Activity Report 2014-2015

Activity

Report

Table

of

Contents 1 2 3 5

Message from Optimum Group Inc.

Optimum General Inc. and Highlights

2014 Overview and Perspectives for 2015-2016

Our regions

8 9 12 13

Independent Auditor’s Report

Summary Consolidated Financial Statements Management Boards of Directors and General information

Une version française de ce rapport d’activité est disponible sur demande. ® Trademark of Optimum Group Inc. used under license.

Message

Optimum Group from

The year 2014 was very profitable for Optimum Group as a whole, especially for our property and casualty insurance companies. In this sector, for both revenue growth and profitability, we have maintained a stable growth and achieved results that exceeded our annual targets. We are privileged to count on strong leadership, effective business strategies as well as a talented and competent team that knows how to take advantage of market opportunities to develop innovative business solutions. In keeping with the principles that have been guiding our business approach since our foundation, more than forty-five years ago, we always give priority to rigorousness, risk management, good corporate governance, as well as the financial security of our customers and partners. We have made minor changes to Optimum General’s activity report this year: in addition to an overview of the property and casualty insurance sector for the past year, as well as our perspectives for the coming months, we now highlight particular successes in each of our regional branches. We hope that you will enjoy this new format.

Gilles Blondeau

Chairman of the Board Optimum Group Inc.

Jean-Claude Pagé

Vice-Chair of the Board and Chief Executive Officer Optimum Group Inc.

Anabelle Blondeau

President and Chief Operating Officer Optimum Group Inc.

is a Canadian-owned, private international financial group. Founded over 45 years ago, the group is active in property and casualty insurance, life insurance, life reinsurance, actuarial consulting and asset management.

Optimum General Subsidiary of Optimum Group Inc.

Provide industry leading insurance solutions through customized products and personalized services to achieve profitable growth and sustainability.

LOSS RATIO

Martin Carrier

Paul Tremblay

Louise Frankland

Véronique Bouchard

J.-Sébastien Lagarde

Executive Vice President

Senior Vice President, Finance

Assistant Vice President, Rating and Underwriting

Assistant Vice President, Actuarial and Appointed Actuary

Vice President, Corporate Strategy and Business Development

Noella Anthony

COMBINED RATIO

$79M 2014

$73M 2013

$67M 2012

$8.5M

$8.2M 2013

NET INCOME

2014

$8.3M 2012

95.7% 2014

93.6%

92.5%

Senior Vice President Claims and Branch Operations

2012

55.7% 2014

52.0%

49.3% 2012

2013

$156M 2014

$140M 2013

$129M

DIRECT WRITTEN PREMIUMS

Odile Goyer

Vice President, Actuarial

Achieve efficient growth at a faster rate than market as a preferred Property & Casualty Insurance company known for: Our excellent service Our staff’s knowledge and expertise Our proactive approach to meeting market opportunities through innovative solutions

2012

2014 Highlights

Our

Vision

From left to right

2013

Our

Mission

EVOLUTION OF SHAREHOLDERS’ EQUITY

The year 2014 was characterized as historical in terms of low investment returns and modest profit margins for the property and casualty insurance industry, in spite of the fact that natural disasters were fairly infrequent and less severe than previous years. In fact, since 2013, market loss and combined ratios improved only slightly, with a modest increase in written premiums. At Optimum, we were able to produce an enviable loss ratio that was much better than that of the industry. We continued to generate some of the best results amongst the insurance sector, as reflected by our combined ratio of 95.7%, which is slightly higher than in 2013, but remains excellent when considering that written premiums rose by more than 11%. In addition, we have reduced our expense ratio by over 1.5 points, taking a step further in producing increasingly stable results. The combined effects of growth in investment income and excellent underwriting results generated our greatest ever net profit in 2014 with 8.5 million dollars. The severity of worlwide catastrophes in 2014 was at its lowest level of the past five years, and the Canadian marketplace was no exception, with levels that sank well below the tenyear rolling average. However, the potential for sizable catastrophe related costs remains the principal concern for insurers. Important losses still occurred following hailstorms in Alberta, and last winter’s extremely harsh conditions are proving to be costly throughout Eastern Canada. Frequent natural disasters in

recent years are forcing insurers to review rate adequacy and underwriting criteria to mitigate some of the impact. The Optimum team has accordingly proceeded with an extensive review of hail and water damage coverages in provinces presenting the highest risk potential for our residential products. This new assessment, combined with our successful segmentation strategy, helped to minimize the impact from such catastrophes. In Ontario, automobile insurers are reluctant to reduce premium levels, as market profitability is barely improving. Nonetheless, insurance companies have proceeded with marginal reductions, but the overall change still remains far from the government-mandated 15% target.

Perspectives for

2015-2016 We expect that the industry will continue to undergo many changes in 2015. The arrival of internationally based insurers in the Canadian market will definitely transform the landscape for insurers and brokers alike. Automobile and residential insurance will undoubtedly continue to face hardening pressure in many areas because of the experience in recent years. Competition for market share will nonetheless intensify, and we might see some insurers focus increasingly on commercial lines in order to reduce their dependency on personal products. Telematics in insurance is a phenomenon that is attracting growing interest

amongst Canadian providers, as evidenced by the expanding offer for this service. However, it is not proven that all telematics approaches will find their niche in the marketplace. Optimum is attentively observing and monitoring market developments while considering policyholder and broker interests and needs. As severe weather conditions can quickly deteriorate underwriting results, we are expecting insurers to target areas most at risk with increasingly stringent guidelines and significant rate increases. Moreover, some major players are actually working on a new residential flood coverage that will surely motivate others to come up with their own review of this natural disaster. At Optimum, having gone through the first months of 2015, premiums have continued to grow, and are in line with our estimated budget. A large part of this is due to a significant increase in volume for our commercial line, as well as a successful launch of new products, such as the residential glass coverage offered in British Columbia. Based on our product innovation, prompt response to market opportunities as well as the constant support from our broker partners, we can expect favourable results for the remainder of the year. Finally, we cannot overlook the impact of further consolidations between insurers and between brokers. Based on recent activity and the high number of broker mergers in recent years, such transactions will likely continue or even increase in the near future. Furthermore, when considering the draft guidelines for demutualization issued by

Our Team the government, the potential for additional insurance mergers remain high in the short term. Acquisitions made by large insurance companies have the effect of limiting the scope of supply to the consumers and therefore act on market behaviour.

In 2014, two positive changes were made at the management level. Firstly, Mr. Lavjit Singh, formerly British Columbia’s Manager of Commercial Business Development, was appointed Branch Manager for Manitoba and Saskatchewan.

Our management team has been keeping a close eye on acquisition opportunities that could further solidify Optimum’s positioning in the current marketplace. Given our company’s solid capitalization and growth aspirations, the conditions could be excellent for us to move forward with this endeavour.

Also, Mr. J.-Sébastien Lagarde accepted new challenges in addition to his function as Vice President, Corporate Strategy and Business Development. In the spring of 2014 he was appointed Executive Vice President of Optimum Farm Insurance Inc., and more recently, he assumed the role of Regional Vice President for the Montreal branch.

Acknowledgements We are very proud to work with a team of talented and committed professionals who care to do a good job. We also have the privilege of being supported by partners and experienced external directors who have been providing their guidance for several years. We have at heart to sincerely thank our teams, from all over the country. Thanks to their commitment, we have achieved remarkable results again in 2014. In addition, the trust and confidence brokers have placed in our teams is essential to us. We want to continue developing this partnership, maintain our strong relationships with each broker, and offer them high standards of service, on a daily basis. Undeniably, the bond we continue to build with our partners is at the heart of our business. Thank you for your support.

Anabelle Blondeau

President and Chief Executive Officer Optimum General Inc.

Regions

Our

Greg Carre, Manager, Commercial Lines Jeremy Green, Regional Vice President and Vice President, Business Strategy (Optimum West) Beth Trisko, Assistant Vice President, Claims

Early in 2014, the insurance regulator of British Columbia determined that from then onwards, glass insurance contracts had to be regulated and distributed as an insurance product. Seeing that this new rule left brokers with no alternative, Optimum West was proactive in meeting the urgent needs of its clients. In collaboration with our head office, the Vancouver team researched, built and released in a short period of time, a glass insurance product that received praise from the industry. Thus, in keeping with our new Mission & Vision, we were able to react swiftly to a new market opportunity with an innovative solution. As a result, we generated excellent results that contributed to our overall financial success. Bernice Majcher, Personal Lines Underwriter Derri Thomas, Regional Vice President Shawn Dentman, Personal Lines Underwriter

This past year was one of substantial growth for the Edmonton branch, due mainly to the sustained efforts put towards our residential and commercial business lines. Our growth in the residential sector stemmed from a strategy that targeted specific geographical areas of the province. As for commercial business, we focused on our OptiPak program for which we have more than doubled our sales volume from 2013. We have apparently succeeded in filling a gap in the market by efficiently meeting the needs of particular segments. In addition, it’s worth mentioning that the increase in volume did not affect sustainability, as we have experienced our lowest loss ratio in the last three years.

Regions

Our

Cont’d

Vikki Hedderson, Commercial Lines Underwriter Noella Anthony, Senior Vice President, Branch Operations and Claims Cinthia Giesler, Personal Lines Underwriter

In 2014, in a market where many insurers were struggling to balance profitability and regulatory requirements, the North Bay branch has successfully set itself apart from competitors by producing an enviable loss ratio for our automobile line of business. This was achieved, in large part, through strategic market segmentation and a global risk reduction initiative taken years ago. In addition, the efforts made to develop residential and commercial volumes have helped us diversify and stabilize the branch’s portfolio. These great results are a testimony to the competence, knowledge and dedication of our team, as made evident by the very good results achieved in our 2014 Broker survey. Michael Stewart, Commercial Lines Underwriter Brent Helm, Vice President, Commercial Lines - Ontario Alan Hotta, Commercial Lines Underwriter

During 2014, the Toronto Branch concentrated its efforts on solidifying and improving the relationships with our broker partners while reiterating our commercial appetite. This was achieved through completing over 180 broker visits, the promotion of our comprehensive OptiPak products, as well as the development and delivery of RIBO accredited commercial seminars. This product promotion along with our renewed relationships with our broker network resulted in a substantial increase in the number of commercial property submissions and new business. Both were beyond our target and allowed us to exceed our yearly premium budget by a large margin, while maintaining a loss ratio well below what was anticipated. Olena Sharaburak, Commercial Lines Underwriter Lavjit Singh, Branch Manager Jeanna Domingo, Receptionist and administrative assistant

Winnipeg achieved excellent results in 2014. Organic growth and portfolio transfers allowed us to grow at a greater rate than the industry, and also, helped us increase our market share. This favorable development was brought about by the actions we have taken to become more competitive, adapt our insurance solutions to specific needs, and strengthen our connections with our broker partners. Our latest satisfaction survey showed very positive results and was a testimonial to the quality of service provided by our team. It is through these relationships and feedback that we continue to improve our product offerings and service standards.

Regions

Our

Cont’d

Nicole Denis, Commercial Lines Underwriter J.-Sébastien Lagarde, Regional Vice President Sylvie Rousseau, Manager, Claims

All lines of business grew significantly in Montreal in 2014, especially our commercial and automobile portfolios. In particular, the strong relationships we have developed with our brokers, the quality of service offered and our competitively priced products made these satisfactory results possible. Our team’s efforts can be clearly observed by the increase in our retention levels and the doubling of new business. Furthermore, our special risks segment showed very good results. Now, as we are well into 2015, our overall growth continues, and is paving the way to an expansion of our market share.

Line Normandin, Farm Underwriter J.-Sébastien Lagarde, Executive Vice President Chantal Landry, Team leader, Underwriting

In 2014, Optimum Farm Insurance implemented a development strategy that aimed to improve its offer to brokers. Our action plan included identifying segments with potential, reviewing our current rating practices as well as creating innovative discounts to help support our focus on these targeted areas. Our sustained efforts were well received by our broker partners and this lead to increased retention rates, growth in the number of new business and excellent profitability.

Lyette Racine, Commercial Lines Technical Assistant Alain Lepage, Regional Vice President Marie-Michèle Fiset, Personal Lines Underwriter

The Quebec City branch has, once again in 2014, produced enviable results for its special risks portfolio. Our success for this book of business is the fruit of a long term plan, put together by a team of experts with an extensive knowledge of their market. By the same token, we have continued to develop relations based on proximity with our broker partners by visiting them on a regular basis. At Optimum, we set ourselves apart from the competition, mainly with two elements, which are our teams’ rigorousness, and its expertise in niche products.

Independent

Auditor’s Report

on Summary Consolidated Financial Statements

To the Shareholder of Optimum General Inc The accompanying summary consolidated financial statements, which comprise the summary consolidated statement of financial position as at December 31, 2014 and the summary consolidated statements of net income and of changes in equity for the year then ended, are derived from the audited consolidated financial statements of Optimum General Inc. for the year ended December 31, 2014. We expressed an unmodified audit opinion on those consolidated financial statements in our report dated April 23, 2015. Those consolidated financial statements, and the summary consolidated financial statements, do not reflect the effects of events that occurred subsequent to the date of our report on those consolidated financial statements. The summary consolidated financial statements do not contain all the disclosures required by International Financial Reporting Standards (IFRS). Reading the summary consolidated financial statements, therefore, is not a substitute for reading the audited financial statements of Optimum General Inc. Management’s responsibility for the summary consolidated financial statements Management is responsible for the preparation of a summary of the audited consolidated financial statements on the basis described in Note 1. Auditor’s responsibility Our responsibility is to express an opinion on the summary consolidated financial statements based on our procedures, which were conducted in accordance with Canadian Auditing Standard (CAS) 810, “Engagements to Report on Summary Financial Statements”. Opinion In our opinion, the summary consolidated financial statements derived from the audited consolidated financial statements of Optimum General Inc. for the year ended December 31, 2014 are a fair summary of those consolidated financial statements, on the basis described in Note 1.

Montréal April 23, 2015 1

CPA auditor, CA public accountancy permit no. A120795

Summary

Consolidated

statement of net income

Year ended December 31, 2014 (Canadian dollars)



Income

2014

2013

$ $



Direct premiums written

156,179,828



Net premiums written

123,694,618 111,639,443



Net premiums earned

117,437,925

108,321,583



Net investment income

4,522,618

3,210,336

121,960,543

111,531,919



140,381,236

Expenses

Claims and adjustment expenses

65,428,510

56,360,550



Commissions and premium taxes

23,310,572

21,315,203



Underwriting expenses

23,596,090 23,757,949



112,335,172

101,433,702

Underwriting result

9,625,371

10,098,217

588,467

-

Net gain on disposal of a subsidiary Income before income taxes Income taxes

Net income



10,213,838 10,098,217 1,719,195

1,910,201

8,494,643

8,188,016

Summary

Consolidated

statement of financial position

As at December 31, 2014 (Canadian dollars)



Assets

Cash and cash equivalents Investments Investment income receivable and other accounts receivable Income taxes receivable Premiums receivable from policy holders Premiums receivable from brokers Due from reinsurers Due from affiliated companies Reinsurers’ share of Unearned premiums Unpaid claims and adjustment expenses Deferred acquisition costs Other assets Deferred income tax assets

2014

2013

$ $

14,317,503 12,483,808 172,769,925 154,388,570 2,259,166 2,306,999 117,898 881,855 25,443,390 23,468,292 9,538,408 8,494,374 418,582 617,476 9,657 8,917 16,556,073 14,801,730 17,742,978 17,066,162 19,613,640 17,655,656 13,038,405 13,044,177 240,130 237,591 292,065,755 265,455,607

Liabilities Unearned premiums Unpaid claims and adjustment expenses Unearned reinsurance commissions Accounts payable and other liabilities Due to reinsurers Due to parent company Due to affiliated companies Deferred leasehold inducements Income taxes payable Deferred income tax liabilities

79,229,456 71,227,125 112,914,744 102,727,183 5,661,595 4,652,813 7,867,976 7,329,909 6,450,771 6,619,048 11,799 11,910 6,551 29,084 155,885 204,345 439,147 1,828 418,045 19,594 213,155,969 192,822,839

Shareholders’ equity Capital stock Retained earnings Accumulated other comprehensive income

30,525,387 30,525,387 47,977,293 41,948,650 407,106 158,731 78,909,786 72,632,768 292,065,755 265,455,607

Summary

Consolidated

statement of changes in equity

Year ended December 31, 2014 (Canadian dollars)

2014

Capital- stocks $

Retained earnings $

Accumulated other comprehensive income Total $

$

Balance as at December 31, 2013

30,525,387

41,948,650

158,731

72,632,768 8,494,643

Net income

-

8,494,643

-

Other comprehensive income

-

-

248,375

248,375

Total comprehensive income

-

8,494,643

248,375

8,743,018

Dividends paid

-

(2,466,000)

-

(2,466,000)

30,525,387

47,977,293

407,106

78,909,786

Balance as at December 31, 2014

2013 Capital- stocks

$

Retained earnings $

Accumulated other comprehensive income Total $

$

Balance as at December 31, 2012

30,525,387

36,226,634

146,709

66,898,730

Net income

-

8,188,016

-

8,188,016

Other comprehensive income

-

-

12,022

12,022

Total comprehensive income

-

8,188,016

12,022

8,200,038

Dividends paid

-

(2,466,000)

-

(2,466,000)

30,525,387

41,948,650

158,731

72,632,768

Balance as at December 31, 2013

NOTE 1 – Basis of presentation The summary consolidated financial statements include the major subtotals and totals from the related complete consolidated financial statements.

Management

of Optimum General Inc. and its Subsidiaries

OPTIMUM GENERAL INC. Anabelle Blondeau President and Chief Executive Officer Martin Carrier Executive Vice President Noella Anthony Senior Vice President, Claims and Branch Operations Paul Tremblay Senior Vice President, Finance Louis Fontaine Vice President, Legal Affairs and Secretary Odile Goyer Vice President, Actuarial

J.-Sébastien Lagarde Vice President, Corporate Strategy and Business Development Véronique Bouchard Assistant Vice President, Actuarial Services and Appointed Actuary Louise Frankland Assistant Vice President, Rating and Underwriting Jamie Morin Assistant Vice President, Claims Jean-Marie Villemure Assistant Vice President, Information Technology Pierre St-Laurent Assistant Secretary

SUBSIDIARIES Martin Carrier President and Chief Operating Officer Optimum Insurance Company Inc., Optimum West Insurance Company and Optimum Farm Insurance Inc. J.-Sébastien Lagarde Executive Vice President, Optimum Farm Insurance Inc. Regional Vice President, Montreal Optimum Insurance Company Inc. Jeremy Green Regional Vice President, British Columbia Vice President, Business Strategy, Optimum West Insurance Company Brent Helm Vice President, Commercial Lines, Ontario Optimum Insurance Company Inc.

Alain Lepage Regional Vice President, Quebec City Optimum Insurance Company Inc. Derri Thomas Regional Vice President, Alberta and Yukon Optimum West Insurance Company Lavjit Singh Branch Manager, Manitoba/Saskatchewan Optimum Insurance Company Inc. Beth Trisko Assistant Vice President, Claims Optimum West Insurance Company - Vancouver

OPTIMUM GENERAL INC.

OPTIMUM FARM INSURANCE INC.

OPTIMUM INSURANCE COMPANY INC.

OPTIMUM WEST INSURANCE COMPANY

Directors

Directors

Directors

Directors

Gilles Blondeau Chairman of the Board

Jean-Claude Pagé Chair of the Board

Jean-Claude Pagé Chair of the Board

Jean-Claude Pagé Chair of the Board

Jean-Claude Pagé Vice Chair of the Board

Anabelle Blondeau Vice Chair of the Board and Chief Executive Officer

Anabelle Blondeau Vice Chair of the Board and Chief Executive Officer

Anabelle Blondeau Vice Chair of the Board and Chief Executive Officer

Jacques Auger

Jacques Auger

Anne Joli-Cœur

Anne Joli-Cœur

Robert Lévesque

Robert Lévesque

Martin Carrier President and Chief Operating Officer

Marcel Marcoux

Marcel Marcoux

Michel Plécy

Michel Plécy

Jacques Proulx

Jacques Proulx

Paul Raymond

Paul Raymond

Robert Williamson

Robert Williamson

OPTIMUM FARM INSURANCE INC.

OPTIMUM INSURANCE COMPANY INC.

Trois-Rivières Branch 25 des Forges Street Suite 422 Trois-Rivières, Quebec G9A 6A7 Phone: 819 373-2040 Fax: 819 373-2801

Montreal Branch 425 de Maisonneuve Blvd. West Suite 1500 Montreal, Quebec H3A 3G5 Phone: 514 288-8711 Fax: 514 288-8269

Anabelle Blondeau President and Chief Executive Officer Martin Carrier Executive Vice President Louis Fontaine Vice President, Legal Affairs and Secretary Paul Tremblay Senior Vice President, Finance and Treasurer

Claude Fontaine Anne Joli-Cœur Kenneth R. Sherk Dean Wenborne

Henri Joli-Cœur Nathalie Blondeau Anne Joli-Cœur Claude Lamonde

HEAD OFFICE 425 de Maisonneuve Blvd. West Suite 1500 Montreal, Quebec H3A 3G5 Phone: 514 288-8725 Fax: 514 288-0760 www.optimum-general.com

Quebec City Branch 825 Lebourgneuf Blvd. Suite 408 Quebec City, Quebec G2J 0B9 Phone: 418 522-4757 Fax: 418 522-6494 North Bay Branch 147 McIntyre Street West P.O. Box 1288 North Bay, Ontario P1B 8K5 Phone: 705 476-4814 Fax: 705 476-8694 Toronto Branch 80 Bloor Street - Suite 402 Toronto, Ontario M5S 2V1 Phone: 416 922-2882 Fax: 416 922-9586 Winnipeg Branch 191 Lombard Avenue, 15th floor Winnipeg, Manitoba R3B 0X1 Phone: 204 943-6885 Fax: 204 956-1709

OPTIMUM WEST INSURANCE COMPANY Vancouver Branch 600-4211 Kingsway Burnaby, British Columbia V5H 1Z6 Phone: 604 688-1541 Fax: 604 688-1527 Edmonton Branch 10050 – 112 Street Suite 505 Edmonton, Alberta T5K 2J1 Phone: 780 414-1826 Fax: 780 414-2021

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