Definity Financial Corporation

Good morning, ladies and gentlemen, and welcome to the DFINITY Financial Corporation second quarter of 2026 Financial Results Conference call. At this time, our 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 need assistance, please press star zero for the operator. This call is being recorded on Friday, July 31st, 2026. I would now like to turn the conference over to Dennis Westphal, VP of Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Thank you for joining us on the call today.

A link to our live webcast and background information for the call is posted on our website at DFINITY.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies for discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO, Philip Mather, Chief Financial Officer, Fabian Rickenberger, Chief Operating Officer, Paul McDonald, EVP of Personal Insurance and Digital Channels, and Obed Rahman, EVP of Commercial Insurance. We'll start with formal remarks from Rowan and Phil, followed by a Q&A session, during which Fabi, Paul, and Obed will also be available to answer your questions. With that, I will ask Rowan to please begin his remarks.

Thanks, Dennis, and good morning, everyone. Our second quarter results demonstrate the continued momentum of our business under our expanded scale. Having successfully attained our top five objective as a leading property and casualty insurer in Canada, we are delighted with our integration progress so far as we continue building a Canadian champion. If you turn to slide five, we have provided a detailed update on our travelers integration progress and the critical milestones we've achieved over the first six months of the year. Much of this early success is a direct result of the proactive transition planning we conducted prior to close. We've also been impressed by the benefits from the scalability of our platforms and the extent to which we've been able to leverage AI to improve both the efficiency of the conversion process and overall speed of integration. Financially and strategically, we have executed with high discipline. This began with our transaction financing, which included the rapid repayment of our term loan five months ahead of schedule, saving $15 million in interest expense. We also aligned the acquired reinsurance structure with DFINITY's risk appetite from day one, freeing up regulatory capital while reducing volatility in a favorable renewal market. Furthermore, this transaction has expanded our specialized talent and capabilities. increasing our total addressable market and commercial lines by nearly $7 billion. Operationally, the integration has been equally successful to date. We have efficiently onboarded our new teammates under a unified leadership team with excellent cultural alignment. Within just one month of closing, we harmonized our new business intake so that all new broker business was being written as a single DFINITY offering. We are particularly pleased with our customer retention so far, as policies began to renew on DFINITY Systems in the second quarter. We essentially haven't seen any unexpected revenue leakage to date. This early success is a direct reflection of exceptional broker support, with over 40,000 policies successfully converted to DFINITY Systems so far. Moving forward, we expect our broader product offerings and enhanced underwriting capabilities to drive sustained premium growth and profitability, while rationalizing our systems and platforms will achieve meaningful economies of scale. This momentum has translated directly into accelerated progress on our Synergy Plan, which is running well ahead of our initial schedule as illustrated on slide six. Six months in, we have already reached $52 million of run rate expense synergies. Of this, $11 million earned into our second quarter underlying results bring in our year-to-date realized total to $17 million. Our strong execution reflected in our rapid pace of synergy capture has led us to increase our synergy expense target by 25%. raising our post-integration commitment from $100 million to $125 million annually. We expect one-third of these increased synergies to earn into our results in 2026, approximately double our original expectations. Turning to our performance in the second quarter on slide seven, we delivered strong results across the board. From a top-line perspective, Gross written premiums grew 34.7% to $1.8 billion, representing continued progress towards our full-year guidance of $6.5 billion. Our overall underlying profitability remained highly resilient as we successfully managed the initial integration phases of the Traverse transaction, delivering an impressive consolidated combined ratio of 93.9% in the quarter, inclusive of the acquired book. Our diversified earnings power was also on full display, generating operating EPS of $0.97, representing a 15.5% increase over the prior year. The strong profitability supported an 11.5% increase in our book value per share, while our trailing 12-month operating ROE was 12.5%, inclusive of ongoing capital generation. We ended the quarter with a robust capital position with our financial capacity exceeding $1.2 billion, providing us with the financial flexibility to support our organic growth and fund accretive acquisitions of both brokers and carriers. Turning to the industry outlook on slide eight, we expect conditions in personal auto to remain firm overall, with some variability between provinces, 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 macroeconomic factors. We expect market conditions to remain firm in personal property over the next 12 months as the industry continues to remain diligent, taking underwriting and pricing actions required to fund weather event losses amid persistent climate change. In commercial insurance, while we expect overall commercialized markets to remain attractive, we continue to see intense competition in the large account space. We maintain our expectation for overall industry growth to be in the low to mid-single digits over the next 12 months, varying by segment. Against this backdrop, our portfolio mix, sophisticated pricing models, modern technology platforms, and disciplined underwriting give us a distinct advantage. leveraging our strong strategic position and broker support we are confident in our ability to navigate these industry trends effectively select the right risks and price our products appropriately to deliver sustained profitable growth in summary our performance this quarter demonstrates that we're executing exactly as intended we have maintained our strong underlying profitability made rapid progress on our integration and synergy capture, and delivered robust operating results in a dynamic market. With that, let me turn the call over to our CFO, Phil Mather, to discuss the results in more detail.

Thanks, Rowan. Building on that theme, our financial results highlight the benefits of our increased scale and the discipline of our execution as we continue to integrate the acquired business. Slide 10 summarizes our consolidated insurance results. Gross written premiums for the quarter reached $1.8 billion, representing a 34.7% increase compared to Q2 2025, driven by 24.5% growth from the acquired renewal book as retention rates continue to converge with the underlying DFINITY book. Our underlying growth, representing the renewal of the DFINITY business and new business written across the entire platform, exceeded 10% and included contributions from all three lines. This underlying pace of growth increased sequentially from the 8% generated in the first quarter, driven by double digit levels in personal insurance and a pickup from increased commercial underwriting capacity. Our Q2 combined ratio was 93.9%. inclusive of the acquired business. Performance was driven by the strength of our operations, the initial capture of synergies, and catastrophe losses that was somewhat lower than expectations. I'll now provide some more detail on our lines of business, starting with personal auto on slide 11. Gross written premiums grew by 35.1% in the second quarter, inclusive of 22.6% growth from the continued strong retention of the acquired renewal book, as well as robust underlying growth of 12.5%. Looking ahead, we expect the growth trajectory in personal auto to remain relatively consistent through the second half of the year. The combined ratio of 95.1% was above the 94.2% from a year ago, as we absorbed the temporary and expected impact of the acquired business prior to fully realizing synergy benefits, partially offset by a reduction in the expense ratio. In personal property, on slide 12, we delivered top line growth of 37.1%, inclusive of 25.5% growth in the quarter from the strong retention of the acquired renewal book. Continued unit growth and rate achievement led to underlying growth of 11.6%. We expect growth in personal property to be in the mid-30s in the back half of 2026, reflecting the smaller relative size of the acquired renewal book. We delivered a combined ratio of 92.8% in Q2, improved from the prior year's 94.3%, driven by lower catastrophe losses. This line of business generated excellent profitability in the first half of 2026, with a combined ratio in the upper 80s. Turning to slide 13 and commercial insurance, top line growth was 32.2% from a year ago, inclusive of 26.3% growth from the continued strong retention of the acquired renewal book in what is its comparatively lowest quarter of volume. As the integration progresses, we expect the larger volume of scheduled renewals to lead to mid to upper 30s premium growth in the second half of the year. through disciplined execution and an increase in underwriting capacity, we achieved ongoing pricing increases and market share gains in small business and specialty lines. These gains successfully offset continued elevated competition in large accounts, resulting in sequentially higher underlying growth of 5.9%. As expected, the combined ratio of 93.1% in the second quarter of 2026 increased compared to 89.6% in the second quarter of 2025. As in the first quarter, this result was driven primarily by the inclusion of the acquired business and its associated expenses, which we expect will temporarily increase the claims and expense ratios prior to the full benefits of future plan synergies, as well as a modest increase in catastrophe losses. Turning to slide 14, our strong profitability was supported by our impressive underwriting results, while net investment income grew to $79.5 million, driven by our larger post-acquisition investment portfolio. Our distribution income reached $24.5 million, demonstrating solid organic growth in our broker channel. In total, our operating net income reached $118 million, or 97 cents per share, which represents a 15.5% increase in operating earnings per share over the prior year. Our trailing 12-month operating ROE was 12.5% at the high end of our target range and supported by lower than expected catastrophe losses in Q3 of 2025. Slide 15 illustrates the performance and market position of our national broker platform, which continues to deliver as a key strategic pillar, ranking among the top 10 brokers in Canada with approximately $1.6 billion in gross written premiums under management. This momentum positions us well to achieve our target of $2 billion in GWP by the end of 2027. When combining the $24.5 million of distribution income I just discussed, with $11.2 million of intercompany commission income, our total broker operating income reached $35.7 million in the second quarter. This represents a 20.2% increase over the prior year, keeping our national broker platform on track to achieve our 20% annual growth guidance. The benefits of our strong operating performance are also clearly visible on our balance sheet, as shown on slide 16. Our debt-to-capital ratio is already down to 26.5%, approaching our long-term target of 25%, well ahead of our initial 24-month guidance. Even after funding the traveler's transaction, our total financial capacity remains robust at more than $1.2 billion, putting us in an enviable position to fund future growth and deliver on our capital priorities. With that, I will turn the call back over to Rowan.

Building on the strong results full just detailed, this quarter provides a powerful proof point of our discipline, strategic, operational, and financial execution. We set out to integrate a transformational acquisition, capture significant synergies, and continue to drive profitable growth across our business, and we are delivering on all fronts. Our integration success to date validates the business case we established for the Travelers Transaction, which is expected to deliver a more than 200 basis point improvement in our operating ROE on top of our organic plants. With this powerful accelerator, we are highly confident in our progress toward our midterm objective of a sustainable mid-teens operating ROE. Furthermore, Our proven ability to execute on this complex transaction and our integration success to date gives us increased confidence in our capacity to successfully identify and integrate future acquisitions as we pursue our updated goal of becoming a top three P&C insurer. Our robust capital position continues to provide us with the financial flexibility to support our organic growth, fund accretive acquisitions, and deliver on our capital priorities. we remain highly confident in our ability to build on this scale to deliver sustainable long-term value for our shareholders. And with that, I'll turn the call back over to Dennis to begin the Q&A.

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

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before pressing any keys. Bart Jarski with RBC Capital Markets, please go ahead.

Great, good morning. Thanks for taking the questions. I wanted to ask around top line GWP. So year to day, you're tracking about 3.2 billion. You've got the 6.5 billion plus guidance. That presumably implies a back half ramp. I think, Phil, you had mentioned commercial should accelerate. So could you unpack that in terms of what you expect in the back half from pre-engrowth, the details, and how that ties into the guide for the year? Thanks.

Yeah, happy to do that. So overall for the full year, as you say, $6.5 billion is the target. In order to get to that, we effectively have to deliver about a 35% growth rate for the full year. So as you've noted, we're already at that level year to date. What you'll see in the second half, we expect is pretty much a consistent overall growth rate. But when you look at the relative sizes of the books of business that we're acquiring from travelers, that's the key. That moves up a little bit, particularly in commercial lines. So when you look at the individual lines of business, what we'd anticipate is a pretty good continuance of the underlying growth rates that we've seen. And then you'll see a little bit more in terms of the impact of that acquired book in commercial lines. That should tick that up a little bit into the mid to upper 30s growth rate. In personal lines, auto should stay pretty consistent with where it's delivered year to date from a growth rate standpoint. And then personal property might tick down a point or two. And again, that's representative of the relative size of the acquired book. So I think our message overall is we're pretty much bang on our expectations year to date. We're pretty much banged on our guidance view for the second half of the year, and we're very pleased with what we're seeing from the level of retention on the Travelers book. So I think steady as she goes is the overall message.

Got it. Thanks for that, Phil. Very helpful. And then on the Travelers integration, again, another quarter of solid execution, and we saw the the expense synergy target increased. As you kind of get more familiar with the business, are there other areas that you're potentially seeing where things are conservative and could lead to future upside over time? Thanks.

Well, Bart, thanks for the question there on that one. And maybe just to kind of kick that off, we're delighted with the progress that we're making. And really, from our perspective, this couldn't be going better. If you step back just for a moment, we always said this was going to be a very strategic transaction for us. It helped us get into the top five. We said it was going to be financially compelling and there's a lot of confidence we have about the 200 plus basis points improvement to the operating ROE. but I think the the new news for us here is that operationally this integration is going really well particularly for the size and transformational nature of the deal when we step back we look at the retention of customers that are going really well the retention of talent is excellent it's a smooth experience for our brokers who are incredibly supportive. And then we're now nicely into the actual heavy lifting of the conversion and that the team is doing an outstanding job on. So when you step back and look at all of that, that gives us the confidence to increase by 25%, as you mentioned, to 125 million run rate. And don't forget, this is when we're talking about the cost synergies of the business. What's still to come is as we transfer this portfolio onto the Affinity platform, we do think that there'll be further loss ratio improvements that'll come over time. But as I said, the operationally, this is going really well. And maybe it'll help for Fabi just to give you a bit more insights into the integration.

Yeah certainly Roland, glad to do that. So I would say from a big picture point of view that we are really pleased with both the financial and operational progress that we've been achieving as respect to that big scale Travis integration. We have incredibly talented teams in place that are working pretty much kind of 24-7 as you would expect. It's a big undertaking. We are extremely pleased with the talent that we have, the dedication and the discretionary effort that we have from our employees. As we disclosed, we started the conversion of the acquired business outside of Ontario in Q2. And now in Ontario, the conversion started in Q3 as well. And the conversion process is working really well. Both the loss ratio and retention numbers that you're achieving are in line with our expectations, and obviously we're pleased with that. and then we are also getting great support from our broker partners across Canada and as a result of this transaction we added a little over 100 new brokerage chips and that allows us to be comfortable in the growth guidance that Phil mentioned at 6.5 billion. we are also leveraging the additional capabilities that we have in place now with a especially heavy focus on the expanded commercial specialty capabilities the cross-border capabilities and then we are leveraging that to support additional growth traction with our broker partners and then maybe the last point that I'll mention is that the TSA the transition service agreement with Travellers is working very well And we are also making the point to exit and insource as many of those transition services as possible, which will give us an additional financial benefit as well. So overall, very confident that we are achieving the expected financial and operational benefits out of this transaction.

Well, I guess when I summarize that, you know, I think we went into this with DFINITY growing nicely and really running in the low 90s. And we picked up Travelers, which was a really around 100% break-even business. And when we now look at this, not only just the synergies that come from cost, but we think the loss ratios will move, we've got a high degree of confidence that by the end of the transition integration period, we'll have Travelers' portfolio running in the low 90s as well. And I think that was the ultimate outcome. So, so far, that's definitely where we think we will end up.

Thanks, Rowan and Fabi.

Appreciate the wholesome response.

Thank you. Paul Holden with CIBC. Please go ahead.

Thank you. Good morning. A few questions. I guess I want to start on potential for more broker acquisitions. And I guess two parts to the question. One is, you've talked about increased balance sheet capacity. Does that influence the pace of that you might execute broker transactions at IE increasing? And two, can you give us a flavor sort of what the opportunity set looks like today? Has it changed at all? Is it improved or is it slowing? Thanks.

Yeah, I think, Paul, on that perspective, we're very happy, firstly, I would say, with our broker platform. And as you can see, the revenue is growing nicely. New acquisitions we made keep kind of flowing through and the guidance was ultimately 20% growth in our national broker platform operating income. And we're on that and comfortable with the forecast there. What we see here is that there is still a healthy pipeline of activity. now sometimes you know this is less about you know do we have the financial capacity and more about that opportunity and timing and so sometimes things happen in different different quarters but I would say that we feel very comfortable with that opportunity ahead of us on the broker side what really is happening if you step back for a moment is the consolidation continues to happen. The top 10 brokers in Canada today control something like 60% of the market share, up from 40% about a decade ago. So you could see there is absolutely a trend towards size and scale. and the need for scale the need for specialization is driving part of the opportunity there's also aging demographics which also is driving an opportunity and I think that means that the pipeline is is heavy so we like it and we think that we're we're happy to go there is no operational hesitancy. It's really just about timing that happens in the marketplace. You do point out the fact that we're generating capital rapidly, and that's a good position to be. And it goes back to our overall M&A strategy. We have a goal of top three. We still like to put that to work in carriers, but we do like the broker space. We see opportunity, and that programmatic approach is going to continue.

That's good. And then maybe hopefully it's a quick one, but obviously wildfires in the headlines pretty much every day. It doesn't look like it's touched any major population centers, which is good news. Just wondering if you can make any comments sort of on CAT losses or CAT events and how they might have been impacting losses according to the date.

Thanks, Paul. It's Paul here. You know, keep really my comments to Q2 specifically around the cat activity countrywide. And it was more of a flooding event across the board than it really was a wildfire event. As you've pointed out, the wildfires, although many of them were more in the northerly areas and less populated areas. So from an insurance perspective, they have been less impactful. And so obviously we've been watching the space very carefully. There are some rainfall that has helped mitigate some of the expansion of those wildfires. But as you can tell from our results, it has been certainly within expectations and we're pleased with the overall quarter and with our performance.

And last one for me, I do want to talk about personal auto a bit. See all of us can go to the FISRA website and just see the rate approvals. And it at least suggests to me a deceleration in rate for the industry, but yet I don't see it in your results. And you've also given an outlook that premium growth should maintain around the same level in the second half. So I'm just trying to square those two things, is that an indication that rates overall remain pretty strong despite the FISRA data, or is it, you know, DFINITY's gaining market share? Just help me sort of parse that out if you can.

Let me start that one, Paul. And I think when we look at our personal audit results, you look at the quarter, 35% growth. The underlying growth at 12.5%, actually slightly better than Q1. So we're very happy. where we are with our portfolio with our rating positions and we're happy to take growth and so what you're seeing in our portfolio is a nice balance between market share gains so that's unit count growth as well as rate going through the portfolio and if you think about the pricing and I'm talking about significant rate over the last year coming through, and there still is mid-single debt rates, you know, flowing through the portfolios. What's also helping us, of course, is the strong retention, you know, from travelers. And so that's where it leads us to, you know, be very consistent with the forecast, you know, being in the mid-30s for the rest of the years. There is definitely, you know, change in the marketplace, and there's a number of things. There's reforms going on. There's There's other competitors that have done significant price increases in the past. A lot of trends have kind of stabilized. So I think when you look at a sample of rate filings, it doesn't really tell the full story. I know Paul was just mentioning Recently, you know, we've just done another filing. It's a segmentation filing. So sometimes it's not just about taking rates. It's about how you are managing and optimizing your portfolio. But I think when we step back, you know, we think that's an attractive marketplace. We think we're going to continue to gain unit share. And of course, you know, the broker experience really likes the Vine platform. And so our proposition, as long as we're competitive, bodes well.

Okay. That's it for me.

Enjoy your long weekend. Thank you.

Thank you. Doug Young with Desjardins. Please go ahead.

Hi, good morning. Just maybe going back to travelers, can you dig into a little bit more about what's driving the additional cost synergies and then can you maybe quantify the retention rates that you're seeing by business line relative to expectations? Just hoping to get a little bit more color on those items.

Well, why don't you start with the cost surges?

Yeah, sure. So, thanks, Doug. So, overall, what we've seen so far to date is the $52 million that have been triggered. And because we had a really good early starting Q1 and we continued with good momentum into the second quarter, you see about $17 million of that has now earned into the underwriting results in the first half. So, we've seen larger capture and earlier capture, which is helping drive support. What's behind those numbers? If you look at the three areas that we talked to, about two-thirds of those triggered synergies are coming from the elimination of current company charges combined with technology savings. About a third is coming through leveraging the economies of scale of our business and just disciplined attrition management that we started pretty early on through the process. So overall, we're seeing very good capture there. I think looking forward, part of the reason we've been able to increase to that 125 million is as we've been able to bring the businesses together, onboard the individuals, and importantly, as we're utilizing our tech stacks and capabilities, We're seeing that we don't need to add as much run rate cost to our underlying business to capture the integration of travelers. So effectively, we're not having to add back to our own cost base to capture the elimination of the permanent support that's happening. So that gives us good conviction to drive the 25% increase from a synergy standpoint. you'll also see that we're pretty positive about the timing of that so we reckon about a third of that 125 million is going to run into 2026 results we think about a half is going to run into 2027 and the reason for that is that you've got a sizable lump of the savings that come at the back end of the integration process so as Fabi said we're working hard to get off the TSA support from the US parent a decent lump of the 125, close to half of it, will therefore come at the end of 2027. So you'll really get that full earnings impact coming through into 2028. So that's really how we've got the conviction and the confidence behind the increase in the synergy capture. and then just from a retention standpoint what we're seeing there is is already very good progress and actually in the second quarter we've seen a convergence from the customer retention stats in pretty much all the lines of business so if you look at personal lines overall I think we're around the mid 80s there it's a little lower in also as you normally see a little higher in personal property but both of those blocks pretty much at the same convergence level already And then when you look at commercial lines, we've actually started to close the gap. So you might remember in the first quarter, we were four or five points gap between the two renewal books. We've seen that close in a couple of points already as we're starting to kind of roll that business over. And we've got conviction in the second half. You'll see that gap close even further. So overall, I think, you know, we're in that mid 80s range. Very good convergence across the whole business. And really, that's ahead of our expectations when we would have planned this out.

I appreciate the color. And then just, Paul, maybe I'm like back to the cats this quarter. And I think, Phil, you said this, or maybe it was Rowan, you said this in your prepared remarks, that cats were lower than you expected. And I know they were lower than last year. Like, is there a structural reason why you kind of weathered the storm better than peers on the cat front this quarter? Just to talk about maybe if you have some thoughts on that.

I think, you know, when we think about cats, I mean, obviously there's some variability here and it depends on the seasons. It also depends on, you know, where they are, the geographic location. And, you know, we do have a strategy where in some parts of Canada, we are naturally underweight and primarily that's in the West, in Alberta. And that's by design on our personal property and commercial property, you know, portfolio. And we've been well rewarded, you know, for doing that. I think the other thing for us is that Particularly in personal property, we've finished now a couple of years of really working hard in terms of portfolio management and watching aggregation limits in higher cat zone areas. And if you remember that we had lower unit count growth for a couple of years as we were repopulating growth in more attractive areas and managing cat accumulation and higher cat prone areas. So I think that's another item that helped us. So part of this, quite frankly, is I think the capability and the skill sets of the teams, but also it's where these cats tend to happen if you have a higher or lower natural market share.

So this wasn't reinsurance, like your cat reinsurance coverage kind of kicking in to a better degree than maybe others. This was more kind of business segmentation structurally that kind of was intended to help you on this front. Is that the way to kind of think about it?

Correct. Absolutely correct. That didn't get near our cap limits.

Okay. And then just one last quick one. Just on personal auto, there was deterioration in the current accident-year loss ratio, and I think it was mentioned that there was a drag from the traveler business. Is that all from just the drag of the traveler business? Are you seeing any other kind of pressures on the loss ratio coming through? Thanks, Doug. It's Paul here.

Yeah, no, you're absolutely right. That's that's purely the drag of the portfolio that was coming in. We had previously indicated it was close to break even prior to us purchasing it. And so as you naturally put on the sizable portfolio, it has a direct impact. And we expect that to be a bit persistent as we continue to bring that portfolio over to ours onto the DFINITY rating. And then by the end of next year, it should be fully completed. So we don't see any other issues that are impacting it. We're quite pleased with the underlying results, actually, given the acquisition. And so we continue to optimize that portfolio as we go.

Great. Appreciate the call. Thank you.

Thank you. Jamie Goyne with National Bank Capital Markets. Please go ahead.

Yeah, thank you.

Just on the expense ratio improvement from last year, even with the travelers, is it, you know, some of that might be the synergies flowing through, but is there any that you would attribute to just the cost optimization plans that you had in previously? Can you kind of break a little bit of that out for us?

Yeah, thanks, James. So we're very happy with how that's going. If you look at the total expense ratio, we're about 30% on a year to date basis, which you might have anticipated and we did push up a little bit because when you put the two businesses together, you know we expected about a two-point impact on combined ratios overall with about half of that hitting the expense ratio and the rest pushing up the loss ratio so you know that was the anticipation you're right in terms of causation behind that so we do have favorable support coming through from the ongoing executives that we've been doing for some while so you'll recall one of those operating ROE levers was the expense efficiency We've been leaning into that consistently over the last couple of years and a lot of those actions we took in 2025 are now earning through. So that's driving good support. I would say another contributing factor is the early timing of the synergy capture, as you also point out. So because we've been able to get after that early and we're ahead of expectations, that's also provided a little bit of support there as well. So I think where we feel today is that's a very good number for the first half of the year. We think that's quite sustainable for the second half. It varies a little bit by line of business. So you've seen a little bit more of a push up in commercial lines that's really represented more of the business model. and you've got a lot of high degree of automation and technology base behind personal lines. You've got more of a people business structure in commercial lines. But overall, I think it's the combination of that discipline management and actions that we've been taking on the overall business combined with the early synergy progress that we've made. That's really what's feeding through.

Great. Financial capacity rebuilding, as was discussed earlier, and Rowan mentioned you still prefer carrier acquisition over, well, maybe not over, but still would like to continue on that front for reaching strategic goals. What's the appetite? Maybe it's too soon, but if something was on the table, what's the appetite? What's the resource commitment at this stage?

Well, look, Jim, we go back to our strategic goal here of becoming a top three. And it wasn't that long ago we went public at the eighth largest insurance company. We organically grew to number six. And with Travelers, we've got to number four. We still do need, in addition to our organic growth plans, which are above the market rate, to do M&A to get into the top three. So we look at strategic fit. We want to make sure it's a decent business and, of course, financially supportive of our mid-teens operating ROE. We think the marketplace is coming towards us a bit on this. You need to be big, you have to have scale these days. Parts of commercial lines like the upper end market is more difficult and that might create some opportunities. In personal lines, you see the need for data, tech, brand, AI investments, that may create opportunities. So we think about that. And then I think, you know, your question around operational readiness, when you consider the travelers, you know, deal, because it's going really well, and we're now into the integration, and because, you know, acquisitions do take some time, and when you think about the regulatory approval perspective, you know, you're at least, what, nine to 12 months before you get there. We're now in a position where operationally that isn't going to put us on the sidelines. So, yeah. I think we're good. I think Phil talked a bit about the financial capacity that we have and we keep building, and that's without raising any equity. We were very, very confident that should there be opportunities, we'd like to participate in them. And I think you go back to, we really felt good about building that affinity organic business and being able to perform well. And we needed to convince ourselves and the market that we can do an integration well. You know, we're not finished yet, but very good momentum and a lot of confidence about that. And so I think we consider that as we think about, you know, the inorganic part of our strategy.

Great. And last one, just on the on the sonnet, and I might be confusing some of these numbers, but direct to cut consumer growth and top line was about 3%. I assume that's entirely sonnet. I'd expect that to maybe do a little bit better. Maybe you can provide some comments as to where you see that growth in the SONNET platform and how it's performed against your expectations.

Go ahead. Thanks, James. It's Paul here. You're absolutely right about the growth within the Sonnet platform. We're actually quite pleased with that. Just taking you back a little bit, you may recall that our major priority over the last couple of years was to bring this portfolio to profitability, and we're delighted that we've been able to maintain that. Now that we have, as I mentioned, probably two quarters ago, we were turning our attention to prudently growing that platform, and we have. Each quarter, it's a little bit of additional growth. really what that represents is much better quality underneath. We are increasing the retention levels. We're getting a higher proportion of group and affinity accounts, which for us are better long term, long tenured customer base. We're doing very well with our UBI product and we're pushing a little bit more in geographic representation. So we're quite pleased with it. I have said before, what we wouldn't do is dramatically increase top line disproportionately because if you have too much new business initially it does tend to drag down the loss ratio in the first year so we want to be a bit prudent around how we move forward with them at the same time we're building an incredible amount of capabilities underneath the platform both to service all of these emerging areas but also as we think about the consumer change in terms of how they consume information, where they access information, how they want to be served, whether it's self-serve or a combination of self-serve and assisted sales. So I think you've accurately described it. We would expect a modest increase as we keep going and with the goal eventually to keep growing this business.

Thank you.

Thank you. Mario Mendonca with TD Securities. Please go ahead.

Good afternoon, or good morning. Bill and Rowan, I'm not sure how much detail you want to get into this, but you're at 125 million in pre-tax synergies. You've earned 17, so it still leaves a good, meaningful 108 million to go. Is there any way you could help me understand how that, what lines that really falls into, like the extent to which you call it segment expenses, segment claims and then those expenses outside of the segments. With those three in mind, is there any way you could sort of portion out that $108 million?

Yeah, thanks, Mario.

So I would say that, I mean, that's the right lens on the 125 and, you know, the variability to what we've got so far. So maybe if I just step back uh you know in terms of how the total emerges so you've got the 125 to date by the end of this year within our 2026 numbers we think that's in the 40 to 45 million dollar range that's supporting 2026 underwriting income for 2027 that's going to increase to about half of the 125 million And the reason it doesn't increase faster than that is because there's a big chunk of TSA support from the US parents that only comes off at the end of 2027. So by the time you hit 2028, you should then have pretty much the full 125 million earning into results. In terms of how that supports, so generally speaking, The synergy piece is a combination of both claims related expenses. So not indemnity managed, but claims infrastructure, claims technology, and then across the broader business. So about half of that, roughly speaking, will go to expenses, operating expenses. The other half maps into the loss ratio because that's kind of attached to the kind of claims allocations that we do. and then when you look at each line of business in just the same way that there's a disproportionate impact on commercial will be a disproportionate benefit from the go-forward synergies that occur so as you're able to kind of roll that over that's why we think you know that three-point drag kind of comes back more in line so if you step back from it all What we'd anticipate once you get through the acquisition is you get a pretty similar, and through the full integration, you get a pretty similar outlook between the three lines. Commercial lines should be in that kind of lower 90s range. You put the two together. Personal lines... Auto is more in that mid-90s range from a regulatory standpoint, and personal property we'd expect to do a little bit better than that in that lower to mid-range. So you've got inflation at the moment, but then that should come down pretty much commensurate with how it's gone up effectively overall.

Like putting it all together, it sounds like half expenses, half loss ratio, but you wouldn't apportion any of that to the top of the house, like the other income expenses. No portion really. You're not out getting anything to that.

Yeah, no, that's right, Mario. Yeah, it's very much a underwriting income story. You're not seeing it spill out into the other. Of course, when we put the two businesses together, we got a big lift in the investment portfolio. So, you know, you do see that. And then I think the one thing to just bear in mind with the 125, that's the kind of pure expense target. We do think over time there'll be some improvement opportunity within the non-expense elements of the loss ratio, things like body shops, contracts with third-party lawyers, our segmentation, our underwriting capabilities. And then beyond that, longer term, there's opportunities in optimizing reinsurance structures with the increased size of the base. There's opportunities, perhaps, on the capabilities we've added through the commercial business and the bigger use of data. So, you know, we think this is quite transformational for us in the longer term, but certainly in the nearer term, it's about getting that cost structure well aligned, and there's a lot of intense focus on making sure we do a good job of that in the next couple of years.

And my second question is more specific to this quarter. One of your peers referred to large losses in their property segment, in their commercial segment. Is that a notion, something you think about internally, this large loss category? Because you didn't call it out this quarter. Is there something different about your business that would not have resulted in large losses? Because it's my understanding that it was not specific to that player, but rather an industry issue.

We clearly follow large losses. We start looking at our portfolio. We look at the attritional. We look at the large. We look at the weather. We look at the PYD. We do it by segment. We didn't see anything there.

So it's business as usual for our portfolio. Thank you.

Thank you. Next question, Tim McKinnon with BMO Capital Markets. Please go ahead.

Yeah, thanks. Tom McKinnon here. My question's on net investment income kind of flat to almost modestly down quarter over quarter. We talked about before proactively trading into higher yields happening. I mean, yields went up modestly quarter over quarter. Is that still necessarily the case, and how should we be thinking about net investment income going forward? Thanks.

Yeah, thanks, Tom. So yeah, we're pretty happy with how that's played out. As you'll know, we were pretty proactive in the first quarter in putting the two portfolios together. And in Q1, we actually, for about a month, we were carrying a higher investment portfolio balance because we were holding the invested assets in order to pay down the excess capital loan. So you had a little bit of inflation. in Q1 of the level of invested assets as we carry that billion dollars plus so actually if you look at it comparatively Q1 to Q2 normalizing out for the fact that you were holding that extra billion you'd actually see a slight pickup in the overall levels of investment income. And then when you look out to the full year, it gives us good conviction on the $320 million overall. We're pretty much halfway there, and we'd expect to kind of hold that level of pace in the second half. I think what the team are doing is they're proactively looking to do a couple of things, capture yield on the fixed income portfolio when the opportunity arises, and then the other thing they're doing is they're trying to capture that in a way that pushes out the natural reinvestment cycle so it's not just about driving the absolute number it's about then trying to retain the book yield capture for an extended period of time so they've done a really good job of that I think in the in the first half of the year so that gives us good comfort on second year targets it gives us good comfort on the outlook going forward. And then I think the last thing you'll see is we're being very disciplined from a risk perspective. We're not chasing yield at the purpose of undue risk. You know, the capital position of the organization's in a great spot. And ideally, we'd like to deploy that proactively through, you know, organic growth, investment in the core business, dividend expansion, and M&A. So, you know, we're very satisfied with the way that portfolio's being managed to date, and we do like the trends overall.

All right, thanks for the detailed response.

No problem.

Thank you. We have no further questions. I will turn the call back over to Dennis Westfall for closing comments.

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 August 7th, and a transcript will be made available on our website. Please note that our third quarter results for 2026 will be released on November 5th.

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

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