Intact Financial Corp T.IFC

RBC

[retiredcf]

March 28, 2023

Intact Financial Corporation 
Exiting U.K. Personal Auto market

TSX: IFC | CAD 192.00 | Outperform | Price Target CAD 228.00

Sentiment: Neutral

Summary: Intact announced that it was exiting the U.K. Personal Auto market and that existing customers would be introduced to Swinton Insurance (a brand of Atlanta Insurance Intermediaries Ltd. and part of Ardonagh Retail) at renewal. Intact's U.K. Personal Auto business has ~£120MM of direct premiums written (~1% of IFC's consolidated DPW). As a result, Intact's U.K. business still includes Personal Property, Pet and Commercial. Intact indicated that its existing optimization plans for the rest of its U.K. business combined with the U.K. Personal Auto exit is expected to result in muted top-line growth in 2023 as the company is targeting a low 90s combined ratio for UK&I.

In terms of other financial details:

• The U.K. Personal Auto segment will be reported in Exited Lines in Q1/23 onwards;

• Intact expects the remaining UK&I businesses to have a mid-90s combined ratio in 2023;

• Intact expects to have ~£35MM (~$59MM) of restructuring costs booked in Q1/23, primarily due to one-time write-off of

  intangibles;

• Proceeds from the agreement with Swinton will be received as policies are renewed, but are not expected to be material;

• Intact expects to release ~£60MM (~$100MM) of capital from its U.K. Personal Auto business over time as the segment runs

  off; and

• The transaction doesn't materially impact Intact's RSA acquisition targets (e.g., >20% IRR and ~20% operating EPS accretion).

  Our take: Neutral. It is not overly surprising that Intact is exiting the U.K. Personal Auto segment given its smaller market share and challenging industry conditions and coupled with last month's announcement of addressing its U.K. pension situation, increased the likelihood of Intact taking proactive steps to improve profitability of its UK&I segment, in our view.