Definity Financial Corp Fireside Chat with BMO Capital Markets Corp (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Super. I want to start maybe just with -- we'll go through the lines of business, but starting with personal autos. About a little over 40% of your net premiums earned here. Your top-line growth kind of remains upper-single digit. It's probably been better historically than the markets. What's driving this better top-line growth? What is Definity bring to the market that allows for this kind of growth?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : So if 10% to 12% rate hikes, is that what you're getting in 2024? Can you compare that to like -- to 2023 and kind of what you might be filing for in the first half of 2025?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Great. Now, you talk about mid-90s combined ratio target for this business. I remember maybe was it -- maybe a year or two ago, you were talking about upper-90s; now, it's mid-90s. What's driving that lower? And what would be the biggest risk to your ability to get a mid-90s combined ratio target?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Is there any issues with respect to bodily injury claims? Have they -- is there any pending court decisions that might drive up the potential costs associated with that? How is the lost cost trends with respect to BI trended, and what makes you feel? And with that backdrop, do you still feel that this is continuing to be a low risk in terms of your ability to hit your target here?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : And you used to talk about theft as being elevated. Is that not as much of an issue right now, and what's driving that? Just better awareness of consumer, better police awareness, just what's your thoughts with respect to threat, which I think is not as incidence of threat has gone down to some extent if I'm -- well, correct me if I'm wrong there.

Question: Tom MacKinnon - BMO Capital Markets - Analyst : How many points was theft on your loss ratio?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Right. And then when we think about auto insurance, sometimes, we think of it as being a bit political. We saw that to some extent in Alberta with rate caps. We've seen it years and years ago in Ontario with mandated rate reductions. So as investors and insurance companies, we always have to be kind of cognizant of the political pulse, if you will, with respect to personal auto. Where do we sit now with respect to your view on that?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Yeah, thanks. Want to move then to personal property just under 30% of the net premium earned. You talked, I think, the guide is here for upper-single-digit growth in top line here. Historically, again, you're doing better than the market in this regard. What is it that's driving that? Is it just better penetration in the broker market through Vyne, maybe Sonnet helping as you've rounded out that bundling aspect of it? Tell us what you think is your winning formula here from being able to have really good top-line growth and personal property.

Question: Tom MacKinnon - BMO Capital Markets - Analyst : What are the areas that you would be avoiding then if you're calling back some of that portfolio in certain areas is that, Alberta to some extent, kind of more hail storm activity there. I mean, the one thing about it is like this is a pretty volatile market when it comes to cats, and you probably never -- you might pull out of some area, and then you find out that you've doubled down in the, I don't know, in the eastern provinces and then they got hit again. So thoughts with respect to how your mix is changing by geography to be able to avoid what could potentially be higher cat losses.

Question: Tom MacKinnon - BMO Capital Markets - Analyst : That's good. We'll move to commercial lines, which is almost 30% of the net premium earned here. This has been one that you've been growing. Your growth has been very impressive, like solid double digit, low-teens at times, a real -- I think, if I look at your track record since -- just prior to your demutualization and then thereafter, you've really stepped up your game in both, in commercial lines and in specialty. What do you attribute this really good growth to -- that you've had? Is there anything with respect to your product? Is it just expanded broker reach? Has Vyne been helped? What's been driving that? And you still talk about double-digit growth in this business going forward, which is quite impressive.

Question: Tom MacKinnon - BMO Capital Markets - Analyst : We hear about the large employer market or the large case market there in commercial lines, probably getting some smaller rate increases, but SME still stays relatively firm. When does that kind of trickle down? Like, I assume with some of the larger commercial lines market, it's kind of a bit more broker-controlled and maybe they don't want you to kind of jam that rate through them. But why doesn't that kind of spin down into the SME group or what would -- when do you see that happening? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 7:00PM, BMO.TO - Definity Financial Corp Fireside Chat with BMO Capital Markets Corp (Virtual)

Question: Tom MacKinnon - BMO Capital Markets - Analyst : I mean, after pushing through double-digit rate increases for several years, can't the -- wouldn't the customers just opt for less coverage. Is that a risk?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : And you don't see the SMEs really responding in terms of getting less insurance or any of that kind of coverage just to offset some of these higher rate increases.

Question: Tom MacKinnon - BMO Capital Markets - Analyst : We hear about social inflation, south of the border, just kind of code word, I guess, for litigation. So increased litigation associated with claims, that sort of sparked some adverse development in casualty lines. Are you seeing any of that with respect to your commercial business? How would you -- I'm sure you've got questions about social inflation and how it's going to kind of move north, has it and what are you seeing in that regard?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : I mean, you can see that even just drives across the border and it's -- hurt in an accident, give us a call. Advertising all over, I think the no fault's been a good thing with respect to that regard. Just a question here about -- with the burden of increase in pricing, this might apply to both personal and commercial lines. are you seeing any changes in payment patterns? I think most people pay monthly anyways on the personal side, but if there's any annuals extended monthly. And I think what you do, even if they do move from annual to monthly, it's just not 1/12 of the premium as well. So any thoughts as to how to answer that question?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : And then going to move into Sonnet here. I mean, it was a big part of the story of the mutualization, insurance in about seven seconds without any broker involvement. You've changed, I guess, a bit of the algorithm here now and it's -- and it was, I think the story was you would just you would grow into profitability. Alberta slowed that down a bit, but now you've got the scale that you're going to -- that you're breaking even in this business now. What's the outlook for, when you say you're, I guess you're breaking even, that's kind of meaning that the underwriting profit is just is moving into the positive territory on that. Let's say if this probably has some influence in terms of how much of your business would flow into Sonnet and how much do you see it flowing into Sonnet to three years from now, say, and then what incremental lift does that have to your overall combined ratio and maybe your overall ROE? If you were to hit that kind of target that I just described to you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. FEBRUARY 19, 2025 / 7:00PM, BMO.TO - Definity Financial Corp Fireside Chat with BMO Capital Markets Corp (Virtual)

Question: Tom MacKinnon - BMO Capital Markets - Analyst : How do you avoid channel conflicts with respect to Sonnet and the brokers? And as a follow-up, you look in the UK where aggregators are the real big distribution mechanism, and they've kind of disrupted the distribution marketplace there. If we look to the US, it's probably more direct instead of broker. And yet in Canada, we've been able to sort of keep a broker model going fairly well. So what do you attribute the ability -- or how do you avoid the channel conflict and how do you see distribution evolving in Canada?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Yeah, that's right. In the affinity market, you had success there in your previous company as well, developing that marketplace. So I'm going to turn to -- always, when you talk about Definity with investors is the elephant in the room is always the demutualization reg moratorium, four-year moratorium here ending in November of 2025. So I guess that begs the question, where do you see Definity in the next, say, six months to a year, with that backdrop? Do you -- just thoughts there?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : You mentioned acquisition. I mean, you've been spending money in terms of acquiring brokers, but I think you've said you wanted to get manufacturing. Sometimes you can't be that picky. You've got to take maybe something as it comes. And would you -- I think you've mentioned you want to get really like to get more commercial lines since it'd be a little bit more profitable, I guess, in your perspective. But it's sort of hard to in insurance plan to buy something and just only buy this part of the business here. You'd have to acquire a few things along with it. You've got this financial capacity, I think it's $1.75 billion. So if we look in the land, if we look at the Canadian industry, maybe you can just refresh us what you're looking for in terms of manufacturing, and how you see that helping your ROE and debt costs are a little bit higher right now servicing debt at $1.75 billion in that financial capacity, which is largely excessive debt capacity. You want to make this a creative. Yeah, how would you kind of deal with that word salad they just threw at you?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Speaking about the geopolitical risks, tariffs, how would that kind of impact your business?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Right. And it's been great times to be an insurance company here in the market. The fundamentals are very strong. What would you -- and investors are always asking, what are the signs that maybe this favorable insurance cycle is going to start to turn? You've been in this business for a while. I mean, what would you tell investors to look for? Would it be like, look at the underlying loss ratio, look at interest rates, look at unfavorable prior-year development. What is it that investors should look for that could possibly signal that maybe this cycle is starting to turn?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Well, thanks for that, Ron. I don't know if there's anything else that you wanted to add here in kind of closing about the outlook for Definity here over the next several quarters or anything that we may not have covered?

Question: Tom MacKinnon - BMO Capital Markets - Analyst : Well, thanks for that, and thanks everyone for joining. This will conclude the fireside chat. A special thanks to Rowan Saunders here for his participation and sharing with us the Definity story. So thanks again, everyone.