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Intact Financial Corporation reports Q2-2022 results

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·17 min read
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Cision

(in Canadian dollars except as otherwise noted)

TORONTO, July 28, 2022 /CNW/ - (TSX: IFC)

Highlights

  • Net operating income per share1 was $3.14 with meaningful accretion from RSA and strong investment and underwriting results

  • Operating DPW2 grew 36% in the quarter, driven by the RSA acquisition and 4% organic growth, led by commercial lines

  • Operating combined ratio1 of 90.7% was strong across all geographies, but higher than last year mainly due to catastrophe losses

  • EPS of $6.64 in the quarter reflecting strong operating results, significant gains on investments and the sale of Codan Denmark

  • OROE1 of 15.4% and ROE1 of 18.5% reflecting robust operating and non-operating performance

  • Total capital margin remains strong at $2.5 billion despite a volatile macroeconomic environment

  • After one year, NOIPS1 accretion from the RSA acquisition was well above expectations at 15%, and integration remains on track

Charles Brindamour, Chief Executive Officer, said:

"We delivered strong results in Q2-2022 with contribution from all segments. In the one year since the close of the RSA acquisition, we have achieved $175M in run-rate synergies and greatly strengthened our Canadian and specialty lines platforms. We remain optimistic about the growth opportunities across our business and particularly in specialty lines. We expect that our disciplined underwriting and deep claims expertise will continue to be assets in navigating inflation pressures, climate change and evolving driving patterns."

Consolidated Highlights1




(in millions of Canadian dollars except as otherwise noted)

Q2-2022

Q2-2021

Change

H1-2022

H1-2021

Change

Operating direct premiums written1

5,807

4,297

36 %

10,485

6,819

54 %

Direct premiums written

6,238

4,414

41 %

11,331

6,957

63 %

Operating combined ratio1

90.7 %

86.7 %

4.0 pts

91.2 %

87.8 %

3.4 pts

Underwriting income1

441

464

(5) %

837

761

10 %

Operating net investment income1

211

154

37 %

416

295

41 %

Distribution income1

141

118

19 %

233

180

29 %

Net operating income attributable to common shareholders1

553

502

10 %

1,028

846

22 %

Net income

1,184

573

107 %

1,631

1,087

50 %

Per share measures (in dollars)







Net operating income per share (NOIPS)1

$3.14

$3.26

(4) %

$5.84

$5.69

3 %

Earnings per share (EPS)

$6.64

$3.59

85 %

$9.17

$7.10

29 %

Return on equity for the last 12 months







Operating ROE1

15.4 %

19.8 %

(4.4) pts




ROE

18.5 %

19.6 %

(1.1) pts




Book value per share (in dollars)1

$80.86

$77.67

4 %




Total capital margin

2,479

2,558

(79)




Adjusted debt-to-total-capital ratio1

20.3 %

24.1 %

(3.8) pts














___________________________________________

1 This press release contains non-GAAP financial measures and Non-GAAP ratios (each as defined in National Instrument 52-112 "Non-GAAP and Other Financial Measures Disclosure". Refer to Section 19 – Non-GAAP and other financial measures in the Q2-2022 Management's Discussion and Analysis for further details.

2 DPW change (growth) is presented in constant currency

Common Share Dividend

  • The Board of Directors approved the quarterly dividend of $1.00 per share on the Company's issued and outstanding common shares. The dividend is payable on September 30, 2022, to all shareholders of record as at September 15, 2022.

Normal Course Issuer Bid

  • As at June 30, 2022, the Company had repurchased and cancelled 556,440 common shares for approximately $100 million under its normal course issuer bid ("NCIB") program. The NCIB program allows to purchase for cancellation up to 5,282,458 common shares until February 15, 2023, representing approximately 3% of the Company's issued and outstanding common shares as at February 8, 2022.

12-Month Industry Outlook

  • Over the next twelve months, we expect firm-to-hard insurance market conditions to continue in most lines of business, supported by high pre-pandemic combined ratios, inflation, and climate change.

  • In Canada, we expect firm market conditions to continue in personal property. Personal auto premium growth is expected to progress towards the mid-single-digit range to reflect inflation and evolving driving patterns.

  • In commercial lines, in both the US and Canada, hard market conditions are expected to continue.

  • In the UK&I, hard market conditions are expected to continue across commercial lines. In personal lines, near term industry growth levels are uncertain as companies navigate pricing reforms and inflation.

Segment Results

(in millions of Canadian dollars except as otherwise noted)

Q2-2022

Q2-2021

Change

H1-2022

H1-2021

Change

Operating direct premiums written




Canada

4,047

3,051

33 %

6,956

5,176

34 %

UK&I

1,157

n/a

n/a

2,456

n/a

n/a

US

603

512

14 %

1,073

909

16 %

Corporate (RSA - June 2021)

n/a

734

nm

n/a

734

nm

Total

5,807

4,297

36 %

10,485

6,819

54 %

Operating combined ratio




Canada

90.6 %

85.0 %

5.6 pts

90.4 %

86.5 %

3.9 pts

UK&I

91.3 %

n/a

n/a

95.2 %

n/a

n/a

US

91.1 %

90.3 %

0.8 pts

89.0 %

93.3 %

(4.3) pts

Corporate (RSA - June 2021)

n/a

90.7 %

n/a

n/a

90.7 %

nm

Total

90.7 %

86.7 %

4.0 pts

91.2 %

87.8 %

3.4 pts

Underwriting income




Canada

312

374

(62)

633

656

(23)

UK&I

89

n/a

n/a

101

n/a

n/a

US

38

37

1

93

51

42

Corporate and Other

2

(4)

6

10

(3)

13

RSA – June 2021

n/a

57

n/a

n/a

57

nm

Total

441

464

(23)

837

761

76

Q2-2022 Insurance Business Performance

  • Operating DPW growth of 36% in constant currency mainly reflected the RSA acquisition. Organic growth was 4%, led by 7% growth in commercial lines.

  • Operating combined ratio was strong at 90.7%, but 4.0 points higher than last year due to a $175 million increase in catastrophe losses. The operating combined ratio in Canada was a solid 90.6%, 5.6 points above last year, driven by higher catastrophe losses and driving activity, partially offset by a reduction in variable commissions. In the UK&I, the operating combined ratio was a strong 91.3% in a seasonally favourable quarter. In the US, the operating combined ratio of 91.1% was in line with expectations.

Lines of Business

P&C Canada

  • Personal auto premiums grew by 28%, driven by RSA and 1% organic growth. The operating combined ratio was a strong 89.8%, but 7.4 points higher than last year reflecting increased driving activity and higher severity driven in part by inflation. This was offset in part by lower variable commissions. Although driving activity was up from the prior year, claims frequency remained below pre-pandemic levels.

  • Personal property premiums grew by 28%, driven by RSA and 6 points of organic growth in firm market conditions. The operating combined ratio of 97.6% was 14.3 points higher than last year as a result of elevated weather activity, compared to very mild weather in the comparable period.

  • Commercial lines premium growth of 42% was driven by RSA and strong organic growth of 7%, supported by hard market conditions. The operating combined ratio improved by 3.6 points to a very strong 86.0%, helped by our profitability actions over time and lower variable commissions.

  • Distribution income grew by 19%, driven by accretive acquisitions over the past 12 months and higher income from our On Side Restoration business.

P&C UK&I

  • Personal lines operating DPW was $424 million. We remained disciplined in competitive market conditions, with recent pricing reforms impacting UK home and motor. The strong operating combined ratio of 88.3% reflects 5.2 points of favourable development in catastrophe losses driven by a revised estimate of the February windstorms, bolstered by favourable seasonality in Q2.

  • Commercial lines operating DPW was $733 million in hard market conditions. The operating combined ratio was 93.6%, reflecting elevated catastrophe losses, offset in part by a lower-than-expected expense ratio.

P&C US

  • US Commercial premium growth was strong at 14% driven by new business, increased exposures, and rate increases in favourable market conditions. The operating combined ratio remained solid at 91.1%, and 0.8 points higher than last year due to non-weather catastrophe losses.

Investments

  • Operating net investment income of $211 million for the quarter increased 37% year-over-year, mainly driven by the RSA acquisition and higher yields captured against the backdrop of rising interest rates.

  • Net gains excluding FVTPL bonds of $400 million reflects significant gains on equity securities as we repositioned certain portfolios in a volatile environment.

Net Operating Income, EPS and ROE

  • Net operating income attributable to common shareholders of $553 million is up 10% from a year ago, reflecting a meaningful contribution from the RSA acquisition and strong investment and underwriting results, offset in part by higher catastrophe losses.

  • Earnings per share of $6.64 was 85% higher than last year, as robust operating results were bolstered by realized gains on investments and the sale of RSA's Danish business, Codan Forsikring A/S ("Codan Denmark").

  • Operating ROE of 15.4% and ROE of 18.5% for the 12 months to June 30, 2022 reflected strong performance across the business.

Balance Sheet

  • The Company ended the quarter in a strong financial position, with a total capital margin of $2.5 billion, in line with Q1-2022 levels.

  • IFC's book value per share (BVPS) of $80.86 as at June 30, 2022 increased 4% from a year ago driven by strong earnings, partially offset by mark-to-market losses on our investments due to the increase in interest rates and the recent volatility in capital markets.

  • The adjusted debt-to-total capital ratio decreased to 20.3% as at June 30, 2022, in line with our long term target, as proceeds from the sale of Codan Denmark were used to pay down debt during the quarter.

RSA Acquisition

  • RSA contributed approximately 15% to NOIPS for the 13-month period since closing. Given the overall strength of Intact's results, double-digit accretion is evidence of the quality of the acquired businesses.

  • We remain on track to realize at least $250 million of pre-tax annual run-rate synergies in 2024. As at June 30, 2022 we estimate that we have delivered $175 million in run-rate synergies.

  • Integration activities are progressing well. In Canada, policy conversion in the broker channel remains a top priority. In Q2, we started the conversion of the larger Commercial lines policies, while nearly 85% of Personal lines broker policies and Commercial lines small business and fleet policies have been converted to Intact systems to date.

  • On May 2, 2022, the sale of Codan Denmark to Alm. brand A/S Group was completed for a total base cash consideration of DKK 12.6 billion ($2.3 billion), subject to post-closing adjustments. IFC received 50% of the proceeds.

  • On July 7, 2022 we completed the sale of our 50% stake in RSA Middle East to National Life & General Insurance Company (NLGIC), majority owned by Oman International Development and Investment Co. (OMINVEST) for proceeds of approximately $175 million (USD135 million), subject to post-closing adjustments.

Preferred Share Dividends

The Board of Directors also approved a quarterly dividend of 21.225 cents per share on the Company's Class A Series 1 preferred shares, 21.60625 cents per share on the Class A Series 3 preferred shares, 32.5 cents per share on the Class A Series 5 preferred shares, 33.125 cents per share on the Class A Series 6 preferred shares, 30.625 cents per share on the Class A Series 7 preferred shares, 33.75 cents per share on the Class A Series 9 preferred shares, and 32.8125 cents per share on the Class A Series 11 preferred shares. The dividends are payable on September 30, 2022, to shareholders of record as at September 15, 2022.

Analysts' Estimates

  • The average estimates of earnings per share and net operating income per share for the quarter among the analysts who follow the Company were $3.36 and $2.71, respectively.

Management's Discussion and Analysis (MD&A) and Consolidated Financial Statements

This Press Release, which was approved by the Company's Board of Directors on the Audit Committee's recommendation, should be read in conjunction with the Q2-2022 MD&A as well as the Q2-2022 Consolidated Financial Statements, which are available on the Company's website at www.intactfc.com and later today on SEDAR at www.sedar.com.

For the definitions of measures and other insurance-related terms used in this Press Release, please refer to the MD&A and to the glossary available in the "Investors" section of the Company's website at www.intactfc.com.

Conference Call Details

Intact Financial Corporation will host a conference call to review its earnings results tomorrow at 10:00 a.m. ET. To listen to the call via live audio webcast and to view the Company's Financial Statements, MD&A, presentation slides, Supplementary financial information and other information not included in this press release, visit the Company's website at www.intactfc.com and link to "Investors". The conference call is also available by dialing 416-764-8659 or 1-888-664-6392 (toll-free in North America). Please call 10 minutes before the start of the call. A replay of the call will be available on July 29, 2022 at 2:00 p.m. ET until midnight on August 5, 2022. To listen to the replay, call 416-764-8677 or 1-888-390-0541 (toll-free in North America), entry code 018351. A transcript of the call will also be made available on Intact Financial Corporation's website.

About Intact Financial Corporation

Intact Financial Corporation (TSX: IFC) is the largest provider of property and casualty (P&C) insurance in Canada, a leading provider of global specialty insurance, and, with RSA, a leader in the U.K. and Ireland. Our business has grown organically and through acquisitions to over $20 billion of total annual premiums.

In Canada, Intact distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly-owned subsidiary BrokerLink, and directly to consumers through belairdirect. Intact also provides affinity insurance solutions through the Johnson Affinity Groups.

In the US, Intact Insurance Specialty Solutions provides a range of specialty insurance products and services through independent agencies, regional and national brokers, and wholesalers and managing general agencies.

Outside of North America, the Company provides personal, commercial and specialty insurance solutions across the U.K., Ireland, and Europe through the RSA brands.

Non-GAAP and other financial measures

Non-GAAP financial measures and Non-GAAP ratios (which are calculated using Non-GAAP financial measures) do not have standardized meanings prescribed by IFRS (or GAAP) and may not be comparable to similar measures used by other companies in our industry. Non-GAAP and other financial measures are used by management and financial analysts to assess our performance. Further, they provide users with an enhanced understanding of our financial results and related trends, and increase transparency and clarity into the core results of the business.

Non-GAAP financial measures and Non-GAAP ratios used in this Press Release and the Company's financial reports include measures related to our consolidated performance, our underwriting performance and our financial strength.

For more information about these supplementary financial measures, Non-GAAP financial measures, and Non-GAAP ratios, including definitions and explanations of how these measures provide useful information, refer to Section 19 – Non-GAAP and other financial measures in the Q2-2022 MD&A dated July 28, 2022, which is available on our website at www.intactfc.com and on SEDAR at www.sedar.com.

Table 1 Reconciliation of NOI, NOIPS and OROE to Net income attributable to shareholders, as reported under IFRS


Q2-2022

Q2-2021

H1-2022

H1-2021

Net income attributable to shareholders, as reported under IFRS

1,183

566

1,642

1,080

Remove: pre-tax non-operating losses (gains)

(697)

(6)

(697)

(178)

Remove: non-operating tax expense (benefit)

89

(45)

136

(30)

Remove: non-operating component of NCI

(6)

-

(24)

-

NOI

569

515

1,057

872

Remove: preferred share dividends

(16)

(13)

(29)

(26)

NOI attributable to common shareholders

553

502

1,028

846

Divided by weighted-average number of common shares (in millions)

175.8

153.9

175.9

148.5

NOIPS, basic and diluted (in dollars)

3.14

3.26

5.84

5.69

NOI to common shareholders for the last 12 months

2,199

1,698


Adjusted average common shareholders' equity, excluding AOCI

14,275

8,567


OROE for the last 12 months

15.4 %

19.8 %


Table 2 Reconciliation of Operating DPW to DPW


Q2-2022

Q2-2021

H1-2022

H1-2021






DPW, as reported under IFRS

6,238

4,414

11,331

6,957

Remove: impact of industry pools and fronting

(300)

(114)

(585)

(133)

Remove: DPW from exited lines

(149)

(5)

(290)

(7)

Add: impact of the normalization for multi-year policies

18

2

29

2






Operating DPW, as reported in the MD&A

5,807

4,297

10,485

6,819

Operating DPW growth

35 %

27 %

54 %

16 %

Operating DPW growth (in constant currency)

36 %

29 %

54 %

17 %






Table 3 Reconciliation of Underwriting income to Underwriting income as reported under IFRS


Q2-2022

Q2-2021

H1-2022

H1-2021






Net earned premiums, as reported under IFRS

4,902

3,508

9,793

6,285

Other underwriting revenues, as reported under IFRS

78

45

151

80

Net claims incurred, as reported under IFRS

(2,585)

(1,857)

(5,132)

(3,288)

Underwriting expenses, as reported under IFRS

(1,640)

(1,272)

(3,237)

(2,228)

Underwriting income (loss), as calculated under IFRS

755

424

1,575

849

Remove: impact of MYA on underwriting results

(363)

29

(829)

(117)

Remove: non-operating pension expense

14

16

27

32

Remove: underwriting loss (income) from exited lines

35

(5)

64

(3)

Underwriting income (loss), as reported in the MD&A

441

464

837

761

Operating NEP

4,758

3,482

9,500

6,241






Operating combined ratio

90.7 %

86.7 %

91.2 %

87.8 %

Table 4 Reconciliation of Operating net claims to Net claims incurred, as reported under IFRS


Q2-2022

Q2-2021

H1-2022

H1-2021






Net claims incurred, as reported under IFRS

2,585

1,857

5,132

3,288

Remove: positive (negative) impact of MYA on underwriting results

363

(29)

829

117

Remove: adjustment for non-operating pension expense

(5)

(6)

(10)

(12)

Remove: net claims from exited lines

(118)

(12)

(233)

(26)

Net with: other underwriting revenues

(11)

-

(21)

-






Operating net claims, as reported in the MD&A

2,814

1,810

5,697

3,367

Remove: net current year CAT losses

(248)

(73)

(430)

(125)

Remove: favourable (unfavourable) PYD

179

136

402

286






Operating net claims excluding current year CAT losses and PYD

2,745

1,873

5,669

3,528

Operating NEP

4,758

3,482

9,500

6,241

Remove: reinstatement premiums ceded (recovered)

3

-

3

1

Operating NEP before reinstatement premiums

4,761

3,482

9,503

6,242






Underlying current year loss ratio1

57.6 %

53.8 %

59.6 %

56.6 %

CAT loss ratio (including reinstatement premiums) 1

5.3 %

2.1 %

4.6 %

2.0 %

(Favourable) unfavourable PYD ratio2

(3.8) %

(3.9) %

(4.2) %

(4.6) %

Claims ratio2

59.1 %

52.0 %

60.0 %

54.0 %

1 Calculated using Operating NEP before reinstatement premiums.

2 Calculated using Operating NEP.

Table 5 Reconciliation of Operating net underwriting expenses to Underwriting expenses as reported under IFRS


Q2-2022

Q2-2021

H1-2022

H1-2021






Underwriting expenses, as reported under IFRS

1,640

1,272

3,237

2,228

Net with: other underwriting revenues

(67)

(45)

(130)

(80)

Remove: adjustment for non-operating pension expense

(9)

(10)

(17)

(20)

Remove: underwriting expenses from exited lines

(61)

(9)

(124)

(15)

Operating net underwriting expenses, as reported in the MD&A

1,503

1,208

2,966

2,113

Commissions

787

673

1,528

1,155

General expenses

583

422

1,172

747

Premium taxes

133

113

266

211

Operating NEP

4,758

3,482

9,500

6,241

Commissions ratio

16.6 %

19.4 %

16.1 %

18.5 %

General expenses ratio

12.2 %

12.1 %

12.3 %

11.9 %

Premium taxes ratio

2.8 %

3.2 %

2.8 %

3.4 %

Expense ratio

31.6 %

34.7 %

31.2 %

33.8 %

Table 6 Reconciliation of ROE to Net income attributable to shareholders, as reported under IFRS


Q2-2022

Q2-2021

H1-2022

H1-2021






Net income attributable to shareholders

1,183

566

1,642

1,080

Remove: preferred share dividends

(16)

(13)

(29)

(26)






Net income attributable to common shareholders

1,167

553

1,613

1,054

Divided by weighted-average number of common shares (in millions)

175.8

153.9

175.9

148.5

EPS, basic and diluted (in dollars)

6.64

3.59

9.17

7.10





Net income attributable to common shareholders for the last 12 months

2,573

1,740


...