Intact Financial CEO Charles Brindamour addresses shareholders in Toronto.MIKE CASSESE/Reuters
A harsh winter weather pushed profits at Intact Financial Corp. below expectations this week, but the insurer shook off the bad news by hinting it has its eye on acquisitions.
The company has $670-million in excess capital, according to chief financial officer Louis Marcotte, and its debt ratio is below target range. He told analysts on a conference call that Intact has no plans to renew its normal-course issuer bid (NCIB) – the company's share repurchase plan that expires on Monday. As it stands, Intact hasn't been active in buybacks since last year.
"We are pretty pumped actually about what is going on in the market," said CEO Charles Brindamour. He said that Intact would seek to use capital first for growth opportunities, second for paying dividends, and only look to share buybacks after that. Right now, management is looking to build the business.
" I think if you look at manufacturing position opportunities, if you look at distribution, acquisition opportunities, there is a fair bit going on at the moment on both fronts," Mr. Brindamour said.
The comment indicates that Intact is starting to think about how it could deploy the more than $1-billion in capital and debt available to it. The company has " lots of balance sheet capacity to make an accretive acquisition in the highly fragmented Canadian marketplace, not to mention a good track record," Tom MacKinnon, analyst at BMO Nesbitt Burns, wrote in a note to clients.
The long-awaited consolidation in the property and casualty insurance market has already begun to heat up in the past year with new entrants and mergers changing the shape of some largest players.
Co-operative financial giant Desjardins Group is edging toward Intact in heft – it is set to become Canada's second-largest property and casualty insurer after striking a deal for the Canadian arm of U.S. mutual insurer State Farm Life Insurance Co. at the beginning of the year. This would double the company's market share to 9 per cent. Intact has a 17-per-cent share, but has expressed an appetite to capture one quarter of the market.
Foreign competitors have also been expanding in Canada. U.S. insurer The Travelers Companies Inc. did a $1.13-billion deal for Dominion of Canada General Insurance Co., one of the country's oldest insurance brands, nearly a year ago. Travellers said it wants to grow in Canada as it diversifies away from its home market.
Intact's management team said they aren't yet feeling the heat from these big mergers, which are still being finalized and will take time to integrate.
"Does it change the market dynamic dramatically? Not at this stage, but the sort of moves that we are seeing certainly make sense to us," Mr. Brindamour said. He called Desjardins "really good operators" and said the "disciplined" staff of Travelers are doing work to improve the performance at Dominion.
Investors seemed to take the weather struggles and deals forecast in stride. The stock is little changed since before the company reported results on May 7.