REVIEW OF PERFORMANCE
Q2-2015
Intact Financial Corporation (TSX:IFC)
Wednesday, July 29th 2015
Intact Financial Corporation
Charles Brindamour
Chief Executive Officer
Intact Financial Corporation
Key points & highlights
• Net operating income per share of $1.56 with a combined ratio of 91.6%
• All business lines contributed to organic growth in DPW of 5%, or 6%
including our recent acquisition of Canadian Direct Insurance Inc.
• Strong financial position with $564 million of excess capital and
operating ROE of 16.8% for the last 12 months
Important notes:
Unless otherwise noted, DPW refers to DPW as reported under IFRS, excluding industry pools (referred to as “DPW” or “reported
DPW” in this presentation).
All underwriting results and related ratios exclude the MYA, but include our share of the results of jointly held insurance operations,
unless otherwise noted.
The expense and general expense ratios are presented herein net of other underwriting revenues. As a result, total revenues exclude
other underwriting revenues.
Net investment income includes our share of the results of jointly held insurance operations, unless otherwise noted.
Catastrophe claims are any one claim, or group of claims, equal to or greater than $7.5 million, related to a single event.
All references to “excess capital” in this presentation include excess capital in the P&C subsidiaries at 170% MCT plus net liquid assets
outside of the P&C insurance subsidiaries, unless otherwise noted.
Intact Financial Corporation
3
Outperforming our financial
targets
$3.50
1400
$3.00
1200
500 bps target
$2.50
1000
$2.00
800
$1.50
600
$1.00
400
$0.50
200
0
$0.00
H1-11
H1-12
H1-13
H1-14
H1-15
Q1-11
Q1-12
Q1-13
Q1-14
Q1-15
NOIPS growth
ROE outperformance
Our H1-2015 net operating income per share of
We have consistently exceeded our 500 bps ROE
$2.93 represents a 4-year compound growth rate
outperformance target versus the industry*
of 13.3%
Intact Financial Corporation
Industry data: IFC estimates based on MSA Research excluding Lloyd’s, ICBC, SGI,
SAF, MPI, Genworth and IFC.
Note: AMF (Québec) chartered insurance companies are not required to report on Q1
and Q3 results. As such, we have included estimates for non-reporters in our Industry
benchmark group, based on publicly available information. Actual results may vary.
4
P&C industry 12-month outlook
We remain well-positioned to continue outperforming the
Canadian P&C insurance industry in the current environment
•
Premium growth
•
•
Underwriting
•
•
Return on equity
•
•
Industry premiums are likely to increase at a low single-digit rate, with
slightly negative growth in personal auto, mid single-digit growth in
commercial lines and upper single-digit growth in personal property
expected
We expect future premium reductions in Ontario auto will be
commensurate with government cost reduction measures
We expect the current hard market conditions in personal property to
continue as the magnitude of recent catastrophe losses negatively
impacts industry results
We believe the impact of continued low interest rates and limited
underwriting profitability at the industry level have translated into firmer
conditions in commercial lines
We expect the industry’s combined ratio to continue to improve in 2015
from the recent peak above 100% in 2013, though the level of
investment income is unlikely to improve
We expect the industry’s ROE to trend back toward its long-term
average of 10% in 2015
We believe we will outperform the industry’s ROE by at least 500 basis
points in the next 12 months
Intact Financial Corporation
5
Strong broad-based growth
Personal Lines
Commercial Lines
Year-over-year underlying DPW growth
Year-over-year underlying DPW growth
11.1%
Contribution from Jevco and CDI
Contribution from Jevco
8.3%
5.7%
8.1%
4.9%
4.3%
4.1%
6.4%
2.7%
2.0%
0.6%
3.7%
2.5%
2.1%
Intact Financial Corporation
6
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
Q2-13
Q2-15
1.1%
Q1-15
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
0.7%
Q4-14
1.5%
Q2-13
-3.2%
Ontario auto update
The Ontario government has a mandate
to reduce insurance rates while also
reducing costs for insurers
Update
•
Cumulative Ontario Auto Rate Decreases *
Bill 15 passed
0%
-2%
-4%
Savings from:
• PJI
• DRS
• Towing
-10%
Bill 65 passed
-8%
Savings from:
• MIG definition reaffirmed
• Heath Care Provider licencing
9.6%
Industry
IFC
Q2-15
Q1-15
Q4-14
Q3-14
Q2-14
Q1-14
Q4-13
Q3-13
Q2-13
-12%
–
Updating the catastrophic impairment
definition
–
Reducing the standard duration of medical
and rehabilitation benefits to be more in line
with other provinces
•
Net cost reduction will become apparent as
the measures are defined in regulation
•
Ontario auto accounts for approximately one
quarter of our direct premiums written
•
We continued our solid outperformance
versus the industry
•
We continue to believe we can protect our
margins in Ontario
6.1%
-6%
The Ontario government budget outlines
additional actions to reduce costs which
include:
* Source: IFC estimates based on FSCO quarterly rate filings
Intact Financial Corporation
7
Acquisition of Canadian Direct
Background
•
•
•
•
•
Progress
Announced February 10, 2015
$143 million in DPW
Broadens direct presence for IFC
Facilitates objective to double direct
capabilities
Track record of strong underwriting
results
•
The transaction closed on May 1, 2015
and integration efforts are underway
•
Targeting annual expense synergies of
$10 million after-tax, and expect our runrate to reach this level by mid-2017
•
IRR estimated above 15%
Acquisition of CDI adds meaningful presence in Western Canada
2014 IFC Direct Channel: $975M DPW*
9%
Direct Channel pro forma with CDI: $1.1B DPW*
2%
8% 7%
8%
30%
51%
59%
26%
Ontario
Intact Financial Corporation
Quebec
Atlantic
Alberta
B.C.
* Includes Anthony Insurance and InnovAssur
8
Investing in growth
Brands
Brand awareness has increased notably though greater advertising
presence, highlighting the Intact Insurance 30 minute claims guarantee,
and continuing sports sponsorships.
Digital experience
We continued to invest in digital innovation, including faster quoting
engines on both intact.ca and belairdirect.com websites.
Diverse product offering
We’ve experienced a strong customer and broker response to our
Lifestyle Advantage product, which provides more flexibility for the
customer if something happens to their homes.
Intact Financial Corporation
9
Summary and key takeaways
We have a sustainable competitive
advantage versus the industry due to our
disciplined approach and quality operations
Our strong financial position enables us to
take advantage of growth opportunities
We continue our shareholder-friendly approach
to capital management
Intact Financial Corporation
10
Louis Marcotte
Senior Vice President and Chief Financial Officer
Intact Financial Corporation
Q2-2015 financial highlights
Q2-2015
Q2-2014
Change
YTD-2015
YTD-2014
Change
DPW
2,346
2,173
8%
3,918
3,676
7%
DPW (underlying)
2,344
2,212
6%
3,919
3,745
5%
158
128
23%
276
179
54%
91.6%
92.9%
(1.3) pts
92.5%
95.0%
(2.5) pts
Net operating income per
share to common
shareholders1
$1.56
$1.53
2%
$2.93
$2.47
19%
Earnings per share to common
shareholders
$1.47
$1.60
(8)%
$2.79
$2.77
1%
Operating return on common
shareholders equity for the last
12 months1
16.8%
11.6%
5.2 pts
(in $ millions, except as otherwise noted)
Underwriting income
Combined ratio
• Underlying DPW grew by 6% compared to Q2-2014, driven by organic growth initiatives, but also
included two months of premiums from recently acquired CDI, which represented 1.2 points of growth
• Combined ratio of 91.6% is 1.3 points better than the same period last year, due to a better expense
ratio, the success of our profitability initiatives and higher favourable prior year claims development,
which more than offset the impact of prolonged winter conditions in Atlantic Canada
1
Refer to Section 5 - Non-IFRS financial measures of the MD&A
Intact Financial Corporation
12
Personal lines
Personal Property
Personal Auto
(in $ millions, except as otherwise noted)
Q2-2015
Direct premiums written
Underwriting income
Combined ratio
Q2-2014
Change
Combined Ratio Breakdown
1,094
1,031
6%
25.2%
25.7%
85
72
18%
65.1%
65.8%
90.3%
91.5%
(1.2) pts
Q2-2015
Q2-2014
Expense
Ratio
Claims
Ratio
• Underlying DPW increased by 6% from Q2-2014 on a 7% increase in units due to investments in our brands and
digital strategies, rate actions and the inclusion of two months of CDI premiums
• Combined ratio of 90.3% was 1.2 points better than Q2-2014, which had an unusually low level of favourable
prior year claims development
(in $ millions, except as otherwise noted)
Q2-2015
Q2-2014
Change
Combined Ratio Breakdown
Direct premiums written
541
461
17%
34.4%
34.7%
Underwriting income
31
26
19%
58.3%
58.8%
92.7%
93.5%
(0.8) pts
Q2-2015
Q2-2014
Combined ratio
Expense
Ratio
Claims
Ratio
• Underlying DPW growth of 8% reflected continued firm market conditions, new product offerings, and the
inclusion of 2 months of premiums from the CDI acquisition
• The combined ratio was 0.8 points better than the same period last year, helped by lower catastrophe losses
of $11 million this quarter compared to $22 million in Q2-2014
Intact Financial Corporation
13
Commercial lines
Commercial Auto
(in $ millions, except as otherwise noted)
Direct premiums written
Underwriting income
Combined ratio
Q2-2014
Change
Combined Ratio Breakdown
203
192
6%
28.6%
9
32
(72)%
65.8%
49.5%
94.4%
79.5%
14.9 pts
Q2-2015
Q2-2014
30.0%
Expense
Ratio
Claims
Ratio
• DPW was up 6% from a year ago
• Combined ratio deteriorated by 14.9 points to 94.4% largely due to higher claims severity and unfavourable
prior year claims development
(in $ millions, except as otherwise noted)
Commercial P&C
Q2-2015
Q2-2015
Q2-2014
Change
Combined Ratio Breakdown
Direct premiums written
508
489
4%
39.3%
40.4%
Underwriting income (loss)
33
(2)
nm
Expense
Ratio
52.5%
60.1%
91.8%
100.5%
(8.7) pts
Q2-2015
Q2-2014
Claims
Ratio
Combined ratio
• DPW higher by 4%, benefiting from higher rates
• Combined ratio improved 8.7 points to 91.8%, helped by both elevated favourable prior year claims
development due to the resolution of a number of certain old files and by rate increases under our action plan
Intact Financial Corporation
14
High quality investment portfolio
$13.4 billion of high quality investments – strategically managed
Investment mix
Net investment gains (losses)
(net of hedging positions and financial liabilities
related to investments)
(in $ millions, except as otherwise noted)
Q2-15
Gains (losses) on fixedincome strategies and
related derivatives
Gains (losses) on
equity strategies and
related derivatives
Net gains on broker
transactions
Net investment gains
(losses)
Net investment gains
excluding FVTPL fixedincome securities
Q2-14
(43)
11
Loans, 4%
Change
(54)
Cash and shortterm notes, 4%
Preferred shares,
9%
(7)
29
(36)
21
4
17
(29)
44
(73)
23
Intact Financial Corporation
31
(8)
Common equity
strategies, 13%
Fixed-income
strategies, 70%
• Approximately 99% of fixed-income securities
are rated ‘A’ or better
• 86% of preferred shares are rated at least ‘P2L’
• No leveraged investments
15
Strong financial position
• Our financial position was strong with $564 million of
excess capital and an estimated MCT of 200%
• Book value per share increased by 8% for the last 12
months to $39.23
• Operating ROE of 16.8%, while maintaining significant
levels of excess capital
• Debt-to-capital ratio of 16.8%, below our target of 20%
Intact Financial Corporation
16
Q3-2015 earnings call
Wednesday, November 4th, 2015
Intact Financial Corporation
Contact Investor Relations
General Contact Info
Website:
http://www.intactfc.com
Click on “Investor Relations” tab
Email:
[email protected]
Phone:
416.941.5336
1.866.778.0774 (toll-free)
Samantha Cheung, MBA, M.Sc.Eng., P.Eng.
Vice President, Investor Relations
Phone: 416.344.8004
Email: [email protected]
Maida Sit, CFA
Director, Investor Relations
Phone: 416.341.1464 ext 45153
Email: [email protected]
To access our 2014 online annual report featuring interactive photos,
videos, dynamic charts, and additional media, please scan the QR
code or visit reports.intactfc.com/2014.
Intact Financial Corporation
18
Appendix
Intact Financial Corporation
Impact of 2-year policy conversion
•
•
•
As part of our Home Improvement Plan, we are no longer offering two-year property policies in
Québec to allow for more responsive pricing
At renewal, these policies will be converted to one-year policies
Reported DPW in Q2-2015 benefited by $41 million, or two points
•
Underlying growth will continue to be unaffected
$50
$40
$30
Zero impact by
the end of 2015
Two-year policies began to convert
into one-year policies starting in Nov.
2013 and continues for eight quarters
DPW (millions)
$20
$10
$0
-$10
One-year policies that had formerly
been two-year policies renew
again, resulting in a positive impact
on growth in the next four quarters
-$20
-$30
-$40
-$50
Q4-2013
Q1-2014
Q2-2014
Intact Financial Corporation
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
20
Forward-looking statements
Certain of the statements included in this presentation about the Company’s current and future plans, expectations and intentions, results, levels of activity,
performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words “may”, “will”, “would”,
“should”, “could”, “expects”, “plans”, “intends”, “trends”, “indications”, “anticipates”, “believes”, “estimates”, “predicts”, “likely”, “potential” or the negative or
other variations of these words or other similar or comparable words or phrases, are intended to identify forward-looking statements.
Forward-looking statements are based on estimates and assumptions made by management based on management’s experience and perception of
historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in the
circumstances. Many factors could cause the Company’s actual results, performance or achievements or future events or developments to differ materially
from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: the Company’s ability to implement its
strategy or operate its business as management currently expects; its ability to accurately assess the risks associated with the insurance policies that the
Company writes; unfavourable capital market developments or other factors which may affect the Company’s investments and funding obligations under its
pension plans; the cyclical nature of the P&C insurance industry; management’s ability to accurately predict future claims frequency; government
regulations designed to protect policyholders and creditors rather than investors; litigation and regulatory actions; periodic negative publicity regarding the
insurance industry; intense competition; the Company’s reliance on brokers and third parties to sell its products to clients; the Company’s ability to
successfully pursue its acquisition strategy; the Company’s ability to execute its business strategy; the Company’s ability to achieve synergies arising from
successful integration plans relating to acquisitions including its acquisition of Canadian Direct Insurance Inc. (“CDI”), as well as management's estimates
and expectations in relation to resulting accretion, internal rate of return and debt-to-capital ratio; the Company’s participation in the Facility Association (a
mandatory pooling arrangement among all industry participants) and similar mandated risk-sharing pools; terrorist attacks and ensuing events; the
occurrence of catastrophic events; the Company’s ability to maintain its financial strength and issuer credit ratings; access to debt financing and the
Company's ability to compete for large commercial business; the Company’s ability to alleviate risk through reinsurance; the Company’s ability to
successfully manage credit risk (including credit risk related to the financial health of reinsurers); the Company’s reliance on information technology and
telecommunications systems and potential disruption to those systems, including evolving cyber attack risk; the Company’s dependence on key employees;
changes in laws or regulations; general economic, financial and political conditions; the Company’s dependence on the results of operations of its
subsidiaries; the volatility of the stock market and other factors affecting the Company’s share price; and future sales of a substantial number of its common
shares.
All of the forward-looking statements included in this presentation are qualified by these cautionary statements and those made in the Risk management
section of our MD&A for the year ended December 31, 2014. These factors are not intended to represent a complete list of the factors that could affect the
Company. These factors should, however, be considered carefully. Although the forward-looking statements are based upon what management believes to
be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. When relying
on forward-looking statements to make decisions, investors should ensure the preceding information is carefully considered. Undue reliance should not be
placed on forward-looking statements made herein. The Company and management have no intention and undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Intact Financial Corporation
21
Disclaimer
This Presentation does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any securities nor shall it or any
part of it form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitment whatsoever.
The information contained in this Presentation concerning the Company does not purport to be all-inclusive or to contain all the information that a
prospective purchaser or investor may desire to have in evaluating whether or not to make an investment in the Company. The information is qualified
entirely by reference to the Company’s publicly disclosed information.
No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its the directors, officers or employees as
to the accuracy, completeness or fairness of the information or opinions contained in this Presentation and no responsibility or liability is accepted by
any person for such information or opinions. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the
attendees with access to any additional information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentation
that may become apparent. The information and opinions contained in this Presentation are provided as at the date of this Presentation. The contents
of this Presentation are not to be construed as legal, financial or tax advice. Each prospective purchaser should contact his, her or its own legal adviser,
independent financial adviser or tax adviser for legal, financial or tax advice.
The Company uses both International Financial Reporting Standards (“IFRS”) and certain non-IFRS measures to assess performance. Non-IFRS
measures do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to any similar measures presented by other
companies. Management of the Company analyzes performance based on underwriting ratios such as combined, general expenses and claims ratios
as well as other performance measures such as return on equity (“ROE”) and operating return on equity. These measures and other insurance related
terms are defined in the Company’s glossary available on the Intact Financial Corporation web site at www.intactfc.com in the “Investor Relations”
section. Additional information about the Company, including the Annual Information Form, may be found online on SEDAR at www.sedar.com.
Intact Financial Corporation
22