Intact Financial Corporation · TSX:IFC
Intact Financial — Investor Day (November 2010)
74 slides from Intact Financial's investor day presentation, Nov 16, 2010
Slide 1: Intact Financial Corporation Investor Conference 2010
Intact Financial Corporation Investor Conference 2010 November 16, 2010
Slide 2: Forward-looking statement disclaimer
Forward-looking statement disclaimer Certain of the statements in this document 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 statements.
Slide 3: Agenda
Agenda 8:30 - 8:35 •Introduction Dennis Westfall Objective one: Operating EPS growth of 10% per year over time 8:35 - 9:30 •Outlook Charles Brindamour, Carla Smith, Darren Godfrey, Louis Gagnon 9:30 - 10:00 •Distribution Louis Gagnon, Peter Weightman 10:00 - 10:15 •Capital management Louis Marcotte
Slide 4: Canada's leader in auto, home & business insurance
Canada’s leader in auto, home & business insurance Who we are Distinct brands • Dominant P&C insurer in Canada • Over $4 billion in direct premiums written • #1 in Ontario, Québec, Alberta, Nova Scotia • Substantial size and scale advantage • 11 successful acquisitions since 1988 • $8.6 billion cash
Slide 5: We continue to outperform the industry
We continue to outperform the industry Last 10 years H1-2010 115% Industry Combined ratio 99.7% 105% Average = 99.8% (incl. MYA) 95% 94.8% 85% Average = 96.0% 75% 00 01 02 03 04 05 06 07 08 09 0 01 20 20 20 20 20 20 20 20 20 20 -2 H1 16.3% Return on equity 40% 30% Average 20% = 17.4% 10% Industry 9.
Slide 6: Growth traction is clearly underway
Growth traction is clearly underway 8.0% 6.0% 4.0% Y oY D PW G rowth 2.0% 0.0% -2.0% -4.0% -6.0% 2006 2007 2008 2009 YTD 2010 Personal Lines Commercial Lines Total IFC • Historically, much of our top-line growth advantage was M&A driven • However, we’ve proven we can profitably grow organically (whe
Slide 7: Objective one: Operating EPS growth of 10% per year over time
Objective one: Operating EPS growth of 10% per year over time
Slide 8: Four distinct avenues for growth
Four distinct avenues for growth Benefit from firming market conditions Develop existing platforms 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 belairdirect Commercial
Slide 9: Outlook
Outlook – Charles Brindamour Ontario auto – Carla Smith Personal property – Darren Godfrey Commercial lines – Louis Gagnon
Slide 10: First distinct avenue for growth (0-2 years)
First distinct avenue for growth (0-2 years) Benefit from firming market conditions Personal lines • Industry premiums remain inadequate in ON auto • Home insurance premiums also on the rise Commercial lines • Evidence of price firming in the past year • Opportunity to gain share in mid-market 10
Slide 11: Outlook: industry pricing environment firming up in Canada
Outlook: industry pricing environment firming up in Canada • Premiums in personal lines increasing due to cost inflation Recent escalation in the costs of BI and AB claims should subside as a Personal lines result of the September ON auto reforms; however, we expect further rate increases as industr
Slide 12: Economic uncertainties will affect industry profitability
Economic uncertainties will affect industry profitability • Slow global recovery with significant The Canadian P&C industry can no longer downside risks count on high investment income • Continued volatility in financial, currency and commodity markets 14% • Financial systems still somewhat 12% vuln
Slide 13: Ontario auto: Carla Smith
Accelerating our growth; solidifying ___—*|“radvantage Ontario auto: Carla Smith [intact ] =
Slide 14: We think it's a good package of reforms
We think it’s a good package of reforms Context Implementation • Accident benefits and tort-related bodily • FSCO estimates claims cost reduction of injury cost increases 6% upon implementation and reduced inflation going forward • Industry rate increases of 20% since January 2008 • Accidents report
Slide 15: Despite rate increases, industry loss ratios have deteriorated
Despite rate increases, industry loss ratios have deteriorated Ontario auto – industry level Direct premiums written Loss ratios Jan-June Jan-June Change Jan-June Jan-June Change (in $ millions) 2010 2009 2010 2009 Auto Liability $2,280 $2,209 3.2% 72.1% 69.8% 2.3 pts Auto Accident Benefits $1,926 $
Slide 16: Early signs are aligned with our expectations
Early signs are aligned with our expectations What we expected What we have seen • Acceleration in medical claims as the • Submissions tripled in the months leading up effective date of the new reforms to Sept. 1 approached • Distribution is approaching the expected • More than half of newly submitt
Slide 17: Abuse management will yield additional benefits
Abuse management will yield additional benefits Information front Process front • We have been proactive, improving our own • Introduced new checks and balances to internal fraud detection analysis. The size of identify abuse more quickly our database will contribute positively • Continue to offer t
Slide 18: Ontario auto – moving forward
Ontario auto – moving forward We’re on top of abuse We are well management positioned to outperform We’ve deployed a new predictive model that will Distinct brands further improve segmentation We believe we are much closer to rate Scale Industry adequacy advantage outperformance than the industry as
Slide 19: Personal property: Darren Godfrey
Personal property: Darren Godfrey
Slide 20: We've closed the gap, but work continues
We’ve closed the gap, but work continues IFC’s gap to the industry – Direct loss ratio (personal property) 1.0% 0.1% 0.0% -1.0% -2.0% -2.4% -2.5% -3.0% -2.6% -4.0% -5.0% -5.1% -6.0% 2006 2007 2008 2009 H1-2010 • Continuous improvement versus the industry since 2008 • We outperformed the industry dur
Slide 21: Our results have begun to reflect our actions
Our results have begun to reflect our actions Home insurance action plan – results to date • 12 point improvement 2010 actions • Rate increases − Year-to-date average 8.5% (5.2% earned) − Unearned rate increase of 6.1% to impact 2011 • Insurance-to-value increases currently offsetting claims cost tr
Slide 22: Well-positioned to benefit from firming market conditions
Well-positioned to benefit from firming market conditions 2010 performance • Very favourable weather in Q1 (not a reflection of future expectations) − Reduction in cat and non-cat frequency • Written units down 2.1% compared to 2009 − Favourable retention gap by segment − For example, in B.C. (new s
Slide 23: Commercial mid-market: Louis Gagnon
Commercial mid-market: Louis Gagnon
Slide 24: Our loss ratio outperformance is back on track
Our loss ratio outperformance is back on track Commercial P&C 10-year loss ratio performance 85% 80% 75% 70% Canadian industry 65% 10-year avg. 60% = 63.7% 55% 50% 10-year avg. 45% = 56.1% 40% 01 04 05 06 07 08 09 02 03 0 01 20 20 20 20 20 20 20 20 20 -2 24 H1
Slide 25: Commercial lines strategy
Commercial lines strategy Lever scale for superior pricing and risk selection Canada’s largest commercial actuarial and loss inspection teams Small business: Mid-sized business: • Team underwriting for industry • Knowledgeable underwriters leading service • Full solutions for mainstream business • C
Slide 26: Commercial lines strategy
Commercial lines strategy Lever scale for superior pricing and risk selection Canada’s largest commercial actuarial and loss inspection teams Superior risk selection: Sophisticated and disciplined pricing: • Focus on target classes • Risk Based Pricing, proprietary rating for commercial risks • Busi
Slide 27: Pricing conditions remain soft
Pricing conditions remain soft Despite the soft Our focused approach in environment, we Commercial P&C is paying off: have observed that − Unit growth reached 1.9% in pricing has begun Q3-2010 to firm up in the past year in a − Growth achieved in conjunction number of with 3.8% higher rates segments
Slide 28: Strengthen commercial mid-market presence
Strengthen commercial mid-market presence Commercial mid-sized business: • Target accounts with annual premiums between $10,000 and $50,000 • Increase GPW from $200 million to $400 million Strategic focus Acceleration strategy − Pricing − Acquire a large insurer and/or − Customize product broker − S
Slide 29: Distribution
Distribution Intact Insurance – Louis Gagnon BrokerLink – Peter Weightman
Slide 30: Second distinct avenue for growth (0-3 years)
Second distinct avenue for growth (0-3 years) Develop existing platforms • Continue to expand support to our broker partners • Expand and grow belairdirect and Grey Power • Transform BrokerLink by leveraging scale 30
Slide 31: Strong organic growth potential through multi-channel distribution
Strong organic growth potential through multi-channel distribution #1 Broker insurance company in Canada Targeting growing 50+ population • Network of more than 1,800 brokers in In 10 yrs, Canada 25% of the • Brokers in Canada own the commercial Canadian market and maintain large share of population
Slide 32: Intact Insurance: Louis Gagnon
Intact Insurance: Louis Gagnon
Slide 33: By making it easier for brokers…
By making it easier for brokers… How Intact Insurance will contribute to EPS growth of 10% per year over time • Expand and improve our personal lines … to increase our profitability advantage technology platform over the industry and continue to enhance our pricing sophistication and • Accelerate th
Slide 34: …by delivering customer-focused products and services...
…by delivering customer-focused products and services... … to transfer customer • Leverage the Intact Insurance brand knowledge across distribution to create a call-to-action response channels… • Deploy an Intact web solution that involves the brokers • Expand our product line to evolve with brokers
Slide 35: … by leveraging our financials to support broker growth and consolidation…
… by leveraging our financials to support broker growth and consolidation… • Offer financial solutions to brokers in …understanding that the the form of loans and/or equity average age of broker principals participation for: is 57, and that sources of financing are limited, scale is − Acquisition of
Slide 36: BrokerLink: Peter Weightman
BrokerLink: Peter Weightman
Slide 37: Overview
Overview Mandate Build a broker model that can successfully compete with alternative channels Financial Benchmarks • Organic growth profile in excess of Alberta: Ontario: direct writers • 23 offices in urban and • 25 offices in urban and • EBITDA (excluding CPC) > 20% rural areas rural areas • 325 e
Slide 38: Growth opportunities exist
Growth opportunities exist Organic A significant increase in web traffic* Advertising − Total web traffic increased 515% (6,670 visitors to 41,024) − Radio campaign in key markets in Alberta and Ontario − “Unique” – first time visitors to brokerlink.ca ~ Calgary pilot – Fall 2009 increased by 357% (
Slide 39: Capital Management – Louis Marcotte
Capital Management – Louis Marcotte
Slide 40: Third distinct avenue for growth (0-5 years)
Third distinct avenue for growth (0-5 years) Consolidate Canadian P&C market Capital • Approx. $1.0 billion of total acquisition capacity Strategy • Grow areas where IFC has a competitive advantage Opportunities • Global capital requirements becoming more stringent • Industry underwriting results re
Slide 41: Our capital management framework
Our capital management framework CONTEXT 500 bps ROE gap KEY = 10% NOIPS growth Capital management Mature market Maintain existing dividends Prudence Conservatism Excess capital Competitiveness Increase dividends Invest in growth initiatives M&A Buybacks Principles 41
Slide 42: Shareholder-friendly capital management
Shareholder-friendly capital management Quarterly dividend Capital returned to shareholders 6.3% 3.2% 0.40 14.8% 700 Buybacks Dividends 0.35 8.0% $0.34 600 $0.31 $0.32 0.30 53.8% 500 $0.27 $0.25 0.25 501.2 $ Millions 400 0.20 $0.1625 303.6 300 176.0 0.15 0.10 200 153.4 151.0 136.9 0.05 133.7 100 117
Slide 43: Our buyback principles
Our buyback principles Buy back only when IFC is trading below its intrinsic value Our execution and intensity is based on: 1. Assessment of alternative growth opportunities 2. Capital markets volatility 3. Book value per share dilution and earnings per share accretion 43
Slide 44: These principles lead to non-linear buyback patterns
These principles lead to non-linear buyback patterns NCIB Volume Analysis Excluding Blocks 80% $49.00 70% $48.00 IFC % of Total Trading $47.00 IFC Share Price ($) 60% $46.00 50% Volume $45.00 40% $44.00 30% $43.00 20% $42.00 10% $41.00 0% $40.00 Feb-10 Mar-10 Mar-10 Apr-10 Apr-10 May-10 May-10 Jun-1
Slide 45: Declining yields likely to continue to constrain investment income
Declining yields likely to continue to constrain investment income Annual Investment Data Pre-Tax 380 6.0% 360 7.8 B 5.0% 340 320 4.0% 7.4 B 300 7.3 B Pre-tax income $ Millions 3.0% Pre-tax yield 280 7.1 B 7.1 B Average AUM, net 260 2.0% 6.9 B 240 1.0% 220 200 0.0% 2005 2006 2007 2008 2009 2010E • D
Slide 46: Healthy investment income maintained with lower risk portfolio
Healthy investment income maintained with lower risk portfolio 2008 2010 Avg AUM Income Avg AUM Income Annualized $4.3B $5.2B Fixed income $188M $182M 63% 67% $1.3B $1.3B Preferreds 17% 19% $157M $133M Commons, $1.2B $1.1B net 17% 14% $6.9B $345M $7.8B $315M • No change to the quality of our assets
Slide 47: Foreign Opportunities
Foreign Opportunities Charles Brindamour
Slide 48: Fourth distinct avenue for growth (5+ years)
Fourth distinct avenue for growth (5+ years) Expand beyond existing markets Principles • Financial guideposts: long-term customer growth, IRR>20% • Stepped approach with limited near-term capital outlay • Build growth pipeline with meaningful impact in 5+ years Strategy • Enter new market in auto in
Slide 49: Pursue automobile footprint abroad
Pursue automobile footprint abroad Strategy • Enter new market in automobile insurance by leveraging the following expertise: − Pricing and risk selection − Claims management − Online expertise • Concentrate on markets/segments where: − A clear edge exists in either pricing, claims management or tec
Slide 50: Growth Q&A Break
Accelerating our growth; solidifying ___—*|“radvantage Growth Q&A Break [ intact] —
Slide 51: National Toque Campaign and Youthworks initiative
• Intact is partnering with Raising the Roof, a national charity dedicated to finding long-term solutions to youth homelessness on: National Toque Campaign Youthworks initiative • 65,000 Canadian youth are homeless − That’s the same as the population of Saint John, New Brunswick • In Toronto alone,
Slide 52: Objective two: 500 bps ROE outperformance compared to industry
Objective two: 500 bps ROE outperformance compared to industry
Slide 53: Sustainability of our advantage
Sustainability of our advantage Claims – France St-Louis Segmentation – Darren Godfrey Talent management – Charles Brindamour
Slide 54: Consistent industry outperformance
Consistent industry outperformance Significant Sophisticated In-house claims Broker Multi-channel Proven scale pricing and expertise relationships distribution acquisition advantage underwriting track record 2009 combined ratios Five-year average loss ratios Industry Intact 106% 75% 104.8% 71.5% 71.
Slide 55: Claims: France St-Louis
Accelerating our growth; solidifying ___—*|“radvantage Claims: France St-Louis [intact ] =
Slide 56: Continued execution of our home insurance action plan
Continued execution of our home insurance action plan Cost reductions of Property Rely Network •Solidifying our Network •Focus on simplifying processes for customer 4.2%* Personal property (2010 vs. 2009) Appraisal process Competitive bidding •Scoping •Leveraging competitive •Appraisal forces 7.1%*
Slide 57: Current Supply Chain initiatives
Current Supply Chain initiatives • Personal property − Strengthening Property Rely Network model and enhancing estimating software • Supply chain − Capitalizing on auto supply chain and assessing appropriate property supply chain opportunities • Legal costs − Introducing common best practices and be
Slide 58: Our strong catastrophe response
Our strong catastrophe response Despite recurring weather-related events: • Provide a superior customer experience − Net Promoter Score of 71.4%* − 1.3 million* calls answered in 20 seconds 93% of the time − Top Insurer in the 2010 Canadian Auto Insurance Customer Satisfaction Survey (source: J.D. P
Slide 59: Segmentation: Darren Godfrey
Segmentation: Darren Godfrey
Slide 60: Sustainable loss ratio advantage
Sustainable loss ratio advantage Maximize profit pockets • Focus on economic drivers: cost versus price 150% 130% Relativity 110% Cost Minimize Price Maximize 90% 70% 50% 1 3 5 7 9 11 13 15 17 19 Portfolio segment 60
Slide 61: Executing the strategy
Executing the strategy Exploit market inefficiencies • Overlay market pricing on costing • Automated within our point of sale and policy maintenance tools • Attract market segments with the best margins: − Favourable price adjustments − Relaxing eligibility and underwriting rules − Incentives at poi
Slide 62: Our sophistication advantage
Our sophistication advantage Advanced segmentation techniques • We have led the way: − Use of financial stability − Generalized linear models • Continual development − Generalized additive models, including neural networks − Optimization models • Dedicated research team: − Take advantage of our scal
Slide 63: Talent management: Charles Brindamour
Talent management: Charles Brindamour
Slide 64: Our advantage begins with our people
Our advantage begins with our people • Experienced senior management team (SMT): - Average of 14 years with IFC, 24 years industry experience - Strong skill sets and varied job experiences facilitate lateral moves - SMT bench strength is solid, with an average of more than five potential successors
Slide 65: Conclusion
Conclusion Disciplined pricing, underwriting, investment and capital management have positioned us well for the future • Largest P&C insurance company with substantial scale advantage in the market • Strong financial position • Excellent long-term earnings power • Organic growth platforms easily exp
Slide 66: Q&A
Accelerating our growth; solidifying ___—*|“radvantage Q&A [intact ] =
Slide 67: Intact Financial Corporation Investor Conference 2010
Intact Financial Corporation Investor Conference 2010 November 16, 2010
Slide 68: Appendix
Accelerating our growth; solidifying ___—*|“radvantage Appendix [intact ] =
Slide 69: Fundamentals unchanged by transition to IFRS
Fundamentals unchanged by transition to IFRS Combined impact of IFRS transition adjustments on equity: C-GAAP Employee Pro forma IFRS $ millions AFS equities 30/09/2010 benefits plans 30/09/2010 Equity Share capital $ 1,000 - - $ 1,000 Contributed surplus $ 93 - - $ 93 Retained earnings $ 1,865 $ (6
Slide 70: Speaker biographies
Speaker biographies Charles Brindamour President and Chief Executive Officer • Mr. Brindamour was appointed President and CEO on January 1, 2008. Prior to this appointment he was Chief Operating Officer, a role he held since January 2007. Mr. Brindamour began his career at Intact in 1992 as an actua
Slide 71: Speaker biographies
Speaker biographies Peter Weightman President, BrokerLink • Mr. Weightman joined the Company more than 20 years ago and he has held a number of leadership positions in both Canada and the U.S. He earned an MSc in Business Education from Illinois State University and also completed the Advanced Execu
Slide 72: Speaker biographies
Speaker biographies Darren Godfrey Deputy Senior Vice President, Personal Lines • 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 persona
Slide 73: Speaker biographies
Speaker biographies Louis Marcotte Vice President, Finance and Treasurer • Mr. Marcotte, CA, is responsible for all aspects of treasury, financial planning and investor relations. Prior to his current role, he was responsible for financial reporting, procurement and accounting. Mr. Marcotte’s intern
Slide 74: Investor Relations contact information
Investor Relations contact information Dennis Westfall Director, Investor Relations Tel: (416) 341-1464 ext. 45122 Email: dennis.westfall@intact.net Email: ir@intact.net Tel: (416) 941-5336 or 1-866-778-0774 (toll-free within North America) Fax: (416) 941-0006 www.intactfc.com/Investor Relations 74