Intact Financial Corporation · TSX:IFC
Intact Financial — Investor Day (December 2014)
83 slides from Intact Financial's investor day presentation, Dec 3, 2014
Slide 1: Investor Day 2014
INVESTOR DAY 2014 Wednesday, December 3, 2014 Toronto, Ontario, Canada
Slide 2: Forward-looking statements
Forward-looking statements Certain of the statements included in this presentation about the Company’s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statemen
Slide 3: Disclaimer
Disclaimer This Presentation does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any securities nor shall it or any part of it form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitm
Slide 4: Agenda
Agenda Today’s schedule The Road Introduction Coffee Break Ahead Building a Investment Q&A Session Distribution Management Powerhouse IFC INVESTOR DAY 2014 4
Slide 5: Introduction
INTRODUCTION Charles Brindamour, Chief Executive Officer
Slide 6: Who we are
Who we are Canada’s P&C insurance leader IFC 17% #2 9% #3 8% #4 7% #5 7% We insure more than five Our multi-channel distribution With an approximate market million individuals and strategy allows us to maximize share of 17%, we are almost businesses growth opportunities and be more twice as large as
Slide 7: What we are aiming to achieve
What we are aiming to achieve Our customers are our advocates • 1 million advocates Our employees are engaged • Become a best employer Our company is the most • Beat industry ROE by 5 pts each year respected insurer in Canada • NOIPS up 10% per year over time We sustain our success by being customer
Slide 8: Our track record
Our track record Consistent industry outperformer 10-year outperformance gap 5-year average loss ratios (in points) 77.2% Industry IFC Premium growth 5.1 68.3% 67.6% 65.3% 64.1% Combined ratio 3.5 58.0% Return on equity 8.4 Auto Personal Commercial Property P&C Our superior underwriting results, Our
Slide 9: Outperformance vs. industry ROE
Our track record Achieving and outperforming our objectives Beat industry ROE by NOIPS growth of 10% per year 5 percentage points each year over time 12 Outperformance vs. industry ROE $6.00 10 $5.00 8 (percentage points) $4.00 6 $3.00 4 $2.00 2 $1.00 $0.00 - 2010 2011 2012 2013 H1-2014 2010 2011 20
Slide 10: Outperformance vs. industry ROE
Our track record Achieving and outperforming our objectives Beat industry ROE by NOIPS growth of 10% per year 5 percentage points each year over time 12 Outperformance vs. industry ROE $8.00 10 $7.00 8 $6.00 (percentage points) $5.00 6 $4.00 4 $3.00 $2.00 2 $1.00 $0.00 - 2010 2011 2012 2013 H1-2014
Slide 11: How we achieve our objectives
How we achieve our objectives 36 month roadmap Beat industry ROE by NOIPS growth of 10% 5 points every year per year over time 3 pts Claims management Organic growth 3–5% Pricing & Capital 2 pts Segmentation management/deployment 3–5% 2 pts Investments and Margin 0–3% capital management improvement
Slide 12: Changing landscape
Changing landscape Changing customer expectations and competitive environment Shifting segmentation from demographics to customer needs Changing consumer Technology impacting shopping & buying behaviours expectations Expectation of 24/7 service and accessibility Potential for new entrants to disrupt
Slide 13: Building a Distribution Powerhouse
BUILDING A DISTRIBUTION POWERHOUSE Louis Gagnon, President, Service and Distribution Monika Federau, SVP and Chief Strategy Officer Pete Weightman, President, BrokerLink
Slide 14: Overview: how we manage distribution
Overview How we manage distribution Brok Brok belairdirect Brokers er Grey Power er Web Brokers with financial Brok Broker Direct Brok White er er relationships labelling Brok Brok BrokerLink er Partnerships er IFC IFC INVESTOR DAY 2014 14
Slide 15: A closer look at the broker channel
Overview A closer look at the broker channel Brokers Brok er Web Brokers with Brok financial er Broker relationships BrokerLink Brok er IFC IFC INVESTOR DAY 2014 15
Slide 16: Bringing scale to brokers
BRINGING SCALE TO BROKERS Monika Federau, SVP and Chief Strategy Officer
Slide 17: Bringing scale to brokers
Bringing scale to brokers Overview Brand Technology Products and Financing Expertise Solutions strong brands ease of meet all client fuel build trust access needs entrepreneurial spirit IFC INVESTOR DAY 2014 17
Slide 18: National brand recognition
National brand recognition Intact Insurance top-of-mind awareness exceeds that of more established companies Customers were asked: “Thinking about providers of home and car insurance products and services, which brand or company first comes to mind?” 12% 10% Intact Insurance 8% 6% Our competitors 4%
Slide 19: Brand strategy
Brand strategy How do we think about branding? • National advertising • Integrated campaigns • Build consumer demand • Co-branding with brokers • Acquisition campaigns • Local campaigns IFC INVESTOR DAY 2014 19
Slide 20: Brand strategy
Brand strategy Strong brands build strong businesses more likely to obtain a quote more likely to purchase *JD Power – US Purchase Report IFC INVESTOR DAY 2014 20
Slide 21: Technology
Technology Responding to customer needs Brokers Customers Market leading Buy-online technology for broker channel* Claims centre Single national Going paperless commercial lines platform Billing * Navicom 2013 broker survey IFC INVESTOR DAY 2014 21
Slide 22: Technology
Technology Customers are increasingly online Obtain a Apply for / quote buy insurance 60% Online Online 52% 36% Meet a representative and Meet a representative 47% 34% Phone Phone 29% Send/receive Send/receive 13% 9% letter letter The majority of consumers want to obtain a quote online (60%) and 52%
Slide 23: Buy-online
Buy-online Building digital capability to drive growth for brokers 600,000 500,000 Number of Leads 400,000 300,000 200,000 100,000 0 2011 2012 2013 2014 2015 Note: 2015 projection based on projected media spend. IFC INVESTOR DAY 2014 23
Slide 24: Broad product suite
Broad product suite Addressing all customer needs Current New To come in product suite products near future Surety Home Cyber- Business Auto UBI risk 50+ ? product Recreational E&O vehicles D&O Substandard auto IFC INVESTOR DAY 2014 24
Slide 25: Usage-Based Insurance
Broad product suite Usage-Based Insurance • Intact was the first to offer UBI via the broker channel • First to offer on Commercial Auto • Drives new business • Encourages safer driving • Available in ON, QC, NB; coming to AB and NS in 2015 21% 52k++ 168M 9.1% uptake in enrolments kilometres driven
Slide 26: Cyber-risk
Broad product suite Cyber-risk 80/20 Rule Rates have significantly increased Small to medium businesses and there is capacity shortage 1st party coverage Intact’s Plan 1st party First party expense based coverage coverage endorsement Small-medium sized 3rd party businesses coverage Supported by vend
Slide 27: Multiple financing options
Multiple financing options Ranging from loans to full equity ownership Broker needs Potential solutions Loan only Monetizaton Equity investments (0%-20%) Succession planning Equity partners (20% - 50%) Growth Joint ventures (50% - 100%) Exit BrokerLink (100%) IFC INVESTOR DAY 2014 27
Slide 28: Broker Financial Solutions (BFS)
Broker Financial Solutions (BFS) Benefits for Brokers Benefits for IFC Strategic advice Stimulate our long-term growth Fuel brokers’ Financial solutions entrepreneurial spirit Customized Distribution income business solutions IFC INVESTOR DAY 2014 28
Slide 29: BFS economics
BFS economics Now and future potential Distribution income Manufacturing upside Expect to reach $50 ~$2 billion Intact million run rate in Insurance premiums 2015 distributed through BFS IFC INVESTOR DAY 2014 29
Slide 30: BrokerLink
BROKERLINK Pete Weightman, President, BrokerLink
Slide 31: BrokerLink Profile
BrokerLink Profile Overview of our business $900M DPW 106 offices Objective: Build a broker model that can 1,100 employees compete with direct writers Business model: • Build scale • Drive operational efficiencies • Reinvest in brand & technology • Maintain choice of markets $320M DPW Benchmarks: 29
Slide 32: BrokerLink financial performance
BrokerLink The financial performance of the business is strong 1000 35% DPW $M % EBITDA with CPC 900 18% DPW 5-year CAGR % EBITDA 30% 800 25% 700 % EBITDA 20% DPW $M 600 % EBITDA 15% ~21% (pre-CPC) 500 10% 400 300 5% $50M $ EBITDA in 2015 200 0% 2009 2010 2011 2012 2013 2014e IFC INVESTOR DAY 2014 3
Slide 33: Growth opportunities: mass marketing
Growth opportunities Mass marketing Campaign sales to new customers in four flagship offices (vs. same period last year): • Spring campaign +32% • Fall campaign +91% 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2011 2012 2013 2014e Sales Calls Quotes Sales IFC INVESTOR DAY 2014 33
Slide 34: Growth opportunities: digital sales
Growth opportunities Digital sales Digital Sales as % of Total Sales 20% 15% 10% 5% 0% 2010 2011 2012 2013 2014e 2015e IFC INVESTOR DAY 2014 34
Slide 35: Growth opportunities: acquisitions
Growth opportunities Acquisitions BrokerLink’s acquisition track record: Continued opportunity due to: # of Year DPW ($M) transactions Succession planning 2011 6 19 2012 10 59 Technology investments 2013 6 56 Strong valuations 2014 10 265 IFC INVESTOR DAY 2014 35
Slide 36: $2 billion DPW in the mid-term
BrokerLink Looking ahead • Solid and sustainable financial results • Committed to significant mass marketing spend • Well positioned to capture digital opportunities $2 billion DPW in the mid-term IFC INVESTOR DAY 2014 36
Slide 37: Bringing Scale
BRINGING SCALE Louis Gagnon, President, Service and Distribution
Slide 38: Benefits of investing in brokers
Benefits of investing in brokers Distribution income, premium growth and operational efficiencies IFC DPW by distribution channel 100% 80% Other 60% markets DTCD 40% Intact 20% Insurance 0% Intact Insurance Intact Insurance through BFS 2014 through brokers and affiliated brokers 30% EBITDA (before C
Slide 39: A closer look at direct-to-consumer distribution
Overview A closer look at direct-to-consumer distribution Brok belairdirect er Grey Power Web Direct Brok White er labelling Brok er Partnerships IFC IFC INVESTOR DAY 2014 39
Slide 40: Direct-to-consumer distribution strategy
Direct-to-consumer distribution Our strategy Organic growth track record 220 Digital belairdirect National Leadership 200 10-year avg. Distribution =7.6% Strategic 180 Innovative Alliances Products 160 140 Industry1 Low Cost 10-year avg. Offering 120 = 3.2% 100 2004 2005 2006 2007 2008 2009 2010 201
Slide 41: Doubling our direct
Doubling our direct Three avenues of growth Maximize the potential of digital Accelerating organic growth Adapting to the changing consumer White labelling Partnerships New sources of distribution Acquisitions Inorganic growth IFC INVESTOR DAY 2014 41
Slide 42: New sources of distribution
New sources of distribution Leveraging well known brands to increase our penetration wealth life management banking group capital markets health IFC INVESTOR DAY 2014 42
Slide 43: Accelerating organic growth
Accelerating organic growth Empowering consumers by maximizing the potential of digital IFC INVESTOR DAY 2014 43
Slide 44: Maximizing the potential of digital
Maximizing the potential of digital Using digital to generate response • belairdirect: quotes completed online represent an large portion of business • Strong presence in all digital media • Internal and external data used to customize ads, refine segmentation and retarget • Web quotes increased by
Slide 45: Maximizing the potential of digital
Maximizing the potential of digital Using digital for customer acquisition A new auto quote experience • Simplified online quoting • Customer-driven approach • Product adapted to users • Increased online quotes IFC INVESTOR DAY 2014 45
Slide 46: Adapting to changing consumers
Adapting to changing consumers Expanding our offer to mobile Evolution of mobile traffic on belairdirect.com (2012-2015) IFC INVESTOR DAY 2014 46
Slide 47: Simplifying insurance for mobile users
Adapting to changing consumers Simplifying insurance for mobile users Quick Quote: Fast-forward conversion Using mobility for acquisition • 12 questions asked to see a premium, thanks to smart default values • Adapted for desktop, tablets and mobile IFC INVESTOR DAY 2014 47
Slide 48: Potential in DTCD channel
Potential in DTCD channel • Double in the mid-term • Digital leadership DTCD • Testing ground Intact Insurance for new ideas Intact Insurance through BFS through brokers and affiliated brokers Intact Insurance through BrokerLink IFC INVESTOR DAY 2014 48
Slide 49: Introducing Intact Lab
Overview Introducing Intact Lab Web Intact Lab IFC IFC INVESTOR DAY 2014 49
Slide 50: Intact Lab
Intact Lab Centralized team to make sure IFC captures all digital opportunities that can maximize customer satisfaction and sales revenues Analyzing needs and behaviours of Internet users Efficiently accelerate Attract and retain best growth through digital talent in the digital channels industry Fo
Slide 51: Our recent investment in Brazil
Overview Our recent investment in Brazil Web IFC Brazil IFC INVESTOR DAY 2014 51
Slide 52: Brazil
Brazil An initial step to expand beyond Canada Small investment (<$20M) in Brazilian electronic marketplace Gain experience and intelligence on that market Apply our manufacturing knowledge Stable regulatory environment, growing middle class, and underpenetrated auto insurance market IFC INVESTOR DA
Slide 53: How we manage our distribution
Overview How we manage our distribution Brok Brok belairdirect Brokers er Grey Power er Web Brokers with financial Brok Broker Direct Brok White er er relationships labelling Brok Brok BrokerLink er Partnerships er Intact Lab IFC Brazil IFC INVESTOR DAY 2014 53
Slide 54: It's Time for a Break
IT’S TIME FOR A BREAK
Slide 55: Investment Management
INVESTMENT MANAGEMENT David Tremblay, VP and Deputy CIO, Fixed Income and Asset Allocation Werner Muehlemann, VP and Deputy CIO, Equities and Operations
Slide 56: Intact Investment Management
Intact Investment Management Overview • $13.2B of assets under management • Expect net investment income of ~$420MM for 2014, similar for 2015 • 50 employees including 20 portfolio managers, analysts and traders • Excellent long term asset management track record − 1987 Preferred shares − 1988 Canad
Slide 57: Contribution to outperformance
Contribution to outperformance ROE outperformance * As of December 31, 2013 IFC INVESTOR DAY 2014 57
Slide 58: Asset allocation
Asset allocation Custom designed optimization process • Objective Executive − Optimize for after-tax total return management • Critical considerations − Risk appetite, including insurance business − Insurance liability cash flow IFC asset profile allocation − Corporate strategy Risk Investment − Reg
Slide 59: Asset allocation
Asset allocation IFC allocation contributes to ROE outperformance IFC vs. Canadian P&C insurance industry(1) Asset mix net of hedges (%)(2) 100% Higher expected after tax return 90% Intact IFC − More common shares 80% Industry median − Quality dividend equities 70% − More preferred shares 60% 50% 40
Slide 60: Risk management
Risk management Solid contribution to the investment management process • Continual assessment of investment risk and operational risk • Issuer and sector limits applied across asset classes • Well defined risk appetite contributes to setting the right target mix Low sensitivity to markets Interest
Slide 61: Customized investment strategies
Customized investment strategies Culture of Innovation: Strategies that fit Intact’s objectives IFC objectives and constraints (e.g. capital, sector concentration, etc.) Asset class decision Benchmark selection Guideline elaboration Alpha target determination Active portfolio management IFC INVESTOR
Slide 62: Equities
Equities Consistent outperformance First Quartile performance Equity Performance − 83% of annual positive alpha over 10 years − Large Cap: 2nd percentile over 10 years − Small Cap 18th percentile over 10 years Equity Investment Process – Focused on stock picking Portfolio construction Valuation and
Slide 63: Equity alpha strategies
Equity alpha strategies How we use securities selection Equity Alpha Strategies: Historical volatility by strategy − Market Neutral: Long/Short Equities 12.00% ~ Sector Neutral ~ Dollar Neutral 10.00% ~ Beta Neutral − Dividend Alpha 8.00% ~ Long Dividend Stocks ~ Short Dividend Benchmark 6.00% Oppor
Slide 64: Lower cost of management
Lower cost of management It costs IFC less to manage investments internally Cost of external institutional investment ~20bps management (i.e. if we outsourced) ~10bps Cost of internal investment management Cost of internal investment management, net of ~4bps revenues received from managing external
Slide 65: Conclusion
Conclusion A “world class” investment business Conservative and sustainable investment process Focused on after tax returns Adapted to the objectives and constraints of Intact Integrated with insurance business Lower investment management costs than external management Capacity to grow investment as
Slide 66: The Road Ahead
THE ROAD AHEAD Charles Brindamour, Chief Executive Officer
Slide 67: Industry growth outlook
Industry growth outlook Firming market conditions Total auto Rate reductions in Ontario likely to LTM growth: largely offset growth in other Industry 2.5% jurisdictions, leading to low single- digit growth Personal property Hard market conditions expected to LTM growth: continue, following elevated
Slide 68: Four avenues of growth
Four avenues of growth Highly visible options for growth Personal lines • Build on outperformance in auto • Bring advantages of scale to brokers • Hard market in personal property • Optimize brand architecture Commercial lines • Double direct capabilities • Leverage our industry Firming Develop outp
Slide 69: Leadership
Leadership Building the best insurance team Identification, development % of positions with successors ready now or in 1-3 years and retention of key talent is fundamental to our talent 98% 89% management strategy 78% Leader’s Success Factors: Can-do attitude Genuine care for people Open and honest
Slide 70: Conclusion
Conclusion Well-positioned for sustainable outperformance We have a sustainable competitive edge due to our disciplined approach and size advantage Our broad distribution platform positions us well for organic growth We have a strong financial position and a proven track record of consolidation Deep
Slide 71: Frequently Asked Questions
FREQUENTLY ASKED QUESTIONS
Slide 72: How do you plan to outperform in personal lines?
QUESTION #1 How do you plan to outperform in personal lines over the next one or two years? IFC INVESTOR DAY 2014 72
Slide 73: Personal lines
Personal lines Personal auto Existing outperformance factors 12 Scale advantage (percentage points) Outperformance Fraud management Loss Ratio 8 Supply chain 4 Potential outperformance factors UBI 0 Behavioural analytics 2011 2012 2013 H1-14 Claims management Personal property Existing outperformanc
Slide 74: Can you provide an update on Ontario auto?
QUESTION #2 Can you provide an update on Ontario auto? IFC INVESTOR DAY 2014 74
Slide 75: Ontario auto
Ontario auto Protecting our advantage Bill 65 introduced 8.1% Licensing clinics personal auto Confirming MIG language outperformance Bill 15 Passed in Ontario Pre-judgment interest Regulating towing & storage practices 4.8% Dispute resolution reform personal auto Next steps outperformance AB Cat def
Slide 76: How is your Commercial P&C action plan going?
QUESTION #3 How is your Commercial P&C action plan going? IFC INVESTOR DAY 2014 76
Slide 77: Commercial P&C action plan
Commercial P&C action plan Good progress on rate increases in least profitable segments Renewal of inadequately priced policies 10% 94% • We have a good handle on segmentation 92% 8% • We have been increasing rate on the 6% 90% 88% bottom quartile of the book; more on 4% 86% worst 5% 2% 84% 82% • De
Slide 78: Commercial P&C action plan
Commercial P&C action plan Other actions in progress Rates Action on earthquake exposure management – almost completed! Action on flood exposure segmentation Anticipate ~ 8 points from these actions; ~40% earned by year-end Flood Initiative Proportion of Locations with a Deductible <$25K in 2014 40.
Slide 79: Changes to the reinsurance program in 2015?
QUESTION #4 Do you anticipate any changes to the reinsurance program in 2015? IFC INVESTOR DAY 2014 79
Slide 80: Reinsurance
Reinsurance Managing our tail risk by reducing earthquake exposure ~24% Estimated impact from a reduction in 1-in-500 year event PML since (% of NEP) allows Cat 2012 protection to be 11% reduced to $2.75B at YE2014 ~8% 5% current retention above $100M threshold 2015 2012 2015e rates still under nego
Slide 81: Question & Answer
Question & Answer
Slide 82: Contact Us
Contact Us Investor Relations Dennis Westfall, CFA General Info Vice President, Investor Relations Dennis.Westfall@intact.net http://www.intactfc.com Click on “Investor Relations” tab 416.344.8004 ir@intact.net 416.941.5336 Maida Sit, CFA 1.866.778.0774 (toll-free) Director, Investor Relations Maida
Slide 83: Thanks for watching!
Thanks for watching !