, CPC and override expansion and more than iida expansion and that, that, that drives the the majority of the value creation plans, as we are working very closely with our work Partners to help them grow their business. As much as they can, but it's the the trading relationship that we have with them very much in line with their own point, is 1 of The Independent broker and the trade relationship kind of has has the least impact on the overall value creation plan. Our Capital deployment into the network and again this is why we are so happy that their organic growth is above Market average and that helps us generating those good returns

All right. Thank you very much for the color. I appreciate it. Thanks.

Operator: Thank you. Next question will be from Stephen Boland at Raymond James. Please go ahead, Stephen.

Next question.

Stephen Boland: Sorry. Thanks. Now that you've spent more time with Travelers, I just want to, you know, when the deal was announced, you provided their split of premiums. Is there any changes to that mix? Meaning like, have you advised them that certain lines of business or geographies which you're doing right now with your own book, has it got to that level of, you know, say pre-integration, you know, you're advising them what lines or customers that you want to be with or don't want to be with? Thanks.

Rowan Saunders: Thanks, Stephen, for the question. You know, what I think is important to kind of recognize that the deal, you know, hasn't closed and we're targeting closing in Q1. As of that, we operate as two competitive organizations, we're engaged in integration planning, but not at all in terms of, you know, managing and influencing, you know, their portfolio. They operate today as they did, delivering their business plan as a independent and a competitor. I think, you know, the other point I would just kind of add on the Travelers is that Look, it's going really well. I mean, I think we know the business. We know obviously from our due diligence, what a great strategic fit it is gonna be.

Sorry, um, thanks. Uh, now that you spend more time with Travelers, I just want to, you know, when your deal was announced you provided their split of premiums, uh, is there any changes to that mix meaning like, have you advised them that certain lines of business or geographies, which which you're you're doing right now for your home book? Uh, has it got to that level of of, you know, I would say pre-integration that, you know, your advising them what, what lines or customers that you want to be with or don't want to be with, thanks.

Rowan Saunders: The integration planning of both organizations is well underway. We can get this over the line and start the integration early next year. We were delighted that there's been good progress on the regulatory front. We already have clearance from the Competition Bureau, and we're well engaged, you know, with OSFI to allow the Minister of Finance to make the approval at the right time. All of that's kind of progressing very well. We're not engaged on anything to do that has to do with influencing the organization and the portfolio.

Yeah, thanks Stephen for the question and um, you know what I think is important to kind of recognize that the deal, you know, hasn't closed. And it only we targeting closing in in a q1. So, as as, as of that we operate as to competitive organizations and so we're, uh, engaged in integration planning but not at all, in terms of, you know, managing and influencing, you know, their portfolio. They they operate today. As they did, delivering their business plan as a independent and, and a competitor. I think, you know, the the other point I would just kind of add on The Travelers is that it's look, it's going really well. I mean, I think we know the business, we know, obviously, to my due diligence, what a great strategic fit it is going to be um, the integration planning of both organizations,

Stephen Boland: Okay. That's it for me. Thanks very much.

Operator: Thank you. At this time, we have no other questions registered. I will turn the call back over to Dennis Westfall.

Is well underway. So we can get this over the line and, um, and and start the integration early next year. We were delighted that there's been good progress on the regulatory front. We already have clearance from the competition Bureau and we're well engaged um you know, with with Opie to um to allow the Minister of Finance to make um, the the approval at the right time. So all of that's kind of progressing very well. But um, we're we're not engaged on anything to do that uh has to do with influencing the organization and uh and and the portfolio. Okay, that's it for me. Thanks very much.

Thank you.

At this time, we have no other questions registered. I will turn the call back over to Dennis Westfall.

[Company Representative] (Definity): Thank you. Rowan, before we close the call, do you have any final thoughts you'd like to give, leave us with today?

Dennis Westfall: Thank you. Rowan, before we close the call, do you have any final thoughts you'd like to give, leave us with today?

Rowan Saunders: Well, I think, you know, just hopefully we've kind of shared some key messages through the Q&A, which I thought were excellent. To me, a couple points we're hoping comes through. One is the strong growth is gonna continue in all lines of business, and that's both rate and unit share. I think we've talked about the market conditions, which remain very favorable as far as we could see. We were delighted with our sub 93 combined ratio in the quarter. I think the important message there is that in all lines, our margins are holding or actually, you know, improving. A lot of questions around distribution.

You like to give, uh, leave us with today.

Rowan Saunders: I mean, we're really pleased about the ability to keep guidance moving up and we're ahead of where we thought we would be in terms of achieving our CAD 1.5 billion target. The main thing that I think it comes back to the Investor Day, where we talked about the three operating levers. Solvency's in a good position. operating expenses are actually ahead of where we thought they would be. As Fabi mentioned, you know, the claims transformation is well, you know, on track or slightly ahead. Those are going well. This gives us all a lot of confidence in our guidance, but also gives us confidence and excitement to welcome the Travelers organization into next year. That's certainly gonna be quite a transformational opportunity for Definity.

Well, I think, you know, just hopefully we've kind of shared uh, some, some key messages. Uh, so the Q&A, which I thought were excellent and and to me a couple of points, we're hoping comes through 1, is the strong growth is going to continue in all lines of business and that's both rate and uh and unit share. Um, I think we've talked about the market uh conditions which remain very favorable as far as as we could see, we were delighted with our sub 93 combined ratio in the quarter. And I think the important message there is that in all lines our margins are holding or actually, you know, improving a lot of questions around distribution. I mean, we we we really pleased about the ability to keep guidance moving up and uh and and we're ahead of where we thought we'd be in terms of achieving our 1.5 billion dollar Target. Um, and the main thing that I think it comes back to the investor day where we talked about the 3. Operation operating expenses are actually ahead of where we thought there would be. And uh, as fehb you mentioned, you know,

Rowan Saunders: We think we're in great shape. Thank you.

[Company Representative] (Definity): Great. Thanks. Thank you everyone for participating today. The webcast will be archived on our website for 1 year. A telephone replay will be available at 2:00 PM today until 8 August 2025, and a transcript will be made available on our website. Please note that our Q3 results for 2025 will be released on 6 November 2025. That concludes our conference call for today. Thank you, and have a great one.

Dennis Westfall: Great. Thanks. Thank you everyone for participating today. The webcast will be archived on our website for 1 year. A telephone replay will be available at 2:00 PM today until 8 August 2025, and a transcript will be made available on our website. Please note that our Q3 results for 2025 will be released on 6 November 2025. That concludes our conference call for today. Thank you, and have a great one.

The claims transformation is is well, you know, on track or or slightly ahead. So those are going. Well this gives us all a lot of confidence in our guidance, but also gives us confidence and excitement to welcome, the Travelers organization into next year. That's certain going to be quite a transformational opportunity for Affinity so, so we think we're in that, we're in great shape, thank you.

All right, thanks.

Thank you, everyone, for participating. Today, the webcast will be archived on our website. For one year, a telephone replay will be available at 2 p.m. today until August 8th. A transcript will be made available on our website. Please note that our third quarter results for 2025 will be released on November 6th.

Operator: Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.

That concludes our conference call for today. Thank you, and have a great one.

Thank you, ladies and gentlemen. This does indeed conclude your conference call for today. Once again, thank you for attending at this time. We ask that you please disconnect your lines. Have a good weekend.

Q2 2025 Definity Financial Corp Earnings Call

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