Good morning, ladies and gentlemen, and welcome to the Definity Financial Corporation Q3 2026 financial results conference call and webcast. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, November 6, 2026. I would now like to turn the conference over to Dennis Westfall, Vice President, Investor Relations. Please go ahead.
Thanks, and good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website definityfinancial.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies to the discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO, Philip Mather, Chief Financial Officer, Fabian Richenberger, Chief Operating Officer, Paul MacDonald, EVP of Personal Insurance and Digital Channels, and Obaid Rahman, EVP of Commercial Insurance. We will start with formal remarks from Rowan and Phil, followed by a Q&A session, during which Fabian, Paul, and Obaid will also be available to answer your questions. With that, I will ask Rowan to please begin his remarks.
Thanks, Dennis, and good morning, everyone. Our third quarter results demonstrate the resilient core earnings power and solid underlying momentum of our business under our significantly expanded scale. As we continue to make meaningful progress on the integration of the acquired Travelers business, we are pleased with our achievements to date and the enhanced capabilities of our combined platform. If you turn to slide five, we provided a comprehensive update on our Travelers integration roadmap and the key operational milestones delivered to date. We recently reached an important integration milestone with the conversion process for all product lines now underway, highlighted by the successful deployment of our new specialty lines capabilities and our expansion into Newfoundland. To date, over one-third of the acquired portfolio has already been converted to Definity's platforms, with customer retention tracking strongly and in line with our expectations.
I am also pleased to say that all new claims from converted policies are now being managed in our system. This successful rollout has been supported by strong broker engagement and our disciplined execution. Looking ahead, we remain on track to complete our business conversions and exit of our remaining transition services agreements by late 2027, successfully transitioning our acquired books into steady-state business-as-usual operations. Financially and strategically, we continue to execute with exceptional discipline, and this momentum is clearly reflected in our synergy plans on slide six. Nine months post-close, we have already achieved run rate synergy savings of CAD 56 million, representing almost 45% of our increased CAD 125 million target. Year to date, our underwriting results include earned synergies of CAD 31 million.
Given this accelerated pace of capture, we remain confident in our ability to realize at least one-third of our synergy target by the end of 2026, in line with the increased synergy expectations we announced last quarter. In terms of integration costs, we are on track with our total estimate of CAD 150 million-CAD 170 million, with the majority expected to be incurred during this first year of integration, leaving approximately one-third of those costs for 2027. Turning to our performance in the third quarter on slide seven, we delivered impressive top-line growth across the board. Gross written premiums grew 36.2% to CAD 1.7 billion, bringing our year-to-date premiums to CAD 4.9 billion and keeping us on track to achieve our full-year guidance of CAD 6.5 billion.
On the bottom line, our diversified earnings power was on display this quarter, generating a resilient operating EPS of CAD 0.36 while supporting a 3.3% year-over-year increase in our book value per share. Our consolidated combined ratio of 100.6% was up 11.2 percentage points from last year, driven almost entirely by catastrophe losses, which were higher by 10.9 percentage points. These severe weather events contributed 12.8 percentage points to our combined ratio as our teams responded to convective storms and flooding in Ontario and Alberta, wind and hail events in Ontario, and wildfires in British Columbia. While we expected the addition of the acquired business to increase our combined ratio by a couple of points prior to fully realizing synergies, our underlying results remained strong and nearly flat year over year. This impressive performance demonstrates the powerful benefits of our increased scale, geographic diversification, and underwriting discipline.
Our trailing 12-month operating ROE was 10.3%, reflecting the impact of elevated Q3 weather losses and the averaging in of our expanded equity base. Turning to our 12-month industry outlook on slide eight, our key message is that overall market conditions remained favorable and conducive to achieving our financial targets. In personal auto, we expect conditions to remain firm overall as insurers maintain pricing discipline to keep pace with loss costs. Evolving regulatory transitions in Ontario and Alberta, along with improved industry rate adequacy and moderating loss cost trends, are actively supporting a more stable and constructive pricing environment. In personal property, we expect market conditions to remain firm. We continue to take proactive underwriting and pricing actions required to fund weather losses, while focusing heavily on long-term peril and accumulation management.
In commercial insurance, while we expect overall market conditions to remain attractive, continued competitive conditions in the large account segment are expected to temper industry growth. As a result, we expect overall industry growth in commercial lines to be in the low single digits over the next 12 months, varying by segment and company. This reinforces our decision to remain disciplined and focus our growth on SME and specialty niches, where pricing conditions continue to be positive. Leveraging our strong market position and exceptional broker support, we remain confident in our ability to navigate these industry dynamics, manage our portfolio, and price our products appropriately to deliver sustained profitable growth. On that note, I will turn the call over to our CFO, Phil Mather, to discuss the financial results in more detail.
Thanks, Rowan. Our third quarter performance underscores the resilience of our expanded business and our team's rigorous operational discipline. Slide 10 provides a detailed view of our consolidated underwriting and operating metrics. Gross written premiums for the quarter reached CAD 1.7 billion, representing a 36.2% increase compared to Q3 2025. This was driven by a strong 25.7% growth contribution from the acquired renewal book, as customer retention rates continue to successfully converge with the underlying Definity business. Our underlying growth contribution, representing the renewal of our legacy Definity business and all new business written across the expanded platform, was 10.5%. Our consolidated combined ratio for the quarter was 100.6%, inclusive of the acquired business, compared to 89.4% in Q3 2025.
This was driven by an elevated claims ratio of 71.9%, reflecting CAD 190 million, or 12.8 percentage points, of weather-driven catastrophe losses compared to the unusually benign 1.9 points in Q3 2025. Our core accident year claims ratio rose slightly by one point to 60.8%, which was within our expectations as we continue to absorb the impact of the acquired business prior to fully realizing synergies. This was partially offset by a 50 basis point improvement in our expense ratio to 28.7%, driven by the early capture of integration synergies, lower incentive compensation accruals, and ongoing expense management. I will now provide some more details on our lines of business. Starting with personal auto on slide 11, gross written premiums grew by 38.1% in the third quarter to CAD 714 million, inclusive of 23.3% growth from the continued strong retention of the acquired renewal book.
Our underlying growth contribution was robust at 14.8%, though this benefited by a few points from an elevated quarterly impact from industry pools. The combined ratio of 96% increased from 94% a year ago. As expected in our transition plans, this increase reflects the anticipated and temporary impact of consolidating the acquired Travelers portfolio ahead of realizing the full impact of our planned synergy benefits, along with higher catastrophe losses, which were partially mitigated by a reduced expense ratio. Looking forward, evolving regulatory reforms will be an important factor of our operating landscape over the next 12 months. In Ontario, the July 1st auto reforms, which introduced choice-based accident benefits for consumers, have combined with moderating loss cost trends and improving rate adequacy to support a more stable pricing environment. Meanwhile, in Alberta, the industry is preparing to transition to no-fault reforms on January 1st, 2027.
Average premiums are expected to decline in the mid-teens range under the new framework, reflecting lower casualty claims costs resulting from reduced tort-related expenses. While this reform will reduce written premiums in 2027, it should contribute to more favorable and sustainable industry profitability over the long term. Note that we have approximately CAD 300 million of personal auto premium in the province. In personal property on slide 12, we delivered top-line growth of 35.3% in the quarter, including 24.7% from strong retention of the acquired renewal book. Continued unit growth and rate achievements across our broker channel led to an underlying growth contribution of 10.6%, bringing total gross written premiums to CAD 486 million. Our combined ratio for the quarter was 112.1% compared to 83.6% in the third quarter of 2025.
This increase was driven by severe weather-related catastrophe losses, primarily related to the convective storms and flooding in Ontario and Alberta, which climbed by 29 percentage points from the prior year to 32.6%. However, our core accident year claims ratio remained relatively stable, rising only 80 basis points to 51.1% despite the integration of the acquired business. Turning to slide 13 and commercial insurance, we delivered top-line premium growth of 34.2% to CAD 472 million, inclusive of 30.1% growth from the strong retention of the acquired renewal book. Through disciplined execution, we achieved ongoing pricing and volume increases in small business and specialty lines, which helped mitigate the impact of competitiveness in the large account segment. Our commercial combined ratio for the quarter was 96.1% compared to 88.1% in the third quarter of 2025.
This increase was driven primarily by an elevated claims ratio, reflecting severe weather catastrophe losses, which increased by 6.3 percentage points to 8.9% in Q3 2026. Our core accident year claims ratio rose by 1.9 percentage points to 56.4%, reflecting the expected temporary impact of incorporating the acquired Travelers portfolio prior to the realization of our planned underwriting and claim synergies. These headwinds were partially offset by a 60-basis point reduction in our commercial expense ratio to 32.4%, demonstrating our strong operational cost discipline and the initial capture of integration synergies, as well as lower incentive accruals. Turning to slide 14, our operating earnings were supported by meaningful growth in net investment income. At CAD 79.3 million, it increased 46.6% compared to Q3 2025, driven by interest income generated from our larger post-acquisition investment portfolio and proactive trading into higher prevailing yields.
We maintain our full-year outlook of at least CAD 320 million of net investment income for 2026, which reflects our expectation of a sequential increase in the fourth quarter. Slide 15 illustrates the performance of our national broker platform, which continues to deliver as a key strategic pillar, ranking among the top 10 brokers in Canada. Our distribution income reached CAD 18.7 million in the quarter. Combined with CAD 10.6 million of intercompany commission income, our total broker operating income reached CAD 29.3 million. This represents a 10.2% increase over the prior year and 17.6% on a year-to-date basis, keeping our national broker platform on track to achieve our full-year guidance of approximately 20% growth. Of note, this quarter's growth rate was moderated by a particularly strong Q3 2025 comparative period, which had benefited from the specific timing of broker acquisitions.
While quarterly broker income can reflect transaction timing fluctuations, we remain confident in our forward-looking trajectory, having closed several acquisitions late in Q3 and into Q4, which should increase the contributions in the coming quarters. The structural strength and resilience of our balance sheet are clearly visible on slide 16. Despite absorbing nearly CAD 400 million in combined pre-tax catastrophe losses and unrealized bond devaluations in the quarter, we have successfully grown our book value per share to CAD 34.53, representing a resilient 3.3% increase from a year ago. With total financial capacity remaining robust at nearly CAD 1.2 billion, we are in an enviable capital position to continue funding our organic and inorganic growth plans, support our broker network, and deliver on our capital deployment priorities. With that, I will turn the call back over to Rowan.
The operational and financial results walked through demonstrate the structural resilience of our expanded business. We entered this year with a clear mandate to execute on the transformational integration, rapidly secure cost synergies, and protect our underlying underwriting margins, and our progress this quarter demonstrates that we're delivering on those commitments. Our integration success to date validates the business case we established for the Travelers Transaction, which is expected to deliver a more than 200 basis point improvement in our operating ROE on top of our organic plans. With this powerful accelerator, we are confident in our progress toward our midterm objective of sustainable mid-teens operating ROE. Our disciplined execution of this integration strengthens our operational playbook and increases our conviction as we pursue our goal of building a top three property and casualty insurer in Canada.
Underpinning this ambition is our strong structural profitability and capital base, which ensure we are positioned to continue building long-term sustainable value for our shareholders. Building on our leading digital platforms, we continue to scale our core AI capabilities as a key contributor to loss ratio outperformance and operational efficiency. We are proud to share that our claims and technology teams collaborated to recently deliver Definity's first fully agentic AI solution for broker first notice of loss. Early results indicate this has delivered a 50% reduction in claims administration effort for broker-submitted claims, serving as a powerful proof point of our ability to translate new technology into concrete business value. Building on that same commitment, we continue to invest heavily in our claims operations to provide industry-leading support to our brokers and customers in their key moments of truth.
Let me add my appreciation to our claims professionals and customer service teams across Canada. The third quarter of 2026 was an active period for severe weather, and our teams responded to multiple catastrophe events that impacted many of our communities. Our frontline employees demonstrated exceptional dedication to support our customers and brokers when they need us most. It is their extraordinary effort during these challenging events that defines Definity's customer-centric values and operational excellence. With that, I'll turn the call back to Dennis.
Thanks, Rowan. We are now ready to take questions.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press star one. To withdraw a question, press star two. One moment, please, for your first question. Your first question comes from Bart Dziarski from RBC Capital Markets. Please go ahead.
Good morning. Thanks for taking the question. I wanted to start with the lowered industry outlook for commercial. Could you provide more detail on what you are currently seeing, and does that lowered outlook contemplate pricing pressure moving to the mid-market to the extent you are seeing any? Thanks.
Well, thanks very much for that, Bart. Let me start, and then I will ask Obaid to add a bit of color. I think that we have called out that we think the industry is going to be in the low single digits, and that is really no change to the current environment we see, because currently the industry is running in the low single digits, and we think this is pretty stable. We haven't seen any change over the last couple of quarters to what we expect in the next. We remind everyone that the market is still a bifurcated market. The large business, which is close to a third of the industry, remains competitive. We have explained that before, as after multiple years of hard markets, there is significant margin in, but we are still seeing a lot of competition in the large business.
As far as the rest, the small business is stable and continues to be that. We have seen no contagion down market. We do think that the industry outlook is going to vary by segment and by insurance company. Overall, from our perspective, we still believe it is very conducive to the way we shaped our portfolio, what our ambitions are. We have, for some time now, been deploying our cycle management playbook, which continues to work very effectively for us. We do have a culture of underwriting discipline. We have been very active in portfolio shaping, and essentially that means avoiding those hypersensitive segments or poor-performing segments. We have been very focused on pricing adequacy, using our granular models, risk selection with the specialized underwriters.
We spend a lot of time on broker management, mostly ensuring great service to them, appropriate incentives, and making sure they're aligned to our underwriting appetite, so we're still getting good flow of opportunities from them. You may have noticed as well, we've been very active for some time now on expense management, and that's both claims expense management and OpEx. We're confident in our plans and how things are going, but we are just more reflecting, I think, what current conditions are. Let me ask Obaid to add some color to that and how it's affecting our portfolio.
Thank you, Rowan. Bart, I'll just follow up on what Rowan said, and we've said this before. Less than 20% of our portfolio is exposed to the large account segment, where competition is most intense. Here, we are defending the accounts where profitability is strong, and our retentions are fairly strong. Competition is most intense on business coming to the market, so this is where the new business is. We are disciplined in that part of the market, and as a result of it, we're winning less new accounts in the large account space, and that's impacting the growth in that part of the book. When you move past that 20%, the SME side, we continue to see mid to high single-digit pricing, and retention levels are very much in line with what we've seen historically. They're very strong.
We're not seeing any impact of the same level of competition coming in there. When we look at the middle market segment, we're seeing pricing which is low to mid-single digits. Again, retentions remain fairly in line with what we've seen historically. As a result of these two things, we are getting a mix shift where we are growing in exposure and customer base on the smaller accounts, not so much on the larger accounts, and that mix shift is costing us about one or two points in premium growth. Moving further, we've talked about our specialty business. About a third of our portfolio is in the specialty business. We've got maybe 10 verticals in there. Competition varies by vertical, it varies by size of account within the verticals, but we try and look at this business as a whole.
As a whole, we're getting about mid to high single-digit growth in that segment, and that's really a function of the lower market share we have in that segment, as well as many sort of new capabilities we've built organically, and now we've gained some net new capabilities out of Travelers and the acquisition. We don't see this changing either. We think this momentum on the specialty side will continue for us. Now, really, if I take a step back and I put it all together, our portfolio construction, what we've built in our digital assets from the small business side, the capabilities we have on the specialty side, we think this will continue to give us momentum to have 2x our performance to the industry in terms of growth. We really don't see that changing.
Industry is at the low single digits, that does not really change our outlook on it.
Thanks for that. It is very helpful color. On the Travelers integration, it looks like we are seeing momentum continuing. You are talking about the strong retention and conversion. Could we just get a maybe mark-to-market update on where you are spending the most time today? You touched on specialty lines capabilities being built out, so just love to get an update there. Thanks.
Yeah. Look, I think the main message here is that this is a huge undertaking for the organization, and it continues to be going very well. When we look at the key drivers of, is the retention as we wanted? Absolutely, it is. In fact, they are converging on Definity levels. We look at the conversion, which is now in flight as we move them onto our scalable platforms, and then we think about the synergies that we have shared with the market. Obviously, we updated that last time to CAD 125 million. We have now triggered about 45% of those, and we continue to have a very, very strong broker support. So, we are well into the integration, and it might be useful to hear from Fabian about how it is actually going.
Yeah, certainly. From a big picture point of view, and I appreciate your question, I would say that we are really pleased with how the conversion of the Travelers businesses has been progressing this year. Very much in line with Rowan's comments, we are getting great support from our broker partners across Canada, and that is helping us to achieve our plan through retention thresholds, both in personal lines and in commercial lines as well. As importantly, I would say that the loss ratio of the acquired business is coming in very much in line with our expectation as well, and that is a function of the detailed pricing segmentation work that we have done across all of our segments.
As you can imagine, this integration has been a major operation undertaking for us. I could say that we are really pleased with how all of our work streams have been executing our plans. Maybe I am giving you a little bit more context on that point. At any given time, we have close to 1,000 of our employees actively involved in this integration. We have been executing against 2,500 major integration milestones to keep this program on track. As we disclosed early on, we have been able to write new business on a combined basis, leveraging the new capabilities that we have acquired within a few weeks of closing. That gave us good new business traction, gave us an opportunity to expand our value position with our broker partners. In Q2, we started converting our acquired business out of Ontario.
In Q3, we added Ontario. Today we are at the point where we have all segments, all product lines being converted over to our underwriting and claims platforms. For all kind of product lines, we have detailed process maps in place. Typically, when you are on integration of this size, you get to a point where you have a little friction with your broker partners, but we do not get any negative feedback from our broker partners. They would say that this has been the best-run integration that they have experienced in Canada, and they are really pleased. Again, as I mentioned, this allows us to achieve our planned retention thresholds. Now, we are onboarding the 400,000 individual clients across commercial lines and personal lines that we acquired.
We are relying on the comprehensive transition services agreement with Travelers, who continue to be excellent integration partners. We have migrated and rationalized over 1,000 external supplier agreements as well. From a business perspective, we have been welcoming over 100 new brokers. We are glad to say that we retained all of them. In line with my earlier comments, we are at the point now where we are converting between 30,000 and 40,000 policies over to our underwriting and claims systems. To do that, we also secured the required regulatory approvals across all provinces in a timely manner so that we could keep our overall conversion on schedule. So far, we have converted about a third of the acquired portfolio, and we have a great deal of confidence that we can complete the conversion by the end of 2027.
At that point, we will exit the TSA and then decommissioning all of the legacy Travelers systems as well. As I mentioned, we are really pleased with the integration progress that we are achieving. I think it is a great proof point on the talented and engaged employees that we have across in our company. All of that gives us confidence that we can achieve our growth guidance of CAD 6.5 billion and achieve our enhanced synergy targets of CAD 125 million.
Bart, I think that was a nice comprehensive insight into this big program. To me, I think the main message here is we are removing the execution risk and any uncertainty related with the transaction, so we are feeling really good.
Great. Thank you both. Those are very comprehensive answers. Appreciate it.
Your next question comes from Alex Scott from Barclays. Please go ahead.
I wanted to probe a little bit more on some of the comments on the use of artificial intelligence. I think you mentioned it was benefiting the loss ratio in particular. Just interested in some of the things you are doing, how far they are rolled out, what kind of benefit it is having on claims administration within the loss ratio.
Sure, happy to do that. I mean, it's a big and obviously focus area of ours, and there's a lot of activity that we've been putting in place. Generally, we feel that most of the activity and value seems to be impacting the loss ratio, and then obviously the remainder on the expense ratio. We think we've got a really good advantage here on the marketplace. There's a couple things driving that for us. We've got 30-plus years of digitized and proprietary data. We have a great cloud platform, the Google platform. We've been doing this for well over 10 years. We've got over 250 AI and data practitioners, and we're currently running in excess of 140 active models and solutions.
The other part that I think is really relevant, it's one thing to have these capabilities, but you've got to get them to the front of the business. When you think about the Vyne platform, the modern technology platforms, claims now, as well as what we've got on the personal lines and commercial lines, we're getting this stuff to the front lines. You ask about a couple examples. There's so many. In commercial lines, we've been using it in a number of things, including underwriter submission intakes, which really helps the productivity, the quote velocity of our underwriters, which will help us grow business. In claims, in my comments, I mentioned, we just launched an agentic agent for first notice of loss. We're seeing about 50% effort reduction there as that rolls out. We're using it in fraud.
On the one hand, it helps our pre-bind quality of business in Sonnet. On the other hand, we are getting less claims leakage. We've got tools like document tampering that reduce and identify fraud. Certainly appraisals get more accurate. In our contact centers and claims, we've got over 15% of productivity. We have an AI agent assistant. We've got call summarization. Then, of course, on the tech side, it really helps with coding and even replatforming some of our existing kind of systems. So, it's pretty deep in the organization, I would say, and been very well adopted. What we're really focused on is, now you've put this to work, can you start seeing the measurable impacts? That's a real focus of ours, of making sure actually it does drive more revenue or better retention or less fraud or sharper pricing segmentation, which we believe it is.
There's still a lot of opportunity ahead, and I think this is going to be one of our value drivers in the years ahead.
Got it. Helpful. My follow-up, I will stick on the AI topic. I mean, if you look into your crystal ball, how do you see it evolving the distribution of personal lines products? Do you have anything in the works that will connect more directly into some of these large language models that might be part of that?
Yeah, a couple of things there. I think when you think about the potential for disruption, it is very unlikely to impact the commercial business with the complexity there. In personal lines where there are some more commoditized or standardized products, we do think that there might be some modest disintermediation. On the other hand, there is a number of offsets there. I think what we are seeing is the growth of these digitally savvy and AI-enabled brokers that actually are growing and taking share. I think that even within the broker distribution channel, there is just a mix shift going on from some of the traditional, smaller, less sophisticated bricks-and-mortar brokers. We have definitely seen people using AI for a while now in the price and product discovery phase. It is interesting that still about 40% end up after that research going to brokers.
Where you do see some of the early movers, we still think it is a limited population and a gradual use of, for example, these personal assistants that you see coming out. So it is not that we do not see any impact. We just think it is manageable. I think when you think about the implications for Definity, the fact we are multi-channel certainly gives us a very good position to trade through this. We also do have a platform, a broker platform we have built over the years, a top 10 broker. They tend to have a slightly mix of business and locations that are in some of the smaller communities. Human connections are still very important. Advice makes a difference. They themselves are using AI. It is helping their business in the admin-heavy world improve their margins. I think it probably drives more pipeline for the brokers as well.
I think the only comment I may ask Paul to just touch on there is, as we think about some of our platforms, how are we linking?
Yeah. Thank you, Rowan. Actually, so really two things. One is, we believe we're future-proofed. Our investments that we've made over the last several years to automate our systems, to move all of it into the cloud, and to connect through APIs allows us, therefore, to take advantage of these emerging AI capabilities much faster than a company that would have to make those investments. So, we did that very consciously and deliberately, and now we're able to take advantage of it. The second comment I would make is, despite those capabilities, we do have to be a little cautious around the use of it. There's been some publication recently around, will companies allow agents to access their sites? There has to be a balance between providing capabilities to customers and also making sure that you maintain privacy, confidentiality, and accuracy of the information that you provide.
We're working carefully with the various regulators across Canada and the government to explore where the future of this AI will take us. But we are well-positioned to take advantage of that future when it comes.
Thank you.
Your next question comes from Brian Meredith from UBS. Please go ahead.
Yeah, thanks. My first question, I'm just curious, with the Alberta reforms, is there any lag between the benefits you are going to see with respect to the loss cost benefits and the premium reduction, so maybe an impact on loss ratios in 2027, or is it ratable?
Thanks for your question, Brian. It is Paul here. Really just stepping back for a second, the simplest way to explain this is essentially any activity or claim up until that point continues under the old regime. All the reserving that we have done, all the analysis we have done, the premium we have collected on those accounts continues to support that business. Essentially, what happens on January 1 is a full reset. This is quite unique and one-time, and what that means is all new accounts and all new claims after January 1 are under the new regime. The new regime essentially removes a lot of that tort liability out of the system, and of course, the accompanying premium related to it. We estimate there is likely a mid-teen impact to top-line premiums for the industry, and then there is a commensurate reduction in the liabilities.
From our perspective, it is immediate, and there is no real lag. We also think that that is going to be a slightly positive impact to the bottom line for us.
Terrific. Very helpful. My second question, can I talk a little bit about excess capital? I mean, your stock is down a couple of percent year to date, despite some pretty impressive results. How are you thinking about that? I know your leverage ratios are still a little bit high, but you got more than CAD 700 million of excess capital.
Yeah, I think, Brian, on that one is, if you go back to our philosophy around our capital priorities, and the first one remains supporting organic growth, which has been big, and we see that as great. We keep moving the dividend forward, and then it's M&A. As you know, M&A can be a little lumpy. You can't perfectly line these things up. But since we've gone public, we have deployed about CAD 1 billion of capital into our broker distribution channel. We've spent CAD 3.3 billion on Travelers. So, I think you could see we're active and we're effective at deploying these, which in both of those examples, there's a really strong performance out of that. We have a goal of being top 3, and part of that goal is to continue outperforming the industry.
You heard Obaid talk earlier about commercial lines growing at twice the rate of the industry. We think we've got these organic growth capabilities to do that. But it also does require us to participate in organic growth, and we need at least CAD 1 billion plus of inorganic growth to get to that top 3. So, that's really the focus for us. We think the environment is favorable.
You've seen some foreign companies exit the Canadian marketplace. Scale increasingly makes a difference. And that commercial market is a bit more complicated now than it was a few years ago. So, we definitely think that's the case. When we consider M&A, and really this would be the big mover of capital deployment, we think about our operational readiness, and of course, Travelers is going really well. We know there's a regulatory time lag between announcing a deal and getting it done.
We're not on the sidelines. We are active in this. We have a screening process and a prioritization process where we look at the size of the business and the portfolio mix, the quality of their operations, the potential of the synergies, ease of integration, availability, of course, and then our financial capacity. And I think that's where you're getting to, is that we have a significant amount of financial capacity, over CAD 1 billion, and that's before any equity raise. So, our view is that we're growing this business organically, but we will participate in a consolidating market. And the timing of that is just a little bit difficult to see. So, at this stage, that's kind of still the way we think about our capital deployment, and we don't have any other immediate plans for that excess capital.
Excellent. Appreciate it. Thank you.
Your next question comes from Jaeme Gloyn from National Bank. Please go ahead.
Yeah, thanks. Just wanted to dig in a little bit on the investment income. Came in a little bit maybe lighter than I was expecting, so just curious if there was anything from a portfolio construction standpoint during the quarter. Then looking ahead, with a recently higher interest rate environment, were you able to transact and capture any benefits from that?
Yeah, thanks, Jaeme. Quarter on quarter, we were pretty flat. What I would say, though, is Q1 and Q3 usually are a little lower than the average run rate because we have some timing of dividend income that really transacts in Q2 and Q4. So, not out of line with expectations overall, but you'll see those little dips between the first and third quarters. For the full year, we fully believe we're going to exceed CAD 320 million. As I mentioned earlier on in the comments, we see a pickup in Q4 from a couple of factors. One is that dividend timing. The second one is trading activity into the high prevailing yields that you just mentioned. So sequentially, we'd see Q4 tick up.
We think it'll be the highest individual quarter of the year, and we fully expect we're going to be higher than the CAD 320 million for the current year. In terms of the portfolio construction, that is pretty stable, but we have been pretty active from a trading perspective. At the end of Q3, we had about just under 3.6% book yields on the overall portfolio. At the end of Q3, we were about 20 points higher than that from a market yield perspective. So, the team has been proactive from a trading standpoint. Our efforts and intent is to try and capture some of that yield. So, I think right now we feel pretty comfortably positioned that we'll see an increase in that net investment income contribution next year.
Okay, great. On the distribution income side, all in 18% growth, just a little short of the 20% target. The question I am wondering is, can you get to that 20% target organically today with what you have and what you can see for the fourth quarter? Or does that require some M&A or maybe even recent M&A to sort of hit the tape to get you to that target?
Yeah. I think we are very confident that we will be there or thereabouts on that 20% year to date. Two things happening in the quarter which lead to that comment. Year on year, we looked a little low, but that really is a reflection of the timing of M&A in a very strong comparison period. When we look at the broker platform, obviously there is the organic growth on the preexisting portfolios, but they are very programmatic in their M&A activity. We fully anticipate each year that part of that growth target we set is programmatic acquisition activity, as opposed to the carriers where it is much more lumpy. We see that continuation of behavior. If you look what has happened this year versus last year, we have deployed about CAD 80 million year to date at the end of September on acquisition activity within the broker platform.
CAD 60 million of that came in Q3 and came towards the end of Q3. What that tells you is the relative level of new acquisition activity is lower this year at this point of time, but there is quite a big contribution in Q3. In October, we deployed another CAD 60 million of capital through M&A activity. When we look at that overall year-to-date target, the 18% or so we have delivered, much more commensurate with what we would expect in Q4, and we do think we will be there or thereabouts that 20% full-year target. So, good momentum, but timing of the M&A activity can cause some individual quarterly variances.
Jaeme, I think the point just to add to that timing point Phil is making, if you just step back, I mean, this is a strategic asset for us. Since we have started this a couple of years ago with the acquisition of McDougall, the premium acquired CAGR is about 30%. There is about 25% CAGR in distribution revenue, and there is about 30% CAGR of operating income. So, you could see that whilst there are some lumpiness to the timing, there is good organic growth, there is good M&A, and obviously, strong overall growth and strong margins. So, we are pretty comfortable, as Phil said, with the trajectory going forward this year and next.
Yeah, thanks. Yeah, it is clearly a nitpick type question but just wanted to get that color. Phil, I just wanted to make sure I heard correctly, the timing of acquisitions you talked about in September and October, that is this year, 2026, we are not referring to last year, right?
That is correct. When I talk about the-
80 million share, that is right. But we were very reactive last year as well. It is that comparative conversation if you look at QoQ.
Yeah. Perfect. Thank you.
Your next question comes from Tom MacKinnon from BMO Capital Markets. Please go ahead.
Yeah, thanks very much, and good morning here. Just a follow-up question with respect to distribution income here. Rowan, I like your comments about premium acquired CAGR. That increases, you end up seeing your distribution income increase. Yet, I assume a good portion of the premium CAGR that these brokers have is related to personal and personal auto. If we're going to get personal auto premiums not certainly increasing at the same level going forward as a result of reforms, that could have certainly an impact on that premium CAGR. I do know McDougall did acquire Drayden, and that was largely an Alberta company. If you're talking about mid-teens reductions here in personal auto premiums, how does that factor into your projected growth for distribution income?
Thanks, Tom. I think, as you look at McDougall's, it's really expanded now to almost a full national brokers. They're still more Ontario-weighted than they would be Alberta-weighted, but you call out a fair point in Alberta. I think as we think about the addition of some of these acquisitions, as Phil said, there was a number of deals done late in Q3. We've actually closed two already in Q4. When we factor all of that in, we're pretty comfortable with the growth rates overall, the pluses and the minuses going forward. The point that you raise on the auto, I think it's important for everyone to understand, this really is kind of a one-time event. You have here structural costs that are changing with these reforms, and so the market does a one-time product pricing adjustment to that. You see that a bit in Ontario.
It will be significant in Alberta. But outside of that, the normal environment, the normal cost trends on property and on the physical damage part of the car is all going to continue. I think this is just a little bit of a unique slowing for the industry from its current growth rate in 2027, and then we think that is going to normalize going forward. Overall, we still feel comfortable with that. But yes, that is one of the headwinds that we anticipate and have reflected in our outlook for the broker.
Have you given a guidance for distribution income for 2027 growth at all?
We do that in February, don't we ?
Yeah. No, we haven't at this point, Tom. We will provide a comprehensive update on our overall financial targets and support and guidance, including distribution income in the February position. But I think what is fair to say is that we feel pretty comfortable that we've got continued good momentum.
Okay, thank you.
Your next question comes from Munish Garg from CIBC World Markets. Please go ahead.
Yeah, thank you, and good morning. My first question is on personal auto. If you look at the underlying personal auto growth is very strong at 15%. Could you please break down the 15% growth for us? How much of that was unit count growth? Is the unit count growth coming from Sonnet or a particular region within Canada?
Yeah, perhaps I'll start, and then I'll hand it over to Paul and give you some more color. I think when you look at the overall growth for auto, which is very strong in the quarter, as you say, at 38%, that reflects both the retention of the acquired renewal book of Travelers. Everything else, we group within the underlying growth contribution. If you look at that split, what we're seeing is, and seeing very good retention of just the purely acquired back book of Travelers. That's coming on a very good level. It's in the low 80s kind of retention levels. It's very consistent with what we've seen in the Definity book. That's a very good success story in terms of how that business is rolling on. When you look at the underlying growth contribution, the way we calculate that is it's everything else.
That's taking the renewal of the Definity book, it's taking the new business across the entire expanded platform, and it's taking that over the prior year Definity comparison. That's how it comes about. Within there's a couple of points of Facility Association growth in the quarter. I'd say there's two to three points there that's more elevated because of the timing of FA. That's quarterly noise. It bounces around a little bit, but it gives you a perspective that underlying growth contribution absent that is more in that 12% range. Paul, I don't know if you want to give a perspective on just
Yeah
what you're seeing in the underlying overall book business.
Yeah. Thank you, Phil. Just to clarify or add to the FA comment, as Phil said, it is a bit lumpy quarter-to-quarter as Facility Association does its work, but we expect that to be net neutral for the full year, so it is a part of our overall performance. Underlying that, as Phil mentioned, there is strong momentum, and it's almost exactly half of our growth is unit count, and that's a reflection of the fact that we feel that this is a very favorable environment. We're pursuing share growth. That's an important part of our overall strategy, and we believe we have the platforms and the capability to continue to have outsized performance in that regard. Now, you had asked, is it coming specifically from Sonnet versus the broker book of business?
What I will say is that our broker business remains very consistent in terms of how it's growing throughout, based upon the capabilities of the Vyne system. As I previously mentioned, Sonnet, we have more moderated growth. It's still a positive growth, couple of points less than our broker book of business, but that's because we're being very prudent around how quickly we scale that business into the marketplace. Lastly, you asked, is there a regional split? The reality is, we're actually growing units throughout the country. We're very strong on growing the book profitably, and we are really seeing consistent growth in almost every jurisdiction. Newfoundland obviously is the newest one. That one we've just gone live with recently, so we'll have more to update on that in the future. But for now, we're very positive about this line.
Thank you very much. Just one last for me. Just sticking with the personal auto. We look at the outlook for industry. You do call out some variability between different provinces. Apart from Alberta, can you provide some more color on differences in premiums growth and profitability across different regions in Canada?
Yeah, absolutely. I would say outside of Alberta and Ontario, the two reform jurisdictions that Rowan had mentioned earlier, there's generally good growth from a rate perspective as the industry is taking rate to cover the underlying trend. Alberta, as you pointed out, is a little bit different. It's going to come with a reset on January 1. But as Rowan mentioned, there are other underlying trends that continue on, such as the physical damage trend. So we'll evaluate that as we go. Ontario's the one remaining one that's a little bit more unique, and maybe it's worth stepping back for a second to explain the situation in Ontario. If you look back a few years, Ontario was the one that had the most significant COVID lockdown, and people were therefore not driving, and it was the only province that moved forward with rate returns or rate rebates.
Unfortunately, what happened is, in that period of low rate, that was right before the really unique inflationary trends and theft trends that occurred globally and particularly in Canada. In Ontario, the province or the industry as a whole was behind rate. You'll see that over the next few years, the province had to take double-digit rate, or the industry had to take double-digit rate to catch the trend. That continued on for several years, and then last year, the trends came down pretty significantly, and the theft trends came down much faster than we expected. What that means is, we can't respond that quickly in the marketplace, and so there was a bit of excess rate pent up in the industry, really through the earned profile.
What you'll see over the next few quarters is less rate needing to be taken or written by the industry because the earned is sufficient to cover the trend. So Ontario is in a period of adequacy. For us, as I mentioned earlier, that's very good. That means it's a favorable environment. We like the margin that we're getting. We're protecting the margin, and we can still grow with significant unit growth. So, that's a little bit more unique. We would expect then in the back half of next year for the industry to begin taking additional rates to cover trend.
Thank you so much. I'll leave it there.
There are no further questions at this time. I will turn the call back over to Dennis Westfall for closing remarks.
Great. Thanks all for those questions. Before we sign off today, I'll turn it back to Rowan for some final thoughts.
Well, thanks, Dennis. Look, I just want to take a step back for a moment from the quarterly results and just reinforce why we're so confident in the Definity trajectory. I think if you look at where we're at, firstly, the Travelers integration continues to progress exceptionally well, and we're consistently removing execution risk and uncertainty related to that. You heard from Fabian how well it's going and the percentage of completion. I think the next thing I look at is how well we're delivering on the strong underlying profitability. So, despite the expected near-term margin drag of the Travelers portfolio, our underlying core combined ratio is nearly flat compared to last year once cat losses are normalized. That's very good news about holding and improving margins.
Thirdly, as we look at these underlying metrics, you can see how resilient the company is, and it is a very clear path towards our long-term operating ROE expansion. We see the Travelers synergies continue to earn into our bottom line over the next two years, and as such, we are very comfortable with that mid-teen operating ROE. It is becoming clearer and clearer for us as we de-risk Travelers and continue growing and performing well on the core portfolio. We keep executing and are happy with where we got to.
Thanks, Rowan, and thanks everyone for participating today. The webcast will be archived on our website for one year. A telephone replay will be available at 2:00 P.M. today until November 13th, and transcripts will be made available on our website. Please note that our fourth quarter and year-end results for 2026 will be released on February 11th. That concludes our conference call for today. Thank you and have a great one.
Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you.