Intact Financial Corporation · TSX:IFC
Intact Financial — Investor Day (November 2011)
56 slides from Intact Financial's investor day presentation, Nov 15, 2011
Slide 1: Intact Financial Corporation Investor Conference
Intact Financial Corporation Investor Conference November 15, 2011
Slide 2: Forward-Looking Statement Disclaimer
Forward-Looking Statement 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-lookin
Slide 3: Agenda
Agenda 8:30 - 8:35 • Welcome Dennis Westfall 8:35 - 8:50 • Introduction Charles Brindamour 8:50 - 9:15 • AXA Canada Integration Louis Gagnon 9:15 - 9:40 • Vision for Intact Insurance Jean-François Blais 9:40 - 10:00 • Personal Lines Martin Beaulieu 10:00 - 10:20 • Q&A and Break All 10:20 - 10:35 • C
Slide 4: Introduction
Introduction Charles Brindamour
Slide 5: Canada's Leader in P&C Insurance
Canada’s Leader in P&C Insurance Who we are1 Distinct brands • Largest P&C insurer in Canada • $6.5 billion in direct premiums written • #1 in Ontario, Quebec, Alberta, Nova Scotia • $11.8 billion cash and invested assets • Proven industry consolidator Scale advantage Industry outperformer 2010 Dire
Slide 6: A Strong Base From Which to Build
A Strong Base From Which to Build Enhanced Business Mix Stronger Capacity To Outperform Pro Line of Business IFC Combined Ratio 2010 H1 2011 Forma Personal Auto 50% 46% IFC* 94.8% 94.9% Personal Property 24% 22% Top 20 Industry* 105.0% 100.4% Commercial 26% 32% Outperformance 10.2 pts 5.5 pts Pro Ge
Slide 7: A Best-In-Class Management Team
A Best-In-Class Management Team Charles Brindamour Chief Executive Officer Marc Claude Jean-François Francois Pontbriand Desilets Blais Guenette Mark Tullis Lucie Martel Louis Gagnon Marc Provost President SVP Corporate Chief Risk President Chief Financial Chief Human President and SVP & Managing Di
Slide 8: Key Priorities for the Coming 12-18 Months
Key Priorities for the Coming 12-18 Months • Service AXA Canada • Team Retention Integration • Products • Synergies • Supporting Brokers Bolster − Web Organic Growth − Commercial Lines • Expanding Direct • Expanding BrokerLink 8
Slide 9: AXA Canada Integration
AXA Canada Integration Louis Gagnon
Slide 10: Integration Objectives
Integration Objectives Objectives One team with common • New team in place values • Maintain and improve engagement levels Maintain current and • Metrics closely monitored acquired portfolios, talent • No significant issues identified and engagement level Accretive in 2012, and by • Accretion based
Slide 11: Integration Strategy
Integration Strategy Core principles – in order of importance Customer experience • Remains top priority of the organization and broker service • Positive feedback received from brokers at this point • All commercial lines products maintained Protect and leverage • Need to demonstrate appetite in co
Slide 12: A Synergistic Acquisition
A Synergistic Acquisition Our synergies program: • Definition: Synergies are “visible” cost reductions based on actual 2010 results • Objective: $100M after-tax on a run-rate basis within 18-24 months of close • Accountability: Synergy targets to be incorporated in performance objectives A robust sy
Slide 13: Synergy Levels & Timing
Synergy Levels & Timing Synergies: $100 million after-tax run-rate Integration & restructuring costs of within 24 months of the close ~$100 million after-tax $100M $90M 2012 2012 33% $80M $70M $60M $50M 47% Q4-2011 Q4-2011 $40M $30M $20M $10M Q3-2011 Q3-2011 20% $0M 2012 2013 Shared services, fees &
Slide 14: Other Expected Market Impacts
Other Expected Market Impacts Reinsurance costs to rise Short-term supply-chain management benefits • Exposure higher (i.e. B.C.) Offset by • Cost savings related to • IFC more conservative applying IFC’s existing supplier • AXA SA pricing benefit gone agreements to AXA policies 14
Slide 15: Mid-Term Opportunities
Mid-Term Opportunities Further synergy upside expected in the mid-term: • Leverage best practices in segmentation • Leverage our new size in supply-chain management initiatives Actuarial Benefits Supply-Chain Initiatives • 190 actuaries • Combined company ~40% more volume • Best-in-class segmentatio
Slide 16: Vision for Intact Insurance
Vision for Intact Insurance Jean-François Blais
Slide 17: Overview
Overview Distribution by line of business Highlights Commercial Personal • DPW of $5.7 billion in 2010 Property, Auto, 8% 23% (including AXA Canada) Commercial P&C, 27% • 2,000+ brokerages making up about 80% of Canadian brokers • ~ 20 offices across Canada Personal Auto, 42% Distribution by geograp
Slide 18: Priority #1 Retention of AXA Canada Portfolio
Priority #1 Retention of AXA Canada Portfolio • Secure brokers with Intact/AXA Canada management diversity • 99% of AXA Canada front line staff with broker relationships are kept • Dedicated conversion teams of more than 200 people in place • 99% of AXA Canada products and lines of business kept • C
Slide 19: Priority #2 Organic Growth
Priority #2 Organic Growth • More than 200 new brokers • Provide an environment to attract new business • Leveraging improved products and new lines of business • Refined pricing segmentation in both personal lines and commercial lines • Increased branding and marketing • Better alignment of broker
Slide 20: Growing the Pie: Web for Brokers
Growing the Pie: Web for Brokers Benefits for Brokers • Attract new customers through online technology • Better able to compete against direct writers Benefits for Customers • Independently search for a quote while having the resources of an advice channel “the broker” immediately available • Conve
Slide 21: Priority #3 Leverage Expertise / Best Practices
Priority #3 Leverage Expertise / Best Practices • More data, more tools and more experts leading to new pricing algorithms • Review of underwriting rules • Workflow efficiencies with straight-through processing Practical Examples: Pricing: conversion of business will be done based on IFC pricing,
Slide 22: Our Vision
Our Vision • A world-class organization with world-class products and solutions • A stable, financially strong and open market for brokers • An unwavering commitment to the broker channel with many resources: Broker financing Marketing & communications support I.T. – ease of doing business (i.
Slide 23: Personal Lines
Personal Lines Martin Beaulieu
Slide 24: Vision
Vision • Create exceptional experience − For customers (claims / technology) − For brokers (ease of doing business / technology / service / training / financial support) • Leverage our scale and expertise to exploit market inefficiencies to: − grow faster − achieve superior profit margins 24
Slide 25: Ontario Auto: Reforms
Ontario Auto: Reforms Reforms & IFC Initiatives Are Working Reform Savings Improving Accident Benefits Reforms/Claims initiatives Reforms Best Estimate Savings Target Savings As of Oct-2011 • >50% reduction in assessments and treatment plan % % requests since January, 2011 Assessments 31% >50% • >40
Slide 26: Ontario Auto: Claims Initiatives
Ontario Auto: Claims Initiatives Components of AB Action Plan Dispute Resolution Mechanisms • Increased capacity of Accident Benefit • Mediation handling team − ±20% of opened files • Strengthening our controls − Non-binding / $500 cost born by insurer − Tighter acceptance of treatment plans − Signi
Slide 27: Ensuring Profitability in Personal Property
Ensuring Profitability in Personal Property Loss Ratios Impacted by Cats Home Improvement Plan to Date Composition of Loss Ratios Reported • YTD-2011 impacted by double normal Cat activity Loss Ratio 68.6% 80.2% 75.2% 61.7% 75.4% • CAY results trending towards 15pts improvement 8.7% 3.1% 8.6% 17.1%
Slide 28: Q&A Break
= [inact] MSURANCE You're back. about things. Insurance is not Insurance is about people. Q&A Break
Slide 29: Commercial Lines
Commercial Lines Alain Lessard
Slide 30: Two Impressive Track Records
Two Impressive Track Records Commercial P&C 10-year loss ratio outperformance 20 pts 15 pts AXA Canada 10-year avg. = 6.9 pts 10 pts Intact Insurance 5 pts 10-year avg. = 7.0 pts 0 pts -5 pts 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: MSA Research, excluding Lloyd’s, Genworth, ICBC, S
Slide 31: Now the Largest Player in Commercial P&C
Now the Largest Player in Commercial P&C Canada’s Top Ten Commercial P&C Insurers $1,483 (DPW in millions) $1,278 $876 $759 $674 $646 $615 $591 $440 $358 Intact Lloyd's Aviva Chartis Zurich Northbridge Co-operators RSA Economical FM Global Market 12.9% 11.1% 7.6% 6.6% 5.9% 5.6% 5.4% 5.1% 3.8% 3.1% S
Slide 32: Commercial Lines Value Proposition
Commercial Lines Value Proposition • The best of both companies: products and appetite • Broader new product suite • Maintaining the outer boundary of the current Intact and AXA appetite • Industry leading commercial lines offering • Continued focus on AcceL and Medium Sized Business • Regional stru
Slide 33: Substantial Growth in Mid-Size Business
Substantial Growth in Mid-Size Business Small business: Mid-sized business: • Team underwriting for industry • Knowledgeable underwriters leading service • Full solutions for mainstream • Click, call or fax business • Ease of doing business • Leverage loss inspection capabilities Intact + AXA Premiu
Slide 34: Introduction to Specialty Lines
Introduction to Specialty Lines Benefits of including specialty lines in C/L product offering: • Diversification of risks • Historically a very profitable book of business • Bolsters offering for existing brokers and expands list of potential brokers • Impact on mid-market capacity retention and gro
Slide 35: Large Expansion into Specialty Lines
Large Expansion into Specialty Lines AXA Intact AXA + Intact # of Specialty 2010 2010 2010 dedicated Lines DPW DPW DPW underwriters (in thousands) (in thousands) (in thousands) Farm 40,872 48,798 89,670 51 E&O 22,043 2,258 24,301 15 D&O 14,276 2,789 17,065 15 Marine 27,110 1,164 28,274 15 Trucking 2
Slide 36: Disciplined Pricing & Underwriting
Disciplined Pricing & Underwriting Lever increased scale for superior pricing and risk selection Canada’s largest level of expertise on all lines: Actuarial, underwriting and loss control Superior risk selection: Sophisticated and disciplined pricing: • Focus on target classes/Segments • Statistical
Slide 37: Financial Matters
Financial Matters Mark Tullis
Slide 38: Our Capital Management Framework
Our Capital Management Framework CONTEXT Going Forward 500 bps ROE gap 2011: Same objectives 10% NOIPS growth An active year Volatile capital markets Mature market Headwinds from lower yields Maintain existing Dividend increased 9% Maintain existing dividends Total dividends paid: dividends Excess c
Slide 39: Striving to Deliver Value
Striving to Deliver Value Quarterly dividend Solid shareholder returns 8.8% • 25% total return to shareholders in the past 6.3% 3.2% year; 74% in the past two years 0.40 $0.370 14.8% 0.35 8.0% $0.320 $0.340 • $471 million returned through NCIB over $0.310 0.30 53.8% $0.270 the past two years $0.250
Slide 40: Declining Yields Continuing Unabated
Declining Yields Continuing Unabated ($M) Annual Investment Data 450 5.5% Net investment income Expenses Pre-tax yield 400 5.0% 350 4.5% 300 4.0% 250 3.5% 200 3.0% 2005 2006 2007 2008 2009 2010 2011e 2012e Invested Assets $7.1 $7.4 $7.3 $6.9 $7.1 $8.0 $9.0 $11.6 (avg, in billions) • Investment incom
Slide 41: Lower Yields Also Impact Pension Plans
Lower Yields Also Impact Pension Plans Pension plan movements Amounts Impact For the 9 months to Sep 30th $ millions Accounting deficit on Jan 1, 2011 (23) Opening balance sheet Pension expense (21) NOI Cash contribution 24 Invested assets Gains and losses (120) Shareholders’ equity Axa net deficit
Slide 42: Financing Secured Despite Market Turmoil
Financing Secured Despite Market Turmoil • Financing is entirely secured with long tenure and low rates • Higher proceeds from sale of life business than expected will reduce leverage to target level of 20% Initial Plan Actual1 Coupon/ Tenure Dividend Common equity $800M $923M N/A N/A MTN series 3 $
Slide 43: Rating Agencies Update
Rating Agencies Update Credit Ratings IFC Targets Agency Rating Comments No specific rating is targeted We target a few key financial metrics: DBRS A (low) No change • Debt to total capital ratio of 20% or less 1 notch • ROE of 500 bps above industry Moody’s Baa1 downgrade • NOIPS growth of 10% over
Slide 44: IFC Spreads In-Line With Investment Grade Index
IFC Spreads In-Line With Investment Grade Index Historical CIBC Indicative 10-year New Issue Pricing and CDXIG1 320 300 September 26th: Moody's Downgrade to Baa1 from A3 280 260 August 12th: $300MM 10-year 4.70% Notes Offering 240 Insurance Spread (bps) 220 200 CDXIG (bps) 160 180 120 May 31st / Jun
Slide 45: Growth Outlook
Growth Outlook Charles Brindamour
Slide 46: Outlook
Outlook We expect growth in the next 12 months at a pace similar to 2010 and the first half of 2011 Personal auto • Despite ~27% increase in Ontario auto rates since January 2008, the 2010 growth*: industry’s combined ratio at June 2011 was approximately 110% Industry 4.7% • Should results continue
Slide 47: Near-Term Themes to Monitor
Near-Term Themes to Monitor Impact on Industry from Low Yields Reinsurance 14% • Major catastrophes in the world in 2011 have 12% impacted reinsurer’s capital levels 10% P&C Industry • The Canadian industry one of the most 8% profitability conservative markets in the world in terms of 6% 3-5 year ea
Slide 48: Four Distinct Avenues for Growth
Four Distinct Avenues for Growth Firming market conditions (0-24 months) Develop existing platforms (0-3 years) Personal lines • Continue to expand support to • Industry premiums remain inadequate in ON auto our broker partners • Home insurance premiums also on the rise • Expand and grow belairdirec
Slide 49: Further Industry Consolidation Ahead
Further Industry Consolidation Ahead Our acquisition strategy Canadian M&A environment • Targeting large-scale acquisitions of $500 million or more in Environment more conducive to acquisitions now than direct premiums written in recent years: • Pursuing acquisitions in lines of business where we ha
Slide 50: Conclusion
Conclusion Disciplined pricing, underwriting, investment and capital management have positioned us well for the future • Largest P&C insurance company in Canada • Consistent track record of industry outperformance • Strong financial position • Excellent long-term earnings power • Organic growth plat
Slide 51: Q&A
Building SF a world-class P&C insurer Q&A [intact] —
Slide 52: Intact Financial Corporation Investor Conference
Intact Financial Corporation Investor Conference November 15, 2011
Slide 53: 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 54: Speaker Biographies
Speaker Biographies Jean-François Blais, President Intact Insurance Mr. Blais was named President of Intact Insurance in September 2011 after leading all aspects of AXA’s operations in Canada for seven years as President and Chief Executive Officer and Director. Mr. Blais has been in the insurance b
Slide 55: Speaker Biographies
Speaker Biographies Alain Lessard, SVP Commercial Lines Mr. Lessard was appointed to the role of Senior Vice President, Commercial Lines, in September 2011. In this role, he is responsible for developing and delivering Intact Insurance's strategy for commercial lines underwriting, pricing and produc
Slide 56: Investor Relations Contact Information
Investor Relations Contact Information Dennis Westfall Director, Investor Relations Phone: 416.341.1464 ext 45122 Cell: 416.797.7828 Email: Dennis.Westfall@intact.net Email: ir@intact.net Phone: 416. 941.5336 or 1.866.778.0774 (toll-free within North America) Fax: 416.941.0006 www.intactfc.com/Inves