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ANNUAL REPORT 2022

Contents 2022 Performance at a Glance 2 Who We Are 3 Our Mission 4 Our Values 5 Land Acknowledgment Farm Mutual Re would like to acknowledge that our office is built upon the traditional lands of the Neutral Anishinaabe and Haudenosaunee peoples We pay tribute to their legacy and the legacy of all Indigenous Peoples of Canada Message from the Chair 6 Directors and Officers 8 CEO Message 9 Strategy 14 Innovation 16 Enterprise Risk Management 18 Corporate Social Responsibility 22 2022 Consolidated Financial Statements 24 Current and Past Chairs of the Board 59 Current and Past Presidents 59 2022 ANNUAL REPORT FARM MUTUAL RE 1

2022 Performance at a Glance In millions of Canadian dollars unless otherwise stated Premiums Assumed Combined Ratio CR Farm Mutual Re saw a 3 8 decrease in premiums assumed in 2022 driven primarily by a decrease in broker segment premiums Our CR decreased by 29 3 percentage points to 80 8 driven by significant prior year favourable development the impact of discounting and an improvement in current year underwriting results in both the member and broker segments 200 3 2018 224 3 2019 243 6 266 5 256 4 110 0 124 0 108 5 110 1 80 8 2020 2021 2022 2018 2019 2020 2021 2022 Net Income Loss Expense Ratio The positive impact of our member focused strategic initiatives and prior year favourable loss development offset by catastrophe losses and losses on investments resulted in 10 9 million of net income Our expense ratio decreased by 0 1 percentage points from the prior year We continue to make investments in our reinsurance platform innovation sustainability and our people which will help drive profitable growth into the future 15 1 21 4 6 6 1 0 2018 2019 6 0 2020 2021 17 3 18 9 2019 2020 16 9 16 8 2021 2022 2022 2018 Minimum Capital Test MCT Voting and participating members equity increased by 11 1 million from the prior year to a total of 451 3 million Our MCT ratio of 439 1 continues to be well in excess of both the supervisory target for property and casualty insurance companies as well as our internal targets 411 9 412 8 434 2 440 2 451 3 2018 2019 2020 2021 2022 FARM MUTUAL RE 2022 ANNUAL REPORT Farm Mutual Re is more than a reinsurer we are dedicated to the sustainability and independence of the mutual community At Farm Mutual Re we are passionate about empowering and advancing the mutual community We build deep rooted relationships to drive trust and success Being honest transparent and delivering on our promises define our culture and our commitment to doing what is right We are proud to provide genuine value through our unique products and services and to be a Canadian leader in agricultural based reinsurance solutions The mutual community enjoys reinsurance coverage not easily found elsewhere such as Guaranteed contract renewal Free and unlimited coverage reinstatements Unlimited aggregate stop loss Unlimited catastrophe coverage Other coverage enhancements Rapid claim payments or advances when required Serving our members for more than 60 years 10 9 Voting and Participating Members Equity 2 Who We Are 536 0 2018 479 3 460 7 2019 2020 415 2 439 1 2021 2022 2022 ANNUAL REPORT FARM MUTUAL RE 3

Our Mission Our Values Committed to mutuality and strengthened by our scale and Canadian agricultural heritage we provide enhanced reinsurance solutions for the benefit of our members and those who value deep rooted relationships Our values create the foundation on which we guide ourselves and our behaviours They guide our mission inspire us to fulfill our vision and drive the way we interact with our members customers employees and business partners Our Vision To be the reinsurer of choice for the global mutual community and an essential part of the Canadian property and casualty industry We are passionate about empowering and advancing the mutual community Caring Committed We care deeply about people the success of the mutual insurance community and the environment We are invested in each other our members our partners our communities and our policyholders We are committed to building strong long lasting relationships We encourage each other and are committed to being our best through work life balance healthy choices and life long learning We make green choices to protect our environment We believe in doing what is right Courageous Integrity We are leaders by connecting communicating and collaborating to foster mutuality Recognizing the speed of change we embrace problem solving with openness creativity and innovation to further our progressive approach to success We are prepared to be challenged We hold ourselves and each other accountable for our actions We deliver on our promises so others can deliver on theirs We treat everyone with respect We build trust by being honest and transparent We apologize when we are wrong take steps to make it right and treat mistakes as an opportunity to improve Empowering We accomplish more together than we do alone We listen contribute and share We instill confidence by celebrating each other s successes and supporting each other when we fail We are ambassadors helping the mutual community move forward 4 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 5

Message from the Chair As Farm Mutual Re closed out 2021 at our March 2022 meetings it seemed like a flag dropped and a race began Like all companies Farm Mutual Re struggled and worked with the isolation and remoteness the pandemic brought and the Company came through stronger From the start 2022 was a year full of inperson events and catastrophes all of which required a different degree of resiliency and response from our Board executive team and employees 6 Our Role The Board of Directors has a key role to play in the oversight of the Company s strategic tactical and financial planning activities The Board and executive team continue to spend the majority of their time and energy focusing on the challenges the Company faces around profitability and growth The Path to Profitably initiative has seen positive changes to our income statement even with the horrendous catastrophes that hit Ontario and Prince Edward Island The Path to Profitability is not the only driver to being profitable it continues to be crucial that Farm Mutual Re and all our members are attentive to our underwriting practices Farm Mutual Re has developed many programs and services that enhance the Company s bench strength which can also be used by our members The profitability of the broker segment is another area of focus and in response the Company has taken the time to right size and right price the risks and is building a strategic plan to ensure long term profitability and measured growth goal is to be strategic in how we build a tactical and measured response The Company has a good handle on the governance component and over the past year has made great progress on many aspects within the social component The implementation of an Equity Diversity and Inclusion EDI mandate along with ongoing education ensures that Farm Mutual Re continues to attract and retain highly skilled employees with diverse backgrounds experience perspectives and abilities Independent Directors The concept of independent directors while not new has taken some time and thought at our Board table The Board came to the conclusion that we could enhance our skill set and knowledge by adding independent directors By independent it s meant an individual not associated with Farm Mutual Re or any member company The Board has taken this concept to the membership for discussion and we appreciate all the feedback Conclusion This year the Board will be saying goodbye to Paul Vandenbosch Paul has been on the Board for nine years and brought a common sense practical mindset to Board duties and processes His attention to detail is legendary He will be missed and we wish him and his wife Cindy all the best as they move into another phase of life The Farm Mutual Re Board is diverse It has been a great year to be Chair facilitating meetings and seeing the contributions of every director Each director brings a unique mindset to the table and the discussions are robust as we engage on a variety of topics The Board mandate is four pages long and I can attest that the directors of Farm Mutual Re have fulfilled their duties as outlined and we ve had fun while accomplishing this On a personal note my appreciation for JP and the skills he brings to Farm Mutual Re has grown His heart is huge and I love the desire he has for the success of Farm Mutual Re and each individual that works for and supports the company The team he has surrounded himself with gives me the assurance that Farm Mutual Re is in good hands and in a good position to grow with strength into the future Valerie Fehr Board Chair Environment Social Governance ESG This past year the Board started the process to gain a better understanding of ESG and the impacts to Farm Mutual Re ESG is a major focus of global reinsurers and regulators and has been part of the conversation in Europe for a number of years Canada is now grappling with ESG and the effects on risk management across all sectors Farm Mutual Re is continuing on its ESG journey and we are intent on learning from others who have already gained valuable experience The environmental component in itself is vast and our FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 7

Directors and Officers CEO Message Valerie Fehr Chair Paul Vandenbosch Past Chair Ed Forbes 1st Vice Chair Kevin Konecny 2nd Vice Chair Challenging year behind us Jill Taylor Director Jill Chuli Director Derek MacFarlane Director Jean Pierre Gagnon President CEO 8 Christine Van Daele Director Jeff Consitt Sr Vice President COO Amy Butler Sr Vice President CFO FARM MUTUAL RE 2022 ANNUAL REPORT Ross Gowan Director Gord Lodwick Director Shane MacKinnon Director Jennifer Allan Sr Vice President CPO Errol Butler Director Patrice Rouse General Counsel Corporate Secretary Lisa Fazzari Chief Claims Officer We finally closed the books on 2022 the year that will be remembered as the year of the cats and we are not talking about felines Our members experienced eight catastrophes last year including the May 21st derecho and Hurricane Fiona on September 24th the two largest catastrophe losses in our history While these losses had a large negative financial impact we demonstrated that the system put in place in 1959 continues to work even with the pressure of a volatile investment market in the background Catastrophes were only one of the obstacles we had to face in 2022 After four years of underwriting losses AM Best revised our Financial Strength Rating to B with a stable outlook from A with a negative outlook in July While this had a minimal impact on our members it had the potential to impede our ability to grow our broker segment This rating continues to be valuable to Farm Mutual Re and we are committed to regaining our A rating Consistently achieving underwriting profitability is our path to succeed More importantly it is also the best way to grow our surplus which is the most important tool we have to protect our members As it turns out the hard market that was experienced during the 2023 reinsurance renewal season meant that our rating change was not as consequential as we expected Farm Mutual Re has not been immune to the impact of inflation The Bank of Canada s response to combat inflation was to increase its overnight lending rate by 400 basis points throughout 2022 which created a lot of volatility in our investment portfolio These interest rate increases the poor performance of the global catastrophe reinsurance market combined with our two ceded catastrophe losses created a very difficult environment for renewing our 2023 ceded reinsurance program Adding to the complexity of this renewal was the exodus of capacity in the retrocession market These conditions combined to put a lot of pressure on reinsurance pricing resulting in our total reinsurance costs increasing by over 47 in 2023 driven by an increase of over 107 for our overall catastrophe protection Buying appropriate protection to support Farm Mutual Re and its members is critical for the success of our community and I am happy to report that it was accomplished albeit at a very high cost Celebration of successes While we faced numerous hurdles we also achieved several accomplishments In July we successfully re organized our team with three objectives in mind recognize excellent contribution align our teams around who they primarily serve either internally or externally and finally increase efficiency and minimize singleperson risk This will have over time a positive impact on our members Our employee turnover improved in 2022 and we have been able to bring in fantastic talent throughout the year 2022 ANNUAL REPORT FARM MUTUAL RE 9

United General Insurance Corporation UGIC went through a significant change in 2022 when Janice Rickard who had been leading the organization for 10 years retired In early January we welcomed Jennifer Morrison as the new CEO We are extremely grateful for the work that Janice accomplished during her tenure and we wish her the best in retirement Jennifer has been hard at work getting to know her team and all the Maritime mutual partners The team rebranded and welcomed new talent in 2022 In the last quarter they spent time working on developing a new strategic plan and the outcome was very positive They are well positioned for the future While the hard reinsurance market had a negative impact on our ceded reinsurance purchase it had a tremendously positive impact on our assumed broker portfolio We have been able to take full advantage of this by increasing rates well in excess of 20 for the vast majority of clients and benefiting from increases in treaty retentions Two major initiatives also part of our strategic focus advanced significantly in 2022 With our EDI strategy we had an assessment performed to help us improve our recruitment activities to ensure a diverse workforce We also created an EDI Champion Committee and an EDI Council to steer our efforts in the future On the innovation side we moved the solution of the first problem we are addressing to the proof of concept phase The focus for this proof of concept is to use artificial intelligence to eliminate duplication thereby helping our claims analysts become more efficient We will explore more problems in 2023 Financial Performance When looking at our financial performance it is important to look at it through two lenses First we must evaluate the current accident year meaning the losses that occurred this year compared to the premiums earned this year The second lens is the evaluation of our existing liabilities from prior accident years While these two outcomes make up our financial results for the 2022 calendar year the former informs us on the quality of our current book of business and of the actions to be taken to improve it moving forward while the latter impacts our ability to manage and settle a group of claims that have already occurred It is important to look at our performance through these two lenses because favourable prior year development can mask poor current year underwriting performance and good current year underwriting performance can be overshadowed by adverse prior year loss development The actions that we have taken over the last few years such as rate increases are meant to address our current book s performance While we may benefit from favourable runoffs actions on our current book continue to be necessary to enable Farm Mutual Re to achieve sustainable returns over time For Farm Mutual Re the 2022 accident year was dominated by our catastrophic losses even though our other member lines of business performed much closer to expectation When it comes to prior year development we are seeing favourable runoff which is in part the result of a more aggressive claims settlement strategy and our overall conservative reserving philosophy Adding further complexity to the results this year is the rapid increase in interest rates which has increased our discount rate favourably impacting our policy liabilities Overall we ended the year with 40 million of underwriting income fuelled by favourable prior year development the positive impact of discounting and to a smaller extent continued improvement in our members lines of business other than catastrophe While the fourth quarter of 2022 saw improved investment returns we are still showing an investment loss of 28 million This results in a net after tax income of 11 million We are happy to report that our MCT is a very healthy 439 It was a difficult year financially for UGIC The company experienced a number of large claims contributing to an underwriting loss of 0 3 million Like the rest of the mutual community the volatility in the financial markets also had a negative impact on results Despite finishing the year with a comprehensive loss of 1 1 million UGIC s MCT remains strong and well above regulatory requirements 10 FARM MUTUAL RE 2022 ANNUAL REPORT Property per Risk The improvements made over the last four years are paying off with a net combined ratio of 80 The results are a combination of better performance favourable runoff and the impact of discounting While the calendar year performance is very good our accident year net loss ratio is still above 100 at 110 The road to success needs to include the collaboration of member companies Farm Mutual Re and our reinsurance partners through appropriate pricing of risk at the member company level targeted loss control activities suitable retention levels for the risks exposed proper reinsurance pricing for Farm Mutual Re and getting the right level of reinsurance protection for the right price Catastrophe On an accident year basis Farm Mutual Re experienced net catastrophe losses of 30 million This loss is contained due to the level of protection that the company has purchased We used our catastrophe treaty twice this year once for the Ontario May derecho and the other time for Hurricane Fiona which hit the East Coast in September We needed to reinstate the coverage each time paying around 10 million in reinstatement premiums In addition to this treaty we also benefitted from our net catastrophe aggregate protection to the tune of 12 million While these losses had a major impact on our members and Farm Mutual Re we demonstrated that the system is working and all the different partners at the table played their roles This also shows that proper risk management brings real value as a similar scenario to what we experienced this year had been tested by our team through our annual Own Risk and Solvency Assessment ORSA process and we knew we were ready for it The frequency of these catastrophic events has been increasing and there is no reason to believe that they will not continue in the future Our reinsurers are asking us to take on more risk by increasing our retention As a community we will need to ask ourselves what the right balance of risk sharing is between policyholders member companies Farm Mutual Re and our reinsurance partners 2022 ANNUAL REPORT FARM MUTUAL RE 11

Casualty excess of loss The automobile portfolio has been performing much better in recent years The impact of COVID 19 on the frequency of losses has been well documented In collaboration with our member companies we have been able to manage the settlement of claims more aggressively which generated a significant amount of favourable prior year development over the last couple of years The uncertainty around the runoff for those COVID years has been reduced significantly The 2022 accident year has performed well and it looks like this line of business is back on track On a calendar year basis our results are stellar This line of business combined with the Liability results generated 57 million of underwriting profit Broker distribution After its worst year in history our crop programs have returned to a more normal performance In addition some of the 2021 losses developed better than expected on one of the programs Due to this improvement the crop programs contributed 12 million to the bottom line The broker property segment is still not returning the types of returns we are expecting We knew it was going to take a few years to turn it around Like our members book it has been exposed to multiple catastrophic losses in 2022 and we ended the year with a net combined ratio of 122 We have become more disciplined in pricing ensuring favourable terms and conditions and managing overall exposure We have taken steps in the right direction during the last two renewals and we should start seeing positive results Looking ahead This coming year will mark the last year of our current strategic plan We will start the work necessary to move our organization forward setting out our next set of strategies that will move us closer to our vision to be the reinsurer of choice for the global mutual community and an essential part of the Canadian property and casualty industry Working with our Board of Directors we will look at the risks we are facing the opportunities created by those risks and what needs to happen to address 12 FARM MUTUAL RE 2022 ANNUAL REPORT them We have set a good foundation for ourselves We have the right people We need to continue to make sure that our decisions are sound and based on the right metrics While we do all that our values will keep guiding us There are plenty of challenges ahead but we believe that with the support of our employees and our members we are well equipped to surmount them Recognition In closing I would like to recognize our Chair Valerie Fehr who has done an incredible job leading our Board through a year of change One of Val s key focuses this year was to make sure that the culture of our company continued to be driven by our values especially through the transition to a hybrid work model I believe she succeeded I want to take this opportunity to thank our departing director Paul Vandenbosch He will be missed for his thoughtful approach to governance his sense of humour his passion for the mutual community and Farm Mutual Re and on a personal note for our podcast conversations I also want to thank the Board of Directors for their continued support While it has been a difficult year I personally felt the Board s unwavering support and it helped our team to overcome our obstacles I could not be more proud of the work accomplished by the Executive team They are dedicated to the success of their teams and Farm Mutual Re It is inspiring to work alongside each of them Lastly I want to thank all the employees of Farm Mutual Re Their energy and passion are what makes our company what it is I thank them for bringing their true selves to work every day Jean Pierre Gagnon President CEO we demonstrated that the system put in place in 1959 continues to work Jean Pierre Gagnon 2022 ANNUAL REPORT FARM MUTUAL RE 13

Strategy the entire organization Going forward our practices contributing toward sustainability will be foundational within our business decisions in our conduct and the selection of our business partners creating long term value for Farm Mutual Re The intent of the strategy in 2023 is to concentrate on existing organizational priorities to conclude the current three year strategic plan cycle In 2023 the Board and 1 2 3 Farm Mutual Re is very intentional in its strategic planning process The framework used creates the needed space for the Board and management team to engage in meaningful strategic conversations establish well thought out priorities and undertake work activities that generate value for the business Our strategy advancement monitoring approach ensures strategic progression is achieved and identifies opportunities and necessities to pivot As an organization we spent considerable time during 2022 broadening our knowledge of ESG identifying the steps needed to be taken or currently underway by Farm Mutual Re to support sustainability its potential impact on our business decisions and thinking about how to right size ESG for 14 Farm Mutual Re The Board and management team are aligned that Farm Mutual Re needs to embrace sustainability in new ways to remain relevant and thrive Enhancing our capabilities to act as a socially responsible organization in the communities in which we operate and serve also supports our goals of FARM MUTUAL RE 2022 ANNUAL REPORT being an employer of choice for existing team members while attracting new talent As a starting point we added a strategic initiative to embed sustainability into our corporate culture business practices and brand Our goal is to further advance climate action and operationalize sustainability across Grow Profitably and Diversify Increase premium growth within the mutual insurance space through long term partnerships focused on shared profitability diversification of reinsurance risk and capacity protection Protect Grow and Strategically Deploy Capital Protect grow and strategically deploy our capital to leverage the collective scale of our members while managing risk consistent with our appetite and profile management team will embark on a journey to envision what success looks like tomorrow and beyond We will endeavour to plot the future to remain relevant by elevating our value proposition to contribute to the mutual success of our members clients and strategic business partners Our strategy heading into next year remains consistent focusing on the following five goals 4 Strengthen People Communication and Culture Hire cultivate inspire and reward our people to advance their capabilities and passion to achieve our strategy embrace our culture and live our brand 5 Be a Beacon of Mutual Innovation Deliver on innovation across the organization focusing on future proofing our business enabling our internal capabilities and engaging in the innovation ecosystem Provide Solutions Contributing to Best Management Practices Provide solutions and contribute to sound best management practices while maintaining a cost structure appropriate for our size and risk appetite Tactical Plan A Tactical Plan is developed on an annual basis to provide granularity on the types of activities undertaken to advance the strategy The management team provided several tactical alternatives to the executives for consideration For 2023 the executive team selected and prioritized 18 objectives to further advance our path to profitability objectives leverage technology continue to embed ESG into our corporate culture and capitalize on our newly formed innovation capabilities Our strategy continues to evolve to ensure Farm Mutual Re remains relevant and sustainable well into the future 2022 ANNUAL REPORT FARM MUTUAL RE 15

Helping to Future Proof Farm Mutual Re An integral part of our Innovation mission is to help future proof Farm Mutual Re To begin this journey we used our Five Phase Applied Innovation Approach to search explore and ideate on our top innovation opportunities This included utilizing our best resource our people to help identify those opportunities We leanly assessed and evaluated over 35 submissions prioritizing those that have good potential to achieve efficiency gains financial savings improve profitability or enhance our ability to make better informed decisions We focused on our first top five opportunities ultimately identifying those that could be built and tested through the creation of a Minimum Viable Product MVP or a Proof of Concept POC We had great success in 2022 identifying our first POC which is focused on creating efficiencies using artificial intelligence and natural language processing Through our five phase approach we also identified the importance of building organizational strength in business intelligence and data analytics Building this asset will enable Farm Mutual Re to access and use data in new ways supporting stronger decision making and ultimately long term profitability and growth In 2023 Innovation will be identifying and building our new approach for this important area Innovation In 2022 we started putting our Innovation vision and mission into action They were established in 2021 to reflect our commitment to innovation which focuses on leveraging our mutual roots to generate outcomes over time Our vision is to be a beacon of mutual innovation carving a pathway for our future and empowering our community Underlying our vision is our mission which made excellent progress in 2022 16 FARM MUTUAL RE 2022 ANNUAL REPORT Enabling our Employees Our mission also focuses on enabling employees to further their learning and understanding of how to use innovation concepts in their roles In 2022 we provided foundational applied innovation workshops that focused on creating a strong understanding of critical concepts such as rapid decision making starting with problems rather than solutions and understanding the power of an empirical cycle such as build measure learn to start small test and assess if what is created is working early and often We introduced Innovation Advisory Hours This is dedicated time where employees can access the Innovation team to ask questions and further their learning These hours were well utilized in 2022 with 15 20 of employees participating and had a strong impact on encouraging and supporting employees to use these new concepts in their roles In addition we further developed our Innovation learning programs to grow our innovation skills across the organization with the creation of a new four tiered Innovation Rotation Program This program enables any employee to participate and they are rewarded and incented throughout the different tiers for their efforts and learning Approximately 30 of our employee base is already participating in the second tier Engaging in the External Innovation Ecosystem As we future proof our organization and support employee growth internally our mission is also to engage in the external innovation ecosystem An innovation ecosystem is comprised of external organizations dedicated to the growth and sustainability of our industry s future This helps organizations like ours to identify the right partners to strengthen and grow their innovation investment and decision making and to leverage those partnerships to the benefit of members and clients Leveraging those around us will accelerate our own success In 2022 we connected with several potential partners to understand their prospective value to us and our members including venture capitalists VCs incubators accelerators academia and industry partners This led us to identify our first key partnership with Guy Carpenter s InsurTech Centre of Excellence which kicks off in 2023 Our focus is to build this ecosystem further in 2023 offering participation in the ecosystem where possible to our members Strong Progress in 2022 This year of preparation was essential and a great example of the commitment required to lay the foundation to grow our innovation abilities and skills which will ultimately lead to value generating business outcomes in the long term We are excited for the year ahead 2022 ANNUAL REPORT FARM MUTUAL RE 17

Enterprise Risk Management Overview Farm Mutual Re is committed to mutuality and is here to provide reinsurance solutions for the benefit of our members and clients To do so we strive to maintain financial strength scale and take a prudent approach to managing risk Our business activities expose us to a wide variety of risks in virtually all aspects of our operations Farm Mutual Re s ability to manage and mitigate these risks is a key competency and contributes to our strategic and operational decisions Our Enterprise Risk Management ERM program is supported by our risk culture and risk management approach Risk Culture Farm Mutual Re s risk culture starts with the tone from the top established by our Board CEO and 18 executive management Our risk culture promotes attitudes and behaviours to foster an environment where the risks taken are only those that are understood and can be managed Ethical behaviour is a key component of Farm Mutual Re s risk culture Our Code of Business Conduct and Ethics is reviewed and attested to by every Board member and employee on an annual basis guiding us to make decisions that align with our core values Risk management is a shared responsibility across the organization with every employee having responsibility to identify manage and mitigate risk nature of risk we are willing to accept in pursuit of our business objectives for each major risk category supported by identified thresholds and limits to inform ongoing decisions and performance Risk Appetite Risk taking activities are aligned with business partner needs expectations legal and regulatory requirements Farm Mutual Re faces a broad range of risks reflecting our responsibility as a reinsurer Our risk appetite statement defines the level and FARM MUTUAL RE 2022 ANNUAL REPORT Risk and Capital Management Framework We manage risk through an enterprise wide capability to recognize understand measure assess mitigate and monitor the risks taken across the organization to ensure Strategic planning business planning and risk management are integrated Enterprise Risk Management Business activities provide an appropriate balance of return for capital at risk within the context of our risk appetite risk capacity and operating environment The Board is responsible for overseeing the management of our risk profile and risk taking activities to ensure activities are proportionate to the nature scale and complexity of our business though the approval of our risk management policies capital management policies and risk appetite statement Senior management Risk Owners and Risk Champions are responsible for defining implementing continuously improving and ensuring compliance with appropriate policies standards procedures and controls to identify and manage our principal risks Through the Farm Mutual Re Conduct Review Risk and Compliance Committee and our Risk Owner Champion meetings we focus our attention and resources on managing risk events with the greatest potential to harm our organization by adhering to robust risk and capital management policies Own Risk and Solvency Assessement ORSA At least annually we conduct an ORSA Our ORSA process is proportionate to the nature scale and complexity of our business ORSA is an integral part of our ERM framework and enhances our understanding of capital requirements to support our solvency Our ORSA demonstrated that we have the financial resources to meet our obligations under all adverse scenarios tested Additionally the internal capital targets established through this process are higher and more stringent than the regulatory capital minimum Risk Assessment Farm Mutual Re maintains risk profiles for the major risk categories as identified within our Risk Appetite Statement Risk profiles contain drivers of risk risk control challenges methodologies for monitoring and review of risk preventative controls and the directional outlook of the risk The table below provides a synopsis of key risk drivers identified within each of the major risk categories which may impact Farm Mutual Re 2022 ANNUAL REPORT FARM MUTUAL RE 19

Key Risks Which May Impact Future Results Insurance Activities Catastrophe Risk Pricing Risk The impact of climate change extreme weather has been evolving as weather patterns continue to change impacting the frequency and severity of natural catastrophes in Canada and worldwide Severe storms create increased physical risk exposures which directly impact the property insurance business The accumulation of these physical risks also results in increased catastrophe events Catastrophe risk is further exacerbated by our geographic concentrations in southern Ontario Saskatchewan and Prince Edward Island should a severe weather related event impact one or more of these areas We continue to mitigate catastrophe risk through exploring opportunities to diversify geographically managing yearover year zone accumulations and outward reinsurance protection Pricing risk can arise because of actual claims experience timing of related cash flows and investment yields differing adversely from assumptions utilized in pricing conditions Our experience on inward and outward reinsurance programs is the largest contributor to our pricing risk exposure The rapid rise in inflationary pressures on the cost of goods creates exposure if inflation remains greater than estimates contemplated in current direct distribution segment pricing methodologies This risk is further exacerbated by our limited ability to influence prices within the broker distribution segment of our business We continue to mitigate this risk by reviewing and challenging annual pricing methodologies and managing outward reinsurance retentions Strategic Risk Emerging Risk Investment Activities The rapid rise in interest rates supported by the hawkish views of the central bank to mitigate inflationary pressures has led to increased yields and inversion of the yield curve This has contributed to increased turbulence and volatility in the capital markets We continue to manage our interest rate and market price risk by maintaining high credit quality standards for Interest Rate our investments and diversifying credit exposure by limiting single name concentrations Market Price Risk Interest rate risk is further managed by matching the duration of interest rate sensitive assets and interest rate sensitive liabilities Operational Risk Strategic And Emerging Risk Strategic risk arises primarily from failure to react to changes in the external environment adverse business decisions and improper implementation of business plans External risks include but are not limited to ESG frameworks climate change risk infectious disease risk and increased government and or regulatory intervention Strategy risks include but are not limited to member amalgamations changes in member demographics and inadequate solutions contributing to best management practices We continue to mitigate our strategic risk by following a sound business planning framework and strategic planning process that aligns with our mission vision and values and sets a consistent course from where the organization is to where the organization wants to be Emerging risk consists of risk arising from developing or changing events or circumstances in the external context that are potentially significant but not fully understood difficult to quantify and possibly irrelevant to our position A growing concern is the failure of a cloud service provider stagflation debt crisis the impact of weaponized information and the resulting erosion of trust We continue to monitor emerging risk exposure by performing our external context radar review and monitoring thought leadership Operational Activities Operational risk is the loss to an organization resulting from ineffective or failed internal processes people systems or external events that can disrupt the flow of business operations Our exposure to operational risk is driven by cyber security risk talent acquisition and management risk and business continuity risk We continue to mitigate our exposure to operational risk through our annual planning process sound business practices and adherence to our operational plan The Future of Enterprise Risk Management Farm Mutual Re is committed to sound governance and the evolution of our ERM framework policies and procedures We continue to evolve and enhance our risk management program in response to the ever changing environment and evolving risks facing the enterprise We are focused on continuing to Enhance our governance and risk reporting methodologies to the Board Conduct Review Risk and Compliance Committee in 2023 ensuring relevant risk related information is shared to promote informed decision making at all levels of the organization Operationalize our Risk Owner Champion program in 2023 to promote risk management and awareness as a shared responsibility in all roles of the organization Employ our risk identification and assessment processes across the enterprise 20 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 21

At Farm Mutual Re we believe in doing what is right That means we have a role to play in protecting the environment supporting youth and education fostering health and wellness and contributing to our community We pride ourselves in taking meaningful concrete steps Environmental Sustainability We are passionate about contributing to an environmentally resilient community We constantly look for ways to do better and through partnerships learn from others on how we can improve We aim to become a leader in environmental stewardship Youth Education By supporting young people s education we are contributing to their long term success and helping them become active contributors who will positively impact the world Corporate Social Responsibility to help build a sustainable future While the journey is not new to us we have recently published our first Community Investment Report highlighting the efforts we made in these realms Thriving Communities We work to cultivate healthy diverse and safe communities This starts at home by doing what we can to support and empower every employee through our wellness programs and equity diversity and inclusion practices Then we lend a hand to the larger local community Empowering our Mutual Community To truly live our brand of empowering and advancing the mutual community we support our members and business partners sustainable initiatives Our philanthropic approach cultivates our mutual network and supports our mutual affiliations You can read more about our focus areas in our 2022 Community Investment Report We look forward to advancing our sustainability efforts in 2023 The increased urgency to address climate change and social injustices that have plagued our world is at the forefront of humanity These global issues require collective action and Farm Mutual Re is committed to doing our part Since our beginning in 1959 we have been dedicated to sustainability We are steadfast in being environmentally and socially responsible to help build a healthier more equitable future where everyone can thrive 22 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 23

Contents Management s Statement of Responsibility 26 Independent Auditor s Report 27 Auditor s Responsibilities for the Audit of the Financial Statements 28 Appointed Actuary s Report 29 Consolidated Statement of Financial Position 30 Consolidated Statement of Comprehensive Income and Equity 31 Consolidated Statement of Cash Flows 32 Notes to the Consolidated Financial Statements 33 1 Nature of business 33 2 Basis of preparation 33 3 Significant accounting policies 34 4 Standards issued but not yet effective 41 5 Investments 42 6 Insurance contracts 44 7 Land property and equipment 46 8 Intangible assets and goodwill 47 9 Income taxes 47 10 Operating expenses 48 11 Refund of premiums 48 12 Capital management 49 2022 Consolidated Financial Statements 24 FARM MUTUAL RE 2022 ANNUAL REPORT 13 Insurance and financial risk 49 14 Post employment benefits 56 15 Related party transactions 57 16 Guarantees 57 17 Changes in non cash balances 58 2022 ANNUAL REPORT FARM MUTUAL RE 25

Management s Statement of Responsibility Independent Auditor s Report Role of Management To the members of Farm Mutual Reinsurance Plan Inc Management is responsible for preparation and presentation of the consolidated financial statements of Farm Mutual Reinsurance Plan Inc the Company This responsibility includes selecting appropriate accounting policies and making estimates and informed judgments based on the anticipated impact of current transactions events and trends consistent with International Financial Reporting Standards Opinion In meeting its responsibility for the reliability of the consolidated financial statements management maintains and relies on a comprehensive system of internal control comprising organizational procedural controls and internal accounting controls The Company s system of internal controls includes the communication of policies and the Company s Code of Business Conduct and Ethics comprehensive business planning proper segregation of duties delegation of authority for transactions and personal accountability selection and training of personnel safeguarding of assets and maintenance of records The Company s Board of Directors is responsible for ensuring that management fulfills its responsibilities for financial reporting and is ultimately responsible for reviewing and approving the consolidated financial statements The Board of Directors carries out this responsibility principally through its Audit Committee which is independent from management The Audit Committee is appointed by the Board of Directors and reviews the consolidated financial statements considers the reports of the independent actuary and the independent auditors assesses the adequacy of internal controls assesses the fees and expenses for audit services and recommends to the Board of Directors the independent auditors for appointment by the voting and participating members The independent auditors have full and free access to the Audit Committee and meet with the committee to discuss their audit work the Company s internal controls over financial reporting and financial reporting matters The Audit Committee reports its findings to the Board of Directors for consideration when approving the consolidated financial statements for issuance to the voting and participating members Role of the Actuary The independent actuary is appointed by the Board of Directors pursuant to the Insurance Act Ontario to carry out a review of management s valuation of the estimated policy liabilities and provide an opinion to the Board of Directors regarding the appropriateness of the estimated policy liabilities recorded by management to meet all insurance policy obligations of the Company at the consolidated statement of financial position date In performing the review of these estimated liabilities determined by management which are by their very nature inherently variable the independent actuary makes assumptions as to future loss ratios trends future rates of claims frequency and severity inflation and both internal and external loss adjustment expenses taking into consideration the circumstances of the Company and the nature of the insurance policies in accordance with Canadian accepted actuarial practice applicable legislation and associated regulations and directives In carrying out his work the independent actuary makes use of the work of the independent auditor with regards to data upon which his calculations are based Management is responsible for the accuracy and completeness of the underlying data used in the valuation The independent actuary s report outlines the scope of the review and the opinion Role of the Auditors We have audited the consolidated financial statements of Farm Mutual Reinsurance Plan Inc the Entity which comprise the consolidated statement of financial position as at December 31 2022 the consolidated statement of comprehensive income and equity for the year then ended the consolidated statement of cash flow for the year then ended and notes to the consolidated financial statements including a summary of significant accounting policies Hereinafter referred to as the financial statements In our opinion the accompanying consolidated financial statements present fairly in all material respects the consolidated financial position of Farm Mutual Reinsurance Plan Inc as at December 31 2022 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our auditor s report We are independent of the Entity in accordance with the ethical requirements that relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion Other Information Management is responsible for the other information Other information comprises information other than the financial statements and the auditor s report thereon included in the Annual Report Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon In connection with our audit of the financial statements our responsibility is to read the other information identified above and in doing so consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated We obtained the Information other than the financial statements and the auditor s report thereon included in Annual Report at the date of this auditor s report If based on the work we have performed on this other information we conclude that there is a material misstatement of this other information we are required to report that fact in the auditor s report We have nothing to report in this regard The independent auditors are recommended by the Board of Directors and appointed by the voting and participating members to conduct an independent and objective audit of the consolidated financial statements of the Company in accordance with International Financial Reporting Standards and to report thereon to the voting and participating members In carrying out the audit procedures relating to the claims liabilities of the Company the auditors make use of the work and report of the independent actuary The auditor s report outlines the scope of the audit and the auditor s opinion Responsibilities of Management and Those Charged with Governance for the Financial Statements In preparing the financial statements management is responsible for assessing the Entity s ability to continue as a going concern disclosing as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations or has no realistic alternative but to do so Jean Pierre Gagnon President and CEO Cambridge Canada February 22 2023 26 FARM MUTUAL RE 2022 ANNUAL REPORT Amy Butler Sr Vice President and CFO Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement whether due to fraud or error Those charged with governance are responsible for overseeing the Entity s financial reporting process 2022 ANNUAL REPORT FARM MUTUAL RE 27

Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement whether due to fraud or error and to issue an auditor S report that includes our opinion Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists Misstatements can arise from fraud or error and are considered material if individually or in the aggregate they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements Appointed Actuary s Report To the members of Farm Mutual Reinsurance Plan Inc I have valued the policy liabilities and reinsurance recoverables of Farm Mutual Reinsurance Plan Inc for its consolidated statement of financial position at 31 December 2022 and their changes in the consolidated statement of comprehensive income and equity for the year then ended in accordance with accepted actuarial practice in Canada including selection of appropriate assumptions and methods In my opinion the amount of policy liabilities net of reinsurance recoverables makes appropriate provision for all policyholder obligations and the consolidated financial statements fairly present the results of the valuation As part of an audit in accordance with Canadian generally accepted auditing standards we exercise professional judgment and maintain professional skepticism throughout the audit We also Identify and assess the risks of material misstatement of the financial statements whether due to fraud or error design and perform audit procedures responsive to those risks and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error as fraud may involve collusion forgery intentional omissions misrepresentations or the override of internal control Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Entity s internal control Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management Conclude on the appropriateness of management s use of the going concern basis of accounting and based on the audit evidence obtained whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity s ability to continue as a going concern If we conclude that a material uncertainty exists we are required to draw attention in our auditor s report to the related disclosures in the financial statements or if such disclosures are inadequate to modify our opinion Our conclusions are based on the audit evidence obtained up to the date of our auditor s report However future events or conditions may cause the Entity to cease to continue as a going concern Evaluate the overall presentation structure and content of the financial statements including the disclosures and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation Communicate with those charged with governance regarding among other matters the planned scope and timing of the audit and significant audit findings including any significant deficiencies in internal control that we identify during our audit Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group Entity to express an opinion on the financial statements We are responsible for the direction supervision and performance of the group audit We remain solely responsible for our audit opinion Cosimo Pantaleo Fellow Canadian Institute of Actuaries Toronto Canada February 22 2023 KPMG LLP Chartered Professional Accountants Licensed Public Accountants Kitchener Canada February 22 2023 28 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 29

Consolidated Statement of Comprehensive Income and Equity Consolidated Statement of Financial Position For the year ended December 31 As at December 31 in thousands of Canadian dollars Assets Cash and cash equivalents Investments Accrued investment income Accounts receivable Reinsurance assets Income taxes receivable Land property and equipment Deferred tax assets Deferred acquisition costs Intangible assets and goodwill Liabilities Accounts payable Income taxes payable Unpaid claims Unearned premiums Unearned commissions Other liabilities 5 a 6 a 7 9 a 6 d 8 6 b 6 c 6 d 14 b Voting and participating members equity The accompanying notes are an integral part of these consolidated financial statements On behalf of the Board Ed Forbes 1st Vice Chair 30 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 Notes Kevin Konecny 2nd Vice Chair 2021 61 555 797 128 845 77 074 228 276 212 11 481 18 768 4 004 3 073 1 202 416 31 265 694 565 23 364 866 1 040 751 100 451 316 1 202 416 62 749 833 092 2 815 54 790 52 431 11 791 21 364 4 137 2 079 1 045 248 7 333 176 572 740 22 639 929 1 220 605 037 440 211 1 045 248 in thousands of Canadian dollars Revenue Premiums direct Premiums assumed Premiums ceded Net premiums written Changes in unearned premiums Net premiums earned Underwriting expenses Gross claims and adjustment expenses Reinsurers share of gross claims and adjustment expenses Commissions premium taxes and fees Operating expenses Underwriting income loss Investment loss income Gain loss on foreign exchange Income before income taxes Income tax recovery expense Current Deferred Net income Items that will not be reclassified subsequently to net income Post employment benefit obligation gain Deferred income tax expense Other comprehensive income Comprehensive income Voting and participating members equity beginning of year Voting and participating members equity end of year 2022 Notes 12 576 256 362 59 039 209 899 766 209 133 358 224 224 349 16 869 18 170 168 914 40 219 27 851 1 013 13 381 67 2 529 2 462 10 919 6 c 6 b 6 b 6 d 10 5 e 9 c 9 b 14 b 253 67 186 11 105 440 211 451 316 2021 11 626 266 504 48 483 229 647 1 583 228 064 248 510 36 022 22 926 15 680 251 094 23 030 31 417 1 985 6 402 138 298 436 5 966 78 20 58 6 024 434 187 440 211 The accompanying notes are an integral part of these consolidated financial statements 2022 ANNUAL REPORT FARM MUTUAL RE 31

Notes to the Consolidated Financial Statements Consolidated Statement of Cash Flows For the year ended December 31 in thousands of Canadian dollars Cash flows provided by used in operating activities Comprehensive income for the year Items not affecting cash Depreciation of property and equipment Amortization of intangible assets Deferred income tax expense Net investment losses gains Changes in other non cash balances Cash provided by operating activities Cash flows provided by used in investing activities Purchases of investments Proceeds from sale of investments Purchases of property and equipment Purchases of intangible assets Cash used in investment activities Decrease increase in cash position during the year Cash and cash equivalents beginning of year Cash and cash equivalents end of year 2022 Notes 11 105 861 404 2 596 51 930 50 175 16 721 17 Supplementary disclosure of cash information Interest received Dividends received Income tax paid received The accompanying notes are an integral part of these consolidated financial statements 699 424 683 458 551 1 398 17 915 1 194 62 749 61 555 21 435 4 506 321 2021 6 024 958 216 318 10 929 59 522 56 109 959 655 920 127 600 1 704 41 832 14 277 48 472 62 749 16 110 3 557 1 931 1 Nature of business Farm Mutual Reinsurance Plan Inc the Company along with its wholly owned subsidiary United General Insurance Corporation UGIC offers property and casualty P C reinsurance and insurance principally in Canada and the United States The Company is incorporated without share capital under the laws of the Province of Ontario and is domiciled in Canada The registered office and principal place of business is 350 Pinebush Road Cambridge Ontario 2 Basis of preparation a Statement of compliance These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards IFRS as issued by the International Accounting Standards Board IASB The consolidated financial statements and the accompanying notes were authorized for issue by the Board of Directors on February 22 2023 b Basis of measurement and presentation These consolidated financial statements have been prepared on a going concern basis under the historical cost convention using the accounting policies as described in Note 3 Certain comparative amounts have been reclassified to conform with the presentation adopted in the current period In line with industry practice for insurance companies the Company presents its consolidated statement of financial position broadly in order of liquidity rather than using current and non current classifications c Functional and presentation currency These consolidated financial statements are presented in Canadian dollars which is the Company s functional currency All amounts in the notes are shown in thousands of Canadian dollars unless otherwise stated d Use of judgments estimates and assumptions The preparation of consolidated financial statements in conformity with IFRS requires management to make certain judgments estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as at the reporting date and the reported amounts of revenues and expenses during the year Actual results may differ from these estimates Although some variability is inherent in these estimates management believes that the amounts provided are appropriate The most complex and significant judgments estimates and assumptions used in preparing the Company s consolidated financial statements are discussed below Judgments In the process of applying the Company s accounting policies management has made the following judgments which have the most significant effect on the amounts recognized in the consolidated financial statements Management has applied judgment in its assessment of the identification of objective evidence of impairments of financial assets other than those classified or designated at fair value through income or loss FVTPL assessing the business model within which the financial assets are held and whether the contractual terms of the assets are solely payments of principal and interest SPPI on the principle outstanding measurement of income taxes and recoverability of deferred tax assets and identifying the indicators of impairment for reinsurance assets property and equipment and intangible assets with finite useful lives Estimates and assumptions Estimates and assumptions are reviewed on an ongoing basis Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes Note 3 b Note 3 i Note 3 j Note 3 k Note 3 m Note 3 o 32 FARM MUTUAL RE 2022 ANNUAL REPORT Financial instruments Insurance contracts Insurance contract assets Insurance contract liabilities Income taxes Post employment benefits 2022 ANNUAL REPORT FARM MUTUAL RE 33

3 Significant accounting policies 3 Significant accounting policies continued The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements b Financial instruments continued Financial instruments mandatorily measured at FVTPL trading and non trading a Basis of consolidation The consolidated financial statements include the accounts of Farm Mutual Reinsurance Plan Inc and its wholly owned subsidiary UGIC which operates and is incorporated in Canada All material intercompany accounts and transactions have been eliminated Trading financial instruments are mandatorily measured at FVTPL as they are held for trading purposes or are part of a managed portfolio with a pattern of short term profit taking Non trading financial assets are also mandatorily measured at FVTPL if their contractual cash flow characteristics do not meet the SPPI test or if they are managed together with other financial instruments on a fair value basis Business combinations are accounted for using the acquisition method when control is transferred to the Company The acquisition method requires that the acquirer recognize separately from goodwill the identifiable assets acquired the liabilities assumed and any non controlling interest in the acquiree at the acquisition date Acquisition costs directly attributable to the acquisition are expensed in the year incurred in operating expenses in the consolidated statement of comprehensive income and equity Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at fair value at the date of acquisition irrespective of the extent of any non controlling interest Any contingent consideration is also measured at fair value at the acquisition date When the Company is exposed or has rights to variable returns from its involvement with an investee and has the ability to affect those returns through its power over the investee the investee is considered a subsidiary Subsidiaries are fully consolidated from the date that control is obtained by the Company Subsidiaries are deconsolidated from the date that control ceases b Financial instruments Financial assets are classified into the following categories financial instruments mandatorily measured at FVTPL trading and non trading financial instruments measured at amortized cost Equity investments are required to be measured at FVTPL except where the Company has elected at initial recognition to irrevocably designate an equity investment held for purposes other than trading at fair value through other comprehensive income FVOCI No such election has been made by the Company The classification and measurement for debt instruments depends on the Company s business model for managing the financial assets to generate cash flows and whether the contractual cash flows represent solely payment of principal and interest SPPI Business model assessment The business model determines whether cash flows will result from holding to collect contractual cash flows selling the financial assets or both The Company considers the following in the determination of the applicable business model for financial assets The business purpose of the portfolio The risks that are being managed and the type of business activities that are being carried out on a day to day basis to manage the risks The basis on which performance of the portfolio is being evaluated and The frequency and significance of sales activity Financial assets are required to be reclassified when and only when the business model under which they are managed has changed All reclassifications are to be applied prospectively from the reclassification date Contractual cash flows as solely payment of principal and interest assessment In assessing whether contractual cash flows are SPPI the Company considers the contractual terms of the instrument This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that they would not be consistent with a basic lending arrangement In making the assessment the Company considers the primary terms as follows and assesses if the contractual cash flows of the instruments continue to meet the SPPI test 34 Performance linked features Terms that limit the Company s claim to cash flows from specified assets e g non recourse terms Prepayment and extension terms Leverage features and Features that modify elements of the time value of money FARM MUTUAL RE 2022 ANNUAL REPORT Trading and non trading financial instruments mandatorily measured at FVTPL are remeasured at fair value as at the consolidated statement of financial position date Gains and losses realized on disposition unrealized gains and losses from changes in fair value and investment income are included in income and loss Transaction costs are expensed as incurred Dividends are recognized on the ex dividend date and interest is recognized on an accrual basis Both dividends and interest are included in investment income Financial instruments mandatorily measured at FVTPL comprise short term securities bonds and debentures mortgages preferred shares and common shares Financial instruments measured at amortized cost Financial instruments that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost These financial instruments are recognized initially at fair value plus or minus direct and incremental transaction costs and are subsequently measured at amortized cost using the effective interest rate method net of an allowance for expected credit losses ECL Interest income from these financial instruments is included in investment income using the effective interest rate method Any gain or loss arising on derecognition is recognized directly in income or loss Impairment losses are presented as separate line item in the consolidated statement of comprehensive income and equity Financial instruments measured at amortized cost comprise receivables arising from insurance contracts accrued premium under insurance contracts net of applicable commissions and fees deposits under insurance contracts other miscellaneous receivables payables arising from insurance contracts accrued premium under insurance contracts net of applicable commissions and fees investment transactions pending settlement trade payables and accrued liabilities Due to the short term nature of these financial instruments carrying value is considered to approximate fair value Fair value measurement The fair value of a financial instrument on initial recognition is defined as the fair value of the consideration given Subsequent to initial recognition fair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable willing parties who are under no compulsion to act Fair value is best evidenced by quoted bid or ask price as appropriate in an active market Where bid or ask prices are not available such as in an illiquid or inactive market the closing price of the most recent transaction of that instrument subject to appropriate adjustments as required is used Where quoted market prices are not available the quoted prices of similar financial instruments or valuation models with observable market based inputs are used to estimate the fair value These valuation models may use multiple observable market inputs including observable interest rates foreign exchange rates index levels credit spreads equity prices counterparty credit quality and corresponding market volatility levels Minimal management judgment is required for fair values calculated using quoted market prices or observable market inputs for models The calculation of estimated fair value is based on market conditions at a specific point in time and may not be reflective of future fair values The Company uses the services of external security pricing vendors to obtain estimated fair values of securities in its investment portfolio Fair values of pooled funds and mutual funds are based on the quoted market values of the underlying investments The Company employs a fair value hierarchy as follows Level 1 inputs represent unadjusted quoted prices for identical financial instruments exchanged in active markets Level 2 inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar financial instruments exchanged in active markets quoted prices for identical or similar financial instruments exchanged in active markets and other market observable inputs Level 3 inputs include unobservable inputs used in the measurement of financial instruments 2022 ANNUAL REPORT FARM MUTUAL RE 35

3 Significant accounting policies continued 3 Significant accounting policies continued b Financial instruments continued Derecognition of financial instruments The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expires or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability Offsetting of financial assets and liabilities Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis or to realize the assets and settle the liabilities simultaneously g Impairment of financial assets The Company assesses at each reporting date whether a financial asset or group of financial assets other than financial assets at FVTPL is impaired A financial asset or a group of financial assets is deemed to be impaired if there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset an incurred loss event and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty default or delinquency in interest or principal payments the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows such as changes in arrears or economic conditions that correlate with defaults When there is evidence of impairment the value of these financial instruments is written down to the estimated net realizable value through investment income in the consolidated statement of comprehensive income and equity c Cash and cash equivalents Cash and cash equivalents consist of cash on hand balances on deposit with banks and highly liquid investments that are readily converted into a known amount of cash are subject to insignificant risk of changes in value and have an original maturity of ninety days or less in the consolidated statement of financial position The carrying value of cash and cash equivalents approximates fair value h Impairment of non financial assets Non financial assets are tested for impairment in accordance with IAS 36 Impairment of Assets which requires impairment to be assessed at a cash generating unit CGU level For purposes of impairment testing goodwill acquired in a business combination is allocated to each of the Company s CGUs or groups of CGUs that are expected to benefit from the synergies of the combination irrespective of whether other assets or liabilities of the Company are assigned to those units or group of units A financial liability is derecognized when the obligation under the liability is discharged cancelled or expires d Land property and equipment Land is recognized at cost Property and equipment including the building is stated at cost excluding the costs of day to day servicing less accumulated depreciation and accumulated impairment losses Replacement costs are capitalized when incurred and if it is probable that future economic benefits associated with the item will flow to the Company Depreciation is provided on a straight line basis over the estimated useful lives of the assets Land is not depreciated Property and equipment are depreciated on a straight line basis as follows Building Furniture and fixtures Computer equipment Useful life 15 50 years 5 10 years 3 5 years The assets residual values and useful lives and method of depreciation are reviewed at each financial year end and adjusted prospectively if appropriate Property and equipment are derecognized upon disposal or when no further future economic benefits are expected from their use or disposal Gains and losses on disposal are calculated as the difference between the net disposal proceeds and the carrying value of the asset and are reported in operating expenses in the consolidated statement of comprehensive income and equity Fully depreciated property and equipment are retained in cost and accumulated depreciation accounts until such assets are removed from service e Goodwill The Company measures goodwill as the fair value of the consideration transferred including the recognized amount of any noncontrolling interest in the acquiree less the net recognized amount of the identifiable assets acquired and liabilities assumed After initial recognition goodwill is measured at cost less any accumulated impairment losses f Intangible assets Intangible assets comprise capitalized costs to license and develop computer software where the software is not integral to the hardware on which it operates Intangible assets are measured initially at cost Following initial recognition intangible assets are carried at cost less any accumulated amortization and impairment losses Capitalized computer software assets have a finite useful life Capitalized computer software costs are amortized over the estimated useful life of the asset which is estimated to be five years for computer software assets The Company performs an impairment review at least annually and whenever there is an indication that an asset may be impaired The fair value of the CGU has been determined based on the value in use VIU using a discounted cash flow model Impairment occurs when the carrying amount of the CGU exceeds the recoverable amount For CGU s which include goodwill impairment is recognized against goodwill prior to impairing other assets Any impairment of goodwill or other assets is recorded in income or loss in the year that such an impairment becomes evident Previously recorded impairment losses for goodwill are not reversed in future years if the recoverable amount increases i Insurance contracts Insurance contracts are those contracts that transfer significant insurance risk at the inception of the contract Insurance risk is transferred when the counterparty to an insurance contract agrees to compensate a policyholder on the occurrence of an adverse specified uncertain future event As a general guideline the Company determines whether it has significant insurance risk by comparing the benefits that could become payable or receivable under various possible scenarios relative to the premium received or paid for insuring the risk During the normal course of its business the Company assumes insurance risk from other insurance companies inwards reinsurance and cedes insurance risk to other reinsurance companies outwards reinsurance Inwards reinsurance generally results in the Company holding insurance contract liabilities while outwards reinsurance generally results in the Company holding insurance contract assets Through its wholly owned subsidiary the Company accepts insurance risk from policyholders direct insurance by agreeing to compensate the policyholder if a specified event the insured event with uncertain timing or amount adversely affects the policyholder Premiums direct Premiums direct comprise the total premiums receivable for the whole period of cover provided by direct insurance contracts entered into during the accounting period and are recognized on the date on which the insurance contract commences Premiums assumed Premiums assumed comprise the total premiums receivable for the whole period of cover provided by inwards reinsurance contracts entered into during the accounting period and are recognized on the date on which the insurance contract commences Premiums assumed include any adjustments arising in the accounting period for changes in estimated premium in respect of reinsurance assumed in prior accounting periods Premiums assumed are based upon reports received from ceding companies Estimates of premiums assumed and unearned premium are made at the individual contract level based on historical patterns and experience from the ceding company and management judgment for certain business that has not been reported to the Company Gains and losses arising from the disposition or impairment of an intangible asset are accounted for in the same manner as gains and losses arising from the disposition or impairment of property and equipment 36 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 37

3 Significant accounting policies continued 3 Significant accounting policies continued i Insurance contracts continued Premiums ceded Premiums ceded comprise the total premium payable for the whole period of cover provided by outwards reinsurance contracts entered into during the accounting period and are recognized on the date on which the insurance contract commences Premiums ceded include any adjustments arising in the accounting period for changes in premium in respect of reinsurance ceded in prior accounting periods k Insurance contract liabilities continued consolidated statement of comprehensive income and equity The liabilities are derecognized when the obligation to pay a claim expires is discharged or is cancelled Claims and adjustment expenses Gross claims and adjustment expenses on the consolidated statement of comprehensive income and equity include all claims under inwards reinsurance contracts and direct insurance contracts that occurred during the year whether reported or not related internal and external claims handling costs that are directly related to the processing and settlement of claims a reduction for the value of subrogation and other recoveries against third parties and any adjustments to claims outstanding from previous years Reinsurers share of claims and adjustment expenses under outwards reinsurance contracts are recognized when the related claim under an inwards reinsurance contract is recognized according to the terms of the relevant reinsurance contract Commissions premium taxes and fees Commissions premium taxes and fees expense on the consolidated statement of comprehensive income and equity comprise commissions brokerage and taxes paid on direct insurance contracts and under certain inwards reinsurance contracts net of commissions received under certain outwards reinsurance contracts j Insurance contract assets Insurance contract assets comprise reinsurance assets and deferred acquisition costs Reinsurance assets The benefits to which the Company is entitled under its outwards reinsurance contracts are recognized as reinsurance assets which comprise unpaid claims and unearned premiums The estimates for the reinsurer s share of unpaid claims and unearned premiums are determined on a basis consistent with the related liabilities Reinsurance does not relieve the Company of its liability under inwards reinsurance contracts Unpaid claims and unearned premiums associated with outwards reinsurance contracts are estimated in a manner consistent with estimates of unpaid claims and unearned premiums associated with inwards reinsurance contracts and in accordance with the related reinsurance contract Reinsurance assets are reviewed for impairment at each reporting period or more frequently when an indication of impairment arises during the reporting year Deferred acquisition costs Deferred acquisition costs DAC comprise commissions premium taxes and fees associated with the unearned portion of premiums direct and premiums assumed during the accounting period to the extent they are considered recoverable Acquisition costs are deferred and amortized on the same basis as unearned premiums and are reported in commissions premium taxes and fees on the consolidated statement of comprehensive income and equity k Insurance contract liabilities Insurance contract liabilities comprise unpaid claims unearned premiums and unearned commissions Unpaid claims Unpaid claims are the estimated ultimate cost of all claims incurred but not settled on direct insurance contracts and inwards reinsurance contracts at the reporting date whether reported to the Company or not together with related claims handling costs and reduction for the expected value of subrogation and other recoveries Unpaid claims are reported gross of any related recoverable on outwards reinsurance contracts The recoverable on outwards reinsurance contracts is reported as an asset in reinsurance assets Unpaid claims are estimated by the Appointed Actuary using accepted actuarial practice in Canada and based on assumptions such as historical loss development factors and payment patterns future rates of insurance claims frequency and severity inflation expenses changes in the legal environment changes in the regulatory environment and other matters taking into consideration the circumstances of the Company and the nature of the insurance contracts These liabilities are recognized on the consolidated statement of financial position and changes are recognized in gross claims and adjustment expenses on the 38 FARM MUTUAL RE 2022 ANNUAL REPORT Unpaid claims are first determined on a case by case basis as insurance claims are reported and then reassessed as additional information becomes known Included in unpaid claims is a provision to account for the future development of these insurance claims including insurance claims incurred but not reported IBNR by ceding insurers as well as a provision for adverse deviation PfAD Unpaid claims are valued on a discounted basis using a rate that reflects the estimated market yield of the underlying assets backing these unpaid claims The discount rate used to determine the value of claim liabilities is based on the fair value yield of the Company s bond portfolio Future changes in the bond portfolio could change the value of these claim liabilities by impacting the fair value yield Unearned premiums Unearned premiums UPR are those proportions of premiums written in a year on direct insurance contracts and inwards reinsurance contracts that relate to periods of risk after the reporting date The proportion attributable to subsequent periods is deferred as a provision for unearned premiums and is recognized over the remaining term of the insurance contract in net premiums earned on the consolidated statement of comprehensive income and equity Unearned commissions Unearned commissions on outwards reinsurance contracts are recognized as liabilities using principles consistent with the Company s method for determining deferred acquisition costs Liability adequacy test At the end of each reporting period a liability adequacy test is performed to validate the adequacy of unearned premiums and deferred acquisition costs A premium deficiency would exist if unearned premiums are deemed insufficient to cover the estimated future costs associated with the unexpired portion of written insurance contracts A premium deficiency would be recognized immediately as a reduction of deferred acquisition costs to the extent that unearned premiums plus anticipated investment income is not considered adequate to cover all deferred acquisition costs and related insurance claims and expenses If the premium deficiency is greater than the deferred acquisition costs a liability is accrued for the excess deficiency l Investment income Dividend income is recognized on the ex dividend date Interest income from debt securities is recognized on an accrual basis Dividend income interest income realized and unrealized gains and losses on financial assets at FVTPL and investment expenses are reported in investment income on the consolidated statement of comprehensive income and equity m Income taxes Income tax expense recovery comprises current and deferred tax and is recognized in net income except to the extent that it relates to items recognized in other comprehensive income Current income tax is based on the results of operations in the current year adjusted for items that are not taxable or not deductible Current income tax is calculated based on income tax laws and rates enacted or substantively enacted as at the reporting date Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities Deferred income tax is provided using the liability method on temporary differences between the carrying value of assets and liabilities and their respective tax values Deferred tax is calculated using income tax laws and rates enacted or substantially enacted as at the consolidated statement of financial position date which are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled Deferred tax assets are recognized for all deductible temporary differences as well as unused tax losses and tax credits to the extent that it is probable that taxable income will be available against which the losses can be utilized Management exercises judgment in estimating income tax expense recovery The Company is subject to income tax laws in the jurisdictions where it operates Various tax laws are subject to different interpretations by the taxpayer and the relevant tax authority To the extent that the Company s interpretations differ from those of the tax authorities or the timing of realization is not as expected the income tax expense recovery may increase or decrease in future periods to reflect actual experience 2022 ANNUAL REPORT FARM MUTUAL RE 39

3 Significant accounting policies continued 3 Significant accounting policies continued m Income taxes continued In determining the recoverability of deferred tax assets the Company primarily considers current and expected profitability and the ability to use any recorded tax assets The Company takes into consideration the underlying operation s performance as compared to plan the outlook of the business going forward the impact of enacted and proposed changes to tax law the availability of tax planning strategies and the expiry date of the tax losses o Post employment benefits continued The defined benefit accrued obligation is included in other liabilities in the consolidated statement of financial position n Foreign currency Transactions in foreign currencies are translated to the Company s functional currency at exchange rates at the dates of the transactions Monetary assets and monetary liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period adjusted for effective interest and payments during the period and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period Foreign currency differences arising on retranslation are recognized in net income and comprehensive income for the year o Post employment benefits The Company provides certain pension and other post employment benefits to eligible participants upon retirement Pension benefits Substantially all employees participate in a multi employer pension plan the Ontario Mutual Insurance Association Pension Plan the Plan which is a money purchase plan with a defined benefit option available to eligible employees at retirement The amount of the retirement benefits to be received by an employee is based on the employee s length of service and final average earnings The Plan exposes the participating employers to actuarial risks associated with the current and former employees of all employers The information provided to the Company by the Plan administrator in accordance with the Plan agreement is insufficient to consistently and reliably allocate the obligation Plan assets and cost to individual employers participating in the Plan The Plan is therefore accounted for as if it were a defined contribution plan recognizing contributions as an expense in the year to which they relate The Plan administrator obtains an actuarial valuation of the plan assets and liabilities in accordance with the Pension Benefits Act The actuarial valuation involves assumptions about discount rates future salary levels mortality rates inflation and future pension increases Due to the long term nature of the Plan such estimates are subject to significant uncertainty The Plan administrator may require the Company to make additional contributions for the amortization of any unfunded liability experience deficiency or solvency deficiency with respect to benefits previously accrued pursuant to the requirements of the Pension Benefits Act Contributions payable to the Plan in exchange for service rendered by a participating employee are recognized in the period in which the service is rendered Other contributions to the Plan are recognized when there is a present legal or constructive funding obligation Other contributions are measured on an undiscounted basis except where they are not expected to be settled wholly before twelve months after the end of the reporting period in which the funding obligation arose Pension benefit costs are included in operating expenses in the consolidated statement of comprehensive income and equity Non pension benefits The Company provides lump sum payments on retirement and post employment extended health care and dental benefits to eligible retired employees Entitlement to these benefits is conditional on the employee remaining in service up to retirement age and the completion of a minimum service period There are no employee contributions and the benefits are not funded The defined benefit accrued obligation and current service cost are actuarially determined using the projected unit credit valuation method pro rated on service According to this method the accrued benefit obligation is equal to the actuarial present value of all future benefits multiplied by the ratio of the service at the valuation date to the service at the date when an employee is first eligible to receive the benefits This method involves the use of the market interest rate at the measurement date on high quality debt instruments for the discount rate and management s best estimates concerning such factors as salary escalation retirement ages of employees and expected extended health care and dental costs Such estimates are subject to significant uncertainty Termination benefits Termination benefits are payable when employment is terminated by the Company before the normal retirement date or whenever an employee accepts voluntary redundancy in exchange for these benefits The Company recognizes a liability for termination benefits at the earlier of when the Company can no longer withdraw the offer of those benefits and when the Company recognizes costs for a restructuring Benefits falling due more than 12 months after the end of the reporting period are discounted to their present value 4 Standards issued but not yet effective The following IFRS standard has been issued but is not yet effective a IFRS 17 Insurance Contracts In May 2017 the IASB issued IFRS 17 to establish a global standard which provides guidance on the recognition measurement presentation and disclosure of insurance contracts Amendments to IFRS 17 were issued in June 2020 IFRS 17 replaces existing accounting under IFRS 4 IFRS 17 is effective beginning on January 1 2023 with a transition date of January 1 2022 and will be applied retrospectively The analysis below of the expected qualitative impacts as a result of IFRS 17 are not exhaustive As a result the analysis represents the Company s summary of the impacts based on information available at present and are subject to change and may emerge differently The primary drivers of this change includes changes in the discount rate and risk adjustment applied to the liabilities for incurred claims and changes in the composition of deferred acquisition costs The Company is still evaluating the impact of IFRS 17 on 2022 net income The potential impacts to net income are Changes in discount rate accretion in the liabilities for incurred claims The inclusion of the risk adjustment and removal of the provision for adverse deviation in the liabilities for incurred claims Changes from deferred acquisition cost amortization While the Company continues to finalize its application of this standard its assessment of the key quantitative and qualitative implications of this standard are as follows Measurement model Insurance contract liabilities for each group of insurance contracts represent the sum of the liability for incurred claims and liability for remaining coverage The Company expects that all of its liabilities will be measured using the Premium Allocation Approach PAA When measuring liabilities for remaining coverage the PAA is similar to the Company s previous accounting treatment for short duration contracts and therefore the Company does not expect a significant impact to measurement The Company will also apply the PAA to its reinsurance contracts held which is similar to how they are measured under IFRS 4 The Company primarily issues insurance contracts with a coverage period of 12 months or less which automatically qualify for the PAA For these types of contracts the Company will expense insurance acquisition cash flows as they are incurred except for the broker business where they will be deferred and amortized Methodology for determining the discount rate When measuring the liabilities for incurred claims IFRS 17 requires an estimate of future cash flows to be discounted to reflect the time value of money and financial risk related to those cash flows unless the Company expects claims to be paid in one year or less from the date it was incurred The methodology for determining the discount rate is not prescribed therefore discount rates will be based on a risk free rate plus an illiquidity premium reflective of the cash flow characteristics of the respective insurance contract Onerous contracts IFRS 17 requires the identification of groups of onerous contracts when facts and circumstances indicate The current service cost for a period is equal to the actuarial present value of benefits attributed to employee s services rendered in the period Current service cost other than actuarial gains and losses are included in operating expenses in the consolidated statement of comprehensive income and equity Actuarial gains and losses are recognized in full in other comprehensive income in the period in which they occur and then immediately in voting and participating members equity They are not reclassified to net income in subsequent years 40 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 41

4 Standards issued but not yet effective continued 5 Investments continued a IFRS 17 Insurance Contracts continued c Collateral pledges The Company has pledged assets with an estimated fair value as at December 31 2022 of 203 315 2021 57 873 to collateralize a standby letter of guarantee facility The letter of guarantee facility is used to collateralize unpaid claim liabilities At December 31 2022 the letter of guarantee utilization is 71 159 2021 57 422 in Canadian dollars CAD The letters of guarantee are denominated in United States dollars USD a loss for PAA contracts When onerous contracts are identified the Company is required to recognize a loss immediately in the statement of comprehensive income and equity along with an increase in the insurance contract liability known as a loss component to appropriately reflect the timing of losses The amount of loss from onerous contracts written in a year is a required disclosure The Company has established a mechanism for identifying onerous contracts and has determined there are no onerous contracts upon transition The distribution of financial instruments measured at fair value in the three level hierarchy is as follows 5 Investments 2022 a Classification of investments Investment carrying values by class are as follows 2022 As at December 31 Short term securities pooled funds Bonds and debentures Canadian government Canadian provincial Corporate Pooled funds Mortgages pooled funds Preferred shares Common shares Directly held Pooled funds 1 261 2021 35 640 7 886 69 607 10 037 502 182 37 930 22 231 168 132 154 622 245 183 10 479 41 898 28 694 132 352 13 642 797 128 134 487 13 957 833 092 The maturity profile of investments is as follows Total 1 261 589 712 37 930 22 231 145 994 797 128 Level 1 129 208 129 208 Level 2 1 261 582 712 37 930 22 231 13 642 657 776 Level 3 7 000 3 144 10 144 2021 As at December 31 Short term securities Bonds and debentures Mortgages pooled funds Preferred shares Common shares Total 35 640 578 416 41 898 28 694 148 444 833 092 Level 1 131 629 131 629 Level 2 35 640 574 216 41 898 28 694 13 957 694 405 Level 3 4 200 2 858 7 058 The following table provides a reconciliation of the level 3 fair value measurements 2022 Less than 1 year 1 261 112 607 4 698 118 566 As at December 31 Short term securities Bonds and debentures Mortgages pooled funds Preferred shares Common shares There were no transfers of financial instruments between levels during the year b Maturity profile of investments As at December 31 Short term securities Bonds and debentures Mortgages pooled funds Preferred shares Common shares d Financial instruments measured at fair value From 1 to 5 years 402 968 37 930 17 533 458 431 Over 5 years 74 137 74 137 No specific maturity 145 994 145 994 2022 For the year ended December 31 Total 1 261 589 712 37 930 22 231 145 994 797 128 Fair value of level 3 investments beginning of year Additional investments made during year Unrealized gain Fair value of level 3 investments end of year 7 058 2 800 286 10 144 2021 3 883 2 800 375 7 058 The unrealized gain on Level 3 financial assets is included in investment income in the consolidated statement of comprehensive income and equity 2021 As at December 31 Short term securities Bonds and debentures Mortgages pooled funds Preferred shares Common shares 42 Less than 1 year 35 640 67 499 5 387 108 526 FARM MUTUAL RE 2022 ANNUAL REPORT From 1 to 5 years 375 255 41 898 23 307 440 460 Over 5 years 135 662 135 662 No specific maturity 148 444 148 444 Total 35 640 578 416 41 898 28 694 148 444 833 092 2022 ANNUAL REPORT FARM MUTUAL RE 43

5 Investments continued 6 Insurance contracts continued e Investment income Investment income by financial instrument classification is as follows b Unpaid claims continued Unpaid claims liabilities are established to reflect the estimate of the full amount of all liabilities associated with the insurance contracts at the end of the year including IBNR The ultimate cost of these liabilities will vary from the best estimate made for a variety of reasons including additional information with respect to the facts and circumstances of the claims incurred 2022 For the year ended December 31 Debt securities Realized losses Unrealized losses Interest income Preferred shares Realized gains Unrealized losses gains Dividends Common shares Realized gains Unrealized losses gains Dividends 9 435 29 197 20 506 18 126 6 938 1 223 5 715 10 152 16 512 4 300 2 060 1 950 27 851 Investment expense Investment loss income 2021 329 21 112 17 101 4 340 236 4 772 1 178 6 186 12 185 15 177 3 784 31 146 1 575 31 417 6 Insurance contracts a Reinsurance assets The components of the Company s reinsurance assets are as follows 2022 As at December 31 Reinsurers share of unpaid claims Reinsurers share of unearned premiums 224 987 3 289 228 276 2021 49 101 3 330 52 431 2022 Property Gross unpaid claims Ceded unpaid claims Automobile Liability and other 425 331 193 321 Net unpaid claims 232 010 201 686 21 195 180 491 67 548 10 471 57 077 694 565 224 987 469 578 2021 As at December 31 Property Automobile Liability and other Gross unpaid claims Ceded unpaid claims 44 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 For the year ended December 31 Unpaid claims beginning of year Claims and adjustment expenses Prior year favourable development Claims incurred in the current accident year Claims paid during the year On claims incurred in prior accident years On claims incurred in the current accident year Unpaid claims end of year For the year ended December 31 Unpaid claims beginning of year Claims and adjustment expenses Prior year favourable development Claims incurred in the current accident year Claims paid during the year On claims incurred in prior accident years On claims incurred in the current accident year Unpaid claims end of year Gross unpaid claims Ceded unpaid claims 572 740 49 101 523 639 105 141 463 365 14 295 238 644 90 846 224 721 128 193 108 206 694 565 10 313 38 150 224 987 117 880 70 056 469 578 2021 Gross unpaid claims Ceded unpaid claims 507 741 36 867 Net unpaid claims Net unpaid claims 470 874 54 614 303 124 2 871 38 893 51 743 264 231 111 570 71 941 572 740 5 178 18 610 49 101 106 392 53 331 523 639 c Unearned premiums The following table presents the changes in UPR during the year 2022 b Unpaid claims The following table presents unpaid claims by contract type As at December 31 The following table presents the movement of the Company s claims liabilities during the year 256 320 243 008 73 412 572 740 13 072 24 695 11 334 49 101 Net unpaid claims 243 248 218 313 62 078 523 639 As at December 31 UPR beginning of year Premiums written in the year Premiums earned during the year UPR end of year Gross UPR 22 639 268 938 268 213 23 364 Ceded UPR 3 330 59 039 59 080 3 289 Net UPR 19 309 209 899 209 133 20 075 2021 As at December 31 UPR beginning of year Premiums written in the year Premiums earned during the year UPR end of year Gross UPR 20 036 278 130 275 527 22 639 Ceded UPR 2 310 48 483 47 463 3 330 Net UPR 17 726 229 647 228 064 19 309 2022 ANNUAL REPORT FARM MUTUAL RE 45

6 Insurance contracts continued 8 Intangible assets and goodwill d Deferred acquisition costs Intangible assets and goodwill as presented in the consolidated statement of financial position are comprised of the following The following table presents the changes in DAC during the year 2022 Gross DAC As at December 31 DAC beginning of year Acquisition costs deferred Acquisition costs amortized DAC end of year 2022 As at December 31 4 137 19 367 19 500 4 004 Ceded DAC 929 2 568 2 631 866 Net DAC 3 208 16 799 16 869 3 138 Intangible assets Goodwill DAC beginning of year Acquisition costs deferred Acquisition costs amortized DAC end of year Gross DAC 3 576 25 987 25 426 4 137 591 2 838 2 500 929 Net DAC 2 985 23 149 22 926 3 208 Cost As at December 31 Balance beginning of year Additions Disposals Balance end of year 10 617 1 398 69 11 946 As at December 31 Land property and equipment are comprised of the following 2022 Land and building structure Equipment Total 16 317 310 107 16 520 8 604 241 96 8 749 24 921 551 203 25 269 5 395 555 107 5 843 10 677 7 735 306 96 7 945 804 13 130 861 203 13 788 11 481 46 FARM MUTUAL RE 2022 ANNUAL REPORT Accumulated amortization Land and building structure Equipment 16 084 233 16 317 4 851 544 5 395 10 922 Balance beginning of year Additions Balance end of year Cost 8 538 404 69 8 873 8 913 1 704 10 617 Accumulated amortization Carrying amount 2 079 994 3 073 8 322 216 8 538 Carrying amount 591 1 488 2 079 9 Income taxes a Deferred tax assets The following table shows the components comprising deferred tax assets As at December 31 Unpaid claims Investments Property and equipment Post employment benefits Other 2022 2021 As at December 31 Cost Balance beginning of year Additions Balance end of year Accumulated depreciation Balance beginning of year Additions Balance end of year Net book value end of year 2021 7 Land property and equipment As at December 31 Cost Balance beginning of year Additions Disposals Balance end of year Accumulated depreciation Balance beginning of year Additions Disposals Balance end of year Net book value end of year 1 879 200 2 079 2022 Ceded DAC a Intangible assets Intangible assets are comprised of the following 2021 As at December 31 2 873 200 3 073 2021 19 380 220 1 191 276 523 18 768 2021 21 972 221 852 324 141 21 364 Total 8 237 367 8 604 7 321 414 7 735 869 24 321 600 24 921 12 172 958 13 130 11 791 2022 ANNUAL REPORT FARM MUTUAL RE 47

9 Income taxes continued 12 Capital management b Income tax expense The Company s objectives when managing capital are to maintain sufficient capital to support claim liabilities ensure the confidence of policyholders provide liquidity exceed regulatory capital measures and maximize return on capital Management is responsible for developing the capital strategy for the Company and actively monitoring the capital management process The Board of Directors is responsible for overseeing management s risk taking activities and compliance with the capital management policies The reconciliation of income tax recovery expense calculated at the Canadian statutory tax rate to the income tax recovery expense at the effective tax rate recorded in net income is provided in the following table For the year ended December 31 Income tax expense based on statutory rates Adjustments to income tax recovery expense related to Canadian dividend income not subject to tax Non deductible expenses Effect of change in income tax rates Other Income tax expense 2021 2022 26 3 3 581 27 2 10 5 0 2 1 435 30 19 9 0 2 1 292 12 0 9 128 0 3 20 414 2 462 0 4 6 8 3 0 18 1 1 762 26 436 c Deferred income tax expense The following table shows the components comprising deferred income tax expense For the year ended December 31 Unpaid claims Investments Property and equipment Post employment benefits Other 2022 2 592 1 339 19 382 2 529 2021 2 206 161 25 366 298 10 Operating expenses The Company is subject to the regulatory capital requirements defined by the Financial Services Regulatory Authority FSRA and the Insurance Act Ontario FSRA evaluates the Company s capital adequacy through the Minimum Capital Test MCT which measures available capital against required risk weighted capital Total capital available represents equity less specific deductions for disallowed assets Minimum capital required is calculated by categorizing assets and liabilities and applying prescribed risk factors to each category The MCT Guideline sets out 100 as the minimum and 150 as the supervisory target standards for P C insurance companies In addition the Company has set an internal target minimum ratio at a level higher and more stringent than FSRA s minimum and supervisory requirements On at least an annual basis a capital stress test known as Financial Condition Testing FCT is performed to estimate the impact on capital of possible future adverse events scenarios These scenarios are reviewed each year to ensure appropriate risks are included in the testing process An Own Risk and Solvency Assessment ORSA is also conducted at least annually ORSA is a framework for insurers to internally assess their risks and determine the level of capital required to support future solvency Outwards reinsurance is also used to protect the Company s capital level from large losses including those of a catastrophic nature which could have a detrimental impact on capital The Company has adopted policies that specify tolerance for insurance risk retention Once the retention limits are reached as disclosed in note 13 a outwards reinsurance is used to cover the excess risk The following table shows the MCT results As at December 31 Total capital available Minimum capital required Excess of capital available over capital required MCT ratio Excess of capital available over capital required at 150 2022 446 798 101 760 345 038 439 294 158 2021 438 448 105 668 332 780 415 279 946 The following table shows the components comprising operating expenses For the year ended December 31 Salaries and benefits Information technology Occupancy Office Professional fees Travel education and membership meetings Other 2022 10 799 1 687 1 282 1 352 645 1 065 1 340 18 170 2021 10 136 1 385 1 245 1 208 954 430 322 15 680 11 Refund of premiums The Company s by laws provide that the Board of Directors may declare a refund of premiums to voting and participating members in any year In making such a determination the Board of Directors must consider the Company s capital position at the end of the previous financial year and will consider whether current capital available is adequate for current capital needs and likely future capital needs The Board of Directors did not declare a refund of premiums to voting and participating members for the year ended December 31 2022 2021 nil 48 FARM MUTUAL RE 2022 ANNUAL REPORT 13 Insurance and financial risk The Company s business activities expose it to a wide variety of risks in virtually all aspects of its operations The ability to manage these risks is a key competency and is supported by a strong risk culture and an effective enterprise risk management process Risks are managed through an enterprise wide capability to recognize understand measure assess mitigate and monitor the risks taken across the organization to ensure Strategic and other planning and risk are aligned Risk taking activities are aligned with customer needs stakeholder expectations and legal and regulatory requirements and Business activities and transactions provide an appropriate balance of return for the risk assumed remain within the Company s risk appetite risk capacity and the level of capital appropriate to the nature scale and complexity of the Company s risks risk taking activities and operating environment The Company s exposure to potential loss from financial assets and insurance contracts primarily relates to insurance risk credit risk liquidity risk and various market risks including interest rate market price fluctuation risk and foreign currency risk a Insurance risk Insurance risk is the risk that the total cost of claims and claims adjustment expenses will exceed premiums received and can arise as a result of numerous factors including pricing risk reserving risk and catastrophe risk The following discussion outlines the most significant insurance risks and the practices employed to mitigate these risks 2022 ANNUAL REPORT FARM MUTUAL RE 49

13 Insurance and financial risk continued 13 Insurance and financial risk continued a Insurance risk continued a Insurance risk continued Pricing risk Pricing risk arises when actual claims experience differs from the assumptions included in pricing calculations The Company focuses on profitable underwriting using a combination of pricing models and price adequacy monitoring tools Reinsurance products are priced taking into account numerous factors including claims frequency and severity trends the capital required to support the product line and the investment income earned on that capital The Company s pricing is designed to ensure an appropriate return on capital while also providing long term rate stability These factors are reviewed and adjusted periodically to ensure they reflect the current environment The tables below show how the Company s estimate of cumulative incurred claims cost for each accident year have changed at successive year ends Each column tracks the claims relating to a particular accident year which is the year in which such loss events occurred regardless of when they were reported The rows reflect the estimates in subsequent years for each accident year s claims Cumulative payments to date in the table presents the cumulative amounts paid for claims for each accident year as the current reporting date Reserving risk Reserving risk arises when actual claims experience differs adversely from the assumptions included in setting reserves The establishment of the estimated liability for unpaid claims is based on known facts and interpretation of circumstances and is therefore a complex and dynamic process influenced by a large variety of factors These factors include the Company s experience with similar cases and historical trends involving claim patterns loss payments pending levels of unpaid claims product mix or concentration claims severity and claim frequency patterns Other factors include the continually evolving and changing regulatory and legal environment actuarial studies professional experience and existing claims management practices the effect of inflationary trends on future claims settlement costs court decisions economic conditions and public attitudes In addition time can be a critical part of the provision determination since the longer the span between the incidence of a loss and the payment or settlement of the claims the more variable the ultimate settlement amount can be Accordingly short tail claims such as property claims tend to be more reasonably predictable than long tail claims such as general liability and automobile accident benefit claims that are less predictable The Company s liability for claims reserve is reviewed by and must be acceptable to the independent Appointed Actuary As the outstanding claim liabilities are intended to represent payments that will be made in the future they are discounted to reflect the time value of money effectively recognizing that the bonds held to support insurance liabilities will earn a return during that period The discount rate used to discount the actuarial value of claim liabilities is based on the fair value yield of the Company s bonds that support the claim liabilities note 5 In assessing the risks associated with investment income and therefore the discount rate the Company considers the nature of the bond portfolio and the timing of claim payments and the extent to which they match to expected investment cash flows Future changes in the bond portfolio could change the value of claim liabilities by impacting the fair value yield An interest rate sensitivity analysis demonstrates that a 1 change in interest rates results in an inverse change in the gross and net unpaid claims as shown in the table below As at December 31 Impact on Gross unpaid claims Net unpaid claims 2022 1 11 353 9 252 2021 1 11 930 9 743 1 12 310 11 239 1 13 038 11 891 Establishing an appropriate level of claims liabilities is an inherently uncertain process and is closely monitored by management The following analysis is performed for reasonably possible movements in key assumptions with all other assumptions held constant showing the impact on gross and net liabilities for the Company s property per risk and casualty per occurrence excess of loss reinsurance contracts which comprise 47 8 and 65 4 of total gross and net claim liabilities respectively 2021 68 0 and 67 0 respectively 2022 As at December 31 Change in assumptions Ultimate claims incurred but not reported Ultimate claims settlement cost 50 FARM MUTUAL RE 2022 ANNUAL REPORT 2021 Impact on gross liabilities Impact on net liabilities Impact on gross liabilities Impact on net liabilities 5 1 029 88 905 5 908 79 821 5 2 769 88 150 5 2 394 78 545 Claims development table gross 2013 At end of accident year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 7 years later 8 years later 9 years later Current estimate of ultimate liability Cumulative payments to date Unpaid claims at end of current period Unpaid claims for all prior accident years 2014 2015 2016 2017 142 817 151 277 118 839 132 976 117 382 131 496 132 428 121 909 125 438 136 850 125 892 136 561 126 734 136 026 125 502 134 575 120 427 133 462 119 088 137 276 106 832 106 930 113 430 112 747 108 802 103 479 97 698 157 254 131 878 131 241 147 838 141 760 133 038 129 470 173 713 161 995 163 707 171 411 119 088 133 462 97 698 129 470 162 296 124 195 88 453 113 836 127 505 9 267 9 245 15 634 34 791 110 429 8 659 164 882 162 296 2018 2019 190 015 190 816 190 430 2020 2021 Total 194 447 184 984 174 303 163 929 188 936 174 303 255 079 462 634 1 886 895 135 688 136 461 175 343 163 929 28 241 52 475 121 917 302 822 255 079 2022 195 410 204 059 203 005 188 936 148 715 462 634 1 214 767 107 568 52 386 106 364 355 066 672 128 22 437 Unpaid claims 694 565 694 565 Claims development table net 2013 At end of accident year 1 year later 2 years later 3 years later 4 years later 5 years later 6 years later 2014 2015 2016 2017 123 579 136 434 126 763 152 918 159 381 106 641 122 478 100 760 127 540 146 799 104 585 124 370 97 293 127 238 150 313 108 590 123 684 103 757 141 201 158 623 111 229 127 542 104 455 136 211 152 783 112 115 125 863 101 255 127 374 148 307 112 614 125 339 95 806 123 456 7 years later 110 888 124 079 8 years later 106 560 123 973 9 years later Current estimate of ultimate liability Cumulative payments to date Unpaid claims net at end of current period Unpaid claims net for all prior accident years Unpaid claims less reinsurers share of unpaid claims 106 321 106 321 123 973 99 705 6 616 116 882 7 091 2018 2019 2020 2021 2022 Total 170 090 184 163 181 219 263 930 223 990 177 684 193 632 173 234 225 013 178 603 194 721 164 804 162 883 179 883 151 968 90 346 90 346 123 456 148 307 151 968 179 883 164 804 225 013 223 990 1 538 061 81 794 8 552 109 742 115 312 13 714 32 995 123 673 130 979 28 295 48 904 113 435 122 979 69 418 1 083 919 51 369 102 034 154 572 454 142 15 436 469 578 2022 ANNUAL REPORT FARM MUTUAL RE 51

13 Insurance and financial risk continued 13 Insurance and financial risk continued a Insurance risk continued a Insurance risk continued To allow for possible deterioration in experience and to increase the likelihood that the valuation of unpaid claims is adequate to pay future benefits accepted actuarial practice in Canada requires the inclusion of margins in some assumptions A range of allowable margins is prescribed by the Canadian Institute of Actuaries relating to claim development reinsurance recoveries and investment income variables The effect of the margins produces the PfAD The fair value of unpaid claims is calculated using the same margins for adverse deviation The table below shows the Company s per risk per occurrence and net aggregate excess of loss reinsurance arrangements for exposures in Canada and the United States The discount rate used to determine the value of claim liabilities is based on the fair value yield of the Company s bond portfolio Future changes in the bond portfolio could change the value of these claim liabilities by impacting the fair value yield The table below details the fair value of unpaid claims on a discounted basis 2022 As at December 31 Undiscounted unpaid claims Impact of discounting Provision for adverse deviation Discount rate 4 9 Insurance contract liabilities 696 487 57 228 55 306 694 565 Reinsurance of liabilities 225 020 10 744 10 711 224 987 Net 471 467 46 484 44 595 469 578 2021 As at December 31 Undiscounted unpaid claims Impact of discounting Provision for adverse deviation Discount rate 1 8 Insurance contract liabilities 546 667 21 114 47 187 572 740 Reinsurance of liabilities 47 858 1 905 3 148 49 101 Net 498 809 19 209 44 039 523 639 Catastrophe risk Catastrophe risk arises as P C insurance companies may be exposed to large losses arising from man made or natural catastrophes that could result in significant underwriting losses The Company evaluates potential catastrophic events and assesses the probability of occurrence and magnitude of these events through various modelling techniques The Company manages catastrophe exposure by factoring in levels of reinsurance protection capital levels and risk tolerances Reinsurance The Company purchases outwards reinsurance as part of its insurance risk mitigation program However outwards reinsurance does not relieve the Company from its primary commitments to ceding insurance companies under inwards reinsurance contracts If any reinsurers are unable to meet their obligations under the related agreements the Company would be liable for unrecoverable amounts The outwards reinsurance contracts purchased by the Company provide coverage for a one year term and are negotiated annually The availability and cost of outwards reinsurance are subject to prevailing market conditions both in terms of price and available capacity Market conditions are influenced by recent loss experience of the Company and of the industry in general The Company works with well established reinsurers that have expertise in their fields an understanding of the Company s business and satisfactory financial strength ratings Management reviews outwards reinsurance programs to manage cost efficiency and reduce the likelihood of coverage gaps For the year ended December 31 Canada Property per risk Automobile per occurrence Liability per occurrence Catastrophe per occurrence Catastrophe net aggregate United States Catastrophe per occurrence in USD Retention 2 500 3 250 3 250 17 500 30 000 15 000 2022 Annual Aggregate Deductible 2021 Limit 3 000 24 000 30 000 30 000 380 000 65 000 55 000 Retention 2 500 3 250 3 250 17 500 30 000 Limit 15 000 24 000 30 000 30 000 350 000 65 000 55 000 b Credit risk Credit risk is the risk that one party to a financial instrument fails to discharge an obligation and thereby causes financial loss to another party The Company s exposure to credit risk is concentrated in two specific areas investment assets and underwriting and operating balances including balances recoverable and receivable from reinsurers on ceded losses including ceded incurred losses ceded paid losses and ceded unearned premiums The aggregate gross credit risk exposure is comprised as follows 2022 As at December 31 Cash and cash equivalents Accrued investment income Accounts receivable Income taxes receivable Debt securities Recoverable from reinsurers 61 555 845 77 074 212 589 712 224 987 954 385 2021 62 749 2 815 54 790 578 416 49 101 747 871 Investments in debt instruments The Company monitors concentration and credit quality risk through policies to limit and monitor its exposure to individual issuers or related groups with the exception of Canadian government bonds as well as through ongoing review of the credit ratings of issuers held in the securities portfolio The Company limits its investment exposure to any one corporate issuer or related group to less than 10 of the Company s investments No more than 10 of the bond and debenture portfolio may be The Company purchases outwards reinsurance to limit its net retained exposure for any single risk or single loss occurrence retention in Canada up to certain maximum per risk or per occurrence amounts limit In addition the Company has obtained catastrophe reinsurance protection which provides coverage for the amount of loss in excess of the retention and up to the limit of coverage from a catastrophic event occurring in Canada or the United States such as a severe convective storm tornado hail straight line wind and lightning or winter storm snow ice freeze and extra tropical wind The Company also purchases outwards reinsurance that provides coverage for the cumulative amount of loss resulting from all catastrophic events occurring in Canada in a year catastrophe net aggregate 52 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 53

13 Insurance and financial risk continued 13 Insurance and financial risk continued b Credit risk continued c Liquidity risk continued held in instruments with a non investment grade financial strength rating assigned by a recognized rating agency Non investment grade comprises obligations with a financial strength rating of BB or lower and unrated obligations The Company focuses on the stress that could be placed on liquidity requirements as a result of severe disruption or volatility in the capital markets or extreme catastrophic activity or the combination of both The Company s liquidity management strategy is to hold cash cash equivalents and highly liquid high quality short term investment securities to meet anticipated obligations as they become due The Company also has a highly liquid investment portfolio The investment policy requires all investments to be in publicly traded securities that meet minimum size and trading requirements The table below shows debt securities by financial strength rating 2022 As at December 31 AAA Aaa P 1 AA Aa P 2 A P 3 BBB Bbb P 4 BB B Unrated Short term Bonds and debentures Mortgages Preferred Total 118 1 113 30 1 261 249 530 60 697 103 810 136 381 16 945 11 793 10 556 589 712 37 930 37 930 20 147 2 084 22 231 249 648 81 957 105 924 136 381 16 945 11 793 48 486 651 134 Preferred Total 2021 AAA Aaa P 1 AA Aa P 2 A P 3 BBB Bbb P 4 Bonds and debentures Short term As at December 31 252 35 300 88 171 415 239 182 93 103 70 516 Mortgages 25 538 3 156 171 667 300 020 96 347 70 516 BB B Unrated 35 640 4 200 578 416 41 898 41 898 28 694 46 098 Internal guidelines require participating reinsurers to have an A or higher financial strength rating assigned by a recognized rating agency at inception of the contract and participating reinsurers on long term settlement contracts to be approved by the Office of the Superintendent of Financial Institutions Canada at inception of the contact Reinsurance contracts include provisions requiring any reinsurer that is not approved by a Canadian insurance authority having jurisdiction over the reinsurer to collateralize amounts receivable and recoverable using cash or letters of guarantee issued by a Canadian chartered bank The Company s accounts receivable are short term in nature and are not subject to material credit risk c Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting cash flow commitments for obligations associated with insurance contracts operating costs and expenses and income tax payments Obligations associated with insurance contracts include the payment of premiums under outwards reinsurance contracts and the payment of claims and commissions under inwards reinsurance contracts Historically the Company has used cash inflows from operating activities and investment activities to fund liquidity requirements Cash inflows from operating activities are primarily the collection of premiums and reinsurance assets Cash inflows from investment activities are primarily repayments of principal sales of investment securities and investment income FARM MUTUAL RE 2022 ANNUAL REPORT d Market risk Market risk is the risk of loss from adverse changes in market rates and prices such as interest rates the trading price of equity and other securities credit spreads and foreign currency exchange rates Market risk is directly influenced by the volatility and liquidity in markets in which the underlying assets and liabilities are traded expectations of future price and yield movements and the composition of the Company s investment portfolio Interest rate risk Fluctuations in interest rates have a direct impact on the market valuation of the Company s debt securities and preferred shares As interest rates rise the market value of debt securities and preferred shares declines and conversely as interest rates decline the market value of debt securities and preferred shares rises The Company s interest rate risk management strategy is to position its debt securities and preferred shares based on its view of future interest rates and the yield curve balanced with liquidity requirements The Company may reposition the portfolio in response to changes in the interest rate environment The table below shows the estimated increase or decrease in the fair value of the Company s debt securities and preferred shares resulting from an immediate hypothetical 100 basis point increase or decrease in interest rates with all other variables held constant 2022 As at December 31 Short term securities Bonds and debentures Mortgages pooled funds Preferred shares 684 648 Recoverable from reinsurers and accounts receivable The Company has a regular review process to assess the credit worthiness of reinsurers with whom it transacts business and to monitor and limit its exposure to any individual reinsurer or reinsurance group The Company assesses the financial soundness of the reinsurers before signing any reinsurance treaties and monitors their situation on a regular basis The financial analysis and monitoring performed by the Company s reinsurance broker is also considered In addition the Company has minimum rating requirements for its reinsurers 54 All financial liabilities mature in one year or less 64 13 881 1 043 543 15 531 2021 39 25 600 1 152 677 27 468 Market price fluctuations The Company s investment portfolios are managed through the services of third party professional investment management firms with a long term value oriented investment philosophy emphasizing downside protection The Company has policies to limit and monitor its individual issue exposures and aggregate equity exposure The estimated impact of a 10 increase or decrease in equity prices with all other variables held constant would result in an increase or decrease of 14 599 2021 16 016 in the fair value of the Company s equity investment portfolio Foreign currency risk Foreign currency risk is the risk that the fair value or cash flows of a financial instrument or insurance contract will fluctuate because of changes in exchange rates and produce an adverse effect on earnings when measured in a company s functional currency The Company s foreign currency risk relates primarily to inwards reinsurance contracts denominated in USD For the year ended December 31 2022 inwards reinsurance contracts denominated in USD were 47 665 USD 2021 70 402 USD Net exposure to USD denominated amounts in USD included in the consolidated statement of financial position is as follows As at December 31 Cash and cash equivalents Investments Accrued investment income Accounts receivable Accounts payable Unpaid claims 2022 3 139 49 821 1 391 6 761 288 82 151 21 327 2021 8 324 52 582 467 14 939 99 92 788 16 575 2022 ANNUAL REPORT FARM MUTUAL RE 55

14 Post employment benefits 14 Post employment benefits continued a Pension benefits The Plan is funded by employee and employer contributions Current contributions are the amount required for Plan service costs and the normal cost of the benefits currently accruing in accordance with the provisions of the Plan based upon the advice of the Plan actuary less the employee contributions b Non pension benefits continued Employers must also make contributions to provide for the amortization of any unfunded liability experience deficiency or solvency deficiency with respect to benefits previously accrued pursuant to the requirements of the Pension Benefits Act Ontario The Company included 1 022 2021 1 300 for current contributions in operating expenses in the consolidated statement of comprehensive income and equity Expected current contributions to the Plan for the next annual reporting period are 1 200 The Company s proportion of the total current contributions to the Plan amount to 12 3 2021 18 9 The most recent actuarial valuation was prepared as at December 31 2021 As at December 31 2022 the estimated goingconcern funding surplus of the plan was 3 571 2021 32 435 a solvency basis funding surplus of 33 301 2021 1 748 surplus and a funding surplus of 10 603 2021 28 559 deficit under a hypothetical wind up of the Plan In the event of wind up of the Plan or the Company s withdrawal from the Plan the Plan deficit or surplus would be allocated by the Plan actuary and in accordance with the Pension Benefits Act Ontario The Plan exposes the Company to a contingent liability for any shortfall in plan assets resulting from insufficient contributions including actuarial losses relating to other participating employers and any shortfall in the Plan if other employers cease to participate b Non pension benefits The Company provides lump sum payments on retirement and post employment extended health care and dental benefits to eligible retired employees The table below shows information about the Company s non pension post employment benefit plan For the year ended December 31 Accrued benefit obligation beginning of year Current service cost Interest cost Benefits paid Actuarial gain Accrued benefit obligation end of year 2022 1 220 120 40 87 253 1 040 The significant actuarial assumptions used in measuring the accrued benefit obligation are shown in the table below Extended health care cost trend rates 1 199 127 34 62 78 1 220 The financial position of a post employment non pension benefit plan is determined by comparing the value of assets to the actuarial liability which is also known as the accrued benefit obligation assuming the plan continues indefinitely The Company s plan is unfunded Therefore there are no assets associated with the plan A valuation was prepared as at December 31 2020 to determine the defined benefit obligation and the current service cost using the membership census data as at that date The defined benefit obligation and current service cost are calculated using the projected benefit method with service prorate Under this method the defined benefit obligation is equal to the actuarial present value of all future benefits taking into account the assumptions described below multiplied by the ratio of the service at the valuation date to the service at the date the employee is first eligible for post employment benefits The employer current service cost for a period is equal to the actuarial present value of benefits attributed to employee s services rendered in that period 2021 3 1 5 0 3 3 4 0 2 6 3 1 3 3 4 0 6 5 reducing to 4 5 over 8 years 6 5 15 Related party transactions Compensation for key management personnel defined as the Company s directors president and chief executive officer senior vice presidents vice presidents assistant vice presidents and managers is set out below For the year ended December 31 2022 Board of Directors Key management personnel Salaries Short term employee benefits Post employment benefits 293 250 4 200 328 464 4 992 5 242 2021 2022 For the year ended December 31 Discount rate beginning of year Discount rate end of year Salary increases Dental benefit cost trend rates 5 626 471 902 6 999 7 292 2021 16 Guarantees The Company can be assessed for its prescribed share of certain obligations to policyholders and claimants of insolvent insurance companies that are members of the Fire Mutuals Guarantee Fund There is no limitation to the maximum potential future payments under the guarantee No liability for obligations under the guarantee is carried in the Company s consolidated statement of financial position 2021 nil The Company provides indemnification to directors and officers to the extent permitted by law against certain claims made against them as a result of their services to the Company The Company has insurance coverage for these agreements No liability for obligations under the indemnification is carried in the Company s consolidated statement of financial position 2021 nil The current period accrued benefit obligation is determined by increasing the December 31 2021 accrued benefit obligation by the service cost for benefits to be earned during the period plus expected interest on the obligations and decreased by the expected benefit payments for each year including interest 56 FARM MUTUAL RE 2022 ANNUAL REPORT 2022 ANNUAL REPORT FARM MUTUAL RE 57

17 Changes in non cash balances The following table provides additional details on the items included in cash flows provided by used in operating activities For the year ended December 31 Accrued investment income Accounts receivable Reinsurance assets Income taxes receivable Deferred acquisition costs Accounts payable Income taxes payable Unpaid claims Unearned premiums Unearned commissions Other liabilities 2022 1 970 22 284 175 845 212 133 23 932 176 121 825 725 63 180 50 175 2021 117 1 461 13 254 1 892 561 1 964 176 64 999 2 603 338 21 59 522 Current and Past Chairs of the Board Chair Valerie Fehr Paul Vandenbosch Ross Gowan Tom Oegema Jeff Whiting Ross Lincoln Terry Shea Barbara Bethune Brian Downie Daniel J Hill Doug Crockett Bruce Caughey John W Leeson Bruce Williams Brian Bessey Joe Facey Serge Gauthier Michael O Shea Kathryn Adie Earl Harder Philip Brett Terry Malcolm From To 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Present 2022 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 Chair From To 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1965 1959 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1965 John McIntosh Gerald Brown Douglas Winer Ronald Perry Carl Turnbull James Pinnock Brian Fisher Edward Pellow Vern Inglis Gordon Johnson Donald Mylrea Albert McArthur Fred Legg John Harper Emory Knill William Weir K Max Forsythe Willard Shaw Delmar Cobban J Stan Mitchell Fred M Fletcher Current and Past Presidents President Jean Pierre Gagnon G S Steve Smith John A Harper Gerald M Snyder Bruce Bird H H McFadden 58 FARM MUTUAL RE 2022 ANNUAL REPORT From To 2019 2003 1987 1980 1974 1959 Present 2019 2003 1986 1979 1973 2022 ANNUAL REPORT FARM MUTUAL RE 59

Farm Mutual Reinsurance Plan Inc 350 Pinebush Road Cambridge Ontario N1T 1Z6 www farmmutualre com