#1SGI CANADA 2022-23 Annual Report#2Vision Transforming the insurance experience to promote peace of mind and safer communities. Mission Auto Fund We are Saskatchewan's insurance company: providing exceptional value and traffic safety leadership. SGI CANADA We deliver profit and growth through exceptional customer and partner experiences. Values Integrity Caring We do the right thing by being accountable, honest, trustworthy and fair. We make an impact through empathy, respect and staying true to our roots. Innovation We transform our business through creativity, collaboration and continuous improvement. Passion We are energized, engaged and inspired in the work we do. About SGI CANADA SGI offers competitive property and casualty insurance products under the trade name SGI CANADA in Saskatchewan, Alberta, Manitoba and British Columbia, and under SGI CANADA and Coachman Insurance Company in Ontario. Operations outside Saskatchewan are held by the subsidiary company, SGI CANADA Insurance Services Ltd. Visit www.sgicanada.ca for more information.#3SG CANADA 2022-23 SGI CANADA Annual Report.#4Empty#5Contents Letter of Transmittal. Board Chair's Message. President's Message. Management's Discussion and Analysis. Responsibility for Financial Statements Annual Statement of Management Responsibility Actuary's Report. Independent Auditor's Report. Consolidated Statement of Financial Position Consolidated Statement of Operations... Consolidated Statement of Changes in Equity. Consolidated Statement of Cash Flows. Notes to the Consolidated Financial Statements. Glossary of Terms Governance In Memoriam 1 2 3 5 29 30 31 32 35 36 37 38 39 83 86 87 2022-23 SGI CANADA Annual Report i#6Empty#7Letter of Transmittal Regina, Saskatchewan July 24, 2023 To His Honour The Honourable Russ Mirasty, S.O.M., M.S.M. Lieutenant Governor of Saskatchewan Province of Saskatchewan May it please Your Honour: I have the honour to submit herewith the annual report of SGI CANADA for the fiscal year ending March 31, 2023, in accordance with The Saskatchewan Government Insurance Act. The Financial Statements included in this annual report are in the form approved by Crown Investments Corporation of Saskatchewan, as required by The Financial Administration Act, 1993 and have been reported on by the auditors. Respectfully submitted, Oo Morgan Honourable Don Morgan, Q.C. Minister Responsible for Saskatchewan Government Insurance 2022-23 SGI CANADA Annual Report 1#8Board Chair's Message I'm pleased to report that SGI CANADA achieved another profitable year, generating $24.4 million in net income despite catastrophic storms, labour shortages, inflation and supply chain effects on claim costs. In 2022-23, SGI CANADA continued work on a major project to update its business processes and technology so that it is positioned to meet the needs of customers and partners into the future. SGI has dedicated a significant number of staff to this project. Their efforts and their collaboration with consulting, risk management and technology providers, many within the province, have set the project up for success. Even with resources targeted to transforming the business, SGI CANADA outperformed the Canadian property and casualty insurance industry's growth rate of 8.5%, achieving growth of 9.8% in 2022. Despite the challenges last year, our team's dedication to SGI's corporate values has once again resulted in high customer and broker satisfaction. That care for customers and partners extends into the community. SGI CANADA supported 168 organizations, associations, clubs and events with over $578,000 in sponsorships and in-kind donations in 2022-23. These contributions increased safety and security in the community and supported organizations that align with our values, including the Canadian Red Cross, through major sponsorships. SGI CANADA also partnered with the University of Regina in 2022 to create the SGI Post-Doctoral Fellowship in Data Science. This helped develop undergraduate and graduate data science programs, so students in Saskatchewan can acquire the skills and knowledge a data-driven workforce needs. In addition, the company strengthened collaboration with Saskatchewan Polytechnic, focusing on applied agricultural research that benefits both adjusters and Saskatchewan Polytechnic students. I thank SGI CANADA's executive team for their consistent leadership throughout the past year. We were proud to welcome our new President and CEO, Penny McCune, effective June 1, 2022. Penny started at SGI in 1985 in an entry level position, working in increasingly senior leadership roles in almost every division of the company before taking the helm as President. We are fortunate to have her experience, knowledge and leadership through this time of change. The Board of Directors was pleased to welcome Rauncie Murdoch and Trent Fraser as our newest directors, and we thank departing director Irene Seiferling for her many contributions and years of service. Thank you to our continuing directors for their guidance over the past year. I also thank our employees and broker partners for the passion, care and innovation they contribute each day. Their dedication and their collaboration is helping to build safer, more secure communities everywhere SGI CANADA does business. Denis Perrault Chair, SGI Board of Directors 2 2022-23 SGI CANADA Annual Report#9President's Message I'm honoured to present the 2022-2023 Annual Report for the first time as President and CEO of SGI CANADA. This has been a challenging year for our industry as we've faced frequent catastrophic weather events, high numbers of claims, and rising costs due to inflation, supply chain pressures and labour challenges. Despite these challenges, SGI CANADA employees and partners have responded with drive and a sense of purpose to provide the best possible service to our customers. SGI CANADA has had another successful year because of their efforts. Insurance operations SGI CANADA achieved an overall net income of $24.4 million in 2022-23, driven by investment earnings. Our gross premium written was $1.26 billion for the fiscal year and, in the 2022 calendar year, we outperformed the insurance industry average growth rate. Going into the year, we anticipated lower profits due to industry challenges and higher administrative costs associated with a corporate-wide project to update our business processes and technology. We achieved a combined ratio of 102.2%, which was slightly better than the projection. Because of the modest financial performance, for the first time in 12 years, SGI CANADA did not provide a dividend to the Government of Saskatchewan. Business process, technology and corporate culture renewal SGI's project to adapt business processes, refine products and services, and replace technology platforms to meet the needs of customers and partners is at the heart of our strategic plan. In 2022-23 we focused on attracting and retaining employees to fill critical roles as we established new areas of expertise, such as a data management office. We focused on system design and development, and also determined project priorities and associated benefits as part of the initial implementation stage. We've also developed comprehensive training, consultation and communications strategies to ensure employees and partners receive the information and support they need. SGI's culture is another important aspect of our efforts to transform our business. We're focused on creating a culture that recognizes and values differences, and an environment where people feel safe to be their authentic selves and contribute their best. With that in mind, in 2022-23 we moved forward to reduce barriers and biases to employment and career development, and increased events for employees to learn about and celebrate diverse cultures. As a signatory to Saskatchewan's Indigenous Engagement Charter, we improved how we engage and elevate Indigenous voices in our communities and workplace. We also refined recruitment processes to ensure we keep attracting the talent, skills, innovation and leadership the company needs for the future. Claims SGI CANADA experienced large claim losses again this year. Across Canada, the number of claims registered in 2022-23 increased by 6%. Twelve storms across the country were classified as catastrophic events, up from seven in 2021; they resulted in $80.8 million in catastrophic claim losses. The SGI CANADA claims team continued to do an outstanding job, responding with caring and efficient service. In Saskatchewan, we implemented a shared-file approach for low complexity property claims to enhance service to customers. SGI CANADA piloted two environmental initiatives in 2022-23: reimbursements for sewer backwater valves and shingle tabbing to prevent property damage. We also launched an Alternative Risk Unit to help more Saskatchewan businesses find insurance coverage for hard-to-place risks. These are examples of innovation that will help SGI CANADA provide the coverage and excellent service customers need. 2022-23 SGI CANADA Annual Report 3#10Growth Even with the focus on renewing our business processes and technology, SGI CANADA continued to grow in markets outside Saskatchewan. In 2022-23, 41% of our business was written outside Saskatchewan. Ontario led the country in growth, with the Commercial Portal for small business bringing in more than 20% of all new commercial business. In Alberta, SGI CANADA continued to attract industry experts to work in our Edmonton and Calgary offices, despite recruitment and retention challenges throughout the industry, building our network and business in the region. Going forward, all provinces where SGI CANADA does business will remain pillars in our growth strategy. This will help to maintain balanced risks and financial stability, allowing the company to give back to the Saskatchewan economy. Broker and customer experience We're grateful to our broker partners for recognizing our service level, claim processing and underwriting expertise with a 5-Star Carrier award from Insurance Business Canada. SGI CANADA's annual broker survey also showed an overall broker satisfaction rate of 81% and that two-thirds of our partners (64%) rated SGI CANADA as better or significantly better than competitors, noting the knowledgeable and courteous service of underwriting and claims staff. The importance of the relationship between brokers and SGI CANADA cannot be overstated. We've always been successful when we pull together and collaborate with our partners, no matter what challenges we've faced throughout the almost 78-year history of our company. In the 2022 customer experience survey, customers overall rated their experience with SGI at 76 out of 100, a four-point increase from last year and our highest score to date. SGI CANADA will continue to keep customer and broker experience at the heart of all we do to support future success. Passionate and caring employees These successes are in no small part due to SGI's people. Along with our partners, SGI's employees are its most important asset. Employee survey results for 2022 hovered around the industry average, revealing that, despite the tremendous challenge and change faced by our industry and in the midst of transforming our business, our staff are more engaged at work. Our employee engagement score rose to 66%, two percentage points higher than last year, and our leadership effectiveness score increased from last year's score by five percentage points, to 74%. These results are a testament to how everyone is showing up and supporting each other every day, placing us in a strong position to move forward on transforming the company. I couldn't be more inspired by or grateful to SGI's employees. I'm proud of this company for the service and care we provide our communities and customers, and I want to thank our approximately 2,500 employees and our 346 broker partners in over 1,600 locations across the country. Their care and commitment to our customers is what continues to deliver success for SGI CANADA. While we target growth with a stable, consistent and sophisticated approach, we remain agile and innovative. We'll keep embracing change to build for the company's future so that we continue to be the insurance provider that our customers and partners can count on. Tony Minne Penny McCune President and CEO Saskatchewan Government Insurance 4|2022-23 SGI CANADA Annual Report#11Management's Discussion and Analysis The following management's discussion and analysis (MD&A) is the responsibility of management and reflects events known to management to May 24, 2023. The Board of Directors carries out its responsibility for review of this disclosure principally through its Audit, Finance and Conduct Review Committee, comprised exclusively of independent directors. The Audit, Finance and Conduct Review Committee's mandate can be found on the Corporation's website at www.sgicanada.ca The Board of Directors approved this MD&A at its meeting on May 25, 2023, after a recommendation to approve was put forth by the Audit, Finance and Conduct Review Committee. Overview The MD&A is structured to provide users of SGI CANADA's financial statements with insight into SGI CANADA (denoted as the "Corporation") and the industry in which it operates. This section contains discussion on its strategies and its capability to execute the strategies, key performance drivers, financial capital, March 31, 2023 financial results, risk management and an outlook for 2023-24. Information contained in the MD&A should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements, along with other sections in this annual report. All dollar amounts are in Canadian dollars. SGI CANADA's annual and quarterly reports are available on its website at www.sgicanada.ca. Caution Regarding Forward-Looking Statements Forward-looking statements include, among others, statements regarding the Corporation's objectives, strategies and capabilities to achieve them. Forward-looking statements are based on estimates and assumptions made by the Corporation in light of its experience and perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Corporation deems that the assumptions built into the forward-looking statements are plausible. However, all factors should be considered carefully when making decisions with respect to the Corporation. Undue reliance should not be placed on the Corporation's forward-looking statements, which only apply as of the date of this MD&A document. The Corporation does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf. The SGI CANADA Story In 1944, the Government of Saskatchewan passed The Saskatchewan Government Insurance Act, creating the provincial Crown corporation that is known today as SGI. It was created to rectify problems in the Saskatchewan insurance industry. At that time, poor economic conditions had driven many insurers out of the province. The Corporation's mandate, since its inception, has been to provide comprehensive, affordable insurance protection to the people of Saskatchewan. In 1980, legislated changes to The Saskatchewan Government Insurance Act, 1980, and The Automobile Accident Insurance Act distinguished between the compulsory vehicle insurance program for the province (the Saskatchewan Auto Fund) and the competitive insurer offering additional property and casualty products (SGI). SGI CANADA is the trade name that the Corporation operates under to provide competitive property and casualty (P&C) insurance products in Saskatchewan. P&C product offerings include policies for automobiles, homes, farms and commercial enterprises. In addition, SGI CANADA, through its subsidiary SGI CANADA Insurance Services Ltd. (SCISL), offers similar products in four other provinces across Canada (British Columbia, Alberta, Manitoba and Ontario), as well as a small amount in Saskatchewan. 2022-23 SGI CANADA Annual Report 5#12The operations in provinces outside Saskatchewan are important to the Corporation to spread risk and increase economic returns for the Corporation's shareholder, Crown Investments Corporation of Saskatchewan (CIC). In 1993, SCISL began offering P&C insurance in Manitoba. In 2001, SCISL purchased 100% of the shares of Coachman Insurance Company (Coachman) operating in Ontario. SCISL has been operating in Alberta since 2006 and began writing commercial property products in British Columbia in July 2015 and personal property in January 2016. SCISL entered the Ontario market in July 2017, offering personal property, personal auto and commercial property products. The Corporation is a provincial Crown corporation, wholly owned by CIC. The following organizational chart illustrates the Corporation's ownership structure: Crown Investments Corporation of Saskatchewan Saskatchewan Government Insurance (SGI) operating under the trade name SGI CANADA 100% SGI CANADA Insurance Services Ltd. (SCISL) 100% Coachman Insurance Company (Coachman) Saskatchewan Auto Fund (administered by SGI) As a provincial Crown corporation, SGI CANADA is not subject to federal or provincial income taxes. Its subsidiaries are not provincial Crown corporations, thus they are subject to federal and provincial income taxes. The consolidated financial results of the Corporation are included in CIC's consolidated financial statements. The Corporation employs approximately 2,300 people in Saskatchewan and more than 200 people outside the province. The Corporation operates with a network of 144 independent brokers throughout Saskatchewan, as well as 202 brokers operating in Manitoba, Alberta, British Columbia and Ontario. The Corporation's head office is located in Regina, Saskatchewan. 6 | 2022-23 SGI CANADA Annual Report#13The Property and Casualty Insurance Business Environment Canada's highly-competitive P&C industry consists of more than 120 private and government-owned insurers. The P&C industry covers all types of insurance except life and health insurance. The automobile insurance sector continues to be the largest contributor to gross premium volume, with half of all premiums. Property insurance ranks second, followed by liability and other insurance. Insurance is a mechanism for spreading risk - for sharing the losses of the few among the many. It makes the life of an individual or business enterprise more stable by allowing people and businesses to engage in many ventures without having to set aside reserves to meet the financial requirements that may arise from certain types of losses. Insurance also facilitates the granting of credit by protecting the investments of both lenders and borrowers. Insurance can be considered a large pool into which policyholders place their premiums. This pool provides for payment of losses suffered by those who have claims and for the cost of running the insurance company. Sometimes, total premiums are insufficient to pay claims and operating expenses. However, insurers also use investment earnings to pay claims and keep premiums lower than they might otherwise be. P&C insurance companies are supervised and regulated at both the federal and provincial levels. The federal regulator, the Office of the Superintendent of Financial Institutions (OSFI), is responsible for the solvency and stability of P&C insurance companies registered federally. Provincial authorities supervise the terms and conditions of insurance contracts and licensing of companies, agents, brokers and adjusters, along with monitoring the solvency and stability of provincially registered companies. The Corporation's subsidiaries are provincially regulated insurance companies. Since automobile insurance is compulsory in Canada - unlike home and business insurance - it is the most regulated product for P&C companies. Regulation of premium rates is based on claims and other costs of providing insurance coverage, as well as projected profit margins. Regulatory approvals can limit or reduce premium rates that can be charged, or delay the implementation of changes in rates. The Corporation's automobile premiums are subject to rate regulation in Alberta and Ontario, which represent approximately 16.9% of consolidated gross premiums written. The industry is a major part of the social and economic fabric of Canada. P&C insurers invest in a variety of securities across global markets. Government regulations are in place for the P&C industry that require these investments to be made using a prudent person's viewpoint. The P&C industry also utilizes reinsurance. Reinsurers, most of which are international organizations, spread risk by writing business with insurers in several countries and in many regions around the world. Insurance companies pay premiums to reinsurers in exchange for an agreement to have a proportion of their claims paid for them, particularly in the event of a major loss or catastrophe. Reinsurance is one of many tools used by insurers to guarantee that they will meet every obligation to pay legitimate claims. The Property and Casualty Insurance Compensation Corporation (PACICC), a non-profit entity, was formed in 1988 to provide a reasonable level of recovery for policyholders and claimants under most policies issued by P&C companies in Canada in the unlikely event a Canadian P&C company fails. The maximum amount a policyholder could recover from PACICC is $0.4 million for certain qualifying policies and $0.5 million for personal property policies with respect to all claims arising from each policy issued by the insolvent insurer and arising from a single occurrence. Policyholders may also claim 70% of unearned premiums that have been paid in advance, to a maximum of $1,750 per policy. As a Crown corporation not directly licensed by a provincial regulator, SGI CANADA's Saskatchewan operations are not required by legislation to be a member of PACICC. SGI CANADA had been a member of PACICC for many years, but withdrew its membership in June 2021, as Saskatchewan policyholders could never receive compensation under current PACICC rules. However, SGI CANADA's two subsidiaries operating outside of Saskatchewan, SCISL and Coachman Insurance Company, are both required by their regulator's licensing legislation to be members of PACICC. 2022-23 SGI CANADA Annual Report 7#14Strategic Direction SGI CANADA's vision, mission and values are: Vision Transforming the insurance experience to promote peace of mind and safer communities. Mission We deliver profit and growth through exceptional customer and partner experiences. Values Integrity Caring We do the right thing by being accountable, honest, trustworthy and fair. We make an impact through empathy, respect and staying true to our roots. Innovation We transform our business through creativity, collaboration and continuous improvement. Passion We are energized, engaged and inspired in the work we do. Corporate Goals and Measures Corporate Transformation is at the heart of SGI CANADA's current strategy. As SGI CANADA navigated its transformation journey throughout 2022-23, it focused on: • improving profitability and growth; maintaining a positive customer experience; . improving long-term efficiency; maintaining broker satisfaction; and, • improving change management and leadership effectiveness. The Corporation uses a balanced scorecard approach to monitor performance towards these corporate goals and provide a balanced evaluation of key financial and operational results. The Corporation's balanced scorecard uses four perspectives: financial, customer, internal processes and organizational capacity. The balanced scorecard is reviewed annually to ensure continued alignment with the Corporation's objectives. 8 2022-23 SGI CANADA Annual Report#15Financial The Corporation measures financial results in terms of profitability, growth and capital adequacy: Measure Profitability and growth Combined ratio* Pre-tax return on equity* Direct premium written Minimum Capital Test Legend: achieved o not achieved 2022-23 Target 2022-23 Result 2023-24 Target 100.1% 9.4% $1,214M 233% ● 98.8% ● 10.5% 101.8% 14.2% ⚫ $1,260M $1,387M 233% 220% * To eliminate potential volatility related to Corporate Transformation expenses, external Corporate Transformation costs are excluded from SGI CANADA's pre-tax return on equity and combined ratio on the balanced scorecard. Profitability and growth SGI CANADA operates to provide a return to the Province of Saskatchewan and seeks to maximize this return through improved profitability and growth. The Corporation measures profitability through its combined ratio and pre-tax return on equity (ROE). A combined ratio below 100% indicates that the company is making an underwriting profit, while a ratio above 100% means that it's paying out more money in claims and expenses than it's receiving from premiums. During the year, the Corporation had a underwriting loss and a combined ratio of 102.2%. When external Corporate Transformation costs were excluded from the calculation for the purposes of the Corporate goals and measures, the combined ratio was 98.8% and better than the target of 100.1%. The table below shows the comparison of the combined ratio within the Consolidated Statement of Operations to the combined ratio included in the Corporate Goals and Measures. Consolidated Statement of Operations Net premiums earned Total claims and expenses Combined ratio Corporate Goals and Measures Net premiums earned Total claims and expenses Less: External Corporate Transformation costs Combined ratio (thousands of $) 2022-23 1,133,223 1,157,950 102.2% 1,133,223 1,157,950 (38,615) 1,119,335 98.8% In 2023-24, the Corporation is targeting a combined ratio, excluding external Corporate Transformation costs, of 101.8% driven by rising claim costs and expenses associated with higher inflation. The ROE compares profit to the investment in the Corporation. During the year, the Corporation achieved a pre-tax ROE of 3.3%. When external Corporate Transformation costs were excluded from the calculation for the purposes of the Corporate goals and measures, the ROE was 10.5% and better than the target of 9.4%. 2022-23 SGI CANADA Annual Report | 9#16The table below shows the comparison of ROE within the Consolidated Statement of Operations to the ROE included in the Corporate Goals and Measures. Consolidated Statement of Operations Average total equity Income before income taxes ROE Corporate Goals and Measures Average total equity Income before taxes Add back: External Corporate Transformation costs ROE (thousands of $) 2022-23 541,675 18,041 3.3% 541,675 18,041 38,615 56,656 10.5% In 2023-24, the Corporation is targeting higher investment earnings, thus is increasing the target for the ROE, excluding external Corporate Transformation costs, to 14.2%. The Corporation measures growth through its consolidated direct premium written. With $1,260 million in direct premium written, SGI CANADA met its target of $1,214 million in direct premium written and posted a year-over-year increase of 10.1%. In 2023-24, further growth is targeted. The Corporation also monitors capital adequacy. While not a measure of profitability or growth, it speaks to the Corporation's ability to honour its financial obligations, which is a critical financial metric. The industry measurement developed by insurance regulators for capital adequacy is the Minimum Capital Test (MCT). The MCT is a risk-based capital adequacy framework that assesses the risk associated with company assets, policy liabilities and off-balance sheet exposures by applying varying factors. From these calculations comes a ratio of capital available to capital required. As discussed in the "Capability to Execute Strategies, Financial Capital" section that follows, the Corporation has established internal MCT targets that provincial regulators have adopted as minimum targets for regulatory purposes. SGI CANADA's consolidated MCT of 233% met the 2022-23 target. Customer The Corporation assesses success with customers by its ability to provide them with a positive customer experience. Measure Customer experience Customer experience index Legend: achieved o not achieved Customer experience 2022-23 Target 72 2022-23 Result 2023-24 Target 76 76 With a focus on enhancing the overall experience being provided to customers, the company uses a customer experience index to assess customers' perceptions of their relationship with the company. A combined SGI CANADA and Auto Fund score is used, as Saskatchewan customers do not differentiate between the two companies. A score of 76 was achieved, exceeding the 2022-23 target of 72. SGI CANADA aims to maintain customer experience levels in 2023-24. 10 | 2022-23 SGI CANADA Annual Report#17Internal Processes Operational efficiency and broker satisfaction are key to assessing the success of the Corporation's internal processes: Measure Operational efficiency Administrative expense ratio* Collaboration Broker satisfaction Broker service satisfaction Legend: achieved o not achieved 2022-23 Target 2022-23 Result 2023-24 Target 13.3% 100% ● 11.2% 14.0% • 120% 100% 55% 64% 55% *To eliminate potential volatility related to Corporate Transformation expenses, external Corporate Transformation costs are excluded from SGI CANADA's administrative expense ratio on the balanced scorecard. Operational efficiency Operational efficiency is assessed based on SGI CANADA's administrative expense ratio, as well as the collaborative efforts of Saskatchewan's public sector. The administrative expense ratio is total administrative expenses expressed as a percentage of net premiums earned. During the year, SGI CANADA had an administrative expense ratio of 14.7%. When external Corporate Transformation costs were excluded from the calculation for the purposes of the Corporate goals and measures, the administrative expense ratio was 11.2% and better than the target of 13.3%. The table below shows the comparison of the administrative expense ratio within the Consolidated Statement of Operations to the administrative expense ratio included in the Corporate Goals and Measures. Consolidated Statement of Operations Net premiums earned Administrative expenses Administrative expense ratio Corporate Goals and Measures Net premiums earned Administrative expenses Less: External Corporate Transformation costs Administrative expense ratio (thousands of $) 2022-23 1,133,223 166,092 14.7% 1,133,223 166,093 (38,615) 127,478 11.2% Collaboration is assessed using a weighted index of collaborative efforts across Saskatchewan's public sector. The 2022-23 index included three parts: $55.0 million in cost savings; implementation of eight new customer service enhancements and/or red tape reduction initiatives; and, securing $1.0 billion in new private sector investments in Saskatchewan. Target was achieved with $53.1 million in cost savings, eight new customer service enhancements and/or red tape reduction initiatives, and $1.9 billion in new private sector investments. The 2023-24 index includes two parts: $50.0 million in cost savings; and, securing $1.0 billion in new private sector investments. 2022-23 SGI CANADA Annual Report 11#18Broker satisfaction SGI CANADA conducts an annual survey with brokers in every jurisdiction in which it operates to determine the level of satisfaction with the service provided to them. SGI CANADA's broker service satisfaction is reported based on a top two box score. In 2022-23, the Corporation exceeded its 55% target with 64% of brokers rating SGI CANADA'S service as "better than" or "significantly better than" other insurance companies. Given the challenges that lie ahead as SGI CANADA transforms, the company will continue to target at least 55% of brokers rating the company as "better than" or "significantly better" than its competitors. Organizational Capacity SGI CANADA's success depends on its employees and their ability to deliver on its corporate strategy: Measure Change management and leadership effectiveness Employee engagement Change management index Leadership effectiveness index Legend: achieved o not achieved Change management and leadership effectiveness 2022-23 Target 2022-23 Result 2023-24 Target 64% 66% 66% 60% 62% n/a 69% 74% 74% While SGI CANADA undertakes major corporate transformation, its ability to manage change and lead people effectively is critical to success. In 2022-23, progress in these areas was assessed using two dimensions from the employee survey-change management and leadership effectiveness. Overall employee engagement is also assessed through the employee survey. The survey includes employees performing work for both SGI CANADA and the Auto Fund. SGI met the employee engagement, change management and leadership effectiveness targets, and will aim to maintain employee engagement and leadership effectiveness in 2023-24. The change management index will be replaced with more timely and accurate internal metrics and will no longer be reported on the balanced scorecard. Capability to Execute Strategies Fundamental to the capability to execute corporate strategies, manage key performance drivers and deliver results are the Corporation's employees, brokers, technology and financial capital. They are discussed further below. Employees Rising external pressures and employee expectations are making SGI's attraction and retention approaches increasingly complex. To effectively respond to emerging pressures in the operating environment, SGI needs to be able to respond with a unique employee value proposition to ensure it has people with the right skills and experience in the right jobs, and SGI needs an environment and culture that enables staff to do their best work. Culture continues to be a focus for SGI's employees and leadership. New reinforcements expand and build on essential skills to continue the culture journey. SGI has made significant progress in the last year in making the workplace more inclusive, with plans to align culture and diversity with a new governance framework that will see involvement from all levels within the company. SGI continues to evolve its succession and development program to mitigate risk and ensure readiness for senior leadership and other critical roles. The new human resources management system will be leveraged to track and report on senior succession, critical roles and workforce planning. 12 2022-23 SGI CANADA Annual Report#19Workforce Transformation and enterprise change management has been a major focus to ensure people enablement work is executing in unison of Corporate Transformation. These major programs place significant efforts on ensuring readiness supports (e.g., reskilling, job specific training) to successfully move into new or changing roles and other required supports. Talent acquisition encountered significant challenges in 2022-23 resulting from a surge in the employment market emerging post pandemic. The surge also offered a new competitive element as employees could conceivably work remotely broadening their employment opportunities. A number of unique strategies were deployed to respond to the challenges, which have enabled SGI to hire more quickly than before. The challenges are expected to remain over the next few years and SGI will continue working on new and innovative approaches to respond to business needs including expanded partnerships. SGI and the Canadian Office and Professional Employees' Union, Local 397 (COPE 397), are within a one-year Collective Bargaining Agreement, running from January 1, 2023, to December 31, 2023. Preparation for upcoming bargaining in 2024 will take place in 2023. Brokers The Corporation sells products through a network of 144 independent Saskatchewan brokers who conduct business from 338 locations throughout the province, and 202 brokers who operate in 1,325 locations throughout the rest of Canada. To continue delivering insurance products that customers desire, the Corporation works closely with brokers to obtain input and advice on the changing needs of customers. The Corporation's brokers are well known in the communities in which they operate and they actively promote the Corporation's products and services. The Corporation is committed to providing brokers with a stable, sophisticated market that they can feel confident placing their business with, and to be a leader in enabling broker technology that supports ease of doing business for both brokers and their clients. The Corporation's success is built on long-standing and successful relationships with broker partners. It has a reputation for excellent service to brokers and, if it is to keep that reputation in the rapidly evolving insurance marketplace, it needs to remain innovative in its approaches to support brokers' success. Technology SGI CANADA maintains an in-house insurance system that manages all core insurance functions for the company (rating, product management, policy, claims, billing, reinsurance, broker management) and hosts a large database of valuable information in assessing insurable risks and servicing customers. Reporting systems are used to ensure that management receives timely information regarding operations and to provide complete and accurate reporting to stakeholders and regulators. Over the years, the Corporation has monitored and responded to changes in technology to ensure key areas are upgraded in a timely manner. The Corporation's current legacy system has served it well, but SGI CANADA is in the process of replacing it with a modernized system that will better equip the Corporation to compete in the digital world and leverage other modern technologies. The Corporation continues to build business intelligence capabilities to leverage the data in the system to produce timely, sophisticated and consistent information to support the decision-making required to succeed in a competitive environment. SGI CANADA is a technology leader when it comes to dealing with broker partners, and recognizes that continued technological integration with brokers is key to ongoing success. The Corporation continually works to understand and leverage the technologies supporting efficiencies and ease of doing business by brokers, and has developed application programming interfaces (APIs) to connect in real-time to broker partners' online platforms. 2022-23 SGI CANADA Annual Report 13#20Corporately, SGI has implemented cloud-based productivity technology which better supports collaboration and provides efficiencies. This technology enables employees to work effectively and securely from the office, their home or wherever else they may be, and it allows employees to virtually interact with customers, business partners and each other with ease. These technologies have and will continue to afford the Corporation flexibility in how it operates and how it responds to business challenges. Financial Capital Adequate capitalization is crucial for insurers competing in the P&C insurance market in Canada. Not only is it important to ensure adequate funding is available to pay policyholder claims, but it allows a company to be flexible in its product offerings in a competitive marketplace. In addition, regulators have certain capital requirements that must be met in order to sell P&C insurance in each province. Without adequate capitalization, the Corporation would not be capable of meeting its significant five-year growth targets. The Corporation's main sources of capital are retained earnings and cash injections in the form of equity advances from its parent, CIC. These advances form the Corporation's equity capitalization. There were no new equity advances to the Corporation from its parent during the year. In Canada, either the Office of the Superintendent of Financial Institutions (OSFI) or provincial regulators regulate P&C insurers. Regulators require insurers to operate with a level of capital above their internal MCT target. The Corporation's Board of Directors has approved capital management policies for the Corporation and each of its subsidiaries, prepared in accordance with Guideline A-4, Regulatory Capital and Internal Capital Targets, which OSFI issued in January 2014. The policies establish internal MCT targets that are used as minimum targets for regulatory purposes. The internal targets require that capital available be significantly more than capital required. The cushion provides the ability for insurers to cope with volatility in markets and economic conditions, innovations in the industry, consolidation trends and international developments, and to provide for risks not explicitly addressed, including those related to systems, data, fraud and legal matters. The policies also establish operating MCT targets that provide for an operating cushion above the internal targets. The Corporation and its subsidiaries maintain MCTs in excess of their internal targets as follows: Company March 31, 2023 March 31, 2022 Internal Target Operating Target SGI CANADA (consolidated) 233% 242% 213% 242% SGI CANADA Insurance Services Ltd. 253% 312% 225% 268% (consolidated) Coachman Insurance Company 442% 480% 257% 305% Financial liquidity represents the ability of the Corporation's companies to fund future operations, pay claims in a timely manner and grow. A main indicator of liquidity is the cash flow generated from operating activities, as reported on the Consolidated Statement of Cash Flows. The Corporation generated consolidated operating cash flows of $107.4 million during the year. This cash flow is invested so that it is available to pay claims as they come due and to meet dividend requirements to its parent, CIC. For the cash flow the Corporation retains, its enabling legislation requires it to follow the same investment criterion that federally regulated P&C companies must follow. This means the majority of the Corporation's investments are in highly liquid securities that can be sold in a timely manner in order to satisfy financial commitments. As at March 31, 2023, 45.0% (March 31, 2022 - 39.3%) of the investment portfolio was in treasury bills and highly liquid bonds and debentures issued by the federal and provincial governments. 14 2022-23 SGI CANADA Annual Report#212022-23 Financial Results For the year ended March 31, 2023 Overview of operations The Corporation's operating results for the year were strong, achieving a consolidated net income of $24.4 million, and an annualized after-tax return on equity of 4.5%. The Corporation's investment earnings were $42.5 million for the year, driven by positive equity and real estate returns. Statement of Operations Premium revenue Saskatchewan Alberta Ontario British Columbia Manitoba Gross premiums written Premiums ceded to reinsurers 2023 (thousands of $) 2022 Change 739,554 675,879 63,675 202,751 196,283 6,468 173,773 138,944 34,829 78,393 73,232 5,161 62,926 58,392 4,534 1,257,397 1,142,730 114,667 (86,128) (72,598) (13,530) (38,046) (33,639) (4,407) 1,133,223 1,036,493 96,730 Change in unearned premiums Net premiums earned Consolidated gross premiums written grew $114.7 million, or 10.0%, with growth occurring in all jurisdictions. The Corporation's split of business in 2023 was 66.1% property and 33.9% auto, consistent with 2022. Geographically, 41.2% (2022 - 40.9%) of gross premiums written were outside of Saskatchewan. Gross premiums written in Saskatchewan increased 10.0% year-over-year, with all lines of business contributing to the growth. Alberta operations experienced growth of 3.3% year-over-year. Farm and personal lines saw year-over-year growth which was offset by a decline in personal and commercial auto lines. The increase in Ontario gross premiums written of 25.1% relates to growth in all lines of business. In British Columbia, the 7.0% increase in gross premiums written was across all lines. Gross premiums written in Manitoba increased 7.8% year-over-year, with all lines of business contributing to the growth. The 18.6% increase in premiums ceded to reinsurers relates to the increase in premiums the Corporation is paying to acquire reinsurance. In the last year, due to inflation and the increased severity and prevalence of catastrophic storms, reinsurance rates increased substantially. 2022-23 SGI CANADA Annual Report 15#22Claims incurred Net claims incurred Consolidated loss ratio (thousands of $) 2023 2022 701,192 594,389 61.9% 57.3% Change 106,803 4.6% Net claims incurred increased by 18.0% from last year while the consolidated loss ratio increased by 4.6 percentage points compared to the prior year. Every jurisdiction saw increased loss ratios compared to the prior year. One major cause of the increase was significantly higher costs in auto claims in the provinces those products are sold (Saskatchewan, Alberta, and Ontario), due to drivers continuing to return to the roads after the slowdown during the pandemic, high levels of inflation and supply chain challenges. As well, the claim costs associated with catastrophic storms increased by 48.9% this year. The following chart summarizes loss ratios by jurisdiction: Loss Ratios 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 57.9% 54.9% 57.7% 50.7% 64.4% 63.4% 62.4% 60.3% 77.4% 61.2% 61.9% 57.3% Saskatchewan Manitoba Alberta British Columbia Ontario Consolidated 2023 Base Claims 2022 Base Claims Catastrophe Claims¹ 1 Catastrophe claims, also referred to as storm claims, represent claims occurring from a single event, limited to a period between 96 and 168 hours, with an estimated cost greater than $2.5 million (Saskatchewan) or $1.0 million (other jurisdictions). Catastrophic events for the Corporation generally relate to summer wind, rain and hailstorms, forest fires and winter ice storms. Saskatchewan's loss ratio of 57.9% is an increase from last year's loss ratio of 54.9%. This was largely driven by an increase in farm, personal lines and personal and commercial auto claims in addition to an increase in catastrophe claims. There were $63.9 million in catastrophe claims that occurred in the current year, compared to a total of $42.2 million in the prior year. Manitoba's loss ratio increased to 57.7% from 50.7% in the previous year due to an increase in claims in personal and commercial lines. Catastrophe claims increased from $0.3 million last year to $3.8 million in the current year. The Alberta loss ratio increased from 63.4% in 2022 to 64.4% in 2023 primarily due to increased farm and personal auto lines losses. Catastrophic claim activity in the year amounted to $10.2 million compared to $7.7 million in 2022. 16 2022-23 SGI CANADA Annual Report#23The loss ratio for British Columbia increased from 60.3% in 2022 to 62.4% in 2023 primarily due to an increase in the personal lines losses. There were no catastrophe claims in the year, compared to $4.1 million last year. Ontario's loss ratio of 77.4% is higher than last year's ratio of 61.2%, largely due to increased claims in all lines of business with the largest contributor being personal auto. There were $2.9 million in catastrophe claims in current year, compared to none in 2022. Catastrophe claim costs The following graph shows the significance of catastrophe (primarily storm) claims over the past 10 years, demonstrating their unpredictability and the impact they can have on the Corporation's financial results. Catastrophe Claims (Net) millions of $ 90 80 70 60 50 40 30 20 10 0 $28.6 $56.2 $53.3 $51.6 $50.2 $39.8 $32.5 $78.4 $54.3 $80.8 2013 2014 2016* 2017* 2018* 2019* 2020* 2021* 2022* 2023* Saskatchewan Alberta Manitoba 10-year average - Saskatchewan British Columbia Ontario 10-year average - SGI CANADA Consolidated *Year ended March 31. Catastrophic losses for the year were $80.8 million, compared to the 10-year average of $52.6 million. Costs are highest in Saskatchewan, due to the Corporation's significant exposure in the province; however, as can be seen over the past 10 years, the Corporation has been subject to more significant and catastrophic events in the other provinces, as it continues to grow its book of business outside of Saskatchewan. Expenses excluding claims incurred Other expenses Income tax (recovery) expense (thousands of $) 2023 2022 Change 456,758 389,978 66,780 (6,406) 2,809 (9,215) Other expenses Expenses excluding claims incurred were $456.8 million (2022 - $390.0 million) for the year, an increase of $66.8 million or 17.1%. This increase is mainly due to an increase in administrative expenses as the Corporate Transformation project began to accumulate significant costs. 2022-23 SGI CANADA Annual Report 17#2418 Income taxes The Corporation's out-of-province legal entities, SCISL and Coachman, are subject to corporate income tax, while SGI CANADA is not. On a consolidated basis, the Corporation recorded an income tax recovery of $6.4 million in 2023 compared to an income tax expense of $2.8 million in 2022. The variance relates to the decreased profitability in jurisdictions outside of Saskatchewan this year. Excluding Saskatchewan operations, which are non-taxable, this results in a tax rate of 25.3% (compared to 25.6% in 2022). Investment earnings (thousands of $) 2023 2022 Change 42,476 32,316 10,160 Net investment earnings For the year, investment earnings were $42.5 million and represented 3.6% of total revenues (2022 - $32.3 million or 3.0% of total revenues). The components of investment earnings are disclosed in note 14 to the consolidated financial statements, and include interest, dividends, investment fund distributions, realized gains and losses on sales of investments, and unrealized gains and losses on the change in market value of investments. For purposes of portfolio management, market-based returns are calculated by capturing all interest, dividends and investment fund distributions, as well as the impact of the change in market value of investments, both realized and unrealized. While these returns are compared to the benchmark returns on a quarterly basis, the performance measures are expected to be met over four years, a long enough period to capture a full market cycle. This long-term measure is appropriate as it recognizes that the effectiveness of investment management styles varies depending on the market environment. Performance relative to the benchmark portfolio varies from year-to-year but, as illustrated in the following graph, over rolling four-year periods investment performance remains satisfactory with all periods exceeding the benchmark in the last eight four-year periods. Four-Year Market-Based Returns to March 31 8% 6% 4% 2% 5.1% 4.4% 5.6% 4.6% 4.7% 3.4% 3.8% 2.8% 3.9% 3.1% 5.2% 4.1% 4.7% 3.7% 4.0% 2.9% 2016 2017 2018 2019 SGI CANADA 2020 Benchmark Portfolio 2021 2022 2023 2022-23 SGI CANADA Annual Report#25The Corporation's portfolio market-based return was 1.7% in 2023, compared to a 1.6% return in 2022. The 2023 returns were driven by positive global equity, mortgage and real estate returns. The following table illustrates the investment portfolio's actual performance by asset class for 2023 compared to the index and 2022 returns. Annual Returns (%) Actual Index Actual Asset Class Benchmark Index 2023 2023 2022 Short-term bonds FTSE TMX Short-term Bond 0.8 0.7 -2.6 Mortgages Canadian equities Global equities FTSE TMX Short & Mid-term Bonds 3.6 1.0 1.9 S&P/TSX Composite -4.6 -5.2 19.7 MSCI ACWI ($C) 4.8 0.3 9.4 Global small cap equities MSCI ACWSCI ($C) 0.3 -0.2 -6.0 Real estate Investment Property Databank 2.6 4.4 16.8 Consolidated Statement of Cash Flows Operating activities Investing activities Financing activities Net cash flow (thousands of $) 2023 2022 Change 107,422 176,610 (69,188) (110,450) (80,961) (29,489) (7,398) (91,648) 84,250 (10,426) 4,001 (14,427) Operating activities Cash flows provided by operating activities remained positive in 2023, with the Corporation's positive cash flow used to fund investment purchases. Investing activities The Corporation's excess cash from operating activities is invested in its investment portfolios. The investment managers actively trade each investment portfolio in the capital markets following the restrictions set out in each legal entity's Statement of Investment Policies and Goals. During 2023, $1,046.1 million was received through investment sales and $1,172.7 million was used to purchase investments. The additional funds used to purchase investments during the year were from cash generated from operations. Financing activities Financing activities relate to dividend payments made to the Corporation's parent and payments made on building leases. 2022-23 SGI CANADA Annual Report 19#26Consolidated Statement of Financial Position Total assets Key asset account changes: Investments (thousands of $) March 31 2023 March 31 2022 Change $ 2,122,378 $ 1,982,924 $ 139,454 1,461,881 1,351,320 110,561 Investments The carrying value of investments increased by $110.6 million during the year due to the investment of operating cash flows and positive investment returns. The Corporation's investment strategy is based on prudence, regulatory guidelines and claim settlement patterns, with a view to maximizing long-term returns by utilizing a conservative investment portfolio. The Board of Directors reviews SGI CANADA's and each subsidiary's asset mix strategy annually through a detailed assessment of each portfolio's risk tolerance. The asset mix strategy takes into consideration the current and expected condition of the capital markets, and the historic return and risk profile of various asset classes. To achieve the long-term investment goals, the portfolio must invest in asset classes that provide an attractive risk-return profile over the medium to long term. Over shorter periods, however, performance of these asset classes can be volatile. The Corporation believes a diversified asset mix and longer-term focus remains appropriate, balancing the need for capital preservation in the short term with the desire for portfolio growth over the longer term. The asset mix strategy is formally documented in the Statement of Investment Policies and Goals. In addition to capturing the asset mix strategy, this document provides guidance on permissible investments, quality and quantity guidelines, conflicts of interest, related party transactions and investment performance expectations, among others. Management monitors and enforces compliance with the investment policy. No material compliance deviations were noted during the year. The Corporation's investment portfolio is managed by external investment managers. The portfolio is invested in short-term investments, bonds, mortgages, equities and Canadian commercial real estate. Equities consist of Canadian, global and global small capitalization mandates. Except for segregated bond mandates, all equity and real estate investments are held through investment funds. SGI CANADA Asset Mix as at March 31, 2023 60% 50% 40% 30% 20% 10% 0% 10.7% 10.0% 52.4% 50.0% 11.6% 15.0% 5.4% 5.0% 12.7% 12.5% 2.3% 2.5% 4.9% 5.0% Short-term investments Bonds and debentures Mortgages Canadian equities Global equities Global small cap equities Real estate Portfolio weight Benchmark weight 20 2022-23 SGI CANADA Annual Report#27The investment policy was updated during the annual review to include an additional 5.0% allocation to mortgages with a corresponding 5.0% decrease to short-term investments. The Corporation continues to monitor its fixed income investments to ensure they remain relatively well matched to their associated liabilities. Total liabilities Key liability account changes: Provision for unpaid claims Provision for unpaid claims March 31 2023 (thousands of $) March 31 2022 Change $ 1,568,351 $ 1,453,601 $ 114,750 791,736 740,299 51,437 The provision for unpaid claims reflects the estimated ultimate cost of claims reported but not settled, along with claims incurred but not reported. The process for determining the provision requires management judgment and estimation as discussed in the following section, Critical Accounting Estimates. The provision for unpaid claims increased $51.4 million, or 6.9%, from the end of the previous year. Key components of the change in the provision for unpaid claims are discussed in the preceding section, Claims Incurred. Total equity Key equity account changes: Retained earnings Retained earnings (thousands of $) March 31 2023 March 31 2022 Change $ 554,027 $ 529,323 $ 24,704 474,027 449,323 24,704 The $24.7 million increase in retained earnings is attributable to the $24.4 million consolidated net income plus $0.3 million other comprehensive income. No dividend was declared in the current year. The other comprehensive income represents actuarial gains associated with the Corporation's defined benefit pension and service recognition plans. 2022-23 SGI CANADA Annual Report 21#28Quarterly Consolidated Financial Highlights The following table highlights quarter-over-quarter results for the Corporation: (thousands of $) 2022-23 2021-22 2023 2022 Q4 Q3 Net premiums written Net premiums earned 202,953 286,839 Net claims incurred 138,325 Net income (loss) 62,912 31,800 (50,245) Q2 315,332 331,509 321,475 292,220 283,460 270,704 178,511 229,908 154,448 (20,020) Q1 Q4 Q3 Q2 Q1 1,171,269 1,133,223 197,873 282,103 296,283 293,873 1,070,132 262,635 701,192 153,366 140,573 24,447 (19,299) 49,267 265,482 255,839 252,537 1,036,493 184,712 115,738 594,389 (13,270) 65,074 81,772 Cash flow (used in) from operating activities (25,652) Investments 1,461,881 70,960 1,447,640 1,380,244 1,355,998 8,418 53,696 107,422 (24,819) 1,351,320 113,214 1,435,201 1,350,691 1,318,768 35,325 52,890 176,610 Provision for unpaid claims 791,736 809,343 817,585 753,235 740,299 714,755 735,347 640,777 Minimum Capital Test 233% 207% 204% 238% 242% 254% 253% 281% The following points are intended to assist the reader in analyzing trends in the quarterly financial highlights: . • Claims incurred typically peak in the second quarter due to catastrophe claims for events such as hail storms, flooding and forest fires that can occur. With the exception of the fourth quarter, the Corporation typically generates positive cash flow from operations. Cash is typically low during that quarter as the Corporation pays its annual premium taxes to the provincial jurisdictions in March. Operating cash flows are generally strong throughout the remaining nine months of the year and during these months excess cash generated is directed to investments. Related Party Transactions The Corporation is related in terms of common ownership to all Government of Saskatchewan ministries, agencies, boards, commissions, Crown corporations and jointly controlled and significantly influenced corporations and enterprises. Routine operating transactions with related parties are recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties. Further details regarding these related party transactions are disclosed in note 20 of the consolidated financial statements. Details of other significant related party transactions are disclosed in the consolidated financial statements. The Corporation acts as the administrator of the Auto Fund on behalf of the Province of Saskatchewan. The Corporation incurs administrative and claim adjustment expenses on behalf of the Auto Fund, which are charged to the Auto Fund directly or on the basis of specific distributions. Amounts incurred by the Corporation and charged to the Auto Fund were $257.8 million (2022 - $207.5 million). Off-Balance Sheet Arrangements The Corporation, in its normal course of operations, enters into certain transactions that are not required to be recorded on its Consolidated Statement of Financial Position - commonly referred to as the balance sheet. These items include litigation, structured settlements and long-term contracts. These items are discussed below and in note 23 to the consolidated financial statements. 22 2022-23 SGI CANADA Annual Report#29The Corporation, as is common in the P&C insurance industry, is subject to litigation arising in the normal course of its operations, primarily in claim settlements. The Corporation is of the opinion that current litigation will not have a material impact on its operations, financial position or cash flows. In addition, the effects of the COVID-19 pandemic related to emerging coverage issues and claims (class action lawsuits related to business interruption coverage) could negatively impact the Corporation's provision for unpaid claim liabilities. The Corporation's commercial insurance policies do not provide business interruption coverage in the context of a closure due to COVID-19 as direct physical loss or damage is required to trigger this coverage. In the event that these cases result in a significant judgment against the Corporation, the resulting liability could be material. Based on information currently known, the Corporation does not believe that the outcome of these cases will have a material impact on the consolidated financial statements. Also, the Corporation and its subsidiaries, in the normal course of settling claims, settle some long-term disability claims by purchasing structured settlements (annuities) from various financial institutions for its claimants. This is a common practice in the P&C industry. The net present value of the scheduled payments was $59.4 million (2022 $62.8 million). The Corporation provides a financial guarantee to the claimant in the event of default by the financial institution on the payment schedule to the claimant. No default has occurred in the past on these payment schedules and the Corporation considers the likelihood of such default remote. Critical Accounting Estimates This discussion and analysis of the Corporation's financial condition and results of operations is based upon its consolidated financial statements as presented in this annual report. These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board and interpretations of the International Financial Reporting Interpretations Committee. Significant accounting policies are contained in note 3 to the consolidated financial statements. Some of these policies involve critical accounting estimates because they require management to make particularly subjective or complex judgments about matters that are inherently uncertain, and because of the likelihood that materially different amounts could be reported under different conditions or by using different assumptions. The Corporation has discussed the development, selection and application of its key accounting policies, and the critical accounting estimates and assumptions they involve, with the Audit, Finance and Conduct Review Committee of the Board of Directors. The Audit, Finance and Conduct Review Committee has reviewed the disclosures described in this section. The most significant estimation processes are related to the actuarial determination of the provision for unpaid claims and unpaid claims recoverable from reinsurers, the valuation of accounts receivable, employee future benefits and the fair value of investments classified as Level 3. Provision for unpaid claims A provision for unpaid claims is maintained to cover the estimated ultimate liability for losses and loss adjustment expenses for reported claims and claims incurred but not yet reported as at the end of each accounting period. The initial provision is determined on the reported facts filed with the claim and then revised regularly, as more information on the claim becomes known. The provision does not represent the exact calculation of the liability owing to claimants, but is an estimate developed using Canadian accepted actuarial practices and Canadian insurance regulatory requirements. The estimate reflects an expectation of the ultimate cost of settlement and administration of claims. It involves an assessment based on the facts and circumstances of the events reported in the claim, the Corporation's experience with similar claims, historical trends involving claim payments, claim severity, the effect of inflation on reported and future claims, court decisions and the timeframe anticipated to settle and pay the claim. 2022-23 SGI CANADA Annual Report 23#30This provision is refined on a continual basis as prior fiscal year claims are settled and additional claims are reported and settled. There may be significant time delays from the occurrence of the insured event and when it is reported. If this occurs near the year-end date, estimates are made as to the value of these claims based on information known to the Corporation. As well, uncertainty exists for reported claims that are not settled, as all necessary information may not be available. Thus, with the level of uncertainty involved in the claim process until the final settlement occurs, current reserves may not be sufficient. The provision has been calculated including the impact of discounting. Any adjustments to these estimates, both positive (a redundancy) and negative (a deficiency) are included in the provision for unpaid claims and are reflected as claims incurred in the current year's Consolidated Statement of Operations. Unpaid claims recoverable from reinsurers Unpaid claims recoverable from reinsurers include amounts for expected recoveries related to unpaid claim liabilities, as well as the portion of the reinsurance premium that has not yet been earned. Amounts recoverable from reinsurers are estimated in a manner consistent with claim and claim adjustment expense reserves, and are reported in the Consolidated Statement of Financial Position. The ceding of insurance does not discharge the Corporation's primary liability to its insureds. An estimated allowance for doubtful accounts is recorded on the basis of periodic evaluations of balances due from reinsurers, reinsurer solvency, management's experience and current economic conditions. Valuation of accounts receivable The Corporation applies the simplified approach to providing for expected credit losses as prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. Provisions for credit losses are maintained in an allowance account and are regularly reviewed by the Corporation. Amounts are written off once reasonable collection efforts have been exhausted. Employee future benefits The Corporation's benefit expense for its defined benefit pension plan and defined benefit service recognition plan is calculated by the Corporation's external benefits actuary utilizing management's best estimate of critical assumptions. These critical assumptions consist of: expected plan investment performance, salary escalation, age at retirement, mortality of members and future pension indexing. Management reviews and adjusts these assumptions as required on an annual basis. Actuarial gains and losses regarding the pension obligation or the investment returns are recorded as other comprehensive income on the Consolidated Statement of Operations. The end-of-period discount rate is determined at each year end using market rates of high-quality debt instruments with cash flows that match the timing and amount of expected benefit payments. Further details of the Corporation's defined benefit plans are contained in note 19 to the consolidated financial statements. 24 2022-23 SGI CANADA Annual Report#31Fair value of investments classified as level 3 Level 3 assets and liabilities include financial instruments whose values are determined using internal pricing models, discounted cash flow methodologies, or similar techniques that are not based on observable market data, as well as instruments for which the determination of estimated fair value requires significant management judgment or estimation. Assets classified as Level 3 include the mortgage investment fund and real estate investment fund. The fair value of these investments is based on the Corporation's shares of the net asset value of the respective fund, as determined by its investment manager, and used to value purchases and sales of units in the investments. The primary valuation methods used by the investment managers are as follows: The fair value for the mortgage investment fund is determined based on market values of the underlying mortgage investments, calculated by discounting scheduled cash flows through to the estimated maturity of the mortgages (using spread-based pricing over Government of Canada bonds with a similar term to maturity), subject to adjustments for liquidity and credit risk. The fair value of the real estate investment fund is determined based on the most recent appraisals of the underlying properties. Real estate properties are appraised semi-annually by external, independent professional real estate appraisers who are accredited through the Appraisal Institute of Canada. Real estate appraisals are performed in accordance with generally accepted appraisal standards and procedures, and are based primarily on the discounted cash flow and income capitalization methods. The fair value of unquoted equity securities is determined by the income approach, through the use of discounted cash flows. Risk Management Risk management is a process for recognizing and addressing risks that could affect the achievement of corporate objectives. On an annual basis, management reviews the key risks faced by the Corporation by identifying specific risk events and their potential impact on the Corporation's operations, finances and reputation. Each risk event is rated based on the likelihood of the event occurring and severity of the consequences if it did occur, both before and after the application of current mitigations. The above process results in a risk profile for the Corporation, which is reviewed by the Risk Committee of the Board of Directors annually. The Corporation's Audit Services department also uses the risk profile in developing its annual work plan, which provides an assurance component to the Corporation's risk management process. The following risks represent the most serious threats to the Corporation. Failure to manage any of these risks could lead to significant operational, financial or reputational damage. The nature of these risks, along with efforts to mitigate them, is summarized below. Corporate Transformation Risk: SGI fails to mature the capabilities required to become a digital insurer. Mitigation: Digital insurance transformation uses technology and data to improve business processes and procedures, customer experience, and partner relations. SGI intends to use data and technology to empower its employees and business partners to add value with each customer interaction. As part of the Corporate Transformation program, SGI has committed significant business and IT resources to imagine future states of its people, processes and technologies using a disciplined framework. To ensure employees and partners have necessary supports, training and skills required as roles and responsibilities evolve and SGI does business differently with its partners, a significant focus has been establishing a comprehensive enterprise-wide framework with devoted teams to support internal change and partner change. SGI has also stopped all non-critical business enhancements to its legacy systems. Governance is also in place to limit any other initiatives outside of Corporate Transformation - other than those deemed to be critical or mandatory. This allows business and IT resources to focus on the company's Corporate Transformation program and for change management and workforce planning teams to support employees and partners effectively as part of the Corporate Transformation program. 2022-23 SGI CANADA Annual Report 25#32Acquisition and Development of Expertise Risk: Increasing complexity of work with rising expectations of customers, brokers and partners requires a multi-talented workforce highly attuned to meeting high expectations and rapid changes in the marketplace. Mitigation: SGI has multiple priority areas in this risk category. Work continues on succession for high-risk senior management positions including Executive and Vice Presidents. A robust assessment model was developed and leveraged for all successors identified as critical. An approach to having more streamlined and consistent development plans for senior leaders is underway to reinforce readiness for potential roles and growth in current role. An overhaul to talent acquisition processes was completed to enable SGI to place people in roles more efficiently and to respond to significant company and external pressures. Human Resources responded to a significant number of market compensation issues that required unique approaches to resolve. Retaining top talent during Corporate Transformation was raised as a risk. In response, a risk and retention framework was built and approved in February 2023 for implementation in June 2023. The risk work will continue for roles critical to SGI but outside of Corporate Transformation in the fall. Significant research was completed for an employee recruitment and retention strategy and approval was granted to work in five key priority areas, with four of the five to advance in 2023. Organizational Change Agility Risk: SGI's ability to successfully meet its objectives is, to a large extent, determined by its ability to prepare for, lead and adapt to change in a responsive and agile manner. Mitigation: SGI has established an Enterprise Change Management Office to ensure the discipline continues to mature at a rate comparable to the pace of change in the organization. In addition to focusing on employees, the enhanced change management service model includes communication, consultation and training supports for SGI's many partners, like issuers and brokers. SGI has also introduced new quantitative assessments to further understand change saturation inside the organization. All SGI initiatives are now scored based on the impact of the change on employees. Corporate scores are reviewed monthly by the Strategic Review Board and quarterly by the Executive Leadership Team. Further, a corporate training program has been developed to help employees and management manage the uncertainties of SGI's Corporate Transformation program - currently the organization's largest change initiative. The curriculum focuses on the skillsets required to lead and adapt in a responsive and agile manner even in the face of sustained workplace change. It also outlines strategies to continue to approach situations with a growth mindset. Comprehensive workforce transformation and learning frameworks have been established to guide the employee transition to a post Corporate Transformation workforce. Information Security Risk: Breach or loss of information or non-compliance with statutory obligations for safeguarding personal information occurs due to ineffectiveness of the policies, standards, procedures and tools used, resulting in financial hardship, reputational damage, and loss of trust by the shareholder, partners and customers. Mitigation: The ongoing Corporate Transformation program at SGI is expected to yield significant benefits in terms of cyber security risk reduction. By leveraging modern technologies, SGI is improving identity and access management, including implementing role-based access security models, improving data protection measures, and strengthening cybersecurity monitoring controls. Furthermore, SGI has had success in attracting and retaining cyber security talent within the security team. This has resulted in increased capacity and expertise in managing cybersecurity risks. The security team is now better equipped to proactively identify and respond to potential threats, conduct risk assessments and implement robust risk mitigation measures. 26 | 2022-23 SGI CANADA Annual Report#33System Availability and Recovery Risk: A disruption to operational systems persists beyond tolerable limits resulting in financial hardship, reputational damage and lost business opportunities. Mitigation: Progress has occurred on several initiatives that will improve system availability and recovery capabilities for SGI. Efforts include that of SGI outsourcing business system support to reduce skillset/knowledge risk and employing a centralized database to inventory the technology estate to speed identification and remediation of vulnerabilities and proactively drive problem resolution to preserve services. In addition, business continuity management and disaster recovery processes are being modernized with highest risk business services prioritized for updates when required. Migration to new technology platforms is underway through the Corporate Transformation program. These platforms are cloud based and utilize modern approaches to development and integration which position SGI to improve system reliability overall. Culture Risk: The risk that the company does not have the culture to align with the corporate strategy, or the right people to align with the culture. Mitigation: Culture is a very high priority at SGI. In 2023, a refresh and expansion on culture skills is planned to further build on existing critical skills and knowledge. Special efforts have focused on senior leaders to create the focus and alignment necessary to lead employees through Corporate Transformation. This includes skill development in the areas of leadership enablement, coaching and mental health first aid. A new governance structure has been built to bring culture and an inclusive workplace together. This governance framework is comprised of executive and senior leaders as well as involvement from a variety of leaders and employees. Competition Risk: To be successful, SGI CANADA must attract new customers and retain its profitable market share by focusing on meeting the elevated expectations of customers of how, when and where they want to do business. SGI must also achieve the minimum sustainable size that will allow it to survive in an increasingly consolidating market. Mitigation: The Corporation continues to provide superior service and support to brokers to attract new business and retain the existing book of business and has enhanced pricing with more sophisticated use of data. The Corporation monitors market developments closely, particularly in Saskatchewan, and has expanded its broker network in areas outside Saskatchewan. The Corporation is developing online services to improve the speed, accuracy and ease with which brokers and consumers do business with the Corporation. Strategy Risk: The risk that company strategy does not appropriately capitalize on opportunities or mitigate against risks in the business environment. Mitigation: SGI follows a formalized planning process that considers opportunities and risks in the business environment. The process allows for developments in the business environment to be identified and addressed throughout the year. The current plan runs to 2025-26, supported by annual plans. The strategy is evaluated using a balanced scorecard, with regular monitoring of results and formal quarterly reporting. The strategy is cascaded through the company via senior leadership meetings, all-management meetings and staff town halls, all supported by SGI's performance development plan process. Initiatives are prioritized by SGI's Strategic Review Board and Executive Leadership Team to ensure critical strategic initiatives are appropriately resourced and supported. SGI's Enterprise Program Management Office oversees program and project management to ensure execution of strategic initiatives. 2022-23 SGI CANADA Annual Report 27#34Underwriting Risk: The risk that the underwriting process is not sophisticated enough to identify and write the business that will support the company's sustainable growth strategy. This may result in exposure that is not aligned with pricing and actuarial parameters, missed growth opportunity or competitor anti-selection. Mitigation: SGI CANADA monitors loss and closing ratios to identify adequate pricing and evaluate competitive market position. Underwriters engage in direct relationships with brokers and are regionally specialized which supports geographic and industry expertise. Corporate collaboration on identifying emerging trends, expanded reporting and ongoing process review ensure broad awareness of issues, consistent risk approach and continual improvements to practices. The Corporation has real time reporting and dashboards that are reviewed monthly, and additional tools and enhanced reporting will be developed as part of the data strategy. Additionally, corporate areas have been built out with dedicated roles for monitoring product performance. Outlook for 2023-24 The Canadian property and casualty (P&C) industry is highly competitive and continues to experience rapid change driven by technology and other innovations. Technology is leading the way for new and innovative production channels, mobile services and data-driven processes that can better assess and respond to continuously changing customer expectations. The Corporation is continuing to transform the company, with the goal of becoming a digital insurer. To go along with the Corporate Transformation activities, the Corporation recognizes the need to continue to grow and aims to achieve this growth through great customer experiences, in partnership with brokers. The Corporation's goal is to achieve $1.4 billion in direct premium written by the end of the 2023-24 year while continuing Corporate Transformation activities. This growth is expected across all current provinces and lines of business in which the Corporation operates. Overall, the Corporation is budgeting a net income of $26.9 million in 2023-24, consistent with the 2022-23 net income of $24.4 million reported in this document. The budget includes underwriting losses of $71.9 million offset by investment earnings of $98.1 million. The 2023-24 financial results continue to be lower than the long term expected net income as the Corporation continues to fund the Corporate Transformation program, resulting in higher administrative expenses. External factors impacting the outlook The last half of 2022-23 saw a higher inflationary environment compared to any point in the last 20 years. Higher inflation and inflation assumptions have a significant impact on the Corporation's claim reserves which may create volatility in the Corporation's financial results in 2023-24. Regulatory bodies can influence both direct premium written growth and the profitability of product lines that are subject to rate regulation (auto in Ontario and Alberta). In January 2023, the Provincial Government of Alberta announced a freeze to auto rates. The impact of this announcement is not yet known, but the announcement could create additional volatility in the Corporation's 2023-24 financial results. Investment markets continue to be volatile due to uncertainty surrounding geopolitical risk, inflation, deteriorating financial conditions and an increasing recession risk later in 2023. Central banks have aggressively raised their target interest rates to fend off inflationary impacts which, despite decreasing from levels experienced in 2022, remain elevated above the long-term target rate of 2.0%. Although central banks are likely to remain neutral on rate changes in the near-term until more visibility on economic conditions is known, the impact on corporations and households is likely to drive additional volatility in global investment markets and the Corporation's investment performance in 2023-24. 28 2022-23 SGI CANADA Annual Report#35Responsibility for Financial Statements The consolidated financial statements are the responsibility of Management and have been prepared in conformity with International Financial Reporting Standards. In the opinion of Management, the consolidated financial statements fairly reflect the financial position, results of operations and cash flows of Saskatchewan Government Insurance (the Corporation) within reasonable limits of materiality. Preparation of financial information is an integral part of Management's broader responsibilities for the ongoing operations of the Corporation. Management maintains an extensive system of internal accounting controls to ensure that transactions are accurately recorded on a timely basis, are properly approved and result in reliable financial statements. In this regard, an annual statement of management responsibility is provided on the following page. In addition, the adequacy and operation of the control systems are monitored on an ongoing basis by an internal audit department. An actuary has been appointed by the Corporation to carry out a valuation of the policy liabilities in accordance with accepted actuarial practice and common Canadian insurance regulatory requirements. The policy liabilities consist of a provision for unpaid claim and adjustment expenses on the earned portion of policies and of future obligations on the unearned portion of policies. In performing this valuation, the actuary makes assumptions as to future rates of claim frequency and severity, inflation, reinsurance recoveries, expenses and other contingencies, taking into consideration the circumstances of the Corporation and the nature of the insurance policies. The actuary also makes use of Management information provided by the Corporation and the work of the external auditors in verifying the data used in the valuation. The consolidated financial statements have been examined and approved by the Board of Directors. An Audit, Finance and Conduct Review Committee, composed of members of the Board of Directors, meets periodically with financial officers of the Corporation and the external auditors. These external auditors have free access to this Committee, without Management present, to discuss the results of their audit work and their opinion on the adequacy of internal financial controls and the quality of financial reporting. As appointed by the Lieutenant Governor in Council and approved by Crown Investments Corporation of Saskatchewan, KPMG LLP have been appointed external auditors. Their responsibility is to report to the Members of the Legislative Assembly regarding the fairness of presentation of the Corporation's financial position and results of operations as shown in the consolidated financial statements. In carrying out their audit, the external auditors also make use of the work of the actuary and his report on the policy liabilities. The Auditor's Report outlines the scope of their examination and their opinion. Jenny Ma Penny McCune President and Chief Executive Officer Stype Jeff Stepan Chief Financial Officer May 25, 2023 2022-23 SGI CANADA Annual Report 29#36Annual Statement of Management Responsibility I, Penny McCune, President and Chief Executive Officer, and I, Jeff Stepan, Chief Financial Officer, certify the following: a. That we have reviewed the consolidated financial statements included herein. Based on our knowledge, having exercised reasonable diligence, the consolidated financial statements fairly present, in all material respects, the financial condition, results of operations and cash flows, as of March 31, 2023. b. That based on our knowledge, having exercised reasonable diligence, the consolidated financial statements do not contain any untrue statements of material fact, or omit to state a material fact that is either required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made. c. That SGI CANADA (the Corporation) is responsible for establishing and maintaining effective internal controls over financial reporting, which includes safeguarding of assets and compliance with applicable legislative authorities; and, the Corporation has designed internal controls over financial reporting that are appropriate to its circumstances. d. That the Corporation conducted its assessment of the effectiveness of its internal controls over financial reporting and, based on the results of this assessment, it can provide reasonable assurance that internal controls over financial reporting as of March 31, 2023, were operating effectively and no material weaknesses were found in the design or operation of the internal controls over financial reporting. Kunz Minne Penny McCune President and Chief Executive Officer A. Stopo Jeff Stepan Chief Financial Officer May 25, 2023 30 2022-23 SGI CANADA Annual Report#37Actuary's Report To the policyholders and Board of Directors of Saskatchewan Government Insurance I have valued the policy liabilities and reinsurance recoverables of SGI CANADA for its statement of financial position at March 31, 2023 and their changes in the statement of operations 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 net of reinsurance recoverables makes appropriate provision for all policy obligations and the financial statements fairly present the results of the valuation. Chris McCulloch Chris McCulloch SGI CANADA Fellow, Canadian Institute of Actuaries Fellow, Casualty Actuarial Society Winnipeg, Manitoba May 25, 2023 2022-23 SGI CANADA Annual Report 31#38Independent Auditor's Report To the Members of the Legislative Assembly Province of Saskatchewan Opinion We have audited the consolidated financial statements of Saskatchewan Government Insurance (the "Entity"), which comprise: . the consolidated statement of financial position as at March 31, 2023 • the consolidated statement of operations for the year then ended . the consolidated statement of changes in equity for the year then ended . the consolidated statement of cash flows for the year then ended and notes to the consolidated financial statements, including a summary of significant accounting policies (Hereinafter referred to as the "financial statements"). In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Entity as at March 31, 2023, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the "Auditor's Responsibilities for the Audit of the Financial Statements" section of our auditor's report. We are independent of the Entity in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other information Management is responsible for the other information. Other information comprises: the information, other than the financial statements and the auditor's report thereon, included in the Annual Report Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit and remain alert for indications that the other information appears to be materially misstated. We obtained the information, other than the financial statements and the auditor's report thereon, included in the Annual report as at the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in the auditor's report. We have nothing to report in this regard. 32 2022-23 SGI CANADA Annual Report#39Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards (IFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Entity's ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Entity or to cease operations, or have no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Entity's financial reporting process. Auditors' Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements. As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: . • • • • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Entity's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Entity to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. 2022-23 SGI CANADA Annual Report 33#40• Communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group Entity to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. KPMG LLP Chartered Professional Accountants Regina, Canada May 25, 2023 34 2022-23 SGI CANADA Annual Report#41Consolidated Statement of Financial Position (thousands of $) Assets March 31 2023 March 31 2022 Cash and cash equivalents (note 4) Accounts receivable (note 5) Income tax receivable Investments under securities lending program (note 6) Investments (note 6) Unpaid claims recoverable from reinsurers (note 10) $ 43,066 $ 324,399 53,492 301,055 24,588 9,124 463,673 361,031 998,208 990,289 27,432 53,519 Reinsurers' share of unearned premiums (note 12) Deferred policy acquisition costs (note 11) Right-of-use assets (note 7) Property and equipment (note 8) Intangible assets (note 9) Prepaid expenses Deferred income tax asset (note 15) 56,965 42,069 142,505 132,565 8,470 10,685 17,729 15,356 2,679 3,670 6,740 4,733 5,924 5,336 $ 2,122,378 $ 1,982,924 Liabilities Accounts payable and accrued liabilities Dividend payable Premium taxes payable Amounts due to reinsurers Unearned reinsurance commissions $ +A 86,099 $ 74,110 5,000 10,517 9,404 48,764 43,658 6,088 5,092 Unearned premiums (note 12) 605,427 552,485 Accrued pension liabilities (note 19) 10,248 11,818 Provision for unpaid claims (note 10) 791,736 740,299 Lease liability (note 7) 9,108 11,293 Deferred income tax liability (note 15) 364 442 $ 1,568,351 $ 1,453,601 Equity Equity advances (note 13) Retained earnings Total equity 80,000 80,000 474,027 449,323 554,027 529,323 $ 2,122,378 $ 1,982,924 Commitments and contingencies (note 23) The accompanying notes are an integral part of these consolidated financial statements. Approved by the Board of Directors and signed on their behalf on May 25, 2023. Denis Perrault Director Janice Wallace Jamis Janice Wallace Director 2022-23 SGI CANADA Annual Report 35#42Consolidated Statement of Operations For the years ended March 31 Gross premiums written Premiums ceded to reinsurers Net premiums written Change in net unearned premiums (note 12) Net premiums earned Gross claims incurred Ceded claims incurred Net claims incurred (note 10) Commissions Administrative expenses Premium taxes Total claims and expenses Underwriting (loss) income Net investment earnings (note 14) Other Income Income before income taxes Income tax (recovery) expense (note 15) Net income Other comprehensive income (thousands of $) 2023 2022 $ 1,257,397 $ 1,142,730 (86,128) (72,598) 1,171,269 1,070,132 (38,046) (33,639) 1,133,223 1,036,493 721,934 648,508 (20,742) (54,119) 701,192 594,389 237,203 225,673 166,092 115,922 53,463 48,383 1,157,950 984,367 (24,727) 52,126 42,476 32,316 292 139 18,041 84,581 (6,406) 2,809 24,447 81,772 257 486 Comprehensive income $ 24,704 $ 82,258 The accompanying notes are an integral part of these consolidated financial statements. 36 2022-23 SGI CANADA Annual Report#43Consolidated Statement of Changes in Equity For the years ended March 31 Equity advances Balance, end of the year (thousands of $) 2023 2022 $ 80,000 $ 80,000 Retained earnings Balance, beginning of the year $ 449,323 $ 424,565 Net income Other comprehensive income Dividends 24,447 257 81,772 486 (57,500) Balance, end of the year $ 474,027 $ 449,323 Total equity $ 554,027 $ 529,323 The accompanying notes are an integral part of these consolidated financial statements. 2022-23 SGI CANADA Annual Report 37#44Consolidated Statement of Cash Flows For the years ended March 31 Cash provided by (used for): Operating activities Net income Non-cash items: Bond amortization Amortization and depreciation (thousands of $) 2023 2022 $ 24,447 $ 81,772 (4,282) 5,811 6,474 6,123 Net realized losses (gains) on sale of investments 16,095 (26,115) Net unrealized losses on change in market value of investments 4,229 53,596 Interest revenue from investments Interest expense from right-of-use assets (note 7) (23,261) 213 (16,703) 242 Dividend revenue from investments (91) Income tax (recovery) expense (note 15) (6,406) 2,809 Actuarial gains from employee benefit programs Change in non-cash operating items (note 18) Income taxes paid Investing activities Interest received 257 486 99,380 87,548 (9,724) (18,868) 107,422 176,610 21,794 16,115 Dividends received 170 Purchases of investments (1,172,726) (1,182,820) Proceeds on sale of investments 1,046,123 1,088,425 Purchases of property and equipment (5,399) (2,660) Purchases of intangible assets (242) (191) (110,450) (80,961) Financing activities Dividends paid Interest paid (note 7) Lease liability payments (note 7) (Decrease) increase in cash and cash equivalents (5,000) (89,250) (213) (242) (2,185) (2,156) (7,398) (91,648) (10,426) 4,001 Cash and cash equivalents, beginning of the year 53,492 49,491 Cash and cash equivalents, end of the year $ 43,066 $ 53,492 The accompanying notes are an integral part of these consolidated financial statements. 38 2022-23 SGI CANADA Annual Report#45Notes to the Consolidated Financial Statements March 31, 2023 1. Nature of Operations Saskatchewan Government Insurance (SGI), which operates under the trade name of SGI CANADA (the Corporation), is incorporated, registered and conducts a property and casualty insurance business in the Province of Saskatchewan and in other provinces of Canada through its wholly-owned subsidiary SGI CANADA Insurance Services Ltd. (SCISL). SCISL operates directly in Saskatchewan, Alberta, Manitoba, British Columbia and Ontario. SCISL also has a wholly-owned subsidiary, Coachman Insurance Company (Coachman), that operates in Ontario. The address of the Corporation's registered head office is 2260-11th Avenue, Regina, SK, Canada. In many provinces in Canada, automobile insurance premium rates are regulated by provincial government authorities. Regulation of premium rates is based on claims and other costs of providing insurance coverage, as well as projected profit margins. Regulatory approvals can limit or reduce premium rates that can be charged or delay the implementation of changes in rates. The Corporation's automobile premiums are subject to rate regulation in Alberta and Ontario and represent approximately 16.9% (2022 – 16.3%) of the Corporation's consolidated gross premiums written. SGI was established as a branch of the public service by The Government of Saskatchewan Act, 1944, reorganized pursuant to The Saskatchewan Government Insurance Act, 1946, and continued under the provisions of The Saskatchewan Government Insurance Act, 1980. SGI also acts as administrator of the Saskatchewan Auto Fund under the provisions of The Automobile Accident Insurance Act. As a provincial Crown corporation, the Corporation is not subject to federal or provincial income taxes; however, SCISL and Coachman are subject to federal and provincial income taxes. As a subsidiary of Crown Investments Corporation of Saskatchewan (CIC), the consolidated financial results of the Corporation are included in the consolidated financial statements of CIC. CIC is ultimately owned by the Government of Saskatchewan. 2. Basis of Preparation Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). References to IFRS are based on Canadian generally accepted accounting principles for publicly accountable enterprises as set out in Part 1 of the CPA Canada handbook. Part 1 of the CPA Canada handbook incorporates IFRS as issued by the International Accounting Standards Board (IASB) and interpretations of the International Financial Reporting Interpretations Committee. Basis of measurement The consolidated financial statements have been prepared using the historical cost basis, except for certain financial instruments and the provision for unpaid claims and unpaid claims recoverable from reinsurers and the accrued pension liability. The methods used to measure the values of financial instruments are discussed further in note 3. The provision for unpaid claims and unpaid claims recoverable from reinsurers and the accrued pension liability are measured on a discounted basis in accordance with accepted actuarial practice (which in the absence of an active market provides a reasonable proxy of fair value). 2022-23 SGI CANADA Annual Report 39#46Statement of Financial Position classification The Consolidated Statement of Financial Position has been prepared on a non-classified basis broadly in order of liquidity. Functional and presentation currency These consolidated financial statements are presented in Canadian dollars, which is the Corporation's functional currency. Use of estimates and judgment The preparation of the consolidated financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates and changes in estimates are recorded in the accounting period in which they are determined. The most significant estimation processes are related to the actuarial determination of the provision for unpaid claims and unpaid claims recoverable from reinsurers (note 10), the valuation of accounts receivable (note 5), employee future benefits (note 19) and the fair value of investments classified as Level 3 (note 6). 3. Significant Accounting Policies Basis of consolidation The consolidated financial statements include the accounts of the Corporation and the consolidated accounts of its 100%-owned subsidiaries, SCISL and Coachman. All inter-company accounts and transactions have been eliminated on consolidation. While Coachman and SCISL's year-ends are both December 31, their financial accounting records have been consolidated using the same fiscal period as the Corporation. The financial accounting records of the Corporation and its subsidiaries are prepared using consistent accounting policies. Financial assets and liabilities The measurement basis for financial assets is determined at initial recognition and depends on whether the financial assets have been classified as amortized cost, fair value through other comprehensive income (FVOCI), or fair value through profit or loss (FVPL). The classification requirements for financial asset debt and equity instruments are described as follows: Debt instruments Debt instruments are those instruments that meet the definition of a financial liability from the issuer's perspective, such as loans, government and corporate bonds and trade receivables. Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest, and that are not designated at FVPL, are measured at amortized cost using the effective interest method, less provision for impairment losses, if any. Financial assets that are held for collection of cash flows and for selling the assets, where the assets' cash flows represent solely payments of principal and interest, and that are not designated at FVPL, are classified as FVOCI. Financial assets classified as FVOCI are measured at fair value with changes in fair value recorded in other comprehensive income (OCI); except for the recognition of impairment gains or losses, interest revenue, and foreign exchange gains and losses on the instrument's amortized cost, which are recognized in net income. Financial assets not measured at amortized cost, or at FVOCI must be classified as FVPL. Financial assets classified as FVPL are measured at fair value and changes in fair value are recognized in net income. 40 2022-23 SGI CANADA Annual Report#47Equity instruments Equity instruments are instruments that meet the definition of equity from the issuer's perspective, such as common shares. All equity investments are classified as FVPL, except where the Corporation has elected, at initial recognition, to irrevocably designate an equity investment at FVOCI. When this election is used, changes in fair value are recorded in OCI and are not subsequently reclassified to net income, including on disposal. Impairment losses (and reversal of impairment losses) are not reported separately from other changes in fair value. Dividends, when representing a return on such investments, are recognized in net income when declared. The measurement basis for financial liabilities depends on whether the financial liabilities have been classified as amortized cost or FVPL. Financial liabilities are classified as FVPL when they meet the definition of held for trading or when they are designated as such at initial recognition. Financial liabilities classified as FVPL are measured at fair value and changes in fair value are presented partially in OCI (the amount attributable to changes in credit risk of the liability) and partially in net income (the remaining amount of change in fair value of the liability). Financial liabilities not classified as FVPL are measured at amortized cost using the effective interest method, less provision for impairment losses, if any. The Corporation has designated cash and cash equivalents and investments as FVPL. Accounts receivable are designated as amortized cost. Accounts payable and accrued liabilities, dividend payable and premium taxes payable are designated as amortized cost. Unpaid claims recoverable from reinsurers, amounts due to reinsurers and the provision for unpaid claims are exempt from the above requirement. Financial assets and liabilities are offset, and the net amount reported in the Consolidated Statement of Financial Position, only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and liabilities simultaneously. Income and expenses are not offset in the Consolidated Statement of Operations unless required or permitted by an accounting standard or interpretation, as specifically disclosed in the accounting policies of the Corporation. There are no financial assets and liabilities reported as offset in these consolidated financial statements. Fair value of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. All fair value measurements relate to recurring measurements. Fair value measurements for investments are categorized into levels within a fair value hierarchy based on the nature of the valuation inputs (Level 1, 2 or 3). The three levels are based on the priority of inputs to the respective valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). An asset's or liability's classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The input levels are defined as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities The Corporation defines active markets based on the frequency of valuation and any restrictions or illiquidity on disposition of the underlying investment and trading volumes. Assets measured at fair value and classified as Level 1 include the equity investment funds. Fair value is based on market price data for identical assets obtained from the investment custodian, investment managers or dealer markets. The Corporation does not adjust the quoted price for such investments. 2022-23 SGI CANADA Annual Report 41#48Level 2: Quoted prices in markets that are not active or inputs that are observable either directly (i.e., as prices) or indirectly (i.e., derived from prices) Level 2 inputs include observable market information, including quoted prices for assets in markets that are considered less active. Assets measured at fair value and classified as Level 2 include short-term investments and bonds and debentures. Fair value for short-term investments and bonds and debentures is based on, or derived from, market price data for same or similar instruments obtained from the investment custodian, investment managers or dealer markets. Level 3: Unobservable inputs that are supported by little or no market activity and are significant to the estimated fair value of the assets or liabilities Level 3 assets and liabilities include financial instruments whose values are determined using internal pricing models, discounted cash flow methodologies, or similar techniques that are not based on observable market data, as well as instruments for which the determination of estimated fair value requires significant management judgment or estimation. Assets classified as Level 3 include the mortgage investment fund and real estate investment fund. The fair value of these investments is based on the Corporation's shares of the net asset value of the respective fund, as determined by its investment manager, and used to value purchases and sales of units in the investments. The primary valuation methods used by the investment managers are as follows: . • The fair value for the mortgage investment fund is determined based on market values of the underlying mortgage investments, calculated by discounting scheduled cash flows through to the estimated maturity of the mortgages (using spread-based pricing over Government of Canada bonds with a similar term to maturity), subject to adjustments for liquidity and credit risk. The fair value of the real estate investment fund is determined based on the most recent appraisals of the underlying properties. Real estate properties are appraised semi-annually by external, independent professional real estate appraisers who are accredited through the Appraisal Institute of Canada. Real estate appraisals are performed in accordance with generally accepted appraisal standards and procedures, and are based primarily on the discounted cash flow and income capitalization methods. The fair value of unquoted equity securities is determined by the income approach, through the use of discounted cash flows. The fair value of other financial assets and liabilities is considered to be the carrying value when they are of short duration or when the investment's interest rate approximates current observable market rates. Where other financial assets and liabilities are of longer duration, fair value is determined using the discounted cash flow method using discount rates based on adjusted observable market rates. The fair values of accounts receivable, accounts payable and accrued liabilities, dividend payable and premium taxes payable approximate their carrying values due to their short-term nature. Impairment of financial assets The Corporation's trade receivables are subject to the expected credit loss model under IFRS 9. For trade receivables, the Corporation applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which requires the use of the lifetime expected loss provision for all trade receivables. In estimating the lifetime expected loss provision, the Corporation considered historical default rates of past customers based on the data available at March 31, 2023. 42 2022-23 SGI CANADA Annual Report#49Investments The Corporation records investment purchases and sales on a trade-date basis, being the date when the transactions are entered into. Financial assets are de-recognized when the rights to receive cash flows from them have expired, or when the Corporation has transferred substantially all risks and rewards of ownership. Investments under securities lending program Securities lending transactions are entered into on a collateralized basis. The securities lent are not de-recognized on the Consolidated Statement of Financial Position given that the risks and rewards of ownership are not transferred from the Corporation to the counterparties in the course of such transactions. The securities are reported separately on the Consolidated Statement of Financial Position. Securities lending transactions are secured against high grade collateral, typically government bonds and main index equities. Investment earnings The Corporation recognizes interest and premium financing as earned, dividends when declared, investment fund revenue when a distribution is declared, realized gains and losses on investments when the investment has been sold, and unrealized gains and losses based on changes in market value of the investments held at the year-end date. Realized gains and losses represent the difference between the amounts received through the sale of investments and their respective cost base. Interest revenue includes amortization of any premium or discount recognized at the date of purchase of the security. Amortization is calculated using the effective interest method. Interest is generally receivable on a semi-annual basis. Direct investment expenses, such as external custodial, investment management and investment consultant expenses, are recorded against investment earnings. Foreign currency translation Monetary assets and liabilities denominated in foreign currency are translated at the exchange rate in effect at the year-end date. Revenues and expenses are translated at the exchange rate in effect at the transaction date. Unrealized foreign exchange gains and/or losses arising on monetary and non-monetary investments designated as fair value through profit and loss are recognized in investment earnings. Unrealized gains and/or losses arising on translation are charged to operations in the current year. Translation gains and/or losses related to other financial assets and liabilities are charged to operations in the current year. Premiums written The Corporation's policies have all been classified upon inception as insurance contracts. An insurance contract transfers significant risk and, upon the occurrence of the insured event, causes the insurer to make a benefit payment to the insured party. The sale of policies generates premiums written that are taken into income as net premiums earned over the terms of the related policies, no longer than 12 months. The portion of premiums relating to the unexpired term of each policy is recorded as an unearned premium liability on the Consolidated Statement of Financial Position. 2022-23 SGI CANADA Annual Report 43#50At the end of each reporting period, a liability adequacy test is performed, in accordance with IFRS, to validate the adequacy of unearned premiums and deferred policy acquisition costs (DPAC). A premium deficiency would exist if unearned premiums are deemed insufficient to cover the estimated future costs associated with the unexpired portion of written insurance policies. A premium deficiency would be recognized immediately as a reduction of DPAC to the extent that unearned premiums plus anticipated investment income is not considered adequate to cover all DPAC and related insurance claims and expenses. If the premium deficiency is greater than the unamortized DPAC, a liability is accrued for the excess deficiency. Provision for unpaid claims The provision for unpaid claims represents an estimate of the total cost of outstanding claims to the year-end date. The estimate includes the cost of reported claims, claims incurred but not reported, and an estimate of adjustment expenses to be incurred on these claims and a provision for adverse deviation (PFAD) in accordance with Canadian Institute of Actuaries standards. The estimates are subject to uncertainty and are selected from a range of possible outcomes. During the life of the claim, adjustments to the estimates are made as additional information becomes available. The change in outstanding losses plus paid losses is reported as claims incurred in the current year. In accordance with IFRS 4, the Corporation is required to disclose actual claims experience with previous estimates for the past 10 years as at the reporting date. Historically, the Corporation's accident year for valuation purposes was on a calendar year basis as it was aligned with the Corporation's fiscal reporting year end. When the Corporation moved from a December 31 to March 31 fiscal year-end it decided to continue to complete actuarial evaluations using a January 1 to December 31 accident year. As a result, the Corporation has elected to continue to disclose for financial reporting purposes the development of its estimated net provision for unpaid claims on the same basis of the Corporation's valuation period, being a calendar year-end, as at December 31 of each prior year. The current year loss development is shown on a 15-month basis for financial reporting purposes. The Corporation believes that while this disclosure is not aligned with the Corporation's financial reporting period, it does provide the user of the consolidated financial statements adequate information to assess the Corporation's development of the estimated net provision for unpaid claims. Deferred policy acquisition costs Premium taxes, commissions and certain underwriting and policy issuance costs are deferred, to the extent they are recoverable, and charged to expense over the terms of the insurance policies to which such costs relate, no longer than 12 months. Reinsurance ceded The Corporation uses various types of reinsurance to limit its maximum insurance risk exposure. Estimates of amounts recoverable from reinsurers in respect of insurance contract liabilities and their share of unearned premiums are recorded as reinsurance assets on a gross basis in the Consolidated Statement of Financial Position. Unpaid claims recoverable from reinsurers, reinsurers' share of unearned premiums and unearned reinsurance commissions are estimated in a manner consistent with the method used for determining the provision for unpaid claims, unearned premiums and DPAC respectively. Insurance ceded does not relieve the Corporation of its primary obligation to policyholders. 44 2022-23 SGI CANADA Annual Report#51Income taxes The Corporation uses the asset and liability method of accounting for income taxes. Income taxes are comprised of both current and deferred taxes. Income taxes are recognized in the Consolidated Statement of Operations. Current income taxes are recognized as estimated income taxes for the current year. Deferred income tax assets and liabilities consist of temporary differences between tax and accounting basis of assets and liabilities, as well as the benefit of losses available to be carried forward to future years for tax purposes that are likely to be realized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the date of enactment or substantive enactment. A valuation allowance is recorded against any deferred income tax asset if it is probable that the asset will not be realized, probable being defined as more likely than not. Employees' future benefits The Corporation provides a defined contribution pension plan, a defined benefit pension plan and defined benefit service recognition plans that provide retirement benefits for employees. For the defined contribution pension plan, the Corporation's obligations are limited to contributions made for current service. When made, these contributions are charged to income. The Corporation's defined benefit pension plan is available to certain of its employees and has been closed to new membership since 1980. The plan provides a full pension at retirement calculated as 2% of a member's average earnings during the five years of highest earnings, multiplied by the total number of years of service to a maximum of 35 years. The plan may be indexed at the discretion of the Board of Directors. The plan is pre-funded by payments from employee and employer contributions that are made to a separately administered fund and are determined by periodic actuarial calculations taking into account the recommendations of a qualified actuary. Responsibility for governance of the plan lies with the Corporation. The Corporation has appointed an administrator to assist with the management of the plan and experienced, independent professional experts such as investment managers, an actuary and a custodian. Plan assets consist primarily of fixed income and equity funds and are carried at fair value. Plan assets are not available to creditors of the Corporation nor can they be paid directly to the Corporation. For the defined benefit plan: (i) Net interest on the accrued pension liability is recognized in net income. (ii) Pension obligations are determined by an independent actuary using the projected unit credit method prorated on service, and management's best estimate assumptions of expected plan investment performance, salary escalation, age at retirement, mortality of members and future pension indexing, based upon the consumer price index. (iii) The discount rate used to determine the accrued benefit obligation and the expected return on plan assets was determined by reference to market interest rates at the measurement date of high-quality debt instruments that are denominated in the currency in which the benefits will be paid, with cash flows that match the timing and amount of expected benefit payments. (iv) Past service costs are expensed immediately. (V) Actuarial gains and losses are recognized in OCI in the period in which they arise. The accrued benefit asset (liability) is the fair value of plan assets out of which the obligation is to be settled directly, less the present value of the defined benefit obligation. It is restricted to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. 2022-23 SGI CANADA Annual Report 45#52By design, the plan exposes the Corporation to typical risks faced by defined benefit pension plans such as investment performance, changes to the discount rate used to value the obligation, longevity of plan members and future price inflation. Pension risk is managed by established policies, regular monitoring, re-evaluation and potential adjustments of policies as future events unfold. The Corporation provides defined benefit service recognition plans for certain management and in-scope (union) employees for the purpose of providing retirement benefits. Employees in the plans are eligible for benefits at the earlier of age plus service equal to or greater than 75, or age 50. Upon retirement, employees meeting eligibility criteria receive a lump sum payment of five days for management and three days for in-scope (union) employees for each year of continuous service, less ineligible time and ineligible partial service time. A participant who dies while a member of either plan is deemed to satisfy the eligibility requirements. The member's beneficiary or estate will receive the same benefit payment based on the calculation. Effective December 31, 2011, the defined benefit service recognition plan for unionized employees was frozen for current employees and closed to new employees. Effective December 31, 2011, the defined benefit service recognition plan for management employees was closed to new employees, and current employees were provided the option to elect to remain in the plan or to receive an annual payout, commencing in 2012. The accrued benefit obligation of the service recognition plans is funded by the Corporation as eligible employees terminate employment. The cost of the plans is determined using the projected unit credit method prorated on service. Expected costs of these benefits are accrued over the period of employment using an accounting methodology similar to that for the defined benefit pension plan. Obligations under these plans are determined annually by an independent actuary. By design, the service recognition plans expose the Corporation to risks such as changes to the discount rate used to value the obligation, expected salary increases and duration of employee service. These risks are managed by established policies, regular monitoring, re-evaluation and potential adjustments of policies as future events unfold. Cash and cash equivalents Cash and cash equivalents consist of money market investments with a maturity of 90 days or less from the date of acquisition, and are presented net of cash on hand, less outstanding cheques. Property and equipment All classes of property and equipment are recorded at cost less accumulated depreciation and accumulated impairment, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. The Corporation has not incurred any borrowing costs attributable to property and equipment, and therefore no borrowing costs have been capitalized. 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 Corporation, and the cost of the item can be reliably measured. Repairs and maintenance are charged to the Consolidated Statement of Operations in the period in which they have been incurred. The depreciation method being used, the useful lives of the assets and the residual values of the assets are reviewed at each reporting date. 46 2022-23 SGI CANADA Annual Report#53Depreciation is recorded in operations on a straight-line basis, commencing in the year the asset is available to be placed in service, over the estimated useful lives as follows: Buildings & improvements Building components Leasehold improvements Furniture & equipment 15-40 years 15-30 years lease term 3-5 years Building components consist of heating and cooling systems, elevators, roofs and parking lots. Land is not subject to depreciation and is carried at cost. Impairment reviews are performed when there are indicators that the carrying value of an asset may exceed its recoverable amount. Intangible assets Intangible assets are recorded at cost less accumulated amortization and accumulated impairment, if any. Cost includes expenditures that are directly attributable to the acquisition of the intangible asset. The Corporation has not incurred any borrowing costs attributable to intangible assets, and therefore no borrowing costs have been capitalized. Subsequent costs are included in the intangible asset's carrying value when it is probable that future economic benefits associated with the item will flow to the Corporation, and the cost of the item can be reliably measured. The amortization method being used, the useful lives of the intangible assets and residual values of the intangible assets are reviewed at each reporting period. The intangible assets have finite useful lives and are being amortized on a straight-line basis, commencing in the year in which the asset is available to be placed in service, over their estimated useful lives of 5-10 years. Impairment reviews are performed when there are indicators that the carrying value of an asset may exceed its recoverable amount. Leases The Corporation recognizes all leases to which it is a lessee in the Consolidated Statement of Financial Position as a lease liability with a corresponding right-of-use asset, subject to recognition exemptions for certain short-term and low value leases. On the lease commencement date, a right-of-use asset and a lease liability are recognized. The lease liability is initially measured at the present value of the remaining lease payments, discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Corporation uses its incremental borrowing rate for similar terms at the start date of the lease term. The lease term includes the non-cancellable period of the lease along with any periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option and any periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. Lease payments included in the measurement of the lease liability comprise fixed payments, reduced by any incentives receivable, and exclude operational costs and variable lease payments. The lease liability is subsequently measured at amortized cost using the effective interest method. The right-of-use asset is initially measured at cost, which corresponds to the value of the lease liability adjusted for any lease payments made or initial direct costs incurred at or before the commencement date, less any lease incentives received. The right-of-use asset is subsequently depreciated using the straight-line method over the lease term. 2022-23 SGI CANADA Annual Report 47#54The Corporation does not recognize right-of-use assets and lease liabilities for leases of low value assets and short-term leases. The Corporation recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Provisions and contingent liabilities Provisions are recognized when the Corporation has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Contingent liabilities are disclosed if there is a possible future obligation as a result of a past event, or if there is a present obligation as a result of a past event but either a payment is not probable or the amount cannot be reasonably estimated. Structured settlements In the normal course of claim adjudication, the Corporation settles certain long-term claim losses through the purchase of annuities under structured settlement arrangements with life insurance companies. As the Corporation does not retain any interest in the related insurance contract and obtains a legal release from the claimant, any gain or loss on the purchase of the annuity is recognized in the Consolidated Statement of Operations at the date of the purchase and the related claim liabilities are de-recognized. However, the Corporation remains exposed to the credit risk that the life insurance companies may fail to fulfil their obligations. Comprehensive income Comprehensive income consists of net income and OCI. OCI includes net actuarial gains (losses) on the employee defined benefit pension plan and service recognition plans. These items of OCI are not reclassified subsequently to net income. Future accounting policy change The following future change to accounting standards will have applicability to the Corporation: IFRS 17 - Insurance Contracts In May 2017, the IASB issued IFRS 17 to establish a global standard which provides guidance on the recognition, measurement, presentation and disclosure of insurance contracts. Amendments to IFRS 17 were issued in June 2020. IFRS 17 replaces existing accounting under IFRS 4. IFRS 17 is effective beginning on April 1, 2023 with a transition date of April 1, 2022 and will be applied retrospectively. The Corporation is still evaluating the quantitative impacts of IFRS 17. Upon transition on April 1, 2022 changes to equity will be driven primarily by changes in the discount rate and risk adjustment applied to the liabilities for incurred claims, changes to the method in how acquisition costs are accounted for and the recognition of onerous contracts in the liability for remaining coverage when facts and circumstances indicate a loss at initial recognition of contract. While the Corporation continues to finalize its application of this standard, its assessment of the qualitative implications of this standard are as follows: . Scope: IFRS 17 introduces scope exemptions for specific types of contracts. The Corporation does not expect significant change in the scope of insurance contracts between IFRS 4 and IFRS 17. Level of aggregation: IFRS 17 requires groups of contracts to be aggregated and measured based on contracts subject to similar risks and managed together, profitability, and contracts issued not more than one year apart. The Corporation determines contracts subject to similar risks and managed together based on product lines. 48 2022-23 SGI CANADA Annual Report#55• The Corporation will cohort its new business using annual cohorts. When an insurance contract is written, it will be assigned a profitability group based on the expected profitability on the date of initial recognition. The level of aggregation requirements do not permit the offsetting of gains and losses between groups of insurance contracts. Measurement models: Insurance contract liabilities for each group of insurance contracts represent the sum of the liability for incurred claims and liability for remaining coverage. The Corporation expects that substantially all of its liabilities will be measured using the premium allocation approach (PAA). When measuring liabilities for remaining coverage, the PAA is similar to the Corporation's previous accounting treatment for short duration contracts and therefore the Corporation does not expect a significant impact to measurement. The Corporation primarily issues insurance contracts with a coverage period of 12 months or less, which automatically qualify for the PAA. When a portfolio contains policies that are greater than one year in length, the Corporation will complete an analysis to assess whether the measurement of the liability for remaining coverage differs significantly from the measurement under the general measurement model (GMM). If the quantification shows immaterial differences between the two models, the Corporation will use the PAA for those portfolios as well. Acquisition costs: For Insurance contracts that are recognized using the PAA and less than one year in length, IFRS 17 provides the option to expense acquisition costs (broker commissions, premium tax, administrative expenses) as incurred. The Corporation has chosen not to elect to expense acquisition cashflows, they will be part of the cashflows of the group of contracts. Liability for incurred claims: when measuring the liabilities for incurred claims, IFRS 17 requires: Estimates of future cash flows to be discounted to reflect the time value of money and financial risk related to those cash flows, unless the Corporation expects claims to be paid in one year or less from the date it was incurred. The Corporation has elected to discount all claims regardless of the expected settlement date. The methodology for determining the discount rate is not prescribed, there are two primary methods to apply, namely the top-down or bottom-up approach. Under each approach applicable yield curves are adjusted to reflect the liquidity characteristics of insurance contacts. The Corporation has elected to apply a hybrid approach using elements of both the top-down and bottom-up approach to determine the illiquidity premium. The illiquidity premium is determined using the spread between risk-free rates and the result of the top-down approach. The illiquidity premium will then be used to adjust risk-free rates to determine the applicable discount rates. An explicit risk adjustment for non-financial risk which replaces the risk margin under IFRS 4. The IFRS 4 risk margin reflects the inherent uncertainty in the net discounted claim liabilities estimates, whereas the IFRS 17 risk adjustment for non-financial risk is the compensation the Corporation requires for bearing the uncertainty that arises from non-financial risk. IFRS 4 required a risk margin for financial risks which is not permitted by IFRS 17. Onerous contracts: IFRS 17 requires the identification of groups of onerous contracts when facts and circumstances indicate a loss for PAA contracts. When onerous contracts are identified, the Corporation is required to recognize a loss immediately in the Consolidated Statement of Operations along with an increase in the insurance contract liability known as a "loss component" to appropriately reflect the timing of losses. The amount of loss from onerous contracts written in a year is a required disclosure. The Corporation is finalizing its evaluation of onerous contracts initially recognized at transition in 2022 and has established a mechanism for identifying onerous contracts beyond the transition date. Reinsurance contracts held: The Corporation will apply the PAA to its reinsurance contracts held which is similar to how they are measured under IFRS 4. When measuring the asset for reinsured claims, the expected future cashflows will include any risk of non-performance of the reinsurer. 2022-23 SGI CANADA Annual Report 49#56• • Presentation and disclosure: IFRS 17 introduces changes to the way in which the Corporation will present and disclose financial results. Insurance contract liabilities will be presented in the Consolidated Statement of Financial Position as a single line item and will consist of premiums receivable, deferred policy acquisition cash flows, unearned premiums, onerous loss component (if applicable), discounted and risk adjusted claim liabilities, and other related liabilities. Reinsurance contract assets will be separately presented in the Consolidated Statement of Financial Position and will include amounts expected to be recovered from reinsurers and an allocation of the reinsurance premiums paid. The reclassification of amounts on the Consolidated Statement of Financial Position are expected to result in a reduction in assets and liabilities of the Corporation. The Consolidated Statement of Operations will no longer include premiums written, instead it will include an insurance service result comprised of insurance revenue and insurance service expenses. Reinsurance results will be separately presented from direct insurance activities and presented as a single line item. Insurance finance income or expense will be presented within investment result. The Corporation will present the impact of changes in discount rates as finance income or expenses. IFRS 17 requires extensive new disclosures related to amounts recognized in the financial statements, including detailed reconciliations of contracts, and commentary regarding significant judgements made when applying IFRS 17. 4. Cash and Cash Equivalents (thousands of $) 2023 2022 $ 25,750 $ 23,890 17,316 29,602 $ 43,066 $ 53,492 Money market investments Cash, net of outstanding cheques Total cash and cash equivalents The average effective interest rate on money market investments is 4.6% (2022 - 0.6%). 50 2022-23 SGI CANADA Annual Report#575. Accounts Receivable Accounts receivable is comprised of the following: (thousands of $) 2023 2022 Due from insureds Due from brokers Amounts recoverable on claims paid Due from reinsurers Other Due from Saskatchewan Auto Fund (note 20) Accrued investment income Facility Association (note 21) $ 222,076 $ 199,675 55,597 52,857 40,404 35,163 14,636 18,520 7,400 6,400 7,280 12,563 5,576 4,108 5,425 3,831 358,394 333,117 Less: Allowance for doubtful accounts (note 16) Total accounts receivable (33,995) (32,062) $ 324,399 $ 301,055 Current $ 315,731 $ 292,503 Non-current 8,668 8,552 $ 324,399 $ 301,055 Included in due from insureds is $216.0 million (2022 - $193.0 million) of financed premiums receivable, which represents the portion of policyholders' monthly premium payments that are not yet due. The majority of policyholders have the option to pay a portion of the premium when the policy is placed in force and the balance in monthly instalments. The policyholder pays an additional charge for this option, reflecting handling costs and the investment earnings that would have been earned on such premium, had the total amount been collected at the beginning of the policy period. The additional charge is recognized in investment earnings using the effective interest method. The effective interest rate for Ontario automobile policies is 3.5% (2022 - 3.5%), all other premiums have an effective interest rate of 8.0% (2022 - 8.0%). Due from brokers includes loans receivable with a carrying value of $9.8 million (2022 - $9.2 million). The loans require monthly, semi-annual, or annual repayments with terms ranging between one to 15 years. The loans accrue interest at rates ranging from 0.0% to 6.0% (2022 -0.0% to 6.5%) and are secured by general security agreements. The loans are recorded at their amortized cost, which is considered to be equal to their fair value. The Corporation applies the simplified approach to providing for expected credit losses as prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. 2022-23 SGI CANADA Annual Report 51#586. Investments The carrying and fair values of the Corporation's investments are as follows: Short-term investments Bonds and debentures Investment funds: Canadian equity Global equity Global small cap equity Mortgage Real estate Investments under securities lending program: Bonds and debentures Total investments Details of significant terms and conditions are as follows: (thousands of $) 2023 2022 $ 156,916 $ 153,683 301,980 344,406 78,412 76,629 185,778 161,552 33,923 29,731 170,265 155,138 70,934 69,150 998,208 990,289 463,673 361,031 $ 1,461,881 $ 1,351,320 Short-term investments Short-term investments are comprised of money market investments with a maturity of less than one year but greater than 90 days from the date of acquisition. These investments have an average effective interest rate of 4.4% (2022 -0.6%) and an average remaining term to maturity of 74 days (2022 - 88 days). 52 2022-23 SGI CANADA Annual Report#59Bonds and debentures The carrying value and average effective interest rates are shown in the following chart by contractual maturity. Actual maturity may differ from contractual maturity because certain borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Term to maturity (years) Government of Canada: After one through five After five Canadian provincial and municipal: After one through five (thousands of $) 2023 2022 Carrying value Average effective rates (%) Carrying value Average effective rates (%) $ 359,516 3.5 $ 257,889 2.4 7,308 2.8 142,091 3.7 112,013 2.7 Canadian corporate: One or less 24,742 2.4 After one through five 177,937 4.7 204,784 3.2 After five 86,109 3.8 98,701 2.9 Total bonds and debentures $ 765,653 $ 705,437 Investment funds The Corporation owns units in equity funds, a mortgage investment fund and a real estate investment fund. These investment funds have no fixed distribution rate. Fund returns are based on the success of the fund managers. Securities lending program At March 31, 2023, the Corporation held collateral of $486.9 million (2022 - $379.1 million) for the loaned securities, which represents approximately 105.0% of the fair value of the loaned securities. 2022-23 SGI CANADA Annual Report 53#60Fair value hierarchy Fair value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where quoted prices are readily available, representing regularly occurring transactions. The determination of fair value requires judgment and is based on market information where available and appropriate. Fair value measurements are categorized into levels within a fair value hierarchy based on the nature of the inputs used in the valuation. Short-term investments Bonds and debentures Investment funds: Canadian equity Global equity Global small cap equity Mortgage Real estate Total investments (thousands of $) 2023 Level 1 Level 2 Level 3 Total $ $ 156,916 $ $ 156,916 765,653 765,653 78,412 185,778 33,923 78,412 185,778 33,923 170,265 170,265 70,934 70,934 $ 298,113 $ 922,569 $ 241,199 $ 1,461,881 (thousands of $) 2022 Level 1 Level 2 Level 3 Total Short-term investments $ $ Bonds and debentures 153,683 705,437 $ $ 153,683 705,437 Investment funds: Canadian equity Global equity Global small cap equity Mortgage Real estate Total investments 76,629 161,552 29,731 76,629 161,552 29,731 155,138 69,150 155,138 69,150 $ 267,912 $ 859,120 $ 224,288 $ 1,351,320 The Corporation's policy is to recognize transfers into and transfers out of fair value hierarchy levels as of the date of the event or change in circumstances that caused the transfer. 54 2022-23 SGI CANADA Annual Report#61A reconciliation of Level 3 investments is as follows: Level 3 investments, beginning of the year Add: Additions during the year: Mortgage investment fund Real estate investment fund Less: Disposals during the year: Mortgage investment fund Real estate investment fund Canadian common shares Unrealized gains (losses): Mortgage investment fund Real estate investment fund Level 3 investments, end of the year $ +A (thousands of $) 2023 2022 224,288 $ 205,849 18,361 22,911 3,585 (7,316) (2,421) (3,000) (3,234) (4,087) 1,784 8,767 $ 241,199 $ 224,288 Investment in the mortgage investment fund and the real estate investment fund are valued using the Corporation's share of the net asset value of the respective fund as at March 31, 2023. During the year ended March 31, 2023, no investments were transferred between levels. 7. Leases At March 31, 2023, the Corporation held 19 real estate leases, including 15 in Saskatchewan, one in Edmonton, one in Winnipeg, and two in Toronto. The leases have various expiry dates ranging from April 2023 to January 2031. Information about the leases is presented below: Right-of-use assets (thousands of $) 2023 2022 +A $ 10,685 $ 11,604 Balance, beginning of the year Right-of-use assets: Additions Disposals Accumulated depreciation: Depreciation Disposals 1,280 (716) (2,215) (2,199) 716 Balance, end of the year $ 8,470 $ 10,685 2022-23 SGI CANADA Annual Report 55#62Lease liabilities 2023 (thousands of $) 2022 Contractual undiscounted cash flows: One year or less Between one and five years $ 2,247 $ 2,398 5,847 6,969 Greater than five years 1,570 2,695 Total undiscounted lease liabilities $ 9,664 $ 12,062 Discounted lease liabilities included in the Consolidated Statement of Financial Position $ 9,108 $ 11,293 Amounts recognized in profit or loss Interest on lease liabilities Variable lease payment expenses Expenses related to low value leases Amounts recognized in the statement of cash flows Interest paid on lease liabilities Lease liability principal payments Total cash outflow for leases (thousands of $) 2023 2022 $ +A 213 $ 242 2,505 2,212 271 160 $ 2,989 $ 2,614 (thousands of $) 2023 2022 $ 213 $ 2,185 242 2,156 $ 2,398 $ 2,398 The Corporation's leases contain extension options exercisable by the Corporation. Where practicable, the Corporation seeks to include extension options in new leases to provide operational flexibility. The extension options held are exercisable only by the Corporation and not by the lessors. The Corporation assesses at lease commencement date whether it is reasonably certain to exercise extension options. The Corporation reassesses whether it is reasonably certain to exercise the options if there is a significant event or significant changes in the circumstances within its control. 56 | 2022-23 SGI CANADA Annual Report#638. Property and equipment The components of the Corporation's investment in property and equipment, as well as the related accumulated depreciation, are as follows: (thousands of $) Cost: Land Buildings & Improvements 2023 Building Components Furniture & Equipment Total Beginning of the year $ 3,000 $ 31,815 $ 13,263 $ 27,051 $ 75,129 Additions 369 5,030 5,399 Disposals End of the year Accumulated depreciation: Beginning of the year 3,000 31,815 13,632 32,081 80,528 25,260 854 10,375 24,138 59,773 688 1,484 3,026 Depreciation Disposals End of the year 26,114 11,063 25,622 62,799 Net book value, end of the year $ 3,000 $ 5,701 $ 2,569 $ 6,459 $ 17,729 Land Buildings & Improvements (thousands of $) 2022 Building Components Furniture & Equipment Total Cost: Beginning of the year $ 3,000 $ 30,056 $ Additions 1,759 13,055 208 $ 29,806 $ 75,917 693 2,660 Disposals (3,448) (3,448) End of the year 3,000 31,815 13,263 27,051 75,129 Accumulated depreciation: Beginning of the year Depreciation Disposals End of the year Net book value, 24,600 9,700 26,226 60,526 660 675 1,360 2,695 (3,448) (3,448) 25,260 10,375 24,138 59,773 $ 3,000 $ 6,555 $ 2,888 $ 2,913 $ 15,356 end of the year Depreciation is included in administrative expenses on the Consolidated Statement of Operations. When an asset has been disposed, its original cost is removed from the consolidated financial statements along with any accumulated depreciation related to that asset. 2022-23 SGI CANADA Annual Report 57#649. Intangible Assets The Corporation's intangible assets consist of software applications that have been externally developed for sole use by the Corporation. The components of those intangible assets, as well as the related accumulated amortization, are as follows: Cost: Beginning of the year Additions End of the year Accumulated amortization: Beginning of the year Amortization End of the year Net book value, end of the year (thousands of $) 2023 2022 $ 6,959 $ 6,768 242 191 7,201 6,959 3,289 2,060 1,233 1,229 4,522 3,289 $ 2,679 $ 3,670 10. Claims Incurred and Provision for Unpaid Claims Net claims incurred (thousands of $) 2023 2022 Current year Prior years Total Current year Prior years Total Gross claims incurred $ 701,966 $ 19,968 $ 721,934 $ 624,911 $ Ceded claims incurred (15,746) (4,996) (20,742) (52,121) (1,998) 23,597 $ 648,508 (54,119) Net claims incurred $ 686,220 $ 14,972 $ 701,192 $ 572,790 $ 21,599 $ 594,389 Current year claims relate to events that occurred in the current financial year. Prior year claims incurred relate to adjustments for the reassessment of the estimated cost for claim events that occurred in all previous financial periods. Ceded claims incurred represent an estimate of the recoverable cost of those claims transferred to the Corporation's various reinsurers pursuant to reinsurance contracts (note 16). 58 2022-23 SGI CANADA Annual Report#65Net provision for unpaid claims Beginning of the year: Net unpaid claims - discounted PFAD and discount Net unpaid claims - undiscounted Net unpaid claims, Preceding accident year - undiscounted Net unpaid claims, prior years, beginning of the year - undiscounted Payments made during the year relating to prior year claims Deficiency relating to prior year estimated unpaid claims Net unpaid claims, prior years - undiscounted Net unpaid claims, current year: Preceding accident year Current accident year Net unpaid claims, end of the year- undiscounted PFAD and discount, end of the year Net unpaid claims, end of the year - discounted The net provision for unpaid claims is summarized as follows: Net unpaid claims Gross unpaid claims 2023 2022 2023 (thousands of $) 2022 $ 686,780 $ 624,430 (22,436) (37,681) 664,344 586,749 (127,362) (97,769) 536,982 488,980 (180,198) (178,411) 14,972 21,599 371,756 332,168 263,133 204,814 119,679 127,362 754,568 664,344 9,736 22,436 $ 764,304 $ 686,780 (thousands of $) Reinsurance recoverable 2023 2022 Net unpaid claims 2023 2022 Provision for reported claims, undiscounted $ 524,878 $ 499,394 $ 28,738 $ 57,182 $ 496,140 $ 442,212 Provision for claims incurred but not reported PFAD Effects of discounting 256,807 71,934 (61,883) 217,404 (1,621) (4,728) $ 791,736 68,713 1,558 (45,212) (1,243) $ 740,299 $ 27,432 2,969 (1,904) 258,428 70,376 (60,640) 222,132 65,744 (43,308) $ 53,519 $ 764,304 $ 686,780 Management believes that the unpaid claims provision is appropriately established in the aggregate and is adequate to cover the ultimate net cost on a discounted basis. The determination of this provision, which includes unpaid claims, adjustment expenses and expected salvage and subrogation, requires an assessment of future claims development. This assessment takes into account the consistency of the Corporation's claim handling procedures, the amount of information available, the characteristics of the line of business from which the claims arise and the delay inherent in claims reporting. This provision is an estimate and as such is subject to variability that may arise from future events, such as the receipt of additional claims information, changes in judicial interpretation of contracts or significant changes in frequency and severity of claims. This estimate is principally based on the Corporation's historical experience and may be revised as additional experience becomes available. 2022-23 SGI CANADA Annual Report 59#66Any such changes would be reflected in the Consolidated Statement of Operations for the period in which the change occurred. The provision for unpaid claims and unpaid claims recoverable from reinsurers are carried on a discounted basis to reflect the time value of money. In that respect, the Corporation determines the discount rate based upon the expected return of the bond investments that approximates the cash flow requirements of the unpaid claims. The discount rate applied was 3.6% (2022 - 2.7%). The resulting carrying amounts are considered to be an indicator of fair value as there is no ready market for trading insurance contract liabilities. Structured settlements The Corporation settles some long-term disability claims by purchasing annuities for its claimants from various life insurers. The settlements legally release the Corporation from its obligations to the claimants. Consequently, neither the annuities purchased nor the claim liabilities are recognized on the Consolidated Statement of Financial Position. However, as part of the settlement, the Corporation provides a financial guarantee to the claimants in the event the life insurers' default on the scheduled payments and is thus exposed to credit risk to the extent any of the life insurers fail to fulfil their obligations. As at March 31, 2023, no information has come to the Corporation's attention that would suggest any weakness or failure in the life insurers from which it has purchased annuities. The net present value of the scheduled payments as of the year-end date is $59.4 million (2022 - $62.8 million). The net risk to the Corporation is the credit risk related to the life insurance companies that the annuities are purchased from. No defaults have occurred, and the Corporation considers the possibility of default to be remote. 11. Deferred Policy Acquisition Costs (DPAC) DPAC, beginning of the year Acquisition costs deferred during the year Amortization of deferred acquisition costs Change in premium deficiency DPAC, end of the year 12. Unearned Premiums Gross unearned premiums 2023 2022 (thousands of $) 2023 2022 $ 132,565 $ 122,875 265,112 242,349 (253,619) (232,618) (1,553) $ 142,505 $ (41) 132,565 (thousands of $) Reinsurers' share of unearned premiums 2023 Net 2022 2023 unearned premiums 2022 Unearned premiums, beginning of the year Premiums written Premiums earned $ 552,485 $ 515,646 $ 42,069 $ 38,869 $ 510,416 $ 476,777 1,257,397 1,142,730 (1,204,455) (1,105,891) 86,128 (71,232) 72,598 1,171,269 1,070,132 (69,398) (1,133,223) (1,036,493) Change in net unearned premiums 52,942 36,839 14,896 3,200 38,046 33,639 Unearned premiums, end of the year $ 605,427 $ 552,485 $ 56,965 $ 42,069 $ 548,462 $ 510,416 60 2022-23 SGI CANADA Annual Report#6713. Equity Advances The Corporation does not have share capital. However, the Corporation has received equity advances from its parent, CIC, to form its equity capitalization. The advances reflect an equity investment in the Corporation by CIC. 14. Net Investment Earnings Components of net investment earnings are as follows: Interest and other Investment fund distributions Premium financing Dividends Net unrealized losses on change in market value of investments Net realized (losses) gains on sale of investments (thousands of $) 2023 2022 $ 27,828 $ 11,181 21,829 36,866 15,829 14,368 91 (4,229) (53,596) (16,095) 26,115 45,162 35,025 (2,686) (2,709) $ 42,476 $ 32,316 Total investment earnings Investment expenses Net investment earnings Details of the net unrealized losses on change in market value of investments are as follows: (thousands of $) 2023 2022 Short-term investments Bonds and debentures $ 1,330 $ 3,595 Canadian common shares Investment funds: Canadian equity Global equity Global small cap equity Mortgage Real estate Total net unrealized losses (29,244) (6,680) (10,045) (1,779) 2,719 (13,091) (378) (7,482) (3,234) (4,087) 1,784 8,767 $ (4,229) $ (53,596) 2022-23 SGI CANADA Annual Report 61#6815. Income Taxes The Corporation's provision for income taxes is as follows: Current Deferred Income tax (recovery) expense (thousands of $) 2023 2022 $ (5,740) $ 3,486 (666) (677) $ (6,406) $ 2,809 Income tax (recovery) expense differs from the amount that would be computed by applying the federal and provincial statutory income tax rates to income before income taxes. The reasons for the differences are as follows: (thousands of $) 2023 2022 Income before income taxes $ 18,041 $ 84,581 Combined federal and provincial tax rate 25.26% 25.63% Computed tax expense based on combined rate $ 4,557 $ 21,678 Increase resulting from: Earnings not subject to taxation Other Income tax (recovery) expense (10,882) (81) (18,812) (57) $ (6,406) $ 2,809 The combined federal and provincial tax rate is calculated by taking the federal tax rate added to the tax rate of the individual provinces on the basis of the pro rata share of premiums written from each jurisdiction. During the year ended March 31, 2023, there has been a slight decrease in the combined tax rate to 25.26% from 25.63%. All income taxes receivable/payable are due within one year. 62 2022-23 SGI CANADA Annual Report#69The tax effects of temporary differences that give rise to significant portions of the deferred income tax assets and deferred income tax liabilities are presented below: Deferred income tax asset (thousands of $) Provision for unpaid claims Other Total At March 31, 2021 $ 4,569 $ 106 $ 4,675 Credit reflected in income tax expense 651 10 At March 31, 2022 5,220 116 661 5,336 Credit reflected in income tax expense 567 21 588 At March 31, 2023 $ 5,787 $ 137 $ 5,924 Deferred income tax liability (thousands of $) Unpaid claims recoverable from reinsurers Other Total 261 $ 197 $ 458 155 (171) (16) 416 26 442 (64) (14) (78) $ 352 $ 12 $ 364 At March 31, 2021 $ Charge (credit) reflected in income tax expense At March 31, 2022 Credit reflected in income tax expense At March 31, 2023 The Corporation expects that the deferred tax asset will be realized in the normal course of operations. 16. Insurance and Financial Risk Management The Corporation has established an enterprise risk management policy. The Board of Directors approved this policy and management is responsible for ensuring it is properly maintained and implemented. The Board of Directors receives confirmation that the risks are being appropriately managed through regular reporting from management. Insurance risk arises with respect to the adequacy of the Corporation's insurance premium rates and provision for unpaid claims (consisting of underwriting and actuarial risks). The nature of insurance operations also result in significant financial risks, as the Corporation's Consolidated Statement of Financial Position consists primarily of financial instruments. Financial risks that arise are credit risk, market risk (consisting of interest rate risk, foreign exchange risk and equity price risk) and liquidity risk. 2022-23 SGI CANADA Annual Report 63#70Insurance Risk Underwriting risk The Corporation manages insurance risk through underwriting and reinsurance strategies within an overall strategic planning process. Pricing is based on assumptions with regards to past experiences and trends. Exposures are managed by having documented underwriting limits and criteria, product and geographic diversification and reinsurance. Diversification The Corporation writes property, liability and motor risks over a 12-month period. The most significant risks arise from weather-related events, such as severe summer storms. The Corporation attempts to mitigate risk by conducting business in a number of provinces across Canada and by offering different lines of insurance products. The concentration of insurance risk by region and line of business is summarized below by reference to gross premiums written: (thousands of $) March 31, 2023 Saskatchewan Ontario Alberta Manitoba British Columbia Total Automobile Personal property Commercial property Liability Total $ 214,778 $ 384,320 $ 91,630 $ 48,826 $ 739,554 119,492 32,030 11,930 10,321 173,773 92,524 84,797 13,202 12,228 202,751 38,223 17,702 7,001 62,926 63,660 9,939 4,794 78,393 $ 426,794 $ 603,030 $ 144,403 $ 83,170 $ 1,257,397 (thousands of $) March 31, 2022 Automobile Personal property Commercial property Liability Total Saskatchewan $ 196,742 $ 351,510 $ 82,798 $ 44,829 $ 675,879 Ontario 91,684 28,794 10,045 8,421 138,944 Alberta Manitoba British Columbia Total $ 383,040 $ 551,170 $ 132,895 $ 94,614 76,450 13,353 11,866 196,283 34,459 17,289 6,644 58,392 59,957 9,410 3,865 73,232 75,625 $ 1,142,730 64 2022-23 SGI CANADA Annual Report#71The concentration of insurance risk by line of business is summarized below by reference to unpaid claim liabilities: (thousands of $) Reinsurance recoverable Gross Net 2023 2022 2023 2022 2023 2022 Automobile Personal property Commercial property $ 366,648 $ 323,332 $ 6,583 $ 9,522 $ 360,065 $ 313,810 213,263 208,529 11,558 34,833 201,705 173,696 52,853 42,411 7,581 6,285 45,272 36,126 Liability Assumed 129,434 124,023 1,395 1,814 128,039 122,209 1,986 2,328 1,986 2,328 PFAD and discounting 10,051 23,501 315 1,065 9,736 22,436 Facility Association (note 21) Total 17,501 16,175 17,501 16,175 $ 791,736 $ 740,299 $ 27,432 $ 53,519 $ 764,304 $ 686,780 The concentration of insurance risk by region is summarized below by reference to unpaid claim liabilities: (thousands of $) Gross 2023 2022 Reinsurance recoverable 2023 2022 Net 2023 2022 Saskatchewan $ 342,631 $ 336,096 $ 16,830 $ 42,572 $ 325,801 $ 293,524 Ontario Alberta Manitoba British Columbia Maritimes Total 172,549 154,685 3,382 4,691 169,167 149,994 200,374 187,835 2,231 2,905 198,143 184,930 31,854 26,158 4,936 3,164 26,918 22,994 43,458 34,257 53 187 43,405 34,070 870 1,268 870 1,268 $ 791,736 $ 740,299 $ 27,432 $ 53,519 $ 764,304 $ 686,780 2022-23 SGI CANADA Annual Report 65#72Reinsurance The Corporation also seeks to reduce losses that may arise from catastrophes or other events that cause unfavourable underwriting results by reinsuring certain levels of risk with other insurers. The policy of underwriting and reinsuring contracts of insurance limits the liability of the Corporation to a maximum amount on any one loss, on a calendar year as follows: Dwelling and farm property Unlicensed vehicles Commercial property Automobile and general liability (thousands of $) 2023 2022 $ 1,750 $ 1,750 1,750 1,750 1,750 1,750 1,750 1,750 In addition, the Corporation carries property and auto physical damage catastrophe reinsurance limiting combined exposure to $30.0 million per event (subject to an annual aggregate deductible of $30.0 million). While the Corporation utilizes reinsurance, it 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. The Corporation evaluates and monitors financial condition of its reinsurers to minimize exposure to significant losses from reinsurer insolvency. The following table sets out the amount by which reinsurance ceded has reduced the premiums earned, claims incurred, commissions, administrative expenses and premium taxes. Premiums earned Claims incurred Commissions, administrative expenses and premium taxes Actuarial risk (thousands of $) 2023 2022 $ 71,232 $ 20,742 69,398 54,119 7,463 6,758 Establishment of the provision for unpaid claims is based on known facts and interpretation of circumstances, and is therefore a complex process influenced by a variety of factors. Measurement of the provision is uncertain due to claims that are not reported to the Corporation at the year-end date and therefore estimates are made as to the value of these claims. As well, uncertainty exists regarding the cost of reported claims that have not been settled, as all the necessary information may not be available at the year-end date. The significant assumptions used to estimate the provision include: the Corporation's experience with similar cases, historical claim payment trends and claim development patterns, characteristics of each class of business, claim severity and frequency, effect of inflation on future claim settlement costs, court decisions and economic conditions. Time is also a critical factor in determining the provision, since the longer it takes to settle and pay a claim, the more variable the ultimate settlement amount will be. Accordingly, short-tail claims such as physical damage or collision claims tend to be more reasonably predictable than long-tail claims such as liability claims. As a result, the establishment of the provision for unpaid claims relies on a number of factors, which necessarily involves risk that actual results may differ materially from the estimates. 66 2022-23 SGI CANADA Annual Report#73The following tables show the development of the estimated net provision for unpaid claims relative to the current estimate of ultimate claims costs for the 10 most recent accident years as estimated at each reporting date. (thousands of $) Accident year Net ultimate loss 2013 2014 2015 2016 2017 2018 2019 2020 2021 Jan 1, 2022- Mar 31, 2023 At end of accident year One year later 282,681 295,363 326,329 $ 293,023 $ 314,683 $ 345,276 $ 365,571 $ 438,198 $ 466,312 $ 496,422 $ 479,021 $ 662,797 $ 769,559 346,922 433,188 462,429 488,439 467,011 534,854 Two years later 274,536 Three years later Four years later 272,049 270,925 289,673 287,339 286,092 321,180 336,138 317,749 339,332 424,961 420,107 318,542 335,356 419,517 455,301 483,387 454,121 483,806 457,135 472,095 Five years later 271,522 Six years later 283,417 318,763 334,542 424,054 270,769 282,055 318,346 334,981 Seven years later Eight years later Nine years later Cumulative loss development Cumulative loss development as a % of original ultimate loss 270,313 270,166 270,454 282,447 319,764 283,383 $ (22,569) $ (31,300) $ (25,512) $ (30,590) $ (14,144) $ (9,177) $ (12,616) $ (6,926) $ (127,943) n/a (7.7%) (9.9%) (7.4%) (8.4%) (3.2%) (2.0%) (2.5%) (1.4%) (19.3%) n/a The Corporation has a March 31 fiscal year end, however actuarial valuations are performed using a January 1 December 31 accident year. As such, the shaded net ultimate losses are as at December 31 and the non-shaded net ultimate losses are as at March 31. (thousands of $) Accident year Current estimate 2013 2014 2015 2016 2017 2018 2019 2020 2021 Jan 1, 2022- Mar 31, 2023 Total of net ultimate loss Cumulative paid $ 270,454 $ 283,383 $319,764 $ 334,981 $ 424,054 $ 457,135 $ 483,806 $ 472,095 $ 534,854 $ 769,559 $4,350,085 (267,377) (275,801) (311,826) (329,039) (413,020) (430,754) (441,694) (423,610) (438,743) (415,560) (3,747,424) Net provision for unpaid claims $ 3,077 $ 7,582 $ 7,938 $ 5,942 $ 11,034 $ 26,381 $ 42,112 $ 48,485 $ 96,111 $ 353,999 602,661 Net undiscounted claims outstanding for accident years 2012 and prior Internal reinsurance to subsidiaries Provision for adverse deviation and discounting Loss adjusting expense reserve Subrogation recoveries Unpaid Facility Association claims Assumed reinsurance Health levies Other reconciling items Net provision for unpaid claims 48,721 9,779 9,736 26,758 40,131 17,501 845 732 7,440 $ 764,304 2022-23 SGI CANADA Annual Report 67#74The Corporation's estimated sensitivity of its provision for unpaid claims to changes in best estimate assumptions in the unpaid claims liabilities is as follows: Assumption Discount rate Discount rate (thousands of $) Change to net provision for unpaid claims Sensitivity 2023 2022 +100 bps $ (17,346) $ (17,315) - 100 bps 17,346 17,315 The net provision for unpaid claims refers to the provision for unpaid claims net of unpaid claims recoverable from reinsurers. The method used for deriving this sensitivity information did not change from the prior period. Financial risk The nature of the Corporation's operations result in a Consolidated Statement of Financial Position that consists primarily of financial instruments. The risks that arise are credit risk, market risk and liquidity risk. Significant financial risks are related to the Corporation's investments. These financial risks are managed by having a Statement of Investment Policies and Goals (SIP&G), which is approved annually by the Corporation's Board of Directors. The SIP&G provides guidelines to the investment managers for the asset mix of the portfolio regarding quality and quantity of debt and equity investments using a prudent person approach. The asset mix helps to reduce the impact of market value fluctuations by requiring investments in different asset classes and in domestic and foreign markets. The Corporation receives regular reporting from the investment managers and custodian regarding compliance with the SIP&G. The investment managers' performance is evaluated based on return objectives, including realized and unrealized capital gains and losses plus income from all sources, and goals stated in the SIP&G. Credit risk The Corporation's credit risk arises primarily from two distinct sources: accounts receivable (from customers, brokers and reinsurers) and certain investments. The maximum credit risk to which the Corporation is exposed is limited to the carrying value of the financial assets summarized as follows: Cash and cash equivalents Accounts receivable Fixed income investments 1 Unpaid claims recoverable from reinsurers 1 Includes short-term investments, bonds and debentures and the mortgage investment fund (thousands of $) 2023 2022 $ 43,066 $ 324,399 53,492 301,055 1,092,834 27,432 1,014,258 53,519 In addition, the Corporation is exposed to credit risk associated with its structured settlements as described separately in the notes to the consolidated financial statements. Cash and cash equivalents include money market investments of $25.8 million (2022 - $23.9 million). The money market investments mature within 90 days from the date of acquisition and have a credit rating of R-1. 68 2022-23 SGI CANADA Annual Report#75Accounts receivable are primarily from customers, diversified among residential, farm and commercial, along with amounts from brokers across the provinces that the Corporation operates in. Accounts receivable generally consist of balances outstanding for one year or less. Current 30 - 59 days 60-90 days Greater than 90 days Subtotal Allowance for doubtful accounts Total accounts receivable (thousands of $) 2023 2022 $ 315,411 $ 294,912 3,349 4,001 3,558 773 36,076 33,431 358,394 333,117 (33,995) (32,062) $ 324,399 $ 301,055 The Corporation applies the simplified approach to providing for expected credit losses as prescribed by IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. Provisions for credit losses are maintained in an allowance account and are regularly reviewed by the Corporation. Amounts are written off once reasonable collection efforts have been exhausted. The allowance mainly relates to amounts outstanding greater than 90 days. Details of the allowance account are as follows: (thousands of $) 2023 2022 Allowance for doubtful accounts, beginning of the year $ 32,062 $ 34,181 Accounts written off Current period provision (7,302) 9,235 (8,714) 6,595 Allowance for doubtful accounts, end of the year $ 33,995 $ 32,062 Concentrations of credit risk for insurance contracts can arise from reinsurance ceded contracts as insurance ceded does not relieve the Corporation of its primary obligation to the policyholder. Reinsurers are typically required to have a minimum financial strength rating of A- at the inception of the treaty; rating agencies used are A.M. Best and Standard & Poor's. Guidelines are also in place to establish the maximum amount of business that can be placed with a single reinsurer. Credit risk within investments is related primarily to short-term investments, bonds and debentures and mortgage investment fund. It is managed through the investment policy that limits debt instruments to those of high credit quality (minimum rating for bonds and debentures is BBB, and for short-term investments is R-1) along with limits to the maximum notional amount of exposure with respect to any one issuer. 2022-23 SGI CANADA Annual Report 69#76Credit ratings for the bond and debenture investments are as follows: Credit Rating AAA AA A BBB Total 2023 2022 Fair value (thousands of $) Makeup of portfolio (%) Fair value Makeup of (thousands of $) portfolio (%) $ 359,516 47.0 $ 265,197 37.6 238,189 31.1 221,427 31.4 125,746 16.4 149,755 21.2 42,202 5.5 69,058 9.8 $ 765,653 100.0 $ 705,437 100.0 Within bonds and debentures, there are no holdings from one issuer, other than the Government of Canada or a Canadian province, over 10% of the market value of the combined bond and short-term investment portfolios. No one holding of a province is over 20% of the market value of the bond portfolio. The unit value of the mortgage investment fund is impacted by the credit risk of the underlying mortgages. This risk is limited by restrictions within its own investment policy, which include single loan limits, diversification by property type and geographic regions within Canada. Each underlying mortgage is secured by real estate and related contracts. Market risk Market risk represents the potential for loss from changes in the value of financial instruments. Value can be affected by changes in interest rates, foreign exchange rates and equity prices. Market risk primarily impacts the value of investments. Interest rate risk The Corporation is exposed to changes in interest rates in its fixed income investments, including short-term investments, bonds and debentures and the mortgage investment fund. Changes in interest rates also impact the provision for unpaid claims and unpaid claims recoverable from reinsurers. The impact that a change in interest rates has on investment income will be partially offset by the impact the change in interest rates has on discounting of claims incurred. It is estimated that a 100 basis point increase/decrease in interest rates would have the following impact: Net investment earnings Net claims incurred (Loss) income before income taxes 70 2022-23 SGI CANADA Annual Report (thousands of $) 100 basis point increase 2023 2022 100 basis point decrease 2023 2022 $ (25,809) $ (17,346) (22,696) $ (17,315) 25,809 $ 17,346 22,696 17,315 (8,463) (5,381) 8,463 5,381#77Foreign exchange risk The investment policy defines maximum limits to exchange rate sensitive assets within the investment portfolio. The following table indicates the exposure to exchange rate sensitive assets and provides the sensitivity to a 10% appreciation/depreciation in the Canadian dollar and the corresponding decrease/increase in net income and retained earnings: Asset Class Global equities Global small cap equities Asset Class Global equities Global small cap equities 2023 Maximum exposure (%) Current exposure (%) 17.5 12.7 $ 4.0 2.3 2022 10% change in exchange rates (thousands of $) 18,578 3,392 10% change in Maximum exposure (%) Current exposure (%) exchange rates 16.0 12.0 $ 4.0 2.2 (thousands of $) 16,155 2,973 As the global equity funds are classified as fair value through profit and loss, any unrealized changes due to foreign currency are recorded in net income. There is no exposure to foreign exchange risk within the Corporation's bond and debenture portfolio. As well, no more than 10% of the market value of the bond portfolio shall be invested in bonds of foreign issuers. The Corporation's exposure to exchange rate risk resulting from the purchase of goods and services, and claims and reinsurance receivables and payables, are not considered material to the operations of the Corporation. Equity prices The Corporation is exposed to changes in equity prices in Canadian and global markets. Equities comprise 20.4% (2022-19.8%) of the carrying value of the Corporation's total investments. Individual stock holdings are diversified by geography, industry type and corporate entity. No one investee or related group of investees represents greater than 10% of the market value of the Corporation's common share portfolio. As well, no one holding represents more than 10% of the voting shares of any corporation. The Corporation's equity price risk is assessed using Value at Risk (VaR), a statistical technique that measures the potential change in the value of an asset class. The VaR has been calculated based on volatility over a four-year period, using a 95% confidence level. It is expected that the annual change in the portfolio market value will fall within the range outlined in the following table 95% of the time (19 times out of 20 years). Asset Class Canadian equities Global equities Global small cap equities (thousands of $) 2023 2022 $ +/- +/- +/- 24,935 $ +/- 52,575 12,491 +/- +/- 23,203 44,667 9,972 2022-23 SGI CANADA Annual Report 71#78The Corporation's equity investments are classified as fair value through profit and loss and any unrealized changes in their fair value are recorded in the Consolidated Statement of Operations. No derivative financial instruments have been used to alter the effects of market changes and fluctuations. Liquidity risk Liquidity risk is the risk that the Corporation is unable to meet its financial obligations as they fall due. Cash resources are managed on a daily basis based on anticipated cash flows. The majority of financial liabilities, excluding certain unpaid claim liabilities, are short-term in nature and due within one year. The Corporation generally maintains positive overall cash flow through cash generated from operations and investing activities. The following tables summarize the estimated contractual timings of cash flows on an undiscounted basis arising from the Corporation's financial assets and liabilities: Financial assets (thousands of $) March 31, 2023 Carrying amount Total No stated maturity More 0-6 7-12 months months 1-2 years 3-5 years than 5 years Cash and cash equivalents $ 43,066 $ Accounts receivable 324,399 43,066 $ 324,399 $ 43,066 $ 259,207 $ $ $ 56,525 2,653 3,265 2,749 Investments 1,461,881 1,461,881 539,312 156,916 295,390 384,154 86,109 Unpaid claims recoverable from reinsurers 27,432 27,117 11,204 6,774 5,437 2,177 1,525 $1,856,778 $1,856,463 $ 539,312 $470,393 $ 63,299 $ 303,480 $389,596 $ 90,383 Financial liabilities Accounts payable and accrued liabilities $ Premium taxes payable 86,099 $ 86,099 $ 10,517 10,517 58,745 $ 27,354 $ 10,517 $ $ Amounts due to reinsurers 48,764 48,764 48,764 Accrued pension liabilities 10,248 10,248 10,248 Provision for unpaid claims 791,736 781,685 Lease liability 9,108 9,664 235,409 1,183 122,528 1,064 115,201 3,344 171,765 136,782 2,503 1,570 $ 956,472 $ 946,977 $ 68,993 $323,227 $ 123,592 $ 118,545 $ 174,268 $ 138,352 72 2022-23 SGI CANADA Annual Report#79Financial assets Cash and cash equivalents (thousands of $) March 31, 2022 Carrying amount No stated Total maturity More 0-6 7-12 months months 1-2 3-5 than 5 years years years $ 53,492 $ 53,492 $ $ 53,492 $ $ $ $ Accounts receivable 301,055 301,055 239,329 Investments 1,351,320 1,351,320 492,200 153,683 53,174 24,742 330,306 2,819 4,272 244,380 1,461 106,009 Unpaid claims recoverable from reinsurers 53,519 52,454 22,408 13,937 10,714 3,321 2,074 $1,759,386 $1,758,321 $492,200 $ 468,912 $ 91,853 $343,839 $251,973 $ 109,544 Financial liabilities Accounts payable and accrued liabilities $ 74,110 $ 74,110 $ 42,488 $ 31,622 $ Dividend payable 5,000 5,000 5,000 Premium taxes payable 9,404 9,404 9,404 Amounts due to reinsurers 43,658 43,658 43,658 Accrued pension liabilities 11,818 11,818 11,818 Provision for unpaid claims 740,299 716,798 Lease liability 11,293 12,062 A $ +A $ 213,691 1,200 115,986 1,198 112,515 152,094 4,095 122,512 2,874 2,695 $ 895,582 $ 872,850 $ 54,306 $ 304,575 $117,184 $ 116,610 $ 154,968 $ 125,207 The estimated contractual maturities related to lease liabilities excludes the net effect of discounting of $0.6 million (2022 $0.8 million) (note 7). The estimated contractual maturities related to the unpaid claims recoverable from reinsurers excludes the net effect of discounting and PFAD of $0.3 million (2022 - $1.1 million) (note 10). The estimated contractual maturities related to the provision for unpaid claims excludes the net effect of discounting and PFAD of $10.1 million (2022 - $23.5 million) (note 10). 2022-23 SGI CANADA Annual Report 73#8017. Capital Management The Corporation's primary objectives when managing capital are to ensure adequate funding is available to pay policyholder claims, be flexible in its product offerings and support its growth strategies, while providing an adequate return to its shareholder. Its main sources of capital are retained earnings and cash injections in the form of equity advances from its parent, CIC. There were no changes to the Corporation's capital structure during the year. The Corporation is not a regulated insurer; however, its subsidiaries, SCISL and Coachman, are subject to rate regulation related to their automobile premiums and solvency regulation from the provincial regulators in Saskatchewan and Ontario respectively. Although not federally regulated, the Corporation has chosen to follow the guidance provided by the Office of the Superintendent of Financial Institutions (OSFI) in determining and monitoring capital targets. The Corporation uses a common industry measurement, the Minimum Capital Test (MCT), to monitor capital adequacy. The MCT is a risk-based capital adequacy formula that assesses risks to assets, policy liabilities and off balance sheet exposures by applying various factors to determine a ratio of capital available over capital required. The Board of Directors approved capital management policies for the Corporation, and each of its subsidiaries, prepared in accordance with Guideline A-4, Regulatory Capital and Internal Capital Targets, which OSFI issued in January 2014. The policies establish internal MCT targets, in excess of 150%, which are used by the regulators as minimum targets for supervisory purposes. The policies also establish operating MCT targets that provide for an operating cushion above the internal targets. The Corporation and its subsidiaries strive to maintain MCTs in excess of their internal targets. The Corporation's MCT as at March 31, 2023 was 233% relative to its internal target MCT of 213%. 18. Change in Non-Cash Operating Items The change in non-cash operating items is comprised of the following: (thousands of $) 2023 2022 Accounts receivable Unpaid claims recoverable from reinsurers Reinsurers' share of unearned premiums Deferred policy acquisition costs Prepaid expenses Accounts payable and accrued liabilities Premium taxes payable Amounts due to reinsurers Unearned reinsurance commissions Unearned premiums Accrued pension liabilities $ (21,877) $ (19,307) 26,087 (31,476) (14,896) (3,200) (9,940) (9,690) (2,007) (727) 11,989 10,511 1,113 450 5,106 11,778 996 228 52,942 36,839 (1,570) (1,684) Provision for unpaid claims 51,437 93,826 Total change in non-cash operating items $ 99,380 $ 87,548 74 2022-23 SGI CANADA Annual Report#8119. Employee Salaries and Benefits The Corporation incurs salary and retirement benefit costs associated with its defined benefit pension plan, defined contribution plan and its defined benefit service recognition plans and other benefit costs. The Corporation allocates a portion of these costs to the Saskatchewan Auto Fund for employees of the Corporation who provide service to it based on a cost allocation framework. These amounts have been disclosed separately in this note. The Corporation allocates expenses incurred to the various operating functions. The Corporation includes employee salaries and benefits in the claims incurred and administrative expense line on the Consolidated Statement of Operations. Total salary and benefits expenses incurred during the year are as follows: Salaries Defined contribution pension plan Defined benefit pension plan Defined benefit service recognition plans Other benefits Total salaries and benefits Less: Allocation to Saskatchewan Auto Fund Salaries and benefits incurred in SGI CANADA (thousands of $) 2023 2022 $ 192,375 $ 174,546 11,715 10,464 119 65 450 414 31,776 35,082 236,435 220,571 (129,102) (127,490) $ 107,333 $ 93,081 Defined contribution pension plan The Corporation has employees who are members of the Public Employees Pension Plan, which is a defined contribution pension plan. The Corporation's financial obligation is limited to contributions made on behalf of employees for their current service. Defined benefit pension plan The Corporation has a defined benefit pension plan for certain of its employees that has been closed to new membership since 1980. Current service costs of this plan are charged to operations on the basis of actuarial valuations, the most recent valuation being as of December 31, 2019. Results from the last actuarial valuation have been projected to March 31, 2023. The actuarial valuation is measured using management's best estimates based on assumptions that reflect the most probable set of economic circumstances and planned courses of action. The estimate, therefore, involves risks that the actual amount may differ materially from the estimate. 2022-23 SGI CANADA Annual Report 75#82The major assumptions used in the projection, are as follows: Economic assumptions: Discount rate - beginning of the year Discount rate - end of the year Inflation rate Expected salary increase Remaining service life of active members, in years (EARSL) Last actuarial valuation 2023 2022 3.9% 2.9% 4.8% 3.9% 2.0% 2.0% n/a n/a n/a n/a Dec. 31/19 Dec. 31/19 Changes in the assumptions would impact the accrued benefit obligation as follows: Discount rate Post-retirement indexing (thousands of $) 1% Increase 1% Decrease 2023 2022 2023 2022 $ (1,453) $ 278 (2,031) $ 1,681 $ 2,393 393 n/a n/a The weighted average duration of the accrued benefit obligation is 7.7 years (2022 - 9.0 years). An increase in the average life expectancy of a pensioner by one year is estimated to increase the accrued benefit obligation by approximately $0.9 million (2022 - $1.3 million). The asset allocation of the defined benefit pension plan assets is as follows. Asset Category Short-term investments Bonds and debentures Canadian equities U.S. equities Non-North American equities 1 Effective November 1, 2020 Percent of Plan Assets at Benchmark 2023 2022 5.0% 4.7% 4.6% 75.0% 75.2% 74.6% 8.0% 8.0% 8.7% 6.0% 6.0% 6.2% 6.0% 6.1% 5.9% 2 Investment in investment funds are deemed to be fully invested in that fund's asset class even though the investment fund may have cash reserves The total fund asset mix benchmark weights are to be maintained within the following ranges at all times; a range of +/- 2% for Canadian equities, U.S. equities, non-North American equities and short-term investments, and a range of +/- 5% for bonds and debentures. 76 | 2022-23 SGI CANADA Annual Report#83The movements in the defined benefit obligation are as follows: Accrued benefit obligation Accrued benefit obligation, beginning of the year Employee contributions Interest cost Benefits paid Actuarial gain on assumption changes Accrued benefit obligation, end of the year The movements in the fair value of pension plan assets are as follows: Plan assets Fair value of plan assets, beginning of the year Interest income Return on plan assets, excluding interest income Employee contributions Benefits paid Fair value of plan assets, end of the Accrued pension asset Accrued benefit obligation Fair value of plan assets Net plan asset Valuation allowance Accrued pension asset year Pension expense for the defined benefit pension plan is as follows: Interest cost Pension expense (thousands of $) 2023 2022 $ 21,515 $ 25,096 2 711 589 (2,393) (2,197) (783) (1,975) $ 19,050 $ 21,515 (thousands of $) 2023 2022 $ 24,839 $ 26,951 592 524 (1,015) (441) 2 (2,393) (2,197) $ 22,023 $ 24,839 (thousands of $) 2023 2022 $ 19,050 $ 21,515 22,023 24,839 2,973 3,324 (2,973) (3,324) $ $ (thousands of $) 2023 2022 $ 119 $ 65 $ 119 $ 65 2022-23 SGI CANADA Annual Report 77#84Defined benefit service recognition plans Current service costs of the service recognition plans are charged to operations on the basis of actuarial valuations performed annually as at December 31. Results from the latest valuations have been projected to March 31. The actuarial valuations are measured using management's best estimates based on assumptions that reflect the most probable set of economic circumstances and planned courses of action. The estimates, therefore, involve risks that the actual amount may differ materially from the estimate. Significant actuarial assumptions adopted in measuring the Corporation's accrued benefit obligation are: Discount rate Expected salary increase Inflation rate Termination rate EARSL management EARSL-in-scope Changes in the assumptions would impact the accrued benefit obligation as follows: Discount rate Expected salary increase Inflation rate Termination rate 2023 2022 4.8% 3.8% 3.0% 3.0% 2.0% 2.0% 0.6% 0.6% 12 12 9 9 (thousands of $) 1% Increase 1% Decrease 2023 2022 2023 2022 (540) (790) 619 915 623 901 (553) (794) 1 (4) (1) 4 (572) (820) 378 546 The weighted average duration of the accrued benefit obligation is 5.4 years (2022 - 6.4 years). Information about the defined benefit service recognition plans is as follows: (thousands of $) Accrued benefit obligation 2023 2022 Accrued benefit obligation, beginning of the year Current service cost $ 11,818 $ 13,502 Interest cost Benefits paid 86 363 109 305 (1,882) (1,688) Experience gain (137) (410) Accrued benefit obligation, end of the year $ 10,248 $ 11,818 78 2022-23 SGI CANADA Annual Report#85Pension expense for the defined benefit service recognition plan is as follows: Current service cost Interest cost Pension expense (thousands of $) 2023 2022 $ 86 $ 109 363 305 $ 449 $ 414 The Corporation incurs retirement benefit costs associated with its defined benefit pension plan, defined contribution plan and defined benefit service recognition plans. The Corporation allocates a portion of these costs to the Saskatchewan Auto Fund for those employees of the Corporation who provide service to it. These amounts are recovered by the Corporation as part of its cost allocation process. 20. Related Party Transactions Included in these consolidated financial statements are transactions with various Saskatchewan Crown corporations, ministries, agencies, boards and commissions related to the Corporation by virtue of common control by the Government of Saskatchewan and non-Crown corporations and enterprises subject to joint control and significant influence by the Government of Saskatchewan (collectively referred to as "related parties"). Routine operating transactions with related parties were conducted in the normal course of business and recorded at the exchange amount, which is the amount of consideration established and agreed to by the related parties. The Corporation has elected to take a partial exemption under IAS 24, Related Party Disclosures, which allows government-related entities to limit the extent of disclosures about related party transactions with government or other government-related entities. The Corporation acts as administrator of the Saskatchewan Auto Fund. Administrative and loss adjustment expenses incurred by the Corporation are allocated to the Saskatchewan Auto Fund directly or on the basis of specific allocations. Amounts incurred by the Corporation and charged to the Saskatchewan Auto Fund were $257.8 million (2022 - $207.5 million) and accounts receivable were $7.3 million (2022 - $12.6 million). All transactions with the defined benefit pension plan, the defined contribution pension plan and the defined benefit service recognition plans are related party transactions by virtue of the plans being created for the benefit of the Corporation's employees. 2022-23 SGI CANADA Annual Report|79#86Key management personnel Key management personnel are those persons having authority over the planning, directing and controlling activities of the Corporation, and include the Board of Directors, the President and Chief Executive Officer and Executive Vice Presidents of the Corporation. Key management personnel compensation is comprised of: Salaries and benefits Post-employment benefits Contributions to defined contribution plan (thousands of $) 2023 2022 $ 4,466 $ 3,586 26 31 320 250 $ 4,812 $ 3,867 During the year, $2.4 million (2022 - $2.0 million) of the key management personnel expenses was allocated to the Saskatchewan Auto Fund. Other related party transactions are described separately in the notes to the consolidated financial statements. 21. Facility Association Participation Through its subsidiaries, the Corporation is a participant in automobile residual market and risk-sharing pools, whereby companies in the industry are required by regulation to provide automobile insurance coverage to high-risk insureds. Facility Association transactions recorded in the Corporation's financial results are as follows: (thousands of $) 2023 2022 Gross premiums written $ 12,406 $ 11,237 Net premiums earned Net claims incurred Commissions Premium taxes Administrative expenses Total claims and expenses Underwriting (loss) income $ 11,404 $ 10,465 8,015 6,550 1,933 295 351 399 2,432 2,792 12,731 10,036 (1,327) 429 Investment earnings 47 1 Net (loss) income $ (1,280) $ 430 Facility Association receivable $ 5,425 $ 3,831 Unearned premiums 7,184 6,181 Facility Association payable 1,524 1,524 Provision for unpaid claims 17,501 16,175 80 2022-23 SGI CANADA Annual Report#8722. Select Operating Information The Corporation provides property and casualty insurance directly in Saskatchewan, and through its subsidiaries, SCISL operating in Saskatchewan, Alberta, Manitoba, Ontario and British Columbia, and Coachman operating in Ontario. The performance of each subsidiary is reported separately to the Corporation's Board of Directors. The product offerings vary across the jurisdictions, but all products offered are considered property and casualty insurance. (thousands of $) March 31, 2023 Saskatchewan SCISL Coachman Consolidation adjustments Total Net premiums written $ 686,446 $ 450,075 $ 34,748 $ $ 1,171,269 Net premiums earned $ 665,744 $ 439,121 $ 28,358 $ $ 1,133,223 Net claims incurred 385,385 295,046 20,761 701,192 Other expenses 258,856 186,258 11,644 456,758 Underwriting income (loss) 21,503 (42,183) (4,047) (24,727) Net investment earnings and other revenue 22,379 18,347 2,042 42,768 Income (loss) before income taxes 43,882 (23,836) (2,005) 18,041 Income tax recovery (5,910) (496) (6,406) Net income (loss) $ 43,882 $ (17,926) $ (1,509) $ $ 24,447 Total assets $ 1,398,550 $ 971,210 $ 130,369 $ (377,751) $ 2,122,378 Total liabilities $ 844,523 $ 686,327 $ Shareholder's equity $ 554,027 $ 284,883 $ 81,148 $ 49,221 $ (43,647) $ 1,568,351 (334,104) $ 554,027 (thousands of $) March 31, 2022 Consolidation Saskatchewan SCISL Coachman adjustments Total Net premiums written $ Net premiums earned $ 629,110 $ 606,847 $ 417,736 $ 23,286 $ $ 1,070,132 406,553 $ 23,093 $ $ 1,036,493 Net claims incurred 333,562 250,709 10,118 594,389 Other expenses 221,224 160,606 8,148 389,978 Underwriting income (loss) 52,061 (4,762) 4,827 52,126 Net investment earnings and other income 20,733 10,109 1,613 32,455 Income before income taxes 72,794 5,347 6,440 84,581 Income tax expense 1,188 1,621 2,809 Net income $ 72,794 $ 4,159 $ Total assets $ 1,327,262 $ Total liabilities $ 797,939 $ Shareholder's equity $ 529,323 $ 917,471 $ 613,151 $ 304,320 $ 4,819 $ 133,395 $ 82,665 $ 50,730 $ $ 81,772 (395,204) $ 1,982,924 (40,154) $ (355,050) $ 1,453,601 529,323 2022-23 SGI CANADA Annual Report 81#8823. Commitments and Contingencies The Corporation's systems and facilities contractual commitments are as follows: 2023-24 2024-25 (thousands of $) 2025-26 2026-27 2027-28 Commitments Systems contracts $ Facilities contracts 49,334 $ 793 21,510 $ 15,451 $ 11,517 $ 4,314 $ 50,127 $ 21,510 $ 15,451 $ 11,517 $ 4,314 In common with the insurance industry in general, the Corporation is subject to litigation arising in the normal course of conducting its insurance business. The Corporation is of the opinion that litigation will not have a significant effect on the financial position or results of operations of the Corporation. In addition, the effects of the COVID-19 pandemic related to emerging coverage issues and claims (class action lawsuits related to business interruption coverage) could negatively impact the Corporation's provision for unpaid claims liabilities. The Corporation's commercial insurance policies do not provide business interruption coverage in the context of a closure due to COVID-19 as direct physical loss or damage is required to trigger this coverage. In the event that these cases result in a significant judgment against the Corporation, the resulting liability could be material. Based on information currently known, the Corporation does not believe that the outcome of these cases will have a material impact on the consolidated financial statements. 24. Comparative Figures Certain comparative figures have been reclassified to conform to current year's presentation. 82 2022-23 SGI CANADA Annual Report#89Glossary of Terms Broker Casualty insurance Catastrophe reinsurance Cede, Cedant, Ceding company Claims incurred Combined ratio Facility Association GAAP Gross premiums written (GPW) IBNR reserve IFRS A person who negotiates insurance policies on behalf of the insurance company, receiving a commission from the insurance company for policies placed and other services rendered. One of the three main groups of insurance products (the others are life insurance and property insurance). This type of insurance is primarily concerned with losses caused by injuries to others than the policyholder and the resulting legal liability imposed on the insured. A policy purchased by a ceding company that indemnifies that company for the amount of loss in excess of a specified retention amount subject to a maximum specific limit from a covered catastrophic event. An insurance company that transfers some or all of the risks in active policies to another company cedes its business. The company transferring its risks is known as the cedant or ceding company. The totals for all claims paid and related claim expenses during a specific accounting period(s) plus the changes in IBNR reserve for the same period of time. A measure of total expenses (claims and administration) in relation to net premiums earned as determined in accordance with GAAP. If this ratio is below 100%, there was a profit from underwriting activities, while over 100% represents a loss from underwriting. Participation in automobile risk-sharing pools whereby P&C insurance companies share resources to provide insurance coverage to high-risk individuals or businesses. Generally accepted accounting principles. These are defined in the handbook prepared by the Canadian Institute of Chartered Accountants. Total premiums, net of cancellations, on insurance underwritten during a specified period of time before deduction of reinsurance premiums ceded. Abbreviation for "incurred but not reported." A reserve that estimates claims that have been incurred by a policyholder but not reported to the insurance company. It also includes unknown future developments on claims that have been reported. International Financial Reporting Standards. These are global accounting standards issued by the International Accounting Standards Board (IASB), including interpretations of the International Financial Reporting Interpretations Committee (IFRIC). 2022-23 SGI CANADA Annual Report 83#90Loss ratio (Claims ratio) Minimum Capital Test (MCT) Net premiums earned (NPE) Net premiums written (NPW) Net risk ratio (NRR) Premium Premium tax Property insurance Redundancy & deficiency Reinsurance Reinsurer Underwriting Claims incurred net of reinsurance expressed as a percentage of net premiums earned for a specified period of time. A solvency ratio used by regulators to assess a company's financial strength. This ratio measures capital requirements in relation to the degree of risk undertaken by a particular company. The portion of net premiums written that is recognized for accounting purposes as revenue during a period. Gross premiums written for a given period of time less premiums ceded to reinsurers during such period. A ratio of net premiums written to equity. This ratio indicates the ability of a company's financial resources to withstand adverse underwriting results. The regulatory guideline is a ratio of 3.0 or lower. The dollars that a policyholder pays today to insure a specific set of risk(s). In theory, this reflects the current value of the claims that a pool of policyholders can be expected to make in the future, as well as the costs of administering those potential claims. A tax collected by insurance companies from policyholders and paid to various provincial and territorial governments. It is calculated as a percentage of gross premiums written. One of the three main groups of insurance products (the others are life insurance and casualty insurance). This type of insurance provides coverage to a policyholder for an insurable interest in tangible property for property loss, damage or loss of use. Claim reserves are constantly re-evaluated. An increase in a reserve from the original estimate is a deficiency, while a decrease to the original reserve is called a redundancy. In its simplest form, insurance for an insurance company. It is an agreement where the reinsurer agrees to indemnify the ceding company against all or a portion of the insurance or reinsurance risk underwritten by the ceding company under one or more policies. A company that purchases the cedant risk in the reinsurance contract. The process of reviewing applications submitted for insurance coverage, deciding whether to insure all or part of the coverage requested and calculating the related premium for the coverage offered. 84 2022-23 SGI CANADA Annual Report#91Underwriting capacity Underwriting income/loss Unearned premiums The maximum amount that a company can underwrite. It is based on retained earnings and investment capital held by the company. Using reinsurance allows a company to increase its underwriting capacity as it reduces the company's exposure to particular risks. The difference between net premiums earned and the sum of net claims incurred, commissions, premium taxes and all general and administrative expenses. The difference between net premiums written and net premiums earned. It reflects the net premiums written for that portion of the term of its insurance policies that are deferred to subsequent accounting periods. 2022-23 SGI CANADA Annual Report 85#92• Governance Please visit the SGI CANADA website at www.sgicanada.ca for information on governance for SGI CANADA, including: governance guidelines • • Board of Directors' photos and bios, committee members, frequency of meetings and terms of reference SGI CANADA executives' photos and bios 86 2022-23 SGI CANADA Annual Report#93In Memoriam Robert Hall, an Adjuster 2 with Saskatchewan Property Claims Operations (Farm) at Regina Head Office, treasured time with his family and lifelong friends. He found happiness and a sense of accomplishment with his team at SGI. Robert loved soccer, being with family, boisterous games nights and reflective quiet conversation. His stories were comical - he had a big personality and even bigger heart. He will be lovingly remembered by his wife Amanda; parents Dave and Sharon; brother Peter and his family (Sarah, Marcus, Victoria); as well as numerous aunts, uncles, and cousins. Scott Jensen, Customer Inquiry Representative in the Customer Service Centre at the Regina Operations Centre, was passionate about hockey, football and helping others. He spent many years working for the family business in Ontario before moving to Regina and into the insurance industry. His colleagues were impressed by how effortlessly professional and compassionate he was. Scott knew how to make others laugh and smile. He's survived by his parents, Paul and Cheryle; sister Carolyn and brother-in-law Kevin; nephew Owen and niece Charlotte. Susan Lehner, an IT Programmer at Regina Head Office, was joyful, fun-loving, and kind. She spent 37 years with the corporation and moved through many different areas. Susan grew up loving to dance and was a cheerleader for the Saskatchewan Roughriders in her younger years. She was a swimmer, animal lover, sci-fi geek and loved going out with friends and family. Susan leaves behind her mother Bonnie; sons Colby and Zachary; brother Michael; nephew Lev and numerous extended family members. David Panagabko, Auto Body Repair Technician at Technical Research Services in Regina, was always smiling, easy to talk to and good for a laugh. He volunteered with the Knights of Columbus, Kolos Dance School, and the Kyiv Mosaic pavilion in Regina. His favourite time was spent on his motorcycle, working on vehicles, fishing, golfing, and spending time with his grandkids. David cared deeply about stopping impaired driving and even got a tattoo in support of the Be A Good Wingman impaired driving awareness campaign. He leaves behind his wife Dianne; children Kristen and Dustin; four grandchildren; and many extended family members and friends. 2022-23 SGI CANADA Annual Report 87#94Empty#95Empty#96SGI CANADA Head Office ⚫ 2260 - 11th Ave., Regina, Saskatchewan, Canada S4P 0J9 SG CANADA www.sgicanada.ca