2014 ANNUAL REPORT
70 YEARS OF COLLECTIVE SUCCESS SUMMARY
02 2014 Financial Highlights 04 Chairman’s Message 18 CEO’s Message 30 Sustainable Development and Societal Responsibility Report 48 SSQ, Mutual Management Corporation – Consolidated Financial Statements as at December 31, 2014 49 Independent Auditor’s Report 50 Consolidated Statement of Excess of Revenues 50 Consolidated Statement of Comprehensive Income 51 Consolidated Statement of Financial Position 52 Consolidated Statement of Equity 53 Consolidated Statement of Cash Flows 54 Notes to the Financial Statements 62 SSQ, Life Insurance Company Inc. – Excerpt from the Consolidated Financial Statements as at December 31, 2014 63 Management’s Report 64 Consolidated Statement of Income 65 Consolidated Statement of Comprehensive Income 66 Consolidated Statement of Financial Position 67 Consolidated Statement of Changes in Equity 68 Consolidated Statement of Cash Flows 69 Excerpt from the Notes to the Consolidated Financial Statements 102 Structure 103 Boards of Directors, Senior Management and Vice-Presidents 107 Addresses 107 Contact Us SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 1
A COLLECTIVE SUCCESS STORY: 1944-2014 From its beginnings in 1944 as a small-scale healthcare cooperative in a working-class neigh- bourhood of Quebec City, SSQ Financial Group has risen to the ranks of the most important and diversified mutualist financial institutions in Canada. Having come so far, the company knowingly decided to adapt to change. What was true in 1944 still holds true today, over seven decades later: growth in the face of change is a reality that SSQ has faced since the start. In celebration of its 70th anniversary, SSQ Financial Group published A Collective Success Story: 1944-2014 as a tribute to the individuals who built SSQ and those who continue to carry out its mission. The book focuses on both the highs and lows of the company’s collective history. It also honours the men and women who worked hard to make SSQ what it is today, along with the partners who put their trust in the company over the years and continue to do so today. The book is also available on ssq.ca. We hope you enjoy it! 2014 FINANCIAL HIGHLIGHTS SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 3
(in millions of dollars)
2014 2013 Variation $ $ % CONSOLIDATED DATA Premiums under management 2,777.2 2,995.7 -7.3 Assets under management and administration 10,622.3 11,382.9 -6.7 Equity attributed to shareholders 670.7 363.8 84.4 Equity attributed to non-controlling interest – 223.1 Net income attributed to shareholders 49.7 38.0 30.8 Net income attributed to non-controlling interest 4.3 9.6 Net global income 54.0 47.6 13.4 Number of employees 2,052 1,961 12000 12000 12000 SSQ, LIFE INSURANCE COMPANY INC. 9600 9600 9600 Premiums and premium equivalents − Group Insurance 1,662.6 1,600.5 3.9 Premiums and premium equivalents − Investment and Retirement 704.2 1,015.0 -30.6 7200 7200 7200 Assets under management − segregated funds 4,382.4 4,643.8 -5.6
4800 SSQ INSURANCE COMPANY INC. 4800 4800 Premiums − Individual Insurance 183.0 165.8 10.4 2400 2400 2400 SSQ GENERAL INSURANCE COMPANY INC. 0 0 0 Written premiums 227.5 214.4 6.1 Number of insureds 286,360 294,998 -2.9 Net combined ratio 96.2 % 97.4 % -1.2
SSQ REALTY INC. Net income − SSQ properties 8.6 8.6 – Market value − SSQ properties 244.9 211.5 15.8 11,421.8 10,871.5 10,622.3 7,970.8 6,939.6 670.7 3,045.5 2,995.7 2,777.2 2,564.2 363.8 2,359.6 315.5 307.3 306.1
2010 11 12 13 14 2010 11 12 13 14 2010 11 12 13 14 CONSOLIDATED PREMIUMS CONSOLIDATED ASSETS UNDER EQUITY ATTRIBUTED UNDER MANAGEMENT MANAGEMENT AND ADMINISTRATION TO SHAREHOLDERS (in millions of dollars) (in millions of dollars) (in millions of dollars) 4 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 5
Chairman’s Message
1944-2014: MODERNIZING BUILDING ON THE PAST THE ANNUAL REPORT Over the past 70 years, SSQ has steadily grown, Dating back to their founding in 1991, SSQ, Mutual evolved and adapted to a world of change. It is Management Corporation and SSQ, Life Insurance both a young company and a mature one. It con- Company Inc., used to publish two separate annual tinues to record strong growth thanks to all those reports providing information on their respective individuals who have worked hard to transform operations and financial results. In light of our what was once a small healthcare cooperative rapid growth in recent years, not to mention our into the major financial group we know today. recent string of acquisitions and our desire to remain up to date, we decided to modernize our To mark its 70th anniversary, SSQ published process of reporting to our stakeholders. In 2012, A Collective Success Story: 1944-2014, an update we innovated by producing our first paperless of the 1984 book covering the first 40 years of annual reports. For 2014, we are going a step the company’s history. In addition to providing a further by combining our activity report and our summary of our achievements, this beautiful book business report in a single document, together with preserves the memory of our history and reflects the financial results of SSQ, Mutual Management the work of the builders of SSQ and of those who Corporation and those of SSQ Financial Group. continue to promote the company today across Quebec and the other Canadian provinces. 6 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
CORPORATE RESTRUCTURING: financiers (AMF). The results of this process A PATHWAY TO THE FUTURE demonstrate not only that SSQ is in compliance with all regulatory requirements, but also that it SSQ is a modern, high-performance financial is committed to safeguarding the interests of institution whose growth is clearly based not only mutualists and insureds on an ongoing basis. on a set of core values, but also on a rock-solid financial footing and an ability to make required RELEVANT TRAINING ACTIVITIES changes to maintain this position. Along those In the hopes of remaining consistently alert to lines, the boards of directors approved a corporate insurance industry trends and best practices while restructuring in 2014 under which SSQ, Life staying informed about matters of relevance to Insurance Company Inc. became the sole share- their duties, the directors took part in several holder of SSQ Insurance Company Inc., its individual training sessions in 2014. As regards damage and specialized group insurance subsidiary. These insurance–related issues, they attended seminars two life and health insurance companies were consol- on topics such as the results of our customer idated in order to improve the solvency ratio, thus experience survey, advances in telematics systems, facilitating better capital integration and increasing a new auto insurance pricing tool and the impacts flexibility while maintaining a solvency ratio of of climate change. nearly 200% and meeting new capital adequacy requirements. Under the specific provisions of this As regards life and health insurance, the directors new structure, the shareholders’ respective own- attended four life and health insurance training ership interests were maintained. This reorganiza- sessions focused on SSQ’s business model for tion had no impact on the companies’ risk profiles individual products, our asset management–related or on the members, insureds or policyholders. corporate watch, the group insurance market and financial derivatives. In addition, the three boards SOUND GOVERNANCE held a special joint working session for the annual The boards of SSQ, Life Insurance Company Inc. follow-up on the 2013-2017 strategic plan. (SSQ Life), SSQ Insurance Company Inc. (SSQ HIGH ATTENDANCE Insurance) and SSQ General Insurance Company Inc. (SSQauto) carried out an annual review of their The directors of SSQ’s boards care deeply about governance programs to ensure that best practices their roles and responsibilities, as borne out by were upheld. On the recommendation of the Audit their attendance record and the quality of their and Risk Management Committee, the crisis sim- meeting-related preparations. In 2014, the atten- ulation policy and its implementation program dance rate for meetings of the various bodies was were also adopted in 2014 by the boards. over 97%, as shown in the following table: SSQ Life arranged an initial independent audit report on its solvency ratio, which concluded that this ratio in relation to the company’s capital ade- quacy requirements as at December 31, 2013, was in all material respects calculated in compliance with the Guideline on Capital Adequacy Require- ments issued by Quebec’s Autorité des marchés SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 7
ATTENDANCE RECORD FOR DIRECTORS OF SSQ, MUTUAL MANAGEMENT CORPORATION, SSQ LIFE AND SSQ INSURANCE for the year ended December 31, 2014
Executive and Audit and Risk Board Human Resources Investment Management Ethics of Directors Committee Committee Committee Committee Brouillet, Normand** 6 / 6 4 / 4 Choquette, Claude* 6 / 7 5 / 6 Doré, Chantal* 6 / 7 Genest, Pierre** 7 / 7 5 / 6 Hamel, René* 7 / 7 6 / 6 Jomphe, Eddy** 7 / 7 4 / 4 MacDougall, Andrew** 7 / 7 Martineau, Jude* 7 / 7 6 / 6 Morin, Gaétan* 6 / 7 6 / 6 Nadeau, Michel** 7 / 7 5 / 6 5 / 6 Paradis, Denyse** 7 / 7 4 / 4 Paré, Sylvain* 7 / 7 6 / 6 6 / 6 Pélissier, Alain** 7 / 7 Perron, Jean** 7 / 7 Picard, Sylvain** 7 / 7 6 / 6 Ross, Angus H.* 7 / 7 Turnbull, Norman A.* 7 / 7 6 / 6 6 / 6 Vallée, Émile** 7 / 7 6 / 6 Verreault, Dominique** 7 / 7 4 / 4 * Director of SSQ Life and SSQ Insurance ** Director of SSQ, Mutual Management Corporation, SSQ Life and SSQ Insurance
ATTENDANCE RECORD FOR DIRECTORS OF SSQauto for the year ended December 31, 2014
Executive and Audit and Risk Board Human Resources Investment Management Ethics of Directors Committee Committee Committee Committee Genest, Pierre 5 / 5 4 / 4 Hamel, René 5 / 5 Lachapelle, Josée 5 / 5 1 / 1 Lallemand, Danielle 4 / 5 5 / 5 L’Écuyer, André 5 / 5 5 / 5 Martineau, Lucie 5 / 5 1 / 1 Piché, Bernard 5 / 5 4 / 4 6 / 6 Rochefort, Jacques 5 / 5 4 / 4 Tremblay, Jocelyn 5 / 5 1 / 1 Vachon, Pierre-Maurice 5 / 5 5 / 5 8 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
The road to growth means constant adaptation
YOUTH INVOLVEMENT: “I realized that the role of cooperatives and mutual LEADERS OF THE FUTURE organizations in the global economy is much larger than one might think. In fact, they are growing International Summit of Cooperatives by leaps and bounds. I particularly enjoyed the conference on communications and marketing For the second time, Quebec City hosted within cooperatives.” the International Summit of Cooperatives in Alexandre Trudel, Financial Security Technician, October 2014, which drew more than 3,000 partic- Investment and Retirement ipants from cooperatives and mutual organizations from around the world. Special emphasis was “The young leaders program enabled me to meet placed on young cooperative and mutualist leaders a group of dynamic and committed individuals, aged 18 to 35, for whom a special series of discus- which had a mobilizing effect. It also increased sion forums, lunch seminars and roundtables was my desire to get involved and make a difference arranged. SSQ’s five-person delegation included by putting my own values into practice. It served four young employees who are active members as a reminder that, working together, we can of SSQ’s Mutual Life Promotion Committee. For make a difference. There’s no doubt that my these young leaders, the summit provided an involvement in the International Summit of opportunity to make contact with representatives Cooperatives strengthened my sense of pride in of the cooperative movement and to discuss being part of a mutualist organization!” global issues affecting cooperatives and mutual Andrée-Anne Julien, Claims Agent, organizations. Disability Management SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 9 10 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
A special place was reserved for young cooperative and mutual leaders at the International Summit of Cooperatives, which took place in October 2014.
“The week we spent at the summit gave us new Quebec City-Appalaches regional perspectives on the world and a way of getting development cooperative to know other people’s realities. It was very worth- Jean-Philippe Lapointe, an administrative analyst while in both personal and professional terms. I also in the Corporate Actuarial division, was appointed discovered new ways of promoting cooperative and to the board of the Quebec City-Appalaches mutualist life and implementing these values on a regional development cooperative (CDRQA) as day-to-day basis. It’s a great way to learn new things, a junior director for a one-year term. This position challenge your beliefs and reposition yourself.” was created to enable an individual between the C‑Geneviève Gauthier, Contract Administration ages of 18 and 35 to become familiar with the Technician, Premiums and Enrolment workings of a board of directors and to gain initial “The summit gave me fresh insight into the inter- experience as an observer/director of a regional national realities facing large and small cooperatives development cooperative. Jean-Philippe is the fourth and mutual organizations operating in various SSQ employee to hold this position since 2008. areas. It also provided confirmation that the coop- erative and mutualist world is highly dynamic at the community level and has a direct impact on the local economy!” Marjorie Côté, Compliance Advisor, Internal Audit and Risk Management SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 11
INTERCOOPERATION: MUCH MORE THAN A COOPERATIVE PRINCIPLE! For SSQ, cooperating with other institutions within the cooperative and mutualist movement is standard practice. Over the years, various SSQ employees have taken part in SOCODEVI’s missions to francophone Africa and to Latin America. In 2014, Geneviève Hamel, Senior Director and HR Partner, Group Insurance and Corporate Sectors, joined SOCODEVI’s team for a mission to Vietnam (October 27-November 7) as part of the Cooper- ative Partnership and Mutualist Program. Among other objectives, this mission sought to develop a gender equality strategy and to secure an agreement on an implementation program in Vietnam with a view to helping women play At the end of October 2014, SSQ joined the SOCODEVI more active roles in their cooperatives. team for a mission to Vietnam as part of the Cooperative “Essentially, my contribution was to share SSQ’s Partnership and Mutualist Program. cooperation experience and to focus on what is being done to encourage gender equality in our In addition, Hélène Plante, Corporate Secretary governance and organizational structures, as well of SSQ Financial Group, joined the team of the as in day-to-day life. In light of my training and University of Sherbrooke’s Cooperative/Mutual strategy development experience, I also contributed Research and Education Institute (IRECUS) for by exchanging views with SOCODEVI’s employees the 2014 winter session as an instructor in the in Vietnam. Professionally, I found it very interesting master’s program in cooperative/mutual manage- to share training practices, not only to optimize ment and governance. the program in Vietnam, but also to enhance my own training.” As a guest of IRECUS, I had the pleasure of serving as “prof for a day” in connection with Geneviève Hamel, Senior Director and HR Partner, a seminar I gave on corporate governance for Group Insurance and Corporate Sectors executives enrolled in the MBA program at the University of Sherbrooke’s Longueuil campus in the fall of 2014. 12 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
The SSQ Foundation owns the house formerly occupied by Dr. Jacques Tremblay, who founded SSQ in 1944. Over the past few years, it has allowed Le Pignon Bleu, a community-based resource centre that provides support to low-income families, to use the first-floor office space. In 2014, the SSQ Foundation approved a development project that will enable Le Pignon Bleu to meet growing demand for the cooking workshops it runs for participants in a job integration program, as well as for families in need in Quebec City’s Lower Town. PROMOTING MUTUALISM AND MUTUALIST VALUES In keeping with ongoing efforts to promote mutualist values among its employees, SSQ conducted training sessions in 2014 aimed at showcasing the benefits of the cooperative and mutualist formula. From one year to the next, more participants than ever before A condensed version of this training is offered to take part in the Health 5K event of the SSQ Quebec City Marathon. new delegates so they can gain insight into SSQ’s environment and their role within the company. PROVIDING FOR THE FUTURE SSQ’s partnership with the University of Sherbrooke’s BY GIVING BACK TO THE COMMUNITY Cooperative/Mutual Research and Education Institute (IRECUS) was renewed in 2014. André It is often noted how committed and kind-hearted Martin, an associate professor at IRECUS, contin- our employees are. Once again this year, they ued to participate in the training activities by pre- extended the boundaries of their generosity: senting the mutualist and cooperative formula thanks to their participation, as well as to SSQ’s as an alternative to the dominant capitalist model. contribution, slightly more than $269,000 was More than 200 employees from SSQ’s offices raised for the Centraide/United Way campaign. in Quebec City, Montreal and Toronto took part In connection with the SSQ Quebec City in these sessions, which were led by SSQ’s Marathon’s 5K Health event, SSQ’s employees Chairman of the Board, Corporate Secretary joined the ranks of the 13,000 participants and and Professor Martin. raised nearly $110,000 for the Seinbiose research Supporting the start-up of a youth co-op initiative project organized by the Quebec City CHU is an excellent way for SSQ to promote cooperative Foundation. In addition, donation requests and mutualist values among young people and its submitted by employees in connection with employees. SSQ is proud to have contributed to the support program for employee volunteers rose this organization for 12 years in a row. Showing by 40% in 2014! great generosity, the 2014 edition of the SSQ Youth As they have for the past 15 years, SSQ’s employees Co-op (CJSSQ) shared a portion of the profits responded to the company’s invitation and took generated by sales of homemade desserts with part in the Christmas hamper campaign organized Seinbiose, a research project aimed at the by Magasin Partage. Thanks to their generosity and dedication, approximately 9,000 food items were collected and given to more than 2,000 disadvan- taged families in the Quebec City region. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 13
development of customized external breast CQCM (QUEBEC COUNCIL ON prostheses and endorsed by the SSQ Quebec City COOPERATION AND MUTUALISM) Marathon in 2014. The co-op also donated 250 books to the Salvation Army after organizing SSQ continues to play an active role in the activi- a book fair. The next generation clearly has its val- ties of the CQCM, which seeks to foster Quebec’s ues in the right place! social and economic development by promoting the cooperative and mutualist movement, in The Committee for the Promotion of Mutualist accordance with the principles and values of the Life (CPML) was very active in 2014. Beginning International Cooperative Alliance. In Quebec, in February, a group of young people from the the mutualist movement is made up of 39 mutual Navigateurs school board’s business and recycling organizations, including SSQ, Mutual Management training centre (CFER) responded to the CPML’s Corporation. invitation and presented SSQ employees with the Sustainable Development Caravan, focusing on FECM (FOUNDATION FOR COOPERATIVE the dual themes of energy efficiency and water. AND MUTUALIST EDUCATION) To mark Cooperation Week, the CPML partnered once again with the SSQ employees’ social club As a founding member of Quebec’s FECM, SSQ by sponsoring the distribution of cooperative (via the SSQ Foundation) contributes financially to products at a wine and cheese activity held in this organization’s mission: to promote the values the fall. Three gift certificates, redeemable at a and diversity of the cooperative and mutualist cooperative of the winners’ choice, were presented. formula among young people. This event gave the CPML an opportunity to promote SSQ’s role in the cooperative and mutualist move- SOCODEVI (SOCIETY FOR COOPERATION ment. The CPML subsequently organized a contest AND INTERNATIONAL DEVELOPMENT) entitled “Do you practice intercooperation?” so SSQ is among the Quebec-based cooperative and that employees in Quebec City, Montreal and mutualist organizations that founded SOCODEVI Toronto could share information on their favourite in 1985 in order to promote and strengthen the cooperatives with their co-workers. Five winners cooperative formula as an international sustainable each received a $100 gift certificate redeemable development tool. at a cooperative of their choice. Through SOCODEVI, SSQ shares its expertise and DESIGNATING DELEGATES experience with organizations in the developing world, in particular by sending its employees on The formula for delegate designation, which has technical assistance missions. I continue to serve been in effect since 2006, continues to pay off. on SOCODEVI’s board and I also chair its Audit The number of designated delegates among the and Risk Management Committee. membership rose from 116 in 2007 to 187 in 2014, ensuring that mutualists from across Canada are represented at the annual meeting. 14 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 15
You have to know how to come out on top
SSQ, MUTUAL MANAGEMENT As at December 31, 2014, members’ equity CORPORATION’S FINANCIAL RESULTS totalled $112.5 million, up 14.5% from the previous year. SSQ, Mutual Management Corporation is SSQ, Mutual Management Corporation’s financial satisfied with the results obtained by SSQ, Life results represent a percentage of SSQ Financial Insurance Company Inc. and by SSQ Insurance Group’s results, in accordance with its ownership Company Inc., particularly since steps were taken stake in the Group. Accumulating over the years, to ensure a fair balance between the members’ these results constitute member equity. rights, the financial stability of the Group’s Total revenues for 2014 were $16.5 million, companies and the shareholders’ reasonable including the proportionate share of SSQ, Life return-on-investment expectations. Insurance Company Inc.’s and SSQ Insurance Company Inc.’s net income, which amounted to $14.4 million and $2.0 million respectively. After deducting expenses of $0.1 million and the net surplus attributable to the non-controlling interest of $7.0 million, the net surplus attributable to members was $9.4 million. 16 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
PAYING TRIBUTE TO A BUILDER APPOINTMENTS In selecting the name “Espace Richard Bell” We were very pleased to learn that Gaétan Morin, for the reception hall on the third floor of the an SSQ director since 2009, was appointed Roland-Giroux building, SSQ paid tribute to CEO of the FTQ’s Fonds de solidarité. In addition, Richard Bell, who worked for the company from Sylvain Paré, an SSQ director since 2011, was 1987 to 2008, including a six-year term as CEO. appointed Senior Vice-President, Finance of the Commemorative plaques were unveiled at a Fonds de solidarité. On behalf of the Board and ceremony on December 11, 2014, which was the members of SSQ’s senior management, attended by Mr. Bell and his wife, together we would like to offer our congratulations for with the members of SSQ’s board and senior these well-deserved appointments! management. René Hamel, CEO of SSQ, was elected Chairman of the Centre de développement en assurances et services financiers (CDASF), a non-profit organization that seeks not only to promote the insurance sector in the Greater Quebec City Area, but also to attract qualified workers and boost the number of bilingual employees. Mr. Hamel also came in fifth in the rankings of the Top 25 financial industry leaders in Quebec, published by Finance et Investissement magazine. This honour recognizes René’s leadership qualities and industry involvement. We can all take pride in this achievement!
Richard Bell, with Pierre Genest and René Hamel, at the dedication ceremony of the Richard Bell Space on the third floor of the Roland-Giroux building on December 11, 2014. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 17
ACKNOWLEDGEMENTS SSQ Financial Group’s position as a solid and successful organization is largely due to the directors of its various boards, who once again in 2014 were dynamic and steadfast in their commitment to SSQ. They also provided invaluable guidance and advice to senior management. I know I can count on their support, preparedness and competence as SSQ continues to pursue growth while keeping its values in the right place! I am deeply grateful to SSQ’s management team for successfully overseeing SSQ’s business in line with the interests of our members, insureds, shareholders and partners. Thank you! I would also like to thank the employees of the Group’s companies, without whom we would not be able to grow or achieve the results we have obtained. You are all a part of our organization’s success. Thank you as well to the delegates of SSQ, Mutual Management Corporation for demonstrating a keen interest in your company and SSQ Financial Group.
Pierre Genest Chairman of the Board SSQ, Mutual Management Corporation SSQ Financial Group 18 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 19
CEO’s Message
A COLLECTIVE SUCCESS STORY: operations, it now offers an array of services in 1944-2014 the areas of group insurance, individual life/health insurance, general insurance and investment/ SSQ Financial Group started out as a healthcare retirement products. cooperative in a working-class district of Quebec City in 1944. It was originally designed to offer 1944 also marked the beginning of the third wave access to health care, one of the community’s of the industrial revolution, which would eventually essential needs. You could say that people and transform the world of communications. It would social needs are at the heart of the company’s also rewrite the rulebook for the business sector mission, embedded in its DNA so to speak. as information delivery, purchasing patterns and consumer habits changed almost beyond Seventy years later, SSQ Financial Group is still recognition. prioritizing and promoting health, in addition to offering a wide range of health insurance products. For SSQ, staying on the road to growth requires Mutualist values are still in its DNA. People and constant adaptation. Nothing is ever taken for social development are still the central focus of granted: our products and processes are being its actions. constantly reassessed, as are the ways we interact and communicate with our customers, who are SSQ has demonstrated a winning combination of better informed and more demanding than ever imagination, creativity and audacity in embracing before. We seek to ensure that their experience change over the past 70 years. It proved its is as pleasant as possible each time they get in adaptability, as it grew from being a healthcare touch with us, whatever their concerns may be cooperative based in Quebec City’s Saint-Sauveur and however they may wish to make contact. district to become a mutual insurance company. As a major financial group with Canada-wide 20 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 21
Staying the course is what matters
People skills are also embedded in SSQ’s DNA; Thanks to stringent controls, our increase in they remain intact with the passage of time. In expenses was limited to 2.2%. Low interest rates pursuit of collective success, the company will and additional taxes of nearly $1 million payable also keep on developing its technical expertise. as a result of the Quebec finance minister’s economic and financial update in early December Over 40 years ago, in 1970, renowned American also had an impact on results in 2014. sociologist and futurologist Alvin Toffler published Future Shock, in which he stated that “Tomorrow’s Long-term disability insurance results continued illiterate will not be the man who can’t read; he will to deteriorate in 2014. The claims are high across be the man who has not learned how to unlearn.” the country for all insurers. This trend, coupled with We now live in that society, governed by diversity, lower interest rates, had a negative impact on SSQ’s fluidity and creativity. Everything is in constant financial results. Fortunately, a scheduled review flux; change comes quickly. All organizations of the actuarial assumptions underpinning our group must understand and adapt if they are to meet life insurance coverage had a positive impact. these challenges. SSQ’s net profit was up 13.5%. MAIN FINANCIAL RESULTS AND HIGHLIGHTS OF 2014 Although satisfactory on the whole, 2014 did present a good number of challenges. Our insur- ance business volume rose by 4.7%, a rate of growth superior to that of the market but lower than in past years. SSQ Financial Group’s operating markets were extremely competitive, resulting in lower sales than in 2013. 22 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
2014 2013 BUSINESS VOLUME – INSURANCE (in thousands of $) Group insurance 1,723.0 1,654.6 Individual insurance 122.6 111.7 General insurance 227.5 214.4 TOTAL 2,073.1 1,980.7 SEGREGATED FUND ASSETS – INVESTMENT AND RETIREMENT (in thousands of $) Individual 1,505.0 1,385.1 Group 2,877.4 3,258.6 TOTAL 4,382.4 4,643.7 SALES – INSURANCE (in thousands of $) Group insurance 148.6 207.4 Individual insurance 20.7 20.6 General insurance 64.9 62.3 Total – insurance 234.2 290.3 SALES – INVESTMENT AND RETIREMENT (in thousands of $) Individual 264.9 233.5 Group 313.8 489.2 Total – investment and retirement 578.7 722.7 GRAND TOTAL – SALES 812.9 1,013.0 ASSETS UNDER MANAGEMENT (in thousands of $) General funds • SSQ Life 4,158.5 3,949.3 • SSQ Insurance 1,693.0 1,355.0 • SSQauto 388.4 373.0 Segregated funds 4,382.4 4,643.7 Other funds – 1,061.9 TOTAL 10,622.3 11,382.9 INCOME (in thousands of $) SSQ Life (excluding insurance subsidiaries) 31.4 26.3 SSQ Insurance 15.5 14.4 SSQauto 11.1 10.6 TOTAL 58.0 51.3 Amortization of intangible assets and consolidating elements (4.0) (3.7) Net income 54.0 47.6 RETURN ON EQUITY (%) SSQ Insurance 8.3 8.3 SSQauto 11.7 12.6 SSQ Life consolidated – SSQ Financial Group 8.5 8.0 SOLVENCY RATIO (%) SSQ Life 198 181 SSQ Insurance 245 276 SSQauto 261 242 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 23
A number of highlights marked 2014. Over 25% of In the area of general insurance, SSQauto scored our group insurance business came from provinces first place in J.D. Power’s customer satisfaction other than Quebec. It should be noted that the survey of the home insurance sector, an excep- Toronto office opened its door for business in 2002. tional result given the highly competitive nature of SSQ is now in its second development phase in this sector. Canada’s financial capital. Last year, SSQ Financial Group launched two new SSQ also completed a strategic repositioning of products and carried out a top-to-bottom review its investment and retirement business line, which of one of them. The group insurance division began was discussed at length in the 2013 annual report. marketing our Compassion Insurance product, Fondaction, a workers’ fund and longstanding the only coverage of its kind in Canada that offers partner, left SSQ in June 2014 after deciding to take financial security to insureds required to take time on the administration of its member-shareholders’ off work to care for a gravely ill family member. files. It was with a mixture of regret and great Meanwhile, the individual insurance division launched satisfaction that SSQ provided Fondaction with online sales of a cancer insurance product: the guidance up until its departure. Regret, because entire enrolment and purchasing process is done SSQ had worked with Fondaction since it began online and applicants only have to answer four operations back in 1996; and satisfaction, because simple questions. In addition, SSQ carried out SSQ is convinced that everything will go well for a thorough review of its universal life insurance. Fondaction, which re-established internal control The launch of this product was accompanied over the activities for which SSQ was previously by a cross-Canada tour featuring our financial responsible. SSQ tips its hat to Fondaction’s founder advisory team. and CEO, Léopold Beaulieu, an ex-employee and Other new developments include an upgrade to our friend of SSQ. online services platform and mobile applications. SSQ completed the repositioning of this business Group insurance customers can now consult their line by selling off its mutual fund management file, submit a health insurance claim and receive portfolio. A new chapter has begun and our reimbursement electronically in less than 48 hours. energies are now fully focused on business SSQauto also launched a mobile application that development in the areas of individual savings can be used to submit an insurance claim, file a and pension fund asset management. joint report and prepare a property inventory. Pursuing its diversification strategy initiated several years ago, SSQ acquired assurancevoyages.ca, a company specializing in the sale of travel insurance. SSQ is working to develop other products designed to position it as an insurer in this sector. In addi- tion, its F&I subsidiary, which specializes in the distribution of credit insurance products and vehicle replacement insurance, changed its name to SSQ Évolution. 24 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
COMMUNITY INVOLVEMENT SSQ continues to support worthy causes via events such as the SSQ Quebec City Marathon, with which we renewed our partnership for another five years. In 2014, the Marathon was a resounding success, drawing over 13,000 participants. On the eve of the Marathon, SSQ’s 5K Health Run was held; in 2014, this event was dedicated to Seinbiose, a research project operated by the Quebec City CHU Foundation (FCHUQ) aimed at developing customized breast prostheses as an alternative for women who have undergone mastectomies. SSQ raised nearly $110,000 for Seinbiose. In SSQ acquired an office building next door to its Quebec City addition, SSQauto’s Défi Décalade event, which headquarters to meet its future office needs. involved rappelling down a building head first, raised almost $30,000 for a Quebec firefighters’ The real estate division spent a good part of the year foundation that works to help burn victims. working on a major transaction and a construction project. In Quebec City, SSQ acquired a building SUSTAINABLE DEVELOPMENT AND adjacent to its headquarters. This addition will SOCIETAL RESPONSIBILITY REPORT meet future needs. The construction of an office 2014 marked the second year of SSQ’s Sustainable building in the Greater Montreal area (Longueuil) Development and Societal Responsibility plan. kicked off in the spring of 2014. Employees from Here are some results: several sites in the Montreal region will be brought together under one roof as of 2016. – Nearly 95% of group insurance groups use e-billing In late 2013 and early 2014, we launched a call for tenders with a view to appointing the Group’s – 100% of home and auto insurance claims external auditors. The winning tender came from are paperless the previous auditors, Mallette for the company’s – Nearly $110,000 raised for Seinbiose, a research financial statements, and E&Y for the segregated project of the Fondation du CHU de Québec, funds. It should be noted that the A.M. Best through SSQ Quebec City Marathon fundraising ratings agency once again issued ratings of event A- and a- for SSQ, with a stable outlook. – LEED© certification confirmed for St. Lawrence tower of SSQ building in Quebec City – 10% increase in employee contributions to Centraide/United Way SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 25
Toronto’s SickKids Foundation is one of the causes SSQ Employees did not hesitate to rally behind various causes Financial Group supports. Through its financial support, in 2014, whether by participating in the Urban Duathlon SSQ is involved in the purchase of specialized equipment fundraising challenge for the CHU Sainte-Justine Foundation for young patients like Luke, who was born with a congenital or by volunteering at the Canadian Cancer Society’s Relay heart defect. For Life event.
SSQ places great importance on how its employees are treated, as well as on their health and level of engagement. In this regard, the Group conducted an employee survey. The response rate was extra ordinary: 90% of staff members took part. In addi- tion, two external events provided confirmation of the ongoing relevance of the company’s employee health programs: SSQ Financial Group was presented with the 2014 Prix Distinction in the large company category at the “Coming together for company health and wellness” event put on by the Healthy Enterprises Group, and maintained its Healthy Enterprise – Elite certification. 26 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 27
Dynamic synergies boost performance
ADAPTING TO CHANGE In the short term, SSQ will have to deal with low interest rates without taking on undue risks. Seventy years have passed since the company Addressing the disability insurance experience was founded. To mark the anniversary, SSQ remains a priority. Despite many factors leaning published a book entitled A Collective Success in favour of premium increases in several sectors, Story: 1944-2014. This work, which is available at the markets remain extremely competitive. ssq.ca, recounts SSQ’s history through its prime Stringent spending controls and ongoing efforts movers while retracing the major social changes to improve performance will be essential. that have occurred over the decades. Business synergies will fuel the Group’s growth, Imagination, creativity and audacity served SSQ while operational synergies will improve its perfor- well as the company navigated its way through mance. The company will have achieved full the past 70 years and the changes that took maturity in terms of operational synergies when a place. Change is quickening its pace and our given project or activity brings together the most expertise has to keep up. SSQ Financial Group skilled employees, regardless of whom they report will face numerous challenges in the future as it to or which sector they come from. When that seeks to maintain products and services that are occurs, the company will have completed its relevant and appealing. administrative restructuring in an intelligent and coherent way. 28 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
In the medium term, the Group will have to deal with new accounting standards and new regula- tory capital adequacy requirements. SSQ is play- ing an active role in industry representations on these issues to the relevant authorities. In the longer term, the insurance industry will be faced with a number of daunting issues, with climate change foremost among them. These changes are sure to have a considerable impact on the environment. One may be tempted to conclude that only the general insurance sector will be affected. Of course it will, but there will be other issues like the fact that people’s life expec- tancy and state of health will also be affected in the long term. From a long-term investment perspective, one wonders which sectors and industries will be hardest hit by climate change. There is still a good deal of uncertainty surround- ing these issues. How will clients’ needs and habits evolve? How will the clients of tomorrow behave? Some indus- tries have been upended by rapidly emerging new technologies. SSQ’s experience will only be the tip of the iceberg. The client experience is being transformed and this trend will continue. Drawing on its energy and expertise, SSQ is ready to seize this opportunity. Pierre Genest and René Hamel were proud to present the Insurance stems from the need for financial book about SSQ’s 70-year history. protection and inherently entails the notion of risk-taking. Some insurers have begun to shy away from risk-taking. It is foreseeable that over the long term, insurers will have to take a stand in this regard. Some will specialize in products involving little or no risk, while others will do the opposite, taking on greater and greater risks as their signature activity. It will thus become harder to stay competitive on all fronts. We would do well to reflect on this issue. SSQ’s value added and strength lie in its ability to assess and manage the risks associated with products that offer financial security in the short, medium and long term. This is the case today, and will be so in the future. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 29
Despite its challenges and changes, SSQ believes firmly in its ability to adapt and succeed. The com- pany has done so consistently over the past 70 years and it will continue to do so, first and fore- most because people are looking for companies that are ethically, morally and socially reliable. Drawing on its integrity, SSQ has consistently strived to be ethically, morally and socially reliable throughout its long history and it is committed to doing so in the future. People are also looking for companies that are economically reliable and able to meet their needs. Over the decades, SSQ has successfully tailored its expertise to its clients’ expectations. The company’s skills and agility and its unwavering dedication to delivering an enjoyable customer experience underpin its commitment to develop expertise on an ongoing basis. That is why SSQ feels so confident about its future. ACKNOWLEDGMENTS In closing, I would like to thank our members, customers and partners for placing their trust in us and for having faith in our ability to adapt. This will continue to make SSQ an insurer that can be counted on. Our directors help us to anticipate and embrace change, and I am grateful that they continue to do so. I would also like to thank our employees for being agents of change. They do not simply undergo change; they seek out change and take steps to make it happen. SSQ is certainly ready, willing and able to adapt to change!
René Hamel Chief Executive Officer 30 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
ADAPTING TO CHANGE SUSTAINABLE DEVELOPMENT AND SOCIETAL RESPONSIBILITY REPORT 2014 was the second year in SSQ Financial Group’s five-year Sustainable Development and Societal Responsibility (SDSR) plan. Numerous concrete actions were taken, with highly satisfactory results. Reflecting its ongoing concern about human, economic, social and environmental impacts, SSQ is moving in the right direction. Our task will be to update the plan so that SSQ can meet the challenges of tomorrow. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 31
PARTNERSHIPS AND EMPLOYEE INVOLVEMENT $106,423 Money raised for Seinbiose, a research project of the Fondation du CHU de Québec, through the SSQ Quebec City Marathon fundraising event
Five-year renewal of a partnership agreement with Courir à Québec for the SSQ Quebec City Marathon
5 YEARS 40% more employees benefited 10% increase in employee from the employer’s contribution contributions to to personal volunteer activities Centraide/United Way +40% 32 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
INNOVATION Nearly 95% of group insurance groups use e-billing ssq.ca Launch of a brand new ssq.ca 95% SSQauto launches a mobile app allowing insureds to submit auto and home claims, produce a joint report, make an inventory of property and track vehicle repairs via Body Shop Direct
Increase in number of online quotes at SSQauto SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 33
Launch of Compassion Insurance, a world first in group insurance COMPASSION 34% increase in group insurance claims submitted using the mobile application
Access to online claims offered to 100% of home and auto insurance 100% of group insurance customers claims are paperless from groups offering this service to their members 100 % Nearly 60% more group insurance members use online claims 60% 34 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
AWARDS AND CERTIFICATIONS “Prix Distinction” award in large company category at the “Coming together for company health and wellness” event
Certification of the HERE WE RECYCLE! program obtained for the Roland-Giroux building in Quebec City
REAL ESTATE LEED© certification BOMA BESt© certification confirmed for for the Roland-Giroux St. Lawrence tower building and the St. Lawrence of the SSQ building tower of the SSQ building in Quebec City in Quebec City SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 35
ENVIRONMENT Distribution of the policy on responsible acquisition of goods and services to all company employees and providers/ Annual improvement of more suppliers, notifying them that the than 6% of the SSQ automobile SDSR selection criteria would now fleet’s performance, with the be taken into consideration addition of new environmental standards DDRS Installation of nearly 2,000 square metres of carpet (made of recycled fishing nets) certified 100% carbon neutral at the Roland-Giroux building in Quebec City. SSQ received a certificate for this initiative
Reduction of the office FSC© certification supply list generated savings of the Copy Centre of more than 25% renewed for 25% five years 36 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
HUMAN COMMITMENT
Action 1 – Offer an accessible and high-quality customer experience Gestures Indicators 2014 Report
1. Conduct the necessary • Surveys measuring the • 92% group insurance satisfaction rate surveys to measure member satisfaction of our insured • Claim processing times in group insurance reduced and customer satisfaction members, customers by 35% rates with our products and partners • 92% of insureds are satisfied or completely satisfied and services with the overall claim experience at SSQauto • In development in the individual insurance sector
• Goals of excellence by • In development business sector
2. Develop and maintain • Training new employees • 100% of new employees trained within the specific specific training programs within six months time frame for employees who work for different customer service departments at SSQ
3. Expand our mobile and • Feasibility study detailing • In development online services the online needs to add to the overall offering
• Surveys to determine • Available on ssq.ca additional needs for online services
• Services with low • Complete group insurance booklet available environmental impact electronically • Electronic invoicing used by nearly 95% of our group insurance groups, up by 15% • 10% increase in direct deposits by our intermediaries • 100% of home and auto insurance claims are paperless • SSQauto receives invoices electronically SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 37
Action 1 – Offer an accessible and high-quality customer experience (cont’d) Gestures Indicators 2014 Report
3. Expand our mobile and • New mobile and online • The brand new ssq.ca launched in May. Revamped online services (cont’d) services offered site now adapted to all platforms and needs of users with an updated look and browsing capabilities • Online claims are being added to Group Insurance’s mobile app (in progress) • SSQauto launches a mobile app allowing insureds to submit auto and home claims, produce a joint report, make an inventory of property and track vehicle repairs via Body Shop Direct
4. Promote the use of our • Usage of online services • The use of our online services is constantly growing online services among • Access to online claims offered to 100% of group our insured members insurance customers from groups offering this service to their members • Nearly 60% increase in group insurance members who use online claims • Nearly 30% of members use direct deposit for their claim reimbursements
• Identification of the • Objectives to develop in Group Insurance, objectives of online Investment and Retirement and SSQ Insurance services by business • Objectives defined by SSQauto sector • Increase in number of online quotes at SSQauto
5. Promote the efficiency • Increased usage of SSQ • 34% increase in group insurance claims submitted and speed of SSQ Mobile Mobile Services using the mobile application Services for submitting claims 38 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
Action 2 – Encourage employees to become agents of change in sustainable development Gestures Indicators 2014 Report
1. Make employees aware of • Activities to make • Regular employee updates from the 27 employees sustainable development employees aware of responsible for SDSR plan in the various sectors principles the SDSR principles • Conference on energy efficiency and water presented by the young members of the Sustainable Development Caravan as part of the training program of the Quebec network of CFERs (business and recycling training centres) • SSQ’s SDSR plan presented to all new employees
2. Build a shared company • Internal SDSR • Development of internal communication plan to vision through a communications plan mobilize and encourage employees to be key communications platform and employee players in achieving the company’s SDSR objectives dedicated to attracting mobilization activities • Dissemination of annual results to all SSQ Financial and retaining employees Group employees
Action 3 – Maintain a high level of employee expertise Gestures Indicators 2014 Report
1. Encourage employees to • Budget percentage • Percentage maintained at nearly 2.5% of SSQ develop skills that help them allocated to employee Financial Group’s payroll reach their potential and training meet the needs of our customers
2. Set up a leadership training • Training and professional • Group leadership training followed by four groups and professional development programs of new managers through the LEAD program— development program a program for management staff development for managers • Budget for individual employee training maintained
3. Develop an internal • Internal communications • Policy implemented and communicated to all communications policy policy new employees that encourages dialogue between management and employees
4. Coach employees in change • Provide support with • Services offered by the change management management change management expertise centre to key stakeholders involved in change at SSQ SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 39
Action 4 – Take sustainable development principles into account when managing human capital and offer an engaging work environment Gestures Indicators 2014 Report
1. Examine the results of the • Integration of SDSR • Massive 90% of all employees participated in the different organizational principles with company mobilization survey conducted in September, with surveys and sustainable business practices an overall mobilization score of 75%, corresponding development principles in to the organization’s performance results programs related to human • Important expression of recognition among resources to offer an colleagues via the Recognition Place portal used engaging work environment to email more than 1,800 recognition cards and become an employer • More than 2,000 consultations of the My Career of choice that consistently Path portal recorded. The portal provides employees promotes equality and with tools and support for their professional career, employee diversity their employability and wellness at work
2. Promote health and support • Health promotion • SSQ Financial Group was awarded the “Prix Distinction” employees and employee support in the large company category at the “Coming activities together for company health and wellness” event put on by the Healthy Enterprises Group last April • Maintenance of diversified health programs and initiatives: HealthWise, MobilizAction, Employee Assistance Program (EAP), Recognition Time! (workplace recognition program), My Career Path • My Career Path program implemented at SSQauto and SSQ Insurance 40 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
SOCIAL COMMITMENT
Action 5 – Offer products and services that promote responsible behaviours Gestures Indicators 2014 Report
1. Promote online claims • User rates of • Access to online claims is available to individual to insureds online services insurance customers and group insurance groups offering this service to their insured members • Nearly 60% more group insurance members use online claims • Nearly 30% of insured members receive their benefit claim reimbursement by direct deposit • Online claim service was launched by SSQauto in September 2014
2. Incite and encourage • Adherence to • Promotion of the Kilo Program and green discounts consumers to adopt environmentally via marketing on the ssqauto.com and ssq.ca environmentally friendly responsible products websites behaviours • Customer service agents promote the importance of accurately estimating mileage for the sake of savings and reducing the environmental footprint
3. Increase the quantity of • Development of new • In April, group insurance launched Compassion environmentally responsible environmentally Insurance, a product that allows insured members to products we offer responsible products take time off work temporarily to care for gravely ill loved ones and receive benefits to offset the loss of income due to their absence from work—a world first • Development of SSQ SMEs, a new, eco-friendly and 100% paperless group insurance product aimed at small and medium-sized businesses offered online • At SSQauto: Kilo program, green discounts and Body Shop Direct SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 41
Action 6 – Integrate environmentally responsible criteria into policies for donations and institutional sponsorships Gestures Indicators 2014 Report
1. Build on policies for • Integration of SDSR • Sustainable development criteria are being integrated donations and institutional criteria in the policies into policies since 2013 sponsorships that take the for donations and sustainable development sponsorships efforts of applicants into account • Promotion of • Five-year renewal of partnership agreement between our commitments SSQ Financial Group and Courir à Québec for the in the community SSQ Quebec City Marathon • Important fundraising event that is part of the SSQ Quebec City Marathon raised $106,423 for the Seinbiose research project operated by the Quebec City CHU Foundation (FCHUQ) for the development of custom external breast prostheses for women who have undergone a mastectomy • Good media coverage has helped highlight initiatives of SSQ Financial Group and its employees
2. Encourage employees to • Measures to encourage • Very strong employee participation in the SSQ volunteer in order to help employee volunteer work Quebec City Marathon and the activities surrounding communities flourish the Seinbiose research project fundraiser • Continuation of activities supporting the partnership between SSQauto and Fondation des pompiers du Québec pour les grands brûlés • 40% more employees benefited from the employer’s contribution to personal volunteer activities • 10% increase in employee contributions to Centraide/United Way
• Promotion of the • Presentation to all new employees of institutional institutional donations donations policy and directive on charitable policy and the directive on donations to match volunteer work supporting the volunteer work done by employees
3. Invest a portion of our net • Percentage of net gains is • 1% of net gains given in donations to organizations income in donations invested in donations such as the Fondation de la Maison Michel-Sarrazin, the Fondation du CHU Sainte-Justine, the Monique- Fitz-Back Foundation, SickKids Foundation of Toronto, Centraide/United Way, and the Mouvement RAIZE to name just a few 42 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
Action 7 – Give back to the community through the SSQ Foundation Gestures Indicators 2014 Report
1. Maintain support for the • Percentage of the • Capitalization of more than $1.5 million to ensure SSQ Foundation capitalization of the longevity of the SSQ Foundation the SSQ Foundation
Action 8 – Invest in the next generation Gestures Indicators 2014 Report
1. Support the establishment • Establishment of a youth • In the summer of 2014, a group of 14 young of a youth co-op with the co-op every year cooperators aged 11 to 14 made up the 12th edition children of employees of the SSQ youth co-op (CJSSQ). Two leaders, both university students, were hired to accompany the youngsters in their educational and entrepreneurial venture
2. Consolidate succession • Succession planning • Launch of student succession initiative for all SSQ planning to ensure the lasting Financial Group subsidiaries to support student success of operations employees in their efforts to find their first job in their field • Presentation of SSQ Succession Plan to all senior executives, senior directors and a number of managers • SSQ Financial Group participated as panelist at the annual succession forum presented by the Conseil québécois de la coopération et de la mutualité
3. Promote the SSQ employer • Promote the SSQ • SSQ Financial Group participated in the symposium brand as employer of choice employer brand on employability in sustainable development at Laval University • SSQ Financial Group chosen by Laval University students as a research project to assess our health and wellness HealthWise program • Organized networking activities in 75% of colleges and CEGEPS offering property and casualty insurance programs • SSQ was featured on Mode d’emploi presented on the MAtv channel as part of program on insurance industry • SSQ participated in the international human resources congress (Congrès international francophone des ressources humaines) as part of a conference entitled SSQ Financial Group − When leadership development becomes an objective [translation] • Continuation of SSQauto programs for student clercs and agents SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 43
ENVIRONMENTAL COMMITMENT
Action 9 – Apply social and environmental considerations when acquiring goods and services Gestures Indicators 2014 Report
1. Apply a policy on responsible • Policy for responsible • Distribution of policy on responsible acquisition goods and services acquisition of goods of goods and services to all company employees acquisition and a directive and services and providers/suppliers, notifying them that the on calls for tenders and SDSR selection criteria would now be taken responsible contracting into consideration • Continued inclusion of policy criteria in the call for tender process, such as compatibility of business philosophies, cost-reduction mechanisms and compliance with ISO standards • Identification of responsible providers/suppliers and standardization of practises for all SSQ enterprises • Policy for responsible acquisition of goods and services applied to calls for tender for office supplies and ink cartridges • New decision-making tool that takes a number of criteria into consideration including certificates and ISO standards obtained by providers/suppliers
2. Efficiently dispose of residual • The 3R-D internal • Reduction of office supply list generated savings of materials according to management plan more than 25% 3R-D that make up for residual materials • Installation of nearly 2,000 square metres of carpet first principle of the certified 100% carbon neutral at the Roland-Giroux Quebec Residual Materials building in Quebec City and obtaining a certificate Management Policy: for this initiative Reduction, Reuse, Recycling • Old carpet was recycled, diverting some 2,000 kilos and Disposal of carpet away from landfills; certificate awarded to SSQ for this initiative • Certification of HERE WE RECYCLE! program obtained for the Roland-Giroux building in Quebec City • 100% of paper waste is shredded and recycled • Computer equipment such as monitors, keyboards or laptops are given to OPEQ, a non-profit organization that distributes used computer equipment to schools in Quebec 44 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
Action 10 – Reduce our greenhouse gas emissions Gestures Indicators 2014 Report
1. Create an inventory of • Inventory and definition of • In development greenhouse gases (GHGs) the greenhouse gas (GHG) produced every year reduction objectives
2. Promote alternative means • Promote public • 50% of cost of public transportation passes paid of transportation to driving transportation and by employer: more than 300 employees enrolled alone carpooling in the public transportation program (L’abonne BUS)
• New initiatives • Possibility of working from home for certain for alternative ways groups of employees of working • In development
3. Include a wider selection • Environmental • Annual improvement of more than 6% of the of environmentally friendly performance of automobile fleet’s performance, with addition of vehicles in SSQ’s the automobile fleet new environmental standards automobile fleet
4. Hold carbon-neutral annual • Carbon footprint of • Planting 200 trees on behalf of SSQ Financial Group meetings the annual meeting in Peru and in Quebec to offset greenhouse gas emissions related to our annual meeting, support reforestation efforts and fight climate change
Action 11 – Reduce our paper consumption Gestures Indicators 2014 Report
1. Encourage group insurance • Intermediary registration • More than 50% of intermediaries registered for direct intermediaries to register rates for direct deposit deposit, an increase of almost 10% for online services • Usage rate of e-billing • Nearly 95% of group insurance groups use e-billing
2. Implement a new employee • Measure the reduction • Support for initiatives to reduce paper in various awareness program in photocopy and areas of the company to reduce the use printer use • Management tools developed to generate statistics of photocopies and policies for printing to increase employee awareness in different sectors
3. Replace the My insurance at • Production and • Summary of booklet given to insured members, a glance brochure distributed distribution of an reducing paper use by 90% since the beginning of to group insurance members abridged and online 2014, i.e., the equivalent of 1.2 million sheets of paper with an abridged version and version an online version SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 45
Action 11 – Reduce our paper consumption (cont’d) Gestures Indicators 2014 Report
4. Promote printing on both • Percentage of printers • Printing on both sides programmed by default sides as a standard for all capable of printing on on 100% of all printers documents both sides
5. Ensure our Copy Centre • Certification of the Copy • Purchase of FSC© Mixed Sources paper, consisting maintains its certification Centre and a policy on of a mixture of recycled FSC© certified materials from paper supply controlled sources • FSC© certification of the Copy Centre renewed for five years
Action 12 – Reduce our water and energy consumption Gestures Indicators 2014 Report
1. Obtain BOMA BESt© • BOMA BESt© • Obtain BOMA BESt© certification for the Roland- certification for all SSQ- certification Giroux building and the St. Lawrence tower of the owned buildings to improve SSQ building in Quebec City their performance and their environmental management • Set a goal for water and • Savings in the time the lights are on, heating and energy reduction cooling of approximately 25% at company headquarters and the Roland-Giroux building through changes in work schedule of housekeeping staff
2. Obtain LEED© certification • LEED© certification • LEED© certification confirmed for St. Lawrence tower for all construction projects of the SSQ building in Quebec City built by SSQ Realty • Aiming for LEED© certification for SSQ Tower in Longueuil and all new buildings
3. The Cité Verte project is • Promotion of Cité Verte’s • Quebec City was handed the keys for infrastructures raising awareness about the environmental friendliness including the ponds, streets, sidewalks and terminal prescribed building methods for residual waste collection and leading-edge products • Excellence and innovation of Cité Verte recognized used in energy and again as it received Quebec City’s special jury prize environmental management: for architecture, two Cecobois awards, as well as sustainable architecture, coming in as finalist at the 2014 Gala Habitation waste materials management • The Office municipal d’habitation de Québec and storm water and begins the construction of a 4-storey building wastewater management that will include 40 social housing units of the AccèsLogis program • Using an innovative waste collection process that uses an underground transportation network eliminating use and transport of waste containers on Cité Verte site has led to reduction of over 80% in greenhouse gas emissions 46 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
Action 12 – Reduce our water and energy consumption (cont’d) Gestures Indicators 2014 Report
3. The Cité Verte project is • Promotion of Cité Verte’s • Installation of charging stations for electric cars raising awareness about the environmental friendliness in the commercial parking lot prescribed building methods (cont’d) • Major landscaping that included the planting and leading-edge products of 4,874 shrubs and plants used in energy and • Production of a corporate video used to present environmental management: the unique nature of the project in competitions, sustainable architecture, special events and to potential buyers waste materials management and storm water and • Major TV, print media and Web ad campaign wastewater management in the fall promoting Cité Verte as a smart option (cont’d) to potential buyers
ECONOMIC COMMITMENT
Action 13 – Integrate our sustainable development policy into our business practices Gestures Indicators 2014 Report
1. Integrate sustainable • Progress chart • Production and sharing of progress chart development indicators into as a collaborative tool the policy’s progress chart
2. Present an annual report that • SDSR section integrated • Since 2013 SDSR section has been part integrates the SDSR report in the annual report of SSQ Financial Group’s annual report SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 47
Action 14 – Build on the sustainable and responsible profile of our investments Gestures Indicators 2014 Report
1. Promote the policy governing • Distribution of the policy • The policy governing socially responsible investments socially responsible on socially responsible was revised and a new agreement was signed with investments adopted in 2006 investments and training our external auditor for responsible investments and improved in 2008, by of employees involved • SSQ Financial Group participated in events related endorsing the PRI (Principles to financial markets and socially responsible for Responsible Investment) investments such as the international PRI in Person initiative event, sponsored by SSQ, a PRI and fixed income webinar and conference on climate bonds
2. Establish targets for change • Target the changes in • SSQ Financial Group participated in meetings of the in response to the six PRI response to the six PRI PRI Québec network and took part in the first issue principles principles of “green” bonds in Canada
3. Continue with external audits • External audits and • External audit of our investments in Canadian of the Canadian company communications to the companies, with a focus on the responsibility aspect investment portfolio, with a investment committee performed in January and July of 2014 focus on the responsible aspect of these investments
Action 15 – Ensure the lasting success of the company through sustained growth and reasonable profits Gestures Indicators 2014 Report
1. Determine reasonable and • Financial indicators • General Insurance sales up by 4.3 % responsible targets for overall • Insurance premiums in force up by 4.7 % company performance • Assets up by 2.9 % • Improved expense ratio • Successful withdrawal from the group product offering with management of members • Improved financial strength SSQ, MUTUAL MANAGEMENT CORPORATION Consolidated Financial Statements as at December 31, 2014 Together with Independent Auditor’s Report SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 49
SSQ, MUTUAL MANAGEMENT CORPORATION Independent auditor’s report To the members of SSQ, Mutual Management Corporation, We have audited the accompanying consolidated the assessment of the risks of material misstatement financial statements ofSSQ, MUTUAL MANAGEMENT of the consolidated financial statements, whether due CORPORATION, which comprise the consolidated to fraud or error. In making those risk assessments, statement of financial position as at December 31, 2014, the auditor considers internal control relevant to the and the consolidated statements of excess of Mutual’s preparation and fair presentation of the con- revenues, comprehensive income, equity and cash solidated financial statements in order to design audit flows for the year then ended and a summary of procedures that are appropriate in the circumstances, significant accounting policies and other explanatory but not for the purpose of expressing an opinion on information. the effectiveness of the Mutual’s internal control. An audit also includes evaluating the appropriateness of Management’s Responsibility for the accounting policies used and the reasonableness of Consolidated Financial Statements accounting estimates made by management, as well as evaluating the overall presentation of the consoli- Management is responsible for the preparation and dated financial statements. fair presentation of these consolidated financial state- ments in accordance with International Financial We believe that the audit evidence we have obtained Reporting Standards, and for such internal control is sufficient and appropriate to provide a basis for our as management determines is necessary to enable audit opinion. the preparation of consolidated financial statements that are free from material misstatement, whether Opinion due to fraud or error. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial Auditor’s Responsibility position of SSQ, Mutual Management Corporation as Our responsibility is to express an opinion on these at December 31, 2014, and its financial performance consolidated financial statements based on our audit. and its cash flows for the year then ended in accor- We conducted our audit in accordance with Canadian dance with International Financial Reporting generally accepted auditing standards. Those stan- Standards. dards require that we comply with ethical requirements and plan and perform the audits to obtain reasonable
assurance about whether the consolidated financial 1 statements are free from material misstatement. MALLETTE L.L.P. An audit involves performing procedures to obtain Partnership of chartered professional accountants audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures Québec, Canada selected depend on the auditor’s judgment, including February 26, 2015
1 CPA auditor, CA, public accountancy permit No. A119429 50 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
CONSOLIDATED STATEMENT OF EXCESS OF REVENUES For the year ended December 31, (in thousands of dollars) 2014 2013 $ $ REVENUES Share in net income of the associated companies (Note 4) 16,409 14,728 Interest (Note 5) 76 78 16,485 14,806
EXPENSES Interest 70 69 70 69 EXCESS OF REVENUES 16,415 14,737 Excess of revenues attributable to non-controlling interests 7,041 6,335 EXCESS OF REVENUES ATTRIBUTABLE TO MEMBERS 9,374 8,402
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, (in thousands of dollars) 2014 2013 $ $
EXCESS OF REVENUES 16,415 14,737
OTHER COMPREHENSIVE INCOME Share in other comprehensive income of the associated companies Items that might be reclassified subsequently to net income 5,056 (3,862) Items that will not be reclassified to net income 3,513 4,550 8,569 688 COMPREHENSIVE INCOME 24,984 15,425 Comprehensive income attributable to non-controlling interests 10,719 6,629 COMPREHENSIVE INCOME ATTRIBUTABLE TO MEMBERS 14,265 8,796 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 51
CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at December 31, (in thousands of dollars) 2014 2013 $ $ ASSETS Investments Interests in the associated companies (Note 4) SSQ, Life Insurance Company Inc. 217,901 108,786 SSQ Insurance Company Inc. – 84,137 Note (Note 5) 900 900 218,801 193,823 Cash (Note 5) 888 1,082 Interest receivable 11 11 TOTAL ASSETS 219,700 194,916
LIABILITIES Chattel mortgage (Note 5) 900 900 Advance from an associated company (Note 5) 215 209 Account payable to an associated company 22 60 Interest payable 11 11 TOTAL LIABILITIES 1,148 1,180
EQUITY Non-controlling interests 106,076 95,525 Attributable to members Accumulated net surplus 119,182 109,808 Accumulated other comprehensive income (6,706) (11,597) Total equity attributable to members 112,476 98,211 TOTAL LIABILITIES AND EQUITY 219,700 194,916
On behalf of the Board,
Pierre Genest Émile Vallée Chairman of the Board Vice-Chairman of the Board 52 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
CONSOLIDATED STATEMENT OF EQUITY For the year ended December 31, (in thousands of dollars) 2014 2013 $ $ Members Accumulated net surplus Balance, beginning of year 109,808 101,406 Excess of revenues 9,374 8,402 Balance, end of year 119,182 109,808
Accumulated other comprehensive income Balance, beginning of year (11,597) (11,991) Other comprehensive income 4,891 394 Balance, end of year (6,706) (11,597) Total equity attributable to members 112,476 98,211
Non-controlling interests Balance, beginning of year 95,525 81,021 Excess of revenus 7,041 6,335 Other comprehensive income 3,678 294 Net capital injection (168) 7,875 Total equity attributable to non-controlling interests 106,076 95,525 TOTAL EQUITY 218,552 193,736 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 53
CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, (in thousands of dollars) 2014 2013 $ $ CASH FLOWS FROM THE FOLLOWING ACTIVITIES: OPERATING Cashed interest 76 78 Paid interest (64) (64) 12 14 INVESTING Net investment in an associated company – (8,194)
FINANCING Net capital injection1 (206) 7,935 Advance from an associated company – 8,194 Repayment to an associated company – (7,990) (206) 8,139
DECREASE IN CASH (194) (41) CASH, beginning of year 1,082 1,123 CASH, end of year 888 1,082
1 As at December 31, 2014, an amount of $22 (2013 – $60) is included in the account payable of the Mutual for net capital injection. 54 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
NOTES TO THE FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
1. STATUS AND NATURE OF ACTIVITIES SSQ, Mutual Management Corporation (the Mutual) is formed under the Act respecting health services and social services, SSQ, Mutual Management Corporation and SSQ, Life Insurance Company Inc. Its main activity is to hold an investment in SSQ, Life Insurance Company Inc. and SSQ Insurance Company Inc. (until September 30, 2014). 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 26, 2015.
2. SIGNIFICANT ACCOUNTING POLICIES Presentation of consolidated financial statements The consolidated financial statements were prepared in accordance with International Financial Reporting Standards (IFRS). Consolidated financial statements include the accounts of the Mutual and those of its subsidiary, SSQ, Mutual Holding Inc., owned at 57.08% (2013 – 57.00%), whose principal office is located in Quebec City, Quebec, Canada, and holds an investment in SSQ, Life Insurance Company Inc. and SSQ Insurance Company Inc. (until September 30, 2014). The Mutual’s consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Mutual. 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 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 in particular, the value upon the disposal of the interest in the associated company. Revenue recognition Revenues from investments are recognized when earned. Investments in the associated companies The investments of 28.91% (2013 – 28.91%) and 0% (2013 – 26.02%) in its associated companies SSQ, Life Insurance Company Inc. and SSQ Insurance Company Inc. are accounted for using the equity method. Of these ownerships, in interest, 16.50% (2013 – 16.48%) and 0% (2013 – 14.83%) are attributable to members. Financial Instruments Cash is made up of bank accounts. It is classified as Loans and receivables and is carried at amortized cost according to the effective interest rate method. Note is classified as Loans and receivables and is carried at amortized cost using the effective interest rate method. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 55
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Financial Instruments (cont’d) Other financial assets and liabilities are recognized at amortized cost and classified as Loans and receivables and Other liabilities, respectively.
3. CHANGES IN ACCOUNTING POLICIES New accounting policies applied Investment entities In December 2012, the International Accounting Standards Board (IASB) published an amendment, Investment Entities, which defines an investment entity and requires that an investment entity should not consolidate investments in entities that it controls, but to measure those investments at fair value. This amendment modifies IFRS 10, IFRS 12 and IAS 27. The application of the amended standard has no impact on the consolidated financial statements of the Mutual since it does not qualify as an investment entity. Impairment of assets In May 2013, the IASB issued amendment to IAS 36, Impairment of Assets, which proposes the disclosure of information about the recoverable amount of impaired assets, particularly if that amount is based on fair value less costs of disposal. The amendment also clarifies the information to be disclosed regarding the recoverable amount following the application of IFRS 13, Fair value measurement. The application of the amended standard has no impact on the consolidated financial statements of the Mutual. Levies In May 2013, the IASB published IFRIC 21, Levies, which concerns the timing for the recognition of a liability according to IAS 37, Provisions, Contingent Liabilities and Contingent Assets in regards to the payment of levies. The application of the interpretation has no impact on the consolidated financial statements of the Mutual. Changes in future accounting policies Employee benefits In November 2013, the IASB issued an amendment to IAS 19, Employee Benefits, which clarifies the accounting requirements for employee or third party contributions to defined benefit plans. The provisions of this amendment will apply prospectively to financial statements beginning on or after July 1, 2014. The Mutual is currently assess- ing the impact of this amendment on its consolidated financial statements. Financial instruments In July 2014, the IASB published IFRS 9, Financial Instruments, which aims to replace IAS 39, Financial Instruments: Recognition and Measurement, for classification and measurement, impairment and hedge accounting of financial assets and liabilities. These modifications are to be applied retrospectively for annual periods beginning on or after January 1, 2018. The Mutual is currently assessing the impact of this new standard on its consolidated financial statements. 56 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
3. CHANGES IN ACCOUNTING POLICIES (cont’d) Changes in future accounting policies (cont’d) Revenue recognition In May 2014, the IASB published IFRS 15, Revenue from Contracts with Customers which aims to replace IAS 18, Revenue and IAS 11, Construction Contracts. This new standard sets out the requirements for recognising revenue that apply to all contracts with customers except for contracts that are within the scope of the Standards on leases, insurance contracts and financial instruments. The standard is effective from January 1, 2017. Earlier application is permitted. The Mutual is currently assessing the impact of this new standard on its consolidated financial statements.
4. INTERESTS IN THE ASSOCIATED COMPANIES
2014 2013 SSQ, Life SSQ SSQ, Life SSQ Insurance Insurance Insurance Insurance Company Company Company Company Inc. Inc. Total Inc. Inc. Total $ $ $ $ $ $
Balance, beginning of year 108,786 84,137 192,923 86,634 82,679 169,313 Share in net income 14,366 2,043 16,409 10,976 3,752 14,728 Share in other comprehensive income 6,118 2,451 8,569 2,982 (2,294) 688 Disposal of the interest – (88,631) (88,631) – – – Acquisition fees on an additional interest 88,631 – 88,631 8,194 – 8,194 Balance, end of year 217,901 – 217,901 108,786 84,137 192,923 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 57
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
4. INTERESTS IN THE ASSOCIATED COMPANIES (cont’d) The following table provides a summary of the financial information of the associated companies, SSQ, Life Insurance Company Inc. and SSQ Insurance Company Inc.
2014 2013 $ $ Statement of financial position Cash and cash equivalents 236,800 279,300 Total assets 10,624,800 10,321,300 Total liabilities 9,954,100 9,734,400 670,700 586,900
Net Income Interest revenues 117,900 119,100 Total revenues 2,509,800 2,070,100 Amortization of fixed assets and intangible assets 30,400 27,700 Interest expenses 12,000 13,000 Income tax 17,400 17,700 Net income 54,000 47,600
Comprehensive income Other comprehensive income 29,800 2,400 Comprehensive income 83,800 50,000
5. FINANCIAL INSTRUMENTS
2014 2013 Carrying Carrying value Fair value value Fair value $ $ $ $
Financial assets Note, 7.09%, maturing May 1, 20201 900 1,014 900 993 Cash2, bearing interest at prime rate less 1.75% 888 888 1,082 1,082
Financial liabilities Chattel mortgage, 7.09 %, maturing May 1, 20201 900 1,014 900 993 Advance from an associated company, 2.63% 215 215 209 209
1 The fair value of the note and the chattel mortgage, classified as Loans and receivables and Other liabilities, is evaluated according to a model discounting the expected future cash flows and classified as Level 3. The discount rate used corresponds to the rate of return of the benchmark that has a similar risk profile as the underlying assets and a term matching the maximum term for the loan and chattel mortgage. 2 The fair value of cash is classified as Level 1. 58 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
5. FINANCIAL INSTRUMENTS (cont’d)
2014 2013 $ $ Investment income - interest Note 64 64 Cash 12 14 76 78
Financial instruments recorded at fair value in the Consolidated Statement of Financial Position are classified using a hierarchy that reflects the significance of the inputs used in determining valuations and includes three levels:
• 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. As at December 31, 2014 and 2013, no financial instrument is recognized at fair value in the Consolidated Statement of Financial position.
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. Risks related to financial instruments consist of credit risk and liquidity risk. 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 an associated company. 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. There is no liquidity risk related to the advance from an associated company. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 59
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
6. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) The following tables present contractual maturities of the cash flows of the Mutual’s financial liabilities.
2014 Payable on demand Over 5 years Total $ $ $
Chattel mortgage – 900 900 Advance from an associated company 215 – 215 Account payable to an associated company 22 – 22 Accrued interest payable 11 – 11 248 900 1,148
2013 Payable on demand Over 5 years Total $ $ $
Chattel mortgage – 900 900 Advance from an associated company 209 – 209 Account payable to an associated company 60 – 60 Accrued interest payable 11 – 11 280 900 1,180
7. CAPITAL MANAGEMENT In terms of capital management, the Mutual’s objective is to preserve its assets. The Mutual defines 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
2014 2013 $ $
Chattel mortgage 900 900 Members’ equity 112,476 98,211 113,376 99,111
In April and September 2013, the Mutual’s interest in its subsidiary, SSQ, Mutual Holding Inc., was diluted following the issuance of 727,502 Class C shares for an amount totalling $7,992. 60 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
8. RELATED PARTY TRANSACTIONS In the normal course of operations, the Mutual carries out transactions with other entities within the group. These transactions are measured at the exchange amount. During the year, the Mutual received interests of $64 (2013 – $64) from an associated company, SSQ, Life Insurance Company Inc. As at December 31, 2014, a balance of $11 (2013 – $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 (2013 – $5) to the advance from an associated company, SSQ, Life Insurance Company Inc. On November 27, 2014, the Mutual received 7,380,750 Class A shares from the associated company, SSQ, Life Insurance Company Inc., in exchange for all shares held in the associated company, SSQ Insurance Company Inc. The transaction was recorded at book value established as at September 30, 2014. The associated company, SSQ, Life Insurance Company Inc. offers to some of its employees to participate in an investment fund. This investment fund owns a non-controlling interest in the Mutual. During the year ended December 31, 2013, the Mutual bought back all the shares of the associated company from the employees of this company for a total consideration of $8,194. These transactions were made at a price agreed upon between the associated company and its employees. No amounts related to these transactions are receivable or payable at year-end.
9. INTERESTS IN OTHER ENTITIES The following table presents the impact of the consolidation of the subsidiary not wholly owned on the consoli- dated financial statements of the Mutual.
2014 2013 $ $ Statement of financial position Total assets 218,815 193,837 Total liabilities 1,126 1,120
Statement of net income Revenues 16,473 14,793 Net income 16,403 14,724
Statement of comprehensive income Other comprehensive income 8,569 688 Comprehensive income 24,972 15,412
Statement of cash flows Operating – (4) Investing – (8,194) Financing – 7,103 Decrease in cash – (1,095)
SSQ, LIFE INSURANCE COMPANY INC. Excerpt from the Consolidated Financial Statements as at December 31, 2014 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 63
SSQ, LIFE INSURANCE COMPANY INC. Management’s Report Preparation of the consolidated financial statements of Audits are carried out regularly by the Autorité des SSQ, LIFE INSURANCE COMPANY INC. (the Company) marchés financiers to ascertain that the Company is is the responsibility of Management. These audited in compliance with the Act respecting insurance, financial statements, which have been approved by which aims primarily to protect policyholder interests the Board of Directors, are prepared in accordance and maintain a sound financial position. with International Financial Reporting Standards (IFRS) The Audit and Risk Management Committee of the and include certain amounts that are based on our best Board of Directors, the members of which are neither judgements and estimations. The financial information from Management nor employees of the Company, presented in this annual report is excerpted from ensures that Management fulfills its responsibilities audited financial statements. with respect to financial information. The Committee In order to carry out its responsibilities with respect to meets regularly with Management, internal auditors the financial statements, Management maintains internal and external auditors. The latter can, if they wish, meet systems of control aimed at providing a reasonable with said Committee in the presence or absence of degree of certitude that operations have been duly Management, to discuss questions regarding the audit authorized, that assets are well safeguarded and that and the financial information. adequate and proper records have been kept. These systems of control are reinforced by the work of a team of internal auditors who regularly review all sectors of activity within the Company. 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, independent auditors, appointed at the René Hamel Annual Meeting of shareholders, ensure the accuracy Chief Executive Officer of the data presented in the financial statements and Quebec City, Canada express their opinion on these. February 26, 2015 64 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
CONSOLIDATED STATEMENT OF INCOME For the year ended December 31, (in millions of dollars) 2014 2013 $ $ REVENUES Gross premiums (Note 15) 2,400.1 2,380.4 Premiums ceded to reinsurance (381.6) (370.0) Net premiums 2,018.5 2,010.4 Change in unearned premiums 0.7 (0.6) Investment income (Note 4) 125.7 123.5 Change in the fair value of financial assets at fair value through profit or loss 261.4 (197.7) Income on investment property 23.9 26.5 Administration fees and other revenues 79.6 108.0 2,509.8 2,070.1
BENEFITS AND EXPENSES Insurance and annuities Gross benefits 1,540.1 1,451.5 Benefits recovered from reinsurers (318.8) (294.9) Transfers to segregated funds 331.6 378.2 Change in actuarial reserve of life and health insurance contracts 510.9 (153.8) Change in actuarial reserve of ceded reinsurance assets (206.0) 68.8 Interest on deposits 7.5 0.8 1,865.3 1,450.6 Selling and administrative expenses 323.1 322.8 General fund investment expenses 7.2 6.6 Investment property expenses 19.2 21.2 Commissions and fees on sales 141.3 134.3 Premium taxes 48.2 46.0 2,404.3 1,981.5
INCOME BEFORE EXPERIENCE REFUNDS AND INCOME TAXES 105.5 88.6 Experience refunds 34.1 23.3 INCOME BEFORE INCOME TAXES 71.4 65.3 Income taxes (Note 14) 17.4 17.7 NET INCOME 54.0 47.6 NET INCOME ATTRIBUTED TO: Shareholders 49.7 38.0 Non-controlling interest 4.3 9.6 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 65
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the year ended December 31, (in millions of dollars) 2014 2013 $ $
NET INCOME 54.0 47.6
OTHER COMPREHENSIVE INCOME Items that might be reclassified subsequently to net income Unrealized gains and losses on available-for-sale financial assets 29.1 (9.2) Income tax recovery (expense) (7.8) 2.5 Reclassification to net income of gains and losses on disposal or impairment of financial assets (4.9) (9.5) Income tax expense (recovery) 1.2 2.8 Total items that might be reclassified subsequently to net income 17.6 (13.4) Items that will not be reclassified to net income Actuarial gains and losses arising from employee retirement benefits 16.6 21.5 Income tax recovery (expense) (4.4) (5.7) Total items that will not be reclassified to net income 12.2 15.8 TOTAL OTHER COMPREHENSIVE INCOME 29.8 2.4 COMPREHENSIVE INCOME 83.8 50.0 COMPREHENSIVE INCOME ATTRIBUTED TO: Shareholders 70.8 48.3 Non-controlling interest 13.0 1.7 66 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at December 31, (in millions of dollars) 2014 2013 $ $ ASSETS Investments (Notes 4 and 5) 3,934.4 3,585.0 Assets held for sale 8.8 11.8 Outstanding premiums 284.5 263.8 Ceded reinsurance assets 1,497.4 1,286.7 Investment property under development 34.2 32.4 Income taxes receivable 1.8 29.4 Other assets 141.2 149.7 Investment property 32.4 21.6 Fixed assets 130.0 122.3 Intangible assets 159.4 160.9 Goodwill 15.8 13.9 Total general fund assets 6,239.9 5,677.5 Segregated fund investments (Note 16) 4,382.4 4,643.8 TOTAL ASSETS 10,622.3 10,321.3
LIABILITIES Life and health insurance contracts (Note 9) 4,892.8 4,397.9 Property and casualty insurance contracts (Note 10) 249.2 249.7 General fund investment contracts 0.3 0.2 Accounts payable 144.5 148.4 Income taxes payable 20.2 – Subordinated debt (Note 11) 175.0 190.0 Other liabilities 62.7 65.0 Deferred income tax liability 37.3 39.4 Total general fund liabilities 5,582.0 5,090.6 Segregated fund insurance contracts (Note 16) 1,591.5 2,050.3 Segregated fund investment contracts (Note 16) 2,778.1 2,593.5 TOTAL LIABILITIES 9,951.6 9,734.4
EQUITY Share capital (Note 12) 343.2 36.6 Retained earnings 353.9 374.7 Accumulated other comprehensive income (26.4) (47.5) Non-controlling interest – 223.1 TOTAL EQUITY 670.7 586.9 TOTAL LIABILITIES AND EQUITY 10,622.3 10,321.3
On behalf of the Board:
Pierre Genest René Hamel Chairman of the Board Chief Executive Officer SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 67
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the year ended December 31, (in millions of dollars) 2014 2013 $ $ Shareholders Share capital Balance, beginning of year 36.6 36.6 Shares issued (Note 12) 306.6 – Balance, end of year 343.2 36.6
Retained earnings Balance, beginning of year 374.7 336.7 Net income 49.7 38.0 Repurchase of non-controlling interest (Note 12) (70.5) – Balance, end of year 353.9 374.7
Accumulated other comprehensive income Balance, beginning of year (47.5) (57.8) Other comprehensive income 21.1 10.3 Balance, end of year (26.4) (47.5) Total equity attributed to shareholders 670.7 363.8
Non-controlling interest Balance, beginning of year 223.1 221.4 Net income 4.3 9.6 Other comprehensive income 8.7 (7.9) Repurchase of non-controlling interest (Note 12) (236.1) – Total equity attributed to non-controlling interest – 223.1 TOTAL EQUITY 670.7 586.9 68 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, (in millions of dollars) 2014 2013 $ $ CASH FLOWS FROM THE FOLLOWING ACTIVITIES: OPERATING Income before income taxes 71.4 65.3 Income taxes receive (paid), less refunds received 17.2 (12.0) Items not affecting cash flows Losses (gains) on investments (261.8) 171.3 Amortization of discounts and premiums on bonds (34.8) (36.8) Depreciation and amortization of investments property 0.6 0.4 Depreciation and amortization of fixed assets and intangible assets 29.6 27.3 Life and health insurance contracts 494.9 (125.4) Other items (2.4) (4.7) 314.7 85.4 Net change in other operating assets and liabilities (226.1) 39.1 88.6 124.5 INVESTING Acquisition of investments (1,051.7) (1,468.9) Sales, maturities and repayments of investments 973.3 1,405.6 Acquisition of investments property (11.4) (1.7) Acquisition of fixed assets and intangible assets (40.7) (32.8) Disposal of fixed assets and intangible assets 0.1 – Business acquisitions (0.7) (10.3) (131.1) (108.1)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (42.5) 16.4 CASH AND CASH EQUIVALENTS, beginning of year 279.3 262.9 CASH AND CASH EQUIVALENTS, end of year 236.8 279.3
Cash flows from operating activities include: Interest paid on subordinated debt 12.0 13.0
As at December 31, 2014, account payable include $3.3 fixed assets and intangible assets (2013 – $3.1). SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 69
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
1. GOVERNING STATUTES AND NATURE OF ACTIVITIES SSQ, Life Insurance Company Inc. (Company), majority owned by the Fonds de solidarité des travailleurs du Québec (F.T.Q.), was established in accordance with An Act respecting insurance. The Company offers its insureds 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. It 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 on February 26, 2015.
2. SIGNIFICANT ACCOUNTING POLICIES Presentation of consolidated financial statements The consolidated financial statements were prepared in accordance with International Financial Reporting Stan- dards (IFRS). 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.1 100 Montreal, Quebec, Canada SSQ Realty Inc. 100 Quebec City, Quebec, Canada 6801188 Canada Inc. 100 Quebec City, Quebec, Canada 1 10% until September 30, 2014
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 estimates. The most important estimates involve deter- mining:
• 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 70 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Use of estimates and Management’s judgments (cont’d) 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 and intangible assets. Foreign currencies The Company’s consolidated financial statements are presented in Canadian dollars, which is the functional currency of the Company. Fund units denominated in U.S. dollars are converted at the exchange rate in effect at the date of the financial statements. Business acquisitions Business acquisitions are accounted for using the acquisition method. The acquisition cost consists of the fair value of the consideration transferred and measured at the acquisition date. Acquisition-related costs are recognized directly in income in the period in which they are incurred. 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 insur- ance risk. Life and health insurance contracts and segregated fund 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 entitle- ment 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. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 71
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Life and health insurance contracts and segregated fund (cont’d) Life and health insurance contracts The actuarial reserve, provisions for claims and experience refunds, and deposits related to life and health insur- ance 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 con- tract for a fixed amount and are not valued separately from the host contract. 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 insur- ance contracts liability, which is determined by an actuary in accordance with the practice standards of the Canadian Institute of Actuaries, corresponds to the amount required to cover current insurance contract com- mitments. 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 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 ade- quacy 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 in prorata to the duration of the policies. Unearned premiums entered in the consolidated statements of financial position 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. 72 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Property and casualty insurance contracts (cont’d) Unpaid claims Unpaid claims are charged to events associated with claims settled in property and casualty insurance. 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 liabilities are necessary to value obligations on a discounted basis. Finally, margins for adverse deviations in interest rates, materiality and reinsurance are added to consider the uncertainties related to the assumptions. 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, materiality 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 loss in value is carried 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. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 73
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Investment contracts (suite) 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. Recognition of other income Investment income is recorded on an accrual basis. Income on investment property is recognized in profit or loss on a straight-line basis over the term of the lease. 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. Financial Instruments – classification On initial recognition of its financial instruments, the Company must classify financial assets into one of the following categories: at fair value through profit or loss, held to maturity, loans and receivables and available-for- sale. 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 must classify financial liabilities into one of the following categories: designated at fair value through profit or loss and at amortized cost. Financial instruments are classified upon initial recognition according to their nature and the Company’s use of the financial instrument. Bonds 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. Bonds backing investment contracts are designated at fair value through profit or loss, since they are managed and measured on a fair value basis in accordance with a strategy for managing the risks in investment contracts. Bonds not backing liability related to life and health insurance contracts and investment contracts are classified as assets available-for-sale and are carried at fair value. Changes in fair value of these bonds are recorded in other comprehensive income. On disposal of these bonds, or on any decline in value, the gain or loss is reversed from Accumulated other comprehensive income and recorded in income. Reversals to losses in value may occur and are recognized in profit or loss when there is objective evidence of recovery. Interest income and the amortization of discounts and premiums on bonds are recorded in income according to the effective interest rate method. Purchases and disposals of bonds are recognized at trade date. 74 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Loans Loans are classified as loans and receivables and are carried at amortized cost according to the effective inter- est rate method, less the allowance for investment losses. Their fair value 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. Fund units, shares and units Fund units and 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. Fund units, shares and units not backing liability related to life and health insurance contracts are classified as asset available-for-sale. Purchases and disposals of fund units, shares and units are recognized at trade date. They are carried at fair value and all changes in fair value are recorded in other comprehensive income. In occur- rence, transaction costs paid upon purchase are capitalized at cost. On disposal of these funds units, shares and units, or at any loss in value, the gain or loss is reversed from Accumulated other comprehensive income and recorded in income. No reversal of losses in value is allowed. However, fund units, shares and units con- tinue to be carried at fair value, even if a loss in value has previously been recognized. Investment fund 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 securi- ties 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. Cash and cash equivalents Cash and cash equivalents are made up of bank accounts and short-term fixed income securities held with financial institutions. The bank accounts are classified as loans and receivables and are carried at amortized cost according to the effective interest rate method. Short-term money market securities are designated as held for trading. Other investment The Company has made an investment in an associate. An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating decisions of the company held, but it is not control or joint control over those policies. This investment is recognized according to the equity method. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 75
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Derivative financial instruments Derivative financial instruments include foreign exchange contracts, stock index contracts and interest rate swaps. 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 daily settlement foreign exchange contracts, stock index contracts and interest rate swaps in support of certain obligations towards insureds. Gains and losses related to these contracts are recognized in income under Investment income. The Company also uses foreign exchange contracts under its currency risk management strategy. Such financial instruments cover fair value of assets and their effectiveness is reviewed on a monthly basis. Exchange gains and losses on forward contracts and fluctuations in fair value related to asset currency price are recognized in income under Investment income. Other financial assets and liabilities Other financial assets and liabilities are recognized at amortized cost and classified as loans and receivables and other liabilities, respectively. 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, shares and futures contracts. Fair value of bonds and shares is based on their bid price at year-end. 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. Investment 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. 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 losses in value. 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. 76 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Investment property (cont’d) 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 Land improvements 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. 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 land, which is 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. 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 equipments 5 years Office furniture and equipment 10 years Leasehold improvements 2 to 20 years SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 77
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Intangible assets with finite useful lives Intangible assets acquired separately Intangible assets include application software and are recorded at acquisition cost less impairment losses. Amortization is calculated according to the straight-line method over an estimated useful life of five years. Useful life and the amortization method are reviewed at the end of each year, and the impact of any change in estimates is recognized prospectively. Intangible assets resulting from business combinations Intangible assets resulting from business combinations include the portfolio of in-force policies, computer systems, distribution networks, bargain option leases, and the trade name and are initially recognized at their fair value at the date of the business combination. Following their initial recognition, intangible assets resulting from business combinations are recognized at cost less impairment losses. Amortization is calculated according to the straight-line method. The useful life of these intangible assets ranges from five to twenty-seven years except for the trade name, which has an indefinite useful life and thus is not amortized but is subject to an impairment test at least once a year. Internally developed intangible assets An intangible asset is recognized if it meets the criteria for deferral. The amount initially recognized for 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. Amortization is calculated according to the same method and term used for intangible assets that are acquired separately. Depreciation and amortization 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. 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 is immediately recognized in profit or loss. If an impairment is subsequently recovered, 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 impairment recovery is immediately recognized in profit or loss. 78 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) Depreciation and amortization of investment property, fixed assets and intangible assets with finite useful lives (cont’d) At each reporting date, intangible assets that are not available for use are reviewed for impairment under the same method used as for goodwill and intangible assets that have an undefined useful life. Goodwill and intangible assets with indefinite useful lives 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 assets with indefinite useful lives are not amortized but are tested for impairment at least annually. For purposes of the impairment test, goodwill and intangible assets with indefinite useful lives are allocated to cash-generating units (CGU), which are the smallest groups of assets and liabilities for which the identifiable cash inflows are independent. 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. The value in use corresponds to the anticipated future net assets and net revenues of existing portfolios and new business, taking the CGU’s future cash flows into consideration, discounted with the current risk-free interest rate on the market, to which a risk premium is added. 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, respectively, and are recognized at amortized cost except for derivative financial instruments, which are held for trading and recog- nized at their fair value. 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 book value and fair value, net of sale fees. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 79
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
2. SIGNIFICANT ACCOUNTING POLICIES (cont’d) 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 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 Income taxes include current and deferred taxes. Income taxes are recognized in profit or loss, except for income taxes on items included under other comprehensive income or Equity. In these specific cases, the income tax expense is recognized in other comprehensive 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. 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 income. Deferred tax assets and liabilities are deter- mined 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. 80 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
3. CHANGES IN ACCOUNTING POLICIES New accounting policies applied Investment entities In December 2012, the International Accounting Standards Board (IASB) published an amendment, Investment Entities, which defines an investment entity and requires that an investment entity should not consolidate investments in entities that it controls, but to measure those investments at fair value. This amendment modifies IFRS 10, IFRS 12 and IAS 27. The application of the amended standard has no impact on the consolidated financial statements of the Company since it does not qualify as an investment entity. Impairment of assets In May 2013, the IASB issued amendment to IAS 36, Impairment of Assets, which proposes the disclosure of information about the recoverable amount of impaired assets, particularly if that amount is based on fair value less costs of disposal. The amendment also clarifies the information to be disclosed regarding the recoverable amount following the application of IFRS 13, Fair Value Measurement. The application of the amended standard has no impact on the consolidated financial statements of the Company. Hedging In June 2013, the IASB issued amendment to IAS 39, Financial Instruments: Recognition and Measurement, which provides a strict exception where hedge accounting must be discontinued if a derivative financial instrument must be replaced by a clearing house according to laws and regulations. The application of the amended standard has no impact on the consolidated financial statement of the Company. Levies In May 2013, the IASB published IFRIC 21, Levies, which concerns the timing for the recognition of a liability according to IAS 37, Provisions, Contingent Liabilities and Contingent Assets in regards to the payment of levies. The application of the interpretation has no impact on the consolidated financial statements of the Company. Changes in future accounting policies Employee benefits In November 2013, the IASB issued an amendment to IAS 19, Employee Benefits, which clarifies the accounting requirements for employee or third party contributions to defined benefit plans. The provisions of this amendment will apply prospectively to financial statements beginning on or after July 1, 2014. The Company is currently assessing the impact of this amendment on its consolidated financial statements. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 81
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
3. CHANGES IN ACCOUNTING POLICIES (cont’d) Changes in future accounting policies (cont’d) Financial instruments In July 2014, the IASB published IFRS 9, Financial Instruments, which aims to replace IAS 39, Financial Instruments : Recognition and Measurement, for classification and measurement, impairment and hedge accounting of financial assets and liabilities. These modifications are to be applied retrospectively for annual periods beginning on or after January 1, 2018. The Company is currently assessing the impact of this new standard on its consolidated financial statements. Revenue recognition In May 2014, the IASB published IFRS 15, Revenue from Contracts with Customers, which aims to replace IAS 18, Revenue and IAS 11, Construction Contracts. This new standard sets out the requirements for recognising revenue that apply to all contracts with customers except for contracts that are within the scope of the Standards on leases, insurance contracts and financial instruments. The standard is effective from January 1, 2017. Earlier application is permitted. The Company is currently assessing the impact of this new standard on its consolidated financial statements. 82 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
4. INVESTMENTS A) Carrying value and fair value of general fund investments
2014 Designated at fair value through Held for profit or Available- Loans and Fair trading loss for-sale receivables1 Total value $ $ $ $ $ $
Bonds Canada, Quebec and other provinces – 1,464.0 285.0 – 1,749.0 Municipal and subsidized – 321.7 63.0 – 384.7 Canadian corporations – 786.8 109.0 – 895.8 – 2,572.5 457.0 – 3,029.5 3,029.5
Loans Residential mortgages – – – 338.7 338.7 Non-residential mortgages – – – 16.3 16.3 Other – – – 107.3 107.3 – – – 462.3 462.3 468.5
Fund units, shares and units Canadian fund units – 19.2 35.3 – 54.5 U.S. fund units – 24.1 8.7 – 32.8 International fund units – 5.2 – – 5.2 Preferred shares – 19.1 22.3 – 41.4 – 67.6 66.3 – 133.9 133.9 Investment fund 52.2 – – – 52.2 52.2 Cash and cash equivalents 116.3 – – 120.5 236.8 236.8 Derivative financial instruments 19.7 – – – 19.7 19.7 188.2 2,640.1 523.3 582.8 3,934.4 3,940.6
1 The fair value provided for cash and cash equivalents and loans classified for loans and receivables is Level 1 and Level 3 respectively. Refer to Note 6 for details of the fair value levels. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 83
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
4. INVESTMENTS (cont’d) A) Carrying value and fair value of general fund investments (cont’d)
2013 Designated at fair value through Held for profit or Available- Loans and Fair trading loss for-sale receivables1 Other Total value $ $ $ $ $ $ $
Bonds Canada, Quebec and other provinces – 1,318.7 225.4 – – 1,544.1 Municipal and subsidized – 273.6 71.6 – – 345.2 Canadian corporations – 685.3 89.5 – – 774.8 – 2,277.6 386.5 – – 2,664.1 2,664.1
Loans Residential mortgages – – – 332.8 – 332.8 Non-residential mortgages – – – 16.9 – 16.9 Other – – – 92.0 – 92.0 – – – 441.7 – 441.7 445.6
Fund units, shares and units Canadian fund units – 32.8 30.9 – – 63.7 U.S. fund units – 21.3 7.8 – – 29.1 International fund units – 5.5 – – – 5.5 Preferred shares – 17.4 9.5 – – 26.9 Units in partnerships – – 0.1 – – 0.1 – 77.0 48.3 – – 125.3 125.3 Investment fund 69.4 – – – – 69.4 69.4 Cash and cash equivalents 172.8 – – 106.5 – 279.3 279.3 Other investment2 – – – – 5.2 5.2 – 242.2 2,354.6 434.8 548.2 5.2 3,585,0 –
2 The Company does not establish fair value for this investment. 84 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
5. DERIVATIVE FINANCIAL INSTRUMENTS The Company uses daily settlement foreign exchange contracts, stock index contracts and interest rate swaps in support of certain obligations towards insureds and under its currency risk management strategy. 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 cash flows based on a notional amount, during a set time period and frequency. The following tables detail the notional principal amounts and remaining terms to expiration and the fair value of the derivative financial instruments that belong to the Company:
2014
Notional Fair value Less than 1 year 1 to 5 years Over 5 years Total Positive Negative $ $ $ $ $ $
Foreign exchange contracts 46.2 – – 46.2 – (0.1) Stock index contracts 89.3 – – 89.3 – – Interest rate swaps – 37.3 159.0 196.3 19.7 – 135.5 37.3 159.0 331.8 19.7 (0.1)
2013
Notional Fair value Less than 1 year 1 to 5 years Over 5 years Total Positive Negative $ $ $ $ $ $
Foreign exchange contracts 38.0 – – 38.0 – – Stock index contracts 87.7 – – 87.7 – – 125.7 – – 125.7 – – SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 85
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
6. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES Financial instruments recorded at fair value in the consolidated statements of financial position are classified using a hierarchy that reflects the significance of the inputs used in determining valuations and includes three levels: 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 financial assets classified using the fair value hierarchy:
2014 Level 1 Level 2 Level 3 Total $ $ $ $ Financial assets at fair value through profit or loss Bonds Canada, Quebec and other provinces 9.2 1,454.8 – 1,464.0 Municipal and subsidized 0.3 321.4 – 321.7 Canadian corporations 4.0 782.8 – 786.8 Fund units and shares Canadian fund units 19.2 – – 19.2 U.S. fund units 24.1 – – 24.1 International fund units 5.2 – – 5.2 Preferred shares 19.1 – – 19.1 Investment fund 52.2 – – 52.2 Cash and cash equivalents – 116.3 – 116.3 Derivative financial instruments – 19.7 – 19.7 133.3 2,695.0 – 2,828.3 Available-for-sale financial assets Bonds Canada, Quebec and other provinces 46.9 238.1 – 285.0 Municipal and subsidized 1.4 61.6 – 63.0 Canadian corporations 20.3 88.7 – 109.0 Fund units, shares and units Canadian fund units 35.3 – – 35.3 U.S. fund units 8.7 – – 8.7 Preferred shares 22.3 – – 22.3 134.9 388.4 – 523.3 Financial liabilities at fair value through profit or loss Derivative financial instruments – 0.1 – 0.1 General fund investment contracts – – 0.3 0.3 – 0.1 0.3 0.4
The appraisal of the hierarchical levels of fair value is performed at the end of each financial year. During the years ended December 31, 2014 and 2013, there were no transfers of financial assets between Levels 1 and 2. 86 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
6. FAIR VALUE OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES (cont’d) 2013 Level 1 Level 2 Level 3 Total $ $ $ $ Financial assets at fair value through profit or loss Bonds Canada, Quebec and other provinces 9.0 1,309.7 – 1,318.7 Municipal and subsidized 0.2 273.4 – 273.6 Canadian corporations 4.1 681.2 – 685.3 Fund units and shares Canadian fund units 32.8 – – 32.8 U.S. fund units 21.3 – – 21.3 International fund units 5.5 – – 5.5 Preferred shares 17.4 – – 17.4 Investment fund 69.4 – – 69.4 Cash and cash equivalents – 172.8 – 172.8 159.7 2,437.1 – 2,596.8 Available-for-sale financial assets Bonds Canada, Quebec and other provinces 34.7 190.7 – 225.4 Municipal and subsidized 1.0 70.6 – 71.6 Canadian corporations 15.8 73.7 – 89.5 Fund units, shares and units Canadian fund units 30.9 – – 30.9 U.S. fund units 7.8 – – 7.8 Preferred shares 9.5 – – 9.5 Units in partnerships – – 0.1 0.1 99.7 335.0 0.1 434.8 Financial liabilities at fair value through profit or loss General fund investment contracts – – 0.2 0.2 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 87
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
7. 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 policyholders 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 and amounts receivable from reinsurers. 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
• a detailed loan policy specifies the requirements for guarantees and credit
• an overall limit is also established for investments of a related issuer or group of issuers to mitigate concentration risk
• 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 reinsurers 88 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
7. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Credit risk (cont’d) Maximum exposure to credit risk
2014 2013 $ $ Bonds Designated at fair value through profit or loss 2,572.5 2,277.6 Available-for-sale 457.0 386.5
Loans Mortgage loans 355.0 349.7 Other loans 107.3 92.0
Cash and cash equivalents 236.8 279.3 Derivative financial instruments 19.7 – Outstanding premiums 175.3 151.0 Ceded reinsurance assets 1,497.4 1,286.7 Investment income due and accrued 14.9 13.3 Other financial assets 46.2 76.4 5,482.1 4,912.5
Bond portfolio quality
2014 2013 $ $ Bonds Canada, Quebec and other provinces 1,749.0 1,544.1 Municipal and subsidized 384.7 345.2 Canadian corporations, per credit rating AAA 36.0 34.0 AA 115.6 75.6 A 532.6 501.9 BBB 211.6 163.3 3,029.5 2,664.1
Loan portfolio quality
2014 2013 $ $
Insured loans 285.7 272.7 Conventional loans 176.6 169.0 462.3 441.7
As at December 31, 2014, the current portion of bonds and loans amounted to $204.4 (2013 – $151.5) and $110.1 (2013 – $82.9), respectively. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 89
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
7. 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:
2014 2013 Allowance for Allowance for investment investment Impaired loans losses Impaired loans losses $ $ $ $
Residential mortgages loans 0.7 0.2 – – Other loans 30.0 1.7 34.4 1.8 30.7 1.9 34.4 1.8 General allowance on mortgage loans – 1.7 – 2.0 30.7 3.6 34.4 3.8
2014 2013 $ $ Allowance for investment losses Balance, beginning of year 3.8 4.0 Recovery (0.2) (0.2) Balance, end of year 3.6 3.8
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, 2014, the Company has financial assets past due for $3.5 (2013 – $7.3). 90 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
7. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Credit risk (cont’d) Securities lending The Company engages in securities lending to generate additional income, which are recorded in investment income. Some securities are lended to other institutions for a short period. The Company receives garantees that represent a minimum of 102% of the fair value of the securities lent out. These garantees are deposited by the borrower with a depository to be retained until the securities lent out are recovered by the Company. The fair value of the securities on loan are monitored on a daily basis. Additional security is required depending on fluctuations in the market value of the underlying securities on loan. As at December 31, 2014, the carrying value of the securities on loan by the Company included in investments is of $202.1 (2013 – $0). There were no securities lending at December 31, 2013. 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 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.
2014
Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $
Unpaid claims – 29.4 3.7 0.2 33.3 General fund investment contracts 0.3 – – – 0.3 Accounts payable – 144.5 – – 144.5 Derivative financial instruments – 0.1 – – 0.1 Subordinated debt – – 3.0 172.0 175.0 Other financial liabilities 0.8 3.6 – – 4.4 1.1 177.6 6.7 172.2 357.6 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 91
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
7. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Liquidity risk (cont’d)
2013
Payable on Less than demand 1 year 1 to 5 years Over 5 years Total $ $ $ $ $
Unpaid claims – 29.1 3.3 0.6 33.0 General fund investment contracts 0.2 – – – 0.2 Accounts payable – 151.8 – – 151.8 Subordinated debt – 15.0 – 175.0 190.0 Other financial liabilities 0.8 4.5 – – 5.3 1.0 200.4 3.3 175.6 380.3
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 obliga- tions 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. The results of the interest rate sensitivity analyses also serve to establish the amounts to be included in the valu- ation of obligations towards insureds for interest rate risk. A 1% change of the interest rate curve would have an insignificant impact on income of 2014 and 2013. For its available-for-sale financial assets not matched to obligations towards insured, the Company believes that a 1% increase of the interest rate curve would result in a decrease of $21.3 (2013 – $18.5) in other comprehen- sive income. B) Market price risk The Company is exposed to market price risk through its available-for-sale equity investments and fund units. The investment policy puts restrictions on equity investments and fund units and sets out their limits. 92 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
7. FINANCIAL INSTRUMENTS RISK MANAGEMENT (cont’d) Market risk (cont’d) B) Market price risk (cont’d) Changes in the fair value of these investments are recognized in comprehensive income. A sudden 10% decrease in the value of such investments would result in an estimated decrease of $4.8 (2013 – $3.5) in other comprehensive income. The Company is also exposed to market price risk through income from investment fund management fees and expenses related to capital guarantees provided to segregated funds. A sudden 10% decrease in stock markets would result in an estimated drop of $1.1 (2013 – $0.9) in income. 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, 2014 and 2013, the Company was not exposed to any significant currency risk in respect of financial instruments.
8. RIGHT OF OFFSET, COLLATERAL HELD AND TRANSFERRED The Company negotiates derivative financial instruments in accordance with the Credit Support Annex, which forms part of the International Swaps and Derivatives Association’s (ISDA) Master Agreement. 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.
9. LIFE AND HEALTH INSURANCE CONTRACTS Fair value of gross reserve The fair value of the actuarial reserve is determined based on the fair value of the 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. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 93
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
9. LIFE AND HEALTH INSURANCE CONTRACTS (cont’d) Inherent uncertainty of the appraisal 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 assump- tions also include a provision for adverse deviations attributable to the inherent uncertainty of the appraisal 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 mismatch 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. 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, addi- tional 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 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 portfo- lio is not considered to be lapse-supported. Operating expenses The assumptions regarding operating expenses are drawn from internal analyses performed yearly by the Com- pany, with adjustments for future inflation. 94 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
10. PROPERTY AND CASUALITY INSURANCE CONTRACTS Nature of obligations Liabilities related to property and casualty insurance 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 appraisal 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 appraisal 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. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 95
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
11. SUBORDINATED DEBT
2014 2013 $ $ Debenture, 7.49%, maturing in 2022 and redeemable by the Company under certain conditions 50,0 50,0 Debenture payable to majority shareholder, 7.446%, maturing in 2032 and redeemable by the Company under certain conditions 30,0 30,0 Debenture, 6%, maturing in 2032 and redeemable by the Company under certain conditions 20,0 20,0 Debenture, 6.3%, maturing in 2030 and redeemable by the Company under certain conditions 20,0 20,0 Debenture, 6.675%, repaid January 31, 20141 – 15,0 Debenture payable to majority shareholder, 6.74%, maturing in 2030 15,0 15,0 Debenture payable to majority shareholder, 6.4%, maturing in 2027 10,0 10,0 Debenture, Series A, 7.75%, maturing in 20192 3,0 3,0 148,0 163,0 Subordinated notes, 7.09% semi-annual, maturing in 20202 Majority shareholder 6,1 6,1 Shareholder 0,9 0,9 7,0 7,0 Subordinated note payable to majority shareholder, maturing in 2023, bearing interest at 5.93% compounded semi-annual until 2018, bearing interest at the 3-month Canadian Dealer Offered Rate plus 2.50% compounded quarterly until 2023 20,0 20,0 27,0 27,0 175,0 190,0 Fair value3 206,2 207,1
1 Repaid from investments. 2 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. 3 The fair value provided for the subordinated debt is Level 3. Refer to Note 6 for details of the fair value levels.
The fair value of subordinated debt classified as other financial liabilities is assessed using a model based on discounted expected cash flows. Cash flows are discounted at a rate equal to the rate of return of a benchmark index with a risk profile that is similar to that of underlying assets and with a term whose duration equals the maximum anticipated maturity of the subordinated debt. 96 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
12. SHARE CAPITAL Authorized Class A 150,000,000 shares, without par value, participating and voting right Class B 150,000,000 shares, without par value, participating and voting right, redeem- able by mutual agreement, 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 Class C 100,000,000 shares, with a par value of one dollar each, non-voting, giving the right to fixed preferred dividends to Class A and B shares, issuable in one or several series. As at December 31, 2014 and 2013, no Class C shares were issued. 2014 2013 $ $ Issued 20,615,293 Class A shares (2013 – 29,901,210) 95.4 24.0 50,690,905 Class B shares (2013 – 15,872,860) 247.8 12.6 343.2 36.6
On November 27, 2014, the Company converted 16,666,667 Class A shares which had a book value of $17.2 into 16,666,667 Class B shares. The Company also issued 7,380,750 Class A shares to its minority shareholder along with 18,151,378 Class B shares to its majority shareholder with book value of $88.6 and $218.0 respectively, in exchange for the non-ownership stake in SSQ, Insurance Company Inc. The difference of $70.5 between the issued share capital and the book value of $236.1 of the non-ownership stake was adjusted to retained earnings. These book values were established as at September 30, 2014, in accordance with any agreement between the parties.
13. 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 the Autorité. 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. SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 97
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
13. CAPITAL MANAGEMENT (cont’d) 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, prepares 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 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. Capital position as at December 31,
2014 2013 $ $
Equity 670.7 586.9 Equity attributed to non-controlling interest – (223.1) Subordinated debt 175.0 190.0 Prescribed reductions and other adjustments (121.8) (32.1) Capital available 723.9 521.7
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 guideline on the capital available and the capital adequacy requirements (MCT) that apply respectively to the subsidiary. The solvency ratios of the subsidiaries as at December 31, 2014 and 2013 exceed the level required under the guideline.
14. INCOME TAXES
2014 2013 $ $ Income tax expense for the year – Income Current income taxes 23.9 18.7 Deferred income taxes resulting from the origination or reversal of temporary differences (6.5) (1.0) 17.4 17.7 98 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
15. COMPONENTS OF THE CONSOLIDATED STATEMENT OF INCOME
2014 2013 $ $ Gross premiums Life and health insurance 1,816.5 1,739.7 Investment and retirement Invested in general funds 35.7 40.3 Invested in segregated funds 327.8 386.0 Property and casualty insurance 220.1 214.4 2,400.1 2,380.4
16. SEGREGATED FUNDS During the year, Management proceeded to a change in estimate for the measurement of the fair value of the segregated fund investments. In accordance with IFRS 13, the closing price was deemed by Management to be the most relevant basis of measurement when in the bid-ask spread. The change in estimate had no impact on the Company’s net income for the year. A) Carrying value of segregated fund investments
2014 2013 $ $
Investment fund units 3,289.0 3,262.1 Bonds and other fixed income investments 660.7 871.6 Shares 422.6 495.4 Derivative financial instruments 0.5 2.3 Total investments 4,372.8 4,631.4 Other assets and liabilities 9.6 12.4 4,382.4 4,643.8 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 99
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
16. SEGREGATED FUNDS (cont’d) B) Fair value of segregated fund investments The following table presents investments in segregated funds classified according to the fair value hierarchy defined in Note 6 and excludes all other financial assets except derivative financial instruments:
2014 Level 1 Level 2 Level 3 Total $ $ $ $
Segregated fund financial assets at fair value through profit or loss Investment fund units 2,885.7 403.3 – 3,289.0 Bonds – 517.9 – 517.9 Money market – 142.8 – 142.8 Shares 413.8 – 8.8 422.6 Derivative financial instruments 0.5 – – 0.5 3,300.0 1,064.0 8.8 4,372.8 Segregated fund financial liabilities at fair value through profit or loss Derivative financial instruments (7.8) – – (7.8) Share purchase commitment (9.2) – – (9.2) (17.0) – – (17.0)
During the years ended December 31, 2014 and 2013, there were no transfers of investments related to segregated funds between Levels 1 and 2.
2013 Level 1 Level 2 Level 3 Total $ $ $ $
Segregated fund financial assets at fair value through profit or loss Investment fund units 2,888.5 373.6 – 3,262.1 Bonds – 652.6 – 652.6 Money market – 219.0 – 219.0 Shares 487.2 – 8.2 495.4 Derivative financial instruments 2.2 0.1 – 2.3 3,377.9 1,245.3 8.2 4,631.4 Segregated fund financial liabilities at fair value through profit or loss Derivate financial instruments (2.6) – – (2.6) Share purchase commitment (9.4) – – (9.4) (12.0) – – (12.0) 100 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
16. SEGREGATED FUNDS (cont’d) C) Changes in segregated fund insurance contracts and investment contracts
2014 2013 Insurance Investment Insurance Investment contracts contracts contracts contracts $ $ $ $
Balance, beginning of year 2,050.3 2,593.5 1,813.8 2,301.9 Amounts collected from policyholders 344.0 300.3 398.0 438.1 Investment income 121.3 365.7 178.8 208.4 Amounts paid to policyholders (330.9) (403.6) (340.3) (354.9) Disposal of portfolios (593.2) (77.8) – – Balance, end of year 1,591.5 2,778.1 2,050.3 2,593.5
In accordance with the contractual maturities of cash flows, segregated fund insurance contracts and investment contracts are payable on demand.
17. CONTINGENCIES AND COMMITMENTS Contingencies The Company and its subsidiaries are subject to legal actions, including proposed class actions. The Company 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, 2014, these letters of credit totalled $2.9 (2013 – $16.0). No assets were pledged against these letters of credit. Commitments The Company leases vehicule, IT equipment and office space as lessee. These leases mature between 2015 and 2025. Lease payments, equal to the minimum payments expensed during the year, totalled $10.1 (2013 – $8.8). The expected payments on the leases are as follows:
Less than 1 year 1 to 5 years Over 5 years Total $ $ $ $ Basic rents 10.8 12.8 11.4 35.0 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 101
EXCERPT FROM THE NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the year ended December 31, 2014 (in millions of dollars, unless otherwise indicated)
18. LEASES The Company leases, as lessor, certain investment properties and fixed assets under operating leases. These leases mature between 2017 and 2030. During the year, the Company’s rental income from its investment property and fixed assets totalled $19.0 (2013 – $18.1), while direct operating expenses totalled $14.0 (2013 – $12.7). Expected receipts on operating leases are as follows:
Less than 1 year 1 to 5 years Over 5 years Total $ $ $ $ Basic rents 9.6 26.2 25.7 61.5
19. COMPARATIVES To standardize the disclosure of certain elements of its consolidated financial statements, the Company adjusted the following financial statement items in its consolidated statement of income: gross premiums and change in actuarial reserve of life and health insurance contracts. 102 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
STRUCTURE
SSQ, Mutual SSQ Dedicated Fonds de solidarité FTQ Management Corporation Segregated Fund
SSQ, Mutual Holding Inc.
SSQ, Life Insurance Company Inc.
SSQ Insurance SSQ General Insurance SSQ Realty Inc. Company Inc. Company Inc.
SSQ Foundation SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 103
SSQ, LIFE INSURANCE COMPANY INC. AND SSQ INSURANCE COMPANY INC.
Boards of Directors Denyse Paradis* / Terrebonne Secretary and Treasurer Chairman Fédération de la santé et des services sociaux Pierre Genest* / Quebec City (FSSS) – CSN Chairman of the Board Sylvain Paré / Montreal SSQ, Mutual Management Corporation Executive Vice-President, Finance Fonds de solidarité FTQ Vice-Chairman Alain Pélissier* / Montreal Émile Vallée* / Gatineau Retiree Retiree Centrale des syndicats du Québec (CSQ) Fédération des travailleurs et travailleuses du Québec (FTQ) Jean Perron* / Quebec City Corporate Director Directors Sylvain Picard* / Wendake Normand Brouillet* / Greenfield Park Executive Director Retiree Régime des bénéfices autochtones Confédération des syndicats nationaux (CSN) Alistair Angus H. Ross / Picton Claude Choquette / Quebec City President President L&A Concepts HDG Inc. Norman A. Turnbull / East Bolton Chantal Doré / Boucherville Corporate Director Vice-President – Information Technology, Dominique Verreault* / Marieville Project Management and Administration Retiree Fonds de solidarité FTQ Alliance du personnel professionnel et technique René Hamel / Quebec City de la santé et des services sociaux (APTS) Chief Executive Officer SSQ, Life Insurance Company Inc. Corporate Secretary Eddy Jomphe* / Lévis Hélène Plante Union Representative Canadian Union of Public Employees (CUPE) – FTQ * Member of the Board of Directors of Andrew MacDougall* / Toronto SSQ, Mutual Management Corporation President Spencer Stuart Canada Jude Martineau / Quebec City Corporate Director Gaétan Morin / Terrebonne President and Chief Executive Officer Fonds de solidarité FTQ Michel Nadeau* / Longueuil Executive Director Institute for Governance of Private and Public Organizations
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 104 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
SSQ GENERAL INSURANCE COMPANY INC. Chairman Pierre Genest / Quebec City André L’Écuyer / Saint-Augustin-de-Desmaures Chairman of the Board President SSQ, Life Insurance Company Inc. Rabaska Vice-Chairman Lucie Martineau / Lévis General President Jacques Rochefort / Montreal Syndicat de la fonction publique et parapublique Chief Executive Officer du Québec (SFPQ) Chenelière Éducation Bernard Piché / Montréal Directors Corporate Director René Hamel / Quebec City Jocelyn Tremblay / Quebec City Chief Executive Officer Union Representative SSQ, Life Insurance Company Inc. Canadian Union of Public Employees (CUPE) – FTQ Josée Lachapelle / Laval Pierre-Maurice Vachon / Sainte-Marie Senior Director, Investments Corporate Director Financial Services, Services, Mining, Metal Products and Social Economy Corporate Secretary Fonds de solidarité FTQ Hélène Plante Danielle Lallemand / L’Assomption Accountant Confédération des syndicats nationaux (CSN)
Member of Executive and Human Resources Committee Member of Audit and Risk Management Committee Member of Investment Committee Member of Ethics Committee SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 105
SSQ FINANCIAL GROUP Senior Management
René Hamel Diane Gaulin Chief Executive Officer Vice-President – Sales, Public Sector Serge Boiteau Blair MacIntyre Appointed Actuary and Strategic Advisor Regional Vice-President – Corporate Accounts to the Chief Executive Officer Toronto Office Patrick Cyr Cathy Perron Senior Vice-President Vice-President – Sales, Private Sector Finance and Realty Ron Smitko Carl Laflamme Regional Vice-President – TPA Sector Senior Vice-President Toronto Office Group Insurance Investment and Retirement Marie Lamontagne Senior Vice-President Martin Bédard Corporate Communications and E-business Regional Vice-President – Business Development Institutional and Private Wealth Denis Légaré Senior Vice-President Luc Bossé Human Resources and Internal Communications Regional Vice-President – Business Development Montreal Office Michel Loranger Senior Vice-President Sylvain Charbonneau Information Technologies Vice-President – Actuarial and Marketing Gilles Mourette Jean Cinq-Mars Chief Executive Officer Vice-President – Client Services and Administration SSQ General Insurance Company Inc. Douglas Paul Bernard Tanguay Regional Vice-President – Business Development Senior Vice-President Ontario, Western Canada and Atlantic Region Investment and Retirement Marc Trépanier and SSQ Insurance Company Inc. Vice-President – National Business Development Éric Trudel Individual Insurance and Retirement Senior Vice-President Corporate Services Corporate Services Carl Cleary Vice-President – Corporate Development SSQ, LIFE INSURANCE COMPANY INC. Hugo Drouin Vice-President – Investments Corporate Secretary France LeBlanc Hélène Plante Vice-President – Corporate Actuarial Divisions Information Technologies Group Insurance Pierre Beaudoin Vice-President – Systems Development Chantal Auger Individual Insurance and Retirement and Vice-President – Administration Business Intelligence Dany Caron Martin Paré Regional Vice-President Vice-President – Infrastructure and Technological Quebec City Office Integration Donald Cyr Éric Savard Vice-President – Actuarial Vice-President – IT Governance 106 SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT
SSQ INSURANCE COMPANY INC. Corporate Secretary Hélène Plante Divisions Jean Cinq-Mars Vice-President – Client Services and Administration Sylvain Charbonneau Vice-President – Actuarial and Marketing Gilles Loiselle Vice-President – Strategic Advisor
SSQ GENERAL INSURANCE COMPANY INC. Corporate Secretary Hélène Plante Divisions Ginette Fortin Vice-President – Insurance Aurel Lessard Vice-President – Sales and Marketing Patrice Raby Vice-President – Actuarial Éric Thériault Vice-President – Claims
SSQ REALTY INC. France Rodrigue Vice-President – Realty and Material Resources SSQ FINANCIAL GROUP — 2014 ANNUAL REPORT 107
ADDRESSES SSQ, Life Insurance Company Inc. SSQ Insurance Company Inc. Head Office 800 6th Avenue SW, Suite 650 Calgary, AB T2P 3G3 2525 Laurier Blvd Tel.: 403-592-8516 Quebec City, QC G1V 2L2 1-855-772-3082 Tel.: 418-651-7000 1-800-463-5525 1680 Bedford Row P.O. Box 1001 1200 Papineau Avenue, Suite 460 Halifax, NS B3J 2X1 Montreal, QC H2K 4R5 Tel.: 1-800-848-0158 Tel.: 514-521-7365 1-800-361-8100 2020 Robert-Bourassa Blvd, Suite 1800 Montreal, QC H3A 2A5 110 Sheppard Avenue East, Suite 500 Tel.: 514-282-6064 Toronto, ON M2N 6Y8 1-855-233-7056 Tel.: 416-221-3477 1-866-696-6001 110 Sheppard Avenue East, Suite 500 Toronto, ON M2N 6Y8 Investment and Retirement Tel.: 416-928-8801 1245 Chemin Sainte-Foy, Suite 1-210 1-877-928-8801 Quebec City, QC G1S 4P2 701 Georgia Street West, Suite 1500 Tel.: 418-688-4887 Vancouver, BC V7Y 1C6 1-800-320-4887 Tel.: 604-681-9266 SSQ General Insurance Company Inc. 1-855-803-5797 Head Office CONTACT US 2515 Laurier Blvd Quebec City, QC G1V 2L2 Corporate Communications Tel.: 418-683-5515 SSQ Financial Group 1-888-683-5515 2525 Laurier Blvd 1010 Sérigny Street, Suite 800 Quebec City, QC G1V 2L2 Longueuil, QC J4K 5G7 Tel.: 1-866-332-3806 Tel.: 450-321-0056 [email protected] 1-888-683-5515 You can also visit us at ssq.ca. SSQ Realty Inc. 2525 Laurier Blvd, Suite 1000 Quebec City, QC G1V 2L2 Tel.: 418-682-1245
ISSN 1700-0688 Legal Deposit – 2nd quarter 2015 Bibliothèque et Archives nationales du Québec National Library of Canada
BMG115A (2015-04)