DFY: Travelling full speed ahead

Research evidence excerpt

DFY: Travelling full speed ahead

Definity Financial Corporation

the Guided Portfolio: All Cap Growth (RL 12). The abbreviation 'RL On' means the date a security was placed on a Recommended

List. The abbreviation 'RL Off' means the date a security was removed from a Recommended List. As of April 3, 2023, U.S. RBC

Wealth Management's quarterly reports will serve as the primary communication for its models and will highlight any changes

to the model made during the quarter.

Equity valuation and risks

For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please

see the most recent company-specific research report at www.rbcinsightresearch.com or send a request to RBC Capital Markets

Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.

Valuation

Our CAD $87 price target is based on 2.2x one-year forward book value per share and supports our Outperform rating.

Our 2.2x P/B target is derived using a P/B ROE regression based on North American P&C peers.

This multiple is above its long-term average and a premium relative to P&C peers, which we believe partially reflects the Travellers

acquisition being a transformative deal and gives the company full credit for achieving its medium-term ROE targets without baking

in acquisition risks. Our price target supports an Outperform rating.

Risks to rating and price target

Key risks for Definity include the following:

i) Acquisition risk: Paying an elevated multiple for a P&C carrier. Acquisition & integration risks include failure to capture anticipated

synergies.

ii) Regulatory risk in Personal Auto (~40% of DFY GWP): Unfavourable regulatory actions impacting premium growth & underwriting

profitability.