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Message 2024
CONTENTS2MESSAGE FROM THE CHAIR 4MESSAGE FROM THE CEO 7BUSINESS HIGHLIGHTS 9ENTERPRISE RISK MANAGEMENT 10A LOOK BACK AT 2024 11GROUP B SUMMARY 14CONSOLIDATED FINANCIAL STATEMENTS 15
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MESSAGE FROM THE CHAIROn behalf of the Board of Directors, I am pleased to present the Nova Mutual Insurance Company’s Annual Report for the year ended 2024.It has been my privilege to serve as Chair of the Board of Directors during the past year. Together with the Executive Leadership Team, the Board is pleased to present the 2024 Year-End results for Nova Mutual. In carrying out its duties during 2024, the Board is condent that it continues to fulll its duciary responsibilities on behalf of Members. Nova’s commitment to good corporate governance ensures that both Nova’s Board and its leadership team are well positioned to deliver on its service commitment to Members while maintaining strong and prudentially sound business operations.In 2024 the Board, in consultation with Executive Leadership, conducted a number of strategic discussions on which to guide the development of next steps for Nova Mutual as it nears completion of its existing 3-year Strategic Plan. The environment within which the mutual sector operates continues to evolve rapidly, with increasing regulatory expectations; broker consolidations; mutual consolidation; climate change events; and escalating costs. What hasn’t changed is Nova Mutual’s rm commitment to mutuality and its promise to its Members. As Nova Mutual moves forward, this commitment and promise will continue to serve as Nova’s compass.From a governance perspective, during 2024, the Board’s Committees have worked hard to ensure appropriate oversight over operations. In addition, a number of Directors have attended several Town Halls and Director’s Conferences delivered by the Financial Services Regulatory Authority (FSRA), as FSRA continues to move to a more principles-based regulatory approach. FSRA has also issued several new Guidance documents which have been carefully reviewed by the Board’s Committees; including the:• Audit, Finance & Conduct Review Committee;• Investment & Risk Committee;• Human Resources Committee; and• Governance Committee.During 2024, the Board continued to build on its strong governance foundation, 4
including establishing appropriate governance policies and practices designed to ensure that it fullls its responsibilities on your behalf, while also actively engaging with the larger mutual community and the local communities in which we operate. These efforts have been spearheaded by the Chair of our Governance Committee, Catherine Akins.The Audit, Finance & Conduct Review Committee, chaired by Mark Matson, has worked with our CEO Glenn Pick, our CFO Liane Varga, and their teams to ensure that the nancial statements presented to you at this year’s ASGM fairly and accurately represent the nancial position of the Corporation. The Committee has also worked closely with the external auditors to oversee and prepare the audited nancial statements. Nova Mutual’s auditor will share greater details in this regard in their 2024 Audit Opinion and their remarks at the 2025 ASGM.The Investment & Risk Committee, chaired by Steve Gugler maintains oversight over the performance of the investment portfolio and continues to provide leadership over the development and implementation of Nova Mutual’s comprehensive Enterprise Risk Management framework, including monitoring performance against that framework on a regular basis.Our Human Resources Committee, led by Mary Ann Mooney, has also been hard at work to ensure that Nova Mutual is appropriately resourced, has compensation strategies in place that align with strategic objectives while remaining exible enough to accommodate the evolving realities of remote work and work/life balance post the pandemic. 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 opportunities, including participation in individual director certication programs provided by OMIA. Directors also actively participate in mutual sector Conferences and education opportunities. In particular, Johnny Fansher participated in OMIA’s Legislative Affairs Committee during 2024; and Michelle Spoelstra served as the Chair of OMIA’s Group B Executive Committee. Nova Mutual also hosted the Group B Annual Meeting in November 2024, and it was a great day of learning, renewing relationships and building new ones. The Board takes its succession planning responsibilities seriously. The nominations process is an important part of looking ahead and recognizes our changing environment and emphasizes the importance of the responsibilities of the Board in fullling its governance oversight role. As we continue to rene 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, ensuring the Board has the appropriate skills, knowledge, 5
6and experience to perform its role. In this regard, the Nominating Committee, chaired by myself, and composed of three other Directors, 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 recommended the best qualied individuals as nominees for election at Nova Mutual’s 6th Annual & Special General Meeting. In accordance with our by-laws, these nominees will be presented to the Members for election by acclamation, each for a 3-year term. On behalf of the Board, I also take this opportunity to thank two retiring Directors, Brad Caron and Catherine Akins, for their signicant contributions during their tenure on the Board. Thank you for your commitment to Nova Mutual and the Board wishes you the best as you pursue future endeavours.Last, but certainly not least, the success of Nova Mutual would not be possible without 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 & Special General Meeting to be held virtually on Thursday March 6th, 2025.Eric Harrop Board Chair
7MESSAGE FROM THE CEOWhile 2024 was a challenging year for many policyholders across Ontario due to increases in severe weather events and auto theft, for those Nova Mutual members impacted, we were there to support you and get you back on your feet. As a mutual, Nova prides itself on its purpose driven mission, focused on serving member needs and committed to local communities. This purpose is our North Star. Nova’s brand and value proposition resonate with many people and communities as we continue to develop relationships and actively engage in these communities to strengthen our connection with our members. Nova is committed to the long-term sustainability of mutuality and its positive social impact on the lives of our members and the communities we do business in. This commitment is evidenced through our claims Net Promoter Score (NPS) which measures the willingness of members to recommend Nova Mutual’s products or services to others. Nova’s year-end NPS was 91%. Anywhere above 80% is considered in the top percentile or world-class. This result is a testament to Nova’s commitment to mutuality and delivered through our claims team’s focus on servicing our members.Nova Mutual experienced signicant growth in 2024 while managing through a market realignment. The auto market saw tremendous disruption as non-member policyholders were shopping for better coverage and rates. We experienced a soft market in commercial lines as carriers were eager to take on more risk at reduced rates. Farm premiums and policy growth were very strong as we saw a shift in market capacity as some carriers decided to remove themselves from the market and leave it to the experts here at Nova.Our regulator, the Financial Services Regulatory Authority (“FSRA”) released several guidance papers for the insurance industry and Nova Mutual had the opportunity to comment and make suggested changes. The increased focus on regulation, oversight and outcomes will continue and is something Nova, as insurance leaders, will embrace and integrate into our day-to-day activities as part of our member-centric focus.Nova Mutual believes in continuous development and lifelong learning. In the fall of 2024, the Leadership Team along with Directors and Managers spent two days together learning and training. With an ever-changing industry it is
8important that Nova Mutual is committed to continuing to invest in training and development of all staff.As 80% of our business comes from the broker channel, 2024 saw the reinstitution of our Broker council. The council provides a forum to engage with brokers to have open and transparent conversations on what is working well and opportunities for new growth. We discussed Nova’s longer-term strategy and received exceptional feedback from the brokers regarding AI and technology, service, and product enhancements. Mutual insurance is about nurturing relationships and trust, and the broker council solidies our commitment to meeting the needs of our members and being easy to do business with.In the later part of 2024 Nova developed a Community Engagement Policy/Process which outlines the types of activities and sponsorships to be supported. Nova Mutual supports many community organizations throughout the regions we do business. Our team was active in attending and volunteering at many great events in our community, including but not limited to:• Art for Heart Trivia Night • International Women’s Day luncheon hosted by Norfolk County Economic Development • Innovation Frontier Forum, hosted by Simcoe Chamber of Commerce • Tim Hortons – Smile Cookie and Camp Day Initiatives • MS Walk in Simcoe• CityKidz Gift of Christmas Program• Salvation Army Kettle Campaign and Hamper ProgramNova Mutual also supports our employees’ community involvement by allowing employees to volunteer 21 hours per year during regular business hours. As of December 31, 2024, Nova employees volunteered almost 894 hours of combined personal and Nova time, an increase year over year of over 20%. This dedication to the communities we live and work in highlights the value and commitment Nova, and its employees have to community sustainability.I look forward to an exciting 2025 as we continue our focus on operational efciencies, service excellence, and product development to meet our members needs without compromising on service. The staff at Nova Mutual are exceptional at what they do and strive to provide best in class service.Glenn Pick President & CEOOur inaugural Broker Council meeting
EXPENSE RATIO46.4%LOSS RATIO57.6%COMBINED RATIO 102.2%CLAIMS NET PROMOTER SCORE91% 894 STAFF COMMUNITY ENGAGEMENT HOURSA RECORD $6.2M IN NEWBUSINESS SALESNOVA A key indicator where members put their trust in Nova Mutual as their insurance company. A 20% increase over last year.9BUSINESS HIGHLIGHTSTOTAL INSURANCE REVENUE$34.5MINSURANCE SERVICE EXPENSE$21.5MINVESTMENT & OTHER INCOME $3.5MNET INCOME $2.3M
10Nova Mutual has continued to position itself as a risk management leader amongst the farm mutuals, with an embedded awareness and uency in discussing risks. Risk Owners completed their 3rd and 4th risk assessment cycles in 2024, adding bow-tie analysis to their toolkit. Distribution, reinsurance, and cyber risks remain top of mind, with more deliberate discussions and action on mitigating their likelihood and impact. Additional governance and operational policies and procedures were put in place or updated, including Information Technology and Outsourcing risk management policies, and a Business Continuity & Disaster Recovery (BC/DR) plan.The regulatory environment in Ontario continues to change fast. The Financial Services Regulatory Authority of Ontario has proposed new guidance on Corporate Governance, Operational Risk & Resilience, and Own Risk Solvency Assessments. Other evolving topics include data security practices, fraud reporting, complaints handling, and the fair treatment of customers. Nova Mutual continues to monitor these developments and work with regulators to ensure compliance. Risk education remains a priority at all levels of the Company. The Investment & Risk Committee has been doing quarterly deep dives into specic controls presented by Risk Owners, with recent topics including claims catastrophe response planning, the investment cycle, and underwriting strategy. The Human Resources Committee also completed Enterprise Risk Management training and has started receiving regular reports on HR-related risks. The Executive Leadership Team underwent a surprise cyber response tabletop exercise to test their readiness, while all staff had the chance to learn about key risks through educational videos and materials during October’s Risk Awareness Week. In December, after a thorough vendor selection process, Nova Mutual implemented a new Risk Management Information System. Among the many benets, this tool will give Risk Owners greater control over their risks, clarify the link between risks and the Board’s risk appetite statements, and more easily track the progress being made on implementing new controls. This system will be leveraged throughout 2025 to enhance risk analytics for strategic planning and prioritizing mitigation techniques.ENTERPRISE RISK MANAGEMENT
11As we reect on the past year, we are grateful for the trust of our amazing members. We are honoured to have collaborated with so many incredible community partners and organizations. We’re proud to have developed and grown our valued broker partnerships. We appreciate our dedicated agents and team who work hard to make Nova what it is.With a goal of including more insurance content on social media and our website, we worked with our team to showcase them as the experts they are. We created a series of videos with both the Claims and Loss Prevention Teams. These short videos highlighted some key tips and advice on a variety of topics to both current and potential members.Throughout the year, we completed several large projects, including the launch of our new website! This functional, easy to navigate and user-friendly site allows us to showcase our rural focus with a modern air. We highlight many of our amazing team, customizable coverage that we offer our members, and the ways that we are involved in our community.We proudly launched a multi-media campaign to increase brand awareness in a selected area. We took a member-centric approach by including some of our incredible local commercial and agricultural members in our ads, allowing them to shine too. This 6-month campaign featured traditional and digital billboards, radio, print, and digital advertising.A LOOK BACK AT 2024Owner Joy, Joy Bakery Cafe, featured on our billboard
12Through our partnership with the Norfolk Agricultural Society, we painted our biggest community mural yet. This 124’x29’ canvas allowed us to tell the story of our agricultural roots, when nurtured, the land providing for the community, and giving cause to celebrate the annual fall harvest at the county fair.This piece was designed and painted by our in-house Creative Architect Shane Drever, with the support of the brand team. It is the largest mural in Norfolk County and proudly includes Nova’s name, for all to see. At last report, completed in 2015, the trafc count on this road averaged 2,399 per day, or 875,635 per year. This project was highlighted through a series of 8 videos, featuring numerous community members talking about the impact it will have.Our partnership with the Norfolk Agricultural Society also provided us with a booth space at the Norfolk County Fair and Horse Show. This year, we continued the momentum of the mural and connected it back to Nova. We created an immersive experience, with life sized cut outs and a 45’ banner of the full mural, spanning the length of our booth space. This provided great photo opportunities for the 100,000+ fairgoers.We got some amazing (free!) press coverage, including a front-page banner in the Norfolk & Tillsonburg News leading up to the fair, as well as an interview on CHCH Morning Live featuring our Marketing & Brand Manager Steph Gruhle chatting live at the booth with Reporter Emily Vukovic.
We continued to support our agents in a variety of ways throughout the year. Agent Holly celebrated Random Acts of Kindness Day by giving back to those in need in her community. She joined a team of local outreach workers, handing out food, toiletries, warm winter accessories and bus passes that she donated. This was a great opportunity to give back, directly around the area of her ofce in downtown Tillsonburg. Agent Ashley sponsored a section of the Waterford Heritage Trail in her hometown, which included the placement of 2 trail markers with her logo and information. She also collaborated with one of her local members, Anneke’s Pottery Design, to sponsor one of their weekly giveaways for a month. By tagging Anneke’s social media, Ashley’s name got in front of her nearly 2000 followers.Mutuality is being rooted in our community and making a difference around us. We had the privilege of collaborating with some incredible organizations throughout the year, including: • Woodland Cultural Centre• Pride Haldimand Norfolk• Arnold Anderson Sport Fund• Downie Wenjack Fund• Farms of Norfolk Football Tournament• Waterford Pumpkinfest• Waterford Minor Hockey – Toonies for Tummies Event• Jarvis Light UpWe ended the year with some meaningful Community Giving. We reached out to our Broker Partners in several areas, asking them to match donations to different organizations. By doing this, we were able to work together to double our impact. We met with the charities and created videos and posts about them, tagging the brokers that were part of each contribution. • Animal Adoptions of Flamborough with Meester/PV&V• Operation Sharing with VLG Insurance• Caledonia Food Bank with Haldimand Insurance Brokers• Norfolk General Hospital Foundation with Ontario West Insurance BrokersThank you to everyone we had the pleasure of working with this year for your continued support!13Anneke’s Pottery Design
As mentioned earlier, Nova Mutual was honoured to host the annual general meeting of our peer group in November 2024 at MontHill Golf & Country Club. We are all proudly part of the Ontario Mutual Insurance Association (OMIA), an organization built on collaboration working to serve and strengthen the mutual insurance community with purpose to support our members.This engaging knowledge sharing event included industry updates from our reinsurance partner Farm Mutual Re, trade associations OMIA and Canadian Association of Mutual Insurance Companies (CAMIC) . Our keynote speakers Ben Telfer and Joe Dietrich from the International Cooperative and Mutual Insurance Federation (ICMIF) shared their perspectives on the sustainability of Mutual Insurance in Canada. We ended the day with a CEO Panel discussion focused on current topics as well as opportunity for networking as a group.GROUP B SUMMARYGlenn, speaking at the Group B AGM14
NOVA MUTUAL INSURANCE COMPANY Consolidated Financial Statements For the year ended December 31, 2024
NOVA MUTUAL INSURANCE COMPANYConsolidated Financial Statements For the year ended December 31, 2024Table 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. Insurance contracts104. Investments265. Investment and other income and expenses286. Capital management287. Insurance service and general operating expenses298. Income taxes 309. Fire mutuals guarantee fund and financial guarantee contracts3110. Property, plant & equipment 3111. Pension plans3212. Related party transactions3313. Comparative figures3314. Adoption of new acccounting standards33
Independent Auditor's ReportTo the Policyholders of NOVA MUTUAL INSURANCE COMPANYOpinionWe have audited the consolidated financial statements of NOVA MUTUAL INSURANCE COMPANY (theCompany), which comprise the consolidated statement of financial position as at December 31, 2024,and the consolidated statements of comprehensive income, members' surplus and cash flows for theyear then ended and notes to the consolidated financial statements, including a summary of materialaccounting policy information.In our opinion, the accompanying consolidated financial statements present fairly, in all materialrespects, the consolidated financial position of the Company as at December 31, 2024, and itsconsolidated financial performance and its consolidated cash flows for the year then ended inaccordance with International Financial Reporting Standards and International Accounting Standards asissued by the International Accounting Standards Board (IASB) and Interpretations (collectively IFRSAccounting Standards).Basis for OpinionWe conducted our audit in accordance with Canadian generally accepted auditing standards. Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for theAudit of the Consolidated Financial Statements section of our report. We are independent of theCompany in accordance with the ethical requirements that are relevant to our audit of the consolidatedfinancial statements in Canada, and we have fulfilled our other ethical responsibilities in accordancewith these requirements. We believe that the audit evidence we have obtained is sufficient andappropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Consolidated FinancialStatements Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with the IFRS Accounting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of consolidated financial statementsthat are free from material misstatement, whether due to fraud or error.In preparing the consolidated financial statements, management is responsible for assessing theCompany’s ability to continue as a going concern, disclosing, as applicable, matters related to goingconcern and using the going concern basis of accounting unless management either intends to liquidatethe Company or to cease operations, or has no realistic alternative but to do so.Those charged with governance are responsible for overseeing the Company’s financial reportingprocess.2 Tel: 519 539 2081 Fax: 519 539 2571 www.bdo.ca BDO Canada LLP 94 Graham St. Woodstock, ON N4S 6J7 Canada BDO Canada LLP, a Canadian limited liability partnership, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statementsas a whole are free from material misstatement, whether due to fraud or error, and to issue anauditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is nota guarantee that an audit conducted in accordance with Canadian generally accepted auditingstandards will always detect a material misstatement when it exists. Misstatements can arise fromfraud or error and are considered material if, individually or in the aggregate, they could reasonably beexpected to influence the economic decisions of users taken on the basis of these consolidated financialstatements.As part of an audit in accordance with Canadian generally accepted auditing standards, we exerciseprofessional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated financial statements,whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control. Obtain an understanding of internal control relevant to the audit in order to design auditprocedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by management. Conclude on the appropriateness of management’s use of the going concern basis of accountingand, based on the audit evidence obtained, whether a material uncertainty exists related to eventsor conditions that may cast significant doubt on the Company’s ability to continue as a goingconcern. If we conclude that a material uncertainty exists, we are required to draw attention in ourauditor’s report to the related disclosures in the consolidated financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor’s report. However, future events or conditions may causethe Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements,including the disclosures, and whether the consolidated financial statements represent theunderlying transactions and events in a manner that achieves fair presentation.We communicate with those charged with governance regarding, among other matters, the plannedscope and timing of the audit and significant audit findings, including any significant deficiencies ininternal control that we identify during our audit.Chartered Professional Accountants, Licensed Public AccountantsWoodstock, OntarioFebruary 11, 20253
NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Financial PositionDecember 31, December 31,As at 20242023AssetsCash$4,388,074$6,376,916Investments (Note 3.3, 4)45,682,70542,725,725Investment income accrued171,245125,140Income taxes recoverable175,784-Reinsurance contract assets (Note 3.2)4,188,8468,212,742Prepaid expenses49,81841,593Property, plant & equipment (Note 10)814,003861,789$55,470,475$58,343,905LiabilitiesAccounts payable and accrued liabilities$1,071,667$1,121,273Income taxes payable-533,294Insurance contract liabilities (Note 3.2)21,666,30426,180,964Deferred income taxes (Note 8)28,70068,40022,766,67127,903,931Members' SurplusUnappropriated members' surplus32,703,80430,439,974$55,470,475$58,343,905Signed on behalf of the Board by:_____________________________, Director_____________________________, DirectorThe accompanying notes are an integral part of these consolidated financial statements.4
NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Comprehensive IncomeFor the year ended December 31 20242023Insurance revenue$34,514,894$36,961,410Insurance service expense (Note 7)(21,488,444)(26,238,471)Insurance service result before reinsurance contracts13,026,45010,722,939Allocation of reinsurance premiums6,151,7686,726,816Amounts payable (recoverable) from reinsurers for incurred claims2,824,937(2,171,085)Net expense from reinsurance contracts held8,976,7054,555,731Insurance service result4,049,7456,167,208Insurance finance expenses for insurance contracts issued (1,234,214)(1,095,000)Reinsurance finance income for reinsurance contracts held 353,879325,000Net insurance financial result3,169,4105,397,208Investment and other income (Note 5)3,497,3302,527,517General operating expenses (Note 7)(3,780,556)(4,135,327)Profit before income taxes2,886,1843,789,398Provision for income taxes (Note 8)622,3541,013,109Comprehensive income for the year2,263,8302,776,289The accompanying notes are an integral part of these consolidated financial statements.5
NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Members' SurplusFor the year ended December 3120242023Unappropriated members' surplusBalance, beginning of the year$30,439,97427,663,685Comprehensive income for the year2,263,8302,776,289Balance, end of the year$32,703,804$30,439,974The accompanying notes are an integral part of these consolidated financial statements.6
NOVA MUTUAL INSURANCE COMPANYConsolidated Statement of Cash FlowsFor the year ended December 3120242023Operating activitiesComprehensive income for the year$2,263,830$2,776,289Adjustments for: Depreciation 118,490125,358Provision for income taxes622,3541,013,109Mutual and pooled fund, interest and dividend income(2,277,390)(1,908,834)Unrealized gain on investments (1,340,260)(736,262)(612,976)1,269,660Changes in working capitalChange in reinsurance contract assets4,023,896473,514Change in prepaid expenses(8,225)(13,897)Change in accounts payable and accrued liabilities(49,611)(230,163)Change in insurance contract liabilities(4,514,660)(1,386,527)(548,600)(1,157,073)Cash flows related to interest, dividends and income taxesInterest and dividends received 345,743391,770Mutual and pooled fund distributions received1,885,5471,471,532Income taxes paid(1,371,132)(78,723)860,1581,784,579Total cash (outflows) inflows from operating activities(301,418)1,897,166Investing activitiesSale of investments1,075,714979,769Purchase of investments(2,851,222)(2,484,677)Loan receivable repayments158,788177,572Purchase of property plant & equipment(70,704)(176,279)Total cash outflows from investing activities(1,687,424)(1,503,615)Net (decrease) increase in cash(1,988,842)393,551Cash, beginning of year6,376,9165,983,365Cash, end of year$4,388,074$6,376,916The accompanying notes are an integral part of these consolidated financial statements.7
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20241. 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 11, 2025.2. 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 and International Accounting Standards as issued by theInternational Accounting Standards Board (IASB) and Interpretations (collectively IFRS AccountingStandards). 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 AccountingStandards requires management to make certain critical accounting estimates. It also requiresmanagement to exercise judgment in applying the Company’s accounting policies. The areasinvolving critical judgments and estimates in applying accounting policies that have the mostsignificant risk of causing material adjustment to the carrying amounts of assets and liabilitiesrecognized in the consolidated 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
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20242. 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 years20242023202420232024202320242023Insurance ContractLiabilities3.06%4.52%3.01%3.97%3.20%3.53%3.84%3.77% 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 4).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
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 2024Material Accounting Policies3. Insurance ContractsIFRS 17 replaces IFRS 4 – Insurance Contracts for periods on or after January 1, 2023. The Companyadopted IFRS 17 using the full retrospective approach with an effective transition date of January1, 2022. 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.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. 3.1.1 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. 3.1.2 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.10
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.1.2 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.3.1.3 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.3.1.4 Measurement The Company uses the PAA for 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 are 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.11
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.1.4 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.12
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 2024 3.1.4 Measurement (cont'd)When there is an onerous group of underlying 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.3.1.5 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.3.1.6 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 recognized 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 recognized 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.13
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.1.6 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 in thecarrying amounts of insurance and reinsurance contracts arising from the effects of time value ofmoney and changes in the time value of money and the effect of financial risk and changes infinancial risk.14
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20243.2 Insurance and Reinsurance Contracts3.2.1 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:2024Liabilities forremaining coverageLiabilities for incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flows Risk adjustment TotalOpening balance - Insurance contract liabilities $2,453,328$22,697,258$1,030,378$26,180,964Cash flows Premiums received34,276,870--34,276,870Claims and other expenses paid -(17,838,558)-(17,838,558)Insurance acquisition cash flows (9,160,736)--(9,160,736)Total cash flows 25,116,134(17,838,558)-7,277,576Changes in the consolidated statement of comprehensive incomeInsurance revenue34,514,894--34,514,894Insurance service expensesIncurred claims and other expenses-15,630,364445,26316,075,627Amortization of insurance acquisition cash flows9,144,729--9,144,729Changes to liabilities for incurred claims-(3,553,020)(178,892)(3,731,912)Total insurance service expenses9,144,72912,077,344266,37121,488,444Insurance service result25,370,165(12,077,344)(266,371)13,026,450Insurance finance expenses -(1,234,214)-(1,234,214)Total changes in the consolidated statement of comprehensive income 25,370,165(13,311,558)(266,371)11,792,236Closing balance - Insurance contract liabilities$2,199,297$18,170,258$1,296,749$21,666,30415
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20243.2.1 Movements in net asset or liability for insurance contracts issued (cont'd)2023Liabilities forremaining coverageLiabilities for incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flows Risk 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
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20243.2.2 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:2024Assets for remainingcoverageAmounts recoverable incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flows Risk adjustment TotalOpening balance - Reinsurance contract assets (liabilities) $(297,670)$8,232,962$277,450$8,212,742Cash flows Premiums paid6,678,418--6,678,418Amounts received-(2,125,570)-(2,125,570)Changes in funds withheld46,082--46,082Total cash flows 6,724,500(2,125,570)-4,598,930Changes in the consolidated statement of comprehensive incomeAllocation of reinsurance premiums6,151,768--6,151,768Amounts recoverable from reinsurers for incurred claimsRecoveries of incurred claims and other insurance service expenses--67,31867,318Changes to amounts recoverable for incurred claims-(2,718,869)(173,386)(2,892,255)Total amounts recoverable from reinsurers for incurred claims-(2,718,869)(106,068)(2,824,937)Net income or expense from reinsurance contracts held6,151,7682,718,869106,0688,976,705Reinsurance finance income -(353,879)-(353,879)Total changes in the consolidated statement of comprehensive income 6,151,7682,364,990106,0688,622,826Closing balance - Reinsurance contract assets (liabilities) $275,062$3,742,402$171,382$4,188,84617
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20243.2.2 Movements in net asset or liability for reinsurance contracts held (cont'd)2023Assets for remainingcoverageAmounts recoverable incurred claimsExcluding losscomponentEstimates of thepresent value offuture cash flows Risk 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
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.3 Insurance and Financial Risk 3.3.1 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$700,000 (2023 - $500,000) in the event of a property claim, an amount of $600,000 (2023 -$500,000) in the event of an automobile claim and $600,000 (2023 - $500,000) in the event of aliability claim. The Company also obtained reinsurance which limits the Company's liability to$2,100,000 (2023 - $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% (2023 – 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.19
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.3.1.1 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.20
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial StatementsDecember 31, 20243.3.1.1.1 Claim developmentGross undiscounted liabilities for incurred claims for 2024Accident year20172018201920202021202220232024TotalAt the end year of claim$4,440,948$9,488,978$10,543,858$9,035,202$20,084,274$19,255,269$16,904,206$12,754,051One year later4,191,50214,718,78712,988,9049,464,23519,975,13420,215,69117,108,699Two years later9,949,47014,337,27713,806,5669,223,74219,127,60620,781,877Three years later8,089,63714,884,02415,767,0628,867,20018,982,832Four years later8,074,80314,861,21315,588,7918,845,281Five years later7,984,47614,568,56015,356,042Six years later7,796,91214,826,497Seven years later7,708,092Gross estimates of the undiscountedamount of the claims7,708,09214,826,49715,356,0428,845,28118,982,83220,781,87717,108,69912,754,051116,363,371Cumulative payments to date7,705,90914,498,11715,091,4898,470,57018,844,00417,870,57313,273,5047,980,803103,734,969Gross undiscounted liabilities forincurred claims$2,183$328,380$264,553$374,711$138,828$2,911,304$3,835,195$4,773,248$12,628,4022016 and prior635,645IBNR and effect of discounting6,203,920Total gross liabilities for incurredclaims$19,467,967Net undiscounted liabilities for incurred claims for 2024Accident year20172018201920202021202220232024TotalAt the end year of claim$4,440,948$7,789,974$10,023,903$9,023,627$14,253,276$15,904,883$15,364,644$12,737,816One year later4,191,50211,324,49110,447,2668,969,58014,356,70616,637,87715,872,247Two years later6,360,15911,385,48311,055,0429,079,12913,627,01817,578,665Three years later6,668,41211,489,15211,523,9938,785,25413,493,073Four years later6,754,49411,390,79811,345,7228,763,335Five years later6,667,75311,473,05111,194,595Six years later6,520,87511,495,483Seven years later6,429,055Net estimates of the undiscountedamount of the claims6,429,05511,495,48311,194,5958,763,33513,493,07317,578,66515,872,24712,737,81697,564,269Cumulative payments to date6,539,37011,154,99710,930,0428,412,20913,364,49415,044,47912,726,7287,969,33486,141,653Net undiscounted liabilities for incurredclaims$(110,315)$340,486$264,553$351,126$128,579$2,534,186$3,145,519$4,768,482$11,422,6162016 and prior342,475IBNR and effect of discounting3,888,900Total net liabilities for incurred claims$15,653,99121
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.3.2 SensitivitiesThe risks associated with insurance contracts are complex and subject to a number of variableswhich complicate quantitative sensitivity analysis. The Company uses various techniques based onpast claims development experience to quantify these sensitivities. This includes indicators such asaverage claim cost, amount of claims frequency, expected loss ratios and claims development.Results of sensitivity testing based on expected loss ratios are as follows, showing gross and net ofreinsurance and the impact on pre-tax income:2024Change inassumptionsImpact onprofit beforetax, gross ofreinsurance$'000Impact onprofit beforetax, net ofreinsurance$'000Impact onequity, grossof reinsurance$'000Impact onequity, net ofreinsurance$'000Interest rate+1%(337)(260)(248)(191)Expected loss+5%517366380269Inflation rate+1%360277265204Interest rate-1%352271259199Expected loss-5%(516)(366)(379)(269)Inflation rate-1%(351)(271)(258)(199)2023Change inassumptionsImpact onprofit beforetax, gross ofreinsurance$'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%430262316193There have been no significant changes from the previous year in the exposure to risk or policies,procedures and methods used to measure the risk.22
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.3.3 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% to 70% 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 excluding risk adjustments expected to bepaid out in the periods expected:Within 1year1 to 2 years2 to 3 years3 to 4 years4 to 5 years>5 yearsTotalDecember 31, 2024Insurance liabilities$8,688,000$3,246,000$2,357,000$1,437,000$993,000$1,451,000$18,172,000Percent of Total49%18%13%8%5%8%100%December 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%14%13%10%7%7%100%Amounts invested in bond funds that are available in the short-term (< 1 month) includes$38,716,230 (2023 - $35,742,038) In addition, the following table presents the maturity profile of GICs, bonds and private loans held:Within 1year1 to 2 years2 to 3 years3 to 4 years>5 yearsTotalDecember 31, 2024Debt instruments at FVTPL$1,232,714$1,032,713$1,232,713$132,713$932,713$4,563,566Percent of Total27%23%27%3%20%100%December 31, 2023Debt instruments at FVTPL$1,128,700$1,132,714$1,332,713$632,713$1,065,426$5,292,266Percent of Total22%21%25%12%20%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.23
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.3.4 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 $24,007. 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, 2024, a 1% move ininterest rates, with all other variables held constant, could impact the market value of fixed incomeby $768,855. 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, 2024, 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 $607,524. 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 15%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.24
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20243.3.4 Market risk (cont'd)The following table provides fair value information of investments by type of security and issuer. 20242023Guaranteed Investment Certificates$2,600,001$2,595,986Bonds issued by:Collectivfide - not rated1,100,0001,700,000Mutual FundsFixed Income28,260,62225,463,454Canadian Equity5,014,6495,460,745Global Equity2,449,7171,855,804Real Estate2,991,2422,962,03538,716,23035,742,038Equity InvestmentsCanadian non-public1,365,287663,251Canadian non-public under significant influence987,764972,6492,353,0511,635,900Private loans863,566996,279Fire Mutual Guarantee Fund49,85755,522Other--913,4231,051,801Total Investments$45,682,705$42,725,725The 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.25
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20244. 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.26
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20244. 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, 2024Equity investments $-$-$1,365,287$1,365,287Mutual funds-38,716,230-38,716,230Other investments-49,857-49,857Total$-$38,766,087$1,365,287$40,131,374December 31, 2023Equity investments$-$32,455$630,796$663,251Mutual funds-35,742,038-35,742,038Other investments-55,522-55,522Total$-$35,830,015$630,796$36,460,811There were no transfers between any levels for the year ended December 31, 2024 and 2023.27
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20244. Investments (cont'd)The following table presents a reconciliation of the Level 3 investment:20242023Balance, beginning of the year$630,796$500,067Gains / losses recognized in comprehensive income96,889130,729Purchases637,602-Balance, end of the year$1,365,287$630,796The fair values of the Collectivfide equity are based on the valuation of the Company as providedby the management of Collectivfide. Due to the use of unobservable data and their limitedliquidity, these investments are classified as Level 3.5. Investment and Other Income and Expenses20242023Interest income$391,843$437,302Mutual and pooled fund income1,885,5471,471,532Unrealized gains on investments1,340,260736,262Investment fees(152,499)(144,403)Other income32,17926,824$3,497,330$2,527,5176. 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 dependent 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.28
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20247. Insurance Service and General Operating Expenses20242023Claims and benefits$10,982,338$16,329,524Salaries, employee benefits and directors' fees5,495,1465,210,016Agency294,308152,729Professional fees (other than legal)389,380448,032Legal fees20,40024,061Commissions5,628,8916,486,072Depreciation and amortization118,490125,358Occupancy expenses90,318171,626Inspections273,630271,838Information technology899,903796,222Premium taxes99,171110,310Other general expenses977,025248,010$25,269,000$30,373,798Represented by:Insurance service expenses21,488,44426,238,471General operating expenses3,780,5564,135,327$25,269,000$30,373,79829
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20248. Income TaxesIncome tax expense comprises of current and deferred tax. Current tax and deferred tax arerecognized in comprehensive income except to the extent that it relates to a businesscombination, or items recognized directly in equity, or in other comprehensive income.The significant components of tax expense included in net income consist of:20242023Current tax expenseBased on current year taxable income $776,145$1,043,402Adjustments to provision of prior periods (114,091)(66,093)662,054977,309Deferred tax expense Origination and reversal of temporary differences(39,700)35,800Total income tax expense$622,354$1,013,109Reasons 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:20242023Income before taxes$2,886,184$3,789,398Expected taxes based on the statutory rate of 26.5% 764,8391,004,190Small business deduction(62,699)(40,800)Over provision in prior years(102,891)(66,093)Other tax adjustments23,105115,812Total income tax expense$622,354$1,013,109As at December 31, 2024, a deferred tax liability of $(28,700) (2023 - $(68,400)) has beenrecorded. 30
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 20249. 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 Farm Mutual Re ("the Plan"), which is a general reinsurer that sharesin the insurance risks originally accepted by member insurance companies. As a member of thePlan, 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.10. 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.2024Useful Accumulated Net BookLife Cost Depreciation ValueLand N/A$185,000$-$185,000Buildings & parking lot 10 to 40 years439,66880,980358,688Automotive equipment 5 years99,79546,70853,087Office equipment 10 years112,98194,45118,530Computer equipment 5 years535,831337,133198,698$1,373,275$559,272$814,0032023Useful 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$861,78931
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 202411. 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 usedefined 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 21, 2024, the going concern valuation for the defined plan shows asurplus. The next pension valuation is scheduled for December 31, 2025.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 2024 was $39,102 (2023 - $41,445). Thecontributions were made for current service and these have been recognized in comprehensiveincome. These contributions amount to 2.60% (2023 - 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 2025 amount to $33,000.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 2024 was $339,779 (2023 - $308,781).These contributions were made for the current service and these have been recognized incomprehensive income.Expected contributions to the plan for 2025 amount to $362,000.32
NOVA MUTUAL INSURANCE COMPANYNotes to the Consolidated Financial Statements December 31, 202412. Related Party TransactionsThe Company entered into the following transactions with key management personnel, which aredefined by IAS 24, Related Party Disclosures, as those persons having authority and responsibilityfor planning, directing and controlling the activities of the Company, including directors andmanagement:20242023Compensation Management personnel compensation and benefitsand directors' fees$1,101,760$973,951Pension benefits54,25250,584$1,156,012$1,024,535Premiums$33,959$38,156Claims paid$2,507$2,506 Commissions paid $124,099$95,118 13. Comparative FiguresCertain comparative amounts have been reclassed to conform to the current year presentation.14. Adoption of New Accounting StandardsAccounting standards, interpretations and amendments effective for accounting years beginning onor after January 1, 2024 did not materially affect the Company's financial statements.33