Glossary

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

Calculated as net income for a specific period less preferred share dividends, adjusted for the after-tax impact on net income of amortization of intangible assets recognized in business combinations, integration costs and acquisition-related items, divided by the weighted-average number of common shares outstanding during the same period.

Calculated as net income for a 12-month period less preferred share dividends, adjusted for the after-tax impact on net income of amortization of intangible assets recognized in business combinations, integration costs and acquisition-related 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.

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

Mean of shareholders’ equity at the beginning and end of the period, adjusted for significant capital transactions, if appropriate. Shareholder’s equity is determined in accordance with IFRS.

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.

Current accident year catastrophe losses, including net reinstatement premiums, expressed as a percentage of Net earned premiums (MD&A basis) before reinstatement premiums.

Any one claim or group of claims, equal to or greater than $7.5 million for P&C Canada (US$5 million for P&C U.S.) before reinsurance, related to a single event. Reported catastrophe losses excluded those of U.S. Commercial exited lines.

The growth or change between two figures, excluding the impact of foreign currency fluctuations, calculated by applying the exchange rate in effect for the current period results to the results of the previous period.

Technical accounting provisions comprising: case reserves, claims incurred but not reported by policyholders (“IBNR”), and a risk margin as required by accepted actuarial practice. Claims liabilities are discounted to take into account the time value of money, using a rate that reflects the estimated market yield of the underlying assets backing these claims liabilities at the reporting date.

Claims incurred, net of reinsurance (as determined in accordance with IFRS), excluding the market yield adjustment, the difference between expected return and discount rate on pension assets and claims incurred from U.S. Commercial exited lines, during a specific period and expressed as a percentage of Net earned premiums (MD&A basis) 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.

Thresholds below which regulator notification is required together with a company action plan to restore capital levels.

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

The total amount of premiums for new and renewal policies written during a specific period, as determined in accordance with IFRS.

DPW (IFRS) normalized for the effect of multi-year policies, excluding industry pools, fronting and U.S. Commercial exited lines. 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 related to our distribution and supply chain strategies for a specific period. Distribution EBITA and Other includes the operating results of our consolidated brokers (including our wholly-owned broker, BrokerLink), our share of operating results from of our broker associates, operating results of Frank Cowan Company Limited and On Side Developments Ltd.

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

Underwriting expenses, net of other underwriting revenues, including commissions, premium taxes and general expenses related to underwriting activities but excluding the difference between expected return and discount rate on pension assets and underwriting expenses from U.S. Commercial exited lines, for a specific period and expressed as a percentage of Net earned premiums (MD&A basis) for the same period.

Average number of claims reported in a specific period.

A unit of measurement equivalent to an employee with a full-time workload. If two employees each have a 50% workload, they would represent one full-time equivalent employee.

Pension plan’s assets expressed as a percentage of funded plans’ obligations.

Reserves for estimated claims that have been incurred but not reported by policyholders, including a reserve for future developments on claims which have been reported.

Canadian operations - When certain automobile owners are unable to obtain insurance via the voluntary insurance market in Canada, they are insured via the Facility Association (“FA”). In addition, entities can choose to cede certain risks to the FA administered Risk Sharing Pool (“RSP”). The related risks associated with FA insurance policies and policies ceded to the RSP are aggregated and shared by the entities in the Canadian P&C insurance industry, generally in proportion to market share and volume of business ceded to the RSP.

U.S. operations - As a condition of its license to do business in certain states in the U.S., the Company is required to participate in various mandatory shared market mechanisms commonly referred to as residual or involuntary markets. Each state dictates the type of insurance and the level of coverage that must be provided.

Integration and restructuring costs include items such as acquisition-related expenses, legal fees, severance, retention bonuses, changes in the fair value of the contingent considerations as well as expenses related to the implementation of significant new accounting standards.

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

A single claim larger than $0.25 million for P&C Canada (US$0.25 million for P&C U.S.) but smaller than the catastrophe threshold of $7.5 million for P&C Canada (US$5 million for P&C U.S).

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.

The annualized total pre-tax investment income (before expenses) divided by the mid-month average fair value of net equity and fixed-income securities held during a period (average net investments).

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).

Net premiums written recognized for accounting purposes as revenue during a specific period including net reinstatement premiums, as determined in accordance with IFRS.

NEP (IFRS), excluding net earned premiums of U.S. Commercial exited lines.

Calculated as net income for a specific period, excluding the after-tax impact Non-operating results.

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 specific period less premiums ceded to reinsurers during the same period.

A group of claims, which is considered significant but that is smaller than the catastrophe threshold of $7.5 million for P&C Canada (US$5 million for P&C U.S.), related to a single weather event.

Include 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. These include the amortization of intangible assets recognized in business combinations, integration and restructuring costs, net gains (losses), difference between expected return and discount rate on pension assets, market yield adjustment, underwriting results of U.S. Commercial exited lines, as well as other costs or revenues that are not representative of our operating performance.

Catastrophe losses mostly related to large commercial losses, including non-weather-related fires, surety and liability losses.

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.

Calculated as net operating income for a 12-month period less preferred share dividends, divided by the average shareholders’ equity (excluding preferred shares and accumulated other comprehensive income) over the same 12-month period.

The number of insurance policies in effect at a specific date. If two or more separate risks are covered under the same insurance policy, this counts as one policy in force.

Change in total prior year claims liabilities during a specific period. A decrease to claims liabilities is referred to as favourable prior year claims development. An increase in claims liabilities is referred to as unfavourable prior year claims development.

PYD (IFRS basis), adjusted to exclude the PYD related to U.S. Commercial exited lines.

PYD (MD&A basis), expressed as a percentage of Net earned premiums (MD&A basis).

Minimum capital test (MCT), as defined by the Office of the Superintendent of Financial Institutions (OSFI) and the Autorité des marchés financiers (AMF) in Canada and Risk-based capital requirements (RBC) as defined by the National Association of Insurance Commissioners (NAIC) in the U.S.

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

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.

Risk-based capital, as defined by the National Association of Insurance Commissioners (NAIC) in the U.S.

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

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.

Total capital margin includes the aggregate of capital in excess of company action levels in regulated entities plus available cash in unregulated entities. The CAL is 165% MCT for most Canadian insurance subsidiaries effective April 1, 2020 (previously CAL of 170% MCT) and 200% RBC for U.S. insurance subsidiaries.

Current year claims excluding catastrophe losses and prior year claims development, expressed as a percentage of Net earned premiums (MD&A basis) before reinstatement premiums.

Net earned premiums less net claims incurred, commissions, premium taxes and general expenses, excluding market yield adjustment, the difference between the expected return and discount rate on pension assets and the underwriting results of U.S. Commercial exited lines.

The number of vehicles in personal automobile insurance and the number of premises in personal property insurance written during a specific period.