IFRS CGIC CONS Final

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					Co-operators General Insurance Company



Unaudited Interim Consolidated Financial Statements


For the first quarter ended March 31, 2011
CO-OPERATORS GENERAL INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
(unaudited)

                                                       As at          As at        As at
                                                      March 31     December 31   January 1
                                                       2011           2010         2010
(in thousands of Canadian dollars)                       $              $            $
Assets
Cash and cash equivalents                                 13,203        13,214       26,512
Invested assets (note 5)                               3,841,377     3,870,202    3,681,259
Premiums due                                             601,553       662,349      626,179
Income taxes recoverable                                  32,698        27,277           34
Reinsurance ceded contracts (note 8)                     179,993       180,061      208,879
Deferred acquisition expenses                            197,525       214,687      205,941
Assets held for sale (note 10)                            18,719        20,451       18,348
Deferred income taxes                                     62,546        60,417       59,496
Intangible assets                                         29,397        29,248       30,352
Other assets (note 11)                                    51,858        57,173      129,592

                                                       5,028,869     5,135,079    4,986,592

Liabilities
Accounts payable and accrued charges                      92,602       152,412      143,110
Income taxes payable                                           -         5,143      102,268
Insurance contracts (note 7)                           3,367,541     3,418,135    3,325,376
Borrowings                                                24,532        36,404       19,017
Retirement benefit obligations                            45,706        44,923       42,505
Provisions and other liabilities (note 12)                93,049        91,900       82,299
                                                       3,623,430     3,748,917    3,714,575
Shareholders' equity
Share capital (note 13)                                 272,285        271,783     269,350
Contributed capital                                      10,132         10,132           -
Retained earnings                                       997,991        975,573     935,766
Accumulated other comprehensive income                  125,031        128,674      66,901

                                                       1,405,439     1,386,162    1,272,017

                                                       5,028,869     5,135,079    4,986,592

Contingencies, commitments and guarantees (note 17)




See accompanying notes to consolidated financial statements.
CO-OPERATORS GENERAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(unaudited)

                                                                                    Accumulated
                                                                                       other         Total
                                                         Retained      Contributed comprehensive shareholders'
3 months ended March 31, 2011          Share capital     earnings        capital      income        equity
(in thousands of Canadian dollars)          $               $              $            $              $
Balance, beginning of period                271,783        975,573         10,132       128,674      1,386,162
Net income                                        -         25,788              -             -         25,788
Other comprehensive loss                          -              -              -        (3,643)        (3,643)
Total comprehensive income                        -         25,788              -        (3,643)        22,145
Staff share loan plan                           261              -              -             -            261
Preference shares issued (note 13)            1,441              -              -             -          1,441
Preference shares redeemed (note 13)         (1,200)             -              -             -         (1,200)
Dividends declared (note 13)                      -         (3,334)             -             -         (3,334)
Premium on redemption of preference
 shares                                             -           (36)            -               -          (36)
Balance, end of period                      272,285        997,991         10,132       125,031      1,405,439

                                                                                    Accumulated
                                                                                        other        Total
                                                         Retained      Contributed comprehensive shareholders'
3 months ended March 31, 2010          Share capital     earnings        capital      income        equity
(in thousands of Canadian dollars)          $               $              $              $           $
Balance, beginning of period                269,350        935,766              -        66,901      1,272,017
Net income                                        -         31,369              -             -         31,369
Other comprehensive income                        -              -              -         8,037          8,037
Total comprehensive income                          -       31,369              -           8,037      39,406
Staff share loan plan                             265            -              -               -         265
Preference shares issued (note 13)              1,196            -              -               -       1,196
Preference shares redeemed (note 13)             (950)           -              -               -        (950)
Dividends declared (note 13)                        -       (3,334)             -               -      (3,334)
Premium on redemption of preference
 shares                                           -            (27)             -             -            (27)
Balance, end of period                      269,861        963,774              -        74,938      1,308,573




   See accompanying notes to consolidated financial statements.
CO-OPERATORS GENERAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)

                                                                   3 Months Ended      3 Months Ended
(in thousands of Canadian                                           March 31 2011      March 31 2010
  dollars except for earnings per share)                                  $                   $
Revenue
 Gross written premium                                                     479,718             462,186
 Ceded written premium (note 8)                                            (19,634)            (38,064)
  Net written premium                                                      460,084             424,122
  Change in gross unearned premium                                          88,289              88,349
  Change in ceded unearned premium                                         (19,280)             (1,922)
  Net earned premium                                                       529,093             510,549
  Net investment gains and income (note 5)                                  47,593              46,298
                                                                           576,686             556,847
Expenses
  Claims and adjustment expenses                                           369,264             360,697
  Ceded claims and adjustment expenses (note 8)                            (15,947)            (17,192)
  Premium and other taxes                                                   18,876              18,863
  Commissions and agent compensation                                        95,681              87,721
  Ceded commission (note 8)                                                 (6,867)             (8,446)
  General expenses (note 14)                                                81,677              71,253
                                                                           542,684             512,896
Income before income taxes                                                  34,002              43,951
Income taxes (note 9)                                                        8,214              12,582
Net income                                                                  25,788              31,369

Earnings per share                                                            1.11                1.39

Weighted average number of common shares                                    20,186              20,141

CO-OPERATORS GENERAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)

                                                                    3 Months Ended     3 Months Ended
                                                                     March 31 2011     March 31 2010
(in thousands of Canadian dollars)                                         $                  $
Net income                                                                   25,788             31,369
Other comprehensive income (loss)
   Unrealized gain (loss) on available-for-sale financial assets
     Bonds                                                                  (19,400)           13,573
     Stocks                                                                  26,046             7,891
                                                                              6,646            21,464
  Reclassification adjustment for (gain) loss included in income
   Bonds                                                                     (2,001)           (8,708)
   Stocks                                                                    (9,335)           (1,097)
   Other                                                                       (613)                -
                                                                            (11,949)           (9,805)
Net unrealized gain (loss)                                                   (5,303)           11,659
Income taxes (recovery) (note 9)                                             (1,660)            3,622
Other comprehensive income (loss)                                            (3,643)            8,037
Comprehensive income                                                        22,145             39,406


See accompanying notes to consolidated financial statements.
CO-OPERATORS GENERAL INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                               3 Months      3 Months
                                                                Ended         Ended
                                                               March 31      March 31
                                                                 2011          2010
 (in thousands of Canadian dollars)                                $             $
 Operating activities
 Net income                                                       25,788        31,369
 Items not requiring the use of cash (note 15)                    (9,659)       (6,306)
 Changes in non-cash operating components (note 15)              (47,238)     (117,231)
 Cash provided by (used in) operating activities                 (31,109)      (92,168)

 Investing activities
 Purchases and advances of:
   Invested assets                                             (2,121,039)   (1,551,875)
   Investments in partially owned companies                             -           (66)
   Property and equipment                                          (1,516)         (262)
   Intangible assets                                               (1,134)         (965)
 Sale and redemption of:
   Invested assets                                             2,169,897     1,632,931
   Property and equipment                                          1,694             -
 Cash provided by (used in) investing activities                  47,902        79,763
 Financing activities
 Share capital - preference shares issued (note 13)                 1,441         1,196
 Share capital - preference shares redeemed (note 13)              (1,200)         (950)
 Dividends paid                                                    (5,138)       (5,035)
 Premium on redemption of preferred shares                            (36)          (27)
 Cash provided by (used in) financing activities                   (4,933)       (4,816)
 Net increase (decrease) in cash and cash equivalents
   less short-term indebtedness                                   11,860       (17,221)
 Cash and cash equivalents less short-term indebtedness,
  beginning of period                                            (19,690)       10,995
 Cash and cash equivalents less short-term indebtedness,
  end of period                                                    (7,830)       (6,226)


 Cash                                                              2,905         6,426
 Cash equivalents                                                 10,298         6,347
 Short-term indebtedness                                         (21,033)      (18,999)
 Cash and cash equivalents less short-term indebtedness,
  end of period                                                    (7,830)       (6,226)




See accompanying notes to consolidated financial statements.
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

1. Nature of operations

    The nature of the business is substantially the same as at last year end. Refer to note 1 of the 2010
    annual consolidated financial statements.

    Unless otherwise noted or the context otherwise indicates, in these notes, “Company” refers to the
    Consolidated Co-operators General Insurance Company. CGIC refers to the Non-
    Consolidated Co-operators General Insurance Company.

    The Company is comprised of CGIC and its 100% owned subsidiaries: The Sovereign General
    Insurance Company (Sovereign), L’UNION CANADIENNE, Compagnie d’assurances and
    L’Équitable, Compagnie d’assurances Générale (L’Union) and COSECO Insurance Company
    (COSECO). 100% of the voting rights attached to all the outstanding voting shares each of
    Sovereign, L’Union, and COSECO are carried by the Company.

    The registered office of the Company is Priory Square, 130 Macdonell Street, Guelph, Ontario. The
    Company is domiciled in Canada and is incorporated under the Insurance Companies Act (Canada).
    The consolidated financial statements of the Company for the three months ended March 31, 2011
    were authorized for issue in accordance with a resolution of the directors on May 6, 2011.

    The Company’s common shares are 100% owned by Co-operators Financial Services Limited
    (CFSL), which in turn is owned 100% by The Co-operators Group Limited (CGL).

2. Summary of significant accounting policies

    Basis of preparation and statement of compliance

    These interim condensed consolidated financial statements have been prepared in accordance with
    IAS 34 “Interim Financial Reporting”. These are the Company’s first interim condensed consolidated
    financial statements for part of the period covered by the first annual International Financial Reporting
    Standards (IFRS) financial statements and IFRS 1 “First-time Adoption of International Financial
    Reporting Standards” has been applied. These financial statements do not include all of the
    information and disclosures required for full annual consolidated financial statements.

    References to IFRS are based on Canadian Generally Accepted Accounting Principles (GAAP) for
    publicly accountable enterprises as set out in Part 1 of the Canadian Institute of Chartered
    Accountants (CICA) Handbook. Part 1 of the CICA Handbook incorporates IFRS as issued by the
    International Accounting Standards Board (IASB) as of May 6, 2011. The consolidated financial
    statements as at and for the year ended December 31, 2010 were prepared based on the previously
    issued Canadian GAAP. References to previously issued Canadian GAAP refer to Canadian GAAP
    prior to the adoption of IFRS.

    An explanation of how the transition to IFRS as of January 1, 2010 (the Transition Date) has affected
    the Company’s financial position, results of operations and cash flows is disclosed below in note 3.

    Basis of measurement

    The consolidated financial statements have been prepared under the historical cost convention, as
    modified by the revaluation of available-for-sale (AFS) financial assets, and financial assets and
    financial liabilities (including derivative instruments) at fair value through profit or loss (FVTPL).
                                                                                                     Page 2
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Insurance contracts

    Product classification

    Insurance contracts are those contracts that transfer significant insurance risk at the inception of the
    contract. Insurance risk is transferred when the Company agrees to compensate a policyholder if a
    specified uncertain future event, other than a change in a financial variable, adversely affects the
    policyholder. Any contracts, including reinsurance contracts, not meeting the definition of an
    insurance contract under IFRS are classified as investment contracts or service contracts as
    appropriate. Once a contract has been classified as an insurance contract it remains an insurance
    contract for the remainder of its lifetime until all rights and obligations are extinguished or expire.

    Revenue recognition

    Premiums written are deferred as unearned premiums and recognized in the consolidated statements
    of income over the terms of the underlying policies on a straight-line basis. Premiums written are
    gross of any premium taxes and commissions.

    Insurance contract liabilities

    Unearned premiums represent the portion of the premiums written relating to periods of insurance
    coverage subsequent to the balance sheet date.

    The provision for unpaid claims and adjustment expenses represents the estimated amount required
    to settle all reported and unreported claims incurred to the end of the period. These estimates are
    determined using the best information available for claims settlement patterns, inflation, expenses,
    changes in the legal and regulatory environment and other matters. The provision reflects the time
    value of money and is discounted based on the projected market yield of the assets backing the
    claims liability.

    Anticipated recoveries of amounts relating to reported and unreported claims for salvage and
    subrogation net of any required provision for impairment are included as an allowance in the
    measurement of the claims provision. Estimation of the amount of these recoveries is based on
    principles consistent with the Company’s method for establishing the related liability.

    Differences between the estimated cost and subsequent settlement of claims are recognized in the
    consolidated statements of income in the period in which they are settled or in which the provisions
    for claims outstanding are re-estimated.

    Liability adequacy test

    At each balance sheet date, an assessment is made of whether the insurance contract liabilities are
    adequate, using current estimates of future cash flows of unpaid claims and adjustment expenses. If
    that assessment shows that the carrying amount of the liabilities is insufficient in light of the estimated
    future cash flows, the deficiency is recognized in the consolidated statements of income. An
    additional liability is set-up if no deferred acquisition expenses are present for a group of insurance
    contracts that exhibit similar risks.

    Premiums due

    Premiums due represent receivables that are recognized when owed pursuant to the terms of the
    related insurance contract. Premiums due are measured on initial recognition at the fair value of the
    consideration receivable and are recorded on the consolidated balance sheets net of any impairment
    provisions. Premiums due are classified as loans and receivables.
                                                                                                     Page 3
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Acquisition expenses

    Acquisition expenses are comprised of commissions and premium taxes, which relate directly to the
    acquisition of premiums. These expenses are deferred and amortized over the terms of the related
    policies to the extent that they are considered to be recoverable from unearned premiums, after
    considering the anticipated claims, expenses and investment income related to the unearned
    premiums. If a premium deficiency arises, any deferred acquisition expenses would be written off first
    then a liability would be recorded on the consolidated balance sheets for any remainder.

    Reinsurance

    Premiums payable in respect of reinsurance ceded are recognized over the period in which the
    reinsurance contract is entered into and are based on the underlying insurance contracts to which
    they relate. Ceded premiums are expensed in the consolidated statements of income on a pro-rata
    basis over the term of the reinsurance contract and are matched to the underlying insurance
    contracts.

    Reinsurance ceded assets and liabilities are recognized and together reflect the net amount
    estimated to be recoverable under the reinsurance contracts the Company has in respect of
    outstanding claims reported under unpaid claims and adjustment expenses and unearned premiums.
    The amount recoverable is initially valued on the same basis as the underlying insurance contract.
    The amount recoverable is reduced when there are events or conditions arising after the initial
    recognition of the asset that provides objective evidence that the Company may not receive all
    amounts due under the contract.

    Reinsurance commissions are recognized in the consolidated statements of income over the term of
    the reinsurance contract using principles consistent with the Company’s method of recording
    acquisition expenses. The Company has in place certain reinsurance contracts in which the
    commission has a floor and a ceiling based on the loss experience on the business ceded under the
    contract. Commissions are estimated based on the experience of these contracts.

    The Company also assumes reinsurance risk in the normal course of business. Premiums and claims
    on assumed reinsurance are recognized as revenue or expenses in the same manner as they would
    be if the reinsurance contract was considered direct business. Liabilities arising under these contracts
    are estimated in a manner consistent with the related insurance contract and are included as
    components of unpaid claims and adjustment expenses and unearned premiums.

    Structured settlements

    In the normal course of claims adjudication, the Company settles certain long-term claims losses
    through the purchase of annuities under structured settlement arrangements with life insurance
    companies. As the Company does not retain any interest in the related insurance contract and
    obtains a legal release from the claimant, any gain or loss arising on the purchase of an annuity is
    recognized in the consolidated statements of income at the date of purchase and the related claims
    liabilities are derecognized.
                                                                                                     Page 4
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Financial instruments

    Classification and designation

    Financial assets are classified as FVTPL, AFS, held-to-maturity (HTM), or loans and receivables
    based on their characteristics and purpose of their acquisition. Certain financial assets may be
    designated as FVTPL at the Company’s option. Financial liabilities are required to be classified as
    FVTPL or other liabilities.

    The Company has classified all stocks and bonds as either AFS or FVTPL. Collateralized debt
    obligations, which contain embedded derivatives for which separate fair values cannot be reliably
    determined, are designated as FVTPL. Certain bonds backing unpaid claims and adjustment
    expenses have been designated as FVTPL. The fair value option may be used when such a
    designation eliminates or significantly reduces an accounting mismatch caused by measuring assets
    and liabilities on different bases or when instruments are measured and managed on a fair value
    basis in accordance with a documented risk management strategy. The Company’s FVTPL
    designations comply with these requirements.

    Mortgages and other investments are classified as loans and receivables. Short-term investments,
    which include money market instruments with a maturity of greater than three months from the date of
    acquisition, are classified as AFS. Currency derivatives are classified as FVTPL. Accounts payable
    and accrued charges, as well as borrowings are classified as other financial liabilities with interest
    expense, if any, recorded in general expenses. No financial instruments are classified as HTM.

    Presentation

    Financial assets and liabilities are offset and the net amount reported in the consolidated balance
    sheets when there is a legally enforceable right to offset the recognized amounts and there is the
    ability and intention to settle on a net basis, or to realize the asset and settle the liability
    simultaneously.

    Recognition and measurement

    Purchases and sales of invested assets classified as FVTPL, AFS, HTM or loans and receivables are
    recorded on a trade date basis.

    Financial assets are measured at fair value with the exception of loans and receivables. Assets
    classified as loans and receivables are initially recognized at fair value and subsequently measured at
    amortized cost using the effective interest rate method, less provision for impairment losses if any.
    Any premium or discount on the acquisition of bonds is included in the calculation of the effective
    interest rate. Financial liabilities are measured at fair value when they are classified as FVTPL. Other
    financial liabilities are initially recognized at fair value and subsequently measured at amortized cost
    using the effective interest rate method.

    Changes in the fair value of FVTPL financial assets and financial liabilities are recognized in net
    income for the period, while changes in the fair value of AFS financial assets are reported within other
    comprehensive income (OCI) until the related instrument is disposed of or becomes impaired.

    Accumulated other comprehensive income (AOCI) is included in the consolidated balance sheets as
    a separate component of shareholders’ equity (net of income taxes) and includes unrealized gains
    and losses on AFS financial assets. The cumulative gains or losses in the fair values of investments
    previously recognized in AOCI are reclassified to net income when they are realized or impaired.
                                                                                                     Page 5
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Unrealized foreign exchange gains and losses for monetary AFS financial assets are recognized in
    net income.

    Financial assets are derecognized when the rights to receive cash flows from them have expired.

    Fair value

    Fair value is the amount of consideration that would be agreed on in an arm’s length transaction
    between knowledgeable, willing parties who are under no compulsion to act. Fair value
    measurements for invested assets are categorized into levels within a fair value hierarchy based on
    the nature of valuation inputs (Level 1, 2 or 3).

    The fair value of other financial assets and financial liabilities is considered to be the carrying value
    when they are of short duration or when the instrument’s interest rate approximates current
    observable market rates. Where other financial assets and financial liabilities are of longer duration,
    then fair value is determined using the discounted cash flow method using discount rates based on
    adjusted observable market rates.

    Impairment of financial assets

    The Company reviews its investment portfolio on a quarterly basis, at a minimum, for any declines in
    value below cost, and recognizes any losses in net income where there is objective evidence of
    impairment.

    The Company assesses whether an AFS financial asset is impaired by assessing whether there is a
    significant or prolonged decline in fair value below cost. Factors that are considered include, but are
    not limited to: a decline in current financial position; defaults on debt obligations; failure to meet debt
    covenants; significant downgrades of credit status, and severity and/or duration of the decline in
    value. An impairment loss is recorded through a reclassification adjustment to the consolidated
    statements of income.

    Impairments of AFS equity instruments cannot be reversed through the consolidated statements of
    income until the instrument is disposed of. Impairments of AFS debt instruments are only reversed if
    in a subsequent period the fair value increases and the increase can be objectively related to an
    event occurring after the impairment loss was recognized in the consolidated statements of income.

    Financial assets include mortgages and other investments classified as loans and receivables that
    are also evaluated for impairment. These invested assets are considered impaired when there is
    objective evidence of deterioration in credit quality that indicates the Company no longer has
    reasonable assurance that the full amount of principal and interest will be collected. The Company
    then establishes specific provisions for losses and balances are subsequently measured at their net
    realizable amount based on discounting the cash flows at the original effective interest rate inherent
    in the loan or the fair value of the underlying security. Changes in the net realizable value of impaired
    loans are recognized in net investment income as a credit or charge to impairment losses.

    Derivative financial instruments

    Derivatives are classified as FVTPL and transactions are recorded on a trade date basis. There are
    no derivatives designated as a hedge for accounting purposes. Derivatives are recognized at fair
    value in the consolidated balance sheets. The gains and losses arising from remeasuring the
    derivatives at fair value are recognized in the consolidated statements of income.
                                                                                                       Page 6
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Embedded derivatives

    An embedded derivative is a component of a hybrid (combined) instrument that also includes a non-
    derivative host contract. Some of the cash flows of the combined instrument vary in a way similar to a
    stand-alone derivative. An embedded derivative causes some or all of the cash flows that otherwise
    would be required by the contract to be modified according to a specified financial variable.
    Derivatives embedded in financial instruments or contracts are separated from their host contracts
    and accounted for as derivatives when: a) their economic characteristics and risks are not closely
    related to those of the host contract; b) the terms of the embedded derivative are the same as those
    of a free standing derivative; c) the combined instrument or contract is not measured at fair value
    with the changes in fair value being recognized in net income and d) the fair value of the embedded
    derivative can be reliably measured on a separate basis. These embedded derivatives are classified
    as FVTPL financial assets and liabilities with changes in fair value recognized in net income as a
    component of net investment gains and income.

    Revenue and expense recognition

    Included within net investment gains and income are dividend and interest income. Dividend income
    is recorded on the ex-dividend date and interest income, which includes amortization of premiums or
    discounts, is recognized using the effective interest method. Realized gains and losses on the sale of
    investments are computed using the average cost of investments, net of any impairment charges,
    and are recognized in net income on the date of sale.

    Transaction costs for AFS financial assets and loans and receivables are recorded as part of the
    purchase cost of the asset. Transaction costs for financial liabilities classified as other than FVTPL
    are included in the value of the instrument at issue. Transaction costs for FVTPL financial instruments
    are recognized in the consolidated statements of income.

    Other significant accounting policies

    Cash and cash equivalents

    Cash and cash equivalents include short-term investments with a maturity of three months or less
    from the date of acquisition.

    Property and equipment

    Computer equipment, furniture and equipment, buildings and leasehold improvements are carried at
    cost less accumulated amortization and accumulated impairment losses. Subsequent costs are
    included in the asset’s carrying value when it is probable that future economic benefits associated
    with the item will flow to the Company and the cost of the item can be measured reliably. All repairs
    and maintenance costs are charged to income during the period in which they occur.

    Property and equipment balances are amortized on a straight-line basis over their estimated useful
    lives as follows:

                                                                  Rate or term
     Computer equipment                                           2 - 5 years
     Furniture and equipment                                      2 - 10 years
     Buildings                                                    40 years
     Leasehold improvements                                       Lesser of 5 years and terms of related lease

    Land is not subject to amortization and is carried at cost. Leasehold projects in progress are carried
    at cost and amortization commences upon completion of the project.
                                                                                                     Page 7
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Property and equipment are derecognized upon disposal or when no further future economic benefits
    are expected from its use or disposal. Gains and losses on disposal are determined by comparing the
    proceeds with the net carrying value and are recorded in the consolidated statements of income. Fully
    depreciated property and equipment are retained in cost and accumulated amortization accounts until
    such assets are removed from service.

    Useful lives, amortization rates and residual values are reviewed annually and are taken into
    consideration when determining the depreciable amounts of the property and equipment.

    Leases

    Leases of property and equipment where the Company is not exposed to substantially all of the risks
    and rewards of ownership are classified as operating leases. Incentives received from the lessor are
    deferred and amortized to the consolidated statements of income on a straight-line basis over the
    term of the lease. Where substantially all of the risks and rewards have been transferred to the
    Company the lease is classified as a finance lease. In these cases an obligation and an asset are
    recognized based on the present value of the future minimum lease payments and balances are
    amortized over the lease term or useful life as applicable.

    Business acquisitions and consolidation

    The Company measures goodwill as the fair value of the consideration transferred including the
    recognized amount of any non-controlling interest in the acquiree, less the net recognized amount
    (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the
    acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in
    net income.

    The Company elects on a transaction-by-transaction basis whether to measure non-controlling
    interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net
    assets, at the acquisition date. Transaction costs, other than those associated with the issue of debt
    or equity securities, that the Company incurs in connection with a business combination are
    expensed as incurred.

    Acquisitions of non-controlling interests
    Acquisitions of non-controlling interests are accounted for as transactions with equity holders in their
    capacity as equity holders; therefore no goodwill is recognized as a result of such transactions.

    Subsidiaries
    Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are
    included in the consolidated financial statements from the date that control commences until the date
    that control ceases. The accounting policies of subsidiaries have been changed when necessary to
    align them with the policies adopted by the Company.

    Investments in associates (equity accounted investees)
    Associates are those entities in which the Company has significant influence, but not control, over the
    financial and operating policies. Significant influence is presumed to exist when the Company holds
    between 20 and 50 percent of the voting power of another entity.

    Investments in associates are accounted for using the equity method (equity accounted investees)
    and are recognized initially at cost. The Company’s investment includes goodwill identified on
    acquisition and is presented net of any accumulated impairment losses. The consolidated financial
    statements include the Company’s share of the income and expenses and equity movements of
    equity accounted investees, after adjustments to align the accounting policies with those of the
    Company, from the date that significant influence or joint control commences until the date that
                                                                                                     Page 8
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    significant influence or joint control ceases. When the Company’s share of losses exceeds its interest
    in an equity accounted investee, the carrying amount of that interest, including any long-term
    investments, is reduced to nil, and the recognition of further losses is discontinued except to the
    extent that the Company has an obligation or has made payments on behalf of the investee.

    Transactions eliminated on consolidation
    Intra-company balances and transactions, and any unrealized income and expenses arising from
    intra-company transactions, are eliminated in preparing the consolidated financial statements.
    Unrealized gains arising from transactions with equity accounted investees are eliminated against the
    investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated
    in the same way as unrealized gains, unless the transaction provides evidence of impairment.

    Goodwill and intangible assets

    Goodwill represents the excess of purchase price over recoverable amount of the net identifiable
    assets acquired at the date of acquisition. Goodwill is not amortized but is evaluated for impairment
    annually or more frequently when an event or circumstance occurs that indicates goodwill might be
    impaired. Testing for impairment is accomplished by determining if the carrying value of a cash-
    generating unit exceeds its recoverable amount at the assessment date. A cash-generating unit is the
    smallest identifiable group of assets that generates cash inflows that are largely independent of the
    cash inflows from other assets or groups of assets. Each of those cash-generating units represents
    the Company’s investment by legal entity. The assets constituting the cash-generating unit to which
    goodwill has been allocated are tested for impairment prior to testing the goodwill for impairment. Any
    impairment loss on these assets is recognized in the consolidated statements of income prior to
    testing the cash-generating unit containing goodwill for impairment.

    If the carrying value of a cash-generating unit, including the allocated goodwill, exceeds its
    recoverable amount, the amount of the goodwill impairment is measured as the excess of the
    carrying amount of the cash-generating unit’s allocated goodwill over the recoverable amount of the
    goodwill. The recoverable amount is the higher of its fair value less costs to sell and its value in use.
    Should the carrying value exceed the recoverable amount, an impairment loss is recognized in the
    consolidated statements of income at that time. The estimate of recoverable amount required for the
    impairment test is sensitive to the cash flow projections and the assumptions used in the valuation
    model. Previously recorded impairment losses for goodwill are not reversed in future periods.

    Finite life intangible assets are carried at cost less accumulated amortization. Finite life intangible
    assets are tested for impairment when events or circumstances indicate that the carrying value may
    not be recoverable. Indefinite life intangible assets are not amortized but are evaluated for impairment
    annually or more frequently when an event or circumstance occurs that indicates goodwill might be
    impaired. An impairment loss is recognized as the amount by which the asset’s carrying amount
    exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less
    costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the
    lowest levels for which there are separately identifiable cash flows, which are cash-generating units.

    For intangible assets excluding goodwill, an assessment is made at each balance sheet date as to
    whether there is any indication that previously recognized impairment losses may no longer exist or
    may have decreased. If such indication exists, the Company makes an estimate of recoverable
    amount. A previous impairment loss is reversed only if there has been a change in the estimates
    used to determine the asset’s recoverable amount since the last impairment loss was recognized. If
    that is the case the carrying amount of the asset is increased to its recoverable amount. That
    increased amount cannot exceed the carrying amount that would have been determined, net of
    depreciation, had no impairment loss been recognized for the asset in prior years.
                                                                                                     Page 9
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Finite life intangible assets are amortized on a straight-line basis over their estimated useful lives as
    follows:

                                                                  Term
     Computer software                                             5 years
     Broker customer lists                                         5 - 10 years

    Computer software consists primarily of internally generated software development costs.

    Assets held for sale

    Non-current assets are classified as assets held for sale when the Company expects the carrying
    amount to be recovered through a sales transaction rather than through continuing use. This
    condition is regarded as having been met when the asset is available for sale in its present condition
    and the sale is highly probable and expected to occur within one year from the date of
    reclassification. Non-current assets classified as held for sale are measured at the lower of their
    previous carrying amounts, prior to being reclassified, and fair value less costs to sell.

    Retirement benefit obligations

    Retirement benefit obligations include pensions, medical and dental benefits and other certain
    benefits to qualifying individuals. The primary pension plan is a defined contribution plan.

    A defined contribution plan is a post-employment benefit plan under which an entity pays specified
    contributions into a separate entity and will have no legal or constructive obligation to pay further
    amounts. Obligations for contributions to defined contribution pension plans are recognized as an
    employee benefit expense in net income in the periods during which services are rendered by
    employees. Prepaid contributions are recognized as an asset to the extent that a cash refund or a
    reduction in future payments is available. Contributions to a defined contribution plan that is due more
    than 12 months after the end of the period in which the employees render the service are discounted
    to their present value.

    The other-than-pension benefits are defined benefit contracts and are accounted for using the
    projected unit credit method. The expected costs of retirement benefit obligations are expensed
    during the years that the employees render services and an accrued post-employment benefit
    obligation is recognized. The obligation is determined by application of the terms of the plan together
    with relevant actuarial assumptions. There are no employee contributions to the other-than-pension
    benefits plan. The plan is not funded.

    Actuarial gains and losses are deferred and amortized over the average future service to expected
    retirement age on a straight-line basis. Past service costs are deferred and are amortized in the
    same manner over the vesting period according to terms of the employee benefit plan, where
    applicable.

    Borrowings

    Borrowings are initially recognized at fair value, net of any transaction costs incurred. Subsequently,
    borrowings are carried at amortized cost. Debt issuance transaction costs are amortized over the
                                                                                                       Page 10
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    term of the related debt using the effective interest rate method. Included in borrowings is short-term
    indebtedness, which includes cash on account net of payments in transit.

    Provisions

    Provisions are recognized when the Company has a present legal or constructive obligation as a
    result of past events, it is more likely than not that an outflow of resources will be required to settle the
    obligation and the amount can be reliably estimated.

    Provisions are measured at the present value of the expenditures expected to be required to settle
    the obligation using a pre-tax rate that reflects current market assessments of the time value of
    money and the risks specific to the obligation. The increase in the provision due to passage of time is
    recognized as interest expense and classified as a general expense in the consolidated statements of
    income.

    Provision for agent transition commissions

    The Company’s agents are eligible for a transition commission payout on a qualifying termination.
    The transition commission liability is based on the number of years of service as an agent and the
    agent’s average trailing commission volume. Payments to terminating agents are funded in part from
    reduced commission payments which are made to agents assuming the rights to the book of
    business during the first three years of their agency relationship. The obligation to active agents is
    determined by accruing for the benefits earned to date on a present value basis assuming the cash
    flows associated with the earned benefits are paid out at the expected termination date.

    Foreign currency translation

    Functional and presentation currency
    Items included in the financial statements of each of the Company’s entities are measured using the
    currency of the primary economic environment in which the entity operates (the functional currency).
    The consolidated financial statements are presented in Canadian dollars, which is the Company’s
    functional and presentation currency.

    Transactions and balances
    The Company translates all foreign currency monetary assets and liabilities into Canadian dollars at
    period-end foreign exchange rates. Revenue and expenses are translated at the prevailing foreign
    exchange rate on the date of the transaction. Exchange gains and losses are recognized in the
    consolidated statements of income with the exception of unrealized gains and losses associated with
    non monetary financial assets such as equities classified as AFS, which are recorded in OCI.

    Income taxes

    The Company accounts for income taxes using the asset and liability method. Under this method, the
    provision for income taxes is calculated based on income tax laws and rates enacted and
    substantively enacted as at the balance sheet date. The income tax provision comprises current and
    deferred income taxes. Current income taxes are amounts expected to be payable or recoverable as
    a result of current year’s operations. Deferred income tax assets and liabilities arise from temporary
    differences between the accounting and tax basis of assets and liabilities. A deferred income tax
    asset is recognized to the extent that the benefit of losses and deductions available to be carried
    forward to future years for income tax purposes are probable to be realized. Current and deferred
    income taxes are recorded in the consolidated statements of income, except for those items that are
    associated with components of OCI. In those cases, the applicable tax is also recorded in OCI.
                                                                                                     Page 11
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Share capital

    Shares are classified as equity when there is no obligation to transfer cash or other assets.
    Incremental costs directly attributable to the issue of equity instruments are shown in equity as a
    deduction from the proceeds, net of tax.

    Use of estimates and judgments

    The preparation of interim consolidated financial statements requires management to make estimates
    and assumptions that affect the reported amounts of assets, liabilities, the disclosure of contingent
    assets and liabilities at the date of the financial statement and the reported amounts of revenues and
    expenses during the period. The preparation of interim consolidated financial statements also
    requires management to exercise its judgment in the process of applying the Company’s accounting
    policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions
    and estimates are significant to the consolidated financial statements are disclosed in the notes for
    the respective account balances.

    Significant estimates include valuation of investments and embedded derivatives (note 5), insurance
    contracts (notes 6 and 7), reinsurance (note 8), income taxes (note 9), goodwill and intangible assets,
    retirement benefit obligations, provision for agent transition commissions (note 12), and contingencies
    (note 17). Actual results could differ from these estimates. Changes in estimates are recorded in the
    accounting period in which they are determined.

    The estimates made under the previously issued Canadian GAAP framework are the same estimates
    utilized under the IFRS framework adopted as at the Transition Date unless the adoption of IFRS
    specifically required a different approach, process or methodology.

3. Adoption of International Financial Reporting Standards

    Explanation of transition to IFRS

    As stated in note 2, these are the Company’s first interim condensed consolidated financial
    statements that follow IFRS. The Company has consistently applied the same accounting policies in
    its opening IFRS statement of financial position at the Transition Date and throughout all periods
    presented as if these policies had always been in effect, subject to certain transition elections detailed
    below.

    Insurance contracts
    The Company has elected to disclose only five years of claims experience data in its claims
    development tables as permitted in the first financial year in which it adopts IFRS 4 “Insurance
    Contracts”. These disclosures will be extended for an additional year in each succeeding year until
    the 10 year information requirement has been satisfied.

    Retirement benefit obligation
    The Company elected to recognize at the Transition Date all cumulative unrecognized actuarial gains
    and losses relating to its retirement benefit obligations under previously issued Canadian GAAP.

    Business combinations
    IFRS 1 provides the option to apply IFRS 3 “Business Combinations” retrospectively or prospectively
    from the Transition Date. The retrospective basis would require restatement of business combinations
    that occurred prior to the Transition Date. The Company elected not to retrospectively apply IFRS 3 to
    business combinations that occurred prior to the Transition Date. As a result of applying this
    exemption, any goodwill arising on business combinations before the Transition Date has not been
    adjusted from the carrying value determined under previously issued Canadian GAAP.
                                                                                                           Page 12
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Reconciliations between IFRS and previously issued Canadian GAAP

    The following reconciliations provide a quantification of the effect of the transition to IFRS on
    shareholders’ equity as at January 1, 2010, March 31, 2010 and December 31, 2010 and net income
    and comprehensive income for the periods ended March 31, 2010 and December 31, 2010.
    Explanations of the adjustments are set out below.

    Reconciliation of shareholders’ equity:

                                                                         As at           As at             As at
                                                                      December 31       March 31         January 1
                                                                         2010            2010              2010
                                                                           $               $                 $
     Shareholders' equity,
       as reported under previous Canadian GAAP                        1,380,586         1,299,445       1,262,422
     IFRS transitional adjustments:
       Deferred net realized gains                             (a)        42,068            44,280          45,018
       Agent transition commissions                            (b)       (29,854)          (29,965)        (29,965)
       Retirement benefit obligations                          (c)          (988)           (1,233)         (1,315)
       Provisions                                              (f)        (3,260)              -               -
       Income tax effect of reconciling differences            (g)        (2,390)           (3,954)         (4,143)
     Shareholders' equity, IFRS                                        1,386,162         1,308,573       1,272,017

    Reconciliation of net income and comprehensive income:

                                                                                 Year ended          3 months ended
                                                                                December 31             March 31
                                                                                   2010                  2010
                                                                                      $                    $
     Net income,
       as reported under previous Canadian GAAP                                        80,744               31,829
     IFRS transitional adjustments:
       Deferred net realized gains                              (a)                    (2,950)                (737)
       Agent transition commissions                             (b)                       111                  -
       Retirement benefit obligations                           (c)                       327                    82
       Staff share loan                                         (d)                        69                     6
       Impairment of AFS financial assets                       (e)                    (5,860)                 -
       Provisions                                               (f)                    (3,260)                 -
       Income tax effect of reconciling differences             (g)                     3,504                  189
     Net income, IFRS                                                                  72,685               31,369
     Comprehensive income,
       as reported under previous Canadian GAAP                                       138,409               39,866
     IFRS transitional adjustments:
       Deferred net realized gains                              (a)                    (2,950)                (737)
       Agent transition commissions                             (b)                       111                  -
       Retirement benefit obligations                           (c)                       327                    82
       Staff share loan                                         (d)                        69                     6
       Provisions                                               (f)                    (3,260)                 -
       Income tax effect of reconciling differences             (g)                     1,755                  189
     Comprehensive income, IFRS                                                       134,461               39,406
                                                                                                     Page 13
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Explanations

    (a) Recognition of deferred net realized gains

    Prior to the Transition Date, the Company sold a portfolio of properties which it leased back for its
    own use. Under previously issued Canadian GAAP, the realized investment gain was deferred as a
    liability on the consolidated balance sheets and amortized to income in proportion to the rental
    payments being made over the 15 year term of the related lease. Under previously issued Canadian
    GAAP, these deferred net realized gains amounted to $42,068 (March 31, 2010 - $44,280; January 1,
    2010 - $45,018) and were presented within deferred net realized gains. Under IFRS, these gains are
    recognized at the conclusion of the sales and leaseback transaction when the transaction takes place
    at fair value and the leaseback transaction results in an operating lease. The difference identified in
    the table above was recorded through net income under net investment gains and income.

    (b) Agent transition commissions

    Using guidance from IAS 37 “Provisions, Contingent Liabilities and Contingent Assets”, the Company
    measures this liability as its best estimate of the cost of settling the current obligation with a third
    party. As described in note 2, the current obligation is measured by accruing for the benefits earned
    to date on a present value basis assuming the benefits are paid out at the expected retirement date.
    Under previously issued Canadian GAAP, the obligation to active agents was determined using the
    projected benefit method pro-rated on services. As at the Transition Date the Company applied a
    discount rate of 5% for IFRS while under previously issued Canadian GAAP the Company applied a
    discount rate of 13.5%. In both cases the Company estimated an average termination age of 60.
    Under previously issued Canadian GAAP, the active agent transition commissions amounted to
    $40,119 at December 31, 2010 (March 31, 2010 - $32,338; January 1, 2010 - $38,486) and was
    presented within payables and other liabilities. Under IFRS this provision is recorded within provisions
    and other liabilities as disclosed in note 12. The difference identified in the table above was recorded
    through net income under commissions and agent compensation.

    (c) Retirement benefit obligations

    As previously stated in note 2, the Company elected to recognize at the Transition Date all
    unrecognized cumulative actuarial gains and losses with respect to its retirement benefit obligations
    measured under previously issued Canadian GAAP. Additionally, under previously issued Canadian
    GAAP unvested past service costs under defined benefit plan arrangements were recognized over
    the expected average remaining service period. For IFRS under IAS 19 “Employee Benefits”, past
    service costs are recognized over the vesting period, which amounted to an adjustment of $988 at
    December 31, 2010 (March 31, 2010 - $1,233; January 1, 2010 - $1,315). The difference identified in
    the table above was recorded through net income under general expenses. Under previously issued
    Canadian GAAP, employee future benefits were presented within payables and other liabilities.

    (d) Staff share loan

    As described in note 13, the Company has a staff share loan plan that involves providing interest-free
    loans to employees for the purchase of the Company’s Class A, Series B preference shares. Under
    IFRS, the loan has been issued in conjunction with a share-based payment transaction and is
    accounted for as an equity transaction on an undiscounted basis. Under previously issued Canadian
    GAAP the loan was also recorded through shareholders’ equity but on a discounted basis, which
    amounted to an adjustment of $808 at December 31, 2010 (March 31, 2010 - $745; January 1, 2010 -
    $739). Under both previously issued Canadian GAAP and IFRS, the staff share loan plan is
    presented within share capital and therefore the adjustment has no net impact on total shareholders’
    equity. The difference for discounting of $69 (March 31, 2010 - $6) was recorded through net income
    under general expenses.
                                                                                                     Page 14
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    (e) Impairment of AFS financial assets

    Under previously issued Canadian GAAP, the Company evaluated AFS financial assets for
    impairment by assessing whether or not there was objective evidence that the asset was impaired
    and if so, whether or not the decline in fair value was other than temporary. While IAS 39 “Financial
    Instruments: Recognition and Measurement” applies a similar impairment model with respect to the
    existence of objective evidence of impairment, the "other than temporary" criteria does not exist. As a
    result, impairment losses can occur more quickly under IFRS. The application of this revised
    impairment policy resulted in additional impairment losses being recognized. The additional
    impairment losses were recorded through a reclassification adjustment to the consolidated
    statements of income and therefore have no net impact on total comprehensive income, total
    invested assets and total shareholders’ equity. The difference identified in the table above was
    recorded through net income under net investment gains and income.

    (f) Provisions

    Under previously issued Canadian GAAP, the Company had determined that a provision would be
    recognized if it was “likely” that it would be realized pursuant to contingencies guidance under
    previously issued Canadian GAAP. Under IFRS, pursuant to IAS 37 “Provisions, Contingent Liabilities
    and Contingent Assets”, the Company determined that a provision shall be recognized when it is
    “probable” that an outflow of resources is required. As a result, the recognition of a provision can
    occur more quickly under IFRS. The application of this revised recognition policy resulted in additional
    provisions being recognized in the amount of $3,260 (March 31, 2010 - $nil; January 1, 2010 - $nil),
    which is presented within provisions and other liabilities. The difference identified in the table above
    was recorded through net income, with $3,035 and $225 recorded within premium and other taxes
    and general expenses, respectively.

    (g) Income tax effect of reconciling differences

    Differences for income taxes relate to the effect of recording the deferred tax effect of differences
    between previously issued Canadian GAAP and IFRS.

    Impact of transition on the statement of cash flows

    The Company’s consolidated statement of cash flows is presented in accordance with IAS 7
    “Statement of Cash Flows”. The statements present substantially the same information that was
    required under previously issued Canadian GAAP.

4. Accounting standards issued but not yet applied

    IFRS 9 “Financial Instruments”

    IFRS 9 was issued in November 2009 and contained requirements for financial assets. This standard
    addresses classification and measurement of financial assets and replaces the multiple category and
    measurement models in IAS 39 for debt instruments with a new mixed measurement model having
    only two categories: amortized cost and FVTPL. IFRS 9 also replaces the models for measuring
    equity instruments and such instruments are either recognized at FVTPL or at fair value through OCI.
    Where such equity instruments are measured at fair value through OCI that do not clearly represent a
    return of investment, the dividends are recognized in net income under net investment gains and
    income; however, other gains and losses (including impairments) associated with such instruments
    remain in AOCI indefinitely.
                                                                                                           Page 15
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Requirements for financial liabilities were added in October 2010 and they largely carried forward
    existing requirements in IAS 39, except that fair value changes due to credit risk for liabilities
    designated at FVTPL would generally be recorded in OCI.

    This standard is required to be applied for accounting periods beginning on or after January 1, 2013,
    with earlier adoption permitted. OSFI has indicated that it will not allow early adoption of this standard
    for federally regulated financial institutions. The Company has not yet assessed the impact of this
    standard.

5. Invested assets and net investment gains and income

    a) Invested assets

                                                   Fair value                     Amortized cost     Carrying value
                                                   Classified       Designated      Loans and
                                       AFS          FVTPL             FVTPL        receivables           Total
     As at March 31, 2011               $               $               $               $                 $
     Bonds
       Federal                          804,358                 -       49,608                   -         853,966
       Provincial                       493,927                 -       14,854                   -         508,781
       Municipal                         80,577                 -            -                   -          80,577
       Corporate                      1,185,886                 -       26,957                   -       1,212,843
       Co-operative                       3,017                 -            -                   -           3,017
                                      2,567,765                 -       91,419                   -       2,659,184
     Stocks
       Canadian common                  455,846              -               -                   -        455,846
       Canadian preferred               192,656        (15,530)         12,271                   -        189,397
       U.S. equities                     77,965              -               -                   -         77,965
       Foreign equities                  38,503              -               -                   -         38,503
                                        764,970        (15,530)         12,271                   -        761,711
     Short-term investments              43,404              -               -                   -         43,404
     Collateralized debt
       obligations                             -                -       41,185                   -         41,185
     Foreign currency forward
       contracts                               -           284               -                 -              284
     Mortgages                                 -             -               -           283,425          283,425
     Other investments                         -             -               -            18,700           18,700
     Investment income due
       and accrued                             -                -            -             33,484          33,484
     Total invested assets            3,376,139        (15,246)        144,875           335,609         3,841,377
                                                                                                              Page 16
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


                                                     Fair Value                    Amortized Cost        Carrying Value
                                                     Classified       Designated     Loans and
                                         AFS          FVTPL             FVTPL       receivables              Total
      As at December 31, 2010             $               $               $               $                   $
      Bonds
        Federal                          969,131                  -       50,010                     -      1,019,141
        Provincial                       561,995                  -       14,983                     -        576,978
        Municipal                         81,416                  -            -                     -         81,416
        Corporate                      1,050,858                  -       32,538                     -      1,083,396
        Co-operative                       3,041                  -            -                     -          3,041
                                       2,666,441                  -       97,531                     -      2,763,972
      Stocks
        Canadian common                  429,174              -                -                     -        429,174
        Canadian preferred               193,070        (15,427)               -                     -        177,643
        U.S. equities                     76,034              -                -                     -         76,034
        Foreign equities                  39,010              -                -                     -         39,010
                                         737,288        (15,427)               -                     -        721,861
      Short-term investments              41,681              -                -                     -         41,681
      Collateralized debt
        obligations                             -                 -       38,561                     -         38,561
      Foreign currency forward
        contracts                               -           221                -                 -                221
      Mortgages                                 -             -                -           263,575            263,575
      Other investments                         -             -                -            21,407             21,407
      Investment income due
        and accrued                             -                 -            -            18,924             18,924
      Total invested assets            3,445,410        (15,206)         136,092           303,906          3,870,202
                                                                                                           Page 17
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


                                                    Fair Value                    Amortized Cost     Carrying Value
                                                    Classified       Designated     Loans and
                                        AFS          FVTPL             FVTPL       receivables           Total
     As at January 1, 2010               $               $               $               $                $
     Bonds
       Federal                          986,301                  -       20,865                  -      1,007,166
       Provincial                       530,983                  -       13,039                  -        544,022
       Municipal                         82,225                  -            -                  -         82,225
       Corporate                      1,015,226                  -       15,797                  -      1,031,023
       Co-operative                       2,970                  -            -                  -          2,970
                                      2,617,705                  -       49,701                  -      2,667,406
     Stocks
       Canadian common                  382,542              -                -                  -        382,542
       Canadian preferred               165,451         (9,272)               -                  -        156,179
       U.S. equities                     70,024              -                -                  -         70,024
       Foreign equities                  34,830              -                -                  -         34,830
                                        652,847         (9,272)               -                  -        643,575
     Short-term investments              40,071              -                -                  -         40,071
     Collateralized debt
       obligations                             -                 -       26,555                  -         26,555
     Foreign currency forward
       contracts                               -            (96)              -                -              (96)
     Mortgages                                 -              -               -          259,585          259,585
     Other investments                         -              -               -           22,541           22,541
     Investment income due
       and accrued                            -              -                -           21,622           21,622
     Total invested assets            3,310,623         (9,368)          76,256          303,748        3,681,259
                                                                                                                            Page 18
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    b) Net investment gains and income

                                                            Classified       Designated      Loans and
     3 Months Ended                           AFS            FVTPL             FVTPL        receivables       Other            Total
     March 31, 2011                             $               $                $              $              $                $
     Interest income                           24,609                31           1,217             3,805          134          29,796
     Dividend and other income                  4,747                14              108                  -           29          4,898
     Loss from partially
       owned companies                                 -                 -             -                  -        (122)            (122)
     Investment expense                             (958)             (1)            (39)             (86)          (39)         (1,123)
     Net investment income                     28,398                44           1,286             3,719             2         33,449
     Net realized gains                        12,742                    -           46               54               -        12,842
     Foreign exchange gains (losses)                (227)           390                -                  -           (9)             154
     Change in unrealized gains (losses)               -            (449)         2,163                   -            -          1,714
     Impairment losses                              (566)                -             -                  -            -            (566)
     Net investment gains (losses)             11,949                (59)         2,209               54              (9)       14,144
     Net investment gains and income           40,347                (15)         3,495             3,773             (7)       47,593


                                                            Classified       Designated      Loans and
     3 Months Ended                           AFS            FVTPL            FVTPL         receivables       Other            Total
     March 31, 2010                             $               $                $              $              $                $
     Interest income                           24,473                30              887            3,679          232          29,301
     Dividend and other income                  4,098                    -             -                  -           74          4,172
     Loss from partially
       owned companies                                 -                 -             -                  -        (101)            (101)
     Investment expense                             (843)             (1)            (33)             (74)             -            (951)
     Net investment income                     27,728                29              854            3,605          205          32,421
     Net realized gains (losses)               10,968                    -           (28)                 -            -        10,940
     Foreign exchange gains (losses)                (134)           415                -                  -         (22)              259
     Change in unrealized gains                        -                 -        3,707                   -            -          3,707
     Impairment losses                         (1,029)                   -             -                  -            -         (1,029)
     Net investment gains (losses)              9,805               415           3,679                   -         (22)        13,877
     Net investment gains and income           37,533               444           4,533             3,605          183          46,298


    c) Impaired assets and provisions for losses

    For the three months ended March 31, 2011, the Company has recognized impairment losses of
    $566 (March 31, 2010 - $1,029) on its AFS stock portfolio. The impairment losses were based on
    management’s best estimate of whether objective evidence of impairment exists, using available
    market data. The impairment losses are included in net investment gains and income in the
    consolidated statements of income.

    There were no writedowns made against the mortgage portfolio for the three months ended March
    31, 2011 and March 31, 2010. There are mortgages in arrears greater than 60 days of $850
    (December 31, 2010 - $850; January 1, 2010 - $3,113). These mortgages are secured by the value of
    the real estate held as collateral which is in excess of the carrying value of the mortgages. There is
    no provision against mortgages as at March 31, 2011 (December 31, 2010 - $nil; January 1, 2010 -
    $nil).
                                                                                                                  Page 19
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    The amortized cost of AFS financial assets disclosed in the following table is greater than fair value,
    however, the loss has not been recognized in net income either because management does not
    believe there is objective evidence of impairment or because the loss is not considered to be
    prolonged.

                                          As at March 31, 2011       As at December 31, 2010         As at January 1, 2010
                                                      Unrealized                  Unrealized                     Unrealized
                                        Fair value     losses      Fair value       losses        Fair value       losses
                                              $           $              $            $                 $             $
     Bonds                                1,061,119      10,567        806,658            5,221      1,083,497       14,453
     Stocks                                  94,682        3,274       130,819            5,870        210,234       24,561
     Fair value and unrealized losses
       not recognized in net income       1,155,801      13,841        937,477        11,091         1,293,731       39,014


    FVTPL financial assets have been excluded from the above table since changes in fair value of these
    financial assets are recorded in the consolidated statements of income.

6. Insurance risk management

    a) Nature of risks arising from insurance contracts

    There is uncertainty whether an insured event occurs and to what degree for each policy. By the very
    nature of an insurance contract, the risk is random and therefore unpredictable. Insurance
    companies accept the transfer of uncertainty from policyholders and seek to add value through the
    aggregation and management of insurance risk. The Company is at risk for losses in the event that
    incomplete or incorrect assumptions or information are used when pricing, issuing or reserving for
    insurance products.

    The principle risk to the Company under its insurance contracts is that the actual claims and benefit
    payments arising may exceed the carrying amount of the insurance liabilities because the frequency
    and/or severity of the actual claims were greater than expected.

    Being a property and casualty insurer, catastrophes could have a significant effect on the Company’s
    operating results and financial condition. Catastrophic loss risk is the exposure to loss resulting from
    multiple claims arising out of a single catastrophic event. Potential events include perils such as
    earthquake, tornado, wind or hail.

    Underwriting risk, claims risk and product design and pricing risk are also important to the proper
    management of insurance risk. Underwriting risk is the exposure to financial loss resulting from the
    selection and approval of risks to be insured or the inappropriate application of underwriting rules to
    risks being insured. Claims risk refers to the possibility that inappropriate claims payments are made
    as a result of inadequate adjudication, settlement or claims payments. Product design and pricing
    risk is the exposure to financial loss from transacting insurance business where costs and liabilities
    experienced in respect of a product line exceeds the expectation in pricing it. Policies, processes and
    other internal controls have been established to manage these risks to within tolerable levels.

    In managing certain insurance risks, reinsurance is employed by the Company; however, the
    Company is still exposed to reinsurance risk. Reinsurance risk is the risk of financial loss due to
    inadequacies in reinsurance coverage or the default of a reinsurer. If a reinsurer fails to pay a claim
    for any reason, the Company remains liable for the payment to the policyholder.
                                                                                                     Page 20
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Other external factors play a role in our management of insurance risk. Property and casualty
    insurers are subject to significant regulation by governments. As in any regulated industry, it is
    possible that future regulatory changes or developments may prevent the Company from raising rates
    or taking other actions to enhance operating results. As well, future regulatory changes, novel or
    unexpected judicial interpretations or political developments could impact the ultimate amount of
    claims that must be paid out. Macroeconomic risks such as fluctuations in the long-term portfolio
    yields used in the valuation of the Company’s insurance contracts or changes in the Company’s
    forecasts of expected inflation levels are also important considerations in developing the estimated
    liability.

    b) Sources of uncertainty and processes used to determine assumptions for insurance
    contracts

    The Company establishes an unpaid claims and adjustment expense provision to cover claims
    incurred but not settled at the end of the reporting period. The unpaid claims provision contains both
    individual claims estimates and an incurred but not reported (IBNR) provision.

    Individual claims estimates are set by regional claims adjusters on a case-by-case basis. These
    specialists apply their knowledge and expertise, after taking available information regarding the
    circumstances of the claim into account, to set individual case reserve estimates. The policy and
    procedures by which case reserve estimates are set are well documented. The claims reserving
    strategy and monitoring of their application and effectiveness falls under the accountability of the
    Company’s National Claims department.

    The IBNR provision is a bulk provision intended to cover future development on both reported claims
    and claims that have occurred but have yet to be reported. Uncertainty exists on reported claims in
    that all information may not be available at the valuation date. Claims that have occurred may not be
    reported to the Company immediately; therefore, estimates are made as to their value, an amount
    which may take years to finally determine.

    The total unpaid claims and adjustment expense provision is an estimate that is determined using a
    range of accepted actuarial claims projection techniques, such as the Chain Ladder and Bornhuetter-
    Ferguson methods. These techniques use the Company’s historical claims development patterns to
    predict future claims development. In situations where there has been a significant change in the
    environment or underlying risks, the historical data is adjusted to account for expected differences.

    The initial actuarial estimate of unpaid claims and adjustment expenses is an undiscounted amount.
    This estimate is then discounted to recognize the time value of money. The discount rate applied to
    measure the value of unpaid claim and adjustment expenses is based upon the market yield of
    assets supporting the claims liabilities. This rate could fluctuate significantly based on changes in
    interest rates and credit spreads.

    The discounted unpaid claims and adjustment expenses incorporates assumptions concerning future
    investment income, projected cash flows, and appropriate provisions for adverse deviation (PFADs).
    As the estimates for unpaid claims are subject to measurement uncertainty and the variability could
    be material in the near term, the Company includes PFADs in its assumptions for claims
    development, reinsurance recoveries and future investment income. The incorporation of PFADs is
    in accordance with accepted actuarial practice in order to ensure that the actuarial liabilities are
    adequate to pay future benefits. The selected PFADs are within the ranges recommended by the
    Canadian Institute of Actuaries (CIA).

    The following table shows the revised estimate of prior year unpaid claims and adjustment expenses
    provisions, net of reinsurance, relative to their original valuation as at December 31. The claims
    development table is presented on a discounted basis.
                                                                                                           Page 21
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


                                           2005          2006         2007         2008         2009        2010
                                             $            $            $            $            $           $
     Valuation:
      Original estimate                   1,723,190    1,855,465    1,855,534    1,971,386    2,006,157    2,093,752
      Re-estimate as December 31          1,107,459    1,216,667    1,348,027    1,551,234    1,780,168
     Claims development - favourable        615,731      638,798      507,507      420,152      225,989

     Claims development - favourable
      1st year                              211,727      296,322      208,618      251,981      225,989
      2nd year                              185,132      139,703      180,958      168,171             -
      3rd year                               93,230      121,597      117,931             -            -
       4th year                              71,875       81,176             -            -            -
       5th year                              53,767          -            -            -            -
     Claims development - favourable        615,731      638,798      507,507      420,152      225,989


    c) Changes in assumptions used in measuring insurance contracts

    Assumptions used to develop this estimate are selected by class of business and geographic
    location. Consideration is given to the characteristics of the risks, historical trends, the amount of
    data available on individual claims, inflation and any other pertinent factors. Some assumptions
    require a significant amount of judgment such as the expected impacts of future judicial decisions and
    government legislation. The diversity of these considerations result in it not being practicable to
    identify and quantify all individual assumptions that are more likely than others to have a significant
    impact on the measurement of the Company’s insurance contracts. There were no assumptions
    identified in the quarter or the preceding year as having a potential or identifiable material impact on
    the overall claims estimate.

    d) Objectives, policies and processes for managing risks arising from insurance contracts

    The Company’s underwriting objective is to develop business within our target market on a prudent
    and diversified basis and to achieve profitable underwriting results. The Company sets a target of a
    combined ratio of between 95% and 99%.

    The Company uses comprehensive underwriting manuals which detail the practices and procedures
    used in the determination of the insurance risk for each item to be insured and the decision of
    whether or not to insure the item. The Company underwrites automobile business after a periodic
    review of the client’s driving record and claims experience. The Company underwrites property lines
    based on physical condition, property replacement values, claims experience, geography and other
    relevant factors. All employees in the underwriting area are well trained and their work is audited on
    a regular basis. Agents and brokers are compensated, in part, based on the profitability of their
    portfolio.

    In setting the provision for unpaid claims and adjustment expenses required to cover the estimated
    liability for claims, the Company’s practice is to maintain an adequate margin to ensure future years’
    earnings are not negatively affected by prior years’ claims development and other variable factors
    such as inflation. The Company monitors fluctuations in reserve adequacy on an ongoing basis, and
    periodically seeks an external peer review of reserve levels.

    The Company’s pricing policies take into account numerous factors including claims frequency and
    severity trends, product line expense rates, special risk factors, the capital required to support the
    product line and the investment income earned on that capital. The Company’s pricing process is
    designed to ensure an appropriate return on equity while also providing long-term rate stability.
                                                                                                     Page 22
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    These factors are reviewed annually and adjusted periodically to ensure they reflect the current
    environment.

    The Company monitors its compliance with all relevant regulations and actively participates in
    discussions with regulators, governments and industry groups to ensure that it is well-informed of
    contemplated changes and that its concerns are understood. The Company considers the
    implications of potential changes to its regulatory and political environment in its strategic planning
    process to understand the impacts and adjusts its plans if necessary.

    e) Objectives, policies and processes for managing insurance risk through reinsurance

    The Company’s strategy is to retain underwriting risk where it is financially prudent. The Company
    reviews its insurance requirements annually to assess the level of reinsurance coverage required.
    Reinsurance is purchased to limit the Company’s exposure to a particular risk, category of risk or
    geographic risk area. To manage reinsurance counterparty risk, the Company assesses and
    monitors the financial strength of its reinsurers on a regular basis.

    The Company writes business that is broadly diversified in terms of the lines of business and
    geographic location. There is no guarantee that a catastrophe will not result in claims against the
    Company in excess of its maximum reinsurance coverage; however, based on the Company’s
    catastrophic loss models, protection is in excess of regulatory guidelines and at a level that
    management considers prudent.

    The underwriting impact of our use of reinsurance programs on the period’s results is described in
    note 8.

    f) Sensitivity analysis

    The Company has exposures to risks in each class of business within each operating segment that
    may develop and that could have a material impact on the Company’s financial position. The
    correlation of assumptions has a significant effect in determining the ultimate claims liability and
    movements in assumption are non-linear; also, it is not possible to quantify the sensitivity of certain
    key assumptions such as future legislative changes. Because of this and because of the
    geographical and insurance risk diversity within the Company’s portfolio of issued insurance policies,
    is not possible to provide a meaningful sensitivity analysis on isolated insurance risk variables and
    assumptions.

    To ensure that the Company has sufficient capital to withstand a variety of significant and plausible
    adverse event scenarios, the Company performs Dynamic Capital Adequacy Testing (DCAT) on the
    capital adequacy of the Company. DCAT is performed annually, as required by the CIA, and is
    prepared by the appointed actuary. The adverse event scenarios are reviewed annually to ensure
    that the appropriate risks are included in the DCAT process. Plausible adverse event scenarios used
    in the most recent DCAT process included consideration of claims frequency and severity risk,
    inflation risk, premium risk, reinsurance risk and investment risk. The exposure of the peril of
    earthquake with default of reinsurers was also applied in a stress test analysis, as outlined in note
    6(g). The most recent results indicated that the Company’s future financial and capital positions are
    satisfactory under the assumptions applied.

    The methods used for deriving this sensitivity information did not change from the previous period.
    The most recent set of annual consolidated financial statements provides the Company’s interest rate
    sensitivity analysis.
                                                                                                        Page 23
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    g) Concentrations of insurance risk

    The Company has catastrophe exposures arising from the property and automobile comprehensive
    policies it writes across the country. Exposures to concentrations of insurance risk subject to
    catastrophe losses are evaluated, and the Company has adopted a reinsurance strategy to reduce
    such exposures to an acceptable level.

    A particular focus is exposure to the peril of earthquake in British Columbia, Quebec, and Eastern
    Ontario. The Company utilizes industry-accepted earthquake modeling techniques to understand its
    exposures and applies this information to establish the catastrophe coverage outlined in note 6(e). In
    addition to earthquake, other catastrophe perils such as hail and windstorm are also modeled, and
    reinsurance is purchased based on the peril that generates the largest loss. As the catastrophe
    reinsurance purchased is not peril specific, the Company is thereby provided with a high level of
    protection for catastrophic loss from other perils. The stress tests completed on the Company’s
    capital are based on 1 in 500 year events; this exceeds the regulatory requirements established by
    OSFI.

    h) Financial risks in insurance contracts

    Information about credit risk, liquidity risk and market risk for insurance contracts is provided in the
    most recent set of annual consolidated financial statements.

7. Insurance contracts

    Insurance contracts are comprised of the following balances:

                                                                       As at            As at          As at
                                                                      March 31       December 31     January 1
                                                                       2011             2010           2010
                                                                         $               $               $
     Insurance contracts
       Unearned premiums                                              1,095,993          1,184,282   1,155,703
       Unpaid claims and adjustment expenses                          2,271,548          2,233,853   2,169,673
                                                                      3,367,541          3,418,135   3,325,376

    The most recent set of annual consolidated financial statements provides a summary of the
    Company’s unpaid claims and adjustment expense provision and unearned premiums by type of
    insurance contract both before and after reinsurance.

8. Reinsurance contracts

    The Company follows the policy of underwriting and reinsuring contracts of insurance which limits the
    liability of the Company to a maximum amount on any one loss. In addition, the Company has
    obtained reinsurance, which limits the Company’s liability in the event of a series of claims arising out
    of a single occurrence. The Company’s net retentions are as follows:
                                                                                                             Page 24
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)
                                                                             As at            As at           As at
                                                                            March 31       December 31      January 1
                                                                             2011             2010            2010
                                                                               $               $                $
     Individual loss
         Property                                                               5,000               5,500      5,500
         General liability                                                      5,000               2,200      2,200
         Automobile                                                             5,000               5,000      5,000
     Catastrophe
         Maximum limit                                                       900,000              800,000    800,000
         Company retention                                                    35,000               35,000     35,000

    Effective December 31, 2010, the Company cancelled a large proportional property reinsurance
    agreement. The cancelled agreement will continue to apply to policies that were ceded to it in 2010,
    until such policies expire. Commencing January 1, 2011, the proportional agreement was replaced
    with a per risk excess of loss reinsurance program, which applied to all new and renewal business in
    2011. The limit of the catastrophe reinsurance will increase quarterly through 2011 to replace the
    expiring proportional reinsurance coverage on large property policies as they are renewed during
    2011. The maximum limit for catastrophe reinsurance above is applied at CGL consolidated.

    a) Underwriting impact of reinsurance contracts

                                                                           3 Months Ended             3 Months Ended
                                                                            March 31 2011              March 31 2010
                                                                               Ceded                      Ceded
                                                                                  $                          $
     Written premium                                                                    19,634                 38,064
     Earned premium                                                                     38,915                 39,987
     Claims and adjustment expenses                                                     15,947                 17,192
     Commission                                                                          6,867                  8,446
     Cost of reinsurance ceded program                                                  16,101                 14,349

                                                                           3 Months Ended             3 Months Ended
                                                                            March 31 2011              March 31 2010
                                                                              Assumed                    Assumed
                                                                                  $                          $
     Written premium                                                                     1,067                (15,613)
     Earned premium                                                                      1,158                    709
     Claims and adjustment expenses                                                        820                  1,267
     Commission                                                                            350                    154
     Underwriting gain from assumed reinsurance                                            (12)                  (712)
                                                                                                          Page 25
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    b) Reinsurance ceded contracts

    The amounts presented under reinsurance ceded contracts in the consolidated balance sheets
    represent the Company’s net contractual rights under reinsurance contracts and consist of the
    following:

                                                                             As at          As at          As at
                                                                            March 31     December 31     January 1
                                                                             2011           2010           2010
                                                                               $             $               $
     Reinsurance ceded assets
      Reinsurers' share of unearned premiums                                  37,588            56,868     59,917
      Reinsurers' share of unpaid claims & adjustment expenses               136,937           140,101    163,516
      Reinsurer receivables                                                   15,312             5,807     10,549
      Unlicensed reinsurer deposits                                            4,799             5,326      5,499
                                                                             194,636           208,102    239,481

     Reinsurance ceded liabilities
      Unearned reinsurance commissions                                          9,492           14,161     15,626
      Payable to reinsurers                                                       352            8,554      9,477
      Unlicensed reinsurer deposits                                             4,799            5,326      5,499
                                                                               14,643           28,041     30,602
     Reinsurance ceded contracts                                             179,993           180,061    208,879

     Current                                                                 104,243            89,649    102,465
     Non-current                                                              75,750            90,412    106,414
                                                                             179,993           180,061    208,879


    c) Reinsurance assumed contracts

    The Company presents balances related to reinsurance assumed contracts in the same manner as it
    presents direct insurance business with the exception of reinsurance assumed receivables and
    payables; these amounts are recorded in other assets and other liabilities. The portion of the assets
    related to reinsurance assumed contracts is as follows:

    Reinsurance assumed assets

                                                                             As at          As at          As at
                                                                            March 31     December 31     January 1
                                                                             2011           2010           2010
                                                                               $             $               $
     Reinsurance assumed receivables (note 11)                                 1,574           1,583        2,768
     Deferred acquisition expenses                                               124              146       2,587
                                                                               1,698           1,729        5,355

     Current                                                                       95               41      2,704
     Non-current                                                                1,603            1,688      2,651
                                                                                1,698            1,729      5,355
                                                                                                            Page 26
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    Reinsurance assumed liabilities

                                                                             As at          As at            As at
                                                                            March 31     December 31       January 1
                                                                             2011           2010             2010
                                                                               $             $                 $
     Unearned premiums                                                           481              572        16,906
     Unpaid claims and adjustment expenses                                    36,212          35,786         72,921
     Reinsurance assumed payables                                                478              463            150
                                                                              37,171          36,821         89,977

     Current                                                                   16,027             15,862     47,245
     Non-current                                                               21,144             20,959     42,732
                                                                               37,171             36,821     89,977


9. Income taxes

    a) Reconciliation to statutory income tax rate

     Differences in the effective income tax rate reflected in the consolidated statements of income and
     the corporate income tax rate are as follows:

                                                                               3 Months Ended         3 Months Ended
                                                                                March 31 2011          March 31 2010
                                                                                      $                      $
      Income before income taxes                                                        34,002                43,951
      Combined basic Canadian federal and provincial income tax rate                        28%                 30%

      Income taxes at statutory rate                                                      9,521               13,185

      Non-taxable investment income                                                      (1,295)              (1,072)
      Change in deferred income tax rates                                                  (297)                  50
      Provision for non-deductible expenses and other                                       172                  226
      Adjustment to tax charge in respect of prior years                                    113                  193
      Income taxes                                                                        8,214               12,582


      Current income taxes                                                              10,516                11,046
      Deferred income taxes                                                              (2,302)               1,536
      Income taxes                                                                        8,214               12,582

      Effective rate of income tax                                                          24%                 29%

     In fiscal 2011 the statutory tax rate decreased to 28% due to decreases in the general federal and
     provincial tax rates for corporations.
                                                                                                            Page 27
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

    b) Income taxes included in OCI

    OCI included on the consolidated statements of comprehensive income is presented net of income
    taxes. The following income tax amounts are included in each component of OCI:

                                                                            3 Months Ended            3 Months Ended
                                                                             March 31 2011             March 31 2010
                                                                                   $                         $
     Unrealized gains (losses) on AFS financial assets
      Bonds                                                                            (5,445)                 4,091
      Stocks                                                                            7,116                  2,485
                                                                                        1,671                  6,576
     Reclassification to net income for AFS financial assets
      Bonds                                                                              (583)                (2,624)
      Stocks                                                                           (2,748)                  (330)
                                                                                       (3,331)                (2,954)
     Income taxes (recovery)                                                           (1,660)                 3,622


10. Assets held for sale

    The Company has classified real estate holdings within CGIC and L’Union operating segments as
    assets held for sale.

    During 2008, the Company adopted a formal plan of disposition related to its investment property
    following the approval of the Company’s management to dispose of its real estate investments. The
    Company’s investment property consisted of office buildings and commercial and retail properties
    across Canada. Investment property of $17,056 (December 31, 2010 - $17,094; January 1, 2010 -
    $18,348) still remains and has been classified as held for sale in accordance with IFRS 5 “Non-
    current Assets Held for Sale and Discontinued Operations”. The Company is actively marketing the
    properties. No gain or loss was recognized in retained earnings at the Transition Date as the carrying
    value of the non-current assets was less than the fair value less costs to sell.

    During 2010, the Company foreclosed on a mortgage on a multi-residential condominium property. In
    conjunction with the foreclosure, the Company acquired the property with a net realizable value equal
    to the value of the foreclosed mortgage. The net realizable value was determined by reviewing
    recent unit sale prices in this condominium property and by assessing current market conditions. The
    property was classified as held for sale in accordance with IFRS 5 as at December 31, 2010 and
    March 31, 2011 as the Company continues to actively market the properties for sale. No impairment
    losses have been recorded. During the period, sales proceeds on the majority of the sold units were
    received. The net realizable value at March 31, 2011 is $1,663 (December 31, 2010 - $3,357).

    An analysis of the non-current assets held for sale is as follows by operating segment:

                                                                         As at            As at              As at
                                                                        March 31       December 31         January 1
                                                                         2011             2010               2010
                                                                           $                $                  $
     Real estate per operating segment:
      CGIC                                                                 17,772            19,504           17,334
      L'Union                                                                 947               947            1,014
                                                                           18,719            20,451           18,348
                                                                                                        Page 28
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

11. Other assets

                                                                         As at            As at          As at
                                                                        March 31       December 31     January 1
                                                                         2011             2010           2010
                                                                           $                $              $
     Due from related parties                                              14,730          20,064         87,204
     Reinsurance assumed receivables (note 8)                               1,574            1,583          2,768
     Property and equipment                                                22,119          22,132         22,854
     Due from risk sharing pools                                            2,283            1,261          6,470
     Investments in partially owned companies                               2,337            2,459          2,539
     Other                                                                  8,815            9,674          7,757
                                                                            51,858           57,173      129,592

     Current                                                                24,802           29,987      100,816
     Non-current                                                            27,056           27,186       28,776
                                                                            51,858           57,173      129,592


12. Provisions and other liabilities

                                                                      As at               As at          As at
                                                                     March 31          December 31     January 1
                                                                      2011                2010           2010
                                                                        $                   $              $
     Provision for agent transition commissions                        69,623                69,973      68,451
     Finance lease obligations                                          1,024                 1,143            -
     Other liabilities                                                 22,402                20,784      13,848
                                                                       93,049                91,900      82,299

     Current                                                             13,498               12,733      12,086
     Non-current                                                         79,551               79,167      70,213
                                                                         93,049               91,900      82,299


    The provision for agent transition commissions is an obligation to active agents determined by
    accruing for the benefits earned to date on a present value basis assuming the cash flows associated
    with the earned benefits are paid out at the expected termination date. The provision is discounted at
    a rate of 5% (December 31, 2010 - 5%; January 1, 2010 - 5%), and assumes an average termination
    age of 60 (December 31, 2010 - 60; January 1, 2010 - 60). A reconciliation of the provision for agent
    transition commissions is provided below.
                                                                                                                Page 29
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


                                                                                        As at                   As at
                                                                                       March 31              December 31
                                                                                        2011                    2010
                                                                                          $                       $
     Balance, beginning of period                                                        69,973                    68,451
     Additional provision charged to income
          Earning of agent benefits                                                        1,627                    7,605
          Interest expense                                                                 1,745                    6,921
     Settlements for agent terminations                                                   (3,722)                 (13,004)
     Balance, end of period                                                               69,623                   69,973


13. Share capital

    The number of shares and the amounts per share are not in thousands.

    The changes and the number of shares issued and outstanding are as follows:

                                                                       As at March 31, 2011
                                                             Issued during the     Redemed during the
                                  Beginning of period              period                period                   End of period
                                  Number of                 Number of              Number of                    Number of
                                      shares    Amount          shares    Amount      shares    Amount             shares    Amount
                                                  $                        $                         $                         $
     Class A preference shares:
       Series A                      225,072      5,627          -             -        2,867            72       227,939      5,555
       Series B                      346,219     34,622       14,406       1,441      11,279         1,128        371,904     34,935
     Class B preference shares           484          12         -             -          -              -            484          12
     Class D preference shares:
       Series A                       13,803      1,380          -             -          -              -         13,803      1,380
       Series B                       42,535      4,254          -             -          -              -         42,535      4,254
       Series C                       43,184      4,318          -             -          -              -         43,184      4,318
     Class E preference shares:
       Series C                    4,000,000    100,000          -             -          -              -       4,000,000   100,000
       Series D                    4,600,000    115,000          -             -          -              -       4,600,000   115,000
     Class F preference shares:
       Series A                      488,624     12,216          -             -          -              -        488,624     12,216
     Class G preference shares:
       Series A                       14,984          375        -             -          -              -         14,984          375
     Common Shares                20,186,083      6,076          -             -          -              -      20,186,083     6,076
                                  29,960,988    283,880       14,406       1,441      14,146         1,200      29,989,540   284,121
     Less Staff share loan plan                  12,097                                                                       11,836
                                                271,783                                                                      272,285
                                                                                                               Page 30
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)


                                                                       As at March 31, 2010
                                                                                    Redemed during the
                                   Beginning of period   Issued during the period         period                  End of period
                                   Number of               Number of                Number of                   Number of
                                      shares      Amount      shares      Amount       shares    Amount            shares     Amount
                                                  $                        $                         $                        $
     Class A preference shares:
       Series A                      235,792      5,895          -             -        2,078            52      237,870      5,843
       Series B                      301,288     30,129       11,956       1,196        8,984            898     322,228     30,427
     Class B preference shares           492          12         -             -              2          -           494          12
     Class D preference shares:
       Series A                       13,803      1,380          -             -          -              -        13,803      1,380
       Series B                       42,535      4,254          -             -          -              -        42,535      4,254
       Series C                       43,184      4,318          -             -          -              -        43,184      4,318
     Class E preference shares:
       Series C                    4,000,000    100,000          -             -          -              -      4,000,000   100,000
       Series D                    4,600,000    115,000          -             -          -              -      4,600,000   115,000
     Class F preference shares:
       Series A                      488,624     12,216          -             -          -              -       488,624     12,216
     Class G preference shares:
       Series A                       14,984          375        -             -          -              -        14,984          375
     Common Shares                20,140,652      6,076          -             -          -              -     20,140,652     6,076
                                  29,881,354    279,655       11,956       1,196      11,064             950   29,904,374   279,901
     Less Staff share loan plan                  10,305                                                                      10,040
                                                269,350                                                                     269,861


    The staff share loan plan consists of loans to employees of the Company’s ultimate parent and its
    subsidiaries for the purchase of the Company’s Class A, Series B preference shares. Loans are
    offered on an interest free basis to all employees at pre-determined intervals and are repaid through
    payroll withholdings and dividend payments. Loans are generally settled within ten years and are
    secured by the preference shares. The fair value is not readily determinable for the preference
    shares held as security.

    Dividends declared are as follows:

                                                          3 months ended                     3 months ended
                                                           March 31, 2011                    March 31, 2010
                                                                       Amount                            Amount
                                                      Declared        per share         Declared        per share
                                                         $                $                $                $
     Class E, series C                                      1,250            0.31             1,250            0.31
     Class E, series D                                      2,084            0.45             2,084            0.45
                                                            3,334                             3,334


    Subsequent to the reporting period, on April 12, 2011, the Company declared dividends of $1,250,
    amount per share of $0.31 on the Class E, series C preference shares and $2,084, amount per share
    of $0.45 on the Class E, series D preference shares.
                                                                                                           Page 31
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

14. Supplemental expense information

    Included within general expenses are the following:

                                                                     3 Months Ended           3 Months Ended
                                                                      March 31 2011           March 31 2010
                                                                            $                       $
     Compensation costs                                                       65,382                   59,858
     Retirement benefit obligations                                            1,534                      855
     Amortization expense                                                      2,514                    2,756
     Interest expense                                                             39                      255


15. Statement of cash flows - other non-cash items

                                                                      3 Months Ended          3 Months Ended
                                                                       March 31 2011          March 31 2010
                                                                             $                      $
     i) Items not requiring the use of cash
          Investing activities gains                                            (12,935)              (11,213)
          Amortization and depreciation of:
              Bond premium/discount                                               3,263                 3,074
              Mortgage accretion                                                     44                    49
              Intangible assets                                                     985                   864
              Property and equipment                                              1,529                 1,892
          Change in fair value of FVTPL invested assets                          (1,714)               (3,707)
          Impairment loss                                                           566                 1,029
          Deferred income taxes                                                  (2,302)                1,536
          Retirement benefit obligations                                            783                    69
          Investment in partially owned companies                                   122                   101
                                                                                 (9,659)               (6,306)
     ii) Changes in non-cash operating components
          Other
            Insurance contracts                                                 (50,594)              (90,379)
            Reinsurance ceded contracts                                              68                 2,339
            Premiums due                                                         60,796                48,671
            Deferred acquisition expenses                                        17,162                13,068
            Staff share loan plan                                                   261                   265
            Accounts receivable and other assets                                 (9,343)               49,488
            Accounts payable and accrued charges                                (58,006)              (39,533)
            Income taxes payable/recoverable                                     (8,731)              (97,422)
            Provisions and other liabilities                                      1,149                (3,728)
                                                                                (47,238)             (117,231)
                                                                                                                 Page 32
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

16. Segmented information

    The Company primarily manages its affairs on a legal entity basis. There is separate management for
    each subsidiary who are responsible for meeting independent strategic initiatives within the overall
    corporate strategy. Each subsidiary company offers property and casualty insurance products but
    operates within separate distribution channels. Individual subsidiary financial performance is reported
    separately to the Company’s Board of Directors.

    All subsidiary companies follow the same accounting policies as described in note 2. The Company
    accounts for any intersegment sales at current market prices as if the transactions were to third
    parties.

    The Company’s operating segments are as follows:

     3 months ended                                CGIC        Sovereign    L'Union     COSECO        Eliminations      Consolidated
     March 31, 2011                                  $            $           $           $                $                 $
     Revenue
       Gross written premium                        325,145       57,635     56,522       42,116            (1,700)          479,718
       Ceded written premium                        (10,858)      (6,494)     (2,976)     (1,006)              1,700         (19,634)
       Net written premium                          314,287       51,141     53,546       41,110                   -         460,084
       Change in gross unearned premium              55,205       12,448     13,000        7,922                (286)         88,289
       Change in ceded unearned premium              (9,697)      (7,030)     (2,839)            -              286          (19,280)
       Net earned premium                           359,795       56,559     63,707       49,032                   -         529,093
       Net investment income                         34,395        4,715       2,982       5,501                   -          47,593
                                                    394,190       61,274     66,689       54,533                   -         576,686
     Expenses
       Claims and adjustment expenses               256,053       30,041     49,519       34,693            (1,042)          369,264
       Claims and adjustment expenses ceded          (9,781)      (4,569)     (2,441)         (198)            1,042         (15,947)
       Other expenses                               131,612       23,584     22,729       11,442                   -         189,367
                                                    377,884       49,056     69,807       45,937                   -         542,684
     Income (loss) before income taxes               16,306       12,218      (3,118)      8,596                   -          34,002
     Income taxes                                     3,560        3,305        (935)      2,284                   -           8,214

     Net income                                      12,746        8,913      (2,183)      6,312                   -          25,788
     Comprehensive income (loss)                     12,579        7,821      (2,779)      4,524                   -          22,145
     Additions to:
       Property and equipment                         1,205           86          225            -                 -             1,516
     Total assets                                 3,856,433      625,985    436,555      580,968          (471,072)        5,028,869
     Total liabilities                            2,450,994      445,373    312,947      433,802           (19,686)        3,623,430
     Shareholders' equity                         1,405,439      180,612    123,608      147,166          (451,386)        1,405,439
                                                                                                                   Page 33
CO-OPERATORS GENERAL INSURANCE COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Amounts in thousands of Canadian dollars, except for per share amounts and where otherwise noted)

     3 months ended                                CGIC        Sovereign    L'Union       COSECO        Eliminations       Consolidated
     March 31, 2010                                  $            $           $             $                $                  $
     Revenue
       Gross written premium                        306,444       57,034     56,120         44,185            (1,597)          462,186
       Ceded written premium                        (22,366)     (11,885)     (4,415)           (995)            1,597          (38,064)
       Net written premium                          284,078       45,149     51,705         43,190                     -       424,122
       Change in gross unearned premium              59,887        9,333     10,166          9,380                (417)          88,349
       Change in ceded unearned premium               2,271       (4,055)       (555)              -              417            (1,922)
       Net earned premium                           346,236       50,427     61,316         52,570                     -       510,549
       Net investment income                         34,638        4,098      2,652          4,910                     -         46,298
                                                    380,874       54,525     63,968         57,480                     -       556,847
     Expenses
       Claims and adjustment expenses               239,849       35,709     43,622         42,810            (1,293)          360,697
       Claims and adjustment expenses ceded          (7,726)      (4,745)     (4,831)       (1,183)              1,293          (17,192)
       Other expenses                               115,187       20,799     21,965         11,440                     -       169,391
                                                    347,310       51,763     60,756         53,067                     -       512,896
     Income before income taxes                      33,564        2,762      3,212          4,413                     -         43,951
     Income taxes                                     9,661          757        906          1,258                     -         12,582
     Net income                                      23,903        2,005      2,306          3,155                     -         31,369
     Comprehensive income                            29,710        2,902      2,841          3,953                     -         39,406
     Additions to:
       Property and equipment                            157          96              9            -                   -            262
     As at December 31, 2010
       Total assets                               3,911,597      640,756    458,496        588,566          (464,336)         5,135,079
       Total liabilities                          2,525,435      467,965    332,108        445,924           (22,515)         3,748,917
       Shareholders' equity                       1,386,162      172,791    126,388        142,642          (441,821)         1,386,162
     As at January 1, 2010
       Total assets                               3,784,779      614,206    437,485        576,237          (426,115)         4,986,592
       Total liabilities                          2,512,762      465,438    323,385        451,082           (38,092)         3,714,575
       Shareholders' equity                       1,272,017      148,768    114,100        125,155          (388,023)         1,272,017


17. Contingencies, commitments and guarantees

    The Company is subject to litigation arising in the normal course of conducting its insurance business.
    The Company is of the opinion that this litigation will not have a significant effect on the financial
    position, results of operations or cash flows of the Company.

    In the normal course of claims adjudication, the Company settles some long-term losses through the
    purchase of annuities (structured settlements) from life insurance companies. This business is placed
    with several licensed Canadian companies. No default has occurred, and the Company considers the
    possibility of default to be remote.

				
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