2012 annual report - la capitale · 2014. 9. 12. · 3 2012 annual report i 2012 key facts and...

2012 AnnuAl RepoRt

2012 ANNUAL REPORT

2012 ANNUAL REPORT I TAbLE Of cONTENTs LA cAPITALE cIVIL sERVIcE MUTUAL

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2012 KEY FACTS AND FIGURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Organizational Chart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Members of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

WORD FROM THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER . . . . . 6

THE YEAR IN REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Life and Health Insurance and Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Property and Casualty Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3

CONSOLIDATED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Management’s Responsibility for the Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 16

Independent Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 1

Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

COMPANY PROFILES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77

Life and Health Insurance and Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

Property and Casualty Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

Senior Management of La Capitale Financial Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

LA CAPITALE FINANCIAL GROUP POINTS OF SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Life and Health Insurance and Financial Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

Property and Casualty Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86

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2012 ANNUAL REPORT I 2012 KEY FACTS AND FIGURES LA CAPITALE CIVIL SERVICE MUTUAL

2012 Key facts and figures

n Assets $4.7B

n Total income $1.6B

n Equity $767.3M

n Net income $73.1Mn Participating

policyholder dividends $12.8M

LIFE AND HEALTH INSURANCE AND FINANCIAL SERVICES

n Accumulated premium revenues

$731M up 11%

n Net income $34.2M up 12%

n Sales of individual insurance premiums and deposits

$166.7M up 20%

n Savings and investments under administration

$868.7M up 11.7%

n Group insurance sales$113.4M up 48.5%

n Group insurance premiums in force

$522.6M up 15.5%

n New mortgage loans$131.5M up 13.2%

n 557 financial education sessions given to more than 9,100 public service employees

n Number of

Mutual members 236,387n Donations to the

community from the Foundation $1.1M

n Contracts and certificates in force 1,783,289

n Number of employees 2,468

PROPERTY AND CASUALTY INSURANCE

n Consolidated gross written premiums $756.6M

n Net income $38.9M

n Return on equity 14.2%

n Gross written premium volume for La Capitale General Insurance

$508.9M up 3%

n Gross written premium volume for L’Unique General Insurance*

$152.6M up 13.8%

* Excluding a block of business closed outside Quebec

2012 ANNUAL REPORT I ORgANIzATIONAL chART LA cAPITALE cIVIL SERVIcE MUTUAL

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Organizational Chart La Capitale Civil Service Mutual

La Capitale Civil Service Insurern100%

La Capitale Financial Groupn93 .23%

La Capitale Civil Service Mutual

La Capitale Insurance and Financial Servicesn100%

L’Unique General Insurancen100%

AGA Financial Groupn100%

La Capitale MFQ Real Estate Managementn100%

La Capitale Financial Servicesn100%

La Capitale General Insurancen76 .29%

Unica Insurancen100%

Penncorp Life Insurance Companyn70%

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2012 ANNUAL REPORT I BOARD OF DIRECTORS LA CAPITALE CIVIL SERVICE MUTUAL

Members of the Board of Directors La Capitale Civil Service Mutual

Danielle Chevrette3

Marie-Josée Linteau3

Richard Fiset2

Nikolas Ducharme2, 3

Louise Potvin1

Danielle Poiré2

François Latreille

René Rouleau2 Chairman

Dominique Dubuc1 Vice-Chairman

Alain Brière

Josée Germain

François Jutras1 Outgoing

Jean-Paul Beaulieu2, 3 Outgoing

1 . Human Resources and Corporate Management Committee

2 . Risk Management Committee

3 . Mutualism, Governance and Ethics Committee

2012 ANNUAL REPORT I WORD FROM THE CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER LA CAPITALE CIVIL SERVICE MUTUAL

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In keeping with its long tradition of efficient and rigorous management, La Capitale Civil Service Mutual once again skillfully navigated its way through 2012 . In a challenging environment darkened by anemic interest rates and fluctuating financial markets, La Capitale continued to grow its business and strengthen its position in its privileged niche market at the heart of the Quebec public sector, as well as in the other markets it serves .

We can’t deny that volatility and uncertainty have been a heavy burden on the economy for a number of years already . That being said, things began to look a little brighter in 2012, with an improvement in the outlook for economic growth, some unconventional, coordinated and sustained interventions by various central banks and renewed confidence in the Euro zone . The much talked about “fiscal cliff” in the United States ended up being averted at the eleventh hour by a compromise that essentially defers until a later point in time the need to take action to stem America’s growing public debt . Throughout the world, the prospect of fragile, sluggish growth is contributing to exceptionally low interest rates . This poses a significant challenge for insurers due to their long-term commitments to their insured clients . At the same time, the regulatory framework that governs financial institutions is being tightened to prevent the kind of deviations we saw back in 2008 .

In spite of all this turbulence, La Capitale continues to perform well and remains strong and stable . The results from the past year are a further demonstration of the correctness of our approach . Year after year, this approach enables us to remain highly competitive and provide our clients with products and services that fit their needs . Indeed, we should not lose sight of our primary mission—to work with people by providing access to

personalized products and services in order to build, protect and value what they feel counts for their financial and collective security .

All throughout its history, our Mutual has based its every action on this commitment . In its own way, and true to its values of mutualism, La Capitale continues to focus on what matters the most—its clients . The current economic cycle is bringing its fair share of concerns and emerging needs to which we must respond with imaginative solutions—at the best possible cost .

The strength of a mutual

In an economic context where sustainable development practices are increasingly favoured, we can have confidence in mutualism as a proven, relevant, modern and robust business model . Focusing on people, not profit, and working from a solid foundation to reach our long-term goals puts us in a strong position—a position that gives us flexibility in the face of temperamental markets and the ability to adapt to today’s economy, so we can continue to innovate and help our clients . Our way of doing things is founded on patience, rigour and our ability to sustain competition by offering products and services that meet the sustainable interests of our clients and Mutual members in every way .

For many years we have been renowned for our customer-centric mindset, and each year we look for new ways to refine it . Maintaining high quality interactions with our Mutual members is of the utmost importance to us, because they are the very essence on which our business is founded . It is these interactions that enable us to design products and services tailored to their specific needs . Our experience as a mutual was the inspiration for the prevention products we launched in group insurance, which have allowed us to carve out a

A model of strength and stability

Chairman of the Board and Chief Executive Officer

René ROULeAU

MESSAGE TO MUTUAL MEMBERS

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place for ourselves in our clients’ workplaces so that we can provide an even more personalized service . This rich heritage is also what drives us to practise active listening and to stand up for our clients . It is this ethos that guides our balance between caution and risk and between conservatism and entrepreneurship .

We are able to do this thanks to a select team that has a firm grasp on the constraints of the market and thinks ahead . Consider, for example, the LifeAnew life annuity, which provides a retirement income or income supplement that is 100% guaranteed for life for people in the Quebec public service after the age of forty; the La Capitale Stow & Grow Account, an online high-interest savings account; or our 3-, 5-, and 10-year GICs and our 27 investment accounts, all of which offer preferential interest rates to those who work in the public service . That’s not to mention the considerable discounts they enjoy on our auto, home, leisure vehicle and legal access insurance .

All of these products, services and benefits are the fruit of a management approach that puts the client at the top of our list of priorities .

As part of this client base we find a growing number of young people who work in the public service . It is through them that the mutual model will evolve and take on its full modern aspect, because this is a forward-looking generation that has the most to gain from embracing mutualism and solidarity, adopting socially responsible economic practices and discovering that La Capitale is different from other companies . Increasingly tuned in to the major social issues on a local and international level, the next generation will understand how mutualism can serve their financial interests as well as the social environment around them .

Overview of results

In 2012, La Capitale stayed on track for growth and profitability, with income reaching $1 .6 billion . Our assets now total $4 .7 billion, up 8 .2% over the previous year . This year, the Mutual cleared a net income of $73 .1 million, which is an increase of 11 .2% . Total equity was $767 .3 million, generating a 10 .5% return on equity .

These remarkable results are largely a product of the professionalism and outstanding dedication shown by our 3,178 employees and representatives on a daily basis when dealing with our clients . We thank them sincerely for their exceptional work .

The presidents and chief operating officers of the Mutual’s two main business sectors will go into greater detail later in this report about our insurance activities in 2012 .

Investments

In terms of investments, we maintained our strategy for greater diversification by investing available liquidity in corporate bonds and preferred shares . We also reinvested a portion of our long-term government bonds in stable equities, such as real estate . These vehicles were deemed to provide a more attractive investment value and offer greater capital protection .

The consolidated investment income from the Life and Health Insurance and Financial Services and Property and Casualty Insurance sectors was $193 .3 million .

In 2013, we intend to invest in new investment vehicles to further increase portfolio stability and profitability, taking into account the performance requirements and risk tolerance of our member companies . It goes without saying that we will prioritize top quality investments that offer a stable regular income . This enhanced diversification will enable us to continue offering competitive and profitable products to public service and administration employees .

A brand new architectural gem in Quebec City

Completing the construction and renovation of our head office was undoubtedly one of the highlights of the last year . This ambitious project at the heart of Quebec City’s Parliament Hill—the home base of our priority clientele—is an eloquent symbol of La Capitale’s vitality . With its sleek lines and seamless integration into its historic surroundings—together with the quality of its interior design—the building has become a new beacon on Parliament Hill, and has already earned more than its fair share of praise .

The expansion project was completed according to schedule and within budget . After a number of coordinated moves phased over a period of about seven months, almost all of La Capitale’s employees in the Quebec City area—some 1,490 people—now work under the same roof .

In accordance with La Capitale’s policy on sustainable development, we are seeking LEED®-NC Gold certification for the entire building . Our application is currently under assessment by the Canadian Green Building Council (CaGBC), the governing body that awards this prestigious certification, and we expect to hear the final verdict by the end of 2013 .

Secure infrastructure that can evolve with the times

La Capitale strives to provide quick, efficient and highly secure service to its clients . And to do so, it needs an effective technological infrastructure that can be relied upon . Providing direct support to the business lines, our technological teams played an important role in many projects, including upgrading our Human Resources and Finance computer systems and overhauling our commercial insurance systems, as well as providing services for client relationship management, document management, group insurance contract management and business intelligence . As for voice communications, the Company’s telephone platform systems were modernized and equipped with more efficient call routing features .


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Regulatory compliance and internal audit

In 2012, our Regulatory Compliance and Internal Audit departments were brought together and now report to the Executive Vice-President of Corporate Affairs . These two teams plan their work in close collaboration .

Compliance Monitoring is now responsible for making sure our compliance management framework is robust enough to identify any deficiencies with respect to the regulatory compliance of La Capitale and its member companies . If need be, it will notify senior management and the Board of Directors .

Throughout the year, La Capitale continued its work on compliance issues . The Legal Affairs team drafted and implemented a regulatory compliance management framework to determine, assess, disseminate and uphold the applicable regulatory requirements .

Internal Audit was also called upon a number of times during the year to monitor major projects and processes involving our computer systems and operations . Involving Internal Audit in these initiatives assures the members of our audit committees that the major risks have been considered and the ensuing processes have been checked .

Risk management and information assets security

In 2012, as well as adopting various measures for the self-assessment of risk in the member companies of the Group, the Risk Management department also continued to implement policies and procedures required by regulatory authorities’ guidelines, specifically for capital management . The department worked with industry committees set up in response to the regulatory authorities’ guidelines consultation process . In addition, members of our business continuity crisis management team were given training designed to improve how critical events are handled, particularly now that most of our resources are clustered at the new head office .

During 2012, our information assets security operations were integrated into the risk management team . La Capitale has adopted an information assets management policy and integrated these principles into its project management methodology so they can be applied at the relevant time in the course of a project .

Human resources are the foundation of our success

2012 was a very busy year on the level of human resources, for the most part due to the relocation of hundreds of employees to the new head office . To ensure a smooth transition, a staff committee named Bâtir ensemble—Building together—spearheaded a number of initiatives to minimize the impact the big move would have on employees . The operation was a success, judging by the results of a survey that showed the great majority of employees were happy with it .

To make a bigger impact during recruitment campaigns, La Capitale reviewed its entire graphic design platform and written communications strategy . We took advantage of this opportunity to harmonize our visual footprint with our brand image and boost our social media presence .

As a mutual, La Capitale places great importance on its employees’ social involvement . In fact, throughout 2012, 48% of our workforce demonstrated a collective commitment through their involvement in various humanitarian causes . In a similar vein, our workplace fundraising campaign reached new heights . The funds we raised were shared among three organizations we have been proud to support for a number of years now .

Our employees who are now retired played an important role in the company’s development . As a sign of our appreciation for their valuable contribution, and to keep in touch with them, we set up a retirees’ association in 2012 .

At La Capitale, we make employee training and skills development a priority . In this respect, the company invested 3% of its payroll in training—three times more than it is required to do by law .

A strong community presence

The 2012 financial year was a remarkable one for sponsorships . Sponsorship is a way for La Capitale to grow its brand recognition and stand out while supporting culture in its home province . We started the year on a high note when we agreed to be the principal sponsor of the family feature film Pee-Wee 3D: The Winter That Changed My Life, the first Francophone movie to be shot in 3D . This type of sponsorship—a first for La Capitale—generated visibility for the company all year long . Plus, La Capitale signed on for a five-year agreement as prestige partner of the Grande Bibliothèque in Montreal—Quebec’s flagship library and a part of its national archives (BAnQ) . The Grande Bibliothèque received more than 2 .5 million visitors in 2012, making it the busiest library in North America . We must also highlight our involvement in the prestigious exhibition Samurai: Masterworks from the Ann and Gabriel Barbier-Mueller Collection at Quebec City’s Musée de la civilisation; the Grandes soirées au jardin (Evenings in the gardens) benefit events held at the Musée national des beaux-arts du Québec; as well as our role—for the second year running—as official host of the 13th annual Carrefour international de Théâtre de Québec and as partner of the 2012 season at the Grand Théâtre de Québec . Finally, 2012 drew to a close on the exact same note it started with, as we presented for the third year in a row La Grande Roue—a giant Ferris wheel right in the middle of Grande Allée, Quebec City’s entertainment hub—as part of the city’s New Year celebrations . This activity has become a popular New Year’s tradition in Quebec City .

True to our values of mutual aid and solidarity, our La Capitale Financial Group Foundation supported a great many causes in 2012 . As part of our social involvement, we gave back $1 .1 million in financial aid to nearly 150 community organizations, including the Portage Foundation, Société Grand Village, Fondation Élan and the Heart and Stroke Foundation—all charities for which La Capitale was proud to be the honorary chair at their respective benefit events .

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Young Musicians of the World, Fondation de l’athlète d’excellence and Motivaction Jeunesse are just some of the other organizations La Capitale has been supporting for several years . Furthermore, our foundation promotes the role of members of the public administration by holding employee recognition events through the institutions, hospitals and associations in this sector, including the CHUQ Hospital Foundation, Fondation de l’Université Laval, Institut d’administration publique de Québec and the La Capitale Research Chair for Public Sector Leadership at ENAP, Quebec’s school for public administration .

Sizable challenges

As a mutual wanting to keep pace with the times and serve the interests of its members, La Capitale is looking to the future with open eyes, aware of the sizable challenges that lay ahead .

First of all, the current economic context, with its historically low interest rates, is forcing us to adapt our products for today’s reality . Our management style allows our actuaries and managers to plan for the long term and strengthen the foundations of our assets .

These days, many companies that offer a defined contribution pension plan to their employees are concerned about how they will sustain their plan . La Capitale is no exception—we must find ways to guarantee a quality pension for the next waves of retirees without compromising intergenerational equity .

In terms of marketing, we must consolidate our distribution channels—the vital arteries fuelling our profitability . In the long term, quality, rather than quantity, is what La Capitale is banking on when it comes to selecting the partners that will enable it to diversify its service offering and maintain a strong presence with the Quebec public service and in the marketplace in general . And from a sustainable development standpoint, we are also interested in acquiring companies with which we share common interests .

As for employment, our focus is on offering incentives to promote hiring—and retaining—a qualified workforce . Maintaining our status as an Employer of Choice is a priority .

Keeping pace with progress in technology is another aspect of the future that raises some questions . La Capitale must choose wisely when it comes to finding suitable systems that meet its true needs, and it must strike a balance between the existing technology and new technological innovations, which are plentiful and often costly . Doing more with less means we have to act with ingenuity and agility—both of which are proven qualities at La Capitale .

Changes on the Board of Directors

I would like to express my recognition and extend my best wishes to Mr . Jean-Paul Beaulieu and Mr . François Jutras, who served on the Board of Directors of the Mutual for the last twelve years . I thank them sincerely for their contribution and their exemplary commitment to the development of our Mutual . Since their departure, two new members have joined us on the Board . We welcome Ms . Josée Germain, Vice-Rector of Administration and Finance at Laval University, and Mr . Alain Brière, Executive Director of Human Resources and Shared Services at the Société de transport de Montréal—the Montreal Transit Corporation . We are pleased to bring their experience into the boardroom to enhance the work we do . In fact, I will take this opportunity to pay tribute to the invaluable contribution of our Board members in ensuring the progress and longevity of our organization . Without their wholehearted commitment to the mutualist philosophy and practices by which we abide, it would be difficult for La Capitale to sustain its momentum . The faith our directors maintain in our uniqueness is what prevents us from succumbing to demutualization, as so many mutuals have done in recent years .

Acknowledgements

2012 was an exceptional year in many respects . The success we have achieved is the result of the hard work, know-how and engagement of our employees, representatives and business partners . I thank them wholeheartedly for the unrelenting enthusiasm they have for making La Capitale an influential insurer in the marketplace .

Let me also thank Mr . Robert St-Denis, who retired in October 2012 . He played an instrumental role in La Capitale’s progress, particularly in the rest of Canada . Penncorp and Unica are now spearheading our Canada-wide expansion . Another important contributor to our organization, Mr . Jean Tardif, also retired in 2012 from his position as President and Chief Operating Officer of L’Unique General Insurance . He leaves behind a strong company that brings us great pride .

Finally, I must thank our clients and Mutual members for their unfailing support year after year . The trust they place in us remains the cornerstone of our success .

2012 ANNUAL REPORT I THE YEAR IN REVIEW LA CAPITALE CIVIL SERVICE MUTUAL

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It was a remarkable year for the Life and Health Insurance and Financial Services sector, as we went above and beyond the ambitious targets for growth and profitability we set at the end of the last year . In a challenging economic context, the companies in our sector achieved 11% growth and generated $731 million in accumulated premium revenues—a new peak for La Capitale . From a profitability standpoint, the sector reported a net income of $34 .2 million, which is a 12% increase over 2011 .

Individual Insurance and Financial Services

In individual insurance and financial services, last year was quite simply exceptional . Our new sales of insurance premiums and deposits reached $166 .7 million—up nearly 20% from last year . This amount can be broken down into $147 .8 million in savings products and $18 .9 million in insurance .

Savings and Investments

This business line experienced notable growth, with its portfolio growing by 11 .7% to reach $868 .7 million .

These results are largely attributable to the performance of our distribution channels, through which deposits grew by 20 .3%—a noteworthy increase, considering the current setting that is distinguished by persistently low interest rates and volatile stock markets .

Moreover, the La Capitale Stow & Grow account, an online high-interest savings account, experienced strong growth with a 51% increase in deposits . This demonstrates the growing popularity of this product, especially within our priority market . In fact, 68% of account holders are active or retired employees of the Quebec public service .

And that’s not all—adding three new investment accounts to the twenty-four we already offer has diversified our range of savings products even further . This has enabled all types of investors, no matter what their profile, to find products that meet their financial needs .

Individual Life and Health Insurance

Individual life and health insurance sales reached record levels, notably thanks to the outstanding work done by our La Capitale Financial Services advisors serving our public sector clients . Let’s not forget that each year, Quebec’s public service and parapublic sector employees enjoy special benefits, such as the Best Buds accident insurance program for young children and the option to participate in financial education sessions tailored to the various stages in life . In 2012, some 9,100 public administration employees took part in 557 of these sessions . The popularity of this initiative just keeps on growing, as can be seen by the additional 111 sessions held in 2012 .

We must also highlight the role played by the 362 agents of our Ontario member company Penncorp in this year’s success, not to mention our customer service and product development teams . In spite of the economic uncertainty, they succeeded in designing and marketing products that would support our growth and meet the needs of our clients .

In addition, we owe part of our success to our network of partner brokers, who managed to achieve sustained growth of 50% in insurance sales .

Steven ROSS

President and Chief Operating Officer Life and Health Insurance and Financial Services

THE YEAR IN REVIEW

Life and Health Insurance and Financial Services

2012 ANNUAL REPORT I ThE YEAR IN REvIEw LA CAPITALE CIvIL SERvICE MUTUAL

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In November 2012, La Capitale acquired all of the shares of Promutuel Life . Up until then La Capitale Financial Group held 50% of the company's shares . This complex transaction was carried out within the time frame prescribed by the Autorité des marchés financiers and represents a valuable asset for business development in our market .

Mortgage loans

In 2012, our volume of business in new mortgage loans grew by 13 .2%, with a total of $131 .5 million in loans . This increase comes as a result of the favourable economic climate in the real estate market, La Capitale’s brand awareness and our outstanding relationship with our business partners . It is also important to note the sustained efforts made throughout the year by our mortgage loan advisors, who reaped the benefits of the referral and cross-sales program we introduced in 2011 .

Group Insurance

Group insurance had a record year in 2012 on all levels . Sales were up by 48 .5%, attaining $113 .4 million . A $60 million transaction outside Quebec—our biggest ever in group insurance—was a major factor in these figures peaking so high . By the end of the last financial year, inforce group insurance premiums had passed the half billion-dollar mark, reaching some $523 million . As for credit insurance, our sales rose by 17 .6% over 2011 . In its constant drive to improve operational efficiency, the group insurance division also completed key phases in its major IT projects . When fully completed, these IT development works will enable us to respond to our clients’ requests even more efficiently .

Our workplace health and wellness program—Good for you!—is a distinctive part of our group insurance offering . This program continued to grow in 2012 with the launch of 10,000 Steps, our online system that promotes physical activity in the workplace through a contest that spurs participants to discover and experience the benefits of walking . This initiative has been a great success with companies .

With regard to our member company AGA Financial Group, we are satisfied with the sales figures reported in 2012, which are down slightly from last year . Efforts are being made to review the processes surrounding its sales activities .

efficiency and customer service

Operational efficiency is a priority for La Capitale . In this respect, several employee working groups were tasked with finding ways to reduce unit costs, optimize resources and review processes . During the last year, 175 proposals for innovation or improvement were submitted to management by employees . More than a third of those have since been implemented .

From a customer service standpoint, we saw a distinct improvement in response times for savings, life insurance, group insurance benefits and death benefits inquiries . This improvement is the result of a number of measures that were put in place during the year . Among these was the rolling out of the final phase in the client relationship management system we launched for La Capitale Financial Services advisors in 2011 . Additional tools were introduced throughout the year to enable advisors to pinpoint their clients' needs more precisely, improve follow-up and more effectively meet the compliance requirements they must adhere to .

Still with customer service in mind, in 2012 La Capitale brought in ways to measure customer satisfaction that would improve its Net Promoter Score—the company’s likelihood of being recommended by an increasing number of happy clients . In fact, a special application, by the name of Echo, will be deployed in early 2013 across the whole sector to channel all comments and suggestions from our clients into one place—a mine of useful information that will help us understand their concerns and cater to their needs .

Distribution channels

Developing and maintaining La Capitale’s distribution channels played a pivotal role in the company’s success this past year . Special efforts were made to boost our agent retention rate, which reached 80% at La Capitale Financial Services in 2012 . Our network of exclusive representatives consists of 157 financial security advisors working with La Capitale Financial Services (CSC) and 362 Penncorp agents, and together they serve clients all across Canada .

The referral system we set up in 2011 to connect CSC advisors, damage insurance agents in our Property and Casualty Insurance sector and La Capitale mortgage loan advisors to one another proved successful during the last year . Pooling our resources from different areas of the company ended up generating a significant increase in sales . This initiative was also given a boost by our decision to decompartmentalize the areas served by financial security advisors, allowing clients to make their own choices about the best way to access our products and services . Our direct sales channel performed exceptionally well, primarily because of its involvement in our RRSP campaign for the first time, and almost doubled the sales volume it had set its sights on reaching .

La Capitale also relies on an extensive network of partner brokers to distribute its individual and group insurance products—a network it works with on an ongoing basis to develop close and privileged long-term relationships .

Outlook for 2013

The economic backdrop for 2012 was another difficult one and it looks like 2013 will play out on a similar stage . That being said, we are well placed to benefit from the leverage the Group can offer . The diversification of our products and services, our client-oriented approach and the ingenuity and engagement of our human resources are all assets that will fuel our progress .


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Diversifying our products is an essential step in reaching our targets for growth . We must be innovative, and one way to do this is to develop niche markets for group insurance . Further developing our distribution channels is a must if we are to maximize their complementary nature, offer original products and services and target clients equally well in individual insurance, savings and investments and group insurance . Recruiting a qualified sales force and retaining existing talent are priorities on our radar for the coming years .

La Capitale already enjoys a strong reputation for customer service, but in today’s highly competitive market we need to constantly show our clients—and particularly our Mutual members—how agile and accessible we can be, how quickly we can meet their needs and how easy it is to do business with us . To this end, we will be introducing a new system in the coming year with a view to improving the overall client experience .

One of our priorities continues to be to serve our preferred clients first and foremost . In 2012, close to 90% of new sales through the La Capitale Financial Services channel came from people who work in the public and parapublic sectors . We will continue therefore to develop services to cater to their specific situation at the various stages of their lives .

Through all of these actions, it is our Mutual members—the people who work in Quebec’s public and parapublic sectors—and our clients across the country who will reap the benefits of our success . They are the ones who will enjoy products and services tailored to fit their needs, at an attractive cost, that they can purchase through any of our distribution channels, according to their preference .

Teamwork leads to team success

The remarkable results achieved in 2012 by the Life and Health Insurance and Financial Services sector are not due to chance . Our employees’ commitment and sense of innovation, together with sound resource management, are the drivers of our success . We wish to thank each and every member of our extended La Capitale family, as well as our business partners, who join forces every year to grow our business in the best interests of our clients and Mutual members . We also wish to express our gratitude to the members of our boards of directors whose sound advice and influence benefit us all greatly .

2012 ANNUAL REPORT I ThE YEAR IN REvIEw LA CAPITALE CIvIL SERvICE MUTUAL

13

President and Chief Operating Officer, Property and Casualty Insurance

Constance LeMIeUx

THE YEAR IN REVIEW

Property and Casualty Insurance

The Property and Casualty Insurance division, which includes La Capitale General Insurance, L’Unique General Insurance and Unica Insurance, had a very good year, setting another record for profitability . Our client satisfaction levels were exceptionally high, which resulted in a significant increase in retention .

Growth

At 2012 year-end, our companies reported a consolidated gross written premium volume of $756 .6 million .

La Capitale General Insurance achieved 3% growth with a $508 .9 million volume of premiums written . This growth can be attributed to progress in all business lines as well as in the Quebec public service market and the greater Montreal area .

Our client satisfaction levels in 2012 were impressively high, as confirmed by an independent study of our overall interactions with clients . At La Capitale, we feel we should all think about things from the client’s perspective . This approach is what spurs us to consistently go above and beyond our clients’ expectations . In this optic, we implemented new mechanisms to not only reinforce this culture, but also to meticulously measure the quality of service we offer and gather feedback from employees in direct contact with our clients . This gives us the tools we need to improve our offering and how we do things .

Similarly, we always make a point of giving consumers options as to how they interact with us . Our clients can do business with La Capitale however and whenever they like . They can call us or meet with us at any one of our 20 branch offices throughout Quebec . In fact, in 2012 we opened a brand new branch office in Alma to enhance our service in the Lac-Saint-Jean region . Clients can also contact one of our 198 affiliated agents, get a quote online and even purchase their policy online, if they wish to do so .

Finally, as well as honouring our service promise—Consider it done .—by settling our client’s claims quickly and properly, we also took the initiative during the last year to offer a psychological support service to our clients, because we know that many of the events that lead to an insurance claim can be hard to come to terms with .

Our member company L’Unique General Insurance reported $152 .6 million in gross written premiums, excluding a block of business closed outside Quebec, representing an increase of 13 .8% . This is an even better performance than last year for L’Unique, which made impressive inroads in the commercial insurance segment with growth of 28 .4% . L’Unique’s expertise, agility and proximity to its brokers were determining factors in achieving these results . Note that L’Unique distributes its products through a network of 329 brokerage firms .


14

Finally, Unica Insurance reported $93 .7 million in gross written premiums, a decrease of 6 .5% in line with its turnaround strategy . Nevertheless, Unica’s commercial insurance results were very promising, posting 19% growth . Unica has improved the balance of its business portfolio, which is now in line with our targets for quality business . The company distributes its products through a network of 131 brokers . We should highlight that a survey carried out in Ontario showed that interest among brokers in increasing their volume of business with the company is significantly up .

Profitability

Consolidated net income in the Property and Casualty Insurance sector reached a new record of $38 .9 million, generating a 14 .2% return on equity . These outstanding results are a direct reflection of strong performance by La Capitale and L’Unique, and the increasingly significant contribution made by Unica, particularly in home insurance .

Personal Insurance

Automobile and Leisure Vehicle Insurance

Strong results in the auto and leisure vehicle insurance sector in Quebec enabled La Capitale and L’Unique to lower consumer rates for a tenth consecutive year while generating an operating profit of $18 million . 2012 saw a drop in the frequency of glass breakage and collision claims compared to the previous year .

In leisure vehicle insurance, La Capitale passed an important milestone when it issued its 100,000th insurance policy . To build on this momentum, we are strengthening our business network by signing partnership agreements with key industry players . We also care about the safety of outdoor enthusiasts . That’s why we have a long-standing partnership with the Ministère des Transports du Québec, Bombardier Recreational Products (BRP) and Éduc’alcool through a safety campaign targeting snowmobilers, ATV drivers, motorcyclists and boaters across the province . The campaign urges people to act responsibly and think about their safety and that of others .

Home Insurance

In spite of two catastrophic events caused by heavy rains this year, La Capitale and L’Unique managed to generate an operating profit of $17 .7 million . Claims for water damage remained the main cause of compensation payments, representing 51% of the amount incurred for claims . Fire damage continues to represent a significant proportion of the amount incurred for claims at around 30% . It is important to remember that for the last 22 years, La Capitale has been a partner in the fire prevention initiatives led by Quebec’s Ministère de la Sécurité publique .

Legal Access Insurance

Legal Access Insurance generated an operating profit of $1 .3 million .

We continued our partnership with the commission-free realtor service DuProprio to enable its clients to tap into our legal assistance service when selling their home—a service that is greatly appreciated .

Commercial Insurance and Surety Lines

Commercial Insurance posted an operating deficit of $2 .1 million, the effect of major losses and the impact of heavy rains . As provided for by our business processes, major loss analyses were carried out that confirmed the quality of our underwriting .

The Property and Casualty Insurance sector continues to make strong progress and this is all thanks to the teamwork of our distribution partners and our employees . Their expertise and commitment are the driving forces that enable us to live up to our clients’ expectations . I thank them all sincerely .

Outlook for 2013

We will continue to place our clients’ interests at the heart of our concerns . That’s why we offer our clients quality products specifically designed to fit their needs, together with the qualified professional service they deserve . It is in this perspective that we will launch our brand new Personalized Forms for Home Insurance in early 2013 . Making our product offering more personalized helps our agents do their job as advisors and gives our clients even better value for money . And our top priority is to stand out by making sure our clients have a pleasant experience every time they come into contact with us, which includes visiting our website .

We will also continue to work in close collaboration with our distribution partners and contribute to the products they offer their clients, with a special emphasis on commercial clients .

Furthermore, we will make use of all available platforms to offer our clients prevention advice—to help them protect and take care of what counts for them . That being said, accidents do happen and that’s why we have created a partnership with Airmedic—making us the only property and casualty insurer to offer this protection to clients at a reduced cost or free of charge . Starting in May 2013, this agreement will give many of our clients access to emergency medical assistance by helicopter or airplane, 24 hours a day, 365 days a year, throughout Quebec .

Simply put, our goal is to offer our clients much more than insurance coverage .

CONSOLIDATED FINANCIAL STATEMENTS

2012 ANNUAL REPORT I CONSOLIDATED FINANCIAL STATEMENTS LA CAPITALE CIVIL SERVICE MUTUAL

16

MANAgEMENT’S rESpONSIbILITy FOr ThE CONSOLIDATED FINANCIAL STATEMENTS

The consolidated financial statements of La Capitale Civil Service Mutual (the “Mutual”) have been approved by the Board of Directors of the Mutual. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards and contain certain amounts based on management’s best estimates and judgment within reasonable limits of materiality. In management’s opinion, the significant accounting policies are appropriate and present fairly, in all material respects, the Mutual’s financial position and the results of its operations.

In discharging its responsibilities with regard to the financial statements, management maintains internal control systems that provide reasonable assurance that transactions are authorized, proper financial records are maintained and assets are safeguarded. These control systems are strengthened by the work of the internal auditors who conduct a periodic review of all of the key lines of business of the Mutual.

The Appointed Actuary, designated by the Board of Directors of every insurance company under the Insurance Act (Québec), is responsible for ensuring that the assumptions made and the methods used to calculate insurance contract liabilities are in accordance with the standards of practice of the Canadian Institute of Actuaries. The Appointed Actuary must issue an opinion on the adequacy of insurance contract liabilities to meet all policyholder obligations of the Mutual at the statement of financial position date.

The independent auditors, Ernst & Young LLP, appointed by the members, are responsible for carrying out an independent audit of these consolidated financial statements in accordance with Canadian generally accepted auditing standards and reporting on the fairness of the presentation of the consolidated financial statements of the Mutual.

On behalf of management,

René Rouleau Chairman of the Board and Chief Executive Officer

Quebec City, February 26, 2013


17

INDEpENDENT AuDITOrS’ rEpOrT

To the Members of La Capitale Civil Service Mutual

We have audited the accompanying consolidated financial statements of La Capitale Civil Service Mutual (the “Mutual”), which comprise the consolidated statement of financial position as at December 31, 2012 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year ended December 31, 2012, and a summary of significant accounting policies and other explanatory information.

Management’s responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of La Capitale Civil Service Mutual as at December 31, 2012, and of its financial performance and its cash flows for the year ended December 31, 2012 in accordance with International Financial Reporting Standards.

Quebec City, Canada February 26, 2013

1. CPA auditor, CA, Public Accountancy Permit No. A109180


18

CONSOLIDATED STATEMENT OF FINANCIAL pOSITION

AS AT DECEMBER 31 [in thousands of Canadian dollars]

ASSETS2012

$2011

$2010

$Investments [note 5]

Cash and cash equivalents 81,139 90,995 97,593Bonds 1,787,837 1,793,886 1,589,149Stocks 855,327 672,260 597,861Mortgage loans 538,139 498,832 483,889Policy loans 31,484 29,775 28,409Investment properties 180,512 181,922 177,761Other investments 61,640 61,501 47,585

3,536,078 3,329,171 3,022,247Premiums receivable 440,897 377,750 347,914Reinsurance assets [notes 6, 16 and 17] 179,199 159,413 143,638Income taxes receivable 11,689 41,842 28,472Other assets [note 7] 100,134 71,381 62,955Deferred premium acquisition costs [note 8] 47,828 42,765 52,204Deferred taxes [note 9] 36,515 29,494 23,821Property and equipment [note 10] 157,473 105,670 72,881Intangible assets [note 11] 68,341 67,569 65,950Goodwill [note 12] 101,140 101,140 101,140

TOTAL ASSETS 4,679,294 4,326,195 3,921,222

On behalf of the Board of Directors,

René Rouleau, Chairman of the Board

Dominique Dubuc, Vice-Chairman of the Board


19

LIABILITIES2012

$2011

$2010

$Life and health insurance contract liabilities [note 16]

Actuarial liabilities 2,546,376 2,340,461 2,061,682Provisions for benefits incurred 51,593 34,307 26,397Provisions for dividends and experience rating refunds 25,150 34,831 26,680Policyholder amounts on deposit 58,991 48,060 47,168

2,682,110 2,457,659 2,161,927Property and casualty insurance contract liabilities [note 17]

Unearned premiums 533,441 493,179 462,109Provision for claims and loss adjustment expenses 299,873 302,453 314,948

833,314 795,632 777,0573,515,424 3,253,291 2,938,984

Accrued liabilities 123,483 117,327 108,073Other liabilities [note 18] 125,695 112,118 99,926Income taxes payable 11,775 1,489 963Deferred taxes [note 9] 22,695 34,333 29,423Employee future benefits [note 19] 89,233 68,964 36,621Long-term debt [note 20] 23,645 23,939 22,174

3,911,950 3,611,461 3,236,164

EQUITYRetained earnings attributable to members 484,696 407,863 397,170Accumulated other comprehensive income attributable to members 23,213 16,464 16,049

507,909 424,327 413,219Participating policyholders’ account 114,757 156,115 145,112Non-controlling interests 144,678 134,292 126,727

767,344 714,734 685,058

TOTAL LIABILITIES AND EQUITY 4,679,294 4,326,195 3,921,222

Commitments [note 26]

Contingencies [note 27]

The accompanying notes are an integral part of these consolidated financial statements


20

CONSOLIDATED STATEMENT OF INCOME

FOR ThE YEARS ENDED DECEMBER 31 [in thousands of Canadian dollars]

2012 $

2011 $

RevenuesGross insurance and annuity premiums 1,505,220 1,416,637Insurance and annuity premiums ceded to reinsurers (71,350) (63,025)Net insurance and annuity premiums 1,433,870 1,353,612Investment income [notes 23 and 28] 193,348 294,257Fees, commissions and royalties [note 28] 16,295 17,959Other revenues 1,491 1,079

1,645,004 1,666,907

Policy benefits and expensesBenefits and claims incurred 903,190 873,742Benefits and claims ceded to reinsurers [note 6] (35,543) (36,523)Net benefits and claims 867,647 837,219Participating policyholder dividends 12,768 12,969Experience rating refunds 3,404 15,616Changes in actuarial liabilities [note 16] 197,663 278,779Changes in reinsurance assets [note 6] (17,067) (17,057)

1,064,415 1,127,526Commissions 158,769 151,482Premium taxes 40,690 38,512Finance costs 2,763 2,984General expenses [notes 24 and 28] 260,192 240,736Investment management costs 25,633 24,754

1,552,462 1,585,994

Income before income taxes 92,542 80,913Income taxes [note 9] 19,454 15,208NET INCOME 73,088 65,705

Attributable to members of the Mutual 49,225 37,322Attributable to participating policyholders 7,802 13,174Attributable to non-controlling interests 16,061 15,209

73,088 65,705



21

CONSOLIDATED STATEMENT OF COMprEhENSIvE INCOME


2012 $

2011 $

Net income 73,088 65,705

Other comprehensive income, net of income taxes

Unrealized gains for the year on available-for-sale financial assets, net of income taxes of $7,752 [2011: $5,381] 21,201 13,738

Reclassification of realized gains to net income, net of income taxes of $4,665 [2011: $5,373] (12,733) (13,624)

Share of other comprehensive income of joint ventures (18) (12)8,450 102

Actuarial losses on employee future benefits, net of income taxes of $6,745 [2011: $12,514] (18,329) (34,008)

(9,879) (33,906)

COMPREHENSIVE INCOME 63,209 31,799

Attributable to members of the Mutual 40,511 11,108Attributable to participating policyholders 5,413 11,003Attributable to non-controlling interests 17,285 9,688

63,209 31,799



22

CONSOLIDATED STATEMENT OF ChANgES IN EquITy


Retained earnings

attributable to members2

$

Accumulated other

comprehensive income

attributable to members

$

Total retained earnings and accumulated

other comprehensive

income attributable to

members $

Retained earnings

attributable to participating policyholders

$

Accumulated other

comprehensive income

attributable to participating policyholders

$

Total participating policyholders’

account $

Non-controlling interests

$Total equity

$

Balance as at January 1, 2011 413,196 16,049 429,245 144,735 920 145,655 130,081 704,981Adjustment [note 2] (16,026) — (16,026) (543) — (543) (3,354) (19,923)

397,170 16,049 413,219 144,192 920 145,112 126,727 685,058Net income 37,322 — 37,322 13,174 — 13,174 15,209 65,705Other comprehensive

income, net of income taxes — 415 415 — (1,101) (1,101) 788 102

Net actuarial losses on employee future benefits [note 2] (26,629) — (26,629) (1,070) — (1,070) (6,309) (34,008)

Total comprehensive income 10,693 415 11,108 12,104 (1,101) 11,003 9,688 31,799

Dividends paid to non-controlling interests — — — — — — (1,781) (1,781)

Changes in non-controlling interests — — — — — — (342) (342)

— — — — — — (2,123) (2,123)Balance as at December 31, 2011 407,863 16,464 424,327 156,296 (181) 156,115 134,292 714,734

Balance as at January 1, 2012 407,863 16,464 424,327 156,296 (181) 156,115 134,292 714,734Net income 49,225 — 49,225 7,802 — 7,802 16,061 73,088Other comprehensive

income, net of income taxes — 6,798 6,798 — (1,029) (1,029) 2,681 8,450

Net actuarial losses on employee future benefits [note 2] (15,512) — (15,512) (1,360) — (1,360) (1,457) (18,329)

Total comprehensive income 33,713 6,798 40,511 6,442 (1,029) 5,413 17,285 63,209

Dividends paid to non-controlling interests — — — — — — (3,659) (3,659)

Transfer from participating policyholders to members1 43,120 (49) 43,071 (46,827) 56 (46,771) 3,700 —

Changes in non-controlling interests — — — — — — (6,940) (6,940)

43,120 (49) 43,071 (46,827) 56 (46,771) (6,899) (10,599)Balance as at December 31, 2012 484,696 23,213 507,909 115,911 (1,154) 114,757 144,678 767,344

1. During the fiscal year, a subsidiary of the Mutual transferred to the shareholders’ account, the portion of the participating policyholders’ account concerned by the judgment issued by the Superior Court of Quebec on August 2, 2012, thus affecting the Mutual members’ account.

2. During the fiscal year, the Mutual allocated an amount of $0 [2011: $954] to the optional reserve for earthquakes under retained earnings. The reserve totalled $9,151 [2011: $9,151].



23

CONSOLIDATED STATEMENT OF CASh FLOwS


2012 $

2011 $

OPERATING ACTIVITIESNet income 73,088 65,705Items not affecting cash and cash equivalents:

Changes in actuarial liabilities 197,663 278,779Changes in unearned premiums 40,262 31,070Changes in reinsurance assets (17,453) (15,775)Changes in net discounts on investments (34,126) (36,726)Changes in fair value of investments designated as at fair value through profit or loss (23,713) (122,489)Changes in fair value of investments in a limited partnership (248) —Realized gains on available-for-sale financial assets (17,398) (18,997)Adjustment to fair value of investment properties 2,629 —Share of net income of joint ventures (298) (227)Deferred taxes (recovery) (8,976) 10,539Amortization of deferred premium acquisition costs 77,339 91,366Net employee future benefit expense 15,385 11,775Amortization of property and equipment 5,961 6,102Amortization of intangible assets 7,119 9,070Other items included in net income (2,197) (1,379)

Taxes recovered (paid) 8,641 (16,771)323,678 292,042

Net change in other items related to operating activities (123,777) (110,069)Cash flows related to operating activities 199,901 181,973

INVESTING ACTIVITIESPurchase of stocks and bonds (1,257,180) (1,126,573)Stock and bond sales and maturities 1,168,646 1,025,104Issue of mortgage loans and policy loans (236,010) (295,519)Maturities, sales and repayments of mortgage loans and advances and securitization 193,620 269,442Additions to investment properties (1,219) (4,161)Net acquisition of other investments and other assets — (3,105)Withdrawals under joint ventures 276 276Net additions to property and equipment (57,764) (38,891)Additions to intangible assets (12,461) (10,689)Acquisition and merger 3,300 —Cash flows related to investing activities (198,792) (184,116)

FINANCING ACTIVITIESIncrease in long-term debt — 1,990Repayment of long-term debt (294) (225)Changes in non-controlling interests (6,940) (342)Dividends paid to non-controlling interests (3,659) (1,781)Interest paid (1,570) (1,391)Cash flows related to financing activities (12,463) (1,749)

Net decrease in cash and cash equivalents (11,354) (3,892)Cash and cash equivalents, beginning of year 88,650 92,542Cash and cash equivalents, end of year1 77,296 88,650

1. Consisting of:Cash and cash equivalents 81,139 90,995Excess of outstanding cheques over cash [note 18] (3,843) (2,345)

77,296 88,650


2012 ANNUAL REPORT I NOTES TO CONSOLIDATED FINANCIAL STATEMENTS LA CAPITALE CIVIL SERVICE MUTUAL

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

[in thousands of Canadian dollars]

1) INCORPORATING STATUTE AND NATURE OF OPERATIONS

La Capitale Civil Service Mutual (“the Mutual”), incorporated on December 6, 1991 under the Act respecting the Québec Civil Servants Mutual Life, is a mutual management corporation.

Its operations are carried out mainly in Canada through its subsidiaries and consist principally of life and health insurance and property and casualty insurance.

The Mutual is headquartered at 625 Saint-Amable Street, Quebec City, Quebec, Canada.

2) SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

The financial statements of the Mutual have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These financial statements were approved for issue by the Board of Directors of the Mutual on February 26, 2013.

Basis of preparation

The financial statements have been prepared on a historic cost basis except for investment properties, held-for-trading financial instruments, financial instruments designated at fair value through profit and loss and available-for-sale financial instruments that have been measured at fair value.

The Mutual presents its statement of financial position primarily in order of liquidity.

Assets are considered current when the Mutual expects to realize them in its normal operating cycle within twelve months after the reporting date. Liabilities are considered current when the Mutual expects to settle them in its normal operating cycle within twelve months after the reporting date. All other assets and liabilities are considered non-current. The Mutual’s statement of financial position is not presented using current and non-current classification.

The following statement of financial position items are typically considered current: cash and cash equivalents, premiums receivable, reinsurance assets, income taxes receivable, other assets, deferred premium acquisition costs, provisions for benefits incurred, provisions for dividends and experience rating refunds, policyholder amounts on deposit, unearned premiums, accrued liabilities, other liabilities and income taxes payable.

The following statement of financial position items are typically considered non-current: bonds, stocks, mortgage loans, policy loans, investment properties, other investments, deferred taxes, property and equipment, intangible assets, goodwill, actuarial liabilities, provision for claims and loss adjustment expenses, employee future benefits and long-term debt.

The significant accounting policies used to prepare the consolidated financial statements are summarized below.

Consolidation and joint ventures

The consolidated financial statements include the accounts of the Mutual and those of its subsidiaries. The subsidiaries are entities controlled by the Mutual. Control exists when the Mutual has the power to govern the financial and operating policies of a company so as to obtain benefits derived from its activities. The companies are fully consolidated once the Mutual or one of its subsidiaries takes control, and they are deconsolidated once control ceases

Investments in joint ventures have been accounted for using the equity method. Under this method, the Mutual recognizes its share of the net assets and financial results of the joint ventures using uniform accounting methods for like transactions and events.

The acquisitions of a subsidiary is accounted for using the purchase method. The consideration transferred in a business combination is measured at fair value. Goodwill is the excess of the cost of acquisition of the subsidiary over the fair value of the net identifiable assets.

Investments

The investments considered financial instruments are classified as investments held for trading, investments designated at fair value through profit and loss, assets available for sale and loans and receivables. The Mutual determines the classification of its financial instruments when they are initially recognized.

Financial instruments are recorded at fair value when initially recognized. Subsequent remeasurements will depend on the category in which financial instruments were initially classified. Transaction costs of assets classified as held for trading and designated at fair value through profit and loss are recognized in income. Transaction costs of assets classified as available for sale are capitalized to the cost of the financial instruments. Transaction costs of assets classified as loans and receivables are capitalized and amortized using the effective interest method.


25

Cash and cash equivalents

Cash and cash equivalents classified as held for trading consist of cash, short-term deposits and bankers’ acceptances, and are accounted for at fair value. Short-term deposits and bankers’ acceptances are classified as cash equivalents when the period between the acquisition date and maturity is less than three months. The excess of outstanding cheques over cash is accounted for under other liabilities.

Stocks and bonds

The Mutual has elected to designate stocks and bonds backing life and health insurance contract liabilities at fair value through profit or loss. These stocks and bonds are recorded at fair value. Life and health insurance contract liabilities are determined using the Canadian asset liability method and the changes in fair value of assets backing the life and health insurance contract liabilities are included directly in life and health insurance contract liabilities. Changes in fair value of assets designated at fair value through net income backing the liabilities and changes in life and health insurance contract liabilities are charged directly to income, thereby avoiding an accounting mismatch. Stocks and bonds that are not used to cover life and health insurance contract liabilities are classified as available for sale.

Stocks and bonds classified as available for sale are recorded at fair value. Unrealized gains and losses are recognized in other comprehensive income except when there is objective evidence of impairment, in which case the impairment loss is recognized in income. When realized, gains and losses are reclassified to income.

Financial instruments classified as available for sale are tested for impairment and, when there is evidence of impairment and the decline in value is significant or prolonged, any loss recognized in accumulated other comprehensive income is considered reclassified to income. An impairment loss recorded in the statement of income may be reversed through profit or loss, in the case of a debt instrument, if its fair value increases during a subsequent period and the increase can be objectively related to an event occurring after the impairment loss was recognized. Financial instruments continue to be recognized at fair value even if an impairment loss has been recorded. Any subsequent declines in value for impaired financial instruments are recognized in income.

The Mutual uses settlement date accounting for regular-way purchases and sales of financial assets. Under this method, any gains or losses between the transaction and settlement dates are recognized in income for assets designated at fair value through profit or loss and in other comprehensive income for available-for-sale assets.

Fair values for stocks and bonds are determined with reference to market bid prices where available. Where bid prices cannot be obtained, fair value is determined using valuation techniques that factor in the interest rate particular to each security and discounted cash flows, and are based on indirectly observable market data.

Mortgage loans

Mortgage loans are classified as loans and receivables and reported at amortized cost using the effective interest method, less any allowance for losses. Amortized cost is the amount at which the mortgage loan is initially recognized less any principal repayments, plus or minus accumulated amortization determined using the effective interest method. Realized gains and losses on disposal of these securities are recognized through income. The fair value of mortgage loans is determined primarily by discounting future cash flows using market interest rates for loans with similar terms and conditions to new mortgage loans.

Commissions paid and other mortgage acquisition costs incurred are recognized and presented under mortgage loans. These costs are amortized using the effective interest method.

Mortgage loan securitization

The Mutual periodically securitizes pools of insured mortgage loans that meet the criteria of the National housing Act (“NhA”) program of the Canada Mortgage and housing Corporation (“CMhC”). As part of these securitization transactions and as required by the NhA’s Mortgage-Backed Securities Program (“NhA MBS”), the Mutual transfers substantially all the risks and rewards related to the loans ceded to a third party and complies with the criteria of derecognizing ceded mortgage loans.

Furthermore, prior to January 1, 2010, the Mutual carried out securitization transactions under the CMhC’s Canada Mortgage Bond (“CMB”) Program. The Mutual applied the exemption allowed by IFRS 1 and derecognized its CMB and NhA MBS securitization transactions carried out before January 1, 2010.

In securitization transactions, the Mutual retains a portion of the future interest that will be paid by the borrower whose mortgage loan was sold, accounting for this future revenue, net of servicing expenses, as retained interests.

The fair value of retained interests is calculated using the discounted value of expected future cash flows based on assumptions concerning prepayments, servicing expenses and discount rates. Retained interests are classified as held for trading and reported at fair value.

Gains and losses arising from securitization are recorded to the extent of the excess or shortfall of the consideration received over the carrying amount allocated to the assets sold. These gains and losses are recognized through income and included in investment income.

Policy loans

Policy loans classified under loans and receivables are recorded at amortized cost and are fully secured by the cash surrender value of the insurance policies on which the respective loans are granted. The fair value of policy loans approximates their carrying amount due to their short-term maturity.


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2) SIGNIFICANT ACCOUNTING POLICIES [Cont’d]

Investments [Cont’d]

Investment properties

Investment property is real estate that is held to earn rent or for capital appreciation.

Investment properties are accounted for at fair value. The fair values of investment properties are determined by valuations prepared by chartered appraisers or by Mutual personnel and are revised annually. Realized and unrealized gains and losses on investment properties are recognized through income.

Other investments

Other investments include personal loans, other loans, properties held for resale, investments in joint ventures, and other investments, including investments in private companies and a limited partnership. Personal loans and other loans are classified as loans and receivables and recognized at amortized cost using the effective interest method. The fair value of these personal and other loans is determined by discounting future cash flows using market interest rates for loans with similar terms and conditions.

Property held for resale is measured at the lower of fair value less cost to sell and the carrying value of underlying mortgage loans at foreclosure date. When the fair value of a property held for resale is less than the carrying value of underlying mortgage loans at the foreclosure date, losses are immediately recognized through income. Realized gains and losses on the disposal of such real estate are recognized through income for the year.

Investments in joint ventures have been accounted for using the equity method. Investments in the other private companies classified as available for sale are recorded at cost where no active market exists, making it difficult to obtain a reliable fair value. The investment in the limited partnership is accounted for at fair value.

Provisions for impairment on debt securities

The Mutual maintains provisions for impairment on mortgage loans, personal loans and other loans. Evidence of impairment arises when there is reasonable doubt as to the timely collection of the principal or interest on a debt security or if a payment is over 90 days past due. When an asset is classified as impaired, an estimated allowance for losses is established to adjust the asset’s carrying amount based on its net recoverable amount. This allowance is charged immediately to income. Furthermore, interest on impaired assets is no longer accrued.

Reinsurance assets

In the normal course of business, the Mutual enters into reinsurance agreements with other insurers to manage its exposure to risk. Ceding insurance to a reinsurer does not relieve the Mutual of its obligations to its insureds. It remains accountable to its insureds for the amount reinsured in the event that a reinsurer should default on its reinsurance cession obligations under the reinsurance treaties.

Reinsurance assets represent balances due from insurance companies with respect to liabilities relating to ceded insurance contracts. Amounts recoverable are estimated based on actuarial liabilities and provisions for claims related to the underlying insurance contracts in accordance with reinsurance agreements.

Reinsurance assets are reviewed for impairment at each reporting date or more frequently if an indication of impairment arises during the reporting year. An impairment loss is recognized when there is objective evidence that the Mutual may not receive all outstanding amounts due under the terms of the agreement and that the unrecoverable amount can be estimated reliably.

Income taxes

The income tax expense (benefit) comprises current taxes and deferred taxes. Income taxes are recognized through profit or loss except to the extent that they relate to items recognized in other comprehensive income or directly in equity.

Current income tax is based on the results of operations in the current year, adjusted for items that are not taxable or not deductible. Current income tax is calculated based on income tax laws and rates enacted or substantively enacted as at the reporting date. Provisions are established where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred tax assets and liabilities are recorded based on all temporary differences between the financial statement carrying amount and the corresponding tax basis. These deferred income tax assets and liabilities are calculated using enacted or substantively enacted tax rates that are expected to be in effect when the assets are realized or the liabilities settled in future years. Deferred tax assets are recognized only if management deems it probable that deferred tax assets will be realized.


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Other assets

Other assets consist of other financial assets and prepaid expenses. Other financial assets consist of retained interests in securitized loans, investment income receivable, cash in trust, due from reinsurers in the property and casualty insurance segment, subrogation and other receivables.

Investment income receivable, due from reinsurers in the property and casualty insurance segment, subrogation and other receivables are classified as loans and receivables and recognized at amortized cost using the effective interest method. Retained interests in securitization and cash in trust are classified as held for trading and recognized at fair value. The fair value of these items approximates their carrying amount due to their short-term maturities.

Deferred premium acquisition costs

Deferred premium acquisition costs include commissions and taxes on premiums and are recorded at amortized cost over the term of the relevant insurance contract provided that they are recoverable. They are considered recoverable to the extent that unearned premiums and investment income, net of projected losses, loss adjustment expenses and administrative costs, exceed deferred charges.

Property and equipment

Property and equipment comprise land, own-use properties, furniture and other, computer hardware and leasehold improvements and are recorded at cost, net of accumulated amortization and impairment losses.

Cost consists of the purchase price and all costs directly attributable to the construction of the asset or its installation. Subsequent costs, excluding day-to-day maintenance costs, are included in the carrying amount of property and equipment.

Amortization is calculated on a straight-line basis and periodically recognized in the statement of income. Components of own-use properties are amortized over their estimated useful life, taking into account their residual value. The useful lives of components of own-use properties as determined for amortization purposes range from 20 to 100 years. Realized gains and losses on disposal of property and equipment are recognized through income for the year.

Amortization is periodically charged to income according to the following useful lives.

Class Method Useful lifeOwn-use properties Straight-line 20–100 yearsFurniture and other Straight-line 3–10 yearsComputer hardware Straight-line 3–5 yearsLeasehold improvements Straight-line 5 years and lease term

Amortization methods used, useful lives and the residual value of property and equipment are reviewed annually. Any changes are recognized prospectively.

Amortization is recognized under general expenses in the statement of income.

Intangible assets

The cost of intangible assets is the fair value at the acquisition date. Subsequently, intangible assets are recorded at cost less accumulated amortization and any accumulated impairment losses. Internally developed software and software under development are recorded at the lower of incurred development costs and future economic benefits. Software is amortized when implemented.

Intangible assets consist of indefinite-life intangible assets, namely trademarks, and finite-life intangible assets, namely the client base, distribution networks and software. Indefinite-life intangible assets are not amortized.

Finite-life intangible assets are amortized on a straight-line basis as follows:

Useful lifeClient base and distribution networks 30 months–18 yearsSoftware 3–15 years

Amortization methods used, useful lives and the residual value of property and equipment are reviewed annually. Any changes are recognized prospectively.

Amortization is recognized under general expenses in the statement of income.


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Impairment of long-lived assets

Where significant circumstances or events indicate a possible impairment, the management of the Mutual remeasures the carrying amount of property and equipment and intangible assets through impairment tests. Indefinite-life intangible assets are tested for impairment annually. An impairment loss is recorded once the asset’s carrying amount exceeds the recoverable amount. The recoverable amount of an asset represents the higher of its fair value less costs to sell and its value in use, which corresponds to the value of total discounted cash flows.

Government assistance

The Mutual receives government assistance in the form of tax credits for scientific research and experimental development. These amounts are recognized when there is reasonable assurance that the Mutual will comply with the conditions attached to these credits and the amounts will be received. The Mutual uses the cost reduction method to account for these amounts, under which credits are recorded as a reduction to general expenses or the eligible assets to which they apply. These credits are amortized according to the same method and rates as the eligible assets to which they apply.

Goodwill

Goodwill represents the excess of the cost of businesses acquired over the estimated fair value of their net identifiable assets. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Goodwill is tested for impairment at least once a year for each cash-generating unit (“CGU”) or group of CGUs or when events or changes in circumstances indicate that its carrying amount may not be recoverable. A CGU is the smallest group of assets that generates largely independent cash flows and corresponds either to an operating segment or to a lower level. Any impairment of goodwill is identified by comparing the recoverable amounts of a CGU or a group of CGUs with its carrying amount.

The recoverable amount of a CGU is defined as the higher of its estimated fair value less costs to sell and its value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Classification of insurance contracts

The contracts issued by the Mutual are classified as insurance contracts, investment contracts or service contracts. Contracts under which the Mutual accepts significant insurance risk from policyholders are classified as insurance contracts. A contract is considered as transferring significant insurance risk if, and only if, an insured event could cause an insurer to pay significant additional benefits in any scenario. Contracts under which the Mutual does not accept significant insurance risk are classified as investment contracts or service contracts.

Investment contracts are contracts that transfer financial risk but not significant insurance risk. Service contracts are contracts under which the Mutual offers administrative services.

Financial risk is the risk of a possible future change in one or more of the following elements: specified interest rate, financial instrument price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract.

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant.

Certain insurance contracts contain discretionary participation features under which policyholders are entitled to receive additional benefits based on actual performance of assets.

Under the Insurance Act (Quebec), in the normal course of its business, a life and health insurance company set up as a joint stock corporation may, within a predetermined limit, allocate a portion of overall earnings attributable to participating policyholders as retained earnings attributable to members. This annual transfer is presented in the consolidated statement of changes in equity.

Unpaid balances of dividends and refunds are accounted for in “Provisions for dividends and experience rating refunds” under liabilities.


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Actuarial liabilities

Actuarial liabilities represent the amount that, when added to premiums and future investment income, secures current policy commitments. These actuarial liabilities are determined using the Canadian Asset Liability Method (“CALM”), which is generally accepted actuarial practice established by the Canadian Institute of Actuaries (“CIA”).

CALM involves projecting asset and liability cash flows for each business segment under a set of prescribed interest rates, plus additional scenarios chosen by the Appointed Actuary, if applicable. Net cash flows are invested in new assets, if positive, or assets are sold or borrowed against to meet cash needs in accordance with the assumptions of each scenario. Reinvestment strategies are based on investment policies for each segment and the reinvestment returns are from the underlying scenarios. The insurance contract liabilities must be at least equal to the liabilities determined under the worst prescribed scenario.

This method meets the minimum requirements of the liability adequacy test, i.e. it uses current estimates of all contractual cash flows, related cash flows, and the total inadequacy is recognized in the statement of income.

Property and casualty insurance contract liabilities

Unearned premiums are calculated on a pro rata basis, based on the unexpired portion of the premiums written. At the end of each reporting period, a liability adequacy test is performed to ensure the adequacy of unearned premiums. A premium deficiency results when unearned premiums are considered insufficient to cover the estimated future costs for the unexpired portion of the insurance contracts written. A premium deficiency is recognized immediately as a reduction of deferred premium acquisition costs to the extent that the aggregate amount of unearned premiums and the expected investment income is considered inadequate to cover all the deferred premium acquisition costs and related claims and insurance expenses. If the premium deficiency exceeds the unamortized deferred policy acquisition costs, a liability is recognized with regard to the excess deficiency.

The provision for claims and loss adjustment expenses is initially determined on a case-by-case basis for each claim reported and includes an additional amount based on the estimate of claims incurred but not reported. The provision is recorded on a discounted basis. Claims and loss adjustment expenses are charged to income as incurred until contract expiry, whether through settlement or termination.

The provision for claims and loss adjustment expenses is estimated on a gross basis without taking into account recoveries from reinsurers as well as net of recoveries from reinsurers. It also includes a provision for adverse deviation, as required by Canadian accepted actuarial practice. This estimate is based on the assumption that future changes in claims will be comparable to the historical experience. The analysis also includes assumptions regarding future claims, the average claim cost, inflation and other relevant factors. Provisions for internal and external loss adjustment expenses are estimated based on the historical relationship between these expenses and claims. If past experience is not applicable to current claims, either due to changes in practices or a new line of business, additional assumptions must be made to take into account three major variables or values: future claims, reinsurance recoveries and future investment income.

The provision for claims and loss adjustment expenses and the related reinsurers’ share are estimates subject to variability during the year. These variations are due to events affecting the ultimate settlement of claims, but which have not yet occurred and may not occur for some time. These variations may also be caused by additional information regarding the claims, by changes in court interpretations of policies, or by significant differences in claim severity and frequency relative to historical trends. The estimates are based on the experience of the Mutual’s subsidiaries.

According to management, the estimation methods used produce reasonable results based on the data currently available.

Accrued liabilities and other liabilities

Accrued liabilities and other liabilities are classified in other liabilities and recognized at amortized cost, except for the excess of outstanding cheques over cash and amounts payable under the stock appreciation rights plan, which are recorded at fair value. Other liabilities consist of other financial liabilities and other liabilities items. Other financial liabilities include other amounts on deposit, the loyalty, stabilization and development fund, the excess of outstanding cheques over cash, deposits for taxes, due to reinsurers in the life and health insurance and property and casualty insurance segments, the balance of purchase price payable, deposits in trust, and liabilities related to derivative financial instruments. Other liabilities items comprise amounts payable under the stock appreciation rights plan and deferred revenues. The fair value of accrued liabilities and other liabilities approximates their carrying amount due to their short-term maturities.


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Employee future benefits

The Mutual offers defined benefit and defined contribution pension plans and post-employment benefits to its employees. The cost of pension benefits under defined benefit plans and of other post-employment benefits earned by employees is determined using actuarial calculations under the projected unit credit method and management’s most likely assumptions of expected plan investment performance, salary escalation, the retirement age of employees and expected health care costs. Plan obligations are discounted at current market interest rates, and plan assets are recorded at fair value.

Net actuarial gains and losses are recognized in the period in which they occur in other comprehensive income.

For defined contribution plans, the Mutual pays specified contributions into a separate entity and has no legal or constructive obligation to pay further amounts. As a result, no liability appears in the Mutual’s consolidated financial statements, except for the expense recognized for contributions due but not yet paid at the end of the reporting period. Contributions payable to defined contribution plans are charged to income.

Long-term debt

Long-term debt is classified under other liabilities and recorded at amortized cost using the effective interest method. Long-term debt includes a subordinated debenture and a loan secured by an immovable hypothec.

Revenue recognition

Gross life and health insurance and annuity premiums are recorded in full as revenues as they fall due under existing policies.

Premiums written for property and casualty insurance are recorded in income over the term of each policy on a pro rata basis.

Investment income is recognized on an accrual basis. Dividends are recognized when the shareholders’ right to receive payment is established, which is the ex-dividend date. Interest income from debt securities and loans is recognized on an accrual basis. Dividends received and interest income are included in investment income. Rental income from investment properties is recognized on an accrual basis and reported under investment income. Fees, commissions and royalties and other revenues are recognized on an accrual basis as services are rendered.

Stock appreciation rights plan

The Mutual offers a stock appreciation rights plan to certain officers. The stock appreciation rights plan is valued using the Black-Scholes model, which is based mainly on the risk-free interest rate, the expected return volatility on La Capitale Financial Group Inc. stock and the average expected life of stock appreciation rights.

Stock appreciation rights plan expense is charged to income for the year when the return on shares is earned under the plan of La Capitale Financial Group Inc. and is recognized under general expenses in the statement of income. Accrued plan expense is reported under other liabilities.

Derivative financial instruments

The Mutual uses derivative financial instruments to manage interest rate risk. In connection with asset-liability matching and to hedge against interest rate risk related to mortgage loans that have been or are being securitized, the Mutual uses interest rate [reverse] repurchase agreements. Derivative financial instruments are recognized at fair value, and changes in fair value are recognized in income. Any gains or losses realized on these derivatives offset the losses or gains recognized on the pool of CMB securitized mortgage loans as a result of changes in interest rates.

Derivative financial instruments are classified as held for trading and recognized at fair value. Derivative financial instruments with a positive fair value are included in other assets, whereas derivative financial instruments with a negative fair value are included in other liabilities.

Foreign currency translation

The Canadian dollar is the Mutual’s functional currency. Transactions in foreign currencies carried out by the Mutual are translated at the exchange rate in effect on the transaction date. At each reporting date, monetary items are translated at the rates in effect at year-end while non-monetary items are translated at historical exchange rates. Translation gains and losses are included in income for the year.


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Changes in accounting policies

IAS 19, Employee Benefits

The Mutual has revised the accounting policy it uses to account for actuarial gains and losses arising from its defined benefit pension plans. Previously, the Mutual accounted for the excess of net actuarial gain or loss over 10% of the greater of the benefit obligation and the fair value of plan assets, which was amortized over the average remaining service life of employees. Consequently, the Mutual’s statement of financial position did not reflect the significant portion of unrecognized net actuarial gains and losses.

During the 2012 fiscal year, the Mutual decided to amend its accounting policy to recognize actuarial gains and losses in the period in which they occur in the total of other comprehensive income. Management believes that adopting this new accounting policy will improve the quality of financial reporting by reflecting employee future benefit liabilities in the statement of financial position according to IAS 19.

The amendments were applied retroactively in accordance with IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, resulting in an adjustment to the previous year’s financial information.

Further to this voluntary amendment to accounting policies, the following amendments were recorded in the financial statements.

As at December 31, 2010Reduction in employee future benefit assets (2,368)Increase in employee future benefit liabilities (24,886)Reduction in deferred tax liabilities 7,331Decrease in the opening balance of retained earnings attributable to members 16,026Decrease in participating policyholders’ account 543Decrease in non-controlling interests 3,354

—

As at December 31, 2011Reduction in employee future benefit assets (15,608)Increase in employee future benefit liabilities (30,914)Reduction in deferred tax liabilities 12,514Net expense reported in other comprehensive income attributable to members, net of tax 26,629Net expense reported in other comprehensive income attributable to participating

policyholders, net of tax 1,070Net expense reported in other comprehensive income attributable to non-controlling

interests, net of tax 6,309—

As at December 31, 2012Reduction in employee future benefit assets —Increase in employee future benefit liabilities (25,074)Reduction in deferred tax liabilities 6,745Net expense reported in other comprehensive income attributable to members, net of tax 15,512Net expense reported in other comprehensive income attributable to participating

policyholders, net of tax 1,360Net expense reported in other comprehensive income attributable to non-controlling

interests, net of tax 1,457—

IAS 1, Presentation of Financial Statements

In June 2011, the IASB issued an amendment to IAS 1 to change the way in which other comprehensive income items are grouped together. Items that may subsequently be reclassified to profit and loss are presented separately from items that cannot be reclassified, such as actuarial gains and losses on the defined benefit obligation. The Mutual adopted this change retroactively during its fiscal year beginning on January 1, 2012. This change relates only to presentation and will therefore not impact the financial results of the Mutual.


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Future accounting policy changes

The standards and interpretations issued by the IASB that were not applicable as at the date of issue of the Mutual’s financial statements are described below. The Mutual intends to adopt these as required once they become applicable.

Improvements to IFRS in 2011

In May 2012, the IASB published Annual Improvements 2009–2011 Cycle, amending five International Financial Reporting Standards (IFRSs). The Annual Improvements process is used to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of any other project. The amendments issued in this cycle are to apply retroactively and are effective for annual periods beginning on or after January 1, 2013. The Mutual is currently assessing the impact of these changes on its financial statements.

IFRS 9, Financial Instruments

In November 2009, the IASB published IFRS 9, Financial Instruments, which replaces the provisions of IAS 39, Financial Instruments: Recognition and Measurement. This standard applies to the classification and measurement of financial assets and liabilities. On December 16, 2011, the IASB issued an amendment to IFRS 9 to delay the mandatory effective date from January 1, 2013 to January 1, 2015. The amendment no longer requires comparative figures to be restated. however, additional information on the effects at the time of the transition will be required. Early adoption is permitted. The Mutual is currently assessing the impact of changes in this standard on its financial statements.

IFRS 10, Consolidated Financial Statements; IFRS 11, Joint Arrangements; IFRS 12, Disclosure of Interests SIC 13 in Other Entities

In May 2011, the IASB published three new standards that affect the consolidation of financial statements: IFRS 10, Consolidated Financial Statements, IFRS 11, Joint Arrangements, which replaces IAS 31, Interests in Joint Ventures, and SIC 13, Jointly Controlled Entities–Non-Monetary Contributions by Venturers and IFRS 12, Disclosure of Interests in Other Entities. Two other standards were amended at the same time: IAS 27, Consolidated and Separate Financial Statements, and IAS 28, Investments in Associates and Joint Ventures. These standards will apply to financial statements for annual periods beginning on or after January 1, 2013. Early adoption is permitted; however, they must be adopted at the same time as IFRS 10, IFRS 11 and IFRS 12 as well as the revised version of IAS 27 and IAS 28.

In June 2012, the IASB issued amendments to clarify the transitional requirements put forward in IFRS 10 and provide further transition relief in IFRS 10, IFRS 11 and IFRS 12, limiting the obligation to provide amended comparative information relating only to the previous period. The Mutual is currently assessing the impact of these changes on its financial statements.

IFRS 10, Consolidated Financial Statements

IFRS 10 uses consolidation principles based on a revised definition of control. The definition of control is dependent on the power of the investor to direct the activities of the investee, the ability of the investor to derive variable benefits from its holdings in the investee, and a direct link between the power to direct activities and receive returns.

IFRS 11, Joint Arrangements

IFRS 11 classifies joint arrangements into two types—joint operations and joint ventures. For joint operations whereby the parties exerting joint control hold rights to assets and obligations, each party must account for its share of the assets, liabilities, income and expenses of the joint operation. For joint ventures whereby the parties exerting joint control hold rights to the net assets of the arrangement, each venturer must account for its interest using the equity method.

IFRS 12, Disclosure of Interests in Other Entities

IFRS 12 is a comprehensive standard requiring a wide range of disclosures about an entity’s interests in subsidiaries, joint arrangements, associates and structured entities—information that was previously included under IAS 27, IAS 31 and IAS 28. The standard also requires the disclosure of additional information to enable users of financial statements to evaluate the nature of, and risks associated with, the entity’s interests in other entities, and to evaluate the effects of those interests on its financial position, financial performance and cash flows.

IFRS 7, Financial Instruments: Disclosures

In December 2011, the IASB issued an amendment to IFRS 7. This standard outlines new disclosures for offsetting financial assets and liabilities. The amended standard is effective for annual periods beginning on or after January 1, 2013. The amendments must be applied retroactively. The Mutual is currently assessing the impact of changes in this standard on its financial statements.


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IFRS 13, Fair Value Measurement

In May 2011, the IASB issued IFRS 13. This standard brings further clarification on fair value measurement and disclosures on measuring fair value. According to the standard, fair value is not an entity-specific measurement, but rather is focused on market participant assumptions to evaluate a specific asset or liability on the date of fair value measurement. The standard is effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted. The Mutual is currently assessing the impact of changes in this standard on its financial statements.

IAS 19, Employee Benefits

In June 2011, the IASB issued amendments to IAS 19, Employee Benefits. Revised IAS 19 aims to improve employee benefit disclosures. Furthermore, the interest and expected returns on plan assets used in former IAS 19 have been replaced by a net interest figure, based on the discount rate that is used to measure the defined benefit obligation, net of plan assets and liabilities. The standard is effective for annual periods beginning on or after January 1, 2013. Early adoption is permitted. The Mutual is currently assessing the impact of these changes on its financial statements.

IAS 32, Financial Instruments: Presentation

In December 2011, the IASB issued an amendment to IAS 32. The amendments clarify the meaning of a legally enforceable right of set-off and explain how the criteria for offsetting apply under the standard with respect to settlement systems that apply gross settlement mechanisms on a non-simultaneous basis. This amendment will apply retrospectively to financial statements for annual periods beginning on or after January 1, 2014. Early adoption is permitted. The Mutual is currently assessing the impact of changes in this standard on its financial statements.

3) SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS

In preparing these financial statements, management is required to make judgments, estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results may differ from management’s best estimates.

Judgments

In the process of applying the Mutual’s accounting policies, management has made the following judgments that have the most significant effect on the amounts recognized in the financial statements:

Classification of insurance contracts

Insurance contracts are contracts under which the Mutual accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specific uncertain future event (the insured event) adversely affects the policyholder. Insurance risk is significant if an insured event can require an insurer to pay significant additional benefits under any scenario, except for scenarios that lack commercial substance. The Mutual determines whether there is significant risk by analyzing the features of each type of contract. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its term, even if the insurance risk reduces significantly during its lifetime.

Loan securitization

As mentioned in note 2, the Mutual securitizes pools of mortgage loans periodically by selling them to trusts. Judgment is required to determine whether these transfers meet the criteria for the derecognition of the financial assets in question. For instance, since the Mutual retains a portion of the future interest paid by the borrower whose mortgage loan has been sold, it must assess to what extent the contractual rights over the cash flows, the risks and rewards of ownership and control over the financial asset have been substantially transferred to a third party.

Classification of properties

The Mutual classifies its properties as investment properties when the proportion of own-use is considered insignificant. This is determined by comparing the rental space occupied for the Mutual’s own purposes with the total rental space. The Mutual classifies properties as own-use properties when the rental space used for its own purposes is significant and then applies the appropriate accounting policies.


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3) SIGNIFICANT JUDGMENTS, ESTIMATES AND ASSUMPTIONS [Cont’d]

Estimates and assumptions

In the process of applying the accounting policies, management has made the following estimates and assumptions that have the most significant effect on the amounts recognized in the financial statements:

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities reported on the statement of financial position cannot be derived from markets considered active, they are determined using a variety of valuation techniques based on the use of discounted cash flow models. The inputs to these models are derived from observable market data, where possible, but where observable market data is not available, judgment is required to establish liquidity risk, credit risk and the degree of volatility. Changes in assumptions about these factors could affect the fair value of financial assets and liabilities reported in the financial statements.

Fair value of investment properties

The Mutual accounts for its investment properties at fair value and recognizes any changes in fair value through the statement of income. The Mutual relies on fair value measurements prepared by chartered appraisers or Mutual personnel as at the reporting date, i.e. December 31. They use valuation techniques based on discounted future cash flows from rental space, taking into account the lack of comparative market data for similar properties.

The fair value of investment properties is very sensitive to the rate of return and to the overall discount rate. The main assumptions made in determining the fair value of investment properties are described in note 5.

Impairment of non-financial assets

Non-financial assets such as property and equipment, intangible assets and goodwill are tested for impairment annually or when there are indications of potential impairment. Impairment tests consist in comparing the carrying amount of the asset or CGU in question with its recoverable amount. In most cases, the recoverable amount corresponds to value in use. To determine the value in use of an asset or a CGU, several assumptions must be made, including the estimation of future cash flows that the Mutual expects to receive and the discount rate.

Future cash flows are determined by making financial projections over five-year periods, excluding any significant restructuring to the investment project that could influence the performance of the asset or the CGU being tested for impairment.

The determined recoverable amount is sensitive to the discount rate used for the discounted cash flow model and to the extrapolated growth rate.

The main assumptions used in impairment testing for goodwill and intangible assets, such as trademarks, client base and distribution networks, are described in note 13.

The carrying amounts for property and equipment, intangible assets and goodwill were, respectively, $157,473 [2011: $105,670], $68,341 [2011: $67,569] and $101,140 [2011: $101,140].

Income taxes

The computation of current and deferred taxes is based on several factors including the interpretation of tax regulations in the jurisdictions in question, assessments regarding the recovery of deferred tax assets and how the assets and liabilities are expected to be recovered. The recovery of deferred tax assets depends, among other factors, on the expected future earnings from the Mutual’s operations and the tax planning strategies developed. The Mutual establishes a provision for income tax it considers reasonable and which it bases on the weighted estimate of the possible results from the adopted tax positions. When establishing the provision, the Mutual takes into consideration previous adjustments made by tax authorities, interpretation bulletins and recent rulings rendered in the relevant jurisdictions.

Employee future benefits

The defined benefit obligation and expense is calculated using several demographic and financial actuarial assumptions. The main assumptions include the discount rate, the rate of increase in future compensation, the expected return from plan assets and the growth rate of retiree health care costs. These assumptions are described in note 19.

Life and health insurance contract liabilities

The establishment of actuarial liabilities, the related reinsurers’ share, the provisions for benefits incurred and the provisions for dividends and experience rating refunds depends on various actuarial assumptions including the mortality rate, morbidity rate, investment return, policy management costs, deferred taxes, policy lapses and participating policyholder dividends and the margin for adverse deviation. These assumptions are described in note 16.


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Property and casualty insurance contract liabilities

The provision for claims and loss adjustment expenses and the related reinsurers’ share are estimates subject to variability during the year. These variations are due to events affecting the ultimate settlement of claims, but which have not yet occurred and may not occur for some time. These variations may also be caused by additional information regarding the claims, by changes in court interpretations of policies, or by significant differences in claim severity and frequency relative to historical trends. The estimates are based on the experience of the Mutual’s subsidiaries. These assumptions are described in note 17.

Stock appreciation rights plan

The stock appreciation rights plan is established using the Black-Scholes model as at the date the rights are granted. The fair value estimate of rights established under the model is sensitive to volatility and the rate of return. These assumptions are described in note 18.

4) ACQUISITION AND MERGER

Acquisition

As at December 31, 2011, the Mutual held 50% of the shares in Promutuel Life Inc. During the year, the Mutual acquired the remaining 50% of the shares in this company held by Promutuel Investment Funds and Promutuel Reinsurance, for a consideration payable of $534.

Assets acquired and liabilities assumed were as follows:

2012 $

Assets acquiredInvestments 4,992Reinsurance assets 2,333Deferred taxes 2,468Other assets 783

10,576

Liabilities assumedInsurance contract liabilities 8,891Accrued liabilities 287Other liabilities 330

9,508

Net assets 1,068

Net assets acquired (50%) 534

Merger

On December 31, 2012, La Capitale Insurance and Financial Services Inc., a subsidiary of the Mutual, and Promutuel Life Inc., merged and decided to form a single life and health insurance company under the name La Capitale Insurance and Financial Services Inc.


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5) INVESTMENTS

The amounts below represent the carrying amount and the fair value of investments.

Carrying amount and fair value of investments

2012

Held for trading $

Designated at fair value through

profit or loss $

Available-for-sale $

Loans and receivables

$Other

$

Total carrying amount

$Total fair value

$Cash and cash equivalents 81,139 — — — — 81,139 81,139

BondsGovernment of Canada — — 130,737 — — 130,737 130,737Provincial governments — 896,611 223,899 — — 1,120,510 1,120,510Municipalities, school boards and hospitals — 7,364 2,696 — — 10,060 10,060Corporate — 357,093 162,729 — — 519,822 519,822International — — 6,708 — — 6,708 6,708

— 1,261,068 526,769 — — 1,787,837 1,787,837

StocksCommon shares and participating units — 233,234 265,644 — — 498,878 498,878Preferred shares — 199,090 140,649 — — 339,739 339,739Participating units in stock market indices — 710 16,000 — — 16,710 16,710

— 433,034 422,293 — — 855,327 855,327

Mortgage loansInsured — — — 240,566 — 240,566 245,563Conventional — — — 297,573 — 297,573 300,623

— — — 538,139 — 538,139 546,186

Policy loans — — — 31,484 — 31,484 31,484

Investment propertiesheld for investment — — — — 180,512 180,512 180,512

Other investmentsPersonal loans — — — 16,401 — 16,401 16,338Other loans — — — 16,959 — 16,959 16,973Properties held for resale — — — — 1,811 1,811 1,811Investments in joint ventures — — — — 16,081 16,081 16,081Other investments — — 5,207 — 5,181 10,388 10,388

— — 5,207 33,360 23,073 61,640 61,591

81,139 1,694,102 954,269 602,983 203,585 3,536,078 3,544,076


37

2011

Held for trading $

Designated at fair value through

profit or loss $



$Other

$


$Total fair value

$Cash and cash equivalents 90,995 — — — — 90,995 90,995

BondsGovernment of Canada — — 265,349 — — 265,349 265,349Provincial governments — 958,698 163,668 — — 1,122,366 1,122,366Municipalities, school boards and hospitals — 5,467 1,630 — — 7,097 7,097 Corporate — 265,406 133,668 — — 399,074 399,074International — — — — — — —

— 1,229,571 564,315 — — 1,793,886 1,793,886

StocksCommon shares and participating units — 94,107 204,152 — — 298,259 298,259Preferred shares — 165,310 107,485 — — 272,795 272,795Participating units in stock market indices — 89,308 11,898 — — 101,206 101,206

— 348,725 323,535 — — 672,260 672,260

Mortgage loansInsured — — — 229,867 — 229,867 235,515Conventional — — — 268,965 — 268,965 275,107

— — — 498,832 — 498,832 510,622

Policy loans — — — 29,775 — 29,775 29,775

Investment propertiesheld for investment — — — — 181,922 181,922 181,922

Other investmentsPersonal loans — — — 18,129 — 18,129 18,022Other loans — — — 18,423 — 18,423 18,436Properties held for resale — — — — 1,435 1,435 1,435 Investments in joint ventures — — — — 16,704 16,704 16,704Other investments 99 — 3,316 — 3,395 6,810 6,810

99 — 3,316 36,552 21,534 61,501 61,407

91,094 1,578,296 891,166 565,159 203,456 3,329,171 3,340,867


38

5) INVESTMENTS [Cont’d]

Credit and concentration risk

The following tables provide data on the Mutual’s credit and concentration risk.

Bonds by credit quality

Fair value

Credit rating2012

$2011

$AAA 140,358 280,178 AA 417,732 353,179 A 1,173,761 1,129,436 BBB 55,986 30,578 Bond Fund — 515

1,787,837 1,793,886

Corporate bonds by sector

2012Designated at fair value

through profit or loss $


Total $

Energy 50,915 15,798 66,713 Industrials 50,559 14,561 65,120 Consumer staples and discretionary 7,782 5,467 13,249 health care 11,144 1,216 12,360 Financials 149,722 99,189 248,911 Communications 31,301 14,219 45,520 Utilities 55,670 12,279 67,949 Other — — —

357,093 162,729 519,822

2011Designated at fair value

through profit or loss $


Total $

Energy 22,225 11,483 33,708 Industrials 43,711 16,662 60,373 Consumer staples and discretionary 5,694 2,702 8,396 health care 7,550 528 8,078 Financials 138,973 87,233 226,206 Communications 10,235 2,601 12,836 Utilities 37,018 11,986 49,004 Other — 473 473

265,406 133,668 399,074

The life and health insurance companies limit their corporate bond investments to 35% of their bond portfolio with a maximum per sector or issuer, based on the specific features of the Canadian market.


39

Preferred shares by credit quality

Fair value

Credit rating2012

$2011

$P1 214,657 198,248 P2 125,082 74,547

339,739 272,795

The life and health insurance companies mainly limit their investment in a company or group of related companies to 2% of the investment assets of La Capitale Civil Service Insurer Inc. and La Capitale Insurance and Financial Services Inc. Mutual fund units are excluded from this limit.

The property and casualty insurance companies limit their investments in the form of corporate bonds, preferred shares and common shares to $10,000 per issue, and a single issuer cannot represent more than 5% of all corporate bonds, preferred shares and common shares held.

Mortgage loans by property class

The following table shows the carrying amount and fair value of mortgage loans by property class.

2012 2011Carrying amount

$Fair value

$CMHC secured

$Carrying amount

$Fair value

$CMHC secured

$Residential 479,120 487,382 203,069 433,829 444,830 188,047 Other 59,019 58,804 37,497 65,003 65,792 41,820

538,139 546,186 240,566 498,832 510,622 229,867

The carrying amount of mortgage loans secured by the CMhC represented 44.70% of the total carrying amount of the mortgage loan portfolio as at December 31, 2012 [2011: 46.08%].

The Mutual limits its investment to $600 for a new borrower and $800 for a related group of borrowers for new loans.

Impaired loans

A loan is deemed impaired when the counterparty has failed to make a payment by the contractual due date.

2012

30-59 days in arrears

$


$

90 days or more in arrears or in foreclosure

$Total

$Insured mortgage loans 370 458 3,543 4,371Conventional mortgage loans 830 84 — 914 Personal loans 6 11 48 65

1,206 553 3,591 5,350

2011


$


$

90 days or more in arrears or in foreclosure

$Total

$Insured mortgage loans 1,891 269 1,473 3,633 Conventional mortgage loans 229 — — 229 Personal loans 1 29 36 66

2,121 298 1,509 3,928


40

5) INVESTMENTS [Cont’d]

Interest rate risk

The following table indicates the maturity dates and overall average effective interest rate of the Mutual’s investments.

Carrying amount

Fixed rate 2012

Variable rate $

Maturing in under 1 year

$

Maturing in 1 to 5 years

$


$

Maturing in over 10 years

$

No specific maturity

$


$

Overall averageeffective interest

rate %

BondsGovernment of Canada 20,066 39,193 43,858 9,071 18,549 — 130,737 1.51 Provincial governments 4,238 3,346 95,843 267,778 749,305 — 1,120,510 5.26 Municipalities, school boards

and hospitals — 3,574 1,594 112 4,780 — 10,060 3.90 Corporate 1,633 6,607 107,636 146,235 257,711 — 519,822 4.66 International — — 983 — 5,725 — 6,708 2.97

25,937 52,720 249,914 423,196 1,036,070 — 1,787,837 4.80

StocksPreferred shares — 10,484 105,495 30,439 — 193,321 339,739 5.29

Mortgage loansInsured 354 75,097 152,567 10,795 1,753 — 240,566 4.22 Conventional 33,856 59,019 190,840 13,858 — — 297,573 3.91

34,210 134,116 343,407 24,653 1,753 — 538,139 4.05

Policy loans — — — — — 31,484 31,484 5.85

Other investmentsPersonal loans 13,305 665 1,637 794 — — 16,401 4.25 Other loans 183 — 1,568 6,131 8,498 579 16,959 4.19

13,488 665 3,205 6,925 8,498 579 33,360 4.22

73,635 197,985 702,021 485,213 1,046,321 225,384 2,730,559 4.65

Fixed rate 2011

Variable rate $

Maturing in under 1 year

$


$


$

Maturing in over 10 years

$


$


$

Overall averageeffective interest

rate %

BondsGovernment of Canada 12,061 155,731 89,168 5,809 2,580 — 265,349 1.27Provincial governments 12,987 14,486 49,281 266,760 778,852 — 1,122,366 5.64Municipalities, school boards

and hospitals — — 5,178 112 1,807 — 7,097 4.37Corporate 580 8,350 105,452 123,104 161,588 — 399,074 5.03International — — — — — — — —

25,628 178,567 249,079 395,785 944,827 — 1,793,886 4.85

StocksPreferred shares — 51,697 73,289 6,919 — 140,890 272,795 5.45

Mortgage loansInsured 346 71,648 122,878 33,209 1,786 — 229,867 4.47Conventional 33,018 78,601 139,134 18,212 — — 268,965 4.43

33,364 150,249 262,012 51,421 1,786 — 498,832 4.45

Policy loans — — — — 119 29,656 29,775 6.22

Other investmentsPersonal loans 13,625 1,277 2,401 826 — — 18,129 4.59Other loans 1,808 — 2,489 8,213 1,774 4,139 18,423 4.48

15,433 1,277 4,890 9,039 1,774 4,139 36,552 4.53

74,425 381,790 589,270 463,164 948,506 174,685 2,631,840 4.78


41

Securities lending

The Mutual engages in securities lending to generate additional income. Certain securities from its portfolio are loaned to other institutions for short periods. The asset custodian guarantees the replacement of loaned securities in the event of counterparty default. Moreover, collateral representing a minimum of 102% of the fair market value of the loaned securities is pledged by the borrower and held in escrow by the asset custodian until the underlying securities have been returned to the Mutual. The fair value of loaned securities is monitored on a daily basis with additional collateral obtained or refunded as market values fluctuate. Accordingly, the Mutual benefits from two levels of protection in the event of default. As at December 31, 2012, the Mutual had loaned securities, which are included in investments, with a carrying amount of approximately $205,460 [2011: $240,635].

Investment properties

2012 $

2011 $

Balance as at January 1 181,922 177,761 Purchases — 1,740Subsequent capital expenditures 1,219 2,421 Change in fair value (2,629) —Balance as at December 31 180,512 181,922

Investment properties are recorded at fair value as determined by independent external appraisers or Mutual personnel.

The fair value of investment properties was not determined using observable market inputs given the specific features of the properties and the lack of comparable data. To determine fair value, the Mutual used a valuation model applicable to the industry. The main assumptions used are as follows:

2012 2011Rate of return 7.25% – 9.50% 7.50% – 9.50% Overall discount rate 6.25% – 8.00% 6.75 % – 8.00% Growth rate

Rent 1.34% – 4.08% 1.11% – 2.70% Operating expenses 2.00% – 3.00% 2.00% – 3.00%

Vacancy rate 0.84% – 7.22% 0.23% – 5.76%

Rental income from investment properties in the amount of $23,784 is reported under investment income [2011: $23,878]. The direct operating costs of investment properties generating rental income amounted to $13,304 for the year [2011: $13,165] and are reported under investment management fees.

Under emphyteutic lease rights to two investment properties granted by a third party, the properties will be surrendered without compensation to the third party at the end of the emphyteutic lease periods, that is, in December 2050 and May 2082. The carrying amount of assets related to emphyteutic lease rights was $43,358 [2011: $42,742].

Other investments

Investments in joint ventures

The Mutual holds investments in joint ventures.

Its shares in the assets, liabilities, revenues and expenses of joint ventures are as follows:

2012 $

2011 $

Statement of financial positionTotal assets 26,752 31,225Total liabilities 10,671 14,521Net assets 16,081 16,704

Statement of incomeNet revenues 7,436 5,370Total expenses 6,933 5,264Total net income for the year 503 106

Impact of return on initial cash contribution 119 121Capital gain on building 552 —Loss on disposal of a joint venture (876) —Share of income for the year 298 227

The fiscal year-end of joint ventures is December 31.


42

6) REINSURANCE ASSETS

To reduce the risk related to insurance claims and benefits, the insurance companies have entered into reinsurance agreements for policies whose insured and coverage amounts exceed certain maximums as well as reinsurance agreements enabling them to share certain risks with reinsurers on a pro rata basis. Reinsurance is purchased primarily from registered insurance and reinsurance companies. In addition, the insurance and reinsurance companies share insurance risks among themselves. Reinsurance does not discharge the ceding company of its insurance contract liabilities.

Failure of reinsurers to honour their obligations could result in losses to these companies. The companies have adopted a review process to verify the solvency of the companies to which they cede. The companies have no knowledge of any information leading them to believe that a reinsurer with which they currently do business is insolvent; consequently, no provision for bad debts has been recorded. Further, business is spread across a number of reinsurers to reduce reinsurance concentration and coverage risk.

Reinsurance assets2012

$2011

$Life and health insurance [note 16] 151,957 132,557Property and casualty insurance [note 17] 27,242 26,856

179,199 159,413

The following table shows the effect of external ceded reinsurance on the statement of income.

Life and health insurance Property and casualty insurance Total2012

$2011

$2012

$2011

$2012

$2011

$Reduction:In insurance and annuity premiums acquired (43,251) (37,646) (27,507) (24,109) (70,758) (61,755)In benefits and claims incurred 22,109 24,145 13,434 12,378 35,543 36,523 In changes in actuarial liabilities 17,067 17,057 — — 17,067 17,057In commission expense 8,546 6,975 2,121 1,748 10,667 8,723 Favourable (unfavourable) effect before

income taxes 4,471 10,531 (11,952) (9,983) (7,481) 548

Property and casualty reinsurance

The companies carried out reinsurance transactions in respect of new policies issued and policies renewed in fiscal 2012 and 2011, as well as the related claims incurred.

The following table shows the companies’ net retentions and coverage limits by nature of risk.

2012 $

2011 $

Single risk lossesNet retentions:

Property:– Personal insurance 2,000 2,000– Commercial insurance 1,250 1,000Civil liability 2,000 1,750

Multiple risk losses and catastrophesNet retentions 5,000 5,000 Coverage limits 325,000 310,000


43

7) OTHER ASSETS

Other assets consist of the following:

2012 $

2011 $

Other financial assetsRetained interests – securitization [note 14] 4,073 5,346 Investment income receivable 10,151 9,066 Cash in trust 1,091 857 Due from reinsurers – life and health

insurance segment 6,074 7,088 Due from reinsurers – property and casualty

insurance segment 6,558 4,172 Subrogation 14,801 13,106 Other receivables 27,565 23,243

70,313 62,878Prepaid expenses 29,821 8,503

100,134 71,381

8) DEFERRED PREMIUM ACQUISITION COSTS

2012 $

2011 $

Balance as at January 1 42,765 52,204Deferred premium acquisition costs 82,402 81,927 Amortization (77,339) (91,366)Balance as at December 31 47,828 42,765

9) INCOME TAXES

The actual provision for income taxes differs from the provision established using the combined statutory federal and provincial rate for the following reasons:

2012 2011$ % $ %

Provision for income taxes based on the combined statutory federal and provincial rate 24,893 26.90 22,979 28.40

Change in income taxes resulting from the following:Non-taxable items (7,262) (7.85) (5,941) (7.34)Different tax rates for loss carryback — — (1,836) (2.27)Future income taxes arising from a

change in tax rate — — (1,141) (1.41)Other 330 0.36 (374) (0.47)

17,961 19.41 13,687 16.91 Income taxes on investment income 1,493 1.61 1,521 1.88 Income taxes and effective rates 19,454 21.02 15,208 18.79


44

9) INCOME TAXES [Cont’d]

The income tax expense reported in the statement of income is calculated as follows:

2012 $

2011 $

Current 28,430 4,669 Deferred (recovered) (8,976) 10,539

19,454 15,208

2012 $

2011 $

Income tax expense reported in the statement of income attributable to:

Members of the Mutual 11,584 7,240 Participating policyholders 4,128 4,073 Non-controlling interests 3,742 3,895

19,454 15,208

2012 $

2011 $

Total income tax recovery reported in other comprehensive income

Current taxes (recovery) 3,540 (1,005)Deferred taxes (recovery) (7,198) (11,501)

(3,658) (12,506)

2012 $

2011 $

Income tax recovery reported in other comprehensive income attributable to:

Members of the Mutual (3,057) (9,750)Participating policyholders (892) (731)Non-controlling interests 291 (2,025)

(3,658) (12,506)

The tax consequences of the temporary differences that generate deferred income tax assets or liabilities are as follows:

2012 $

2011 $

Deferred tax assetActuarial liabilities 19,991 33,054Provision for claims and loss adjustment

expenses 3,503 3,531 Other liabilities 10,962 9,340 Employee future benefits 23,124 18,587 Unused tax losses 3,952 14,280 Other 5,075 6,197

66,607 84,989

Deferred tax liabilityBonds — 40,246 Policy loans 8,457 8,001 Investment properties 14,010 12,548 Other investments 1,346 1,363 Intangible assets 8,859 8,785 Deferred net tax gains 10,591 11,656 Other 9,524 7,229

52,787 89,828

Deferred net tax asset (liability) 13,820 (4,839)


45

Reported as:2012

$2011

$Deferred tax asset 36,515 29,494

Deferred tax liability 22,695 34,333

The Mutual has accumulated tax losses from the operations of its U.S. subsidiary in the amount of $13,208 that can be netted against future taxes payable. The accumulated tax losses will expire between 2019 and 2030.

The deferred income tax asset related to the recovery of U.S. tax losses has not been accounted for by the Mutual as it is not probable that the subsidiary will have future taxable income against which the accumulated tax losses can be used.

10) PROPERTY AND EQUIPMENT

Cost

Land $

Own-use properties

$Furniture and other

$

Computer hardware

$

Leasehold improvements

$Total

$Balance as at January 1, 2011 11,402 48,858 19,452 34,702 7,021 121,435 Purchases — 34,505 861 2,567 1,051 38,984 Disposals (5) — (307) (380) (62) (754)Other — — (40) — — (40)Balance as at December 31, 2011 11,397 83,363 19,966 36,889 8,010 159,625

Purchases — 47,046 2,887 6,651 1,193 57,777 Disposals — — (21) (422) (232) (675)Other — — — — — —Balance as at December 31, 2012 11,397 130,409 22,832 43,118 8,971 216,727

Accumulated amortization and impairment losses

Balance as at January 1, 2011 814 14,031 28,488 5,221 48,554Amortization 797 886 3,692 727 6,102Disposals — (225) (374) (62) (661)Other — (40) — — (40)Balance as at December 31, 2011 1,611 14,652 31,806 5,886 53,955

Amortization 798 869 3,598 696 5,961Disposals — (21) (421) (220) (662)Other — — — — —Balance as at December 31, 2012 2,409 15,500 34,983 6,362 59,254

Net carrying amount

December 31, 2012 11,397 128,000 7,332 8,135 2,609 157,473December 31, 2011 11,397 81,752 5,314 5,083 2,124 105,670

Own-use property does not include any capital expenses for a building under construction [2011: $52,336].


46

11) INTANGIBLE ASSETS

Intangible assets are detailed as follows:

Cost

Trademarks $

Clients and distribution networks

$

Purchased software

$

Internally developed software

$

Software under development

$Total

$Balance as at January 1, 2011 3,239 46,226 18,540 25,388 15,316 108,709 Purchases — 21 82 121 3,334 3,558 Internally developed software — — — — 8,298 8,298 Disposals — (1,199) (1) (27) — (1,227)Transfer of software under development to

purchased and internally developed software — — — — — —

Tax credits — — — — — —Other — (18) 929 459 (1,393) (23)Balance as at December 31, 2011 3,239 45,030 19,550 25,941 25,555 119,315

Purchases — 7 1,432 42 4,689 6,170 Internally developed software — — — — 6,293 6,293 Disposals — — — (2) — (2)Transfer of software under development to

purchased and internally developed software — — 955 1,076 (2,031) —

Tax credits — — — (2,737) (1,833) (4,570)Other — — — — — —Balance as at December 31, 2012 3,239 45,037 21,937 24,320 32,673 127,206

Accumulated amortization and impairment losses

Balance as at January 1, 2011 — 22,276 8,264 12,219 — 42,759 Amortization — 5,306 1,941 1,823 — 9,070 Disposals — (117) — (28) — (145)Tax credits — — — — — —Other — — — 62 — 62 Balance as at December 31, 2011 — 27,465 10,205 14,076 — 51,746

Amortization — 4,414 1,664 1,960 — 8,038 Disposals — — — — — —Tax credits — — — (919) — (919)Other — — — — — —Balance as at December 31, 2012 — 31,879 11,869 15,117 — 58,865

Net carrying amount

December 31, 2012 3,239 13,158 10,068 9,203 32,673 68,341 December 31, 2011 3,239 17,565 9,345 11,865 25,555 67,569

Note 13 shows how trademarks are attributed to CGUs.

12) GOODWILL

The carrying amount of goodwill is as follows:

Carrying amount

2012 $

2011 $

Cost 101,140 101,140 Accumulated impairment losses — —

101,140 101,140


47

13) IMPAIRMENT TEST

For the purposes of the annual impairment test, goodwill, trademarks, the client base and distribution networks have been attributed to individual CGUs.

These assets have been attributed to the segments and measured using the following significant assumptions:

Assumptions

Goodwill $

Trademarks [note 11]

$

Clients and distribution networks

[note 11] $

Pre-tax discount rate $

Terminal value growth rate

$Life and health insuranceDecember 31, 2012 55,883 1,339 5,521 12.54 4.00December 31, 2011 55,883 1,339 6,746 13.30 4.00

Property and casualty insuranceDecember 31, 2012 45,257 1,900 7,637 12.56 4.00December 31, 2011 45,257 1,900 10,819 14.10 4.00

TotalDecember 31, 2012 101,140 3,239 13,158December 31, 2011 101,140 3,239 17,565

The recoverable amount of a CGU is based on its value in use and is estimated using a discounted future cash flow model.

These cash flows are derived from budgets approved by management and cover a five-year period. Management has based its projects on an in-depth analysis of markets and projects under implementation in CGUs. The assumptions are based on revenue growth rates, terminal value growth rates, the marketing of new products, inflation rate for costs, operating synergies, and discount and tax rates. Management believes that a 1% change in a key assumption used to determine a recoverable amount would not have any impact on the impairment of goodwill and trademarks.

14) SECURITIZATION

During the year, the Mutual securitized residential mortgage loans. The following table shows aggregate balances related to securitization.

2012 $

2011 $

Retained interests reported under other assetsNhA MBS 3,999 4,165 CMB 74 1,181

4,073 5,346

Securitized and derecognized mortgage loansNhA MBS 168,419 130,203 CMB 22,406 101,503

190,825 231,706

Reinvestment assetsGov’t. of Canada bonds and Treasury bills

NhA MBS — —CMB 50,858 131,520

Cash in trustNhA MBS — —CMB 4,387 6,912

55,245 138,432

Derecognized mortgage bonds in trustNhA MBS 168,265 130,121 CMB 77,531 239,334

245,796 369,455

Mortgage loans over 90 days due secured by CMHCNhA MBS 375 —CMB 66 838

441 838


48

14) SECURITIZATION [Cont’d]

Securitization transactions

2012 2011NHA MBS

$CMB

$Total

$NHA MBS

$CMB

$Total

$Proceeds from new securitization

transactions 71,488 — 71,488 78,077 — 78,077 Premiums (discounts) related to transactions (117) — (117) 71 — 71 Net proceeds 71,371 — 71,371 78,148 — 78,148

Pre-tax gains 176 — 176 126 — 126

Cash flows from retained interests in securitization operations and related financial instruments 2,739 (900) 1,839 5,424 (3,873) 1,551

Net results from all securitization operations 1,697 (318) 1,379 3,287 (2,347) 940

Key assumptions

The key assumptions used to determine the value of the loans sold and retained interests at the securitization date are as follows:

2012 %

2011 %

Prepayment rate 23.17 23.90 Excess spread 2.06 2.21 Discount rate 1.85 1.79

As at December 31, 2012, the sensitivity of the current fair value of retained interests to 10% and 20% adverse changes in the key assumptions was as follows:

Sensitivity of key assumptions to adverse changes

2012 2011Assumption

%Impact on fair value

$Assumption

%Impact on fair value

$Prepayment rateImpact on fair value of 10% adverse change 25.49 (159) 26.29 (205)Impact on fair value of 20% adverse change 27.81 (312) 28.68 (405)

Excess spread (net of credit losses)Impact on fair value of 10% adverse change 1.88 (370) 2.01 (580)Impact on fair value of 20% adverse change 1.72 (679) 1.84 (1,064)

Discount rateImpact on fair value of 10% adverse change 2.04 (12) 1.97 (10)Impact on fair value of 20% adverse change 2.22 (24) 2.14 (20)

These sensitivities are hypothetical and should be used with caution. As shown by the tabular figures, the effect on fair value of a 10% adverse change generally cannot be extrapolated because the relationship between the change in assumption and the change in fair value may not be linear. Also, in this table, the impact of a change in a particular assumption on the fair value of retained interests is calculated without changing any other assumption; generally, changes in one given factor could result in changes in another, which may magnify or counteract the sensitivities.


49

15) CREDIT FACILITIES

As at December 31, 2012, the Mutual had lines of credit totalling $24,000 [2011: $24,000] of which a $10,000 amount [2011: $10,000] bears interest at the prime rate and the remaining $14,000 [2011: $14,000] bears interest at the prime rate plus 0.25% or at the bankers’ acceptance rate plus 125 basis points, depending on use.

The Mutual also has a $20,000 demand bridge loan [2011: $20,000] bearing interest at the bankers’ acceptance rate plus 110 basis points or at prime rate plus 0.25%, depending on use. The loan is collateralized by bond holdings whose fair value must cover 105% of the amount drawn.

The Mutual also has a $10,000 credit facility [2011: $10,000] for the issuance of letters of credit at a cost of 0.625% of the dollar amount.

It also has a $20,000 commercial line of credit [2011: $20,000] to enable it to finance its mortgage loan operations, bearing interest at prime rate.

The credit facilities were undrawn as at December 31, 2012 and 2011, respectively.

16) LIFE AND HEALTH INSURANCE CONTRACT LIABILITIES

The Boards of Directors name the Appointed Actuary, who is responsible for the valuation of life and health insurance contract liabilities in accordance with the standards of practice of the Canadian Institute of Actuaries and for expressing an opinion regarding their adequacy to meet all policyholder obligations at the statement of financial position date. In addition, the Appointed Actuary is required each year to prepare a report for the Boards of Directors on the capital adequacy of the life and health insurance companies.

As at December 31, life insurance contract liabilities and the assets backing such liabilities are summarized as follows:

2012

Life and health insurance contract liabilitiesParticipating

$

Non- participating

$

Total before reinsurance ceded

$Reinsurance ceded

$Net total

$IndividualLife and health insurance 725,901 629,344 1,355,245 80,274 1,274,971 Annuities 1,299 830,795 832,094 — 832,094

GroupLife and health insurance — 490,100 490,100 71,683 418,417 Annuities — 4,671 4,671 — 4,671

727,200 1,954,910 2,682,110 151,957 2,530,153

2011

Participating $

Non- participating

$

Total before reinsurance ceded

$Reinsurance ceded

$Net total

$IndividualLife and health insurance 712,688 571,251 1,283,939 68,436 1,215,503 Annuities 1,449 748,675 750,124 — 750,124

GroupLife and health insurance — 420,214 420,214 64,121 356,093 Annuities — 3,382 3,382 — 3,382

714,137 1,743,522 2,457,659 132,557 2,325,102


50

16) LIFE AND HEALTH INSURANCE CONTRACT LIABILITIES [Cont’d]

2012

Assets backing life and health insurance policy liabilities

Individual GroupLife and health

insurance $

Annuities $

Life and health insurance

$Annuities

$Total

$ParticipatingBonds 516,993 916 — — 517,909 Stocks 13,635 24 — — 13,659 Mortgage loans — — — — —Policy loans 28,790 51 — — 28,841 Investment properties 81,946 146 — — 82,092 Own-use properties 91,291 162 — — 91,453Other — — — — —

732,655 1,299 — — 733,954Non-participatingBonds 449,866 143,123 116,557 1,121 710,667 Stocks 25,980 333,883 58,743 565 419,171 Mortgage loans 332 312,438 121,430 1,168 435,368 Policy loans 2,506 — — — 2,506 Investment properties 39,806 13,244 — — 53,050 Own-use properties 9,218 79 — — 9,297 Other 14,608 28,028 121,687 1,817 166,140

542,316 830,795 418,417 4,671 1,796,199

1,274,971 832,094 418,417 4,671 2,530,153

Reinsurance ceded 80,274 — 71,683 — 151,957

Total before reinsurance ceded 1,355,245 832,094 490,100 4,671 2,682,110

2011Individual Group


$Annuities

$


$Annuities

$Total

$ParticipatingBonds 523,762 1,056 — — 524,818 Stocks 12,324 24 — — 12,348 Mortgage loans 9,928 20 — — 9,948 Policy loans 27,366 55 — — 27,421 Investment properties 77,939 157 — — 78,096 Own-use properties 53,888 109 — — 53,997 Other 13,501 28 — — 13,529

718,708 1,449 — — 720,157Non-participatingBonds 422,642 129,385 112,018 1,077 665,122 Stocks 20,296 268,543 47,085 453 336,377 Mortgage loans 297 315,454 108,572 1,044 425,367 Policy loans 2,235 — — — 2,235 Investment properties 31,446 8,768 — — 40,214 Own-use properties 9,358 132 — — 9,490 Other 10,521 26,393 88,418 808 126,140

496,795 748,675 356,093 3,382 1,604,945

1,215,503 750,124 356,093 3,382 2,325,102

Reinsurance ceded 68,436 — 64,121 — 132,557

Total before reinsurance ceded 1,283,939 750,124 420,214 3,382 2,457,659

The estimated fair value of assets backing liabilities before reinsurance ceded was $2,540,154 [2011: $2,337,039].


51

ASSUMPTIONS

In computing life and health insurance contract liabilities, the assumptions were determined using the Appointed Actuary’s best estimates at the time of valuation as to contract terms regarding numerous variables, such as mortality, morbidity, investment return, contract management expenses, deferred taxes, policy lapses and participating policyholder dividends. Assumptions are periodically reviewed and reflect the most recent experience, as well as current life and health insurance company data. In certain cases, industry data are used. The actuary then factors margins for adverse deviations into these best estimates that take into account the risks incurred by the life and health insurance companies to determine the final assumptions used. Those that prove most likely depending on various possibilities are used.

The following methods were used to determine the most significant assumptions:

Mortality

Mortality is the occurrence of death in a given population. It is a key assumption used in life insurance and certain types of annuities.

For individual life insurance mortality, the assumption stems from a combination of the most recent experience of the life and health insurance companies and recent industry experience published by the Canadian Institute of Actuaries. The assumption differs based on the risk of tobacco use, classification at selection, as well as the age of insureds.

For group life insurance mortality, the assumption is based on industry experience.

For annuity mortality, the assumption is derived from the most recent industry data published by the Canadian Institute of Actuaries adjusted to reflect the business of the life and health insurance companies. Moreover, the assumption used incorporates an improvement with regard to the current mortality level.

A 2% increase in mortality for all insureds of the life and health insurance companies would result in an increase in life and health insurance contract liabilities and a decrease in net income of the life and health insurance companies amounting to $2,610 [2011: $2,296]. A 2% reduction in mortality for all insureds of the life and health insurance companies would result in a decrease in life and health insurance contract liabilities and an increase in net income of the life and health insurance companies amounting to $2,664 [2011: $2,191].

Morbidity

Morbidity refers to the occurrence of accidents or illnesses among the risks insured.

With regard to morbidity, the assumption is based on industry morbidity tables, which are modified to reflect the recent experience of the life and health insurance companies. The assumptions are different based on the duration since the onset of disability, age and sex.

A 5% increase in the incidence of morbidity and a decrease in termination rates would result in an increase in life and health insurance contract liabilities and a $21,598 decrease in net income for the life and health insurance companies [2011: $21,458]. A 5% decrease in the incidence of morbidity and an increase in termination rates would result in an decrease in life and health insurance contract liabilities and a $23,418 increase in net income for the life and health insurance companies [2011: $25,206].

Return on investments

The life and health insurance companies hold assets backing the life and health insurance contract liabilities. The expected rates of return for these assets are estimated based on current economic prospects, the investment policy of the companies and anticipated cash flows by business line. Given the economic outlook as at December 31, 2012, the yield curve by duration of Canadian Treasury bills ranges from 0.92% to 2.44% [2011: 0.83% to 2.49%].

No assets backing life and health insurance contract liabilities are classified as available for sale: for accounting purposes, this matches investment income to changes in actuarial liabilities recognized in the statement of income. As for life and health insurance contract liabilities other than actuarial liabilities, the accounting mismatch is low.

To reflect interest rate risk, consisting of the financial loss that may arise from fluctuations in interest rates, the companies match each group of assets to the life and health insurance contract liabilities they back. This matching, which consists in managing spreads in maturities between assets and liabilities as well as expected net cash flows, minimizes potential losses related to interest rate risk.

An immediate 1% decline over the entire yield curve would result in a $23,288 decrease in net income [2011: $26,629]. An immediate 1% rise over the entire yield curve would result in a $22,279 increase in net income [2011: $21,647].

The companies manage credit risk through detailed credit and underwriting policies, and by placing aggregate limits on each issuer in their investment portfolios. An allowance for impaired loans was established and set off against the value of these loans. Moreover, actuarial liabilities include an amount to cover any potential payment defaults in respect of assets currently held by the companies. Potential payment defaults are factored in by reducing the expected rate of return of the asset. The reduction in rate of return is based on the risk of payment default for each asset class.

Contract maintenance expenses

Contract maintenance expenses are determined using internal cost allocation analyses of the individual life and health insurance companies, based on the actual or budgeted overhead costs for the following fiscal year. These expenses are indexed to inflation for future years.

An immediate 5% increase in contract management expenses would result in a $6,401 decrease in net income [2011: $4,962].


52

16) LIFE AND HEALTH INSURANCE CONTRACT LIABILITIES [Cont’d]

ASSUMPTIONS [Cont’d]

Deferred taxes

Actuarial liabilities include amounts reflecting the interest-generating nature of the assets backing the deferred tax liabilities recorded in the statement of financial position. Actuarial liabilities as at December 31, 2012 were reduced by $9,015 [2011: $7,720] as a result of the impact of this discounting, which is carried out only for deferred tax liabilities related to life and health insurance contract liabilities.

Policy lapses

Policyholders may allow their policies to lapse prior to the end of the contractual coverage period by not paying the premiums or by surrendering their policy for the cash surrender value.

Assumptions regarding policy lapses are based on an analysis of the recent experience of life and health insurance companies for each business line.

A 10% deterioration in policy lapse assumptions would result in a $14,309 decrease in net income [2011: $12,936].

Participating policyholder dividends

Actuarial liabilities include amounts relating to regular future dividends to be paid to policyholders. The dividend scales are in keeping with policyholders’ reasonable expectations and the assumptions used in measuring actuarial liabilities.

Margins for adverse deviations

The basic assumptions used to determine life and health insurance contract liabilities are the best estimates as to a range of possible results. Each assumption must include an additional margin for adverse deviations in order to recognize the uncertainty regarding the preparation of best estimates and to take into account potential policy liability deterioration. These margins provide better assurance that life and health insurance contract liabilities are adequate to cover future policy benefit payments.

The Canadian Institute of Actuaries prescribes minimum standards for determining the margin in the interest rate assumption. The margins in other assumptions must fall within a range prescribed by the Canadian Institute of Actuaries and are determined based on the risk profile of the insurance companies.

CHANGES IN NET ACTUARIAL LIABILITIES

2012 $

2011 $

Balance, beginning of year 2,207,904 1,946,182

Change dueTo the passing of time 82,297 161,960 To new business 111,018 104,225 To changes in assumptions (12,719) (4,463)

180,596 261,722

To the acquisition of Promutuel Life Inc. 5,919 —

Balance, end of year 2,394,419 2,207,904

Gross technical provisions 2,546,376 2,340,461 Reinsurance assets [note 6] 151,957 132,557

2,394,419 2,207,904

The key changes made to actuarial assumptions are detailed as follows:

2012 $

2011 $

Mortality (12,179) (18,420)Return on investments 3,263 18,129 Methods and other (3,803) (4,172)

(12,719) (4,463)

The impact of the changes to assumptions and methods for mortality and investment performance on the actuarial assumptions for the 2012 fiscal year are respectively due to the annual updating of the mortality table and the drop in long-term rates of return.


53

17) PROPERTY AND CASUALTY INSURANCE CONTRACT LIABILITIES

Actuarial liabilities are established to reflect estimated total property and casualty insurance contract liabilities as at the consolidated statement of financial position date, including claims incurred but not reported. The ultimate cost of these liabilities differs from the best estimate for a variety of reasons, including obtaining additional information with respect to the facts and circumstances of the claims incurred. There was no premium deficiency as at the statement of financial position date.

Unearned premiums

The following table details unearned premiums per business line.

2012Gross unearned premiums

$Reinsurance ceded

$Net unearned premiums

$Personal insuranceAutomobile:

Civil liability 128,533 — 128,533Accident 15,352 — 15,352Other 175,779 — 175,779

Property and civil liability 137,860 — 137,860Other 3,263 — 3,263

460,787 — 460,787

Commercial insuranceAutomobile:


Property and civil liability 52,512 1,696 50,816Other 6,671 2,137 4,534

72,654 3,833 68,821

Balance, end of year 533,441 3,833 529,608


$Reinsurance ceded


$Personal insuranceAutomobile:


Property and civil liability 125,687 — 125,687Other 3,068 — 3,068

425,221 — 425,221



Property and civil liability 49,505 1,267 48,238Other 6,337 1,976 4,361

67,958 3,243 64,715



54

17) PROPERTY AND CASUALTY INSURANCE CONTRACT LIABILITIES [Cont’d]

Changes in unearned premiums


$Reinsurance ceded


$Balance, beginning of year 493,179 3,243 489,936 Premiums written during the year 776,158 28,099 748,059 Premiums earned during the year (735,896) (27,509) (708,387)Balance, end of year 533,441 3,833 529,608


$Reinsurance ceded


$Balance, beginning of year 462,109 2,997 459,112 Premiums written during the year 757,161 25,379 731,782 Premiums earned during the year (726,091) (25,133) (700,958)Balance, end of year 493,179 3,243 489,936

Provision for claims and loss adjustment expenses

The following table details gross and net provision for claims and loss adjustment experience (net of subrogation) by business line.

2012Gross provision

for claims and loss adjustment expenses

$Reinsurance ceded

$

Net provision for claims and loss

adjustment expenses $

Personal insuranceAutomobile:

Civil liability 99,498 1,773 97,725 Accident 51,275 4,201 47,074 Other 17,932 (33) 17,965

Property and civil liability 54,343 8,806 45,537 Other 2,167 — 2,167

225,215 14,747 210,468


Civil liability 8,593 — 8,593 Accident 2,972 — 2,972 Other 384 37 347

Property and civil liability 34,251 1,404 32,847 Other 13,657 7,221 6,436

59,857 8,662 51,195



55

2011Gross provision


$Reinsurance ceded

$



Personal insuranceAutomobile:

Civil liability 93,026 2,087 90,939 Accident 71,812 6,046 65,766 Other 14,816 96 14,720

Property and civil liability 54,444 5,542 48,902 Other 2,788 — 2,788

236,886 13,771 223,115


Civil liability 8,462 — 8,462 Accident 3,599 — 3,599 Other 557 32 525

Property and civil liability 28,866 2,320 26,546 Other 10,977 7,490 3,487

52,461 9,842 42,619


Provision for claims and loss adjustment expenses

2012 $

2011 $

Gross provision for claims and loss adjustment expenses (net of subrogation) 285,072 289,347

Subrogation [note 7] 14,801 13,106 299,873 302,453

Reinsurance assets are detailed as follows:

Reinsurance ceded2012

$2011

$Unearned premiums 3,833 3,243 Provision for claims and loss adjustment

expenses 23,409 23,613 27,242 26,856


56


Changes in provision for claims and loss adjustment expenses

The following table summarizes the changes in the provision for claims and loss adjustment expenses of property and casualty insurance companies for the year.

2012Gross provision


$Reinsurance ceded

$



Balance, beginning of year 289,347 23,613 265,734

Current year claims 431,012 15,715 415,297 Prior year unfavourable (favourable) claims

development 2,280 (2,165) 4,445 Increase (decrease) due to changes in

discount rate 1,496 (116) 1,612 Total claims incurred 434,788 13,434 421,354

Claims paid 439,063 13,638 425,425


2011Gross provision


$Reinsurance ceded

$



Balance, beginning of year 302,636 25,141 277,495

Current year claims 441,625 12,509 429,116Prior year favourable claims development (1,866) (766) (1,100)Increase due to changes in discount rate 2,518 635 1,883 Total claims incurred 442,277 12,378 429,899

Claims paid 455,566 13,906 441,660



57

Effect of time value of money and provision for adverse deviation

The following table shows the effect of the time value of money and the provision for adverse deviation on the carrying amount of the net provision for claims and loss adjustment expenses.

2012Gross provision


$Reinsurance ceded

$



Undiscounted value 276,714 24,010 252,704 Effect of time value of money using a rate of

3.11% (19,242) (1,367) (17,875)Provision for adverse deviations 27,600 766 26,834 Carrying amount 285,072 23,409 261,663

2011Gross provision


$Reinsurance ceded

$



Undiscounted value 282,487 24,100 258,387 Effect of time value of money using a rate of

3.86% (19,245) (1,473) (17,772)Provision for adverse deviations 26,105 986 25,119 Carrying amount 289,347 23,613 265,734

Since the time value of money is considered when determining the provision for claims and loss adjustment expenses, an increase or decrease in the discount rate would result in a decrease or increase in the provision for claims and loss adjustment expenses, respectively. A 1% change in the discount rate would have a $4,660 impact on the fair value of the provision for claims and loss adjustment expenses as at December 31, 2012 [2011: $4,900] and on net income.


58


Gross claims development

Year of accident2007 and prior

$20081

$2009

$2010

$2011

$2012

$Total

$Estimated amount of undiscounted claims

and loss adjustment expenses before external reinsurance, less subrogation

At end of accident year 278,151 477,996 365,529 407,719 401,862 398,892

Revised estimates1 year later 277,213 498,322 373,300 395,484 399,2602 years later 277,380 505,753 377,671 398,4193 years later 274,936 512,732 377,5044 years later 276,641 514,0655 years later 280,111Current estimates 280,111 514,065 377,504 398,419 399,260 398,892 2,368,251

Claims paid during prior periodsAt end of accident year 213,714 269,616 263,633 267,904 287,935 289,6691 year later 256,549 381,338 335,066 348,650 357,1352 years later 262,629 420,852 351,431 360,3063 years later 266,330 452,368 359,3324 years later 268,547 473,4645 years later 269,311Current cumulative payments 269,311 473,464 359,332 360,306 357,135 289,669 2,109,217

Provision for claims and loss adjustment expenses after external reinsurance 10,800 40,601 18,172 38,113 42,125 109,223 259,034

Provision for internal expenses and risk pooling arrangement 17,680

Effect of time value of money and provision for adverse deviation 8,358

Gross provision for claims and loss adjustment expenses 285,072

Excess (insufficiency) of initial provision relative to re-estimated final cost as at December 31, 2012Amount (1,960) (36,069) (11,975) 9,300 2,602Percentage (0.7)% (7.5)% (3.3)% 2.3% 0.6%

The amounts relating to Unica Insurance Inc. are included as of its acquisition by La Capitale General Insurance Inc. on September 30, 2008.

1 The operations of Unica Insurance Inc. were integrated into a subsidiary of the Mutual in September 2008. The total liability for gross claims include an amount of $174,677 for all accident years related to Unica Insurance Inc.


59

Net claims development

Year of accident2007 and prior

$20081

$2009

$2010

$2011

$2012

$Total

$Estimated amount of undiscounted claims

and loss adjustment expenses after external reinsurance

At end of accident year 273,853 464,245 363,222 397,328 390,459 381,790

Revised estimates1 year later 273,043 483,402 366,331 383,993 385,3322 years later 273,227 489,671 368,745 386,5723 years later 270,705 497,703 367,2424 years later 272,004 500,6685 years later 272,459Current estimates 272,459 500,668 367,242 386,572 385,332 381,790 2,294,063

Claims paid during prior periodsAt end of accident year 212,644 264,422 259,014 265,656 283,078 280,5531 year later 255,729 370,686 327,561 339,322 347,4732 years later 261,820 409,055 342,001 350,1933 years later 265,418 440,752 351,2284 years later 267,608 461,6785 years later 268,402Current cumulative payments 268,402 461,678 351,228 350,193 347,473 280,553 2,059,527

Provision for claims and loss adjustment expenses after external reinsurance 4,057 38,990 16,014 36,379 37,859 101,237 234,536

Provision for internal expenses and risk pooling arrangement 18,168

Effect of time value of money and provision for adverse deviation 8,959

Net provision for claims and loss adjustment expenses 261,663

Excess (insufficiency) of initial provision relative to re-estimated final cost as at December 31, 2012Amount 1,394 (36,423) (4,020) 10,756 5,127Percentage 0.5% (7.8)% (1.1)% 2.7% 1.3%

The amounts relating to Unica Insurance Inc. are included as of its acquisition by La Capitale General Insurance Inc. on September 30, 2008.

1 The operations of Unica Insurance Inc. were integrated into a subsidiary of the Mutual in September 2008. The total liability for net claims include an amount of $166,766 for all accident years related to Unica Insurance Inc.


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18) OTHER LIABILITIES

Other liabilities consist of the following:

2012 $

2011 $

Other financial liabilitiesOther amounts on deposit 53,115 43,425 Loyalty, stabilization and development fund 43,233 35,513 Excess of outstanding cheques over cash 3,843 2,345 Deposits for taxes 4,138 4,450 Due to reinsurers – life and health insurance segment 7,608 6,315 Due to reinsurers – property and casualty insurance segment 529 1,175 Balance of purchase price payable [note 4] 534 —Deposits in trust 1,091 857 Liabilities related to derivative financial instruments [note 22] 523 3,619 Other 95 165

114,709 97,864

Other liabilitiesStock appreciation rights plan payable 9,941 13,422 Deferred revenues 1,045 832

10,986 14,254

125,695 112,118

The Mutual offers a stock appreciation rights plan to certain officers. Under this plan, participants are entitled to receive cash compensation based on the increase in value of the shares of La Capitale Financial Group Inc. relative to the initial value as defined under the plan. The rights must be exercised when participants leave the position, which renders them eligible for the plan. The accumulated amounts are payable under terms that vary according to the participant’s departure type (transfer, retirement, permanent disability, death or voluntary termination) over a maximum term of four years following the year of departure or at the end of the quarter following departure.

Plan expense for the year amounted to $1,071 [2011: $1,016].

The fair value of stock appreciation rights is estimated at the grant dates using the Black-Scholes method. The model uses the following key assumptions:

2012 2011Risk-free interest rate 3.52% 1.54%Expected volatility of dividend yield 6.89% 6.86%Average expected life of rights 7.59 years 5.53 years

19) EMPLOYEE FUTURE BENEFITS

The Mutual has four defined benefit plans providing pension benefits to most of its employees as well as defined contribution plans. The defined benefit plans are based on years of service and use final average earnings or annually indexed pension credits. Pension benefits are increased based on the consumer price index up to a maximum of 3% each year. These plans are funded. The Mutual has additional unfunded plans for senior management.

The defined contribution plans were set up in 2002 and 2011. The expense for these plans totalled $947 [2011: $957].

Other future benefits include retirees’ contributory health insurance plans for which employee contributions are adjusted annually, life insurance plans and celebration costs and retirements. These plans are unfunded.


61

Information related to the pension plans and other future benefits is as follows:

Pension plans Other future benefits2012

$2011

$2012

$2011

$Defined benefit obligationBalance, beginning of year 314,884 260,755 15,921 13,537 Employee contributions 7,389 6,854 — —Current service costs 13,824 10,892 1,193 1,270 Transfers 27 108 — —Interest expense 16,843 15,189 1,140 840 Actuarial losses 36,035 31,359 1,149 997 Benefits paid (9,248) (10,345) (1,053) (723)Impact of changes in assumptions — 72 — —Balance, end of year 379,754 314,884 18,350 15,921

The defined benefit obligation is detailed as follows:


$2011

$2012

$2011

$Funded plans 370,620 308,579 — —Unfunded plans 9,134 6,305 18,350 15,921

379,754 314,884 18,350 15,921


$2011

$2012

$2011

$Net assetsFair value, beginning of year 261,841 237,794 — —Actual return on plan assets 25,959 1,507 — —Employer contributions 22,903 25,923 — —Employee contributions 7,389 6,854 — —Transfers 27 108 — —Benefits paid (9,248) (10,345) — —Fair value, end of year 308,871 261,841 — —


$2011

$2012

$2011

$Funded status – Net deficit (70,883) (53,043) (18,350) (15,921)Defined benefit liability (70,883) (53,043) (18,350) (15,921)

Pension plan assets were measured as at December 31, 2012 and the defined benefit obligation was measured as at December 31, 2012.

Pension plan assets do not include securities of the Mutual and its subsidiaries.


62

19) EMPLOYEE FUTURE BENEFITS [Cont’d]

The following table shows the allocation of assets at fair value by main asset class:

Pension plans2012

%2011

%Asset classesStocks 59 57 Bonds 39 42 Other 2 1

100 100

The following table summarizes the weighted average actuarial assumptions used to calculate defined benefit obligation and expense:


%2011

%2012

%2011

%To determine defined benefit obligationDiscount rate 4.50 5.25 4.50 5.25 Rate of increase in future compensation 3.25 3.50 3.25 3.50

To determine defined benefit expenseDiscount rate 5.25 5.70 5.25 5.70 Expected rate of return on plan assets 6.50 6.50 — —Rate of increase in future compensation 3.25 3.50 3.25 3.50

2012

Assumed health care cost trend ratesOther future benefits

Drugs Health Dental OtherInitial health care cost trend rates 7.00% 3.00% 3.00% 5.00%Cost trend rate declines to 3.00% 3.00% 3.00% 3.00%Number of years required to stabilize rates 20 years — 20 years 20 years

2011Other future benefits

Drugs Health Dental OtherInitial health care cost trend rates 7.00% 3.00% 3.70% 5.00%Cost trend rate declines to 3.00% 3.00% 3.00% 3.00%Number of years required to stabilize rates 15 years — 15 years 15 years

The expected rate of return on plan assets is based on a weighted average of expected rates from the various asset classes comprising the plans. Return expectations for the various classes are based on an analysis of historical returns and the expected market returns as of the date the liability is established.


63

The Mutual’s net expense in respect of employee pension plans and other employee future benefits is as follows:


$2011

$2012

$2011

$Current service costs 13,824 10,892 1,193 1,270 Interest 16,843 15,189 1,140 840 Expected return on plan assets (17,652) (16,328) — —Past service costs recognized in the year 37 — — —Change in asset value ceiling test — (88) — —Net expense 13,052 9,665 2,333 2,110

Net employee future benefit expense is included under general expenses in the statement of income.

historical experience adjustments were as follows:

2012 $

2011 $

Pension plansPresent value of defined benefit obligation 379,754 314,884 Fair value of plan assets 308,871 261,841 Deficit (70,883) (53,043)

Adjustments related to plan liability experience (36,035) (31,359)

Adjustments related to plan asset experience 8,307 (14,821)

Other future benefitsPresent value of defined benefit obligation 18,350 15,921 Fair value of plan assets — —Deficit (18,350) (15,921)

Adjustments related to other future benefit liability experience (1,149) (997)

The dates of the most recent and the next required actuarial valuations for funding purposes are as follows:

Most recent valuation Next valuationManagers and related staff plan December 31, 2011 December 31, 2012Employee plan December 31, 2011 December 31, 2012Senior management plan December 31, 2011 December 31, 2012Board members plan December 31, 2011 December 31, 2012

Sensitivity analysis

The assumption regarding the increase in health care costs has an impact on the amounts reported for other future benefits. A one-percentage-point increase or decrease in the health care cost trend rate would have the following impact for 2012:

Increase $

Decrease $

Total service costs and interest expense 298 (229)

Defined benefit obligation 2,910 (2,271)


64

20) LONG-TERM DEBT

2012 $

2011 $

Subordinated debenture maturing on September 29, 2016 and bearing interest at a rate of 4.93% [2011: 4.93%] per annum payable semi-annually. 7,000 7,000

Borrowing secured by a $20,000 first immovable hypothec primarily concerning an investment building valued at $21,169, bearing interest at the bankers’ acceptance rate plus 2.25% [2011: 2.40%], totalling 5.367% [2011: 5.515%] renewable in 2016 and maturing in 2036. 16,645 16,939

23,645 23,939

The maturities for long-term debt are as follows:

Borrowing secured by an immovable hypothec

$Subordinated debenture

$Total

$Current portion 369 — 369 Portion from 1 to 5 years 16,276 7,000 23,276

16,645 7,000 23,645

The interest on long-term debt amounted to $1,276 [2011: $1,391].

The subordinated debenture, constituting an unsecured direct claim on the Mutual, ranks after the rights of policyholders and other creditors of the Mutual. Repayment of the subordinated debenture in whole or in part is subject to approval by the Autorité des marchés financiers.

The fair values of the subordinated debenture and the borrowing secured by an immovable hypothec classified under other liabilities are estimated using a valuation model based on market prices for instruments with similar terms. These fair values may fluctuate depending on interest rates and credit risks associated with such financial instruments.

2012 $

2011 $

Fair valueSubordinated debenture 7,391 7,135 Borrowing secured by an immovable

hypothec16,763 17,143

24,154 24,278

21) CAPITAL MANAGEMENT

The Mutual’s capital management objectives are to ensure capital preservation, development and growth, and to meet the requirements of the authorities that regulate the operations of its insurance subsidiaries.

To meet its objectives, the Mutual has implemented sound business and financial practices with respect to capital management. The policies and procedures described in these practices enable the Mutual and its subsidiaries to support strategic directions and performance goals while meeting the set capital adequacy target.

The Mutual and its subsidiaries regularly review capital using various tools including the Dynamic Capital Adequacy Testing and capital position monitoring reports. These documents are reviewed and approved each year by the Boards of Directors.

In Quebec, insurance companies must comply with the Autorité des marchés financiers (AMF) capital adequacy requirements (CAR) guideline to provide a guarantee of their solvency. The consolidated regulatory capital of the subsidiary La Capitale Civil Service Insurer Inc., determined in accordance with this guideline, constitutes its capital funds and is different from the equity reported in the statement of financial position. It consists of two tiers of capital.

Tier 1 capital comprises more permanent components of capital than Tier 2, and consists primarily of common shareholders’ and participating policyholders’ equity.


65

The following table provides a summary of total available capital:

2012 $

2011 $

Tier 1 capital 481,764 409,198 Tier 2 capital — —Total available capital 481,764 409,198

Under regulatory authority guidelines, the insurance subsidiaries must set capital targets which exceed capital requirements. As at December 31, 2012, the insurance subsidiaries were in compliance with the applicable capital requirements of regulatory authorities.

In 2012, items resulting in an increase in capital consisted of net income and changes in available-for-sale financial instruments.

22) DERIVATIVE FINANCIAL INSTRUMENTS

The Mutual uses interest rate contracts including interest rate [reverse] repurchase agreements, as well as swaps, in the normal course of its risk management.

The following table shows the notional amounts of these derivative financial instruments and their related fair values.

Interest rate contracts2012

$2011

$Notional amount by maturityUnder 1 year 174,531 242,603 1–3 years — 77,531

174,531 320,134

Reported as:Assets at fair value — 99

Liabilities at fair value [note 18] 523 3,619

The notional amount is the amount to which the rate or price is applied to determine the amounts to be exchanged periodically.

The fair value recognized in other liabilities is the estimated amount that the Mutual would be required to pay at the end of the year to close out its positions.

Sensitivity analysis

In light of the high probability of interest rate movements related to securitization transactions, the Mutual is exposed to interest rate risk, which is hedged using swaps. A 1% increase in the interest rate would result in a $109 increase [2011: $764] in the fair value of swaps, which are measured using valuation techniques based in large part on non-observable market inputs. A 1% decrease in the interest rate would result in a $111 decrease [2011: $781] in the fair value of swaps.


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23) INVESTMENT INCOME

2012

Held for trading $

Designated at fair value through profit or loss

$Available-for-sale

$


$Other

$Total

$Cash and cash equivalentsInterest 3,411 — — — — 3,411

BondsInterest — 56,140 13,521 — — 69,661Realized gains — — 12,127 — — 12,127 Change in fair value — 7,567 — — — 7,567

StocksDividends — 16,015 14,400 — — 30,415 Realized gains — — 5,271 — — 5,271 Change in fair value — 16,137 — — — 16,137

Mortgage loansInterest — — — 23,273 — 23,273

Policy loans — — — 1,845 — 1,845

Investment propertiesRental income — — — — 23,784 23,784Change in fair value — — — — (2,629) (2,629)

Other investmentsInterest (19) — — 1,536 (44) 1,473 Change in fair value 292 9 — — 63 364 Share of income of joint ventures — — — — 298 298

Other — — (31) — 382 3513,684 95,868 45,288 26,654 21,854 193,348

2011

Held for trading $

Designated at fair value through profit or loss

$Available-for-sale

$


$Other

$Total

$Cash and cash equivalentsInterest 3,726 — — — — 3,726

BondsInterest — 53,072 15,170 — — 68,242 Realized gains — — 14,541 — — 14,541 Change in fair value — 136,867 — — — 136,867

StocksDividends — 12,698 12,410 — — 25,108 Realized gains — — 4,456 — — 4,456 Change in fair value — (14,378) — — — (14,378)

Mortgage loansInterest — — — 26,589 — 26,589

Policy loans — — — 1,855 — 1,855

Investment propertiesRental income — — — — 23,878 23,878 Change in fair value — — — — — —

Other investmentsInterest 4 43 — 1,627 (9) 1,665 Change in fair value 1,346 — — — — 1,346 Share of income of joint ventures — — — — 227 227

Other — — — — 135 135 5,076 188,302 46,577 30,071 24,231 294,257


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24) GENERAL EXPENSES

2012 $

2011 $

Salaries and benefits 192,162 174,068 Amortization of property and equipment

[note 10]5,961 6,102

Amortization of intangible assets [note 11] 7,119 9,070 Fees, rent and other 54,950 51,496

260,192 240,736

25) LEASES

As lessee

As at December 31, 2012, the Mutual is committed under leases and service contracts expiring at various dates through 2022.

Future minimum payments under non-cancellable operating leases are as follows:

2012 $

2011 $

Under 1 year 4,214 3,233 1–5 years 7,337 6,865 Over 5 years 3,576 4,508

15,127 14,606

These leases have terms ranging from one to ten years and may include a renewal option at expiry.

Lease payments recognized as lease expense for the year consisted of $3,233 in minimum payments [2011: $3,462].

As lessor

Operating leases pertain to the rental of properties held by the Mutual. These leases have terms ranging from one to 24 years and may include a renewal option at expiry. There is no purchase option available under current lease terms.

Future rent payments receivable under non-cancellable leases are as follows:

2012 $

2011 $

Under 1 year 20,839 20,552 1–5 years 64,061 59,864 Over 5 years 72,704 75,000

157,604 155,416


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26) COMMITMENTS

Investment commitments

In the normal course of the Mutual’s business, various outstanding contractual commitments related to residential loan offers are not reflected in the consolidated financial statements and may not be fulfilled.

Expiring in45 days

$46–365 days

$2014 and thereafter

$5,381 16,211 —

Structured settlements

The Mutual has entered into annuity contracts with several Canadian life and health insurance companies to provide for fixed and periodic benefit payments to beneficiaries. Under these agreements, the Mutual has ceded its commitments to the beneficiaries of annuity contracts; however, it remains exposed to credit risk to the extent that the life and health insurance companies might not be able to meet their financial obligations to these beneficiaries. To reduce its exposure to this credit risk, the Mutual has purchased annuity contracts from insurance companies with excellent credit ratings. The residual credit risk assumed by the Mutual is the credit risk related to the Canadian life and health insurance companies with which it does business. This residual credit risk is mitigated by the protection provided by ASSURIS to life and health insurance policyholders.

As at December 31, 2012, none of the insurance companies from which the Mutual had acquired annuity contracts were in default and accordingly, no provision for credit risk was recorded in the financial statements. Exposure to credit risk is evaluated as total purchases of annuity contracts that are not provided for as a liability of the Mutual, which amounted to $21,898 [2011: $20,902] over a maximum period of 52 years [2011: 52 years]. The risk-adjusted balance is determined by applying the standard measures of counterparty risk defined by the regulatory authority to the credit equivalent amount.

The Mutual’s management considers the risk of financial default by the insurance companies with which it does business to be very low.

Other

The Mutual acquired emphyteutic lease rights on April 5, 1989 and August 6, 1990 in respect of the land on which a building and real estate complex are located, expiring on December 31, 2050 and May 31, 2082. As at December 31, 2012, annual lease payments totalled $332 [2011: $322] indexed at 3% per annum until December 31, 2020 and a fixed amount of $80 until May 31, 2022. Subsequently, annual lease payments will be adjusted on December 31, 2020 and May 31, 2022, respectively, based on the value of the land and the average yield of Quebec long-term savings bonds. Total commitments amount to $2,951 from 2013 to 2020 [$3,273 from 2012 to 2020] and $753 from 2013 to 2022 [$833 from 2012 to 2022].

Commitments as at December 31, 2012 relating to the construction of the new head office amounted to $0 [2011: $17,200].

The Mutual is also committed to subscribe, on demand, an amount of $2,568 [2011: $4,125] for class A units of a mutual fund at the price of $1 per unit.

As at December 31, 2012, the Mutual is committed under an agreement in respect of a charity to pay a total amount of $1,680. The minimum payments for each of the next four fiscal years amount to $420.

27) CONTINGENCIES

The Mutual is involved in certain legal claims arising in the normal course of business. Management believes that the Mutual has set aside sufficient provisions to cover potential losses in relation to such lawsuits.


69

28) RELATED PARTY INFORMATION

These financial statements include the financial statements of La Capitale Civil Service Mutual and the subsidiaries and joint ventures listed below:

SubsidiaryLa Capitale Financial Group Inc.La Capitale Civil Service Insurer Inc.La Capitale Insurance and Financial Services Inc.Penncorp Life Insurance CompanyLa Capitale General Insurance Inc.L’Unique General Insurance Inc.Unica Insurance Inc.La Capitale MFQ Real Estate Management Inc.La Capitale Financial Services Inc.AGA Financial Group Inc.La Capitale Participations inc.3602214 Canada Inc.Immo-Beauport S.E.C.Développement informatique Unicap inc.

Affiliated companyGMF Assurances

Joint venturesSociété Bon Pasteur (s.e.n.c.)Groupe Cloutier Employee Benefits Inc.

Transactions with related entities

The main transactions carried out with the joint ventures relate to the distribution of financial products and to various administrative services.

Joint ventures2012

$2011

$TransactionsInvestment income 1,213 1,849 Fees, commissions and royalties 1,986 1,936 General expenses 1,442 1,469

All transactions were carried out at fair value.

Affiliated company2012

$2011

$Statement of financial positionLong-term debt 7,000 7,000

Compensation of executive officers

The accumulated compensation of senior executive officers for the year is as follows:

2012 $

2011 $

Short-term employee benefits 21,291 19,679 Post-employment benefits 6,219 4,532 Termination benefits 157 —


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29) MANAGEMENT OF FINANCIAL INSTRUMENT AND INSURANCE CONTRACT RISK

Principles and responsibilities of risk management

The guiding principle of risk management is to identify, understand and report the Mutual’s risk exposures to its various stakeholders. A variety of policies have been implemented and approved by the Board of Directors with various committees in place to monitor risk exposures. These policies are reviewed on an annual basis.

The Board of Directors is responsible for establishing the Mutual’s level of risk tolerance and for implementing the policies required to ensure monitoring and understanding of the risk it assumes. The Board of Directors is also responsible for governance. The Audit Committees of the insurance companies are responsible for liaising between the Boards of Directors and the various committees involved in the Mutual’s risk management. The Internal Audit function, which reports to the Audit Committee, is responsible for assessing compliance with the policies.

The Risk Management Advisory Committee, the Regulatory Compliance Committee and the Investment Committee report to senior management, which liaises with the Board of Directors and the Audit Committees of the insurance companies.

The risk management policy falls under the purview of the Risk Management Committee. Coordinated by the Office of the Executive Vice-President, Financial Affairs, Real Estate and IT Infrastructure, this policy provides a framework for the Mutual’s key risks, consisting of insurance risks, financial risks, operational risks and strategic risks.

The Mutual monitors insurance risks pertaining to product design and pricing, as well as to underwriting and liabilities. Financial risks consisting of market, exchange rate, credit, real estate, liquidity and capital management risks are measured and managed. For operational risks, standards designed to limit the risks of administrative deficiencies are set out and followed. Strategic risk exposures are managed by the implementation and stringent monitoring of a strategic plan, as well as by monitoring the Mutual’s business.

The financial stability of the Mutual’s insurance subsidiaries is validated annually by dynamic capital adequacy testing (“DCAT”) conducted by the Appointed Actuaries, which includes a formal opinion as to the financial soundness of the Mutual’s insurance subsidiaries.

Insurance risks–Life and health insurance

By selling insurance contracts to its insureds, the Mutual assumes insurance risks. Risk arises when an insured event materializes differently than anticipated. Such variances are minimized through selection, pricing and reinsurance.

The Mutual’s life and health insurance risk is not concentrated in a single region or product. The catastrophe reinsurance treaty makes it possible to manage the risk concentration of group business. An analysis is conducted each year to review concentration levels and adjust the required catastrophe treaty coverage.

Measuring the actuarial liabilities associated with insurance contracts is complex and requires the use of several assumptions and valuation methods. The most sensitive assumptions for the Mutual pertain to mortality, morbidity and the economic environment. During the first annual DCAT, sensitivity tests were conducted to better identify the Mutual’s exposure to volatility and provide a basis to establish mitigation techniques.

The Mutual is also exposed to credit and liquidity risks under risk transfers to its different reinsurers. To mitigate this risk, the Mutual carefully diversifies the reinsurers with which it does business. The Mutual also reviews the financial strength of its reinsurers annually or more often as necessary and does not do business with reinsurers with credit ratings lower than A-.

Scheduled cash outflows related to life and health insurance contract liabilities net of reinsurance ceded are illustrated as follows:

2013 $

2014 $

2015 $

2016 $

2017 $

2018 and thereafter

$Total

$Life and health – Individual 15,048 (9,212) 1,020 12,153 21,126 1,234,836 1,274,971 Annuities – Individual 128,975 114,014 133,762 90,172 96,747 268,424 832,094 Life and health – Group 143,420 61,244 37,410 28,724 23,606 124,013 418,417 Annuities – Group 196 219 245 266 315 3,430 4,671

287,639 166,265 172,437 131,315 141,794 1,630,703 2,530,153


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Insurance risks–Property and casualty insurance

The Mutual identified the following risks that may have a material effect on its bottom line, such as the risk of a significant rise in claim frequency and severity, the risk of multiple catastrophes combined with reinsurer payment defaults, the risk of a change in premium volume in a soft market with significant premium reductions and the risk of adverse development of claims reserves for long-tail business classes.

Underwriting standards are set out and applied by the Mutual. These standards provide for diversified risk selection in line with the Mutual’s objectives. Together, contract terms and conditions and rates appropriately reflect the inherent risks in the policies written.

The use of reinsurance plays a key role managing the Mutual’s risks and exposures. Various catastrophe excess of loss treaties per risk and per event are in place to limit the adverse income effect of major claims, on both a separate and cumulative basis, on occurrence of a catastrophic event.

Use of other types of reinsurance (optional or treaty for a given business line) is also possible to manage specifically identified risks.

A 10% increase in the net loss index would result in a decrease in net income and equity of $51,783 [2011: $51,682].

Financial risks

Market risk is defined as the risk that fluctuations in market prices of financial instruments arising from stock market or interest rate changes will result in a loss.

The Investment Committee is responsible for monitoring the investment policy, which is reviewed annually. The Board of Directors approves amendments, if any. Investment policy limits are set prudently to mitigate the Mutual’s exposure to risk. Yield spread risk between assets and liabilities is limited, as the portfolios are managed according to the matching principle.

The use of derivative financial instruments for hedging purposes is permitted under the investment policy as part of a prudent management framework. No derivative products are used to create speculative market exposure. The Investment Committee plays a key role with respect to the understanding of derivative product strategies by senior management and the Board of Directors.

A stock market downturn reduces the management fees generated by the insurer from market-linked insurance policies. As these liabilities are fully matched, lower management fees could, in such situations, increase the insurer’s cost to guarantee capital. Furthermore, a market downturn has a direct impact on the value of marketable securities invested in the Mutual’s surplus.

A 10% stock market downturn as at December 31, 2012 would result in a $21,185 decrease [2011: $14,898] in the Mutual’s after-tax comprehensive income. A 10% stock market upturn as at December 31, 2012 would have the opposite effect, resulting in a $20,843 increase [2011: $16,142] in the Mutual’s after-tax comprehensive income.

An immediate rise in interest rates would have an unfavourable short-term impact on surplus portfolios invested in bonds but would make it possible, over the long term, to match premium inflows at more attractive interest rates. A decrease in interest rates would have the opposite effect.

A 1% rise in interest rates as at December 31, 2012 would result in a $27,907 decline [2011: $20,125] in the Mutual’s after-tax comprehensive income. A 1% decline in interest rates as at December 31, 2012 would result in a $28,141 increase [2011: $20,336] in the Mutual’s after-tax comprehensive income.


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29) MANAGEMENT OF FINANCIAL INSTRUMENT AND INSURANCE CONTRACT RISK [Cont’d]

Principles and responsibilities of risk management [Cont’d]

Financial risks [Cont’d]

Fair value hierarchy

The following table classifies fair value measurements of financial assets and financial liabilities using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable market data.

2012Level 1

$ Level 2

$Level 3

$Total

$FINANCIAL ASSETSCash and cash equivalents 81,139 — — 81,139

BondsGovernment of Canada — 130,737 — 130,737 Provincial governments — 1,120,510 — 1,120,510 Municipalities, school boards and hospitals — 10,060 — 10,060 Corporate — 519,822 — 519,822 International — 6,708 — 6,708

— 1,787,837 — 1,787,837

StocksCommon shares and participating units 498,878 — — 498,878 Preferred shares 339,739 — — 339,739 Participating units in stock market indices 16,710 — — 16,710

855,327 — — 855,327

Other investmentsDerivative financial instruments — — — —Other investments — — 5,181 5,181

— — 5,181 5,181

Other assetsRetained interests — — 4,073 4,073

936,466 1,787,837 9,254 2,733,557

FINANCIAL LIABILITIESOther liabilitiesExcess of outstanding cheques over cash 3,843 — — 3,843 Liabilities related to derivative financial instruments — 13 510 523

3,843 13 510 4,366


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2011Level 1

$Level 2

$Level 3

$Total

$FINANCIAL ASSETSCash and cash equivalents 90,995 — — 90,995

BondsGovernment of Canada — 265,349 — 265,349 Provincial governments — 1,122,366 — 1,122,366 Municipalities, school boards and hospitals — 7,097 — 7,097 Corporate — 398,559 515 399,074 International — — — —

— 1,793,371 515 1,793,886

StocksCommon shares and participating units 298,259 — — 298,259 Preferred shares 272,795 — — 272,795 Participating units in stock market indices 101,206 — — 101,206

672,260 — — 672,260

Other investmentsDerivative financial instruments — 99 — 99 Other investments — — 3,375 3,375

— 99 3,375 3,474

Other assetsRetained interests — — 5,346 5,346

763,255 1,793,470 9,236 2,565,961

FINANCIAL LIABILITIESOther liabilitiesExcess of outstanding cheques over cash 2,345 — — 2,345 Liabilities related to derivative financial instruments — — 3,619 3,619

2,345 — 3,619 5,964


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29) MANAGEMENT OF FINANCIAL INSTRUMENT AND INSURANCE CONTRACT RISK [Cont’d]

Principles and responsibilities of risk management [Cont’d]

Financial risks [Cont’d]

Changes in Level 3 financial instruments measured at fair value

The table below reconciles opening and closing balances for Level 3 fair value measurements.

Corporate bonds $

Other investments $

Retained interests – Securitization

$

Liabilities related to derivative financial

instruments $

Balance as at January 1, 2012 515 3,375 5,346 3,619 Gains (losses) recognized in income 25 — (3,759) (3,109)Unrealized gains (losses) recognized in other

comprehensive income (35) — — —Issuances — — 2,486 —Purchases — 1,558 — —Sales (505) — — —Change in fair value — 248 — —Balance as at December 31, 2012 — 5,181 4,073 510

Corporate bonds $

Other investments $

Retained interests – Securitization

$

Liabilities related to derivative financial

instruments $

Balance as at January 1, 2011 503 — 5,956 5,756Gains (losses) recognized in income — — (4,083) (2,137)Unrealized gains (losses) recognized in other

comprehensive income 11 — — —Issuances — — 3,473 —Purchases 5 3,375 — —Sales (4) — — —Change in fair value — — — —Balance as at December 31, 2011 515 3,375 5,346 3,619

Foreign exchange risk is the unfavourable impact of a currency mismatch between assets and liabilities or the difference between foreign currency income and expenses.

Where the Mutual is exposed to foreign currency insurance contract liabilities, investments are made in these currencies for policy liability matching purposes. Other foreign currency investments are hedged in whole or in part with derivative products to convert exposure to foreign currencies into Canadian dollars.

Given the performance of foreign currency matching and since the Mutual’s foreign currency income and expenses are insignificant, foreign currency fluctuations had little impact on the Mutual’s bottom line.

Credit risk is the risk of financial loss, despite realization of principal or collateral security or property, resulting from the failure of a debtor to honour its obligations to the Mutual.

Credit risk management is the process of controlling the impact of credit risk-related events on the Mutual and consists in identifying, understanding and quantifying the risk of loss and taking appropriate measures.

Credit risk may also arise when there is a concentration of investments involving one or more entities with similar characteristics. The Mutual’s investment policy aims to reduce this risk by ensuring sound diversification.


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The Mutual is exposed to credit risk on mortgage, personal and commercial loans as well as on corporate bonds and term preferred shares held in its portfolios, to counterparty risk on derivative products and to risk related to its reinsurers. The Mutual considers counterparty default risk when measuring the fair value of derivative financial instruments. Strict monitoring of credit risk is performed with respect to mortgage, personal and commercial loans. Corporate bonds and preferred shares are managed to ensure a diversified, low-risk portfolio by maintaining minimum Dominion Bond Rating Service (DBRS) credit ratings of “BBB” on bonds and “P2” on preferred shares to limit default concentration risk. Derivative product counterparties have minimum DBRS credit ratings of “AA” for reinsurance counterparties, and credit and credit quality ratings are verified annually or when warranted by market events.

To manage the risk of potential credit losses, the Mutual maintains specific allowances for impaired mortgage and personal loans and real estate held for resale. When credit risk exposure arises on a loan and the Mutual is uncertain of principal or interest recovery, the loan is deemed impaired. Specifically, a loan that is more than 90 days past due or in foreclosure proceedings is deemed impaired. The allowance reduces the value of the asset to reflect the amount the Mutual believes it can recover.

Another allowance is established for actuarial liabilities to safeguard the Mutual against potential credit losses.

The Mutual’s maximum credit risk exposure for its financial instruments is equal to the carrying amount of cash and cash equivalents, bonds, term preferred shares, mortgage loans, policy loans, other investments, premiums receivable, reinsurance assets and other receivables included in other assets totalling $3,337,066 [2011: $3,206,935].

Except for loans for which there are non-provisioned amounts past due discussed in note 5, there are no significant financial assets past due that have not been provisioned.

Real estate risk is the possibility of incurring significant financial losses subsequent to an inaccurate appraisal or a potential decline in value of real estate acquired for investment purposes, held subsequent to a loan default or pledged as collateral for a loan receivable. Real estate risk also includes the possibility of deterioration in cash flows provided by real estate operations as a result, for instance, of increased vacancy or physical degradation requiring major maintenance.

The Mutual’s real estate inventory is used primarily to match long-term insurance liabilities. A portion of the real estate inventory is used for the Mutual’s own purposes, which significantly reduces vacancy risk.

The portion of the Mutual’s investment portfolio allocated to real estate is limited in relation to total assets, and individual property yields are monitored by the Investment Committee.

Changes in the real estate properties have no significant impact on the Mutual’s results since the properties are mostly matched to the Mutual’s business lines and the results are thereby offset by the insurance contract liability reserves.

Liquidity risk is the risk that the Mutual will fail to honour its financial obligations, anticipated or otherwise, when due.

The Mutual relies on asset-liability matching to generate the funds required to honour its obligations when they fall due. Effective cash management minimizes the cost of raising funds and honouring financial obligations. Moreover, nearly 100 % of the Mutual’s bonds are readily marketable, further underpinning the Mutual’s cash resources. Lastly, the Mutual can avail itself of credit facilities to meet unexpected cash requirements.

The Mutual’s maximum liquidity risk exposure for its financial instruments and insurance contracts is detailed by contractual maturity as follows:

Under 1 year

$

1 year to 5 years

$

6 years to 10 years

$

Over 10 years

$


$Total

$Provision for claims and loss adjustment

expenses 142,899 120,929 30,398 5,647 — 299,873 Accrued liabilities 123,483 — — — — 123,483 Other liabilities 72,521 3,928 3,081 2,932 43,233 125,695 Long-term debt 369 23,276 — — — 23,645

339,272 148,133 33,479 8,579 43,233 572,696

Company profiles

2012 ANNUAL REPORT I COmPANy PROfILEs LA CAPITALE CIVIL sERVICE mUTUAL

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Company profiles

la Capitale CiVil serViCe insUrer

la Capitale Civil service insurer has provided value-added financial products to ensure the economic well-being of Quebec’s public service employees for over 70 years. Clients benefit from the unique expertise la Capitale Civil service insurer has developed in life and health insurance, savings and investments, and mortgage loans. its teams of specialists design attractive, flexible financial solutions that are tailored to clients’ needs. and, to simplify the payment of premiums, it also offers the exclusive payroll Deduction privilege to some 600,000 public service employees working in 900 institutions across Quebec’s public and parapublic sectors.

PRODUCTS AND SERVICES OFFERED § life insurance

§ Disability insurance

§ Critical illness insurance

§ long-term care insurance

§ savings and investments

§ mortgage loans

§ payroll Deduction privilege

la Capitale insUranCe anD finanCial serViCes

established in 1989, la Capitale insurance and financial services is a subsidiary of la Capitale Civil service insurer. it provides group insurance products directly to the Quebec public service and serves groups in the private sector in partnership with selected financial services firms. it also offers insurance products and financial services to clients outside the Quebec public service. la Capitale insurance and financial services is renowned for its personalized service and the innovative approach it takes to serving group insurance plan members, specifically with regard to workplace attendance management and prevention initiatives, such as the Good for you! health and wellness program.

PRODUCTS AND SERVICES OFFERED § life, health and disability insurance

§ Critical illness, dental care and vision care insurance

§ travel and trip cancellation insurance

§ Credit insurance

§ employee assistance program

§ Home care and assistance services

§ Health insurance claims profile

§ Workplace attendance management

§ online administrative services

§ Health spending account

§ Cap medical assistance

la Capitale finanCial serViCes

la Capitale financial services is a financial services firm that offers insurance, investment and savings products to Quebec public service employees and is dedicated to providing them with the best financial protection available, thanks to its unique financial planning tools. the firm is represented by 157 financial security advisors who serve Quebec public service employees in their workplace.

PRODUCTS AND SERVICES OFFERED § term, permanent and universal life insurance

§ Health, long-term care and critical illness insurance

§ registered and non-registered investment products (e.g. rrsp, resp, tfsa)

§ investment and segregated funds

§ referrals for car, home and legal access insurance and mortgage loans

§ financial situation evaluation

§ personalized financial planning

§ “Building your future” sessions

§ mid-Career sessions

§ retirement preparation sessions


79

pennCorp life insUranCe Company

Based in mississauga, ontario, penncorp life insurance Company offers simplified, personal disability insurance products and financial solutions designed to fit the unique needs of small business owners and Canada’s self-employed, skilled tradespeople and other individuals who do not have easy access to traditional insurance and financial products. penncorp has a network of more than 362 career agents with branch offices and field representatives in every province. in addition, it counts on an independent distribution channel across Canada.

PRODUCTS AND SERVICES OFFERED § short- and long-term disability insurance

§ long-term care insurance

§ Hospital care insurance

§ Critical illness and cancer insurance

§ life insurance

§ annuities and savings products

aGa finanCial GroUp

aGa financial Group specializes in providing consulting and administration services for company insurance and pension plans. it is renowned across Quebec for its group insurance claims management and payment practices.

PRODUCTS AND SERVICES OFFERED § Group insurance and annuity plan brokerage

§ Consulting and administration services for group insurance and company pension plans

la Capitale mfQ real estate manaGement

this subsidiary is responsible for implementing the Group’s real estate strategy and managing its real estate holdings. its real estate inventory covers approximately 1.4 million sq. ft., including 464 residential units under management, spread out over 12 buildings in Quebec and ontario, not counting the office space leased by the 23 branch offices of its member companies la Capitale General insurance and la Capitale financial services across Quebec, and the 22 regional branch offices of penncorp life insurance Company in the rest of Canada. la Capitale mfQ real estate management manages assets worth a total of $404 million, including commercial mortgage loans, commercial and residential buildings, office space and retirement homes in its home province.

PRODUCTS AND SERVICES OFFERED § Construction and interior design

§ property management and leasing

§ Commercial mortgage loan management

§ Green buildings

§ Quality fit-up services for rental units


80

la Capitale Civil service insurer

la Capitale insurance and financial services

Senior Management

Steven Ross, C. Adm.President and Chief Operating Officer

Corporate Actuarial

France Déziel, FSA, FCIA, CAVice-President and Appointed Actuary

Guy Harvey, ASASenior Director

Information Technology

Francine LandryVice-President

Maxime Morin, BASSenior Director, e-Business Systems, Quality and Corporate Solutions

Raymond St-GelaisSenior Director, IT DevelopmentIndividual Insurance and Financial Services

Lyne GroleauSenior Director, IT DevelopmentGroup Insurance

Group Insurance

Éric Marcoux, FSA, FCIAExecutive Vice-President

Richard Fecteau, FSA, FCIAVice-President, Actuarial and Underwriting

Jacques TardifVice-President, Sales and Marketing

Martin Bédard Senior Director, New Business

Patrick Bolduc, ASA, FLMI, ACSSenior Director, Operational Performance

Chantal Brisson, BASenior Director, Claims Management

Pierre Jr. IsabelleSenior Director, Contract Management

Individual Insurance and Financial Services

Product Development and Marketing

Michel Lafrance, FSA, FCIAVice-President

Administration and Customer Relations

Christian Dufour, FSA, FCIAVice-President

Dany LeBœuf, FLMI, FLHC, ALHC, ACS, UND, AIAASenior Director

Sales

Eli Pichelli, MBA, CLUVice-President, Sales – Advisor Network and CSC

Ghassan BarakatRegional Director South-West Regional Financial Centre

Frédéric Dancause, CLU, F. Pl.Regional DirectorEast Regional Financial Centre

Pierre Maltais, BBA, RLURegional DirectorSaguenay – Lac-Saint-Jean – North Shore Regional Financial Centre

Kim Oliphant, BBASenior Director, Sales – Brokerage Channel

aGa financial GroupClément St-LaurentExecutive Vice-President and Chief Executive Officer

Marie-Josée Coiteux Vice-President, Administration and Human Resources

Suzanne FortinVice-President, Administration of Sales and Marketing

Manon LabrècheVice-President, Private Management

penncorp life insurance CompanySteven Ross, C. Adm.President and Chief Operating Officer

Scott HuntVice-President of Operations, Life and Health Sector, Mississauga Office

Eli Pichelli, MBA, CLUVice-President, Sales – Advisor Network and CSC

Stephen ColeRegional Vice-President, Sales and Marketing

Neil BrownAssistant Vice-President, Finance

Chris Kitagawa, BAAssistant Vice-President, Underwriting, Contract Management and Agency Services

Cristine Y. ChanAssistant Vice-President, Human Resources and Shared Services

Mark TurkiewiczAssistant Vice-President, Claims


offiCers


81


Company profiles

la Capitale General insUranCe

la Capitale General insurance is one of the leading home and auto insurance companies in Quebec. it distributes its products directly through a network of 20 branch offices. la Capitale General insurance also invests in ways to further assist its clients. that is why it has rounded out its line of products by creating the Cap priority assistance program—a complementary service that provides clients with exclusive roadside and legal assistance.

PRODUCTS AND SERVICES OFFERED(DIRECT DISTRIBUTION)

§ automobile insurance

§ leisure vehicle insurance (motorcycles, snowmobiles, atVs, boats, motorhomes, travel trailers and stationary trailers)

§ Home insurance

§ legal access insurance

§ professional liability insurance

§ insurance for private companies and the self-employed

§ replacement insurance

§ automobile dealerships

§ travel insurance

§ assistance services

§ Cap roadside assistance

§ Cap legal access assistance

l’UniQUe General insUranCe

l’Unique General insurance was acquired by la Capitale General insurance in october 2004. it continues to be independently managed and distributes its products through a network of 329 independent brokerage firms. l’Unique’s head office is located in Quebec City and the company also has offices in montreal, mississauga and Calgary. in 2005, l’Unique acquired orleans General insurance Company, a company specialized in surety products in Canada. l’Unique is now able to offer its brokers a diverse line of products for individuals and businesses, along with a complete line of contract and commercial bonding services. l’Unique is renowned for the quality of its service and the close links it maintains with its distribution network.

PRODUCTS AND SERVICES OFFERED(BROKER DISTRIBUTION)

§ automobile insurance (personal and fleet)

§ leisure vehicle insurance (motorcycles, snowmobiles, atVs and motorhomes)

§ Home insurance

§ Commercial insurance

§ legal access insurance

§ Contract bonding

§ Commercial bonding

§ Credit insurance

§ l’Unique roadside assistance

UniCa insUranCe

Unica was acquired by la Capitale General insurance in september 2008. With 171 employees at its head office in mississauga, ontario, Unica is a personal-lines home and auto insurer that also has a commercial-lines component. it continues to operate independently through a network of 131 brokers in ontario.

PRODUCTS AND SERVICES OFFERED(BROKER DISTRIBUTION)

§ automobile insurance

§ Home insurance

§ Commercial insurance


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la Capitale General insuranceSenior Management

Constance LemieuxPresident and Chief Operating Officer

Sales and Client Retention

Marie-Claude Dulac, FCIPVice-President

Céline Daigle, LLBSenior Director, Legal Access Insurance

Hélène CaronSenior Director, Sales and Client Retention

Kathleen Gendron, FCIPSenior Director, Client Retention and Specialized Teams

Estelle ThériaultSenior Director, Branch Office Network

Claims

Pierre Legault, CIPVice-President

Hubert Auclair, LLBSenior Director, Legal Affairs and Specialized Risks

Isabelle Circé, BBA, FCIP Senior Director, Claims, Client Contact Centres

Business Development

Sylvain Simard, BBA, CIPVice-President

Sylvie Chartrand, RLU, F. Pl.Senior Director, Public Sector and Business Partnership Development

Michel DuvalSenior Director, Affiliated Agents Network

Michel Talbot, FCIPSenior Director, Commercial Insurance

Yves WatierSenior Director, Business Development and Marketing

Actuarial, Insurance and Business Intelligence

François Dumas, FCIA, FCASVice-President

Isabelle Gingras, FCIA, FCAS Senior Director, Ratemaking, Insurance and Products – Quebec

Isabelle Périgny, FCIA, FCASSenior Director, Corporate Actuarial and Business Intelligence

Christian Fournier, FCIA, FCASSenior Director, Ratemaking, Insurance and Products Ontario and Western Canada

Marketing and E-Commerce

Éric Champagne, Eng., MBAVice-President


Richard GagnéVice-President

Liette LabrieSenior Director, Corporate Systems Development

Jean BouléSenior Director, General Insurance Systems Development – Direct Channel

Éric MarcouxSenior Director, Architecture and Production Support

l’Unique General insuranceSenior Management

Mario Cusson, CA, MBAPresident and Chief Operating Officer

Surety Lines and Credit Insurance

Gaétan Boudreau, Eng., MBAVice-President

Jean-Eudes Boudreau, MBASenior Director, Sales, Development and Underwriting

Sales and Development

Yves Gagnon, BA, CIPVice-President

Jean-Philippe Keable, FCIA, FCAS Senior Director, Personal-Lines Insurance

Commercial Insurance

Bruno Perrino, BAVice-President

Claims

Richard Consigny, FCIPSenior Director

Finance

André Boucher, CMASenior Director, Finance


Michel LévesqueSenior Director, Systems Development

Unica insuranceSenior Management

Martin Delage, BA, CHRPPresident and Chief Operating Officer

Surety Lines

Neville Harriman, BA, FIIC, ARMAssistant Vice-President

Operations

Dave Smiley, CA, FCIPVice-President

Jim Cutler, FCIP, CRMAssistant Vice-President, Commercial Lines

Chris Weston, MBAAssistant Vice-President, Business Development

Nancy Covel, CIP, ABCAssistant Vice-President, Marketing and Communications

Steve Lewicki, BES, CIPAssistant Vice-President, Claims

Finance

Katherine Evans, CA, CPAVice-President

Legal Services and Legal Counsel

Mark H. Fonseca, BA, LLBAssistant Vice-President


offiCers


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Senior Management

René RouleauChairman of the Board and Chief Executive Officer

Human Resources and Organizational Development

Shirley Brown, BA, CHRPVice-President

Geneviève Drouin, MSc, CHRPSenior Director, Human Resources

Linda Gaboury, BA, CHRPSenior Director, Total Compensation

Corporate Affairs

Marie-Josée GuéretteExecutive Vice-President

Pierre CarpentierSenior Director, Communications and Marketing

Legal Affairs and Corporate Secretary

Pierre Marc Bellavance, LLMVice-President and Corporate Secretary

Finance, Real Estate and Technological Infrastructure

Marthe Lacroix, FCIA, FCASExecutive Vice-President

Finance

Lucie Garneau, CAVice-President

Annie Larochelle, CASenior Director, Financial Disclosure and International Standards

Johanne Gauthier, CGASenior Director, Account Collection Services

Hélène Myrand, CASenior Director, Finance

Financial Management

John Kirouac, CAVice-President

Sylvie L. BeaudoinSenior Director, Material Resources

Technological Infrastructure

Jean-Pierre BoutetVice-President

Carl Bélanger, Eng. MBASenior Director, IT Help Desk

René MoisanSenior Director, Systems Evolution

Steven RedmondSenior Director, Infrastructure Operations

Investments

Michel Lévesque, FSA, FCIA, CFAVice-President

La Capitale Financial Group

offiCersThese divisions serve both the Life and Health Insurance and Financial Services and the Property and Casualty Insurance sectors.


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la Capitale Civil service insurer625 saint-amable st Quebec QC G1r 2G5 418 643-3884 or 1 800 463-5549

la Capitale insurance and financial services625 saint-amable st po Box 1500 Quebec QC G1K 8X9 418 644-4200 or 1 800 463-4856

Points of Service

Montreal425 de Maisonneuve Blvd W Suite 820 Montreal QC H3A 3G5 514 873-2402 or 1 888 899-4959

Quebec City625 saint-amable st po Box 1500 Quebec QC G1K 8X9 418 644-4180 or 1 800 363-9683

la Capitale financial servicesSales – Advisor Network and CSC7333 place des roseraiessuite 200anjou QC H1m 2X6 514 687-2964 or 1 866 279-9394

East Regional Financial CentreDelta 1 Building 2875 laurier Blvd suite 650 Quebec QC G1V 2m2 418 644-0038 or 1 866 279-9396

Saguenay – Lac-Saint-Jean – North Shore Regional Financial Centre874 de l’Université Blvd e suite 320 saguenay QC G7H 6B9 418 615-0694 or 1 800 713-8271

South-West Regional Financial Centre7055 taschereau Blvd suite 300 Brossard QC J4Z 1a7 514 864-4189 or 1 866 279-7384

Sherbrooke Financial Centre1802 King st Wsuite 104sherbrooke QC J1J 0a2819 822-0060

North-West Regional Financial Centre3080 le Carrefour Blvdsuite 520 laval QC H7t 2r5514 873-9364 or 1 866 279-0489

Trois-Rivières Financial Centrele trifluvien Building4450 des forges Blvdsuite 240trois-rivières QC G8y 1W5819 374-3539 or 1 866 318-8016

penncorp life insurance CompanyHead Office7150 Derrycrest Drive mississauga on l5W 0e5 905 795-2300 or 1 800 268-2835

Regional Branch Offices

alBerta

Calgary12111 40th street sesuite 137Calgary aB t2Z 4e6403 252-7757 or 1 800 267-0192

Edmonton4466 97th streetedmonton aB t6e 4Z9780 438-2420

BritisH ColUmBia

Delta6840-6846 King George Blvd suite 206surrey BC V3W 4Z9 604 589-6033

Guildford13889 104th avesuite 300surrey BC V3t 1W8604 589-1381

Surrey13889 104th avesuite 300surrey BC V3t 1W8604 589-1381

manitoBa

Winnipeg2140 pembina Highwaysuite BWinnipeg mB r3t 6a7204 985-1580 or 1 800 670-1911

maritimes

Atlantic Canada1550 Bedford Highwaysuite 700Bedford ns B4a 1e6902 835-9203 or 1 800 835-9203


points of serViCe


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ontario

Barrie431 Huronia roadsuite 2Barrie on l4n 9B3705 728-5580 or 1 800 268-5168

Halton6-1260 eglinton ave emississauga on l4W 1K8905 696-8477 or 1 888 918-5045

London4026 meadowbrook Drivesuite 129london on n6l 1C7519 652-0255 or 1 800 934-6128

Markham235 yorkland suite 110 toronto on m2J 2y8 416 498-1688

Niagara36 Hiscott stst. Catharines on l2r 1C7905 685-4805or 1 888 918-5045

Ottawa1165 Beaverwood roadmanotick on K4m 1a4613 692-3590

Peel/Dufferin7045 edwards Blvdmississauga on l5s 1X2905 565-9996

Toronto6-1260 eglinton ave emississauga on l4W 1K8905 696-8477 or 1 888 918-5045

Toronto North89 Galaxy Blvdsuite 21toronto on m9W 6a4416 213-9506 or 1 877 665 8660

York6-1260 eglinton ave emississauga on l4W 1K8905 696-8477 or 1 888 918-5045

QUeBeC

Laval500 saint-martin Blvd Wsuite 450laval QC H7m 3y2514 798-6511

Montérégie7005 taschereau Blvdsuite 305Brossard QC J4Z 1a7450 443-8585 or 1 855 443-8585

Quebec City2875 laurier Blvdsuite 250Quebec QC G1V 2m2418 687-2058 or 1 800 463-4632

Saguenay 3875 Harvey BlvdJonquière QC G7X 0a6418 615-0727

sasKatCHeWan

Regina4401 albert stsuite 5regina sK s4s 6B6

Saskatoon2345 avenue C northsuite 5saskatoon sK s7l 5Z5306 955-3000 or 1 800 955-3250

aGa financial GroupHead Office4150 sainte-Catherine st Wsuite 490Westmount QC H3Z 2W8514 935-5444 or 1 800 363-6217

Quebec CityDelta 1 Building2875 laurier Blvdsuite 700Quebec QC G1V 2m2418 658-3188 or 1 877 330-3357

la Capitale mfQ real estate management625 saint-amable stQuebec QC G1r 2G5418 644-4267 or 1 800 463-5549


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la Capitale General insuranceHead Office625 saint-amable st po Box 17100Quebec QC G1K 9e2418 266-9525

Regional Branch Offices

Alma310 du pont ave nsuite 120alma QC G8B 5C9418 668-0066

Anjou7333 place des roseraiessuite 200anjou QC H1m 2X6514 906-1700

Baie-Comeau337 lasalle Blvdsuite 203Baie-Comeau QC G4Z 2Z1418 294-6300

Blainville28 Côte saint-louis Wsuite 208Blainville QC J7C 1B8514 906-1700

Brossard7055 taschereau Blvdsuite 300Brossard QC J4Z 1a7514 906-1700

Drummondville350 saint-Jean stsuite 120Drummondville QC J2B 5l4819 475-1799

Gatineau290 saint-Joseph Blvdsuite 201Gatineau QC J8y 3y3819 420-1700

Granby400 principale st suite 301Granby QC J2G 2W6450 777-1750

Laval3030 le Carrefour Blvdsuite 101laval QC H7t 2p5514 906-1700

Longueuilplace agropur101 roland-therrien Blvdsuite 260longueuil QC J4H 4B9514 906-1700

Montreal425 de maisonneuve Blvd Wsuite 500montreal QC H3a 3G5514 906-1700

Pointe-Claire755 saint-Jean Blvdsuite 140pointe-Claire QC H9r 5m9514 906-1700

Quebec City625 saint-amable stpo Box 17100Quebec QC G1K 9e2418 266-1700

Rimouski287 pierre-saindon stsuite 505rimouski QC G5l 9a7418 724-0777

Rouyn-Noranda170 principale averouyn-noranda QC J9X 4p7819 764-2700

Saguenay (Chicoutimi)874 de l’Université Blvd esuite 320saguenay QC G7H 6B9418 698-5900

Sept-Îles802 de Quen avesept-Îles QC G4r 2s2418 968-0044

Sherbrooke1802 King st Wsuite 104sherbrooke QC J1J 0a2819 822-0060

Trois-Rivièresle trifluvien Building4450 des forges Blvdsuite 200trois-rivières QC G8y 1W5819 374-3050

l’Unique General insuranceHead Office625 saint-amable stpo Box 17050Quebec QC G1K 0e1418 683-2711or 1 800 463-4800

Montreal425 de maisonneuve Blvd Wsuite 750montreal QC H3a 3G5514 768-0707 or 1 877 768-0707

Unica insuranceHead Office7150 Derrycrest Drivemississauga on l5W 0e5905 677-9777 or 1 800 676-0967


points of serViCe

for information about la Capitale,

please call 418 643-3884 or 1 800 463-5549,

or visit our website at lacapitale.com.

la Capitale is proud to abide by “green” principles in its various business lines.

please recycle this document after use.

this annual report is printed on fsC®-certified paper made with elemental Chlorine free (eCf) virgin fibre content manufactured under alkaline (acid-free) conditions for increased longevity and performance.

2012 annual report - la capitale · 2014. 9. 12. · 3 2012 annual report i 2012 key facts and...

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