Intact Financial Corp T.IFC.PR.G

TD

[retiredcf]

Intact Financial Corp.

(IFC-T) C$202.71

Q1/23: Improving Topline Momentum Through Pricing Event

IFC reported Q1/23 operating EPS of $3.06 (up 5% y/y) vs. our estimate of $2.92 (consensus: $2.95), reflecting strong underwriting results, offset by a lower net investment result. Both underwriting income and net investment income are affected by changing interest rates under IFRS 17. Specifically, while regular net investment income was up 44% y/y, higher interest rates drove a materially higher discount rate applied in calculating the unwinding of claims liabilities. Previously both the favorable discount build and unfavorable unwind were reported in underwriting income. In periods of stable interest rates, the unwinding of claims liabilities discounting should not impact y/y comparisons materially.

BV was down 6% q/q (UK pension de-risking), and TTM OROE was 14.3% (forecast 13.7%).

Impact: POSITIVE

• Operating DWP was up 3% y/y and reflected very strong results in the U.S. The exit of personal auto in the UK drove DWP down 1% y/y. In Canada, personal property and commercial reported growth in DWP of 6% and 0% y/y, respectively, reflecting firm markets. In commercial, targeted exits and specialty competition hurt topline growth. Personal auto topline growth improved to 3% y/y this quarter, resulting from a firming market, including high-single-digit price increases. IFC remains ahead of market in taking rate increases, which has hurt volume growth.

• Underwriting income of $613mm was up 15% y/y and reflected a combined ratio (CR) of 87.4%, ~150bps better than last quarter. Excluding the effects of discounting of claims liabilities, the CR was 91.9%, in line with last year and consistent with our forecast of 92%. The remainder of this discussion is on an undiscounted basis. Canadian personal auto CR was up 340bps y/y to 97.1% (95% forecasted), reflecting the expected increase in severity (including theft and inflation). The CR in Canadian personal and commercial lines came in comfortably below our forecast.

  TD Investment Conclusion

  We expect the ROE to trend towards 16% in 2023 without the benefit of buybacks. Applying a target P/B (excluding AOCI) of 2.5x, we arrive at our target price of $225.00 (down from $230.00). We continue to believe IFC's stable BV/share growth and resilient business model support our target price and BUY rating.