Have a $225.00 target. GLTA

EQUITY RESEARCH
September 22, 2022 Flash Research
INTACT FINANCIAL CORP.

Investor Day Takeaways

Conclusion: Intact’s 2022 Investor Day was focused on medium-term to
long-term growth, highlighting the company’s road map for each major
business segment. Management plans to expand the Specialty Lines
business, improve UK&I and extend its leadership position in Canada. IFC also increased synergy expectations for the RSA acquisition, while
maintaining near-term guidance. With the help of its scale, technological
investments and capital deployment strategy, the company is very confident in reaching its goals. We like IFC’s medium-term strategy and believe its objectives are achievable. With the combination of growth potential, execution on RSA integration and defensive attributes, we reiterate our Outperformer rating.


Our primary takeaways from the Investor Day are:

Specialty Lines present a huge opportunity. Management emphasized
the potential earnings power of Speciality Lines (SL), as it notes opportunities have increased more than 20-fold since the original carve-out in 2016. With the RSA acquisition, IFC’s platform has access to more than 70% of global SL premium volume. Given that the market is highly fragmented, with the largest players at less than 5% market share, management sees consolidation and M&A opportunities where it can acquire complimentary capabilities.

Management increased its size objective to $10B in direct
 written premiums (DWP) by 2030 versus $5B presently. Management believes it can achieve this growth objective while sustaining a sub-90 combined ratio. Management was very confident in this strategic priority, and even suggested it could reach its target without M&A (M&A is viewed as an accelerator).


Positioning UK&I for a lower combined ratio. UK&I’s combined ratio has
been gradually coming down, but is still slightly above the industry average at 93.3% vs. 93.0% (based on F2021). Management sees opportunities to improve U.K. Personal Lines and Commercial Lines given the company’s size in the market, and also by leveraging IFC’s technology and scale. Management aims for a low-90s combined ratio by 2025.


Advancing its leadership position in Canada. Management aims to reach
$20B in DWP (~$15B 2022E) and targets one in three Canadians as IFC
customers by 2027, while beating the industry combined ratio by 5pts. With the company’s brand recognition, wide channels of distribution,
improvements in digital services and advanced technologies such as AI and machine learning to improve claims service, the company has the right tools to achieve its goal.


Revised RSA synergy guidance higher. IFC also revised synergy
guidance, to $350MM from $250MM (due to firmed-up underwriting actions, accelerated synergies, and additional value creation). As a result, NOIPS accretion is estimated to be ~20%, up from previous guidance of upper-teens accretion, and IRR should be over 20% vs. prior guidance of over 15%.