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  • Increased gross written premiums by 3.8% compared to 2015, driven by strong personal lines growth including the launch of our digital direct brand, Sonnet
  • Incurred net catastrophe losses of $79.9 million inclusive of reinstatement premiums and the impact of the Fort McMurray wildfire
  • Reported a combined ratio of 109.1%, including an impact of 6.0 percentage points related to the replacement of our personal lines policy administration system and the launch of Sonnet
  • Generated a net loss of $20.3 million
  • Increased total equity by $24.1 million since December 31, 2015 to $1.8 billion


Figure 1 shows the results from operations for the year ended December 31.

2016 Results from Operations
Figure 1
(in millions of dollars, except as otherwise noted) 2016 2015 $ Change % Change
Policies in force1(thousands) 1,228.6 1,201.2 27.4 2.3%
Gross written premiums1 2,084.1 2,008.4 75.7 3.8%
Net written premiums1 2,011.0 1,935.4 75.6 3.9%
Net earned premiums 1,955.6 1,905.7 49.9 2.6%
Net claims and adjustment expenses, undiscounted 1,406.3 1,221.5 184.8 15.1%
Other underwriting expenses2 727.7 635.4 92.3 14.5%
Underwriting (loss) income1 Loss: (178.4) 48.8 Loss: (227.2) Loss: (465.6%)
Impact of discounting 13.6 Loss: (1.5) 15.1 Loss: (1,006.7%)
Underwriting (loss) income including the impact of discounting (164.8) 47.3 Loss: (212.1) Loss: (448.4%)
Investment income 135.4 179.5 Loss: (44.1) Loss: (24.6%)
Other expense (income) 10.6 Loss: (2.9) 13.5 Loss: (465.5%)
(Loss) income before income taxes Loss: (40.0) 229.7 (269.7) Loss: (117.4%)
Income tax (recovery) expense Loss: (19.7) 53.7 Loss: (73.4) Loss: (136.7%)
Net (loss) income (20.3) 176.0 Loss: (196.3) Loss: (111.5%)
Other comprehensive income (loss) 44.4 Loss: (78.1) 122.5 Loss: (156.9%)
Comprehensive income 24.1 97.9 Loss: (73.8) Loss: (75.4%)
Claims ratio1 71.9% 64.1% 7.8 pts  
Expense ratio1,2 37.2% 33.3% 3.9 pts  
Combined ratio1,2 109.1% 97.4% 11.7 pts  
Return on equity1 Loss: (1.2%) 10.5% Loss: (11.7) pts  
Minimum capital test (“MCT”)1 276.1% 285.2% Loss: (9.1) pts  

1 Refer to Section 13 — “Non-GAAP financial measures”. These non-GAAP measures are considered key performance indicators, and are measures that we monitor regularly.

2 Other underwriting expenses, the expense ratio, and the combined ratio are presented in the MD&A net of other underwriting revenues.


We continue to generate overall growth in both gross written premiums (“GWP”) and policies in force (“PIF”). Personal lines GWP grew by 5.5%, driven primarily by increased auto policy volumes across most regions in Canada within the broker channel and the digital direct contribution following the launch of Sonnet. Personal property GWP grew at a lower rate, as this line of business was impacted by the cancellation of unprofitable business in British Columbia. This lower growth was partially offset by increased average premiums and increased personal property policy volumes across most regions in Canada. Commercial lines GWP grew by 0.9%, primarily driven by increased fleet business, which more than offset a decline in commercial property and liability policy volumes resulting from targeted rate increases arising from the overhaul of our commercial property and liability pricing strategy. Our focus remains on profitable growth, and as such, we are disciplined in our pricing and underwriting approach to ensure that underwriting performance is not sacrificed to achieve top-line premium growth. Further details by line of business are provided in Section 3 — “Results by line of business”.


Net written premiums grew consistent with GWP growth. The lower level of growth in net earned premiums compared to GWP is due to lower levels of GWP growth in 2015 now earning through in 2016.


Figure 2 summarizes the composition of the claims ratio for the year ended December 31, illustrating the impact of accident year claims incurred, catastrophe losses, and prior year favourable claims development.

2016 Net Claims and Adjustment Expenses
Figure 2 2016 2015 Change
(in millions of dollars, except as otherwise noted) $ Ratio* $ Ratio $ Ratio
Core accident year claims 1,372.5 70.0% 1,272.8 66.8% 99.7 3.2 pts
Catastrophe losses 73.9 4.0% 21.8 1.1% 52.1 2.9 pts
Prior year favourable claims development Loss: (40.1) Loss: (2.1%) Loss: (73.1) Loss: (3.8%) 33.0 1.7 pts
Total 1,406.3 71.9% 1,221.5 64.1% 184.8 7.8 pts

* The impact of the $6.0 million reinsurance reinstatement premiums on the claims ratio is fully reflected in the catastrophe losses ratio calculation.

The core accident year claims ratio, which excludes catastrophe losses and favourable claims development, increased in 2016 driven by deterioration in Ontario, British Columbia, and Alberta auto performance, and an increase in net claims severity and frequency.

Catastrophe losses totalled $73.9 million in 2016, representing one of the largest amounts in our history. We also incurred $6.0 million in reinsurance reinstatement premiums associated with recoveries triggered due to the Fort McMurray wildfire. Along with the impact of the Fort McMurray wildfire, the most costly insured disaster in Canadian history, we were also impacted by eight other weather-related events, including six separate wind and hail storms in Alberta, flooding associated with the rainstorm in Windsor, and the effect of Hurricane Matthew in the Atlantic region. Comparatively, 2015 was a relatively benign year. We incurred losses as a result of five weather-related events, including losses associated with three separate wind and hail storms in Alberta, an Ontario deep freeze winter storm, and a British Columbia lower mainland wind and water storm.

We continued to experience favourable claims development overall in 2016, demonstrating our continued prudent reserve levels. However, the continued deterioration in claims activity for Alberta and British Columbia auto resulted in the need for additional reserves related to prior years to be recorded. Comparatively, 2015 benefited from favourable claims development that arose from the one-time Ontario auto regulatory reforms enacted in that year which reduced reserves for certain open claims, primarily related to prior accident years.

Refer to Figure 16, which shows the level of favourable claims development over the past ten calendar years and demonstrates our continued prudent reserving practices.


Figure 3 shows the key components of our reported expense ratio for the year ended December 31.

2016 Other Underwriting Expenses
Figure 3 2016 2015 Change
(in millions of dollars, except as otherwise noted) $ Ratio $ Ratio $ Ratio
Net commissions 371.4 19.0% 363.7 19.1% 7.7 (0.1) pts
Operating expenses 287.0 14.7% 205.0 10.7% 82.0 4.0 pts
Premium taxes 69.3 3.5% 66.7 3.5% 2.6
Total 727.7 37.2% 635.4 33.3% 92.3 3.9 pts

The impact of net commissions on our expense ratio decreased slightly. We continue to evaluate commission structures to better align commissions paid with the underlying performance of the book of business.

The operating expenses ratio increased largely as expected in 2016. Costs associated with the replacement of our personal lines policy administration system, and the development and launch of Sonnet, including building the supporting infrastructure, impacted the operating expenses ratio by 6.0 percentage points in 2016, compared to 2.1 percentage points in 2015.

We expect our strategic infrastructure and operational investments will continue to increase operating expenses during the implementation and start-up phases. In the longer term, these investments are expected to drive growth, productivity, and our ability to deliver products and services to the market in a timely, competitive, and efficient manner.


Figure 4 summarizes the composition of the undiscounted and discounted combined ratio for the year ended December 31.

2016 Composition of the Undiscounted and Discounted Combined Ratio
Figure 4 2016 2015 Change
(in millions of dollars, except as otherwise noted) $ Ratio $ Ratio $ Ratio
Net claims and adjustment expenses 1,406.3 71.9% 1,221.5 64.1% 184.8 7.8 pts
Other underwriting expenses 727.7 37.2% 635.4 33.3% 92.3 3.9 pts
Combined ratio, undiscounted 2,134.0 109.1% 1,856.9 97.4% 277.1 11.7 pts
Impact of discounting (13.6) (0.7%) 1.5 0.1% (15.1) (0.8) pts
Combined ratio, discounted 2,120.4 108.4% 1,858.4 97.5% 262.0 10.9 pts

As outlined in Figures 2 and 3, our underwriting results were significantly impacted by a deterioration in personal auto and commercial auto, which experienced increases in claims severity and frequency, and increased catastrophe losses (including the Fort McMurray wildfire). Our underwriting results were also impacted by increased investments in the replacement of our personal lines policy administration system, and the development and launch of Sonnet, including building the supporting infrastructure. Refer to Section 3 — “Results by line of business” for additional details.

The discounting recovery in 2016 was driven by an increase in investment yields used to determine the discount rate, as compared to a decline in yields in 2015. This impact was largely offset by recognized losses associated with the FVTPL investment portfolio. Refer to Figure 5, which shows the composition of investment income.


Figure 5 shows the composition of investment income recorded in the consolidated statement of comprehensive income for the year ended December 31.

2016 Consolidated Statement of Comprehensive Income
Figure 5
(in millions of dollars, except as otherwise noted) 2016 2015 $ Change % Change
Interest income 61.1 67.7 (6.6) (9.7%)
Dividend income 39.2 37.9 1.3 3.4%
Total interest and dividend income 100.3 105.6 (5.3) (5.0%)
Realized gains on Available for Sale (“AFS”) portfolio 54.1 65.9 (11.8) (17.9%)
Realized gains on Fair Value Through Profit or Loss (“FVTPL”) bonds 14.3 36.7 (22.4) (61.0%)
Unrealized losses on FVTPL bonds (27.0) (9.0) (18.0) 200.0%
Net impairment losses on AFS portfolio (6.3) (19.7) 13.4 (68.0%)
Total recognized gains on investments 35.1 73.9 (38.8) (52.5%)
Total investment income 135.4 179.5 (44.1) (24.6%)

During the year, we continued to focus on the optimization of returns in our investment portfolio. As such, we have continued to increase our investments in common stocks and higher yielding preferred stocks, while reducing our weighting in bonds, in order to enhance diversification and optimize risk-adjusted returns. Interest income decreased, as bonds that matured were reinvested at lower rates or reinvested in common or preferred stocks. Dividend income increased as a result of increasing common and preferred stock holdings throughout the year.

A subset of the bond portfolio is designated as FVTPL. Changes in the fair value of FVTPL instruments are included in recognized gains on investments in the consolidated statement of comprehensive income. The designation of the FVTPL bond portfolio aims to reduce the accounting mismatch in net (loss) income that would otherwise be generated by the fluctuations in fair values of underlying claim liabilities due to changes in interest rates. We manage the FVTPL portfolio’s quantum and duration so that the impact of changes in interest rates on claim liabilities and the FVTPL portfolio reasonably offset each other. To further optimize the performance of the portfolio, a change in strategy with the FVTPL bonds began to be implemented in the second quarter of 2015, reducing the quantum and increasing the average duration of the investments within the portfolio. This strategy is intended to continue to achieve the objective of reducing the accounting mismatch in net (loss) income while allowing a larger portion of the portfolio to be invested in higher yielding assets that remain of a high quality. As at December 31, 2016, the quantum of investments in the FVTPL portfolio represented 69.6% (2015: 82.9%) of the underlying claim liabilities that these investments support. The balance of the bond portfolio, along with the short-term investments and equity portfolios, is designated as AFS. Changes in the fair value of AFS instruments are included in other comprehensive income (loss) (“OCI”) unless the instrument is disposed of or considered to be impaired, in which case they are included in net (loss) income.

Realized gains on the AFS portfolio decreased, as trading activity within stronger equity and bond markets produced significant recognized gains in the first quarter of 2015. The net realized and unrealized (losses) gains on the FVTPL bond portfolio went from a gain of $27.7 million in 2015 to a loss of $12.7 million in 2016 due to an increase in yields in 2016, compared to a decrease in yields in 2015. The investment impairment losses in 2015 primarily pertained to our limited common equity energy holdings. The energy sector rebounded strongly in 2016 along with a broad rally in equities, resulting in a decline in investment impairment losses. We continue to maintain a high quality and diversified portfolio. Refer to Section 6 — “Financial position” for additional details of our investment portfolio mix.


Other expense (income) includes investment expenses, costs incurred to prepare for our potential demutualization, income from our investments in associates, and acquisition-related costs for the Western Financial Insurance Company acquisition. Increased expenses of $13.5 million over the prior year are primarily attributable to costs incurred related to the acquisition of Western Financial Insurance Company and increased costs associated with our potential demutualization. In addition, 2015 included a gain from the sale of an investment in an associate.


The effective tax rate for 2016 was a recovery of 49.3%, compared to an expense of 23.5% in 2015. The effective tax rate is more favourable than the statutory rate of 26.7% (2015: 26.7%) primarily due to the impact of increased non-taxable Canadian dividend income combined with our overall pre-tax income declining to a pre-tax loss.


Other comprehensive income (loss) shifted from a loss in 2015 to income in 2016, primarily due to an increase in unrealized gains on our AFS investments. The rebound in the equity markets in the second half of the year resulted in increased unrealized gains on common stocks, which was somewhat offset by unrealized losses on bonds as interest rates increased. Refer to Figure 14, which outlines the unrealized gains (losses) on AFS securities by type of security.


Net loss (income) decreased from a profit of $176.0 million in 2015 to a loss of $20.3 million in 2016 due to a combination of weaker underwriting performance, higher levels of catastrophe losses, increased spend on our strategic initiatives, and a decline in investment income, which were partially offset by a high effective tax rate recovery.


Total equity increased by $24.1 million, or 1.4%, to $1.8 billion as at December 31, 2016, primarily due to capital appreciation within the investment portfolio, which more than offset the net loss for the year. The MCT ratio of 276.1% as at December 31, 2016 (2015: 285.2%) continues to be strong and is significantly in excess of both internal capital management and external regulatory requirements. The MCT ratio was impacted by the strategic deployment of capital for our infrastructure and operational investments, which receive no capital credit, and by the optimization of our investment portfolio, with equity investments requiring greater regulatory capital relative to bonds.