Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Actuarial gains (losses)

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

Adjusted earnings per share (“AEPS”)

A non-IFRS financial measure 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 and restructuring costs, acquisition-related currency derivative gains or losses and the positive impact from the U.S. Corporate Tax reform, divided by the weighted-average number of common shares outstanding during the same period.

Adjusted return on equity (“AROE”)

A non-IFRS financial measure 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 and restructuring costs, acquisition-related currency derivative gains or losses and the positive impact from the U.S. Corporate Tax reform, 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.

Affiliated brokers

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

Asset-backed security

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 and credit card receivables.

Associates

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

Average shareholders’ equity

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.

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B
Basis risk

Basis risk is the risk that offsetting investments in an economic hedging strategy will not experience price changes that entirely offset each other.

Book value per share

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.

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C
Case reserves

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.

Cash flow available for investment activities

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

Catastrophe losses

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.) related to a single event.

Claims liabilities

Technical accounting provisions comprising the following: (1) case reserves, (2) claims that are incurred but not reported (“IBNR”), and (3) 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 ratio

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

Combined ratio

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.

Company action levels (CALs)

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

Credit risk

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

Currency forwards

Contractual obligations to exchange one currency for another on a predetermined future date.

Currency risk

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

Customer relationships

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

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D
Debt-to-capital ratio

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

Derivative financial instruments

A financial contract settled at a future date that requires little or no initial investment, and whose value is derived from an underlying interest rate, foreign exchange rate, equity or commodity instrument or index. 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.

Derivative-related credit risk

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 an over-the-counter instrument and is normally a small fraction of the contract’s notional amount.

Direct premiums written (“DPW”)

The total amount of premiums for new and renewal policies billed (written) during a specific period, as reported under IFRS.

Distribution EBITA

Operating results excluding interest and taxes from our wholly owned broker (BrokerLink), as well as our share of results from our broker associates for a specific period.

Distribution networks

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

DPW (MD&A basis)

A non-IFRS financial measure calculated as the total amount of premiums for new and renewal policies billed (written) during a specific period, 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.

DPW growth (MD&A basis)

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.

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E
Earnings per share to common shareholders (“EPS”), basic

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

Earnings per share to common shareholders (“EPS”), diluted

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.

Embedded derivatives

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.

Equities sold short

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.

Equity price risk

Risk of losses arising from changes in equity market prices.

Expense ratio

Underwriting expenses including commissions, premium taxes and general expenses related to underwriting activities for a specific period and expressed as a percentage of net earned premiums for the same period.

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F
Frequency (of claims)

Average number of claims reported in a specific period.

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I
Incurred but not reported (“IBNR”) claims reserve

Reserves 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

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.

Interest rate futures contracts

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

Interest rate hedge ratio

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.

Interest rate risk

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

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J
Joint venture

Joint arrangement 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.

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L
Large loss

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).

Liquidity risk

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

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M
Market risk

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, foreign exchange rates or commodity market.

Market yield adjustment (“MYA”)

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.

Market-based yield

Non-IFRS financial measure defined as 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).

Master netting agreement

An agreement between a 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.

Minimum capital test (“MCT”)

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).

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N
Net distribution income

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.

Net earned premiums

Net premiums written recognized for accounting purposes as revenue during a period.

Net operating income (“NOI”)

A non-IFRS financial measure calculated as net income for a specific period, excluding the after-tax impact of 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, the positive impact from the U.S. Corporate Tax reform, as well as other costs that we do not believe to be reflective of our operating performance.

Net operating income per share (“NOIPS”)

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.

Net premiums written

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

Non-catastrophe weather event

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.

Non-operating results

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.

Normal course issuer bid (“NCIB”)

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.

Notional amount

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

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O
Operating return on equity (“OROE”)

A non-IFRS financial measure 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.

Options

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.

Over-the-counter derivatives

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

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P
Prior year claims development

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.

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R
Regulatory capital ratios

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.

Reinstatement premium

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

Reinsurer

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.

Return on equity (“ROE”)

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 (“RBC”)

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

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S
Securities lending

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.

Severity (of claims)

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

Structured settlements

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.

Swap agreements

Over-the-counter contracts in which two counterparties exchange a series of cash flows based on a basket of stocks, applied to a contract notional amount.

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T
Total capital margin

Total capital margin includes the aggregate of capital in excess of company action levels in regulated entities (170% MCT, 200% RBC) plus available cash in unregulated entities.

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U
Underlying current year loss ratio

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

Underwriting income

Net premiums earned 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.

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W
Written insured risks

The number of vehicles in automobile insurance and the number of premises in personal property insurance.

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