Q4 2023 Intact Financial Corporation Earnings Call

And if at any time during this call you require immediate assistance. Please press star zero for the operator also note that this call is being recorded on February 14th 2024.

Operator: Please press star zero for the option. Also, note that this call is being recorded on February 14th, 2021, and I would like to turn the conference over to Shuba Khan, Vice President, Investor Relations. Please go ahead. Thank you, CDB. Hello, everyone, and thank you for joining the call to discuss our fourth quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to slide 2 for cautionary 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.

Speaker Change: And I would like to turn the conference over to <unk>, Vice President Investor Relations. Please go ahead.

Speaker Change: Thank you <unk> Hello, everyone and thank you for joining the call to discuss our fourth quarter financial results.

Speaker Change: Link to our live webcast materials for this call have been posted on our website in fact, etsy dot com under the investors tab.

Speaker Change: 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 financial measures and important notes on adjustments terms and definitions used in this presentation.

Operator: To discuss your results today, I have with me our CEO, Charles Brind'Amour, our CFO, Louis Maffetz, Patrick Barbeau, Executive Vice President and Chief Operating Officer, Darren Godfrey, Executive Vice President, Global Specialty Lines, Guillaume Lamy, Senior Vice President, Personal Lines, and Ken Anderson, Executive Vice President and CFO, UKNI. We will begin with prepared remarks followed by Q&A. With that, I will turn the call over to Charles. Good morning, everyone, and thank you for joining us today.

CEO Charles: Got your results today I have with me, our CEO Charles <unk>, our CFO Lima.

Speaker Change: I think bubble executive Vice President and Chief operating Officer, Darren Godfrey Executive Vice President Global specialty lines Yamani Senior Vice president of personal lines.

Speaker Change: And Ken Anderson Executive Vice President and CFO, you cannot we will begin with prepared remarks, followed by Q&A with that I'll turn the call over to Charles.

Charles: Good morning, everyone and thank you for joining us today.

Shuba Khan: 2023 was a challenging year for society, as inflation continued to exert pressure on the cost of living. And natural disasters took a heavy toll on the communities we serve. Through it all, our people work tirelessly to ensure customers get back on track as quickly as possible. And against this backdrop, our business demonstrated remarkable resilience. Yesterday evening, we announced net operating income per share of $4.22 for the fourth quarter, up 45% from last year, driven by strong underwriting, investment, and distribution results. The undiscounted combined ratio was 90.1% in the quarter, which reflected strong underlying performance across all regions, and our exit of UK First Line, and Topline Momentum is strong and improving. Organic growth was 8% for the quarter, driven by red actions across all. Hard market conditions continue to provide a significant tailwind for a majority of our business. Overall, we delivered an operating ROE of 14.2% in 2023 and maintained a strong balance sheet with $2.7 billion of capital margin. We're therefore pleased to raise the quarterly dividend by 10%, our 19th consecutive annual increase.

Speaker Change: 2023 was a challenging year for society.

Speaker Change: Inflation continued to exert pressure on the cost of living.

And natural disasters.

Speaker Change: Heavy toll on the communities we serve.

Speaker Change: But through it all our people worked tirelessly to ensure our customers get back on track as quickly as possible.

And against this backdrop, our business demonstrated remarkable resilience.

Speaker Change: Yesterday evening, we announced net operating income per share of $4 22 for the fourth quarter.

Speaker Change: Up 45% from last year driven.

Driven by strong underwriting.

Speaker Change: <unk> and distribution results.

Speaker Change: The undiscovered combined ratio was 91% in the quarter.

Which reflected strong underlying performance across all regions.

Speaker Change: And our exit of UK personal lines.

Speaker Change: And top line momentum is strong and improving.

Speaker Change: Organic growth was 8% for the quarter.

Speaker Change: Driven by rate actions across all segments.

Speaker Change: Market conditions continued to provide a significant tailwind for a majority of our businesses.

Speaker Change: Overall, we delivered an operating ROE of 14, 2% in 2023 and maintain a strong balance sheet with $2 7 billion of capital margin.

We are therefore pleased to raise the quarterly dividend by 10% our 19th consecutive annual increase.

Charles Brind'Amour: Let's now look at each of our lines of business, starting with Canada. In personal auto, premiums grew 12% in the quarter, driven by our rate actions and continued momentum in unit growth. Premium growth has been accelerating for the past year, driven by our improved competitive position, leading brand awareness, and continued investment in digital marketing and customer experience. With a combined ratio of 95.2 in the quarter and 94.7 for the full year, underwriting performance was in line with guidance. Inflation, as expected, abated in the past year and appears to have stabilized in the mid-single digit range for the past couple of quarters. We expect rate increases to continue to cover inflation. And as a result, we remain comfortable with our sub-95 guidance and with capturing growth in this environment. Moving on to personal property.

Speaker Change: Let's now look at each of our lines of business starting with Canada.

Speaker Change: Personal auto premiums grew 12% in the quarter driven by our rate actions and continued momentum in unit growth.

Speaker Change: Premium growth has been accelerating for the past year, driven by our improved competitive position.

Speaker Change: Leading brand awareness and continued investment in digital marketing and customer experience.

Speaker Change: With a combined ratio of 95, two in the quarter and $94 seven for the full year.

Speaker Change: Underwriting performance was in line with guidance.

Inflation as expected abated in the past year and appears to have stabilized in the mid single digit range for the past couple of quarters.

We expect rate increases to continue to cover inflation.

Speaker Change: And as a result, we remain comfortable with our sub 95 guidance and were capturing growth in this environment.

Speaker Change: Moving to personal property premium growth was 8% in the quarter due to our rate actions and supportive market conditions.

Charles Brind'Amour: Premium growth was 8% in the quarter due to our rate actions and supportive market conditions. The combined ratio for the quarter was very strong at 75.8%, reflecting robust underlying performance and mild weather across Canada. For the full year, the combined ratio was 100.7%, which included 11 points of cap losses above expectation.

Speaker Change: The combined ratio for the quarter was very strong at 75, 8%.

Speaker Change: Reflecting robust underlying performance and mild weather across Canada.

Speaker Change: For the full year, the combined ratio was 107%, which included 11 points of cat losses above expectations.

Charles Brind'Amour: Despite this, our average combined ratio for the past 5 and 10 years remained below 90%, thanks to adapting our value proposition and operating model in the last decade. Given double-digit rate increases in a hard market, as well as our expanding claims and supply chain capabilities, we are well positioned to sustain this track record. Our expectations take rising cap losses into account, which we will cover in more detail. In commercial lines, premium growth was 4% in the quarter and reflected targeted exits to enhance profitability in our specialty lines portfolio, as well as increased competition for large accounts. As the market remains hard across most lines, we expect growth in 2024 to be generally consistent with upper single-digit increases for the industry. We delivered a combined ratio of 84.4% in this segment, reflecting our profitability actions over time, and the business remains well positioned to deliver sustainable, low 90s or better performers. Moving now to our You Can't Hide This.

Speaker Change: Despite this our average combined ratio for the past five and 10 years remained below 90%.

Speaker Change: Thanks to adapting our value proposition and operating model in the last decade.

Speaker Change: Given double digit rate increases in a hard market as well as our expanding claims and supply chain capabilities, we are well positioned to sustain this track record.

Speaker Change: Our expectations take rising cat losses into account.

Speaker Change: What should we will cover in more detail.

Speaker Change: In commercial lines premium growth was 4% in the quarter and reflected targeted exists to enhance profitability in our specialty lines portfolio.

Speaker Change: As well as increased competition for large accounts.

Speaker Change: As the market remains hard across most lines, we expect growth in 2004 to be generally consistent with upper single digit increases for the industry.

Speaker Change: We delivered a combined ratio of 84, 4% in this segment, reflecting our profitability actions overtime.

Speaker Change: And the business remains well positioned to deliver sustainable.

Speaker Change: Low nineties are better performance moves.

Speaker Change: Moving now to our U K business.

Charles Brind'Amour: Premium growth in our now commercialized focused business was 26% in the quarter, thanks largely to the direct line transaction. Organic growth was 6% driven by our rate action. The combined ratio of 104.6% for the quarter included 11 points of cap losses above what we would have expected.

Speaker Change: Premium growth and are now commercialized focused business was 26% in the quarter. Thanks, largely to the direct line transaction.

Speaker Change: Organic growth was 6% driven by our rate actions.

Speaker Change: In a hard market.

Speaker Change: The combined ratio of 104, 6% for the quarter included 11 points of cat losses above what we would have expected.

Charles Brind'Amour: We expect to run this business in the low 90s and 24 months, and we see this improving to approximately 90% within two years as we improve performance and realize synergies from the direct line transactions. In the U.S., our business grew 9% in the quarter, led by strong growth across our most profitable lines for the full year. Growth of 14% also included the benefit of an MGA acquisition in late 2022. The combined ratio of 86.4% for the quarter reflects our profitability actions over time, which were partially upset by unfavorable prior year developments from one specific trend. In the next 12 months, we expect hard market conditions across most lines to persist, given higher reinsurance costs, rising cap losses, and inflation, and we remain well positioned to maintain low 90s or better performance in this business as well. Let me now highlight some of our strategic milestones and initiatives over the past few months. In Canada, BrokerLink continued to consolidate the market. Despite a slow start to the year, the business closed 20 acquisitions, representing $375 million in premium.

Speaker Change: We expect to run this business in the low nineties in 'twenty four and we see this improving to approximately 90% within two years as we improve performance and realized synergies from the direct line transaction.

Speaker Change: In the U S. Our business grew 9% in the quarter led by strong growth across our most profitable lines.

Speaker Change: For the full year.

Speaker Change: <unk> of 14% also included the benefit of an empty acquisition in late 2022.

Speaker Change: The combined ratio of 86, 4% for the quarter reflects our profitability actions over time, which were partially offset by unfavorable prior year development from one specific site.

Speaker Change: In the next 12 months, we expect hard market conditions across most lines to persist given higher reinsurance costs rising cap losses and inflation.

Speaker Change: And we remain well positioned to maintain low ninety's or better performance in this business as well.

Speaker Change: Let me now highlight some of our strategic milestones and initiatives.

Speaker Change: In the past few months.

Speaker Change: In Canada broker linked continued to consolidate the market. Despite a slow start to the year the business closed 20 acquisitions, representing $375 million of premiums.

Charles Brind'Amour: Total premiums exceeded $3.5 billion in 2023, and we're therefore on our way to achieving our $5 billion ambition in the midterm. On the digital front, our mobile app saw over 23 million visits by customers in 2023. With the ease of use of our self-serve tools, one in five policy transactions are now fully completed online, and we continue to invest in our supply chain capabilities, a key driver of our underwriting outperformance over time here in Canada. Four new claim service centers were opened in 2-4, bringing the number of total locations across Canada to 31, and service centers reduced the claim cycle time by 30% on average.

Speaker Change: Total premiums exceeded $3 5 billion in 'twenty three.

Speaker Change: And we are therefore on our way to achieving our 5 billion ambition in the midterm.

Speaker Change: On the digital front, our mobile App saw over 23 million visits by customers in 2023.

Speaker Change: With the ease of use of our self serve tools.

Speaker Change: One in five policy transactions are now fully completed online and.

Speaker Change: And we continue to invest in our supply chain capabilities, a key driver of our underwriting outperformance over time here in Canada.

Speaker Change: For New claims service centers were open in Q4, bringing the number of total locations across Canada to 31.

Speaker Change: Service centers reduced the claims cycle time by 30% on average they are an increasingly important part of our value proposition to customers generating higher net promoter scores and driving premium growth.

Charles Brind'Amour: They're an increasingly important part of our value proposition to customers, generating higher net promoter scores and driving premium growth. In global specialty lines, we launched a new global renewable energy segment in addition to expanding underwriting capacity for cyber coverage across all our markets. We're also accelerating the transformation of our pricing capabilities and deployed six new AI-driven pricing models in this segment. In 2023, premiums exceeded the $6 billion mark in specialty lines, and we then achieved a solid combiner issue of 88%. We're making excellent progress towards our ambition of $10 billion of premiums by 2030 while operating at a sub-90 combined risk in our UK and I business. We've taken a lot of action over the last 12 months to drive out performers. We de-risked the pension plan through a buy-in transaction, and we exited the UK motor market.

Speaker Change: In global specialty lines, we launched a new global renewable energy segment. In addition to expanding underwriting capacity for cyber coverage across all our markets.

Speaker Change: We're also accelerating the transformation of our pricing capabilities and deployed six new AI driven pricing models.

Speaker Change: In this segment in the quarter.

Speaker Change: In 2023 premiums exceeded the 6 billion Mark in specialty lines, and we delivered a solid combined ratio of 88%.

Speaker Change: We're making excellent progress towards our ambition of $10 billion of premiums by 2030, while operating at a sub 90 combined ratio.

Speaker Change: In our <unk> business.

Speaker Change: We've taken a lot of action over the last 12 months to drive outperformance, we derisked the pension plan Troy by end transaction.

Speaker Change: We exited the U K motor market.

Charles Brind'Amour: We acquired DirectLines Broker and Commercial Lines Business. We sold the direct UK home and pet platforms to Admiral and announced the exit of UK FirstLine's partnership. A lot of hard work has gone into refocusing the business, but I'm very pleased with where we stand today. There's still work to be done, but I'm confident that we'll have one of the best PNC businesses in the UK market within 24 months. Investing in our people is critical to our success and an important pillar of our strategic roadmap. As a top employer in both Canada and the U.S., and with meaningful progress in 23 towards becoming a Best Employer in the UK. I'm proud that Intact is a place where our people can grow and thrive as we win in the marketplace as a team. And I'd like to thank our people for all they've accomplished in the past.

Speaker Change: We acquired direct lines brokered commercial lines business we.

Speaker Change: We sold a direct UK home internet platforms to Admiral and announced the exit of UK personal lines partnerships.

Speaker Change: A lot of hard work has gone into refocusing the business, but I'm very pleased with where we stand today.

Speaker Change: There is still work to be done, but I'm confident that we'll have one of the best P&C businesses in the UK market within 24 months.

Speaker Change: Yes.

Speaker Change: Investing in our people is critical to our success.

Speaker Change: And an important pillar of our strategic roadmap.

Speaker Change: As the best employer in both Canada and the U S.

Speaker Change: And with meaningful progress in 'twenty treat towards becoming a best employer in the U K.

Speaker Change: I'm proud that in fact is a place where our people can draw and thrive.

Speaker Change: As we win in the marketplace as a team.

Speaker Change: And I'd like to thank our people for all they've accomplished in the past year.

Charles Brind'Amour: They certainly didn't falter in assisting our customers through multiple natural disasters, and we were able to deliver on key strategic initiatives, investing in our performance across all our businesses. It's clear; we enter 24 with a lot of momentum. Growth is in the high single digits, underwriting performance is in the low 90s, and operating ROE is in the mid teens. With our strong balance sheet, we're ready to capture growth. The business is in very good shape to grow net operating income per share by 10% a year over time and to continue to outperform the industry ROE by at least 500 basis points every year. And with that, I'll turn the call over to our CFO, Louis Marcotte. Thanks, Charles, and good morning, everyone.

Speaker Change: They certainly didn't falter in assisting our customers through multiple natural disasters.

Speaker Change: And we were able to deliver on key strategic initiatives investing in outperformance across all our businesses.

Speaker Change: Yes.

Speaker Change: It's clear we entered 24 with a lot of momentum.

Speaker Change: <unk> is in the high single digits, our underwriting performance in the low nineties are operating ROE in the mid teens.

Speaker Change: With our strong balance sheet, we're ready to capture.

Speaker Change: Growth of fortunate these as they emerge.

Speaker Change: The business is in very good shape to grow net operating income per share by 10% a year over time and to continue to outperform the industry ROE by at least 500 basis points.

Speaker Change: Every year and with that I'll turn the call over to our CFO Louis Marcotte. Thanks.

Louis Marcotte: Thanks, Gerald and good morning, everyone I'm very happy to report a strong finish to a very busy year, our businesses delivered strong fourth quarter results on the back of excellent underlying performance across all lines of business as well as continued earnings growth from our investment portfolio and our distribution assets.

Louis Marcotte: I'm very happy to report a strong finish to a very busy year. Our businesses delivered strong fourth-quarter results on the back of excellent underlying performance across all lines of business, as well as continued earnings growth from our investment portfolio and our distribution assets. This helped drive an operating ROE of 14.2%, despite a three-point impact from higher-than-expected cap losses in 2020. Meanwhile, book value per share grew 6% in the quarter to nearly $82, fully recovering the dilution from the pension buy-in earlier this year.

Louis Marcotte: This helped drive an operating ROE of 14, 2%. Despite a three point impact from higher than expected cat losses in 2023.

Speaker Change: Meanwhile, book value per share grew 6% in the quarter to nearly $82.

Speaker Change: Fully recovering the dilution from the pension buy in earlier this year.

Louis Marcotte: A strong underlying performance across all lines reflected our continued underwriting discipline and ongoing profitability action. Personal auto was consistent with our sub-95 guidance, underlying performance in personal property was sub-90, and commercial lines delivered a low-90s performance, or better, across all geographies. This is a solid foundation to grow our business on. With organic growth of 8% in the quarter and continuing favorable market conditions in all regions, our priority is to leverage this environment to accelerate profitable organic growth. This feeds really well into our 10% net operating income per share growth objectives and contributes to ROE outperformance. On that strong note, let me add a bit of color to our Q4 results. Cat losses in the quarter of $200 million were mostly attributable to two severe storms impacting our continuing businesses in the UK, Ireland, and Europe.

Speaker Change: Strong underlying performance across our lines reflected our continued underwriting discipline and ongoing profitability actions.

Speaker Change: Personal auto was consistent with our sub 95 guidance underlying performance in personal property was sub 90, and commercial lines delivered a low ninety's performance or better across all geographies.

Speaker Change: This is a solid foundation to grow our business on.

Speaker Change: With organic growth of 8% in the quarter and continuing favorable market conditions in all regions. Our priority is to leverage this environment to accelerate profitable organic growth.

Speaker Change: This feeds really well into our 10% north net operating income per share growth objective and contributes to ROE outperformance.

Speaker Change: On that strong note, let me add a bit of color to our Q4 results.

Speaker Change: Cat losses in the quarter, a $200 million were mostly attributable to two severe storms impacting our continuing businesses in the UK, Ireland and Europe.

Louis Marcotte: The storms also impacted our recently exited U.K. personal lines with an additional $65 million in losses. Looking ahead, we are increasing our annual CAT guidance from $700 million to $900 million. This reflects ongoing inflation and business growth, as well as our updated science-based climate modeling, which conservatively assumes that the planet will warm by 3 to 5 degrees by the end of the century. The new CAT guidance represents a manageable increase in the CAT loss ratio of less than a point, to approximately 4.3%, and more importantly, it is expected to be neutral to earnings expectations, thanks to our ongoing pricing action. As such, our combined ratio guidance for each line of business is unchanged. Favorable prior year development remained strong at 5.2% for the quarter, reflecting our prudent approach to reserving, and we continue to expect the PYD ratio to be in the 2-4% range over the medium term. The consolidated expense ratio was 32.5% in the quarter, modestly lower than last year due to the timing of certain expenses.

Speaker Change: The storms also impacted our recently exited UK personal lines with an additional $65 million in losses.

Speaker Change: Looking ahead, we are increasing our annual cat guidance from $700 million to $900 million.

Speaker Change: This reflects ongoing inflation and business growth as well as our updated science based climate modeling, which conservatively assumes that the planet will warm by three to five degrees by the end of the century.

Speaker Change: The new cap guidance represents a manageable increase in the cat loss ratio of less than a point to approximately four 3% and more importantly, it is expected to be neutral to earnings expectations. Thanks to our ongoing pricing actions.

Speaker Change: As such our combined ratio guidance for each line of business is unchanged.

Speaker Change: Favorable prior year development remains strong at five 2% for the quarter, reflecting our prudent approach to reserving and we continue to expect the <unk> ratio to be in the 2% to 4% range over the medium term.

Speaker Change: The consolidated expense ratio was 32, 5% in the quarter modestly lower than last year due to timing of certain expenses the.

Louis Marcotte: The full-year ratio of 33.4% was within our expected range of 33 to 34%. In 2024, we expect to operate largely in the same way. Operating net investment income increased 35% in the quarter, driven by both higher portfolio turnover and rising book yields over the last 12 months.

Speaker Change: The full year ratio of 33, 4% was within our expected range of 33% to 34% in 2024, and we expect to operate largely in the same range.

Speaker Change: Operating net investment income increased 35% in the quarter driven by both higher portfolio turnover and rising book yields over the last 12 months.

Louis Marcotte: As we indicated in Q3, we expect investment income to increase to $1.5 billion in 2024. This reflects the actions taken to capture higher yields in 2023 and the fact that our book yield remains below reinvestment yields despite recent ratings. Distribution income increased 16% to $109 million in the quarter, driven by recent broker acquisitions, as well as solid organic growth.

Speaker Change: As we indicated in Q3, we expect investment income to increase to $1 5 billion in 2020 for.

Speaker Change: This reflects the actions taken to capture higher yields in 2023.

Speaker Change: And the fact that our book yields remains below reinvestment yields despite recent rate movements.

Speaker Change: Distribution income increased 16% to $109 million in the quarter driven by recent broker acquisitions as well as solid organic growth.

Louis Marcotte: For the full year, growth of 6% reflected the slow pace of acquisitions in the first half, as we remained disciplined in a hot M&A market. However, the pace picked up significantly in the back half of the year as anticipated, and the pipeline remained strong. As a result, we expect distribution income to grow by at least 10% in 2021. The operating effective tax rate was 17% in the quarter, below our expected tax rate, largely due to additional tax recoveries resulting from the improved profitability outlook in our UK business.

Speaker Change: For the full year growth of 6% reflected the slow pace of acquisitions in the first half as we remain disciplined in a hot M&A market.

Speaker Change: The pace picked up significantly in the back half of the year as anticipated and the pipeline remains strong as a result, we expect distribution income to grow by at least 10% in 2024.

Speaker Change: The operating effective tax rate was 17% in the quarter below our expected tax rate largely due to additional tax recoveries, resulting from the improved profitability outlook in our UK business.

Louis Marcotte: Looking ahead, I'm expecting an increase in our effective tax rate of 1 to 2 points, based on proposed tax legislation in Canada. This would take our expected operating effective tax rate to between 23 and 24 percent. However, any additional tax recoveries in the UK would temper the impact of these changes.

Speaker Change: Looking ahead I am expected expecting an increase in our effective tax rate of one to two points.

Speaker Change: Based on proposed tax legislation in Canada. This.

Speaker Change: This would take our expected.

Speaker Change: Operating effective tax rate to between 23 and 24%.

Speaker Change: The additional tax recoveries in the UK with temporary the impact of these changes.

Louis Marcotte: Overall, net operating income per share of $4.22 for the quarter was up 45% from the prior year on the back of solid earnings from all businesses and a lower tax rate. Moving to non-operating items, we reported exited line losses of $158 million, mostly attributable to the exit of our UK home business in Q4. These losses include the impact of the storms I mentioned earlier as well as prudent reserve strengthening in UK homes. After 30 months from the closing date and lots of strategic actions taken so far to improve the performance, I am pleased to report that value creation from the RSA acquisition is well above initial expectations. Net operating income per share accretion and IRR are both above 20%, and annual synergies are expected to reach $450 million by June 2026. However, not included in our updated IRR and accretion are the synergies from the direct line acquisition, which are expected to generate an additional $35 million annually within the next 36 months.

Speaker Change: Overall net operating income per share of $4 22 for the quarter was up 45% from the prior year on the back of solid earnings from all businesses and a lower tax rate.

Speaker Change: Moving to non operating items, we reported exited line losses of $158 million, mostly attributable to the exit of our U K home business in Q4.

Speaker Change: These losses include the impact of the storms I mentioned earlier as well as prudent reserve strengthening in U K home.

Speaker Change: After 30 months from the closing date and lots of strategic actions taken so far to improve the performance I am pleased to report that value creation from the RSA acquisition is well above initial expectations.

Speaker Change: Net operating income per share of accretion and IRR are both above 20% and annual synergies are expected to reach 450 million by June 2026.

Speaker Change: Not included in our updated IRR and accretion or the synergies from the direct line acquisition, which are expected to generate an additional $35 million annually within the next 36 months.

Louis Marcotte: In the quarter, the business performed largely in line with expectations. We are focused on improving performance in the acquired portfolio to deliver a low 90s combined ratio in our UK and I business in 2024. Moving now to the balance sheet, our financial position continues to be strong with a total capital margin of $2.7 billion at year-end, as well as solid regulatory capital ratios in all jurisdictions. Despite weather-related volatility, capital generated during the year easily covered all capital needs, including dividend payments, organic growth, and M&A related to our distribution. The adjusted debt to total capital ratio stood at 22.4% and was relatively stable compared to Q3 as we used capital to fund the direct line transaction. We expect the ratio to return to our long-term target of 20% by the end of 2024, if not before, putting us in a very good position to deploy capital should an opportunity arise. Book value per share grew 6% in a quarter, driven by strong operating performance and a favorable market.

Speaker Change: In the quarter the business performed largely in line with expectations.

Speaker Change: We are focused on improving performance in the acquired portfolio to deliver a low ninety's combined ratio in our UK business in 2024.

Speaker Change: Moving now to the balance sheet, our financial position continues to be strong with a total capital margin of $2 7 billion at year end as well as solid regulatory capital ratios in all jurisdictions. Despite.

Speaker Change: Despite weather related volatility capital generated during the year easily covered all capital needs, including dividend payments organic growth and M&A related to our distribution platform.

Speaker Change: The adjusted debt to total capital ratio stood at 22, 4% and was relatively stable compared to Q3 as we use capital to fund the direct line transaction.

Speaker Change: We expect the ratio to return towards our long term target of 20% by the end of 2024, if not before putting us in a very good position to deploy capital should an opportunity arise book.

Speaker Change: Book value per share grew 6% in the quarter driven by strong operating performance and favorable market movements.

Louis Marcotte: The outlook is favorable. Industry conditions are supportive, top-line momentum is strong, investment income continues to grow, and distribution income is on course for double-digit growth. In my mind, this means we should see mid-teen ROEs in 2024, driving continued growth in book value per share. With that in mind, we are pleased to raise our dividend again by 10% to $1.21 per quarter.

Speaker Change: The outlook is favorable industry conditions are supportive topline momentum is strong investment income continues to grow and distribution income is on course for double digit growth in my mind. This means we should see mid teen Roe's in 2020 for driving continued growth in book value per share.

Speaker Change: With that in mind, we are pleased to raise our dividend again, 10% to about 21 a quarter.

Louis Marcotte: Overall, I am proud of the resilience demonstrated by the business in 2023, the tremendous progress we made in driving outperformance in the UK, and solid top-line growth across all lines of business. Given the strength of our platforms, the outstanding talent at our disposal, and a clear strategic roadmap, we are well positioned for growth and outperformance in 2024 and beyond. With that, we'll give it back. Thank you, Louis.

Speaker Change: Overall I am proud of the resilience demonstrated by the business in 2023, the tremendous progress we made on and driving outperformance in the U K and solid topline growth across all lines of business.

Speaker Change: Given the strength of our platforms the outstanding talent at our disposal and a clear strategic roadmap, we are well positioned for growth and outperformance in 2024 and beyond.

Sugar: With that I'll give it back to sugar.

Sugar: Thank you Louie in order to give everyone a chance to participate in the Q&A. We would ask you to limit yourselves to two questions per person.

Operator: In order to give everyone a chance to participate in the Q&A, we would ask you to limit yourselves to two questions per question. You can certainly re-queue for follow-ups, and we will do our best to accommodate if there's time. Lucille V., we are ready to take questions. Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request, and if you would like to withdraw from the question queue, you will need to press star followed by two.

Sugar: You can certainly in the queue for follow ups and we will do our festival accommodate if there's time at the end.

Speaker Change: We are ready to take questions.

Speaker Change: Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone you will hear a suite on prompt acknowledging your request and if you would like to withdraw from the question queue, you will need to press star followed by two.

Charles Brind'Amour: And we ask, if you're using a speakerphone, to please lift your hands up before pressing any key. Please go ahead and press star 1 now. And your first question will be from Jeff Kwon at RBC Capital Markets. Please go ahead. Hi, good morning. My first question is just about the hard market conditions that you have persisting across essentially all your business lines. I was wondering if you're seeing any signs of change in client behavior, whether or not that's a change in the amount of bundling activity that's going on, changes in coverage, changes in churn rates, that sort of thing. Morning, Jeff, and thanks for your question. I think it's fair to say that we are seeing changes in behavior, I would say primarily in first lines in Canada at the moment. If I look at the changes in behavior observed in the past few months, that's probably where we see the most important change. I'll ask Guillaume to give you his perspective on some of the changes in behavior we're seeing in the marketplace. Thanks, Charles.

Speaker Change: And we have if you're using a speaker phone. Please lift the handset before pressing any Keith. Please go ahead and press Star one now if you have any questions.

Speaker Change: And your first question will be from Geoff Kwan with RBC capital markets. Please go ahead.

Geoff Kwan: Hi, good morning.

Geoff Kwan: My first question is just with the hard market conditions that you have persisting across essentially all your business lines. Just wondering if youre seeing any signs of change in client behavior, whether or not that change in the amount of bundling activity thats going on changes in coverage.

Changes in churn rates that sort of thing.

Speaker Change: Good morning, Jeff.

Jeff: Thanks for your quest.

Jeff: Question.

Jeff: I think fair to say that we are seeing changes in behaviors I would say primarily in personal lines in Canada at the moment, if I look at the changes in behaviors observed in the past few months, that's probably where we see the most important change I'll ask Joan to give U S.

Joan: Perspective on some of the changes in behaviors, we're seeing in the marketplace.

Joan: Thanks sure so.

Guillaume Lamy: So, in personal auto specifically, we've seen the volume of quotes really increase. Canadians are shopping 30% more than last year, and more and more are coming to our digital channel. As such, our digital sales have more than doubled year over year, also benefiting from the integration of our affinity business now leveraging the digital world.

Joan: In personal auto specifically.

We've seen the volume.

Joan: <unk> really increased by Canadians are shopping.

Joan: 30% more than last year, and more and more coming to our digital channel.

Joan: As such our digital sales at more than double year over year also benefiting from the integration of our affinity business now leveraging digital.

Guillaume Lamy: So, on the backbone of this, we made additional marketing investments of more than $10 million in our direct channel, taking advantage of a strong buying ratio, which provides good economics on acquisition costs. On a bundling perspective, we haven't seen much change. I think we've said in the past that most of our business is bundled both in auto property. We see good retention benefits from it, customers being more loyal when they have more products. And now, with the addition of our affinity platform with group benefits and travel, we see that increase, and we see retention benefits. And as such, our retention, even with a high rate increase, is extremely strong in the market. Thanks, Gil.

Joan: Digital tools and.

Joan: So on the backbone of this we made additional marketing investments of more than $10 million in our direct channel taking advantage of strong buying ratio, which provides good economics on acquisition costs.

Joan: On the bundling perspective, we haven't seen much change I think we've said in the past most of our business is bundled both in Idaho property, we see good.

Retention benefit from customers being more loyal when they have more product.

With the addition, fri attunity platform with good benefits and travel we see that the increase and we see retention benefits and as such our retention, even passing I rate increase is extremely strong and the market.

Charles Brind'Amour: I think it is a very good overview. And so, when I look at the environment in which we operate at this moment in the cycle, we've, you know, made sure throughout this high inflationary environment that we price for it as fast as we could. What you've seen in the last six months is a convergence of two things. Canadians are shopping way more, and our competitive position has improved naturally as other countries catch up on the trends that we've been observing for some time now. With the margins being very good, we think this is an excellent environment for us to grow our position. Okay, thank you.

Speaker Change: Thanks you.

Speaker Change: It is a very good overview and so when I look at the environment in which we operate and the moment in the cycle.

Speaker Change: You know made sure throughout this high inflationary environment that we price for and as fast as we could.

Speaker Change: What you've seen in the last six months is a convergence of two things first.

Speaker Change: Canadians are shopping weigh more in our competitive position as improve naturally as other catch up on the trends that we've been observing for some time now with the margins being very good. We think this is an excellent environment for us to grow our <unk>.

Speaker Change: <unk>.

Speaker Change: Okay. Thank you and just my second question is on Canada commercial in the U S. Commercial we saw the year over year growth rate in DPW, increasing throughout Q2 2023, but in Q4, there was a sequential decline in that year over year growth rate I know you talked about in Canada. I think there was some comments around kind of.

Charles Brind'Amour: And just my second question is on Canada commercial and the U.S. commercial, we saw the year-over-year growth rate in DPW increasing throughout 2023, but in Q4, there was a sequential decline in that year-over-year growth rate. I know you talked about Canada commercial. I think there were some comments around kind of competition, but just wanted to get a little bit more insight in terms of that change we saw in Q4 in Canada commercial and what kind of gives what's going to drive that upper single-digit growth for 2024. And then in the U.S., if there's any kind of color that you'd say is going to see that.

Speaker Change: Competition, but just wanted to get a little bit more insight in terms of that.

Speaker Change: Change we saw in Q4 in Canada, commercial and what kind of gives what's going to drive that upper single digit growth for 2024, and then in the U S. If theres any kind of color that.

Speaker Change: It says it is good to see that.

Darren Godfrey: Again, the upper single digit that you would expect for 2024. Yeah. Jeff, I think you're right. There were slight differences in Q4. I'll ask Darren to give you his perspective on Canadian growth as well as the change you've observed in the U.S. Yeah, thanks for the question, Jeff. When I start, first of all, with the Canadian portfolio, it's a little bit of two different stories here. When I look at the Main Street commercial lines operation, continuation really of that sort of mid-single-digit growth that we've seen throughout all of 2023. Driven by rate, our retention remains strong.

Speaker Change: Again, the upper single digit that you expect for 2024.

Speaker Change: Yes, Jeff I think Youre right Theres spin.

Speaker Change: Slight differences in Q4, I'll ask Darren to give you a perspective on the Canadian.

Darren Godfrey: Growth as well as the change you've observed in the U S.

Darren Godfrey: Yes. Thanks for the question, Jeff when I start first of all with the Canadian portfolio, it's a little bit of.

Darren Godfrey: Two different stories here when I look at the main street commercial lines operation.

Darren Godfrey: Continuation really of that sort of mid single digit growth that we're seeing throughout all of 2023.

Darren Godfrey: Driven by rate how retention remains strong our completed quotes are up sequentially, 25% versus the prior year and we've been doing a fair bit of work in terms of enabling technology through machine learning algorithms to really improve the funnel so to speak from submission to quote to bind.

Darren Godfrey: Our completed quotes are up sequentially 25% versus the prior year. We've been doing a fair bit of work in terms of enabling technology through machine learning algorithms to really improve the funnel, so to speak, from submission to quote to bind. What happened in Q4 was more of a specialty lines, I would say noise. So we were essentially flat in the quarter, and that was primarily driven by a number of different sources. One was we've made some strategic exits. And if you can remember back in Q1, we saw something similar as well, where we were getting off large programs or single accounts where we continued to be focused on profitability, and they weren't meeting sort of where we wanted to be from a pricing standpoint. So we exited strategically, as I said, either some large programs or some single one-off accounts.

Darren Godfrey: What happened in Q4 was more of a specialty lines.

Darren Godfrey: I would say noise. So we were essentially flat in the quarter and that's primarily driven from a number of different sources. One was we made some strategic exits and if you can remember back in Q1, we saw something similar as well to where we were getting off large programs or single accounts, where we continue to be focused on profitability.

<unk> and <unk> meeting sort of where we wanted to be from a pricing standpoint. So we exited strategically as I said, either some large programs or some single one off accounts.

Darren Godfrey: We did, as we noted in Charles' remarks and in the MBA, we are seeing a little bit of increased pressure in the large account space. Now the large account space for us, just to put in some context, is only about 10% of our total commercial lines volume. So yes, it has put a little bit of pressure on specialty lines, but in aggregate, not that significant. And then there were some one-offs as well too.

Darren Godfrey: We did as we noted in childhood remarks and in the NDA, we are seeing a little bit of increased compression of increased pressure in the large account space now the large account space for us just to put in some context is only about 10% of our total commercial lines' volume so yes it.

Darren Godfrey: Has a little bit of pressure on specialty lines has been in aggregate, but significant and then there were some one offs as well. So you can think about.

Darren Godfrey: You can think about the writers and actors striking entertainment caused a little bit of pressure in Q4 as well. So a number of different pieces there, but when I think about the general market environment and the rating action that we're taking, we're consistently in that sort of mid to high single-digit range, both in commercial lines and in specialty lines. We continue to also increase amounts of insurance to reflect the inflationary pressure on the property side too. So we're continuing to get good momentum from a renewal and from new business books. And obviously, as you would expect, increases are targeted and segmented to reflect profitability. So, when I take a step back and I look at the path we're on from a CL standpoint, and when we sort of discount or minimize some of the noise from, especially lines in Q4, we remain pretty confident that we'll see that sort of mid to upper single-digit range in 2024.

Darren Godfrey: The writers and actors striking entertainment caused a little bit of pressure in Q4, as well too so a number of different pieces there.

Darren Godfrey: When I think about the general market environment in the rating action that we're taking we're consistently in that sort of mid to high single digit range. Both in commercial lines and in specialty lines. We continue to also increase amounts of insurance to reflect the inflationary pressure on the property side too. So we're continuing to.

Darren Godfrey: Get good momentum from a renewal and from new business book and obviously as you would expect increases are targeted and segmented to reflect profitability.

Darren Godfrey: So when I take a step back and I look at the path to run from a C. L standpoint, and when we sort of discount or minimize some of the noise from our specialty lines in Q4.

Darren Godfrey: We remain pretty confident that we will see that sort of mid to upper single digit range. In 2024, we may see some noise from quarter to quarter, if we need to take some actions on particular accounts, but otherwise I think our view is is quite favorable moving forward from a U S standpoint, when I look at the growth here. It is our most profitable.

Darren Godfrey: We may see some noise from quarter to quarter if we need to take some actions on particular accounts, but otherwise, I think our view is quite favorable moving forward. From a US standpoint, when I look at the growth here, it is our most profitable lines that we're seeing growth in. You can think about our commercial surety book, you can think about our excess property in the marine sector, and our frame builders' risk as well too. So, we are managing the cycle quite well. We are very much in hard market conditions, but we do, obviously, as we flagged before, see some softness in our professional lines. So, the teams are doing a great job assuming management liability. You can think about FI, you can think about cyber, where there's some pressure there.

Darren Godfrey: All lines that we're seeing the growth in the U S. You can think about our commercial surety book you can think about our excess property in the marine al.

Darren Godfrey: Al.

Darren Godfrey: Frame builder's risk as well too. So we are managing the cycle quite well we are very much hard market conditions, but we do obviously as we flagged before see some softness in our professional lines. So the teams are doing a great job. Both in management liability you can think about <unk> you can think about cyber where there is some pressure there now having said that.

Darren Godfrey: Now, having said that, in each of those lines of business, that's coming off multiple years of rate increases. So, even though rates are coming back a little bit, they're not accelerating. We're still well above our risk-based premium, so we're still confident in terms of where we're positioned today. So, when I package all that together, from a US standpoint, I would expect going forward, we're in that sort of mid to upper single digit range going forward. So, Jeff, in a nutshell, the debt you've seen in Q4 in Canada is driven by a number of large accounts, either driven by us or by the market.

Darren Godfrey: In each of those lines of business, that's coming off multiple years of rate increases so even though rates are coming back a little bit it's not accelerated we still well above our risk base premiums that were still comfort in terms of where we are positioned today. So when I package all that together for.

Darren Godfrey: From a U S standpoint, I would expect going forward or in that sort of.

Darren Godfrey: Mid to upper single digit range going forward.

Jeff: So Jeff.

Jeff: That shell that you've seen in Q4 in Canada was driven by a number of large account either driven by us or by the market.

Charles Brind'Amour: And in the U.S., I would say, more specifically, you've seen 18% growth in the U.S., while the Q4 growth number was 9%. This was primarily driven by the fact that we had the acquisition of Island and MGA that really helped the growth profile, and Q4 at 9% is probably more in the zone of what one should expect. But a very good environment, and happy to grow in it.

Jeff: And in the U S. I would say more specifically you've seen 18% growth in the U S. While the Q4.

Jeff: Growth number was 9% this was primarily driven by the fact that we add the acquisition of Ireland.

Jeff: <unk> that.

Jeff: Really help the growth profile and Q4 at 9% is probably more in <unk>.

Jeff: Of what one should expect but very good environment and happy to grow in it.

Operator: Okay, perfect. Thank you. Thank you. The next question will be from Tom McKinnon at BMO Capital. Please go ahead. Yeah, thanks. Good morning.

Speaker Change: Okay perfect. Thank you.

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

Tom Mackinnon: Yes, thanks, good morning.

Louis Marcotte: Just a question about the favorable PYD we're seeing here, kind of trending to the high end or slightly above that two to four range you've talked about. Should we expect it to be towards the higher end of that range in the near term? What is driving some of it, especially with respect to Allianz in the U.K. and I. Thanks.

Tom Mackinnon: Just a question about the favorable <unk> were saying here.

Tom Mackinnon:

Tom Mackinnon: Trending to the high end or slightly above that two to four hours.

Tom Mackinnon: Range you've talked about.

Are we should we expect it to be towards the higher end of that range in the near term what is driving some of it especially with respect to what we're seeing I guess in some commercial lines in the U K and I in commercial lines as well and in personal auto.

Louis Marcotte: Sure. So Tom, you're right, 5.2%. Our midterm guidance is 2 to 4. There are a couple of areas that have come in strongly in the quarter. We're not surprised because of the prudence we applied over the past couple of years, particularly during the COVID crisis. So we were expecting to be at the upper end of our range. We're doing a bit better.

Speaker Change: Sure So Tom Youre right, it's five 2% we've been.

Speaker Change: Our midterm guidance as two to four there's a couple of areas that have come in strongly in the quarter, we're not surprised because of the prudent we applied over the past couple of years, particularly during the Covid crisis. So we were expecting to be at the upper end of our range, we're doing a bit better some stuff has come in in the quarter you have seen.

Louis Marcotte: Some stuff has come in during the quarter. You've seen it very favorable in commercial lines, UK, for example. I think our view is we'll be at the upper end in the short term, but we should progressively revert to the official range. I would point out that the range is expressed, I would say, on an annual basis, and it's for IFC as a whole. So it's not necessarily every line of business, every region that falls into that range, but overall, we should fall within the range. So 5.2% is above.

Speaker Change: The favorable in commercial lines UK for example.

Speaker Change: I think our view is we'll be at the upper end in the short term, but we should revert to progressively towards that the official range I will point out that the ranges expressed I would say on an annual basis and as for IFC as a whole. So it's not necessarily every line of business every region that falls into that range, but overall.

Speaker Change: Should fall within the range of 5.2 is above we're happy with where we stand there very strong reserve position very strong balance sheet.

Louis Marcotte: We're happy with where we stand there. A very strong reserve position, a very strong balance sheet. But over time...

Speaker Change: But over time.

Speaker Change: I would expect to revert back towards.

Louis Marcotte: I would expect it to revert back towards the range in the mid-term. And the reason it's higher now is that just Food and Supply through COVID is starting to unwind. Is that what you think... Is that how we should characterize that? It's a combination of factors depending on where you look.

Speaker Change: Towards the range in the mid term.

And the reason it's higher now is that just prudent supplied through Covid is starting to unwind is that would you is that how we should characterize that.

<unk> combination of <unk>.

Speaker Change: Sector, depending on.

On where you look I think in in personal automobile.

Louis Marcotte: I think in personal automobile insurance in Canada, as we've said, I think we've seen a change in the frequency profile, but we took our time to recognize that in long-tail lines of business. We still see some of these frequency benefits in the current accident year. We're taking a similar cautious position, and so I think, especially in long-tail lines, we tend to take our time before fully recognizing favorable trends, and I think you're seeing that. COVID is a fraction of that, but there are still favorable trends being observed. Then, if you look at the U.K.

Speaker Change: Canada as we've said I think we've seen a change in the frequency profile, but.

Speaker Change: We took our time to recognize that in long tail lines of business, we still see some of these frequency benefits in the current accident year, we're taking a similar cautious.

Speaker Change: Position and so I think.

Speaker Change: We especially in long tail lines, we tend to take our time before fully recognizing favorable trends and I think youre seeing that COVID-19 is a fraction of that but.

Speaker Change: But there are still favorable trends being observed and then if you look at the U K.

Louis Marcotte: When we entered the UK in June 2021, we looked at personal lines and commercial lines. We felt we needed to take a cautious stance on the commercial lines portfolio as we improve performance, and I think that is paying off at the moment. In aggregate, when we look at where we are, and that includes the U.S., we do feel that we'll be operating at the top end of this range in the coming environment, all else being equal. Okay, thanks for the color.

Speaker Change: When we entered the U K in June 2021.

Speaker Change: We looked at first lines, we looked at commercial lines felt we needed to take.

Speaker Change: Cautious stance on the commercial lines portfolio as we improve performance and I think that is.

Speaker Change: That is paying off.

Speaker Change: The moment in.

Speaker Change: In aggregate when we look at where we are and that includes the U S.

Speaker Change: We do feel that we will be operating at the top end of this range in the coming environment all else being equal.

Speaker Change: Okay. Thanks for the color.

Louis Marcotte: Thank you. The next question will be from Doug Young at Desjardins Capital Markets. Hi, good morning.

Speaker Change: Thank you.

Speaker Change: Next question will be from Doug Young at Vishal Bank capital markets. Please go ahead.

Louis Marcotte: Just maybe Louie, you mentioned a little bit about DLG and the contribution, you know, being on plan. Can you maybe give a little bit more color around the contribution from that acquisition this quarter? Like, what was the contribution to operating EPS?

Doug Young: Hi, Good morning, just maybe Louie.

Doug Young: You mentioned, a little bit about the LG and the contribution being on plan.

Doug Young: Can you talk maybe give a little bit more color.

Doug Young: Around the contribution from that acquisition this quarter like what was the contribution to operating EPS.

Ken Anderson: top line to underwriting profit to PYRD. I don't know what you can share but just trying to get a sense of how it came through this quarter and what it means. Thanks Doug. Why don't we ask Ken, maybe, to give his perspective? He's closest to this one.

Doug Young: The topline to underwriting profit <unk> I don't know what you can share, but just trying to get a sense of.

Doug Young: How it came through this quarter and what impact.

Doug Young: Thanks, Doug why don't we ask Ken maybe to give his perspective.

Ken Anderson: Tobey, it's caused us to this one.

Ken Anderson: Yeah, and thanks Doug. Firstly, in relation to Q4, so you know, as you know, we began recording that business on our books from October 1st in the form of a quota share. We're obviously assuming no claims liabilities from the past on this business and only exposure on the premiums earned from October 1st. In the fourth quarter, we did have some weather losses in the regular portfolio, above expectations, as I said, in line with the rest of the commercial business in the UK. We're taking a pretty cautious stance, though, as we build reserves on the earned premiums, you know, consistent with the usual reserving practices that we follow. I would say, excluding that excess weather performance is in line with expectations at this early stage, and premiums were about £150 million. You know, as we say in the MD&A, the overall UK&I business is running at a low 90s level from an underlying performance point of view.

Ken Anderson: And thanks, Doug.

Ken Anderson: Firstly, I guess in relation to Q4 so.

You know we began recording that business on our books from October 1st in the form of a quota share.

Ken Anderson: We are obviously, assuming no claims liability from the past on this business the only exposure on the premiums earned from October one.

Ken Anderson: And in the fourth quarter, we did have some weather losses like the regular portfolio above expectations as I said in line with the rest of the commercial business in the UK.

Ken Anderson: We're taking a pretty cautious stance, though as we build reserves on the earned premiums.

Ken Anderson: Distant with the usual reserving practices that we follow.

Ken Anderson: I would say excluding that excess weather performance is in line with expectations. At this early stage and premiums were about 150 million pounds.

Ken Anderson: As we say in the MD&A. The overall UK ni business is running at a low ninety's level from an underwriting and underlying performance point of view.

Ken Anderson: In terms of the DLG business specifically, there's a clear action plan to improve performance in some specific segments that we acquired, and the team is already taking action in line with that plan. So synergies are 20 million pounds that will emerge as the business migrates and integrates onto our own platform. If you look out to 2024, I guess from a top line perspective, you know, we acquired about £530 million of premium in 2022. There has been growth in the portfolio in 2023, but of course, we will be taking remediation action on some segments as we take control of the business. So overall, I would say north of that £530 million is a good indicator for 2024, and from a bottom line perspective, we talked about running the UKNI business at a 92 combined ratio, including the DLG business, in 2024 and that improving further as we realize those synergies. Do we have any color or anything else you want to add?

In terms of the Dod.

Specifically there is a clear action plan to improve performance in some specific segments that we acquired and the team are already taking action in line with that plan. So.

Ken Anderson: Synergies are 20 million pounds that will emerge as the business migrates and integrate onto our own platform.

If you look out to 2024 I.

Ken Anderson: I guess from a topline perspective.

Ken Anderson: We acquired about 530 million pounds of premium in 2022, there has been growth in the portfolio in 2023.

Ken Anderson: Of course, we will be taken remediation action on some segments.

Ken Anderson: As we take control of the business.

Speaker Change: So overall I would say no.

Speaker Change: North of that 530 million pounds is a good indicator for 2024.

Speaker Change: And from a bottom line perspective.

Speaker Change: We talked about running the UK ni business at a 92 combined ratio, including the <unk> business in 2024, and that's improving further as we realize those synergies.

Speaker Change: Yes.

Speaker Change: Color anything else do you want to add.

Louis Marcotte: Well, I think Ken covered it really well. I think it's in line with expectations. The first quarter is a bit noisy, I would say.

Speaker Change: Well I think Ken covered it released.

I think it's in line with expectations the first quarter is a bit.

Speaker Change: Noisy I would say.

Louis Marcotte: Just because we're integrating, we're picking up another premium book, so we're taking action on all of it. But I'm not sure I can add a lot to what Ken has stated.

Speaker Change: Because we are integrating we're picking up.

Speaker Change: And under our premium book, So we're taking action on all of it but I'm not sure I can add a lot to what Ken Let's say no I would say.

Charles Brind'Amour: No, I would say, you know, the first observation I would make on the DLG acquisition from a financial point of view is that there's more business coming our way than what we had anticipated at the start. The market is hard. They've grown into that hard market.

First observation I would make on DLC acquisition from a financial point of view there is more business coming our way than what we had anticipated at the start there's been in market as hard they've grown into that hard market.

Charles Brind'Amour: The second point I would make is that, as Ken said, we're not taking past liabilities. So it is a buildup of current accidents here. We're making sure that business is reserved at the sort of standards that we reserve at, and that drives the track record we've been talking about. There are pockets of the portfolio that we knew needed work. I'm quite impressed with how robust the actions are.

Ken Anderson: Second point I would make is that.

Speaker Change: As Ken said.

Speaker Change: We're not taking past liabilities. So it is a buildup of current accident year, we're making sure that business is reserve that the sort of standards that we reserve at and that drives the track record. We've been talking about there are pockets of the portfolio. We knew needed work I'm quite impressed with our road.

Speaker Change: <unk>.

Speaker Change: The actions are.

Charles Brind'Amour: And I think we're, you know, the price point is very good as well. Thanks. And then just a second question, and I don't know, maybe how you can answer this, but I'll just throw it out there. I mean, I guess we're hearing more chatter, news articles around home and auto coverage, affordability, inflation, and I'm just trying to gauge and your thoughts, more specifically, I guess, around political risk with this narrative. And, you know, obviously, personal automobile is heavily regulated, while personal property isn't. But, you know, is there a risk here? I would just love any color you have on that, Charles.

Speaker Change: <unk>.

Speaker Change: And I think were price point very good as well.

Speaker Change: Thanks, and then just second question.

Speaker Change: Maybe how you can answer this but I'll just throw it out there I mean, I guess, we are hearing more chatter news articles around auto.

Speaker Change: Auto coverage affordability inflation.

Speaker Change: And I'm just trying to gauge in.

Speaker Change: Your thoughts.

Speaker Change: More specifically I guess around political risk with this narrow Doug and obviously personal auto is heavily regulated personal property isn't but yes. It.

Speaker Change: Is there a risk here.

Speaker Change: I'd Love any color you have on that Charles.

Charles Brind'Amour: Yeah. There's always risks, Doug, and you've been around this file for a long time, like I have, that the flashpoint at the moment is Alberta. There hasn't been much change in the past few months. I don't think there's an issue in Alberta. At least that's not what consumers are saying. It's purely political.

Speaker Change: Yes.

Charles: There is always risks, Doug and you've been around this file for a long time as I have.

Charles: The the flash point at the moment is Alberta, there hasnt been much change in the past few months I don't think there is an issue.

Charles: In Alberta at least that's not what consumers are saying, it's purely political and and because of that I don't see a risk of spinach. The way we've seen in 'twenty two.

Charles Brind'Amour: And because of that, I don't see a risk of spillage, the way we saw in 2001, 2002, 2003, where there was, you know, a lot of pressure on the system across the board. And what really triggered, you know, political involvement back then was that there was an availability issue. First, people had a hard time insuring themselves, and then, indeed, an affordability issue.

Charles: <unk> 2001, 2002, 2003, where there was a lot of pressure in the system across the board.

Charles: What really triggered.

Charles: You know put ethical involvement back then was that there wasn't an availability issue first people at a hard time ensuring themselves.

Charles: And then indeed, an affordability issue in one year or a combination of both these things.

Charles Brind'Amour: And when you have a combination of both these things, then that becomes an issue for citizens, and for well-intended politicians, this is then an issue. I don't think that is the case right now in the market, and I think people understand there's a lot of focus on tests. Not the insurance companies, right? It's the thieves that are the problem.

Charles: Then that becomes an issue for citizens and for well intended politicians. This has been an issue.

Speaker Change: I don't think it is the case right now in the market and I think people understand there is a lot of focus on test.

Speaker Change: It's not the insurance companies right. It's the teams that are the <unk>.

Charles Brind'Amour: And I'm, you know, I like the fact that governments are focused on the root cause of the issue. And so, I do think it's a risk, Doug, but... I wouldn't put it in the red box at this stage. We stay focused on it, and then we try to work with the Alberta government to be focused on what's good for Albertans. Thank you. I appreciate it, Cal.

Speaker Change: <unk>.

<unk>.

The fact that governments are focused on the root cause of the.

Speaker Change: The issue.

Speaker Change: And so I do think it's the risk Doug, but I wouldn't put it in the Red box at this stage, we stay focused on it and then we tried to work with the Alberta, Alberta government to be focused on what's good for all burdens.

Speaker Change: Okay I appreciate the color.

Operator: Thank you. The next question will be from Lama Prasad at Cormark Securities. Thanks. My question is, maybe, for Louis.

Speaker Change: Thank you.

Speaker Change: Next question will be from Lamar Prasad at core Mark Securities. Please go ahead.

Lamar Prasad: So my question is maybe for Louis I wanted to come back to the these deferred tax laws.

Louis Marcotte: I want to come back to these deferred tax laws, for a tax ad, and the potential utilization there. You did mention that it could cause a swing in the operating tax from 23 to 24, kind of suggested. How should we think about that for 2024 and 2025? Is there any restriction on the use of these losses, like how material of an impact it could have on the operating tax rate? Sure, so these tax recoveries are booked as we update our projections, financial projections in the UK, and we're sort of allowed to recognize some recoveries based on those forecasts. So the company has accumulated a lot of tax losses in the past, and not surprisingly, as we're improving the performance of our business, we're making projections that are obviously more profitable, and therefore, we can recognize more.

Lamar Prasad: Deferred tax assets and the <unk>.

Lamar Prasad: Potential utilization there you did mentioned that it could.

Lamar Prasad: It could cause of the swing in the operating tax rate from the 2023% to 24%.

Kind of suggested.

Speaker Change: How should we think about that.

Speaker Change: For 2024, and 2025 is there is there any restriction on the use of these losses like how material.

Speaker Change: Material of an impact could it have on the operating tax rate any thoughts would be helpful.

Speaker Change: Sure. So these.

Speaker Change: Tax recoveries are booked as we update our projections financial projections and the U K and we're sort of allowed to recognize some recoveries based on those outlook. So the company has accumulated a lot of tax losses in the past.

Speaker Change: Not surprisingly as we are improving the performance of our business.

Speaker Change: Getting because we're making projections that are obviously more profitable and therefore, we can recognize more my expectation here from if I would say modeling point of view the updates will probably come in lumps, meaning annually at least we'll see an update to our projections and adjusted DTA Accordingly, given the trajectory.

Louis Marcotte: My expectation here, from, if I would say, a modeling point of view, the updates will probably come in lumps, meaning annually at least we'll see an update to our projections and adjust the DTA accordingly. Given the trajectory we're setting for ourselves, I assume that's going to be a tailwind to the tax rate in the future, but it's not going to happen on a quarterly basis. The projections tend to change a bit more significantly annually. So my expectation is you'll see it come in probably once or twice a year at most, and it's likely to be a bit of an improvement to the tax rate. My sense is 23-24 is a base rate, and then we'll probably shave, hopefully, a point or two in the future from additional tax recoveries.

Speaker Change: We're setting for ourselves I assume that's going to be a tailwind to the tax rate.

Speaker Change: The future, but it's not going to happen on a quarterly basis, the projections tend to change a bit more significantly annually. So my expectation is you'll see it come in probably once or twice a year.

At most.

Speaker Change: <unk>.

Speaker Change: It's likely to be a bit of an improvement to the tax rate.

Speaker Change: My sense is $23 24, as a base rate and then we'll probably shave hopefully a point or two in the future.

From additional tax recoveries can't guarantee it but that's my expectation and that's the trajectory we're setting for ourselves in terms of the UK business is good upside and every time, we improve the profitability profile of the UK business.

Louis Marcotte: I can't guarantee it, but that's my expectation and that's the trajectory we're setting for ourselves in terms of the UK business. It's good upside, and every time we improve the profitability profile of the UK business, we can tap into this large pool of historical operating losses, and obviously we're focused on improving the profitability of the business or Profile in the UK. And it's a very nice add-on that this brings. Ken, I don't know if there's anything else you want to add?

Speaker Change: We can tap into this large.

Speaker Change: Cool.

Speaker Change: Historical operating losses, and obviously, we're focused on improving the profitability business.

Speaker Change: Our profile in the U K and it's a very nice add on.

Speaker Change: This brings Ken I don't know if theres anything else you want to add.

Louis Marcotte: No, that covers it. Do you agree we're focused on profitability in the UK? We are.

Ken Anderson: That covenant you agree we're focused on the profitability in the UK.

Louis Marcotte: Then I want to turn to these restructuring costs. I saw that you guys are suggesting that there could be more over the next three years. I wonder if you could size that up. Should we think about it as being in the range of the $250 million range that we saw in 2023? And then, could you add some color on this?

Speaker Change: Sure.

Speaker Change: Yes.

Ken Anderson: Good to hear that answer your question.

Speaker Change: Thank you.

Speaker Change: Then I wanted to turn to these restructuring costs.

Speaker Change: I saw that.

Speaker Change: Guys are suggesting that there could be more over the next three years I'm wondering if you could size that up should we think about it as being in the range of that I guess $250 million range that we saw in 2023, and then could you add some color on this like specifically what types of costs are embedded in this restructuring.

Louis Marcotte: Specifically, what types of costs are embedded in this restructuring? Like, is it people? Is it footprint? Any color there would be helpful.

Speaker Change: Like is it people is it.

Speaker Change: Footprint.

Any color there would be helpful and then.

Louis Marcotte: And then, are there any offsets to this? Because I know you guys mentioned an offset. 2024, what about 2025? All right, very good question. Let me start and then I'll share the answer with Ken here, and I'll focus on the overall group.

Speaker Change: Are there any offsets to this because I know you guys mentioned, an offset in 2024, what about 2025 26.

Speaker Change: Alright, very good question, let me start and then I'll share the answer with Ken here and I'll focus on the overall group, but you are basically having three types of costs in there the restructuring costs, which are tend to be cost when we change the nature of the business.

Louis Marcotte: But you're basically having three types of costs in there, the restructuring costs, which tend to be costs when we change the nature of the business through significant actions like we're doing right now with the PL exit. That's really the fundamental driver right now in terms of restructuring. We have integration costs, which are directly related to the acquisitions, which you know, when we talk about when we announce our acquisitions, we do expect acquisition and integration costs to be incurred.

Speaker Change: Through significant actions like we're doing right now with the Pls exit that's that's really the fundamental driver right now in terms of restructuring we have integration costs, which are directly related to the acquisitions.

Speaker Change: Which as you know when we talk about when we announced our acquisitions, we do expect acquisition and integration costs to be incurred and those are ongoing and close to the acquisition date you'd expect more of these costs to be incurred over the couple of years afterwards, and I am pointing out here, the RSA transaction, which we closed in 2021.

Louis Marcotte: And those are ongoing, and close to the acquisition date, you'd expect more of these costs to be incurred over the couple of years afterwards. And I'm pointing out here that for the RSA transaction, which we closed in 2021, we're still seeing a fair bit of integration costs going through the non-operating items because we are incurring those costs. We have mapped them out over time, but you're still seeing some of those costs being incurred at this point in time. So the big buckets are restructuring, for example, the PL exit, integration, the RSA acquisition, the DLG acquisition, and then acquisition costs, which would be fairly close to the acquisition dates, items like legal fees, and consulting fees that are strictly related to the acquisition. So those are the components of what's been going on with non-operating items.

Speaker Change: We're still seeing a fair bit of integration costs going through in the non operating items.

Speaker Change: Because we are incurring those costs.

Speaker Change: Mapped them out over time, but youre still seeing some of those costs being incurred at this point in time. So the big buckets are restructuring for example, the <unk> exit integration the RSA acquisition, the <unk> acquisition, and an acquisition cost, which would be fairly close to the acquisition dates items like legal fees consulting fees.

Speaker Change: Fees that are strictly related with the acquisition. So those are the components of whats been going through nonoperating items right now youre seeing a lot of activity, obviously, because we're still doing the RSC acquisition or integration, we are adding the <unk> exits in the UK and we are buying the <unk> assets concur.

Louis Marcotte: Right now, you're seeing a lot of activity, obviously, because we are still doing the RSA acquisition or integration. We are adding the PL exit in the UK, and we are buying the DLG assets concurrently. So that creates a lot of activity in the non-operating items. I'll pass it on to Ken. Maybe he can share a bit of his view now on what's going on from the UK point of view, because that's where we're incurring most of the activity right now. Yeah, thanks, Louis.

Speaker Change: Concurrently so that creates a lot of activity in the nonoperating items.

Speaker Change: I'll pass it onto Ken maybe you can share a bit of as you know and what's going on from the UK point of view, because that's where we're incurring most of the activity right now yeah. Thanks, Louise so firstly in relation to restructuring which is around.

Ken Anderson: Exits in 2024, we're expecting approximately $120 million of restructuring costs relating to that exist.

Ken Anderson: So firstly, in relation to restructuring, which is around the PL exit, in 2024, we're expecting approximately $120 million of restructuring costs relating to that PL exit, which we expect to be more than offset by the proceeds from the sale of the business. More than half of those costs are non-cash and relate to software intangible write-offs and accelerated depreciation on technology. The remainder would cover data extraction, migration of policies and systems to new providers, and some potential redundancy costs. Obviously, the amount of these costs is somewhat contingent on the nature and timing of the transfer of the partnership arrangements. But as I said, all are expected to be more than offset by the proceeds of the sale of the PL business in 2024. Looking out to 2025 and 2026, we'd expect them to be much lower. And again, based on the timing of the exit of the partnership business, if we look at the integration costs, specifically relating to the DLG acquisition, we'd expect costs in the range of about $50 million in 2024.

Ken Anderson: Which we expect to be more than offset by the Perl that proceeds from the sale of the business.

Ken Anderson: More than half of those costs are noncash and relate to software intangible write offs and accelerated depreciation on.

Ken Anderson: On technology, the remainder would cover data extraction migration of policies and systems to new providers and some potential redundancy costs.

Ken Anderson: Obviously the amount.

Ken Anderson: Of these costs is a bit contingent on the nature and timing of the transfer of the partnership arrangements, but as I said all are expected to be more than offset by the proceeds of the sale of the <unk> business. In 2024, we look out to 2025, and 2026, and we would expect them to be much lower and again based on the <unk>.

Ken Anderson: <unk> of the exit of the partnership business.

Ken Anderson: If we look at the integration cost specifically relating to the DRG acquisition, there we'd expect cost in the zone of about $50 million. In 2024. This covers technology and people cost to integrate and deliver that enhanced at joined up commercial lines.

Ken Anderson: <unk> for customers.

Ken Anderson: There has been also cost to enable the realization.

Ken Anderson: This covers technology and people costs to integrate and deliver that enhanced, joined-up commercial lines proposition for customers. There are also costs to enable the realization of the synergies, which is that $35 million of synergies that Louie mentioned earlier. Again, in 2025 and 2026, we'd expect those numbers to be much smaller. So those are the two main buckets from a UK point of view, the PL restructuring and then the DLG integration. Correct.

Ken Anderson: Of the synergies at.

Which is that 35 million synergies that we mentioned earlier again in 2025 and 2026, we would expect those numbers to be much smaller.

Ken Anderson: So those are the two main buckets from the UK point of view.

Ken Anderson: PL restructuring and then the DMG integration correct and the last item on 2024 that significantly is the completion of the Argos integration.

Ken Anderson: And there is still probably a bit north of $100 million left over there as we wrap up.

Louis Marcotte: And the last item on 2024 that's significant is the completion of the RSA integration, and there's still probably a bit north of $100 million left over there as we wrap up all the IT platforming with regard to the RSA acquisition. So a fair bit of activity still expected in 2024, but it's going to be a fraction of what we had in 2023, and that's going to come down massively as we get further away from the acquisitions and have them fully integrated, and maybe a better alternative is north of 20% so is the accretion. When you look at the economics of the deal... This was under book value, including Canada. Our entry point into the UK was very low.

Ken Anderson: Right.

Ken Anderson: Platforming.

Ken Anderson: With regards to the DRC acquisition.

Ken Anderson: So a fair bit of activity is still expected in 2024.

Ken Anderson: Is going to be a fraction of what we had in 'twenty three and that's going to come down massively as we get further.

Ken Anderson: Way from the acquisitions and have them fully integrated.

Speaker Change: Yes, maybe.

Speaker Change: Oh, sorry.

Speaker Change: Context on the Pls exit.

Speaker Change: If you think about the RSC transaction, we talked about the fact that <unk>.

Speaker Change: R&D RSC transaction.

Speaker Change: Is north of 20% so is the accretion.

Speaker Change: When you look at the economics of the deal.

Speaker Change: This was some book value, including Canada.

Speaker Change: Our entry point in the UK.

Speaker Change: It was very low.

Charles Brind'Amour: And when you take all this noise in the economic model, you can assume that we're exiting P.L. in the U.K. at and around book value, which is well above our entry point in the U.K. market. And so a bit of noise economically, strategically; I think another very good move. No, and one has to recognize that restructuring costs are a fraction of the synergies when you annualize them. So, it makes sense, but it does make some noise in the non-operative section. I appreciate the call; that was very comprehensive. Thank you. The next question will be from James Gloyne at National Bank Financial. Please go ahead. Yeah, thanks. Good morning.

Speaker Change: And when you take all this noise in economic model you can assume that we're exiting <unk> in the U K in and around book value.

Speaker Change: Which is.

Speaker Change: Well above our entry point in the UK market.

Speaker Change: And so bit of noise economically and strategically.

Speaker Change: Another very good move.

Speaker Change: And one has to recognize restructuring costs are a fraction of the synergies when you annualize them. So it makes sense, but it does make it does bring some noise in the non engineered section.

Speaker Change: I appreciate the color that was very comprehensive thank you.

Speaker Change: Thank you next question will be from James <unk> with National Bank Financial. Please go ahead.

James: Yes, thanks, good morning.

Operator: I wanted to just go back to personal auto. And if I recall, it was your guidance to kind of look at the current accident year and the PYD together to sort of evaluate the performance of that business. Obviously, the elevated PYD and Q4-22 make that a bit challenging. I just wanted to get a little bit more color then in terms of what's driving the current accident year. If I look sort of at where expectations were, it didn't quite meet those expectations.

James: Wanted to just go back to personal auto.

James: And if I recall it was your guidance to kind of look at the current accident year.

James: The <unk> together to sort of evaluate the performance of that business, obviously that the elevated <unk> in Q4, 'twenty two makes that a bit challenging.

James: I'm just I just wanted to get a little bit more color in terms of whats, what's driving current accident year, if I look sort of at where expectations were it didn't quite meet those expectations. So is there is there is it a case of being a lot more elevated perhaps.

Patrick Barbeau: So is it a case of theft being a lot more elevated perhaps than maybe previously thought? Or are there, you know, other inflationary pressures that are lingering perhaps longer than perhaps you would have thought? Well, thanks for your question.

James: And then maybe <unk>.

James: Obviously thought or are there.

James: Other inflationary pressures that are lingering perhaps longer than that than perhaps you would've thought.

Speaker Change: Well. Thanks for your question I would say, yes, I think you still need to look at the current accident year and the prior year as part of the same equation, because we continue to exert some caution.

Patrick Barbeau: I would say, yes, I think you still need to look at the current accident here and the prior year, you know, as part of the same equation because we continue to exert some caution on the current accident here, in particular, with long tail lines. It might be worth, Patrick, to give his perspective on the inflation we're seeing, then we'll ask Guillaume to connect the dots with pricing as well. Perfect.

Speaker Change: The current accident year in particular.

Speaker Change: With long tail lines it might be worth Patrick give his perspective on the inflation, we're seeing and then we will ask Jan to connect the dots with with pricing as well perfect no.

Patrick Barbeau: You know, the severity increase in Q4 was in the mid-single-digit range, as we mentioned before. This is much in line with what we had observed in Q3. And I would say that the severity trend is in that mid-single-digit zone now for all coverages, whether we look at car repairs, the cost of total losses, including tax, and injuries. And maybe to be a bit more specific, if I look at car repairs, the availability of car parts now is back to pre-pandemic levels pretty much for all brands.

Speaker Change: The increase in.

Q4 was in the mid single digit range as we mentioned before this is as much in line with what we had observed in Q3 and I would say that the severity trend is in that mid single digit zone now for all coverages with overlook at car repairs, the cost of total losses, including debt.

Speaker Change: And injuries and maybe to be a bit more specific if I look at car repairs. The availability of the car parts now is back to pre pandemic levels pretty much for all brands.

Patrick Barbeau: But the labor rates in the body shop are still showing a mid-single-digit range given, I would say, this environment is fairly tight in capacity, and that's where the expansion of our service center network is helping us with that. Then, if you look at total losses, the market values have been stable for at least two quarters now and are showing signs of decline, but that's where the frequency of tests is contributing to maintaining the severity increase in the mid-single-digit zone as well as total losses. And then finally, on injuries, we've started to see some severity increase in the past two quarters. That's not surprising given we have not seen any increase in these coverage rates in the prior two and a half years. So overall, with more stable inflation, earned rates fully covered the trends and stayed in the high single-digit zone for the full year. We're very comfortable with both our guidance and the group profile of this line.

Speaker Change: But the labor rates in the body shops are still showing.

Speaker Change: Mid single digit range, given I would say in this environment is fairly tight in capacity and that's where the expansion of our service Center network is helping us on that front and then if you look at total losses the market values have been stable for at least two quarters, now and showing signs of decline but thats.

Speaker Change: Where the frequency of fastest contributing to maintaining that salary increase in the mid single digit zone as well for total losses and then finally on injuries, we're starting to see some salary increase in the past two quarters, that's not surprising given we have not seen any increase in these coverages.

Speaker Change: In the prior two and half years.

So overall with more stable inflation the earned rate.

I will be covering the trends and staying in the high single digit zone for the full year.

Speaker Change: We're very comfortable with both our guidance and growth profile of this line of business.

Patrick Barbeau: Thanks, Patrick. Guillaume, any color in terms of written earn rates? Yes, so earn rates have now reached written levels at the high single digits, which more than compensate for the impact of the stabilizing inflation that Patrick just described. I think in the quarter, frequency also remained mildly favorable year over year, and our written rates have strong momentum entering into 2024. We got meaningful approvals in Ontario, effective in Q1.

Speaker Change: Thanks, Patrick.

Patrick: Any color in terms of written earned rate.

Patrick: Yes on earned rates have now reached.

Patrick: Written levels at the high single digit.

Patrick: What's more than compensate the impact of the.

Patrick: Stabilizing.

Patrick: Inflation that I think just described I think in the quarter frequency also remain.

Patrick: Mildly favorable year over year.

Patrick: And our return rates.

Our strong momentum entering into 'twenty, four we got meaningful approvals in Ontario.

Patrick: Effective in Q1, and what we already have in the pipeline and other provinces.

Guillaume Lamy: And what we already have in the pipeline in other provinces that will allow us to really keep an elevated level well into 2024. So, as the industry is taking rate increases to catch up on the inflationary pressure, we expect the premium growth we've seen this quarter to remain strong in the upcoming quarters. Thanks.

Will allow us to really keep an elevated level well into.

Patrick: 24, so as the industry.

Patrick: <unk> rate increased to catch up on the inflationary pressure, we expect the premium growth we have seen this quarter and to remain strong in the upcoming quarters.

Patrick: Thanks.

Louis Marcotte: Okay, great. Second question on the expense ratio, total company, so total IFC expense ratio or expense growth slowing down through the back half of the year and the expense ratio coming in lower than what we've seen in prior quarters, including last year. So just wanted to get a little more detail on the drivers of that result and the sustainability of expense ratios in 2024. Yeah, I would say the second half came in a bit better.

Speaker Change: Okay. Great second question on the expense ratio total company. Its a total IFC expense ratio our expense growth.

Speaker Change: Slowing down through the back half of the year.

Speaker Change: On the expense ratio coming in lower than what we've seen in prior quarters, including last year. So just wanted to get a little more.

Speaker Change: A detail on the drivers of that.

Speaker Change: That results in sustainability.

Speaker Change: Sense ratios into 'twenty four.

Speaker Change: Yes, I would say the second half came in a bit better.

Louis Marcotte: Some of it was timing. And when I say timing, it's, for example, we would accrue a variable comp based on results in Q4 last year, and that accrual could be different than what we are doing in Q4 this year, just based on what we've seen during the year and the actual profitability of the business. So that creates a bit of tension or differences between the two quarters when you compare them. But when I look on a yearly basis, I think we're sticking to our 33-34% range for the overall group. I would suggest that below that, some elements that have come through this year are increased investment in growth. You know, as we try to cover the growth initiatives and make sure the service levels are adequate, as well as investments in technology, and those are financed roughly by savings in other areas. So the level of expense stays stable, but there's a shift towards either growth or technological improvements within the expense ratio itself. So that's the overall picture. What you've seen as well is some of the variable commissions have come down slightly, which has improved the expense ratio. But that's debated now.

Speaker Change: Some of it was timing and when I say timing is for example, we would accrue variable comp based on the results in Q4 last year and that accrual could be different than what we are doing in Q4. This year just based on what we've seen during the year and the actual profitability of the business. So.

That creates a bit of attention or differences between the two quarters. When you compare them when I look on the on a yearly basis I think.

Speaker Change: Sticking to our 3300, 34%.

Speaker Change: Our range for the overall group.

I would suggest that below that some elements that have come through this year as increased investments in growth.

As we try to cover the growth initiatives and make sure that service levels are adequate as well as investments in technology and those are financed roughly by savings in other areas. So this directly the level of expense stays stable, but there is a shift towards either growth or technology improvements within the expense ratio itself.

Speaker Change: So that's the overall picture, what you've seen as well as some of the variable.

Speaker Change: Emissions have come down slightly which has improved.

Speaker Change: The expense ratio.

Speaker Change: But that's abated now I will say I think we've gone full circle on that one following the COVID-19.

Louis Marcotte: I would say I think we've gone full circle on that one following the COVID situation. So those are probably the big movements I would call out, Jamie. I'm not sure if that's what you're looking for, at www.intactfinancial.com, to somewhat or closely align the earned premium growth rate, or do you see an acceleration just given some of the variable comp impacts that might've flowed through in 23

Situations so.

Speaker Change: Those are probably the big movements I would call out Jamie.

Speaker Change: I'm not sure if thats, what youre looking forward.

Speaker Change: Yes, yes.

Speaker Change: If I just follow up on that just thinking about like growth rate of dollar value of expenses as opposed to on the ratio.

Speaker Change: Is the view that this will stop.

Jamie: Somewhat are closely aligned the.

Jamie: The earned premium growth rate or do you see an acceleration just given some of the variable comp impacts that might have flow through in that in 'twenty three.

Charles Brind'Amour: beyond the growth in the top one. Yeah, no, I would certainly not expect it to exceed the top-line growth. You know, what we're trying to contain, obviously, are our expenses and keep them as close as possible to inflation.

Jamie: Beyond the growth in the topline website.

Speaker Change: Yeah, No I would not certainly not expect to exceed the topline growth.

Speaker Change: What we're trying to.

Speaker Change: <unk>, obviously are our expenses and keep them as close as possible to.

Louis Marcotte: What we're doing, though, is if there are pockets of opportunities to keep the expense level at the same level as a percentage but invest more in technology, we'll take those opportunities. That's where we'll leverage the situation or the opportunity top-line growth affords us to improve our technology footprint. Yeah, I think it's an important point. That's why I think our guidance is very good. We're investing in digital, in AI, and what's holding us back is not the money; it's the capacity to do more at this stage. Now, keep in mind also that a big chunk of the expense base at Intact is variable, a big portion of the expense base. And so, I would stick to Wu's guidance. Got it. Thank you.

Speaker Change: To inflation.

Speaker Change: What we're doing though is if there were some pockets of opportunities to keep the expense level at the same level as a percentage, but invest more in technology, we will take those opportunities.

Speaker Change: That's where we will lever a bit the situation or the opportunity topline growth affords us to improve our technology footprint.

Speaker Change: Yes, I think it's an important point, that's why I think <unk> guidance.

Speaker Change: Very good we're investing in digital and AI and what's holding US back is not the financial it's the capacity to do more.

Speaker Change: At this stage now keep in mind also that a big chunk of the expense base at intact is variable.

Speaker Change: A big portion of the expense base.

Speaker Change: And so.

Speaker Change: I would stick to this guidance.

Charles Brind'Amour: Thank you. The next question will be from Paul Holden at CIBC; please go ahead. Thank you. Good morning.

Speaker Change: Got it thank you.

Speaker Change: Thank you.

Speaker Change: Next question will be from Paul Holden.

Paul Holden: Please go ahead.

Charles Brind'Amour: The first question is related to personal auto insurance, so hearing the answers regarding their rate expectation, and where claims inflation sits. PYD is still expected to be sort of near the upper end of the range, near term, expense ratio sort of flattish, all of that. And then I take your actual result for 2023, just under 95%. Like, why? Why shouldn't 24 be significantly better when I put all that together? Like, am I? I feel like I'm missing something here.

Paul Holden: Thank you. Good morning first question is related to personal auto so hearing the answers regarding darrin rate expectation, where claims inflation sets Peabody.

Paul Holden: <unk> is still expected to be sort of near the upper end of the range near term.

Paul Holden: Hence ratio sort of flattish all of that and then I take your actual result for 2023, just under 95% Mike why.

Paul Holden: 24 be significantly better when I put all that together like I feel like I'm missing something here or is that just re investments are making the business to grow it marketing spend maybe <unk> situation does matter more for auto just help me maybe bridge the gap there.

Charles Brind'Amour: Is that just reinvestments you're making in the business to grow it, marketing spend, maybe the PYD situation does matter more for auto. Just help me maybe bridge the gap there. Boy, I think, Paul, it's a good observation if... If there was no uncertainty around the outcomes associated with the number of claims, the cost of claims, and things of that nature.

Mike: Well I think.

Speaker Change: Paul It's a good observation if.

Speaker Change: There was no uncertainty around the outcomes associated with the number of claims and the cost of claims and things of that nature. I mean keep in mind. This is a line of business that as they have a longer duration.

Charles Brind'Amour: I mean, keep in mind this is a line of business that has a bit of a longer duration and there's a greater range of outcomes. We're, therefore, prudent in our guidance. We'd love to beat 95.

Speaker Change: There is a greater range of outcome, where therefore prudent.

Speaker Change: In our guidance, we'd love to beat 95, there is no doubt about it but at 95 were happy to grow.

Charles Brind'Amour: There's no doubt about it, but at 95, we're happy to grow old. We're not going to do it by reducing rates. We will do it by investing in marketing, and investing in the digital experience. There's a lot of demand for our value prop, but I think this is a line of business that one needs to approach with a reasonable degree of caution, and that is what's reflected in our guidance, but I would love to beat 95. There is no doubt about that.

Speaker Change: We're not going to do it by reducing rates, we will do it by investing in marketing investing in the digital experience. There is a lot of demand for.

Speaker Change: Our value prop but.

Speaker Change: But I think this is a line of business that one needs to approach with a reasonable degree of caution and that is what's reflected in our guidance, but would love to beat 95, no doubt about it we're in a zone, where a lot of value can be created big source of earnings growth potential.

Charles Brind'Amour: We're in a zone where a lot of value can be created, a big source of earnings growth potential, and we're trying to balance things at this. Okay, thanks for that. The second question is regarding book value growth, obviously a better quarter, but still, if you look at year-over-year, not a lot of growth. If you look, I think, over the last couple of years, not a lot of growth. What I'm curious about is whether this in any way limits your capacity to grow premiums or in terms of investment allocation, i.e., is the impact on regulatory capital requirements meaningful at all in terms of restricting your ability to grow and optimize earnings? Thanks for the question, Paul. That's an excellent question.

Speaker Change: And we're trying to balance.

Speaker Change: Thanks at this stage.

Speaker Change: Got it okay. Thanks for that second question is regarding.

Speaker Change: The book value growth, obviously, a better quarter, but still if you look at year over year not a lot of growth. If you look I think over the last couple of years on a lot of growth.

Speaker Change: What I'm curious about does this in any way limit your capacity to grow premiums or.

Speaker Change: In terms of investment.

Speaker Change: Allocation, Mike I E.

Speaker Change: The impact on sort of regulatory capital requirements meaningful at all in terms of restricting your ability to grow and optimize our earnings.

Mike: Thanks for the question Paul That's an excellent question I would look at capital margin and regulatory capital ratios and capital generation.

Louis Marcotte: I would look at capital margin and regulatory capital ratios and capital generation as an indicator of whether we can grow and fund our own growth going forward. If you look at capital generation, it's roughly in line with operating earnings, so that's a significant amount.

Mike: As the indicator of whether we can grow and fund our own growth.

Mike: Going forward.

Mike: If you look at capital generation.

Mike: It's roughly in line with operating earnings. So that's a significant amounts we are happy to share some of that through the dividend payout as you know.

Louis Marcotte: We are happy to share some of that through the dividend payout, as you know. But there's meaningful capital being generated, and that can easily absorb the internal growth, the organic growth that we're looking for. Some of the M&A I was talking about earlier in terms of distribution and eventually putting a bit more risk on the investment portfolio. We're currently underweight in equities, and at some point, we'll go back to our target level of equities, and that will consume a bit of capital. But we don't feel constrained whatsoever in terms of having enough capital to fund our growth going forward.

Mike: But there is meaningful capital being generated and that can easily absorb the.

Mike: Internal growth so the organic growth that we're looking at and looking for some of the M&A I was talking about earlier in terms of distribution.

Mike: And eventually.

Putting a bit more risk on the investment portfolio. We're currently underweight in equities and at some point, we'll go back to our target level.

Mike: The level of equities and that will consume a bit of capital, but we don't feel constrained whatsoever in terms of having enough capital to fund our growth.

Louis Marcotte: I would say on the book value per share side, there are two elements here. First, of course, it was a rough year with the buy-in this year, the fixed income interest rate yield impact. So that was tough on the book value itself.

Mike: Going forward I would say on the book value per share side to just two elements here first of course, it was a rough year with the buy ins. This year, the fixed income interest rate yield impact.

Mike: So that was tough on the book value itself.

Louis Marcotte: And earnings are up, and rates are down a bit, and that helped in the quarter. So I think that will fix itself going forward. And then with the mid-teens, I think it will put us on the right trajectory going forward.

Mike: And it's starting to turnaround were seeing its earnings are up and.

Mike: Rates are down a bit and that helped in the quarter. So.

Mike: I think that will that will fix itself going forward and then with the mid teens are we I think it will put us on the right trajectory going forward I will point out now, which I think is interesting and may be understated. This after an acquisition and we do have restructuring costs or integration costs.

Louis Marcotte: I will point out now what I think is interesting and maybe understated is after an acquisition and we do have restructuring costs or integration costs, those flow through to earnings and therefore affect a bit of the growth in the early years of an acquisition. It's probably not obvious immediately, but we get book value accretion immediately upon doing a transaction, and then we have two or three years of integration where we're absorbing extra costs that will eventually turn into synergies. But there's that transition period where I think book value per share growth is a bit slower because of the integration impact. But once those are done, the full earnings power of the business, you'll see the gap between operating ROE and the ROE shrink, and it will get the full impact on book value per share growth. Yeah, I think that's that's very well put, Louis. I mean, if you step back, Paul, you'll see that, you know, the book value per share, go back five years, was in the 50s, and it's now in the 80s. Why?

Mike: Throw through earnings and therefore, ampere a bit of the growth in the early years of an acquisition, we probably don't.

Mike: Probably not obvious immediately but that's part of the we get book value accretion immediately upon doing a transaction and then we have two or three years of integration, where we're absorbing extra cost that it will eventually turn into synergies, but there is that transition period, where I think book value per share growth is a bit slower because of the integration.

Mike: Impact.

Mike: But once those are done the full earnings power of the business.

Mike: What youll see is the gap between operating ROE and ROE shrink and we'll get the full impact on book value per share growth.

Speaker Change: That's that's very well put Louis I mean, if you step back Paul Youll see that.

Speaker Change: The book value per share go back five years was in the Fifty's.

Speaker Change: And it's now in the eighties, why because we've done a number of things that were very accretive from a book value.

Charles Brind'Amour: Because we've done a number of things that were very creative from a book value point of view. Last year, you know, we did something that was dilutive, which was the pension buy-in by about 5%. You know, my team and I at a debate.

Speaker Change: Aren't a view last year.

Speaker Change: Did something that was dilutive, which was the pension buy in by about 5%.

Speaker Change: The team and I.

Charles Brind'Amour: But the reality is that strategically, economically, and from a risk point of view, this made complete sense, and we decided to do it anyway. And you know what? I would do it again given the same set of factors without much hesitation. And specifically on the pension buy-in, this de-risked... the organization, and this also translated into capital relief, regulatory capital relief as well. And so I'd say, bottom line here, no constraint. I think the earnings power is strong enough to generate plenty of capital to support the organic growth potential. I got it.

Added debate.

Speaker Change: But the reality is that strategically economically and from a risk point of view. This made complete sense and we decided to do it anyways.

Speaker Change: Would do it again.

Speaker Change: Given the same setup.

Speaker Change: Factors without much as the station and specifically on the pension buy in this de risked the organization. This also translated into capital relief.

Speaker Change: Our regulatory capital relief.

Speaker Change: As well and so I would say bottom line here no constraint I think the earnings power is well enough to generate plenty of capital to support the organic growth potential.

Louis Marcotte: An important point. Thank you.

Speaker Change: Got it on important point thank you.

Speaker Change: Thank you next question will be from Stephen Boland at Raymond James. Please go ahead.

Operator: The next question will be from Stephen Boland at Raymond James; please go ahead. Thanks for taking my question. I'll just ask one in the interest of time.

Stephen Boland: Thanks for taking my question I'll just ask one.

Ken Anderson: And this is really about the UK with all the changes that have happened, you know, the personal lines going, you've added DLG. And this, again, is in the context of cat losses. So I understand, you know, big storms like Kiernan, but that, you know, they go through all of the islands, you know, there's damage everywhere. But, you know, the UK itself, what happens in Sunderland doesn't really happen, you know, may not happen in London.

Stephen Boland: In the interest of time and this isn't really about the U K with all the changes that have happened.

Stephen Boland: Personal lines going you've added deal Chi and this again is in the context of cat losses. So.

Stephen Boland: I understand you know big storms that Kieran and but that.

Stephen Boland: They go through all of the islands.

Stephen Boland: Theres damage everywhere, but.

Stephen Boland: UK itself.

Stephen Boland: Sunderland doesn't really happen.

Ken Anderson: So I'm just trying to get an idea of, you know, overall, what's your expectation of cat losses? You know, is it only a major European storm that poses risk? Or is there more, I hate to say provincial, but is there more county-type risk, you know, going forward for this company? Or where's the exposure on the island?

Stephen Boland: It may not happen in London, So I'm, just trying to get an idea of.

Stephen Boland: Overall, what's your expectation of cat losses.

Stephen Boland: Is it only a major European storm that poses risk or is there more.

Stephen Boland: The provincial but is there more county type risk.

Stephen Boland: Going forward for this company are whereas whereas the exposure on the islands now.

Stephen Boland: Ken Steven Yes, just a few comments I guess the go forward commercial business the domestic commercial business is spread across.

Ken Anderson: Just a few comments. I guess the forward commercial business, the domestic commercial business, is spread across the country. So I wouldn't say it's isolated or concentrated in any particular region. The various storms that we've had have come through different parts of the country. Some have been further north, some have been south of London, and therefore have had an impact in different parts of the country.

Ken Steven: Our country.

Ken Steven: I wouldn't say it's.

Ken Steven: Isolated or concentrated in any particular region the various storms that we've had.

Ken Steven: Have come through different parts of the country some of been farther north and south of London, and therefore have had impact in different parts of the country.

Ken Anderson: I think then we have the European business which obviously will have exposure to mainland Europe. Similarly, the London market will have exposure from an international perspective. So I would say no specific concentration to call out on the portfolio in that regard. Would you say, obviously, with the personal lines going, that the losses can be mitigated a little bit? Is that a fair statement?

Ken Steven: Then we have the European business, which obviously will have exposure to mainland Europe. Similarly, the London market will have exposure on an international.

Ken Steven: From an international perspective so.

Ken Steven: I would say no specific concentration.

Ken Steven: Call outs on the portfolio in aggregate.

Ken Steven: Would you say, obviously with the personal lines going.

Ken Steven: The cat losses can be mitigated a little bit easier is that a fair statement.

Ken Anderson: Yes, I think the cap expectation on the personal line business is lower than the incremental caps from the acquisition of the DLG business. I think it's a fair statement. The other important point to me here beyond the exposure is the flexibility you have around the product. Solving for natural disasters and the increase in natural disasters is not just a pricing issue, and I think we've demonstrated by changing our product, the data we collect, the claims service, the supply chain that you can create a very strong track record even in property-intensive businesses. I think commercial lines in the UK have more flexibility when it comes to that as well, and I really like our strategic positioning in the UK both from an offensive and defense point of view, and that includes CAD.

Ken Steven: Yes, yes, yes, I think certainly the.

Ken Steven: The cap expectation on the personal lines business is lower than the incremental costs from the acquisition of the DRG business, Yes, I think it's a fair statement. The other the other important point to me here.

Here beyond the exposures that flexibility U S. A.

Ken Steven: Around the product, which.

Ken Steven: Cat solving for.

Ken Steven: Natural disaster in the increase in natural disaster is not just a pricing issue and I think we've demonstrated ourselves by changing our product. The data we collect the claims service the supply chain that you can create a very strong track record even in property intensive.

Ken Steven: <unk> I think commercial lines in the UK as more flexibility when it comes to that as well and.

Ken Steven: I really like our strategic positioning in the UK, both from an offense and defense point of view and that includes cats.

Ken Anderson: Okay, I'll ask a second question, and certainly there's been a lot of talk about personal autos. I've been getting to see a lot of articles now on, you know, EV, you know, what the insurers are doing. There was an article out today, I think today or yesterday, just about, you know, the cost of the battery, something that we don't need to worry about for the next five years? Like, you know, you've got limited claims coming in from EVs at this point, I presume, because there's not much penetration, but, you know, with the government pushing for the next 10 years to get that penetration of EVs up, like, is this a longer-term strategy you have to deal with? Or, you know, is it just a case by case scenario right? We'll ask Guillaume to give a quick perspective. Patrick can chime in from a supply chain and repair point of view. I think it's, you know, it's an important trend in terms of the transformation of transportation over the next 10 to 15 years. So, Guillaume.

Ken Steven: Yeah.

Speaker Change: Okay, all right I'll ask a second question and certainly there's been a lot of talk about personal auto.

Ken Steven:

Ken Steven: Basically getting to see a lot of articles now on EV.

What's the insurers are dealing with.

Ken Steven: Article out today afternoon, underwriter, I think today or yesterday.

Ken Steven: About the.

Ken Steven: The cost of batteries.

Ken Steven: Is this something that we don't need to worry about for the next five years.

Ken Steven: You've got limited claim.

Ken Steven: Claims coming in from <unk> at this point I presume, because theres not much penetration, but with.

Ken Steven: With the government pushing over the next 10 years to get that penetration of <unk> like is this a longer term strategy you have to deal with or is it just a case by case scenario right now.

Ken Steven: We'll ask you to give a quick perspective, Patrick can chime in from a supply chain and repair point of view I think it's an important trend in terms of transformation of transportation over the next 10 to 15 years So young.

Guillaume Lamy: Our enforced penetration of EV is still extremely low, in the low single digits for our portfolio. We don't see a massively different profitability trend between EV and internal combustion vehicles. They do exhibit higher MSRPs, so that drives higher prices when we rate them, so we kind of capture that through our trend and through our growth. But overall, as we get more volume in our portfolio, we're refining our pricing, but it's still a very small part of the portfolio. No, that's it.

Ken Steven: Yes, so our enforced penetration.

Speaker Change: So extremely low in the low single digits.

Speaker Change: For our portfolio.

Patrick: We don't see massively different profitability trend between EV, our internal condition.

Speaker Change: And they do exhibit higher.

Speaker Change: MSRP so that drives.

Speaker Change: IR price when we rate them. So we kind of capture that two are.

Speaker Change: Two our trend into our growth.

Speaker Change: But overall like as we get more volume in our portfolio, we're refining our pricing and but it's still a very very small part of the portfolio.

Patrick Barbeau: I mean, we price each new model as they come in. Specifically, we have visibility through our supply chain of the cost of these parts and the process to repair them. You know, we're quite involved. So usually, our pricing is adequate for the new, new models coming in. And we're close to our supply chain with the service centers and so forth, so we understand well the process and how it will evolve as these models become even more popular in the market. And technology has been a pressure point from a severity point of view.

Speaker Change: No that's it.

Speaker Change: We price each new models as they come in specifically, we have visibility to our supply chain and the cost of these parts in the process through paradigm.

Speaker Change: Quite involved so.

Speaker Change: Usually our pricing is adequate or the new new models coming in and where.

Speaker Change: We're close to our supply chain with the service centers and so forth. So we understand the process and how it Ken with involved with.

As these models become even more.

Speaker Change: Popular in the market, yes, thanks, Steven the bottom line is we have about a trillion in price point in a province, when we price in automobile insurance product.

Patrick Barbeau: And we've priced for that for a number of years. And I think with this change, which we're staying very close to, we'll keep doing the same thing. But it doesn't change our perspective on how this line can perform over time.

Speaker Change: So we're used to price at a far more segmented level than then.

Speaker Change: And then the profile of a broad group of vehicles and as Youre missing I think we are.

Speaker Change: On top of that.

Speaker Change: Technology has been a pressure point from a severity point of view.

Speaker Change: And we price for that for a number of years and I think with this change, which we're staying very close to we'll keep doing the same thing, but it doesn't change our perspective on.

Operator: Okay, thanks guys. Thank you. Thank you everyone for joining us today. Following the call, a telephone replay will be available for one week. The webcast will be archived on our website for one year. A transcript will also be available on our website, in the financial reports and filings. Our 2024 first order results are scheduled to be released after market close on Tuesday, May 7th, with the earnings call starting at 11 a.m. Eastern Time the following day. Thank you again, and this concludes our call for today. Thank you. Ladies and gentlemen, this does indeed conclude your conference call. Once again, thank you for attending. And at this time, we do ask that you please disconnect.

Speaker Change: How this line can perform overtime.

Speaker Change: Okay. Thanks, guys. Thank.

Thank you. Thank you ladies and gentlemen. This is all the time, we have today I would like to turn the call back over to <unk>.

Thanks to 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. A transcript will also be available on our website in the financial reports and filings section. Our 2024 first quarter results are scheduled to be released after market close on Tuesday.

Speaker Change: <unk> may seven of the earnings call starting at 11, a M. Eastern time. The following day. Thank you again and this concludes our call for today.

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

Speaker Change: Hum.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Hum.

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Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Hum.

Speaker Change: Okay.