Definity Financial Corp. · TSX:DFY
Definity Financial — Investor Day (September 2024)
86 slides from Definity Financial's investor day presentation, Sep 19, 2024
Slide 1: Purposeful Growth. Enhanced Returns.
Purposeful Growth. Enhanced Returns. September 19, 2024 Toronto, Canada
Slide 2: Advisory Regarding Forward-Looking Information
Welcome > Advisory Regarding Forward-Looking Information 2 Advisory Regarding Forward-Looking Information This presentation contains “forward-looking information” within the meaning of applicable securities laws in Canada. Forward-looking • Definity’s ability to appropriately collect, store, transfe
Slide 3: Supplementary Financial Measures and Non-GAAP Financial Measures and Ratios
Welcome > Supplementary Financial Measures and Non-GAAP Financial Measures and Ratios 3 Supplementary Financial Measures and Non-GAAP Financial Measures and Ratios The Company’s unaudited condensed interim consolidated financial statements and The information presented in this presentation includes
Slide 4: Agenda for Today
Welcome > Agenda for Today 4 Agenda for Today SESSION SPEAKER TIME Welcome Dennis Westfall 9:00 AM Introduction Rowan Saunders 9:05 AM Personal Insurance Paul MacDonald 9:25 AM Commercial Insurance Fabian Richenberger 9:50 AM Q&A Session 10:10 AM Break 10:30 AM Claims Craig Richardson 10:45 AM Capit
Slide 5: Introduction
Introduction Rowan Saunders President and Chief Executive Officer
Slide 6: Deep Bench Strength
Introduction > Deep Bench Strength 6 Deep Bench Strength Philip Mather Paul MacDonald Fabian Richenberger Liam McFarlane Brigid Pelino Rowan Saunders EVP & CFO EVP, Personal Insurance EVP, Commercial SVP & Chief Risk and SVP & Chief People President & CEO and Digital Channels Insurance & Insurance A
Slide 7: We've Built a Leading Canadian P&C Insurer
Introduction > We’ve Built a Leading Canadian P&C Insurer 7 We’ve Built a Leading Canadian P&C Insurer Over 150 Years 6th Largest P&C Deeply Advanced Data Leading National of Operations in Insurance Carrier in Engaged Team Analytics Capabilities Broker Platform Canada Canada1 ~3,500 employees in 12
Slide 8: Purposeful Growth
Introduction > Purposeful Growth 8 Purposeful Growth Definity has significantly grown while also improving earnings quality, with a greater proportion of earnings coming from stable sources including a positive shift in business mix GROSS WRITTEN PREMIUMS ($B)1,2 EARNINGS QUALITY OPERATING NET INCOM
Slide 9: Consistently Meet or Exceed Our Financial Targets
Introduction > Consistently Meet or Exceed our Financial Targets 9 Consistently Meet or Exceed Our Financial Targets 15.2% Gross Written Premiums1 11.7% 12.4% 13.6% 9.4% Grow GWP at an upper single digit to 1.5% approximately 10% rate3 2019 2020 2021 2022 2023 YTD 2Q24 Combined Ratio1,2 105.0% 94.6%
Slide 10: Operating ROE Upside
Introduction > Operating ROE Upside 10 Operating ROE Upside 2023 OROE1 9.2% Inorganic Optimization Balance Sheet Optimization and deployment of financial capacity through M&A can propel Below Organic OROE1 Target Core Business Capabilities our OROE1 sustainably into the mid teens teens Growth in nat
Slide 11: Delivering for Our Investors
Introduction > Delivering for Our Investors 11 Delivering for Our Investors Oct. 3, 2022 Sept. 5, 2023 Majority stake in Full launch of Jan. 1, 2024 McDougall Sonnet Shift in Continuance to acquired YE22 Ontario CBCA complete Each of our three Definity Aug. 2, 2022 main underwriting May 8, 2023 Oct.
Slide 12: The Competitive Environment in Canada
Introduction > The Competitive Environment in Canada 12 The Competitive Environment in Canada The Canadian market remains fragmented with near term pressures driving an environment with firm pricing conditions across all lines of business Inflation Digitization & Technology While the rate of inflati
Slide 13: Our Strategy
Introduction > Our Strategy 13 Our Strategy OUR PURPOSE OUR AMBITION OUR PROMISE Building a better world by helping our To be one of Canada’s leading and most Making insurance better clients and communities adapt and thrive innovative P&C insurers STRATEGIC Become one of the five Maintain our digita
Slide 14: Our Main Areas of Focus Across the Business
Introduction > Our Main Areas of Focus Across the Business 14 Our Main Areas of Focus Across the Business PERSONAL LINES | BROKER PERSONAL LINES | DIRECT COMMERCIAL LINES Maintain top 3 position as broker insurer Maintain position as #1 digital insurer Target top 5 market share on a sustained basis
Slide 15: Our Main Areas of Focus Across the Business (continued)
Introduction > Our Main Areas of Focus Across the Business 15 Our Main Areas of Focus Across the Business (continued) CLAIMS NATIONAL BROKER PLATFORM CAPITAL DEPLOYMENT & READINESS Drive value for brokers and customers Maintain focus on disciplined value Build a national broker with over $1.5B creat
Slide 16: Personal Insurance
Personal Insurance Paul MacDonald EVP, Personal Insurance & Digital Channels
Slide 17: Personal Insurance Operating Environment
Personal Insurance > Personal Insurance Operating Environment 17 Personal Insurance Operating Environment Strong market share within the Intermediated Broker Channel with significant opportunities to grow in the Direct Market Channel TOTAL PERSONAL LINES ADDRESSABLE MARKET AT $45B IN 2023 LINE OF BU
Slide 18: Personal Insurance Dynamics
Personal Insurance > Personal Insurance Dynamics 18 Personal Insurance Dynamics Inflation Climate Change Early mover rate action ahead of market with • Pre-emptive rate to offset reinsurance cost double digit written rate by end of 2023 • Targeted underwriting and rate actions to reduce concentratio
Slide 19: Leveraging Our Capabilities
Personal Insurance > Leveraging Our Capabilities 19 Leveraging Our Capabilities Delivering leading broker and customer experiences via sophisticated digital, core operating platforms; supported by top technical talent and tools CUSTOMER AND BROKER SCALABLE ADVANCED ANALYTICS EXPERIENCE PLATFORM TOOL
Slide 20: Leveraging Our Capabilities (continued)
Personal Insurance > Leveraging Our Capabilities 20 Leveraging Our Capabilities (continued) Delivering leading broker and customer experiences via sophisticated digital, core operating platforms; supported by top technical talent and tools TECHNICAL CAPABILITIES INNOVATION • Deep in-house expertise
Slide 21: Digital Platform Advantage
Personal Insurance > Digital Platform Advantage 21 Digital Platform Advantage IMPACTS EVERY ASPECT OF THE VALUE CHAIN • Sophisticated Digital Platforms enable ✓ Quickly obtain and process bindable quotes ✓ Purchase insurance in as little as 5 minutes rapid scaling ✓ Integration with all major broker
Slide 22: Executing on Personal Insurance Strategy
Personal Insurance > Executing On Personal Insurance Strategy 22 Executing on Personal Insurance Strategy 10% CAGR in annual GWP1,2,5 8-point improvement in combined ratio3,5 3,500,000,000.0 120.0% $2,944.7M 115.0% 3,000,000,000.0 $2,770.2M 106.2% $2,591.8M 110.0% 2,500,000,000.0 $2,347.8M 105.0% $2
Slide 23: Personal Auto
Personal Auto definity.
Slide 24: Managing the Auto Portfolio Through the Cycle
Personal Auto > Managing the Auto Portfolio Through the Cycle 24 Managing the Auto Portfolio Through the Cycle 7% CAGR in annual GWP1,2,5 13-point improvement in combined ratio3,5 2,000,000,000.0 120.0% 111.7% $1,799.1M 1,800,000,000.0 $1,657.1M 115.0% $1,579.1M 1,600,000,000.0 $1,453.2M 110.0% $1,3
Slide 25: Fundamentals Underpinning the Auto Proposition
Personal Auto > Fundamentals Underpinning the Auto Proposition 25 Fundamentals Underpinning the Auto Proposition COMBINING SOUND FUNDAMENTALS WITH EXCEPTIONAL EXPERIENCES RESULTS Distribution • Broker and direct channels offer convenient quote-to-bind experience and ✓ Sonnet customer can obtain an a
Slide 26: Personal Property
Personal Property definity.
Slide 27: Robust Property Growth While Managing Volatility
Personal Property > Robust Property Growth While Managing Volatility 27 Robust Property Growth While Managing Volatility 15% CAGR in annual GWP1,2,5 4.4-point improvement in Core AY Loss Ratio3.5 1,400,000,000.0 120.0% 1,200,000,000.0 $1,113.1M $1,145.6M 110.0% 98.6% $1,012.7M 94.4% 100.0% 1,000,000
Slide 28: Mitigating Property Volatility
Personal Property > Mitigating Property Volatility 28 Mitigating Property Volatility Utilizing data analytics and technical models to reshape the portfolio & drive underlying improvement 15% IMPROVEMENT IN CLAIMS FREQUENCY SINCE 2018 COMPETITIVE ADVANTAGE 14.50 Sophisticated technical Property Frequ
Slide 29: Managing the Portfolio for Climate Risk
Personal Property > Managing the Portfolio for Climate Risk 29 Managing the Portfolio for Climate Risk Severe weather across Canada continues to highlight the financial cost of climate change Aggregation Claims Management Customer Advocacy & Management & Reinsurance Resilience Engagement Evolving th
Slide 30: Direct Distribution
Direct Distribution definity.
Slide 31: Direct Channel Addressable Market
Direct Distribution > Direct Channel Addressable Market 31 Direct Channel Addressable Market With expected shift to direct channel, addressable market is expected to grow significantly in next 5 years MARKET SIZE (2023) SIGNIFICANT OPPORTUNITIES TO GROW Direct Industry Personal Lines Premium2 ($B) T
Slide 32: Customer and Digital Trends
Direct Distribution > Customer and Digital Trends 32 Customer and Digital Trends Today’s customer is more technology-friendly and open to purchasing through digital channels MEETING CUSTOMER PREFERENCES IN CANADA HOW SONNET POSITIONS US FOR SUCCESS Customer Demand 48% of currently insured consumers
Slide 33: Direct Channel Portfolio
Direct Distribution > Direct Channel Portfolio 33 Direct Channel Portfolio Maturing well-balanced portfolio positioned for profitable growth KEY SEGMENTS ADVANTAGES Gross Written Premium1 425.0 $428M 375.0 Outsized above market growth with 325.0 22% 6-year CAGR 275.0 225.0 175.0 Well-balanced portfo
Slide 34: Market-leading Digital Direct Insurer
Direct Distribution > Market-leading Digital Direct Insurer 34 Market-leading Digital Direct Insurer Sonnet’s customer centric experience underpinned by insurance & business fundamentals Data Driven Business Model Leading Brand & Unique Digital Superior Customer Targeted Marketing Product Offer Expe
Slide 35: Maturing Core Insurance Fundamentals
Direct Distribution > Maturing Core Insurance Fundamentals 35 Maturing Core Insurance Fundamentals SONNET’S PATH TO PROFITABILITY IMPROVEMENT IN BUSINESS MIX 30% Reflecting improvement in Disciplined Underwriting to Improve Profitability Auto Frequency Improvement1 underlying portfolio quality ✓ Opt
Slide 36: Optimization of Operating Model
Direct Distribution > Optimization of Operating Model 36 Optimization of Operating Model Operational efficiencies in conjunction with scale to drive expense ratio improvements OPERATIONAL IMPROVEMENT Optimization of marketing spend through data-driven 30% decline in cost of acquisition since launch
Slide 37: Personal Insurance Outlook
Personal Insurance > Personal Insurance Outlook 37 Personal Insurance Outlook Disciplined portfolio management coupled with leading digital capabilities should enable Definity to achieve our ambition of becoming a top 5 carrier in the medium term with a sustainable mid 90s COR1 DRIVE PROFITABLE GROW
Slide 38: Commercial Insurance
Commercial Insurance Fabian Richenberger EVP, Commercial Insurance & Insurance Operations
Slide 39: Commercial Insurance Market
Commercial Insurance > Commercial Insurance Market 39 Commercial Insurance Market Definity ranks as 7th largest commercial insurance company with strong market share in the small & low complexity Mid-Market space – with significant growth opportunities in the more fragmented specialty lines of busin
Slide 40: Executing Growth and Profitability Strategy
Commercial Insurance > Executing Growth and Profitability Strategy 40 Executing Growth and Profitability Strategy Strong underwriting and operational capabilities have driven enhanced underwriting performance and profitability – commercial team committed to continue to achieve double digit growth at
Slide 41: Leveraging Our Capabilities
Commercial Insurance > Leveraging Our Capabilities 41 Leveraging Our Capabilities Commercial insurance’s strong customer and broker value proposition that includes market leading digital capabilities will help sustain growth rates in the low double-digit range CUSTOMER-CENTRIC DEEP BROKER DIGITAL PR
Slide 42: Leveraging Our Capabilities
Commercial Insurance > Leveraging Our Capabilities 42 Leveraging Our Capabilities Commercial insurance’s comprehensive operational and underwriting capabilities and the application of best- in-class pricing capabilities will enable maintaining a low 90s combined ratio1 DATA ANALYTICS & PRICING UNDER
Slide 43: Small & Low Complexity Business
Commercial Insurance > Small & Low Complexity Business 43 Small & Low Complexity Business Key to success for transactional and smaller P&C business (i.e., below $25k) is a low cost and fast digital service delivery model Target COR1: low 90s KEY SMALL & LOW COMPLEXITY BUSINESS SEGMENTS (2023) VALUE
Slide 44: Small & Low Complexity Business – Customer Needs
Commercial Insurance > Small & Low Complexity Business > Customer Needs 44 Small & Low Complexity Business – Customer Needs Small & low complexity business segment remains an attractive opportunity – Definity Vyne commercial proposition tailored to meet business owners’ needs CANADIAN SMALL BUSINESS
Slide 45: Market-leading Broker Experience & Service
Commercial Insurance > Small & Low Complexity Business > Market-leading Broker Experience & Service 45 Market-leading Broker Experience & Service Unique digital offering for small & low complexity business augmented by highly skilled underwriters in order to maximize broker ease of use SERVING BROKE
Slide 46: Small and low complexity business > Video
Commercial Insurance > Small and low complexity business > Video 46
Slide 47: Mid-market – Portfolio
Commercial Insurance > Mid-market > Portfolio 47 Mid-market – Portfolio Well-balanced Mid-Market portfolio with limited exposure to long-tailed lines of business. Target COR1: low 90s KEY MID-MARKET SEGMENTS (2023) VALUE PROPOSITION Product line Type of Risk Compound Annual 2023 GWP1: $390M Growth R
Slide 48: Mid-market – Regional Underwriting Footprint
Commercial Insurance > Mid-market > Regional Underwriting Footprint 48 Mid-market – Regional Underwriting Footprint Supporting risks of increasing complexity by leveraging a decentralized underwriting model providing deep regional support, augmented by AI-based automation and a central governance st
Slide 49: Mid-market – Underwriting Excellence
Commercial Insurance > Mid-market > Underwriting Excellence 49 Mid-market – Underwriting Excellence Leveraging leading underwriting and pricing expertise supported by a sophisticated, central underwriting framework to drive sound risk management and profitability Well-defined guidelines and playbook
Slide 50: Specialty Lines – Gaining Market Share
Commercial Insurance > Specialty Lines > Gaining Market Share 50 Specialty Lines – Gaining Market Share Specialized underwriting expertise & risk management essential to provide niche products and offerings tailored to specific industries Target COR1: high 80s KEY SPECIALTY LINES PRODUCTS (2023) VAL
Slide 51: Specialty Lines – Product Offering
Commercial Insurance > Specialty Lines > Product Offering 51 Specialty Lines – Product Offering Over the past 5 years, Definity has developed a well-diversified specialty portfolio, encompassing property, professional lines and automobile coverage over a host of different industries across the Canad
Slide 52: Specialty Lines – Energy & Property
Commercial Insurance > Specialty Lines > Energy & Property 52 Specialty Lines – Energy & Property Segment Definition: Properties with single-location value Successfully established Specialty Lines Energy & Property offering in >$100M or energy risks irrespective the market, gaining strong market tra
Slide 53: Commercial Outlook
Commercial Insurance > Commercial Outlook 53 Commercial Outlook Strong underwriting expertise paired with leading digital capabilities should enable Definity to drive profitable organic growth and achieve a top 5 market position in the medium term with a low 90s COR1 DRIVE PROFITABLE GROWTH BY LEVER
Slide 54: Question & Answer
Question & Answer definity.
Slide 55: Break
Break definity.
Slide 56: Claims
Claims Craig Richardson SVP and Chief Claims Officer
Slide 57: Operating Environment
Claims > Operating Environment 57 Operating Environment Definity claims leadership team has been successfully managing the impact of climate change, increasing inflation trends, importance of technology, talent shortage and supply chain capacity Actively responding to the increasing frequency Adapt
Slide 58: Key Success Factors
Claims > Key Success Factors 58 Key Success Factors Claims leadership team has achieved strong operational progress across all key success factors while pursuing a comprehensive transformation agenda Customer Operational Transformation Experience Excellence Frictionless Proactive Cost Cycle Time Sys
Slide 59: Customer Experience
Claims > Customer Experience 59 Customer Experience Claims has fostered a customer centric culture while prudently managing costs NET PROMOTER SCORE KEY CUSTOMER VALUE DRIVERS +22 pts • Empathetic support for customers in the time of need • Transparent communication and processes enhance customer co
Slide 60: Customer Experience > Video
Claims > Customer Experience > Video 60
Slide 61: Operational Excellence
Claims > Operational Excellence 61 Operational Excellence Management actions and focus on key priorities have delivered strong results Cost Management Cycle Time Improvement COST MANAGEMENT • Diligent expense management and process improvements have driven loss adjustment expenses -10% to -20% down
Slide 62: Supply Chain Management
Claims > Operational Excellence > Supply Chain Management 62 Supply Chain Management Definity has built strong relationships with vendor partners to create increased repair capacity while prudently managing claims costs and delivering great customer experiences KEY VENDOR PARTNERSHIP PROOF POINTS Au
Slide 63: Claims Transformation
Claims > Claims Transformation 63 Claims Transformation Claims is on a multi-year transformation journey bringing a best practice strategic platform for scalability, future growth and enhanced customer experience Complete Complete Up next Future Innovations First Notice Of Loss Auto claims Property
Slide 64: Claims Transformation
Claims > Claims Transformation 64 Claims Transformation Adopted latest technologies and digital capabilities to enhance claims processing, improve indemnity results, elevate the customer experience and differentiate us from competitors FIRST NOTICE OF LOSS TRANSFORMATION AUTO TRANSFORMATION PROPERTY
Slide 65: Capital Management
Capital Management Philip Mather Executive Vice-President and Chief Financial Officer
Slide 66: Robust Operational Foundation
Capital Management > Robust Operational Foundation 66 Robust Operational Foundation Definity has significantly grown its earnings while also improving diversification, with a greater proportion of earnings coming from more stable sources including a positive shift in business mix DEFINITY 5 YEARS AG
Slide 67: Balance Sheet Strength
Capital Management > Balance Sheet Strength 67 Balance Sheet Strength Definity’s balance sheet and financial flexibility have strengthened over the last 5 years, driven by strong capital generation and reinforced by the transition to a public company DEFINITY 5 YEARS AGO DEFINITY TODAY $1.6B $0.25B
Slide 68: Operating ROE Upside – Organic Levers
Capital Management > Operating ROE Upside – Organic Levers 68 Operating ROE Upside – Organic Levers Strong underwriting, continued investments, disciplined expense management and efficiencies of scale enables Definity to consistently target a mid-90s COR1 or better while enhancing OROE1 2023 OROE1 9
Slide 69: Operating Expense Ratio
Capital Management > Operating Expense Ratio 69 Operating Expense Ratio Disciplined expense management to deliver glide path to target expense ratio as we scale OPERATING EXPENSE RATIO1 OPERATING EXPENSE GROWTH NUR Growth 1,2 OPEX Growth 13.9% 14.7% 12.4% 9.0% 8.0% 13.5% 13.5% 13.4% 13.0% 11.3% 12.7
Slide 70: Target Operating ROE – Inorganic Growth
Capital Management > Target Operating ROE – Inorganic Growth 70 Target Operating ROE – Inorganic Growth Additional OROE1 uplift opportunity from capital optimization, including deploying financial capacity on accretive M&A opportunities INORGANIC OROE1 IMPROVEMENT INORGANIC OROE LEVERS Current Targe
Slide 71: Sustainable and Growing Dividend
Capital Management > Sustainable and Growing Dividend 71 Sustainable and Growing Dividend Consistent annual dividend increases reflect our confidence in our long-term growth strategy and the sustainability of our earnings CONSISTENT DIVIDEND GROWTH SINCE IPO Dividend for stub period between the init
Slide 72: Leverage and Credit Ratings
Capital Management > Leverage and Credit Ratings 72 Leverage and Credit Ratings Unoptimized balance sheet represents opportunity for scale M&A and OROE accretion UNOPTIMIZED BALANCE SHEET 1,2 TARGET LEVERAGE POST CAPITAL OPTIMIZATION 1,2 29% 25% 28% 23% Leverage may include debt, preferred shares, a
Slide 73: High-quality Investment Portfolio
Capital Management > High-quality Investment Portfolio 73 High-quality Investment Portfolio Increasing net investment income driven by higher yields and portfolio growth from cash generation NET INVESTMENT INCOME ($M) BOND PORTFOLIO YIELDS1 179.5 186.7 193.8 159.3 169.6 6% 190 .0 148.3 37.1 133.1 35
Slide 74: Reinsurance Program
Capital Management > Reinsurance Program 74 Reinsurance Program Prudent approach with a focus on frequency and severity protection Balance Sheet Protection Volatility Management Tactical Use Driven by business needs, reinsurance program Reinsurance programs structured to protect against Niche busine
Slide 75: Reserving Practices
Capital Management > Reserving Practices 75 Reserving Practices Prudent reserving practices with historic pattern of consistently favourable development1 OVERVIEW ANNUAL RATE OF PRIOR YEAR DEVELOPMENT3 ⚫ Philosophy of strong and enhanced level of reserve adequacy, focused on 2.7% 2.7% higher risk li
Slide 76: Uncashed Demutualization Benefits
Capital Management > Uncashed Demutualization Benefits 76 Uncashed Demutualization Benefits Amount outstanding after upcoming deadline will transfer to Definity for general corporate purposes • Definity has been successful in distributing the vast majority of demutualization benefits to date, outper
Slide 77: Acquisition Readiness
Acquisition Readiness Philip Mather Executive Vice-President and Chief Financial Officer
Slide 78: Inorganic Growth Strategy
Acquisition Readiness > Inorganic Growth Strategy 78 Inorganic Growth Strategy Inorganic growth is an important driver to support Definity’s strategic objectives; carrier acquisitions remain a focus to accelerate to top 5 status in Canada KEY OBJECTIVES KEY PRIORITIES • Focus on Canada: Prioritize t
Slide 79: Strong Business Fundamentals and Culture Underpin Sustainable Inorganic Value Creation
Acquisition Readiness > Strong Business Fundamentals and Culture Underpin Sustainable Inorganic Value Creation 79 Strong Business Fundamentals and Culture Underpin Sustainable Inorganic Value Creation Deep broker Sophisticated UW Scalable digital Strong talent relationships and pricing platforms & c
Slide 80: Key Capabilities in Place to Drive Accretive M&A
Acquisition Readiness > Key Capabilities in Place to Achieve Accretive M&A Deals 80 Key Capabilities in Place to Drive Accretive M&A OUTCOMES FOR ACCRETIVE DEAL DEFINITY’S M&A CAPABILITIES Deep internal expertise in place for deal Experienced team across multiple Rapidly capture revenue & sourcing a
Slide 81: In closing …
Capital Management and Acquisition Readiness > In closing … 81 In closing … Robust operational foundation and balance sheet strength Multiple levers available to drive OROE1 expansion Highly capital generative business model supporting our capital deployment priorities Robust investing, capital mana
Slide 82: Question & Answer
Question & Answer definity.
Slide 83: Conclusion
Conclusion Rowan Saunders President and Chief Executive Officer
Slide 84: Building on Our Foundations
Conclusion > Building on Our Foundations 84 Building on Our Foundations CORE ORGANIC BUSINESS OPERATING ROE LEVERS READY FOR M&A Maintain market-leading broker Deliver profitable digital direct Execute and integrate M&A platforms offering ease of use and channel with Sonnet holding a transactions su
Slide 85: Thank You!
Thank You! definity.
Slide 86: definity.
definity. © 2024 Definity Financial Corporation. Intellectual property belongs to Definity Financial Corporation andor its affiliates.