Definity Financial Corporation Reports Third Quarter 2023 Results

(in Canadian dollars except as otherwise noted)

TORONTO, Nov. 9, 2023 /CNW/ - (TSX: DFY)

Highlights

• Gross written premium¹ growth of 9.0% in 2023 Q3, as firm market conditions in personal property and commercial lines persisted
• Combined ratio¹ of 102.5% in 2023 Q3 which included 13.5 points of previously announced catastrophe losses, primarily impacting personal property
• Commercial insurance delivered strong quarterly performance with a combined ratio¹ of 86.6%, benefitting from lower levels of catastrophe losses, and gross written premium¹ growth of 13.0%
• Personal auto combined ratio¹ of 98.9% reflects elevated but stable claims trends and hail-related catastrophe losses
• Operating net income¹ of $17.6 million in 2023 Q3 compared to $45.8 million in 2022 Q3, resulting in operating EPS¹ of $0.15 per share; trailing 12-month operating ROE¹ was 8.8%
• Financial position remained strong, with book value per share¹ of $22.87, 9.6% higher than a year ago

Executive Messages

"Severe storms and wildfires affected communities across the country this summer, and our catastrophe response teams stepped up for our customers. While these events had a significant impact on our underwriting performance, we continued to leverage our strong broker proposition to drive solid overall premium growth of 9%. Our efforts to diversify and strengthen the earnings profile of the business were evidenced by strong commercial insurance results and a growing contribution from our insurance broker platform. Overall, we delivered a solid underlying performance, which, combined with robust net investment income, resulted in third quarter operating net income of $17.6 million, or $0.15 per share. We closed the acquisition of Drayden Insurance Ltd. in early October, providing our McDougall operations with immediate scale and market leading presence in Alberta. In 12 months, we have built an insurance broker platform approaching one billion dollars in annual premiums which complements our underwriting operations."
– Rowan Saunders, President & CEO

"We maintained our strong financial position, with book value per share up 9.6% compared to the third quarter of 2022, despite experiencing $190 million in net catastrophe losses in 2023. Operating income was resilient, benefitting from the expansion in net investment income, strengthened by our proactive actions to capture yield in a higher rate environment, leading to an operating ROE of 8.8%. We continue to successfully deploy capital to build a leading insurance broker platform, enabling us to diversify our earnings with repeatable distribution income. With substantial financial capacity, and the regulatory approval process for our planned CBCA continuance nearing completion, there is significant flexibility available to support our ongoing reinvestment in and growth of our business."
 – Philip Mather, EVP & CFO

Consolidated Results

(in millions of dollars, except as otherwise noted)	Q3 2023	Q3 2022 (Restated)	Change	2023 YTD	2022 YTD (Restated)	Change
Insurance revenue	984.1	895.9	9.8 %	2,846.5	2,574.0	10.6 %
Gross written premiums^1	1,040.0	954.5	9.0 %	2,972.0	2,710.4	9.7 %
Net underwriting revenue^1	903.6	832.4	8.6 %	2,620.2	2,400.8	9.1 %
Claims ratio^1	72.9 %	64.7 %	8.2 pts	66.5 %	62.4 %	4.1 pts
Expense ratio^1	29.6 %	32.0 %	(2.4) pts	31.3 %	32.5 %	(1.2) pts
Combined ratio^1	102.5 %	96.7 %	5.8 pts	97.8 %	94.9 %	2.9 pts
Insurance service result	50.4	91.1	(40.7)	276.5	308.7	(32.2)
Underwriting (loss) income^1	(22.8)	27.1	(49.9)	57.9	122.7	(64.8)
Net investment income	46.3	36.0	10.3	130.1	93.6	36.5
Distribution income^1	11.2	1.7	9.5	30.5	9.3	21.2
Net (loss) income attributable to common shareholders	(48.3)	35.7	(84.0)	124.2	(74.1)	198.3
Operating net income^1	17.6	45.8	(28.2)	145.8	160.2	(14.4)
	Q3 2023	Q3 2022 (Restated)	Change	2023 YTD	2022 YTD (Restated)	Change
Per share measures (in dollars)
Diluted EPS	(0.42)	0.31	(0.73)	1.06	(0.64)	1.70
Operating EPS^1	0.15	0.39	(0.24)	1.25	1.37	(0.12)
Book value per share ("BVPS")^1				22.87	20.86	2.01
Return on equity
Return on equity ("ROE")^1				12.3 %	N/A
Operating ROE^1				8.8 %	N/A

Note: 2023 Q3 ROE and Operating ROE measures are on a rolling twelve-month basis. 2023 Q3 is N/A due to adoption of IFRS 17 — Insurance Contracts ("IFRS 17") and IFRS 9 — Financial Instruments ("IFRS 9"). The full year 2022 Operating ROE is 9.4%.

¹ This is a supplementary financial measure, non-GAAP financial measure, or a non-GAAP ratio. Refer to Supplementary financial measures and non-GAAP financial measures and ratios in this news release, and Section 12 – Supplementary financial measures and non-GAAP financial measures and ratios in the 2023 Q3 Management's Discussion and Analysis dated November 9, 2023 for further details, which is hereby incorporated by reference and is available on the Company's website at www.definityfinancial.com and on SEDAR+ at www.sedarplus.ca.

• Gross written premiums ("GWP") for 2023 Q3 increased by $85.5 million or 9.0% compared to 2022 Q3, with growth across all our lines of business. Personal lines GWP was up 7.5%, driven by growth in personal property. Commercial lines GWP increased 13.0% as we continued to focus on profitable growth in this line of business. Year to date, GWP increased by $261.6 million or 9.7% compared to 2022. Personal lines GWP increased 7.2% and commercial lines GWP increased 15.9%.
  
  
• Underwriting loss for 2023 Q3 was $22.8 million and the combined ratio was 102.5%, compared to underwriting income of $27.1 million and a combined ratio of 96.7% in 2022 Q3. The combined ratio was impacted by an active quarter with respect to catastrophe losses, which amounted to 13.5 percentage points in 2023 Q3 compared to 5.8 percentage points in 2022 Q3, as adverse impacts on personal property claims significantly exceeded a reduced impact on commercial lines. The combined ratio was also impacted by continued elevated levels of claims severity arising from persistent, but stable, inflation and theft in personal auto, partially offset by a 2.4 percentage point decrease in the consolidated expense ratio. The expense ratio reduction was driven by the impact of heightened catastrophe losses on both contingent profit commissions and variable compensation accruals, the elimination on consolidation of commissions paid to our majority-owned brokers, in addition to our ongoing focus on disciplined expense management.
  
  Year to date, our underwriting income decreased by $64.8 million and led to a combined ratio of 97.8% as compared to 94.9% in 2022, driven primarily by the increased level of catastrophe losses described above.
• Net investment income increased $10.3 million in 2023 Q3 and $36.5 million year to date driven primarily by higher fixed income yields that we accelerated by active management of the fixed income portfolio, in an environment of rising interest rates.
  
  
• Distribution income was $11.2 million in 2023 Q3 and $30.5 million year to date, compared to $1.7 million in 2022 Q3 and $9.3 million in 2022 year to date, due primarily to the increased ownership position in McDougall Insurance Brokers Limited and the acquisition of McFarlan Rowlands Insurance Brokers Inc. ("McFarlan Rowlands") in the second quarter.

Net (Loss) Income and Operating Net Income

• Net loss attributable to common shareholders was $48.3 million in 2023 Q3 compared to net income of $35.7 million in 2022 Q3. The shift from net income attributable to common shareholders in 2022 Q3 to a net loss in 2023 Q3 was due primarily to the increased catastrophe activity in the quarter and higher market revaluation losses on fixed income investments. These were partially offset by increases in net investment income and distribution income.
  
  Year to date, net income attributable to common shareholders was $124.2 million compared to a net loss of $74.1 million in 2022 due primarily to market revaluation gains on investments in 2023 overall compared to significant market revaluation losses in 2022, as well as increases in net investment income and distribution income. These were partially offset by a decrease in underwriting income.

• Operating net income was $17.6 million in 2023 Q3 compared to $45.8 million in 2022 Q3. The decrease was due to underwriting losses in 2023 Q3, partially offset by higher net investment income and distribution income. Year to date, operating net income was $145.8 million compared to $160.2 million in 2022.
  
  
• Operating ROE was 8.8% for the twelve-month period ended September 30, 2023 compared to 9.4% for the full year ended December 31, 2022 due to lower operating net income.

¹ This is a supplementary financial measure, non-GAAP financial measure, or a non-GAAP ratio. Refer to Supplementary financial measures and non-GAAP financial measures and ratios in this news release, and Section 12 – Supplementary financial measures and non-GAAP financial measures and ratios in the 2023 Q3 Management's Discussion and Analysis dated November 9, 2023 for further details, which is hereby incorporated by reference and is available on the Company's website at www.definityfinancial.com and on SEDAR+ at www.sedarplus.ca.

Line of Business Results

(in millions of dollars, except as otherwise noted)					Q3 2023	Q3 2022 (Restated)	Change		2023 YTD	2022 YTD (Restated)	Change
Personal insurance
Gross written premiums^1
Auto					441.2	421.6	4.6 %		1,241.1	1,192.5	4.1 %
Property					308.0	275.6	11.8 %		835.1	744.7	12.1 %
Total					749.2	697.2	7.5 %		2,076.2	1,937.2	7.2 %
Combined ratio^1
Auto					98.9 %	96.3 %	2.6 pts		99.1 %	95.1 %	4.0 pts
Property					123.3 %	100.1 %	23.2 pts		106.1 %	98.7 %	7.4 pts
Total					108.7 %	97.8 %	10.9 pts		101.9 %	96.5 %	5.4 pts
Commercial insurance
Gross written premiums^1					290.8	257.3	13.0 %		895.8	773.2	15.9 %
Combined ratio^1					86.6 %	93.9 %	(7.3) pts		87.2 %	90.6 %	(3.4) pts

Personal Insurance

• Overall, personal lines GWP increased 7.5% in 2023 Q3 (7.2% year to date). The direct channel GWP was $120.0 million in 2023 Q3, an increase of 1.2% compared to $118.6 million in 2022 Q3, which included higher premiums assumed from the industry pools but was impacted by our deliberate profitability actions including those taken in response to the Alberta auto rate pause. The direct channel GWP was $316.1 million year to date, an increase of 0.7% compared to $313.9 million in 2022. Personal lines underwriting loss was $56.7 million in 2023 Q3 compared to underwriting income of $13.4 million in 2022 Q3. Year to date, personal lines underwriting loss was $35.6 million compared to underwriting income of $62.1 million in 2022.
• Personal auto GWP increased 4.6% in the quarter (4.1% year to date), reflecting an increase in average written premiums, and higher premiums assumed from the industry pools. The combined ratio of 98.9% in 2023 Q3 (2022 Q3: 96.3%) was largely impacted by expected increases in frequency from normalization of driving patterns, continued elevated levels of claims severity arising from persistent but stable inflation, heightened levels of theft, and an increase in catastrophe losses. Year to date, the personal auto combined ratio was impacted by the same factors that impacted the third quarter.
• Personal property GWP increased 11.8% in the quarter (12.1% year to date), benefitting from continued firm market conditions driving increases in average written premiums as well as the continuation of portfolio transfers. The combined ratio in the quarter was 123.3% (2022 Q3: 100.1%), driven by an elevated level of catastrophe losses, partially offset by an improved core accident year claims ratio. Catastrophe losses accounted for 39.7 percentage points of the combined ratio in 2023 Q3 (including wildfires in British Columbia, wind and rain storms in Ontario, Québec, and Nova Scotia, tornadoes in Ontario and Québec, and a number of hail events across Canada) compared to 11.1 percentage points of the combined ratio in 2022 Q3. Year to date, the personal property combined ratio was impacted by the same factors that impacted the third quarter, as well as lower favourable prior year claims development. Catastrophe losses impacted the combined ratio by 20.7 percentage points in 2023 compared to 10.7 percentage points in 2022.

Commercial Insurance

• Strong growth momentum in commercial lines continued in 2023 Q3 as we benefitted from broad support from our broker partners across Canada. GWP increased 13.0% in the quarter (15.9% year to date) driven by strong retention and rate achievement in a firm market environment and further scaling of our small business and specialty capabilities.
• Commercial lines benefitted from continued focus on underwriting execution with a strong combined ratio of 86.6% and underwriting income of $33.9 million in the quarter. This compared to the combined ratio of 93.9% and underwriting income of $13.7 million in 2022 Q3. The combined ratio improved due to lower catastrophe losses and an improved core accident year claims ratio. Year to date, the commercial lines combined ratio was 87.2% and underwriting income was $93.5 million compared to 90.6% and underwriting income of $60.6 million in 2022. The improvement was driven by lower catastrophe losses.

¹ This is a supplementary financial measure, non-GAAP financial measure, or a non-GAAP ratio. Refer to Supplementary financial measures and non-GAAP financial measures and ratios in this news release, and Section 12 – Supplementary financial measures and non-GAAP financial measures and ratios in the 2023 Q3 Management's Discussion and Analysis dated November 9, 2023 for further details, which is hereby incorporated by reference and is available on the Company's website at www.definityfinancial.com and on SEDAR+ at www.sedarplus.ca.

Financial Position

(in millions of dollars, except as otherwise noted)									As at September 30, 2023	As at December 31, 2022 (Restated)			Change
Financial position
Investments									4,604.3		4,897.2	(292.9)
Equity attributable to common shareholders									2,633.8		2,549.8	84.0
Financial capacity									585.9		658.5	(72.6)

Note: Financial capacity for December 31, 2022 has not been restated to reflect the adoption of IFRS 17 and IFRS 9 nor OSFI's MCT 2023 guidelines.

• Equity attributable to common shareholders increased by $84.0 million, or 3.3%, as at September 30, 2023, due primarily to the positive contribution from operating net income.
• The decrease in financial capacity as at September 30, 2023 relates primarily to capital deployed in the acquisition of McFarlan Rowlands and recognized losses on investments. These were partially offset by capital generated from operating net income and the impact of our transition to IFRS 17.
• Our capital position as of September 30, 2023 remains strong and well in excess of both internal and regulatory minimum capital requirements.

Dividend

• On November 9, 2023, our Board of Directors declared a $0.1375 per share dividend, payable on December 28, 2023 to shareholders of record at the close of business on December 15, 2023.

Conference Call

Definity will conduct a conference call to review information included in this news release and related matters at 11:00 a.m. ET on November 10, 2023. The conference call will be available simultaneously and in its entirety to all interested investors and the news media at www.definityfinancial.com. A transcript will be made available on Definity's website within two business days.

About Definity Financial Corporation

Definity Financial Corporation ("Definity", which includes its subsidiaries where the context so requires) is one of the leading property and casualty insurers in Canada, with over $3.9 billion in gross written premiums for the 12 months ended September 30, 2023 and over $2.6 billion in equity attributable to common shareholders as at September 30, 2023.

Cautionary Note Regarding Forward-Looking Information

This news release contains "forward-looking information" within the meaning of applicable securities laws in Canada. Forward-looking information may relate to our future business, financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or statements that certain actions, events or results "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts but instead represent management's expectations, estimates and projections regarding possible future events or circumstances.

Forward-looking information in this news release is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as at the date such statements are made, and are subject to many factors that could cause our actual results, performance or achievements, or other future events or developments, to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors:

• Definity's ability to appropriately price its insurance products to produce an acceptable return, particularly in provinces where the regulatory environment requires auto insurance rate increases to be approved or that otherwise impose regulatory constraints on auto insurance rate increases;
• Definity's ability to accurately assess the risks associated with the insurance policies that it writes;
• Definity's ability to assess and pay claims in accordance with its insurance policies;
• litigation and regulatory actions, including potential claims in relation to demutualization and our IPO, and COVID-19-related class-action lawsuits that have arisen and which may arise, together with associated legal costs;
• Definity's ability to obtain adequate reinsurance coverage to transfer risk;
• Definity's ability to accurately predict future claims frequency or severity, including the frequency and severity of weather-related events and the impact of climate change;
• Definity's ability to address inflationary cost pressures through pricing, supply chain, or cost management actions; 
• the occurrence of unpredictable catastrophe events;
• unfavourable capital market developments, interest rate movements, changes to dividend policies or other factors which may affect our investments or the market price of our common shares;
• changes associated with the transition to a low-carbon economy, including reputational and business implications from stakeholders' views of our climate change approach or that of our industry;
• Definity's ability to successfully manage credit risk from its counterparties;
• foreign currency fluctuations;
• Definity's ability to meet payment obligations as they become due;
• Definity's ability to maintain its financial strength rating or credit rating;
• Definity's dependence on key people;
• Definity's ability to attract, develop, motivate, and retain an appropriate number of employees with the necessary skills, capabilities, and knowledge;
• Definity's ability to appropriately manage and protect the collection and storage of information;
• Definity's reliance on information technology systems and internet, network, data centre, voice or data communications services and the potential disruption or failure of those systems or services, including as a result of cyber security risk;
• failure of key service providers or vendors to provide services or supplies as expected, or comply with contractual or business terms;
• Definity's ability to obtain, maintain and protect its intellectual property rights and proprietary information or prevent third parties from making unauthorized use of our technology;
• compliance with and changes in legislation or its interpretation or application, or supervisory expectations or requirements, including changes in effective income tax rates, risk-based capital guidelines, and accounting standards;
• failure to design, implement and maintain effective control over financial reporting which could have a material adverse effect on our business;
• deceptive or illegal acts undertaken by an employee or a third party, including fraud in the course of underwriting insurance or settling insurance claims;
• Definity's ability to respond to events impacting its ability to conduct business as normal;
• Definity's ability to implement its strategy or operate its business as management currently expects;
• general economic, financial, political, and social conditions, particularly those in Canada;
• the competitive market environment and cyclical nature of the P&C insurance industry;
• the introduction of disruptive innovation;
• distribution channel risk, including Definity's reliance on brokers to sell its products;
• Definity's dividend payments being subject to the discretion of the Board and dependent on a variety of factors and conditions existing from time to time;
• there can be no assurance that Definity's normal course issuer bid will be maintained, unchanged and/or completed;
• Definity's dependence on the results of operations of its subsidiaries and the ability of the subsidiaries to pay dividends;
• Definity's ability to manage and access capital and liquidity effectively;
• Definity's ability to successfully identify, complete, integrate and realize the benefits of acquisitions or manage the associated risks;
• management's estimates and judgements in respect of the adoption of IFRS 17 and the financial impact on various financial metrics;
• periodic negative publicity regarding the insurance industry or Definity;
• management's estimates and expectations in relation to interests in the broker distribution channel and the resulting impact on growth, income, and accretion in various financial metrics; and
• the completion and timing of Definity continuing under the Canada Business Corporations Act.

If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The opinions, estimates or assumptions referred to above and described in greater detail in the "11 – Risk Management and Corporate Governance" section of the December 31, 2022 Management's Discussion and Analysis should be considered carefully by readers.

Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, the factors above are not intended to represent a complete list and there may be other factors not currently known to us or that we currently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information, which speaks only as at the date made. The forward-looking information contained in this news release represents our expectations as at the date of this news release (or as at the date they are otherwise stated to be made) and are subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada.

All of the forward-looking information contained in this news release is expressly qualified by the foregoing cautionary statements.

Supplementary Financial Measures and Non-GAAP Financial Measures and Ratios

We measure and evaluate performance of our business using a number of financial measures. Among these measures are the "supplementary financial measures", "non-GAAP financial measures", and "non-GAAP ratios" (as such terms are defined under Canadian Securities Administrators' National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure), and in each case are not standardized financial measures under GAAP. The supplementary financial measures, non-GAAP financial measures, and non-GAAP ratios in this news release may not be comparable to similar measures presented by other companies. These measures should not be considered in isolation or as a substitute for analysis of our financial information reported under GAAP. These measures are used by financial analysts and others in the P&C insurance industry and facilitate management's comparisons to our historical operating results in assessing our results and strategic and operational decision-making. For more information about these supplementary financial measures, non-GAAP financial measures, and non-GAAP ratios, including (where applicable) definitions and explanations of how these measures provide useful information, refer to Section 12 – Supplementary financial measures and non-GAAP financial measures and ratios in the Q3-2023 Management's Discussion and Analysis dated November 9, 2023, which is available on our website at www.definityfinancial.com and on SEDAR+ at www.sedarplus.ca. These measures have been updated to reflect the estimated impact arising from the adoption of IFRS 17 and IFRS 9.

Below are quantitative reconciliations of non-GAAP measures for the three and nine months ended September 30, 2023 and September 30, 2022:

Distribution income:

(in millions of dollars)		Q3 2023	Q3 2022	2023 YTD	2022 YTD
Distribution revenues^1		34.1	-	91.6	-
Distribution business expenses^2		(22.9)	-	(61.1)	-
Share of distribution profit from investments in associates^2		-	1.3	-	6.9
Remove: Income taxes included in share of distribution profit from investments in associates		-	0.4	-	2.4
Distribution income		11.2	1.7	30.5	9.3

¹ Distribution revenues includes commissions on policies underwritten by external insurance companies.

² Included in Other (expenses) income in our interim consolidated financial statements. These amounts exclude amortization of intangible assets recognized in business combinations and acquisition-related expenses.

Net claims and adjustment expenses

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Claims and adjustment expenses^1,2		727.4	626.0	1,898.4	1,635.0
Impact of onerous insurance contracts^3		0.4	1.0	(2.1)	1.4
Claims recoverable from reinsurers for incurred claims^2,4		(69.4)	(88.9)	(153.7)	(138.3)
Net claims and adjustment expenses		658.4	538.1	1,742.6	1,498.1

¹ Included in Insurance service expenses and other (expenses) income in our interim consolidated financial statements. 

² Excludes the impact of discounting and risk adjustment.

³ Included in Insurance service expenses.

⁴ Included in Net (expenses) income from reinsurance contracts held in our interim consolidated financial statements.

Net commissions

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Commissions^1		137.9	134.1	415.0	397.1
Commissions earned on ceded reinsurance^2		(12.5)	(9.0)	(37.4)	(27.8)
Net commissions		125.4	125.1	377.6	369.3

¹ Included in Insurance service expenses in our interim consolidated financial statements. 

² Included in Net (expenses) income from reinsurance contracts held in our interim consolidated financial statements.

Net underwriting revenue

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Insurance revenue		984.1	895.9	2,846.5	2,574.0
Earned reinsurance premiums ceded^1		(80.5)	(63.5)	(226.3)	(173.2)
Net underwriting revenue		903.6	832.4	2,620.2	2,400.8

¹ Included in Net (expenses) income from reinsurance contracts held in our interim consolidated financial statements. 

Operating net income, Operating income, Non-operating gains (losses)

Net (loss) income attributable to common shareholders is the most directly comparable GAAP financial measure disclosed in our interim consolidated financial statements to operating net income, operating income, and non-operating gains (losses), which are considered non-GAAP financial measures.

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Net (loss) income attributable to common shareholders		(48.3)	35.7	124.2	(74.1)
Remove: income tax (recovery) expense		(18.7)	8.1	34.1	(37.3)
(Loss) income before income taxes		(67.0)	43.8	158.3	(111.4)
Remove: non-operating gains (losses)
Recognized losses on FVTPL investments		(99.8)	(39.2)	(70.8)	(464.2)
Discounting^1		40.3	27.8	108.7	70.5
Risk adjustment^1		0.5	(1.1)	6.5	4.1
Finance (expenses) income from insurance contracts issued		(27.5)	(2.7)	(73.4)	79.8
Finance income (expenses) from reinsurance contracts held		1.8	0.5	5.8	(4.6)
Interest on restricted cash, less demutualization and IPO-related expenses^2		2.8	1.3	8.2	(1.0)
Amortization of intangible assets recognized in business combinations^2		(4.4)	(0.7)	(11.5)	(1.9)
Other^2,3		(1.6)	0.3	(1.7)	(0.6)
Non-operating losses^(4)		(87.9)	(13.8)	(28.2)	(317.9)
Operating income		20.9	57.6	186.5	206.5
Operating income tax expense		(3.3)	(11.8)	(40.7)	(46.3)
Operating net income		17.6	45.8	145.8	160.2

¹ Included in Insurance service expenses and Net (expenses) income from reinsurance contracts held in our interim consolidated financial statements.

²  Included in Other (expenses) income in our interim consolidated financial statements.

³ Other represents acquisition-related expenses, a gain on sale of customer lists, income or expenses pertaining to fintech venture capital funds, and a number of other expenses or revenues that in the view of management are not part of our insurance operations and are individually and in the aggregate not material.

⁴ Non-operating gains (losses) is a non-GAAP financial measure.

Prior year claims development

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Changes in fulfilment cash flows relating to the liabilities for incurred claims^1		(32.4)	(24.8)	(75.9)	(125.0)
Changes to amounts recoverable for incurred claims^2		3.4	(9.4)	(2.8)	10.7
Remove: discounting included above		(2.5)	3.4	(13.6)	8.7
Remove: risk adjustment included above		11.4	9.1	42.1	40.2
Prior year claims development		(20.1)	(21.7)	(50.2)	(65.4)

¹ Included in Insurance service expenses in our interim consolidated financial statements.

² Included in Net (expenses) income from reinsurance contracts held in our interim consolidated financial statements.

Net underwriting expenses

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Net commissions		125.4	125.1	377.6	369.3
Operating expenses		108.6	110.9	343.0	320.9
Premium taxes		34.0	31.2	99.1	89.8
Net underwriting expenses		268.0	267.2	819.7	780.0

Underwriting (loss) income

(in millions of dollars)		Q3 2023	Q3 2022 (Restated)	2023 YTD	2022 YTD (Restated)
Net underwriting revenue		903.6	832.4	2,620.2	2,400.8
Net claims and adjustment expenses		658.4	538.1	1,742.6	1,498.1
Net commissions		125.4	125.1	377.6	369.3
Operating expenses		108.6	110.9	343.0	320.9
Premium taxes		34.0	31.2	99.1	89.8
Underwriting (loss) income		(22.8)	27.1	57.9	122.7

Below are quantitative reconciliations of non-GAAP ratios for the periods ended September 30, 2023 and December 31, 2022, as applicable:

ROE

For the 12 months ended

(in millions of dollars, except as otherwise noted)

September 30, 2023

Net income attributable to common shareholders

309.2

Equity attributable to common shareholders^1

2,633.8

Adjusted equity attributable to common shareholders

2,633.8

Average adjusted equity attributable to common shareholders^2

2,513.1

ROE

12.3 %

¹ Equity attributable to common shareholders is as at September 30, 2023.

² Average adjusted equity attributable to common shareholders is the average of adjusted equity attributable to common shareholders (equity attributable to common shareholders as shown on our consolidated balance sheets, adjusted for significant capital transactions, if applicable) at the end of the period and the end of the preceding 12-month period. Equity attributable to common shareholders and adjusted equity attributable to common shareholders as at September 30, 2022 was $2,392.4 million.

Operating ROE

												For the 12 months ended
(in millions of dollars, except as otherwise noted)												September 30,  2023	December 31, 2022 (Restated)
Operating net income^1												222.4	236.8
Equity attributable to common shareholders, excluding AOCI^2												2,668.6	2,582.2
Adjustment for unrealized gains on FVTPL equity instruments												(23.6)	(15.6)
Adjusted equity attributable to common shareholders, excluding AOCI												2,645.0	2,566.6
Average adjusted equity attributable to common shareholders, excluding AOCI^3												2,531.8	2,515.3
Operating ROE												8.8 %	9.4 %

¹ Operating net income is a non-GAAP financial measure.

² Equity attributable to common shareholders, excluding accumulated other comprehensive (loss) income ("AOCI") is as at September 30, 2023 and December 31, 2022.

³ Average adjusted equity attributable to common shareholders, excluding AOCI is the average of adjusted equity attributable to common shareholders, excluding AOCI (equity attributable to common shareholders and AOCI each as shown on our consolidated balance sheets, adjusted for significant capital transactions, if applicable) and excluding unrealized gains or losses on FVTPL equity instruments, at the end of the period and the end of the preceding 12-month period. Adjusted equity attributable to common shareholders, excluding AOCI, as at September 30, 2022 was $2,418.6 million and as at December 31, 2021 was $2,464.0 million.

SOURCE Definity Financial Corporation

Investor inquiries: Dennis Westfall, Head, Investor Relations, (C) 416-435-5568, [email protected]; Media inquiries: Sarah Attwells, AVP, Corporate Affairs, (C) 226-753-1130, [email protected]