Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation First Quarter 2024 Financial Results Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, May 10, 2024. I would now like to turn the conference over to Dennis Westfall, Head of Investor Relations. Please go ahead. Thanks, Joelle, and good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website, definity.com, under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to our discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO, Philip Mather, EVP and CFO, Paul MacDonald, EVP of Personal Insurance and Digital Channels, and Fabian Richenberger, EVP of Commercial Insurance and Insurance Operations. We'll start with formal remarks from Rowan and Phil, followed by a Q&A session, where Paul and Fabian will also be available to answer your questions. With that, I will ask Rowan to please begin his remarks. Thanks, Dennis, and good morning, everyone. We reported First Quarter results last night that get the year off to a strong start and continue to deliver on our financial targets. In the quarter, solid underwriting income, robust net investment income, and ongoing contributions from our insurance broker platform resulted in operating net income of CAD 75.2 million or CAD 0.65 a share. A combined ratio of 93.9% reflected improved underlying results and continued expense efficiencies, partially offset by an increase in catastrophe losses. The benefit of higher earned rates flowing through the business combined with milder winter driving conditions to generate improved core accident year loss ratios in our personal auto and commercial lines. Following proactive rate actions in 2023 to protect the profitability of our auto business, we're in a stronger competitive position to grow the underwriting income generated by this broker business in what is now a firm market. The rapidly firming conditions in auto, continued favorable conditions in commercial insurance, and our strong broker proposition combined to generate significant growth momentum in the quarter as premiums increased 12.8%. Operating results again benefited from growth in net investment income driven primarily by higher interest income that was enhanced by our active management of the portfolio in the current interest rate environment. Combined with ongoing contributions from our expanded broker distribution platform, our financial performance led to an operating ROE of 9.4%. Turning to the industry outlook on slide 6, we believe the operating environment is one that remains conducive to sustaining favorable market conditions overall. We expect conditions in auto lines to remain firm as insurers aim to keep pace with the combined impact of elevated theft and lingering cost pressures. We also expect firm market conditions in personal property will persist, particularly following a second consecutive year of industry Cat losses north of CAD 3 billion and the dynamics of recent reinsurance renewals. In commercial insurance, we expect the market to remain firm as carriers focus on ensuring long-term profitability and sustainable availability of capacity. Overall, we expect the industry's return on equity to be close to its long-run average in 2024. Slide 7 shows our key financial targets for 2024. I've already touched on our ability to deliver on our growth and our Combined ratio targets. We view this combination of mid-'90s core with above-industry growth as an effective way to create shareholder value. As I mentioned last quarter, the strength in underwriting profitability combined with expansions in investment and distribution income are expected to increase Operating ROE to 10% or more in the second half of 2024 and beyond. Slide 8 illustrates the progress we made last year to diversify and strengthen the earnings profile of the business with repeatable distribution income that complements our underwriting operations. McDougall and McFarlan Rowlands have well-established operations in Ontario, while our late 2023 addition of Drayden provided immediate scale in Alberta. Looking ahead, we expect continued M&A activity and the organic growth potential of the business to result in CAD 1.5 billion of managed premiums in the next three to five years. We continued our recent momentum with a couple of additional deals in the quarter and maintain our expectations for 2024 operating income from this part of the business. With that, I'll turn the call over to our CFO, Phil Mather. Thanks, Rowan. I'll begin on slide 10 with personal auto. Premiums were up 15.6% in the first quarter of 2024, driven by a double-digit increase in written rates and a return-to-unit count growth in our broker business reflective of our significantly improved competitive position in a firm market environment. Higher premiums assumed from industry pools also contributed 2.8 points to the overall growth. We expect our broker business to benefit from continued strong retention, increased portfolio transfer activity, and the inherent scalability of our buying platform, the combined impact of which should support a strong pace of growth in the coming months. We will continue pursuing additional rate and segmentation actions to maintain our target profitability. Focusing on our direct business, Sonnet, we are maintaining our disciplined approach, and we remain on track to reach our run rate break-even target by year-end. Our approach includes focusing on areas of the business where we see opportunity for profitable growth. In the current environment, this excludes Alberta, where we maintain our pause on all Sonnet marketing activities. Personal auto reported a solid combined ratio of 97.1% in the quarter, 3.8 points better than a year ago. Our overall claims ratio improved 1.6 points as the benefits of earned rates and mild winter weather were somewhat muted by the negative impact of industry pools. Theft continues to be a major challenge for both us and the industry as a whole, though signs are pointing to a stabilization in recent months. We maintain our underwriting and claims initiatives aimed at addressing theft and auto recovery. Overall, earned rate levels remain above current loss-cost trends, reinforcing our expectations for personal auto to generate a mid- to upper-90s combined ratio in 2024. Turning to personal property on slide 11, growth of 5% picked up slightly from the pace in Q4 but remained below prior periods, which had benefited from unusually high levels of portfolio transfers. Our continued actions to address risk concentration in cat-exposed regions further slowed growth in the quarter. We expect this line to grow at a mid- to upper-single-digit pace for the full year, given the firm pricing conditions prevalent in the industry. Focusing on the bottom line, we reported a combined ratio of 91% in Q1, essentially unchanged from the same quarter a year ago. Higher favorable prior-year claims development and an improved expense ratio were largely offset by an increase in catastrophe losses driven by a deep freeze in British Columbia. We continue to target a mid-'90s combined ratio for the personal property line of business on an annual basis. Slide 12 outlines the highlights in the quarter for our commercial business as double-digit growth in commercial lines continued, with gross written premiums up 15.8% versus the prior year. Strong growth momentum was driven by targeted growth across strategic segments, with strong retention and rate achievements in a firm market environment and further expansion of our small business and specialty capabilities. We expect commercial insurance to maintain growth at a double-digit to low-teens pace in 2024. Commercial lines benefited from continued focus on underwriting execution, with a combined ratio of 92.1% in Q1 of 2024 compared to 90.9% in Q1 of 2023. The increase in the combined ratio was driven primarily by non-weather-related catastrophe losses, which can vary from quarter to quarter, as well as lower favorable prior-year claims development. These were partially offset by improvements in the core accident year claims ratio and the expense ratio. With a solid performance to start the year, we continue to expect our commercial insurance business to sustainably deliver an annual combined ratio in the low 90s. Putting this all together on slide 13, consolidated premiums increased 12.8%. The disciplined nature of our growth through our underwriting expertise, pricing strategies, and product expansion, along with the continued focus on expense management, resulted in a first-quarter combined ratio of 93.9%, 1.4 points better than the solid Q1 of last year. Our expense ratio of 31.3% was 1.4 points improved from the prior year, benefiting from the investments we've made to improve productivity, along with our disciplined expense management. We view much of the improvement as sustainable and expect 2024's expense ratio to come in at the lower end of the 31%-32% range. Focusing on distribution income, when adjusting for an unusually strong CPC benefit in the first quarter of 2023, underlying income essentially doubled year-over-year, reflecting the inorganic expansion of the platform last year. I'd also point out that distribution income is expected to experience a similar seasonality to our overall written premiums, which tend to be lower in the first quarter each year. As we mentioned on our last call, the full impact from our national broker platform also includes a benefit to consolidated expenses in the form of a commission offset. In aggregate, we maintain our full-year target of CAD 75 million before finance costs, taxes, and minority interests, and expected to have a roughly 70/30 split between distribution income and commission offset. Slide 14 shows our investment portfolio in greater detail. Our net investment income again increased meaningfully in the quarter, up more than CAD 7 million from Q1 of 2023 due to higher interest income from increased book yields captured through active management of the fixed income portfolio. Growth is expected to slow from double digits to mid-single digits in 2024 as book yields and market yields converge. We therefore maintain our expectations for full-year net investment income exceeding CAD 190 million. As you can see on slide 15, our financial position remains robust with over CAD 1.3 billion of financial capacity now that we've continued under the CBCA. Strong operating income and investment gains supported growth in our capital in the first quarter and combined to generate sequential growth in book value per share of 2.5%. Slide 15 shows recent capital management actions and longer-term priorities. When it comes to deploying our capital, the primary focus remains in support of our robust organic growth strategy. We also intend to continue growing our dividend over time. With an objective to build a company into a top five player in the industry, we are actively pursuing inorganic growth, including both insurance carriers and distributors. Following our initial build of the platform via our partnership with McDougall, recent broker acquisitions have been more programmatic in nature, which we expect to continue. With that, I will turn the call back over to Rowan for some final remarks. Thanks, Phil. As Phil described, while our financial performance and operating results continue to meet or exceed our financial targets, we believe they are controllable organic levers that we can pull to further enhance our operating ROE. We've discussed two of them already, namely the removal of Sonnet's current drag on performance once it reaches break-even and the continued march lower in our expense ratio. The third lever is our claims transformation to Guidewire ClaimCenter. I've spoken previously about becoming the first P&C insurer in Canada to transition our core insurance platform to Guidewire Cloud by modernizing and digitizing our core infrastructure. In this way, we become better positioned to effectively scale our business and improve our service quality. Just last month, we began managing new automobile claims using ClaimCenter. This modern platform helps to speed up claims resolution, improves communication and transparency, and gives our customers real-time updates on the status of their claims. This marks an important milestone in our continued claims transformation, seizing opportunities to modernize and digitize our claims processes to create better broker and customer experiences. Performance improvements are expected to come from our increased ability to optimize our indemnity and expense management practices. Further benefits will be targeted once we've completed the claims transformation, with property claims currently targeted to transition late next year. With that, I'll turn the call back over to Dennis to begin the Q&A. Thanks, Rowan. Phil, we are now ready to take questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star, followed by the one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Mario Mendonca with TD Securities. Your line is now. Good morning. Let me start first with a question on commercial. Commercial has been a big part of this company's story since demutualization, a big part of the growth and, I think, the profitability. But over the last couple of quarters, you've made reference to non-weather-related cats. Now, I'm assuming that means fires or stuff of that nature. Could you speak to what's driving that, and if you're concerned that this is a trend you'll need to address with pricing or some other underwriting mechanism? Well, thanks, Mario, for the question. I'm going to let Fabian take that. I think I just reiterate the point you've made. We've put a lot of effort into building and shaping the portfolio with growth in commercial. As you've noted, it's really been a big part of the story. It's grown significantly over the last couple of years. As we've built out multiple segments, not just small business, middle market, and specialty, with building teams and capabilities, I would say at the macro level, we're delighted with this business. We see strong future potential as well. There are no concerns from our perspective in terms of how this business overall is projecting and performing at this stage. We continue to be very, very pleased. With that, let me pass it to Fabian to kind of give you a bit more specific insights to the nature of your question. Yeah, yes, to Mario. So very much in line with what Rowan just outlined. The big picture is that we have no concerns whatever with our large losses emergence that we've seen over the last couple of quarters in our commercial business. Kind of, as you know, large losses will always vary a little bit quarter by quarter. You'll have a quarter where you have two or three large losses, and then you have a quarter where you don't have any large losses. And overall, kind of, we have a very sound underwriting, very sound pricing approach. We have a very kind of diligent risk management and governance practice around our large account practice that the business has been profitable over the last four years. Even if you look at the performance over the last two quarters, we are still making an adequate margin in that business because we are collecting an adequate amount of premium. We do expect that we have about 10 large losses any given year. Again, the big picture is that we're not concerned about it, and we do feel that we have a very good opportunity to keep that business profitable going forward as well. So that's a bit too fine a point in it. But are you talking about fires here when you say non-cat losses, non-weather-related cat losses? That's it, yeah. So in our commercial portfolio, CAD 1.2 billion, about 60%, as you know, is in the P&C space, 40% is in the auto space. And if you look at our loss emergence in Q1, we had two larger fire losses and one larger auto loss. But again, in both lines, they're very much in line with our price assumptions, and we are making the margins that you want to have in that place. And what is important to note as well is that we have specific reinsurance protection in that business as well. So it's not really a severity concern that we have in that business because our reinsurance will kick in above our retention of CAD 5 million. Then the team that we have hired 4 or 5 years ago that is running the business, they literally have 20 years experience, and they are also adding facultative reinsurance for some of the placements that we have. So again, absolutely no concerns about the large loss emergence that we've seen in that large loss segment. Thanks. Now, Rowan, your comments about improving the ROE through those three approaches, the claims, Sonnet, and the expense ratio. I've held the view that the company's ROE is sort of stuck in that 9.5, 10% range until you can do a large acquisition. But it sounds like through those three approaches, you're a little more optimistic than I would be on what that ROE can get to. So maybe let me ask the question this way. Absent a transaction, what can those three approaches do for the ROE? Yeah, Mario. I think that, as you said, there's a combination of factors that we think will improve over the next couple of years. For sure, the ones that are a bit more opportunistic are the ones where we can deploy the capital through M&A. Of course, we'll keep working on that. The other ones we referred to as more kind of controllable. I think that we've kind of shared that the path for Sonnet to break even by the end of this year, it was what we've been targeting, and we're encouraged about that journey. Then it'll stop being more contributive. If you do the math on Sonnet, there's a couple of points that we've had to drag for a while, so that'll be helpful. I think if you looked at last year and continuing to this year, you now start to see us gaining some traction on that expense ratio. I think what's encouraging there is when you look into that expense ratio, it's essentially a combination of underwriting expenses, operating expenses, and then commissions. The year-on-year improvement this year is really all in that operating expenses. That's about the tools that we put in place. The productivity tools are working. There's good expense discipline. But we're now starting to certainly get a bit of operational leverage in the business with revenues able to outpace the growth of expense kind of growth. I think what we feel there is there's a couple of points over a couple of years. What we're trying to do is kind of glide into a lower expense ratio. And we've felt that there are a couple of points of opportunity over the next couple of years as we do that, continue to fund what we do, the innovation and the growth story. And then the other area, which we just commented on the call on here, is certainly the claims transformation. And if you just step back over the last couple of years, I mean, what we really did in terms of transforming Economical into Definity was really around the front part of the business before the claims operations. And this has really supported the ambition and the growth story. We're now well in flight in the claims transformation. And given automobile is a big part of our business, it's logical that's where we're in first. That is just launched literally in April. And so we think that over the coming quarters, there will be both indemnity benefits as well as expense ratio benefits. And then we'll get to property next year. That transformation in the operating model for the property parts of the business is, again, just started. So I don't think it's fair to kind of stack them all up because some of that will be reinvested. But I think it definitely feels to us like there's some opportunity to get a few points of Operating ROE expansion. And that's before we do something inorganic, which then allows us to deploy the excess capital and introduce some leverage into the balance sheet. So that's the way we're thinking about that. So if I could just pull this together, you referred to a couple of points. In all cases, Sonnet, expense, and claims, that would be just doing the simple amount, 600 basis points improvement in the ROE. That's clearly not what you're suggesting, I think, when you said stacking them up. So what are you suggesting? Is Definity a 12% ROE company without a deal? Is that reasonable over the 2-3-year period? Yeah, Mario, that's reasonable. I think if we think about our internal kind of plans, that's the way we think about it because there will be some of that reinvestment. As you said, you can't stack them all up. And I think one of the things that's coming ahead is we're going to be sending out notification of an investor day in September. And that will be kind of a good double-click for us to kind of get into quite a bit of detail on the actions, the path, and the credibility of improving that operating ROE through those three organic or let's call them controllable levers. Got it. Thank you. Come? Your next question comes from Tom McKinnon with BMO Capital Markets. Your line is now open. Yeah, great. Yeah, thanks. Good morning. Thanks for taking my question. Probably just more numbers questions. Really, if we look on slide 13, there's what's called other that seems to be up quite a bit year-over-year and probably quarter-over-quarter as well. What's driving that, and how should we be thinking about that other line going forward? There's a follow-up. Thanks. Hey, thanks, Tom. That's Phil calling. I think within there, you've got a little bit of seasonality or not seasonality, but one time has that happened. So within the CAD 13.9, there's a recurring component, which includes the public company expenses, includes the interest expense within the business. So I'd say overall, we'd normally expect that number to be in the CAD 11 million-CAD 12 million range. What's causing some of the variance year-over-year? Partly, it's the interest expense is up. So as we've drawn down on the credit facility as part of the broker acquisitions, obviously, that's increased that level by about CAD 1.5 million. That we'd see as more kind of structural increase. But there's also just a little bit of lumpiness coming on from a couple of the associate positions. That can move quarter-over-quarter. I think historically, it's been more or less a wash. This quarter, it's a small drag on a swing basis. There's also about CAD 1 million in there that we clearly see as a bit of a one-timer. So big picture, I think we see that more in the kind of CAD 11 million-CAD 12 million range. The increases on prior year is more about the interest expense as we've drawn on the facility. Okay, that's great. And I don't know if you've talked if we just move to the next slide, there are 14. We've seen to have plateaued in terms of both interest income and dividend income. With such a growing portfolio and probably a gap between new money rate and your book rate, I would have expected that dollar amount to increase. Any thoughts around why it hasn't increased quarter-over-quarter? Yeah, thanks, Tom, again. There's a couple of component parts in there. So overall, when you look year-on-year, obviously, we're still running up a sizable increase compared to this point last year. And that's the interest income driving that as the yields kind of earn in. Quarter-on-quarter, there's a couple of components there. In the fourth quarter each year, we get a one-time dividend payout that comes from a foreign equity pooled fund. So there's about CAD 1 million of dividend income there that pops in the fourth quarter. So the underlying dividend trend is pretty consistent. And you'll see it's been pretty consistent over the last several quarters as we haven't really added to the overall equity exposure. But it causes a bit of a trend quarter-on-quarter. Then the other factor I'd call out is just the cash flow drain in the first quarter of the year. So Q1 is always a cash flow consumptive quarter, more so this year than in others because we have the traditional payouts for incentives, the traditional payouts for CPCs. We also had a largest payout on taxes. And we had the deployment of capital into the broker portfolio. So a little more exaggerated there. And that's what's really depressed the interest income as we've utilized some of the funds from the portfolio. Later on in the year, you get more cash generative. So we would expect that to tick back up as we're able to then deploy the positive cash flows into the portfolio. Overall, though, we're still very comfortable with our overall projection. We still see north of CAD 190 million for the full year. Okay, thanks for that. No problem. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Geoffrey Kwan with RBC Capital Markets. Your line is now open. Hi. Good morning. Just wanted to follow up on the earlier questioning, Mario, on the ROE. So if you think over the next couple of years, you can get to a 12% ROE without a deal. When you optimize the capital structure, is that maybe adding a couple of points to the ROE? Or how do you think about what the optimized capital structure ROE looks like? Yeah, thanks, Jeff. Yeah, so the way we'd kind of express it is on a controllable basis, we think we can push up towards the top end of the double digits, but below teens. It's the kind of way we'd think about it. Optimizing the balance sheet, we definitely think that adds a couple of points. And we also think it helps us sustainably land within the teens range. So if we can get that additional scale, if we can optimize the balance sheet and just pull away some of the equity drag, that isn't, is obviously earning 4% or so in the investment portfolio as opposed to a double-digit return on the investment. Not only does that push us into the low to mid-teen range, it also keeps us there from our perspective and helps us balance some of that volatility. So I think that's the opportunity. That's a structural one. Obviously, once you get the scale advantages, you can build from the but that's a good way of looking at it. Okay. The other question I had was an apology. I thought I was on the call a bit late. I don't know if you talked about it. On the auto side, the impact of the industry pools on premium growth, has that contribution or that impact increased over the past year? Just wondering, given where rates are and if players have been a bit more picky on underwriting, just trying to understand what that impact has been both on the top line and also, too, has it added more or less kind of volatility looking at the combined ratio? Yeah, thanks, Jeff. The answer to your question bluntly is yes. So what we've seen in the last probably three or four quarters, certainly the last couple, is that the industry usage of the pool has gone up. And when we look at the pools, you only see half the story in the gross written premium. So within there, you get what we assume back from the pools. So that is the Risk Sharing Pools and also the Facility Association. In recent quarters, you've definitely seen the industry activity pick up. So that has resulted in a higher degree of growth coming from the pools kind of quarter-over-quarter. And you'll see this quarter, it was 2.8% of the overall auto growth. Historically, it wouldn't have been as high as that. Now, that's the one side of the picture. The other side is we're seeding more into the pools as well. So as we're seeing high theft vehicles, and we think that's a big driver of it, we're increasing our sessions, not quite at the same pace. But if you think through to the bottom line on a net underwriting basis, it's more muted than you see on the gross written premium itself. Total impact on the quarter was just under a point of drag on the 97% personal auto rate. Historically, the pools have been a bit of a wash for us. So when you look through to the combined ratio, it's kind of washed. We're keeping an eye on it because it is being used at a higher rate. In this theft environment, it's not surprising that peers are also utilizing the pools at a higher clip. So bigger picture, I would say the usage has gone up from the industry. Our sessions have also gone up. The overall impact on the quarter, about a point. That's not unusual. You'll see quarters like that. But it is something we're going to keep an eye on. Okay, sorry. I can clarify. So when you're talking about it, you're talking about both the Risk Sharing Pools as well as the FA. That's correct. In terms of seeing that contribution. Your comment about the auto theft is again, I don't know if it's anecdotally, you're seeing players in the industry kind of putting more of the, I guess, high-theft vehicles that are typically having the theft, putting those into the Risk Sharing Pools? Or is that what your point was? Yeah, that's totally the point. Okay. All right. Thank you. Your next question comes from Jaeme Gloyn with National Bank Financial. Your line is now open. Yeah, thanks. Just wanted to make sure that I firmly understand the Contingent Profit Commission profile here. So my understanding or from my take from your commentary, this is purely a Q1 phenomenon. It's not something we should expect to reoccur throughout the rest of 2024 where CPC accruals in 2023 were higher than where we are today. Is that correct? Or should we see some sort of drag from that in upcoming quarters as well? Yeah, so the way I'd look at it is if you look at the prior year comparison, we had about CAD 9.5 million of distribution income. About CAD 4.5 million of that was a true-up from 2022 CPCs. So if you go back to that period of time, 2021 and 2022 were very good years for the industry and were strong years from a CPC perspective for the brokers. So there was more upside that came through against the original expectations when we closed off the books at the end of that year. Also, we'd only just acquired McDougall at that point in time, and we were working with them to understand the kind of accrual practices. So when you look at the year-on-year comparison, the 10, really, we'd say is more comparable to a 5 if you isolate for that item. When we looked at this year's accruals, we were very close. So we didn't really see that same true-up, if you like, that came through. So first comment I'd make is that's why we think the underlying growth pattern is very representative of the expansion in the business. For the outlook for CPCs, we have factored that in our guidance of CAD 75 million before the minority interest finance and taxes. So we were not expecting the same level of scale coming through from CPCs for brokers, nor have we been paying them. So it's a bit of what you saw in the second half of last year, really driven by the cat events. So we see that as probably being a little more of a headwind for the brokers overall. But we'd already factored that in to our estimate for the full year. That was fully reflected in our expectations. Just to add there, I think that the big picture is that, as Phil said, we're comfortable with our guidance on distribution income for the full year. We definitely think that CAD 75 million is on track, which explains the first quarter. And look, I mean, I think we continue to be delighted with the performance of McDougall and the acquisitions we've done. We closed a reasonably sized acquisition in Alberta in the first quarter of this year. That'll kind of help earn in as it goes on. And a couple of the small ones, the pipeline kind of looks good. And the business, from an organic perspective, continues to operate very strongly. The strategy is unfolding exactly as we anticipated. We like it. We think it's going to continue to diversify the earnings. Despite a bit of noise, which really was more of a 23-item than a 24-item, as Phil explained, we're good with the guidance. Yep, understood. Thanks for the extra color. So still on the broker channel, just curious to get an update as to how some of these more recent acquisitions and even, I guess, the McDougall, McFarlan, how is the integration of those businesses going? Are you seeing an uptick in penetration of Definity premiums through these brokers in Ontario and Alberta? And then maybe wrap it up with a commentary around the environment for further broker M&A. At this point, I see one of your peers is very active. And so just curious on your take on that front. Yeah, I think that the macro view here is that we think that consolidation in the broker sector is continuing. As you know, there's several players that are involved in consolidating and making acquisitions. There's a certain profile that fits very well with McDougall and that likes our model. So we don't win all deals. The pipeline, I would say, is pretty healthy, as maybe commented at the end of the year last year. There's something unique about the model we have. They like the fact that they continue to run operational independent models. They like the fact that they can keep and maintain equity and wealth creation opportunities in the model. And as far as kind of the integration is concerned, it's different, of course, for us because we don't integrate these businesses. We own them and we support them. There is some logical synergies that happen. I think that for a broker model, clearly, there's some back-office opportunities and common technology platforms. A lot of it actually comes with expertise and new product and new sales kind of capabilities that they can bring to particularly some of the smaller brokers that are rolled up. Of course, that keeps the margins pretty high. So we like this. It's been positive for us. We think it's going to continue to grow. I think the guidance we've said, if you remember, when we acquired McDougall, it was a CAD 500 million business. In just over a year, we doubled that to a CAD 1 billion business. We're very comfortable that between the normal organic growth of these brokers and some programmatic bolt-on activities, we will end up about CAD 1.5 billion or so in the next few years. It's likely going to continue to help support our earnings and, of course, diversify earnings. Okay. And last one, just on one of the components of the ROE expansion, you mentioned the top of the questions is the Sonnet break-even towards the end of this year. But maybe just a quick update as to where we are on that path towards that break-even. It looks like there's a little bit more advertising, at least in Toronto area. So are you starting to generate a lot more flow or more volume activity in Ontario? And is that setting up on that path to hit the right level of premiums? Yeah, let me just start with that. I'm going to ask Paul to give us some color there. I think the reality is we have indicated that we felt we had plans in place to get Sonnet to break-even by the end of this year on a run-rate basis. I think the macro story is very consistent. That still looks to be on track for us. Paul, why don't you just add some more color to the progress of Sonnet? Yeah, absolutely. Thanks, Rowan. And yes, that's correct. We are actually seeing an increased interest in the market. We're seeing an increased focus on "volume" and "bundled volume." And we are supporting that with increased marketing attention to the segments that are profitable for us. So although when you look at the aggregate level, our unit count is relatively flat, underneath that actually is a contraction in Alberta, as we mentioned previously, and mid- to mid-high single-digit growth outside of Alberta. So we're quite pleased with that. One other highlight, I would say, is previously mentioned how much more profitable and sustainable our affinity business is. And I'm delighted to share that that is going very well for us. Whereas last year, it represented about 20% of our GWP in the Sonnet portfolio, it's now up to almost 28%. On a unit growth basis, it used to be about 25% of our units last year. It's now up to 33% of our units. We continue to market to that segment in particular. That segment is very interested in the digital self-serve capabilities that we have to offer. So we'll continue to drive that entire portfolio to that path of profitability by the end of this year. Yeah, that's great. Thanks very much. Your next question comes from Paul Holden with CIBC. Your line is now open. Thanks. Good morning, all. Apologize. I got in a little bit late. So hopefully, I haven't already answered these questions, but a few for you. I guess, first off, an update on personal auto and where earned rates sit versus written, and then, of course, where claims inflation is as well, please. Go ahead, Paul. Yeah, thanks for that question. So on a written basis in Q1, we're about 13%. And on an earned basis, we're just over 10%. So that was a strong contribution to that 15.6% growth that we experienced in the quarter. In terms of actual severity and inflationary statistics, what we are seeing is a continued stabilization of the year-over-year inflationary or severity increases. So we are in about the mid-single digits in essentially all of the lines, both on the physical damage side and on the casualty side, which is reassuring because it's given us an opportunity for our rates to begin to catch up. And as we mentioned in Q4, we crossed over where rate achievement was in excess of the trend. One highlight I will add to that is theft. We've talked about theft extensively before. And so theft continues to be very elevated relative to pre-pandemic levels. However, theft was very elevated last year. So on a year-over-year basis, actually, the impact is very flat. And if you unpack that, what we are seeing is a slight increase in severity of individual thefts. That's really representative of the fact that there are more new vehicles now becoming available in the marketplace. Shoppers are buying more vehicles, and therefore, more new vehicles with higher content are being stolen. But on a positive note, we are seeing a significant, almost a double-digit decrease in frequency in theft year-over-year. So our frequency and our rate are covering the severity components. And that's why it leads to a flat year-over-year result. And we are watching this space carefully to make sure that we continue on in a positive manner. If we continue to see frequency reductions as is, that bodes well for the future. Of course, we're working actively with IBC and the various governments to ensure that we take every action possible to reduce the impact of theft on our portfolios. Okay, that's great. A couple follow-up questions on that. In terms of the difference between the written rate and earned rate, should I assume the earned rate migrates towards that 13%? I think so, but tell me if I'm wrong. And then second question is, that 13%, I don't know, normally a high number. How long can that continue for? Can we see that kind of written rate continue, at least through the remainder of 2024? Yeah, I think to answer your first question, yes, it's reasonable to expect that our earned rate will tick up by a couple of points for the remainder of the year as that high written rate activity from last year and into the beginning of this year earns through the portfolio. So again, that's positive for the profitability of this line. To answer your second question, we believe it is a firm market. The entire market is taking double-digit rate. It was necessary after a prolonged period of very flat and, in some cases, negative rates. Obviously, with the inflationary and severity trends we've seen in the marketplace, the entire market had to take that rate. So our expectation is it will remain at that level for the duration of this year. Great. One last question for me. Hearing a number of questions and, I guess, some data points suggesting a slowing or less firm rate market in commercial, are you seeing any evidence of that? Because it certainly doesn't show up in your premium growth, which remains very strong. But wondering if you're seeing any early indications of not soft markets, but I don't know, less firm, less hard? Yeah, Fabian, maybe to give you a little color on your question. We have seen a couple of segments in the commercial space that have become a little more competitive. But I would say overall, the commercial marketplace is remaining firm and very attractive for us to drive growth in. And maybe there are three additional insights I wanted to share with you in relation to the question that you just asked. As you've seen from our disclosures, we've grown by 15.8% in Q1. And about half of that growth has been generated through rate and inflation adjustments. And that gives us a great deal of confidence that we are continuing to cover our loss trends in our portfolio. And with that in mind, we are very confident that we can continue to run the commercial portfolio in that low 90s kind of combined ratio range. The second point I would like to make is that outside of the rate growth that we've had, as you know, from prior disclosures, we are focusing on driving growth in our small business and in our specialty segments. We have a very strong value proposition in those segments. We have great support from our broker partners. Most importantly, we have very strong underwriting capabilities. We are very comfortable with the margin position that we have in those segments. The new business that we have been adding to our portfolio, we do expect to be profitable as well. Despite the increased compensation that you're referring to, our retention rates are holding quite nicely in that mid-80s to high-80s range. Overall, no concerns with the growth and the profitability that we have in our commercial segment overall. Then maybe the last point to add is that if you look at our portfolio, what is important to understand is that the vast majority of our portfolio is in premium bands of 100,000 or less. And given the fact that the pricing elasticity in those bands is much lower, we have a very good opportunity to retain our profitable business at attractive rates and retention numbers. So overall, very pleased with the growth momentum that we have in commercial, very pleased with the underlying profitability that we have. And as you know, we are always putting a premium on protecting our profitability. So maybe the growth rate might come down by a couple of points as we are making the right trade-off decisions between growth and margin protection. But with the strength that we have in our teams, very strong underwriting culture, very strong actuarial capability that we have built the last four or five years, we are very confident that we can sustain the combined rates in the low 90s and keep the growth in that low double-digit range as well. Okay. So I have to ask a follow-up because the price elasticity point you brought up was really interesting. You're suggesting where you're competing in the market because it's, I think, smaller to midsize accounts, less price elasticity versus large commercial where that might be the opposite, higher price elasticity. Do I understand that correct? Yeah, very much so. That is a typical sign of a less firm market element. So if you are a company that has CAD 250,000, CAD 500,000 in premium expenses, new capacity coming into the marketplace, these are the accounts that are being chased more. And I think the other point that is important to recognize is that in that lower premium band, we have a very strong value proposition that are mitigating the impact of price. So in that small business space, we've developed that digital capability that allows our brokers to quote and bind business in an automated fashion. And our renewals in that segment are on an automated basis as well. So that additional benefit of service and ease of doing business is mitigating the importance of price quite effectively. Looking at this quarter and the last two quarters, we are quite comfortable that we can sustain attractive rates and renewal rates in that smaller end of the commercial marketplace. Got it. Okay, I'll stop there with the questions. Thanks for your time. Ladies and gentlemen, as a reminder, should you have a question, please press star, followed by the 1. Your next question comes from Doug Young with Desjardins Capital Markets. Your line is now open. Good morning, Phil. You mentioned the Facility Association. And so I just wanted to kind of dig into this in terms of what you're seeing within that book, specifically in Alberta, but in general. And is there anything to worry about in terms of what you're seeing in terms of the growth of the Facility Association? Is pricing adequate within the Facility Association? Is it below where the industry is pricing? Just hoping to get a little bit of color. Yeah, I guess I lumped FA in there with the Risk Sharing Pools. It's more of a pickup that we're seeing in the Risk Sharing Pools themselves than the pure FA. And that's the increased usage from the industry. We're not seeing really a big change from the Facility Association itself. So I think it's more about the usage of the pool. We just talk about them collectively when we think of it in that fashion. But the Facility Association we're still seeing as pretty normal kind of behavior and profitability and activity coming back from it. It's the pools where we've seen the increased activity. Well, I don't know if you want to put any flavor on the provincial piece of that. Yeah, just a bit more color on there. And as Phil mentioned, the industry is utilizing the pools more, particularly around the theft area. But of course, the industry itself is taking significant rate to cover theft. So we would expect that trend to moderate a bit throughout the year. And so the pools naturally grow from that perspective. And then there's an assessment back to that. And we'll watch the space carefully to see how this develops. So we're not seeing a return to the bad days of the Facility Association. That is essentially the messaging that I'm getting there. We're not seeing that. We're just seeing increased usage of the pools. But we're also responding with increased usage ourselves. So it's more muted when they actually take it through to the net impact. No, that's fair. And then just back on the M&A side and broader, bigger question, and I understand the strategy around the roll-up and the broker side and looking at manufacturing and insurance in Canada. Have you started to, if you can't find anything of size in Canada, have you started looking outside, beyond the Canadian region in terms of opportunities to deploy capital? Or does it strictly remain just Canadian focus? Yeah, look, I think our priority, and definitely the focus, is on Canada. I mean, when you think about I mean, the thesis that we do think consolidation is going to continue to pick up in Canada after a bit of a pause. When you think about the platform we've built in Canada, which really has been built for a bigger business than we are, the natural synergies we would get, the support from the broker distribution, and the fact that we've got a very seasoned and experienced team that knows how to operate here in Canada, that is clearly any in-market acquisition is definitely top of our list and top of our priority. I think at this stage, we don't feel that it's necessary to kind of depart from that in terms of priority. That doesn't mean we'd ever say no to ever. Of course, we'd have to think very carefully about that. Do they have to be in a certain line of business, etc.? But what I would share to you, where we're active and where we're putting our attention in is definitely in-market carrier focus. Appreciate the color. Thank you. Your next question comes from Stephen Boland with Raymond James. Your line is now open. Sorry, I apologize if this was asked. Just in terms of optimizing your balance sheet, looking to do, I guess, some term debt, is there a possibility that you come to the market before there's actually a need? Or is it going to be coincident with some sort of acquisition? Yeah, thanks, Steve. I think it's more likely that we do it coincident with M&A activity. The only caveat to that one is usually we have drawn somewhat on the debt facility that we have in place. And to the extent on the broker distribution side, that runs up to a sizable enough fashion to support an issuance from ourselves, we might look at that. But it's more likely in the scenario of a more concerted deployment of capital through M&A. Okay. The second question, again, I apologize I just asked, is the Alberta government recently, or the regulator commissioned reports. I think consensus is that they're not very effective or not telling a true story. I'm just wondering if you have any comments on the reports. Go ahead, Paul. Thank you. Yeah, we share the industry's general concern with the reports, in particular the report that tried to calculate the impact of the cost to consumers in comparing various different jurisdictions and different methods. So we've shared those concerns through the industry and directly with the government. We continue to work proactively with the government at their reforms. And we are encouraged to hear that they are looking to put reforms through the system. But we are certainly watching that space and determining the extent to which and the timing of those reforms will impact the portfolio. But yes, there are concerning reports in terms of the methodology. The only thing I would just add to that is, look, I mean, I think that as we've kind of shared in the past, obviously, the kind of environment in Alberta is less attractive to us than other provinces. When we think about our portfolio in Alberta, it's only 12% of our total auto portfolio. We've got 5% of that in Sonnet and 7% in the broker business. The broker business is in a different position from our Sonnet business. Brokers are a much more mature business. And while there is some compression on the margin as this takes time to unfold, we do think eventually the government will end up with some form of a reasonable outcome and reforms in place. But in the meantime, we continue to contract our Sonnet business. We've been in discussions with the government. I think our business in Sonnet now is down to about CAD 66 million. So while it's been a drag, the drag is getting smaller for us. And Paul and his team have turned the marketing off there. So really, that position, we keep risk managing that area. And all the other growth has really been redirected to other more attractive regions. So we'll kind of continue to engage and watch how that unfolds. Okay. Thanks very much. For the questions at this time, I will now turn the call over to Dennis for closing remarks. Thank you, everyone, for participating today. The webcast will be archived on our website for one year. A telephone replay will be available at 2:00 P.M. today until May 17th. Transcripts will be made available on our website. Please note that our second quarter results for 2024 will be released on August 1st. Please also note that we'll be hosting our inaugural Investor Day on Thursday, September 19th. Additional details will be posted on our website closer to the event. That concludes our conference call for today. Thanks and have a great one. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.