Q4 2024 Intact Financial Corp Earnings Call - Post-Earnings

I think most of you if not all of you know who I am Paul will then cover the financials, including insurance at CIBC.

Pleasure again to host Cheryl bring tomorrow CEO of intact, Charles Thanks for taking the time.

Thanks, Paul Thanks for inviting me I'm happy to be here. This morning.

And thanks, everyone for dialing in and taking taking your time so throw another another very strong.

Year for intact right. So you just reported results last week, and then sort of just provide a quick recap of the 2024 sort of highlights premium growth of 5%. So a good solid result, there, even though youre doing some profit improvement actions and we'll get into that a little bit very strong margins right combined ratio of 92%.

And that's despite a very heavy cat Q3.

Operating ROE of 16, 5%. So you have to be very happy with that result again despite.

The cat losses.

Net operating income per share up 26% year over year book value up 13% year over year, and then always an important measure for investors stocks up 23% over the last year as of this morning. So again great results and then finally you were in a good capital position to write capital margin $2 9 billion.

Debt to total capital is now 19.4, that's down three percentage points from a year ago and gives you lots of financial capacity to to use when when possible.

Okay, great great year, a good quarter and in a good position for.

<unk> for future growth.

Yes.

I think it's a good recap Paul and you know I like to let the numbers talk for themselves. The other thing is.

That the outperformance is very strong.

You know and in all the jurisdictions and we're seeing the UK improve and the reason why I added that point Paul is that that's the license if you outperform.

You should be comfortable growing organically or inorganically and the second point I would add.

Is the fact that.

The environment in which we're operating are very constructive so when you have all the permits.

And yeah, good environment to compete in I think this bodes well for years to come.

For sure and we'll we'll dive into that I'm, just talking on a topic that I I don't view is particularly impactful for intact itself, but it is the key talking point in the market, which of course is U S. Tariff risk I think you gave us some very interesting data points on the conference call last week, but.

Maybe you want to reiterate those data points in terms of why it's not bad and impactful for impact for maybe anyone that Miss the call last week.

But really what caught my attention, which I think is interesting is despite the fact that it's not that impactful for impact you're still thinking long term planning around this to reduce your dependence on.

Imports across the border. So we're sure again managing risk right thinking long term strategically and so maybe you could talk a little bit about that as well.

Yeah.

I think you know a month and I have to go Paul when when they started to really bubbled up.

We not felt in.

A number of scenarios ranging from tariffs to economic correlation and so on and then we tried to assess what it meant for us.

In practice.

And then how do you capitalize on this environment as a firm, but also how do you block and tackle.

In this environment and so on tariffs yeah not.

Super not really impactful for us as a firm yet to think about the direct and the indirect consequences.

A tariff war, where there is retaliation, that's how we've been thinking about it.

And.

To start with you know a third of the capital base and.

With less than half of the asset side of the house.

Is invested outside Canada, so to start with from a financial point of view this acts as a powerful edge.

The direct impact is in the supply chain per se in particular in automobile insurance and then in home insurance.

And so theyre in practice, you know when you unpack the cost of repairing cars.

Well first liabilities a non issue.

Second labor is an issue that 60% of the premium.

Left with 40% or the cost equation I should say and then the the cost.

The physical damage or repairing and buying cars.

Third today comes from the U S. So in aggregate for automobile insurance. This is 12% today, if we do nothing.

That is influenced by tariffs and you have two levers one is managed to supply chain.

And to pricing.

Or what you can't manage.

In personal prop.

Similar equation, so in auto it's 12% of the cost equation.

I'm sturdy.

In personal prop, it's even less it's 8%.

And so what can you do in practice Paul in the supply chain. There is a number of things.

You can do an example would be.

Use recycled and after market parts to a greater extent, they're all sourced from Canada.

You can redirect the supply chain to use Canadian components or Canadian material.

That's easily accessible a good example.

As paint you can source your pain exclusively in the Canadian context.

Third.

You can pretty stuck and so these are just three very simple examples of things we're working on at the moment to make sure that we mitigate as much as we can the impact.

<unk> of.

Of tariffs on the supply chain.

And then what can be mitigated Ken can be priced.

Then you've got the indirect impact.

Yields.

You know movement in.

On the stock exchanges.

And then foreign exchange and as I said, we have a decent edge.

A foreign exchange point of view would for the capital.

Is invested and overall our balance sheet is fairly well insulated to interest rates movement of fields go up in time. It is good for the P&L, but from a capital point of view, it's not overly.

Sensitive.

Okay. So I want to go back to sort of I guess sort of reading in terms of.

A good environment good conditions for intact to be growing and maybe we can start on that sort of theme in terms of personal auto right. It seems like to me here a little bit of a sweet spot in the cycle where rates are hard.

Competitors are trying to catch up to rate actions. You've previously taken claims inflation has cooled. So what should we expect from <unk> in terms of market share gains in the personal auto space.

Well I think we're in a zone.

Where it makes sense to gain share in the market Here's why.

The industry's combined ratio in.

23.

Was 105.

In a hard market environment, the industry's combined ratio at the end of Q3 Q4 is not available was one oh tree ballpark estimate.

It just shows there's a lot of digestion left to be done where we've been running.

Sub 95, if you may have obstruction of the hailstorm in Calgary, which pushed the overall combined ratio slightly above 95.

And so we're in a zone where unit organic growth in units is I think outpacing the market at the moment and I don't see that changing in the <unk>.

In 'twenty five.

What one needs to watch always.

Is the inflation.

Equation inflation on physical damage as come down meaningfully over the past 24 months inflation in liability and I would point to Alberta, and the Atlantic provinces in particular.

As gone up a bit so the overall inflation in the system is about 5% at the moment. That's the thing we watch very carefully, especially when growth picks up.

It can have an impact on inflation. So I would say that's the thing we manage.

With a great degree of rigor.

But overall I feel we are in an excellent.

<unk> to gain market share in automobile insurance and we're comfortable doing that.

Got you.

You you made a reference last week during their conference calls who intact success in the affinity channel.

I know, it's an important channel to what I honestly I don't talk about that often when it comes to intact or maybe I should talk about it more.

So I want to ask you about sort of the success and taxes, having in the affinity channel and what the go forward growth opportunity might look like there.

Yeah. So we've never historically had been focused on the affinity channel.

There were three players of substance in the Canadian context, and we chose to concentrate where the odds of winning work where higher now.

With the RSA transaction, one of the things I was commenting in the RSC transaction was the direct platform of RSC, because they had a big affinity portfolio.

And so what my team in the direct channel.

Bids.

Is integrate the affinity business on the bed are direct.

Platform in our modern systems would all the value prop that is offered to customers from a digital point of view have done that last year.

And now we're doubling down on the affinity channel and we're seeing growth in the upper Twenty's in that channel just to put things in perspective, you probably ask yourself, how big is it.

So if.

If you look at <unk>.

Personal lines in the Canadian context, it's about 10 billion.

4 billion is direct.

And a little more than $1 billion is the affinity business. The direct business is growing faster at the moment and a portion of it is driven by the affinity business.

Big driver of growth at the moment, Paul is that Canadians are shopping more and the digital channel, which we built in the broker channel in the direct business.

Is on fire, it's up 80% I Shouldnt say on fire, but very very healthy.

It's up 80% for us at South of $1 billion of new premium.

In 'twenty four and we certainly will we'll double down on that in 'twenty five as Canadians keep shopping.

Okay.

So if I think about the numbers you just gave $10 billion of personal 1 billion of which is affinity how does that proportion roughly look for impact I'm, assuming you're assuming the history, you're probably a little bit underweight affinity relative to the industry.

Yes, well I don't know I'm, not I don't think we're underweight compared to the industry.

We're not underway compared to the industry, but this is clearly a segment that is growing now a little more than twice the speed of the overall.

Our portfolio and I do expect that that share to therefore increase overtime very good very stable business as well, we're really loved that space and that was a big hit following the <unk> acquisition.

But you know you talked about the acceleration in growth in the direct channel I'm not surprised that here that given well everyday I take the go train and everyday everyone's head down on their phone right. So more and more mobile shopping for sure and then I think as you said more and more price shopping, which I think makes sense in the context of a heart.

Rate environment.

How do I think about like the financial impact of an analyst like how do I think about the financial impact of accelerated growth in direct channel to intact because it <unk>.

Margin equivalent to what you're getting through the broker channel does it maybe maybe in some of the underlying pieces it looks a little bit.

Different where obviously you don't have the commission ratio.

But may you can walk us through how youre thinking about that like Ken this actually be beneficial to margins over time or or or or not.

So that in fact, Paul.

Every business unit.

Every segment needs to stand on its own.

Meaning that that.

All our business units and segments are held to the same Roe target.

Largely speaking different in personal lines and it is in commercial lines and so our direct business.

Has the same ROE target the same pricing targets that are broker business without the difference is that the growth profile is a steeper and as a result from an economic value creation point of view.

I think we are creating a bit more.

Value in the direct channel at this stage and if it sustains.

Better growth.

In personal lines, that's a net value creator.

For us that's that's how I would think about it.

Yeah every business unit uses the same Roe target.

Okay great.

I feel like given past calls, we've almost kind of beaten the the topic of cat losses to death, but it's so it's not something that people ask me.

All the time, we undertake maybe I will take a little bit of a different approach to it because we can we can look to the U S. Examples where you've seen.

But I'd call. It sad stories of people in Florida in L. A lose their homes to be big weather events, right, whether fires hurricanes in there.

Or maybe you don't have ensured it all right it becomes a little bit of a societal problem, but it's one that I would say is relevant for intact. So I guess the question I want to ask because how do you think about getting.

Accuracy within personal property, but at the same time.

Balancing that against customer affordability, and making sure Canadians still can afford the coverage they need.

Yeah.

You know I've been with my team.

Very focused on the impact of climate change.

For a good 15 years.

And not just talking about it but actually transforming the business on that basis, and that's why our track record.

Close to 90% combine your thinking here upper teens Roe to be clear.

It's what it is it's because we turned this into a growth.

Fortunately and if you look at 'twenty four.

96, 5% combined with a 1 billion enough of cats now not all of it is home, but big chunk of it is home that talks to the resilience of our platform and so what does it mean for society because that's my starting point, that's how we built our business.

Let me first talk about California.

In Florida, which is you know what.

Where people start to talk about availability and affordability.

And then I will share with you, what we're doing and why Canada.

Is different it's a different country, we know that right.

So.

California, I would I would highlight.

Three issues.

The first one is.

Frequency.

In other words.

You have forest fire like.

Every year.

Second.

Where theres insured value set.

<unk>.

Density.

So insured values are up dramatically, but third and I think that's the most important point.

The regulators have made a real mess out of California.

You can price for risk.

It's it's an endless negotiation.

And as a result, I mean, if youre a borderline in the maintenance business because theres fire every year and you can't even price for it well guess what.

People pull out altogether.

And this year's story was exacerbated by the fact that one large competitor in the U S went in underpriced, a number of years back tried to soak up.

The availability.

In the market and realized a few years down the road that they needed to to get out and so this.

This is like throwing oil on on the fire literally so.

That is very different Canada is in a whole different place in my mind.

Climate change is real the increase in natural disaster, I mean, forex over 30 years.

It is the case however.

When it comes to fire dense.

<unk> city and frequency is quite different.

And so we're working with the 20, most at risk cities in the country to make sure that they know what to do to protect their citizens in case of fire. We've invested in the intact centre on climate adaptation as you know a decade ago, we've invested close to $30 million and that to help cities protect.

Themselves now what can the industry do.

Beyond what the government can do.

Which is land use planning.

Building.

With resilience in mind et cetera, but what can we as an industry do to make sure that availability and affordability is there.

So first of all.

The answer is not.

Price is going up.

But if prices you're only solution.

And then Shelly you get into an affordability space I don't think we're there yet.

Because keep in mind, the consumers, who buy home insurance and the home.

And so that's the segment that we're talking about and the average premium is probably $1500 you could say, it's expensive, but when you stack that against the cost of a house.

It's a it's an investment that that makes a lot of sense.

So what.

The industry can do is make sure that the.

The product as we've done 15 years ago is tailored by perils.

So that if you choose to build the house in floodplain, which is really bad idea.

Surprisingly, 10% of Canadians are built in flood plains.

We can still ensure U.

Property fire tests et cetera, et cetera, you can still buy coverage. Obviously you are in that 10% and that's the only area in Canada, where insurance is a problem.

You can buy flood insurance obviously.

So making sure that product is Curt deal alone perils.

Second you want to make sure that your claims.

The operation is geared to minimize cost when there is a natural disaster third your supply chain, we've been very aggressive on the supply chain side of things is there to mitigate us and fourth and I think most importantly prevention and prevention is in there.

Area, where we're heavily invested now and I think you'll see a number of initiatives with our customers in 2020 for a good example was.

Wildfire defense systems, which we've launched last year, where if there is a wildfire coming close to your place we send a crew to protect the house.

And that's worked well so far it's just a small example, but we're in the process of adding a prevention tools in the toolbox for our customers. So Paul I think long answer to say, Canada is not California.

And the street as provided lot of availability unless you build.

And our floodplain.

And and then it's not just about price, it's priced product claims supply chain and prevention and I think there is growth for us in that segment.

And our track record shows that it can be profitable and sustainable growth.

Okay. Okay.

Continuing on on the on the same topic.

So and in fact has increased its risk retention in Canada over a number of years, but.

Christian again going into 2025, right from 250 million to $3 50.

Talked a little bit about this on a again on last week's call, but I think it's worth sort of reiterating sort of.

The reasons why this is expected to be earnings neutral right. So you're retaining more risk, but clearly there are some offsets price being I think probably the most obvious ones, but what are what are the other factors that come into play here in terms of why more risk retention is expected to be earnings neutral yes.

Well just from a philosophical point of view as I've shared a number of times before.

We don't buy reinsurance to manage volatility.

We tried to buy reinsurance to manage tail risks.

And in this year's program.

The cost of tail risk, which we measure as a one in 500 year earthquake.

We've reduced by a third our tail risk and this year's.

And this year's.

Exercise, that's why we buy.

Reinsurance.

We have increased our CAD guidance you've seen.

From $900 million to $1 2 billion.

And there are three drivers to that increase one the.

The increase in the size of the business and inflation.

Second.

The impact of our models on climate change.

And third the fact that there is a bit more.

Retained from a reinsurance point of view, just because we optimize the economics of our reinsurance program and the exercise. We also bought do additional coverage.

Or.

What we call third event.

Or a scenario, where there would be many cats below the $350 million retention, we bought additional coverage.

For that which.

Will help as well mitigate the impact of.

Of cats and so.

The cost equation from a reinsurance point of view is better than what we had anticipated our cat guidance is up a bit in balance.

It's neutral to earnings.

And I think if you look at what happened this year and last year.

I'm thinking this as one in 20 year sort of.

No.

Scenario, yet we printed 96 five combined ratio in home insurance. So you know how much are we do we do you want to leave on the table too.

To manage the volatility in Q3.

I count on guys like you to see through that.

And and help investors, along but you know.

We're actually very pleased with where the reinsurance outcome landed this year my team did.

Awesome job I think.

Sure sure.

Did you have I mean, we have a fair amount of time last time I do have a number of questions left but I want to remind the audience. Please please do participate encourage your.

Question. So I think you can lob them in through the through the chat on on teams.

Or email me at Paul Holden, CIBC Dot com and I'll try to keep in our outlook on my mind.

By email for any inbound questions. Okay. So with that Charles you also in your opening remarks, you made a reference to the U K business and the challenges you've had there I think that acquisition closed roughly four years ago give or take maybe not quite four years, but close to three nine is now three and a half karina.

Uh huh.

You did a lot like since buying that business you've made a lot of changes right bought some additional business sold some yeah, a couple of different businesses, while auto profit improvement like a lot like lot of heavy lifting to go.

And there was a pretty good pretty good the results are good right on target I think to where you want a mid teens Roe.

In the U K I mean.

That's in the zone.

Yeah. So I guess really my question is what still needs to be achieved like what what can we expect in 2025 and then what do the results look like after that.

So in the UK.

<unk>.

You know very strong management team very strong leadership the.

The values have been ruled out that's where it all starts.

As far as I'm concerned, we're very pleased with that second.

It's all about outperformance.

And when it comes to our performance.

I wouldn't say there are three elements that really matter one you have the right footprint.

Can you win where you play.

Two yes.

You have the technological backbone to support outperformance and three you bring your sophistication or your pricing models.

In the platform and the governance.

That goes along with that so on values leadership team.

Team.

We're in excellent shape.

What I wanted to see some more of is we're building best employers, where we operate we're not there yet in the UK that is a big priority for the team and for myself.

Second.

In the outperformance bucket.

The footprint I mean.

I think it was a bit of luck I have to say Paul there, but we.

We exited.

Our Danish position, we exited our middle eastern position and then.

We were.

Lucky slash bold to exit personal lines.

In in year two.

And then we bought mid and small market business.

Which means that our U K business today is all commercial lines really in there is there is a specialty lines parts of that business, which is part of global specialty lines, but our U K.

<unk> is in the sweet spot of the UK market and.

Number three we have a leading position.

And so what is left in that big transformation.

One.

The exited business.

We're in the last year.

We don't think it's impactful to the bottom line, but we need to finish that well it's heavy lifting.

Second the <unk> integration the business.

Is in the middle of Rolling to our systems at the moment I'm very pleased with the progress we're making there it's a real it's a real integration.

The performance is also improving you've seen 90 90 to 792 eight for the year and for the quarter.

I'm very pleased with that.

But.

The book is not yet completely rolled in our system that needs to be finished.

Third.

We're really working now and that's the work of 25 to raising the bar on service.

Or brokers.

And integrating streamlining our product offering.

Our brokers as well a lot of growth upside there. We're not finished with that this is the work of 25.

And lastly, we've invested massively in technology in the UK like you haven't seen that before.

And we're not done we've got another.

Two to three years.

Of investments in the U K investors need not worry about that because when we invest in technology, we make trade offs.

This is not a headwind for performance, we cut something else.

And in the U K, where we're rationalizing the expense footprint at the moment, but I'm very pleased with where this business is is running.

Already in the low 90% 92, seven and I see that improving to 90% combined ratio within.

24 months and are very pleased with where we are in the UK and I would say, it's a core part of our growth strategy going forward.

And then in terms of the growth outlook for that business again, you know you're doing.

Some.

Profit rationalization, let's call it right sort of cutting off less profitable books of business, but obviously with the investments in digital with the combined ratio you're targeting.

Like to think you're it sounds like youre going to have a competitive advantage in that SMB market. So obviously growth starts picking up the market share gains right. You can we kind of talked about some other lines of business, yes, it's going to start coming into play.

When roughly reasonably should we expect that to accelerate and it and you probably have a long long runway there I imagine as well yeah. I think we have a very long runway because our.

Our market share is only single digit in the U K.

And.

There's a lot of runway to grow this thing and to improve the combined ratio.

And the thing that.

I haven't talked about what I described.

What we've done in the UK is the integration of the acquisition of direct line.

When combined with RSC expands the number of brokers with whom we do business.

By many hundreds of brokers.

And so you have a bunch of new brokers, who havent really had access to.

All the RSC.

Our commercial lines offer which includes marine which includes financial lines are etsy.

Et cetera, and so that just managing the distribution better.

Will will be a meaningful source of upside. So I think this is a business Paul that can grow over time in the upper single digit range organically.

In the low nineties or 90%.

Combined ratio there is no doubt now.

We acquired direct line.

We thought we were acquiring 530 million pounds and.

And frankly the.

The book, we were headed to where it was north of 600 million pounds.

So that's a really good start.

But there is the remediation going on.

We've exited certain segments, where we felt we couldnt win we're.

We're applying.

Price and selection in segments that were not profitable according to our metrics and I do expect six to nine months.

Headwinds.

In terms of growth in the UK because of that remediation effort that is a that is taking place.

The headwind will take a bit more than six to nine months, but the full impact of it will be felt in the first.

Two to three quarters of 2025.

Okay very helpful. So, let's continue on the topic of our commercial but maybe broaden out I would just geographically a little bit.

Something that's being asked to me and I think to you as well a lot over the last year is sort of the slowing or I guess I don't know.

The softening of the right conditions in certain pockets.

How how how should we how should we think about that in terms of margins for intact, because maybe it's a little bit of a slowdown in premium growth is one thing, but the thing that you know people are always going to worried about it as it relates to margins you earn so how are you how you're balancing the pricing dynamics with your margin targets.

Yeah.

So first of all.

One has to assume that we're operating in an environment.

Where inflation is covered by premium increases.

And some insured increased fact.

A bit more.

Than inflation.

Okay. So.

So that should be very helpful.

<unk>.

Protect the overall margin.

Of the firm.

The second point out and just to put things in perspective, So in Canada right now in the SME space, we're seeing a.

A bit more than 5% in terms of rates in the mid market space, we're seeing four ish.

Percent.

What's putting pressure on growth.

As large accounts.

And I was doing a deep dive last night put my my team in commercial lines in Canada and the issue is mix in other words.

I find a retention is strong our ability to close.

That's good.

We're quoting on the right.

Accounts, but the average size.

Is shrinking a bit wide because we have more success at the smaller end.

Then at the larger end, it's true on retention, it's true on new business.

But this is not impacting margin.

Because we're managing the business and the retention and our ability to close with margin in mind.

Our governance is built around that and so.

I'm not concerned about the margins really in commercial lines.

Then.

The second thing I would say Paul is.

One needs to understand that one distinctive feature of the business, we've built and now all true commercial lines and global specialty lines in the mix.

Overtly indexed.

Overly indexed or over indexed towards mid market.

Sized customers as opposed to large international customers, where price is far more sensitive.

So there is a degree of Inelasticity.

Pricing in that space, which as we've shown over the past decade plus.

We are rarely end up in a position where where rates go.

Elapsed below inflation.

And the third point I would make Paul that's more true of the U S and in the UK.

Because the performance in the U S has been really good we're seeing low ninety's or better it's been better.

But we're on a mad race.

To improve the sophistication.

Of the pricing models used in the U S and in the UK.

At the moment and just to put things in perspective.

In global specialty lines in Q4.

We are deploying new models and nine segments, which represent 21% of our global special of our U S business and so one of the ways we're trying to.

Edge the risk of rates diminishing in the market is true sophistication and we're going as fast as we can.

In an exporting really pricing algorithms and governance that goes with that in the U S and in the UK.

Let's talk about that a little bit more right like that's fascinating topic, the sophistication of your pricing models.

AI is a dominant theme that we hear about it again every day like tariffs.

Is this kind of where the sophistication is coming from is the AI related or maybe it's driven by by some other kind of technology developments.

So maybe expand a little bit on that.

Yeah, I think theres, a big difference between tariffs and AI.

And now I think.

Tariffs.

Slide <unk>.

You know a onetime shock to the system it might be a permanent presence, but the shock will be a onetime shock when its implemented.

He has a deep trend.

And it's been a deep trend for us for 10 years.

And.

And that's why we've invested so much.

That's why we have 500 models today that spit out.

At least 150 million Bucks of earnings.

Recurrent every year, where we're on our third generation.

Of science and and so this is a in muscle we have.

But.

The advantage does not come.

Only from AI.

AI is just a technique.

Two managed it to do predictive work.

So when you think about pricing Paul.

And when you build an advantage is.

The data you use.

When it's the same as everybody else you need to segmented Moore and ideally you have data that others don't have which is where we've been focused on.

Not since the world talks about AI, but.

Decades.

Then there is how you combine this data that's where AI comes in.

It used to be generalized linear modeling now its machine learning and other techniques.

And then there is.

How you choose to deploy it in the field.

And the governance that goes around that and the advantages built over each and every one of these.

Layers, so AI is a big.

Big part of that but it's not the only part of that and that's why I think the advantage that we have is is really solid.

So I do have a audience question. So thanks for the question. It's a good one so there.

They're curious about on this topic the sophistication level you see in U S and U K.

Versus Canada, So how do you view, how sophisticated as the industry and then how do you view in tax competitive advantages and that sophistication versus the industry in each of the three markets yeah.

Yeah.

So.

Paul 15 years ago.

One call we've made.

Louis going in when I was.

Not to do personal lines in the U S.

And the reason why we made that call is we didn't want to compete with progressive.

Who might see as best in class.

Okay.

But the call we've made after studying the U S. A in depth.

It was to go in the specialty and mid market space.

And our thesis was and I think it proves to be true that not very sophisticated.

Nobody dominates the space.

Pricing sophistication.

Not great.

And and I would say same thing in the UK.

And the thing we built in Canada.

Starting in the early 2000.

We built a pricing.

Machines, so to speak.

That was as sophisticated as our personal lines business.

So you are talking billions of price points.

And.

And we built a mousetrap.

Around that for both new business.

And renewal and it's those techniques that we export and what I considered to be not very sophisticated.

<unk> market, that's why I count on that to solidify the outperformance that we're showing in the U S today and in the UK.

Because you can outperform.

By charging more that doesn't work right. So you need to outsmart, others, and I think the techniques and the algorithms that we've built here are highly exploitable. That's why we're on a mad rush to export those.

Very good.

Have to ask you about potential capital deployment, we talked about the balance sheet being in a good condition. It's been an important part of <unk> growth story over time.

You've generally talked about Canada being first priority for acquisition. So one is that still the case, assuming it is but maybe address that.

We think about potential acquisitions domestically what would be your key criteria.

So.

Acquisitions for us.

Our accelerators of our strategy, they're not the strategy.

And.

To deploy capital.

You want to make sure your outperformance is solid so the good news is.

Is the outperformance in Canada is very solid.

The outperformance in the U S is really solid.

And the outperformance in the UK is building.

But the absolute performance is good no I want to see solid outperformance and the reason why I start there Paul is that this really drives where the capital is going.

And that's why I've said no.

North American.

Or deploying capital in North America is where the starts.

And.

And Canada is the easiest place to create value.

Provided obviously the price.

Is is reasonable but.

We have a very strong position in the context of.

Canada and for sure we will defend the territory, there's no no doubt about that.

We would gladly put capital in the U S.

As well.

And.

And then in distribution.

On both sides of the border we've.

We've done like broker link for instance.

Think.

Well on its way to hit $5 billion of capital.

As done many acquisitions again in 'twenty four and there is a pretty good pipeline in in 'twenty five.

As well, so north American manufacturing and distribution.

Now your question was domestically.

What are the criterias, while the criteria for us given where really occupy the space domestically is return.

It needs to generate 15% IRR or above our track record from a capital deployment point of view and M&A is north of 20% nobody in intact wants to mess with our track record to be clear.

And we don't need to make acquisitions in the context of Canada adult we would love to.

But returns really matter.

And then obviously you know, what's what's highly valuable to us commercial lines.

Highly valuable to us.

Specialty lines.

Bolstering the direct.

Platform.

As well and.

We have outperformance everywhere. So we can create value pretty much everywhere in the Canadian context.

Another question I have to ask to ask on this topic is how would you characterize sort of the M&A environment right. So clearly youre.

The demand is there for how does this is the other the other side of the transaction needs to be there to rate sort of the supply you talked a little bit about where the industry is at and personal auto in Canada. The results aren't great. So does that create maybe some pressure or willingness to sell anyway sort of broader picture.

Anything you can give us on sort of the M&A.

M&A environment Hot Cold lukewarm.

You know I don't think about the M&A environment in terms of temperature I can tell you Paul we have a DCF on everyone.

We have relationships with everyone.

And and when the fortunate and he presents itself.

We're there we're ready we can move quickly I would qualify.

The M&A environment just too.

You know go along with your question.

As a constructive one.

I find the best specialty lines companies to be on the expensive side of things.

Do I find people are pretty relaxed about that conversations in general, which which would fit into one's definition of a constructive environment.

Uh huh.

I want to talk to about.

How in development I think it's been very important to the success of <unk>, you probably agree with that and then I watch some of the other Canadian financials I cover where.

<unk> had a few different twists in terms in terms of senior leadership appointments that haven't worked out so well right and the most obvious one for for intact wood.

You have Louis Marcotte retiring after many years with the organization, but a very smooth orderly.

Appointment.

Internally for intact. So.

Talk to us about talent management.

At what makes intact survived call a world class leader on this front.

So.

This is fundamental and if you start.

With value creation in mind.

And strategy.

The thing that is very clear to us as a team is.

There needs to be.

<unk> come in.

Direction.

And there needs to be stability because.

Building a great franchise takes time.

Building a competitive advantage takes time.

So a few zig zag.

True leadership changes.

And you changed direction all the time.

You'll be average.

So strategically.

We said okay.

We really need to make sure.

We have a very very strong.

Talent pipeline inside the shop.

That's the call we've made.

20 years ago, I would say.

With my with my predecessor.

So.

Just to quantify the strength of the bench.

For the top.

250 jobs.

31000 employees top 250 jobs.

Five successors per job than average.

Ready within three years.

That's the pool.

And that's a pull that.

I manage personally with.

With the other.

Ceos of the organization, Mike Miller, and global specialty lines 10 in the U K.

We got you on Canada, and then I think Babbel, who oversees tech claims.

And so on.

And we proactively manage that pool. So we don't wait for a portion of <unk> to present themselves to move people.

We actually make a portion of these emerge so that we can develop people.

So if I use the example of finance.

First of all Ken is Super well prepared I mean, you just look at his track record.

Every square inch of the organization and in the UK Corp, Dev Treasury IR name. It most investors would know Ken the reality is that.

I'd probably add.

Or options.

Insight before even going outside.

I would say is that.

I haven't the generation that follows.

The people in their thirties, probably five options.

I don't need to replace Ken but to replace Ken's successor.

And it's true.

In.

In many areas.

Of the business.

So you just need to be super deliberate about it I'd probably spend.

Easily 10% of my time on that and then we test people.

Not only do we develop them.

<unk> is very much an on the job developments sort of <unk>.

Environment.

But you are being exposed youre being.

Tested.

And.

That works for Us and.

But it's not something you do overnight.

Great.

We're almost out of time, but Charlie do you want to give you an opportunity to leave us with any closing thoughts in her remarks.

Well Paul.

Thanks for that I think that.

Four highlights.

On one hand, the resilience of the business.

On the other end.

The earnings trajectory of the business.

And the fact that because our sandbox is 10 times bigger than what it was seven eight years ago.

There is little doubt in the management steams view that outperforming the industry by at least 500 basis points.

Every year and growing the earnings power of the firm at a clip of 10% per year at least on average.

Which is our track record.

Over the last decade, we can replicate in the next decade.

We think we can do that pretty much with the footprint.

We have today.

Which really de risks our ability.

To achieve those objectives, given we have our performance where we operate and then the last point I would make because you brought it up.

There's real bench.

There are <unk>.

Our ranks of people who can.

Pushed out performance for decades to come.

And I'll just close on the fact that.

In fact, as a values driven organization.

Which is rooted in integrity respect excellence customer driven and generosity and.

And that's what you.

Should experience when you deal with US whether you are a customer of broker an employee or an investor.

So Paul Thanks for your time this morning, I see its 10 57 were beating.

The expectations, which is always a good place to be.

Charl or it's always a pleasure that was a that was excellent really appreciate it hey, everyone. Thanks for taking the time again to eye towards sedan and look forward to the next time.

Perfect. Thanks, Paul Alright, Thank you.

Paul Holden: Morning, everyone. I think most of you, if not all of you, know who I am. Paul Holden, cover the financials, including insurance at CIBC. Pleasure again to host Charles Brindamour, CEO of Intact. Charles, thanks for taking the time.

Paul Holden: Morning, everyone. I think most of you, if not all of you, know who I am. Paul Holden covered the financials, including insurance at CIBC. Pleasure again to host Charles Brindamour, CEO of Intact. Charles, thanks for taking the time.

Charles Brindamour: Thanks, Paul. Thanks for inviting me. I'm happy to be here this morning.

Charles Brindamour: Thanks, Paul. Thanks for inviting me. I'm happy to be here this morning.

Paul Holden: Sure. Thanks everyone for dialing in and taking your time. Charles, another very strong year for Intact, right? You just reported results last week. Going to sort of just provide a quick recap of the 2024 sort of highlights. Premium growth to 5%, a good solid result there, even though you're doing some profit improvement actions. We'll get into that in a little bit. Very strong margins, right? Combined ratio of 92%, that's despite a very heavy CAT Q3. Operating ROE of 16.5%, you have to be very happy with that result. Again, despite the CAT losses.

Paul Holden: Sure. Thanks, everyone, for dialing in and taking your time. Charles, another very strong year for Intact. You just reported results last week. I'm going to just provide a quick recap of the 2024 highlights. Premium growth to 5%, a good solid result there, even though you're doing some profit improvement actions, and we'll get into that a little bit. Very strong margins, right? Combined ratio of 92%, and that's despite a very heavy CAT Q3. Operating ROE of 16.5%, so you have to be very happy with that result, again, despite the CAT losses. Net operating income per share up 26% year over year. Book value up 13% year over year. Always an important measure for investors, stocks up 23% over the last year as of this morning. Again, great results. Finally, you know you're in a good capital position too, right? Capital margin $2.9 billion.

Paul Holden: Net operating income per share up 26% year over year. Book value up 13% year over year, then always an important measure for investors, stocks up 23% over the last year as of this morning. Again, great results. Then finally, you're in a good capital position too, right? Capital margin CAD 2.9 billion. Debt to total capital is now 19.4%. That's down 3 percentage points from a year ago and gives you lots of financial capacity to use when possible. Again, great year, good quarter, and in a good position for future growth.

Paul Holden: Debt to total capital is now 19.4%. That's down three percentage points from a year ago and gives you lots of financial capacity to use when possible. Again, great year, good quarter, and in a good position for future growth.

Charles Brindamour: Yes. I think it's a good recap, Paul, and I like to let the numbers talk for themselves. The other thing is that the outperformance is very strong in all the jurisdictions, and we're seeing the UK improve. The reason why I add that point, Paul, is that that's the license. If you outperform, you should be comfortable growing organically or inorganically. The second point I would add is the fact that the environments in which we're operating are very constructive. When you have outperformance and you have good environment to compete in, I think this bodes well for years to come.

Charles Brindamour: Yes, I think it's a good recap, Paul. You know I like to let the numbers talk for themselves. The other thing is that the outperformance is very strong. You know, in all the jurisdictions, and we're seeing the UK improve. The reason why I add that point, Paul, is that that's the license. If you outperform, you should be comfortable growing organically or inorganically. The second point I would add is the fact that the environments in which we're operating are very constructive. When you have outperformance and you have a good environment to compete in, I think this bodes well for years to come.

Paul Holden: For sure. We'll dive into that. I'm going to start on a topic that I don't view as particularly impactful for Intact itself, but it is the key talking point in the market, which of course is US tariff risk. I think you gave us some very interesting data points on the conference call last week, but maybe you want to reiterate those data points in terms of why it's not that impactful for Intact for maybe anyone that missed the call last week. Really what caught my attention, which I think is interesting, is despite the fact that it's not that impactful for Intact, you're still thinking long-term planning around this to reduce your dependence on imports across the border.

Paul Holden: For sure. We'll dive into that. I'm going to start on a topic that I don't view as particularly impactful for Intact itself, but it is the key talking point in the market, which of course is U.S. tariff risk. I think you gave us some very interesting data points on the conference call last week. Maybe you want to reiterate those data points in terms of why it's not that impactful for Intact for anyone that missed the call last week. What caught my attention, which I think is interesting, is despite the fact that it's not that impactful for Intact, you're still thinking long-term planning around this to reduce your dependence on imports across the border.

Charles Brindamour: For sure.

Charles Brindamour: For sure.

Paul Holden: Again, managing risk, right? Thinking long-term strategically. Maybe you can talk a little bit about that as well.

Paul Holden: Again, managing risk, right? Thinking long-term strategically. Maybe you can talk a little bit about that as well.

Charles Brindamour: I think a month and a half ago, Paul, when this started to really bubble up, we mapped out a number of scenarios ranging from tariffs to economic coercion and so on. Then we tried to assess what it meant for us in practice. Then how do you capitalize on this environment as a firm, but also how do you block and tackle in this environment? So on tariffs, not really impactful for us as a firm. You have to think about the direct and the indirect consequences of a tariff war where there is retaliation. That's how we've been thinking about it. To start with, a third of the capital base and a bit less than half of the asset side of the house is invested outside Canada.

Charles Brindamour: Yeah. I think, you know, a month and a half ago, Paul, when this started to really bubble up, we mapped out a number of scenarios ranging, you know, from tariffs to economic coercion and so on. We tried to assess what it meant for us in practice. How do you capitalize on this environment as a firm, but also how do you block and tackle in this environment? On tariffs, yeah, not super, not really impactful for us as a firm. You have to think about the direct and the indirect consequences of a tariff war where there is retaliation. That's how we've been thinking about it. To start with, you know, a third of the capital base and a bit less than half of the asset side of the house is invested outside Canada.

Charles Brindamour: To start with, from a financial point of view, this acts as a powerful edge. The direct impact is in the supply chain per se, in particular in automobile insurance and then in home insurance. There in practice, when you unpack the cost of repairing cars, well, first, liability is a non-issue. Second, labor is a non-issue. That is 60% of the premium. You are left with 40%, or the cost equation I should say. In the cost, the physical damage or repairing and buying cars, a third today comes from the US. In aggregate for automobile insurance, this is 12% today if we do nothing. That is influenced by tariffs. You have two levers. One is manage the supply chain, and two, pricing for what you cannot manage. In personal prop, a similar equation.

Charles Brindamour: To start with, from a financial point of view, this acts as a powerful edge. The direct impact is in the supply chain per se, in particular in automobile insurance and then in home insurance. There in practice, you know, when you unpack the cost of repairing cars, first, liability is a non-issue. Second, labor is a non-issue. That's 60% of the premium. You're left with 40% of the cost equation, I should say. In the cost, the physical damage or repairing and buying cars, a third today comes from the U.S. In aggregate for automobile insurance, this is 12% today if we do nothing. That is influenced by tariffs. You have two levers. One is manage the supply chain and two, pricing for what you can't manage. In personal prop, a similar equation. In auto, it's 12% of the cost equation, 40 times 30.

Charles Brindamour: In auto, it's 12% of the cost equation, 40 times 30. In personal prop, it's even less. It's 8%. What can you do in practice, Paul, in the supply chain? There's a number of things you can do. An example would be use recycled and aftermarket parts to a greater extent. They're all sourced from Canada. Second, you can redirect the supply chain to use Canadian components or Canadian material that's easily accessible. A good example is paint. You can source your paint exclusively in the Canadian context. Third, you can pre-stock. These are just three very simple examples of things we're working on at the moment to make sure that we mitigate as much as we can the impact of tariffs on the supply chain. What can be mitigated can be priced for. You've got the indirect impact.

Charles Brindamour: In personal prop, it's even less. It's 8%. What can you do in practice, Paul, in the supply chain? There's a number of things you can do. An example would be use recycled and aftermarket parts to a greater extent. They're all sourced from Canada. Second, you can redirect the supply chain to use Canadian components or Canadian material that's easily accessible. A good example is paint. You can source your paint exclusively in the Canadian context. Third, you can pre-stock. These are just three very simple examples of things we're working on at the moment to make sure that we mitigate as much as we can the impact of tariffs on the supply chain. What can be mitigated can be priced for. Then you've got the indirect impact. Yields, movements on the stock exchanges, and then foreign exchange.

Charles Brindamour: Yields, movements on the stock exchanges, and then foreign exchange. As I said, we have a decent edge from a foreign exchange point of view with where the capital is invested. Overall, our balance sheet is fairly well-insulated to interest rates movement. If yields go up, in time it's good for the P&L. From a capital point of view, it's not overly sensitive.

Charles Brindamour: As I said, we have a decent edge from a foreign exchange point of view with where the capital is invested. Overall, our balance sheet is fairly well insulated to interest rates, movement. If yields go up in time, it's good for the P&L. From a capital point of view, it's not overly sensitive.

Paul Holden: Okay. I want to go back to, I guess, your lead-in in terms of a good environment or good conditions for Intact to be growing. Maybe we can start on that sort of theme in terms of personal auto, right? Seems like to me you're a little bit of a sweet spot in the cycle where rates are hard, competitors are trying to catch up to rate actions you've previously taken. Claims inflation has cooled. What should we expect from Intact in terms of market share gains in the personal auto space?

Paul Holden: Okay, I want to go back to, I guess, your lead-in in terms of a good environment or good conditions for Intact to be growing. Maybe you can start on that theme in terms of personal auto, right? It seems like to me you're a little bit of a sweet spot in the cycle where rates are hard, competitors are trying to catch up to rate actions you've previously taken, claims inflation has cooled. What should we expect from Intact in terms of market share gains in the personal auto space?

Charles Brindamour: Paul, I think we're in a zone where it makes sense to gain share in the market. Here's why. The industry's combined ratio in 2023 was 105. In a hard market environment, the industry's combined ratio at the end of Q3, Q4 is not available, was 103. Ballpark estimate. It just shows there's a lot of digestion left to be done. Where we've been running sub 95, if you make abstraction of the hailstorm in Calgary, which pushed the overall combined ratio slightly above 95. We're in a zone where organic growth in units is, I think, outpacing the market at the moment, and I don't see that changing in 2025. I think what one needs to watch always is the inflation equation. Inflation on physical damage has come down meaningfully over the past 24 months.

Charles Brindamour: I think we're in a zone where it makes sense to gain share in the market. Here's why. The industry's combined ratio in 2023 was 105. In a hard market environment, the industry's combined ratio at the end of Q3, Q4 is not available, was 103, ballpark estimate. It just shows there's a lot of digestion left to be done. Where we've been running, you know, sub-95, if you make abstraction of the hailstorm in Calgary, which pushed the overall combined ratio slightly above 95. We're in a zone where organic growth in units is, I think, outpacing the market at the moment, and I don't see that changing in 2025. I think what one needs to watch always is the inflation equation. Inflation on physical damage has come down meaningfully over the past 24 months.

Charles Brindamour: Inflation in liability, and I would point to Alberta and the Atlantic provinces in particular, has gone up a bit. The overall inflation in the system is about 5% at the moment. That's the thing we watch very carefully. Especially when growth picks up, it can have an impact on inflation. I would say that's the thing we manage with a great degree of rigor. Overall, I feel we're in an excellent place to gain market share in automobile insurance, and we're comfortable doing that.

Charles Brindamour: Inflation in liability, and I would point to Alberta and the Atlantic provinces in particular, has gone up a bit. The overall inflation in the system is about 5% at the moment. That's the thing we watch very carefully, especially when growth picks up. It can have an impact on inflation. I would say that's the thing we manage with a great degree of rigor. Overall, I feel we're in an excellent place to gain market share in automobile insurance, and we're comfortable doing that.

Paul Holden: Okay. You made a reference last week during our conference call to Intact success in the affinity channel. I know it's an important channel. It's one, honestly, I don't talk about that often when it comes to Intact, and maybe I should talk about it more. I want to ask you about sort of the success Intact is having in the affinity channel and what the go-forward growth opportunity might look like there.

Paul Holden: You made a reference last week during your conference call to Intact's success in the affinity channel. I know it's an important channel. It's one I honestly don't talk about that often when it comes to Intact, and maybe I should talk about it more. I want to ask you about sort of the success Intact is having in the affinity channel and what the goal for growth opportunity might look like there.

Charles Brindamour: Yeah. We've never historically been focused on the affinity channel, Paul. There were three players of substance in the Canadian context, and we chose to concentrate where the odds of winning were higher. With the RSA transaction, one of the things I was coveting in the RSA transaction was the direct platform of RSA because they had a big affinity portfolio. What my team in the direct channel did is integrate the affinity business on the belairdirect platform. Our modern systems would all be value prop that is offered to customers from a digital point of view. We've done that last year, and now we're doubling down on the affinity channel. We're seeing growth in the upper 20s in that channel, just to put things in perspective. You probably ask yourself, how big is it? If you look at personal lines in the Canadian context, it's about $10 billion.

Charles Brindamour: We've never historically been focused on the affinity channel, Paul. There were 3 players of substance in the Canadian context, and we chose to concentrate where the odds of winning were higher. With the RSA transaction, one of the things I was coveting in the RSA transaction was the direct platform of RSA because they had a big affinity portfolio. What my team in the direct channel did is integrate the affinity business on the belairdirect platform in our modern systems with all the value prop that is offered to customers from a digital point of view. We've done that last year, now we're doubling down on the affinity channel, we're seeing growth in the upper 20s in that channel, just to put things in perspective. You probably ask yourself, how big is it?

Charles Brindamour: If you look at first lines in the Canadian context, it's about CAD 10 billion. CAD 4 billion is direct, and a little more than CAD 1 billion is the affinity business. The direct business is growing faster at the moment, and a portion of it is driven by the affinity business. The other big driver of growth at the moment, Paul, is that Canadians are shopping more, and the digital channel, which we built in the broker channel in the direct business, is on fire. It's up 80%. I shouldn't say on fire, but very healthy. It's up 80%. For us, it's at CAD 1 billion of new premium in 2024, and we certainly will double down on that in 2025 as Canadians keep shopping.

Charles Brindamour: $4 billion is direct, and a little more than $1 billion is the affinity business. The direct business is growing faster at the moment, and a portion of it is driven by the affinity business. The other big driver of growth at the moment, Paul, is that Canadians are shopping more, and the digital channel, which we built in the broker channel, in the direct business is on fire. It's up 80%. I shouldn't say on fire, but very, very healthy. It's up 80% for us. It's half a billion of new premium in 2024, and we certainly will double down on that in 2025 as Canadians keep shopping.

Paul Holden: Okay. If I think about the numbers you just gave, CAD 10 billion of personal, CAD 1 billion of which is affinity, how does that proportion roughly look for Intact? I'm assuming the history, you're probably a little bit underweight affinity relative to the industry.

Paul Holden: Okay. If I think about the numbers you just gave, $10 billion of personal, $1 billion of which is affinity, how does that proportion roughly look for Intact? I'm assuming the history, you're probably a little bit underweight affinity relative to the industry.

Charles Brindamour: Yes. Well, no. I don't think we're underweight compared to the industry. We're not underweight compared to the industry, but this is clearly a segment that is growing now a little more than twice the speed of the overall portfolio. I do expect that share to therefore increase over time. Very good, very stable business as well. We really love that space, and that was a big hit following the RSA acquisition.

Charles Brindamour: No, I don't think we're underweight compared to the industry. We're not underweight compared to the industry, but this is clearly a segment that is growing now a little more than twice the speed of the overall portfolio. I do expect that share to therefore increase over time. Very good, very stable business as well. We really love that space, and that was a big hit following the RSA acquisition.

Paul Holden: You talked about the acceleration and growth in the direct channel. I'm not surprised to hear that given every day I take the GO train and every day everyone's head down on their phone, right? More mobile shopping for sure. I think, as you said, more price shopping, which I think makes sense in the context of a high-rate environment. How do I think about the financial impact as an analyst? How do I think about the financial impact of accelerated growth in direct channel to Intact? Is it margin equivalent to what you're getting through the broker channel? Does it maybe in some of the underlying pieces it looks a little bit different where obviously you don't have the commission ratio? Maybe you can walk us through how you're thinking about that. Can this actually be beneficial to margins over time or not?

Paul Holden: You talked about the acceleration in growth in the direct channel. I'm not surprised to hear that given, well, every day I take the GO Train, and every day everyone's head down on their phone, right? More mobile shopping for sure.

Paul Holden: Then I think as you said, more price shopping, which I think makes sense in the context of a hard rate environment. How do I think about the financial impact as an analyst? How do I think about the financial impact of accelerated growth in direct channel to Intact? Is it margin equivalent to what you're getting through the broker channel? Does it maybe in some of the underlying pieces it looks a little bit different, where obviously you don't have the commission ratio? Maybe you can walk us through how you're thinking about that. Can this actually be beneficial to margins over time or not?

Charles Brindamour: At Intact, Paul, every business unit, every segment needs to stand on its own, meaning that all our business units and segments are held to the same ROE target, largely speaking. Different in personal lines than it is in commercial lines. Our direct business has the same ROE target, the same pricing targets that our broker business would have. The difference is that the growth profile is steeper. As a result, from an economic value creation point of view, I think we're creating a bit more value in the direct channel at this stage. If it sustains better growth in personal lines, that's a net value creator for us. That's how I would think about it. Yeah, every business unit uses the same ROE target.

Charles Brindamour: At Intact, Paul, every business unit, every segment needs to stand on its own, meaning that all our business units and segments are held to the same ROE target, largely speaking, different in personal lines than it is in commercial lines. Our direct business has the same ROE target, the same pricing targets that our broker business would have. The difference is that the growth profile is steeper. As a result, from an economic value creation point of view, I think we're creating a bit more value in the direct channel at this stage. If it sustains better growth in personal lines, that's a net value creator for us. That's how I would think about it. Every business unit uses the same ROE target.

Paul Holden: Okay, good. I feel like given past calls, we've almost kind of beaten the topic of CAT losses to death, but it's still something that people ask me.

Paul Holden: Okay. Good. I feel like given past calls, we've almost kind of beaten the topic of CAT losses to death, but it's still something that people ask me all the time. Maybe I'll take a little bit of a different approach to it because we can look to the U.S. examples where you've seen, I'd call it sad stories of people in Florida and LA lose their homes to these big weather events, right? With fires, hurricanes, and they're underinsured or maybe not even insured at all, right? It becomes a little bit of a societal problem, but it's one that I would say is relevant for Intact. I guess the question I want to ask is how do you think about getting rate adequacy within personal property, but at the same time balancing that against customer affordability and making sure Canadians still can afford the coverage they need?

Charles Brindamour: Sure

Paul Holden: all the time.

Charles Brindamour: Yeah.

Paul Holden: Maybe I'll take a little bit of a different approach to it, because we can look to the US examples where you've seen, I'd call it sad stories of people in Florida and LA lose their homes to these big weather events, right? With fires, hurricanes, and they're under-insured or maybe not even insured at all, right?

Charles Brindamour: Yeah.

Paul Holden: It becomes a little bit of a societal problem, but it's one that I would say is relevant for Intact. I guess the question I want to ask is how do you think about getting rate adequacy within personal property, but at the same time balancing that against customer affordability and making sure Canadians still can afford the coverage they need?

Charles Brindamour: Yeah. Paul, you know I've been, with my team, very focused on the impact of climate change for a good 15 years. Not just talking about it, but actually transforming the business on that basis. That's why our track record of close to 90% combined, you're thinking here upper teens ROE, to be clear, is what it is. It's because we turned this into a growth opportunity. If you look at 2024, 96.5% combined with CAD 1 billion and a half of CATs. Now, not all of it is home, but a big chunk of it is home.

Charles Brindamour: Yeah. Paul, you know, I've been with my team very focused on the impact of climate change for a good 15 years. Not just talking about it, but actually transforming the business on that basis. That's why our track record of close to 90% combined, you're thinking here, upper teens ROE, to be clear, is what it is. It's because we turned this into a growth opportunity. If you look at 2024, 96.5% combined with $1.5 billion of CATs. Not all of it is home, but a big chunk of it is home. That talks to the resilience of our platform. What does it mean for society? That's my starting point. That's how we've built our business. Let me first talk about California and Florida, which is where people start to talk about availability and affordability. I'll share with you what we're doing and why Canada is different.

Charles Brindamour: That talks to the resilience of our platform. What does it mean for society? Because that's my starting point. That's how we built our business. Let me first talk about California and Florida, which is where people start to talk about availability and affordability, and then I'll share with you what we're doing and why Canada is different. It's a different country, we know that, right? California, I would highlight three issues. The first one is frequency. In other words, you have forest fire like every year. Second, where there's insured value. Second, density. Insured values are up dramatically. Third, and I think that's the most important point, the regulators have made a real mess out of California. You can't price for risk. It's an endless negotiation.

Charles Brindamour: It's a different country. We know that, right? California, I would highlight three issues. The first one is frequency. In other words, you have forest fire like every year. Second, where there's insured value. Second, density. So insured values are up dramatically. Third, and I think that's the most important point, the regulators have made a real mess out of California. You can't price for risk. It's an endless negotiation. As a result, if you're borderline in a maintenance business because there's fire every year and you can't even price for it, guess what? People pull out altogether. This year's story was exacerbated by the fact that one large competitor in the U.S. went in underpriced a number of years back, tried to soak up the availability in the market and realized a few years down the road that they needed to get out.

Charles Brindamour: As a result, if you're borderline in a maintenance business because there's fire every year and you can't even price for it, well, guess what? People pull out altogether. This year's story was exacerbated by the fact that one large competitor in the US went in underpriced a number of years back, tried to soak up the availability in the market and realized a few years down the road that they needed to get out. This is like throwing oil on the fire, literally. That is very different. Canada is in a whole different place in my mind. Climate change is real. The increase in natural disaster, 4x over 30 years. It is the case. However, when it comes to fire, density and frequency is quite different.

Charles Brindamour: This is like throwing oil on the fire, literally. That is very different. Canada is in a whole different place in my mind. Climate change is real. The increase in natural disaster, I mean, 4x over 30 years. It is the case. However, when it comes to fire, density and frequency is quite different. We're working with the 20 most at-risk cities in the country to make sure that they know what to do to protect their citizens in case of fire. We've invested in the Intact Centre on Climate Adaptation, as you know, a decade ago. We've invested close to $30 million in that to help cities protect themselves. Now, what can the industry do beyond what the government can do, which is land use planning, building with resilience in mind, et cetera? What can we as an industry do to make sure that availability and affordability is there?

Charles Brindamour: We're working with the 20 most at-risk cities in the country to make sure that they know what to do to protect their citizens in case of fire. We've invested in the Intact Centre on Climate Adaptation, as you know. A decade ago, we've invested close to CAD 30 million in that to help cities protect themselves. Now, what can the industry do beyond what the government can do, which is land use planning, building with resilience in mind, et cetera, but what can we as an industry do to make sure that availability and affordability is there? First of all, the answer is not price. Price is going up, but if price is your only solution, eventually you get into an affordability space. I don't think we're there yet, because keep in mind, the consumers who buy home insurance have a home.

Charles Brindamour: First of all, the answer is not price. Price is going up, but if price is your only solution, eventually you get into an affordability space. I don't think we're there yet because keep in mind the consumers who buy home insurance have a home, and that's the segment that we're talking about. The average premium is probably $1,500. You could say it's expensive, but when you stack that against the cost of a house, it's an investment that makes a lot of sense. What the industry can do is make sure that the product, as we've done 15 years ago, is tailored by perils. If you choose to build a house in a floodplain, which is a really bad idea, surprisingly, 10% of Canadians are built in floodplains, we can still insure you for property, fire, theft, et cetera. You can still buy coverage.

Charles Brindamour: That's the segment that we're talking about, and the average premium is probably CAD 1,500. You could say it's expensive, but when you stack that against the cost of a house, it's an investment that makes a lot of sense. What the industry can do is make sure that the product, as we've done 15 years ago, is tailored by perils, so that if you choose to build a house in a floodplain, which is a really bad idea, surprisingly, 10% of Canadians are built in floodplains. We can still insure you for property, fire, theft, et cetera. You can still buy coverage. Obviously, if you're in that 10%, and that's the only area in Canada where insurance is a problem, you can't buy flood insurance, obviously. Making sure the product is curtailed along perils.

Charles Brindamour: Obviously, you're in that 10%, and that's the only area in Canada where insurance is a problem. You can't buy flood insurance, obviously. Making sure the product is curtailed along perils. Second, you want to make sure that your claims operation is geared to minimize cost when there is a natural disaster. Third, your supply chain, we've been very aggressive on the supply chain side of things, is there to mitigate cost. Fourth, and I think most importantly, prevention. Prevention is an area where we're heavily invested now, and I think you'll see a number of initiatives with our customers in 2024. A good example was wildfire defense systems, which we've launched last year, where if there's a wildfire coming close to your place, we send a crew to protect the house. That's worked well so far.

Charles Brindamour: Second, you want to make sure that your claims operation is geared to minimize cost when there is a natural disaster. Third, your supply chain, we've been very aggressive on the supply chain side of things, is there to mitigate cost. Fourth, and I think most importantly, prevention. Prevention is an area where we're heavily invested now, and I think you'll see a number of initiatives with our customers in 2024. A good example was wildfire defense systems, which we've launched last year, where if there's a wildfire coming close to your place, we send a crew to protect the house, and that's worked well so far. It's just a small example, but we're in the process of adding prevention tools in the toolbox for our customers.

Charles Brindamour: It's just a small example, but we're in the process of adding prevention tools in the toolbox for our customers. Paul, I think long answer to say Canada is not California. The industry has provided a lot of availability unless you build in a floodplain. It's not just about price. It's price, product, claims, supply chain, and prevention. I think there's growth for us in that segment, and our track record shows that it can be profitable and sustainable growth.

Charles Brindamour: Paul, I think long answer to say Canada is not California, and the industry has provided a lot of availability unless you build in a floodplain. It's not just about price, it's price, product, claims, supply chain, and prevention. I think there's growth for us in that segment. Our track record shows that it can be profitable and sustainable growth.

Paul Holden: Okay. Continuing on the same topic. Intact has increased its risk retention in Canada over a number of years, but increased it again going into 2025, right? From $250 million to $350 million. You talked a little bit about this again on last week's call, but I think it's worth sort of reiterating the reasons why this is expected to be earnings neutral, right? You're retaining more risk, but clearly there's some offsets, price being, I think, probably the most obvious one. What are the other factors that come into play here in terms of why more risk retention is expected to be earnings neutral?

Paul Holden: Okay. Continuing on the same topic. Intact has increased its risk retention in Canada over a number of years, but increased it again going into 2025, right? From CAD 250 to 350 million. You talked a little bit about this on, again, on last week's call, but I think it's worth reiterating the reasons why this is expected to be earnings neutral, right? You're retaining more risk, but clearly there's some offsets. Price being, I think, probably the most obvious ones. What are the other factors that come into play here in terms of why more risk retention is expected to be earnings neutral?

Charles Brindamour: Yeah. Paul, just from a philosophical point of view, as I've shared a number of times before, we don't buy reinsurance to manage volatility. We try to buy reinsurance to manage tail risk. In this year's program, the cost of tail risk, which we measure as a 1 in 500-year earthquake, we've reduced by a third our tail risk in this year's exercise. That's why we buy reinsurance. We have increased our CAT guidance you've seen from CAD 900 million to CAD 1.2 billion, and there are three drivers to that increase. One, the increase in the size of the business and inflation. Second, the impact of our models on climate change. Third, the fact that there's a bit more retained from a reinsurance point of view, just because we optimize the economics of our reinsurance program.

Charles Brindamour: Yeah. Just from a philosophical point of view, as I've shared a number of times before, we don't buy reinsurance to manage volatility. We try to buy reinsurance to manage tail risk. In this year's program, the cost of tail risk, which we measure as a one in 500-year earthquake, we've reduced by a third our tail risk in this year's exercise. That's why we buy reinsurance. We have increased our CAT guidance. You've seen from $900 million to $1.2 billion. There are three drivers to that increase. One, the increase in the size of the business and inflation. Second, the impact of our models on climate change. Third, the fact that there's a bit more retained from a reinsurance point of view, just because we optimize the economics of our reinsurance program.

Charles Brindamour: In the exercise, we also bought additional coverage for what we call third event or a scenario where there would be many CATs below the $350 million retention. We've bought additional coverage for that, which will help as well mitigate the impact of CATs. The cost equation from a reinsurance point of view is better than what we had anticipated. Our CAT guidance is up a bit. In balance, it's neutral to earnings. I think if you look at what happened this year and last year, I'm thinking this is one in 20 years sort of scenario. Yet we printed 96.5% combined ratio in home insurance. How much ROE do you want to leave on the table to manage the volatility in Q3? I count on guys like you to see through that and help investors along. We're actually very pleased with where the reinsurance outcome landed this year.

Charles Brindamour: In the exercise, we also bought, though, additional coverage for what we call third event, or a scenario where there would be many CATs below the CAD 350 million retention. We've bought additional coverage for that, which will help as well mitigate the impact of CATs. The cost equation from a reinsurance point of view is better than what we had anticipated. Our CAT guidance is up a bit. In balance, it's neutral to earnings. I think if you look at what happened this year and last year, I'm thinking this is one in 20 years sort of scenario. Yet we printed 96.5% combined ratio in home insurance. How much do you want to leave on the table to manage the volatility in Q3? I count on guys like you to see through that and help investors along.

Charles Brindamour: We're actually very pleased with where the reinsurance outcome landed this year. My team did an awesome job, I think.

Charles Brindamour: My team did an awesome job, I think.

Paul Holden: Sure. We have a fair amount of time left, and I do have a number of questions left, but I want to remind the audience, please do participate. Encourage your questions. I think you can lob them in through the chat on Teams, or email me at paul.holden@cibc.com, and I'll try to keep an outlook on my email for any inbound questions. Okay. With that, Charles, you also in your opening remarks, you made a reference to the UK business and success-

Paul Holden: Sure. I do have, I mean, we have a fair amount of time left, and I do have a number of questions left, but I want to remind the audience, please, please do participate, encourage your questions. I think you can plop them in through the chat on Teams or email me at paul.holden@cibc.com, and I'll try to keep an outlook on my email for any inbound questions. With that, Charles, you also, in your opening remarks, you made a reference to the UK business and the success you've had there. I think that acquisition closed roughly four years ago, give or take, maybe not quite four years, but close to four years now. Three and a half, there we go.

Paul Holden: you've had there. I think that acquisition closed roughly four years ago, give or take.

Charles Brindamour: Yeah.

Paul Holden: Maybe not quite 4 years, but close to 4 years now.

Charles Brindamour: Three and a half.

Paul Holden: Three and a half. There we go.

Charles Brindamour: Three and a half.

Charles Brindamour: 3.5.

Paul Holden: You did a lot. Since buying that business, you've made a lot of changes, right? Bought some additional business, sold some.

Paul Holden: You did a lot, like since buying that business, you've made a lot of changes, right? Bought some additional business, sold some couple of different businesses, a lot of profit improvement, a lot of heavy lifting too. The results are pretty good, right? The results are good, right? You're well on target, I think, to where you want to be.

Charles Brindamour: Yeah

Paul Holden: a couple of different businesses. Lot of profit improvement. Like a lot of heavy lifting, too.

Charles Brindamour: Yeah.

Paul Holden: The results are pretty good, right? Well, pretty good. Results are good, right? You're well on target, I think, to where you want to go.

Charles Brindamour: Mid-teens ROE in the UK. That's in the zone.

Charles Brindamour: Mid-teens ROE in the UK, I mean, that's in the zone, you know?

Paul Holden: Yeah. I guess really my question is what still needs to be achieved? What can we expect in 2025, and then what do the results look like after that?

Paul Holden: I guess really my question is, what still needs to be achieved? What can we expect in 2025, and then what do the results look like after that?

Charles Brindamour: In the UK, very strong management team, very strong leadership. The values have been rolled out. That's where it all starts. As far as I'm concerned, we're very pleased with that. Second, it's all about outperformance. When it comes to outperformance, I would say there are three elements that really matter. One, do you have the right footprint? Can you win where you play? Two, do you have the technological backbone to support outperformance? Three, you bring your sophistication or your pricing models in the platform, and the governance that goes along with that. On values, leadership team, we're in excellent shape. What I want to see some more of is we're building best employers where we operate. We're not there yet in the UK. That is a big priority for the team and for myself. Second, in the outperformance bucket.

Charles Brindamour: In the UK, very strong management team, very strong leadership. The values have been rolled out. That's where it all starts. As far as I'm concerned, we're very pleased with that. Second, it's all about the outperformance. When it comes to outperformance, I would say there are three elements that really matter. One, do you have the right footprint? Can you win where you play? Two, do you have the technological backbone to support outperformance? Three, you bring your sophistication or your pricing models in the platform and the governance that goes along with that. On values, leadership, team, we're in excellent shape. What I want to see some more of is we're building best employers where we operate. We're not there yet in the UK. That is a big priority for the team and for myself.

Charles Brindamour: Second, in the outperformance bucket, the footprint, I mean, I think it was a bit of luck, I have to say, Paul, there. We exited our Danish position. We exited our Middle Eastern position. We were lucky/bold to exit personal lines in year two. We bought mid and small market business, which means that our UK business today is all commercial lines, really. There's a specialty lines part to that business, which is part of global specialty lines. Our UK operation is in the sweet spot of the UK market. We're number three. We have a leading position. What is left in that big transformation? One, the exited business. We're in the last year. We don't think it's impactful to the bottom line, but we need to finish that well. It's heavy lifting. Second, the NIG integration.

Charles Brindamour: The footprint, I think it was a bit of luck, I have to say, Paul, there. We exited our Danish position, we exited our Middle Eastern position, and then we were lucky/bold to exit personal lines in year 2. We bought mid and small market business, which means that our UK business today is all commercial lines, really. There's a specialty lines part to that business, which is part of Global Specialty Lines. Our UK operation is in the sweet spot of the UK market, and we're number 3. We have a leading position. What is left in that big transformation? 1. The exited business. We're in the last year. We don't think it's impactful to the bottom line, but we need to finish that well. It's heavy lifting. 2. The NIG integration.

Charles Brindamour: The business is in the middle of rolling to our systems at the moment. I'm very pleased with the progress we're making there. It's a real integration. The performance is also improving. You've seen 92.7%, 92.8% for the year and for the quarter. I'm very pleased with that. The book has not yet completely rolled in our system. That needs to be finished. Third, we're really working now, and that's the work of 2025, to raising the bar on service for brokers and integrating, streamlining our product offering for brokers as well. A lot of growth upside there. We're not finished with that. This is the work of 2025. Lastly, we've invested massively in technology in the UK. You haven't seen that before. We're not done. We've got another two, three years of investments in the UK.

Charles Brindamour: The business is in the middle of rolling to our systems at the moment. I'm very pleased with the progress we're making there. It's a real integration. The performance is also improving. You've seen 92.7, 92.8 for the year and for the quarter. I'm very pleased with that. The book has not yet completely rolled in our system. That needs to be finished. Third, we're really working now, and that's the work of 2025, to raising the bar on service for brokers and integrating, streamlining our product offering for brokers as well. A lot of growth upside there. We're not finished with that. This is the work of 2025. Lastly, we've invested massively in technology in the UK. Like you haven't seen that before. We're not done. We've got another 2, 3 years of investments in the UK.

Charles Brindamour: Investors need not worry about that because when we invest in technology, we make trade-offs. This is not a headwind for performance. We cut something else. The UK, we're rationalizing the expense footprint at the moment, but I'm very pleased with where this business is running already in the low 90s, 92.7, and I see that improving to 90% combined ratio within 24 months. Very pleased with where we are in the UK. I would say it's a core part of our growth strategy going forward.

Charles Brindamour: Investors need not worry about that because when we invest in technology, we make trade-offs. This is not a headwind for performance. We cut something else. In the UK, we're rationalizing the expense footprint at the moment. I'm very pleased with where this business is running, already in the low 90s, 92.7%. I see that improving to 90% combined ratio within, you know, 24 months. I'm very pleased with where we are in the UK. I would say it's a core part of our growth strategy going forward.

Paul Holden: In terms of the growth outlook for that business, again, you're doing some profit rationalization, let's call it, right? Sort of cutting off less profitable books of business. Obviously with the investments in digital, with the combined ratio you're targeting, I like to think it sounds like you're going to have a competitive advantage in that SME market. Obviously growth starts picking up the market share gains, right? We kind of talked about some other lines of business.

Paul Holden: In terms of the growth outlook for that business, you know, you're doing some profit rationalization, let's call it, right? Sort of cutting off less profitable books of business. Obviously, with the investments in digital, with the combined ratio you're targeting, I'd like to think it sounds like you're going to have a competitive advantage in that SME market. Obviously, growth starts picking up the market share gains, right? We kind of talked about some other lines of business. It's going to start coming into play. When roughly, reasonably, should we expect that to accelerate? You probably have a long runway there, I imagine, as well.

Charles Brindamour: Yeah.

Paul Holden: It's going to start coming into play. When roughly, reasonably should we expect?

Charles Brindamour: Yeah

Paul Holden: that to accelerate and you probably have a long runway there, I imagine as well.

Charles Brindamour: I think we have a very long runway because our market share is only single-digit in the UK, and there's a lot of runway to grow this thing and to improve the combined ratio. The thing that I haven't talked about when I describe what we've done in the UK is the acquisition of Direct Line when combined with RSA expands the number of brokers with whom we do business by many hundreds of brokers. You have a bunch of new brokers who haven't really had access to all the RSA commercial lines offer, which includes marine, which includes financial lines, et cetera. Just managing the distribution better will be a meaningful source of upside. I think this is a business, Paul, that can grow over time in the upper single-digit range organically, in the low 90s or 90% combined ratio.

Charles Brindamour: Yeah, I think we have a very long runway because our market share is only single-digit in the UK. There's a lot of runway to grow this thing and to improve the combined ratio. The thing that I haven't talked about when I describe what we've done in the UK is the integration of the acquisition of Direct Line, when combined with RSA, expands the number of brokers with whom we do business by many hundreds of brokers. You have a bunch of new brokers who haven't really had access to all the RSA commercial lines offer, which includes marine, which includes financial lines, et cetera. Just managing the distribution better will be a meaningful source of upside. I think this is a business, Paul, that can grow over time in the upper single-digit range organically in the low 90s or 90% combined ratio. There's no doubt.

Charles Brindamour: There's no doubt. Now we acquired Direct Line. We thought we were acquiring GBP 530 million, and frankly, the book we were handed over was north of GBP 600 million. That's a really good start. There's a remediation going on. We've exited certain segments where we felt we couldn't win. We're applying price and selection in segments that were not profitable according to our metrics. I do expect 6 to 9 months of headwinds in terms of growth in the UK because of that remediation effort that is taking place. The headwind will take a bit more than 6 to 9 months, but the full impact of it will be felt in the first 2, 3 quarters of 2025.

Charles Brindamour: Now, we acquired Direct Line. We thought we were acquiring £530 million. Frankly, the book we were handed over was north of £600 million. That's a really good start. There's a remediation going on. We've exited certain segments where we felt we couldn't win. We're applying price and selection in segments that were not profitable according to our metrics. I do expect six to nine months of headwinds in terms of growth in the UK because of that remediation effort that is taking place. The headwind will take a bit more than six to nine months, but the full impact of it will be felt in the first two, three quarters of 2025.

Paul Holden: Okay. Very helpful. Let's continue on the topic of commercial, but maybe broaden it out just geographically a little bit. Something that's being asked to me and I think to you as well a lot over the last year is sort of the slowing or I guess I don't want to call it the softening of the rate conditions in certain pockets.

Paul Holden: Okay. Very helpful. Let's continue on the topic of commercial, but maybe broaden it out just geographically a little bit. I mean, something that's being asked to me and I think to you as well a lot over the last year is sort of the slowing or I guess I don't want to call it the softening of the rate conditions in certain pockets.

Charles Brindamour: Yes.

Charles Brindamour: Yeah.

Paul Holden: How should we think about that in terms of margins for Intact? Maybe it's a little bit of a slowdown. Premium growth is one thing, but the thing that people are always going to worry about is really the margins you earn. How are you balancing the pricing dynamics with your margin targets?

Paul Holden: How should we think about that in terms of margins for Intact? Because, you know, maybe it's a little bit of a slowdown. Premium growth is one thing, but the thing that people are always going to worry about is really the margins you earn. How are you balancing the pricing dynamics with your margin targets?

Charles Brindamour: Yeah. First of all, one has to assume that we're operating in an environment where inflation is covered by premium increases and some insured increases, in fact, a bit more than inflation. That should be very helpful to protect the overall margin of the firm. The second point, just to put things in perspective, in Canada right now, in the SME space, we're seeing a bit more than 5% in terms of rates. In the mid-market space, we're seeing 4% ish. What's putting pressure on growth is large accounts. I was doing a deep dive last night with my team in commercial lines in Canada, and the issue is mix. In other words, I find our retention is strong. Our ability to close is good. We're quoting on the right accounts, but the average size is shrinking a bit. Why?

Charles Brindamour: Yeah. First of all, one has to assume that we're operating in an environment where inflation is covered by premium increases and some insured increases. In fact, a bit more than inflation. Okay. That should be very helpful to protect the overall margin of the firm. The second point, just to put things in perspective, in Canada right now in the SME space we're seeing a bit more than 5% in terms of rates. In the mid-market space we're seeing four-ish%. What's putting pressure on growth is large accounts, I was doing a deep dive last night with my team in Commercial Lines in Canada, the issue is mixed. In other words, I find our retention is strong, our ability to close is good. We're quoting on the right accounts, the average size is shrinking a bit. Why?

Charles Brindamour: We have more success at the smaller end than at the larger end. It's true on retention, it's true on new business, this is not impacting margin because we're managing the business and the retention and our ability to close with margin in mind. Our governance is built around that. I'm not concerned about the margins really in commercial lines. The second thing I would say, Paul, is one needs to understand that one distinctive feature of the business we've built, and now I'll throw commercial lines and Global Specialty Lines in the mix. It's overly indexed or over-indexed towards mid-market size customers as opposed to large international customers where price is far more sensitive.

Charles Brindamour: Because we have more success at the smaller end than at the larger end. It's true on retention. It's true on new business. This is not impacting margin because we're managing the business and the retention and our ability to close with margin in mind. Our governance is built around that. I'm not concerned about the margins really in commercial lines. The second thing I would say, Paul, is one needs to understand that one distinctive feature of the business we've built, and now I'll throw commercial lines and global specialty lines in the mix, it's overtly indexed, overly indexed, or over-indexed towards mid-market size customers as opposed to large international customers where price is far more sensitive. There is a degree of inelasticity to pricing in that space, which as we've shown over the past decade plus, we rarely end up in a position where rates collapse below inflation.

Charles Brindamour: There is a degree of inelasticity to pricing in that space, which as we've shown over the past decade plus, we rarely end up in a position where rates collapse below inflation. The third point I would make, Paul, and that's more true of the US and in the UK, because the performance in the US has been really good. We're seeing low 90s or better. It's been better. We're on a mad race to improve the sophistication of the pricing models used in the US and in the UK at the moment. Just to put things in perspective, in Global Specialty Lines in Q4, we've deployed new models in 9 segments, which represent 21% of our US business. One of the ways we're trying to edge the risk of rates diminishing in the market is through sophistication.

Charles Brindamour: The third point I would make, Paul, and that's more true of the U.S. and in the UK because the performance in the U.S. has been really good. We're saying low 90s or better. It's been better. We're on a mad race to improve the sophistication of the pricing models used in the U.S. and in the UK at the moment. Just to put things in perspective, in global specialty lines in Q4, we've deployed new models in nine segments, which represent 21% of our U.S. business. One of the ways we're trying to edge the risk of rates diminishing in the market is through sophistication. We're going as fast as we can in exporting really pricing algorithms and governance that goes with that in the U.S. and in the UK.

Charles Brindamour: We're going as fast as we can in exporting really pricing algorithms and the governance that goes with that in the US and in the UK.

Paul Holden: Let's talk about that a little bit more, right? That fascinating topic, the sophistication of your pricing models. AI is a dominant theme that we hear about again every day like tariffs. Is this kind of where the sophistication is coming from? Is it AI related or maybe it's driven by some other kind of technology developments?

Paul Holden: Let's talk about that a little bit more, right? That's a fascinating topic, the sophistication of your pricing models. I mean, AI is a dominant theme that we hear about again every day, like tariffs. Is this kind of where the sophistication is coming from? Is it AI related or maybe it's driven by some other kind of technology developments? Maybe expand a little bit on that.

Paul Holden: So maybe-

Charles Brindamour: Yeah

Paul Holden: expand a little bit on that.

Charles Brindamour: Yeah. There's a big difference between tariffs and AI. I think tariffs is likely a one-time shock to the system. It might be a permanent presence, the shock will be a one-time shock when it's implemented. AI is a deep trend, it's been a deep trend for us for 10 years. That's why we've invested so much. That's why we have 500 models today that spit out at least CAD 150 million of earnings, recurrent every year. We're on our 3rd generation of science. This is a muscle we have. The advantage does not come only from AI. AI is just a technique to do predictive work. When you think about pricing, Paul, the way you build an advantage is the data you use.

Charles Brindamour: Yeah. I mean, there's a big difference between tariffs and AI. I think tariffs are likely, you know, a one-time shock to the system. It might be a permanent presence, but the shock will be a one-time shock when it's implemented. AI is a deep trend, and it's been a deep trend for us for 10 years. That's why we've invested so much. That's why we have 500 models today that spit out at least $150 million of earnings recurrent every year. We're on our, you know, third generation of science. This is a muscle we have. The advantage does not come only from AI. AI is just a technique to manage it, to do predictive work. When you think about pricing, Paul, the way you build an advantage is the data you use. When it's the same as everybody else, you need to segment it more.

Charles Brindamour: When it's the same as everybody else, you need to segment it more, and ideally, you have data that others don't have, which is where we've been focused on, not since the world talks about AI, but for decades. There is how you combine this data. That's where AI comes in. It used to be generalized linear modeling. Now it's machine learning and other techniques. There is how you choose to deploy it in the field, and the governance that goes around that. The advantage is built over each and every one of these layers. AI is a big part of that, but it's not the only part of that. That's why I think the advantage that we have is really solid.

Charles Brindamour: Ideally, you have data that others don't have, which is where we've been focused on, not since the world talks about AI, but for decades. There is how you combine this data. That's where AI comes in. It used to be generalized linear modeling. Now it's machine learning and other techniques. There is how you choose to deploy it in the field and the governance that goes around that. The advantage is built over each and every one of these layers. AI is a big, big part of that, but it's not the only part of that. That's why I think the advantage that we have is really solid.

Paul Holden: I do have an audience question. Thanks for the question. It's a good one. They're curious about this topic, the sophistication level you see in the U.S. and UK versus Canada. How do you view how sophisticated is the industry? How do you view Intact's competitive advantages in that sophistication versus the industry in each of the three markets?

Paul Holden: I do have a audience question. Thanks for the question. It's a good one. They're curious about, on this topic, the sophistication level you see in US and UK versus Canada. How do you view how sophisticated is the industry? Then how do you view Intact's competitive advantages in that sophistication versus the industry in each of the three markets?

Charles Brindamour: Yeah. Paul, 15 years ago, one call we've made, Louis Gagnon and I, was not to do personal lines in the US. The reason why we made that call is we didn't want to compete with Progressive, whom I see as best in class. The call we've made after studying the US in-depth was to go in the specialty and mid-market space. Our thesis was, and I think it proves to be true, that not very sophisticated. Nobody dominates the space. Pricing sophistication not great. I would say same thing in the UK. The thing we built in Canada, starting in the early 2000, we built a pricing machine, so to speak, that was as sophisticated as our personal lines business. You're talking billions of price points.

Charles Brindamour: Yeah. Paul, 15 years ago, one call we've made, Louis Gagnon and I, was not to do personal lines in the U.S. The reason why we made that call is we didn't want to compete with Progressive, whom I see as best in class. The call we've made after studying the U.S. in depth was to go in the specialty and mid-market space. Our thesis was, and I think it proves to be true, that not very sophisticated. Nobody dominates the space. Pricing sophistication, you know, not great. I would say same thing in the UK. The thing we built in Canada, starting in the early 2000s, we built a pricing machine, so to speak, that was as sophisticated as our personal lines business. You're talking billions of price points. We built a mousetrap around that for both new business and renewal.

Charles Brindamour: We built a mousetrap around that for both new business and renewal, and it's those techniques that we export in what I consider to be not very sophisticated pricing market. That's why I count on that to solidify the outperformance that we're showing in the US today and in the UK, because you can't outperform just by charging more. That doesn't work, right? You need to outsmart others, and I think the techniques and the algorithms that we've built here are highly exportable. That's why we're on a mad race to export those.

Charles Brindamour: It's those techniques that we export in what I consider to be not very sophisticated pricing market. That's why I count on that to solidify the outperformance that we're showing in the U.S. today and in the UK, because you can't outperform just by charging more. That doesn't work, right? You need to outsmart others. I think the techniques and the algorithms that we've built here are highly exportable. That's why we're on a mad race to export those.

Paul Holden: Very good. Have to ask you about potential capital deployment. We talked about your balance sheet being at a good position. It's been an important part of Intact's growth story over time. You've generally talked about Canada being first priority for acquisition. One is that still the case? Assuming it is, but maybe address that. As we think about potential acquisitions domestically, what would be your key criteria?

Paul Holden: Very good. I have to ask you about potential capital deployment. We talked about, you know, your balance sheet being at a good position. It's been an important part of Intact's growth story over time. You've generally talked about Canada being first priority for acquisition. One is, is that still the case, assuming it is, but maybe address that. As we think about potential acquisitions domestically, what would be your key criteria?

Charles Brindamour: Acquisitions for us are accelerators of our strategy. They're not the strategy. To deploy capital, you want to make sure your outperformance is solid. The good news is the outperformance in Canada is very solid. The outperformance in the US is really solid. The outperformance in the UK is building. The absolute performance is good. Now I want to see solid outperformance. The reason why I start there, Paul, is that this really drives where the capital is going. That's why I've said North American or deploying capital in North America is where this starts, and Canada is the easiest place to create value, provided obviously the price is reasonable. We have a very strong position in the context of Canada, and for sure we'll defend the territory. There's no doubt about that.

Charles Brindamour: Acquisitions for us are accelerators of our strategy. They're not the strategy. To deploy capital, you want to make sure your outperformance is solid. The good news is the outperformance in Canada is very solid. The outperformance in the U.S. is really solid. The outperformance in the UK is building. The absolute performance is good. I want to see solid outperformance. The reason why I start there, Paul, is that this really drives where the capital is going. That's why I've said North American or deploying capital in North America is where this starts. Canada is the easiest place to create value, provided obviously the price is reasonable. We have a very strong position in the context of Canada and for sure will defend the territory. There's no doubt about that. We would gladly put capital in the U.S.

Charles Brindamour: We would gladly put capital in the US as well, and then in distribution on both sides of the border. We've done like BrokerLink, for instance, I think well on its way to hit CAD 5 billion of capital, has done many acquisitions again in 2024, and there's a pretty good pipeline in 2025 as well. North American manufacturing and distribution. Now, your question was domestically, what are the criteria? Well, the criteria for us, given we already occupy the space domestically, is return. It needs to generate 15% IRR or above. Our track record from a capital deployment point of view in M&A is north of 20%. Nobody at Intact wants to mess with our track record, to be clear. We don't need to make acquisitions in the context of Canada, though we would love to. Returns really matter.

Charles Brindamour: as well, and then in distribution on both sides of the border. We've done like BrokerLink, for instance, I think, you know, well on its way to hit $5 billion of capital, has done many acquisitions again in 2024, and there's a pretty good pipeline in 2025 as well. North American manufacturing and distribution. Your question was domestically, you know, what are the criteria? The criteria for us, given we really occupy the space domestically, is return. It needs to generate 15% IRR or above. Our track record from a capital deployment point of view in M&A is north of 20%. Nobody at Intact wants to mess with our track record, to be clear. We don't need to make acquisitions in the context of Canada, though we would love to. Returns really matter. Obviously, you know, what's highly valuable to us? Commercial lines, highly valuable to us.

Charles Brindamour: Obviously, what's highly valuable to us, commercial lines, highly valuable to us. Specialty lines, bolstering the direct platform as well. We have outperformance everywhere, so we can create value pretty much everywhere in the Canadian context.

Charles Brindamour: Specialty lines, bolstering the direct platform as well. We have outperformance everywhere, so we can create value pretty much everywhere in the Canadian context.

Paul Holden: Another question I have to ask on this topic is how would you characterize sort of the M&A environment, right? Clearly, your demand is there for it. The other side of the transaction needs to be there, too, right? Sort of the supply you talked a little bit about where the industry's at in personal auto in Canada, and the results aren't great. Does that create maybe some pressure or willingness to sell? Anyways, sort of broader picture, anything you can give us on sort of the M&A environment, hot, cold, lukewarm?

Paul Holden: Another question I have to ask on this topic is how would you characterize sort of the M&A environment, right? Clearly, you know, your demand is there for it. How does the other side of the transaction need to be there too, right? Sort of the supply you talked a little bit about, you know, where the industry is at in personal auto in Canada, and the results aren't great. Does that create maybe some pressure or willingness to sell? Anyways, sort of broader picture, anything you can give us on sort of the M&A environment, hot, cold, lukewarm?

Charles Brindamour: I don't think about the M&A environment in terms of temperature. I can tell you, Paul, we have a DCF on everyone. We have relationships with everyone. When the opportunity presents itself, we're there. We're ready. We can move quickly. I would qualify the M&A environment, just to go along with your question, as a constructive one. I find the best specialty lines companies to be on the expensive side of things. I find people are pretty relaxed about having conversations in general, which would fit into one's definition of a constructive environment.

Charles Brindamour: I don't think about the M&A environment in terms of temperature. I can tell you, Paul, we have a DCF on everyone. We have relationships with everyone. When the opportunity presents itself, we're there. We're ready. We can move quickly. I would qualify the M&A environment just to go along with your question as a constructive one. I find the best specialty lines companies to be on the expensive side of things. Though I find people are pretty relaxed about having conversations in general, which would fit into one's definition of a constructive environment.

Paul Holden: Okay. I want to talk to you about talent development. I think it has been very important to the success of Intact. You probably agree with that. I watch some of the other Canadian financials I cover where they have had a few different twists and turns in terms of senior leadership appointments that have not worked out so well, right? The most obvious one for Intact would be you have Louis Marcotte retiring after many years with the organization, but a very smooth, orderly appointment internally for Intact. Talk to us about talent management, and what makes Intact sort of I would call a world-class leader on this front.

Paul Holden: I want to talk to you about talent development. I think it's been very important to the success of Intact. You probably agree with that. I watch some of the other Canadian financials I cover where they've had a few different twists and turns in terms of senior leadership appointments that haven't worked out so well, right? The most obvious one for Intact would be, you know, you have Louis Marcotte retiring after many years with the organization, but a very smooth, orderly appointment internally for Intact. Talk to us about talent management and what makes Intact sort of, I would call, a world-class leader on this front.

Charles Brindamour: This is fundamental, and if you start with value creation in mind and strategy, the thing that's very clear to us as a team is there needs to be a common direction and there needs to be stability because building a great franchise takes time. Building a competitive advantage takes time. If you zigzag through leadership changes and you change direction all the time, you'll be average. Strategically, we said, "Okay, we really need to make sure that we have a very strong talent pipeline inside the shop." That's a call we've made 20 years ago, I would say, with my predecessor. Just to quantify the strength of the bench, for the top 250 jobs, 31,000 employees, top 250 jobs, five successors per job in average, ready within three years. That's the pool.

Charles Brindamour: This is fundamental. If you start with value creation in mind and strategy, the thing that's very clear to us as a team is there needs to be a common direction and there needs to be stability because building a great franchise takes time. Building a competitive advantage takes time. If you zigzag through leadership changes and you change direction all the time, you'll be average. Strategically, we said, okay, we really need to make sure that we have a very, very strong talent pipeline inside the shop. That's a call we've made 20 years ago, I would say, with my predecessor. Just to quantify the strength of the bench, for the top 250 jobs, 31,000 employees, top 250 jobs, five successors per job on average, ready within three years. That's the pool.

Charles Brindamour: That's a pool that I manage personally with the other CEOs of the organization, Mike Miller in Global Specialty Lines, Ken Anderson in the UK, Louis Gagnon in Canada, and then Patrick Barbeau, who oversees Tech, Claims, AI, and so on. We proactively manage that pool. We don't wait for opportunities to present themselves to move people. We actually make opportunities emerge so that we can develop people. If I use the example of Finance, first of all, Ken is super well prepared. I mean, you just look at his track record. He knows every square inch of the organization, been in the UK, Corp Dev, Treasury, IR, name it. Most investors would know Ken. The reality is that I probably had four options inside before even going outside.

Charles Brindamour: That's a pool that I manage personally with the other CEOs of the organization, Mike Miller in Global Specialty Lines, Ken in the UK, Louis Gagnon in Canada, and then Patrick Barbeau, who oversees tech claims, AI, and so on. We proactively manage that pool. We don't wait for opportunities to present themselves to move people. We actually make opportunities emerge so that we can develop people. If I use the example of finance, first of all, Ken is super well-prepared. You just look at his track record. He knows every square inch of the organization, been in the UK, corp dev, treasury, IR, name it. Most investors would know Ken. The reality is that I probably had four options inside before even going outside.

Charles Brindamour: The other thing I would say is that I have in the generation that follows, people in their 30s, probably five options. Not only to replace Ken, but to replace Ken's successor. It's true in many areas of the business. You just need to be super deliberate about it. I probably spend easily 10% of my time on that. We test people. Not only do we develop them, Intact is very much an on-the-job development sort of environment, but you're being exposed, you're being tested, and that works for us. It's not something you do overnight.

Charles Brindamour: The other thing I would say is that I have in the generation that follows, people in their 30s, probably five options, not only to replace Ken, but to replace Ken's successor. It's true in many areas of the business. You just need to be super deliberate about it. I probably spend easily 10% of my time on that. We test people. Not only do we develop them, Intact is very much an on-the-job development sort of environment, but you're being exposed, you're being tested, and that works for us. It's not something you do overnight.

Paul Holden: Right. We're almost out of time, but Charles, I do want to give you an opportunity to leave us with any closing thoughts and remarks.

Paul Holden: Great. We're almost out of time, but Charles, I do want to give you an opportunity to leave us with any closing thoughts and remarks.

Charles Brindamour: Well, Paul, thanks for that. I think that 2024 highlights, on one hand, the resilience of the business, on the other hand, the earnings trajectory of the business, and the fact that because our sandbox is 10 times bigger than what it was 7, 8 years ago, there's little doubt in the management team's view that outperforming the industry by at least 500 basis points every year and growing the earnings power of the firm at a clip of 10% per year, at least on average, which is our track record of the last decade, we can replicate in the next decade. We think we can do that pretty much with the footprint we have today, which really de-risks our ability to achieve those objectives given we have outperformance where we operate. The last point I would make, because you brought it up, there is real bench.

Charles Brindamour: Paul, thanks for that. I think that 2024 highlights, on one hand, the resilience of the business, on the other hand, the earnings trajectory of the business, and the fact that because our sandbox is 10 times bigger than what it was seven, eight years ago, there's little doubt in the management team's view that outperforming the industry by at least 500 basis points every year and growing the earnings power of the firm at a clip of 10% per year, at least on average, which is our track record of the last decade, we can replicate in the next decade. We think we can do that pretty much with the footprint we have today, which really de-risks our ability to achieve those objectives, given we have outperformance where we operate. The last point I would make, because you brought it up, there's real bench.

Charles Brindamour: There are ranks of people who can push that performance for decades to come. I'll just close on the fact that Intact is a values-driven organization which is rooted in integrity, respect, excellence, customer-driven, and generosity. That's what you should experience when you deal with us, whether you're a customer, a broker, an employee, or an investor. Paul, thanks for your time this morning. I see it's 10:57. We're beating the expectations, which is always a good place to be.

Charles Brindamour: There are ranks of people who can push that performance for decades to come. I'll just close on the fact that Intact Financial Corporation is a values-driven organization, which is rooted in integrity, respect, excellence, customer-driven, and generosity. That's what you should experience when you deal with us, whether you're a customer, a broker, an employee, or an investor. Paul, thanks for your time this morning. I see it's 10:57 A.M. We're beating the expectations, which is always a good place to be.

Paul Holden: Charles, always a pleasure. That was excellent. Really appreciate it. Everyone, thanks for taking the time again to listen in and look forward to the next time.

Paul Holden: Charles, always a pleasure. That was excellent. Really appreciate it. Everyone, thanks for taking the time again to listen in. I look forward to the next time.

Charles Brindamour: Perfect. Thanks, Paul.

Charles Brindamour: Perfect. Thanks, Paul.

Paul Holden: All right. Thank you. Bye now.

Paul Holden: All right. Thank you. Bye now.