Intact Financial Corporation

Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q3 2023 results. At this time, all lines are in the listen-only mode. Following the presentation, we will conduct a question-and-answer session, and if at any time during this call you require immediate assistance, please press star zero for the operator. Note the call is being recorded on November 8, 2023, and I would like to turn the conference over to Shubha Khan, Vice President, Investor Relations. Please go ahead.

Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our third 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 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 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 today. Canadians across the country were once again faced with severe storms, floods, and wildfires in the third quarter. As always, our teams played an essential role in getting customers back on track. And it's precisely in these moments that we're able to put our purpose into action and help people, businesses, and society be resilient in bad times. Against this backdrop, our business once again demonstrated remarkable resilience. Yesterday evening, we announced net operating income per share of $2.10 for the quarter, despite elevated CAT losses. Our undiscounted combined ratio was 98.3% and included 12 points of CAT losses, roughly eight points higher than expected. That said, we were able to deliver an operating ROE of 12.2% despite a three-point impact from CATs. I'm also encouraged by strong top-line momentum across our platform. Premium growth in the quarter stood at 8% excluding strategic exits, largely driven by red actions across all lines of business, as well as improving unit growth in purse lines. Let's now look at each of our lines of business, starting with Canada. In Purcell Auto, growth and profitability are developing largely as we expected. Premium growth accelerated to 9% in this quarter, up three points from the preceding quarter, and a full 10 points from a year ago. This was driven by high single-digit rate increases, as well as unit growth, which has benefited from our improved competitive position. The combined ratio of 95.4% in the quarter was well within guidance if you consider a two-points negative impact from excess CAT losses and industry pools. Inflation pressures continued to moderate, slowing to mid-single-digit range in Q3. This was running at 8% only a quarter ago and had peaked at 13% in Q3 last year. In the quarter, the improvement was primarily due to normalizing vehicle prices as well as lower repair costs supported by our integrated supply chain. At the same time, earned rate and insured values increased 8% in aggregate during the quarter, outpacing inflation and driving an improvement in the current accident-tier loss ratio. Going forward, we expect rate increases to continue covering inflation and remain comfortable with our sub-95 guidance for this business. Moving now to personal property. Premium growth was 7%, mostly driven by our rate actions and supportive market conditions. The combined ratio of 124% included 34 points of CATs in excess of expectations. Adjusted for excess CATs, the result was otherwise consistent with our strong track record in this business. Including this year, our combined ratio has averaged sub-90s over the last decade. We believe we've been rewarded for the volatility in this segment, and we remain well positioned in the current environment. Elevated severe weather activity and ongoing inflation pressures are also expected to sustain hard market conditions. Rates and interest values in aggregate will reach the low double digit range by year end. And I expect that our pricing and product actions, as well as claims expertise and supply chain capabilities, will allow us to sustain our strong track record over time. In commercial lines in Canada, top line growth of 7% was driven by our rate actions in hard market conditions, as well as strong retention. The combined ratio of 92.7% included 13 points of CAT losses, nearly three times the expected level. But underlying performance was strong as a result of our profitability actions over time. This business remains well positioned to deliver sustainable, low 90s or better performance. Moving now to our UK&I business, where we delivered a solid combined ratio of 92.5 in the quarter. In commercial lines, underlying premium growth was 8%. We continue to benefit from hard market conditions, which are supporting mid to high single-digit rate increases, particularly in specialty lines. The combined ratio of 90.6% reflected strong underlying performance, which offset an unusually high level of adverse prior year development, which we will explain in his remarks. On October 26, we successfully closed the acquisition of DirectLines brokered commercial lines operation, doubling down on our outperforming commercial lines business in the UK. The transaction enhances the growth profile and profitability of the UK&I platform, which is now better positioned to sustain low 90s performance. In purse lines, premiums grew 13% adjusted for the impact of our UK motor market exit earlier this year. This was driven by red actions in a clearly firming market, which also helped drive the combiner issue of 96.6%, we continue to expect the business to deliver upper 90s performance in the near term. As we announced in early September, we're evaluating strategic options for the UK First Alliance business, including a possible sale. We're making very good progress and expect to provide details in the coming weeks. In the US, our business grew 13% in two-three, driven by our rate actions and strong contribution from last year's highland acquisition. The combined ratio of 88.5% reflected rate actions over time and strong growth in our most profitable lines. While conditions in certain segments have softened, the market overall remains hard, particularly in special property, our builders' risk business unit, as well as ocean marines. In the next 12 months, market conditions in most lines are expected to remain hard given higher insurance costs, elevated cap losses and inflation. We remain well positioned to continue delivering low 90s performance or better in the US. Looking at our global specialty lines overall, premiums grew 11% with a combined ratio of 88% for the quarter. Performance was especially strong in the US and the UK. To our continuous focus on profitable growth, together with our investments in pricing sophistication, we expect to generate sustainable sub-90s combined ratio over time. Turning to our strategic initiatives, we continue to invest in our business to transform our competitive advantages and maintain our strong outperformance. We strengthened our supply chain capabilities in the quarter, again, opening three new intact service centers and bringing the number of total locations to 27. In addition to improving customer experience, these centers reduced cycle times by up to 30%, supporting our sub 95 guidance and personal auto. We also bolstered our data and AI capabilities by expanding machine learning to our pricing models and commercial property, and deploy new predictive pricing models for specialty lines across all of our operations. On the climate front, we have a strong track record with a 10-year average combined ratio, sub 90s in personal prop, our most cat exposed line. We've achieved this by facing into changes in weather patterns well over a decade ago, transforming our business and turning the change into and opportunity. This involved pricing, product design, data expansion, as well as transforming our claims operation and building our supply chain. And I believe we're well positioned prospectively. In the spirit of proactivity, given the intensity of this summer, we've tested our value proposition to make sure we can grow profitably and sustainably in this segment and maintain the track record of the last decade. And to do that, with the latest climate science, we've modeled the implications of global warming reaching well north of three degrees, double the aspirational targets set by policymakers. And based on our work so far, I'm not concerned about our ability to maintain strong growth and underwriting margins over the next decade, consistent with our track record of the past decade. In the more immediate term, I see a lot of resilience across our business, as well as strong growth momentum. Despite unusually elevated severe weather activity, we've delivered mid-90s underwriting performance so far this year and an operating ROE north of 12. And with hard market conditions across all lines, the growth and profitability outlook is favorable. As we look ahead to 24, I'm confident we'll continue to grow our net operating income per share by 10% per year over time and outperform the industry ROE by at least 500 basis points. And with that, I'll turn the call over to our CFO, Louis Marcotte.