Intact Financial Corporation · TSX:IFC
Intact Financial — ING Canada — Investor Day (September 2005)
82 slides from Intact Financial's investor day presentation, Sep 12, 2005
Slide 1: 1st Annual Investor Day
1 st Annu al September 12, 2005 Hilton Toronto
Slide 2: Forward Looking Statement Disclaimer
Forward Looking Statement Disclaimer Certain of the statements contained in this presentation about our 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 stateme
Slide 3: Agenda
Agenda 8:15 – 8:20 a.m. Welcome/Housekeeping 8:20 – 8:45 a.m. CEO Overview/Strategy 8:45 – 9:15 a.m. Claims 9:15 – 10:15 a.m. Reserves/Actuarial 10:15 – 10:30 a.m. Coffee Break 10:30 – 11:15 a.m. Government Relations/Marketing 11:15 – 12:00 p.m. BELAIRdirect 12:00 – 12:45 p.m. Lunch Buffet 12:45 – 1
Slide 4: CEO Overview/Strategy
CEO Overview/Strategy Claude Dussault, President and CEO Annual Investor Day September 12, 2005
Slide 5: Claims
Claims Ed Nolan, Vice President Claims Annual Investor Day September 12, 2005 Claims Ed Nolan 5
Slide 6: Agenda
Agenda • The “Claims” Industry • Overview of ING Claims Department • Core Competencies • Trends • Q&A Claims Ed Nolan 6
Slide 7: The "Claims" Industry
The “Claims” Industry Size In 2004 the Canadian Property and Casualty industry paid and reserved $17 billion for claims made by its policyholders $ billions $3.20 Auto Property $9.60 Other $4.20 Claims Ed Nolan 7
Slide 8: The "Claims" Industry
The “Claims” Industry Breadth of Industry In addition to the resources working directly to assist clients with their losses, the property and casualty insurance industry participates in a broad section of the economy: Adjusting/processing Reimbursements 9 Staff resources 9 Auto repairers (body shops
Slide 9: ING Claims Department
ING Claims Department • 1750 employees located in eight provinces and 23 offices across Canada. • We assist clients with approximately 350,000 claims per year. • Financial responsibility for managing $ 2.3 billion in expenditures annually. - $2 billion in indemnity payments - $190 million in interna
Slide 10: Our Mission
Our Mission •Our mission is to help ING Canada maintain a competitive advantage by leveraging our scale of operations: • Client service/satisfaction • Preferred provider networks and procurement • Indemnity control and expense management • Technology Claims Ed Nolan 10
Slide 11: Client Service
Client Service • Assisting clients in time of need : - 24/7 assistance - ING call centres - Client Service Guarantee - Catastrophe response teams • Service oriented employees and suppliers • 50,000 customers randomly surveyed each year • 94 % satisfaction rating • Expand on our claim service promise
Slide 12: Preferred Providers
Preferred Providers • Partnerships with selected providers help speed the process by providing priority service with preferred, volume based pricing. • Supplier networks: - Rely Network of Auto repair shops ( 50% usage) - Rely Network of Contractors (2005 4th quarter launch) - Glass (45% usage) - Ca
Slide 13: Indemnity Control and Expense Management
Indemnity Control and Expense Management • Indemnity • experienced staff with strong technical skills • Special Investigations Unit (S.I.U.) to control fraud • best practices • closed file reviews to control leakage • Expense • 97% of our claims are staff handled • in-house legal teams across Canada
Slide 14: Technology
Technology • OPUS claims system • improved workflow efficiencies • productivity gains • online file reviews • consistency in claim handling • better vendor data • Telephony • Duoline • call observation • call centre technology Claims Ed Nolan 14
Slide 15: Trends
Trends • Continuing low frequencies on property damage claims • Casualty claim frequencies down slightly • Water related claims on the increase • Severity trends show positive signs Claims Ed Nolan 15
Slide 16: Questions & Discussion
Questions & Discussion Claims Ed Nolan 16
Slide 17: Reserves/Actuarial
Reserves/Actuarial Claude Désilets, Senior Vice President & Chief Actuary Annual Investor Day September 12, 2005 Reserves/Actuarial Claude Désilets 17
Slide 18: Outline
Outline • Positioning in Financial Statements – Balance Sheet – Flow to Income Statement • Premium Liabilities (UPR / DAC) testing • Claim Liabilities testing – Components – Estimation methods • Chain ladder method • Other methods (BF, Loss Ratio) • Adjustments • Impact of misestimations • Discounti
Slide 19: Balance Sheet (December 2004)
Balance Sheet (December 2004) ($ millions) Net Unpaid Loss 3,536 Assets Liabilities Cash & Investments 6,411 Unpaid Claim 4,223 Receivables 1,642 UPR 2,341 Ceded Unpaid Claim 687 Ceded DAC 10 Ceded UPR 78 Other 1,030 DAC 390 Total Liabilities 7,604 Other 455 Equity 2,060 Total 9,663 Total 9,663 Rese
Slide 20: Income Statement (2004)
Income Statement (2004) ($ millions) Revenues Net Earned Premium 3,365 = NWP - Chg Net UPR Investment Income 267 Realized gains 132 Comm. & adv. Fees 17 3,781 Expenses Claims 1,906 = Paid loss + Chg Net Unpaid Claim Other expenses 1,007 = Paid expenses - Chg net DAC 2,913 Interest on debt 12 Pre-tax
Slide 21: Premium Liabilities (UPR / DAC) Testing
Premium Liabilities (UPR / DAC) Testing • In the Financial Statements – UPR is calculated as the unexpired portion of the premium on the policies in force (eg: the UPR at December 31 for a $1,200 annual policy effective November 1 is $1,000) – DAC represents the pre-paid expenses (mainly commissions
Slide 22: Components of Claim Liabilities
Components of Claim Liabilities • Case Reserves – Claim reserves set by claim adjusters for each claim individually • IBNR: “Incurred But Not Reported” – Claim reserves set in bulk by the actuary • Late reported claims (or “Pure” IBNR) • Development on open claims (or IBNER, Incurred But Not Enough
Slide 23: Components of Claim Liabilities
Components of Claim Liabilities ($ millions) Case Reserves 2,048 57.9% IBNR 1,140 32.2% ULAE 164 4.6% Automobile Pools 184 5.2% Total 3,536 100.0% Reserves/Actuarial Claude Désilets 23
Slide 24: Claim Liabilities Estimation Methods
Claim Liabilities Estimation Methods • Main Methods – Chain Ladder (equivalent to Iceberg method) – Bornhuetter-Ferguson – Loss Ratio • Other Methods – Adjustment for reserve strengthening / weakening – Paid Methods – Marker & Mohl • Data used – Paid Loss – Case Reserve – Case Incurred (Paid Loss +
Slide 25: Claim Liabilities – Main Methods
Claim Liabilities – Main Methods • Chain Ladder Incurred Method – Future development relates to what already emerged – Ultimate loss & IBNR derived by a factor applied to reported incurred loss • Bornhuetter-Ferguson Method – Future development relates to expected loss – Ultimate loss derived by add
Slide 26: Iceberg Method (Equivalent of Chain Ladder)
Iceberg Method (Equivalent of Chain Ladder) Emerged (Reported) Ultimate Unknown (IBNR) Reserves/Actuarial Claude Désilets 26
Slide 27: Chain Ladder – Exhibit 1
Chain Ladder – Exhibit 1 Case Incurred Age of Development Accident (in months) Year 12 24 36 48 60 72 84 96 108 120 132 144 1993 21 173 2,184 2,756 2,905 2,909 2,966 3,024 3,029 3,024 3,024 3,024 1994 20 2,904 4,007 4,025 4,160 3,987 3,987 3,943 3,903 3,867 3,811 1995 1,802 1,787 2,544 2,939 2,971 2
Slide 28: Chain Ladder – Exhibit 2
Chain Ladder – Exhibit 2 Loss Development Factors (LDF) Ratio of 2 Consecutive Periods 12/24 24/36 36/48 48/60 60/72 72/84 84/96 96/108 108/120 120/132 132/144 1993 8.238 12.624 1.262 1.054 1.001 1.020 1.020 1.002 0.998 1.000 1.000 1994 145.200 1.380 1.004 1.034 0.958 1.000 0.989 0.990 0.991 0.986 1
Slide 29: Chain Ladder – Exhibit 2
Chain Ladder – Exhibit 2 Loss Development Factors (LDF) 12/24 24/36 36/48 48/60 60/72 72/84 84/96 96/108 108/120 120/132 132/144 1993 8.238 12.624 1.262 1.054 1.001 1.020 1.020 1.002 0.998 1.000 1.000 1994 145.200 1.380 1.004 1.034 0.958 1.000 0.989 0.990 0.991 0.986 1995 0.992 1.424 1.155 1.011 0.9
Slide 30: Chain Ladder – Exhibit 3
Chain Ladder – Exhibit 3 IBNR Calculation Last Cumulative Ultimate – Diagonal Incurred Paid Incurred Projected ACC Loss & Case Loss & Ultimate Required Required YR AGE ALAE Reserve ALAE LDF Incurred Reserve IBNR 1993 144 2,981 43 3,024 1.000 3,024 43 0 1994 132 3,811 0 3,811 1.000 3,811 0 0 1995 120
Slide 31: Change in Pattern
Change in Pattern Chain Ladder Method - Stable Pattern 12 24 36 48 IBNR 2000 100 125 140 140 0 2001 110 138 154 154 0 2002 121 151 169 169 0 2003 133 166 186 186 20 2004 146 183 205 205 59 79 12/24 24/36 36/48 2000 1.250 1.120 1.000 2001 1.250 1.120 1.000 Projected 2002 1.250 1.120 1.000 (Square the
Slide 32: Change in Pattern
Change in Pattern Chain Ladder Method - Modified Pattern 12 24 36 48 IBNR 2000 100 125 140 140 0 2001 110 138 154 154 0 2002 121 151 174 174 0 2003 133 173 196 196 22 2004 160 202 228 228 68 91 25 More 12/24 24/36 36/48 37 12 2000 1.250 1.120 1.000 More More 2001 1.250 1.120 1.000 2002 1.250 1.150 1
Slide 33: Change in Pattern
Change in Pattern Same Ultimate (Loss Ratio Method) 12 24 36 48 IBNR 2000 100 125 140 140 0 2001 110 138 154 154 0 2002 121 151 174 169 -5 2003 133 173 186 186 13 2004 160 183 205 205 45 25 54 More 12/24 24/36 36/48 Same 2000 1.250 1.120 1.000 25 Less 2001 1.250 1.120 1.000 2002 1.250 1.150 0.974 20
Slide 34: Change in Pattern
Change in Pattern Same IBNR (Bornhuetter-Ferguson Method) 12 24 36 48 IBNR 2000 100 125 140 140 0 2001 110 138 154 154 0 2002 121 151 174 174 0 2003 133 173 193 193 20 2004 160 196 218 218 59 79 25 More 12/24 24/36 36/48 25 2000 1.250 1.120 1.000 More Same 2001 1.250 1.120 1.000 2002 1.250 1.150 1.0
Slide 35: Claim Liabilities – Other Methods
Claim Liabilities – Other Methods • Adjustment for strengthening / weakening – Restating the historical part of the triangle to bring it to the current reserving strength • Paid methods – Chain ladder applied to paid losses (instead of case incurred) – Adjustment for change in settlement pattern by
Slide 36: Impact of Misestimation
Impact of Misestimation Base Case 5% Redundancy Cal Yr Curr Yr Prior Yrs Cal Yr Curr Yr Prior Yrs Net Earned Premium 100.00 100.00 100.00 100.00 Beginning Claim Liability 95.00 0.00 95.00 99.75 0.00 99.75 Paid Loss 55.00 35.00 20.00 55.00 35.00 20.00 Ending Claim Liability 105.00 30.00 75.00 110.25
Slide 37: Discounting of Claim Liabilities
Discounting of Claim Liabilities • Discounting based on projected payment patterns – Average duration: 2.2 years • Discount rate – Based on projected yields by asset class – Riskier asset classes are assigned to surplus – December 2004: average discount rate approximately 4.8% • As part of the calcu
Slide 38: Provision For Adverse Deviation: 3 Components
Provision For Adverse Deviation: 3 Components • Claims Development – Between 2.5% and 15.0% of net claim reserves • Reinsurance Recovery – Between 0.0% and 15.0% of ceded claim reserves • Interest Rate – Between 10bp and 200bp (50bp used) Reserves/Actuarial Claude Désilets 38
Slide 39: Discounting of Claim Liabilities
Discounting of Claim Liabilities ($ millions) Undiscounted 3,485 98.6% Discount -360 -10.2% Provision For Adverse +411 +11.6% Deviation Discounted 3,536 100.0% Reserves/Actuarial Claude Désilets 39
Slide 40: Governance
Governance • Strong internal actuarial team • Internal peer review • Canadian Institute of Actuaries Standards of Practice • Audit review – Internal – External – E&Y • External actuarial review – E&Y • Regulator (mainly OSFI) review Reserves/Actuarial Claude Désilets 40
Slide 41: Questions & Discussion
Questions & Discussion Reserves/Actuarial Claude Désilets 41
Slide 42: 1st Annual Investor Day
1 st Annu al September 12, 2005 Hilton Toronto
Slide 43: Government Relations/Marketing
Government Relations/Marketing Alister Campbell, Senior Vice President Marketing, Communications & Government Relations Annual Investor Day September 12, 2005 Government Relations/Marketing Alister Campbell 43
Slide 44: Issues and Opportunities – Government Relations
Issues and Opportunities – Government Relations ING Canada – facing the challenges of negative industry perception • Canadian consumers (like insurance consumers around the world) begrudge the premiums they pay. Why? – No one expects to claim – Product is mandatory or non-discretionary – Price is pe
Slide 45: Influencing Public Perception
Influencing Public Perception Industry and company initiatives • ING Canada is well positioned to lead reforms in the Insurance Bureau of Canada (IBC) • Priority is to make our industry trade association more effective in communications with consumers and regulators – CEO is Deputy Chair of IBC and
Slide 46: Influencing Public Perception
Influencing Public Perception Industry and company initiatives • ING Canada is better positioned to speak out on industry issues separately and receive a better hearing due to our higher brand favourables – when we choose to do so – Polling confirms superior brand value – External consultants retain
Slide 47: Influencing Public Policy
Influencing Public Policy Government Relations an Imperative • Industry has faced extraordinary levels of political and regulatory scrutiny in last 3 years: – Rate levels – Compensation practices – ROE – Rating variables Government Relations/Marketing Alister Campbell 47
Slide 48: Influencing Public Policy
Influencing Public Policy Government Relations an Imperative • While political temperature is lowering with rates in decline and availability restored, key issues remain in play: – Rate approval processes and limits on pricing segmentation in auto insurance – Broker Compensation models Government Re
Slide 49: Influencing Public Policy
Influencing Public Policy Government Relations Strategy now in Place • ING Canada has dramatically increased efforts in this area over last 18 months • Objective has been to become the “go-to” company for politicians and regulators in all key jurisdictions • Initiatives focussed on supplementing IBC
Slide 50: Issues and Opportunities - Marketing
Issues and Opportunities - Marketing ING Canada is in a unique position to win ING Canada has a unique opportunity to: – Exploit ING’s brand power and multi-channel strategies to achieve true differentiation in the Canadian P&C marketplace – Leverage our market leadership position and brand favourab
Slide 51: Differentiation and Organic Growth
Differentiation and Organic Growth Brand and channel strategies • ING Canada is well positioned to serve customers regardless of how they choose to purchase • Our ING “Delivers on its Promises” brand positioning will help drive growth in the broker channel • Our BELAIRdirect “Customer Advocacy” posi
Slide 52: Differentiation and Organic Growth
Differentiation and Organic Growth Brand and channel strategies • ING is the only broker distribution company in Canada with brand recognition and high favourables (due primarily to ING Direct marketing efforts) • Leveraging this high recognition will increase closing rates when we are recommended b
Slide 53: Differentiation and Organic Growth
Differentiation and Organic Growth Brand and channel strategies • Key brand differentiators in our developing value propositions include – Client Service Guarantee – Customer who report a claim 24/7 will be called back by a qualified adjuster within 30 minutes…or we refund the premium (up to $1,000)
Slide 54: The ING Responsible Driver Guarantee
The ING Responsible Driver Guarantee Government Relations/Marketing Alister Campbell 54
Slide 55: One you won't see…yet
One you won’t see…yet Government Relations/Marketing Alister Campbell 55
Slide 56: Questions & Discussion
Questions & Discussion Government Relations/Marketing Alister Campbell 56
Slide 57: The Growth Opportunity in the Direct Channel
The Growth Opportunity in the Direct Channel Denis Guertin, Chief Operating Officer BELAIRdirect Annual Investor Day September 12, 2005 57
Slide 58: We've Been Selling Car Insurance For Over 50 Years!
We’ve Been Selling Car Insurance For Over 50 Years! 2004 Direct Written Premium ($MM) • We (almost) exclusively sell 59 personal car and property insurance in Quebec and Ontario car property • Our overall contribution to ING Canada Direct Written Premiums was 9.5% 260 in 2004, but we contributed: –
Slide 59: We're Good at It, Growing … Profitably
We’re Good at It, Growing … Profitably Direct Written Premiums – All Lines ($ 000 000) 2 % +10. 370 320 270 +8.3% 220 170 120 2003 2004 1H/2004 1H/2005 All lines 295.5 325.6 161.9 175.3 BELAIRdirect Denis Guertin 59
Slide 60: We Are the #3 Direct Response Player in Quebec
We Are the #3 Direct Response Player in Quebec … Car insurance market share Automobile Written Premiums(1) Quebec of 5% ($000) Growth 1999 2000 2001 2002 2003 2004 5 Years Direct Channel BELAIRdirect 87 438 95 442 105 387 120 313 136 489 151 723 73.5% sub-total 845 782 982 859 1 099 906 1 247 101 1
Slide 61: Taking a Closer Aim at Ontario, a Much Bigger Market
…But We’re Taking a Closer Aim at Ontario, a Much Bigger Market! Car insurance market share of 1% (1) Automobile Written Premiums Ontario ($000) Growth 1999 2000 2001 2002 2003 2004 5 Years Direct Channel BELAIRdirect 117 311 109 413 100 126 101 458 114 301 118 012 0.6% sub-total 2 001 494 2 000 067
Slide 62: Things Are Changing, We Have to Adapt to Take Advantage
Things Are Changing, We Have to Adapt to Take Advantage 1 market segmentation VALUE OPERATOR 5 leadership in automobile insurance to become the provider of to become the best-of-breed in delivering choice for targeted consumers offers, products and services in automobile • Financial discipline insur
Slide 63: …And Leverage What We Are Already Doing Well!
…And Leverage What We Are Already Doing Well! • award winning customer care centres • award winning internet site • 450 sales & advice certified agents • brand, database and campaigns management • quality programs backed by digital recordings of calls • selection of risks based on proprietary scorin
Slide 64: Aiming to Be the Integrated Web Insurer of Choice
We’re Ultimately Aiming to Be the Integrated Web Insurer of Choice • Multi-million investment in a high-performance end-to-end process management system integrating web and contact centers • Best-of-breed in car insurance through innovative customer centric product offerings and service deliveries •
Slide 65: Questions & Discussion
Questions & Discussion ING 4
Slide 66: 1st Annual Investor Day
1 st Annu al September 12, 2005 Hilton Toronto
Slide 67: Affiliated Distribution
Affiliated Distribution Roger Randall, Senior Vice President Affiliated Distribution Networks Annual Investor Day September 12, 2005 Affiliated Distribution Roger Randall 67
Slide 68: Agenda
Agenda • Background • Affiliated Distribution Networks (ADN) in ING Canada • Opportunities for ING • Questions & Discussion Affiliated Distribution Roger Randall 68
Slide 69: Multi-Channel Distribution Model
Multi-Channel Distribution Model • Direct Distribution • Affiliated Distribution • Independent Broker Distribution Affiliated Distribution Roger Randall 69
Slide 70: Affiliated Distribution Networks are…
Affiliated Distribution Networks are… • Three distinct P&C retail networks operating in Canada – Equisure – acquired via take-over bid in December 2000 – Canada Brokerlink (CBL) – part of the 2004 Allianz acquisition – Grey Power Insurance Brokers – part of the Allianz acquisition Affiliated Distrib
Slide 71: ADN
ADN ING Canada Shared Services Grey Power Canada Equisure Brokerlink 15 Locations 48 Locations 78 Locations Alberta Alberta & BC, Alberta, Ontario Ontario Ontario, Quebec, Atlantic Atlantic Canada Affiliated Distribution Roger Randall 71
Slide 72: Snapshot – As at June 2005
Snapshot – As at June 2005 Total # of Premium Human P&C with ING Office Resources Commissions* Locations Today Canada Brokerlink 48 491 $43m $118m ** Grey Power 15 186 $17m $116m Trafalgar Equisure 78 1,022 $90m $213m** TOTAL 141 1,699 $150m $441m * ING share of commission income: CBL 100%, Grey Pow
Slide 73: Strategic Direction & Opportunities
Strategic Direction & Opportunities Affiliated Distribution Roger Randall 73
Slide 74: Canada Brokerlink
Canada Brokerlink • In transition to new “hybrid” model • Vertical integration of Personal Lines – ING Insurance as predominant personal lines market, supported by a selection of niche market insurers (e.g. Chubb) • Multi-market brokerage in Commercial Lines – Select group of commercial markets, wit
Slide 75: Canada Brokerlink Opportunities
Canada Brokerlink Opportunities • Hybrid distribution model – Blending the operational efficiencies and growth capabilities of direct distribution with the local market knowledge and “customer closeness” of community based brokerage • Leveraging the combined scale and expertise of CBL and ING – One
Slide 76: Grey Power
Grey Power • Franchise model – 3 ING owned (through CBL) – 5 independent – Unique: Branded products/services & marketing through exclusive insurance company (Trafalgar) • Selling only 50+ demographic – Personal insurance • High value proposition – Demographic focus and expertise: 100% of resources d
Slide 77: Grey Power Opportunities
Grey Power Opportunities • Access to ING expertise & capacity – Direct marketing (BELAIRdirect, ING Direct) – Manufacturing and actuarial knowledge – Capital for expansion & growth • Competitors focus on price, not complete value chain (supplier, seller, price, product, marketing) • Growth in southe
Slide 78: Equisure
Equisure • Joint Venture model – Key management financially involved in individual brokerages – Generally 50/50 ownership with ING (in Quebec, Equisure indirectly owns up to 20% of P&C insurance brokerages) • Each brokerage run independently by owner/ partner – Individual annual business plans – Com
Slide 79: Equisure Opportunities
Equisure Opportunities • Additional portfolio acquisitions from brokerages still concentrating personal lines • Sharing/synergy of CBL and Grey Power models • Rationalization of existing Equisure portfolios Affiliated Distribution Roger Randall 79
Slide 80: Questions & Discussion
Questions & Discussion Affiliated Distribution Roger Randall 80
Slide 81: Wrap-up
Wrap-up Charles Brindamour, Executive Vice President Annual Investor Day September 12, 2005
Slide 82: Thanks for coming today
Thanks for coming today ING 4