Definity Financial Corporation Reports First Quarter 2025 Results

Globe and Mail

08-05-2025

, /CNW/ - (TSX: DFY)
(in Canadian dollars except as otherwise noted)
Highlights
Gross written premium 1 growth of 9.6% in Q1 2025 excluding the premiums of our exited line from both periods, on solid underlying personal auto activity driven by achieved rates and increasing unit counts, continued firm market conditions in personal property, and ongoing momentum in commercial insurance
Combined ratio 1 of 94.5% in Q1 2025 as winter weather drove an increase in the core accident year claims ratio 1 and 5 percentage points of catastrophe losses 1, largely offset by our proactive rate actions and ongoing disciplined expense management
Operating net income 1 of $75.9 million in Q1 2025 compared to $76.1 million in Q1 2024, resulting in operating EPS 1 of $0.65 ; trailing 12-month operating ROE 1 was 10.3%
Financial position remained strong, with book value per share 1 of $29.52 , 16.2% higher than a year ago
Executive Messages
"The firm market conditions in personal insurance, continued favourable conditions overall in commercial insurance, and our strong broker proposition combined to generate significant growth as premiums increased 9.6% in the first quarter, adjusted for our exited line. We delivered a 94.5% combined ratio in the quarter, as proactive rate actions and continued expense efficiencies largely offset the impacts of an active winter season. Operating results were bolstered by a solid performance from our broker distribution platform, including $11 million of distribution income and a strong level of commission offset. I am pleased with the encouraging start to the year and am confident that we will deliver on our 2025 financial targets, while advancing our strategic objectives. We have repeatedly demonstrated the resilience of our organization and have great confidence in our ability to become a top five P&C insurer."
– Rowan Saunders , President & CEO
"We ended the first quarter with book value per share of $29.52 , up 16.2% from a year ago, as we continue to deliver value to shareholders. Our efforts to diversify the profitability of the business in recent years were reflected in our solid net investment income and ongoing contributions from our broker distribution platform, both of which met our expectations for the first quarter. These results combined with solid underwriting income to generate an operating return on equity of 10.3% over the past 12 months, despite the significant increase in our equity base and the active catastrophe experience in 2024. We proactively positioned our investment portfolio during the quarter in advance of April tariff announcements, moving nearly $250 million out of common equities and into government bonds. This defensive posture has helped protect our portfolio in the current environment and further strengthens our financial capacity, which ended the first quarter at $1.8 billion . We are well positioned with the capabilities, performance, and balance sheet needed to manage through environments of increased uncertainty and volatility."
– Philip Mather , EVP & CFO
Consolidated Results
(in millions of dollars, except as otherwise noted)
Q1 2025
Q1 2024
Change
Net income attributable to common shareholders
92.0
105.2
(13.2)
Operating net income 1
75.9
76.1
(0.2)
Per share measures (in dollars)
Diluted earnings per share
0.79
0.90
(12.2 %)
Operating earnings per share 1
0.65
0.65
-
Book value per share 1
29.52
25.40
16.2 %
Return on equity
Return on equity ("ROE") 1
13.4 %
12.7 %
0.7 pts
Operating ROE 1
10.3 %
9.5 %
0.8 pts
Gross written premiums ("GWP") for Q1 2025 increased by $74.5 million or 7.8% compared to Q1 2024, with growth across all our lines of business. GWP growth was 9.6% excluding the premiums of our exited line, Sonnet Alberta personal auto, from both periods. Personal lines GWP were up 6.7% (9.3% when excluding the premiums of our exited line from both periods), driven by auto rate and unit count increases along with continued rate increases in property. Commercial lines GWP increased 10.0%, driven by continued favourable overall market conditions, particularly evident in our strong small commercial and specialty business offerings.
Underwriting income for Q1 2025 was $55.0 million and the combined ratio was 94.5%, compared to underwriting income of $54.8 million and a combined ratio of 93.9% in Q1 2024. The combined ratio in Q1 2025 was impacted by active winter weather compared to relatively benign weather in Q1 2024. The resulting elevated catastrophe losses were driven by heavy snowfall, ice, and rain mostly in Ontario , Québec, and Atlantic Canada . These increases were largely offset by a decrease in the expense ratio and increased favourable claims development.
Net investment income increased $1.6 million in Q1 2025 due to an increase in interest income driven by higher holdings of bonds.
Distribution income was $11.0 million in Q1 2025 compared to $10.0 million in Q1 2024. The increase was driven primarily by the contributions from acquisitions combined with solid underlying organic growth. In addition, the combination of the larger premium base and the increased share placed with Definity led to an increase in the commission offset.
Net Income and Operating Net Income
Net income attributable to common shareholders was $92.0 million in Q1 2025 compared to net income of $105.2 million in Q1 2024. The decrease was due primarily to lower gains on common stocks, partially offset by gains on bonds in Q1 2025.
Operating net income was $75.9 million in Q1 2025, relatively consistent with $76.1 million in Q1 2024 despite the more active winter weather this year.
Operating ROE was 10.3% for the twelve-month period ended March 31, 2025 compared to 9.5% for the twelve-month period ended March 31, 2024 . The increase in operating ROE was driven by strong growth in operating net income, which more than offset the significant growth in average adjusted equity attributable to common shareholders, excluding accumulated other comprehensive loss ("AOCI").
Personal Insurance
Personal lines GWP increased 6.7% in Q1 2025 with strong growth in our broker channel. Direct channel GWP, excluding Sonnet Alberta personal auto in both periods, decreased modestly by 2.2% in Q1 2025, reflecting a strategy to preserve the Sonnet portfolio's most recent profitability performance.
Personal auto GWP increased 6.1% in Q1 2025. GWP increased 10.2% in Q1 2025 when excluding the premiums of our exited line from both periods. This growth reflects improved competitive positioning as competitor rates begin to converge, driving unit growth in Q1 2025. The combined ratio was 97.5% in Q1 2025 compared to 97.1% in Q1 2024, driven by higher catastrophe losses and more challenging winter driving conditions, partially offset by earned rate increases and improved Sonnet profitability.
Personal property GWP increased 7.8% in Q1 2025 benefitting from continued firm market conditions driving increases in average written premiums. This was partially offset by ongoing active management of our portfolio to address risk concentration in regions with a higher propensity for peril events. The combined ratio in Q1 2025 was 94.1% compared to 91.0% in Q1 2024, driven by elevated catastrophe losses, which amounted to 11.8 percentage points in Q1 2025 compared to 5.9 percentage points in Q1 2024. The 5.9 percentage point increase in catastrophe losses in Q1 2025 was partially offset by higher favourable claims development and a decrease in the expense ratio.
Commercial Insurance
Commercial lines GWP increased 10.0% in Q1 2025, driven by strong retention and rate achievement in a favourable market environment overall, with further expansion of our strong small business and specialty capabilities.
Commercial lines continued to benefit from our focus on underwriting execution and rate adequacy with a strong combined ratio of 90.5% in Q1 2025 compared to 92.1% in Q1 2024. The improvement in the combined ratio was driven by lower catastrophe losses, higher favourable claims development, and a decrease in the expense ratio, partially offset by an increase in the core accident year claims ratio.
Financial Position
Our capital position as of March 31, 2025 remains strong and well in excess of our capital targets.
Equity attributable to common shareholders increased by $48.5 million , or 1.5%, as at March 31, 2025 , driven by operating net income generated in the first quarter of 2025.
The increase in financial capacity as at March 31, 2025 relates primarily to capital generated from operating net income and recognized gains on investments. These were partially offset by ongoing deployment of capital for broker acquisitions, and disciplined deployment of capital to support our organic growth and dividend priorities.
Dividend
On May 8, 2025 , our Board of Directors declared a $0.1875 per share dividend, payable on June 26, 2025 to shareholders of record at the close of business on June 12, 2025 .
Normal Course Issuer Bid ("NCIB")
On May 8, 2025 , our Board of Directors approved the renewal of the NCIB, on the same terms and conditions as the current NCIB, subject to the approval of the Toronto Stock Exchange, which has not yet been obtained.
Conference Call
Definity will host a conference call to review information included in this news release and related matters at 11:00 a.m. ET on May 9, 2025 . The conference call will be available simultaneously and in its entirety to all interested investors and the news media at www.definity.com. A transcript will be made available on Definity's website within two business days.
About Definity Financial Corporation
Definity Financial Corporation ("Definity", which includes its subsidiaries where the context so requires) is one of the leading property and casualty insurers in Canada , with over $4.5 billion in gross written premiums for the 12 months ended March 31, 2025 and approximately $3.4 billion in equity attributable to common shareholders as at March 31, 2025 .
_____________
1
This is a supplementary financial measure, non-GAAP financial measure, or a non-GAAP ratio. Refer to Supplementary financial measures and non-GAAP financial measures and ratios in this news release, and Section 11 – Supplementary financial measures and non-GAAP financial measures and ratios in the Q1 2025 Management's Discussion and Analysis dated May 8, 2025 for further details, which is hereby incorporated by reference and is available on the Company's website at www.definity.com and on SEDAR+ at www.sedarplus.ca.
Cautionary Note Regarding Forward-Looking Information
This news release contains "forward-looking information" within the meaning of applicable securities laws in Canada . Forward-looking information may relate to our future business, financial outlook and anticipated events or results and may include information regarding our financial position, business strategy, growth strategies, addressable markets, budgets, operations, financial results, taxes, dividend policy, plans and objectives. Particularly, information regarding our expectations of future results, performance, achievements, prospects or opportunities or the markets in which we operate is forward-looking information. In some cases, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "aims", "targets", "expects" or "does not expect", "is expected", "an opportunity exists", "budget", "scheduled", "estimates", "forecasts", "projection", "prospects", "strategy", "intends", "anticipates", "does not anticipate", "believes", or variations of such words and phrases or statements that certain actions, events or results "can", "may", "could", "would", "might", "will", "will be taken", "occur" or "be achieved". In addition, any statements that refer to expectations, intentions, projections or other characterizations of future events or circumstances contain forward-looking information. Statements containing forward-looking information are not historical facts, but instead represent management's expectations, estimates and projections regarding possible future events or circumstances.
Forward-looking information in this news release is based on our opinions, estimates and assumptions in light of our experience and perception of historical trends, current conditions and expected future developments, as well as other factors that we currently believe are appropriate and reasonable in the circumstances. Despite a careful process to prepare and review the forward-looking information, there can be no assurance that the underlying opinions, estimates and assumptions will prove to be correct. Forward-looking information is necessarily based on a number of opinions, estimates and assumptions that we considered appropriate and reasonable as at the date such statements are made, and are subject to many factors that could cause our actual results, performance or achievements, or other future events or developments, to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors:
Definity's ability to continue to offer competitive pricing or product features or services that are attractive to customers;
Definity's ability to appropriately price its insurance products to produce an acceptable return, particularly in provinces where the regulatory environment requires auto insurance rate increases to be approved or that otherwise impose regulatory constraints on auto insurance rates;
Definity's ability to accurately assess the risks associated with the insurance policies that it writes;
Definity's ability to assess and pay claims in accordance with its insurance policies;
Definity's ability to obtain adequate reinsurance coverage to manage risk;
Definity's ability to accurately predict future claims frequency or severity, including the frequency and severity of weather-related events and the impact of climate change;
Definity's ability to address inflationary cost pressures through pricing, supply chain, or cost management actions;
the occurrence of unpredictable catastrophe events;
litigation and regulatory actions, including potential claims in relation to demutualization and our IPO and unclaimed demutualization benefits and the tax treatment of related amounts transferred to the Company, and COVID-19-related class-action lawsuits that have arisen and which may arise, together with associated legal costs;
unfavourable capital market developments, interest rate movements, changes to dividend policies or other factors which may affect our investments or the market price of our common shares;
changes associated with the transition to a low-carbon economy, including reputational and business implications from stakeholders' views of our climate change approach or of our environmental or climate change–related representations (i.e. "greenwashing"), that of our industry, or that of our customers;
Definity's ability to successfully manage credit risk from its counterparties;
foreign currency fluctuations;
Definity's ability to meet payment obligations as they become due;
Definity's ability to maintain its financial strength rating or credit rating;
Definity's dependence on key people;
Definity's ability to attract, develop, motivate, and retain an appropriate number of employees with the necessary skills, capabilities, and knowledge;
Definity's ability to appropriately collect, store, transfer, and dispose of information;
Definity's reliance on information technology systems, software, internet, network, data centre, voice or data communications services and the potential disruption or failure of those systems or services, including disruption as a result of cyber security risk or of a third-party service provider;
failure of key service providers or vendors to provide services or supplies as expected, or comply with contractual or business terms;
Definity's ability to obtain, maintain and protect its intellectual property rights and proprietary information or prevent third parties from making unauthorized use of our technology;
Definity's ability to effectively govern the use of models, artificial intelligence, and generative AI technology;
compliance with and changes in legislation or its interpretation or application, or supervisory expectations or requirements, including changes in the scope of regulatory oversight, effective income tax rates, risk-based capital guidelines, accounting standards, and generally accepted actuarial techniques;
changes in domestic or foreign government policies, such as cross-border tariffs or trade policies, may negatively impact the Canadian economy and the P&C insurance industry and/or exacerbate other risks to Definity;
failure to design, implement and maintain effective controls over financial reporting and disclosure which could have a material adverse effect on our business;
deceptive or illegal acts undertaken by an employee or a third party, including fraud in the course of underwriting insurance or administering insurance claims;
Definity's ability to respond to events impacting its ability to conduct business as normal;
Definity's ability to implement its strategy or operate its business as management currently expects;
general business, economic, financial, political, and social conditions, particularly those in Canada ;
the emergence or continuation of widespread health emergencies or pandemics, and their impact on local, national, or international economies, as well as their heightening of certain risks that may affect our business or future results;
the competitive market environment and cyclical nature of the P&C insurance industry;
the introduction of advanced technologies, disruptive innovation or alternative business models by current market participants or new market entrants;
distribution channel risk, including Definity's reliance on brokers to sell its products;
Definity's dividend payments being subject to the discretion of the Board and dependent on a variety of factors and conditions existing from time to time;
the discontinuance, modification, or failure to renew or complete Definity's normal course issuer bid;
Definity's dependence on the results of operations of its subsidiaries and the ability of the subsidiaries to pay dividends;
Definity's ability to manage and access capital and liquidity effectively;
Definity's ability to successfully identify, complete, integrate and realize the benefits of acquisitions or manage the associated risks;
management's estimates and judgments in respect of IFRS 17 and its impact on various financial metrics;
periodic negative publicity regarding the insurance industry, Definity, or Definity Insurance Foundation; and
management's estimates and expectations in relation to interests in the broker distribution channel and the resulting impact on growth, income, and accretion in various financial metrics.
If any of these risks or uncertainties materialize, or if the opinions, estimates or assumptions underlying the forward-looking information prove incorrect, actual results or future events might vary materially from those anticipated in the forward-looking information. The opinions, estimates or assumptions referred to above and described in greater detail in the "11 – Risk Management and Corporate Governance" section of the Management's Discussion and Analysis for the year ended December 31, 2024 should be considered carefully by readers.
Although we have attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, the factors above are not intended to represent a complete list and there may be other factors not currently known to us or that we currently believe are not material that could also cause actual results or future events to differ materially from those expressed in such forward-looking information. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information, which speaks only as at the date made. The forward-looking information contained in this news release represents our expectations as at the date of this news release (or as at the date they are otherwise stated to be made) and are subject to change after such date. However, we disclaim any intention or obligation or undertaking to update or revise any forward-looking information whether as a result of new information, future events or otherwise, except as required under applicable securities laws in Canada .
All of the forward-looking information contained in this news release is expressly qualified by the foregoing cautionary statements.
Supplementary Financial Measures and Non-GAAP Financial Measures and Ratios
We measure and evaluate performance of our business using a number of financial measures. Among these measures are the "supplementary financial measures", "non-GAAP financial measures", and "non-GAAP ratios" (as such terms are defined under Canadian Securities Administrators' National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure), and in each case are not standardized financial measures under GAAP. The supplementary financial measures, non-GAAP financial measures, and non-GAAP ratios in this news release may not be comparable to similar measures presented by other companies. These measures should not be considered in isolation or as a substitute for analysis of our financial information reported under GAAP. These measures are used by financial analysts and others in the P&C insurance industry and facilitate management's comparisons to our historical operating results in assessing our results and strategic and operational decision-making. For more information about these supplementary financial measures, non-GAAP financial measures, and non-GAAP ratios, including (where applicable) definitions and explanations of how these measures provide useful information, refer to Section 11 – Supplementary financial measures and non-GAAP financial measures and ratios in the Q1 2025 Management's Discussion and Analysis dated May 8, 2025 , which is available on our website at www.definity.com and on SEDAR+ at www.sedarplus.ca.
Below are quantitative reconciliations of non-GAAP measures for the three months ended March 31, 2025 and 2024:
Net underwriting revenue
(in millions of dollars)
Q1 2025
Q1 2024
Insurance revenue
1,111.9
991.9
Earned reinsurance premiums 1
(102.0)
(86.6)
Remove: impact of exited lines
(8.1)
-
Net underwriting revenue
1,001.8
905.3
1
Included in Net expenses from reinsurance contracts held in our interim consolidated financial statements.
Net claims and adjustment expenses
(in millions of dollars)
Q1 2025
Q1 2024
Claims and adjustment expenses 1,2
714.3
634.8
Impact of onerous insurance contracts 3
(6.2)
(1.8)
Claims recoverable from reinsurers for incurred claims 2,4
(56.7)
(66.6)
Remove: impact of exited lines
(8.2)
-
Net claims and adjustment expenses
643.2
566.4
1
Included in Insurance service expenses and Other expenses in our interim consolidated financial statements.
2
Excludes the impact of discounting and risk adjustment.
3
Included in Insurance service expenses.
4
Included in Net expenses from reinsurance contracts held in our interim consolidated financial statements.
Prior year claims development
(in millions of dollars)
Q1 2025
Q1 2024
Changes in fulfilment cash flows relating to the liabilities for incurred claims 1
(21.4)
6.5
Changes to amounts recoverable for incurred claims 2
(0.8)
(19.7)
Remove: discounting included above
(14.5)
(17.0)
Remove: risk adjustment included above
16.0
18.8
Remove: impact of exited lines
(0.1)
-
Prior year claims development
(20.8)
(11.4)
1
Included in Insurance service expenses in our interim consolidated financial statements.
2
Included in Net expenses from reinsurance contracts held in our interim consolidated financial statements.
Net underwriting expenses
(in millions of dollars)
Q1 2025
Q1 2024
Net commissions
147.2
133.8
Net operating expenses
118.8
116.4
Net premium taxes
37.6
33.9
Net underwriting expenses
303.6
284.1
Net commissions
(in millions of dollars)
Q1 2025
Q1 2024
Commissions 1
165.0
148.1
Commissions earned on ceded reinsurance 2
(18.6)
(14.3)
Remove: impact of exited lines
0.8
-
Net commissions
147.2
133.8
1
Included in Insurance service expenses in our interim consolidated financial statements.
2
Included in Net expenses from reinsurance contracts held in our interim consolidated financial statements .
Net operating expenses
(in millions of dollars)
Q1 2025
Q1 2024
Operating expenses 1
121.7
116.4
Remove: impact of exited lines
(2.9)
-
Net operating expenses
118.8
116.4
1
Included in Insurance service expenses in our interim consolidated financial statements.
Net premium taxes
(in millions of dollars)
Q1 2025
Q1 2024
Premium taxes 1
38.0
33.9
Remove: impact of exited lines
(0.4)
-
Net premium taxes
37.6
33.9
1
Included in Insurance service expenses in our interim consolidated financial statements.
Underwriting income
(in millions of dollars)
Q1 2025
Q1 2024
Net underwriting revenue
1,001.8
905.3
Less:
Net claims and adjustment expenses
643.2
566.4
Net commissions
147.2
133.8
Net operating expenses
118.8
116.4
Net premium taxes
37.6
33.9
Underwriting income
55.0
54.8
Operating net income, Operating income, Non-operating gains (losses)
Net income attributable to common shareholders is the most directly comparable GAAP financial measure disclosed in our interim consolidated financial statements to operating net income, operating income, and non-operating gains (losses), which are considered non-GAAP financial measures.
(in millions of dollars)
Q1 2025
Q1 2024
Net income attributable to common shareholders
92.0
105.2
Remove: income tax expense
30.3
34.7
Income before income taxes
122.3
139.9
Remove: non-operating gains (losses)
Recognized gains on FVTPL investments
52.2
25.0
Discounting 1
31.2
28.7
Risk adjustment 1
(1.2)
5.0
Finance expenses from insurance contracts issued
(57.3)
(16.8)
Finance income from reinsurance contracts held
5.9
1.4
Underwriting loss from exited lines
(2.6)
-
Demutualization-related expenses, less interest on restricted cash 2
(1.8)
1.2
Amortization of intangible assets recognized in business combinations 2
(6.5)
(6.5)
Other 2,3
1.9
1.6
Non-operating gains
21.8
39.6
Operating income
100.5
100.3
Operating income tax expense
(24.6)
(24.2)
Operating net income
75.9
76.1
1
Included in Insurance service expenses and Net expenses from reinsurance contracts held in our interim consolidated financial statements.
2
Included in Other expenses in our interim consolidated financial statements.
3
Other represents miscellaneous expenses or revenues that in the view of management are not part of our insurance operations and are individually and in the aggregate not material, such as gains or losses pertaining to fintech venture capital funds and acquisition-related expenses.
Distribution income
(in millions of dollars)
Q1 2025
Q1 2024
Distribution revenues 1
49.0
40.4
Distribution business expenses 2
(38.0)
(30.4)
Distribution income
11.0
10.0
1
Distribution revenues includes commissions on policies underwritten by external insurance companies.
2
Included in Other expenses in our interim consolidated financial statements. These amounts exclude amortization of intangible assets recognized in business combinations and acquisition-related expenses.
Below are quantitative reconciliations of non-GAAP ratios for the periods ended March 31, 2025 and 2024:
ROE
For the 12 months ended
March 31,
(in millions of dollars, except as otherwise noted)
2025
2024
Net income attributable to common shareholders
417.1
354.5
Equity attributable to common shareholders 1
3,368.3
2,926.7
Adjustment for the return of restricted cash 2
(88.7)
-
Adjusted equity attributable to common shareholders
3,279.6
2,926.7
Average adjusted equity attributable to common shareholders 3
3,103.1
2,781.9
ROE
13.4 %
12.7 %
1
Equity attributable to common shareholders is as at March 31, 2025 and 2024.
2
The return of restricted cash was prorated for the 206 days prior to October 23, 2024.
3
Average adjusted equity attributable to common shareholders is the average of adjusted equity attributable to common shareholders (equity attributable to common shareholders as shown on our interim consolidated balance sheets, adjusted for significant capital transactions or other unusual adjustments to equity, if applicable) at the end of the period and the end of the preceding 12-month period. Equity attributable to common shareholders and adjusted equity attributable to common shareholders as at March 31, 2023 was $2,637.2 million.
Operating ROE
1
Equity attributable to common shareholders, excluding AOCI is as at March 31, 2025 and 2024.
2
The return of restricted cash was prorated for the 206 days prior to October 23, 2024.
3
Adjusted equity attributable to common shareholders, excluding AOCI, is equity attributable to common shareholders and AOCI each as shown on our interim consolidated balance sheets, adjusted for significant capital transactions or other unusual adjustments to equity, if applicable, and excluding unrealized gains or losses on FVTPL equity instruments.
4
Average adjusted equity attributable to common shareholders, excluding AOCI, is the average of adjusted equity attributable to common shareholders, excluding AOCI at the end of the period and the end of the preceding 12-month period. Adjusted equity attributable to common shareholders, excluding AOCI, as at March 31, 2023 was $2,637.8 million.