Q1 2025 Intact Financial Corp Earnings Call
Speaker Change: Good morning ladies and gentlemen and welcome to the Intact Financial Corporation Q1 2025 results conference call. At this time all lines are in militant only mode.
Speaker Change: Following the presentation, we will conduct a question-and-answer session. And if at any time during this call, you require immediate assistance. Please press star zero for the operator. Also note that this call is being recorded on May 7th, 2025.
Jeff Kwan: And now I would like to turn the conference over to Jeff Kwan, Chief Investor Relations Officer. Please go ahead.
Jeff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining. The call to discuss our first quarter financial results.
Jeff Kwan: A link to the live webcast and materials for this call have been posted on our website at intactfc.com.
Jeff Kwan: Under the Investors tab. Before we start, please refer to slide two for a disclaimer regarding the use of forward-looking statements which form part of this morning's remarks and slide three for a note on the use of non-GAAP financial measures and other terms used in this presentation.
Speaker Change: To discuss our results today, I have with me our CEO Charles Brindamore, our CFO , Ken Anderson, Patrick Barbo, our Chief Operating Officer, and Guillaume Lemme, Senior Vice President, Personal Alliance.
Charles Brindamore: We will begin with repair remarks followed by Q&A and with that I will turn the call over to Charles.
Thank you, Jeff.
Good morning, everyone, and thanks for joining us.
Charles Brindamore: The first quarter of this year, reinforced our position of strength.
Charles Brindamore: We reported a 10% increase in net operating income for share.
Achieving $4.1 with strong contributions across the business.
Charles Brindamore: Our book value per share grew 4% from last quarter and 13%
Year-over-year
Charles Brindamore: These results underscore the resilience of our platform and our ability to succeed both operationally and financially even in an environment of market volatility and economic uncertainty.
Top-line growth was 3% in the quarter.
This was attributable to continued momentum in first lines.
Through both rate and solid increase in units.
Charles Brindamore: And commercial lines growth was muted due to specific profitability actions we're taking in the US and in the UK in particular.
Charles Brindamore: And we continue to see pressure in large accounts across all jurisdictions. That being said, rates remain in the mid-single digits in most lines.
Charles Brindamore: And while we maintain a focused approach on earnings growth, we're confident in our ability to achieve strong top-line growth.
Charles Brindamore: We have a really good action plan to ensure that we seize on all available opportunities.
Charles Brindamore: We expect growth to improve for the remainder of the year as remediation actions taper off and our actions kick in.
Charles Brindamore: Our combined ratio was solid at 91%, despite 2.5 points of higher catastrophe losses
Charles Brindamore: This highlights strong underlying results and healthy favorable prior year development across our businesses.
Charles Brindamore: Now, let me provide some color on each of our lines of business starting with Canada.
Charles Brindamore: So personal premiums were up 11% this quarter. This was a function of vote rate actions.
and a 2% increase in units.
Charles Brindamore: As profitability remains challenging for the industry in particular in Alberta,
Charles Brindamore: We expect hard market conditions to persist over the next 12 months.
Charles Brindamore: Our combined ratio of 97-5 included a four-point impact from severe winter conditions.
which was higher than seasonal expectations for a first quarter.
Charles Brindamore: Overall, the combined ratio will remain in line with our full year sub 95 guidance.
Thank you.
Charles Brindamore: In personal property, premiums were up 9% driven by red actions and unit growth. We continue to expect hard market conditions to persist, given the impact of severe weather activity over the last couple of years.
Charles Brindamore: And despite challenging winter conditions we delivered an 88.9% combined ratio in the quarter.
Charles Brindamore: Again, in tenet on commercial lines, premium growth was 1% reflecting mid-single digit rates in most lines.
Charles Brindamore: There was a three-point drag primarily from business mix as well as continued competition in large accounts.
Charles Brindamore: Given the constructive market conditions, we expect industry growth in the mid-single digit range over the next 12 months.
The combined ratio continued to be very strong at 81.2%.
Charles Brindamore: This reflects our underwriting discipline with a four-point improvement in the underlying current-year loss ratio from last year.
Moving now to our UKI business.
This quarter saw a 4% decrease in premium.
Charles Brindamore: The remediation actions in the direct line portfolio impacted our top line by approximately three points while competition and large accounts space continue.
Charles Brindamore: Given the current market conditions, we expect in this free premium growth and the mid-single digit over the next.
Charles Brindamore: 12 months. And as mentioned earlier, we expect that the remedial action on direct line will taper off in the coming months.
Charles Brindamore: The underlying performance of the business and the U.K. is generally in line with expectations.
Charles Brindamore: The combined ratio of 97-6 includes elevated cats and large losses in the quarter. Overall the UK and I business remains well positioned to evolve. The combined ratio towards 90% in 2026, really in line with the trajectory we started to scene 24.
Charles Brindamore: In the U.S. premiums decreased 3% which included a 5-point impact from the non-renewal of one larger camel.
Charles Brindamore: In aggregate, rate momentum was in the mid-single digit across the majority of lines.
Charles Brindamore: Our remediation work on a few verticals will continue to taper in 25 which will reduce the top line graph.
Charles Brindamore: From an industry perspective, we expect premium growth to continue to be in the mid to high single digit level over the next 12 months.
Combined ratio in the U.S. was strong at 86.8%.
Charles Brindamore: The portfolio is positioned to be less exposed to weather-related catch risks, as was evidenced by the losses related to the LA wildfires which were 10 million in the quarter.
Charles Brindamore: So going forward, we expect to continue delivering a low 90s or even better performance.
Charles Brindamore: Let me now highlight the progress on some of our key strategic initiatives.
Charles Brindamore: First, building scale and distribution to further expand our leadership position in Canada is an important pillar of our game plan.
Charles Brindamore: Broker Link in the quarter established itself as a coast to coast player by making its first acquisition in British Columbia.
Charles Brindamore: With over 200 locations nationwide, broker link is well in its way to reaching its near-term objective of 5 billion of premiums by the end of 2025.
Speaker Change: As part of our journey to become the leading commercial lines insuring the UK and I, we announce that RSA, NIG and Farmwell will rebrand as intact insurance by the end of this year.
Charles Brindamore: This is the natural next step in the evolution of our UK and I business.
Charles Brindamore: We're thrilled to associate the Intact Brand with the excellent progress our teams in the UK and I have achieved.
Charles Brindamore: Additionally, being a global leader in pricing and risk selection is key to our success.
Charles Brindamore: As part of our pricing sophisticated efforts, we implemented new prop-here-to-re-advanced models in the U.S. during the quarter. Roughly a third of the U.S. premium now leveraged these advanced models.
Charles Brindamore: These efforts support GSL's ambition of sustaining a sub-90s combined ratio.
Charles Brindamore: Then to be one of the most respected companies, we need to be a leader in building resilient communities.
Charles Brindamore: That means reducing our carbon footprint and doubling down all the climate adaptation.
Charles Brindamore: And please report that our emissions are down 23% today on our way to 50% down by 2030.
We also double our commitment to municipal climate resiliency grants.
Charles Brindamore: You can find a lot more in our social impact report.
Charles Brindamore: As a business, we anticipate and plan for uncertainty and our consistent out performance stands as a testament to this.
Charles Brindamore: We stress test many scenarios ranging from tariffs to broader geopolitical tension and we manage our business accordingly.
Charles Brindamore: From a financial and operational standpoint, not only can we weather the big storms.
Charles Brindamore: But we're also really well positioned to play offense in this environment.
Charles Brindamore: We're proud of our track record over the past decade and our well-positioned to achieve a net operating income per share growth of 10% annually over time.
Speaker Change: And to outperform the industry are we buy at least 500 basis points every year. With that, I'll turn the call referred to our new CFO , Ken Anderson. Thanks, Charles, and good morning, everyone.
Ken Anderson: We start the year on a strong footing with net operating income per share of four dollars and one cent in the first quarter an increase of 10% from last year.
Ken Anderson: Each of our operating performance drivers, underwriting, investment and distribution income were up year over year. This drove an operating ROE of 16.5% over the last 12 months, despite a few points of drag from higher than expected catastrophe losses.
Ken Anderson: And our balance sheet remains strong and resilient with 3.1 billion of total capital margin at the end of the quarter.
Let me provide some color and first quarter underwriting results.
Ken Anderson: The overall underlying current accident-year loss ratio improved to 60.3% year-over-year. This reflects strong performance in commercial lines in Canada and the US.
Ken Anderson: In personal lines, the ratio remains solid despite severe winter conditions in the quarter. And in the UK and I, year-over-year improvements in our DLG portfolio were more than offsets by increased large loss activity in our specialty business.
Ken Anderson: Moving to catastrophes, we reported 244 million of losses in the first quarter. Hired and expected cuts in the UK and I were mainly due to two named storms.
Ken Anderson: And the cap ratio in the US was driven by a few large commercial fires. We continue to expect approximately 1.2 billion of annual catastrophe losses with approximately 1.3 anticipates in each Q2 and Q3.
Ken Anderson: Favorable prior year development was strong at 6.9% reflecting continued to prudent-reserving across all segments of the business.
Ken Anderson: This strength was particularly evident in commercial lines which represented two thirds of the total in the quarter. Also, nearly one point was from favorable development on prior year catastrophe losses.
Ken Anderson: Q1 tends to be the quarter that has more favorable PYD as all claims development is from the previous years.
Ken Anderson: We've mentioned before that we reserve cautiously and the combination of current accident year and PYD is the best way to assess the evolution of the underlying performance of the business. On that measure, the year-over-year improvement overall was 1.5 points.
Ken Anderson: The Consolidated Expense Ratio of 33.5% improved by one point from last year and was in line with our full year expectations to operate in the 33 to 34% range.
Ken Anderson: Operating net investment income increased 9% from last year to 415 million driven by a higher book yield which is now in line with our reinvestment yield at 3.9%.
Ken Anderson: On a sequential basis, the 17 million increase in investment income was due to non-recurring distributions of 9 million and in part, favorable currency movements.
Ken Anderson: Based on current markets, we still expect investment income of approximately 1.6 billion for the full year.
Ken Anderson: Distribution income increased by 17% to $117 million driven by organic growth, higher margins, and our ongoing broker consolidation activities.
Ken Anderson: We expect distribution income growth of approximately 10% for the rest of the year with some fluctuations from quarter to quarter.
Charles Brindamore: As Charles mentioned, we announced a rebranding of RSA to Infact Insurance, a major milestone
Charles Brindamore: We will report the accelerated depreciation of the RSA and NIG brand intangibles over the next 12 months in integration costs. Overall, we expect to see a reduction in full-year restructuring in integration costs compared to last year.
Moving to our balance sheets.
Charles Brindamore: We continue to maintain a very strong financial position. We ended the first quarter with book value per share just over $96, up 4% quarter over quarter and 13% year over year.
Charles Brindamore: Capital margin reached $3.1 billion at the end of the quarter, and are adjusted debt to total capital of 19.1% continues to be lower than our targets and 30 basis points lower than the end of 2024.
Charles Brindamore: Our performance continued to demonstrate the strength and resilience of our platform and we're energized by the opportunities ahead. Our balance sheet stability means we're ready to deal with any impacts from increased economic uncertainty, but also being ready to capitalize on growth opportunities as they arise.
Charles Brindamore: At our upcoming investor day on May 21st we look forward to delving further into our game plan to grow organically, to strengthen our margins and to effectively deploy capital.
Charles Brindamore: These are the key pillars of our objective to deliver 10% noise growth annually over time while sustaining at least 500 basis points of annual ROE outperformance in the years ahead. With that, I'll give it back to Jeff.
Jeff Kwan: Thank you, Ken. In order to give everyone a chance to participate in the Q&A, we would ask that you limit yourself to two questions a person. You can certainly re-cute for follow-ups and we'll do our best to accommodate if there's time at the end. So Sylvie, we're ready to take questions now.
Jeff Kwan: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch on phone. You will hear a prompt acknowledging your request.
Jeff Kwan: And if you would like to withdraw from the question cue, please press star followed by two. And if you're on a speaker phone, please lift the handset first before pressing any keys. Please go ahead and press star one now if you have any questions.
Jeff Kwan: First we will hear from Tom McKinnon at BMO Capital. Please go ahead.
Jeff Kwan: Yeah, thanks very much. Just a question with respect to the favorable prior year development. I think you've talked about two to four percent of net premium earns as being longer term guidance. I think you've reiterated that you probably run towards the high end of that.
Jeff Kwan: If we look at the Q3 and Q4 of last year, you were probably running in the high fives, and now...
Jeff Kwan: 6.9% in the first quarter albeit there's some seasonality as you pointed out with respect to commercial lines. I mean do you continue to guide towards the high end of that two to four? And what's driving that?
Thank you. Great question.
Speaker Change: Can why don't you maybe unpack the favorable development which is really strong and then I'll I'll take the guidance. Yeah sure went after
Ken Anderson: Yeah, so you're right, Tom. Q1 was favourable 6.9%. You know, a couple of elements. I guess firstly, as you said, Q1 tends to be more favourable than other quarters. All the development is coming from prior years.
Ken Anderson: We did have about one point of development from, you know, the significant prior year cat losses in 2023 and 2024.
Speaker Change: I would say in Q1, TYD was healthy across all geographies, but I would point out in particular our Canada commercial where it was mine 13%.
Speaker Change: Work noting though that in Canada commercial the five-year average on PYD in Q1 is 9% so whilst elevated not extremely so.
Speaker Change: I would say overall, you know, we're still guiding at the higher end of the tooth for range. That reflects, I guess, a cautious approach that we're taking in the current accident year as well, and that goes back to what I said earlier about looking at overall current accident year and PYD to sort of assess.
Speaker Change: Underlying Performance. Yeah, and I think, Tom, your question on Guidance 2-4%
Um...
You know, we're, we're...
Challenging ourselves as to whether...
Speaker Change: That guidance shouldn't be updated and we'll talk about that at the investor day, which I'm sure you'll attend in a few weeks from from now. So I think post COVID we took a cautious stance in terms of.
Speaker Change: The guidance itself so that you guys had a good long term perspective and I have to see that.
Speaker Change: There's strength across the operation probably a bit beyond what we anticipated and will challenge ourselves on the guidance. I don't expect any meaningful or real substantial change there, but your observation, I think it's dead on.
Speaker Change: Okay, and a quick follow up just on which I've called corporate and other expenses. Well, I kind of jumped around quite a bit. And if I look over the
Speaker Change: 1st, 2nd and 3rd quarter of last year was 28, then 60, then 39, and then
Speaker Change: 49. And now it's 27 in this quarter. Is there a seasonality to this thing? I mean, this is just more of a modeling question. What would make that jump around? Should we look at the same pattern from last year?
Speaker Change: Yeah, I wouldn't point to anything unusual. Tom, it can be a bit of lumpiness from accounting adjustments, but it's not an overall significant number. You may have some quarter to quarter of volatility in it.
Okay. Thanks.
Speaker Change: Thank you. Next question will be from Paul Holden at CIBC. Please go ahead.
Paul Holden: All right, thanks. Good morning. I'm going to ask a follow-up question on the PYD. So I'm just going back to the reserve triangles you provide annually and notice.
Paul Holden: Accident years or not, and if you are, you know, remind us on why there is abnormally high faithful development associated with those years.
Yeah, I think.
Paul, just keep in mind.
Paul Holden: That the average duration of reserves is between two and three years depending.
Paul Holden: on the jurisdiction in which you're looking at across the platform. We tend to have a short-tailed book.
Even
Paul Holden: in the U.S. And I would say that those early years would have much less of an impact now given the duration of the portfolio.
Speaker Change: Okay, that makes sense to have to check. And then Charles, you made a number of comments regarding the normalization or tailing of remediation actions across various commercial lines.
Speaker Change: Maybe you can give us a better sense of sort of when that premium growth should gravitate more towards the mid-single digit.
Speaker Change: Growth range, quickly on, maybe each of Canada, UK and US, imagine the timings are a little bit different across each, but some sense of timing on that would be helpful. Thank you.
High level, Paul, I expect that...
You'll see Belgrade.
Between now and your rent.
Speaker Change: And that is a function, you know, one big drag is the direct line integration.
which is a drag of close to four points.
Ken Anderson: and that can provide a bit of color there and then in the U.S.
You have a couple of points.
that come from remedial action in three verticals specifically.
Entertainment, Environment.
Ken Anderson: Services and some and financial services and that should taper off as well in the second half of this year.
Ken Anderson: Can I don't know if you want to have a color there? Well, you know, on the direct line that specifically, you know, we've said it before, but just worked reiterating we picked off about 100 million more premium in that 100 million pounds more premium in that acquisition than we anticipated.
Ken Anderson: We initially booked it as a call for share. Now the business is coming into our platform and the remediation activity has been going on for a few quarters and continues in Q1 and into Q2 and that's why as Charles said.
Speaker Change: towards the second half of the year should start to see some of that, you know, remediation and taper off in terms of growth.
Paul Holden: That's that's what's relevant to the drag that we're seeing Q4, Q1, and likely abusing Q2. Q2 indeed. And I think Paul, you know.
beyond the remediation.
Paul Holden: What else is building up? And I would say that from a growth point of view, I would zoom in on five areas where we've doubled down.
Paul Holden: in the recent months given some of the pressure to make sure that the growth trajectory takes advantage of what we have in the toolbox one.
Paul Holden: The speed at which we're deploying sophisticated pricing tools in particular in the US and in the UK means that where performance is well beyond our targets we can reinvest some margin in the right areas.
2nd, Broker Relationships and Distribution.
Paul Holden: Big area of upside we're adding new brokers in the UK and in the US or going deeper in those broker relationships in fact we're seeing the number of submissions take up across the board including. We're doing.
here in Canada. And we're also investing in distribution. Third.
Paul Holden: Through technology and operational improvement we're quoting more of those submissions than we did so last year. That's in part why the new business generation is actually quite strong if you look at Canada for instance.
Paul Holden: Where the issue as I've mentioned is mix. That's not remediation. It's just where we have the greatest success.
Paul Holden: Fort, we're upping our game from a service proposition to broker across all jurisdictions to really create a distance.
Paul Holden: with other insurers and that includes deploying technology in the field and fifth.
Paul Holden: We're expanding our vertical set and leveraging our global network in particular in global specialty lines and you know when you stack up that game plan.
Paul Holden: With a market that is constructive in which we have a lot of room to grow, I think we should see the second half of this year an improvement in the trajectory of the commercial lines growth.
Speaker Change: Understand. That's clear. Thank you. Thanks for your time. Thank you.
Next question will be from John Aiken at Jeffries. Please go ahead.
John Aiken: It was an excellent explanation, Charles. I just wanted to carry on commercial side in each of the three various geographies you could talk about.
John Aiken: Digital rate growth across the platform and basically your guidance for the industry sees recently positive particularly in the U.S. But I wanted to ask you about the level of confidence you have in terms of that guidance and I guess more importantly what are you hearing from your commercial clients about their outlook for the economy and basically the instability that we're seeing out there.
Yeah.
I think the...
The environment I would say overall is constructive.
John Aiken: It's at the larger end of commercial line that you're seeing a fair bit of pressure. That is market pressure.
John Aiken: Per se, and we see that in all jurisdictions. Otherwise, you know, fairly constructive.
Thank you. Bye-bye.
Your question really is about
John Aiken: Economic Impact and what we see from our customers and fair to say that in the past.
John Aiken: couple of months in the first quarter. We have seen some changes. I don't think they're a major issue in terms of top line at this stage, but in some segments.
John Aiken: I'll give you an example, multi-family dwelling that market is down meaningfully.
John Aiken: in the US for instance in transportation lines of business we're seeing
John Aiken: a bit of a slowdown as well and so we're starting to see at the economic level some changes indeed and as this becomes
John Aiken: You know more ingrain will report on that in the next quarter so far we're seeing some signs but nothing major now keep in mind when you look at our business in relationship with the economy. We're seeing some signs that we're seeing some signs in relationship with the economy.
John Aiken: Our retentions I can personalize you you need to be insured and so top line and first lines is not really sensitive.
to economic changes and retention is very strong.
John Aiken: Same thing in commercial lines, really, especially in the SME and mid-market space. The economic pressure you see at the higher end of commercial lines, but then people need to ensure themselves.
In commercial automobile, you'll see sometimes.
John Aiken: A bit more variation because it's easier to put a fleet.
John Aiken: on the blood, so to speak, and reduce the amount of insurance you give, but otherwise people keep ensuring themselves and retention remain very strong across all our markets in the low 90s operating depending on where you look.
Thanks, Charles. I appreciate the color.
Speaker Change: Thank you. Next question would be from James DeLoin at National Bank Financial. Please go ahead.
Boarding James, you good morning.
James bo: Just wanted to touch on something a bit bigger picture of this in terms of the regulatory environment.
Speaker Change: Can you give us an updated picture in terms of what your conversations are with either provincial regulators or federal regulators as it relates to the regulatory environment and are there any potential risks or is this a non-story at this stage?
I guess if we start MacRule.
And we look at the uncertainty
Speaker Change: that exists in the economy at the moment and markets to a certain extent. You know my observation would be that credential regulators.
are on the front foot.
Speaker Change: Quite frankly, I'm impressed by the engagement like people want to understand where the risks are coming from.
and and how to protect the system. So.
Speaker Change: It's really not a concern on the contrary. I think that prudential regulators are very
Speaker Change: Proactive and and more dynamic than than what we've seen historically that's the first
Speaker Change: Observations true here in Canada and I think it's true in other jurisdictions US UK where we operate.
as well.
Speaker Change: Second, one layer down, good news with the intact business is that
Speaker Change: All insurance is not regulated. It doesn't need to be because it's super competitive.
Speaker Change: Commercial lines is not regulated, doesn't need to be because it is super competitive. Personal automobile, as you know, is regulated, and maybe we can share a perspective there. And I would put personal automobile in two buckets.
Speaker Change: Alberta, which is a problem and has been a problem for some time.
Speaker Change: And then the rest of Canada because we don't do personal automobile outside.
Speaker Change: outside Canada and and I'll ask you who deals with regulators or interacts with regulators on an ongoing basis to share his perspective about the country and maybe say a thing or two about Alberta.
Thank you. Thanks, Charles.
Speaker Change: Yeah, I'd say, broadly speaking, the regulatory environment and personal auto.
Speaker Change: Regulators are really moving towards protecting consumers and fair treatment of consumers which is very aligned with our way of operating.
I think from a rate regulation perspective.
Speaker Change: This is even becoming more and more flexible in some market. So I think the trend overall there is positive.
Speaker Change: If I focus maybe quickly on Alberta, so as we have alluded to in previous running scope, there is core pressure in the Alberta market.
Speaker Change: I think industry profitability is deteriorating and we've seen recently some competitors showing increased signs of capacity issue above and beyond what we've seen last year.
Speaker Change: It's clear that the current situation is not viable, and while the recent increase in rate cap relieves some pressure, there's still pressure building up in the industry.
Speaker Change: So we believe it's very important for the government to allow the industry to get back to rate the adequacy on both new business and renewals before the reform by eliminating the existing rate cap in place.
Speaker Change: Otherwise, capacity will keep that they're rating, which is not a good outcome for anyone, consumers, government, or insurance.
Speaker Change: On the reform itself, I think we're fully supporting reform is addressing the right issues from a fundamental perspective, and certainly a major step in the right direction, but we think there are still actions that need to be done before we get to that reform. Yeah, I think.
James, we want to grow in personal automobile.
And it's it's a very competitive marketplace but.
Speaker Change: The industry is losing money not just in Alberta in aggregate across across Canada. I think regulators understand that and in many jurisdictions they're focused on the root cause of costs. So I think overall it's a constructive environment.
I think home insurance you know is the other area.
Speaker Change: where we're spending time with government officials to make sure that the focus on the root cause of the cost pressure in home insurance, you know, they understand and act upon and what is that.
Speaker Change: Well, the root cause of the cost pressure is the changes in weather patterns.
Speaker Change: And it becomes an issue when you build in the wrong place.
When you build with the wrong
Standards When you don't invest in infrastructure
Speaker Change: And these are the areas we engage with cities, provinces, and the federal government. And I think there's a general recognition that the governments on those three levers need to do more. And now it's not just...
Speaker Change: or the industry who says that, which we've been saying for 10 years, but I think citizens are actually putting pressure on governments to do that. And so constructive dialogue there. So back on auto, I would say...
I don't see a major risk, but Alberta.
Speaker Change: Even though the cap is higher and you have a reform in the pipeline for 2027, we're a bit worried...
Speaker Change: For the market about the trajectory over the next two years, that's why we're working very closely with the governor of Alberta to make sure that they have options and solution.
Speaker Change: If the pressure was building before the date of the reforms themselves.
Bye.
Thank you.
Speaker Change: Great. And then going back to your prepared remarks, you mentioned that.
Speaker Change: You were well positioned to take a more aggressive stance in this current environment. Just one of you can elaborate on perhaps what you meant by that more aggressive posture. I'm not using your exact words there, but...
Speaker Change: I was kind of the tone that I took away from that last comment from you.
Speaker Change: Yeah, aggressive is not part of our lexicon, but being able to play offense.
Ken Anderson: In a tough environment, this is certainly part of our modus operandi. So I'll ask maybe Ken to share a perspective on
Ken Anderson: How we've stress tested the organization and why we think not only defensively we're in a strong position, but why we think we can play offense can yeah so.
Speaker Change: James, we've stress tested a range of scenarios in the current
Speaker Change: Climate and you know very well positioned to navigate I would say a wide range of economic outcomes we mentioned the 3.1 billion of capital margin that the capital at close to 19% at the end of the quarter.
Also point out the investment portfolio is very well diversified.
Speaker Change: Common equities are about 10% of the portfolio, over 80% of our debt securities are rated A or better, and the currency exposure to US and GBP also provides a hedge against any Canadian dollar weakening.
So overall our business is very resilient and
Speaker Change: From the modeling we've done, even in quite severe downside economic scenarios, like...
Speaker Change: a prolonged trade war, you know, we're very much in a position to play offense and capture growth opportunities and I think that's what
Speaker Change: Charles was referring to. And I would go further and just say, you know, in extreme tale of the rest scenarios that go beyond economic impacts.
Speaker Change: You know, we have a toolbox of actions available that we can activate, you know, to mitigate any impact.
Speaker Change: is a very well-positioned defensively or equally in a strong position to play offensive.
Speaker Change: and excess capital. Very strong at the end of the quarter, and I would say, you know, building up as we move as we move forward. Yeah, so clearly James, our thought process here.
Speaker Change: is to seek opportunities as there is uncertainty building up in the system.
Thank you.
Speaker Change: Thank you. Next question will be from Doug Young at the Jardin. Please go ahead.
Doug Young: Good morning. Maybe a two-part question on the UK operation. You know, one, you know, expenses were elevated this quarter, but they seem to jump around a little bit. So I don't know if there is anything abnormal in the expenses this quarter, if this is kind of a new runway
Doug Young: But the expense and expense ratio. And then you talked about higher large losses in the UK and I specialty lines business. Now is this related to DLG or say maybe you can flesh that out a little bit?
Doug Young: I'll take the first part, the second part, first dog and then come back to expenses, you know.
Doug Young: 97.6 combined ratio in the quarter two elements to point out the elevated cap losses three points from those storms.
Doug Young: But then, yes, two points, I would say, of elevated large losses. They're in the London market, but specialty lines side of the business, so not related.
Doug Young: to the direct line operations. And just, you know, again, large losses can be a bit lumpy. And, you know, we had an elevated quarter. And as I say, isolated in the...
Doug Young: The specialty line side side of the UK and I business that as I said brings the run rate to the 92 93 range which is you know where we would expect to be right now.
Then, in terms of the expense ratio,
Overall, at an IFC level, 1.0.
Doug Young: Improvement versus last year, but in the UK and I, the 37.5% I would say was in line with our expectations.
Doug Young: but is about 1.8 points higher year over year. I'd say there's three elements to that. Firstly, we're increasing our IT investments as we build the platform towards being that leading commercial lines platform in the UK.
Doug Young: I would say secondly we have some costs related to the personal lines exits where systems are not fully decommissioned and I would say lastly there's a bit of top line pressure. Sure.
Over from a top line point of view.
Doug Young: Over the last few quarters that impacts the earned expense ratio a little so if we're to look forward. Thank you.
Doug Young: We would expect the expense ratio in that 37% zone as we move forward in the midterm.
Doug Young: and I would say all of this as I said in line with expectations and baked into our view that we should be evolving the UK and I business towards that 90% expense ratio.
I'm sorry, combined ratio by the end of 26.
Bye.
Speaker Change: Okay, thank you. And then secondly, I mean, you talked a lot about increased competition in the large cap or large commercial market. It's in Canada, it's in the U.S., not in the UK. It's hoping you could delve into a little bit what's driving this is.
Speaker Change: And is this starting to creep into the mid cap for SME business and you know it's no why not it just
Speaker Change: where I'm going as it feels like more capital is going after the commercial businesses and whether it's external capital or [inaudible]
Speaker Change: What not, and could this lead to a bit of a plateau in the market cycle and growth over the midterm here, so that's where I'm going at this.
Thank you.
Yep.
Speaker Change: Doug, I'll ask Patrick to share his perspective and then I'll provide a bit of color as well.
Speaker Change: That if I look at the lines of business in particular.
Speaker Change: where there's been softer lines. It's clearly in larger accounts. So if I look in Canada, you'll think about
Speaker Change: The larger accounts are starting to see some pressure also in what we call the mid-market. And then in specialty property that we call large property schedules of big buildings is where we see more competition.
Speaker Change: It is some of the larger accounts as well but some specific lines like we talked about simple or DNO, you know
Speaker Change: Cyber as well as specialty property in the UK it's really more in the specialty lines that we see more pressure on on rates so overall. All right.
Doug, it's a continuation of the large commercial lines.
Speaker Change: Customers from what we've been talking about last year, the difference. I would say is
Speaker Change: We're seeing competition pick up in large property schedule as well more so than three four months ago, but still at the large end of commercial lines customers.
Speaker Change: Then, your question is, you know, can this come downward? And I guess if you look at our experience over, you know, many years and you followed our company for many years, you know that the SME and Mid-Market space.
Speaker Change: is not as volatile, so to speak, as the large commercial line space. So there's pressure at the top end of mid-market, but I would observe that retentions are pretty strong across the board.
Dozing Ratials [inaudible]
Down a bit
Speaker Change: in a world where you know rates are are pretty pretty healthy but this translates.
Speaker Change: For us, in particular in the Canadian context, into a mixed shift. In other words,
Speaker Change: Our success is greater with smaller customers and smaller mid-market which is a tree point.
Speaker Change: But not really a headwind to the bottom line on the contrary, I would say. And this is a pattern we've seen
Speaker Change: Historically over over decades. So I'm not really concerned to see the sort of competitive pressure at the top end. Migrate it, migrate downward right down to the SME account.
[inaudible]
Appreciate the color. Thank you.
Bye.
Thank you. Next question will be from Mario Mendonza at TD Securities. Please go ahead.
Good morning.
Speaker Change: Charles and Ken in response to James' question about playing offense, I think can you give us a good explanation of why Intact is in the position to play offense, but I thought what you were going to address is what does playing offense mean to Intact like can you talk about what actions would constitute Intact playing offense.
Yeah.
Speaker Change: You know, just to put things in perspective, the capital generation of the organization is really strong. There's the north of $3 billion buffer. You look at the operating RWE 16.5. You have north of two points of excess cat. Okay, so that gives you a sense.
of Chapter Generation.
What does it mean in practice?
First.
Speaker Change: It means that we're on the front foot from a growth point of view and we're doubling down on
Speaker Change: Investing in the service we provide to brokers. In other words, we're not playing defense in terms of the investments we're making. Second, it means double down on the investments we're making in technology.
and accelerating the road maps that we have.
Speaker Change: Third and maybe more importantly when it comes to actual capital deployment because the first two things not so much capital but rather using our resources effectively it means
Acquisition.
Speaker Change: And so what that means in practice for us Mario is that we would love to deploy capital in the Canadian marketplace. Please.
Speaker Change: in the US marketplace, both from a manufacturing and from a distribution point of view.
Speaker Change: Despite the fact that you hear, you know, there's a lot of uncertainty. People are on the sideline. That's not the mindset we're in. And we would be prepared to deploy, you know, meaningful capital to consolidate our positions.
Speaker Change: The UK is performing well. We're really happy with the performance that the team is generating out there. We're in the middle of integrating the direct line acquisition.
Speaker Change: And I'd be reluctant to add one big boulder to what these guys have to do but I have to say Mario that
I'm
Quite interested to grow our footprint.
Speaker Change: in the commercial line space in the UK. It's a great market. It's bigger than Canada. Lots of similarities. And where we find opportunities because of the uncertainty right now, we're ready to go for it.
Speaker Change: The USMCA, not apparently what I've been reading is that auto parts that are compliant with USMCA will be exempt from tariffs.
Speaker Change: Act. When I read that, I immediately thought, I guess this is good news. This is not something you should intact or other PNC providers have to worry about. How do you interpret that information? Is that an ambiguously positive or is there a wrinkle there?
Bye.
It's positive. I'll let Patrick share his perspective.
Patrick: You know, we've given you a bit of a quantification last quarter about the impact of the North American trade war. If we look at the overall impact today of
Patrick: All the things that are on the table, what are in effect or not, just to help you frame what it is. And then we'll talk a bit about the indirect impact as well, but so Patrick, why don't you share your perspective. First of all, you're right, you know, this US, USMCA.
Patrick: Element on parts means that there's very little tariffs right now applied on parts.
Coming into Canada.
Patrick: Last quarter we mentioned that in Auto in aggregate 13% of our Lascaas could be exposed to tariffs that included the parts.
Patrick: where there's no impact for now. But since there was additional announcements more globally on tariffs, we've made the same analysis on all the whole portfolio of IFC and to give you an idea.
Patrick: IFC globally for $1 of claims costs. It's about $0.7 that could be exposed to tariffs. This includes imports from the US to Canada.
Patrick: from the US to the UK, but also imports in the US from any countries.
Patrick: Are the current tariffs applied to a very small portion of these imports and the impact on our combined ratios is very negligible, to be precise, the current tariffs announced
is only about 0.05%.
Patrick: <expletive> Combined Ratio are five basis points of Combined Ratio. What is already in there so if we take the tariffs
that have been announced or are in effect.
Patrick: And you apply that to the 7%. We're talking about five basis points if we do nothing.
Patrick: So that's good news. I would say I think the thing that we need to keep in mind is that there are tariffs on steel and aluminum. And so you need to ask yourself
Patrick: You know within the raw material that goes into those parts that are not tariffed
Patrick: How much pressure can there be in the system, and I think?
Patrick: We've done a bit of work on that, Patrick. Yeah, we've made quite a few scenarios. These indirect impacts are a bit harder to predict.
It could also have.
Patrick: some effect as an example on market values and the use car market for some models if you know the demand was shifting from brand new cars to these use cars. We've made a few quite a few scenarios actually and overall we don't see even if we see significant.
Patrick: Indirect, in fact, we don't see an impact on the total combined ratio of more than half a point and to Charles mentioned earlier.
Speaker Change: That's before an immediate action that we could take on rates, risk selection, supply chain, et cetera. So overall, Mario, I'd say good news.
Patrick: One needs to keep an eye on the indirect impacts, but we feel pretty good about where we are now and that contributes to us being on the front foot back to your first question.
Thank you.
Speaker Change: Thank you. Our last question comes from Lamar Passad at Cornmark. Please go ahead.
Lamar Prasad: Yes, thanks. I want to come back to this discussion around PID.
Speaker Change: At what point do you say maybe you're being too conservative in underwriting such that you're you know you're turning down otherwise profit a little business? Or is it there's the answer that there's just so much uncertainty right now that you're comfortable running well above the two to four percent range?
at the moment, like just some thoughts on that.
Thank you.
We're...
You know, always making sure that we optimize.
Between
Easticity in the market.
Speaker Change: You know, how above our target for a sub-return, we might be operate.
Speaker Change: And you take the risks into account. We're on the front foot. It's unclear to me.
Speaker Change: It's not clear to me that we're being overly cautious in the environment in which we operate. What would be my perspective? I don't know if any of my colleagues.
I have a bit of a bit of color.
Speaker Change: I just reiterate the point around looking at current Accident Year and PYD together gives.
Speaker Change: Probably the better reflection and that's how we think about it when we're pricing. Yes, I think it's a great point can and and you know retention pretty strong across the board.
New business generation is pretty strong across the board.
Speaker Change: You know, if you make a distraction of where we do remediation, and frankly at the larger end of commercial lines.
The sort of behavior you see in the marketplace.
You know we need to leave
March and beyond, what if we think is reasonable?
Speaker Change: to grow in that segment. So we have tools in the field to be very surgical.
Speaker Change: To make sure that where we use margin there's plenty of margin to use and that will move the needle on retention. Otherwise, we're not bothering.
Speaker Change: Do you have anything to add to you? No, I'd say from a pure pricing perspective, we know where there's conservatism in our reserve in position and we're taking that into account to have our best view in pricing. So I think that's kind of baked in our price point that are in the marketplace.
Speaker Change: Okay. Thanks. And then if I could just offer another, you know, just a point of clarification, maybe quickly here. When you say there's five basis points of combined ratio, talking about five basis points of combined ratio from terrorists at the total company level, not just personal auto, just a point of clarification.
Speaker Change: Correct, correct. It's not, by the way, it's not 50 basis points. It's five basis points with the tariff as they are either announced or enforced today. And that assumes we do nothing.
[inaudible]
Project, thank you.
Speaker Change: Thank you. Ladies and gentlemen, this is all the time we have today. I would like to turn the call back over to Jeff Quant.
Speaker Change: Thank you, everyone, for joining us today. Following the call, a telephone replay will be available for one week and the webcast will be archived on our website for one year. A transcript will also be available on our website in the financial report section.
Speaker Change: Of note, our 2025 second quarter results are scheduled to be released aftermarket close on Tuesday, July 29th, with the earnings call starting at 11 a.m. Eastern the following day. Thank you again and this concludes our call.
Speaker Change: Thank you, sir. Ladies and gentlemen, this doesn't need to conclude your conference call for today. Once again, thank you for attending, and at this time we do ask to please disconnect your lines.