Our view: Positive. IFC reported another strong quarter with ROE of 17% or greater for the 4th consecutive quarter and EPS that was well ahead of our forecast and consensus. We think IFC is attractively valued trading at 2.2x P/BV, yet is delivering very good fundamentals, has defensive attributes and further valuation upside from potential value creation from the RSA acquisition (e.g., de-risking the deal through non-core asset sales, asset swaps, etc.).
First impression
Q1/21 operating EPS of $2.40 was well ahead of our forecast of $2.08 and consensus of $2.16 (consensus range of $1.84 to $2.61). The better-than- forecast EPS was largely driven by lower-than-forecast claims (combined ratio of 89.2% was much better than our 91.8% forecast) as a result of much better-than-forecast prior-year development ($150MM vs. our $45MM forecast).
Q1/21 combined ratio was 89.2%, which was better than our 91.8% forecast and consensus of 91.4% (range of 89.8% to 93.5%). On a segmented basis, combined ratios were: (1) Personal Auto at 93.4% (vs. our forecast of 87.2% and consensus of 91.5%); (2) Personal Property at 77.4% (vs. our forecast of 85.8% and consensus of 85.9%); (3) Commercial Lines (Canada) at 90.1% (vs. our forecast of 97.6% and consensus of 94.4%); and (4) U.S. Commercial P&C at 96.3% (vs. our forecast of 101.7% and consensus of 94.2%).
Other key takeaways: (1) distribution income growth guidance for 2021 was increased to mid- to upper-teens; (2) On Side Restoration completed 2 acquisitions during the quarter (in Manitoba and Quebec); and (3) as previously announced, the RSA acquisition is expected to close on June 1, 2021, after the High Court of Justice in England and Wales in London formally approved the transaction.
Conference call today (Wednesday) at 11am ET; dial-in: 1-888-231-8191 or (647) 427-7450 (link to live webcast on Intact’s website).