Bullboard - Stock Discussion Forum Intact Financial Corp T.IFC

Alternate Symbol(s): IFCZF | T.IFC.PR.A | T.IFC.PR.C | INTAF | T.IFC.PR.E | INFFF | T.IFC.PR.F | T.IFC.PR.G | IFTPF | IFZZF | T.IFC.PR.I | T.IFC.PR.K

Financial Services Insurance - Property & Casualty

Intact Financial Corporation is a Canada-based company, which is a provider of property and casualty insurance. Its Canada segment is engaged in underwriting of automobile, home and business insurance contracts to individuals and businesses in Canada distributed through a network of brokers and directly to consumers. Its UK & International segment is engaged in underwriting of automobile, home,... see more

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TSX:IFC - Post Discussion

Intact Financial Corp > TD Notes

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Post by retiredcf on Oct 24, 2022 9:12am

TD Notes

P&C Insurance Q3/22 Outlook - Corrected Version

Canada's P&C insurance companies are scheduled to report Q3/22 results on November 3 (Trisura Group [TSU-T]), November 8 (Intact Financial [IFC-T]), and November 10 (Definity Financial [DFY-T]). We forecast IFC and DFY reporting operating EPS of $2.73 (down 5% y/y; 4% lower than consensus) and $0.36 (down 38% y/y; 13% lower than consensus), respectively. The overarching themes for the quarter and 2022 include:

We expect personal auto underwriting income to decline materially (50%+ y/y) for both insurers in Q3/22, reflecting normalization of frequency and higher severity (inflation). We expect claims ratios to increase by 500bps- plus y/y in Q3/22. Exacerbating the issue, we expect weak top-line growth at IFC (low- to mid-single-digit organic growth) to take underwriting income down by ~50% in 2022. Canadian personal auto underwriting income is estimated to account for 23% and 35% of 2022E underwriting income for IFC and DFY, respectively. Importantly, however, as both companies were conservative in reserving throughout the pandemic, we expect personal auto to remain solidly profitable.
We expect book value per share to fall ~2% sequentially for IFC and DFY. Interest rates continued to move higher this quarter (mostly at the low end of the curve), which should drive the AFS portfolio down, taking BV with it. Excluding OCI (eliminates the AFS and currency impact), we estimate BV/share will be relatively flat sequentially for DFY and IFC.

IFC Outlook: Over the past 6-12 months, IFC's performance has materially outpaced that of the Canadian banks, lifecos, and U.S. P&C companies. We believe the significant divergence in performance reflects IFC's (and the P&C sector generally) defensive characteristics, including lower exposure to macro factors as well as the recession-resistant demand for P&C insurance. While relative valuation would call for a shift to the risk-on financials (life companies, in particular) until the market is convinced that inflation has been tamed, we expect the market to favour IFC. Furthermore, with the sale of the Codan Denmark business, we believe IFC will be among the very few financials capable of buying back stock.

DFY Outlook: We believe the most appropriate way to value the stock is to apply a probability-weighted valuation tied to several possible scenarios. One such scenario captures standalone top-line growth and, eventually, improving operating ROE. We expect 10%+ DWP growth y/y (well above industry average), a lower expense ratio (shift to digital channels – Sonnet), and higher leverage to drive an absolute and relative improvement in DFY's operating ROE and support the sharp move in the stock since the IPO. However, as evidenced by the weakness in U.S. P&C companies, the deterioration in auto insurance fundamentals, as well as DFY's overweight in the segment, support our call to favour IFC over DFY at this time.