Intact Financial Corporation

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 the 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 Jeff Kwan, Chief Investor Relations Officer. Please go ahead.

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 Brindamore, our CFO, Ken Anderson, Patrick Barbeau, our Chief Operating Officer, and Guillaume Lamy, Senior Vice President, Personal Lines. We will begin with prepared remarks followed by Q&A. And with that, I'll turn the call over to Charles. Thanks, Jeff.

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 1.25 over a quarter. This was attributable to continued growth in first lines for both rate actions and an increase in units. Commercial lines remain challenged as we continue 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 U.S. and Europe. We're expanding broker relationships in the U.K. 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 cash losses this quarter. A few proof points that are advances in pricing, risk selection, and portfolio management are really paying off. Let me provide some color in the results and outlook by line of business, starting with Canada. In personal auto, premiums grew 11% in the quarter, reflecting both redaction 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 1 point to 90.3%. Even in what tends to be a seedily favorable quarter, this was a very strong result. We remain confident with our guidance of sub-95 combined ratio for this business. Moving to personal products. 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% of 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 in SME in the mid-market space. While we remain keen to grow large accounts, We are very deliberate and disciplined where we go. 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&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. We remain focused on pricing and risk selection and see our UT&I combined ratio evolving towards 90% by the end of 26. In the U.S., premiums were flat year over year, marking an improvement from prior quarter. While growth was positive across most of our lines, we experienced a five-point drag from accounts and large properties. We see industry growth for U.S. specialty in the mid-single digit over the next 12 months. The combined ratio in the U.S. 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. While we did not experience significant cat 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 well-fired in the uk we started renewing direct lines policy art 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 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 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 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 12 performed industry ROE by at least 500 basis points every year. And with that, I'll turn the call over to our CFO, Ken Anderson.

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 light 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 U.S., our underwriting fundamentals are strong. In the U.K. and I, the underlying ratio increased by three points for higher large loss activity, more than offset improvements in the DLG portfolio. Moving to catastrophes. Second quarter losses totaled 137 million. from storms in Canada and a few large commercial fires across our regions. While CAAT 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 continue to be strong at 7.4% in the quarter, particularly in commercial lines with favourable development on prior year catastrophe losses in Canada and in the direct line book in the UK&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. 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 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. 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 margin 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 businesses demonstrated its strengths and resilience. We had a solid first half of 2025 with net operating income per share up 9% to $9.25. 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 Jeff.

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.

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 Lloyd at National Bank Financial. Please go ahead, James.

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

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 the past 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. 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. 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, Jane, 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 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 trade 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 clear, 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 U.S., as well as in the U.K., 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. If I, you know, maybe go by markets, as I said, you know, you look at Canada, for instance, into two, rates and exposure were close to four points. You looked at the U.S., rates and exposure were in the tree-ish sort of zone, and that's including the pressure we saw in large property. And then in 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. We're winning at the lower end of mid-market. We're winning at the lower end of the SME space. 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.

Okay, that's a 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?

We don't see that pressure. Okay, 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 call 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., 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.

Thank you. You're welcome.

Thanks. Next question will be from Bart Zarsky at RBC Capital Markets. Please go ahead, Bart.

Hi, Bart. Good morning, Charles. Thanks for taking the question. Just wanted to dive into distribution income a little bit. You talked about some of the weakness driven by onsite 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?

Yeah, we're quite... I'm quite bullish about the distribution growth profile. I'll let Ken unpack that.

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. 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. Earnings growth was a bit more tempered in a few segments. I'd point to MGAs in the US, which are operating in a competitive environment. And then, as you pointed out, onsite, we really like the counter-cyclical attributes of that business. Margins are improving there, but obviously with benign cap levels, that's 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. 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, you know, particularly in the continued consolidation of at broker link, 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.

Yeah, that's good. Again, I think it provides good, good, good perspective, you know, mid to long term are, 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 onsite. 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. Brokering 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, BrokerLink first, and then OnSite has 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.

Super. Very helpful and clear. Thanks, guys. Just one follow-up on James' lines of questioning. With a softening pricing environment in the U.S., 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 your investor day trying to capture more of that market. So is your thinking evolving on that front in the U.S. as a result of what's going on in the broader environment? So

The U.S. and our U.S. business and our U.S. team doing a great job. The combined ratio of performance are in the U.S. I start there because that's the key input in terms of how much appetite you should have to grow. That's how we think. You're north of seven points of combined ratio of performance in the U.S. 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 U.S. platform? One, we're expanding the product set within the 12 verticals within which we operate. 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 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 U.S. We have expertise in managing distribution. We like to build distribution profit. But if you invest in an MGA in the U.S., 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 impact. Now, we have a great global network. 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. 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. 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, combined ratio, and, you know, are we outperforming in the U.S., 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.

Very helpful. Thanks so much, guys. Thank you.

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

Thank you. Come on. 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, hey, 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.

But Guillaume, do you want to take a crack at that?

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 writing. 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. 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. 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 book. I think we have, Good hope that come the reform, the profitability will be restored, and that will happen kind of January 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 used the profitability in 2027.

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 the rate renewals are starting to flow. So, maybe a perspective on sort of where we are on a year-over-year basis. Thank you.

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

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 our subject matter. But industry is still unprofitable. 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. When we look at our rates, so growth has been double digit, seven quarter in a row, despite the recent 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 the point of now 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 really happy to be in that environment and continue investing in our growth there. Great, and great.

Bob Park 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 automobile It's 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.

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

You're welcome. Next question will be from Tom McKinnon at BMO. Please go ahead, Tom.

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 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 our muted premium growth have any impact on your ability to continue to do, I guess it's low 90s or better in the U.S. or a trend to low 90s by 2026 for the U.K. So a bit of a mouthful of a question, but hopefully you can tackle it.

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 combined ratio trajectory maybe in the U.K. and the U.S.

From the UK&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&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&I 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 UK&I. 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, 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, if I step back here and I look, there's a lot of focus on the comments we make on large companies pressure in large commercial lines. But, you know, if you step back and you look at the UK&I, the rate and exposure into two 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&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 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 UKNI business, which is about in the 92, 93 zone today. And just to take the improvement in the NIG performance, is in the six to seven points. Year on year. Year on year. Yeah. Just to put things in perspective, Tom. And we only have... Sorry, NIG? What's NIG? Oh, sorry. It's the direct line acquisition that we've done last year. Okay. 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. Why? Because we're wanting to make sure that that acquisition, which basically doubles our commercial lines position in UTCL, 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 is, in the UK and I is the deployment of grid 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. 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 U.K., which is to get to 90-ish percent. The U.S., I mean, U.S. 87.8 this quarter. You go back in time. I mean, this is a business that we said should run 90 percent or better. It's running below 90 percent 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. Ken, anything you want to add?

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

Maybe with respect to Overall, what you're saying in some terms and conditions or – Oh, sorry. I mean, you talk about overall premium growth, but, you know, that may not necessarily be the key thing. Yes. But any color on that?

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 condition 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 upset that, you know, with deductible and limits and other elements of terms and conditions, but not true across the portfolio.

Okay, thanks.

Thank you. Next question will be from Lamar Prasad at Cormark. Please go ahead, Lamar.

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 the 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.

No, I think that's it. I think you're coming up 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 entity of the cycles are whilers because there's a fair bit of delegation in the field. 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, 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 in 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 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.

That's very helpful. And then if I could just, you know, kind of follow up on that. Are these large accounts, large multinationals, because it's impacting other geographies outside of Canada? Is that the way to think about it? Yeah.

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

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're 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 cap 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?

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. Okay. Thanks. Thanks.

Thank you. Once again, ladies and gentlemen, a reminder to please press star 1 should you have any questions. Next question will be from Mario Mendonca at CB Securities. Please go ahead, Mario.

Good morning. I went back over the last three years, so 12 quarters, and looked for how many quarters we in fact reported where the PYD relative to net earned 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 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?

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

Maybe just on the higher level of this quarter, I think it's well 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. 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 terrific students here together. Because in that specific example, these two, by the way, represented about 1.5 points overall at PYD at the IFC level. And there's a very short period of time between the current accident here in the PYD when it's in such short tail lines. So that's one important point to note. In UKNI, I mean, this is recent acquisition 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.

And in the case of the UK&I, we're still building caution in the current accident here. So, that's why I wouldn't dismiss that and look at those things together. So, Mario, I mean, the way I think about the PYD range here, and keep in mind, the appointed actually decides where where they book the reserves and that's their business. And our view is that CYD 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 overly concerned about that, but automobile insurance is a four year duration product. And if you go back in time, that's where there's been pressure. Now we have much less automobile insurance in relative terms than we did a decade ago, but that is one thing 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 accident year and what we're seeing in the PYD shows that we've been conservative in relationship with the inflation that is materializing. 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 accident year and prior year together. 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 It's really important because we're in the risk-taking business.

Helpful. So, second question. I was reading an article, and this was about the U.S. 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 U.S. 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?

Yeah. Gil? No, Mario. We're not seeing any of that. Like, we're seeing a good penetration of our dual-line vehicles dual-end 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, 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. I'd say – that when it comes to what you call downgrading or under insurance and 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. Thank you. Welcome.

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

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.

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.