Sagen MI Canada : First Quarter 2024 Financial Statement

Condensed Consolidated Interim Financial Statements (In Canadian dollars)

SAGEN MI CANADA INC.

Three months ended March 31, 2024 and 2023 (Unaudited)

SAGEN MI CANADA INC.

Table of Contents

Condensed Consolidated Interim Financial Statements	Page Number
Condensed Consolidated Interim Statements of Financial Position	1
Condensed Consolidated Interim Statements of Income	2
Condensed Consolidated Interim Statements of Comprehensive Income (Loss)	3
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity	4
Condensed Consolidated Interim Statements of Cash Flows	6
Notes to Condensed Consolidated Interim Financial Statements
1.	Reporting entity:	7
2.	Basis of preparation:	8
3.	Material accounting policies and changes in accounting standards:	9
4.	Insurance contracts:	11
5.	Investments:	17
6.	Related party transactions and balances:	33
7.	Share-based compensation:	34
8.	Debt outstanding:	35
9.	Capital management:	37
10.	Investment in associate:	37

SAGEN MI CANADA INC.

Condensed Consolidated Interim Statements of Financial Position (In thousands of Canadian dollars)

(Unaudited)

	Notes			March 31,		December 31,
			2024			2023
Assets							(Audited)
Cash and cash equivalents(1)	5	$	246,064	$	451,745
Short-term investments	5			27,602			18,090
Accrued investment income and other receivables				97,160			87,030
Derivative financial instruments	5			133,834			175,943
Bonds and debentures	5			5,223,664			5,323,653
Private credit loans and alternative assets	5			161,073			135,618
Preferred shares	5			543,783			491,788
Total invested assets, accrued investment income and other				6,433,180			6,683,867
receivables
Prepaid assets				4,972			5,342
Deferred tax asset				137,152			142,788
Investment in associate	10			44,855			39,335
Property and equipment				2,059			2,276
Right-of-use assets				5,210			4,930
Intangible assets				15,835			16,127
Goodwill				11,172			11,172
Total assets			$	6,654,435		$	6,905,837
Liabilities and Shareholders' Equity
Liabilities:
Accounts payable and accrued liabilities(1)		$	114,310	$	191,772
Income taxes payable				10,977			201,104
Insurance contract liabilities	4			2,503,532			2,562,603
Share-based compensation liabilities	7			19,466			22,386
Derivative financial instruments	5			156,895			132,700
Lease liabilities				7,225			6,994
Debt outstanding	8			920,842			920,614
Accrued net benefit liabilities under employee benefit plans				34,583			34,341
Total liabilities				3,767,830			4,072,514
Shareholders' equity:
Common shares				725,656			725,656
Preferred shares				97,907			97,907
Retained earnings				2,149,568			2,105,613
Accumulated other comprehensive (loss) income:
Insurance finance reserve				60,033			54,768
Fair value reserve				(146,087)			(150,686)
Other reserves	10			(472)			65
Total shareholders' equity				2,886,605			2,833,323
Total liabilities and shareholders' equity			$	6,654,435		$	6,905,837

(1)Cash and cash equivalents as at March 31, 2024 includes $56,930 (December 31, 2023 - $92,163) of collateral posted to the benefit of the Company from its derivative counterparties with a corresponding liability to return the collateral in accounts payable and accrued liabilities.

See accompanying notes to the condensed consolidated interim financial statements.

On behalf of the Board:

(signed) "Stuart Levings"	Director
(signed) "Neil Parkinson"	Director

1

SAGEN MI CANADA INC.

Condensed Consolidated Interim Statements of Income (In thousands of Canadian dollars)

(Unaudited)

				Three months ended
				March 31,
	Notes			2024			2023
Insurance revenue	4(a)	$	191,766	$	144,961
Insurance service expenses:
Net losses on claims	4(b)			14,750			8,244
Insurance expenses				27,279			21,768
	4(b)			42,029			30,012
Insurance service result
			149,737			114,949
Insurance finance expense				17,755			14,022
Other operating expenses				10,982			9,417
				121,000			91,510
Investment income:
Interest	5			59,750			52,966
Dividends	5			7,187			6,639
Loss from associate	10			(1,429)			(122)
Net realized losses from sale of investments	5			(1,690)			(3,683)
Net fair value gains (losses) on financial assets at FVTPL				28,576			(1,355)
Net (losses) gains on derivatives and foreign exchange	5			(2,824)			1,567
Change in allowance for expected credit losses	5			(3,263)			(1,007)
Total investment income
			86,307			55,005
General investment expenses				(2,131)			(2,868)
				84,176			52,137
Interest expense
			9,795			8,525
Income before income taxes				195,381			135,122
Income taxes:
Current				44,101			3,405
Deferred				5,975			30,519
				50,076			33,924
Net income for the period attributable to owners of the Company		$	145,305	$	101,198

See accompanying notes to the condensed consolidated interim financial statements.

2

SAGEN MI CANADA INC.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss) (In thousands of Canadian dollars)

(Unaudited)

		Three months ended
		March 31,	2023
		2024
Net income	$	145,305	$	101,198
Other comprehensive income:
Items that may be reclassified subsequently to income:
Insurance finance income		7,125		23,457
Expense for taxes on the above item		(1,860)		(6,122)
Insurance finance result		5,265		17,335
Foreign currency loss on translation		(537)		-
Foreign currency translation		(537)		-
Net change in fair value of bonds and debentures at FVOCI		(18,387)		72,042
Net losses on bonds and debentures at FVOCI realized and reclassified		2,259		4,698
to income
Recovery of (Expense for) taxes on the above items		4,210		(20,030)
Debt instruments at FVOCI		(11,918)		56,710
Items that will not be reclassified subsequently to income:
Net change in fair value of equity instruments designated as FVOCI		22,351		914
Expense for taxes on the above item		(5,834)		(239)
Equity instruments designated as FVOCI		16,517		675
Total other comprehensive income for the period attributable to owners of the		9,327		74,720
Company
Total comprehensive income attributable to owners of the Company	$	154,632	$	175,918

See accompanying notes to the condensed consolidated interim financial statements.

3

SAGEN MI CANADA INC.

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity (In thousands of Canadian dollars, except per share amounts)

(Unaudited)

					Accumulated other comprehensive
							income (loss)
					Insurance	Fair			Total
Three months ended	Common	Preferred	Retained	finance	value	Other		shareholders'
March 31, 2024	shares	shares	earnings	reserve	reserve	reserves	equity
Balance as at January 1, 2024	$725,656	$	97,907	$2,105,613	$	54,768	$(150,686)	$	65	$	2,833,323
Comprehensive income (loss):
Net income	-		-	145,305		-	-		-		145,305
Other comprehensive income	-		-	-		5,265	4,599		(537)		9,327
(loss)
Total comprehensive income	-		-	145,305		5,265	4,599		(537)		154,632
(loss)
Total transactions recognized
directly in equity:
Dividends on common	-		-	(100,000)		-	-		-		(100,000)
shares(1)
Dividends on preferred	-		-	(1,350)		-	-		-		(1,350)
shares(2)
Total transactions recognized	-		-	(101,350)		-	-		-		(101,350)
directly in equity
Balance as at March 31, 2024	$725,656	$	97,907	$2,149,568	$	60,033	$(146,087)	$	(472)	$	2,886,605

(1)The Company paid ordinary dividends of $64 per Class A Common Share and special dividends of $34.46 per Class A Common Share in the first quarter of 2024.

(2)The Company paid dividends of $0.3375 per Series 1 Preferred Share in the first quarter of 2024.

4

SAGEN MI CANADA INC.

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity (In thousands of Canadian dollars, except per share amounts)

(Audited)

					Accumulated other comprehensive
							income (loss)
					Insurance	Fair				Total
Year ended	Common	Preferred	Retained		finance	value		Other	shareholders'
December 31, 2023	shares		shares	earnings		reserve	reserve		reserves		equity
Balance as at January 1, 2023	$ 683,854	$	97,907	$2,055,014	$	93,406	$(281,840)	$	-	$	2,648,341
Comprehensive income (loss):
Net income	-		-	511,743		-	-		-		511,743
Other comprehensive income	-		-	-		(38,638)	131,154		(2,679)		89,837
(loss)
Total comprehensive income	-		-	511,743		(38,638)	131,154		(2,679)		601,580
(loss)
Total transactions recognized
directly in equity:
Dividends on common shares(1)	-		-	(453,000)		-	-		-		(453,000)
Dividends on preferred	-		-	(5,400)		-	-		-		(5,400)
shares (2)
Issuance of common shares	20,901		-	-		-	-		-		20,901
Benefit from corporate	20,901		-	-		-	-		-		20,901
reorganization
Re-measurement of employee	-		-	(2,744)		-	-		2,744		-
benefit obligations
Total transactions recognized	41,802		-	(461,144)		-	-		2,744		(416,598)
directly in equity
Balance as at December 31,	$ 725,656	$	97,907	$2,105,613	$	54,768	$(150,686)	$	65	$	2,833,323
2023

(1)The Company paid ordinary dividends of $64.38 per Class A Common Share in the second, third and fourth quarter of 2023 and special dividends of $255.55 per Class A Common Share in the fourth quarter of 2023.

(2)The Company paid dividends of $0.3375 per Series 1 Preferred Share in the first, second, third and the fourth quarter of 2023.

See accompanying notes to the condensed consolidated interim financial statements.

5

SAGEN MI CANADA INC.

Condensed Consolidated Interim Statements of Cash Flows (In thousands of Canadian dollars)

(Unaudited)

Three months ended

March 31,

	Notes	2024	2023
Cash generated from (used in):
Operating activities:
Net income		$ 145,305	$ 101,198
Adjustments for non-cash items in net income:
Amortization of intangible assets and depreciation of property and equipment		1,696	1,652
Income taxes		50,076	33,924
Interest income		(59,750)	(52,966)
Dividend income		(7,187)	(6,639)
Loss from associate		1,429	122
Net realized losses on investments	5	1,690	3,683
Net fair value (gains) losses on financial assets at FVTPL		(28,576)	1,355
Net losses (gains) on derivatives and foreign exchange	5	2,824	(1,567)
Change in allowance for expected credit losses		3,263	1,007
Interest expense		9,795	8,525
Net share-based compensation expense	7	3,857	1,831
Changes in operating assets and liabilities:		124,422	92,125
Accrued investment income and other receivables		8,121	(19,765)
Prepaid assets		370	(290)
Accounts payable and accrued liabilities		(50,490)	(10,306)
Insurance contract liabilities		(51,947)	(45,736)
Accrued net benefit liabilities under employee benefit plans		242	276
Cash (used in) generated from operating activities:		30,718	16,304
Interest received from bonds and debentures		59,541	54,578
Dividends received from preferred shares		7,187	6,639
Interest and fees paid on debt outstanding		(12,895)	(13,048)
Income taxes paid		(237,087)	(814)
Share-based compensation awards settled in cash		(6,776)	(4,636)
Net cash (used in) generated from operating activities		(159,312)	59,023
Financing activities:
Dividends paid		(101,350)	(1,350)
Payment of lease liabilities		(232)	(230)
Net cash used in financing activities		(101,582)	(1,580)
Investing activities:
Purchase of short-term investments		(41,275)	(46,916)
Proceeds from sale or maturities of short-term investments		98,400	75,937
Purchase of bonds, private credit loans and alternative assets		(220,202)	(227,439)
Proceeds from sale or maturities of bonds, private credit loans and alternative		244,458	179,588
assets
Purchase of preferred shares		(8,671)	(2,698)
Proceeds from sale of preferred shares		9,595	9,733
Purchase of intangible assets and property and equipment		(1,007)	(1,224)
Derivative financial instruments		(18,599)	(20,696)
Investment in associate		(7,486)	-
Net cash generated (used in) from investing activities		55,213	(33,715)
(Decrease) Increase in cash and cash equivalents		(205,681)	23,728
Cash and cash equivalents, beginning of period		451,745	256,595
Cash and cash equivalents, end of period		$ 246,064	$ 280,323

See accompanying notes to the condensed consolidated interim financial statements.

6

SAGEN MI CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements (In thousands of Canadian dollars)

Three months ended March 31, 2024 and 2023 (Unaudited)

1. Reporting entity:

Sagen MI Canada Inc. (the "Company"), was incorporated under the Canada Business Corporations Act on May 25, 2009 and is domiciled in Canada. The share capital of the Company is comprised of Class A Common Shares and Class A Preferred Shares. Through Falcon Holding Acquisition Corporation, Brookfield Business Partners L.P. and institutional partners (collectively "Brookfield") indirectly own 100% of the Class A Common Shares of the Company. The Company's Class A Preferred Shares, Series 1 are traded publicly on the Toronto Stock Exchange under the symbol "MIC.PR.A". The Company's registered office is located at Suite 300, 2060 Winston Park Drive, Oakville, Ontario, L6H 5R7, Canada.

The Company holds a 100% ownership interest in the holding companies Sagen Holdings I Company ("Holdings I"), Sagen Holdings II Company ("Holdings II"), MIC Holdings L Company and Sagen International Holdings Inc ("SIHI"). Through Holdings I and Holdings II, the Company also holds an indirect 100% ownership interest in Sagen Mortgage Insurance Company Canada (the "Insurance Subsidiary"), which in turn directly owns all of the issued and outstanding shares of MIC Insurance Company Canada ("MICICC"). These condensed consolidated interim financial statements as at and for the three months ended March 31, 2024 reflect the consolidation of the Company and these subsidiaries. In addition to its interests in consolidated subsidiaries, the Company holds a 47.50% equity-accounted interest in India Mortgage Guarantee Corporation Private Limited ("IMGC") through the subsidiary SIHI.

The Insurance Subsidiary is engaged in mortgage insurance in Canada. Insurance premiums for mortgage insurance are received by the Company in full on an upfront, single premium basis.

Under a mortgage insurance policy, a mortgage lender is insured against risk of loss for the entire unpaid loan balance, plus interest and customary selling costs and expenses related to the sale of the property upon default by a mortgage borrower. Claims paid to the lender are net of the proceeds received from sale of the underlying property.

MICICC is licensed to service policies originated prior to its acquisition by the Company and does not have any policies in force as at March 31, 2024.

The Insurance Subsidiary and MICICC are regulated by the Office of the Superintendent of Financial Institutions Canada ("OSFI") as well as applicable provincial financial services regulators.

7

SAGEN MI CANADA INC.

Notes to Condensed Consolidated Interim Financial Statements (In thousands of Canadian dollars)

Three months ended March 31, 2024 and 2023 (Unaudited)

1. Reporting entity (continued):

The Insurance Subsidiary is also subject to regulation under the Protection of Residential Mortgage or Hypothecary Insurance Act ("PRMHIA"). Under the terms of PRMHIA, the Canadian federal government guarantees the benefits payable under eligible mortgage insurance policies issued by the Insurance Subsidiary, less 10% of the original principal amount of each insured loan, in the event that the Insurance Subsidiary fails to make claim payments with respect to that loan due to its bankruptcy or insolvency. The maximum outstanding insured exposure for all private insured mortgages, including those insured by other private mortgage insurance companies, under PRMHIA is $350 billion.

2. Basis of preparation:

1. Statement of compliance:

These condensed consolidated interim financial statements were prepared in accordance with International Accounting Standard ("IAS") 34: Interim Financial Reporting. Accordingly, the condensed consolidated interim financial statements contain selected explanatory notes to the financial statements and do not include all the disclosures required by International Financial Reporting Standards ("IFRS"). Full disclosures were included in the Company's annual consolidated financial statements as at and for the year ended December 31, 2023 and these unaudited condensed consolidated interim financial statements should be read in conjunction with those financial statements.

These condensed consolidated interim financial statements were approved by the Board of Directors on May 1, 2024.

1. Use of estimates and judgments:

The preparation of these condensed consolidated interim financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities at the date of the condensed consolidated interim financial statements and the reported amounts of income and expenses during the period. Actual results may differ from these estimates. We have disclosed the Company's key judgments, estimates and assumptions in the Company's annual consolidated financial statements as at and for the year ended December 31, 2023. There were no significant changes in the Company's methodologies to determine these judgments, estimates and assumptions during the three months ended March 31, 2024.

8