Intact Financial Corporation reports Q2-2016 Results

PRESS RELEASE

Intact Financial Corporation reports Q2-2016 Results

Highlights

Q2-2016

• Net operating income per share of $0.83 despite a $0.97 loss from the Fort McMurray wildfires

• Combined ratio of 99.2%, as losses from the Fort McMurray wildfires (8.8 points) offset strong underlying underwriting performance
• Solid premium growth of 5%, led by personal lines
• Operating ROE of 14.6% with $857 million of total excess capital

Charles Brindamour, Chief Executive Officer, said:

“We delivered $114 million in net operating income despite the $127 million impact from the Fort McMurray wildfires, the costliest insured catastrophe in Canadian history. This is a strong testament to the resilience of our operations across the country and our ability to support our customers in good times and in bad. Our catastrophe response is well underway in Fort McMurray and we remain committed to helping our customers get back on track.”

1. This is a non-IFRS financial measure, which does not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures used by other companies in the Company’s industry. Please refer to Section 14 – Non-IFRS financial measures in the Management’s Discussion and Analysis for further details.

Industry
Outlook

• The Company expects that industry premiums will grow at a low single-digit rate. In personal auto, the Company expects normal claims cost inflation will lead to moderate rate increases in all markets. In personal property, the Company expects the current firm market conditions to continue, as companies adjust to changing weather patterns. While commercial lines remain competitive, the Company believes that continued low interest rates and elevated loss ratios of the past years support firm market conditions.
• Overall, the industry’s ROE is expected to remain around its long-term average of 10%.

Dividend

• The Board of Directors approved a quarterly dividend of $0.58 per share on the Company’s outstanding common shares. The Board also approved a quarterly dividend of 26.25 cents per share on the Company’s Class A Series 1 and Class A Series 3 preferred shares. The dividends are payable on September 30, 2016 to shareholders of record on September 15, 2016.

Normal Course Issuer Bid

• As at June 30, 2016, the Company had repurchased and cancelled 370,500 shares for approximately $32 million under its normal course issuer bid ("NCIB"). The NCIB allows for the purchase, for cancellation, of up to 6,577,156 common shares until February 11, 2017, representing approximately 5% of the Company’s issued and outstanding common shares as at February 1, 2016.

Underwriting

Line of Business

Q2 2016

• Personal auto premiums grew 6% on the Company’s telematics offer, improved, digital experiences, distribution and branding initiatives. The combined ratio of 97.6% was impacted by a mild increase in claims frequency and severity, while earned rates were flat in the quarter. The resulting underwriting income was $23 million compared to $85 million last year.
• Personal property premiums grew 9%, as growth initiatives were supported by favourable market conditions. The combined ratio was 106.7%, including 24.7 points of losses from the Fort McMurray wildfires. This resulted in an underwriting loss of $30 million compared to income of $31 million last year. Excluding this catastrophe, the combined ratio of 82.0% was very strong due to milder weather in Atlantic Canada, lower claims frequency and the effectiveness of the Company’s profitability actions. On a year-to-date basis, the combined ratio of 94.7%, including Fort McMurray, was in line with our target to operate at 95% or better, even with elevated catastrophe losses.
• Commercial P&C premiums declined slightly as rate increases were offset by headwinds from the Alberta economy.The combined ratio was 98.2%, including 10.7 points of losses from the Fort McMurray wildfires.This resulted in an underwriting income of $7 million compared to $33 million last year. Excluding this catastrophe, the combined ratio of 87.5% was strong, driven by lower large losses.
• Commercial auto premiums grew slightly as rate actions were offset by headwinds from the Alberta economy. The combined ratio improved substantially to 90.3%, driven by profitability actions and favourable prior year development. This resulted in an underwriting income of $16 million compared to $9 million last year.

Investments

• Net investment income of $104 million was unchanged for the quarter. Net investment gains of $28 million were driven by higher bond prices and more favourable equity markets. For the first half of 2016, the Company delivered net investment income of $208 million, largely unchanged from the prior year. Net investment gains of $8 million were driven by higher bond prices offset by challenging equity markets at the start of the year.

Distribution

• Net distribution income of $43 million was $9 million higher than last year due to growth in our broker network and improved profitability. Similar factors drove an increase in net distribution income to $57 million for the first half of 2016.

Net Income

• Net operating income of $114 million, or $0.83 per share, was lower by 46% compared to last year, impacted by the Fort McMurray catastrophe. Excluding this catastrophe, net operating income per share would have increased by 15% year-over-year driven by higher underwriting and distribution income. For the first half of 2016, net operating income was $311 million.
• Earnings per share of $0.67 were lower by 54% compared to last year, impacted by the Fort McMurray catastrophe. For the first half of 2016, earnings per share were $1.78.

Balance Sheet

• The Company ended the quarter in a very strong financial position, with an estimated MCT of 212% and $857 million in total excess capital. The Company’s book value per share was $40.57, an increase of 3% from a year ago.
• The Company’s debt-to-capital ratio was 19.3% at June 30, 2016, close to the Company’s target level of 20%.
• The operating ROE for the last 12 months remains healthy at 14.6%.

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 $0.55 and $0.62, respectively.