Intact Financial Corp INFFF

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Intact Financial Corp.

(IFC-T) C$178.00

Q4/21: Strong Underlying Results; Another Dividend Hike & NCIB Event

IFC reported Q4/21 operating EPS of $3.78 (up 19% y/y) vs. our estimate of $3.10 (consensus: $2.58). EPS was higher than our estimate, reflecting better top-line growth, strong expense performance, and higher investment income (including a $23mm special dividend). BV/share was up 4% q/q and slightly higher than our forecast. TTM OROE was 17.8%, in line with our forecast). IFC reported another ~10% dividend increase (on top of the 10% increase last quarter) to $1.00/share and initiated an NCIB (3% approved; we forecast 1%).

Impact: POSITIVE

• Top-line was up ~75% y/y (69 points from RSA) and was ~$200mm or 5% higher than our forecast, reflecting a better result in the U.K. and good momentum across the rest of the business. Canadian DWP (ex-RSA) was up 5% y/y, reflecting 5% and 11% organic growth in personal property and commercial, respectively. Personal auto top-line organic growth remains very modest. UK&I commercial lines DWP was up 7% y/y. We expect personal lines growth to remain muted for some time (conservative underwriting amidst regulatory change).

• Underwriting income of $600mm includes the pre-announced CAT losses of $186mm (well above expectations for Q4), excluding which underwriting income would have been almost $800mm vs. ~$500mm on the same basis last year. The total company claims ratio of 56.2% was slightly higher than last year (CAT- related), and was in line with our forecast of 56.3%, reflecting exceptionally strong results in Canadian commercial lines, where stronger premium growth, hard market conditions, benign weather conditions, much higher favourable PYD (reduced pandemic uncertainty and CAT recoveries), and the premium relief last year boosted results. Personal lines remain strong and were consistent with our outlook.

  TD Investment Conclusion

  We forecast operating ROE falling to 15% from ~17% before the RSA deal. We believe that it is appropriate to value the stock on lower operating ROE until we have convincing evidence that through risk selection, reinsurance, and other claims initiatives, management is able to improve the underwriting performance in the acquired businesses, particularly in the U.K. Applying a target P/B (ex-AOCI) of 2.3x, we arrive at our target price of $200.00 (up from $190.00). We continue to rate IFC BUY.