WAWANESA INSURANCE 2014 ANNUAL REPORT

Transcription

1 WAWANESA INSURANCE 2014 ANNUAL REPORT

2 Wawanesa is a Canadian mutual company owned by its policyholders. With assets of over $8.6 billion and nearly two million policies inforce, Wawanesa is one of the 10 largest property and casualty insurers in Canada. Wawanesa has a rich history dating back to September 25, 1896, when it was founded in the Village of Wawanesa, Manitoba. Today, our head office continues to be located in the Village of Wawanesa with the executive office located in Winnipeg, Manitoba. Wawanesa has 100% ownership of two subsidiary companies. The Wawanesa Life Insurance Company Main Street Winnipeg, Manitoba R3C 1A8 100% Owned Book value of shares $116,562,000 Wawanesa General Insurance Company 9050 Friars Road San Diego, California % Owned Book value of shares $295,643,000

3 MISSION AND VALUES MISSION Earning your trust since 1896 As a policyholder-owned mutual insurance company, we will continue to earn trust by providing quality products and services at the lowest price, which supports long-term growth and financial stability. VALUES We treat others in a respectful and truthful manner. We conduct business with integrity, honesty, consistency and fairness. We act ethically and lawfully. We take pride in making service a priority. We encourage collaboration, innovation and excellence. We support the communities in which we work and live. 1

4 PRESIDENT S REPORT In May 2014, I was given the honour and privilege to take the reins as the ninth CEO of this wonderful company; an opportunity that I am excited about, and very humbled to receive. Being a mutual with small town roots, we have a rich history that has helped develop strong principles and values, both of which have helped build our culture, and have shaped who we are today. Our policyholders are our owners, a trait that reminds us why we are ultimately in business. Because of this, we can take a long-term approach to not only our planning but also our relationships. We are here to earn and maintain the trust of our customers, our employees and our brokers. As we move forward, I am committed to ensuring that these principles and values remain entrenched in our company, and respect that they are the foundation of what has made us successful. Transitioning from 2013 to 2014, we were optimistic about a number of initiatives. As we progressed throughout the year, we were able to take a number of great steps forward; improving our technology, increasing our premiums and policy counts and growing our assets and equity. Similar to last year however, our results were negatively impacted by several severe weather events that affected our property and casualty underwriting results. While our policy counts grew from 2013, we unfortunately still reported an underwriting loss for the year. We had another strong year from an investment perspective which results in us reporting a Consolidated Profit of $164 million for the year ended December 31, This is $76 million We are here to earn and maintain the trust of our customers, our employees and our brokers. better than We also saw growth of $544 million in our assets, primarily attributed to our investment holdings resulting in total assets of $8.6 billion. Our equity grew by $220 million to surpass $3 billion for the first time and our MCT (Minimum Capital Test) ratio is over 300% which is well above the minimum regulatory requirement. We are pleased to report that Wawanesa maintains our A.M. Best rating of A+ (Superior). PROPERTY & CASUALTY (P&C) OPERATIONS Financial Results It was a challenging year once again from an underwriting perspective. Although there were no events comparable to the large Calgary and Toronto floods of 2013, we were still impacted by numerous catastrophes totaling over $220 million. The largest were the water, wind and hail event in late June in Manitoba and Saskatchewan and the surprisingly significant hail storm that was concentrated mainly in the city of Airdrie, Alberta in early August. Our underwriting loss increased by $8 million from 2013, resulting in a loss of $116 million. We did achieve a small 1% overall policy count growth in 2014 with all regions other than Ontario and the Maritimes seeing growth. It was very encouraging to see growth in Quebec after many years of policy count loss. With respect to written premium, we grew 1.9% in Canada and 3.6% in the U.S. for a consolidated increase 2 WAWANESA INSURANCE ANNUAL REPORT 2014

5 of 3.2%. For several years, Wawanesa has made growing our Commercial book of business one of our strategic priorities. Through several initiatives related to resourcing, training, products and enhanced quoting abilities, we are very pleased to report that we have achieved a 8.4% policy count and 25.1% premium growth over the last two years. There are significant efforts in flight to address our underwriting performance. A new policy, billing and data management system will begin to roll out in the first quarter that will provide us with the ability to capture and use data with an increased level of sophistication. This will result in a quicker response to changes in the market. Business process transformation, with a focus on electronic data integration and customer portals, will provide us with the ability to reduce manual efforts and expenses. Enhanced oversight on both the underwriting and loss control function will help us identify areas of improvement and focus dollars and efforts in the appropriate areas. Best practices in product development are being put in place with product innovation focusing on providing customers with options to manage their coverage and premiums. The return of growth to our Quebec Region was long overdue and very welcome. count, mainly in the automobile line. We believe that the rate action we implemented throughout the year will get the underwriting results back on track for The return of growth to our Quebec Region was long overdue and very welcome. We are confident that the rating approach that we have established and dedicated resources and review processes that we have put in place that growth will carry through 2015 and onwards. We continued to have poor underwriting results in this region and there are several rate and product changes scheduled to improve these results. For the Ontario Region, we experienced a steady policy count decline throughout the year that did level off a bit towards the end of This was mainly driven by the automobile line of business. As well, although we saw improvement in our fourth quarter underwriting results, it still resulted in a loss for the year. Of concern here is the trend of rising claims cost and a commitment by the government to achieve an overall rate reduction of 15% by August Without meaningful cost reforms commensurate with the desired rate reduction, significant cost pressures will be put upon insurers. Regional Commentary In the Maritime Region, after several years of growth and profitability, we had a setback in 2014 with the severe winter weather having a big impact on our underwriting results. As well, we did experience a decline in policy For the Winnipeg Region, we had both good growth and profitability. For the rural part of Manitoba and Saskatchewan which is serviced out of our Prairie Branch, we also saw good growth but had significant underwriting losses driven mainly by the large weather catastrophe event in late June. We have experienced losses in this 3

6 region for several years and are committed to take the necessary rate and product action to address this. In the Northern Alberta Region, we saw a modest policy count growth but good growth in premium as a result of continually addressing the challenging weather that has affected Alberta over several years. This year we had favourable underwriting results in both the automobile and property lines. For the Southern Alberta Region, we also had modest growth in policy count and good growth in premium. Although there was an improvement in underwriting results from 2013 which was severely affected by the Calgary flood, there was still a significant event in August which mainly affected the area around Airdrie, Alberta. After a slow start, we achieved decent policy count growth for our British Columbia Region however, due to an unusually high frequency of large losses, mainly fires, we had a challenging year from an underwriting results perspective. This was a year where we had significant accomplishments from a technology and new system delivery perspective. System Renewal Strategy to support the enhancement of our business processes has been an extremely high priority for several years. We have previously replaced our claims system in 2011 and in 2014 we upgraded to the most current version of Guidewire s ClaimCentre. We also implemented a new financial management system and completed our Enterprise Data Warehouse in The replacement of the entire policy administration system with Guidewire s InsuranceSuite is well underway and is on track for first implementation in our U.S. Operation in April This will be a major accomplishment and we will see the realization of a vision to replace our legacy policy system that goes back more than a decade. These changes will put us in a position to grow our business, keep pace with industry trends and maintain financial strength and stability. Most importantly, these changes respond directly to what our customers have told us they want, including faster, more efficient options for payments, quotes and policy applications. I want to certainly recognize and thank all of those who worked so hard to make this a reality. For the United States Region, operated through Wawanesa General, there was a return of policy count growth and although we experienced an improvement in underwriting results, we still ended in a small loss position. We have implemented a revised rating scheme in California and expect that to help with continued growth and improved profitability. We are very proud to report that we have won the J.D. Power award as #1 in customer satisfaction for automobile insurance in the state of California for the third consecutive year. Operational Comments Once again, this was a year where we had significant accomplishments from a technology and new system delivery perspective. Implementation of our Enterprise Our next implementation is scheduled for our Alberta branches and planning will begin shortly after we deliver to our U.S. Operation. As we have now successfully delivered some major technology projects, the onus is now on the business side of our operations to leverage this technology to its fullest extent possible. Our industry has become increasingly complex and competitive with escalating costs, changing and increasing customer and employee expectations and a rigorous compliance environment. For us to succeed and achieve our strategic goals, we have to transform our core business functions. The way we process insurance needs to be more efficient and we need to provide superior service to our 4 WAWANESA INSURANCE ANNUAL REPORT 2014

7 policyholders, claimants and brokers. To that end, we have identified several strategies under the broad overarching theme of business transformation that will allow us to transform the way we perform our core business functions of underwriting, billing and claims. FROM A LIFE COMPANY PERSPECTIVE Financial Results Wawanesa Life reported total comprehensive income of $13.4 million; a new record for the Life Company. Investment earnings on the Life Company s surplus and capital position contributed significantly to this strong result. Total income from the lines of business was similar to last year however the annuity and group lines saw income improvements while individual insurance experienced reduced earnings largely due to the low interest rate environment. Premium income net of reinsurance together with premium equivalents stand at $110 million. Growth in individual life and annuity premium was offset by reduced premium from the group lines of business. Assets under administration surpassed $1 billion for the first time in the Life Company s history. Wawanesa Life s capital position remains very strong. The MCCSR (Minimum Continuing Capital and Surplus Requirements) ratio is well in excess of 200%, significantly above the requirement set by the Office of the Superintendent of Financial Institutions. In addition, the Life Company continues to be rated as A (Excellent) by A.M. Best. Operational Comments New business sales of individual insurance ended the year 2% ahead of This was a positive result after the decline in activity experienced last year. The introduction In 2014, we remained focused on our plans to replace the Individual Operation s various legacy systems. of new term products and features helped the sales team turn this situation around. Policy persistency remained above our target and inforce net premium grew by 1.8% to $45.4 million. New business sales of group insurance ended the year well below historical averages. This year renewal activity was hit hard as some of our larger group plans consolidated benefit plans with other carriers and retention of the small group business was a challenge at adequate premium levels. These factors combined to reduce inforce net premium by 16% to $27.1 million for the year. Fortunately the current inforce block of business is performing reasonably well. In 2014, we remained focused on our plans to replace the Individual Operation s various legacy systems. Much of our time was spent working with the system vendor to capture business requirements so that the system can be configured to address our business needs. Our implementation approach has been centred on configuring all the pieces of the system for a single product type. The end of 2015 is the target date to have the system ready for production. Once end-to-end processing is available for one line of business, system functionality can be expanded to bring over inforce policies and other products lines. The 2014 results in the Group Operation were an indicator of how quickly business can change. To better position the Life Company in the marketplace, a major project is underway to expand the electronic claim adjudication services available to group plan members and providers. Our objective is to improve the customer s experience through more efficient claim processing. This also has a targeted production date of late

8 SENIOR MANAGEMENT RETIREMENTS & ACKNOWLEDGEMENTS There were several changes to our senior management team in 2014 as we saw the retirement of two long standing leaders who both made tremendous contributions to Wawanesa. After more than 33 years with Wawanesa including seven years as CEO, Ken McCrea joined the ranks of Wawanesa retirees. Ken spent the initial part of his career with our Life Operations where for several years as Vice President and Chief Operating Officer he led Wawanesa Life. A chartered accountant by training Ken joined the parent company as CFO and then in 2007 was named CEO. Ken helped build a solid foundation for us to move forward on; including enhanced planning, stronger governance and improved systems and processes. I want to thank Ken very much for his vast contributions to Wawanesa and specifically acknowledge the tremendous support he provided me during my transition to CEO. Ken still remains associated with Wawanesa as a valuable member of our Board of Directors. Tracy Nelson retired in late 2014 after a truly remarkable and diverse career. Tracy also started her career with Wawanesa Life initially joining the Actuarial Department. She held a variety of leadership positions during her over 35-year career with our organization including in the areas of Accounting & Financial Reporting, Individual Life Administration, Human Resources and Insurance Operations. This is a testament to Tracy s exceptionally broad abilities, transferable skill set and tremendous work ethic. She retired from the position of Vice President, Regional Insurance Operations, responsible for providing oversight of all Canadian insurance operations excluding We are a strong team, and we are accomplishing important things for the company we all care deeply about. marketing, business development and broker relations. I want to take this opportunity to thank Tracy for her significant contributions to the company over the years and wish her the very best in a well earned, well deserved retirement. With the retirement of Tracy Nelson, we have appointed Keith Hartry, previously Vice President of our Northern Alberta Region to the Vice President, Regional Insurance Operations. Keith also has a long and varied career with Wawanesa which began in our Prairie Region, adjusting in our Saskatchewan service offices and then time in Underwriting in the town of Wawanesa, Manitoba. Keith spent many years working in the Executive Office as a leader in our Underwriting and then Products department and brings a strong educational background, skill set and excellent leadership experience that will be very effective in his new role. With Keith relocating to our Executive Office, Brenda MacKenzie, was appointed Vice President, Northern Alberta Region. Brenda is relocating from Moncton, New Brunswick where since 2008 she was the Vice President, Maritime Region. We are looking forward to Brenda bringing her leadership style that produced very strong results in our Maritime Region to the Northern Alberta Region and particularly are pleased about having her in that position when we begin the implementation of our new policy administration system for Alberta in Finally as a result of Brenda s relocation, Paul Faubert was appointed Vice President, Maritime Region. Paul joined Wawanesa in the claims area and has held management positions as Automobile Underwriting Manager and then Personal Lines Underwriting Manager. We are very pleased that Paul was ready to take over from Brenda and are 6 WAWANESA INSURANCE ANNUAL REPORT 2014

9 very confident that he will do a great job of managing the region. Keith, Brenda and Paul have all adjusted into their new roles very nicely. Our senior management team has changed over the year but their impressive focus and devotion on ensuring Wawanesa s continued success remains. I want to thank all of the senior managers for their significant contributions and continued commitment to our company. We are a strong team, and we are accomplishing important things for the company we all care deeply about. For all of our employees hard work and effort over the past year, I would like to say thank you. Your dedication and continued commitment are what make Wawanesa so great. To our brokers, thank you for your continued support and involvement. You are vital to our business. As we head into a new year, we will continue to work hard to grow our relationships and build on the great foundation that has been created. Jeff Goy, ACAS, CIP President and Chief Executive Officer I would also like to acknowledge the Wawanesa Board of Directors for providing such great insight, guidance and support to me over the year. In particular I would like to thank the Chair of our Board, Richard Bracken for being so generous with his time during my first year as CEO. LOOKING FORWARD The insurance industry in 2014 continues to face many challenges. It has become increasingly competitive and complex, there are more regulatory requirements, customer preferences and expectations are changing and weather related catastrophes remain an issue. Although our underwriting performance was still not at the level we want it to be, we have to look at our significant accomplishments from last year and move forward. Efforts are already in flight to make improvements on our processes, our rates, and our products and we are optimistic that next year will bring even better results. We have entered 2015 with great momentum and excitement. The implementation of our new policy, billing and rating system in the U.S., will give us the ability to transform the way we do business so that as customer expectations change we will be able to adapt and continue to provide the superior customer experience they deserve. We are on solid financial ground and well positioned to deliver on our strategies to further strengthen our company. 7

10 Founded in 1896 Incorporated May 1, 1929 Head Office Wawanesa, Manitoba Executive Office Broadway Winnipeg, Manitoba OFFICERS AND CORPORATE MANAGEMENT S. J. Goy, ACAS, CIP President and Chief Executive Officer G. N. Bass, Q.C. Vice President, General Counsel and Secretary B. A. MacKinnon, FCAS, FCIA, MAAA Vice President and Chief Actuary G. J. Timlick, FCA Vice President and Chief Financial Officer J. E. Carradice, BSc, CHRP Vice President, Human Resources K. E. Hartry, FCIP, MBA Vice President, Regional Insurance Operations C. R. Loeppky, BScCS Vice President, Information Services C. B. Luby, FCIP, CRM Vice President, Marketing and Business Development B. K. MacIntyre, FCIP Vice President, Claims V. M. Mak, CFA, CMA Vice President, Fixed Income Investments T. A. Riley, CIP, NPDP Vice President, Insurance Products A. W. Sherry, FCAS, FCIA, CMA, FCIP, CRM Vice President, Actuarial Pricing M. S. Struck, FCAS, FCIA, MAAA Vice President, Enterprise Risk Management K. P. Boyd, CA, CIP Controller THE WAWANESA MUTUAL INSURANCE COMPANY REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY CONSOLIDATED FINANCIAL STATEMENTS February 19, 2015 TO THE POLICYHOLDERS OF THE WAWANESA MUTUAL INSURANCE COMPANY The accompanying summary consolidated financial statements, which comprise the summary consolidated balance sheets as at December 31, 2014 and the summary consolidated statements of comprehensive income for the year then ended, are derived from the audited consolidated financial statements of The Wawanesa Mutual Insurance Company for the year ended December 31, We expressed an unmodified audit opinion on those consolidated financial statements in our report dated February 19, The summary consolidated financial statements do not contain all of the disclosures required by International Financial Reporting Standards. Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited consolidated financial statements of The Wawanesa Mutual Insurance Company. Management s Responsibility for the Summary Consolidated Financial Statements Management is responsible for the preparation of a summary of the audited consolidated financial statements on the basis described in Note 1. Auditor s Responsibility Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, Engagements to Report on Summary Financial Statements. Opinion In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of The Wawanesa Mutual Insurance Company for the year ended December 31, 2014 are a fair summary of those consolidated financial statements, on the basis described in Note 1. P. R. Mulaire, CMA, CIA, CRMA, FCIP Director, Internal Audit Chartered Accountants Winnipeg, Manitoba 8 WAWANESA INSURANCE ANNUAL REPORT 2014

11 THE WAWANESA MUTUAL INSURANCE COMPANY APPOINTED ACTUARY S REPORT February 19, 2015 TO THE POLICYHOLDERS OF THE WAWANESA MUTUAL INSURANCE COMPANY I have valued the insurance contract liabilities of the Company for its consolidated balance sheets as at December 31, 2014 and their change in the consolidated statements of comprehensive income for the year then ended in accordance with accepted actuarial practice including selection of appropriate assumptions and methods. In my opinion, the amount of insurance contract liabilities makes appropriate provision for all policyholder obligations, and the consolidated financial statements fairly present the result of the valuation. Brett A. MacKinnon, FCAS, FCIA, MAAA Winnipeg, Manitoba REGIONAL OFFICES Maritime 1010 St. George Boulevard Moncton, New Brunswick P. L. Faubert, BSc, BBA, CIP Vice President, Maritime Region Québec 8585 Décarie Boulevard Montréal, Québec C. Auclair, PAA Vice President, Québec Region Ontario Yonge Street Toronto, Ontario T. R. Greer Vice President, Ontario Region Winnipeg Main Street Winnipeg, Manitoba E. Rossong, FCIP Vice President, Winnipeg Region Prairie Wawanesa, Manitoba W. G. McGregor, FCIP Vice President, Prairie Region Northern Alberta 100, st Avenue Edmonton, Alberta B. E. MacKenzie, CIP Vice President, Northern Alberta Region Southern Alberta 600, th Avenue S.W. Calgary, Alberta M. M. Cote-Johnson, CIP Vice President, Southern Alberta Region British Columbia West Broadway Vancouver, British Columbia G. R. Haigh, BA, FCIP, CAIB Vice President, British Columbia Region United States 9050 Friars Road San Diego, California D. G. Fitzgibbons, CPCU Vice President, United States Operations 9

12 THE WAWANESA MUTUAL INSURANCE COMPANY SUMMARY CONSOLIDATED BALANCE SHEETS As at December Assets Cash and cash equivalents $ 118,294 $ 129,129 Accrued investment income 31,265 27,780 Investments 7,021,289 6,344,004 Other assets 1,451,603 1,577,538 Total assets $ 8,622,451 $ 8,078,451 Liabilities Insurance contract liabilities $ 4,774,853 $ 4,615,481 Other liabilities 841, ,338 Total liabilities 5,616,674 5,292,819 Equity 3,005,777 2,785,632 Total liabilities and equity $ 8,622,451 $ 8,078,451 Note 1 These summary consolidated financial statements have been derived from the audited consolidated financial statements of The Wawanesa Mutual Insurance Company (the Company) for the year ended December 31, 2014, which are prepared in conformity with International Financial Reporting Standards (IFRS). The criteria developed by management for the preparation of the summary consolidated financial statements is as follows: that the information included in the summarized consolidated financial statements is in agreement with the related information in the complete consolidated financial statements, and that the summarized consolidated financial statements contain the information necessary to avoid distorting or obscuring matters disclosed in the related complete consolidated financial statements, including the notes thereto, in all material respects. A full set of the audited consolidated financial statements is available from the Company or at 10 WAWANESA INSURANCE ANNUAL REPORT 2014

13 THE WAWANESA MUTUAL INSURANCE COMPANY SUMMARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the year ended December Revenue Net premiums written $ 2,554,148 $ 2,476,667 Change in unearned premiums (29,081) (6,676) Net premiums earned 2,525,067 2,469,991 Net investment income 401, ,890 Instalment service charges earned 40,491 39,266 2,967,430 2,719,147 Expenses Net claims and insurance benefits incurred $ 2,067,523 $ 1,916,299 Other expenses incurred 679,065 2,746, ,605 2,610,904 Profit before income taxes 220, ,243 Provision for income taxes 56,702 19,965 Profit for the year 164,140 88,278 Other comprehensive income, net of taxes 56, ,169 Total comprehensive income for the year $ 220,145 $ 313,447 Total comprehensive income for the year attributed to: Policyholders of the Company $ 215,718 $ 309,234 Participating policyholders interest 4,427 4,213 $ 220,145 $ 313,447 A full set of the audited consolidated financial statements is available from the Company or at 11

14 THE WAWANESA MUTUAL INSURANCE COMPANY CONSOLIDATED SUPPLEMENTARY INFORMATION GROSS PREMIUMS WRITTEN 2014 GROSS PREMIUMS WRITTEN 5-YEAR HISTORY 4% 6% 2010 $2,367,114 35% 2011 $2,499,797 55% 2012 $2,600, $2,618,902 Automobile Farm 2014 $2,696,252 Property Life TOTAL COMPREHENSIVE INCOME 2010 $129,420 $88,813 $218,233 Profit Other Comprehensive Income (Loss) Total Comprehensive Income 2011 $(13,554) $107,850 $94, $(23,468) $220,710 $197, $88,278 $225,169 $313, $164,140 $56,005 $220, WAWANESA INSURANCE ANNUAL REPORT 2014

15 THE WAWANESA MUTUAL INSURANCE COMPANY CONSOLIDATED SUPPLEMENTARY INFORMATION TOTAL ASSETS EQUITY 2010 $6,589, $2,238, $7,061, $2,332, $7,745, $2,472, $8,078, $2,785, $8,622, $3,005,777 INVESTMENTS 2014 BONDS CREDIT QUALITY % <1% 13% 13% 18% 14% 31% 32% 59% 19% Canadian Bonds $4,152,242 Foreign Bonds $986,396 Canadian Stocks $943,099 Foreign Stocks $876,445 Other $63,107 AAA $1,647,300 AA $963,345 A $1,610,655 BBB $901,574 Below BBB $15,764 Investments are managed in a conservative manner to provide steady, consistent investment income to support the cash flow and liquidity needs of Wawanesa. 13

16 PROPERTY AND CASUALTY (P&C) OPERATIONS PROFILE P&C Operations consist of The Wawanesa Mutual Insurance Company in Canada and Wawanesa General Insurance Company in the U.S. Our P&C Operations have conducted business in Canada and the U.S. for 118 years and 39 years, respectively. P&C Operations provide automobile, personal and commercial property, and farm insurance products in all major areas of Canada as well as in California and Oregon. Wawanesa s P&C insurance products are distributed by independent insurance brokers except in Quebec and the U.S. where products are distributed through company agents. Key Facts Total assets of $7.7 billion Strong financial position with equity of $3.0 billion Over $2.5 billion in annual policy premiums Over 2,500 employees across Canada and in the U.S. KEY FINANCIAL MEASURES The following information and charts may not be IFRS measurements, but are derived from elements of the financial statements and are consistent with financial measures used in the P&C insurance industry. GROSS PREMIUMS WRITTEN Gross premiums written are the premiums for all insurance policies placed during the period, including new policies and renewals $730,496 $1,463,300 Automobile Commercial Property $153,907 Personal Property Farm $146,130 $1,470, $781,690 $164,694 $156, WAWANESA INSURANCE ANNUAL REPORT 2014

17 P&C OPERATIONS COMBINED RATIO The combined ratio is a measure of the underwriting performance. It is the relationship between claims and other expenses incurred and premiums earned for the year expressed as a percentage. When there is an underwriting profit, the combined ratio will be less than 100%. When there is an underwriting loss, the combined ratio will be greater than 100%. UNDERWRITING RESULTS Underwriting profit (loss) represents the profit (loss) from insurance operations $(49,745) 2011 $(90,334) 104.6% 2012 $(45,733) 98.5% % 2013 $(108,051) 105.5% 2014 $(116,318) 112.8% % 101.6% 111.6% NET INVESTMENT INCOME Net investment income is comprised of interest income, dividends and distributions from pooled funds, the net realized gain (loss) on sale of available for-sale financial assets, and other investment income less expenses % 2010 $232, % 2011 $244,920 Total Commercial Property 2012 $322,384 Automobile Personal Property Farm 2013 $203, $323,837 15

18 P&C OPERATIONS CAPITAL RATIO MCT The Minimum Capital Test (MCT) is a calculation established by OSFI to measure the financial strength of P&C insurance companies. The MCT ratio is determined by dividing capital available by capital required, expressed as a percentage. MCT OSFI Minimum Requirement % 302% 303% 300% % OSFI 150% LIFE OPERATIONS PROFILE Our life insurance operations are conducted by The Wawanesa Life Insurance Company. It is a Canadian life and health insurance company that has been in operation for 54 years. Wawanesa Life provides term, permanent and critical illness insurance plus investment product options including segregated funds to individuals through its independent broker channel. Group life and health insurance products are designed to service the needs of employers, associations and unions by working with group benefit brokers. Wawanesa Life maintains regional sales offices across the country to support its many broker and client relationships. Key Facts Total assets in excess of $1 billion Individual life insurance volume of $16.5 billion insured through 70,000 policies Insures 19,000 employees through group benefit plans KEY FINANCIAL MEASURES The following information and charts may not be IFRS measurements, but are derived from elements of Wawanesa Life s financial statements and are consistent with financial measures used in the life insurance industry. 16 WAWANESA INSURANCE ANNUAL REPORT 2014

19 LIFE OPERATIONS NET PREMIUMS AND EQUIVALENTS 2014 Net premium and equivalents are the sum of billed insurance premiums, contributions received for investment in annuities or segregated funds, management fees earned on segregated fund balances and fee income earned from the administration of group business where the policyholder retains the insurance risk. 34% 41% Individual $45,389 Group $27,603 Annuity $37,301 25% TOTAL COMPREHENSIVE INCOME (LOSS) Total Comprehensive Income (Loss) attributed to the participating policyholders (PAR Account) and the shareholder is shown in the following chart $2,773 $1,711 $370 $4, $(1,404) $(6,496) $118 $4, $(318) $960 $608 $1, $(3,395) $5,080 $4,213 $5, $2,565 $6,392 $4,427 $13,384 Shareholder Other Comprehensive Income (Loss) Shareholder Net Income PAR Account Total Comprehensive Income (Loss) Total Comprehensive Income (Loss) 17

20 LIFE OPERATIONS EQUITY Equity includes amounts related to the shareholder account and the participating account. Shareholder equity supports the non-participating business and participating equity supports participating business. A summary of Wawanesa Life s Participating Account Management Policy and Participating Policyholder Dividend Policy can be found on pages 26 and 27. TOTAL ASSETS Total assets managed by Wawanesa Life include its general fund assets and annuity contractholder contributions to the segregated funds that are held separate and apart from the general fund assets $636,847 $167,842 $804, $29,203 $87,638 $116, $666,278 $163,636 $829, $22,272 $93,165 $115, $711,839 $894,451 $182, $21,564 $105,123 $126, $718,466 $939,562 $221, $25,373 $107,212 $132, $804,332 $247,328 $1,051, $29,407 $116,562 $145,969 General Fund Assets Segregated Funds Net Assets Total Assets PAR Account Shareholder Account Total Equity 18 WAWANESA INSURANCE ANNUAL REPORT 2014

21 LIFE OPERATIONS INVESTMENTS 2014 Investments are managed in a conservative manner to provide steady, consistent investment income to support the cash flow and liquidity needs of Wawanesa Life. 14% 2% CAPITAL RATIO The MCCSR formula defines capital available and capital required. The MCCSR Ratio equals capital available divided by capital required. OSFI expects life insurance companies to establish an internal target capital ratio above the supervisory target capital ratio of 150%. Capital available is the life insurance company s equity with certain prescribed adjustments % 84% % % Bonds $641,060 Stocks $107,907 Other $17, % 262% BONDS CREDIT QUALITY 2014 OSFI 150% 5% MCCSR OSFI Minimum Requirement 19% 48% 28% AAA $119,929 AA $181,043 A $309,635 BBB $30,453 19

22 Executive Office Main Street Winnipeg, Manitoba OFFICERS AND MANAGEMENT Corporate S. J. Goy, ACAS, CIP President and Chief Executive Officer M. K. Nemeth, CA, FLMI, GBA Vice President and Chief Operating Officer G. N. Bass, Q.C. Vice President, General Counsel and Secretary I. R. MacDonald, FSA, FCIA Vice President and Actuary J. E. Carradice, BSc, CHRP Vice President, Human Resources C. R. Loeppky, BScCS Vice President, Information Services V. M. Mak, CFA, CMA Vice President, Fixed Income Investments E. Elvebo, CA Manager, Corporate Reporting S. J. Firman, FSA, FCIA Manager, Risk Actuary P. M. Horncastle, CGA Controller P. R. Mulaire, CMA, CIA, CRMA, FCIP Director, Internal Audit K. J. Richtik, FSA, FCIA Manager, Actuarial Financial Reporting Insurance Operations G. G. Sadler, CLU, ChFC, CHS Director, Individual Sales and Marketing M. M. Nolin, DDM, ALHC, ACS, AIAA Manager, Group Benefit Services K. E. Palatnick, FSA, FCIA Manager, Group Actuary D. M. Smook, BA, ACS Manager, National Group Sales and Marketing D. I. Verwey Manager, Group Underwriting and Policy Administration A. E. Waller, MBA, CFP, CLU, FALU, FLMI Manager, Individual Life Administration THE WAWANESA LIFE INSURANCE COMPANY REPORT OF THE INDEPENDENT AUDITOR ON THE SUMMARY FINANCIAL STATEMENTS February 19, 2015 TO THE SHAREHOLDER AND POLICYHOLDERS OF THE WAWANESA LIFE INSURANCE COMPANY The accompanying summary financial statements, which comprise the summary balance sheets as at December 31, 2014 and the summary statements of comprehensive income for the year then ended, are derived from the audited financial statements of The Wawanesa Life Insurance Company for the year ended December 31, We expressed an unmodified audit opinion on those financial statements in our report dated February 19, The summary financial statements do not contain all of the disclosures required by International Financial Reporting Standards. Reading the summary financial statements, therefore, is not a substitute for reading the audited financial statements of The Wawanesa Life Insurance Company. Management s Responsibility for the Summary Financial Statements Management is responsible for the preparation of a summary of the audited financial statements on the basis described in Note 1. Auditor s Responsibility Our responsibility is to express an opinion on the summary financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, Engagements to Report on Summary Financial Statements. Opinion In our opinion, the summary financial statements derived from the audited financial statements of The Wawanesa Life Insurance Company for the year ended December 31, 2014 are a fair summary of those financial statements, on the basis described in Note 1. Chartered Accountants Winnipeg, Manitoba Medical Director Dr. R. B. Boyd, MD 20 WAWANESA INSURANCE ANNUAL REPORT 2014

23 THE WAWANESA LIFE INSURANCE COMPANY APPOINTED ACTUARY S REPORT February 19, 2015 TO THE SHAREHOLDER AND POLICYHOLDERS OF THE WAWANESA LIFE INSURANCE COMPANY I have valued the insurance contract liabilities of The Wawanesa Life Insurance Company for its balance sheet at December 31, 2014 and their change in the statements of comprehensive income for the year then ended in accordance with accepted actuarial practice, including selection of appropriate assumptions and methods. In my opinion, the amount of insurance contract liabilities makes appropriate provision for all policyholder obligations and the financial statements fairly present the result of the valuation. Ian R. MacDonald Fellow, Canadian Institute of Actuaries Winnipeg, Manitoba REGIONAL OFFICES Atlantic 1010 St. George Boulevard Moncton, New Brunswick S. B. Brydges, CFP, CHS Regional Life Manager Ontario Yonge Street Toronto, Ontario Erb Street West Waterloo, Ontario B. I. Lang, RHU Regional Life Manager Western Manitoba Rosser Avenue Brandon, Manitoba G. L. C. Goymer, BA, CFP, ChFC, CLU, CHS Regional Life Manager Eastern Manitoba and NW Ontario Broadway Avenue Winnipeg, Manitoba J. A. Kien, BA, BComm (Hons) Regional Life Manager T. A. McDowell, BComm (Hons) Regional Group Manager Saskatchewan 201, th Street East Saskatoon, Saskatchewan G. F. M. Kurmey, FLMI Regional Life Manager Northern Alberta 100, st Avenue Edmonton, Alberta L. P. J. Addison Regional Life Manager S. Lambert Regional Group Manager Southern Alberta 600, th Avenue S.W. Calgary, Alberta B. Reid Galarnyk Regional Life Manager British Columbia West Broadway Vancouver, British Columbia S. F. Engmann, BA Regional Life Manager B. R. Wyne, MBA Regional Group Manager 21

24 THE WAWANESA LIFE INSURANCE COMPANY SUMMARY BALANCE SHEETS As at December Assets Cash and cash equivalents $ 21,998 $ 22,563 Investments 766, ,729 Other assets 15,843 14,174 General fund assets 804, ,466 Segregated funds net assets 247, ,096 Total assets $ 1,051,660 $ 939,562 Liabilities Other liabilities $ 11,029 $ 7,740 Insurance contract liabilities 647, ,141 General fund liabilities 658, ,881 Segregated funds contract liabilities 247, ,096 Total liabilities 905, ,977 Equity 145, ,585 Total liabilities and equity $ 1,051,660 $ 939,562 Note 1 These summary financial statements have been derived from the audited financial statements of The Wawanesa Life Insurance Company (the Company) for the year ended December 31, 2014, which are prepared in conformity with International Financial Reporting Standards (IFRS). The criteria developed by management for the preparation of the summary financial statements is as follows: that the information included in the summarized financial statements is in agreement with the related information in the complete financial statements, and that the summarized financial statements contain the information necessary to avoid distorting or obscuring matters disclosed in the related complete financial statements, including the notes thereto, in all material respects. A full set of audited financial statements is available from the Company or at 22 WAWANESA INSURANCE ANNUAL REPORT 2014

25 THE WAWANESA LIFE INSURANCE COMPANY SUMMARY STATEMENTS OF COMPREHENSIVE INCOME For the year ended December Net premiums and equivalents $ 110,293 $ 113,060 Net investment income 78,035 5,911 Total income 188, ,971 Net claims and benefits incurred 77,109 77,329 Net change in insurance contract liabilities 69,529 (707) Expenses incurred 28,367 30,034 Total benefits and expenses 175, ,656 Income before income taxes 13,323 12,315 Provision for income taxes 3,111 2,937 Net income for the year 10,212 9,378 Other comprehensive income (loss), net of taxes 3,172 (3,480) Total comprehensive income for the year $ 13,384 $ 5,898 Total comprehensive income for the year attributed to: Shareholder $ 8,957 $ 1,685 Participating policyholders 4,427 4,213 $ 13,384 $ 5,898 A full set of audited financial statements is available from the Company or at 23

26 THE WAWANESA LIFE INSURANCE COMPANY SOURCES OF EARNINGS The Sources of Earnings (SOE) is prepared following regulatory guidelines provided by OSFI requiring SOE disclosure. SOE is a non-ifrs financial measure. There is no standard SOE methodology. The calculation of SOE is dependent on, and sensitive to, the methodology, estimates and assumptions used. SOE identifies and quantifies the various sources of IFRS net income. It provides an analysis of the difference between actual net income and expected net income based on business inforce and assumptions made at the beginning of the reporting period. The terminology used in the discussion of sources of earnings is described below: EXPECTED PROFIT ON INFORCE BUSINESS This includes the release of the Provision for Adverse Deviations (PFADs) plus the expected profits on Segregated Funds. The release of the PFADs is the profit arising on the inforce business if the expected assumptions used in calculating the actuarial liabilities are realized. IMPACT OF NEW BUSINESS This represents the overall loss during the first year on new business. The PFADs in the actuarial liabilities contribute to an overall initial loss on issuing new business. These PFADs are anticipated to be released into income in future years to the extent they are not required to cover future adverse experience. EXPERIENCE GAINS AND LOSSES The experience gains and losses result from items such as investment returns, claims and expenses where the actual experience during the year differs from the expected experience assumed in the actuarial liabilities. It also includes the amount the fee income generated on Segregated Funds differs from expected. MANAGEMENT ACTION AND CHANGES IN ASSUMPTIONS This section includes specific management actions and the impact of changes in assumptions used to calculate actuarial liabilities. OTHER This represents all other sources of earnings on operations not included above. EARNINGS ON SURPLUS This reflects the earnings on the surplus and capital of the Company. 24 WAWANESA INSURANCE ANNUAL REPORT 2014

27 THE WAWANESA LIFE INSURANCE COMPANY SOURCES OF EARNINGS Sources of Earnings 2014 Total Company Individual Life Individual Annuity Group Life and Health Expected profit on inforce business $ 8,167 $ 5,164 $ 2,772 $ 231 Impact of new business (5,042) (4,607) (435) Experience gains and losses 6,805 5, Management action and changes in assumptions (5,190) (5,205) (40) 55 Other (463) (463) Earnings on operations 4,277 $ 414 $ 2,729 $ 1,134 Earnings on surplus 9,046 Income before income taxes 13,323 Income taxes 3,111 Net income $ 10,212 Sources of Earnings 2013 Total Company Individual Life Individual Annuity Group Life and Health Expected profit on inforce business $ 8,059 $ 5,170 $ 2,317 $ 572 Impact of new business (5,404) (5,030) (374) Experience gains and losses 2,181 2, (968) Management action and changes in assumptions 1,000 1,000 Other (854) (854) Earnings (loss) on operations 4,982 $ 3,226 $ 2,152 $ (396) Earnings on surplus 7,333 Income before income taxes 12,315 Income taxes 2,937 Net income $ 9,378 25

28 THE WAWANESA LIFE INSURANCE COMPANY SUMMARY OF THE PARTICIPATING ACCOUNT MANAGEMENT POLICY* A Participating Account is maintained in respect of the Company s participating business, which is separate from the Shareholder Account. Revenue and expenses that are directly related to participating business are recorded to the Participating Account. Allocation methods are also used to record certain expense and revenue items to the Participating Account. The Expense Allocation Method is designed to allocate expenses and taxes fairly and equitably between the Participating Account and the Shareholder Account. The Investment Income Allocation Method is designed to allocate investment income fairly and equitably between the Participating Account and the Shareholder Account. The Investment Policy Statement (IPS) governs the investment activities of the Company. Assets have been segmented into funds to facilitate managing assets with liabilities. The IPS specifies the investment objectives, investment risks, and management of these risks for each of the funds. Surplus exists in the Participating Account for the needs of the current inforce business and future new business. Surplus is managed to meet the continuing financial stability of the Participating Account and to exceed any minimum regulatory requirements. Participating policyholders are eligible to receive distributions from the Participating Account when experience justifies their payment. The Board of Directors determines the amount of dividends to be paid in accordance with the Company s Dividend Policy. The Company is allowed to transfer an amount from the Participating Account to the Shareholder Account each year as described in the Insurance Companies Act. The Company intends to transfer an amount equal to the lesser of 10% of the amount of the dividends paid to the participating policyholders during the year and the maximum permitted by the Insurance Companies Act. *The complete policy is available upon request. 26 WAWANESA INSURANCE ANNUAL REPORT 2014

29 THE WAWANESA LIFE INSURANCE COMPANY SUMMARY OF THE PARTICIPATING POLICYHOLDER DIVIDEND POLICY* PARTICIPATING INDIVIDUAL LIFE INSURANCE Participating Earnings are generated when collective experience related to investment, mortality, lapse, expenses and taxes is more favourable than assumed in developing the premiums. The Company may distribute a portion of the participating account earnings to the participating policyholders. The distribution is in the form of dividends payable to the policyholders. The amount available to be paid as dividends is determined based on various factors including the Company s earnings, any regulatory requirements and the amount of surplus required to ensure the continuing financial stability of the Participating Account. The dividend scale sets out a formula for the allocation of distributable earnings to the participating policies. The primary factors used to distribute earnings are investment earnings, mortality and expense experience. The dividend scale allocates distributable earnings among policies in the same proportion as the policies are considered to have contributed to distributable earnings. Dividends are credited to the policies on their policy anniversary date. The distribution of dividends is designed to maintain reasonable equity between classes of participating business. Dividends are declared at the discretion of the Board of Directors. *The complete policy is available upon request. 27

30 NOTES 28 WAWANESA INSURANCE ANNUAL REPORT 2014

31 Standing (L to R): S. J. Goy, J. S. McCallum, C. M. Best, D. G. Unruh, D. C. Crewson, K. L. Matchett, E. J. Beale, R. O. Landry, N. R. Logan; Seated (L to R): K. E. McCrea, R. R. Bracken BOARD OF DIRECTORS The Wawanesa Mutual Insurance Company, Wawanesa General Insurance Company and The Wawanesa Life Insurance Company R. R. Bracken 1,2,3,4,5 Chairman of the Board E. J. Beale 2,3 C. M. Best 1,5 D. C. Crewson 1,2 S. J. Goy R. O. Landry 3,5 N. R. Logan 1,4 K. L. Matchett 2,4,5 J. S. McCallum 3,4 K. E. McCrea 3 D. G. Unruh 1,4 1. Member of the Audit Committee 2. Member of the Conduct Review and Corporate Governance Committee 3. Member of the Investment Committee 4. Member of the Human Resources Committee 5. Member of the Risk Committee

32 Wawanesa Insurance Executive Office Broadway Winnipeg, Manitoba, Canada R3C 3P1 Telephone: (204) Fax: (204)