Definity Financial Corporation (DFY) Earnings Call Transcript & Summary

Good afternoon, everyone, and thanks for joining us today. My name is Bart Dziarski. I'm the research analyst covering diversified financials at RBC Capital Markets. Thrilled today to be hosting Rowan Saunders, President and Chief Executive Officer of Definity Financial.

[Operator Instructions] And with that, Rowan, maybe I'll turn it over to you, and we can get started in terms of -- you just reported Q4 '25. 2025 is a strong year from a momentum perspective. Maybe just walk us through some of the milestones and operational achievements there for the year.

Sure. Happy to do that. And thank you very much for having me. Great to be here with you, Bart. Look, I think as we said on the call, we had a very strong Q4 of 2025. And that's a great way to kind of end the year. It was a very strong year overall, and that gave us a lot of momentum coming into this year, 2026. When I think about the business, certainly, the growth was pleasing. And in fact, we accelerated growth in the fourth quarter with 9.2% of growth. What I like about that is that you really saw good broad contribution. And so we saw that in all three lines of business. Personal automobile was nearly 10%; personal property, a little over 10% and commercial strong at 7%. And when you think about the quality of that growth, we look at the sources, we look at how much is rate, how much is unit count and the quality of that business; so all really nicely within appetite and trending very well from that perspective. On the profitability side, a very strong quarter, so 89.9%, sub-90%, very impressive final quarter for us and 91.6% on the full year. So like that, I mean, that's a combination of good growth, strong margins. Again, when we look at the quality of that, we again are pretty pleased because one of the key metrics we look at is the calendar -- the accident year combined ratio, accident year loss ratio. And I think a number of things are happening there. There's good quality new business that's coming in. Sonnet got more profitable as the year went along. And we've taken quite a bit of rate that generally is ahead of loss cost trends, and that's earning in. So we would say actually, we kind of enhanced some margins through the year. That culminated in a strong underwriting profit of a record number for us at $355 million. So that's a good contribution. Of course, as you then go down the income statement, we had nice solid, stable net investment income. Really pleased with the progress we saw in distribution income. So that is up materially. The platform operating earnings was close to $100 million. So it's quite meaningful for us, and we're getting more share of wallet in that channel. And you put that together and you get an operating ROE of a little over 12%, which is in the upper range of our guidance. So really, really happy. And then when I step back and say, look, over the last 4 years since we've been public, we're doing exactly what we wanted to do. We wanted to gain share, we're gaining share. We wanted to grow ahead of the marketplace, we're able to do that. And we're very pleased that now we can run the business in the low 90s combined ratio area. So to me, I think a very strong exit of the year and giving us a lot of confidence coming into 2026, which, as you know, is a really important year for us. Not only did we have good financials last year, but we, of course, announced the transformational acquisition of Travelers Canadian business that we'll be very focused on this year.

Awesome. Thanks for that overview. And I think we'll definitely talk about the organic parts of the business that you just went through. And -- but just segueing off that, let's talk a little bit about Travelers. So you closed the deal on January 2, a little bit ahead of expectations, which was great. It's been 6 weeks now. And just with what you've seen post close, are there any items of the business that are exciting you a bit more? Are there any surprises that you've seen? Just maybe walk us through that.

Yes. Look, I think the good news is that we had an extended period of due diligence last year. We've had a number of months of kind of integration planning, getting ready for the close. And so I think we understand the business really well. The close itself early in the year went very, very smooth, and all that onboarding activity is now well in flight. So really happy with the business, delighted we were able to get the business. As I said, it's a game changer for us. And if I just step back for a moment, remind you that this is very strategic for us. We have an objective of being a top 5 player. We started off when we went public at #8, organically grew to #6 in the P&C sector and now #4 with this deal. It is a very complementary portfolio. So what we're getting is about $1 billion of personal insurance business. Scale is really important in that business line. We're going to put it on to our buying platforms, big synergies will come out of that. We get significant commercial product and capabilities and talent as well and of course, happy with that specialty business. And when you think about the broker ranking, we're now comfortably the third largest carrier, so very meaningful to our broker partners. So all of those strategic items are as we hoped and expected, and we're comfortable with that. And then, of course, we also shared that this is a financially compelling deal. And not is it just an additional $1.5 billion of revenue or about 30% of our size, but it's a high-synergy deal. So there's $100 million plus of synergies. We're very confident in that number. We know there will be some other upsides like some loss ratio improvements as well. But it also allowed us to optimize the balance sheet, and that was always something coming into life as a public company with excess capital on our balance sheet and a completely unlevered balance sheet, we've been able to put that into good use now. So I think no surprises. It's as expected, and we're very pleased about it. I think that we're delighted that the employees seem very pleased to be joining a Canadian champion. Our broker partners have been very supportive as well. And so now it's done a hard work of integrating and converting the business through the year.

Makes sense. And I guess on that point, typically, after acquisition, you have, call it, a 100-day plan, and maybe I'll extend that in terms of the first 6 months. Like what are your sort of top three, if you will, focus areas or priorities as you're now integrating the business?

Yes. I think they are retain the business, retain the people and continue to grow the Definity core or existing portfolio. And those are really the three big priorities. We like the business, and therefore, retaining it is really important for us. Of course, you acquire about $1.5 billion, there will be some natural attrition in that area. And the previous management have put actions in place to improve the profitability of the business. We're very supportive of that. So some of that is still continuing to earn its way into 2026. But by and large, we don't expect any big blocks of business to leave. So that's a good -- looks good for us at this stage. The talent is a really important one. And particularly as you think about that commercial, that specialty business, the specialty claims teams, this is hard to source talent. There's IP, there's product, there's trading relationships. So that's important. And in fact, I feel the biggest risk that we faced was really from announcement to closing, where people don't know us and we were a bit concerned potentially about their future roles. And the retention has been amazing. Like we worked really hard on that and of course, had a multifaceted approach to ensure that. But that's quite exciting. And I can tell you from all the town halls that we've been doing in the first month of the business, people are pretty excited to be part of the story. And then, of course, it's continuing to grow the Definity business. We've got a $5 billion business pre the Travelers acquisition, and it continues to grow really well. And if I just go back to the opening comments of we exited Q4 of '25 with over 9% growth. We continue to expect that business will continue to grow in that single-digit growth rate. So those would be the main themes. And of course, there's some sub themes underneath that.

Okay. Got it. And on the leverage component, so if I read it correctly, it sounds like you might get to your 25% target sooner than expected. Let me know if that understanding is correct. And if so, the timing. And then maybe bigger picture, like does the elevated leverage today constrain you in any way from pursuing whether it's the organic initiatives or sort of the strategies that you want to do or not really?

Yes. I think from the leverage perspective, we were pleased to put that in overall bond certainly in place of $1 billion. And we think that we communicated that we would get that to around 25% over a couple of years. And I think that we're well on track to do that. In fact, we've already paid down the excess capital loan. So moving pretty quickly. Everything is moving a little faster. We closed a little earlier. We paid that down a little sooner than modeled. So these things are falling into place quite nicely. But I think the point you raised is, does this really impede our ability to inorganically deploy capital? And the answer is no. Even with this acquisition just closed, we today sit with about $750 million of financial capacity, and that's before issuing any equity. So I think that whilst this is a main priority for us, and we want to get this done and done really well, it doesn't preclude us from anything inorganic in the short term.

Okay. Great. And then I wanted to spend a minute or 2 on the specialty capabilities that are coming on to the platform. So I know it came up on the earnings call, and I think you gave a TAM of about $34 billion as to what's out there to sort of fish in, if you will. So can you maybe spend a couple of minutes on the strategy around that, some of the verticals you'd like to go into? I think it's pretty exciting, but I want to understand, and it's new for some of those verticals. So would love to get your thoughts there.

Yes. We're excited about it. And I think that -- I think if you think about where we've come from, the economical before becoming Definity was very much a small SME-type appetite. We've brought lots of talent in over the last 5 to 7 years. We have built verticals in mid-market. We've attracted talent and teams to write specialty. And those areas have actually been doing very well for us. But there are many verticals there, and there's a big market, and our share is really still pretty small. I think that what this does, the Travelers acquisition actually accelerates our commercial specialty strategy by about 5 years. I mean this was in the cards. We were building and going in this direction. So it's really an acceleration of those capabilities we would have got in any case. And this is the talent, is hard to source and very, very experienced and all the IP that comes with that. I think on the new segments, there's a number of them. So for example, we may have been in some segments of directors and officers insurance, but now we've got a bigger appetite, more of that segment or vertical we can participate in. But financial lines is new for us, Ocean Marine is new for us, some parts of oil and gas, technology, cyber insurance; all of these are open the market from what we have. And I think that you heard on the call, that we saw the commercial marketplace roughly a $27 billion market. And now with these new products and capabilities, there's another $7 billion or $8 billion that's addressable. So if you think about $7 billion or $8 billion and over time, assuming we could win a 10% to 15% market share, it's really material in terms of what the upside could be over the next few years. I think when we think about what do we do and how do we move forward with this, look, there is simply cross-selling to our existing customers. And these are products we didn't have, we didn't have the ability to cross-sell. So these are existing clients we have. It's simply just cross-selling and building those relationships on those relationships we already have. And then the other one is adding product density to our offerings to the brokers. And I think this just makes us more of a go-to commercial insurance partner for our top brokers, which will mean we're right larger share of their wallet. And in terms of operation, the first kind of, let's call it, half of this year, what we're most interested in is just making this a smooth transition for our broker partners and for the customers. And so it's mostly about the conversion process. And then as we get into the second part of the year and, of course, into 2027, that's really where we'll start more actively marketing, cross-selling and trying to build on that product density opportunity to increase the specialty growth.

Okay. That's very helpful. And then I guess on that with '27, when I speak with investors, I think the general expectation is that, "Hey, '26, it's year 1, it's integration transition year," but then more and more, they're looking forward to '27 and beyond. So I guess two-parter. One, when does -- when would you expect the Travelers book to have fully sort of turned over, if you will? And then within '27 and beyond, have any of your expectations around some of the timing when you can harvest these benefits changed?

Yes. So I think when you think about the actual conversion, and it will vary a little bit by product segment, personal lines goes a little bit ahead of some other segments. Really, the middle of 2026, we start the conversion process. So that work has all been started. We already have one product in the marketplace. All of those new business activities are in flight right off the bat. But for the actual heavy lifting of transferring the business off of the Travelers legacy systems onto the Definity buying platform, that starts middle of the year. And this rolls every month for the year. So you can really think about this as middle of '26 rolling into middle of '27 for the vast majority of the portfolios. There will be a little bit that goes past that. And that's the bulk of what I'd say, of the conversion. And that's when I think that when we think about what really happens to that Travelers $1.5 billion this year, there's a little bit of attrition that will happen. But if that portfolio won't really be growing, it will actually contract a little bit as we put it on to the portfolio. And then it will start to operate and look more like what Definity does. And that's where we go back to saying, well, what's our true underlying growth rate? Well, it's been upper single digits. And so by the time we finish the conversion, we think both portfolios, the Travelers legacy portfolio and the Definity core portfolio, will start to operate similar type growth patterns in the past. So I think that's the kind of revenue as you get into the back half of '27 and onwards. And we're pretty confident about that. The other part about the synergies that we've communicated, what we said is there's about $100 million plus of cost synergies that we expect to extract over the course of the full integration. So that's over a 3-year period. And a couple of points we would make there. Firstly, we will start pretty quickly with some of those actions. They take time to earn in. And so that's why about 1/3 of the benefits really get reflected in the first 18 months, and then the second 18 months would be the remainder of them, even though more actions would have been taken in the first 18 months. So we'll share that on our earnings call, what's been triggered and what's actually being earned into the business. And I would say that we did lots of due diligence and planning. But now having owned the business for several weeks, I think our confidence level is even higher than what it was that this really is highly credible. We have a very high confidence level in that $100 million. We know exactly where it's coming from. A lot of it will come from technology. Some of it will come from cross-border governance charges and some will come from operations and the productivity of our new modern system. So we feel very good about that.

Great. I actually just got a question, and I'll ask it now because it ties into the leverage question I had asked. So the question is, is 25% the right long-run target that you think about for Definity? Or is there a range that you'd be more comfortable with in terms of leverage?

Yes. I think as a general starting point, that's a reasonable range for us. I think as you've seen on this acquisition, we're not opposed to going a little higher than that in the short term. But what we would normally think is that we would, over a couple of years, bring it back within that range. And it will be a little bit deal dependent, but we obviously need it. We would like to have it in our capital stack. But we are pretty comfortable that's a general range for us, albeit to complete the appropriate deal or we would go a little higher temporarily.

Got it. Great. That covers it on Travelers. So maybe we can move to the -- what I'll call the organic business. And you talked about in the 2025 overview around there's been acceleration. And maybe we could touch on sort of personal auto, personal property and commercial in terms of more of the competitive dynamics that you're seeing on the ground. Are there areas where competition is heating up, areas where competition is abating? Maybe just an overview sort of what you're seeing on the ground within those three business segments would be great.

Yes. And I think that we're seeing it pretty stable in the last several quarters would be the general kind of view. It's different by major product. And even within each of the lines of business, it's not completely even. But if I started with personal automobile, I think personal automobile, we think is -- we would say, is in a firm marketplace. The industry has been taking rate. Overall, the industry profitability is still around that breakeven level. Ours is, of course, 95%. We feel we're rate adequate, and that's why we feel we can continue to take price that covers the loss cost trends, which have normalized. They're pretty stable now. There are a number of things that drove them coming out of the supply chain crisis. Those have normalized. Bodily injury costs are pretty stable. Theft has kind of come down a bit. So that is a good position. To be properly priced, good segmentation, the modern technology platforms, like we like this market. Auto is -- we're in a good spot. And that's where you've seen us still getting rate, but taking share, and I think that will continue for us. But we think that market is going to be pretty firm. And most markets are in good shape. There is still an exception that would be Alberta, where you may have read that the industry is losing money quite a bit in Alberta. So that's going to take a little bit of time, but there is help on the way, there are reforms that are going to be put in place in 2027. So until then, we're still pretty prudent and cautious on that particular province. In terms of personal property, the market continues to be firm. Same thing happens. I think people have understood that wise 2025 wasn't a terrible year for nat cats, we came off a couple of very elevated years, 2024 and 2023. And the market has been disciplined. They're pricing for that risk. And we haven't seen any changes in that discipline and funding nat cat events. I think the other part that's pretty relevant is from '23 onwards, the reinsurance markets certainly increased the attachment levels. So insurance companies, primaries have higher net retentions than they typically have had in the past. And I think that also creates some discipline in the marketplace. So we're really seeing that as a conducive marketplace. We spent about 1.5 years addressing certain areas that we felt were more cat prone and we wanted to thin out our exposure so that cat management actions. We've kind of lapped that. That has now run its course. And that's why we're pretty comfortable and you now see good growth -- unit count growth coming back into that line of business. So we're not seeing any changes in direction there. It's been pretty stable. And then the commercial marketplace, for a couple of quarters now, we've called out that, that's an uneven marketplace. And I think that if you look at it, it varies a little bit by province, but certainly by segment. And what happens on large accounts is very different that's happening in parts of the specialty verticals or that's happening in small commercial. So we are seeing more competition in those large accounts. That seems to continue. And I don't think there was any difference in the fourth quarter from the second and the third. That is there, and I think it's going to probably run some more time. But in the other segments, we're still getting rate at or better than loss cost trend. And so really, what we're doing from a growth perspective is we're growing in the SME space, we're growing in the specialty space with a little bit of contraction in some of those large account areas. But I also put that into perspective because if you think about Definity's total portfolio, 70% is in personal lines, which is a firm market; 30% is in commercial lines. And only about 15% of our commercial business is what I would say is directly exposed to that more competitive large commercial space, which therefore, is obviously meaningful but very manageable for a company with our portfolio mix.

Okay. Got it. That's helpful. And thanks for quantifying that because I find that it impacts sentiment a lot, but then the actual number or the exposure, it's quite small. But in your view, you've seen different pricing cycles play out. Like what would you say could turn the soft pricing cycle? You can never kind of call it, obviously, but just what do you think would change that narrative or change that cycle to turn?

Yes. I think, in commercial lines, it's also really useful to think about the context we enter this. So we had a very firm to [ hard ] commercial marketplace for about 4 years. And so for 4 of those cycles, there was significant pricing, and not just pricing, but standards, underwriting appetite, terms and conditions that were tightened, which drove a lot of margin into those large accounts. And I think that people are now -- many people are now at the stage where they're saying, look, loss cost trends have slowed. So number one, we don't need as much rate as we would normally do. Number two, there is margin in those large accounts. And therefore, you can defend them, you can still grow but at some cost of margin. And I think that's what's the driving in the margin. How long will that last? It could be difficult to tell. But certainly, it's, I would say, for the most of last year, that was in place. And I think it will be at least another 12 months in that particular segment before you get to a stage where margin starts being eroded and your pricing is no longer adequate for the desired returns, in which case, that will shift -- should shift the marketplace. And then outside of that, you really need some kind of more of a shock, and this could be unusual nat cats or it could be rapid inflation driven by the tariff situation or a materially different investment return profile, none of which we think is highly likely. So I think there's still a little bit of time to run. So the way we deal with that is we think, look, let's keep our discipline. There are opportunities, but maybe a little less so. So we slowed our growth in some of those large, more exposed accounts. We're really focusing on segmentation. We're really focusing on long-term customers and retention on those accounts. And then we're redirecting our new business efforts to profit pools that are more attractive. And we're winning on service, we're winning on specialty, where we've got a low market share, and we're winning on the small commercial. And that small commercial is very much driven by technology, ease of business and flow business. And that's -- not everyone can actually replicate that. So we're finding that some of the competitors that are involved in that large commercial space where they see the market softening. It's not simple for them just to suddenly start writing small commercial. So we're not concerned about contagion going down into small commercial. You need the modern technology, you need broad distribution. You need big claims operations. You need all that kind of data. And so there's -- it takes a long time. There are barriers to entry enter that segment. So I think it's going to be isolated in the next little while.

Okay. Awesome. That's very helpful. I wanted to ask around the claims environment. It seems to be getting a bit more complex at the margin. There's litigation funding, not as much as there is in the U.S., but we've got cyber events, social inflation. And you guys have a long track record of disciplined underwriting, favorable reserve releases. So obviously, you're managing well in that environment. How are you able to stay on top of these trends and be on the right side of them?

A couple of things there. Firstly, I think by nature, we are good underwriters. That's part of our DNA. We underwrite, we assess risk, we know how to price risk, and we anticipate. And if you think back over the last number of years, when we saw this transitory inflation, we weren't so convinced it was just transitory. So we lent into that. When we thought about some of the supply chain disruptions, again, we thought this could be disruptive and be inflationary. How do we manage that? And we put actions into place like that. We even in Commercial Lines, anticipated that there wouldn't just continuously be a firm hard market. You would get to a phase where some segments will become, let's call it, more competitive. And so we designed our portfolio to avoid putting capital into those more volatile segments. They're easy to come, easy to lose. So I think that is part of our prudence. Same thing with reserving, which you kind of see, we always run off favorably. But a lot of it is data and a lot of it is early. You -- in insurance, you're never going to get everything perfectly right, and you will take some hits, but you just want to get flesh wounds as opposed to anything much more significant. And so it's finding things early and managing your way out of those, I think, would be a good general philosophy. I think we believe very much in great technology and claims. We believe in the expertise in the claims teams. Think about nat cat as a good example. Even in 2024, it was a record year for nat cats. These are all complex climate change environments. We get about half of our natural market share. Now you get a little lucky from time to time, but a lot of that is by design. It's deciding where we put our capital. It's making sure we've got the granular data to monitor our accumulation, structure our reinsurance program, build nat cat teams, have pre-existing contracts with our supply chain. So these are all the, let's call them the fundamentals of insurance. And if you're brilliant at the basics, if you're brilliant at the fundamentals, you tend to relatively outperform. So I think that's there. For example, we do get and we do see litigation funding. It adds a bit of a complexity. It is much more of a U.S. entity than it is in Canada. We typically don't have as many class action lawsuits. You get things like social inflation. Again, this is more U.S. than Canada. We really are quite different. Culturally, we know as litigious. We don't get those nuclear or jumbo verdicts that drive a lot of the social inflation. And even if you look at lines of business like bodily injury and automobile, if you go and look at the last number of years, it's still pretty mid-single-digit trend line. And so when it's stable, it is easier to predict, it's easier to manage, it's easier to price for. So I think that's how we do it, but we still continue to invest very heavily in claims. That's our promise. That's what we -- that's with the road at the rubber, that's where we try to differentiate good service, fair settlements skilled people and leading technology. And one of the things we're very excited about is that we've enhanced and finished the claims transformation just recently at Definity. And now we've got the leading technology and that transformation is recently finished. It allows us to bring Travelers business onto our platforms, but also we'll be able to help drive the margin up the operating ROE in the years ahead.

That's great. Very comprehensive, Rowan. And maybe I'll switch gears a little bit, and I do want to touch data and tech because I know you mentioned a couple of times. But before we do, maybe we could talk a little bit about the broker channel and broker M&A. The growth has been strong. You guys increased your guidance last year in middle of the year, I believe. What's your outlook there in terms of how that M&A market is shaping up in 2026? It's good deployment of capital, but I would love to get your latest thoughts on that outlook.

I think it is pretty well more of the same. And this is a sector that is consolidating. There's thousands of brokers in Canada. They are going through a big transformation. Scale matters. And like carriers, there has been consolidation. And if you think about the last number of years, the importance of size and scale and leverage is what brokers are focused on. So I think that is driving this, and I think it's going to continue. That's the reason why we got into this. I mean, for a number of reasons, strategic for us. But we built in a relatively short period of time, a top 10 broker in Canada. We like the sector. It's very high margin, it's very repeatable revenues that diversify our earnings. And that's why we grew at 24% last year. That's good organic growth, but a pipeline of activity. We did 10 transactions last year, mostly small and midsized programmatic acquisitions. But I think it tells you that the pipeline is still pretty full. And when we look to 2026, I don't think anything we see is going to slow that down. The fundamentals are all the same. There is competition for it. And so each, let's call it, consolidator has a slightly different proposition to the others. But the trend is, I think, scale is important. You need to make bigger investments going forward, you need to be relevant to your insurance companies, you need to specialize for your clients. And all of that drives consolidation. So I think that along with some demographics of broker ownership, we don't really see '26 any different from '25.

Okay. Great. And I know the question comes up often. And so -- but it still seems like it's a fragmented market. You've got a low market share. So there's an opportunity to keep kind of leaning in and growing into that, if I understand kind of the market dynamics from a broader perspective. Would that be fair?

You're talking about on the broker side of things?

Yes.

Yes, that is right. I think there's some very big brokers. When you look at the top 10 insurance brokers, there's, again, a big difference between the top couple and the bottom couple in that area, but then there's thousands underneath that. And it is fragmented, and I think it's going to continue to consolidate certainly for a number of more years.

Okay. Great. Yes. Maybe we can now pivot to kind of technology, and it's very topical in the market these days. I actually had a question coming in from an investor, which is a good way to kick it off. So maybe you can talk about the partnership that you have with Google. What are some of the specific tools and capabilities it brings for Definity? And could that turn into a competitive advantage over the, call it, medium to long term?

Yes. I mean, I think, quite frankly, we are, in our industry, one of the leaders in technology and in the use of AI as well. So I think that this is a big topic. And I think that if you kind of go from the bottom, which is we have to have the right technology base. You have to have digital tools. They have to interact with brokers and customers. We have a modern technology stack, and that is a big advantage for us. I think when you talk about the partnership with Google and what it does is many things for us. But one of the things we're most excited about is just how it's helping us also advance AI and Gen AI and the differentiators that, that has. We all think this is a big opportunity, and this is well suited for financial services and P&C. I think Definity has a long track record here. I mean we've been doing this for well over a decade. We have about 300 practitioners in advanced analytics and artificial intelligence. We've been making in the last couple of years, some significant investments in Gen AI. We think about it right across the business and so in all parts of the business. And it helps us with revenue, it helps us with underwriting and risk selection and it helps us with cost and productivity, it helps us with user experience and satisfying customers. So we have, for some time, had about 135 predictive models in place working with us. We have data, this is the 25 years of good high-quality data. The partnership we have with Google has that in a very usable situation in the cloud with Google. We partner with some of their engineers to test and develop these use cases. We have about 20 Gen AI use cases in development and in force through the company. Most of our people are now about 70% are using AI tools to help with their personal productivity. And it really ranges. And so an example might be in commercial insurance, we're using Gen AI to help us with prioritizing intake and identifying which quotes we should -- which submissions we should quote, what's our chance of winning, how to increase that probability. We're using Agentic AI. We're using it for customer contact summarization in Sonnet. So we spend more time giving advice. The same thing applies in the claims value proposition. So it's pretty pervasive. And I think for us, what I like about this is not only is this something that is an organization, that's deep in our DNA that we have the tools, we have external partnerships that help accelerate it. But we also have the modern technology to get it into production at the front of the business. And so that's one of the points where you may know what you want to do, you may have a model. But if you actually can't put it in front of a customer or on the desk of an underwriter, it limits its value. And I think that's the big differentiator for us. And so we think it's an advantage, and it's something that we continue to invest very heavily on. We have the Google Suite and Gemini and the cloud platform, and I think those are investments that are already paying dividends.

It sounds like you're well into the tech journey, which you don't often hear from insurance companies within the sector, right? So it's that you're leaning in. Before I get to some of the other tech components within the business, we should just address, there is angst in the market around like AI and what it could do to the broker side of the business. What are your thoughts in terms of what would be the mitigants against the disruption risk? Or are there structural differences in this market that would act as a bit of a buffer? Or do you think that those concerns are warranted in that part of the business?

Well, I mean, I think I would never want to play this down because I do think AI is transformational, and it's going to be very, very significant. I do also have a lot of confidence in the broker channel. This is a business that has had many people calling for its for its end for many, many times over the last 30, 40 years. And they are bigger, they are stronger, they are more profitable, they are more relevant today than they have been. So I think they tend to find a way of being very relevant and reinventing themselves. And I think that's the issue here, whereas, of course, AI could do many of those administrative tasks. And AI is already being used in insurance quotation discovery. What we still see is even with that and similar functions, if you think about aggregators, which are today fulfilling a very role of what AI and insurance broking promises; you still end up with a significant amount of customers wanting the advice and counsel of a broker because don't forget, this is a really important personal asset. If you're insuring your house, it's likely for the vast majority of people, the #1 biggest asset. If you're insuring a business or buying directors and officers insurance for a Board of Directors, I doubt the Board of Director is going to say, "Am I comfortable? Let me ask ChatGPT if I've got the right coverage here" when there's billions of dollars in assets at stake. So I think that brokers will have to adapt. They'll have to invest. And I also know that many of them are already doing so. They are using AI to help them accelerate and more productively deal with a lot of the friction and administrative tasks so that they can do really what they're good at, which is assessing risk and matching the clients with the appropriate underwriter. So my view is on this will be another accelerator, I think, of consolidation because, again, there are the haves and the have nots. They are those that actually gathered, that invest in it, that have good data, that have the ability to make those investments and stay relevant. I think they'll just get stronger and stronger, and then the week will likely end up either being disintermediated or most likely acquired. So I think there are ways around that. But again, that creates new opportunities. And I think that as an underwriter, whilst we don't stand to get disintermediated, as I mentioned before, there is a huge upside for us to get better and for us to be more relevant and for some of our brands like Sona to really lean in to what the new world may offer.

Right, right. And I guess sticking on that, you had mentioned earlier in our discussion around Sonnet, the profitability seems to be improving and gaining momentum. Just walk us through where you are on that journey and how much more is there to go for Sonnet.

Yes. The real objective for us on Sonnet in 2025 was to get confidence that this could run at an underwriting profit. And when you think about those components, the big one is the loss ratio and then the expense ratio. And Sonnet, again, was profitable. So I think we've had 5 quarters of profitability in that area now. So we're delighted with that. And I think what it proves to us is that the model does work. That means we can attract good-quality customers at a fair price. We can retain those customers. And so the loss ratio component is really in the range that we would like it to be. And the expense ratio, while still pretty okay, will come down to about a 10-point advantage over intermediated distribution levels with size and scale. So that's now back to the growth story. So I think for us now, we feel very comfortable we should start leaning more into building that business. You'll see actions happen. It takes some time to get the marketing machine going. The algorithm is working the way you would like it with some more growth in the second half of 2026 and then more confidence to go forward. So I think we feel the best about this business that we have since its launch, to be honest with you. We've also found that it's doing really well in the affinity business. And so groups in affinity is a big segment, about $8 billion subcomponent of the personal lines market. We're a disruptive play there. We're innovative. We are doing it differently than legacy underwriters, and that's resonating very well. It's about 45% of our new business policies are coming through that area. And we like that because it's just generally a higher quality customer that buys more products and stays longer. So all of these things will certainly help the economic model. So I think for us, when we think about strategically looking at the Canadian marketplace, we've got a great commercial business. And now with travelers, really good confidence of how relevant we grow. We've got a very strong intermediated personal lines business. Vyne gives us a big advantage. We're the third largest intermediated insurance company in Canada, great positioning. But we're still very small in the direct-to-consumer space, and that's a big market. And this is the way in. And I think that this is the new, more modern way into that marketplace that over the next number of years, we should see some good market share gains.

Okay. Great. And I want to keep sticking with technology because there's different components of the business as well. And so let's spend a minute on Vyne. I think it's a differentiator. It sounds like it's helping you gain share in the broker channel as a competitive advantage, if you will. And so are you finding in this environment that advantage is strengthening? Is it sort of status quo? Walk us through kind of what Vyne does for you today in the market.

Yes. No, I think that this is a big competitive advantage, and it was a very big investment that the company made in the run-up to life as a public company. And I would say that we feel we have a competitive advantage that is actually getting bigger over the quarters. And if I simplify it, really what it does is two things. If you take personal insurance, the Vyne platform, it allows us to become much more agile, much more sophisticated. And that means we could put our deployment of new rate segmentation much more frequently. We can use much more data that allows us to be better at aggregation management, nimbly transferring technical pricing and segmentation to the front lines. In other words, we could drive the loss ratio improvements. We're going to avoid anti-selection. So the technology platform allows that level of sophistication. That's kind of the underwriting lens. From the revenue lens and the customer experience lens, it's ease of business for brokers. This is something that really has been designed with brokers, for brokers. It is fully automated and integrated into the broker management systems. that reduces their friction. It makes the business a lot easier. It influences price elasticity. It's very easy just to hit a list of renewals and they're done. So what we see is we definitely see better new business, we definitely see much higher retention ratios. And the longer your tenure, the higher the quality customer is and the better the profitability. So it all really works for us. And I think the other part is where this is, again, very important, is it's given us a lot of confidence to do the Travelers transaction because when we think about lifting about $1 billion of personal lines of a legacy system and putting it on to the Vyne system, we know that the loss ratios will get better over a couple of years. And we know that the broker service levels will be better. And the expenses are dramatically different, which obviously drives a big part of that productivity gains and the $100 million synergies. So we know we can be a better owner and therefore, win M&A transactions as well. So I think that it is really important to us. It keeps getting better. And if I just digress for a moment, if you think about commercial lines, where it is important because the discussion we had earlier with large commercial being more competitive, small commercial, you're able to move forward. We're gaining share there, too. And so we have Vyne Small Commercial. We have now a new segment, [ FastPath ]. In 1 to 2 minutes, you can get a pricing indication. So if you just think about it from a broker's perspective, with very little effort in just a couple of minutes, you can get an indication of price and then it's not much to complete the transaction. That ease of business is really where you're going, particularly if you're under pressure remarketing, dealing with customers who may be having a more difficult time in the marketplace. So I feel it's very strategic. It's one of our big advantages. And I like us competing on technology, on service as opposed to on price.

Awesome. That was very helpful. And I guess you may as well keep going on the topic, go through your old tech stack. So Guidewire is another component. And I think I heard you correct earlier that you're sort of finished the implementation of Guidewire now on the organic business and then Travelers bolted on. So maybe walk us through the time frame of that, if I have that correct. And what that sort of unlocks for you from a Guidewire perspective in terms of benefits?

Yes. No, it's been a big investment for us. And I think there are a couple of phases. The first phase is we started with the policy system and the billing system. So that's really what we labeled as our platform Vyne. And so that is finished. The next thing we did has been the claims transformation. And we were actually late in deploying the claims transformation. We decided to do bolt on it. We decided to build Vyne in advance. And so we finished that. We did the automobile last year. We've just recently finished the property casualty element of the claims. So that part of the transformation is now finished. When you step back for a moment, at our Investor Day, we said, look, there are three organic levers that we would be using to move the operating ROE up. One was getting S to breakeven done. Number two was bringing the operating expenses from 13% down to 11%. We're almost there, 0.5 point to go ahead of schedule. And number three was the claims transformation, where we thought there's a couple hundred basis points, some of it we would reinvest but in that area. And that's pretty consistent from what we hear of Guidewire deployments around the world. Now that is in place, we'll start to see the benefits. I'd say we've got some of them, but well over 50% of those benefits are still to come, and that gives us, again, confidence going forward. So we're in good shape there, and that puts us in a good position to migrate the Travelers portfolio onto our platforms essentially onto the Guidewire platforms.

Okay. Got it. That was my last 10 questions. I think we pretty holistic cover the business. So look, I want to kind of synthesize and put it all together and on ROE. And so your core business, sounds like growth is accelerating into year-end and should stay pretty strong. Travelers are excited about it. So when we put it all together, just walk us through the confidence you have in achieving the ROE targets. Could we -- is there scenarios where you could be above that? And how should we be thinking about that over the kind of medium term from an ROE perspective?

Yes. Look, I think we're very pleased about the progress. And if you think about how we ended last year at 12.2%, high end of our range, and some moving parts in there. I just said the three levers that we had thought would be about 200 basis points, Sonnet expenses and client transformation, all going pretty nicely. And then when we talked about Travelers earlier in the discussion, we shared that with the optimized balance sheet, that's another couple of hundred-plus basis points. So that gets us a very clear path up into the mid-teens by the end of the Travelers integration. And all of that looks very, very achievable to us. Look, I mean, could things vary? When we create these, we anticipate that our industry has weather events. We have different cycles. We think about the investments. So I think that these are not aspirational. These are metrics that we have a high degree of confidence in. And I think when you think -- go back to look what Definity pre-Travelers has done, we have demonstrated that we can grow at about twice rate of the marketplace. We have demonstrated we now can run a business in the low 90s. And by the end of the integration, we will get travelers to operate the same. So it's now a $6.5-plus billion business that will be growing upper single digit. That will be -- that's in that target range. So I think when you look at that, that we have a lot of confidence around those metrics. And then you think about the net investment income, very much fixed income, pretty stable. You think about the contribution from distribution income, that's getting bigger, much smaller. All of that goes, of course, into the denominator, but gives us a lot of comfort that these are very realistic targets. And I would say, our confidence is really, really high. Could they come a little faster? Maybe, but we're not calling for that because we want to make sure we get travelers done properly and then build it. You could have a little bit of volatility from weather. But the way we've also structured our portfolio and our earnings profile is even that, we're somewhat protected against. When we've had really bad years, they haven't dramatically moved our operating ROE, maybe a point or so, and we have prudent reinsurance to help take that volatility out of it. So that's when I step back, I'm really excited about this. I mean I think the business is in great shape. We've got good momentum. We're delighted to have been able to do something as unique as a big acquisition as Travelers. And we enter this year with certainly a lot of confidence and conviction. And we've got a tremendous team that is really fired up and a lot of support from our broker partners. So we feel like we're in a pretty good position, always trying to get better, always trying to overdeliver, but not overpromise. And so that's why I'm just kind of sharing no new targets, but certainly a lot of conviction in the targets that we have shared.

Awesome. Well, with that, I think we'll end it. We covered a lot of the business and lots of exciting angles of it. So thank you for taking the time today. Thank you for the investors for spending the time with us today. And I think with that, we'll end it.

Thank you very much.