DFY.TODFY.TOTSX
Loading
Operator: Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Fourth Quarter of 2025 Financial Results Conference Call and Webcast. [Operator Instructions] This call is being recorded on Friday, February 13, 2026. And I would now like to turn the conference over to Dennis Westfall, VP of Investor Relations. Please go ahead.
Dennis Westfall: 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 definity.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO; Philip Mather, our Chief Financial Officer; Fabian Richenberger, Chief Operating Officer; Paul MacDonald, EVP of Personal Insurance and Digital Channels; and Obaid 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 Obaid will be available to answer your questions. With that, I will ask Rowan to begin his remarks.
Rowan Saunders: Thanks, and good morning, everyone. As Dennis mentioned, we are welcoming Obaid Rahman to our earnings call following his recent appointment as EVP of Commercial Insurance after several years as that division's Chief Underwriting Officer. Obaid's appointment comes as Fabi moves to the Chief Operating Officer role. His move to COO enables him to put a greater focus on the integration of the acquired business from Travelers. Before we discuss our financial results for the fourth quarter and full year 2025, let me start with the progress we have made in recent years and how it has positioned us for the next phase of growth. Including the premiums from the Travelers transaction, we've doubled the size of the business since our IPO to become a top 5 P&C insurer, modernized our platforms and built a scalable foundation that gives us confidence in our long-term trajectory. Definity is a growth company with strong momentum and a clear strategy. Our strong performance reflects disciplined underwriting and claims management, solid organic growth and the returns on our digital technology investments. As we pursue our updated goal of becoming a top 3 P&C insurer, we remain focused on disciplined execution, technology and analytics, broker partnerships and broad-based growth. We've built Definity with a goal to outperform the market through all stages of the pricing cycle. In areas like small commercial and personal lines, conditions remain strong, and we're achieving rates that stay ahead of loss trends. Where the market is most competitive, such as certain large commercial segments, we're staying disciplined, protecting our profitability and competing where margins are most attractive. What differentiates us is the structure we put in place, thoughtful portfolio construction, advanced analytics aided by AI that allow us to price risk with increased precision. a modern claims platform that drives better operational outcomes and higher customer satisfaction and a national broker network that gives us a stable growing source of distribution income. Overall, these capabilities give us confidence in our ability to outperform across market environments. Turning to our transformational acquisition on Slide 6. The acquired business brings approximately $1.5 billion in premiums, meaningfully increasing our scale and positioning as firmly within the top 5 Canadian P&C insurers. Scale matters more than ever. It enhances pricing sophistication, strengthens our relevance with brokers and supports sustained technology investment and AI expansion. The portfolio is an excellent strategic fit. The commercial book expands our capabilities in mid-market and specialty while the close to $1 billion in personal lines premiums will benefit from being moved on to our modern digital buying platform. This is also a high synergy opportunity. We are confident that we will deliver at least $100 million in annual cost synergies to be realized over the 3-year integration period. Finally, the acquisition accelerates our operating ROE expansion strategy. With Sonnet achieving breakeven, expenses moving towards our target level and our claims transformation well underway, the acquired Travelers portfolio is expected to add roughly 200 basis points of run rate operating ROE by the end of the integration period, supporting our path to a sustainable mid-teens target level. In 2025, the acquired portfolio operated near breakeven as a result of elevated expenses, which will temporarily affect our combined ratio as we integrate. We see a clear path to sustainably operating in the low 90s as integration benefits take hold and synergies earn through. Turning to Slide 7. We reported full year operating earnings per share of $3.53 an increase of nearly 33% over 2024. We again met or exceeded all financial targets in 2025 with top line growth of 8.8% adjusted for our exited line, an excellent full year combined ratio of 91.6% and an operating ROE of 12.2%. This operating performance, coupled with our private placements of common shares in the second quarter of 2025, supported a 16% increase in book value per share in the year. These results demonstrate the strength of our company and validate the investments we've made to build a more agile and scalable business. As illustrated on Slide 8, since completing our landmark IPO 4 years ago, we've delivered consistent underwriting profits, built a top 10 property and casualty insurance brokerage in Canada, grown book value per share by more than 63% and increased our quarterly dividends per share by 72%. Turning to the results from the fourth quarter on Slide 9. Strong underwriting income, together with meaningful contributions from our insurance broker platform and net investment income generated operating earnings per share of $0.99. Our fourth quarter combined ratio of 89.9% reflected the broad-based strength of the business with particularly strong results in personal property and commercial insurance. We enter 2026 with top and bottom-line momentum in all 3 lines of business, which provides an ideal starting position as we integrate our recently closed $3.3 billion acquisition and scale the organization. Turning to the industry outlook on Slide 10. We expect conditions in personal auto to remain firm as insurers aim to keep pace with the combined impact of loss cost trends, ongoing regulatory constraints in Alberta and uncertainty related to the extent and impact of potential U.S. tariffs. We also 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 loss events amid heightened climate risk. While we expect overall commercial lines market conditions to remain attractive, we are continuing to see more competition in the large account space. Overall, we expect industry growth in commercial lines to be in the low to mid-single digits over the next 12 months. Slide 11 highlights our key financial targets for 2026. We expect to exceed $6.5 billion in gross written premiums representing growth of at least 35% from 2025. This substantial increase is expected to be driven by the benefit of the acquired business from Travelers and continued organic growth in our underlying book. The strength of our underwriting capabilities is expected to support a sub-95% combined ratio target for 2026 despite integrating a business operating near breakeven. We maintain our operating ROE target for 2026 as we expect earned synergy realization to begin contributing more meaningfully in 2027 with full realization by the end of the 3-year integration period. Slide 12 illustrates the composition of our national broker platform. We've made great progress in the past few years to develop it into a vehicle to diversify and strengthen the earnings profile of the business with repeatable distribution income that complements our underwriting operations. We expect continued M&A activity and the organic growth momentum of the business to result in $2 billion of managed premiums by the end of 2027. We continued our growth trajectory with several additional acquisitions last year, which enabled us to exceed our 2025 operating income objective for this part of the business. In 2025, our national broker platform generated $94 million of operating income before finance costs and minority interest. We expect to increase this by approximately 20% in 2026 with a 60-40 split between distribution income and intercompany commission income. This platform continues to provide stable, high-quality earnings that strengthen the overall resilience and diversification profile of the company. And with that, I'll now turn the call over to our CFO, Phil Mather.
Philip Mather: Thanks, Rowan. I'll begin on Slide 14 with Personal Auto. Gross written premiums increased 9.7% in the fourth quarter and 8.9% for the year adjusted for the Sonnet Alberta exit. This represents a step-up from 6% growth in the third quarter, consistent with our expectations and supported by our improved competitive positioning that strengthened unit growth. Personal Auto delivered a solid combined ratio of 95% in the fourth quarter, an improvement from 2024, driven by earned rate increases, improved Sonnet profitability and a lower expense ratio. For the full year, these same factors supported stronger results versus 2024, further aided by lower catastrophe losses. We expect a mid- to upper 90s combined ratio for personal auto in 2026 as we integrate the acquired book of business. Turning to Slide 15 and Personal Property. Gross written premiums grew 11.6% in the fourth quarter and 9% for the year, supported by higher average written premiums and an increase in unit growth as we completed our actions in high appeal regions midway through 2025 and introduced product enhancements in the second half of the year. The personal property combined ratio remained robust at 82.7% in the fourth quarter of 2025. For the full year, we reported an 88.5% combined ratio, an improvement of 7.8 points from 2024. While catastrophe losses were unusually elevated in 2024, the level this year was broadly in line with expectations. Looking ahead, we expect a low to mid-90s combined ratio in 2026 in year 1 of integration. Slide 16 provides details of our commercial business with premium growth of 6.9% in the fourth quarter and 8.6% for full year 2025, driven by strong retention and rate achievement and continued expansion in small businesses and specialty. Industry growth has moderated to the low to mid-single digits as loss trends normalize. We continue to expect the organic growth in our commercial book to grow at least twice the pace of the industry, supported by our strong broker partnerships, digital capabilities and ongoing specialty expansion. Commercial lines continue to benefit from our focus on underwriting discipline, delivering a strong combined ratio of 89.1% in the fourth quarter of 2025. For the full year, the combined ratio was also strong at 89.3%, essentially unchanged from 2024. Results reflected lower catastrophe losses and a reduced expense ratio, partly offset by an increase in the core accident year claims ratio. The changes in catastrophe losses and the core accident year ratio were impacted in part by our revised definition of a single claim catastrophe loss. Looking ahead, we expect a low to mid-90s combined ratio overall in 2026 as we continue to target operating the existing Definity Commercial book in the low 90s and begin integration of the acquired book of business. Putting this all together on Slide 17, we generated substantial operating net income of $120.7 million in the fourth quarter, reflecting strong underwriting income alongside meaningful contributions from our insurance broker platform and net investment income. Consolidated underwriting income increased by $14.5 million in the quarter and by more than $142 million for the full year, driven by robust performances in personal property and commercial insurance. Net investment income totaled $215.7 million for 2025, up nearly 9% from 2024. The increase was primarily due to higher interest income from the proceeds of our senior unsecured notes invested in short-term instruments as well as increased bond holdings. 2026, we expect net investment income to exceed $300 million, supported by the growth in assets added through the Travelers transaction. Overall, broker operating income increased by more than 24% in 2025, reflecting strong contributions from both acquisitions and solid underlying organic growth. As Rowan mentioned, we expect broker operating income to grow by approximately 20% in 2026 from the $94 million delivered in 2025 with a 60-40 mix between distribution income and intercompany commissions, reflective of an increased share of wallet as we integrate the acquired business. Lastly, you'll note the increase in our operating ROE, which ended near the top of our guidance range at 12.2%. This resulted from progress on all of our organic levers, including improved Sonnet profitability, the continued march down of our operating expense ratio and early progress on our claims transformation. We also benefited from about 1 point of better-than-expected cat losses. Conversely, the issuance of shares in Q2 to partly fund our Travelers transaction had a negative impact on operating ROE, which will not be fully reflected in this metric until mid-2026. Progress made in 2025 provides confidence in our ability to sustain a mid-teen result post integration once we realize the expected benefits from the Travelers transaction. Turning to Slide 18. We delivered a successful renewal of our reinsurance program for 2026, which meets the requirements of our much larger post-acquisition profile. This was supported by our strong performance track record with reinsurers, and we maintain robust access to reinsurance markets. As part of the pro forma structure, Definity's overall reinsurance coverage increased significantly due to the expanded scale of the combined company. Importantly, while catastrophe treaty retentions increased by $15 million or 20%, the rise was smaller relative to the expected growth in the overall business of more than 35%, resulting in a more efficient risk transfer profile. Slide 19 illustrates the continued strengthening of our financial position in 2025. The increase in our book value to north of $4 billion was primarily due to strong operating performance and the private placements of common shares in the second quarter, partially offset by our growing dividend distributions for the year. Clearly, our financial capacity ended the year in a robust position as we approach the closing of the Travelers transaction. Our current leverage ratio remains below 30% following the close of the transaction, and we are confident that this will reduce to our target level of 25% in the near term. Slide 20 outlines how we funded the $3.3 billion acquisition last month. As expected, a significant portion of the funding came from excess capital, our own in addition to the approximately $1.1 billion from the acquired business as well as $385 million of equity financing completed post announcement. Our $1 billion inaugural bond offering and a $375 million 2-year bank loan make up the debt financing required to fund the acquisition. I'm pleased to say that we have already repaid the excess capital term loan that bridged from the date of closing until we could access the $1.1 billion in excess capital. Turning to Slide 21. Our integration work is progressing well, ensuring we delivered a seamless day 1 experience for brokers, policyholders and employees. All transition services were fully operational from day 1 to ensure business continuity and employees came together under unified leadership supported by in-person town halls that reinforced our culture. We have already begun to move new business intake to Definity, an important step toward harmonizing our broker distributed products under a single brand. Looking ahead, we're on track to start the policy conversion process in Q2 2026. At the same time, we're executing well against our planned integration activities and maintain strong change management to support brokers, employees and business growth. Turning to Slide 22. Our integration planning provides a clear actionable pathway with at least $100 million of annual run rate synergies identified. These synergies are driven by 3 primary sources: technology platform consolidation as Travelers personal and commercial volumes migrate onto Definity's scalable buying platform; elimination of U.S. parent company service charges that fall away as the business transitions to Definity oversight and operations and operational efficiencies driven by elimination of duplicative and administrative activities and the benefits of scale. This began immediately post close, there will be a lag between when we complete the work and when the financial benefits are earned. As previously outlined, we expect approximately 2/3 of the integration efforts will be completed in the first 18 months, which should translate into about 1/3 of total synergies earned during that period. This timing reflects the dependency on fully transitioning the acquired business onto our operating platforms. Together, these synergy drivers represent 6 to 7 points of combined ratio reduction for the acquired business before factoring in future loss cost benefits. With that, I'll hand it back to Rowan for some final thoughts.
Rowan Saunders: Thanks, Phil. With the acquisition phase now complete, we've strengthened our position in the Canadian P&C market and reinforced our role as a leading carrier in the broker channel. Our focus now shifts squarely to execution, integrating the acquired business effectively, advancing digital innovation and sustaining the strong performance that has defined our trajectory. Bringing these organizations together enhances our scale, broadens our personal, commercial and specialty capabilities and deepens our relationships across Canada. Travelers culture has been a natural fit, and we're excited to welcome our new teammates as we build a stronger, more formidable Definity. This moment represents a launch point. With a modern platform, a diversified business and a clear growth strategy, we are well positioned to accelerate our momentum and continue building a Canadian champion, one that delivers sustained value for our customers, our brokers and our shareholders. With that, I'll turn the call back over to Dennis to begin the Q&A session.
Dennis Westfall: Thanks, Rowan. We are now ready to take questions.
Operator: [Operator Instructions] And your first question comes from the line of Paul Holden from CIBC.
Paul Holden: First question is regarding commercial insurance lines. And without a question, I think Definity has done an excellent job growing in commercial since IPO, 2x industry growth rate, plus with very good margins. I think the question people are starting to ask though is, okay, well, now the market is clearly -- market conditions are not as generous. So can you continue to grow at 2x the market with very strong margins, or you can continue to grow at 2x, but maybe sacrificing a little bit of margin?
Rowan Saunders: Paul, I think that a couple of points I would kind of make before handing over to Obaid to kind of give you some more color. You make the point about the commercial market evolving, and I think we definitely see that as well. The big picture for us is don't forget 70% of our premium is in personal insurance, which is still a very firm marketplace. And then the 30% that is in commercial we feel about 15% of that is what is really exposed to this increasingly competitive large commercial segment. So overall, it's about 5-ish percent of the total portfolio. So I think that's an important point of context. The other point I would make is that this isn't new. Like we've been seeing a more competitive market for multiple quarters now, as you've seen us call that out in the past. And Definity continues to outperform each of those quarters, even this last quarter, posting a 7% organic growth. We have said broadly, we can grow at twice the rate of the industry. But when you think about low industry growth rates, our current growth rate is actually multiples more than that today. And I think the main issue for us is that there is some structural advantages, and we're structurally well positioned to continually growing ahead of the market with -- withholding our margins. So a lot of kind of confidence there. But why don't I pass it over to Obaid to kind of add some more color on how you're doing this.
Obaid Rahman: Thank you, Rowan. And let me maybe just start with -- I'll just take a minute on our performance and then give a bit of context on the structural advantages, which Rowan just mentioned. 7% growth in Q4, 8.5% for the year at a sub-90 COR. We're delighted by this because it's clear outperformance to the marketplace. Our growth was very balanced. About half of it came from pricing, half of it was organic. We gained market share overall. When we look at our structural advantage, it comes from 2 areas. One is the complexion of our portfolio, which is heavily skewed towards the small and mid-market business. The second component is over the past number of years, we've made quite a few investments in technology and in our specialty capabilities. If we start with the first piece on the small and midsized business, here, what matters is speed, ease of doing business, service and technology is really the differentiator. We have Vyne Commercial. It's our digital platform. We believe it is the leading digital platform in this space in the market, and it continues to give us outsized growth. We're getting high single-digit growth in the small business space, both coming from pricing, and we're gaining meaningful market share. As we've mentioned in a few quarters, and we did in the opening remarks, the large account segment is competitive. We're staying disciplined there, protecting margin. This is about less than 15% of our portfolio. And finally, we get to the specialty part of the business where over the years, we've made quite a few investments in capabilities, in underwriting, in claims, in risk prevention. We've cultivated deep broker relationships in that space, and that continues to bear fruit. We're gaining market share. We've got a number of verticals which are running, growing. We had double-digit growth in the specialty business. When I put this all together, this is a structural advantage, which helps us manage through the cycle. And if I take a step back, when we look at the past 5 or 6 quarters, this is when the market did become a bit more competitive in certain segments. We've had high single-digit growth, and we've outperformed our peers by about 7 points. It's a meaningful and material outperformance and really does speak to the resilience that we built in our business to manage through the cycle. As we look forward, we think this growth momentum of ours is going to continue how we ended the year. We're going to be in the upper single-digit range. And the Travelers acquisition is bringing a host of new verticals and capabilities in the specialty space, things like ocean marine, technology, cyber, financial lines, a leading cross-border facility, just to name a few. And once we get these onboarded, they're going to open up a new frontier of growth. They're going to expand our addressable market and really excited about having that as we go through the transition.
Paul Holden: Okay. That's a very good answer. I appreciate that. Second question is related to personal auto. So certainly versus my own expectations, the combined ratio was better than I would have expected in Q4, which did see some more, call it, normal type weather and certainly worse than Q4 of the year before, but yet your core accident claims ratio improved by a little over 100 basis points year-over-year. So maybe talk to me a little bit about that and maybe it's just as simple as pricing has been coming ahead of claims inflation. But if there's more to it to that, I would love to hear it.
Rowan Saunders: I think that, Paul, that's a part of the business we've been very pleased with. And I think it's had -- it's obviously industry challenges over the last couple of years, and we continue to get better in that line of business. So what we think about the way we've exited the year, there's a number of drivers there. But don't forget, Sonnet is one piece that is now much better than it was over the last couple of years. And that drag has now disappeared as we said that it would be. And then the other part of this is that there has been significant rate taken and segmentation changes. And when you put that on the Vyne Personal Lines platform, that agility and frequency by which you can keep optimizing your portfolio, we think, is actually giving us a competitive advantage. And if you think about not just the core accident year, which certainly has improved, as you said, up 2 points year-on-year, but we're now also in a position where we're moving back into strong growth. So the growth in Q4 was really a step up from where it was in Q3 as we had kind of called it out. And that component of growth is now both unit count as well as ongoing kind of rates. So I think that's a pleasing line for us.
Paul Holden: Okay. I want to ask one more, and that's going to be on the AI disruption topic and my own opinions on it. But I want to hear your opinions and how it may or may not be or how you're viewing the risk, particularly in the insurance brokerage space, which was impacted earlier this week by that theme. You've guided to 20% growth next year in brokerage. I assume that indicates you're going to be buying more. Your intent is to be buying more. So how do you get comfort or how are you thinking about continuing to deploy capital into insurance brokerage, even though there's this AI narrative that it's going to be disruptive to the business?
Rowan Saunders: Yes. Thank you for that, Paul. I think as you pointed out, our distribution, the top 10 broker that position we have is working out very well for us, and you saw us growing operating earnings by 24% this year. That's both acquisitions that we brought in, but strong organic growth at high margins. So this is an attractive business. And I'll tell you that one of the things that I think is an advantage for our platform is the fact that it is linked to Definity. And if you step back and you think about the investments that we, as an organization, have made in AI, we've been deploying these tools for well over a decade. They're right across the business from influencing growth, loss ratio, user experience. We have great data, 25 years plus in the cloud, a specific partnership with Google. So the point I'm making is that over 70% of our people are now engaged using these tools, and these tools are across our business. That's the underwriting side. As you link to the distribution side, I think that's an advantage where we can take some of this track record, this knowledge and these capabilities into helping brokers adjust as well. And I think on the broker kind of narrative, brokers have been challenged many, many times over the decades, and they continue to stay relevant. They continue to get bigger. They continue to do -- to actually increase their valuations. And so we think overall, in commercial insurance, this is complex. These are big assets, and you need a lot of trust and advisory services to set those. In personal lines, this is really happening. There are AI tools already involved in helping customers in the discovery phase, in shopping, but many of those still need, feel and trust the need to link to a broker, well over 40% of those. So to me, it's more about an adoption. Can the brokers adapt? Can they invest? And like anything, just like when digital tools came into the channel, if you're making those investments, I think you'll stay relevant. If you're not, I think you would fall behind. So the takeaway to us is we're still very confident in that channel. We don't think this is the end of broker distribution by any means. But they are evolving. They'll need to make these amendments. And many of them, with certainly our support, we think we'll do that. I actually think this helps increase the pipeline, which is a good pipeline. And I think that's a nice opportunity for that channel.
Operator: And your next question comes from the line of Bart Dziarski from RBC Capital Markets.
Bart Dziarski: I wanted to ask around on Travelers. So I guess, related to that 2026, you gave guidance for $6.5 billion of premiums. What does that assume for the $1.5 billion book you inherited for Travelers in 2025? And then maybe more importantly, how should we think about the growth of that book in 2027?
Rowan Saunders: Well, thanks very much for that, Bart. A couple of quick points here. Firstly, I think when you think about the context around that, I would say we are delighted that we actually closed the transaction on January 2. It was a very smooth procedure. And as we've said before, this is a game changer for Definity. A quick reminder here is very strategic. This places us in the top 5, which was our goal before, we now set our missions on top 3. It's added a lot of capability and product to our specialty and commercial lines and more scale. The personal lines firmly put us in #3. So we like that. The financial conditions certainly compelling. We've talked about the $100 million cost synergy and how we will ultimately get that portfolio to perform like Definity. Clearly, when you buy a business like this, you're buying it for the long term. 2026 is a transition year. So what we're really focused on here is the retention of the business, the conversion and getting it on to our platform, that platform changed. I think the high-level question you asked about what are those assumptions. So I look back and I say, okay, you've got -- we're adding about $1.5 billion of business from Travelers to Definity's business. That moves us up a minimum of 35% this year. So Definity will become significantly larger as we pull that on. As you would expect on that Travelers portfolio, there is going to be some dislocation on that. Now we look at that, and we feel very good that there isn't major dislocation. Most of it, we like. But naturally, there will be some dislocation. There will be some accounts, some segments that don't fit. So that will kind of contract a little bit, not materially. But the underlying business, the Definity business, we're really confident is going to continue to operate like it is today, upper single digits. You heard Obaid talk about that in commercial. Paul says the same thing for his personal lines business. And once we convert the business on, our expectation is that both portfolios, the Travelers portfolio and the Definity portfolio continues to operate like it is. If you think about where is Definity today, it's in the low 90s, and it's growing upper single digits. That's not going to happen year 1 with Travelers, as you would expect. But as we finish the conversion, our expectation is that both businesses will be performing in that range.
Bart Dziarski: Awesome. That's very helpful. And then I guess sticking with Travelers on the specialty opportunity that this business brings. You mentioned a new total addressable market. Could you maybe help us size what that opportunity could be and then how fast you're looking to kind of address that opportunity?
Rowan Saunders: Go ahead, Obaid.
Obaid Rahman: Yes. No, thank you for the question. I mentioned some of the verticals upfront. And the way we look at this is that you get those new capabilities, it allows us to cross-sell to our existing customer base, so we can give them more product. It will allow us to increase product density with our broker partners. And the combination of that, so you get the new capabilities plus the fact that those enable you to get more growth on your existing capabilities because you can link them up together, we think it's going to give us momentum to continue with that minimum sort of 2x industry growth rate, upper single digit for a number of years going forward. Now when do they come -- when do we bring them online? As Rowan mentioned, this is a transition year. We're right now working to onboard these capabilities into our operating model, into our business platforms. And we think towards the end of the year, we'll start to get them fully rolled on to our platform. So towards the end of the year, going into '27, that's when we expect that they'll be functioning within our model.
Rowan Saunders: Just a data point. As far as the addressable market is concerned, typically, we've been operating in a market we think is about $27 billion. This moves that market up to just over $34 billion now. So it is a meaningful upside opportunity that Obaid has mentioned.
Operator: And your next question comes from the line of Jaeme Gloyn from National Bank Capital Markets.
Jaeme Gloyn: First question, I just wanted to get a clarification on a comment that was made around the AI and how AI is already helping customers in personal lines. You talked about -- you gave a percentage. It was 40%, I believe, of customers using, I guess, like AI or digital quoting tools need to get on the phone and confirm what they've done. Is that what I interpreted you said or just clarify that.
Rowan Saunders: No, I think what we're saying is that when people do use those tools, 40% of them still end up reverting back to asking for broker advice to complete the transaction.
Jaeme Gloyn: Okay. Yes, that's kind of what I thought. Okay. Got you. And then following on that as well, Rowan, I believe you talked about AI helping broker distribution and Definity helping with that expansion, increasing the pipeline for Definity. Can you sort of talk through how you would see that pipeline to Definity increase as opposed to potentially elsewhere?
Rowan Saunders: Yes, sure. I mean, Fabi, do you want to take that, which is what are you seeing in the pipeline? And why are people coming into the pipeline?
Fabian Richenberger: Yes. Glad to do that, Rowan. Thank you, Jaeme, for your question. So maybe picking up on the question what AI will do to distribution. As Rowan mentioned, we've been a leading company, both on the digital side, now with AI as well. And what we've been doing over the last couple of years, we've been leveraging those capabilities into our own broker platform as well. So over the past 2 years, we've been leveraging AI and the benefits of that to our broker platform is that we are able to enhance lead generation and customer traction. We are able to strengthen service and customer engagement. We are able to provide customized advice to specific commercial segments. And then we also have a number of key operational benefits that come out of leveraging AI into our broker platform, to name a few. We are automating routine processes. We are enhancing data analysis and business intelligence. We are automating coverage analysis and coverage gap analysis. We are using that capability to help our brokers kind of mitigate risk at the customer base. So a whole host of value drivers that will allow us to drive more organic growth, will allow us to increase our EBITDA margin. And I think what's happening, as it does on the P&C side, scale is a very important differentiator going forward. We fully expect that the consolidation will be continuing to happening on the broker side as well because the top 10 brokers are controlling now over 50% of the marketplace in Canada and being able to make those investments into platforms, talent, data communities will be a differentiator. And I think that the smaller brokers will kind of want to join our broker platform because they'll benefit from additional insights, additional capability, additional growth opportunity. And unlike other platforms that are out there, we are encouraging the incoming brokers to retain a meaningful ownership opportunity. And we quite like that because of broker principles, key producers that have an ownership in the broker platform as well. They are very motivated. They keep being very entrepreneurial and it aligns the growth aspirations between ourselves and those key operators overall. So I think these are many kind of dimensions as to why we think that the consolidation will continue to happen. And what we have proven over the last 2 years is that the platform that we've created is attracting the target focus that we want to have in that broker platform. And with that in mind, I think we are as confident as we can be that we will be continuing to increase our operating income in that 20% range that we committed to you.
Jaeme Gloyn: Okay. Great. Appreciate that color. And then still on the broker side but just thinking through the acquisition pipeline to drive the 20% growth. Have you seen any shifts in the M&A backdrop in the last couple of months, maybe a little bit longer than that, that could potentially accelerate that growth trajectory and the M&A pipeline?
Fabian Richenberger: What typically happens is that those midsized brokers that they look at it from a 3-, 5-, 10-year horizon at this point of time that the multiples that are being offered for those brokers are still attractive. And if you are a midsized broker kind of managing $100 million, $200 million of business, you have a concern now about how you go through succession planning. 20 years ago, you needed $10 million or $20 million to fund succession planning. Today, you need $100 million, $120 million. So it's nearly impossible for those family-owned brokerages to do internal succession planning. So then it comes back to the platform that we've built in terms of us supporting the McDougall leadership team to be empowered, entrepreneurial, always with sound governance framework around it. But again, the attractiveness of our platform, that allows them to leverage different product capabilities, allows them to typically increase the organic growth after they've joined the broker platform benefiting from scale and market access benefits. And then as I mentioned, the invitation for those broker principals to leave equity in the platform, I think will continue to be very attractive to brokers that decides to partner with somebody else.
Jaeme Gloyn: Okay. Got it. And then last one, just on the Travelers and just I want to make sure I'm interpreting some of the commentary correctly. 2025 Travelers premiums written looks pretty flat to their 2024, just kind of rough numbers could be some rounding. And then my interpretation from your comments is we should expect to see like Travelers premiums growth through this integration process in the first year pretty flat again for what will be included with Definity and then start to accelerate towards the end of the year. Is that the right way to be thinking about Travelers premium contribution to Definity?
Philip Mather: Yes, Jaeme, that's a good interpretation. I think if you look at what happened with the premium base, it actually contracted slightly from 2024 levels came in just a little below $1.5 billion. Now that was driven by actions taken under prior ownership where they were looking at targeted rate and underwriting actions. There's a couple of portfolio exits in there. So that's actually a good factor in terms of that underlying profitability kind of focus. And as they were taking those actions, clearly, it was during a period of time where people were waiting to look to see the certainty of the close period. So I think what we expect going forward, there'll be a little bit of spill of some of those actions and efforts into the first half of 2026. So we'll probably see the Travelers contribution of that acquired book be on the flat or a little lower side. And then as we emerge through our conversion activities begin to get a hold of the business and have more influence in the activity, we'd see that start to move back. So when I segment it for '26, we still continue to see good upper single-digit growth on the existing book. We see the $6.5 billion more akin to a floor than a ceiling. And certainly, we've got good conviction that as we get that stewardship and alignment of the books, you'll see that emergence into a more aligned growth pattern towards the end of the year.
Operator: And your next question comes from the line of Alex Scott from Barclays.
Taylor Scott: I just wanted to go back to a few more housekeeping items. On net investment income, can you help us think about the portfolio now that you have it? And just how to think about the yield and how that may change versus your portfolio, how much assets now that you've got them on board? Can you help us think through all that?
Philip Mather: Yes. No problem. I mean there are quite a lot of moving parts because, obviously, we were positioning the portfolio for the transaction, which closed on Jan 2. And you may have heard in the commentary that we were very proactive in terms of settling down the excess capital loans. We paid down that $1.1 billion of temporary debt financing, leveraging the acquired portfolio from Travelers at the start of February, which was several months faster than we anticipated. That obviously helps us on a net basis because we've taken away the cost of the debt, but you don't carry those excess assets. So if I step back today and say where are we today, we've got just north of $9 billion of invested assets. The blended book yield on that, it's heavily weighted towards fixed income. So the blended book yield is about 3.4% when you recognize bringing on that investment portfolio from Travelers balance sheet. Your fair value that to market yields on the date of acquisition. And then we've done some trading to the line the portfolios. So I think if you step back, big picture, about $9 billion now of assets under our investment strategy and management, about a 3.4% book yield on that today. Now where we end the year, it obviously depends on the yield environment, depends on cash flows in and out of the portfolio. But that's why we've got good conviction that we'll generate at least $300 million on it during the year. I think what you'll see at the start, Alex, is our weights will be more orientated to fixed income. We brought that portfolio over on that basis. We'll probably stay like that for the first couple of quarters just as we settle into the acquisition, focus on a little bit of the deleveraging aspect as you've already seen with those actions in February.
Taylor Scott: That's really helpful. And then just on pruning the business as you're kind of going through that, what will the timing look like? Are you starting that more aggressive immediately? Or is that something you'll sort of get the book on and take your time with? I'm just trying to anticipate a little bit how you're planning on approaching it? And also maybe just a view on the market we're in right now and just how retention will react relative to if there is some price softening out there that kind of leaks in from the global pricing environment.
Rowan Saunders: I think that the retention of the portfolio and the conversion is really not that impacted by your point about the market conditions because, again, Travelers is pretty close to 70% personal lines, I think it's 68%. And of the commercial business, it looks fairly similar to ours. They have a large small business area. They also have a large specialty area, which is, of course, what we like. So the segment that's really exposed to these more competitive large commercial accounts is similar to ours. It's not a big piece. So I think that the market conditions are less impactful. I think that the point that we're making, and Phil articulated is the business that's rolling on that has come from previous management of Travelers, as they've really taken some underwriting actions, that portfolio is slightly contracting. As we said, that's good because those are actions we likely would have taken ourselves once we acquired the business. So in fact, it's accelerating some loss ratio improvement. Mostly, there aren't any big portfolios that we really dislike or outside of our underwriting appetite. So we would like to keep most of it. That being said, just naturally, there will be some accounts, there will be some dislocation on pricing as we transfer the business from the Travelers platform to the Definity platform. And that will be some, let's call it, relatively modest retention rate declines in the first year. As that rolls on, we then very much expect this business to start performing just like Definity. We expect that the retention rates will be just as good as Definity's. We expect that the new business production of the total portfolio continues to be upper single digit. And we've got Definity now running in the low 90s combined ratios as we complete this 3-year conversion, we expect Travelers portfolio to mirror that. So that's the kind of way forward. So I wouldn't read too much into it. But I think the important point here is that we're inheriting a little less than $1.5 billion. That will shrink a little this year as expected, as you would expect in the first-year conversion. It gets offset by upper single-digit Definity portfolio growth this year, and then they start to look pretty similar in performance over the next couple of years.
Operator: And your last question comes from the line of Tom MacKinnon from BMO Capital Markets.
Tom MacKinnon: A question with respect to the exited lines. I guess that's the Sonnet Alberta stuff. Losses of $10 million in the quarter. This has been ongoing for some time. I think this is the highest we've seen in the last 4 quarters. What's happening there? Are we going to continue to see losses from that going forward? When does that business run off? And I have a follow-up.
Philip Mather: Yes. Thanks, Tom. Yes, you're right. Exited lines in the quarter, you saw a loss there of $10 million. That was driven by specific actions we took to strengthen the reserve position. I'd say, specifically in relation to bodily injury amounts. And really, what we did there was we took the decision to reinforce that level of prudence as we exit the year, and we now have a book that's fully transitioned into runoff. So there is no future earned premium coming through that book. There's no ongoing new exposure. So really, our intent there was to leave 2025 with a very robust balance sheet position against that exited business, really to try and mitigate the risk of any future adverse development coming there from. And I would say we're very confident in the closing position that we now exit really to put that behind us, I think, is the attitude that we took in closing the book and looking forward to the reforms that should come into the problems in '27.
Tom MacKinnon: What about on the Travelers book that you're bringing in? Is there a decision to move any of that into exited lines?
Philip Mather: No. So they have an active broker distributed business similar to the one that we have. It's not oversized either. I think the level of concentration in Alberta is pretty close to what we have today, and they're continuing to operate in that environment. So no. Now we're looking at -- obviously, we're picking up the whole legacy of the business. There might be historical business that they wrote, which we would consider to be more exited lines in nature. But we'll be looking at the opening balance sheet. We're going through that work right now. And I'd say similar to the Sonnet position, we'll be looking to make sure we're comforted on any back book there. But no, in connection with Alberta auto, they continue to move forward.
Tom MacKinnon: And if you make a decision to bump up reserves on the Travelers book, does that -- will that be reflected in PYD in the first quarter? Or is that sort of reflected into the purchase acquisition mix?
Philip Mather: Yes. So I think what we'll do is, obviously, we go through a fulsome review. We're at that now. We'll finish that process off for the Q1 reporting. I think just in that regard, from what we've seen so far, we're very happy with the balance sheet that's coming across. So we feel pretty good about the decisions they've taken. They certainly seem from early days to have been very prudent in their approach. And so we feel good about that opening position. As we report the reporting going forward in our MD&As, we will be reflecting that consistent pattern that we do today on our existing book of business. So as prior year development rolls through, that will get reported into current results. So we'll reset the balance sheet to our degree of prudence and satisfaction as part of that. And then from there on in, you'll see the prior year development roll through in our kind of operating reporting going forward.
Tom MacKinnon: All right. So no change in your kind of guide for prior year development going forward then?
Philip Mather: No, I don't think so. I think our view would be we'll be bringing them similar with the underwriting and pricing, we'll be bringing them to our reserve kind of practices and management and monitoring. So at this stage, we've had this historic 1- to 2-point range. I think our goal is to bring them consistent with that -- the practices that underpin that reserving approach.
Operator: That ends our question-and-answer session. I will now hand the call back to Dennis Westfall for any closing remarks.
Dennis Westfall: Thank you, and thanks to everyone for participating today. The webcast will be archived on our website for 1 year. The telephone replay will be available at 2:00 p.m. today until February 20, and a transcript will be made available on our website. Please note that our first quarter results for 2026 will be released on May 7. That concludes our conference call for today. Thank you and have a great one.
Operator: This concludes today's call. Thank you for participating. You may all disconnect.