the co-operators general insurance company

Co-operators General Insurance Company Annual Report 2011

MISSION, VISION, VALUES

Our Mission The Co-operators: financial security for Canadians and their communities.

Our VisionThe Co-operators aspires to be valued by Canadians as... > a champion of their prosperity and peace of mind, > a leader in the financial services industry, distinct in

its co-operative character, and > a catalyst for a sustainable society.

Statement of ValuesAt The Co-operators we...> strive for the highest level of integrity> foster open and transparent communication> give life to co-operative principles and values> carefully temper our economic goals with consideration

for the environment and the well-being of society at large> anticipate and surpass client expectations

through innovative solutions supported by mutually beneficial partnerships.

In 2012, The Co-operators is celebrating the International Year of Co-operatives as declared by the United Nations General Assembly. Co-operatives are viable, values-based businesses like ours that are governed by the members who benefit from their operation. As a member and strong supporter of the co-operative sector, we have joined with co-operatives worldwide to celebrate this significant year. Learn more at: www.cooperators.ca

Visit www.cooperators.ca to view the full suite of 2011 reports for The Co-operators group of companies.

ContentsCompany Profile / Organizational Chart 4

Consolidated Highlights / Five-Year Review 5

Letter to Shareholders 6

2011 Company Highlights 8

Management’s Discussion & Analysis 9

Glossary of Terms 39

Responsibility for Financial Reporting 41

Independent Auditor’s Report 42

Appointed Actuary’s Report 43

Consolidated Financial Statements 44

Notes to the Consolidated Financial Statements 48

Corporate Governance / Annual Statement 103

Board of Directors 104

Board of Directors: Committees 106

Member-Owners 107 Corporate Directory 108

4 CO-OPERATORS GENERAL INSURANCE COMPANY

Company ProfileCo-operators General Insurance Company (CGIC) is a leading Canadian-owned multi-product insurance and financial services organization with assets over $5.2 billion.

CGIC employs 2,964 staff members and is supported by 512 exclusive agents with 688 retail outlets, four contact centres, one call centre, and an extensive national broker network.

Under its primary line of business — Property and Casualty insurance — CGIC protects over 808,000 homes, 1.2 million vehicles, 38,000 farms and 129,000 businesses.

COMPANY PROFILE

Organizational chartThe Co-operators Group Limited is the co-operative holding company for The Co-operators group of companies and is owned by 45 Canadian co-operatives, credit unions and like-minded organizations.

Addenda Capital Inc. (71.28%)

Co-operators General Insurance Company> The Sovereign General Insurance Company> L’UNION CANADIENNE, Compagnie d’assurances> The Equitable General Insurance Company*> COSECO Insurance Company

Federated Agencies Limited> HB Group Insurance Management Ltd.> UNIFED Insurance Brokers Limited

Co-operators Life Insurance Company> TIC Travel Insurance Coordinators Ltd. - SELECTCARE WORLDWIDE CORP.

> The CUMIS Group Limited (72.99%) - CUMIS Life Insurance Company - CUMIS General Insurance Company - Credential Financial Inc. (50%)

The Co-operators Group Limited

Co-operators Financial Services Limited

*Non-operating entity

ANNUAL REPORT 2011 5

CONSOLIDATED HIGHLIGHTS

FIVE-YEAR REVIEW

Net Income

Total Assets

Direct Written Premium

Shareholders’ Equity

In millions of dollars except return on equity, earnings per share and ratios 2011IFRS

2010IFRS

2009CGAAP

2008CGAAP

2007CGAAP

Direct Written Premium 2,331 2,321 2,223 2,150 2,087

Net Income 150 73 74 53 140

Total Assets 5,293 5,135 5,109 4,641 4,680

Shareholders’ Equity 1,524 1,386 1,262 996 1,234

Return on Avg Equity (ROE) 11.4% 5.9% 6.5% 4.8% 12.8%

Earnings Per Share (EPS) $6.59 $2.77 $3.02 $2.21 $6.56

Loss Ratio– excluding Market yield adjustment (MYA) 63.4% 69.2% 69.1% 72.3% 66.9%

Expense Ratio 34.3% 33.8% 32.6% 32.8% 31.8%

Combined Ratio – excluding Market yield adjustment (MYA) 97.7% 103.0% 101.7% 105.1% 98.7%

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Commercial (19%)

Farm (5%)

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Home (26%)

Auto (48%)

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A closer look...

at 2011 Volatility underpinned much of 2011: unpredictable storm activity, economic uncertainty and shifting investment markets continued to influence our business. Despite these challenges, we saw a 100.5% increase in pre-tax earnings, primarily due to the benefits of overhauled legislation and our significant attention to addressing Ontario Auto profitability issues.

In 2011, the fires in Slave Lake, Alberta, had a devastating impact in both human and financial terms. Estimated to be the second costliest insured disaster in Canadian history, we paid $33.7 million in losses across our group of companies. Our field teams responded and, we’re proud to say, excelled in delivering on our promise to be there when our clients need us most. Our response to the disaster has been positively referenced by industry stakeholders as a best practice.

A closer look...

at why we’re a different kind of companyOur commitment to co-operative values and principles has — and will always be — the lens through which we view our business objectives and decisions. For us, success is measured beyond our financial results. We make business decisions based on doing what’s right and what’s healthy for our clients and communities.

Our co-operative values and philosophy were featured in our new advertising campaign, launched in September. Additionally, we placed a renewed focus on determining ways to deliver co-operative benefits to our retail clients that, we believe, will provide a better insurance experience and further differentiate us from our major competitors.

The next iteration of our four-year sustainability strategy introduces increasingly aggressive targets and positions us well to be a catalyst for sustainable change. Our plans include more intense collaboration with clients, agents, suppliers and claims partners. More information about our sustainability journey is published in our 2011 Sustainability Report.

LETTER TO SHAREHOLDERS

“A Closer Look”

In 2011, we embarked

on a new, four-year strategic

plan. In formulating our

direction, we explored

what defines us, what sets

us apart and where we

can do more. Many of our

opportunities stem from

our unique co-operative

ownership structure.


A closer look...

at the road ahead In looking ahead, 2012 will not be without challenge but, as we head into continued uncertainty, we must find creative solutions to widespread industry problems. As a strong, Canadian co-operative organization, we are committed to finding long-term solutions. As always, the health and well-being of Canadian communities is a priority.

In 2012, we will celebrate an unprecedented year for co-operatives worldwide — the International Year of Co-operatives, as declared by the United Nations. As a strong supporter and stakeholder of the co-operative sector, we are pleased to join our co-operative and credit union partners in promoting our co-operative difference — efforts that will live far beyond 2012.

With a clear strategic direction and strong execution capabilities, we are focused on performance in 2012. And with the combined energy and passion of our shareholders, clients, staff, agents, broker partners, Board of Directors and community partners, we will reach our desired goals and achieve continued success.

A closer look...

at how we connect with our stakeholders Providing clients with convenient access to our products and services remains a key priority. We fortified our integrated distribution model with the rollout of our Call, Click or Come In initiative that integrates agencies, contact centres and the Internet. To ensure the success of this strategy, we have made significant enhancements to online functionality through the re-build of our website.

We’re also pleased with the growth we’ve seen in Quebec. In 2011, we opened five new agencies and continued to build our brand presence through radio ads — driving a tenfold increase in Internet traffic.

Our staff engagement results remain high ranking us as one of the “50 Best Employers in Canada” for the ninth consecutive year. We are proud of the high levels of support and dedication we see from our staff as demonstrated by these exceptional results.

A closer look...

at how we respond to challenge Faced with another year of low interest rates, we cannot rely on investment income to buoy our results in the future. Driving down our expense ratio and bringing all lines of business into profitability are critical components to our strategy. While we’ve seen measured progress, there is more work to be done.

Our Home results were impacted by a record level of storms and claims from the Slave Lake disaster; however, the underlying health of our portfolio remains strong after taking decisive action to address profitability challenges. Ontario Auto results exceeded our expectations as we turned a significant underwriting loss in 2010 into an underwriting profit in 2011, due in large part to the improved regulatory framework implemented in the fall of 2010.

Client satisfaction scores remain a priority. Our JD Power scores showed an overall increase in client satisfaction, with significant improvement realized in our Home line of business and top quartile performance in Auto insurance.

Kathy Bardswick President and Chief Executive Officer

Richard Lemoing Chairperson, Board of Directors

ANNUAL REVIEW 2011 3

As a strong, Canadian co-operative organization, we are committed to finding long-term solutions. As always, the health and well-being of Canadian communities is a priority.

(Signed) (Signed)


2011 COMPANY HIGHLIGHTS

Co-operators General Insurance Company provides Home, Auto, Farm and Commercial insurance through an exclusive agency network across Canada. This network also distributes Life and Travel insurance, and Wealth Management products for Co-operators Life.

> More than doubled its net income after tax in 2011 over 2010, in spite of a record year of weather-related events.

> Stabilized the Ontario Auto product through increased fraud management and claims closings, improved rating and risk selection tools and legislated Auto insurance reform.

> Integrated the Home product line into the new enterprise P&C policy suite called PolicyCenter. The move follows the implementation of claims, policy and billing systems within the policy suite.

> Provided significant support to its clients and their community of Slave Lake, AB, after devastating fires.

The Sovereign General Insurance Company offers solutions for the specialized and complex insurance needs of Canadians through a coast-to-coast-to-coast, independent brokerage network.

> Earned a company record of $35.8 million income before tax and grew earned premium by 10% to $234.7 million.

> Broadened offerings with a new Energy practice and a substantial expansion of Professional Liability capabilities.

> Reduced core combined ratio by 5.8 points to 91.1% and increased shareholder’s equity by 16.5% to $201.3 million.

L’UNION CANADIENNE, Compagnie d’assurances offers general insurance products for individuals and businesses through a network of independent brokers, with over 300 points of sale in Quebec, as well as general insurance products in Newfoundland and Labrador.

> Converted $100 million of the Personal Insurance sector to the Portfolio Management Business process to give brokers more authority and responsibility in managing their book of business.

> Developed a new interface to improve transactions with Commercial insurance brokers.> Supported succession planning within the broker network. > Introduced electronic data imaging in Commercial underwriting to eliminate paper documents.

HB Group Insurance Management Ltd. and COSECO Insurance Company offer Auto and Home insurance products through three contact centres to employer groups, affinity groups, associations and credit union members. Business developed by HB Group is primarily insured by COSECO.

> COSECO earned $67.5 million net income before taxes marking another year of significant profitability.

> Signed 26 new groups with over 75,000 prospective clients for future growth.

A member of The Co-operators group of companies


Management’s Discussion & Analysis

For the year ended December 31, 2011

February 15, 2012

This Management’s Discussion and Analysis (MD&A) comments on Co-operators General Insurance Company’s operations and financial condition for the year ended December 31, 2011.

Unless otherwise stated or the context otherwise indicates, in this report, “Co-operators General”, “we”, “us” and “our” refers to the Consolidated Co-operators General Insurance Company including its wholly owned subsidiaries, The Sovereign General Insurance Company (Sovereign), L’UNION CANADIENNE, Compagnie d’assurances (L’UNION CANADIENNE) and COSECO Insurance Company (COSECO). CGIC refers to the non-consolidated Co-operators General Insurance Company.

Effective January 1, 2011, we adopted International Financial Reporting Standards (IFRS). As such, financial data is presented under this accounting framework. Comparative amounts for 2010 have been restated according to the transitional provisions of IFRS, unless otherwise noted. Detailed explanations of the effects of our conversion to IFRS are found in Note 3 of our audited consolidated financial statements for the year ended December 31, 2011. Comparative information for 2009 has not been restated and is presented under the previously issued Canadian generally accepted accounting principles (Canadian GAAP or CGAAP).

The information in this discussion should be read in conjunction with our consolidated financial statements and notes. References to “Note” refer to the Notes to the Consolidated Financial Statements. All amounts are expressed in Canadian dollars, unless otherwise specified, and are based on financial statements prepared in accordance with IFRS. Additional information relating to Co-operators General, including our Annual Information Form, can be found on SEDAR at www.sedar.com.

We use certain financial performance measures which do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other issuers. They should not be viewed as an alternative to measures of financial performance determined in accordance with IFRS. Such measures are defined in this document. Our methodologies for calculating key success factors have not changed with our adoption to IFRS.

The information in this discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from these forward-looking statements as a result of various factors, including those discussed below or in our Annual Information Form. Please read the cautionary note which follows.

CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This MD&A contains forward-looking statements and forward-looking information, including statements regarding the operations, objectives, strategies, financial situation and performance of Co-operators General Insurance Company. These statements, which appear in this MD&A (including the documents incorporated by reference herein), 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 risk, 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 MD&A 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, targets, projections and other forward-looking statements will not occur. Such forward-looking statements and information in this MD&A speak only as of the date of this MD&A.

Forward-looking statements and information in this MD&A 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 contained in this MD&A, 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; impacts of regulation and tax laws by the Canadian and provincial governments or their agencies. Some of the assumptions we have made are described in Outlook.

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 contained in this MD&A and the documents incorporated by reference herein 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; government regulations; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; our reliance on agents to sell our products; our ability to successfully pursue our acquisition strategy; our ability to execute our business strategy; 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; our dependence on key employees; and general economic, financial and political conditions.

Readers are cautioned that the foregoing list of factors is not exhaustive. The forward-looking statements and information contained in this MD&A 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 MD&A to conform such statements to actual results or to changes in our expectations except as otherwise required by applicable legislation.

CORPORATE OVERVIEW ABOUT US

As a leading Canadian-owned multi-line insurer, Co-operators General plays a vital role in providing home, automobile, farm and commercial insurance products to individuals and businesses through a diverse distribution network. We are one of the largest providers of property and casualty (P&C) insurance in Canada with a market share of approximately 5%. Our multi-channel distribution model operates under our four main operating companies:

CGIC - Distributes both personal and commercial insurance products through a dedicated agency network of 512 agents in 688 locations throughout Canada. CGIC also distributes life insurance and wealth management products of Co-operators Life Insurance Company, an affiliated company. Quotes for our suite of insurance products can be obtained by visiting www.cooperators.ca.

Sovereign - Writes complex commercial, marine and specialty risk insurance through independent brokers throughout Canada. It also offers personal insurance products in select regions of the country.

L’UNION CANADIENNE - Offers commercial insurance products in the Quebec market. It also writes personal insurance products in Quebec and Newfoundland and Labrador.

COSECO - Provides home and auto insurance to employer, association and affinity groups across Canada under the trademark The Co-operators®.

Co-operators General’s parent company is Co-operators Financial Services Limited (CFSL) and its ultimate parent is The Co-operators Group Limited (CGL), a co-operative holding company which is owned by 45 member-owners consisting of Canadian co-operatives, credit unions and other like-minded organizations from across the country. Significant associated companies under common control include Co-operators Life Insurance Company (CLIC), The CUMIS Group Limited (CUMIS), Addenda Capital Inc. (Addenda), Federated Agencies Limited (FAL), and HB Group Insurance Management Ltd. (HB Group). “The Co-operators” refers to CGL and its direct and indirect subsidiaries. The majority of Co-operators General’s investment portfolio is actively managed by Addenda. We also share many other corporate services with affiliated companies in order to maximize synergies amongst the group.

CORPORATE STRATEGY

In 2011, we embarked on a new corporate strategy that will bring us to 2014. This strategy is rooted in The Co-operators mission: financial security for Canadians and their communities. Over the course of this horizon, our actions will be guided within the following pillars.

Client experience - As an organization, we strive to earn our client’s trust and business every day. By providing a superior client experience, we will achieve that goal. Some of the ways that we benchmark our performance in this strategic imperative are by the use of


consumer feedback, surveys, and industry research. Through these methods, our clients have identified areas where we can improve. We have responded to our clients’ needs through a number of initiatives. Our website was refreshed in 2011 and includes expanded online self-service functions. This adds more convenience to our client experience, which was a key point of feedback from our client interaction surveys. It also aligns with our ‘Call, Click or Come in’ integrated distribution model, outlined below. We have also made investments in other online and corporate social media outlets that allow us to be where our clients are. We plan on further investment in these areas throughout the strategic planning horizon. In 2012, we will also focus on identifying and developing best practices in the delivery of our client service which will allow our agents and staff to deliver a superior client experience.

Co-operative experience - Our unique heritage, history and approach to business as a co-operative provide us with the opportunity to differentiate ourselves in the Canadian P&C insurance market. We aim to be the insurance provider of choice for co-operatives and credit unions as well as their members, which includes four out of every ten Canadians. In 2012, we will build upon and continue to develop programs and services that deliver mutual value for the member owners of CGL, their members and the greater co-operative system.

Our national brand advertising campaign launched in 2011 communicating our co-operative values. We leveraged social media, videos, articles and web features to engage our staff and agents to deliver the message to all Canadians that co-operative values have tangible benefits, including improving livelihoods and supporting communities.

It has been proclaimed by the United Nations that 2012 is the International Year of Co-operatives. We will celebrate this year by hosting and participating in events across the country. These events will highlight the special place that co-operatives have in the Canadian economy and within our communities.

Competitiveness - The Canadian P&C insurance market is highly competitive. As such, we have identified specific target markets and other capabilities in order to thrive in the marketplace. Some of the major areas of focus for Co-operators General in 2012 will be pricing and segmentation, loss cost control, and expense management.

We made significant strides in the past year when it comes to segmentation of our personal lines portfolio. Our investments in advanced business intelligence have allowed us to better price our products and align our pricing with the insurance risks we take. In 2012, we will continue this investment in personal lines, as well as explore opportunities in the farm and commercial insurance product lines.

Improvements at Sovereign have allowed us to make progress toward our goal of being a recognized leader in the specialized and complex commercial insurance marketplace. Investing in advanced data analytics at Sovereign has allowed us to better price our products, as well as enhance our services to the brokers that distribute our products. We plan on continuing this strategy into 2012.

A major focus in the management and control of loss costs in 2011 and beyond is on the detection and handling of fraudulent claims. Our fraud investigation team has been working with a number of internal and industry partners to actively monitor and detect, as well as protect us from this growing industry-wide threat.

We have made a number of strategic investments in information technology and process enhancements in the last number of years. In 2012, we plan on continuing this investment as well as leveraging past improvements to adequately manage our general expenses at a competitive level.

Distribution - Our multi-channel distribution model provides choice to our clients as to how they access our insurance products. Through our dedicated agency force of 512 agents in 688 locations, our contact and call centers, and our recently revitalized web site, we give our clients the choice to ‘Call, Click or Come in’ to deal with CGIC. This integrated distribution model was piloted in Ottawa and Calgary in 2011. We will implement the lessons learned from these pilots and expand this strategy in 2012. We have also expanded our agency force in 2011, and will continue to do so in 2012, specifically in the Quebec and British Columbia markets.

At COSECO, we plan to further expand our group client base by offering improved quote functionality to our website. This aligns with our growing internet strategy, realizing that many consumers prefer to shop for insurance using the web.

At Sovereign and L’UNION CANADIENNE, our strategy revolves around solidifying our broker partnerships. We will do this by actively engaging the brokerage community to develop key business partnerships in the commercial insurance market.

Trust and reputation - Our trust and reputation is built from our strong values and culture. Building trust and reputation with our clients and staff is a valuable outcome of investment in our sustainability and our community.

Our six Community Advisory Panels (CAPs) provide a forum for community members to comment, provide advice and make recommendations to our management on any matter relating to our products and services as well as on interactions between us and our



community and clients. We are proud to be the only Canadian insurance company to invite local community members to participate in the decisions we make at Co-operators General. We conducted 12 CAP sessions in 2011, two in each of our six participating communities.

We also support a number of national signature safety programs, aimed at all age groups, to educate our communities on issues such as car seat safety, fire safety, responsible decision making for youth and senior health and wellness. We appreciate and support our dedicated staff volunteers who have formed Volunteers in Action groups across the country and who run these programs.

We recognize that climate change has an enormous impact on the lives and wellbeing of Canadians and all global citizens. As such, Co-operators General is committed to being a catalyst for a sustainable society. Not only do we seek to operate in a sustainable manner, but we encourage others to do so as well. Our target is to reduce our greenhouse gas emissions by 50% over the course of our four year strategic plan. We are doing this in part by retro-fitting our buildings to improve energy efficiency, and through the purchase of renewable energy. We’ve also expanded our use of video and web conferencing, which has cut down on our need for business travel. In 2012 we will expand the offerings of insurance products specifically tailored to the special requirements of electric and hybrid vehicles, as well as solar or wind powered homes. This is intended to support our clients in making environmentally conscious decisions in their everyday lives.

Through these initiatives, we are honoured to be recognized as the top-ranked organization among the 50 Best Corporate Citizens in Canada by Corporate Knights, an organization that promotes socially responsible corporate activity.

People - Our goal is to be an employer of choice, ensuring that a highly skilled and engaged workforce is in place. We recognize that the strength of our people is responsible for the success of our organization. We are proud of our standing as one of the “50 Best Employers in Canada” in the Aon Hewitt survey, placing 24th in 2011. However, in an environment of aging demographics and increasing competition for talent, we understand that retaining and attracting the right people is critical to our future success. In 2011, we successfully rolled out a new performance measurement model across our organization which focuses on the alignment of employee core competencies with Co-operators General’s overall success. We also plan to develop and launch a human resources information system in 2012 to enable management to make better decisions and improve efficiencies amongst the group of companies.

KEY FINANCIAL MEASURES (NON-GAAP) We measure and evaluate the performance of the consolidated operations and each business segment using a number of financial measurements. These measurements help the reader understand business volumes, the quality of risk underwriting, management reserving practices, and the financial strength and financial leverage of Co-operators General.

These measures are not GAAP measurements, but are derived from elements of the IFRS consolidated financial statements, and are consistent with financial measures used in the P&C insurance industry.

Direct written premium (DWP) is a component of revenue which represents the insurance sales transactions in the year written directly by the insurer. DWP does not include reinsurance policies assumed or ceded and it does not represent premium earned during the year which is referred to as net earned premium. Measuring DWP growth year-over-year is useful in assessing business volume trends.

Gross written premium (GWP) is a component of revenue which represents the total insurance sales transactions in the year. It does not represent premium earned during the year which is referred to as net earned premium. GWP is the sum of premiums written directly by the insurer and the premiums for reinsurance assumed during the period.

Return on equity (ROE) is the ratio of net income to the average of opening and closing shareholders’ equity excluding accumulated other comprehensive income.

Combined ratio is the ratio of total expenses to net earned premium, expressed as a percentage. In the insurance business, the combined ratio is used to understand a company’s profitability from underwriting insurance risks. The combined ratio is the sum of the loss ratio and the expense ratio.

Loss ratio (also referred to as the claims ratio) is the ratio of net claims and adjustment expenses to net earned premium, expressed as a percentage.

Expense ratio, also a component of the combined ratio, is the ratio of the total premium and other taxes, commissions and agent compensation and general expenses to net earned premium, expressed as a percentage.


Claims development is essential to understanding the reasonableness of a company’s claims reserving practices. It represents the difference between any prior estimates in the claims costs and the claims costs actually paid on closed claims, plus any change in estimates for claims still open or unreported. Favourable claims development contributes positively to net income, while unfavourable development contributes negatively. Consistent favourable claims development generally indicates strength in a company’s reserving practices.

Market yield adjustment (MYA) is the impact of changes in the discount provision on claims liabilities. It includes the impact of changes in the discount rate used to discount claims liabilities based on the change in the market based yield of the underlying assets. MYA also includes adjustments made to the provisions for adverse deviation (PFADs) and other discounting assumptions.

Minimum Capital Test (MCT) is a regulatory defined, formula-driven, risk-based test of capital available over capital required. The formula looks at the various elements of assets and liabilities on the balance sheet and assigns risk weightings to establish a required capital level. Capital available is total shareholders’ equity plus or minus certain adjustments as prescribed by the Office of the Superintendent of Financial Institutions (OSFI). The supervisory target is that capital available must be at least 150% of the capital required.

SUMMARY OF KEY FINANCIAL DATA AND RESULTS OVERVIEW

(in millions of dollars, except for EPS, ROE and ratios) 2011 2010 2009IFRS IFRS CGAAP

Key financial dataDirect written premium (DWP) 2,331.0 2,321.8 2,222.7Gross written premium (GWP) 2,337.2 2,307.9 2,257.6Net earned premium (NEP) 2,194.4 2,119.7 2,037.8Net income 150.3 72.7 74.0Total assets 5,292.8 5,135.1 5,109.4Total liabilities 3,768.6 3,748.9 3,847.0Shareholders' equity 1,524.2 1,386.2 1,262.4Key success indicatorsDirect written premium growth 0.4% 4.5% 3.4%Gross written premium growth 1.3% 2.2% 3.4%Net earned premium growth 3.5% 4.0% 2.9%Earnings per share (EPS)1 $6.59 $2.77 $3.02Return on equity (ROE) 11.4% 5.9% 6.5%Combined ratio - excluding market yield adjustment (MYA) 97.7% 103.0% 101.7%Combined ratio - including MYA 98.7% 103.4% 103.1%Minimum Capital Test (MCT) 259% 244% 231%

1 All of the common shares of CGIC are owned by CFSL

We have experienced significant improvements from prior year as a result of favourable claims development mainly due to Ontario auto. However, underwriting losses in certain lines of business are a continuing trend over the past few years that needs to be addressed. The current year was characterized by increased frequency and severity of claims and major events, including the Slave Lake catastrophe. We continue to focus on pricing and segmentation and loss cost control. The decreasing interest rates have had a positive impact on our bond portfolio and a negative impact on our claims, specifically the market yield adjustment (MYA).

FINANCIAL PERFORMANCE REVIEW NET INCOME

2011 2010 2009IFRS IFRS CGAAP

Net income ($ millions) 150.3 72.7 74.0Return on equity (ROE) 11.4% 5.9% 6.5%

Net income for the year was $150.3 million, an increase of $77.6 million from the prior year’s net income of $72.7 million. This outcome resulted in an ROE of 11.4%, compared to 5.9% in 2010, representing strong financial performance. We experienced a small underwriting gain in 2011 as favourable Ontario auto development was offset by increased claims related to severe weather and the Slave Lake catastrophe. Net income was positively impacted by realized gains on the bond portfolio which exceeded investment impairments.



DIRECT WRITTEN PREMIUM AND NET EARNED PREMIUM

$ million 2011 2010 % change 2009IFRS IFRS CGAAP

Direct written premium 2,331.0 2,321.8 0.4% 2,222.7 Net earned premium 2,194.4 2,119.7 3.5% 2,037.8

Direct Written Premium (DWP) has increased by 0.4% in the year and Net Earned Premium (NEP) has increased by 3.5%. Current year DWP improved results are primarily driven by average premium growth and inflation which outpaced policy losses in most of our core products. In addition, we increased our participation in the Ontario risk sharing pools which had a positive impact on our DWP.

NEP has increased in the year by 3.5% or $74.7 million compared to 2010. The increase is seen in all of our core lines of business except Auto and across all areas of the country driven by strong retention and rate and inflation increases in premium.

Refer to Note 22 of the consolidated financial statements for a reconciliation of DWP to NEP.

NEP by line of business


Auto 1,098.3 1,100.7 (0.2%) 1,091.1 Home 582.4 555.0 4.9% 516.3 Commercial 369.8 328.8 12.5% 318.2 Farm 101.7 94.2 8.0% 90.1 Other 42.2 41.0 2.9% 22.1 Total 2,194.4 2,119.7 3.5% 2,037.8

The auto line of business remains our largest line by net earned premium. The decrease in the year was caused by a reduced number of policies in force in line with our strategic effort to use segmentation to slow policy growth in unprofitable territories.

The home line of business has increased by 4.9% or $27.4 million which is attributable to improved retention, rate increases and profitability initiatives implemented in 2009 and 2010.

Despite continuing soft market conditions and intense competition, the commercial line of business increased by 12.5% compared to 2010. The increase was due to an increase in policies in force, strong retention and higher average premium.

Consistent with our strategy, client segmentation and pricing initiatives have been utilized to enhance the profitability of our farm business line. The result of these new underwriting guidelines is a decrease in farm policies in force while increasing the average premium per policy.

NEP by geographic area


West 717.3 684.6 4.8% 662.3 Ontario 960.3 945.5 1.6% 911.4 Quebec 297.3 277.0 7.3% 257.7 Atlantic 219.5 212.6 3.2% 206.4 Total 2,194.4 2,119.7 3.5% 2,037.8

NEP in the West increased by $32.7 million or 4.8% compared to 2010. Growth was achieved in large part by new sales and transfers of policies to the regular book from the Alberta risk sharing pool.

Ontario NEP has increased by $14.8 million on the strength of rate increases in of our core business lines and increases in our commercial line policies in force.

Quebec NEP has increased by 7.3% due to a combination of increased policy growth, increased average premium for homes and strong retention rates. We have also continued to expand our agency presence in Quebec, through the opening of five additional agency offices in 2011 bringing our total to twelve. This has contributed to our growth in the province.


Atlantic NEP has increased by $6.9 million, or 3.2% where we have seen new business growth and rate increases offset by decreased policies in force.

INVESTMENT INCOME

$ millions 2011 2010 2009IFRS IFRS CGAAP

Interest and dividend income, net of expenses 142.9 137.1 146.8 Investment expense (5.9) (4.5) (3.5) Net investment income 137.0 132.6 143.3

Net realized gains 61.5 49.1 31.7 Foreign exchange gains (losses) (1.7) (0.3) 1.7 Changes in fair value 0.8 11.6 13.0 Impairment losses (29.6) (20.9) (25.1) Net investment gains 31.0 39.5 21.3 Net investment gains and income 168.0 172.1 164.6

Net investment income, which is comprised primarily of interest and dividends less investment expenses, has increased by $4.4 million or 3.3% compared to 2010. Interest and dividend income improved $5.8 million from prior year as a result of increased interest and dividend income on our fixed income investments. Our invested assets mix is discussed below.

Global stock markets declines during the year, including the TSX total return drop of 8.7%, contributed to equity impairment losses of $29.6 million and predominantly impacted holdings in the technology and financial services sectors. However, the decreases in interest rates had a positive impact on growing the net realized gains by $12.4 million from prior year as we took advantage of sale opportunities in the bond market. Included in net investment gains and income is $4.3 million associated with CGIC's asset liability management (ALM) strategy. Refer to discussion in the Expenses section under Financial Performance Review.

OTHER COMPREHENSIVE INCOME


Net unrealized gain (loss) on available-for-sale financial assets Bonds 92.7 53.4 75.6 Stocks (51.7) 62.2 135.2 Other - - 1.5

41.0 115.6 212.3 Net reclassification adjustment for (gain) loss included in income Bonds (33.6) (36.5) (48.5) Stocks 4.6 9.5 44.3 Other (0.6) - -

(29.6) (27.0) (4.2) Other comprehensive income before income taxes 11.4 88.6 208.1 Income taxes 2.6 26.8 66.0 Other comprehensive income 8.8 61.8 142.1

Other comprehensive income was $8.8 million in the year, which is a decrease from $61.8 million experienced in 2010. The markets experienced the debt crisis in Europe, the uncertainty around the U.S. budget and debt ceiling resolution and worries of slower growth in Asian economies which all contributed to a significant correction to major stock markets during the year. The continuing turbulent equity markets resulted in unrealized losses on stocks of $51.7 million compared to unrealized gains of $62.2 million in the prior year. The low interest rate environment allowed us to generate unrealized gains of $92.7 million (2010 - $53.4 million) in our bond portfolio.



EXPENSES

Claims and adjustment expenses - Loss ratio

$ millions, except ratios 2011 2010 % change 2009IFRS IFRS CGAAP

Undiscounted net claims and adjustment expenses 1,390.4 1,467.0 (5.2%) 1,408.3 Effect of market yield adjustment (MYA) 22.9 9.2 148.9% 27.5

Net claims and adjustment expenses 1,413.3 1,476.2 (4.3%) 1,435.8 Loss ratio (excluding MYA) 63.4% 69.2% (5.8) pts 69.1%Loss ratio (including MYA) 64.4% 69.6% (5.2) pts 70.5%

Undiscounted net claims and adjustment expenses have decreased from prior year as a result of favourable auto claims development and current auto accident year claims. The favourable claims development was offset by the significant weather related claims and major events including the Slave Lake catastrophe.

Unpaid claims and adjustment expenses are discounted using the portfolio yield of the bond and mortgage portfolios with consideration provided for the Government of Canada 5 year bond rate plus a credit spread. Fluctuations in the portfolio yield impact the unpaid claims and adjustment expenses and are included within the market yield adjustment (MYA). The MYA had a negative impact to net income of $22.9 million in the year (2010 - $9.2 million). The current low interest rate environment caused a decline in the portfolio yield of our bonds and commercial mortgages, in addition to other discounting assumptions changes. The other discounting assumption changes increased MYA by $10.6 million. Excluded from the MYA are offsetting net investment gains related to CGIC's ALM strategy of $4.3 million which is recorded in net investment gains and income.

Loss ratio by line of business

% excluding MYA 2011 2010 change 2009IFRS IFRS CGAAP

Auto 58.2 76.0 (17.8) pts 67.5 Home 71.6 63.9 7.7 pts 79.0 Commercial 65.7 59.6 6.1 pts 60.7 Farm 81.4 73.9 7.5 pts 66.2 Other 20.3 20.3 (0.0) pts 50.5 Total 63.4 69.2 (5.8) pts 69.1

Our 2011 automobile loss ratio decreased by 17.8 percentage points compared to prior year as we have experienced very favourable development of prior year claims. We have realized this improvement in claims development compared to 2010, as claims staff were able to close claims earlier in the year than previously. Also, the favourable results experienced in Ontario are a result of the auto reform and our strategic profitability initiatives. While we experienced profitability in the Ontario auto line of business, we are uncertain of the duration of the potential positive impacts. One concern that remains is the significant backlog in applications for dispute resolution services with the Financial Services Commission of Ontario (FSCO). Due to the fact that the legislation calls for mandatory mediation of all disputes before the cases can be litigated or arbitrated there has been little judicial interpretation of the more contentious terms of the new legislation. FSCO is taking steps to reduce the backlog and we expect that arbitrators and judges will provide some certainty as to the impact of the legislation.

The home loss ratio deteriorated by 7.7 percentage points from 2010. Increased pricing and enhanced client segmentation initiatives could not offset higher claims due to major storms and the Slave Lake catastrophe, specifically during the summer months of 2011 in Western Canada.

The commercial portfolio's loss ratio increase of 6.1 percentage points was due in large part to the impact of storms with some overall increase in total severity.

The farm loss ratio has deteriorated in the year by 7.5 percentage points. Severity and frequency of storm claims have increased from 2010 which outweigh the average policy premium increase. Initiatives continue which focus on improving profitability by using segmentation to more appropriately price the product that we offer.


Loss ratio by geographic area

% excluding MYA 2011 2010 change 2009IFRS IFRS CGAAP

West 76.8 68.9 7.9 pts 61.4 Ontario 50.9 75.1 (24.2) pts 77.8 Quebec 67.4 61.2 6.2 pts 59.9 Atlantic 68.6 54.6 14.0 pts 67.9 Total 63.4 69.2 (5.8) pts 69.1

Western Canada saw a 7.9 percentage point increase of the loss ratio as a result of the devastating wildfires in Slave Lake, Alberta and multiple weather related events. Our total gross loss for Slave Lake was $95.8 million which was mitigated by our catastrophic reinsurance program.

Our Ontario loss ratio improved 24.2 percentage points compared to 2010, which was led by strong results in the auto market. Ontario’s loss ratio also benefited from a lower frequency of large losses in home compared to last year but was offset by losses experienced in commercial and farm in the region.

Quebec’s loss ratio deteriorated as a result of increases in frequency and severity of farm-related claims and the impact of Hurricane Irene. The Atlantic region’s loss ratio deteriorated by 14.0 percentage points from 2010, driven primarily by increased frequency in major losses.

Other operating expenses - Expense ratio

2011 2010 change 2009IFRS IFRS CGAAP

Premium and other taxes 74.5 78.5 (5.1%) 72.2 Net commissions and agent compensation 355.6 336.3 5.7% 323.9 General expenses 322.2 302.6 6.5% 268.3

752.3 717.4 4.9% 664.4 Expense ratio 34.3% 33.8% 0.5 pts 32.6%

Other operating expenses are comprised of premium and other taxes, net commissions and agent compensation and general expenses. These expenses have increased by $34.9 million in the year, resulting in an expense ratio of 34.3% in 2011, which is an increase of 0.5 percentage points from 2010.

Agent transition costs have increased as a result of more agents retiring in the current year compared to previous years and as a result of a 1% decrease in the discount rate used in calculating the future liability. Also, lower offsetting ceded commission was recorded during the year due to the elimination of our proportional property reinsurance agreement in 2011. Specifically, ceded commission was $23.0 million in 2011 compared to $33.4 million in 2010.

Premiums and other taxes have decreased from prior year because of GST/HST credits received. General expenses have increased by 6.5% compared to 2010 due in part to salary, benefit and other staff compensation increases and higher spending towards marketing, our Agent Contact Centre and IT expenses.

INCOME TAXES

The 2011 statutory income tax rate has decreased to 28% from the 2010 statutory tax rate of 30% due to decreasing federal and provincial tax rates. The effective tax rate of 24% for 2011 is lower than the statutory rate as the tax benefit derived from non-taxable investment income (-5.9%) exceeds the adverse impact of the non-deductible expenses (0.4%), the change in income tax rates (0.6%), and the adjustment to tax expense in respect of prior years and other permanent differences (0.9%).



FINANCIAL CONDITION INVESTED ASSETS

Invested asset mix (based on carrying value)

% based on carrying value 2011 2010 2009IFRS IFRS CGAAP

Bonds 71.9% 72.4% 72.1%Stocks 18.1% 18.7% 17.4%Mortgages 8.0% 6.8% 7.0%Other 2.0% 2.1% 3.5%

100.0% 100.0% 100.0%

We have a high quality, well diversified investment portfolio, consisting primarily of bonds, equities and commercial mortgages. The bond portfolio including collateralized debt obligations makes up $2,875.5 million or 71.9% of our total invested assets. Our investment in bonds is diversified both geographically and by sector, with a large portion invested in Canadian government debt instruments. The credit quality of bonds is presented below. The equity portfolio makes up $721.9 million or 18.1% of our total invested assets and consists largely of publicly traded common and preferred stocks. It is diversified by industry sector and issuer, with 84.5% of the portfolio in Canadian holdings. We hold mortgages with a carrying value of $320.5 million on Canadian commercial and residential properties. Mortgages make up 8.0% of our total invested assets and are of high quality, with 0.3% in arrears over 60 days.

Credit quality of bonds

% based on fair value 2011 2010 2009IFRS IFRS CGAAP

AAA 40.2% 43.2% 45.9%AA 18.9% 21.7% 21.8%A 33.0% 28.9% 28.9%BBB 6.7% 4.8% 2.9%Below BBB 1.2% 1.4% 0.5%

100.0% 100.0% 100.0%

We adhere to a conservative investment policy and strategy that is based upon prudence and regulatory guidelines and, in a broad sense, on premium cash flows and claims settlement patterns by product line. We focus on achieving long-term returns while taking advantage of current market opportunities. This is achieved by investing in a diversified mix of securities and by shifting between asset classes as trends in the market evolve. Our portfolio composition is conservative and the assets are high quality and well diversified. The credit quality of our portfolio remains high with 92.1% of our bonds rated A or higher. Note 5 of the consolidated financial statements provides an extensive breakdown of invested assets. The Risk Management section and Note 6 of the consolidated financial statements provide information on related credit and interest rate risks.

UNPAID CLAIMS AND ADJUSTMENT EXPENSES

Our underwriting objectives are to write business on a prudent and diversified basis and to achieve profitable underwriting results. We underwrite automobile business after a review of the client’s driving record and claims experience. We underwrite property lines based on physical condition, property replacement values, claims experience and other factors affecting risk of loss. Agents and brokers are compensated, in part, based on the claims experience of their portfolio.

Our unpaid claims and adjustment expenses liability is management’s best estimate of the amount required to settle all outstanding and unreported claims incurred. The estimate is determined using accepted actuarial practices. Our strategy in calculating our unpaid claims liability is to establish adequate provisions at the original valuation date in sufficient amount that the risk of the liability being inadequate in any year is low.

The initial estimate of unpaid claims and adjustment expenses is made on an undiscounted basis. The process is described in Critical Accounting Estimates. The rate used to discount the liability is based on the projected rate of return on the underlying assets.


Unpaid claims liability


Balance, beginning of year 2,093.8 2,006.2 1,964.1 Less: effect of discounting at prior year-end 68.2 59.0 31.6 Undiscounted unpaid claims and adjustment expenses at prior year-end 2,025.6 1,947.2 1,932.5

Paid on prior years (610.3) (642.0) (593.5) Change in estimate on prior years (244.9) (131.2) (183.0) Incurred on current year 1,635.2 1,597.5 1,591.3 Paid on current year (836.2) (745.9) (807.5) Undiscounted unpaid claims and adjustment expenses at current year-end 1,969.4 2,025.6 1,939.8

Effect of discounting 91.1 68.2 59.0 Unpaid claims and adjustment expenses (net) 2,060.5 2,093.8 1,998.8

Unpaid claims and adjustment expenses reflect the cost of paying and settling claims, as well as estimates for the cost of claims not yet settled and claims incurred but not yet reported (IBNR). Claims expenses also include development, which is the difference between any prior estimates in the claims expenses, and the claims costs actually paid, plus any change in estimates for claims still open or unreported. We experienced favourable claims development in 2011 of $327.1 million on prior years’ claims. For more information refer to Note 7 of the consolidated financial statements.

Refer to Emerging Legislation and Regulatory Events below for a summary of legislative, judicial and regulatory events that have an impact on both current and future years’ estimates.

SHAREHOLDERS’ EQUITY


Common shares 6.1 6.1 6.1 Preferred shares

Public issue 215.0 215.0 215.0 Private issue 54.1 50.7 48.9

Contributed capital 10.1 10.1 1.2 Retained earnings 1,101.4 975.6 924.3 Accumulated other comprehensive income (loss) 137.5 128.7 66.9 Total 1,524.2 1,386.2 1,262.4

Our consolidated balance sheet as at December 31, 2011 includes over $1.5 billion in shareholders’ equity, reflecting continued financial strength. Overall, our shareholders’ equity position has increased by $138.0 million in 2011 compared to 2010.



A summary of our shares both issued and outstanding is included below. For terms and a complete list of all authorized shares refer to Note 18 to the consolidated financial statements.

2011 Authorized IssuedClass A preference shares, series A 1,440,000 216,816 Class A preference shares, series B 640,000 399,594 Class B preference shares Unlimited 476 Class D preference shares, series A Unlimited 13,803 Class D preference shares, series B Unlimited 42,535 Class D preference shares, series C Unlimited 43,184 Class E preference shares, series C Unlimited 4,000,000 Class E preference shares, series D Unlimited 4,600,000 Class F preference shares, series A Unlimited 488,624 Class G preference shares, series A Unlimited 14,984 Common shares Unlimited 20,299,799

Our publicly issued preferred shares include our Class E preference shares, Series C and Class E preference shares, Series D which are listed on the TSX and trade under the symbols CCS.PR.C and CCS.PR.D respectively. Affecting our shareholders’ equity were common share dividends declared of $7.2 million (2010 - $15.9 million), preferred share dividends declared of $17.1 million (2010 - $16.8 million) as well as net income of $150.3 million (2010 - $72.7 million) and other comprehensive income of $8.8 million (2010 - $61.8 million).

Capital is a critical strategic resource. It reflects the financial well-being of the organization and enables us to pursue strategic business opportunities. A strong capital position also acts as a safety net for possible losses or catastrophic events and provides a basis for confidence in our financial strength by regulators, shareholders, policyholders and others. For more information on capital management refer to Note 21 of the consolidated financial statements.

DIVIDENDS AND EARNINGS PER SHARE (EPS)

Dividends declared

$ per share 2011 2010 2009Class A preference shares

Series A 1.88 1.88 1.88 Series B 5.00 5.00 5.00

Class B preference shares 2.50 2.50 2.50 Class D preference shares

Series A 5.00 5.00 5.00 Series B 5.00 5.00 5.00 Series C 5.00 5.00 5.00

Class E preference sharesSeries C 1.25 1.25 1.25 Series D 1.81 1.81 1.10

Class F preference shares 1.88 1.88 1.88 Class G preference shares 2.50 2.50 2.50 Common shares 0.36 0.79 1.99

Earnings per share (EPS)

$ millions, except share data and EPS 2011 2010 2009IFRS IFRS CGAAP

Net income 150.3 72.7 74.0 Less dividends on preference shares 17.1 16.8 13.5 Net income available to common shareholders 133.2 55.9 60.5

Weighted average number of outstanding common shares 20,190 20,146 20,060 Earnings per share 6.59 2.77 3.02


MINIMUM CAPITAL TEST

2011 2010 2009

MCT 259% 244% 231%

Co-operators General’s MCT of 259% represents $476.6 million (2010 - $382.6 million) of capital in excess of our 175% internal minimum. The MCT was positively impacted by higher earnings and the increase in invested asset market values in the year.

The MCT calculation is changing effective January 1, 2012, refer to discussion in Emerging Legislation and Regulatory Events.

THIRD PARTY RATINGS

Rating agencies issue several types of ratings. A Financial Strength Rating (FSR) provides guidance to policyholders of an insurance company. An Issuer Credit Rating (ICR) provides guidance to investors of a company. A Preferred Share Rating (PSR) provides guidance on a specific preferred share.

Standard & Poor’s ratings

Outlook 2011 2010 2009

CGIC - FSR Stable BBB+ BBB+ BBB+

CGIC - ICR Stable BBB+ BBB+ BBB+

CGIC - PSR n/a P-2 (low) P-2 (low) P-2 (low)

A.M. Best ratings

FSR ratings Outlook 2011 2010 2009

CGIC Stable A- A- A-

Sovereign Stable A- B++ B++

L'UNION CANADIENNE Positive B+ B+ B+

COSECO Stable B+ B+ B+

DBRS ratings

Outlook 2011 2010 2009

CGIC - PSR Stable Pfd-3 (high) Pfd-3 (high) Pfd-3 (high)

FINANCIAL DATA BY LEGAL ENTITY

(in millions of dollars except return on equity and loss ratio)

2011 2010 2009 2011 2010 2009 2011 2010 2009 2011 2010 2009

IFRS IFRS CGAAP IFRS IFRS CGAAP IFRS IFRS CGAAP IFRS IFRS CGAAP

Direct written premium 1,565 1,548 1,469 285 281 269 281 287 265 200 206 220

Net income (loss) 78.3 34.6 62.9 26.0 17.7 10.7 (2.7) 8.9 6.8 48.7 11.5 (6.4)

Total assets 3,555 3,447 3,429 666 641 637 467 458 461 605 589 582

Shareholders' equity 1,013 944 878 201 173 148 125 126 111 185 143 125

Return on equity 8.9% 4.1% 8.2% 14.9% 11.7% 7.8% (2.2%) 7.7% 6.5% 32.6% 9.2% (6.0%)

Loss ratio (excludes MYA) 65.7% 71.2% 68.6% 49.6% 54.7% 59.9% 71.2% 62.0% 61.7% 51.2% 78.6% 88.7%1CGIC total assets and shareholders' equity amounts are net of inter-company adjustments

CGIC1 Sovereign L'UNION CANADIENNE COSECO

CGIC provides home, automobile, farm and commercial insurance to individuals and businesses in Canada through an exclusive agency network of 512 agencies, as well as select commercial insurance through independent brokers. DWP grew by $17.2 million or 1.1% compared with 2010. Growth was attributed to rate increases in home and an increase in our share of the Ontario risk sharing pool. CGIC’s loss ratio, excluding the MYA, has decreased to 65.7%, or by 5.5 percentage points compared to 2010 due to significant improvements in the Ontario auto line of business. Also impacting claims expense in the year were severe storm losses and the Slave Lake catastrophe. However, favourable claims development and a lower provision for unreported claims had positive impacts on net income. All of these factors contributed to a net income of $78.3 million compared to $34.6 million in 2010.



Sovereign writes complex commercial, marine and special risk insurance through independent brokers across Canada. It also offers personal insurance products in select regions of the country. DWP was $4.0 million above prior year which was attributed to growth in commercial auto, specialty lines and complex commercial lines. Loss ratio (excluding MYA) has decreased by 5.1 percentage points as a result of a decline in frequency while severity has stayed the same. Also, favourable claims development and continued underwriting discipline have contributed significantly to improved net income. Net income for the year increased to $26.0 million (2010 - $17.7 million).

L’UNION CANADIENNE writes home, automobile, farm and commercial insurance in Quebec and Newfoundland and Labrador. L’UNION CANADIENNE distributes its products through independent brokers in these two provinces. DWP in the year has decreased by $6.0 million compared to 2010 mainly as a result of the cancellation of its warranty business in 2010. The loss ratio has risen by of 9.2 percentage points to 71.2% in the current year due to increased severity and frequency of claims and an unfavourable change in the IBNR. This has resulted in a 2011 net loss of $2.7 million from a net income of $8.9 million in 2010.

COSECO provides home and auto insurance to employer, association and affinity groups across Canada. COSECO’s DWP declined in the year by $6.0 million or 2.9%. The decrease is due to a transfer of certain policies to CGIC, as well as lower new business, as we continue to tighten our underwriting guidelines in order to focus on profitable business. The loss ratio, excluding the MYA, improved by 27.4 percentage points in 2011 compared to the prior year, as a result of favourable claims development especially for auto and favourable home results due to fewer storm losses in our primary urban centers. This has led to net income of $48.7 million in 2011 compared to a net income of $11.5 million in 2010.

QUARTERLY RESULTS

(in millions of dollars except EPS and ratios) 2011 (IFRS) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Annual

Direct written premium 478.6 665.6 616.5 570.3 2,331.0

Net earned premium 529.1 536.4 564.7 564.2 2,194.4

Net income 25.8 26.4 6.2 91.9 150.3

Other comprehensive income (loss) (3.6) (0.5) (3.2) 16.1 8.8

Key statistics

Earnings per share (EPS) $1.11 $1.06 $0.14 $4.28 $6.59

Loss ratio (excluding MYA) 67.6% 66.8% 68.6% 50.8% 63.4%

Expense ratio 35.8% 33.7% 32.4% 35.2% 34.3%

Combined ratio 103.4% 100.5% 101.0% 86.1% 97.7%

2010 (IFRS) 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Annual

Direct written premium 477.8 658.0 617.7 568.3 2,321.8

Gross written premium 462.2 658.7 618.1 568.9 2,307.9

Net earned premium 510.5 529.0 539.4 540.8 2,119.7

Net income (loss) 31.4 (2.6) (8.9) 52.8 72.7

Other comprehensive income (loss) 8.0 5.4 53.7 (5.3) 61.8

Key statistics

Earnings per share (EPS) $1.39 ($0.38) ($0.61) $2.37 $2.77

Loss ratio (excluding MYA) 67.0% 68.1% 79.4% 62.2% 69.2%

Expense ratio 33.2% 34.1% 32.3% 35.7% 33.8%

Combined ratio 100.2% 102.2% 111.7% 98.0% 103.0%

The quarterly results reflect the seasonality of our business. Premiums are generally written in annual renewal cycles, often in the second quarter, and extreme weather conditions normally negatively impact the loss ratio in the third quarter.

Government regulatory actions are an uncontrollable factor that impacts our business. Therefore, the timing and pattern of claims can be difficult to predict due to uncontrollable factors. The results are also affected by controllable factors such as the timing of major expenditures, changes in estimates related to claims reserves or investment provisions, and purchase and sale decisions made with respect to our investment portfolio.

In 2011, our quarterly DWP results followed a consistent pattern with 2010 levels, with the second quarter representing the largest quarter, followed by the third quarter. Loss ratios tend to be higher during the first and third quarters, when weather related losses are more likely to be experienced across the country.


Review of fourth quarter 2011 results

Net income for the quarter was $91.9 million compared to $52.8 million in the same quarter of last year. This produced earnings per common share in the quarter of $4.28 compared to $2.37 in 2010. Despite windstorms in the West with claims at $14.5 million, overall we benefited from favourable weather conditions in the fourth quarter of 2011 and 2010. Favourable claims developments and a positive IBNR release resulted in an overall improvement in underwriting results. Fourth quarter operating expenses, were negatively impacted by the discounting adjustment for agent transition compensation and higher than expected retired agent payouts. Realized gains were $4.6 million higher than the same period in prior year, which was offset by impairment losses that were $5.8 million greater than the fourth quarter of 2010. Net investment gains and income was positively impacted by movements in the valuations of the embedded derivatives in our preferred share portfolio.

Fourth quarter DWP increased 0.4% over the prior year to $570.3 million. This increase relates to strong retentions in the home and auto lines of business as well as rate increases, policy growth and increased participation in the risk sharing pool.

The loss ratio for the quarter excluding MYA of 50.8%, is a favourable decrease from 62.2% during the comparable period last year. The combined ratio for the quarter was 86.1%, compared to 98.0% in 2010. Loss ratio improvements are attributed to favourable claims development, positive IBNR adjustment and a reduced amount of accident year claims in home and major event losses. The fourth quarter is typically a strong quarter characterized by claims closing activities that generate reserve releases.

Other comprehensive income for the quarter was $16.1 million (2010 - other comprehensive loss $5.3 million), bringing the total other comprehensive income for the year to $8.8 million. Capital market volatility had the impact of decreasing the interest rates further. The unrealized loss on our stock portfolio was $17.4 million (2010 - gain $43.5 million). Bond yields have decreased in the quarter, resulting in an unrealized gain on our bond portfolio of $15.9 million (2010 - loss $38.9 million).

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL COMMITMENTS

Securities lending

We lend securities in our investment portfolio to other institutions for short periods to generate additional fee income. Further details on this program are outlined in Note 6 to the consolidated financial statements.

Structured settlements

In the normal course of claims adjudication, we settle some long-term losses through the purchase of annuities from life insurance companies and we have no recourse to the funds. This business is placed with several licensed Canadian companies. The net risk to Co-operators General is the credit risk related to the life insurance companies the annuities are purchased from. This risk is reduced to the extent of coverage provided by Assuris, the life insurance compensation insurance plan. No default has occurred, and we consider the possibility of default to be remote. Additional details are described in Note 6 to the consolidated financial statements.

Operating lease commitments

We lease all of our office space and certain equipment used in the normal course of business, under operating leases. See Note 6 to the consolidated financial statements, for our minimum annual lease payments.

CONTINGENCIES

We are subject to litigation arising in the normal course of conducting our insurance business. We are of the opinion that current litigation will not have a significant affect on the financial position, results of operations, or cash flows of Co-operators General. See Note 28 of the consolidated financial statements, for further detail of contingencies that we consider to be material.

RELATED PARTY TRANSACTIONS

In the normal course of business, we obtain services from our ultimate parent company as well as from related companies that are under the common ownership of our ultimate parent. Note 25 of the consolidated financial statements, provides additional information on related party transactions.

Services we receive

Management services from The Co-operators Group Limited (2011 - $27.1 million, 2010 - $27.2 million)

Management services are provided by our ultimate parent. CGL incurs the direct costs for the Board of Directors, annual meeting, senior executives, general counsel, corporate finance and audit functions, and corporate communications. The management fee charges are



primarily set on a cost-recovery basis and shared among the various subsidiaries of the ultimate parent. This is an annually renewable contract.

Product distribution from HB Group Insurance Management Ltd. (2011 - $36.4 million, 2010 - $35.0 million)

HB Group is the primary distribution channel for COSECO. HB Group charges a commission for its distribution services. This is an annually renewable contract.

Retirement benefit obligations from Co-operators Life Insurance Company (2011 - $5.0 million, 2010 - $4.9 million)

Employee life and long-term disability benefits are insured and the medical and dental benefits are under an administrative services only contract. These contracts are set at terms and conditions similar to those CLIC charges to its third-party client base. This is an annually renewable contract.

Investment management services from Addenda Capital Inc. (2011 - $3.9 million, 2010 - $3.5 million)

Addenda provides investment management for a significant segment of our portfolio of invested assets. The fees charged are consistent with the charges made to Addenda’s external clients. This is an annually renewable contract.

Agency force services from Federated Agencies Limited (2011 - $1.0 million, 2010 - $1.0 million).

We have engaged Federated Agencies Limited to provide our agents with access to non-competing, but complementary, products and services from third-party companies. This is an annually renewable contract.

Services we provide

We provide product distribution services (2011- $31.8 million, 2010 - $29.1 million) and marketing services (2011 - $8.5 million, 2010 - $7.5 million) to CLIC for insurance and wealth management product. We compensate the agents directly and receive payments based on the production level from CLIC. The compensation rate is negotiated on a fair and equitable basis by using industry comparatives.

We also charge CLIC for the portion of the marketing program deemed to benefit the life insurance business. This contract is periodically renegotiated.

On January 1, 2010, CGIC terminated its co-insurance agreement with CUMIS. In connection with the termination, CGIC injected capital of $14.0 million into CUMIS and transferred the rights to the business covered by the co-insurance agreement in exchange for shares of CUMIS. Later in 2010, CGIC then sold its ownership in CUMIS to CLIC for $24.2 million. As this was an intercompany transaction under a common parent, CFSL, the gain on sale of CUMIS of $10.1 million was recorded in contributed capital.

OUTLOOK GENERAL BUSINESS AND ECONOMIC CONDITIONS

The outlook for global economic growth is uncertain. Financial markets are cautious in regards to the European sovereign debt crisis and a possible recession in Europe. This uncertainty is having an adverse affect on global demand for exports as well as on consumer and business confidence, factors that will negatively impact economic growth in Canada in 2012 and beyond. Due to these factors, the Bank of Canada is not expected to raise the overnight interest rate in 2012, maintaining it at 1.00%. The Federal Reserve in the United States has made it clear that they expect to maintain their rates until at least 2014.

Although the situation in Europe may lead to a recession in that region, it is not expected to pull the global or North American economies into a recession. Demand from China and other emerging markets have been slowing, but they are expected to rebound in 2012. Economic risks are greater in the first half of 2012 due to large European sovereign debt maturities, which will require a politically acceptable solution for the issue to be resolved. As a result, the upside opportunity is more likely to occur later in the year. Canada’s gross domestic product growth is forecasted to be 2.3% in 2012. We expect the S&P/TSX Composite Index to return 10% in 2012 and the S&P 500 Index ($CDN) is expected to return 8.5% in 2012. A sensitivity analysis for our equity portfolio is included in Note 6 to the consolidated financial statements.

The Canadian bond market has been seen as a safe haven for investment during 2011. Therefore, foreign demand pushed down bond yields as investors preferred safety in the uncertain investment environment. This is expected to start reversing in the latter half of 2012. We expect a flatter yield curve and improving corporate credit spreads as economic uncertainty and the excessive pessimism in the market begin to ease. We expect the DEX Universe Bond Index, which is a broad measure of the Canadian investment-grade bond market, to return 0.5% in 2012.

We utilized our investment management company, Addenda to create these assumptions and we include them in our planning process. We work within the parameters of our investment policy in order to take advantage of the threats and opportunities in the market and deliver an adequate return on our invested assets as well as protect our capital. A segment of our bond portfolio is actively managed in tandem with our actuarial liabilities.


PROPERTY AND CASUALTY INDUSTRY

The P&C insurance industry will remain challenged in 2012 with regards to profitability. Outlined below are some of the issues expected to affect the industry in 2012 and beyond, as well as our strategic response.

Rising claims in personal lines - The industry is experiencing an escalating trend of severe weather events. This increased storm activity, as well as its affects on aging municipal infrastructure is leading to increased frequency and severity of claims costs in the home insurance segment. We have been proactive in further segmenting our policy base to provide our clients with the coverage they need, priced at a level to ensure competitiveness and profitability.

The industry as a whole has experienced increased claims costs in the auto segment as a result of fraudulent claims, particularly in Ontario. This is a highly visible issue which affects both the insurance industry, as well as all auto policyholders. Co-operators General is committed to minimizing the effects of fraud through our own internal investigative units as well as our partnerships in the industry.

Slow-moving growth in commercial lines - Premium growth in commercial lines is expected to continue at a slow pace. This has been caused by intense competition, industry consolidation and the depressed investment environment. As a result, appropriate price increases have been difficult to achieve. We have and will continue to respond to this operating environment through our improved relationships with our brokers at Sovereign and L’UNION CANADIENNE. Improved segmentation and ratings tools at CGIC will allow us to contain costs and grow our policy and premium levels.

Increasing preference of alternative distribution methods by consumers - Premium growth for insurers using the direct distribution model has outpaced growth for intermediated companies in the past number of years. Increasingly, consumers are researching, obtaining quotes and purchasing insurance directly from the internet or over the phone. This is particularly true for customers of personal lines such as home and auto. We have responded to this by revitalizing our website, based on feedback received from our clients. The new website includes more self service options for our clients and we are committed to expanding this in the future. Our ‘Call, Click, or Come in’ distribution model will be rolled out in 2012, which encourages consumers to access our insurance products in the way that they want. Our agents are also always available to provide value-add services to our clients in 688 locations across Canada.

Volatile capital markets - The global economic environment is forecasted to remain volatile throughout 2012. The European sovereign debt crisis is expected to continue to affect the global economic recovery. It is expected that Canada will be negatively impacted through weaker commodity prices, confidence and export growth. As such, interest rates will likely remain at low levels in 2012. These factors will have an impact on the investment yields of P&C insurers. We maintain a conservative investment portfolio of high quality, well diversified instruments. We will act within the guidelines of our investment policy to protect our capital and provide an adequate investment yield.

EMERGING LEGISLATION AND REGULATORY EVENTS

Legislative, judicial and regulatory events have an impact on our claims reserving practices. Changes to legislation in 2010 will continue to have an ongoing impact in our business in future periods. Legislative and regulatory changes are as follows:

Ontario auto reform - In 2010, the Ontario government introduced changes to the auto insurance system that were intended to provide greater price stability and give drivers more control over the amount of coverage and price they pay for auto insurance. As a result, some coverages under the Ontario auto insurance policy have been altered and a new standard auto insurance policy took effect as of September 1, 2010. Key changes include reductions to standard coverage under the Accident Benefits portion of the auto insurance policy with the option for policyholders to buy additional coverage, the replacement of the Pre-Approved Framework (PAF) to assess and treat minor injuries with new Minor Injury Guidelines (MIG), and new limitations on the costs of examinations and assessments. The changes that were made through these reforms have been reflected in the valuation of Co-operators General’s policy liabilities. Furthermore, premiums have been adjusted to reflect the anticipated changes in ultimate claims costs resulting from the reform measures.

On December 23, 2011, the Ontario Court of Appeal released its decision in Kusnierz v. Economical. The Court overturned the trial judge’s decision and, in doing so, significantly expanded the class of individuals who might qualify as catastrophic impairment accident benefit claimants. The issue for the Court of Appeal was whether an assessor can assign a whole body impairment percentage value to mental and behavioural impairments under the Guides in order to determine whether they, in combination with physical impairments, result in a 55% whole person impairment constituting a catastrophic impairment. The Superintendent of Financial Institutions delivered his report on the Review of Catastrophic Impairment to the Minister of Finance in December 2011. It is in the hands of the Minister right now. The Ontario Court decision certainly increases the urgency for a new catastrophic definition and industry input. We will continue to press the Ontario Government to provide greater clarity regarding the definition. However, in the short-term, the potential cost of doing business in automobile insurance in Ontario has increased.



Nova Scotia minor injury claims - On April 28, 2010, the government of Nova Scotia introduced legislative changes and accompanying regulatory changes stemming from a review of the cap on minor injury claims. Key changes, which took effect July 1, 2010, include the amendment of the definition of “minor injury” to mean strains, sprains, and whiplash disorders, increasing the pain and suffering award limit from $2,500 to $7,500, and indexing this limit to inflation. These changes have been reflected in the valuation of Co-operators General’s policy liabilities.

We are aware of future legislative changes that will impact our claims reserving and business practice. Emerging legislative and regulatory changes are as follows:

Nova Scotia legislation - On November 9, 2011, the government of Nova Scotia announced a series of legislative changes that will take effect in two phases. The first phase, which will be effective April 1, 2012, includes an expansion of standard no-fault benefits, prohibition of premium increases following a loss occurrence in which no claim is made, the implementation of a levy to help cover the costs of volunteer fire departments, and the requirement for automobile insurance legislation and regulations in Nova Scotia to be reviewed at least once every seven years. The second phase, which will be effective April 1, 2013, includes the introduction of Direct Compensation for Property Damage (DCPD) in Nova Scotia, limitation on the liability of rental and leasing companies for a collision caused by the driver of a rental vehicle, the introduction of diagnostic and treatment protocols for minor injuries, and the development of an optional tort product for pain and suffering awards on minor injuries. As these reform measures have not yet taken effect, there has been no impact to the valuation of policy liabilities or to premiums as of December 31, 2011.

MCT calculation - OSFI measures the financial strength of P&C insurers using the MCT calculation. This test 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, insurance contract liabilities, structured settlements, letters of credit, derivatives, unlicensed reinsurance and other exposures, by applying varying factors. As at December 31, 2011, CGIC and its subsidiaries exceeded minimum requirements for the MCT.

Effective January 1, 2012, the MCT calculation will change based on direction provided by OSFI. The test will be based on the same principles as the prior test, with the exception of the following significant changes:

• There will be an explicit capital charge incorporated for interest rate risk; • The capital charge on unpaid claims will be amended to remove the charge on provisions for adverse deviation (PFADs); • Capital charges related to reinsurance transactions with registered affiliated reinsurers will be removed; and

• Capital charges on interest rate sensitive assets will be refined to include more granular factors based on credit risk and/or duration.

It is expected that with all other factors held constant, these changes will result in a lower calculated MCT upon implementation. Our analysis indicates that CGIC and its subsidiaries will continue to exceed the minimum requirements for the MCT upon adoption of the new rules.

RISK MANAGEMENT

Effective risk management is vital to making sound business decisions, both strategically and operationally. It involves identifying and understanding the risks that the organization is exposed to and taking measures to manage the risks within acceptable tolerances. We recognize the importance of a strong risk management culture where the efficient and effective assessment of risk forms the basis of all decision-making and strategic planning.

The Co-operators has an enterprise-wide approach to the identification, measurement, monitoring and management of risks faced across the organization. The Board of Directors, directly or through the Executive Committee, ensures that company management has put appropriate risk management policies in place and that risk management processes are effective. Regular reports on risk exposures are provided to the Board and senior management by our Chief Risk Officer.

We have identified and considered a large number of risks when engaging in our organizational activities. Those risks are continuously assessed relative to their potential impact on our corporate strategy, competitive position, operational results and financial condition. The risks identified are not presumed to be exhaustive and previously unidentified risks or material changes in the exposure to a known risk may occur resulting in a reassessment of their relative effect on Co-operators General.


FINANCIAL RISKS

Credit risk

Credit risk refers to the risk of financial loss from the failure of a debtor/counterparty to honour its obligation to us.

Our credit risk exposure relates to short-term investments, bonds and loans and receivables. Credit risk also arises from premiums due and reinsurance recoverable. Our 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. CGIC also has a separate, comprehensive mortgage investment policy which includes, among other factors, single loan limits, diversification by type of property limits, and geographic diversification limits. Credit exposure to any one individual policyholder is not material. For more information on credit risk refer to Note 6 to the consolidated financial statements.

Market risk

Market risk is the risk of losses arising from movements in market prices and is comprised of equity risk, currency risk and interest rate risk.

Equity risk arises whenever financial results are adversely affected by changes in the capital markets. 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 total investment in any entity or group of related entities to a maximum of 5% of our invested assets.

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. Our currency risk is related to our stock holdings. Our policies limit investments in foreign denominated securities to a maximum value of 10% of invested assets. We partially mitigate this 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.

Interest rate risk is that risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. This risk arises when a company’s asset cash flows do not coincide with the cash flows arising from the liabilities, as this may result in the need to either sell assets to meet policy payments and expenses or reinvest excess asset cash flows under unfavourable interest environments. Historical data and current information is used to profile the ultimate claims settlement pattern by class of insurance, which is then used to develop an investment policy and strategy. To mitigate interest rate risk, CGIC deployed an asset liability management (ALM) strategy in 2009. The strategy is focused on one segment of the our unpaid claims and adjustment expenses and applies only to claims arising since 2009. The assets backing these liabilities are designated as fair value through profit and loss (FVTPL) with the objective of offsetting the financial impact of interest rate changes and minimizing the overall impact to the consolidated statement of income. A 1% decline in yield on our bond and mortgage portfolio would result in an approximate $30.1 million decrease to our after-tax net income due to increases in our claims liabilities. However, the same change in yield would result in an approximate $131.2 million increase in the bond portfolio value, increasing net income by $4.4 million and OCI by $95.6 million. While interest rate reductions tend to have a negative effect on our net income, they tend to strengthen our overall financial position due to the impact on bond values. For more information on market risk refer to Note 6 to the consolidated financial statements.

Liquidity risk

Liquidity risk refers to our ability to access sufficient funds to meet our financial obligations as they fall due.

Our obligations arise as a result of claims, contractual commitments, or other outflows. We do not have material liabilities that can be called unexpectedly at the demand of a lender or client. We do not have material commitments for capital expenditures, and there is no need for such expenditures in the normal course of business. Claims payments are funded by current revenue cash flow which normally exceeds cash requirements. In addition, we have a liquid invested assets portfolio and have $22.1 million in available credit facilities. For more information on liquidity risk refer to Note 6 to the consolidated financial statements.

INSURANCE RISKS

Catastrophic loss risk

Catastrophic loss risk is the exposure to loss resulting from multiple claims arising out of a single catastrophic event.

P&C insurers are subject to catastrophes: a series of property and automobile physical damage claims arising out of one event. Catastrophes are caused by various perils such as earthquake, tornado, wind, hail or fire. Catastrophes can have a significant effect on our



operating results and financial condition. The incidence and severity of catastrophes are inherently unpredictable. To limit the potential impact of catastrophes, we utilize reinsurance which will reimburse us for claims from a single catastrophe over $35 million, to a maximum of $1,200 million. The net retained amount of $35 million represents approximately 2.2% of our shareholders’ equity. Also, we write business that is broadly diversified in terms of lines of business and geographic location. There is no guarantee that a catastrophe would not result in claims in excess of our maximum reinsurance coverage; however based on our catastrophic loss models our protection is in excess of regulatory guidelines and at a level that management considers prudent.

Effective on January 1, 2011, we cancelled our proportional property reinsurance agreement. Although cancelled, this agreement continues to apply to policies that were ceded to it in 2010 until such policies expire. This proportional agreement was replaced by a ‘per risk excess of loss’ reinsurance program, which applies to all new and renewal business, commencing on January 1, 2011. This change increases the amount of premium, as well as the amount of insurance risk that we retain. The move to excess of loss reinsurance is a trend observed worldwide, and has been widely adopted by P&C insurers in Canada.

In the current year, across all insurance operations ultimately owned by CGL, the Slave Lake wildfire resulted in recoveries from reinsurers on the first two layers of the catastrophe reinsurance program. A premium was paid to reinstate the coverage for the remainder of the year.

Reinsurance risk

Reinsurance risk is the risk of financial loss due to inadequacies in reinsurance coverage or the default of a reinsurer.

We review our reinsurance requirements annually to assess the level of coverage required. Reinsurance is purchased to limit our exposure to a particular risk, category of risk or geographic risk area. When appropriate coverages are determined, we carefully negotiate coverage with selected companies. To manage reinsurance risk, we assess and monitor the financial strength of our reinsurers on a regular basis. There have been no material defaults with reinsurers in the past ten years. The availability and cost of this reinsurance is subject to prevailing market conditions. Refer to Note 9 to the consolidated financial statements, for further information regarding reinsurance.

Product design and pricing risk

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

We price our products taking into account numerous factors including claims frequency and severity trends, product line expense ratios, special risk factors, the capital required to support the product line, and the investment income earned on that capital. Our pricing process is designed to ensure an appropriate return on equity while also providing long-term rate stability. These factors are reviewed and adjusted periodically to ensure they reflect the current environment.

We strive to ensure our pricing will produce an appropriate return on invested capital; however, various external factors like market realities or regulations can have an impact on our ability to do so. For example, pricing for automobile insurance must be submitted to each provincial government regulator. It is possible that, in spite of our best efforts, regulatory decisions may impede automobile rate increases or other actions that we may wish to undertake. Also, during periods of intense competition for any product line, our competitors may price their products below the rates we consider acceptable, which would have an impact on our ability to maintain our rates where we want them.

Underwriting risk

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.

Our underwriting objective is to develop business within our target market on a prudent and diversified basis and to achieve profitable underwriting results. We underwrite automobile business after a periodic review of the client’s driving record and claims experience. We underwrite property lines based on physical condition, property replacement values, claims experience and other relevant factors. We use 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 manuals are continually revised for new products and risks undertaken. We also use our business intelligence and information technology systems which give us the tools to better segment and underwrite. All employees in the underwriting area are well trained and their work is audited on a regular basis. Agents and brokers are compensated, in part, based on the profitability of their portfolio.


Claims risk

Claims risk is the exposure to financial loss from making inappropriate claims payments resulting from inadequate adjudication, settlement and payment of claims.

We employ more than 1,100 claims personnel across Canada, with the majority of claims being handled internally and the remainder handled through independent adjusters. Each employee has an authority limit, which is based on related education, skills and work experience. They are supported by training and comprehensive reference materials which have been compiled to identify investigations and information required before a claim can be paid. Our claims handling approach results in the best control of claims costs.

Reserve valuation risk

Reserve valuation risk is the risk that claims reserves are insufficient to cover incurred claims.

We maintain provisions for unpaid claims and adjustment expenses to cover our estimated ultimate liability for claims. There is the potential for significant variability in the amount of ultimate settlement from the current amounts recorded. Our 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. We also monitor fluctuations in reserve adequacy on an ongoing basis, and periodically seek an external peer review of reserve levels. We are subject to some exposure in the fluctuation of long-term portfolio yield rates in the valuation of our discounted unpaid claims. Our claims development table and sensitivity analysis are located in Note 7 to the consolidated financial statements.

Capital management risk

Capital management risk is the risk that available resources are not used strategically.

Strong capital and liquidity positions help maintain our capability to ensure safety and soundness of the organization. Many risks noted above influence overall capital management and are linked to our ability to ensure that capital continues to act as a safeguard against possible unexpected losses.

We view capital as a scarce and strategic resource. This resource reflects the financial well being of the organization, but is also critical in enabling us to pursue strategic business opportunities. Adequate capital also acts as a safeguard against possible unexpected losses and as a basis for confidence in Co-operators General by shareholders, policyholders, creditors and others.

We have a Board approved Capital Management Policy. The purpose of this policy is to protect and evaluate the allocation of capital as a scarce and strategic resource, maximize the return on invested capital, and to plan ahead for future capital needs. For more detail on capital management refer to Note 21 to the consolidated financial statements.

OPERATIONAL RISKS

Regulatory and political risk

Regulatory and political risk is the risk of loss arising from non-compliance with laws, rules, regulations, prescribed practices or ethical standards within jurisdiction of operation, and the risk that changes in government or the political climate will threaten our competitive position and capacity to conduct business efficiently.

P&C insurance companies are subject to significant regulation by governments. We monitor our compliance with all relevant regulations. As in any regulated industry, it is possible that future regulatory changes or developments may prevent us from raising rates or taking other action to enhance our operating results. As well, future regulatory changes, novel or unexpected judicial interpretations or political developments could fundamentally change the business environment in which we operate. We actively participate in discussions with regulators, governments, and industry groups to ensure we are well-informed of contemplated changes and that our concerns are understood. We consider the implications of potential changes to our regulatory and political environment in our strategic planning processes to understand the impacts and adjust our plans if necessary.

For regulatory and legislative changes expected to impact our business, refer to Emerging Legislation and Regulatory Events above.

Common business risks

Common business risks are those that exist for any large business and are not unique to our company or industry. Although this is not an exhaustive list, examples are: competition; human resource adequacy; client preferences and behaviours; technological changes; environmental changes; and tax law changes.



These risks are managed through the development and documentation of policies and procedures, ongoing training and education, environmental scanning and other processes that contribute to a culture of sound business management practices.

CONTROLS AND PROCEDURES

Disclosure controls and procedures

Management is responsible for designing and maintaining adequate disclosure controls and procedures to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President and Chief Executive Officer (CEO) and the Executive Vice-President Finance and Chief Financial Officer (CFO), on a timely basis so that appropriate decisions can be made regarding public disclosure.

As at December 31, 2011, an evaluation of the effectiveness of our disclosure controls and procedures, as defined under National Instrument 52-109, was carried out with management’s participation and under the supervision of the CEO and CFO. Based on that evaluation, the CEO and CFO concluded that the design and operation of our disclosure controls and procedures were effective.

Internal control over financial reporting

Management is responsible for designing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with IFRS. However, due to inherent limitations, these controls may not prevent or detect all material misstatements on a timely basis. Projections of any control effectiveness evaluation to future periods are subject to the risk that the controls may become inadequate due to potential changes in conditions or possible deteriorations in the degree of compliance with policies or procedures.

No changes to our internal control over financial reporting occurred during the period beginning on October 1, 2011 and ended on December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

As at December 31, 2011, an evaluation of the effectiveness of our internal control over financial reporting, as defined under National Instrument 52-109, was carried out with management’s participation and under the supervision of the CEO and CFO. Based on that evaluation, the CEO and CFO concluded that the design and operation of our internal control over financial reporting was effective.

ACCOUNTING MATTERS ACCOUNTING POLICIES AND CRITICAL ESTIMATES

The consolidated financial statements have been prepared in accordance with IFRS. CGIC and its subsidiaries are insurance companies and must also comply with the accounting and reporting requirements of their respective regulators. The significant accounting policies used in the preparation of the consolidated financial statements are described in Note 2 of the consolidated financial statements.

IFRS Future accounting pronouncements, as well as their estimated impact, are described in Note 4 of the consolidated financial statements. Also, refer to Transition to International Financial Reporting Standards below for the transitional impacts upon adoption of IFRS.

The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. The following accounting estimates are considered particularly significant to understanding our financial performance. We have established detailed policies and control procedures that are intended to ensure these judgments are controlled, independently reviewed and consistently applied. Actual results could differ from these estimates and changes in estimates are recorded in the accounting period in which they are determined.

Financial instruments measured at fair value

When they are initially recognized, all financial assets and liabilities are recorded at fair value in the consolidated balance sheet. In subsequent periods, they are measured at fair value, except for items that are classified as loans and receivables or other liabilities which are measured at amortized cost. We utilize financial instruments to fund our insurance contract liabilities. For a discussion of risks and the management of our risks refer to, Financial Risks. A more complete description of the accounting treatment for financial instruments is presented in Note 2 of the consolidated financial statements.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.


We employ a fair value hierarchy to categorize the inputs that we use in valuation techniques to measure fair value. Fair value is best evidenced by a quoted price from an active market (Level 1). Where these markets exist, the fair value of a financial asset is determined to be the quoted bid price. Where these markets do not exist, valuation models are utilized to estimate fair value using observable market inputs (Level 2) or unobservable inputs (Level 3).

Impairment of investments

At minimum, we review investments at the end of each quarter to identify and evaluate investments that show indication of possible impairment. An investment is considered impaired if there is objective evidence of impairment. Such impairments are recorded as a charge to earnings in the period that the determination is made. 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. Previously impaired investments continued to be reviewed quarterly.

Unpaid claims and adjustment expenses, and salvage and subrogation recoverable

We make estimates for the amount of unpaid claims and the timing of future claims payments based on assumptions that reflect the expected set of economic conditions and planned courses of action. Uncertainty exists on reported claims in that all information may not be available at the reporting date. In addition, claims may not be reported to us immediately, therefore estimates are made as to the value of claims incurred but not yet reported, a value which may take years to finally determine. In establishing the provision for unpaid claims, we also takes into account estimated recoveries relating to salvage and subrogation.

The initial actuarial estimate of unpaid claims and adjustment expenses is an undiscounted amount. In order to determine the undiscounted liability, assumptions are developed considering the characteristics of the class of business, historical trends, the amount of data available on individual claims and any other pertinent factors. This estimate is then discounted to recognize the time value of money. The interest rate used to discount the liabilities is 2.45% to 3.20% (2010 - 3.05% to 3.50%) based on our projected rate of return on the investment portfolios supporting these liabilities. The discount rate is adjusted on a regular basis based on changes in the projected rate of return. If the discount rate increases, the result would be a reduction in total unpaid claims and adjustment expenses, which would have a positive impact on our underwriting income, with all else being equal. A decrease in the discount rate would have the opposite effect. A 1% change in the discount rate would have an approximate impact on after-tax net income of $30.1 million (2010 - $29.2 million).

The discounted unpaid claims and adjustment expenses incorporates assumptions concerning future investment income, projected cash flows, and appropriate PFADs. As the estimates for unpaid claims are subject to measurement uncertainty and the variability could be material in the near term, we include PFADs in our 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 Canadian Institute of Actuaries.

In 2011, our discounted claims development experience was $327.1 million favourable, indicating that our unpaid claims reserves were more than adequate to cover the actual losses that were settled. For more information refer to Note 7 of the consolidated financial statements, for claims development table and sensitivity analysis.

Agent transition commissions

Co-operators General’s agents are eligible for a transition commission payout upon a qualifying termination. The transition commission is based upon the number of years of service as an agent and the average trailing commission volume of their agency. Payments to terminating agents are funded in part from reduced commission payments which are made to new agents during the first 3 years of their agency relationship. Our accounting policy is to recognize the cost of transition commissions payable to active agents over their estimated working lives and to recognize the benefit of reduced commissions payable to new agents at the time when reduced commissions are paid. The obligation to active agents 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. Significant assumptions used in the calculation of agent transition commissions are the discount rate of 4% (2010 - 5%) and an average termination age of 60 (2010 - 60).

Retirement benefit obligations

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. Due to the long-term nature of the plans, the calculation of benefit expenses and obligations depends on various assumptions such as discount rates, medical and dental care cost trend rates, retirement age and mortality and termination rates. Actual experience that differs from the actuarial assumptions will affect the amounts recorded for the accrued benefit obligation and benefit expense. Assumed medical and dental care cost trend rates have a significant effect on the amount reported for the medical and dental benefit plans. A 1% increase in assumed medical and dental benefit cost trend rates would increase the accrued benefit obligation for 2011 by $13.9 million. A 1% decrease in the discount rate would



have the approximate effect of increasing the accrued benefit obligation for 2011 by $10.5 million. Significant assumptions used in the calculation of employee future benefits are presented in Note 17 to the consolidated financial statements.

TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS

Effective January 1, 2011, we adopted IFRS. IFRS 1 “First-time adoption of international financial reporting standards” applies to entities adopting IFRS for the first time. In general, it requires an entity to comply with each IFRS that will be effective at the end of its first IFRS reporting period. However, IFRS 1 does grant limited optional exemptions from these requirements where the costs of complying with them would likely exceed the benefits to users of the financial statements. IFRS 1 also prohibits retrospective application in some areas, particularly when retrospective application would require judgements by management about past conditions after the outcome of a particular transaction is already known.

Impacts arising from IFRS 1 - First-time adoption of IFRS

As a result of the IFRS 1 elections and other policy choices we have made, we have recorded an increase in our equity of $9.7 million as at January 1, 2010, a decrease to net income of $8.0 million and an increase to OCI of $4.1 million for the year ended December 31, 2010.


The following reconciliations illustrate the impact of the adoption of IFRS on our consolidated balance sheets as of January 1, 2010 and December 31, 2010:

$ millions

December 31, 2010

CGAAP

IFRS reclassification

adjustments

IFRS measurement

and recognition adjustments

December 31,

2010 IFRS

AssetsCash and cash equivalents 13.2 - - 13.2 Invested assets 3,890.7 (20.5) (a) - 3,870.2 Premiums due 662.3 - - 662.3 Reinsurance ceded assets 208.1 (208.1) (b) - - Reinsurance ceded contracts - 180.1 (b) - 180.1 Deferred acquisition expenses 214.7 - - 214.7 Salvage and subrogation recoverable 105.9 (105.9) (c) - - Deferred income taxes 62.8 - (2.4) (m) 60.4 Goodwill and intangible assets 29.2 - - 29.2 Income taxes recoverable - 27.3 (e) - 27.3 Other assets 84.5 (27.3) (e) - 57.2 Assets held for sale - 20.5 (a) - 20.5

5,271.4 (133.9) (2.4) 5,135.1

LiabilitiesUnearned premiums 1,184.3 (1,184.3) (c) - - Unpaid claims and adjustment expenses 2,333.1 (2,333.1) (c) - - Reinsurance ceded liabilities 28.0 (28.0) (b) - - Insurance contracts - 3,418.1 (c) - 3,418.1 Deferred net realized gains 42.1 - (42.1) (f) - Payables and other liabilities 303.3 (303.3) (c),(e) - - Retirement benefit obligations - 43.9 (e) 1.0 (j) 44.9 Accounts payable and accrued charges - 152.5 (e) - 152.5 Provisions and other liabilities - 58.8 (e) 33.1 (i),(l) 91.9 Income taxes payable - 5.1 (e) - 5.1 Borrowings - 36.4 (e) - 36.4

3,890.8 (133.9) (8.0) 3,748.9

Shareholders' equityShare capital 272.6 - (0.8) (n) 271.8 Contributed surplus/capital 11.3 - (1.2) (n) 10.1 Retained earnings 972.1 - 3.5 (n) 975.6 Accumulated other comprehensive income 124.6 - 4.1 (n) 128.7

1,380.6 - 5.6 1,386.2 5,271.4 (133.9) (2.4) 5,135.1



$ millions

December 31, 2009

CGAAP

IFRS reclassification

adjustments

IFRS measurement and

recognition adjustments

January 1, 2010IFRS

AssetsCash and cash equivalents 26.5 - - 26.5 Invested assets 3,699.6 (18.4) (a) - 3,681.2 Premiums due 626.2 - - 626.2 Reinsurance ceded assets 239.5 (239.5) (b) - - Reinsurance ceded contracts - 208.9 (b) - 208.9 Deferred acquisition expenses 205.9 - - 205.9 Salvage and subrogation recoverable 88.1 (88.1) (c) - - Deferred income taxes 63.6 - (4.1) (m) 59.5 Goodwill and intangible assets 30.4 - - 30.4 Other assets 129.6 - - 129.6 Assets held for sale - 18.4 (a) - 18.4

5,109.4 (118.7) (4.1) 4,986.6

LiabilitiesUnearned premiums 1,155.7 (1,155.7) (c) - - Unpaid claims and adjustment expenses 2,250.4 (2,250.4) (c) - - Reinsurance ceded liabilities 30.6 (30.6) (b) - - Insurance contracts - 3,325.4 (c) - 3,325.4 Deferred net realized gains 45.0 - (45.0) (f) - Payables and other liabilities 365.3 (365.3) (c),(e) - - Retirement benefit obligations - 41.2 (e) 1.3 (j) 42.5 Accounts payable and accrued charges - 143.0 (e) - 143.0 Provisions and other liabilities - 52.4 (e) 29.9 (i) 82.3 Income taxes payable - 102.3 (e) - 102.3 Borrowings - 19.0 (e) - 19.0

3,847.0 (118.7) (13.8) 3,714.5

Shareholders' equityShare capital 270.1 - (0.7) (n) 269.4 Contributed surplus/capital 1.2 - (1.2) (n) - Retained earnings 924.2 - 11.6 (n) 935.8 Accumulated other comprehensive income 66.9 - - (n) 66.9

1,262.4 - 9.7 1,272.1 5,109.4 (118.7) (4.1) 4,986.6


The following reconciliation illustrates the impact of the adoption of IFRS on our consolidated income statement for the year ended December 31, 2010:

$ millions

December 31,2010

CGAAP

IFRS reclassifications

adjustments

IFRS measurement and

recognition adjustments

December 31,2010IFRS

Direct written premium 2,301.8 20.0 (d) - 2,321.8 Ceded written premium (156.6) - - (156.6)

IncomeNet earned premium 2,099.7 20.0 (d) - 2,119.7 Net investment gains and income 182.6 (1.6) (d) (8.9) (f),(k) 172.1

2,282.3 18.4 (8.9) 2,291.8

ExpensesClaims and adjustment expenses 1,534.4 - - 1,534.4 Ceded claims and adjustment expenses (58.2) - - (58.2) Premium and other taxes 75.5 - 3.0 (l) 78.5 Commissions and agent compensation 369.8 - (0.1) (i) 369.7 Ceded commission (33.4) - - (33.4) General expenses 284.5 18.4 (d) (0.2) (j),(l) 302.7

2,172.6 18.4 2.7 2,193.7 Income before income taxes 109.7 - (11.6) 98.1 Income taxes 29.0 - (3.6) (m) 25.4 Net income (loss) 80.7 - (8.0) 72.7

Unrealized gain (loss) on AFS assets 115.6 - - 115.6 Reclassification included in income (32.9) - 5.9 (k) (27.0) Net unrealized gain 82.7 - 5.9 88.6 Income taxes 25.0 - 1.8 (m) 26.8 Other comprehensive income 57.7 - 4.1 61.8 Comprehensive income 138.4 - (3.9) 134.5

Explanation of differences:

(a) Reclassification of real estate assets

We hold investment property consisting of office buildings and commercial and retail properties in Canada. Under previously issued Canadian GAAP, these investments were classified as Real Estate and presented on the consolidated balance sheet within Invested Assets. Upon transition to IFRS, we determined that guidance in IFRS 5 “Assets held for sale and discontinued operations” applied to these assets. As such, they were reclassified on transition to Assets held for sale in our consolidated balance sheets. There was no change in the measurement or valuation of the assets upon transition.

(b) Reclassification of reinsurance ceded assets and liabilities

Under previously issued Canadian GAAP, the reinsurance ceded assets and reinsurance ceded liabilities balances were presented separately on a gross basis in the consolidated balance sheets. Upon conversion to IFRS these items have been presented on a net basis under reinsurance ceded contracts.

(c) Reclassification of salvage and subrogation recoverable and insurance contracts

Under previously issued Canadian GAAP, all liabilities associated with claims were presented on a gross basis. Salvage and subrogation recoverable was classified as an asset, as it represented the estimated value of recoverable assets associated with claims losses. Under IFRS, it was determined that this item is more appropriately presented as an offset to unpaid claims and adjustment expenses. Unearned premiums, unpaid claims and adjustment expenses and structured settlements are now presented in total.



(d) Reclassification of service fees

Under previously issued Canadian GAAP, we classified certain service charges as either investment income or as an offset to general expenses. Upon transition to IFRS, we adopted the guidance of IAS 18 “Revenue” and these service fees are now recorded as revenue. This change increased DWP and NEP by $20.0 million, decreased net investment gains and income by $1.6 million and increased general expenses by $18.4 million compared to Canadian GAAP for the year ended December 31, 2010.

(e) Other reclassifications

We changed our presentation of payables and other liabilities and split these amounts into their component parts by nature. Accounts payable and accrued charges, income taxes recoverable and payable, borrowings and retirement benefit obligations are now presented on the face of the consolidated balance sheets. The payables and other liabilities caption used under previously issued Canadian GAAP have been changed to provisions and other liabilities under IFRS.

(f) Recognition of deferred net realized gains

Prior transition to IFRS, we sold a portfolio of investment properties which we leased back for our own use. Under previously issued Canadian GAAP, the realized investment gain was deferred as a liability on the balance sheet and amortized to income in proportion to the rental payments being made over the term of the related lease. Under IFRS, these gains are recognized at the inception of the sales and leaseback transaction. This IFRS adjustment resulted in an increase in retained earnings at December 31, 2010 of $42.1 million (January 1, 2010 - $45.0 million) and decreased net investment gains and income by $2.9 for the year ended December 31, 2010.

(g) Staff share loan plan

We have a staff share loan plan that involves providing interest-free loans to employees for the purchase of Class A, Series B preference shares. Under IFRS, the loan has been issued in conjunction with a share-based payment transaction and is accounted for as an equity transaction on an undiscounted basis. Under previously issued Canadian GAAP the loan was also recorded through shareholders’ equity but on a discounted basis. The change associated with the adoption of IFRS has decreased share capital and increased retained earnings by $0.8 million at December 31, 2010 (January 1, 2010 - $0.7 million). The impact to net income was insignificant for the year ended December 31, 2010.

(h) Reclassification of contributed surplus balance to retained earnings

Under previously issued Canadian GAAP, contributed surplus related to transactions and business combinations between companies under common control of CGL. The differences between carrying value and exchange values of these transactions were recorded as contributed surplus. IFRS required that these transactions be recorded at the exchange amount; therefore the contributed surplus balance was reclassified to retained earnings on transition.

(i) Agent transition commissions

On transition to IFRS, we adopted guidance of IAS 37 “Provisions, Contingent Liabilities and Contingent Assets” in measuring this liability. The amount under IFRS is our best estimate of the amount required to settle the current obligation with a third party. The current obligation is measured by accruing for the benefits earned to date on a present value basis assuming the benefits are paid out at the expected retirement date. Under previously issued Canadian GAAP, the obligation to active agents was determined using the projected benefit method pro-rated on services. The IFRS adjustment decreased retained earnings by $29.8 million at December 31, 2010 (January 1, 2010 - $29.9 million).

(j) Retirement benefit obligations

Under previously issued Canadian GAAP we recognized unvested past service costs and unamortized actuarial gains and losses for our defined benefit plan arrangements over the expected average remaining service period. For IFRS under IAS 19 “Employee Benefits”, unvested past service costs are recognized over the vesting period and we recognized all unamortized actuarial gain and loss balances as discussed above. This IFRS adjustment decreased retained earnings on at December 31, 2010 by $1.0 million (January 1, 2010 - $1.3 million) and decrease general expenses by $0.3 million for the year ended December 31, 2010.


(k) Impairment of invested assets

Under previously issued Canadian GAAP, available-for-sale (AFS) financial assets were determined to be impaired when there was objective evidence that the asset was impaired and that the impairment was ‘other-than-temporary’. IFRS provides guidance similar to Canadian GAAP, however the ‘other-than-temporary’ criteria does not exist. Therefore, AFS assets may be determined to be impaired as soon as they exhibit evidence of impairment, which can result in impairment losses occurring more frequently than under previously issued Canadian GAAP. The application of this revised impairment policy resulted in additional impairment losses being recognized. The additional impairment losses were recorded through a reclassification adjustment to the consolidated statements of income from other comprehensive income and therefore have no net impact on total comprehensive income, total invested assets and total shareholders’ equity. The difference identified in the table above was recorded through net income under net investment gains and income. It is comprised of impairment losses of $11.9 million recorded in the second quarter under IFRS, offset by an increase in realized gains on disposed securities of $3.5 million and a reversal of previously issued Canadian GAAP impairment losses of $2.5 million.

(l) Provisions

Under previously issued Canadian GAAP, we had determined that a provision would be recognized if it was “likely” that it would be realized pursuant to contingencies guidance under previously issued Canadian GAAP. Under IFRS, pursuant to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, we determined that a provision shall be recognized when it is “probable” that an outflow of resources is required. As a result, the recognition of a provision can occur more quickly under IFRS. The application of this revised recognition policy resulted in additional provisions being recognized in the amount of $3.3 million at December 31, 2010 (January 1, 2010 - $nil), which is presented within provisions and other liabilities. The difference was recorded through net income, with $3.0 million and $0.3 million recorded within premium and other taxes and general expenses, respectively.

(m) Income tax effect of reconciling differences

Differences for income taxes relate to the effect of recording the deferred tax effects of differences between previously issued Canadian GAAP and IFRS. Retained earnings decreased by $0.6 million at December 31, 2010 (January 1, 2010 - $4.1 million), accumulated other comprehensive income (AOCI) decreased $1.8 million at December 31, 2010 (January 1, 2010 - $nil) and income taxes decreased by $1.8 million for the year ended December 31, 2010.

(n) Equity adjustments

The following is a summary of transition adjustments to shareholders’ equity:

December 31, January 1, Share capital 2010 2010 Share capital, under previously issued Canadian GAAP 272.6 270.1IFRS adjustment increase (decrease):

Staff share loans (g) (0.8) (0.7) Share capital, under IFRS 271.8 269.4

December 31, January 1, Contributed capital 2010 2010 Contributed surplus, under previously issued Canadian GAAP 11.3 1.2 IFRS adjustment increase (decrease):

Reclass of contributed surplus (h) (1.2) (1.2) Contributed capital, under IFRS 10.1 -

December 31, January 1, Accumulated other comprehensive income (AOCI) 2010 2010 AOCI, under previously issued Canadian GAAP 124.6 66.9IFRS adjustments increase (decrease):

Impairment of invested assets (k) 5.9 - Income tax effect (m) (1.8) -

Total IFRS adjustments increase (decrease) 4.1 - AOCI, under IFRS 128.7 66.9



December 31, January 1, Retained earnings 2010 2010 Retained earnings, under previously issued Canadian GAAP 972.1 924.2IFRS adjustments increase (decrease):

Deferred net realized gains (f) 42.1 45.0Staff share loan plan (g) 0.8 0.7Reclassification of contributed surplus (h) 1.2 1.2Agent transition commissions (i) (29.8) (29.9) Retirement benefit obligation (j) (1.0) (1.3) Impairment of invested assets (k) (5.9) - Provisions (l) (3.3) - Income tax effect (m) (0.6) (4.1)

Total IFRS adjustments increase (decrease) 3.5 11.6Retained earnings, under IFRS 975.6 935.8

Statement of cash flows

Our consolidated statement of cash flows is presented in accordance with IAS 7 “Statement of Cash Flows”. The statement presents substantially the same information as that required under Canadian GAAP.

Other impacts of IFRS adoption

The adoption of IFRS has had a minimal effect on our business operations, our capital requirements and our key success indicators.

FUTURE ACCOUNTING CHANGES

The International Accounting Standards Board (IASB) has continued to issue a number of amendments and new accounting pronouncements that will be applicable to Co-operators General. Included below are details of select accounting standards issued but not yet applied. For a complete listing refer to Note 4 of the consolidated financial statements. We are currently analyzing these changes to IFRS and we are not yet in a position to comment on how they will affect our financial reporting. Certain standards below cannot be early adopted as OSFI has indicated it will not allow early adoption for federally regulated financial institutions.

IFRS 9 “Financial Instruments” - IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new model having only two categories: amortized cost and FVTPL. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at FVTPL or at fair value through OCI. Where such equity instruments are measured at fair value through OCI that do not clearly represent a return of investment, the dividends are recognized in net income under net investment gains and income; however, other gains and losses (including impairments) associated with such instruments remain in AOCI indefinitely.

Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at FVTPL would generally be recorded in OCI. This standard is required to be applied for accounting periods beginning on or after January 1, 2015.

IFRS 10 “Consolidated Financial Statements” - IFRS 10 builds on existing principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 “Consolidated and Separate Financial Statements” and SIC-12 “Consolidation - Special Purpose Entities” and is effective for annual periods beginning on or after January 1, 2013.

IFRS 11 “Joint Arrangements” - IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31 "Interests in Joint Ventures" and SIC-13 "Jointly Controlled Entities Non-monetary Contributions by Venturers". The option to apply the proportional consolidation method when accounting for jointly controlled entities is removed. Additionally, IFRS 11 eliminates jointly controlled assets and now only differentiates between joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets. This standard is effective for annual periods beginning on or after January 1, 2013.

IFRS 12 "Disclosure of Interests in Other Entities" - IFRS 12 is a new standard on disclosure requirements and applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 is effective for annual periods beginning on or after January 1, 2013.


IFRS 13 "Fair Value Measurement" - IFRS 13 defines fair value, sets out in a single IFRS framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures about fair value measurements, except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013.

GLOSSARY OF TERMS

Certain terms used in this MD&A have the meanings set forth below that tend to be specific to the Canadian insurance industry or to Co-operators General.

Agent - an insurance agent who sells insurance products exclusively for one insurance company.

Assume - Reinsurance term to describe an insurer taking on a risk, for a premium, from the primary insurer, to cover all or part of a risk insured by the primary insurer who has then ceded the risk.

Broker - an intermediary who negotiates policies of insurance or reinsurance with insurers on behalf of the insured or reinsured, receiving a commission from the insurer or the reinsurer for placement and other services rendered.

Catastrophe reinsurance - a form of excess of loss insurance, which subject to specified limits, indemnifies the ceding company for the amount of loss in excess of a specified retention with respect to an accumulation of losses resulting from a catastrophic event.

Cede - reinsurance term to describe a primary insurer purchasing insurance from a reinsurer who assumes the risk, to cover all or part of a risk insured by the primary insurer.

Claim - the amount owed by an insurer or reinsurer pursuant to a policy of insurance or reinsurance arising from the loss relating to an insured event.

Claims development - the change in reserve balance on unpaid claims through the process of adjudication from the initial estimate to the ultimate amount paid.

Claims experience - the realized claims loss record for a defined block of business.

Claims incurred - the aggregate monetary amount of all claims paid during an accounting period adjusted by the change in the provision for unpaid claims for that accounting period together with the related loss adjustment expenses, net of recoveries from reinsurers.

Combined ratio - the percentage the claims and adjustment expenses plus the acquisition expenses and the administrative expenses are to the net earned premium.

Direct written premium (DWP) - the total amount of premiums for new and renewal policies written during a specified period.

Expense ratio - the acquisition expenses plus administrative expenses to net earned premium expressed as a percentage.

Facility Association (FA) - a mandatory shared market pooling arrangement, which provides automobile insurance to individuals who are otherwise unable to purchase such coverage from private insurers acting voluntarily. All insurance companies share in the results of the pool according to their market share.

Frequency - the ratio of the number of claims files opened in a period to the total number of policies in force.

General insurance - all types of insurance excluding life insurance and governmental insurance. Also known as property and casualty insurance.

Government automobile insurers - automobile insurers owned or controlled by the governments of the provinces of Quebec, Manitoba, Saskatchewan and British Columbia.

Gross written premium (GWP) - the sum of premiums written directly by the insurer and premiums on reinsurance assumed during a specified period, before deduction of reinsurance premiums ceded.

Home insurance - property and general liability insurance available to residential homeowners and tenants.



Incurred but not reported (IBNR) - the estimate of claims incurred but not yet reported by policyholders.

Liability insurance - insurance that serves to protect the insured from the financial consequences of damages claimed by third parties.

Line of business - the major product groupings offered to the public. Co-operators General’s major lines of business are: automobile, home, commercial, and farm.

Loss ratio - incurred losses and loss-adjustment expenses to net earned premium, may be referred to as claims ratio.

Minimum Capital Test (MCT) - the minimum and supervisory target capital standards established by OSFI for property and casualty insurance companies.

Net earned premium - the net written premium during the period, plus the unearned premiums reserve at the beginning of the period, less the unearned premiums reserve at the end of the period, net of any reinsurance.

OSFI - Office of the Superintendent of Financial Institutions (Canada).

Property and casualty (P&C) insurance - all types of insurance excluding life insurance and governmental insurance. Also known as general insurance.

Provision for adverse deviation (PFAD) - margins that are added to loss reserves to provide for adverse deviation from claims reserve estimates; this includes provisions covering claim development variability and risks associated with interest rate and reinsurance recoveries.

Unpaid claims and adjustment expenses - the amount provided as a liability to cover the estimated ultimate cost of settling claims, including claims incurred but not reported arising out of events, which have occurred by the end of an accounting period, less amounts paid with respect to those claims; also referred to as ‘provision for unpaid claims’ or ‘claims reserves.’

Reinsurer - an insurer who assumes all or part of a risk originally assumed by a primary insurer.

Retention - has two meanings: (1) in respect of reinsurance, the amount of risk not ceded to reinsurers; (2) in respect to policies in force, the number of policyholders who renew for a subsequent term.

Return on equity (ROE) - net income as a percentage of average opening and closing shareholders’ equity excluding accumulated other comprehensive.

Severity - the average cost of each claim.

Salvage and subrogation recoverable - Salvage recoverable is the estimated value of damaged property that may be retrieved, reconditioned, and sold to reduce the amount of an insured loss. Subrogation recoverable is the estimate of the amount the insurer will collect from a negligent third party or their insurer after assuming the insured’s legal right to collect damages.

Underwriting - the selection and assumption of risk for designated loss or damage arising from specified events by issuing a policy of insurance in respect thereof.

Underwriting gain or loss - the profit or loss from the activity of taking on insurance risks, before considering the impact of investment income.


RESPONSIBILITY FOR FINANCIAL REPORTING Management and the appointed actuary 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 Canadian Generally Accepted Accounting Principles as set out in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants (International Financial Reporting Standards) and the requirements of Canadian insurance regulators. The financial information presented 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 opinion of the appointed actuary, have been made using careful judgment.

To assist management in the discharge of these responsibilities, the Company maintains a system of internal controls designed to provide reasonable assurance that its 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. Further, management has a process in place to evaluate disclosure controls and procedures and internal controls over financial reporting.

The appointed actuary is appointed by the Board of Directors pursuant to the Insurance Companies Act. Among the appointed actuary’s responsibilities is the requirement to carry out an annual valuation of the Companies’ insurance contracts in accordance with accepted actuarial practice and regulatory requirements for the purpose of reporting to shareholders and the Office of the Superintendent of Financial Institutions, Canada. Management is responsible for providing the appointed actuary the information necessary for completion of the annual valuations. The appointed actuary’s report follows.

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 their work and to ensure that respective responsibilities are properly discharged. 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 is responsible for recommending to the Board of Directors the appointment of the Company’s external auditors, the approval of their remuneration and the terms of their engagement.

The consolidated financial statements have been examined independently by PricewaterhouseCoopers LLP, on behalf of the Company’s shareholders. The auditors’ report is presented below and outlines the scope of their examination and expresses their opinion on the consolidated financial statements of the Company.

(Signed) (Signed) Kathy Bardswick P. Bruce West President and Chief Executive Officer Executive Vice-President, Finance and Chief Financial Officer

February 15, 2012

PricewaterhouseCoopers LLP, Chartered Accountants

PwC Tower, 18 York Street, Suite 2600, Toronto, Ontario, Canada M5J 0B2

T: +1 416 863 1133, F: +1 416 814 3220, www.pwc.com/ca

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


February 15, 2012 Independent Auditor’s Report To the Shareholders of Co-operators General Insurance Company We have audited the accompanying consolidated financial statements of Co-operators General Insurance Company and its subsidiaries, which comprise the consolidated balance sheets as at December 31, 2011 and December 31, 2010 and January 1, 2010 and the consolidated statements of changes in shareholders’ equity, income, comprehensive income and cash flows for the years ended December 31, 2011 and December 31, 2010, 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, which is one of the financial reporting frameworks included in Canadian generally accepted accounted principles, 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 audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audits 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 in our audits 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 Co-operators General Insurance Company and its subsidiaries as at December 31, 2011 and December 31, 2010 and January 1, 2010 and their financial performance and their cash flows for the years ended December 31, 2011 and December 31, 2010 in accordance with International Financial Reporting Standards, which is one of the financial reporting frameworks included in Canadian generally accepted accounted principles. (Signed) Chartered Accountants, Licensed Public Accountants


APPOINTED ACTUARY’S REPORT To the Directors and Shareholders of Co-operators General Insurance Company: I have valued the policy liabilities of Co-operators General Insurance Company for its balance sheet as at December 31, 2011 and their change in the statement of income for the year then ended in accordance with accepted actuarial practice in Canada, including selection of appropriate assumptions and methods. In my opinion, the amount of policy liabilities makes appropriate provision for all policy obligations and the financial statements fairly present the results of the valuation. (Signed) Lisa Guglietti Fellow, Canadian Institute of Actuaries Guelph, Ontario February 15, 2012


CONSOLIDATED FINANCIAL STATEMENTS CO-OPERATORS GENERAL INSURANCE COMPANY CONSOLIDATED BALANCE SHEETS

December 31, December 31, January 1,2011 2010 2010

(in thousands of Canadian dollars) $ $ $AssetsCash and cash equivalents 29,553 13,214 26,512 Invested assets (note 5) 3,996,994 3,870,202 3,681,259 Premiums due 676,861 662,349 626,179 Income taxes recoverable (note 11) 8,756 27,277 34 Reinsurance ceded contracts (note 9) 185,799 180,061 208,879 Deferred acquisition expenses (note 10) 214,817 214,687 205,941 Assets held for sale (note 13) 17,821 20,451 18,348 Deferred income taxes (note 11) 69,628 60,417 59,496 Intangible assets (note 12) 28,443 29,248 30,352 Other assets (note 14) 64,158 57,175 129,592

5,292,830 5,135,081 4,986,592

LiabilitiesAccounts payable and accrued charges 153,717 152,412 143,096 Income taxes payable (note 11) 14,315 5,143 102,268 Insurance contracts (note 8) 3,421,745 3,418,135 3,325,376 Borrowings (note 16) 27,639 36,404 19,017 Retirement benefit obligations (note 17) 48,148 44,923 42,504 Provisions and other liabilities (note 15) 103,031 91,900 82,314

3,768,595 3,748,917 3,714,575

Shareholders' equityShare capital (note 18) 275,161 271,783 269,350 Contributed capital 10,132 10,132 - Retained earnings 1,101,421 975,574 935,766 Accumulated other comprehensive income 137,521 128,675 66,901

1,524,235 1,386,164 1,272,017

5,292,830 5,135,081 4,986,592

Contingencies, commitments and guarantees (note 28)

Approved by the Board of Directors: (Signed) (Signed)

Richard Lemoing Kathy Bardswick Chairperson, Board of Directors President and Chief Executive Officer

See accompanying notes to the consolidated financial statements


CO-OPERATORS GENERAL INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY Years ended December 31

2011

Share capital Retained earnings

Contributed capital

Accumulated other comprehensive

income

Total shareholders' equity

(in thousands of Canadian dollars) $ $ $ $ $Balance, beginning of year 271,783 975,574 10,132 128,675 1,386,164 Net income - 150,257 - - 150,257 Other comprehensive income - - - 8,846 8,846 Total comprehensive income - 150,257 - 8,846 159,103 Staff share loan plan (note 18) (1,754) - - - (1,754) Preference shares issued (redeemed) (note 18) 5,132 - - - 5,132 Dividends declared (note 18) - (24,306) - - (24,306) Premium on redemption of preference shares - (104) - - (104) Balance, end of year 275,161 1,101,421 10,132 137,521 1,524,235

2010

Share capital Retained earnings

Contributed capital

Accumulated other comprehensive

income

Total shareholders' equity

(in thousands of Canadian dollars) $ $ $ $ $Balance, beginning of year 269,350 935,766 - 66,901 1,272,017 Net income - 72,687 - - 72,687 Other comprehensive income - - - 61,774 61,774

Total comprehensive income - 72,687 - 61,774 134,461

Contribution of capital (note 25) - - 10,132 - 10,132 Staff share loan plan (note 18) (1,792) - - - (1,792) Preference shares issued (redeemed) (note 18) 4,225 - - - 4,225 Dividends declared (note 18) - (32,745) - - (32,745) Premium on redemption of preference shares - (134) - - (134) Balance, end of year 271,783 975,574 10,132 128,675 1,386,164



CO-OPERATORS GENERAL INSURANCE COMPANY CONSOLIDATED STATEMENTS OF INCOME Years ended December 31

(in thousands of Canadian dollars except for earnings per share 2011 2010 and weighted average number of common shares) $ $Direct written premium (note 22) 2,331,015 2,321,845

Ceded written premium (note 8, 9, 22) (87,992) (156,568)

Income

Net earned premium (note 7, 8, 22) 2,194,405 2,119,701

Net investment gains and income (note 5) 168,003 172,088

2,362,408 2,291,789

Expenses

Claims and adjustment expenses 1,512,760 1,534,393 Ceded claims and adjustment expenses (note 9) (99,490) (58,226) Premium and other taxes 74,485 78,501 Commissions and agent compensation 378,625 369,667 Ceded commission (note 9) (23,003) (33,395) General expenses 322,201 302,663

2,165,578 2,193,603

Income before income taxes 196,830 98,186

Income taxes (note 11) 46,573 25,499

Net income 150,257 72,687

Earnings per share (note 19) 6.59 2.77 Weighted average number of common shares 20,190 20,146

CO-OPERATORS GENERAL INSURANCE COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Years ended December 31

2011 2010(in thousands of Canadian dollars) $ $Net income 150,257 72,687 Other comprehensive income

Net unrealized gain (loss) on available-for-sale financial assetsBonds 92,676 53,357 Stocks (51,694) 62,246 Other - 1

40,982 115,604

Net reclassification adjustment for (gain) loss included in incomeBonds (33,614) (36,550) Stocks 4,640 9,505 Other (613) (1)

(29,587) (27,046)

Other comprehensive income before income taxes 11,395 88,558

Income taxes (note 11) 2,549 26,784

Other comprehensive income 8,846 61,774

Comprehensive income 159,103 134,461



CO-OPERATORS GENERAL INSURANCE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31

2011 2010(in thousands of Canadian dollars) $ $Operating activitiesNet income 150,257 72,687 Items not requiring the use of cash (note 24) (10,313) (11,860) Changes in non-cash operating components (note 24) (14,367) 2,232

Cash provided by (used in) operating activities 125,577 63,059

Investing activities Purchases and advances:

Invested assets - financial instruments (6,726,635) (6,454,631) Assets held for sale - (488) Property and equipment (6,419) (5,970) Intangible assets (3,205) (2,640)

Sale and redemption:Invested assets - financial instruments 6,650,814 6,372,186 Assets held for sale 2,345 2,185 Investments in associates (note 27) 780 24,165 Property and equipment 1,000 -

Cash provided by (used in) investing activities (81,320) (65,193)

Financing activitiesShare capital - preference shares issued (note 18) 7,983 7,144 Share capital - preference shares redeemed (note 18) (2,851) (2,919) Dividends paid (note 18) (24,181) (32,642) Premium on redemption of preferred shares (104) (134)

Cash provided by (used in) financing activities (19,153) (28,551)

Net increase (decrease) in cash and cash equivalents less short-term indebtedness 25,104 (30,685) Cash and cash equivalents less short-term indebtedness, beginning of year (19,690) 10,995

Cash and cash equivalents less short-term indebtedness, end of year 5,414 (19,690)

Cash 29,004 11,220 Cash equivalents 549 1,994 Short-term indebtedness (note 16) (24,139) (32,904)

Cash and cash equivalents less short-term indebtedness, end of year 5,414 (19,690)

Supplemental information (note 24)



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted) 1. Nature of operations Unless otherwise noted or the context otherwise indicates, in these notes “Company” refers to the Consolidated Co-operators General Insurance Company. CGIC refers to the Non-Consolidated Co-operators General Insurance Company. The Company is comprised of CGIC and its 100% wholly owned subsidiaries: The Sovereign General Insurance Company (Sovereign), L’UNION CANADIENNE, Compagnie d’assurances and L’Équitable, Compagnie d’assurances Générale (L’Union) and COSECO Insurance Company (COSECO). 100% of the voting rights attached to all the outstanding voting shares each of Sovereign, L’Union, and COSECO are carried by the Company. The registered office of the Company is Priory Square,130 Macdonell Street, Guelph, Ontario. The Company is domiciled in Canada and is incorporated under the Insurance Companies Act (Canada). These consolidated financial statements of the Company for the year ended December 31, 2011 were authorized for issue by the Board of Directors on February 15, 2012. CGIC and its subsidiaries are licensed to write all classes of insurance, other than life, in all provinces and territories in Canada. CGIC and its subsidiaries are regulated by federal and provincial insurance acts. The Company must comply with reporting requirements of its regulator the Office of the Superintendent of Financial Institutions, Canada (OSFI). The Company’s common shares are 100% owned by Co-operators Financial Services Limited (CFSL), which in turn is owned 100% by The Co-operators Group Limited (CGL). The Class E preference shares, Series C and Class E preference shares, Series D are traded on the Toronto Stock Exchange under the symbols CCS.PR.C and CCS.PR.D. 2. Summary of significant accounting policies Basis of preparation and statement of compliance These consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS). These are the Company’s first annual consolidated financial statements prepared in accordance with IFRS and IFRS 1 “First-time Adoption of International Financial Reporting Standards” has been applied. References to IFRS are based on Canadian Generally Accepted Accounting Principles (GAAP) for publicly accountable enterprises as set out in Part 1 of the Canadian Institute of Chartered Accountants (CICA) Handbook. Part 1 of the CICA Handbook incorporates IFRS as issued by the International Accounting Standards Board (IASB). The consolidated financial statements as at and for the year ended December 31, 2010 were prepared based on the previously issued Canadian GAAP. References to previously issued Canadian GAAP refer to Canadian GAAP prior to the adoption of IFRS. An explanation of how the transition to IFRS as of January 1, 2010 (the Transition Date) has affected the Company’s financial position, results of operations and cash flows, including certain transition elections, is disclosed in note 3. The consolidated balance sheets are 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 would typically be considered as 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. Basis of measurement These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale (AFS) financial assets, and financial assets and financial liabilities (including derivative instruments) measured at fair value through profit or loss (FVTPL).

(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


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, not meeting 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. The Company does not have investment contracts. Revenue recognition Premiums written are deferred as unearned premiums and recognized in the consolidated statements of income over the terms of the underlying policies on a straight-line basis. Premiums written are gross of any premium taxes and commissions. Insurance contract liabilities Unearned premiums represent the portion of the premiums written relating to periods of insurance coverage subsequent to the 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 statements 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 long-term claims losses through the purchase of annuities under structured settlement arrangements with life insurance companies. As the Company does not retain any interest in the related insurance contract and obtains a legal release from the claimant, any gain or loss arising on the purchase of an annuity is recognized in the consolidated statements of income at the date of purchase and the related claims liabilities are derecognized. 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 of unpaid claims and adjustment expenses. If that assessment shows that the carrying amount of the liabilities is insufficient in light of the estimated future cash flows, the deficiency is recognized in the consolidated statements of income. An additional liability is set-up if no deferred acquisition expenses are present for a group of insurance contracts that exhibit similar risks. 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 sheets net of any impairment provisions. Premiums due are classified as loans and receivables. Acquisition expenses 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 sheets for any remainder.

Notes to the Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


Reinsurance 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 statements 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 reinsurance contracts the Company has in respect of outstanding claims reported under unpaid claims and adjustment expenses and unearned premiums. The amount recoverable is initially valued on the same basis as the underlying insurance contract. The amount recoverable is reduced when there are events or conditions arising after the initial recognition of the asset that provides objective evidence that the Company may not receive all amounts due under the contract. Reinsurance commissions are recognized in the consolidated statements 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. Financial instrument contracts Classification and designation Financial assets are classified as FVTPL, 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 liabilities. The Company has classified all stocks and bonds as either AFS or FVTPL. Collateralized debt obligations, which contain embedded derivatives for which separate fair values cannot be reliably determined, are designated as FVTPL. Certain bonds backing unpaid claims and adjustment expenses have been 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. The Company’s FVTPL designations comply with these requirements. Mortgages and other investments 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 AFS. Currency derivatives are classified as FVTPL. Accounts payable and accrued charges, as well as borrowings are classified as other financial liabilities with interest expense, if any, recorded in general expenses. No financial instruments are classified as HTM. Presentation Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheets 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 loans and receivables. Assets classified as loans and receivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest rate 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 rate method.



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) except for foreign exchange gains and losses, until the related instrument is disposed of or becomes impaired. Foreign exchange gains and losses for monetary AFS financial assets are recognized in net income. Accumulated other comprehensive income (AOCI) is included in the consolidated balance sheets as a separate component of shareholders’ 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. Fair value Fair value is the amount of consideration that would be agreed on in an arm’s length transaction between knowledgeable, willing parties who are under no compulsion to act. 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, then 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 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 an AFS financial asset is impaired by assessing whether there is a significant or prolonged decline in fair value below cost. 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 statements of income. Impairments of AFS equity instruments cannot be reversed through the consolidated statements of income until the instrument is disposed of. 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 statements of income. Financial assets include mortgages and other investments classified as loans and receivables 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 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 sheets. The gains and losses arising from remeasuring the derivatives at fair value are recognized in the consolidated statements of income. 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 financial instruments or contracts are separated from their host contracts and accounted for as derivatives when: a) their economic characteristics and risks are not closely related to those of the host contract; b) the terms of the embedded derivative are the



same as those of a free standing derivative; c) the combined instrument or contract is not measured at fair value with the changes in fair value being recognized in net income and d) 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 gains and income. Revenue and expense recognition Included within net investment gains and income 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 statements 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. 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 income during the year 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 40 yearsLeasehold improvements Lesser of 5 years and terms of related lease

Land is not subject to amortization and is 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 cost to sell and its value in use. Impairment losses are recognized in the consolidated statements of income as an expense. In the event that the value of previously impaired asset recovers, the previously recognized impairment loss is recovered in 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 statements 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 statements 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 liabilities 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, other than those associated with the issue of debt or equity securities, that the Company incurs in connection with a business combination are expensed as incurred. Acquisitions of non-controlling interests Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their capacity as equity holders; therefore no goodwill is recognized as a result of such transactions. Subsidiaries Subsidiaries are entities controlled by the Company. 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 (equity accounted investees) Associates are those entities in which the Company has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Company holds between 20 and 50 percent of the voting power of another entity. Investments in associates 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 and 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 commences until the date that significant influence 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. 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 statements of income prior to testing 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 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 statements 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 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 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 value 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 indication 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 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 depreciation, had no impairment loss been recognized for the asset or CGU in prior years. Finite life intangible assets are amortized on a straight-line basis over their estimated useful lives as follows:

TermSoftware 5 yearsBroker customer lists 5 - 10 years

Software consists primarily of internally generated software development costs. Assets held for sale Non-current assets 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 regarded as having been met when the asset is available for sale in its present condition and the sale is highly probable and expected to occur within one year from the date of reclassification. Non-current assets 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. Retirement benefit obligations Retirement benefit obligations include pensions, medical and dental benefits and other certain benefits to qualifying individuals. The primary pension plan is a defined contribution plan. 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 net income in the periods during which services are rendered by employees. The other-than-pension benefits are defined benefit contracts and 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 plan together with relevant actuarial assumptions. There are no employee contributions to the other-than-pension benefits plan. The plan is not funded. Actuarial gains and losses are deferred and amortized over the average future service to expected retirement age on a straight-line basis. Past service costs are deferred and are amortized in the same manner over the vesting period according to terms of the employee benefit plan, 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 rate method. Included in borrowings is short-term indebtedness, which includes cash on account net of payments in transit. Provisions Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation 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 passage of time is recognized as interest expense and classified as a general expense in the consolidated statements of income. Provision for agent transition commissions The Company’s agents 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 agent and the agent’s average trailing commission volume. Payments to terminating agents are funded in part from reduced commission payments which are made to agents assuming the rights to the book of business during the first three years of their agency relationship. The obligation to active agents 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 CGIC’s functional and the Company’s 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 statements 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 balance sheet date. The income tax provision comprises current and deferred income taxes. Current income taxes are amounts expected to be payable or recoverable as a result of current year’s 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 the benefit of losses and deductions available to be carried forward to future years for income tax purposes are probable to be realized. Current and deferred income taxes are recorded in the consolidated statements of income, except for those items that are associated with components of OCI. In those cases, the applicable tax is also recorded in OCI. Share capital Shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable 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 date of the financial statement and the reported amounts of revenues and expenses during the year. The preparation of the 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 include the following: Valuation of insurance contracts 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).



Valuation and impairment of financial instruments The Company uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of certain financial instruments. Note 5 provides detailed disclosure of the key assumptions, including a disclosure of financial instruments within the fair value hierarchy. The Company recognizes impairment losses based on management’s best estimates of whether objective evidence of impairment exists, using available market data. Note 5 provides disclosure of the financial assets where amortized cost is greater than the fair value, however, the loss has not been recognized in net income. Valuation of intangible assets Determining the recoverability of intangible assets, including goodwill, require an estimation of 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 12. Provision for agent transition commissions The provision for agent transition commissions is an obligation to active agents 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. Other estimates include embedded derivatives (note 5), reinsurance (note 9), income taxes (note 11), retirement benefit obligations (note 17) and contingencies (note 28). Actual results could differ from these estimates. Changes in estimates are recorded in the accounting period in which they are determined. The estimates made under the previously issued Canadian GAAP framework are the same estimates utilized under the IFRS framework adopted as at the Transition Date unless the adoption of IFRS specifically required a different approach, process or methodology. 3. Adoption of International Financial Reporting Standards Explanation of transition of IFRS As stated in note 2, these are the Company’s first annual consolidated financial statements that follow IFRS. The Company has consistently applied the same accounting policies in its opening IFRS statement of financial position at the Transition Date and throughout all periods presented as if these policies had always been in effect, subject to certain transition elections and mandatory exemptions detailed below. Optional exemptions Insurance contracts The Company has elected to disclose only five years of claims experience data in its claims development tables as permitted in the first financial year in which it adopts IFRS 4 "Insurance Contracts". These disclosures will be extended for an additional year in each succeeding year until the 10 year information requirement has been satisfied. Retirement benefit obligations The Company elected to recognize at the Transition Date all cumulative unrecognized actuarial gains and losses relating to its retirement benefit obligations under previously issued Canadian GAAP. Business combinations IFRS 1 provides the option to apply IFRS 3 "Business Combinations" retrospectively or prospectively from the Transition Date. The retrospective basis would require restatement of all business combinations that occurred prior to the Transition Date. The Company elected not to retrospectively apply IFRS 3 to business combinations that occurred prior to the Transition Date. As a result of applying this exemption, any goodwill arising on business combinations before the Transition Date has not been adjusted from the carrying value determined under previously issued Canadian GAAP. Designation of financial assets and financial liabilities IFRS 1 allows for entities adopting IFRS for the first time to re-designate financial assets and financial liabilities as at the Transition Date. The Company elected not to apply this exemption. Accordingly, all classifications and designations of financial assets and financial liabilities are unchanged compared to previously issued Canadian GAAP.



Mandatory exemptions Estimates Estimates made in accordance with IFRS at the Transition Date are consistent with estimates made in accordance with previously issued Canadian GAAP except where necessary to reflect any differences in accounting policies. Hedge accounting The Company did not employ hedge accounting under previously issued Canadian GAAP and does not employ hedge accounting under IFRS. Reconciliations between IFRS and previously issued Canadian GAAP The following reconciliations provide a quantification of the effect of the transition to IFRS on equity as at January 1, 2010 and December 31, 2010 and net income and comprehensive income for the year ended December 31, 2010. Explanations of the adjustments are set out below. Reconciliation of shareholders’ equity:

December 31, January 1,2010 2010

$ $1,380,586 1,262,422

IFRS transitional adjustments: Deferred net realized gains (a) 42,068 45,018 Agent transition commissions (b) (29,854) (29,965) Retirement benefit obligations (c) (988) (1,315) Provisions (f) (3,260) - Income tax effect of reconciling differences (g) (2,388) (4,143)

Shareholders' equity, IFRS 1,386,164 1,272,017

Shareholders' equity, as reported under previous Canadian GAAP

Reconciliation of net income and comprehensive income: Other comprehensive Comprehensive

Net income income incomeDecember 31, 2010 $ $ $

80,744 57,665 138,409 IFRS transitional adjustments:

Deferred net realized gains (a) (2,950) - (2,950) Agent transition commissions (b) 111 - 111 Retirement benefit obligations (c) 327 - 327 Staff share loan (d) 69 - 69 Impairment of AFS financial assets (e) (5,860) 5,860 - Provisions (f) (3,260) - (3,260) Income tax effect of reconciling differences (g) 3,506 (1,751) 1,755

Net income, IFRS 72,687 61,774 134,461

As reported under previous Canadian GAAP

Explanations (a) Recognition of deferred net realized gains

Prior to the Transition Date, the Company sold a portfolio of properties which it leased back for its own use. Under previously issued Canadian GAAP, the realized investment gain was deferred as a liability on the consolidated balance sheets and amortized to income in proportion to the rental payments being made over the 15 year term of the related lease. Under previously issued Canadian GAAP, these deferred net realized gains amounted to $42,068 at December 31, 2010 (January 1, 2010 - $45,018) and were presented within deferred net realized gains. Under IFRS, these gains are recognized at the inception when the transaction takes place at fair value and the leaseback transaction results in an operating lease. The difference identified in the table above was recorded through net income under net investment gains and income.



(b) Agent transition commissions

Using guidance from IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, the Company measures this liability as its best estimate of the cost of settling the current obligation with a third party. The current obligation is measured by accruing for the benefits earned to date on a present value basis assuming the benefits are paid out at the expected retirement date. Under previously issued Canadian GAAP, the obligation to active agents was determined using the projected benefit method pro-rated on services. As at the Transition Date the Company applied a discount rate of 5% for IFRS while under previously issued Canadian GAAP the Company applied a discount rate of 13.5%, which amounted to an adjustment of $29,854 at December 31, 2010 (January 1, 2010 - $29,965). In both cases the Company estimated an average termination age of 60. Under previously issued Canadian GAAP, the active agent transition commission amounted to $40,119 at December 31, 2010 (January 1, 2010 - $38,486) and was presented within payables and other liabilities. Under IFRS this provision is recorded within provisions and other liabilities as disclosed in note 15. The difference identified in the table above was recorded through net income under commissions and agent compensation.

(c) Retirement benefit obligations

The Company elected to recognize at the Transition Date all unrecognized cumulative actuarial gains and losses with respect to its retirement benefit obligations measured under previously issued Canadian GAAP. Additionally, under previously issued Canadian GAAP unvested past service costs under defined benefit plan arrangements were recognized over the expected average remaining service period. For IFRS under IAS 19 “Employee Benefits”, past service costs are recognized over the vesting period, which amounted to an adjustment of $988 at December 31, 2010 (January 1, 2010 - $1,315). The difference identified in the table above was recorded through net income under general expenses. Under previously issued Canadian GAAP, employee future benefits were presented within payables and other liabilities.

(d) Staff share loan

The Company has a staff share loan plan that involves providing interest-free loans to employees for the purchase of the Company’s Class A, Series B preference shares. Under IFRS, the loan has been issued in conjunction with a share-based payment transaction and is accounted for as an equity transaction on an undiscounted basis. Under previously issued Canadian GAAP the loan was also recorded through shareholders’ equity but on a discounted basis, which amounted to an adjustment of $808 as at December 31, 2010 (January 1, 2010 - $739). Under both previously issued Canadian GAAP and IFRS, the staff share loan plan is presented within share capital and therefore the adjustment has no net impact on total shareholders’ equity. The difference for discounting of $69 for the year ended December 31, 2010 was recorded through net income under general expenses. (e) Impairment of AFS financial assets

Under previously issued Canadian GAAP, the Company evaluated AFS financial assets for impairment by assessing whether or not there was objective evidence that the asset was impaired and if so, whether or not the decline in fair value was other than temporary. While IAS 39 “Financial Instruments: Recognition and Measurement” applies a similar impairment model with respect to the existence of objective evidence of impairment, the "other than temporary" criteria does not exist. As a result, impairment losses can occur more quickly under IFRS. The application of this revised impairment policy resulted in additional impairment losses being recognized. The additional impairment losses were recorded through a reclassification adjustment to the consolidated statements of income from other comprehensive income and therefore have no net impact on total comprehensive income, total invested assets and total shareholders’ equity. The difference identified in the table above was recorded through net income under net investment gains and income. It is comprised of impairment losses of $11,869 recorded in the second quarter under IFRS, offset by an increase in realized gains on disposed securities of $3,497 and a reversal of Canadian GAAP impairment losses of $2,512.

(f) Provisions

Under previously issued Canadian GAAP, the Company had determined that a provision would be recognized if it was “likely” that it would be realized pursuant to contingencies guidance under previously issued Canadian GAAP. Under IFRS, pursuant to IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, the Company determined that a provision shall be recognized when it is “probable” that an outflow of resources is required. As a result, the recognition of a provision can occur more quickly under IFRS. The application of this revised recognition policy resulted in additional provisions being recognized in the amount of $3,260 (January 1, 2010 - $nil), which is presented within provisions and other liabilities. The difference identified in the table above was recorded through net income, with $3,035 and $225 recorded within premium and other taxes and general expenses, respectively.



(g) Income tax effect of reconciling differences

Differences for income taxes relate to the effect of recording the deferred tax effect of differences between previously issued Canadian GAAP and IFRS. Impact of transition on the statement of cash flows

The Company’s consolidated statements of cash flows is presented in accordance with IAS 7 “Statement of Cash Flows”. The statements present substantially the same information that was required under previously issued Canadian GAAP. Other presentation changes In accordance with IFRS, the Company has also made certain presentation changes that affected the Company’s consolidated balance sheets and consolidated statements of income. The following major presentation differences between previously issued Canadian GAAP and IFRS have no impact on reported total equity. Reclassification of real estate Under previously issued Canadian GAAP, investments consisting of office buildings and commercial and retail properties were classified as Real Estate and presented on the consolidated balance sheets within Invested Assets. Upon transition to IFRS, guidance in IFRS 5 “Assets held for sale and discontinued operations” applied to these assets. As such, certain investment properties were reclassified on transition to Assets held for sale in the consolidated balance sheets. There was no change in the measurement or valuation of the assets upon transition. Reclassification of reinsurance ceded assets and liabilities Under previously issued Canadian GAAP, the reinsurance ceded assets and reinsurance ceded liabilities balances were presented separately on a gross basis in the consolidated balance sheets. Upon conversion to IFRS these items have been presented on a net basis under reinsurance ceded contracts. Reclassification of salvage and subrogation recoverable Under previously issued Canadian GAAP, salvage and subrogation recoverable was classified as an asset, as it represented the estimated value of recoverable assets associated with claims losses. Under IFRS, it was determined that this item is more appropriately presented as an offset to unpaid claims and adjustment expenses, which are included within insurance contracts on the consolidated balance sheets. Reclassification of service fees Under previously issued Canadian GAAP certain services charges were classified as either investment income or as an offset to general expenses in the consolidated statements of income. Under IFRS, these services fees are now recorded as revenue pursuant to IAS 18 "Revenue" guidance. Disaggregation of other assets and other liabilities Certain balances presented within other assets and other liabilities under previously issued Canadian GAAP have been presented separately on the consolidated balance sheets under IFRS. 4. Accounting standards issued but not yet applied IFRS 9 “Financial Instruments”

IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard addresses classification and measurement of financial assets and replaces the multiple category and measurement models in IAS 39 for debt instruments with a new model having only two categories: amortized cost and FVTPL. IFRS 9 also replaces the models for measuring equity instruments and such instruments are either recognized at FVTPL or at fair value through OCI. Where such equity instruments are measured at fair value through OCI that do not clearly represent a return of investment, the dividends are recognized in net income under net investment gains and income; however, other gains and losses (including impairments) associated with such instruments remain in AOCI indefinitely.



Requirements for financial liabilities were added in October 2010 and they largely carried forward existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities designated at FVTPL would generally be recorded in OCI.

This standard is required to be applied for accounting periods beginning on or after January 1, 2015, with earlier adoption permitted. OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this standard. IFRS 10 “Consolidated Financial Statements”

IFRS 10 builds on existing principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. IFRS 10 supersedes IAS 27 “Consolidated and Separate Financial Statements” and SIC-12 “Consolidation - Special Purpose Entities” and is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this standard.

IFRS 11 “Joint Arrangements”

IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31 "Interests in Joint Ventures" and SIC-13 "Jointly Controlled Entities Non-monetary Contributions by Venturers". The option to apply the proportional consolidation method when accounting for jointly controlled entities is removed. Additionally, IFRS 11 eliminates jointly controlled assets and now only differentiates between joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control have rights to the assets and obligations for the liabilities. A joint venture is a joint arrangement whereby the parties that have joint control have rights to the net assets. This standard is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this standard.

IFRS 12 "Disclosure of Interests in Other Entities"

IFRS 12 is a new standard on disclosure requirements and applies to entities that have an interest in a subsidiary, a joint arrangement, an associate or an unconsolidated structured entity. IFRS 12 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this standard.

IFRS 13 "Fair Value Measurement"

IFRS 13 defines fair value, sets out in a single IFRS framework for measuring fair value and requires disclosures about fair value measurements. IFRS 13 applies to IFRSs that require or permit fair value measurements or disclosures about fair value measurements, except in specified circumstances. IFRS 13 is to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this standard.

IAS 1 "Presentation of Financial Statements"

IAS 1 was amended in 2011 to require profit or loss and OCI to be presented together either as a single statement of comprehensive income or separate income statement and statement of comprehensive income. The amendments also requires presentation of OCI based on whether or not the balance may subsequently be reclassified to net income, with the tax associated with each type of OCI balance to be presented separately. IAS 1 amendments are to be applied for annual periods beginning on or after July 1, 2012. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this amendment.

IAS 12 "Income Taxes"

IAS 12 was amended to introduce an exception to the general measurement requirements of IAS 12 in respect to investment properties measured at fair value. These new amendments will be effective for the fiscal year beginning on or after January 1, 2012. The Company does not expect this standard to impact the consolidated financial statements.



IAS 19 "Employee Benefits"

IAS 19 was amended in 2011 to require the elimination of the “corridor” approach and instead require all pension remeasurement impacts to be recognized in OCI. The amendment also changes the treatment of termination benefits and introduces enhanced disclosures around defined benefit plans. IAS 19 amendments are to be applied for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company has not yet assessed the impact of this amendment.

IAS 27 (Revised) "Separate Financial Statements"

IAS 27 contains accounting and disclosure requirements for investments in subsidiaries, joint ventures and associates when an entity prepares separate financial statements. IAS 27 requires an entity preparing separate financial statements to account for those investments at cost or in accordance with IFRS 9 Financial Instruments. IAS 27 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. This standard will not impact the Company.

IAS 28 (Revised) "Investments in Associates and Joint Ventures"

IAS 28 was amended in 2011 to prescribe the accounting for investments in associates and sets out the requirements for the application of the equity method when accounting for investments in associates and joint ventures. IAS 28 is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted, however OSFI has indicated that it will not allow early adoption of this standard for federally regulated financial institutions. The Company is not expecting this standard to have an impact on the financial statements. 5. Invested assets and net investment gains and income a) Invested assets

Carrying valueClassified Designated Loans and

AFS FVTPL FVTPL receivables TotalDecember 31, 2011 $ $ $ $ $

Bonds

Federal 820,197 - 33,884 - 854,081

Provincial 718,752 - 23,176 - 741,928

Municipal 91,690 - - - 91,690

Corporate 1,100,830 - 50,030 - 1,150,860

Co-operative 3,082 - - - 3,082

2,734,551 - 107,090 - 2,841,641 Stocks

Canadian common 406,334 - - - 406,334

Canadian preferred 155,035 (11,482) 60,259 - 203,812

U.S. equities 76,082 - - - 76,082

Foreign equities 35,673 - - - 35,673

673,124 (11,482) 60,259 - 721,901 Short-term investments 18,885 - - - 18,885 Collateralized debt obligations - - 33,842 - 33,842

Foreign currency forward contracts - 140 - - 140

Mortgages - - - 320,505 320,505 Other investments - - - 15,597 15,597 Investment income due and accrued - - - 44,483 44,483

Total invested assets 3,426,560 (11,342) 201,191 380,585 3,996,994

Fair value Amortized cost



Carrying ValueClassified Designated Loans and

AFS FVTPL FVTPL receivables TotalDecember 31, 2010 $ $ $ $ $

BondsFederal 969,131 - 50,010 - 1,019,141 Provincial 561,995 - 14,983 - 576,978 Municipal 81,416 - - - 81,416 Corporate 1,050,858 - 32,538 - 1,083,396 Co-operative 3,041 - - - 3,041

2,666,441 - 97,531 - 2,763,972

Stocks Canadian common 429,174 - - - 429,174 Canadian preferred 193,070 (15,427) - - 177,643 U.S. equities 76,034 - - - 76,034 Foreign equities 39,010 - - - 39,010

737,288 (15,427) - - 721,861

Short-term investments 41,681 - - - 41,681 Collateralized debt obligations - - 38,562 - 38,562 Foreign currency forward contracts - 221 - - 221 Mortgages - - - 263,575 263,575 Other investments - - - 21,407 21,407 Investment income due and accrued - - - 18,923 18,923 Total invested assets 3,445,410 (15,206) 136,093 303,905 3,870,202

Amortized CostFair Value

Carrying Value

Classified Designated Loans andAFS FVTPL FVTPL receivables Total

January 1, 2010 $ $ $ $ $Bonds

Federal 986,301 - 20,865 - 1,007,166 Provincial 530,982 - 13,039 - 544,021 Municipal 82,225 - - - 82,225 Corporate 1,015,226 - 15,797 - 1,031,023 Co-operative 2,970 - - - 2,970

2,617,704 - 49,701 - 2,667,405

Stocks Canadian common 382,543 - - - 382,543 Canadian preferred 165,452 (9,272) - - 156,180 U.S. equities 70,024 - - - 70,024 Foreign equities 34,829 - - - 34,829

652,848 (9,272) - - 643,576

Short-term investments 40,071 - - - 40,071 Collateralized debt obligations - - 26,555 - 26,555 Foreign currency forward contracts - (96) - - (96) Mortgages - - - 259,585 259,585 Other investments - - - 22,541 22,541 Investment income due and accrued - - - 21,622 21,622 Total invested assets 3,310,623 (9,368) 76,256 303,748 3,681,259

Fair Value Amortized Cost



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 that make use of current market data. Assets and liabilities recorded at fair value in the consolidated balance sheets 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. Assets measured at fair value and classified as Level 1 include Canadian common and preferred stocks. 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 spreads, 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. Assets measured at fair value and classified as Level 2 include short-term investments, bonds (excluding co-operative bonds), US and foreign equities and foreign currency forward contracts. 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 judgement 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. Assets measured at fair value and classified as Level 3 include certain short-term investments and collateralized debt obligations. The following summarizes how fair values were determined as at:

Level 1 - Level 2 - Level 3 -

Quoted pricesSignificant other

observable inputs

Significant unobservable

inputsTotal

fair valueDecember 31, 2011 $ $ $ $AFS

Bonds - 2,734,551 - 2,734,551 Stocks 547,720 111,755 - 659,475 Short-term investments - 18,884 1 18,885

547,720 2,865,190 1 3,412,911 FVTPL

Bonds - 107,090 - 107,090 Stocks 60,259 - - 60,259 Collateralized debt obligations - - 33,842 33,842 Foreign currency forward contracts - 140 - 140

60,259 107,230 33,842 201,331

Total invested assets at fair value 607,979 2,972,420 33,843 3,614,242





observable inputs


inputsTotal

fair valueDecember 31, 2010 $ $ $ $AFS


604,650 2,823,164 2 3,427,816

FVTPLBonds - 97,531 - 97,531 Collateralized debt obligations - - 38,562 38,562 Foreign currency forward contracts - 221 - 221

- 97,752 38,562 136,314




observable inputs


inputsTotal

fair valueJanuary 1, 2010 $ $ $ $AFS


536,208 2,762,626 3 3,298,837

FVTPLBonds - 49,701 - 49,701 Collateralized debt obligations - - 26,555 26,555 Foreign currency forward contracts - (96) - (96)

- 49,605 26,555 76,160


Included in the AFS stocks in the above table are embedded derivatives of $11,482 (December 31, 2010 - $15,427; January 1, 2010 - $9,272), which are classified FVTPL. The embedded derivative represents the redemption options in the preferred share portfolio, the value of which has been determined using unobserved inputs in an accepted model. The embedded derivatives have been offset against its host instrument as the net amount's fair value represents an unadjusted quoted price for identical instruments exchanged in active markets. Excluded from these totals are AFS investments of $2,167 (December 31, 2010 - $2,167; January 1, 2010 - $2,514) in shares of other co-operative entities which are carried at cost as they do not have quoted market prices in active markets. The following tables are reconciliations of the Level 3 fair value measurements.

Short-term investments

Collateralized debt obligations Total

2011 $ $ $Balance, beginning of year 2 38,562 38,564

Sales (1) - (1)Gains (losses)

Unrealized included in net income - (4,720) (4,720)Balance, end of year 1 33,842 33,843



Short-term investments

Collateralized debt obligations Total

2010 $ $ $Balance, beginning of year 3 26,555 26,558

Purchases 2 - 2 Sales (3) - (3)Gains (losses)

Realized in net income - 108 108 Unrealized included in net income - 11,899 11,899

Balance, end of year 2 38,562 38,564

No investments were transferred between levels during the year (2010 - $nil). c) Net investment gains and income

AFSClassified

FVTPLDesignated

FVTPLLoans and

receivables Other Total2011 $ $ $ $ $ $Interest income 96,420 - 6,077 16,251 274 119,022 Interest expense - - - - (24,232) (24,232)Dividend and other income 20,920 - 1,560 - 25,520 48,000 Income from associates (note 25) - - - - 75 75 Investment expense (3,774) - (334) (321) (1,460) (5,889)Net investment income 113,566 - 7,303 15,930 177 136,976 Net realized gains 60,638 - 644 166 34 61,482 Foreign exchange gains (losses) (1,474) (268) 26 - - (1,716)Change in fair value - 467 372 - - 839 Impairment losses (29,578) - - - - (29,578)Net investment gains 29,586 199 1,042 166 34 31,027

Net investment gains and income 143,152 199 8,345 16,096 211 168,003

AFSClassified

FVTPLDesignated

FVTPLLoans and

receivables Other Total2010 $ $ $ $ $ $Interest income 97,105 - 4,676 14,761 189 116,731 Interest expense - - - - (8,258) (8,258) Dividend and other income 19,405 - - - 9,235 28,640 Loss from associates (note 25) - - - - (80) (80) Investment expense (3,268) - (237) (281) (688) (4,474)

Net investment income 113,242 - 4,439 14,480 398 132,559

Net realized gains 48,359 - 52 187 541 49,139 Foreign exchange gains (losses) (802) 459 (17) - - (360)Change in fair value - (1,061) 12,662 - - 11,601 Impairment losses (20,851) - - - - (20,851)

Net investment gains (losses) 26,706 (602) 12,697 187 541 39,529

Net investment gains and income 139,948 (602) 17,136 14,667 939 172,088

d) Impaired assets and provisions for losses For the year ended December 31, 2011, the Company has recognized impairment losses of $29,578 (2010 - $20,851) on its AFS stock portfolio. The impairment losses were based on management’s best estimate of whether objective evidence of impairment exists, using available market data. The impairment losses are included in net investment gains and income in the consolidated statements of income. The financial assets in the table below are AFS financial assets where the amortized cost is greater than fair value, however, the loss has not been recognized in net income because management does not believe there is objective evidence of impairment or because the loss is not considered to be significant or prolonged.



Unrealized Unrealized UnrealizedFair value losses Fair value losses Fair value losses

$ $ $ $ $ $Bonds 353,979 781 806,655 5,220 1,082,656 14,453 Stocks 157,653 9,854 130,819 5,870 210,171 24,561

Fair value and unrealized losses not recognized in net income 511,632 10,635 937,474 11,090 1,292,827 39,014

January 1, 2010December 31, 2011 December 31, 2010

FVTPL financial assets have been excluded from the above table since changes in fair value of these financial assets are recorded in the consolidated statements of income. There were no writedowns made against the mortgage portfolio in 2011 or 2010. There are mortgages in arrears greater than 60 days of $852 (December 31, 2010 - $850; January 1, 2010 - $3,113). These mortgages are secured by the value of the real estate held as collateral which is in excess of the carrying value of the mortgages. There is no provision against mortgages as at December 31, 2011 (December 31, 2010 - $nil; January 1, 2010 - $nil). e) Maturity profile of invested assets

< 1 1 - 3 4 - 5 > 5Year Years Years Years No fixed Total

December 31, 2011 $ $ $ $ $ $Bonds 233,213 491,474 673,439 1,443,515 - 2,841,641 Stocks 5,175 6,733 3,785 5,400 700,808 721,901 Short-term investments 18,885 - - - - 18,885 Collateralized debt obligations 14,433 19,409 - - - 33,842 Foreign currency forward contracts 140 - - - - 140 Mortgages 9,366 57,539 125,196 128,404 - 320,505 Other investments 1,560 6,540 623 6,864 10 15,597

Investment income due and accrued 44,483 - - - - 44,483

327,255 581,695 803,043 1,584,183 700,818 3,996,994

8% 15% 20% 40% 17% 100%

< 1 1 - 3 4 - 5 > 5Year Years Years Years Total

December 31, 2010 $ $ $ $ $ $Bonds 122,765 448,745 633,665 1,558,797 - 2,763,972 Stocks 2,417 15,514 9,725 5,026 689,179 721,861 Short-term investments 41,681 - - - - 41,681 Collateralized debt obligations - 38,562 - - - 38,562 Foreign currency forward contracts 221 - - - - 221 Mortgages 34,854 83,951 76,707 68,063 - 263,575 Other investments - 9,297 3,543 8,557 10 21,407 Investment income due and accrued 18,923 - - - - 18,923

220,861 596,069 723,640 1,640,443 689,189 3,870,202

6% 15% 19% 42% 18% 100%

No fixed




January 1, 2010 $ $ $ $ $ $Bonds 269,441 446,684 771,495 1,179,785 - 2,667,405 Stocks - 12,014 9,795 14,712 607,055 643,576 Short-term investments 40,071 - - - - 40,071 Collateralized debt obligations - 10,749 15,806 - - 26,555 Foreign currency forward contracts (96) - - - - (96) Mortgages 36,030 53,942 74,478 95,135 - 259,585 Other investments - 2,486 11,782 8,263 10 22,541 Investment income due and accrued 21,622 - - - - 21,622

367,068 525,875 883,356 1,297,895 607,065 3,681,259

10% 14% 24% 35% 17% 100%

No fixed

f) Mortgage diversification


Creditor concentration $ $ $Insured residential 57,454 58,644 61,816 Uninsured residential 64,606 49,014 49,319 Commercial 198,445 155,917 148,450

320,505 263,575 259,585


Geographic concentration $ $ $Atlantic 61,457 46,614 44,146 Quebec 13,283 11,488 11,776 Ontario 107,083 97,765 100,627 West 138,682 107,708 103,036

320,505 263,575 259,585

Fair value 338,608 274,578 263,470

g) Other investments


$ $ $Broker loans 15,587 21,397 22,531 Investments 10 10 10

15,597 21,407 22,541

Fair value 15,939 21,962 23,674

The broker loans range in size up to $4,891 (December 31, 2010 - $6,741; January 1, 2010 - $8,591). These loans have various terms ranging from 2 to 10 years and various interest rates ranging from 3.25% to 7.00%. All loans are meeting their repayment obligations. There have been no defaults. Based on management's review of creditworthiness of the debtors, no provision has been made in the accounts. These loans are secured by net assets of the debtors in the aggregate amount of $42,590 (December 31, 2010 - $42,590; January 1, 2010 - $42,270).



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 Company’s internal audit department. Credit risk Credit risk refers to the risk of financial loss from the failure of a debtor/counterparty to honour its obligation 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. Throughout 2011 and 2010, the Company maintained all positions within these concentration limits. The bond portfolio includes 92.1% (December 31, 2010 - 93.8%; January 1, 2010 - 95.7%) of bonds rated A or better. The Company limits its investment concentration in any one corporate investee or control group to 5% of total assets and a maximum of 15% of the bond portfolio can be invested in bonds rated below A. At December 31, 2011, the largest corporate credit exposure was 2.7% of invested assets (December 31, 2010 - 2.0%; January 1, 2010 - 2.1%) or 7.0% of total equity (December 31, 2010 - 5.7%; January 1, 2010 - 6.0%). The Company’s mortgage portfolio represents 8.0% (December 31, 2010 - 6.8%; January 1, 2010 - 7.1%) of invested assets carrying value. The Company has a separate, comprehensive mortgage policy which includes, among other factors, single loan limits, diversification by type of property limits, and geographic diversification limits. Each mortgage is secured by real estate and related contracts. The largest single mortgage balance was $7,005 (December 31, 2010 - $7,122; January 1, 2010 - $7,234). All commercial mortgages greater than $1,000 are risk rated on an annual basis. Concentrations of credit risk for insurance contracts can arise from reinsurance ceded contracts as insurance ceded does not relieve the ceding enterprise 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 all 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 accounts. 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 agents, 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, collateralized debt obligations, short-term investments and selected cash equivalent amounts are based on external ratings provided by Dominion Bond Rating Services (DBRS); reinsurance ceded contracts are classified based on financial strength ratings provided by A.M. Best and Standard & Poor’s; mortgages are classified using the Company’s internal rating system.



AAA AA A BBB Below

BBB Not rated TotalDecember 31, 2011 $ $ $ $ $ $ $Cash and cash equivalents - - - - - 29,553 29,553 Bonds 1,156,884 542,036 948,731 193,476 514 - 2,841,641 Short-term investments 15,466 3,419 - - - - 18,885 Collateralized debt obligations - - - - 33,842 - 33,842 Mortgages and other investments - 57,454 206,564 53,734 2,753 15,597 336,102 Investment income due and accrued - - - - - 44,483 44,483 Reinsurance ceded contracts 19,104 59,217 63,292 7,339 1,602 35,245 185,799 Premiums due - - - - - 676,861 676,861 Income taxes recoverable - - - - - 8,756 8,756 Other receivables - - - - - 37,907 37,907

1,191,454 662,126 1,218,587 254,549 38,711 848,402 4,213,829

AAA AA A BBB Below

BBB Not rated TotalDecember 31, 2010 $ $ $ $ $ $ $Cash and cash equivalents 1,994 - - - - 11,220 13,214 Bonds 1,210,266 608,893 809,450 134,846 517 - 2,763,972 Short-term investments 41,679 2 - - - - 41,681 Collateralized debt obligations - - - - 38,562 - 38,562 Mortgages and other investments - 58,644 158,861 43,276 2,794 21,407 284,982

Investment income due and accrued - - - - - 18,923 18,923

Reinsurance ceded contracts 14,296 69,174 45,331 12,299 117 38,844 180,061 Premiums due - - - - - 662,349 662,349 Income taxes recoverable - - - - - 27,277 27,277 Other receivables - - - - - 28,317 28,317

1,268,235 736,713 1,013,642 190,421 41,990 808,337 4,059,338

AAA AA A BBB Below

BBB Not rated TotalJanuary 1, 2010 $ $ $ $ $ $ $Cash and cash equivalents 5,911 - - - - 20,601 26,512 Bonds 1,224,974 581,090 771,187 77,716 12,438 - 2,667,405 Short-term investments 40,069 2 - - - - 40,071 Collateralized debt obligations - - - - 26,555 - 26,555 Mortgages and other investments - 61,816 149,345 48,424 - 22,541 282,126

Investment income due and accrued - - - - - 21,622 21,622

Reinsurance ceded contracts 16,436 74,416 40,910 19,574 - 57,543 208,879 Premiums due - - - - - 626,179 626,179 Income taxes recoverable - - - - - 34 34 Other receivables - - - - - 100,095 100,095

1,287,390 717,324 961,442 145,714 38,993 848,615 3,999,478

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 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 some long-term losses through the purchase of annuities under structured settlement arrangements (structured settlements) with life insurance companies. In addition, in the past, the Company provided certain post-retirement benefits for a class of employees known as field underwriters for which the Company also acquired annuities from a life insurance company to fulfill the obligation. The Company funds such claims settlements and it generally has no recourse to the funds. 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 the annuities are purchased from. This risk is 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. No default has occurred, and the Company considers the possibility of default to be remote. 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. At December 31, 2011, securities, which are included in invested assets, with an estimated fair value of $203,621 (December 31, 2010 - $514,688; January 1, 2010 - $478,298) have been loaned. Securities with an estimated fair value of $215,544 (December 31, 2010 - $540,924; January 1, 2010 - $504,037) were received as collateral. The collateral received has not been recorded in the Company’s consolidated balance sheets. The Company is the assigned beneficiary of collateral consisting of cash, trust accounts and letters of credit totaling $20,519 as at December 31, 2011 (December 31, 2010 - $19,799; January 1, 2010 - $27,979) as security from unlicensed reinsurers. This collateral is held in support of policy liabilities of $15,522 as at December 31, 2011, (December 31, 2010 - $14,212; January 1, 2010 - $17,586) and could be used should these reinsurers be unable to meet their obligations. 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. Stocks have a fair value of $721,901 (December 31, 2010 - $721,861; January 1, 2010 - $643,576) and comprise 18.1% (December 31, 2010 - 18.7%; January 1, 2010 - 17.5%) of the fair value of the Company’s total invested assets. 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 Company’s stock portfolio is benchmarked to and is considered closely correlated to the following indices in the note below. A 10% movement in the indices with all other variables held constant would have the following estimated effect on the fair values of the Company’s stock holdings.

AFS FVTPL AFS FVTPL AFS FVTPLStock portfolio Benchmark $ $ $ $ $ $Canadian common S&P/TSX Composite Index 41,576 - 43,797 - 39,008 -

Canadian preferred BMO CM 50 Preferred Index 17,273 7,256 21,133 - 18,585 -

US equities S&P 500 Index (CDN $) 7,099 - 7,130 - 6,512 - Foreign equities MSCI EAFE Index (CDN $) 3,124 - 3,555 - 3,204 -

December 31, 2011 December 31, 2010 January 1, 2010

The cumulative change in fair value of AFS stock is recognized in net investment gains and income when the Company sells the stock, or if impairment is significant or prolonged. For AFS stock that the Company holds at year-end, the change in fair value in the table above would be recognized in OCI resulting in an increase or decrease of $52,702 (2010 - $55,955). For FVTPL stock that the Company holds at year-end, the change in fair value during the year is recognized immediately in net income resulting in an increase or decrease of $5,536 (2010 - $nil).



A 30% movement in the indices with all other variables held constant would have the following estimated effect on the fair values of the Company’s stock holdings.

AFS FVTPL AFS FVTPL AFS FVTPLStock portfolio Benchmark $ $ $ $ $ $Canadian common S&P/TSX Composite Index 124,728 - 131,391 - 117,025 -

Canadian preferred BMO CM 50 Preferred Index 51,819 21,768 63,400 - 55,756 -

US equities S&P 500 Index (CDN $) 21,297 - 21,389 - 19,537 - Foreign equities MSCI EAFE Index (CDN $) 9,372 - 10,665 - 9,613 -


b) Currency risk Currency risk is the risk that the value of the foreign denominated financial instruments that are not offset by corresponding liabilities, will fluctuate as a result of changes in foreign exchange rates. The Company’s currency risk is related to its stock holdings. Policies limit investments in foreign denominated securities to a maximum value of 10% of invested assets. A 10% change in the value of the United States dollar would affect the fair value of the stocks by $7,608 (December 31, 2010 - $7,603; January 1, 2010 - $7,002). The Company mitigates a portion of 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. Foreign exchange forward contracts are transacted in over-the-counter markets. These foreign exchange forward contracts are included in invested assets (note 5). 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, 2011. The counterparties are federally regulated financial institutions. As at December 31, 2011, the replacement cost of these derivative instruments was $140 (December 31, 2010 - $221; January 1, 2010 - negative $96). The maturity date for the Company’s contracts range from January to February 2012. The foreign exchange forward contract rates range from $1.02330 to $1.04480. The notional amounts of the foreign currency forward contracts total US$8,850 (December 31, 2010 - US$8,700; January 1, 2010 - US$15,750). Exposure to currency fluctuations on insurance contract liabilities is not material. 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. To manage this risk, historical data and current information that profiles the ultimate claims settlement pattern by class of insurance, is used as a basis 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 market 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 statements of income. The corresponding change in asset values will either flow through the consolidated statements 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 statements of income.



To mitigate the impact of interest rate risk, the Company deployed an asset liability management (ALM) strategy in 2009. The strategy is focused on one segment of the Company's unpaid claims and adjustment expenses and only applies to claims arising since 2009. The assets backing these liabilities are designated as FVTPL under the fair value option with the objective of offsetting 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 statements of income. At December 31, 2011, a 1% move in interest rates with all other variables held constant, could impact the fair value of AFS bonds by $125,338 (December 31, 2010 - $132,337; January 1, 2010 - $114,323) and FVTPL bonds by $5,832 (December 31, 2010 - $3,554; January 1, 2010 - $1,876). A fair value change in AFS bonds would impact OCI for the year by $95,633 (2010 - $97,929), and changes to FVTPL bonds would impact net income by $4,450 (2010 - $2,630). Larger rate changes would have a corresponding impact to net income and OCI. 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. 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 payments are funded by current revenue cash flow which normally exceeds cash requirements. At December 31, 2011 the Company had $29,553 (December 31, 2010 - $13,214; January 1, 2010 - $26,512) of cash and cash equivalents, and $18,885 (December 31, 2010 - $41,681; January 1, 2010 - $40,071) 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, 2011 fair value of $3,527,355 (December 31, 2010 - $3,446,306; January 1, 2010 - $3,263,714). Along with internally generated funds, the Company has credit facilities of $22,100 (December 31, 2010 - $23,100; January 1, 2010 - $23,100) that provide it with additional financial flexibility to fulfill cash requirements on an ongoing basis. Bonds have been pledged as collateral security and interest terms are bank prime less 0.25%. The Company had utilized $nil (December 31, 2010 - $nil; January 1, 2010 - $nil) at the 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. Insurance contacts and provisions and other liabilities 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 sheets.


December 31, 2011 $ $ $ $ $Accounts payable and accrued charges 153,699 18 - - 153,717 Income taxes payable 14,315 - - - 14,315 Insurance contracts 2,061,026 708,605 340,993 216,839 3,327,463 Borrowing 24,139 - - 3,500 27,639 Provisions and other liabilities

Provision for agent transition commissions 12,137 21,799 8,746 72,544 115,226 Other provisions 4,371 - - - 4,371 Finance lease obligations 209 626 78 - 913 Other liabilities 12,965 14,490 227 1,269 28,951

Total financial liabilities 2,282,861 745,538 350,044 294,152 3,672,595

Contractual commitments Operating lease commitments (note 28) 23,247 32,524 23,073 61,862 140,706 Mortgage funding 19,205 - - - 19,205

Total contractual commitments 42,452 32,524 23,073 61,862 159,911




December 31, 2010 $ $ $ $ $Accounts payable and accrued charges 152,328 84 - - 152,412 Income taxes payable 5,143 - - - 5,143 Insurance contracts 2,008,337 738,592 358,134 243,471 3,348,534 Borrowing 32,904 - - 3,500 36,404 Provisions and other liabilities

Provision for agent transition commissions 12,454 24,684 12,174 75,798 125,110 Other provisions 3,260 - - - 3,260 Finance lease obligations 303 626 287 - 1,216 Other liabilities 7,958 7,862 218 1,486 17,524


Contractual commitments Operating lease commitments (note 28) 22,051 34,015 19,918 66,897 142,881 Mortgage funding 22,934 660 - - 23,594



January 1, 2010 $ $ $ $ $Accounts payable and accrued charges 142,876 13 207 - 143,096 Income taxes payable 102,268 - - - 102,268 Insurance contracts 1,962,021 712,293 350,969 239,067 3,264,350 Borrowing 15,517 - - 3,500 19,017 Provisions and other liabilities

Provision for agent transition commissions 14,958 25,572 12,403 70,261 123,194 Other liabilities 7,499 4,545 190 1,629 13,863


Contractual commitments Operating lease commitments (note 28) 22,154 33,725 23,148 85,323 164,350 Mortgage funding 5,557 - - - 5,557


The mortgage funding commitments have interest rates ranging from 3.53% - 5.25%. 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.

The principle risk to the Company under its insurance contracts is that the actual claims and benefit payments arising may exceed the carrying amount of the insurance liabilities because the frequency and/or severity of the actual claims were greater than expected.

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 or hail.

Underwriting risk, claims risk and product design and pricing risk are also important to the proper management of insurance risk. 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. Claims risk refers to the possibility that inappropriate claims payments are made as a result of inadequate adjudication, settlement or claims payments. Product design and pricing risk is the exposure to financial loss from transacting insurance business where costs and liabilities experienced in respect of a product line exceeds the expectation in pricing it. 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 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 regional 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.

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 claim and adjustment expenses is based upon the market yield of assets supporting the claims liabilities. This rate could fluctuate significantly based on changes in interest rates and credit spreads. The interest rate used to discount the liabilities for each of the operating companies ranges from 2.45% to 3.20% (2010 - 3.05% to 3.50%).

The discounted unpaid claims and adjustment expenses incorporates assumptions concerning future investment income, projected cash flows, and appropriate provisions for adverse deviation (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 Canadian Institute of Actuaries (CIA).



The following table represents the discounted development of the claims net of reinsurance. Accident year 2006 2007 2008 2009 2010 2011 Total

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

At end of accident year 1,386,774 1,485,868 1,562,001 1,591,255 1,597,502 1,635,304 One year later 1,312,645 1,448,985 1,517,117 1,570,195 1,445,971 Two years later 1,281,528 1,401,729 1,485,661 1,527,476 Three years later 1,241,741 1,377,357 1,466,799 Four years later 1,224,474 1,369,293 Five years later 1,223,783

Current year estimate of cumulative claims 1,223,783 1,369,293 1,466,799 1,527,476 1,445,971 1,635,304 8,668,626

Cumulative payments to date (1,149,421) (1,254,260) (1,287,787) (1,240,181) (1,067,158) (836,247) (6,835,054) Provision recognized 74,362 115,033 179,012 287,295 378,813 799,057 1,833,572

Net unpaid claims and adjustment expensesProvision recognized 1,833,572

135,835

Effect of discounting 91,085

2,060,492

Provision with respect to 2005 and prior accident years

c) Changes in assumptions used in measuring insurance contracts

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, 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 or the preceding 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

The Company’s underwriting objective is to develop business within the Company’s 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 a periodic review 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 well trained and their work is audited on a regular basis. Agents 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 monitors fluctuations in reserve adequacy on an ongoing basis, and periodically seeks an external peer review of reserve levels.

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. The Company considers the implications of potential changes to its regulatory and political environment in its strategic planning process to understand the impacts 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. 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 follows 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:

2011 2010$ $

Individual lossProperty 5,000 5,500 General liability 5,000 2,200 Automobile 5,000 5,000

CatastropheMaximum limit 1,200,000 800,000 Company retention 35,000 35,000

Effective December 31, 2010, the Company cancelled a large proportional property reinsurance agreement. The cancelled agreement will continue to apply to policies that were ceded to it in 2010, until such policies expire. Commencing January 1, 2011, the proportional agreement was replaced with a per risk excess of loss reinsurance program, which applied to all new and renewal business in 2011. The limit of the catastrophe reinsurance increased quarterly through 2011 to replace the expiring proportional reinsurance coverage on large property policies as they are renewed during year. The maximum limit for catastrophe reinsurance above is applied to all property and casualty insurance operations, ultimately owned by CGL and is arranged in a series of layers, the first of which attaches above the Company's retention, followed by four additional layers to the maximum limit included in the above table. In the current year, across all insurance operations ultimately owned by CGL, a loss event resulted in recoveries from reinsurers on the first two layers of the catastrophe reinsurance program. A premium was paid to reinstate the coverage for the remainder of the year. The underwriting impact of the Company’s use of reinsurance programs on the year’s results is described in note 9. f) Sensitivity analysis

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 Dynamic Capital Adequacy Testing (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.

The methods used for deriving this sensitivity information did not change from the previous period. 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 31,2011 2010 2011 2010

Assumption Sensitivity $ $ $ $Discount rate +100 bps (37,462) (37,617) 28,584 27,837 Discount rate -100 bps 39,423 39,481 (30,080) (29,216) Net loss ratio +10% 139,885 147,086 (106,732) (108,844) Misestimate 1% deficiency 20,605 20,938 (15,722) (15,494)

After-tax net income impact

Insurance contract -claims

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

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:

2011 2010$ $

Auto 1,098,251 1,100,742 Home 582,419 555,038 Farm 101,743 94,201 Commercial 369,790 328,768 Other 42,202 40,952

Net earned premium 2,194,405 2,119,701

2011 2010

$ $West 717,273 684,609 Ontario 960,369 945,465 Quebec 297,271 276,954 Altantic 219,492 212,673

Net earned premium 2,194,405 2,119,701

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 contracts are comprised of the following balances:


$ $ $Undiscounted unpaid claims and adjustment expenses 2,134,181 2,164,252 2,108,647 Effect of time value of money (114,832) (130,671) (138,179) PFADs 209,114 200,272 199,205

Effect of discounting 94,282 69,601 61,026

Discounted unpaid claims and adjustment expenses 2,228,463 2,233,853 2,169,673 Unearned premiums 1,193,282 1,184,282 1,155,703

3,421,745 3,418,135 3,325,376

a) Profile of unearned premiums

Gross Ceded Net Gross Ceded Net Gross Ceded Net$ $ $ $ $ $ $ $ $

Automobile - liability 235,078 153 234,925 226,866 142 226,724 229,264 305 228,959 Automobile - personal accident 81,651 (53) 81,704 92,088 (53) 92,141 94,627 (53) 94,680

Automobile - other 174,752 74 174,678 174,008 905 173,103 178,883 684 178,199 Property 552,259 2,611 549,648 549,686 41,217 508,469 508,501 42,480 466,021 Liability 98,320 4,481 93,839 95,644 6,272 89,372 97,738 8,277 89,461 Risk sharing pools 31,940 - 31,940 28,292 - 28,292 28,479 - 28,479 Other 19,282 6,422 12,860 17,698 8,385 9,313 18,211 8,224 9,987

1,193,282 13,688 1,179,594 1,184,282 56,868 1,127,414 1,155,703 59,917 1,095,786


Ceded unearned premiums are included in reinsurance ceded contracts on the balance sheet (note 9). b) Reconciliation of unearned premiums

Gross Ceded Net Gross Ceded Net$ $ $ $ $ $

Balance, beginning of year 1,184,282 56,868 1,127,414 1,155,703 59,917 1,095,786 Written premium 2,334,577 87,992 2,246,585 2,307,897 156,568 2,151,329 Less: earned premium 2,325,577 131,172 2,194,405 2,279,318 159,617 2,119,701

Balance, end of year 1,193,282 13,688 1,179,594 1,184,282 56,868 1,127,414

Current 1,138,593 13,490 1,125,103 1,122,104 55,448 1,066,656 Non-current 54,689 198 54,491 62,178 1,420 60,758


2011 2010



c) Profile of net unpaid claims and adjustment expenses

Gross Ceded Net Gross Ceded Net Gross Ceded Net$ $ $ $ $ $ $ $ $

Automobile - liability 805,295 9,393 795,902 805,845 13,179 792,666 776,822 19,153 757,669

Automobile - personal accident 406,459 6,271 400,188 489,310 11,103 478,207 461,211 15,098 446,113

Automobile - other 48,896 908 47,988 61,445 295 61,150 65,078 624 64,454 Property 398,400 87,514 310,886 324,144 46,600 277,544 308,586 49,982 258,604 Liability 423,147 53,388 369,759 410,875 53,377 357,498 405,529 59,386 346,143 Risk sharing pools 126,516 87 126,429 118,301 143 118,158 118,819 201 118,618 Other 19,750 10,410 9,340 23,933 15,404 8,529 33,628 19,072 14,556

Discounted provision 2,228,463 167,971 2,060,492 2,233,853 140,101 2,093,752 2,169,673 163,516 2,006,157


Ceded unpaid claims and adjustment expenses are included in reinsurance ceded contracts on the balance sheet (note 9). d) Reconciliation of net unpaid claims and adjustment expenses

Gross Ceded Net Gross Ceded Net$ $ $ $ $ $

Balance, beginning of year 2,233,853 140,101 2,093,752 2,169,673 163,516 2,006,157 Less: effect of discounting at prior year-end 69,601 1,358 68,243 61,026 2,005 59,021 Undiscounted unpaid claims and adjustment expenses at prior year-end 2,164,252 138,743 2,025,509 2,108,647 161,511 1,947,136

Paid on prior years (659,353) (49,089) (610,264) (696,825) (54,859) (641,966) Change in estimate on prior years (253,252) (8,371) (244,881) (146,772) (15,558) (131,214)

Incurred on current year 1,741,270 105,980 1,635,290 1,671,815 74,315 1,597,500

Paid on current year (858,736) (22,489) (836,247) (772,613) (26,666) (745,947) Undiscounted unpaid claims and adjustment expenses at current year-end 2,134,181 164,774 1,969,407 2,164,252 138,743 2,025,509

Effect of discounting 94,282 3,197 91,085 69,601 1,358 68,243


Current 957,799 102,468 855,331 914,622 56,918 857,704 Non-current 1,270,664 65,503 1,205,161 1,319,231 83,183 1,236,048


2011 2010



9. Reinsurance programs a) Underwriting impact of reinsurance contracts

2011 2010Ceded $ $Written premium (note 22) 87,992 156,568 Earned premium 131,172 159,617 Claims and adjustment expenses 99,490 58,226 Commission 23,003 33,395

Cost of reinsurance ceded program 8,679 67,996

2011 2010

Assumed $ $Written premium (note 22) 6,147 (13,948) Earned premium 4,797 2,386 Claims and adjustment expenses 2,713 1,407 Commission 817 423

Underwriting gain from assumed reinsurance 1,267 556

b) Reinsurance ceded contracts The amounts presented under reinsurance ceded contracts in the consolidated balance sheets represent the Company’s net contractual rights under reinsurance contracts and consist of the following:


$ $ $Reinsurance ceded assets

Reinsurers' share of unearned premiums (note 8) 13,688 56,868 59,917 Reinsurers' share of unpaid claims and adjustment expenses (note 8) 167,971 140,101 163,516

Reinsurer receivables 15,100 5,807 10,549 Unlicensed reinsurer deposits 7,318 5,326 5,499

204,077 208,102 239,481

Reinsurance ceded liabilities Unearned reinsurance commissions 3,885 14,161 15,626 Payable to reinsurers 7,075 8,554 9,477 Unlicensed reinsurer deposits 7,318 5,326 5,499

18,278 28,041 30,602

Reinsurance ceded contracts 185,799 180,061 208,879

Current 110,969 89,649 102,465 Non-current 74,830 90,412 106,414

185,799 180,061 208,879



c) Reinsurance assumed assets The Company presents balances related to reinsurance assumed contracts in the same manner as it presents direct insurance business with the exception of reinsurance assumed receivables and payables; these amounts are recorded in other assets and other liabilities. The portion of the assets related to reinsurance assumed contracts is as follows:


$ $ $Reinsurance assumed receivables (note 14) 1,553 1,583 2,532 Deferred acquisition expenses 569 146 2,587

2,122 1,729 5,119

Current 741 41 2,468 Non-current 1,381 1,688 2,651

2,122 1,729 5,119

On reinsurance assumed business from foreign insurers, a deposit or a letter of credit has been provided. Cash deposits of $980 (December 31, 2010 - $979; January 1, 2010 - $1,121) are reflected in the reinsurance assumed receivables. In addition, off balance sheet, the Company has provided letters of credit amounting to US$2,318 (December 31, 2010 - US$2,362; January 1, 2010 - US$2,510). d) Reinsurance assumed liabilities


$ $ $Unearned premiums 1,922 572 16,906 Unpaid claims and adjustment expenses 36,456 35,786 72,921 Reinsurance assumed payable 526 463 150

38,904 36,821 89,977


38,904 36,821 89,977

10. Deferred acquisition expenses

December 31, December 31,2011 2010

$ $Balance, beginning of year 214,687 205,941 Acquisition expenses deferred 835,189 707,667 Amortization expense (835,059) (698,921)

Balance, end of year 214,817 214,687



11. Income taxes a) Reconciliation to statutory income tax rate In the consolidated statements of income, the income taxes reflect an effective tax rate which differs from the corporate tax rate for the following reasons:

$ % $ %Income before income taxes 196,830 98,186 Income tax at statutory rates 55,112 28.0 29,456 30.0 Effects of:Non-taxable investment income (11,661) (5.9) (7,304) (7.4) Disallowed expenses 754 0.4 980 1.0 Change in income tax rates 1,148 0.6 2,441 2.5 Difference in effective tax rate of subsidiaries (43) (0.0) 166 0.2 Adjustment to tax expense in respect of prior years 831 0.4 (1,251) (1.3) Other 432 0.2 1,011 1.0

Income taxes 46,573 23.7 25,499 26.0

2011 2010

In fiscal 2011 the enacted statutory tax rate for the Company decreased from 30% to 28%. This decrease in income tax rate had been enacted in a prior period. b) Income taxes

2011 2010$ $

Current tax expenseCurrent period 54,353 27,292

Adjustment for prior periods 1,511 (1,550)

55,864 25,742

Deferred tax expenseOrigination and reversal of temporary differences (9,023) (2,983)

Changes in tax rate 412 2,441 Adjustment for prior periods (680) 299

(9,291) (243) Income taxes 46,573 25,499

c) Income taxes included in OCI OCI included on the consolidated statements of comprehensive income (loss) is presented net of income taxes. The following income tax amounts are included in each component of OCI:

2011 2010$ $

Unrealized gains (losses) on AFS financial assetsBonds 26,021 15,915 Stocks (14,593) 19,384 Other - (171)

11,428 35,128 Reclassification to net income for AFS financial assets

Bonds (10,308) (11,176) Stocks 1,429 2,832

(8,879) (8,344)

Income taxes 2,549 26,784



d) Components of deferred income taxes


$ $ $Bonds and mortgages (1,793) (3,393) (5,053) Stocks 420 501 (183) Intangible assets (2,574) (3,058) (2,658) Property and equipment 1,408 1,083 1,027 Other assets 359 282 269 Insurance contracts 25,841 27,048 27,357 Retirement benefit obligations 12,531 11,549 11,146 Provisions and other liabilities 26,885 23,667 22,387 Loss carry-forwards and credits 6,551 2,738 5,204

69,628 60,417 59,496

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

2011 2010$ $

Balance, beginning of year 60,417 59,496 Income statement charge 9,291 243 Tax charged to OCI (80) 678

Balance, end of year 69,628 60,417

e) Loss carry-forwards The Company has non-capital loss carry-forwards of $24,232 (2010 - $8,258) of which deferred income taxes of $6,300 (December 31, 2010 - $2,312; January 1, 2010 - $4,127) have been recognized. The non-capital loss carry-forwards expire as follows:

$2031 24,232

f) Income taxes recoverable and payable The income taxes recoverable and the income taxes payable are expected to be realized as follows:


$ $ $Income taxes recoverable

Current 16,693 35,120 33 Non-current (7,937) (7,843) 1

8,756 27,277 34

Income taxes payableCurrent 13,132 5,415 87,688 Non-current 1,183 (272) 14,580

14,315 5,143 102,268



12. Intangible assets

BrokerCustomer

Goodwill Software Lists Total$ $ $ $

CostJanuary 1, 2010 16,434 16,841 339 33,614 Additions - 2,640 - 2,640 Disposals - - (16) (16)

December 31, 2010 16,434 19,481 323 36,238

Additions - 1,380 1,825 3,205

December 31, 2011 16,434 20,861 2,148 39,443

Accumulated amortization and impairmentJanuary 1, 2010 - 3,153 109 3,262 Amortization - 3,680 48 3,728

December 31, 2010 - 6,833 157 6,990

Amortization - 3,961 49 4,010

December 31, 2011 - 10,794 206 11,000

Net carrying valueJanuary 1, 2010 16,434 13,688 230 30,352 December 31, 2010 16,434 12,648 166 29,248

December 31, 2011 16,434 10,067 1,942 28,443

During the year, additions to the broker customer lists included a related party transaction (note 25). No impairments were recognized during the year (2010 - $nil). The carrying amount of goodwill that was allocated to CGUs as at December 31, 2011 is as follows:

TotalCash generating unit $L’Union Canadienne, Compagnie d’assurances 15,358 L’Équitable, Compagnie d’assurances Générale 1,076

16,434

The assumptions used relating to significant CGUs are discussed below. L’Union Canadienne, Compagnie d’assurances

The recoverable amount of this CGU is determined based on a value in use calculation that uses cash flow projections based on financial budgets approved by the directors of L’Union Canadienne, Compagnie d’assurances covering a five-year period, and a discount rate range of 8.6% to 10.6% per annum (December 31, 2010 - 8.5% to 10.0% per annum). The cash flows beyond that five-year period have been extrapolated at a constant growth rate of 3.0% (December 31, 2010 - 3.0%) discounted at a range of 8.6% to 10.6% per annum (December 31, 2010 - 8.5% to 10.0% per annum). The Company believes that any reasonable possible change in the key assumptions on which recoverable amount is based would not cause the aggregate carrying amount to exceed the aggregate recoverable amount of the CGU.



13. Assets held for sale The Company has classified all real estate holdings within CGIC and L’Union as assets held for sale.

During 2008, the Company adopted a formal plan of disposition related to its investment properties following the approval of the Company’s management to dispose of its real estate investments. The Company’s investment properties consisted of office buildings and commercial and retail properties across Canada. Investment properties of $16,808 (December 31, 2010 - $17,094; January 1, 2010 - $18,348) still remains and has been classified as held for sale in accordance with IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations”. The Company is actively marketing the properties. No gain or loss was recognized in retained earnings at the Transition Date as the carrying value of the non-current assets was less than the fair value less costs to sell.

During 2010, the Company foreclosed on a mortgage on a multi-residential condominium property. In conjunction with the foreclosure, the Company acquired the property with a fair value less cost to sell equal to the value of the foreclosed mortgage. The fair value less cost to sell was determined by reviewing recent unit sale prices in this condominium property and by assessing current market conditions. The property was classified as held for sale in accordance with IFRS 5 as at December 31, 2010 and December 31, 2011 as the Company continues to actively market the properties for sale. No impairment losses have been recorded. During the year, sales proceeds on the majority of the sold units were received. The fair value less cost to sell at December 31, 2011 is $1,013 (December 31, 2010 - $3,357; January 1, 2010 - $nil).

An analysis of the non-current assets held for sale is as follows:


$ $ $CGIC 16,850 19,504 17,334 L'Union 971 947 1,014

17,821 20,451 18,348

14. Other assets


$ $ $Due from related parties (note 25) 30,343 20,064 87,451 Reinsurance assumed receivables (note 9) 1,553 1,583 2,532 Property and equipment 21,659 22,132 22,854 Due from risk sharing pools 1,169 1,261 6,470 Interest in associates 1,481 2,459 2,539 Prepaid expenses 1,993 3,815 4,105 Other 5,960 5,861 3,641

64,158 57,175 129,592


64,158 57,175 129,592

Details of property and equipment are as noted below. Gains on disposal of $747 (2010 - $nil) were recorded in the consolidated statement of income.



LeaseholdComputer Furniture and Leasehold projects in

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

CostJanuary 1, 2010 119 28,581 29,713 357 31,523 498 90,791 Additions - 1,079 1,936 - 736 2,219 5,970 Disposals - (409) (1,772) - - - (2,181) Transfers - - - - 718 (718) -

December 31, 2010 119 29,251 29,877 357 32,977 1,999 94,580

Additions - 718 1,371 5 515 3,811 6,420 Disposals (119) (798) (488) (362) (1,622) - (3,389) Transfers - - - - 3,370 (3,394) (24)

December 31, 2011 - 29,171 30,760 - 35,240 2,416 97,587

Accumulated amortizationJanuary 1, 2010 - 27,798 24,693 213 15,233 - 67,937 Amortization - 602 1,289 9 4,792 - 6,692 Disposals - (409) (1,772) - - - (2,181)

December 31, 2010 - 27,991 24,210 222 20,025 - 72,448

Amortization - 695 1,157 6 4,756 - 6,614 Disposals - (798) (488) (228) (1,620) - (3,134)

December 31, 2011 - 27,888 24,879 - 23,161 - 75,928

Net carrying valueJanuary 1, 2010 119 783 5,020 144 16,290 498 22,854 December 31, 2010 119 1,260 5,667 135 12,952 1,999 22,132

December 31, 2011 - 1,283 5,881 - 12,079 2,416 21,659

15. Provisions and other liabilities


$ $ $Provision for agent transition commissions 69,697 69,973 68,451 Other provisions 4,371 3,260 - Finance lease obligations 854 1,143 - Other liabilities 28,109 17,524 13,863

103,031 91,900 82,314


103,031 91,900 82,314

The provision for agent transition commissions is an obligation to active agents 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 4% (December 31, 2010 - 5%; January 1, 2010 - 5%), and assumes an average termination age of 60 (December 31, 2010 - 60; January 1, 2010 - 60). A reconciliation of the provision for agent transition commissions is provided below.



December 31, December 31,2011 2010

$ $Balance, beginning of year 69,973 68,451 Additional provision charged to income

Earning of agent benefits 11,367 11,066 Interest expense 3,492 3,460

Settlement for agent terminations (20,906) (13,004) Change in assumptions 5,771 - Balance, end of year 69,697 69,973

16. Borrowings


$ $ $Short-term indebtedness 24,139 32,904 15,517 Subordinated debt 3,500 3,500 3,500

27,639 36,404 19,017

The subordinated debt is held by CGL. Interest is payable in semi-annual installments at the one-year treasury bill rate plus 110 basis points, set every November. The principal is due December 16, 2101 and interest on this loan for the year is $84 (2010 - $59). The carrying amount of the subordinated debt is considered to be a reasonable approximation of fair value. 17. Retirement benefit obligations a) Medical, dental and life insurance benefits The Company offers medical, dental and life insurance benefits for qualifying retirees and certain other qualifying individuals. Future salary levels do not affect the amount of retirement benefit obligations. The projected unit credit method has been used to determine the accrued benefit obligation. The accrued benefit obligation has been determined as at December 31, 2011. The most recent actuarial valuation was at January 1, 2010. Information regarding the plan’s costs, liabilities and actuarial assumptions are as follows:

2011 2010$ $

Accrued benefit obligationBalance at beginning of year 60,512 42,504 Current service cost 1,432 1,081 Interest on accrued benefits 3,478 3,461 Benefits paid (2,938) (2,821) Actuarial loss 11,786 16,287

Balance at end of year 74,270 60,512

Funded status Funded status of plan - deficit 74,270 60,512 Unamortized net actuarial gain (loss) - prior years (26,122) (15,589)

Accrued benefit liability 48,148 44,923

Elements of defined benefit costs recognized in the yearCurrent service cost 1,432 1,081 Interest on accrued benefits 3,478 3,461 Actuarial (gain) loss 1,253 698

Defined benefit costs recognized (note 23) 6,163 5,240



Significant assumptions 2011 2010Accrued benefit obligation as of December 31

Discount rate 4.50% 5.75%Benefit costs during the year

Discount rate 5.75% 6.75%Assumed medical care cost trend rates as at December 31:

Initial medical care cost trend rate 8.50% 9.50%Commencing in year 2012 2011 Cost trend rate declines to 4.50% 4.50%Year that the rate reaches the rate it is assumed to remain at 2016 2016

Experience gains and losses are amortized over 13 years. 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. Assumed medical, dental and life insurance benefit cost trend rates have a significant effect on the amounts reported for the medical and dental benefit plan. A 1% change in assumed medical and dental benefit cost trend rates would have the following effects for 2011:

Medical and dental benefits $ % $ %Total of service and interest cost 981 20.1 (761) (15.6) Accrued benefit obligation 13,901 18.9 (10,983) 14.9

Increase Decrease

b) Pension plan The Company has a defined contribution pension plan for all of its operations. The total cost recognized for the Company’s defined contribution plan is $16,262 (2010 - $15,226). 18. Share capital The number of shares and the amounts per share are not in thousands. Authorized senior preference shares Class A preference shares, Class B preference shares and Class E preference shares rank equally, and in priority to all other classes of preference and common shares.



1,440,000 Class A preference shares, series A, non-cumulative dividend to be determined semi-annually by the Board of Directors subject to a minimum rate of 5% of the redemption value if declared, redeemable at the redemption value of $37.50 per share, with a stated value of $25 per share. Convertible to Class F preference shares, series A. The Company may redeem or purchase at any time, at its option, all or part of the shares for the redemption value in accordance with the terms and conditions set out in the Company’s By-law No. 2.

640,000 Class A preference shares, series B, non-cumulative dividend to be determined semi-annually by the Board of Directors subject to a minimum rate of 5% of the redemption value if declared, redeemable at the redemption value of $100 per share, with a stated value of $100 per share. The Company may redeem or purchase at any time, at its option, all or part of the shares for the redemption value in accordance with the terms and conditions set out in the Company’s By-law No. 2.

Unlimited Class B preference shares, non-cumulative dividend to be determined semi-annually by the Board of Directors subject to a minimum rate of 5% of the redemption value if declared, redeemable at the redemption value of $50 per share, with a stated value of $25 per share. Convertible to Class G preference shares, series A. The Company may redeem or purchase at any time, at its option, all or part of the shares for the redemption value in accordance with the terms and conditions set out in the Company’s By-law No. 2.

Unlimited Class E preference shares, series A, non-cumulative dividend, if declared, payable quarterly, the rate being 5.75% per annum until June 30, 2002. After June 30, 2002, dividends are the greater of 90% of the prime rate or 5.50%. On June 30, 2002 and thereafter on every fifth anniversary, the holder has the right to convert the Class E preference shares, series A preference shares into non-cumulative redeemable Class E preference shares, series B on a share for share basis. On June 30, 2002 and thereafter on every fifth anniversary, the Company may redeem the whole issue at $25 per share. After June 30, 2002 at any date other than the anniversary dates, the Company may redeem the shares in whole or part for $25.50 per share.

Unlimited Class E preference shares, series B, issued June 30, 2002 and every fifth year thereafter, only on conversion of Class E preference shares, series A. Non-cumulative dividend, if declared, payable quarterly. On the twenty-first day prior to June 30, 2002 and every fifth anniversary thereafter, the dividend rate will be set at a minimum of 95% of the Government of Canada yield. On June 30, 2007 and every fifth anniversary, the Company may redeem the whole issue at $25 per share.

Unlimited Class E preference shares, series C, non-cumulative dividend, if declared, payable quarterly, the rate being $0.3125 per share, to yield 5.00% per annum. The initial dividend was declared and paid on September 30, 2007 and amounted to $0.3767 per share. On June 30, 2012 and thereafter, the Company may redeem at any time all or from time to time any part of the outstanding Class E preference shares, series C at the Company’s option, by payment of an amount in cash for each Class E preference shares, series C of $26.00 if redeemed during the 12 months commencing June 30, 2012, $25.75 if redeemed during the 12 months commencing June 20, 2013, $25.50 per share if redeemed during the 12 months commencing June 30, 2014, $25.25 per share if redeemed during the 12 months commencing June 30, 2015, and $25.00 per share if redeemed on or after June 30, 2016, together in each case with an amount equal to all declared and unpaid preferential dividends up to but excluding the date fixed for redemption.

Unlimited Class E preference shares, series D, non-cumulative dividend, if declared, payable quarterly, the rate being $1.8125 per share, to yield 7.25% per annum. The initial dividend was declared and paid on September 30, 2009 for $0.6505 per share. On June 30, 2014 and on June 30 every five year thereafter, the dividend rate will reset to be equal to the then current five-year Government of Canada bond yield plus 5.21%. The Class E preference shares, series D are not redeemable prior to June 30, 2014. On June 30, 2014 and on June 30 every five years thereafter, the holder has the right to convert their Class E preference shares, series D into non-cumulative floating rate Class E preference shares, series E of the Company. On June 30, 2014 and on June 30 every five years thereafter, the Company may redeem all or part of the Class E preference shares, series D at a cash redemption price per share of $25.00 together with all declared and unpaid dividends.

Unlimited Class E preference shares, series E, to be issued June 30, 2014 and on June 30 every five years thereafter, only on the conversion of Class E preference shares, series D. Non-cumulative quarterly floating rate dividend, as and when declared, equal to the then current three-month Government of Canada Treasury Bill yield plus 5.21%. The Company may redeem all or part of the outstanding Class E preference shares, series E at its option without the consent of the holder, by the payment of an amount in cash for each Class E preference shares, series E so redeemed of (i) $25.00 per share together with an amount equal to the sum of all declared and unpaid dividends up to, but excluding, the date fixed for redemption in the case of redemptions on June 30, 2019 and on June 30 every fifth year after such date, or (ii) $25.50 per share together with an amount equal to the sum of all declared and unpaid dividends up to, but excluding, the date fixed for redemption in the case of redemptions on any other date after June 30, 2014 that is not a Class E preference shares, series E conversion date.



Authorized junior preference shares

Unlimited Class C, preference shares issuable in series

100,000 Class C preference shares, series A, non-cumulative 6% dividend and a participating dividend up to 5%, each to be determined annually by the Board of Directors with a stated value of $100 per share

Unlimited Class D preference shares, series A, non-cumulative dividend to be determined annually by the Board of Directors, redeemable at $100 per share, with a stated value of $100 per share

Unlimited Class D preference shares, series B, non-cumulative dividend to be determined annually by the Board of Directors, redeemable at $100 per share, with a stated value of $100 per share

Unlimited Class D preference shares, series C, non-cumulative dividend to be determined annually by the Board of Directors, redeemable at $100 per share, with a stated value of $100 per share

Unlimited Class F preference shares, series A, non-cumulative dividend subject to a minimum rate of 5% if declared to be determined annually by the Board of Directors, redeemable at $37.50 per share, with a stated value of $25 per share

Unlimited Class G preference shares, series A, non-cumulative dividend subject to a minimum rate of 5% if declared to be determined annually by the Board of Directors, redeemable at $50 per share, with a stated value of $25 per share

Unlimited Class H, Class I and Class J preference shares, these have been authorized but have been given no attributes and have not yet been issued. The Board of Directors has the right to define the attributes and issue as required

Authorized common shares

Unlimited Common Shares

The redemption of any share must be approved in advance by OSFI. The changes and the number of shares issued and outstanding are as follows:

2011Class A preference shares, series A 225,072 5,627 - - 8,256 206 216,816 5,421 Class A preference shares, series B 346,219 34,622 79,829 7,983 26,454 2,645 399,594 39,960 Class B preference shares 484 12 - - 8 - 476 12 Class D preference shares, series A 13,803 1,380 - - - - 13,803 1,380 Class D preference shares, series B 42,535 4,254 - - - - 42,535 4,254 Class D preference shares, series C 43,184 4,318 - - - - 43,184 4,318 Class E preference shares, series C 4,000,000 100,000 - - - - 4,000,000 100,000 Class E preference shares, series D 4,600,000 115,000 - - - - 4,600,000 115,000 Class F preference shares, series A 488,624 12,216 - - - - 488,624 12,216 Class G preference shares, series A 14,984 375 - - - - 14,984 375 Common shares 20,186,083 6,076 113,716 - - - 20,299,799 6,076

283,880 7,983 2,851 289,012 Less staff share loan plan 12,097 13,851

271,783 275,161

Amount$

Amount$

Number of shares

Number of shares

Beginning of year End of yearNumber of

sharesNumber of

shares

Issued during the yearRedeemed during the

year Amount

$ Amount

$



2010Class A preference shares, series A 235,792 5,895 - - 10,720 268 225,072 5,627 Class A preference shares, series B 301,288 30,129 71,440 7,144 26,509 2,651 346,219 34,622

Class B preference shares 492 12 - - 8 - 484 12 Class D preference shares, series A 13,803 1,380 - - - - 13,803 1,380 Class D preference shares, series B 42,535 4,254 - - - - 42,535 4,254 Class D preference shares, series C 43,184 4,318 - - - - 43,184 4,318 Class E preference shares, series C 4,000,000 100,000 - - - - 4,000,000 100,000 Class E preference shares, series D 4,600,000 115,000 - - - - 4,600,000 115,000 Class F preference shares, series A 488,624 12,216 - - - - 488,624 12,216 Class G preference shares, series A 14,984 375 - - - - 14,984 375

Common shares 20,140,652 6,076 45,431 - - - 20,186,083 6,076 279,655 7,144 2,919 283,880

Less staff share loan plan 10,305 12,097

269,350 271,783

Amount$

Amount$

Amount$

Amount$

Number of shares

Number of shares

Number of shares

Number of shares

Beginning of year Issued during the year Redeemed during the year End of year

The staff share loan plan consists of loans to employees of the Company’s ultimate parent and its subsidiaries for the purchase of the Company’s Class A, Series B preference shares. Loans are offered on an interest free basis to all employees at pre-determined intervals and are repaid through payroll withholdings and dividend payments. Loans are generally settled within ten years and are secured by the preference shares. The fair value is not readily determinable for the preference shares held as security. During 2011, the Company issued 113,716 (2010 - 45,431) common shares with a nominal value (2010 - nominal value) to its parent (note 25). Dividends are as follows:

Declared

Declared per share

Paid

Paid per share

Declared

Declared per share

Paid

Paid per share

Dividends $ $ $ $ $ $ $ $Class A, series A 411 1.88 419 1.88 429 1.88 439 1.88 Class A, series B 1,905 5.00 1,771 5.00 1,652 5.00 1,539 5.00 Class B 1 2.50 1 2.50 1 2.50 1 2.50 Class D, series A 69 5.00 69 5.00 69 5.00 69 5.00 Class D, series B 213 5.00 213 5.00 213 5.00 213 5.00 Class D, series C 216 5.00 216 5.00 216 5.00 216 5.00 Class E, series C 5,000 1.25 5,000 1.25 5,000 1.25 5,000 1.25 Class E, series D 8,338 1.81 8,338 1.81 8,338 1.81 8,338 1.81 Class F, series A 916 1.88 917 1.88 916 1.88 916 1.88 Class G, series A 37 2.50 37 2.50 37 2.50 37 2.50 Common shares 7,200 0.36 7,200 0.36 15,874 0.79 15,874 0.79

24,306 24,181 32,745 32,642

20102011



19. Earnings per share Earnings per share is calculated by dividing net income, after deducting total preferred share dividends, by the weighted average number of fully paid common shares outstanding throughout the year.

2011 2010$ $

Net income 150,257 72,687 Less dividends on preference shares declared 17,106 16,871

Net income available to common shareholders 133,151 55,816

Weighted average number of outstanding common shares 20,190 20,146

Earnings per share 6.59 2.77

20. Retained earnings The Company has designated $9,205 (2010 - $9,308) of retained earnings for premium payable on redemption of preferred shares.

2011 2010$ $

Class A preference shares, series A 2,710 2,813 Class B preference shares 12 12 Class F preference shares, series A 6,108 6,108 Class G preference shares, series A 375 375

9,205 9,308

21. Capital management The Company views capital as a scarce and strategic resource. This resource reflects the financial well being of the organization, but 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 shareholders, policyholders, creditors and others. The Company has a Board-approved Capital Management Policy. The purpose of this policy is to protect capital and evaluate the allocation of capital as a scarce and strategic resource, maximize the return on invested capital, and to plan ahead for future capital needs. Reinsurance is utilized to protect the Company’s capital from catastrophic loss arising from perils such as earthquake, tornado, wind or hail. 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 claims from a single catastrophe over $35,000, to a maximum of $1,200,000. The Company’s portion from a single retained amount of $35,000 represents approximately 2% of the Company’s capital. The appointed actuary prepares the Dynamic Capital Adequacy Testing analysis on an annual basis which projects and analyzes trends of capital adequacy under a variety of plausible adverse scenarios. For the purpose of capital management, the Company has defined capital as shareholders’ equity excluding AOCI. There were no significant changes made in the Company’s capital management objectives, policies and procedures during the year. OSFI measures the financial strength of property and casualty insurers using a minimum capital test (MCT). This test 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. As at December 31, 2011, the Company’s subsidiaries exceeded minimum requirements for the MCT.



22. Net earned premium

2011 2010$ $

Direct written premium 2,331,015 2,321,845 Assumed written premium (note 9) 6,147 (13,948) Gross written premium 2,337,162 2,307,897 Ceded written premium (note 9) (87,992) (156,568) Net written premium 2,249,170 2,151,329 Change in gross unearned premium (11,585) (28,579) Change in ceded unearned premium (43,180) (3,049)

Net earned premium (note 7, 8) 2,194,405 2,119,701

23. Supplemental expense information Included within general expenses are the following:

2011 2010$ $

Compensation costs 275,166 252,152 Retirement benefit obligations (note 17) 6,163 5,240 Amortization expense 10,624 10,420 Interest expense 437 710



24. Statement of cash flows a) Other non-cash items

2011 2010$ $

i) Items not requiring the use of cashInvesting activities gains (59,707) (48,051) Gain on disposal (1,053) (541) Loss on disposal of interest in associate (note 27) 273 - Amortization and depreciation of:

Bond premium/discount 16,785 14,626 Mortgage accretion 167 180 Intangible assets (note 12) 4,010 3,728 Property and equipment (note 14) 6,614 6,692

Change in fair value of FVTPL invested assets (note 5) (839) (11,601) Impairment losses (note 5) 29,578 20,851 Deferred income taxes (note 11) (9,291) (243) Retirement benefit obligations 3,225 2,419 Loss (income) from associates (note 5) (75) 80

(10,313) (11,860)

ii) Changes in non-cash operating componentsOther

Insurance contracts 3,609 92,759 Reinsurance ceded contracts (5,737) 28,818 Premiums due (14,512) (36,170) Deferred acquisition expenses (130) (8,746) Staff share loan plan (1,752) (1,792) Accounts receivable and other assets (33,379) 60,391 Accounts payable and accrued charges 1,179 9,199 Income taxes payable/recoverable 25,224 (151,828) Provisions and other liabilities 11,131 9,601

(14,367) 2,232

b) Supplemental information

2011 2010$ $

Interest and dividends received 195,335 188,201 Interest paid 9,444 8,252 Income taxes paid (net of recoveries) 29,143 106,029



25. Related party transactions The following transactions were carried out with related parties:

AssociatesCompanies

under common control

Parents Total

December 31, 2011 $ $ $ $Revenue

Reinsurance - 1,486 - 1,486 Dividend income - - 24,465 24,465 Interest expense - - (24,232) (24,232) Income from associates (note 5) 75 - - 75 Investment counselling services - (3,933) - (3,933)

75 (2,447) 233 (2,139)

ExpensesReinsurance - (404) - (404) Management services - - 27,133 27,133 Agency force support - 1,000 - 1,000 Employee benefit insurance - 4,954 - 4,954 Product distribution and underwriting services - (3,900) - (3,900) Interest expense - - 83 83

- 1,650 27,216 28,866

Dividends declared - - 8,651 8,651

Balances outstanding at year endReinsurance assets - 505 - 505 Reinsurance liabilities - 59 - 59 Receivables from related parties (note 14) - 21,341 9,002 30,343 Payables to related parties - 269 267 536 Borrowings (note 16) - - 3,500 3,500



Associates Companies under common control Parents Total

December 31, 2010 $ $ $ $Revenue

Reinsurance - (91) - (91) Dividend income - - 8,357 8,357 Interest expense - - (8,258) (8,258) Loss from associates (note 5) (80) - - (80) Investment counselling services - (3,455) - (3,455)

(80) (3,546) 99 (3,527)

ExpensesReinsurance - (197) - (197) Management services - - 27,190 27,190 Agency force support - 1,000 - 1,000 Employee benefit insurance - 4,854 - 4,854 Product distribution and underwriting services - 1,940 62 2,002 Interest expense - - 59 59

- 7,597 27,311 34,908

Dividends declared - - 17,325 17,325

Balances outstanding at year endReinsurance assets - 240 - 240 Reinsurance liabilities - 53 - 53 Receivables from related parties (note 14) 1,094 15,382 3,588 20,064 Payables to related parties - 248 267 515 Borrowings (note 16) - - 3,500 3,500

Associates Companies under common control Parents Total

January 1, 2010 $ $ $ $Balances outstanding at year end

Reinsurance assets - 2,657 - 2,657 Reinsurance liabilities - 51,927 - 51,927 Receivables from related parties (note 14) 896 79,894 6,661 87,451 Payables to related parties - 408 767 1,175 Borrowings (note 16) - - 3,500 3,500

In the table above, the use of the term “Parents” includes all related party transactions with the immediate and ultimate parent companies, as defined in note 1. Included in “Companies under common control” are all related party transactions between companies that are controlled by the same ultimate parent company. Included in “Associates” are all related party transactions where the Company has significant influence. All transactions between CGIC and its subsidiaries have been eliminated on consolidation and are not disclosed in this note. With the exception of the management services, which are based on an internal contract, all other services are in the normal course of business and are established at terms and conditions using available market information. The amounts due to/from related parties represent current accounts with related parties and are generally settled within 30 days. During the year, the Company recognized the benefit of $6,300 (2010 - $2,312) in its income tax expense relating to income tax losses of a related party which the Company purchased from CFSL by issuing 113,716 common shares (2010 - 45,431) with a nominal value (2010 - nominal value).



During 2011, the Company purchased certain broker customer list assets for cash consideration of $1,825 from Assurance Claude Pacquet Inc. (ACP), a wholly owned subsidiary of 9175-1917 Quebec Inc. (9175), an associate of Federated Agencies Limited (FAL), a wholly owned subsidiary of the Company. The purchase agreement between the Company and ACP specifies the transfer of certain broker customer list assets in each year over the next four years, ending in 2014. Payment to be made by CGIC in each year is based on the value of assets transferred during the year. Effective December 31, 2009, The CUMIS Group Limited (CUMIS) was acquired by CLIC. CGIC participated in a co-insurance agreement with a subsidiary of CUMIS up to that date. Transactions and balances with CUMIS as at the effective date are included in table above. On January 1, 2010 CGIC terminated the co-insurance agreement with CUMIS’s subsidiary. In connection with the termination, the Company injected capital of $14,031 into the subsidiary and transferred its rights to the business covered by the agreement in exchange for shares. The termination of the co-insurance agreement resulted in the Company derecognizing the following balances:

$Receivables from related parties 49,433 Deferred acquisition expenses 2,429 Assumed unearned premiums 16,295 Assumed unpaid claims and adjustment expenses 35,566

Subsequent to the termination, the Company exchanged its equity interest in CUMIS's subsidiary for common shares of CUMIS. On November 30, 2010, the Company sold its 6.06% interest in CUMIS to 7506449 Canada Inc., a subsidiary controlled by CLIC for $24,165, and 7506449 Canada Inc. was subsequently wound up into CLIC. Both the Company and CLIC are controlled by CGL and therefore the related party transaction was measured at its carrying amount. The difference between the carrying amount and exchange amount of $10,132 was recorded in contributed capital. Key management personnel of the Company includes all directors, executive and senior management. The summary of compensation to key management personnel for the year is as follows:

2011 2010$ $

Salaries and other short-term benefits 14,053 12,030 Post-employment benefits 1,322 1,130 Other long-term benefits 623 260

Total compensation of key management personnel 15,998 13,420

26. Segmented information The Company primarily manages its affairs on a legal entity basis. There is separate management for each subsidiary who are responsible for meeting independent strategic initiatives within the overall corporate strategy. Each subsidiary company offers property and casualty insurance products but operates within separate distribution channels. Individual subsidiary financial performance is reported separately to the Company’s Board of Directors. All subsidiary companies follow the same accounting policies as described in note 2. The Company accounts for any intersegment sales at current market prices as if the transactions were to third parties.



The Company’s operating segments are as follows:

CGIC Sovereign L'Union COSECO Eliminations Consolidated2011 $ $ $ $ $ $Direct written premium 1,565,587 284,563 281,049 199,816 - 2,331,015 Ceded written premium (43,937) (33,397) (12,234) (5,453) 7,029 (87,992) Revenue

Net earned premium 1,496,570 234,741 267,344 195,750 - 2,194,405 Net investment income 116,808 18,364 11,064 21,767 - 168,003

1,613,378 253,105 278,408 217,517 - 2,362,408 Expenses

Claims and adjustment expenses 1,082,875 131,832 198,906 105,122 (5,975) 1,512,760 Claims and adjustment expenses ceded (84,734) (12,060) (6,627) (2,044) 5,975 (99,490) Other expenses 517,511 97,530 90,346 46,921 - 752,308

1,515,652 217,302 282,625 149,999 - 2,165,578

Income (loss) before income taxes 97,726 35,803 (4,217) 67,518 - 196,830 Income taxes 19,495 9,844 (1,556) 18,790 - 46,573 Net income 78,231 25,959 (2,661) 48,728 - 150,257

Comprehensive income 79,102 28,507 (1,368) 52,862 - 159,103 Additions to:

Property and equipment (note 14) 5,348 568 504 - - 6,420 Assets

Invested assets 2,795,340 453,855 259,872 487,927 - 3,996,994 Reinsurance ceded contracts 99,895 67,782 15,156 19,867 (16,901) 185,799 Intangible assets 9,031 1,554 1,424 - 16,434 28,443 Other assets 1,185,404 143,244 190,412 97,137 (534,603) 1,081,594

LliabilitiesInsurance contracts 2,286,130 440,884 312,532 399,113 (16,914) 3,421,745 Other liabilities 279,305 24,253 29,313 21,314 (7,335) 346,850

Shareholders' equity 1,524,235 201,298 125,019 184,504 (510,821) 1,524,235



CGIC Sovereign L'Union COSECO Eliminations Consolidated2010 $ $ $ $ $ $Direct written premium 1,548,533 280,562 286,863 205,887 - 2,321,845 Ceded written premium (82,586) (55,028) (22,228) (3,898) 7,172 (156,568) Revenue

Net earned premium 1,444,166 213,407 253,749 208,379 - 2,119,701

Net investment income 122,744 17,723 10,996 20,625 - 172,088

1,566,910 231,130 264,745 229,004 - 2,291,789

ExpensesClaims and adjustment expenses 1,068,557 134,667 167,099 162,020 2,050 1,534,393

Claims and adjustment expenses ceded (34,123) (17,431) (9,783) 5,161 (2,050) (58,226) Other expenses 486,394 90,035 95,764 45,243 - 717,436

1,520,828 207,271 253,080 212,424 - 2,193,603

Income before income taxes 46,082 23,859 11,665 16,580 - 98,186

Income taxes 11,486 6,155 2,809 5,049 - 25,499

Net income 34,596 17,704 8,856 11,531 - 72,687

Comprehensive income 80,663 24,024 12,287 17,487 - 134,461

Additions to:Property and equipment (note 14) 4,363 653 954 - - 5,970

AssetsInvested assets 2,720,325 423,580 251,446 474,851 - 3,870,202 Reinsurance ceded contracts 66,670 86,691 21,813 20,855 (15,968) 180,061 Intangible assets 9,222 2,146 1,446 - 16,434 29,248 Other assets 1,115,382 128,339 183,791 92,860 (464,802) 1,055,570



CGIC Sovereign L'Union COSECO Eliminations ConsolidatedAs at January 1, 2010 $ $ $ $ $ $Assets

Invested assets 2,603,484 393,723 242,126 441,926 - 3,681,259 Reinsurance ceded contracts 75,879 102,894 23,231 36,620 (29,745) 208,879 Intangible assets 10,401 1,833 1,684 - 16,434 30,352 Other assets 1,095,015 115,756 170,444 97,691 (412,804) 1,066,102





Regulatory information The book values of the Company’s subsidiaries’ aggregate share capital are as follows:

2011 2010$ $

Sovereign 45,954 45,954 L'Union 18,022 18,022 L' Equitable 3,000 3,000 COSECO 105,507 105,507

Total book value of subsidiaries' share capital 172,483 172,483

Related party revenue Less than 1% (2010 - 1%) of revenue is generated from related parties. Geographic information The Company operates exclusively in Canada, writing business in all provinces and territories. Major customers The Company derives its source of revenue from many policyholders, none of which generate more than 10% of the revenue total. 27. Interest in associates The major components of the Company’s interest in associates are as follows:


$ $ $Assets 1,036 2,214 2,413 Liabilities 571 1,151 1,256

2011 2010$ $

Revenue 1,207 1,575 Expenses 1,132 1,655 Net income (loss) 75 (80)

During the year, the Company disposed of its interest in Harlock Murray Underwriting Limited (HMU), a 50% owned joint venture, for consideration of $780. A loss of $273 was recorded on sale for the difference between HMU’s equity accounting value and the consideration. 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 position, 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 institutions 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. In the normal course of claims adjudication, the Company settles some long-term losses through the purchase of annuities (structured settlements) from life insurance companies. This business is placed with several licensed Canadian companies. No default has occurred, and the Company considers the possibility of default to be remote. The Company leases all of its office space and certain equipment used in the normal course of business, under operating leases. The Company’s commitments to the minimum annual lease payments are included in note 6. 29. Rate regulated entities Automobile insurance is regulated as to the nature and extent of benefits in all provinces and the establishment of premium rates 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. Companies are required to submit a request or filing with each province’s respective rating authorities. In most cases, companies must wait for approval prior to implementing any changes to their rates. The filing requirements can vary by province with regards to the data to be submitted, the process for dealing with disputes and the waiting period for receiving approval. 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. When appropriate, the Company has reduced premiums to reflect the anticipated and actual savings. In 2010, the Ontario government introduced changes to the auto insurance system that were intended to provide greater price stability and give drivers more control over the amount of coverage and price they pay for auto insurance. As a result, some coverages under the Ontario Auto Insurance policy have been altered and a new standard auto insurance policy took effect as of September 1, 2010. Key changes include reductions to standard coverage under the Accident Benefits portion of the auto insurance policy with the option for policyholders to buy additional coverage, the replacement of the Pre-Approved Framework (PAF) to assess and treat minor injuries with new Minor Injury Guidelines (MIG), and new limitations on the costs of examinations and assessments. The changes that were made through these reforms have been reflected in the valuation of the Company’s policy liabilities. Furthermore, premiums have been adjusted accordingly to reflect the anticipated changes in ultimate claims costs resulting from the reform measures.

On April 28, 2010, the government of Nova Scotia introduced legislative changes and accompanying regulatory changes stemming from a review of the cap on minor injury claims. Key changes, which took effect July 1, 2010, include the amendment of the definition of “minor injury” to mean strains, sprains, and whiplash disorders, increasing the pain and suffering award limit from $2,500 to $7,500, and indexing this limit to inflation. These changes have been reflected in the valuation of the Company’s policy liabilities. On November 9, 2011, the government of Nova Scotia announced a series of legislative changes that will take effect in two phases. The first phase, which will be effective April 1, 2012, includes an expansion of standard no-fault benefits, prohibition of premium increases following a loss occurrence in which no claim is made, the implementation of a levy to help cover the costs of volunteer fire departments, and the requirement for automobile insurance legislation and regulations in Nova Scotia to be reviewed at least once every seven years. The second phase, which will be effective April 1, 2013, includes the introduction of Direct Compensation for Property Damage (DCPD) in Nova Scotia, limitation on the liability of rental and leasing companies for a collision caused by the driver of a rental vehicle, the introduction of diagnostic and treatment protocols for minor injuries, and the development of an optional tort product for pain and suffering awards on minor injuries. As these reform measures have not yet taken effect, there has been no impact to the valuation of policy liabilities or to premiums as of December 31, 2011.



30. Role of the actuary, the external auditor and the regulator The appointed actuaries are appointed by the Board of Directors of CGIC and of each individual subsidiary company, pursuant to applicable federal or provincial insurance legislation. The actuaries are responsible for ensuring that the assumptions and methods used in the valuation of policy liabilities are in accordance with accepted actuarial practice in Canada, applicable legislation and associated regulations or directives. The actuaries are also required to provide an opinion regarding the appropriateness of the policy liabilities of each individual subsidiary company at the balance sheet date to meet all policyholder obligations of the Company. Examination of supporting data for accuracy and completeness and consideration of the Company’s assets are important elements of work required to form this opinion. The valuation of the policy liabilities includes the valuation of the unpaid claims and adjustment expenses, the policy liabilities in connection with the unearned premiums, and the maximum deferrable policy acquisition costs. The actuaries consider the work of the external auditors in verifying data used for valuation purposes. The actuaries of CGIC and each of its subsidiaries have provided opinions indicating that each company has made appropriate provisions for all policy obligations. The opinions are attached to the non-consolidated and consolidated financial statements and a detailed actuarial report is filed with the regulator. Internal actuaries have been appointed for all of the companies except for Sovereign. An external actuary has been appointed for Sovereign. All of the appointed actuaries are Fellows of the Canadian Institute of Actuaries. The appointed actuaries are required each year to analyze the financial condition of CGIC and its subsidiaries and prepare individual company reports for the Board of Directors. The most recent CGIC analysis tests the capital adequacy of the Company until December 31, 2015 under adverse economic and business conditions. The analysis incorporates the projected financial conditions of subsidiary companies and the resulting impact to CGIC under each plausible scenario. The external auditors have been appointed by the Board of Directors pursuant to the Insurance Companies Act. Their responsibility is to conduct an examination of the consolidated financial statements in accordance with Canadian generally accepted auditing standards and report to the Board of Directors regarding the fairness of presentation of the Company’s consolidated financial statements in accordance with Canadian Generally Accepted Accounting Principles as set out in Part 1 of the Handbook of the Canadian Institute of Chartered Accountants (IFRS). Property and casualty insurance companies operate under federal and provincial regulatory jurisdiction. The Insurance Companies Act gives authority to OSFI, or the provincial regulator as applicable, to supervise the activities of insurance companies as they see fit.


CORPORATE GOVERNANCE / ANNUAL STATEMENT

Corporate GovernanceCo-operators General Insurance Company is a member of The Co-operators group of companies. As such, we approach best practices and corporate governance in a similar manner. We disclose our corporate governance practices in significant detail in the Annual Information Form we file on SEDAR (www.sedar.com) at the end of March each year.

Annual StatementThis Annual Report constitutes the Annual Statement of Co-operators General Insurance Company (“CGIC”) which CGIC is required to deliver to its shareholders in accordance with s.334(1) of the Insurance Companies Act (Canada).

The following list sets out the sections of this Annual Report which are delivered to shareholders in accordance with s.334(1) of the Insurance Companies Act (Canada) and the page numbers on which such sections are located within the Annual Report:

The report of CGIC’s auditor 42

The report of CGIC’s actuary 43

CGIC’s consolidated financial statements 44

A list of CGIC’s subsidiaries 48 (note 1)

CGIC’s percentage of the voting rights for each of its subsidiaries 48 (note 1)

A description of the role of CGIC’s auditor and actuary 102

The book value of the shares of each of CGIC’s subsidiaries 100

The address of each of CGIC’s subsidiaries’ head office 108


Jim LaverickAlberta

Richard LemoingChairpersonManitoba

John Lamb1st Vice-Chairperson

Alberta

Alexandra Wilson2nd Vice-Chairperson

Ontario

Albert De BoerAlberta

Rowland KellyBritish Columbia

Daniel BurnsBritish Columbia

Wayne McLeodManitoba

Denis BourdeauOntario

Karl BaumgardnerSaskatchewan

André PerrasSaskatchewan

BOARD OF DIRECTORS


Connie DoucetteAtlantic

Denis Laverdière Atlantic

John HarvieAtlantic

Alan FisherOntario

Janet GranthamOntario

Sheena Lucas Ontario

Terry OttoOntario

Dave SitaramOntario

Jack WilkinsonOntario

Paul GodinQuebec

Réjean LaflammeQuebec

Kathy BardswickPresident and

Chief Executive Officer


BOARD OF DIRECTORS: COMMITTEES

The following is a brief summary of the key responsibilities of the standing committees of the Board:The Executive Committee provides guidance and advice to management in between Board meetings, provides counsel on material issues prior to their submission to the Board and takes action in between Board meetings on matters as required. The committee also serves as the compensation committee of the Board and provides oversight to the company’s succession planning and enterprise risk management functions.

The Audit Committee oversees the system of internal controls and financial reporting of the company. It has a liaison role between the auditors, Board and management. The committee ensures the independence of the auditors, reviewing their findings with respect to internal controls and accounting treatment and disclosure of company affairs. The committee also has a responsibility to review, evaluate and approve the procedures management puts in place to ensure appropriate internal controls.

The Conduct Review Committee has two principal responsibilities. The first is to review transactions with ‘related parties’ of the company in accordance with the requirements of the Insurance Companies Act (Canada). The second is to act more broadly as a committee to review the conduct of officers and directors with respect to the company, particularly regarding compliance with the code of ethics, the directors conduct policy, the corporate opportunities policy and conflicts of interest. To ensure independence and objectivity, the Chairperson of the Conduct Review Committee is not permitted to hold any other position on board committees.

The Corporate Governance Committee is the Board contact and monitoring committee for corporate governance issues. This committee reviews related programs and processes to enhance the company’s corporate governance policies and practices.

The Investment Policy Committee is responsible for reviewing the investment policies, assets and ongoing activities of the investment management of the company.

Executive CommitteeRichard Lemoing (Chairperson)John Lamb (1st Vice-Chairperson)Alexandra Wilson (2nd Vice-Chairperson) Daniel BurnsWayne McLeodJack Wilkinson

Audit CommitteePaul Godin (Chairperson)Janet GranthamJohn HarvieRowland KellyTerry Otto

Conduct Review CommitteeDave Sitaram (Chairperson)Paul GodinRichard Lemoing

Corporate Governance Committee Connie Doucette (Chairperson)Karl Baumgardner Alan FisherRéjean LaflammeSheena Lucas

Investment Policy CommitteeAlbert De Boer (Chairperson) Denis BourdeauDenis Laverdière Jim LaverickAndré Perras

Resolutions CommitteeConnie Doucette (Chairperson)Committee comprised of one delegate elected from each Region Committee

Committee Members


The Co-operators Group Limited is owned by 45 Canadian co-operatives, credit unions and like-minded organizations.

Alberta> Agrifoods International Cooperative Limited† > Alberta Federation of Rural

Electrification Associations> Credit Union Central Alberta Limited> Federation of Alberta Gas Co-ops Ltd. > Lilydale Inc. > UFA Co-operative Limited> Wild Rose Agricultural Producers

Atlantic> Amalgamated Dairies Limited> Atlantic Central> Canadian Worker Co-operative Federation† > Co-op Atlantic > Farmers Co-operative Dairy Limited > La Fédération des caisses populaires

acadiennes limitée> Newfoundland-Labrador Federation

of Co-operatives> Northumberland Co-operative Limited> Scotsburn Co-operative Services Limited

British Columbia> Central 1 Credit Union> Modo The Car Co-op > Mountain Equipment Co-op† > Okanagan Tree Fruit Cooperative > PBC Health Benefits Society> United Community Services

Co-operative of BC

Manitoba> Arctic Co-operatives Limited> Caisse Populaire Groupe Financier Ltée> Credit Union Central of Manitoba> Granny’s Poultry Cooperative (Manitoba) Ltd. > Keystone Agricultural Producers

Ontario> Co-operative Housing Federation of Canada† > CUCO Cooperative Association> Gay Lea Foods Co-operative Limited> GROWMARK, Inc.> Ontario Federation of Agriculture > Ontario Natural Food Co-op> Organic Meadow Co-operative Inc. > United Steelworkers of America, District 6

Quebec> Fédération des coopératives

d’alimentation du Québec> Fédération des coopératives

funéraires du Québec> Fédération québécoise des coopératives

en milieu scolaire/ COOPSCO> La Coop fédérée> La Fédération des coopératives du

Nouveau-Québec

Saskatchewan> Access Communications Co-operative Limited> Credit Union Central of Saskatchewan> Federated Co-operatives Limited† > Regina Community Clinic > Viterra Inc.

MEMBER-OWNERS

Multi-region†


CO-OPERATORS GENERALINSURANCE COMPANYPriory SquareGuelph, ON N1H 6P8Phone: (519) 824-4400Fax: (519) 824-0599E-mail: [email protected]

Kathy BardswickPresident and Chief Executive Officer

Carol Hunter Executive Vice-President, Member Relations and Corporate Services

Rick McCombieExecutive Vice-President,Distribution and Insurance Operations

Carol Poulsen Executive Vice-President and Chief Information Officer

Martin-Éric TremblayExecutive Vice-President,National P&C Product andPresident, Quebec Operations2000, Ave. McGill College, 800Montreal, QC H3A 3H3Phone: (514) 789-2667, ext. 208050Fax: (514) 789-2668

P. Bruce WestExecutive Vice-President, Finance and Chief Financial Officer

INVESTOR RELATIONS

Andrew YorkeVice-President, Corporate Finance ServicesPriory SquareGuelph, ON N1H 6P8Phone: (519) 767-3095Fax: (519) 763-5152Email: [email protected]

REGION VICE-PRESIDENTS

Mark FeeneyCentral Ontario Region1720 Bishop AvenueCambridge, ON N1T 1J4Phone: (519) 618-1216Fax: (519) 623-9943

Brian GaudetteAtlantic Region10 Record StreetP.O. Box 890 Moncton, NB E1C 8N9Phone: (506) 853-1277Fax: (506) 853-1355

Terry McRorieWest Region5550 1 St. SWCalgary, AB T2H 0C8Phone: (403) 221-7141Fax: (403) 221-7106

Patrick RattéQuebec Region2000, Ave. McGill College, 800Montreal, QC H3A 3H3Phone: (514) 847-8000, ext. 208733Fax: (514) 847-8021

Don ViauNorth East and West Ontario Region1547 Merivale Road, Ste. 400Nepean, ON K2G 4V3Phone: (613) 683-1327Fax: (613) 727-2607

CORPORATE DIRECTORY

COSECO INSURANCE COMPANYPriory SquareGuelph, ON N1H 6P8

Rick McCombieExecutive Vice-President, Distribution and Insurance Operations

THE SOVEREIGN GENERALINSURANCE COMPANYRob WesselingExecutive Vice-President andChief Operating OfficerSovereign Centre140, 6700 MacLeod Trail SECalgary, AB T2H 0L3Phone: (403) 298-4202Fax: (403) 298-4217www.sovereigngeneral.com

L’UNION CANADIENNE,COMPAGNIE D’ASSURANCESRon PavelackSenior Vice-President 2000, Ave. McGill College, 800Montreal, QC H3A 3H3Phone: (514) 847-8000Fax: (866) 980-3865www.unioncanadienne.com

SHARE LISTINGSThe Toronto Stock Exchange Symbols “CCS.PR.C” and “CCS.PR.D”

Available in French ~ Disponible en françaisThe Co-operators, Priory Square, Guelph, ON N1H 6P8Phone: (519) 824-4400 / Fax: (519) 824-0599 / www.cooperators.ca / [email protected]

COM289 (04/12)

the co-operators general insurance company

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