Intact Financial Corporation reports Q4-2022 results

(in Canadian dollars except as otherwise noted)

TORONTO, Feb. 7, 2023 /CNW/ - (TSX: IFC)

Highlights1,2

• Operating DPW growth accelerated to 3% in the quarter, and 5% excluding strategic exits, on favourable market conditions
• Operating combined ratio was a solid 91.5% in Q4-2022 and 91.6% for the full year despite elevated catastrophe losses and inflation
• Net operating income per share of $3.34 in the quarter and $11.88 for the full year reflected higher investment and distribution income, which partially offset lower underwriting margins
• EPS decreased to $2.26 in Q4-2022, but was up 9% for the full year on higher operating income and investment gains
• OROE of 14.3% and ROE of 16.5% reflected strong operating performance in a challenging environment
• Balance sheet remained strong with a total capital margin of $2.4 billion and BVPS of $80.33 despite capital markets volatility
• Quarterly dividend increased by 10% to $1.10per common share

Charles Brindamour, Chief Executive Officer, said:

"The resilience of our platform was again evident in 2022 with a mid-teens ROE despite elevated catastrophe losses and inflation pressures. At the same time, we made significant progress on the RSA integration, which contributed 16% to net operating income per share for the full year and drove 23% growth in premiums. With the business operating at a low 90s combined ratio, positive top line momentum across all segments and a strong balance sheet, we are well positioned to deliver on our financial and strategic objectives in the year ahead. We are therefore pleased to increase dividends to common shareholders for the eighteenth consecutive year."

Common Share Dividend

• The Board of Directors approved a $0.10 per share increase in the quarterly dividend to $1.10 per share on the Company's outstanding common shares. This represents a 10% increase and marks the 18th consecutive annual increase in our common share dividend since our IPO in 2004.

Normal Course Issuer Bid

• As at December 31, 2022, the Company had repurchased and cancelled 824,990 common shares for approximately $150 million under its normal course issuer bid ("NCIB") program. The NCIB program allows the Company to purchase for cancellation up to 5,282,458 common shares until February 15, 2023, representing approximately 3% of the Company's issued and outstanding common shares as at February 8, 2022. The Board has authorized, subject to TSX approval, the renewal of the NCIB to purchase for cancellation up to 3% of the Company's issued and outstanding common shares commencing February 17, 2023.

12-Month Industry Outlook

• Over the next twelve months, we expect firm-to-hard insurance market conditions to continue in most lines of business, driven by inflation, natural disasters, and a hard reinsurance market.
  
  
• In Canada, we expect firm market conditions to continue in personal property. Personal auto premiums are expected to grow by mid single digits in response to inflation and evolving driving patterns.
  
  
• In commercial and specialty lines across all geographies, hard market conditions are expected to continue.
  
  
• In the UK&I, we expect the personal property market to firm as it reacts to inflationary pressures, natural disasters and a hard reinsurance market. Personal motor has begun to firm and we anticipate this to increase over time.

Segment Results

Q4-2022 Insurance Business Performance

• Operating DPW grew by 3%, or 5% excluding strategic exits, a point higher than in the preceding quarter, reflecting solid rate momentum across all geographies.
  
  
• Underwriting performance was solid with an overall operating combined ratio of 91.5%. In Canada, the strong operating combined ratio of 88.7% was attributable to personal property and commercial lines, partially offset by the impact of inflation and higher weather-related frequency in personal auto. In the UK&I, the operating combined ratio increased to 104.0%, led by elevated catastrophe and large losses in personal lines, as well as ongoing inflation pressures. In the US, the operating combined ratio improved to 85.1%, largely due to lower catastrophe losses and our profitability actions over time.

Lines of Business

P&C Canada

• Personal auto premiums increased 2% from the prior year, improving three points from the preceding quarter as a result of rate increases and a firming market. The operating combined ratio of 95.8% was slightly higher than expected due to the impact of challenging winter conditions on claims frequency. The 8.3-point increase from the prior year was driven by moderating inflation and higher frequency. We continue to expect to deliver a seasonally adjusted sub-95 combined ratio in the next 12 months as a result of our ongoing rate and underwriting actions.
  
  
• Personal property premiums grew by 5% in firm market conditions. The operating combined ratio was strong at 76.9%, decreasing 2.6 points from the prior year due to lower catastrophe losses and expenses. For the full year, the operating combined ratio was 90.1% despite elevated catastrophe activity, reflecting the underlying strength of the business, as well as rate actions in firm market conditions.
  
  
• Commercial lines premium growth of 6% reflected rate actions, led by strength in commercial property and specialty lines. The operating combined ratio was a solid 89.0% despite increasing 4.7 points from the prior year on the back of higher catastrophe losses and less favourable prior-year development. The combined ratio for the full year was strong at 87.9% and reflected the impact of profitability actions in favourable market conditions.

P&C UK&I

• Personal lines premiums declined 12% on a constant currency basis, approximately 9 points of which was attributable to the sale of our Middle East business. We remained disciplined in competitive market conditions, which continue to be influenced by pricing reforms introduced at the beginning of 2022. The operating combined ratio of 120.8% primarily reflected 20 points of catastrophe losses from unusually severe winter conditions, well above our expectations, as well as inflationary pressures.
  
  
• Commercial lines premiums grew 9% on a constant currency basis, excluding the impacts from the sale of our Middle East business and the optimization of our delegated portfolio, driven by rate actions in hard market conditions and strong retention levels. The operating combined ratio was a solid 92.8%, though up 2.4 points from the prior year due to higher large losses.

P&C U.S.

• US Commercial premiums grew 13% on a constant currency basis, as new business, increased exposures, and rate increases more than offset the impact of strategic exits. The operating combined ratio improved 7.4 points to 85.1%, driven by our profitability actions, including the exit from Public Entities, as well as an absence of catastrophe losses in the quarter.

Distribution and Investment Income

• Distribution income grew 21% to $93 million in Q4-2022 and by 21% to $437 million for the full year, driven by accretive acquisitions (including Highland Insurance Solutions), a solid contribution from our On Side restoration business, and organic growth.
  
  
• Operating net investment income of $279 millionfor the quarter increased 27% year-over-year, mainly driven by higher reinvestment yields on the back of rising interest rates over the past 12 months.
  
  
• Net losses excluding FVTPL bonds of $81 million were driven by fair value adjustments to investment properties, impairments on common equity investments, and realized losses in the sale of available-for-sale bond portfolio, partially offset by gains on equities and hedging instruments.

Net Operating Income, EPS and ROE

• Net operating income attributable to common shareholdersof $585 milliondecreased 12% from Q4-2021, as lower underwriting income was partially offset by higher investment and distribution income, as well as the recognition of additional deferred tax assets on higher expected profitability in the UK&I.
  
  
• Earnings per shareof $2.26 were 41% lower than last year, primarily due to net investment losses amid volatile capital markets.
  
  
• Operating ROE of 14.3% and ROE of 16.5% for the 12 months to December 31, 2022 reflected strong operating performance.

Balance Sheet

• The Company ended the quarter in a strong financial position, with a total capital margin of $2.4 billion and solid regulatory capital ratios in all jurisdictions, despite challenging capital markets.
  
  
• The adjusted debt-to-total capital ratiodecreased to 21.2% as at December 31, 2022, mainly due to the repayment of US senior notes in the quarter. The adjusted debt-to-capital ratio was slightly higher than our long-term target of 20% on account of recent market volatility.
  
  
• IFC's book value per share(BVPS) was $80.33 at December 31, 2022, down 2% from the prior year. Strong earnings were offset by mark-to-market losses on our investments due to rising interest rates and the recent volatility in capital markets. By contrast, BVPS was up 2% from Q3-2022, driven by solid operating results and mark-to-market gains in our available-for-sale securities portfolio, partially offset by market-related losses in our pension plans.

RSA Acquisition

• RSA contributed approximately 16% accretion to NOIPS in 2022.
  
  
• We are on track to realize at least $350 million of pre-tax annual run-rate synergies in 2024. As at December 31, 2022 we estimate that we delivered $260 million in annualized run-rate synergies.
  
  
• Integration activities are progressing well. The conversion of policies outside of Johnson and specialty lines to Intact systems has been completed. In direct distribution, 12% of Johnson's retail policies have converted to belairdirect since the process was initiated in Q3-2022. Overall, retention continues to be aligned with, or better than, historical RSA experience.

Preferred Share Dividends

• The Board of Directors also approved a quarterly dividend of 30.25625 cents per share on the Company's Class A Series 1 preferred shares, 21.60625 cents per share on the Class A Series 3 preferred shares, 32.50 cents per share on the Class A Series 5 preferred shares, 33.125 cents per share on the Class A Series 6 preferred shares, 30.625 cents per share on the Class A Series 7 preferred shares, 33.75 cents per share on the Class A Series 9 preferred shares, and 32.8125 cents per share on the Class A Series 11 preferred shares. The dividends are payable on March 31, 2023, to shareholders of record on March 15, 2023.

Analysts' Estimates

• The average estimate of earnings per share and net operating income per share for the quarter among the analysts who follow the Company was $2.62 and $3.03, respectively.

Management's Discussion and Analysis (MD&A) and Consolidated Financial Statements

This Press Release, which was approved by the Company's Board of Directors on the Audit Committee's recommendation, should be read in conjunction with the MD&A for the year ended December 31 2022, as well as the Consolidated Financial Statements for the years ended December 31, 2022 and 2021, which are available on the Company's website at www.intactfc.com and later today on SEDAR at www.sedar.com.

For the definitions of measures and other insurance-related terms used in this Press Release, please refer to the MD&A and to the glossary available in the "Investors" section of the Company's website at www.intactfc.com.

Conference Call Details

Intact Financial Corporation will host a conference call to review its earnings results tomorrow at 11:00 a.m. ET. To listen to the call via live audio webcast and to view the Company's Consolidated Financial Statements, MD&A, presentation slides, Supplementary financial information and other information not included in this press release, visit the Company's website at www.intactfc.com and link to "Investors". The conference call is also available by dialing 416-764-8659 or 1-888-664-6392 (toll-free in North America). Please call 10 minutes before the start of the call. A replay of the call will be available on February 8, 2023 at 2:00 p.m. ET until midnight on February 15, 2023. To listen to the replay, call 416-764-8677 or 1-888-390-0541 (toll-free in North America), entry code 417120. A transcript of the call will also be made available on Intact Financial Corporation's website.

About Intact Financial Corporation

Intact Financial Corporation (TSX: IFC) is the largest provider of property and casualty (P&C) insurance in Canada, a leading provider of global specialty insurance, and, with RSA, a leader in the U.K. and Ireland. Our business has grown organically and through acquisitions to over $21 billion of total annual premiums.

In Canada, Intact distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly-owned subsidiary BrokerLink, and directly to consumers through belairdirect. Intact also provides affinity insurance solutions through the Johnson Affinity Groups.

In the U.S., Intact Insurance Specialty Solutions provides a range of specialty insurance products and services through independent agencies, regional and national brokers, and wholesalers and managing general agencies.

Outside of North America, the Company provides personal, commercial and specialty insurance solutions across the U.K., Ireland and Europe through the RSA brands.

Non-GAAP and other financial measures

Non-GAAP financial measures and Non-GAAP ratios (which are calculated using Non-GAAP financial measures) do not have standardized meanings prescribed by IFRS (or GAAP) and may not be comparable to similar measures used by other companies in our industry. Non-GAAP and other financial measures are used by management and financial analysts to assess our performance. Further, they provide users with an enhanced understanding of our financial results and related trends, and increase transparency and clarity into the core results of the business.

Non-GAAP financial measures and Non-GAAP ratios used in this Press Release and the Company's financial reports include measures related to our consolidated performance, our underwriting performance and our financial strength.

For more information about these supplementary financial measures, Non-GAAP financial measures, and Non-GAAP ratios, including definitions and explanations of how these measures provide useful information, refer to Section 36 – Non-GAAP and other financial measures in the MD&A for the year ended December 31, 2022 dated February 7, 2023, which is available on our website at www.intactfc.com and on SEDAR at www.sedar.com.

Forward Looking Statements

Certain statements made in this news release are forward-looking statements. These statements include, without limitation, statements relating to the outlook for the property and casualty insurance industry in Canada, the U.S. and the UK, the Company's business outlook, the Company's growth prospects, , the ongoing impact of the coronavirus (COVID-19) pandemic, the acquisition and integration of RSA, and the realization of the expected strategic, financial and other benefits of the sale of the Company's 50% stake in RSA Middle East B.S.C. (c) All such forward-looking statements are made pursuant to the 'safe harbour' provisions of applicable Canadian securities laws.

Forward-looking statements, by their very nature, are subject to inherent risks and uncertainties and are based on several assumptions, both general and specific, which give rise to the possibility that actual results or events could differ materially from our expectations expressed in or implied by such forward-looking statements as a result of various factors, including those discussed in the Company's most recently filed Annual Information Form dated February 7, 2023 and available on SEDAR at www.sedar.com. As a result, we cannot guarantee that any forward-looking statement will materialize and we caution you against relying on any of these forward-looking statements. Except as may be required by Canadian securities laws, we do not undertake any obligation to update or revise any forward-looking statements contained in this news release, whether as a result of new information, future events or otherwise. Please read the cautionary note at the beginning of the MD&A for the year ended December 31, 2022.

SOURCE Intact Financial Corporation

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