Intact Financial Corp.

(IFC-T) C$183.10

Q2/22: Personal Auto Softening in Line with Expectations Event

IFC reported Q2/22 operating EPS of $3.14 (down 4% y/y) vs. our estimate of $2.71 (consensus: $2.71). EPS was higher than our estimate, reflecting lower expenses (RSA-accretion) and better top-line. A lower-than-expected tax rate added $0.10/ share. TTM OROE was 15.4% (in line). BV was down 2% q/q (impact on AFS from rising rates). IFC repurchased 465k of its 5.28mm NCIB in Q2/22.

Impact: POSITIVE

  • NEP was up ~37% y/y (33 points from RSA) and was ~$65mm or 1% higher than forecast, reflecting better results in personal auto. Canadian DWP (ex-RSA and prior-year relief) was up 5% y/y, reflecting 6-7% organic growth in personal property and commercial. Personal auto top-line organic growth remains modest at 1%. UK&I commercial line DWP growth remains strong in the upper single digits, while personal lines continue to decline (pricing reforms).

  • Underwriting income of $441mm, was $72mm higher than our forecast, reflecting better underlying performance. CAT losses and PYD on a total company basis were in line with our estimate. On an underlying basis, the total company claims ratio was 57.7%, up 390bps y/y and was in line with our forecast. Accordingly, the majority of the better-than-expected underwriting result reflects much lower expenses (100bps better). Lower commissions and strong RSA- synergies supported the improved expense result. Canadian personal auto underlying claims ratio deteriorated, as expected, increasing 920bps y/y (forecast: ~1,000bps). Surprisingly, PYD remains very strong in personal auto (reduced uncertainty). We expect inflation to lead to some weakness in PYD going forward. U.K. personal lines benefited from the reversal of Q1/22 estimated CAT losses. We estimate that the reversal added ~$10mm-$15mm to underwriting income.

    TD Investment Conclusion

    We expect the ROE to remain near 15% in 2023 without the benefit of material buybacks. With the sale of Codan Denmark (closed May 2, 2022), IFC has significantly deleveraged. IFC's capital position leaves ample capital to buy back stock, thereby delivering a mid- to high-teens operating ROE. Applying a target P/B (excluding AOCI) of 2.3x, we arrive at our target price of $220.00 (up from $215.00). In the current environment, IFC's stable BV/share growth and resilient business model support our target price and BUY rating.