Q4 2024 Intact Financial Corp Earnings Call
Good morning, ladies and gentlemen, and welcome to the intact Financial Corporation Q4, 2024 results conference call at.
At this time all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session.
Any time during the call you require immediate assistance. Please press star zero for the operator also note that this call is being recorded on Wednesday February 12 2025.
Speaker Change: I would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead Sir.
Speaker Change: Thank you 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 intact F. C dot com under the investors tab before we start please refer to slide two for cautionary language.
Speaker Change: Guarding the use of forward looking statements, which form part of this morning's remarks and slide three for a note on the use of non-GAAP financial measures and important notes on adjustments terms and definitions used in this presentation.
Speaker Change: To discuss our results today I have with me our CEO Charles bring tomorrow.
Speaker Change: Our CFO.
Speaker Change: Got it.
Patrick Barbeau: Patrick Barbeau Executive Vice President and Chief operating Officer, Darren Godfrey Executive Vice President and Chief underwriting officer for global specialty lines.
Lemme: Lemme Senior Vice President of personal lines, and Ken Anderson Executive Vice President and CFO of you cannot.
Charles Bring: We will begin with prepared remarks, followed by Q&A and with that I will turn the call over to Charles.
Speaker Change: Thanks Chip.
Charles Bring: Good morning, everyone and thank you for joining us today.
Speaker Change: We finished at 2024 with our best quarter on record.
Speaker Change: The net operating income per share of $4 93 up 23% from last year.
Speaker Change: All of our businesses contributed to this result.
Speaker Change: Including strong underwriting across all regions.
Speaker Change: Best men and distribution income.
Speaker Change: The strength and diversification of our platform is evident as.
Speaker Change: As is our ability to grow earnings.
Speaker Change: Per quarter.
Speaker Change: In the context of economic and climate the uncertainties.
Speaker Change: We've proven that our organization is very resilient.
Speaker Change: And well positioned to thrive operationally and financially.
Speaker Change: Let me provide.
Speaker Change: A bit more details on the fourth quarter.
Speaker Change: Our combined ratio was excellent at 86.5% four points better than last year with strong underlying performance across all lines of business.
Speaker Change: Topline growth was solid at 5%.
Speaker Change: Led by continued momentum in personal lines with growth in the double digit range within commercial lines well.
Speaker Change: While rates remain in the mid single digit range across most of our portfolio.
Speaker Change: And conditions remain favorable overall.
Speaker Change: We delivered an operating are we up 16, 5% in 2024 and ended the year with $2 9 billion of total capital margin.
Speaker Change: Yeah.
Speaker Change: This is after incurring $1 5 billion of catastrophe losses.
Speaker Change: Reflecting the resilience of our results. In addition, we.
Speaker Change: We did not slow down on the strategic front during the year and we're really well positioned to continue delivering on our roadmap in 'twenty five.
Speaker Change: We're pleased to increase dividends for the 20th year in a row.
Speaker Change: Representing a 10 year compounded annual growth rate of 10%.
Speaker Change: Let's now look at each of our lines of business starting right here in Canada.
Speaker Change: In personal auto.
Speaker Change: <unk> grew 12% in the quarter.
Speaker Change: Driven both by customer growth and rate our investments in digital marketing and customer experience are really paying off and we're well positioned to continue to deliver strong growth in 2025.
Speaker Change: We expect hard market conditions to persist over the next 12 months and our competitive positioning to further improve.
Speaker Change: The combined ratio in auto was 94, two in the quarter driven by strong underlying results. The full year combined ratio of 95, four was within expectations, especially after excluding half a point of negative impact from excess cat losses.
Speaker Change: We remain very comfortable to grow in this environment and are well positioned to deliver a combined ratio in line with.
Speaker Change: With our sub 95 guidance in 2025.
Speaker Change: Okay.
Speaker Change: Moving now to personal property premium growth was 9% in the quarter also driven by both rates and continued customer growth.
Speaker Change: As the industry response to reset reset severe weather events.
Speaker Change: We expect hard market conditions to persist over at least the next 12 months with growth in the low double digits.
Speaker Change: The combined ratio for the quarter was very strong at 77, 1%.
Speaker Change: Reflecting our profitability actions over the last 18 months.
Speaker Change: For the full year. The combined ratio was 96 five a positive result, given the 20 points negative impact from cat losses.
And the last five and 10 years. This line generated a 90% combined ratio on average as we look ahead, we maintain our guidance of a sub 95 combined ratio even with severe weather.
Speaker Change: Commercial lines premiums were up 4% in the quarter driven by mid single digit rates other than in large accounts, where we continued to see increased competition.
Speaker Change: The market remains favorable across most lines and we expect industry growth in the mid single digit range over the next 12 months.
Speaker Change: We delivered a very strong combined ratio of $78 eight in the corridor with an improvement of six points year over year.
Speaker Change: We also ended the year in a solid position stood at 86%.
Speaker Change: We continue to see the benefits of our underwriting discipline and sophistication.
Speaker Change: We remain well positioned to capture growth opportunities.
Speaker Change: And deliver a sustainable low ninety's or better performance.
Speaker Change: Yeah.
Speaker Change: Now, let's look at our U K business, the direct client broker commercial lines integration is progressing well.
Speaker Change: This acquisition has added 30% to our premium base in DNI.
Speaker Change: As expected, we're working on improving its performance.
Speaker Change: This created a four point drag on growth in Q4 as direct line of snow in the comparative period.
Speaker Change: And we're already seeing the benefits as the underlying performance in the U can I as improved by more than two points, mainly coming from these actions.
Speaker Change: In the rest of the UK business conditions remain conducive to appropriate rate actions or the next 12 months, we expect mid single digit premium growth for the industry.
Speaker Change: Okay.
The combined ratio of 92, seven for the quarter and 92 eight for the year were strong.
Speaker Change: Centering the elevated cat losses.
Speaker Change: Our refocus you can't ice segment is well positioned.
Speaker Change: To evolve the combined ratio towards 90%.
Speaker Change: In the U S. Our premium growth was flat in the quarter.
Speaker Change: This is reflective of ongoing corrective actions taken in underperforming segments.
Speaker Change: If we exclude these growth was 4% with healthy rate increases across the rest of our book.
Speaker Change: Given the current market conditions, we expect industry premium growth to be in the mid to high single digits over the next 12 months.
Speaker Change: We will continue to focus on deepening our broker partnerships to capitalize on growth are fortunate.
Speaker Change: And the combined ratios remain strong at 86, 1% for the quarter and 87, 5% for the year proof of our continued underwriting discipline.
Speaker Change: Going forward, we remain well positioned to continue to run this business in the low nineties or better.
Speaker Change: Let me now highlight some of our notable strategic milestones and initiatives.
Speaker Change: First building scale in distribution is key to our success.
Speaker Change: In Canada broker linked closed another eight acquisitions in Q4 alone and continued to deliver solid organic growth.
Speaker Change: This brings its total premiums under management to $4 3 billion for the year and we're well on our way to achieving our target of $5 billion in 2025.
Speaker Change: We're accelerating our pricing sophistication within global specialty lines.
Speaker Change: And anchor of our strategic roadmap.
Speaker Change: I sing governance tools and enhanced segmentation were implemented across nine new verticals in Q4.
Speaker Change: Representing 21% of our global specialty lines volume.
Speaker Change: We're maintaining our competitive edge and continuously in a bank enabling.
Speaker Change: More efficient underwriting decisions in real time.
Speaker Change: I've said before we aim to be the best AI insurance shop in the World, We bolstered our data and AI capabilities. This year again and.
And I have over 500 models to help us optimize underwriting performance and customer experience.
Speaker Change: This represents over $150 million of run rate underwriting profit.
Within our commercial lines portfolio, we deployed a new generative AI solution nearly three out of four quotes go through our new tool.
Speaker Change: Eliminating duplicate entries for brokers and increasing our speed up new business submissions.
Speaker Change: Investing in our people is an important pillar of our strategic roadmap.
Speaker Change: We were once again named as a best employer in both Canada and the U S for the ninth and six consecutive year respectively.
Speaker Change: I'm very proud of all we've accomplished in the past year and none of it would be possible without the dedicated work from each and every one of our people and we're looking forward to bringing the same passion and commitment this year.
Speaker Change: Overall, we're entering 25 with a lot of positive momentum.
Speaker Change: <unk> is in the mid single digits, our underwriting performance in the low nineties are operating ROE and that in the high teens.
Speaker Change: We're well positioned to execute on our strategy and achieve our target of 10%.
Speaker Change: Rope annually overtime and outperform the industry ROE by at least 500 basis points ever.
Speaker Change: Every year.
Finally, as this is we must cuts last call as our CFO.
Speaker Change: I wanted to take a moment to thank him for his relentless dedication to helping grow intact into a leader in the global P&C industry, including the last 11 years as our CFO tomorrow.
Speaker Change: The market capitalization of the company saw a five fold increase to over $50 billion with an annual total shareholder return of 16% over his tenure.
Speaker Change: And then that Louis exemplifies our values every single day and I look forward to continuing to work closely with him in his role as vice chair of intact.
Did that.
Speaker Change: Next week and Mike is to you.
Speaker Change: Thanks, Charles and good morning, everyone.
Speaker Change: I'm, obviously very happy to end the year on such a positive note. We delivered net operating income per share of $4 93 in the fourth quarter, our highest ever which drove a 26% increase in full year annoying to $14 43.
Speaker Change: This is a result of all segments and lines of business being.
Speaker Change: Very strong position.
Speaker Change: Coupled with continued growth in investment and distribution income operating ROE was 16, 5%. Despite a three point drag from higher than expected cat losses, and the very healthy levels of capital margins.
Speaker Change: Now let me provide some color on our Q4 results, we reported $130 million in catastrophe losses below our expectations for the quarter.
Speaker Change: And $1.5 billion on a year to date basis looking ahead to 2025, we are increasing our annual cat guidance to $1 2 billion. This reflects our growing premium base inflation and recent experience.
Speaker Change: It also reflects the successful renewal of our reinsurance programs.
Speaker Change: At January one 2025.
Speaker Change: We lowered our exposure to tail events as.
Speaker Change: As well as added some protection for multiple lower severity events.
Speaker Change: At the same time, we increased the retention of our catastrophe treaty in Canada from 250 million to $350 million.
Speaker Change: When combining the savings on the renewal with the proactive rate actions, we have been taking our combined ratio guidance for each line of business remains unchanged.
Speaker Change: We do not expect any impact on our overall earnings expectations.
Speaker Change: Moving away from Cats, I'm very happy with the strength of our underlying performance. The current accident year loss ratio of 66% was two points better than last year. This.
Speaker Change: This improvement is driven by our profitability actions across all our lines of business and regions.
Favorable prior year development was healthy at five 8% for the quarter.
Speaker Change: This includes approximately one point favorable impact from prior year cat losses.
Speaker Change: At four 8%, we are slightly above the upper end of our guidance of 2% to 4%.
But this should not be a surprise given our prudence.
Speaker Change: We still expect to land around the higher end of the range in the near term.
Speaker Change: As you know.
Speaker Change: We look at current accident year and prior year developments combined I'm, particularly pleased that we were able to deliver improvements in both.
Speaker Change: On the expense side the expense ratio of 33, 6% in the quarter and 33, 7% for the year were largely in line with expectations. Despite absorbing a few bips of incentive compensation, which are largely driven by combined ratio outperformance.
Going forward, our guidance of approximately 33% to 34% annually remains unchanged.
Speaker Change: Operating net investment income increased 6% in the quarter, mainly due to higher book yields for.
Speaker Change: For 2025, we expect investment income to reach approximately one 6 billion.
Speaker Change: This takes into account normal turnover.
Speaker Change: In a moderate decrease in floating interest rates over the upcoming year.
Speaker Change: Distribution income increased by 13% in the quarter and 12% for the year, resulting from solid organic growth and continued M&A activities.
Speaker Change: [noise] ahead, we expect distribution income growth of approximately 10% in 2020 fives fueled by a healthy pipeline of acquisitions at broker like.
Speaker Change: Moving now to our balance sheet.
Speaker Change: Value per share increased 2% in the quarter and 13% year over year, driven by our solid operating performance.
Speaker Change: Along with favorable capital movements.
Speaker Change: Movements in capital markets.
Speaker Change: Over the last 11 years, our book value per share has grown 10% on an annualized basis. I think we are in great shape to maintain this track record in the future.
Speaker Change: We generated approximately $2 6 billion of capital this year, despite the impact from excess catastrophe losses. Most of it was deployed on deleveraging dividends distribution M&A and growth.
Speaker Change: With a total capital margin of $2 9 billion at the end of December and an adjusted debt to total capital of 19, 4%, we are well positioned to capture growth opportunities organic or inorganic as they emerge.
Speaker Change: Okay.
Speaker Change: Given our outlook on earnings growth and the strength of our balance sheet, we raised our quarterly dividend once again by 10% to $1 33 marketing the 20th consecutive increase.
Speaker Change: We are also renewing our share buyback program. This month on the same terms as the existing program.
Speaker Change: Our focus remains to deploy our capital on growth, but maintaining our buyback program provides further flexibility in our capital deployment framework.
Speaker Change: Looking ahead, we are starting 2025 and a very strong position.
Speaker Change: Our relative and absolute performance is robust we are driving profitable growth and we are continuing to advance on our strategic roadmap.
As this is my last earnings call as CFO I wanted to take a moment to thanks, Charles for a stressed and outstanding leadership throughout the years.
Speaker Change: I would also like to thank everyone at intact for their hard work and dedication you are the ones who deserve credit for the results we are delivering today.
Speaker Change: And finally, a heartfelt thanks to our finance teams around the World you are simply the best it was a pleasure to work alongside all of you as we transformed <unk> into one of the most respected companies in Canada and in the industry.
Speaker Change: Finally, after working closely with them for the last 17 years I'm, absolutely confident that investors employees and all stakeholders will be in good hands under Ken Anderson financial leadership.
Jeff: With that I'll give it back to Jeff.
Jeff: Thank you Louis.
Speaker Change: In order to give everyone a chance to dissipate in the Q&A, we would ask that you limit yourself to two questions per person you can certainly re queue for follow ups and we'll do our best to accommodate if there's time at the end.
Jeff: <unk>, we're ready to take questions now.
Speaker Change: Ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on you touched on something you will hear a prompt that Johan has it been rates and should you wish to withdraw from the question queue. Please press star followed by two which you're using a speakerphone you will need to lift the handset.
Speaker Change: Before pressing any keys. Please go ahead and press Star one now if you have any questions.
First we will hear from Doug Young at <unk> capital markets. Please go ahead.
Speaker Change: Hi.
Speaker Change: Good morning.
Speaker Change: First question the market has been able to push through decent price increases in Ontario are auto it sounds like in auto in general, but I assume in Ontario in particular.
Speaker Change: Premium growth is outpacing loss cost inflation.
Speaker Change: I guess thanks for the question really is should we expect prices to start to stabilize here.
Speaker Change: And if not why not given the.
Speaker Change: The trends that we're seeing and any pressures obviously in Ontario.
Speaker Change: Election elections can often kind of bring some.
Speaker Change: Balls and anything we should be thinking about.
Speaker Change: On that side.
Speaker Change: Okay.
Yes.
Speaker Change: Thanks, Doug.
Speaker Change: Give him to share his perspective on the you know the industry is performance and what it means for trajectory of rates and then may be a tad.
Speaker Change: You can provide a bit of perspective on the inflation, you're seeing in automobile insurance and that should give you plenty to work with Doug So Gil.
Speaker Change: Yes, thanks, Doug so.
Speaker Change: Our rates increased double digits in the quarter and that was a fueling the growth that we saw 12%. We also saw.
Speaker Change: Unit growth really gaining momentum.
Speaker Change: If you went off point, which is a one point improvement quarter over quarter.
Speaker Change: From an inflation perspective, we've seen it stay in the mid single digit and it's been stable for the past few quarters, so heading into 2025 gig.
Speaker Change: Given the stabilizing inflation, we expect written rates to kind of gradually normalized towards the mid single or mid to high single digit reducing the gap between written rate and inflation.
Speaker Change: From an industry perspective, we still see the industry as unprofitable.
Speaker Change: Towards three quarters, the first three quarters of 2024, so we sell.
Speaker Change: Thing that there is a lot of catch up to do from an industry perspective, so with our rates normalizing in 2025, we also expect retention to be further strengthen our competitive position to improve them. So that's what also.
Speaker Change: It dropped.
Speaker Change: Thank you Don and Vic do you want to shed a bit more color yeah.
Speaker Change: So we're seeing like CAG Young said are the inflation in northwest stabilized for four quarters now in the mid single digits, but there is still inflation at that level.
Speaker Change: This covered it but there is still inflation the source is in the mid single digit for repairs.
Speaker Change: Due to.
Speaker Change: The parts in particular, the market values of car I've stabilize over a full year. So theres very little inflation left at the moment, but there's also the long tail lines.
Speaker Change: Where we've seen some inflation for more than a year now and in the mid single digit range as well and it's driven by a.
Speaker Change: Higher litigation and that's.
Speaker Change: That's more in that first time that you didnt take that I cant, Ontario, but.
Speaker Change: Overall, that's that's the picture of inflation in Canada.
Speaker Change: Yes, So I think you know.
Speaker Change: My read.
Speaker Change: Doug is that right.
Speaker Change: Indians are shopping.
Speaker Change: And.
Speaker Change: And we're growing as a result because.
Speaker Change: Our competitive position has improved over time, our digital channel is doing really well like sales digital sales are up almost <unk>.
Speaker Change: 80%.
Speaker Change: The industry has a lot of work to do.
Speaker Change: In that context, how does that take you alluded to I think the key areas where there is.
Speaker Change: The biggest pressure in my mind isn't in Alberta, and indeed Atlantic more so than in the Ontario context, where the cost equation has been a bit more stable and and the reforms that the government has deployed over a number of years already.
Speaker Change: <unk> the cost in a space, that's reasonable and so I wouldn't put it at the top of our risk.
Speaker Change: List at this stage.
Speaker Change: Yeah.
Speaker Change: Hi.
Speaker Change: Just a follow up on this and I can't believe I'm not going to ask about tariffs, but when you think about tariffs in the auto industry being materially impacted the potential pressure on parts is that something.
Speaker Change: That concern to you when it comes to physical damage cost inflation.
Speaker Change: Obviously.
Speaker Change: You know we've studied in depth.
Speaker Change: The impact that a tariff war would have on us as a firm.
Speaker Change: And we think we're in a really really strong position to navigate this storm both operationally as well as financially.
Speaker Change: We've explored a whole range of scenarios and I think we would do well.
Speaker Change: And in those scenarios. Your question, though is specifically in our relationship with automobile insurance.
Speaker Change: <unk> speaking.
Speaker Change: Yeah. The thing to watch obviously is is the supply chain and personal automobile.
Speaker Change: And then the impact on service and the impact on inflation, which as you know we can price for because our product.
Speaker Change: It's just 12 months duration. So we can reprice when we want I'll ask Patrick to give you a perspective on our U S dependency in automobile insurance.
Speaker Change: Tariffs are in mind.
Speaker Change: Sure.
Speaker Change: Maybe we need to look at the different.
Speaker Change: Components of our claims Gus to understand where we could see inflation of the tariffs. There are three main components in our claims cost. The first one is injuries and liabilities, where we shouldn't see.
Speaker Change: Much impact from the tariffs and then you have the labor portion of the repair process that is also.
Speaker Change: Not much impacted by that the terrorists and then you have the cars themselves and the car parts, which is where inflation could come from if I look at specifically that thought too.
Speaker Change: More than half of that cost is coming from the long tailed coverages.
Speaker Change: And then when.
Speaker Change: And then the label part is another 10% so on what remains when we look at.
The cars when insurance that they only 38% or so is coming.
Speaker Change: Were assembled in the U S and then on the parts themselves, it's less than a third of the parts that we use in the repair process.
Speaker Change: For us the U S. Canadian border. So that's why overall, we feel that we can manage between.
Speaker Change: Our close involvement with the supply chain the capability to price the product and we feel that we can manage within the guidance that oh.
Speaker Change: Within the same guidance that we shared before so it's it's a third of physical damage.
Speaker Change: He is a key excluding labor.
Speaker Change: Where you have some sort of U S exposure. So in the big scheme of things for personal automobile performance not big but obviously as we've done.
Speaker Change: Before in periods of high inflation, we'll make sure we manage the supply chain and then we have the pricing.
Speaker Change: Capability.
Speaker Change: Well and and with regards to inflation, obviously, we have you know.
Speaker Change: A granular understanding of the supply chain and that applies buy make and model and.
Speaker Change: Quite frankly.
Speaker Change: Not something we're concerned about in our relationship with the performance of automobile insurance, we're obviously concerned about tariffs for the country itself because it's it's.
Speaker Change: It's no good for anyone one but from an impact financial point of view on our performance, we're in and really solid position. It's also important to keep in mind on this theme that a third of the book value and pretty much a third a bit more than a third of our investments as well.
Speaker Change: Our outside Canada, So a contraction of the Canadian dollar leads to an increase book value per share in Canadian dollars.
Speaker Change: So overall I think.
Speaker Change: Yeah, we're in good position here.
Speaker Change: Yes, no I appreciate and Louie Thanks for all your help over the years and all the best in the next stages.
Speaker Change: Thanks, Doug.
Speaker Change: Thanks, Doug.
Speaker Change: Next question will be from Tom Mackinnon at BMO capital markets. Please go ahead.
Tom Mackinnon: Yeah, Thanks, and first of all before I start Louise Congrats on a great tenure as CFO and all the best.
Tom Mackinnon: Maybe just continuing the tariff question is there anything with respect to personal.
Tom Mackinnon: Property here that would I mean, if we ended up having tariff wars here.
Tom Mackinnon: Does that impact our.
Tom Mackinnon: And any or other lines of businesses.
Tom Mackinnon: Yeah before we jumped in personal prop as I think about the previous question. The other thing with regards to automobile insurance is that if you end up in a tariff war you can expect.
A lot of it was driven per vehicle to come down which acts also as a potential buffer on the overall performance, but let's go to personal prop that take your take on the supply chain or what it means for us.
Tom Mackinnon: Some of the impact on the property lines in here not only personal property, but commercial property as well would be even less than what we just described on the auto lines to give you a feel two thirds of the cost and property is for labor liability.
Tom Mackinnon: Temporary relocations or business interruptions, if you look at the commercial line side. So it leaves one third of the overall costs that is material.
And today, it's only one fourth of that third.
Tom Mackinnon: That we source from the U S. The rest is sourced and manufactured here in Canada, and we have opportunities to further reduce the usage of a U S manufactured goods at onsite and within the supply chain, so even less concern.
Tom Mackinnon: There are.
Speaker Change: Our teams in claims for the past month have been very active to make sure that we optimize the supply chain here and work with our suppliers.
Speaker Change: And intermediaries to make sure that we have as much Canadian content as possible.
Speaker Change: Okay, Thanks, and with respect to you can I I mean, you mentioned that the industry had a mid single digit premium growth rate.
Speaker Change: You were not that and it was a bit of a nuance because we're kind of lapping the just assume.
Speaker Change: The timeframe just when you bought a D L. G in your in depth you.
Speaker Change: You know cutting some lines there how should we be looking at that maybe just over the next couple of quarters and then in 2026 over 2025.
Alaska, our incoming CFO was very well versed in our UK operations to share his perspective, I think the good news on on direct line.
Speaker Change: Is that we.
Speaker Change: We've acquired 20% more.
Speaker Change: Then.
Speaker Change: And then the business with price for.
Speaker Change: Basic key.
Tom Mackinnon: Which which explains why it's grown our position in the UK by so much and it also means we've got a fair bit of room to work here Kent Yep, Thanks, Tom headline growth.
Tom Mackinnon: As we as you pointed out was minus two five points in the quarter.
Tom Mackinnon: That includes direct line or the integration by the way is going really well as Charles said, we have acquired north of $600 million of premium much more than anticipated and of course the integration part of that process is remediation of that direct line bulk that's cost us about four.
Tom Mackinnon: So growth in the fourth quarter.
Tom Mackinnon: But the performance is improving and you know the 92% combined that we printed in Q4 is right in line with where we want to be.
Tom Mackinnon: At this stage.
Tom Mackinnon: Leaving direct line to one side the rest of the UK Ni business, though is is overall running at a low single digit growth here I would say.
Tom Mackinnon: The business flow is strong, particularly in specialty lines Reis is solid we're getting mid single digits overall.
Tom Mackinnon: But the offset we're seeing is similar to prior quarters slightly lower retention and that's driven by that competition in the larger accounts at renewal and therefore, a bit of a downward shift in average premiums or what we would call mix.
Tom Mackinnon: If we look out to 2025.
Tom Mackinnon: As you said, we expect the industry to grow at a mid single digit level.
Tom Mackinnon: We're well positioned to grow in line with fast we've a number of growth initiatives being pursued.
Tom Mackinnon: In terms of the visibility and service to brokers strengthening the submission pipeline and increasing the <unk>.
Volumes.
Tom Mackinnon: At the same time that remediation of direct line will continue and it may create some near term tempering on the top line I would say in the first half of 'twenty five.
Tom Mackinnon: Particular, but as I said, we have lots of room to remediate. The direct line book, given we acquired north of 100 million pounds, a bigger portfolio than we originally modeled and that remediation is really going to be what drives that.
Tom Mackinnon: 92, combined ratio towards 90% looking out 18 to 24 months.
Tom Mackinnon: Yeah.
Tom Mackinnon: I think you know.
Tom Mackinnon: After a year of.
Tom Mackinnon: 27 ish.
Tom Mackinnon: Percent growth.
Tom Mackinnon: That's what you would expect during the integration process.
Tom Mackinnon: And we're really pleased with how the integration is going.
Tom Mackinnon: Okay. Thanks.
Speaker Change: Thank you. Thanks, our next question will be from James Duane <unk> with National Bank Financial. Please go ahead.
James Duane: Yes. Good morning first question just good morning.
Speaker Change: Hum.
Speaker Change: First question just on the the U S business.
Speaker Change: Some some I guess remediation actions going on and not in this platform as well.
Speaker Change: Can you talk maybe a little bit more about what.
Speaker Change: What lines you are taking those profitability actions in and.
Speaker Change: Would these be lines that maybe get tagged for exited lines down the road or where are we in this process.
Speaker Change: Okay.
Speaker Change: Thanks, I'll ask Darren to share his perspective on the on the U S growth.
Darren: Thanks for the question Jami, obviously as you saw our growth was flat in the quarter.
Darren: However, when we back out those corrective underwriting actions that you referred to the.
Darren: The gross versus buy it was actually particularly strong in most of the businesses.
Darren: With respect to the verticals undergoing underwriting actions a couple of things I would say that one is.
Darren: That amounts to less than 10% all Val U S premium base.
Darren: In Q4.
Darren: But obviously it created that drag in the quarter.
Darren: We do expect that drag to somewhat dissipate.
Darren: In the second half of 2025.
Darren: But as I said the underlying growth in the business continues to be good.
Darren: Strong.
Darren: Good call out.
Darren: All segments couple of segments within our financial lines portfolio.
Darren: One is around an appetite change second liens around very strong profitability actions.
Darren: Financial services book, and then an ongoing work in environmental and in Entertainment, we do have clear path to profitability.
Darren: Each of those so.
Darren: They're not venturing towards that exited lines category that you referred to clearly strong actions in place.
Darren: But very confident to deliver profitability so those lines.
Darren: As we move into 'twenty fives and to 'twenty six even though we do have some drag there from growth and also from bottom line I'm very pleased obviously to see that the overall portfolio, including those lines continues to deliver very strong sub 90 combined ratio performance in both the quarter and for the full year.
Darren: Here in 2024.
Darren: Yeah.
Darren: Okay. Thank you.
Darren: Second question.
Darren:
Darren: Maybe more strategic just I appreciate.
Darren: The extra disclosure on the underwriting business or P&C insurance business versus the.
Distribution business and one of the takeaways for me is that.
Darren: You could one could argue that the P&C businesses that is under Levered.
Darren: So maybe just share how you're thinking through.
Darren: Through that aspect is that something that could drive.
Darren: Intact to run at a higher leverage ratio than maybe historically thought of given the breakdown in the in the business from a balance sheet perspective.
Darren: Yes, maybe just a little bit more high level strategic thoughts around how you're thinking of a true back.
Darren: Great question I'll, let the architect of that disclosure answer that question.
Speaker Change: [laughter] Thanks Charles.
Speaker Change: So I'm happy you noticed the new disclosure I think our intention here was to provide a bit more transparency is how how the impact of having a very sizeable distribution activity impacts a P&C our balance sheet and although we are limited and constrained with the chintzy guidelines and capital requirements.
Speaker Change: <unk>.
Speaker Change: The distribution sort of as a difference.
Speaker Change: I also beast.
Speaker Change: And there and therefore that disclosure is good.
Speaker Change: To give you a bit more a sense of how it impacts so you'll see two main impacts on the intangibles. So the brokerage activity has a fair bit of the intangible of the total balance sheet.
Speaker Change: And as well on the debt side as you noticed the PNC is when we take a what I would call. It an average debt loading on the on the broker business. It leaves the P&C business at a very comfortable debt leverage around 16%.
Speaker Change: No we think about the capital structure, we try to optimize it as much as we can the first step was giving a bit more clarity. So people understand I'll say the risk behind our balance sheet and how it's structured.
Speaker Change: There are.
Speaker Change: No intentions to raise the cap, which we intend to do is as we've done in the past when there are growth opportunities to capture we can stretch ourselves a bit and I think that should give you more comfort that the balance sheet is extremely strong and that's when we do go above 20 for an acquisition, we're not taking a high level of Hangzhou risk, yes, that's how I would look at it.
Speaker Change: And I think you need to stack the leverage against the Euro where you can generate with your capital structure. So we're running at the sort of are always we're running and we've been historic here, 20% debt to total cap gives us firepower than chubb.
Speaker Change: <unk>.
Speaker Change: What tend to be very high R. R and accretive transactions, we think it's a good.
Speaker Change: Our balance good strategic mix to operate under at this stage.
Speaker Change: Thanks for your question.
Speaker Change: Thank you and I'm glad we got a chance to chime in there.
Jay: Thanks Jay.
Yeah.
Speaker Change: Next question will be from Mario Mendonca at TD Securities. Please go ahead.
Speaker Change: Good morning, Louie first of all thank you to you for all your hub over there. So it was a real pleasure working with you.
Speaker Change: Thanks Marion.
Speaker Change: Let me I'll go to if we could clarify some things on the tariffs I think we can all appreciate that.
Speaker Change: Intact has not the tip of the spear when it comes to risk on the tariff side, but if you could help clarify something you said one third of the physical cost in commercial you said about one quarter of that would be a U S input.
Speaker Change: I think did you say something similar in auto that about one third was physical and what portion of that would you say would be a U S. Input did you offer anything there.
Speaker Change: Yes, it's oh you're.
Speaker Change: You are right on the on the property side, it's about one third that is material and other materials about one four is coming from the U S.
Speaker Change: So there's.
60% of the auto physical damage, but that includes labor. So when you remove labor it leaves about 40%.
Speaker Change: The cost that is a materials and cars and of that about a third is from the U S. Yes.
Speaker Change: $40.
Speaker Change: It's pretty much.
Speaker Change: So for auto the numbers are 40% and one third for property.
Speaker Change: It's one third in one quarter and did you say what it was for commercial them.
Speaker Change: Personal property and commercial are not that far it's the numbers I was quoting as the two together on property side.
Speaker Change: One third one port as total commercial.
Speaker Change: Personal prop together.
Speaker Change: That was personal and commercial I got it.
Speaker Change: And that's sort of a different type of question Charles I'm getting the impression from listening to this call that.
Speaker Change: You're painting, a picture of better top line momentum for this company and I. Appreciate this is all somewhat contingent on how the economy evolves, but you seem to be painting, a picture is improving momentum we're hearing it from Ken about second the second half U K looking a little better we're hearing about the U S youre staying a little bit about the domestic.
Speaker Change: Commercial as well.
Speaker Change: Ah you're now talking about better unit growth in personal auto and personal prop personal auto personal property. So first of all my right suggest that's what you're pointing us to that as the year progresses, particularly into the second half we could see the top line for this company accelerate.
Speaker Change: Okay.
Speaker Change: Yes, I think that's a good assessment of it depends on the trajectory of first lines, but so far that's looking really good and all hands are on deck to make sure that we make the most of the environment in which we operate in both commercial lines and specialty lines and yes, that's an accurate read of what I said.
Speaker Change: <unk>.
Speaker Change: And let me just go one final final point here, a finer point when I look at unit growth in personal auto and personal property over time. These numbers are tiny if you look at them on a quarter over quarter basis, it's like half of 1% or 1%. So when you said that unit growth could improve.
Speaker Change: And those two lines auto property in Canada, what does that mean does that mean it could just be maybe one or 2% because I've never seen these numbers more than call. It 115% in any given quarter, what does that mean, when you say unit growth could improve.
Speaker Change: Yes.
Speaker Change: So yeah.
Speaker Change: You.
Speaker Change: You look at first saw automobile this is our longest.
Gail so to speak in the portfolio.
Speaker Change: So for the <unk>.
Speaker Change: Growth in that segment can pick up units for sure where we are in the 3% sort of unit growth as we speak that could potentially accelerate but.
Speaker Change: Growing fast and personal automobile is something you need to watch given it's a product that as a four year sort of duration. So I would say a few points up pick up in units is is reasonable in my mind to expect that all depends on how the rest of the market is performing and.
Speaker Change: Similarly in personal property, we think that that there's a fair bit of room to see unit momentum there as well in this environment the outperformance.
Speaker Change: <unk> is very significant.
Speaker Change: Given the environment in which we've operated and the inflation in the past four or five years, we moved ahead of our competitors.
Speaker Change: Much faster that is in the process of changing now and so we're we're pretty keen to see that business grow double digit.
Speaker Change: 25, <unk> or anything else you want to add yeah, maybe just I think I was saying that we do.
Industry is a fair bit of catch up left to do when we look at the recent rate approvals and in Ontario, We've seen big rate approvals by significant competitors in the fourth quarter that will be effective at the start of this year. So I think this kind of plays to our he says that the market conditions are going to continue.
Speaker Change: To improve for us and that good.
Speaker Change: Bring more shopping bring more new businesses and also improve retention as we're scaling down a bit on on rates.
Speaker Change: Alright, and then Cheryl I wanted to know what you think.
Cheryl: Yeah, Yeah. So the last point I would make Mario beyond.
Speaker Change: Rates and competitors.
Cheryl: And history I think.
Cheryl: One meaningful difference is the strength of the direct channel at this stage.
Cheryl: The fact that we're much bigger in the affinity space, where we're growing and that our distribution arm.
Cheryl: Compared to what it was historic he is is much bigger and as a result, the levers for growth.
Cheryl: Are better today than they than they've been historically for us.
Cheryl: And I want to make sure I.
I think that might be looking at unit growth incorrectly. So I'm looking at personal auto policy then for US this year versus last year and it's up about one 5% you referred to 3% am I doing this incorrectly.
Cheryl: Yeah, why don't you, yes, so so so theres two disclosure one which is.
Cheryl: In forest, which Youre right. This isn't about a point and I asked them. When you look at policy enforce its basically a trailing 12 months of what was written in the last four water. We also disclose the written insured risk which is.
Cheryl: At this.
Cheryl: And this has been at two five points for the quarter up from about a half a point in Q2, one eight in Q3, and two and off and in.
Cheryl: In Q4, so really that's the momentum where we're talking about and ultimately that will translate into a policy enforced.
Cheryl: As it earns.
Speaker Change: Yeah, I'm looking at Red and insured risks now I appreciate the distinction. Thank you.
Speaker Change: Thanks Mario.
Paul Holden: Next question will be from Paul Holden CIBC. Please go ahead.
Paul Holden: Yeah. Thanks, good morning, so theres been a lot of questions on the.
Paul Holden: The commercial lines.
Paul Holden: On the pricing environment, now I think portfolio much feet last year and so as you've highlighted there is some pockets where.
Paul Holden: <unk> is not quite as favorable it was a year ago I guess the key question for me is that just going to result in somewhat lower premium growth as we're already seeing or is there kind of any margin risk here.
Paul Holden: In other words as rate keeping up with with claims inflation.
Paul Holden: Okay.
Paul Holden: Rate is definitely keeping up with inflation and the fact that they work.
Paul Holden: We're shrinking.
Paul Holden: At the top end of size and in another words in large accounts.
Paul Holden: A function of the fact that.
Paul Holden: We have a very clear and detailed understanding of the level of rates at which we're comfortable operating when the market changes in a way that.
Paul Holden: We're uncomfortable then our retention for those segments is much lower.
Paul Holden: And therefore.
Paul Holden: The ongoing profitability of the business is not impacted by a mix shift if you price your business property and frankly.
Paul Holden: We do price the business properly increasingly in global specialty lines, where we have deployed a bunch of models and our governance over the past few years to make sure that we can navigate a market like this what else leaving margin on the table.
Paul Holden: The results clearly show that that's what we've done in the last year.
Paul Holden: I don't know if there's more color you want to add here no I think as you highlighted there Charles I mean, obviously the advancements in our pricing sophistication.
Speaker Change: As <unk> commented on obviously, we're advancing the models in terms of.
Speaker Change: AI and further advancements in both regular commercial lines, adding specialty lines I think also.
Speaker Change: The work that we're doing.
Speaker Change: In deepening relationships with our broker partners as well too.
Speaker Change: Is all of US see another key driver and lever for us in driving growth.
Speaker Change: Very relevant in the U S and we're starting to see.
Speaker Change: Some results from that so those actions that we put in place in the latter part of 'twenty fall really starting to pay off as well too. So that's a big driver for growth for us in 2025, but the bottom line Paul is that a mix shift does not impact the margin.
Speaker Change: I understand okay. That's helpful. Thank you for that.
Speaker Change: Second question is related to Alberta auto.
Speaker Change: I don't want to forget about that one now that things have turned more positive just maybe if you can provide some commentary on sort of.
Speaker Change: You know if the rate environment.
Speaker Change: Clearly there has improved with Reg changes what are you seeing in terms of the competitive environment are you able to achieve that type of rate. He would like to pursue and would you expect better margins in Alberta auto in 2025, and 2026 and maybe we've seen in the last couple of years.
Speaker Change: Yeah, why don't you take this one.
Speaker Change: And so I think as I take you alluded to earlier, we've seen significant cost pressure on the injury side are emerging and are in Alberta, So even though we started.
Speaker Change: With a strong position the recent trends caused by.
Speaker Change: By inquiries litigation on injury eroded profitability.
Speaker Change: We appreciate that the rate cap, increasing to seven 5% and we think it's a step in the right direction, but it's not sufficient to bring IFC or the industry back into a very comfortable territory from a buffet both deep respect.
Speaker Change: But it will push it out to print on furniture, where.
Speaker Change: Listening, but overall with the change in the rate cap the clarification around the reforms, we're more confident in the forward looking trajectory than we were at six to nine months ago.
Speaker Change: We also just obtain a pretty significant trade that provost of 10%.
Speaker Change: That will significantly improve our rate adequacy for our new businesses that are not subject to the rate cap so with that in mind, Oregon of assessing what's our risk appetite for 2025, given the market conditions are still quite that we're in a much better place than than we were I would say six to nine months.
Speaker Change: So there's no doubt about that we're still growing.
Speaker Change: In that market, but the proof is in the pudding and I think those reforms need to be effective because the industry's performance is really problematic and I think every stakeholder now fully understand that and understand why and.
Speaker Change: But you know those reforms need to happen and be real but so far so good.
Speaker Change: Okay. I know, we're supposed to limit your question Claire forms or do I guess 2027, any any any chance that gets pulled forward.
Speaker Change: And this has rarely happened in my career, so I'm sure, there's a chance, but that chance must be really small.
Speaker Change: I understand okay. I think there is a fair bit there theres a fair bit of work to do for the government for the industry. So I don't see a world where those timelines so it.
Speaker Change: Would advance.
Speaker Change: Great. Thanks, Thanks for your time, Thank you very much thanks Paul.
Speaker Change: Okay.
Speaker Change: Our next question will be from Lamar Prasad at core Mark. Please go ahead.
Speaker Change: Yeah. Thanks, I think we've talked about the tariff impacts on the AR on the specific business lines enough, but can you help me think through how a potential trade war with the U S could impact.
Speaker Change: Your ability to meet that one 6 billion in investment income target for 2025.
Speaker Change: Louie why don't you share your perspective.
Louie: Yes, I mean this isn't play inflationary right. So go ahead, yeah. So a good question here, it's hard to sort of predict what the outcomes would be at this point.
Speaker Change: Our expectation takes into account a decline in rates if it shifts.
Speaker Change: If that changes to horizon rates, we'd be in a in a better position. So I think theres two elements here the income itself, which to some extent would be protected underwritten inflationary scenario and from a capital markets point of view all our indicators suggest that we'd be well within a limited impact on book value per share.
Speaker Change: Should markets move significantly so.
Speaker Change: Limited impact upside in an inflationary scenario I guess.
Speaker Change: Okay. Thanks, so much.
Speaker Change: I'd like to see happen.
Speaker Change: Okay. Thank you Glenn.
Speaker Change: Sorry, what's that.
Speaker Change: Go ahead go ahead of it your next question.
Speaker Change: Okay.
Speaker Change: Just on this aggregate cover in place should we think about.
Speaker Change: In fact, as you know potentially having a higher run rate cat loss figure.
Speaker Change: Going forward, but less volatility given the aggregate cover you guys put on top and then did you guys put that in place too.
Speaker Change: Allow yourself to grow book value per share more reliably even in years with higher cat losses, and I'm, just trying to square up.
Speaker Change: You know why you have higher retention in Canada, but then put in an aggregate cover on top hopefully that's.
Speaker Change: Makes sense.
Speaker Change: So so first objective is the the large scale, which we need to cover and we've done that and we were able to improve the conditions of that coverage at lower cost.
Speaker Change: The renewal environment gave us an opportunity to add.
Speaker Change: And our environment called a third event cover.
Speaker Change: Which is what we've done and you know historically, we had that risk of multiple smoke.
Speaker Change: Adding up yellow retention levels.
Speaker Change: But there was no economic benefit to trying to secure that.
Speaker Change: And so what we were what we're trying to protect as a high level of cat losses overall the.
Speaker Change: Taylor's covered than what we were able to acquire this year is that third event, which limits the total exposure to cat losses and to keep us as close as possible to our to our guidance. So that's really the objective that we're pursuing on this element.
Speaker Change: The notion of the retention increasing is really a factor of the appetite of the reinsurers to provide coverage at reasonable terms at those levels and those are the ones. We're most of the accounts that have occurred in Canada and so at some point, we choose to we don't think it's affordable.
Speaker Change: <unk>.
Speaker Change: Lower levels, and therefore take the risks ourselves.
Speaker Change: There and then so we're taking a bit of risk, where we think its worth taking the risk and then getting rid of the risk on the cumulative catch up.
Speaker Change: Losses that would take us above the the guidance. So that's a bit the strategy that we've pursued.
Speaker Change: Okay, Okay that makes sense. Thank you.
Speaker Change: Next question will be from John Aiken of Jefferies. Please go ahead.
John Aiken: Thanks for taking my question I'll try to be quick on this in terms of a prior year development I understand that.
John Aiken: The strength of recoveries as reflecting your prudence, but when I look at personal auto specifically over the last two years, it's averaging above our five points of a tailwind.
John Aiken: <unk> point does this affect you.
John Aiken: Your ability to increase premiums with a regulator or does not have a factor at all.
John Aiken: Yeah.
John Aiken: It does but first of all.
John Aiken: Think one should look at the performance of the business buying tuning current accident year and prior year, because you're building for defense in your current accident year.
John Aiken: Second.
John Aiken: All of that prior year development is embedded.
John Aiken: And how you establish prices and how prices get approved in automobile insurance, which by the way is the only place where we have a rate regulation of any.
John Aiken: Have any meaningful impact so not.
John Aiken: Nuts are hampering our ability to get the.
John Aiken: The prices, we need to price for inflation.
Charles Bring: Thanks, Charles I appreciate that.
Charles Bring: Thank you.
Speaker Change: Ladies and gentlemen, this is all the time, we have today I would like to turn the call back over to Geoff Kwan.
Speaker Change: Thanks, everyone for joining us Dave 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 section of note. Our 2025 first quarter results are scheduled to be released after market close.
Speaker Change: On Tuesday, the sixth with the earnings call, earning at 11 a M. The following day. Thank you again and this concludes our call.
Speaker Change: 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.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: No.
Speaker Change: Okay.