CMHC`s Stress Test Exercise and Earthquake Risk Housing Finance Symposium October 4, 2016

Background CMHC conducts Corporate-Wide Stress Testing to assess its financial solvency and operational resiliency through extreme but plausible events Catastrophic events such as earthquakes are among the key scenarios considered CMHC mortgage insurance does not cover physical damage to structures from earthquakes

Scenario narrative and Economic impact Earthquake Scenario Scenario narrative and Economic impact An earthquake event leads to substantial property damage, including to telecommunications and transportation infrastructure There is material disruption to regional business operations that lasts for several quarters until the infrastructure is repaired. A decline in housing prices is triggered Despite the stimulus provided from reconstruction spending, the disruption to business operations, hit to the insurance sector and damage to consumer and investor confidence mean that it takes several years for the Canadian economy to recover properly

Earthquake – Key Severity Metrics Base – earthquake-impacted region Base – Canada Earthquake – earthquake-impacted region Earthquake – Canada

Earthquake – Key Severity Metrics

Summary Impacts Regional impacts are the primary focus, however National impacts are likely in the short and medium-term It is of note that CMHC mortgage insurance does not cover physical damage to structures from earthquakes, however mortgage insurance claims could increase as a result of secondary ``ripple`` effects of an earthquake Stress Testing results indicate that CMHC is well capitalized and would remain solvent following a catastrophic earthquake event Assessment of operational impacts is an ongoing activity