All our great shareholders. We are excited to discuss our first acquisition with you. This is Paul Rivett, Chief Executive Officer of Western. I am joined here today by Scott, our Chair, our CFO, Pablo, Chief Operating Officer, Sai, Chief Legal Officer, Mackenzie, and our Chief Actuary, Keith. Western has signed a definitive agreement with the Nilsson Bros. to acquire Canadian Farm Insurance and the two Stockmens MGAs. We want to thank Brian and Lee for entrusting us with this well-run family business. Canadian Farm is our second insurance platform after Fortress and the next direct step in our strategy of building an insurance and investment holding company. This morning, before markets open, we will cover details of the new Canadian Farm business we are acquiring, its financials and growth plan, Scott's new role, and the key terms of the transaction.
Then we will open it up for questions and hopefully conclude by 9:30, so you can all start your day. Today's remarks include forward-looking information and future-oriented financial statements, including 2026 estimates. Actual results may differ materially. Please take a moment to read the information on this page. Now, let's start with a reminder of our straightforward business principles and values. Our operations are decentralized at the subsidiaries. Investment management, incentives, and capital allocation are centralized at Western. We take a long-term view and stay soundly financed. Our values of humility, competitive teamwork, integrity, and accountability underpin all dealings. When we set out on this journey to transform Western . December 2024, we started by recapitalizing the company with CAD 35 million at a discount to NAV and acquired 100% of Fortress.
We have made significant strides to transition away from the private equity model with the monetization of GlassMasters returning CAD 23 million in net proceeds, about 2.5 x carrying value, and covering the value of all the legacy private equity investments in the company. Canadian Farm comes from our proprietary deal pipeline. It is bespoke. It is a negotiated transaction and not the product of an auction process. This transaction is the first of what we believe will be several bespoke acquisitions from successful entrepreneurs in their 70s and 80s who have built significant cash flowing businesses over many decades that want to sell what they have built for a fair price to a good partner to protect their people and their customers. Thankfully, we have a very robust pipeline.
We are acquiring Canadian Farm Insurance, a specialty insurer, and the two Stockmens MGAs, both in Canada and the U.S.. The total purchase price is CAD 52.5 million, about CAD 42.3 million for Canadian Farm at 7 x 2026 estimated adjusted profit before tax, and about CAD 10.2 million for Stockmens at 10 x 2026 estimated profit before tax. Stockmens higher multiple reflects its capital-light recurring commission income. It takes no underwriting risk and needs no regulatory capital. The vendor guarantees CAD 7 million of pre-tax earnings in each of the first two years of Western's ownership, and the perpetual NBI transit insurance agreement secures our core book. Our Chair, Scott Tannas, has decided to return to an operating role. At closing, he will step down as Chair of Western, stay on our board and become CEO of Canadian Farm.
That he has chosen to run this business himself shows how much he believes in it. He knows the clients in Western Canada that will grow this business. Scott has a storied career in the insurance sector. In 1993, he bought Hi-Alta Insurance Brokers, a single Alberta P&C brokerage, for CAD 800,000 and grew it into Western Financial Group, the largest insurance broker in Western Canada. Along the way, he started BankWest and acquired Federated Life. Western Financial sold to Desjardins for CAD 440 million in 2011 and subsequently to Wawanesa for CAD 775 million in 2017. He brings more than 30 years of experience in insurance and deep roots in Western Canada, and we're excited to welcome him back to an operating role. Great. Over to Scott.
Thanks, Paul. Canadian Farm at a glance. It's a 100% Canadian-owned specialty insurer with roots in 1920s Manitoba. Nilsson Bros. acquired it in 1995 to ensure livestock moving through its auction, trading, and feedlot operations. For 2026, we estimate CAD 29.8 million of gross written premium and CAD 6.2 million of adjusted profit before taxes. A 39% net loss ratio and around 68% as the adjusted combined ratio. There are three main lines of business. Transit insurance, which is the core business, livestock mortality, and a fronting business through an auto glass product. The Stockmens MGAs in Canada and the U.S. add about CAD 1 million of 2026 estimated profit before tax from commission income with no underwriting risk. Next slide, please. Canadian Farm has a niche embedded product with a real moat.
It is one of only a few insurers with a dedicated auction market transit business, anchored by Nilsson Bros. Markets, that handle about 30% of Western Canada's cattle auction volume. The book is short tail and cash generative and has a proven underwriting record of 41% 10-year average net loss ratio. Stockmens adds recurring fee revenue and a licensed U.S. foothold across the northern beef-producing states. Long-term alignment comes from a perpetual agreement covering all current and future Nilsson Bros. markets. Downside protection comes from a CAD 7 million vendor pre-tax earnings guarantee in each of the first two years. Next slide, please. How does it work? How does transit insurance work in particular? Coverage attaches when the cattle are loaded at the producer's farm and continues through the haul to the market and while the animals are sorted and held in the yard waiting for sale.
Cover ends at the fall of the hammer, so the total exposure is only about 24-48 hours per animal. Buyers can add cover for post-sale transit, which gives a second point of insurance sales opportunity on the same animal. Because the product is so short tail, claims develop and settle within weeks. Reserves are reliable and capital turns over quickly. Next slide, please. Transit cover is embedded. Every producer selling through a Canadian Farm-insured auction market is covered, and the premium is a percentage of animal value deducted on the sale check. This model means very low acquisition costs and a highly predictable premium flow tied to auction volumes and cattle values. Claims are filed within 10 days and paid quickly, typically within days, so ranchers can replace animals. This is a short tail product with virtually no claims development.
The business is 100% retained by Canadian Farm and has averaged a 38% net loss ratio. Next slide. Livestock mortality. This is a 12-month annual cover on high-valued animals, particularly purebred bulls, but also breeding cows, show cattle, and horses, equine. It includes a breeding risk extension that is unique to Canadian Farm. It is sold at fall of the hammer auctions by licensed commission-only agents, and the premium is based on the agreed value for the animal. Claims are adjusted in-house with veterinary support and paid within days. Canadian Farm cedes most of this line of business to a Lloyd's specialty syndicate, which keeps capital needs low. The line has averaged a 44% net loss ratio. I'll turn it over now to Sai.
Thanks, Scott. Over the past 10 years, Canadian Farm has seen its top line, or GWP, roughly double from CAD 13.7 million in 2016 to CAD 27.1 million in 2025. Growth has accelerated since 2022 at about 18% a year, with rising premiums across both transit and livestock mortality driven by strong cattle pricing. The net loss ratio has ranged between 33% and 48% over 10 years, averaging 41%. The remarkable consistency is a testament to Canadian Farm's disciplined underwriting and tight claims control. On the transit side, claims are reported within days, and management tracks loss ratios for each auction market on a monthly basis, with any issues spotted and addressed early. The expense ratio, which includes the premium refund to NBI based on loss experience at their auction markets, stayed between 15% and 22% from 2016 - 2024, even as GWP roughly doubled.
The move to 28% in 2025 was driven by a larger refund to the NBI markets on a pro forma basis after a strong year, and not by higher operating costs. The platform is lean and provides meaningful operating leverage as premiums grow. The combined ratio has averaged 61%, staying below 70% in every year. Canadian Farm has made an underwriting profit in each of the last 10 years across a range of market conditions in the cattle industry. In short, this is a profitable business with a decade of consistent underwriting results, tight claims control, and a lean platform built to scale. I'll hand this back to Scott now.
Thanks, Sai. Turning now to Stockmens. Stockmens consists of capital-light MGAs primarily writing breeding bull mortality on third-party paper. They earn a commission and take no underwriting risk. Stockmens Canada writes 100% for a Lloyd's syndicate, mainly through in-house agents. Stockmens USA is a Delaware LLC licensed in 18 states with business concentrated in North Dakota, South Dakota, Montana, and Nebraska. It distributes its product through independent brokers on an admitted U.S. insurer's paper. It gives Western an established U.S. platform and recurring fee revenue that complements Canadian Farm Insurance at the same auction sales. Over to you, Sai.
Turning now to how we grow this business under Western's ownership. The first and most important lever is expanding Canadian Farm's reach across auction markets. Today, Canadian Farm insures all 10 NBI-owned auction markets and four third-party markets across Western Canada. Those four third-party markets show the product wins on its own merits outside the NBI network, even though growth beyond NBI has historically not been a focus for the business. The company estimates that NBI's markets handle about 30% of the region's auction volumes, which gives Canadian Farm a strong base. We have also identified 37 additional Western Canadian markets as targets. Winning those would give Canadian Farm access to up to an incremental 70% of Western Canada's auction volumes.
Beyond Western Canada, Ontario is a natural next step. We've identified 21 auction markets there in a province that Canadian Farm has never targeted. I'll hand it back to Scott.
Thanks, Sai. As Sai alluded to, we've got multiple levers to grow under Western's ownership, and the first priority will be winning the new transit markets, targeting that 70% of Western Canadian cattle auction volumes across 37 identified markets and competing on coverage pricing and service fees. We will also look to expand to Ontario's 21 markets as well as to digital auctions. On the mortality line, we aim to expand into higher value livestock, and we'll look at retaining more of the risk over time. We also plan to launch complementary products for the same customers, including niche farm property, commercial auto, farm vehicle warranty, and other niche ancillary products. There's a significant opportunity for operational improvements as well, including adopting AI and opening new distribution channels. But underwriting discipline will always come first. With that, I'll turn it over to Paul.
Thank you, Scott. As I previously mentioned, Scott is a seasoned insurance veteran with deep trusted roots in Western Canada. As you can see, his experience and profitable growth of Western Financial Group should be instructive to our shareholders. He is excited to return to his relationships and grow this great business. Now I'll turn it over to Pablo, our Chief Financial Officer.
Thank you, Paul. Just to take you over some key terms. First of all, the CAD 52.5 million purchase price is payable at closing, and the vendors may elect to take up to 20% or CAD 10.5 million in Western shares with the balance paid in cash. Secondly, Canadian Farm remains the perpetual transit insurer to all current and future NBI auction markets. Together with that, there is a premium refund agreement that will continue that will be refunding NBI markets based on the loss experience of their transit business. That helps to keep NBI aligned with underwriting results. The transaction will be funded by existing cash reserves and a private placement of up to CAD 50 million. There are regulatory approvals necessary which will be through the Alberta Minister of Finance under the Insurance Act of Alberta and TSX acceptance.
In terms of the closing, it is subject to customary conditions, and we expect to close in Q1 2027. With that, I'll hand it back to Paul.
Thanks, Pablo. To bring it back to strategy, this transaction is our build and acquire priority in action. It adds a second regulated insurer and a new float for Western to invest alongside the Orcas portfolio. We continue to work a proprietary, robust pipeline of similar bespoke opportunities, and we will stay disciplined on price and fit. Lastly, with respect to our philosophy, Canadian Farm fits our model. Our operations will stay decentralized under Scott's leadership while capital allocation and investments are managed centrally. We see a long-term partnership with the Nilsson family and the auction community built on loyalty, integrity, and accountability. Thank you for your time, and we're now happy to take your questions. If you have any questions, please submit them now using the Q&A function in the Zoom portal. Okay.
Our first question is: how does this acquisition support Western's goals to invest and manage float? I'll take this question. Canadian Farm brings a regulated, as I mentioned, regulated insurer's capital. It's got reserves and premium cash flow under Western's centralized investment management, and it'll sit side by side with the Fortress portfolio. As was explained today, transit is a very short-tail business. So this deal is less about long-duration float and more about highly cash-generative underwriting. It does pay a steady dividend that Western can reinvest on a value-oriented total return basis. As we grow this business, particularly the mortality line, and retain more risk and add new products, the float available to invest will grow over time inside Canadian Farm. Okay, the next question is: does the company expect to integrate its businesses with Fortress?
I'll take that one as well. No. I mean, as I've stated several times, consistent with our decentralized model, Canadian Farm will run as a standalone subsidiary. That is going to be under Scott's leadership with the existing team. Of course, investment management and capital allocation will sit centrally at Western, and we will look for practical collaboration where it makes sense, such as potentially drawing on Fortress's warranty and ancillary product experience. Next question is: how does this acquisition fit into the company's overall strategy, and will the company need to raise additional capital for future transactions? I will take this one as well. This is our strategy in action. As I mentioned, Canadian Farm is just our second insurance . Beautiful. It is a specialty niche with defensible distribution and strong cash flow, and it is sourced through our proprietary relationships.
As I mentioned, we have got a robust pipeline behind this, so we are super excited for that pipeline to materialize. The next question is: please discuss in further detail some of the growth opportunities. Scott, could you take that one?
Sure. Well, in the immediate one to three years, the priority is to capture market share with existing products, transit, mortality, the unique breeding health product that is sold through both Stockmens and CFI. I think also to maximize the existing platform and use that to its fullest advantage in both Canada and the USA. Then over time, new products driven by the relationships that we have and having identified niche opportunities to sell to those same customers. So it is about getting and keeping new customers from the 70% of the auction markets that CFI does not currently have relationships with. Then to solidify those relationships and the existing ones through bringing new product ideas forward that can respond to the needs of the agricultural community.
Thanks, Scott. The next question is about Scott again. It is about getting back to an operational role, and the question is: are there any parallels to prior Western Financial Group that you built, Scott? So that is obviously one for you.
Yeah. When I started Western Financial Group, I owned a pickup truck and I drove all over to every little town in Western Canada. Met with people that were target acquirers, but also were fellow travelers in the insurance business and got to know them. I very much view this role for me as a reprise of that exact activity initially. In the one-to-three year plan, the priority is going to be to increase the sale of the existing products on the existing platform. That is going to require getting out and visiting with auctioneers, with farmers, with ranchers, and trying to build the existing customer base with new customers who are buying the exact same product from a competitor.
Thanks, Scott. The next question is: what is the premium refund agreement? That is probably best for you, Mackenzie.
Sure. The premium refund agreement is an existing arrangement between Canadian Farm and NBI's auction markets. When the NBI markets deliver good loss experience on their transit business, a portion of their premiums are refunded. The refund is earned only when results are good and subject to Canadian Farm achieving threshold underwriting incomes first. NBI doesn't fund losses, and a poor year has to be recovered before any refund is paid again. That keeps it aligned with Canadian Farm on underwriting results. The agreement is perpetual, and it will continue after closing.
Great. That is a key point, the perpetual piece. Thanks, Mackenzie. The next question is: who are the competitors in the transit space? Sai, why don't you take that one?
Sure, Paul. In the auction market transit space in Western Canada, it is essentially a two-player market, Canadian Farm and The Hartford, which writes most of the non-NBI markets. It is hard for new entrants because access runs through auction market relationships rather than traditional broker/MGA distribution channels. Some insurers, Northbridge, for example, include livestock transport within truckers' commercial packages. A few large order buyers carry their own policies, but neither competes directly for auction markets business. In livestock mortality, the field is a little broader. Hartford, Lloyd's carriers, specialist MGAs, and farm mutuals. Our broad or Canadian Farm's broad form cover with the breeding extension is a key differentiator in comparison to some of the other players.
Thanks, Sai. The next question is the reserving track record of the insurance business being acquired. Can we give more detail? Keith, I think that is probably a good one for you.
That sounds good, Paul. Canadian Farm's reserves are reviewed every year by its independent appointed actuary, who has found the carried reserves to be appropriate year after year. The actuarial assumptions and methodologies applied by the appointed actuary are consistent with actuarial standards. As part of our diligence, we also completed our own review, which confirmed the reserves are sufficient. The transit book of business is very short tail, as previously said, so the reserves are generally consistent.
Thanks, Keith. The next question is about price-to-book ratio. It is a question around what is the price-to-book ratio here, and I think it is not particularly relevant given the high capital nature of the business. But Sai, why don't you answer that one?
Sure, Paul. Price-to-book is the right lens for many insurers, but not for this one. Book value matters most for long-tail businesses, where the balance sheet carries years of reserves, and the returns come from investing that capital over time. Canadian Farm is the opposite. Its transit book is very short tail. Claims are reported within days and settled within weeks with almost no reserve development. So very little capital is tied up in the business, and premium converts to cash in a matter of weeks. The company has also historically held far more capital than it needs, and that excess is being distributed before closing to the existing vendors. So the book value we are acquiring is deliberately smaller, but it is sized to support the growth of the business, and it does not reflect what drives value here.
The reoccurring embedded premium stream from transit markets, strong underwriting profits that convert almost entirely to distributable cash. In that sense, Canadian Farm behaves much more like a cash-generative EBITDA-style business than a traditional balance sheet insurer. Stockmens is a capital-light MGA earnings fee income. So we value the transaction on earnings and cash flow, which we think is probably the right way to look at it.
Right. Great. Thanks, Sai. We are coming up on 9:30, and as I said, I want to be respectful of everyone's time, but let's take a few more questions. The next one is: will Western pursue public market investments? I will take that one. Listen, we will look at good investments, and we are looking to buy good companies at a fair price. Our current robust pipeline has bespoke transactions that much like Canadian Farm, that are private, that generally speaking, most people are not aware of and are the result of us hunting and persevering to find good businesses. But in the future, I would not preclude that we might look at public market transactions. The next question is: will the structure remain? Does Stockmens use Canadian Farm first when they cede to Lloyd's or other markets? Sai, are you good to take in that question?
Sure. So the structure will remain as is going forward. Stockmens is entirely separate from Canadian Farm in that it deals with a separate Lloyd's syndicate, and it does not issue paper on or write for Canadian Farm. It writes directly for a separate front and with Lloyd's paper underlying it.
Okay. Thanks, Sai. The next question is: Western has CAD 50 million of cash on hand. Why raise equity now? That's a good question. Normally we wouldn't. We're very focused on per-share metrics. This acquisition's accretive, but we did want to raise to make sure we finance this acquisition and keep the dry powder, the cash on our balance sheet. Primarily because we don't want to spook the pipeline that we have coming behind us, and we don't want them questioning our ability to close. We will be looking in the coming weeks to put on a credit facility and add some prudent leverage that will allow us to get better equity returns as a result.
But where we are and the progress we're making in our pipeline, we just want to make sure that those vendors have absolutely no question that we're going to be able to continue and close the deals with them as well. That's why we want to make sure we raised enough capital here to cover this transaction. Next question: Are the pipeline of acquisitions similar size to Canadian Farm? I'll take that one as well. Yes. Roughly the same size. It's a little bit interesting, almost exactly the same with respect to the type of people who built this business for decades and decades, and looking for a good home for their business. Yeah, but generally the same size. The next question: do you expect future M&A to be completed at similar multiple to Canadian Farm? I'll take that one as well.
Listen, I think we paid a fair price here for Canadian Farm for a really good business, as Sai has mentioned. It's not really appropriate to look at book value here, because it isn't a long-tail business. It's a cash generative business. But generally speaking, what we're looking at is valuations that are in this same fair range. So you can expect that any acquisition we will do will be priced and purchased in a way that it's going to continue to be accretive for our shareholders. Next question. We're getting over time here, and we'll take one more. What will the impact of interest rates have on Western's fixed income strategy? That's another good question. I'll take that question as well. We've been quite prudent and staying, for now, on the sidelines. We'd never want to reach for yield, and we're certainly not doing that now.
We're staying in very short-term debt that has absolutely no risk. Primarily bank deposits, quite frankly. We'll look to go out a little bit on the curve here. But right now, given all the turbulence in financial markets, particularly the debt markets, we want to stay on the sidelines and be prudent. Great. I think maybe we'll take one more question. Western is using the Fairfax playbook, a series of acquisitions, and then reinvest the float. How many more acquisitions are on the horizon, and is the market opportunity robust? I'll take that question. Listen, I think I'll answer the same way that Prem would always answer. Listen, there's never going to be another Fairfax. Just like Prem would say there's never going to be a Berkshire Hathaway, but the model works.
The fundamentals of buying profitable insurance businesses where we can invest the float prudently works. We need to ensure that we're buying businesses for a fair price that generate cash and are profitable, and then prudently invest the float. As I mentioned, we see a robust pipeline of proprietary deals that we're super excited about, otherwise we wouldn't do this financing. We want to make sure that we keep some powder dry and have the ability to keep on acquiring these good businesses. With that, I know we've gone a little late. I want to say thank you very much for all your interest and support, and look forward to speaking with you again in the very near future. Thanks very much for participating. Have a great day.