Intact Financial Corporation
All along, along, there were incidents and accidents...but You Can’t Call Me Al: IFC pre- releases Q3/21 cat losses
Our view: Although there wasn’t a major catastrophe in Q3/21 (e.g., 2016’s Fort McMurray wildfire, 2013’s Toronto and Calgary flooding), we think today's announcement was not totally unexpected given the relative frequency of catastrophes (or perceived potential catastrophes) during the quarter. Using IFC's current valuation multiple (2.1x P/BV), the higher- than-forecast catastrophes implies an ~$1.75/share (or ~1%) impact to IFC's share price. We adjust our price target down $2 to $195 (from $197), but maintain our Outperform rating. Bigger picture, we like IFC’s blend of positive fundamentals, defensive attributes, attractive valuation and potential positive catalysts (e.g., de-risking of the RSA acquisition via divestitures and/or an asset swap).
Key points:
Details from press release: Intact pre-released Q3/21 catastrophe losses of ~$365MM (pre-tax), which compares to our prior estimate of ~$174MM (from late July). The company noted the claims mostly reflected severe weather events (rain, hail, etc.) in Alberta, Ontario and Atlantic Canada, flooding in the U.K. and Hurricane Ida. IFC further noted ~60% of the losses were in Canada (2/3 Personal Property) and that of the losses outside of Canada, ~75% were UK&I Commercial Lines and ~10% were U.S. Commercial Lines. The company estimates the after-tax impact to EPS is ~ $1.59 for the quarter.
IFC reports Q3/21 results on November 9; conference call November 10 at 11am ET. Things we’ll be looking for in the quarter: (1) first full quarter results from RSA UK&I (also new disclosures this quarter); (2) Personal Auto’s (Canada) combined ratio given the increased traffic levels this past quarter (see our October 4, 2021 RBC Global Traffic Trends note here) and the company’s outlook on premium growth; (3) updates on rate momentum within Personal Property (Canada); (4) US Commercial combined ratio performance; and (5) incremental disclosures related to the RSA acquisition/de-risking thereof.
Our Q3/21 financial forecasts: (1) Operating EPS of $1.93 (vs. $3.26 Q/Q and $2.78 Y/Y); (2) consolidated combined ratio of 95.0% (vs. 86.7% Q/Q and 87.1% Y/Y); (3) book value per share (incl. AOCI) of $78.00 (vs. $77.67 Q/Q and $56.22 Y/Y).
Lowering 12-month price target to $195/share (was $197) but maintaining Outperform rating. Introducing 2023 forecasts. Our reduced price target primarily reflects lower financial forecasts as a result of the higher-than-forecast catastrophe losses in Q3/21.