Glossary

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

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.

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.

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 and credit card receivables.

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.

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.

Basis risk is the risk that offsetting investments in an economic hedging strategy will not experience price changes that entirely offset 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 for P&C Canada (US$5 million for P&C U.S.) 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) 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, 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.

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

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

Contractual obligations to exchange one currency for another on 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 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.

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.

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

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.

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, 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.

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 changes in equity market prices.

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.

Average number of claims reported in a specific period.

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.

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.

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

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.

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

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.

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 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, foreign exchange rates or commodity market.

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 mid-month average fair value of net equity and fixed-income securities held during a period (average net investments).

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.

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.

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

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.

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 catastrophe threshold of $7.5 million for P&C Canada (US$5 million for P&C U.S.), 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.

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

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.

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.

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 catastrophe coverage. 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.

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

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.

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 a basket of stocks, applied to a contract notional amount.

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.

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