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Desjardins Group Management's Discussion and Analysis

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Desjardins Group Management's Discussion and Analysis Management’s Discussion and Analysis – 2017 Annual Report – Desjardins Group Desjardins Group Management’s Discussion and Analysis Table of contents NOTE TO THE READER .............................................................. 13 3.0 BALANCE SHEET REVIEW 3.1 Balance sheet management .............................................. 56 1.0 DESJARDINS GROUP 3.2 Capital management ......................................................... 59 1.1 Profile and structure.......................................................... 21 3.3 Off-balance sheet arrangements ....................................... 66 1.2 Material events ................................................................. 25 1.3 Financial strategy and objectives ...................................... 25 4.0 RISK MANAGEMENT 1.4 Changes in the economy .................................................. 28 4.1 Risk factors that could impact future results ..................... 67 4.2 Risk management ............................................................. 70 2.0 REVIEW OF FINANCIAL RESULTS 4.3 Additional information related to certain risk exposures ..... 107 2.1 Impact of the sale of subsidiaries ...................................... 30 2.2 Analysis of 2017 results .................................................... 31 5.0 ADDITIONAL INFORMATION 2.3 Analysis of business segment results ............................... 39 5.1 Controls and procedures ................................................... 108 2.3.1 Personal and Business Services ............................. 39 5.2 Related party disclosures .................................................. 109 2.3.2 Wealth Management and Life and Health 5.3 Critical accounting policies and estimates ......................... 109 Insurance ................................................................ 43 5.4 Future accounting changes ............................................... 113 2.3.3 Property and Casualty Insurance............................. 47 5.5 Five-year statistical review ................................................ 118 2.3.4 Other category ........................................................ 50 2.4 Analysis of fourth quarter results and quarterly trends .......................................................... 52 SECTION 1.0 Desjardins Group This section gives a brief overview of Desjardins Group and its 2017 financial highlights. It also includes material events, priority financial objectives, a description of the economic environment in 2017, and the economic and financial outlook for 2018. SECTION 2.0 Review of financial results This section provides an analysis of Desjardins Group’s results for the year ended December 31, 2017. It contains information on each of Desjardins Group’s business segments, including a profile, a description of the industry, the strategy and priorities for 2018, and an analysis of financial results. An analysis of fourth quarter results and quarterly trends is also included. SECTION 3.0 Balance sheet review This section provides commentary on Desjardins Group’s balance sheet. It mainly addresses financing activities and recruitment of savings, as well as capital management and off-balance sheet arrangements. SECTION 4.0 Risk management This section focuses on the risk management framework and presents the various risks associated with Desjardins Group’s operations. It also presents risk factors that could impact its future results. SECTION 5.0 Additional information This section presents controls and procedures, related party disclosures, critical accounting policies and estimates, future accounting changes and various annual statistics. 12 Management’s Discussion and Analysis – 2017 Annual Report – Desjardins Group Note to the reader Desjardins Group (hereinafter also referred to as Desjardins) comprises the Desjardins caisse network in Quebec and Ontario (the caisses), the Fédération des caisses Desjardins du Québec (the Federation) and its subsidiaries (including Desjardins Capital Inc.), the Fédération des caisses populaires de l’Ontario Inc. and the Fonds de sécurité Desjardins. The Management’s Discussion and Analysis (MD&A) dated February 26, 2018, presents the analysis of the results of and main changes to Desjardins Group’s balance sheet for the year ended December 31, 2017, in comparison to previous fiscal years. Desjardins Group reports financial information in compliance with Regulation 52-109 respecting Certification of Disclosure in Issuers’ Annual and Interim Filings prescribed by the Canadian Securities Administrators (CSA). Desjardins Group is not a reporting issuer, on a combined basis, under this regulation. However, it has chosen to apply the provisions provided in this regulation to demonstrate its willingness to comply with best practices in financial governance. Information about Desjardins Group’s controls and procedures is presented in the “Additional information” section of this MD&A. The MD&A should be read in conjunction with the Combined Financial Statements, including the Notes thereto, as at December 31, 2017. Additional information about Desjardins Group is available on the website of the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com (under the Desjardins Capital Inc. profile). The Annual Information Form of the Federation (under the Fédération des caisses Desjardins du Québec profile) can be found on SEDAR as well. Further information is available on the Desjardins website at www.desjardins.com/ca/about- us/investor-relations. None of the information presented on these sites is incorporated by reference into this MD&A. CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Desjardins Group’s public communications often include oral or written forward-looking statements. Such forward-looking statements are contained in this MD&A and may be incorporated in other filings with Canadian regulators or in any other communications. Forward-looking statements include, but are not limited to, comments about Desjardins Group’s objectives regarding financial performance, priorities, operations, the review of economic conditions and markets, as well as the outlook for the Canadian, U.S., European and other international economies. These forward-looking statements include those appearing in sections 1.3 “Financial strategy and objectives,” 1.4 “Changes in the economy,” 2.0 “Review of financial results”, 3.0 “Balance sheet review” and 5.0 “Additional information” of this MD&A. Such statements are typically identified by words or phrases such as “believe”, “expect”, “anticipate”, “intend”, “estimate”, “plan” and “may”, words and expressions of similar import, and future and conditional verbs. By their very nature, such statements involve assumptions, uncertainties and inherent risks, both general and specific. It is therefore possible that, due to many factors, the assumptions made may be incorrect, or that the predictions, forecasts or other forward-looking statements as well as Desjardins Group’s objectives and priorities may not materialize or may prove to be inaccurate and that actual results differ materially. Desjardins Group cautions readers against placing undue reliance on these forward-looking statements since actual results, conditions, actions and future events could differ significantly from the targets, expectations, estimates or intents in the forward-looking statements, either explicitly or implicitly. A number of factors, many of which are beyond Desjardins Group’s control and the effects of which can be difficult to predict, could influence the accuracy of the forward-looking statements in this MD&A. These factors include those discussed in Section 4.0 “Risk management,” such as credit, market, liquidity, operational, insurance, strategic and reputation risk. Additional factors include legal and regulatory environment risk, including legislative or regulatory developments in Quebec, Canada or globally, such as changes in fiscal and monetary policies, reporting guidance, liquidity regulatory guidance and capital guidelines, or interpretations thereof. There is also environmental risk, which is the risk of financial, operational or reputational loss for Desjardins Group as a result of environmental impacts or issues, whether they are a result of Desjardins Group’s credit or investment activities or its operations. Lastly, there is the risk related to pension plans, which is the risk of losses resulting from pension plan commitments made by Desjardins Group for the benefit of its employees arising essentially from interest rate, price, foreign exchange and longevity risks. Additional factors that may affect the accuracy of the forward-looking statements in this MD&A also include factors related to cyber threats, technological advancement and regulatory developments, household indebtedness and real estate market trends, the low interest rate environment and geopolitical risks. Furthermore, there are factors related to general economic and business conditions in regions in which Desjardins Group operates; changes in the economic and financial environment in Quebec, Canada and globally, including short- and long-term interest rates, inflation, debt market fluctuations, foreign exchange rates, the volatility of capital markets, tighter liquidity conditions in certain markets, the strength of the economy and the volume of business conducted by Desjardins Group in a given region; monetary policies; the accuracy and completeness of information concerning clients and counterparties; the critical accounting
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