Desjardins Securities analyst Doug Young sees both Definity Financial Corp. and Intact Financial Corp. “well-positioned to grow organically and inorganically,” noting both have been acquisitive as of late.
However, while he raised his 2024 expectations to reflect the impact of higher interest rates, he reduced his third-quarter and full-year 2023 financial expectations based on higher catastrophe and non-catastrophe losses.
“2023 will be a tough comp year versus 2022, and especially 2021, on an underwriting basis as economies continue to reopen, inflationary pressures persist and the frequency of CAT events increases,” said Mr. Young. “However, we expect higher investment income (due to higher interest rates) to be an offset through 2023 and into 2024/25.
“CAT losses will be elevated and will mainly impact the personal property division. Both companies pre-released their CAT loss estimates for 3Q23 from wildfires and other weather events in Canada (and the US for IFC). Our estimates reflect the updated CAT loss estimates.”
Mr. Young does expect market conditions to “remain favourable for the most part and for inflation to moderate sequentially, specifically in personal auto.”
He added: “Macro items impacting results. (1) Movements in interest rates and equity markets negatively impacted book values by our math. (2) Could there be any noise from their direct CRE holdings? Or credit impacts for fixed income investments classified as FVTOCI? (3) For IFC, FX movements had a positive impact on a year-over-year basis and should be a tailwind going forward.”
Mr. Young raised his target for Definity by $1 to $40, keeping a “hold” recommendation. The average on the Street is $42.75.
He reiterated a “buy” rating and $225 target for Intact shares, exceeding the average of $219.32.