Committed to All Our Members

2016 ANNUAL REPORT

COMMITTED TO ALL OUR MEMBERS Summary 02 2016 Financial Highlights 04 Chairman’s Message 16 CEO’s Message 35 2016 Sustainable Development and Societal Responsibility Report 50 SSQ, Mutual Management Corporation – Consolidated Financial Statements as at December 31, 2016 51 Independent Auditor’s Report 52 Consolidated Statement of Income 53 Consolidated Statement of Financial Position 54 Consolidated Statement of Changes in Equity 55 Consolidated Statement of Cash Flows 56 Notes to the Consolidated Financial Statements 64 SSQ, Life Insurance Company Inc. – Consolidated Financial Statements as at December 31, 2016 65 Management’s Report 66 Independent Auditor’s Report 67 Consolidated Statement of Income 68 Consolidated Statement of Comprehensive Income 69 Consolidated Statement of Financial Position 70 Consolidated Statement of Changes in Equity 71 Consolidated Statement of Cash Flows 72 Notes to the Consolidated Financial Statements 129 Ownership Structure 130 Boards of Directors 131 Management Team and Senior Management 132 Addresses 132 Contact Us Building a Community Our hope is that, by drawing inspiration from our mutualist model, our members and customers will come to form a genuine community of insureds, thus deepening their sense of belonging and ensuring that each point of contact with the Company contributes to this experience. In so doing, we are seeking to become the insurance destination of choice for our members and our customers. 2016 FINANCIAL HIGHLIGHTS SSQ Ω 2016 ANNUAL REPORT Ω 3

CONSOLIDATED DATA (M$) 2016 2015 Variation $ $ % Insurance premiums 2,342.8 2,204.9 6.3 Assets under management and administration 11,373.8 11,222.6 1.3 Equity attributable to shareholders 791.7 727.0 8.9 Net income attributable to shareholders 77.6 64.8 19.8 Fair value of properties 267.1 289.6 -7.8 Number of employees 2,091 2,108

INSURANCE 2012 1,809.0 PREMIUMS 2013 2,008.6 (in millions of dollars) 2014 2,084.4 2015 2,204.9 2016 2,342.8

ASSETS UNDER 2012 10,871.5 MANAGEMENT AND 2013 11,421.8 ADMINISTRATION 2014 10,622.3 (in millions of dollars) 2015 11,222.6 2016 11,373.8

EQUITY 2012 315.5 ATTRIBUTABLE 2013 363.8 TO SHAREHOLDERS 2014 670.7 (in millions of dollars) 2015 727.0 2016 791.7 4 Ω SSQ Ω 2016 ANNUAL REPORT

Chairman’s Message

Mr. Pierre Genest Embracing transformation Chairman of the Board SSQ, Mutual Management As a general rule, the arrival of a new CEO within an organization indicates that Corporation major changes are on the way, and Jean-François Chalifoux’s appointment was no exception in this regard! Back in early 2016, following the completion of an in-depth analytical process, as well as many meetings with the Corporate Management Committee, individual managers and various employees, Jean- François put together an organizational diagnosis, submitted it to the Board members and laid out his strategic vision for SSQ. Remaining focused on the primary objective of strengthening the role of our members, clients and partners at the heart of SSQ’s mission and better meeting their needs, Jean‑François presented an integrated organizational model based on a Group-based identity and power structure.

SSQ will need to draw on its strengths and values as it makes “One Customer, One Experience, One Entity” a reality. This slogan underscores the importance of offering consumers a new, unique and straightforward way of doing business with SSQ. SSQ Ω 2016 ANNUAL REPORT Ω 5

Impressed by the boldness of the transformation project submitted in early 2016, the various boards were convinced that, despite its scope, the project would pave the way to the future; indeed, the resulting synergies and advantages justified the approval and implementation of this measure. Needless to say, a transformation project of this magnitude must be divided into several initiatives, including the corporate and organizational restructuring, as well as the 2017‑2019 strategic planning process. Integrated governance In order to boost the boards’ synergies and agility, one of the first steps taken was to harmonize their size and composition. Previously, the total number of board members for the three insurance companies was 27; it is now 19. This reduction necessarily led to the departure of several board directors. Initially, the Board of SSQ General Insurance Company Inc. (SSQauto) increased its number of members from 10 to 19, as did the boards of SSQ, Life Insurance Company Inc. (SSQ Life) and SSQ Insurance Company Inc. (SSQ Insurance). By the end of an initiative undertaken together with the shareholders, six SSQauto board directors left their positions on June 1, 2016, and 15 new board directors were appointed. Since these new members were already serving on the boards of SSQ Life and SSQ Insurance, this reorganization made it possible to ensure integrated management of all insurance and financial services operations and provided the board members with a comprehensive understanding of all business sectors. Subsequently, SSQauto’s board members formed their own committees using the same members already serving on SSQ Life’s and SSQ Insurance’s committees. Lastly, two SSQ Life and SSQ Insurance board members left their positions on September 8, 2016. Since then, the boards and committees of the three insurance companies have had the same composition. In addition to standardizing the governance of proceedings, this reorganization facilitates the management of meetings, ensures more consistent accountability and ensures the balanced presence of internal resources on the various boards and committees. Corporate restructuring Acting and thinking like a single entity and an integrated group also meant making changes to the existing corporate structure. The board thus approved the merger of the two insurance subsidiaries, SSQ Insurance and SSQauto. On December 12, 2016, Quebec’s Finance Minister approved the proposed transaction. As a result, since January 1, 2017, SSQ Insurance and SSQauto pursue their general and life and health insurance business under the auspices of the new entity, SSQ Insurance Company Inc. In addition, the streamlining of SSQ’s corporate structure led to the merger of the five distribution companies, which was also completed in late 2016. Since January 1, 2017, SSQ Distribution Inc. has comprised SSQ Financial Services Firm Inc., assurancevoyages.ca/Travel Insurance Compare, 6801188 Canada Inc., SSQ Evolution and Garantie supplémentaire 100 Limite Inc. 6 Ω SSQ Ω 2016 ANNUAL REPORT

Simplified and effective organizational model As part of efforts to encourage all SSQ entities and business sectors to think and act as a single group and to develop and share a common vision, the board approved a new organizational model put forward by Jean-François in early 2016. All operations associated with product and service development were brought together under the new Strategy and Product Management corporate division, headed by Éric Trudel. In addition, Carl Laflamme now serves as Senior Vice- President―Distribution and is responsible for the distribution of all insurance and savings products (individual as well as group). In order to develop a consistent and integrated approach to our customers and partners, operational management was entrusted to Gilles Mourette, now Senior Vice-President―Customer Experience and Operational Management. These three new corporate divisions are supported by three existing corporate divisions that retain the same leaders despite changes to their responsibilities. Patrick Cyr, Denis Légaré and Michel Loranger thus continue to serve as Senior Vice-President―Finance, Senior Vice-President―Human Resources and Corpo rate Affairs and Senior Vice-President―Information Technology, respectively. The Corporate Management Committee also comprises Geneviève Hamel― Transformation Bureau Lead, Marie Lamontagne―Strategic Advisor, and France LeBlanc―Risk Management Lead. Executive and Human Resources Committee Throughout 2016, the committee closely monitored progress in negotiations with the office employees union (SEB) and work on the organizational transformation program. SSQ Ω 2016 ANNUAL REPORT Ω 7

Audit and Risk Management Committee In November 2016, the first internal assessment report on risks and solvency was produced. Over and above the regulatory requirements set out in the AMF’s Capital Management Guideline, best practices in a number of countries include the filing of an annual Own Risk Solvency Assessment (ORSA), which gives management and board members an appreciation of a company’s results based on its risk profile, including factors that could jeopardize its capital and solvency. The new annual process marks a major step forward in the area of risk governance. The committee also approved management’s recommendations to appoint Thierry Brochu as the designated actuary of SSQ Life and Josée Grondines as internal auditor. Investment Committee The highlights of the Investment Committee’s efforts over the past year included working on asset allocation, reviewing the common share investment strategy, introducing new investment strategies and educating committee members on the impacts of new regulatory and accounting standards, in particular IFRS 9 and IFRS 17. Ethics Committee In addition to its statutory meeting, the committee convened to examine a proposed transaction between SSQ Life and its real estate subsidiary regarding the property at 3000 Laurier Blvd in Quebec City. Important work in addition to statutory meetings In addition to its regular statutory meetings, the board took part in two training sessions run by qualified experts. One of these sessions focused on the prescription drug market and cost control mechanisms, while the other presented the outlook for Canada’s property and casualty insurance industry. The board was also very actively involved with the Corporate Management Committee’s preparatory work for the 2017-2019 strategic plan, which included two additional meetings. Meanwhile, the Executive and Human Resources Committee called a special meeting of its members for a work session with the Corporate Management Committee in connection with the 2017-2019 strategic plan. The chairs of the Investment Committee and the Audit and Risk Management Committee also contributed to this effort 8 Ω SSQ Ω 2016 ANNUAL REPORT

High attendance SSQ’s board members take their role and responsibilities very seriously, as attested to by their high level of attendance and preparation for meetings. In 2016, the attendance rate for the various bodies was over 95%, as shown in the following tables:

BOARD MEMBER ATTENDANCE RECORD (SSQ, MUTUAL MANAGEMENT CORPORATION, SSQ LIFE AND SSQ INSURANCE) for the year ended December 31, 2016

Executive and Human Audit and Risk Board of Resources Investment Management Ethics Directors Committee Committee Committee Committee Brouillet, Normand** 8/8 9/9 Chalifoux, Jean-François* 7/8 9/9 Choquette, Claude* 7/8 5/6 Doré, Chantal* 6/6 (until September 8, 2016) Dubé, Carolle** 8/8 Genest, Pierre** 5/8 7/9 Jomphe, Eddy** 8/8 2/2 MacDougall, Andrew* 8/8 Martineau, Jude* 8/8 6/6 Martineau, Lucie** 2/2 (as of September 8, 2016) Morin, Gaétan* 8/8 9/9 Nadeau, Michel** 7/8 8/9 6/6 Paradis, Denyse** 8/8 2/2 Paré, Sylvain* 8/8 9/9 6/6 Pélissier, Alain** 6/8 Perron, Jean** 8/8 2/2 Picard, Sylvain** 8/8 6/6 Piché, Bernard* 2/2 6/6 (as of September 8, 2016) Ross, Angus A.* 6/6 (until September 8, 2016) Turnbull, Norman A.* 8/8 6/6 6/6 Vallée, Émile** 8/8 8/9 *SSQ Life and SSQ Insurance board members **SSQ, Mutual Management Corporation, SSQ Life and SSQ Insurance board members SSQ Ω 2016 ANNUAL REPORT Ω 9

BOARD MEMBER ATTENDANCE RECORD FOR SSQAUTO for the year ended December 31, 2016

Executive and Human Audit and Risk Board of Resources Investment Management Ethics Directors Committee Committee Committee Committee Chalifoux, Jean-François 7/7 4/4 Genest, Pierre 7/7 6/7 Lachapelle, Josée* 4/4 1/1 Lallemand, Danielle* 4/4 2/2 L’Écuyer, André* 4/4 2/2 Martineau, Lucie 7/7 1/1 Piché, Bernard 7/7 3/3 4/4 Rochefort, Jacques* 4/4 3/3 Tremblay, Jocelyn* 3/4 1/1 Vachon, Pierre-Maurice* 3/4 2/2 Brouillet, Normand** 3/3 4/4 Choquette, Claude** 3/3 4/4 Dubé, Carolle** 3/3 Jomphe, Eddy** 3/3 MacDougall, Andrew** 2/3 Martineau, Jude** 3/3 2/2 Morin, Gaétan** 3/3 4/4 Nadeau, Michel** 3/3 4/4 4/4 Paradis, Denyse** 3/3 Paré, Sylvain** 3/3 4/4 2/2 Pélissier, Alain** 2/3 Perron, Jean** 3/3 Picard, Sylvain** 3/3 2/2 Turnbull, Norman A.** 3/3 4/4 2/2 Vallée, Émile** 3/3 3/4 * Until June 1, 2016 ** As of June 1, 2016 Designating delegates In effect since 2006, the formula for delegate designation continues to pay off. With a view to ensuring representation of mutualists from across Canada at the annual meeting, the number of designated delegates among the membership went from 116 in 2007 to 210 in 2016. 10 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ and its employees: sharing and giving back to the community Solidarity is a fundamental value of mutualism and one of SSQ’s core values. SSQ demonstrates solidarity through its social commitment and that of its employees across the country. The 2016 United Way/Centraide campaign, which ran from October 17 to 28 at SSQ offices in Vancouver, Calgary, Toronto, Longueuil and Quebec City, achieved a new record with fund raising for the underprivileged reaching $320,000, up 12% from the previous year. In addition, in the fall of 2016, a number of employees took part in half-day activities assisting organizations supported by United Way/Centraide. They were able to observe the fundamental contribution of United Way/Centraide to such organizations as La Baratte in Quebec City, La Croisée in Longueuil and Compagnons de Montréal.

Volunteer half-days allowed several employees to see first hand the fundamental contribution United Way/ Centraide makes to the community.

SSQ was very proud to present a cheque for $113,759 to Accès-Loisirs Québec, the organization supported by the SSQ Quebec City Marathon in 2016. Working with various community-level partners, Accès-Loisirs Québec seeks to make leisure, sports, culture and outdoor activities accessible free of charge to low- income families and individuals. In addition to the funds raised, a number of employees contributed to the cause by making a donation, organizing a drive to collect over 300 sports and leisure items, and/or taking part in community work projects. SSQ Ω 2016 ANNUAL REPORT Ω 11

Accès-Loisirs Québec was pleased to have been selected as the organization supported by the SSQ Quebec City Marathon.

René Hamel and promoting mutualism As a fervent promoter of mutualist values and principles and deeply involved in his community, René Hamel, CEO from 2008 to 2015, was honoured last March by the CQCM (Quebec Council on Cooperation and Mutualism), which presented him with the Ordre du Mérite coopératif et mutualiste québécois award. This distinction is a tribute to René’s significant involvement over many years. CQCM (Quebec Council on Cooperation and Mutualism) SSQ continues to play an active role in the activities of CQCM, an organization made up of 39 mutuals, which seeks to foster Quebec’s social and economic development while promoting the cooperative and mutualist movement, in accordance with the principles and values of the International Cooperative Alliance. For many years, I have served on CQCM’s board as a proud representative of SSQ, Mutual Management Corporation and SSQ Financial Group. Through CQCM, SSQ is also a member of Cooperatives and Mutuals Canada. FECM (Foundation for Cooperative and Mutualist Education) As a founding member of Quebec-based FECM, SSQ (via SSQ Foundation Inc.) contributes financially to this organization, which seeks to promote the cooperative and mutualist formula among young people and train the citizens of tomorrow. 12 Ω SSQ Ω 2016 ANNUAL REPORT

SOCODEVI (Society for Cooperation and International Development) SSQ is among the Quebec-based cooperative and mutualist organizations that founded SOCODEVI in 1985. Today, SOCODEVI is a network of 26 cooperative and mutualist companies and organizations with 36,000 employees. These member institutions boast combined annual revenues of C$18.5 billion. SOCODEVI and its network advocate the use of cooperative and mutualist tools as an effective way of creating, protecting and distributing wealth in developing countries. Through SOCODEVI, SSQ shares its expertise and experience with organizations in developing countries. For instance, it encourages its employees to take part in missions and offer technical assistance. In addition to being a SOCODEVI board member, I serve as this organization’s treasurer and have chaired its Audit and Risk Management Committee for several years.

Participating in a SOCODEVI mission in Peru in February 2016, Florence Rancourt De Roy (front left) had the opportunity to be part of a unique intercooperation experience.

Importance of intercooperation for SSQ Intercooperation is one of the greatest mutualism and cooperation principles to which SSQ ascribes. Once again in 2016, SSQ gave one of its employees a chance to experience a unique intercooperation opportunity, in line with mutualist values and principles. In February 2016, Florence Rancourt De Roy, a communications advisor at SSQ, joined a SOCODEVI mission in Peru for two weeks. The goal was to take part, along with various cooperatives with communication needs, in developing strategies and improving their social media presence. Florence’s task SSQ Ω 2016 ANNUAL REPORT Ω 13

consisted of training and equipping members of the participating cooperatives. She concluded that the experience she acquired at SSQ was highly useful— another fine example of intercooperation. IRECUS: an ongoing partnership SSQ is among the Quebec mutuals that commissioned two researchers from lRECUS (University of Sherbrooke Institute of Research and Education on Cooperatives and Mutuals) to carry out a study on Quebec mutuals in 2016. In parallel with this initiative, the mutualism training sessions for SSQ employees have been going on for over 10 years, thanks to the ongoing collaboration of André Martin, Ph.D., associate professor at IRECUS. SSQ, Mutual Management Corporation’s financial results SSQ, Mutual Management Corporation’s financial results represent a percentage of SSQ Enterprises’ results, in accordance with its ownership stake. Accumulating over the years, these results constitute the consolidated equity attributable to the members. Total revenues for 2016 were $22.5 million, including the proportionate share of SSQ Life’s net income, which amounted to $22.4 million. After deducting expenses of $0.1 million and the net result attributable to the non-controlling interest of $9.5 million, the net income attributable to the members was $12.9 million. As at December 31, 2016, members’ equity totalled $132.5 million, up 8.9% from the previous year. SSQ, Mutual Management Corporation is delighted with the results obtained by SSQ Life, particularly considering the steps taken to ensure a fair balance between the members’ rights, the financial stability of the Group and their reasonable expectations for returns. Departures of SSQauto board members Six SSQauto board members left their positions on June 1, 2016, due to the reorganization of the Group’s boards. I would like to pay tribute to their work, dedication and contributions to the progress of SSQauto and, indirectly, the entire financial group. Josée Lachapelle joined the board on February 23, 2012, and was elected to the Ethics Committee on the same date; she served in these capacities until her departure. Danielle Lallemand, a director elected to the board on February 19, 2008, also served on the Audit and Risk Management Committee as of the same date and until her departure. In addition, André L’Écuyer was appointed to the board on February 20, 2002, in addition to the Audit and Risk Management Committee, which he chaired from February 18, 2008, until his departure. For nearly 20 years, Jacques Rochefort was a board member. Appointed on February 18, 1997, he joined the Audit and Risk Management Committee on February 17, 1998, and chaired it from February 21, 2001, until February 19, 2008, when he was elected to the Executive and Human Resources Committee, where he remained until his departure. Jocelyn Tremblay joined the Board on February 18, 2010, and was appointed to 14 Ω SSQ Ω 2016 ANNUAL REPORT

the Ethics Committee on the same date. Mr. Tremblay chaired the Ethics Committee from February 21, 2013, until June 1, 2016. Pierre‑Maurice Vachon served on the board from June 1, 2004, to June 1, 2016. Over the 12-year period, he contributed actively to the board and to the Audit and Risk Management Committee, which he joined on February 22, 2005. Departures of SSQ Life board members Two SSQ Life board members, Chantal Doré and Angus A. Ross, also left their positions following the reorganization of SSQ’s boards. Ms. Doré joined the board on April 3, 2004, and left on September 8, 2016. She was a member of the Investment Committee from April 9, 2005, to December 10, 2008. Mr. Ross joined the board on February 27, 2013, and contributed to its initiatives until his departure on September 8, 2016. Drawing on his property insurance experience and keen interest in climate change, Mr. Ross generously gave a seminar on global warming at the Delegates’ Conference in April 2016. On September 8, 2016, the board paid tribute to the efforts and involvement of all of the abovementioned people, each of whom in their own way played an important individual role in SSQ’s development. They are all stakeholders in the success of the companies they represented, thanks to their experience, skill and dedication. On behalf of myself and all the board members and the Group’s management team, I am sincerely grateful for all you accomplished with such interest and dedication. Thank you so much! SSQ Ω 2016 ANNUAL REPORT Ω 15

Acknowledgements Thanks to my colleagues on the boards of SSQ Financial Group, not only those who are still with us today, but also all those who worked to shape SSQ’s future at some point over the past 30 years. Your combined efforts, skills, experience and confidence in SSQ’s future have made the Company what it is today! I would also like to express my gratitude to all the employees whom I had the pleasure and the privilege of meeting over so many years. Thank you for your dedication, day after day, and for your excellent customer service. Thank you as well for continuing to bring SSQ’s values to life and for placing our members, clients and partners at the heart of your actions. Thank you to the delegates of SSQ’s members. Your participation is important for your mutual and for SSQ Financial Group, which is guided by mutualist values and principles and continues to be successful and innovative. It is now my turn to depart. It is with a somewhat heavy heart that I am leaving my positions as a director and as chairman of the boards of SSQ, Mutual Manage ment Corporation, SSQ, Mutual Holding Inc., SSQ, Life Insurance Company Inc. and SSQ Insurance Company Inc. I have been a part of this great and wonderful adventure for over 30 years. I have had the opportunity to take on challenges and to take part in SSQ’s growth and development with the help and unwavering sup port of my many very dear collaborators. I take great pride in the fact that I played a personal role in the transformation of a small healthcare cooperative into a large and prosperous company. I am leaving not only with the belief that my duty has been accomplished, but also with the satisfaction that I achieved my dream of helping to create over 2,000 jobs in Quebec and across Canada.

Pierre Genest Chairman SSQ, Mutual Management Corporation SSQ Financial Group 16 Ω SSQ Ω 2016 ANNUAL REPORT

CEO’s Message

Mr. Jean-François Chalifoux When you read A Collective Success Story, which takes a look back at SSQ’s first Chief Executive Officer 70 years, you realize how adaptable the Company has been. SSQ was founded in SSQ, Life Insurance Company Inc. the middle of an economic crisis and has weathered many storms since. Throughout its history, SSQ has shown itself to be remarkably resilient and able to re-invent itself. It comes as no surprise that history continues to repeat itself! We must be more connected and closer to our customers than ever before if we wish to learn from them and better understand their needs. Our world is changing. Take Amazon for instance. It is the world’s biggest retailer yet it has no “bricks and mortar” stores! Or Facebook, the world’s most consulted media outlet yet it produces no content. Airbnb is the largest supplier of accommo- dation yet owns no rental properties. This is the world we live in and so we must adapt. We must be proactive and foresee the change before it actually happens. SSQ Ω 2016 ANNUAL REPORT Ω 17

This explains the Company’s large-scale transformation of almost historic pro portions in 2016 and why our size was our ally. It gave us an advantage that few insurers have and that is agility. We are confident that we will succeed, even before our competitors do. A year marked by change In 2016, SSQ embarked on a transformation program with a view to consolidating the Group’s strengths and securing a better market position, thus enhancing our ability to seize opportunities. During the first year of the program, a number of legal entities were merged and the corporate structure was streamlined. Nearly all of our employees were “repa triated” within SSQ, Life Insurance Company Inc. (SSQ Life). The organizational chart was revamped in order to group business sectors by function, rather than by product. These changes enabled us to avoid duplications, bring together specific areas of expertise and achieve substantial savings. Plans were drawn up for each sector to ensure a structured and consistent transition process with no adverse impacts on customer experience. Some 15% of our employees took part in projects stemming from this program; nearly all of the management staff were assigned new responsibilities or duties. For the purposes of employee development, mobility is encouraged because it increases productivity. All employees will play a role in implementing the 2017-2019 strategic plan to reach our goals of enhancing customer experience, fostering business synergies and facilitating employee development. 18 Ω SSQ Ω 2016 ANNUAL REPORT

BUSINESS VOLUME GROWTH % - INSURANCE 7.9 Key financial results and 2016 highlights

SSQ posted solid results in 2016 compared with 2015. Our insurance business volume rose by 7.9% to $2,342.5 million, thanks to our excellent group insurance INSURANCE SALES retention rate and record individual insurance sales. Despite extremely competi tive markets, we finished the year with insurance sales up 18.6% over last year. 289.5

The return on equity in 2016 was 10.2% based on net income of $77.6 million, up by 19.8%. Lower-than-expected results in the individual insurance and general $M insurance sectors were more than offset by a better showing in the savings sec tor and outstanding gains on disposal of investments. Our business retention efforts paid off, thanks in particular to our excellent customer service. CONSOLIDATED NET INCOME 77.6 $M

SOLVENCY RATIO % 189

RETURN ON EQUITY % 10.2 SSQ Ω 2016 ANNUAL REPORT Ω 19

BUSINESS VOLUME GROWTH % - INSURANCE 7.9

INSURANCE SALES 289.5 $M

CONSOLIDATED NET INCOME 77.6 $M

SOLVENCY RATIO % 189

RETURN ON EQUITY % 10.2 20 Ω SSQ Ω 2016 ANNUAL REPORT

2016 2015 $ $ BUSINESS VOLUME – INSURANCE PREMIUMS ($M) Group insurance 1,925.2 1,805.8 Individual insurance 182.1 142.7 General insurance 235.2 221.8 TOTAL 2,342.5 2,170.3

FUNDS UNDER MANAGEMENT, INCLUDING SEGREGATED FUNDS, 5,053.0 5,024.5 ANNUITIES AND GUARANTEED PRODUCTS ($M)

2016 2015 $ $ SALES ($M) Group insurance 184.5 161.8 Individual insurance 48.0 29.0 General insurance 57.0 53.3 TOTAL – INSURANCE 289.5 244.1 Savings 558.1 695.3 GRAND TOTAL – SALES 847.6 939.4

The traditional group insurance retention rate exceeded expectations and helped surpass business volume targets by more than $37 million. Sales were over 14.0% higher than in 2015. Sales outside Quebec showed steady progress, accounting for nearly 39.8% of total sales, up 31.3% from 2015. In individual insurance, excluding major deposits received in 2016 in universal life products, the adjusted growth rate was 14.2% compared with 2015. A higher-than- expected business volume was managed using the same expense budget, resulting in an improved expense rate in this sector. In general insurance, the business volume grew by 6.0%. Increased competition in traditional insurance had an adverse impact on sales and our retention rate. In savings, sales in the individual sector were lower than expected and had a major impact on total sales. SSQ Ω 2016 ANNUAL REPORT Ω 21

2016 2015 $ $

CONSOLIDATED NET INCOME ($M) 77.6 64.8 RETURN ON EQUITY 10.2% 9.3% SOLVENCY RATIO 189.0% 192.0% COMPREHENSIVE INCOME ($M) 64.7 56.3

In group insurance, net income was lower than last year. In the area of long-term disability insurance, actions aimed at rectifying the profitability situation achieved the expected results and ensured that targets in this respect were exceeded. We continue to monitor our short-term products. The net income in the special- ized sector was lower than expected, primarily due to a fallback in the area of travel insurance. Profitability in individual insurance was lower mainly due to updates to our reserve assumptions and additional reserves relating to higher sales. Individual insurance nonetheless posted a significant growth in business volume of over 27.0%. In general insurance, high loss ratios in home insurance accounted for the deteri- oration in traditional insurance. In contrast, claims in replacement insurance had a favourable impact, particularly for portfolios expiring in 2017. The retention rate was down in the area of savings. The reserves associated with these portfolios were therefore freed up. This withdrawal rate and the updating of certain economic and behavioural assumptions accounted for the improved performance of these products. In this case, margins on the closed block of guaranteed products were freed up. Investment income was better than expected thanks to bond disposal gains in connection with the completion of investments relating to the construction of SSQ Tower in Longueuil, to gains on the disposal of investments aimed at implementing the new investment policy targets, and the gain stemming from the sale of land located at 3000 Laurier Boulevard in Quebec City. 22 Ω SSQ Ω 2016 ANNUAL REPORT

2016 2015 $ $ ASSETS UNDER MANAGEMENT AND ADMINISTRATION ($M) General funds 6,556.1 6,452.8 Segregated funds 4,817.7 4,769.8 TOTAL 11,373.8 11,222.6

The A.M. Best rating agency reissued its financial stability grade of “A– (excellent)”, as well as the issuer’s credit rating of “a–”. The outlook in both cases is stable. Innovative group insurance solutions In an area as competitive as the group insurance market, innovation and relevance are the keys to success. In 2016, SSQ brought its expertise to bear by rolling out innovative solutions perfectly suited to its customers’ needs from coast to coast. These included coverage that meets their needs at any stage of their lives and platforms enabling them to do business with us 24/7 thanks to technology and top-of-the-line service. In the spring of 2016, we signed an exclusive agreement with a partner to offer future retirees a winning range of individual products in the areas of health, travel and life insurance. As a result, workers finishing up their careers who are included in the partner’s cross-Canada client portfolio can now opt for flexible and afford- able coverage. This straightforward formula allows companies to recognize their employees’ dedication by facilitating access to a range of benefits without having to make a financial contribution. This agreement consolidates our transition to digital, which was launched several years ago. Thanks to a clear, safe and user- friendly platform, all processes are now carried out online, from initial application to benefit payments. SSQ is the first insurer in the market to offer this type of experience for this type of product. SSQ Ω 2016 ANNUAL REPORT Ω 23

Group insurance renewals greatly contributed to our growth. In this regard, our retention rate is excellent at 95.6%. Far from taking our insureds for granted, we make it a point of pride to make continuous service improvements and to offer our customers innovative products designed to meet their needs. We also concluded an agreement with Toronto-based Toromont, which has 3,300 employees across Canada. Late in the year, a contract was signed with Albi, a major auto dealership group in the Greater Montreal region. Prescription drug costs: constant pressure The cost of prescription drugs continues to put significant pressure on group insurance plans; all insurers are being forced to grapple with this reality. Numerous factors are contributing to higher drug costs, including the marketing of new spe- ciality drugs, the broadening of indications for various products, an increase in the number of combination therapies, the use of more costly drugs to treat com mon medical conditions (e.g. hyperlipidemia, diabetes and heart failure), and the repercussions are significant. We are also keeping a close eye on the launch of certain extremely expensive biological drugs. In 2016, two insureds submitted claims in excess of $1 million each. Our mutualization mechanisms are under pressure and we must adapt in response to sky-high drug prices. SSQ continues to closely monitor this situation. Against this backdrop, we are focusing on professional, rigorous and proactive management of our prescription drug insurance plans with a view to encouraging optimal use of available drugs and reining in costs for the benefit of all insureds. Positive results in savings and individual insurance products In the individual savings sector, sales for the entire segregated fund industry underwent a slowdown in 2016. Despite a drop in individual product sales, we managed to boost our market share in terms of total assets under management. Assets under management associated with brokerage activities outside Quebec increased and assets associated with brokerage activities in Quebec were maintained. SSQ Financial Services Firm had a good year, with sales up 26.3% and assets under management up 46.4%. We also improved our offer of SSQ guaranteed investment funds by adding four new funds during the year. 24 Ω SSQ Ω 2016 ANNUAL REPORT

As regards individual insurance, sales growth of 61.9% was recorded in the brokerage sector, thanks primarily to universal life insurance. Sales outside Quebec now account for 52.4% of individual sales. As regards individual insurance and investment brokerage activities, the pace of contracting new advisors held steady, with approximately 1,600 new advisors in 2016. New challenges in travel insurance A number of new travel industry trends have emerged, including more numerous departures, longer stays and varied (and often more distant) destinations. SSQ made various improvements to its travel insurance product, making it possible to take out a unique product providing non-medical coverage only. Distributed exclusively by assurancevoyages.ca (Travelinsurancecompare.ca), this product is now available in several provinces. The above factors led to a net increase in travel insurance claims during the year. Although 2016 may have been exceptional in this regard, it showed once again that, now more than ever, this coverage is essential. Via the assurancevoyages.ca website, travelers can obtain online quotes for a comprehensive range of coverage options custom-tailored to their needs, regardless of what type of trip they are planning. This way, SSQ is always there for its clients, wherever they may be on the face of the Earth. It is also interesting to note that after only one year, SSQ’s travel insurance product accounts for 14.6% of assurancevoyages.ca sales. Extensive experience in the general insurance market In the general insurance sector, despite a difficult context, SSQ maintained competitive expense rates by improving the quality of customer service and completely revamping its systems. SSQ now has a number of key assets, including enviable results with respect to customer experience and customer satisfaction, cutting-edge technological infrastructure and a corporate culture focused on performance and customer experience in all of its general insurance operations. SSQ Ω 2016 ANNUAL REPORT Ω 25

Longstanding partners In 2016, SSQ marked the 25th anniversary of its partnership with Quebec’s public/ parapublic service union (Syndicat de la fonction publique et parapublique du Québec/SFPQ). We also signed a five-year renewal of our longstanding agreement with Métallos, Quebec’s largest private-sector union. Thanks to this renewal, we will be celebrating the 20th anniversary of our association with Métallos in 2017. Last year was also marked by our desire to achieve greater synergies. Thanks to the combined efforts of SSQ’s business development teams, we were able to enhance the coverage of a new partner, Quebec’s federation of forest co-ops (Fédération québécoise des coopératives forestières/FQCF) by adding general insurance to its group insurance plan. SSQ also marked a milestone in efforts to provide an integrated offer when it signed an agreement in 2016 with Quebec’s paramedic association (Corporation des Paramédics du Québec/CPQ). The concerted action of various SSQ business sectors also facilitated the signing of a major five-year agreement with the University of Montreal Alumni Association (Association des diplômés de l’Université de Montréal/ADUM), enabling SSQ not only to offer the organization a broad array of our individual products, but also to make inroads in the alumni association market. Real estate sector activities In 2016, work on the SSQ Tower in Longueuil was completed, and more recently, the building received the prestigious LEED® Gold certification―something we can be very proud of. Located in an ideal location, the building offers an outstanding and modern work environment. Montreal-area employees who previously worked at four different sites now work under the same roof. We also finished the year with an overall occupancy rate of 95%. In addition, we completed the sale of the land located at 3000 Laurier Boulevard in Quebec City. We originally acquired this property in 2010 in order to meet our future needs. Following the acquisition of 2475 Laurier Boulevard and with the possibility of increasing the density on various floors of our other buildings, the property at 3000 Laurier Boulevard was regarded as an attractive real estate investment, although it was not strategic for our expansion.

2 0 1 7

Recently, the SSQ Tower in Longueuil received the prestigious LEED® Gold Certification. 26 Ω SSQ Ω 2016 ANNUAL REPORT

Merger of SSQ companies One major achievement in 2016 that had a significant impact on productivity was undoubtedly the merger of SSQ’s companies on January 1, 2017, including our distribution subsidiaries (SSQ Financial Services Firm Inc., assurancevoyages. ca, 6801188 Canada Inc., SSQ Evolution and Garantie supplémentaire 100 Limite Inc.). All of the Company’s business sectors were affected, but I would like to emphasize the corporate sectors’ strategic contribution. The technological inte gration of the subsidiaries is now complete, thus enabling our employees to benefit from the Group’s unified services. The integration of the financial pro cesses and human resources was also completed successfully. Needless to say, these organizational changes will have a positive impact on our members and our customers. Synergy-related cost savings will help to signifi cantly improve the Group’s financial health, particularly the solvency ratio, lead ing to better protection for our insureds. In the years to come, this reorganization will also result in better overall Group competitiveness, as well as a more effect ive sales force. Thanks to reduced administrative expenses, SSQ will be able to sell its products and services at the lowest possible cost while enhancing its Financialcustomer offer. SSQ Evolution FinancialIn addition, consolidating the Group’s operations will simplify communication SSQ Evolution channels and lead to improved member and customer services. SSQ will be SSQ Evolution GroupFinancialmanaged as a single company. InvestmentInvestment GroupAs regards labour relations, the signing of a collective agreement with the office employees union (SEB) brings to a close the renewal period for all of the and retirementand retirementInvestment GroupCompany’s collective agreements. and retirement GroupSSQ Women of the Future was also launched in 2016. This initiative is designed Realty Insuranceto help SSQ’s female employees take charge of their professional development SSQautoRealty and move up the career ladder into key positions. SSQ Women of the Future is Groupunique thanks to its emphasis on skill assessments and guidance, as well as SSQautoRealtyGroup mentoring, sponsoring and external networking. InsuranceIn 2016, the Company published the Living Together at SSQ Guide, which is SSQauto Insurancegeared towards employees and deals with a wide range of topics, including appropriate corporate etiquette and conduct. This reference document provides a set of common rules designed to foster a culture of respect and collaboration, on which our day-to-day performance depends. SSQ Ω 2016 ANNUAL REPORT Ω 27

DNA-based strategies A lengthy process of deliberation was carried out in 2016 to deliver the 2017-2019 strategic plan. This initiative entailed the participation of numerous employees divided into 10 work groups. As part of this process, various managers, Corporate Management Committee members and Board members were consulted. The position we have taken is based on what we are and what we want to become, based on our corporate DNA. The middle classes, ranging from young families to retirees, are a natural fit for SSQ. We have over 2.5 million customers, but before we attempt to enlarge this market, we must ensure that we have maximized our sales to them. Nothing could be more legitimate than working with our groups and partners to ensure that our members and customers receive our entire offering. To that end, it is essential that we expand our knowledge of our customers with a view to anticipating their needs and delivering a relevant offer and a unique customer experience. Our offer needs to be simple, accessible and available on all of SSQ’s distribution platforms. In short, we want to offer our current and potential members and customers SSQ- branded products and services; we want to offer a consistent and reliable experience, regardless of which gateway is selected. We aim to achieve a growth rate that will allow us to reach and maintain the level of profitability expected by our main shareholder, the Fonds de solidarité FTQ. Growth will enable us to free up resources for investments in innovation, systems and people. In short, profitable growth will position us advantageously so we can compete with the giants of our industry. 28 Ω SSQ Ω 2016 ANNUAL REPORT

Drawing on the potential of each of our members and customers, our ambition is to become their insurance destination of choice. Our six major strategic goals flow from that ambition:

1 • We will put more emphasis on organic growth, i.e., on our existing members, customers, insureds and partners. SSQ has vast untapped potential when it comes to synergies and cross-selling opportunities. 2 • It can never be repeated enough: new technologies enable us to expand our knowledge of our members and customers so we can offer them a unique cus tomer experience. The switch to digital will be essential as this will enable us to better assist them at each stage of their lives, while providing them with all the products they will need and securing their loyalty for longer periods of time. • To set ourselves apart from our competitors, we must review our distribution 3 strategy. We will continue to work with independent distribution partners such as consulting actuaries, third-party administrators and general agents by strengthening and accelerating distribution by SSQ networks. We will achieve these goals by refocusing on our members and customers and by allowing them to select their preferred method of interaction in a multi-platform context. • To ensure profitable growth, we must do all we can to improve our operational 4 efficiency. We have set specific targets for reducing administrative costs in each sector and for each activity. A wide range of initiatives aimed at reaching these targets will be implemented. 5 • We must identify potential ways to improve our current practices with respect to claims and benefits, but we must also be proactive with our members and clients, i.e., by proposing programs that encourage physical activity, well-being and health. Better management of our benefit costs will serve the shared inter ests of our policyholders and our insureds. 6 • We must ensure optimal capital deployment in support of growth and invest ments in our future. More than ever, we will be investing our efforts and money in the right networks, products and development projects.

SSQ is now headed in a new direction. In 2017, all of our efforts will be focused on reaching our goals, including enhancing customer experience, improving business synergies and overseeing staff development. SSQ Ω 2016 ANNUAL REPORT Ω 29

Mission accomplished in sustainable development and societal responsibility 2016 was the fourth year of the five-year sustainable development and societal responsibility plan, launched in 2013. Many significant and promising initiatives were carried out and SSQ obtained more than satisfactory results. Since we achieved our goals in only four years, the plan was wound up in late 2016. In all, 96% of the goals identified for each of our four commitments (human, social, environmental and economic) were reached. A total of 15 initiatives were implemented, 43 steps were taken to reach our goals and 52 indicators were developed and monitored. In the space of four years, we met the requirements of 50 of our 52 indicators (the other two are still in progress). Here are some results:

100% of policyholders with 500+ employees 100% stated that doing 97% of the group business with SSQ insurance groups is straightforward. use online billing. 97%

89% of our insureds are satisfied or com- 89% pletely satisfied with 100% of auto/home the overall claims insurance claims processing experience are processed 100% in general insurance. electronically.

Agreements 120 kilos of were signed with honey harvested Covoiturage.ca, from 12 hives on the Communauto and TURO, 120 kg rooftops of our offices companies specializing in Quebec City, in sustainable mobility Longueuil and and car sharing. Toronto. 30 Ω SSQ Ω 2016 ANNUAL REPORT

KNOWING YOU BELONG SSQ Ω 2016 ANNUAL REPORT Ω 31

One customer, one experience, one entity As mentioned above, we are now headed in a new direction. SSQ has changed course! We are embracing transformation because technology is profoundly altering financial services. As consumer behaviour evolves, industry players have no choice but to adapt and to take new needs and competitors into account. Some will lose their influence with respect to the transactional experience. These profound changes are disruptive, but they have not happened overnight and they are not random. They are affecting the most favourable sectors, i.e., those where clients are impatient and where lightweight cutting-edge technologies can be applied. Together, these changes comprise a trend where some traditional institutions (such as SSQ) may well emerge as dynamic, innovative and adaptable. To be sure, SSQ is still an insurance company—but it would like to be seen as a company of insureds. Our hope is that, by drawing inspiration from our mutualist model, our members and customers will come to form a genuine community of insureds, thus deepening their sense of belonging and ensuring that each point of contact with the Company contributes to this experience. In so doing, we are seeking to become the insurance destination of choice for our members and customers. We want this process to be straightforward, smooth and consistent, regardless of the point of contact they use. As with their preferred travel destinations, we hope that they enjoy visiting us and, above all, that they will come back to see us for their other needs. Because we are SSQ. 32 Ω SSQ Ω 2016 ANNUAL REPORT

Because we are SSQ, the skills of our employees and managers are what set us apart. Because we are SSQ, we will adapt to new market realities before our competitors do. Because we are SSQ, we will become the insurance destination of choice for our members and customers. The SSQ of tomorrow, we are the ones who will make it happen; we are the ones who will build it: members, customers, partners, employees, managers Because and administrators. all of us are SSQ Since we have already demonstrated that SSQ has its values in the right place, the Company’s future will clearly involve becoming the best place to find insurance coverage. SSQ Ω 2016 ANNUAL REPORT Ω 33

Acknowledgments In closing, I would like to thank our members and our customers for placing their trust in us year after year. Thank you to our employees for their dedication and support as we face new challenges ahead. Thank you to the members of our Boards of Directors for their sound advice. Thank you to our partners for their support and enthusiasm for our projects.

Jean-François Chalifoux Chief Executive Officer % HUMAN 94 COMMITMENT

% SOCIAL STANDING UP 100 COMMITMENT FOR OUR VALUES

% ENVIRONMENTAL 94 COMMITMENT

INDICATORS % ECONOMIC Indicators completed 17 12 15 6 100 COMMITMENT Indicators in progress 1 0 1 0 SSQ Ω 2016 ANNUAL REPORT Ω 35

% HUMAN 94 COMMITMENT

2016 Sustainable Development and Societal % SOCIAL 100 COMMITMENT Responsibility Report This report marks the culmination of the Sustainable Development and Societal Responsibility Report (SDSR) launched by SSQ in 2013. Since then, many significant and promising actions have been taken. By putting this plan into action, SSQ has achieved some noteworthy results. In total, 96% of the objectives identified for each of the commitments have been met. In short: % ENVIRONMENTAL 94 COMMITMENT – 15 actions implemented – 43 gestures made to reach our objectives – 52 indicators for the gestures made; 50 of which have been completed and 2 are in progress

INDICATORS % ECONOMIC Indicators completed 17 12 15 6 100 COMMITMENT Indicators in progress 1 0 1 0

This report presents the highlights of the SDSR plan, and although the plan is winding up, SSQ definitely wishes to continue its efforts in this area and continue building a better future. 36 Ω SSQ Ω 2016 ANNUAL REPORT

INNOVATIVE AND EFFICIENT PRODUCTS AND SERVICES 100% of policyholders with 500 or more employees say it’s easy to do business with SSQ The new Health InSight Indicators 80% of group insurance policyholders concerned 89% say that this program helps of our insured members improve their knowledge are satisfied or totally of their employees’ global satisfied with the overall health claim process in general insurance 98% of group insurance plan administrators find that their plan implementation was straightforward SSQ Ω 2016 ANNUAL REPORT Ω 37

DIGITAL TECHNOLOGY ESSENTIAL FOR DEVELOPMENT 100% of worksheets in individual 56% insurance converted into 100% of group insurance electronic format of home and auto insurance participants are registered claims are paperless for online services

Launch of a brand new

100% digital individual insurance product for those nearing retirement 140% increase in downloads of the SSQ Mobile Services app

97% Nearly of group insurance groups 44% of insureds use direct use online invoicing deposit for their claim Use of online group reimbursements insurance claims is continually growing: a 100% More than 50% of group of requests for donations insurance intermediaries and sponsorships are have registered for direct 56% made online deposit increase in the last year alone 38 Ω SSQ Ω 2016 ANNUAL REPORT

A GROUP WITH A COMMITMENT TO THE COMMUNITY

$113,759 A major fundraising event in 2016, the SSQ Quebec City Marathon collected $113,759 for Accès-Loisirs Participation of a team Québec, an organization of employees in the Bay whose mission is to make Street Hoops basketball sport, cultural and outdoor tournament to raise recreational activities funds to make the sport accessible to low-income accessible to Toronto youth families Artists’ Garage Sale Participation in the 2016 Artists’ Garage Sale, a fundraising event organized for the benefit of the Véro & Louis Foundation whose objective is to build the first house adapted for autistic Seinbiose people age 21 and over Completion of the first year Volunteer of the Seinbiose research half-days project operated by the Quebec City CHU Foundation Financial support Nearly 40 SSQ employees (FCHUQ): 17 women who to communities shaken participated in volunteer underwent mastectomies by a tragedy: forest fires in half-days in 2016 by taking received a customized Fort McMurray, explosion part in activities held external breast prosthesis in downtown Lac-Mégantic at organizations that rely thanks to SSQ’s contribution and typhoon Haiyan in on United Way Centraide the Philippines SSQ Ω 2016 ANNUAL REPORT Ω 39

ADOPTING HEALTHY LIFESTYLE HABITS: A PRIORITY

Knitting workshops Elite certification organized by SSQ has been maintained employees provided comforting knitted items to sick children at CHU Sainte-Justine hospital

Women of the Future Launch of SSQ Women of the Future initiative SSQ Marathons consisting of a committee $320,000 Massive employee turnout that encourages A record amount of at the SSQ Marathon professional development of $320,000 raised during the in Longueuil and the SSQ women through mentoring 2016 United Way Centraide Quebec City Marathon and skill development campaign, a 12% increase over last year

By taking part in the “Young 37,000 km Explorers for a Day” activity, A total of 412 employees high school students can divided into 3 teams experience on-the-job 20% traveled nearly 37,000 km, training for a day A 20% increase in the or the equivalent of capitalization of SSQ 3 Halifax/Vancouver return Foundation trips as part of the HealthWise program 40 Ω SSQ Ω 2016 ANNUAL REPORT

SUCCESSFUL INITIATIVES FOR ENVIRONMENTAL PROTECTION

Collection of used books by the SSQ youth service 12 beehives cooperative (CJSSQ) installed on the rooftops of our office buildings in Quebec City, Longueuil and Toronto produced over 120 kg of honey ÉlectroBAC in the summer of 2016 Installation of ÉlectroBAC at the head office, for the 2 0 1 7 recycling of old electronic Sustainable mobility devices and offering them Prestigious LEED® a second lease on life Agreements signed Gold certification with Covoiturage.ca, Communauto and TURO, for the SSQ Tower companies specializing in Longueuil in sustainable mobility and car sharing Green cars Incentives for purchasing Charging environmentally friendly stations Here we recycle! vehicles for the SSQ fleet Installation of electric car Level 2 certification of the charging stations at the HERE WE RECYCLE! program SSQ Tower in Longueuil for the 2525 SSQ and 2505 SSQ office buildings SSQ Ω 2016 ANNUAL REPORT Ω 41

RESPONSIBLE INVESTMENTS

SSQ took part in a number of activities and meetings of the Quebec chapter of the PRI network

Earth Hour Principles for Responsible Criteria for responsible Participation in the investment (PRI) are now investment are now Earth Hour initiative, integrated in the investment integrated in the selection demonstrating SSQ’s analysis and decision-making of external managers for commitment to climate processes, both for general SSQ Funds change issues and segregated fund investments

Information related to External audit of SSQ’s Transport for our responsible investment investments in Canadian a Better Life practices was added to companies, with a focus the report for the PRI on the responsible SSQ takes part in the Secretariat investing aspect Monique-Fitz-Back Foundation’s “Transport for a Better Life” contest to foster young people’s commitment to transportation challenges 42 Ω SSQ Ω 2016 ANNUAL REPORT

HUMAN COMMITMENT GESTURES INDICATORS ACTION 1 Conduct the necessary • Surveys measuring the Offer an accessible and surveys to measure member satisfaction of our insured high-quality customer and client satisfaction rates members, customers and experience with our products and services partners • Goals of excellence by business sector Develop and maintain • Training new employees within specific training programs six months for employees who work for the Group’s various customer service departments Expand our mobile and online • Feasibility study detailing services the online needs to add to the overall offering • Surveys to determine additional needs for online services • Services with low environmental impact • New mobile and online services offered Promote the use of our online • Use of online services services among our insured • Identification of the objectives members of online services by business sector Promote the efficiency and • Increased use of SSQ Mobile speed of SSQ Mobile Services Services for submitting claims

Status: Completed In progress SSQ Ω 2016 ANNUAL REPORT Ω 43

GESTURES INDICATORS ACTION 2 Make employees aware • Activities to make employees Encourage employees of sustainable development aware of the SDSR principles to become agents of principles change in sustainable Build a shared company vision • Internal SDSR communications development through a communications plan and employee mobilization platform dedicated to activities attracting and retaining employees

ACTION 3 Encourage employees to • Budget percentage allocated Maintain a high level develop skills that help them to employee training of employee expertise reach their potential and meet the needs of our customers Set up a leadership training • Training and professional and professional development development programs program for managers Develop an internal • Internal communications policy communications policy that encourages dialogue between management and employees Coach employees • Change management support in change management

ACTION 4 Examine the results of the • Integration of SDSR principles Take sustainable different organizational with company business development principles into surveys and sustainable practises account when managing development principles in programs related to human human capital and offer an resources to offer an engaging engaging work environment work environment and become an employer of choice that consistently promotes equality and employee diversity Promote health and support • Health promotion and employees employee support activities 44 Ω SSQ Ω 2016 ANNUAL REPORT

SOCIAL COMMITMENT GESTURES INDICATORS ACTION 5 Promote online claims • User rates of online services Offer products and services to insureds that promote responsible behaviours Incite and encourage • Adherence to environmentally consumers to adopt responsible products environmentally friendly behaviours Increase the quantity • Development of new of responsible products environmentally responsible we offer products

ACTION 6 Build on policies for donations • Integration of SDSR in Integrate environmentally and institutional sponsorships the policies for donations responsible criteria into that take the sustainable and sponsorships development efforts of policies for donations • Promotion of applicants into account and institutional our commitments sponsorships in the community Encourage employees to • Measures to encourage volunteer in order to help employee volunteer work communities flourish • Promotion of the Corporate Donations Policy and the directive on supporting the volunteer work done by employees Invest a portion of our net • Percentage of net gains income in donations is invested in donations SSQ Ω 2016 ANNUAL REPORT Ω 45

GESTURES INDICATORS ACTION 7 Maintain support for the SSQ • Percentage of the capitalization Give back to Foundation of the SSQ Foundation the community through the SSQ Foundation ACTION 8 Support the establishment of • Establishment of a youth Invest in the next a youth services co-op with co-op every year generation the children of employees Consolidate succession • Succession planning planning to ensure the long- lasting success of operations

Promote the SSQ employer • Promotion of the SSQ brand as employer of choice employer brand 46 Ω SSQ Ω 2016 ANNUAL REPORT

ENVIRONMENTAL COMMITMENT GESTURES INDICATORS ACTION 9 Apply a policy on responsible • Policy for responsible Apply social and goods and services acquisition acquisition of goods and environmental and a directive on calls for services considerations when tenders and responsible contracting acquiring goods and services Efficiently dispose of residual • The 3R-D internal management materials according to plan for residual materials the 3R-D that make up the first principle of the Quebec Residual Materials Management Policy: Reduction at the source, Reuse, Recycling and Disposal

ACTION 10 Create an inventory of • Promotion of public Reduce our greenhouse greenhouse gases (GHGs) transportation and gas emissions produced every year carpooling Promote alternative means • Promotion of public of transportation to driving transport and carpooling alone among employees

Include a wider selection • Environmental performance of environmentally friendly of the automobile fleet vehicles in SSQ’s automobile fleet Hold carbon-neutral annual • Neutral carbon footprint meetings (AM) of the annual meeting SSQ Ω 2016 ANNUAL REPORT Ω 47

GESTURES INDICATORS ACTION 11 Encourage group insurance • Intermediary registration rates Reduce our paper intermediaries to register for direct deposit for online services consumption • Usage rate of e-billing

Implement a new employee • Measuring reduction in the use awareness program to reduce of photocopiers and printers the use of photocopiers and printers Replace the My insurance at • Production and distribution a glance brochure distributed of an abridged version and to group insurance members an online version with an abridged version and an online version Promote printing on • Percentage of printers capable both sides as a standard of printing on both sides for all documents

Ensure our Copy Centre • FSC® certification of the Copy maintains its FSC® Centre and a policy on paper certification supply

ACTION 12 Obtain BOMA BESt© • BOMA BESt© certification Reduce our water and certification for all SSQ-owned energy consumption buildings to improve their • Objective to reduce water performance and their and energy environmental management

LEED® certification for all • LEED® certification construction projects built by SSQ

The Cité Verte project is • Promotion of Cité Verte’s raising awareness about the environmental friendliness prescribed building methods and leading-edge products used in energy and environmental management: sustainable architecture, waste materials management and storm water and wastewater management 48 Ω SSQ Ω 2016 ANNUAL REPORT

ECONOMIC COMMITMENT GESTURES INDICATORS ACTION 13 Integrate sustainable • Progress report Integrate our sustainable development indicators into development policy into the policy’s progress report our business practises Present an annual report • SDSR section integrated that integrates the in the annual report SDSR report

ACTION 14 Promote the policy governing • Distribution of the policy Build on the sustainable socially responsible on socially responsible and responsible profile investments adopted in 2006 investments and training of our investments and improved in 2008, by of employees involved endorsing the PRI (Principles for Responsible Investment) initiative Establish targets for change • Target the change in in response to the six PRI response to the six PRI principles principles

Continue with external audits • External audits and of the Canadian company communications to the investment portfolio, with investment committee a focus on the responsible aspect of these investments.

ACTION 15 Determine reasonable and • Financial indicators Ensure the Company’s responsible targets for overall sustainability through company performance steady growth and reasonable returns

SSQ, Mutual Management Corporation Consolidated Financial Statements As at Decembre 31, 2016 Together with Independant Auditor’s Report SSQ Ω 2016 ANNUAL REPORT Ω 51

Independent Auditor’s Report To the Members of SSQ, Mutual Management Corporation, We have audited the accompanying consolidated financial statements of SSQ, MUTUAL MANAGEMENT CORPORATION, which comprise the consolidated statement of financial position as at December 31, 2016, and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Mutual’s preparation and fair presentation of the consolidated financial statements 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 Mutual’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of SSQ, Mutual Management Corporation as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Mallette L.L.P. Partnership of chartered professional accountants Québec, Canada February 28, 2017

1 CPA auditor, CA, public accountancy permit No. A119429 52 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Mutual Management Corporation Consolidated Statement of Income For the year ended December 31, (in thousands of dollars) 2016 2015 $ $ REVENUES Share in the net income of the Associate (Note 4) 22,433 18,733 Interest income (Note 5) 72 73 22,505 18,806

EXPENSES Interest expense 70 70 70 70 NET INCOME 22,435 18,736 NET INCOME ATTRIBUTABLE TO: Non-controlling interests 9,557 8,047 Members 12,878 10,689

Consolidated Statement of Comprehensive Income For the year ended December 31, (in thousands of dollars) 2016 2015 $ $

NET INCOME 22,435 18,736

OTHER COMPREHENSIVE LOSS Share in the other comprehensive loss of the Associate (Note 4) Items that may be reclassified subsequently to net income (2,517) (980) Items that will not be reclassified to net income (1,221) (1,507) (3,738) (2,487) COMPREHENSIVE INCOME 18,697 16,249 COMPREHENSIVE INCOME ATTRIBUTABLE TO: Non-controlling interests 7,968 6,976 Members 10,729 9,273

The accompanying notes are an integral part of the consolidated financial statements. SSQ Ω 2016 ANNUAL REPORT Ω 53

SSQ, Mutual Management Corporation Consolidated Statement of Financial Position As at December 31, (in thousands of dollars) 2016 2015 $ $ ASSETS Interest in the Associate (Note 4) 252,842 234,147 Note (Note 5) 900 900 253,742 235,047 Cash (Note 5) 191 944 Account receivable from the Associate (Note 5) – 356 Interest receivable (Note 5) 11 11 TOTAL ASSETS 253,944 236,358

LIABILITIES Chattel mortgage (Note 5) 900 900 Advance from the Associate (Note 5) 227 221 Account payable to the Associate (Note 5) 143 – Accrued interest payable (Note 5) 11 11 TOTAL LIABILITIES 1,281 1,132

EQUITY Attributable to members Retained earnings 142,749 129,871 Accumulated other comprehensive loss (10,271) (8,122) 132,478 121,749 Attributable to non-controlling interests 120,185 113,477 TOTAL EQUITY 252,663 235,226 TOTAL LIABILITIES AND EQUITY 253,944 236,358

The accompanying notes are an integral part of the consolidated financial statements.

On behalf of the Board:

Pierre Genest Émile Vallée Chairman of the Board Vice-Chairman of the Board 54 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Mutual Management Corporation Consolidated Statement of Changes in Equity For the year ended December 31, (in thousands of dollars) 2016 2015 $ $ Members Retained earnings Balance, beginning of year 129,871 119,182 Net income 12,878 10,689 Balance, end of year 142,749 129,871

Accumulated other comprehensive loss Balance, beginning of year (8,122) (6,706) Other comprehensive loss (2,149) (1,416) Balance, end of year (10,271) (8,122) Total equity attributable to members, end of year 132,478 121,749

Non-controlling interests Balance, beginning of year 113,477 106,076 Net income 9,557 8,047 Other comprehensive loss (1,589) (1,071) Net capital (injections) repayments (1,260) 425 Total equity attributable to non-controlling interests, end of year 120,185 113,477 TOTAL EQUITY 252,663 235,226

The accompanying notes are an integral part of the consolidated financial statements. SSQ Ω 2016 ANNUAL REPORT Ω 55

SSQ, Mutual Management Corporation Consolidated Statement of Cash Flows For the year ended December 31, (in thousands of dollars) 2016 2015 $ $

OPERATING ACTIVITIES Interest received 72 73 Interest paid (64) (64) Cash flows from operating activities 8 9 FINANCING ACTIVITIES Net capital (injections) repayments1 (761) 47 Cash flows from financing activities (761) 47 (DECREASE) INCREASE IN CASH (753) 56 CASH, beginning of year 944 888 CASH, end of year 191 944

1 As at December 31, 2016, an amount of $143 related to capital injections is included in the account payable to the Associate (2015 – account receivable of $356).

The accompanying notes are an integral part of the consolidated financial statements. 56 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Mutual Management Corporation Notes to the Consolidated Financial Statements For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

1. GOVERNING STATUTES AND NATURE OF ACTIVITIES SSQ, Mutual Management Corporation (the “Mutual”) was incorporated under the Act respecting Quebec Health Services. The Mutual’s main activity is to hold an investment in SSQ, Life Insurance Company Inc. (the “Asso- ciate”). The Mutual’s head office is located at 2525 Laurier Blvd., Quebec City, Quebec, Canada. The Mutual’s consolidated financial statements were approved by the Board of Directors on February 28, 2017.

2. SIGNIFICANT ACCOUNTING POLICIES Presentation of consolidated financial statements The consolidated financial statements have been prepared in accordance with International Financial Report- ing Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements include the accounts of the Mutual and those of SSQ, Mutual Holding Inc. (the “Subsidi- ary”), owned at 57.43% (2015 – 56.92%), whose principal office is located in Quebec City, Quebec, Canada and which holds an investment in SSQ, Life Insurance Company Inc. The Mutual’s consolidated financial statements are presented in Canadian dollars, which correspond to its functional currency. Use of estimates and Management’s judgments The preparation of consolidated financial statements in accordance with IFRS requires Management to rely on best estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting year. Actual results may differ from those estimates. These estimates are periodically reviewed and adjustments are made, if needed, to the year’s results in which they are known. Management uses its judgment to prepare the consolidated financial statements. Revenue recognition The share in the net income of the Associate is recognized when it is earned. The interest income on the note is calculated using the effective interest rate method. Interest in the Associate The Mutual accounts for its 28.91% interest in the Associate using the equity method (2015 – 28.91%). Of this ownership interest, 16.60% (2015 – 16.46%) is attributable to members. SSQ Ω 2016 ANNUAL REPORT Ω 57

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Financial instruments – classification and recognition When financial instruments are initially recognized, the Mutual records them at their fair value. The subsequent measurement of financial instruments depends on their classification. Financial instruments are classified based on their nature and the Mutual’s use of the financial instrument at the time of its initial recognition.

A) Note Loans and receivables The note to the Associate, which is classified as loans and receivables, is recognized at amortized cost using the effective interest rate method. The fair value disclosed for the note is determined by discounting the anticipated cash flows at the rate currently required by the market for this type of receivable and for a term corresponding to the maximum maturity date provided for the note.

B) Cash Loans and receivables Cash is made up of bank account balances held with financial institutions. It is classified as loans and receivables and is recognized at amortized cost using the effective interest rate method.

C) Chattel mortgage Other financial liabilities at amortized cost The chattel mortgage is classified as other financial liabilities at amortized cost and valued at amortized cost using the effective interest rate method. The fair value of the chattel mortgage disclosed is measured using an expected discounted future cash flows model. The discount rate used corresponds to a rate of return of a benchmark index that has a similar risk profile as the underlying assets and a term matching the maximum term for the chattel mortgage.

D) Other financial assets and liabilities Other financial assets and liabilities are recognized at amortized cost using the effective interest rate method and classified respectively as loans and receivables and other financial liabilities at amortized cost. Financial instruments – impairment A financial asset is impaired if there is objective evidence of impairment as a result of one or more loss events that occurred following the initial recognition and had an impact on the financial asset’s estimated future cash flows. At the end of each financial reporting period, the Mutual determines whether there is any objective evidence that a financial asset has been impaired. 58 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

3. CHANGES IN ACCOUNTING POLICIES Application of new accounting standards Consolidated Financial Statements, Disclosure of Interests in Other Entities, and Investments in Associates and Joint Ventures In December 2014, the IASB issued amendments to IFRS 10, Consolidated Financial Statements, to IFRS 12, Disclosure of Interests in Other Entities and to IAS 28, Investments in Associates and Joint Ventures, which clarify the rules for exempting investment entities from consolidation. These amendments have been in effect since January 1, 2016. The amendments to these standards had no impact on the Mutual’s consolidated financial statements. New accounting standards not yet in effect Financial Instruments In July 2014, the IASB issued IFRS 9, Financial Instruments (“IFRS 9”), which, effective January 1, 2018, replaces IAS 39, Financial Instruments: Recognition and Measurement regarding the classification and measurement of financial assets and liabilities, impairment and hedge accounting. The Mutual is currently assessing the impact of IFRS 9 on its consolidated financial statements. An amendment to IFRS 4 Insurance Contracts (“IFRS 4”) issued by the IASB on September 12, 2016 sets out measures giving companies whose business model is predominantly to issue insurance contracts the option to defer the effective date of IFRS 9 to January 1, 2021. The Associate, in which the Mutual holds an interest, is eligible for the deferral and plans to make use of it until the maximum permissible date. The amendment also sets out certain measures to allow investors that hold an investment in an associate able to use the deferral not to adjust the application of the equity method to make the associate accounting practices uniform with those of the investor, as would be required by IAS 28, Investments in Associates and Joint Ventures. The Mutual is eligible for this temporary exemption and plans to apply it until IFRS 9 comes into effect for the Associate.

Statement of Cash Flows In February 2016, the IASB issued narrow scope amendments to IAS 7, Statement of Cash Flows, to require companies to provide information concerning changes in their liabilities arising from financing activities. These amendments will apply prospectively for annual periods beginning on or after January 1, 2017. The Mutual is currently assessing the impact of this standard on its consolidated financial statements. SSQ Ω 2016 ANNUAL REPORT Ω 59

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

4. INTEREST IN THE ASSOCIATE

2016 2015 $ $

Balance, beginning of year 234,147 217,901 Share in net income 22,433 18,733 Share in other comprehensive loss (3,738) (2,487) Balance, end of year 252,842 234,147 The following table presents summarized financial information for the Associate. 2016 2015 $ $ Consolidated statement of financial position Cash and cash equivalents 202,500 241,300 Total assets 11,373,800 11,222,600 Total liabilities 10,582,100 10,495,600 Total equity 791,700 727,000

Consolidated statement of income Interest income and amortization of discounts and premiums 115,200 118,500 Total revenues 2,135,400 2,073,200 Amortization of intangible assets and depreciation of fixed assets and investment properties 35,100 32,000 Interest expenses 11,100 12,000 Income taxes 25,200 21,600 Net income 77,600 64,800

Consolidated statement of comprehensive income Other comprehensive income (loss) (12,900) (8,500) Comprehensive income 64,700 56,300 60 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

5. FINANCIAL INSTRUMENTS A) Carrying value and fair value of financial assets and liabilities 2016 2015

Carrying value Fair value Carrying value Fair value $ $ $ $

Financial assets Note, 7.09%, maturing in May 20201 900 988 900 999 Interest receivable 11 11 11 11 Account receivable from the Associate – – 356 356 Cash, bearing interest at prime rate less 1.75% 191 191 944 944 1,102 1,190 2,211 2,310 Financial liabilities Chattel mortgage, 7.09%, maturing in May 20201 900 988 900 999 Accrued interest payable 11 11 11 11 Account payable to the Associate 143 143 – – Advance from the Associate, 2.63%, without repayment terms 227 227 221 221 1,281 1,369 1,132 1,231

1 The chattel mortgage is secured by the note.

Financial instruments for which the fair value is disclosed in the notes to the consolidated financial statements are classified according to a three-level hierarchy that reflects the importance of the inputs used to determine their valuation: • Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; • Level 2 – A valuation based on inputs observable in markets for the asset or liability, obtained either directly or indirectly; • Level 3 – A valuation based on inputs other than inputs observable in markets for the asset or liability. SSQ Ω 2016 ANNUAL REPORT Ω 61

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

5. FINANCIAL INSTRUMENTS (cont’d) A) Carrying value and fair value of financial assets and liabilities (cont’d) The assets and liabilities whose fair values are disclosed in the notes to the consolidated financial statements are classified into the levels of the fair value measurement hierarchy as follows: 2016

Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets Note, 7.09%, maturing in May 2020 – – 988 988 Interest receivable – 11 – 11 Cash, bearing interest at prime rate less 1.75% – 191 – 191 – 202 988 1,190 Financial liabilities Chattel mortgage, 7.09%, maturing in May 2020 – – 988 988 Accrued interest payable – 11 – 11 Account payable to the Associate – 143 – 143 Advance from the Associate, 2.63%, without repayment terms – 227 – 227 – 381 988 1,369

2015

Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets Note, 7.09%, maturing in May 2020 – – 999 999 Interest receivable – 11 – 11 Account receivable from the Associate – 356 – 356 Cash, bearing interest at prime rate less 1.75% – 944 – 944 – 1,311 999 2,310 Financial liabilities Chattel mortgage, 7.09%, maturing in May 2020 – – 999 999 Accrued interest payable – 11 – 11 Advance from the Associate, 2.63%, without repayment terms – 221 – 221 – 232 999 1,231

As at December 31, 2016 and 2015, no financial instrument is recognized at fair value in the Consolidated Statement of Financial Position. 62 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

5. FINANCIAL INSTRUMENTS (cont’d) B) Interest income 2016 2015 $ $

Note 64 64 Cash 8 9 72 73

6. FINANCIAL INSTRUMENTS RISK MANAGEMENT The Mutual adopted control policies and procedures to manage risks related to financial instruments. The Board of Directors approves the investment policy and its objective is to supervise investment decision-making. The procedures arising from this policy ensure sound management of the risks related to investments. Risks related to Mutual’s financial instruments consist of credit risk and liquidity risk. Credit risk corresponds to the risk of financial loss for the Mutual if a debtor does not respect its commitments. The Mutual is exposed to credit risk in terms of the note. This risk is mitigated by the fact that the note is issued to the Associate. Liquidity risk refers to the risk that the Mutual may have difficulty generating sufficient cash flows to cover its financial liabilities. The Mutual manages liquidity risk by matching cash flows from its note with those required to cover its chattel mortgage. The following tables present contractual maturities of the cash flows of the Mutual’s financial liabilities. 2016

Payable on From 1 to 5 Over demand years 5 years Total $ $ $ $ Chattel mortgage – 900 – 900 Advance from the Associate 227 – – 227 Account payable to the Associate 143 – – 143 Accrued interest payable 11 – – 11 381 900 – 1,281

2015

Payable on From 1 to 5 Over demand years 5 years Total $ $ $ $ Chattel mortgage – 900 – 900 Advance from the Associate 221 – – 221 Accrued interest payable 11 – – 11 232 900 – 1,132 SSQ Ω 2016 ANNUAL REPORT Ω 63

SSQ, Mutual Management Corporation

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2016 (in thousands of dollars, unless otherwise indicated)

7. CAPITAL MANAGEMENT In terms of capital management, the Mutual’s objective is to preserve its assets. The Mutual defines its capital as the chattel mortgage and members’ equity. The Mutual achieves its objective through careful management of the capital generated by internal growth and by making optimal use of low-cost capital. Composition of the capital 2016 2015 $ $

Chattel mortgage 900 900 Members' equity 132,478 121,749 133,378 122,649

8. RELATED PARTY TRANSACTIONS In the normal course of operations, the Mutual carries out transactions with the Associate. These transactions are measured at the exchange amount. During the year, the Mutual received interest of $64 (2015 – $64) from the Associate. As at December 31, 2016, a balance of $11 (2015 – $11) is included under interest receivable. This amount is not guaranteed and will be settled in cash. During the year, the Mutual capitalized interest of $6 (2015 – $6) to the advance from the Associate. The Associate offers an opportunity to participate in an investment fund to some of its employees. This investment fund owns a non-controlling interest in the Mutual.

9. INTERESTS IN THE SUBSIDIARY The following table presents the impact of the consolidation of the subsidiary in which the non-controlling interest is substantial. 2016 2015 $ $

Statement of financial position Total assets 253,852 235,157 Total liabilities 1,138 1,132

Statement of income Revenues 22,497 18,797 Net income 22,427 18,727

Statement of comprehensive income Other comprehensive loss (3,738) (2,487) Comprehensive income 18,689 16,240 SSQ, Life Insurance Company Inc. CONSOLIDATED FINANCIAL STATEMENTS As at Decembre 31, 2016 Together with Independant Auditor’s Report SSQ Ω 2016 ANNUAL REPORT Ω 65

Management’s Report The preparation of SSQ, LIFE INSURANCE COMPANY INC. (the “Company”)’s consolidated financial statements is the Management’s responsibility. These audited consolidated financial statements, which have been approved by the Board of Directors, have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) and include certain amounts that are based on our best judgements and estimates. The financial information presented elsewhere in this annual report is consistent with the information contained in the audited consolidated financial statements. In order to carry out its responsibilities with respect to the consolidated financial statements, the Company maintains internal control systems aimed at providing a reasonable degree of certitude that operations have been duly authorized, that assets are well safeguarded and that adequate and proper records have been kept. These control systems are reinforced by the work of a team of internal auditors who regularly review all of the Company’s lines of business. In conformity with the Insurance Act, the Board of Directors appoints the actuary, who is charged with the responsibility of valuating the actuarial liabilities of the Company in accordance with the standards and practices of the Canadian Institute of Actuaries. Moreover, the independent auditor appointed at the Annual Meeting of shareholders, ensures the accuracy of the data presented in the consolidated financial statements and expresses an opinion on these. Audits are carried out regularly by the Autorité des marchés financiers to ascertain that the Company is in compliance with the Act respecting insurance, which aims primarily to protect policyholder interests and maintain a sound financial position. The Audit and Risk Management Committee of the Board of Directors, the members of which are neither from management nor employees of the Company, ensures that management fulfills its responsibilities with respect to financial information. The committee meets regularly with management, internal auditors and the independent auditor. The latter can, if they wish, meet with said committee in the presence or absence of management, to discuss questions regarding the audit and the financial information.

Jean-François Chalifoux Chief Executive Officer Quebec City, Canada Le 28 février 2017 66 Ω SSQ Ω 2016 ANNUAL REPORT

Independent Auditor’s Report To the Shareholders of SSQ, Life Insurance Company Inc., We have audited the accompanying consolidated financial statements of SSQ, LIFE INSURANCE COMPANY INC., which comprise the consolidated statement of financial position as at December 31, 2016 and the consolidated statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the consolidated financial statements 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 Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall pre sentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of SSQ, Life Insurance Company Inc. as at December 31, 2016, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

Mallette L.L.P. Partnership of chartered professional accountants Québec, Canada February 28, 2017

1 CPA auditor, CA, public accountancy permit No. A119429 SSQ Ω 2016 ANNUAL REPORT Ω 67

SSQ, Life Insurance Company Inc. Consolidated Statement of Income For the year ended December 31, (in millions of dollars) 2016 2015 $ $ REVENUES Gross premiums (Note 23) 2,342.8 2,204.9 Premiums ceded to reinsurers (421.8) (392.9) Net premiums 1,921.0 1,812.0 Change in unearned premiums (0.5) 8.1 Investment income (Note 5) 104.8 171.7 Revenue on property (Note 27) 36.1 20.3 Administration fees and other revenues 74.0 61.1 2,135.4 2,073.2

BENEFITS AND EXPENSES Insurance and annuities Gross benefits 1,713.1 1,643.0 Benefits recovered from reinsurers (351.9) (325.5) Change in actuarial reserve of life and health insurance contracts 0.6 174.5 Change in actuarial reserve of ceded reinsurance assets (18.7) (88.3) Interest on deposits 1.8 3.7 1,344.9 1,407.4 Selling and administrative expenses (Notes 22, 23 and 24) 349.7 332.1 General fund investment expenses 8.2 7.1 Property expenses (Notes 23 and 27) 31.8 16.7 Commissions and fees on sales 186.5 163.7 Premium taxes 71.9 65.7 1,993.0 1,992.7

INCOME BEFORE EXPERIENCE REFUNDS AND INCOME TAXES 142.4 80.5 Experience refunds 39.6 (5.9)

INCOME BEFORE INCOME TAXES 102.8 86.4 Income taxes (Note 21) 25.2 21.6 NET INCOME 77.6 64.8

The accompanying notes are an integral part of the consolidated financial statements. 68 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc. Consolidated Statement of Comprehensive Income For the year ended December 31, (in millions of dollars) 2016 2015 $ $

NET INCOME 77.6 64.8

OTHER COMPREHENSIVE INCOME (LOSS) Items that may be reclassified subsequently to net income Unrealized gains on available-for-sale financial assets 9.0 0.6 Income tax expense (Note 21) (2.4) (0.2) Reclassification to net income of gains on disposal (21.3) (5.3) Income tax expense (Note 21) 6.0 1.5 (8.7) (3.4) Items that will not be reclassified to net income Actuarial losses arising from employee retirement benefits and the effect to the asset ceiling (5.8) (7.0) Income tax recovery (Note 21) 1.6 1.9 (4.2) (5.1) TOTAL OTHER COMPREHENSIVE LOSS (12.9) (8.5) COMPREHENSIVE INCOME 64.7 56.3

The accompanying notes are an integral part of the consolidated financial statements. SSQ Ω 2016 ANNUAL REPORT Ω 69

SSQ, Life Insurance Company Inc. Consolidated Statement of Financial Position As at December 31, (in millions of dollars) 2016 2015 $ $ ASSETS Investments (Note 5) 4,062.3 4,004.9 Asset held for sale (Note 6) – 3.3 Outstanding premiums 275.2 276.0 Ceded reinsurance assets (Notes 14 and 15) 1,621.2 1,567.1 Property under development 35.3 40.9 Income taxes receivable 13.1 11.4 Other assets (Note 10) 156.4 141.8 Investment property (Note 11) 28.2 28.3 Fixed assets (Note 12) 179.4 170.3 Intangible assets (Note 13) 148.3 155.4 Goodwill (Note 13) 14.1 14.1 Deferred income tax assets (Note 21) 22.6 39.3 Total general fund assets 6,556.1 6,452.8 Segregated fund investments (Note 25) 4,817.7 4,769.8 TOTAL ASSETS 11,373.8 11,222.6

LIABILITIES Life and health insurance contracts (Note 14) 5,084.0 5,027.2 Property and casualty insurance contracts (Note 15) 246.0 242.0 Accounts payable 143.2 147.3 Income taxes payable 0.1 9.8 Subordinated debt (Note 17) 160.0 175.0 Other liabilities (Note 18) 86.0 61.4 Deferred income tax liabilities (Note 21) 45.1 63.1 Total general fund liabilities 5,764.4 5,725.8 Segregated fund insurance contracts (Note 25) 1,841.6 1,697.5 Segregated fund investment contracts (Note 25) 2,976.1 3,072.3 TOTAL LIABILITIES 10,582.1 10,495.6

EQUITY Share capital (Note 19) 343.2 343.2 Retained earnings 496.3 418.7 Accumulated other comprehensive loss (47.8) (34.9) TOTAL EQUITY 791.7 727.0 TOTAL LIABILITIES AND EQUITY 11,373.8 11,222.6

Contingencies and commitments (Note 26) Subsequent event (Note 28) The accompanying notes are an integral part of the consolidated financial statements.

On behalf of the Board:

Pierre Genest Jean-François Chalifoux Chairman of the Board Chief Executive Officer 70 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc. Consolidated Statement of Changes in Equity For the year ended December 31, (in millions of dollars) 2016 2015 $ $

Share capital 343.2 343.2

Retained earnings Balance, beginning of year 418.7 353.9 Net income 77.6 64.8 Balance, end of year 496.3 418.7

Accumulated other comprehensive loss Balance, beginning of year (34.9) (26.4) Other comprehensive loss (12.9) (8.5) Balance, end of year (47.8) (34.9) TOTAL EQUITY 791.7 727.0

The accompanying notes are an integral part of the consolidated financial statements. SSQ Ω 2016 ANNUAL REPORT Ω 71

SSQ, Life Insurance Company Inc. Consolidated Statement of Cash Flows For the year ended December 31, (in millions of dollars) 2016 2015 $ $

OPERATING ACTIVITIES Income before income taxes 102.8 86.4 Income taxes paid, net of refunds received (34.6) (51.8) Items not affecting cash Losses (gains) on investments 19.0 (41.9) Gain on disposal of fixed asset (7.4) – Amortization of discounts and premiums on bonds (25.7) (32.7) Depreciation of investment property 0.7 0.6 Depreciation and amortization of fixed assets and intangible assets 34.4 31.4 Life and health insurance contracts 56.8 134.4 Other items included in net income 0.2 (1.0) 146.2 125.4 Net change in other operating assets and liabilities (38.1) (83.9) Cash flows from operating activities 108.1 41.5 INVESTING ACTIVITIES Purchase of investments (1,218.7) (1,432.8) Sales, maturities and repayments of investments 1,121.5 1,451.5 Purchase of investment property (0.8) (2.0) Disposal of investment property – 6.8 Purchases of fixed assets and intangible assets (48.2) (60.6) Disposal of fixed assets and intangible assets 14.3 0.1 Cash flows from investing activities (131.9) (37.0) FINANCING ACTIVITIES Long-term debt repayment (15.0) – Cash flows from financing activities (15.0) – (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (38.8) 4.5 CASH AND CASH EQUIVALENTS, beginning of year 241.3 236.8 CASH AND CASH EQUIVALENTS, end of year 202.5 241.3

Cash flows from operating activities include: Cash 132.3 166.3 Deposit of three months or less bearing interest 70.2 75.0 202.5 241.3

The accompanying notes are an integral part of the consolidated financial statements.

Cash flows from operating activities include interest paid on subordinated debt in the amount of $11.1 (2015 — $12.0). As at December 31, 2016, investment property in the amount of $0.1 (2015 — $0.3) and fixed assets and intangible assets in the amount of $4.8 (2015 — $9.7) were included in accounts payable. 72 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc. Notes to the Consolidated Financial Statements For the year ended December 31, 2016 (in millions of dollars, unless otherwise indicated)

1. GOVERNING STATUTES AND NATURE OF ACTIVITIES SSQ, Life Insurance Company Inc., majority owned by the Fonds de solidarité des travailleurs du Québec, was incorporated under a private law and is governed by the Insurance Act. SSQ, Life Insurance Company Inc. and its subsidiaries (the “Company”) offer a complete range of financial services including financial protection in the event of death, disability, illness or retirement through a variety of individual and group insurance products as well as savings, retirement and investment products. The Company is also active in property and casualty insurance and real estate management. The Company’s head office is located at 2525 Laurier Boulevard, Quebec City, Quebec, Canada. The Company’s consolidated financial statements were approved by the Board of Directors onFebruary 28, 2017.

2. RESTRUCTURING On June 8, 2016, the Company’s Board of Directors approved a restructuring program (the “SSQ Transforma- tion Program”) essentially intended to combine the Company’s direct and indirect subsidiaries, thereby simplifying its corporate structure and fostering synergies between its business lines and distribution networks. The following transactions were carried out under the SSQ Transformation Program: • On December 31, 2016, the Company disposed of its investment in its wholly owned subsidiary, 9352-1839 Québec Inc. (formerly 6801188 Canada Inc.) in favour of SSQ Insurance Company Inc., in consideration for that company’s Class A shares. • On January 1, 2017, SSQ General Insurance Company Inc. and SSQ Insurance Company Inc. were merged. The legal name of the merged entity is SSQ Insurance Company Inc. The Company will receive shares of SSQ Insurance Company Inc. with issued and paid-up capital equal to the total capital of the merged companies. • On January 1, 2017, 9352-1839 Québec Inc., SSQ Distribution Inc. (formerly 3669203 Canada Inc.), Garantie supplémentaire 100 limite Inc., SSQ Financial Services Firm Inc. and 9318-3911 Québec Inc., all indirect subsidiaries of the Company, were merged. The legal name of the merged entity is SSQ Distribution Inc. SSQ Distribution Inc. is held directly by the new merged subsidiary of the Company, SSQ Insurance Company Inc., which will receive shares of SSQ Distribution Inc. with issued and paid-up capital equal to the total capital of the merged companies. SSQ Ω 2016 ANNUAL REPORT Ω 73

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES Presentation of consolidated financial statements The consolidated financial statements have been prepared in accordance with International Financial Report- ing Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The consolidated financial statements include the accounts of the Company and of its wholly-owned subsidiaries. The following table presents the subsidiaries held by the Company: Principal place Participation of business % SSQ General Insurance Company Inc. 100 Quebec City (Quebec) Canada SSQ Insurance Company Inc. 100 Montreal (Quebec) Canada SSQ Realty Inc. 100 Quebec City (Quebec) Canada 9338-2083 Quebec inc.1 100 Quebec City (Quebec) Canada 1 Company established on March 8, 2016

Use of estimates and Management’s judgments The preparation of financial statements in accordance with IFRS requires Management to rely on best estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting year. Actual results may differ from those estimates. The most important estimates involve determining: • liabilities related to life and health insurance contracts, property and casualty insurance contracts and ceded reinsurance assets; • fair values of financial instruments in the general funds and segregated funds and insurance and investment contracts liabilities in the segregated funds; • assumptions used in determining provisions, income taxes and write-downs of financial instruments and non-financial assets; • retirement benefits asset and liability. Management used its judgment to evaluate the exercise of control for consolidation purposes, to classify insurance and investment contracts and financial instruments. Management’s judgment is also required in the recognition of investment property, fixed assets, intangible assets and goodwill. Foreign currencies The Company’s consolidated financial statements are presented in Canadian dollars, which correspond to its functional currency. Fund units denominated in foreign currencies are converted at the exchange rate in effect at the date of the financial statements. 74 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Insurance contracts and investment contracts – classification The Company issues contracts that transfer an insurance risk, a financial risk, or both. Insurance contracts are contracts that involve a significant insurance risk. A significant insurance risk exists when the Company agrees to indemnify policyholders or policy beneficiaries should a specified uncertain future event have an adverse effect on the policyholder. Investment contracts are contracts that carry a financial risk with no significant insurance risk. Life and health and segregated fund insurance contracts Revenue recognition and related expenses Life and health insurance premiums are recognized as revenues when they become due. Once premiums are recognized, liability related to life and health insurance contracts is computed in a manner such that expenses are matched with such revenues. Claims are recognized when a notice is received of an event that gives entitlement to compensation. Furthermore, commissions and premium taxes are recognized on the same basis as life and health insurance premiums. The Company collects commission revenues on individual contracts ceded to reinsurance. The commissions are recorded when the contracts are ceded to reinsurance and are posted uniformly to the consolidated statement of income over the term of the corresponding ceded contracts. Unearned reinsurance commissions correspond to the portion of the commissions for the unexpired period of the corresponding contracts, prorated over the remaining number of days. The portion attributable to subsequent periods is recognized in liabilities related to life and health insurance. Life and health insurance contracts The actuarial reserve, provisions for claims and experience refunds, and deposits related to life and health insurance contracts are established by the actuary in accordance with the standards of practice of the Canadian Institute of Actuaries and reflect the amounts required to meet obligations resulting from insurance contracts in force. The actuarial reserve is calculated according to the Canadian asset liability method, a recognized actuarial method established by the Canadian Institute of Actuaries. This method requires the use of assumptions based on best estimates of future experience, according to the Company’s own experience and that of the industry, and includes additional amounts for plausible adverse deviations related to assumptions made on the different factors considered. Some insurance contracts may contain embedded derivative instruments. These derivative instruments either meet the definition of insurance contracts themselves or correspond to an option to surrender an insurance contract for a fixed amount and are not valued separately from the host contract. SSQ Ω 2016 ANNUAL REPORT Ω 75

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Segregated fund insurance contracts Liabilities for segregated fund insurance contracts include the deposit portion of these contracts, recognized in the same manner as investment contracts. The guaranteed portion recognized from the life and health insurance contracts liability, which is determined by the actuary in accordance with the practice standards of the Canadian Institute of Actuaries, corresponds to the amount required to cover current insurance contract commitments. The insurance contract liabilities of segregated funds are calculated according to the Canadian asset liability method, and include additional amounts for plausible adverse deviations related to assumptions made on the different factors considered. Segregated fund insurance premiums related to the insurance component of the contract are recognized as revenue when they become due. Liability adequacy test On each date of the financial statements, a liability adequacy test is performed to ensure the adequacy of liability related to life and health insurance contracts, net of deferred acquisition costs. Since the concept of liability adequacy is an integral part of the Canadian asset liability method, any inadequacy of provisions is immediately carried to profit or loss in order to ensure compliance. Property and casualty insurance contracts Revenue recognition and related expenses Property and casualty insurance premiums are recognized as revenue when they are due, in prorata to the duration of the policies. Unearned premiums represent the portion of written premiums for the unexpired in-force policies, according to the daily prorata method. For some products, unearned premiums are adjusted to account for changes in the related risks. Furthermore, commissions and premium taxes are recognized on the same basis as property and casualty insurance premiums. Unpaid claims Unpaid claims are attributable to events associated with the ultimate settlement of claims. The amount of unpaid claims is established in accordance with the standards of practice of the Canadian Institute of Actuaries. It is presented on a discounted basis, based on the experience of the Company and the industry. Claims are recognized when a notice is received of an event that gives entitlement to compensation. Claims liability adequacy test The claims liability adequacy analysis is done on each reporting date and reviewed as necessary, if an event that could affect results occurs. To this end, past claims development by business sector are analyzed in order to project anticipated claims at the time of the valuation. Assumptions regarding the rate of payment of lia bilities are necessary to value obligations on a discounted basis. Finally, margins for adverse deviations in interest rates, claims development and reinsurance are added to consider the uncertainties related to the assumptions. 76 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Property and casualty insurance contracts (cont’d) Premiums liability adequacy test Premiums liability adequacy is evaluated on each reporting date. Unearned premiums are decreased by deferred acquisition costs, reinsurance premium, claims and adjustment costs anticipated between the valuation date and the expiry of the contracts, and expected maintenance costs to administer the contracts. In addition, the impact of the time value of money is considered. Finally, margins for adverse deviations in interest rates, claims development and reinsurance are added to consider the uncertainties related to the assumptions. Ceded reinsurance assets In the normal course of business, the Company uses reinsurance to manage its level of risk exposure. The risk and the corresponding premium are transferred to duly registered reinsurers that are subject to the same regulatory bodies as the Company. The ceded reinsurance assets are valued in a similar manner to the liabilities related to life and health insurance contracts and property and casualty insurance contracts and in accordance with the terms and conditions of each reinsurance contract. Ceded reinsurance assets represent amounts due to the Company with respect to the liabilities of the ceded policies. Ceding a risk does not release the Company from its obligation to fully comply with the commitments made to its insureds. These assets are subject to an impairment test and, if they are impaired, their carrying value is reduced and the impairment loss is recognized to profit and loss. Investment contracts Revenue recognition Investment contracts fall under the scope of IAS 39, “Financial Instruments: Recognition and Measurement”. Deposit accounting applies to these contracts, which involves recording the premiums received and benefits paid on these contracts as deposits and withdrawals, with no impact on the income statement. Revenues from these contracts consist of fees related to contract issue, administration and surrender as well as asset management, and are recognized in Administration fees and other revenues. Investment contract liabilities All investment contracts are designated at fair value through profit or loss, since changes in net income are offset by changes in the value of investments related to the general funds and segregated funds and are managed on a fair value basis. SSQ Ω 2016 ANNUAL REPORT Ω 77

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Recognition of revenue on property Revenue on property is recognized in net income on a straight-line basis over the term of the lease. Recognition of administration fees and other revenues Fees for the management of segregated funds and for the management of administrative service contracts are recognized when earned in Administration fees and other revenues. Other revenues mainly include gains on disposal of fixed assets and are recognized when earned. Financial Instruments – classification and recognition On initial recognition of its financial instruments, the Company records them at their fair value. The subsequent measurement of financial instruments depends on their classification. The Company classifies financial assets into one of the following categories: at fair value through profit or loss, held to maturity, available-for-sale and loans and receivables. The fair value through profit or loss category includes financial assets held for trading and financial assets designated at fair value through profit or loss. The Company classifies financial liabilities into one of the following categories: designated at fair value through profit or loss and at amortized cost. Financial instruments are classified based on their nature and the Company’s use of the financial instrument at the time of its initial recognition.

A) Bonds Designated at fair value through profit or loss Bonds backing liability related to life and health insurance contracts are designated at fair value through profit or loss, since changes in their fair value on the income statement are offset by changes in liability related to life and health insurance contracts. Available-for-sale Bonds not backing liability related to life and health insurance contracts and investment contracts are classified as assets available-for-sale. Purchases and disposals of bonds are recognized at trade date. Changes in fair value of these bonds are recorded in other comprehensive (loss) income. Upon disposal of these bonds, or upon the recognition of any impairment loss, the gain or loss is reclassified from accumulated other comprehensive (loss) income to net income. Reversals of impairment losses may occur and are recognized in profit or loss when there is objective evidence of recovery. 78 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Financial Instruments – classification and recognition (cont’d)

B) Loans Loans and receivables Loans are classified as loans and receivables and are carried at amortized cost according to the effective interest rate method, less the allowance for investment losses. The fair value disclosed for loans is established by discounting future cash flows at the current market rate for this type of receivable and for a term equal to the term of the loan. The allowance for investment losses is established on an individual and collective basis from the estimated realizable value measured by discounting the expected future cash flows. Commissions paid on issuance of new loans are recognized with loans and amortized according to the effective interest rate method.

C) Fund units and preferred shares Designated at fair value through profit or loss Fund units and preferred shares backing liability related to life and health insurance contracts are designated at fair value through profit or loss, since changes in their fair value on the income statement are offset by changes in liability related to life and health insurance contracts. Available-for-sale Fund units and preferred shares not backing liability related to life and health insurance contracts are classified as asset available-for-sale. Purchases and disposals of fund units and preferred shares are recognized at trade date. They are carried at fair value and all changes in fair value are recorded in other comprehensive (loss) income. Transaction costs paid upon purchase, if any, are capitalized at cost. Upon disposal of these fund units and shares, or upon the recognition of any impairment loss, the gain or loss is reclassified from accumulated other comprehensive (loss) income to net income. No reversal of impairment losses is allowed. However, fund units and preferred shares continue to be carried at fair value, even if an impairment loss has previously been recognized.

D) Investment fund Held for trading The investment fund is held for trading and includes Canadian equity securities acquired with the proceeds from the offering of certain debentures. In accordance with the debenture acts, the excess fair value of these securities over the capital of the debentures is recorded to the liability account of the Company. When fair value of the securities is less than the capital value of the debentures, the Company records a receivable from the decline in value equal to the difference.

E) Cash and cash equivalents Cash and cash equivalents are made up of bank accounts and short-term fixed income securities held with financial institutions. SSQ Ω 2016 ANNUAL REPORT Ω 79

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Financial Instruments – classification and recognition (cont’d)

E) Cash and cash equivalents (cont’d) Held for trading Short-term money market securities are designated as held for trading. These include short-term interest- bearing deposits that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value, with a maturity of three months or less from the date of acquisition. Loans and receivables The bank accounts are classified as loans and receivables and are carried at amortized cost according to the effective interest rate method.

F) Derivative financial instruments Held for trading Derivative financial instruments include foreign exchange contracts, stock index contracts settled daily, bond futures and interest rate swaps. Futures contracts, which are negotiated contracts in an organized market, represent firm commitments to buy or sell financial instruments at a given date. Swaps are contracts in which the Company and a third party commit to paying flows based on a notional amount, during a set time period and frequency. These financial instruments are held for trading. Derivative financial instruments with a positive fair value are presented as investments while derivative financial instruments with a negative fair value are presented as other liabilities. The Company uses derivative financial instruments in support of the liability related to life and health insurance contracts. Gains and losses related to these contracts are recognized in net income under investment income. The Company also uses foreign exchange contracts under its currency risk management strategy. Such financial instruments hedge fair value of assets and their effectiveness is reviewed on a monthly basis. Foreign exchange gains and losses on forward contracts and changes in fair value related to exchange rate fluctuations of hedge assets are recognized in net income under investment income.

G) Subordinated debt Other financial liabilities at amortized cost Subordinated debt is classified as other financial liabilities at amortized cost and measured at amortized cost using the effective interest rate method. Interest expense is recognized in the consolidated statement of income under selling and administrative expenses. The fair value of subordinated debt disclosed is measured using an expected discounted future cash flows model. The discount rate used corresponds to the rate of return of a benchmark index that has a similar risk profile as the underlying assets and a term matching the maximum term for the subordinated debt. 80 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Financial Instruments – classification and recognition (cont’d)

H) Other financial assets and liabilities Other financial assets and liabilities are recognized at amortized cost and classified respectively as Loans and receivables and Other financial liabilities at amortized cost. Financial instruments – impairment A financial asset is impaired if there is objective evidence of impairment as a result of one or more loss events after initial recognition and that event has an impact on the estimated future cash flows of the financial asset. At the end of each reporting period, the Company determines whether there is objective evidence that a financial asset or a group of financial assets, other than those classified or designated at fair value through profit or loss, is impaired. Such financial assets are written off using an impairment model for debt securities, equity interests, or loans and receivables. The appropriate impairment model is determined based on the specifications of each instrument, the ability of the issuer to pay dividends or interest and the Company’s intention to hold long-term financial assets or sell them.

Impairment model for debt securities The impairment model for debt securities is used to measure impairment of the Company’s bonds and preferred shares. Under this impairment model, a security is impaired when future cash flows are unlikely to be recovered, based on credit considerations.

Impairment model for equity interests The impairment model for equity interests is used to measure impairment of the Company’s fund units. Under this impairment model, objective evidence of impairment includes a significant or prolonged decline in the fair value of the investment below cost.

Impairment model for loans and receivables The impairment model for loans and receivables is used to measure impairment of the Company’s loans. Under this impairment model, loans and receivables are tested for impairment in the event of default or if there is objective evidence that the counterparty will not meet its obligations. When it is determined that a financial asset in this class is impaired, its carrying amount is adjusted to the highest of its estimated realizable value or the fair value of collateral, if applicable. SSQ Ω 2016 ANNUAL REPORT Ω 81

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Securities lending The Company makes securities lending to generate additional revenue, which is recognized in net income under investment income. The Company receives collateral for at least 102% of the fair value of the loaned securities. This collateral is deposited by the borrower with a custodian where it is kept until the loaned securities have been returned to the Company. The fair value of the loaned securities is monitored daily. Additional collateral is required or a portion of the collateral provided is refunded based on changes in the value of the underlying loaned securities. The loaned securities are not derecognized since the Company retains the risk and rewards of ownership. Recognition of investment income Interest income and amortization of discounts and premiums are calculated using the effective interest rate method. Dividend income and distributed income are recognized when the right to receive payment is established. Investments fair value The best evidence of fair value is published price quotations in an active market. This value is observed in the case of fund units, preferred shares and futures contracts. Fair value of bonds, fund units and preferred shares is based on their bid price at year-end. Due to their short-term nature, the carrying amount of cash and cash equivalents approximates their fair value. Fair value of derivative financial instruments and when the market for an investment is not active, is established by using a valuation technique that makes maximum use of inputs observed from the markets. Asset held for sale An asset held for sale is classified as such if it is expected that its book value will mainly be recovered through a sale rather than continuous usage. This is the case when an asset is immediately available for sale in its current state and the sale is highly likely to occur. An asset held for sale is measured at the lower of its book value and its fair value, net of sale fees. Revenue generated by this asset is recognized as investment income under “Other investments.” Property under development Investment property under development consists of portion of real estate properties under construction held for resale. These properties are valued at the lower of cost and net realizable value. Cost is determined according to the specific identification method, and net realizable value corresponds to the estimated disposal price of the property less estimated completion costs and disposal costs. 82 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Investment property Investment property held by the Company, real estate properties held either to earn rentals or for capital appreciation, are recognized at acquisition cost less impairment losses. The cost of property is depreciated by major component, using each component’s estimated useful life and according to the straight-line method. Useful lives, residual values and the depreciation method are reviewed at the end of each year. The impact of any change in estimates is recorded prospectively. The fair value of investment property is measured using a present value of expected cash flows method. The discount rate used is based on the market’s expected rate of return, which is determined based on the type and geographical location of the property. Measurements are made on an annual basis by the Company’s qualified personnel. The profit or loss on the disposal or retirement of an investment property, which is the difference between proceeds on the asset’s disposal and its carrying value, is recognized in profit or loss. Depreciation is calculated using the following useful lives:

Structure 100 years Building envelope 60 years Mechanical services 40 years Fixtures and fittings 20 years Government grants The Company receives government grants to build properties under development and investment properties. It recognizes the grants to reduce the carrying amount of these assets. The grants related to properties under development are recognized in income when the assets are sold and are presented to reduce gains. The grants related to investment properties are recognized in income in proportion to the depreciation of the assets, and presented to reduce the depreciation expense. Foreclosed assets Property acquired by foreclosure and held for resale are recorded at the lower of either the investment in the mortgage foreclosed or the estimated net proceeds from the disposal of the property. Gains and losses on resale of these properties are recorded in income in the period in which they arise. Fixed assets Fixed assets are recognized at acquisition cost less impairment losses. The cost of these fixed assets is depreciated by major component, using each component’s estimated useful life and according to the straight- line method except for lands, which are not depreciated. Useful lives, residual values and the depreciation method are reviewed at the end of each year. The impact of any change in estimates is recorded prospectively. SSQ Ω 2016 ANNUAL REPORT Ω 83

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Fixed assets (cont’d) The profit or loss on the disposal or retirement of a fixed asset, which is the difference between proceeds on the asset’s disposal and its carrying value, is recognized in profit or loss. Depreciation is calculated using the following useful lives:

Buildings Structure 100 years Building envelope 60 years Mechanical services 40 years Land improvements 20 years IT equipment 5 years Office furniture and equipment 10 years Leasehold improvements 10 years or lease term Intangibles assets Intangible assets acquired separately Intangible assets acquired separately include application software acquired separately and are recorded at acquisition cost less impairment losses. Intangible assets resulting from business combinations Intangible assets resulting from business combinations include finite life intangible assets, i.e., a portfolio of in-force policies, application software acquired separately, distribution networks, and other items as well as an indefinite life intangible asset, i.e., a trademark. These intangible assets are initially recognized at their fair value at the date of the business combination. Subsequent to initial recognition, intangible assets resulting from business combinations are recognized at cost less impairment losses. Internally developed intangible assets Internally developed intangible asset include application software acquired separately meeting the criteria for deferral. The amount initially recognized as an internally developed intangible asset is equal to the sum of expenses incurred from the date that the asset first met the recognition criteria. When no internally developed intangible asset can be recognized, development expenses are charged to income in the year in which they were incurred. Following their initial recognition, internally developed intangible assets are recognized at cost less impairment losses. 84 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Intangibles assets (cont’d) Amortization periods and method Intangible assets with indefinite lives are not amortized but are tested annually for impairment. Intangible assets with finite lives are amortized on a straight-line basis over the following expected useful lives:

Application software acquired separately 5 to 10 years Internally developed application software 5 to 10 years Portfolio of in-force policies 27 years Distribution networks and other 5 to 20 years Useful lives and the amortization method of intangible assets are reviewed at the end of each year, and the impact of any change in estimates is recognized prospectively. Depreciation of investment property, fixed assets and intangible assets with finite useful lives At each reporting date, the Company reviews the carrying values of investment property, fixed assets and intangible assets to determine whether there is any evidence that these assets are impaired. If such evidence exists, an estimate is made of the recoverable amount of the asset to determine the amount of the impairment loss. If the estimated recoverable value of an asset is less than its carrying value, the asset’s carrying value is reduced to its recoverable value. An impairment loss is immediately recognized in profit or loss. If an impairment loss is subsequently reversed, the carrying value of the asset is increased to the revised estimate of its recoverable value up to a maximum of its amortized cost. The reversal of impairment is imme diately recognized in profit or loss. At each year-end date, intangible assets with finite useful lives not yet available for use are subject to an annual impairment test. Goodwill and intangible asset with indefinite useful life Goodwill represents the excess of the fair value of the transferred consideration over the identifiable assets acquired and liabilities assumed and is deemed to have an indefinite useful life. An intangible asset with an indefinite useful life is classified as such when the Company determines that there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows. Goodwill and intangible asset with indefinite useful life are not amortized but are tested for impairment at least annually. For purposes of the impairment test, goodwill and intangible asset with indefinite useful life are allocated to cash-generating units (“CGU”), which are the smallest groups of assets and liabilities for which the identifiable cash inflows are independent. SSQ Ω 2016 ANNUAL REPORT Ω 85

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Goodwill and intangible asset with indefinite useful life (cont’d) Within each CGU, net carrying value is compared with the recoverable amount. The recoverable amount corresponds to the higher of the fair value less costs to sell and the value in use corresponding to estimated discounted future cash flows. The recoverable amount is measured based on management’s judgments and assumptions. Impairment losses related to the CGU are applied against the carrying value of the goodwill and intangible assets with indefinite useful lives allocated to the CGU. No impairment loss reversal is allowed. Segregated fund investments Segregated fund investments are the accumulated net assets of the segregated funds, including inter-fund eliminations. They include bonds, shares, investment fund units and other assets and liabilities, including derivative financial instruments. The investments are designated at fair value through profit or loss since they are managed and valued on a fair value basis in accordance with the investment strategy approved by Management. Other assets and liabilities are classified as loans and receivables and other liabilities at amortized cost, respectively, and are recognized at amortized cost except for derivative financial instruments, which are held for trading and recognized at their fair value. Employee retirement benefits The Company offers its employees pension plans and other retirement benefits such as severance pay and life and health insurance coverage. The cost of pensions and other retirement benefits earned by employees is actuarially determined according to the projected benefit method prorated on services and Management’s best estimate of salary increases, retirement ages of employees and expected health care costs. Actuarial gains or losses are recorded immediately in other comprehensive (loss) income. The cost of past services is included in the statement of income when a modification arises. The plans’ assets are carried at fair values and are held in separate trustee pension funds. Income taxes The income tax expense includes current and deferred taxes. It is recognized in profit or loss, except for income tax on items included under other comprehensive (loss) income or equity. In these specific cases, the income tax expense is recognized in other comprehensive (loss) income and equity, respectively. Income taxes receivable and payable are obligations to or claims by tax authorities for prior years or the current year that have not been received or paid at the end of the year. Current income taxes are calculated based on taxable income, which is different from net income. The calculation is made based on the tax rates and laws in force at the end of the year. 86 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

3. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Income taxes (cont’d) The Company recognizes income taxes using the deferred tax asset and liability method. According to this method, deferred tax assets and liabilities are determined based on the difference between the carrying value and the taxable value of the assets and liabilities. Any change in the net amount of deferred assets and liabilities is posted to income and accumulated other comprehensive (loss) income. Deferred tax assets and liabilities are determined based on currently applicable or applied tax rates and laws which, to the extent that can be predicted, will apply to the taxable income in the periods in which the assets and liabilities will be recovered or paid. Deferred tax assets are recognized when it is probable that they will be realized. Operating leases Leases that do not transfer substantially all the risks and rewards of ownership to the Company are classified as operating leases. Payments made under operating leases are presented on the income statement in Selling and administrative expenses. The amounts of future rents under operating leases are presented in the note on contingencies and commitments.

4. CHANGES IN ACCOUNTING POLICIES Application of new accounting standards Fixed assets and intangible assets In May 2014, the IASB issued an amendment to IAS 16, “Property, Plant and Equipment” and IAS 38, “Intangible Assets”. Entitled “Clarification of Acceptable Methods of Depreciation and Amortisation”, the amendment specifies that a revenue-based depreciation and amortization method can no longer be used. The depreciation and amortization method must reflect the consumption of the future economic benefits of an asset. The provisions of this amendment are applied since January 1, 2016. The amendment to these standards had no impact on the Company’s consolidated financial statements. Consolidated financial statements, disclosure of interests in other entities, and investments in associates and joint ventures In December 2014, the IASB issued amendments to IFRS 10, “Consolidated Financial Statements”, to IFRS 12, “Disclosure of Interests in Other Entities” and to IAS 28, “Investments in Associates and Joint Ventures”, which clarify the rules for exempting investment entities from consolidation. The provisions of this amendment are applied since January 1, 2016. The amendments to these standards had no impact on the Company’s consolidated financial statements. New accounting standards not yet in effect Financial instruments In July 2014, the IASB issued IFRS 9, “Financial Instruments” (“IFRS 9”), which replaces IAS 39, “Financial Instruments: Recognition and Measurement” regarding the classification and measurement of financial assets and liabilities, impairment and hedge accounting as of January 1, 2018. The Company is currently assessing the impact of this new standard on its consolidated financial statements. An amendment to IFRS 4 “Insurance Contracts” (“IFRS 4”) issued by the IASB on September 12, 2016 sets out measures giving companies whose business model is predominantly to issue insurance contracts the option to defer the effective date of IFRS 9 to January 1, 2021. The Company qualifies for the deferral and expects to apply it until the maximum date permitted. SSQ Ω 2016 ANNUAL REPORT Ω 87

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

4. CHANGES IN ACCOUNTING POLICIES (cont’d) New accounting standards not yet in effect (cont’d) Revenue from contracts with customers In May 2014, the IASB issued IFRS 15, “Revenue from Contracts with Customers” (“IFRS 15”), which replaces IAS 18, “Revenue” and IAS 11, “Construction Contracts”. This new standard establishes a single framework for how and when to recognize revenue, except in the case of leases, financial instruments and insurance contracts. Following the IASB’s decision to defer the effective date of the standard by one year, IFRS 15 will apply retrospectively or prospectively with a cumulative adjustment as of January 1, 2018. The Company is currently assessing the impact of this new standard on its consolidated financial statements. Income taxes In January 2016, the IASB issued an amendment to IAS 12, “Income Taxes” to clarify the accounting of deferred tax assets related to debt instruments measured at fair value. The provisions of this amendment will apply retrospectively to financial statements of annual periods beginning on or after January 1, 2017. The Company is currently assessing the impact of this standard on its consolidated financial statements. Leases In January 2016, the IASB issued IFRS 16, “Leases”, which replaces IAS 17, “Leases”. This new standard sets out the principles for the recognition, measurement, presentation and disclosure of leases. It provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. However, lessor accounting remains largely unchanged, and the distinction between operating and finance leases is retained. This standard will apply retrospectively to annual periods beginning on or after January 1, 2019. The Company is currently assessing the impact of this standard on its consolidated financial statements. Statement of cash flows In February 2016, the IASB issued narrow-scope amendments to IAS 7, “Statement of Cash Flows”, which require companies to provide disclosures on changes in liabilities in the financing section. The amendments will apply prospectively to annual periods beginning on or after January 1, 2017. The Company is currently assessing the impact of this standard on its consolidated financial statements. Investment property In December 2016, the IASB published an amendment to IAS 40 “Investment Property” to clarify the requirements on transfers to, or from, investment property. The provisions of this amendment will apply retrospectively or prospectively with cumulative adjustment as of January 1, 2018. The Company is currently assessing the impact of this amendment on its consolidated financial statements. 88 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

5. INVESTMENTS A) Carrying value and fair value of general fund investments 2016

Designated at fair value Held for through Available- Loans and Fair trading profit or loss for-sale receivables Total value1 $ $ $ $ $ $

Bonds Canada, Quebec and other provinces – 1,358.3 139.1 – 1,497.4 Municipal and subsidized – 360.6 81.7 – 442.3 Canadian corporations – 745.2 170.9 – 916.1 – 2,464.1 391.7 – 2,855.8 2,855.8

Loans Residential mortgages – – – 411.5 411.5 Non-residential mortgages – – – 18.6 18.6 Other – – – 199.9 199.9 – – – 630.0 630.0 630.9

Fund units and preferred shares Canadian fund units – 57.5 43.5 – 101.0 United States ("U.S.") fund units – 28.7 43.4 – 72.1 International fund units – 5.1 11.1 – 16.2 Emerging market fund units – – 10.8 – 10.8 Preferred shared – 25.8 65.0 – 90.8 – 117.1 173.8 – 290.9 290.9 Investment fund 48.4 – – – 48.4 48.4 Cash and cash equivalents 70.2 – – 132.3 202.5 202.5 Derivative financial instruments 34.7 – – – 34.7 34.7 153.3 2,581.2 565.5 762.3 4,062.3 4,063.2

1 Refer to Note 7 “Fair value of assets and liabilities” for details on the fair value hierarchy levels.

As at December 31, 2016, the carrying amount of securities loaned by the Company recorded under investments was $237.1 (2015 – $124.1). SSQ Ω 2016 ANNUAL REPORT Ω 89

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

5. INVESTMENTS (cont’d) A) Carrying value and fair value of general fund investments (cont’d) 2015

Designated at fair value Held for through Available- Loans and Fair trading profit or loss for-sale receivables Total value $ $ $ $ $ $

Bonds Canada, Quebec and other provinces – 1,342.5 251.7 – 1 594.2 Municipal and subsidized – 389.3 72.9 – 462.2 Canadian corporations – 813.5 107.3 – 920.8 – 2,545.3 431.9 – 2 977.2 2,977.2

Loans Residential mortgages – – – 376.6 376.6 Non-residential mortgages – – – 17.9 17.9 Other – – – 138.7 138.7 – – – 533.2 533.2 538.4

Funds units and prefered shares Canadian fund units – 35.0 32.3 – 67.3 U.S. fund units – 27.3 10.6 – 37.9 International fund units – 5.7 – – 5.7 Preferred shares – 21.7 47.1 – 68.8 – 89.7 90.0 179.7 179.7 Investment fund 45.9 – – – 45.9 45.9 Cash and cash equivalents 75.0 – – 166.3 241.3 241.3 Derivative financial instruments 27.6 – – – 27.6 27.6 148.5 2,635.0 521.9 699.5 4,004.9 4,010.1 90 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

5. INVESTMENTS (cont’d) Derivative financial instruments The following tables detail the notional principal amounts and remaining terms to expiration and the fair value of the Company’s derivative financial instruments: 2016

Notional Fair value Less than 1 year 1 to 5 years Over 5 years Total Positive Negative $ $ $ $ $ $

Foreign exchange contracts 92.8 – – 92.8 – – Stock index contracts 116.1 – – 116.1 – – Bond futures 14.5 – – 14.5 – (0.7) Interest rate swaps 48.0 129.3 368.0 545.3 34.7 (5.8) 271.4 129.3 368.0 768.7 34.7 (6.5)

2015

Notional Fair value Less than 1 year 1 to 5 years Over 5 years Total Positive Negative $ $ $ $ $ $

Foreign exchange contracts 71.8 – – 71.8 – (0.3) Stock index contracts 118.9 – – 118.9 – – Interest rate swaps 30.0 68.3 245.0 343.3 27.6 (1.4) 220.7 68.3 245.0 534.0 27.6 (1.7) SSQ Ω 2016 ANNUAL REPORT Ω 91

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

5. INVESTMENTS (cont’d) B) General fund investments income 2016

Designated at fair value Held for through Avalaible- Loans and trading profit or loss for-sale receivables Total $ $ $ $ $

Bonds Interest and amortization of discounts and premiums – 81.5 11.1 – 92.6 Realized gains – – 14.4 – 14.4 Change in fair value – (35.9) – – (35.9)

Loans Interest – – – 17.8 17.8 Change in allowance for investment losses – – – 2.0 2.0

Funds units and preferred shares Dividends – 1.3 3.0 – 4.3 Distributed income – 1.2 1.3 – 2.5 Realized gains – – 6.9 – 6.9 Change in fair value – 6.7 – – 6.7

Investment fund Dividends 2.2 – – – 2.2

Cash and cash equivalents 1.8 – – 0.6 2.4

Derivative financial instruments Interest 4.8 – – – 4.8 Realized losses (18.0) – – – (18.0) Change in fair value 2.1 – – – 2.1 (7.1) 54.8 36.7 20.4 104.8 92 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

5. INVESTMENTS (cont’d) B) General fund investments income (cont’d) 2015

Designated at fair value Held for through profit Avalaible- Loans and trading or loss for-sale receivables Other Total $ $ $ $ $ $

Bonds Interest and amortization of discounts and premiums – 85.8 11.8 – – 97.6 Realized gains – – 5.2 – – 5.2 Change in fair value – 32.6 – – – 32.6

Loans Interest – – – 17.1 – 17.1 Change in allowance for investment losses – – – (0.1) – (0.1)

Fund units and preferred shares Dividends – 1.0 2.4 – – 3.4 Distributed income – 1.5 1.0 – – 2.5 Realized gains – – 1.0 – – 1.0 Change in fair value – 1.5 – – – 1.5

Investment fund Dividends 2.1 – – – – 2.1

Cash and cash equivalents 2.1 – – 0.7 – 2.8

Derivative financial instruments Interest 3.8 – – – – 3.8 Realized losses (6.9) – – – – (6.9) Change in fair value 6.5 – – – – 6.5

Other investments – – – – 2.6 2.6 7.6 122.4 21.4 17.7 2.6 171.7

6. ASSET HELD FOR SALE On January 23, 2014, the Company sold 72.86% or 10,200,000 units of an associate that it previously owned 100%. An option for the acquirer to purchase the remaining units was included in the sale contract and provided for the disposal of the remaining 3,800,000 units for a consideration of $4.1, excluding future distributions. On February 13, 2015, the Company received notice from the associate’s majority owner that it would exercise its purchaswe option during the following year. As at December 31, 2015, the $3.3 investment met the criteria for classification as an asset held for sale. The transaction was concluded on January 1, 2016. SSQ Ω 2016 ANNUAL REPORT Ω 93

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

7. FAIR VALUE OF ASSETS AND LIABILITIES Assets and liabilities recorded at fair value in the consolidated statements of financial position or whose fair values are disclosed in the notes to the consolidated financial statements are classified according to a hierarchy that reflects the importance of the inputs used to determine their valuation: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 – A valuation based on inputs observable in markets for the asset or liability, obtained either directly or indirectly; Level 3 – A valuation based on inputs other than inputs observable in markets for the asset or liability. The following table shows the classification of financial assets and liabilities recorded at fair value based on the fair value hierarchy: 2016

Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets at fair value through profit or loss Bonds Canada, Quebec and other provinces 7.9 1,350.4 – 1,358.3 Municipal and subsidized 0.2 360.4 – 360.6 Canadian corporations 3.3 741.9 – 745.2 Fund units and preferred shares Canadian fund units 57.5 – – 57.5 U.S. fund units 28.7 – – 28.7 International fund units 5.1 – – 5.1 Preferred shares 25.8 – – 25.8 Investment fund 48.4 – – 48.4 Cash and cash equivalents – 70.2 – 70.2 Derivative financial instruments – 34.7 – 34.7 176.9 2,557.6 – 2,734.5 Available-for-sale financial assets Bonds Canada, Quebec and other provinces – 139.1 – 139.1 Municipal and subsidized – 81.7 – 81.7 Canadian corporations – 170.9 – 170.9 Fund units and preferred shares Canadian fund units 43.5 – – 43.5 U.S. fund units 43.4 – – 43.4 International fund units 11.1 – 11.1 Emerging market fund units 10.8 – 10.8 Preferred shares 65.0 – – 65.0 173.8 391.7 – 565.5 Financial liabilities at fair value through profit or loss Derivative financial instruments – 6.5 – 6.5

The determination of the fair value hierarchy levels is performed at the end of each financial year. During the years ended December 31, 2016 and 2015, there were no transfers of financial assets between Levels 1 and 2. 94 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

7. FAIR VALUE OF ASSETS AND LIABILITIES (cont’d) 2015

Level 1 Level 2 Level 3 Total $ $ $ $

Financial assets at fair value through profit or loss Bonds Canada, Quebec and other provinces 8.5 1,334.0 – 1,342.5 Municipal and subsidized 0.2 389.1 – 389.3 Canadian corporations 3.6 809.9 – 813.5 Fund units and preferred shares Canadian fund units 35.0 – – 35.0 U.S. fund units 27.3 – – 27.3 International fund units 5.7 – – 5.7 Preferred shares 21.7 – – 21.7 Investment fund 45.9 – – 45.9 Cash and cash equivalents – 75.0 – 75.0 Derivative financial instruments – 27.6 – 27.6 147.9 2,635.6 – 2,783.5 Available-for-sale financial financial assets Bonds Canada, Quebec and other provinces 13.2 238.5 – 251.7 Municipal and subsidized 0.4 72.5 – 72.9 Canadian corporations 5.5 101.8 – 107.3 Fund units and preferred shares Canadian fund units 32.3 – – 32.3 U.S. fund units 10.6 – – 10.6 Preferred shares 47.1 – – 47.1 109.1 412.8 – 521.9 Financial liabilities at fair value through profit or loss Derivative financial instruments – 1.7 – 1.7 SSQ Ω 2016 ANNUAL REPORT Ω 95

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

7. FAIR VALUE OF ASSETS AND LIABILITIES (cont’d) The following table presents the classification of financial assets and liabilities whose fair values aredisclosed in the notes to the consolidated financial statements based on the fair value hierarchy: 2016

Level 1 Level 2 Level 3 Total $ $ $ $

Assets Loans – – 630.9 630.9 Cash and cash equivalents – 132.3 – 132.3 Investment property – – 34.7 34.7

Liabilities Subordinated debt – 188.5 – 188.5

2015

Level 1 Level 2 Level 3 Total $ $ $ $

Assets Loans – – 538.4 538.4 Cash and cash equivalents – 166.3 – 166.3 Investments property – – 34.2 34.2

Liabilities Subordinated debt – 200.3 – 200.3 96 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

8. FINANCIAL INSTRUMENTS RISK MANAGEMENT The Company has adopted control policies and procedures to manage risks related to financial instruments. An investment policy was approved by the Board of Directors to provide a framework for making investment decisions. The control procedures arising from this policy ensure sound management of investment risks. Segregated funds are excluded from the financial instruments risk management analysis since the policy holders assume the risks and benefit from the rewards of the segregated fund contracts. Risks related to financial instruments are credit risk, liquidity risk and market risk. Credit risk Credit risk is the risk of financial loss to the Company if a debtor fails to honour its obligations. The Company is exposed to this type of risk through its investment portfolios and, in particular, through credit extended as loans. The Company is also exposed to credit risk with regard to outstanding premiums, amounts receivable from reinsurers and other assets. It manages credit risk by applying the following control procedures: • utilization guidelines that set minimum and maximum limits are established for each class of investment to meet the specific needs of each business sector; • the guidelines allocate liability among various quality Canadian issuers with credit ratings from recognized sources of BBB or higher at trade date; • an overall limit is established for each credit rating quality level; • an overall limit is also established for investments of a related issuer or group of issuers to mitigate concen- tration risk; • a detailed mortgage loan policy specifies the requirements for guarantees and credit; • loans to insureds, included in other loans, correspond to the unpaid capital balances of policy loans and are fully secured by the cash surrender value of the insurance contracts on which the respective loans are made; • the Investment Committee of the Board of Directors carries out regular reviews of the investment portfolio and its transactions; • when entering into reinsurance agreements, the Company monitors the financial position of the reinsurer. SSQ Ω 2016 ANNUAL REPORT Ω 97

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

8. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Credit risk (cont’d)

Maximum exposure to credit risk 2016 2015 $ $

Bonds 2,855.8 2,977.2 Loans 630.0 533.2 Preferred shares 90.8 68.8 Cash and cash equivalents 202.5 241.3 Derivative financial instruments 34.7 27.6 Outstanding premiums 165.5 167.2 Ceded reinsurance assets 1,621.2 1,567.1 Other assets (Note 10) Other receivables 63.7 53.4 Investment income due and accrued 17.1 16.3 5,681.3 5,652.1

Bond portfolio quality 2016 2015 $ % $ %

Bonds Canada, Quebec and other provinces 1,497.4 52.4 1,594.2 53.5 Municipal and subsidized 442.3 15.5 462.2 15.5 Canadian corporations, per credit rating AAA 14.0 0.5 32.8 1.1 AA 123.3 4.3 125.6 4.2 A 582.6 20.4 565.2 19.0 BBB 196.2 6.9 197.2 6.7 2,855.8 100.0 2,977.2 100.0

Loan portfolio quality 2016 2015 $ $

Insured loans 449.0 370.9 Conventional loans 181.0 162.3 630.0 533.2 As at December 31, 2016, the current portions of bonds and loans amount to $171.7 (2015 — $176.9) and to $166.6 (2015 — $94.0) respectively. 98 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

8. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Credit risk (cont’d) Allowance for investment losses The allowance for investment losses is established based on the Company’s assessment of its financial assets, considering all objective evidence of impairment. Such evidence stems from the financial difficulties of the issuer or from defaults on principal or interest payments. Obligations towards insureds also include an allowance to cover any potential loss on loans and investments in debt securities. The Company maintains an allowance for credit losses relating to the carrying value of its loans. A loss provision is established when the Company entertains doubt regarding the full recovery of the principal or interest on a loan. For allowance purposes, estimated realizable loan value takes into account recovery forecasts, guarantee valuations and market conditions. The following table summarizes impaired loans and allowances for investment losses:

2016 2015

Allowance for Allowance for investment investment Impaired loans losses Impaired loans losses $ $ $ $

Residential mortgages loans – – 0.5 0.2 Other loans 28.3 1.7 30.1 1.7 28.3 1.7 30.6 1.9

Past due financial assets A financial asset is deemed past due when the counterparty has failed to make a payment when contractually due. A financial asset that is past due is subject to a provision for loss to adjust its accounting value in relation to its estimated net realizable value when the Company doubts its recovery. As at December 31, 2016, the Company has financial assets past due before allowance for doubtful accounts receivable for $3.4 (2015 — $4.2). Liquidity risk Liquidity risk refers to the risk that the Company might experience cash flow difficulties arising from its obligations and financial liabilities. The Company manages liquidity risk by applying the following control procedures: • the Company manages its liquidities by matching cash flows from its operations and investments to those required to meet its obligations; • its cash position is analyzed on short and medium term horizons to meet the needs of the different business sectors. SSQ Ω 2016 ANNUAL REPORT Ω 99

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

8. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Liquidity risk (cont’d) The following table presents contractual maturities of the undiscounted cash flows of financial liabilities and unsettled claims of the Company’s property and casualty insurance contracts.

2016

Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $

Unpaid claims and stabilization funds (Note 15) 0.9 33.1 4.5 – 38.5 Accounts payable – 143.2 – – 143.2 Subordinated debt (Note 17) – – 10.0 150.0 160.0 Other liabilities (Note 18) 0.2 6.7 0.2 – 7.1 1.1 183.0 14.7 150.0 348.8

2015

Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $

Unpaid claims and stabilization funds (Note 15) 0.8 30.2 4.0 0.1 35.1 Accounts payable – 147.3 – – 147.3 Subordinated debt (Note 17) – – 10.0 165.0 175.0 Other liabilities (Note 18) 0.3 2.9 – – 3.2 1.1 180.4 14.0 165.1 360.6

Market risk Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to market factors. Market risk includes three types of risk: interest rate risk, market price risk and currency risk.

A) Interest rate risk The Company matches its assets with liabilities from obligations in each of its business sectors. Interest rate risk exists when interest rates fluctuate due to widening spreads in matching expected cash flows between assets and liabilities. In managing interest rate risk, the Company focuses on matching expected cash flows of assets and liabilities in selecting the investments backing its obligations. It uses different measures and performs sensitivity analyses to evaluate the spreads between the cash flows generated by investments held and those required to meet obligations according to various future interest rate scenarios. The Company’s investment policy sets maximum spread limits for those measures as applied to assets and liabilities. This information is disclosed to the Invest- ment Committee on a quarterly basis. 100 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

8. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Market risk (cont’d)

A) Interest rate risk (cont’d) The results of the interest rate sensitivity analyses also serve to establish the amounts to be included in the valuation of obligations towards insureds for interest rate risk. A change of 1% in the interest rate curve would have an impact of $17.6 on net income of 2016. The impact on net income of 2015 would not have been significant. For its available-for-sale financial assets not matched to obligations towards insured, the Company believes that a 1% increase in the interest rate curve would result in a decrease of $23.0 (2015 — $23.7) in other comprehensive income.

B) Market price risk The Company is exposed to market price risk through its available-for-sale preferred shares investments and fund units. The investment policy puts restrictions on equity investments and fund units and sets out their limits. Changes in the fair value of these investments are recognized in comprehensive (loss) income. A sudden 10% decrease in the value of such investments would result in an estimated decrease of $12.7 (2015 — $6.6) in other comprehensive income. As at December 31, 2016 and 2015, the Company was not exposed to significant risk on fees received for managing investment funds and the charge resulting from the capital guarantee offered on segregated funds.

C) Currency risk Currency risk exists when transactions in currencies other than the Canadian dollar are affected by unfavourable exchange rate changes. As at December 31, 2016 and 2015, the Company was not exposed to any significant currency risk in respect of financial instruments.

9. RIGHT OF OFFSET, COLLATERAL HELD AND TRANSFERRED The Company negotiates financial instruments in accordance with the Credit Support Annex (“CSA”) of the International Swaps and Derivative Association’s (“ISDA”) Master Agreement and in accordance with the Sup- plemental Terms and Conditions Annex of the Global Master Repurchase Agreement (“GMRA”). These agreements require guarantees by the counterparty or by the Company. The amount of assets pledged is based on changes in fair value of financial instruments. Under that agreement, the Company has the right to offset in the event of default, insolvency, bankruptcy or other early termination. The Company does not offset financial instruments due to conditional rights. The following table presents the impact of conditional compensation and that of other similar agreements, namely the GMRA and the CSA. SSQ Ω 2016 ANNUAL REPORT Ω 101

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

9. RIGHT OF OFFSET, COLLATERAL HELD AND TRANSFERRED (cont’d) 2016

Financial instruments presented in the consolidated statement Financial collateral of financial position received or pledged1 Net amount $ $ $

Financial assets Derivative financial instruments (Note 5) 34.7 29.1 5.6

Financial liabilities Derivative financial instruments (Note 18) 6.5 2.6 3.9

1 Financial collateral received/pledged exclude initial margin on derivative financial instruments settled in an organized market and oversizing. These are not offset in the consolidated statement of financial position.

2015

Financial instruments presented in the consolidated statement Financial collateral of financial position received or pledged Net amount $ $ $

Financial assets Derivative financial instruments (Note 5) 27.6 29.8 (2.2)

Financial liabilities Derivative financial instruments (Note 18) 1.7 – 1.7 102 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

10. OTHER ASSETS 2016 2015 $ $

Prepaid expenses 74.0 72.1 Other receivables 63.7 53.4 Investment income due and accrued 17.1 16.3 Employee retirement benefits (Note 22) 1.6 – 156.4 141.8

11. INVESTMENT PROPERTY 2016 2015 $ $

Cost Balance, beginning of year 29.4 33.4 Additions 0.6 2.2 Disposal – (6.2) Balance, end of year 30.0 29.4

Accumulated depreciation Balance, beginning of year 1.1 1.0 Disposal – (0.5) Depreciation expense 0.7 0.6 Balance, end of year 1.8 1.1 Carrying value, end of year 28.2 28.3 Fair value (Note 7) 34.7 34.2 SSQ Ω 2016 ANNUAL REPORT Ω 103

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

12. FIXED ASSETS 2016

Office furniture Leasehold Land Buildings IT equipment and equipment improvements Total $ $ $ $ $ $

Cost Balance, beginning of year 26.1 147.4 25.8 10.2 17.8 227.3 Additions – 5.1 6.5 8.3 6.1 26.0 Disposals (6.5) – (3.4) (2.9) (2.7) (15.5) Balance, end of year 19.6 152.5 28.9 15.6 21.2 237.8

Accumulated depreciation Balance, beginning of year – 27.7 14.1 5.5 9.7 57.0 Disposals – – (3.4) (2.5) (2.7) (8.6) Depreciation expense – 1.9 4.9 1.4 1.8 10.0 Balance, end of year – 29.6 15.6 4.4 8.8 58.4 Carrying value, end of year 19.6 122.9 13.3 11.2 12.4 179.4 As at December 31, 2016, there is no building under construction not depreciated (2015 — $54.1).

2015

Office furniture Leasehold Land Buildings IT equipment and equipment improvements Total $ $ $ $ $ $

Cost Balance, beginning of year 26.0 104.2 23.4 13.9 18.2 185.7 Additions 0.1 43.2 3.8 1.0 0.9 49.0 Disposals – – (1.4) (4.7) (1.3) (7.4) Balance, end of year 26.1 147.4 25.8 10.2 17.8 227.3

Accumulated depreciation Balance, beginning of year – 26.1 11.1 9.3 9.2 55.7 Disposals – – (1.3) (4.7) (1.3) (7.3) Depreciation expense – 1.6 4.3 0.9 1.8 8.6 Balance, end of year – 27.7 14.1 5.5 9.7 57.0 Carrying value, end of year 26.1 119.7 11.7 4.7 8.1 170.3 104 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

13. INTANGIBLE ASSETS AND GOODWILL A) Intangible assets 2016

Indefinite useful life Finite useful life Application Application Portfolio software software of Distribution acquired developed in-force networks Trademark separately internally policies and others Total $ $ $ $ $ $

Cost Balance, beginning of year 1.7 99.5 25.6 75.9 29.9 232.6 Additions – 11.5 5.5 – 0.3 17.3 Disposals – (7.8) (2.1) – – (9.9) Balance, end of year 1.7 103.2 29.0 75.9 30.2 240.0

Accumulated amortization Balance, beginning of year – 44.2 13.2 11.2 8.6 77.2 Disposals – (7.8) (2.1) – – (9.9) Amortization expense – 14.3 5.0 2.8 2.3 24.4 Balance, end of year – 50.7 16.1 14.0 10.9 91.7 Carrying value, end of year 1.7 52.5 12.9 61.9 19.3 148.3 Application software acquired separately in the amounts of $0.9 (2015 — $1.4) are not amortized since these are not ready for use. SSQ Ω 2016 ANNUAL REPORT Ω 105

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

13. INTANGIBLE ASSETS AND GOODWILL (cont’d) A) Intangible assets (cont’d) 2015

Indefinite useful life Finite useful life Application Application software software Portfolio Distribution acquired developed of in-force networks and Trademark separately internally policies others Total $ $ $ $ $ $

Cost Balance, beginning of year 1.7 89.4 19.2 75.9 29.6 215.8 Additions – 10.4 6.4 – 0.3 17.1 Disposal – (0.3) – – – (0.3) Balance, end of year 1.7 99.5 25.6 75.9 29.9 232.6

Accumulated amortization Balance, beginning of year – 31.0 8.8 8.4 6.5 54.7 Disposals – (0.3) – – – (0.3) Amortization expense – 13.5 4.4 2.8 2.1 22.8 Balance, end of year – 44.2 13.2 11.2 8.6 77.2 Carrying value, end of year 1.7 55.3 12.4 64.7 21.3 155.4

B) Goodwill The carrying value and changes in goodwill are broken down as follows: Cost $

Balance as at December 31, 2015 14.1 Variation – Balance as at December 31, 2016 14.1 Goodwill does not present any accumulated impairment loss and is not deductible for tax purposes. 106 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

13. INTANGIBLE ASSETS AND GOODWILL (cont’d) C) Impairment test The Company performs an annual impairment test for the goodwill and the trademark. The test was performed as at September 30, 2016, and no impairment was recorded in 2016 and 2015. The following table presents the allocation of goodwill and trademark to the various CGU based on the same assumptions as the allocation of the purchase prices.

2016 2015 Trademark Goodwill Trademark Goodwill $ $ $ $

Individual insurance 1.7 4.8 1.7 4.8 Group insurance – 6.3 – 6.3 Property and casualty insurance – 3.0 – 3.0 1.7 14.1 1.7 14.1

Property and casualty and group insurance The property and casualty insurance and group insurance CGU’s recoverable amounts were determined based on the value in use calculation. The value in use takes into account the discounted projected cash flows before income taxes which are based on the financial budgets approved by the Board of Directors, which cover a five-year period and a terminal value. The projections are based on the Company’s past experience and forecasts in accordance with published information. Individual insurance The recoverable amount of CGUs in the individual insurance sector was determined based on the value in use calculation. The value in use takes into account the discounted projected cash flows before income taxes which are based on the expected future profitability of in-force business approved by the Board of Directors. The discount rates used for each CGU are as follows: 2016 2015 % %

Individual insurance 11.3 10.7 Group insurance 11.3 8.6 Property and casualty insurance 14.5 16.6 SSQ Ω 2016 ANNUAL REPORT Ω 107

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS Composition of assets backing the net general fund obligations 2016 2015 $ $

Bonds 2,448.3 2,539.4 Fund units and preferred shares 114.7 89.7 Loans 587.4 518.3 Cash and cash equivalents 67.8 72.6 Derivative financial instruments 34.7 27.6 Investment property 11.7 11.4 Fixed assets 73.2 62.2 Other assets 125.1 139.0 3,462.9 3,460.2

Breakdown of liability related to life and health insurance contracts and of ceded reinsurance assets 2016

Provision for Actuarial Provision for experience reserve claims refunds Deposits Total $ $ $ $ $

Liability related to life and health insurance contracts Individual life 1,492.9 9.4 – 0.6 1,502.9 Group life 199.2 47.6 6.5 38.1 291.4 Individual annuities 263.3 – – – 263.3 Group annuities 57.1 – – 2.1 59.2 Individual accident and health 77.6 1.1 – 0.3 79.0 Group accident and health 2,512.3 61.5 64.7 249.7 2,888.2 4,602.4 119.6 71.2 290.8 5,084.0

Ceded reinsurance assets Individual life 561.4 6.1 – – 567.5 Group life 35.7 7.2 2.6 5.9 51.4 Individual accident and health 42.4 0.2 – – 42.6 Group accident and health 883.1 7.9 31.1 37.5 959.6 1,522.6 21.4 33.7 43.4 1,621.1 108 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Breakdown of liability related to life and health insurance contracts and of ceded reinsurance assets (cont’d) 2015

Provision for Actuarial Provision for experience reserve claims refunds Deposits Total $ $ $ $ $

Liability related to life and health insurance contracts Individual life 1,445.7 6.2 – 0.4 1,452.3 Group life 198.7 43.1 2.4 52.5 296.7 Indivudual annuities 290.7 – – – 290.7 Group annuities 59.7 – – 0.5 60.2 Individual accident and health 76.7 1.2 – – 77.9 Group accident and health 2,530.3 58.4 (5.3) 266.0 2,849.4 4,601.8 108.9 (2.9) 319.4 5,027.2

Ceded reinsurance assets Individual life 530.8 3.8 – – 534.6 Group life 37.5 7.3 0.5 5.8 51.1 Individual accident and health 40.5 0.2 – – 40.7 Group accident and health 895.0 8.2 (3.1) 40.5 940.6 1,503.8 19.5 (2.6) 46.3 1,567.0

Change in liability related to life and health insurance contracts and of ceded reinsurance assets 2016 2015 $ $

Liability related to life and health insurance contracts Balance, beginning of year 5,027.2 4,892.8 Normal change due to the passage of time (681.5) (741.8) Normal change due to new businesses 794.4 1,000.9 Normal change due to updated assumptions (53.5) (111.8) Basic change (2.6) (12.9) Balance, end of year 5,084.0 5,027.2

2016 2015 $ $

Ceded reinsurance assets Balance, beginning of year 1,567.0 1,496.7 Normal change due to the passage of time (173.7) (211.2) Normal change due to new businesses 263.3 327.3 Normal change due to updated assumptions (32.8) (48.7) Basic change (2.7) 2.9 Balance, end of year 1,621.1 1,567.0 SSQ Ω 2016 ANNUAL REPORT Ω 109

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Fair value of actuarial reserve The fair value of the actuarial reserve is determined based on the fair value of assets supporting the liabilities it represents. Insofar as the assets supporting the actuarial reserve are recorded on the statement of financial position at fair value, the carrying value of the actuarial reserve reflects fair value. Nature of obligations The liability related to life and health insurance contracts are amounts that, added to future premiums and investment revenues, will allow the Company to respect its commitment to pay future claims, experience refunds and corresponding expenses originating from contracts in force. The liability related to life and health insurance contracts are periodically reviewed and allow for additional amounts required to cover risks originating from plausible adverse deviations in experience as compared to the most probable assumptions. These amounts take into account the uncertainty included in the valuation assumptions. Inherent uncertainty of the valuation process In order to estimate the liability related to life and health insurance contracts, assumptions are required regarding future events related to mortality, morbidity, lapses, investment returns and operating expenses. These assumptions also include a provision for adverse deviations attributable to the inherent uncertainty of the valuation process. Mortality The mortality assumption is based on a combination of the Company’s most recent experience and the recent industry experience published by the Canadian Institute of Actuaries. Morbidity The morbidity assumptions used are those published by the industry adjusted to consider the Company’s own experience over a long period of time. Each year, the actual experience is compared to the one anticipated to ensure that the morbidity assumptions used are adequate. Investment returns The investment returns considered in the valuation of liability related to life and health insurance contracts are based mostly on those of the assets held to back these obligations. In this context, cash inflows from assets are compared to those of the liability related to life and health insurance contracts to detect any mis- match taking properly into account the reinvestment or disinvestment risks inherent to such situations. To ensure that the amount of assets will be sufficient to cover all the obligations, a multi-scenario analysis is performed regarding future evolution of interest rates when cash flow mismatches are expected. 110 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Investment returns (cont’d) Losses due to credit impairment have impacts on the future cash flows of assets backing the obligations. In addition to the allowance for investment losses already deducted from the carrying value of investments, additional credit risk, whose level is close to the one experienced by the Company or determined through analysis performed by the industry, is considered in the determination of future cash flows from invested assets. Lapses and withdrawals Policyholders may choose to let their contracts lapse by ceasing to pay their premiums. The Company bases its estimate of the lapse rate on past results of each of its business portfolios. A business portfolio is considered to be lapse-supported if an increase in the ultimate lapse rate is associated with increased profitability. On the other hand, if a decrease in the ultimate lapse rate is associated with increased profitability, the business portfolio is not considered to be lapse-supported. Operating expenses The assumptions regarding operating expenses are drawn from internal analyses performed yearly by the Company, with adjustments for expected future inflation. Impact of changes in assumptions Using the same assumptions as those used in to establish priors year’s liability related to life and health insurance contracts would have had the following impact on net income as at December 31: 2016 2015 $ $

Mortality (4.2) (16.8) Morbidity 0.3 (107.7) Investment returns (8.1) 9.5 Lapses and withdrawals (5.1) 56.8 Operating expenses 1.4 3.6 Data and methods 0.7 (3.0) (15.0) (57.6)

Sensitivity analysis Changing the assumptions used to establish the liability related to the life and health insurance contracts would have had the following impacts on net income, as at December 31: Adverse 2016 2015 Assumptions variation $ $

Mortality 1% (3.0) (2.6) Morbidity 5% (56.8) (53.9) Lapses 1% (2.9) (2.5) SSQ Ω 2016 ANNUAL REPORT Ω 111

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Insurance risk Individual contracts The insurance risk to which the Company is exposed through its individual insurance contracts is the risk of loss arising from actual results that differ from the results anticipated when the product was designed and priced, depending on the rates of mortality, morbidity and lapses, policyholders’ behaviour and expenses. Insured events may occur at any time during the coverage period and may result in varying amounts of losses. The Company’s objective is to ensure that provisions are adequate to cover its future obligations. The Company manages this risk by implementing appropriate risk selection policies and procedures and ensuring that they are properly applied. Group contracts Through its insurance contracts, the Company is exposed to insurance risk, which consists of price risk and selection risk. Price risk arises from potential differences between the actual experience associated with the assumptions described above and the experience originally anticipated when the contracts were priced. A review of experience and financial results is conducted on a regular basis for each guarantee offered within the contracts. The pricing of new contracts and contracts up for renewal reflects recent experience and observed trends. The pricing and contractual terms of the Company’s products reflect market conditions, and market developments are monitored for this purpose. For certain contracts subject to contractual limits, the premium may be changed during the life of the contract. This allows for a partial reduction in price risk. Furthermore, a risk control procedure is applied to new products before they are launched. Selection risk is the risk that the Company will inadequately assess the risks associated with an insured, thereby agreeing to provide coverage to an insured that does not meet the criteria for an acceptable risk profile. The Company manages this risk by implementing appropriate selection risk policies and procedures as well as by ensuring that these policies and procedures are properly applied. Reinsurance risk The Company makes use of reinsurance agreements related to individual and group contracts in order to limit its exposure to insurance risk, which does not, however, release the Company from its obligations towards insureds. In particular, the Company enters into reinsurance agreements for contracts for which the sum insured exceeds a maximum amount or percentage established on the basis of criteria regarding the nature of risks, and also to share the risks of large group contracts. It also uses reinsurance to protect itself against major disasters. However, its recourse to reinsurance agreements exposes the Company to a risk of default by the reinsurers. In order to control this risk, the Company adopted a risk management policy related to reinsurance approved by the Board of Directors. 112 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Mortality and morbidity risk Mortality and morbidity risk represents the risk of loss for the Company in the event that the number and/or severity of claims for life, accident and health insurance are higher than estimated. This might happen as a result of an epidemic, a natural disaster or a change in the population’s living habits. The Company manages this risk by implementing procedures to collect information on policyholders that is used for pricing insurance contracts and by setting up procedures to examine claims in order to identify unfounded or fraudulent claims. Lapse risk For lapse-supported policies, this represents the risk of loss for the Company in the event that the number of insureds who decide to let their contracts lapse by ceasing to pay their premiums is lower than estimated. For non-lapse-supported policies, it represents the risk of loss for the Company in the event that the number of insureds who decide to let their contracts lapse by ceasing to pay their premiums is higher than forecast. The Company takes this risk into account in setting its actuarial reserve. Investment income risk This is the risk of loss for the Company in the event that actual investment income is lower than estimated. The projected future investment income is an essential element in establishing the amount of the actuarial reserve. Thus, future disbursements are discounted on the basis of the anticipated rate of return on the investments supporting the actuarial reserve. Segregated fund risk The Company offers individual annuity contracts in its segregated funds, guaranteeing a level of income or a value upon death or contract maturity. Policyholder behaviour risk is combined with market risk to define the presence of risk, which emerges from the combination of maintaining contracts in force and a market decline. In order to limit the Company’s exposure by association to policyholder mortality risk and behaviour risk, the Company has implemented a program to hedge the market risk. The Company regularly monitors the effectiveness of this program. Maturity analysis of cash flows The following table presents an analysis, by expected maturity, of estimated undiscounted cash flows related to liability related to life and health insurance contracts and ceded reinsurance assets:

2016

Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $

Actuarial reserve 125.8 465.4 1,297.9 6,483.3 8,372.4 Provision for claims – 113.0 6.7 – 119.7 Provision for experience refunds – 71.0 0.3 – 71.3 Deposits 146.0 41.0 11.4 93.1 291.5 271.8 690.4 1,316.3 6,576.4 8,854.9 SSQ Ω 2016 ANNUAL REPORT Ω 113

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

14. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Maturity analysis of cash flows (cont’d) 2015

Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $

Actuarial reserve 135.5 448.1 1,317.6 6,279.1 8,180.3 Provision for claims – 105.3 5.7 – 111.0 Provision for experience refunds – (6.7) 3.8 – (2.9) Deposits 160.6 51.6 12.8 95.0 320.0 296.1 598.3 1,339.9 6,374.1 8,608.4

Ceded reinsurance assets 2016 2015 $ $

Current portion 153.2 110.7 Non-current portion 2,945.0 2,891.0 3,098.2 3,001.7

15. PROPERTY AND CASUALTY INSURANCE CONTRACTS

Breakdown of liability related to property 2016 2015 and casualty insurance contracts $ $

Unearned premiums 207.5 207.0 Unpaid claims 37.6 34.2 Stabilization fund 0.9 0.8 246.0 242.0

Changes in liability related to unearned premiums 2016 2015 $ $

Balance, beginning of year 207.0 215.1 Additional liabilities generated during the year 227.8 214.9 Premiums recognized during the year (227.3) (223.0) Balance, end the year 207.5 207.0 Current portion 84.2 78.1 Non-current portion 123.3 128.9 114 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

15. PROPERTY AND CASUALTY INSURANCE CONTRACTS (cont’d)

Changes in liability related to unpaid 2016 2015 claims Provision for Provision for Provision for inccurred but Provision for incurred but reported not reported reported not reported claims claims claims claims $ $ $ $

Balance, beginning of year 30.1 4.1 29.2 4.1 Additional provisions generated during the year 147.6 7.5 139.0 7.9 Claims paid (147.1) (3.4) (141.9) (3.6) Change in prior years' provisions 3.1 (4.3) 3.8 (4.3) Balance, end of year 33.7 3.9 30.1 4.1

Nature of obligations Liabilities related to property and casualty i nsurance contracts represent the amounts that, increased by future investment income, will enable the Company to honour the appraised amount of future claims and the corresponding fees under the terms of the contracts in force. Liabilities related to property and casualty insurance contracts are periodically reviewed and include additional amounts representing possible adverse deviations in relation to the most probable assumptions; these additional amounts vary based on the degree of uncertainty inherent in the assumptions used. Inherent uncertainty of the valuation process In calculating the liability related to property and casualty insurance contracts, assumptions are made regarding probable future events related to materialization and the discount rate. These assumptions also include a margin for adverse deviations attributable to the inherent uncertainty of the valuation process. Margin for claims development The margin for claims development assumption is used to take several factors into account such as the frequency and severity of claims. This assumption is based on the Company’s experience and on forecasts made in accordance with the requirements of the Canadian Institute of Actuaries. Discount rates Discount rates are used in calculating the liability related to property and casualty insurance contracts to take the time value of money into account. Impacts of changes in assumptions Using the same assumptions as those used to establish the prior year’s provision for claims would not have had a significant impact on net income for 2016 and 2015. SSQ Ω 2016 ANNUAL REPORT Ω 115

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

15. PROPERTY AND CASUALTY INSURANCE CONTRACTS (cont’d) Sensitivity analysis Changing the assumptions used to establish the provision for claims would have had the following impacts on net income, as at December 31: 2016 2015 Assumptions Variation $ $

Margin for claims development + 1% (0.2) (0.2) Discount rates + 1% 0.2 0.2

Insurance risk Through its insurance contracts, the Company is exposed to insurance risk, which consists of price risk and selection risk. Price risk arises from potential differences between the actual experience associated with the assumptions described above and the experience originally anticipated when the contracts were priced. The experience and financial results of each type of coverage offered in the contracts are examined regularly. The prices for new contracts and contracts up for renewal reflect recent experience and observed trends. The pricing and contractual terms and conditions of the Company’s products reflect the market, and market developments are monitored for this purpose. Selection risk is the risk that the Company will inadequately assess the risks associated with an insured, thereby agreeing to provide coverage to an insured who does not meet the criteria for an acceptable risk profile. The Company manages this risk by implementing appropriate risk selection policies and procedures and ensuring that they are properly applied. Investment-related risk Investment-related risk results from the probability that the value of the investments held by the Company will decrease, thus reducing the capital available to honour its liability related to property and casualty insurance contracts. An overall increase in interest rates, resulting in a decrease in the fair value of the bond portfolio, and a sharp decline in stock markets, with an adverse impact on the fund units portfolio, represent the two events that could significantly affect the value of the Company’s investments. To limit this risk, the Company invests in compliance with an investment policy that considers the capital required by the various classes of investments. In addition, the actuary appointed by the Board of Directors in accordance with the Act respecting Insurance performs an annual review to measure the impact of adverse fluctuations in interest rates and markets on the Company’s financial soundness and its ability to honour its liability related to property and casualty insurance contracts. Reinsurance risk The Company employs reinsurance treaties to protect itself against major losses in property damage and civil liability in excess of a maximum amount. It also uses reinsurance as protection against major catas- trophic events. These treaties mitigate the insurance risk to which the Company is exposed. Using reinsurance treaties nevertheless exposes the Company to the risk of default by a reinsurer. In order to control this risk, the Company adopted a risk management policy related to reinsurance approved by the Board of Directors. 116 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

15. PROPERTY AND CASUALTY INSURANCE CONTRACTS (cont’d) Claims development by year of occurrence 2009 2010 2011 2012 2013 2014 2015 2016 Total $ $ $ $ $ $ $ $ $

Undiscounted gross unpaid claims, end of year of occurrence 16.6 21.2 22.0 22.6 26.6 26.6 26.8 27.9

Cumulative gross claims paid One year later 12.6 18.0 20.2 20.7 25.0 25.5 23.7 Two years later 13.3 18.4 21.1 21.4 26.7 27.0 Three years later 13.5 18.4 21.1 21.9 27.5 Four years later 13.8 18.1 21.0 22.0 Five years later 13.8 18.5 21.1 Six years later 13.8 18.7 Seven years later 13.6 13.6 18.7 21.1 22.0 27.5 27.0 23.7 –

Revaluation of undiscounted gross final costs One year later 14.9 20.0 22.0 22.3 27.1 26.2 26.6 Two years later 14.7 19.4 21.3 21.3 27.3 27.4 Three years later 14.5 19.0 21.3 22.9 28.0 Four years later 14.1 18.7 21.7 23.1 Five years later 14.1 18.8 21.7 Six years later 14.1 18.9 Seven years later 13.9 13.9 18.9 21.7 23.1 28.0 27.4 26.6 27.9

Excess of initial provision over revalued gross final costs Amount 2.7 2.3 0.3 (0.5) (1.4) (0.8) 0.2 – Percentage 16.3% 10.8% 1.4% (2.2%) (5.3%) (3.0%) 0.7% –

Undiscounted gross unpaid claims 0.3 0.2 0.6 1.1 0.5 0.4 2.9 27.9 33.9 Undiscounted gross unpaid claims, 2008 and earlier 0.1 Undiscounted gross unpaid claims 34.0 Discounting (0.4) Provision for adverse deviations 3.9 Risk sharing plan 0.1 Discounted gross unpaid claims 37.6 SSQ Ω 2016 ANNUAL REPORT Ω 117

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

15. PROPERTY AND CASUALTY INSURANCE CONTRACTS (cont’d) Claims development by year of occurrence (cont’d) 2009 2010 2011 2012 2013 2014 2015 2016 Total $ $ $ $ $ $ $ $ $

Undiscounted net unpaid claims, end of year of occurrence 16.1 18.5 18.5 21.1 26.6 26.6 26.8 27.8

Cumulative net claims paid One year later 12.1 15.5 16.7 19.2 25.0 25.5 23.7 Two years later 12.7 15.7 17.6 19.9 26.7 27.0 Three years later 12.8 15.7 17.6 20.4 27.5 Four years later 13.1 15.5 17.7 20.5 Five years later 13.1 16.0 17.7 Six years later 13.1 16.2 Seven years later 13.1 13.1 16.2 17.7 20.5 27.5 27.0 23.7 –

Revaluation of undiscounted net final costs One year later 14.2 17.0 18.3 20.8 27.1 26.7 26.6 Two years later 14.0 16.5 17.8 19.8 27.2 27.4 Three years later 13.9 16.2 17.8 21.4 27.9 Four years later 13.5 16.2 18.3 21.6 Five years later 13.4 16.3 18.3 Six years later 13.4 16.4 Seven years later 13.4 13.4 16.4 18.3 21.6 27.9 27.4 26.6 27.8

Excess of initial provision over revalued net final costs Amount 2.7 2.1 0.2 (0.5) (1.3) (0.8) 0.2 – Percentage 16.8% 11.4 % 1.1% (2.4%) (4.9%) (3.0%) 0.7% –

Undiscounted net unpaid claims 0.3 0.2 0.6 1.1 0.4 0.4 2.9 27.8 33.7 Undiscounted net unpaid claims 2008 and earlier 0.1 Undiscounted net unpaid claims 33.8 Discounting (0.3) Provision for adverse deviations 3.9 Risk sharing plan 0.1 Discounting net unpaid claims 37.5 118 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

15. PROPERTY AND CASUALTY INSURANCE CONTRACTS (cont’d) Changes in deferred acquisition costs 2016 2015 $ $

Balance, beginning of year 26.5 26.8 Acquisition costs for the year 17.4 16.6 Vested costs for the year (16.2) (16.9) Balance, end of year 27.7 26.5

Changes in ceded reinsurance assets 2016 2015 $ $

Balance, beginning of year 0.1 0.7 Additional assets generated during the year (0.2) (1.4) Claims recognized during the year 0.2 0.8 Balance, end of year 0.1 0.1 Current portion 0.1 0.1 Non-current portion – –

16. BANK LOANS The Company has authorized lines of credit with financial institutions amounting to $6.0 (2015 – $6.0) bearing interest at prime rate, unsecured and renewable yearly. As at December 31, 2015, the Company had an additional line of credit amounting to $4.0 bearing interest at prime rate plus 0.75% which was also unsecured and renewable yearly. As at December 31, 2016 and 2015, no amount had been taken on these bank loans. SSQ Ω 2016 ANNUAL REPORT Ω 119

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

17. SUBORDINATED DEBT 2016 2015 $ $

Debenture, Series A at 7.8%, maturing in 20191 3.0 3.0 Debenture at 7.5%, maturing in 2022 and redeemable by the Company under certain conditions 50.0 50.0 Debenture payable to majority shareholder at 6.4%, maturing in 2027 10.0 10.0 Debenture at 6.3%, maturing in 2030 and redeemable by the Company under certain conditions 20.0 20.0 Debenture at 6.0%, maturing in 2032 and redeemable by the Company under certain conditions 20.0 20.0 Debenture payable to majority shareholder at 7.4%, maturing in 2032 and redeemable by the Company under certain conditions 30.0 30.0 Debenture payable to majority shareholder at 6.7%, reimbursed during the year – 15.0 133.0 148.0 Subordinated notes, maturing in 2020 and bearing interest at 7.1% compounded semi-annual1 6.1 6.1 Majority shareholder 0.9 0.9 Shareholder 7.0 7.0

Subordinated note payable to majority shareholder, maturing in 2023 bearing interest at 5.9% compounded semi-annual until 2018, bearing interest at the 3-month Canadian Dealer Offered Rate plus 2.5% compounded quaterly until maturity 20.0 20.0 20.0 20.0 160.0 175.0 Fair value (Note 7) 188.5 200.3

1 Convertible at the discretion of the holder into shares under certain circumstances such as change in control, merger, public offering or default in the payment of interest and principal at maturity.

18. OTHER LIABILITIES 2016 2015 $ $

Employee retirement benefits (Note 22) 70.7 56.5 Derivative financial instruments (Note 5) 6.5 1.7 Others 8.8 3.2 86.0 61.4 120 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

19. SHARE CAPITAL Authorized Class A 150,000,000 shares, with no par value, with participating and voting right Class B 150,000,000 shares, with no par value, with participating and voting right, convertible at the discretion of the holder in whole or in part, into Class A shares, one Class A share for each Class B share exchanged, redeemable by mutual agreement Class C 100,000,000 shares, with a par value of one dollar each, non-voting, giving the right to fixed preferred dividends before Class A and B shares, issuable in one or several series 2016 2015 $ $

Issued 20,615,293 Class A shares 95.4 95.4 50,690,905 Class B shares 247.8 247.8 343.2 343.2

20. CAPITAL MANAGEMENT The Company’s capital management policy is designed to satisfy the laws, regulations, guidelines of the Autorité des marchés financiers (“Autorité”) and applicable instructions regarding capital management. To ensure sound and prudent capital management, the Company is required to comply with the guideline on capital adequacy requirements. The Company is subject to the requirements defined by theAutorité . According to the Autorité’s guideline on capital adequacy requirements, the capital adequacy ratio is calculated by dividing available capital by required capital. Available capital represents total capital, less the deductions prescribed by the Autorité. Required capital is determined on the basis of certain risk factors. To maintain a capital amount that satisfies the criteria of the Autorité, the Company makes annual financial forecasts for the next five years; among the data reviewed are the solvency ratio and changes to the solvency ratio. The actuary, appointed by the Board of Directors in conformity with An Act respecting insurance, pre- pares an annual assessment of the financial position of the Company; he carries out dynamic capital adequacy testing (“DCAT”) of which one objective is to verify the capital adequacy of the Company despite plausible unfavourable events. These documents are submitted and presented to the Board of Directors. The Autorité’s guideline states that the Company must set a target level of available capital that exceeds the minimum requirements. The Company’s current solvency ratio exceeds minimum requirements and is higher than the set target. SSQ Ω 2016 ANNUAL REPORT Ω 121

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

20. CAPITAL MANAGEMENT (cont’d) Available capital position 2016 2015 $ $

Equity 791.7 727.0 Subordinated debt 160.0 175.0 Prescribed reductions and other adjustments (92.7) (106.7) Available capital 859.0 795.3 Concerning its subsidiaries, SSQ Insurance Company Inc. and SSQ General Insurance Company Inc., the Company’s policy is to maintain a higher target level of capital than required under the Autorité’s guidelines on capital adequacy requirements, namely “CAR” and “MCT”, that apply respectively to the subsidiaries. The solvency ratios of the subsidiaries as at December 31, 2016 and 2015 exceed the level required under the guidelines.

21. INCOME TAXES 2016 2015 $ $

Income tax expenses for the year — Net income Current income taxes 25.7 33.2 Deferred income taxes resulting from the origination or reversal of temporary differences (0.5) (11.6) 25.2 21.6

Reconciliation of income tax expense for the year — Net income Base income taxes of 26.8% (2015 — 26.7%) 27.7 23.0 (Decrease) increase caused by differences between accounting and tax treatment Investments (3.3) (1.8) Other 0.8 0.4 25.2 21.6

Tax recovery for the year — Comprehensive loss Current income taxes (3.6) (1.3) Deferred income taxes (1.6) (1.9) (5.2) (3.2)

Deferred income tax assets Investment property, fixed assets and intangible assets 0.1 – Life and health insurance contracts 21.0 23.4 Employee retirement benefits 18.5 15.1 Other 0.8 – 40.4 38.5

Deferred income tax liabilities Investments (19.9) (21.7) Investment property, fixed assets and intangible assets (39.9) (39.5) Other (3.1) (1.1) (62.9) (62.3) 122 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

21. INCOME TAXES (cont’d) 2016 2015 $ $

Presented as: Deferred income tax assets 22.6 39.3 Deferred income tax liabilities (45.1) (63.1)

22. EMPLOYEE RETIREMENT BENEFITS The Company offers its employees contributory defined benefit pension plans based on years of service and final average salary. It also offers its eligible employees retirement benefits such as severance payments as well as health and life insurance coverage. The following tables show the amounts recorded in the Company’s consolidated financial statements under other assets and other liabilities, as well as selling and administrative expenses: 2016 2015 Pension Other Pension Other plans benefits plans benefits $ $ $ $

Defined benefit obligation Obligation, beginning of year 438.3 35.4 401.6 34.8 Employee contributions 10.7 – 10.7 – Transfers between plans 2.5 – 2.5 – Current service cost 15.2 2.3 13.8 2.3 Interest 18.9 1.6 17.0 1.5 Experience (2.5) (0.9) 1.7 (1.3) Actuarial (gain) loss arising for changes 15.7 2.7 7.4 (1.2) in financial assumptions Benefits paid (18.3) (1.8) (16.4) (0.7) Obligation, end of year 480.5 39.3 438.3 35.4

Pension plan assets Fair value, beginning of year 426.3 – 392.3 – Remeasurement of assets – – 0.4 – Interest 16.8 – 15.3 – Difference between actual return and interest 0.1 – 8.3 – Employer contributions 12.6 1.8 13.2 0.7 Employee contributions 10.7 – 10.7 – Transfers between plans 2.5 – 2.5 – Benefits paid (18.3) (1.8) (16.4) (0.7) Fair value, end of year 450.7 – 426.3 –

Defined benefit liability including the effect of the asset ceiling Funded plans deficit (surplus) 7.6 – (9.1) – Unfunded plans deficit 22.2 39.3 21.1 35.4 Net defined benefit liability 29.8 39.3 12.0 35.4 Effect of limiting net defined benefit asset to asset ceiling – – 9.1 – 29.8 39.3 21.1 35.4 SSQ Ω 2016 ANNUAL REPORT Ω 123

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

22. EMPLOYEE RETIREMENT BENEFITS (cont’d) 2016 2015 Pension Other Pension Other plans benefits plans benefits $ $ $ $

Employee retirement benefit expenses Current service cost 15.2 2.3 13.8 2.3 Net interest 2.1 1.6 1.7 1.5 Expenses for the year — Net income 17.3 3.9 15.5 3.8 Actuarial loss (gain) for the year and effect of asset 4.0 1.8 9.5 (2.5) ceiling — Other comprehensive (loss) income Cash payments for employee retirement benefits for the year totalled $14.0 (2015 – $12.9). The Company expects to pay contributions in the amount of $13.9 into defined benefit plans during the next year. Actuarial assumptions used for calculation of obligation and cost according to the 2016 2015 weighted average % %

Discount rate — obligation 4.0 4.2 Discount rate — cost 4.2 4.1 Rate of salary increase — obligation (3.3% starting in 2018) 3.0 3.3 Rate of salary increase — cost 3.3 2.8 Rate of increase in cost of covered health care (decreasing linearly to 4,0% in 2021) 9.0 9.0

An unfavorable change of 1% in the assumptions used would have the following impact on the defined benefit obligation: 2016 2015 $ $

Discount rate 116.9 107.0 Rate of salary increase 43.9 42.9 Rate of increase in cost of covered health care 7.0 6.0

Valuation date The Company measures its defined benefit obligation and the fair value of plan assets for accounting purposes as at December 31 of each year. An actuarial valuation of pension plan funding is also performed as at December 31 of each year. This assessment includes evaluating the financial viability of the pension plans to fulfill their commitments to all of the actual participants and their survivors, depending on the asset values of the plans and the future contributions to the pension plans by the participants and the Company. 124 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

22. EMPLOYEE RETIREMENT BENEFITS (cont’d) Pension plans’ assets The pension plans apply an investment policy with the objective of providing the optimal return on their assets while respecting the main attributes of the plans’ liabilities and the restrictions imposed on by the Supple- mental Pension Plans Act. Pension plans’ assets are invested in the Company’s segregated funds. Asset allocation as at December 31 is as follows: 2016 2015 % %

Bonds 62.1 64.6 International shares 26.7 25.0 Canadian shares 8.9 8.4 Others 2.3 2.0

23. COMPONENTS OF THE CONSOLIDATED STATEMENT OF INCOME 2016 2015 $ $

Gross premiums Life and health insurance 2,077.1 1,917.6 Investment and retirement 37.9 72.4 Property and casualty insurance 227.8 214.9 2,342.8 2,204.9

Selling and administrative expenses Employee benefits 194.9 178.7 Depreciation and amortization of fixed assets and intangible assets 32.5 29.8 Interest on subordinated debt payable to the majority shareholder 4.6 5.5 Interest on subordinated debt 6.5 6.5

Investment property expenses Depreciation of investments property 0.7 0.6 Depreciation of fixed assets 1.9 1.6

24. REMUNERATION OF KEY MANAGEMENT PERSONNEL Key management personnel includes directors and senior executives. The following table summarizes cumulative remuneration of key management personnel: 2016 2015 $ $

Short-term employee benefits 9.7 10.6 Post-employment benefits 2.0 2.1 11.7 12.7 SSQ Ω 2016 ANNUAL REPORT Ω 125

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

25. SEGREGATED FUNDS A) Carrying value of segregated fund investments 2016 2015 $ $

Investments fund units 3,677.3 3,612.4 Bonds 505.5 476.5 Cash and cash equivalents 83.4 123.9 Shares 534.4 526.5 Derivative financial instruments 1.5 0.7 Total investments 4,802.1 4,740.0 Other assets and liabilities 15.6 29.8 4,817.7 4,769.8

B) Fair value of segregated fund investments The following tables present investments in segregated funds classified according to the fair value hierarchy as defined in Note 7“Fair value of assets and liabilities” and exclude all other financial assets except derivative financial instruments: 2016

Level 1 Level 2 Level 3 Total $ $ $ $

Segregated fund financial assets at fair value through profit or loss Investments fund units 3,159.5 517.8 – 3,677.3 Bonds – 505.5 – 505.5 Cash and cash equivalents – 83.4 – 83.4 Shares 525.0 – 9.4 534.4 Derivative financial instruments 1.5 – – 1.5 3,686.0 1,106.7 9.4 4,802.1 Segregated fund financial liabilities at fair value through profit or loss Derivative financial instruments (1.9) – – (1.9)

During the years ended December 2016 and 2015, there were no transfers of investments related to segregated funds between Levels 1 and 2. 126 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

25. SEGRAGATED FUNDS (cont’d) B) Fair value of segregated fund investments (cont’d) 2015

Level 1 Level 2 Level 3 Total $ $ $ $

Segregated fund financial assets at fair value through profit or loss Investment fund units 3,114.2 498.2 – 3,612.4 Bonds – 476.5 – 476.5 Cash and cash equivalents – 123.9 – 123.9 Shares 517.0 – 9.5 526.5 Derivative financial instruments 0.7 – – 0.7 3,631.9 1,098.6 9.5 4,740.0 Segregated fund financial liabilities at fair value through profit or loss Derivative financial instruments (6.6) – – (6.6)

Change in the fair value measurement of financial assets Shares classified in Level 3 $

Fair value as at December 31, 2014 8.8 Acquisition of financial instruments 0.3 Disposal of financial instruments (0.2) Unrealized gains 0.6 Fair value as at December 31, 2015 9.5

Acquisition of financial instruments 0.4 Disposal of financial instruments (1.1) Realized gains 0.2 Unrealized gains 0.4 Fair value as at December 31, 2016 9.4 SSQ Ω 2016 ANNUAL REPORT Ω 127

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

C) Changes in segregated fund insurance contracts and investment contracts 2016 2015 Insurance Investments Insurance Investment contracts contracts contracts contracts $ $ $ $

Balance, beginning of year 1,697.5 3,072.3 1,591.5 2,778.1 Amounts collected from policyholders 316.3 232.7 339.5 435.9 Investment income 67.6 175.9 31.7 138.3 Amounts paid to policyholders (239.8) (504.8) (265.2) (280.0) Balance, end of year 1,841.6 2,976.1 1,697.5 3,072.3 In accordance with the contractual maturities of cash flows, segregated fund insurance contracts and investment contracts are payable on demand.

26. CONTINGENCIES AND COMMITMENTS Contingencies The Company and its subsidiaries are subject to legal actions, including proposed class actions. The Com- pany does not expect that settlement of current legal actions will have a material adverse effect on its consolidated financial position. Letters of credit In the normal course of business, banking institutions issue letters of credit on the Company’s behalf. As at December 31, 2016, these letters of credit amount to $3.2 (2015 — $3.3). No assets were pledged against these letters of credit. Commitments The Company leases vehicle, IT equipment and office spaces as lessee. These leases mature between 2017 and 2025. Minimum lease payments recognized as an expense during the year totalled $9.6 (2015 — $9.9). The expected payments on the leases are as follows:

Less than 1 year 1 to 5 years Over 5 years Total $ $ $ $

Basic rents 4.8 16.3 12.4 33.5 128 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, (in millions of dollars, unless otherwise indicated)

27. LEASES The Company leases as lessor its investment property and certain fixed assets under operating leases. These leases mature between 2017 and 2036. During the year, the Company’s rental revenue from its investment property and fixed assets totalled $22.3 (2015 — $20.0), while direct operating expenses totalled $16.5 (2015 — $13.9). Expected receipts from operating leases are as follows:

Less than 1 year 1 to 5 years Over 5 years Total $ $ $ $

Basic rents 13,7 51,0 73,7 138,4

28. SUBSEQUENT EVENT As stated in Note 2 “Restructuring”, the corporate structure of the Company’s direct and indirect subsidiaries was changed on January 1, 2017. SSQ Ω 2016 ANNUAL REPORT Ω 129

Ownership Structure as at January 1, 2017

SSQ, Mutual SSQ Dedicated Fonds de solidarité FTQ Management Corporation Segregated Fund

SSQ, Mutual Holding Inc.

SSQ, Life Insurance Company Inc.

SSQ Insurance SSQ Realty Inc. Company Inc.

SSQ Distribution Inc.

SSQ Foundation 130 Ω SSQ Ω 2016 ANNUAL REPORT

SSQ, Life Insurance Company Inc. and SSQ Insurance Company Inc. BOARDS OF DIRECTORS Gaétan Morin / Terrebonne President and Chief Executive Officer Chairman Fonds de solidarité FTQ Pierre Genest* / Quebec City Michel Nadeau* / Longueuil Chairman of the Board Executive Director SSQ, Mutual Management Corporation Institute for Governance of Private and Public Vice-Chairman Organizations

Émile Vallée* / Gatineau Denyse Paradis* / Terrebonne Retiree Representative Fédération des travailleurs et travailleuses Fédération de la santé et des services sociaux (FSSS) du Québec (FTQ) – CSN Directors Sylvain Paré / Montreal Normand Brouillet* / Longueuil Executive Vice-President, Finance Retiree Fonds de solidarité FTQ Confédération des syndicats nationaux (CSN) Alain Pélissier* / Montreal Jean-François Chalifoux / Quebec City Retiree Chief Executive Officer Centrale des syndicats du Québec (CSQ) SSQ, Life Insurance Company Inc. Jean Perron* / Quebec City Claude Choquette / Quebec City Corporate Director President Sylvain Picard* / Wendake HDG Inc. Executive Director Carolle Dubé* / Charlemagne Régime des bénéfices autochtones President Bernard Piché / Montreal Alliance du personnel professionnel et technique Corporate Director de la santé et des services sociaux (APTS) Norman A. Turnbull / Varennes Eddy Jomphe* / Lévis Corporate Director Union Representative Corporate Secretary Canadian Union of Public Employees (CUPE) – FTQ Hélène Plante Andrew MacDougall* / Toronto Consultant * Member of the Board of Directors of SSQ, Spencer Stuart Canada Mutual Management Corporation Jude Martineau / Quebec City Corporate Director Lucie Martineau* / Lévis National Vice-President Syndicat de la fonction publique et parapublique du Québec (SFPQ)

Member of Mutualism Promotion Committee Member of Executive and Human Resources Committee Member of Audit and Risk Management Committee Member of Investment Committee Member of Ethics Committee SSQ Ω 2016 ANNUAL REPORT Ω 131

SSQ FINANCIAL GROUP MANAGEMENT TEAM Finances Jean-François Chalifoux Thierry Brochu Chief Executive Officer Vice-President – Corporate Actuarial Carl Cleary Patrick Cyr Vice-President – Capital and Financing Senior Vice-President – Finance Hugo Drouin Geneviève Hamel Vice-President – Finance and Investments Transformation Bureau Lead France Rodrigue Carl Laflamme Vice-President – Realty Senior Vice-President – Distribution Human Resources and Corporate Affairs Marie Lamontagne Daniel Ouellet Strategic Advisor Vice-President – HR Operations France LeBlanc Johanne Pichette Risk Management Lead Senior Director – HR Partners, Talent Acquisition Denis Légaré and Management Senior Vice-President – Human Resources Élise Poulin and Corporate Affairs Vice-President – Legal Department and Compliance Michel Loranger Martin Robert Senior Vice-President – Information Technology Senior Director – Talent Development, Culture and Communications Gilles Mourette Senior Vice-President – Customer Experience Information Technology and Operational Management Éric Benoit Éric Trudel Vice-President – Architecture and Digital Solutions Senior Vice-President – Strategy and Product Development Management Peter Myddelton Senior Director – IT Services and Operations SENIOR MANAGEMENT Éric Savard Customer Experience and Operational Management Vice-President – Systems Development and Project Portfolio Management Chantal Auger Vice-President – Benefits and Claims Strategy and Product Management Jean Cinq-Mars Donald Cyr Vice-President – Operations and Partner Services Vice-President – Actuarial and Product Expertise Aurel Lessard Annie Lafond Vice-President – Direct Sales and Customer Service Senior Director – Marketing and E-Business Éric Thériault Louis Regimbal Vice-President – Customer Experience and Vice-President – Strategy and Innovation Performance Claudine Yelle Distribution Senior Director – Operational and Network Compliance David Fortier INTERNAL AUDITOR Vice-President – Sales, Affinity Groups and Partners Josée Grondines Diane Gaulin Senior Director – Internal Auditor Vice-President – Sales, Public Sector Marie-Claude Harvey Senior Director – Sales Support Doug Paul Vice-President – Sales, Individual Products Marc Trépanier Vice-President – Sales, Groups 132 Ω SSQ Ω 2016 ANNUAL REPORT

ADDRESSES Head Office 2525 Laurier Blvd Quebec City, QC G1V 2L2 Tel.: 418-651-7000 1-800-463-5525

1225 St. Charles Street West, Suite 200 Longueuil, QC J4K 0B9 Tel.: 514-521-9097 1-855-233-7056

110 Sheppard Avenue East, Suite 500 Toronto, ON M2N 6Y8 Tel.: 416-221-3477 1-866-696-6001

800 6th Avenue SW, Suite 650 Calgary, AB T2P 3G3 Tel.: 403-592-8516 1-855-772-3082

1680 Bedford Row PO Box 1001 Halifax, NS B3J 2X1 Tel.: 1-800-848-0158

701 Georgia Street West, Suite 1558 Vancouver, BC V7Y 1C6 Tel.: 604-681-9266 1-855-803-5797 CONTACT US Communications Tel.: 1-866-332-3806 [email protected]

You can also visit us at ssq.ca.

ISSN 1700-0688 Legal Deposit – 2nd quarter 2017 Bibliothèque et Archives nationales du Québec National Library of Canada

BMG115A (2017-04)