An unprecedented number of catastrophic weather events pushed Intact Financial Corp. and other insurers to record claims payouts in 2013, but industry profits are poised to rebound as weather disasters return to more normal levels.
Ice storm damage to homes, businesses and vehicles in December hit Intact hard, resulting in a 40-per-cent drop in fourth-quarter profit. On Wednesday, the company posted quarterly earnings of $107-million, down from $177-million for the same period a year earlier.
As the largest property and casualty insurer in the country, Intact is now leading the industry in hiking insurance rates by between 15 per cent and 20 per cent on average, changing up its product lineup and offering incentives for loss-prevention measures such as basement back-flow valves and alarm systems. With these changes, and other business improvements, the company, which controls about 17 per cent of the market, said it can improve its profitability.
“Throughout 2013, we continued to clearly demonstrate the quality of our operations and the resilience of our financials, as unprecedented weather events challenged our industry,” said Charles Brindamour, chief executive officer of Intact, in a statement.
The company was confident enough in its outlook to boost its quarterly dividend by 9 per cent, to 48 cents per common share. This is the ninth year in a row the company has increased its payout to shareholders.
But the quarterly results demonstrate how bad weather can hurt the bottom line. Largely because of ice storm damage, the company’s underwriting profits were halved to $67-million. Adjusted earnings per share were $0.88, down from $1.49. Analysts were expecting adjusted earnings per share of $1.21.
Annual results for 2013 were also hurt by severe weather events such as hail and the devastating flooding in Southern Alberta and Ontario, as well as a train derailment at Lac-Mégantic, Que. These catastrophes led to $781-million of insured losses at Intact, which was reduced to $530-million after factoring in reinsurance.
The insurer’s net profit for the 2013 fiscal year was $431-million, a 25-per-cent drop from the $571-million it earned the year before.
Intact has previously said that the entire insurance industry will need to make changes to accommodate the new reality of more frequent and severe natural disasters.
However, losses from natural catastrophes should be “less in 2014 from the record levels of the past year,” according to the company. Industry-wide insurance claims reached $3.2-billion in 2013, which is almost double the next highest year on record.
Losses in 2014 are not expected to climb to these levels, so profits should be higher across the industry.
“[Catastrophic weather events] are trending up, and that’s the right assumption going forward,” said Paul Holden, analyst at CIBC World Markets. “But 2013 was way above the trend.”
Other business lines outside of weather pose unique challenges. Intact said it remains confident that the drop in Ontario automotive insurance rates can be offset by various industry cost-reduction initiatives. The rates are being reduced by 15 per cent over the next two years.
Profitability for the entire property and casualty industry should improve in 2014, according to Mr. Brindamour. The executive said on a conference call that he expects better “combined ratios” from insurers, a key measure of underwriting profits. The ratio compares the amount an insurer pays out to the amount of premiums it takes in. The lower the ratio, the better a company's underwriting profits.