Q2 2025 Intact Financial Corp Earnings Call

Speaker #3: Good morning, ladies and gentlemen, and welcome to the Intact Financial Q4, Q2 2025 results conference call. At this time, note that all participants are in the listen-only mode.

Sylvie: Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q2 2025 Results Conference call. At this time, note that all participants are in a listen-only mode. Following the presentation, we will conduct a Q&A session. 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 Wednesday, July 30th, 2025. I would now like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead.

Speaker #3: Following the presentation, we will conduct a quick Q&A session. If at any time during this call you require immediate assistance, please press star zero for the operator.

Speaker #3: Also, note that this call is being recorded on Wednesday, July 30th, 2025. I would now like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer.

Speaker #3: Please go head.

Speaker #4: Thank ou, Sylvie. Hello, everyone, and thank you for joining the call to discuss our second quarter financial results. The link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab.

Geoff Kwan: Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our second quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to slide 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. To discuss our results today, I have with me our CEO, Charles Brindamour, our CFO, Ken Anderson, Patrick Barbeau, our Chief Operating Officer, and Guillaume Lamy, Senior Vice President, Personnel Alliance. We will begin with prepared remarks followed by Q&A, and with that, I'll turn the call over to Charles.

Speaker #4: 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 #4: To discuss our ults today, I have with me our CEO, Charles Brindamour. Our CFO, Kenneth Anderson. Patrick Barbeau, our ief Operating Officer. And Guillaume Lemay, Senior Vice President, Personal Alliance.

Speaker #4: We will begin with prepared remarks followed by Q&A. And with that, 'll turn the call over to Charles.

Speaker #5: Thanks, Geoff. Good morning, everyone, and thank ou for joining us today. Yesterday evening, we announced net operating income per share of $5.23. Driven by strong underwriting performance across all geographies and lines of business.

Charles Brindamour: Thanks, Geoff. Good morning, everyone, and thank you for joining us today. Yesterday evening, we announced net operating income per share of $5.23, driven by strong underwriting performance across all geographies and lines of business. Our book value per share increased 12% year over year, driven by an operating ROE running above 16%. Top line growth was 4%, an improvement of one point quarter over quarter. This was attributable to continued growth in Personnel Alliance through both rate actions and an increase in units. Commercial alliance remained challenged as we continued to see elevated competition in large accounts. As profitability remains very strong, we're actively positioning ourselves to benefit from growth opportunities. We're entering new verticals in the US and Europe. We're expanding broker relationships in the UK, leveraging technology to deliver a more streamlined experience for customers and brokers in Canada.

Speaker #5: Our book value per share increased 12% year over year, driven by an operating ROE running above 16%. Top-line growth was 4%, an improvement of one point quarter over quarter.

Speaker #5: This was attributable to continued growth in First Alliance for both rate actions and an increase in units. Commercial lines remain challenged as we continue to see elevated competition in large accounts.

Speaker #5: As profitability remains very strong, we're actively positioning ourselves to benefit from growth, fortunately. We're entering new verticals in the US and Europe. We're anding broker relationships in the UK.

Speaker #5: And leveraging technology to deliver a more streamlined experience for customers and brokers in Canada. Overall, our combined ratio is very strong at 86.1%. A one-point improvement year over year despite higher CAC losses this quarter.

Charles Brindamour: Overall, our combined ratio is very strong at 86.1%, a one-point improvement year over year despite higher cap losses this quarter. A clear proof point that our advances in pricing, risk selection, and portfolio management are really paying off. Let me provide some color on the results and outlook by line of business, starting with Canada. Personnel Auto premiums grew 11% in the quarter, reflecting both rate action and a 2% increase in units. As profitability for the industry remains challenged, we expect hard market conditions to persist over the next 12 months. Based on this, we see industry growth in the high single-digit range. Our combined ratio improved one point to 90.3%. Even in what tends to be a seemingly favorable quarter, this was a very strong result. We remain confident with our guidance of sub-95 combined ratio for this business.

Speaker #5: A clear proof point that our advances in pricing, risk selection, and portfolio management are really paying off. Let me provide some color on the results and outlook by line of business, starting with Canada.

Speaker #5: In Personal Auto, premiums grew 11% in the quarter, reflecting both rate action and a 2% increase in units. As profitability for the industry remains challenged, we expect hard market conditions to persist over the next 12 months.

Speaker #5: Based on this, we've seen industry growth in the high single-digit range. Our combined ratio improved one point to 90.3%. Even in what tends to be a seemingly favorable quarter, this was a very strong result.

Speaker #5: We remain confident with our guidance of sub-95 combined ratio for this business. Moving to Personal Product. Premium growth was 10% in the quarter, driven by both rate actions and a 2% increase in units.

Charles Brindamour: Moving to Personnel Product, premium growth was 10% in the quarter, driven by both rate actions and a 2% increase in units. Given the elevated level of weather and climate-related claims over the past few years, we expect current hard market conditions to persist. We see industry growth in the low double digits over the next 12 months, and the combined ratio here was also very strong at 84.5%. In commercial lines in Canada, premium growth was 1% in the quarter, reflecting low to mid-single-digit rates and sustained competition in large accounts. But despite the competitive environment, we're growing our customer count. We continue to see a drag from mixed shift as we gain an SME in the mid-market space. While we remain keen to grow large accounts, we are very deliberate and disciplined where we grow.

Speaker #5: Given the elevated level of weather and climate-related claims over the past few years, we expect current hard market conditions to persist. We've seen industry growth in the low double digits over the next 12 months.

Speaker #5: And the combined ratio here was also very strong at 84.5%. In Commercial Alliance in Canada, premium growth was 1% in the quarter, reflecting low to mid-single-digit rates.

Speaker #5: And sustained competition in large accounts. But despite the competitive environment, we're growing our customer count. We continue to see a drag from mixed shift.

Speaker #5: As we gain in SME in the mid-market space. While we remain keen to grow large accounts, we are very deliberate and disciplined where we grow.

Speaker #5: Overall market conditions are favorable in Constructive. And we've en industry growth in mid-single-digit range over the next 12 months. The combined ratio in this line was robust at 74%.

Charles Brindamour: Overall market conditions are favorable and constructive, and we see industry growth in the mid-single-digit range over the next 12 months. The combined ratio in this line was robust at 74%, reflecting strength in both commercial and specialty lines. Moving now to our UK and I business, premiums in the quarter were 5% lower year over year due to continued remediation in the direct line portfolio and some delegated arrangements. Excluding this, premiums were up 3% year over year. With elevated competition continuing in large account markets, we see industry growth in the UK and in Europe in the low to mid-single-digit range over the next 12 months. The combined ratio of 92.9% was marginally higher year over year due to a modest increase in the expense ratio and large losses.

Speaker #5: Reflecting strength in both commercial and specialty lines. Moving now to our UK and I business. Premiums in the quarter were 5% lower year over year due to continued remediation in the direct line portfolio, and some delegated arrangements.

Speaker #5: Excluding this, premiums were up 3% year over year. With elevated competition continuing in large account market, we've seen industry growth in the UK and in Europe in the low to mid-single-digit range over the next 12 months.

Speaker #5: The combined ratio of 92.9% was marginally higher year over year due to a modest increase in the expense ratio in large losses. We remain focused on pricing and risk selection, and see our UK and I combined ratio evolving towards 90% by the end of '26.

Charles Brindamour: We remain focused on pricing and risk selection and see our UK and I combined ratio evolving towards 90% by the end of '26. In the US, premiums were flat year over year, marking an improvement from prior quarters. While growth was positive across most of our alliance, we experienced a five-point drag from accounts in large properties. We see industry growth for US specialty in the mid-single digit over the next 12 months. The combined ratio in the US was also very strong at 87.8% in the quarter, an improvement of nearly one point over a year ago, driven by the underlying loss ratio. Business is positioned to maintain a low 90s or better combined ratio moving forward. Our team continued to execute on our strategic priorities during the second quarter across the world. Let me highlight a few important achievements.

Speaker #5: In the U.S., premiums were flat year over year, marking an improvement from the prior quarter. While growth was positive across most of our lines, we experienced a five-point drag from accounts in large properties.

Speaker #5: We've seen industry growth for US specialty in the mid-single-digit over the next 12 months. The combined ratio in the US was also very strong at 87.8% in the quarter, an improvement of nearly one point over a year ago driven by the underlying loss ratio.

Speaker #5: Business is positioned to maintain a low 90s or better combined ratio moving forward. Our team continued to execute on our strategic priorities during the second quarter across the world.

Speaker #5: Let me highlight a few important achievements. While we did not experience significant CAC losses this quarter, the deep trend of increased natural disasters over the last few years has not changed.

Charles Brindamour: While we did not experience significant cap losses this quarter, the deep trend of increased natural disasters over the last few years has not changed. And that's why in Canada, we launched Keep It Intact, a national long-term program aimed at empowering Canadians to make informed decisions and take actions to protect their homes from climate threats. We also recently announced additional funding for our municipal climate resiliency grant program, increasing it to these grants. We're supporting 19 municipalities across Canada, which will implement proven solutions that help protect communities from flooding and wildfires. In the UK, we started renewing direct lines policy onto our platform in June 2024. This has allowed us to deploy our sophisticated pricing models across the portfolio. This is already contributing to an improved combined ratio.

Speaker #5: And that's why in Canada, we launched TPIT Intact, a national long-term program aimed at empowering Canadians to make informed decisions and take actions to protect their homes from climate threats.

Speaker #5: We also recently announced additional funding for our municipal climate resiliency grant program, increasing it. Through these grants, we're supporting 19 municipalities across Canada, which will implement proven solutions that help protect communities from flooding, and wildfire.

Speaker #5: In the UK, we started renewing direct lines policy onto our platform in June 2024. This has allowed us to deploy our sophisticated pricing models across the portfolio.

Speaker #5: This is already contributing to an roved combined ratio. Our new initiative, One Commercial, launching later this year, will deliver a single compelling proposition to brokers on service, product, and price in the UK.

Charles Brindamour: Our new initiative, One Commercial, launching later this year, will deliver a single compelling proposition to brokers on service, product, and price in the UK. As we highlighted at our Investor Day, the competitive advantage in data and AI that we've built in personal lines and commercial lines is also now being leveraged within global specialty lines. Advanced pricing models now cover close to 40% of our GSL premium base. Our values, strong sense of purpose, and long-term perspective keep us anchored as we navigate this period of economic and geopolitical uncertainty. On top of that, our healthy balance sheet positions us to capitalize on future opportunity. And so, as we look ahead, we're really well positioned to continue to achieve a net operating income per share growth of 10% annually over time and to outperform the industry ROE by at least 500 basis points every year.

Speaker #5: As we highlighted at our Investor Day, the competitive advantage in data and AI that we've built in Personal Alliance and Commercial Alliance is also now being leveraged within Global Specialty Lines.

Speaker #5: Advanced pricing models now cover close to 40% of our GSL premium base. Our values: strong sense of purpose and long-term perspective keep us anchored as we navigate this period of economic and geopolitical uncertainty.

Speaker #5: On top of that, our healthy balance sheet positions us to capitalize on future opportunities. And so, as we look ahead, we're really well positioned to continue to achieve a net operating income per share growth of 10% annually over time, and to outperform the industry ROE by at least 500 basis points every year.

Speaker #5: And with that, I'll turn the call over to our CFO, Kenneth Anderson.

Charles Brindamour: And with that, I'll turn the call over to our CFO, Ken Anderson.

Speaker #6: Thanks, Charles. And good morning, everyone. Our quarter results again demonstrated the strength and earnings power of our business. Net operating income per share increased 8% from last year, reaching $5.23.

Geoff Kwan: Thanks, Charles, and good morning, everyone. Our second quarter results again demonstrated the strength and earnings power of our business. Net operating income per share increased 8% from last year, reaching $5.23. This reflected solid underwriting performance across all segments in a life catastrophe quarter and a healthy contribution from investment and distribution income. Operating return on equity was above 16% for the third straight quarter, and our balance sheet is strong with a total capital margin of $3.1 billion. Let me provide some color on our underwriting results. We reported a solid underlying loss ratio of 56.8% in the quarter. In both Canada and the US, our underwriting fundamentals are strong. In the UK and I, the underlying ratio increased by three points for higher large loss activity, more than offset improvements in the DLG portfolio.

Speaker #6: This reflected solid underwriting performance across all segments, in a light catastrophe quarter, and the healthy contribution from investment and distribution income. Operating return on equity was above 16% for the third straight quarter, and our balance sheet is strong, with a total capital margin of $3.1 billion.

Speaker #6: Let me provide some color on our underwriting results. We reported a solid underlying loss ratio of 56.8% in the quarter. In both Canada and the US, our underwriting fundamentals are strong.

Speaker #6: In the UK and I, the underlying ratio increased by three points for higher large loss activity, more than offset improvements in the DLG portfolio.

Speaker #6: Moving to catastrophes, second quarter losses totaled 137 million, from storms in Canada and a few large commercial fires across our regions. While CAC losses were 41 million higher than last year, it was less than half of at we would expect in the second quarter.

Geoff Kwan: Moving to catastrophes, second quarter losses totaled $137 million from storms in Canada and a few large commercial fires across our regions. While cap losses were $41 million higher than last year, it was less than half of what we would expect in the second quarter. As Charles mentioned, the deep trend of increased natural disasters over time has not changed. And as we have seen, catastrophe losses can fluctuate significantly from one quarter to the next. Favorable prior year development continued to be strong at 7.4% in the quarter, particularly in commercial lines with favorable development on prior year catastrophe losses in Canada and in the direct line book in the UK and I. We continue to apply prudent reserving practices across our business. Therefore, combining current accident year and prior year development is the best way to assess the evolution of our underlying performance.

Speaker #6: As Charles mentioned, the deep trend of increased natural disasters over time has not changed, and as we have seen, catastrophe losses can fluctuate significantly from one quarter to the next.

Speaker #6: Favorable prior year development continued to be strong at 7.4% in the quarter, particularly in Commercial Alliance, with favorable development on prior year catastrophe losses in Canada, and in the direct line book in the UK and I.

Speaker #6: We continue to apply prudent reserving practices across our business. Therefore, combining current accident year and prior year development is the best way to assess the evolution of our underlying performance.

Speaker #6: On that measure, the year over year improvement overall was 1.8 points, reflecting our ongoing focus on underwriting fundamentals. The consolidated expense ratio was 34.3% for the quarter.

Geoff Kwan: On that measure, the year-over-year improvement overall was 1.8 points, reflecting our ongoing focus on underwriting fundamentals. The consolidated expense ratio was 34.3% for the quarter, comparable with last year, and on a year-to-date basis, it remains in line with full-year expectations. Operating net investment income increased 3% from last year with slightly higher book yields and favorable foreign currency movements. Our reinvestment yields are broadly in line with book yields, and with a little over $800 million of investment income year to date, we remain on track to reach approximately $1.6 billion for the full year. Distribution income of $165 million reflected a strong contribution from BrokerLink, including continued M&A activities. This was offset by slower growth in other parts of our business, such as our MGAs. In addition, mild weather over recent quarters lowered the contribution from onside, in line with the countercyclical attributes of this business.

Speaker #6: Comparable with last year, and on a year-to-date basis, it remains in line with full year expectations. Operating net investment income increased 3% from last year, with slightly higher book yields and favorable foreign currency movements.

Speaker #6: Our reinvestment yields are broadly in line with book yields, and with a little over $800 million of investment income year to date, we remain on track to reach approximately $1.6 billion for the full year.

Speaker #6: Distribution income of $165 million reflected a strong contribution from BrokerLink, including continued M&A activities. This was offset by slower growth in other parts of our business, such as our MGAs.

Speaker #6: In addition, mild weather over recent quarters lowered the contribution from onsite, in line with the counter-cyclical attributes of this business. We remain well positioned to grow distribution income by at least 10% annually going forward.

Geoff Kwan: We remain well positioned to grow distribution income by at least 10% annually going forward. Our operating effective income tax rate was 22.1% for the quarter, in line with expectations. Turning to the balance sheet, we continue to maintain a very strong financial position. Total capital margins held steady at a robust $3.1 billion, and our adjusted debt-to-total capital ratio decreased by close to a point in the quarter to 18.4%. Additionally, book value per share grew 3% sequentially to $98.67. Our balance sheet strength means we can handle impacts from economic uncertainty while also being ready to capitalize on growth opportunities as they arise. In closing, despite the macro environment of the past six months, our business has demonstrated its strength and resilience. We've had a solid first half of 2025, with net operating income per share up 9% to $9.25.

Speaker #6: Our operating effective income tax rate was 22.1% for the quarter, in line with expectations. Turning to the balance sheet, we continue to maintain a very strong financial position.

Speaker #6: Total capital margin held steady at a robust 3.1 billion, and our adjusted debt total capital ratio decreased by close to a point in the quarter to 18.4%.

Speaker #6: Additionally, book value per share grew 3% sequentially to $98.67. Our balance sheet strength means we can handle impacts from economic uncertainty while also being ready to capitalize on growth opportunities as they arise.

Speaker #6: In closing, despite the macro environment of the past six months, our business has demonstrated its strength and resilience. We've had a solid first half of 2025, with net operating income per share up 9% to $9.25.

Speaker #6: With the strength of our people, our platform, and our strategy, we're well positioned to continue to execute on our financial objectives. To outperform the industry ROE by 500 basis points each year, and grow net operating income per share by 10% annually over time.

Geoff Kwan: With the strength of our people, our platform, and our strategy, we're well positioned to continue to execute on our financial objectives to outperform the industry ROE by 500 basis points each year and grow net operating income per share by 10% annually over time. With that, I'll turn it back to Geoff. Thank you, Ken. So in order to give everyone a chance to participate in the Q&A, we would ask that you limit yourself to two questions per person. You can certainly re-queue for follow-ups, and we'll do our best to accommodate if there's time at the end. So, Sylvie, we're ready to take some questions now.

Speaker #6: With that, I'll turn it back to Geoff.

Speaker #7: Thank you, Ken. So in order to give everyone a chance to participate in the Q&A, we would ask that you limit yourself to two questions per person.

Speaker #7: You can certainly re-queue for follow-ups, and we'll do our best to commodate if there's time at the end. So, Sylvie, we're ready to take some questions now.

Speaker #3: Thank you, sir. Ladies and entlemen, if you do have any questions, please press star followed by one on your touchstone phone. You will then hear a prompt that your hand has been raised.

Sylvie: Thank you, sir. Ladies and gentlemen, if you do have any questions, please press star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised. And should you wish to decline from the polling process, please press star followed by two. And if you're using a speakerphone, we ask that you please lift the handset first before pressing any keys. Please go ahead and press star one now if you do have any questions. And your first question will be from James Loin at National Bank Financial. Please go ahead, James.

Speaker #3: And should you wish to decline from the polling process, please press star followed by two. If you're using a speakerphone, we ask that you please lift the handset first before pressing any keys.

Speaker #3: Please go ahead and press star one now. If you do have any questions, your first question will be from James Gloin at National Bank Financial.

Speaker #3: Please go ahead, James.

Speaker #8: Yeah, thanks, good ning. First question I wanted to touch on the, let's , softening in Commercial Alliance growth across all geographies. Can you dig into what you're seeing on the ground, specifically, and perhaps what are some of the strategies you put in place to offset some of that softening in the broader industry?

Ken Anderson: Yeah, thanks. Good morning. First question, I wanted to touch on the, let's say, softening in commercial lines growth across all geographies. Can you dig into what you're seeing on the ground specifically? And perhaps, you know, what are some of the strategies you put in place to offset some of that softening in the broader industry?

Speaker #9: Thanks. And good morning. Let me give a perspective on what we're seeing across the markets in which we operate, and some of the operational metrics that we would have looked at in past, you ow, a few days basically.

Charles Brindamour: Thanks, and good morning. Let me give a perspective on what we're seeing across the markets in which we operate and some of the operational metrics that, you know, we would have looked at in the past, you know, a few days, basically. So a fresh view on what's happening overall. So the first point I would make is that this is still very much a constructive marketplace. In aggregate, you look at rates and exposures, which is really what's important, you know, in light of where there's inflation. We're in the mid-single-digit range. Okay, that's what I'm seeing in the field all in. Conditions in the SME and mid-market space are pretty healthy, actually. And keep in mind, this is the bulk of our portfolio.

Speaker #9: So a fresh view on what's happening overall. So the first point I would make is that this is still very much a constructive marketplace.

Speaker #9: In aggregate, you look at rates and exposures, which is really what's important. You know, in light where there's inflation, we're in the mid-single-digit range.

Speaker #9: Okay, that's what I'm seeing in the field all in. Conditions in the SME and mid-market space are pretty healthy. Actually, and keep in mind, this is the bulk of our portfolio.

Speaker #9: The pressure continues to be observed for larger risks as we've ked about in the last year. And some specialty segments, such as ML or management liability cyber, I'd say the thing that we've seen in the last three months three, four months is that large commercial properties risks is where we've seen a bit of weakness this quarter.

Charles Brindamour: The pressure continues to be observed for larger risks, as we've talked about in the last year, and some specialty segments such as ML or management liability cyber. I'd say the thing, James, that we've seen in the last three months, three, four months, is that large commercial property risks is where we've seen a bit of weakness this quarter, really at the larger end of commercial prop, not across the board in commercial prop. And so when I sort of put that together and I look 12 months out, you know, my perspective is the industry premium growth in North America should be in the mid-single-digit range, and in the UK and Europe, in the low to mid-single-digit range.

Speaker #9: Really at the larger end of commercial prop. Not across the board in commercial prop. And so when I sort of put that together and I look 12 months out, you ow, my perspective is the industry premium growth in North America should be in the mid-single-digit range.

Speaker #9: And in the UK and Europe, in the low to mid-single-digit range. You know, when you look at that, the question you then ask yourself, you know, is when you look at rate and exposure, we're rowing that, you know, more than inflation.

Charles Brindamour: You know, when you look at that, the question you then ask yourself, you know, is when you look at rate and exposure, we're growing that, you know, more than inflation. So despite the fact that the performance is really strong, we're not in a zone as a firm where we're anywhere near margin erosion, to be fair, let alone the fact that we're actively investing in pricing, risk selection, and deploying what I'd say intensity, new pricing models, in particular in the US as well as in the UK, you know, given that these are areas where we're less mature from that point of view. The performance in both absolute and relative terms is really strong, and so we're super keen to grow our position in that environment.

Speaker #9: So despite the fact that the performance is really strong, we're not in a zone, as a firm, where we're anywhere near margin erosion. To be clear.

Speaker #9: Let alone the fact that we're actively investing in pricing, risk selection, and deploying with, I'd say, intensity new pricing models in particular in the US as well as in the UK.

Speaker #9: You know, given that these are areas where we're less mature from that point of view, the performance in both absolute and relative terms is really strong.

Speaker #9: And so we're super keen to grow our position in that environment. If I maybe go by markets, as I said, you know, if you look at Canada, for instance, in Q2, rates and exposure were close to four points.

Charles Brindamour: If I, you know, maybe go by markets, as I said, you know, if you look at Canada, for instance, in Q2, rates and exposure were close to four points. If you look at the US, rates and exposure were in the three-ish sort of zone, and that's including the pressure we saw in large property. And then in the UK and Europe, rate and exposure near 5% in the last quarter. Again, pressure at the top end, pressure in some segment, but in aggregate, I'd say constructive and an environment that plays to our strength. I think one thing I would observe, James, in particular in the context of Canada, the biggest headwind is mix, and that's just a top line headwind. What does that mean in practice? Yes, there's pressure in large commercial, but then we're winning at the lower end.

Speaker #9: If you look at the US, rates and exposure were in the three-ish sort of zone. And that's including the pressure we saw in large property and then in the UK and Europe, rate and exposure near 5%.

Speaker #9: In the last quarter, again, pressure at the top end, pressure in some segment, but in aggregate, I'd say constructive and an environment that plays to our strength.

Speaker #9: I think one thing I would observe in particular in the context of Canada, the biggest headwind is mixed. And that's just a top line headwind.

Speaker #9: What does that mean in practice? Yes, there's pressure in large commercial, but then we're winning at the lower end. We're winning at the lower end of mid-market.

Charles Brindamour: We're winning at the lower end of mid-market. We're winning at the lower end of the SME space. And frankly, if you look at the profitability curve, we're pretty comfortable with that mix shift. And this is where I think top line tells a story, bottom line tells another story to a certain extent. And I think we're building serious economic value as we navigate this cycle.

Speaker #9: We're winning at the lower end of the SME space. And frankly, if you look at the profitability curve, we're pretty comfortable with that mix.

Speaker #9: Shift. And this is where I think top line tells a story. Bottom line tells another story to a certain extent. And I think we're we're building serious economic value as we navigate this cycle.

Speaker #8: Okay, that's a very very good answer. As I'm thinking about some of the pressures and where those pressures are coming from, you know, from other companies that are reporting, it sounds like it's coming from the reinsurance side, specifically are you are you catching any of that or starting to see any of that competition or demand from the reinsurance side pushing into the personal property area?

Ken Anderson: Okay, that's a very, very good answer. As I'm thinking about some of the pressures and where those pressures are coming from, you know, from other companies that are reporting, it sounds like it's coming from the reinsurance side specifically. Are you catching any of that or starting to see any of that competition or demand from the reinsurance side pushing into the personal property area? Or is this still entirely focused on commercial at this point?

Speaker #8: Or is this still an entirely focused on commercial at this point?

Speaker #9: We don't see that pressure, Jane, just to be clear. We're not big users of reinsurance. We use reinsurance for tail risk purposes. Otherwise, you ow, we're we're really not using reinsurance much.

Charles Brindamour: We don't see that pressure, James, just to be clear. We're not big users of reinsurance. We use reinsurance for tail risk purposes. Otherwise, you know, we're really not using reinsurance much, quite frankly, and therefore don't feel any of that pressure. We're very clear about the ROE targets we can achieve. That's deployed in the field, and that's really what drives our underwriters' behavior account by account because people know where the margin exists and what posture they have to take in this environment. And frankly, that includes large accounts as well. I think we're, in terms of pricing and risk selection, one of the calls we've made about three years ago was to go pedal to the metal in terms of deploying the best science we could, not only in Canada, where we were in great shape, but in the US and in the UK.

Speaker #9: Quite frankly. And therefore, don't feel any of that pressure. We're very clear about the ROE targets. We can achieve. That's deployed in the field.

Speaker #9: And that's really what drives our underwriters' behavior. Account by account, because people know where the margin exists. And what posture they have to take in this in this environment.

Speaker #9: And frankly, that includes large accounts as well. I think in terms of pricing and risk selection, one of the calls we've made about three years ago was to go pedal to the metal in terms of deploying the best science we could, not only in Canada, where we were in great shape, but in the U.S. and in the U.K.

Speaker #9: Now those tools are in the field and people can navigate even the choppy environment knowing that their stance on rate is the right one.

Charles Brindamour: Now those tools are in the field and people can navigate even the choppy environment knowing that their stance on rate is the right one.

Speaker #8: Thank ou.

Ken Anderson: Thank you.

Speaker #9: You're come.

Charles Brindamour: Welcome.

Sylvie: Next question will be from Bart Zarski at RBC Capital Markets. Please go ahead, Bart.

Speaker #3: Next question will be from Bart Zarski at RBC Capital Markets. Please go ahead, Bart.

Speaker #10: Hi, Bart. Morning, Charles. Thanks for taking the question. Just wanted to dive into distribution income a little bit. You talked about some of the weaknesses driven by onsite.

Patrick Barbeau: Morning, Bart. Morning, Charles. Thanks for taking the question. I just wanted to dive into distribution income a little bit. You talked about some of the weakness driven by onside, growth down 2% year over year. Curious on your thoughts around how do you get back to that 10% growth outlook over the long term?

Speaker #10: Growth down to 2% year over year. Curious on your thoughts around how you get back to that 10% growth outlook over long term for the ?

Speaker #9: Yeah, we're quite bullish about the distribution growth profile. I'll let Ken unpack that.

Charles Brindamour: Yeah. I'm quite bullish about the distribution growth profile. I'll let Ken unpack that.

Speaker #10: Yeah. So, you know, in the quarter 165 million of distribution earnings, 282 in the first six months of the year. So yes, a 2% decline in the quarter.

Ken Anderson: Yeah. So, you know, in the quarter, $165 million of distribution earnings, $282 in the first six months of the year. So yes, a 2% decline in the quarter. We're up 5% year to date. I would say consolidation of distribution continued at pace in the first six months. You know, BrokerLink closed 13 transactions with north of $300 million of premium. And BrokerLink are on track to hit $5 billion of premium before the end of this year. You know, earnings growth was a bit more tempered in a few segments. I'd point to MGAs in the US, you know, which are operating in a competitive environment. And then, as you pointed out, onside, you know, we really like the countercyclical attributes of that business. Margins are improving there, but obviously with benign cap levels, that's meant a little less revenue for onside.

Speaker #10: We're up 5% year to date. I would say consolidation of distribution continued at pace in the first six months. You know, broker link closed 13 transactions with north of 300 million of premium.

Speaker #10: And broker link are on track to hit 5 billion of premium before the end of this year. You know, earnings growth was a bit more tempered in a few segments.

Speaker #10: I'd point to MGAs in the US. You know, which are operating in a competitive environment. And then, as you pointed out, onsite, you know, we really like the countercyclical attributes of that business.

Speaker #10: Margins are improving there, but obviously with benign CAC levels that meant a little less revenue for onsite. But I would go back to the deep trend that we've talked about and onsite being very well positioned in that context.

Ken Anderson: But I would go back to the deep trend that we've talked about and onsite being very well positioned in that context. So all in, I would say very pleased with the development of the distribution platform. We've generated over $500 million of income in the last year, and we've compounded at 20% over the last five years. So we still see a lot of opportunities in distribution, and particularly the continued consolidation of at BrokerLink, but also in the MGA space in North America. So we would expect to quickly return to that objective of 10% growth. And in fact, you know, if we look at where we stand right now in relation to the third quarter, we'd expect to be back in line with that objective.

Speaker #10: So all in, I would say very pleased with the development of the distribution platform. We've generated over 500 million of income in the last year.

Speaker #10: And we've compounded at 20% over the last five years. So we still see a lot of opportunities in distribution. And you know, particularly the continued consolidation of at broker link, but also in the MGA space in North America.

Speaker #10: So we would expect to quickly return to that objective of 10% growth. In fact, if we look at where we stand right now in relation to the third quarter, we would expect to be back in line with that objective.

Speaker #9: Yeah. That's good, Ken. I think provides good good good perspective. You know, mid to long term, Bart, you ow, there are a number of things that give me confidence about the trajectory that Ken is talking about.

Charles Brindamour: Yeah, that's good, Ken. I think it provides good perspective. You know, mid to long term, Bart, you know, there are a number of things that give me confidence about the trajectory that Ken is talking about. The first one is that I see margin improvement opportunities in our distribution footprint, including onside. The second one is the fact that consolidation in distribution, you know, is a big source of growth. I'd say this year, compared to where we were a year ago, the competitive environment is better than it was a year ago in terms of who we're competing with to consolidate distribution. BrokerLink has been probably the most active consolidator in the first part of the year, and the pipeline is really, really solid.

Speaker #9: The first one is that I see margin improvement, unfortunately, in our distribution footprint, including onsite. The second one is the fact that consolidation in distribution is a big source of growth.

Speaker #9: I'd say this year compared to where we were a year ago, the competitive environment is better than it was a year ago in terms of who we're competing with to consolidate distribution.

Speaker #9: Broker link has been probably the most active consolidator in the first part of the year. And the pipeline is really really solid. And then the third element is the fact that we're building an organic growth muscle with the digital channel in a number of those units.

Charles Brindamour: And then the third element is the fact that we're building an organic growth muscle with the digital channel in a number of those units, BrokerLink first, and then onside, there's a lot of room to grow. And so, you know, it can be choppy from quarter to quarter, but the trajectory is north of 10% there, and we've got good visibility on that.

Speaker #9: Broker link first. And then onsite, as a lot of room to grow, and so you know it can be choppy from quarter to quarter, but the trajectory is north of 10% there, and we've got good visibility on that.

Speaker #8: Super. Very, very helpful and clear. Thanks, guys. Just one follow-up on James' lines of questioning. With the softening pricing environment in the U.S., how are you thinking about taking advantage of that opportunity in terms of you've got excess capital? It's a highly fragmented market. You talked about, on our Investor Day, trying to capture more of that market.

Patrick Barbeau: Super. Very, very helpful and clear. Thanks, guys. Just one follow-up on James' lines of questioning. With a softening pricing environment in the US, like how are you thinking about taking advantage of that opportunity in terms of you've got excess capital, it's a highly fragmented market. You've talked about on your Investor Day, try to capture more of that market. So is your thinking evolving on that front in the US as a result of what's going on in the broader environment?

Speaker #8: So as you're thinking evolving on that front with the in the US as a result of what's going on in the broader environment?

Speaker #9: So the U.S. and our U.S. business and our U.S. team are doing a great job. The combined ratio outperformance in the U.S., I start there because that's the key input in terms of how much appetite you should have to grow.

Charles Brindamour: So the US and our US business and our US team are doing a great job. The combined ratio of performance, Bart, in the US, I start there because that's the key input in terms of how much appetite you should have to grow. At least that's how we think. You're north of seven points of combined ratio outperformance in the US. Most of the lines of business are outperforming with the exception of a few which are being remediated. That's where the drag is coming from. And so what's in the pipeline to grow our US platform? One, we're expanding the product set within the 12 verticals within which we operate. Second, we're investing in distribution management. In other words, we want to go deeper for each of those verticals and the relationships that we have with brokers.

Speaker #9: Please, that's how we think. Your north of seven points of combined ratio outperformance in the US. Most of the lines of business are outperforming with the exception of a few which are being remediated.

Speaker #9: And that's where the drag is coming from. And so what's in the pipeline to grow our U.S. platform? One, we're expanding the product set within the 12 verticals.

Speaker #9: Within which we operate. Second, we're investing in distribution management. In other words, we want to go deeper for each of those verticals and the relationships that we have with brokers but there's fair bit of upside to leverage the relationships that each vertical has to cross-sell between the verticals.

Charles Brindamour: But there's a fair bit of upside to leverage the relationships that each vertical has to cross-sell between the verticals. Thirdly, we're investing in MGAs in the US. We have expertise in managing distribution. We like to build distribution profit, but if you invest in an MGA in the US, you expand your distribution relationship in the exercise. And therefore, this is an area that we're really focused on. And then lastly, it's tapping into the international capabilities of Intact now. We have a great global network. We have a very strong presence on the other side of the Atlantic. And we've demonstrated in North America that we can export some verticals. I'll take the example of technology, for instance, or entertainment in Canada. Verticals can be exported. And for me, that is a big source of growth as well.

Speaker #9: Thirdly, we're investing in MGAs. In the US, we have expertise in managing distribution. We like to build distribution profit, but if you invest in an MGA in the US, you expand your distribution relationship in the exercise.

Speaker #9: And therefore, this is an area that that we're really focused on. And then lastly, it's tapping into the international capabilities of Intact now. We have a great global network.

Speaker #9: We have a very strong presence in on the other side of the Atlantic. And we've demonstrated in North America that we can export some verticals.

Speaker #9: I'll e the example of technology for instance. We're entertainment in Canada. Verticals can be exported. And for me, that is a big source of growth as well.

Speaker #9: And so when I look at all that, you've got a pretty robust organic growth game plan. And obviously, if you outperform the market by seven-ish points of combined ratios and you own ROE outperformance in the U.S., probably in that zone, you would be ready to deploy capital through acquisitions as well.

Charles Brindamour: And so when I look at all that, you've got a pretty robust organic growth game plan. And obviously, if you outperform the market by seven-ish points of combined ratio, and you know, ROE outperformance in the US, probably in that zone, you should be ready to deploy capital through acquisitions as well. We're clearly in that mindset, but you know, it needs to be on strategy. It's not deploying capital just to deploy capital. It needs to be on strategy. And second, our track record of deploying capital in M&A is an IRR north of 20. Our objective is to hit for north of 15. So the numbers need to work as well. But if there was an opportunity now, well, we'd be on it.

Speaker #9: We're learly in that mindset. But you know it needs to be on strategy. It's not deploying capital just to deploy capital. It needs to be on strategy.

Speaker #9: And second, our track record of deploying capital in M&A is an IRR north of 20%. Our objective is to hit for north of 15%.

Speaker #9: So the numbers need to work as well. But if there wasn't an opportunity now, what would be on it?

Speaker #8: Very helpful. Thanks so much, guys.

Patrick Barbeau: Very helpful. Thanks so much, guys.

Speaker #9: Thank you.

Charles Brindamour: Thank you.

Speaker #3: Next question will be from Paul Holden at CIBC. Please go ahead, Paul.

Sylvie: Next question will be from Paul Holden at CIBC. Please go ahead, Paul.

Speaker #10: Morning. Thank you. Good morning. Good morning. First question I want to ask about the increasing claims pressure you highlighted in Alberta Auto. So I guess the question really is, A, I think if I remember correctly, the 2027 reforms or reforms effect of 2027 will tackle some of these issues.

Ken Anderson: Morning, Paul.

Patrick Barbeau: Thank you. Good morning. Good morning. First question I want to ask about the increasing claims pressure you highlighted in Alberta Auto. So I guess the question really is, A, I think if I remember correctly, the 2027 reforms or reforms effective 2027 will tackle some of these issues, but want to get a better understanding of how you're going to manage that between now and 2027.

Speaker #10: But I want to get a better understanding of how you're going to manage that between now and 2027.

Speaker #9: Good. Guillaume, do you want to take a crack at that?

Charles Brindamour: Good. Guillaume, do you want to take a crack at that?

Speaker #10: Yes. So nothing really changed in Alberta just to be clear. There's still pressure in the market. The industry is unprofitable. But we have strong defensive measures in place to control the quality and we're comfortable with the new business that we're riding.

Guillaume Lamy: Yes. So nothing really changed in Alberta, just to be clear. There's still pressure in the market. The industry is unprofitable. But we have strong defensive measures in place to control the quality, and we're comfortable with the new business that we're riding. The main issue remains the rate cap that's not linked to the overall claims inflation, and that affects the profitability of the renewal portfolio. And that's a continuation of the trend we've talked about in the past, and the solution is clear there. The cap really has to be removed. The inflation itself is product-driven, and the problem is specific to the Alberta market. So we don't see or expect similar pressure in other jurisdictions, Ontario, for example, where the product is much tighter. And when we look at Alberta, it's less than 20% of personal auto, and the remaining 80% is in very good health.

Speaker #10: The main issue remains the rate cap. That's not linked to the overall claims inflation. And that affects the profitability of the renewal portfolio. That's a continuation of the trend we've talked about in the past and the solution is clear there.

Speaker #10: The cap really has to be removed. The inflation itself is product-driven. And the problem is specific to the Alberta market. So we don't see or expect similar pressure in other jurisdictions.

Speaker #10: Ontario, for ample, where the product is much tighter. And when we look at Alberta, it's less than 20% of personal auto. And the remaining 80% is in very good health.

Speaker #10: And when we take a step back, I think Alberta Auto has been and still is a strong source of outperformance for IFC. And while the absolute performance is not where it should be, we believe the reform that is, as you pointed out, 18 months away, is tackling the right fundamental issues to restore profitability.

Guillaume Lamy: And when we take a step back, I think Alberta Auto has been and still is a strong source of performance for IFC. And while the absolute performance is not where it should be, we believe the reform that is, as you pointed out, 18 months away, is tackling the right fundamental issues to restore profitability. So we really want to hang on to that hook. I think we have good hope that come the reform, the profitability will be restored, and that will happen kind of June 1st, 2027. So in the interim, sorry, we don't see the current pressure having any impact on our overall 795 guidance. So that's an outperforming book. We want to keep it, and we have a view to profitability in 2027.

Speaker #10: So we really want to hang on to that book. I think we have good hope that, come the reform, the profitability will be restored.

Speaker #10: And that will happen kind of jump first 2027. So in the interim, sorry, we don't see the current pressure adding any impact on our overall sub-95 guidance.

Speaker #10: So that's an outperforming book. We want to keep it. And we have a view to profitability in 2027.

Speaker #8: Okay, good. Maybe a little bit more of a broader question on personal auto. So we have been through a period of robust rate renewals.

Patrick Barbeau: Okay, good. Maybe a little bit more of a broader question on personal auto. So we have been through a period of robust rate renewals and modifying claims inflation. So maybe an update on where we stand there. And in particular, I'm just wondering if those rate renewals are starting to slow. So maybe a perspective on sort of where we are on a year-over-year basis. Thank you.

Speaker #8: And modifying claims inflation. So, maybe an update on where we stand there. In particular, I’m wondering if those rate renewals are starting to slow.

Speaker #8: So maybe a perspective on sort of where we are on a year over year basis. Thank ou.

Speaker #9: Guillaume, do you want to provide a perspective on that?

Guillaume Lamy: Guillaume, do you want to provide a perspective on that?

Speaker #10: Yeah. So I'll start maybe at the industry level. The industry took a lot of rate increases in the past few years, double-digit last year. And we've seen the industry growth slightly come down in the last couple of quarters, which kind of drives the change in us that you might have seen.

Charles Brindamour: Yeah. So I'll start maybe at the industry level. So industry took a lot of rates in the past few years, double-digit last year. And we've seen the industry growth slightly come down in the last couple of quarters, which kind of drives the change in aspect that you might have seen. But industry is still unprofitable, and we're expecting hard market conditions to persist with industry growth still strong in the high single digit. And there is still work to do for the industry. When we compare that to our own growth, which is double-digit, we're gaining market share in a favorable market condition. So we're now in that part of the cycle where, as anticipated, we're outperforming on both top line and bottom line.

Speaker #10: But industry is still unprofitable. And we're expecting our market condition to persist with industry growth still strong in the high single-digit. And there is still work to do for the industry.

Speaker #10: When we compare that to our own growth, which is double-digit, we're gaining market share in a favorable market condition. So we're now in that part of the cycle where as anticipated, we're outperforming on both top line and bottom line.

Speaker #10: When we look our rates, so growth has been double-digit, seven quarter in a row. Despite the written rates coming down, quarter over quarter, with unit growth continuing to contribute favorably at 2%.

Charles Brindamour: When we look at our rates, so growth has been double-digit, seven quarters in a row, despite the written rates coming down quarter over quarter, with unit growth continuing to contribute favorably at 2%. So inflation is stabilizing in the mid-single-digit range. Our rates are normalizing also in the mid to high single-digit rate, down about a point and a half from Q1. But that doesn't really show in the growth, as we have strong unit momentum and also favorable mix from higher growth in our direct channel and in Ontario in particular. So we're really happy to be in that environment and continue investing in our growth there.

Speaker #10: So inflation is stabilizing in the mid-single-digit range. Our rates are normalizing also in the mid to high single-digit rate. Down about a point and a f from Q1.

Speaker #10: But that doesn't really show in the growth as we have strong unit momentum and also favorable mix from higher growth in our direct channel and in Ontario in particular.

Speaker #10: So, I'm really happy to be in that environment and continue investing in our growth there. Great to hear. Bob Park would be in the eight percent zone at this stage, which is a good zone to be in.

Ken Anderson: Great from the grid.

Charles Brindamour: Ballpark would be in the 8-ish percent zone at this stage, which is a good zone to be in. And I think the point that Guillaume is making here is that the outperformance from a combined ratio or loss ratio point of view in automobiles is very strong. It's been strong for a while. Now we're getting in the zone where we're outperforming on growth as well, and we're really keen to pursue that while making sure we protect quality in the Alberta marketplace.

Speaker #10: And I think the key point that Guillaume is making here is that the outperformance from a combined ratio or loss ratio point of view in automobile is very strong.

Speaker #10: It's been strong for a while. Now we're etting into the zone where we're outperforming on growth as well. And we're really keen to pursue that.

Speaker #10: While making sure we protect quality in the Alberta marketplace.

Speaker #8: I'll leave it there as my two questions. Thank you.

Ken Anderson: I'll leave it there as my two questions. Thank you.

Speaker #9: Welcome.

Charles Brindamour: Welcome.

Speaker #3: Next question will be from Tom McKinnon at BMO. Please go ahead, Tom.

Sylvie: Next question will be from Tom McKinnon at BMO. Please go ahead, Tom.

Speaker #11: Morning, Ken. Thanks very much. Morning. With respect to the UK and I, you mentioned some large losses, and if you can maybe elaborate on where those might be, what your outlook would be with respect to the UK and I.

Ken Anderson: Yeah, thanks very much. Morning. With respect to the UK and I, you mentioned some large losses. And if you can maybe elaborate on where those might be, what your outlook would be with respect to the UK and I. And generally, as you've changed slightly more muted industry premium growth for those for the UK and for the US, is there anything you can comment on in terms of terms and conditions or some other things other than just rate? I mean, you're still being able to predict. And does this change in more muted premium growth have any impact on your ability to continue to do, I guess it's low 90s or better in the US or trend to low 90s by 2026 for the UK? So a bit of a mouthful of a question, but hopefully you can tackle it. Thanks.

Speaker #11: And generally, as you've changed slightly more muted industry premium growth, for those for UK, and for the US, is there anything you can comment on in terms of terms and conditions or some other things other than just rate?

Speaker #11: I mean, you're still being able to and does this change in more muted premium growth have any impact on your ability to continue to do, I guess it's low 90s or better in the US or trend to low 90s by 2026 for the UK?

Speaker #11: So a bit of a mouthful of a tion, but hopefully you can tackle it. Thanks.

Speaker #9: We'll try to tackle your six questions. So Patrick, why don't you with the large losses and then we'll get to combined ratio trajectory maybe in the UK and the US.

Charles Brindamour: We'll try to tackle your six questions. So Patrick, why don't you start with the large losses, and then we'll get to a combined ratio trajectory maybe in the UK and the US.

Speaker #10: Some of the UK and I business overall is really performing largely as we expected at this point. You know, the Q2 combined ratio of 90 to 9 included as we mentioned higher than usual large losses, mainly coming from some portions of the specialty lines in the UK and I.

Ken Anderson: Sure.

Charles Brindamour: Tom, the UK and I business overall is really performing largely as we expected at this point. You know, the Q2 combined ratio of 92/9 included, as we mentioned, higher than usual large losses, mainly coming from some portions of the specialty lines in the UK and I. On the other hand, the favorable PYD was also stronger probably than normal. So overall, I'd say with the 92.9%, it largely reflects the range of the run rate of that business in the UK and I, and in line with the expectations we had for this portfolio at this point in time. Just like the Charles mentioned for the US, we are outperforming as well on a combined ratio perspective now in the UK and I.

Speaker #10: On the other hand, the favorable PYD was also stronger probably than normal. So overall, I'd say with the 92.9% is largely reflects the range of the run rate of that business in the UK and I.

Speaker #10: And in line with the expectations we had for this portfolio at this point in time. Just like Charles mentioned for the U.S., we are outperforming as well on a combined ratio perspective now in the U.K.

Speaker #10: So with the traction we're seeing from our actions in adjusting the footprint, adding pricing sophistication tools, and the overall improvement in the portfolio, you know, our confidence level is the same to be able to run that business at around 90% by the end of next year.

Charles Brindamour: So with the traction we're seeing from our actions and adjusting the footprint, adding pricing sophistication tools, and the overall improvement in the portfolio, you know, our confidence level is the same to be able to run that business at around 90% by the end of next year. Yeah. I think, Tom, you know, if I step back here and I look, you know, there's a lot of focus on the comments we make on, you know, large pressure and large commercial lines. But, you know, if you step back and you look at the UK and I, the rate and exposure in Q2 is near 5%. But, you know, the two things that I would highlight, this business is running at 92/9. You're already in the mid-teens ROE in the UK or UK and I.

Speaker #10: Yeah. I think, Tom, you ow, if I step back, here, and I look you know, there's a lot of focus on the comments we make on, you know, large pressure and large commercial lines.

Speaker #10: But you know, if you step back and you look at the UK and I, the rate and exposure in Q2 near 5%. Yeah, but you ow, the two things that I would highlight, this business is running at 92.9.

Speaker #10: You're already in the mid-teens ROE in the UK. Or UK and I. There's two big things. That are happening in the UK. That you know, will eat up the pressure we might see on the top line.

Charles Brindamour: There's two big things that are happening in the UK that, you know, will eat up the pressure we might see on the top line in terms of what it means for the bottom line. The first one is the fact that in the 92/9, you have the NIG performance. If you look over the last year and in the run rate, which is sort of in that zone, which is not at the level we want it to be, there's a drag on the top line, but that'll translate into meaningful improvement in the NIG performance, which will then translate into improving the run rate of the UK and I business, which is about in the 92/93 zone. And just, Patrick, the improvement in the NIG performance is in the six to seven points.

Speaker #10: In terms what it means for the bottom line. The first one is the fact that in the 92.9, you have the NIG performance should look over the last year and in the run rate, which is sort of in that zone.

Speaker #10: Which is not at the level we want to be. There's a drag on the top line. But that'll translate into meaningful improvement in the NIG performance, which will then translate into improving the run rate of the UK and I business, which is about in the 92.93 zone.

Speaker #10: I think. And just to take the improvement in the NIG performance, is in the 6 to 7 points. Year on year.

Ken Anderson: Year on year.

Speaker #9: Year on year. Just

Charles Brindamour: Year on year.

Speaker #10: Yeah.

Ken Anderson: Yeah.

Speaker #9: To put things in perspective, Tom, we only have.

Charles Brindamour: Just to put things in perspective, Tom. And we only have.

Speaker #10: Sorry, NIG, what's NIG?

Ken Anderson: Sorry, NIG. What's NIG?

Speaker #9: Oh, sorry. It's a direct line acquisition that we've done last year.

Charles Brindamour: Oh, sorry. It's the direct line acquisition that we've done last year.

Speaker #10: Okay.

Speaker #9: And that segment of direct line is called NIG. And so which is the pressure point on top line. I mean, it's it's costing close to five points of top line at this stage.

Ken Anderson: Okay.

Charles Brindamour: And that segment of direct line is called NIG. And so, which is the pressure point on top line. I mean, it's costing close to five points of top line at this stage. Why? Because we're wanting to make sure that that acquisition, which basically doubles our commercial lines position in UKCL, is performing like the rest of the book. We haven't seen that yet. And that is a big portion of how we go from 92/9 to 90%. The other thing that's happening in the UK and I is the deployment of risk selection tools and some of the science that's been exported there. That is paying off for sure, but there's a fair bit of upside in my mind in the usage of those tools in the next couple of years.

Speaker #9: Why? Because we're wanting to make sure that that acquisition, which basically doubles our commercial lines position in the UKCL, is performing like the rest of the book.

Speaker #9: We haven't seen that yet, and that is a big portion of how we go from 92.9% to 90%. The other thing that's happening in the UK and I is the deployment of risk selection tools.

Speaker #9: And some of the science that's been exported there. That is paying off for sure. But there's a fair bit of upside in my mind in the usage of those tools in the next couple of years and that's why frankly at 92.9 today, given what's in the pipeline, what's happening in the market is interesting.

Charles Brindamour: And that's why, frankly, at 92/9 today, given what's in the pipeline, what's happening in the market is interesting. But more interesting to me is the upside of the actions we're taking, which we have yet to see. So, you know, we feel very confident about the guidance we're giving in the UK, which is to get to 90-ish percent. The US, I mean, the US 87/8 this quarter, you go back in time, I mean, this is a business that we said should run 90% or better. It's running below 90% for a while now. And there's a fair bit of remediation still in that portfolio. So a pointer to a pressure from the market for me does not take us off course or off track one bit in terms of the trajectory of performance. Ken, anything you want to add?

Speaker #9: But more interesting to me is the upside of the actions we're taking, which we have yet to see. So, you know, we feel very confident about the guidance we're giving in the UK, which is to get to around 90 percent.

Speaker #9: The U.S., I mean, the U.S. is 87.8 this quarter. You go back in time, I mean, this is a business that we said should run 90% or better.

Speaker #9: It's running below 90% for a while now, and there's a fair bit of remediation still in that portfolio. So, a point or two of pressure from the market for me does not take us off course or off track one bit in terms of the trajectory of performance.

Speaker #9: Ken, anything you ant to add?

Speaker #8: No, I think you've covered all of Tom's questions.

Geoff Kwan: No, I think you've covered all of Tom's questions.

Speaker #10: Oh, just maybe with respect to overall what you're seeing in some terms and conditions or.

Ken Anderson: Oh, just maybe with respect to overall what you're saying in some terms and conditions or.

Speaker #9: Oh, sorry.

Charles Brindamour: Oh, sorry.

Speaker #8: I mean, you talk about overall premium growth, but you ow that's may not necessarily be the key thing in the story. But any color on that?

Ken Anderson: I mean, you talk about overall premium growth, but you know, that may not necessarily be a key thing in this story.

Charles Brindamour: Yeah, absolutely.

Ken Anderson: Any color on that?

Speaker #9: Yeah, I think first points high level the mix shifting means that you know you're moving towards somewhat smaller customers on average. And likely simpler terms and conditions in the exercise.

Charles Brindamour: Yeah, I think first point, high level, the mix shifting means that, you know, you're moving towards somewhat smaller customer in average and likely simpler terms and conditions in the exercise. There is movement on terms and conditions, but I would say in aggregate for the UK or the US, nothing substantial to be concerned about. That is true at the top end of commercial lines where when there's pressure on rates, people find ways to offset that, you know, with deductible and limits and other elements of terms and conditions, but not true across the portfolio.

Speaker #9: There is movement on terms and conditions, but I would say in aggregate, for the UK, or the US, nothing substantial to to be concerned about.

Speaker #9: That is true at the top end of commercial lines. Where when there's pressure on rates, people find ways to upset that. You know, with deductible and and and limits and other elements of terms, and conditions.

Speaker #9: But not true across the portfolio.

Speaker #10: Okay, thanks.

Ken Anderson: Okay, thanks.

Speaker #3: Thank you. Next question will be from Lamar Prasad at CarMark. Please go ahead, Lamar.

Sylvie: Thank you. Next question will be from Lamar Prasad at CarMark. Please go ahead, Lamar.

Speaker #10: Yeah, thanks. Hey, how are you guys? I'm going to be just ask a very basic high level question on, you know, this elevated competition in large accounts and commercial.

Ken Anderson: Yeah, thanks. Hey, how are you guys? I'm going to just ask a very basic high-level question on, you know, this elevated competition in large accounts and commercial. Like, why are peers willing to push so hard on these large accounts across geographies? Should we think about this as just one of those times where peers are willing to accept a lower ROE than Intact and you're just going to wait for the market to come back to you, or is there some other underlying reason? Very high level.

Speaker #10: Like, why are peers willing to push so hard on these large accounts across geographies? Should we think about this as just one of those times where our peers are willing to accept a a lower ROE than Intact and you're just going to wait for the market to come back to you?

Speaker #10: Or is there some other underlying reason? Very high level.

Speaker #9: No, I think I think that's it. I think you're coming off many years of hard markets. So there's very good profitability at the top end.

Charles Brindamour: No, I think that's it. I think you're coming off many years of hard markets, so there's very good profitability at the top end of commercial lines. And with rates sort of decelerating, the desire to protect one's portfolio or to grow goes up in a way. And in large commercial lines, and that's why I like the fact that we have very good large commercial lines capabilities, but the mix of our book is far more mid-market, where a lot of large numbers and systems play a much bigger role in pricing. In large commercial lines, the reason why it's more cyclical and the amplitude of the cycles are wider is because there's a fair bit of delegation in the field.

Speaker #9: Of commercial lines, and with rates sort of decelerating, the desire to protect one's portfolio or to grow goes up. In a way, in large commercial lines, and that's why I like the fact that we have very good large commercial lines capabilities. However, the mix of our book is far more mid-market.

Speaker #9: Where a lot of large numbers and systems play a much bigger role in pricing. In large commercial lines, the reason why it's more cyclical and the amplitude of the cycles are wider is because there's a fair bit of delegation in the field.

Speaker #9: And the pressure that comes with riding large accounts, which tend to be more complex, and the fact that there's more delegation at this end of the market, means that you see some irrational behavior faster there than in other parts of the market.

Charles Brindamour: And the pressure that comes with writing large accounts, which tend to be more complex, and the fact that there's more delegation at this end of the market means that you see some irrational behavior faster there than in other parts of the market. And I think that's the zone we're in at the moment. You know, do we think there's no inflation in property that climate change won't have an impact in property? No, obviously, but it's been profitable, quite profitable, and there's a fair bit of demand there. And so it's supply that's driving what we're seeing in large property schedules. And as I said, we're not seeing that sort of behavior across property. We're seeing it at the top end of commercial lines in property. And so what do you do?

Speaker #9: And I think that's the zone we're in at the moment. You know, do we think there's no inflation in property and that climate change won't have an impact?

Speaker #9: But in property, no, obviously. But it's been profitable. Quite profitable. And there's a fair bit of demand there. And so it's supply that's driving what we're seeing in large property schedules.

Speaker #9: And as I said, we're not seeing that sort of behavior across property. We're seeing it at the top end of commercial lines in property.

Speaker #9: And so what do you ? You know, in this environment, our teams in property know exactly where the margin is. And how much room they have.

Charles Brindamour: You know, in this environment, our teams in property know exactly where the margin is and how much room they have to compete and operate with that book, and we monitor that behavior. And we've got a pretty tight tool and governance at the top end. Accounts are reviewed with the actuaries individually. And as a result, I'm very confident that our teams are navigating these conditions very well. But obviously, the success rate from a growth point of view is not what it was a year ago.And

Speaker #9: To compete. And operate with that book. And we monitor that behavior and we've got a pretty tight tool and governance at the top end accounts are reviewed with the actuaries individually.

Speaker #9: And as a result, I'm very confident that our teams are navigating these conditions very well. But obviously, the success rate from a growth point of view is not what it was a year ago.

Speaker #9: And we're fine with that. You know, there's lots of opportunities here to grow. We want to make sure we grow where it makes sense.

Sylvie: we're fine with that. You know, there's lots of opportunities here to grow. We want to make sure we grow where it makes sense.

Speaker #10: That's very helpful. And then if I can just, you know, kind of follow up on that. Are these large accounts large multinationals?

Operator: That's very helpful. And then if I can just, you know, kind of follow up on that, is there, are these large accounts, large multinationals? Because it's impacting other geographies outside of Canada. Is that the way to think about it?

Speaker #10: Because it's impacting other geographies outside of Canada. Is that the way to think about it?

Speaker #9: Yeah.

Sylvie: Yeah.

Speaker #10: Okay, okay.

Operator: Okay.

Sylvie: Okay. Not only large multinational, but I think it's a good way to generalize at what part of the market are you seeing the most pressure.

Speaker #9: Not only large multinationals, but I think it's a good way to generalize at what part of the market you are seeing the most pressure.

Speaker #10: Okay, okay, thanks. And then my second question, just kind of on distribution income here. Can you guys quantify? I don’t think you have in the past, but I’ll try it anyways.

Operator: Okay. Okay. Thanks. And then my second question, just kind of on distribution income here. Can you guys quantify? I don't think you have in the past, but I'll try it anyways. But you know, trying to understand that 165 million, how much came from onsite this quarter versus Q2 last year, just to help understand, you know, that that dynamic between, you know, how much onsite would contribute in a heavier, CAT quarter versus a quarter like we saw, in Q2. Is there any context or numbers you guys can provide just to help us understand that dynamic?

Sylvie: I'm all right. I think this is a good question. It's a complex one. We'll take it and make sure that we have an answer that is insightful. I'm not sure we're well equipped to give you a sense of sensitivity of onsite on distribution income as a result of natural disasters. This is an exercise we could see how easy it is to disclose, but we'll take your question under consideration.

Operator: Okay. Thanks. Thanks. That's fair.

Rachel Smith: Thank you. Once again, ladies and gentlemen, a reminder to please press star one should you have any questions. Next question will be for Mario Mendoza at TD Securities. Please go ahead, Mario.

Geoff Kwan: Good morning. I went back over the last three years, so 12 quarters, and looked for how many quarters that we in fact reported where the PYD relative to net earn premium was sub 4%. And I found one. So it's not common to be sub 4%, but yet your guidance remains the 2 to 4%. Perhaps, Charles, you can speak to, you know, what are the conditions that would cause PYD to fall back into that 2 to 4% range, or are there some structural reasons why it could remain well above 4% in the near term?

Sylvie: Yeah. I think, Mario, I'll just start by saying, you know, we're not selling widgets. And as a result, the range of outcome is something we're very conscious about. And if you go back 10 years, you know, you see that there's a degree of volatility around this, and therefore that calls for caution. That's the first point I would make. I have to say, you know, the mix of business over time has changed, and we're in businesses that might be a bit less volatile than where we were in the past. And mainly, you know, focus on commercial as well as specialty lines. Look, our guidance really is indeed 2 to 4%, but I think what we're saying is that we expect that, you know, in the near term, PYD will oscillate around the top end of our guidance.

Sylvie: And maybe, Patrick, I don't know if you want to provide a bit more color on PYD.

Charles Brindamour: Maybe just on the higher level of this quarter, I think it's while solid across all lines of business. It was in particular higher than expected, I would say, in two main areas, commercial lines, Canada, and the DLG book in the UK and I. And in Canada, Mario, I would point to two main things. There was additional PYD on prior year CATs, given the elevated amounts we had, and also on other short-tail property claims in particular. And I think that that's important to illustrate why we focus so much on the importance of looking at PYD and current exit and tier together, because in that specific example, these two, by the way, represented about 1.5 points overall of PYD at the IFC level. And there's a very short period of time between the current exit and tier and the PYD when it's in such short-tail lines.

Charles Brindamour: So that's one important point to note. In the UK and I, I mean, this is a recent acquisition. The data that we had at the time was not very credible, so we were particularly prudent in it. And we've seen some of that coming back this quarter as favorable PYD. This is an additional half a point overall for IFC. So these are some of the elements specific to these quarters that illustrate some of the points.

Sylvie: Yeah. And in the case of the UK and I, we're still building caution in the current exit and tier. So that's why I wouldn't dismiss that and look at those things together. But Mario, I mean, the way I think about the PYD range here, and keep in mind, the appointed actuary decides where they book the reserves, and that's their business. And our view is that PYD should oscillate around the top end of that range in the near term. Your question is, what could take this back in the middle or at the lower end of the range? Well, you know, inflation in automobile insurance is something I would keep an eye on. We're not, you know, overly concerned about that. But, you know, automobile insurance is a four-year duration product. And if you go back in time, that's where there's been pressure.

Sylvie: Now, we have much less automobile insurance in relative terms than we did a decade ago, but that is one thing I would I would watch for. The other thing I would watch for is inflation in commercial lines liability. It's been good so far, but we're prudent about that. And my analogy with the widget is that when you're in the liability business, you've got to be cautious. So far, I think what we're building in the current exit and tier and what we're seeing in the PYD shows that we've been conservative in relationship with the inflation that is materializing. But, you know, we want to make sure that we don't get surprises the other way. And that's why we think you should look at current exit and tier and prior year together.

Sylvie: And you should expect in the near term to see PYD at the top end of that range oscillating around the top end of that range. But I think prudence in our space is really important because we're in the risk-taking business.

Geoff Kwan: Helpful. So the second question, I was reading an article, and this was about the US market. And it related to a survey where the respondents, one in four respondents, said they were downgrading or dropping their auto insurance. And the dropping makes no sense to me, but downgrading or dropping, it seems to be in response to just how much more expensive it's become to insure your automobile in certain parts of the US. Is there any trend that you're observing in personal auto where folks are downgrading their coverage, perhaps not dropping, but changing their coverage to save money?

Sylvie: Yeah. Kiel. No, Mario, we're not seeing any of that. Like we're seeing a good penetration of our dual line concentration. So people buy auto property together a lot more than they did a few years ago. But within auto, we're not seeing anything. The mix is actually positive to our top line. So that's not a trend we've observed. I think, Mario, the highly competitive marketplace in Canada is highly segmented from a pricing point of view. And Canadians who shop can really manage the size of their automobile insurance premium. And in fact, in an inflationary period like the one we've been in over the past couple of years, we've seen shopping go up dramatically. And that's why if you look at the growth in our direct channel, it's even higher than the growth in the broker channel. So very healthy marketplace.

Sylvie: I'd say that when it comes to what you call downgrading or underinsurance in automobile insurance, Alberta is the province where we need to keep a very close eye on that because access is challenged at the moment. And I think the government knows that.

Geoff Kwan: Thank you.

Sylvie: Welcome.

Rachel Smith: Thank you. Ladies and gentlemen, this is all the time we have today. I would now like to turn the call back over to Geoff Kwan.

Ken Anderson: 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. And of note, our 2025 third quarter results are scheduled to be released after market close on Tuesday, November the 4th, with an earnings call starting at 11 a.m. Eastern the following day. Thank you again, and this does conclude our call.

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