Q1 2024 Intact Financial Corporation Earnings Call

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Speaker Change: Good morning, ladies and gentlemen, and welcome to the impact Financial Corporation Q1, 2024 results Conference call. At this time note that all participants are in a listen only mode.

Operator: Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q1 2024 results conference call. At this time, please note that all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session, and if at any time during this call you require immediate assistance, please press star zero for the operator. Also, please note that this call is being recorded on May 8, 2024. And now, I would like to turn the conference over to Shubha Khan, Vice President, Investor Relations. Please go ahead.

Shubha Rahman Khan: Following the presentation, we will conduct a question and answer session 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 May eight 2024.

Shubha Rahman Khan: And now I would like to turn the conference over to Szuba Kohn Vice President Investor Relations. Please go ahead.

Shubha Rahman Khan: Thank you, Sylvia. 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 impactfc.com under the Investors tab. Before we start, please refer to slide two, precautionary language regarding the use of forward-looking statements which form part of this morning's remarks. Slide three provides a note on the use of non-GAAP financial measures and important notes on adjustments, terms, and definitions used in this presentation.

Shubha Rahman Khan: Thank you Susie Hello, everyone and thank you for joining the call to discuss our fourth quarter financial results.

Shubha Rahman Khan: To a live webcast of materials for this call have been posted on our web site or in fact at SEDAR com under the investors tab.

Shubha Rahman Khan: Before we start please refer to slide two 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.

Shubha Rahman Khan: On the adjustments terms and definitions used in this presentation.

Shubha Rahman Khan: To discuss the results today, I have with me our CEO, Charles Brindamour, our CFO, Louis Marcotte, Patrick Barbeau, Executive Vice President and Chief Operating Officer, Darren Godfrey, Executive Vice President, Global Specialty Lines, Guillaume Lamy, Senior Vice President, Personal Alliance, and Kenneth Anderson, Executive Vice President and CFO, UK and I. We will begin with prepared remarks followed by Q&A. After that, I will turn the call over to Charles.

Speaker Change: Customer results today I have with me, our CEO Charles <unk> our CFO.

Shubha Rahman Khan: I think Bob Moore, Executive Vice President and Chief operating Officer.

Shubha Rahman Khan: Darren Godfrey Executive Vice President Global specialty lines.

Shubha Rahman Khan: Jim Let me senior Vice President of personal lines.

Shubha Rahman Khan: Anderson Executive Vice President and CFO, you can die.

Shubha Rahman Khan: We will begin with prepared remarks, followed by Q&A.

Shubha Rahman Khan: That I will turn the call over to Tom.

Charles J. G. Brindamour: Thanks, Shubha. Good morning, everyone, and thank you for joining us today.

Charles J. G. Brindamour: Thanks, Jim Good morning, everyone and thank you for joining us today.

Charles J. G. Brindamour: The strength of all of our platforms was evident in the first quarter, as we once again delivered strong results and made important progress on the strategic front. It was a good start to 24. Yesterday evening, we announced net operating income per share of $3.63 for the first quarter, up 19% from last year, driven by strong underwriting and investment results. Our undiscounted combined ratio was 91.2%, which reflected solid underlying performance across all geographies.

Charles J. G. Brindamour: The strength of all of our platforms.

Charles J. G. Brindamour: In the first quarter as we once again delivered strong results.

Charles J. G. Brindamour: <unk> made important progress on the strategic front.

Charles J. G. Brindamour: It is a good start 24.

Charles J. G. Brindamour: Yesterday evening, we announced net operating income per share of $3 63 for the first quarter.

Charles J. G. Brindamour: 19% from last year.

Charles J. G. Brindamour: Driven by strong underwriting and investment results.

Charles J. G. Brindamour: Our undiscovered combined ratio was 91, 2%.

Charles J. G. Brindamour: Which reflected solid.

Charles J. G. Brindamour: Lying performance across all geographies.

Charles J. G. Brindamour: Topline momentum continued to be strong at 6%, driven by favorable conditions across most markets. Overall, we delivered an operating ROE of 15%. And we maintained a strong balance sheet with $2.7 billion of total capital margin, even after significant deleveraging in the quarter.

Charles J. G. Brindamour: Top line momentum continued to be strong at 6%.

Charles J. G. Brindamour: Driven by favorable conditions across most markets.

Charles J. G. Brindamour: Overall, we delivered an operating ROE of 15% and we maintained a strong balance sheet with $2 7 billion of total capital margin.

Charles J. G. Brindamour: Even after a significant deleveraging in the quarter.

Charles J. G. Brindamour: Yeah.

Charles J. G. Brindamour: Let me provide some color on the results and outlook byline of business, starting with Canada and Personal Auto. Premiums grew 11% in the quarter, up six points from a year ago. Upline Momentum was a function of both rate actions in a hard market and customer group. As the industry further pursues corrective rate measures.

Speaker Change: Let me provide some color on the results and outlook by line of business, starting with Canada.

Charles J. G. Brindamour: In personal auto.

Charles J. G. Brindamour: Premiums grew 11% in the quarter.

Charles J. G. Brindamour: Up six points from a year ago.

Charles J. G. Brindamour: Top line momentum was a function of both rate actions in a hard market and customer growth.

Charles J. G. Brindamour: As the industry further pursues corrective ranked measures, we're making the most of our improved competitive position, leading brand awareness and strong digital proposition.

Charles J. G. Brindamour: We're making the most of our improved competitive position, leading brand awareness, and strong digital proposition. The combined ratio was 98.6% in the quarter, which included a two-point impact from seasonality and two points of one-ups from pools and employee compensation, driven by strong outperformance in 2020-21. The underlying performance was otherwise in line with expectations. Inflation has moderated significantly since speaking in late 22, and has stabilized in the mid-single-digit range for the past couple of quarters. At the same time, earn rates and insured values remained at high single digits during the quarter.

Charles J. G. Brindamour: The combined ratio was 98, 6% in the quarter, which included a two point impact from seasonality and two point, some one offs from pools and employee compensation driven by strong outperformance in 2023.

Charles J. G. Brindamour: The underlying performance was otherwise in line with expectation.

Charles J. G. Brindamour: Okay.

Charles J. G. Brindamour: Inflation has moderated significantly since speaking in late 'twenty two.

Charles J. G. Brindamour: And then it stabilized in the mid single digit range for the past couple of quarters.

Charles J. G. Brindamour: At the same time earn rate and insured values remain at high single digits.

Charles J. G. Brindamour: During the quarter.

Charles J. G. Brindamour: As a result, we're confident that our strong rate actions will support our sub-95 guidance in the next 12 months. We're happy to grow at this profitability level. Moving now to personal property.

Charles J. G. Brindamour: As a result, we're confident that our strong rate actions will support our sub 95 guidance in the next 12 months.

Charles J. G. Brindamour: We're happy to grow at this profitability level.

Charles J. G. Brindamour: Moving now to personal property.

Charles J. G. Brindamour: Premium growth was 9% in the quarter driven by our rate actions in a favorable market and continued unit growth. The combined ratio was strong at 82.5%, with no cash losses reported. We expect weather-related volatility, though, and inflation to sustain hard market conditions over the next 12 months.

Charles J. G. Brindamour: Premium growth was 9% in the quarter driven by our rate actions and a favorable market and continued unit growth.

Charles J. G. Brindamour: The combined ratio was strong at 82, 5% with no cat losses reported.

Charles J. G. Brindamour: We expect weather related volatility, though and inflation to sustain hard market conditions over the next 12 months.

Charles J. G. Brindamour: In commercial lines, premium growth was 5% in the quarter, as rate actions and strong retention in most lines were tempered by increased competition for large, The combined ratio of 87.3% was strong as a result of our profitability actions over time and favorable prior year development in the quarter. With the market remaining hard across most lines, we expect premium growth in 2024 to be in the mid to high single digits for the industry.

Charles J. G. Brindamour: In commercial lines premium growth was 5% in the quarter.

Charles J. G. Brindamour: That's right actions and strong retention in most lines were tempered by increased competition for large accounts.

Charles J. G. Brindamour: The combined ratio of 87, 3% was strong as a result of our profitability actions over time and favorable prior year development in the quarter.

Charles J. G. Brindamour: When the market remaining hard across most lines, we expect premium growth in 24 to be in the mid to high single digits.

Charles J. G. Brindamour: 40 industry.

Charles J. G. Brindamour: As a result, the business remains well placed to deliver sustainable low 90s or better performance going forward. Moving now to our UK and I business, premium growth was 29% in the quarter, mainly due to the direct line transaction. The overall combined ratio was 94.6%, solid for a first quarter after absorbing seven points of cash, but more than two points higher than expected.

Charles J. G. Brindamour: As a result, the business remains well placed to deliver sustainable low ninety's or better performance going forward.

Charles J. G. Brindamour: Okay.

Charles J. G. Brindamour: Moving now to our U K business premium growth was 29% in the quarter, mainly due to the direct client transaction.

Charles J. G. Brindamour: The overall combined ratio was 94, 6% solid for our first quarter after absorbing seven points of cats.

Charles J. G. Brindamour: And then two points higher than expected.

Charles J. G. Brindamour: The direct line business is generating stronger growth than anticipated when we announced the acquisition. Early bottom-line performance is heading in the right direction, and the integration is progressing very well. We welcome the Direct Line employees on May 1st, and processing of policy renewals on the RSA platform will begin in Q2.

Charles J. G. Brindamour: The direct client business is generating stronger growth than anticipated when we announced the acquisition.

Charles J. G. Brindamour: While early Bottomline performance is heading in the right direction.

Charles J. G. Brindamour: And the integration is progressing very well.

Charles J. G. Brindamour: We welcome the direct client employees, our main first and.

Charles J. G. Brindamour: And processing of policy renewals on the RSA platform will begin in Q2.

Charles J. G. Brindamour: Synergies are on track to be realized in the coming 24 months, and overall, the UK&I business is positioned to run in the low 90s. In the U.S., our business grew 6% in the quarter, reflecting healthy rate increases across most lines of business. The combined ratio of 88% reflects our continued focus on growing our profitable lines, as well as underwriting. In the next 12 months, we expect hard market conditions. To remain on and continue across both slides.

Charles J. G. Brindamour: Synergies are on track to be realized in the coming 24 months and overall the U can business is positioned to run in the low nineties.

Charles J. G. Brindamour: In the U S. Our business grew 6% in the quarter, reflecting healthy rate increases across most lines of business.

Charles J. G. Brindamour: The combined ratio of 88% reflects our continued focus on growing our profitable lines as well as underwriting discipline.

Charles J. G. Brindamour: In the next 12 months, we expect hard market conditions.

Charles J. G. Brindamour: To remain.

Charles J. G. Brindamour: And continue across most lines.

Charles J. G. Brindamour: Overall, the business remains very well positioned to maintain low 90s or better performance. As I mentioned at the outset, we made meaningful progress on strategic initiatives in the past few months across all our businesses. In Canada, BrokerLink continues to consolidate the market and successfully closed four acquisitions this quarter, representing roughly $190 million of premium.

Charles J. G. Brindamour: Overall, the business remains very well positioned to maintain low ninety's or better performance.

Charles J. G. Brindamour: As I mentioned at the outset, we made meaningful progress on strategic initiatives in the past few months.

Charles J. G. Brindamour: Across all our business units.

Charles J. G. Brindamour: And tenet of broker link continues to consolidate the market and successfully closed four acquisitions this quarter.

Charles J. G. Brindamour: Representing roughly $190 million of premium.

Charles J. G. Brindamour: The business remains well on track to achieve its ambition of $5 billion in annual premiums by 2025. Our distribution business remains an important and growing earnings driver. On the digital front, our investments have resulted in increased web traffic, with new business sales up 81% in 2024. We're therefore capitalizing on increased shopping activity across first lines as competitors take corrective action. We also continue to leverage data and AI to improve pricing and risk selection.

Charles J. G. Brindamour: The business remains well on track to achieve its ambition of 5 billion in annual premiums by 2025.

Charles J. G. Brindamour: Our distribution business remains.

Charles J. G. Brindamour: An important and growing earnings drivers.

Charles J. G. Brindamour: On the digital front, our investments have resulted in increased web traffic with new business sales up 81% in 2024.

Charles J. G. Brindamour: We're therefore capitalizing on increased shopping activity across first lines as competitors take corrective rate action.

Charles J. G. Brindamour: We also continue to leverage data and AI to improve pricing and risk selection.

Charles J. G. Brindamour: We recently deployed machine learning models in commercial property, with commercial liability to follow in the coming months, and the nationwide rollout of our fourth generation usage-based insurance platform is on track. In aggregate, our data and AI initiatives have helped deliver north of $120 million in annual run rate earnings benefits so far. Building resilient communities and achieving net zero are two important pillars of our strategic roadmap. In April, we published our 2023 social impact report, which details our progress on both objectives.

Charles J. G. Brindamour: We recently deploying machine learning models and commercial property with commercial liability to follow in the coming months and the nationwide rollout of our fourth generation usage based insurance platform.

Charles J. G. Brindamour: He is on track.

Charles J. G. Brindamour: In aggregate, our data and AI initiatives have helped deliver a north of $120 million in annual run rate earnings benefits so far.

Charles J. G. Brindamour: Building resilient communities and achieving net zero or two important pillars of our strategic roadmap.

Charles J. G. Brindamour: In April we published our 2020 tree social impact report, which details our progress on both objectives.

Charles J. G. Brindamour: On the climate file, we remain on track to achieve our emissions reduction target. In 23, for example, the emissions intensity of our investment portfolio was down 35% compared to our 2019 baseline. Yesterday morning, we announced a new initiative to build resilience, launching a partnership with Wildfire Defense Systems, a world leader in wildfire prevention and suppression. This offering will provide personal property customers in Western Canada with additional protection at no extra cost.

Charles J. G. Brindamour: On the climate file we remain on track to achieve our emissions reductions targets in.

Charles J. G. Brindamour: In 'twenty three for example, the emissions.

Charles J. G. Brindamour: Intensify intensity of our investment portfolio was down 35% compared to our 2019 baseline.

Charles J. G. Brindamour: And yesterday morning, we announced a new initiative to build resilience.

Charles J. G. Brindamour: Shanghai partnership with wildfire defense systems.

Charles J. G. Brindamour: We're a leader in wildfire prevention and suppression.

Charles J. G. Brindamour: This offering will provide personal property customers in western Canada with additional protection at no extra cost.

Charles J. G. Brindamour: This also contributes to our ability to sustain our long-term sub-90 track record in personal property. Overall, we're well positioned to deliver on our financial and strategic objectives this year. Topline momentum is strong, the business is operating at a low 90s combined ratio, and the Outlook for Investment and Distribution Income remains positive. With our strong balance sheet and business fundamentals, we're on course to grow net operating income per share by 10% annually over time, and to outperform the industry if we buy at least 500 basis points every year. With that, I'll turn the call over to our CFO, Louis Marcotte.

Charles J. G. Brindamour: This also contributes to our ability to sustain our long term sub 90 track record and personal property.

Louis Marcotte: Overall, we're well positioned to deliver on our financial and strategic objectives. This year.

Louis Marcotte: Top line momentum is strong the business is operating at a low ninety's combined ratio.

Louis Marcotte: And the outlook for investment and distribution income remains positive.

Louis Marcotte: With our strong balance sheet and business fundamentals were on course to grow net operating income per share by 10% annually over time.

Louis Marcotte: And to outperform the industry ROE by at least 500 basis points.

Louis Marcotte: Every year.

Louis Marcotte: With that I'll turn the call over to our CFO.

Louis Marcotte: Thanks Charles and good morning everyone. We had a strong start to 2024 across our business with a solid underwriting performance and continued income growth from our investment portfolio. Our operating ROE rose to 14.7%, including a 2.5 point drag from excess cap losses in the past year. Book value per share grew 4.25% to nearly $85.

Louis Marcotte: Louis musket, Thanks, Charles and good morning, everyone. We had a strong start to 2024 across our business with a solid underwriting performance and continued income growth from our investment portfolio are operating are we rose to 14, 7%, including a two and a half point drag from S excess cap law.

Louis Marcotte: As in the past year.

Louis Marcotte: Book value per share grew 4% in the quarter to nearly $85, that's 9% higher than last year.

Louis Marcotte: That's 9% higher than last year. We experienced fairly mild weather in Q1 in Canada and in the U.S. Cat losses were $97 million, and most were attributable to four severe weather events impacting our UK and Ibiz operations. We remain comfortable with our guidance of $900 million of cats per year.

Louis Marcotte: We experienced fairly mild weather in Q1 in Canada and in the U S.

Louis Marcotte: Cat losses were $97 million and most were attributable to for severe weather events impacting our U K business.

Louis Marcotte: We remain comfortable with our guidance of $900 million of cats per year.

Louis Marcotte: The weather events in the UK had a significant impact on our exited lines, which amounted to $60 million of losses incurred, well above expectation. However, our exit lines performance was otherwise as expected with limited earnings impact. And that remains our expectation going forward.

Louis Marcotte: The weather events in the UK had a significant impact on our exited lines, which amounted to $60 million of losses incurred well above expectations.

Louis Marcotte: Our exited lines performance was otherwise as expected with limited earnings impact.

Louis Marcotte: And that remains our expectation going forward.

Louis Marcotte: Favorable prior year development remains strong at 5.7% and improved by 1.4 points compared to last year, reflecting higher favorable development on prior year CATS, impacting mainly our personal property and commercial lines in Canada. The level of favorable prior year development continues to reflect our prudent approach to reserving, and we expect it to be in the 2-4% range for IFC overall over the medium term. The expense ratio in Canada was 33.5% in the quarter, up 140 basis points from last year.

Louis Marcotte: Favorable prior year development remains strong at five 7% and improved by 1.4 points compared to last year.

Louis Marcotte: Acting higher favorable development on prior year cats impacting mainly our personal property and commercial lines in Canada.

Louis Marcotte: The level of prior year development continues to reflect our prudent approach to reserving and we expect it to be in the 2% to 4% range for IFC overall over the medium term.

Louis Marcotte: The expense ratio in Canada was 33, 5% in the quarter up 140 basis points from last year.

Louis Marcotte: This reflects the payment of higher incentive compensation to our Canadian employees to reflect stronger combined ratio health performance than anticipated and accrued for in 2023. This is a non-recurring item and affects our three lines of business in Canada.

Louis Marcotte: This reflects the payment of higher incentive compensation to our Canadian employees to reflects stronger combined ratio outperformance than anticipated and accrued for in 2020 three.

Louis Marcotte: This is a nonrecurring item and affected our three lines of business in Canada.

Louis Marcotte: I'm happy to note that both our UK&I and U.S. businesses reported lower expense ratios in the quarter. We continue to expect the full-year expense ratio for IFC to land within the range of 33 to 34 percent, very close to where it was last year. Operating net investment income increased 29% to $380 million in the quarter, driven by higher reinvestment yields and increased turnover of our portfolio over the last 12 months.

Louis Marcotte: I'm happy to note that both of our U K and I and U S businesses have reported lower expense ratios in the quarter.

Louis Marcotte: We continue to expect the full year expense ratio for IFC to land within the range of 33% to 34% very close to where it was last year.

Louis Marcotte: Operating net investment income increased 29% to $380 million in the quarter driven by higher reinvestment yields and the increased turnover of our portfolio over the last 12 months.

Louis Marcotte: For the full year, we continue to expect investment income to reach $1.5 billion. However, distribution income decreased 5% to $100 million in the quarter on lower contribution from onshore due to milder weather over the last two quarters.

Louis Marcotte: For the full year, we continue to expect investment income to reach one $5 billion.

Louis Marcotte: Distribution income decreased 5% to $100 million in the quarter on lower contribution from onside due to milder weather over the last two quarters.

Louis Marcotte: Despite a slow start to the year, we continue to expect distribution earnings growth to resume and exceed 10% in 2024, unchanged from prior guidance. Our operating effective tax rate was lower than expected at 22% as the proposed new tax legislation in Canada on dividends and Pillar 2 have not yet been enacted. Overall, net operating income per share of $3.63 for the quarter was up 19% from the prior year on the back of strong underwriting and investment results.

Louis Marcotte: Despite a slow start to the year, we continue to expect distribution earnings growth to resume and exceed 10% in 'twenty 'twenty four unchanged from prior guidance.

Louis Marcotte: Our operating effective tax rate was lower than expected at 22% as the proposed new tax legislation in Canada on dividends and pillar two.

Louis Marcotte: Have not yet been enacted.

Louis Marcotte: Overall net operating income per share of $3 63 for the quarter was up 19% from prior year on the back of strong underwriting and investment results.

Louis Marcotte: In addition, earnings per share was up 79% to $3.68, reflecting investment gains from favorable equity markets, as well as a gain on the sale of our UK Direct Personal Loans operation. Moving on to our balance sheet, Our financial position continues to be strong, with a total capital margin of $2.7 billion and solid regulatory capital ratios in all jurisdictions. Capital generated during the quarter, as well as the gain from the sale of our direct personal alliance business in the UK, easily covered all capital needs and allowed for deleveraging. As a result, the adjusted debt-to-total capital ratio decreased to 20.5%, largely in line with our long-term target of 20%.

Louis Marcotte: In addition earnings per share was up 79% to $3 68, reflecting investment gains from favorable equity markets.

Louis Marcotte: As well as the gain on the sale of our UK direct personal lines operations.

Louis Marcotte: Moving on to our balance sheet.

Louis Marcotte: Our financial position continues to be strong with total capital margin of $2 $7 billion and solid regulatory capital ratios in all jurisdictions.

Louis Marcotte: Capital generated during the quarter as long as the gain from the sale of our direct personal lines business in business in the U K easily covered all capital needs and allows for deleveraging.

Louis Marcotte: As a result, the adjusted debt to total capital ratio decreased to 25% largely in line with our long term target of 20%.

Louis Marcotte: Our balance sheet is in top shape to capture growth opportunities as they arise. Book value per share growth of 9% year over year and 4% in a quarter reflect the strength of our results. With an operating RWE run rate in the upper teens and supportive capital markets, we expect to deliver solid book value growth going forward. Overall, the outlook remains favorable. Industry conditions are favorable. Top-line momentum is strong, especially in personal lines.

Louis Marcotte: Our balance sheet is in top shape to capture growth opportunities as they arise.

Louis Marcotte: Book value per share growth of 9% year over year and 4% in the quarter reflects the strength of our results with an operating are we run rate in the upper teens and supportive capital markets, we expect to deliver solid book value growth going forward.

Louis Marcotte: Investment income continues to grow, and distribution income is expected to reach double-digits. I'm proud of the strength demonstrated by the business in the first quarter of 2024. Given the quality of our platforms and robust execution of our strategic roadmap, we are well positioned to achieve our growth and performance objectives in 2024 and beyond. With that, I'll give it back.

Louis Marcotte: Overall, the outlook remains favorable industry conditions are favorable top line momentum is strong, especially in personal lines investment income continues to grow and distribution income is expected to reach double digit growth I'm proud of the strength of demonstrated by the business in the first quarter of 2024, given the quality of our platforms and robot.

Louis Marcotte: The execution of our strategic roadmap, we are well positioned to achieve our growth and performance objectives in 'twenty 'twenty, four and beyond with that I'll give it back to Bob.

Louis Marcotte: Yeah.

Shubha Rahman Khan: Thank you, Louis. 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. You can certainly ask for follow-ups, and we will do our best to accommodate if there's time. So, Sylvia, we're ready to take questions now.

Speaker Change: 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.

Sylvia: Certainly we do for follow ups, and we will do our best accommodate if there'd been yeah.

Sylvia: The <unk> well, we are ready to take questions now. Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your Touchtone phone at work.

Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by 1 on your touchtone phone. You will hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by 2. And if you are on a speakerphone, you will need to lift the handset before pressing any key.

Operator: Here are three pronged acknowledging your request and if you would like to withdraw from the question queue. Please press star followed by two.

Operator: The speaker phone you will need to lift the handset before pressing any clues.

Operator: The first question will be from Paul Holden at CIBC; please go ahead. Thank you. Good morning. The first question is related to...

Operator: The first question will be from Paul Holden CIBC. Please go ahead.

Paul David Holden: The first question is related to personal auto. Just wondering if you can give us an update on the written premium rate versus the earned rate and claims inflation trends. I would suspect claims inflation is starting to trend more positively based on used car prices, probably where parts are trending, as well as more modest labor inflation, but wondering if that's the right conclusion or not.

Paul David Holden: Thank you. Good morning first question is related to personal auto just wondering if you can give us an update on the written premium rate versus the earned rate and claims inflation.

Operator: Thank you. Good morning.

Operator: Fleche in trends I would suspect claims inflation is starting to go trend more positively based on used car prices, probably wear parts or a trend.

Operator: Trending as well as more modest labor inflation, but wondering if that's the.

Operator: The right conclusion or not.

Operator: Yeah.

Operator: Yeah.

Speaker Change: Thanks, Paul.

Operator: <unk>.

Charles J. G. Brindamour: That's the right conclusion. But let's ask Guillaume to give a perspective on the results and trajectory of rates, and then Patrick can give us a read on inflation.

Operator: That's the right conclusion, but let let's ask Gail to give a perspective on the results and trajectory of rates.

Guillaume: And then Patrick can give us a read on the inflation.

Guillaume: So gil.

Guillaume Lamy: So Q1 was good at 98.6. As we mentioned, there are four points that need to be reflected there. Two for seasonality, one point for pool, one point for variable compensation. Respectively, we state again that our confidence to achieve some 95 with the rates earning double-digits now in a single-digit inflation environment. So let me expand a bit, and I'll let Patrick go next.

Guillaume: So Q1 was good at 98, six as we mentioned there's four points that needs to be reflected there two for seasonality one point for pool, one point for variable compensation.

Patrick: Prospectively, we state again that our confidence to achieve some 95 when the rates are earning double digit.

Patrick: Right now in a single digit inflation environment. So let me expand the depth and I'll, let that thing go out there.

Guillaume Lamy: On the cost side, inflation is sustained but stable at mid-single-digit for auto, very similar to the prior two quarters. On the premium side, written rates and interest values reached double digits in Q1, with our earn rate level staying in the high single digits. We expect to stay at that similar level of rates throughout the year with most of the rate change already approved by regulators where it's needed. Overall, profitability outlooks remained unchanged

Patrick: On the cost side inflation is sustained but stable at mid single digits for auto very similar to the prior two quarters.

Guillaume Lamy: On the premium side and written rates on insured value reached double digit within Q1 with our earned rate level and staying in the high single are we expect to stay at that similar level of rate throughout the year with most of the rate change already approved by regulators, where it's needed.

Guillaume Lamy: Yeah.

Guillaume Lamy: Overall profitably profitability outlooks remain unchanged and if inflation was to drop from current level. It would obviously be good news, but we're not banking on that so we're very comfortable with our profitability position in P E and happy to grow in this environment and the growth that 11% is a proof point of that.

Guillaume Lamy: If inflation were to drop from the current level, it would obviously be good news, but we're not banking on that. So we're very comfortable with our profitability position in PA and happy to grow in this environment. And the growth at 11% is a proof point of that. So maybe Patrick can give more color on inflation.

Patrick: And give more color on inflation at Poland on the inflation side. The it has been sustained but stable in personal auto overall for a two or three quarters now in the mid single digits range, if I zoom in on physical damage.

Patrick Barbeau: Yeah, Paul, on the inflation side, it has been sustained but stable in personal auto overall for two, three quarters now in the mid-single-digit range. If I zoom in on physical damage, both car repairs and total losses continue to show inflation in the mid-single-digit range. Market values for used cars, as you pointed out, and new cars have been stable for over six months, but they're still slightly up compared to a year ago, creating some inflation still.

Patrick Barbeau: Both car repairs and total losses continued to show inflation in the mid single digit range market values for used car as you pointed out and new cars have been stable for over six months, but it's still slightly up compared to a year ago, creating.

Patrick Barbeau: Some some inflation still.

Patrick Barbeau: The availability of the parts is close to pre-pandemic levels, but we still see around 5% inflation on parts. And from a labor perspective, it's just below the three to 4% range for inflation on labor itself. Theft is still high, but similar to a year ago, so there was no impact on inflation or on severity year-on-year this quarter. We've also seen a bit more total losses as a proportion of PD claims, which is contributing to the fact that inflation is sustained despite some improvement in the cost of parts and market values.

Patrick Barbeau: The availability of the parts is close to pre pandemic levels, but we still see around 5% inflation on parts and from a labor perspective, it's just below in the three 3% to 4% range. The inflation on labor itself test is still high but similar to a year ago. So knowing.

Patrick Barbeau: Packed on the inflation on the severity a year on year this quarter.

Patrick Barbeau: We've seen also a bit more total losses as a proportion of PD claims, which is contributing to the fact that inflation is sustained despite some improvement in the cost of parts and market values.

Patrick Barbeau: On the injury side, we still observe mid-single digit inflation as well, similar to the prior at least two quarters. It is mainly coming from third-party liability claims in Alberta and Atlantic due to an increased level of legal representation. And on the accident benefit claims, we still see no severity increase at all, which has been the case for a couple of years.

Patrick Barbeau: On the injury side are we still observed mid single digit inflation as well similar to our prior at least two quarters. It is mainly coming from third party liability claims in Alberta, and Atlantic due to an increased level in legal representation.

Patrick Barbeau: And on the accident benefit claims we still see a no severity increase at all which I think has been the case for a couple of years.

Charles J. G. Brindamour: So, Paul, I think overall we like what we're seeing from a competitive landscape point of view as competitors take corrective actions. Our competitive position naturally improves. But the rate trajectory is good, it's approved by regulators, inflation is in the zone of what we expected, and we feel good about that line of business.

Speaker Change: So Paul I think overall, we like what we're seeing from a competitive landscape point of view as competitors take corrective actions.

Charles J. G. Brindamour: Our competitive position naturally improves.

Charles J. G. Brindamour: But the rate trajectory. It's good it's approved by regulators the inflation as the zone is in the zone of.

Charles J. G. Brindamour: You know, what we expected and we feel good about that line of business.

Paul David Holden: And then the second question is just related to investment income, and I guess, probably for Louis, maybe with higher interest rates for longer and bond yields doing what they have in recent months, maybe there would have been some upside to prior guidance on investment income, but you're clearly sticking with your prior guidance. So just wondering again if there's any kind of offsets there or additional items we need to think about. Thank you.

Paul: Great. Thanks for that and then second question is just related to investment income and I guess, probably for Louis just I I would've thought maybe with higher for longer interest rates and bond yields doing what they have in recent months, maybe there would be some upside to prior guidance on investment income, but you're clearly stick.

Paul David Holden: King with your prior guide so just wondering again, if theres any kind of offsets there are additional items, we need to think about thank you.

Louis Marcotte: Listen, we've kept our guidance. It's in the $1.5 billion range. It moves a bit because rates have not changed as quickly as we thought they would last year, but it's marginal in the total. And we've accelerated deleveraging, so that goes a bit the other way. So net-net, we're in the same ballpark, and that's why the guidance has not been changed. We are very close to current interest rate movements, but it doesn't have a material impact on overall investment income. So that's why we're sticking to the same level.

Speaker Change: Listen we've kept our guidance.

Louis Marcotte: And the one and a half billion range it moves a bit because rates have not changed as quickly as we thought they would last year, but it's marginal in the total.

Louis Marcotte: And we've accelerated deleveraging so that goes a bit the other way and so net net we're in the same ballpark and that's why the guidance has not been changed. So we are very close to current interest rate movements, but it doesn't have a material impact on the overall investment income. So that's why we're sticking to the same same level I will now.

Paul David Holden: I will note that the turnover that we've accelerated over the past probably two years slows down a bit because we've captured as much of the upside as we could there. And what's left are essentially bonds where the book yield and the reinvestment yields are the largest, are bonds that are at fair value to OCI. And to capture more yield, we'd have to sell the metal loss. And at that point, the equation is not as attractive as it was for fair value to P&L bonds.

Louis Marcotte: That the turnover that we've accelerated over the past probably two years.

Paul David Holden: Slows down a bit because we've captured as much of the upside is we could there and what's left are essentially bonds.

Paul David Holden: Where the book the book yield and the reinvestment yields are the largest our bonds at in that R&D fair value to OCI and to capture more yield we'd have to sell them at a loss and at that point. The equation is not as attractive as it was for fair value P&L bonds. That's why the acceleration is sort of slower than last year, but it's still.

Louis Marcotte: That's why the acceleration is sort of slower than last year. But it's still, when you look at the overall growth for the year, it's 15%. That $1.5 billion will be 15% higher than the prior year. So it's still a meaningful tailwind on our results.

Louis Marcotte: When you look at the overall growth for the year, it's 15%, that's 1.51 billion will be 50% higher than the prior year. So it's still a meaningful tailwind on the on our results.

Paul David Holden: Alright, thanks for your time.

Speaker Change: Okay. Thanks, Thanks for your time.

Speaker Change: Thank you.

Operator: Thank you. The next question will be from Doug Young at Desjardins. Please go ahead.

Speaker Change: Thank you next question.

Operator: Young.

Doug Young: Please go ahead.

Operator: Hi, Morning, Doug.

Doug Young: Hi, good morning Dani.

Doug Young: Morning, I wanted to dig into just the competition in the Canadian commercial market. And I think you highlighted, in a large case, you're seeing increased competition. I'm hoping you can dig a little into that. And then what do you also see in the SME and specialty lines? And I guess where I'm trying to go is like, you know, we've seen, um, investment returns increasing; we've seen pretty good results across the board in the Canadian commercial market. Are we starting to see any signs of the cycle kind of turning or you know improper, you know irrational competitive forces in any of the lines of business?

Doug Young: Good morning, I wanted to dig into just the competition in Canadian commercial market and I think you highlighted.

Doug Young: You know large case, you're seeing increased competition, hoping you can dig a little into that and then when he also seen in the SME and specialty lines and.

Doug Young: And I guess, where I'm trying to go is like we've seen.

Doug Young: [noise] investment returns increasing you you've seen pretty good results across the top are the Canadian commercial market are we starting to see any signs of the cycle kind of attorney or improper.

Doug Young: Irrational competitive forces and any other lines of business.

Charles J. G. Brindamour: Doug, your question is specifically focused on Canada. I'd say, you know, it's What we're observing here compares, I think, to what we're observing in other countries where we operate in a hard market environment, uneven across lines. And here, as we pointed out, large accounts are where we've seen a change, and that's put a bit of pressure on the top line. Just keep in mind the bulk of our business in Canada is SME and mid-market, where the environment is still quite good. Darren, do you want to provide a bit of color? Yeah, sure. So just go ahead.

Doug Young: Doug.

Speaker Change: Your question is.

Darren: Specifically focused on Canada, I'd say you know it's <unk>.

Darren: We're observing here compares I think to what we're observing in <unk>.

Darren: Other countries, where we operate hard market environment uneven across lines and here as we pointed out.

Darren: Large accounts is where you know we've seen a change and that's put a bit of pressure on the topline just keep in mind the bulk of our business in a in Canada as SME and mid market, where the environment is still are.

Charles J. G. Brindamour: It's still quite good Darren do you want to provide a bit of color.

Darren Christopher Godfrey: Yeah, sure. So just some context around the large account space for us in Canada between CL and SL, which is less than 10% of our portfolio. That did create a drag on growth of about half a point in the quarter, so not overly significant. And then I'd also highlight another half a point drag following our rate segmentation strategy, where we're losing a higher degree of unprofitable accounts versus past years. So that's favorable from a loss ratio standpoint and mixed going forward, but obviously has a half a point impact on the quarter.

Darren: Yeah sure. So just some context around the large account space for us in Canada between C. O N S. L. That's less than 10% of our portfolio.

Darren Christopher Godfrey: That did create a drag on gross about half a point.

Darren Christopher Godfrey: In the corner, so not overly significant.

Darren Christopher Godfrey: And then I'd also highlight another half a point drag following out right segmentation strategy, where we losing a higher degree of unprofitable accounts versus posture. So thats favorable from a loss ratio standpoint, and mix going forward, but obviously has a half a point impact on the quarter.

Darren Christopher Godfrey: On average, about five points of rate flowed through pretty even across both PNC and auto. You add on amounts of insurance increases, that's about 8% on the PNC side. So again, it continues to be a favorable market and looking to grow there.

Darren Christopher Godfrey: On average about five points of rate flowed through pretty even across both P&C and auto.

Darren Christopher Godfrey: You add on.

Darren Christopher Godfrey: [noise] amounts of insurance increases that's about 8% on the P&C side. So again continues to be a favorable market and are looking to grow with them.

Speaker Change: Thanks Darrin.

Darren Christopher Godfrey: And I think.

Charles J. G. Brindamour: Doug, you know, our perspective is definitely that investment income has been better for the industry. It's not a new phenomenon at this stage.

Speaker Change: Doug you know our perspective is definitely you know investment income has been better for the industry. It's not a new phenomenon of the stage there's been inflation in the system, we're keeping our eyes on on the liability side.

Charles J. G. Brindamour: There's been inflation in the system. We're keeping our eyes on the liability side of Canada. [inaudible] We stopped looking for opportunities to improve the quality of the portfolio.

Charles J. G. Brindamour: Of the equation.

Charles J. G. Brindamour: It's real disasters cost of reinsurance you know you've got Santee of factors here.

Charles J. G. Brindamour: To sustain rationale competitive behavior, and that's really what we're seeing and making the most out of that environment that being said, it's not because the performance is really good in our portfolio.

Charles J. G. Brindamour: We stopped looking for unfortunate teams to improve the quality of the portfolio deploying machine learning in commercial.

Charles J. G. Brindamour: Deploying machine learning in commercial prop, you know, is one example of that. And our strategy in commercial lines is super segmented. And, in fact, we have a very clear view of which customers are the worst 10% performing customers, and we work on those extremes throughout the cycle. And I think that's what Darren has just alluded to, that that added 0.5 point drag, but overall, this environment plays to our strength.

Charles J. G. Brindamour: As one example of that and our strategy in commercial lines is super segmented.

Charles J. G. Brindamour: And in fact, we have a very clear view.

Charles J. G. Brindamour: Of which customers are the worst 10% performing customers and we work.

Charles J. G. Brindamour: On those extremes throughout the cycle and I think that's what Darren has just alluded to that that added <unk> five point drag, but overall this environment plays to our strength.

Charles J. G. Brindamour: Okay.

Doug Young: I appreciate the color and then just on personal auto, and I won't ask about industry pools, I promise, but I guess my question is, what gives you the confidence about the low double-digit growth? Because you did increase your outlook, and this might just be simple math in terms of what's in the system, or is there more to it? How are you feeling about discussions with the regulator, and maybe you can kind of weave in any updates there?

Speaker Change: I appreciate the color and then just on personal auto and I won't ask about industry pools I promise, but.

Doug Young: I guess my question is what gives you the confidence about the low double digit growth.

Doug Young: Because you did increase your your eye.

Doug Young: And this might just be simple math in terms of what's in the system.

Doug Young: Or is there more to it how are you feeling about discussions with the regulator and maybe you can kind of weave in there you know any updates in terms of your thoughts on on the Alberta market.

Doug Young: So that was six questions into one, Doug. Pretty good, eh? Well, yeah, pretty good.

Speaker Change: So that was six questions in one Doug.

Doug Young: Well like any good well.

Charles J. G. Brindamour: We'll tackle the question. I mean... First, from a rate point of view. As Guillaume said, when we say we're close to 10-ish percent, it's approved by regulators. Second, there's still a delta between what's written and what's earned at this stage. And third, while inflation has been stable for a couple of quarters, the trajectory is definitely downward. We need to keep an eye on liability, no doubt about it. And there's a lot of action from a competitive point of view where companies are taking corrective measures. So, you put all that together, you strip the noise out, and, you know, we like what we see. I'll let Guillaume give a bit of perspective on, you know, part of Doug's question.

Doug Young: Well that <unk>.

Speaker Change: The question I mean.

Charles J. G. Brindamour: First.

Guillaume Lamy: From a rate point of view.

Guillaume Lamy: As Gil said.

Charles J. G. Brindamour: When we see them where were you know close to 10 ish percent, it's approved by regulators.

Charles J. G. Brindamour: Second there's still a delta between whats written and earned at this stage and third while inflation has been stable for a couple of quarters. The trajectory is definitely.

Charles J. G. Brindamour: Downward we need to keep an eye on liability no doubt about it.

Charles J. G. Brindamour: And there is there is a lot of action from a competitive point of view, where people are taking corrective measures. So you put all that together is trip the noise out and you know we like.

Guillaume Lamy: What we see all I'll, let Don give a bit of perspective on.

Guillaume Lamy: You know part of Doug's question.

Charles J. G. Brindamour: Okay.

Guillaume Lamy: Yeah, thanks, Charles. So I can maybe tackle the Alberta portion of that question. Our book is in good shape in Alberta. Let's not forget that it's 5% of IFC, and even in personal auto, we have 70% of our book that's in Ontario, Quebec, Quebec not being regulated, Ontario being a good market to operate in right now. So we're comfortable.

Guillaume Lamy: Yeah. Thanks, Charles So I can maybe back on the Alberta portion of that.

Guillaume Lamy: That question.

Guillaume Lamy: Hum.

Guillaume Lamy: Our book is in good shape in and Alberto let's let's not forget that it's 5% F. I F C uneven in personal auto we have 70% of our book that's in Ontario, Quebec came back not being regulated Ontario.

Guillaume Lamy: Being a good market to operate in right now and so we're comfortable.

Guillaume Lamy: In January, we were fast out of the gate to take rates allowed under the rate cap and protect rate adequacy there. So we'll be able to continue to navigate that environment for the foreseeable future. We continue to believe the rate cap is not the right approach to control premium.

Guillaume Lamy: In January we've been fast out of the gate that they creates allowed under the red Kap and protect.

Guillaume Lamy: Rate adequacy there.

Guillaume Lamy: So we'll be able to continue to navigate that environment in that in the foreseeable future.

Guillaume Lamy: We continue to believe a rate cap is not the right approach to control premium.

Guillaume Lamy: It's really just creating instability in the market with some competitors reducing appetite or even withdrawing capacity. So for the government to really reduce the auto premium for Albertans, you really need to find a way to take that out of the system. And I think they understand that.

Guillaume Lamy: It's really just creating and stability in the market when some competitors, reducing appetite or even withdrawing capacity.

Guillaume Lamy: Hum for the government to really reduce auto premium for Albert and you really need to find a way to think passed out of the system and I think they understand that and that's why they recently launched a public consultation around the themes of affordability simplicity and care for our burdens.

Guillaume Lamy: That's why they recently launched a public consultation around the themes of affordability, simplicity, and care for Albertans. So we're happy to see that we engage with them to discuss actions like product reform. And we've shared a reform plan with the government focused on access to care and removing legal costs out of the system in an effort to find viable solutions for the sustainability of the industry in the province.

Guillaume Lamy: So we're happy to see that we engage with them to discuss actions like a product reform.

Guillaume Lamy: And we've shared a reform plan with the government focus on access to care.

Guillaume Lamy: And removing legal cost out of the system in an effort to find viable solution finesse sustainable D. F of the industry in the province.

Guillaume Lamy: I mentioned legal costs. We've seen, over the last couple of years, legal representation nearly double in the 24 months after a claim is open. I think Patrick was referring a bit to it. The severity of a litigated claim is about eight times higher than non-litigated. So the combination of that puts pressure on costs, and that's what we need to take out of the system. So I am really looking forward to the next steps following that consultation there.

Guillaume Lamy: I mentioned legal costs and we've seen over the last couple of years legal representation nearly double at in that 24 months. After a claim is open I think Patrick was referring them, but do it the severity earthlink in litigated claim is about eight times higher than non litigated.

Guillaume Lamy: So the combination of that but pressure on cost and that's what we need to think out.

Guillaume Lamy: This system, so really looking forward to the next steps following that consultation there.

Charles J. G. Brindamour: Thanks, Guillaume, and I think, you know, you talked about being quick out of the gate in January. But I'd say with Alberta and the inflation we've seen in that system, we've been pretty quick on rates like a few years back. And I think that's an important differentiator. On the inflation side of things, you know, we've put a fair bit of emphasis on when we exchanged with you guys and then on the previous earnings call.

Guillaume Lamy: Thanks, Gil and I think you know you talked about.

Charles J. G. Brindamour: Being quick out of the gate in January.

Charles J. G. Brindamour: But I'd say well in Alberta, and the inflation we've seen.

Charles J. G. Brindamour: In that system, we have been pretty quick on rates like a few years back.

Charles J. G. Brindamour: And I think that's an important.

Charles J. G. Brindamour: The differentiator.

Charles J. G. Brindamour: On the inflation side of things you know, we've put them in a fair bit of emphasis.

Charles J. G. Brindamour: When we exchange with you guys in the previous earnings call on the.

Charles J. G. Brindamour: The supply chain and the body shops and the intact body shops, etc. One of the strategies we've been working on for, you know, a couple of decades is insourcing the legal work to be much better equipped to deal with pressure and liability in provinces like Alberta, and today it is close to 80% of legal work that is done by our own legal team in-house, close to Patrick.

Charles J. G. Brindamour: The supply chain and our body shops are and the impact body shops et cetera, I mean, one of the strategy we've been working on for.

Charles J. G. Brindamour: You know a couple of decades is in sourcing the legal work to be much better equipped.

Charles J. G. Brindamour: To deal with pressure in liability in provinces.

Charles J. G. Brindamour: Alberta and today it is close to 80%.

Charles J. G. Brindamour: The legal work that is done by our own legal team in house close to that thing is at 700, 700 lawyers and lawyers professionals, So which is good both from the loss of just spend point of view as well as from an indemnity point of view.

Charles J. G. Brindamour: 700. Yep.

Charles J. G. Brindamour: 700 lawyers and legal professionals, which is good, both from a loss adjustment point of view, as well as from an indemnity point of view. I don't know if we missed part of your question, Doug, but you've got it.

Speaker Change: I don't know if we missed part of your question Doug.

Doug Young: I'll leave it there. I appreciate the time. Thank you.

Charles J. G. Brindamour: Yes.

Speaker Change: I'll leave it there I appreciate the time thank you.

Doug Young: As you.

Operator: The next question will be from Tom MacKinnon at BMO Capital Markets. Please go ahead.

Doug Young: Next question will be from Tom Mackinnon at BMO capital markets. Please go ahead.

Operator: Yeah, thanks very much. Just a bit of a follow-on with respect to the commercial lines and the increased competition you're seeing in the large accounts. I mean, what, in your opinion, is driving this increase in competition at that level? Is it broker-driven or company-driven? And why wouldn't that eventually trend down into the SME? What makes you feel comfortable that you're not going to be seeing any increased competition in more of the commercial lines that you deal with? And perhaps any color as to what lines you're seeing, competition within commercial and specialty. Thanks.

Tom MacKinnon: Yeah. Thanks, very much I'm, just a bit of a follow on with respect to the commercial lines and the increased competition you're seeing.

Operator: Large accounts are.

Operator: I mean, what in your opinion is driving this increase in competition at that levels at a broker driven company driven.

Operator: And.

Operator: Why wouldnt that.

Operator: Essentially trend down into the SME, what makes you feel comfortable that you're not going to be seeing.

Operator: Any increased competition in more of the commercial lines that you deal with and perhaps any color on as to what lines. You are seeing this increased competition in them.

Operator: Within commercial and specialty.

Operator: Okay.

Tom MacKinnon: Thanks, Tom. I'll ask Darren to give a bit of color on where in the large account space we've seen bumps and why. And then I'll provide you with a perspective afterwards of why large versus the rest of the market.

Speaker Change: Thanks, Tom.

Operator: I'll ask Darren to give a bit of color on where in the large account space we've seen.

Darren: Bumps in Hawaii now I'll provide you a perspective afterwards of why large versus the rest of the market.

Charles J. G. Brindamour: Yeah, as we said, the impact in Q1 was in commercial lines. If you remember... Large commercial lines. Large commercial lines. If you go back actually to Q1 of 23, we saw the same thing in specialty lines in large accounts. That did not continue beyond Q1.

Darren: Yeah, as we said.

Darren: The impact.

Charles J. G. Brindamour: Impacting Q1 was in commercial lines and if you remember large commercial large commercial I'm sorry.

Darren: If you go back actually to Q1 of 'twenty three we saw the same thing.

Speaker Change: Especially lines in large accounts that did not continue.

Darren: Beyond Q1, so the market is still I would say lumpy.

Darren Christopher Godfrey: So the market is still, I would say, lumpy, for lack of a better term. It is relatively... broad. It's not consistent across different pieces of the portfolio in the large account space, but it is very much account by account driven. So I wouldn't say, Tom, some significant underlying trends here, in particular verticals. It's a little bit different in the U.S., where it's clearly a financial lines story. In the U.S., the remainder of our lines are mostly hard.

Darren Christopher Godfrey: Lack of a better term is relatively.

Darren Christopher Godfrey: Broad.

Darren Christopher Godfrey: It's not consistent across different pieces of the portfolio in the large account space. It is very much account by account driven sorry.

Darren Christopher Godfrey: I wouldn't say, Tom some significant underlying trends here in particular verticals, it's a little bit different in the U S, where it's clearly a financial lines story in the U S. The remainder of our lines are most especially hard we see a little bit of that pressure in financial lines in Canada, but as I said it.

Darren Christopher Godfrey: We see a little bit of that pressure on financial lines in Canada, but as I said, it's relatively sort of here and there, account by account. So no material trends that we're concerned about at this point in time.

Darren Christopher Godfrey: It's it's relatively sort of here in that account by account.

Darren Christopher Godfrey: So no material trends that we're concerned about at this point in time, so if I just come back on the context of large versus mid versus.

Charles J. G. Brindamour: So, Tom, if I just come back to the context of large versus mid versus SME. Of course, in the large segment account, when you lose an account, it's a large account, and therefore, it moves the needle from a top line point of view. It's a market that is more lumpy, as Darren said, because there's a lot of delegation authority on the front line, and the behaviors that you see in the hard and soft market are far more pronounced in the large segment. That's why.

Charles J. G. Brindamour: SME.

Charles J. G. Brindamour: Yeah.

Charles J. G. Brindamour: Of course in the large segment account when you lose an account.

Charles J. G. Brindamour: It's a logical and therefore it it moves the needle from a top line point of view.

Charles J. G. Brindamour: It's a market that is more lumpy as Darin said, because there's a lot of delegation of authority on the frontline.

Charles J. G. Brindamour: And and the behaviors that you see in hard and soft market are far more pronounced.

Charles J. G. Brindamour: Enlarge segments.

Charles J. G. Brindamour: That's why.

Charles J. G. Brindamour: Our strategy when it comes to building commercial lines, which is 55% of IFC today, is one that is focused on mid-market and SME. That's the space 90% of our business is in Canada. That's the space we're focused on in the US. And that's the space we're focused on in the UK, and the NIG slash Derek Klein acquisition is a testament to that strategy. Why do we like that space? First of all, the law of large numbers works much better.

Charles J. G. Brindamour: Our strategy when it comes to building a commercial lines, which is 55% of I F seat today.

Charles J. G. Brindamour: Is one that is focused on mid market and SME that's the space.

Charles J. G. Brindamour: 90% of our business in Canada, that's the space, we're focused on in the U S and that's the space. We're focused on in the U K and the N. I G. Slashed our client acquisition is a testament to that strategy why do we like that space first of all.

Charles J. G. Brindamour: Uh huh.

Charles J. G. Brindamour: The law of large numbers to work much better.

Charles J. G. Brindamour: Second of all, you can use the law of large numbers in advancing sophisticated pricing and risk selection strategies. Third of all, there's less delegation of authority on the front line. And fourth, that's a business we know really well. And that's why, strategically, that's the place we've been doubling down on, and we'll continue to do so. And I think if you look at IFC's global footprint in commercial lines, it's pretty unique to be solely focused on the mid-market business.

Charles J. G. Brindamour: Second of all you can use the law of large numbers and advancing sophisticated pricing and risk selection strategies third of all theres less delegation of authority.

Charles J. G. Brindamour: The frontline and and for it that's a business, we know really well and that's why strategic T.

Charles J. G. Brindamour: We that's the place where we've been doubling down on and we'll continue to do so and I think if you look at I have six global footprint.

Charles J. G. Brindamour: In commercial lines, it's pretty unique to be solely focused on the on the mid market business.

Tom MacKinnon: Okay, thanks for the color.

Speaker Change: Okay. Thanks for the color.

Speaker Change: Youre welcome.

Operator: Thank you. The next question will be from Mario Mendonca at TD Securities. Please go ahead. Good morning.

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

Operator: Good morning. First, a detailed question on cars and then something more broad in nature.

Mario Mendonca: Good morning, first a detailed question on auto and then something more broad in nature there have been recent.

Mario Mendonca: There have been recent reports about increased incidents of impaired driving. I think this is mostly Ontario. What I can't tell from what I'm reading is whether this is just a social issue or whether it could rise to the level where it starts to affect profitability for companies like Intact. Firstly, is that something you've seen and does it matter at this point?

Mario Mendonca: Reports about increased incident of impaired.

Mario Mendonca: Driving I think this is mostly Ontario, what I can't tell from.

Mario Mendonca: What I'm reading is whether this is just a social issue or whether it could rise to the level where it is.

Mario Mendonca: Starts to affect profitability for companies like intact, Firstly is that something you've seen and does it matter at this point.

Charles J. G. Brindamour: Not something we've seen. It doesn't matter in aggregate at this point, but we'll keep a close eye on that, Mario. But it's not something that has surfaced in our operations.

Speaker Change: Not something we've seen.

Charles J. G. Brindamour: Doesn't matter in aggregate at this point.

Charles J. G. Brindamour: But we'll keep a close eye on that.

Charles J. G. Brindamour: Mario but not something that as a surface and our operations.

Mario Mendonca: Okay, something a little more broad than in nature. It's been my observations over the years that companies, once they are operating at this level, which is, this is a compliment of course, companies are running at a pretty robust level right now, and everything seems to be working as planned. When companies find themselves in situations like this, they often step out of their lane and maybe get a little bit more aggressive beyond their more traditional operations.

Charles J. G. Brindamour: That's something a little more broad than in nature.

Mario Mendonca: It's been my observations over the years. The companies are once they are operating at this level, which is this is a complement of course as a company is running at a pretty robust level right now and everything seems to be working as planned.

Mario Mendonca: When companies find themselves in situations like this they often step out of their lane and maybe get a little bit more aggressive beyond there they're more traditional operations, we saw that when.

Mario Mendonca: We saw that when the company went to the US and again in the UK. As you sit there today, do you see any room for the company to depart from its more typical operations, either geographically or perhaps strategically? Is there any room for this, or is there an appetite?

Mario Mendonca: The company went to the U S and again in the U K as you sit there today.

Mario Mendonca: Do you see any room for the company to depart from its more typical operations either geographically or perhaps strategically is there any room for this or is there an appetite for this.

Charles J. G. Brindamour: We don't need to. There's no appetite for that.

Speaker Change: We don't need to there's no appetite for this I think Mario if we.

Charles J. G. Brindamour: I think Mario, if we know, run with that point. The Size of the Opportunity of Intact, in 2017 was $40 billion. And the size of the opportunity of Intact today is 400 million. Billion. Sorry, good point.

Speaker Change: Run with that point.

Charles J. G. Brindamour: The <unk>.

Speaker Change: Size of the unfortunate T of impact.

Charles J. G. Brindamour: In 2017 was 40 billion.

Charles J. G. Brindamour: And the size of deal Fortunately are intact today is $400 million.

Charles J. G. Brindamour: I'm glad the CFO is there. So it's 10x, Mario. And I think, you know, if you look at 23, you'll see that Canada outperforms in all segments. If you look at the U.S., we outperform. And if you look in the UK, we also outperform, and I expect the UK's outperformance to actually expand in the coming period. So for me, macro, you have a 10x opportunity without performance pretty much everywhere. So, quite frankly, I see absolutely no reason to step out of that sandbox.

Charles J. G. Brindamour: Billion, sorry, good point I'm glad to see it forced there [laughter] I figured as soon.

Charles J. G. Brindamour: Ex Mario and I think if you look at.

Charles J. G. Brindamour: 'twenty three you'll see that Canada outperforms.

Charles J. G. Brindamour: And all segments. If you look at the U S. We outperform.

Charles J. G. Brindamour: And if you look in the U K we also.

Charles J. G. Brindamour: Outperform.

Charles J. G. Brindamour: And I expect the U k's outperformance to actually expand in the coming periods. So for me now.

Charles J. G. Brindamour: Macro you have authentic supports unit T without performance pretty much everywhere. So I see absolutely no reason to step out of that sandbox.

Charles J. G. Brindamour: Quite frankly.

Charles J. G. Brindamour: And I think, as Darren highlighted, even where we have outperformance, even in a hard market, we're still working on improving the quality of our portfolio. And that's why, when I look at our two financial objectives, whether it is outperformance and pursuing that, or just fueling earnings growth, I feel pretty good about the next decade.

Charles J. G. Brindamour: And and I think as Darren highlighted even where we have outperformance even in a hard market. We're still working on improving the quality of our portfolio and that's why I think when I look at our two financial objectives, whether it is outperformance and expanding that.

Charles J. G. Brindamour: Or just fueling earnings growth I feel pretty good about the next decade.

Speaker Change: That's clear thank you.

Charles J. G. Brindamour: Okay.

Operator: Thank you. The next question will be from Jaeme Gloyn at National Bank Financial. Please go ahead.

Charles J. G. Brindamour: Thank you next question will be from James <unk> of National Bank Financial. Please go ahead.

Jaeme Gloyn: First on the commercial side, just a quick clarification, in Canada, is the Delegated Underwriting Authority, are they competing on price or terms, or both? And then maybe some more commentary around the U.S. commercial business in terms of where you're being disciplined in pricing and some more outlook commentary on that.

Jaeme Gloyn: Yes, Thanks first on the on the commercial.

Jaeme Gloyn: Just a quick clarification in Canada is the delegated underwriting authority are they competing on price or terms for volt.

Jaeme Gloyn: And then.

Jaeme Gloyn: Some maybe some more commentary around the U S commercial business in terms of where you're where you're being disciplined in.

Jaeme Gloyn: And pricing and ER and some more commentary on that.

Jaeme Gloyn: Yeah.

Charles J. G. Brindamour: Thanks. I think when you say delegated authority, To be clear, I assume you mean what we refer to in commercial lines because we don't delegate authority to brokers as a principle. Others do and might, but this is not really our strategy. And I think it's important to make that distinction. We do have a delegated authority portfolio in the UK, but otherwise, that's not something we do. In the large commercial lines, I think if we go there, I think your question is, you know, coverage limits, price conditions. Maybe, Darren, you can provide your perspective, then maybe a perspective on the US as well, broadly speaking. Yeah, sure, Jaeme.

Speaker Change: Thanks, I think when.

Darren: When you say delegated authority.

Darren: To be clear I assume you mean, what we referred to in commercial lines, because we don't delegate.

Darren: Authority to brokers as a principle.

Charles J. G. Brindamour:

Darren: Others do in mind. This is not really our strategy and I think.

Darren: It's important to make that distinction, we do have a delegated authority portfolio in the UK, but otherwise thats not something.

Darren: We do.

Darren: In the large commercial lines I think if we then go there.

Charles J. G. Brindamour: I think your question is you know coverage limits price conditions, maybe Darren you can provide your perspective, and then maybe a perspective on the U S. As well broadly speaking, yes, sure Jay I mean, you're right in terms of in that large account space you will see a number of competitors, who will delegate how did you say terms conditions and pricing.

Darren Christopher Godfrey: I mean, you're right in terms of, in that large account space, you will see a number of competitors who will delegate, as you say, terms, conditions, and price. We have next to none of that at all. The only place we would have that is in our own MGAs, but again, they really are an extension and a function of us, so I don't really call that true delegated authority.

Darren Christopher Godfrey:

Darren Christopher Godfrey: We have next to none of that at all any place. We would have that is in our owned M. G is but again, they really arent extension and a function of us. So we don't really call that true delegated authority for where there's really high end expertise at the MGA for example, resilience when it comes to cyber would be another place.

Darren Christopher Godfrey: Or where there's really high-end expertise at the MGA, for example resilience when it comes to cyber would be another place as well, but again, highly defined expertise with a well-defined underwriting box and pricing box. So from a U.S. standpoint, market conditions really have not changed materially since 2023, and it's really defined in sort of two different boxes, so to speak. We have prolonged hard market conditions in most lines, and you can think about commercial auto, property, marine, whether it's ocean or inland, general liability, umbrella, the consistent trends that we've seen over the last few quarters.

Darren Christopher Godfrey: As well too, but again highly defined expertise with a well defined underwriting box and pricing box.

Darren Christopher Godfrey: So from a U S standpoint.

Darren Christopher Godfrey: Market conditions really have not changed materially since our two.

Darren Christopher Godfrey: 2023 and.

Darren Christopher Godfrey: And it's really defining in sort of two different boxes so to speak.

Darren Christopher Godfrey: We have prolonged hard market conditions in most lines and you can think about commercial auto property marine whether its ocean or inland general liability umbrella consistent trends that we've seen over the last few quarters.

Darren Christopher Godfrey: We're getting there over 7% in rates, growing nearly double-digit rates in the U.S. in those particular business units. When I think about areas of weakness in the U.S., again, no real change in story, it's financial lines. Think about public DNO, think about cyber, and there, we're playing defense. And in fact, in Q1, we actually shrunk the book by 10 points.

Darren Christopher Godfrey: We're getting there over 7% in right.

Darren Christopher Godfrey: Growing nearly at double digit rates there in the U S. In those particular business units when I think about areas of weakness in the U S. Again, no real change in story its financial lines think about public D&O think about cyber and there were playing defense and in fact in Q1.

Darren Christopher Godfrey: We actually shrunk the book by 10 points. So it is it does illustrate how we're managing the market environment, how we're managing the cycle.

Darren Christopher Godfrey: So again, it does illustrate how we're managing the market environment, how we're managing the cycle. But broadly speaking, we see the market is still continuing to be favorable. And hasn't maturely changed since 2023. I would suggest that the focus also on casualty inflation as well as in the US will be another tailwind, so to speak, all those market conditions continuing very much throughout 2024 as well. So I don't expect material changes in the US, at least within our particular portfolio. So your question on, you know, is it price, is it condition, etc. When we see irrational behavior in large commercial lines, it's primarily price.

Darren Christopher Godfrey: But broadly speaking we see the market is still continues to be favorable.

Darren Christopher Godfrey: And it hasn't materially changed since 'twenty twenty-three I would suggest that the focus also on on casualty inflation as well too in the U S.

Darren Christopher Godfrey: It will be another tailwind so to speak all of those market conditions, continuing very much throughout 2024 as well too so I don't expect material changes.

Darren Christopher Godfrey: In the U S at least within our particular portfolio. So your question on Yeah. There was it price is it condition et cetera.

Darren Christopher Godfrey: When we see.

Darren Christopher Godfrey: Irrational behavior in large commercial lines.

Darren Christopher Godfrey: Primarily price.

Jaeme Gloyn: Okay, that's clear. Thank you. And then the second question is going back to the announcement from yesterday about the wildfire defense systems and just hoping to get a little bit more granular on this in terms of, I guess, you know, how did the relationship come about? Was it you approaching them, or them approaching you? And then maybe add a little context in terms of what you're expecting that relationship to deliver, perhaps maybe from a financial standpoint. Thinking, okay, wildfire catastrophe losses were X in 2023, and these defense systems in those provinces could reduce that by a percentage of X percent, something along those lines.

Darren Christopher Godfrey: Okay.

Speaker Change: Clear Thank you and then.

Jaeme Gloyn: Second question is going back to the announcement from yesterday with a wildfire defense systems and I'm, just hoping to get a little bit more granular on this in terms of I guess, how did the relationship come about was it you approaching them them approaching you.

Jaeme Gloyn: And then maybe add a little context in terms of what you're expecting in that relationship to deliver perhaps me from a financial standpoint, like I think in U K wildfire catastrophe losses were actually in 2023 in the defense systems in those provinces could reduce that by half percent of Joe.

Jaeme Gloyn: X percent something along those lines is that something you you've worked through and can share with us.

Jaeme Gloyn: Is that something you've worked through and can share with us?

Guillaume Lamy: Guillaume, you, I think, work with your team and your colleagues on that relationship. Maybe you want to provide some color.

Jaeme Gloyn: You know you I think our work with your team and your colleagues on that relationship maybe you want to provide some color.

Guillaume Lamy: Yeah, so I would come basically. Last year was a heavy cut season. As you know, we paid more than a billion in damages due to natural disasters. So we took a pause and analyzed in depth what the global warming scenario would have on our business. We talked to you guys about that last year, and that's basically a concrete action that's coming out of it. Part of that $1 billion was for wildfires in Alberta and BC that were very intense last year, and the winter conditions, which are warm and dry this year, are conducive to what could be another challenging wildfire season. So that's why I wanted to act on that now.

Guillaume Lamy: Yeah, So I would claim basically.

Guillaume Lamy: Last.

Guillaume Lamy: Last year was a heavy cat season, as you know we paid more than 1 billion in natural disaster.

Guillaume Lamy: So we took a pause and analyzed in depth, what the global warming scenario would would have on our business and we talked to you guys about that last year, and that's basically a concrete actions that coming out of it.

Guillaume Lamy:

Guillaume Lamy: Part of that 1 billion was a wildfire in Alberta in D. C that was very intense last year and the.

Guillaume Lamy: Winter condition warm and dry this year.

Guillaume Lamy: Are conducive to what could be another challenging wildfire season, and so that's why I wanted to act now on that and and we negotiated for the past few months with a W. D. S to launch a pilot project to our customers and in BC and Alberta protecting their own from wildfires. So it.

Guillaume Lamy: And we negotiated for the past few months with WDS to launch that pilot project to help customers in BC and Alberta protect their homes from wildfires. So it's widely available to pretty much every homeowner in Alberta and BC outside of maybe the BC coast, the islands there, and really the northern end of the province. Insurance by Intact.

Guillaume Lamy: Wildly available to pretty much every or mourners in Alberta, and BC outside of maybe BC coast. The islands, there and really the northern end of the province ensured by intact, ensuring by in fact definitely.

Guillaume Lamy: And the benefits are twofold. First, financially, we expect that it's going to reduce the frequency and severity of wildfires. So I won't get into quantification, but it's going to reduce volatility as well. In years where there's no wildfire, it's not a meaningful cost, and there's going to be no cuts to offset that.

Guillaume Lamy: And benefits aren't two phone. So first financially we expect that it's going to reduce the frequency and severity of wildfires, so I won't get into quantification, but it's going to reduce volatility as well and years, where theres no wildfire, it's not a meaningful cost and they're gonna be no cap.

Guillaume Lamy: To offset that and in years, where.

Guillaume Lamy: There's a lot of wildfires, then that's where I was gonna out really reduce the volatility so that.

Guillaume Lamy: And in years where there are a lot of wildfires, then that's where it's going to help really reduce the volatility. So that's the financial part. And secondly, I think it fits with our purpose of trying to build resilient communities. So overall, that's really the objective, the story there. And it builds into our track record of a strong, some 90 combined ratio over the last 10 years, and we're doing what is necessary to keep it that way. Thank you, Guillaume. And I think it is also important.

Guillaume Lamy: That's the financial part and secondly, I think it fits.

Guillaume Lamy: With with our purpose and trying to build resilient communities. So overall, that's really the objective the story there and it built into our track record of a.

Guillaume Lamy: Our strong sub 90 combined ratio over the last 10 years, and we're doing what is necessary to keep it that way.

Guillaume Lamy: Thank you, Guillaume, and I think it is also a continuation of our strategy to outsource the supply chain but also to help customers get back on track with the experience we provide. On-site is a good example of that, which now almost 70% of our claims in home insurance are done by trusted partners. Half of that is with our own provider on-site. So all that is consistent with that thought process.

Guillaume Lamy: Thank you Hillman I think it is also big.

Guillaume Lamy: Continuation of our strategy to in source supply chain, but also.

Guillaume Lamy: Help customers get back on track.

Guillaume Lamy: The experience we provide onsite is a good example of that which now.

Guillaume Lamy: Almost 70% of our claims and home insurance are done by rely partners half of that is with.

Guillaume Lamy: Our own provider onsite and.

Guillaume Lamy: So all of that is consistent with.

Guillaume Lamy: That thought process.

Guillaume Lamy: Yeah.

Speaker Change: Thank you very much.

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

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

Operator: Morning. First, just a short numbers question. Just in personal property and commercial, you mentioned the PYD is elevated. Can you just maybe highlight what years you're seeing the, you know, that positive, that favorable development coming from? Is it COVID? Or is it pre-COVID? We'll just leave a little bit of color there.

Stephen Boland: Monty first is just a short numbers question just in personal property and commercial.

Operator: You mentioned or the people ideas is elevated.

Operator: Can you just maybe highlight what years that got you.

Operator: You're seeing the positive, but less favorable development coming kilometers of Colgate or is that pre COVID-19, we just need a little bit of color there.

Stephen Boland: Sure, so maybe I can take this one. Overall, the PYD in Canada is up 1.6% to 6.3%. So, very healthy. A reminder that Q1 is typically the quarter that we have the most PYD activities. So that's not unusual. And I will say in 2022, looking back at history, the percentage was 6.5%. I would call 2023 a bit of an anomaly because we had unfavorable developments in our personal property business, so that hurt the ratio a bit.

Speaker Change: Sure. So maybe I can take this one.

Stephen Boland: So overall the price P. Widen in Canada is up one 6% to $6 three.

Stephen Boland: Per cent, so very healthy a reminder, that Q1 is typically the quarter that we have most a few I D.

Stephen Boland: So that's not unusual and I will say in 2022 looking back at history and the percentage was six 5%.

Stephen Boland: I'd call out 2023 is a bit of an anomaly because we had unfavorable developments in our personal property business, so that hurt a bit the ratio.

Louis Marcotte: But I think we're back to something closer to historical averages, so it's not totally surprising for us given Q1 and our historical performance. Of the 1.6 points of increase, we attribute about 1.1 to prior year cash. And one should not be surprised given the volume of cats we've had over the past six quarters to have more development when time passes and we see the files develop. So that should not be a total surprise, but it is 1.1 of the 1.6 increase. And then it splits out unevenly between lines of business.

Louis Marcotte: But I think we're back to some close something closer to historical averages so something will be surprising for us given Q1, and our historical performance of the 1.6 points of increase are we attribute about 1.12 prior year cats, and one should not be surprised given the volume of cats, we've had over the <unk>.

Louis Marcotte: Last six quarters to have more developments when time passes and we see the final develop so that should not be a surprise, but it is 1.1 of the one six increase and then it splits out unevenly between lines of business personal property is capturing about 1.7 impact from those.

Louis Marcotte: Personal property is capturing about 1.7 impact from those prior year cats, while commercial lines is about 1.3. So that gives you a bit more precision on the impact of the lines of business. If I push it down one level, by line of business, in commercial lines, it was elevated in the quarter at 11.5.

Louis Marcotte: Prior year cats, while commercial lines is about 1.3, so that gives you a bit of a bit more precision Mclaren granularity on the impact of the lines of business.

Louis Marcotte: If I push it down one level by line of business in commercial lines. It was elevated in the quarter at 11.5, I will refer again to historical averages here when I look back 510 years in Q1, you would expect eight to nine points a few white tea.

Louis Marcotte: I will refer again to historical averages here. When I look back 5-10 years, in Q1, you would expect 8-9 points of PYD. So having 11.5 with prior year caps, going back to close to historical averages, for us, is not, you know, totally unexpected. And given our general prudence on reserving, you would expect favorable PYD, particularly in Q1. You know, there is a bit of movement there, but I think there are good reasons, but otherwise, you're very good about where PYD stands. And you only have to go back two years to find 11% PYD in Q1 and commercialize it, you know, so it's not like it is wildly out of the range.

Louis Marcotte: So I have an 11.5 wood frame your cats going back to close to historical averages for us is not a.

Louis Marcotte: Totally unexpected and given our general prudent funds on our reserving you would expect a favorable.

Louis Marcotte: Particularly in Q1 so.

Louis Marcotte: You know there is a bit of a movement. There I think there's good reason, but otherwise feel very good about.

Louis Marcotte: But we've had a few items that you only have to go back two years to find 11% P wide in Q1 and commercial lives. So it's not play kits.

Louis Marcotte: Lay out of the <unk> of the range.

Stephen Boland: My second question is about Alberta, and obviously, you mentioned the public consultation. I'm wondering if you have any comments on the reports that were commissioned by the regulators. The IBC has come out and said they're definitely flawed. Maybe you could just talk about the reports themselves, what your thoughts are, and is there, you know, is this a real risk that Alberta does this based on your conversation with the regulators?

Speaker Change: Thanks, Mike.

Speaker Change: My second question is isn't that Alberta, and obviously you mentioned the public consultation I'm wondering if you have any comments on the reports that were commissioned by the regulators of the RBC has come out and so there's there are definitely flawed.

Stephen Boland: Maybe you could just talk about the reports themselves where you are.

Stephen Boland: Thoughts are and is there you know.

Stephen Boland: Is this a real risk that Alberta does based on your conversations with the regulators.

Guillaume Lamy: I'll ask Guillaume to provide his perspective, and then I'll show my perspective afterward.

Speaker Change: I'll ask him to provide his perspective, and then I'll try my perspective afterwards.

Guillaume Lamy: Go ahead Neil.

Guillaume Lamy: Yeah, so there were two reports that were commissioned by the government of Alberta that were recently released, comparing different insurance regimes to the Alberta one. They contained one actual analysis and one economic report. So the actual analysis is deeply flawed and overstates the benefit of moving to various regimes, especially a public no fault regime, which is showcased as having the greater, greatest benefit. For instance, it totally ignores one-time investments like IT, which any insurer would have to make even if it's a public one.

Guillaume Lamy: Yeah. So there were some reports that were commissioned by the government of Alberta, That's where we think to release encumbering different insurance regime to the Alberta, one contain one actuarial analysis and one economic report.

Guillaume Lamy: So D actuarial analysis is deeply flawed.

Guillaume Lamy: And overstates the benefit of moving to various regime, especially.

Guillaume Lamy: Make no fault regime, which showcases adding a greater and greater benefit for.

Guillaume Lamy: For instance.

Guillaume Lamy: Totally ignores onetime investment like I T, which any insurer would have to make even if it's a public one.

Guillaume Lamy: It also used an industry premium that is 27% higher than the average premium in Alberta today as a starting point, which obviously then overstates benefits when compared to other regimes. That being said, the report also clearly outlines the negative consequences of moving to a governor-run insurance monopoly, killing thousands of jobs in the private sector and forcing taxpayers to pay billions to subsidize auto insurance. So that's kind of the report. Overall, we're looking, as I said, to share a reform plan with the government focused on access to care and removal of legal costs, and we're waiting to see what the consultation will give.

Guillaume Lamy: It's also used in industry premium that is 27% higher than the average premium and Alberta today as a starting point, which obviously then overstates benefits when compared to other regimes.

Guillaume Lamy: That being said the report also clearly outlines the negative consequences of moving to a governor on thrun entrance monopoly.

Guillaume Lamy: Killing thousands of jobs in the private sector's force thing taxpayers to pay billions to subsidize the auto insurance.

Guillaume Lamy: So that's kind of the report overall, we're looking as I said to sure I reform plan with the government focused on access to care and removal and legal cost and we're waiting to see what the consultation will will get.

Charles J. G. Brindamour: It's pretty clear, in fact, that the Alberta marketplace is best served by private industry. And I think everybody recognizes that. So I'm not concerned about that myself. I don't need to add much.

Guillaume Lamy: It's it's a it's pretty clear in fact that.

Charles J. G. Brindamour: Uh huh.

Charles J. G. Brindamour: The Alberta market places is best served by private industry and I think everybody recognizes that so I'm not concerned about that myself.

Speaker Change: Don't need to add much I think youll Miss exactly right. We looked at the report together and bit of a job from an actuarial point of view.

Charles J. G. Brindamour: I think Guillaume is exactly right. We looked at the report together, and it was a bit of a joke from an actual point of view. But I think there are pressure points in the system. We've made them very clear. And I think we have very concrete recommendations looking forward to working with the government on that.

Charles J. G. Brindamour: But I think there are pressure points in the system and we've made them very clear.

Charles J. G. Brindamour: And I think we have very concrete recommendation looking forward to work with the government on that.

Stephen Boland: All right, that's great. That's a pretty clear view. Thanks, guys.

Speaker Change: Alright, that's great, but that's pretty clear view thanks, guys.

Operator: Thank you. The next question will be from Lemar Persaud at Cormark. Please go ahead. Yeah, thanks.

Speaker Change: Thank you next question will be from Lamar Prasad at core Mark. Please go ahead.

Operator: Yeah, thanks. I just want to close the loop on this Alberta auto discussion. So it seems to me like there's no clear silver bullet to auto reforms in the province, and, you know, profitability could be challenged for quite some time. Is that kind of the bottom line assumption we should be taking away from Alberta? And then, finally, would it be fair to suggest that there's no real downside risk here to the sub-95% combined ratio outlook in personal auto if these reforms do kind of get dragged out into the future?

Lemar Persaud: Yeah. Thanks, I just wanted to close the loop on this Alberta auto discussion. So it seems to me like there's no.

Operator: Clear silver bullet to auto or firms in the province, and profitability could be challenged for quite some time is that kind of the bottom line assumption, we should be taking away.

Operator: On Alberta, and then finally would it be fair to suggest that there's no real downside risk here to the.

Operator: The sub 95% combined ratio outlook and in personal auto if these reforms do you kind of get dragged out into the future.

Lemar Persaud: So I think, you know, the good news is that inflation is coming down, and it's not that far from the cap that currently exists in Alberta. We don't think the cap is sustainable. We think the cap is a bad idea.

Operator: So I think you know the the good news is that inflation is coming down.

Speaker Change: It's not.

Lemar Persaud: That far from the cat that currently exist in Alberta, We don't think that cap is sustainable we think that that is a bad idea. That's why you're seeing capacity issues in the Alberta market place, but we think that for any a very good position from a rate point of view to navigate.

Charles J. G. Brindamour: That's why you're seeing capacity issues in the Alberta marketplace, but we think that we're in a very good position from a rate point of view to navigate this environment and potentially grow as there is pressure in the system. So in terms of upside and downside around the sub-95 guidance, we spend a lot of time mapping the range around that. But I would say... you know, if you're earning close to 10-ish percent, and inflation is in the mid-single-digit zone.

Charles J. G. Brindamour: This environment and potentially grow as there is pressure.

Charles J. G. Brindamour: In the system.

Charles J. G. Brindamour: So in terms of upsides and downsides around the sub 95 guidance.

Charles J. G. Brindamour: We spend a lot of time at mapping the range around that.

Charles J. G. Brindamour: But I would say.

Charles J. G. Brindamour: That you know if you're earning.

Charles J. G. Brindamour: Okay.

Charles J. G. Brindamour: Those to 10 ish.

Charles J. G. Brindamour: Were sent.

Charles J. G. Brindamour: And the inflation is in the mid single digit.

Charles J. G. Brindamour: One.

Charles J. G. Brindamour: You have room to absorb downside and maintain the guidance, and that's why we express confidence around the guidance that we're providing. Guillaume, would you agree with that? Totally agree. And I think...

Charles J. G. Brindamour: You have room to absorb downside and maintained the guidance and that's why.

Guillaume Lamy: We expressed confidence around the guidance the guidance that we're providing.

Guillaume Lamy: Yield would you agree with that totally agree nothing to add.

Lemar Persaud: And then maybe just on distribution income, I'm just curious, what gives you guys the confidence in this 10% growth range for 2024, despite the, I guess, tough start to the year? Like, does this assume more normalized weather conditions? What if weather conditions remain favorable? Like, could the lag from on-site be enough to pull down distribution income from that 10% growth range? Thanks.

Speaker Change: Great. Thanks.

Guillaume Lamy: Then maybe just on distribution income I'm just I'm curious what gives you guys the confidence in this.

Lemar Persaud: 10% growth range for 2024, despite the yeah.

Lemar Persaud: Yeah, I guess tough start to the year like does this assume more normalized weather conditions weather if weather conditions remain favorable I could the lag from onside be enough to pull down distribution income from that 10% growth.

Lemar Persaud: Growth range. Thanks.

Lemar Persaud: I think what gives me confidence is the strength of the team at BrokerLink and what they have in the pipeline, both organically and from a consolidation point of view. But I'll let Louis provide his perspective. Well, that's absolutely right.

Speaker Change: I think the what gives me confidence.

Louis Marcotte: Is the strength of the team at broker link.

Louis Marcotte: And what they have in the pipeline both organically and from a consolidation point of view, but I'll, let we provide his perspective.

Louis Marcotte: So the results here, we were not totally surprised; we weren't expecting growth in Q1. So that's why the only shortfall is really the onside shortfall. Now, the total earnings from distribution is a small portion of it. So the fact that there's a bit of a lack of earnings in Q1 doesn't really take a huge weight on our overall expectations. So in Q1, we weren't expecting a lot of growth overall, and there were two trends opposing each other.

Louis Marcotte: Well, that's absolutely true, and I will say that about all of our other brokers in the network as well.

Louis Marcotte: Well, that's absolutely true and I will say all of our other brokers in the network.

Louis Marcotte: That's work as well.

Louis Marcotte: So so the results here, we were not totally surprised we weren't expecting grow within Q1. So the that's why the only shortfall is really the onside.

Louis Marcotte: Shortfall now onside of the total earnings from distribution is a small portion of it. So the fact that it's there's a bit of a lack of earnings in Q1 doesn't really take a huge weight over our overall expectations.

Louis Marcotte: Q1, we weren't expecting a lot of growth overall and there's two trends are pushing each other one declining C. P. CS as you know over time I've been following the pandemic, that's a bit of a headwind, but we're offsetting it with growth organic growth and acquisition growth and we map out the whole year I'm fairly precisely.

Louis Marcotte: One, declining CPCs, as you know, over time and following the pandemic, that's a bit of a headwind, but we're offsetting it with growth, organic growth, and acquisition growth. And we map out the whole year fairly precisely, and other than on-site, the rest is expected to grow and offset the shortfall in Q1. So that's why we're confident it's pretty baked in; it's not relying on weather. We know what's in the pipeline from an acquisition point of view.

Louis Marcotte: And other than onside the rest is expected to grow and offset the shortfall in Q1. So that's why we're confident it's pretty baked in and start relying on weather.

Louis Marcotte: We know what's in the pipeline in terms of CPCs, new CPCs, and the ones that are declining. So we have pretty good visibility for the rest of the year. It is a seasonal business; keep that in mind. And last year, you'll remember that in the first half of the year, we didn't have as much M&A activity. So now it's sort of picking up, and that will flow into our results. So my level of confidence on that front is quite high.

Louis Marcotte: No what you know what's in the pipeline from an acquisition point of view, we know what's in the pipeline are in.

Louis Marcotte: In terms of Cpc's, our new C. P CS and the ones that are declining so we have a pretty good visibility on the rest of the year. It is a seasonal business keep that in mind and last year, you'll remember the first half of the year, we didn't have as much M&A activity and so now it's sort of picking up and that will flow into our results. This year. So.

Louis Marcotte: Full of confidence on that front is quite high.

Louis Marcotte: Thanks.

Louis Marcotte: Yeah.

Louis Marcotte: Okay.

Operator: Thank you. The next question will be from Nigel D'Souza at Veritas Investment Research. Please go ahead.

Louis Marcotte: Thank you next question will be from Nigel D'souza at Veritas investment Research. Please go ahead.

Operator: Thank you. Good morning.

Nigel D'Souza: Thank you. Good morning, My first question for you going back to <unk>.

Nigel D'Souza: Investment result, I'm just wondering if you could provide some color on what drove the quarter over quarter decline in your market based yield I wasn't expecting that given that reinvestment yields are still.

Nigel D'Souza: My first question for you, going back to investment results, is just wondering if you could provide some color on what drove the quarter-over-quarter decline in your market-based yield. I wasn't expecting that given that reinvestment yields are still comfortably above your book yield. So any color there and then also, your guidance implies that operating net investment income will remain potentially flat.

Nigel D'Souza: Comfortably above your book yield so any any color. There and then also you know your guidance implies that operating net investment income will remain essentially flat for the remainder of the year. So just wondering if you could.

Speaker Change: Elaborate on that.

Nigel D'Souza: Yeah, so keep in mind here just on the second end. We're up 30% in Q1, and we'll be up 15% for the whole year. So the rate of increase year over year remains robust, but just shrinks as the quarters pass by, as last year we've been accumulating more investment income. So it is a bit stable, but you have to run from a Q4 run rate investment income going forward into this year, and it's fairly evened out throughout the year. It's not perfectly even, but over the year, it's about the same run rate.

Speaker Change: Yeah. So keep in mind here just on the secondhand. The we're up 30% in Q1 and will be up 15% for the whole year. So the rate of increase year over year remains robust, but just shrinks as quarters pass by as last years, we've been accumulating more investment income so.

Nigel D'Souza: So it's it has it been stable, but you have to run from a Q4 run rate investment income going forward into this year and it's fairly even out throughout the year, it's not perfectly even but over the year. It's about the same run rate, so, but I think that will equate to a 15%.

Louis Marcotte: But that will equate to a 15% increase in investment income in dollars year over year. Then, from a market-based yield, you must be comparing sequentially the numbers, and the only reason I see here is an increase in the portfolio itself that would have declined a bit, the market-based yield. And that figure, because there is a denominator that moves because of interest rates and capital markets, is a bit less relevant than the actual book yield versus market or reinvestment yield that we use.

Louis Marcotte: Our increase in investment income in dollars year over year, then from a from a market yield market based yield he must be comparing sequentially.

Louis Marcotte: The numbers and the only reason I see here is an increase in the portfolio itself.

Louis Marcotte: That would've declined a bit the market base yields and <unk>.

Louis Marcotte: That figure because there is a denominator as it moves because of interest rates and capital markets is a bit less relevant than the actual book yield versus market toward reinvestment deal that would be U S. And so that is where the upside is we still have a book yield that's probably 90 bps below the reinvestment yield so as bonds mature, we'll be able to read.

Louis Marcotte: And so that is where the upside is. We still have a book yield that's probably 90 bps below the reinvestment yield. So as bonds mature, we'll be able to reinvest them at higher yields. The market-based yield is just two factors. Here is the investment and the market value of the assets, and it's a bit less. It's directionally right, but less specific when you compare quarter over quarter.

Louis Marcotte: Vesta reinvest them at higher yields the market based yield is just two factors here is the investment in the market value of the assets and it's a bit less it's directionally right.

Louis Marcotte: Less specific when you compare quarter over quarter.

Nigel D'Souza: That's helpful. And then my second question was about a change in presentation next quarter on the net impact of this county. I want to understand that it's going to be excluded from your net offering income. And I was just wondering the rationale behind it, because when I think about the prior standard, it was included in net offering income, and IFRS 17 just changes the classification of the unwind of the discount into your investment results. So why now, in terms of that change in presentation, since it was included in net offering income in the prior standard, despite the impact of interest rate volatility?

Speaker Change: Okay. That's helpful. And then my second question was on the change in presentation next starting next quarter.

Nigel D'Souza: In fact this discounting.

Nigel D'Souza: Stand up is going to be excluded from yours.

Nigel D'Souza: Net operating income and I was just wondering the rationale behind it because when I think about the prior standard.

Nigel D'Souza: It was included in net operating income and Iron for 17, just changed the classification of the unwind of the discount into.

Nigel D'Souza: <unk> results. So why why now in terms of if that changed your presentation. Since it was included in net operating income.

Nigel D'Souza: In the prior standard despite.

Nigel D'Souza: The impact from interest rate volatility.

Louis Marcotte: Yes, so thanks for the question and pointing it out. We chose to reclassify it following, I will say, the publication of all the 2023 earnings from all the players under IFRS 17. You will know that historically we try to classify as non-operating the movements that are driven by capital markets, whether it's interest rate changes or market-based changes, because we're trying to isolate the pure operating and underwriting business and not include interest rate changes in that performance. The investment income will pick up interest rate changes, but not the movement within a quarter.

Speaker Change: Yes, so thanks for the question and pointing it out.

Louis Marcotte: We chose to to reclassify. It's following I will say the publication of all the 20th twenty-three earnings from all the players underwriter for 17.

Louis Marcotte: You will have known that historically, we tried to put is not operating the movements that are driven by capital markets, whether it's interest rate changes or market based changes because.

Louis Marcotte: Because we're trying to isolate the pure operating and underwriting business and not include interest rate changes in that performance investment income will pick up interest rate changes, but not the movement within a quarter and we've historically have always had that in the non operating section with ire for 17, we got a bit too.

Louis Marcotte: And we've historically always had that in the non-operating section. In our minds, it would have been evened out. It would level out at zero impact.

Louis Marcotte: Trapped with some noise from the interest rates movement being captured in operating earnings.

Louis Marcotte: In our minds it would've been evened out a it would level out at zero impact, but the reality is our formula is a bit different than it causes noise and we think the noise is just causing disturbance. It's not huge numbers. It was 1 billion bucks of offset in Q1. So it's not it's that's where we expect it to be and therefore think it's cleaner to put it into.

Louis Marcotte: But the reality is the formula is a bit different, and it causes noise. And we think the noise is just causing a disturbance. It's not huge numbers. It was 1 million bucks of offset in Q1. So it's not it's that we expect it to be and, therefore, think it's cleaner to put it into non-operating results. It will be fully disclosed so you can track the number, you know, in any way you want.

Louis Marcotte: Nonoperating results it will be fully disclosed so you can track the number you know in any way you want but we just think it's cleaner to halve the operating results, excluding the impacts of market rate changes.

Louis Marcotte: But we just think it's cleaner to have the operating results excluding the impacts of market rate changes or capital market impacts. But that's very consistent with what we've done in the past. And we're just refining our presentation going forward.

Louis Marcotte: Our capital market impacts that but that's very consistent with what we've done in the past.

Louis Marcotte: And we're just finding a presentation going forward.

Nigel D'Souza: I guess just to clarify the specific net impact from discounting that was included in net operating income under HFIRS 4, so the rationale makes sense, but why did you not exclude it previously? I guess that is my question, because the same rationale was applied.

Louis Marcotte: I guess just to clarify that's net into the specific net impact from discounting that was included in net operating income at a higher price for so.

Nigel D'Souza: Now it makes sense, but you know why.

Nigel D'Souza: Why did you not excluded previously I guess is my question because the same rationale.

Louis Marcotte: The formula in the past was a formula that was symmetric, and there was actually a fairly close correlation between the buildup and the unwind. But with IFRS 17, they changed the rules, and there's not as close a correlation, because we have to use a weighted average in one case and the opening value in the other one, and that creates noise, and therefore, yeah, our preference to move it down.

Nigel D'Souza: The formula in the past was a formula that was symmetric and you could there was actually a fairly close correlation between the buildup in the unwind with ire for 17, they changed the rules and there is not as closer correlation.

Louis Marcotte: We have to use a weighted average and one case any opening value and the other one and that creates noise and therefore.

Louis Marcotte: Our preference to move it down yeah and keep in mind. This is a one year standard we want to make your job easier and we wanted to make sure. We talk about the same things we're using to manage the business and we felt the noise that this created.

Charles J. G. Brindamour: Yeah, and keep in mind, this is a one-year standard. We want to make your job easier, and we want to make sure we talk about the same things we're using to manage the business, and we felt the noise that this created was not very helpful. There's nothing really more to it than that. It's a new standard, we tried it for a year, and we want to move to something simpler, and that's why we made the call.

Charles J. G. Brindamour: It was not not very helpful Theres, nothing really more to it.

Charles J. G. Brindamour: Then that it's a new standard we've tried it for over a year.

Charles J. G. Brindamour: And we want to move to something simpler than that that's why we make the call more comparable to our peers in Canada is also yes.

Louis Marcotte: more comparable to our peers in Canada as well. Also, yeah.

Nigel D'Souza: That's all folks, that's it for me. Thank you.

Speaker Change: Okay. That's helpful. That's it for me thank you.

Shubha Rahman Khan: Thank you, and at this time, we have no other questions registered. Please proceed.

Speaker Change: Good. Thank you and at this time, we have no other questions registered please proceed.

Shubha Rahman Khan: Thank you 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. The transcript will also be available on our website in the financial reports and filing section. Our 2024 second quarter results are scheduled to be released after market close on Tuesday, July 30th with the earnings call starting at 11am Eastern the following day. Thank you again, and this concludes our call for today.

Speaker Change: Thanks, everyone for joining us today following the call a telephone replay will be available for one week and the webcast will be archived on our website for one year transcript will also be available on our website in the financial reports <unk> filings section.

Shubha Rahman Khan: 24 second quarter results are scheduled to be released after market close on Tuesday July 30th was an earnings call. It starting at 11 a M. Eastern the following day.

Shubha Rahman Khan: Thank you again and this concludes our call for today.

Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines.

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

Music: [music].