2021 Annual Report : simplebooklet.com

2021 Performance at a Glance Who We Are In millions of Canadian dollars unless otherwise stated Premiums Assumed Combined Ratio CR Farm Mutual Re continued to increase premiums assumed in 2021 which grew by 9 4 or 22 9 million compared to the prior year Our underwriting results remained challenged in 2021 Our CR rose by 1 6 percentage points to 110 1 driven by significant crop losses and elevated losses in our broker segment 191 2 2017 200 3 2018 224 3 2019 243 6 2020 266 5 92 1 2021 2017 110 0 2018 124 0 2019 108 5 2020 110 1 2021 Net Income Loss Expense Ratio The positive impact of our strategic initiatives focused on the member segment offset by elevated crop losses higher broker segment losses and a decline in investment income resulted in a 15 4 million decrease in net income in 2021 Our expense ratio in 2021 decreased by 2 0 percentage points from the prior year We continue to make investments in a new reinsurance platform innovation and our people which we expect to drive profitable growth and improve our operational efficiency into the future 25 7 2017 21 4 6 6 1 0 2018 2019 16 4 15 1 2017 2018 17 3 18 9 2019 2020 16 9 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 defines 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 6 0 2020 2021 2021 2020 includes the 2 1 million mutual support initiative Voting and Participating Members Equity Minimum Capital Test MCT Voting and participating members equity increased by 6 0 million from the prior year to a total of 440 2 million Our MCT ratio of 415 2 continues to be well in excess of both the supervisory target for property and casualty insurance companies as well as our internal targets 2 418 5 411 9 412 8 2017 2018 2019 434 2 2020 FARM MUTUAL RE 2021 ANNUAL REPORT 440 2 2021 558 0 2017 536 0 2018 479 3 460 7 415 2 2019 2020 2021 2021 ANNUAL REPORT FARM MUTUAL RE 3

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Our Mission AM Best Rating 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 AM Best an independent rating agency reaffirmed the financial strength rating of Farm Mutual Reinsurance Plan with an A Excellent rating for the sixth consecutive year This rating is assigned to insurance companies that in AM Best s opinion have an excellent ability to meet their ongoing insurance obligations Our Vision To be the reinsurer of choice for the global mutual community and an essential part of the Canadian property and casualty industry Paul Vandenbosch We are passionate about empowering and advancing the mutual community Our Values 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 Caring 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 Committed 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 We are leaders by connecting communicating and collaborating to foster mutuality Recognizing the speed of change we embrace problem solving with openness 4 FARM MUTUAL RE 2021 ANNUAL REPORT Message from the Chair creativity and innovation to further our progressive approach to success We are prepared to be challenged Integrity 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 opportunities 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 While 2021 is not likely to be viewed as one of the most memorable years in the history of Farm Mutual Re the company continued to demonstrate a high degree of resiliency and professionalism in the face of the extraordinary challenges presented by the on going COVID 19 pandemic Despite the periodic hints throughout the latter part of the year that a return to normalcy was in the offing the company was able to take in stride the disappointing setback associated with the arrival of the Omicron variant Farm Mutual Re demonstrated its values of being caring committed courageous and empowering and always acting with integrity As it has done from the onset of the pandemic the organization was able to quickly identify potential disruptions and adapt its processes to continue to provide the exceptional reinsurance products and first rate complimentary services that the company s members and partners have come to rely on Through it all the Board has continued to work closely with the management team to prudently navigate the known and emerging risks in order to create an environment for Farm Mutual Re to thrive Growth and Profitability During the past year the Board and management have spent more of their time and energy addressing the growth and profitability challenges within the member segment of our business The finite size of the Canadian farm mutual market and the pace of consolidation among the company s participating members points to only modest primarily organic growth in the company s member business We are pleased that the results of the Path to Profitability initiative are trending positively but the company and all of its members will need to continue to employ diligent underwriting practices to ensure that the trend continues By continuing to follow strict underwriting protocols the company expects to improve the bottom line of its income statement The profitable expansion of the broker distribution segment has been an important part of the company s strategy in addressing the limited growth opportunities and concentration risk within the member segment However given the recent disappointing underwriting results in this segment the Board and management will need to increase our focus on our non member business The company will need to demonstrate underwriting diligence to our reinsurance partners and rating agencies in order to preserve the positive reputation which Farm Mutual Re enjoys Innovation Farm Mutual Re and its participating members as well as the broader business community all agree that innovation is essential for long term sustainability of any organization 2021 ANNUAL REPORT FARM MUTUAL RE 5

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Directors and Officers But asking members of a team who are fully engaged in meeting the demands of their roles to also set aside time to develop new products or processes is not likely to yield significant results The Board and the leadership group have come to the conclusion that in order for Farm Mutual Re to create an environment where the likelihood of innovationrelated successes are greater resources will need to be dedicated to the initiative While no one is able to provide assurances that the process will yield immediate results the Board and management are confident that the investment will yield sizeable returns over a longer time horizon not only for Farm Mutual Re but for the company s membership as well Equity Diversity Inclusion EDI The success of any organization is tied in large part to the caliber of its employees Farm Mutual Re is extremely proud of its current team The company wouldn t be where it is today without their efforts With the adoption of an EDI mandate this past year Farm Mutual Re has committed to enhancing its current workplace environment to continue to attract retain and develop exceptional team members to expand the company s roster of highly skilled employees having diverse backgrounds experiences perspectives and abilities Board of Directors The Board will bid farewell to longstanding Board member Jeff Whiting at the conclusion of this year s annual meeting Jeff has contributed significantly to the growth and evolution of Farm Mutual Re since his arrival on the Board in 2010 Jeff had a hand in guiding the company through a series of diverse challenges including the fall out from the 2008 global financial crisis the Dialogue on Direction discussions that followed and the settling of the question of the company s authority under its Letters Patent to name just a few I am personally thankful for Jeff s leadership and service and for his friendship The departure of one director creates an opportunity for another The Board is looking forward to taking advantage of in coming director Errol Butler s broad range of skills and experience in the coming years Appreciation I would like to thank Jean Pierre Gagnon his entire management group and all members of the Farm Mutual Re team for their energy commitment and the first rate work they perform each day to advance the interest of our members and partners Their efforts continue to reflect the company s tag line Collaborate Empower Succeed I would also like to thank my fellow directors for their trust support engagement and diligence in the Board s efforts to prudently govern the affairs of the company for the good of our members In closing with the hope that 2022 will see significant advances in bringing the pandemic to an end I continue to encourage you to take care of yourself and if you can to take care of someone else too Paul Vandenbosch Chair Ross Gowan Past Chair Valerie Fehr 1st Vice Ed Forbes 2nd Vice Jeff Whiting Director Jill Taylor Director Gord Lodwick Director Jill Chuli Director Kevin Konecny Director Derek MacFarlane Director Christine Van Daele Director Shane MacKinnon Director Jean Pierre Gagnon President CEO 6 FARM MUTUAL RE 2021 ANNUAL REPORT Jeff Consitt Sr Vice President COO Amy Butler Sr Vice President CFO Jennifer Allan Chief People Officer Patrice Rouse General Counsel Corporate Secretary 2021 ANNUAL REPORT FARM MUTUAL RE 7

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CEO Message to Members Jean Pierre Gagnon In so many ways 2021 looked and felt a lot like 2020 with news coverage focused on the pandemic and its effects on the economy and mental health There were moments of optimism throughout the year as the economy started to reopen and people felt more comfortable going about their daily activities There were a lot more vehicles on the road and businesses adapted to the new reality Then the end of the year brought a new wave upon us yet again Luckily we have learned to be resilient so we will get through this one more time We have also learned that listening to the needs of our employees has been more important than ever We were responsive by providing them with extra time off this past year Having the flexibility to work from home has been very positive for employees but it has created a new challenge when it comes time to unplug The line between work and home has blurred and we have 8 had to remind everyone that it is necessary to regularly disconnect We do our best to support our people to manage the work life balance that is so important As many of our member companies have done over the last few years we have embarked on a transformation journey changing our main business system It has been a learning experience for many members of our team and we have made a lot of progress Our objective is to close out that project in 2022 We also started to explore two progressive initiatives during 2021 The first one innovation is not necessarily new but has been better defined For example an improved strategy was drawn there were new members added to the team and time was spent devising ways to advance the foundation laid by the Mutual Innovation Lab experiment The second significant initiative is Equity Diversity and Inclusion FARM MUTUAL RE 2021 ANNUAL REPORT EDI Over the course of 2021 we explored the purpose for EDI We believe that the business case for EDI supports the need to attract and retain diverse representation at any organization and Farm Mutual Re is no exception There are five main value propositions for implementing EDI practices Diverse organizations are more successful at recruiting top talent Inclusive workplaces improve job satisfaction and retention Valuing diverse talent maximizes productivity Diverse teams are critical for innovation Inclusion boosts company reputation These value propositions create a competitive advantage that drives revenue growth and improved profitability which ultimately benefits our members and other business partners And we can t forget more engaged employees Financial performance Our financial performance continues to be challenged by our property per risk line with eight losses ceded to our reinsurers We also experienced our largest crop losses to date and significant losses with our broker property segment To add to the losses we and our member companies are experiencing significant inflationary pressure which is making it harder to ascertain ultimate liabilities Despite these challenges we ended 2021 with net income of 6 0 million a combined ratio of 110 1 and investment income of 31 4 million Property per Risk The property per risk line generated a combined ratio of 122 0 fueled by a large number of fire losses For the past four years only four losses reached our treaty but in 2021 the number of ceded losses doubled with a predominance of fires in dairy barns or other farmrelated structures Considerable actions including rate increases a coparticipation offering and a renewed focus on loss prevention have been taken over the past two years to help curb the unsustainable losses However rates alone will not be sufficient to reverse this trend In addition to the introduction of the audit process we are working on alternate approaches to solve this problem and we will be engaging with our members throughout 2022 to develop solutions together Catastrophe Following elevated catastrophe activity in both 2018 and 2019 we have now benefited from two consecutive years of lower level catastrophe losses Our western members reported three separate hailstorm or windstorm events in January and July The remainder of the year was characterized by wind events in Ontario with the largest arising from the Labour Day storms impacting four of our Ontario members Overall catastrophe activity has resulted in ground up losses from our members of 16 8 million with a net incurred to Farm Mutual Re of 8 2 million Casualty excess of loss Our casualty excess of loss line which covers automobile liability and accident benefit as well as general liability saw substantial improvement over the past two years Significant favourable development on prior accident years and the continued positive impact of the 2020 claims settlement initiative helped to produce underwriting income of 45 2 million Just like in 2020 the auto results for our members and ourselves have been positively impacted by the lower frequency of auto accidents due to COVID 19 As the driving patterns start returning to the pre 2020 level we expect claims frequency to return to a more normal level Broker distribution Crop Our participation on crop programs has been longstanding and historically highly profitable In 2021 the extreme temperatures and lack of moisture in the western provinces meant that we participated in the significant losses experienced by the Manitoba and Saskatchewan crop programs This amounted to losses of just under 28 million on a net basis to Farm Mutual Re Notwithstanding these losses those programs continue to generate income over the long term for us Broker distribution Property The broker property segment focuses primarily on providing per risk and catastrophe protection to U S mutuals of comparable size and scale as our members Similarly to our member channel this segment is not immune to the impacts of climate change and social inflation The increased frequency and severity of storm activity particularly in areas where we are concentrated has resulted in significant losses to the U S property portfolio in 2021 We are disappointed by the underlying performance of this portfolio It is not what we expected it to be and this level of performance is not acceptable to us As such we are now turning our attention to this important part of our business and are focused on a number of corrective actions to improve performance We believe that it continues to be a critical segment to support our diversification efforts 2021 ANNUAL REPORT FARM MUTUAL RE 9

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2022 and beyond There is no doubt that we need to continue to focus on our profitability We had made good progress but 2021 was a bit of a setback We will be adding to our tools to address our profitability issue by formally launching our underwriting audit program We believe that this will translate into a win win program for our members and Farm Mutual Re Our executive team is changing In 2021 we welcomed a new General Counsel and Corporate Secretary Patrice Rouse She is bringing new skills and a different perspective to our team and we are thrilled to have her We said goodbye to Kevin Cameron who left to explore a new opportunity We will miss him It has created a new opportunity though and we are looking forward to welcoming a new member to our team in 2022 Our wholly owned subsidiary United General Insurance Corporation is also undergoing some change Janice Rickard CEO General Manager will be retiring in April and I d like to thank her for almost 20 years of dedication to the company Also a big welcome to incoming CEO General Manager Jennifer Morrison we look forward to much collaboration in the days ahead There have been questions about our expenses in the past Those are fair questions and to be clear our expense ratio has been stable over the last five years We continue to have a reinsurance industry leading expense ratio Our approval process for significant projects and additional headcount is very thorough and we take pride in being careful with how we spend We will share more insight on this topic in the coming year We are hopeful that 2022 will bring about a return to more in person activities to help strengthen those relationships on which our business is built We have had to transform over the last two years and the need for change will not go away Innovation and EDI will go hand in hand in creating the environment necessary for us to be successful These are but two of the arrows in our quiver to allow us to adapt and evolve We are excited about our future and we are ready to face it In closing I would like to recognize Jeff Whiting who will be leaving the Board at the end of his current term Jeff was part of the hiring committee who selected me to lead Farm Mutual Re He was my main point of contact with the Board during the selection process and he made me feel very welcome I would like to thank Jeff for his engagement in Board activities over the years He will certainly be missed I also want to thank the Board of Directors for their continued support While it has been a challenging year I felt the Board s unwavering support and it helped us to move forward I could not be prouder 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 them each day 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 Strategy Farm Mutual Re utilizes a strategic planning framework that intentionally creates space for the Board and management team to engage in meaningful strategic dialogue throughout the year Our strategic planning methodology ensures strategic pursuit progression is regularly monitored and assists in identifying the need to pivot In 2021 the Board dedicated time revisiting and validating our strategic philosophy assessed market opportunities and weighed in on the deployment of finite corporate resources The Board concentrated on two key topics the impact of member amalgamations on Farm Mutual Re and the existing broker distribution segment strategy The outcome of these discussions was a Board directive to management to explore opportunities to strengthen and effectively communicate our value proposition by highlighting the strategic benefits of partnering with Farm Mutual Re Management is also tasked with developing a more robust and comprehensive broker distribution segment strategy Key components of that strategy include program and geographical diversification risk concentration management and pricing tolerances to ensure sustainable and consistent profitability from this revenue stream Once the strategy has been developed and approved by the Board it will be communicated to members Farm Mutual Re strategy objectives are approved by the Board on an annual basis The goal of this assessment is to ensure the Why behind our strategic goals is clear In 2021 the intent of the strategy remains consistent However strategic goal descriptions were altered to respond to opportunities within various revenue streams provide more flexibility to support members and customers strategies and sharpen our focus on our strategic activities Our strategy heading into 2022 contains the following five goals 1 Grow Profitably and Diversify Increase premium growth within the mutual insurance space through longterm partnerships focused on shared profitability diversification of reinsurance risk and capacity protection 2 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 3 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 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 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 a number of tactical alternatives to the executive for consideration 10 FARM MUTUAL RE 2021 ANNUAL REPORT in 2022 From an extensive list the executive team selected and prioritized 22 objectives based on business value generation and budget constraints The majority of these objectives focus on our path to profitability leveraging technology enhancing our internal capabilities and strengthening our culture Our strategy continues to evolve to ensure we are responding to the needs of our members and clients today and well into the future 2021 ANNUAL REPORT FARM MUTUAL RE 11

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innovation hub for one of Canada s largest banks Our new leader focused on examining our experiments and progress so far as well as understanding how innovation could best serve our mutual culture Through an examination of our progress culture and the external insurance ecosystem Andrea built our new innovation vision and mission called Innovation 2 0 Innovation 2 0 and a Milestone Innovation Last year provided incredible learning in innovation at Farm Mutual Re Following our bold step to establish innovation as a strategic priority in 2020 we had a great opportunity to thoroughly consider what we would need to establish to execute on our new strategic priority Experimenting and Learning Our first step in true innovation fashion was to experiment To do this we continued our engagement with Innovation consultants running a series of experiments to better understand what we may need to execute 12 First we experimented with several processes to examine our innovation appetite understand what ideas we could explore and find ways of growing employee engagement in Innovation Second we continued the Mutual Innovation Lab experiment Continuing this experiment engaged our membership in new ways raising awareness on the principles of innovation As we continued with our experiments we gained excellent learnings One of our biggest learning was understanding what a fully committed investment into innovation would require We FARM MUTUAL RE 2021 ANNUAL REPORT learned that we needed to commit to building an organizational Innovation Group to bring our pursuits to life and that seeking an experienced innovation leader was our first step in making this happen A New Leader By the end of the first quarter we completed our search for an experienced innovation leader who would be responsible for our innovation strategy in 2021 and beyond In late April we welcomed Andrea Kerswill our new AVP Innovation Andrea is a seasoned innovation professional with experience launching and leading an Innovation 2 0 was established to reflect our full commitment to innovation as it focuses on leveraging our mutual roots to generate outcomes With this new vision we are focused on being a beacon of mutual innovation carving a pathway for our future and empowering our community Our mission is to deliver on innovation across Farm Mutual Re focusing on future proofing our business enabling our employees and engaging in the external innovation ecosystem Following the creation of Innovation 2 0 we re engaged the Board of Directors to obtain full approval for the resources required to execute our new strategy This included a dedicated focus on delivering innovation education sessions to our Board employees and our membership This focus intentionally raised awareness of why this is a strategic imperative for all organizations and ultimately what innovation is From here we began sharing our applied innovation process from discovering opportunities to scaling solutions and included a review of potential innovation opportunities In late 2021 we achieved a major milestone as we received support from our Board to activate our Innovation 2 0 strategy This enabled us to begin hiring additional creative and technical innovation professionals and to launch our Innovation Academy program where internal employees are offered the opportunity to join the innovation group in an 18 month full time rotation to learn and grow their skillset This was an accomplishment that was achieved through experimentation commitment and the application of learning evolution of COMPASS as rather than a biennial event we will be supporting and engaging the mutual community through participating in this ecosystem throughout the year This is a strong step forward in leading the way in innovation for our mutual community Participating in an ecosystem where we can solve important problems and recognize opportunities to create external innovation partnerships with our peers such as Promutuel will enable us to engage in innovation in new and refreshing ways A Year of Growth 2021 has been an incredible year of growth and change in innovation at Farm Mutual Re We have investigated experimented learned and have committed to building an organizational Innovation Group dedicated to delivering on our vision and mission We are excited for the year ahead Evolving COMPASS Included in our Innovation 2 0 strategy is participating in the external innovation ecosystem to gain insight into what our industry and community is doing to innovate Our participation in this ecosystem is supporting the 2021 ANNUAL REPORT FARM MUTUAL RE 13

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Statement principles are defined for each of our major risk categories Each principle is supported by measurements with identified thresholds and limits to inform ongoing performance against our risk appetite 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 Overview Farm Mutual Re is committed to mutuality and is here to provide enhanced 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 making sound strategic and operational decisions Our enterprise risk management ERM 14 framework is supported by a strong risk culture and an effective risk management approach Risk Culture Farm Mutual Re s risk culture starts with the tone from the top set by the Board CEO and executive management supported by Farm Mutual Re s mission vision and values 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 Conduct is reviewed and attested to by every Board member FARM MUTUAL RE 2021 ANNUAL REPORT and employee on an annual basis guiding us to make decisions that align with our values Managing risk is a shared responsibility across the organization with every employee taking responsibility to identify manage and mitigate risk Risk Appetite risk taking activities are aligned with customer needs business partner expectations legal and regulatory requirements business activities and transactions provide an appropriate balance of return for the risk assumed remain within our risk appetite risk capacity and the level of capital appropriate to the nature scale and complexity of our risks risk taking activities 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 enterprise risk management framework inclusive risk management policies capital management policies risk appetite statement Senior Management functional area 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 Using our Executive Level Risk Committee and Risk Owner Champion sessions we focus our attention and resources on managing risk events with the greatest potential to harm our organization by adhering to a robust risk and capital management framework ORSA At least annually we conduct an Own Risk and Solvency Assessment ORSA Our ORSA process is proportionate to the nature scale and complexity of our business ORSA is an integral part of our Enterprise Risk Management strategy and helps to enhance 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 Key Risks That May Impact Future Results 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 preventative controls and the directional outlook of the risk The table on pages 16 17 provides a synopsis of key risks identified within each of the major risk categories which may impact Farm Mutual Re Farm Mutual Re faces a broad range of risks reflecting its responsibility as a reinsurer Our risk appetite statement defines the level and nature of risk that we are willing to accept in pursuit of our business objectives Our objective is to protect our financial strength and scale while delivering on our promises Our Risk Appetite 2021 ANNUAL REPORT FARM MUTUAL RE 15

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Key Risks Which May Impact Future Results Catastrophe Risk Pricing Risk Insurance Activities Given the impact of climate change we face a higher risk of more severe and more frequent disaster level weather events Catastrophe risk is further heightened by our geographic concentrations in southern Ontario Saskatchewan Prince Edward Island and the U S northeast We continue to mitigate this risk through opportunities to diversify geographically management of year over 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 We continue to mitigate this risk by reviewing and challenging annual pricing methodologies and managing outward reinsurance retentions Investment Activities The COVID 19 crisis has created increased turbulence in capital markets and volatile general economic conditions This leads to uncertainty as to the timing of the economic recovery impacting market yields monetary policy and inflation expectations This volatility is further exacerbated by the extreme strength in the Canadian residential housing market We continue to manage our interest rate and market price risk by maintaining high credit quality standards for our investments and diversifying credit exposure by limiting single name Interest Rate concentrations Interest rate risk is further managed by matching the duration of interestMarket Price Risk rate sensitive assets and interest rate sensitive liabilities and positioning the fixed income securities portfolio according to the current view of future interest rates the yield curve and credit spreads balanced with consideration of yield to market liquidity and credit risk Strategic Risk Emerging Risk 16 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 decisions Threats within the external environment include but are not limited to member amalgamations changes in member demographics climate change risk infectious disease risk and increased government and or regulatory intervention 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 Operational Risk Cyber Security Risk Operational Activities Operational risk is the loss to an organization associated with people inadequate or failed internal processes and systems or from external events Our exposure to operational risk is driven by underwriting and claims management process management talent acquisition retention and management business continuity risk technology risk legacy and new technology adoption outsourcing risk and post pandemic epidemic work environment We continue to mitigate our exposure to operational risk through our annual planning process sound business processes and adherence to our operational plan Our exposure to cyber security risk is driven by human behaviour external bad actors and our third party outsourcing agreements Our cyber security teams continuously conduct threat and vulnerability assessments to ensure the implementation of appropriate mitigation actions should a threat be identified We continuously upgrade our applications to better protect our critical business systems information and databases These mitigation techniques are further strengthened by our Cyber Security Awareness Campaign and our due diligence in assessing and monitoring our outsourcing arrangements The Future of ERM Farm Mutual Re is committed to sound governance and the evolution of our Enterprise Risk Management 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 reporting structures with the introduction of a Board Risk Committee in 2022 to promote informed decision making at all levels of the organization To promote risk management and awareness as a shared responsibility in all roles of the organization To operationalize our risk identification and assessment processes across the enterprise Our emerging risk profiles 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 as digital transformation has accelerated due to the pandemic We continue to monitor this exposure through our annual external context radar and the monitoring of emerging risk thought leadership FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 17

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disabilities and LGBTQ2 individuals had the lowest level of agreement with every inclusion statement in the survey This tells us that we have an opportunity to create a more inclusive and supportive environment With this information and our expert partner s EDI knowledge we cocreated an EDI Strategy specifically addressing our areas of opportunity Organizational Commitment and Development High Quality Diverse Talent Inclusive Infrastructure EDI Competency External Outreach and Social Responsibility Corporate Social Responsibility Equity Diversity and Inclusion 2021 marked the beginning of Farm Mutual Re s Equity Diversity and Inclusion EDI journey We operate in a complex world and today s professional landscape is changing at a rapid rate Now more than ever to keep our competitive advantage it is critical for us to provide an environment where all people feel valued and respected There is a strong business case for EDI At Farm Mutual Re we believe EDI will enable us to attract and retain diverse employees 18 improve job satisfaction maximize productivity facilitate innovation and boost our reputation Ultimately EDI drives revenue growth and improved profitability which benefits our members and business partners and engages our employees Farm Mutual Re s first stop on the EDI journey was to partner with an external firm of EDI experts We needed help to conduct a confidential online demographic survey to better understand the EDI needs of all people at Farm Mutual Re FARM MUTUAL RE 2021 ANNUAL REPORT We received an excellent 82 response to the survey Most survey participants agreed that Farm Mutual Re is doing well in the EDI arena and feel included while engaged in work activities Overall the diversity representation findings tell us there is opportunity to increase representation in all equity groups except for women where we are well represented When it came to inclusion while responses were quite positive organization wide equity groups meaning racialized groups Indigenous Peoples persons with Our first order of business was to define and express our organizational commitment to EDI At Farm Mutual Re we are committed to inclusion for all through the strength of our relationships We are passionate about empowering and supporting our employees and business partners We strive to cultivate belonging where everyone can be their authentic and best selves Innovation creativity and collaboration driven by diversity will propel us into the future and enrich our collective success We invite you to celebrate learn and grow equity diversity and inclusion with us In 2022 we will continue to implement our EDI Strategy forming an EDI committee made up of interested employees conducting EDI training across the organization reviewing our policies procedures and practices to ensure they are free of bias and starting to address any deficiencies in our recruitment practices With this work our goals are to achieve 1 improved representation of diverse talent 2 clearer indication of barriers to EDI and solutions to remove them and 3 employee and leader engagement and participation in EDI initiatives In time we believe this work will continue to enhance the employee experience and overall employee engagement It will also support greater crossfunctional collaboration in solution development and innovation and ultimately greater member external partner satisfaction We continue to prioritize health safety and well being of all who enter the building and work for our company We balance customer needs and work priorities with employee needs to continue to be an employer of choice We take a trusting and empowering leadership approach that emphasizes individual and team accountability We uphold Farm Mutual Re s relationship centric organizational culture and our values of caring and committed regardless of place of work We approach the Future of Work with an experimental attitude seeking feedback identifying issues and making changes as we go In 2021 many discussions focused on the Future of Work and our organizational culture Would our work environment be in office remote or a combination of both What would that do to our ways of interacting that contribute to the unique social and psychological environment of our organization Our employees told us they love the flexibility in our work environment and they want to build on the relationships we have all missed We landed on a Future of Work Vision that will support a hybrid work environment where workplace schedules balance business and personal needs This vision is intended to elevate our organizational culture so that where work is done is determined to intentionally maximize productivity relationships and well being As we moved through the pandemic in 2021 we refreshed our guiding principles to help us make decisions in a new environment where work is being done differently Attracting and retaining the best employees is critical to our success and we continued to welcome and onboard new hires virtually We also continued to offer comprehensive Empowering Our Employees 2021 ANNUAL REPORT FARM MUTUAL RE 19

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training and development opportunities to cultivate continuous learning at all levels Our co operative education and internship positions help students enrolled in post secondary education programs and people entering the workforce make career decisions and develop the knowledge skills and social behaviours essential to workplace success Since the inception of the Co op Internship Program in 2010 Farm Mutual Re has welcomed a total of 94 co op students interns 19 of whom have been hired as full time employees Supporting Our Communities In 2021 Farm Mutual Re also supported the communities in our local region directly by contributing to local hospitals food banks mental health organizations 4H Canada as well as youth education and sports related charities and community organizations chosen by our employees Our Power of We Committee plays a large part in coordinating Farm Mutual Re s and employees charitable donations throughout the year The Farm Mutual Foundation Foundation was created to help children of people employed in the mutual community pursue postsecondary education With our financial support contributions from the mutual community and fundraising activities the 20 Foundation has awarded close to 3 4 million in scholarships since 2006 to students enrolled in a postsecondary educational institution In 2021 the Farm Mutual Foundation received and approved applications for 207 scholarships In 2019 three apiarist managed honeybee hives were installed on site Honeybees support the ecosystem via pollination enhance the productivity of agricultural crops and help biological diversity conservation Respecting Our Environment The four electric vehicle charging stations that were installed in our parking lot in 2019 continue to demonstrate our commitment to sustainability and reducing vehicle emissions The infrastructure for expansion is available and more stations can be added as demand increases Our respect for the environment is found in our values and demonstrated by our actions Our office premises are LEED GOLD Certified Leadership in Energy and Environmental Design LEED is a rating system that is recognized as the international mark of excellence for green buildings in 150 countries Our building contributes to a healthier working environment through better air ventilation and more natural daylight Our building and landscape design reduce waste conserve energy and decrease water consumption Our employees help us find ways to minimize our carbon footprint and reduce reuse and recycle Our Green Team is dedicated to the constant improvement of Farm Mutual Re s environmental and community sustainability Again this year despite the pandemicrelated restrictions the Green Team coordinated the employee Garden Club which ran our community garden and harvested bushels of vegetables which were donated to the local food bank FARM MUTUAL RE 2021 ANNUAL REPORT We are a pledging member of Sustainable Waterloo Region a notfor profit organization advancing environmental sustainability Partners for Action We support the Partners for Action P4A network at the University of Waterloo s Faculty of Environment P4A is an applied research network that uses a collaborative approach to bring together a diverse set of stakeholders from business government and non government organizations to create and share knowledge address information needs and drive action to better manage the risks posed by flooding CONSOLIDATED FINANCIAL STATEMENTS 2021 ANNUAL REPORT FARM MUTUAL RE 21

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Table of Contents Contents Management s Statement of Responsibility 23 Independent Auditors Report 24 Appointed Actuary s Report 26 Consolidated Statement of Financial Position 27 Consolidated Statement of Comprehensive Income and Equity 28 Consolidated Statement of Cash Flows 29 Management s Statement of Responsibility Role of Management 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 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 4 Standards issued but not yet effective 38 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 5 Investments 38 Role of the Actuary 6 Insurance contracts 40 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 Notes to the Consolidated Financial Statements 30 1 Nature of business 30 2 Basis of preparation 30 3 Significant accounting policies 31 7 Land property and equipment 43 8 Intangible assets and goodwill 43 9 Income taxes 44 10 Operating expenses 45 11 Refund of premiums 45 12 Capital management 45 13 Insurance and financial risk 46 14 Post employment benefits 53 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 15 Related party transactions 54 Role of the Auditors 16 Guarantees 54 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 auditors report outlines the scope of the audit and the auditors opinion 17 Changes in non cash balances 55 18 Impact of COVID 19 pandemic 55 Jean Pierre Gagnon President and CEO Amy Butler Sr Vice President and CFO Cambridge Canada February 23 2022 22 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 23

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Independent Auditors Report To the members of Farm Mutual Reinsurance Plan Inc Opinion 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 2021 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 2021 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards 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 Auditors Responsibilities for the Audit of the Financial Statements section of our auditors 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 auditors 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 auditors report thereon included in Annual Report at the date of this auditors 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 auditors report We have nothing to report in this regard Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards 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 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 Auditors 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 auditors 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 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 auditors 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 auditors 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 KPMG LLP Chartered Professional Accountants Licensed Public Accountants Waterloo Canada February 23 2022 Those charged with governance are responsible for overseeing the Entity s financial reporting process 24 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 25

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Consolidated Statement of Comprehensive Income and Equity Consolidated Statement of Cash Flows For the year ended December 31 For the year ended December 31 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 loss Investment income Loss gain on foreign exchange Income before income taxes Income tax expense recovery Current Deferred Net income Items that will not be reclassified subsequently to net income Post employment benefit obligation gain loss Deferred income tax expense recovery Other comprehensive income loss Comprehensive income Voting and participating members equity beginning of year Voting and participating members equity end of year 2021 Notes 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 6 c 6 b 6 b 6 d 10 5 e 9 c 9 b 14 b 78 20 58 6 024 434 187 440 211 2020 9 776 243 627 39 124 214 279 2 580 211 699 198 174 8 367 23 559 16 377 229 743 18 044 44 759 770 27 485 59 6 115 6 056 21 429 116 30 86 21 343 412 844 434 187 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 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 Increase in cash position during the year Cash and cash equivalents beginning of year Cash and cash equivalents end of year 2021 Notes 6 024 958 216 318 10 929 59 522 56 109 17 959 655 920 127 600 1 704 41 832 14 277 48 472 62 749 16 110 3 557 1 931 Supplementary disclosure of cash information Interest received Dividends received Income tax received 2020 21 343 967 272 6 085 25 496 32 462 35 633 1 059 711 1 039 768 664 15 20 622 15 011 33 461 48 472 16 026 3 221 9 689 The accompanying notes are an integral part of these consolidated financial statements The accompanying notes are an integral part of these consolidated financial statements 28 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 29

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Notes to the Consolidated Financial Statements 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 23 2022 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 30 Financial instruments Insurance contracts Insurance contract assets Insurance contract liabilities Income taxes Post employment benefits FARM MUTUAL RE 2021 ANNUAL REPORT 3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements 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 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 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 2021 ANNUAL REPORT FARM MUTUAL RE 31

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3 Significant accounting policies continued 3 Significant accounting policies continued b Financial instruments continued Financial instruments mandatorily measured at FVTPL trading and non trading 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 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 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 A financial liability is derecognized when the obligation under the liability is discharged cancelled or expires 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 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 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 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 32 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 33

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3 Significant accounting policies continued 3 Significant accounting policies continued 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 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 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 unties or group of units 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 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 34 FARM MUTUAL RE 2021 ANNUAL REPORT 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 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 2021 ANNUAL REPORT FARM MUTUAL RE 35

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3 Significant accounting policies continued 3 Significant accounting policies continued 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 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 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 36 FARM MUTUAL RE 2021 ANNUAL REPORT 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 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 2021 ANNUAL REPORT FARM MUTUAL RE 37

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3 Significant accounting policies continued 5 Investments continued o Post employment benefits continued The defined benefit accrued obligation is included in other liabilities in the consolidated statement of financial position b Maturity profile of investments 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 On May 18 2017 the IASB issued IFRS 17 Insurance Contracts IFRS 17 which replaces IFRS 4 Insurance Contracts IFRS 4 On June 25 2020 the IASB issued amendments to IFRS 17 which included deferring the effective date for annual periods beginning on or after January 1 2023 IFRS 17 establishes principles for the recognition measurement presentation and disclosure of insurance contracts There are two measurement methodologies under IFRS 17 the general model and the premium allocation approach The general model requires insurance contracts to be measured using current estimates of discounted future cash flows an adjustment for risk and a contractual service margin representing the profit expected from fulfilling the contracts The premium allocation approach is a simplified model that can be applied to insurance contracts with coverage periods of one year or less which is the coverage period of many P C insurance contracts or where the premium allocation approach approximates the general model Presentation changes in the consolidated statement of financial position and the consolidated statement of comprehensive income are required in addition to new disclosures The Company plans to adopt the new standard on the required effective date Retrospective application is required The Company expects to apply the premium allocation approach to its insurance contracts and is currently analyzing the impact this standard will have on its consolidated financial statements 5 Investments a Classification of investments 2021 As at December 31 Short term securities Bonds and debentures Mortgages Preferred shares Common shares Less than 1 year 35 640 67 499 5 387 108 526 From 1 to 5 years 375 255 41 898 23 307 440 460 2021 Total 35 640 578 416 41 898 28 694 148 444 833 092 2020 As at December 31 Short term securities Bonds and debentures Mortgages Preferred shares Common shares Less than 1 year 59 839 64 372 1 896 126 107 From 1 to 5 years 313 647 40 172 22 118 375 937 Over 5 years 163 855 163 855 No specific maturity 116 736 116 736 Total 59 839 541 874 40 172 24 014 116 736 782 635 c Collateral pledges The Company has pledged assets with an estimated fair value as at December 31 2021 of 57 873 2020 51 875 to collateralize a standby letter of guarantee facility The letter of guarantee facility is used to collateralize unpaid claim liabilities At December 31 2021 the letter of guarantee utilization is 57 422 2020 48 489 in Canadian dollars CAD The letters of guarantee are denominated in United States dollars USD 35 640 2020 59 839 168 132 154 622 245 183 10 479 41 898 28 694 121 541 141 949 267 128 11 256 40 172 24 014 134 487 13 957 833 092 105 612 11 124 782 635 2021 As at December 31 Short term securities Bonds and debentures Mortgages 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 2020 As at December 31 Short term securities Bonds and debentures Mortgages Preferred shares Common shares FARM MUTUAL RE 2021 ANNUAL REPORT No specific maturity 148 444 148 444 The distribution of financial instruments measured at fair value in the three level hierarchy is as follows As at December 31 38 Over 5 years 135 662 135 662 d Financial instruments measured at fair value Investment carrying values by class are as follows Short term securities pooled funds Bonds and debentures Canadian government Canadian provincial Corporate Canadian municipal pooled funds Mortgages pooled funds Preferred shares Common shares Directly held Pooled funds The maturity profile of investments is as follows Total 59 839 541 874 40 172 24 014 116 736 782 635 Level 1 103 129 103 129 Level 2 59 839 540 474 40 172 24 014 11 124 675 623 Level 3 1 400 2 483 3 883 2021 ANNUAL REPORT FARM MUTUAL RE 39

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5 Investments continued 6 Insurance contracts continued d Financial instruments measured at fair value continued There were no transfers of financial instruments between levels during the year b Unpaid claims The following table presents unpaid claims by contract type The following table provides a reconciliation of the level 3 fair value measurements For the year ended December 31 Fair value of level 3 investments beginning of year Additional investments made during year Unrealized gain loss Fair value of level 3 investments end of year 2021 3 883 2 800 375 7 058 2020 2 511 1 400 28 3 883 The unrealized loss on Level 3 financial assets is included in investment income in the consolidated statement of comprehensive income and equity e Investment income Investment income by financial instrument classification is as follows For the year ended December 31 Debt securities Realized losses gains Unrealized losses gains Interest income Preferred shares Realized gains Unrealized gains Dividends Common shares Realized gains losses Unrealized gains losses Dividends Investment expense Investment income 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 13 816 10 322 16 237 40 375 1 492 1 189 2 681 49 85 3 287 3 153 1 450 44 759 Gross unpaid claims Ceded unpaid claims 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 2020 As at December 31 Property Automobile Liability and other 2020 2021 2021 As at December 31 Property Automobile Liability and other Gross unpaid claims Ceded unpaid claims Net unpaid claims 164 214 262 689 80 838 5 881 24 474 6 512 158 333 238 215 74 326 507 741 36 867 470 874 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 The following table presents the movement of the Company s claims liabilities during the year 2021 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 507 741 36 867 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 2020 6 Insurance contracts For the year ended December 31 a Reinsurance assets The components of the Company s reinsurance assets are as follows As at December 31 Reinsurers share of unpaid claims Reinsurers share of unearned premiums 2021 40 FARM MUTUAL RE 2021 ANNUAL REPORT 49 101 3 330 52 431 2020 36 867 2 310 39 177 Unpaid claims beginning of year Claims and adjustment expenses Prior year adverse development On 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 470 654 42 066 Net unpaid claims 428 588 3 252 194 922 4 860 13 227 8 112 181 695 112 225 48 862 507 741 6 987 6 579 36 867 105 238 42 283 470 874 2021 ANNUAL REPORT FARM MUTUAL RE 41

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6 Insurance contracts continued 7 Land property and equipment c Unearned premiums Land property and equipment are comprised of the following The following table presents the changes in UPR during the year 2021 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 2020 As at December 31 UPR beginning of year Premiums written in the year Premiums earned during the year UPR end of year Gross UPR 17 704 253 403 251 071 20 036 Ceded UPR 2 558 39 124 39 372 2 310 Net UPR 15 146 214 279 211 699 17 726 d Deferred acquisition costs The following table presents the changes in DAC during the year 2021 As at December 31 DAC beginning of year Acquisition costs deferred Acquisition costs amortized DAC end of year Gross DAC 3 576 25 987 25 426 4 137 Ceded DAC 591 2 838 2 500 929 Net DAC 2 985 23 149 22 926 3 208 2020 As at December 31 DAC beginning of year Acquisition costs deferred Acquisition costs amortized DAC end of year Gross DAC 3 295 25 420 25 139 3 576 Ceded DAC 695 1 476 1 580 591 Net DAC 2 600 23 944 23 559 2 985 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 Land and building structure Equipment 16 084 233 16 317 4 851 544 5 395 10 922 FARM MUTUAL RE 2021 ANNUAL REPORT 8 237 367 8 604 7 321 414 7 735 869 24 321 600 24 921 12 172 958 13 130 11 791 2020 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 Land and building structure Equipment 15 545 539 16 084 4 324 527 4 851 11 233 Total 8 112 125 8 237 6 881 440 7 321 916 23 657 664 24 321 11 205 967 12 172 12 149 8 Intangible assets and goodwill Intangible assets and goodwill as presented in the consolidated statement of financial position are comprised of the following As at December 31 Intangible assets Goodwill 2021 42 Total 1 879 200 2 079 2020 2021 ANNUAL REPORT FARM MUTUAL RE 391 200 591 43

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8 Intangible assets and goodwill continued 9 Income taxes continued a Intangible assets Intangible assets are comprised of the following c Deferred income tax expense The following table shows the components comprising deferred income tax expense 2021 As at December 31 Accumulated amortization Cost Balance beginning of year Additions Balance end of year 8 913 1 704 10 617 8 322 216 8 538 Carrying amount 591 1 488 2 079 For the year ended December 31 Unpaid claims Investments Property and equipment Post employment benefits Other 2020 As at December 31 Accumulated amortization Cost Balance beginning of year Additions Balance end of year 8 898 15 8 913 8 050 272 8 322 Carrying amount 848 257 591 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 2021 21 972 221 852 324 141 21 364 2020 21 973 427 690 319 507 21 682 b Income tax expense The reconciliation of income tax expense calculated at the Canadian statutory tax rate to the income tax 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 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 27 2 19 9 0 2 0 3 0 4 6 8 2021 2020 1 762 26 7 1 292 12 20 26 436 4 3 0 0 0 1 0 4 22 1 7 306 1 184 11 20 97 6 056 2 206 161 25 366 298 2020 5 995 78 80 27 305 6 115 10 Operating expenses 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 2021 10 136 1 385 1 245 1 208 954 430 322 15 680 2020 9 412 1 485 1 079 1 072 846 545 1 938 16 377 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 2021 2020 nil 12 Capital management 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 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 waited 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 44 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 45

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12 Capital management continued 13 Insurance and financial risk continued 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 2021 438 448 105 668 332 780 415 279 946 2020 433 742 94 149 339 593 461 292 519 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 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 a Insurance risk continued 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 2021 1 12 310 11 239 2020 1 13 038 11 891 1 12 663 11 752 1 10 264 9 530 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 68 0 and 67 0 of total gross and net claim liabilities respectively 2020 77 8 and 76 5 respectively 2021 As at December 31 Change in assumptions Ultimate claims incurred but not reported Ultimate claims settlement cost Impact on gross liabilities 5 2 769 88 150 2020 Impact on net liabilities 5 2 394 78 545 Impact on gross liabilities 5 2 047 86 577 Impact on net liabilities 5 1 760 77 191 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 46 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 47

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13 Insurance and financial risk continued 13 Insurance and financial risk continued a Insurance risk continued a Insurance risk continued 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 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 Claims development table gross 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 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 2012 2013 2014 2015 2016 2017 2018 151 976 137 193 127 989 114 418 115 220 114 274 113 220 110 309 112 896 111 693 142 817 118 839 117 382 121 909 125 438 125 892 126 734 125 502 120 427 151 278 132 976 131 496 132 428 136 850 136 561 136 026 134 575 137 274 106 832 106 930 113 430 112 747 108 802 103 479 157 255 131 878 131 241 147 838 141 760 133 038 173 712 161 995 163 707 171 411 190 015 190 816 190 430 111 693 120 427 134 575 103 479 133 038 2019 195 411 204 059 203 005 2020 2021 194 447 184 984 302 822 Total 2021 175 343 As at December 31 Undiscounted unpaid claims Impact of discounting Provision for adverse deviation 164 882 164 882 175 343 106 425 109 423 123 817 87 648 109 468 120 959 131 333 5 268 11 004 10 758 15 831 23 570 43 923 44 010 203 005 121 281 184 984 103 707 81 724 81 277 71 711 1 085 772 231 111 548 476 24 264 572 740 Claims development table net 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 2014 124 766 123 579 136 435 112 301 106 641 122 478 107 582 104 585 124 370 103 323 108 590 123 684 104 441 111 229 127 542 103 469 112 115 125 863 103 128 112 614 125 339 100 277 110 888 124 079 8 years later 102 033 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 101 061 48 2013 4 444 2016 2017 2018 2019 2020 126 761 152 919 100 760 127 540 97 293 127 238 103 757 141 201 104 455 136 211 101 255 127 374 95 806 159 380 146 799 150 313 158 623 152 783 170 090 177 684 178 603 162 883 184 164 193 632 194 721 181 219 173 234 95 806 127 374 152 783 162 883 194 721 173 234 81 112 105 374 108 766 119 540 118 182 95 834 14 694 22 000 44 017 43 343 76 539 77 400 2021 Total 263 929 106 560 101 061 106 560 124 079 96 617 2015 98 707 7 853 116 542 7 537 FARM MUTUAL RE 2021 ANNUAL REPORT 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 Insurance contract liabilities 480 315 15 348 42 774 507 741 Reinsurance of liabilities 35 699 1 167 2 335 36 867 302 822 1 634 248 Unpaid claims 2012 The table below details the fair value of unpaid claims on a discounted basis 263 929 1 502 430 53 101 993 775 210 828 508 655 Net 498 809 19 209 44 039 523 639 2020 As at December 31 Undiscounted unpaid claims Impact of discounting Provision for adverse deviation Discount rate 1 3 Net 444 616 14 181 40 439 470 874 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 14 984 523 639 2021 ANNUAL REPORT FARM MUTUAL RE 49

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13 Insurance and financial risk continued 13 Insurance and financial risk continued a Insurance risk continued b Credit risk continued 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 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 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 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 table below shows debt securities by financial strength rating 2021 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 Limit 24 000 30 000 30 000 350 000 65 000 Retention 55 000 2 500 3 215 3 215 17 500 30 000 Limit 15 000 24 000 30 000 30 000 330 000 65 000 The aggregate gross credit risk exposure is comprised as follows As at December 31 2021 Accounts receivable Income taxes receivable Debt securities Recoverable from reinsurers 62 749 2 815 54 790 578 416 49 101 747 871 As at December 31 AAA Aaa P 1 AA Aa P 2 A P 3 BBB Bbb P 4 Unrated Short term 252 35 300 88 35 640 Bonds and debentures 171 415 239 182 93 103 70 516 4 200 578 416 2020 48 472 2 698 56 251 1 892 541 874 36 867 688 054 Mortgages 41 898 41 898 Preferred 25 538 3 156 28 694 Total 171 667 300 020 96 347 70 516 46 098 684 648 2020 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 Cash and cash equivalents Accrued investment income 2021 2020 As at December 31 AAA Aaa P 1 AA Aa P 2 A P 3 BBB Bbb P 4 Unrated Short term 174 59 553 112 59 839 Bonds and debentures 126 067 218 097 114 896 81 414 1 400 541 874 Mortgages 40 172 40 172 Preferred 20 729 3 285 24 014 Total 126 241 298 379 118 293 81 414 41 572 665 899 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 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 50 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 51

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13 Insurance and financial risk continued 13 Insurance and financial risk continued c Liquidity risk continued d Market risk continued 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 Net exposure to USD denominated amounts in USD included in the consolidated statement of financial position is as follows 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 All financial liabilities mature in one year or less 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 As at December 31 Short term securities Bonds and debentures Mortgages Preferred shares 2021 39 25 600 1 152 677 27 468 2020 65 26 069 1 073 796 28 003 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 16 016 2020 12 846 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 2021 inwards reinsurance contracts denominated in USD were 70 402 USD 2020 50 456 USD 52 FARM MUTUAL RE 2021 ANNUAL REPORT As at December 31 Cash and cash equivalents Investments Accrued investment income Accounts receivable Accounts payable Unpaid claims 2021 8 324 52 582 467 14 939 99 92 788 16 575 2020 2 382 52 451 453 16 117 56 753 14 650 14 Post employment benefits 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 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 1 300 2020 1 236 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 1 271 The Company s proportion of the total current contributions to the Plan amount to 18 9 2020 21 2 The most recent actuarial valuation was prepared as at December 31 2021 As at December 31 2021 the estimated goingconcern funding surplus of the plan was 32 435 2020 14 839 a solvency basis funding surplus of 1 748 2020 35 646 deficit and a funding deficit of 28 559 2020 61 836 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 loss Accrued benefit obligation end of year 2021 1 199 127 34 62 78 1 220 2020 2021 ANNUAL REPORT FARM MUTUAL RE 985 101 33 36 116 1 199 53

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14 Post employment benefits continued 17 Changes in non cash balances b Non pension benefits continued The following table provides additional details on the items included in cash flows provided by used in operating activities 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 2021 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 The current period accrued benefit obligation is determined by increasing the December 31 2020 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 The significant actuarial assumptions used in measuring the accrued benefit obligation are shown in the table below For the year ended December 31 Discount rate beginning of year Discount rate end of year Salary increases Dental benefit cost trend rates Extended health care cost trend rates 2020 2 6 3 1 3 3 4 0 3 1 2 6 3 3 4 0 5 25 reducing to 4 5 over 10 years 5 50 reducing to 4 5 over 10 years 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 Board of Directors Key management personnel Salaries Short term employee benefits Post employment benefits 2021 2020 250 230 4 200 328 464 4 992 5 242 3 622 291 418 4 331 4 561 2021 For the year ended December 31 2021 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 117 1 461 13 254 1 892 561 1 964 176 64 999 2 603 338 21 59 522 2020 47 22 659 5 447 9 631 281 748 37 087 2 332 104 214 32 462 18 Impact of COVID 19 pandemic On March 11 2020 the World Health Organization declared the Coronavirus COVID 19 outbreak a pandemic This has resulted in significant financial market and societal impacts in Canada and around the world During the year the Company has experienced the following in relation to th e pandemic Volatility in equity markets resulting in temporary declines in the fair value of investments and investment income Declines in interest rates which have impacted the value of investment holdings and the valuation of policy liabilities and Mandatory working from home requirements for those able to do so The ultimate duration and magnitude of the COVID 19 pandemic s impact on the Company s operations and financial position is not known at this time and can cause additional uncertainty around estimates and judgements used in preparing these consolidated financial statements If applicable financial statements are required to be adjusted for events occurring between the date of the financial statements and the date of the auditors report to provide additional evidence relating to conditions that existed as at year end No adjustments were necessary 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 2020 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 2020 nil 54 FARM MUTUAL RE 2021 ANNUAL REPORT 2021 ANNUAL REPORT FARM MUTUAL RE 55

2021 Annual Report

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