Earnings call transcript: Definity Financial Q2 2025 sees strong premium growth

Definity Financial Corp reported robust financial results for Q2 2025, with a notable 9.1% increase in gross written premiums year-over-year. The company’s operating net income reached $98.9 million, translating to $0.84 per share. Following the announcement, Definity’s stock saw a modest uptick, closing 0.29% higher at $69.31. With a market capitalization of $5.9 billion and impressive revenue growth of 13.7% over the last twelve months, Definity continues to demonstrate strong market presence. According to InvestingPro analysis, the company maintains a GOOD financial health score, supported by strong fundamentals and consistent performance. The company also provided optimistic forward guidance, anticipating a significant increase in managed premiums by the end of 2026.

Key Takeaways

• Gross written premiums rose by 9.1% year-over-year.
• Operating net income amounted to $98.9 million, or $0.84 per share.
• Stock price increased by 0.29% post-earnings announcement.
• Acquisition of Travelers Canada expected to close in Q1 2026.
• Raised distribution income growth guidance from 15% to 20%.

Company Performance

Definity Financial demonstrated solid performance in Q2 2025, driven by increased premiums and strategic acquisitions. The company’s focus on expanding its broker platform and the successful break-even of its SONNET digital platform contributed to its strong financial results. InvestingPro data reveals the company’s strong financial position with a healthy current ratio of 4.46 and a conservative debt-to-equity ratio of 0.08, indicating robust liquidity and prudent financial management. For deeper insights into Definity’s financial health and detailed metrics, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers. The acquisition of Travelers Canada is anticipated to further bolster Definity’s market position in the coming quarters.

Financial Highlights

• Revenue: Data not provided
• Earnings per share: $0.84
• Gross written premiums: Up 9.1% year-over-year
• Operating return on equity (ROE): 9.6% over the past 12 months
• Book value per share: $31.39, an increase of 19.9% from the previous year
• Combined ratio: 92.9%

Outlook & Guidance

Definity Financial set ambitious targets for the future, aiming for a mid-teen operating ROE following the integration of Travelers Canada. The company expects to achieve an operating ROE of over 10% in 2025 and forecasts net investment income of $205 million for the year. The company’s stock has demonstrated strong momentum, delivering a 29% return over the past year. InvestingPro analysis suggests the stock is currently trading at fair value, with additional ProTips and detailed valuation metrics available to subscribers. By the end of 2026, Definity aims to manage $1.5 billion in premiums.

Executive Commentary

Rowan Saunders, President and CEO, stated, "We are confident Definity is well on the pathway to a target of sustainable mid-teen operating ROE post-integration." This reflects the company’s strategic focus on growth and profitability.

Paul MacDonald, EVP of Personal Insurance, noted, "The bulk of our activity around depopulation to avoid CAT losses in certain peril zones is behind us," indicating a strategic shift in risk management.

Risks and Challenges

• Potential tariff impacts could affect cost structures.
• Ongoing challenges with theft, particularly affecting auto lines.
• Moderating growth in commercial insurance might slow revenue expansion.
• Market volatility and economic uncertainties could impact investment income.
• Integration risks associated with the Travelers Canada acquisition.

Q&A

During the earnings call, analysts inquired about the potential for channel conflict following the Travelers acquisition. Management assured that no significant issues are anticipated. Questions also focused on the profitability and growth strategy of the SONNET platform, with executives detailing its break-even status and future plans. Additionally, analysts probed into broker platform growth and commission structures, which were addressed comprehensively by the company’s leadership.

Full transcript - Definity Financial Corp (DFY) Q2 2025:

Conference Operator: Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Second Quarter 2025 Financial Results Conference Call and webcast. At this time, all participant lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. 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.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thank you.

Rowan Saunders, President and CEO, Definity Financial Corporation: Good morning, everyone.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: 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.

Rowan Saunders, President and CEO, Definity Financial Corporation: Joining me on the call today are.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Rowan Saunders, President and CEO, Philip Mather, EVP and CFO, Paul MacDonald, EVP of Personal Insurance and Digital Channels, and Fabian Rickenberger, EVP of Commercial Insurance and Insurance Operations. We’ll start with formal remarks from Rowan and Phil, followed by a Q and A session during which Paul and Fabian will also be available to answer your questions. With that, I will ask Rowan to please begin his remarks.

Rowan Saunders, President and CEO, Definity Financial Corporation: Thanks Dennis, and good morning. The second quarter of 2025 was an exciting one for Definity Financial Corporation 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 five 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 on 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 three of our organic operating ROE levers.

As you can see on Slide 5, we have achieved a break-even level of performance from SONNET 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.

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 experienced 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 an 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. With that, I’ll turn the call over to our CFO, Philip Mather.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: 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% of rate for both Sonnet and Vine 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 for portfolio transfers in mid 2024. Our proactive rate actions and ongoing underwriting discipline in 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 peril events. We expect this line to grow at a 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 catastrophe 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 a 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 achievement 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 alliance 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 the benign non-cat weather. From the second quarter of 2024, our expense ratio of 29.7% was nearly half a 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 placements 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. 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 calculation to 30% to better reflect anticipated leverage levels for 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. 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.

Rowan Saunders, President and CEO, Definity Financial Corporation: 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 two dozen town halls 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 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. With that, I’ll turn the call back over to Dennis to begin the Q&A.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thanks, Rowan. With that, we are now ready to take questions.

Conference Operator: Thank you. Ladies and gentlemen, if you do have any questions at this time, please press Star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press Star followed by two. If you are using a speakerphone, we ask that you please lift the handset first before pressing any keys. Please go ahead and press Star one. If you do have any questions, your first question will be from Paul Holden at CIBC. Please go ahead, Paul.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thank you. Good morning. First question I’m going to ask is just on the updated expectations for commercial lines and the industry growth downshifting a bit. Is that intensified competition? Is it broadening out?

Rowan Saunders, President and CEO, Definity Financial Corporation: To more lines of business or is.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: it simply just more intense competition within sort of those large accounts you’ve referred to previously?

Rowan Saunders, President and CEO, Definity Financial Corporation: Good morning, Paul, and thanks for the question. I’ll have Fabian Rickenberger give us some more insight into that. I think a 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. 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 costs. I think that is the main kind of message, but clearly it varies by segment and there’s a lot more nuance to that. Fabian, would you like to just add a bit of color to that?

Fabian Rickenberger, EVP of Commercial Insurance and Insurance Operations, Definity Financial Corporation: Yes, thank you, Ron. Maybe kind of adding three or four additional insights to your question, Paul, and thank you for that. I think the first one 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 growth rate of 10% that is market leading. 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. 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. That gives us a great deal of confidence that we continue to cover the loss trend that we have in our portfolio. 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, and I mentioned it 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.

That gives us just a very good opportunity to mitigate the impact of pricing, leveraging the strong digital capabilities that we’ve built in that segment. 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 is a very small portion of our overall commercial portfolio, and our frontline underwriters are very disciplined. If the margin equation doesn’t make sense to us in one of those large account renewals, we are guiding them to letting those accounts go. 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.

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 felt in small business, middle market specialties, and with the strong support from our brokers. We are confident that we’ll be generating growth rates in that higher single-digit range and sustain our profitability in that 90% combined ratio range.

Rowan Saunders, President and CEO, Definity Financial Corporation: Okay, that’s a very helpful answer, Philip. I think that’s really the key issue.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Can you continue to gain market share, but at the same time maintaining your target margin?

Rowan Saunders, President and CEO, Definity Financial Corporation: Clearly your answer says yes.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: That’s very good. Thanks. Second question, you have a really good slide on the broker platform. I think it’s slide 10, highlighting you’re now the 10th largest P&C insurance broker in Canada. I guess kind of two questions related to that.

Rowan Saunders, President and CEO, Definity Financial Corporation: One is, as you get bigger, does it help with the acquisition accretion?

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Is there any way that is there?

Rowan Saunders, President and CEO, Definity Financial Corporation: More opportunity for synergies?

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Are there other kind?

Rowan Saunders, President and CEO, Definity Financial Corporation: Of scale benefits associated with the broker business sort of more on an operational basis? 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, you know, 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 were a top 10 player growing quite quickly. We’ve done 20 transactions, another six this year. What we’re now seeing is that there are benefits of scale. 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. Now 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, predictive. I think, you know, that whole segment has gone through quite a lot of change in the last couple of years. It is attractive and I think that there are a couple different models out there for rollups or for consolidations. The model that we have under the McDougall 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 rollups, there’s a lot of value they can bring to the acquired companies such as more market access, more specialization and capabilities. We’ve seen revenue synergies as companies we acquire increase the organic growth rate. Of course we’ve seen cost synergies. I think that scale play that you referred to will continue. Just a final comment for me is 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. I can tell you the pipeline’s still pretty full for us. That should play out well for the next several years.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Very good. Okay, I’ll leave it to those two questions. Thanks for your time.

Conference Operator: Thank you. Next question will be from Mario Mendonca at TD Securities. Please go ahead. Mario.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Good morning.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: 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.

Rowan Saunders, President and CEO, Definity Financial Corporation: Stronger for the last three quarters.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: What I’m trying to get at is how much longer would you expect the growth in net earned premium to really outpace direct premium? Presumably at some point those two converge, and I’m just trying to figure out when that might be.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Thanks, Mayor.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: It’s Paul.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Yeah, you’re right. This is really a reflection of the lag in the industry between the trend that we’re 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 your question, but still a little bit elevated relative to pre-pandemic levels. Of course, as Rowan said in his opening remarks, there’s still the uncertainty around the tariff environment moving forward. I think what you would expect to see in a stable environment is that convergence.

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 one market may take a rate and another then responds a little bit later. In our particular case, we have taken 5 points of rate in our largest portfolio in Ontario, as Phil has indicated. 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 our pattern as the rest of the market then catches up and then we gain that competitiveness thereafter.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thank you.

Conference Operator: Thank you. Next question will be from Bart Zielski at RBC Capital Markets. Please go ahead.

Hi, good morning. Thanks for taking the question. Just wanted to follow up on the distribution income noted on the raised guidance. When I look at the growth rates, you’re tracking at the guidance, 20% already, you had 27% strong growth in Q2, you’re continuing the acquisition. Is there something in the guidance that you’re seeing more cautious that keeps you at the 20% or is there upside to that going forward?

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Yeah, no, I think we’re 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 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 and what comes through there. We had a contribution that came through in the first half, but generally speaking, I’d say no, we’re very positive that 20% is the bottom end of our view. We’re pretty comfortable that’s going to go forward. In particular, if you look at the acquisition activity that’s happened in the second quarter, you know that’s obviously only just occurred and therefore we’ll see some pickup going forward.

I think if you look at the underlying themes, it’s 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. A continuation of the same themes, I think, is what we’re predicting for the rest of the year.

Great, thanks. Just on the one question on the Travelers acquisition, is there an opportunity for you to port Guidewire into Travelers and get claims transformation benefits there? I know organically you’re expecting 1 to 2 points, but is that a possibility in terms of using Guidewire within the Travelers business?

Fabian Rickenberger, EVP of Commercial Insurance and Insurance Operations, Definity Financial Corporation: This is answering your question. As you know from our disclosures, we are in the middle of a major claims transformation to contribute that 1 to 2% ROE expansion range. Last year we put our own auto claims onto Guidewire and that’s complete. Our auto line of business has about half of our claims count. This year we are in the middle of completing our claims transformation to Guidewire by transforming our property and casualty business. We do expect that the property and casualty transformation will be done by the end of the year. With that, we can in-source the travel claims onto a fully end-to-end installed Guidewire platform on our side. That will allow us to drive additional benefits. The main benefits from a Guidewire transformation are a better customer experience, better indemnity control, better fraud prevention, and better opportunity to leverage AI capabilities going forward as well.

We feel that the platform that we’ve built on our side will help us extract the benefits that we put into the business case when we made it.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: The Travelers acquisition and part.

Rowan Saunders, President and CEO, Definity Financial Corporation: 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, we really there were referring to the cost synergies. As Fabian Rickenberger talks about, when we move the business onto our platforms, and that would be the Guidewire platform, in personal lines, for example, and for small commercial, also the claim, you know, what that doesn’t capture is any potential indemnity improvements, which we think will likely occur in certain product lines as well. The bottom line is that’s all tracking well. We thought about that in our due diligence, in our valuation, and in picking the synergies. The synergy targets we share with the market are really the kind of cost efficiency targets. That would occur partly by better technology, moving them onto our digital platforms.

What it doesn’t address is the potential benefit of further indemnity savings. The big point there is that it is important for us to convert onto our platforms and Guidewire Claims Center, as you pointed out, but the other benefits apply to other product lines as well.

Great, that’s helpful. Thanks, guys.

Conference Operator: Thank you. Next question will be from Lamar Passard at Cormark. Please go ahead, Lamar.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Yeah, thanks. I just want to come back to.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Distribution, specifically your slide 9 there.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: I’m wondering if you could talk about.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: The pace of broker M&A now that you’re absorbing the Travelers deal.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: You’re showing here that you’re at $1.3 billion in premiums. You’ve added $116 million in the first half of 2025. I think in the context of that.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: $1.5 billion target by the end of.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: 2026, it would suggest a slowdown in broker consolidation. Is that what’s in the plan here? Is that because of the Travelers deal?

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Maybe you could provide some color on that.

Rowan Saunders, President and CEO, Definity Financial Corporation: Yeah, thank you for that look, and I think the two points I would make, firstly, the Travelers acquisition will not have an impact on building out our broker platform. This really is part of the business that is standalone and not impacted by the Travelers acquisition. 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. 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, the $1.5 billion at the end of 2026. Given the success we’ve had year to date, that certainly is looking like a very conservative estimate to us. I think all we would say is that we really are very comfortable in tracking towards that target.

Don’t read into the fact that we’re slowing down our activities. I think that the broker platform continues to grow very well organically. As I mentioned in my comments, there are significant opportunities in the pipeline, so that should continue.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thanks.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: That’s very clear.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: That’s all from me.

Conference Operator: Thank you. Next question will be from Brian Meredith at UBS. Please go ahead, Brian.

Yeah, thanks, Rowan. Just a follow on with the Travelers acquisition and distribution. I’m just curious. You know, Travelers very committed to the, you know, 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 or brokers expressed any concern on channel conflict or something? Maybe they liked being with Travelers because they didn’t have the broker presence.

Rowan Saunders, President and CEO, Definity Financial Corporation: Thanks for that question, Brian. The quick answer to that one is no, there is no concern. I think that what we have been able to do in the last couple of months is we’ve engaged obviously in town halls with our employees, with Travelers employees, and with brokers. I’d remind you that the vast majority of Travelers brokers also represent Definity. There is a natural overlap. In the discussions that we’ve had, whether they’re in town halls or the one-on-ones with the largest brokers, they’re 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. 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 may be unique, vertical integration into broker channel in Canada, but it’s not. It’s unique to the Canadian business and they seem pretty comfortable. 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.

My 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?

Good, Paul.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Thanks, Brian. We are seeing sort of normal frequency trends, seasonally adjusted. Q2 tends to be usually a bit of a better quarter for auto claims, and we’re seeing that. The one area in frequency that we’re seeing a marked improvement year over year.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Is in the theft space.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: As I mentioned earlier, while theft is still elevated relative to pre-pandemic, that’s really more on the severity side of the equation. Whereas the actual theft % has seen a pretty significant slowdown due to the actions of the government and the industry combined. I don’t want to give you the impression that it’s not an issue anymore. It continues to be an issue, but we’ve priced for that throughout. Normal levels of frequency throughout.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: No issues to speak of.

Rowan Saunders, President and CEO, Definity Financial Corporation: Great, thanks.

If I could squeeze one more just quickly in here, Rowan, MGAs have become incredibly popular down here in the U.S. Curious, do you use much MGA 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. In the U.S. there seems to be more managerial underwriters and less of that in Canada. We’re less comfortable distributing. It doesn’t mean we don’t use MGAs, but it’s generally something we’re less comfortable with. We would prefer to keep the underlying pen, as they say, and manage our own capital. We have seen some growth in that segment. It’s not something that is a priority for us in terms of distributing, though we have a broad and capable distribution network, and we feel we can access the segments that we really focus on quite capably without a high dependency on MGAs.

Fabian Rickenberger, EVP of Commercial Insurance and Insurance Operations, Definity Financial Corporation: If I make one thing, Rowan Saunders, so in my experience, and I worked in the states for eight years as well, you use MGAs for two 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. Based on the scale that we have, based on the underwriting expertise that we face, 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 MG Perks. As Rowan mentioned, we can sustain growth numbers with the broker distribution networks that we’ve in place. Helpful.

Thank you.

Conference Operator: Thank you. Next question will be from James Loyne at National Bank Financial. Please go ahead, James.

Thank you.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: 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. What level of profitability are you achieving out of 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?

Rowan Saunders, President and CEO, Definity Financial Corporation: Jay, let me just start before I give that to Paul and just to remind us of all of the strategy. I mean, we think that the direct to consumer in the digital channel is certainly a growth opportunity in the years to come. It was really important for us to scale up SONNET and get that to break even. We achieved that late last year and that continues. I think that’s something we’re very pleased about. We did also guide that as we changed the model and tightened up and put the right pricing approaches in, 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 quality customers and then look to gradually increasing growth in the quarters ahead. 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. 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. The reason for that is new business is more expensive than a mature portfolio as you scale up. 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. Yes, it will ultimately at scale have at least the same contribution as we get to the broker model. 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?

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Yeah, just a couple of additional points. As we’ve previously called out, we were very focused on that break-even positioning and we were deliberately reducing our growth rate to accommodate that, to make sure that we had 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. That’s really what we were aiming to achieve. 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. We have some positive segmentation activity flowing through that portfolio, which is giving us positive momentum in the segments that we’re targeting.

We’ll continue to look at that on a province-by-province and line-by-line basis. One other comment too, around the profitability. You asked around the makeup of profitability versus expense ratio as an example. 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. That does give us scale benefits as we move forward. The one variable expense in there that can be significant and can be quite variable is the marketing. That depends a lot on what is being bid on in the marketplace by competing organizations.

Depending on what’s happening in the economic environment, the advertising environment, that can move around just a bit. For now, obviously with the exit of SONNET Alberta, that reduced some of our top line. 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.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Great. Second question just on the shift in the property mix. I guess avoiding some of the more catastrophe exposed areas of the country. Is that shift mostly done at this stage? Have you implemented everything that you would like to achieve? 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?

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Yeah, a couple of points I’ll bring on that. The bulk of our activity around depopulation to avoid CAT losses in certain peril zones is behind us. That being said, I want to highlight that this is an ongoing activity. This isn’t a point in time activity. As we’ve said before, we use models, peril models, wildfire models, flood models, for example. Those models constantly get updated as the environment and climate changes. 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.

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. 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.

As an example, even though in this quarter the majority on the 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. 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.

Rowan Saunders, President and CEO, Definity Financial Corporation: Jamie, 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 our ability to do so. As Paul MacDonald was saying, the team has really worked on that CAT management. They have developed very sophisticated underwriting and models, and the benefit we have is we have the VINE platform that can actually take that to the front of the business. That agility gives us confidence to keep growing. 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 it’s 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. 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.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Great, thank you very much.

Conference Operator: Thank you. Next question will be from Tom MacKinnon at BMO Capital. Please go ahead, Tom.

Yeah, thanks. Just a question again here on the distribution income and outlook. Shouldn’t 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?

Rowan Saunders, President and CEO, Definity Financial Corporation: Yeah, 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. That means that they and their producers build their revenue. That’s a combination of their renewal portfolio as well as new business wins. As they introduce more sales practices into the businesses that they acquire and have more product to offer, that helps them organically grow. I think the way you think about that is largely influenced by the industry growth rates as well as the profitability. Some brokers are more profitable and therefore enjoy higher CPCs. 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. The next piece of that is the bigger the broker gets, the network both from organic growth plus what they acquire.

Because Definity is one of the leading insurance companies in their stable of insurers, we grow as well. That’s the second part of the equation that Phil talked about where distribution income gets benefited by commission offset as they continue to grow with ourselves. That’s why when you just step back, this has traditionally been a platform of brokers that grow in the upper single digit organically, that continues and then on top of that they’re adding size and scale by acquisition.

Fabian Rickenberger, EVP of Commercial Insurance and Insurance Operations, Definity Financial Corporation: We are very pleased with the organic growth rates that we have in our broker network, as Ron mentioned. We are very selective in terms of who we are inviting to be part of the network. Many brokers that have joined us over the last three or four years have long-standing roots in their regional communities, so the retention numbers are very strong. Both in PI and CI we have low 90% retention numbers. 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. On the commercial side we are leveraging underwriting skill sets from one broker to another and you’re seeing an uptick in that organic growth rate as well. Overall, that is coming through with what we would think is above average organic growth.

In addition to that, every year we are having an additional EBITDA margin benefit from scaling the back office operations. The returns of our investments are very much trending in line with the business cases that we put together when we deployed our capital.

If the 15% growth you see in 2024, nearly half of that is acquisition related and probably the other half would be organic. Do you fund some of the growth that McDougall would be doing through acquisitions, or how does that influence your distribution income? I mean, someone’s got to pay to buy these things. Yeah.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: 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. If you look at the debt draw that’s on the balance sheet right now, a lot of that is actually associated up. In fact, all of it’s associated with the broker platform. 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. 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. We tend to see pretty good uptick on that. If you look at the overall ownership that we have in the broker platform, it’s hovered between the 22% to 28% range.

It moves around as new acquisitions come through and as principals depart, quite often existing shareholders at McDougall will pick that up. It’s really a blended approach. Yes, we do have intercompany debt structures with the broker platform, and they also draw on the external funding.

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

Rowan Saunders, President and CEO, Definity Financial Corporation: No, Tom, I think the point we make there. 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 is 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. I think that’s our model and we go forward with that. That being said, if you just step back at the overall market, we are a top three insurance company in Canada behind just two others in terms of the intermediated part of the business.

We are large with many of our brokers and we’d be a leading underwriter in the national broker platform as well along with a couple other major insurers.

Wouldn’t that percentage be around 30% given the commission offset is 30%?

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Not necessarily. This commission offset would include CPC structures. On the profitability of the business, it can have different rates depending on the commercial lines and personal property personal auto mix. It can be variable through the different constitution parts and also just the degree of profitability that we’re seeing coming out of that program as well.

Fabian Rickenberger, EVP of Commercial Insurance and Insurance Operations, Definity Financial Corporation: Maybe just giving you more insight on your question. Looking at our value creation plan for our broker network, the main drivers are organic growth, CPC and override expansion, and margin EBITDA expansion, and that drives the majority of the value creation plan. We are working very closely with our broker partners to help them grow their business as much as they can. The trading relationship that we have with them, very much in line with Rowan’s point, is one of an independent broker, and the trading relationship has the least impact on the overall value creation plan, our capital deployment into the network. This is why we are so happy that their growth is above market average, and that helps us generating those good returns.

All right, thank you very much for the color. Appreciate it. Thanks.

Conference Operator: Thank you. Next question will be from Stephen Boland at Raymond James. Please go ahead.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Stephen.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Sorry.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thanks. Now that you spent more time with Travelers, I just want to, you know, 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?

Rowan Saunders, President and CEO, Definity Financial Corporation: I would say pre-integration that.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: You’re advising them what lines or customers.

Rowan Saunders, President and CEO, Definity Financial Corporation: That you want to be with.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Don’t want to be with.

Rowan Saunders, President and CEO, Definity Financial Corporation: Thanks.

Paul MacDonald, EVP of Personal Insurance and Digital Channels, Definity Financial Corporation: Yeah, thanks, Stephen, for the question.

Rowan Saunders, President and CEO, Definity Financial Corporation: I think it’s important to recognize that the deal hasn’t closed and we’re targeting closing in Q1. As of that, we operate as two competitive organizations and 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 add on the Travelers is that it’s going really well. I mean, 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. All of that’s progressing very well. We’re not engaged on anything to do that has to do with influencing the organization and the portfolio.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Okay, that’s it for me. Thanks very much.

Conference Operator: Thank you. At this time, we have no other questions registered. I will turn the call back over to Dennis Westfall.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Dennis, thank you, Rowan. Before we close the call, do you have any final thoughts you’d like to leave us with today?

Rowan Saunders, President and CEO, Definity Financial Corporation: I think just hopefully we’ve kind of shared some key messages through the Q and A which I thought were excellent. To me, a couple of points we’re hoping comes through. One is the strong growth is going to 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. I think the important message there is that in all lines our margins are holding or actually improving. A 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.

The main thing that I think comes back to the investor day where we talked about those three operating levers. SONNET’s in a good position. Operating expenses are actually ahead of where we thought they would be. As Fabian Rickenberger mentioned, the claims transformation is well on track or slightly ahead. Those are going well. This gives us 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 Financial Corporation. We think we’re in great shape. Thank you.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: Thanks. 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 August 8 and a transcript will be made available on our website. Please note that our third quarter results.

Rowan Saunders, President and CEO, Definity Financial Corporation: For 2025 will be released on November 7.

Dennis Westfall, Vice President of Investor Relations, Definity Financial Corporation: That concludes our conference call for today. Thank you, and have a great one.

Conference Operator: Thank you. Ladies and gentlemen, this does indeed conclude the 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.

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