Intact Financial Corporation

Good morning ladies and gentlemen and welcome to the Intact Financial Corporation Q2 2023 results conference call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. If at any time during the call you require immediate assistance, please press star zero for the operator. This call is being recorded on August 3rd, 2023. I would now like to turn the conference over to Shubha Khan, Vice President, Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone, and thank you for joining the call to discuss our second quarter 2023 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 cautionary language 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 important notes on adjustments, terms, and definitions used in this presentation. To discuss our second quarter results today, I have with me our CEO, Charles Brindamore, our CFO, Louis Marcotte, Patrick Barbeau, Executive Vice President and Chief Operating Officer, Darren Godfrey, Executive Vice President, Global Specialty Lines, Guillaume Lamy, Senior Vice President, Personal Lines, and Ken Anderson, Executive Vice President and CFO, UK&I. We will begin with prepared remarks followed by Q&A. With that, I will turn the call over to Charles.

Thanks, Shubha. Good morning, everyone, and thanks for joining us this morning. In the face of severe weather events across Canada this quarter, Our teams were often first on the ground in affected communities to get customers back on track. It's in those moments that Intact takes all its meat. With the strength of our people, deep supply chains across the land, we're in a unique position to help society be resilient in bad times. Though the operating environment proved challenging due to the number of fire, flood, and freeze events, we delivered an operating ROE of 13%. This is also what we mean by resilience. Yesterday evening, we announced net operating income per share of $2.30 for the quarter, down 30% largely due to caps. Top line growth stood at 7% excluding strategic exits, reflecting higher rates across all lines of business, as well as improving units in personal auto. Our undiscounted combined ratio was 96.3% in the quarter, despite eight points of CAT losses. Underlying performance was strong in all geographies. Now let me provide a bit of color by line of business, starting with Canada. In personal auto, premiums grew 6%. a one-point improvement compared with the preceding quarter and up seven points over the last three quarters. As anticipated, top-line momentum is a function of both rate actions and our improving competitive positions as competitors move to catch up with inflation. Retention levels remain strong, and we see positive signs in new business volumes. the combined ratio landed at 91.2% in the quarter, largely in line with our expectations given seasonality. Claims frequency remains below pre-pandemic levels and inflation pressures have continued to abate with the increase in severity slowing to 8% in Q2, down from a peak of 13% in Q3 last year and 9% in Q1. The drop in the quarter was primarily due to decrease in the market value of cars and stable repair costs. The expansion of our supply chain continues to support our ability to absorb inflation. Meanwhile, written rates and values increased by close to nine points in aggregate during the quarter. Earned premium increases accelerated to 7% and are expected to catch up with written levels by Q3. Our balance sheet continues to show real strength as demonstrated by the favorable development from prior years. We look at both current and prior years together as we're continuing to build strength in the current year as well. Overall, we remain confident in our sub-95 guidance for personal auto. Moving now to personal prop, premium growth was 5% mostly driven by our rate actions and supportive market conditions. The combined ratio of 119 included 27 points of caps. An increase in severity driven by large losses and inflation also weighed on results by close to five points. Rates and insured values will likely reach low teens by year end while expect on-site to contribute to our performance as well. The personal property business in Canada is positioned to generate sub-95 combined ratio even in bad times, as demonstrated in the past 12 months. Given our track record in the upper 80s over the past 10 years, I'm confident we'll make the most of this environment in this segment. In commercial lines, top line growth of 6% was driven by our rate actions in hard market conditions, partially upset by targeted actions to optimize the portfolio. Despite seven points of catch, the combined ratio was 89.5%, primarily driven by our profitability actions over time. This business remains very well positioned to deliver sustainable low 90s or better performance. Moving now to our UK&I business, I'm pleased to see a solid combined ratio of 94.1% in the quarter. In personal lines, premiums grew 6% after adjusting for the impact of our exit from the UK motor market. We took great actions amid a clearly firming UK personal lines market. The combined ratio of 98 was in line with our near-term expectations of upper 90s performance. With initiatives to improve performance well underway, we aim to achieve a mid-90s combined ratio in this line by the end of 24. In commercial lines, after adjusting for strategic exits, premium growth was 6 percent in the quarter. We continue to benefit from hard market conditions, which support mid- to upper single-digit rate increases. The combined ratio was 92.1%, despite nine points of caps. This reflects the strength of our platform and prevailing market conditions in the UK. We expect to continue operating this business in the low 90s over the next 12 months. In the US, our business grew 19% in Q2, driven by the high-end acquisition last year, strong growth in high-performing businesses, as well as rate increases. Despite an elevated five points of CATs, the combined ratio was 91.3%, reflecting our profitability actions over time. We expect hard market conditions to persist in most lines, supported by higher reinsurance costs, elevated CAT losses, and inflation. Against this backdrop, we remain very well positioned to continue delivering low 90s performance or better in the U.S. While the quarter put a strain on our claims operations, we remain focused on advancing our strategic agenda to continue to strengthen our moat and solidify our outperformance. True to expanding our leadership position in Canada, We've built on owning the two top brands in the P&C sector and recently announced the rebranding of Anthony Insurance and Johnson Insurance to Better Direct. This further bolsters the strength of our direct brand across the country. I was also pleased to see that BrokerLink remained very focused on consolidating distribution, with successfully reaching agreements in 17 transactions so far this year. Looking at our global specialty lines business overall, we're well on our way to build the most respected specialty lines insurer. Premiums grew 12% while the combined ratio was 85.2% for the quarter. We've made important advances in deploying predictive models in this business. And through our continuous focus on profitable growth and supportive market conditions, we expect to reach a sustainable sub-90s combined ratio over time and outperform everywhere we operate. In our UK operations, much progress is being made in deploying machine learning and pricing and adding to our sophistication in commercial lines. And that's combined with bolstering our broker value proposition in the regions in commercial lines. Our commercial platform in the UK is outperforming and growth momentum is building. At the halfway mark of 23, we remain very much on track from a financial and strategic perspective. The operating environment is playing to our strengths. Top line growth is in the mid to high single-digit zone. The outlook for both investment and distribution income continues to be favorable, and we're on course once again to deliver mid-teens operating ROE this year. With that, I'll turn the call over to our CFO, Louis Marcotte.