Definity Financial Aktie

Good afternoon, everyone, and thank you for joining us today. I'm pleased to have President and CEO of Definity Financial, Rowan Saunders. Rowan, thank you for joining us. I appreciate it.

Great to be here with you, Mario.

So why don't you get us started? What are some of the things that are top of mind? I always -- you've had a great few years. How long has it been? 5 years as a public company, maybe a little longer?

Yes. So coming up on that, right? So that's exactly right. This fall, the fall of 2021.

You're ticking all the boxes. It's doing what you said you were going to do and the stocks reacted accordingly. So maybe just give us your -- what's top of mind for you?

Well, thanks for that. Look, I would say we've had a really nice start to the year. As you mentioned, the last number of years, we've been very active deploying our strategy, building new capabilities and the company has effectively with the Travelers deal doubled in the last couple of years, which is great for a long-term mutual -- ex mutual company. We're really delighted with the start to this year, and this year has been a really important year for Definity. And I would say the top 2 things on my mind that I'm really pleased about.

The first one would, of course, be the transformational acquisition of the Travelers Canadian business. That closed on January 2 of this year. And we've spent a lot of time getting ready for that and it's going really well. So I think the strategic impact of that is very important that gets us to a top 5 player. It gives us a whole bunch of new capabilities. It gives us much more relevance with the broker channel. And of course, financially allowed us to do a number of things like optimize our balance sheet, et cetera. So we're off to a very good start.

I would say when I look at the actual transaction, that went really well. Acquisition costs were lower than expected. Interest costs and financing costs were lower than we had modeled. And we ended up in a stronger capital position. So I think that part of it, the transaction following the due diligence and negotiation went really, really well. Then the integration, I know we're only 1 quarter in, but it's really going quite nicely. It's on track. We see very good broker support. We see the portfolio retention where we would like it to be. And the talent has stayed. I think they like the story that we have and what they're happy to join. So that's all moving quickly.

On our results call, we also shared that we've accelerated the synergy and the synergy capture. So that's encouraging, and the teams are really doing a good job there. So when I step back, I say that's a big objective and a really important part of our strategy. And 1 quarter in, really going quite nicely. And then I think what about the rest of the business? And so this was a very strong quarter for us. I think when you step back and you see big premium growth over 35%, you see us delivering a really a record underwriting result in the first quarter, $100 million in a quarter that typically is somewhat tough through Canadian winters is a good result and good contribution from more lines of business.

That was a core of less than 93%. That's inclusive of the Travelers portfolio that we brought in. And again, I'll remind everybody, that's all pre the synergies. And then I'd say our diversified earnings also look pretty good, strong net investment income, which we believe will be higher through the course of the year and really a strong contribution from our broker distribution platform, 25% operating earnings in that area. So a lot to like about the first quarter. Look, we know we're 1 quarter in. We know there's a lot still to do, and the teams are very busy, very focused, but it's a really nice start to the year.

Before I get started on my questions [Operator Instructions] I'm not going to go to my e-mail too much because it's kind of hard for me to do that while we're running these questions, but I will look over my left shoulder at the Q&A box, and I'll read out your question when I get it. And I encourage you to do it because I quite enjoy seeing other people's perspective as well. Rowan, let me go very short term for a moment.

Sure.

You described the acquired business as a breakeven business. So when I sat down with the model and I was thinking about how to model earnings this quarter and going forward, I kind of locked in the Travelers business. I did a little attrition estimate, locked it in at a 100% combined ratio and just gave you the benefit of the investment income. But the underwriting income came in a lot better. And so I couldn't help but think -- and you can see I kind of mused about it in my report.

It's right there in the [ tunnel ] of my report. It seemed like Travelers was better than breakeven to me. Is -- there's going to come a time when there's no way you can answer this question. The business will be so integrated, there's no way to break down the 2. I know that. But in the very short term, you can kind of give us a window, I think, into how profitable was Travelers on an underwriting basis this quarter.

Yes. No, Mario, I did read your report there. I know that was one of the kind of the key items you referred to. I think that the best way to describe that is, you're right, it -- these numbers are going to blur over the course of the year. But we have some early indications. You step back and you go, well, the first quarter, 92.9%, really strong results. Travelers itself, we have expected it to come in at about a breakeven. And the reality is that we could see from -- there's a little bit of new business that already has merged, but the bulk of the renewals are still isolated is still really around that breakeven level.

And that's not unexpected. I mean this is just the activity they've been doing rolling through. And if you remember, there's a couple of points of drag that we feel it will have. Just simply, you add around 100 combined ratio to our low 90s. It drags us up a couple of points. That's the investment. And that differs by line of business. And so it's closer to 3% or a little over 3% in commercial lines and then about 2% on the auto and about 1% on personal property pre-synergies. So that normalizes.

And that's why I think I'm pretty excited about the first quarter because if you kind of unpack that or let's call it, try to normalize that, I think what that gives you is a Definity portfolio that's operating in the low 90s and doing well all lines of business. I'm particularly pleased with that because I think that when you look at the personal property, which had a very strong quarter, that is some really good underlying performance. And actually, that comes from both of those portfolios. The commercial lines, which the market has been more difficult than in prior years, continues.

The Definitive portfolio is really running very strongly. So there's really no margin deterioration there. So that's really the net of it. We fully expect that the loss ratios and the expense ratios will merge over the next couple of years. And when you step back, really what we've thought is by line of business, it's a little different. The biggest opportunity, let's say that $100 million plus is about -- translates into about 7 points on the Travelers combined ratio. It's mostly expenses. And that's why we are excited we're off to a good start, and we think we can get those -- that benefit.

On the loss ratio side, there will be some improvements. And I think the portfolio that really has the most opportunity is personal auto. So I think we're closer on the loss ratio on commercial and closer on personal property. But that personal auto, there is a gap between the 2 businesses. And that's mostly because we've got the modern Vyne platform. We're able to be more sophisticated, more proactive on pricing over the last couple of years along with underwriting.

And that will take a little time because we've got to first convert it on to our Vyne platform and then earn in. But that's why we said, look, we do believe there's that $100 million or so of expense synergies. But over time, there will also be a bit of a loss ratio improvement as well. So I think really as expected, Definity core business, really running low 90s. Travelers comes in, prince the first quarter around breakeven.

Yes. So let me editorialize for a moment. If Travelers is instrumental in driving that 35% increase in revenue -- now clearly, Definity is a growing company, too. Travelers made a meaningful contribution and Travelers is at 100%. You can't help but believe that the underlying business, the incumbent business had a very strong quarter. Because It must have. And is it -- would it be your view that we should be careful not to read too much into how strong the underlying result was from the incumbent business? Like what made that so special that existing business this quarter?

I think when you look at what our expectations are, I think that the automobile is in that range we would have expected it to be. Travelers is a little higher, Definity in the -- just under the 95% kind of range. And I don't think that there's a dramatic difference in terms of expectation there for the few quarters. What really made it very good was the personal property. That was an exceptional quarter, good underlying and good business.

But I would also then say it's not just personal property because whilst the commercial lines business underlying, we printed a little over 90%, 93% there. If you normalize that [indiscernible] expense impact, that business would also have been running in the low 90s. And I think that gives us good confidence that our portfolio composition in these markets is still able to generate a very strong loss ratio. And that's really unchanged from the last several quarters. So it's giving me confidence that through a number of tactics and portfolio adjustments, we can hold the margin that we had from last year from the underlying...

The reason I'm asking that and sort of drilling down a little more is I don't want to make the mistake myself of reading too much into that and building expectations into Q2 and Q3 that may be unreasonable. We'll see how what the market gives us, but just -- I know for myself, I can make that mistake when I see a quarter that beats me that much. I tend to -- recency bias kind of screws these things up a little bit. Let me be a little bit more long term in our thinking now.

It's 3 years from now, it's maybe 3 or 4 years from now, you're looking back and reflecting on this transaction. You can never measure the success of the transaction with one metric. But what would make you feel like this went really well? Is it a materially higher ROE, a lower combined ratio, satisfied broker channel? There's going to be a bunch of things that's going to make you feel good about this deal 3 to 5 years from now. Help me think about that.

Yes. No, it's a great question, Mario. And I think I go back to the first one would be -- we believe that what we've done since we've become public is we've built a really strong core Definity business. This is a business that can take share, grow much faster than the marketplace and generate combined ratio outperformance. So what would really make us pleased is that the Travelers portfolio post integration migrates to the Definity story. And so that -- what we have is we can have strong financial performance out of Travelers.

So it, too, that portfolio, ends up also running at a low 90s combined ratio. So that's the first one. The financial performance of the Travelers gets to the low 90s. If it does, that along with our other initiatives, gives us a high deal of confidence that we walk our operating ROE up into the mid-teens. So that's that plan. I think the second item to look at would just be around that synergy realization.

And there are 2 elements to that. The one we've really talked to the market about is the cost synergies. That's the $100 million or so of cost synergies. And we fully expect to get that earned in. It's a bit accelerated. It will be completed by the end of '28. There's the technology element. There's the kind of head office corporate costs and there's the efficiency that comes with putting it onto our platform. Some of it comes nice and quickly. The technology takes some time. We've got to complete the cycle. There's just no way around that.

But that, we would love to make sure we can deliver. And then the other item is actually revenue synergies. And we really think that as we look at the positive surprises, there's even more broker support than we anticipated. The retention is even better than we anticipated. We do think that there is the ability to cross-sell and get bigger share of wallet out of our broker channel and partners over time. So obviously, 1 quarter in, the first few quarters are very much about onboarding the talent, getting them to use the systems, getting them to understand our rates, our underwriting rules, our philosophies.

And then that capacity will just keep building each quarter as more and more of their underwriters are trained and come on to our platforms, our systems. And then as we roll into next year, we think there will be a big opportunity for more cross-sell, upsell. So I think that we get more revenue out of that. So that would be the second one. And then the third priority would really be about the talent. I'd love to look at a few years back and say we were successful in retaining the top talent in the business because particularly in claims and commercial lines and pricing, this is a hard to source experienced capability and talent, and we're delighted with some of the expertise that has come over.

And I think if we do that, you go back and you say, well, the Travelers will be operating just like Definity, but now we're going to be a much bigger business. We'll be more relevant to our broker partners. And actually, not only has it been a financially compelling transaction, but it's been a strategically compelling transaction. So those are the 3-year things, the key metrics that I would look at.

And it sounds like 2 to 3 years is reasonable to arrive at that.

It is. I think it is. I mean I think that -- in the early days, there's lots to like about this. The last piece is really just getting all the systems completed. I think that's the final element. But before you do that, it doesn't mean we can't take new products to the marketplace. We actually just launched a couple of new products at the end of the first quarter. It doesn't mean we can't move into a larger addressable market with the talent that we've got. So all of these things don't require a full 3-year integration plan before we start pulling them. We'll be pulling those levers concurrently.

There's a great question that emerged over my left shoulder here on commercial, and I'm going to ask it, but just not right away, just so the person who submitted that, I'm definitely going to get to that because that's an important question. But before we do, just a quick summary here. The large companies that I cover, the really large banks and life insurance companies I cover, and I even put Intact in there as well, are very clear about returning capital to shareholders. Now they are in a different snack bracket to Definity.

I don't think we should be going down that road yet about returning capital in the form of buybacks. I think there's a lot more going on here. So I don't think -- for myself, I'm not expecting you to talk about buybacks anytime soon, and I think most analysts and investors aren't either. But what I will say did surprise me on that call was openly talking about M&A. I did not expect you to go down that road so soon. So maybe just for the benefit of everybody listening in, what did you say on M&A, and I might want to flesh that out a little bit.

Yes. So I think, Mario, on that point, firstly, I would agree with your comments on share buybacks. When I look at our capital, if I just start there for a moment, we're in a very good position. And in fact, we've got more capital than we had anticipated. And part of that is just because of the strong earnings we've had in the last little while, including the $100 million underwriting profit in the first quarter. It also came from the fact we acquired a business with more capital and a really strong balance sheet.

So I think that actually works really well. We've done a few things, like bring Travelers on to our reinsurance program. We brought in their investment portfolio. We really had no equities. So all of that freed up extra capital for us. So yes, we're in a good position. I think that -- you go back to our story and our story is we believe there will be consolidation in the marketplace. We believe we are a good legitimate participant in that. We believe our platforms enable good synergies.

And therefore, we're much more focused on, number one, organically growing the business; number two, moving the dividend up; and number three, more M&A. So the buyback is always the last at this stage of our maturity, let's put it that way. I think we would also say we've shown that we're not undisciplined in terms of active capital management. So it's not like we just sat on capital since we went public. We've built a top 10 broker by deploying about $1 billion into that channel and then the $3.3 billion acquisition of Travelers. So we have a history of deploying it. And we're very much a deployment story than a return story, but we're disciplined.

I think the question you raised about M&A, to me, I think the main message is we don't feel like we're sidelined. We don't feel like we've done -- this is a once-and-done deal. And boy, we've done a nice big transformation and we don't need to do anything else or we can't do anything else. Our objective used to be top 5. Now it's top 3. We think that as we model our organic growth at a rate faster than the industry, we still need $1 billion to $2 billion of acquired revenue to get there. And so that's why we think M&A is still on our cause as part of the strategy of how we achieve that top 5. We sit today with about $1.2 billion of financial capacity pre raising any equity if we needed to. And so that's why I think we're open for M&A.

We're open for bolt-ons for sure. We're open for something more scalable as well. And these things take a bit of time. It's like the reaction with Travelers. When I first was in New York talking to the Travelers, Allan and the team about this, look, this took a while. It was pretty well a year before we actually had a deal. Then you've got to go through regulatory approvals. And so at the pace of our integration and how well it's going, even if we engaged with something very, very soon, there's still multiple quarters before we get to close.

And that's why I believe that we have the capacity to not be on the sideline and to keep looking and being an active participant in a marketplace that we think is more and more likely to consolidate. And what I've said to many people is if you think of our Travelers, I mean, this is a really impressive global organization, huge in the United States, had a nice Canadian business at $1.5 billion.

They felt that was subscale to be a leader and compete well in the Canadian marketplace. And there are many other companies that size or smaller that I think are going to come to the same realization that really scale does matter unless you're really focused on being an agile niche player. Being stuck in the middle is going to be more and more difficult with today, data, scale, technology, supply chain influence, brand, et cetera. And so that's why we're still -- part of our strategy is M&A.

The last point was an important one. The notion that you could start a conversation today, figure out a deal in a year and still get 6 months for approval. It could be a long time. One of the reasons I asked about that is there have been a few transactions in the years I've been covering financials that have gone very poorly. It's not polite to mention them, but I think folks on this line know there have been some really bad ones, less so in the P&C space, but clearly in banking and life insurance.

And when I think about what went wrong on those deals, some of them were just poorly conceived. Other ones, it wasn't a poorly conceived deal, it was just really bad execution. Things just went wrong when they put them together. So when you think about Travelers, this is an awfully important transaction for your company. Help me think through like what could go wrong here from an execution perspective and what you're doing to address those risks.

Yes. The first thing I would say is, look, this is our absolute #1 priority. When we think about our 6,000 employees, what are they focusing on? They are focusing on delivering the core business as usual and the integration of Travelers. This is the #1 item at the Board level. We've got dedicated teams. We've got external support. So without a doubt, Mario, even though we're still open for M&A and keep building and be innovative and all the things we're doing, this, we're really, really dialed into to make sure this is a success. We do start with the position that this is a market we know. This is an in-market transaction. We understand all the regulatory environments and have those relationships. We have all the broker relationships.

And so I think that, number one, dramatically derisks an acquisition like this. But to your point, I think that there are really 3 things that we're focused on that could create some execution risk or integration risk. The first one is about the systems risk. And I mean the reality is what we are doing here is we're extracting and migrating from the Travelers, let's call it, legacy technology onto the Definity modern platforms. So the good news there is that there's a massive uplift in performance and broker engagement, customer engagement, et cetera.

But that's still a lot of work to do where you actually have to move off multiple legacy systems onto our modern systems. That's deep -- we're deep into that phase. And actually, the next couple of quarters are going to be really important for us because that's when the conversion starts and all of these tens of thousands of policies start migrating over. So that is one. Again, we feel very comfortable. We've done something very similar to this. If you go back to before we went public, we had 4 regulated insurance companies. We ended up amalgamated them into 1.

So it was almost like doing an acquisition. Back then, regulatory filings, product changes, broker dislocation, all these management attack actions. But that, for sure, is something we're very, very dialed into the system. I think the other 1 is the people risk and particularly as you get into the specialized lines of business and claims handling. But over here, I actually feel the risk was bigger before close. This is when you do.

When we announced this, there were other competitors that try to attract people, that try to win some portfolios, that try to incent brokers to move the business away and that were really unsuccessful. I think we were very proactive on that. We relied on our broker relationships. We were in the field very quickly. And essentially, we feel that, that risk window has largely passed. The brokers are committed, the portfolios aren't moving. They're staying with us, retention is high and the talent is here.

And I will say that the talent seems to be quite happy with joining a Canadian champion and a Canadian business and -- as opposed to being in the 12th largest company in Canada and really a part of a much bigger business, they're now in the core business that's one of the leaders in Canada. So I think those are the really the 3 risks that we're focused on. And I would say the people risk is really diminishing.

The portfolio risk, the retention risk looks very good. I'll be happier when we get another couple of quarters done. And then the system risk, we're right in that now. And early days looks pretty good. We have monthly and weekly dashboards. But this is an important couple of quarters for us before we actually start renewing the Travelers policies under the Definity platform.

I want to go back -- take you back a year now, maybe a year and a bit. There were questions on your conference call and on other P&C company conference calls on something like this. How is it possible that we've gone through -- I think the number we were using is 5, 6 years of very firm pricing conditions. And the questions were something like every single line is firm. Market's hard in every line and it's been so for years and years.

And no sooner did we, as an analyst community, investment community start asking the question, did that come to an end? And it really started in large case commercial. So help me think through, what was the tipping point? Why did we go from everything is great to large case commercial looks soft? How did that flip?

Well, I think that you have to step back for a moment and say, well, like how do we get to we got to, right? And if you think about it, we had 4 hard years. 4 years of hard market pricing. And in those years, what happens is businesses get rerated, the prices change dramatically. You put loss quality control improvements in the business, terms and conditions favor the underwriters. So you get to a position where actually there is a very good margin in those accounts.

And so they have the ability to give up some of that margin because it's above their technical price, if you would look at it like that. And that's kind of what's happening now. So that is one piece. I think the reinsurance market also changed. It was very hard in '23 and then shifted in '24 and '25. That provided some additional capacity and flexibility for some underwriters. Some rely on reinsurance more than others. And then I think people in that space said, look, I need to defend the portfolios that I've got.

It was a very attractive profit pool. Some new capital came in to target that, and there is capacity to do that. So that's kind of, I think, Mario, what we see happening there. And we've definitely seen in that segment, and it really is just a segment of the commercial marketplace, intensification of competition. Personally, I feel there's still a way to go on that because I think there is still sufficient margin in that segment.

That's sort of a good segue into the next question because you said it was in that very specific large case segment. So the question is, your commercial competition pronounced in large case, but are you seeing any incremental pressure from MGAs backed by foreign capital in the small case market? That's the first part of the question.

No. We really -- we're definitely seeing some buildup of MGAs, and we're seeing it on certain segments. And this is sometimes often more difficult segments like highly protected risk or unprotected risk where there is a bit more of a friction and a challenge in the marketplace in standard. It's not the standard business. So yes, there is more competition. It's not in the small commercial space. The small commercial space is an interesting one. But really to participate in that space, it's very technology-based. It's very similar to personal lines.

You have to have this automated underwriting system. It's a flow business. This is small premiums, a lot of unit count as opposed to the big business, which is a few policy counts, big premium. You have to have a big claims team to handle the frequency of losses and you've got to have broad distribution. And if you think about where that large commercial space is and where the competition is, most of the -- or many of the players, particularly the international players, they really just play in that space because they haven't got big Canadian footprints.

They don't have supply chain networks. They don't have broad-based claims. They certainly don't even have broad distribution. The distribution is highly concentrated on the big national brokers, the top 10 to 15 brokers. So it's not that they couldn't, over time, go to small commercial. It's just not something you can do quickly. It's a multiyear investment to do that. And I think a good proof point, what we shared on the call is that in our small commercial in Q1, we're still getting upper single-digit rate increases.

It's important. I think sort of the follow-up question from this individual was along the lines of are there parts of the commercial segment that Definity will shy away from in this period of increased competition? Do you actually pull back from the large case market? I mean I know it's not the biggest part of your business. Am I right in suggesting it's 1/3 of commercial? [indiscernible] move away from it?

We believe it's about 1/3 of the industry. But from us, we're less than 20% of our portfolio. So we're definitely underweighting it. And the answer is yes. I mean I think if you think about our underlying growth trend, underlying growth trend has slowed. And partly it slowed because you don't have as much rate going through the system across as you used to because inflation has become lower. But what we are doing is we're seeing a mix of business shift.

And where we're really growing and winning is in the specialty and in the small commercial. And so when I look at the unit count growth, we're taking share in small commercial and we're taking share in specialty. That unit count is growing. It's not growing in the large commercial. And in fact, we're actually reducing our unit count in the large commercial. That is because we're not finding as much new business activity that meets our standards and price points. The deviation required is too much. So our new business writings have been down. And we have been disciplined, including walking away from some, we think, underpriced accounts.

So that's a bit of the reaction. So I think as you get deeper into that cycle of that large commercial, it does change our mix a little bit. We will have a lower proportion of that large account. Let's call it a little under 20%. I don't know exactly where that will go, but it will be a few points lower as the mix shifts. And that's one way we can hold the margin. And so I think that's what we can say to the market, look, we can still grow in commercial. There's good underlying growth and we're not seeing margin deterioration. And that is because we're shifting the mix of business.

That's it. Let's assume for a moment that, that 20% declines in 19%, 18%, 17%. While it's declining, as that mix shift is happening, your top line is not going to look great, as good in commercial. The underlying profitability might just be fine. Like underwriting might be great. So you're going to have to keep us on our toes there because guys like me are going to write top line is not growing in commercial. You're going to have to remind us that it's the mix and the underwriting is fine. Am I right in suggesting that?

No, you are. I think you're right. And I think when I look at it, what I'm mostly focused on in commercial, #1, the Travelers portfolio, are we retaining it? So we dialed into that and it looks pretty good. It's actually been getting better month by month. So that's my #1 focus is that happening. My #2 focus is our organic growth still high quality, margin contributing, and it will be lower than it has before. I think it's going to be mid-single digit. It was upper single digits and above that in previous times. One, we're bigger; but two, the market is a little different and I'm totally fine with that.

I think that's what we should really be expecting. And I step back and I say, well, you know what? In this environment in commercial, which has got a bit more difficult than it was a couple of years ago, the best thing we can do is we've just acquired a $1.5 billion block of, let's call it, new business. That's the Travelers. And that is the best way we can add value, is by focusing on retaining that, optimizing that with hands down as opposed to competing in the open market file by file to win unit count growth. So that is really the priority. That being said, the Definity story is still resonating.

There will be organic growth, but it won't be at the same pace. The underlying growth rate won't be at the same pace as it has been in commercial lines for the past few years. And that's -- we're totally fine with that. And as the cycle matures and we find the middle market or -- not the middle, sorry, the large commercial normalizes, and then we've got all the capabilities and all the products to cross-sell in that and grow back into that. So I think that will then get us back into upper single-digit growth when the market is ready for us.

And that's an evolution from the company that I met 4.5 years ago because the company I met 4.5 years ago in your offering memorandum talks about really strong growth in commercial, which you delivered prior to the Travelers deal. So you're trying to massage us into the next stage of Definity now, where commercial doesn't grow at 12%.

I think that's right. I think it depends on the game in the market and what the cycle is, where the opportunities are. But the reality for us, what we're mostly focused on is that margin. We want to run this in the low 90s. And so we will protect that. And if it means that we slow the organic underlying growth to mid-single digit for a period of time, we're totally fine with that. That's the right thing to do. I still think with these new capabilities, once you roll another year or 18 months down the line, there'll be more opportunities and we'll probably go back up into stronger growth. But for the next 18 months, I'm mostly focused on retaining the Travelers business and mid-single-digit growth in commercial lines and holding that margin.

Before I move on to some of the other segments, I do want to touch on one thing. The extent to which the next big -- and let's call it organic move for Definity could be into the specialty space. I mean I know you're a specialty player. Does Travelers give you some capabilities to push a little further into specialty?

It absolutely does. And I think that was one of the things we liked about their business is they were more advanced than we were. They had more intellectual property. They had more products. They had a strong reputation in that large commercial specialty lines. And whilst we did specialty, their appetite and their capabilities are broader. And so if you take something like D&O, we might have done D&O, but mostly nonprofit D&O and they'll be doing larger for-profit D&O. So we're really rounding out that appetite. There are new things like Ocean Marine, we didn't do. Technology, we didn't do things like that. We've got a much better cross-border facility capability now than we had. So that really helps us quite a bit.

And again, #1 priority, let's onboard that, let's get that on to our kind of platforms and then let's start kind of cross-selling. And I think the cross-selling is a nice opportunity because many of our existing customers buy that product from somebody else. We have the relationship with the customer. We have the relationship with the broker. And so that should, as we go forward, produce really nice, strong growth for us in that specialty line. And I think -- because it looks like the integration is doing so well, we really thought about that as a 2027 initiative, but it's likely we'll pull that forward a bit.

Okay. I want to flip over to the next segment, auto. I got the impression from the call, and I think I got this right, and help me flesh that a little bit, that auto would decline as a proportion of Definity over time. It would not be the growth story for Definity. Help me understand why you said that on the call.

Well, I think what we say, look, the big strategy has been -- we've always wanted to grow the other parts, personal property and commercial lines at a rate faster than auto. That's going to vary by market conditions. And we've had a period of time of really good growth in auto. We've had really good rates in auto. So we're happy to take that. But the long-term plan is to have a more balanced portfolio. If you go back many years or several years, we had over half our business in personal auto, and it's now down to, let's call it, closer to the 40% range.

Would we like that to become a little lower? Yes, over time. But really, the big driver of that is actually going to be M&A because it's hard to move that. Personal auto always has a mid-single-digit loss cost trend, and therefore, you typically cover that with weight. So it's a portfolio that just keeps -- does keep growing, at least in revenue, if not in unit count growth. The other item is Sonet, which is coming on stream. That's going to get better over the next couple of years from a growth contribution aspect. So it's not that easy to kind of limit the size of auto, but it's -- what moves the needle is mostly M&A.

And I think if you look at something like Travelers, commercial lines was 30% of our business. And I think by the time we end, it's going to be 33% of our business now, right, so 1/3. So we are trying to shift a bit in that direction. And it's not that we don't like auto. It's just simply that there is generally a regulatory cap. It's hard to do on a sustainable basis, much better than the 95% on auto. And on the other lines like commercial and personal property, we know we can do much better than that.

So let's talk about the auto environment. It remains reasonably firm. I don't see any real risk to that in the near term. How do you feel about auto?

No, totally the same as you. I think that we see inflation is stable here. In fact, it's come down because you had that theft issue a couple of years ago. The theft issue seems to have solved itself. And so that's actually reducing some short-term trend in the loss ratio. So it's stable. Look, there's still some uncertainty. There's geopolitical events going on that are impacting energy prices. We've got to see exactly where we land on tariffs. And that may change the trend. We're not convinced that it will. We haven't seen any of that flow through yet. So it's been absorbed in the supply chain. So that's a good part.

But I do think that overall, the industry will respond to that. And I think you've seen that over the last couple of years. Should there be a tick up in inflation, the industry will respond. Most of the players are still closer to 100% combined ratio they need, therefore, rate. And actually, we've seen a little bit of a slowdown in rate taking recently. And I think there are 2 reasons for that. The first reason would be that big rate was taken last year, like double-digit rate as people try to catch up with trend. That's earning in.

The other issue is that most of the smaller players don't have the capacity to do multiple rate filings as well as reform filings. And if you remember, we're all programming our systems for Ontario midyear and Alberta start of next year. That's a massive technology undertaking and many people just can't do both. And so I think what you're seeing and what companies like us, like ourselves are doing is we feel we're rate adequate. We like our rate position. But what we are doing is segmentation filings. And the segmentation filing, if you do it right, is as efficient as any significant rate filing.

Remind us, you referred to the midyear change. Is it July when folks like me, an Ontario driver will be able to skinny up my policy if I choose to? Maybe just remind everybody what's coming down the pipe there.

Yes. In Ontario, it's mostly around more choice, and you will have some choice. And I think that this isn't -- firstly, we don't anticipate most people like to reduce coverage. But for some people, you may, you have that choice to do. The renewals will go out with the full coverage. But if you want to opt out of them, you could do so. And that's why we don't think that the take-up will be up. If it does, it's probably less than $100 savings, so they're not that material. And even if your policy -- let's say, average policy $1,500 to $2,000, if you get $100 for the segment that chooses it, there's a commensurate reduction in trend or coverage of loss costs. So we think this is good for a portion of the Ontario population.

Choice is always good, but we're not actually anticipating a material top or bottom line impact from that. The Alberta ones that come next year are much more significant. There is a bodily injury trend in Alberta that has been growing significantly. That's why the system is effectively moving to a no-fault system that will reduce those bodily injury costs, the legal costs, and that really does actually take cost out of the system. So those reforms are actually much more meaningful, I think, in terms of impacting the combined ratios.

Yes, I had a conversation with the broker about the Ontario reforms, and it's almost not worth the effort. I'm almost surprised how much attention it got when it -- at least for a driver like me, I don't think I'm going to go through the effort for $75 savings, which is what it worked out to.

The brokers that we discuss with, and of course, we have one we own, they're not anticipating a big take-up. And in prior reforms, we've had these type of choices. People are quite reluctant to take choice away. What you might find it is on some of the new business because new accounts may say, I'm looking for a slightly lower price, and this would be the one. So that's a big communication focus for us.

Let's flip over to property for a moment. As you described, like a really, really good property quarter. Is it as simple as just the weather cooperated, as simple as cats being low? What made property so good? It wasn't unique to Definity, it was just -- it was a great property quarter.

Yes, it's an interesting one. But I think that a couple of things happened. Number one, yes, year-on-year, the cats were lower, the major cats, weather cats were lower. But that's because we think last year was actually an unusual year. It was very elevated last year. So when we look at what our modeled expectations for weather losses are in Q1, it was a little better, but not dramatically better than what we expected. So it did help us, but it wasn't the only or the main driver of the quarter. I think a lot of it from our perspective has been the work we've done over the last couple of years where we have put new products in place.

We've got the segmentation right. We've derisked the higher cat zone areas. And there has been a lot of value escalation in indexation as well as rate changes in -- through our product, but in the industry as well. And so that doesn't surprise me that there was a pretty solid quarter. If you just step back what we expect on personal property, we expect a reasonable first quarter. We have cat exposure in Q2 and Q3, and then we typically have a very strong fourth quarter. So we really need to make our money in Q1 and Q4 because there is the cats to fund in the middle 2 quarters.

And then taking personal lines together, auto and property, both seem pretty solid right now. Do you see any meaningful risk that we could go into a soft market the way we did in large case commercial? I know they're very different markets. Personal lines are very different from what we're talking about large case. Do you see meaningful risk in the next 12 months, you could be having that conversation?

We do not see that. We really don't. And I think we look around what's happening in the world. We see what's happening in the U.S. We're very different. The regulation, we didn't get the rates nearly as high as some of the other markets have done. We didn't print 80s and 70 combined ratios. There just isn't the room to do it. And I think the relationship with the regulators is about stability, so that's highly unlikely.

I follow you entirely on that. The uncomfortable thing is during U.S. reporting season, when Progressive, Allstate and others are reporting some like return of premium in the case of Florida, I look -- again, I look over my left shoulder and I look at the post screen, and I see stocks going down, that doesn't apply to you. So I appreciate your comments. The market sometimes makes connections that aren't there, so I think it's just an important point for you to make on your calls that there is a difference there, but...

We do -- I mean, individual investor calls, we often have that and we get that kind of question, the read across to the U.S. And as we've said in many things, it is a different market in Canada, and I don't think it's as simple as just a read across. And I think that's a very good example as is the small commercial one where we have a structurally different market in Canada. So no, we absolutely are not anticipating that. And look, Mario, we've got so many forward-looking indicators. We're tracking the market. We're looking at trends. We're really not seeing anything that concerns us.

For someone like me that sits and looks at the entire financial service industry in Canada because I cover the unique place of covering the banks, lifecos and the P&C. For anyone listening and paying attention at home, the read-through from U.S. banks to Canadian banks is pretty strong. It's mild on the life insurance space, and it's almost nonexistent in the P&C space. And this is after a lot of years of watching U.S. institutions and how they feed into Canada. It just doesn't flow well. I don't gain anything from looking at Allstate's auto exposure, to read anything into [indiscernible]

I just wanted to offer that for those listening at home. It works in the banking space. It works mildly in life insurance. It does not work in P&C world. So I just wanted to offer that. Let me go into sort of a different direction now. So now you've got this big business. We're a few years removed. What do you think Definity feels like in 5 years? And I'm thinking of it from a mix of business perspective. Is this a big commercial player with like a growing specialty line, a really big property business? And you addressed this a little bit when we talk about auto. But is that what this feels like over the next 5 years? Because the growth -- it seems like we're headed there, a big commercial player with smaller personal lines.

Yes. Again, it goes back to where the opportunities are. Number one is I think we go back and we put a -- we had a 10-year plan. We're into year 2 of it now with our Board where we tripled the company, and that's all looking pretty good. That does mean everything is moving forward. Personal is going up, commercial is going up, distribution is going up. So that's the way we see it. I do think the point about we are likely to see more M&A opportunities come from the commercial line side. There's more opportunity that I think is going to capitulate over the next couple of years.

And so that's exciting for us, and I think we could play that. I think the other thing that we're seeing is really in the broker world, a condensation like a concentration of markets. And so our share of wallet is going up. And even in personal lines, the organic growth is big. We keep winning portfolios. In fact, even though we're doing Travelers today, which is a huge portfolio we're bringing on, we're still winning portfolios, which is part of our normal course of business where brokers are saying, look, I can't do what I used to do.

I can't deal with a dozen or 15 insurers. I've got to have integrated platforms. I've got to have the modern technology. And of course, table stakes is great claims and a competitive product and price. And so that's coming. So I think all of those grow, but I do think we are well on the way to triple the company. And I think that there's lots of space in Canada. We still -- what is it 7% or 7.5% market share. Until we kind of double that, we've got lots of focus. We don't need to take our focus off the Canadian marketplace. And I do think the commercial element will be one of the stronger growth players in that area.

I think the other one for us, too, we still like our broker distribution. That generates now, what is it, a little over $100 million or so of earnings a year. It was $95 million last year, growing 20%, good first quarter. There's still bolt-on programmatic acquisitions there. So that continues to come. And then I think the other issue is clearly, I think one of the earlier points you made, when we brought on Travelers, we brought in a big investment portfolio.

And that, again, has moved our investment income up 60% in the first quarter. So lots of sources of growth for us. But I would look at the company, and I would say we'd love to be a top 3 player. We'd love to be bigger in commercial today. And I think that the specialty capabilities that have come with Travelers has advanced our ambitions by 5 years. And I think that's what's partly exciting with that transaction.

You mentioned brokers, and this is sort of a related question that popped up a moment ago, and it was about the broker channel and made sense, which the broker channel could be harmed by AI or disintermediated away. What are the brokers saying -- when you meet with brokers and you talk about doing a deal with a broker, are they selling because they see the writing on the wall? And what are they saying about AI and how it affects their business?

Yes. If you speak to a lot of brokers, they don't say that. And I think that we just went through our quarterly business review with our own broker, and we ask the same stories and looking for the evidence. And interesting, one of the conversations was, well, the day before 1 of the farmers walked in with a couple of thousand dollars and $100 bills and paid his premium, he's not buying insurance through ChatGPT.

So this is still a small town in Canada. That being said, look, I think that our view is -- the reason for broker selling is actually not about the fear of AI. I think it's more about demographics and size and scale that's required. So we've seen concentration in the broker force actually outpaced concentration in the underwriters. And with that comes size of sophistication and scale. This is a big opportunity. And I think when we look at AI, certainly to talk forever about what it does for Definity and we're leaders in it.

So we've been doing this for well over a decade. It's pervasive across our business. But in the broker side, it's the same thing. There's a lot of friction. There's a lot of paperwork. There's a lot of admin. All of that's getting automated. AI tools being deployed into that channel. The leaders are actually getting more margin, not less margin out of it. Will there be disruption? I think the view from our side would be certainly not on the complex commercial side. It's more on the discovery side of personal lines. So where it's more commoditized, there has to be some element of disruption there.

We think it's manageable. What AI can do today is not that much, but we have to extrapolate what it could do in a number of years. But it fulfills a function on the discovery very much like what aggregators do and aggregators have only a meaningful impact on the marketplace. Most customers -- 40% of people today are still linking to a broker for that advice and service.

This is the most important asset a home, individuals own, et cetera. So our view is there will be some disruption. But overall, this is an enhancement, I think, in terms of the capabilities deployed through the broker channel. So we're not really worried about that. What it might do is actually accelerate some of the pipeline. And if it does accelerate the pipeline, I think that's an excellent position if you are a big consolidator.

I'm going to shut this down at 52. So there's a minute left. I'm going to give you a number and I'm going to ask you for an over under on this number. Are you over or you under this number in 3 years, and it's for your ROE. This is the game I'm playing on my own here. The over under number is 14% ROE in 3 years. What side of that bet would you take, the over or the under? And I'm not holding you to it. This is what you think.

Phil is going to kill me for kind of getting drawn on that. Look, I think, Mario, on that one, what I would say is you can see where our ROE is today. That's been helped a bit by 4 quarters of decent kind of weather. So we're probably halfway in our target of 10% to below teens. We have another 0.5 points of expense ratio improvement coming through. Over the next 2 years, we've got another point of claims ratio coming through.

And if we do the job we said we would do and we expect to do on the Travelers side and get that 200-plus basis points, then we're going to be a little higher than your number. Now that there's a lot of things that could move that. We're in a cat business. The cat could easily move that 1.5 points each way. But we have a high degree of confidence that these organic levers were actually at or better than we said we would do.

And from what we could see today, Travelers looks to be an outstanding acquisition for us. So there's still work to be done, and it's not an easy environment, and these are complicated things to be -- to do. But assuming we do the things we think we can do, I mean, we've been very confident that we can get into that mid-teens. And so I think that's certainly our target.

I'll take the over then. I know you can't say. I'll take the over on that. Rowan, thank you very much for doing this, and...

You're welcome.

For all of us that joined us, and good luck on the integration. Thank you, Rowan.

Thanks so much, Mario. Much appreciate it. Thank you.

Have a good afternoon.

Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation First Quarter of 2026 Financial Results Conference Call and Webcast. [Operator Instructions] This call is being recorded on Friday, May 8, 2026, and I would now like to turn the conference over to Dennis Westfall, VP of Investor Relations. Please go ahead.

Thank you, and good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at definity.com under the Investors tab.

As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call.

Joining me on the call today are Rowan Saunders, President and CEO; Philip Mather; Chief Financial Officer; Fabian Richenberger, Chief Operating Officer; Paul MacDonald, EVP of Personal Insurance and digital channels; and Obaid Rahman, EVP of Commercial Insurance.

We'll start with formal remarks from Rowan and Phil followed by a Q&A session during which Fabi, Paul and Obaid will also be available to answer your questions. With that, I will ask Rowan to begin his remarks.

Thanks, Dennis, and good morning, everyone. This quarter marks a pivotal moment for our company as these are the first results to reflect our new position as a top 5 P&C insurer in Canada, following the closing of the transformative travelers transaction on January 2.

The transaction accelerates our ambition to build a Canadian champion in several ways. Beyond advancing our leadership position, the combination adds significant scale to our operations, diversifies our product mix into attractive new segments and substantially deepens our broker relationships across the country.

Just as importantly, it enhances our talent and capabilities by bringing the deep expertise of the new team members into our organization. And we've been very pleased to see strong retention of key talent since the transaction was announced. In short, this acquisition has created a more powerful and resilient business and our strong first quarter results are the first evidence of that enhanced potential. The integration is moving at a remarkable pace, as you can see on Slide 5.

To provide a tangible example, we have already harmonized the new business intake channels from our combined broker network, meaning that as of February, all new business is being written as a single unified Definity offering.

Building on that success, the process of converting existing policies began in April. This rapid progress is a testament to our disciplined playbook and the incredible work of our dedicated integration teams. This early success reinforces the powerful strategic rationale of the deal and is most evident in our synergy plan. We have already achieved an annual run rate of $36 million in expense synergies by quarter end, putting us in an excellent position to deliver on our 3-year $100 million target.

Given this momentum, we now expect approximately 1/3 of this target to earn into underwriting income in the first 12 months alone, a significant acceleration of our plan. These are tangible cost savings already been realized.

This synergy plan is a key component of a larger story about value creation. The acquisition solidifies our pathway to a sustainable mid-teen operating ROE, a target we intend to achieve through two distinct but complementary set of drivers, which you can see illustrated on Slide 6.

First is the continued execution of our organic improvement plan. You can see the progress we've made on our three organic levers. We have already achieved a breakeven level of performance from Sonnet, are on track to deliver our targeted operating expense enhancement by year-end. And are well positioned to achieve at least another point of benefit from our claims transformation by the end of 2027. This organic engine remains a fundamental part of our strategy.

Second, the Travelers transaction acts as a powerful accelerator adding at least another 200 basis points of ROE improvements on top of our organic plan. This comes from 3 primary inorganic levers. One, the direct impact of the $100 million in expense synergies I've just discussed. Two, the step change in net investment income from a much larger asset base. And three, the benefit of creating a more efficient balance sheet by deploying excess capital and introducing leverage.

So when you put it all together, the path forward is clear. The combination of our demonstrated organic improvement plan with the powerful financial levers unlocked by the Travelers transaction, gives us a high degree of confidence in our ability to deliver a sustainable mid-teen operating ROE post integration.

Turning to our performance in the first quarter on Slide 7. We delivered strong results across the board. From a top line perspective, gross written premiums grew by over 35%, a solid start towards our full year guidance of $6.5 billion.

Our overall profitability was a standout this quarter. We delivered a strong consolidated combined ratio of 92.9% and for the first time in our history, generated over $100 million in underwriting income in our first quarter.

Achieving this level of profitability while integrating a business of this scale is a testament to the strong underlying performance across our portfolios and the discipline of our teams. Our diversified earnings power was also on full display this quarter.

Our national broker platform, a key strategic pillar for us showed excellent momentum with operating income growing by nearly 25% year-over-year. This powerful distribution engine combined with our strong underwriting results and a more than 60% increase in net investment income produced operating EPS of $0.97 and an operating ROE of 13%. This clearly demonstrates the value and resilience of our diversified business model.

Turning to the industry outlook on Slide 8. We expect overall conditions in personal auto to remain firm as insurers aim to pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of macroeconomic factors. We also expect market conditions to remain firm in personal property over the next 12 months, as the industry continues to remain diligent, taking underwriting and pricing actions required to fund weather loss events amid heightened climate risk.

In Commercial Insurance, while we expect overall commercial lines market conditions to remain attractive, we have seen competition intensify in the large account space. We continue to expect overall industry growth to be in the low to mid-single digits over the next 12 months, varying by segment.

Against this backdrop, our sophisticated pricing models, modern technology platforms and disciplined underwriting give us a distinct advantage. We are confident in our ability to navigate these industry trends effectively select the right risks and price our products appropriately to deliver sustained profitable growth.

In summary, this was an important quarter for Definity. We successfully closed a transformational acquisition or demonstrating strong early progress on integration and synergy capture and have delivered robust operating results in a dynamic market. We are confident that we are building a formidable leader in the Canadian market, one that delivers sustained value for our customers, our brokers and our shareholders. With that, I'll turn the call over to our CFO, Phil Mather to discuss the results in more detail.

Thanks, Rowan. As already mentioned, the diversified earnings power of our combined business was evident with strong performance from all our profit drivers. Slide 10 illustrates that our consolidated gross written premiums grew by an impressive 35.4% to $1.4 billion, driven primarily by the successful onboarding and strong retention of the acquired business, complemented by continued solid organic growth. This growth translated into a 41% increase in net underwriting revenue.

Our consolidated underwriting income was a record for the first quarter at $100.1 million, resulting in a combined ratio of 92.9%. This represents a 1.6 point improvement from a year ago, a particularly strong result given the inclusion of the acquired business and demonstrates the strength of our underlying portfolio as we absorbed the initial impact of the acquisition ahead of realizing plan synergies.

I will now provide some more detail on our lines of business, starting with personal auto on Slide 11. Grocery and premiums grew by over 35% in the first quarter of 2026, due primarily to the acquired premiums and continued rate achievement. I'll point out that the contribution from the acquired business varies significantly by quarter, demonstrating the highest growth in Q1.

For the full year, we anticipate growth to be in the low 30s for personal auto. The combined ratio of 97.5% was consistent with the year ago as we absorbed the temporary and expected impact of the acquired business prior to realizing synergy benefits.

In Personal Property on Slide 12, we delivered top line growth of 37.3%, again driven by the acquired premiums and continued rate achievement. On like personal auto, we expect a more consistent quarterly rate of growth in property throughout 2026.

We delivered a robust first quarter combined ratio of 85% and a significant improvement of 9.1 points from the prior year. The improvement in the combined ratio was driven by a decrease in catastrophe losses, which were largely in line with expectations in the first quarter of 2026. And compared to elevated levels in the first quarter of 2025 and the decrease in the car accident year claims ratio.

Turning to Slide 13 in Commercial Insurance, Top line growth was 34% from a year ago, bolstered by the acquired premiums as well as pricing increases and ongoing market share gains in small business and specialty lines. As the integration progresses, we anticipate an increasing pace of growth in Commercial lines gross written premiums in subsequent quarters and maintain our expectation for it to represent approximately 1/3 of of overall company premiums in 2026.

A combined ratio of 93.9%, which increased as expected, reflects the solid profitability of this business. This resulted from the inclusion of the acquired business and its associated expenses, which we expect will temporarily increase the core claims and expense ratios prior to the benefits of future planned synergies.

Looking forward, this acquisition meaningfully expands our growth potential in this business, as you can see on Slide 14. The addition of specialized talent and deep expertise unlock segments where we previously have limited or no presence.

For example, adding capabilities in areas like professional liability, Ocean Marine and Cyber expands our total addressable market in commercial lines from $27 billion to approximately $34 billion. This nearly $7 billion increase in market opportunity gives us a significant new runway to profitably grow our commercial business in the years ahead.

Turning to Slide 15. Net investment income grew over 60% to $79.9 million. This was driven primarily by the larger asset base from the acquisition, in addition to our proactive repositioning as fixed income yields increased. Given this strong performance and our view of the current yield environment, we now expect our net investment income for the full year 2026 will be approximately $320 million.

Our broker distribution platform operating income grew by nearly 25% and driven by strong policy growth and favorable contingent profit commissions earned on a high-quality portfolio.

As indicated last quarter, commission income grew as a proportion of overall broker operating income now reflecting our ownership of the acquired business. For the full year, we maintain our guidance for growth of approximately 20% in broker operating income.

The combined performance of our underwriting, investment and distribution operations generated operating net income of $118.1 million or $0.97 per share representing a 55% increase from a year ago. Our trailing 12-month operating ROE also increased to 13%.

Now turning to some early wins on the Travelers transaction, which illustrate the disciplined financial execution we brought to the acquisition. I'll point you to Slide 16 for the details.

Across the board, the execution and financing have exceeded our initial modeling. First, the transaction itself was more efficient than planned. Reinsurance renewal outcomes were materially better than expected, and overall acquisition costs are tracking approximately 10% below our expectations.

Second, our financing outcomes were highly favorable. Interest rates on our new debt were 40 basis points lower than modeled. Furthermore, by repaying a term loan 5 months earlier than expected, we saved approximately $15 million in future interest expense. The discipline continues with our synergy plan on Slide 17.

While Rowan mentioned our strong start, this slide provides a transparent look at both our progress and the associated costs. On the left, you can see we're at a $36 million run rate for synergies with $6 million realized in our Q1 underwriting results.

While these initial savings are largely from the elimination of U.S. parent company service charges and proactive attrition management, the next phase of synergies will be driven by technology platform consolidation and operational efficiencies as the integration progresses.

Just as importantly, the right side shows the cost to achieve these savings. To date, we have incurred approximately $93 million in acquisition costs and recorded $44 million of integration-specific expenses, keeping us firmly on track with our total estimate.

The benefits of this disciplined execution are also clearly visible on our balance sheet, as shown on Slide 18. Our debt-to-capital ratio is already down to 26.8%, and approaching our long-term target of 25%, well ahead of our 24-month guidance. Even after funding this major acquisition, our total financial capacity remains robust at more than $1.1 billion, putting us in an enviable position to fund future organic growth and deliver on our capital priorities. This disciplined execution underpins our financial strength, and the strong results we've reported today. With that, I will turn the call back over to Rowan.

Thanks, Paul. To conclude, this quarter represents a launch point for the new Definity. We have successfully closed a transformational acquisition by demonstrating strong early progress on integration and synergy capture and have delivered robust operating results.

This performance validates our strategy and highlights the durable value of our diversified business model. With strong contributions from underwriting, distribution and investments, we are confident that our modern platform and clear growth strategy have us well positioned to continue building a Canadian champion.

As we pursue our updated goal of becoming a top 3 P&C insurer, we remain focused on disciplined execution, technology and analytics, broker partnerships and broad-based growth.

Finally, I want to touch briefly on our commitment to innovation. As we announced in March, we are expanding our strategic relationship with Google Cloud by deploying Gemini Enterprise for all Definity employees, making us one of the first Canadian companies to adopt it company-wide. This is a key step in our journey to grow our digital and AI advantage. Our approach is about more than just technology. It's about empowering our employees to unlock innovation, foster creativity and boost productivity. By embedding these intelligent tools directly into our daily workflows we are reshaping how we work to drive efficiency and deliver exceptional experiences for our brokers and customers. This initiative builds on more than a decade of experience leveraging AI, and we are confident it will further strengthen our operational resilience and cement our position as one of Canada's leading and most innovative P&C insurance. With that, I'll turn the call back over to Dennis to begin the Q&A session.

Thanks, Rowan. With that, we are now ready to take questions.

[Operator Instructions] First question comes from John Aiken with Jefferies.

Phil, in terms of the change in the balance sheet completely understand how you're driving down the leverage ratio. But can you talk about the mechanics of the MCT ratio that drove the increase in the quarter? Granted. I found a little bit surprising, but I'm sure there's something that I missed in the calculations.

Yes. Thanks, John. So you do see that the MCT ratio is higher than we'd normally operate in Q1, and that was really borne out of some kind of prudence on the way into the acquisition. So a couple of things happened there.

First thing is the overall balance generally speaking, for the company was in a strong position. So what we acquired an additional asset base attached to it, and that additional asset base rolls into the kind of consolidated MCT position. So that was -- if you look at the consolidated goodwill, there's about $100 million, though of additional kind of value that we have acquired through that transition piece, and goodwill and intangibles, you don't get any capital credit for that.

So that plays through the. I think the other thing I would say, which were more on the kind of prudent positioning side. The reinsurance structure we acquired we changed that on the renewal. So we actually took that acquired business to our risk appetite. In doing so, that created some additional comfort and protection against insurance risk. So that contributes close to $100 million of effective management. Essentially, we're buying a risk appetite level that's commensurate with our overall organization, and that provides some support.

And the last key element I'd reference would be the overall mix within the investment portfolio. What we acquired was a very fixed income, high-quality dominated portfolio, and we pretty much left that the same. So when you put those two together, effectively, that dials back your insurance risk and create some additional excess capital out of the transaction.

I'd say in summary, what we've done, as you know, we've recognized that we've increased the overall level of the insurance activity. We've increased some operational risk as we go through this transition. So we've dialed that back with some additional reinsurance protection to our appetite and we've taken the insurance risk component back a little bit as well.

The final thing I'd say is we will go in through the first quarter. So we wanted to prudently position the company as we go through that transition. So we've admittedly left a little bit more capital down in the insurance operations just as we navigate through that initial first couple of quarters of integration.

Next question comes from Brian Meredith with UBS.

A couple of questions here for you. First one, I'm just curious, on the $100 million of expense synergies, since they're coming through faster than expected, do you think there's upside to that number?

Well, Brian, I think the point we would make there is we're very, very pleased with the first start. I mean, remember, we're just 90 days into this integration. But the reality is we did guide that we would be earning it faster than originally thought. If you think about we've said that it's $36 million of triggered synergies, and we think that will be earned 1/3 of the total into the first year. So that's a bit of an acceleration.

But I think as we look at the initial stages here, we feel very confident about the ability to deliver at least $100 million. And I'm delighted with the accelerated time line that the team has been able to kind of achieve. So we're not reforecasting that at this stage, but I would say that our confidence level is extremely high.

Great. That's helpful. And I'm just wondering, is it possible to get a sense of what, call it, the run rate kind of combined ratio -- underlying combined ratio was in commercial and personal, if you strip out Travelers, I'm just trying to get a perspective that as things get implemented here, kind of what the true kind of margin is for the business.

I think the way to look at that is that firstly, we're very happy with the performance of the quarter, right? That 92.9% is a very strong result a quarter that typically has a little bit more challenge to it.

Overall, when you take the two businesses, and we have kind of guided that travelers would really move the combined ratio up by about 2 points on aggregate. That's going to move a little differently by line of business. And so we think that in commercial lines. There's more of a 3 points impact there. In personal auto, it's more like 2, and it's about 1 point in personal property. So I'll give you a bit more of a sense of the early implications of that. And of course, that is all pre synergies that we are very confident we could execute over the next couple of years.

That's really helpful. And then last quick question here. Is it possible to get a sense of what the, call it, organic growth rate was in the quarter? Is it possible for you all to kind of give us those numbers here for the next couple of quarters, so we understand what the underlying business is doing.

Yes, we'll do that. I'll ask Phil to kind of give you a bit of color on that because it does vary a little bit by line of business. I mean I think the macro point would be -- what was really important for us here in our first quarter of this integration was to secure the business and then keep the core business running along at the performance level than it was. I must say we're delighted we can do that.

So we'll give you the detail. But I think the main message is the retention the Travelers business has been very strong. And that is actually each of the three lines of business. That's really important. As you know, that's what we've acquired. We wanted to make sure we can keep it. We want evidence because the customers like the proposition. So that's a good story. And then I think the other item is that there still is good organic growth overall through our business. So -- but maybe Phil, it's worthwhile you unpacking that a bit.

Yes. Thanks, Rowan. So firstly, if you just look at the total growth in the first quarter of 35.4% to $1.4 billion overall. First comment I'd make is obviously, that's off to a very solid start, opposite our $6.5 billion target that we're aiming for, for 2026. We'd say about 80% of that growth is coming through the acquired business in the first quarter.

Now attribution to that gets less simple as time goes on, because with the pace of integration, we've already unified the new business offering. So trying to split that between the acquired operations. versus the underlying run rate activity the company gets more complex as you go.

And that said, if you take the 35.4% and you just simply isolate out the impact of the retained premiums that we acquired through the deal. The slip for that is just over 27% is coming from the retention of the acquired premiums in the quarter and just over 8% is coming from the underlying organic growth of the business, combined with the Travelers kind of new business contribution in that quarter.

And for context, that 27% retention of the acquired business, that's running at about an 82% retention rate for that block of business. That's already within just a couple of points of our company-wide retention rate. So as Rowan said, that's already positioned us in a very good place for the continuation of that acquired block of business.

If you go into a line of business basis, I'll just do the same split. On personal auto, about 26% is coming from the retention of that newly acquired block and about 9% is coming from the underlying growth of the business. and in tables new business contribution. That retention is about 79% on the acquired book. which is very, very close to about 80% that we see in the Definity legacy business. So you're almost already at the same levels of retention despite the fact that we're only 1 quarter in.

Similar story on personal property. You have about 25% and coming through the acquired business, about 12% is coming from the organic growth and the travelers' contribution. That's about an 88% retention rate against the 90% for the company. So again, very high and very close to our normal run rate. And in Commercial Lines, you see about 31% is coming from the acquired block and just over 3% is coming from that underlying organic growth and the travelers contribution. With, again, very good retention rates in the low 80s on commercial lines within 4 points of what we see at a total company level, which is a very good contribution in the quarter, but there's a lot of disruptive activity going on.

So if you step back and try to infer what's happening on an underlying basis, personal auto, we'd say we're growing in the upper single-digit range. personal property, we're actually contributing in the low double-digit range. And in commercial lines in the first quarter, we grew about in the low mid-single-digit range.

If you look forward, just to put some color on that, you are going to see variability this year between the lines of businesses and the quarters. So for personal auto, we're guiding to the low 30s for the balance of the year. That's really a function of the relative size of the Definity book to the Travelers book, which is a wider gap as you look out to the rest of the year. Personal Property, we'd say that's much more consistent in the mid of the 30s range, similar to what you saw in Q1. And in commercial lines, we actually see the growth rate increasing into the upper 30s range over the balance of the year, driven by a couple of factors on these higher organic growth levels, in the underlying business moving back into that mid-single-digit range, and then also continued capture of the retention of that acquired book as we go through conversion.

So overall, Very, very happy with where we've started spot for the $6.5 billion. And we're very pleased to see that continued organically.

The next question comes from Bart Dziarski with RBC Capital Markets.

Apologies if this has been asked already, but I wanted to ask around the financial capacity of $1.15 billion post deal code, I think that's higher than we would have expected. So a good result there. Maybe just give us a bit more detail on what drove that level? And then as we look out, you have excess capital, how are you thinking about deploying that? Or do you want that to build a little bit before you deploy it further?

Yes. Thanks, Bart. So in terms of what drove the financial capacity, yes, we're super pleased. We've [Audio Gap] into the transaction, and we leave with $1 billion, more than $1 billion in the first quarter after that. So that's obviously a great spot for us to be.

In terms of where it's landed. I think there's a couple of things there. One for sure is that when we actually closed the transaction and we looked at the opening balance sheet position that we acquired, that was in a very good [Audio Gap] in excess of what we would have originally planned. So that original -- that passage of time between the deal announcement and the actual balance sheet closure, we ended that in a very good spot. And so that obviously was a good contribution to the overall position of the company.

We also took some actions just around managing the overall risk profile. So we brought the reinsurance into alignment. We brought the equity position in the investment portfolio down on a blended basis. So in essence, what we've done is we've derisked a little bit on investment risk, and we view an effective tool to provide us some put against the increased operating leverage. Those two [Audio Gap] good effective excess capital over and both the required regulatory levels.

And then the last thing I'd say is just very strong performance. If you look at that first quarter, there's over -- close to $120 million of operating earnings that comes through there. So that's really helped contribute as well and generate good capacity for us.

And Bart, I would say, clearly, we're very happy with that capital generation, and our story remains very consistent to think about how we deploy our capital. we do see good organic growth. We do obviously keep moving our dividend upwards.

And despite the fact that we're in the middle of this transformational integration of travelers, it's looking very well. And our experience is that this would not put us on the sideline for other opportunities that come by certainly when you think about the time between initiation and closing. And so we're happy to keep building up some of that capital because our conviction is that there will continue to be M&A opportunities in the Canadian marketplace over the next couple of few years.

Very helpful. And then a question around the operating ROE of 13% the last 12 months. There's lots of moving pieces, and I know there's like puts and takes to it, but could you help us walk through maybe what do you view as the core ROE if you will, if you strip out those puts and takes just because there's a lot going on this quarter in the last 12 months.

Sure is. I think what we'd say is that if you look back on a trailing 12-month basis, it doesn't feel like this very often, but we actually had relatively benign cap period overall. So if we look at our expectations, just on a normalized kind of plan tiny happened. There's probably about 1.5 points of operating ROE support that came through that period of time. Now that wasn't the story a couple of years ago, obviously. But if you look at that trailing [ 12 ], that's what's within them.

Now looking ahead, there's a little bit of a headwind. We still have the averaging gain of the equity raise to come, although most of that is behind us, and we're still pretty productive in terms of the equity generation that we expect to come in the rest of the year.

So if you ask me where we stand today, we're around the midpoint of that 10% to below teen kind of operating range that we'd expect to be in. And we've got good conviction that the pathway we're on, the organic leases that are and the contribution of the travelers deal. Once we get to that fully synergized place, that's the really clear kind of pathway that we're looking at to get us up into the mid-teen level. But right now, I'd say we're around the midpoint of that target range in terms of where we stand.

Next question comes from Tom MacKinnon with BMO Capital Markets.

Just a question with respect to your favorable reserve development guide. I think it was always one to three. So just correct me if I'm wrong there. And has the acquisition of the Travelers Canada book changed that at all. They may have sometimes what can happen is they can beef up the reserves just prior to the acquisition? And maybe that's...

So in terms of -- you just dropped out a little bit there, I think you're asking about PYD. So the historic range we've delivered is about the 1 to 2-point range. And I think that we see as a pretty consistent expectation going forward. You see this quarter is a good indication of that. We were kind of bang back in the midpoint of that range.

With the Travelers book of business coming on, I think we still think that's a pretty good guidance point. We've taken a really robust look at the opening balance sheet. We've done some good work around that. What I'd say on that is we've kind of brought that reserving position. Kind of up to Definity standards. So we've taken a good first crop. We feel confident about that opening balance sheet position. So at this point, we'd say on a go forward, it's a good reason to continue to have conviction in that 1- to 2-point range. We'll obviously watch it very closely as we move forward.

But really, I think the key story for us was no surprises in that review. We are very happy with the quality of the liability position that we inherited. And we brought it in line with our kind of expectations going forward. So that's kind of how we feel mostly as the next few quarters unwind.

Next question comes from Paul Holden with CIBC.

Just want to see if there's any -- now that the book has landed. I want to see if there's any changes in terms of plans to or need to reprice any certain lines of business or products you're still happy where you think the trial would.

Paul, it's Rowan. We -- I think we got the gist of your question. Unfortunately, we just had a little bit of choppiness in hearing you there. And I think what we got was are we happy with the travelers portfolio? And is there any particular portfolios that we need to reprice? And if that is the case.

Look, I think we said through our due diligence that we thought this was a breakeven business. And I think having a quarter [Audio Gap] when we said that, there clearly was more of an opportunity to come in line with us on the expense side than the loss ratio side. That, again, varies a little bit by line of business [Audio Gap] probably had the most loss in automobile. And so there will be two things happening there.

There will be their own rate filings that started last year earning through. And then as it converts onto our platform, the rules, segmentation and pricing. So that's just automatically going to happen over the conversion cycle. And then the other two lines of business [Audio Gap] material segments or portfolios that don't fit our appetite or need significant actions.

I do seem to be having some connection issues. Hopefully, you can hear me okay. So I'll only ask one more question.

You pointed out intensifying competition in commercial large accounts. How should we think about the way Definity is responding to that? Is it simply -- are you actually shrinking exposure to that segment of the market?

So [indiscernible] may kind of give you some color on that one there, Paul. I think the main point for us and what we're signaling there is that the market is till very conducive to delivering our plans overall, the competition has intensified in a certain segment of that business. And that is really what we define as the large commercial elements of that. That's a significant portion of the industry.

The way we structured our portfolio, we're less exposed to that. So we have less than 20% of our commercial business exposed to that large segments. But of course, we do have a playbook on how we manage this environment and those trends. So maybe Obaid, could you just add some color into the impact what's happening policy count by segment?

Thank you, Rowan, and thank you for the question, Paul. I'll maybe start with, as we've mentioned in a couple of quarters that the market is bifurcated where competition is most intense in the large account segment. And as Rowan just said, over 80% of our business is not in that segment.

When we look at the renewal book that we have strong retention, and we're still getting strong rate on the majority of that book. So we don't really have any concern with how the renewal portfolio is performing the margin, it's holding, no concerns there. When you get to the new business side of it, this is where the discipline in our underwriting strategy is leading to a shift in mix, where we're writing more smaller accounts versus larger accounts. And what that's doing is it's having an impact on the overall growth -- premium growth percentage by about a couple of points [indiscernible] margin, and we're continuing to grow the customer base and the PIF count.

Overall, when we sit back, as we've mentioned, there are maybe three levers that we look at from our perspective, how things will go and where the growth will come from. One, we've talked about how well the Travelers integration is going. We expect that retention of that book to continue to strengthen as we move forward. We're already very close to where the definitive retention is.

In addition to that, we've gone through Q1, which has been a transition quarter. We've been onboarding new underwriters, some of the new capabilities. We launched three new products towards the end the first wave of underwriters, production underwriters from the traveler side got deployed towards the end of Q1. The second wave is coming in Q2. And what we see is that extra capacity that will come on board as well as the new products and capabilities that will keep on rolling through the year, that will give us a boost in growth. As well as the structural advantage that we have that we've got the digital platforms on the small business side. Our specialty market share gain is still underway.

So putting it all together, our view would be that we're managing the cycle with a lot of discipline in terms of preserving margin. And our small business specialty as well as the travelers' capabilities come on board will continue to give us market outperformance and be sort of in that mid-single-digit range as we go through the year.

And Paul, one of the points that I think gives us a lot of comfort is that where we are winning a lot of unit count, it really is the small business and specialty area, and that's the digital advantage that we're winning and competing on. And then the other part of the point I would point you to is if you look at the accident year claims ratio, you can see that it's up only 2% with the Travelers acquisition coming in. And that portfolio is really the synergies, that's mostly expenses that flow through pre-synergized book.

So if you -- if we looked at that and said, what would that look like on a normalized basis post the synergies, you see that there's no deterioration in the accident year results. So that's a very encouraging trend for us.

We have no further questions. I'll turn the call back over to Dennis Westfall for closing remarks.

Thanks, Elena. We understand there's been some sound quality. We will do our best to fix or update any missing parts in the transcript and have that posted on the website. Thank you, everyone, for participating today. The webcast will be archived on our website for 1 year. A telephone replay will be available at 2:00 p.m. today until May 15, and a transcript will be made available on our website. Please note that our second quarter results will be released on July 30.

That concludes our conference call for today. Thank you, and have a great weekend.

Ladies and gentlemen. This concludes your conference call for today. We thank you for participating. We ask that you please disconnect your lines.

Good afternoon, everyone, and thanks for joining us today. My name is Bart Dziarski. I'm the research analyst covering diversified financials at RBC Capital Markets. Thrilled today to be hosting Rowan Saunders, President and Chief Executive Officer of Definity Financial.

[Operator Instructions] And with that, Rowan, maybe I'll turn it over to you, and we can get started in terms of -- you just reported Q4 '25. 2025 is a strong year from a momentum perspective. Maybe just walk us through some of the milestones and operational achievements there for the year.

Sure. Happy to do that. And thank you very much for having me. Great to be here with you, Bart. Look, I think as we said on the call, we had a very strong Q4 of 2025. And that's a great way to kind of end the year. It was a very strong year overall, and that gave us a lot of momentum coming into this year, 2026.

When I think about the business, certainly, the growth was pleasing. And in fact, we accelerated growth in the fourth quarter with 9.2% of growth. What I like about that is that you really saw good broad contribution. And so we saw that in all three lines of business. Personal automobile was nearly 10%; personal property, a little over 10% and commercial strong at 7%.

And when you think about the quality of that growth, we look at the sources, we look at how much is rate, how much is unit count and the quality of that business; so all really nicely within appetite and trending very well from that perspective.

On the profitability side, a very strong quarter, so 89.9%, sub-90%, very impressive final quarter for us and 91.6% on the full year. So like that, I mean, that's a combination of good growth, strong margins.

Again, when we look at the quality of that, we again are pretty pleased because one of the key metrics we look at is the calendar -- the accident year combined ratio, accident year loss ratio. And I think a number of things are happening there. There's good quality new business that's coming in. Sonnet got more profitable as the year went along.

And we've taken quite a bit of rate that generally is ahead of loss cost trends, and that's earning in. So we would say actually, we kind of enhanced some margins through the year. That culminated in a strong underwriting profit of a record number for us at $355 million. So that's a good contribution. Of course, as you then go down the income statement, we had nice solid, stable net investment income.

Really pleased with the progress we saw in distribution income. So that is up materially. The platform operating earnings was close to $100 million. So it's quite meaningful for us, and we're getting more share of wallet in that channel. And you put that together and you get an operating ROE of a little over 12%, which is in the upper range of our guidance. So really, really happy.

And then when I step back and say, look, over the last 4 years since we've been public, we're doing exactly what we wanted to do. We wanted to gain share, we're gaining share. We wanted to grow ahead of the marketplace, we're able to do that. And we're very pleased that now we can run the business in the low 90s combined ratio area.

So to me, I think a very strong exit of the year and giving us a lot of confidence coming into 2026, which, as you know, is a really important year for us. Not only did we have good financials last year, but we, of course, announced the transformational acquisition of Travelers Canadian business that we'll be very focused on this year.

Awesome. Thanks for that overview. And I think we'll definitely talk about the organic parts of the business that you just went through. And -- but just segueing off that, let's talk a little bit about Travelers. So you closed the deal on January 2, a little bit ahead of expectations, which was great.

It's been 6 weeks now. And just with what you've seen post close, are there any items of the business that are exciting you a bit more? Are there any surprises that you've seen? Just maybe walk us through that.

Yes. Look, I think the good news is that we had an extended period of due diligence last year. We've had a number of months of kind of integration planning, getting ready for the close. And so I think we understand the business really well. The close itself early in the year went very, very smooth, and all that onboarding activity is now well in flight.

So really happy with the business, delighted we were able to get the business. As I said, it's a game changer for us. And if I just step back for a moment, remind you that this is very strategic for us. We have an objective of being a top 5 player. We started off when we went public at #8, organically grew to #6 in the P&C sector and now #4 with this deal. It is a very complementary portfolio. So what we're getting is about $1 billion of personal insurance business.

Scale is really important in that business line. We're going to put it on to our buying platforms, big synergies will come out of that. We get significant commercial product and capabilities and talent as well and of course, happy with that specialty business. And when you think about the broker ranking, we're now comfortably the third largest carrier, so very meaningful to our broker partners.

So all of those strategic items are as we hoped and expected, and we're comfortable with that. And then, of course, we also shared that this is a financially compelling deal. And not is it just an additional $1.5 billion of revenue or about 30% of our size, but it's a high-synergy deal. So there's $100 million plus of synergies. We're very confident in that number.

We know there will be some other upsides like some loss ratio improvements as well. But it also allowed us to optimize the balance sheet, and that was always something coming into life as a public company with excess capital on our balance sheet and a completely unlevered balance sheet, we've been able to put that into good use now.

So I think no surprises. It's as expected, and we're very pleased about it. I think that we're delighted that the employees seem very pleased to be joining a Canadian champion. Our broker partners have been very supportive as well. And so now it's done a hard work of integrating and converting the business through the year.

Makes sense. And I guess on that point, typically, after acquisition, you have, call it, a 100-day plan, and maybe I'll extend that in terms of the first 6 months. Like what are your sort of top three, if you will, focus areas or priorities as you're now integrating the business?

Yes. I think they are retain the business, retain the people and continue to grow the Definity core or existing portfolio. And those are really the three big priorities.

We like the business, and therefore, retaining it is really important for us. Of course, you acquire about $1.5 billion, there will be some natural attrition in that area. And the previous management have put actions in place to improve the profitability of the business.

We're very supportive of that. So some of that is still continuing to earn its way into 2026. But by and large, we don't expect any big blocks of business to leave. So that's a good -- looks good for us at this stage.

The talent is a really important one. And particularly as you think about that commercial, that specialty business, the specialty claims teams, this is hard to source talent. There's IP, there's product, there's trading relationships. So that's important.

And in fact, I feel the biggest risk that we faced was really from announcement to closing, where people don't know us and we were a bit concerned potentially about their future roles. And the retention has been amazing. Like we worked really hard on that and of course, had a multifaceted approach to ensure that. But that's quite exciting. And I can tell you from all the town halls that we've been doing in the first month of the business, people are pretty excited to be part of the story.

And then, of course, it's continuing to grow the Definity business. We've got a $5 billion business pre the Travelers acquisition, and it continues to grow really well. And if I just go back to the opening comments of we exited Q4 of '25 with over 9% growth. We continue to expect that business will continue to grow in that single-digit growth rate.

So those would be the main themes. And of course, there's some sub themes underneath that.

Okay. Got it. And on the leverage component, so if I read it correctly, it sounds like you might get to your 25% target sooner than expected. Let me know if that understanding is correct. And if so, the timing. And then maybe bigger picture, like does the elevated leverage today constrain you in any way from pursuing whether it's the organic initiatives or sort of the strategies that you want to do or not really?

Yes. I think from the leverage perspective, we were pleased to put that in overall bond certainly in place of $1 billion. And we think that we communicated that we would get that to around 25% over a couple of years.

And I think that we're well on track to do that. In fact, we've already paid down the excess capital loan. So moving pretty quickly. Everything is moving a little faster. We closed a little earlier. We paid that down a little sooner than modeled. So these things are falling into place quite nicely.

But I think the point you raised is, does this really impede our ability to inorganically deploy capital? And the answer is no. Even with this acquisition just closed, we today sit with about $750 million of financial capacity, and that's before issuing any equity. So I think that whilst this is a main priority for us, and we want to get this done and done really well, it doesn't preclude us from anything inorganic in the short term.

Okay. Great. And then I wanted to spend a minute or 2 on the specialty capabilities that are coming on to the platform. So I know it came up on the earnings call, and I think you gave a TAM of about $34 billion as to what's out there to sort of fish in, if you will.

So can you maybe spend a couple of minutes on the strategy around that, some of the verticals you'd like to go into? I think it's pretty exciting, but I want to understand, and it's new for some of those verticals. So would love to get your thoughts there.

Yes. We're excited about it. And I think that -- I think if you think about where we've come from, the economical before becoming Definity was very much a small SME-type appetite. We've brought lots of talent in over the last 5 to 7 years. We have built verticals in mid-market. We've attracted talent and teams to write specialty. And those areas have actually been doing very well for us. But there are many verticals there, and there's a big market, and our share is really still pretty small.

I think that what this does, the Travelers acquisition actually accelerates our commercial specialty strategy by about 5 years. I mean this was in the cards. We were building and going in this direction. So it's really an acceleration of those capabilities we would have got in any case. And this is the talent, is hard to source and very, very experienced and all the IP that comes with that.

I think on the new segments, there's a number of them. So for example, we may have been in some segments of directors and officers insurance, but now we've got a bigger appetite, more of that segment or vertical we can participate in. But financial lines is new for us, Ocean Marine is new for us, some parts of oil and gas, technology, cyber insurance; all of these are open the market from what we have.

And I think that you heard on the call, that we saw the commercial marketplace roughly a $27 billion market. And now with these new products and capabilities, there's another $7 billion or $8 billion that's addressable. So if you think about $7 billion or $8 billion and over time, assuming we could win a 10% to 15% market share, it's really material in terms of what the upside could be over the next few years.

I think when we think about what do we do and how do we move forward with this, look, there is simply cross-selling to our existing customers. And these are products we didn't have, we didn't have the ability to cross-sell. So these are existing clients we have. It's simply just cross-selling and building those relationships on those relationships we already have.

And then the other one is adding product density to our offerings to the brokers. And I think this just makes us more of a go-to commercial insurance partner for our top brokers, which will mean we're right larger share of their wallet.

And in terms of operation, the first kind of, let's call it, half of this year, what we're most interested in is just making this a smooth transition for our broker partners and for the customers. And so it's mostly about the conversion process.

And then as we get into the second part of the year and, of course, into 2027, that's really where we'll start more actively marketing, cross-selling and trying to build on that product density opportunity to increase the specialty growth.

Okay. That's very helpful. And then I guess on that with '27, when I speak with investors, I think the general expectation is that, "Hey, '26, it's year 1, it's integration transition year," but then more and more, they're looking forward to '27 and beyond.

So I guess two-parter. One, when does -- when would you expect the Travelers book to have fully sort of turned over, if you will? And then within '27 and beyond, have any of your expectations around some of the timing when you can harvest these benefits changed?

Yes. So I think when you think about the actual conversion, and it will vary a little bit by product segment, personal lines goes a little bit ahead of some other segments. Really, the middle of 2026, we start the conversion process. So that work has all been started. We already have one product in the marketplace. All of those new business activities are in flight right off the bat.

But for the actual heavy lifting of transferring the business off of the Travelers legacy systems onto the Definity buying platform, that starts middle of the year. And this rolls every month for the year. So you can really think about this as middle of '26 rolling into middle of '27 for the vast majority of the portfolios.

There will be a little bit that goes past that. And that's the bulk of what I'd say, of the conversion. And that's when I think that when we think about what really happens to that Travelers $1.5 billion this year, there's a little bit of attrition that will happen. But if that portfolio won't really be growing, it will actually contract a little bit as we put it on to the portfolio.

And then it will start to operate and look more like what Definity does. And that's where we go back to saying, well, what's our true underlying growth rate? Well, it's been upper single digits. And so by the time we finish the conversion, we think both portfolios, the Travelers legacy portfolio and the Definity core portfolio, will start to operate similar type growth patterns in the past. So I think that's the kind of revenue as you get into the back half of '27 and onwards. And we're pretty confident about that.

The other part about the synergies that we've communicated, what we said is there's about $100 million plus of cost synergies that we expect to extract over the course of the full integration. So that's over a 3-year period. And a couple of points we would make there.

Firstly, we will start pretty quickly with some of those actions. They take time to earn in. And so that's why about 1/3 of the benefits really get reflected in the first 18 months, and then the second 18 months would be the remainder of them, even though more actions would have been taken in the first 18 months. So we'll share that on our earnings call, what's been triggered and what's actually being earned into the business.

And I would say that we did lots of due diligence and planning. But now having owned the business for several weeks, I think our confidence level is even higher than what it was that this really is highly credible. We have a very high confidence level in that $100 million.

We know exactly where it's coming from. A lot of it will come from technology. Some of it will come from cross-border governance charges and some will come from operations and the productivity of our new modern system. So we feel very good about that.

Great. I actually just got a question, and I'll ask it now because it ties into the leverage question I had asked. So the question is, is 25% the right long-run target that you think about for Definity? Or is there a range that you'd be more comfortable with in terms of leverage?

Yes. I think as a general starting point, that's a reasonable range for us. I think as you've seen on this acquisition, we're not opposed to going a little higher than that in the short term. But what we would normally think is that we would, over a couple of years, bring it back within that range.

And it will be a little bit deal dependent, but we obviously need it. We would like to have it in our capital stack. But we are pretty comfortable that's a general range for us, albeit to complete the appropriate deal or we would go a little higher temporarily.

Got it. Great. That covers it on Travelers. So maybe we can move to the -- what I'll call the organic business. And you talked about in the 2025 overview around there's been acceleration. And maybe we could touch on sort of personal auto, personal property and commercial in terms of more of the competitive dynamics that you're seeing on the ground.

Are there areas where competition is heating up, areas where competition is abating? Maybe just an overview sort of what you're seeing on the ground within those three business segments would be great.

Yes. And I think that we're seeing it pretty stable in the last several quarters would be the general kind of view. It's different by major product. And even within each of the lines of business, it's not completely even.

But if I started with personal automobile, I think personal automobile, we think is -- we would say, is in a firm marketplace. The industry has been taking rate. Overall, the industry profitability is still around that breakeven level. Ours is, of course, 95%. We feel we're rate adequate, and that's why we feel we can continue to take price that covers the loss cost trends, which have normalized.

They're pretty stable now. There are a number of things that drove them coming out of the supply chain crisis. Those have normalized. Bodily injury costs are pretty stable. Theft has kind of come down a bit.

So that is a good position. To be properly priced, good segmentation, the modern technology platforms, like we like this market. Auto is -- we're in a good spot. And that's where you've seen us still getting rate, but taking share, and I think that will continue for us. But we think that market is going to be pretty firm.

And most markets are in good shape. There is still an exception that would be Alberta, where you may have read that the industry is losing money quite a bit in Alberta. So that's going to take a little bit of time, but there is help on the way, there are reforms that are going to be put in place in 2027. So until then, we're still pretty prudent and cautious on that particular province.

In terms of personal property, the market continues to be firm. Same thing happens. I think people have understood that wise 2025 wasn't a terrible year for nat cats, we came off a couple of very elevated years, 2024 and 2023. And the market has been disciplined. They're pricing for that risk. And we haven't seen any changes in that discipline and funding nat cat events.

I think the other part that's pretty relevant is from '23 onwards, the reinsurance markets certainly increased the attachment levels. So insurance companies, primaries have higher net retentions than they typically have had in the past. And I think that also creates some discipline in the marketplace. So we're really seeing that as a conducive marketplace.

We spent about 1.5 years addressing certain areas that we felt were more cat prone and we wanted to thin out our exposure so that cat management actions. We've kind of lapped that. That has now run its course. And that's why we're pretty comfortable and you now see good growth -- unit count growth coming back into that line of business. So we're not seeing any changes in direction there. It's been pretty stable.

And then the commercial marketplace, for a couple of quarters now, we've called out that, that's an uneven marketplace. And I think that if you look at it, it varies a little bit by province, but certainly by segment. And what happens on large accounts is very different that's happening in parts of the specialty verticals or that's happening in small commercial.

So we are seeing more competition in those large accounts. That seems to continue. And I don't think there was any difference in the fourth quarter from the second and the third. That is there, and I think it's going to probably run some more time.

But in the other segments, we're still getting rate at or better than loss cost trend. And so really, what we're doing from a growth perspective is we're growing in the SME space, we're growing in the specialty space with a little bit of contraction in some of those large account areas.

But I also put that into perspective because if you think about Definity's total portfolio, 70% is in personal lines, which is a firm market; 30% is in commercial lines. And only about 15% of our commercial business is what I would say is directly exposed to that more competitive large commercial space, which therefore, is obviously meaningful but very manageable for a company with our portfolio mix.

Okay. Got it. That's helpful. And thanks for quantifying that because I find that it impacts sentiment a lot, but then the actual number or the exposure, it's quite small. But in your view, you've seen different pricing cycles play out. Like what would you say could turn the soft pricing cycle? You can never kind of call it, obviously, but just what do you think would change that narrative or change that cycle to turn?

Yes. I think, in commercial lines, it's also really useful to think about the context we enter this. So we had a very firm to [ hard ] commercial marketplace for about 4 years. And so for 4 of those cycles, there was significant pricing, and not just pricing, but standards, underwriting appetite, terms and conditions that were tightened, which drove a lot of margin into those large accounts.

And I think that people are now -- many people are now at the stage where they're saying, look, loss cost trends have slowed. So number one, we don't need as much rate as we would normally do. Number two, there is margin in those large accounts. And therefore, you can defend them, you can still grow but at some cost of margin. And I think that's what's the driving in the margin.

How long will that last? It could be difficult to tell. But certainly, it's, I would say, for the most of last year, that was in place. And I think it will be at least another 12 months in that particular segment before you get to a stage where margin starts being eroded and your pricing is no longer adequate for the desired returns, in which case, that will shift -- should shift the marketplace.

And then outside of that, you really need some kind of more of a shock, and this could be unusual nat cats or it could be rapid inflation driven by the tariff situation or a materially different investment return profile, none of which we think is highly likely. So I think there's still a little bit of time to run.

So the way we deal with that is we think, look, let's keep our discipline. There are opportunities, but maybe a little less so. So we slowed our growth in some of those large, more exposed accounts. We're really focusing on segmentation. We're really focusing on long-term customers and retention on those accounts. And then we're redirecting our new business efforts to profit pools that are more attractive.

And we're winning on service, we're winning on specialty, where we've got a low market share, and we're winning on the small commercial.

And that small commercial is very much driven by technology, ease of business and flow business. And that's -- not everyone can actually replicate that. So we're finding that some of the competitors that are involved in that large commercial space where they see the market softening. It's not simple for them just to suddenly start writing small commercial.

So we're not concerned about contagion going down into small commercial. You need the modern technology, you need broad distribution. You need big claims operations. You need all that kind of data. And so there's -- it takes a long time. There are barriers to entry enter that segment. So I think it's going to be isolated in the next little while.

Okay. Awesome. That's very helpful. I wanted to ask around the claims environment. It seems to be getting a bit more complex at the margin. There's litigation funding, not as much as there is in the U.S., but we've got cyber events, social inflation. And you guys have a long track record of disciplined underwriting, favorable reserve releases. So obviously, you're managing well in that environment.

How are you able to stay on top of these trends and be on the right side of them?

A couple of things there. Firstly, I think by nature, we are good underwriters. That's part of our DNA. We underwrite, we assess risk, we know how to price risk, and we anticipate. And if you think back over the last number of years, when we saw this transitory inflation, we weren't so convinced it was just transitory. So we lent into that.

When we thought about some of the supply chain disruptions, again, we thought this could be disruptive and be inflationary. How do we manage that? And we put actions into place like that. We even in Commercial Lines, anticipated that there wouldn't just continuously be a firm hard market. You would get to a phase where some segments will become, let's call it, more competitive. And so we designed our portfolio to avoid putting capital into those more volatile segments. They're easy to come, easy to lose.

So I think that is part of our prudence. Same thing with reserving, which you kind of see, we always run off favorably. But a lot of it is data and a lot of it is early. You -- in insurance, you're never going to get everything perfectly right, and you will take some hits, but you just want to get flesh wounds as opposed to anything much more significant.

And so it's finding things early and managing your way out of those, I think, would be a good general philosophy. I think we believe very much in great technology and claims. We believe in the expertise in the claims teams.

Think about nat cat as a good example. Even in 2024, it was a record year for nat cats. These are all complex climate change environments. We get about half of our natural market share. Now you get a little lucky from time to time, but a lot of that is by design. It's deciding where we put our capital. It's making sure we've got the granular data to monitor our accumulation, structure our reinsurance program, build nat cat teams, have pre-existing contracts with our supply chain.

So these are all the, let's call them the fundamentals of insurance. And if you're brilliant at the basics, if you're brilliant at the fundamentals, you tend to relatively outperform. So I think that's there.

For example, we do get and we do see litigation funding. It adds a bit of a complexity. It is much more of a U.S. entity than it is in Canada. We typically don't have as many class action lawsuits. You get things like social inflation.

Again, this is more U.S. than Canada. We really are quite different. Culturally, we know as litigious. We don't get those nuclear or jumbo verdicts that drive a lot of the social inflation. And even if you look at lines of business like bodily injury and automobile, if you go and look at the last number of years, it's still pretty mid-single-digit trend line. And so when it's stable, it is easier to predict, it's easier to manage, it's easier to price for.

So I think that's how we do it, but we still continue to invest very heavily in claims. That's our promise. That's what we -- that's with the road at the rubber, that's where we try to differentiate good service, fair settlements skilled people and leading technology.

And one of the things we're very excited about is that we've enhanced and finished the claims transformation just recently at Definity. And now we've got the leading technology and that transformation is recently finished. It allows us to bring Travelers business onto our platforms, but also we'll be able to help drive the margin up the operating ROE in the years ahead.

That's great. Very comprehensive, Rowan. And maybe I'll switch gears a little bit, and I do want to touch data and tech because I know you mentioned a couple of times.

But before we do, maybe we could talk a little bit about the broker channel and broker M&A. The growth has been strong. You guys increased your guidance last year in middle of the year, I believe. What's your outlook there in terms of how that M&A market is shaping up in 2026? It's good deployment of capital, but I would love to get your latest thoughts on that outlook.

I think it is pretty well more of the same. And this is a sector that is consolidating. There's thousands of brokers in Canada. They are going through a big transformation. Scale matters. And like carriers, there has been consolidation. And if you think about the last number of years, the importance of size and scale and leverage is what brokers are focused on. So I think that is driving this, and I think it's going to continue.

That's the reason why we got into this. I mean, for a number of reasons, strategic for us. But we built in a relatively short period of time, a top 10 broker in Canada. We like the sector. It's very high margin, it's very repeatable revenues that diversify our earnings. And that's why we grew at 24% last year. That's good organic growth, but a pipeline of activity. We did 10 transactions last year, mostly small and midsized programmatic acquisitions. But I think it tells you that the pipeline is still pretty full.

And when we look to 2026, I don't think anything we see is going to slow that down. The fundamentals are all the same. There is competition for it. And so each, let's call it, consolidator has a slightly different proposition to the others.

But the trend is, I think, scale is important. You need to make bigger investments going forward, you need to be relevant to your insurance companies, you need to specialize for your clients. And all of that drives consolidation. So I think that along with some demographics of broker ownership, we don't really see '26 any different from '25.

Okay. Great. And I know the question comes up often. And so -- but it still seems like it's a fragmented market. You've got a low market share. So there's an opportunity to keep kind of leaning in and growing into that, if I understand kind of the market dynamics from a broader perspective. Would that be fair?

You're talking about on the broker side of things?

Yes.

Yes, that is right. I think there's some very big brokers. When you look at the top 10 insurance brokers, there's, again, a big difference between the top couple and the bottom couple in that area, but then there's thousands underneath that. And it is fragmented, and I think it's going to continue to consolidate certainly for a number of more years.

Okay. Great. Yes. Maybe we can now pivot to kind of technology, and it's very topical in the market these days. I actually had a question coming in from an investor, which is a good way to kick it off. So maybe you can talk about the partnership that you have with Google. What are some of the specific tools and capabilities it brings for Definity? And could that turn into a competitive advantage over the, call it, medium to long term?

Yes. I mean, I think, quite frankly, we are, in our industry, one of the leaders in technology and in the use of AI as well. So I think that this is a big topic. And I think that if you kind of go from the bottom, which is we have to have the right technology base. You have to have digital tools. They have to interact with brokers and customers. We have a modern technology stack, and that is a big advantage for us.

I think when you talk about the partnership with Google and what it does is many things for us. But one of the things we're most excited about is just how it's helping us also advance AI and Gen AI and the differentiators that, that has. We all think this is a big opportunity, and this is well suited for financial services and P&C.

I think Definity has a long track record here. I mean we've been doing this for well over a decade. We have about 300 practitioners in advanced analytics and artificial intelligence.

We've been making in the last couple of years, some significant investments in Gen AI. We think about it right across the business and so in all parts of the business. And it helps us with revenue, it helps us with underwriting and risk selection and it helps us with cost and productivity, it helps us with user experience and satisfying customers.

So we have, for some time, had about 135 predictive models in place working with us. We have data, this is the 25 years of good high-quality data. The partnership we have with Google has that in a very usable situation in the cloud with Google. We partner with some of their engineers to test and develop these use cases. We have about 20 Gen AI use cases in development and in force through the company.

Most of our people are now about 70% are using AI tools to help with their personal productivity. And it really ranges. And so an example might be in commercial insurance, we're using Gen AI to help us with prioritizing intake and identifying which quotes we should -- which submissions we should quote, what's our chance of winning, how to increase that probability.

We're using Agentic AI. We're using it for customer contact summarization in Sonnet. So we spend more time giving advice. The same thing applies in the claims value proposition.

So it's pretty pervasive. And I think for us, what I like about this is not only is this something that is an organization, that's deep in our DNA that we have the tools, we have external partnerships that help accelerate it. But we also have the modern technology to get it into production at the front of the business. And so that's one of the points where you may know what you want to do, you may have a model.

But if you actually can't put it in front of a customer or on the desk of an underwriter, it limits its value. And I think that's the big differentiator for us. And so we think it's an advantage, and it's something that we continue to invest very heavily on. We have the Google Suite and Gemini and the cloud platform, and I think those are investments that are already paying dividends.

It sounds like you're well into the tech journey, which you don't often hear from insurance companies within the sector, right? So it's that you're leaning in. Before I get to some of the other tech components within the business, we should just address, there is angst in the market around like AI and what it could do to the broker side of the business.

What are your thoughts in terms of what would be the mitigants against the disruption risk? Or are there structural differences in this market that would act as a bit of a buffer? Or do you think that those concerns are warranted in that part of the business?

Well, I mean, I think I would never want to play this down because I do think AI is transformational, and it's going to be very, very significant.

I do also have a lot of confidence in the broker channel. This is a business that has had many people calling for its for its end for many, many times over the last 30, 40 years. And they are bigger, they are stronger, they are more profitable, they are more relevant today than they have been. So I think they tend to find a way of being very relevant and reinventing themselves.

And I think that's the issue here, whereas, of course, AI could do many of those administrative tasks. And AI is already being used in insurance quotation discovery. What we still see is even with that and similar functions, if you think about aggregators, which are today fulfilling a very role of what AI and insurance broking promises; you still end up with a significant amount of customers wanting the advice and counsel of a broker because don't forget, this is a really important personal asset.

If you're insuring your house, it's likely for the vast majority of people, the #1 biggest asset. If you're insuring a business or buying directors and officers insurance for a Board of Directors, I doubt the Board of Director is going to say, "Am I comfortable? Let me ask ChatGPT if I've got the right coverage here" when there's billions of dollars in assets at stake.

So I think that brokers will have to adapt. They'll have to invest. And I also know that many of them are already doing so. They are using AI to help them accelerate and more productively deal with a lot of the friction and administrative tasks so that they can do really what they're good at, which is assessing risk and matching the clients with the appropriate underwriter.

So my view is on this will be another accelerator, I think, of consolidation because, again, there are the haves and the have nots. They are those that actually gathered, that invest in it, that have good data, that have the ability to make those investments and stay relevant. I think they'll just get stronger and stronger, and then the week will likely end up either being disintermediated or most likely acquired.

So I think there are ways around that. But again, that creates new opportunities. And I think that as an underwriter, whilst we don't stand to get disintermediated, as I mentioned before, there is a huge upside for us to get better and for us to be more relevant and for some of our brands like Sona to really lean in to what the new world may offer.

Right, right. And I guess sticking on that, you had mentioned earlier in our discussion around Sonnet, the profitability seems to be improving and gaining momentum. Just walk us through where you are on that journey and how much more is there to go for Sonnet.

Yes. The real objective for us on Sonnet in 2025 was to get confidence that this could run at an underwriting profit. And when you think about those components, the big one is the loss ratio and then the expense ratio. And Sonnet, again, was profitable. So I think we've had 5 quarters of profitability in that area now. So we're delighted with that.

And I think what it proves to us is that the model does work. That means we can attract good-quality customers at a fair price. We can retain those customers. And so the loss ratio component is really in the range that we would like it to be. And the expense ratio, while still pretty okay, will come down to about a 10-point advantage over intermediated distribution levels with size and scale. So that's now back to the growth story.

So I think for us now, we feel very comfortable we should start leaning more into building that business. You'll see actions happen. It takes some time to get the marketing machine going. The algorithm is working the way you would like it with some more growth in the second half of 2026 and then more confidence to go forward. So I think we feel the best about this business that we have since its launch, to be honest with you.

We've also found that it's doing really well in the affinity business. And so groups in affinity is a big segment, about $8 billion subcomponent of the personal lines market. We're a disruptive play there. We're innovative. We are doing it differently than legacy underwriters, and that's resonating very well. It's about 45% of our new business policies are coming through that area.

And we like that because it's just generally a higher quality customer that buys more products and stays longer. So all of these things will certainly help the economic model.

So I think for us, when we think about strategically looking at the Canadian marketplace, we've got a great commercial business. And now with travelers, really good confidence of how relevant we grow. We've got a very strong intermediated personal lines business. Vyne gives us a big advantage. We're the third largest intermediated insurance company in Canada, great positioning.

But we're still very small in the direct-to-consumer space, and that's a big market. And this is the way in. And I think that this is the new, more modern way into that marketplace that over the next number of years, we should see some good market share gains.

Okay. Great. And I want to keep sticking with technology because there's different components of the business as well. And so let's spend a minute on Vyne. I think it's a differentiator. It sounds like it's helping you gain share in the broker channel as a competitive advantage, if you will.

And so are you finding in this environment that advantage is strengthening? Is it sort of status quo? Walk us through kind of what Vyne does for you today in the market.

Yes. No, I think that this is a big competitive advantage, and it was a very big investment that the company made in the run-up to life as a public company. And I would say that we feel we have a competitive advantage that is actually getting bigger over the quarters.

And if I simplify it, really what it does is two things. If you take personal insurance, the Vyne platform, it allows us to become much more agile, much more sophisticated. And that means we could put our deployment of new rate segmentation much more frequently. We can use much more data that allows us to be better at aggregation management, nimbly transferring technical pricing and segmentation to the front lines.

In other words, we could drive the loss ratio improvements. We're going to avoid anti-selection. So the technology platform allows that level of sophistication. That's kind of the underwriting lens.

From the revenue lens and the customer experience lens, it's ease of business for brokers. This is something that really has been designed with brokers, for brokers. It is fully automated and integrated into the broker management systems. that reduces their friction. It makes the business a lot easier. It influences price elasticity. It's very easy just to hit a list of renewals and they're done.

So what we see is we definitely see better new business, we definitely see much higher retention ratios. And the longer your tenure, the higher the quality customer is and the better the profitability. So it all really works for us.

And I think the other part is where this is, again, very important, is it's given us a lot of confidence to do the Travelers transaction because when we think about lifting about $1 billion of personal lines of a legacy system and putting it on to the Vyne system, we know that the loss ratios will get better over a couple of years. And we know that the broker service levels will be better.

And the expenses are dramatically different, which obviously drives a big part of that productivity gains and the $100 million synergies. So we know we can be a better owner and therefore, win M&A transactions as well. So I think that it is really important to us. It keeps getting better.

And if I just digress for a moment, if you think about commercial lines, where it is important because the discussion we had earlier with large commercial being more competitive, small commercial, you're able to move forward. We're gaining share there, too. And so we have Vyne Small Commercial. We have now a new segment, [ FastPath ]. In 1 to 2 minutes, you can get a pricing indication.

So if you just think about it from a broker's perspective, with very little effort in just a couple of minutes, you can get an indication of price and then it's not much to complete the transaction. That ease of business is really where you're going, particularly if you're under pressure remarketing, dealing with customers who may be having a more difficult time in the marketplace.

So I feel it's very strategic. It's one of our big advantages. And I like us competing on technology, on service as opposed to on price.

Awesome. That was very helpful. And I guess you may as well keep going on the topic, go through your old tech stack. So Guidewire is another component. And I think I heard you correct earlier that you're sort of finished the implementation of Guidewire now on the organic business and then Travelers bolted on.

So maybe walk us through the time frame of that, if I have that correct. And what that sort of unlocks for you from a Guidewire perspective in terms of benefits?

Yes. No, it's been a big investment for us. And I think there are a couple of phases. The first phase is we started with the policy system and the billing system. So that's really what we labeled as our platform Vyne. And so that is finished.

The next thing we did has been the claims transformation. And we were actually late in deploying the claims transformation. We decided to do bolt on it. We decided to build Vyne in advance. And so we finished that. We did the automobile last year. We've just recently finished the property casualty element of the claims. So that part of the transformation is now finished.

When you step back for a moment, at our Investor Day, we said, look, there are three organic levers that we would be using to move the operating ROE up. One was getting S to breakeven done. Number two was bringing the operating expenses from 13% down to 11%. We're almost there, 0.5 point to go ahead of schedule.

And number three was the claims transformation, where we thought there's a couple hundred basis points, some of it we would reinvest but in that area. And that's pretty consistent from what we hear of Guidewire deployments around the world.

Now that is in place, we'll start to see the benefits. I'd say we've got some of them, but well over 50% of those benefits are still to come, and that gives us, again, confidence going forward. So we're in good shape there, and that puts us in a good position to migrate the Travelers portfolio onto our platforms essentially onto the Guidewire platforms.

Okay. Got it. That was my last 10 questions. I think we pretty holistic cover the business. So look, I want to kind of synthesize and put it all together and on ROE. And so your core business, sounds like growth is accelerating into year-end and should stay pretty strong. Travelers are excited about it.

So when we put it all together, just walk us through the confidence you have in achieving the ROE targets. Could we -- is there scenarios where you could be above that? And how should we be thinking about that over the kind of medium term from an ROE perspective?

Yes. Look, I think we're very pleased about the progress. And if you think about how we ended last year at 12.2%, high end of our range, and some moving parts in there. I just said the three levers that we had thought would be about 200 basis points, Sonnet expenses and client transformation, all going pretty nicely.

And then when we talked about Travelers earlier in the discussion, we shared that with the optimized balance sheet, that's another couple of hundred-plus basis points. So that gets us a very clear path up into the mid-teens by the end of the Travelers integration. And all of that looks very, very achievable to us.

Look, I mean, could things vary? When we create these, we anticipate that our industry has weather events. We have different cycles. We think about the investments. So I think that these are not aspirational. These are metrics that we have a high degree of confidence in.

And I think when you think -- go back to look what Definity pre-Travelers has done, we have demonstrated that we can grow at about twice rate of the marketplace. We have demonstrated we now can run a business in the low 90s. And by the end of the integration, we will get travelers to operate the same. So it's now a $6.5-plus billion business that will be growing upper single digit. That will be -- that's in that target range. So I think when you look at that, that we have a lot of confidence around those metrics.

And then you think about the net investment income, very much fixed income, pretty stable. You think about the contribution from distribution income, that's getting bigger, much smaller. All of that goes, of course, into the denominator, but gives us a lot of comfort that these are very realistic targets. And I would say, our confidence is really, really high.

Could they come a little faster? Maybe, but we're not calling for that because we want to make sure we get travelers done properly and then build it. You could have a little bit of volatility from weather. But the way we've also structured our portfolio and our earnings profile is even that, we're somewhat protected against.

When we've had really bad years, they haven't dramatically moved our operating ROE, maybe a point or so, and we have prudent reinsurance to help take that volatility out of it. So that's when I step back, I'm really excited about this. I mean I think the business is in great shape. We've got good momentum. We're delighted to have been able to do something as unique as a big acquisition as Travelers.

And we enter this year with certainly a lot of confidence and conviction. And we've got a tremendous team that is really fired up and a lot of support from our broker partners. So we feel like we're in a pretty good position, always trying to get better, always trying to overdeliver, but not overpromise. And so that's why I'm just kind of sharing no new targets, but certainly a lot of conviction in the targets that we have shared.

Awesome. Well, with that, I think we'll end it. We covered a lot of the business and lots of exciting angles of it. So thank you for taking the time today. Thank you for the investors for spending the time with us today. And I think with that, we'll end it.

Thank you very much.

Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Fourth Quarter of 2025 Financial Results Conference Call and Webcast. [Operator Instructions] This call is being recorded on Friday, February 13, 2026. And I would now like to turn the conference over to Dennis Westfall, VP of Investor Relations. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at definity.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call.

Joining me on the call today are Rowan Saunders, President and CEO; Philip Mather, our Chief Financial Officer; Fabian Richenberger, Chief Operating Officer; Paul MacDonald, EVP of Personal Insurance and Digital Channels; and Obaid Rahman, EVP of Commercial Insurance. We'll start with formal remarks from Rowan and Phil, followed by a Q&A session, during which Fabi, Paul and Obaid will be available to answer your questions. With that, I will ask Rowan to begin his remarks.

Thanks, and good morning, everyone. As Dennis mentioned, we are welcoming Obaid Rahman to our earnings call following his recent appointment as EVP of Commercial Insurance after several years as that division's Chief Underwriting Officer. Obaid's appointment comes as Fabi moves to the Chief Operating Officer role. His move to COO enables him to put a greater focus on the integration of the acquired business from Travelers.

Before we discuss our financial results for the fourth quarter and full year 2025, let me start with the progress we have made in recent years and how it has positioned us for the next phase of growth. Including the premiums from the Travelers transaction, we've doubled the size of the business since our IPO to become a top 5 P&C insurer, modernized our platforms and built a scalable foundation that gives us confidence in our long-term trajectory.

Definity is a growth company with strong momentum and a clear strategy. Our strong performance reflects disciplined underwriting and claims management, solid organic growth and the returns on our digital technology investments. As we pursue our updated goal of becoming a top 3 P&C insurer, we remain focused on disciplined execution, technology and analytics, broker partnerships and broad-based growth.

We've built Definity with a goal to outperform the market through all stages of the pricing cycle. In areas like small commercial and personal lines, conditions remain strong, and we're achieving rates that stay ahead of loss trends. Where the market is most competitive, such as certain large commercial segments, we're staying disciplined, protecting our profitability and competing where margins are most attractive.

What differentiates us is the structure we put in place, thoughtful portfolio construction, advanced analytics aided by AI that allow us to price risk with increased precision. a modern claims platform that drives better operational outcomes and higher customer satisfaction and a national broker network that gives us a stable growing source of distribution income. Overall, these capabilities give us confidence in our ability to outperform across market environments.

Turning to our transformational acquisition on Slide 6. The acquired business brings approximately $1.5 billion in premiums, meaningfully increasing our scale and positioning as firmly within the top 5 Canadian P&C insurers. Scale matters more than ever. It enhances pricing sophistication, strengthens our relevance with brokers and supports sustained technology investment and AI expansion. The portfolio is an excellent strategic fit.

The commercial book expands our capabilities in mid-market and specialty while the close to $1 billion in personal lines premiums will benefit from being moved on to our modern digital buying platform. This is also a high synergy opportunity. We are confident that we will deliver at least $100 million in annual cost synergies to be realized over the 3-year integration period. Finally, the acquisition accelerates our operating ROE expansion strategy.

With Sonnet achieving breakeven, expenses moving towards our target level and our claims transformation well underway, the acquired Travelers portfolio is expected to add roughly 200 basis points of run rate operating ROE by the end of the integration period, supporting our path to a sustainable mid-teens target level. In 2025, the acquired portfolio operated near breakeven as a result of elevated expenses, which will temporarily affect our combined ratio as we integrate. We see a clear path to sustainably operating in the low 90s as integration benefits take hold and synergies earn through.

Turning to Slide 7. We reported full year operating earnings per share of $3.53 an increase of nearly 33% over 2024. We again met or exceeded all financial targets in 2025 with top line growth of 8.8% adjusted for our exited line, an excellent full year combined ratio of 91.6% and an operating ROE of 12.2%.

This operating performance, coupled with our private placements of common shares in the second quarter of 2025, supported a 16% increase in book value per share in the year. These results demonstrate the strength of our company and validate the investments we've made to build a more agile and scalable business.

As illustrated on Slide 8, since completing our landmark IPO 4 years ago, we've delivered consistent underwriting profits, built a top 10 property and casualty insurance brokerage in Canada, grown book value per share by more than 63% and increased our quarterly dividends per share by 72%.

Turning to the results from the fourth quarter on Slide 9. Strong underwriting income, together with meaningful contributions from our insurance broker platform and net investment income generated operating earnings per share of $0.99. Our fourth quarter combined ratio of 89.9% reflected the broad-based strength of the business with particularly strong results in personal property and commercial insurance.

We enter 2026 with top and bottom-line momentum in all 3 lines of business, which provides an ideal starting position as we integrate our recently closed $3.3 billion acquisition and scale the organization.

Turning to the industry outlook on Slide 10. We expect conditions in personal auto to remain firm as insurers aim to keep pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of potential U.S. tariffs.

We also expect market conditions to remain firm in personal property over the next 12 months as the industry continues to remain diligent, taking underwriting and pricing actions required to fund weather loss events amid heightened climate risk. While we expect overall commercial lines market conditions to remain attractive, we are continuing to see more competition in the large account space. Overall, we expect industry growth in commercial lines to be in the low to mid-single digits over the next 12 months.

Slide 11 highlights our key financial targets for 2026. We expect to exceed $6.5 billion in gross written premiums representing growth of at least 35% from 2025. This substantial increase is expected to be driven by the benefit of the acquired business from Travelers and continued organic growth in our underlying book.

The strength of our underwriting capabilities is expected to support a sub-95% combined ratio target for 2026 despite integrating a business operating near breakeven. We maintain our operating ROE target for 2026 as we expect earned synergy realization to begin contributing more meaningfully in 2027 with full realization by the end of the 3-year integration period.

Slide 12 illustrates the composition of our national broker platform. We've made great progress in the past few years to develop it into a vehicle to diversify and strengthen the earnings profile of the business with repeatable distribution income that complements our underwriting operations. We expect continued M&A activity and the organic growth momentum of the business to result in $2 billion of managed premiums by the end of 2027.

We continued our growth trajectory with several additional acquisitions last year, which enabled us to exceed our 2025 operating income objective for this part of the business. In 2025, our national broker platform generated $94 million of operating income before finance costs and minority interest.

We expect to increase this by approximately 20% in 2026 with a 60-40 split between distribution income and intercompany commission income. This platform continues to provide stable, high-quality earnings that strengthen the overall resilience and diversification profile of the company. And with that, I'll now turn the call over to our CFO, Phil Mather.

Thanks, Rowan. I'll begin on Slide 14 with Personal Auto. Gross written premiums increased 9.7% in the fourth quarter and 8.9% for the year adjusted for the Sonnet Alberta exit. This represents a step-up from 6% growth in the third quarter, consistent with our expectations and supported by our improved competitive positioning that strengthened unit growth.

Personal Auto delivered a solid combined ratio of 95% in the fourth quarter, an improvement from 2024, driven by earned rate increases, improved Sonnet profitability and a lower expense ratio. For the full year, these same factors supported stronger results versus 2024, further aided by lower catastrophe losses. We expect a mid- to upper 90s combined ratio for personal auto in 2026 as we integrate the acquired book of business.

Turning to Slide 15 and Personal Property. Gross written premiums grew 11.6% in the fourth quarter and 9% for the year, supported by higher average written premiums and an increase in unit growth as we completed our actions in high appeal regions midway through 2025 and introduced product enhancements in the second half of the year. The personal property combined ratio remained robust at 82.7% in the fourth quarter of 2025.

For the full year, we reported an 88.5% combined ratio, an improvement of 7.8 points from 2024. While catastrophe losses were unusually elevated in 2024, the level this year was broadly in line with expectations. Looking ahead, we expect a low to mid-90s combined ratio in 2026 in year 1 of integration.

Slide 16 provides details of our commercial business with premium growth of 6.9% in the fourth quarter and 8.6% for full year 2025, driven by strong retention and rate achievement and continued expansion in small businesses and specialty. Industry growth has moderated to the low to mid-single digits as loss trends normalize.

We continue to expect the organic growth in our commercial book to grow at least twice the pace of the industry, supported by our strong broker partnerships, digital capabilities and ongoing specialty expansion. Commercial lines continue to benefit from our focus on underwriting discipline, delivering a strong combined ratio of 89.1% in the fourth quarter of 2025. For the full year, the combined ratio was also strong at 89.3%, essentially unchanged from 2024.

Results reflected lower catastrophe losses and a reduced expense ratio, partly offset by an increase in the core accident year claims ratio. The changes in catastrophe losses and the core accident year ratio were impacted in part by our revised definition of a single claim catastrophe loss. Looking ahead, we expect a low to mid-90s combined ratio overall in 2026 as we continue to target operating the existing Definity Commercial book in the low 90s and begin integration of the acquired book of business.

Putting this all together on Slide 17, we generated substantial operating net income of $120.7 million in the fourth quarter, reflecting strong underwriting income alongside meaningful contributions from our insurance broker platform and net investment income. Consolidated underwriting income increased by $14.5 million in the quarter and by more than $142 million for the full year, driven by robust performances in personal property and commercial insurance.

Net investment income totaled $215.7 million for 2025, up nearly 9% from 2024. The increase was primarily due to higher interest income from the proceeds of our senior unsecured notes invested in short-term instruments as well as increased bond holdings. 2026, we expect net investment income to exceed $300 million, supported by the growth in assets added through the Travelers transaction.

Overall, broker operating income increased by more than 24% in 2025, reflecting strong contributions from both acquisitions and solid underlying organic growth. As Rowan mentioned, we expect broker operating income to grow by approximately 20% in 2026 from the $94 million delivered in 2025 with a 60-40 mix between distribution income and intercompany commissions, reflective of an increased share of wallet as we integrate the acquired business.

Lastly, you'll note the increase in our operating ROE, which ended near the top of our guidance range at 12.2%. This resulted from progress on all of our organic levers, including improved Sonnet profitability, the continued march down of our operating expense ratio and early progress on our claims transformation. We also benefited from about 1 point of better-than-expected cat losses.

Conversely, the issuance of shares in Q2 to partly fund our Travelers transaction had a negative impact on operating ROE, which will not be fully reflected in this metric until mid-2026. Progress made in 2025 provides confidence in our ability to sustain a mid-teen result post integration once we realize the expected benefits from the Travelers transaction.

Turning to Slide 18. We delivered a successful renewal of our reinsurance program for 2026, which meets the requirements of our much larger post-acquisition profile. This was supported by our strong performance track record with reinsurers, and we maintain robust access to reinsurance markets.

As part of the pro forma structure, Definity's overall reinsurance coverage increased significantly due to the expanded scale of the combined company. Importantly, while catastrophe treaty retentions increased by $15 million or 20%, the rise was smaller relative to the expected growth in the overall business of more than 35%, resulting in a more efficient risk transfer profile.

Slide 19 illustrates the continued strengthening of our financial position in 2025. The increase in our book value to north of $4 billion was primarily due to strong operating performance and the private placements of common shares in the second quarter, partially offset by our growing dividend distributions for the year.

Clearly, our financial capacity ended the year in a robust position as we approach the closing of the Travelers transaction. Our current leverage ratio remains below 30% following the close of the transaction, and we are confident that this will reduce to our target level of 25% in the near term.

Slide 20 outlines how we funded the $3.3 billion acquisition last month. As expected, a significant portion of the funding came from excess capital, our own in addition to the approximately $1.1 billion from the acquired business as well as $385 million of equity financing completed post announcement.

Our $1 billion inaugural bond offering and a $375 million 2-year bank loan make up the debt financing required to fund the acquisition. I'm pleased to say that we have already repaid the excess capital term loan that bridged from the date of closing until we could access the $1.1 billion in excess capital.

Turning to Slide 21. Our integration work is progressing well, ensuring we delivered a seamless day 1 experience for brokers, policyholders and employees. All transition services were fully operational from day 1 to ensure business continuity and employees came together under unified leadership supported by in-person town halls that reinforced our culture.

We have already begun to move new business intake to Definity, an important step toward harmonizing our broker distributed products under a single brand. Looking ahead, we're on track to start the policy conversion process in Q2 2026. At the same time, we're executing well against our planned integration activities and maintain strong change management to support brokers, employees and business growth.

Turning to Slide 22. Our integration planning provides a clear actionable pathway with at least $100 million of annual run rate synergies identified. These synergies are driven by 3 primary sources: technology platform consolidation as Travelers personal and commercial volumes migrate onto Definity's scalable buying platform; elimination of U.S. parent company service charges that fall away as the business transitions to Definity oversight and operations and operational efficiencies driven by elimination of duplicative and administrative activities and the benefits of scale. This began immediately post close, there will be a lag between when we complete the work and when the financial benefits are earned.

As previously outlined, we expect approximately 2/3 of the integration efforts will be completed in the first 18 months, which should translate into about 1/3 of total synergies earned during that period. This timing reflects the dependency on fully transitioning the acquired business onto our operating platforms. Together, these synergy drivers represent 6 to 7 points of combined ratio reduction for the acquired business before factoring in future loss cost benefits. With that, I'll hand it back to Rowan for some final thoughts.

Thanks, Phil. With the acquisition phase now complete, we've strengthened our position in the Canadian P&C market and reinforced our role as a leading carrier in the broker channel. Our focus now shifts squarely to execution, integrating the acquired business effectively, advancing digital innovation and sustaining the strong performance that has defined our trajectory.

Bringing these organizations together enhances our scale, broadens our personal, commercial and specialty capabilities and deepens our relationships across Canada. Travelers culture has been a natural fit, and we're excited to welcome our new teammates as we build a stronger, more formidable Definity.

This moment represents a launch point. With a modern platform, a diversified business and a clear growth strategy, we are well positioned to accelerate our momentum and continue building a Canadian champion, one that delivers sustained value for our customers, our brokers and our shareholders. With that, I'll turn the call back over to Dennis to begin the Q&A session.

Thanks, Rowan. We are now ready to take questions.

[Operator Instructions] And your first question comes from the line of Paul Holden from CIBC.

First question is regarding commercial insurance lines. And without a question, I think Definity has done an excellent job growing in commercial since IPO, 2x industry growth rate, plus with very good margins. I think the question people are starting to ask though is, okay, well, now the market is clearly -- market conditions are not as generous. So can you continue to grow at 2x the market with very strong margins, or you can continue to grow at 2x, but maybe sacrificing a little bit of margin?

Paul, I think that a couple of points I would kind of make before handing over to Obaid to kind of give you some more color. You make the point about the commercial market evolving, and I think we definitely see that as well. The big picture for us is don't forget 70% of our premium is in personal insurance, which is still a very firm marketplace. And then the 30% that is in commercial we feel about 15% of that is what is really exposed to this increasingly competitive large commercial segment.

So overall, it's about 5-ish percent of the total portfolio. So I think that's an important point of context. The other point I would make is that this isn't new. Like we've been seeing a more competitive market for multiple quarters now, as you've seen us call that out in the past. And Definity continues to outperform each of those quarters, even this last quarter, posting a 7% organic growth. We have said broadly, we can grow at twice the rate of the industry.

But when you think about low industry growth rates, our current growth rate is actually multiples more than that today. And I think the main issue for us is that there is some structural advantages, and we're structurally well positioned to continually growing ahead of the market with -- withholding our margins. So a lot of kind of confidence there. But why don't I pass it over to Obaid to kind of add some more color on how you're doing this.

Thank you, Rowan. And let me maybe just start with -- I'll just take a minute on our performance and then give a bit of context on the structural advantages, which Rowan just mentioned. 7% growth in Q4, 8.5% for the year at a sub-90 COR. We're delighted by this because it's clear outperformance to the marketplace. Our growth was very balanced. About half of it came from pricing, half of it was organic.

We gained market share overall. When we look at our structural advantage, it comes from 2 areas. One is the complexion of our portfolio, which is heavily skewed towards the small and mid-market business. The second component is over the past number of years, we've made quite a few investments in technology and in our specialty capabilities.

If we start with the first piece on the small and midsized business, here, what matters is speed, ease of doing business, service and technology is really the differentiator. We have Vyne Commercial. It's our digital platform. We believe it is the leading digital platform in this space in the market, and it continues to give us outsized growth. We're getting high single-digit growth in the small business space, both coming from pricing, and we're gaining meaningful market share.

As we've mentioned in a few quarters, and we did in the opening remarks, the large account segment is competitive. We're staying disciplined there, protecting margin. This is about less than 15% of our portfolio. And finally, we get to the specialty part of the business where over the years, we've made quite a few investments in capabilities, in underwriting, in claims, in risk prevention. We've cultivated deep broker relationships in that space, and that continues to bear fruit. We're gaining market share.

We've got a number of verticals which are running, growing. We had double-digit growth in the specialty business. When I put this all together, this is a structural advantage, which helps us manage through the cycle. And if I take a step back, when we look at the past 5 or 6 quarters, this is when the market did become a bit more competitive in certain segments.

We've had high single-digit growth, and we've outperformed our peers by about 7 points. It's a meaningful and material outperformance and really does speak to the resilience that we built in our business to manage through the cycle. As we look forward, we think this growth momentum of ours is going to continue how we ended the year. We're going to be in the upper single-digit range.

And the Travelers acquisition is bringing a host of new verticals and capabilities in the specialty space, things like ocean marine, technology, cyber, financial lines, a leading cross-border facility, just to name a few. And once we get these onboarded, they're going to open up a new frontier of growth. They're going to expand our addressable market and really excited about having that as we go through the transition.

Okay. That's a very good answer. I appreciate that. Second question is related to personal auto. So certainly versus my own expectations, the combined ratio was better than I would have expected in Q4, which did see some more, call it, normal type weather and certainly worse than Q4 of the year before, but yet your core accident claims ratio improved by a little over 100 basis points year-over-year. So maybe talk to me a little bit about that and maybe it's just as simple as pricing has been coming ahead of claims inflation. But if there's more to it to that, I would love to hear it.

I think that, Paul, that's a part of the business we've been very pleased with. And I think it's had -- it's obviously industry challenges over the last couple of years, and we continue to get better in that line of business. So what we think about the way we've exited the year, there's a number of drivers there. But don't forget, Sonnet is one piece that is now much better than it was over the last couple of years.

And that drag has now disappeared as we said that it would be. And then the other part of this is that there has been significant rate taken and segmentation changes. And when you put that on the Vyne Personal Lines platform, that agility and frequency by which you can keep optimizing your portfolio, we think, is actually giving us a competitive advantage.

And if you think about not just the core accident year, which certainly has improved, as you said, up 2 points year-on-year, but we're now also in a position where we're moving back into strong growth. So the growth in Q4 was really a step up from where it was in Q3 as we had kind of called it out. And that component of growth is now both unit count as well as ongoing kind of rates. So I think that's a pleasing line for us.

Okay. I want to ask one more, and that's going to be on the AI disruption topic and my own opinions on it. But I want to hear your opinions and how it may or may not be or how you're viewing the risk, particularly in the insurance brokerage space, which was impacted earlier this week by that theme.

You've guided to 20% growth next year in brokerage. I assume that indicates you're going to be buying more. Your intent is to be buying more. So how do you get comfort or how are you thinking about continuing to deploy capital into insurance brokerage, even though there's this AI narrative that it's going to be disruptive to the business?

Yes. Thank you for that, Paul. I think as you pointed out, our distribution, the top 10 broker that position we have is working out very well for us, and you saw us growing operating earnings by 24% this year. That's both acquisitions that we brought in, but strong organic growth at high margins. So this is an attractive business. And I'll tell you that one of the things that I think is an advantage for our platform is the fact that it is linked to Definity.

And if you step back and you think about the investments that we, as an organization, have made in AI, we've been deploying these tools for well over a decade. They're right across the business from influencing growth, loss ratio, user experience. We have great data, 25 years plus in the cloud, a specific partnership with Google. So the point I'm making is that over 70% of our people are now engaged using these tools, and these tools are across our business.

That's the underwriting side. As you link to the distribution side, I think that's an advantage where we can take some of this track record, this knowledge and these capabilities into helping brokers adjust as well. And I think on the broker kind of narrative, brokers have been challenged many, many times over the decades, and they continue to stay relevant. They continue to get bigger.

They continue to do -- to actually increase their valuations. And so we think overall, in commercial insurance, this is complex. These are big assets, and you need a lot of trust and advisory services to set those. In personal lines, this is really happening. There are AI tools already involved in helping customers in the discovery phase, in shopping, but many of those still need, feel and trust the need to link to a broker, well over 40% of those. So to me, it's more about an adoption.

Can the brokers adapt? Can they invest? And like anything, just like when digital tools came into the channel, if you're making those investments, I think you'll stay relevant. If you're not, I think you would fall behind. So the takeaway to us is we're still very confident in that channel.

We don't think this is the end of broker distribution by any means. But they are evolving. They'll need to make these amendments. And many of them, with certainly our support, we think we'll do that. I actually think this helps increase the pipeline, which is a good pipeline. And I think that's a nice opportunity for that channel.

And your next question comes from the line of Bart Dziarski from RBC Capital Markets.

I wanted to ask around on Travelers. So I guess, related to that 2026, you gave guidance for $6.5 billion of premiums. What does that assume for the $1.5 billion book you inherited for Travelers in 2025? And then maybe more importantly, how should we think about the growth of that book in 2027?

Well, thanks very much for that, Bart. A couple of quick points here. Firstly, I think when you think about the context around that, I would say we are delighted that we actually closed the transaction on January 2. It was a very smooth procedure. And as we've said before, this is a game changer for Definity. A quick reminder here is very strategic. This places us in the top 5, which was our goal before, we now set our missions on top 3.

It's added a lot of capability and product to our specialty and commercial lines and more scale. The personal lines firmly put us in #3. So we like that. The financial conditions certainly compelling. We've talked about the $100 million cost synergy and how we will ultimately get that portfolio to perform like Definity. Clearly, when you buy a business like this, you're buying it for the long term. 2026 is a transition year.

So what we're really focused on here is the retention of the business, the conversion and getting it on to our platform, that platform changed. I think the high-level question you asked about what are those assumptions. So I look back and I say, okay, you've got -- we're adding about $1.5 billion of business from Travelers to Definity's business. That moves us up a minimum of 35% this year.

So Definity will become significantly larger as we pull that on. As you would expect on that Travelers portfolio, there is going to be some dislocation on that. Now we look at that, and we feel very good that there isn't major dislocation. Most of it, we like. But naturally, there will be some dislocation.

There will be some accounts, some segments that don't fit. So that will kind of contract a little bit, not materially. But the underlying business, the Definity business, we're really confident is going to continue to operate like it is today, upper single digits. You heard Obaid talk about that in commercial. Paul says the same thing for his personal lines business.

And once we convert the business on, our expectation is that both portfolios, the Travelers portfolio and the Definity portfolio continues to operate like it is. If you think about where is Definity today, it's in the low 90s, and it's growing upper single digits. That's not going to happen year 1 with Travelers, as you would expect. But as we finish the conversion, our expectation is that both businesses will be performing in that range.

Awesome. That's very helpful. And then I guess sticking with Travelers on the specialty opportunity that this business brings. You mentioned a new total addressable market. Could you maybe help us size what that opportunity could be and then how fast you're looking to kind of address that opportunity?

Go ahead, Obaid.

Yes. No, thank you for the question. I mentioned some of the verticals upfront. And the way we look at this is that you get those new capabilities, it allows us to cross-sell to our existing customer base, so we can give them more product. It will allow us to increase product density with our broker partners.

And the combination of that, so you get the new capabilities plus the fact that those enable you to get more growth on your existing capabilities because you can link them up together, we think it's going to give us momentum to continue with that minimum sort of 2x industry growth rate, upper single digit for a number of years going forward. Now when do they come -- when do we bring them online?

As Rowan mentioned, this is a transition year. We're right now working to onboard these capabilities into our operating model, into our business platforms. And we think towards the end of the year, we'll start to get them fully rolled on to our platform. So towards the end of the year, going into '27, that's when we expect that they'll be functioning within our model.

Just a data point. As far as the addressable market is concerned, typically, we've been operating in a market we think is about $27 billion. This moves that market up to just over $34 billion now. So it is a meaningful upside opportunity that Obaid has mentioned.

And your next question comes from the line of Jaeme Gloyn from National Bank Capital Markets.

First question, I just wanted to get a clarification on a comment that was made around the AI and how AI is already helping customers in personal lines. You talked about -- you gave a percentage. It was 40%, I believe, of customers using, I guess, like AI or digital quoting tools need to get on the phone and confirm what they've done. Is that what I interpreted you said or just clarify that.

No, I think what we're saying is that when people do use those tools, 40% of them still end up reverting back to asking for broker advice to complete the transaction.

Okay. Yes, that's kind of what I thought. Okay. Got you. And then following on that as well, Rowan, I believe you talked about AI helping broker distribution and Definity helping with that expansion, increasing the pipeline for Definity. Can you sort of talk through how you would see that pipeline to Definity increase as opposed to potentially elsewhere?

Yes, sure. I mean, Fabi, do you want to take that, which is what are you seeing in the pipeline? And why are people coming into the pipeline?

Yes. Glad to do that, Rowan. Thank you, Jaeme, for your question. So maybe picking up on the question what AI will do to distribution. As Rowan mentioned, we've been a leading company, both on the digital side, now with AI as well. And what we've been doing over the last couple of years, we've been leveraging those capabilities into our own broker platform as well.

So over the past 2 years, we've been leveraging AI and the benefits of that to our broker platform is that we are able to enhance lead generation and customer traction. We are able to strengthen service and customer engagement. We are able to provide customized advice to specific commercial segments. And then we also have a number of key operational benefits that come out of leveraging AI into our broker platform, to name a few. We are automating routine processes.

We are enhancing data analysis and business intelligence. We are automating coverage analysis and coverage gap analysis. We are using that capability to help our brokers kind of mitigate risk at the customer base. So a whole host of value drivers that will allow us to drive more organic growth, will allow us to increase our EBITDA margin. And I think what's happening, as it does on the P&C side, scale is a very important differentiator going forward.

We fully expect that the consolidation will be continuing to happening on the broker side as well because the top 10 brokers are controlling now over 50% of the marketplace in Canada and being able to make those investments into platforms, talent, data communities will be a differentiator. And I think that the smaller brokers will kind of want to join our broker platform because they'll benefit from additional insights, additional capability, additional growth opportunity.

And unlike other platforms that are out there, we are encouraging the incoming brokers to retain a meaningful ownership opportunity. And we quite like that because of broker principles, key producers that have an ownership in the broker platform as well. They are very motivated. They keep being very entrepreneurial and it aligns the growth aspirations between ourselves and those key operators overall.

So I think these are many kind of dimensions as to why we think that the consolidation will continue to happen. And what we have proven over the last 2 years is that the platform that we've created is attracting the target focus that we want to have in that broker platform. And with that in mind, I think we are as confident as we can be that we will be continuing to increase our operating income in that 20% range that we committed to you.

Okay. Great. Appreciate that color. And then still on the broker side but just thinking through the acquisition pipeline to drive the 20% growth. Have you seen any shifts in the M&A backdrop in the last couple of months, maybe a little bit longer than that, that could potentially accelerate that growth trajectory and the M&A pipeline?

What typically happens is that those midsized brokers that they look at it from a 3-, 5-, 10-year horizon at this point of time that the multiples that are being offered for those brokers are still attractive. And if you are a midsized broker kind of managing $100 million, $200 million of business, you have a concern now about how you go through succession planning. 20 years ago, you needed $10 million or $20 million to fund succession planning.

Today, you need $100 million, $120 million. So it's nearly impossible for those family-owned brokerages to do internal succession planning. So then it comes back to the platform that we've built in terms of us supporting the McDougall leadership team to be empowered, entrepreneurial, always with sound governance framework around it.

But again, the attractiveness of our platform, that allows them to leverage different product capabilities, allows them to typically increase the organic growth after they've joined the broker platform benefiting from scale and market access benefits. And then as I mentioned, the invitation for those broker principals to leave equity in the platform, I think will continue to be very attractive to brokers that decides to partner with somebody else.

Okay. Got it. And then last one, just on the Travelers and just I want to make sure I'm interpreting some of the commentary correctly. 2025 Travelers premiums written looks pretty flat to their 2024, just kind of rough numbers could be some rounding.

And then my interpretation from your comments is we should expect to see like Travelers premiums growth through this integration process in the first year pretty flat again for what will be included with Definity and then start to accelerate towards the end of the year. Is that the right way to be thinking about Travelers premium contribution to Definity?

Yes, Jaeme, that's a good interpretation. I think if you look at what happened with the premium base, it actually contracted slightly from 2024 levels came in just a little below $1.5 billion. Now that was driven by actions taken under prior ownership where they were looking at targeted rate and underwriting actions. There's a couple of portfolio exits in there.

So that's actually a good factor in terms of that underlying profitability kind of focus. And as they were taking those actions, clearly, it was during a period of time where people were waiting to look to see the certainty of the close period. So I think what we expect going forward, there'll be a little bit of spill of some of those actions and efforts into the first half of 2026. So we'll probably see the Travelers contribution of that acquired book be on the flat or a little lower side.

And then as we emerge through our conversion activities begin to get a hold of the business and have more influence in the activity, we'd see that start to move back. So when I segment it for '26, we still continue to see good upper single-digit growth on the existing book. We see the $6.5 billion more akin to a floor than a ceiling. And certainly, we've got good conviction that as we get that stewardship and alignment of the books, you'll see that emergence into a more aligned growth pattern towards the end of the year.

And your next question comes from the line of Alex Scott from Barclays.

I just wanted to go back to a few more housekeeping items. On net investment income, can you help us think about the portfolio now that you have it? And just how to think about the yield and how that may change versus your portfolio, how much assets now that you've got them on board? Can you help us think through all that?

Yes. No problem. I mean there are quite a lot of moving parts because, obviously, we were positioning the portfolio for the transaction, which closed on Jan 2. And you may have heard in the commentary that we were very proactive in terms of settling down the excess capital loans. We paid down that $1.1 billion of temporary debt financing, leveraging the acquired portfolio from Travelers at the start of February, which was several months faster than we anticipated.

That obviously helps us on a net basis because we've taken away the cost of the debt, but you don't carry those excess assets. So if I step back today and say where are we today, we've got just north of $9 billion of invested assets. The blended book yield on that, it's heavily weighted towards fixed income. So the blended book yield is about 3.4% when you recognize bringing on that investment portfolio from Travelers balance sheet. Your fair value that to market yields on the date of acquisition.

And then we've done some trading to the line the portfolios. So I think if you step back, big picture, about $9 billion now of assets under our investment strategy and management, about a 3.4% book yield on that today. Now where we end the year, it obviously depends on the yield environment, depends on cash flows in and out of the portfolio.

But that's why we've got good conviction that we'll generate at least $300 million on it during the year. I think what you'll see at the start, Alex, is our weights will be more orientated to fixed income. We brought that portfolio over on that basis. We'll probably stay like that for the first couple of quarters just as we settle into the acquisition, focus on a little bit of the deleveraging aspect as you've already seen with those actions in February.

That's really helpful. And then just on pruning the business as you're kind of going through that, what will the timing look like? Are you starting that more aggressive immediately? Or is that something you'll sort of get the book on and take your time with? I'm just trying to anticipate a little bit how you're planning on approaching it? And also maybe just a view on the market we're in right now and just how retention will react relative to if there is some price softening out there that kind of leaks in from the global pricing environment.

I think that the retention of the portfolio and the conversion is really not that impacted by your point about the market conditions because, again, Travelers is pretty close to 70% personal lines, I think it's 68%. And of the commercial business, it looks fairly similar to ours. They have a large small business area. They also have a large specialty area, which is, of course, what we like. So the segment that's really exposed to these more competitive large commercial accounts is similar to ours.

It's not a big piece. So I think that the market conditions are less impactful. I think that the point that we're making, and Phil articulated is the business that's rolling on that has come from previous management of Travelers, as they've really taken some underwriting actions, that portfolio is slightly contracting. As we said, that's good because those are actions we likely would have taken ourselves once we acquired the business. So in fact, it's accelerating some loss ratio improvement.

Mostly, there aren't any big portfolios that we really dislike or outside of our underwriting appetite. So we would like to keep most of it. That being said, just naturally, there will be some accounts, there will be some dislocation on pricing as we transfer the business from the Travelers platform to the Definity platform. And that will be some, let's call it, relatively modest retention rate declines in the first year. As that rolls on, we then very much expect this business to start performing just like Definity.

We expect that the retention rates will be just as good as Definity's. We expect that the new business production of the total portfolio continues to be upper single digit. And we've got Definity now running in the low 90s combined ratios as we complete this 3-year conversion, we expect Travelers portfolio to mirror that. So that's the kind of way forward. So I wouldn't read too much into it.

But I think the important point here is that we're inheriting a little less than $1.5 billion. That will shrink a little this year as expected, as you would expect in the first-year conversion. It gets offset by upper single-digit Definity portfolio growth this year, and then they start to look pretty similar in performance over the next couple of years.

And your last question comes from the line of Tom MacKinnon from BMO Capital Markets.

A question with respect to the exited lines. I guess that's the Sonnet Alberta stuff. Losses of $10 million in the quarter. This has been ongoing for some time. I think this is the highest we've seen in the last 4 quarters. What's happening there? Are we going to continue to see losses from that going forward? When does that business run off? And I have a follow-up.

Yes. Thanks, Tom. Yes, you're right. Exited lines in the quarter, you saw a loss there of $10 million. That was driven by specific actions we took to strengthen the reserve position. I'd say, specifically in relation to bodily injury amounts. And really, what we did there was we took the decision to reinforce that level of prudence as we exit the year, and we now have a book that's fully transitioned into runoff. So there is no future earned premium coming through that book. There's no ongoing new exposure.

So really, our intent there was to leave 2025 with a very robust balance sheet position against that exited business, really to try and mitigate the risk of any future adverse development coming there from. And I would say we're very confident in the closing position that we now exit really to put that behind us, I think, is the attitude that we took in closing the book and looking forward to the reforms that should come into the problems in '27.

What about on the Travelers book that you're bringing in? Is there a decision to move any of that into exited lines?

No. So they have an active broker distributed business similar to the one that we have. It's not oversized either. I think the level of concentration in Alberta is pretty close to what we have today, and they're continuing to operate in that environment. So no. Now we're looking at -- obviously, we're picking up the whole legacy of the business.

There might be historical business that they wrote, which we would consider to be more exited lines in nature. But we'll be looking at the opening balance sheet. We're going through that work right now. And I'd say similar to the Sonnet position, we'll be looking to make sure we're comforted on any back book there. But no, in connection with Alberta auto, they continue to move forward.

And if you make a decision to bump up reserves on the Travelers book, does that -- will that be reflected in PYD in the first quarter? Or is that sort of reflected into the purchase acquisition mix?

Yes. So I think what we'll do is, obviously, we go through a fulsome review. We're at that now. We'll finish that process off for the Q1 reporting. I think just in that regard, from what we've seen so far, we're very happy with the balance sheet that's coming across. So we feel pretty good about the decisions they've taken. They certainly seem from early days to have been very prudent in their approach. And so we feel good about that opening position.

As we report the reporting going forward in our MD&As, we will be reflecting that consistent pattern that we do today on our existing book of business. So as prior year development rolls through, that will get reported into current results. So we'll reset the balance sheet to our degree of prudence and satisfaction as part of that. And then from there on in, you'll see the prior year development roll through in our kind of operating reporting going forward.

All right. So no change in your kind of guide for prior year development going forward then?

No, I don't think so. I think our view would be we'll be bringing them similar with the underwriting and pricing, we'll be bringing them to our reserve kind of practices and management and monitoring. So at this stage, we've had this historic 1- to 2-point range. I think our goal is to bring them consistent with that -- the practices that underpin that reserving approach.

That ends our question-and-answer session. I will now hand the call back to Dennis Westfall for any closing remarks.

Thank you, and thanks to everyone for participating today. The webcast will be archived on our website for 1 year. The telephone replay will be available at 2:00 p.m. today until February 20, and a transcript will be made available on our website. Please note that our first quarter results for 2026 will be released on May 7. That concludes our conference call for today. Thank you and have a great one.

This concludes today's call. Thank you for participating. You may all disconnect.

Everyone joining us today. And so we have Rowan Saunders, President and CEO of Definity. Thank you very much for participating in the conference.

Great to be here.

Looking forward to our chat. So where I've been starting is more big picture, thinking, talking about strategic priorities. So maybe you can whittle it down to 3 or 4 strategic priorities that you're spending a lot of time on these days and why.

And I'm sure M&A with the Travelers acquisition, which we can dig into a little bit more is one of them. But maybe I'll just kind of throw that out there and then we can kick the discussion where it goes.

Yes, sure. Well, thank you for that. And look, I think there's a lot going on at Definity. It's a busy place, but it's an exciting place. And when we think about what we're really focusing on, how we're spending a lot of our executive time, I'd say number one would be just making sure that the core business Definity keeps delivering the commitments we've said.

And so we've given guidance on what we're doing with revenue growth, organically growing the business, swipe the industry, printing the sub-95% combined ratio and then that operating ROE walk. And that's the real kind of earnings driver of the business. So most of the operation is really focused on that. So that's a big focus area that continues.

You mentioned Travelers, and absolutely, that's exciting. This is a transformational deal for us. And so lots of time and effort on that. It's all progressing quite nicely. So as we've kind of said, we expect that to happen in the first part of the first quarter next year. So the teams are very, very busy on integration planning, and that's getting ready for day 1.

And then, of course, the full integration as we take possession of that company. It gets us to be a top player and really will bring a lot of capabilities to us. So very exciting, big focus for ourselves. I think the other focus area would actually be Sonnet.

And I think -- so Sonnet has been a strategic investment for us. I think that we see changes in the marketplace that are going to be exciting in personal insurance. We spent a lot of time and effort over the last few years working and trying to get that model to work the way we'd like it to. I think we feel the best we've ever felt about that business.

And so we're now working from can we make it profitable and can we attract and have a legit business model that works as a fully digital insurer. We think we're there. So now how do we start building and scaling that over the next couple of years. That would be, I think, the third one. And then the fourth big area of focus for us is we're finishing this digital transformation.

We keep investing as being a digital leader. So we continue to evolve the existing platforms that we have, whether Sonnet and Vyne and now our claims transformation. And then, of course, AI. And so that would be a big mind share for the top team.

So maybe before I go into this, like Sonnet that piqued my interest because it has been -- you launched that 7 years ago.

Yes.

7 years ago. And it was money losing for a period of time. It's breakeven, I think, now. And you've kind of backed out of Alberta personal auto, which has helped to get to breakeven. So what excites you going forward as you look at that model?

Because that was one that you kind of singled out. What are a few things that opportunity-wise, is it tie into the Travelers deal? Or is it just organic growth?

No, it's separate from the Travelers deal. And I think that we think in the personal insurance marketplace, obviously, we operate in commercial lines and personal lines. A little over 50% of the personal lines marketplace is direct-to-consumer.

So it's disintermediating. And that's evolved over the years. And I think that continues to grow. I think what we see in that market, though, is an acceleration of pure digital versus traditional direct. And people used to be comfortable going to an agent in the local mall.

They used to be comfortable going to a contact center. And that's traditionally how most of the direct insurers in Canada operate. I think that what we feel is unique with Sonnet is the fully -- the only fully digital direct. We have no underwriters in that business.

And that is starting to get more traction with consumers. I think the other thing we found there is that we've been able to build a -- I think it's a slightly disruptive model to target groups and affinities. And our view on personal insurance, that's really one of the most attractive components of the Personal Lines business.

And so we've now got to a stage where we are 4 consecutive quarters printing an underwriting profit. It's a small underwriting profit, but it is sub-90 -- I mean, sub-100 combined ratio. And so that, I think, gets us the excitement. I think that, to me, is our next billion dollar business.

A few years ago, we said, okay, well, let's get personal lines big, let's get commercial over $1 billion. You then saw us build a broker platform under the McDougall's brand. That's over $1 billion. I think Sonnet is our next billion business. So...

$1 billion and premium.

And premium. $1 billion and premium.

I was going to say on earnings?

Not quite yet. I think that Phil will get very stressed if I give you that guidance.

Phil sweating back there. So maybe this ties into Sonnet a little bit because I think technology, we were just talking about 9 years ago is when you joined and you came into an organization that's very different today than it was then.

And technology was one thing you spent a lot of time with your teams building out and whether it's buying in Guidewire. And I don't want to go because we don't have enough time probably to go down the full memory lane.

But I do think it is something that's interesting and something that sets you up for success. And so I just want you to kind of talk a bit about how much has been reaped, and I think there's a lot more still to come from those investments.

Absolutely. I think that we had the view of when you were a neutral company, we had significant excess capital. And part of the business case that the Board was supportive of is, look, what do we do with that? And we felt like when you want to be a leading P&C company, you really have to modernize your whole platform. So that was really the big driver. And literally hundreds and hundreds of millions of dollars we've invested in those platforms.

They give us massive advantage. And I think just a couple of points I would draw out there. So I think the Sonnet model is its own benchmark, quite frankly, in terms of user experience. So we talked a little bit about that. The Vyne platform is really important for personal insurance. In personal insurance, there is a consolidation of markets happening.

Brokers are evolving what proposition they take to their customers. They want to deal with fewer insurance companies. It's table stakes, but technology is actually the biggest driver. And it also allows us not just to have a fantastic user experience with the brokers for them to place more business with us, but the level of underwriting sophistication, which is now automated to the front line.

And so a quick example is we now do 7x more rate filings and product adjustments than we did pre-pandemic. Last year, we did 150. That is unique, and that gives you a significant advantage in terms of your proposition, but also generating underwriting margin out of that business.

So I think that's that one. Commercial lines, we've done the same thing for Small Commercial. We're now can quote brokers can get a quote in 1 to 2 minutes, like that's unbelievable. When I was -- many years ago in the business, it would take a few days to do something like that.

And I think that, again, just helps the proposition, and we believe the underwriting sophistication works. And then the last one, which actually we were late to the party on this claims. and we did that last. And we finished the auto transformation. Now property is literally within several weeks ago, just gone in.

All of that, we think, is a couple of combined ratio points still coming ahead of us.

So a lot of the heavy lifting has now been done on technology. You've reached some of the benefits. But I think you did talk, and I forget where I saw the 2 points of operating ROE from technology or from claims.

Yes. No, that's what -- I think that's coming. I think when we have these 3 organic drivers. And so one was Sonnet, as you talked earlier, was an investment for us. We want to get that to be breakeven. That's done. We have operating leverage. So we have operating expense ratio was about 13%. We wanted to get to 11%. That's mostly done. We'll get that finished next year.

And then the claims transformation is another couple of points. And I think that will take '26 and '27 to fully realize it. But we -- what we've seen from the first launch, which is the auto, which is about 45% of our claims, really tracking well, cycle times, leakage, efficiency.

And so assuming that works as well on the property casualty side, that totals those 2 points.

Yes. Okay. And you used to talk about with the technology spend that you made, you could layer on double the amount of business you do and not have to incrementally spend more. I'm going to get -- you could correct me what I got wrong.

You're doing the Travelers deal, you're layering it on. I assume your technology is more than fine to handle that. Like what is that capacity left? Or is there going to be a period of time where you're going to have to do further investments? Or is there just a lot more capacity still to layer into these systems?

So on the one hand, we continually keep up in the systems. And so we invest about 1 point or so operating ROE each and every year, like into buying and just keep building. The point you've made, I think when we think about the Travelers deal, there's personal lines, which is roughly $1 billion, and there's about $5 billion to $6 billion of commercial lines.

The personal lines gets lifted and shifted on to the line platform. And so that's really good because we don't have underwriters there. It's operational. We'll need some headcount for more claims, but not on the underwriting and processing side. So that gives you a good reason why we're so comfortable with the cost synergies that we expected on that side.

Look, we're now fully in the cloud. And so it's easy to upgrade. It's easy to get the enhancements. They will come with some cost for sure, like it's not completely cost free, but the operational leverage is just going to continue to grow as we organically grow.

And I want to take it to what I think you said in the last conference call, but the 10-year plan to triple the size of Definity. This is old statement. You want to be a top 3 player down the road. Obviously, Travelers Canada is a good start to that.

It seems like pretty ambitious, but what's the plan to get there? Like when you kind of map it out with the Board and your management team, like how do you get to that triple the size and top 3 player?

So I think, firstly, I would say, if you just look at what we've done over the last 5 years, it gives you credibility, right, because we'll basically be on that kind of journey. And we put this plan last year for our Board of Directors. We're only one year into it, and we're ahead of plan. It's a combination of continuing our twice the industry organic growth and some more M&A.

So if you actually say, well, what does that map out? And is it realistic? I think the -- outperforming the industry growth organically is realistic. We've done that at least as we've targeted. The organic -- inorganic growth, I think Travelers is a good example, but it would still require something like Travelers, another $1.5 billion to $2 billion in acquired premium.

There could be one company, it could be a couple of countries. So as I think about that plan, I think that's quite -- our thesis of the market consolidating plus the organic drivers plus Sonnet coming on board, I think, gives us quite a bit of confidence that, that is a realistic target for ourselves.

Okay. So there is M&A.

There is some M&A.

I mean I'm going to date myself. But if you go back 20-odd years ago, I mean, the view is always Canada P&C insurance market fragmented, going to consolidate. And it has consolidated. But here we stand today, it's still fragmented, and it's going to consolidate.

Like is there something that's going to pick up that consolidation today. And maybe it's technology and the lack of scale and there just hasn't been as much as I would have expected over that time. And maybe I'm wrong or maybe you have a different view, I'd be curious of it, but is there something that's changed this time?

I think it goes through a bit of waves. And that if you cycle -- if you look at the last 20 years, there were phases where there was sort of accelerated in consolidation, then there was a slowdown. And I think we're now entering another acceleration phase. I think COVID was a really unique 3 or 4 years in there that actually slowed everything down, and we've seen an acceleration past that.

One of the points I would look at just as evidence is so a company like Travelers, which is a really impressive organization, experts in insurance. They had a $1.5 billion business in Canada. They made the decision that was subscale, and they believe scale is going to be important going forward.

And so that's how we were able to convince them to partner with us and to sell their business. I think that actually then makes many other companies that are foreign players in Canada think about, well, we're not even $1.5 billion. Travelers can't make it, how are we going to make it? And I think there's more competition.

So if you think about Large and Specialty Commercial, over the last 20 years, this was really the domain for international foreign players. Domestic players didn't play in that. Well, now you've got some very strong Canadian -- happen to be publicly traded Canadian companies that are very good at Specialty and Large commercial.

And that they're taking share. So I think those international players are flatlining and they're going to struggle a little bit. And then I think personal lines is increasingly brand, technology, data, the use of AI, scale is more important now and the anti-selection occurs.

So if we look at just last year, you had these big Nat Cat events. Well, that was a record year for us. It was half our natural market share. Why? Because of partly strategy, but partly the sophistication of aggregation management, product pricing in terms.

Someone's paying their claim. Someone is getting the worse or over accumulation. And that's about the sophistication that you don't get with size and scale.

Yes. So we mentioned Travelers Canada a few times. And I kind of want to ask it this way. I mean, when you look out 4 to 5 years and you're looking back over the past 4 to 5 years, 4 to 5 years out, like what's going to define success for the Travelers deal? Like what's the key metric that's going to define the success of that transaction?

I think the #1 thing that we focused on today is like retaining the top talent, particularly in the commercial business and retain the business. And so that's always the biggest thing. This is a portfolio. It's a good portfolio. That's got good IP, good products, good reputation, lots of good kind of talent.

They just haven't been able to grow the business and they have an expense issue. That's what we solve. So if we can keep that and build on that, that's better. So I think we've given some guidance about $100 million of cost synergies from Travelers. I think that's the first phase. And that's really the cost efficiency of putting them on to our platform.

What that doesn't pick up is any loss ratio improvement, any revenue generation with these new capabilities. So that might take more than a couple of years. But in your 4- to 5-year range, I think we'll be experiencing that. So I think that's the metric there.

I think the other thing that we said is, look, we don't see ourselves as a low single-digit or high single-digit ROE company. We're a mid-teens ROE company. Does Travelers help us get there? We think it does. We had at least a couple of hundred basis points plus our self-help. So we look back at that. And then the other part we look at is, look, we had an objective of being a top 5 player.

We've now achieved that. We'll upgrade that now to a top 3 player. And I think Travelers plays a piece of that in terms of helping move the market share but giving us the new capabilities. What it really does is it solidifies our position as a top 3 broker partner.

So in the broker part of the business, which is pretty well all commercial have personal lines, we are now a major player. And I think brokers look at us as in a different light than they did before. And I think that actually is transformational.

So I look back and I say, well, are we at top 3? That would be great if we are. Do we get to mid-teens? Yes. And have we retained in both capabilities of the Travelers acquisition.

Yes. Perfect. So elephant in the room, obviously, November 22 was a big day for you. The protection from being acquired was taken off. And I covered the life insurance companies when they mutualized and there's protections. And so just -- maybe I'll just open ended, like how should investors think about the day came and when there's lots of chatter out there about consolidation in the marketplace.

But maybe I'll just open end, like how should investors think...

It's just a date in the diary. It's come and gone. We don't really focus on it. I think we go back to why did we go through the mutualization. We wanted to build a Canadian champion. We wanted to build a leader in the Canadian P&C business.

And if you look at the value creation that we've done since IPO, I mean, it's pretty amazing. You look at pro forma Traveler, we've effectively -- it's a 150-year-old company, we doubled the size in the last 4 to 5 years. If you look at printing now into the low 90s combined ratios, we've built a top 10 broker.

We've done this transformational acquisition of Travelers, which proves we are a credible acquirer in the marketplace. We have our 10-year plan of triple the company, triple the value. So I think we don't think about a date in the diary, it's come and gone and what it is, what it is.

We're focused on building the value creation. And I think our track record says we can build a lot of value. And I think the Canadian environment and the thesis we have in the operating environment is very conducive for us building lots of value ahead.

We're still in the early innings here. And so that's really what we think about it.

Yes. Okay. That's a fair point. So maybe just thinking drilling down the business side, the one thing that we get into a lot of discussions on is just the cycle. And I heard your response on the call, and I think it's been obviously very topical.

And like I'm trying to think of how you can kind of phrase it, but it feels like we're seeing a decline in commercial pricing. We're seeing a de-acceleration in personal. If I'm wrong anywhere, you can correct me. It feels like price adequacy has been kind of we're getting to that stage in the personal lines.

And I hear all my friends complain to me because they know that I cover P&C insurance company about auto pricing going up and property pricing going up. So is there something different this time around?

Because I was around the last time the cycle turned, and it was -- it came about and it was probably bigger than I expect. How should we think about the cycle?

I think that you have to firstly understand and appreciate that different parts of the business have different cycles, and they're not all consistent in timing. And so again, if I take the Definity view, you have 3 big product lines, personal auto, personal property and commercial lines.

70% of our business is personal insurance, property and auto. This is a firm market. We're rate adequate, we're profitable, but the industry is still on auto putting prices up. Even last year with the record cat year, we still had an underwriting profit in our personal property, but the industry didn't.

Prices are firming, costs from cats are pushing up, reinsurance attachment points are going higher. So that 70% is still a very firm marketplace. 30% is commercial lines. In the commercial lines, about 85% of that is what we define as kind of small mid-market business. that is a good normal function market.

We're still putting rate increases on that market above loss cost trend. So there's no margin deterioration. So therefore, it's really the large specialty business, some parts of specialty that is much more competitive. And yes, does it have an impact? It does have an impact.

That's why our commercial business is not growing double digit, but now maybe high single digit. There's just less opportunities. So in the small business area, which is the bulk of our business, we keep our price moving forward. That's good conditions. More competitive in that portion of the business, which means there's less opportunities.

We slow the growth. We focus more on retention than on new business. And that's kind of just where you see some of the moderating growth in commercial lines. I think that's quite manageable. Is there something structurally that's different? Well, I think what's different from 20 years ago, 10 years ago, the small commercial is much more concentrated.

And the players have bifurcated. So what you find is there's some insurers that play in small business. There's some that play in the large market. The large and specialty players, most of the big internationals do not play down the small business. So that structure, you have to have that buying technology, you've got to have the claims volume.

It seems different to me structurally than it was. And so far, the discipline is there. That hasn't changed. Large commercial, definitely a little bit of a different story. And that's why I think we've got a way to do it. The other part of this is, look, as Fabi Richenberger and I structured this team, we've been around, we've seen cycles.

And so we've also consciously built our portfolio construction to be less exposed. So there are segments of that large commercial space that we passed on over the last couple of years. So we have very little of it. And those are the segments that are facing the most competition. So I think it affects us, but it's manageable.

And you don't see price competition coming down into that small, medium-sized enterprise because that's the logical thing to think it would come down. But what you're saying is that you're not seeing it.

We're not seeing it yet. We're not. And I think that, again, there could be some parts of the middle market that has larger accounts that could be a little more competitive than it has been in the past. But again, that's a subcomponent of the cycle.

The other thing don't forget, is people that write this business are also factoring multiple things. They know that there's still Nat Cat costs. They know that investment yields are low. You're not getting 6%, 7%, 8% return on your bond portfolio. All of that's got to be captured in.

And then I think the other thing that structurally has changed is the group and the data, you see trends now much faster than you used to see them 10 years ago. And so good management teams can jump on to that much, much quicker.

And then the final point I'd make about it is that property is much shorter tail, much easier to see coming and adjust to that than some of the long-tail liability exposures. And Canada is a very different marketplace. You can't even compare us to other markets like the U.S.

So we're getting close to the end. So one thing I'm going to double back on it because I think about this all the time because I cover banks, I cover Lifecos and those markets are controlled by, call it, 5, 6, 7 different players.

Do you think in the next 10 years as part of your strategic plan, do you think that the market in P&C insurance would concentrate to the same degree as we're seeing in the life insurance in the bank space in Canada?

I think directionally, yes. Will it get as concentrated? Probably not. But I think in the personal lines and small commercial, it will. And then the larger and specialty, there'll still be niche players that play there. So I think that direction is going to accelerate.

Well, I could sit here and chat all day, but I know that the clock is ticking down. So what I'm going to do is I'll pass it back over to you just for some key messages and anything you wanted to address that maybe we didn't kind of talk about.

Thank you. I know we covered quite a lot in there. I mean I think the main story that we've been sharing with investors is Definity was 5% share. Pro forma Travelers were 7% share. There's a lot we can still do in Canada. We are a growth story. We're pretty comfortable that we can grow at around twice the organic growth rate of the industry.

We think that adds the most value. We now know without the drag of Sonnet investment with our operational leverage and expenses, we're moving -- we were around mid-90s, then we were sub-95. Now we're moving to low 90s.

All of that, I think, is really helping build our earnings. I think that even your point about if the market gets a bit more difficult, we are nowhere near the peak of our earnings, and we're nowhere near the peak of our operating ROE. We're still an ROE expansion story.

And part of that just mathematically comes with Travelers and the other part is those 3 levers that we pull. So when we speak to our Board, the story is, organically, we keep growing faster than the market. We drive that operating ROE to the mid-teens. And I think the next piece of it is that we've got the infrastructure, which we consciously built.

You asked about that earlier, to be a legit and credible acquirer. And I think that's more to come.

Perfect. Well, I appreciate you participating in our conference, and thanks for the great discussion, and have a great rest of the day.

Thank you very much. Much appreciate it.

Thank you all.

Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Third Quarter of 2025 Financial Results Conference Call and Webcast Conference Call. [Operator Instructions] This call is being recorded on Friday, November 7, 2025.

I would now like to turn the call over to Vice President of Investor Relations, Dennis Westfall. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at definity.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call.

Joining me on the call today are Rowan Saunders, President and CEO; Philip Mather, EVP and CFO; Paul MacDonald, EVP of Personal Insurance and Digital Channels; and Fabian Richenberger, EVP of Commercial Insurance and Insurance Operations.

We'll start with formal remarks from Rowan and Phil, followed by a Q&A session, during which Paul and Fabi will also be available to answer your questions. With that, I will ask Rowan to begin his remarks.

Thanks, Dennis, and good morning. Last night, we reported record third quarter results that continue the momentum for Definity in what has truly been an exciting year for the company. During the quarter, we made further progress towards the closing of the announced Travelers transaction, including finalizing the required financing via our inaugural $1 billion bond offering, while maintaining our focus on delivering the targeted performance of our existing business, as you can see on Slide 5.

Our strong underwriting performance, higher net investment income and continued momentum in our insurance broker platform combined to produce third quarter operating net income of $125.2 million or $1.03 per share. We delivered a sub-90 combined ratio in the quarter, well ahead of our expectations as our reported core of 89.4% reflected ongoing actions to improve our operational efficiency and included only 1.9 points of cat losses.

From a top line perspective, we continued to deliver growth in line with our expectations. as gross written premiums increased 7.5% in the quarter to exceed $4.7 billion over the last 12 months. We ended the third quarter with book value per share of $33.43, 24% higher than a year ago, inclusive of strong financial results as well as our private placements of common shares to fund part of the Travelers transaction. We generated an operating return on equity of 12.5% over the past 12 months, reflective of the continued delivery against our organic levers.

Sonnet continues to generate a profit for the year, while we remain on track to deliver the targeted improvements from expenses by the end of 2026. Early experience from our claims transformation is encouraging, and we are well positioned to achieve the targeted claims improvements by the end of 2027. I'd note that the improvement in our operating ROE has come along with a 17% increase in our average adjusted equity over the past year.

Moving to Slide 6. Our industry outlook is largely unchanged. We expect conditions in auto lines to remain firm as insurers aim to keep pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of potential U.S. tariffs and retaliatory actions. We expect market conditions in personal property to also remain firm over the next 12 months, particularly following last year's record level of industry catastrophe losses and the structural move to higher reinsurance attachment points. In commercial insurance, while we expect overall market conditions to remain attractive, we are continuing to see that some commercial segments have become more competitive. We expect overall pricing in commercial insurance to keep pace with loss cost trends, which have normalized to low to mid-single digits.

Slide 7 shows our key financial targets for 2025. As you can see, both top line growth and underlying profitability are at or better than target through nine months, while our operating ROE of 12.5% puts us at the upper end of our target range. We remain confident in our ability to reach a sustainable mid-teens operating ROE post integration of the Travelers transaction.

Slide 8 illustrates the composition of our national broker platform. We've made great progress with M&A activity and solid organic growth, which has us ahead of where we thought we'd be as we close in on our target for at least $1.5 billion of managed premiums by the end of next year. We continue to view our national broker platform as a vehicle to diversify and strengthen the earnings profile of the business. Year-to-date, this platform has delivered more than $73 million in aggregate contribution to operating results, well ahead of our objective to increase it by 20% for 2025.

And with that, I'll turn the call over to our CFO, Phil Mather.

Thanks, Rowan. I'll begin on Slide 10 with personal auto. Gross written premiums were up 6.2% in the third quarter, in line with our mid-single-digit growth guidance for the second half of 2025 that we provided on our Q2 call. This result reflects our proactive approach to rates and unit growth, partially offset by the outsized impacts of portfolio transfers in the prior year. Early indications for growth in the fourth quarter suggest the slowdown may prove to be more short-lived than expected. The combined ratio for personal auto improved to 94% in the third quarter from 98.3% last year, driven by earned rate increases, improved Sonic profitability and lower catastrophe losses. We continue to expect Personal Auto will generate a mid-90s combined ratio for the full year. While tariff-related policy changes have not materially impacted performance to date, we remain diligent and are ready to take additional actions where necessary to protect our profitability.

Turning to Slide 11. Personal property continues to show momentum with Q3 premium growth of 9.3% benefiting from increases in average written premiums and improved unit growth. Past efforts to proactively address regions with cat exposure have proven successful from an underwriting perspective. And now that they are largely complete, we have begun to see a return to unit growth. We believe we are well positioned to maintain our growth momentum in the fourth quarter given the conditions prevalent in our industry. The combined ratio for personal property was robust at 83.6% in Q3 2025 compared to 124.9% in Q3 2024, driven by lower catastrophe losses. Though the most recent quarter experienced a benign level of catastrophe losses, the 9.2 points of cat year-to-date is only a couple of points less than expected for this line of business. As such, we are very pleased with our year-to-date combined ratio of 90.5% and believe we are well positioned to outperform our sub 95% combined ratio target for the personal property line of business in 2025.

Slide 12 outlines the highlights in the quarter for our commercial business with premium growth of 7.5% in Q3 and 9.2% year-to-date, driven by strong retention and rate achievement and continued expansion in small business and specialty. Industry growth is trending to the low to mid-single digits, driven by normalized loss trends. We continue to expect that we can deliver growth at roughly twice the pace of the industry or better, which should translate into high single-digit growth for the remainder of 2025 due to our strong broker support, digital capabilities and specialty expansion. Commercial lines continued to benefit from our focus on underwriting execution and discipline with a strong combined ratio of 88.1% in Q3 2025 compared to 89.9% in Q3 2024. The improvement in the combined ratio was driven by lower catastrophe losses, partially offset by an increase in the core accident year claims ratio. The decrease in catastrophe losses and the corresponding increase in the core accident year claims ratio was impacted by the change in definition for a single claim catastrophe loss in 2025. We continue to run our commercial insurance business with the intent to operate at an annual combined ratio in the low 90s through the cycle.

Putting it all together on Slide 13, consolidated premiums grew 7.5% in Q3 and 8.7% year-to-date adjusted for exited lines. At the same time, underwriting results were well ahead of expectations with an overall combined ratio of 89.4% in Q3, a substantial improvement from Q3 of last year, reflecting the strength of underlying improvements in our business, supported by a much lower level of cat losses.

As you can see on Slide 14, operating results in the quarter were strong with net investment income of $54.1 million, supported by higher interest income from continued growth in our portfolio size. Given the contribution from proceeds of our private placements of common shares and senior unsecured notes, we now expect net investment income to exceed $210 million in 2025. Distribution income of $18.2 million reflected another impressive quarter from our broker distribution platform, which continues to deliver both organic growth and strategic expansion. The aggregate contribution from our national broker platform, including distribution income and the beneficial impact of the commission offset has increased by approximately 26% so far in 2025 and positions us well to achieve our financial target of delivering an increase of approximately 20% in 2025. These results, combined with healthy underwriting income contributed to an operating return on equity of 12.5% over the past 12 months, a clear step forward on our path to sustainable mid-teen operating ROE post integration of Travelers.

As you can see on Slide 15, we ended the third quarter with shareholders' equity above $4 billion for the first time, a significant milestone for Definity and a testament to our continued strong performance and the capital-generative nature of our business. On a per share basis, this represents a 24% increase year-over-year, reflecting both robust operating results and the impact of our private placements of common shares. We successfully completed a $1 billion private placement of senior unsecured notes in September, marking our inaugural bond offering and the final piece of our financing strategy for the Travelers transaction. The issuance was well received by the market at better than our modeled interest rates and further enhances our financial flexibility as we prepare for closing in the first half of Q1 2026. We currently expect a leverage ratio of approximately 30% upon close of the Travelers transaction with a plan to get that back to our target level of 25% within 24 months.

Turning to Slide 16. Our financial position remains strong with ample capacity to support both organic and inorganic growth initiatives. We continue to deploy capital in a disciplined manner, prioritizing ongoing broker acquisitions and investments that enhance long-term shareholder value.

With that, I will turn the call back over to Rowan.

Thanks, Phil. Let me end with an update on the Travelers transaction on Slide 17. As I mentioned last quarter, I believe this is a concrete demonstration of our commitment to build a Canadian champion in the P&C insurance industry. Integration planning is nearing completion as our joint transition planning team has made tremendous progress. Employee and broker sentiment has been and remains overwhelmingly positive. Employees are excited at the prospect of our scaled capabilities and the expanded opportunities that they will bring. Our brokers are enthusiastic and are showing a clear interest in our enhanced product offering post close. We now expect the transaction to close in the first half of Q1 2026 following a receipt of customary regulatory approvals ahead of our initial expectations.

An important deliverable to ease the integration process was to finalize our claims transformation. Just last month, we successfully implemented the Guidewire Property and Casualty module, marking the completion of the Guidewire ClaimCenter rollout. We are now on Guidewire Cloud for the majority of claims administered by Definity. The implementation of ClaimCenter is part of a broader effort to reduce friction by modernizing and digitizing key steps in the claims journey. This enhances our ability to deliver on our commitment of providing up to 2 points of operating ROE contribution by having a robust platform for scalable growth, ongoing innovation and a seamless end-to-end customer experience.

As a proof point, since implementation of ClaimCenter for auto claims in April of 2024, our cycle time has improved by 19% driving better operational efficiency, enhanced indemnity outcomes and higher Net Promoter Scores. We look forward to seeing similar benefits on the property and casualty side.

As we approach the end of 2025, the company is performing strongly and is in a great position to begin the process of integrating our upcoming acquisition.

And with that, I'll turn the call back over to Dennis to begin the Q&A session.

Thanks, Rowan. With that, we are now ready to take questions.

[Operator Instructions] First question comes from Stephen Boland of Raymond James.

I guess, Jeff Kwan is not here anymore. So I guess it goes to the next person. So could you just break down -- you're usually pretty good at breaking down in personal auto inflation between the different buckets that are causing that. Maybe just your outlook for inflation over the next 12 months.

Stephen, thanks very much for the question. Happy to take that and have Paul give you the flavor.

I think the big picture for us would be we like where the market is at this stage, and we've got to a position where it's pretty stable. And when we see stable loss cost trends, we're able to underwrite, we're able to get our pricing points at the right level. And then that gives us a pretty favorable outlook. And I think when we go back to the market is still pushing significant prices through as they strive to get to profitability. we're in a good position because we're very adequate, and we are profitable. We have the Vine scalable platform. And so as we think forward, we're quite bullish on this line of business.

But Paul, could you give more color on to the cost trends and the breakouts?

Absolutely, yes. So, Stephen, as I've previously shown, there are components of it between the property damage and the casualty. The casualty, we've been fairly consistent throughout the last few quarters in that mid-single digit, and we're not really seeing any changes in that. AB is a bit more stable. BI is a little bit more volatile. But overall, still that mid-single-digit range.

The one that we've spoken about consistently is on the property damage side, which includes obviously comprehensive and collision. We also include theft in that element. And there, we've seen a more stabilization of the trends around that mid-single-digit range. This is fairly consistent with pre-pandemic levels, and it really represents the natural cost inflation of vehicles that have more higher content in the vehicles, more expensive vehicles, cost of repairing them. The good news is, as I said, that, that's stabilized to that mid-single-digit range.

I mentioned theft, theft has come down quarter-over-quarter. Pre-pandemic, it was about 2 points of loss ratio. At its peak, it went up to almost 7 points of loss ratio, and it's down to about 2.6%, 2.7%. So still a little elevated, but certainly much improved over the last year. And really, when you take all those things together, we're really talking about a mid-single-digit trend. The good news is we believe that we are well placed to cover that trend with our natural rate filings, and we've essentially caught that trend over the last while. So we're in a good position to be at a stable place.

We do believe the industry as a whole isn't there yet. And so the industry as a whole will have to continue to take rate to cover that trend, but we're well positioned in that.

Okay. That's really helpful. And the second question is still on personal auto. You mentioned in the MD&A just about the Ontario reforms coming in. Is that going to put pressure on premium growth? I mean there's lots of articles going around about that. I'm just wondering what your thoughts are.

We are certainly very involved in getting ourselves ready for the auto reforms. There's extensive activity in this space. These are things that the industry has gone through. So this isn't new to the industry and certainly not new to us, and we have reforms going in Alberta as well. But we believe that this is a good place for the industry to go. And really, what we're talking about, most of these reforms focus on the casualty side of the equation. They don't really have a lot of focus on the property damage side of the equation, which, as I just mentioned, has over the last few quarters been the one that's put pressure on the results.

But the reforms are a good way for the industry to reset. Every few years, you will see a slight increase in trends, reforms come in, the industry responds and then there's a period of onboarding the benefits from those reforms for the couple of years thereafter.

In terms of your question around overall pressure on premiums, we don't believe it's going to be a significant pressure on premiums. What these things will do is offset increases. So instead of seeing a pressure or a decrease in premiums, what you're going to see is less need for additional rate beyond that to cover the trends that I disclosed. It does give some clients a bit more ability to control their overall premiums, but we believe it's going to end up still maintaining a well-balanced portfolio. So it doesn't cause us any concern from a top line perspective.

Next question comes from Alex Scott of Barclays.

First one I had is on the Travelers acquisition. And just now that you've had some more time with it and so forth and it closing reasonably soon. Can you talk about just the influence it would have on your combined ratios initially, Appreciating that there'll be some repricing and remediation over time. But I just want to make sure I understand sort of the starting point that we should expect next year.

Thanks for that. So, firstly, a quick update on the progress. I mean, I think as we said in the materials, this is proceeding very well. We do think that it will close a little earlier than originally anticipated. So that's exciting for us. We've also made great progress on things like getting the financing complete with our inaugural bond offering, which again went very, very well. And I will say that the teams are working very well together and we're at the very advanced stages of the integration planning. So we're pretty excited about that.

I think when it comes to the impact that it will have on us next year, what we've kind of said is, look, we have a good sense of the size of business that's coming. We know that it's very complementary to our portfolio. Of course, it moves us from the sixth largest to the fourth largest performer. So, clearly, it will have a significant impact on our revenue going into next year. We also said that this is essentially a breakeven business. And we have a plan that to integrate this and to get cost synergies of $100 million. That takes a couple of years to work its way into the portfolio.

So as we roll through the year-end, as we close the transaction, when we update our guidance for 2026, we'll be able to kind of give more color in that. But clearly, I think from our perspective, this business is something we're pretty excited to get. We know more about it now that we are getting closer to the transaction date. And we're as excited about it as we were before. We're getting exactly what we think we expected. And I think more to come in the new year.

That's really helpful. Next, I wanted to see if you could dig a little deeper into the distribution income trajectory. I mean it sounds like you expect a continued strong growth rate there, but just interested in where you're seeing the opportunities, what the M&A environment is like there for the bolt-ons?

Yes. Look, I think this is something that we're very pleased about. And I think that it's worked extremely well for us over the last couple of years, and it's becoming quite a meaningful number. The way we look at this is that the broker platform, these are high-quality brokers. They're doing really well in the marketplace. As they've got kind of scale, they've got more capability, and that's allowed them to increase their growth rate. So this is a strong organic growth platform. And then on top of that, you had a pretty active M&A market where there is a significant amount of consolidation that has occurred and we still believe will occur going forward.

So when we looked at this year, originally, we said that we had a 15% guidance in the National Broker platform operating earnings. They were doing well and they accelerated some acquisitions. And so we upped our guidance. And actually, they're even -- they're outperforming that at this stage.

So the latest guidance that we had left in place is a 20% year-on-year. That's a combination of strong organic growth and a healthy pipeline. And as far as we could see out, we don't see a change in that environment for the next number of quarters. There is still a pretty healthy pipeline available.

Next question comes from Paul Holden of CIBC.

I want to follow up on a comment that Phil made regarding personal auto. So, Phil, you said that a slowdown in personal auto may be more short-lived than expected. So maybe you can drill down on that simply asking why -- what are the indicators that make you believe it's potentially more short-lived?

Yes. Go ahead, Paul.

Thank you, Paul. It's Paul here. I'll take you back to comments I made in previous quarters. This is very much deliberate. We had indicated at the beginning of the year that we'd be pushing hard on gaining unit growth and rate growth at the beginning of the year on auto, but we did expect to see that slow down a bit in the back half of the year. And the reason is quite simple is that we knew we were taking significant rate in the back half of the year. And you may recall in previous years, when we took rate in the back half of the year, that was followed by a little bit of a period of lack of competitiveness or reduced competitiveness and then that came back to us.

So the exact same thing happened this year, very deliberate. We took 5% rate -- additional rate in our Ontario portfolio, which is our largest. That was on top of an existing 7.5% that was already flowing through that portfolio. And in effect, what that meant was a 12.5% increase on customers in that jurisdiction.

We knew that, that would reduce competitiveness very deliberately, and it has, in fact, done so. But what we're pleased to see is unlike the previous two years where it took a couple of quarters for some of the growth to come back, it's actually come back faster. So even within that quarter, what we saw is July and August, the -- the top line was reduced a little. And then in September, it's come back quite healthily. So we expect that trajectory of healthy growth to maintain into Q4. And so we really managed this portfolio to the full year. The full year growth is at 8.6%, which is exactly in line with our guidance, and we expect to close the year close to that. That upper single year guidance is what we expect.

And I will say at the same time, remember that the inverse is true for property. We indicated at the beginning of the year that we were taking extensive actions to improve the concentration and accumulation in our property portfolio, and we were redesigning our property wordings. And what we did not want to do is accumulate a lot of units in advance of a cat season until that work had been completed. That work has, in fact, completed.

And so as I indicated in previous quarters, we expected healthy growth in the property portfolio in the back half of the year to offset that slight reduction on the auto, and that's exactly what we're seeing. We're seeing very healthy growth in Q3 and even the months within the quarter, steady improvement month-over-month in our property earnings. So really, what we're looking for is a full year high single-digit result, both auto, both property combined, we're very pleased with the performance of these portfolios.

Got it. That all makes sense. And I know you haven't given 2026 guidance or outlook yet officially, but I kind of want to follow up particularly on auto, how to think about '26. So I hear you on the -- you taken more recently rate of 5% in Ontario, which is in line with the mid-single digits claims inflation you highlighted earlier. So that makes sense, and that projects stable margins.

If we extend that 5% out to 2026 and then combine that with the indication you said industry is still catching up, does that mean premium growth could be in excess of 5% next year because you get the 5% on rates plus picking up a little bit of market share? Is that a reasonable way to think about it?

Yes, it's Paul again. I think that's a reasonable way. Just remember that when we have written rate, not all of that flows directly to the results because there's natural drift that occurs in the portfolios. But really, what we're talking about is mid-single-digit rate, probably take an extra point or 2 above that to maintain parity with the trend. So it's reasonable to assume that the industry as a whole will be growing at that from a rate perspective. And then, of course, on top of that, you add unit growth depending on the market.

So, in our case, we still feel confident about the rate achievement and also the unit growth and targeting that high single-digit range.

Okay. That's helpful. And then I'll ask one more if that's okay. So I want to drill down a little bit more on the -- on commercial and sort of same line of questioning, right? So saw a slowdown to 7.5% growth this quarter, which is consistent with the guidance you gave last quarter, so maybe no surprise there. How -- like how should we think about that just in terms of rate versus market share gain? That's what I'm trying to get a better sense of.

Thank you, Paul. This is Fabi Richenberger answering your question. So maybe I'll give you a little bit of a big picture assessment of how we view the marketplace overall. So while we've seen more competition this year, especially in the large account segment, I would say that the commercial insurance overall remains a very attractive segment for us overall. And we are very pleased with the results that we have achieved in Q3 and year-to-date as well.

Maybe what I do, I share two or three data points with you that illustrate why we are so confident about our commercial business. The first one, and I think that's the most important one, is that in our core business, which, as you know, is small business and lower-end commercial business and which makes up actually the vast majority of our portfolio, we don't view market conditions in that segment being soft. Across our core business, we are achieving mid-single-digit rate increases, which we are happy with.

Our retention numbers, both in terms of policy count and premium are in the high 80s. And we're actually writing new business at adequate margins and gaining market share, which is very much in line with our strategic aspirations. Our core business is also benefiting from strong portfolio management capabilities and our digital enablement of that business allows us to renew that business in an automated manner, and that is protecting our margin as well.

I know that there's a concern about what's happening in the large account segment. And for sure, that large account segment has been more competitive, but we are guiding our underwriters to make the adequate decisions. And if the margin equation doesn't make sense, we are quite happy to let those larger accounts go. And again, because that large account is the smallest portion of our commercial business overall, we don't really see those decisions to have a material impact on our business.

I think the other thing that is important to draw out is that the cycle that we are in today is happening in a different structural context than any cycle before. And what I mean by that is that what we've seen over the last 10 years, we've seen a lot of consolidation happening. And in that core business, in our core business, again, small business, lower and middle market business that makes up the majority of our portfolio. That business now is concentrated on four or five large domestic carriers and all of them are very disciplined as well.

So, overall, we like the underlying profitability trends. As you've seen from our Q3 reporting, the rate achieved is 7.5% that continues to cover the loss trend that we have in our portfolio. Our profitability remains stable. If you look at our combined ratio on a year-to-date basis, it was 89.4%. That same number last year was 89.5%, which means that our frontline underwriters are doing a really good job sustaining our margin position overall. So I would say that in relation to your question, we are confident that we'll be able to sustain our combined ratios in the low 90s and sustain the growth rate that we have posted in Q3.

I have to ask one follow-up question on that because the point on the consolidation of the market was really interesting. That's specific to SME. Does the large account market look different, i.e., far more competitors than the four to five?

Yes, very different dozens, dozens of large account underwriters and what we have seen in past cycles as well is that a lot of new capacity, foreign capacity, reinsurance capacity is coming into that large account segment. And obviously, having been in that business for over 25 years now, we know that dynamic happening at every cycle.

So what we've done in the last five, six years, we have been very deliberate in terms of how we've been constructing our portfolio -- and as I mentioned before, the vast amount of our portfolio is in that lower end of the commercial marketplace in terms of account size and premium levels, and that just gives us a much better opportunity to sustain the profitability in our commercial segment.

And what we do as experienced operators in that large segment when market conditions are firm, we are going to be quite opportunistic and we are going to generate growth rates in the 25%, 30% range. But then when the market turns, which is the case this year, we're going to switch from driving profit growth more into margin preservation mode. And what this means, as I mentioned, is that we're guiding our underwriters to let accounts go if the margin equation doesn't make sense. And then the growth rate is more flat.

And again, because that large account segment is the smallest portion of our portfolio overall -- we don't see those having a material impact on our portfolio. But over the cycle, over a 10-year period, we are quite happy that we can drive profitable growth and good margins in that large account segment as well.

Next question comes from Jaeme Gloyn of National Bank Capital Markets.

Yes. Just wanted to dig in on the property accelerated this quarter. It sounds like some of those initiatives to remove some of the concentration risk are done. Is the view that we should continue to see this acceleration through Q4 and into 2026. Or do you anticipate maybe some more competition or pricing adjustments as you're picking up that unit growth in the coming quarters?

Jaeme, I think that for us, as you see Paul's initial kind of comment, we're pretty confident that this kind of growth is going to continue. If you think about the last couple of years, it was still high single digit, but it was all rate. And what we would do is effectively churning the portfolio by shifting new business to less cat exposed areas and reducing concentration in those areas at the higher cat peril scores. That will continue, but the vast majority of that is one. That's just ongoing good portfolio management.

So, I think, that we feel with that heavy lifting behind us, we now benefit from a hard market continued rate increases, but also unit count. And we've seen a pickup in the unit count as we're gaining share. So this line of business should continue to perform very strongly for us, both rate, which will continue, and that protects and adds to the margin, but also now taking share.

Okay. Great. And then just to go back to auto for a bit. It does sound a little bit like you're expecting rates to sort of just align with loss cost trends as we get into 2026. There's obviously a lot of rate written in '25 that will end up earned in '26, and so that will support premiums. at the top line, but it does seem like rates are now kind of going to move more towards flat with loss cost trends. And so margin expansion may be a little more challenging to get in '26 and '27. Is that fair? Do I kind of understand that correctly? And then I guess there's probably some other things that are going to help on the margin expansion side specific to Definity you can outline?

Yes. So, Jaeme, it's Paul. I just want to highlight the nuances of that. So a couple of things. First, I said that the trends are stabilizing around that mid-single-digit range overall. I also indicated that the market as a whole hasn't quite caught that trend. So many insurers will have to take rate ahead of that to help them get back to a rate adequate position. We're in a favorable position relative to that. So, for Definity specifically, we believe we're at rate adequacy on the whole. And what that means for us moving forward is that we will be taking sufficient rate to cover trend, as you mentioned, and then maybe some to maintain -- to focus on avoiding volatility.

However, your second question around margin expansion is that we believe there's still significant opportunities in the marketplace for margin improvement. We mentioned reforms earlier. There are other elements around segmentation, and we believe we have a strength in our ability to segment and chase the right customers. So there's still -- we're still going to maintain our focus on that.

There's also the volatility aspect of tariffs. Right now, we are -- we have a fairly muted response to tariffs. We're not seeing a significant impact rolling through the portfolio yet. We believe our current rate trajectory is sufficient to cover the current tariff impact, but we remain diligent. If this changes significantly, to your question around '26 and '27, there may be a commensurate increase. If tariffs jump up, insurers like us will then file for tariff-specific rate increases, and that can change the trajectory of the rate environment quite significantly.

Yes. Understood. That's clear. And then last, just wanted to get more details on Sonnet. I think it's in the MD&A talking about driving profitability for the auto portfolio. Can you give us a little bit more detail as to how well it's growing and that profit contribution and what you see in '26 for that platform?

Yes, Jaeme, if you call, what we were trying to do there is make sure that Sonnet could break even. So remember that we had the target of can it be sub-100% combined ratio and can it do that sustainably. And so that's really been our focus for this year. And Sonnet once again produced an underlying profit in the quarter, and that makes four consecutive quarters in a row.

So the task we set ourselves is can we scale this business and can it run at a contribute of underwriting results? And the answer is yes. And so that's very good news for us because we are able to now have confidence that we can retain the right customers. We're going to attract the right customers. And then the next step for us is to return to growth. So there isn't any growth in the portfolio this year. That really was our intention that this would be more of a flat year as we made sure we were comfortable with the quality and the operating model itself. Now we have. We'll look to return that portfolio to growth, but that really will only occur as we get into 2026.

Next question comes from Mario Mendonca out of TD Securities.

I have two broad questions, one for Phil, one for Rowan. First, Phil, I'm not going to hold you to something you said a year ago, but you did offer in the Q3 '24 call that you thought ROE could reach 12% in 2026. So much has changed since then, not the least of which is the 17% increase in capital that I don't think anyone could have anticipated.

And Travelers, as you said, is breakeven in the early going. But a lot of other things have gone well like Guidewire, Sonnet turning somewhat profitable, expense saves. So that's a lot of moving parts. Could you revisit your 12% ROE in 2026 outlook in the context of all those changes?

Yes. Thanks, Mario. I think the first comment I'd make is, you're right, there are a lot of moving parts. If we look at those that are driving continued expansion of the operating earnings, we're really pleased with the progress that we've made. So obviously, the core business is doing very well. We're below our sub-95% objective for the current year. And if we look at the three operating levers that we've talked about in the past, we're making really good progress against all of them. As Rowan has said, Sonnet is now there, I would say. If you look at the past quarter, the year-to-date and the past 12 months, it's made a positive contribution across all of those periods. So that is performing well and reflected in the numbers.

On OpEx, we've still got some benefit ahead of us. So if you look at the overall goal, we wanted to get to 11.5% this year. We're up 11.4% year-to-date. So gliding very nicely. We still think on our core Definity business, there's still about 0.5 point of opportunity ahead of us in 2026. There's no change in view on that.

And then if we look at the Claims Guidewire implementation, as you mentioned, there's -- we're probably about halfway into that. We've just had a successful launch of the property casualty side of that platform a couple of weeks ago ahead of plan. So that's good news that it's coming in earlier. But we've not upped any benefits on that side of the business yet, and there's probably a couple of years until you get to full run rate. So I'd say on all of those contributed levers, really pleased with the progress that we've made. You rightly point out that we've had very significant book value expansion at the same time. So that's a lovely problem to have. We've been really able to grow the scale of the business and that denominator, some of that is still ahead of us next year.

And you're right also on the Travelers transaction, we've raised the capital this year. We'll only take ownership in the -- our expectation is the first half of 2026. And then there'll be a period of time until you actually get the synergies actions taken and then earned in. So a lot of moving parts.

What I would say, though, is without talking to next year specifically, we're really pleased with the progress that's being made on that journey into the mid-teens on a sustainable basis. We do need the Travelers transaction to optimize that position and break us into the teen criteria. And as I say on that one, what you'll see next year is you'll see the levers being pulled to untap the synergies, but there'll be more of a lag on an earning pattern. So more of that contribution to driving the operating ROE up and into the teens is more likely to come in '27 than it is in '26.

So the reference of 12% last year, you'd have us think of that as more of a maybe exit 2026 or into 2027. Is that more appropriate? Like is it no longer appropriate for us to rely on the 12% for 2026 that you offered last year?

I think I'd say, look, our current range is in that 10% to below teen prior to the deployment into Travelers and getting the accretive benefit of those synergies coming through. There's no change in our view on that. The underlying business continues to track forward comfortably. But we don't see a breakthrough into the teen period until you get the earnings pattern of the synergies. What you'll see next year is we'll be able to pull levers on the synergies from a run rate basis, but they won't turn in until you get the insurance math behind them.

So I would tell you, we're very happy with the progress we're making on the core business. We wouldn't change our outlook on operating ROEs for the core business. but we just have to recognize that. The great news is we've generated a lot of capital. We've deployed that capital or we expect to do so in the first half of Q1. And it will just be a bit of a lag impact until you can get the synergies earned in and then get us to cross into that team period. But we're very positive, Mario, in terms of where the business is going.

Yes. I certainly wouldn't question the fundamentals. I think things have changed, and I think your comments reflect that change in how much the book has grown. But Rowan, can we go to another broad topic here. From the middle of this year onward, all the P&C names in the U.S. and Canada really lost a lot of momentum in terms of their share price. And the concern, of course, was that the cycle was changing, it was softening and things were going to be much worse.

What I'm hopeful you can do is address the notion that in Canada, the sort of the large high-quality P&C companies that put your company in that category can cope with a moderating -- a softer cycle. Like what makes the large high-quality P&C companies in Canada different and capable of coping with a softer cycle? Is there a reasonable argument to be made there?

Yes. Thank you for that, Mario. I mean, I think a couple of points I would kind of offer on that topic. Number one would be this isn't a surprise that P&C industry goes through a couple of cycles from time to time. And so I think that good operators anticipate that and structure their business to be resilient through -- and able to operate well through the cycle. And so we thought about that in terms of our mix of business, which segments we play in, what propositions we bring to the marketplace.

The other part that I would make is that there isn't just one cycle. And so if you think about periods of more competitiveness, we have now some parts of commercial that are definitely more competitive but not all verticals, not all parts of commercial. And as Fabi said on the call earlier, the market is structurally different in commercial than it was many years ago. And that's why our portfolio, particularly that is heavily skewed to the smaller accounts, there isn't a soft market. We're actually getting rate on the portfolio, and that's ahead of trend. So we're actually increasing some margin on that part of the portfolio.

There are some other areas even in the specialty areas that we continue to grow in, we're rate adequate, there's good opportunities. And what you see us doing in commercial lines is that where there are segments that are more competitive, we just slow down a bit of putting new business capital at forward. And so what you therefore see is us maybe not growing at 10%, but growing at high single -- 10% plus like we did, but more high single digit. that's still good growth, and it still protects the margin. And I think that's, to me, the main point that we can take out of this.

Could there be a period of time where we're not growing commercial at double digit? Yes, there could be, but we will still be holding our margins, and it will still be outperforming the industry. It will still be growing at twice the rate of the industry. And particularly in that small business segment, it's not just a price play. This is a product. It's an experience. It's an automation play. It's digital. It's the wine -- so I think that's an important piece.

If I just flip quickly to the other part of the business, 70% of our business is personal lines. You heard Paul talk, it's hard. We're getting higher rate on personal property and actually adding margin to that business. In personal auto, we're in a good position. We're sub-95. We plan on being sub-95%, even including the Sonnet business, and we'll start to get some growth in that story up there.

And then the final thing, which is, I think, a strategic differentiator for us in the business is we've also built a top 10 insurance broker. So now we had stable, repeatable distribution income. And so Mario, that's why I think we feel very confident that we can manage the cycle. I go back to our big picture. Our big picture is we wanted to be a top 5 player. We will pro forma with Travelers now be in that top 5 -- top 4 player. Of course, we'll set a new target, top 3 or something like that. We are an operating ROE expansion. You had a discussion with Phil there. We're very confident about all of those levers. Some of them are already reflected like Sonnet. The others are still earning in and particularly the claims transformation, which we're really confident about. There's another couple of points that really has just started to come into the business.

And then the Traveler story is a good one because even if the market and the cycle gets a bit more difficult, this is a good time for us to pick up a large portfolio and embed a significant amount of premium on our platforms and our terms and our conditions. So I do think in aggregate, it would be silly to say when you shift from one cycle to another part of the cycle, there's no impact.

But what I can say is we absolutely think we can do a very good job of managing it. We're structured resiliently. And we will continue to -- we'll update our guidance next year. But it's still going to be -- we think we can grow at twice the rate of the industry. We think we could run this business into the low 90s. And we're very confident that as we integrate the Travelers business, we end up in the mid-teens operating ROE in the next few years. So that's, I guess, a level of confidence we're expressing today.

So barring some kind of meltdown, and I don't think anyone is calling for a meltdown like a really bad cycle. You're saying things like getting ahead on pricing, addressing it through mix, managing expenses, building distribution, being conservatively reserved, allocating capital, you're saying all those things, you put them all together, high-quality companies can grow and thrive in a somewhat softer cycle.

I do. Yes.

Next question comes from Bart Dziarski out of RBC.

I wanted to follow up on Mario's questioning around the ROE. So when we look at your operating ROE last 12 months, 12.5%, there's probably some benefit there from benign cats and Q3 '24 cats coming off.

But I guess my question is, why couldn't that reach the 13% just organically in the sense that you still have 1 to 2 points coming of benefit from claims and OpEx. Are there other factors that may slow down that trajectory? And I'm asking because you're unique in the sense that you have an ROE expansion story organically. So I just wanted to understand that a little bit better.

Yes. Yes, no problem. So yes, I'd say if you break it into the two components, you've got the operating contribution and then you've got the equity story. So on the operating contribution, you're absolutely right. We still have several levers that are not fully reflected in the operating results. We're helped a little bit by cat losses. It looks pretty dramatic on the quarter. If you look at the year-to-date, we're about 3.6 points of cat losses. It's just under 1 point less than we'd expect for a full year. So it helps us, but it's not the whole story by any stretch. And really, the big part of the contribution towards that 12.5% we're seeing in this quarter is those operating levers coming through. And so I'd agree with you that we still have progress to be made on that, and that should drive the operating contribution.

I think what are the factors that we're looking at on the other side of the equation, net investment income, we know yields have drifted down a little bit. We've done a very good job of sustaining book yields. But as we reinvest, there's some natural dynamic there. Where we're going to get upside opportunity is the cash flow coming into the portfolio as opposed to yield. So we still are positive about our ability to manage those funds and the capital and profitable nature of the organization is helping us deploy more funds in there. But it's not as much of a tailwind as it had been in the past.

I think the thing that we do have to recognize is the equity expansion, which is great, let's be clear. We've been really able to expand that book value through this period of outperformance. That's a lovely challenge to have, if you like, from a denominator perspective. But as we average in that book value, that number is going to climb next year. And so that would be the denominator challenge. It's not an operating earnings story. It would be the denominator. So that would be the fact about that just from a math standpoint is the headwind. That eases because we're now deploying our capital accretively. We believe we are through the Travelers transaction. But in year one, it's -- we expect it to be about a breakeven business. We will start making progress on the synergy capture. But with insurance math, showing that up in earnings takes a little bit of time because you're deferring cost amortizing it in and getting to a run rate view is a little different.

So that's why when we talked about the transaction, and we'll do this next year as we start giving updates on progress, we'll give you a lens of the actions taken on the synergies and what is a run rate view versus what is in the distinct quarter. I think that's important because that's the pathway into that kind of team expansion.

Great. That's very helpful. And then I had a question around sort of data insights and market share, if you will. So last year, we had, call it, three or four outsized cat events, maybe 1 in 50, 1 in 100 years. So have the cat loss kind of probability models, pricing models that you guys use, have they caught up to that in terms of normalizing for those events? And to the extent they have it, like is there an ability to kind of leverage some of the insights you're seeing on the ground to take advantage of that and gain some more market share?

Bart, it's Paul. Yes, I think the answer to that -- to both of your questions is yes. What we've seen, obviously, over the course of the last few years is an increase in severe weather and cat severity. And so we've increased our modeling to reflect that, and we've increased our pricing to reflect that. Last year's hopefully and clearly an outlier in terms of the worst one on record. But even outside of that, as we were still profitable last year in that, I think that reflects the second part of your question, which is, is there an opportunity to gain a benefit from that? And I think, yes, we need to have increasingly sophisticated modeling and segmentation. We need to consistently update things like flood maps and wildfire maps, and we do that. And I think our performance has shown over the last few quarters in terms of we are significantly below our natural market share in terms of our cat costs. So this is really an area where we believe we excel in terms of being able to utilize that capability to then take share.

I used an example previously, and I'll highlight it again, Bart. There are times where you would imagine a less sophisticated insurer might be using a large geographic area like FSAs, which are the first three digits of a postal code to do their rating. So if you have a large area like that and one part of it is exposed to water, you may treat that entire area as a high-risk zone. We have improved our fidelity. We've been able to get from an FSA to a postal code and then down to 100 square meter and the ability is even to get more refined than that.

And if you think about my example, what that means is if we're in a large postal code, we can actually write risks that are not close to that water body source that previously would have been considered to be high risk. And vice versa, we can get much more sophisticated at making sure that if it's very close to a risk exposure, we can then charge an appropriate premium or not write it. So it does, over time, really start to show the benefits of those investments in analytics and capability and the AI capabilities that are coming through to then target particular segments and particular risks and then gain share.

Last question today comes from Tom MacKinnon out of BMO.

Yes. Just a question with respect to distribution income growth and what you're seeing really in terms of further acquisition opportunities at McDougall. How much of growth really inorganically augmenting some of the organic growth that you're talking about there?

Thanks, Tom. I think that the organic growth generally is high single digits. And I think that this is a business that has a superb sales culture, very entrepreneurial, great products. And so I think that the benefit is as they make acquisitions, there are some obvious cost synergies that you get from a bigger platform, which improve their EBITDA, but they also help the acquired businesses improve their ability to win and compete in the marketplace.

And so what you get is acquisition earnings that come in and then those businesses tend to operate better than they even did before. And that's why I think when we think about the trajectory here, we expect high single-digit organic growth and then that's supplemented with inorganic activity. That really is what's been kind of driving some pretty impressive year-on-year growth rates to date. And overall, we think that the -- we've done eight transactions this year and the pipeline still looks pretty full.

There are no further questions at this time. I'd now like to turn the call back over to Dennis Westfall, Vice President of Investor Relations for final closing comments. Please go ahead.

Great. Thank you, everyone, for participating today. The webcast will be archived on our website for one year. A telephone replay will be available at 2:00 p.m. today until November 14, and a transcript will be made available on our website. Please note that our fourth quarter and full year results for 2025 will be released on February 12.

That concludes our conference call for today. Thank you, and have a great one.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask you that you please disconnect your lines. Have a great day.

Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Second Quarter of 2025 Financial Results Conference Call and Webcast. [Operator Instructions] Also note that this call is being recorded on Friday, August 1, 2025. And I would like to turn the conference over to Dennis Westfall, Vice President of Investor Relations. Please go ahead, sir.

Thank you. Good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at definity.com, under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO; Philip Mather, EVP and CFO; and Paul MacDonald, EVP of Personal Insurance and Digital Channels; and Fabian Richenberger, EVP of Commercial Insurance and Insurance Operations. We'll start with formal remarks from Rowan and Phil, followed by a Q&A session. during which Paul and Fabi will also be available to answer your questions. With that, I will ask Rowan to please begin his remarks.

Thanks, Dennis, and good morning. The second quarter of 2025 was an exciting one for Definity as we announced an agreement to acquire Travelers Canada, a true milestone for our company and our next step in building a Canadian champion. The addition of Travelers Canada will allow us to surpass our strategic goal of becoming a top 5 P&C insurer in Canada, and we believe it will generate significant shareholder value through scale benefits and enterprise synergies, leading to an enhanced return profile for the combined business. I will provide an update this acquisition later in the call.

In the meantime, we remain focused on delivering the targeted performance of our existing business and clear progress was made during Q2 on all 3 of our organic operating ROE levers, as you can see on Slide 5. We have achieved a breakeven level of performance from Sonnets and are well on track to deliver the targeted improvements from expenses by the end of 2026. In addition, we are well positioned to achieve the targeted claims improvements by the end of 2027 and expect to implement Guidewire for property and casualty claims on time and on budget in the fourth quarter.

Beyond this, we've said we'd require inorganic growth, which would allow us to deploy our excess capital and introduce leverage into the balance sheet. That is exactly what the Travelers transaction will enable us to do. We can now optimize our previously unlevered balance sheet through the strategic deployment of excess capital and utilization of financial leverage capacity, which we expect will enhance our run rate operating ROE by over 200 basis points. So if I put that all together, I'm confident Definity is well on the pathway to a target of sustainable mid-teen operating ROE post integration.

Now turning to the results from the second quarter on Slide 6. We again delivered on our objectives with gross written premiums up 9.1% from a year ago, adjusted for our exited line and a better-than-target combined ratio of 92.9%, a healthy level of underwriting income, more than $50 million in net investment income and a seasonally strong contribution from our insurance broker platform resulted in operating net income of $98.9 million or $0.84 per share. We ended the second quarter with book value per share of $31.39, up 19.9% from a year ago, inclusive of our private placements of common shares to fund part of the travelers transaction as well as continued solid financial results.

We generated an operating return on equity of 9.6% over the past 12 months despite the active catastrophe experience from Q3 2024 which continues to weigh on operating ROE. Turning to the industry outlook on Slide 7. We expect conditions in auto lines to remain firm as insurers aim to keep pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of potential U.S. tariffs and retaliatory actions. We expect market conditions in personal property to also remain firm over the next 12 months, particularly following last year's record level of industry catastrophe losses and the move to higher reinsurance attachment points.

In Commercial Insurance, while we expect overall market conditions to remain attractive, we are continuing to see that some commercial segments have become more competitive. We expect overall pricing in commercial insurance to keep pace with loss cost trends, which have normalized since their post pandemic peak to low to mid-single digits. Slide 8 shows our key financial targets for 2025. As you can see, both top line growth and underwriting profitability are at or better than target midway through the year. While I have already expressed the confidence we have in the pathway to improved operating ROE in the coming years.

Despite the drag from higher equity levels, we continue to expect to deliver an operating ROE of 10% plus in 2025. Slide 9 illustrates the composition of our national broker platform. Deal activity continued in the quarter, including a strategic acquisition in Nova Scotia, marking our first location in Atlantic Canada. Our progress with M&A activity and solid organic growth has enabled us to close in on our target for at least $1.5 billion of managed premiums by the end of next year. We continue to view our national broker platform as a vehicle to diversify and strengthen the earnings profile of the business. And with that, I'll turn the call over to our CFO, Philip Mather.

Thanks, Rowan. I'll begin on Slide 11 with personal auto. Gross written premiums were up 9.6% in the second quarter of 2025, excluding the premiums of our exit lines from both periods, driven by an upper-single-digit increase in written rates and unit count growth. To maintain target profitability, an additional 5 points of rate for both Sonnet and line in Ontario was implemented effective in late May for new business. While these actions may temporarily affect competitiveness, they strengthen our positioning as market dynamics evolve. For the remainder of 2025, growth is expected to moderate to mid-single digits, reflecting the outsized impact of the portfolio transfers in mid-2024, our proactive rate actions and ongoing underwriting discipline.

Personal auto produced a combined ratio of 94.2% in the quarter, 1 point better than a year ago. The performance reflects enhanced profitability in Sonnet and an improvement in the core accident year claims ratio, which continues to benefit from higher earned rates. We expect personal auto to generate a mid-90s combined ratio in 2025. While we continue to believe the potential impact from tariffs will be manageable, we are continuously monitoring the situation and are ready to take additional actions as necessary to protect our profitability.

Turning to Personal Property on Slide 12. Growth of 7.1% in Q2 benefited from continued firm market conditions, driving increases in average written premiums. This was partially offset by ongoing active management of our portfolio to address volatility and risk concentration in regions with a higher propensity for climate-related parallel events. We expect this line to grow at the mid- to upper-single-digit pace for the full year given the conditions prevalent in the industry. We reported a combined ratio of 94.3% in Q2, up from the very benign second quarter of 2024, which saw only minimal cat losses. The increase in catastrophe losses was partially offset by a decrease in the expense ratio and the core accident year claims ratio. We continue to target the sub-95% combined ratio for the personal property line of business. in 2025.

Slide 13 outlines the highlights in the quarter for our commercial business. Our strong execution delivered 10% growth in gross written premiums versus the prior year despite industry growth moderating from recent quarters. Our results was driven by targeted growth across strategic segments, with strong retention and rate achievements in our core segments and further expansion of our small business and specialty capabilities. Industry loss trends have normalized since their post-pandemic peak to low to mid-single digits, which has been reflected in growth at the industry level.

We expect that we can continue to deliver growth at roughly twice the pace of the industry, which should translate into high-single-digit growth in 2025. Commercial lines continue to benefit from our focus on underwriting execution and rate adequacy with a strong combined ratio of 89.6% in the second quarter of 2025. The combined ratio was higher than last year's very strong 86.6%, driven by a return to more normalized loss frequency and weather, partially offset by a decrease in the expense ratio.

The decrease in catastrophe losses and the corresponding increase in the core accident year claims ratio was primarily impacted by the change in definition for a single claim loss in 2025. We continue to operate our commercial insurance business with the intent to sustainably deliver an annual combined ratio in the low 90s. Turning to Slide 14. Consolidated premiums increased 9.1%, adjusting for exited lines. The disciplined nature of our growth through our underwriting expertise, pricing strategies and product expansion, along with the continued focus on expense management resulted in the second quarter combined ratio of 92.9%, up from last year, largely due to high catastrophe losses and a benign non-cat weather from the second quarter of 2024.

Our expense ratio of 29.7% was nearly 0.5 point better than the prior year, benefiting from the investments we've made to improve productivity, along with our disciplined expense management. As Rowan mentioned, our second quarter operating expense ratio of 11.5% is already at the level where we expect to end the year. As you can see on Slide 15, our net investment income increased marginally in the second quarter due to an increase in interest income driven by higher holdings of bonds, partially offset by lower dividend income as we reduced our common equity holdings in the first quarter of 2025.

Given the anticipated contribution of proceeds from our private placement of common shares, we now expect net investment income of approximately $205 million in 2025. Focusing on distribution income, the seasonally strong second quarter contribution of $21.9 million reflects both the ongoing inorganic expansion of the platform and continued strong organic commission growth across the business. As we mentioned on past calls, the full impact from our national broker platform also includes a benefit to consolidated expenses in the form of a commission offset. In aggregate, we've raised our expectations for 2025 growth to 20% over last year's $76 million before finance costs, taxes and minority interests.

We continue to expect it to have a roughly 70-30 split between distribution income and commission offset. As you can see on Slide 16, our robust financial position was further strengthened by the net proceeds from our concurrent private placements of common shares as we raised funds in advance of the deal close. The increase in financial capacity was due primarily to our private placements, a change in our leverage capacity calculations of 30% to better reflect anticipated leverage levels to the Travelers transaction and capital generated from operating net income. These were partially offset by ongoing deployment of capital for broker acquisitions and disciplined deployment of capital to support our organic growth and dividend priorities.

Slide 17 shows recent capital management actions, primarily related to the financing of the Travelers transaction. With the private placements complete, we will next turn our attention to bond issuances this fall. We also continue to finance our broker acquisitions, which remains a key area for capital deployment in the quarters ahead, and we were pleased to receive a DBRS upgrade on our trends from stable to positive. With that, I will turn the call back over to Rowan.

Thanks, Phil. Let me end with a few more thoughts on the Travelers Canada acquisition on Slide 18. We believe this is a concrete demonstration of our commitment to build a Canadian champion in the still fragmented P&C insurance industry. We've been preparing for a transaction like this for years. I'm confident we have the resources, expertise and talent to execute successfully. Definity's senior leadership team brings a wealth of experience and has deep knowledge and a proven track record in delivering successful integrations. Integration planning is well underway as we have already put in place a robust transition planning and governance structure.

Since the announcement of the transaction, members of the senior leadership team and I have held nearly 2 dozen townhalls with our employees and brokers and the sentiment has been overwhelmingly positive. Our employees are excited at the prospect of our scaled capabilities and the expanded opportunities that they will bring. Our brokers are enthusiastic and are showing a clear interest in our enhanced product offering post close. We expect the transaction to close in Q1 2026 following a receipt of customary regulatory approvals. And I'm very pleased to say that we have already received unconditional clearance from the Competition Bureau.

On the insurance side, we continue to be actively engaged with OSFI providing them with the information they need to fully assess the transaction. In conclusion, the acquisition of Travelers Canada will enhance and strengthen our mix of business, increase the breadth of our product offering and provide access to hard-to-source high-performing talent. The deal is financially compelling with attractive economics and will allow for the achievement of an optimized capital structure that we expect will sustainably support enhanced returns for shareholders in the years to come. And with that, I'll turn the call back over to Dennis to begin the Q&A.

Thanks, Rowan. With that, we are now ready to take questions.

[Operator Instructions] And your first question will be from Paul Holden at CIBC.

First question I'm going to ask is just sort of on the updated expectations for commercial lines and the industry growth down shifting a bit. Is that intensified competition? Like is it broadening out to more lines of business? Or is it simply just more intense competition within sort of those large accounts you've referred to previously?

Thanks for the question. I'll have Fabi give us some more insight into that. But I think the macro view we'd like to share in commercial lines is it's really a continuation of what we've been seeing. And if you look back over the last couple of years coming out of COVID, there was a lot of inflation and loss cost trends, which is really the primary driver. That is now normalizing and slowing. And therefore, when you're rate adequate and the industry has been in a firm market for a number of years, the required rate changes really reflect the ongoing loss cost. So I think that is the main kind of message. But clearly, it varies by segment, and there's a lot more nuance to that. So Fabi, would you like to just add a bit of color to that?

Yes, thank you, Rowan. Maybe kind of adding 3 or 4 additional insights to your question, Paul, and thank you for that. I think the first 1 is that indeed, we have seen more competition in the large account space. But I would say that overall, the commercial insurance segment overall is still very attractive for us. We are very pleased with the results that we have achieved in that segment in Q2. You've seen that we have a rate of 10% that is market leading. And obviously, we are very pleased with the combined ratio of 89.6% that we posted in Q2. Our frontline teams are doing a really good job in executing our business plans. And as a result of that, the underlying profitability that we have in our commercial portfolio remains very sound.

I think what I'd like to point out to you as well, and I mentioned that in earlier calls as well, is that if you look at our growth rate of 10%, what is important to note is that about half of the growth rate is being generated with rate and inflation adjustments. And that gives us a great deal of confidence but we continue to cover the loss trends that we have in our portfolio. And with that, we are very confident that we'll be able to sustain the combined ratio in that 90% range. The other point I want to draw out as well, as I mentioned before as well is that we continue to benefit from our commercial portfolio being heavily skewed to the lower end of the commercial marketplace in terms of account size and limits, and that gives us just a very good opportunity to mitigate the impact of pricing, leveraging the strong digital capabilities that we built in that segment.

And then maybe one of the last points I want to share with you coming back to your question in terms of industry dynamics in commercial insurance, we have more competition in the large account space for sure. But the amount of business that you're writing in large accounts a very small portion of our overall commercial portfolio. And our frontline underwriters are very disciplined. And if the margin equation doesn't make sense for us in all of those large account renewals, you're guiding them to letting those accounts go and again, because the makeup of those large accounts in our portfolio, is so small, we don't really see the impact of that increased competition in our portfolio.

So overall, I would say that we view the commercial segment very attractive. We are confident that we can grow our commercial portfolio at twice that industry growth rate without compromising our profitability goals as a result of the strong underwriting and capabilities that we built in small business, middle market and specialties and with a strong support from our brokers, again, we are confident that we'll be generating growth rates in the higher-single-digit range and sustain profitability in that 90% combined ratio range.

Okay. That's a very helpful answer. I think that's really the key issue. Can you continue to gain market share but by, at the same time, maintaining your target margin. So clearly, your answer says yes. So that's very good. Second question, we have a really good slide on the broker platform. I think it's Slide 10, highlighting that you're now the 10th largest P&C insurance broker in Canada. I guess kind of 2 questions related to that. One is like as you get bigger, does it help with the acquisition accretion in any way, i.e., is there more opportunity for synergies? And then two, are there other kind of scale benefits associated with the broker business sort of more on an operational basis?

Well, I would say the answer is yes. I mean, I think that if you just reflect back on the journey we've been on, right? This is only a few years ago that we've done this. We've now deployed a little under $1 billion into the channel. As you've noted, we're a top 10 player. We're growing quite quickly. We've done about 20 transactions, another 6 this year. And what we're now seeing is that there is benefits of scale. And I think as the business grows and it standardizes its technologies and some of the back office functions, there absolutely is upside in terms of the margin. The margins, the EBITDAs that come out of a distribution channel are very attractive and very stable. It's why we like it. They are attractive and they're very, as I said, predictable.

I think that whole segment has gone through quite a lot of change in the last couple of years, but it is attractive. And I think that there are a couple of different models out there for roll-ups or for consolidations. The model that we have under the McDougall's Group is a little unique. If you remember, it's unique in terms of we keep the entrepreneurs engaged. They keep equity in the business. And as they do roll-ups, they have a lot of value they can bring to the acquired companies such as more market access, more specialization and capabilities. And so we've kind of seen revenue synergies as companies we acquire increase the organic growth rate and of course, we've seen kind of cost synergies.

So I think that scale play that you referred to will continue. And I think just a kind of final comment for me is like where -- we like this. It's been a very good investment for us and deployment of capital. As you can see, Phil made the comment that we've increased our guidance this year, we've done more acquisitions. The organic growth rate is strong. So we've increased guidance from 15% growth to 20% growth. And I can tell you the pipeline's still pretty full for us. So that should play out well for the next several years.

Next question will be from Mario Mendonca at TD Securities.

The comments around personal auto and sort of downshifting a little bit the growth outlook, you're obviously referring to direct written premium. But the growth in net earned premium has obviously been a lot stronger for the last 3 quarters. So what I'm trying to get at is what -- how much longer would you expect the growth in net written -- net earned premium to really outpace direct written premium? Presumably at some point, those 2 converge, and I'm just trying to figure out when that might be.

Thanks, Mario, it's Paul. Yes, you're right. And then this is really a reflection of the lag in the industry between the trend that we are seeing and the written rate that we're taking. As the rate starts to catch the trend and we're essentially near that point now, you would expect to see those elements converge as you've rightly pointed out. That, of course, assumes a fairly stable environment moving forward, while the inflationary trend has normalized or moved toward normal in that mid-single-digit range, we're still seeing some uncertainty. One element, for example, is theft. Theft has improved to your question, but still a little bit elevated relative to prepandemic levels. And then, of course, as Rowan said in his opening remarks, there's still the uncertainty around the tariff environment moving forward.

So I think what you would expect to see in a stable environment is that convergence. But as you will see, markets take rate at different times, we don't all take rate on the same day. So there's always a bit of volatility quarter-to-quarter as 1 market may take a rate and another then responds a little bit later. In our particular case, we have taken 5 points of freight in our largest portfolio in Ontario, as Phil has indicated. And as we've shown in previous years when we move ahead of the market like that, we tend to see a bit of a moderation in that -- in our pattern as the rest of the market then catches up and then we gain that competitiveness thereafter.

Next question will be from Bart Dziarski at RBC Capital Markets.

Just wanted to follow up on the distribution income. So noted on the raised guidance, but when I look at the growth rates, like you're tracking at the guide is 20% already. You had 27% strong growth in Q2. You're continuing the acquisition. So is there something in the guidance that you're seeing on more cautious that keeps you at the 20%? Or is there upside to that going forward?

Yes. No, I think we're very -- obviously very pleased with the first quarter that's come through. And if you look at the underlying factors that are driving that outperformance in the first half of the year, it's the strong acquisition activity, and it's the very positive underlying growth that's come through. We have a bit of a true-up that always happens in the first half around CPCs as you make the estimates on what comes through there, and we have a contribution that came through in the first half. But generally speaking, as I know, we're very positive that 20% is the bottom end of our view. We're pretty comfortable that's going to go forward. And in particular, if you look at the acquisition activity that's happened in the second quarter, that's obviously only just occurred and therefore, we'll see some pickup going forward. So no, I think -- if you look at the underlying themes that continuous, it's good contribution from that acquisition activity, and it's the good positive underlying growth on an organic basis that we're seeing in the operations. So a continuation of the same teams, I think, is what we're predicting for the rest of the year.

Okay. Great. And then just on the -- 1 question on Travelers acquisition. So is there an opportunity for you to port Guidewire into Travelers and get claims transformation benefits there? Like I know organically, you're expecting 1 to 2 points, but is that a possibility in terms of using Guidewire with Travelers business?

So on our side, this is Fabi answering your question. So as you know from our disclosures, we're in the middle of a major claims transformation to kind of contribute that 1% to 2% ROE expansion range. Last year, we put our own auto claims on to Guidewire and that's complete and our auto line of business has about half of our claims count. And this year, we're in the middle of completing our claims confirmation to Guidewire by kind of transforming our P&C business. And we do expect that P&C transformation will be done by the end of the year. And with that, we can in-source kind of the travel claims onto a fully end-to-end installed claims Guidewire platform on our side, and that will allow us to drive additional benefits and the main benefits from a Guidewire transformation is a better customer experience, better indemnity control, better fraud prevention, better opportunity to leverage AI capabilities going forward as well. So we feel that the platform that we've built on our side will help us extracting the benefits that we put into the business case when we made the Travelers acquisition.

And Bart, the only thing I would add to that when we announced the $100 million of synergies that we expect to come out of the Travelers integration, I mean we really there were referring to the cost synergies. And so as Fabi talks about when we move the business onto our platforms, and that would be the Guidewire platform buying and personal lines, for example, and for small commercial, but also the claims what that doesn't capture is any potential indemnity improvements, which we think will likely occur in certain product lines as well.

So the bottom line is that's all tracking well. We thought about that in our due diligence, in our valuation and then picking the synergies, but the synergy targets we shared in the market are really the kind of cost efficiency targets, and that would occur partly by better technology, moving them onto our digital platforms, but what it doesn't address is the potential benefit of further indemnity savings. So the big point there is that it is important for us to convert onto our platforms and Guidewire claims you pointed out, but the other benefits apply to other product lines as well.

Next question will be from Lemar Persaud at Cormark.

I just want to come back to distribution, specifically your Slide 9 there. I'm wondering if you could talk about the pace of broker M&A now that you're absorbing the travelers. You're showing here that you're at $1.3 billion in premiums. You've added $160 million in the first half of 2025. I think in the context of that $1.5 billion target by the end of 2026, it would suggest a slowdown in broker consolidation. Is that what's in the plan here? Is that because of the Travelers deal? Maybe you could provide some color on that.

Yes. Thank you for that. Look, and I think the 2 points I would make. Firstly, the Travelers acquisition would not have an impact on building out our broker platform. This really is part of the business that is stand-alone and not impacted by the Travelers acquisition. So we have the funds to keep investing in our broker platform and we have the management capability to keep that platform building and integrating as they go. So Travelers won't impact that. I think the other point I would make there is that we haven't yet updated the guidance that you talk about $1.5 billion at the end of 2026. But given the success we've had year-to-date, that certainly is looking like a very conservative estimate to us. And I think all we would say is that we really are very comfortable in tracking towards that target. But that don't read into the fact that we're slowing down our activities. I mean, I think that the broker platform continues to grow very well organically. And as I mentioned in my comments, there are significant opportunities in the pipeline. So that should continue.

Next question will be from Brian Meredith at UBS.

Just a follow-on with the Travelers acquisition and distribution. I'm just curious, Travelers is very committed to the broker independent agency distribution system in the U.S. As we look at this acquisition and your conversations with distribution, have any of the agents that Travelers did business with their brokers expressed any concern on channel conflict or something, maybe they like being with Travelers because they didn't have the broker presence.

Thanks for that question, Brian. And the answer -- the quick answer to that one is no, there is no concern. I mean I think that what we have been able to do in the last couple of months is we've engaged, obviously, with channels, with our employees, with Travelers' employees and with brokers and I'd remind you that the vast majority of Travelers brokers also represent Definity. So there is a natural overlap and in the discussions that we've had, whether they're in townhalls or the one-on-ones with the largest brokers, they are quite frankly delighted about this acquisition, and they are really pleased that Definity is the acquirer. They see that this will add capabilities to us and some further product lines. But we've got a high degree of confidence that the channel conflict is not an issue.

They're pretty used to it in the marketplace. This is something that made a unique vertical integration into the broker channel in Canada, but it's not so -- it's unique to the Canadian business, and they seem pretty comfortable. So we're not really worried about that at all, Brian. It's in fact been the opposite. I think the feedback we've got from brokers that represent both organizations has actually been extremely positive.

Great. That's really helpful. And then second question, I'm just curious, down here in the U.S., auto claims frequency continues to be quite favorable. Are you seeing anything similar in Canada?

Go ahead, Paul.

Thanks, Brian. We are seeing sort of normal frequency trends seasonally adjusted. So Q2 tends to be usually a bit of a better quarter for auto claims. And so we're seeing that across the board. The 1 area in frequency that we're seeing a marked improvement year-over-year is in the theft space, as I mentioned earlier, while theft is still elevated relative to prepandemic that's really more on the severity side of the equation whereas the actual set percentages are -- have seen a pretty significant slowdown due to the actions of the government and the industry combined. Now I don't want to give you the impression that it's not an issue anymore. It continues to be an issue, but we price for that throughout. But yes, normal levels of frequency throughout, no issues to speak of.

Great. And if I could squeeze 1 more just quickly in here, Rowan. MGAs have become incredibly popular down here in the U.S. I'm just curious, do you use much MGAs in your own business and kind of thoughts on the MGAs?

As a general rule or comment, I would say that there is a difference in MGAs and MGUs between Canada and the U.S. And in the U.S., there seems to be more [indiscernible] underwriters and less of that in Canada, we're less comfortable distributing. That doesn't mean we don't use MGAs, but it's generally something we're less comfortable with. We would prefer to keep the underwriting pen as they say, and manage our own capital. But we have seen some growth in that segment. It's not something that is a priority for us in terms of distributing through. We have a broad and capable distribution network. And so we feel we can access the segments that we really focus on quite capably without a high dependency on MGAs.

If I may add to Rowan's answer, in my experience, and I worked in the states for 8 years as well, you use MGAs for 2 main reasons, either because you don't have the distribution reach or because you don't have the technical expertise to write the business that you want to write and based on the scale that we have based on the underwriting expertise that we built, based on the reach that we have in the distribution space, coast-to-coast we really don't have a need to reach our end customers through MGAs and as Rowan mentioned, we can sustain the growth numbers with the broker distribution networks that we have in place.

Next question will be from James Gloyn of National Bank Financial.

First question is on the Sonnet. I was just wondering if you could dig into the growth rate that you're getting out of the Sonnet platform today now that it's sort of turned into a profitable venture excluding Alberta, of course. And what level of profitability are you achieving from Sonnet at this stage? Is it sort of in line with the prior expectations of similar combined ratio to the broader personal auto portfolio with lower expenses, higher loss ratio? Or how is that trending just in the last few quarters here now that we have it in profit?

James, let me just start before I give that to Paul. And just to remind us of the strategy, I mean, we think that the direct-to-consumer and the digital channel is certainly a growth opportunity in the years to come. It was really important for us to scale up on it and get that to breakeven. And we achieved that late last year, and that continues. So I think that's something we're very pleased about. We did also guide that as we change the model and tightened up and put the right pricing approaches into, we would slow that growth for a period of time to just be sure that it's working as intended, and we can retain and acquire the right customers and then look to kind of gradually increasing growth in the quarters ahead.

So that's the kind of strategy. I think your point about the margins, we do think over time, that product or that channel will have the same capability and contribution as the broker channel, but only after scaling it, right? And so as we move into more growth in the coming quarters, we're not going to be running that at a sub 95%. It's still going to be high 90s. And the reason for that is new business is more expensive than a mature portfolio as you scale up. But the main message that we wanted to show is, does this model work? We're comfortable it does. Can we acquire and retain profitable customers and then kind of gradually grow that in the quarters ahead is the strategy. And yes, it will ultimately at scale have at least the same contribution as we get to the broker model. So that's our thesis, and that's what we're moving forward. Anything you want to add, Paul, in terms of the kind of shorter-term?

Yes. Just a couple of additional points. So as we've previously called out, we were very focused on that breakeven positioning and we were deliberately reducing our growth rate to accommodate that to make sure that we have room for the targeted segmentation actions and make sure that our rate was earning through the portfolio. This quarter, we've returned to modest growth, which is positive and that's really what we were aiming to achieve. And as Rowan says, moving forward in the near term, we'll continue to focus on some moderate growth. We don't want to have outsized growth yet again because as Rowan said, we're targeting a high 90s overall core. And we want to make sure that we're sensitive to the macroeconomic environment.

So we have some positive segmentation activity flowing to that portfolio, which is giving us positive momentum in the segments that we're targeting. And so we'll continue to look at that on a province-by-province and line-by-line basis. And then 1 other comment too around the profitability you asked around the makeup of profitability versus expense ratio, as an example. So in the near to medium term, we expect the expense ratio to continue being better than our broker portfolio. Of course, we don't pay, we don't have a commission structure on that. That expense ratio benefit should increase over time as we scale the business because many of the expenses on that direct side are more fixed in nature. And so that does give us scale benefits as we move forward.

The 1 variable expense in there that can be significant and can be quite variable is a marketing investment and that depends a lot on what is being bid on in the marketplace by competing organizations. And so depending on what's happening in the economic environment, and the advertising environment, that can move around a bit. But for now, obviously, with the exit of Sonnet Alberta, that reduced some of our top line, but moving forward, we continue to focus quite heavily on investing in this, but also using this as a real innovating mechanism for some of the rest of our business.

Okay. Great. Second question, just on the shift in the property mix. And so I guess, avoiding some of the more catastrophe exposed areas of the country. How -- is that shift mostly done at this stage? Have you implemented everything you would like to achieve? And then I mean, it's not necessarily the most active weather cat quarter, but is there anything you can speak to that gives confidence in the success of those shifts geographically to avoid potentially higher claims costs?

Yes. A couple of points I'll bring on that. So the bulk of our activity around depopulation to avoid cat losses in certain peril zones, I'd say, is behind us. That being said, I want to highlight that this is an ongoing activity. This isn't a 1 point in time activity. As we've said before, we use models, peril models, wildfire models, flood models, for example, and those models constantly get updated as the environment and climate changes. So we go through a continuous process of updating our models, updating the science and then organizing our distribution around where we want to write business. So that should return much more to a normal optimization approach.

The second thing I'd like to say is that certain perils, winter storms and severe convective storms for example, are not conducive to updated models in the industry. And so these are areas where we have to work at leveraging what is available and our expertise to try and minimize exposure to that. That's not always the easiest thing. It is an ongoing exercise that we continue to make and invest through data and analytics. And then maybe the third point I'd make is you mentioned really around the property portfolio with regard to peril management. But I'd also like to highlight that we are taking significant steps to improve the mix of our business as well to reduce volatility and improve long-term retention and profitability.

And so as an example, even though in this quarter, the majority -- on an overall basis, the majority of our growth came from rate, underlying that, we've actually had positive unit growth in areas like homeowners and condo, which are better -- more profitable longer sustainment categories and are associated with multi policies because we often have an associated auto with them. And we've deliberately moderated our growth in the tenant and rental space. So even within that, there's an ongoing improvement in the mix to optimize our overall portfolio to help hit our overall targets and to maintain that sub-95 direction.

Jim, I mean, I guess the way I think about this is that you've got to be really good at managing cat exposure. I mean that trend is pretty clear. And I think that we've demonstrated that our ability to do so. So as Paul was saying, the team has really works on that cat management. They have developed very sophisticated underwriting and models. And the benefit we have is we have the [indiscernible] platform that can actually take that to the front of the business. And so that agility gives us confidence to keep right. I think that the rate that we're getting today is essentially all of the growth. There really hasn't been any unit count growth to speak of and has been pricing. As we look forward, whilst there's still ongoing optimization that Paul talks about, we'll be expecting not just rate, but more unit count growth as we continue to outperform the industry in combined ratio as well. So that's a line of business we like. We feel very good about it. The market is certainly affirmed a hard market. And that will be a source of our growth in the coming years.

Next question will be from Tom MacKinnon at BMO Capital.

Just a question again here on the distribution income and outlook there. Should the organic growth in distribution income, shouldn't that just be a function of industry premium growth or at least for the bulk of it and then perhaps a function to some extent of your own premium growth, given that some of this business is placed with you as well. Is that the way we should be thinking about the organic growth in distribution income?

Yes. I think that's right. I think that the way we think about this business is the platform has proven to be strong at organic growth. And so that means that they and their producers build their revenue. That's a combination of the renewal portfolio as well as new business wins. And as they introduce more sales practices into the businesses that they acquire and have more products to offer, that helps them organically grow. So I think the way you think about that is there is largely influenced by the industry growth rates as well as the profitability, some brokers are more profitable and therefore, enjoy higher CPCs and they have more weight and clout as a top 10 underwriter than others in the marketplace and can benefit from higher commission yields from insurers.

So -- and then the next piece of that is the bigger the broker gets the network, both from organic growth plus what they acquire because Definity is 1 of the leading insurance companies in their stable of insurers we grow as well. And that's the second part of the equation that Phil talked about, where distribution income gets benefit by commission offset as they continue to grow with ourselves. So that's how when you just step back, this has traditionally been a platform of brokers that grow in the upper-single digits organically. That continues. And then on top of that, they're adding size and scale by acquisitions.

We are very pleased with the organic growth rates that we have in our broker network, as Rowan mentioned. And we are very selective in terms of who we are inviting to be part of a network and many brokers that have joined us over the last 3, 4 years, have long-standing roots in the regional communities so that the retention numbers are very strong both in PI and CI. We have low 90s retention numbers. And in PI, we are focusing on driving growth with VIP customers and group and are making very good success, have very good traction in that regard. And on the commercial side, we are leveraging underwriting skill set from 1 broker to another and you are seeing an uptick in that organic growth rate as well.

So overall, that is coming through with what we would think is above-average organic growth. And in addition to that, every year, we're having an additional EBITDA margin benefit from scaling the back-office operation as well, so the returns of our investments are very much trending in line with the business case that we put together when we deployed our capital.

And who's -- so if the 15% growth you see in 2024, nearly half of that is acquisition related and probably -- and the other half would be organic, who -- do you fund some of the growth that McDougall would be doing through acquisitions? Or how does that influence the -- your distribution income? I mean, someone's got to pay to buy these things.

Yes. So Tom, in terms of the individual deals, oftentimes, we'll provide funding through intercompany loan structures or the broker platform may draw on the debt facilities that we already have there. So actually, if you look at the debt draw that's on the balance sheet right now, a lot of that is actually associated -- in fact, all of it is associated with the broker platform. But what we also see that happens quite often is that the brokers that are being acquired often have an appetite to roll over equity through that transaction as well.

So what you also see happen is not the entire amount is monetized through exits. Quite often, we'll see 25%, 30% rollover their equity into the McDougall platform. So we tend to see a pretty good uptick on that. And if you look at the overall ownership that we have in the broker platform, it's hovered between the 22%, 28% range. It moves around as new acquisitions come through. And as principals depart are quite often existing shareholders and McDougall will pick that up. So it's really a blended approach. But yes, we do have intercompany debt structures with the broker platform, and they also draw on the external funding.

Okay. And 1 final quick one. What percentage of the business that these brokers write get placed with -- get placed with Definity. Is it like 30%? And are you trying to get more of that or less of that? And are there any regulatory issues around that?

No, Tom, I think the point we make there. So firstly, we don't disclose that in our disclosures what it is. The way I would describe that is that we expect the national broker platform to act as an independent broker. And as such, they have multiple and many markets that they deal with. If Definity the right product at the right price, it gets placed with Definity. If somebody else has a better product at a better price, it gets placed there, we make the distribution income. So I think we're -- that's our model, and we go forward to that. That being said, if you just step back at the overall market, we are a top 3 insurance company in Canada behind just 2 others in terms of intermediated part of the business, and we are large with many of our brokers. And so we'd be a leading underwriter in the national black broker platform as well, along with a couple of the major insurers.

Wouldn't that percentage be around 30% given the commission offset is 30%?

Not necessarily. If you -- this commission offset would include CPC structures on the profitability of the business, it can have different rates depending on the commercial lines, personal property, personal volatile mix. So again, it can be variable through the different constitution in parts and then also just the degree of profitability that we're seeing coming out of that program as well.

Maybe just give you more insight on your question. Looking at our value creation plan for our broker network, that the main drivers are organic growth, CPC and override expansion and margin EBITDA expansion. And that flies the majority of the value creation plan, so we are working very closely with our broker partners to help them grow their business as much as they can. So the trading relationships that we have with them, very much in line with Rowan's point is one of an independent broker and the trade relationship kind of has the least impact on the overall value creation plan, our capital deployment into the network. And again, this is why we are so happy that the organic growth is above market average, and that helps us generating those good returns.

Next question will be from Stephen Boland at Raymond James.

Sorry. Now that you spend more time with Travelers, I just want to -- when the deal was announced, you provided their split of premiums. Is there any changes to that mix, meaning like have you advised them that certain lines of business or geographies which you're doing right now with your own book? Has it got to that level of, I would say, pre-integration you're advising them what lines or customers that you want to be with or don't want to be with?

Yes. Thanks, Stephen, for the question. And what I think is important to kind of recognize that the deal hasn't closed and it only -- we're targeting closing in Q1. So as that, we operate as 2 competitive organizations. And so we're engaged in integration planning, but not at all in terms of managing and influencing their portfolio. They operate today as they did delivering their business plan as an independent and a competitor. I think the other point I would just kind of add on the Travelers is that it's -- look, it's going really well. I mean I think we know the business. We know, obviously, from our due diligence, what a great strategic fit, it is going to be. The integration planning of both organizations is well underway, so we can get this over the line and start the integration early next year. We were delighted that there's been good progress on the regulatory front. We already have clearance from the Competition Bureau and we're well engaged with OSFI to allow the Minister of Finance to make the approval at the right time. So all of that is kind of progressing very well. But we're not engaged on anything to do that has to do with influencing the organization and the portfolio.

Thank you. At this time, we have no other questions registered. I will turn the call back over to Dennis Westfall.

Thank you. Rowan, before we close the call, do you have any final thoughts you'd like to give, leave us with today?

Well, I think just hopefully, we've kind of shared some key messages through the Q&A, which I thought are excellent. And to me, a couple of points we're hoping comes through. One is the strong growth is going to continue in all lines of business. And that's both rate and unit share. I think we've talked about the market conditions, which remain very favorable as far as we could see. We were delighted with our sub 93% combined ratio in the quarter. And I think the important message there is that in all lines, our margins are holding or actually improving. Lot of questions around distribution. I mean, we're really pleased about the ability to keep guidance moving up and we're ahead of where we thought we would be in terms of achieving our $1.5 billion target.

And the main thing that I think it comes back to the Investor Day, where we talked about the 3 operating levers, Sonnet's in a good position, operating expenses are actually ahead of where we thought they would be, and as Fabi mentioned, the claims transformation is well on track or slightly ahead. So those are going well. This gives us all a lot of confidence in our guidance, but also gives us confidence and excitement to welcome the Travelers organization into next year. That's certainly going to be quite a transformational opportunity for Definity. So we think we're in great shape. Thank you.

Thank you, everyone, for participating today. The webcast will be archived on our website for 1 year. A telephone replay will be available at 2:00 p.m. today until August 8 and a transcript will be made available on our website. Please note that our third quarter results for 2025 will be released on November 6. That concludes our conference call for today. Thank you, and have a great one.

Thank you. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Have a good weekend.