2022-23 SGI CANADA Annual Report

Underwriting 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

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