Q4 2021 Intact Financial Corp Earnings Call

Speaker 1: Good morning ladies and gentlemen and welcome to InTech Financial Corp Q4 2021 results conference call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session.

Good morning, ladies and gentlemen, and welcome to <unk> Financial Corp, Q4, 2021 results conference call. At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.

At any time during this call you'll be quite a muted assistance. Please press star zero for the operator.

Speaker 1: Also note that this call is being recorded on Wednesday, February 9, 2022.

Also note that this call is being recorded on Wednesday February 19, 2022, and I would like to turn the conference over to Szuba Kohn Vice President Investor Relations. Please go ahead.

Speaker 1: on vice president investor relations please go ahead

Speaker 2: Thank you, Sylvie. Good morning everyone and thank you for joining the call today. A link to our live webcast and published information for this call is posted on our website at intacfc.com under the investors tab. As usual, before we start, please refer to slide 2, precautionary language regarding the use of forward-looking statements which form part of this morning's remarks and slide 3 for a note on the use of non-GAAP financial measures and important notes on adjustments, terms and definitions used in this presentation.

Thank you Sandeep and good morning, everyone and thank you for joining the call today.

A link to our live webcast and published information for this call is posted on our website at <unk> Dot com under the investors tab as usual before we start please refer to slide two for cautionary language regarding the use of forward looking statements, which form part of this morning's remarks on slide three for a note on the use of non-GAAP .

<unk> measures and important notes on adjustments terms and definitions used in this presentation.

Speaker 2: With me today, we have our CEO , Charles Grindemar, our CFO , Louis Marcotte.

With me today, we have our CEO Charles <unk>.

Our CFO Louis Marcotte Isabel.

Speaker 2: Isabel Girard, our Senior Vice President of Personal Lines, Patrick Barbeau, Executive Vice President and Chief Operating Officer, Darren Godfrey, Executive Vice President, Global Specialty Line, and Ken Anderson, Executive Vice President, UK and I.

Isabelle Girard, our senior Vice President of personal lines and Patrick Barbeau.

<unk>, Vice President and Chief operating Officer.

Darren Godfrey.

Executive Vice President Global specialty lines, and Ken Anderson Executive Vice President you cannot.

Speaker 2: We will begin with prepared remarks followed by Q&A. With that, I will turn the call to Charles.

We will begin with prepared remarks, followed by Q&A with that I will turn the call to trial.

Speaker 3: Thanks Shubha. Good morning everyone and thank you for joining us today. As the world contended with a new wave of the pandemic, we moved quickly and decisively to protect our employees, stay open for business and support our customers during a period of uncertainty. At the same time, our people showed tremendous commitment in getting our customers back on track after a number of severe weather events.

Thanks, <unk> good morning, everyone and thank you for joining us today.

As the world contended with a new wave of the pandemic, we moved quickly and decisively to protect our employees stay open for business and support our customers during a period of uncertainty at.

At the same time, our people showed tremendous commitment and getting our customers back on track after a number of severe weather events.

We capped off a milestone year with very strong fourth quarter results and solid momentum across all segments.

Speaker 3: We capped off a milestone year with very strong Fort Quarter results and solid momentum across all segments.

Speaker 3: Yesterday evening, we announced fourth quarter net operating income per share of $3.78, a 19% increase over 2.4 last year.

Yesterday evening, we announced fourth quarter net operating income per share of $3 78, a 19% increase over Q4 last year.

Speaker 3: For the full year, Net Operating Income for share was up 25% driven by mid-teens organic earnings growth and meaningful accretion from the RSA acquisition.

For the full year net operating income per share was up 25% driven by mid teens organic earnings growth.

And meaningful accretion from the RSC acquisition our.

Speaker 3: Our business grew 75% in the quarter, in large part driven by RSC.

Our business grew 75% in the quarter in large part driven by RSC.

Speaker 3: For the full year, premiums increased 45% with RSA contributing 39 points.

For the full year premiums increased 45% with RSA contributing 39 points.

Speaker 3: Favourable conditions in commercial lines across all markets, as well as personal property, drove healthy organic growth of 5% in 2021.

Favorable conditions in commercial lines across all markets as well as personal property drove healthy organic growth up 5% in 2021.

Speaker 3: The overall combined ratio for the year was strong at 88.8%, driven by our Canadian operations, and despite 4 points of catch.

The overall combined ratio for the year was strong at 88, 8% driven by our Canadian operations and despite four points of cats.

Speaker 3: Our results drove operating ROE to 17.8% in 2021, and book value per share grew by 40%. With a favorable earnings outlook and a robust balance sheet, we're pleased to increase our quarterly dividend by another 10%, the 17th consecutive annual increase since our IPO.

Our results drove operating ROE to 17, 8% in 2021 and book value per share grew by 40% with a favorable earnings outlook and a robust balance sheet. We're pleased to increase our quarterly dividend by another 10% the 17th consecutive annual.

Increase since our IPO.

Speaker 3: Let me now provide a bit of color on the results and outlook by line of business starting right here in Canada.

Let me now provide a bit of color on the results and outlook by line of business starting right here in Canada.

Speaker 3: Performance in our personal auto business continues to be solid with a combined ratio of 86.9% which included 4 points of favorable prior year development.

Performance in our personal auto business continues to be solid with a combined ratio of 86, 9%.

This included four points of favorable prior year development.

Speaker 3: lower driving, and the impact of our actions over time.

So we're driving and the impact of our actions over time we.

Speaker 3: We've made significant investments in claims operations and pricing over the years. These continue to pay up and put us on solid footing to continue to stay on top of claims cost pressure.

We've made significant investments in claims operations and pricing over the years.

These continued to pay off and put us on solid footing to continue to stay on top of claims cost pressure.

Speaker 3: As a result, we expect to operate at the lower end of the mid 90s range as driving activity normalizes.

As a result, we expect to operate at the lower end of the mid <unk> range as driving activity normalizes.

Looking at the industry in auto we expect muted premium growth in the near term until mobility returns to pre pandemic levels. We expect the rate momentum to pick up claims inflation persists or accelerates as was the case prior to the pandemic.

Speaker 3: Looking at the industry in auto, we expect new to the premium growth in the near term until mobility returns to pre-pandemic levels. We expect the rate momentum to pick up as claims inflation persists or accelerates as was the case prior to the pandemic.

Speaker 3: Our personal property business continues to perform very well, showing resilience in the face of severe weather events. The transformation orchestrated in this segment over the last decade.

Our personal property business continues to perform very well showing resilience in the face of severe weather events. The transformation orchestrated in this segment over the last decade.

Speaker 3: is paying off with our sub-90s average combined ratio over the last five years. However, we need to remain vigilant. As recent CAD activities shown, the impact of climate change is real for the industry. And while weather continues to support firm market conditions, we're not relying only on rates to drive profitability.

Paying off with our sub <unk> average combined ratio over the last five years.

However, we need to remain vigilant as recent cat activity has shown the impact of climate change is real for the industry.

And whether it continues to support firm market conditions.

Not relying only on rates to drive profitability.

Speaker 3: For example, our on-site restoration business continued to expand its footprint in Canada, increasing our ability to manage the supply chain. On-site played a critical role in supporting customers during an active cat year, leading to record net promoter scores for our claim service during the past.

For example, our on side restoration business continued to expand its footprint in Canada, increasing our ability to manage the supply chain.

On slide played a critical role in supporting customers during an active cat year, leading to record net promoter scores for our claim service during catastrophes.

Speaker 3: In commercial lines, premiums grew 23% for the year, which included 9 points of organic growth. The combined ratio was also really strong at 88.6%. Reflecting our robust profitability actions over time.

In commercial lines premiums grew 23% for the year, which included nine points of organic growth. The combined ratio was also really strong at 88, 6%, reflecting a robust profitability actions over time.

Speaker 3: Looking at the industry, we see hard market conditions continuing. Given low industry profitability in recent years, inflation concerns, and rising reinsurance costs, our business is very well positioned to deliver a sustainable, low 90s, or better performance.

And looking at the industry, we see hard market conditions, continuing given low industry profitability in recent years.

<unk> concerns and rising reinsurance costs in our business is very well positioned to deliver a sustainable low ninety's or better performance.

Speaker 3: Moving now to our UK and I business, the combined ratio since the RSA transaction closed was solid at 93.4% ahead of our expectation.

Moving now to our <unk> business, the combined ratio since the RSC transaction closed.

Solid at 93, 4% ahead of our expectations.

Speaker 3: and first lines the team has done a phenomenal job in delivering close to mid-90s performance during this period.

And first lines. The team has done a phenomenal job in delivering close to mid Ninety's performance. During this period.

Speaker 3: We remain focused on improving personal auto, which is only 10% of the UKNI premiums, and 1% of IFC.

We remain focused on improving personal auto which is only 10% of the UK premiums and 1% of Ifc's.

Speaker 3: But it has weighed on the UK profitability. And to complement our strong local expertise, we're committing additional resources including a new data lab squad dedicated to pricing sophistication in this segment. And we expect our continued pricing discipline to lead to improved performance.

But it is weighed on the UK profitability and to complement our strong local expertise, we're committing additional resources, including <unk>.

New data lab squad dedicated to pricing sophistication in this segment and.

And we expect our continued pricing discipline.

Lead to improved performance.

Speaker 3: following regulatory reforms that went into effect at the beginning of the year.

Following regulatory reforms that went into effect at the beginning of the year.

Speaker 3: In commercial lines in the UK, performance continues to be strong with a combined ratio of 90.5% year to date.

In commercial lines in the UK performance continues to be strong with a combined ratio of 95% year to date.

Speaker 3: This is a testament to the strength of the team, current team place, and the actions they've taken in recent years. And we've nevertheless moved to further optimize our footprint, focusing more closely on the strong regions and London market operations, and refining segments where the economics are not as compelling.

This is a testament to the strength of the team currently in place.

And the actions they've taken in recent years, we've nevertheless move to further optimize our footprint focusing more closely on the strong regions and London market operations and refining segments, where the economics are not as compelling.

Speaker 3: Overall, UK and I business is in a good position and we're on our way to building sustainable out performance. And looking at the industry, we see some volatility in personal lines on the back of recent reforms, while hard market conditions are expected to persist in commercial life.

Overall, the U K business is in a good position.

We're on our way to building sustainable outperformance.

Looking at the industry, we see some volatility in personal lines on the back of recent reforms well <unk>.

Market conditions are expected to persist and commercialized.

Our U S commercial business is expanding at a rapid pace, thanks to hard market conditions.

Speaker 3: Our US commercial business is expanding at a rapid pace thanks to hard market conditions, new products and strong growth in well performing lines.

New products and strong growth and well performing lines.

Speaker 3: The combined ratio improved two points to 92.9% for the full year, which included three points of cats.

The combined ratio improved two points to 92, 9% for the full year.

Which included three points of cats double our expectations.

Speaker 3: The fundamental of this business remain compelling, particularly given the persistence of hard market conditions, and sub-90s performance across a large portion of the portfolio in 2021.

The fundamental of this business remain compelling, particularly given the persistence of hard market conditions and sub <unk> performance across a large portion of the portfolio.

In 2021.

Speaker 3: We're well positioned to deliver sustainable low 90s performance in the US thanks to this momentum and we see significant opportunity for growth in this market.

Well positioned to deliver sustainable low <unk> performance in the U S. Thanks to this momentum and we see significant unfortunate for growth in this market.

Speaker 3: Turning to our RSA acquisition, which closed last June , the integration and transition, spread to say, are on track. In Canada, policy conversion in the broker channel, is well underway.

Turning to our RSA acquisition, which closed last June the integration and transition its fair to say our contracts.

In Canada policy conversion in the broker channel is well underway.

Speaker 3: Close to 50% of policies are converted to intact systems and products so far.

Close to 50% of policies have converted to <unk> systems and products so far.

Speaker 3: There's very good traction with our brokers and affinity partners. And the early indications are that retention is similar or better to our state's historical experience.

Theres very good traction with our brokers and affinity partners and the early indications are that retention is similar or better to rsa's historical experience.

Speaker 3: In the UK and I segment, I'm delighted that Ken Norgrove has joined the team at CEO .

In the UK and high segment I'm delighted that Ken Norgrove has joined the team as CEO .

Speaker 3: He previously led the strong RSA's Scandinavian business and engineered the turnaround of RSA's Irish operations. And so what Canada the helm will build on the hard work that has already been done to achieve out performance in the UK and Ireland.

He previously led the strong RSC Scandinavian business.

And engineered the turnaround of Rsa's Irish operations.

Ken at the helm.

We will build on the hard work that has already been done to achieve outperformance in the UK and Ireland.

The <unk> acquisition is also transform our specialty lines capabilities.

Speaker 3: The RSEC position has also transformed our specialty lines capability.

Speaker 3: With the addition of the RSA Europe and London market businesses, we've established a truly global platform. And we can now reach 70% of the global specialty solutions market with the expertise that we have on board.

With the addition of the RSC, Europe , and London market business as well.

We've established a truly global platform and we can now reach 70% of the global specialty solutions market.

<unk>.

The expertise that we have on board.

Speaker 3: So based on a full year contribution from RSC, our specialty lines business...

Based on a full year contribution from RSC, our specialty lines business.

Speaker 3: generated nearly 5 billion of pro forma premiums in 2021 at a sub 90 combined ratio.

Generated nearly $5 billion of pro forma premiums in 2021 at a sub 90 combined ratio.

Speaker 3: So you'll understand the focus we've put on that business. The economics of it are clearly very compelling, and it's therefore a cornerstone of our growth strategy for the next decade.

So yolanda.

Youll understand the focus we've put on that business. The economics of it are clearly very compelling.

And it is therefore, a cornerstone of our growth strategy for the next decade.

Speaker 3: Alongside the RS integration, our teams are making significant progress on our key strategic initiatives. We continue to expand our leadership position in Canada, in fact, Brokerning had a better year competing more than 20 acquisitions. This business now generates over 2.5 billion in annual premiums, and ranks among the largest brokerages in Canada.

Alongside the RSA integration, our teams are making significant progress on our key strategic initiatives, we continued to expand our leadership position in Canada.

Brokering, Inc. At a.

Banner year competing more than 20 acquisitions. This business now generates over $2 5 billion in annual premiums and ranks among the largest brokerages in Canada.

Speaker 3: distribution income overall is approaching 400 million annually and is one of the drivers of our RWE outperform.

Distribution income overall is approaching 400 million annually.

<unk> is one of the drivers of our ROE outperformance.

We also continued to ramp up our digital engagement with customers as usage of our self service tools increased another 20% in 2021.

Speaker 3: We also continue to ramp up our digital engagement with customers as usage of our self-service tools increased another 20% in 2020.

Speaker 3: In fact, more than half our personalized customers in Canada connected with us digitally last.

More than half our personalized customers in Canada connected with us digitally last year.

Okay.

Speaker 3: As I said at the outset, 2021 was a milestone year for I.V.

As I said at the outset 2021 was a milestone year for IFC.

Speaker 3: one in which we completed all the largest ever acquisition, unborted 9,000 new colleagues, and third new markets, and did a very strong result. At the same time, we responded quickly to customers impacted by severe weather events and moved to protect employees during another wave of the pandemic. I thank all of our colleagues for their passion and dedication in rising to these challenges.

One in which we completed our largest ever acquisition.

On boarded 9000, new colleagues entered new markets and delivered very strong results at the same time, we responded quickly to customers impacted by severe weather events and moved to protect employees.

During another wave of the pandemic I. Thank all of our colleagues for their passion and dedication and rising to these challenges.

Speaker 3: We remain committed to investing in our people, obviously.

We remain committed to investing in our people obviously.

Speaker 3: And I'm proud that these efforts actually have not gone unnoticed as we were named a best employer by concentric in the US and in Canada for the sixth year running. As we...

I am proud that these efforts actually have not gone unnoticed as we were named a best employer by concentric in the U S and in Canada for the sixth year running.

As we look ahead to 2022.

Speaker 3: We remain really focused on executing our strategic roadmap.

We remain really focused on executing our strategic roadmap.

Speaker 3: Obviously number one priority is completing the integration of RSA and capturing the economics that come with it.

Obviously number one priority is competing the integration of RSC and capturing economics that come with it.

Number two is expanding our leadership position in Canada through digital as well as distribution.

Speaker 3: Number two is expanding our leadership position in Canada through digital as well as distribution.

Speaker 3: Number three is laying the foundations for out performance in the UK and Ireland.

Number trees laying the foundations for outperformance in the UK and Ireland.

Fourth building, a global specialty solutions leader.

Speaker 3: Fort building a global specialty solutions leader without performance everywhere we operate.

With outperformance everywhere we operate.

Fifth transforming our competitive advantages by leveraging data and AI, our claims expertise and supply chain network and finally investing in our people and in the communities, where we operate and that includes capitalizing on societies transition to net zero.

Speaker 3: The fifth transforming our competitive advantages by leveraging data on AI, our claims expertise, and supply chain network, and finally investing in our people and in the communities where we operate. And that includes capitalizing on society's transition to net zero.

Speaker 3: So momentum across the business is very strong. And the RSI acquisition has significantly expanded our market of fortune.

So momentum across the business is very strong and the RSA acquisition has significantly expanded our market. Unfortunately as.

Speaker 3: As we now set our sights on 2022 and beyond, we're well positioned to grow net operating income for share by 10% annually over time, and to well perform the industry are we by 500 basis points every year. And with that, I'll turn the call over to our CFO . We must go. Thanks, Charles, and good morning, everyone.

As we now set our sights on 2022 and beyond we are well positioned to grow net operating income per share by 10% annually over time and to outperform the industry ROE by 500 basis points every year.

That I will turn the call over to our CFO .

Scott.

Thanks, Charles and good morning, everyone.

Speaker 2: 2021 was clearly a milestone year for intact. With the acquisition of RSA, we have materially grown our leadership position in Canada, both in premium and in talent. We've established a solid platform to grow in specialty lines, and we've entered new markets at scale in the UK in Ireland. All of this was achieved while caring for our customers and employees who continue to face the hardships of the pandemic and extreme weather events.

<unk> 21 was clearly a milestone year for intact with the acquisition of RSA, we have materially grown our leadership position in Canada, both in premium and in talent, we've established a solid platform to grow in specialty lines and we've entered new markets at scale in the UK and Ireland. All of this was achieved while caring for our.

<unk> and employees, who continued to face the hardships of the pandemic and extreme weather events.

Speaker 4: In this context, we are very happy to report solid results for Q4 and full year 2021.

In this context, we are very happy to report solid results for Q4 and full year 2021.

Speaker 4: Underwriting income grew by 45% in the fourth quarter to $600 million. Largely driven by the acquisition of RSA.

Underwriting income grew by 44, 45% in the fourth quarter to $600 million.

Largely driven by the acquisition of RSA. The overall combined ratio for Q4 was 87, 8% two points higher than last year due to heavy cat losses on a full year basis. The combined ratio was strong at 89% unchanged compared to prior year, but carrying one extra point of cat losses.

Speaker 4: The overall combined ratio for Q4 was 87.8%. Two points higher than last year due to heavy cat losses.

Speaker 4: On a full-year basis, the combined ratio was strong at 89%, unchanged compared to prior year, but carrying one extra point of cat losses. All our businesses are contributing to these strong results.

All of our businesses are contributing to these strong results.

Speaker 4: Tivrebo prior year development was strong at 3.3% in Q4.

Favorable prior year development was strong at three 3% in Q4.

Slightly above our annual guidance. This was mainly driven by reduced uncertainty around the impact of COVID-19, we continue to expect that prior year development will be favorable and then the 1% to 3% range annually.

Speaker 4: slightly above our annual guidance. This was mainly driven by reduced uncertainty around the impact of COVID-19. We continue to expect that prior year development will be favorable and in the one to 3% range annually, though at the upper end of the range in the short term.

At the upper end of the range in the short term.

Net investment income increased 54% in the quarter largely driven by the addition of <unk> investment portfolio and the nonrecurring special dividend of <unk> $23 million for 2022, we expect investment income to grow approximately $60 million, reflecting the full year impact of the RSA portfolio.

Speaker 4: Net investment income increased 54% in a quarter, largely driven by the addition of RSA's investment portfolio and a non-recurring special dividend of $23 million.

Speaker 4: For 2022, we expect investment income to grow approximately $60 million, reflecting the full year impact of the RSA portfolio and the benefits of moving to our targeted as it may.

And the benefits of moving to our targeted asset mix, our guidance assumes largely stable the reinvestment yields and no special dividend any increase in interest rates would represent upside to our expectations, but the impact will be limited due to the slow rollover pace in our portfolio.

Speaker 4: Our guidance assumes largely stable reinvestment yields and no special dividend. Any increase in interest rates would represent upside to our expectations, but the impact will be limited due to the slow roll over pace in our portfolio.

Speaker 4: Distribution earnings grew 7% in a quarter below our recent guidance due to the timing of M&A and higher expenses. On a full-year basis, distribution income increased by an impressive 32% driven by higher variable commissions, solid organic growth and M&A.

Distribution earnings grew 7% in the quarter below our recent guidance due to the timing of M&A and higher expenses.

A full year basis distribution income increased by an impressive 32% driven by higher variable commissions solid organic growth and M&A.

Speaker 4: Looking ahead to 2022, we expect distribution income to surpass the $400 million mark. On the back of continued momentum in the business, a robust acquisition pipeline, and continued growth of our on-side restoration business.

Looking ahead to 2022, we expect distribution income to surpass the $400 million Mark on the back of continued momentum in the business a robust acquisition pipeline and continued growth of our onsite restoration business.

Speaker 4: Now let's turn to underwriting results in a little more detail. First, the Canadian segment. In personal auto, the underlying loss ratio of 66.5% remains strong, but was up nearly eight points due largely to increased driving activity, which remains well below pre-pandemic level.

Now, let's turn to underwriting results in a little more detail first the Canadian segment in personal auto the underlying loss ratio of 66, 5% remained strong but was up nearly eight points due largely to increase driving activity, which remains well below pre pandemic levels severity increased four.

Speaker 4: Severity increased 4 points in the quarter, mostly driven by a rise in vehicle theft. Inflation had a muted impact on severity in the quarter, but we are monitoring closely to ensure we maintain our rate adequacy.

In the quarter, mostly driven by a rise in vehicle theft inflation had a muted impact on severity in the quarter, but we are monitoring closely to ensure we maintain our rate adequacy.

Speaker 4: In personal property, the 79.5 combined ratio was solid, despite nearly seven points of cats. A mix of seasonality, benign non-cat weather, solid results from RSA, and earned rates drove the strong performance.

In personal property to 79, five combined ratio was solid despite nearly seven points of cats. It makes up seasonality benign non cat weather solid results from RSA and earned rates drove the strong performance.

Speaker 4: In commercial lines, the combined ratio was very strong at 84.3%. Thanks to our profitability actions and robust prior year development.

In commercial lines. The combined ratio was very strong at 84, 3%, thanks to our profitability actions and robust prior year development.

Speaker 4: The overall expense ratio in Canada of 30.6% was largely in line with our expectations. The addition of RSA had a positive impact mainly due to its higher proportion of direct business and synergies. We expect the expense ratio in 2022 to be similar to the Q4 level.

The overall expense ratio in Canada up 36% was largely in line with our expectations. The addition of RSA had a positive impact mainly due to its higher proportion of direct business and synergies. We expect the expense ratio in 2020 to be similar to the Q4 level.

In our U S business, a couple of points on the underlying performance for 2021 and in aggregate 11 of the 14 lines that we consider healthy representing 85% of premiums grew by 16% and delivered a sub 90 combined ratio.

Speaker 4: In our US business, a couple of points on the underlying performance.

Speaker 4: For 2021, and in aggregate, 11 of the 14 lines that we consider healthy, representing 85% of premiums grew by 16% and delivered a sub-9D combined ratio.

Speaker 4: of the three lines that are under profitability improvement plans, two have reduced their combined ratios by approximately 30 points in 2021. Proof that our plans are effective.

Of the three lines that are under profitability improvement plans to have reduced their combined ratios by approximately 30 points in 2021.

Proof that our plans are effective.

Speaker 4: Finally, the one remaining line accounted for a three-point drag on the entire U.S. business for 2021.

Finally, the one remaining line accounted for three point drag on the entire U S business for 2021.

Speaker 4: While we are totally focused on improving profitability in those lines, we feel very good about our momentum in the US.

We are totally focused on improving profitability in those lines, we feel very good about our momentum in the U S.

Speaker 4: Turning to the UK and I, we delivered another solid quarter. In personal lines, the home and tech businesses are performing well despite adverse weather.

Turning to the UK ni, we delivered another solid quarter in personal lines, the home and <unk> businesses are performing well despite adverse weather.

Speaker 4: Motor has been underperforming in a highly competitive and uncertain rate environment. We are combining our underwriting expertise to take advantage of the dislocation in the market, expected from the regulatory changes being introduced right now in personal life.

Motor has been underperforming in a highly competitive and uncertain rate environment. We are combining our underwriting expertise to take advantage of the dislocation in the market expected from the regulatory changes being introduced right now in personal lines and.

Speaker 4: Commercial lines results are solid on the back of profitability actions taken by the team over time. While it is still early innings, I'm quite happy with the UK and I results thus far. We still expect to run this business sub 95 in the near to midterm.

In commercial lines results are solid on the back of profitability actions taken by the team over time.

While it is still early innings I am quite happy with the U K and <unk> results thus far.

We still expect to run this business sub 95 in the near to mid term.

Speaker 4: The financial merit of the RSA acquisition remained very compelling. We've already delivered 12% accretions since closing, which is ahead of schedule. We are on track for upper teens accretion within 36 months.

The financial merits of the <unk> acquisition remains very compelling.

We've already delivered 12% accretion since closing, which is ahead of schedule. We are on track for upper teens accretion within 36 months, we delivered $85 million in run rate synergies at year end I'm confident we can achieve our $250 million target inside or 36 months timeline.

Speaker 4: We deliver 85 million dollars in run rate synergies at your end. I'm confident we can achieve our 250 million target inside our 36 month timeline.

Speaker 4: We reduce risk with the sale of Denmark, the acquisition of the adverse development cover, and the renewal of the reinsurance program.

We reduced risk with the sale of Denmark, the acquisition of the adverse development cover and the renewal of the reinsurance program with.

Speaker 4: With regards to the sale of our 50% stake in Codan Denmark, the transaction is still expected to close in the first half of 2022, and most of the proceeds of 1.3 billion will go towards further deleveraging.

With regards to the sale of our 50% stake in Kona in Denmark. The transaction is still expected to close in the first half of 2022 and most of the proceeds of $1 3 billion will go towards further deleveraging.

Speaker 4: The IRR of the RST transaction is tracking near 20% above our initial projections and with upside from improved pricing and risk selection.

The IRR of the RSA transaction is tracking near 20% above our initial projections and with upside from improved pricing and risk selection.

Speaker 4: With respect to re-insurance, we have renewed our 2022 re-insurance program as of January 1st, 2022, with solid protections against extreme events. The program was optimized based on our new exposures and diversification opportunities with a small reduction of the overall cost and slight increase in retention levels. We are modestly revising our annual cat loss expectations to $600 million reflecting the renewed program.

With respect to reinsurance we have renewed our 2022 reinsurance program as of January one 2022 with solid protections against extreme events. The program was optimized based on our new exposures and diversification opportunities with a small reduction of the overall cost and slight increase in retention levels. We are modestly.

Revising our annual cat loss expectations to $600 million, reflecting the renewed program.

Moving to our balance sheet, our financial position continues to be strong we closed the quarter with approximately $2 9 billion in total capital margin with strong regulated capital ratios in all jurisdictions, our debt to total capital ratio was 23% at the end of the quarter and we expect to reach 20% as soon as we receive the proceeds.

Speaker 4: Moving to our balance sheet, our financial position continues to be strong. We close a quarter with approximately 2.9 billion in total capital margin with strong regulated capital ratios in all jurisdictions. Our death to total capital ratio was 23% at end of the quarter, and we expect to reach 20% as soon as we receive the proceeds from the sale of Denmark.

From the sale of Denmark.

Speaker 4: The strengths of our results over the past year has led to an operating RWE of 17.8% and book value per share grew 4% quarter over quarter.

The strength of our results over the past year has led to an operating ROE of 17, 8% and book value per share grew 4% quarter over quarter.

Speaker 4: With the acquisition of RSA and a progressive return to normal C, we expect our operating are we to migrate towards a mid-teens level.

With the acquisition of RSA in a progressive return to normalcy, we expect our operating our we can migrate towards a mid teens level.

Speaker 4: Given the face of earnings growth and the strength of our balance sheet, we have increased our dividends by another 10% to an annual rate of $4 per share, resuming our usual dividend increase patterns.

Given the pace of earnings growth and the strength of our balance sheet, we have increased our dividends by another 10% to an annual rate of $4 per share resuming our usual dividend increase patterns.

While we are not stopping there.

Speaker 4: With the expected proceeds from the sale of Denmark, our strong capital levels, and our shares having recently traded at attractive price levels, we are launching a share-by-back program.

With the expected proceeds from the sale of Denmark, our strong capital levels and our shares having recently traded at attractive price levels, we are launching a share buyback program.

Speaker 4: This is not a signal that growth opportunities are not visible to the contrary. We are giving ourselves an envelope of 3% of the flow for the buyback, but the actual quantity of shares purchased will depend on the price of the stock over time.

This is not a signal that growth opportunities are not visible to the contrary.

We are giving ourselves an envelope of 3% of float for the buyback, but the actual quantity of shares purchased will depend on the price of the stock over time.

Speaker 4: In conclusion, as society gradually emerges from the pandemic, we remain focused on executing on our strategic priorities.

In conclusion as society gradually emerges from the pandemic, we remain focused on executing on our strategic priorities with.

Speaker 4: With the RSA integration on track, strong momentum across our businesses and a robust balance sheet, we can capture the opportunities ahead of us and meet our financial objectives while being well positioned for outperformance in 2022 and beyond.

With the RSA integration on track strong momentum across our businesses and a robust balance sheet. We can capture the opportunities ahead of us and meet our financial objectives, while being well positioned for outperformance in 2022 and beyond.

Speaker 4: Before we're giving it back to Shuba, I would like to offer my most hard-telt thank-yous to the finance and actual teams in all our offices, including our auditors, who have worked incredibly hard to deliver high-quality information for you to read today. I feel very lucky and proud to work with such a talented team of professionals.

Before we begin giving it back to <unk> I would like to offer my most heartfelt. Thank you to the finance and actuarial teams in all our offices, including our auditors who have worked incredibly hard to deliver high quality information for you to read today I feel very lucky and proud to work with such a talented talented team of professionals.

Thank you.

Speaker 4: I think the opportunity as well to welcome Shuba to the team. I'm very happy to have you join the IR team. And wishing Mr. Ken Anderson, a good luck in his new functions. He's joining the UK and I management team. And hopefully he'll get to answer a few questions in today's call. Welcome to both of you. But that Shuba back to you.

I think the opportunity as well to welcome Szuba to the team very happy to have you joined the IR team and wishing Mr. Ken Anderson.

Good luck in his new functions. He is joining the <unk> management.

Management team and hopefully he'll get to answer a few questions and today's call welcome to both of you with that <unk> back to you. Thank.

Speaker 2: Thank you, Dewey. In order to give everyone a chance to participate in the Q&A, you would add you to kindly limit yourself to a person. And of course, if there's time at the end, you can certainly reach you for all of this. So, Sylvie, we're ready to take questions.

Thank you Duane in order to give everyone a chance to participate in the Q&A. We would ask you to kindly limit yourselves to two person.

And of course, if there's time at the end you can certainly re queue for follow ups.

So Sylvia we are ready to take questions now thank.

Speaker 1: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw your question.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will then hear a sweet home prompt acknowledging your request and if you would like to withdraw your question simply press Star followed by two and if you're using a speaker phone. We do ask that you. Please lift your handset before pressing any keys. Please.

Speaker 1: Using a speaker phone, we do ask that you please lift a handset before pressing any keys. Please go ahead and press the...

Go ahead and press Star one now if you have a question.

Speaker 1: and your first question will be from Jeff Kwan at RBC Capital Markets. Please...

Your first question will be from Geoff Kwan with RBC capital markets. Please go ahead.

Speaker 3: Hi, good morning. My first question was, the company's been beating consent to consistently since the start of the pandemic, but the last several quarters, the beats have actually been a bit more outsized and generally driven by better underwriting. Now, COVID.

Hi, good morning.

My first question was.

<unk> been beating consensus consistently since the start of the pandemic.

Several quarters, the beats have actually been a bit more outsized.

And generally driven by better underwriting.

Thank you Colby.

Has helped.

Speaker 5: In your mind, is that still explained to you the better than usual combined ratios? Is there something else like the increased scale that's kicking in that might suggest that the combined ratio today might be structurally a bit better than what you thought a normalized combined ratio might have been, let's say, five or 10 years ago.

In your mind does that still explain to you the better than usual combined ratio is there something else.

The increased scale thats kicking in that might suggest that.

The combined ratio today might be structurally a bit better than what you saw in a normalized combined ratio might have been let's say five or 10 years ago.

Yes.

Thanks, Jeff I'll ask Luis to share his perspective.

Speaker 3: Thanks, Jeff. I'll ask Louis to share his perspective.

Speaker 4: Good question, Jeff. Of course, I will say I think we're trying to provide guidance that's useful, but we are beating expectations clearly, including our own guidance. I think the situation right now is one where the actions we've taken over time.

Good question, Jeff of course, I will say I think we're trying to provide guidance that useful, but we are beating expectations clearly, including our own guidance.

I think the situation right now is one way or the actions we've taken over time.

Speaker 4: on profitability, including rate and product changes.

On profitability, including rate and product changes.

Speaker 4: are have kicked in really and this is combined with lower driving activity maybe a bit of milder weather you know another I will say contextual events that have enabled us to deliver really really strong margin.

Our have kicked in really and this is combined with slower driving activity, maybe a bit of milder weather.

Another.

Contextual events that have enabled us to deliver really really strong margins.

Speaker 4: We keep repeating our guidance towards something a bit more long-term, consistent with long-term expectations. I will say the combined ratio.

Keep repeating our guidance towards.

A bit more long term consistent with long term expectations.

I will say the combined ratios.

Speaker 4: structurally should improve and it depends on the mix of business we acquire. So in Canada, I think we are improving our performance, adding a big book and then applying our analytics and risk segmentation to that book. So we would expect Canada to marginally improve its combined ratio.

Structurally should improve and it depends on the mix of business. We acquire so in Canada. I think we are improving our performance, adding a big book and then applying our analytics and risk segmentation to that book. So we would expect Canada to marginally improve its combined ratio when you mix it up with maybe a high.

Speaker 4: When you mix it up with maybe a higher combined ratio in the UK, the overall mix is maybe not changing all that much. So you have to take into consideration the geographies we've added and the combined ratios that we've mixed.

The combined ratio in the U K. The overall mix is maybe not changing.

<unk> all that much so you have to take into consideration the geographies. We've added in the combined ratios that have that we've mixed with it.

Speaker 4: So I think we will improve the combined ratios. I don't know that it's structurally so different that we would have a sustainable at the levels that we're seeing in the recent quarters. Yeah, I think that's right.

So I think we will improve the combined ratios I don't know that its structurally so different that we would have a sustainable at the levels that we're seeing in the recent quarters, Yeah, I think thats right.

The <unk>.

Speaker 3: The action plans that we're focused on inflation are really paying off. The market is very supportive of the actions that we're taking and we're trying to be opportunistic in this environment.

<unk> plants that we're focused on inflation.

Are really paying off the market is very supportive.

The actions that we're taking and we're we're trying to be a fortunate stick in this environment.

Speaker 3: The driving activity, now again a lot of relief, 650 million over the past two years to reflect that.

Driving activity now again, a lot of relief $650 million over the past.

Two years to reflect that it's still a little bit below normal but.

Speaker 3: still a little bit below normal, but not a big driver. It's been, you know, we've taken a fairly cautious stance in terms of the high volatility of the environment in which we operate from a reserving point of view, this clearly contributes as well. And let's not forget the fact that RSA, 12% of creative in six months is better than what we had anticipated. So when you put all these things,

Not a big driver there has been no.

We've taken a fairly cautious stance in terms of the high volatility of the environment in which we operate from a reserving point of view. This clearly contributes as well and let's not forget the fact that RSC, 12% accretive in six months is better than what we had anticipated. So when you put all these things.

Speaker 3: Together, I think you get very strong performance. We're not prepared to call out any meaningful structural improvement in the combined ratio, but I'll tell you, we're on top of the trends. Environment is playing to our strengths. We're really focused and looking forward to 2022.

Together I think you get you get very strong performance, we're not prepared to call out.

Any meaningful structural improvement in the combined ratio, but I will tell you. We're on top of the trends environment is playing to our strengths and we're really focused and looking forward to 2022.

Speaker 5: I think, and just my second question, I know it's only been a little over a month, but just any comments that you can make on in the UK and the personal lines, the changes have happened there in terms of your risk appetite, how you're going about business as well as the broader.

Okay. Thanks, and just my second question is I know, it's only been a little over a month, but just any.

Comments that you can make on in the UK and the personal lines. The changes have happened there in terms of your risk appetite, how youre going about business as well as the broader competitive environment.

Speaker 3: Yeah, it's been, you know, six weeks indeed, the team in the UK under the leadership of K-Martin has done an outstanding job in preparing for it. We worked very closely with the local team to make sure that, you know, we put all our horsepower in pricing and risk selection. The team is playing the environment in a fairly cautious fashion. I would say, but things are...

Yes.

It's Ben.

Six weeks indeed, the team in the UK under the leadership of Kmart and has done an outstanding job in preparing for it we worked very closely with the local team to make sure that.

We put all our horsepower.

And pricing and risk selection.

The team is playing the environment any fairly cautious fashion.

I would say.

But things are playing out largely as we anticipated we our perspective is that this change.

Speaker 3: largely as we anticipated. We are perspective is that this change...

Speaker 3: is a positive one for the marketplace, for the environment. You know, it essentially tries to align new business premiums with renewal premiums, high level. There's other things. That's good for the marketplace. I think overall,

Is a positive one for the marketplace for the environment, It's essentially tries to.

<unk>, new business premiums with renewal premiums high level Theres other things that's good for the marketplace I think overall.

Speaker 3: It makes for a better environment for us to operate, gives us an opportunity to leverage some of our pricing and sophistication. Six months in, six weeks in, largely in line with what we anticipated. Renewals will start, you know, in the coming days, I've started in the coming days that will provide additional color, Jeff, and that's why we're...

It makes for a better environment for us to operate gives us an unfortunate to leverage some of our pricing sophistication six months in six weeks in largely in line with what we anticipated renewals will start in the coming days have started in the coming days that will provide additional.

Color, Jeff and Thats why were.

Speaker 3: were cautious at the state to make statements or our perspective too clear because it's too early. But so far so good. Ken.

We're cautious at this stage to make.

Statements or our perspective to clear because it's too early but so far so good Ken.

You know you're you've been on the ground last month, maybe you have additional color you want to provide.

Speaker 3: You know, you've been on the ground last month. Maybe you have additional color you want to provide.

Speaker 3: And not really Charles, I think you've covered most of the key points there, you know, five weeks in, I would say rational behavior by competitors in both home and motor. So evolving, I would say broadly in line with expectations.

And not really Charles I think you've covered most of the key points. There five weeks in I would say rational behavior by competitors in both home and motor So evolving I would say broadly in line with expectations.

Speaker 3: and new business rates have risen as expected. Margians are being maintained.

And new business rates.

Have risen as expected and more.

Margins are being maintained.

Speaker 3: When it comes to renewals, you know, retention levels, it will take a few more months to assess how they will evolve Given the lead time around

When it comes to renewals.

Retention levels it'll be it will take a few more months to assess how they will evolve given the lead time around renewals, but broadly in line if not a little bit ahead of our expectations.

Speaker 3: but broadly in line if not a little bit ahead of us.

Speaker 5: Yeah. So, clarify when you say playing out as anticipated, does that mean you're maintaining your market share or you're maybe taking a little bit more?

Yes, sure. Thanks for clarifying when you say playing it.

Dissipated does that mean youre, maintaining your market share or you may be taking a little bit.

Mark.

Broadly maintaining.

Okay, great. Thank you.

Thank you next question will be from Tom Mackinnon at BMO capital. Please go ahead.

Speaker 1: Thank you. Next question will be from Tom McKinney at BMO Capital.

Speaker 6: Yeah, thanks very much and good morning. You talk about commercial markets remaining hard. Maybe give us...

Yes, thanks, very much and good morning.

You talk about commercial markets remaining hard.

Maybe give us some color as to how rates are trending versus the loss cost trends, especially is in place.

Speaker 3: loss cost trends, especially as in facing wounds. And then I have a follow-up. Thanks. Yeah. I missed the last part of your question, Tom. You said, especially as what?

And then I have a follow up thanks.

I missed the last part of your question, Tom You said, especially as what.

Speaker 6: How are rates trending versus loss cost trends, especially as inflation?

How are rates trending versus the loss cost trends, especially as inflation.

Speaker 3: Oh, I think inflation looms. Okay, yes. Darren, do you want to give your perspective on the commercial lines markets where we operate?

Oh, I see inflation looms, Okay, yes, Darren do you want to give your perspective on the commercial lines markets, where we operate.

Speaker 7: Yes, thanks for the question, Tom. I think when you look across all of our geographies.

Yes. Thanks for the question Tom I think when you look across all of our geographies.

Speaker 7: The market conditions are very similar, word very similar and continue to be similar to what we've seen for a number of quarters now. We're in the upper single digit range, pretty much across all of our markets.

The market conditions are very similar very very similar and continue to be similar to what we've seen for a number of quarters now.

We're in the upper single digit range are pretty much across all of our markets.

Speaker 7: capacity continues to be tight as you would expect it and really no slowdown in terms of the market and the operating environment so it's very supportive in terms of our actions, the position we're taking. Retention continues to be very, very strong in all of our markets. New businesses up as well too as you can see with some of the growth that we've shown across our various different markets so it's a very encouraging operating environment.

<unk> continues to be tight.

Tight as you would expect it and really no slowdown in terms of the market and the operating environment. So it's very supportive in terms of our actions position. We're taking retention continues to be very very strong in all of our markets new.

New business is up as well too as you can see with some of the the growth that we've shown across our various different market. So it's a very encouraging operating environment.

Speaker 7: With respect to lost trends and the inflation question, I think Patrick could probably give some colour on that, but we continue to see with the rate levels continuing into 2022 to the in excess of those trends. And as I said, the market is very much supporting the actions that we're taking at the moment.

With respect to loss trends and the inflation question I think Patrick could probably give some color on that but we continue to see.

With the right levels continuing into 2022.

To be in excess of all of those trends.

And as I said the market is very much supporting the actions that we're taking at the moment.

Speaker 3: Yeah, and there in mind, that, you know, we've been moving the dial on rates, you know, for five, six years, that Surnius picked up in the past three years.

Yes and.

And bear in mind.

Tom that you know.

We've been moving the dial on rates for five six years, certainly has picked up in the past three years.

Speaker 3: But I think Darren's description is accurate. And Patrick, I don't know if there's any color. We need to add on commercial lines.

But.

But I think Darren description is as accurate and Patrick I don't know if theres any color we need to add on commercial lines.

Well the property side of the commercial lines, we see similar inflation is what we've seen in the personal property book, so inflation in the cost of materials in the range of about 10%, but lower than the contents and some of the other pieces overall.

Speaker 3: Well, the property side of the commercial line, we see a similar inflation as what we've seen, the personal property book, so inflation in the cost of materials in the range of about 10.

Speaker 3: lower in the contents and some of the other pieces overall, you know, mid to the icing of the jizz.

Mid to high single digit increase on the property side and then the liability piece.

Speaker 3: property side and then the liability piece. There's some increase in the severity but I would say

There is some increase in and.

So very deep but.

A reduction in frequency in the recent years, so overall no pressure there.

Speaker 3: Yeah, so when you blend, when you blend in a liability in property, you're well within the sort of rates you're seeing in the system at this stage, Darren. Yeah, I think the other thing I would add, Tom, let's not forget too on the property line in particular. We have automatic indexation of amounts of insurance.

Yes, so when you blend when you blend in liability and property.

We're well within the sort of rates youre seeing in the system at this stage Darren Yes, I think the other thing I would add cymric not forget too on the property line in particular, we have automatic indexation of amounts of insurance.

Speaker 3: So naturally we are watching it very closely. We're adjusting upwards the automatic indexation to reflect some of the inflationary pressure was seen. So in a way that's a natural hedge against the inflation environment as well. Yeah. In addition to the rates that we're that is flowing through the system. I think that if you look at the industry level in aggregate time, you know, and as you think about the trajectory of the market, you got to keep in mind the number of things. COVID has been really hard for the industry globally.

So naturally we are watching that very closely we're adjusting upwards the automatic indexation to reflect some of the inflationary pressure we're seeing in.

In a way that that's a natural hedge against the inflation environment as well.

In addition to the rights that we have that is flowing through the system I think that if you look at the industry level in aggregate and as you think about the trajectory of the market you got to keep in mind. The number of things Covid has been really hard for the industry globally in commercial lines.

Speaker 3: in commercial lines. Second, there's the rain trans costs in commercial lines are applying a fair bit of pressure. Third, you need to go back 20-

Second there is the reinsurance cost in commercial lines are applying a fair bit of pressure.

You need to go back 24 months to realize that.

Speaker 3: to realize that commercial lines were losing money across a number of markets, certainly.

Commercial lines was losing money.

A number of markets certainly, Canada, so as far as we're concerned.

Speaker 3: Canada, so as far as we're concerned, you know, while rates might be...

You know what.

While rates might be slightly above cost pressure right. Now there is a fair bit of digestion left to be done plus of course.

Speaker 3: likely above cost pressure right now. There's a fair bit of digestion left to be done. Plus, of course, there's a certain degree of prudence that comes with the whole talk about inflation at the moment. So we think that this market should stay to our strength in the coming.

There is a certain degree of prudence that comes with.

The whole talk about inflation at the moment. So we think that this market should play to our strength in.

In the coming period.

That's great and then as a follow up like we can all see how COVID-19 has been favorably impacting personal auto and that gets a lot of discussion in your calls, but like personal auto I don't probably aggregate only about maybe 25, 28% of the total business.

Speaker 6: That's great and that's a follow up. Like we can all see how COVID's been favorably impacting personal auto. And that gets a lot of discussion in your calls, but like personal auto, I don't, it's probably you'll aggregate only about maybe 25, 28% of your total business.

Speaker 6: And certainly as COVID dissipates, that favorable impact is gonna, that COVID had on personal auto is good and to dissipate as well. But like if we look at the other nearly 75% of your business, which is largely commercial lines and then personal property, how has COVID really impacted that business?

And certainly as Covid dissipates.

That favorable impacts.

That COVID-19 had on personal auto is going to dissipate as well, but if we look at the other nearly 75% of your business, which is largely commercial lines and then personal property how has COVID-19 really impacted that business.

Yes.

Speaker 6: And how is it other than perhaps some relief measures you gave for your commercial clients? Like how has it impacted that business? And how would that change as COVID dissipates for personal property and commercial lines?

And how is it.

Other than perhaps some relief measures you gave for your commercial clients like how is it impacted that business and how would that change as COVID-19 dissipates for.

Personal property and commercial lines. Thanks, yes.

Speaker 3: Well, I think that, you highlighted the fact that in personal prop, as well as in commercial lines, but commercial lines in particular, we've provided relief to industries that were in like,

Well.

I think that.

The you highlighted the fact that in personal prop.

As well as in commercial lines, but commercial lines in particular, we've provided relief to industries that we're in lockdown.

In two ways.

Speaker 3: We've limited rate increases. And that didn't change conditions on about a quarter of the portfolio.

With limited rate increases.

In fact didn't change conditions on about a quarter of the portfolio.

Speaker 3: And then we've provided actually one time relief, $50 billion worth of it. So that's the...

And then we provided actually onetime relief $50 billion worth of.

So that's the.

Speaker 3: direct impact at the top and bottom line point of view. Then you'll remember we've put up 100, and I think it's 106 million you guys correct me, a direct COVID provision across North America pre-RSA. That's a direct hit.

Direct in fact at the.

<unk>.

Top and bottom line point of view then you'll remember we've put up a 100 and I think it is a $106 million you guys correct me.

Direct COVID-19 provision across North America pre RSC, that's a direct hit.

That is there.

Speaker 3: You know, beyond that, you see frequency and severity movements. It's really hard to untangle, you know, what's COVID and what's something else here. And therefore, not huge impact if any on the performance of the other lines of business. And that's...

Beyond that you see frequency and severity movement, it's really hard to untangle.

What is COVID-19 and what something else here and therefore <unk>.

Not huge.

Impact if any on the performance of the other lines of business.

Darren what do you think.

Speaker 7: No, I think you're back on that show. I think obviously from a reserve in standpoint, we've taken a pretty prudent position in terms of the, especially on the casualty side, in terms of the run rate, from a rate standpoint and a potential inflation environment. So, but structurally, Tom, I think there's a lot of moving pieces there, but...

I think you're bang on that shall I think obviously from a reserving standpoint, we've taken a pretty prudent position in terms of.

The especially on the casualty side in terms of the run rate from our rights right standpoint, and potential inflation environment.

But that's structurally Tom I think there is a lot of moving pieces there but.

Speaker 7: It's marginal at best, I would say, in terms of sort of the COVID impact, impacting our results in 2021.

It's marginal at best I would say in terms of sort of.

The COVID-19 impact impacting our results in 2021.

Speaker 6: So as long as those markets remain relatively firm, there's nothing that as COVID kind of dissipates through 2022. There's nothing in just, we shouldn't anticipate that there's going to be some sort of impact, negative impact on those longs.

So as long as those markets remained relatively firm there is nothing that is COVID-19 kind of dissipates through 2022, there's nothing in it.

We shouldnt anticipate that there's going to be some sort of.

The impact negative impact on those lines like one might be led to believe would be the case for personal auto am I correct in that.

Speaker 6: like one might be led to believe would be the case for personal auto. Am I correct in that?

Speaker 3: Yeah, if you isolate COVID in making that statement, I would kind of agree with that. There are lots of moving pieces in the environment in which we operate. You know, there's inflation in the system as we've talked about for a number of years and as now most people talk about, we need to keep all of that in mind as we look out. The next 12 to 24 months in our guidance, basically takes that in mind.

Yes, if you isolate COVID-19 and in making that statement I would I would kind of agree with that there are lots of moving pieces in the environment in which we operate.

There is inflation in the system as we've talked about for a number of years and is now most people talk about we need to keep all of that in mind as we look out the next 12 to 24 months and our guidance basically.

Take takes that in mind Tom.

Okay. Thanks.

Thank you next question will be from Michael Phillips at Morgan Stanley . Please go ahead.

Speaker 1: Next question will be from Michael Phillips at Morgan Stanley .

Speaker 8: Thanks, good morning, buddy. I guess a couple questions, well, one question, first off, on your auto book. You talked about this still below pre-pandemic. How much has that changed since last quarter and how close are you to kind of pre-pandemic driving levels that would affect frequency? And then let me stop there for now. So just first off, where is driving levels today versus where it was?

Thanks, Good morning, everybody.

Yes, a couple of questions. One question first off on your auto books, you talked about still below pre pandemic, how much has that changed since last quarter and how close are you to kind of pre pandemic driving levels.

Cut frequency.

And then.

Let me stop there for now so just first off we're driving levels today versus where it was last quarter, Yes, why don't we ask is that better.

Speaker 3: Yeah. Why don't we ask Isabel to share her perspective on driving activities?

To share her perspective on on driving activity.

Speaker 9: Sure, maybe to start a bit in Q4, I would say that in Q4 driving was slightly below historical, but very close to pre-cozett levels. And it has been at its highest level since the beginning of the pandemic. So that would be Q4 2021. And then of course, a micron wave came at the end of the December , all code clin murmuring

Sure and maybe to start a bit in Q4, I would say that thank you far driving was slightly below historical but very close to pre COVID-19 levels and it has been at it yes.

Levels since the beginning of the pandemic. So that would be Q4 2021, and then of course Omicron wave came at the end of December I would say that we have.

Speaker 9: I would say with the data we have so far, the Omicron wave, who have a lower impact, than previous waves both on the magnitude and the duration of the change in the mobility matrix for following.

So far the army ground wave.

Although lower in fact than previous ways, both on the magnitude and the duration of that change in the <unk> matrix.

Inc.

Speaker 9: And there's also a bit of winter events that is bringing some noise in the data in the recent weeks. But what we see is that with the data and the signals we have, we can see that we're already beyond the lowest driving weeks of this wave and all mobility and indicators are increasing steadily in the last few weeks.

And there is also a bit of winter events that is bringing some noise in the data and in the recent weeks, but what we see is that with that.

The singles we have.

We can say that we're already beyond lowest driving weeks of this wave and all liability indicators are increasing steadily in the last few weeks.

Speaker 8: Okay, thank you. I guess can we just stay with that theme and maybe just switch over to the severity side? Your severity still seems to be lower than what we're seeing down here in the US and you talked a bit about it last quarter of what's the moving parts that are kind of maybe helping, helping keep it down. Can you give us more details there? Is that still, it sounds like it's still the case? You said muted severity. So it feels like that's still the case, but maybe it's thought so if that's, you know, if you think that's going to continue going into the chair.

Okay. Thank you I guess can we just stay with that theme and maybe just switch over to the severity side. Your severity still seems to be lower than what we're seeing down here in the U S and you talked a bit about it last quarter, but some moving parts that are kind of maybe helping helping keep it down can you give us some more details there is that still take it sounds like it still the case you said muted severity.

So it sounds like that's still the case, but maybe thoughts of.

If you think that's going to continue into this year, yes.

Speaker 3: Yeah, I think that, you know, there's sort of three things to keep in mind when you try to draw a parallel.

Yes.

I think that.

There's sort of three things to keep in mind, when you try to draw a parallel that.

Speaker 3: between intact and what's happened in the US. I think one, we've chosen to give one time relief on the heart of the pandemic.

In fact, and what's happened in the U S. I think one we've chosen to give onetime relief.

The heart of the pandemic and.

Speaker 3: and you know, as opposed to go all out on rates because as you know, we're pricing 12 months out and there's always uncertainty as to the speed at which driving comes back. So we found a good balance. We think that we in one time relief and reflecting some of the driving activity in rates. That's the first point, the second point.

As opposed to go all out on rates because as you know we're pricing 12 months out and there's always uncertainty as to the speed at which driving comes back. So we found a good balance we think between onetime relief and reflecting some of the driving activity in rates. That's the first point the second point.

Speaker 3: is that we've done this in a fairly flexible fashion, so we can respond fairly quickly to changes in the environment. And thirdly, and that's the point that I think we'll touch on, is the severity equation.

That.

We've done this in a fairly flexible fashion. So we can respond fairly quickly to changes in the environment and thirdly, and that's the point I think we will touch on is the severity equation.

Speaker 3: It appears to be, you know, fairly different based on our own read. Now, bear in mind, we don't do automobile and transbusiness in the US. So we don't have a comparison. But I think why don't you share our read on inflation here and where you think there are differences?

It appears to be fairly different based on our own read now bear in mind, we don't do automobile insurance business in the U S. So we don't have a comparison, but that's I think why don't you share our read on inflation here and where you think there are differences.

Yes, great.

Speaker 3: Yes, great. I start with maybe an update from the discussion in Q3 on what we've observed in Q4 and in order to draw a good picture of the inflation trends in auto. It's useful to break down its different components. So when we look at our Canadian book in auto, the claims cost is roughly split 40% from injuries and liabilities.

I'll start with maybe an update from the discussion in Q3 on what we've observed in Q4 and another to drive good picture.

The inflation trends and also it's useful to breakdown its different components.

When we look at our Canadian.

Book and also the claims cost is roughly split 40% from injuries and liability, 30% from car repairs and 30% from total lessors, which includes just over 5% of death claims.

Speaker 3: 30% from car repairs and 30% from total losses, which includes just over 5% of debt.

Speaker 3: So in total in Q4, the severity has continued to be fairly tamed at about 4% year over year in total for auto, with 7% increase from physical damages, and 0% on injuries. Here you'll recall injuries is where we were prudent in reserving to reflect the uncertainty of the development patterns.

So in total in Q4, the severity continues to be fairly tamed at about 4% year over year in total for auto with 7% increase from physical damages.

Zero percent on injuries.

You recall injuries as where we were prudent in our reserving to reflect the uncertainty of the development patterns.

During the pandemic.

Speaker 3: So zooming in on the 7% increase on physical damage, more than half of this increase is caused by an increase in the number and severity of the test claim.

So assuming in under 7% increase in physical damage more than half of this increase is caused by an increase in the number and severity of the death claims.

Speaker 3: And the remaining 3% continues to be caused by the technology in cars that we talked about a few times.

And the remaining 3% continues to be caused by the technology in cars that we talked about.

A few times, but.

Speaker 3: If I go further into the remaining two buckets, the repair costs, so the 30% that comes from repairing cars, it's split house and house between parts and labels.

If I go further into the remaining two buckets the repair costs. So the 30% that comes from repairing cars.

Split half and half between parts and labor.

Speaker 3: And what we see there is about 5% inflation on parts and normal inflation, so between 2 and 3% on labels.

And what we see there is about 5% inflation on parts and normal inflation, so between 2% and 3%.

On labor.

Speaker 3: With regards to total losses, the price of new and new scars have increased slightly above 10% in average in Canada.

With regards to total losses, the price of new and used cars have increased slightly above 10% and average in Canada.

Speaker 3: So affecting both total collisions and test claims. However, for the total loss collisions, this has very limited impact on our severity because the recoveries we get from the salvage cars continue to largely offset this impact. So that's the global picture.

So affecting both total collisions in theft claims however for the total less collisions. This has very limited impact on our severity because the recoveries we get from the salvage cars continue to largely offset this impact. So that's the global picture of what we've seen in Q4.

Speaker 3: When it comes to differences between Canada and US, I would point to just a few key differences between the two markets that are largely structural in my...

When it comes to differences between Canada and U S. I would point to just a few key differences between the two markets that are largely structural and my view.

Speaker 3: The first is that the injuries in the US represent the much lower portion of the cost than what we have here in Canada. So the inflation on the short tail has a bigger impact there. The second one is the use of recycled parts in the US is much lower than here in Canada. And this has two main effects. The first one is it increases the reliance on OEM in the US.

The first is that the injuries in the U S represents a much lower portion of the cost than what we have here in Canada. So the installation of the short sale has a bigger impact there.

Second one is the use of recycled parts in the U S is much lower than here in Canada and this has two main effects. The first one is it increases our reliance on OEM in the U S.

Speaker 3: which I've seen one of the most significant pressure from inflation. The second one is that...

I've seen them one of the most significant pressure from inflation.

The second one is that this demand for recycled parts.

Speaker 3: is the main driver of the higher recoveries we get from salvage cars here in It's Arkansas December 3rd, 16th Century medical monitoring in Texas prosecutors in California byön for this site traffic violation.

Is the main driver of the higher recoveries, we get from salvage cars here in Canada.

Speaker 3: which is another important upset we have and the last thing I would mention is because we focus on supporting our customers through their repairs and do not Do very little cash elements are supplies to chain strategy with close to 70% of our repairs being handled within our preferred network is Another mitigating factor for us, but also a competitive advantage given our relative size

Which is another important offsets we have and the last thing I would mention is because we focus on supporting our customers through their repairs and do not.

Do very little cash settlements, our supply chain strategy with close to 70% of our repairs being <unk> within our preferred network is another mitigating factor for us, but also a competitive advantage given our as it related sized here in Canada.

Speaker 3: And keep in mind that the supply chain advantages we didn't come up with because there's inflation. We've been at it for 20 years.

Yes, keep in mind that the supply chain advantages, we didnt come up with because theres inflation, we've been at it for 20 years.

Alright, okay. Good. Thank you for that detail that's very helpful. I appreciate it.

Thank you next question will be from James <unk> of National Bank. Please go ahead.

Speaker 1: Thank you. Next question will be from James Gloin at National Bank.

Right.

Speaker 6: Yeah, thanks. Good morning. Morning. First question was going to be on the specialty insurance platform. I believe you said that if you included the RSA business, full your RSA business, you'd be at $5 billion in premiums. And if memory serves, that was...

Yes. Thanks.

<unk>.

Good morning.

First question was going to be on the specialty insurance platform. I believe you said that if you included the RSA business full year RSA business you'd be at $5 billion in premiums and if memory serves that was the target for the specialty lines. A couple of years ago at Investor Day. So I guess the question now is where where are we going from here.

Speaker 6: The target for the specialty lines a couple years ago at an investor day. So I guess the question now is where are we going from here? What can you maybe tell us about the specialty insurance platforms, growth and opportunities over the next couple of years as a preview into what you might describe as a future investor day?

What can you maybe tell us about.

The specialty insurance platforms growth and opportunities.

Over the next couple of years.

I guess, a preview into what you might describe as a.

Future Investor day.

Speaker 3: Yeah. Well, that's exactly right. I mean, we'll put out the bigger objective at the next investor day. So stay tuned until there. We're really focused on connecting the platform so that it's coherent and cohesive and outperforming at the stage, but we have a great starting point. Darren, maybe you want to...

Well that well, that's that's exactly right I mean, what we'll put out.

The bigger objective at the next Investor day.

Stay tuned until there were really focused on connecting the platform, so that it's coherent and cohesive and outperforming.

At this stage, but we have a great starting point Darren maybe you want to.

Speaker 3: Share your perspective on the opportunities in in special T-line. Yeah, thanks for highlighting that James. I think as you said

Share your perspective on the opportunities in specialty lines, yeah, thanks for highlighting that Jamie.

As you said.

Speaker 7: nearly 5 billion premium at a sub 90s combined ratio. So just a reminder, the objective we have today.

Nearly $5 billion premium at a sub 90 combined ratio so.

And just a reminder, the objective we have today.

Speaker 7: is six billion at twenty twenty five uh... so we're we're getting close to that but i think we'll provide more color it invest today but clearly i think when you look at adding one to market adding european uh... business rsa european business to our platform

6 billion at 2025.

We're getting close to that but I think we will provide more color at investor day, but clearly I think when you look at adding London market, adding European business RSA is European business to our platform.

Speaker 7: We've clearly brought in our distribution footprint. We're really providing our existing specially business units with access to new regions. And ensuring that customers and brokers can benefit from the full breadth of our specialized expertise across the organization.

<unk> broadened our distribution footprint, we're really providing our existing specialty business units with access to new regions.

And ensuring that customers and brokers can benefit from the full breadth of our specialized expertise across the organization.

What I would also add from an RSA standpoint, adding the global network.

Speaker 7: What I would also add from an RSA standpoint adding the global network.

Speaker 7: substantially increases the value prop from a multi-national customer viewpoint. So as as Shal said, we now have access to 70% of these special lines market globally. So really there is no need for us to plant flags, but for us it continues to be the focus that

Substantially increases the value prop from multi national customer viewpoint. So as shell said, we now have access to 70% of the specialty lines market globally. So really there is no need for us to plant flags.

For us it continues to be the focus that being very deliberate in terms of where we play and how we play in doing more of what we do best So I think when we look at our GSL franchise now.

Speaker 7: being very deliberate in terms of where we play and how we play and doing more of what we do best. So I think when we look at our GSL franchise now, we really see it as a really strong financial anchor for the organization moving forward, delivering sustainable out performance together with significant growth upside. I think when you look at our platform today,

We really see it as a really strong financial anchor for the organization moving forward delay.

Delivering sustainable outperformance.

Together with significant growth upside I think when you look at our platform today.

Speaker 7: and our capabilities, we see clear opportunity.

And our capabilities, we see clear opportunity.

Speaker 7: for us to expand our performance capabilities and will be bringing continued focus on that in the short to medium term. So we're very bullish in terms of the path that we're on from a GSL standpoint. Yeah, I think the thing that I like about the position we're in at this stage.

For us to expand our outperformance capabilities.

And we will be bringing continued focus on that in the short to medium term.

Very bullish in terms of the path that we're on from a GSL standpoint, yes, I think the.

The thing that I like about the position we're in at this stage.

Speaker 3: is we can grow in the markets where we are. We don't need to expand from a geographic point of view because we have all the tools in the toolbox, which means greater focus, greater depth, greater scale. And one of the things we wanna do in the next 24 months is to bring far more science in pricing and and to bring far more science in the next 24 months.

We can grow in the markets, where we are we don't need to expand from a geographic point of view because we have all the tools in the toolbox, which means greater focus greater depth greater scale and one of the things we want to do in the next 24 months is to bring far more science.

In pricing and risk selection.

Speaker 3: across the platform, but we'll put the spotlight on that, Jay met the upcoming investor day, both in terms of growth opportunities, but also performance and out-performance opportunities.

Across across the platform, but we will put the spotlight on that Jamie.

The upcoming Investor day, both in terms of growth opportunities, but also performance and outperformance opportunities were.

Speaker 3: We're pretty bullish about the assets we have now in special T-9s.

We're pretty.

Bullish about the assets, we have now and specialty lines.

That's great. Thank you I'll leave it there.

Speaker 1: Thank you. Next question will be from Doug Young at the Jantain Capital Market. Please go ahead.

Thank you next question will be from Doug young at dish.

<unk> capital markets. Please go ahead.

Hi, Good morning, just wanted to go back and I think Louis you mentioned this in your prepared remarks about the RSA synergy guidance.

Speaker 8: Good morning. Just wanted to go back and I think Louie you mentioned this in your prepared remarks about you know the RSA synergy guide

Speaker 8: excludes the benefits from improved loss cost trends. So as we think about the evolution of COVID coming off and people driving more and claims cost going up, you also have the benefit of also pulling the lever of putting signs to work and better targeting. Have you put a finer point on what you think you can do? Because I think you have done this in past acquisitions, what you think you can do in terms of driving loss cost down, specifically in Canada as a result of RSA. Thanks a lot.

Excluding the benefits from improved loss cost trends, so as we think about the evolution of Covid.

Covid coming off and people driving more in claims costs going up you also have the benefit of also pulling the libra, putting science to work.

And better targeting have you put a finer point on what you think you can do because I think you have done this in past acquisitions. What do you think you can do in terms of driving loss costs.

<unk>, specifically in Canada as a result of RSA.

Yes so.

Speaker 4: You know, it's a good question, Doug. The 250 does not include the upside from all the analytics and data segmentation and so on. We've kept that for the future. One of the reasons it was hard to define the starting point.

It's a good question Doug the 250 does not include the upside from all the analysts analytics and.

Data segmentation and so on we've kept that for the future one of the reasons. It was hard to define the starting point typically when we buy when we've made acquisitions in the past we had reliable couple of Years' average combined ratios in the past and we can see how we can improve the book.

Speaker 4: Typically when we've made acquisitions in the past.

Speaker 4: We had a reliable couple of years average combined ratios in the past, and we could see how we could improve the book. Here, given the COVID environment where the results were extremely strong, the results were improving additionally in the past few years, it was just harder to pinpoint the starting point than the impact we would have. So this is where we were cautious as to how much we would...

Here, given the Covid environment, where the results were extremely strong.

The results were improving additionally in the past few years. It was just harder to pinpoint the starting point and the impact we would have so this is where we were cautious as to how much we would drive the improvement in the combined ratios from the data analytics. So we have not.

Speaker 4: drive the improvement and the comminerations from the data analytics. So we have not, you know,

I mean that for precise yet we still see it as upside.

But distinguishing how much improvement is driven by our data analytics versus.

The moves we're taking in each of the books and what the teams have done already.

It's not an exact science so as soon as we can be more precise there we will be but what were tracking now is really the improvement of each of the performances and making sure that they meet our targets as well as the synergies that we wanted to develop and.

And the thing with pricing risk selection and claims supply chain management. This plays out over 2004 to 36 months.

Speaker 3: pricing risk selection first and then claims and supply chain management over time. So, you know, it's harder, I guess, to put a black and white number out there, but rest assured, we're totally focused on it. And then my second question, and this is more a bigger picture question for you, I guess, Charles. I mean, open banking is supposed to arrive in 2023. I know this doesn't impact impact to the property and casualty industry, but my question really is.

Speaker 3: pricing risk selection first and then claims and supply chain management over time. So, you know, it's harder, I guess, to put a black and white number out there, but rest assured, we're totally focused on it.

Pricing risk selection first and then claims and supply chain management.

Over time so.

Harder I guess too.

Put a black and white number out there, but rest assured we're totally focused on it.

Speaker 8: And then my second question, and this is more a bigger picture question for you, I guess, Charles. I mean, open banking is supposed to arrive in 2023. And I know this doesn't impact impact to the property and casualty industry. But my question really is.

And then my second question and this is more of a bigger picture question for you I guess Charles I mean open banking is supposed to arrive in 2023 and I know this doesn't impact the impact of the property and casualty industry, but my question really is I mean has there been discussions we're going to do this in.

Speaker 8: I mean, has there been discussions, like if they're gonna do this in one financial institution area, would they go to other financial institutions area? So is this something that you've had discussions with the government or regulator about moving in a similar direction? I mean, the whole concept of having clients own their data and be able to support their data, is that something that you consider to be a risk? Or is that just a data risk?

Institution area, where they go to other financial institution area. So is this something that you have had discussions with the government a regulator about moving in a similar direction I mean, the whole concept of having clients on their data and be able to put their data is that something that you considered to be a risk or is that just not at risk.

Okay.

It's certainly not.

Speaker 3: in the state it is in other sectors of financial services. That's the first point I would make. The second point I would make is that people consider

Okay.

In the in the states. It is in other sectors of financial services Thats The first point.

Would make the second point I would make is that people consider.

Theyre ensure every year.

Speaker 3: And so it is a business where you need to fight to retain your customers day in, day out. And so it's very different sort of competitive environment. So, A, I don't expect a meaningful move in that direction, but B, if there was, the nature of the business is such that in practice.

And so it is a business where you need to fight to retain your customers day in day out.

And so it's a very different sort of.

Competitive environment.

So a.

I don't expect a meaningful move in that direction, but if that was the nature of the business is such that in practice.

Speaker 3: There's a fair bit of churn and competition every year. I think that for me, along these lines, though, this notion of disrupting distribution through platforms is something we've been focused on for over a decade.

There is a fair bit of churn in competition every year I think Doug for me.

Along these lines, though this notion of disrupting distribution true platforms.

It's something we've been focused on for over a decade.

Speaker 3: And that's why we've invested so heavily in our brand.

And that's why we've invested so heavily in our brands.

Speaker 3: in digital experience. That's why we're bulking up distribution. Because you can see we do have distribution platforms ourselves. We're hoping to make it sound the leading ones in the country to fight off potential disruption in that space. There hasn't been a ton, quite frankly, in the last decade, but it's always better to be ready.

In digital experience, that's why we're bulking up distribution.

You can see we do have distribution platforms ourselves, we're hoping to make it some of the leading ones in the country to fight off potential disruption in that space, there hasn't been a ton quite frankly.

In the last decade, but it's always better to be.

To be ready.

Speaker 3: You look at the aggregator space in the UK. Maybe that gets a little bit closer to the look and feel of what open banking might look like.

You look at the aggregator space in the U K, maybe that gets a little bit closer to the look and feel of what open banking might look like.

Speaker 3: You know, the odds of that gaining traction here, I think, are small. The market dynamics are not the same. The big players are certainly not keen on playing on these platforms, which makes it hard for these platforms to grow fast. And so I'd looked to that to establish parallels with open banking, but I wouldn't say it's not a risk.

The odds of that gaining traction here I think are small the market dynamics are not the same the big players are.

Certainly not keen on playing on these platforms, which makes it hard for these platforms to grow fast and so I'd look to that to establish Paradise with open banking, but.

I wouldn't say, it's not a risk but.

Speaker 3: But I would say this is a risk that the odds are relatively small and our mitigation plan is relatively strong. And that's...

But I would say this is a risk that the odds are relatively small and our mitigation plan is relatively strong and that's.

Speaker 3: That's how we like to be positioned from a strategic point of view.

That's how we like to be positioned from a strategic point of view.

Makes sense. Thank you very much.

Yes.

Speaker 1: Next question will be from Paul Holden at CIBC. Please go ahead.

Thank you next question will be from Paul Holden CIBC. Please go ahead.

Great. Thanks.

I'll ask a question on cost inflation, but from a different angle.

Speaker 3: a lot of evidence of wage inflation, both in terms of hiring new employees.

A lot of evidence of.

Wage inflation, both in terms of hiring new employees.

Speaker 3: and employee retention. Just wondering from the perspective of your expense ratio and corporate expenses, to what extent is that wage inflation potentially going to have a significant impact on profit.

And employee retention just wondering from the perspective of your expense ratio in corporate expenses.

To what extent is that wage inflation potentially going to have a significant impact on profitability over the next 12 to 24 months.

Yes, I think that.

Speaker 3: We'll take the expense question, head on there.

We'll take the expense question.

Head on there.

Speaker 3: I would say the strategic level, if you look at the big objectives here and you look at employee engagement.

I would say the strategic level, if you look at the big objectives.

Here you look at employee engagement.

Speaker 3: For us, this is first and foremost.

For us this is.

This is first and foremost.

Speaker 3: how you retain employee. Our comp is very competitive. It's performance-based.

How you retain employee our comp is very competitive.

It's performance based.

Speaker 3: And, you know, we'll adapt with the marketplace. But when I look at the talent pool, there are areas in the organization where there's a bit of pressure in terms of turnover. But overall, we enjoy a fair...

<unk>.

And we will adapt with the marketplace, but when I look at the talent pool. There are areas in the organization, where there's a bit of pressure in terms of turnover, but overall.

We enjoy a fair.

Speaker 3: a very high degree of loyalty at this stage.

A very high degree of loyalty.

At this stage now when it comes to the economics of the business. Maybe you can provide a bit of perspective on how this can impact US sure. So the way we look at it if you take a 10% roughly of Gen X ratio.

Speaker 10: Now when it comes to the economics of the business, maybe we can

Speaker 10: provide a bit of perspective on how this can impact us.

Speaker 4: Sure, so the way we look at it, if you take 10% roughly of Gen X ratio, if you add to that the loss adjustment costs, we like to think that about 16% of expenses would be potentially subject to inflation. We would maybe take out 15% of premiums, yes, in total.

If you add to that the loss adjustment costs, we like to think that about 16% of.

<unk> would be potentially subject to inflation, we would maybe take out 10% of premiums premiums I guess in total.

Speaker 4: would be subject to the inflation. And then we already bake in inflation in our expectations, maybe at two and a half, 3%. So if the easy calculation for us is doubling up, let's say, inflation, actual inflation versus what we plan, and our expectation is an impact of half a point of on the expense ratio.

Would be subject to the inflation and then we already baked in inflation in our expectations, maybe up to five 3%. So if.

The easy calculation for us is doubling up let's say inflation actual inflation versus what we plan and our expectation is an impact of half a point on.

On the expense ratio.

Speaker 4: So that's, you know, a scenario where we double the currents what we've planned for, and the impact is fairly limited at half a point of combined ratio with back.

That's.

A scenario, where we double the current what we have planned for.

And the impact is fairly limited at half a point of combined ratio went back.

Speaker 10: We're not saying this is what we will do. I think this is a sensitivity test to give you a sense that for us it's not really a needle mover quite frankly.

Got it we're not saying this is what we will do I think this is a sensitive sensitivity test to give you a sense that for us, it's not really a needle mover or quite frankly.

Speaker 4: were far more focused on the claims equation and the supply chain management and the pricing actions were taking there. Yeah, and of course, you know, the other mitigating impacts as productivity, for example, the technology will help alleviate some of that. But just fundamentally to get the envelope sized up here, that's how we would try to sensitize it. Yeah. Understood that sensitivity.

Yeah.

We're far more focused on the claims equation and the supply chain management and the pricing actions, we're taking there and of course, the other mitigating impacts as productivity. For example, the technology will help alleviate some of that but just fundamentally to get the envelope side.

Sized up here, that's how we would.

Tried to sensitize sensitize it yes.

Understood that sensitivity is.

Four.

Speaker 8: One additional question is going back to one of your asks at the beginning on potential structural improvement.

One additional question is going back to one of your ASP at the beginning.

Potential structural improvement.

And margins and the one I want to push you a bit on.

Speaker 3: I want to push you a bit on, is personal problem.

Personal property.

Speaker 2: because if I look at the underlying loss ratio over time and including 2021, it would appear...

Because if I look at the underlying loss ratio over time and including 2021.

It appear to me that there is structural improvement.

Speaker 3: So maybe drilling down on that line of business specific.

And the margins there so maybe drilling down on that line of business specifically.

Speaker 3: Are the reasons we should expect formalization or is it structural improvement?

Are the reasons, we should expect normalization or is it structural improvement.

Well look.

If you go back a decade, Paul we would have had a different conversation right and at the time the level of.

Speaker 10: If you go back a decade, Paul, we would have had a different conversation. Right? And at the time, the level of cat losses had changed dramatically. And so we changed the structure of the product to be better aligned with the emerging perils. We changed pricing, we changed data collection, we changed prevention, we changed claims, the supply chain.

Cat losses at changed dramatically and so we changed.

The structure of the product to be.

Better aligned with the emerging perils, we change pricing we changed data collection, we change prevention, we changed claims the supply chain Avia.

Speaker 10: Obviously, when you stack all these things up, you have a product that has grown well and that is performing really well. Our guidance in personal prop is sub 95, even in bad times, okay? I'll ask, I'll ask, Even ?? insights in general prebuilt.

Obviously, when you stack all these things up.

You have a product that has grown well and that is performing really well our guidance and personal prop is sub 95, even in bad times okay.

I'll ask I'll.

Speaker 10: She's that bad to share her perspective. She's in charge of that product.

Is that better to share her perspective, she's in charge of that product.

Speaker 10: pricing for it so why don't you share your perspective

Pricing for it so why don't you share your perspective.

Yes.

Speaker 9: Sure, so if you said Charles, maybe to start with, I think in the past there's two things we've made in that line of business that makes the underlying performance very strong. It's first building a strong and resilient product.

Sure. So I'll just ask you said Charles maybe to start with I think in the past Theres two things we've made in that line of business that makes the underlying performance is very strong as far as building a strong and resilient.

Speaker 9: face the climate change and different periods we cover.

Phase II of climate change and different barrels we cover and the second one is to make sure our rates strategy is aligned with the sustained pressure in cost so inflation basically in that line of business. So I think that's why in spite we have it.

Speaker 9: And the second one is make sure our rate strategy is aligned with the sustained pressure in cost to inflation, basically, in that line of business. So I think that's why in part we have shown a trying performance.

Shown is trying performance and as you were mentioning I think over the last five years, our combined ratio.

Speaker 9: And as you were mentioning, I think over the last five years, our combined ratio average is slightly below 90%.

It's slightly below 90%.

Speaker 9: However, we need to remember that personal property is the line of business that is the most exposed to weather events and costs, and that will bring volatility in the results.

Where are we now.

Also need to remember, though that personal priority is the line of business that is the most exposed to weather events and cats and that will bring volatility in their results.

Speaker 9: So while our performance has been very strong in the recent years,

While our performance has been very strong and in the recent years and we also need to make sure that we look at the cat risk over a longer period of time and that will bring value add pvt, and in result from one year to the <unk> as an example, the catch ratios have been.

Speaker 9: We also need to make sure that we look at the catch rest over a longer period of time and that will bring volatility in result from one year to the other. As an example, the catch ratio has been at about 5% of our premium in the last two years, but if we look at it over a 10 year period.

At about 5% of earned premium in the last two years, but if we look at it over a 10 year period. Then it represents 9% of the earned premium. So we can see that from one year to the other and that could also bring veillette PDP. So that's why we see that the.

Speaker 9: then it represents 9% of the earned premium. So we can see that from one year to the other, that could also bring volatility. So that's why we say that the...

Speaker 9: 95 combined ratio with several wetter is a better reflection of the volatility for that line.

95 combined ratio.

With sever winter is a better reflection of PDC.

Can you see that line of business.

Speaker 10: It can swing Paul more than the other lines, I think it's the point. It's a structurally better product. There's no doubt about it. You see it in the result.

It can swing.

Paul more than the other lines I think it's the point that it's a structurally better product there's no no doubt about it you see it in the results.

Speaker 10: I think we're well protected for natural disasters. I think the issue in personal prop that one needs to anticipate is the fact that you can have

I think.

We're well protected for natural disasters I think the issue in personal prop that one needs to anticipate.

Is the fact that you can have multiple.

Speaker 10: multiple cats, you know, think of 30 to 70 million bucks.

Cats, you know think of 30 to 70 million Bucks that are not caught by reinsurance.

Speaker 10: that are not caught by reinsurance because they're below the retention. And that can swing the results, you know, meaningfully. That's why we're looking at this product. We're saying, all right, this is a great product. It's performing really well. We're making the most of the environment in which we operate, but keep in mind that in bad times, it can...

Because they are below the retention and that can swing the results.

Meaningfully that's why we're looking at this product were saying alright. This is a great product, it's performing really well.

We're making the most of the environment in which we operate but keep in mind that in bad times.

It can hit 95.

Speaker 10: Now, the standard deviation around the results, we think is wider than the other, and that's why we framed the guidance along these lines. You know, it's everybody's skull in terms of where you wanna put the pin in the sand for the expected combined. But we're saying, look, this thing is built to do well even in bad times.

Now the standard deviation around the results, we think is wider than the other and that's why we framed the guidance along these lines.

It's everybody to call in terms of where you want to put the pin in the sand for the expected combined.

But we're saying look this thing is built to do well even in bad times.

Okay.

Understood Thanks for that.

Thank you next question will be from Mario Mendonca at TD Securities. Please go ahead.

Speaker 1: Thank you. Next question will be from Mario Mendon-san at PD Securities. Please go ahead.

Good.

Speaker 8: good afternoon, Charles. There have been a lot of detailed questions. And as I listen to this, I'm going to get to be thinking about how many things are sort of going right to the company right now, which sort of takes me down the path of your ROE guidance. When you take into account the potential buybacks, reducing your leverage.

Charles.

There've been a lot of detailed questions and as I listened to this.

You have to be thinking about how many things are sort of going right.

For the company right now.

Which sort of takes me down the path of your ROE guidance.

When you take into account the potential buybacks.

Reducing your leverage the synergies associated with RSA and possibly potential improvements in the claims ratio.

Speaker 8: And this is an energy that's associated with RSA and possibly potential improvements in the claims ratio as you go through your segmentation efforts. It really does strike me that the 15% or maybe midteens are a little bit of implies something else is deteriorating at abruptly. And the only thing I can think of is personal auto. So when you think about the 15% or say midteens are a week,

As you go through your segmentation efforts.

It really does strike me that the 15% or maybe mid teens or guidance.

Why is something.

Something else is deteriorating and abruptly and the only thing I can think of as personal auto so.

When you think about the 15% or mid teens Roe.

Speaker 8: What are you sort of implicitly telling us about personal auto and how our breath will be deteriorated in the near future?

What are you sort of implicitly telling it's about personal auto and rapidly deteriorate in the near term.

Yes, so I mean, the objective here is 500 basis points of ROE outperformance every year, that's where it starts the industry's performance as improved in the past few years, we're still holding.

Speaker 10: Yeah. So I mean, the objective here is 500 basis points are we out performance every year. You know, that's where it starts. The industry's performance as improved in the past few years. We're still holding that guidance.

Holding that guidance.

Speaker 10: I think there's a degree of prudent obviously, because when many things go right, you need to anticipate a few bumps here and there, you know, inflation potentially being one of those bumps, but, you know, we're trying to stay on top. We do want to provide a bit of perspective on the Mario's question and the trajectory from an R-O-E point of view, because...

I think there is a degree of prudence, obviously cause when many things go right you need to anticipate a few bumps here and there you know inflation potentially being being one of those bumps.

But we're trying to stay on thoughtful when do you want to provide a bit of perspective on the <unk> question and the trajectory from an ROE point of view.

Speaker 10: The RSE acquisition has changed the balance sheet. Book value per share is up 40%. So we need just to keep that in mind as we look out the next 24, 36 months.

<unk> acquisition has changed.

The balance sheet book value per share is up 40%.

Just to keep that in mind as well.

As we look out the next 24 to 36 months, Yeah, I don't think it's signaling.

Speaker 4: Yeah, I don't think it's signaling an abrupt change. At least that's not our intention. I think the mid teens is well aligned with what we are guiding to from our lines of business. I think what's been probably surprising is the pace at which we actually return to normalcy, or we actually don't return to normalcy.

An abrupt change at least that's not our intention I think the mid teens is well aligned with what we are guiding to from our lines of business I think what's been.

Probably surprising is the pace at which we actually return to normalcy or we actually don't return to normalcy.

Speaker 4: which gave us a bit of tailwind. But I think the midteens are really based on the long-term expectations for combined ratios. So you know where we stand on the auto we're talking about the low end of the mid 90s. I don't think that's going to be a drop change to the contrary. I think it's going to glide towards there unless something major happens. But our expectation is a glide. But at the end of that process, the outcome here is

Which gave us a bit of a tailwind, but I think the mid teens are we is really based on the long term expectations for combined ratios. So you know where we stand on the auto we're talking about the low end of the mid nineties.

I don't think thats going to be in there.

<unk> change to the contrary I think it's going to glide towards there unless something major happens, but our expectation is a glide.

But at the end of that process.

The outcome here is.

Speaker 4: You know, in mid-teens are we consistent with the overall combined ratio will deliver for the group.

Mid teens are we consistent with the overall combined ratio will deliver for the group.

Speaker 10: You know, we were focused on beating that, obviously, when the, when the apportionate team, which we operate,

We were focused on beating that obviously when the when the fortunate thing in which we operate.

Speaker 10: or the environment in which we operate provides the opportunity.

Or the environment in which we operate provides the opportunity.

Speaker 10: To beat that, obviously, we're on it. No need to worry about that. You get in a zone where growth, north of mid-teens from an R-WEE point of view, is a very good value creation opportunity. And I think that you need to strike that balance. But we're not signaling any major hits, actually. We're prudent in our guidance, Mario, but we remain focused on R-WEE. Know that.

To beat that obviously, we're on it.

No need to worry about that you get in a zone where.

Growth north of mid teens from an ROE point of view is a very good.

Value creation, a fortunate I think that you need to strike that balance.

But we're not signaling any major hits actually we're prudent in our guidance Mario but we remained focused on an ROE no doubt.

Speaker 8: And as you sit there today, do you think that we could see that underlined claims, claims, rules and personal ought to affect the match on 2019? If you think the adjustment will be a little more gradual than that, I think, I'll tell you that over a couple of years.

And as you sit there today.

You think that you could see that.

Claim ratio.

Underlying claims ratio in personal auto.

The match Bond 2019, do you think the adjustment will be a little more gradual.

There are a couple of years.

Yeah.

I think that.

Speaker 10: You know, in 2019, Mario, we were still trying to improve that line of business. Keep that in mind, right? I mean, we have done since 2016, 2017, we slammed the break, turned our attention to the emerging trends we were seeing in excellent benefits in particular in Ontario and in ball injury across the land.

In 2019, Mario we were still trying to improve that line of business to keep that in mind right. I mean, we have done since 2016 2017, we slammed the brake.

<unk> turned our attention to the emerging trends, we were seeing an excellent benefit in particular in Ontario and in bodily injury across the land in 2018.

Speaker 10: In 2018, we saw inflation pick up in physical damage. We started to signal to the street that technology was putting a lot of pressure. We jumped on that. And I would say, coming in 2019, we were not at our trajectory just yet. So no, I wouldn't see the performance of that line of business in the next 12 to 24 months.

Saw inflation pick up in physical damage, we started to signal to the street that technology was putting a lot of pressure, we jumped on that and I would say coming into 2019.

We were not at our trajectory.

Just yet so no I wouldn't see the performance of that line of business in the next 12 months to 24 months.

Speaker 10: Be in the 2019 range, I think we're seeing it at the lower end of the mid 90s, certainly in 2022.

In the 2019 range I think we're seeing it at the lower end of the mid Ninety's certainly in 2022.

Because the full the full weight of our actions was not reflected in 2019.

Speaker 10: because the full weight of our actions was not reflected in 2019. Isabel would you...

Is that better would you agree with that perspective.

Speaker 9: Yeah, and I would add that also we've been cautious in our, in the way we're managing to provide relief to our customers. And in the way we're adjusting our rates. And I would say the other thing is that we're really quick to react and identify the new trends. And then we adjust our plan that you mentioned. We're already put in place pre-COVID to react if things are changing. So I think that's also preventing us to be back. Yeah.

Yeah, and I would add that also we have been cautious.

And the way, we're managing to provide relief to our customers and we were adjusting our rates and I would say the other thing is that we're really quick.

To react.

If I had any new trends and then we adjust our plan that you mentioned.

Put in place pre Covid two.

To react if things are changing so I think that's also preventing us to be.

When we were at that time.

Thank you.

Speaker 1: Thank you. Next question is I follow up from Jeff Kwan at RBC Capital Market. Please go ahead.

Thank you next question is a follow up from Geoff Kwan with RBC capital markets. Please go ahead.

Speaker 5: Thanks. Just I'm always wondering, you know, how you would describe how close you are in assessing.

Thanks, Justin.

Wondering how you would describe how close you are in assessing the <unk>.

Plans to do.

Speaker 5: If you're going to do anything with RSA, you can I portfolio. Or do you feel this Goddard data to kind of execute on the long term plan? I'm not asking for any details about what exactly you're doing, but just one to understand how comfortable you are with the assets you've got in place and whether or not you plan to keep them or pursue other alternatives with them.

If you're going to do anything with RSA U K Nye portfolio.

Or do you feel <unk> got enough data to kind of.

Execute on the long term plan and I'm not asking for any details about what exactly you're doing but just wanted to understand how comfortable you are with.

With the assets, you've got in place and whether or not you plan to keep them or pursue other alternatives with them.

Yes.

Speaker 10: We're deep into strategy work in the areas where the odds of success are lower. I would say, we close.

We're we're deep into strategy work in the areas, where the odds of success are lower.

I would say.

We closed.

Speaker 10: Make it seven months ago. On day one, after closing, we had profitability improvement plans across the board. On day seven, we saw Denmark and we've engaged with

Make it seven months ago.

On day, one after closing we had profitability improvement plans across the board on the seven we sold Denmark.

And we've engaged with the teams.

Speaker 10: across the region to make sure that

Across the.

The region to make sure that we knew how to win.

Speaker 10: We knew how to win, where to win, and that would generate enough return to justify being there even if we win. We're well advanced in this process. When it comes to Europe , we're saying, it needs to fit in specialty lines. That was our perspective. When it comes to London market, we found a lot of strength. We're saying this will be part of the global specialty lines platform.

Were to win and that would generate enough return to justify being there even if if we win.

We're well advanced in this process when it comes to Europe , we're saying it needs to fit in specialty lines that that was our perspective when it comes to the London market. We found a lot of strength, we're seeing there.

This will be part of the global specialty lines.

Platform.

Speaker 10: Like the Irish business, in the UK you've heard in our message that we're de-hemphasizing areas where we're operating today where the economics are not good and that we're deep into strategy with the team but feeling good about the results that we're seeing there. So in every part is looked at for a roadmap to win and if we don't think we can win, then we don't play.

Like the Irish business in the UK, you've heard in our message that we are deemphasizing areas, where we're operating today, where the economics are not good and we are deep into our strategy with the team, but feeling good about the results that we're seeing there. So every part is looked at.

For a roadmap to win and if we don't think we can win.

And then we don't play.

Speaker 5: My second question was just Charles, when you were talking earlier on US commercial, he sounded maybe a little bit more emphatic about significant opportunities for growth. And just wondering if he can maybe provide a little bit more color on why they're not, that's you're looking at it from an organic standpoint if there's maybe from an acquisition standpoint that might drive some of these opportunities.

Okay and just my second question was just Charles when you were talking earlier on U S commercial.

You sounded maybe a little bit more emphatic about significant opportunities for growth and just wondering if you can maybe provide a little bit more color on whether or not that's.

From an organic standpoint, or maybe from an acquisition standpoint.

You might drive some of these opportunities.

Darren do you want to share a bit of color on that.

Speaker 7: I think, Jeff, I think there's multiple opportunities here. Clearly the market conditions themselves today, and you see that in our results today in terms of an organic standpoint. It's a very favorable operating environment, and we don't see that changing materially moving forward.

I think Jeff I think there's multiple opportunities here clearly the market conditions themselves today and you see that in our results today in terms of an organic standpoint.

Favorable operating environment, we don't see that changing materially moving forward I think on the inorganic side I think our strategy continues.

Speaker 7: I think on the inorganic side, I think with our strategy continues in terms of our MGA, MGU strategy. So I think there's opportunities there for us to look at potential tucking opportunities. And then there's obviously potential broader opportunities beyond that. But again, as you know, right opportunity, right price, etc. So I think that we have a fair bit of runway here.

In terms of our <unk> strategy, So I think theres opportunities there for us to look at potential tuck in opportunities and then there is obviously potential broader opportunities beyond that but again as you know.

The right opportunity.

Right price et cetera, So I think that we have a favorite of runway here.

Speaker 7: And we're very obviously selective in terms of the inorganic side, but organically today Very happy with the market and we're taking advantage of that. Yeah, I think big focus on organic

And we're very obviously selective in terms of the inorganic side, but organically today.

Very happy with the market and we're taking advantage of that yeah, I think big focus on organic.

Speaker 10: Jeff, you know, there's the global capabilities which contribute to that as well. We're adding a couple of product lines, but when I look at the footprint in the UK, I mean, the vast majority of the ports,

Yes.

There is the global capabilities, which contribute to that as well we were adding a couple of product lines, but when I look at the footprint in the UK.

The vast majority of the portfolio.

Speaker 10: that is not under performance improvement. Ranking.

That is not under performance improvement.

You know.

Ran at 89%.

In in 2021.

Speaker 10: in in 2021 and as grown at 16% you know what we want more of that

And as grown at 16% you know what we want more of that.

Speaker 10: And not expensive to get. And that's focus number one, I would say. Then you add additional lines, you add global capabilities, you add distribution with MGA, you can grow. The point I'll make about inorganic though, is that we feel that the outperformance

And.

Not expensive to get.

And that's focus number one.

Then you add additional lines to add global capabilities, you add distribution with Mg you.

You can grow the point I'll make about inorganic though.

Is that we feel that the outperformance has been created by the U S team.

Speaker 10: has been created by the US team. Mike and the team in the US have created what I think are clear capabilities to outperform. We're therefore at a point where putting capital in organically is something we would consider. 18 months ago, maybe not today, yes. But I think the big upside is definitely organic. I think.

Mike.

And the team in the U S have created what I think are clear capabilities to outperform.

Therefore at a point, where putting capital Inorganically is something we would consider.

18 months ago, maybe not today, yes, but I think the big upside is definitely organic.

Okay, great. Thank you.

Speaker 1: Thank you. And at this time, I would like to turn the call back to Shubakam for close.

Thank you.

At this time I would like to turn the call back to <unk> for closing comments.

Speaker 2: Thanks everyone for joining us today. Following the call, a telephone replay will be available for one week. And the webcast will be archived on our website for one year. Transcript will also be available on our web site in the financial reports five in seconds. Lastly, our first quarter 2022 results are scheduled to be released after a market closed on Tuesday, May 10th. Thank you again, and this concludes our call for today.

Thanks, everyone for joining us today following the call a telephone replay will be available for one week and the webcast will be archived on our web site transfer.

Transcript will also be available on our website in the financial reports <unk> filings.

Lastly, our first quarter 2022 results are scheduled to be released after market close on Tuesday may 10th.

Thank you again and this concludes our call for today.

Speaker 1: Thank you ladies and gentlemen, this does indeed conclude your conference call today. Once again, thank you for attending. And at this time we do ask that you please disconnect.

Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask that you. Please disconnect your lines.

Speaker 11: Here's that. Yeah, I see. You see that. Yeah.

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