While continuing to see Intact Financial Corp.  as a market leader and expecting it generate a mid-teens return on equity going forward, Raymond James analyst Stephen Boland downgraded its shares to “outperform” from “strong buy” following “solid” third-quarter results, projecting a limited return to his target and believing valuation ranges in the sector are unlikely to increase in the near term.

“The stock has significantly outperformed the TSX year-to-date (up 19.4 per cent vs down 8.8 per cent), and at 2.0 times our 2023 estimated BVPS, it remains in-line with its 5-year average,” he said in a note titled Still an Outperformer. “However, we may be heading into an environment where premium growth rates slow due to the industry reporting higher investment yields.”

Shares of the Toronto-based property and casualty insurance company fell 5.2 per cent on Wednesday after it reported “another quarter of material cat [catastrophe] losses.” Net operating income per share came in at $2.70, below both Mr. Boland’s $3.12 estimate and the consensus projection of $2.76. 

“IFC did not pre-release its cat losses this quarter which resulted in a wide range of estimates,” the analyst said. “The company reported a combined ratio of 92.6 per cent. Commercial lines across each geography are benefiting from the continued firm/hard markets though there are indications that premium increases are slowing. Personal Auto in Canada reported a higher combined ratio (93.0 per cent vs 85.1 per cent year-over-year) and the UKI Personal lines segment reported a 105.5-per-cent combined ratio.

“Management has commented that markets are expected to remain firm for the next 12 months due to inflation and reinsurance costs. Of concern is the rising combined ratio in Canadian Personal Auto and slowing premium growth (negative this quarter).”

Mr. Boland maintained a $229 target for Intact shares. The average is $220.36.

Elsewhere, Scotia’s Phil Hardie raised his target to $224 from $221 with a “sector outperform” rating. 

“Heading into its Q3/22 earnings release, Intact stock was up almost 25 per cent year-to-date, and traded at 2.55 times P/B,” said Mr. Hardie. “In that context, the bar was set relatively high. Following a string of earnings beats, third-quarter results saw Op. EPS and BVPS fall a bit short of expectations, with investors sending the stock down by mid-single digits. In the face of challenges related to inflation, cat losses, and financial market volatility, we believe the underlying results were relatively solid. Underwriting profitability was in line with expectations, investment income was ahead of forecast, near-term guidance remained unchanged, and the pricing environment’s outlook remains constructive. In our view, there were no significant concerns or challenges to our investment thesis stemming from the results. We think the shortfall in BVPS would justify the stock weakening by 2-3 per cent and would be buyers on any additional softness.”