Intact Financial Corp IFZZF

RBC

[retiredcf]

July 28, 2021

Outperform

Price Target CAD 196.00

Intact Financial Corporation

Sweeeeet bottom line...dah dah dah...Good times never seemed so good

Our view: Positive. IFC reported yet another very good quarter. Although better-than-forecast results at Personal Auto were a key contributor, IFC delivered solid results across its various segments and strong distribution income growth.

Q2/21 operating EPS of $3.26 was well above our forecast of $2.50 and consensus of $2.39 (consensus range of $1.95 to $2.55). The better- than-forecast EPS was largely driven by better-than-forecast underwriting income (combined ratio of 86.7% was much better than our 91.2% forecast) and to a lesser extent higher-than-forecast distribution income.

Q2/21 combined ratio was 86.7%, which was much better than our 91.2% forecast and consensus of 91.1% (range of 90.0% to 92.1%). A word of caution on segment results as our forecasts integrated RSA as of June 1 into each of IFC's segments (e.g., Canada Auto, Canada Property and Canada Commercial), but Intact's Q2/21 results included all of RSA (including the Canadian business) in the Corporate & Other segment. As a result, IFC results for Personal Auto, Personal Property, Commercial Canada and RSA UK&I are not apples-to-apples, but given it was only 1 month of operations from RSA and that in Canada, RSA is smaller compared to Intact, the noise is lessened. Taking this into account, on a segmented basis, combined ratios were: (1) Personal Auto at 82.4% (vs. our forecast of 89.4% and consensus of 89.3%); (2) Personal Property at 83.4% (vs. our forecast of 85.7% and consensus of 89.2%); (3) Commercial Lines (Canada) at 89.6% (vs. our forecast of 92.6% and consensus of 92.5%); (4) U.S. Commercial P&C at 90.3% (vs. our forecast of 98.3% and consensus of 93.3%); (5) RSA UK&I (1- month) at 92.4% (vs. our forecast of 96.7%) and RSA Canada (1-month) at 88.1%.

Other key takeaways: (1) Intact anticipates distribution income growth to be “mid-teens” for the remainder of the year vs. +48% Y/Y YTD; (2) Intact provided an additional $30MM of premium relief to Personal Auto customers in Q2/21 and has now closed its relief program; (3) IFC noted that RSA added $0.06 to operating EPS in June, resulting in high- single-digit NOIPS accretion for the month; and (4) Intact entered into a reinsurance contract where the reinsurer assumes 50% of negative reserve development regarding RSA’s UK&I claims liabilities for accident years 2020 and prior. The maximum amount recoverable under the reinsurance agreement is 50% of £400MM and does have certain exclusions/limitations (e.g., first party COVID-19 related claims).

Conference call today (Wednesday) at 11am ET; dial-in: 1-888-664-6392 or [phone] (ID: 603688). Link to live webcast on Intact’s website.