Intact Financial Corporation
Good Q1/23 results with Personal Auto performing well
Our View: We think IFC delivered very good Q1/23 results. Operating EPS was ahead of our forecast and consensus and results were largely in line with our forecasts across IFC’s segments. Of note, we think there is some investor concern about Personal Auto given commentary from certain U.S./ U.K. auto writers, but IFC’s Personal Auto’s results and commentary did not suggest they are experiencing the same issues. Big picture, IFC continues to deliver positive fundamentals and we think the shares could benefit in the current market environment given increasing market uncertainty. While IFC’s shares may not perform as well in a market recovery scenario, we still view IFC as a core holding, reflecting positive company/industry fundamentals and strong track record of growth and profitability; potential catalyst(s); defensive attributes; and a reasonable valuation.
Key points:
Q1/23 operating EPS of $3.06 was ahead of our $2.89 forecast and $2.95 consensus (range: $2.66 – $3.29) with the variance to our forecast primarily driven by higher-than-forecast underwriting income, although we note the implementation of IFRS 17 in Q1/23 introduced a significant amount of accounting noise and reduced claims expense on a consolidated basis.
Q1/23 direct premiums written (DPW) of $4.8B were in line with our $4.9B forecast.
Other takeaways: (1) in Personal Auto, IFC indicated written rates and insured values increased by almost +900bps in Q1/23 with earned rates now at +6% trending to +9%. On the loss side, claims severity was down -200bps Q/Q and in that context, IFC thinks this should give confidence that they can remain in the <95% combined ratio area for the foreseeable future; (2) while we are only halfway through Q2, IFC indicated the Alberta wildfires and Quebec/Ontario weather storms collectively so far don’t seem to be creating concern that cat losses in Q2 might exceed IFC’s expectations; (3) IFC is now guiding to >$1.2B of investment income in 2023; and (4) in Canada Commercial, DPW growth was unexpectedly down -1% Y/Y (it was up +20% Y/Y in 2022) with IFC indicating both targeted actions to optimize its portfolio and the loss of a few large accounts in specialty lines (in one case IFC did not offer renewal due to a deteriorating risk profile and others where IFC chose not to match competitor pricing).
Lowering 12-month target to $229/share (was $232), but maintaining our Outperform rating. The reduced target primarily reflects a lower-than- forecast BVPS for Q1/23.