Definity Financial Corporation

Good morning, ladies and gentlemen, and welcome to the DFINITY Financial Corporation third quarter of 2025 financial results conference call and webcast conference call. At this time, all lines are in a 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. This call is being recorded on Friday, November 7th, 2025. I would now like to turn the call over to Vice President of Investor Relations, Dennis Westphal. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at vicinity.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO, Philip Mather, EVP and CFO, Paul McDonald, 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&A session, during which Paul and Fabian will also be available to answer your questions. With that, I will ask Rowan to begin his remarks.

Thanks, Dennis, and good morning. Last night, we reported record third quarter results that continue the momentum for DFINITY in what has truly been an exciting year for the company. During the quarter, we made further progress towards the closing of the announced traveler's transaction, including finalizing the required financing via our inaugural $1 billion bond offering. while maintaining our focus on delivering the targeted performance of our existing business, as you can see on slide five. Our strong unranked performance, higher net investment income, and continued momentum in our insurance broker platform combined to produce third quarter operating net income of $125.2 million, or $1.03 a share. We delivered a sub-90 combined ratio in the quarter, well ahead of our expectations, as our reported core of 89.4% reflected ongoing actions to improve our operational efficiency and included only 1.9 points of cap losses. From a top-line perspective, we continued to deliver growth in line with our expectations. as gross written premiums increased 7.5% in the quarter to exceed $4.7 billion over the last 12 months. We ended the third quarter with book value per share of $33.43, 24% higher than a year ago, inclusive of strong financial results as well as our private placements of common shares to fund part of the traveler's transactions. We generated an operating return on equity of 12.5% over the past 12 months, reflective of the continued delivery against our organic levers. Sonnet continues to generate a profit for the year, while we remain on track to deliver the targeted improvements from expenses by the end of 2026. Early experience from our claims transformation is encouraging. and we are well positioned to achieve the targeted claims improvements by the end of 2027. I'd note that the improvement in our operating ROE has come along with a 17% increase in our average adjusted equity over the past year. Moving to slide six, our industry outlook is largely unchanged. We expect conditions and auto lines to remain firm. as insurers aim to keep pace with the combined impact of lost 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 and personal property to also remain firm over the next 12 months, particularly following last year's record level of industry catastrophe losses and the structural move to higher reinsurance attachment points. In commercial insurance, while we expect overall market conditions to remain attractive, we are continuing to see that some commercial segments have become more competitive. We expect overall pricing in commercial insurance to keep pace with lost cost trends, which have normalized to low to mid-single digits. Slide 7 shows our key financial targets for 2025. As you can see, both top-line growth and underlying profitability are at or better than target through nine months, while our operating ROE of 12.5% puts us at the upper end of our target range. We remain confident in our ability to reach a sustainable mid-teens operating ROE post-integration of the traveler's transaction. Slide 8 illustrates the composition of our national broker platform. We've made great progress with M&A activity and solid organic growth, which has us ahead of where we thought we'd be as we close in on our target for at least $1.5 billion of managed premiums by the end of next year. We continue to view our national broker platform as a vehicle to diversify and strengthen the earnings profile of the business. Year-to-date, this platform has delivered more than $73 million in aggregate contribution to operating results, well ahead of our objective to increase it by 20% for 2025. And with that, I'll turn the call over to our CFO, Phil Mather.

Thanks, Rowan. I'll begin on slide 10 with personal auto. Growth rate and premiums were up 6.2% in the third quarter, in line with our mid-single-digit growth guidance for the second half of 2025 that we provided on our Q2 call. This result reflects our proactive approach to rates and unit growth, partially offset by the outsized impacts of portfolio transfers in the prior year. Early indications for growth in the fourth quarter suggest the slowdown may prove to be more short-lived than expected. The combined ratio for personal auto improved to 94% in the third quarter from 98.3% last year, driven by earned rate increases, improved sonic profitability, and lower catastrophe losses. We continue to expect personal auto will generate a mid-90s combined ratio for the full year. While tariff-related policy changes have not materially impacted performance to date, We remain diligent and are ready to take additional actions where necessary to protect our profitability. Turning to slide 11, personal property continues to show momentum, with Q3 premium growth of 9.3%, benefiting from increases in average written premiums and improved unit growth. Past efforts to proactively address regions with cat exposure have proven successful from an underwriting perspective, and now that they are largely complete, we have begun to see a return to unit growth. We believe we are well positioned to maintain our growth momentum in the fourth quarter, given the conditions prevalent in our industry. The combined ratio for personal property was robust at 83.6% in Q3 2025, compared to 124.9% in Q3 2024, driven by lower catastrophe losses. Though the most recent quarter experienced a benign level of catastrophe losses, the 9.2 points of CATS year-to-date is only a couple of points less than expected for this line of business. As such, we are very pleased with our year-to-date combined ratio of 90.5% and believe we are well positioned to outperform our sub-95% combined ratio targets for the personal property line of business in 2025. Slide 12 outlines the highlights in the quarter for our commercial business, with premium growth of 7.5% in Q3 and 9.2% year-to-date, driven by strong retention and rate achievement and continued expansion in small business and specialty. Industry growth is trending to the low to mid-single digits, driven by normalized loss trends. We continue to expect that we can deliver growth at roughly twice the pace of the industry or better, which should translate into high single-digit growth for the remainder of 2025 due to our strong broker support, digital capabilities, and specialty expansion. Commercial lines continue to benefit from our focus on underwriting execution and discipline with a strong combined ratio of 88.1% in Q3 2025, compared to 89.9% in Q3 2024. The improvement in the combined ratio was driven by lower catastrophe losses, partially offset by an increase in the core accident year claims ratio. The decrease in catastrophe losses and the corresponding increase in the core accident year claims ratio was impacted by the change in definition for a single claim catastrophe loss in 2025. We continue to run our commercial insurance business with the intent to operate at an annual combined ratio in the low 90s through the cycle. Putting it all together on slide 13, consolidated premiums grew 7.5% in Q3 and 8.7% year-to-date, adjusted for exited lines. At the same time, underwriting results were well ahead of expectations with an overall combined ratio of 89.4% in Q3, a substantial improvement from Q3 of last year, reflecting the strength of underlying improvements in our business, supported by a much lower level of CAT losses. As you can see on slide 14, operating results in the quarter were strong, with net investment income of $54.1 million, supported by higher interest income from continued growth in our portfolio size. Given the contribution from proceeds of our private placements of common shares, and senior unsecured notes, we now expect net investment income to exceed $210 million in 2025. Distribution income of $18.2 million reflected another impressive quarter from our broker distribution platform, which continues to deliver both organic growth and strategic expansion. The aggregate contribution from our national broker platform, including distribution income and the beneficial impact of the commission offset, has increased by approximately 26% so far in 2025, and positions as well to achieve our financial target of delivering an increase of approximately 20% in 2025. These results, combined with healthy underwriting income, contributed to an operating return on equity of 12.5% over the past 12 months, a clear step forward on our path to a sustainable mid-teen operating ROE post-integration of travellers. As you can see on slide 15, we ended the third quarter with shareholders' equity above $4 billion for the first time, a significant milestone for DFINITY and a testament to our continued strong performance and the capital-generative nature of our business. On a per-share basis, this represents 24% increase year-over-year, reflecting both robust operating results and the impact of our private placements of common shares. We successfully completed a $1 billion private placement of senior unsecured notes in September, marking our inaugural bond offering and the final piece of our financing strategy for the traveler's transaction. The issuance was well received by the market at better than our modeled interest rates and further enhances our financial flexibility as we prepare for closing in the first half of Q1 2026. We currently expect a leverage ratio of approximately 30% upon close of the traveler's transaction with a plan to get that back to our target level of 25% within 24 months. Turning to slide 16, our financial position remains strong with ample capacity to support both organic and inorganic growth initiatives. We continue to deploy capital in a disciplined manner, prioritizing ongoing broker acquisitions and investments that enhance long-term shareholder value. With that, I'll turn the call back over to Rowan.

Thanks, Phil. Let me end with an update on the traveler's transaction on slide 17. As I mentioned last quarter, I believe this is a concrete demonstration of our commitment to build a Canadian champion in the P&C insurance industry. Integration planning is nearing completion, as our joint transition planning team has made tremendous progress. Employee and broker sentiment has been and remains overwhelmingly positive. Employees are excited at the prospect of our scaled capabilities and the expanded opportunities that they will bring. Our brokers are enthusiastic and are showing a clear interest in our enhanced product offering post-close. We now expect the transaction to close in the first half of Q1 2026, following a receipt of customary regulatory approvals, ahead of our initial expectations. An important deliverable to ease the integration process was to finalize our claims transformation. Just last month, we successfully implemented the GuideY property and casualty module, marking the completion of a GuideY claim center rollout. We are now on Guidewire Cloud for the majority of claims administered by DFINITY. The implementation of Claims Center is part of a broader effort to reduce friction by modernizing and digitizing key steps in the claims journey. This enhances our ability to deliver on our commitment of providing up to two points of operating ROE contribution by having a robust platform for scalable growth, ongoing innovation, and a seamless end-to-end customer experience. As a proof point, since implementation of Claim Center for auto claims in April of 2024, our cycle time has improved by 19%, driving better operational efficiency, enhanced indemnity outcomes, and higher net promoter scores. We look forward to seeing similar benefits on the property and casualty side. As we approach the end of 2025, the company is performing strongly and is in a great position to begin the process of integrating our upcoming acquisition. And with that, I'll turn the call back over to Dennis to begin the Q&A session.

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

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you do have a question, please press the star button followed by the number one on your touchtone phone. you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star button followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question.

First question comes from Steven Boland of Raymond James.

Go ahead.

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

Well, Stephen, thanks very much for the question. Happy to take that and have Paul give you the flavor. I think that the big picture for us would be we like where the market is at this stage. And, you know, we've got to a position where it's pretty stable. And when we see stable loss cost trends, we're able to underwrite. We're able to get our pricing points at the right level. And then that, you know, gives us a pretty favorable outlook. And I think when we go back to the market is still pushing significant prices through as they strive to get to profitability. We're in a good position because we're really adequate and we are profitable. We have the Vine scalable platform. And so as we think forward, you know, we're quite bullish on this line of business. But, Paul, could you give more color onto the cost trends and the breakouts? Absolutely, yep.

So, Stephen, as I've previously shown, there are components of it between the property damage and the casualty. The casualty, we've been fairly consistent throughout the last few quarters in that mid-single digit, and we're not really seeing any changes in that. AB is a bit more stable. BI is a little bit more volatile. But overall, still that mid-single digit range. The one that we've spoken about consistently is on the property damage side, which includes, obviously, comprehensive and collision. We also include theft in that element. And there we've seen a more stabilization of the trends around that mid-single-digit range. This is fairly consistent with pre-pandemic levels, and it really represents the natural cost inflation of vehicles. They have more higher content in the vehicles, more expensive vehicles, cost of repairing them. The good news is, as I said, that that's stabilized to that mid-single-digit range. I mentioned theft. theft has come down quarter over quarter. Pre-pandemic, it was about two points of loss ratio. At its peak, it went up to almost seven points of loss ratio, and it's down to about 2.6, 2.7. So still a little elevated, but certainly much improved over the last year. And really, when you take all those things together, we're really talking about a mid-single-digit trend. The good news is we believe that we are well-placed to cover that trend with our natural rate filings and we've essentially caught that trend over the last while so we're in a good position to be at a stable place we do believe the industry as a whole isn't there yet and so the industry as a whole will have to continue to take rate to cover that trend but we're well positioned in that okay that's really helpful and the second question still on personal auto you mentioned in the MD&A just about the Ontario

reforms coming in. Is that going to put pressure on premium growth? I mean, there's lots of articles going around about that. I'm just wondering what your thoughts are.

We are certainly very involved in getting ourselves ready for the auto reforms There's extensive activity in this space. These are things that the industry has gone through. So this isn't new to the industry and certainly not new to us, and we have reforms going in Alberta as well. But we believe that this is a good place for the industry to go. And really what we're talking about, most of these reforms focus on the casualty side of the equation. They don't really have a lot of focus on the property damage side of the equation, which, as I just mentioned, has over the last few quarters been the one that's put pressure on the results. But the reforms are a good way for the industry to reset. Every few years, you will see a slight increase in trends. Reforms come in, the industry responds, and then there's a period of recovery. onboarding the benefits from those reforms for the couple of years thereafter. In terms of your question around overall pressure on premiums, we don't believe it's going to be a significant pressure on premiums. What these things will do is offset So instead of seeing a pressure or a decrease in premiums, what you're going to see is less need for additional rate beyond that to cover the trends that I disclosed. It does give some clients a bit more ability to control their overall premiums, but we believe it's going to end up still maintaining a well-balanced portfolio, so it doesn't cause us any concern from a top-line perspective.

Okay. I appreciate that. Thanks so much. Next question comes from Alex Scott of Barclays. Please go ahead.

Hey, thanks for taking the question. First one I had is on the traveler's acquisition. And just now that you've had, you know, some more time with it and so forth and it closing reasonably soon, can you talk about just, you know, the influence it would have on your combined ratios initially, you know, appreciating that there will be some repricing and remediation? over time, but I just want to make sure I understand sort of the starting point, you know, that we should expect next year.

Thanks for that. So firstly, a quick update on the progress. I mean, I think as we said in the Materials, this is proceeding very well. We do think that it will close a little earlier than originally anticipated, so that's exciting for us. We've also made great progress on things like getting the financing complete with an overall bond offering, which, again, went very, very well. And I will say that the teams are working very well together and with the very advanced stages of the integration planning. So we're pretty excited about that. I think when it comes to the impact that it will have on us next year, what we've kind of said is, look, We have a good sense of the size of business that's coming. We know that it's very complementary to our portfolio. Of course, it moves us from the sixth largest to the fourth largest performer, so clearly it will have a significant impact on our revenue going into next year. We also said that this is essentially a break-even business, and we have a plan to integrate this and to get cost synergies of $100 million. That takes a couple of years to work its way into the portfolio. So as we roll through the year end, as we close the transaction, when we update our guidance for 2020, And 26, we'll be able to kind of get more color in that. But clearly, you know, I think from our perspective, this business is, you know, something we're pretty excited to get. We know more about it now that we, you know, are getting closer to the transaction date. And we're as excited about it as we were before. We're getting exactly what we think and we expect it.

And, you know, I think more to come in the new year. That's really helpful.

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

Yeah. Look, I think this is something that we're very pleased about, and I think that it's worked extremely well for us over the last couple of years, and it's becoming quite a meaningful number. The way we look at this is that the broker platform These are high-quality brokers. They're doing really well in the marketplace. As they've got kind of scale, they've got more capability, and that's allowed them to increase their growth rate. So this is a strong organic growth platform. And then on top of that, you add, you know, a pretty active broker. M&A market where there is a significant amount of consolidation that has occurred and we still believe will occur going forward. So when we looked at this year, originally we said that we had a 15% guidance in the Nashville broker platform operating earnings, they were doing well and they accelerated some acquisitions. And so we upped our guidance. And actually, they're even outperforming that at this stage. So, you know, the latest guidance that we had left in place is 20% year on year. That's a combination of strong organic growth and a healthy pipeline. And as far as we could see out, we don't see a change yet. you know, in that environment for the next number of quarters, there is still a pretty healthy pipeline available.

Great. Thank you. Next question comes from Paul Holden of CIBC.

Please go ahead.

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

Yeah, go ahead, Paul. Thank you, Paul. It's Paul here. You know, I'll take you back to comments I made in previous quarters. This is very much deliberate. We had indicated at the beginning of the year that we'd be pushing hard on gaining unit growth and rate growth at the beginning of the year on auto, but we did expect to see that slow down a bit in the back half of the year. And the reason is quite simple, is that we knew we were taking significant rate in the back half of the year. And You may recall in previous years when we took rate in the back half of the year, that was followed by a little bit of period of lack of competitiveness or reduced competitiveness, and then that came back. So the exact same thing happened this year, very deliberate. We took 5% additional rate in our Ontario portfolio, which is our largest. That was on top of an existing 7.5% that was already flowing through that portfolio. And in effect, what that meant was a 12.5% increase on profit. on customers in that jurisdiction. We knew that that would reduce competitiveness very deliberately, and it has, in fact, done so. But what we're pleased to see is, unlike the previous two years where it took a couple of quarters for some of the growth to come back, it's actually come back faster. So even within that quarter, what we saw is July and August, The top line was reduced a little, and then in September, it's come back quite healthily. So we expect that trajectory of healthy growth to maintain into Q4. And so we really manage this portfolio to the full year. The full year growth is at 8.6, which is exactly in line with our guidance, and we expect to close the year close to that. That upper single-year guidance is what we expect. And I will say at the same time, remember that the inverse is true for property. We indicated at the beginning of the year that we were taking extensive actions to improve the concentration and accumulation in our property portfolio, and we were redesigning our property wordings. And what we did not want to do is accumulate a lot of units in advance of a cap season until that work had been completed. That work has, in fact, completed. And so, as I indicated in previous quarters, we expected healthy growth in the property portfolio in the back half of the year to offset that slight reduction on the auto. And that's exactly what we're seeing. We're seeing very healthy growth in Q3. And even the... months within the quarter, steady improvement month over month in our property earnings. So really what we're looking for is a full year, high single-digit result, both auto, both property combined. We're very pleased with the performance of these portfolios.

Got it. That all makes sense. And I know you haven't given 2026 guidance or outlook yet officially, but I kind of want to follow up quickly on auto, how to think about 2026. So I hear you on the – you've taken more recently rate of 5% in Ontario, which is in line with the mid-single digits claims inflation you highlighted earlier. So that makes sense, and that projects stable margins. If we extend that 5% out to 2026 and then combine that with the indication you said industry is still catching up, Does that mean premium growth could be in excess of 5% next year because you get the 5% on rates plus picking up a little bit of market share? Is that a reasonable way to think about it?

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

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

Thank you, Paul. This is Robby Rittenberg launching a question. So maybe I'll give you a little bit of a big picture assessment of how we view the marketplace overall. So while we've seen more competition this year, especially in the large account segment, I would say that the commercial insurance overall remains a very attractive segment for us overall. And we are very pleased with the results that we've achieved in Q3 and year-to-date as well. Maybe what I do, I share two or three data points with you that illustrate why we are so confident about our commercial business. The first one, and I think that's the most important one, is that in our core business, which as you know is small business and low-end commercial business, and which makes up actually the vast majority of our portfolio, we don't view market conditions in that segment as being soft. Across our core business, we are achieving mid-single digit rate increases, which you're happy with. Our retention numbers, both in terms of policy counts and premium, are in the high 80s. And we're actually writing new business as adequate margins and gaining market share, which is very much in line with our strategic aspirations. Our core business is also benefiting from strong portfolio management capabilities and our digital enablement, of that business allows us to renew that business in an automated manner and that is protecting our margin as well. I know that there's a concern about what's happening in the large account segment. And for sure, that large account segment has been more competitive. But we are guiding our underwriters to make the adequate decisions. And if the margin equation doesn't make sense, we are quite happy to let those larger accounts go. And again, because that large account is the smallest portion of our commercial business overall, we don't really see those decisions to have a material impact on our business. I think the other thing that is important to note is that the cycle that you're in today is happening in a different structural context than any cycle before. And what I mean by that is that what we've seen over the last 10 years, we've seen a lot of quantization happening. And in that core business, in our core business, again, small business, small and middle market business, that makes up the majority of our portfolio, that business now is content traded on four or five large domestic carriers, and all of them are very disciplined as well. So overall, we like the underlying profitability trends. As you've seen from our Q3 reporting, the rate achieved is 7.5%. That continues to cover the loss trend that we have in our portfolio of our profitability on a year-to-date basis it was 89.4%. That same number last year was 89.5% which means that our frontline underwriters are doing a really good job sustaining our margin position overall. So I would say that in relation to your question we are confident that we'll be able to sustain our combined relations in the low 90s and sustain the growth rate that we have posted in Q3.

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

Yeah, very different. Dozens and dozens of large account underwriters and what we have seen in past cycles as well is that a lot of new capacity, foreign capacity, reinsurance capacity is coming into that large account segment. And obviously having been in that business for over 25 years now, we know that dynamic happening at every cycle. So what we've done the last five We have been very deliberate in terms of how we've been constructing our portfolio. And as I mentioned before, the vast amount of our portfolio is in that lower end of the commercial marketplace in terms of account size and premium levels. And that gives us a much better opportunity to sustain the profitability in our commercial segment. And what we do as experienced operators in that large fund segment, when market conditions are firm, we are going to be quite opportunistic and we are going to generate growth rates in the 25-30% range. But then when the market turns, which is the case this year, if you're going to switch from driving profit growth more into margin preservation mode, and what this means, as I mentioned, is that you're guiding our own drivers to let accounts go if the margin creation doesn't make sense. and then the growth rate is more flat. And again, because that large account segment is the smallest portion of our portfolio overall, we don't see those decisions having a material impact on our portfolio. But over the cycle of a 10-year period, we are quite happy that we can drive profitable growth and adequate margins in that large account segment as well.

Got it. Okay. That's helpful. I'll leave it there. Thank you very much.

Next question comes from Jamie Gloin of National Bank Capital Markets. Please go ahead.

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

Tim, I think that for us, as you see in Paul's initial kind of comment, we're pretty confident that this kind of growth is going to continue. You know, if you think about the last couple of years, It was still high single digit, but it was all rate. And what we would do is effectively churning the portfolio by shifting new business to less cat exposed areas and reducing concentration in those areas that had a higher cat peril scores. that will continue but the vast majority of that is one that's just ongoing good portfolio management so i i think that uh you know we feel with that heavy lifting behind us we now benefit from a hard market continued rate increases but also unit count and we've seen and pick up in the unit count as we're gaining share so this line of business you know should continue to perform you know very strongly for us both rates which will continue and that protects and adds to the margin

but also now taking share.

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

Yeah. So, James, it's Paul. I just want to highlight the nuances of that. So, a couple of things. First, I said... that the trends are stabilizing around that mid-single-digit range overall. I also indicated that the market as a whole hasn't quite caught that trend, so many insurers will have to take a rate ahead of that to help them get back to a rate-adequate position. We're in a favorable position relative to that, so for DFINITY specifically, we believe we're at rate adequacy on the whole. And what that means for us moving forward is that we will be taking sufficient rate to cover trend, as you mentioned, and then maybe some to focus on avoiding volatility. However, your second question around margin expansion is that we believe there's still significant opportunities in the marketplace for for margin improvement. We mentioned reforms earlier. There are other elements around segmentation, and we believe we have a strength in our ability to segment and chase the right customers. So, we're still going to maintain our focus on that. There's also the volatility aspect of tariffs. Right now, we are We have a fairly muted response to tariffs. We're not seeing a significant impact rolling through the portfolio yet. We believe our current rate trajectory is sufficient to cover the current tariff impact, but we remain diligent. If this changes significantly, to your question around 26 and 27, there may be a commensurate increase. If tariffs jump up, insurers like us will then file for tariff-specific rate increases, and that can change the trajectory of the rate environment quite significantly.

Understood. That's clear. Um, and then last, just, just wanting to get more details on, uh, on Sonnet. Uh, you know, I think it's, uh, in the MDNA talking about, uh, driving profitability for, uh, for the auto portfolio. Can you, can you give us a little bit more detail as to how well it's growing, um, and, uh, and that profit contribution and what you see in 26 for, for that platform?

Yeah, Jim, if you recall, what we were trying to do there is make sure that, you know, solid could break even. So remember that we had the target of can it be, you know, sub-100% combined ratio, and can it do that sustainably? And so that's really been our focus for this year. And solid once again, you know, produced an underlying profit in the quarter, and that makes four consecutive quarters in a row. So, you know, the task we set ourselves is, you know, can we scale this business? And can it, you know, run as a contributor of underwriting results? And the answer is, you know, yes. And so that's very good news for us because we're able to now have confidence that we can retain the right customers, we can attract the right customers. And then the next step for us is to return to growth. So there isn't any growth in the portfolio. this year. That really was our intention, that this would be more of a flat year as we made sure we were comfortable with the quality and the operating model itself. Now we have. We'll look to return that portfolio to growth, but that really will only occur as we get into 2026. Yeah, that's good.

Thank you.

Next question comes from Mario Mendonca out of TD Securities. Please go ahead.

Good morning. I have two broad questions, one for Phil, one for Rowan. First, Phil, I'm not going to hold you to something you said a year ago, but you did offer in the Q3 24 call that you thought ROE could reach 12% in 2026. So much has changed since then, not the least of which is the 17% increase in capital. I don't think anyone could have anticipated that. And travelers, as you said, is breakeven in the early going. But a lot of other things have gone well, like Guidewire, SANA turning somewhat profitable, expense saves. That's a lot of moving parts. Could you revisit your 12% ROE in 2026 outlook in the context of all those changes?

Yeah, thanks, Mario. I think the first comment I'd make is you're right, there are a lot of moving parts. If we look at those that are driving continued expansion of the operating earnings, we're really pleased with the progress that we've made. So obviously, you know, the core business is doing very well. We're below our sub-95 objective for the current year. And if we look at the three operating levers that we've talked about in the past, We're making really good progress against all of them. As Rowan has said, Sonnet is now there, I would say. If you look at the past quarter, the year to date and the past 12 months, it's made a positive contribution across all of those periods. So that is... performing well and reflected in the numbers. On OPEX, we've still got some benefit ahead of us. So, you know, if you look at the overall goal, we wanted to get to 11.5% this year. We're up 11.4% year-to-date, so gliding very nicely. We still think on our core affinity business, you know, there's still about a half point of opportunity ahead of us in 2026. There's no change in view on that. And then if we look at the claim guidewire implementation, as you mentioned, you know, we're probably about halfway into that. We've just had a successful launch of the property casualty side of that platform a couple of weeks ago ahead of plan. So that's good news that it's coming in earlier. But, you know, we've not untapped any benefits on that side of the business yet, and there's probably a couple of years left. until you get to full run rate. So I'd say on all of those contributive levers, really pleased with the progress that we've made. You rightly point out that we've had very significant book value expansion at the same time. So that's a lovely problem to have. We've been really able to grow the scale of the business. And that denominator, you know, some of that is still ahead of us next year. And you're right also on the traveler's transaction. You know, we've raised the capital this year. We'll only take ownership in the, you know, our expectation is the first half of 2026. And then there'll be a period of time until you actually get the synergies actions taken and then earned in. So a lot of moving parts. What I would say, though, is, you know, without talking to next year specifically, we're really pleased with the progress that's being made on that journey into the mid-teens on a sustainable basis. We do need the traveler's transaction to optimize that position and break us into the team criteria. And as I say on that one, what you'll see next year is you'll see the levers being pulled to untap the synergies, but there'll be more of a lag on an earning pattern. So more of that contribution to driving the operating ROE up and into the teams is more likely to come in 27 than it is in 26.

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

I think I'd say, look, our current range is in that 10% to below team prior to the deployment into Travellers and getting the accretive benefit of those synergies coming through. There's no change in our view on that. The underlying business continues to track forward comfortably. But we don't see a breakthrough into the team period until you get the earnings pattern of the synergies. What you'll see next year is we'll be able to pull levers on the synergies from a run rate basis, but they won't earn in until you get the insurance math behind them. So I would tell you, you know, we're very happy with the progress we're making on the core business. We wouldn't change our outlook on operating ROEs for the core business. But we just have to recognize that the great news is we've generated a lot of capital. We've deployed that capital, or we expect to do so, in the first half of Q1. And it will just be a bit of a lag impact until you can get the synergies earned in and then get us to cross into that team period. But we're very positive in terms of where the business is going.

Yeah, I certainly wouldn't question the fundamentals. I think things have changed, and I think your comments reflect that change in how much the book has grown. Ron, can we go to another broad topic here? From the middle of this year onward, all the PNC names in the U.S. and Canada really lost a lot of momentum in terms of their share price. And the concern, of course, was that the cycle was changing, it was softening, and things were going to be much worse. What I'm hopeful you can do is address the notion – that in Canada, the sort of the large, high-quality P&C companies, I put your company in that category, can cope with a moderating, a softer cycle. What makes the large, high-quality P&C companies in Canada different and capable of coping with a softer cycle? Is there a reasonable argument to be made there?

Yeah, thanks for that, Barry. I mean, I think a couple of points I would kind of offer on that topic. Number one would be this isn't a surprise that P&C industry goes through a couple of cycles from time to time. And so I think that good operators anticipate that and structure their business to be resilient. and able to operate well through the cycle. And so we thought about that in terms of our mix of business, what segments we play in, what propositions we bring to the marketplace. The other part that I would make is that there isn't just one cycle. If you think about periods of more competitiveness, we have now some parts of commercial that are definitely more competitive, but not all verticals, not all parts of commercial. As Fabi said on the call earlier, the market is structurally different in commercial than it was many years ago. And that's why our portfolio, particularly, that is heavily skewed to the smaller accounts, there isn't a soft market. We're actually getting rate on the portfolio, and that's ahead of trends. We're actually increasing some margin on that part of the portfolio. There's some other areas, even in the specialty areas, that we continue to grow in. We're rate adequate. There's good opportunities. And what you see us doing in commercial lines is that where there's segments that are more competitive, we just slow down a bit of putting new business capital forward. And so what you therefore see is us, you know, maybe not growing at 10%, but growing at high single, you know, 10% plus like we did, but more high single digit. That's still good growth and it still protects the margin. And I think that's, you know, to me, the main point that we can take out of this is Could there be a period of time where we're not growing commercial at double digits? Yes, there could be, but we will still be holding our margins, and it will still be outperforming the industry. It'll still be growing at twice the rate of the industry. And particularly in that small business segment, it's not just a price play. This is a product. It's an experience. It's an automation play. It's digital. It's the buying business. So I think that's an important piece. If I just flip quickly to the other part of the business, 70% of our business is personalized. You know, you heard Paul talk, it's hard. You know, we're getting high rate on personal property and actually adding margin to that business. In personal auto, we're in a good position. We're, you know, sub 95. We plan on being sub 95, even including the sonnet business. And we'll start to, you know, get some growth in that sonnet story up there. And then the final thing, which, you know, is I think a strategic differentiator for us in the business, is we've also built a top 10 insurance broker. So now we had... stable, repeatable distribution, you know, income. And so, Mary, that's why I think, you know, we feel very confident that we can manage the cycle. I go back to our big picture. You know, our big picture is we wanted to be a top five player. We will pro forma with travelers now be in that top five, top four player. Of course, we'll set a new target, top three or something like that. we are a operating roe expansion you had a discussion with phil there we're very confident about all of those levers some of them are already reflected like solid the others are still earning in and particularly the claims uh transformation which we're really confident about you know there's another couple of points that that beauty has you know just started uh to to come in uh to the business And then the traveler story is a good one because even if the market and the cycle gets a bit more difficult, this is a good time for us to pick up a large portfolio and embed a significant amount of premium on our platforms and our terms and our conditions. So I do think, in aggregate, It would be silly to say, you know, when you shift from one cycle to another part of the cycle, there's no impact. But what I can say is we absolutely think we could do a very good job of managing it. We're structured resiliently. And, you know, We will continue to update our guidance next year, but it's still going to be we think we can go twice the rate of the industry. We think we could run this business into the low 90s, and we're very confident that as we integrate the traveler's business, we end up in the mid-teens offering ROE in the next few years. So that's, I guess, a level of confidence we're expressing today.

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

I do, yes. Thank you. Next question comes from Bart Dzarsky out of RBC.

Please go ahead.

Great, thanks, and good morning. I wanted to follow up on Mario's questioning around the ROE. So, you know, when we look at your operating ROE last 12 months, 12.5%, there's probably some benefit there from benign cats and Q3 24 cats coming off. But I guess my question is, why couldn't that reach the 13% just organically in the sense that you still have one to two points coming of benefit from claims and OPEX, are there other factors that may slow down that trajectory? And I'm asking because you're unique in the sense that you have an ROE expansion story organically. So I just wanted to understand that a little bit better.

Yeah. Yeah, no problem. So, yeah, I'd say – If you break it into the two components, you've got the operating contribution and then you've got the equity story. So on the operating contribution, you're absolutely right. We still have several levers that are not fully reflected in the operating results. We're helped a little bit by cap losses. It looks pretty dramatic on the quarter. If you look at the year to date, we're about 3.6 points of cap losses, just under a point less than we'd expect for a full year. So it helps us, but it's not the whole story by any stretch. And really, you know, the big part of the contribution towards that 12.5% we're seeing in this quarter is those operating levers coming through. And so I'd agree with you that we still have progress to be made on that, and that should drive the operating contribution. I think, you know, one of the factors that we're looking at on the other side of the equation, net investment income, we know yields have drifted down a little bit. We've done a very good job of sustaining book yields. But as we reinvest, there's some natural dynamic there. Where we're going to get upside opportunity is the cash flow coming into the portfolio as opposed to yield. So we still, you know, are positive about our ability to manage those funds and the capital and profitable nature of of the organization is helping us deploy more funds in there. But it's not as much of a tailwind as it had been in the past. I think the thing that we do have to recognize is the equity expansion, which is great. Let's be clear. We've been really able to expand that book value through this period of outperformance. That's a lovely challenge to have, if you like, from a denominator perspective. But, you know, as we average in that book value, that number is going to climb next year. And so that would be the denominator challenge. It's not a operating earnings story. It would be the denominator. So that would be the factor bar that just, you know, from a math standpoint, you know, is the headwind. That eases because we're now deploying our capital accretively. We believe we are through the traveler's transaction. But in year one, you know, we expect it to be about a break-even business. We will start making progress as soon as you capture. But with insurance math, showing that up in earnings takes a little bit of time because, you know, you're deferring costs, amortizing it in, and getting to a run rate view is a little different. So that's why when we talked about the transaction, and we'll do this next year as we start giving updates on progress, We'll give you a lens of the actions taken on the synergies and what is a run rate view versus what is in the distinct culture. I think that's important because, you know, that's the pathway into that kind of team expansion.

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

Hi, Bart. It's Paul. Yes, I think the answer to both of your questions is yes. What we've seen, obviously, over the course of the last few years is an increase in severe weather and cat severity. And so we've increased our modeling to reflect that, and we've increased our pricing to reflect that. Last year is hopefully and clearly an outlier in terms of the worst one on record. But even outside of that, you know, as we were still profitable last year in that, I think that reflects the second part of your question, which is, is there an opportunity to gain a benefit from that? And I think, yes, we need to have increasingly sophisticated modeling and segmentation. We need to consistently update things like flood maps and wildfire maps, and we do that. And I think our performance shown over the last few quarters in terms of we are significantly below our natural market share in terms of our CAT costs. So this is really an area where we believe we excel in terms of being able to utilize that capability to then take share. I used an example previously, and I'll highlight it again, Bart, There are times where you would imagine a less sophisticated insurer might be using a large geographic area like FSAs, which are the first three digits of a PULSA code, to do their rating. So if you have a large area like that and one part of it is exposed to water, you may treat that entire area as a high-risk zone. We have improved our fidelity. We've been able to get from an FSA to a postal code and then down to 100 square meter. And the ability is even to get more refined than that. And if you think about my example, what that means is if we're in a large postal code, we can actually write risks. that are not close to that water body source that previously would have been considered to be high risk, and vice versa. We can get much more sophisticated at making sure that if it's very close to a risk exposure, we can then charge an appropriate premium or not write it. So it does, over time, really start to show the benefits of those investments in analytics and capability and the AI capabilities that are coming through to then target particular segments and particular risks and then gain share.

Great. Thanks for that. Very comprehensive. Last question today comes from Tom McKinnon out of BMO. Please go ahead.

Yeah, just a question with respect to distribution income growth and what you're seeing really in terms of further acquisition opportunities at McDougal. How much of growth really or inorganically augmenting some of the organic growth that you're talking about there.

Thanks, Tom.

I think that, you know, the organic growth generally is high single digits. And I think that this is a business that has a superb sales culture, very entrepreneurial, great products. And so I think that the benefit is as they make acquisitions, there's some obvious cost synergies that you get from a bigger platform, which improve their EBITDA, but they also help the acquired businesses improve their ability to win and compete in the marketplace. And so what you get is acquisition earnings that come in and then those businesses tend to operate better than they even did before. And that's why I think when we think about the trajectory here, we expect high single-digit organic growth and then that's supplemented with inorganic activity. That really is what's been kind of driving some pretty impressive year-on-year growth rates to date. And, you know, overall, we think that the, you know, we've done eight transactions this year, and the pipeline still looks pretty full.

All right. Thanks.

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

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

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