Glossary

Effect of changes in actuarial assumptions and experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred).

A non-IFRS financial measure calculated as net income from continuing operations for a specific period less preferred share dividends plus the after-tax impact of amortization of intangible assets recognized in business combinations, integration and restructuring costs and change in fair value of contingent consideration, divided by the weighted-average number of common shares outstanding during the same period.

A non-IFRS financial measure calculated as net income from continuing operations for a 12-month period less preferred share dividends plus the after-tax impact of amortization of intangible assets recognized in business combinations, integration and restructuring costs and change in fair value of contingent consideration, divided by the average shareholders’ equity (excluding preferred shares) over the same 12-month period. Net income from continuing operations and shareholders’ equity are determined in accordance with IFRS. The average shareholders’ equity is the mean of shareholders’ equity at the beginning and end of the period, adjusted for significant capital transactions, if appropriate.

Brokers in which we hold an equity investment or provide financing.

A financial security whose value and income payments are derived from and collateralized (or backed) by a specified pool of underlying assets such as mortgage-backed securities, auto loan receivables, credit card receivables and asset-backed commercial paper.

Entities over which the Company has the power to participate in the decisions over the relevant activities of the investee, but does not have control. These investments are accounted for using the equity method.

Basis risk is the risk that offsetting investments in a hedging strategy will not experience price changes in entirely opposite directions from each other.

Shareholders’ equity (excluding preferred shares) divided by the number of common shares outstanding at the same date. Shareholders’ equity is determined in accordance with IFRS.

The liability established to reflect the estimated cost of unpaid claims that have been reported and claims expenses that the insurer will ultimately be required to pay.

A non-IFRS financial measure, which includes net cash flows from cash and cash equivalents and the investment portfolio.

Any one claim, or group of claims, equal to or greater than $7.5 million related to a single event.

Technical accounting provisions comprising the following: (1) case reserves, (2) claims that are incurred but not reported (“IBNR”), and (3) provision for adverse development as required by accepted actuarial practice in Canada. Claims liabilities are discounted to take into account the time value of money.

Claims incurred, net of reinsurance, during a specific period and expressed as a percentage of net premiums earned for the same period.

The sum of the claims ratio and the expense ratio. A combined ratio below 100% indicates a profitable underwriting result. A combined ratio over 100% indicates an unprofitable underwriting result.

Possibility that counterparties may not be able to meet payment obligations when they become due.

Contractual obligations to exchange one currency for another at a specified price for settlement at a predetermined future date.

Risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates.

Relationships that exist with the policyholders, either directly (as a direct insurer) or indirectly (through consolidated brokers).

Total debt outstanding divided by the sum of total shareholders’ equity and total debt outstanding, at the same date.

A contract between two parties that requires little or no initial investment and where payments between the parties are dependent upon the movements in price of an underlying instrument, index or financial rate. The notional amount of the derivative is the contract amount used as a reference point to calculate the payments to be exchanged between the two parties, and the notional amount itself is generally not exchanged by the parties.

Credit risk from derivative transactions reflects the potential for the counterparty to default on its contractual obligations when one or more transactions have a positive market value to the Company. Therefore, derivative-related credit risk is represented by the positive fair value of the instrument and is normally a small fraction of the contract’s notional amount.

The total amount of premiums for new and renewal policies billed (written) during a specific reporting period from the primary insured.

A non-IFRS financial measure calculated as the total amount of premiums for new and renewal policies billed (written) during the reporting period, excluding industry pools and normalized for the effect of multi-year policies. This measure matches direct premiums written to the year in which coverage is provided, whereas under IFRS, the full value of multi-year policies is recognized in the year the policy is written.

Operating income excluding interest and taxes from our wholly-owned broker (Brokerlink) and our broker associates for a specific period.

Contractual agreements between the Company and unconsolidated brokers for the distribution of its insurance products.

A non-IFRS financial measure calculated as the total amount of premiums for new and renewal policies billed (written) during a specific period, excluding industry pools and normalized for the effect of multi-year policies. This measure matches direct premiums written to the year in which coverage is provided, whereas under IFRS, the full value of multi-year policies is recognized in the year the policy is written.

Growth normalized for the effect of multi-year policies. This measure matches direct premiums written to accident year, whereas under IFRS, the full value of multi-year policies is recognized in the year the policy is written.

Net income attributable to common shareholders divided by the weighted-average number of common shares outstanding during the same period.

Net income attributable to common shareholders divided by the weighted-average number of common shares outstanding during the same period, adjusted for the dilutive effect of stock options and other convertible securities.

A component of a hybrid (combined) instrument that also includes a non-derivative host contract. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified financial variable.

A transaction in which the seller sells equities and then borrows the equities in order to deliver them to the purchaser upon settlement. At a later date, the seller buys identical equities in the market to replace the borrowed securities.

Risk of losses arising from movements in equity market prices.

Excess capital in the P&C insurance subsidiaries at 170% minimum capital test (“MCT”) plus net liquid assets of the non-regulated entities.

Underwriting expenses including commissions, premium taxes and general expenses incurred in connection with underwriting activities during a specific period and expressed as a percentage of net premiums earned for the same period.

The Facility Association is an entity established by the automobile insurance industry to ensure that automobile insurance is available to all owners and licensed drivers of motor vehicles where such owners or drivers are unable to obtain automobile insurance through the private insurance market. The Facility Association serves the following provinces and territories: Alberta, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Prince Edward Island and Yukon.

The amount of consideration that would be agreed upon in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act.

Forward contracts are effectively tailor-made agreements that are transacted between counterparties in the over-the-counter market.

Total number of claims reported in a specific period.

Standardized contracts with respect to amounts and settlement dates, and traded on regular futures exchanges.

A risk management technique used to insulate financial results from market, interest rate or foreign currency exchange risk (exposure) arising from normal investing operations. The elimination or reduction of such exposure is accomplished by establishing offsetting or “hedging” positions.

Reserves (accounting provisions) for estimated claims that have been incurred but not yet reported by policyholders including a reserve for future developments on claims which have been reported.

Industry pools consist of the “residual market” as well as risk-sharing pools (“RSP”) in Alberta, Ontario, Quebec, New Brunswick and Nova Scotia. These pools are managed by the Facility Association, except for the Quebec RSP.

Contractual obligations to buy or sell interest-rate-sensitive financial instruments at a predetermined future date at a specified price.

A ratio calculated by the Company as the dollar-duration of the pension asset portfolio divided by the dollar-duration of the funded pension plans’ obligation. A lower hedge ratio increases the Company’s exposure to changes in interest rates.

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates.

As issued by the International Accounting Standards Board (“IASB”). The term “IFRS” includes IFRS and interpretations developed by the International Financial Reporting Interpretations Committee (“IFRIC”).

Financial assets owned by the Company including debt and equity securities and loans.

Joint arrangements whereby the parties have joint control of the arrangements, requiring unanimous consent of the parties sharing control for strategic and operating decision making. The parties sharing control also have rights to the net assets of the arrangements. These investments are accounted for using the equity method.

A single claim larger than $0.25 million but smaller than the catastrophe threshold of $7.5 million.

Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet obligations associated with financial liabilities.

Risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in equity market prices, interest rates or spreads, or foreign exchange rates.

The impact of changes in the discount rate used to discount claims liabilities based on the change in the market-based yield of the underlying assets.

Non-IFRS financial measure defined as the annualized total pre-tax investment income (before expenses) divided by the average fair values of net equity and fixed income securities held during the reporting period.

An agreement between the Company and a counterparty designed to reduce the credit risk of derivative transactions through the creation of a legal right to offset the exposure in the event of a default.

Ratio of total capital available to total capital required, as defined by the Office of the Superintendent of Financial Institutions (OSFI) and Autorité des marchés financiers (AMF).

Operating income excluding interest and taxes from our wholly-owned broker (Brokerlink) and operating income including interest and taxes from our broker associates for a specific period.

Premiums written that are recognized for accounting purposes as revenue earned during a period.

A non-IFRS financial measure calculated as net income from continuing operations for a specific period less preferred share dividends, plus the after-tax impact of amortization of intangible assets recognized in business combinations, integration and restructuring costs, change in fair value of contingent consideration, net investment gains (losses), difference between expected return and discount rate on pension assets, MYA, as well as other costs that we do not believe to be reflective of our operating performance.

A non-IFRS financial measure calculated as net operating income for a specific period less preferred share dividends, divided by the weighted-average number of common shares outstanding during the same period.

Direct premiums written for a given period less premiums ceded to reinsurers during the same period.

A group of claims which is considered significant but that is smaller than the CAT threshold of $7.5 million, related to a single weather event.

A non-IFRS financial measure, which includes elements that are not representative of our operating performance because they relate to special items, bear significant volatility from one period to another, or because they are not part of our normal activities.

A program for the repurchase of the Company’s own common shares, for cancellation through a stock exchange that is subject to the various rules of the relevant stock exchange and securities commission.

The contract amount used as a reference point to calculate cash payments for derivatives.

A non-IFRS financial measure calculated as net operating income for the last 12 months divided by the average shareholders’ equity (excluding preferred shares and accumulated other comprehensive income) over the same 12 month period. The average shareholders’ equity is the mean of shareholders’ equity at the beginning and the end of the period, adjusted for significant capital transactions, if appropriate.

Contractual agreements under which the seller grants to the buyer the right, but not the obligation, either to buy (call option) or sell (put option) an asset (underlying asset) at a predetermined price, at or by a specified future date.

Contracts that are negotiated directly between two parties, without going through a formal exchange or other intermediaries.

Change in total prior year claims liabilities in a given period. A reduction to claims liabilities is called favourable prior year claims development. An increase in claims liabilities is called unfavourable prior year claims development.

An amount added to undiscounted case reserves and IBNR to account for adverse deviation from claims reserve estimates.

Premium payable to restore the original reinsurance policy limit as a result of a reinsurance loss payment under a catastrophe cover. Reinstatement premiums are reported in Net premiums earned.

An insurance company that agrees to indemnify another insurance or reinsurance company, the ceding company, against all or a portion of the insurance or reinsurance risks underwritten by the ceding company, under one or more policies.

Net income for a 12-month period less preferred share dividends, divided by the average shareholders’ equity (excluding preferred shares) over the same 12-month period. Net income and shareholders’ equity are determined in accordance with IFRS. The average shareholders’ equity is the mean of shareholders’ equity at the beginning and the end of the period, adjusted for significant capital transactions, if appropriate.

Transactions in which the owner of a security agrees to lend it under the terms of a prearranged contract to a borrower for a fee. The borrower must collateralize the security loan at all times.

Average cost of a claim calculated by dividing the total cost of claims by the total number of claims.

Capital invested by the shareholders via share capital and contributed surplus, plus retained earnings and accumulated other comprehensive income (loss).

Periodic payments to claimants for a determined number of years for life, typically in settlement for a claim under a liability policy, usually funded through the purchase of an annuity.

Over-the-counter contracts in which two counterparties exchange a series of cash flows based on agreed upon rates such as exchange rates or value of an equity index applied to a contract notional amount.

Total capital available mostly represents total shareholders’ equity less specific deductions for disallowed assets including goodwill and intangible assets, net of related deferred tax liabilities. These amounts are applicable to our P&C insurance subsidiaries and are determined in accordance with prescribed OSFI and AMF rules.

Total capital required is calculated by classifying assets and liabilities into categories and applying prescribed risk factors to each category. It is further increased by an operational risk margin, based on the overall riskiness of a P&C insurer (its capital required) and its premium volume. Capital required is then reduced by a credit for diversification between investment risk and insurance risk. These amounts are applicable to our P&C insurance subsidiaries and are determined in accordance with prescribed OSFI and AMF rules.

“Total excess capital” includes excess capital in the P&C insurance subsidiaries at 170% MCT plus excess capital outside of the P&C insurance subsidiaries, unless otherwise noted.

A non-IFRS financial measure calculated as current year claims ratio excluding catastrophe losses, reinstatement premiums and prior year claims development.

Net premiums earned less net claims incurred, commissions, premium taxes and general expenses (excluding MYA).

The number of vehicles in automobile insurance, the number of premises in personal property insurance and the number of policies in commercial insurance (excluding commercial auto insurance).