Intact Financial Corporation
November Rain: Q4 catastrophe losses were better than our forecast
Our View: Intact’s Q4/21 catastrophe losses were better than forecast ($186MM vs. RBC at $201MM). Bigger picture, Intact is our #1 best idea for 2022 based on positive fundamentals, potential catalysts and strong defensive attributes, yet trades at a P/BV valuation multiple near historical lows.
Key points:
Summary: Intact announced Q4/21 catastrophe losses of $186MM pre- tax ($0.80/share after-tax), with ~55% of it coming from Canada (of which about 50% was in Personal Property, due to B.C. floods in November and windstorms in Ontario and Quebec); ~20% from UK & International; and 5% from U.S. specialty lines. The remaining amount will be included in Corporate & Other as a result of internal reinsurance.
Our take: The $186MM of catastrophe losses were better than our $201MM forecast. Despite another quarter of elevated catastrophes, we forecast a combined ratio of 93.2% for Q4/21 and 90.0% for 2021.
Why Intact is our #1 best idea for 2022: (1) positive fundamentals (e.g., 16% LTM operating ROE); (2) attractive valuation (2.08x P/BV, almost at recent historical lows); (3) potential catalyst(s) (e.g., monetizations or asset swap of non-Canadian RSA businesses); and (4) strong defensive attributes (Intact is the most defensive stock within our coverage and historically has also consistently outperformed the S&P/TSX Composite, Canadian Banks, Canadian Lifecos and Canadian Financials during major market downturns). For more details, please see our 2022 sector coverage outlook report on January 4, 2022 (“Canadian Diversified Financials - The Blind Side: 2022 Outlook”).
Maintaining Outperform rating and 12-month price target of $200/share.