Intact Financial Corporation · TSX:IFC
Intact Financial — Investor Day (November 2012)
81 slides from Intact Financial's investor day presentation, Nov 20, 2012
Slide 1: Building a world-class P&C insurer
Intact Financial Corporation (TSX: IFC) Building a world-class P&C insurer Investor Day Presentation November 20, 2012
Slide 2: Forward looking statements and disclaimer
Forward looking statements and disclaimer 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-l
Slide 3: Forward looking statements and disclaimer
Forward looking statements and 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 inducem
Slide 4: The agenda for today
The agenda for today 8:30 - 8:35 • Welcome Dennis Westfall 8:35 - 9:00 • Introduction Charles Brindamour Jean-François Blais 9:00 - 9:30 • Our unique expertise in pricing Darren Godfrey & segmentation Nathalie Dufresne • Our unique expertise in claims Mathieu Lamy 9:30 - 10:00 management Julie Nolet
Slide 5: Building a world-class P&C insurer
Intact Financial Corporation (TSX: IFC) Building a world-class P&C insurer Charles Brindamour, CEO Investor Day Presentation November 20, 2012
Slide 6: Canada’s P&C insurance leader
Canada’s P&C insurance leader Who we are1 Distinct brands • Largest P&C insurer in Canada • $7.0 billion in direct premiums written • #1 in BC, Alberta, Ontario, Quebec, Nova Scotia • $12.8 billion cash and invested assets • Proven industry consolidator Leader in a fragmented industry Industry outpe
Slide 7: Priorities identified at last year’s Investor Day
Priorities identified at last year’s Investor Day • Service Best ever broker survey AXA Canada • Team Retention Broadest product suite Integration • Products Retention better than plan • Synergies Synergies on track Launched Intact web offer • Supporting Brokers Leveraged AXA expertise − Web and pre
Slide 8: AXA Canada integration on track
AXA Canada integration on track One team with common values $100M of after-tax synergies • New teams were in place in Q4-2011 • Target run-rates: • No change in employee turnover – $50M by the end of 2012 • High engagement levels maintained – $100M after system shutdown complete • $45 million run-ra
Slide 9: JEVCO integration well underway
JEVCO integration well underway Moving toward one team Improve profitability and growth • Employees were notified of employment status • Strengthens offer for brokers and customers within four weeks of close • Offer new products across IFC distribution • Onboarding strategy in place for employee • R
Slide 10: Our future direction
Our future direction Our future Our objectives Top customer satisfaction in Our customers are advocates financial services Our people are engaged Best employers Beat industry ROE by 5 pts Our company is the most respected insurer in Canada Operating income per share up 10% yearly Our strategy - We s
Slide 11: Our progress to date
Our progress to date • Net Promoter Score of 71% Customers • Excellent J.D. Power results: Grey Power ranked “Highest in Customer Satisfaction among Auto Insurers in the Ontario/Atlantic Region” belairdirect ranked “Highest in Customer Satisfaction among Home Insurers in the Ontario/Atlantic Region”
Slide 12: Another perspective on our outperformance
Another perspective on our outperformance IFC outperformance versus industry 6.0% 5.0% IFC results have 4.0% been better quality 3.0% than the industry, and less dependent 2.0% on favourable prior 1.0% year development 0.0% 2008 2009 2010 2011 Calendar year loss ratio Accident year loss ratio 12
Slide 13: Specialty lines improve our business mix
Specialty lines improve our business mix Loss Ratio (2011) Proportion of premiums IFC (stand- IFC + AXA + IFC (stand- IFC + AXA + Industry Industry alone) JEVCO alone) JEVCO Core business 71.2% 66.7% 64.6% 93.2% 99.4% 97.7% Specialty lines 44.8% 19.9% 27.5% 6.8% 0.6% 2.3% Total 69.4% 66.5% 63.8% 100
Slide 14: A 36-month roadmap for outperformance
A 36-month roadmap for outperformance Beat industry ROE by NOIPS growth of 10% 5 points every year per year over time Pricing & Segmentation: Organic growth: 2 points 4-6% Claims management: Margin improvement: 3 points 0-3% Investments and capital Capital management/deployment: management: 2 points
Slide 15: Our unique expertise in pricing & segmentation
Intact Financial Corporation (TSX: IFC) Our unique expertise in pricing & segmentation Jean-François Blais Darren Godfrey Nathalie Dufresne Investor Day Presentation November 20, 2012
Slide 16: Creating and Maintaining a Sustainable Loss Ratio Advantage
Creating and Maintaining a Sustainable Loss Ratio Advantage with Size and Mix • Our size IFC IFC Line of Business – 2 times the next largest company H1-2011 H1-2012 – More than 15 times the average competitor Personal Auto 49% 46% • Sophisticated analytical power Personal Property 23% 22% • Increase
Slide 17: The ingredients of outperformance
The ingredients of outperformance Data Intact has sufficient volume to maintain credibility, granularity, combinations. Tools Additional information embedded at point of sale to assist in the decision making process in addition to pricing People Benefitting from AXA Integration (+45 actuaries) Disci
Slide 18: Actuaries … coast to coast
Actuaries … coast to coast 2 14 154 43 18
Slide 19: Maximizing profit pockets drives our pricing and risk selection
Maximizing profit pockets drives our pricing and risk selection strategies Costing vs pricing Different metrics are available within our 150% point of sale technology: 130% – Highly segmented pricing algorithms Relative LR 110% – Customer value index (cost vs price) – Retention index (likelihood to
Slide 20: Our scale advantage at work – Earthquake analysis and pricing
Our scale advantage at work – Earthquake analysis and pricing • Using our dedicated Research and Development team: – Understanding EQ costing models • Greater awareness of the costing of EQ and the variables / risks that disproportionately contribute to our Probable Maximum Loss (PML) • New highly s
Slide 21: Personal Property – Elevated storm levels remain a key issue
Personal Property – Elevated storm levels remain a key issue • 2011 & 2012 impacted by twice the Personal Property Reported Combined Ratio normal Cat activity 113.6% 109.0% 96.5% 103.5% 102.8% • 13-14 pts of cats : Alberta 40 points 8.7% last 2 years 8.6% 5.9% 14.5% 12.9% • Current accident year res
Slide 22: Personal Property – up to 36 months to tame Cats
Personal Property – up to 36 months to tame Cats Our objectives Our actions • Regionally focused Combined ratio of 95% or • Continue to build on perils-based rating and rate increases better • Increased base deductibles Controlled claims • Increased usage of cash settlements cost inflation • Excepti
Slide 23: Growth oriented risk segmentation strategy
Growth oriented risk segmentation strategy Strong competitive advantage with our sophisticated pricing tools, underwriting discipline and close monitoring • Use of Risk Based Pricing since 1998 • Use of Market Elasticity in our pricing strategies – Strategy to capture new business – Suggested Retail
Slide 24: Segmentation identifies best Commercial Auto risks
Segmentation identifies best Commercial Auto risks to underwrite Intact Industry A highly regulated industry where 1.10 restrictions on pricing variables Relative Pricing pose many challenges. 1.05 • Industry has used the same 13 1.00 categories since the 70s 0.95 • Intact has 139 pricing segments f
Slide 25: Our Loss Prevention Team proactively reduces claims frequency and severity
Our Loss Prevention Team proactively reduces claims frequency and severity • Expertise in Property & Casualty, Equipment Breakdown and Long-Haul Trucking Fleet • 70 in-house inspectors performing 19,000 inspections per year 1. Confirm Information on file about the risk 2. Provide a valuable customer
Slide 26: Our unique expertise in claims management
Intact Financial Corporation (TSX: IFC) Our unique expertise in claims management Mathieu Lamy Julie Nolette Investor Day Presentation November 20, 2012
Slide 27: Our advantage in claims
Call Center Efficiencies Cat Response Customer Satisfaction Scale OUR Internalization of IA Reduced Claims ADVANTAGE Internal Expertise Costs Internalization of Legal IN CLAIMS AXA & JEVCO Reduced Loss Adjustment Expenses Supply Chain Fraud 2 points ROE outperformance from Claims 27
Slide 28: Impressive response times and abandon rate
Impressive response times and abandon rate • Over 2M Phone calls expected in 2012 Call Center – 100% handled internally Efficiencies – 94% of calls answered within 20 secs – 1% abandon rate Impacts: • Over 500,000 claims expected this year Better customer service Brand positioning – Over 96% files h
Slide 29: Scale enables unique capacity and capability
Scale enables unique capacity and capability In a catastrophe situation, all regions can be leveraged for phone claim intake 29
Slide 30: Unparalleled Cat response
Unparalleled Cat response Calgary, AB – August 12, 2012 – 20 minutes heavy hail Date Action Result Catastrophe Same day After Hours Call centre • Took first claim the same day as the event Response 5 days Opened Cat Auto Response Centre • Appraised up to 144 cars a day • Adjusters and Appraisal team
Slide 31: Unparalleled Cat response
Unparalleled Cat response 31
Slide 32: Scale and expertise enable limited use of IAs
Scale and expertise enable limited use of IAs • 96% of claims now handled internally • Outsourcing to Independent Adjusters (IA) costs ~2x Internalization on the expense side alone of Independent • Indemnity $ better controlled by IFC employees Adjusters (IAs) • 25% of AXA files went to IAs - we exp
Slide 33: Higher customer satisfaction when handled internally
Higher customer satisfaction when handled internally Personal Lines Property – Net promoter score by type of adjuster Net Satisfaction and Promoter Scores 80% 72% 70% 71% Net Promoter Score 60% 70% 50% 69% 40% 68% 30% 67% 20% 66% 10% 65% 0% 64% 2010 2011 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Int
Slide 34: Internalization of legal costs reduces expenses
Internalization of legal costs reduces expenses • Outsourcing legal work costs ~2x • Longer cycle time of legal files translates into lagged Internalization benefits of Legal • AXA was outsourcing substantially all of its legal files IFC Legal costs* Impacts: Expense savings Improves cycle time 2007
Slide 35: Scale enables the Rely Network Advantage
Scale enables the Rely Network Advantage Auto Rely Usage 64% Increased usage of Rely Network 63% + Roll out part supply imitative 62% Limited inflation in repair cost 61% 60% Auto Rely Program Supply chain 59% 2010A 2011A 2012 - Sept YTD • Network of 750 shops individually selected based on customer
Slide 36: AXA synergies on track
AXA synergies on track 2012 2013 Synergies - Cumulative Savings Loss adjustment expenses $12MM $13MM $80 Cumulative $25MM $60 (in millions) Indemnity costs $20MM $13MM $40 Cumulative $33MM Main contributors: $20 • Replication of IFC Accident Benefit Action Plan • Contract renegotiation with major su
Slide 37: Results of Ontario Accident Benefits Action Plan
Results of Ontario Accident Benefits Action Plan • Placing fraudulent clinics on a Watchlist brings Internal down costs for both insurers and insureds expertise on Number of Treatment Plan Submissions fraud 3,500 AXA closing 3,000 Impacts: Number of Forms Investigator & adjuster 2,500 efficiency 2,0
Slide 38: Scale & investments deliver savings in fraud fighting
Scale & investments deliver savings in fraud fighting Intact AB Paid Monthly ($MM) Monthly Paid to Watchlist Clinics ($MM) $35 $3.5 $30 $3.0 Total Paid ($MM) $2.5 Total Paid ($MM) $25 $2.0 $20 $1.5 $15 $1.0 $10 $0.5 $5 $0.0 $0 -$0.5 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-10 Jul-10 Jan-11 Jul-
Slide 39: Efficiently target employer fraud rings
Efficiently target employer fraud rings • Income Replacement abuse one of the biggest challenges today Potential fraud lead • Example of Fraud mitigation software at work – 1 name no – 2 cell phones Triage Team Close – 8 fraudulent businesses uncovered – 14 claims involving Income Replacement abuse
Slide 40: Size and scale lead to crackdown in fraud
Size and scale lead to crackdown in fraud • Increased resources – Field investigators vs. multi disciplinary team • Implementation of Fraud Detection Software – 3 years of policy and claims data – Strong modelling • More focus – Doubled the number of leads – Faster investigation 40
Slide 41: Claims advantage drives ROE outperformance
Call Center Efficiencies Infrastructure Savings Continued Cat Response Legal Internalization ROE Internalization of IA and Legal Out- Reinvestment in: performance Supply Chain Fraud Fighting Fraud Leakage Control Service 41
Slide 42: Slide 42
Slide 43: Our unique distribution strategy
Intact Financial Corporation (TSX: IFC) Our unique distribution strategy Louis Gagnon Michelle Dodokin Investor Day Presentation November 20, 2012
Slide 44: Multi-channel, multi-brand strategy to maximize growth
ACCELERATING PROFITABLE GROWTH Multi-channel, multi- brand strategy to maximize growth 44
Slide 45: Distribution and brand vision
Distribution and brand vision • IFC’s distribution strategy is built on consumer preferences • In personal lines, the market is divided between brokers and direct companies • In commercial, brokers own the market partly due to risk complexity • The web is also becoming an important channel for both
Slide 46: Building national presence to optimize market share
Building national presence to optimize market share Market share 2011 Direct premiums written Atlantic 6% British Columbia 7% Alberta/Prairies Ontario 17% 40% 14% 17% 14% 6% 28% 15% Quebec 30% BFS Ontario 846 Brokers Quebec 588 Brokers West 775 Brokers Atlantic 140 Brokers
Slide 47: Building on the strengths of the broker channel and supporting growth
Building on the strengths of the broker channel and supporting growth Making it easier for customers Respected brand • Most complete product suite • Intact Insurance’s unaided brand awareness at • Providing brokers with tools and technology 10% after only 3 years to offer the best customer experienc
Slide 48: Leveraging IFC web expertise into the broker channel
Leveraging IFC web expertise into the broker channel 50% of consumers get an online quote • Intact “buy online” tool shares the same back-end technology platform as belairdirect Pilots launched • Look and feel adapted to Intact Insurance • Ontario (July 2012) • Ability to translate web best practice
Slide 49: BrokerLink: best of the broker and direct channels
BrokerLink: best of the broker and direct channels • One of the largest brokers in Ontario and Alberta About $580 • Rapidly building scale through acquisitions as well as organic million in growth premium; 3 year CAGR ~11% • Enhanced web and mobile presence; quote volume in excess of 1K per month •
Slide 50: belairdirect: strength built on online innovation
belairdirect: strength built on online innovation and ease of doing business Brand dominance Web leader • >50% unaided brand awareness in • #1 web insurer brand Quebec • >60% of web quotes now originate on • Top 10 in brand in Ontario, and growing the web in Ontario; 40% in Quebec High customer sati
Slide 51: Brand leader on the web in Ontario and Quebec
Brand leader on the web in Ontario and Quebec Quebec – #1 brand associated with Ontario – #1 brand associated with online quotes and purchasing online online quotes and purchasing online 22% 8% Online brand1 5% 12% 4% 3% 6% 4% 1Brand Tracking Survey. Car insurance company most associated with online
Slide 52: Expanding online presence into social media
Expanding online presence into social media Little knight will have his own Facebook page Customers can exchange about products, claims experiences, etc. belairdirect will be going live on Twitter to keep followers up to date on current events, product news, safety tips, etc. 52
Slide 53: belairdirect: key growth opportunities
belairdirect: key growth opportunities Customer newsletter Peer Review
Slide 54: Grey Power: niche 50+ insurer in Canada
Grey Power: niche 50+ insurer in Canada Brand power Distinctive value proposition • 19% unaided awareness in • Target customer segment is clear Ontario and 21% in Alberta • Better rates for good drivers among 50+ consumers • Unique in the market • High brand affinity among 50+ consumers High custome
Slide 55: Grey Power: key growth opportunities
Grey Power: key growth opportunities Web site and quote tool Intact Insurance Direct mail online quote volume has grown xx-fold since its Direct response TV launch in Ontario Facebook ad banner in Qx-11
Slide 56: Unique model that creates a competitive advantage
Unique model that creates a competitive advantage in a converging market • Leading brands – each brand is unique and holds a leading position in its target market • Distinct value propositions – appeal to different consumer segments • Shared expertise – IFC brands benefit from sharing of expertise b
Slide 57: Investor Day Presentation November 20, 2012
Investor Day Presentation November 20, 2012
Slide 58: Update on the Ontario auto mediation situation
Can you provide an update on the Ontario auto mediation situation? 58
Slide 59: Update on mediation backlog
Update on mediation backlog Mediations – Industry vs. IFC • Industry is starting to decline 40,000 35,000 – Outsourcing has begun 30,000 25,000 • IFC has been proactive – backlog 20,000 reduced by 1/3 15,000 10,000 – Electronic scheduling 5,000 – Monitoring pending cases 0 – Settling based on merit
Slide 60: Update on environment and vision for commercial lines
Please provide an update on the environment and your vision for commercial lines? 60
Slide 61: Commercial lines environment
Commercial lines environment The facts Our view • Recent U.S. price increases of 3% - 5% • We estimate current industry CR in 98% • Canadian market conditions remain - 100% range stable • We believe that for the industry to regain – Small rate increases on renewal of 1% - its historical 10% ROE, rat
Slide 62: Focused on reaching our targets
Focused on reaching our targets Our future Commercial lines key objectives • Best product suite Our customers are • Outstanding service levels to brokers advocates • Organic growth above industry level Our people are engaged • Be among the best employers Our company is the most • Outperform industry
Slide 63: Financial Update
Intact Financial Corporation (TSX: IFC) Financial Update Mark Tullis, CFO Investor Day Presentation November 20, 2012
Slide 64: We are on track to reach our synergy goals
We are on track to reach our synergy goals 2012 2013 2014 AXA Canada LAE reductions Operational Systems efficiencies Shared services LAE reductions Operational Systems efficiencies Synergy run-rate $50 million $90 million $100 million JEVCO Shared services LAE reductions Systems Operational Reinsura
Slide 65: Low yields are pressuring investment income
Low yields are pressuring investment income 450 5.5% Net investment income Pre-tax yie ld 400 5.0% Investments are up 350 4.5% due to assets from acquisitions, while 300 4.0% declining yields are putting downward 250 3.5% pressure on investment income 200 3.0% 2005 2006 2007 2008 2009 2010 2011 2012
Slide 66: Property improvement plan established
Property improvement plan established Personal Property Reported Combined Ratio • We are committed to running the 113.6% 109.0% 96.5% 103.5% 102.8% business at a combined ratio of 95% or 8.7% 8.6% better 5.9% 14.5% 12.9% • Initiatives to improve the performance will be rolled-out in H1-2013 104.9% 1
Slide 67: Reinsurance protects our balance sheet
Reinsurance protects our balance sheet 1998 $300 Ice Storm • Reinsurance protection of approximately Estimated IFC net loss ($MM) $1.6B 2011 $250 $3 billion Slave Lake $700MM • Net retention of $2 to $10 million for single $200 2005 risk events $150 Ontario storms $500MM • Most costly natural disast
Slide 68: Strong financial foundation for growth
Strong financial foundation for growth $12.8 billion – conservatively managed Solid balance sheet Note: Investment mix is net Loans, 3% of hedging positions and Cash and short financial liabilities related to • $598 million in total excess capital term notes, 5% investments. • MCT of 201% Common Sha
Slide 69: Capital framework provides flexibility
Capital framework provides flexibility Capital management framework Shareholder friendly approach Maintain leverage ratio • We have increased our dividend each year since our IPO – by 13.7% on average (target 20% debt to total capital) • We believe we have organic growth Excess capital opportunities
Slide 70: Strong foundation for growth
Strong foundation for growth Acquisition synergies are on track, but headwinds exist with low yields and challenging property results Reinsurance provides an additional layer of protection Our conservative balance sheet and solid capital position provide flexibility and opportunities for growth We c
Slide 71: Growth outlook and summary
Intact Financial Corporation (TSX: IFC) Growth outlook and summary Charles Brindamour Investor Day Presentation November 20, 2012
Slide 72: Industry growth outlook
Industry growth outlook Total auto Personal property Commercial P&C 2011 growth: 2011 growth: 2011 growth: Industry 3.8% Industry 6.8% Industry 2.7% Improvement expected Hard market conditions Conditions remains soft from rate increases are expected to continue for new business but already in the sy
Slide 73: Four distinct avenues for growth
Four distinct avenues for growth Firming market conditions (0-2 years) Develop existing platforms (0-3 years) Personal lines • Continue to expand support to • Industry premiums likely to be bolstered by hard our broker partners market conditions in personal property • Leverage addition of JEVCO Comm
Slide 74: Building on our sustainable competitive advantages
Building on our sustainable competitive advantages We have a sustainable competitive advantage versus the industry Our core attributes in pricing & segmentation, claims management, and distribution solidify our advantage Our solid financial position enables us to take advantage of growth opportuniti
Slide 75: We are well on our way to building a world-class P&C insurer
We are well on our way to building a WORLD-CLASS P&C insurer 75
Slide 76: Speaker biographies
Speaker biographies Charles Brindamour, CEO Mr. Brindamour is the Chief Executive Officer of Intact Financial Corporation. He was appointed CEO and President in January 2008. Prior to this appointment he was Chief Operating Officer, a role he held since January 2007. Mr. Brindamour began his career
Slide 77: Speaker biographies
Speaker biographies Darren Godfrey, VP Underwriting Personal Lines West Mr. Godfrey was appointed to this role in October 2009. He is responsible for the evolution of Intact’s personal lines strategies and for increasing its competitive advantages, and has direct responsibility for personal lines ac
Slide 78: Speaker biographies
Speaker biographies Mathieu Lamy, SVP Claims Mr. Lamy has been in his current role since September 2011. He joined AXA Canada in 1989 and in 1996 he joined the Ontario and Atlantic Underwriting team, where he eventually became VP, Underwriting Personal Lines. Mr. Lamy was named to the position of EV
Slide 79: Speaker biographies
Speaker biographies Louis Gagnon, President and COO Mr. Gagnon was appointed President and Chief Operating Officer of Intact Financial Corporation in September 2011. Before assuming this current role, Mr. Gagnon was President of Intact Insurance from 2008 to 2011. He joined Intact Insurance as Senio
Slide 80: Speaker biographies
Speaker biographies Mark Tullis, Chief Financial Officer Mr. Tullis held a number of senior positions within the ING group before joining Intact in 2006, and had been a director of Intact's insurance subsidiaries from 2000 to 2005. He has over 30 years of experience within the insurance industry. In
Slide 81: Investor Relations contact information
Investor Relations contact information Dennis Westfall, CFA Maida Sit, CFA Vice President, Investor Relations Manager, Investor Relations Phone: 416.341.1464 ext 45122 Phone: 416.341.1464 ext 45135 Cell: 416.797.7828 Email: Maida.Sit@intact.net Email: Dennis.Westfall@intact.net Email: ir@intact.net