Trisura Group Ltd. — Audit Report / Information 2020

Feb 11, 2021

Trisura Group Ltd.

Consolidated Financial Statements For the years ended December 31, 2020 and 2019

Deloitte LLP Bay Adelaide East 8 Adelaide Street West Suite 200 Toronto ON M5H 0A9 Canada

Tel: 416-601-6150 Fax: 416-601-6151 www.deloitte.ca

Independent Auditor's Report

To the Shareholders and the Board of Directors of Trisura Group Ltd.

Opinion

We have audited the consolidated financial statements of Trisura Group Ltd. (the "Company"), which comprise the consolidated statements of financial position as at December 31, 2020 and 2019, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the "financial statements").

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, and its financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards ("IFRS").

Basis for Opinion

We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements for the year ended December 31, 2020. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Unpaid claims and loss adjustment expenses for the property and casualty insurance business - Refer to Notes 2.4(d) and 9 to the financial statements

Key Audit Matter Description

The Company conducts insurance operations including a property and casualty insurance business through Trisura Guarantee Insurance Company, Trisura Specialty Insurance Company, and Trisura International Insurance Ltd. In the property and casualty business, the liability for unpaid claims and loss adjustment expenses represents an estimate of the ultimate cost of all claims incurred but not paid by the statement of financial position date. This estimation process includes consideration of individual case estimates of claims and loss adjustment expenses on reported claims, provision for future development of case estimates on reported claims, and provision for claims and loss adjustment expenses related to incurred but not reported ("IBNR") claims.

In estimating the IBNR claims, the Company uses a range of actuarial methodologies which consider assumptions related to historical loss development factors and payment patterns. While there are several assumptions that go into determining the IBNR claims, significant management judgment is applied regarding the use of assumptions relating to future development of claims and loss adjustment expenses that have not yet been reported, future rates of claim frequency and severity, payment patterns and reinsurance recoveries ("significant assumptions"). Auditing the selection of the actuarial methodologies and the significant assumptions involves a high degree of subjectivity in applying audit procedures and in evaluating the results of those procedures. This resulted in an increased extent of audit effort, including the involvement of actuarial specialists.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures related to the selection of the actuarial methodologies and the significant assumptions used to value the IBNR claims for the property and casualty insurance business included the following audit procedures, among others:

• Tested the underlying data that served as the basis for the actuarial analysis, including historical claims and loss adjustment expenses data used to develop future expectations, to evaluate the reasonableness of key inputs to the actuarial estimate.
• With the assistance of actuarial specialists:
  • o Evaluated management's actuarial methodologies and the significant assumptions in accordance with actuarial principles and practices under generally accepted actuarial standards of practice.
  • o Independently estimated the claim liabilities for selected lines of business, focusing on the largest IBNR claims liabilities, and compared the recalculated results to those recorded by the Company.
  • o Performed a retrospective assessment to determine whether management judgments and assumptions relating to the significant estimates indicated a possible bias on the part of management.

Unpaid claims and loss adjustment expenses for the life reinsurance business — Refer to Notes 2.4(d) and 9 to the financial statements

Key Audit Matter Description

The Company conducts insurance operations including a life reinsurance business through Trisura International Insurance Ltd. In the life reinsurance business, the liability for unpaid claims and loss adjustment expense represents a closed block of deferred annuities with guaranteed annuity conversion options which is denominated in Euros and has been in run-off since 2008. The Company uses an actuarial model to determine the claims liability.

While there are several assumptions that go into determining the liability on the life reinsurance business, significant management judgment is applied regarding the use of assumptions relating to the guaranteed annuity option future take-up rates, changes in the European Insurance and Occupational Pensions Authority ("EIOPA") published interest rates for use in discounting claims liability, and a volatility adjustment ("significant assumptions"). The significant assumptions require subjective auditor judgment when historical trends may not accurately reflect future results and future changes in annuitant policyholders' needs are unpredictable. Auditing the selection of the actuarial methodologies and the significant assumptions involves a high degree of subjectivity in applying audit procedures and in evaluating the results of those procedures. This resulted in an increased extent of audit effort, including the involvement of actuarial specialists.

How the Key Audit Matter Was Addressed in the Audit

Our audit procedures related to the selection of the actuarial methodology and the significant assumptions used to value the liability for the life reinsurance business included the following audit procedures, among others:

• With the assistance of actuarial specialists:
  • o Evaluated management's actuarial methodologies and the significant assumptions in accordance with actuarial principles and practices under generally accepted actuarial standards of practice.
  • o Assessed the reasonableness of the guaranteed annuity option future take-up rates, applicable EIOPA published interest rates, and the volatility adjustment, by considering industry and other external sources of data, where applicable.
  • o Analyzed management's use of stochastic modelling in the methodology, including an assessment of the selection of the number of scenarios used, and evaluated the results of the model.

Other Information

Management is responsible for the other information. The other information comprises:

• Management's Discussion and Analysis
• The information, other than the financial statements and our auditor's report thereon, in the Annual Report
• Financial Supplement

Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We obtained Management's Discussion and Analysis and Financial Supplement prior to the date of this auditor's report. If, based on the work we have performed on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact in this auditor's report. We have nothing to report in this regard.

The Annual Report is expected to be made available to us after the date of the auditor's report. If, based on the work we will perform on this other information, we conclude that there is a material misstatement of this other information, we are required to report that fact to those charged with governance.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company's financial reporting process.

Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor's report is Ratan Ralliaram.

Chartered Professional Accountants Licensed Public Accountants Toronto, Ontario February 10, 2021

TRISURA GROUP LTD. Consolidated Financial Statements

Table of contents for the Consolidated Financial Statements of Trisura Group Ltd.

Consolidated Statements of Financial Position 2
Consolidated Statements of Income 3
Consolidated Statements of Comprehensive Income 4
Consolidated Statements of Changes in Equity 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 7

1

TRISURA GROUP LTD. Consolidated Statements of Financial Position

(in thousands of Canadian dollars, except as otherwise noted)

As at	Note	December 31, 2020	December 31, 2019
Assets
Cash and cash equivalents		136,519	85,905
Investments	4, 6	503,684	392,617
Premiums and accounts receivable, and other assets	13	178,883	86,669
Recoverable from reinsurers	16	676,972	293,068
Deferred acquisition costs	10	188,190	104,197
Capital assets and intangible assets	12, 17, 18	13,907	14,477
Deferred tax assets	27	8,577	1,460
Total assets		1,706,732	978,393
Liabilities
Accounts payable, accrued and other liabilities	14	57,343	40,916
Reinsurance premiums payable	13	151,707	80,186
Unearned premiums	11	592,711	328,091
Unearned reinsurance commissions	10	100,281	51,291
Unpaid claims and loss adjustment expenses	9	487,271	257,880
Loan payable	20	27,555	29,700
		1,416,868	788,064
Shareholders' equity
Common shares	21	285,731	219,251
Contributed surplus	28.1, 28.4	1,332	815
Accumulated retained earnings (deficit)		4,133	(28,309)
Accumulated other comprehensive loss		(1,332)	(1,428)
		289,864	190,329
Total liabilities and shareholders' equity		1,706,732	978,393

See accompanying notes to the Consolidated Financial Statements

On behalf of the Board

George Myhal David Clare Director Director

TRISURA GROUP LTD.

Consolidated Statements of Income

(in thousands of Canadian dollars, except as otherwise noted)

For the years ended December 31,	Note	2020	2019
Gross premiums written		926,442	448,262
Reinsurance premiums ceded		(685,118)	(305,634)
Net premiums written		241,324	142,628
Change in unearned premiums		(80,640)	(35,124)
Net premiums earned		160,684	107,504
Fee income		29,719	12,206
Net Investment Income	7	27,779	16,243
Net gains	8	8,450	1,572
Settlement from structured insurance assets	4.4	-	8,077
Total revenues		226,632	145,602
Claims and expenses
Net claims and loss adjustment expenses	9	(72,562)	(49,936)
Net commissions	10	(55,915)	(37,516)
Operating expenses		(57,560)	(45,590)
Interest expense	20	(1,113)	(1,361)
Total claims and expenses		(187,150)	(134,403)
Income before income taxes		39,482	11,199
Income tax expense	27	(7,040)	(6,105)
Net income attributable to shareholders		32,442	5,094
Weighted average number of common shares
outstanding during the year (in thousands) – basic		9,733	7,213
Earnings per common share (in dollars) – basic	22	3.33	0.69
Earnings per common share (in dollars) – diluted	22	3.28	0.69

TRISURA GROUP LTD. Consolidated Statements of Comprehensive Income

(in thousands of Canadian dollars, except as otherwise noted)

For the years ended December 31,	Note	2020	2019
Net income attributable to shareholdersNet unrealized gains on available-for-sale investmentsIncome tax expense		32,4427,629(1,597)	5,0947,379(1,178)
Items that may be reclassified subsequently to net income		6,032	6,201
Net realized gainsImpairment lossIncome tax benefit	4.2	(6,258)4,1441,024	(499)-15
Items reclassified to net income		(1,090)	(484)
Items other than cumulative translation lossItems that will not be reclassified subsequently to net income –Cumulative translation loss		4,942(4,846)	5,717(4,909)
Other comprehensive income		96	808
Total comprehensive income		32,538	5,902

TRISURA GROUP LTD. Consolidated Statements of Changes in Equity

(in thousands of Canadian dollars, except as otherwise noted)

	Note	Commonshares	Contributedsurplus	Accumulatedretainedearnings	Accumulated othercomprehensive loss(net of incometaxes)	Total
Balance at January 1, 2020		219,251	815	(28,309)	(1,428)	190,329
Net income		-	-	32,442	-	32,442
Other comprehensive income		-	-	-	96	96
Comprehensive income		-	-	32,442	96	32,538
Issuances, net of taxes	21	66,480	-	-	-	66,480
Share based payments	28	-	517	-	-	517
Balance at December 31, 2020		285,731	1,332	4,133	(1,332)	289,864

		Common	Preferred	Contributed	Accumulated	Accumulatedothercomprehensiveloss (net of
	Note	shares	shares	surplus	deficit	income taxes)	Total
Balance at January 1, 2019		163,582	1,600	313	(33,307)	(2,236)	129,952
Net income		-	-	-	5,094	-	5,094
Other comprehensive income		-	-	-	-	808	808
Comprehensive income		-	-	-	5,094	808	5,902
Share issuance	21	55,669	-	-	-	-	55,669
Share redemption	21	-	(1,600)	-	-	-	(1,600)
Share based payments	28	-	-	502	-	-	502
Dividends paid	21	-	-	-	(96)	-	(96)
Balance at December 31, 2019		219,251	-	815	(28,309)	(1,428)	190,329

TRISURA GROUP LTD. Consolidated Statements of Cash Flows

(in thousands of Canadian dollars, except as otherwise noted)

For the years ended December 31,	2020	2019
Operating activities
Net income	32,442	5,094
Items not involving cash:
Depreciation and amortization	2,628	2,500
Unrealized (gains) loss	(4,957)	7,927
Impairment loss	4,992	-
Payment in kind	(285)	(529)
Stock options granted	729	502
Change in working capital	81,412	49,726
Realized gains on investments	(22,666)	(2,860)
Income taxes paid	(9,808)	(2,573)
Interest paid	(1,144)	(1,410)
Net cash flows from operating activities	83,343	58,377
Investing activities
Proceeds on disposal of investments	238,827	55,452
Purchases of investments	(331,933)	(170,817)
Purchases of capital assets	(1,086)	(386)
Purchases of intangible assets	(210)	(2,745)
Net cash flows used in investing activities	(94,402)	(118,496)
Financing activities
Dividends paid	-	(96)
Shares issued	65,143	55,669
Preferred shares redeemed	-	(1,600)
Loans received	44,159	-
Repayment of loans payable	(44,159)	-
Principal portion of lease payments	(1,515)	(1,026)
Net cash flows from financing activities	63,628	52,947
Net increase (decrease) in cash and cash equivalents during the year	52,569	(7,172)
Cash, beginning of year	68,208	93,152
Cash equivalents, beginning of year	17,697	2,060
Cash and cash equivalents, beginning of year	85,905	95,212
Impact of foreign exchange on cash and cash equivalents	(1,955)	(2,135)
Cash, end of year	120,538	68,208
Cash equivalents, end of year	15,981	17,697
Cash and cash equivalents, end of year	136,519	85,905

(in thousands of Canadian dollars, except as otherwise noted)

Note 1 – The Company

Trisura Group Ltd. (the "Company") was incorporated under the Business Corporations Act (Ontario) (the "Act") on January 27, 2017. The Company's head office is located at 333 Bay Street, Suite 1610, Box 22, Toronto Ontario, M5H 2R2.

The Company owns three principal subsidiaries through which it conducts insurance operations. These subsidiaries are Trisura Guarantee Insurance Company ("Trisura Guarantee"), Trisura Specialty Insurance Company ("Trisura Specialty") and Trisura International Insurance Ltd. ("Trisura International"), which was wholly-owned through the intermediary holding company Trisura International Holdings Ltd. ("TIHL"). TIHL was wound up on May 21, 2020 (see Note 23), and Trisura International is now owned directly by the Company.

Trisura Guarantee operates as a Canadian property and casualty insurance company. Trisura Specialty is licensed by the Oklahoma Insurance Department as a domestic surplus lines insurer and can write business as a non-admitted surplus line insurer in all states within the United States and through its subsidiary can also write admitted business in certain states. Trisura Specialty operates as a hybrid fronting carrier where a large portion of its premium is ceded to reinsurers. Trisura Specialty earns fee income from the reinsurers to whom it ceded premium. Trisura International is currently managing its in-force portfolio of specialty reinsurance contracts and assumes some premium from Trisura Specialty.

The common shares of the Company are publicly traded on the Toronto Stock Exchange under the symbol "TSU".

Note 2 – Summary of significant accounting policies

2.1 Basis of presentation

These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

The Consolidated Financial Statements comprise the financial results of the Company and all entities controlled by the Company, on a consolidated basis of presentation. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

In accordance with IFRS, presentation of assets and liabilities on the Consolidated Statements of Financial Position is in order of liquidity. The Company's functional and presentation currency is Canadian dollars.

These Consolidated Financial Statements were authorized for issuance by the Company's Board of Directors on February 10, 2021.

2.2 Cash and cash equivalents

Cash and cash equivalents include short-term investments with original maturities of 90 days or less. The Company has classified cash and cash equivalents along with loans and receivables, at amortized cost, which approximates fair value.

2.3 Financial instruments

• a) Categories of financial instruments
• i) Fair Value Through Profit or Loss ("FVTPL")

FVTPL financial instruments are carried at fair value and recognized on the trade date, with the changes in fair value recognized in net income. Certain investments are designated as FVTPL to reduce the volatility within net income associated with the movement of the underlying claims which are supported by these investments. Structured insurance assets consisting of purchased commission arrangements are designated on inception as FVTPL. Transaction costs related to FVTPL financial instruments are expensed in investment income.

ii) Available-for-sale ("AFS")

AFS financial instruments are carried at fair value and recognized on the trade date, with changes in fair value recorded as unrealized gains or losses in other comprehensive income. Fixed income securities and equities are classified as AFS, unless they have been classified or designated otherwise. Transaction costs related to financial instruments classified as AFS are capitalized on initial recognition and, where applicable, amortized to interest income using the effective interest method.

(in thousands of Canadian dollars, except as otherwise noted)

2.3 Financial instruments (continued)

a) Categories of financial instruments (continued)

iii) Loans and receivables

Financial instruments are categorized as Loans and receivables when they have fixed or determinable payments and are not quoted in an active market. Loans and receivables are carried at amortized cost. Transaction costs are capitalized on initial recognition and are recognized in investment income using the effective interest rate method. The Company has classified Premiums and accounts receivable, and other assets as Loans and receivables. Derivative assets which are grouped with Premiums and accounts receivable, and other assets are carried at fair value as described in Note 2.3(c). The Company has also classified certain investments as Loans and receivables, which meet the criteria to do so.

Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in realized gains or losses on investments.

iv) Other financial liabilities

Other financial liabilities are measured at amortized cost. Loan payable, Reinsurance premiums payable, and Accounts payable, accrued and other liabilities are classified as Other financial liabilities. Derivative liabilities and cash-settled Share based payments, which are grouped with Accounts payable, accrued and other liabilities are carried at fair value as described in Note 2.3(c) and Note 2.9.

b) Measurement of fair values

The Company has an established control framework with respect to the measurement of fair values by management, which includes input from the Company's external investment manager.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques.

Investments carried at fair value are classified in accordance with a valuation hierarchy that reflects the significance of the inputs used in determining their fair value. Under Level 1 of this hierarchy, fair value is derived from unadjusted quoted prices in active markets for identical investments. Under Level 2, fair value is derived from market inputs that are directly or indirectly observable, other than unadjusted quoted prices for identical investments. Under Level 3, fair value is derived from inputs, some of which are not based on observable market data.

Significant unobservable inputs and valuation adjustments are regularly reviewed. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the evidence obtained from the third parties is assessed in light of the requirements of IFRS, including the level in the fair value hierarchy in which such investments should be classified.

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement.

The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

c) Derivative financial instruments

Derivative financial instruments are classified as held for trading. All derivatives are carried as assets when the fair values are positive and as liabilities when the fair values are negative.

Derivative financial instruments held for trading are typically entered into with the intention to settle in the near future. These instruments are recorded at fair value. Based on market prices, fair value adjustments and realized gains or losses are recognized in Net gains or losses in the Consolidated Statements of Comprehensive Income (Note 5 and Note 8).

2.3 Financial instruments (continued)

d) Impairment of financial assets

The Company's financial assets are assessed at each reporting date to determine whether there is any objective evidence that they are impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

When an unrealized loss on an AFS investment results from objective evidence of impairment, the difference between the acquisition cost (net of any principal repayment and amortization) of the investment and its fair value is recognized as a realized loss in net income and a corresponding adjustment is made to other comprehensive income. For debt securities, impairment could occur if there is objective evidence of impairment as a result of a loss event and that loss event has an impact on future cash flows, and for equity securities, impairment could occur as a result of a significant or prolonged decline in the fair value below its cost. In determining whether there is objective evidence of impairment, the factors considered are, primarily, the term of the unrealized loss and the amount of the unrealized loss. If, in a subsequent period, the fair value of a debt instrument classified as AFS increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in net income, the impairment loss is reversed, with the amount of the reversal recognized in net income.

The carrying amounts of the Company's non-financial assets are assessed at each statement of financial position date to determine whether there is any indication of impairment. If any such indication exists, the asset's recoverable amount is estimated and the carrying value is reduced to the estimated recoverable amount by means of an impairment charge to net income. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use.

e) Offsetting of financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount reported in the Consolidated Statements of Financial Position only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liability simultaneously.

2.4 Insurance contracts

When significant insurance risk exists, the Company's products are classified at contract inception as insurance contracts, in accordance with IFRS 4, Insurance Contracts ("IFRS 4"). Significant insurance risk exists when the Company agrees to compensate policyholders of the contract or ceding companies for specified uncertain future events that adversely affect the policyholder and whose amount and timing is unknown. The level of insurance risk is assessed by considering whether there are any scenarios with commercial substance in which the Company is required to pay significant additional benefits. These benefits are those which exceed the amounts payable if no insured or reinsured event were to occur. In the absence of significant insurance risk, the contract is classified as an investment contract.

a) Premiums, premiums receivable, and unearned premiums

Premiums are earned over the terms of the related policies or surety bonds, generally on a pro rata basis. There are some instances where premiums are earned over the term of the policy in accordance with the risk profile of those policies with more premiums being earned when the risk exposure from the policy is greatest. Unearned premiums represent the unexpired portion of premiums written.

In the normal course of business, the Company enters into fronting arrangements with third parties, whereby the Company assumes the insurance risk but then cedes all or most of the risk to other insurers and reinsurers. Where appropriate, security arrangements are established to offset the Company's risk exposure. Premiums related to those fronting arrangements are recognized over the term of the related policies on a pro rata basis.

Premiums receivable consist of premiums due to the Company for insurance contracts sold.

b) Fees

Fees charged by Trisura Guarantee to insureds are recognized in the period in which they are charged provided that no significant obligations to insureds exist and reasonable assurance exists regarding collectability, in accordance with IFRS 15 Revenue from contracts with customers. Fees charged by Trisura Specialty to reinsurers are recognized over the same period as the related insurance contract.

2.4 Insurance contracts (continued)

c) Deferred acquisition costs

Acquisition costs comprise commissions and premium taxes. These costs are deferred to the extent they are recoverable from unearned premiums and are amortized on the same basis as the related premiums are earned. If unearned premiums are not sufficient to pay expected claims and expenses, including the deferred acquisition costs, after taking into consideration anticipated investment income, the resulting premium deficiency is recognized in the current period by first reducing, to a corresponding extent, the deferred amount of the acquisition costs. Any residual amount is recorded in Deferred acquisition costs in the Consolidated Statements of Financial Position as a provision for premium deficiency.

d) Unpaid claims and loss adjustment expenses

The liability for unpaid claims and loss adjustment expense ("LAE") represents an estimate of the ultimate cost of all claims incurred but not paid by the statement of financial position date. The estimation process employed in determining future claims and LAE payments includes consideration of individual case estimates of claims and LAE payments on reported claims, provision for future development of case estimates on reported claims, and provision for claims and LAE related to incurred but not reported ("IBNR") claims. In some instances, further provisions are made for the time value of money by applying discount rates based on projected investment income from the assets supporting this liability. Unpaid claims and LAE of Trisura Specialty are not discounted. The unpaid claims and LAE related to the property and casualty reserves of Trisura International are not discounted. The unpaid claims and LAE of Trisura Guarantee and the life reserves of Trisura International are discounted. The Company uses qualified actuaries in its reserving processes.

In estimating the IBNR claims, the Company uses a range of actuarial methodologies which consider assumptions related to historical loss development factors and payment patterns. While there are several assumptions that go into determining the IBNR claims, significant management judgment is applied regarding the use of assumptions relating to future development of claims and LAE that have not yet been reported, future rates of claims frequency and severity, claims inflation, payment patterns and reinsurance recoveries, taking into consideration the circumstances of the Company and the nature of the insurance policies. Typically, the delay to ultimate settlement of claims increases the uncertainty of the estimate of the ultimate cost of those claims and LAE. In certain circumstances, explicit actuarial margins are included in the liability in recognition of the inherent uncertainty of the estimates and the possibility of deterioration in experience relative to expectation in relation to claims development, investment return rates and recoverability of reinsurance balances.

In the life reinsurance business, the liability for unpaid claims and LAE represents a closed block of deferred annuities with guaranteed annuity conversion options which is denominated in Euros and has been in run-off since 2008. The Company uses an actuarial model to determine the claims liability. While there are several assumptions that go into determining the liability on the life reinsurance business, significant management judgment is applied regarding the use of assumptions relating to the guaranteed annuity option future take-up rates, changes in the European Insurance and Occupational Pensions Authority published interest rates for use in discounting claims liability, and a volatility adjustment.

As a result of the uncertainly in estimation, actual future claims and LAE payments may deviate in quantum and timing, perhaps materially, from the liability recorded in the Company's provision for unpaid claims and LAE as recorded on the Consolidated Statements of Financial Position. The liability for unpaid claims and LAE is reviewed regularly and evaluated in light of emerging claims experience and changing circumstances. Any resulting adjustments to the estimates of the ultimate liability are recorded as claims and LAE in the period in which such changes are made.

e) Recoverable from reinsurers and Unearned reinsurance commissions

The reinsurers' share of unearned premiums and their estimated share of unpaid claims and LAE are presented as Recoverable from reinsurers on a basis consistent with the methods used to determine the unearned premium liability and the unpaid claims liability, respectively.

Unearned reinsurance commissions are deferred and earned using principles consistent with the method used for deferring and amortizing acquisition costs.

2.4 Insurance contracts (continued)

f) Investment contracts

Contracts issued to policyholders that transfer financial risk, but do not transfer significant insurance risk to the Company are classified as investment contract liabilities. The contributions received from policyholders on these contracts are recorded as investment contract liabilities, and not as premiums written, and claim payments made are recorded as adjustments to the investment contract liabilities.

Investment contract liabilities are carried at amortized cost and are measured at the date of initial recognition as the fair value of consideration received, less payments for transaction related costs. At end of each reporting period, the liability is measured based on the estimated future cash flows relating to all claims expected to be settled on the contracts. Gains or losses associated with the measurement are recorded in Claims and LAE. Investment contract liabilities are included in Accounts payable, accrued and other liabilities in the Consolidated Statements of Financial Position.

2.5 Capital assets

Capital assets are carried at cost less accumulated depreciation. Depreciation is provided over the estimated useful lives of these assets using the following rates and methods:

Office equipment	30% – 40%, declining balance
Furniture and fixtures	20% – 25%, declining balance
Leasehold improvements	4 to 16 years, straight-line over the term of the lease

2.6 Intangible assets

Intangible assets are carried at cost less accumulated amortization. Amortization is provided over the estimated useful lives of those assets. A 40% amortization rate and the declining balance method of amortization are applied to computer software. A 20% amortization rate and the declining balance method of amortization are applied to the customer lists recorded as intangible assets. Licenses have indefinite useful lives and are not amortized.

2.7 Income taxes

The Company uses the asset and liability method of accounting for income taxes. Under this method of tax allocation, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax basis of assets and liabilities, and are measured using the tax rates and laws that are expected to be in effect in the periods in which the deferred income tax assets or liabilities are expected to be settled or realized, where those tax rates and laws have been substantively enacted.

Deferred tax assets are only recognized to the extent that it is probable that they will be realized. Estimates are used to determine the value of the deferred tax asset balance based on the assumption that the Company will generate taxable income in future years. Estimates are used to determine the taxes payable balance based on applicable tax legislation. For items in other comprehensive income, the related tax is also presented in other comprehensive income.

2.8 Foreign currency

a) Functional and presentation currency

The Company's functional and presentation currency is Canadian dollars. Foreign currency transactions are translated into Canadian dollars at the foreign exchange rate in effect on the date of the transaction.

Monetary assets and liabilities denominated in a foreign currency are translated into the functional currency at the exchange rate in effect at the statement of financial position date. Foreign exchange differences arising on translation are recognized in net income. Foreign currency non-monetary assets and liabilities which are measured at historical cost are recorded at the exchange rate in effect at the date of transaction. Foreign currency non-monetary assets and liabilities which are measured at fair value are recorded at the exchange rate in effect at the date that fair value was determined.

For financial instruments with fixed maturities classified as AFS, foreign exchange differences resulting from changes in amortized cost are recognized in net income, while foreign exchange differences arising from unrealized fair value gains and losses are included as unrealized gains within other comprehensive income. For other financial instruments classified as AFS, foreign exchange differences are included as unrealized gains within other comprehensive income.

2.8 Foreign currency (continued)

b) Financial statements of foreign operations

For foreign operations that have a functional currency other than Canadian dollars, the results and financial position of such operations are translated into Canadian dollars. Assets and liabilities of the foreign operations are translated at the foreign exchange rates in effect at the statement of financial position date, and income and expenses are translated at average rates approximating the foreign exchange rates in effect at the dates of the transactions.

Foreign exchange differences arising from the translation to Canadian dollars are recognized as cumulative translation adjustment in other comprehensive income.

2.9 Share based compensation

The Company's accounting policies with respect to share based compensation are in accordance with IFRS 2, Share based payment.

a) Equity-settled stock option plan

The Company maintains an equity-settled stock option plan, which is described in Note 28.1. The value of equity-settled stock options is measured at the grant date, and the cost is recognized in Operating expenses as an expense over the vesting period. Obligations related to equity-settled stock option plans are recorded in shareholders' equity as contributed surplus. Any consideration paid by stock option holders to exercise the options increases share capital. The Company uses the Black-Scholes model to measure the fair value of stock options. Inputs to the model include a volatility measure, a risk-free rate and expected life of the options.

b) Cash-settled share based plan

The Company maintains a cash-settled share based plan, which is described in Note 28.2. The cost of cash-settled share based options is recognized in Operating expenses as an expense over the vesting period. Obligations related to cash-settled share based plans are recorded as liabilities at fair value in Accounts payable, accrued and other liabilities. At each reporting date, obligations related to the plan are re-measured at fair value with reference to the fair value of the Company's stock price and the number of units that have vested. The corresponding share based compensation expense or recovery is recognized over the vesting period. The Company uses the Black-Scholes model to measure the fair value of cash-settled share based options. Inputs to the model include a volatility measure, a risk-free rate and expected life of the options.

c) Deferred share units plan ("DSU")

The Company has adopted a non-employee director DSU plan, which is described in Note 28.3. This entitles the participants to receive, following the end of the director's tenure as a member of the Board, an amount equivalent to the value of a common share at settlement, for each DSU unit that the participant holds. Obligations related to the plan are recorded as liabilities at fair value in Accounts payable, accrued and other liabilities, and re-measured at each reporting date at fair value with reference to the fair value of the Company's stock price and the number of units that have vested. The cost of the DSUs is recognized in Operating expenses in the period they are awarded.

d) Equity-settled restricted share units plan ("RSU")

The Company has adopted a RSU plan, which is described in Note 28.4. This entitles certain employees to receive RSUs based on the market value of the Company's commons shares at the grant date. These RSUs typically vest over the course of three years, however in some instances the vesting period may differ. Obligations related to the equity-settled RSU plan are recorded in shareholders' equity as contributed surplus. The cost of the RSUs is recognized in Operating expenses over the course of the vesting period.

2.10 Leases

Effective January 1, 2019, the Company adopted the new leases standard IFRS 16 Leases ("IFRS 16") and applied the modified retrospective method upon adoption. The impact of adoption resulted in the addition of a right-of-use ("ROU") asset of $10,058 and a corresponding lease liability of $10,058 (see Note 12). At the commencement date, the Company measured the ROU assets at cost and the lease liability at the present value of future lease payments. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses its incremental borrowing rate. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day, less any lease incentives received and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. The Company used the incremental borrowing rate at the date of initial application as the discount rate, as the rate implicit in the lease was not readily determinable.

2.10 Leases (continued)

The ROU assets are depreciated over the earlier of the end of the useful life of the underlying asset or the end of the term of the underlying lease contracts. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

Short-term leases or leases of low-value assets are accounted for by recognizing the lease payments associated with those leases as an expense on a straight-line basis over the term of the leases, as permitted by IFRS 16.

2.11 Transaction costs

The Company accounts for transaction costs that are incremental and directly attributable to an equity transaction as a deduction from equity, in accordance with IAS 32 Financial Instruments: Presentation.

2.12 Uncertainty over income tax treatments

The Company has adopted IFRIC 23 Uncertainty over Income Tax Treatments ("IFRIC 23") in 2019. IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The adoption of this interpretation did not impact the Company's Consolidated Financial Statements for the years ended December 31, 2020 and 2019.

2.13 Future accounting policy changes

a) IFRS 9 Financial instruments ("IFRS 9")

IFRS 9, which replaces IAS 39, Financial Instruments: Recognition and Measurement, requires financial assets to be classified and measured at fair value, with changes in fair value recognized in profit and loss as they arise, unless certain criteria are met for classifying and measuring the asset at either amortized cost or fair value through other comprehensive income. IFRS 9 also established new criteria for hedge accounting and an expected credit loss model for the impairment assessment of loans and receivables. IFRS 9 generally was effective January 1, 2018, however, the IASB agreed to provide entities whose predominant activities are insurance to defer implementation of IFRS 9 to January 1, 2023 to coincide with the implementation of IFRS 17 Insurance Contracts ("IFRS 17").

Deferral of IFRS 9

The Company has adopted the amendments of IFRS 4, which addresses the deferral of the implementation of IFRS 9 for insurance companies. The Company is applying the temporary exemption from IFRS 9 as its activities are predominantly connected with insurance. The Company's percentage of liabilities connected with insurance contracts over total liabilities is greater than the 80% threshold as described in IFRS 4 and the Company does not engage in any significant activity not connected with insurance. Based on this analysis, the Company meets the criteria to defer implementation of IFRS 9.

The Company must also disclose certain elements related to the classification and fair value (see Note 4.2), as well as credit rating (see Note 15.2(c)) of financial assets. The Company is assessing the impact that IFRS 9 will have on its Consolidated Financial Statements.

b) IFRS 17

On May 18, 2017, the IASB issued the new standard IFRS 17 which allows insurance entities to elect one of the following two approaches with respect to financial instruments: (a) the deferral approach, which provides entities whose predominant activities are to issue insurance contracts within the scope of IFRS 4 a temporary exemption to continue using IAS 39, instead of IFRS 9, until January 1, 2021, later revised to January 1, 2023; and (b) the overlay approach, which can be applied to eligible financial assets and provides an option for all issuers of insurance contracts to reclassify from profit or loss to other comprehensive income any additional accounting volatility that may arise from applying IFRS 9 before IFRS 17 is applied. IFRS 17 requires insurance liabilities to be measured at current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. IFRS 17 supersedes IFRS 4 and related interpretations and is effective for fiscal years beginning on or after January 1, 2023, as pronounced by the IASB in September 2020. It is applied retrospectively unless impracticable, in which case the modified retrospective approach or the fair value approach is applied. The Company is actively assessing the impact that IFRS 17 will have on its Consolidated Financial Statements.

Note 3 – Critical accounting judgments and estimates in applying accounting policies

The preparation of Consolidated Financial Statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses for the years presented.

3.1 Critical accounting judgments in applying the Company's accounting policies

Judgments are used in applying the accounting policies used to prepare financial statements. Those judgments affect the carrying amount of certain assets and liabilities and the reported amounts of revenues and expenses recorded during the year.

a) Insurance contracts

Judgments are used to determine whether contracts should be classified as insurance or investment contracts (see Note 2.4).

b) Financial assets

Judgments are used in determining the classification of financial assets as AFS, FVTPL or Loans and receivables (see Note 2.3(a)).

c) Unpaid claims and LAE

Judgments are used in establishing provisions for unpaid claims and LAE (see Note 2.4(d)).

3.2 Assumptions and estimation uncertainty

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the Consolidated Financial Statements is included below. Any changes in estimates are recorded in the period in which they are determined. Accordingly, actual results may differ from these and other estimates thereby impacting future financial statements:

a) Valuation of claims liabilities

Assumptions and estimation uncertainties exist related to the valuation of unpaid claims and LAE (see Note 2.4(d)), as well as significant risk factors associated with insurance and reinsurance (see Note 15 and Note 16).

b) Valuation of level 3 assets

Assumptions and estimation uncertainties exist related to the valuation of the structured insurance assets (see Note 4.4 and Note 6) as well as other Level 3 assets (see Note 6).

c) Measurement of income taxes

Assumptions and estimates are used in measuring the provision for incomes taxes (see Note 2.7 and Note 27).

d) Impairment of financial instruments

Management assesses financial instruments for objective evidence of impairment at each reporting date and there are inherent risks and uncertainties in performing this assessment of impairment loss, including factors such as general economic conditions and issuers' financial conditions (see Note 2.3(d) and Note 4.2)

Note 4 – Investments

4.1 Classification of cash and cash equivalents and investments

The following table presents the classification of cash and cash equivalents, and investments:

As at December 31, 2020	AFS	DesignatedFVTPL	Cash, loans andreceivables	Total
Cash and cash equivalents	-	-	136,519	136,519
InvestmentsShort-term securities	-	-	5,000	5,000
Fixed income	299,452	80,371	1,287	381,110
Common shares	48,523	-	-	48,523
Preferred shares	59,361	-	-	59,361
Structured insurance assets	-	9,690	-	9,690
Total cash and investments	407,336	90,061	142,806	640,203

As at December 31, 2019	AFS	DesignatedFVTPL	Cash, loans andreceivables	Total
Cash and cash equivalentsInvestments	-	-	85,905	85,905
Fixed income	226,122	71,838	4,294	302,254
Common shares	40,621	-	-	40,621
Preferred shares	39,084	-	-	39,084
Structured insurance assets	-	10,658	-	10,658
Total cash and investments	305,827	82,496	90,199	478,522

In April 2020, the Company recognized an impairment loss of $848 (December 31, 2019 – Nil) on a fixed income investment classified as loans and receivables. Thereafter, in May 2020, the Company received common shares as settlement against this financial asset and the excess of the carrying value of the financial asset of $4,575 over the fair value of the common shares received of $3,450 resulted in a further loss of $1,125. As at December 31, 2020, these common shares are Level 3 investments measured at fair value.

4.2 Unrealized gains and losses and carrying value of investments

The amortized cost and carrying value of investments as at December 31, 2020 and December 31, 2019 were as follows:

	FVTPL					Total
As at December 31, 2020	investments		Other investments
	At carrying	Amortized	Unrealized	Unrealized	Carrying	At carrying
	value	cost	gains	losses	value	value
Short-term securities	-	5,000	-	-	5,000	5,000
Government	59,320	36,649	1,273	(3)	37,919	97,239
Corporate	21,051	255,180	7,229	(876)	261,533	282,584
Total bonds	80,371	291,829	8,502	(879)	299,452	379,823
Other loans	-	1,287	-	-	1,287	1,287
Total fixed income	80,371	293,116	8,502	(879)	300,739	381,110
Common shares	-	47,232	5,682	(4,391)	48,523	48,523
Preferred shares	-	58,848	3,185	(2,672)	59,361	59,361
Structured insurance assets	9,690	-	-	-	-	9,690
	90,061	404,196	17,369	(7,942)	413,623	503,684

	FVTPL					Total
As at December 31, 2019	investments		Other investments
	At carrying	Amortized	Unrealized	Unrealized	Carrying	At carrying
	value	cost	gains	losses	value	value
Government	71,838	49,046	796	(49)	49,793	121,631
Corporate	-	174,957	2,121	(749)	176,329	176,329
Total bonds	71,838	224,003	2,917	(798)	226,122	297,960
Other loans	-	4,294	-	-	4,294	4,294
Total fixed income	71,838	228,297	2,917	(798)	230,416	302,254
Common shares	-	34,543	6,335	(257)	40,621	40,621
Preferred shares	-	42,832	518	(4,266)	39,084	39,084
Structured insurance assets	10,658	-	-	-	-	10,658
	82,496	305,672	9,770	(5,321)	310,121	392,617

The Company is currently assessing the cash flow characteristics test, to determine if the securities the Company holds would pass the solely payments of principal and interest ("SPPI") test. Based on a preliminary assessment, most of the debt securities would pass the test, however the composition of debt securities may change significantly by the time IFRS 9 is adopted along with IFRS 17, effective for fiscal year commencing January 1, 2023.

Management has reviewed currently available information regarding those investments with a fair value less than carrying value. During the year ended December 31, 2020, management recognized total impairments of $4,992 (December 31, 2019 – $nil), of which $4,144 was on AFS investments and $848 on loans and receivables. Assumptions are used when estimating the value of impairment based on the Company's impairment policy, which involves comparing fair value to carrying value.

4.3 Pledged assets

In the normal course of insurance and reinsurance operations, the Company must secure its obligations under certain insurance and reinsurance contracts by collateralizing them with letters of credit or trust arrangements. These trusts and letters of credit may, in turn, be secured by the Company's fixed income investments. As at December 31, 2020, the Company has pledged cash amounting to $1,582 USD and pledged fixed maturity investments amounting to $68,182 USD (December 31, 2019 - $2,576 USD and $58,981 USD, respectively), under insurance and reinsurance trust arrangements and are therefore not readily available for general use by the Company.

As at December 31, 2020, the Company pledged $5,592 USD (December 31, 2019 – $311 USD) of fixed income investments as security deposits to various US state insurance departments to be held in trust for and pledged to various states.

4.4 Structured insurance assets

The structured insurance assets represent the Company's purchase of the rights to collect commission income on portfolios of long-term care insurance policies issued by insurance companies. The commissions are paid into trusts, from which the amounts due to the Company, being the commissions net of amounts due to other parties and expenses of the trusts, are paid. The commission income for the year ended December 31, 2020 amounted to $1,349 (December 31, 2019 – $1,658), which has been recorded within Net investment income (see Note 7).

In March 2019, there was a settlement gain of $6,075 USD on the structured insurance assets that arose from a legal action against the third party, from whom Trisura International purchased the structured insurance assets in 2004.

Note 5 – Fair value and notional amount of derivatives

The following sets out the fair value and notional amount of derivatives as at December 31, 2020 and December 31, 2019:

As at	December 31, 2020	December 31, 2019
	Fair value					Fair value
	Notional	Asset	Liability	Notional	Asset	Liability
	amount			amount
Foreign currency contracts
Forwards	51,000	-	152	43,700	327	-
Equity contracts
Swap agreements	8,112	8,272	-	494	745	-
Interest rate contracts
Swap agreements	4,134	57	-	-	-	-
	63,246	8,329	152	44,194	1,072	-
Term to maturity
less than one year	59,086	7,940	152	43,700	327	-
from one to five years	26	332	-	494	745	-
from five to ten years	4,134	57	-	-	-	-

The Company uses foreign currency forward contracts to reduce its exposure to fluctuations in the exchange rates that could arise from its USD, EUR and GBP denominated investments. The notional amounts of the forwards as at December 31, 2020 are $32,392 USD (December 31, 2019 – $25,991 USD), €1,669 EUR (December 31, 2019 – €1,636 EUR) and £4,226 GBP (December 31, 2019 – £4,193). The Company also uses swap agreements to mitigate exposure to interest rate on its investment portfolio and equity market fluctuations associated with its share based compensation. These derivatives are recorded at fair value and gains and losses are recorded in Net gains (see Note 8).

(in thousands of Canadian dollars, except as otherwise noted)

Note 6 – Fair value measurement

The following sets out the financial instruments classified in accordance with the fair value hierarchy as at December 31, 2020 and December 31, 2019:

As at December 31, 2020	Total fair value	Level 1	Level 2	Level 3
Government	97,239	-	97,239	-
Corporate	282,584	-	282,584	-
Total bonds	379,823	-	379,823	-
Common shares	48,523	25,213	12,626	10,684
Preferred shares	59,361	48,008	11,060	293
Structured insurance assets	9,690	-	-	9,690
Total investments	497,397	73,221	403,509	20,667
Derivative financial assets	8,329	-	8,329	-
Derivative financial liabilities	(152)	-	(152)	-
	505,574	73,221	411,686	20,667
As at December 31, 2019	Total fair value	Level 1	Level 2	Level 3
Government	121,631	-	121,631	-
Corporate
Total bonds	176,329	-	176,329	-
Common shares	297,960	-	297,960	-
Preferred shares	40,621	39,711	-	910
Structured insurance assets	39,084	39,084	-	-
Total investments	10,658	-	-	10,658
Derivative financial assets	388,3231,072	78,795-	297,9601,072	11,568-

Included within the Level 3 assets are the structured insurance assets. The structured insurance assets are valued using a proprietary discounted cash flow valuation model. The fair value of this investment is based on discounting the expected future commission using a US Treasury yield curve adjusted for credit risk associated with the receipt of future commission payments from the insurance companies. The credit risk adjustment is made since the Company takes on the credit risk of the insurance companies who have the ultimate commission obligations. The majority of commissions are received from insurance companies with an A.M. Best Company, Inc. ("A.M. Best") long-term issuer credit ratings of A or better.

Expected future cash flows are projected considering the probability of the policy being cancelled by the insured (referred to as lapse), the insured becoming sick and making a claim under the insurance policy (referred to as morbidity) and having future premium payments waived, or the insured dying (referred to as mortality). These actuarial risks are modeled using data drawn from the insurance companies and the Society of Actuaries Long Term Care Studies, as well as data from other public and nonpublic sources supplemented, as appropriate, by assistance from external actuarial consultants. Mortality rates used in the valuation of the Structured insurance assets are derived from the 2012 Individual Annuity Mortality table developed by the Society of Actuaries in the United States. The assumptions used are reviewed on a regular basis.

Management uses sensitivity analyses to ensure risks assumed are within the Company's risk tolerance level. Sensitivity analyses are performed on factors that would impact the Company's results and financial condition. Results of the sensitivity analyses should only be viewed as directional estimates as they can differ materially from actual results. The following table shows the sensitivity of the valuation to a 1% change in the lapse rate.

	December 31, 2020	December 31, 2019
Sensitivity factor	Impact on comprehensive income
100 basis point increase in lapse rate	(560)	(576)
100 basis point decrease in lapse rate	608	622

Note 6 – Fair value measurement (continued)

For the years ended December 31, 2020 and December 31, 2019, there were no transfers between levels.

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the hierarchy for the years ended December 31, 2020 and the year ended December 31, 2019:

	December 31, 2020	December 31, 2019
Balance at beginning of year	11,568	13,105
Unrealized gains (losses)	1,891	(1,092)
Purchase of securities	7,403	119
Foreign exchange	(195)	(564)
Balance at end of year	20,667	11,568

The following tables present quantitative information about the significant fair value inputs utilized by the Company for Level 3 assets:

	Fair value as atDecember 31, 2020	Valuationtechnique	Unobservable inputs	Range
Structured insurance assets	9,690	Discountedcash flow	Discount rate load (1)Morbidity rates (2)Lapse rates (3)	0.25% - 3.00%0.00% - 29.00%1.00% - 3.60%
Private equity investment	4,832	Discountedcash flow	Discount rateExit multiple	9%10x
Private equity investments	6,145	Net asset value (4)	n/a	n/a

	Fair value as at	Valuation
	December 31, 2019	technique	Unobservable inputs	Range
Structured insurance assets	10,658	Discountedcash flow	Discount rate load (1)Morbidity rates (2)	0.25% - 3.00%0.00% - 24.50%
			Lapse rates (3)	1.00% - 3.90%
Private equity investments	910	Net asset value (4)	n/a	n/a

(1) The discount rate used by the Company consists of three components:

• Risk free rate: based on U.S. Treasury strip rates that are quoted observable fair value inputs;

• Credit risk: based on counterparty credit default swap rates that are quoted observable fair value inputs; and

• Discount rate load: the risk premium applied to projected cash flows which increases over time. A decrease in discount rate load increases estimated fair value.

(2) Morbidity rates refer to the percentage of policyholders in receipt of benefit during which time premiums are waived. These morbidity rates vary by age and gender (e.g. from 0.0% at age 50 to over 20% for ages in excess of 97) and are based on long term care industry data. At December 31, 2020, the average morbidity rate was 5.3% corresponding to an average policyholder age of 81 (December 31, 2019 – 5.0% and average policyholder age of 81).

(3) Lapse rates are the percentage of policyholders electing to cancel their policy and are based on long term care industry data and recent portfolio experience.

(4) Based on the net asset value of the equity fund and market transactions which approximates the fair value of the investment.

(in thousands of Canadian dollars, except as otherwise noted)

Note 7 – Net investment income

For the years ended December 31	2020	2019
Cash and cash equivalents, and short-term securities	644	702
Bonds classified as loans and receivables	175	764
FVTPL bonds	892	423
AFS bonds	8,272	7,818
Interest income	9,983	9,707
AFS common shares and income and investment trust units	1,998	1,318
AFS preferred shares	2,806	1,708
Dividend income	4,804	3,026
Gains on investments held at FVTPL	12,893	2,374
Commission income on structured insurance assets	1,349	1,658
Investment expenses	(1,250)	(522)
Other investment income	12,992	3,510
Net investment income	27,779	16,243
Note 8 – Net gains
For the years ended December 31	2020	2019
Net gains (losses) from:
financial instruments:
AFS common shares and income and investment trust units	3,649	1,052
AFS preferred shares	1,282	98
AFS bonds	1,746	(652)
	6,677	498
derivatives:
swap agreements (1)	2,197	250
Embedded derivatives	(1,314)	-
Net foreign currency gains	5,882	824
Impairment on investments (see Note 4.2)	(4,992)	-
Net gains	8,450	1,572

(1) Excluding foreign currency contracts, which are reported in the line Net foreign currency gains.

Note 9 – Unpaid claims and loss adjustment expenses

The following changes have occurred to the claim reserves:

For the year ended December 31, 2020	Direct	Ceded	Net
Unpaid claims, beginning of year	257,880	114,657	143,223
Claims occurring in current year (including paid)	407,439	352,118	55,321
Change in undiscounted estimates for losses of prior years	(10,169)	(7,023)	(3,146)
Change in discounting	20,157	715	19,442
Change in provision for adverse deviation	732	(213)	945
Total claims incurred	418,159	345,597	72,562
Claims paid	(180,814)	(133,629)	(47,185)
Foreign exchange	(7,954)	(12,721)	4,767
Unpaid claims, end of year	487,271	313,904	173,367
For the year ended December 31, 2019	Direct	Ceded	Net
Unpaid claims, beginning of year	173,997	42,048	131,949
Purchase of Trisura Warranty outstanding warranty contracts	987	-	987
Gross unpaid claims	174,984	42,048	132,936
Claims occurring in current year (including paid)	174,646	138,364	36,282
Change in undiscounted estimates for losses of prior years	(8,141)	(1,679)	(6,462)
Change in discount rate	19,759	134	19,625
Change in provision for adverse deviation	766	275	491
Total claims incurred	187,030	137,094	49,936
Claims paid	(96,370)	(62,645)	(33,725)
Foreign exchange	(7,764)	(1,840)	(5,924)
Unpaid claims, end of year	257,880	114,657	143,223

The unpaid claims and LAE of Trisura Guarantee were discounted to take into account the time value of money using a rate of 2.39% (2019 – 3.0%) on expected claims settlement patterns. The expected future claim and LAE payments related to the Life liabilities of Trisura International were discounted to take into account the time value of money using rates which ranged from (0.64%) to 3.75% (2019 – (0.35%) to 3.9%).

As at September 30, 2019, the Company changed its estimation methodology for determining the long-term interest rates used in discounting the claims reserves of the life reinsurance business of Trisura International. Prior to September 30, 2019, Trisura International used the Euro swap rate curve to represent market-consistent risk-free interest rates.

Effective September 30, 2019, Trisura International began to determine the interest rates used in discounting its life reinsurance claims reserves by using the interest rate curve provided by the European Insurance and Occupational Pensions Authority ("EIOPA"). This curve is based on the Euro swap rate curve and also incorporates a credit risk adjustment, a volatility adjustment and the extrapolation of interest rates at longer durations. The EIOPA curve is used in Solvency II, a risk-based insurance regulatory and capital regime applied in Europe and is an accepted practice for valuation of claims reserves under IFRS 4.

The aggregate impact of this estimation change reduced Trisura International's life Unpaid claims and loss adjustment expenses by $5,773 as at September 30, 2019, with a corresponding decrease of $5,773 in Claims and loss adjustment expenses.

Unpaid claims and loss adjustment balances due from reinsurers are grouped with unearned reinsurance assets in Recoverable from reinsurers on the Consolidated Statements of Financial Position.

(in thousands of Canadian dollars, except as otherwise noted)

9.1 Prior year claims development

The following table presents the net cumulative claim payments to date and estimate of net ultimate claims incurred, including IBNR and provisions for adverse deviation ("PfAD"), at the end of the year:

Net claims loss development

	All prior
Accident year	years	2011	2012	2013	2014	2015	2016	2017	2018	2019	2020	Total
Estimate of netultimate claims
incurred		10,003	10,463	12,349	14,002	18,997	28,378	21,741	23,138	35,784	53,515
One year later		10,211	8,872	9,953	12,363	15,878	26,772	19,059	20,059	32,684
Two years later		9,683	7,402	6,651	10,310	14,365	26,380	17,409	19,854
Three years later		9,253	6,845	5,648	9,224	14,421	25,826	16,467
Four years later		7,564	6,568	5,324	8,934	13,340	26,739
Five years later		7,053	7,861	5,254	8,269	12,730
Six years later		6,958	8,102	5,179	9,303
Seven years later		7,090	7,899	5,083
Eight years later		6,680	8,189
Nine years later		6,707
Estimate of netultimate claim
incurred		6,707	8,189	5,083	9,303	12,730	26,739	16,467	19,854	32,684	53,515
Cumulative claimpayments to date		(6,494)	(5,867)	(4,459)	(8,515)	(11,579)	(19,141)	(12,253)	(13,601)	(20,134)	(17,407)
Net unpaid claims	6,317	213	2,322	624	788	1,151	7,598	4,214	6,252	12,550	36,108	78,137
Impact ofdiscounting	(6)	(7)	(78)	(28)	(33)	(53)	(260)	(256)	(418)	(715)	(1,299)	(3,153)
Impact of PfAD	49	29	317	114	141	171	976	614	931	1,437	2,961	7,740
Present value ofnet unpaid claims
with PfAD	6,360	235	2,561	710	896	1,269	8,314	4,572	6,765	13,272	37,770	82,724
Add: Net discounted reserves on life contracts												90,058
Add: Trisura Warranty unpaid claims												585
Total net unpaid claims and LAE

(in thousands of Canadian dollars, except as otherwise noted)

Note 10 – Deferred acquisition costs

The following changes have occurred to the deferred acquisition costs for the years ended December 31, 2020 and 2019:

Deferred acquisition costs

	December 31, 2020	December 31, 2019
Opening costs, beginning of year	104,197	63,715
Acquisition costs deferred	254,813	124,742
Amortization of deferred costs	(167,898)	(83,171)
Foreign exchange	(2,922)	(1,089)
Closing balance, end of year	188,190	104,197

Reinsurers' share of deferred acquisition costs

	December 31, 2020	December 31, 2019
Opening costs, beginning of year	51,291	19,137
Acquisition costs deferred	163,470	77,268
Amortization of deferred costs	(111,052)	(43,845)
Foreign exchange	(3,428)	(1,269)
Closing balance, end of year	100,281	51,291

The reinsurers' share of deferred acquisition costs is referred to as Unearned reinsurance commissions in the Consolidated Statements of Financial Position.

Net commissions For the years ended	December 31, 2020	December 31, 2019
Commissions expense	169,626	82,923
Reinsurance commissions	(113,711)	(45,407)
Net commissions expense	55,915	37,516

Note 11 – Unearned premiums

Unearned premiums are generally calculated on a pro rata basis from the unexpired portion of the premiums written (see Note 2.4(a)). The unearned premiums estimate is validated through standard actuarial techniques to ensure that after deducting any deferred policy acquisition costs, these premiums are sufficient to cover the estimated future costs of servicing the associated policies, expected claims, LAE, and taxes to be incurred. In estimating these costs, the Company in some instances uses discounting techniques to take into account the time value of money and a provision for adverse deviation is added to the discounted amount. There was no premium deficiency at December 31, 2020 or December 31, 2019.

The following changes have occurred in the provision for unearned premiums:

For the year ended December 31, 2020	Gross	Ceded	Net
Unearned premiums, beginning of year	328,091	178,411	149,680
Premiums written	926,442	684,985	241,457
Premiums earned	(648,413)	(487,973)	(160,440)
Foreign exchange	(13,409)	(12,355)	(1,054)
Unearned premiums, end of year	592,711	363,068	229,643
For the year ended December 31, 2019	Gross	Ceded	Net
Unearned premiums, beginning of year	182,623	67,519	115,104
Premiums written	448,262	305,480	142,782
Premiums earned	(298,408)	(190,445)	(107,963)
Foreign exchange	(4,386)	(4,143)	(243)
Unearned premiums, end of year	328,091	178,411	149,680

Note 12 – Leases

The Company leases office premises for its own use. These leases have terms that range from 4 years to 16 years, most with an option to extend the lease at the end of the lease term. The Company also leases office equipment. These leases generally have a lease term of five years, with no renewal option or variable lease payments.

As at December 31, 2020, ROU assets of $8,470 (December 31, 2019 – $9,599) are recorded in Capital assets and intangible assets, along with $5,437 (December 31, 2019 – $4,878) of other Capital assets and intangible assets.

Information about leases for which the Company is a lessee is presented below:

As at December 31, 2020					As at December 31, 2019
	Office				Office
Right-of-use assets	Premises	equipment	TotalPremisesequipmentTotal
Balance as at January 1	9,586	13	9,599	-	-	-
Impact of IFRS 16 adoption	-	-	-	10,033	25	10,058
Additions	527	-	527	780	-	780
Depreciation	(1,634)	(11)	(1,645)	(1,167)	(11)	(1,178)
Foreign exchange	(12)	1	(11)	(60)	(1)	(61)
Balance at end of year	8,467	3	8,470	9,586	13	9,599

As at	December 31, 2020	December 31, 2019
Lease liabilities maturity analysis
Less than one year	1,566	1,656
One to five years	6,212	6,650
More than five years	2,500	2,826
Total undiscounted lease liabilities	10,278	11,132
Lease liabilities included in the Statements of Financial PositionTotal cash outflow for leases recognized in the	8,793	9,756
Statements of Cash Flows	1,965	1,348

Amounts recognized in Statements of Comprehensive Income

for the years ended	December 31, 2020	December 31, 2019
Interest on lease liabilities	450	322
Expense relating to short-term leases	45	40
Expenses relating to leases of low-value assets	5	4
Income from subleasing right-of-use assets	124	337

Note 13 – Premiums and accounts receivable, and other assets

As at December 31, 2020 and December 31, 2019, Premiums and accounts receivable, and other assets consists of:

As at	December 31, 2020	December 31, 2019
Premiums receivable	166,017	79,627
Derivative assets	8,329	1,072
Accrued investment income	2,879	2,537
Tax recoveries	409	417
Prepaid expenses	317	388
Miscellaneous assets	932	2,628
	178,883	86,669

As at December 31, 2020, Premiums receivable of $166,017 (December 31, 2019 – $79,627) includes an amount of $120,595 (December 31, 2019 – $54,187) related to Trisura Specialty for which there is a reinsurance payable of $129,740 (December 31, 2019 – $60,345).

The Reinsurance premiums payable balance of $151,707 (December 31, 2019 – $80,186) on the Consolidated Statements of Financial Position reflects $186,382 of reinsurance payable (December 31, 2019 – $84,572), netted against $34,675 (December 31, 2019 – $4,386) of reinsurance recoverable.

Note 14 – Accounts payable, accrued and other liabilities

As at December 31, 2020 and December 31, 2019, Accounts payable, accrued and other liabilities consist of:

As at	December 31, 2020	December 31, 2019
Accrued liabilities	15,725	8,345
Deposits in trust	12,140	11,842
Lease liabilities	8,793	9,756
Share based payment plan	5,670	2,589
Taxes payable	4,558	3,913
Investment contract liabilities	339	369
Derivatives liabilities	152	-
Premium taxes payable and other liabilities	9,966	4,102
	57,343	40,916

Note 15 – Risk management

As a provider of insurance products, effective risk management is critical to the Company's ability to protect the interests of its stakeholders. The most significant risks include those associated with insurance contracts and holding financial instruments. The Company has policies and procedures governing the identification, measurement, monitoring, mitigating and controlling of risks associated with insurance contracts and holding financial instruments. The most significant risk associated with insurance contracts is insurance risk, which includes pricing risk, concentration risk and reserving risk. The significant risks associated with financial instruments are credit risk, liquidity risk and market risk (comprising currency risk, interest rate risk and other price risks such as equity risk). Sensitivity analyses are performed on these significant risks which could impact the Company's results and financial condition. Results of the sensitivity analyses should only be viewed as directional estimates as they can differ materially from actual results.

The following sections describe how the Company manages its insurance risk and risks associated with financial instruments.

(in thousands of Canadian dollars, except as otherwise noted)

15.1 Insurance risk

Insurance risk is the risk that the ultimate cost of claims and LAE, as well as acquisition expenses, related to insurance contracts will exceed premiums received in respect of those contracts. This could occur because either the frequency or severity of claims is greater than expected.

The Company's objective for managing insurance risk is to mitigate the risk while continuing to grow and to achieve profitable underwriting results within its identified product lines. Senior management seeks to achieve this objective through effective use of underwriting and pricing policies, procedures and guidelines, which it has developed for pricing and issuing bonds and policies or assuming reinsurance risk. In addition, careful oversight is applied to the underwriting process to ensure that these policies, procedures and guidelines are followed. Furthermore, the Company regularly reviews its underwriting practices to ensure that they reflect emerging trends in its existing business and in the marketplace. Insurance risk is further mitigated through effective claims and expense management, and through the use of reinsurance.

The insurance risks associated with insurance contracts underwritten by the Company are subject to a number of variables such as estimated loss ratios and estimated claims settlement costs, which are sensitive to various assumptions which can impact the estimation of claims liabilities (see Note 2.4(d)).

Some additional factors that impact insurance risk include pricing risk, concentration risk and reserving risk, which are described below:

a) Pricing risk

Pricing risk is the risk that an insurance product has been priced using assumptions about claims and LAE activity that are different from the actual experience of that product line. The Company mitigates the impact of pricing risk through the use of guidelines, which are designed such that premium rates take into account claims frequency and severity, expense levels, investment returns and profit margins required to support a particular product line. The Company reviews pricing assumptions regularly to ensure that they reflect up-to-date claims experience and expected future changes in that experience, as well as market conditions. The Company further mitigates the impact of pricing risk through the employment of experienced underwriting staff.

b) Reserving risk

Reserving risk is the risk that future claims and LAE arising on past exposure periods exceed the liability recorded in respect of unpaid claims and LAE. The Company's management of reserving risk is discussed in Note 2.4(d).

c) Concentration of insurance risk

Concentration risk is the risk that the Company's insurance products are concentrated within a particular geographic area, particular class of business, or a particular insured, thereby increasing the exposure of the Company to a single event or a series of related events. Concentration of risk could arise as a result of accumulations of large numbers of insurance or reinsurance contracts exposed to similar perils, classes of business or geographic areas.

To mitigate the impact of concentration of risk, the Company applies risk management practices, including the use of reinsurance, monitoring and modelling techniques, and regularly reviews its portfolio of insurance risks for concentration and aggregation of risks and makes adjustments as needed in order to ensure exposures are within tolerances. The active management of its reinsurance programs and collateral requirements is also an important element in maintaining net claims exposures and concentration and aggregation risks within the Company's risk tolerance.

The following table shows the mix of the Company's policies by product line and geography, which reflects the Company's diversification of insurance risk:

		December 31, 2020			December 31, 2019
		Canada	U.S.	Other	Canada	U.S.	Other
Trisura Guarantee(1)	Surety	66,081	5,493	-	57,022	2,247	-
	Corporate insurance	69,691	-	-	47,253	-	-
	Risk solutions	137,869	-	-	77,717	-	-
Trisura Specialty	Fronting	-	647,183	-	-	263,911	-
Trisura International	Life	-	-	125	-	-	112
Gross premiums written		273,641	652,676	125	181,992	266,158	112

(1) The operations of Trisura Guarantee comprises Surety, Risk Solutions and Corporate Insurance products underwritten in Canada as well as the operations of Trisura Warranty, which are grouped with Risk Solutions.

15.1 Insurance risk (continued)

d) Sensitivity to insurance risk

i) Property and casualty business of Trisura Guarantee, Trisura Specialty and Trisura International

The insurance risks associated with the lines of business underwritten by the Company are sensitive to various assumptions which can impact the estimation of claims liabilities. The operations of Trisura Guarantee include the operations of Trisura Warranty. The relevant risk variables for the Company's property and casualty lines of business associated with the estimation of claims liabilities are subject to assumptions that impact the ultimate value of the estimated loss ratio as well as the estimated claims settlement costs. The loss ratio is used to calculate losses of the Company with respect to its ongoing property and casualty insurance operations as a percentage of net premiums earned. Below is an analysis showing the impact of a 5% increase in the loss ratio, as a percentage of net premiums earned, and a 5% increase in claims settlement costs of the property and casualty claims reserves, based on an increase in the current net unpaid claims balance. Such variances in the estimation were considered reasonably possible during the years ended December 31, 2020 and 2019. The impacts described in the table below are independent of one another. A 5% decrease to the loss ratio and a 5% decrease in claims settlement costs would have the opposite effect on comprehensive income and shareholders' equity.

	December 31, 2020	December 31, 2019	December 31, 2020	December 31, 2019
	Impact on comprehensive income,
Sensitivity factor	before tax		Impact on shareholders' equity
5% increase to loss ratio	(7,790)	(5,275)	(5,863)	(3,872)
5% increase to claimssettlement costs	(4,009)	(3,188)	(3,156)	(2,407)

ii) Life business of Trisura International

The Company's life reserves are held in respect of a book of deferred annuities with guaranteed annuity conversion options ("GAO"). A significant risk factor in relation to these reserves is the proportion of policyholders who take up the GAO upon retirement. The following table shows the impact on reserves of a 100 basis point change in the GAO take-up rate.

December 31, 2020	December 31, 2019
	Impact on net income
(987)	(881)
1,047	916

Unpaid claims and LAE reserves are discounted due to the time value of money and are sensitive to interest rates. The impact of the interest rate sensitivity on unpaid claims is shown in Note 15.4(b). The structured insurance assets are sensitive to changes in lapse rates. The impact of lapse rate sensitivity on the structured insurance assets is shown in Note 6.

15.2 Credit risk

Credit risk is the risk that a party to a financial instrument will fail to discharge an obligation and cause the Company to incur a financial loss. Credit risk arises mainly from investments in bonds and short-term securities, the structured insurance assets, and balances receivable from insurance brokers and reinsurers.

For debt securities, the Company manages its credit risk by placing limits on its exposure to a single counterparty, by reference to the credit rating of the counterparty or based on the collateral supporting the counterparty risk. Management also limits its aggregate debt securities credit risk by placing limits on aggregate values of securities at different credit rating levels. Management monitors credit quality of its debt securities on an on-going basis through its reviews of the investment portfolio.

For the structured insurance assets, the Company minimizes its credit exposure through transacting with investment grade counterparties.

(in thousands of Canadian dollars, except as otherwise noted)

15.2 Credit risk (continued)

For Premiums receivable, the Company uses insurance brokers, managing general agents, and program administrators as intermediaries for the distribution of its product offerings and is therefore subject to the risk that these intermediaries fail to remit the premiums they have collected on its behalf. The Company primarily deals with intermediaries with which it has entered into a contract that details, among other things, the intermediary's responsibilities and payment obligations. These intermediaries are typically regulated and licensed by insurance regulators. Further, the Company monitors accounts receivable and follows-up all past due amounts to ensure satisfactory collection arrangements are in place. As at December 31, 2020, $2,171 of premiums receivable was past due but not considered to be impaired (December 31, 2019 – $2,717).

For recoverables from reinsurers, the Company applies its reinsurance risk management policy to manage the credit risk associated with these balances. The Company is ultimately at risk on the limits of coverage provided under its product offerings, regardless of whether it has ceded a portion of this exposure to reinsurers. If a reinsurer is unwilling or unable to satisfy its obligations, the Company does not have the right to correspondingly reduce its claims payment obligations. The Company's reinsurance coverage is well diversified and controls are in place to manage exposure to reinsurance counterparties. The Company generally uses licensed reinsurers that have a minimum A.M. Best credit rating of A-, and management monitors these ratings on a regular basis. Furthermore, the Company's reinsurance risk management policy places limits on the participation of individual reinsurers in the Company's reinsurance arrangements to ensure that no single reinsurer represents an undue level of credit risk. These participations and limits are reviewed regularly.

When the Company uses an unlicensed or unrated reinsurer, it is required to establish a custodial account secured under a reinsurance security agreement, post a letter of credit or provide other forms of security acceptable to the Company.

Derivative assets and other assets are monitored with reference to the credit quality of the counter-party, and an impairment allowance is made if deemed appropriate.

a) Maximum exposure to credit risk of the Company

The following table sets out the Company's maximum exposure to credit risk related to financial instruments. The maximum credit exposure is the carrying value of the asset net of any allowances for losses.

As at	December 31, 2020	December 31, 2019
Cash and cash equivalents, and short-term securities	141,519	85,905
Bonds
Government	97,239	121,631
Corporate	282,584	176,329
Other loans	1,287	4,294
Structured settlements	9,690	10,658
Premiums receivable	166,017	79,627
Accrued investment income	2,879	2,537
Derivative assets	8,329	1,072
Other assets	1,341	3,045
	710,885	485,098

15.2 Credit risk (continued)

b) Concentration of credit risk of the Company

Concentrations of credit risk can arise from exposures to a single debtor, a group of related debtors or groups of debtors that have similar risk characteristics, for example they may operate in the same or similar industries. The following table provides details of the fair value of fixed income securities by industry sector:

As at	December 31, 2020	December 31, 2019
Government	97,239	121,631
Financial	90,247	64,842
Industrial	39,260	20,187
Telecom services	25,904	11,598
Energy	23,818	23,535
Consumer discretionary	23,594	15,762
Power and pipelines	18,305	3,636
Real estate	16,283	8,319
Consumer staples	16,060	4,797
Automotive	13,501	11,515
Utility	6,625	3,868
Retail	-	3,588
Other	10,274	8,976
	381,110	302,254

c) Asset quality

The following table summarizes the credit ratings for fixed income securities and cash equivalents:

As at	December 31, 2020	December 31, 2019
Fixed income securities
AAA	40,880	43,566
AA	84,757	91,156
A	100,659	94,257
BBB	118,717	56,549
Below BBB	36,097	16,726
	381,110	302,254
Cash equivalents and short-term securities
R-1 (high)	20,981	11,398
R-1 (low)	-	6,299
	402,091	319,951

15.3 Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk may arise from a number of potential areas including, for example, duration mismatch between assets and liabilities.

Generally, the Company's financial liabilities are settled by delivering cash and it is able to rely on the cash flow generated from its operations to satisfy its liquidity requirements, which are primarily operating expenses and claims and loss adjustment payments.

By their nature, the timing and quantum of claims and loss adjustment payments are subject to significant uncertainty and are estimated actuarially as set out in Note 2.4(d). Although the Company has reinsurance treaties in place under which a portion of the claims payments may be recovered, including by way of set off against premiums payable to the reinsurers, such recoveries usually follow the making of payments and often delays of a number of months can occur. Hence the Company must have access to sufficient liquid resources to fund gross amounts payable when required.

15.3 Liquidity risk (continued)

To manage its liquidity requirements, the Company maintains a minimum balance of cash and cash equivalents, and short-term securities and a highly rated, highly liquid investment portfolio. The Company's investment policy sets out credit quality criteria and has limits on single issuer exposures. In addition, the investment policy stipulates average duration targets.

The Company also manages the liquidity risk associated with its assumed reinsurance liabilities through its asset liability matching processes. The long-tailed nature of much of the Company's reinsurance business also reduces the likelihood of sudden or unexpected spikes in claim payment requirements.

The Company periodically pledges assets under insurance and reinsurance trust arrangements which are therefore not readily available for general use by the Company (see Note 4.3).

The following tables set out the Company's financial assets and liabilities by contractual maturity.

	Up to 1			No specific
As at December 31, 2020	year	1 to 5 years	Over 5 years	maturity	Total
Cash and cash equivalents	67,018	-	-	69,501	136,519
Investments	66,992	188,167	151,230	97,295	503,684
Premiums receivable	164,601	1,416	-	-	166,017
Other financial assets	12,350	332	184	-	12,866
Reinsurers' share of claims liabilities	177,853	126,788	9,263	-	313,904
Financial and insurance assets (1)	488,814	316,703	160,677	166,796	1,132,990

As at December 31, 2019	Up to 1 year	1 to 5 years	Over 5 years	No specificmaturity	Total
Cash and cash equivalents,and short-term securities	16,398	-	-	69,507	85,905
Investments	27,120	192,487	93,306	79,704	392,617
Premiums receivable	76,680	2,947	-	-	79,627
Other financial assets	6,864	48	130	-	7,042
Reinsurers' share of claims liabilities	88,039	24,710	1,908	-	114,657
Financial and insurance assets (1)	215,101	220,192	95,344	149,211	679,848

(1) Deferred acquisition costs and reinsurers' share of unearned premiums have been excluded as they are not subject to liquidity risk.

(in thousands of Canadian dollars, except as otherwise noted)

15.3 Liquidity risk (continued)

As at December 31, 2020	Up to 1 year	1 to 5 years	Over 5 years	No specificmaturity	Total
Unpaid claims and LAE (2)	220,291	208,555	54,900	-	483,746
Reinsurance premiums payable	151,707	-	-	-	151,707
Other financial liabilities	35,947	-	-	12,150	48,097
Loan payable	11,459	16,096	-	-	27,555
Financial and insurance liabilities (3)	419,404	224,651	54,900	12,150	711,105
As at December 31, 2019	Up to 1 year	1 to 5 years	Over 5 years	No specificmaturity	Total
Unpaid claims and LAE (2)	120,077	92,798	39,792	-	252,667

Reinsurance premiums payable	80,186	-	-	-	80,186
Other financial liabilities	19,285	-	-	11,875	31,160
Loan payable	-	29,700	-	-	29,700
Financial and insurance liabilities (3)	219,548	122,498	39,792	11,875	393,713

(2) Undiscounted and excluding PfADs.

(3) Unearned premiums and unearned reinsurance commissions have been excluded as they are not subject to liquidity risk.

(in thousands of Canadian dollars, except as otherwise noted)

15.4 Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk includes currency risk, interest rate risk and other price risks such as equity price risk.

a) Currency risk

Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company faces currency risk as a result of having operations in the United States and Canada, as well as European exposure through its reinsurance operations and therefore has exposure to currency risk arising from fluctuations in exchange rates of the Canadian dollar and Euro against the United States dollar. The Company also has currency risk as a result of having investments in the Company's Canadian operations denominated in foreign currencies. The foreign currency positions of the Company are monitored regularly and the Company uses derivatives throughout the year to manage foreign exchange risks where a material unmatched foreign exchange position exists.

i) Exposure to currency risk

The Company manages its currency risk through its investment policy which considers duration of investments held as well as asset liability matching.

The following table summarizes the net currency exposure of Canadian domiciled entities categorized by major currency. The balances in the table below are presented in the foreign currency indicated:

		USD	EUR		GBP		BRL
As at December 31,	2020	2019	2020	2019	2020	2019	2020	2019
Cash and investmentsLess: foreign – currencyderivatives, notional	42,043	24,138	1,661	1,654	4,195	4,370	5,500	-
amount	(32,392)	(25,991)	(1,669)	(1,636)	(4,226)	(4,193)	-	-
Total net exposure	9,651	(1,853)	(8)	18	(31)	177	5,500	-

The following table summarizes the carrying value of assets and liabilities, denominated in a currency other than USD, of Trisura International categorized by major currency. All amounts below are converted to Canadian dollar equivalents. The assets and liabilities below are translated at exchange rates at the reporting date and are stated before considering the effect of any forward currency exchange contracts:

		December 31, 2020		December 31, 2019
	EUR	Other	EUR	Other
Assets	82,894	2,254	73,947	1,406
Liabilities	90,490	212	76,251	235
Net assets	(7,596)	2,042	(2,304)	1,171

As at December 31, 2020 and 2019, Trisura International's short position in Euro is unhedged and management considered the foreign exchange risk to be acceptable.

The following table summarizes the carrying value of net assets of Trisura International and Trisura Specialty in their functional currency of USD, as well as loan payable which is denominated in USD.

As at December 31,	2020	2019
Consolidated net assets of:
Trisura International	10,252	14,849
Trisura Specialty	122,555	83,273
Total net currency exposure to the USD	132,807	98,122
Loan denominated in USD	(21,642)	-
Net currency exposure to the USD	111,165	98,122

15.4 Market risk (continued)

ii) Sensitivity to currency risk

	Impact on comprehensive income and shareholders' equity
As at December 31,	2020	2019	2020	2019
Sensitivity factor	10% increase in CDNversus USD		10% decrease in CDNversus USD
USD investments supporting Canadian domiciled entities	(821)	160	903	(176)
Consolidated net assets of Trisura Specialty	(11,202)	(7,769)	12,325	8,546
Consolidated net assets of Trisura International	(1,186)	(1,651)	1,305	1,815
Loan denominated in USD	1,840	-	(2,025)	-
	10% increase in USDversus EUR		10% decrease in USDversus EUR
EUR net assets supporting Trisura International (in USD)	543	161	(597)	(177)

b) Interest rate risk

Interest rate risk is the potential for financial loss resulting from changes in interest rates. Fixed income investments, structured insurance assets and preferred shares are subject to interest rate risk although, in the case of fixed income investments, to the extent they are held to maturity, the risk is limited to the reinvestment yield being different from the original yield to maturity. The fair value of bonds changes inversely with changes in market rates of interest, with greater impact to bonds with longer durations.

The Company's discounted unpaid claims balance is also subject to interest rate risk, in particular the Company's life reserves which have longer durations.

The Company manages its interest rate risk through its investment policy which considers duration of investments held as well as asset liability matching.

As at December 31, 2020

	Fixed income			Impact on
	(including	Structured	Net unpaid	comprehensive
Sensitivity factor	preferred shares)	insurance asset	claims	income
100 basis point increase in the yield curve (1)	(34,330)	(486)	(27,741)	(4,761)
100 basis point decrease in the yield curve (1)	33,372	536	33,592	(1,776)

(1) Assumes parallel shift in the yield curve, and all other variables remain constant.

As at December 31, 2019

	Fixed income			Impact on
	(including	Structured	Net unpaid	comprehensive
Sensitivity factor	preferred shares)	insurance asset	claims	income
100 basis point increase in the yield curve (1)	(25,585)	(507)	(22,432)	(2,487)
100 basis point decrease in the yield curve (1)	25,582	557	27,560	(2,575)

(1) Assumes parallel shift in the yield curve, and all other variables remain constant.

15.4 Market risk (continued)

c) Equity price risk

Equity price risk is the uncertainty associated with the valuation of assets arising from changes in equity markets.

The Company's exposure to equity price risk is managed and mitigated through its investment policy which sets out maximum exposures to equities at aggregate and per issuer levels as well as requiring diversification across different industry sectors.

As at December 31,	2020	2019
Sensitivity factor	Impact on net income (1)
10% increase in equity prices (2)	3,761	3,102
10% decrease in equity prices (2)	(3,761)	(3,102)

(1) The methodology used to calculate the latter change is based on 10% of the fair value of the equities (excluding preferred shares and any funds which hold predominantly fixed income securities), net of tax, at the statement of financial position dates.

(2) Excluding preferred shares.

Note 16 – Reinsurance

The Company uses reinsurance in the ordinary course of business to reduce its exposure to any one claim or event under the policies it issues. A large portion of this reinsurance is affected under reinsurance agreements known as treaty reinsurance. In some instances, it is negotiated on a facultative (one-off) basis for individual policies, generally when the exposures under these policies are not sufficiently mitigated by the treaty reinsurance.

The Company's fronting operations cede the majority of the premium generated through it to reinsurers. As such, Reinsurers' share of claims liabilities and Reinsurers share of unearned premiums are significant components of the balance sheet, and the associated credit risk is carefully monitored (see Note 15.2).

Reinsurance does not relieve the Company of its obligations to policyholders. A contingent liability exists with respect to reinsurance ceded which would become a liability of the Company in the event that any reinsurer fails to honour its contractual obligations. For this reason, the Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk to minimize its exposure to losses from reinsurer insolvencies. Reinsurers providing treaty or facultative reinsurance policies are required to have a minimum A.M. Best credit rating of A- at the inception of each policy, or are otherwise required to post acceptable levels of collateral.

In some instances, provisions are incorporated in the treaties to protect the Company in the event a reinsurer's credit rating deteriorates during the term of the reinsurance treaty. Unlicensed reinsurers must post an agreed upon level of collateral. The Company has determined that a provision is not required for potentially uncollectible reinsurance as at December 31, 2020 and December 31, 2019.

The following table summarizes the components of Recoverable from reinsurers as at December 31, 2020 and December 31, 2019:

As at	December 31, 2020	December 31, 2019
Reinsurers' share of claims liabilities (see Note 9)	313,904	114,657
Reinsurers' share of unearned premiums (see Note 11)	363,068	178,411
	676,972	293,068

Note 17 – Capital assets

The Company's capital assets consist of the following as at December 31, 2020 and December 31, 2019:

	As at December 31, 2020			As at December 31, 2019
	Cost	Accumulateddepreciation	Carryingvalue	Cost	Accumulateddepreciation	Carryingvalue
Leasehold improvements	1,581	(739)	842	1,188	(615)	573
Office equipment	1,643	(1,104)	539	1,419	(951)	468
Furniture and fixtures	1,546	(937)	609	1,103	(860)	243
	4,770	(2,780)	1,990	3,710	(2,426)	1,284

Note 18 – Intangible assets

Intangible assets consist of Computer software, customer lists, and licenses. Computer software is being amortized at a rate of 40%, using the declining balance method.

Intangible assets also include state licenses which were acquired as part of the 2019 acquisition for $1,950 USD. These licenses have indefinite useful lives and are therefore not amortized.

		December 31, 2020			December 31, 2019
	Computersoftware	Customerlist	Licenses	Total	Computersoftware	Customerlist	Licenses	Total
Opening,carrying value	328	738	2,528	3,594	332	922	-	1,254
Additions	116	-	94	210	162	-	2,583	2,745
Amortization	(154)	(148)	-	(302)	(166)	(184)	-	(350)
Foreignexchange	-	-	(55)	(55)	-	-	(55)	(55)
Closing,
carrying value	290	590	2,567	3,447	328	738	2,528	3,594

Note 19 – Capital management

The Company's capital is its shareholders' equity, which consists of common shares, contributed surplus, accumulated retained earnings and accumulated other comprehensive loss. The Company reviews its capital structure on a regular basis to ensure an appropriate capital structure in keeping with all regulatory, business and shareholder obligations.

Oversight of the capital of the Company rests with management and the board of directors. Their objectives are twofold: (i) to ensure the Company is prudently capitalized relative to the amount and type of risks assumed and the requirements established by the laws and regulations applicable to the Company's regulated subsidiaries; and (ii) to ensure shareholders receive an appropriate return on their investment.

19.1 Regulatory capital

a) Trisura Guarantee

Under guidelines established by the Office of the Superintendent of Financial Institutions which apply to Trisura Guarantee, Canadian property and casualty insurance companies must maintain minimum levels of capital as determined in accordance with a prescribed test, the minimum capital test ("MCT"), which expresses available capital (actual capital plus or minus specified adjustments) as a percentage of required capital. Companies are expected to maintain MCT level of at least 150% and are further required to establish their own unique target MCT level based on the nature of their operations and the business they write. Management, with the board of directors' approval, has established Trisura Guarantee's target MCT level in accordance with these requirements. Trisura Guarantee has exceeded this measure as at December 31, 2020 and December 31, 2019.

19.1 Regulatory capital (continued)

b) Trisura Specialty

Trisura Specialty is subject to externally imposed regulatory capital requirements by the Oklahoma Insurance Department as a Domestic Surplus Line Insurer. As an admitted carrier, through its subsidiary, Trisura Specialty is subject to the various capital requirements of each state in which it is licensed. A requirement of the regulators is that Trisura Specialty's Risk Based Capital exceed certain minimum thresholds as well as Company Action Levels ("CALs"), below which the Company would have to notify the regulators. As at December 31, 2020 and December 31, 2019, Trisura Specialty was in excess of any CALs of the states in which it was licensed.

c) Trisura International

Trisura International is subject to externally imposed regulatory capital requirements in Barbados. As at December 31, 2020 and December 31, 2019, Trisura International maintained sufficient capital to meet these requirements.

Note 20 – Loan payable

As at December 31, 2020, the Company maintained a five-year revolving credit facility with a Canadian Schedule I bank (the "Bank") which allowed for drawings of up to $35,000. On April 1, 2020, the Company's five-year revolving credit facility was amended to increase the Company's borrowing capacity from $35,000 to $50,000. Under this arrangement, the Company could draw funds in the form of short term banker's acceptances, Canadian prime rate advances, base rate advances or LIBOR rate advances. The interest rate was based on the current periods' bankers' acceptance rate, Canadian prime rate, base rate, or LIBOR rate, plus a margin. The loan balance is accounted for at amortized cost, which is equal to the carrying value. The minimum required annual payment consists only of interest, with no mandatory principal payments required.

On March 16, 2020, the Company converted its Canadian dollar denominated loan balance of $29,700 to a loan balance denominated in US dollars, with the same bank. To do so, $21,642 USD was drawn under the loan to immediately repay the outstanding loan payable of $29,700. On March 20, 2020, an additional $3,000 was drawn under the credit facility, which was repaid on June 19, 2020. On December 14, 2020, the Company substituted a portion of its credit facility by borrowing $9,000 USD through its Prime Brokerage account with the same Schedule I bank. The impact was to slightly lessen the borrowing rate charged. The substituted portion is callable at the discretion of the bank.

As part of the covenants of the loan arrangement, the Company is required to maintain certain financial ratios, which were fully met as at December 31, 2020 and December 31, 2019.

For the year ended December 31, 2020, the Company incurred $1,113 of interest expense (December 31, 2019 – $1,361), of which $663 (December 31, 2019 – $1,039) are related to the loan payable. As at December 31, 2020, the loan balance was $27,555 (December 31, 2019 – $29,700).

Note 21 – Share capital

The Company's authorized share capital consists of: (i) an unlimited number of common shares; (ii) an unlimited number of nonvoting shares; and (iii) an unlimited number of preference shares (issuable in series). As at December 31, 2020 and December 31, 2019, no non-voting shares were issued and no preferred shares are outstanding.

In May 2020, the Company completed a public offering of 1,289,150 common shares for gross proceeds of $60,397. Concurrent with the public offering, the Company issued 160,100 common shares to investors on a private placement basis for gross proceeds of $7,501. The Company incurred costs of $2,416 in commission paid to underwriters as well as $339 of costs directly attributable to the share issuance, which have been deducted from equity. At December 31, 2020, the net impact of the share issuance is an increase in common shares of $66,480, net of tax impact of $1,337 related to the share issuance costs.

In December 2019, the Company exercised its right to redeem all 64,000 (in shares) of its issued and outstanding preferred shares, for $1,600. Holders of the preferred shares were entitled to a cumulative dividend, payable quarterly, at a fixed rate of 6%. During the year ended December 31, 2020, no dividend payments have been made (December 31, 2019 – $72, at $0.375 (in dollars) per share for each Class A, Series 1, preferred share).

Note 21 – Share capital (continued)

In September 2019, the Company completed a public offering of 1,743,400 common shares for gross proceeds of $46,026. Concurrent with the public offering, the Company issued 454,539 common shares to investors on a private placement basis for gross proceeds of $12,000. The Company incurred costs of $1,841 in commission paid to underwriters as well as $516 of costs directly attributable to the share issuance, which have been deducted from equity. At December 31, 2019, the net impact of the share issuance is an increase in common shares of $55,669.

The following table shows the common shares issued and outstanding:

As at		December 31, 2020	December 31, 2019
	Number ofshares	Amount(in thousands)	Number ofshares	Amount(in thousands)
Balance, beginning of year	8,819,619	219,251	6,621,680	163,582
Common shares issued, net of taxes	1,449,250	66,480	2,197,939	55,669
Balance, end year	10,268,869	285,731	8,819,619	219,251

The following table shows the preferred shares issued and outstanding:

As at		December 31, 2020	December 31, 2019
	Number ofshares	Amount(in thousands)		Amount(in thousands)
Balance, beginning of year	-	-	64,000	1,600
Preferred shares redeemed	-	-	(64,000)	(1,600)
Balance, end of year	-	-	-	-

As at December 31, 2020, the Company did not declare or pay quarterly dividends for each Class A, Series 1, preferred share (December 31, 2019 – paid four quarterly dividends, each of $0.375 (in dollars)) per share.

Note 22 – Earnings per share

Basic earnings per common share are calculated by dividing the net income attributable to common shareholders for the reporting period by the weighted-average number of common shares.

Diluted earnings per share is calculated by dividing the net income attributable to common shareholders for the reporting period by the weighted-average number of common shares adjusted for the effects of all dilutive potential common shares, which consist of stock options.

	2020	2019
Net income attributable to shareholders	32,442	5,094
Less: Dividends declared on preferred shares	-	(96)
Net income attributable to common shareholders	32,442	4,998
Weighted-average number of common shares outstanding (in shares)	9,732,845	7,213,433
EPS – basic (in dollars)	3.33	0.69
Dilutive effect of the conversion of options on common shares (in shares)	159,766	31,076
Diluted weighted-average number of common shares outstanding (in shares)	9,892,611	7,244,509
EPS – diluted (in dollars)	3.28	0.69

(in thousands of Canadian dollars, except as otherwise noted)

Note 23 – Investment in subsidiary

On May 21, 2020, TIHL, an intermediary holding company and wholly-owned subsidiary of the Company, completed a voluntary dissolution. The assets and liabilities of the subsidiary were transferred to the Company, including the shares of its wholly-owned subsidiary, Trisura International. This dissolution had no impact on the Consolidated Statements of Financial Position and results of operations of the Company.

Note 24 – Benefits

The Company has established and contributes to a number of group retirement savings plan arrangements under which the Company makes contributions. Contributions are charged to operating expense and are recognized as incurred.

Note 25 – Related party transactions

The Company leases office space from, and subleases office space to, subsidiaries of Brookfield Asset Management Inc. ("Brookfield"), which was the ultimate controlling party of the Company prior to June 2017. An entity with which Brookfield shares common management continued to hold an interest in the Company, and as such the Company remained a related party with Brookfield. The Company occasionally issues insurance contracts to subsidiaries of Brookfield. The Company also invests in securities of companies which are subsidiaries of Brookfield and invests in funds managed by Brookfield subsidiaries. These transactions are conducted in the normal course of business and are measured at the amount of consideration paid or established and agreed between the parties. The related party designation between the Company and Brookfield ended in October 2020.

The following table shows the impact of transactions with related parties:

	December 31, 2020	December 31, 2019
Income and expenses reported in:
Total revenues	1,236	2,196
Operating expenses	(509)	(624)
Net investment income
Income from dividends and interest	1,155	1,286
Investment management fee	-	(4)
Assets and liabilities reported in:
Investment in Brookfield securities	not applicable	15,629

25.1 Key management personnel

Key management personnel are those persons having the authority and responsibility for planning, directing and controlling the activities of the Company, directly or indirectly, including any executive officers or directors of the Company.

The following transactions were carried out with key management personnel during the years ended December 31, 2020 and 2019:

		December 31, 2019
Salaries and other employee benefits	2,725	2,542
Share based payments	7,736	2,029

Note 26 – Segmented information

The Company has three reportable segments. The operations of Trisura Guarantee comprises Surety, Risk Solutions and Corporate Insurance products underwritten in Canada as well as the operations of Trisura Warranty. The operations of Trisura Specialty provides specialty insurance solutions underwritten in the United States. The operations of Trisura International comprises the Company's international reinsurance operations.

The following tables show the results for the years ended December 31, 2020 and 2019:

	Trisura	Trisura	Trisura	Corporate andconsolidation
Year ended December 31, 2020	Guarantee	Specialty	International	adjustments	Total
Net premiums earned:
from external customers	133,535	21,244	-	-	154,779
inter-segment premiums (1)	-	-	5,905	-	5,905
Fee income	5,027	24,692	-	-	29,719
Net investment income	7,842	3,880	15,594	463	27,779
Net (losses) gains	(829)	1,596	(683)	8,366	8,450
Total revenues	145,575	51,412	20,816	8,829	226,632
Net claims	(33,762)	(16,216)	(22,584)	-	(72,562)
Net expenses	(85,367)	(15,108)	(4,423)	(8,577)	(113,475)
Interest expense	(383)	(40)	(27)	(663)	(1,113)
Total claims and expenses	(119,512)	(31,364)	(27,034)	(9,240)	(187,150)
Net income (loss) before tax	26,063	20,048	(6,218)	(411)	39,482

(1) For the year ended December 31, 2020, Trisura International earned inter-segment premiums of $5,905 (December 31, 2019 – $nil) from Trisura Specialty. The inter-segment ceding arrangement was entered into at prevailing market rates.

Year ended December 31, 2019	TrisuraGuarantee	TrisuraSpecialty	TrisuraInternational	Corporate andconsolidationadjustments	Total
Net premiums earned	100,510	6,859	135	-	107,504
Fee income	4,246	7,960	-	-	12,206
Net investment income	7,796	2,112	6,306	29	16,243
Settlement from structured	-	-	8,077	-	8,077
insurance assets
Net gains (losses)	992	(171)	549	202	1,572
Total revenues	113,544	16,760	15,067	231	145,602
Net claims	(24,579)	(4,333)	(21,024)	-	(49,936)
Net expenses	(67,910)	(8,237)	(2,506)	(4,453)	(83,106)
Interest expense	(265)	(41)	(16)	(1,039)	(1,361)
Total claims and expenses	(92,754)	(12,611)	(23,546)	(5,492)	(134,403)
Net income (loss) before tax	20,790	4,149	(8,479)	(5,261)	11,199

(in thousands of Canadian dollars, except as otherwise noted)

Note 26 – Segmented information (continued)

The following table shows Loan payable of $27,555 included with the liabilities in Corporate and consolidation adjustments at December 31, 2020 (December 31, 2019 – $29,700):

As at December 31, 2020	TrisuraGuarantee	TrisuraSpecialty	TrisuraInternational	Corporate andconsolidationadjustments	Total
Assets	541,603	1,021,020	121,347	22,762	1,706,732
Liabilities	431,858	864,983	108,295	11,732	1,416,868
As at December 31, 2019	TrisuraGuarantee	TrisuraSpecialty	TrisuraInternational	Corporate andconsolidationadjustments	Total
Assets	424,009	444,763	104,169	5,452	978,393
Liabilities	333,681	336,608	85,766	32,009	788,064

Note 27 – Income taxes

	Statement of		Statement of
	financial position		comprehensive income
	December 31,	December 31,	December 31,	December 31,
	2020	2019	2020	2019
Deferred taxes related to:
Loss carry-forwards and other	4,393	139	(4,257)	35
Net unpaid claims and LAE	988	1,369	391	(678)
Investments – unrealized gains and losses	88	-	(88)	49
Capital, intangible and other assets, net	4,295	100	(4,416)	(61)
	9,764	1,608	(8,370)	(655)
Less deferred taxes related to:
Investments – unrealized gains and losses	-	(148)	(148)	-
Capital, intangible and other assets, net	(1,187)	-	1,250	-
	(1,187)	(148)	1,102	-
Deferred income taxes	8,577	1,460	(7,268)	(655)
Reported in:
Deferred tax assets	8,577	1,460	-	-
Income tax (recovery) reported to net income	-	-	(6,992)	(525)
Income tax expense (recovery) reported to
other comprehensive income	-	-	1,061	(130)
Income tax (recovery) reported to
retained earnings	-	-	(1,337)	-

A deferred income tax asset is recognized only to the extent that realization of the related income tax benefit through future taxable profits is probable. Management has assessed the recoverability of the deferred income tax asset carrying values based on future years' taxable income projections and believes the carrying values of the deferred income tax assets as at December 31, 2020 and December 31, 2019 are recoverable.

(in thousands of Canadian dollars, except as otherwise noted)

Note 27 – Income taxes (continued)

The following shows the major components of income tax expense for the years ended December 31, 2020 and 2019:

	Year ended December 31
	2020	2019
Current tax expense:
Current year	13,956	6,624
Prior year true up	76	6
	14,032	6,630
Deferred tax expense:
Origination and reversal of temporary differences	(6,992)	(525)
Income tax expense	7,040	6,105
Income taxes recorded in other comprehensive income:
Net changes in unrealized losses on AFS investments	536	1,308
Reclassification to net income of net losses on AFS investments	(1,024)	(15)
Origination and reversal of temporary differences	1,061	(130)
Total income tax expense recorded in other comprehensive income	573	1,163

The following is a reconciliation of income taxes calculated at the statutory income tax rate to the income tax provision included in the Consolidated Statements of Income for the years ended December 31, 2020 and 2019:

	December 31, 2020	December 31, 2019
Income before income taxes	39,482	11,199
Statutory income tax rate	26.5%	26.5%
	10,463	2,968
Variations due to:
Permanent differences	(807)	(625)
International operations subject to different tax rates	573	2,905
Unrecognized tax (gain) loss	(3,303)	835
Rate differentials:
Current rate versus future rate	36	2
Change in future rate	2	14
True up	76	6
Income tax expense	7,040	6,105

On February 5, 2020, the Company obtained an Advance Income Tax Ruling from the Canada Revenue Agency on a strategy to utilize accumulated tax losses. The strategy was implemented on February 20, 2020. As at December 31, 2020, the Company has unused tax losses of $6,615 (December 31, 2019 – $11,669) which will expire in the following years:

	December 31, 2020
2038	3,278
2039	3,337
	6,615

Note 28 – Share based compensation

28.1 Equity-settled stock options

The Company currently administers a stock option plan. Under the stock option plan, the exercise price of each stock option will be established at the time that the option is granted. It is expected that the vesting period will normally be 20% per year over five years and the expiry date of stock options granted will not exceed ten years, however in some instances the vesting period may differ.

The following is a continuity schedule of stock options outstanding as at December 31, 2020 and December 31, 2019:

	December 31, 2020		December 31, 2019
	Number ofoptions	Weighted averageexercise price (in dollars)	Number ofoptions	Weighted averageexercise price (in dollars)
Outstanding, beginning of year	242,235	26.38	162,000	24.96
Cancelled during the year	-	-	(50,000)	25.66
Granted during the year	91,445	50.23	130,235	27.86
Outstanding, end of year	333,680	32.91	242,235	26.38

As at December 31, 2020, the outstanding stock options consist of the following:

Exercise price per share (in dollars)	Number of optionsoutstanding	Average remainingcontractual life (in years)	Number of optionsexercisable
50.23	91,445	9.15	-
28.65	10,000	8.63	2,000
29.24	40,000	8.21	8,000
27.08	80,235	8.16	16,047
25.66	25,000	7.88	10,000
24.36	87,000	6.64	52,200

As at December 31, 2019, the outstanding stock options consist of the following:

Exercise price per share (in dollars)	Number of optionsoutstanding	Average remainingcontractual life (in years)	Number of optionsexercisable
28.65	10,000	9.63	-
29.24	40,000	9.21	-
27.08	80,235	9.16	-
25.66	25,000	8.88	5,000
24.36	87,000	7.64	34,800

As at December 31, 2020, 88,247 (December 31, 2019 – 39,800) equity-based stock options were vested. As at December 31, 2020, the Company had recorded $1,544 (December 31, 2019 – $815) in share reserve related to the options in the contributed surplus balance of the Consolidated Statements of Financial Position. For the year ended December 31, 2020, the Company recorded $729 (December 31, 2019 – $502) of expense related to the options, in Operating expenses. The fair value of the options issued were determined using the Black-Scholes option pricing model. Inputs to the model include expected volatility, option life and risk free rate. Volatility estimate was based on the historical volatility of the Company. The weighted average fair value of stock options issued in 2020 at the measurement date was $10.15 (in dollars) (December 31, 2019 – $6.78 (in dollars)).

(in thousands of Canadian dollars, except as otherwise noted)

28.2 Cash-settled stock options

As at December 31, 2020, 68,870 options were outstanding which had been issued to officers of the Company by the board of directors as part of a cash-settled share based payment plan (December 31, 2019 – 120,465), with a vesting period of 20% per year over five years, and an expiration date of ten years. As at December 31, 2020, 4,186 options were vested (December 31, 2019 – 36,093). As at December 31, 2020, the Company had recorded $3,435 (December 31, 2019 – $1,771) in liabilities related to the options in the Consolidated Statements of Financial Position. For the year ended December 31, 2020, the Company recorded $5,723 (December 31, 2019 – $1,350) of expense related to the options, in Operating expenses, which includes one exercise transaction of 56,000 options with weighted average price of $95.15 (in dollars) per share. The fair value of the options issued were determined using the Black-Scholes option pricing model. Inputs to the model include expected volatility, option life and risk free rate. Volatility estimate was based on the historical volatility of the Company. As at December 31, 2020, the weighted average fair value of share options issued was $65.89 (in dollars) (December 31, 2019 – $19.97 (in dollars)).

28.3 Cash-settled DSUs

DSUs are awarded to certain directors of the Company at the market value of the Company's common shares at the grant date. These DSUs are awarded in lieu of directors fees at the option of the Directors. Each DSU entitles the holder to receive an amount equivalent to the value of a common share at settlement. As at December 31, 2020, 25,091 (December 31, 2019 – 20,312) DSUs were awarded to directors who are not employees of the Company or one of its affiliates.

The following table shows the movement in the number of DSUs issued during the year:

For the years ended December 31,	2020 (in units)	2019 (in units)
Opening balance	20,312	11,261
Granted during the year	4,779	9,051
Ending balance	25,091	20,312

As at December 31, 2020, no units had been exercised (December 31, 2019 – nil) and $2,235 (December 31, 2019 – $818) had been recorded as liabilities (see Note 14). The liability was measured based on the fair value of the common shares of the Company at December 31, 2020. For the year ended December 31, 2020, the Company recorded $1,396 (December 31, 2019 – $499) of expense related to the DSUs in Operating expenses.

28.4 Equity-settled restricted share units ("RSUs")

On February 21, 2020, the Company awarded certain employees RSUs based on the fair value of the Company's common shares at the grant date. These RSUs will typically vest over three years, however in some instances the vesting period may differ.

The following table shows the movement in the number of RSUs issued during the year ended December 31, 2020:

For the years ended December 31,	2020 (in units)	2019 (in units)
Opening balance	-	-
Granted during the year	8,239	-
Ending balance	8,239	-

As at December 31, 2020, no units had vested. For the year ended December 31, 2020, $241 (December 31, 2019 – $nil) had been recorded as expense related to the RSUs in Operating expenses. For the year ended December 31, 2020, a share reserve to contributed surplus of $212 (December 31, 2019 – $nil) was recorded which is offset by an adjustment to contributed surplus related to the vesting of stock options granted of $729 (December 31, 2019 – $502).

Note 29 – Subsequent event

On January 1, 2021, 25,000 stock options were granted under the existing stock option plan, with the standard five year vesting period, and an exercise price of $87.94 per share.