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Moncton 2018AGM AGA

The Co-operators Group Limited Notice of Annual General Meeting of Members

Take Notice that the Annual General Meeting of the members of The Co-operators Group Limited (‘Company’) shall take place at the Delta Hotels by Marriott Beauséjour, in the city of Moncton, province of New Brunswick, on April 3-5, 2018 with formal commencement at 1:30 p.m. on April 4th for the purpose of:

• electing Directors;• receiving, considering and approving the financial statements for the

previous year;• appointment of auditors for 2018; and,• such other business as may by virtue of the Canada Cooperatives Act, or

pursuant to the Company’s Articles and By-laws be properly broughtbefore the meeting.

On behalf of the Board of Directors,

Carmel Bellamy Corporate Secretary

INTRODUCING THE CO-OPERATORS 2017 INTEGRATED ANNUAL REPORT

The Co-operators will release its second Integrated Annual Report on April 4, 2018 to publicly report on its operations for 2017.

As a co-operative, we take an integrated view of our organization and carefully manage our financial performance alongside environmental, social and governance responsibilities. The 2017 Integrated Annual Report identifies the achievements and challenges of the past year and tracks our progress toward meeting our long-term strategic targets. In addition, the report holistically assesses our performance in relation to the issues and trends in the world around us.

The following items are covered in the printed and/or online version of the Integrated Annual Report.

• Letters to members, policyholders and shareholders• Business structure• Company highlights• Governance Report (available in Integrated Annual Report Appendices online)• The Co-operators Management Group (available in Integrated Annual Report

Appendices online)

The full report will be available as of April 4 online and at the AGM registration desk.

CAUTION REGARDING FORWARD LOOKING INFORMATION

This meeting may contain forward-looking statements and forward-looking information, including statements regarding the operations, objectives, strategies, financial situation and performance of the Company. These statements generally can be identified by the use of forward-looking words such as “may”, “will”, “expect”, “intend”, “estimate”, “anticipate”, “believe”, “plan”, “would”, “should”, “could”, “trend”, “predict”, “likely”, “potential” or “continue” or the negative thereof and similar variations. These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in the forward-looking statements or information. In addition, this meeting may contain forward-looking statements and information attributed to third party industry sources. By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. Such forward-looking statements and information presented at this meeting speak only as of the date of this meeting.

Forward-looking statements and information at this meeting may include, but are not limited to, statements with respect to: our growth expectations; the impact of changes in governmental regulation on our company; possible changes in our expense levels; changes in tax laws; and anticipated benefits of acquisitions and dispositions.

With respect to forward-looking statements and information presented at this meeting, we have made assumptions regarding, among other things: growth rates and inflation rates in the Canadian and global economies; the Canadian and U.S. housing markets; the Canadian and global capital markets; the strength of the Canadian dollar relative to the U.S. dollar; employment levels and consumer spending in the Canadian economy; and impacts of regulation and tax laws by the Canadian and provincial governments or their agencies.

Although we believe that the expectations reflected in the forward-looking statements and information are reasonable, there can be no assurance that such expectations will prove to be correct. We cannot guarantee future results, levels of activity, performance or achievements. Consequently, we make no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking statements and information. Some of the risks and other factors, some of which are beyond our control, which could cause results to differ materially from those expressed in the forward-looking statements and information presented at this meeting include, but are not limited to: our ability to implement our strategy or operate our business as we currently expect; our ability to accurately assess the risks associated with the insurance policies that we write; unfavourable capital market developments or other factors which may affect our investments; the cyclical nature of the property and casualty insurance industry; our ability to accurately predict future claims frequency; the frequency and severity of weather related events; climate change; government regulations; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; our reliance on advisors to sell our products; our ability to successfully pursue our acquisition strategy; actions to be taken in connection with the 2012 sale of L’Union Canadienne,

Compagnie d’assurances to Roins Financial Services Limited; our participation in the Facility Association (a mandatory pooling arrangement among all industry participants); terrorist attacks and ensuing events; the occurrence of catastrophic events; our ability to maintain our financial strength ratings; our ability to alleviate risk through reinsurance; our ability to successfully manage credit risk (including credit risk related to the financial health of reinsurers); our reliance on information technology and telecommunications systems; breaches or failure of information system security and privacy, including cyber terrorism; our dependence on key employees; and general economic, financial and political conditions.

We caution that the foregoing list of factors is not exhaustive. The forward-looking statements and information presented at this meeting are expressly qualified by this cautionary statement. We are not under any duty to update any of the forward-looking statements after the date of this meeting to conform such statements to actual results or to changes in our expectations except as otherwise required by applicable legislation.

DELEGATE CONFLICT OF INTEREST POLICY Policy Number: 64 Date of Inception: February 2001

Date of Last Update: October 2016 Date of Next Review: October 2019

Background: Delegates are the democratic contact between The Co-operators and our members. Although they are a critical element in The Co-operators democratic structure, unlike directors, officers and staff of The Co-operators, delegates are 'fiduciaries' of their own member organization, not of The Co-operators. As 'fiduciaries' of The Co-operators, directors, officers and staff are governed by certain statutory, common law and internal rules related to 'conflicts of interest'. Delegates are not specifically governed by those rules or policies unless they are acting on behalf of The Co-operators, a nominee of Co-operators, or on a Co-operators committee. This policy sets out a conflict of interest policy applicable to delegates to govern situations where they are not otherwise governed by Co-operators conflict of interest policies.

Policy: Should delegates of members become aware of any information in the course of fulfilling their duties as delegates of The Co-operators (whether confidential or of a proprietary nature or not) which affect the interests of their member organization, they are duty-bound to disclose that information to the member. This may result in a conflict of interest in discharging their obligations as a delegate to The Co-operators and as a fiduciary of the member organization. In addition, it is possible that a delegate due to his or her own personal involvements, such as being a director or a senior manager of another insurance company in competition with The Co-operators, may come into a conflict of interest position with respect to The Co-operators. In any of these cases the delegate shall:

1. Declare his or her interest in the matter to be discussed fully to the Region

Committee meeting prior to which or at which he or she first becomes aware of the possible conflict of interest, which declaration shall be noted in the minutes;

2. Not participate in or form part of the quorum required in respect of the discussion of the matter in question; and,

3. In the case of any matter which specifically and uniquely1, affects or could

affect the interests of the member organization of which the delegate is a 1 Uniquely in this context refers to any matter which is not of general concern to Canadians, to the sector in which the member participates, or the co-operative or credit union sector, or the financial sector as a whole, but relates specifically to the member's own business interests and activities and a matter with respect to which a decision would have a direct impact in some manner on the member

member, representative or has been nominated by, the delegate shall absent himself or herself for the discussion and the vote related to any matter in which there is a potential conflict of interest.

Procedure: Delegates are expected to be familiar with this policy and to exercise their obligations hereunder. In cases where the need to declare a conflict or to absent oneself from the meeting is ambiguous, the delegate may consult the corporate secretary or his or her counsel and rely upon any advice given with respect to declaring or not declaring the interest in question. If a delegate does declare a potential conflict of interest, he or she will also state for the record what he or she intends to do either in terms of participation in or attendance at the meeting or the decision. A declaration of a potential conflict of interest takes precedence over any other motion on the floor of the meeting at that time.

AGENDAAGENDA

Tuesday, April 3, 2018 15:00 – 17:00 16:00 – 21:00 17:00 – 18:00 18:00 – 21:00

Wednesday, April 4, 2018 6:30 – 7:00 7:00 – 8:30 7:15 – 8:30 7:30 – 8:00 7:30 – 13:15 8:30 – 9:25

9:35 – 10:30

7:30 – 8:45

12:00 – 13:00

Delegate Orientation (Beauséjour A Room)Onsite Registration (Ballroom Foyer)CED Funds Board and Region Meeting (Restigouche Room)Welcome Reception (Ballroom)

Stretching Session (Ballroom Foyer)Breakfast (Shediac Room)CED Funds Board of Directors Meeting (Restigouche Room) Resolutions Committee Meeting (Boardroom)Onsite Registration (Ballroom Foyer)Workshops – Session 1Workshops – Session 2Plenary Panel (Ballroom) Lunch (Shediac Room)Annual General Meeting (Ballroom)

• 2017 Board of Directors Report• 2017 Financial Report• Actuary’s Reports• Audit Committee Reports• Auditor’s Reports• President and CEO’s Report• Questions and Discussion• Day 1 Summary

Reception (Ballroom Foyer)Banquet (Ballroom)

World Café Breakfast (Shediac Room)Strategic Planning Workshop (Ballroom)Annual General Meeting (Ballroom)

• Resolutions Committee Report• New Member Recognition• Retiring Director Recognition• Director Elections• Community Donation Presentation

Closing RemarksLunch (Shediac Room)

9:00 – 10:30 11:00 – 12:00

12:30 – 13:30 11:00 – 12:30

13:30 – 17:00

18:00 – 19:0019:00 – 21:00

Thursday, April 5, 2018

Minutes of the Annual General Meeting of The Co-operators Group Limited held at the Toronto Airport Marriott Hotel in the city of Toronto, province of Ontario on Tuesday, April 4 and Wednesday, April 5, 2017. The Chairperson of the Board, John Harvie called the meeting to order at 1:00 p.m. on Tuesday, April 4, 2017. He introduced himself and Johanne Charbonneau Vice-Chairperson and director (Ontario region) to the assembly to explain the operation of the simultaneous translation service in both English and French for the meeting, instructing participants to use the microphone to address the meeting.

CALL TO ORDER

The chairperson then welcomed the assembly to The Co-operators and CUMIS 2017 Annual General Meetings. The chairperson invited Geri Kamenz and Alexandra Wilson, directors (representing the Ontario region) to the podium to officially welcome the participants to Toronto. The chairperson welcomed the special guests to the AGM. The chairperson then invited the assembly to observe a moment of silence in remembrance of fellow co-operators, family and friends.

INVOCATION/ MOMENT OF SILENCE

The chairperson introduced himself to the assembly (director, Atlantic region and chairperson of the Board). He then introduced Ms. Charbonneau, director (Ontario region) and Vice-Chairperson of the Board and the remaining members of the Board of Directors, asking them to stand and be recognized: British Columbia Region Phil Baudin, chairperson

Sustainability and Citizenship Committee Daniel Burns Emmet McGrath, chairperson Audit Committee

Alberta Region Hazel Corcoran Jim Laverick Bob Petryk Saskatchewan Region Gilles Colbert Collette Robertson Manitoba Region Jocelyn VanKoughnet

INTRODUCTION OF THE BOARD OF DIRECTORS AND SENIOR MANAGEMENT

Ontario Region Don Altman Denis Bourdeau

Roger Harrop Geri Kamenz Dave Sitaram

Alexandra Wilson, chairperson Risk and Compensation Committee Jack Wilkinson, chairperson Member and Co-operative Relations Committee and chairperson of the Resolutions Committee

Quebec Region Louis-H. Campagna

Réjean Laflamme, chairperson Corporate Governance and Conduct Review Committee

Atlantic Region Denis Laverdière Michael Mac Isaac The chairperson then recognized the CUMIS directors that were present at the meeting: Janet Grantham Camille Thériault Rob Wesseling Bruce West Alexandra Wilson He noted CUMIS directors Terry Enns, Bill Kiss and Bill Maurin were not in attendance. The chairperson introduced the people at the front of the room for the Annual Meeting as follows: Rob Wesseling, President and CEO Roger Beauchemin, President and CEO Addenda Capital Inc. Lisa Guglietti, EVP and COO P&C Manufacturing Bob Hague, EVP and President, Credit Union Distribution, The CUMIS Group Limited Paul Hanna, EVP, Member Relations, Governance and Corporate Services Rick McCombie, EVP and Chief Client Officer Steve Phillips, EVP and COO, The Sovereign General Insurance Company Carol Poulsen, EVP and Chief Information Officer Bruce West, EVP, Finance and Chief Financial Officer

The chairperson noted Kevin Daniel, EVP and COO, Co-operators Life and President and COO, The CUMIS Group Limited was not in attendance

He also introduced the secretaries for the meeting. Carmel Bellamy, corporate secretary, The Co-operators, Frank Lowery,associate secretary The Co-operators and Craig Marshall assistant secretary, CUMIS Life who would be recording the minutes.

The chairperson then described the process for the meeting.

He noted that the meeting is the Annual General Meeting of four Co-operators companies, The Co-operators Group Limited, Co-operators Financial Services Limited, Co-operators General Insurance Company and Co-operators Life Insurance Company as well as CUMIS Life Insurance Company.

MEETING PROCESS

He noted that with the consent of the members, the meetings would be held simultaneously, for convenience.

The chairperson noted that everyone at the meeting has the privilege of the floor, but since The Co-operators Group Limited is a co-operative, with one exception which will be reviewed later (with respect to Co-operators Life Insurance Company), only members, through their appointed delegates have the privilege of making motions or voting.

The chairperson noted that in the case of multi-region members, only the two designated delegates have the right to vote, but all delegates may make motions.

With respect to Co-operators Life Insurance Company and CUMIS Life Insurance Company he noted that shareholders and policyholders have the privilege of making motions and voting on any matters that are specifically related to those companies, except for voting for the election of policyholder directors which will be explained later in the process by the respective corporate secretaries.

The chairperson noted that for simplicity in conducting the meeting, he would ask for motions to be moved and seconded by those eligible to vote for The Co-operators Group Limited, that is delegates of members. With the consent of the meeting, the associate secretary would substitute eligible movers and seconders in cases where a motion was applicable to the insurance companies.

MOTION TO HOLD MEETINGS CONCURRENTLY FOR CGL, CFSL, CGIC AND CLIC AND CUMIS LIFE INSURANCE COMPANY

AGENDA

NOTICE OF MEETINGS

The chairperson asked those present when making motions, asking questions or addressing the assembly, to use the microphone, state their name and the organization they were representing.

He asked as well that in the case of policyholders of CUMIS Life Insurance Company and Co-operators Life Insurance Company who are not otherwise delegates of The Co-operators Group Limited, they state the capacity in which they are speaking.

The chairperson then asked for a motion from the floor to formalize the process which he had described. The chairperson read the proposed motion.

PAINCHAUD-TREMBLAY-BOYDE

That the members of The Co-operators Group Limited in their capacity as members of The Co-operators Group Limited and on behalf of The Co-operators Group Limited as the sole shareholder respectively of Co-operators Financial Services Limited, Co-operators General Insurance Company and Co-operators Life Insurance Company and the participating policyholders of Co-operators Life Insurance Company approve and authorize the annual meetings of the aforementioned companies to be held concurrently and, further, concurrently and , further, that visitors present at the meetings shall have the privilege of the floor, except for voting.

CARRIED

The chairperson then reviewed the agenda for the AGM. The chairperson invited the assembly to identify any questions; there were none.

The chairperson called upon Mr. Lowery, associate secretary of The Co-operators Group Limited to read the Notice of Meeting and to deal with other procedural requirements.

Mr. Lowery read the Notice of Meeting for The Co-operators Group Limited.

With the consent of the meeting, the associate secretary dispensed with reading the other notices.

Mr. Lowery then reviewed the quorums for the various meetings as follows:

QUORUMS

The Co-operators Group Limited

The quorum for a validly constituted meeting of The Co-operators Group Limited is a minimum of one (1) delegate from each of at least two-thirds (2/3) of the members of The Co-operators Group Limited.

The quorum required for a validly constituted meeting of The Co-operators Group Limited is therefore, 29 delegates, representing 29 members.

Mr. Lowery reviewed the number of members possible, the number of members present, the number of delegates possible and the number of delegates present for The Co-operators Group Limited.

Members Possible are: 44 Members Present: 43

Delegates Possible are: 99 Delegates Present: 86

Mr. Lowery then reviewed the quorum for the other companies.

Co-operators Financial Services Limited

the quorum is 51% of voting shares present

Co-operators General Insurance Company

the quorum is greater than 50% of voting shares present

Co-operators Life Insurance Company

Shareholder Quorum

the quorum with respect to shareholders is greater than 50% of the shares entitled to vote present in person or by proxy

Policyholder Quorum

the quorum with respect to policyholders is 50 or 1% of the total participating policyholders represented in person or by proxy, whichever is lesser.

The associate secretary then continued his comments.

He noted that Co-operators Financial Services Limited is wholly owned by The Co-operators Group Limited. As associate secretary, he has been empowered to vote all of the shares of those two companies and as such the quorum is met.

He noted further that Co-operators Financial Services Limited holds 100% of the voting common shares of Co-operators Life Insurance Company and Co-operators General Insurance Company. As associate secretary, he has been empowered to vote all of the shares of those two companies and as such the quorum is met.

With respect to Co-operators Life Insurance Company policyholder quorum, Mr. Lowery presented the following report:

Number of proxies Received: 81 Invalid proxies: 1 (duplicate) Valid proxies: 80 Proxies appointing secretary as proxy: 77 Proxies appointing someone else as proxy: 3 Proxy votes in favour of election of directors: 78 Proxy votes against the election of directors: 2 Proxy voted for the appointment of auditors: 79 Proxy voted against the appointment of auditors: 1 Participating policyholders present in person: 6

Mr. Lowery reported there was a quorum for all companies and declared the meeting to be validly constituted.

Mr. Lowery then read the Notice of Meeting and other procedural requirements for the CUMIS Group of companies.

The CUMIS Group Limited

The CUMIS Group Limited is wholly owned by Co-operators Life Insurance Company and Central 1 Credit Union. The matters to be considered in an Annual General Meeting have been dealt with by written shareholders’ resolution of the two shareholders in accordance with a shareholders’ agreement in place between CUMIS, Co-operators Life Insurance Company and Central 1 Credit Union and as permitted by law.

CUMIS General Insurance Company

CUMIS General Insurance Company is wholly-owned by The CUMIS Group Limited. The matters to be considered in an Annual General Meeting have been dealt with by written shareholders’ resolution of the sole shareholder in accordance with the shareholders’ agreement in place between CUMIS, Co-operators Life Insurance Company and Central 1 Credit Union and as permitted by law.

CUMIS Life Insurance Company

CUMIS Life Insurance Company is wholly-owned by The CUMIS Group Limited but also has participating policyholders. The matters to be considered in an Annual General Meeting by the shareholders have been dealt with by written shareholders’ resolution of the sole shareholder in accordance with the shareholders’ agreement in place between CUMIS, Co-operators Life Insurance Company and Central 1 Credit Union and as permitted by law. The matters to be considered in an Annual General Meeting by the participating policyholders will be dealt with at this meeting. In this regard, the following Notice of Meeting was delivered to each participating policyholder together with an accompanying Management Proxy Circular.

Policyholder Quorum:

For CUMIS Life Insurance Company, the quorum with respect to policyholders is 500 or 1% of the total participating policyholders represented in person or by proxy, whichever is lesser.

With respect to CUMIS Life Insurance Company participating policyholder quorum, Mr. Lowery presented the following report:

Number of participating policyholders: 1,280 Number of proxies Received: 63 Invalid proxies: 0 Valid proxies: 63 % of participating policyholders represented by valid proxy 5% Proxies appointing secretary as proxy: 63 Proxies appointing someone else as proxy: 0 Proxy votes in favour of election of directors: 63 Proxy votes against the election of directors: 0 Proxy voted for the appointment of auditors: 63 Participating policyholders present in person: 0

Mr. Lowery noted that greater than 1% of the total participating policyholders of CUMIS Life Insurance Company are represented by proxy, thus constituting a quorum for CUMIS Life Insurance Company, and declared the meeting to be validly constituted.

Mr. Lowery then returned the chair to the chairperson.

The chairperson also noted that the two sets of minutes of the 2016 Annual General Meeting of shareholders were located in the participant material and reminded the meeting that these are the minutes for The Co-operators Group Limited, which effectively contain everything that happened at the meeting, and that minutes are also produced for Co-operators Financial Services Limited, Co-operators General, Co-operators Life and CUMIS Life companies and each set contains items that are specifically relevant to each company.

The chairperson then asked the assembly if they would like him to review the minutes in detail or if they were prepared to receive them as they were presented in the material.

The secretary was advised of an error in the list of directors present in The Co-operators set of minutes.

There was no further discussion.

DEYOUNG-KAVANAGH

That the minutes of the 2016 Annual General Meetings of The Co-operators Group Limited, Co-operators Financial Services Limited, Co-operators General Insurance Company, Co-operators Life Insurance Company as amended and CUMIS Life Insurance Company be approved as presented.

CARRIED

MOTION TO APPROVE MINUTES OF 2016 ANNUAL MEETING OF THE COMPANIES

John Harvie presented the 2016 Board of Directors report. BOARD OF DIRECTORS REPORT

The chairperson, invited Bruce West, EVP, Finance and Chief Financial Officer to deliver the 2016 Financial Report.

2016 FINANCIAL REPORT

Following the 2016 Board of Directors Report, the meeting took a short recess from 2:35 – 2:55 p.m.

RECESS/ RECONVENE

The chairperson then called upon Lisa Guglietti, former Appointed Actuary and Mr. West, to present the Actuary’s Reports for Co-operators General Insurance Company, Co-operators Life Insurance Company and CUMIS Life Insurance Company.

2016 ACTUARY’S REPORTS

KAY-BOISSONNEAULT

That the Actuary’s Reports be received as presented.

CARRIED

MOTION TO RECEIVE ACTUARY’S REPORTS

The chairperson then invited Emmet McGrath and Mr. West, chairpersons of The Co-operators and CUMIS Audit Committees respectively to present the Audit Committee Reports.

AUDIT COMMITTEE REPORTS

The chairperson then called upon Claire Cornwall, Partner, PwC to deliver the Auditor’s Reports for The Co-operators and CUMIS Life Insurance Company.

AUDITOR’S REPORTS

JOHNSON-PAINCHAUD-TREMBLAY

That the Auditor’s Reports be received as presented.

CARRIED

MOTION TO RECEIVE 2016 AUDITOR’S REPORTS

HAGMAN-PAINCHAUD-TREMBLAY

That the 2016 Financial Statements be received as presented.

CARRIED

MOTION TO RECEIVE 2016 FINANCIAL STATEMENTS

KNUDSON-ROBINSON

That PricewaterhouseCoopers be appointed as the auditors of the Company for 2017.

CARRIED

One participating policyholder voted by proxy against the appointment of the auditors.

In response to a question from delegate M. Grace McGregor about the duration of time PwC has been the company’s audit firm, the delegates were advised PwC has been engaged for the last eight years as the company’s auditor.

MOTION TO APPOINT AUDITORS FOR 2017

The chairperson then invited Rob Wesseling, to present the President and Chief Executive Officer Report.

PRESIDENT and CEO REPORT

The chairperson thanked Mr. Wesseling for his presentation and invited Ms. Charbonneau, Vice-Chairperson of the Board to the chair to facilitate the question and answer session.

A delegate representing Fédération des coopératives funéraires du Québec extended congratulations and appreciation to the President & CEO on the delivery of a portion of his report in French as well as the quality of his French speaking capabilities.

Jessica Provencher, Canadian Worker Co-operative Federation / Fédération canadienne des coopératives de travail extended her congratulations to the various speakers for delivering their remarks in French. She commented on The Co-operators efforts to increase the representation of women in the company’s governance, namely on the board and within the delegate group. She noted the discussions that have taken place over the last couple of years including the planned Women Delegate’s Forum and commended the organization for its openness and efforts to initiate these important conversations. Jessica commented that she hopes the board will continue to listen to the delegate’s feedback and take concrete steps and actions to enhance the diversification of this body to reach the organization’s stated objectives and ultimately gender parity.

Bill Van Rootselaar, Agrifoods International Cooperative Limited remarked the presentations were excellent. He then asked the speakers to share their thinking on how co-ops can help other co-ops across the country. He noted that if done properly, co-ops helping coops will result in better performance; also, people across the country will better understand co-ops and the benefits of co-operation.

Mr. Wesseling commented on his attendance at the winter 2017 delegate region forums. He shared that although there is diversity in views amongst the regions, the topic of co-operation amongst co-operatives came up in every one of the seven forums. Mr. Wesseling commented that this theme resonated with him in a significant way and observed that in his opinion this is likely the co-op principle that we get ‘the least right’ in Canada. Mr. Wesseling commented that there are things that we can do. He said that the sector needs to get initiatives like the CCIF off the ground and operating, noting the CCIF is a topic of conversation at each Co-operators board meeting and is also top of mind for both the management team and the board. Mr. Wesseling noted there is more that we can do. He acknowledged that it is early days for him in the CEO role, so all of the avenues at this point are not entirely clear. He commented that the suggestion of having a meeting of the co-op sector CEOs is a good one, but we need a bit more time to sort this through.

John Harvie concurred that the ‘co-operation amongst co-operatives’ co-op principle is the one that The Co-operators may have done the least about, to date. He commented the timing of the question and suggestion is very important, noting that it is a challenging goal as it is considered global in scope. John observed that 10 years ago The Co-operators was not in a position to embark on such a strategy, but today it is.

He advised the board and senior management are putting their minds to this goal by working with the CMC and all of the membership. He suggested the organization’s great strength can also be a hamper, recognizing The Co-operators needs support and guidance.

Eric Tusz-King, Canadian Worker Co-operative Federation / Fédération canadienne des coopératives de travail commended The Co-operators on the publication of its first Integrated Annual Report. He noted that he found it easy to read, comprehensive and that the meeting presentations tracked the report content very well. Eric then made some comments on The Co-operators diversity policy; he noted that as a man involved in the co-op movement for many years, he feels it important to be sending delegates of both genders to this body. He then asked about The Co-operators mental health initiative. He indicated that there is a great deal of interest in this activity, but there has not been much information by way of details shared to date.

Mr. Wesseling explained that it is early days for the mental health strategy, noting that is why there is not a lot of detail available at this point. He explained that the first step is getting our own house in order and the impact that we can have on our own products and services. Mr. Wesseling advised the organization has a number of activities underway that are focused on improving our own work environment, from a mental health perspective. He noted The Co-operators is in good shape when you look at key performance metrics like engagement.

As well, we are doing a number of things internally that we intend to move forward as best practices to our group benefits clients; this includes a full day of training on mental health issues, work/life health issues. Mr. Wesseling explained that from that position we will have a credible voice to take a more active role; noting this is similar to the approach that we took to launching our sustainability initiative.

Hazel Corcoran made some comments noting that she was addressing the assembly as a human being, not as a director. She spoke about the struggles of Neechi Commons in Winnipeg, noting that The Co-operators has supported this organization over the years. She advised that without additional support, Neechi may not be able to recover from their current difficulties and appealed to the members of the assembly to support this business. Hazel explained they are not just a co-op, they are a social enterprise.

Louis-H. Campagna commented on the UN’s Sustainable Development Goals. He noted it is satisfying to see that as a co-operative The Co-operators is showing leadership when it comes to implementing the goals. He advised that in this context, he wanted to raise some questions about disturbances. Louis observed that we are experiencing various disturbances and challenges; in our economy, climate, etc. He asked to hear more from The Co-operators as to how the organization plans to address these challenges and align itself with the UN’s SDGs.

Mr. Wesseling responded The Co-operators focus on sustainability is well known. He then spoke about the insurance industry more broadly and the important role The Co-operators plays within it. Mr. Wesseling stated that in his view, one of the most important roles insurance plays in society is related to the impact of risk. He commented on the importance of informing the decisions of decision makers throughout society. Mr. Wesseling noted that from his perspective, as an industry both here in Canada and globally, this is an area that we have not done a great job at. He shared that when he thinks about climate change we have a significant opportunity to communicate the impacts of climate change, both from adaptation and mitigation perspectives; we have a story to tell and we need to do a better job telling it. He explained, that is why The Co-operators is making our flood product available to everyone. Mr. Wesseling observed The Co-operators has a significant role to play as an insurer to communicate these risks so that sound decisions can be made and risks will be mitigated going forward.

Harold Haugen, UFA commented he appreciates all that The Co-operators is doing for its member organizations including the MLP payments. He shared a story about a Co-operators insured who was involved in a serious auto accident. He noted that a settlement was reached and the funds were provided to one of the children of the fatalities and that at the request of the insured the funds were matched by The Co-operators.

Philippe Boissonneault, L’Alliance des caisses populaires de l’Ontario limitée commented positively on The Co-operators mental health initiative. He noted that when an organization creates a climate to be open to issues such as mental health, it filters down thru all the levels of the organization. He noted that when The Co-operators settled the claims related to the Fort McMurray wildfire and doubled the cheques for people to meet their day-to-day needs, it provided a tremendous help to people in need. He observed this was an example of a fantastic contribution to preserve a person’s own mental health in a tragic situation.

Joel DeYoung, Modo Co-operative asked Mr. West to make a few comments about the US political situation and impact on The Co-operators.

Mr. West discussed the impact currency exchange rates have on The Co-operators, specifically within the investment portfolio and in other areas of the business where premiums and claims are in US dollars, e.g. travel insurance and on purchases in foreign currency, e.g. technology software. He noted that Canada is very integrated with the US economy. Mr. West noted that as the US economy goes, so will Canada. He commented that we will need to wait and see about the effects of the Trump administration. He commented that he has been with The Co-operators for almost 10 years and during this period of time has seen an incredible amount of uncertainty and volatility.

Mr. West noted the importance of factoring this (uncertainty and volatility) into our planning activities and assured the organization is actively monitoring and including these factors in our planning.

Ludovic Painchaud-Tremblay, Fédération québécoise des coopératives en milieu scolaire/COOPSCO advised he would like to follow-up on a question asked earlier in the session. He noted there was mention of new regulations that may impact financial markets and observed it would seem that this is similar to the same kind of regulations that caused the financial crisis. As such, he asked will there be risks associated with the changes. If the regulations come forward in the US what will we do here in Canada and at The Co-operators?

Mr. West noted there is a movement in the US to deregulate the financial services industry. He commented on the important balance between regulation and freedom for businesses to pursue the goals they have set for themselves. He sated his view is that we have a strong regulatory environment in Canada noting that OSFI has a strong presence. Mr. West commented Canadian financial institutions weathered the financial crisis well; globally the co-operative financial services sector also did well.

Leona Perrey, Co-operative Housing Federation of Canada / Fédération de l’habitation coopérative du Canada commented on another aspect of mental health and that is helping older people remain in their homes. She suggested that this be examined more closely within the mental health strategy.

Mr. Wesseling commented it is not a focus area that we have or likely would spend a lot of time on; he suggested that perhaps an organization like CCIF might be a catalyst that could focus specifically on this type issue.

The chairperson, John Harvie returned to the chair. PAINCHAUD-TREMBLAY-MCNAIR That the Board of Directors report and the management reports be received as presented. CARRIED

MOTION TO RECEIVE THE BOARD OF DIRECTORS AND MANAGEMENT REPORTS

SIMPSON-PAINCHAUD-TREMBLAY

MOTION TO RECESS

That the meeting stand in recess until Wednesday, April 5th at 11:00 a.m. when the meeting will reconvene. CARRIED

Continuation minutes of the Annual General Meeting of The Co-operators Group Limited held at the Toronto Airport Marriott Hotel, in the city of Toronto, province of Ontario on Tuesday, April 4 and Wednesday, April 5, 2017.

The chairperson of the Board, John Harvie called the meeting to order at 11:00 a.m.

CALL TO ORDER

The chairperson called on Phil Baudin, Chairperson of the Sustainability and Citizenship Committee to present The Co-operators Integrated Report.

Alexandra Wilson expressed appreciation to The Co-operators for producing an Integrated Annual Report.

Réjean Laflamme commented that his organization tried to produce an integrated report but was unsuccessful and commended The Co-operators on its success. He noted this will inspire his organization to make another attempt.

INTEGRATED REPORT PRESENTATION

The chairperson then called on Jack Wilkinson, Chairperson of the Resolutions Committee to deliver the Resolutions Committee Report.

RESOLUTIONS COMMITTEE REPORT

Mr. Wilkinson summarized the resolutions that had been previously provided for consideration by the members as follows:

That section 6.1 of the Articles of The Co-operators Group Limited be amended by deleting the last section of the last line thereof, namely:

“Member Participation Shares.”

TO AMEND ARTICLES SECTION 6.1

And replacing it with the following:

“Class E Preference Shares.”

and;

That section 6.7 of the Articles of The Co-operators Group Limited be deleted in its entirety and be replaced by the following new section 6.7:

“6.7 Class E Preference Shares

The Class E Preference Shares, as a class, shall have attached thereto the following rights, privileges, restrictions and conditions:

TO AMEND ARTICLES SECTION 6.7

Directors’ Authority to Issue in One or More Series

(a) The directors may fix the number of Class E PreferenceShares in any particular series and may issue the ClassE Preference Shares at any time and from time to time inone or more series. Before the first series of a particularseries are issued, the directors shall determine thedesignation, rights, privileges, restrictions and conditionsto be attached to the shares of such series including,without limitation, the right to receive dividends (if any),the rate or rates, amount or method or methods ofcalculation of such dividends (if any), the time and placeof payment of dividends, whether cumulative or non-cumulative and whether such rate, amount or method ofcalculation shall be subject to change or adjustment inthe future, the consideration and the terms and conditionsof any purchase for cancellation, retraction or redemptionrights (if any), the conversion or exchange rights attachedthereto (if any), the terms and conditions of any sinkingfund with respect thereto and such other rights,privileges, restrictions and conditions as the directorsmay at or prior to the issue thereof determine. Any suchresolution so passed by the directors shall be filedpursuant to the Act.

Priority

(b) The Class E Preference Shares shall:

(i) Rank junior and be subordinate to the Class A, B,and C Preference Shares ofThe Co-operators;

(ii) Be entitled to priority over the Class D and theMembership Shares;

In each case, with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of The Co-operators, whether voluntary or involuntary, or any other distribution of the assets of The Co-operators among its shareholders for the purpose of winding-up its affairs and shall be subject in all respects to the rights, privileges, restrictions and conditions attaching to the Class A, B, and C Preference Shares of The Co-operators”

Mr. Wilkinson asked if there was discussion. There was none.

WALES-ASSELIN That the Resolutions Committee Report be received as presented. CARRIED

MOTION TO RECEIVE THE RESOLUTIONS COMMITTEE REPORT

The chairperson then asked Mr. Lowery, associate secretary to conduct the director elections process. Mr. Lowery noted that for The Co-operators Group Limited, the by-laws provide that nominations for 22 directors are determined by the Region Committees in each region as follows; Alberta up to 3 candidates, including 2 at-large candidates and up to one credit union central candidate Atlantic 3, including 2 at-large candidates and one credit union central candidate British Columbia at least 2 and no more than 4 candidates, including 1 at-large candidate and no more than 3 credit union central candidates Manitoba up to 2 candidates, including 1 at-large candidate and up to 1 credit union central candidate Ontario no more than 9 and no fewer than 7 candidates, including 6 at-large candidates and at least 1, but not more than 3 credit union central candidates Quebec 2 at-large candidates Saskatchewan 2, including 1 at-large and 1 credit union central candidate

Mr. Lowery noted that the terms for the following directors had expired. BC Emmett McGrath AB Jim Laverick SK Collette Robertson MB Jocelyn VanKoughnet ON Johanne Charbonneau Geri Kamenz QC N/A AT Michael Mac Isaac Mr. Lowery noted that directors of The Co-operators Group Limited also serve as directors of Co-operators Financial Services Limited, Co-operators General Insurance Company and Co-operators Life Insurance Company. Mr. Lowery noted that the by-laws provide that nominations for directors are determined by the Region Committees in each region; he then called upon the following Region Committee representatives for the nomination for their respective regions: Director Nominator

BC Emmett McGrath John Kay

Marilyn Loewen Mauritz AB Jim Laverick Harvey Hagman

SK Collette Robertson Judy Grant

MB Jocelyn VanKoughnet Sophie Éthier

ON Geri Kamenz Mark Wales

QC N/A AT Michael Mac Isaac Eric Tusz-King Mr. Lowery then asked for a mover and a seconder for the following motion:

MACDONALD-JOHNSON That all of the nominated directors be appointed for a three-year term to the Board of Directors of The Co-operators Group Limited. CARRIED

MOTION TO NOMINATE DIRECTORS

Mr. Lowery then reviewed the election process for each of the companies other than The Co-operators Group Limited as follows:

Co-operators Financial Services Limited Co-operators General Insurance Company Co-operators Life Insurance Company CUMIS Life Insurance Company

Mr. Lowery reviewed the process for each of the companies. He noted that the directors of The Group will be elected as directors of the other three companies. For Co-operators Financial Services Limited, as a wholly owned subsidiary of The Co-operators Group Limited, all of The Co-operators Group Limited directors will be elected for a one-year term. For Co-operators General Insurance Company, as a subsidiary of The Group through Co-operators Financial Services Limited, all 22 of The Co-operators Group Limited directors will be elected for a one-year term as well as the President and Chief Executive Officer as required by the Insurance Companies Act. Mr. Lowery noted that no further action is required at the meeting with respect to Co-operators General Insurance Company and Co-operators Financial Services Limited elections. The associate secretary conducted the director elections for shareholders and participating policyholders. Mr. Lowery noted that the process is different with respect to Co-operators Life Insurance Company as both shareholder and policyholder directors are elected. In addition, not all of the common shares of Co-operators Life Insurance Company are held by Co-operators Financial Services Limited. Mr. Lowery, as associate secretary exercising the Company’s proxy for the common shares of Co-operators Life Insurance Company held by Co-operators Financial Services Limited, nominated the following persons to serve as the 15 shareholder directors of Co-operators Life Insurance Company for a one-year term:

SHAREHOLDER DIRECTORS

Don Altman Phil Baudin Denis Bourdeau Louis-H. Campagna Hazel Corcoran Roger Harrop Geri Kamenz Denis Laverdière Michael Mac Isaac Marilyn Loewen Mauritz Emmet McGrath Bob Petryk Collette Robertson Rob Wesseling Jack Wilkinson

Mr. Lowery then called on Michael Weinstein to make the 8 policyholder director nominations for a one-year term. Michael Weinstein nominated the following persons to serve as the 8 policyholder directors of Co-operators Life Insurance Company for a one-year term: Daniel Burns Gilles Colbert John Harvie Réjean Laflamme Jim Laverick Dave Sitaram Jocelyn VanKoughnet Alexandra Wilson Seconder: Michael Weinstein

POLICYHOLDER DIRECTORS

MACDONALD-SIMPSON That the associate secretary be authorized to file a ballot in favour of the nominated directors for a one-year term. CARRIED

MOTION TO APPOINT THE 23 NOMINATED DIRECTORS TO THE BOARD OF CO-OPERATORS GENERAL AND CO-OPERATORS LIFE FOR A ONE-YEAR TERM

Mr. Lowery noted that the following 5 persons were elected as shareholder directors of CUMIS Life Insurance Company to serve for a one-year term by written shareholder resolution:

Terry EnnsBill KissBill MaurinCamille ThériaultAlexandra Wilson

CUMIS SHAREHOLDER DIRECTORS

Mr. Lowery noted that a Management Proxy Circular was sent to all participating policyholders of CUMIS Life Insurance Company recommending the following 3 persons be elected as policyholder directors at this meeting to serve for a one-year term:

Janet GranthamRob WesselingBruce West

CUMIS POLICYHOLDER DIRECTORS

Mr. Lowery called for further nominations from CUMIS Life Insurance Company participating policyholders three times and then, hearing no further nominations, he declared nominations to be closed.

Mr. Lowery confirmed that as appointed proxyholder for CUMIS Life Insurance Company, he holds proxies received by participating policyholders to vote in favour of the three directors as policyholder directors.

He then advised that no further action is required from with respect to these two elections.

MCNAIR-PAINCHAUD-TREMBLAY

That one ballot be filed to elect the nominated directors for a one-year term.

CARRIED

MOTION TO ELECT CUMIS DIRECTORS FOR A ONE-YEAR TERM

The chair was returned to Mr. Harvie.

The chairperson then called on Don Altman, director representing the Ontario region and a member of the Sustainability and Citizenship Committee to make the presentation to the Community Charity.

CHARITYPRESENTATION

The chairperson announced the Community Charity Raffle prize winners. The raffle proceeds totaling $8500 were presented toAmandine Fournier of West End Food Co-op.

COMMUNITY CHARITY RAFFLE

The chairperson then advised the assembly that Mr. Lowery, Sr. V.P. General Counsel and Associate Secretary has announcedhis intention to retire at the end of 2017. The chairpersonacknowledged Mr. Lowery’s many years of service and hisimmense contribution to The Co-operators and to co-operatives.

MR. LOWERY’S PENDING RETIREMENT

The chairperson then brought closure to the meeting. He thanked the assembly for their attention and participation. He also thanked the AGM planning team and local staff for their efforts in delivering another successful AGM. He advised the assembly that Highlights, including the results of the board re-organization meeting will be posted on the member website following the meeting. He announced the 2018 AGM will be held in Moncton, New Brunswick on April 3-5, 2018.

The chairperson then reviewed the final procedural motion.

ROY-BOISSENAULT

Be it resolved that all acts, contracts, by-laws, proceedings, appointments elections and payments enacted and made, done and taken by the directors of the Corporation since the last meeting of members on April 6 and 7, 2016, referred to in the minutes of the meetings of the Board of Directors of the Corporation or in the annual reports of the Corporation are hereby approved and confirmed.

CARRIED

MOTION TO APPROVE ALL ACTS SINCE APRIL 6 & 7 2016

The chairperson then called for a motion to terminate the annual meetings.

SIMPSON-BOYDE

That the 2017 Annual Meeting of the companies be terminated.

CARRIED

MOTION TO TERMINATE

The meeting terminated at 12:00 p.m. TERMINATE

Date: April 4, 2018

To: Annual General Meeting

Copies: Members of the Audit Committee Daniel Burns, Gilles Colbert, Geri Kamenz, Denis Laverdière Internal and External Auditors Co-operators Management Group

From: Jim Laverick, Chair of the Audit Committee

A. ObjectivesThe objectives of this report are to inform interested parties about the work done by theAudit Committee during 2017.

B. SummaryHere is a brief introduction of the committee’s mandate, a description of the workcompleted and pertinent observations:

1. Mandatea. The mandate of the committee is to provide effective oversight on behalf of the

Board of Directors of the Company’s financial reporting processes, systems ofinternal control, and financial compliance as well as the integrity of theCompany’s financial statements. The committee serves as the board’s liaisonwith management on the above matters and works closely with the Internal andExternal Auditors in carrying out its duties. The function of the committee isoversight. Management is responsible for the preparation, presentation andintegrity of the interim and annual financial statements and related disclosuredocuments. Management of the company is also responsible for maintainingappropriate accounting and financial reporting policies and systems of internalcontrols and procedures that are in compliance with accounting standards,applicable laws and regulations and that provide reasonable assurances thatassets are safeguarded and that transactions are authorized, executed,recorded and reported properly.

b. The committee serves as the Audit Committee of The Co-operators GroupLimited (CGL), Co-operators Financial Services Limited (CFSL), Co-operatorsGeneral Insurance Company (CGIC), Co-operators Life Insurance Company(CLIC), The Sovereign General Insurance Company, and COSECO InsuranceCompany. It fulfills a monitoring role with respect to the other subsidiaries andaffiliates within The Co-operators Group Limited.

2017 ANNUAL REPORT OF THE AUDIT COMMITTEE

2. Work CompletedThe committee executes against a defined Audit Work Plan which outlines the work tobe completed by the committee at each of its meetings based on its assignedresponsibilities. The committee met five times during 2017; all of its meetings wereregularly scheduled meetings. There were no changes in the composition of thecommittee except for the following:

The previous Chair of the committee, Emmet McGrath, resigned on October31, 2017An existing member of the committee, Jim Laverick, assumed the role of Chairon November 1, 2017Geri Kamenz joined the committee to fill the vacant position on December 7,2017

3. ObservationsHere are the committee’s observations on items and subjects reviewed during 2017:

a) The annual audited financial statements were approved and recommended for adoption to the CGL board. The annual public company documents for CGIC including the Management Discussion and Analysis, and press release were also approved and recommended for adoption to the CGL board.

b) All documents related to the public company, CGIC, were received and approved on a quarterly basis including the consolidated financial statements, Management Discussion and Analysis and press release. The 2017 Annual Information Form (AIF) was also received and approved. All documents are prepared to meet or exceed Ontario Securities Commission and Canadian Securities Administrators standards for such documents.

c) Changes to accounting policy and related presentation and disclosure treatment were reviewed for any changes to International Financial Reporting Standards(IFRS).

d) Management reports for CGL, CGIC, COSECO, Sovereign, The Premier Group, CUMIS, CLIC, The Edge and Addenda, which summarize operational results against plan and prior year, were received and reviewed each quarter.

e) The interim and year end PricewaterhouseCoopers (PwC) reports were all received and reviewed. These reports covered the key areas of audit focus, acknowledged good co-operation and courtesy extending from management throughout the process and indicated no difficulties in signing the audited statements. 2017 represented the ninth year PwC has been engaged and, in the committee’s view, the audit was effective and well managed.

f) Ensured the external auditors confirmed their ongoing independence in accordance with applicable company and firm rules.

g) Actuarial reports and peer review reports for the companies were received and reviewed and were found to be satisfactory.

h) A quarterly assurance report which outlines compliance with specified laws, regulations and policies was received and reviewed.

i) As necessary, in-camera sessions were held with external and internal auditors, the appointed actuaries and management and the Audit Committee has no outstanding issues to report to this board.

j) Litigation reports were received and reviewed on a quarterly basis.

k) Significant correspondence with other regulatory bodies was reviewed; in addition the committee was provided with a summary of other general correspondence with regulatory bodies.

l) The internal auditors reported on the results of their activities for the year, showed good progress on all files, reviewed 2017 performance versus objectives and presented their 2018 audit plan.

m) The budgets for the Chief Financial Officer and the Chief Internal Auditor oversight functions were received and approved.

n) The quarterly impairment summary for the investment portfolios of CGL, CFSL, CGIC, COSECO, Sovereign, CUMIS and CLIC was received and reviewed.

o) A report on the Annual Impairment Testing for intangible assets was reviewed. p) Management provided a quarterly update on CEO/CFO Certification and reports

for CGIC and CLIC were received and reviewed. The quarterly Disclosure Committee Reports for the public company, CGIC, were also received and reviewed.

q) A report on current rating agency assessments was received and reviewed; management provided an update on the status of the 2016 and 2017 rating process for CFSL, CGIC, Sovereign, and CLIC.

r) The committee’s annual education day consisted of the following: i. IFRS 17 – Insurance Contracts ii. Internal Audit Universe & Annual Risk Assessment Overview iii. Taxation at Co-operators iv. LICAT Update

s) All participants were impressed with reports presented by management and

auditors, support received from staff, participation of everyone and control of time as planned.

4. External Auditor Recommendation One of the key responsibilities of the Audit Committee is to review the performance and continuing qualifications of the audit firm each year and to assure ourselves of their independence. In our review, we have taken note of PricewaterhouseCoopers’s commitment to service excellence, their support in a number of special engagements and their regular communication to the committee. They have provided good service, while completing their audit work in a timely and efficient manner, and have stayed within agreed upon budgets. They have provided suggestions for areas of improvement and have worked well with management. The Audit Committee recommends with confidence, the re-appointment of PricewaterhouseCoopers as auditors of the company for 2018.

RESPONSIBILITY FOR FINANCIAL REPORTING Management Management is responsible for the preparation of the accompanying consolidated financial statements and the accuracy, integrity and objectivity of the information they contain. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards. The financial information contained elsewhere in the annual report is consistent with the consolidated financial statements. These consolidated financial statements, which necessarily include some amounts that are based on management’s best

estimates and the opinions of valuation actuaries, have been prepared using careful judgment. To assist management in the discharge of these responsibilities, The Co-operators Group Limited and its subsidiaries, collectively known as “the Company”, maintain a system of internal controls designed to provide reasonable assurance that assets are safeguarded; that only valid and authorized transactions are executed; and that accurate, timely and comprehensive financial information is prepared. These controls are supported by policies and procedures and the careful selection and training of qualified staff. Audit Committee of the Board of Directors The Audit Committee of the Board of Directors, consisting entirely of non-executive, independent directors, is responsible for reviewing the accounting principles and practices employed by the Company and reviewing the Company’s annual consolidated financial statements prior to their submission to the Board of Directors for final approval. The Audit Committee meets no less than quarterly with the internal and external auditors and management to review and discuss accounting, reporting and internal control matters. The Audit Committee also reviews and monitors weaknesses in the Company’s system of internal controls as reported by management and the auditors. Both the internal and external auditors have full and unrestricted access to the Audit Committee, with and without the presence of management. The Audit Committee also recommends to the Board of Directors the appointment of external auditors and approval of their fees. The consolidated financial statements have been examined independently by PricewaterhouseCoopers LLP, on behalf of the Company’s members and shareholders. The Independent Auditor’s Report outlines the scope of their examination and expresses their opinion on the consolidated financial statements of the Company. Robert Wesseling P. Bruce West President and Chief Executive Officer Executive Vice-President, Finance and Chief Financial Officer February 14, 2018

PricewaterhouseCoopers LLPPwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2T: +1 416 863 1133, F: +1 416 365 8215

“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.

February 14, 2018

Independent Auditor’s Report

To the Members and Shareholders of

The Co-operators Group Limited

We have audited the accompanying consolidated financial statements of The Co-operators Group Limited and its subsidiaries, which comprise the consolidated balance sheet as at December 31, 2017 and the consolidated statements of changes in equity, comprehensive income and cash flows for the year then ended, and the related notes, which comprise 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.

Auditor’s 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 auditor’s 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 auditor considers 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 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 The Co-operators Group Limited and its subsidiaries as at December 31, 2017 and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants

CONSOLIDATED FINANCIAL STATEMENTS THE CO-OPERATORS GROUP LIMITED CONSOLIDATED BALANCE SHEET As at December 31

2017 2016(in thousands of Canadian dollars) $ $AssetsCash and cash equivalents 293,869 119,609 Restricted cash 74,174 71,562 Invested assets including securities on loan (note 5) 9,472,755 9,151,275 Premiums due 933,560 836,355 Income taxes recoverable 8,069 19,138 Reinsurance ceded contracts (note 10) 381,963 514,475 Deferred acquisition expenses (note 11) 266,176 249,129 Assets held for sale 23,737 3,173 Deferred income taxes (note 12) 160,772 145,436 Intangible assets (note 13) 495,391 508,148 Other assets (note 14) 153,462 170,899 General fund assets 12,263,928 11,789,199

Segregated fund assets (note 24) 2,649,852 2,751,802

14,913,780 14,541,001

LiabilitiesAccounts payable and accrued charges 392,905 344,367 Income taxes payable 11,541 34,146 Insurance contracts (note 8) 7,089,521 6,883,020 Investment contracts (note 9) 531,341 544,557 Borrow ings (note 16) 171,377 167,114 Retirement benefit obligations (note 17) 283,725 242,043 Deferred income taxes (note 12) 40,966 45,499 Provisions and other liabilities (note 15) 174,591 180,188 General fund liabilities 8,695,967 8,440,934

Segregated fund liabilities (note 24) 2,649,852 2,751,802

11,345,819 11,192,736

EquityShare capital (note 18) 26,058 26,793 Contributed capital 25,397 25,581 Retained earnings 2,285,828 2,126,918 Accumulated other comprehensive income (note 19) 106,508 123,076

2,443,791 2,302,368 Participating policyholder account (note 20) 808,121 743,943 Non-controlling interests 316,049 301,954

3,567,961 3,348,265

14,913,780 14,541,001

Approved by the Board of Directors:

John Harvie, Jim Laverick, Chairperson Director

See accompanying notes to the consolidated financial statements

THE CO-OPERATORS GROUP LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Years ended December 31

A ccumulated

o ther T o tal P art icipat ing N o n-

2017 Share C o ntributed R etained co mprehensive members' po licyho lder co ntro lling

(in thousands capital capital earnings inco me equity acco unt interests T o tal

of Canadian dollars) $ $ $ $ $ $ $ $

Balance, beginning of year 26,793 25,581 2,126,918 123,076 2,302,368 743,943 301,954 3,348,265 Net income - - 162,757 - 162,757 53,636 20,940 237,333 Other comprehensive income (loss) - - - (16,568) (16,568) 8,370 (1,065) (9,263) Comprehensive income (loss) - - 162,757 (16,568) 146,189 62,006 19,875 228,070 Appropriation - - (2,172) - (2,172) 2,172 - - Preference shares issued of a subsidiary - - - - - - 5,644 5,644 Preference shares redeemed of a subsidiary - - (104) - (104) - (524) (628) Preference shares redeemed (735) - - - (735) - - (735) Common shares issued of a subsidiary - - - - - - 154 154 Dividends declared - - (1,571) - (1,571) - (11,373) (12,944) Change in non-controlling interests in existing subsidiary - (281) - - (281) - 281 - Stock option compensation of a subsidiary - 97 - - 97 - 38 135 Balance, end of year 26,058 25,397 2,285,828 106,508 2,443,791 808,121 316,049 3,567,961

Accumulated

other Total Participating Non-

2016 Share Contributed Retained comprehensive members' policyholder contro lling

(in thousands capital capital earnings income equity account interests Total

of Canadian dollars) $ $ $ $ $ $ $ $

Balance, beginning of year 26,793 26,172 1,968,422 150,133 2,171,520 678,733 293,890 3,144,143 Net income - - 162,495 - 162,495 58,241 13,861 234,597 Other comprehensive income (loss) - - - (27,057) (27,057) 4,478 466 (22,113) Comprehensive income (loss) - - 162,495 (27,057) 135,438 62,719 14,327 212,484 Appropriation - - (2,491) - (2,491) 2,491 - - Preference shares issued of a subsidiary - - - - - - 5,224 5,224 Preference shares redeemed of a subsidiary - - (96) - (96) - - (96) Common shares issued of a subsidiary - - - - - - 390 390 Dividends declared - - (1,412) - (1,412) - (12,648) (14,060) Change in non-controlling interests in existing subsidiary - (721) - - (721) - 721 - Stock option compensation of a subsidiary - 130 - - 130 - 50 180

Balance, end of year 26,793 25,581 2,126,918 123,076 2,302,368 743,943 301,954 3,348,265


THE CO-OPERATORS GROUP LIMITED CONSOLIDATED STATEMENT OF INCOME Years ended December 31

2017 2016(in thousands of Canadian dollars) $ $

IncomeNet earned premium (note 22) 3,484,166 3,308,144 Net investment income and gains (note 5) 518,651 399,077 Fees and other income 133,436 133,795

4,136,253 3,841,016

Benefits and operating expensesClaims and benefits 2,502,913 2,703,677 Ceded claims and benefits (46,762) (500,523) Premium and other taxes 116,444 101,997 Commissions and advisor compensation 646,277 610,562 Ceded commissions (82,937) (70,436) General expenses 704,807 697,596

3,840,742 3,542,873 Income before income taxes 295,511 298,143 Income tax expense (note 12) 58,178 63,546

Net income 237,333 234,597

Net income attributable to:

Members 162,757 162,495 Participating policyholders 53,636 58,241 Non-controlling interests 20,940 13,861

Net income 237,333 234,597


THE CO-OPERATORS GROUP LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Years ended December 31

2017 2016(in thousands of Canadian dollars) $ $Net income 237,333 234,597 Other comprehensive income

Items that may be reclassif ied subsequently to the statement of income:Net unrealized gains (losses) on available-for-sale f inancial assets 89,823 82,879 Net reclassif ication adjustment for (gains) losses included in net income (70,147) (98,349) Items that may be reclassif ied before income taxes 19,676 (15,470) Income tax recovery relating to items that may be reclassif ied (note 12) 6,589 (4,492)

13,087 (10,978) Items that w ill not be reclassif ied to the statement of income:

Remeasurement of the retirement benefit obligations (30,529) (15,243) Income tax expense (recovery) related to items that w ill not be reclassif ied (note 12) (8,179) (4,108)

(22,350) (11,135) Other comprehensive loss (9,263) (22,113) Comprehensive income 228,070 212,484

Comprehensive income attributable to:Members 146,189 135,438 Participating policyholders 62,006 62,719 Non-controlling interests 19,875 14,327 Comprehensive income 228,070 212,484


THE CO-OPERATORS GROUP LIMITED CONSOLIDATED STATEMENT OF CASH FLOWS Years ended December 31

2017 2016

(in thousands of Canadian dollars) $ $

Operating activitiesNet income 237,333 234,597 Items not requiring the use of cash (note 25) (206,439) (86,712) Changes in non-cash operating components (note 25) 208,358 209,930

Cash provided by operating activities 239,252 357,815

Investing activitiesPurchases and advances of:

Invested assets (5,118,111) (6,954,585) Interest in associates and joint ventures (3,750) (8,900) Property and equipment (12,190) (14,335) Intangible assets (6,195) (10,555)

Sales and redemptions of:Invested assets 5,045,100 6,526,202 Investment property - 361 Interest in associates and joint ventures - 3,953 Assets held for sale 472 2,215

Cash used in investing activities (94,674) (455,644)

Financing activitiesPreference shares issued of a subsidiary 5,644 5,274 Preference shares redeemed of a subsidiary (628) (96) Preference shares redeemed (735) - Common shares issued of a subsidiary 154 390 Repayment of borrow ings (470,886) (699,465) Issuance of borrow ings 475,037 700,929

Shareholders (note 18) (1,571) (1,412) Non-controlling interests (11,373) (12,648)

Cash used in f inancing activities (4,357) (7,028)

Net increase (decrease) in cash and cash equivalents, net of payments in transit 140,221 (104,857) Cash and cash equivalents, net of payments in transit, beginning of year 99,241 204,098

Cash and cash equivalents, net of payments in transit, end of year 239,462 99,241

Cash 60,221 76,406 Cash equivalents 233,648 43,203 Net payments in transit, included in accounts payable and accrued charges (54,407) (20,368)

Cash and cash equivalents, net of payments in transit, end of year 239,462 99,241

Supplemental information (note 25)


(Amounts in thousands of Canadian dollars except where otherwise noted)

THE CO-OPERATORS GROUP LIMITED 9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Nature of operations Unless noted or the context indicates otherwise, in these notes “Company” refers to the Consolidated The Co-operators Group Limited. CGL refers to the Non-Consolidated The Co-operators Group Limited. The Company is owned by 43 members. Members hold par value co-operative shares in the Company in conjunction with their membership. No return is paid on these nominal shareholdings. The registered office of the Company is 130 Macdonell Street, Guelph, Ontario. The Company is domiciled in Canada and is incorporated under the Canada Co-operatives Act (proclaimed effective December 31, 1999). These consolidated financial statements of the Company for the year ended December 31, 2017 were authorized for issue by the Board of Directors on February 14, 2018. The following are the significant companies which are consolidated in these financial statements: Co-operators Financial Services Limited (CFSL)

Co-operators General Insurance Company (CGIC) The Sovereign General Insurance Company (Sovereign) COSECO Insurance Company (COSECO) Co-operators Investment Limited Partnership (CILP) Co-operators Life Insurance Company (CLIC) The CUMIS Group Ltd. (CUMIS) CUMIS Life Insurance Company (CUMIS Life) CUMIS General Insurance Company (CUMIS General)

Addenda Capital Inc. (Addenda) Federated Agencies Limited

H.B. Group Insurance Management Ltd Premier Managers Holdings Corporation (PMHC) Premier Marine Insurance Managers Group (West) Inc. (Premier Marine)

Premier Canada Assurance Managers Ltd. (Premier Canada) Westco Premier Credit Corp. (Westco) The Edge Benefits Inc. (Edge) Insurance is the Company’s core and largest business and is regulated under the Insurance Companies Act (Canada). CGIC provides personal lines, commercial and farm coverages. CLIC provides life, health and travel insurance, annuity coverages and wealth management for both individuals and groups. CLIC has a 73% controlling interest in CUMIS and its wholly owned subsidiaries. The insurance operations are licensed to write many classes of insurance, in all provinces and territories in Canada. The Company also acts in the investment management market through Addenda, which provides institutional and private investment management. CFSL has a 72% controlling interest in Addenda. Other businesses undertaken by subsidiaries of the Company support or are ancillary to the insurance and investment management businesses. 2. Summary of significant accounting policies Basis of preparation and statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). References to IFRS are based on Canadian Generally Accepted Accounting Principles for publicly accountable enterprises as set out in Part 1 of the Chartered Professional Accountants of Canada (CPA) Handbook - Accounting. Part 1 of the CPA Handbook incorporates IFRS and International Accounting Standards (IAS) as issued by the International Accounting Standards Board (IASB). The consolidated balance sheet is presented on a non-classified basis. Assets expected to be realized and liabilities expected to be settled within the Company’s normal operating cycle of one year are typically considered to be current. Certain balances are comprised of both current and non-current amounts. The current and non-current portions of such balances are disclosed, where applicable, throughout the notes to the consolidated financial statements.

Notes to the Consolidated Financial Statements (Amounts in thousands of Canadian dollars except where otherwise noted)

During the year, the Company reclassified net payments in transit from borrowings to accounts payable and accrued charges. These amounts relate to investment purchases and sales entered into, or other payments made by cheque, close to the period end, that are settled shortly after the period end. The change provides more relevant information about the nature of the Company’s liabilities. Consequently, the comparative figure for accounts payable and accrued charges has increased by $20,368 to $344,367 as a result of reclassification from borrowings to conform to our current year presentation. Under the previous presentation, December 31, 2017 figures would have been $338,498 for accounts payable and accrued charges and $225,784 for borrowings. Basis of measurement

These consolidated financial statements have been prepared under the historical cost convention excluding certain financial instruments and insurance contract liabilities whose basis of measurement is disclosed in the following accounting policies. Insurance contracts

Product classification

Insurance contracts are those contracts that transfer significant insurance risk at the inception of the contract. Insurance risk is transferred when the Company agrees to compensate a policyholder if a specified uncertain future event, other than a change in a financial variable, adversely affects the policyholder. Any contracts, including reinsurance contracts that do not meet the definition of an insurance contract under IFRS are classified as investment contracts, or service contracts, as appropriate. Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime until all rights and obligations are extinguished or expire. Investment contracts can be reclassified as insurance contracts after inception, if insurance risk becomes significant. Revenue recognition

Premiums for life insurance contracts are recognized as revenue in the consolidated statement of income when due.

Premiums written for property and casualty insurance contracts are deferred as unearned premiums and recognized in the consolidated statement of income over the terms of the underlying policies. Premiums written are gross of any premium taxes and commissions.

Fees and other income include fees earned on administrative services only group health contracts, fees earned from the management of the Company’s segregated fund contracts and commission revenue from the sale of insurance policies. Life insurance contract liabilities

Actuarial liabilities have been determined using the Canadian Asset Liability Method (CALM). Actuarial liabilities represent the amounts which, together with future premiums and investment income, will be sufficient to pay future benefits, dividends and expenses on all policies in force. The liabilities are calculated using estimates of future reinvestment rates, asset default, mortality, morbidity, policy lapsation and expenses, and include reasonable provisions for adverse deviations from those estimates. These provisions for adverse deviations are released into income as the probability of deviation from estimates declines over time. Property and casualty insurance contract liabilities

Unearned premiums represent the portion of the premiums written relating to the period of insurance coverage subsequent to the consolidated balance sheet date.

The provision for unpaid claims and adjustment expenses represents the estimated amount required to settle all reported and unreported claims incurred to the end of the year. These estimates are determined using the best information available for claims settlement patterns, inflation, expenses, changes in the legal and regulatory environment and other matters. The provision reflects the time value of money and is discounted based on the projected market yield of the assets backing the claims liability.

Anticipated recoveries of amounts relating to reported and unreported claims for salvage and subrogation, net of any required provision for impairment, are included as an allowance in the measurement of the claims provision. Estimation of the amount of these recoveries is based on principles consistent with the Company’s method for establishing the related liability.

Differences between the estimated cost and subsequent settlement of claims are recognized in the consolidated statement of income in the period in which they are settled or in which the provisions for claims outstanding are re-estimated.


In the normal course of claims adjudication, the Company settles certain obligations to claimants through the purchase of annuities from third party life insurance companies under structured settlement arrangements (structured settlements). In accordance with OSFI Guideline D-5, these contracts are categorized as either Type 1 or Type 2 based on the characteristics of the claim settlement. When the Company does not retain a reversionary interest under the contractual arrangement to any current or future benefits of the annuity, and the Company has obtained a legal release of the obligation from the claimant, it will be classified as a Type 1 structured settlement. For such contracts, any gain or loss arising on the purchase of an annuity is recognized in the consolidated statement of income at the date of purchase and the related claims liabilities are derecognized. All other structured settlements that do not meet these criteria are classified as Type 2, with the Company recognizing the annuity contract in other investments within invested assets. A corresponding liability representing the outstanding obligation to the claimant is recognized in insurance contracts. Liability adequacy test

At each balance sheet date, an assessment is made of whether the insurance contract liabilities are adequate, using current estimates of future cash flows. If that assessment shows that the carrying amount of the liabilities is insufficient in light of the estimated future cash flows, the premium deficiency is recognized in the consolidated statement of income. An additional liability is set-up if a reduction in deferred acquisition expenses is insufficient. Embedded derivatives

Embedded derivatives that meet the definition of an insurance contract or correspond to options to surrender insurance contracts for a set amount (or based on a fixed amount and an interest rate) are not separately measured. However, certain other embedded derivatives in insurance contracts must be treated as separate derivatives. The Company does not bifurcate any of the embedded derivatives in insurance contracts as the economic characteristics and risks of the embedded derivative are closely related to the economic characteristics and risks of the host contract. Discretionary participation features

Some insurance contracts contain discretionary participation features (DPF). These features entitle the holder to receive, as a supplement to guaranteed benefits, additional benefits or dividends that are based on the realized and/or unrealized investment returns on a specified pool of assets held by the Company backing the related insurance contracts, with which the Company has discretion over the timing or amount. DPF can be either treated as an element of equity or as a liability, or can be split between the two elements. The Company has classified these features as a liability and are measured according to CALM and in accordance with guidance provided by the Canadian Institute of Actuaries (CIA). The Company has not classified any contracts as investment contracts with DPF. Premiums due

Premiums due represent receivables that are recognized when owed pursuant to the terms of the related insurance contract. Premiums due are measured on initial recognition at the fair value of the consideration receivable and are recorded on the consolidated balance sheet net of any impairment losses. Premiums due are classified as loans and receivables. Acquisition expenses

Property and casualty insurance acquisition expenses are comprised of commissions and premium taxes, which relate directly to the acquisition of premiums. These expenses are deferred and amortized over the terms of the related policies to the extent that they are considered to be recoverable from unearned premiums, after considering the anticipated claims, expenses and investment income related to the unearned premiums. If a premium deficiency arises, any deferred acquisition expenses would be written off first, then a liability would be recorded on the consolidated balance sheet for any remainder. Deferred acquisition costs arising on segregated funds are calculated and included in insurance contract liabilities. Actuarial liabilities implicitly include deferred acquisition costs on life insurance and annuity product sales. Reinsurance

In the normal course of business, the Company cedes insurance with retention limits that vary by line of business.

The cost of reinsurance related to insurance contracts of the life operations is accounted for over the term of the underlying reinsured policies, using assumptions consistent with those used to account for these policies.


For the property and casualty operations, premiums payable in respect of reinsurance ceded are recognized over the period in which the reinsurance contract is entered into and are based on the underlying insurance contracts to which they relate. Ceded premiums are expensed in the consolidated statement of income on a pro-rata basis over the term of the reinsurance contract. Reinsurance ceded assets and liabilities are recognized and together reflect the net amount estimated to be recoverable under the Company's reinsurance contracts in respect of outstanding claims reported within insurance contracts. Reinsurance assets primarily consist of balances due from reinsurance companies for ceded insurance liabilities. The amount recoverable is initially valued on the same basis as the underlying insurance contract. The amount recoverable is reduced when events or conditions arise after the initial recognition of the asset that provide objective evidence that the Company may not receive all amounts due under the contract.

Reinsurance commissions are recognized in the consolidated statement of income over the term of the reinsurance contract using principles consistent with the Company’s method of recording acquisition expenses. The Company has in place certain reinsurance contracts in which the commission has a floor and a ceiling based on the loss experience on the business ceded under the contract. Commissions are estimated based on the experience of these contracts. The Company also assumes reinsurance risk in the normal course of business. Premiums and claims on assumed reinsurance are recognized as revenue or expenses in the same manner as they would be if the reinsurance contract was considered direct business. Liabilities arising under these contracts are estimated in a manner consistent with the related insurance contract and are included as components of insurance contracts. Segregated funds

Segregated funds are insurance products offered under life insurance policies which provide policyholders with opportunities to grow their investment capital. Although the underlying assets are registered in the name of the Company, and the policyholder bears the risk and rewards of the funds’ investment performance, outside of guarantees offered on individual investment products. The net assets may be exposed to a variety of financial and other risks. These risks are primarily mitigated by investment guidelines that are actively monitored by professional and experienced portfolio advisors. These funds are recognized as an asset in the consolidated balance sheet with a corresponding liability for the repayment. Segregated funds are presented separately within the Company's consolidated financial statements and do not form part of the general funds of the Company.

Certain contracts allow policyholders to invest in segregated funds managed by the Company. Income earned from segregated fund management fees is included in fees and other income. Income earned on these funds, and any related capital gains or losses, accrue to the benefit of the segregated fund. They are included in the funds’ income and are disclosed in note 24. Investments held in segregated funds are carried at fair value. Investment contracts

Investment contracts are those contracts that transfer financial risk with no significant insurance risk. Financial risk is the risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of price 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. Investment contract liabilities with annuity features are initially recognized at fair value, this being the transaction price excluding any transaction costs directly attributable to the issue of the contract. Subsequent to initial recognition, these investment contract liabilities are measured at fair value through profit or loss (FVTPL). Other investment contract liabilities are initially recognized at amortized cost, this being the transaction price including any transaction costs directly attributable to the issue of the contract. Subsequent to initial recognition, these investment contract liabilities are measured at amortized cost.

The investment contract liabilities are derecognized when the obligation expires, is cancelled, or is discharged.


Financial instrument contracts

Classification and designation

Financial assets are classified as FVTPL, available-for-sale (AFS), held-to-maturity (HTM), or loans and receivables based on their characteristics and purpose of their acquisition. Certain financial assets may be designated as FVTPL at the Company’s option. Financial

liabilities are required to be classified as FVTPL or other financial liabilities. The Company has classified all stocks and bonds as either AFS or FVTPL. Investments in limited partnerships are classified as AFS. Bonds and stocks backing equity have been designated as AFS while bonds and stocks backing life policyholder liabilities have been designated as FVTPL. Certain shares that contain embedded derivatives are designated as FVTPL. The fair value option may be used when such a designation eliminates or significantly reduces an accounting mismatch caused by measuring assets and liabilities on different bases or when instruments are measured and managed on a fair value basis in accordance with a documented risk management strategy. If a contract contains embedded derivatives, the entire combined hybrid contract may be designated as FVTPL under certain conditions. The Company’s

FVTPL designations comply with these requirements.

Mortgages, policy loans, other investments, amounts on deposit with reinsurers and accounts receivable are classified as loans and receivables. Short-term investments, which include money market instruments with a maturity of greater than three months from the date of acquisition are classified as FVTPL, AFS and HTM. Currency derivatives are classified as FVTPL. Accounts payable and accrued charges and borrowings are classified as other financial liabilities with interest expense, if any, recorded in general expenses. Presentation Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet when there is a legally enforceable right to offset the recognized amounts and there is the ability and intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Recognition and measurement

Purchases and sales of invested assets classified as FVTPL, AFS, HTM or loans and receivables are recorded on a trade-date basis. Financial assets are measured at fair value with the exception of HTM assets and loans and receivables. Assets classified as HTM or loans and receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment losses, if any. Any premium or discount on the acquisition of bonds is included in the calculation of the effective interest rate. Financial liabilities are measured at fair value when they are classified as FVTPL. Other financial liabilities are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method. A specific exemption is provided for contracts issued to policyholders by insurance enterprises. The insurance contracts are determined according to standard actuarial practices. Policy loans are carried at their amortized cost, which is not in excess of the cash surrender value of the policies on which the respective loans were made. Fair value is considered to approximate amortized cost.

Changes in the fair value of FVTPL financial assets and financial liabilities are recognized in net income for the year, while changes in the fair value of AFS financial assets are reported within other comprehensive income (OCI), until the related instrument is disposed of or becomes impaired. Net foreign exchange gains and losses for FVTPL and monetary AFS financial instruments are recognized in net income, while net foreign exchange gains and losses for non-monetary items classified as AFS are recognized in OCI.

Accumulated other comprehensive income (AOCI) is included in the consolidated balance sheet as a separate component of equity (net of income taxes) and includes unrealized gains and losses on AFS financial assets. The cumulative gains or losses in the fair values of investments previously recognized in AOCI are reclassified to net income when they are realized or impaired. Financial assets are derecognized when the rights to receive cash flows from them have expired or when the Company has transferred substantially all risks and rewards of ownership. Fair value

Fair value is the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. Fair value measurements for invested assets are categorized into levels within a fair value hierarchy based on the nature of valuation inputs (Level 1, 2 or 3).


The fair value of other financial assets and financial liabilities is considered to be the carrying value when they are of short duration or when the instrument’s interest rate approximates current observable market rates. Where other financial assets and financial liabilities are of longer duration, fair value is determined using the discounted cash flow method using discount rates based on adjusted observable market rates. Impairment of financial assets

The Company reviews its AFS investment portfolio on a quarterly basis, at a minimum, for any declines in fair value below cost, and recognizes any losses in net income where there is objective evidence of impairment. The Company assesses whether there is potential impairment of an AFS financial asset by assessing whether there is a significant or prolonged decline in fair value below cost. For equity instruments, the Company considers a decline of 20% to be significant and a period of twelve months to be prolonged. When assessing whether this is potential impairment of instruments other than equity instruments, factors that are considered include, but are not limited to: a decline in current financial position; defaults on debt obligations; failure to meet debt covenants; significant downgrades of credit status, and severity and/or duration of the decline in value. An impairment loss is recorded through a reclassification adjustment to the consolidated statement of income. Impairments of AFS equity instruments cannot be reversed through the consolidated statement of income until the instrument is disposed. Impairments of AFS debt instruments are only reversed if, in a subsequent period, the fair value increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income.

Financial assets include mortgages and other investments classified as loans and receivables that are also evaluated for impairment. These invested assets are considered impaired when there is objective evidence of deterioration in credit quality that indicates the Company no longer has reasonable assurance that the full amount of principal and interest will be collected. The Company then establishes specific provisions for losses and balances are subsequently measured at their net realizable amount based on discounting the cash flows at the original effective interest rate inherent in the loan or the fair value of the underlying security. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it collectively assesses the assets for impairment. Assets that are individually assessed for impairment, and for which an impairment loss is or continues to be recognized, are not included in a collective assessment of impairment. Changes in present value of estimated future cash flows of impaired loans are recognized in net investment income and gains as a credit or charge to impairment losses. Derivative financial instruments

Derivatives are classified as FVTPL and transactions are recorded on a trade date basis. There are no derivatives designated as a hedge for accounting purposes. Derivatives are recognized at fair value in the consolidated balance sheet. The gains and losses arising from remeasuring the derivatives at fair value are recognized in the consolidated statement of income in net investment income and gains. Positive fair values are reported in invested assets (note 5) and negative fair values are reported in provisions and other liabilities (note 15). Embedded derivatives

An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-derivative host contract. Some of the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise would be required by the contract to be modified according to a specified financial variable. Derivatives embedded in other financial instruments or contracts are separated from their host contracts and accounted for as derivatives when: (i) their economic characteristics and risks are not closely related to those of the host contract; (ii) the terms of the embedded derivative are the same as those of a free standing derivative; (iii) the combined instrument or contract is not measured at fair value, with the changes in fair value being recognized in net income; and (iv) the fair value of the embedded derivative can be reliably measured on a separate basis. These embedded derivatives are classified as FVTPL financial assets and liabilities with changes in fair value recognized in net income as a component of net investment income and gains. Pooled fund investments

The Company invests in pooled funds offered by Addenda (Pooled Funds). These funds invest mainly in a variety of securities and distribute most of their income. The Company’s participation in these funds can fluctuate from day to day based on the amount invested by the Company

and third parties. Pooled Funds are consolidated when the substance of the relationship between the Company and the fund indicates control. The Company controls a fund when the Company is exposed to, or has rights to, variable returns from its involvement with the fund and has the ability to affect those returns through its power over the fund. Significant judgment is used to assess the level of significance of returns to the Company from the entity’s activities. When the Company is deemed to control the funds, they are consolidated and the third party liability is recorded as a liability at fair value and disclosed as net asset value attributable to third party unit holders in the consolidated balance sheet.


Investments under securities lending program

Securities lending transactions are entered into on a collateralized basis. The securities lent are not derecognized on the Company’s consolidated balance sheet given that the risks and rewards of ownership are not transferred from the Company to the counterparties in the course of such transactions. Securities received from counterparties as collateral are not recorded on the Company’s consolidated balance sheet given that the risks and rewards of ownership are not transferred from the counterparties to the Company in the course of such transactions.

Revenue and expense recognition

Included within net investment income and gains are dividend and interest income. Dividend income is recorded on the ex-dividend date and interest income, which includes amortization of premiums or discounts, is recognized using the effective interest method. Realized gains and losses on the sale of investments are computed using the average cost of investments, net of any impairment charges, and are recognized in net income on the date of sale.

Transaction costs for AFS financial assets and loans and receivables are recorded as part of the purchase cost of the asset. Transaction costs for financial liabilities classified as other than FVTPL are included in the value of the instrument at issue. Transaction costs for FVTPL financial instruments are recognized in the consolidated statement of income. Other significant accounting policies

Cash and cash equivalents

Cash and cash equivalents include short-term investments with a maturity of three months or less from the date of acquisition. Investment properties Investment properties are comprised of real estate held for the purpose of capital appreciation or to earn rental income that has an insignificant portion that is owner-occupied. Investment property is initially measured at cost and is subsequently measured using the cost model.

Restricted cash Restricted cash includes funds on deposit in separate accounts with respect to insurance premiums collected on behalf of third party insurance companies.

Property and equipment

Computer equipment, furniture and equipment, buildings and leasehold improvements are carried at cost less accumulated amortization and accumulated impairment losses. Subsequent costs are included in the asset’s carrying value when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably measured. All repairs and maintenance costs are charged to the consolidated statement of income during the period in which they occur. Property and equipment balances are amortized on a straight-line basis over their estimated useful lives as follows:

TermComputer equipment 2 - 5 yearsFurniture and equipment 2 - 10 yearsBuildings 20 - 40 yearsLeasehold improvements Lesser of 5 years and terms of related lease

Land and art collections are not subject to amortization and are carried at cost. Leasehold projects in progress are carried at cost and amortization commences upon completion of the project. Impairment reviews are performed when there are indicators that the carrying value of an asset may exceed its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and its value in use. Impairment losses are recognized in the consolidated statement of income as an expense. In the event that the value of a previously impaired asset recovers, the previously recognized impairment loss is recovered in the consolidated statement of income at that time.


Property and equipment are derecognized upon disposal or when no further future economic benefits are expected from its use or disposal. Gains and losses on disposal are determined by comparing the proceeds with the net carrying value and are recorded in the consolidated statement of income. Fully depreciated property and equipment are retained in cost and accumulated amortization accounts until such assets are removed from service. Useful lives, amortization rates and residual values are reviewed annually and are taken into consideration when determining the depreciable amounts of the property and equipment. Leases

Leases of property and equipment where the Company is not exposed to substantially all of the risks and rewards of ownership are classified as operating leases. Incentives received from the lessor are deferred and amortized to the consolidated statement of income on a straight-line basis over the term of the lease. Where substantially all of the risks and rewards have been transferred to the Company the lease is classified as a finance lease. In these cases, an obligation and an asset are recognized based on the present value of the future minimum lease payments and balances are amortized over the lease term or useful life, as applicable. Business acquisitions and consolidation The Company measures goodwill as the fair value of the consideration transferred, including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabi lities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in net income. The Company elects, on a transaction-by-transaction basis, whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date. Transaction costs that the Company incurs in connection with a business combination, other than those associated with the issue of debt or equity securities, are expensed as incurred. Transactions with non-controlling interests

Transactions with non-controlling interests that do not result in a loss of control are accounted for as equity transactions with owners in their capacity as owners. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and consideration paid or received is recognized within equity.

Subsidiaries

Subsidiaries are all entities over which the Company has control. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Company.

Investments in associates and joint ventures

Associates are those entities over which the Company has significant influence, but not control. Significant influence is considered to be held where the Company has the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those policies. Significant influence is generally presumed to exist when the Company holds between 20 and 50 percent of the voting power of another entity. Joint ventures are joint arrangements where the parties have rights to the net assets of the arrangement. A joint arrangement is where two or more parties have joint control. Joint control is the contractually agreed sharing of control, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

Investments in associates and joint ventures are accounted for using the equity method (equity accounted investees) and are recognized initially at cost. The Company’s investment includes goodwill identified on acquisition and is presented net of any accumulated impairment losses. The consolidated financial statements include the Company’s share of the income, expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Company, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Company’s share of losses exceeds its

interest in an equity accounted investee, the carrying amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.


Transactions eliminated on consolidation Intra-company balances and transactions, and any unrealized income and expenses arising from intra-company transactions, are eliminated in preparing the consolidated financial statements. Unrealized gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, unless the transaction provides evidence of impairment. Intangible assets

Goodwill is not amortized but is evaluated for impairment annually or more frequently when an event or circumstance occurs that indicates goodwill might be impaired. Testing for impairment is accomplished by determining if the carrying value of a cash-generating unit (CGU) exceeds its recoverable amount at the assessment date. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Each of those CGUs represents the Company’s investment by

legal entity or line of business. The assets constituting the CGU to which goodwill has been allocated are tested for impairment prior to testing the goodwill for impairment. Any impairment loss on these assets is recognized in the consolidated statement of income prior to testing the CGU containing goodwill for impairment.

If the carrying value of a CGU, including the allocated goodwill, exceeds its recoverable amount, the amount of the goodwill impairment is measured as the excess of the carrying amount of the CGU over its recoverable amount. The recoverable amount is the higher of its fair value less costs to sell or its value in use. Should the carrying value exceed the recoverable amount, an impairment loss is recognized in the consolidated statement of income at that time. The estimate of recoverable amount required for the impairment test is sensitive to the cash flow projections and the assumptions used in the valuation model. Previously recorded impairment losses for goodwill are not reversed in future periods.

Finite life intangible assets are amortized on a straight-line basis over their estimated useful lives and are carried at cost less accumulated amortization and impairment. Finite life intangible assets are tested for impairment when events or circumstances indicate that the carrying value may not be recoverable. Indefinite life intangible assets are not amortized but are evaluated for impairment annually or more frequently when an event or circumstance occurs that indicates impairment. An impairment loss is recognized as the amount by which the asset’s carrying

amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or va lue in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows, which are CGUs.

For intangible assets excluding goodwill, an assessment is made at each balance sheet date as to whether there is any indicat ion that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of the recoverable amount. A previous impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s or CGU’s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset or CGU is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of amortization, had no impairment loss been recognized for the asset or CGU in prior years. On acquisition of life insurance businesses, the difference between the fair value of the contractual insurance rights acquired and obligations assumed, and the insurance contract liability recognized on acquisition, net of any reinsurance, is accounted for as an intangible asset. This intangible asset represents the present value of future profits adjusted for the cost of capital at the date of acquisition. This is known as value of business acquired (VOBA). Mortality, morbidity, persistency and expense assumptions are determined on a best estimate basis taking into account the business’s own experience. General economic assumptions were set considering the economic indicators at the date of acquisition. The VOBA is amortized at a rate determined by considering the profile of the business acquired and the expected depletion in its value. The VOBA acquired is reviewed regularly for any impairment in value and any reductions are charged as an expense to the consolidated statement of income. The details of the Company’s accounting policy as it applies to each intangible asset group is as follows:

TermGoodw ill Indefinite life, not amortizedLicenses Indefinite life, not amortizedBrand Indefinite life, not amortizedCustomer relationships 5 - 12 yearsSoftw are 2 - 5 yearsValue of business acquired 10 years

Software consists primarily of internally generated software development costs.


Assets held for sale and discontinued operations

Non-current assets and disposal groups are classified as assets held for sale when the Company expects the carrying amount to be recovered through a sales transaction rather than through continuing use. This condition is satisfied when the asset or disposal group is available for immediate sale in its present condition and the sale is highly probable. Non-current assets and disposal groups classified as held for sale are measured at the lower of their previous carrying amounts, prior to being reclassified, and fair value less costs to sell. Liabilities directly associated with the held for sale assets of a disposal group are presented separately from liabilities related to continuing operations. A disposal group is classified as a discontinued operation if it meets the following conditions: (i) it is a component that can be distinguished operationally and financially from the rest of the Company's operations, and (ii) it represents either a separate major line of business or is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations. Disposal groups classified as discontinued operations are presented separately from the Company's continuing operations in its consolidated statement of income, consolidated statement of comprehensive income and consolidated statement of cash flows.

Retirement benefit obligations

Retirement benefit obligations include pensions, medical and dental benefits and other certain benefits to qualifying individuals. The primary pension plans are defined contribution plans. A defined contribution plan is a post-employment benefit plan under which an entity pays specified contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in general expenses in net income in the periods during which services are rendered by employees. The largest pension plan by asset value at CUMIS is a registered defined benefit plan, which is accounted for using the projected unit credit method prorated on service and management’s best estimate of salary escalation, employee retirement ages and expected health care costs. Net interest expense for the period is calculated by multiplying the net of plan assets and the accrued benefit obligation at the beginning of the period by the discount rate and is included in the consolidated statement of income. The discount rate is determined by market yields of high quality corporate bonds. The calculation accounts for any changes in the net accrued benefit liability during the period resulting from contributions and benefit payments. The other-than-pension benefits are defined benefit contracts which are accounted for using the projected unit credit method. The expected costs of retirement benefit obligations are expensed during the years that the employees render services and an accrued post-employment benefit obligation is recognized. The obligation is determined by application of the terms of the plans together with relevant actuarial assumptions. There are no employee contributions to the other-than-pension benefits plans. The plans are not funded. Net interest on the accrued benefit liability is recognized in general expenses in net income. The effects of remeasurement of retirement benefit obligations, including differences between the actual return on plan assets and the interest income on plan assets and actuarial gain and loss, are recognized permanently in OCI. Past service costs are recognized in the consolidated statement of income at the earlier of when the amendment or curtailment occurs or when the Company recognizes related restructuring or termination benefits, where applicable.

Borrowings

Borrowings are initially recognized at fair value, net of any transaction costs incurred. Subsequently, borrowings are carried at amortized cost. Debt issuance transaction costs are amortized over the term of the related debt using the effective interest method. Provisions

Provisions are recognized when: (i) the Company has a present legal or constructive obligation as a result of past events, (i i) it is more likely than not that an outflow of resources will be required to settle the obligation, (iii) and the amount can be reliably estimated.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to the passage of time is recognized as interest expense and classified as a general expense in the consolidated statement of income.


Provision for advisor transition commissions

The Company’s advisors are eligible for a transition commission payout on a qualifying termination. The transition commission liability is based on the number of years of service as an advisor and the advisor’s average trailing commission volume. Payments to terminated advisors are funded in part from reduced commission payments which are made to advisors assuming the rights to the book of business during the first three years of their agency relationship. The obligation to active advisors is determined by accruing for the benefits earned to date on a present value basis assuming the cash flows associated with the earned benefits are paid out at the expected termination date. Foreign currency translation

Functional and presentation currency

Items included in the financial statements of each of the Company’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in Canadian dollars, which is CGL’s functional and presentation currency.

Transactions and balances

The Company translates all foreign currency monetary assets and liabilities into Canadian dollars at year-end foreign exchange rates. Revenue and expenses are translated at the prevailing foreign exchange rate on the date of the transaction. Exchange gains and losses are recognized in the consolidated statement of income with the exception of unrealized gains and losses associated with non-monetary financial assets, such as equities classified as AFS, which are recorded in OCI. Income taxes

The Company accounts for income taxes using the asset and liability method. Under this method, the provision for income taxes is calculated based on income tax laws and rates enacted and substantively enacted as at the consolidated balance sheet date. The income tax provision is comprised of current and deferred income taxes. Current income taxes are amounts expected to be payable or recoverable as a result of current year operations. Deferred income tax assets and liabilities arise from temporary differences between the accounting and tax basis of assets and liabilities. A deferred income tax asset is recognized to the extent that it is probable the benefit of losses and deductions will be available to be carried forward to future years for income tax purposes. Current and deferred income taxes are recorded in the consolidated statement of income, except for those items that are associated with components of OCI. In those cases, the applicable tax is also recorded in OCI.

In determining the impact of taxes, the Company is required to comply with IFRS and the standards of the CIA. Actuarial standards require that the projected timing of all cash flows associated with the life insurance contracts, including income taxes, be included in the determination of life insurance contracts under the CALM. The life insurance contracts are first computed including all related income tax effects on a discounted basis, including the effects of temporary differences that have already occurred. Deferred income tax assets and/or liabilities arising from temporary differences that have already occurred are computed without discounting. The undiscounted deferred income tax assets and/or liabilities are reclassified from the insurance contracts to deferred income taxes on the consolidated balance sheet. The net result of this reclassification is to leave the discounting effect of the deferred income taxes in the insurance contracts for life operations.

Share capital

Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attr ibutable to the issue of equity instruments are shown in equity as a deduction from the proceeds, net of tax. Use of estimates and judgments

The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent assets and liabilities at the consolidated balance sheet date and the reported amounts of revenues and expenses during the year. The preparation of consolidated financial statements also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in the notes for the respective account balances.


Significant estimates and assumptions include the following: Valuation of insurance contracts

In the life operations, the Company makes certain assumptions to calculate insurance contract liabilities, which are reviewed annually. The methods used for arriving at the most significant assumptions are described in note 7(b). Sensitivity of these assumptions and the impact on net insurance contract liabilities and after-tax net income are fully disclosed in note 7(f). Details of assumptions used are described in note 8. In the property and casualty operations, the Company makes certain assumptions, which include discount rates and the future development of claims. Note 7(b) discloses the revised estimate of prior year unpaid claims and adjustment expenses. The Company’s sensitivity of unpaid

claims and after-tax net income to changes in best estimate assumptions are disclosed in note 7(f). Provision for advisor transition commissions

The provision for advisor transition commissions is an obligation to active advisors determined by accruing for the benefits earned to date. The Company makes certain assumptions in determining the present value of the cash flows associated with the earned benefits. Note 15 discloses the significant assumptions used to estimate the provision, which include discount rate and average termination age. Valuation of intangible assets

Determining the recoverability of intangible assets, including goodwill, requires an estimation of the recoverable amount of the asset or CGU. Key assumptions and sources of estimation uncertainty include the determination of future cash flows expected to arise from the asset or CGU and a suitable discount rate in order to calculate present value. Details of the assumptions used in the valuation of intangible assets are described in note 13. Valuation of defined benefit obligation The cost of the defined benefit obligation are calculated by the Company’s independent actuaries using assumptions determined by management. The actuarial valuation involves making assumptions about discount rates, future salary increases, future inflation, the employees’ age upon termination and retirement, mortality rates, future pension increases, and health and dental cost trends. If actuarial experience differs from the assumptions used, the expected obligation could increase or decrease in future years. Note 17 discloses the significant assumptions used to in the defined benefit obligation. Significant judgments include the following: Impairment of financial instruments

The Company assesses AFS financial instruments for objective evidence of impairment at each reporting date. Objective evidence of impairment includes a significant or prolonged decline in the fair value or net asset value below cost or when a loss event that has a reliably estimable impact on the future cash flows of the financial instrument has occurred. The determination of what is significant or prolonged requires judgment. In making this judgment, we evaluate factorings including, but not limited to: a decline in current financial position; defaults on debt obligations; failure to meet debt covenants; significant downgrades of credit status, and severity and/or duration of the decline in value. 3. Adoption of new and amended accounting standards Effective January 1, 2017, the Company adopted the following new and amended accounting standards: IAS 7 “Statement of Cash Flows”

In January 2016, IAS 7 was amended to clarify that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The Company has adopted these amendments on January 1, 2017, and has determined that there was no impact to the consolidated financial statements.

IAS 12 “Income Taxes”

In January 2016, IAS 12 was amended to clarify guidance in the standard related to the measurement of deductible temporary differences for unrealized losses on debt instruments measured at fair value, the estimation of probable future taxable profits, and the assessment of deferred tax assets in combination with other deferred tax assets. The Company has adopted these amendments on January 1, 2017, and has determined that there was no impact to the consolidated financial statements.


Annual Improvements 2014–2016

Annual Improvements 2014–2016 Cycle was issued in December 2016 by the IASB and included minor amendments to IFRS 12 “Disclosure of

interests in other entities”. The annual improvements process is used to make necessary but non-urgent changes to IFRS that are not included in other projects. The Company has adopted these amendments on January 1, 2017, and has determined that there was no impact to the consolidated financial statements. 4. Accounting standards issued but not yet applied IFRS 4 "Insurance Contracts"

In September 2016, IFRS 4 was amended to address concerns regarding the different effective dates of IFRS 9 and the new insurance contracts standard IFRS 17. The amendment provides a temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4. Alternatively, the amendment provides an option to permit entities that issue insurance contracts to reclassify, from profit or loss to OCI, the volatility arising from financial assets reclassified as FVTPL under IFRS 9 that were not FVTPL under IAS 39. This amendment is effective for annual periods beginning on or after January 1, 2018. Based on the amendments to IFRS 4, the Company meets the criteria to defer IFRS 9. This amendment will result in additional disclosures to enable users of the consolidated financial statements to understand how the Company qualified for temporary exemption, and disclose information that allows users to compare the Company’s

consolidated financial statements to insurers applying IFRS 9.

IFRS 7 "Financial Instruments: Disclosures"

In December 2011, IFRS 7 was amended to require additional financial instrument disclosures upon transition from IAS 39 to IFRS 9. The amendments are effective upon adoption of IFRS 9, which is effective for annual periods beginning on or after January 1, 2018. However, in September 2016, IFRS 4 was amended to provide an option of a temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4. Therefore, qualifying entities will have the option to adopt IFRS 9 upon the adoption of IFRS 17. The Company qualifies for a temporary exemption; thus, IFRS 7 is effective for annual periods beginning on or after January 1, 2021. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements. IFRS 9 "Financial Instruments"

IFRS 9 was issued in July 2014 and is intended to replace IAS 39 “Financial Instruments: Recognition and Measurement.” IFRS 9 is a three part standard aimed at reducing complexity in reporting financial instruments. The project has been divided into three phases: Phase 1 Classification and measurement, Phase 2 Impairment and Phase 3 Hedge accounting. Phase 1 was issued in November 2009 and amended in October 2010. It requires financial assets to be recorded at amortized cost or fair value depending on the entity’s business model for managing the assets and their associated cash flow characteristics. All financial assets are to be measured at fair value on the balance sheet if they are not measured at amortized cost. At initial recognition, an entity may irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. Phase 2 was completed in July 2014 and introduced a new expected loss impairment methodology that will result in more timely recognition of impairment losses. Phase 3 was completed in November 2013. This phase replaces the rule-based hedge accounting requirements in IAS 39 to more closely align the accounting with risk management activities.

The standard is effective for annual periods beginning on or after January 1, 2018. However, in September 2016, IFRS 4 was amended to provide an option of a temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing insurance contracts within the scope of IFRS 4. Therefore, qualifying entities will have the option to adopt IFRS 9 upon the adoption of IFRS 17. The Company has assessed the qualification criteria and determined that this temporary exemption does apply; thus, IFRS 9 will be effective for annual periods beginning on or after January 1, 2021. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.


IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 was issued in May 2014, and will replace IAS 18 “Revenue”, IAS 11 “Construction Contracts” and related IFRICs. The standard was

issued as a result of an ongoing project to align revenue recognition between IFRS and U.S. Generally Accepted Accounting Principles. The standard provides a single, principles based five-step model to be applied to all contracts with customers, and also introduces extensive disclosure requirements. The standard is effective for annual periods beginning on or after January 1, 2018. IFRS 15 contains a scope exception which excludes insurance contracts within the scope of IFRS 4 "Insurance Contracts" and financial instruments within the scope of IFRS 9. Based on the Company’s preliminary assessment of revenues and costs within the scope of this standard, the Company does not expect the adoption of IFRS 15 to have a material impact on its consolidated financial results. The Company is currently evaluating the presentation and disclosure impact that this standard will have on its consolidated financial statements.

IFRS 16 “Leases”

IFRS 16 was issued in January 2016 and is intended to replace IAS 17 “Leases”, and related IFRICs. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements.

IFRS 17 “Insurance Contracts”

IFRS 17 was issued in May 2017 and will replace IFRS 4 “Insurance Contracts”. The intent of the standard is to establish cons istent recognition, measurement, presentation and disclosure principles to provide relevant and comparable reporting of insurance contracts across jurisdictions. The standard requires entities to measure insurance contract liabilities as the risk-adjusted present value of the cash flows plus the contractual service margin, which represents the unearned profit the entity will recognize as future service is provided. This is referred to as the general model. Expedients are specified, provided the insurance contracts meet certain conditions. If, at initial recognition or subsequently, the contractual service margin becomes negative, the contract is considered onerous and the excess is recognized immediately in the consolidated statement of income. The standard also includes significant changes to the presentation and disclosure of insurance contracts within entities’

financial statements. IFRS 17 is effective for annual reporting periods beginning on or after January 1, 2021. The standard is to be applied retrospectively unless impracticable, in which case a modified retrospective approach or fair value approach is to be used for transition. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements. IAS 28 "Investments in Associates and Joint Ventures"

IAS 28 was amended in October 2017 and it clarifies that an entity shall apply IFRS 9 Financial Instruments to long-term interests in associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied. The amendment is effective for annual periods beginning on or after January 1, 2019. The Company is currently evaluating the impact that this amendment will have on its consolidated financial statements. IAS 40 “Investment Property”

In December 2016, IAS 40 was amended to state that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use. The amendments are effective for annual periods beginning on or after January 1, 2018. The Company does not expect this amendment to impact the consolidated financial statements. IFRIC 22 “Foreign currency transactions and advance consideration”

IFRIC 22 was issued in December 2016 and addresses how to determine the date of the transaction when applying the standard on foreign currency transactions, IAS 21. In particular, IFRIC 22 addresses foreign currency transactions or parts of transactions where: there is consideration that is denominated or priced in a foreign currency; the entity recognizes a prepayment asset or a deferred income liability in respect of that consideration, in advance of the recognition of the related asset, expense or income; and the prepayment asset or deferred income liability is non-monetary. The standard is effective for annual periods beginning on or after January 1, 2018. The Company does not expect this amendment to impact the consolidated financial statements.


IFRIC 23 "Uncertainty over Income Tax Treatments"

IFRIC 23 was issued in June 2017 and is intended to clarify the accounting for uncertainties in income taxes. The standard addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers whether tax treatments should be considered collectively; assumptions for taxation authorities' examinations; the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and the effect of changes in facts and circumstances. The standard is effective for annual periods beginning on or after January 1, 2019. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements. Annual Improvements 2014–2016 Cycle

Annual Improvements 2014–2016 Cycle was issued in December 2016 by the IASB and included minor amendments to IFRS 1 "First-time adoption of International Financial Reporting Standards", and IAS 28 “Investments in associates and joint ventures”. The annual improvements

process is used to make necessary but non-urgent changes to IFRS that are not included in other projects. The amendments issued are effective for annual periods beginning on or after January 1, 2018. The Company does not expect these amendments to impact the consolidated financial statements. Annual Improvements 2015–2017 Cycle

Annual Improvements 2015-2017 Cycle was issued in December 2017 by the IASB, and included minor amendments to IFRS 3 "Business combinations", IFRS 11 "Joint arrangements", IAS 12 "Income taxes", and IAS 23 "Borrowing costs". The annual improvements process is used to make necessary but non-urgent changes to IFRS that are not included in other projects. The amendments issued are all effective for annual periods beginning on or after January 1, 2019. The Company is currently evaluating the impact that these amendments will have on its consolidated financial statements.


5. Invested assets and net investment income and gains

a) Invested assets

Carrying valueClassified Designated Loans and

AFS FVTPL FVTPL receivables Other TotalDecember 31, 2017 $ $ $ $ $ $

BondsFederal 708,783 - 149,309 - - 858,092 Provincial 951,074 - 1,095,572 - - 2,046,646 Municipal 62,495 - 15,198 - - 77,693 Corporate 1,166,452 - 1,013,632 - 3,825 2,183,909 Asset-backed securities 67,486 - 30,193 - - 97,679 International 18,588 - 37,028 - - 55,616

2,974,878 - 2,340,932 - 3,825 5,319,635

StocksCanadian common 902,128 - 234,568 - - 1,136,696 Canadian preferred - - 764,734 - - 764,734 U.S. equities 243,898 - 43,786 - - 287,684 Foreign equities 124,903 - 8,260 - - 133,163

1,270,929 - 1,051,348 - - 2,322,277 Short-term investments 236,294 39,082 - - 61,352 336,728 Limited partnerships 162,547 - 6,440 - - 168,987 Derivative assets - 3,050 - - - 3,050 Mortgages - - - 1,188,856 - 1,188,856 Investment properties - - - - 4,573 4,573 Policy loans - - - 64,110 4 64,114 Other investments - - - 22,721 770 23,491 Investment income due and accrued - - - 41,044 - 41,044 Total invested assets 4,644,648 42,132 3,398,720 1,316,731 70,524 9,472,755

Fair value Amortized cost


Carrying valueClassif ied Designated Loans and

AFS FVTPL FVTPL receivables Other TotalDecember 31, 2016 $ $ $ $ $ $

BondsFederal 755,510 - 157,827 - - 913,337 Provincial 971,196 - 879,468 - - 1,850,664 Municipal 87,009 - 49,761 - - 136,770 Corporate 1,116,788 - 1,048,975 - 7,846 2,173,609 Asset-backed securities 69,889 - 51,467 - - 121,356 International 42,434 - 3,133 - - 45,567 Co-operative 4,500 - - - - 4,500

3,047,326 - 2,190,631 - 7,846 5,245,803

StocksCanadian common 814,476 - 205,048 - - 1,019,524 Canadian preferred - - 676,529 - - 676,529 U.S. equities 288,032 - 38,238 - - 326,270 Foreign equities 112,651 - 9,844 - - 122,495

1,215,159 - 929,659 - - 2,144,818 Short-term investments 85,547 38,456 - - 49,822 173,825 Limited partnerships 128,616 - 4,346 - - 132,962 Derivative assets - 1,071 - - - 1,071 Mortgages - - - 1,318,589 - 1,318,589 Investment properties - - - - 4,573 4,573 Policy loans - - - 63,021 5 63,026 Other investments - - - 24,569 270 24,839 Investment income due and accrued - - - 41,769 - 41,769

Total invested assets 4,476,648 39,527 3,124,636 1,447,948 62,516 9,151,275

Fair value Amortized cost

At December 31, 2017, the value of the securities on loan included in invested assets above consists of $104,872 (2016 - $171,907) in stocks and $898,782 (2016 - $153,998) in bonds.

b) Investments - measured at fair value

The Company is responsible for determining the fair value of its investment portfolio by utilizing market driven measurements obtained from active markets where available, by considering other observable and unobservable inputs and by employing valuation techniques which make use of current market data. Assets and liabilities recorded at fair value in the consolidated balance sheet are measured and classified in a hierarchy consisting of three levels for disclosure purposes. The three levels are based on the significance and reliability of the inputs to the respective valuation techniques. The input levels are defined as follows. Level 1 - Quoted prices

Represents unadjusted quoted prices for identical instruments exchanged in active markets. The fair value is determined based on quoted prices in active markets obtained from external pricing sources. Level 2 - Significant other observable inputs

Includes directly or indirectly observable inputs other than quoted prices for identical instruments exchanged in active markets. These inputs include quoted prices for similar instruments exchanged in active markets; quoted prices for identical or similar instruments exchanged in inactive markets; inputs other than quoted prices that are observable for the instruments, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates where available; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Consistent with market participants, the Company determines the fair values of derivatives by using a discounted cash flow valuation technique using observable market data.


Level 3 - Significant unobservable inputs

Includes inputs that are not based on observable market data. Management is required to use its own assumptions regarding unobservable inputs as there is little, if any, market activity in these assets or liabilities or related observable inputs that can be corroborated at the measurement date. Unobservable inputs require significant management judgment or estimation to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities. To verify pricing, the Company assesses the reasonability of the fair values by comparing to industry accepted valuation models, to movements in credit spreads and to recent transaction prices for similar assets where available. Mortgages are measured at amortized cost and the fair value, valuation technique and inputs are disclosed under note 5(f). The following summarizes how fair values for recurring measurements were determined:

Level 1 - Level 2 - Level 3 -Significant

Significant other unobservable TotalQuoted prices observable inputs inputs fair value

December 31, 2017 $ $ $ $

AFSBonds - 2,974,878 - 2,974,878 Stocks 1,248,509 16,247 - 1,264,756 Short-term investments - 236,294 - 236,294 Limited partnerships - - 162,547 162,547

1,248,509 3,227,419 162,547 4,638,475 FVTPL

Bonds - 2,340,932 - 2,340,932 Stocks 1,037,681 13,667 - 1,051,348 Short-term investments - 39,082 - 39,082 Limited partnerships - - 6,440 6,440 Derivative assets - 3,050 - 3,050

1,037,681 2,396,731 6,440 3,440,852 Total invested assets at fair value 2,286,190 5,624,150 168,987 8,079,327

FVTPLInvestment contract liabilities - 300,865 - 300,865 Net asset attributable to third parties (note 15) - 29,186 - 29,186 Derivative liabilities (note 15) - 3,983 - 3,983

Total f inancial liabilities at fair value - 334,034 - 334,034


Level 1 - Level 2 - Level 3 -Signif icant

Signif icant other unobservable TotalQuoted prices observable inputs inputs fair value

December 31, 2016 $ $ $ $

AFSBonds - 3,047,326 - 3,047,326 Stocks 1,186,553 21,997 - 1,208,550 Short-term investments - 85,547 - 85,547 Limited partnerships - - 128,616 128,616

1,186,553 3,154,870 128,616 4,470,039

FVTPLBonds - 2,190,631 - 2,190,631 Stocks 918,900 10,759 - 929,659 Short-term investments - 38,456 - 38,456 Limited partnerships - - 4,346 4,346 Derivative assets - 1,071 - 1,071

918,900 2,240,917 4,346 3,164,163

Total invested assets at fair value 2,105,453 5,395,787 132,962 7,634,202

FVTPLInvestment contract liabilities - 305,714 - 305,714 Net asset attributable to third parties (note 15) - 36,836 - 36,836 Derivative liabilities (note 15) - 7,246 - 7,246

Total f inancial liabilities at fair value - 349,796 - 349,796

Excluded from these totals are AFS investments of $6,173 (2016 - $6,609) in common shares of other co-operative entities, which are carried at cost as they do not have quoted market values in active markets and fair value cannot be measured reliably. The investments measured at fair value and classified as Level 3 are limited partnerships, which represent units of third-party managed private equity funds (Funds). The fair values of limited partnership investments are based on the net asset value (NAV) from each of the individual Funds’ most recent quarterly or annual financial statements. Limited partnership NAVs are derived by valuation techniques employed by each Funds’ management using unobservable inputs. The Company assesses the NAV disclosed in each Funds’ most recent financial statement using independent analytical procedures to ensure the amount is a reasonable representation of fair value. The Company does not assess the sensitivity of the fair value of limited partnerships because the inputs used by each fund manager to determine the NAV are unobservable and not readily available. The following tables are reconciliations of the Level 3 fair value measurements:

Limitedpartnerships

2017 $

Balance, beginning of year 132,962 Purchases 42,666 Sales and redemptions (2,467) Losses

Unrealized included in net income (33) Unrealized included in OCI (4,141)

Balance, end of year 168,987


Limited

partnerships

2016 $Balance, beginning of year 57,269

Purchases 77,720 Sales and redemptions (5,762) Gains (losses)

Unrealized included in net income (4) Unrealized included in OCI 3,739

Balance, end of year 132,962

No investments were transferred between levels during the year (2016 - $nil).

c) Net investment income and gains

Classified Designated Loans andAFS FVTPL FVTPL receivables Other Total

2017 $ $ $ $ $ $

Interest income 81,802 128 67,757 48,808 3,257 201,752 Dividend and other income 35,100 - 42,239 - - 77,339 Investment expense (1,185) - (792) (506) 100 (2,383)

Net investment income 115,717 128 109,204 48,302 3,357 276,708 Net realized gains (losses) 73,800 (3,775) 25,097 9,465 264 104,851 Net foreign exchange gains 7,375 20,214 215 - - 27,804 Change in fair value (note 25) - 2,706 119,921 - - 122,627 Impairment losses (note 25) (10,947) - - (2,392) - (13,339) Net investment gains 70,228 19,145 145,233 7,073 264 241,943 Net investment income and gains 185,945 19,273 254,437 55,375 3,621 518,651

Classif ied Designated Loans andAFS FVTPL FVTPL receivables Other Total

2016 $ $ $ $ $ $Interest income 80,105 338 69,349 54,542 3,379 207,713 Dividend and other income 33,940 - 28,568 - (174) 62,334 Investment expense (1,085) - (825) (582) 61 (2,431)

Net investment income 112,960 338 97,092 53,960 3,266 267,616 Net realized gains (losses) 101,046 (1,092) 44,344 7,948 327 152,573 Net foreign exchange gains (losses) 8,491 9,859 (2,296) - (114) 15,940 Change in fair value (note 25) - (6,222) (17,479) - - (23,701) Impairment losses (note 25) (11,264) - - (2,087) - (13,351)

Net investment gains 98,273 2,545 24,569 5,861 213 131,461 Net investment income and gains 211,233 2,883 121,661 59,821 3,479 399,077


d) Credit quality of mortgages

December 31, December 31,

2017 2016$ $

Current 1,182,222 1,311,937 Past due less than 90 days 2,375 - Past due 90 to 179 days - - Past due 180 days or more - 1,491 Impaired 4,260 5,171 Allow ance for impaired loans (1) (10)

Balance 1,188,856 1,318,589

2017 2016

$ $Specif ic provision, beginning of year 10 23 Change in provision (9) (13)

Specif ic provision, end of year 1 10

e) Maturity profile of invested assets

< 1 1 - 3 4 - 5 6 - 9 > 10Year Years Years Years Years Total

December 31, 2017 $ $ $ $ $ $ $Bonds 193,741 1,077,899 860,409 1,156,055 2,029,448 2,083 5,319,635 Stocks - - - - - 2,322,277 2,322,277 Short-term investments 312,179 - - - - 24,549 336,728 Limited partnerships - - - - - 168,987 168,987 Derivative assets 3,050 - - - - - 3,050 Mortgages 227,488 496,326 158,650 122,350 184,042 - 1,188,856 Investment properties - - - - - 4,573 4,573 Policy loans - - - - - 64,114 64,114 Other investments 73 - - - 10,171 13,247 23,491 Investment income due and accrued 41,044 - - - - - 41,044

777,575 1,574,225 1,019,059 1,278,405 2,223,661 2,599,830 9,472,755

8% 17% 11% 13% 23% 28% 100%

No fixed


December 31, 2016 $ $ $ $ $ $ $Bonds 227,446 989,852 682,853 1,481,477 1,864,069 106 5,245,803 Stocks 7,157 - - - - 2,137,661 2,144,818 Short-term investments 150,750 - - - - 23,075 173,825 Limited partnerships - - - - - 132,962 132,962 Derivative assets 1,071 - - - - - 1,071 Mortgages 218,822 513,714 218,433 145,746 221,874 - 1,318,589 Investment properties - - - - - 4,573 4,573 Policy loans - - - - - 63,026 63,026 Other investments - - - - 10,264 14,575 24,839 Investment income due and accrued 41,769 - - - - - 41,769

647,015 1,503,566 901,286 1,627,223 2,096,207 2,375,978 9,151,275

7% 16% 10% 18% 23% 26% 100%

No fixed


f) Mortgage diversification

December 31, December 31,2017 2016

Creditor concentration $ $Insured residential 154,977 174,174 Uninsured residential 239,069 263,035 Commercial 794,810 881,380

1,188,856 1,318,589


2017 2016

Geographic concentration $ $Atlantic 124,648 150,436 Quebec 58,300 67,219 Ontario 446,580 480,920 West 559,328 620,014

1,188,856 1,318,589

Fair Value 1,213,698 1,361,995

Mortgages measured at fair value, for disclosure purposes only, are classified as Level 3. The fair value of the mortgages has been calculated by discounting the expected cash flows of each instrument. The discount rate is determined using the Government of Canada benchmark bond yield for instruments of similar maturity, adjusted for specific credit risk. In determining the adjustment for credit risk, Addenda, a subsidiary of the Company, responsible for managing the Company’s investment portfolio, considers market conditions, the value of the properties that the mortgage is secured by and other indicators of creditworthiness. g) Other investments


2017 2016

$ $Broker loans 12,399 13,995 Structured settlement annuities 10,171 10,264 Investments 921 580

23,491 24,839

Fair Value 23,418 24,839

h) Derivative instruments

The fair values and notional amounts of derivatives by terms to maturity are disclosed in the following table. Positive fair values are reported in invested assets and negative fair values are reported in provisions and other liabilities (note 15). The Company’s replacement cost for each

type of derivative instrument is equal to the positive and negative fair values in the table below.

Positive Negative Net < 1 Years 1 - 5 Years Over 5 Years TotalDecember 31, 2017 $ $ $ $ $ $ $Foreign currency forw ard contracts 2,635 3,763 (1,128) 239,417 - - 239,417 Interest rate sw aps 415 220 195 45,000 - - 45,000

Fair value Notional amount


Positive Negative Net < 1 Years 1 - 5 Years Over 5 Years TotalDecember 31, 2016 $ $ $ $ $ $ $

Foreign currency forw ard contracts 1,028 4,629 (3,601) 329,715 - - 329,715 Interest rate sw aps 43 2,617 (2,574) 45,000 - - 45,000

Fair value Notional amount

The Company uses netting clauses in its interest rate swap agreements in order to reduce its overall exposure to the counterparty’s risk of

default. Netting clauses provide for a single net settlement of all financial instruments covered by the agreement in the event of default. The counterparty risk of default for these interest rate swaps is limited to their replacement cost, which is substantially lower than their notional amount. The replacement cost is determined based on interest rates as at the Company’s consolidated balance sheet date, and reflects the estimated amount that the Company would receive, or might have to pay, to terminate the contracts as at December 31, 2017. To further mitigate this risk of default, the Company has agreed to pledge collateral with the counterparties with which it holds interest rate swaps. The counterparties are all federally regulated financial institutions. The terms and conditions related to the use of collateral are consistent with industry practice. At December 31, 2017, the Company had pledged $593 (2016 - $3,370) of financial assets as collateral in relation to the interest rate swaps. The counterparties have also agreed to pledge collateral when the interest rate swaps held by the Company are in a positive replacement cost position. At December 31, 2017, counterparties have pledged $140 (2016 - $nil) of financial assets as collateral to the Company. i) Unconsolidated structured entities A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes; (a) restricted activities, (b) a narrow and well-defined objective, such as to provide investment opportunities for investors by passing on risks and rewards associated with the assets of the structured entity to investors, (c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support and (d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches). The Company has interests in various structured entities included in invested assets on the consolidated balance sheet. These entities include asset-backed investment vehicles, Pooled Funds and limited partnerships. The Company does not consolidate these structured entities as the Company does not hold significant ownership or does not control the entity that manages these structured entities The Company does consolidate certain investments in Pooled Funds in which it holds significant ownership or are managed by entities which are controlled by the Company. Details regarding the consolidated Pooled Funds are described in note 27. The Company’s interests in unconsolidated structured entities at end of the year are as follows:

Carrying value Maximum exposure to lossDecember 31, 2017 $ $Asset-backed securities 97,679 97,679 Pooled funds 99,867 99,867 Limited partnerships 168,987 168,987

Carrying value Maximum exposure to lossDecember 31, 2016 $ $Asset-backed securities 121,356 121,356 Pooled funds 74,313 74,313 Limited partnerships 132,962 132,962

Asset-backed securities

Investment in third-party asset-backed securities consists of mortgage-backed securities, auto loan receivables and credit card receivables. Financing and support is limited to the investment made.


Pooled Funds

Investments in Pooled Funds consist of units invested in underlying fixed income and equity securities managed by Addenda and other third-party managers. The Pooled Funds are perpetual private trusts created under trust agreements. Pooled Funds provide investors with access to the underlying portfolio with the objective of reducing volatility risk through balanced portfolios and achieving increased yields. Financing and support is only provided to the Pooled Funds through the purchase of units and therefore, the Company’s maximum exposure in the Pooled

Funds is limited to the total fair value of its investment in these funds. In note 5 Pooled Funds are presented within the fixed-income or equity category (or categories) of the underlying investment holdings. Limited partnerships

The Company owns units of the Funds with a mandate to generate capital appreciation and yield through investments in infrastructure assets. Limited partnership investments are structured to give the third-party sponsor the exclusive right to manage and control the Funds. These limited partnerships are financed by the capital commitments and contributions of the limited partners of the Funds. The Company’s maximum

exposure to loss is limited to the total capital contributed to these Funds by the Company. The Company has committed to providing future capital contributions which are disclosed in note 28. 6. Financial risk management The Company has established risk management policies and practices covering key aspects of the operations. The Board of Directors approves these policies and management is responsible for ensuring the policies are properly maintained and implemented. The Board of Directors receives confirmation that the risks are being appropriately managed through regular reporting, as well as annual compliance reporting and by reviews conducted by the internal audit department. Credit risk

Credit risk refers to the risk of financial loss from the failure of a debtor/counterparty to meet its payment obligations to the Company. Credit risk is increased when there is a concentration of investments made in similar industry sectors, in the same geographical area or within a single entity. The Company’s investment policy puts limits on the bond portfolio including portfolio composition limits, issuer type limits, bond quality limits, single issuer limits, corporate sector limits and general guidelines for geographic exposure. The Company monitors all positions within these concentration limits.

The Company limits its investment concentration in any one corporate investee or control group to 5% of total assets and a maximum of 20% of the bond portfolio can be invested in bonds rated below A. At December 31, 2017, the largest corporate credit exposure was 1.4% of invested assets (2016 - 1.5%) or 3.8% of total equity (2016 - 4.0%), and the bond portfolio includes 85.0% (2016 - 85.6%) of bonds rated A or better. The Company has a comprehensive mortgage policy which includes, among other factors, single loan limits, diversification by type of property limits, and geographic diversification limits. The mortgage portfolio represents 12.6% (2016 - 14.4%) of invested asset carrying value. Each mortgage is secured by real estate and related contracts. At December 31, 2017, the largest single mortgage balance was $21,401 (2016 - $21,633). All commercial mortgages greater than $1,000 are risk-rated on an annual basis. The life operations’ detailed underwriting process for mortgages is in compliance with the requirements of the Insurance Companies Act (Canada) and Office of the Superintendent of Financial Institutions Canada (OSFI). Concentrations of credit risk for insurance contracts can arise from reinsurance ceded contracts as insurance ceded does not relieve the ceding company of its primary obligation to the policyholder. The Company has established a Reinsurance and Insurance Counterparty Standards Committee that evaluates the financial condition of its reinsurers to minimize its exposure to significant loss from any one reinsurer’s

insolvencies. Reinsurers are typically required to have a minimum financial strength rating of A- at the inception of the treaty; rating agencies used are A.M. Best and Standard & Poor’s. Concentration guidelines are also in place to establish the maximum amount of business that can be placed with a single reinsurer. There were no material defaults on transactions with reinsurers during the year. Based on management’s

review of creditworthiness of its reinsurers, no allowance, other than as required by actuarial standards, is included in the consolidated financial statements. Another potential source of credit risk for insurance contracts is premiums due from policyholders. The Company’s credit exposure to any one

individual policyholder is not material. The Company’s policies, however, are distributed by advisors, program managers, or brokers who manage cash collection. The table below provides information regarding the overall credit risk of the Company by classifying assets according to the credit ratings of the counterparties. AAA is the highest possible rating, and those assets that fall outside the range of AAA to BBB are classified as speculative grade.


Bonds, short-term investments and selected cash equivalent amounts are based on external ratings provided by Dominion Bond Rating Services, Standard & Poor’s and Moody’s Investors Services. Reinsurance ceded contracts and other receivables are classified based on financial strength ratings provided by A.M. Best and Standard & Poor’s; and mortgages are classified using Addenda’s internal rating system which monitors the credit related exposures. Addenda considers experience, judgment and other qualitative and quantitative factors in assigning an internal credit rating.

BelowAAA AA A BBB BBB Not rated Total

December 31, 2017 $ $ $ $ $ $ $Cash and cash equivalents 222,035 4,655 - - - 67,179 293,869 Restricted cash 39,212 12,607 - - - 22,355 74,174 Bonds 1,317,393 1,474,984 1,726,786 701,919 92,648 5,905 5,319,635 Short-term investments 327,748 6,780 - - - 2,200 336,728 Limited partnerships - - - - - 168,987 168,987 Derivative assets - 3,050 - - - - 3,050 Mortgages and other investments - 154,977 766,529 272,772 488 17,581 1,212,347 Policy loans - - - - - 64,114 64,114 Investment income due and accrued - - - - - 41,044 41,044 Reinsurance ceded contracts 33 325,330 51,629 2,070 - 2,901 381,963 Premiums due - - - - - 933,560 933,560 Income taxes recoverable - - - - - 8,069 8,069 Other receivables - - - 25 - 43,339 43,364

1,906,421 1,982,383 2,544,944 976,786 93,136 1,377,234 8,880,904

Below

AAA AA A BBB BBB Not rated Total

December 31, 2016 $ $ $ $ $ $ $Cash and cash equivalents 20,823 - - - - 98,786 119,609 Restricted cash 47,753 - - - - 23,809 71,562 Bonds 1,374,990 1,255,962 1,857,040 701,164 44,196 12,451 5,245,803 Short-term investments 171,625 - - - - 2,200 173,825 Limited partnerships - - - - - 132,962 132,962 Derivative assets - 1,071 - - - - 1,071 Mortgages and other investments - 174,175 845,592 300,594 3,331 19,736 1,343,428 Policy loans - - - - - 63,026 63,026 Investment income due and accrued - - - - - 41,769 41,769 Reinsurance ceded contracts 118 386,717 119,585 4,480 516 3,059 514,475 Premiums due - - - - - 836,355 836,355 Income taxes recoverable - - - - - 19,138 19,138 Other receivables - - 318 - - 57,430 57,748

1,615,309 1,817,925 2,822,535 1,006,238 48,043 1,310,721 8,620,771

Management has interpolated short-term investments ratings as follows: AAA = R-1 (high); AA = R-1 (middle); A = R-1 (low); BBB = R-2 (high, middle, low); below BBB = R-3 (high, middle, low). The total amounts outlined in the tables above represent the Company’s maximum credit exposure based on a worst case scenario, except for structured settlements, and do not take into account any collateral held or other credit enhancements attached to the assets. In the normal course of claims adjudication, the Company settles certain obligations to claimants through the purchase of annuities from third party life insurance companies under structured settlement arrangements. The Company guarantees the life insurers’ obligations under these

annuities, which are $753,127 as at December 31, 2017 (2016 - $762,984), based on the net present value of the projected future cash flow of these guarantees. $10,171 (2016 - $10,264) of the total value is classified as Type 2 structured settlements and recorded in other investments within invested assets. This business is placed with several licensed Canadian companies. The net risk to the Company is the credit risk related to the life insurance companies from which the annuities are purchased. To manage this risk, the Company enters structured settlements with


life insurance companies with a credit rating of A or higher. No defaults occurred in 2017 or 2016, and the Company considers the possibility of default to be remote. Credit risk is further reduced to the extent of coverage provided by Assuris, the life insurance compensation insurance plan that funds most policy liabilities of an insolvent Canadian life insurer. The Company participates in a securities lending program managed by a federally regulated financial institution whereby the Company lends securities it owns to other financial institutions to allow them to meet delivery commitments. The Company receives securities of superior credit quality and value as collateral for securities loaned. The fair value of securities received as collateral were $1,072,691 (2016 - $347,212). The collateral received has not been recorded on the Company’s consolidated balance sheet. The Company is the assigned beneficiary of collateral consisting of cash, trust accounts and letters of credit totalling $112,018 (2016 - $156,578) as security from unlicensed reinsurers. This collateral is held in support of policy liabilities of $92,347 as at December 31, 2017 (2016 - $128,992) and could be used should these reinsurers be unable to meet their obligations. The cash portion of the collateral $33,420 (2016 - $90,428) has been recorded in the Company’s consolidated balance sheets.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk is comprised of three types of risks: equity risk, currency risk and interest rate risk. a) Equity risk

Equity risk arises whenever financial results are adversely affected by changes in the capital markets. One of the Company’s exposures to market risk occurs when investment guarantees are offered, as is the case with segregated funds. An investment policy is in place and its application is monitored by the Board of Directors on a quarterly basis. Diversification techniques are employed to minimize risk. Policies limit investments in any entity or group of related entities to a maximum of 5% of the Company’s assets. The life operations also ensure that there are adequate policy liabilities to cover the segregated fund guarantees, Individual Life Participating liabilities, Permanent Non-Participating liabilities, Universal Life liabilities, and Group Benefit liabilities. The Company’s stock portfolio is benchmarked to the indices noted in the table below. A 10% movement in the indices, with all other variables held constant, would have the following estimated effect on the fair values, and net income or OCI before taxes, of the Company’s stock

holdings.

AFS FVTPL AFS FVTPLStock Portfolio Benchmark $ $ $ $Canadian common S&P/TSX Composite Index 80,408 21,363 74,589 18,708 U.S. equities S&P 500 Index (CDN $) 25,619 4,206 31,146 3,781 Foreign equities MSCI EAFE Index (CDN $) 11,601 1,073 10,738 915

December 31, 2017 December 31, 2016

b) Currency risk

Currency risk is the risk that the value of the foreign denominated financial instrument portfolio that is not offset by corresponding liabilities will fluctuate as a result of changes in foreign exchange rates. The majority of the Company’s currency risk is related to its investment holdings. Policies limit investments in foreign denominated securities to a maximum value of 15% of invested assets. A 10% change in the value of the foreign currency would affect the fair value of the investments by $64,545 (2016 - $62,729). For FVTPL foreign denominated investments, a 10% change in the value of the foreign currency would result in an increase or decrease in net income of $4,696 (2016 - $3,892). For AFS foreign denominated investments, a 10% change in the value of the foreign currency would result in an increase or decrease in OCI of $44,160 (2016 - $44,995). A 10% change in the value of the foreign currency would be offset in net income by a change in the fair value of foreign currency forward contract hedges of $19,316 (2016 - $25,804). The Company mitigates a portion of its currency risk by buying or selling foreign exchange forward contracts. Foreign exchange forward contracts are commitments to buy or sell foreign currencies for delivery at a specified date in the future at a fixed rate. Forwards are transacted in over-the-counter markets. Foreign exchange forward contracts with positive fair values are included in derivative assets within invested assets (note 5) and those with negative fair values are included in derivative liabilities within provisions and other liabilities (note 15).


The counterparty risk of default for these derivative financial instruments is limited to their positive replacement cost, which is substantially lower than their notional amount. The replacement cost of over-the-counter derivative financial instruments is an estimate and is determined using valuation models that incorporate prevailing foreign exchange rates and prices on underlying instruments with similar maturities and characteristics. The replacement cost reflects the estimated amount that the Company would receive, or might have to pay, to terminate the contracts as at December 31, 2017. The counterparties are federally regulated financial institutions. As at December 31, 2017, the replacement cost of these derivative instruments was negative $1,128 (2016 - $3,601). The notional amounts of the foreign currency forward contracts total $239,417 (2016 - $329,715). c) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is significantly exposed to changes in interest rates. Movements in short-term and long-term interest rates, including changes in credit spreads, cause changes in the realized and unrealized gains and losses. A 1% movement in the interest rate, with all other variables held constant, would have the following estimated effect on the fair values, and net income or OCI before taxes, of the following:

AFS FVTPL AFS FVTPL $ $ $ $Bonds 161,579 341,586 177,284 289,682 Canadian preferred stocks - 35,309 - 32,404 Interest rate sw aps - 6,987 - 7,296


Life operations For the life operations, the asset and liability cash flows are subject to uncertainty for a number of reasons, including the presence of embedded features as well as the inherent variability of both assets and liabilities. The assets and liabilities of the life operations are segmented based on the nature of the products and the relative level of exposure to interest rate risk. The investment objective and interest rate risk limits for each portfolio of assets are intended to match the liability structure and specific needs of the products in that segment. Managing interest rate risk involves prudent management of both assets and liabilities in order to control the impact of changes in interest rates on the Company’s financial

results. Interest rate risk for life insurance liabilities is managed through the life operations’ asset liability management (ALM) function. The ALM policy is established by the ALM Committee and reviewed by the Board of Directors. The assets supporting surplus are managed on a total return basis. For certain product types, including participating individual insurance and some forms of universal life and pension products, the effect of changes in the interest rate environment is at least partially passed through to the policyholders through changes in the dividend scale or the rate of interest credited. However, the very long duration of the insurance liabilities still results in a mismatch in interest rate sensitivity with the assets. Asset strategies are selected to mitigate some of the exposure to interest rate risk. Annuities, individual non-participating life, group life, and group accident and sickness liabilities involve either contractual or otherwise guaranteed payments to policyholders. Therefore, these liabilities are also sensitive to changes in interest rates. The Company faces certain risks with respect to its longer-duration policies where long-term interest rates have or are expected to decline. The Company mitigates this risk by entering into over-the counter interest rate swaps. Interest rate swaps are agreements where two counterparties exchange a series of payments based on different fixed or floating interest rates applied to a notional amount in a single currency. These interest rate swaps are included in the Company’s invested assets (note 5) and derivative liabilities within provisions and other liabilities (note 15). Property and casualty operations For the property and casualty operations, interest rate risk is managed with the use of historical data and current information that profiles the ultimate claims settlement pattern by class of insurance, which is then used to develop a Board-approved and monitored investment policy and strategy. The policy and strategy is based upon prudence, regulatory guidelines and claims settlement patterns by product line. The policy provides conservative investment limits which balance the Company’s long-term focus with market opportunities as they arise. This is achieved by investing in a diversified mix of securities and by shifting between asset classes as trends in capital markets develop. Interest rate risk also causes income volatility as a result of the discounting of the unpaid claims and adjustment expenses on the projected portfolio yield of the assets backing the claims liabilities. Changes in the value of the unpaid claims and adjustment expenses resulting from fluctuations in interest rates flow through claims and adjustment expenses in the consolidated statement of income. The corresponding change in asset values will either flow through the consolidated statement of income or through OCI based on the designation of assets held to settle future claims obligations. If the assets backing the liabilities are classified as AFS, the gains and losses due to interest rate fluctuations flow


through OCI. If the assets backing the liabilities are designated under the fair value option as FVTPL, the gains and losses due to interest rate fluctuations flow through the consolidated statement of income. To mitigate the impact of interest rate risk, the Company utilizes an ALM strategy for the property and casualty operations. A portion of the assets backing the unpaid claims and adjustment expense liabilities of CGIC and its subsidiaries are designated as FVTPL under the fair value option with the objective of offsetting a targeted proportion of the financial impact of interest rate changes and avoiding an accounting mismatch between the impact of interest rate changes on assets and liabilities in the consolidated statement of income. d) Market risk on embedded derivatives in insurance contracts

In the life operations, the Company has certain insurance contracts with embedded derivatives not separated from the host contract. The embedded derivatives cause some of the cash flows that otherwise would be required by contract to be modified according to a specified interest rate or index of prices or rates.

In connection with the embedded derivatives in insurance contracts, the Company is exposed to equity risk. Certain insurance contracts have policyholder funds that are credited a return based on the performance of a specified index such as the Standard & Poor’s/Toronto Stock Exchange 60 or Standard & Poor's 500. Any equity exposure on the assets backing these insurance contracts is passed along to the policyholder through credited returns.

The Company is also exposed to interest rate risk through guaranteed interest rate options on certain insurance contracts. The interest rate exposure is partially passed through to the policyholders through the rate of interest credited. These insurance contracts with embedded derivatives are managed within the tolerance limits under the ALM policy. Liquidity risk

Liquidity risk refers to the ability of the Company to access sufficient funds to meet financial obligations as they fall due. The Company’s

obligations arise as a result of claims, contractual commitments, or other outflows. Liquidity risk varies by line of business based on contractual rights to make cash withdrawals and other distinct product features. The life operations’ ALM process ensures it has adequate liquid assets to cover potential commitments. It is unlikely that all demand liabilities will be withdrawn at the same time as a large portion of life insurance contracts are not cashable prior to maturity or are subject to market value adjustments. The Company has no material commitments for capital expenditures and there is normally no need for such expenditures in the normal course of business. Claims, contractual commitments and other outflows are funded by current revenue cash flow which normally exceeds cash requirements. At December 31, 2017, the Company had $293,869 (2016 - $119,609) of cash and cash equivalents, and $336,728 (2016 - $173,825) of short-term investments. In addition, the Company had a combination of lines of credit and a liquid investment portfolio. Together, the bond portion of the portfolio, which consists primarily of Canadian fixed income securities issued or guaranteed by governments and investment grade corporate bonds, and publicly traded Canadian and U.S. equities, had a December 31, 2017 fair value of $7,404,023 (2016 - $7,204,869). Along with internally generated funds, the Company has credit facilities of $98,000 (2016 - $98,000) that provide it with additional financial flexibility to fulfill cash requirements on an ongoing basis. These facilities are secured by portfolio securities and interest rates range from bank prime less 0.25% to bank prime. The Company has utilized $nil (2016 - $nil) at the consolidated balance sheet date. The Company’s estimated maturities of its financial liabilities, insurance contracts and other commitments are shown in the following table on an undiscounted basis. Financial liabilities and contractual commitments are presented based on their estimated contractual maturities. Unpaid claims and adjustment expenses, unearned premiums and advisor transition commissions are presented based on expectations of the timing of future cash flows and/or the duration of the contract. Contractual commitments are not reported on the consolidated balance sheet.



December 31, 2017 $ $ $ $ $ $Accounts payable and accrued charges 392,905 - - - - 392,905 Income taxes payable 11,541 - - - - 11,541 Insurance contracts 2,647,234 888,237 449,414 481,306 7,195,024 11,661,215 Investment contracts 527,109 2,175 1,175 1,123 576 532,158 Borrow ings 1,904 156,457 9,966 3,050 - 171,377 Provisions and other liabilities

Provision for advisor transition commissions 44,643 26,162 13,267 18,947 37,141 140,160 Net asset attributable to third parties 29,186 - - - - 29,186 Advisor transition commission payable 7,489 7,880 - - - 15,369 Deferred consideration (note 15) 6,372 - - - - 6,372 Other provisions 4,426 1,218 - - - 5,644 Finance lease obligations 259 519 259 - - 1,037 Derivative liabilities 3,983 - - - - 3,983 Other liabilities 1,500 1,089 474 327 - 3,390

3,678,551 1,083,737 474,555 504,753 7,232,741 12,974,337

Contractual commitments Operating lease commitments 46,549 63,476 33,847 18,329 306 162,507 Mortgage funding 12,139 1,456 - - - 13,595

58,688 64,932 33,847 18,329 306 176,102


December 31, 2016 $ $ $ $ $ $Accounts payable and accrued charges 343,374 594 368 31 - 344,367 Income taxes payable 34,146 - - - - 34,146 Insurance contracts 2,612,959 853,581 431,132 446,173 7,784,824 12,128,669 Investment contracts 539,312 2,366 1,424 1,357 685 545,144 Borrow ings 758 5,777 157,529 3,050 - 167,114 Provisions and other liabilities

Provision for agent transition commissions 39,780 16,965 16,604 20,997 41,300 135,646 Net asset attributable to third parties 36,836 - - - - 36,836 Advisor transition commission payable 6,630 5,415 - - - 12,045 Deferred consideration (note 15) 6,114 6,371 - - - 12,485 Other provisions 4,510 - - - - 4,510 Derivative liabilities 7,246 - - - - 7,246 Other liabilities 4,122 1,166 472 327 - 6,087

3,635,787 892,235 607,529 471,935 7,826,809 13,434,295

Contractual commitments Operating lease commitments 47,840 71,020 39,619 28,453 1,623 188,555 Mortgage funding 10,402 3,884 200 - - 14,486

58,242 74,904 39,819 28,453 1,623 203,041

The mortgage funding commitments have interest rates ranging from 2.10% to 5.95% (2016 - 3.04% to 5.75%).


7. Insurance risk management a) Nature of risks arising from insurance contracts

There is uncertainty whether an insured event occurs and to what degree for each policy. By the very nature of an insurance contract, the risk is random and therefore unpredictable. Insurance companies accept the transfer of uncertainty from policyholders and seek to add value through the aggregation and management of insurance risk. The Company is at risk for losses in the event that incomplete or incorrect assumptions or information are used when pricing, issuing or reserving for insurance products. Life operations The life operations are exposed to both product design and pricing risk and underwriting risk.

Product design and pricing risk is the risk arising from the exposure to financial loss from transacting insurance business where costs and liabilities experienced in respect of a product line exceed the expectation in pricing the product line.

The Company prices the products taking into account numerous factors including mortality, morbidity, policyholder behavior, administrative expenses, capital required to support a product, investment income and the potential volatility and variability of each of the factors. The Company’s pricing process is designed to earn an appropriate return on capital over the long term. These factors are reviewed and adjusted periodically to ensure they reflect the current environment. These factors are further described in note 7(b).

Many of the Company’s products remain in place for the lifetime of the client. Because these products are a long-term commitment to the client, significant research and development is completed prior to offering a product for sale. This will include analysis of product economics, risks, sensitivities, capital requirements, markets, competition and administrative requirements. All analysis is documented and retained. Senior management approves initial product pricing and design, as well as significant changes to existing products.

Underwriting risk is the exposure to financial loss resulting from the selection and approval of risks to be insured or the inappropriate application of underwriting rules to risks being insured.

The Company’s underwriting objective is to develop business within a target market on a prudent and diversified basis and to achieve profitable underwriting results. The Company uses comprehensive underwriting manuals which detail the policies, practices and procedures used in the determination of the insurance risk for each individual or group to be insured and the decision of whether or not to insure the client. The manuals are continually revised for new products and risks undertaken. All employees in the underwriting area are trained and their work is subject to underwriting reviews by the Company.

The Company also manages exposure to underwriting risks by limiting coverage amount to individual risks either directly or through the use of reinsurance to reduce net coverage.

Property and casualty operations Being a property and casualty insurer, catastrophes could have a significant effect on the Company’s operating results and financial condition. Catastrophic loss risk is the exposure to loss resulting from multiple claims arising out of a single catastrophic event. Potential events include perils such as earthquake, tornado, wind, hail, flood or fire.

Underwriting risk, claims risk and product design and pricing risk are also important to the proper management of insurance r isk. Claims risk is the exposure to financial loss resulting from a change in the frequency and/or severity of claims; inadequate claim adjudication; or inappropriate claim settlement. Policies, processes and other internal controls have been established to manage these risks to within tolerable levels.

In managing certain insurance risks, reinsurance is employed by the Company; however, the Company is still exposed to reinsurance risk. Reinsurance risk is the risk of financial loss due to inadequacies in reinsurance coverage or the default of a reinsurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policyholder.

Other external factors play a role in the Company’s management of insurance risk. Property and casualty insurers are subject to significant regulation by governments. As in any regulated industry, it is possible that future regulatory changes or developments may prevent the Company from raising rates or taking other actions to enhance operating results. As well, future regulatory changes, novel or unexpected judicial interpretations or political developments could impact the ultimate amount of claims that must be paid out. Macroeconomic risks such as fluctuations in the long-term portfolio yields used in the valuation of the Company’s insurance contracts or changes in the Company’s forecasts

of expected inflation levels are also important considerations in developing the estimated liability.


b) Sources of uncertainty and processes used to determine assumptions for insurance contracts

Life operations Insurance contract liabilities represent the amounts which, together with estimated future premiums and investment income, will be sufficient to pay estimated future benefits, dividends and expenses on all policies in force. Insurance contract liabilities are determined in accordance with Canadian generally accepted actuarial practices, based on standards established by the CIA. These standards prescribe the use of the CALM to determine actuarial liabilities.

Insurance contract liabilities have been adjusted to incorporate the effect of future income tax cash flows attributable to differences between financial statement basis and tax basis valuations of certain assets as well as insurance contract liabilities. Assumptions used to calculate insurance contract liabilities consist of two components: an “expected” or “best estimate” assumption and a

margin for adverse deviation.

In the computation of insurance contract liabilities, “expected” assumptions covering the lifetime of the policies have been made for many variables including mortality, morbidity, reinvestment rates, rates of policy lapsation, operating expenses, inflation, policyholder dividends and taxes. Assumptions are reviewed annually based on studies of the major experience factors. The change in insurance contract liabilit ies resulting from assumption revisions is recognized in income immediately. The methods for arriving at the most significant assumptions are outlined below.

Mortality

The mortality assumption for life insurance is mainly based on Company experience. For annuities, the mortality assumption is derived from industry experience tables. Mortality improvement has been projected in future years. Morbidity

Morbidity assumptions are made with respect to the rates of claim incidence and termination for accident and sickness business. These assumptions are mainly based on Company experience studies.

Investment returns

The life operations maintain asset segments backing specific lines of business. Under CALM, projections of future asset and l iability cash flows under multiple interest rate scenarios are used to determine the insurance contract liability for each segment, along with a reinvestment strategy consistent with the life operations policy for that segment. A reduction is made to the asset cash flows to provide for future credit losses. The provision for credit losses is $301,833 (2016 - $275,292). The ultimate reinvestment rate (URR) used to calculate insurance contract liabilities is set forth by the CIA, and based on stochastic modelling using historical data from the past 60 years. A sustained low interest rate environment would have an adverse impact on the URR assumption.

Expenses

Policy maintenance expense assumptions are derived from the Company’s internal cost studies without any adjustment for produc tivity gains. An inflation assumption consistent with the investment return is incorporated in the estimate of future expenses.

Policy lapsation

Policyholders may allow their policies to terminate by choosing not to continue to pay premiums. Policy lapsation rates are mainly based on the Company’s own experience. The assumptions reflect differences in lapsation patterns for different types of contracts.

A block of policies is considered to be lapse-supported if an increase in ultimate lapse rates increases profitability. The Company has reflected industry experience for certain longer-duration lapse-supported products.

Provision for adverse deviation

To recognize the uncertainty in establishing the expected assumptions, to allow for possible deterioration in experience and to provide greater comfort that actuarial liabilities are adequate to pay future benefits, a margin for adverse deviation is included in each assumption. With the passage of time, and resulting reduction in estimation risk, these margins are released into income.

A standard range of margins is prescribed by the CIA and the Company is within these ranges.

Property and casualty operations The Company establishes an unpaid claims and adjustment expense provision to cover claims incurred but not settled at the end of the reporting period. The unpaid claims provision contains both individual claims estimates and an incurred but not reported (IBNR) provision.


Individual claims estimates are set by internal claims adjusters on a case-by-case basis. These specialists apply their knowledge and expertise, after taking available information regarding the circumstances of the claim into account, to set individual case reserve estimates. The Company has documented policy and procedures by which case reserve estimates are set. The claims reserving strategy and monitoring of their application and effectiveness falls under the accountability of the Company’s National Claims department, except for travel insurance, which is completed by the Managing General Underwriter’s (MGU) actuarial department.

The IBNR is a provision intended to cover future development on both reported claims and claims that have occurred but have yet to be reported. Uncertainty exists on reported claims in that all information may not be available at the valuation date. Claims that have occurred may not be reported to the Company immediately; therefore, estimates are made as to their value, an amount which may take years to finally determine.

The total unpaid claims and adjustment expense provision is an estimate that is determined using a range of accepted actuarial claims projection techniques, such as the Chain Ladder and Bornhuetter-Ferguson methods. These techniques use the Company’s historical claims

development patterns to predict future claims development. In situations where there has been a significant change in the environment or underlying risks, the historical data is adjusted to account for expected differences.

The initial actuarial estimate of unpaid claims and adjustment expenses is an undiscounted amount. This estimate is then discounted to recognize the time value of money. The discount rate applied to measure the value of unpaid claims and adjustment expenses is based upon the portfolio market yield of assets supporting the claims liabilities as well as considerations for the timing of the relative cash flows of the assets and liabilities. This rate could fluctuate significantly based on changes in interest rates and credit spreads. The interest rates used to discount the claims liabilities for each of the operating companies are as follows:

2017 2016$ $

CGIC 2.61% 2.43%CUMIS General 2.50% 2.40%

The discounted unpaid claims and adjustment expenses incorporates assumptions concerning future investment income, projected cash flows, and appropriate provisions for adverse deviations (PFADs). As the estimates for unpaid claims are subject to measurement uncertainty and the variability could be material in the near term, the Company includes PFADs in its assumptions for claims development, reinsurance recoveries and future investment income. The incorporation of PFADs is in accordance with accepted actuarial practice in order to ensure that the actuarial liabilities are adequate to pay future benefits. The selected PFADs are within the ranges recommended by the CIA.

The following table represents the discounted development of the claims from continuing operations net of reinsurance. Accident year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Total

$ $ $ $ $ $ $ $ $ $ $Estimate of ultimate claims costs:

At end of accident year1,411,432 1,464,947 1,486,472 1,505,086 1,427,852 1,656,973 1,649,277 1,719,344 1,841,207 1,994,370 One year later 1,365,556 1,457,228 1,332,994 1,432,616 1,399,160 1,621,124 1,602,785 1,664,661 1,838,294 Tw o years later 1,339,074 1,417,510 1,307,434 1,386,378 1,360,072 1,584,025 1,569,745 1,636,065 Three years later 1,318,080 1,400,951 1,289,090 1,372,803 1,334,267 1,576,011 1,554,791 Four years later 1,301,725 1,396,278 1,268,940 1,350,759 1,319,620 1,556,969 Five years later 1,304,083 1,393,205 1,269,832 1,355,183 1,319,779 Six years later 1,295,776 1,376,349 1,256,132 1,341,108 Seven years later 1,284,379 1,362,811 1,248,098 Eight years later 1,283,266 1,361,917 Nine years later 1,280,253

Current year estimate of cumulative 1,280,253 1,361,917 1,248,098 1,341,108 1,319,779 1,556,969 1,554,791 1,636,065 1,838,294 1,994,370 15,131,644 Cumulative payments to date (1,257,451) (1,342,622) (1,219,388) (1,287,849) (1,234,214) (1,418,832) (1,335,576) (1,295,037) (1,364,097) (1,093,662) (12,848,728) Provision recognized 22,802 19,295 28,710 53,259 85,565 138,137 219,215 341,028 474,197 900,708 2,282,916 Provision w ith respect to 2007 and prior accident years 62,605 Effect of discounting (note 8) 111,597 Net unpaid claims and adjustment expenses 2,457,118


c) Changes in assumptions used in measuring insurance contracts

Life operations The liability for life insurance contracts is either based on current assumptions or pricing assumptions (for those products where actual experience is not credible or not yet available), reflecting the best estimate at the time increased with a margin for adverse deviation.

The main assumptions used relate to mortality, morbidity, investment returns, expenses, policy lapsation and provision for adverse deviation. The Company bases mortality and morbidity on standard industry tables which reflect historical experiences, adjusted when appropriate to reflect the Company’s unique risk exposure, product characteristics, target markets and own claims severity and frequency experiences.

Changes in assumptions used in measuring insurance contracts are disclosed in note 8. Property and casualty operations Assumptions used to develop this estimate are selected by class of business and geographic location. Consideration is given to the characteristics of the risks, historical trends, the amount of data available on individual claims, inflation and any other pertinent factors. Some assumptions require a significant amount of judgment such as the expected impacts of future judicial decisions and government legislation. The diversity of these considerations result in it not being practicable to identify and quantify all individual assumptions that are more likely than others to have a significant impact on the measurement of the Company’s insurance contracts. There were no new assumptions identified in the year as having a potential or identifiable material impact on the overall claims estimate.

d) Objectives, policies and processes for managing risks arising from insurance contracts

Life operations The principal risks the Company faces under insurance contracts include: mortality, morbidity, policyholder behaviour and interest rates. The objective of the Company is to ensure that sufficient reserves are available to cover policy liabilities.

The Company has an established investment policy and strategy that is based upon prudence and regulatory guidelines. The investment policy is approved by the Company’s Board of Directors and reviewed on a regular basis. The Company writes business that is broadly diversified in terms of lines of business and geography. The Company also utilizes reinsurance to manage the exposure to individual losses and multiple claims from a single occurrence. Details of the Company’s reinsurance practices are described in notes 7(e) and 10. Property and casualty operations The Company’s underwriting objectives are to develop business within a target market on a prudent and diversified basis and to achieve profitable underwriting results. The Company uses comprehensive underwriting manuals which detail the practices and procedures used in the determination of the insurance risk for each item to be insured and the decision of whether or not to insure the item. The Company underwrites automobile business after annual reviews of the client’s driving record and claims experience. The Company underwrites property lines based on physical condition, property replacement values, claims experience, geography and other relevant factors. All employees in the underwriting area are trained and their work is subject to underwriting reviews by the Company. Advisors and brokers are compensated, in part, based on the profitability of their portfolio.

In setting the provision for unpaid claims and adjustment expenses required to cover the estimated liability for claims, the Company’s practice is

to maintain an adequate margin to ensure future years’ earnings are not negatively affected by prior years’ claims development and other variable factors such as inflation. The Company, in accordance with OSFI requirements, seeks a full peer review every three years accompanied by an annual methodology and assumption review in the intervening years.

The Company’s pricing policies take into account numerous factors including claims frequency and severity trends, product line expense rates, special risk factors, the capital required to support the product line and the investment income earned on that capital. The Company’s pricing

process is designed to ensure an appropriate return on equity while also providing long-term rate stability. These factors are reviewed annually and adjusted periodically to ensure they reflect the current environment. The Company monitors its compliance with all relevant regulations and actively participates in discussions with regulators, governments and industry groups to ensure that it is well-informed of contemplated changes and that its concerns are understood. In its strategic planning process, the Company considers the implications of potential changes to its regulatory and political environment and adjusts its plans if necessary.


e) Objectives, policies and processes for managing insurance risk through reinsurance The Company’s strategy is to retain underwriting risk where it is financially prudent. Life operations Reinsurance is purchased to limit the exposure to a particular risk, or group of risks. The use of reinsurance also increases the Company’s

underwriting capacity, reduces net income volatility and enhances the Company’s financial strength as measured by regulators, rating agencies and the Company’s own Capital Management Policy. Reinsurance has been used to reduce risk by limiting the Company's exposure to costs from individual claims and from events involving multiple insureds. To limit the impact of catastrophic losses the Company utilizes catastrophe reinsurance which will reimburse the Company for aggregate life claims from a series of claims arising out of one event. The Company’s catastrophe coverage includes reinsurance for acts of terrorism. The Company’s practice requires that all reinsurance contracts contain significant insurance risk transfer. No reinsurance contracts are permitted if the intent is to offset the impact of another reinsurance contract. All of the Company’s reinsurance contracts are prospective in nature.

Reinsurance acquired does not relieve the Company of its ultimate liability to its policyholders. Therefore, the Company retains credit risk associated with reinsurers with whom the Company has ceded insurance. The Company assesses the financial strength of its reinsurers on a regular basis and manages its use of reinsurers based on their ratings and capital resources.

CLIC reinsures most individual insurance amounts in excess of $500 per life (2016 - $500), group insurance amounts in excess of $400 per life (2016 - $400) and all monthly income amounts in excess of $2,800 dollars per month (2016 - $2,800 dollars per month) for pooled group long-term disability business. For certain individual life products, the Company retains less than $500 per life (2016 - $500). For conventional individual disability, the Company's policy is to purchase reinsurance contracts to limit disability losses to $1,000 dollars per month per person (2016 - $1,000 dollars per month per person). For simplified disability sold through Edge the maximum monthly benefit is $6,000 dollars per month per person (2016 - $6,000 dollars per month per person), and 50% of the risk is reinsured. Travel insurance claim amounts in excess of $350 per individual (2016 - $350) are reinsured. In addition, net death claims in excess of $15,000 (2016 - $15,000), or travel insurance claims in excess of $900 (2016 - $900), resulting from a loss occurrence involving multiple lives are reinsured. Although claims in excess of these limits are recoverable from the companies that have assumed the reinsurance coverage, the Company remains primarily liable to the beneficiaries on these policies.

CUMIS’s life operation reinsures most individual insurance amounts in excess of $500 per life (2016 - $200), and group insurance amounts in excess of $400 per life (2016 - $400). For certain individual life products, the Company retains less than $500 per life (2016 - $200). Individual critical illness insurance is reinsured from first dollar, with a maximum retention of $250 (2016 $200) per life. For creditor insurance, the Company reinsures on loans in excess of $300 (2016 - $300), with retention of $300 per insured loan (2016 - $300). When a critical illness rider is added to life insurance, the Company reinsures both life and critical illness insurance from first dollar, with retention of $200 (2016 - $200) per insured loan. Although claims in excess of these limits are recoverable from the companies that have assumed the reinsurance coverage, the Company remains primarily liable to the beneficiaries on these policies. Refer to note 10 for summary of the impact of reinsurance on certain financial statement line items. Property and casualty operations The Company reviews its insurance requirements annually to assess the level of reinsurance coverage required. Reinsurance is purchased to limit the Company’s exposure to a particular risk, category of risk or geographic risk area. To manage reinsurance counterparty risk, the Company assesses and monitors the financial strength of its reinsurers on a regular basis.

The Company writes business that is broadly diversified in terms of the lines of business and geographic location. There is no guarantee that a catastrophe will not result in claims against the Company in excess of its maximum reinsurance coverage; however, based on the Company’s

catastrophic loss models, protection is in excess of regulatory guidelines and at a level that management considers prudent. The Company’s travel insurance is underwritten by the MGU and ceded 55% to an external reinsurer. Within the property travel insurance, amounts retained are reinsured in excess of $56 per claims (2016 - $56), with a catastrophe maximum limit of $1,800 (2016 - $1,800) and the Company’s retention is $450 (2016 - $450).

The property and casualty operations follow the policy of underwriting and reinsuring contracts of insurance which limits the liability of the Company to a maximum amount on any one loss. In addition, the Company has obtained reinsurance which limits the Company’s liability in the

event of a series of claims arising out of a single occurrence. The Company’s net retentions are as follows:


2017 2016

$ $

Individual lossProperty 7,500 7,500 General liability 5,000 5,000 Automobile 5,000 5,000 Fidelity and Director's liability 3,000 3,000

CatastropheMaximum limit 1,450,000 1,300,000 Company retention 70,000 70,000

The maximum limit for catastrophe reinsurance is applied to all property and casualty insurance operations ultimately owned by CGL. After application of the catastrophe program, the Company’s retention is $70,000 in incurred claims.

During 2016, the Company required the use of the catastrophe coverage described above. Premiums were paid to reinsurers to the extent necessary to fully reinstate the coverage. Additional reinstatement coverage was purchased for layers of the catastrophe program that could be impacted by a future event. The underwriting impact of the Company’s use of reinsurance programs on the period’s results is described in note 10.

f) Sensitivity analysis

Life operations The Company uses a number of sensitivity test-based risk management tools to understand the volatility of both its earnings and its capital requirements, and to manage its capital more efficiently. Sensitivities to economic and operating experience are regularly produced on all of the Company’s financial performance measurements to inform the Company’s decision making and planning processes, and as part of the framework for identifying and quantifying the risks that each of its business units and the Company as a whole are exposed to.

The Company performs an annual investigation of its recent and current financial position and financial condition, using the dynamic capital adequacy testing process (DCAT), as required by the CIA. DCAT is the actuary's primary tool for investigation of its financial condition and it provides the directors and management with information on the Company's financial health and the risks facing the Company, and is a key component of the Company's risk management program. Once a base scenario is developed, an examination of each major risk category is undertaken. Major risk categories used in the most recent DCAT process included mortality risks, morbidity risks, persistency risks, risk of cash flow mismatch (C-3 risk) and risk of asset deterioration (C-1 risk). The risks that pose the most significant threat to the Company's solvency are selected and further testing is performed under various adverse scenarios. Scenarios used in the most recent DCAT process included a pandemic scenario, a persistency scenario, a lower interest rate scenario, and a persistency and low interest rate scenario where various ripple effects are considered. A standardized stress test is also performed on request from OSFI. The most recent results indicated that the Company's financial condition is satisfactory under the assumptions applied.

The analysis below is performed for reasonably possible movements in key assumptions with all other assumptions held constant, showing the impact on net liabilities and after-tax income. It should be noted that movements in these assumptions are non-linear. The methods used for deriving this sensitivity information did not change from the previous year.


The Company's estimated sensitivity of insurance contract liabilities and after-tax net income to changes in best estimate assumptions in the insurance contract liabilities is as follows:

December 31, December 31, December 31, December 31,2017 2016 2017 2016

Assumption Sensitivity $ $ $ $

MortalityInsurance products +2% 10,041 11,083 (7,340) (8,102) Annuity products -2% 3,028 3,190 (2,213) (2,332)

Morbidity 5% adverse 26,105 23,232 (19,083) (16,983) Maintenance expenses +5% 18,428 17,794 (13,471) (13,007) Policy termination rates 10% adverse 136,155 125,016 (99,529) (91,387)

InterestImmediate parallel shift at +100 bps (44,873) (45,653) 32,802 33,372 all points on yield curve -100 bps 42,028 44,713 (30,722) (32,685)

Equity and investment propertyFuture annual returns +100 bps (76,907) (64,369) 56,219 47,054 Future annual returns -100 bps 81,775 68,082 (59,778) (49,768) Immediate change in +10% (5,719) (5,204) 4,181 3,804 market value -10% 6,382 5,937 (4,665) (4,340)

Insurance contract - After-tax net liabilities impact income impact

The URR used to calculate insurance contract liabilities is set forth by the CIA, and based on stochastic modelling using historical data from the past 60 years. The Company’s URR at December 31, 2017 is 3.2% (2016 - 3.3%). Property and casualty operations The Company has exposures to risks in each class of business within each operating segment that may develop and that could have a material impact on the Company’s financial position. The correlation of assumptions has a significant effect in determining the ultimate claims liability and movements in assumption are non-linear; also, it is not possible to quantify the sensitivity of certain key assumptions such as future legislative changes.

To ensure that the Company has sufficient capital to withstand a variety of significant and plausible adverse event scenarios, the Company performs DCAT on the capital adequacy of the Company. DCAT is performed annually, as required by the CIA, and is prepared by the appointed actuary. The adverse event scenarios are reviewed annually to ensure that the appropriate risks are included in the DCAT process. Plausible adverse event scenarios used in the most recent DCAT process included consideration of claims frequency and severity risk, inflation risk, premium risk, reinsurance risk and investment risk. The exposure of the peril of earthquake with default of reinsurers was also applied in a stress test analysis, as outlined in note 7(g). The most recent results indicated that the Company’s future financial and capital positions are

satisfactory under the assumptions applied.

CGIC, Sovereign and COSECO share the inherent risk of the business as well as the risk associated with invested assets. As a result, the risk profile for CGIC, Sovereign and COSECO are identical to the risk profile of CGIC consolidated. The methods used for deriving this sensitivity information were adjusted and the DCAT scenario assumptions and testing are now based on the risk calibrated at the consolidated level for these three companies.


The Company’s estimated sensitivity of insurance contract unpaid claims and after-tax net income to changes in best estimate assumptions in the insurance contract is as follows:

December 31, December 31, December 31, December 31,

2017 2016 2017 2016Assumption Sensitivity $ $ $ $Discount rate +100 bps (47,839) (43,933) 38,707 34,939 Discount rate -100 bps 50,402 46,060 (40,781) (36,631) Net loss ratio +10% 185,050 170,010 (149,746) (135,227) Misestimate 1% deficiency 24,444 23,328 (19,779) (18,554)

Insurance contract - After-tax net claims income impact

The impacts related to the discount rate sensitivities are approximately linear within this range. g) Concentrations of insurance risk

Life operations The concentration of insurance risk before and after reinsurance in relation to the type of individual operations is summarized in the tables in note 8 and reconcile to the consolidated financial statements. Ceded amounts in the tables are a component of reinsurance contracts on the consolidated balance sheet as disclosed in note 10.

Property and casualty operations The Company has catastrophe exposures arising from the property and automobile comprehensive policies it writes across the country. Exposures to concentrations of insurance risk subject to catastrophe losses are evaluated, and the Company has adopted a reinsurance strategy to reduce such exposures to an acceptable level.

A particular focus is exposure to the peril of earthquake in British Columbia, Quebec, and Eastern Ontario. The Company utilizes industry-accepted earthquake modeling techniques to understand its exposures and applies this information to establish the catastrophe coverage outlined in note 7(e). In addition to earthquake, other catastrophe perils such as hail and windstorm are also modeled, and reinsurance is purchased based on the peril that generates the largest loss. As the catastrophe reinsurance purchased is not peril specific, the Company is thereby provided with a high level of protection for catastrophic loss from other perils. The stress tests completed on the Company’s capital are

based on 1 in 500 year events; this exceeds the regulatory requirements established by OSFI.

The Company’s net earned premium split by line of business and geographic area is as follows:

2017 2016$ $

Auto 1,301,194 1,242,808 Home 740,813 663,153 Farm 123,829 116,290 Commercial 460,394 439,005 Travel 104,844 87,894 Other 42,111 42,056

Net earned premium 2,773,185 2,591,206

2017 2016$ $

West 1,031,797 969,713

Ontario 1,352,048 1,262,894 Quebec 124,447 108,764 Atlantic 264,893 249,835



h) Financial risks in insurance contracts

Information about credit risk, liquidity risk and market risk for insurance contracts is disclosed in note 6. 8. Insurance contracts

Insurance contract liabilities are comprised of the following balances:


2017 2016

Insurance contract liabilities $ $Life operations 2,932,380 2,795,578 Property and casualty operations 4,157,141 4,087,442

7,089,521 6,883,020

Life Operations


$ $Insurance contracts

Individual insurance 1,666,597 1,506,019 Group insurance 476,043 475,539 Wealth management 508,063 514,365 Creditor insurance 87,911 103,280

Total life actuarial liabilities 2,738,614 2,599,203 Policyholders' funds on deposit 110,608 113,517 Claims in course of settlement 19,181 15,064 Provision for unreported claims 16,224 17,460 Provision for policyholder dividends and experience rating refunds 46,796 49,328 Reinsurers' funds on deposit 957 1,006

Total life other policy liabilities 193,766 196,375

Insurance contracts, life operations 2,932,380 2,795,578


$ $Reinsurance ceded contracts

Individual insurance 204,772 221,417 Group insurance 24,239 23,622 Creditor insurance 2,833 2,845

Total life actuarial reinsurance contracts 231,844 247,884

Other reinsurance liabilities (4,901) (2,885)

Reinsurance ceded contracts, life operations 226,943 244,999


Changes in insurance contract liabilities

Changes in insurance contract liabilities during the year were caused by the following business activities and changes in actuarial assumptions (before-tax):

Gross Ceded Net Gross Ceded Net

$ $ $ $ $ $Actuarial liabilities, beginning of year 2,599,203 247,884 2,351,319 2,479,998 191,667 2,288,331

Normal changesa) new business 100,888 35,553 65,335 120,781 33,640 87,141 b) in-force 124,269 24,890 99,379 (4,827) 15,014 (19,841)

Changes in assumptionsMortality (83,563) (78,893) (4,670) (195) 7,440 (7,635) Morbidity (3,430) 285 (3,715) (753) (32) (721) Investment returns 6,375 (16) 6,391 (4,689) (53) (4,636) Expenses (13,713) (775) (12,938) (15,047) (705) (14,342) Policy lapsation 22,305 2,940 19,365 22,795 943 21,852 Other (13,720) (24) (13,696) 1,140 (30) 1,170

Actuarial liabilities, end of year 2,738,614 231,844 2,506,770 2,599,203 247,884 2,351,319

2017 2016

Mortality

The decrease in net actuarial liabilities of $4,670 is primarily due to new prescribed mortality improvement rates and revised mortality tables affecting individual insurance, creditor insurance and payout annuities. Group disability waiver mortality and recovery rates have also been updated based on the latest company experience study. Morbidity

Lower creditor disability insurance margins for adverse deviation as well as changes to various group long-term disability assumptions have resulted in a decrease in net actuarial liabilities of $3,715.

Investment returns

The increase in net actuarial liabilities of $6,391 is due to a decrease in the promulgated ultimate reinvestment rates used in the valuation of policy liabilities. Expenses

Lower policy maintenance expenses for individual insurance and group benefits products, based on the latest company expense studies, have resulted in a decrease in net actuarial liabilities of $12,938. Policy lapsation

The regular updating of the lapse assumptions, based on the latest Company experience studies produced an increase in net actuarial liabilities of $19,365. The increase relates to the following: lower Universal Life level cost of insurance lapse rates ($10,358), higher lapse rates for renewable term products ($7,786), lower Term to 100 lapse rates ($4,346), changes to expected lapse and retention rates for the Optimum Re assumed block of business (-$4,287), and other products ($1,162). Other

The decrease in net actuarial liabilities of $13,696 is mainly due to future tax reserve adjustments for preferred shares backing policy liabilities.


Property and casualty operations

Insurance contracts for the property and casualty operations are comprised of the following:


$ $

Undiscounted unpaid claims and adjustment expenses 2,506,773 2,531,350 Effect of time value of money (126,539) (109,485) PFADs 239,042 244,775

Effect of discounting 112,503 135,290 Discounted unpaid claims and adjustment expenses 2,619,276 2,666,640 Unearned premiums 1,524,232 1,405,434 Experience rated refund pool 13,633 15,368

4,157,141 4,087,442

a) Profile of unearned premiums


$ $ $ $ $ $Auto 658,240 238 658,002 600,290 182 600,108 Home 427,921 68 427,853 392,005 57 391,948 Farm 66,871 229 66,642 63,312 304 63,008 Commercial 283,546 6,492 277,054 269,074 6,076 262,998 Travel 65,534 36,502 29,032 60,963 33,963 27,000 Other 22,120 330 21,790 19,790 148 19,642

1,524,232 43,859 1,480,373 1,405,434 40,730 1,364,704


b) Reconciliation of unearned premiums


$ $ $ $ $ $Balance, beginning of year 1,405,434 40,730 1,364,704 1,315,026 38,411 1,276,615 Written premium 3,093,202 204,348 2,888,854 2,879,629 200,334 2,679,295 Less: earned premium 2,974,404 201,219 2,773,185 2,789,221 198,015 2,591,206

Balance, end of year 1,524,232 43,859 1,480,373 1,405,434 40,730 1,364,704

2017 2016

c) Profile of net unpaid claims and adjustment expenses


$ $ $ $ $ $Auto 1,623,858 12,615 1,611,243 1,590,472 14,631 1,575,841 Home 309,962 67,031 242,931 404,918 192,797 212,121 Farm 57,587 2,171 55,416 53,113 2,513 50,600 Commercial 573,215 60,128 513,087 564,514 94,682 469,832 Travel 31,878 16,704 15,174 27,780 14,151 13,629 Other 22,776 3,509 19,267 25,843 3,687 22,156

Discounted provision 2,619,276 162,158 2,457,118 2,666,640 322,461 2,344,179



d) Reconciliation of net unpaid claims and adjustment expenses


$ $ $ $ $ $Balance, beginning of year 2,666,640 322,461 2,344,179 2,367,905 77,348 2,290,557 Less: effect of discounting at prior year-end 135,290 3,151 132,139 131,473 1,423 130,050

Undiscounted unpaid claims and adjustment expenses at prior year-end 2,531,350 319,310 2,212,040 2,236,432 75,925 2,160,507 Paid on prior years (799,369) (122,562) (676,807) (655,776) (25,507) (630,269) Change in estimate on prior years (155,179) (64,759) (90,420) (144,941) (5,406) (139,535) Incurred on current year 2,059,109 64,739 1,994,370 2,240,996 399,789 1,841,207 Paid on current year (1,129,138) (35,476) (1,093,662) (1,145,361) (125,491) (1,019,870) Undiscounted unpaid claims and adjustment expenses at current year-end 2,506,773 161,252 2,345,521 2,531,350 319,310 2,212,040 Effect of discounting 112,503 906 111,597 135,290 3,151 132,139

Balance, end of year 2,619,276 162,158 2,457,118 2,666,640 322,461 2,344,179

Current 1,057,347 112,692 944,655 1,160,340 261,220 899,120 Non-current 1,561,929 49,466 1,512,463 1,506,300 61,241 1,445,059 Balance, end of year 2,619,276 162,158 2,457,118 2,666,640 322,461 2,344,179

2017 2016

9. Investment contracts

In the life operations, investment contract liabilities do not contain significant insurance risk and are measured either at fair value or amortized cost.


2017 2016

$ $

Investment contractsWealth management 531,341 544,557

Total investment contracts 531,341 544,557

Investment contracts measured at amortized cost 230,476 238,843 Investment contracts measured at fair value 300,865 305,714

531,341 544,557

The fair value of investment contracts measured at amortized cost is disclosed in the following table:

Carrying value Fair value Carrying value Fair value$ $ $ $

Investment contracts measured at amortized cost 230,476 230,092 238,843 238,430



Changes in investment contracts Changes in investment contracts during the year were caused by the following business activities:

2017 2016

$ $Balance, beginning of year 544,557 598,121 Deposits 63,037 87,698 Interest and realized gains 18,142 19,313 Withdraw als (90,391) (153,134) Fees (3,351) (3,369) Unrealized losses 1,186 (8,770) Other (1,839) 4,698

Balance, end of year 531,341 544,557

10. Reinsurance programs The following summarizes the impact of reinsurance on certain consolidated financial statement line items:


2017 2016

Reinsurance ceded contracts $ $Life operations 226,943 244,999 Property and casualty operations 155,020 269,476

381,963 514,475

Life operations

a) Underwriting impact of reinsurance contracts


2017 2016Ceded $ $Premium w ritten 123,348 115,698 Claims and benefits 49,513 130,470 Commission 10,293 10,039

Cost (benefit) of reinsurance ceded program 63,542 (24,811)


2017 2016

Assumed $ $Premium w ritten 9,834 8,165 Claims and benefits 5,082 8,687 Commission 1,226 1,130

Underw riting gain (loss) from assumed reinsurance 3,526 (1,652)


b) Reinsurance ceded contracts


$ $Reinsurance ceded assets

Third parties 234,180 251,274 Reinsurance ceded liabilities

Third parties 7,237 6,275

Reinsurance ceded contracts 226,943 244,999

Property and casualty operations

a) Underwriting impact of reinsurance contracts


2017 2016

Ceded $ $

Written premium 204,348 200,334 Earned premium 201,219 198,015 Claims and benefits (2,751) 370,053 Commission 72,644 60,397

Cost (benefit) of reinsurance ceded program 131,326 (232,435)


2017 2016

Assumed $ $

Written premium 20,374 21,832

Earned premium 19,580 23,901

Claims and benefits 9,698 13,350

Commission 7,439 10,087

Underw riting gain (loss) from assumed reinsurance 2,443 464


b) Reinsurance ceded contracts


2017 2016$ $

Reinsurance ceded assetsReinsurers' share of unearned premiums (note 8) 43,859 40,730 Reinsurers' share of unpaid claims & adjustment expenses (note 8) 162,158 322,461 Reinsurer receivables 8,465 27,483

214,482 390,674

Reinsurance ceded liabilitiesUnearned reinsurance commissions 23,133 23,041 Payable to reinsurers 2,909 7,729 Unlicensed reinsurer deposits 33,420 90,428

59,462 121,198

Reinsurance ceded contracts 155,020 269,476

Current 116,517 166,782

Non-current 38,503 102,694

155,020 269,476

11. Deferred acquisition expenses Details of deferred acquisition expenses are as noted below.

2017 2016$ $

Balance, beginning of year 249,129 232,126 Acquisition expenses deferred 609,688 566,583 Amortization expense (592,641) (549,580)


12. Income taxes a) Reconciliation to statutory income tax rate

$ % $ %

Income before income taxes 295,511 298,143

Income tax at statutory rates 79,788 27.0 80,499 27.0

Effects of:Non-taxable investment income (18,635) (6.3) (15,371) (5.2) Non-deductible expenses 1,847 0.6 1,414 0.5 Change in income tax rates (252) (0.1) (549) (0.2) Difference in effective tax rate of subsidiaries (115) - (286) (0.1) Adjustment to tax expense in respect of prior years (1,433) (0.5) (860) (0.3) Recognition of previously unrecognized tax losses - - (14) - Other (3,022) (1.0) (1,287) (0.4)

Income tax expense 58,178 19.7 63,546 21.3

2017 2016


b) Income taxes included in the consolidated statement of income

2017 2016$ $

Current tax expenseCurrent period 70,603 74,695 Change in tax rates (256) (258) Adjustment for prior periods (713) (991)

69,634 73,446

Deferred tax expenseOrigination and reversal of temporary differences (10,740) (9,740) Change in tax rates 4 (291) Adjustment for prior periods (720) 131

(11,456) (9,900)

Income tax expense 58,178 63,546

c) Income taxes included in OCI

2017 2016

$ $

Current income tax expense (recovery) 7,273 (3,568)

Deferred income tax recovery (8,863) (5,032)

Total income tax recovery included in OCI (1,590) (8,600)

2017 2016$ $

Items that may be reclassified subsequently to the statement of income:

Net unrealized gains on available-for-sale f inancial assets 22,600 21,099

Net reclassif ication adjustment for gains included in income (16,011) (25,591)

Total items that may be reclassif ied subsequently to the statement of income 6,589 (4,492)

Items that will not be reclassified subsequently to the statement of income:Remeasurement of the retirement benefit obligations (8,179) (4,108)

Total income tax recovery included in OCI (1,590) (8,600)

d) Components of deferred income taxes

Assets Liabilities NetDecember 31, 2017 $ $ $Bonds and mortgages (267) (371) (638) Stocks (4,676) (84) (4,760) Investment properties - (524) (524) Intangible assets (375) (32,881) (33,256) Property and equipment 907 (917) (10) Other assets 1,193 - 1,193 Insurance contracts 45,971 (7,237) 38,734 Retirement benefit obligations 75,101 948 76,049 Provisions and other liabilities 35,762 89 35,851 Loss carry-forw ards and credits 7,156 11 7,167

160,772 (40,966) 119,806


Assets Liabilities Net

December 31, 2016 $ $ $Bonds and mortgages 596 (55) 541 Stocks (2,756) (2,538) (5,294) Investment properties - (521) (521) Intangible assets (687) (36,617) (37,304) Property and equipment 1,321 (1,153) 168 Other assets - 557 557 Insurance contracts 42,806 (6,957) 35,849 Retirement benefit obligations 64,032 762 64,794 Provisions and other liabilities 32,242 (101) 32,141 Loss carry-forw ards and credits 7,882 1,124 9,006

145,436 (45,499) 99,937

The net movement of the deferred income taxes is as follows:

2017 2016

$ $Balance, beginning of year 99,937 86,162 Income statement recovery 11,456 9,900 Other comprehensive income recovery 8,863 5,032 Other items (450) (1,157)


e) Loss carry-forwards The Company has non-capital loss carry-forwards of $18,363 (2016 - $24,151) of which deferred income taxes of $4,918 (2016 - $6,317) have been recognized. The non-capital loss carry-forwards expire as follows:

$2029 240 2030 464 2031 93 2032 69 2033 318 2036 41 2037 17,138


13. Intangible assets

Value ofCustomer business

Goodwill Licenses Brand relationships Software acquired Total$ $ $ $ $ $ $

CostJanuary 1, 2016 386,125 17,997 26,000 328,220 40,010 6,760 805,112 Additions - 6,250 - 3,906 399 - 10,555

December 31, 2016 386,125 24,247 26,000 332,126 40,409 6,760 815,667 Additions - 3,750 - 2,034 411 - 6,195

December 31, 2017 386,125 27,997 26,000 334,160 40,820 6,760 821,862

Accumulated amortization and impairmentJanuary 1, 2016 34,302 - - 207,251 39,052 789 281,394 Amortization (note 25) - - - 24,270 1,179 676 26,125

December 31, 2016 34,302 - - 231,521 40,231 1,465 307,519 Amortization (note 25) - - - 17,688 589 675 18,952

December 31, 2017 34,302 - - 249,209 40,820 2,140 326,471

Net carrying value

December 31, 2016 351,823 24,247 26,000 100,605 178 5,295 508,148

December 31, 2017 351,823 27,997 26,000 84,951 - 4,620 495,391

The carrying amount of goodwill that was allocated to CGUs as at December 31, 2017 is as follows:

TotalCash-generating unit $PMHC 107,253 CUMIS Life 74,488 CUMIS General 5,730 Edge 26,448 Addenda 125,652 CGIC 8,366 Federated Agencies Limited 3,886

351,823

The assumptions used relating to significant CGUs are discussed below. CUMIS Life

The CGU has been defined as CUMIS Life, where goodwill was allocated to CUMIS Life based on an independent third party valuation in connection with the acquisition of CUMIS on December 31, 2009. The recoverable amount of the CGU is determined based on a fair value less costs to sell calculation (2016 - fair value less costs to sell). The fair value less costs to sell calculation was derived using a combination of a comparable trading multiples approach and a precedent transactions approach. The fair value less costs to sell calculation is classified as level 3 in the fair value hierarchy. The comparable trading approach is determined based on the selection of trading multiples of various life insurance companies. The Company selected these companies' enterprise value divided by book value (BV) multiples to develop a relevant range. The comparable trading valuation was determined using a range of BV of 1.4 to 1.8 times (2016 - 1.0 to 1.2). The precedent transactions approach is determined based on a review of recent public transactions of life insurance companies. Included in the recoverable amount calculation were those precedent transactions that were determined to be relevant to the Company. The precedent transaction approach was determined using a multiple range of 1.4 to 1.8 times BV (2016 - 1.1 to 1.3).


The combination of these approaches represents the recoverable amount of the CGU. The Company believes that any reasonably possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGUs. Addenda

The CGU has been defined as Addenda, where goodwill has been fully allocated. The recoverable amount of the CGU is determined based on a fair value less costs to sell calculation (2016 - fair value less costs to sell calculation). The fair value less costs to sell is an average of a discounted cash flow approach, a comparable trading multiples approach and a precedent transactions approach. The fair value less costs to sell calculation is classified as level 3 in the fair value hierarchy. The discounted cash flow approach is determined using cash flow projections covering a ten-year period (2016 - ten-year period) based on financial budgets approved by management and an after tax discount rate of 9.1% (2016 - 8.5%). A ten-year period was used to capture the cash flows from the Company’s committed long-term initiatives. The cash flows beyond the projected period have been extrapolated using a steady 3.0% per annum growth rate (2016 - 3.0%). When compared to the carrying amount of the CGU, the recoverable amount exceeded the carrying amount by $35,566 (2016 - $46,546). A 1.25% increase in the discount rate would cause the recoverable amount to exceed the carrying amount by $25,910. PMHC

The goodwill acquired as part of the April 1, 2015, Premier acquisition has been allocated to the Premier CGU. For the purpose of measuring recoverable amounts, the Premier CGU and the Sovereign CGU, which includes the related underwriting of Premier, have been grouped. As of December 31, 2017, the recoverable amount of the CGU, based on a value in use valuation, exceeded the CGU’s carrying value. This is classified as a level 3 valuation in the fair value hierarchy. Management makes key assumptions and estimates in determining the recoverable amount, including discounted future cash flows based on financial budgets approved by the directors covering a five-year period and an after-tax discount rate of 11.4% (2016 - 16.3%). The cash flows beyond that five-year period have been extrapolated using a steady 3.0% per annum growth rate (2016 - 3.0%). The Company believes that any reasonably possible change in the key assumptions would not have a significant impact on the conclusion of no impairment in the current year. 14. Other assets


$ $Due from related parties 5,413 11,892 Loans to related parties 9,800 9,500 Reinsurance assumed receivables 3,126 2,540 Property and equipment 48,535 49,713 Due from risk sharing pools 1,143 5,275 Investments in associates and joint ventures 45,209 55,701 Prepaid expenses 9,954 7,737 Retirement benefit obligation asset (note 17) 80 346 Other 30,202 28,195

153,462 170,899


Details of property and equipment are noted below.

Furniture LeaseholdComputer and Art Leasehold projects in

Land equipment equipment Buildings collections improvements progress Total$ $ $ $ $ $ $ $

CostJanuary 1, 2016 3,827 47,098 47,781 12,616 348 62,428 2,175 176,273 Additions - 5,466 2,170 166 - 2,558 3,975 14,335 Transfers - - - - - 3,327 (3,327) -

December 31, 2016 3,827 52,564 49,951 12,782 348 68,313 2,823 190,608 Additions - 5,377 2,097 117 - 3,003 1,596 12,190 Disposals - (1,172) (643) - - (58) - (1,873) Transfers - - - - - 2,423 (2,423) -

December 31, 2017 3,827 56,769 51,405 12,899 348 73,681 1,996 200,925

Accumulated amortizationJanuary 1, 2016 33 38,669 36,360 3,398 - 49,146 - 127,606 Amortization (note 25) - 4,975 2,478 661 - 5,175 - 13,289

December 31, 2016 33 43,644 38,838 4,059 - 54,321 - 140,895

Amortization (note 25) - 4,543 2,551 674 - 5,472 - 13,240

Disposals - (1,172) (515) - - (58) - (1,745)

December 31, 2017 33 47,015 40,874 4,733 - 59,735 - 152,390

Net carrying value

December 31, 2016 3,794 8,920 11,113 8,723 348 13,992 2,823 49,713

December 31, 2017 3,794 9,754 10,531 8,166 348 13,946 1,996 48,535

15. Provisions and other liabilities


2017 2016

$ $Provision for advisor transition commissions 109,610 101,271 Net asset attributable to third parties (note 5) 29,186 36,836 Advisor transition commission payable 15,369 11,753 Deferred consideration 6,372 12,485 Other provisions 5,644 4,510 Finance lease obligations 1,037 - Derivative liabilities (note 5) 3,983 7,246 Other liabilities 3,390 6,087

174,591 180,188


Provision for advisor transition commissions The provision for advisor transition commissions is an obligation to active advisors determined by accruing for the benefits earned to date on a present value basis assuming the cash flows associated with the earned benefits are paid out at the expected termination date. The provision is discounted at a rate of 3.22% (2016 - 3.47%), and assumes an average termination age of 57 (2016 - 58). A reconciliation of the provision for advisor transition commissions is provided below.

2017 2016

$ $Balance, beginning of year 101,271 91,883 Additional provision charged to income

Earning of advisor benefits 11,352 14,726 Interest expense 3,658 2,849

Settlements for advisor terminations (11,018) (8,465) Change in assumptions 4,347 278


A 1% decrease in the discount rate would increase the provision for advisor transition commissions $8,119 (2016 - $8,228) and decrease net income by $6,585 (2016 - $6,558). A 2 year decrease in the average termination age would increase the provision for advisor transition commissions $4,597 (2016 - $4,671) and decrease net income by $3,728 (2016 - $3,723). Larger rate and age changes would have a corresponding impact to net income. Deferred consideration

On April 1, 2015, the Company acquired, via PMHC, 100% of the issued and outstanding shares of Premier Marine, Premier Canada and Westco (collectively the "Premier Group of Companies"), a group of Managing Underwriting Agency companies operating across Canada and the Western United States. The consideration transferred for the acquisition included a deferred consideration arrangement that requires the Company to pay the vendors $15,000 in three annual installments of $5,000, each made on April 1st over the three years after the acquisition date. The fair value of the deferred consideration arrangement was estimated by applying the income approach with a discount rate of 2.8%. Deferred consideration is classified in the fair value hierarchy as Level 3. The fair value of the deferred consideration recognized upon acquisition of the Premier Group of Companies was $14,184. During 2017, the Company recognized a related accretion expense of $173 (2016 - $306). At December 31, 2017, the Company recorded $4,965 (2016 - $9,792) in deferred consideration related to the Premier Group of Companies. 16. Borrowings


2017 2016

$ $

Term certif icates w ith interest paid semi-annually, bearing interest set annually based upon the government one year treasury bill rate plus 1.1%, having maturities ranging from 2018 to 2024. 5,050 5,050

Class D preference shares, automatically redeemable in 5 years from the issue date for par ($100) or equivalent value of a new series of Class D shares (note 18). During 2017, 5% dividends w ere declared and paid, rate set annually (2016 - 5%).

16,596 12,445

Senior unsecured debentures bearing interest at 5.78% w ith maturity date of March 10, 2020. Interest payable semi-annually in arrears on the 20th of September and March. The debentures rank equally w ith all of the Company's other senior unsecured obligations

149,731 149,619

171,377 167,114

The fair value of the senior unsecured debentures maturing in 2020 is $158,700 (2016 - $161,535). For the remainder of the borrowings, the carrying amount is considered to be a reasonable approximation of fair value.


Principal repayments of loans payable above, excluding short-term indebtedness, due in the next five years and thereafter are as follows:

$

2018 1,904

2019 3,844

2020 152,613

2121 4,929

2022 5,037

Thereafter 3,050

17. Retirement benefit obligations The Company offers various post-employment benefits, including defined benefit, defined contributions and supplemental executive retirement pension plans and medical and dental plans (other benefit plans) for qualifying retirees and certain other individuals. The accrued benefit obligation has been determined as at December 31, 2017. Employees are not required to contribute to the pension plans or other benefit plans. Responsibility for the governance of the registered plans lies with the applicable Boards. Pension committees have been set up to assist in the management of the plans. Pension plans CGL and CUMIS include a supplemental executive retirement plan, which is a contribution based plan with a supplemental guarantee for certain employees. The guarantee is contingent on the member’s length of service and salary in the final years leading up to retirement. The plans are partially funded. The triennial valuation was completed as at January 1, 2016 for CGL and as at January 1, 2017 for CUMIS. The next triennial valuation is due to be completed as at January 1, 2019 for CGL and January 1, 2020 for CUMIS. The CUMIS pension plan contains a final salary defined benefit plan, which provides benefits to members in the form of a guaranteed level of pension payable for life. The CUMIS pension includes a pension plan which is registered in the province of Ontario and regulated by the Financial Services Commission of Ontario. CUMIS is responsible for ensuring that the plan is properly funded. The triennial valuation was completed as at January 1, 2017. The next triennial valuation is due to be completed as at January 1, 2020. Other benefit plans

The other benefit plans relate to medical, dental and life insurance benefits for qualifying retirees. The plan is unfunded and the Company meets its obligations as they fall due. The triennial valuation was completed as at January 1, 2016 for the Company, with the exception of CUMIS which was completed as at December 31, 2017. The next triennial valuation is due to be completed as at January 1, 2019 for the Company and as at December 31, 2020 for CUMIS.

Information regarding the plans’ costs, liabilities and actuarial assumptions are as follows:


2017 2016

$ $Pension plan benefits - CGL 58,652 52,634 Pension plan benefits - CUMIS 8,868 6,283 Other benefit plans - CGL 183,197 157,455 Other benefit plans - CUMIS 32,928 25,325


Retirement benefit obligations 283,725 242,043

Accrued benefit asset (note 14) (80) (346)

283,645 241,697


2017 2016 2017 2016

$ $ $ $Change in fair value of plan assets

Fair value of plan assets, beginning of year 116,280 113,852 - - Company contributions 4,123 2,309 - - Contributions from plan participants - 418 - - Benefits paid (6,194) (4,697) - - Administration costs (88) (130) - - Interest income 4,607 4,514 - - Remeasurement gain

Return on plan assets 7,631 14 - - Fair value of plan assets, end of year 126,359 116,280 - -

Accrued benefit obligationBalance, beginning of year 175,197 159,870 182,780 166,829 Current service cost 4,637 5,345 7,651 7,331 Interest on accrued benefits 6,808 6,631 7,210 6,579 Benefits paid (7,230) (5,488) (5,209) (4,795) Transfer - 418 - - Remeasurement (gain) loss

Actuarial gains and losses arising from changes in f inancial assumptions

14,677 2,448 22,736 3,972

Actuarial gains and losses arising from changes in demographic assumptions (210) 5,973 957 2,864

Balance, end of year 193,879 175,197 216,125 182,780 Accrued benefit liability (67,520) (58,917) (216,125) (182,780)

Elements of defined benefit cost recognized in the yearCurrent service cost 4,725 5,475 7,651 7,331 Interest on accrued benefits 2,201 2,117 7,210 6,579 Components of defined benefit costs recorded in the consolidated statement of income (note 23) 6,926 7,592 14,861 13,910

Remeasurements on the net defined benefit liability:Return on plan assets (7,631) (14) - - Actuarial gains and losses arising from changes in f inancial assumptions 14,677 2,448 22,736 3,972 Actuarial gains and losses arising from changes in demographic assumptions (210) 5,973 957 2,864

Components of defined benefit costs recorded in OCI 6,836 8,407 23,693 6,836 Total components of defined benefit costs 13,762 15,999 38,554 20,746

Pension plans Other benefit plans


a) Pension Plans

No plan assets are directly invested in the Company or any of its affiliates. Certain plan assets are invested in segregated funds managed by a subsidiary of the Company. Plan assets do not include any property owned or occupied or other assets used by the Company. The funds are not quoted in an active market.


2017 2016

$ $

Balanced funds 114,573 104,655

Canadian equity funds 1,236 2,479

U.S. equity funds 2,445 1,669

Global funds 2,482 1,621

Refundable tax account 5,623 5,856

Total 126,359 116,280

Measurement uncertainty exists in valuing the components of retirement benefit obligations. Each assumption is determined by management based on current market conditions and experiential information available at the time; however, the long-term nature of the exposure and future fluctuations in the actual results makes the valuation uncertain. The significant actuarial assumptions were as follows:

Significant assumptions 2017 2016

Discount rate 3.50% 4.00%

Assumed rate of salary escalation 3.50% 3.50%

Mortality

Retiring at the end of the reporting period:

- Average life expectancy for male retiring at age 65 23.3 - 21.6 23.0 - 21.5

- Average life expectancy for female retiring at age 65 25.9 - 24.4 25.0 - 23.9

Retiring 20 years after the end of the reporting period:

- Average life expectancy for male retiring at age 65 24.8 - 23.2 24.1 - 22.6

- Average life expectancy for female retiring at age 65 27.3 - 25.7 25.9 - 24.9

Pension plans

Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics. The sensitivity of the pension plans obligation to changes in the assumption is:

Change in Increase in Decrease in

Significant assumptions assumption assumption assumption

Discount rate 1.00% Decrease by $27,895 Increase by $34,604

Assumed rate of salary escalation 1.00% Increase by $9,314 Decrease by $8,216

Life expectancy 1 year Increase by $2,577 Decrease by $2,793

Impact on defined benefit obligation

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions, the same projected unit credit method has been applied as when calculating the retirement benefit obligation recognized within the consolidated balance sheet. The expected contributions to the defined benefit pension plans for the next annual reporting period are $9,272. The weighted average duration of the pension plans’ obligation is 17.9.


Through its pension plans and other benefit plans, the Company is exposed to standard industry risks including changes in bond yields, asset volatility and life expectancy. The discount rate is derived from corporate bond yields and a decrease in the bond yields will increase the accrued benefit obligation. Asset volatility is a risk as the pension plan deficit is affected by the performance of the assets. To mitigate asset volatility risk, the plans mainly invest in balanced funds. Certain benefits are provided for the life of the member, so increases in life expectancy will increase the accrued benefit obligation. The ultimate cost of the plans will depend upon actual future events rather than the assumptions made. In general, the risk to the Company is that the assumptions underlying the disclosures, or the calculation of contribut ion requirements are not borne out in practice and the cost to the Company is higher than expected. b) Other benefit plans

The method of accounting and assumptions related to discount rate are similar to those used for the pension plans, with the addit ion of actuarial assumptions relating to assumed medical care trend rates and mortality as shown below:

Significant assumptions 2017 2016

Discount rate 3.50% 4.00%

Assumed medical care cost trend rates as at December 31:

Medical care cost trend rate 5.75% 6.00%

Cost trend rate declines to 4.50% 4.50%

Year that the rate reaches the rate it is assumed to remain at 2022 2022

Mortality

Retiring at the end of the reporting period:

- Average life expectancy for male retiring at age 65 21.8 21.8

- Average life expectancy for female retiring at age 65 24.6 - 24.2 24.2

Retiring 20 years after the end of the reporting period:

- Average life expectancy for male retiring at age 65 23.3 - 22.9 22.9

- Average life expectancy for female retiring at age 65 25.9 - 25.1 25.1

Other benefit plans

The sensitivity of the other benefit plans obligation to changes in the assumption is:

Change in Increase in Decrease in

Significant assumptions assumption assumption assumption

Discount rate 1.00% Decrease by $35,400 Increase by $46,975

Medical and dental cost trend rates 1.00% Increase by $42,327 Decrease by $33,890

Life expectancy 1 year Increase by $1,629 Decrease by $1,788

Impact on defined benefit obligation

The weighted average duration of the other benefit plans’ obligation is 19.7. c) Defined contribution plans

The total cost recognized for the Company’s defined contribution plan is $26,985 (2016 - $25,634), which is recognized in general expenses on the consolidated statement of income.


18. Share Capital The number of shares and par values are not in thousands. Authorized

200,000 Membership shares; non-cumulative; dividends may not be paid as long as there are issued and outstanding investment

shares (including Class A, B, C, or D); annual dividends shall not exceed 10% of the par value; transfer of shares subject to Board of Directors' approval with consideration not to exceed par value ($0.10)

219,800 Class A preference shares; issuable in series 300,000 Class B preference shares; issuable in series 280,000 Class C preference shares; issuable in series Unlimited Class D preference shares; issuable in series; rank junior to Class A, B and C preference shares and equal to the Member

Participation Shares

Class A, B, C and D preference shares, non-cumulative, dividend to be determined by the Board of Directors' redeemable at an amount per share equal to the sum obtained when the amount in the stated capital account for the Preference shares of the particular class or series is divided by the number of issued and outstanding preference shares of the same particular class or series, together with all accrued and unpaid cumulative dividends thereon (which for such purpose shall be calculated as if the dividends on the Preference shares being redeemed were accruing up to the date of redemption) or declared and unpaid non-cumulative dividends thereon (Redemption Amount), as applicable at the discretion of the Board of Directors; the Company may redeem or purchase at any time, at its option, all or part of the shares at the par value.

Class C, Series A non-cumulative preference shares and Class C, Series B non-cumulative preference shares include a base dividend of 6% of the Redemption Amount (not including any declared and unpaid dividends) and a participating dividend up to 5% of the Redemption Amount (not including any declared and unpaid dividends) to be determined annually by the Board of Directors; not redeemable for 10 years; no conversion rights.

Unlimited Member Participation Shares (MPS); non-cumulative; dividend to be determined by the Board of Directors but not to exceed 6% of the amount equal to the sum obtained when the amount in the stated capital account for the MPS is divided by the number of issued and outstanding MPS; rank after all preference shares; non-transferrable except at the discretion of the Board of Directors. Redemption at the amount in the stated capital account for the MPS is divided by the number of issued and outstanding MPS, together with all declared and unpaid dividends thereon, and requires approval of the Board of Directors; remaining shares issued were redeemed in 2011, with shares being redeemable at the Participation Amount for cash or equivalent value in Class D preference shares.


The changes and the number of shares issued and outstanding are as follows:

Number of Amount Number of Amount Number of Amount Number of Amount2017 shares $ shares $ shares $ shares $Membership shares 77,921 8 2 - 802 - 77,121 8 Class B, Series A non-cumulative and redeemable preference shares 56,631 5,663 - - 5,851 585 50,780 5,078 Class B, Series C non-cumulative and redeemable preference shares 20,721 2,072 - - - - 20,721 2,072 Class B, Series D non-cumulative and redeemable preference shares 20,000 2,000 - - - - 20,000 2,000 Class C, Series A non-cumulative preference shares 86,500 8,650 - - 1,500 150 85,000 8,500 Class C, Series B non-cumulative preference shares 84,000 8,400 - - - - 84,000 8,400

26,793 - 735 26,058

Beginning of year Issued during the year year End of year

Redeemed during the

Number of Amount Number of Amount Number of Amount Number of Amount

2016 shares $ shares $ shares $ shares $Membership shares 77,921 8 - - - - 77,921 8 Class B, Series A non-cumulative and redeemable preference shares 56,631 5,663 - - - - 56,631 5,663 Class B, Series C non-cumulative and redeemable preference shares 20,721 2,072 - - - - 20,721 2,072 Class B, Series D non-cumulative and redeemable preference shares 20,000 2,000 - - - - 20,000 2,000 Class C, Series A non-cumulative preference shares 86,500 8,650 - - - - 86,500 8,650 Class C, Series B non-cumulative preference shares 84,000 8,400 - - - - 84,000 8,400

26,793 - - 26,793

Beginning of year Issued during the year year End of year

Redeemed during the

Dividends are as follows:

Declared per Paid per Declared per Paid per

Declared share Paid share Declared share Paid share

$ $ $ $ $ $ $ $Class B, series A 283 5.00 283 5.00 283 5.00 283 5.00 Class B, series C 264 12.74 264 12.74 106 5.10 106 5.10 Class B, series D 1 0.03 1 0.03 1 0.03 1 0.03 Class C, series A 519 6.00 519 6.00 518 6.00 518 6.00 Class C, series B 504 6.00 504 6.00 504 6.00 504 6.00

1,571 1,571 1,412 1,412

2017 2016

As at December 31, 2017, 165,958 Class D preference shares have been classified as long-term debt (2016 - 124,450) (note 16). During 2017, 50,371 Class D preference shares were issued for cash consideration of $5,037 (2016 - 49,291 shares, $4,929). During 2017, 8,863 Class D preference shares were redeemed for cash consideration of $886 (2016 - 18,650 shares, $1,865). As at December 31, 2017, $16,753 (2016 $18,012) of share capital is held by preference shareholders who are not members. The Company’s subsidiary, CGIC has designated $8,547 (2016 - $8,651) of retained earnings for premium payable on redemption of preference shares.


19. Accumulated other comprehensive income


2017 2016

$ $Unrealized gains on available-for-sale f inancial assets 196,803 191,691 Cumulative remeasurement of the retirement benefit obligations (89,805) (69,331) Share of accumulated other comprehensive income of associates and joint ventures (490) 716

106,508 123,076

20. Participating policyholder account In the life operations, certain policyholders are eligible to participate in the distribution of the surplus by means of annual dividends based on the contribution of the class of policy to the distributable surplus. Equity is maintained between classes of policyholders and generations of policyholders.

2017 2016$ $

Surplus, beginning of year 743,943 678,733

Comprehensive income before the payment of policyholder dividends 66,024 65,110

Policyholder dividends distributed during the year (4,018) (2,391)

Amounts transferred to shareholders under s. 461 of the Act (179) (105)

Other transfers 2,351 2,596 Surplus, end of year 808,121 743,943

Total Assets 2,441,913 2,299,843

The accrual method is used to determine the shareholder portion of participating income. The participating policyholder account at December 31, 2017 includes AOCI of $69,257 (2016 - $60,887). 21. Capital management The Company views capital as a scarce and strategic resource. This resource protects the financial well-being of the organization, and is also critical in enabling the Company to pursue strategic business opportunities. Adequate capital also acts as a safeguard against possible unexpected losses, and as a basis for confidence in the Company by members, shareholders, policyholders, creditors and others. For the purpose of capital management, the Company has defined capital as the participating policyholders’ account and members’ equity including non-controlling interest, excluding AOCI. The Company has a Capital Management Policy that is approved by the Board of Directors. The purpose of this policy is to protect and evaluate the allocation of capital as a scarce and strategic resource, maximise the return on invested capital, and to plan ahead for future capital needs. Capital is monitored by the Management Capital Committee. For the life operations, strategies for the assets backing surplus and retained earnings are managed and monitored by the Investment Management Committee. The property and casualty operations utilize reinsurance to protect the Company’s capital from catastrophic loss arising from perils such as earthquake, tornado, wind, hail, flood or fire. The incidence and severity of catastrophic losses are inherently unpredictable. To limit the Company’s potential impact, it purchases reinsurance which will reimburse the Company for a portion of claims. Details of the Company's reinsurance program are disclosed in note 7(e). The Company’s retention on any single event is $70,000, which represents approximately 2.0% of the Company’s capital. On an annual basis, the appointed actuary prepares the DCAT analysis which projects and analyzes trends of capital adequacy under a variety of plausible adverse scenarios. Also on an annual basis, the Company performs stress testing in accordance with OSFI Guideline E-18. This testing evaluates the potential effects on the Company’s financial condition of a set of specified changes in risk factors, corresponding to exceptional but plausible adverse events. At least annually, the Company performs an Own Risk and Solvency Assessment (ORSA) to determine the minimum amount of capital the Company can hold and still be within its risk appetite (ORSA Capital). The results of this assessment are provided to the Board of Directors.


a) Life operations

Life operations are subject to regulatory capital requirements defined by OSFI and the Insurance Companies Act (Canada). OSFI measures the financial strength of life insurance companies using the MCCSR. The MCCSR guideline describes the capital required, using a r isk-based formula, and defines the capital that is available to meet the minimum standard. The MCCSR guideline will be replaced by the Life Insurance Capital Adequacy Test (LICAT) guideline effective January 1, 2018. OSFI requires companies to perform test runs as well as sensitivity analysis prior to implementation. The LICAT guideline is not expected to change the amount of capital in the industry compared to the current MCCSR. A life insurer’s minimum MCCSR requirement is determined as the sum of the capital requirements of the following five risk components: asset default; market risk; mortality/morbidity/lapse; changes in interest rate environment; and foreign exchange. Capital available is comprised of two tiers, tier 1 (core capital) and tier 2 (supplementary capital), consisting mainly of statement capital, including AOCI and qualifying non-controlling interests in subsidiaries. Capital available involves certain deductions including goodwill, intangible assets, negative reserves and investments in non-life financial corporations, and is subject to limits and restrictions. The ORSA guideline requires insurers to assess their own risks, and determine an amount of capital that is consistent with their risk appetite. ORSA Capital uses market-consistent values of assets and liabilities, considers the Company’s own mix of business and risks, including operational risks, and quantifies diversification benefits across risks, product lines, companies and industries. The Minimum Internal MCCSR is determined through the ORSA by comparing ORSA Capital and required MCCSR while giving consideration to DCAT and E-18 results. OSFI’s target MCCSR ratio is 150% and target tier 1 ratio is 105%. The Company’s Minimum Internal MCCSR, established by the Board of Directors, is 180% with a tier 1 Minimum Internal MCCSR of 125%. As at December 31, 2017, the Company and its Life subsidiary held capital in excess of both OSFI target ratios and internal minimums.

b) Property and casualty operations

Property and casualty operations are subject to regulatory capital requirements defined by OSFI and the Insurance Companies Act (Canada). OSFI measures the financial strength of property and casualty insurers using the Minimum Capital Test (MCT). The MCT compares a company’s capital, including AOCI, against the risk profile of the organization. The risk-based capital adequacy framework assesses the risk of assets, policy liabilities, structured settlements, letters of credit, derivatives, unlicensed reinsurance and other exposures, by applying varying factors. The Company’s internal target or Minimum Internal MCT is determined through the ORSA Capital, while giving consideration to DCAT, internal stress testing results and OSFI’s supervisory target MCT. OSFI’s supervisory target is 150%. The Company’s Minimum Internal MCT,

established by the Board of Directors, is 180%. As at December 31, 2017, the Company held capital in excess of both OSFI’s target ratio and

internal minimums.

c) Other operations

The other operations’ Capital Management Policies are also administered by the Management Capital Committee. CFSL is a holding company with minimal capital requirements. The capital of the Company is mainly attributable to each of its operating companies and it is managed at that level. Addenda is an investment company which manages its capital to provide shareholder value while meeting its financial obligations and internal targets. For purposes of capital management, Addenda defines capital as shareholders’ equity, excluding AOCI. The other operations are not exposed to any external capital requirements imposed on them by a regulatory body.


22. Net earned premium

2017 2016$ $

Direct w ritten premium 3,897,321 3,682,611

Assumed w ritten premium 30,208 29,997

Gross w ritten premium 3,927,529 3,712,608 Ceded w ritten premium (327,696) (316,032)

Net w ritten premium 3,599,833 3,396,576 Change in gross unearned premium (118,796) (90,751)

Change in ceded unearned premium 3,129 2,319


23. Supplemental expense information

2017 2016$ $

Compensation costs 531,695 516,657 Retirement benefit obligations (note 17) 21,787 21,502 Amortization expense 30,418 36,074 Interest expense 9,600 9,293

24. Segregated fund assets CLIC and CUMIS Life manage the segregated funds on behalf of policyholders. CLIC policyholders are provided the opportunity to invest in either individual investment or group investment products, and CUMIS Life policyholders are provided the opportunity to invest in group investment products.

The individual investment products contain guarantees. As a result of these guarantees, the Company is exposed to equity risk. Further details on the Company’s risk management activities related to these guarantees are included in note 6. The liabilities related to the guarantees associated with these products are recorded as actuarial liabilities, which are within the Company’s

insurance contract liabilities on the consolidated balance sheet. As at December 31, 2017 liabilities related to the guarantees are $2,208 (2016 - $1,790). The carrying value of the segregated fund assets are as follows:


$ $AssetsCash 379 2,365 Short term notes 38,495 43,329 Receivable from investments sold 1,992 1,251 Bonds 547,415 660,352 Stocks 919,489 1,088,967 Investment income due and accrued 5,667 6,498 Investment fund units 1,143,138 955,686

2,656,575 2,758,448

Less: other liabilities 3,458 3,670 Less: general fund investments 3,265 2,976

Total segregated fund assets 2,649,852 2,751,802

General fund investments represent seed money the Company has invested to establish certain segregated funds; therefore, it is deducted from the segregated fund assets on consolidation. Changes in segregated fund assets are as follows:


2017 2016

$ $Additions to segregated fundsAmounts received from unitholders 407,085 364,085 Interest 20,121 19,465 Dividends 79,889 82,634 Other investment income 27 72 Net realized gains 22,924 39,310 Market value appreciation (depreciation) 51,432 76,136

581,478 581,702 Deductions from segregated fundsAmounts w ithdraw n by unitholders 643,094 228,672 Operating expenses 40,045 35,361

683,139 264,033

Net additions to segregated funds for the year (101,661) 317,669 Net change in general fund investments (289) (153) Segregated funds net assets, beginning of year 2,751,802 2,434,286

Segregated funds net assets, end of year 2,649,852 2,751,802

During 2017, the Company made intra-fund transfers of $10,168 (2016 - $13,179) that are included in amounts received from unitholders and amounts withdrawn by unitholders. The following summarizes how the fair values of segregated fund assets are determined as at:

Level 1 - Level 2 - Level 3 -Significant

Significant other unobservable TotalQuoted prices observable inputs inputs fair value

December 31, 2017 $ $ $ $Cash 379 - - 379 Short-term notes - 38,495 - 38,495 Receivable from investments sold 1,992 - - 1,992 Bonds - 547,415 - 547,415 Stocks 919,489 - - 919,489 Investment income due and accrued 5,667 - - 5,667 Investment fund units - 1,143,138 - 1,143,138 Total 927,527 1,729,048 - 2,656,575

Level 1 - Level 2 - Level 3 -Signif icant

Signif icant other unobservable TotalQuoted prices observable inputs inputs fair value

December 31, 2016 $ $ $ $Cash 2,365 - - 2,365 Short-term notes - 43,329 - 43,329 Receivable from investments sold 1,251 - - 1,251 Bonds - 660,352 - 660,352 Stocks 1,088,967 - - 1,088,967 Investment income due and accrued 6,498 - - 6,498 Investment fund units - 955,686 - 955,686 Total 1,099,081 1,659,367 - 2,758,448

No investments were transferred between levels during the year (2016 - $nil). 25. Consolidated statement of cash flows


a) Other non-cash items

2017 2016

$ $

i) Items not requiring the use of cashInvesting activities gains (130,146) (169,292) Gain on disposal (137) (412) Impairment losses (note 5) 13,339 13,351 Amortization and depreciation of:

Bond premium/discount 4,368 4,245 Borrow ing premium 112 106 Mortgage accretion 3,473 2,044 Intangible assets (note 13) 18,952 26,125 Property and equipment (note 14) 13,240 13,289

Change in fair value of FVTPL invested assets (note 5) (122,627) 23,701 Deferred income taxes (11,419) (8,865) Retirement benefit obligations 11,107 13,651 Stock based compensation 135 130 Income from associates and joint ventures (6,836) (4,785)

(206,439) (86,712)

ii) Changes in non-cash operating componentsRestricted cash (2,612) (8,374)

Insurance contracts 206,501 504,773

Investment contracts (13,125) (50,985)

Reinsurance ceded contracts 132,512 (233,257)

Premiums due (97,205) (74,579)

Deferred acquisition expenses (17,047) (17,003)

Accounts receivable and other assets 5,520 2,790

Accounts payable and accrued charges 14,544 26,086

Income taxes payable/recoverable (18,396) 53,410

Provisions and other liabilities (2,334) 7,069

208,358 209,930

b) Supplemental information

2017 2016

$ $Interest and dividends received 279,585 309,323 Interest paid 12,662 12,749 Income taxes paid (net of recoveries) 83,227 21,337


26. Related party transactions Key management personnel of the Company includes all directors and executive and senior management. The summary of compensation of key management personnel for the year is as follows:

2017 2016

$ $

Salaries and other short-term benefits 29,705 32,392

Post-employment benefits 2,867 2,993

Other long-term benefits 4,522 4,008

Total compensation of key management personnel 37,094 39,393

27. Consolidated investments Investments in consolidated entities

Addenda acts as investment manager to a series of Pooled Funds which are invested in by third parties as well as various subsidiaries of the Company. As at December 31, 2017, the Company has determined that it has control over Addenda Infrastructure Bond Pooled Fund, Addenda Balanced Pooled Fund, Addenda CorePlus Fixed Income Pooled Fund and the Addenda Global Credit Bond Pooled Fund (“the

Funds”), by virtue of Addenda’s management of these Pooled Funds and the Company’s exposure to their investment performance resulting

from combined ownership interest of the subsidiaries. The Company accounts for other parties’ interests in the Pooled Funds as liabilities because IAS 32 requires that units or shares of an entity which include a contractual obligation for the issuer to repurchase or redeem them for cash or another financial asset be classified as financial liability. The Pooled Fund units do not meet the criteria in IAS 32 for classification as equity. The consolidation of the Pooled Funds into the Company’s general fund as at December 31, 2017 resulted in an increase in invested assets of $29,186 (2016 - $36,836), with a corresponding increase in liabilities of $29,186 (2016 - $36,836). This liability, representing net assets attributable to third parties, is recognized within provisions and other liabilities on the consolidated balance sheet (note 15). Liabilities to third party unit holders recognized as a result of consolidating the Funds do not represent additional claims on the general assets of the Company; rather, they represent claims against the assets recognized as a result of consolidating these entities. Conversely, the assets recognized as a result of consolidating these entities do not represent additional assets which the Company can use to satisfy claims against its general assets; rather, they can only be used to settle the liabilities recognized as a result of consolidating these entities. Investments in subsidiaries

a) Information about subsidiaries

Ownership interest and Ownership interest and

Place of voting rights held by the voting rights held by non- Principal

business Company controlling interests activitiesCFSL Canada 100% - Financial ServicesCGIC Canada 100% - InsuranceCLIC Canada 100% - InsuranceCUMIS Canada 73% 27% InsuranceFederated Agencies Limited Canada 100% - Insurance brokerAddenda Canada 72% 28% Investment managementPMHC Canada 100% - Insurance brokerEdge Canada 81% 19% Insurance broker


b) Summarized financial information of subsidiaries with material non-controlling interests

The non-controlling interests of Edge are not material and have not been included in the summarized financial information below. The summarized balance sheet of Addenda and CUMIS are as follows:

December 31, December 31, December 31, December 31,2017 2016 2017 2016

$ $ $ $Assets 183,729 182,794 1,819,057 1,736,068 Liabilities 18,242 15,797 1,405,406 1,355,391 Net assets 165,487 166,997 413,651 380,677

Net assets attributable to non-controlling interests 46,643 46,668 111,727 102,821

Addenda CUMIS

The summarized income and comprehensive income information of Addenda and CUMIS are as follows:

2017 2016 2017 2016$ $ $ $

Income 40,486 36,248 461,370 443,163 Expenses 40,874 46,391 404,048 408,842 Income (loss) before income taxes (388) (10,143) 57,322 34,321 Income tax expense (recovery) (92) (2,714) 13,336 8,269 Net income (loss) (296) (7,429) 43,986 26,052 Other comprehensive income (loss) (407) (224) (3,512) 1,956 Total comprehensive income (loss) (703) (7,653) 40,474 28,008

Net income (loss) allocated to non-controlling interests (83) (2,076) 11,881 7,037 Dividends paid to non-controlling interests 76 76 2,026 3,727

Addenda CUMIS

The summarized statement of cash flows of Addenda and CUMIS are as follows:

2017 2016 2017 2016$ $ $ $

Net cash provided by (used in) operating activities 4,587 (632) 27,528 36,662 Net cash provided by (used in) investing activities (4,094) (5,106) (18,492) (23,822) Net cash provided by (used in) f inancing activities (530) (150) (7,500) (13,800) Net decrease in cash and cash equivalents (37) (5,888) 1,536 (960) Cash and cash equivalents, beginning of year 15,727 21,615 10,447 11,407 Cash and cash equivalents, end of year 15,690 15,727 11,983 10,447

Addenda CUMIS

The information above is the amount before intercompany eliminations. Included in non-controlling interests is $157,222 (2016 - $152,101) in respect of preference shares of CGIC held by third parties. 28. Contingencies, commitments and guarantees The Company is subject to litigation arising in the normal course of conducting its insurance business. The Company is of the opinion that this litigation will not have a significant effect on the financial positions, results of operations or cash flows of the Company. In addition, the Company is from time to time subject to litigation other than the litigation relating to claims under its policies. Legal proceedings are often subject to numerous uncertainties and it is not possible to predict the outcome of individual cases. In management’s opinion, the Company has

made adequate provision for, or has adequate insurance to cover all claims and legal proceedings. Consequently, any settlements reached should not have a material adverse effect on the consolidated financial position of the Company.


The Company provides indemnification agreements for directors and certain officers acting as directors on behalf of the Company, to the extent permitted by law, against certain claims made against them as a result of their services to the Company. The Company purchases directors and officers insurance to mitigate the potential financial impact associated with these commitments. The limits of insurance purchased are compared to Canadian benchmarks obtained from the Financial Institution practice of the Company’s broker and other industry sources. They

are consistent with limits purchased by organizations of similar size and are in amounts management feels to be adequate and reasonable. The Company leases the majority of its office space and certain equipment used in the normal course of business under operating leases. Lease terms are generally 5 years for equipment and 10 to 15 years for office space. The maturities of these commitments are included in note 6. The Company has entered into indemnity agreements which guarantee the payment of all rent and other charges payable by the Company’s

subsidiaries in their respective occupancy leases for a period of 15 years. The maximum potential amount of future payments is unknown; however, the full amount of the rent for the guaranteed period is $41,471 (2016 - $51,428). The Company has a guarantee for the outstanding balances on corporate credit cards in the event of default. To cover the guarantee, the Company has a $7,000 (2016 - $7,000) credit facility available, which is included in the credit facility disclosed in note 6. The Company has entered into commitments with private equity funds to invest $71,676 (2016 - $71,676) as well as US$150,000 (2016 - US$150,000) of capital contributions into limited partnership structures. Capital contributions may be called upon by the General Partner of these funds, in such amounts and at such times as the General Partner deems appropriate. As at December 31, 2017, the Company has provided capital contributions of $153,412 (2016 - $126,870) to finance these limited partnership investments, which are included in note 5. In December 2017, the Company entered into a capital commitment agreement with a limited partnership to contribute $10,000 of capital. The General Partner may call upon this capital contribution in such amounts and at such times as the General Partner deems appropriate. As at December 31, 2017, the Company has provided capital contributions of $500. 29. Assets held for sale In December 2017, CUMIS entered into an agreement with Desjardins Group (Desjardins) and Canada’s five provincial credit union centrals (the Centrals) to merge the businesses of their subsidiaries: Credential Financial Inc. (CFI), Qtrade Canada Inc. and NEI Investments. The new combined entity, Aviso Wealth, will be jointly owned by Desjardins and a limited partnership comprised of the Centrals and CUMIS. CUMIS will exchange its shares of its joint venture interest in CFI for 33% ownership interest of the limited partnership. The limited partnership will be a partnership with the Centrals and will hold a 50% share in Aviso Wealth. CUMIS’ ultimate share of Aviso Wealth is 16.5%. Following receipt of all regulatory approvals, the sale is expected to close in the first quarter of 2018. 30. Rate regulated entities As it relates to the property and casualty operations, Automobile insurance is regulated as to the nature and extent of benefits in all provinces. Additionally, the establishment and management of premium rates and rating and underwriting rules are regulated in the provinces of Alberta, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. The Company’s access to write automobile insurance is limited and regulated in those provinces with publicly-run automobile insurance programs. The Company’s claims costs are influenced by governments to the extent they pass legislation or regulations that change the nature and extent of benefits and other requirements that impact claims costs and the settlement process. Over the past decade, significant legislative changes have been introduced in a number of provinces to address the rising cost of claims, particularly those related to pain and suffering benefits arising from minor injuries. The Company has adjusted premiums to reflect the anticipated and actual savings, which at times are in response to regulatory requirements. The Company is subject to three types of regulatory processes. Depending on the content and/or impact of the filing, one process is prescribed in the regulation as follows: Category DescriptionFile and use Insurers file their rates w ith the regulatory authority and w ait for a certain amount of time before implementing them

File and approve Insurers file their rates w ith the regulatory authority and w ait for approval before implementing themUse and file Insurers file their rates w ith the regulatory authority w ithin a specified period after they are implemented


The following table lists the provincial authorities which regulate automobile insurance rates. For the year ended December 31, 2017, automobile direct written premium in these provinces comprised 33.8% (2016 - 33.8%) of the Company’s total direct written premiums during

the year. Jurisdiction Regulatory authority Regulatory processAlberta Alberta Automobile Insurance Rate Board File and approve

New foundland and Labrador Public Utilities Board File and use or f ile and approve

New Brunsw ick New Brunsw ick Insurance Board File and approve

Nova Scotia Nova Scotia Utility and Review Board File and use or f ile and approve

Ontario Financial Services Commission of Ontario File and approve

Prince Edw ard Island Island Regulatory and Appeals Commission File and useQuebec Authorite des Marches Financiers Use and file

REPORT OF THE RESOLUTIONS COMMITTEE Date: March 15, 2018 To: Delegates, The Co-operators Group Limited From: Jack Wilkinson, Chairperson

Resolutions Committee Background In 1993 the Democratic Structure Review Committee met with delegates, members and staff with a view to improving the democratic structure of The Co-operators. As a result of the review a recommendation was made to the Board by the committee to establish a Resolutions Committee to review proposed changes to The Co-operators board policies and by-laws. Terms of Reference - Schedule A The Terms of Reference of the Resolutions Committee including the Resolution Process are attached as a part of this report. The Resolutions Committee will consider ‘Late Resolutions’ up to a few days prior to the Annual General Meeting as long as there is time to review and discuss them prior to the Annual General Meeting. The committee schedules their last meeting on the day of the Annual General Meeting to deal with any ‘Late Resolutions’. Minutes - Schedule B The Resolutions Committee meets at least once each year by conference call. The minutes of the meeting of March 19, 2018 are attached. Resolutions Committee – Schedule C The Resolutions Committee Members List and their Terms of Office are attached.

Schedule A Resolutions Committee

Terms of Reference Mandate

To review resolutions and Proposals submitted to the committee by any delegate of a member, a Regional Committee, and the Board of Directors, to be presented to the Annual or Special General Meetings of The Co-operators; to ensure that the resolutions and Proposals are in proper form, are in order, comply with the process adopted for resolutions, and are presented to the Annual or Special General Meeting.

To consolidate similar motions; to consult with the sponsor of the motion in so doing.

To instruct the secretary or the associate secretary to distribute copies of proposed resolutions to delegates in accordance with the adopted process for resolutions.

Responsibilities

The committee shall meet as needed to fulfil its responsibilities as identified in the mandate. Meetings will be at the discretion of the chairperson, except for the meeting which shall be held on the day of the Annual Meeting. Following review of resolutions submitted by qualified sponsors for submission to the Annual or Special General Meetings of The Co-operators, the chairperson of the Resolutions Committee shall make a report to the Annual or Special General Meeting which shall include but not necessarily be limited to:

(i) the number of proposed resolutions and Proposals received by the committee;

(ii) the number of resolutions and Proposals received by the committee which are to

be submitted to the meeting; (iii) a copy of all resolutions and Proposals submitted to the committee, which are to

be submitted to the meeting; and

(iv) a summary of the reasons for the rejection of any resolution or Proposal not otherwise withdrawn by the sponsor.

Composition and appointment

The committee shall be comprised of eight (8) members; being one delegate elected from each Regional Committee and one director, to wit the Chairperson of the Member and Co-operative Relations Committee, who shall be the chairperson of the committee.

If there is a vacancy in a delegate position on the committee at any time, this may be filled by an alternate delegate so named from the applicable region or by a new delegate appointed by the region at its next regularly scheduled meeting.

Authority

The committee has the authority to receive, review and to make recommendations for change to resolutions brought before it and to recommend same to the delegates for their consideration. The committee does not have authority to review or to make recommendations to proposals brought forward pursuant to section 58 of the Canada Cooperatives Act, other than as they may be referred to the committee by the Board of Directors or the Member and Co-operative Relations Committee. The Authority to review such proposals and to make recommendations to the Board of Directors resides with the Member and Co-operative Relations Committee of the Board.

Organization and Procedures Chairperson

The Chair of the Member and Co-operative Relations Committee is ex officio the Chair of the Resolutions Committee.

Meetings

The Resolutions Committee shall meet as frequently in each year as is necessary to fulfil its responsibilities. Meetings will normally be by conference call except for the meeting at the Annual General Meeting of Members each year.

Quorum

A minimum of five members, one of whom must be the Chair, must be present, either in person or by means of any other electronic or telegraphic means of communication, to constitute a quorum.

Resources

The Senior VP, General Counsel and Secretary and the Information Retrieval Centre Coordinator receive notice of and attend all meetings of the committee.

The committee may invite, as it sees fit from time to time, other employees of the Company or other persons to attend its meetings and to advise it during its deliberations.

Supporting Materials and Minutes Identify Minute-Taker, timeline and process for pre-meeting material and minutes

The Company’s corporate secretary or that person’s designate serves as secretary to the committee.

The agenda and supporting material for meetings are to be distributed to the committee by e-mail no less than three business days in advance of the meeting.

The secretary records minutes of every meeting, circulating them to the committee members shortly after the meeting takes place. After committee members have had an opportunity to review them and provide any corrections, the minutes are prepared for distribution to the full Board of Directors at the next Board of Directors meeting.

Reporting

The Chairperson of the Resolutions Committee shall make a report to the Annual or Special General Meeting which shall include but not necessarily be limited to:

(i) the number of proposed resolutions and Proposals received by the committee;

(ii) the number of resolutions and Proposals received by the committee which are to

be submitted to the meeting; (iii) a copy of all resolutions and Proposals submitted to the committee, which are to

be submitted to the meeting; and

(iv) a summary of the reasons for the rejection of any resolution or Proposal not otherwise withdrawn by the sponsor.

Annual Work Plan and Schedule

The committee’s work plan each year is determined by whether or not it has received any resolutions. A copy of the terms of reference of the Resolutions Committee and the process to be used to submit resolutions is distributed to members at the same time each year in advance of the Annual General Meeting.

Committee Effectiveness

The committee reviews these terms of reference each year, recommending changes as necessary to the Board of Directors for review and approval.

References

The Canada Cooperatives Act, Canada, as amended The Articles, By-laws and Corporate Governance Policies of The Co-operators Group

Limited. Attachments Summary of Resolutions Committee process.

THE CO-OPERATORS ‘RESOLUTION PROCESS’ 1. WHAT IS A RESOLUTION?

A resolution (or motion) is a "proposition placed before a meeting . . . All motions other than merely formal motions should be put in writing and given to the chairperson. Motions should be clear, definite and affirmative in form, commencing with the word "That". They must be relevant and within the scope of the meeting."

[CCH Corporate Secretary's guide; section 13,100]

2. HOW ARE INDIVIDUAL RESOLUTIONS LIMITED?

"A motion should deal with only one subject and if several propositions are presented in the original motion as alternatives, the chairperson should distinguish them as different propositions and present the questions to the meeting separately." [CCH Corporate Secretary's guide; section 13,100]

3. WHAT ARE THE RULES GOVERNING THE MAKING OF RESOLUTIONS AT THE

CO-OPERATORS?

At The "Co-operators" Annual Meeting, for legal purposes, five different companies are actually holding their annual meetings. These are The Co-operators Group Limited, Co-operators Financial Services Limited, Co-operators General Insurance Company, Co-operators Life Insurance Company and CUMIS Life Insurance Company. "Delegates" to The "Co-operators" are actually delegates to the Annual Meeting of The Co-operators Group Limited. If they hold a participating life insurance policy with Co-operators Life Insurance Company or CUMIS Life Insurance Company, they may also participate in that annual meeting in their capacity as a participating life policyholder.

As a result, the resolution process and the types of resolutions which may be put by delegates are determined by the Articles and By-laws of The Co-operators Group Limited and the provisions of the Canada Cooperatives Act.

4. WHAT TYPES OF RESOLUTIONS MAY BE MADE AT THE ANNUAL MEETING?

There are basically three types of motions which can be made at any meeting:

(i) "original" or "substantive", because they propose the substantial issue for consideration and action;

(ii) "amending", which modify the main proposition; and

(iii) "formal", which affect matters of procedure or form.

[CCH Corporate Secretary's Guide; section 13,105]

5. WHAT TYPES OF RESOLUTIONS DOES THIS POLICY ADDRESS?

This policy addresses "original" or "substantive" motions on particular subjects (which includes "Late" Resolutions). Amending or formal motions are made at the meeting itself and need not be submitted in advance of the meeting.

Some examples of original or substantive resolutions are:

* resolutions to amend, affect or set some policy of The Co-operators

* resolutions to express the support of The Co-operators for some person, entity,

action or program 6. WHAT MUST BE SUBMITTED BY THE SPONSOR TO SUPPORT A RESOLUTION?

(a) a summary, statement or copy of the present situation being addressed by the resolution.

(b) a summary or statement of the objective or the end result desired of the

resolution. 7. WHAT IS THE REVIEW PROCESS FOR RESOLUTIONS PRIOR TO THE ANNUAL

MEETING?

(a) Time permitting, resolutions which are submitted prior to the Annual Meeting will be reviewed at the first instance by the secretary in consultation with the General Counsel of The Co-operators to ensure:

(i) that supporting documentation has been submitted, and if not, that it be

obtained; and

(ii) that the resolution (if passed) would achieve the stated objective, and if not, that appropriate changes are made to the resolution in consultation with the mover of the resolution such that the resolution will achieve the stated objective.

Once reviewed, all resolutions (other than those which are to be considered as Proposals under section 58 of the Canada Cooperatives Act and will be considered by the Member and Co-operative Relations Committee in accordance with the provisions under the Act) received at least ten business (10) days before the Annual Meeting or a Special General Meeting will be reported by the secretary to the Resolutions Committee with his or her report at least five business days (5) prior to the date of the Annual or Special General Meeting.

(b) The Resolutions Committee shall be comprised of Chairperson of the Member

and Co-operative Relations Committee, who will be the chairperson of the committee, and a delegate elected for the purpose from each of the regions of The Co-operators. The Resolutions Committee will meet before the date of the Annual or Special General Meeting of The Co-operators where required and the day before the Annual or Special General Meeting, in person or by any electronic or telegraphic means of communications as determined by the chairperson, such

as to facilitate the participation of all of the members of the committee in the meeting, to review all of the resolutions and Proposals submitted to The Co-operators by that date, and to:

(i) review the supporting documentation submitted with the resolution and

ensure that it meets the stated objective, and to change the resolution if it does not meet the stated objective;

(ii) determine if the resolution is in order (a resolution will be out of order if it

is contrary to law or public policy), and if not, to determine if the stated objective can be achieved by a resolution which is in order, and if so, to draft such a resolution;

(iii) to consolidate similar motions to a composite motion; and,

(iv) in consultation with the secretary, to allocate sufficient time within the

annual or special general meeting process for the motions to be reviewed by regional committees.

(v) in consultation with the secretary, to allocate sufficient time within the

Annual or Special General Meeting process for the motions to be submitted.

(c) All resolutions and Proposals which have been reviewed by the Resolutions Committee pursuant to the above-noted process will be included in the material sent to delegates with their notice of meeting. Resolutions submitted after notices have been sent will be provided in hard copy at the Annual or Special General Meeting as the case may be.

8. WHAT RESOLUTIONS MAY BE SUBMITTED?

All resolutions and Proposals submitted will be reviewed by the Resolutions Committee. All resolutions and Proposals submitted, unless out of order, or withdrawn by the sponsor, will be presented to the Annual or Special General Meeting. The sponsor or mover of any resolution or Proposal, which is ruled out of order and is not withdrawn by the sponsor, will receive written notification from the secretary of the decision of the Resolutions Committee with the reasons for decision. Section 58 Proposals under the Canada Cooperatives Act must be submitted to the Member and Co-operative Relations Committee more than 90 days in advance of the next Annual General Meeting as required by the Act.

9. WHO MAY SUBMIT RESOLUTIONS?

Resolutions may be submitted by any delegate of a member, the Regional Committee and The Co-operators Board of Directors. Proposals under section 58 of the Canada Cooperatives Act may be submitted by members, directors, a shareholder and any person having beneficial ownership of investment shares who demonstrates that beneficial ownership to the satisfaction of the Company in accordance with section 58 (2)(c) of the Act.

10. WHAT IS THE ANNUAL OR SPECIAL GENERAL MEETING PROCESS WITH RESPECT TO RESOLUTIONS?

The sponsor of a resolution or a Proposal presented to the Annual or a Special General Meeting of The Co-operators shall be identified with the Resolution. It shall be the responsibility of the sponsor to:

(a) provide a mover for the resolution; and (b) speak to the resolution after it has been seconded. The mover has the privilege of closing debate on the resolution.

11. WHAT IS A LATE RESOLUTION?

A late resolution is a resolution which a delegate of a member, the Regional Committee or the Board of Directors wishes to sponsor at the Annual Meeting or a Special General Meeting of The Co-operators which is of an urgent nature, needs immediate attention, and for one reason or another was not sent to the secretary at least ten (10) days prior to the date of the Annual Meeting and as a result was not dealt with in the ordinary course pursuant to this policy and process. A binding proposal which should have been presented using the section 58 procedure under the Act (e.g. an Article or By-law change) will not be allowed as a Late Resolution.

12. HOW ARE LATE RESOLUTIONS SUBMITTED?

A late resolution, so long as it is not illegal, contrary to public policy, or not within the purview of the delegates to a meeting of The Co-operators, may be moved and seconded at any meeting of delegates representing members of The Co-operators, so long as the meeting, by a two-thirds majority of the delegates casting votes at such meeting, after being so moved and seconded, first agrees to allow the resolution to be put. Such a resolution will only be a “sense of the meeting” resolution and is not binding on the Board of Directors or The Co-operators.

THE CO-OPERATORS GROUP LIMITED ANNUAL GENERAL MEETING

RESOLUTION OR PROPOSAL FORM

SPONSOR: _______________________________________________

[Name of Member, Delegate, Shareholders, Investment Shareholder or Regional Committee (in the case of a Resolution) ]

CONTACT:* _______________________________________________

[(a) telephone; (b) facsimile number; (c) Internet address] * [Person who can provide more information if required and who can consent to revisions

to the motion if necessary] ____________________________________________________________________________ PROPOSED RESOLUTION WHEREAS: THEREFORE BE IT RESOLVED THAT THE CO-OPERATORS GROUP LIMITED: ATTACHMENTS: (1) SUMMARY OF CURRENT SITUATION OR COPY OF CURRENT

POLICY (2) STATED OBJECTIVE OF RESOLUTION

NOTE: All resolutions submitted to the secretary at least ten days prior to the date of the

Annual Meeting will be reviewed by the Resolutions Committee prior to the Annual Meeting in accordance with the policy in that regard which has been circulated to members and delegates. It is understood and agreed that as part of that process, the Resolutions Committee may review all resolutions and consolidate such resolutions with other similar resolutions as they deem reasonable and necessary. Any Proposals submitted pursuant to section 58 of the Canada Cooperatives Act in accordance with the terms of that section will be dealt with by the Member and Co-operative Relations Committee and the Board of Directors in accordance with the Act.

SUMMARY OF THE RESOLUTION PROCESS AT THE CO-OPERATORS

10 DAYS PRIOR TO THE DATE OF THE ANNUAL MEETING Resolutions (other than section 58 Proposals under the Canada Cooperatives Act1) must be filed with supporting documentation with the Secretary of The Co-operators Group Limited; Priory Square, Guelph, Ontario; N1H 6P8; Telephone: 519-767-3909 X302560; Facsimile: 519-824-0599;email: carmel_bellamy@cooperators. SUPPORTING DOCUMENTATION INCLUDES: (A) summary of problem being addressed; (B) summary of objective of resolution; 10 - 5 DAYS PRIOR TO THE DATE OF THE ANNUAL MEETING Resolutions reviewed by secretary; who may contact sponsor. 5 DAYS PRIOR TO THE DATE OF THE ANNUAL MEETING Secretary reports Resolutions he/she has received to the Chairperson of the Resolutions Committee. 1 DAY PRIOR TO THE DATE OF THE ANNUAL MEETING Resolutions Committee meets to review, organize, and consolidate Resolutions and may contact the sponsor. PRIOR TO THE DATE OF THE ANNUAL MEETING Resolutions and Proposals are issued to the delegates with their notice of meeting (if possible).

1 Any Proposal pursuant to section 58 of the Canada Cooperatives Act must be submitted to the secretary who will refer it to the Member and Co-operative Relations Committee for consideration and action.

1 DAY PRIOR TO THE DATE OF THE ANNUAL MEETING Resolutions Committee meets to finalize Report of the Resolutions Committee at the Annual Meeting. 1st DAY OF THE ANNUAL MEETING Regional Committee may review Resolutions. 2ND DAY OF THE ANNUAL MEETING (if there are two days, 1st otherwise) Chairperson of the Resolutions Committee Reports to the Annual Meeting [Late Resolutions may also be considered; but require 2/3rd majority of delegates casting votes to allow on the floor]. 2ND DAY OF THE ANNUAL MEETING (if there are two days, 1st otherwise) Resolutions and Proposals voted on.

PROPOSALS

Proposals 58. (1) A member may

(a) submit to the cooperative notice of any matter that the member proposes to raise at an annual meeting; and

(b) discuss at the meeting any matter in respect of which the member would have been entitled to submit a proposal.

Proposals by members or Directors to amend articles

(2) Any member or Director may, in accordance with section 290, make a proposal to amend the articles.

Proposals by other persons to amend articles

(2.1) Any other person may, in accordance with section 290, make a proposal to amend the articles if the person

(a) has been, for at least the prescribed period, the registered holder or the beneficial owner of at least the prescribed number of outstanding investment shares of the cooperative; or

(b) has the support of persons who, in the aggregate, and including or not including the person that submits the proposal, have been, for at least the prescribed period, the registered holders, or the beneficial owners of, at least the prescribed number of outstanding investment shares of the cooperative.

Information to be provided

(2.2) A proposal submitted by a person described in paragraph (2.1)(a) must be accompanied by the following information:

(a) the name and address of the person and of the person’s supporters, if applicable; and

(b) the number of investment shares held or owned by the person and by the person’s supporters, if applicable, and the date the investment shares were acquired.

Information not part of proposal

(2.3) The information provided under subsection (2.2) does not form part of the proposal or of the supporting statement referred to in subsection (3) and is not included for the purposes of the prescribed maximum word limit set out in subsection (3).

Proof may be required

(2.4) If requested by the cooperative within the prescribed period, a person who submits a proposal must provide proof, within the prescribed period, that the person meets the requirements of subsection (2.1).

Proposal and statement to accompany notice of meeting

(3) A proposal submitted for consideration at a meeting must be attached to the notice of the meeting, together with, if requested by the person making the proposal, a statement in support of the proposal and the name and address of person making the proposal. The statement and the proposal must together not exceed the prescribed maximum number of words.

Exceptions Cooperative may refuse to include proposal

(4) A cooperative need not comply with subsection (3) if

(a) the proposal is not submitted to the cooperative at least the prescribed number of days before the anniversary date of the notice of meeting that was sent to members and shareholders in connection with the previous annual meeting;

(b) it clearly appears that the primary purpose of the proposal is to enforce a personal claim or redress a personal grievance against the cooperative or its directors, officers, members or security holders;

(c) not more than the prescribed period before the receipt of a proposal, a person failed to present, at a meeting, a proposal that, at the person’s request, had been attached by the cooperative to the notice of the meeting;

(d) substantially the same proposal was attached to a notice of meeting relating to a meeting of the cooperative held not more than the prescribed period before the receipt of the proposal and the proposal did not receive the prescribed minimum amount of support at the meeting; or

(e) the rights conferred by subsections (1) and (2) are being abused to secure publicity.

(4.1) If

(a) a person described in subsection (2.1) makes a proposal and fails to continue to hold or own the number of investment shares referred to in that subsection up to and including the day of the meeting, or

(b) a member makes a proposal and, prior to the meeting, withdraws from membership in accordance with section 39,

The cooperative is not required to include in the notice of a meeting, or attach to it, any proposal submitted by that person for any meeting held within the prescribed period following the date of the meeting. 1998, c. 1, s. 58, 2001 c 14, s. 153

Schedule B Minutes of a meeting of the Resolutions Committee of The Co-operators Group Limited held via conference call on March 19, 2018. Jack Wilkinson - Chairperson Joel DeYoung – BC Joël Rondeau – Manitoba Michael Barrett – Ontario Dusty MacDonald – Saskatchewan

MEMBERS IN ATTENDANCE

Gail Pike – Atlantic Lynn Jacobson – Alberta Alain Roy – Quebec

MEMBERS NOT IN ATTENDANCE

Carmel Bellamy Craig Marshall Sandra Kelly – Minutes

OTHERS IN ATTENDANCE

The Chairperson Jack Wilkinson called the meeting to order at 12:05 p.m.

CALL TO ORDER

The chairperson conducted a roll call.

ROLL CALL

The chairperson asked if there have been any resolutions received at this time. Carmel Bellamy, corporate secretary advised there are no resolutions to come before this committee.

RESOLUTIONS RECEIVED

In response to a question, the corporate secretary advised that in the past the situation has arose whereby a late resolution has been received and in the event this were to happen the committee will consider any late resolutions received. The next meeting of the Resolutions Committee has been scheduled for April 4 at 7:30 a.m. in Moncton in the event there is a need for discussion prior to the commencement of the Annual Meeting.

NEXT MEETING

The chairperson asked if there was any further business to come before the committee.

FURTHER BUSINESS

WILKINSON-MACDONALD That the meeting be terminated at 12:14 p.m. CARRIED

MOTION TO TERMINATE

Schedule C

The Co-operators Resolutions Committee 2018 – 2019

Chairperson (also chairperson of the Member and Co-operative Relations Committee)

Jack Wilkinson Next Election April 2018

Region Member Next Election Term Alternate Term

Alberta

Lynn Jacobson Fall 2018 2 years Iris Evans 1 year

Atlantic

Gail Pike Fall 2019 2 years Ken Kavanagh 1 year

British Columbia

Joel DeYoung Fall 2019 2 years Judy Clavier 1 year

Manitoba

Joël Rondeau Fall 2018 2 years Marilyn Brennan 1 year

Ontario

Michael Barrett Fall 2018 2 years Randy Whitteker 1 year

Quebec

Alain Roy Fall 2019 2 years Jessica Provencher 1 year

Saskatchewan

Dusty MacDonald Fall 2019 2 years Norm Hall 1 year

ELECTION OF DIRECTORS

The following directors will be elected/re-elected at the 2018 AGM. The term for the position of Director is three years which commences at the close of the Annual General Meeting.

Name

Bill Kiss** (CU)

Gilles Colbert* (CU)

Denis Bourdeau* Chris Johnson** Rob Paterson** (CU) Reba Plummer**

Louis-H. Campagna*

Region

British Columbia

Saskatchewan

Ontario

Quebec

Atlantic Denis Laverdière*

* re-elected for the 2018 – 2021 term

**new director elected for the 2018 – 2021 term

CU – Credit Union Central position. 30 percent of the seats on The Co-operators Board of Directors (7 of the current 22) are nominated by the Credit Union Centrals. The seven seats are allocated as follows: one to Atlantic Central; one to Saskatchewan Central; four to Central 1, with at least one of these being nominated from each of Ontario and British Columbia; and one to be nominated jointly by the Manitoba and Alberta Centrals according to an agreement between them.

DIRECTOR DIRECTOR-ELECT

Denis

Bourdeau Ontario

Denis Bourdeau joined The Co-operators board in April 2009. He serves on the Member and Co-operative Relations Committee and was a member of the Investment Policy Committee. Denis served as a delegate to The Co-operators representing GROWMARK, Inc. from February 2008 to June 2009. Denis has participated on several boards and has been a director of La Coopérative agricole d’Embrun for 27 years, holding the position of president for 15 years. He also served as a director on the board of Embrun caisses populaire and GROWMARK, Inc., where he completed their Director Certification Program. Denis was also an elected township counselor. Denis owns and operates a cash crop farm as well as a bed and breakfast. Denis received an Ontario Co-operative Association Lifetime Achievement Spirit Award in 2006. In 2008, he received the Agricultural Merit Award from the Russell County Soil & Crop Association for exceptional contribution to the well-being of agriculture in the county. In 2014, Denis was awarded a Lifetime Achievement Award for service to the co-operative sector at the Conseil de la coopération de l’Ontario 50th anniversary gala.


Louis-H.

Campagna Quebec

Louis-H. Campagna joined The Co-operators board in April 2015 and is a member of the Sustainability and Citizenship Committee. He served as a delegate to The Co-operators representing the Co-operative Housing Federation of Canada from April 2013 to April 2015. Louis has extensive involvement in the co-operative movement as treasurer of the Confédération québécoise des coopératives d’habitation; president of the technical resources group of the Société d'aide et de services aux cooperatives; chairperson of the Cooperative d’habitation L’îlot fleuri; chairperson of the startup equity house co-op project SOCIONOVE; and vice-chairperson of la Fédération régionale des coopérative d'habitation de Québec et Chaudière-Appalaches. Louis is a career firefighter and has been a lieutenant fire service instructor with Québec City’s fire and fire prevention department since 2010.


Gilles

Colbert Saskatchewan

Gilles Colbert joined The Co-operators board in April 2015 and is a member of the Audit Committee. He served as a delegate to The Co-operators representing Credit Union Central of Saskatchewan (SaskCentral) from September 2012 to April 2015. Gilles is currently on the board of directors of SaskCentral, where he represents the Peer Group 3 Saskatchewan Credit Unions, and is co-chair of the Audit and Risk Committee. Gilles was in the credit union system for 30 years and has completed the Canadian Securities Course. He was the general manager at Unity Credit Union for 16 years before his retirement in 2000.


Chris Johnson

Ontario

Chris Johnson has served as a delegate to The Co-operators representing Gay Lea Foods Co-operative Limited (Gay Lea Foods) since April 2015. He is a director of Gay Lea Foods, where he is chair of the Training and Development Committee and has served on the Governance Committee. Prior to being elected to Gay Lea’s board Chris served as a delegate and completed the Leadership in Governance Foundation as well as the Advanced Leadership programs. Chris owns and operates a dairy farm with his family and has been an active participant in his community through several agricultural organizations. He holds a Bachelor of Science in Agriculture from the University of Guelph.


Bill Kiss

British Columbia

Bill Kiss has been an alternate delegate to The Co-operators representing Central 1 Credit Union since July 2017 and served as a delegate from April 2013 to April 2015. He is vice-chair of the Central 1 Credit Union board of directors, where he has chaired the Audit Committee and Risk Review and Investment & Loan Committee as well as served on several ad hoc committees. He is also a long-serving director on the Gulf and Fraser Insurance Services board. Bill is co-chief executive officer of G&F Financial Group (Gulf and Fraser Fishermen’s Credit Union) and has held positions in a senior executive capacity since 1996. He holds a Chartered Professional Accountant, Certified General Accountant designation. He has a Licentiate in Accounting post-graduate degree and a Bachelor of Science in Mathematics/Statistics from the University of British Columbia. Bill is also a Certified Credit Union Director through the CUES Governance Leadership Institute.


Denis

Laverdière New Brunswick

Denis Laverdière joined The Co-operators board in November 2008 and is a member of the Audit Committee. He served on the Member and Co-operative Relations and Investment Policy committees. Denis was a delegate to The Co-operators representing UNI Coopération financière (formerly La Fédération des caisses populaires acadiennes limitée) from May 2002 to October 2008. Denis retired as executive vice-president, distribution at UNI coopération financière in the spring of 2017, after 30 years of service with the organization. Denis holds a Bachelor’s degree in Administrative Sciences from Université Laval, as well as the Chartered Professional Accountant, Certified General Accountant designation.


Rob Paterson

Ontario

Rob Paterson served as a delegate to The Co-operators representing Central 1 Credit Union from April 2014 to April 2016. He is a director of Central 1 Credit Union, where he is chair of the Technology Committee. He is a director on the board of Alterna Bank and is vice-chair of the board of Enactus Canada, a national charitable organization that is teaching and igniting young Canadians to create brighter futures for themselves and their communities. Rob is president and chief executive officer of Alterna Savings and Credit Union and Alterna Bank, positions he has held since April 2013. He has worked in financial services for over 25 years and has held several executive positions within the industry. He holds a Bachelor of Arts degree from the University of Western Ontario and is actively engaged in advising fintech start-ups across Canada.


To view the biographical summaries of the 2017 Board of Directors please see the 2017 Integrated Annual Report.

Reba Plummer

Ontario

Reba Plummer has served as a delegate to The Co-operators representing the Canadian Worker Co-operative Federation (CWCF) since February 2011 and has been the Ontario CED Committee representative since 2013. She is a director of CWCF and has held the position of president since 2016. She is a member of the board of Urbane Cyclist Worker Co-op. Reba is an entrepreneur and is co-executive director of Urbane Cyclist Worker Co-op, a bike store in downtown Toronto. She works to develop new co-operatives and to create better connections among co-operatives as the Greater Toronto Area co-op network regional manager, a position through the Ontario Co-operative Association. Reba is pursuing co-operative development courses through CoopZone and has completed the Co-operative Management Certificate from York University. As a cycling enthusiast she has completed the Adventure Cycling Association’s leadership training in 2015 and has since led several bicycle tours including the Eastern Canada Adventure, a two-week tour from Quebec City to Gaspe.

ELECTION PROCEDURE AT THE CO-OPERATORS ANNUAL MEETING The Annual Meeting of The Co-operators is the Annual Meeting of five different companies held concurrently. Those companies are:

The Co-operators Group Limited Co-operators Financial Services Limited Co-operators General Insurance Company Co-operators Life Insurance Company CUMIS Life Insurance Company

We elect the Board of Directors of each of these companies at this Annual Meeting. The Co-operators Group Limited The Co-operators Group Limited is a co-operative incorporated under the Canada Cooperatives Act. The Canada Cooperatives Act requires that elections of directors are to be held annually at a meeting of the persons who are entitled to elect or appoint them. This is the Annual Meeting of the co-operative. As part of its Democratic Structure Review process the members of The Co-operators decided years ago that the process of ‘nominating’ directors from the regions as opposed to having new nominations directly from the floor at the Annual Meeting should be formalized. This was done in Section 5.7 (b) of the by-laws which provides that a person is qualified to be a director of The Co-operators if the person:

‘has been nominated at a region meeting of members held pursuant to section 8.1, having served as a delegate or an alternate delegate to or a director of The Co-operators for at least one (1) full year, and having attended two region meetings within a twelve (12) month period’

The ‘de facto’ election of directors therefore actually takes place at the region meeting immediately preceding the Annual Meeting, as only director-nominees who have been nominated at those meetings qualify to stand for nomination at the Annual Meeting. At the Annual Meeting, representatives of the region then ‘nominate’ those director-nominees from each respective region who have been nominated at the region meeting preceding the Annual Meeting. The Annual Meeting is the ‘formal’ nomination and election of those director-nominees. Nominations of persons other than those nominated at the region meetings immediately preceding the Annual Meeting, do not normally come from the floor at the Annual Meeting. To conform with the Canada Co-operatives Act, the chairperson of the meeting will then call for a motion to elect those nominated. Given our democratic structure, those directors are then elected.

Co-operators Financial Services Limited Co-operators Financial Services Limited (“CFSL”) is a business corporation (not a co-operative) continued under the Canada Business Corporations Act. CFSL is a holding company which holds the shares of the various insurance and financial services companies of The Co-operators group of companies. The common shares of CFSL are held entirely by The Co-operators Group Limited. As a result, at a regularly scheduled board meeting prior to the AGM, the Board of Directors of The Co-operators Group Limited (as sole shareholder of CFSL) gives the secretary, assistant secretary, associate secretary (where applicable) or treasurer of The Co-operators Group Limited, the power to vote the common shares of CFSL in favour of the same directors who are nominated and elected to be the directors of The Co-operators Group Limited. The secretary casts a ballot in favor of these directors and they are elected. Given that all the common shares of CFSL are held by The Co-operators Group Limited, additional nominations cannot come from the floor at the Annual Meeting. Co-operators General Insurance Company Co-operators General Insurance Company is an insurance company governed by the Insurance Companies Act (Canada). The governance requirements for this company are different from either of the preceding two companies, or for Co-operators Life Insurance Company. As a result, the elections must be held separately, though the result is in fact substantially* the same (i.e. that the same 22 directors are elected plus the CEO for a total of 23). The common shares of this company are all owned by CFSL. The board of CFSL authorizes the secretary, assistant secretary, associate secretary (where applicable) or treasurer to vote all the common shares of Co-operators General Insurance Company in favour of the same directors who are nominated and elected to be the directors of The Co-operators Group Limited. All directors of Co-operators General Insurance Company must be elected each year by ballot to conform with the Insurance Companies Act. The secretary or other authorized representative files a ballot voting the common shares in favour of those directors who have been elected to be the directors of The Co-operators Group Limited as well as the president & chief executive officer to serve as directors for a one-year term. They are thereby elected as the directors of Co-operators General Insurance Company. Again, because CFSL owns all the common shares of CGIC, additional nominations cannot come from the floor at the Annual Meeting. *the Insurance Companies Act requires that the chief executive officer be a director. As a result, the president & chief executive officer of the Company is also nominated and elected to the board. Co-operators Life Insurance Company This company is also governed by the Insurance Companies Act and almost all the common shares are also owned by CFSL. Unlike Co-operators General Insurance Company, the rules relating to the election of directors for Co-operators Life Insurance Company are different. Directors of Co-operators Life Insurance Company are elected for one-year terms. The Insurance Companies Act requires that for life insurance companies that have issued participating policies, at least one-third of the directors must be policyholder directors (elected by the participating policyholders of the company) and the balance of directors may be shareholder directors (elected by the shareholders). The election must be by ballot.

At least one-third of all the directors of The Co-operators Group Limited, are placed into nomination by a participating policyholder. The other two-thirds plus the president & chief executive officer are placed into nomination by the sole shareholder, CFSL. The chairperson then asks for further nominations from the participating policyholders. There are no nominations from the floor for the shareholder directors. Failing any nominations, which can come from the floor (but only from participating policyholders or their proxyholder), the chairperson then calls for a motion instructing the secretary to file a ballot in favour of those nominated by the participating policyholders and the sole shareholder. The secretary holds the proxies from the participating policyholders who have submitted a proxy for the Annual Meeting and as a result, will cast the votes represented by the proxies in favour of the policyholder directors who have been nominated and elected by means of our democratic process. The secretary is also the proxy for approximately 99 per cent of the common shares of Co-operators Life Insurance Company held by CFSL and as a result will vote the common shares in favour of the remaining directors from The Co-operators Group Limited who have been elected under our democratic process (and the president & chief executive officer) to serve as directors for a one-year term. CUMIS Life Insurance Company This company is also governed by the Insurance Companies Act. All the common shares are owned by CUMIS Services Incorporated, a wholly-owned subsidiary of Co-operators Life Insurance Company. The rules relating to the election of directors for CUMIS Life Insurance Company are like those which apply to Co-operators Life Insurance Company. Directors of CUMIS Life Insurance Company are elected for one-year terms. The Insurance Companies Act requires that for life insurance companies that have issued participating policies, at least one-third of the directors must be policyholder directors (elected by the participating policyholders of the company) and the balance of directors may be shareholder directors (elected by the shareholders) and the election must be by ballot. At least one-third of all the directors of The Co-operators Group Limited, are placed into nomination by the proxyholder for the participating policyholders. The other two-thirds plus the president & chief executive officer are placed into nomination by the sole shareholder, CUMIS Services Incorporated. There are no nominations from the floor for the shareholder directors. The chairperson asks for further nominations from the participating policyholders (or dispenses with this if no participating policyholders have registered for the Annual Meeting). Failing any nominations, which can come from the floor (but only from CUMIS Life participating policyholders or their proxyholder), the chairperson then calls for a motion instructing the secretary or an assistant secretary to file a ballot in favour of those nominated by the participating policyholders and the sole shareholder. The secretary or an assistant secretary has the proxy from the participating policyholders who have submitted a proxy for the Annual Meeting and as a result, will cast the votes represented by the proxy in favour of the policyholder directors who have been nominated and elected by means of our democratic process. The secretary or an assistant secretary is also the proxy for 100 per cent of the common shares of CUMIS Life Insurance Company held by CUMIS Services Incorporated and as a result, will vote the common shares in favour of the remaining directors from The Co-operators Group Limited who have been elected under our democratic process (and the president & chief executive officer) to serve as directors for a one-year term.

Who May Nominate

Nominations from the floor Who May Vote Number of

Directors Term The Co-operators Group Limited

Representatives from Region

Not Normally

Delegates from region

22

(7-7-8)

3-years

Co-operators Financial Services Limited

Secretary of The Co-operators Group Limited

No

Secretary of The Co-operators Group Limited

22

1-year

Co-operators General Insurance Company

Secretary of Co-operators Financial Services Limited

No

Secretary of Co-operators Financial Services Limited

23

1-year

Co-operators Life Insurance Company

Shareholders Policyholders Secretary of Co-operators Life Insurance Company [as proxy]

No Yes

Shareholders Policyholders Secretary of Co-operators Life Insurance Company [as proxy]

15 8

1-year 1-year

CUMIS Life Insurance Company

Sole Shareholder Policyholders Assistant Secretary of CUMIS Services Incorporated [as proxy]

No Yes

Shareholder Policyholders Assistant Secretary of CUMIS Services Incorporated [as proxy]

15 8

1-year 1-year

SUMMARY OF NOMINATION AND ELECTION PROCEDURES FOR THE CO-OPERATORS

BOARD MANDATE POLICY Policy Number: 61

Date of Inception: January, 1998 [as Board Stewardship Policy] November, 2006 [as Board Mandate Policy]

Date of last update: 2013-04

Date of Next Review: 2018-04 Background: Co-operators General Insurance Company is a ‘reporting issuer’ for the

purposes of the Ontario Securities Commission and the Toronto Stock Exchange. In January of 1998 the board adopted this policy as the Board Stewardship Policy to fulfil the requirements of the Toronto Stock Exchange. These requirements focussed on the effective corporate governance of listed companies. Since that time the TSX guidelines with respect to corporate governance have been replaced by section 3.4 of National Policy 58-201. This policy which sets out the mandate of the Board of Directors of The Co-operators Group Limited1 is intended to meet the corporate governance requirements of National Policy 58-201.

Policy: The Board of Directors of The Co-operators is responsible for setting the

broad direction of The Co-operators by:

• participating in developing and giving final approval to the core values and mission of the Company and monitoring performance

• approving the process for selecting the President and CEO and actually appointing the President and CEO and Secretary

• representing the Company to a variety of external constituencies The Board of Directors of The Co-operators is responsible for: • ensuring the financial viability of the Company • ensuring that the Company is a good corporate citizen • ensuring that the Company maintains a leadership role within the

Insurance Industry • ensuring that the Company provides a leadership role in the co-operative

movement • monitoring the operations of The Co-operators • regularly reviewing the work of the board and its committees • communicating with member organizations, policyholders, management,

regional committees, corporate secretaries of members, other co-operatives, industry and government

1 Including the Board of Directors of Co-operators General Insurance Company.

The Board of Directors of The Co-operators communicates with and receives feedback from members, shareholders, policyholders, staff, management and other interested persons at or by virtue of: • Annual or Special General Meetings of the companies • Regional Committee Meetings • Community Advisory Panel Meetings • The Annual Report by the Human Resources Vice-President to the Board

as well as other management reports • Meetings of shareholders and policyholders • The Company’s Resolution Process • Participation where appropriate in industry advisory bodies, groups or

organizations • Communications from the Office of the Superintendent of Financial

Institutions for Canada and other regulatory bodies or officials • Membership in the Co-operatives and Mutuals Canada, provincial

cooperative associations, the International Co-operative and Mutual Insurance Federation and its affiliated or related organizations

The Board of Directors of Co-operators (the Company2) acknowledges responsibility for the stewardship of the Company, including:

1. responsibility for:

(a) to the extent feasible, satisfying itself as to the integrity of the President

and the Chief Executive Officer and other Senior Managers within the group of companies and that the President and CEO and other senior managers create a culture of integrity throughout the organization;

(b) adopting a strategic plan and a planning process which involves a four year plan which is reviewed and approved at least annually, which takes into account, among other things, the risks and opportunities of the Company;

(c) the identification of the principal risks of the company’s business, and ensuring the implementation of appropriate systems to manage these risks;

(d) succession planning; (e) adopting a communications policy for the Company; (f) the company’s internal control and management information systems;

and, (g) developing the company’s approach to corporate governance, including

developing a set of corporate governance principles and guidelines that are specifically applicable to the Company.

2. responsibility to act on behalf of the members of The Co-operators and in the interests of the users of its services, including on behalf of the shareholders and policyholders and staff of the Company and to direct the company’s activities in order to help attain its corporate mission;

2 The Company means The Co-operators Group Limited, Co-operators Financial Services Limited, Co-operators General Insurance Company and Co-operators Life Insurance Company

3. responsibility to meet the Company’s legal obligations and responsibilities

The Company, its members, shareholders and policyholders expect directors sitting on the Board of Directors of The Co-operators to: • regularly and diligently attend Board meetings unless incapacitated or for

other good reason they are not able to attend • read and through more formal study become familiar with the Company

and the industry • be aware of and familiar with their responsibilities as directors under the

Insurance Companies Act (Canada) and provincial insurance companies act as well as any other relevant or applicable legislation

• serve on board committees and to represent The Co-operators in other organizations

• participate in board discussions and decision-making, keeping in mind the welfare of the respective organizations, members and shareholders, as the case may be, and those whom they serve including co-operatives, credit unions, shareholders and policyholders

• analyze operational and financial reports, seek pertinent information and ask discerning questions

• be alert to the need for new services and products and to monitor environmental change

• provide an avenue that policyholders may follow to communicate suggestions and/or concerns

• act in a manner which recognizes that a director has no power in his or her own right, other than acting as a reasonably diligent director would in discharging his or her fiduciary duty to the company and other than as may be vested in him or her by resolution of the board

• participate in delegate orientation • share the responsibility of the Board with respect to communicating with

members, shareholders and policyholders • be accountable to delegates in the region from which the director was

elected • be accountable to all members in the region from which the director was

elected • represent The Co-operators Board in that region • where applicable to act as a policyholder director and with a view to

representing the best interests of said policyholders

ROLE OF THE BOARD OF DIRECTORS Central Purpose To act on behalf of the members of The Co-operators and in the interest of the users of its services, and to direct the activities of the organization in order to help attain its corporate mission. In addition to legal responsibilities, the Board is responsible to delegates, members, clients, shareholders and staff of The Co-operators. Responsibilities The Board is responsible for setting the broad direction of The Co-operators by:

• Participating in developing and giving final approval to the core values, mission, and normative and strategic plans of The Group and monitoring performance;

• Approving the process for selecting the president & CEO and actually appointing a president & CEO and secretary;

• Representing The Co-operators to a variety of external constituencies. The Board is responsible to:

• Ensure the financial viability of The Co-operators; • Ensure that The Co-operators is a good corporate citizen; • Ensure that The Co-operators maintains a leadership role within the insurance industry; • Provide a leadership role in the co-operative movement; • Monitor the operations of The Co-operators; • Regularly review the work of the board, its committees, meetings and seminars.

To communicate with:

• Member organizations • Policyholders • Management • Regional committees • Corporate secretaries of members • Other co-operatives • Industry • Government

Reporting Relationships Communicates with members and receives feedback from them at:

• the annual or special meetings of The Co-operators; • regional committee meetings.

Receives reports from management. Communicates with policyholders and members through the directors at:

• Board, annual and special meetings of member organizations; • meetings of policyholders.

Reports at intervals to all regional committee members and corporate secretaries of members. Qualifications • The ability to work positively as a team. • Balanced representation by type of organization and by position held, i.e., elected official,

employee of a member, or person closely associated with a member. • Directors should have ready access to members' boards and annual meetings and

meetings of corporate members of members. Other Contacts • With government at the federal, provincial, and municipal levels. • With major industry organizations, e.g., Canadian Life and Health Insurance Association,

Insurance Bureau of Canada. • With national and regional co-operative organizations, e.g. Canadian Co-operative

Association, Canadian Co-operative Credit Society. • With other national insurance co-operatives and national and regional organizations as may

be appropriate. Other • The Co-operators Group Limited and Co-operators Financial Services Limited board

consists of 22 directors. Co-operators General Insurance Company and Co-operators Life Insurance Company boards consist of 23 directors.

• The regional director allocation is as follows: » 30% of seats (7 of current 22) nominated by the member Credit Union Centrals

together; - 4 by Central 1, with at least 1 director ordinarily resident in BC and 1 director

ordinarily resident in Ontario - 1 by Saskatchewan Central - 1 by Alberta and Manitoba Centrals jointly and - 1 by Atlantic Central

» 70% of seats (15 of current 22) nominated within the regions, with all members eligible to make nominations and all but the Credit Union Centrals entitled to vote

» the 15 at-large seats are allocated among the regions as follows: - BC (1); AB (2); SK (1); MB (1) ON (6); QC (2); AT (2)

Updated April 2013

ROLE OF THE DIRECTOR Central Purpose As a member of the Board of Directors, to exercise judgement in the formation of board objectives and policies for the direction and guidance of management and to communicate the aspirations and needs of his/her region. Directors of The Co-operators Group Limited also sit as Directors of Co-operators Financial Services Limited, Co-operators General Insurance Company and Co-operators Life Insurance Company. They may also sit from time to time as directors of other subsidiary or related companies to The Co-operators Group Limited. Responsibilities • To attend board meetings. • Through reading and more formal study, to become familiar with the organization and the

industry. With respect to their role as directors of insurance companies, to be aware of and familiar with their responsibilities as directors under the Insurance Companies Act (Canada) and provincial insurance companies acts.

• To serve on the board committees and to represent The Co-operators in other organizations.

• To participate in board discussions and decision-making, keeping in mind the welfare of the respective organizations, members and shareholders, as the case may be, and those whom they serve [being the co-operative and credit union sector and policyholders].

• To analyse operational and financial reports, seek pertinent information, and ask discerning questions.

• To be alert to the need for new services and products and to monitor environmental change.

• To provide an avenue that policyholders may follow to communicate suggestions and/or concerns.

• To realize that a director has no power in his/her own right except when power is vested by resolution of the Board.

• To participate in delegate orientation. Reporting Relationships • Share the responsibility of the Board to communicate with members and policyholders. • Accountable to the delegates in the region where elected. • Represent The Co-operators Board in the respective region.

Qualifications • Cannot be a delegate. • Preparedness to devote the time required for the discharge of his/her responsibilities. • Those required to be met under the relevant statutes, particularly the various insurance

companies acts. • Ability to work positively with other directors and management. • Familiarity with and strong support of the co-operative system. • Commitment to and patronage of the services offered by The Co-operators. • A good understanding of the mission and objectives of The Co-operators. • Having the qualifications necessary to serve on the Board of any insurance company

directly or indirectly owned or controlled by The Co-operators. • Having been nominated at a region meeting and having served as a delegate to or a

director of The Co-operators for at least one full year or having attended two region meetings within a twelve month period.

Term The Co-operators Group Limited 3-year Co-operators Life Insurance Company 1-year Co-operators Financial Services Limited 1-year Co-operators General Insurance Company 1-year Renewable (no maximum number of terms). Other Contacts • To make regular contact with delegates to exchange information and clarify issues (1993). • To establish a local identity and presence as a director of The Co-operators. • To perform an appropriate public relations role for The Co-operators. • To play a symbolic role giving full support of The Co-operators. Time Requirement • This is estimated to be 40 days per year which includes board meetings, The Co-operators

annual meeting, board committee meetings, regional committee meetings and representation at annual meetings of members and other occasions.

Updated April 2013

QUALIFICATIONS FOR THE DIRECTORS Directors of The Co-operators are normally* directors of five Co-operators companies, namely: The Co-operators Group Limited [continued under the Canada Cooperatives Act], Co-operators Financial Services Limited [continued under the Canada Business Corporations Act], Co-operators General Insurance Company, Co-operators Life Insurance Company, and CUMIS Life Insurance Company [all continued under the Insurance Companies Act, Canada]. As such they must meet the requirements of being a director of The Co-operators Group Limited and the other four companies. *The Insurance Companies Act (Canada) requires that the chief executive officer be on the board of directors of the insurance companies but is not on the board of The Co-operators Group Limited or Co-operators Financial Services Limited. The Co-operators Group Limited Section 5.7 of By-law No. 1 sets out the qualifications for directors. In summary they are the following:

• holds the necessary qualifications to enable the person to serve on the board

of directors of any insurance company directly or indirectly owned or controlled by The Co-operators;

• has been nominated at a region meeting of members held pursuant to section 8.1, having served as a delegate or an alternate delegate to or a director of The Co-operators for at least one (1) full year, and having attended two region meetings within a twelve (12) month period;

• is ordinarily resident in the province or provinces that define the territorial boundaries of the class that nominated the person;

• is not an employee of The Co-operators or any company directly or indirectly owned or controlled by The Co-operators.

The Canada Cooperatives Act sets out the normal requirements for directors. The qualifications are as follows:

• must be at least 18 years of age • must not be of unsound mind and been found by a court to be so • must be an individual • must not have the status of a bankrupt

At least twenty-five percent of the directors must be resident in Canada. Co-operators Financial Services Limited The by-laws of CFSL do not set out the qualifications of directors as these are set out in section 105 of the Canada Business Corporations Act. The qualifications are as follows:

• must be at least 18 years of age • must not be of unsound mind and been found by a court to be so

• must be an individual • must not have the status of a bankrupt

A majority of the directors must be resident Canadians. There is no requirement for directors to hold shares in the corporation. Co-operators General Insurance Company, Co-operators Life Insurance Company & CUMIS Life Insurance Company The By-laws and the Corporate Governance Policies do not set out the qualifications of directors. These can be found in section 168 of the Insurance Companies Act. The qualifications are as follows:

• must be at least 18 years of age • must not be of unsound mind and found to be so by a court • must not have the status of a bankrupt • must be a "natural person"[i.e. an individual] • must not be a person who is an officer or a director or full-time employee or

eligible agent of an entity holding shares which the entity is prohibited from voting per sections 164.08(8), 418 or 430 [not relevant to us]

• must not be a "minister" of the Crown • must not be an agent or employee of the government of a foreign country or

any political subdivision thereof • must not be an insurance agent or broker of the company

A majority of the directors must be resident Canadians. There is no requirement for directors to hold shares of or a policy issued by the company. A shareholder in a life insurance company cannot be a policyholder director. Any Co-operators directors who are nominated as a policyholder director for Co-operators Life Insurance Company or CUMIS Life Insurance Company cannot be a shareholder of either company.

DELEGATES TO THE CO-OPERATORS 2018 ANNUAL GENERAL MEETING

British Columbia Agrifoods International Cooperative Limited Tim Hofstra Maheb Nathoo Bill Van Rootselaar

BC Agriculture Council Lynda Atkinson Reg Ens

BC Tree Fruits Cooperative Robert Fisher-Fleming Regan Gibson

Central 1 Credit Union Kerry Hadad Modo Co-operative Joel DeYoung

Selena McLachlan Mountain Equipment Co-op Margaret Curran PBC Health Benefits Society John Crawford

John Fitzpatrick Realize Strategies Co-op John Kay

Tim Veresh Alberta Alberta Federation of Agriculture Lynn Jacobson

M. Grace MacGregor Alberta Federation of Rural Electrification Associations Dan Astner

Dino Wylie Credit Union Central Alberta Limited Iris Evans Federation of Alberta Gas Co-ops Ltd. Tom Kee

Jack Goodall UFA Co-operative Limited

Cindy Bjorklund Kevin Hoppins

Saskatchewan Access Communications Co-operative Limited Jim Deane Agricultural Producers Association of Saskatchewan Ian Boxall

Wanda Reid Credit Union Central of Saskatchewan Tim Goddard

Pieter McNair Federated Co-operatives Limited Sharon Alford

Tara Burke Judy Clavier Dusty MacDonald

Regina Community Clinic Judy Grant Karen Vogel

Manitoba Arctic Co-operatives Limited Mary Nirlungayuk Rod Wilson

Caisse Populaire Groupe Financier Ltée Sophie Éthier Joël Rondeau

Credit Union Central of Manitoba Limited Russ Fast Lee Gregory

Granny’s Poultry Cooperative (Manitoba) Ltd.

Ken Reimer Ken Wiebe

Keystone Agricultural Producers

Justin Jenner Glenn Young

Ontario Co-operative Housing Federation of Canada David Boyde Joanne Crouse Valary Howard Mireille Pépin Angela Simpson Linda Stephenson Sandra Turgeon

Gay Lea Foods Co-operative Limited

Michael Barrett Chris Johnson

GROWMARK, Inc. Kim Fysh Warren Jibb

St-Albert Cheese Co-operative Inc. Gérald Benoît Éric Lafontaine

Caisse Populaire Alliance Limitée Philippe Boissonneault Ontario Federation of Agriculture Debra Pretty-Straathof

Mark Wales Ontario Organic Farmers Co-operative Inc. Ted Minten

Gerald Poechman United Steelworkers - District 6 Robert Mason

Quebec Fédération des coopératives d’alimentation du Québec Clément Asselin Michel Ferland

Fédération des coopératives funéraires du Québec Alain Leclerc Alain Roy

Fédération québécoise des coopératives en milieu scolaire/COOPSCO

Ludovic Painchaud-Tremblay

La Coop fédérée Célyne Montreuil La Fédération des coopératives du Nouveau-Québec Not attending william.coop Francis Beaucage

Martin Grenier Atlantic Amalgamated Dairies Limited Abe Buttimer

Gail Ellis Atlantic Central Kurt Peacock

Raymond Surette Atlantic Retail Co-operatives Federation Murray Hatchard

Paul King Canadian Worker Co-operative Federation Lee Fuge

Helen Kontolopoulos Lidia Macovei Jessica Provencher Eric Tusz-King

Newfoundland-Labrador Federation of Co-operatives Ken Kavanagh Gail Pike

Northumberland Cooperative Limited

Charles Hubbard Stephen Lynch

UNI Coopération financière Marc-André Comeau Robert Moreau

As of March 20, 2018

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