Earnings call transcript: Intact Financial beats Q1 2025 EPS expectations

Intact Financial Corporation (IFC) reported its first-quarter earnings for 2025, surpassing analysts’ expectations with an earnings per share (EPS) of $4.01 compared to the forecasted $3.71. Despite the earnings beat, the company’s revenue fell short of projections, and the stock experienced a slight decline of 0.51% in after-hours trading. With a market capitalization of approximately $40 billion and a solid financial health score of "GOOD" according to InvestingPro, this mixed financial performance reflects the company’s robust operational efficiency amid challenging market conditions.

Key Takeaways

• Intact Financial’s EPS exceeded expectations by 8.1%.
• Revenue fell short of forecasts, with actual figures at $5.36 billion against a projected $6.07 billion.
• The stock price declined by 0.51% following the earnings announcement.
• The company reported a 10% year-over-year increase in net operating income per share.
• Intact Financial remains focused on expanding its market presence in Canada, the UK, and the US.

Company Performance

Intact Financial demonstrated solid performance in the first quarter of 2025, with a 10% increase in net operating income per share. The company’s operational return on equity (ROE) stood at 16.5%, highlighting its efficient use of capital. A standout achievement is the company’s 20-year streak of consecutive dividend increases, with a current yield of 1.72%. Despite a 3% growth in top-line revenue, the company faced challenges in meeting revenue expectations, which could be attributed to market pressures in large commercial accounts. InvestingPro analysis reveals 12 additional key insights about IFC’s financial health and growth prospects.

Financial Highlights

• Revenue: $5.36 billion (below forecast)
• Earnings per share: $4.01 (up 10% YoY)
• Operating ROE: 16.5%
• Book value per share: $96.04 (up 4% QoQ, 13% YoY)
• Combined ratio: 91%

Earnings vs. Forecast

Intact Financial’s EPS of $4.01 exceeded the forecasted $3.71, marking an 8.1% surprise. However, revenue came in at $5.36 billion, significantly below the anticipated $6.07 billion. This discrepancy highlights the company’s ability to manage costs effectively, even as it faces revenue headwinds.

Market Reaction

Following the earnings release, Intact Financial’s stock fell by 0.51% in after-hours trading, closing at $309.25. This decline reflects investor concerns over the revenue shortfall, despite the positive EPS results. Trading at a P/E ratio of 24.85, the stock remains near its 52-week high, suggesting underlying investor confidence in the company’s long-term prospects. According to InvestingPro’s Fair Value analysis, the stock appears to be fairly valued at current levels, with comprehensive valuation metrics available in the Pro Research Report.

Outlook & Guidance

Looking ahead, Intact Financial expects premium growth to improve in the latter half of 2025, though InvestingPro data indicates analysts anticipate a slight sales decline in the current year. The company aims for a sub-90 combined ratio in the UK by 2026 and anticipates $1.6 billion in investment income for the full year. These projections underscore the company’s strategic focus on enhancing its competitive position and operational efficiency, supported by its strong return performance over the last decade.

Executive Commentary

CEO Charles Brindemore stated, "We’re proud of our track record over the past decade and are well positioned to achieve a net operating income per share growth of 10% annually over time." CFO Ken Anderson added, "Our business is very resilient... we’re very much in a position to play offense and capture growth opportunities."

Risks and Challenges

• Market Pressure: Continued pressure in large commercial accounts could impact revenue growth.
• Regulatory Environment: Changes in auto insurance regulations, particularly in Alberta, may pose challenges.
• Economic Uncertainty: Macroeconomic factors could affect investment income and premium growth.

Q&A

During the earnings call, analysts inquired about the company’s strategy in navigating economic uncertainty and its approach to potential tariff impacts. The management’s emphasis on stress-testing various scenarios and maintaining a strong capital position reassured investors of its proactive risk management approach.

Full transcript - Intact Financial Corporation (IFC) Q1 2025:

Silvi, Conference Call Operator: ladies and gentlemen, and welcome to the Intact Financial Corporation Q1 twenty twenty five Results Conference Call. At this time, all lines are in a listen only mode. Following the presentation, we will conduct a question and answer session. Also note that this call is being recorded on 05/07/2025. And now I would like to turn the conference over to Jeff Kwan, Chief Investor Relations Officer.

Please go ahead.

Jeff Kwan, Chief Investor Relations Officer, Intact Financial Corporation: Thank you, Silvi. Hello, everyone, and thank you for joining the call to discuss our first quarter financial results. A link to the live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to slide two for a disclaimer regarding the use of forward looking statements, which form part of this morning’s remarks, and slide three for a note on the use of non GAAP financial measures and other terms used in this presentation. To discuss our results today, I have with me our CEO, Charles Brindemore our CFO, Ken Anderson Patrick Barbeau, our Chief Operating Officer and Guillaume Lemie, Senior Vice President, Personal Lines.

We will begin with prepared remarks followed by Q and A. And with that, I will turn the call over to Charles.

Charles Brindemore, CEO, Intact Financial Corporation: Thanks, Jeff. Good morning, everyone. And thanks for joining us. The first quarter of this year reinforced our position of strength. We reported a 10% increase in net operating income per share, achieving $4.1 with strong contributions across the business.

Our book value per share grew 4% from last quarter and 13% year over year. These results underscore the resilience of our platform and our ability to succeed both operationally and financially, even in an environment of market volatility and economic uncertainty. Top line growth was 3% in the quarter. This was attributable to continued momentum in personal lines to both rate and solid increase in units. In commercial lines growth was muted due to specific profitability actions we’re taking in The US and in The UK in particular.

And we continue to see pressure in large accounts across all jurisdictions. That being said, rates remain in the mid single digits in most lines. And while we maintain a focused approach on earnings growth, we’re confident in our ability to achieve strong top line growth. We have a really good action plan to ensure that we seize on all available opportunities. We expect growth to improve for the remainder of the year as remediation actions taper off and our actions kick in.

Our combined ratio was solid at 91% despite 2.5 points of higher catastrophe losses this quarter. This highlights strong underlying results and healthy favorable prior year development across our businesses. Now, let me provide some color on each of our lines of business starting with Canada. So personal auto premiums were up 11% this quarter. This was a function of both rate actions and a 2% increase in units.

As profitability remains challenging for the industry in particular in Alberta, we expect hard market conditions to persist over the next twelve months. Our combined ratio of 97.5 included a four point impact from severe winter conditions, which was higher than seasonal expectations for a first quarter. Overall, the combined ratio remained in line with our full year sub 95 guidance. In personal property premiums were up 9% driven by rate actions and unit growth. We continue to expect hard market conditions to persist given the impact of severe weather activity over the last couple of years.

And despite challenging winter conditions, we delivered an 88.9% combined ratio in the quarter. Again, in Canada and commercial lines, premium growth was 1% reflecting mid single digit rates in most lines. There was a three point drag primarily from business mix, as well as continued competition in large accounts. Given the constructive market conditions, we expect industry growth in the mid single digit range over the next twelve months. The combined ratio continued to be very strong at 81.2.

This reflects our underwriting discipline with a four point improvement in the underlying current year loss ratio from last year. Moving now to our UK and I business. This quarter saw a 4% decrease in premium. The remediation actions in the direct line portfolio impacted our top line by approximately three points, while competition in large account space continue. Given the current market conditions, we expect industry premium growth in the mid single digit over the next twelve months.

And as mentioned earlier, we expect that the remedial action on direct line will taper off in the coming months. The underlying performance of the business in The UK is generally in line with expectations. The combined ratio of 97.6 includes elevated cats and large losses in the quarter. Overall, The UK and I business remains well positioned to evolve the combined ratio towards 90 in 2026, really in line with the trajectory we started to see in 2024. In The US premiums decreased 3%, which included a five point impact from the non renewal of one large account.

In aggregate, rate momentum was in the mid single digit across the majority of lines. Our remediation work on a few verticals will continue to taper in ’25, which will reduce the top line drag. From an industry perspective, we expect premium growth to continue to be in the mid to high single digit level over the next twelve months. Combined ratio in The US was strong at 86.8%. The portfolio is positioned to be less exposed to weather related cat risks as was evidenced by the losses related to the LA wildfires, which were 10,000,000 in the quarter.

So going forward, we expect to continue delivering a low 90s or even better performance. Let me now highlight the progress on some of our key strategic initiatives. First, building scale and distribution to further expand our leadership position in Canada is an important pillar of our game plan. BrokerLink in the quarter established itself as a coast to coast player by making its first acquisition in British Columbia. With over 200 locations nationwide, BrokerLink is well on its way to reaching its near term objective of 5,000,000,000 of premiums by the end of twenty twenty five.

As part of our journey to become the leading commercial lines insurer in The UK and I, we announced that RSA, NIG and Farmweb will rebrand as Intact Insurance by the end of this year. This is the natural next step in the evolution of our UK and I business. We’re thrilled to associate the Intacct brand with the excellent progress our teams in The UK and I have achieved. Additionally, being a global leader in pricing and risk selection is key to our success. As part of our pricing sophisticated efforts, we implemented new proprietary advanced models in The US during the quarter.

Roughly a third of The US premium now leverage these advanced models. These efforts support GSL’s ambition of sustaining a sub-90s combined ratio. Then to be one of the most respected companies, we need to be a leader in building resilient communities. That means reducing our carbon footprint and doubling down on climate adaptation. I’m pleased to report that our emissions are down 23% to date on our way to 50% down by 02/1930.

We also doubled our commitment to municipal climate resiliency grants. You can find a lot more in our social impact report. As a business, we anticipate and plan for uncertainty and our consistent outperformance stands as a testament to this. We stress test many scenarios ranging from tariffs to broader geopolitical tension, and we manage our business accordingly. From a financial and operational standpoint, not only can we weather the big storms, but we’re also really well positioned to play offense in this environment.

We’re proud of our track record over the past decade and are well positioned to achieve a net operating income per share growth of 10% annually over time, and to outperform the industry ROE by at least 500 basis points every year. With that, I’ll turn the call over to our new CFO, Ken Anderson. Thanks, Charles, and good morning, everyone. We start the year on a strong footing with net operating income per share of $4.1 in the first quarter, an increase of 10% from last year. Each of our operating performance drivers, underwriting, investment and distribution income were up year over year.

This drove an operating ROE of 16.5% over the last twelve months, despite a few points of drag from higher than expected catastrophe losses. And our balance sheet remains strong and resilient with $3,100,000,000 of total capital margin at the end of the quarter. Let me provide some color on first quarter underwriting results. The overall underlying current accident year loss ratio improved to 60.3% year over year. This reflects strong performance in commercial lines in Canada and The U.

S. In personal lines, the ratio remained solid despite severe winter conditions in the quarter. And in The UK and I, year over year improvements in our DLG portfolio were more than offset by increased large loss activity in our specialty business. Moving to catastrophes, we reported $244,000,000 of losses in the first quarter. Higher than expected CATs in The UK and I were mainly due to two named storms.

And the cap ratio in The US was driven by a few large commercial fires. We continue to expect approximately $1,200,000,000 of annual catastrophe losses with approximately one third anticipated in each of Q2 and Q3. Favorable prior year development was strong at 6.9%, reflecting continued prudent reserving across all segments of the business. This strength was particularly evident in commercial lines, which represented two thirds of the total in the quarter. Also, nearly one point was from favorable development on prior year catastrophe losses.

Q1 tends to be the quarter that has more favorable PYD as all claims development is from the previous years. We’ve mentioned before that we reserve cautiously and the combination of current accident year and PYD is the best way to assess the evolution of the underlying performance of the business. On that measure, the year over year improvement overall was 1.5 points. The consolidated expense ratio of 33.5 improved by one point from last year and was in line with our full year expectations to operate in the 33 to 34% range. Operating net investment income increased 9% from last year to $415,000,000 driven by a higher book yield, which is now in line with our reinvestment yield at 3.9%.

On a sequential basis, the $17,000,000 increase in investment income was due to non recurring distributions of $9,000,000 and in part favorable currency movements. Based on current markets, we still expect investment income of approximately $1,600,000,000 for the full year. Distribution income increased by 17% to $117,000,000 driven by organic growth, higher margins and our ongoing broker consolidation activities. We expect distribution income growth of approximately 10% for the rest of the year with some fluctuations from quarter to quarter. As Charles mentioned, we announced the rebranding of RSA to Intact Insurance, a major milestone for our UK and I operations.

We will report the accelerated depreciation of the RSA and NIG brand intangibles over the next twelve months in integration costs. Overall, we expect to see a reduction in full year restructuring and integration costs compared to last year. Moving to our balance sheet. We continue to maintain a very strong financial position. We ended the first quarter with book value per share just over $96 up 4% quarter over quarter and 13% year over year.

Capital margin reached $3,100,000,000 at the end of the quarter, and our adjusted debt to total capital of 19.1% continues to be lower than our target and 30 basis points lower than at the end of twenty twenty four. Our performance continued to demonstrate the strength and resilience of our platform, and we’re energized by the opportunities ahead. Our balance sheet stability means we are ready to deal with any impacts from increased economic uncertainty, while also being ready to capitalize on growth opportunities as they arise. At our upcoming Investor Day on May 21, we look forward to delving further into our game plan to grow organically, to strengthen our margins and to effectively deploy capital. These are the key pillars of our objective to deliver 10% NOIPS growth annually over time, while sustaining at least 500 basis points of annual ROE outperformance in the years ahead.

With that, I’ll give it back to Jeff.

Jeff Kwan, Chief Investor Relations Officer, Intact Financial Corporation: Thank you, Ken. In order to give everyone a chance to participate in the Q and A, we would ask that you limit yourself to two questions per person. You can certainly re queue for follow ups and we’ll do our best to accommodate if there’s time at the end. So, Sylvie, we’re ready to take questions now.

Silvi, Conference Call Operator: Thank you. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch tone phone. You will hear a prompt acknowledging your request. And if you would like to withdraw from the question queue, please press followed by 2. And if you’re on a speakerphone, please lift the handset first before pressing any keys.

First, we will hear from Tom MacKinnon at BMO Capital. Please go ahead.

Tom MacKinnon, Analyst, BMO Capital: Yeah. Thanks very much. Just a question with respect to the favorable prior year development. I think you’ve talked about 2% to 4% of net premium earnings as being longer term guidance. I think you’ve reiterated that you probably run toward the high end of that.

If we look at the Q3 and Q4 of last year, you were probably running in the high fives and now 6.9% in the first quarter albeit there’s some seasonality as you pointed out with respect to commercial lines. I mean, do you continue to guide towards the high end of that 2% to 4%? And what’s driving that? Thanks.

Charles Brindemore, CEO, Intact Financial Corporation: Great question, Tom. Ken, why don’t you maybe unpack the favorable development, which is really strong and then I’ll take the guidance. Point after. Yeah, so you’re right, Tom.

Q1 was favorable 6.9%, a couple of elements. I guess, firstly, as you’ve said, Q1 tends to be more favorable than other quarters. All the development is coming from prior years. We did have about one point of development from, you know, the significant prior year cap losses in 2023 and 2024. Yeah, I would say in Q1, PYD was healthy across all geographies.

But I would point out in particular, Canada commercial where it was minus 13%. Worth noting, though, that in Canada Commercial, the five year average on PYD in Q1 is 9%. So, whilst elevated, not extremely. I would say overall, you know, we’re still guiding at the higher end of the two to four range. That reflects, I guess, a cautious approach that we’re taking in the current accident year as well.

And that goes back to what I said earlier about looking at overall current accident year and PYD to sort of assess underlying performance. Yeah, I think to your question on guidance 2% to 4%, we’re challenging ourselves as to whether that guidance shouldn’t be updated. And we’ll talk about that at the Investor Day, which I’m sure you’ll attend in a few weeks from now. I think post COVID we took a cautious stance in terms of the guidance itself so that you guys had a good long term perspective. And I have to say that there’s strength across the operation, probably a bit beyond what we anticipated and we’ll challenge ourselves on the guidance.

I don’t expect any meaningful or a real substantial change there, but your observation, I think it’s dead on.

Tom MacKinnon, Analyst, BMO Capital: Okay, and a quick follow-up just on the, what you’ve called corporate and other expenses. That line kind of jumps around quite a bit. If I look over the first, second and third quarter of last year, was 28, then 60, then 39 and then 49. And now it’s 27 in this quarter. Is there seasonality to this thing?

I mean, this is just more of a modeling question. What would make that jump around? Should we look at the same pattern from last year?

Charles Brindemore, CEO, Intact Financial Corporation: Yeah, I wouldn’t point to anything unusual, Tom. It can be a bit of lumpiness from accounting adjustments, but it’s not overall a significant number. You may have some quarter to quarter volatility in it.

Tom MacKinnon, Analyst, BMO Capital: Okay. Thanks.

Silvi, Conference Call Operator: Thank you. Next question will be from Paul Holden at CIBC. Please go ahead.

Paul Holden, Analyst, CIBC: All right. Thanks. Good morning. I’m going to ask a follow-up question on the PYD. So just going back to the reserve triangles you provide annually, I noticed some large favorable development associated with the 2019 to ’20 ’20 ’2 years.

So wondering if you’re still benefiting from those accident years or not. And if you are, remind us on why there is abnormally high favorable development associated with those years.

Charles Brindemore, CEO, Intact Financial Corporation: Yeah, I think Paul, just keep in mind that the average duration of reserves is between two and three years, depending on the jurisdiction in which you’re looking We tend to have a short tail book even in The US. And I would say that those early years would have much less of an impact now given the duration of the portfolio.

Paul Holden, Analyst, CIBC: Okay. That makes sense. Just had to check. And then Charles, you a number of comments regarding sort of the normalization or tailing off of remediation actions across the various commercial lines. Maybe you can give us a better sense of sort of when that premium growth should gravitate more towards the mid single digit growth range.

I don’t know quickly on maybe each Canada, UK, and US. I imagine the timing’s a little bit different across each, but some sense of timing on that would be helpful. Thank you.

Charles Brindemore, CEO, Intact Financial Corporation: Yeah. High level, Paul, I expect that you’ll see a buildup between now and year end. And that is a function, one big drag is the direct line integration, which is a drag of close to four points. And I’ll let Ken provide a bit of color there. And then in The US, you have a couple of points that come from remedial action in three verticals, specifically entertainment, environment, and financial services.

And that should taper off as well in the second half of this year. Ken, I don’t know if you want to add a bit of Well, on the direct line specifically, we’ve said it before, but just worth reiterating, we picked up about £100,000,000 more premium in that hundred million pounds more premium in that

acquisition than we anticipated. We initially booked it at the quota share. Now, the business is coming into our platform and the remediation activity has been going on for a few quarters and continues in Q1 and into Q2. And that’s why, as Charles said, towards the second half of the year, should start to see some of that remediation taper off in terms of growth. So, that’s what’s relevant to the drag that we’re seeing in Q4, Q1, and likely a bit in Q2.

A bit in Q2 indeed. And I think, Paul, beyond the remediation, what else is building up? And I would say that from a growth point of view, I would zoom in on five areas where we’ve doubled down in the recent months, given some of the pressure to make sure that the growth trajectory takes advantage of what we have in the toolbox. One, the speed at which we’re deploying sophisticated pricing tools in particular in The US and in The UK means that where performance is well beyond our targets, we can reinvest some margin in the right areas. Second, broker relationships and distribution, big area of upside.

We’re adding new brokers in The UK and in The US, or going deeper in those broker relationships. In fact, we’re seeing the number of submissions pick up across the board, including here in Canada, and we’re also investing in distribution. Third, through technology and operational improvement, we’re quoting more of those submissions than we did so last year. That’s in part why the new business generation is actually quite strong. If you look at Canada, for instance, where the issue as I’ve mentioned is mix, that’s not remediation, it’s just where we have the greatest success.

Fourth, we’re upping our game from a service proposition to broker across all jurisdictions to really create a distance with other insurers. And that includes deploying technology in the field. And fifth, we’re expanding our vertical set and leveraging our global network, in particular in global specialty lines. And when you stack up that game plan with a market that is constructive in which we have a lot of room to grow, I think we should see in the second half of this year an improvement in the trajectory of the commercial lines growth.

Paul Holden, Analyst, CIBC: Understand. That’s clear. Thank you. Thanks for your time. Thank you.

Silvi, Conference Call Operator: Next question will be from John Aiken at Jefferies. Please go ahead.

John Aiken, Analyst, Jefferies: Good morning. Just want it was an excellent explanation, Charles. I just wanted to carry on the commercial side. In each of the three various geographies, you did talk about mid single digit rate growth across the platform. And basically, your guidance for industry seems reasonably positive, particularly in The U.

S. But I wanted to ask you about the level of confidence you have in terms of that guidance. And I guess, more importantly, what are you hearing from your commercial clients about their outlook for the economy and basically the instability that we’re seeing out there?

Charles Brindemore, CEO, Intact Financial Corporation: Yeah. I think the environment, I would say overall is constructive. It’s at the larger end of commercial line that you’re seeing a fair bit of pressure that is market pressure per se. And we see that in all jurisdictions, otherwise fairly constructive. Your question really is about economic impact and what we see from our customers.

And fair to say that in the past couple of months in the first quarter, we have seen some changes. I don’t think they’re a major issue in terms of top line at this stage, but in some segments, I’ll give you an example, multifamily dwelling, that market is down meaningfully in The US for instance. In transportation lines of business, we’re seeing a bit of a slowdown as well. And so we’re starting to see at the economic level, some changes indeed. And as this becomes more ingrained, we’ll report on that in the next quarter.

So far, we’re seeing some signs, but nothing major. Now keep in mind, when you look at our business in relationship with the economy, our retentions, like in personal lines, you need to be insured. And so top line and personal lines is not really sensitive to economic changes and retention is very strong. Same thing in commercial lines, really, especially in the SME and mid market space. The economic pressure you see at the higher end of commercial lines, but then people need to insure themselves.

In commercial automobile, you’ll see sometimes a bit more variation because it’s easier to put a fleet on the block, so to speak, and reduce the amount of insurance you give. But otherwise people keep insuring themselves and retentions remain very strong across all our markets in the low 90s upper 80s, depending on where you look.

John Aiken, Analyst, Jefferies: Thanks, Charles. I appreciate the color.

Silvi, Conference Call Operator: Thank you. Next question would be from James Doin at National Bank Financial. Please go ahead.

Charles Brindemore, CEO, Intact Financial Corporation: Good morning, James. Thank you. Good morning. Just wanted to touch on something

John Aiken, Analyst, Jefferies: a bit bigger picture just in terms of the regulatory environment. Can you give us an updated picture in terms of what your conversations are with either provincial regulators or federal regulators as it relates to the regulatory environment? And are there any potential risks or is this a non story at this stage?

Charles Brindemore, CEO, Intact Financial Corporation: I guess if we start macro and we look at the uncertainty that exists in the economy at the moment and markets to a certain extent, my observation would be that credential regulators are on the front foot. They’re engaged in a constructive dialogue. And quite frankly, I’m impressed by the engagement. People want to understand where the risks are coming from and how to protect the system. So really not a concern.

On the contrary, I think that Prudential regulators are very proactive and more dynamic than what we’ve seen historically. That’s the first observation. It’s true here in Canada. And I think it’s true in other jurisdictions, US, UK, where we operate as well. Second, one layer down, good news with the Intact business is that home insurance is not regulated, doesn’t need to be because it’s super competitive.

Commercial lines is not regulated, doesn’t need to be because it is super competitive. Personal automobile, as you know, is regulated and maybe we can share a perspective there. And I would put personal automobile in two buckets. Alberta, which is a problem and has been a problem for some time. And then the rest of Canada, because we don’t do personal automobile outside Canada.

And I’ll ask Guillaume who deals with regulators or interacts with regulators on an ongoing basis to share his perspective about the country, and maybe say a thing or two about Alberta. Thanks, Charles. So, yeah, I’d say broadly speaking, the regulatory environment and personal auto regulators are really moving towards

Guillaume Lemie, Senior Vice President, Personal Lines, Intact Financial Corporation: protecting consumers and fair treatment of consumers, which is very aligned with our way of operating. I think from a rate regulation perspective, this is even becoming more and more flexible in some market. So I think the trend overall there is positive. If I focus maybe quickly on Alberta, so as we have alluded to in previous earnings call, there is core pressure in the Alberta market. I think industry profitability is deteriorating.

And we’ve seen recently some competitors showing increased signs of capacity issue above and beyond what we’ve seen last year. It’s clear that the current situation is not viable. And while the rate increase, the recent increase in rate cap relieves some pressure, there’s still pressure building up in the industry. So we believe it’s very important for the government to allow the industry to get back to rate adequacy on both new business and renewals before the reform by eliminating the existing rate cap in place. Otherwise, will keep deteriorating, which is not a good outcome for anyone, consumers, government, or insurers.

On the reform itself, I think we’re fully supporting reform is addressing the right issues from a fundamental perspective, and certainly a major step in the right direction. But we think there’s still actions that need to be done before we get to that reform. Yeah, I think,

Charles Brindemore, CEO, Intact Financial Corporation: James, want to grow in personal automobile. And it’s a very competitive marketplace, but the industry is losing money, not just in Alberta, in aggregate across Canada. And I think regulators understand that and in many jurisdictions, they’re focused on the root cause of costs. So I think overall, it’s a constructive environment. I think home insurance is the other area where we’re spending time with government officials to make sure that the focus on the root cause of the cost pressure in home insurance, they understand and act upon.

What is that? Well, the root cause of the cost pressure is the changes in weather patterns. And it becomes an issue when you build in the wrong place, when you build with the wrong standards, when you don’t invest in infrastructure. And these are the areas we engage with cities, provinces, and the federal government. And I think there’s a general recognition that the governments on those three levers need to do more.

And now it’s not just Intact or the industry who says that, which we’ve been saying for ten years, but I think citizens are actually putting pressure on governments to do that. And so constructive dialogue there. So back on auto, I would say, I don’t see a major risk, but Alberta, even though the cap is higher and you have a reform in the pipeline for 2027, we’re a bit worried for the market about the trajectory over the next two years. That’s why we’re working very closely with the government of Alberta to make sure that they have options and solution if the pressure was building before the date of the reforms themselves.

John Aiken, Analyst, Jefferies: Great. And then going back to your prepared remarks, had mentioned that you were well positioned to take a more aggressive stance in this current environment. Just wonder if you can elaborate on perhaps what you meant by that more aggressive posture. I’m not using your exact words there, but that was kind of the tone that I took away from that last comment from you.

Charles Brindemore, CEO, Intact Financial Corporation: Yeah, aggressive is not part of our lexicon, but being able to play offense in a tough environment is certainly part of our modus operandi. So I’ll ask maybe Ken to share a perspective on how we’ve stress tested the organization and why we think not only defensively we’re in a strong position, but why we think we can play offense. Ken? Yeah. So, James, we stress tested a range of scenarios in the current climate and, you know, very well positioned to navigate, I would say, a wide range of economic outcomes.

We’ve mentioned the $3,100,000,000 of capital margin, debt to capital at close to 19% at the end of the quarter. Also point out the investment portfolio is very well diversified. Common equities are about 10% of the portfolio. Over 80% of our debt securities are rated A or better, and the currency exposure to US and GBP also provides a hedge against any Canadian dollar weakening. So, our business is very resilient.

And from the modeling we’ve done, even in quite severe downside economic scenarios, like a prolonged trade war, you know, we’re very much in a position to play offense and capture growth opportunities. And I think that’s what Charles was referring to. And I would go further and just say, you know, in extreme tail risk scenarios that go beyond economic impacts, for example, you know, tension leading actual geopolitical conflict, you know, we have a toolbox of actions available that we can activate, you know, to mitigate any impact. So, very well positioned, you know, defensively, but equally in a strong position to play offense and excess capital, very strong at the end of the quarter, and I would say, you know, building up as we move forward. Yeah, so clearly James, our thought process here is to seek opportunities as there’s uncertainty building up in the system.

Thank you.

Silvi, Conference Call Operator: Thank you. Next question will be from Doug Young at Desjardins. Please go ahead.

Doug Young, Analyst, Desjardins: Good morning. Maybe a two part question on The UK operation. One, expenses were elevated this quarter, but they seem to jump around a little bit. So I don’t know if there is anything abnormal in the expenses this quarter, if this is kind of a new run rate or, but the expense and expense ratio. And then, you talked about higher large losses in The UK and I specialty lines business.

Now, is this related to DLG or RSA? Maybe you

Jeff Kwan, Chief Investor Relations Officer, Intact Financial Corporation: can flesh that out a little bit.

Charles Brindemore, CEO, Intact Financial Corporation: Yeah, maybe I’ll take the first part, the second part first, Doug, and then come back to expenses. You know, 97.6 combined ratio in the quarter, two elements to point out, the elevated cap losses, three points from those storms. But then, yes, two points, I would say, of elevated large losses. They’re in the London market, the specialty lines side of the business, so not related to the direct line operations. And just, again, large losses can be a bit lumpy.

And we had an elevated quarter and as I say, isolated in the specialty line side of The UK and I business. That, as I said, brings the run rate to the 92, 90 three range, which is where we would expect to be right now. Then in terms of the expense ratio, overall at an IFC level, one point improvement versus last year. But in the UKNI, the 37.5%, you know, I would say was in line with our expectations, but is about 1.8 points higher year over year. I’d say there’s three elements to that.

Firstly, we’re increasing our IT investments as we build the platform towards being that leading commercial lines platform in The UK. I would say, secondly, we have some costs related to the personal lines exits where systems are not fully decommissioned. And I would say lastly, there’s a bit of top line pressure from a top line point of view over the last few quarters that impacts the earned expense ratio a little. So, if we were to look forward, we would expect the expense ratio in that 37% zone as we move forward in the midterm. And I would say all of this, as I said, in line with expectations and baked into our view that we should be evolving The UK and I business towards that 90% expense ratio Combined ratio.

Sorry, combined ratio by the end of twenty six.

Doug Young, Analyst, Desjardins: Okay, thank you. And then secondly, I mean, you talked a lot about increased competition in the large cap or large commercial market. It’s in Canada, it’s now in The US, now it’s in The UK. I was hoping you could delve into a little bit what’s driving this. And is this starting to creep into the mid cap or SME business?

And if no, why not? It’s just where I’m going is it feels like more capital is going after the commercial businesses and whether it’s external capital or whatnot and could this lead to a bit of a plateau in the market cycle and growth over the mid term here. So that’s where kind of I’m going at this.

Charles Brindemore, CEO, Intact Financial Corporation: Yep. Doug, I’ll ask Patrick to share his perspective, and then I’ll provide a bit of color as well. Yeah.

Patrick Barbeau, Chief Operating Officer, Intact Financial Corporation: Doug, if I look at the lines of business in particular where there’s been softer lines, it’s clearly in larger accounts. So if I look in Canada, you think about the larger accounts starting to see some pressure also in what we call mid market. And then in specialty property that we call a large property schedules of big buildings is where we see more competition. In The U. S, it is some of the larger accounts as well, but some specific lines like we talked about FinPro or DNO, ENO, cyber, as well as specialty property.

And in The UK, it’s really more in the specialty lines that we see more pressure on rates?

Charles Brindemore, CEO, Intact Financial Corporation: So overall, Doug, it’s a continuation of the large commercial lines customers from what we’ve been talking about last year. The difference I would say is we’re seeing competition pick up in large property schedule as well, more so than three, four months ago, but still at the large end of commercial lines customers. Then your question is, can this come downward? And I guess if you look at our experience over many years and you followed our company for many years, that the SME and mid market space is not as volatile, so to speak, as the large commercial lines space. So there’s pressure at the top end of mid market, but I would observe that retentions are pretty strong across the board.

And ratios down a bit in a world where rates are pretty healthy. But this translates for us in particular in the Canadian context into a mix shift. In other words, our success is greater with smaller customers and smaller mid market, which is a three point headwind, but not really a headwind to the bottom line on the contrary, I would say. And this is a pattern we’ve seen historically over decades. So I’m not really concerned to see the sort of competitive pressure at the top end migrate downward right down to the SME account.

Jeff Kwan, Chief Investor Relations Officer, Intact Financial Corporation: Appreciate the color. Thank you.

Silvi, Conference Call Operator: Thank you. Next question will be from Mario Mendonca at TD Securities. Please go ahead.

Mario Mendonca, Analyst, TD Securities: Good morning. Charles and Ken, in response to James’ question about playing offense, I think, Ken, you you gave us a good explanation of why Intact is in a position to play offense. But I thought what you were gonna address is what does playing offense mean to Intact? Like, can you talk about what actions would constitute Intact playing offense?

Charles Brindemore, CEO, Intact Financial Corporation: Yeah. Just to put things in perspective, the capital generation of the organization is really strong. There’s the north of $3,000,000,000 buffer. You look at the operating ROE 16.5, you have north of two points of excess cat. Okay, so that gives you a sense of capital generation.

What does it mean in practice? First, it means that we’re on the front foot from a growth point of view and we’re doubling down on investing in the service we provide to brokers. In other words, we’re not playing defense in terms of the investments we’re making. Second, it means double down on the investments we’re making in technology and accelerating the roadmaps that we have. Third, and maybe more importantly, when it comes to actual capital deployment, because the first two things, not so much capital, but rather using our resources effectively, it means acquisition.

And so what that means in practice for us, Mario, is that we would love to deploy capital in the Canadian marketplace, in The US marketplace, both from a manufacturing and from a distribution point of view. Despite the fact that you hear, there’s a lot of uncertainty, people are on the sideline. That’s not the mindset we’re in. And we would be prepared to deploy meaningful capital to consolidate our positions. The UK is performing well.

We’re really happy with the performance that the team is generating out there. We’re in the middle of integrating the direct line acquisition. And I’d be reluctant to add one big boulder to what these guys have to do. But I have to say Mario that I’m quite interested to grow our footprint in the commercial line space in The UK. It’s a great market.

It’s bigger than Canada, lots of similarities. And where we find opportunities because of the uncertainty right now, we’re ready to go for it.

Mario Mendonca, Analyst, TD Securities: Okay, so, difference, I have a question. The USMCA, apparently, not apparently, what I’ve been reading is that auto parts that are compliant with USMCA will be exempt from tariffs. And when I read that, I immediately thought, I guess this is good news. This is not something you should Intact or other P and C providers have to worry about. How do you interpret that information?

Is that unambiguously positive or is there a wrinkle there?

Charles Brindemore, CEO, Intact Financial Corporation: It’s positive. I’ll let Patrick share his perspective. We’ve given you a bit of a quantification last quarter about the impact of the North American trade war. If we look at the overall impact today of all the things that are on the table, whether in effect or not, just to help you frame what it is. And then we’ll talk a bit about the indirect impact as well.

But so Patrick, why don’t you share your perspective?

Patrick Barbeau, Chief Operating Officer, Intact Financial Corporation: First, Mario, you’re right. This USMCA element on parts means that, there’s very little tariffs right now applied on parts coming into Canada. Last quarter, we mentioned that in auto, in aggregate, 13% of our loss costs could be exposed to tariffs that included the parts, where there’s no impact for now. But, since there was additional announcements more globally on tariffs, we’ve made the same analysis on all the whole portfolio of IFC. And to give you an idea, IFC globally for $1 of claims costs, it’s about $07 that could be exposed to tariffs.

This includes imports from The U. S. To Canada, from The U. S. To The UK, but also imports in The U.

S. From many countries. However, the current tariffs apply to a very small portion of these imports and the impact on our combined ratio is very negligible. To be precise, the current tariffs announced or implemented is only about 0.05% of combined ratio, or five basis points of combined ratio, what is already in there.

Charles Brindemore, CEO, Intact Financial Corporation: So if we take the tariffs that have been announced or are in effect, and you apply that to the 7%, we’re talking about five basis points if we do nothing. So that’s good news, I would say. I think the thing that we need to keep in mind is that there are tariffs on steel and aluminum. And so you need to ask yourself, within the raw material that goes into those parts that are not tariffed, how much pressure can there be in the system? And I think you’ve done a bit of work on that, Patrick.

Patrick Barbeau, Chief Operating Officer, Intact Financial Corporation: Yeah, we’ve made quite a few scenarios. These indirect impacts are a bit harder to predict. It could also have some effect, as an example, on market values and the used car market, if for some models, if, you know, the demand was shifting from brand new cars to these used cars. We’ve made a few quite a few scenarios actually, and overall, we don’t see even if we see significant indirect impact, we don’t see an impact on the total combined ratio of more than half a point. And to Charles mentioned earlier, that’s before any mitigate thing action that we could take on rates, risk selection, supply chain, etcetera.

Charles Brindemore, CEO, Intact Financial Corporation: Yeah. So overall, Mario, I’d say good news. One needs to keep an eye on the indirect impacts, but we feel pretty good about where we are now. And that contributes to us being on the front foot back to your first question.

Jeff Kwan, Chief Investor Relations Officer, Intact Financial Corporation: Thank you.

Silvi, Conference Call Operator: Thank you. Our last question comes from Lamar Prasad at Cormark. Please go ahead.

Doug Young, Analyst, Desjardins: Yes. Thanks. I want to come back to this discussion around PYD. At what point do you say maybe you’re being too conservative in underwriting such that you’re turning down otherwise profitable business? Or is it the answer that there’s just so much uncertainty right now that you’re comfortable running well above the 2% to 4% range at the moment?

Like just some thoughts on that.

Charles Brindemore, CEO, Intact Financial Corporation: We’re always making sure that we optimize between elasticity in the market and how above our target rates of return we might be operate. And you take the risks into account, we’re on the front foot. It’s unclear to me. It’s not clear to me that we’re being overly cautious in the environment in which we operate, would be my perspective. I don’t know if any of my colleagues have a bit of color.

I’ll just reiterate the point around looking at current accident year and PYD together gives probably the better reflection, and that’s how we think about it when we’re pricing. Yes, I think it’s a great point, Ken. Retention pretty strong across the board. New business generation is pretty strong across the board. If you make an extraction of where we do remediation and frankly, at the larger end of commercial lines, the sort of behavior you see in the marketplace, we need to leave margin beyond what we think is reasonable to grow in that segment.

So we have tools in the field to be very surgical, to make sure that where we use margin, there’s plenty of margin to use, and that’ll move the needle on retention. Otherwise, we’re not bothering. You have anything to add, Guillaume? No, I’d say from a pure pricing perspective,

Guillaume Lemie, Senior Vice President, Personal Lines, Intact Financial Corporation: we know where there’s conservatism in our reserving position and we’re taking that into account to have our best view in pricing. So, I think that’s kind of baked in our price point that are in the marketplace.

Doug Young, Analyst, Desjardins: Thanks. And then if I could just offer another, just a point of clarification, maybe quickly here. When you say there’s five basis points of combined ratio, you’re talking about five basis points of combined ratio from tariffs at the total company level, not just personal auto, just a point of clarification.

Charles Brindemore, CEO, Intact Financial Corporation: Correct. Correct. It’s not by the way, it’s not 50 basis points, it’s five basis points with the tariff as they are either announced or enforced today, that assumes we do nothing.

Doug Young, Analyst, Desjardins: Perfect. Thank you.

Silvi, Conference Call Operator: Thank you. Ladies and gentlemen, this is all the time we have today. I would like to turn the call back over to Jeff Kwan.

Jeff Kwan, Chief Investor Relations Officer, Intact Financial Corporation: Thank you, everyone, for joining us today. Following the call, a telephone replay will be available for one week, and the webcast will be archived on our website for one year. A transcript will also be available on our website in the Financial Reports section. Of note, our twenty twenty five second quarter results are scheduled to be released after market close on Tuesday, July, with an earnings call starting at 11AM Eastern the following day. Thank you again, and this concludes our call.

Silvi, Conference Call Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.

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