Intact Financial Corporation President and Chief Executive Officer Charles Brindamour speaks during the annual general meeting of shareholders in Toronto May 4, 2011.Mike Cassese/Reuters
This time last year, Canada's largest property and casualty insurer's earnings dipped after a series of floods, hail and other disasters weighed heavily on its third quarter results.
The catastrophes haven't totally abated but Intact Financial Corp. said Wednesday that net profits soared by 330 per cent over last year, beating analyst expectations.
"We've spoken before, probably more times than we would have liked, about elevated [catastrophic] losses impacting our earnings," said Charles Brindamour, Intact's chief executive, on a conference call with analysts. "This quarter was in some ways more of the same, but the net result was much improved, as our actions are paying off."
Weather-related losses have been front and centre for the insurance industry since last year's floods in Alberta became Canada's costliest natural disaster, and thousands of homeowners struggled to rebuild their lives. Since then, Intact has led the market in adjusting deductibles and premiums, among other changes.
But personal property insurance is only one facet of Intact's business, and the Toronto-based insurer has bold growth plans. Here are three other things to watch for in the next 18 to 32 months:
Acquisitions
As John Aiken, analyst at Barclays Capital puts it, "investors continue to await the next significant acquisition."
Mr. Brindamour noted that Intact now has "close to half a billion dollars in excess capital," and that it would be interested in using to expand its leadership in Canada. But the company is also looking into expanding beyond Canada in a "prudent manner."
Right now, Intact has an estimated 17 per cent share of the market in Canada. Within the next five years Intact estimates that there will be 15 to 20 points of market share changing hands in the property and casualty industry. That follows about 10 per cent that has become available in the past three years, as the fragmented property and casualty market matures and consolidates. Intact nabbed more than half of the newly available share. "I think we've demonstrated then that when market share changes hands, we have an ability to act on that," Mr. Brindamour said.
But Intact has spent the last few years studying insurance markets around the world looking for international expansion opportunities. Earlier this year, the company made a $20-million investment in an insurance brokerage in Brazil, where the insurance business is projected to grow. The move will be used in part to gain international market expertise that could be used for future deals.
Ontario Auto Insurance
The provincial government has pledged to introduce insurance industry reforms aimed at cutting average auto insurance rates by 15 per cent by August next year. Intact said Wednesday the effort is progressing on both the insurers and government sides – it has reduced rates by an average of 5.3 per cent, with the overall market down 6 per cent.
But Mr. Brindamour said additional meaningful cost-reduction measures will be needed for the industry to hit reduction targets. The Ontario government is moving ahead with a bill that aims to curb fraud and settle claims quickly, which will help, but the government is also considering how else to help insurers cut costs so they can reduce rates.
Some concerns about the impacts of the regulatory changes still linger. "While management believes it can protect margins, lower premiums (with stable margins) will result in lower earnings contribution," said Doug Young, analyst with Desjardins Securities in a note to clients. "The next step in terms of potential cost benefits for the industry (to offset the remaining 8 to 9 per cent pending price cuts) would be adoption of a new definition for catastrophic injuries, which apparently is being discussed."
Still, the long-term outlook is positive, Mr. Brindamour said. "We are comfortable with our margins in this market and we'll continue to pursue growth opportunities."
Commercial Property & Casualty Insurance
Intact's commercial property and casualty insurance business boosted the company's results above expectations "after several difficult quarters, with one of its best ever performances," Mr. Brindamour said.
"The strong commercial P&C results were particularly impressive, especially after a weaker second quarter of 2014," said Tom MacKinnon, analyst with BMO Nesbitt Burns, wrote in a note. He said that some of the company's recent actions, such as increasing rates by 5 per cent and raising flood coverage deductibles, seemed to be making their way to the company's bottom line.
But Mr. Brindamour said more can be done. The company's "combined ratio," a key measure of profitability for property insurers, is still too high in this business when the whole year is taken into account, he said. The ratio compares the amount an insurer pays out in claims and other expenses to the amount of premiums it takes in. The lower the ratio, the better a company's underwriting profits. Right now, the year-to-date commercial business ratio is 96.7 per cent, although it was down to 84.7 per cent in the quarter.
"This is just not good enough. As such, our actions to improve the commercial lines portfolio will continue," Mr. Brindamour said. Mr. MacKinnon said he'd view further action favourably.