2023 Nova Mutual AGM Report : simplebooklet.com

MESSAGE FROM THE CHAIROn behalf of the Board of Directors, I am pleased to present the Nova Mutual In-surance Company’s Annual Report for the year ended 2023.It has been my pleasure to serve as Chair of the Board of Directors during this past year. Through collaboration and productive Committee work, the Board currently com-prised of 9 Directors, continues to make great strides in its commitment to good governance. Working closely with man-agement, the Board has provided over-sight over Nova Mutual’s progress against its 2023-25 Strategic Plan. As you will hear from our CEO, Nova Mutual delivered on its 2023 performance objectives while continuing to actively support and engage with our local communities.From a governance perspective, during 2023, Nova Mutual continued to build on its strengths. With the guidance of the Investment & Risk Committee, Nova Mutual completed the implementation of a robust risk management framework. The Board also focused on its oversight role on behalf of members to ensure the pru-dential management of the Company. The Board’s standing committees that assist the Board in fullling its oversight role include: • Audit, Finance & Conduct Review Committee; • Investment & Risk Committee; • Human Resources Committee; and • Governance Committee. During 2023, the Board continued to build on its strong governance foundation, including establishing appropriate gover-nance policies and practices designed to ensure that we fulll our responsibilities on your behalf, and actively engage with the larger mutual community. These efforts have been spearheaded by the Chair of our Governance Committee, Mary Ann Mooney.The Audit Committee, chaired by Mark Matson, has worked with our CEO, Glenn Pick, our CFO, Liane Varga, and their teams to ensure that the nancial state-ments presented to you at this year’s AGM fairly and accurately represent the nancial position of the Company. The Committee has also worked closely with the external auditors to oversee and prepare the audit-ed nancial statements. This year’s Annual Report includes the audited 2023 nancial statements under IFRS 17, which incorpo-rate the audited and restated 2022 results under these new accounting standards. Nova Mutual’s auditor will share greater details in this regard in their 2023 Audit Opinion and their remarks at the 2024 AGM.4

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The Investment & Risk Committee, chaired by Eric Harrop maintains oversight over the performance of the investment portfolio and continued to provide leadership over the development and implementation of Nova Mutual’s Risk Management frame-work throughout the year. While the risk management framework has been established, the Committee will continue to provide oversight to ensure that the Company operates in accordance with that risk framework.Our Human Resources Committee, led by Lindsay Markle, has also been hard at work to ensure that Nova Mutual is appropriate-ly resourced, has compensation strategies in place that align with strategic objectives while remaining exible enough to accom-modate the evolving realities of work and work/life balance. The Committee also provides advice and guidance to the Board regarding the setting of CEO performance targets and assessment of performance against those targets.Our Board is committed to providing its Board members with educational op-portunities, including individual director certication programs provided by OMIA. Directors also actively participate in mutual sector conferences and education op-portunities. In particular, Catherine Akins participated in OMIA’s Legislative Affairs Committee; and Eric Harrop is a member of OMIA’s Group B Committee.The Board nominations process is an important part of looking ahead and rec-ognizes our changing environment which maximizes the Boards ability to fulll its governance oversight role. As we continue to rene our process, we strive to draw expertise from the wide spectrum of our membership to continue to build a diverse and competent Board of Directors, ensur-ing the Board has the appropriate skills, knowledge, and experience to effectively perform its role. In this regard, the Nomi-nating Committee, chaired by myself, and composed of two other Directors plus one external individual, followed a process to assess the skills and expertise needed to continuously strengthen and refresh board composition. Interested individuals were subsequently invited to seek nomination for a position on the Board, and following an interview process, the Committee rec-ommended the best qualied individuals as nominees for election at Nova Mutual’s 5th Annual General Meeting. The Board approved the recommendation of the Nominating Committee, and these nomi-nees will be presented to the Members for election by acclamation at the 2024 AGM, each for a 3-year term.Last, but certainly not least, the success of Nova Mutual would not be possible with-out the hard work and dedication of our staff, and the Board wishes to express its appreciation to them for their continuing commitment and achievements.The Board of Directors welcomes your attendance at the Annual General Meeting to be held on Thursday March 7th, 2024.Regards,Michelle Spoelstra Board Chair5

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MESSAGE FROM THE CEOAs we complete the rst year of our new three-year strategic plan, I am very pleased to share with you some of our key achievements throughout 2023. Our value proposition continues to resonate with new and current members. Mutuality is alive and well, and we come together to accom-plish great things for the betterment of our members, communities and for each other. During 2023 we focused on operational governance by developing and enhancing key operational structures and policies.We successfully executed on a robust quality review of our portfolio; improving all major key indicators and securing a robust capital base for our members. This will continue into 2024 as we focus on a geographic spread of risk and build on a solid foundation of strength to advance the Company for the benet of our members.IFRS 17, a new accounting standard, was effective January 1, 2023. This standard required a retrospective restatement of the prior year’s numbers and now considers the time value of money or discounting on claims reserves.Nova Mutual continued on its Diversity Equity and Inclusion (DEI) journey during 2023. A Company visit to the Mohawk Institute to learn more about and better understand indigenous culture, history and the impact of residential schools was part of our commitment to the reconciliation process.Nova Mutual is very proud of our heritage roots within the farming and rural com-munities. We are excited to be part of a strong Mutual community serving rural members. Nova Mutual is part of a larger group of Mutuals who make up one of the strongest nancial networks in the world. Mutuality is many things, however it is not driven by prots but rather superior service to members and supporting local commu-nities.Our nancial results for 2023 are solid; largely driven by robust insurance opera-tions and positive investment results. While we continue to experience challenges 6

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related to increased reinsurance costs and claims frequency, Nova Mutual has put in place strategies to manage these challeng-es.As Nova Mutual continues writing a new chapter, it is the investment in our people that will take us to new heights moving forward. This investment in career development opportunities such as con-tinuous learning and skills training, stretch assignments, and the autonomy to make decisions will position Nova Mutual well in an industry that is expected to see contin-ued resource movement and challenges. Each employee here at Nova Mutual has a purpose and as a team we come together to challenge the status quo, learn, and support our communities to enhance the lives of members today and for the future.2023 brought on several external chal-lenges, including continued volatility in the nancial markets, increases in interest rates, and the impact of climate change on severe weather events. However, our underwriting integrity and service stan-dards have not and will not waver, ensuring that Nova’s nancial strength and business fundamentals remain strong. We are com-mitted to safeguarding your trust that the Company will withstand these external challenges and still be there for you, the member, in your time of need. That is our PROMISE.Our 2023 -2025 Strategic plan sets in mo-tion objectives and initiatives to strengthen our position as a member-centric rural community Mutual insurer. By operational-izing our core values of Integrity, Respect and Courage, Nova Mutual will be an ac-tive, responsible, and accountable leader in the Mutual space. I am very pleased at Nova Mutual’s 2023 year-end results. 2024 will continue to bring external challenges, including: continued broker consolidation, volatile equity markets and interest rate challenges, increased cyber security risk and regulatory scrutiny, product pricing challenges from reinsurance, and ination to name a few. Nova Mutual is well posi-tioned to tackle these challenges in 2024 and I look forward to reporting back on its successes.Our people are what make the difference, their professional dedication to servicing you the member is what makes Nova Mutual unique.I invite you to visit our web site (novamu-tual.com) to view several community initia-tives completed throughout 2023.Glenn Pick President & CEO7

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A LOOK BACK AT 2023THANK YOU TO OUR MEMBERS , COMMUNITY, TEAM, AGENTS, AND BROKER PARTNERSYou continue to show us what mutuality is all about. As a team, we’ve worked hard to make a difference to the lives around us, by giving our time, and donating through sponsorships and a variety of hands-on initiatives. We had the privilege of meeting, learning about and engaging with so many amazing people and organiza-tions, each focused on making our community a better place.INSURANCE CAN BE MUTUALWe highlighted the concept of mutuality and what it means to be part of Nova Mutual through our Insurance Can Be video cam-paign. We collaborated across each part of the team to showcase this. It’s about relationships, it’s knowing someone will always be at the other end to pick up a call, and being treated like a neighbour, because you are one. Mutuality is being rooted in our community and making a difference around us.ROOTED IN COMMUNITYWe had the honour of collaborating with some incredible local organizations throughout the year, including: • Community Living Access • Norfolk County Volunteer Fireghters • Norfolk County Public Library • Back to School Supply Drive supplied to Simcoe Caring Cupboard • Norfolk County Fair • Waterford Pumpkinfest • Juravinski Cancer Centre Pumpkin Patch • Norfolk Haldimand Hospice • Haldimand Norfolk Women’s Services9

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INSURANCE CAN BE MOREOur members are at the heart of all that we do. We work hard to provide each of them with prompt and personalized service, and products that are built around their specic needs, for their unique lifestyles. They’re more than just a policy and we love to learn about them, get to know them, and see them out in the communi-ty.This year, we highlighted several members doing amazing things. Altitude Coffee Roasters who started doing an annual 24-hour walkathon to raise awareness and funds for Cystic Fibrosis. Joy Bakery Café, whose passion for the environment shines through as they plant saplings for each day that they are open to offset their unavoidable carbon footprint. Local micro-farmers Fancy Farmerettes who value environmental sustainability, animal welfare, supporting local, and building a community.From a farm to a local business, or a family protecting what matters most to them, Nova Mutual is there for each unique member we serve.INSURANCE CAN BE INNOVATIVEThis year we introduced and grew our new AgriSafe program, providing innovative solutions to prevent potential devastating losses for our Agribusiness members. We continue to seek out cutting-edge products, services, and partnerships to offer person-alized protection for each of our members.10

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INSURANCE CAN BE LOCALOur agency continued to grow and we’re happy to uniquely support each of our agents in the communities that they live and serve. We welcomed Agent Rebecca and Agent Bo to the team this year. We supported Agent Holly in the launch of her own ofce space in the heart of downtown Tillsonburg. We saw Agent Ashley give back to her community with a pumpkin donation, community skates, and trail sponsorship. Agent Paul proudly supported the Jarvis Public School skating program and a Hagersville hockey tournament.Thank you for a truly remarkable year of being rooted in the com-munity, and highlighting the meaningful ways that Insurance Can Be Mutual. When we work together, we can do so much more.INSURANCE CAN BE PARTNERSHIPSWorking with brokers gives us the unique opportunity to serve a wider geographical area and increase our community presence. We strive to partner with like-minded brokers who share our values and exceptional level of service to our members. We’re proud of the great broker relationships that we have built, allowing us to better serve our members.Thank you for a truly remarkable year of being rooted in the com-munity, and highlighting the meaningful ways that Insurance Can Be Mutual. When we work together, we can do so much more. 11

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NOVA MUTUAL INSURANCE COMPANYConsolidated Financial Statements For the year endedDecember 31, 2023Table of Contents PageIndependent Auditor's Report2Consolidated Statement of Financial Position4Consolidated Statement of Comprehensive Income5Consolidated Statement of Members’ Surplus6Consolidated Statement of Cash Flows7Notes to the Consolidated Financial Statements1. Corporate information82. Basis of presentation83. Adoption of new accounting standards104. Insurance contracts115. Investments276. Investment and other income and expenses297. Capital management298. Other operating and administrative expenses309. Salaries, benefits and directors fees3010. Income taxes 3111. Fire mutuals guarantee fund and financial guarantee contracts3212. Property, plant & equipment 3213. Pension plans3314. Related party transactions34

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NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Financial Positionrestated restatedDecember 31, December 31, January 1,As at 202320222022AssetsCash$6,376,916$5,983,365$3,884,756Investments (Note 4.3, 5)42,725,72540,662,12640,986,750Investment income accrued125,14079,30854,371Income taxes recoverable-365,592928,622Reinsurance contract assets (Note 4.2)8,212,7428,686,25613,911,589Prepaid expenses41,59327,6961,110,197Property, plant & equipment (Note 12)861,789810,869810,438Assets held for disposal--569,533$58,343,905$56,615,212$62,256,256LiabilitiesAccounts payable and accrued liabilities$1,121,273$1,351,436$1,482,531Income taxes payable533,294--Insurance contract liabilities (Note 4.2)26,180,96427,567,49132,550,909Deferred income taxes (Note 10)68,40032,600198,69827,903,93128,951,52734,232,138Members' SurplusUnappropriated members' surplus30,439,97427,663,68528,024,118$58,343,905$56,615,212$62,256,256Signed on behalf of the Board by:, Director____________, DirectorThe accompanying notes are an integral part of these financial statements.4DocuSign Envelope ID: 5A2B519D-201E-457F-8B52-12C6EFAB2072

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NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Comprehensive IncomerestatedFor the year ended December 31 20232022Insurance revenue$36,961,410$36,339,751Insurance service expense(26,238,471)(29,770,323)Insurance service result before reinsurance contracts10,722,9396,569,428Allocation of reinsurance premiums6,726,8165,694,604Amounts recoverable from reinsurers for incurred claims(2,171,085)(2,955,812)Net expense from reinsurance contracts held4,555,7312,738,792Insurance service result6,167,2083,830,636Insurance finance income (expenses) for insurance contracts issued (1,095,000)255,000Reinsurance finance income (expenses) for reinsurance contracts held 325,000(193,000)Net insurance financial result5,397,2083,892,636Investment and other income (Note 6)2,500,693(1,107,444)Other operating and administrative expenses (Note 8)4,108,5033,519,766Profit (loss) before tax3,789,398(734,574)Provision for income taxes (Note 10)1,013,109(374,141)Comprehensive (loss) income for the year2,776,289(360,433)The accompanying notes are an integral part of these financial statements.5

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NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Cash FlowsrestatedFor the year ended December 3120232022Operating activitiesComprehensive (loss) income for the year$2,776,289$(360,433)Adjustments for: Depreciation 125,358101,571Realized gain from disposal of capital assets-(445,804)Provision for income taxes1,013,109(374,141)Mutual and pooled fund, interest and dividend income(1,908,834)(1,490,235)Unrealized (gain) loss on investments (736,262)1,857,495Loss on disposal of software-1,054,6671,269,660343,120Changes in working capitalChange in reinsurance contract assets473,5145,225,333Change in prepaid expenses(13,897)27,834Change in accounts payable and accrued liabilities(230,163)(131,095)Change in insurance contract liabilities(1,386,527)(4,983,418)(1,157,073)138,654Cash flows related to interest, dividends and income taxesInterest and dividends received 391,770215,386Mutual and pooled fund distributions received1,471,5321,249,912Income taxes (paid) received(78,723)771,0731,784,5792,236,371Total cash inflows from operating activities1,897,1662,718,145Investing activitiesSale of investments979,7692,267,580Purchase of investments(2,484,677)(3,958,447)Loan receivable repayments177,572157,996Sale of property plant & equipment-1,016,554Purchase of property plant & equipment(176,279)(103,219)Total cash outflows from investing activities(1,503,615)(619,536)Net increase in cash393,5512,098,609Cash, beginning of year5,983,3653,884,756Cash, end of year$6,376,916$5,983,365The accompanying notes are an integral part of these financial statements.7

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20231. Corporate InformationNOVA MUTUAL INSURANCE COMPANY (the Company) is incorporated under the laws of Ontario andis subject to the Ontario Insurance Act. It is licensed to write property, liability, automobile,farmers' accident insurance in Ontario. The Company's head office is located at 35 Talbot StreetEast, Jarvis, Ontario.The Company's automobile insurance rates are subject to approval by the Financial ServicesRegulatory Authority of Ontario (FSRA). Applications for automobile rate changes are presented toFSRA by Farm Mutual Re on behalf of most members of the Ontario Mutual Insurance Association(OMIA). The rate filings include actuarial justification for the rate increases or decreases. All ratefilings must be approved by FSRA prior to implementation. Rate regulation may affect theautomobile revenues that are earned by the Company. The actual impact of rate regulation woulddepend on the competitive environment at the time. These consolidated financial statements have been authorized for issue by the Board of Directorson February 8, 2024.2. Basis of PresentationThese consolidated financial statements include the financial statements of Nova Mutual InsuranceCompany and those of its subsidiary, 2801969 Ontario Ltd.These consolidated financial statements have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (theIASB). These consolidated financial statements were prepared under the historical cost convention,except for financial assets classified as fair value through profit or loss ("FVTPL") The consolidated financial statements are presented in Canadian dollars ("CDN"), which is also theCompany’s functional currency.The preparation of these consolidated financial statements in compliance with IFRS requiresmanagement to make certain critical accounting estimates. It also requires management toexercise judgment in applying the Company’s accounting policies. The areas involving criticaljudgments and estimates in applying accounting policies that have the most significant risk ofcausing material adjustment to the carrying amounts of assets and liabilities recognized in theconsolidated financial statements within the next financial year are: The Company applies the Premium Allocation Approach (PAA) to simplify the measurement ofinsurance contracts as the coverage period of each contract in the group is one year or less.  The Company has not made the election in IFRS 17.59(a) to recognize any insurance acquisitioncash flows as an expense when it incurs those costs therefore defers insurance acquisition cashflows.8

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20232. Basis of Presentation (cont'd) For groups of contracts that are onerous, the liability for the remaining coverage is determinedby the fulfillment cash flows. Any loss/recovery is recognized on underlying contracts and therecovery expected on claims from reinsurance contracts held.  The Company does not adjust the carrying amount of the liability for remaining coverage toinclude the time value of money or the effect of financial risk for any of its product lines. The cost of outstanding claims is estimated using appropriate standard actuarial claimsprojection techniques. The main assumption underlying these techniques is that a Company’spast claims development experience can be used to project future claims development andhence ultimate claims costs. Insurance contract liabilities are calculated by discounting expected future cash flows at therisk free rate, plus illiquidity premium (when applicable). Risk free rates are determined byreference to the yield of highly liquid A-rated sovereign securities.Discount rates applied are listed below: 1 year3 years5 years10 years20232022202320222023202220232022Insurance ContractLiabilities4.52%4.41%3.70%3.97%3.53%3.86%3.77%4.08% The risk adjustment for non-financial risk is the compensation the Company requires forbearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk as the entity fulfils insurance contracts. The Company has estimated the riskadjustment using a cost of capital approach at 6%. The Company has estimated the probabilitydistribution of future cash flows, and the additional amount above the expected present valueof future cash flows required to meet the target percentiles. The Company has elected not to disaggregate the change in risk adjustment for non-financialrisk in accordance with IFRS 17.81 and includes the entire change as part of the insuranceservice result in the statement of profit or loss and other comprehensive income. The Company applies judgment over the inputs and methods used to allocate insuranceacquisition cash flows to the related contracts. This includes judgments about the amountsallocated to insurance contracts expected to arise from renewals of insurance contracts in thatgroup. The Company will revisit the assumptions at the end of each reporting period and revisethe amounts of assets for insurance acquisition cash flows as necessary.  The classification of financial assets at FVTPL, which includes assessing the business modelwithin which the assets are held and whether the contractual terms of the assets are solelypayments of principal and interest on the principal amount outstanding (Note 5).The notes to the consolidated financial statements were prepared and ordered in such a way thatthe most relevant information was presented earlier in the notes and disclosures that managementdeemed to be immaterial were excluded from the notes to the consolidated financial statements.The determination of the relevance and materiality of disclosures involved significant judgment.9

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20233. Adoption of New Accounting StandardsIFRS 17 replaces IFRS 4 – Insurance Contracts for periods on or after January 1, 2023. The Companyhas applied IFRS 17 for the first time using the full retrospective approach and has restatedcomparative information for 2022 applying the transitional provisions in IFRS 17. The adoption of IFRS 17 did not change the classification of the Company’s insurance contracts.Under the full retrospective approach, at January 1, 2022 the Company identified, recognized andmeasured each group of insurance contract liabilities and reinsurance contract assets held and anyacquisition costs, and derecognized previously reported balances that would not have existed hadIFRS 17 always applied. This includes due from reinsurer, due from members, reinsurer’s share ofunpaid claims, deferred policy acquisition expenses, unearned premiums and unpaid claims andadjustment expenses which are included in the measurement of insurance contract liabilities andreinsurance contract assets held under IFRS 17. The net difference of $1,255,319 was recognized inUnappropriated Members’ Surplus on January 1, 2022.All of the Company’s insurance contract liabilities and reinsurance contract assets held aremeasured using the PAA, minimizing the differences between IFRS 4 and IFRS 17. The measurement principles using the PAA which differ from those under IFRS 4 primarily include: The liability for remaining coverage represents premiums received less deferred acquisitioncash flows and less amounts recognized in revenue for insurance services provided in thatperiod. The Company discounts the measurement of the liability for remaining coverage toreflect the time value of money and the effect of financial risk where the premium due dateand the related period of services are more than 12 months apart. The liability for incurred claims is determined on a discounted-probability-weighted expectedvalue basis, and includes a risk adjustment for non-financial risk. Where a group of insurance contracts is onerous, measurement of the liability for remainingcoverage includes a risk-adjustment for non-financial risk in order to calculate a losscomponent.  Where a group of reinsurance contracts reinsures onerous insurance contracts, themeasurement of the asset for remaining coverage is adjusted to include a loss-recoverycomponent to reflect the expected recovery of onerous contract losses.The presentation and disclosure principles using IFRS 17 differ from those under IFRS 4 primarilyinclude: Portfolios of insurance contracts that are assets and those that are liabilities, and portfolios ofreinsurance contract assets held that are assets and those that are liabilities, are presentedseparately on the Statement of Consolidated Financial Position.10

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20233. Adoption of New Accounting Standards (cont'd) The line-item descriptions for amounts recognized in the Consolidated Statement ofComprehensive Income have changed significantly compared with the prior year. Changes tothe line-item descriptions include:Under IFRS 4, the Company presented: IFRS 17 requires separate presentation of:Gross written premiumsChanges in premium reservesNet insurance premium revenueInsurance revenueGross claims expenses and adjustment expensesCommission income and expensesInsurance services expensesReinsurer's share of claims and benefits incurred Income or expenses from reinsurance contracts heldInsurance finance income or expensesReinsurance finance (income) / expensesMaterial Accounting Policies4. Insurance Contracts4.1.1 Classification Insurance contracts are those contracts that have significant insurance risk at the inception of thecontract. The Company determines whether it has significant insurance risk, by comparing thebenefits payable after an insured event with benefits payable if the insured event did not occur.The Company issues non-life insurance products including automobile (personal and commercial),personal property and liability, and commercial property and liability (including farm). Theseproducts offer protection of policyholder’s assets and indemnification of other parties that havesuffered damages as a result of a policyholder’s accident. 4.1.2 Level of Aggregation and RecognitionInsurance contracts and reinsurance contract assets held are required to be aggregated intoportfolios of insurance contracts, based on underlying risk and the management of those risks, thenfurther aggregated into groups based on the underlying expected profitability at inception intothree categories: onerous contracts, contracts with no significant risk of becoming onerous, andthe remainder. The profitability of groups of contracts is assessed by actuarial valuation modelsthat take into account existing and new business. IFRS 17 also requires that no group for level ofaggregation purposes may contain contracts issued more than one year apart. The Companyassumes that no contracts in the portfolio are onerous at initial recognition unless facts andcircumstance indicate otherwise. The Company considered facts and circumstances to identifywhether a group of contracts are onerous based on (i) pricing information, (ii) results of similarcontracts it has recognized, and (iii) environmental factors (i.e., change in market experience orregulations).Insurance contracts are recognized from the earliest of: the beginning of the insurance contract'scoverage period; when payment from the policyholder becomes due or, if there is no contractualdue date, when it is received; and when a contract is onerous.Reinsurance contract assets held that provide proportionate reinsurance coverage are recognizedfrom the later of: the beginning of the reinsurance contract's coverage period; and when underlyinginsurance contracts are initially recognized.11

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.1.2 Level of Aggregation and Recognition (cont'd)Other reinsurance contract assets held are recognized at the beginning of the coverage period forthe reinsurance contract unless the company recognizes onerous insurance contracts on an earlierdate which are reinsured and the related reinsurance contract was entered into prior to theonerous contract being recognized, in which case the reinsurance contract assets held arerecognized at the date the onerous groups of underlying insurance contracts are recognized.The Company adds new contracts to the group in the reporting period in which that contract meetsone of the criteria set out above.4.1.3 Separating components from insurance and reinsurance contractsThe Company assesses its insurance products to determine whether they contain distinctcomponents which must be accounted for under another IFRS instead of under IFRS 17. Afterseparating any distinct components, the Company applies IFRS 17 to all remaining components ofthe (host) insurance contract. Currently, the Company’s products do not include any distinct components that require separation.4.1.4 Measurement The Company uses the PAA to all the insurance contracts that it issues and reinsurance contractsheld. Insurance contracts issued and reinsurance contracts held are eligible for the PAA when thecoverage period of each contract in the group is one year or less or the Company reasonablyexpects that the resulting measurement of the liability for remaining coverage would not differmaterially from that of applying the General Measurement Model. Contract BoundaryThe contract boundary determines the cash flows that are included in the measurement of a groupof insurance contracts issued and reinsurance contract assets held. Cash flows are within thecontract boundary if they arise from substantive rights and obligations that exist during thereporting period in which the Company can compel the policyholder to pay the premiums or has asubstantive obligation to provide services including insurance coverage. A liability or asset relatingto expected premiums or claims outside the boundary of the insurance contract is not recognized.Such amounts relate to future insurance contracts.Insurance acquisition cash flowsInsurance acquisition cash flows arise from the cost of selling, underwriting and starting a group ofinsurance contracts that are directly attributable to the portfolio of insurance contracts to whichthe group belongs. These costs are deferred and amortized into profit and loss as the relatedpremiums are earned. Insurance acquisition cash flows paid before the recognition of the relatedgroup of contracts are recognized as an asset and subsequently derecognized and included withinthe group of insurance contracts when the related contracts are recognized. At the end of eachreporting period, the Company revises amounts of insurance acquisition cash flows allocated togroups of insurance contracts not yet recognized, to reflect changes in assumptions. At eachreporting date, the company assesses for impairment and will recognize impairment losses whenthe carrying amount of the asset exceeds the expected net cash inflows for the related group ofinsurance contracts. The company reverses any impairment losses and increases the carryingamount of the asset to the extent that the impairment conditions have reversed.12

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.1.4 Measurement (cont'd)Insurance Contract Liabilities - Initial MeasurementOn initial recognition of each group of insurance contracts that is not onerous at initial recognition,the Company measures the liability for remaining coverage as: Premiums received on initial recognition; Less any insurance acquisition cash flows allocated to the group, adjusted for any amountspreviously recognized for cash flows related to the group; and Any other asset or liability previously recognized for cash flows related to the group ofcontracts that the Company pays or receives before the group of insurance contracts isrecognized.If there are indications that a group of insurance contracts is onerous, then the Companyrecognizes a loss in insurance service expense in the Consolidated Statement of ComprehensiveIncome and increases the liability for remaining coverage if the current estimates of the fulfillmentcash flows that relate to remaining coverage exceed the carrying amount of the liability forremaining coverage. This excess is recognized as a loss component within the liability for remainingcoverage, which is reported in insurance contract liabilities on the Consolidated Statement ofFinancial Position.Insurance Contract Liabilities - Subsequent MeasurementThe carrying amount of a group of insurance contracts at each reporting date is the sum of theliability for remaining coverage and the liability for incurred claims.The Company measures the carrying amount of the liability for remaining coverage at the end ofeach reporting period as the liability for remaining coverage at the beginning of the period: Plus premiums received in the period; Plus the amortization of insurance acquisition cash flows recognized as expenses; Minus the amount recognized as insurance revenue for services provided;  Minus any additional insurance acquisition cash flows allocated after initial recognition.The liability for incurred claims includes the fulfillment cash flows for losses on claims andexpenses that have not yet been paid, including those that have been incurred but not reported.The liability for incurred claims reflects current estimates from the perspective of the Companyand include an explicit adjustment for non-financial risk. The Company does not adjust the futurecash flows for the time value of money and the effect of financial risk for the measurement ofliability for incurred claims that are expected to be paid within one year of being incurred.The Company remeasures the loss component using the same calculation as on initial recognitionand reflects any changes by adjusting the loss component as required until the loss component isreduced to zero. If a loss component did not exist on initial recognition but there are indicationsthat a group of contracts is onerous on subsequent measurement, then the Company establishes aloss component using the same methodology as on initial recognition.Reinsurance Contract Assets – Initial MeasurementThe Company measures its reinsurance contract assets for a group of reinsurance contracts that itholds on the same basis as insurance contracts that it issues. However, they are adapted to reflectthe features of reinsurance contracts held that differ from insurance contracts issued.13

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 2023 4.1.4 Measurement (cont'd)When there is an onerous group of underling contracts, the Company establishes a loss-recoverycomponent of the asset for remaining coverage for a group of reinsurance contracts held depictingthe recovery of losses. The Company calculates the loss-recovery component by multiplying theloss recognized on the underlying insurance contracts and the percentage of claims on theunderlying insurance contracts the Company expects to recover from the group of reinsurancecontracts held. This loss recovery component adjusts the carrying amount of the reinsurance contract asset held.Reinsurance Contract Assets – Subsequent MeasurementThe subsequent measurement of reinsurance contract assets held follows the same principles asthose for insurance contracts issued and has been adapted to reflect the specific features ofreinsurance held.If a loss-recovery component exists, it is adjusted on subsequent measurement to reflect changesin the loss component of the onerous group of underlying contracts to the extent that it impactsreinsured cash flows, but it cannot exceed the portion of the loss component of the onerous groupof underlying contracts that the Company expects to recover from the reinsurance contract assetsheld.4.1.5 Derecognition and contract modificationAn insurance contract is derecognized when it is extinguished, that is when the specifiedobligations in the contract expire or are discharged or cancelled. An insurance contract is alsoderecognized if its terms are modified in a way that would have significantly changed theaccounting for the contract had the new terms always existed. In such cases, the Companyderecognizes the initial contract and recognizes the modified contract as a new contract. If aninsurance contract modification does not result in derecognition, then the changes in cash flowscaused by the modification are treated as changes in estimates of fulfillment cash flows.4.1.6 PresentationThe Company has presented separately, in the Consolidated Statement of Financial Position, thecarrying amount of portfolios of insurance contracts issued that are assets, portfolios of insurancecontracts issued that are liabilities, portfolios of reinsurance contracts held that are assets andportfolios of reinsurance contracts held that are liabilities. Any assets for insurance acquisition cash flows recognised before the corresponding insurancecontracts are included in the carrying amount of the related groups of insurance contracts areallocated to the carrying amount of the portfolios of insurance contracts that they relate to. The Company disaggregates the total amount recognised in the Consolidated Statement ofComprehensive Income into a net insurance service result, comprising insurance revenue andinsurance service expense, and insurance finance income or expenses. The Company does not disaggregate the change in risk adjustment for non-financial risk between afinancial and non-financial portion and includes the entire change as part of the insurance serviceresult. The Company separately presents income or expenses from reinsurance contracts held from theexpenses or income from insurance contracts issued.14

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.1.6 Presentation (cont'd)Insurance revenueThe Company recognizes insurance revenue based on the expected premium receipts and thepassage of time over the coverage period of a group of contracts unless the release of risk differssignificantly from the passage of time, in which case insurance revenue is recognized based on therelease of risk. For all periods presented, the Company has recognized insurance revenue based onthe passage of time.Insurance service expenseInsurance service expenses arising from insurance contracts are recognized in the ConsolidatedStatement of Comprehensive Income as they are incurred and include losses on claims, otherinsurance service expenses, amortization of insurance acquisition costs, losses and reversals oflosses on onerous contracts, and impairment losses and reversals of those impairment losses oninsurance acquisition cash flow assets.Net finance income or expense from insurance contracts and reinsurance contract assets heldNet finance income or expense from insurance contracts and reinsurance contract assets held aspresented in the Consolidated Statement of Comprehensive Income are comprised of changes inthe carrying amounts of insurance and reinsurance contracts arising from the effects of time valueof money and changes in the time value of money and the effect of financial risk and changes infinancial risk.15

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.2 Insurance and Reinsurance Contracts4.2.1 Movements in net asset or liability for insurance contracts issuedThe roll-forward of the net asset or liability for insurance contracts issued is disclosed below:2023Liabilities forremaining coverageLiabilities for incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flowsRisk adjustment TotalOpening balance - Insurance contract liabilities $2,797,653$24,339,043$430,795$27,567,491Cash flows Premiums received35,992,944--35,992,944Claims and other expenses paid -(19,337,583)-(19,337,583)Insurance acquisition cash flows (8,413,949)--(8,413,949)Total cash flows 27,578,995(19,337,583)-8,241,412Changes in the consolidated statement of comprehensive incomeInsurance revenue36,961,410--36,961,410Insurance service expensesIncurred claims and other expenses-17,147,582496,58317,644,165Amortization of insurance acquisition cash flows9,038,090--9,038,090Changes to liabilities for incurred claims-(546,784)103,000(443,784)Total insurance service expenses9,038,09016,600,798599,58326,238,471Insurance service result27,923,320(16,600,798)(599,583)10,722,939Insurance finance expenses -(1,095,000)-(1,095,000)Total changes in the consolidated statement of comprehensive income 27,923,320(17,695,798)(599,583)9,627,939Closing balance - Insurance contract liabilities$2,453,328$22,697,258$1,030,378$26,180,96416

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.2.1 Movements in net asset or liability for insurance contracts issued (cont'd)2022Liabilities forremaining coverageLiabilities for incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flowsRisk adjustment TotalOpening balance - Insurance contract liabilities $2,527,238$29,079,250$944,421$32,550,909Cash flows Premiums received36,135,855--36,135,855Claims and other expenses paid -(26,002,368)-(26,002,368)Insurance acquisition cash flows (8,292,477)--(8,292,477)Total cash flows 27,843,378(26,002,368)-1,841,010Changes in the consolidated statement of comprehensive incomeInsurance revenue36,339,751--36,339,751Insurance service expensesIncurred claims and other expenses-26,512,367240,89626,753,263Amortization of insurance acquisition cash flows8,766,788--8,766,788Changes to liabilities for incurred claims-(4,995,206)(754,522)(5,749,728)Total insurance service expenses8,766,78821,517,161(513,626)29,770,323Insurance service result27,572,963(21,517,161)513,6266,569,428Insurance finance expenses -255,000-255,000Total changes in the consolidated statement of comprehensive income 27,572,963(21,262,161)513,6266,824,428Closing balance - Insurance contract liabilities$2,797,653$24,339,043$430,795$27,567,49117

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.2.2 Movements in net asset or liability for reinsurance contracts held The roll-forward of the net asset or liability for reinsurance contracts held is disclosed below:2023Assets for remainingcoverageAmounts recoverable incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flowsRisk adjustment TotalOpening balance - Reinsurance contract assets (liabilities) $(68,362)$8,611,433$143,185$8,686,256Cash flows Premiums paid6,497,508--6,497,508Amounts received-(2,740,291)-(2,740,291)Total cash flows 6,497,508(2,740,291)-3,757,217Changes in the consolidated statement of comprehensive incomeAllocation of reinsurance premiums6,726,816--6,726,816Amounts recoverable from reinsurers for incurred claimsRecoveries of incurred claims and other insurance service expenses--116,265116,265Changes to amounts recoverable for incurred claims-2,036,82018,0002,054,820Total amounts recoverable from reinsurers for incurred claims-2,036,820134,2652,171,085Net income or expense from reinsurance contracts held6,726,816(2,036,820)(134,265)4,555,731Reinsurance finance income -(325,000)-(325,000)Total changes in the consolidated statement of comprehensive income 6,726,816(2,361,820)(134,265)4,230,731Closing balance - Reinsurance contract assets (liabilities) $(297,670)$8,232,962$277,450$8,212,74218

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.2.2 Movements in net asset or liability for reinsurance contracts held (cont'd)2022Assets for remainingcoverageAmounts recoverable incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flowsRisk adjustment TotalOpening balance - Reinsurance contract assets (liabilities) $(61,880)$13,488,943$484,526$13,911,589Cash flows Premiums paid5,688,122--5,688,122Amounts received-(7,981,663)-(7,981,663)Total cash flows 5,688,122(7,981,663)-(2,293,541)Changes in the consolidated statement of comprehensive incomeAllocation of reinsurance premiums5,694,604--5,694,604Amounts recoverable from reinsurers for incurred claimsRecoveries of incurred claims and other insurance service expenses--91,89691,896Changes to amounts recoverable for incurred claims-3,297,153(433,237)2,863,916Total amounts recoverable from reinsurers for incurred claims-3,297,153(341,341)2,955,812Net income or expense from reinsurance contracts held5,694,604(3,297,153)341,3412,738,792Reinsurance finance income -193,000-193,000Total changes in the consolidated statement of comprehensive income 5,694,604(3,104,153)341,3412,931,792Closing balance - Reinsurance contract assets (liabilities) $(68,362)$8,611,433$143,185$8,686,25619

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3 Insurance and Financial Risk 4.3.1 Insurance RiskThe Company writes insurance primarily over a twelve month duration. The most significant risksarise through high severity, low frequency events such as natural disasters or catastrophes. Aconcentration of risk may arise from insurance contracts issued in a specific geographic locationsince all insurance contracts are written in Ontario.The principal risk the Company faces under insurance contracts is that the actual claims and benefitpayments or the timing thereof, differ from expectations. This is influenced by the frequency ofclaims, severity of claims, actual benefits paid and subsequent development of long-term claims.For longer term claims that take some years to settle, there is also inflation risk. Therefore, theobjective of the Company is to ensure that sufficient reserves are available to cover these liabilities.The above risk exposure is mitigated by diversification across a large portfolio of insurancecontracts. The variability of risks is also improved by careful selection and implementation ofunderwriting strategy guidelines, as well as the use of reinsurance arrangements. Inflation risk ismitigated by taking expected inflation into account when estimating insurance contract liabilitiesand pricing appropriately.The ultimate cost of long settlement general liability claims are difficult to predict for severalreasons. Claims may not be reported until many years after a policy expires. Changes in the legalenvironment can create further complications. Court decisions and federal and provincial legislationmay dramatically increase the liability between the time a policy is written and associated claimsare ultimately resolved. For example, liability for exposure to toxic substances and environmentalimpairment, which did not appear likely or even exist when the policies were written, has beenimposed by legislators and judicial interpretation. Tort liability has been expanded by somejurisdictions to cover defective workmanship. Provisions for such difficult-to-estimate liabilities areestablished by examining the facts of tendered claims and adjusted in the aggregate for ultimateloss expectations based upon historical experience patterns and current socioeconomic trends.The Company must participate in industry automobile residual pools of business, and recognizes ashare of this business based on its automobile market share. The Company records its share of theassets, liabilities, revenue and expenses provided by the actuaries of the pools.The Company enters into reinsurance contracts in the normal course of business in order to limitpotential losses arising from certain exposures. Retention limits for the excess-of-loss reinsuranceare set by product line. The Company follows a policy of underwriting and reinsuring contracts ofinsurance which, in the main, limit the liability of the Company to an amount on any one claim of$500,000 (2022 - $500,000) in the event of a property claim, an amount of $500,000 (2022 -$500,000) in the event of an automobile claim and $500,000 (2022 - $500,000) in the event of aliability claim. The Company also obtained reinsurance which limits the Company's liability to$1,500,000 (2022 - $1,500,000) in the event of a series of claims arising out of a single occurrence.In addition, the Company has obtained stop loss reinsurance which limits the liability of all claims ina specific year to 70% (2022 – 70%) of gross net earned premiums for property and automobile.Amounts recoverable from reinsurer are estimated in a manner consistent with the outstandingclaims provision and are in accordance with the reinsurance contracts. Although the Company hasreinsurance arrangements, it is not relieved of its direct obligations to its members and thus a creditexposure exists with respect to ceded insurance, to the extent that the reinsurer is unable to meetits obligations assumed under such reinsurance agreements.20

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3.1.1 Claim developmentThe estimation of claim development involves assessing the future behaviour of claims, taking intoconsideration the consistency of the Company's claim handling procedures, the amount ofinformation available, the characteristics of the line of business from which the claim arises andclaims reporting patterns. In general, the longer the term required for the settlement of a group ofclaims the more variable the estimates. Short settlement term claims are those which are expectedto be substantially paid within a year of being reported.The tables below show how the Company’s estimate of cumulative incurred claim cost for eachaccident year has changed at successive year ends and reconcile the cumulative claims to theamount appearing in the Consolidated Statement of Financial Position. An accident-year basis isconsidered to be the most appropriate for the business written by the Company.The Company has not disclosed previously unpublished information about claims development thatoccurred earlier than five years before the end of the annual reporting period in which it firstapplies IFRS 17.21

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3.1.1.1 Claim developmentGross undiscounted liabilities for incurred claims for 2023Accident year20162017201820192020202120222023TotalAt the end year of claim$2,951,101$4,440,948$9,488,978$10,543,858$9,035,202$20,084,274$19,255,269$16,904,206One year later3,804,6914,191,50214,718,78712,988,9049,464,23519,975,13420,215,691Two years later4,687,5739,949,47014,337,27713,806,5669,223,74219,127,606Three years later9,615,9118,089,63714,884,02415,767,0628,867,200Four years later9,191,4028,074,80314,861,21315,588,791Five years later9,185,2717,984,47614,568,560Six years later8,868,6657,796,912Seven years later8,882,695Gross estimates of the undiscountedamount of the claims8,882,6957,796,91214,568,56015,588,7918,867,20019,127,60620,215,69116,904,206111,951,661Cumulative payments to date8,163,3587,688,16513,467,21614,500,4578,458,61918,256,02016,513,7558,971,73396,019,323Gross undiscounted liabilities forincurred claims$719,337$108,747$1,101,344$1,088,334$408,581$871,586$3,701,936$7,932,473$15,932,3382015 and prior71,734IBNR and effect of discounting7,723,568Total gross liabilities for incurredclaims$23,727,640Net undiscounted liabilities for incurred claims for 2023Accident year20162017201820192020202120222023TotalAt the end year of claim$2,742,962$4,440,948$7,789,974$10,023,903$9,023,627$14,253,276$15,904,883$15,364,644One year later3,480,5194,191,50211,324,49110,447,2668,969,58014,356,70616,637,877Two years later3,853,4526,360,15911,385,48311,055,0429,079,12913,627,018Three years later6,612,8006,668,41211,489,15211,523,9938,785,254Four years later6,523,1096,754,49411,390,79811,345,722Five years later6,705,3806,667,75311,473,051Six years later6,387,1366,520,875Seven years later6,224,796Net estimates of the undiscountedamount of the claims6,224,7966,520,87511,473,05111,345,7228,785,25413,627,01816,637,87715,364,64489,979,237Cumulative payments to date5,989,2566,521,62510,908,36910,281,8058,400,25813,162,55814,177,4698,866,30678,307,646Net undiscounted liabilities for incurredclaims$235,540$(750)$564,682$1,063,917$384,996$464,460$2,460,408$6,498,338$11,671,5912015and prior60,471IBNR and effect of discounting3,629,510Total net liabilities for incurred claims$15,361,57222

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3.2 SensitivitiesThe risks associated with insurance contracts are complex and subject to a number of variableswhich complicate quantitative sensitivity analysis. The Company uses various techniques based onpast claims development experience to quantify these sensitivities. This includes indicators such asaverage claim cost, amount of claims frequency, expected loss ratios and claims development.Results of sensitivity testing based on expected loss ratios are as follows, showing gross and net ofreinsurance and the impact on pre-tax income:2023Change inassumptionsImpact onprofit beforetax, gross ofreinsurance$'000Impact onprofit beforetax, net ofreinsurance$'000Impact onequity, grossof reinsurance$'000Impact onequity, net ofreinsurance$'000Interest rate+1%410250301184Expected loss+5%(593)(339)(436)(249)Inflation rate+1%(441)(269)(324)(198)Interest rate-1%(429)(262)(315)(193)Expected loss-5%592338435248Inflation rate-1%4302623161932022Change inassumptionsImpact onprofit beforetax, gross ofreinsurance$'000Impact onprofit beforetax, net ofreinsurance$'000Impact onequity, grossof reinsurance$'000Impact onequity, net ofreinsurance$'000Interest rate+1%335209246154Expected loss+5%(436)(209)(320)(154)Inflation rate+1%(362)(223)(266)(164)Interest rate-1%(347)(216)(255)(159)Expected loss-5%439209323154Inflation rate-1%356220262162There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.23

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3.3 Liquidity RiskLiquidity risk is the risk that the Company will not be able to meet all cash outflow obligations asthey come due. The Company mitigates this risk by monitoring cash activities and expectedoutflows. The Company's current liabilities arise as claims are made. The Company does not havematerial liabilities that can be called unexpectedly at the demand of a lender or client. TheCompany has no material commitments for capital expenditures and there is no need for suchexpenditures in the normal course of business. Claim payments are funded by current operatingcash flow including investment income.The Company’s investment policy requires that 50% to70% of the Company's portfolio be held ininvestment grade income instruments, which mitigates liquidity risk. The following table summarizes the maturity profile of portfolios of insurance contracts issued thatare liabilities and portfolios of reinsurance contract held that are liabilities of the Company basedon the estimates of the undiscounted future cash flows expected to be paid out in the periodsexpected:Within 1year1 to 2 years2 to 3 years3 to 4 years4 to 5 years>5 yearsTotalDecember 31,2023Insurance liabilities$11,770,000$3,314,000$2,966,000$2,428,000$1,566,000$1,683,000$23,727,000Percent of Total49.61%13.97%12.50%10.23%6.60%7.09%100.00%December 31,2022Insurance liabilities$12,830,000$4,841,000$3,927,000$2,054,000$814,000$342,000$24,808,000Percent of Total51.72%19.51%15.83%8.28%3.28%1.38%100.00%Amounts invested in bond funds that are available in the short-term (< 1 month) includes$35,742,038 (2022 - $33,797,849) In addition, the following table presents the maturity profile of GICs, bonds and private loans held:Within 1year1 to 2years2 to 3years3 to 4years>5 yearsTotalDecember 31,2023Debt instruments at FVTPL$1,128,700$1,132,714$1,332,713$632,713$1,065,426$5,292,266Percent of Total21%21%25%12%20%100%December 31,2022Debt instruments at FVTPL$1,184,087$918,700$818,629$732,713$1,698,139$5,352,268Percent of Total22%17%15%14%32%100%There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure liquidity risk.24

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3.4 Market riskMarket risk is the risk that the fair value of future cash flows of a financial instrument, insurancecontract issued or reinsurance contract held will fluctuate because of changes in market prices.Market factors that will impact the fair value of investments include three types of risk: currencyrisk, interest rate risk and equity risk. The Company’s investment policy operates within the guidelines of the Insurance Act. Aninvestment policy is in place and its application is monitored by the Investment Committee and theBoard of Directors. The Company's currency risk is related to holdings in global equity mutual funds. A 1% change in thevalue of the United States dollar would affect the fair value of stocks by $17,612. This change wouldbe recognized in comprehensive income.The Company is exposed to interest rate risk through its interest bearing investments (GICs, bonds,private loan and fixed income mutual and pooled funds). At December 31, 2023, a 1% move ininterest rates, with all other variables held constant, could impact the market value of fixed incomeby $691,941. This change would be recognized in comprehensive income. The Company is exposed to equity risk through its equity holdings within its investment portfolio. AtDecember 31, 2023, a 10% move in equity markets, with all other variables held constant, wouldhave an estimated effect on the fair values of these equity holdings of $621,587. This change wouldbe recognized in comprehensive income. The Company managers these risks by designating and allocating amounts within limited categoriesand asset ranges as follows (mutual funds are managed by "looking through' for fund make-up):Cash and cash equivalents from 0 to 30%Investment grade fixed income from 50 to 70%High yield fixed income from 0 to 10%Canadian equities from 0 to 25%Global equities from 0 to 6.25%Other from 0 to 10%There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure market risk.Credit risk is the risk that one party to a financial instrument, insurance contract issued in an assetposition or reinsurance contract held will cause a financial loss for the other party by failing todischarge an obligation. The Company is exposed to credit risk relating to its debt holdings in itsinvestment portfolio.25

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20234.3.4 Market risk (cont'd)The following table provides fair value information of investments by type of security and issuer. 20232022Guaranteed Investment Certificates$2,595,986$2,523,277Bonds issued by:Collectivfide - not rated1,700,0001,700,000Mutual FundsFixed Income25,463,45424,017,116Canadian Equity5,460,7455,040,648Global Equity1,855,8041,730,528Real Estate2,962,0353,009,55735,742,03833,797,849Equity InvestmentsCanadian non-public663,251507,668Canadian non-public under significant influence972,649928,8341,635,9001,436,502Private loans996,2791,128,992Fire Mutual Guarantee Fund55,52254,797Other-20,7091,051,8011,204,498Total Investments$42,725,725$40,662,126The maximum exposure to investment credit risk is the carrying value of investments. There have been no significant changes from the previous year in the exposure to risk of policies,procedures and methods used to measure credit risk.26

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20235. Investments(a) Recognition and initial measurementThe Company recognizes debt instruments on the date on which they are originated. Equity andmutual fund instruments are recognized on the settlement date, which is the date that the asset isreceived by the Company. The instruments are initially measured at fair value.(b) Classification and subsequent measurementThe Company classifies its GIC's, bonds and private loans as amortized cost as the company holdsto collect contractual cash flows until maturity of the debt instrument. The Company’s pooled funds and mutual funds are redeemable at the option of the holder andtherefore considered debt instruments under IFRS 9 that do not give rise to cash flows that aresolely payments of principal and interest and therefore are classified as FVTPL.The Company classifies its equity instruments in Canadian non-public without significant influence,as FVTPL. When accounting for its equity instruments in Canadian non-public under significant influencecompanies, as defined under IAS 28, the Company subsequently applies the equity method ofaccounting.The pooled funds are subsequently measured at fair value where the net gains and losses, includingany interest or dividend income and foreign exchange gains and losses, are recognized incomprehensive income.(c) DerecognitionThe Company derecognizes investments when the contractual rights to the cash flows from theinvestment expires or the Company transfers the investment. On derecognition, the differencebetween the carrying amount at the date of derecognition and the consideration received isrecognized in comprehensive income.27

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20235. Investments (cont'd)(d) Fair value measurementThe following table provides an analysis of investments that are measured subsequent to initialrecognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value isobservable:- Level 1 fair value measurements are those derived from quoted prices (unadjusted) in activemarkets for identical assets or liabilities using the last bid price;- Level 2 fair value measurements are those derived from inputs other than quoted pricesincluded within Level 1 that are observable for the asset or liability, either directly (i.e. asprices) or indirectly (i.e. derived from prices); and- Level 3 fair value measurements are those derived from valuation techniques that includeinputs for the asset or liability that are not based on observable market data (unobservableinputs).Level 1 Level 2 Level 3 TotalDecember 31, 2023Equity investments $-$32,455$630,796$663,251Mutual funds-35,742,038-35,742,038Other investments-55,522-55,522Total$-$35,830,015$630,796$36,460,811December 31,2022Equity investments$-$7,601$500,067$507,668Mutual funds-33,797,849-33,797,849Other investments-54,797-54,797Total$-$33,860,247$500,067$34,360,314There were no transfers between level 1, level 2 and level 3 for the year end December 31,December 31, 2023 and 2022.28

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20235. Investments (cont'd)The following table presents a reconciliation of the Level 3 investment:20232022Balance, beginning of the year$500,067$477,644Gains / losses recognized in comprehensive income130,72922,423Purchases--Balance, end of the year$630,796$500,067The fair values of the Collectivfide equity and bond are based on the valuation of the Company asprovided by the management of Collectivfide. Due to the use of unobservable data and theirlimited liquidity, these investments are classified as Level 3.6. Investment and Other Income and Expenses20232022Interest income$437,302$240,323Mutual and pooled fund income1,471,5321,249,912Unrealized gains (losses) on disposal of investments736,262(1,857,495)Investment fees(144,403)(150,071)Rental income-18,750Gain on sale of property-445,804Loss on derecognition of software-(1,054,667)$2,500,693$(1,107,444)7. Capital ManagementFor the purpose of capital management, the Company has defined capital as members' surplus.The Company’s objectives with respect to capital management are to maintain a capital base that isstructured to exceed regulatory requirements and to best utilize capital allocations.The regulators measure the financial strength of property and casualty insurers using a minimumcapital test (MCT). The regulators require property and casualty companies to comply with capitaladequacy requirements. This test compares a Company’s capital against the risk profile of theorganization. The risk-based capital adequacy framework assesses the risk of assets, policyliabilities and other exposures by applying various factors that are dependant on the risks associatedwith the Company's assets. Additionally, an interest rate risk margin is included in the MCT byassessing the sensitivity of the Company's interest-sensitive assets and liabilities to changes ininterest rates. The regulator indicates that the Company should produce a minimum MCT of 150%.During the year, the Company has consistently exceeded this minimum. The regulator has theauthority to request more extensive reporting and can place restrictions on the Company’soperations if the Company falls below this requirement or deemed necessary.29

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20238. Other Operating and Administrative Expenses20232022Advertising$91,537$90,683Automobile and travel107,259104,322Bad Debts24,35518,286Interest and bank charges171,018163,307Bureaus and associations215,553145,836Computer expense876,053880,038Consulting fees267,639291,951Directors' remuneration157,742214,479Furniture and equipment117,006104,846Inspections17,38566,731Insurance127,222100,175Occupancy costs48,61556,131Postage46,62941,661Printing and stationery86,41858,606Premium taxes110,310102,674Professional fees204,453170,422Regulatory expense9,85111,582Salaries4,366,6363,726,005Benefits934,062879,951Staff Training54,91571,885Telephone36,12636,999Less: reallocation of insurance acquisition costs(3,043,690)(2,844,279)Less: reallocation of fulfillment of existing contract expenses(918,591)(972,525)$4,108,503$3,519,7669. Salaries, Benefits and Directors Fees20232022Salaries and benefits$3,992,432$3,609,234Directors' fees and benefits164,910275,602Salaries and benefits included in gross claims and adjustment expenses681,891538,626Salaries and benefits included in commissions276,040215,643Total salaries, benefits and directors fees$5,115,273$4,639,10530

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 202310. Income TaxesIncome tax expense comprises of current and deferred tax. Current tax and deferred tax arerecognized in net income except to the extent that it relates to a business combination, or itemsrecognized directly in equity, or in other comprehensive income.The significant components of tax expense included in net income consist of:20232022Current tax expenseBased on current year taxable income $1,043,402$-Loss carryback -(175,006)Adjustments to provision of prior periods (66,093)(33,038)977,309(208,044)Deferred tax expense Origination and reversal of temporary differences35,800(166,097)Total income tax expense$1,013,109$(374,141)Reasons for the difference between tax expense for the year and the expected income taxes basedon the statutory tax rate of 26.5% are as follows:20232022Income before taxes$3,789,398$(734,574)Expected taxes based on the statutory rate of 26.5% 1,004,190(194,662)Other tax adjustments106,699(103,963)Impact of property sale-(24,134)Amortization/Capital cost allowance(28,035)(19,113)Over provision in prior years(66,093)(33,038)Donations carried forward517769IFRS 17 adjustments(4,169)-Total income tax expense$1,013,109$(374,141)As at December 31, 2023, a deferred tax asset (liability) of $(68,400) (2022 - $(32,600)) has beenrecorded. The utilization of this tax asset is dependent on future taxable profits in excess ofprofits arising from the reversal of existing taxable temporary differences. The Company believesthat this asset should be recognized as it will be recovered through future rates. 31

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 202311. Fire Mutuals Guarantee Fund and Financial Guarantee ContractsThe Company is a member of the Fire Mutuals Guarantee Fund ("the Fund"). The Fund wasestablished to provide payment of outstanding policyholders' claims if a member companybecomes bankrupt. As a result, the Company may be required to contribute assets to theirproportionate share in meeting this objective.The Company is a member of the Farm Mutual Re ("the Plan"), which is a general reinsurer thatshares in the insurance risks originally accepted by member insurance companies. As a member ofthe Plan, the Company may be required to contribute additional capital to the Plan in the form ofsubordinated debt should the Plan's capital fall below a prescribed minimum.These exposures represent financial guarantee contracts. The Company accounts for financialguarantee contracts in accordance with IFRS 17, Insurance Contracts.12. Property, Plant & EquipmentProperty, plant & equipment is initially recorded at cost and subsequently measured at cost lessaccumulated depreciation and accumulated impairment losses, with the exception of land which isnot depreciated. Depreciation is recognized in comprehensive income and is provided on astraight-line basis over the estimated useful life of the assets.Depreciation methods, useful lives and residual values are reviewed annually and adjusted ifnecessary.2023Useful Accumulated Net BookLife Cost Depreciation ValueLand N/A$185,000$-$185,000Buildings & parking lot 10 to 40 years423,57969,476354,103Automotive equipment 5 years99,79531,54068,255Office equipment 10 years112,98182,72530,256Computer equipment 5 years481,216257,041224,175$1,302,571$440,782$861,7892022Useful Accumulated Net BookLife Cost Depreciation ValueLand N/A$185,000$-$185,000Buildings & parking lot 10 to 40 years423,57958,241365,338Automotive equipment 5 years23,95623,956-Office equipment 10 years112,98162,38550,596Computer equipment 5 years380,777170,842209,935$1,126,293$315,424$810,86932

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NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 202313. Pension PlansThe Company makes contributions on behalf of its employees to "The Retirement Annuity Plan forEmployees of the Ontario Mutual Insurance Association and Member Companies" ("the plan"). Thispension plan is a multi-employer pension plan as defined by IAS 19 Employee Benefits. TheCompany accounts for the plan as if it were a defined contribution plan, recognizing contributionsas an expense in the year to which they related as sufficient information is not available to use thedefined benefit accounting. The Company matches employee contributions, and funds the excess defined benefit based on theCompany's percentage of pensionable earnings as calculated by the Pension Plan actuaries. ThePension Plan agreement states that the Company is responsible for its share of any deficit as aresult of any actuarial valuation or cost certificate. The minimum funding requirement is thesolvency valuation amount determined by the Pension Plan actuary on the valuation datesprescribed by the Pensions Benefit Act. In the event of a wind-up, voluntary withdrawal orbankruptcy, either by the Company or the group as a whole, the Company is responsible for itsportion of all expenses and deficit related to such. According to the most recent actuarialvaluation dated November 13, 2023, the going concern valuation for the defined plan shows asurplus. The next pension valuation is scheduled for December 31, 2024.The Company makes contributions to the plan on behalf of members of its staff. The plan is amoney purchase plan, with a defined benefit option at retirement available to some employees,which specifies the amount of the retirement benefit plan to be received by the employees basedon length of service and rates of pay.The amount contributed to the defined benefit plan for 2023 was $41,445 (2022 - $48,015). Thecontributions were made for current service and these have been recognized in comprehensiveincome. These contributions amount to 2.90% (2022 - 2.90%) of the total contributions made to theOntario Mutual Insurance Association Pension Plan by all the participating entities during thecurrent fiscal year. Expected contributions to the plan for 2024 amount to $45,000.Due to the complexity of the valuation and its long-term nature, the funding valuation is highlysensitive to changes in the assumptions, which are reviewed at each reporting date.The defined benefit pension plan has been closed to future eligible employees effective July 1,2013. The Company and all current employees who are accruing benefits under the defined benefitplan will continue to contribute to the defined benefit plan according to the existing terms of theagreement. Future eligible employees are enrolled in the defined contribution plan.Defined contribution planThe Company's agents and employees hired after June 30, 2013 participate in a definedcontribution plan. The amount contributed to this plan for 2023 was $308,781 (2022 - $265,788).These contributions were made for the current service and these have been recognized incomprehensive income.Expected contributions to the plan for 2024 amount to $295,000.33

2023 Nova Mutual AGM Report

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