TSX:IFC - Post Discussion
Post by
retiredcf on Oct 21, 2021 9:00am
TD
Intact Financial Corp.
(IFC-T) C$167.87
Q3/21E Preview Event
IFC will report Q3/21 results on November 9. We forecast operating EPS of $1.56, down 44% y/y. The sharp decline reflects $365mm pretax catastrophe charges (pre-announced) versus only $24mm last year. Relative to cat-losses last year, we estimate that cat losses this quarter reduce EPS by $1.49. Cat-losses are expected to be predominately in Canada and the U.K.
Impact: NEUTRAL
This is the first quarter with a full contribution from RSA. Excluding cat-losses, we forecast underwriting income of $538mm, up 37% y/y, with RSA UK&I and Canada contributing ~$150mm. Accordingly, excluding RSA and cat-losses, we expect underwriting income to drop ~1-2% y/y. Since the onset of COVID-19, underwriting income has been growing at a torrid pace. The forecasted decline reflects a partial return to more normal claims frequency in personal lines insurance (particularly personal auto).
On an underlying basis, we expect the loss ratio in personal auto and personal property to increase by 111bps and 80bps, respectively. Hard pricing conditions are expected to support another strong quarter for the domestic commercial business, with the combined ratio increasing only modestly y/y. Excluding elevated cat-losses, we expect the UK&I and the U.S. to contribute underwriting income of $62mm and $32mm, respectively.
Looking beyond 2021, we expect underwriting income in auto to remain good, but moderate as frequency returns to normal. We expect very strong pricing conditions in personal property and commercial to support strong underwriting profit. Our UK&I underwriting income estimates are potentially conservative at only $60-$80mm quarterly. We believe it is appropriate to take a wait-and-see approach in the U.K. as it relates to DWP growth, risk selection, and claims management.
TD Investment Conclusion
We forecast operating ROE falling to ~14.5% from ~17% before the RSA deal. Although a higher ROE appears achievable, we believe it is appropriate to value the stock on the 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 of 2.2x, we arrive at our target price of $190.00. We continue to rate IFC BUY.
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