Definity Financial Corporation (DFY) Earnings Call Transcript & Summary

Thank you. Financial Corporation second quarter of 2026 Financial Results Conference call. At this time, our lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. call is being recorded on Friday, July 31st, 2026. I would now like to turn the conference over to Dennis Westphal, VP of Investor Relations. Please go ahead.

Thanks, and good morning, everyone. Thank you for joining us on the call today. A link to our live webcast and background information for the call is posted on our website at disfinity.com under the Investors tab. As a reminder, the slide presentation contains a disclaimer on forward-looking statements, which also applies for discussion on the conference call. Joining me on the call today are Rowan Saunders, President and CEO, Philip Mather, Chief Financial Officer, Fabian Rickenberger, Chief Operating Officer, Paul McDonald, EVP of Personal Insurance and Digital Channels, and Obed Rahman, EVP of Commercial Insurance. We'll Start with formal remarks from Rowan and Phil, followed by a Q&A session. Starting with Fabi, Paul, and Obed, we'll also be available to answer your questions. With that, I will ask Rowan to please begin his remarks. Thanks, Dennis, and good morning, everyone. Our second quarter results demonstrate the continued momentum of our business under our expanded scale. Having successfully attained our top five objective as a leading property and casualty insurer in Canada, we are delighted with our integration progress so far as we continue building a Canadian champion. If you turn to slide five, we have provided a detailed update on our travelers integration progress and the critical milestones we've achieved over the first six months of the year. Much of this early success is a direct result of the proactive transition planning we conducted prior to close. We've also been impressed by the benefits from the scalability of our platforms and the extent to which we've been able to leverage AI to improve both the efficiency of the conversion process and overall speed of integration. Financially and strategically, we have executed with high discipline. This began with our transaction financing, which included the rapid repayment of our term loan five months ahead of schedule, saving $15 million in interest expense. We also aligned the acquired reinsurance structure with DFINITY's risk appetite from day one, freeing up regulatory capital while reducing volatility in a favorable renewal market. Furthermore, this transaction has expanded our specialized talent and capabilities, increasing our total addressable successful market and commercial lines by nearly $7 billion. Operationally, the integration has been equally successful to date. We have efficiently onboarded our new teammates under a unified leadership team with excellent cultural alignment. Within just one month of closing, we harmonized our new business intake so that all new broker business was being written as a single, definitive offering. are particularly pleased with our customer retention so far, as policies began to renew on DFINITY systems in the second quarter. We essentially haven't seen any unexpected revenue leakage to date. This early release is a direct reflection of exceptional broker support, with over 40,000 policies successfully converted to the Finitee system so far. Moving forward, we expect our broader product offerings and enhanced underlying capabilities to drive sustained premium growth and profitability. while rationalizing our systems and platforms, will achieve meaningful economies of scale. This momentum has translated directly into accelerated progress on our Synergy Plan, which is running well ahead of our initial schedule as illustrated on slide 6. Six months in, we have already reached $52 million of run rate expense synergies. Of this, $11 million earned into our second quarter underlying results bring in our year-to-date realized total to $17 million. Our strong execution reflected in our rapid pace of synergy capture. has led us to increase our synergy expense target by 25%. raising our post-integration commitment from $100 million to $125 million annually. We expect one-third of these increased synergies to earn into our results in 2026, approximately double our original expectations. Turning to our performance in the second quarter on slide 7, we delivered strong results across the board. From a top-line perspective, gross written premiums grew 34.7% to $1.8 billion, representing continued progress towards our full-year guidance of $6.5 billion. Our overall underlying profitability remained highly resilient as we successfully managed the initial integration phases of the Travers transaction, delivering an impressive consolidated combined ratio of 93.9% in the quarter, inclusive of the acquired book. Our diversified earnings power was also on full display, generating operating EPS of 97 cents, representing a 15.5% increase over the prior year. The strong profitability supported an 11.5% increase in our book value per share, while our trailing 12 month operating ROE was 12.5%. of ongoing capital generation. We ended the quarter with a robust capital position with our financial capacity exceeding $1.2 billion, providing us with the financial flexibility to support our organic growth and fund accretive acquisitions of both brokers and carriers. Turning to the industry outlook on slide 8, we expect conditions in personal auto to remain firm overall, with some variability between provinces, as insurers aim to keep pace with the combined impact of lost cost trends, ongoing regulatory constraints in Alberta, and uncertainty related to the extent and impact of macroeconomic factors. We expect market conditions to remain firm in personal property over the next 12 months as the industry continues to remain diligent, taking underwriting and pricing actions required to fund weather event losses amid persistent climate change. In commercial insurance, while we expect overall commercialized markets to remain attractive, we continue to see intense competition in the large account space. We maintain our expectation for overall industry growth to be in the low to mid single digits over the next 12 months, varying by segment. Against this backdrop, our portfolio mix, sophisticated pricing models, modern technology platforms, and disciplined underwriting give us a distinct advantage. Leveraging our strong strategic position and broker support, we are confident in our ability to navigate these industry trends effectively, select the right people, and make the right decisions. at risks and price our products appropriately to deliver sustained profitable growth. In summary, our performance this quarter demonstrates that we're executing exactly as intended. We have maintained our strong underlying profitability, made rapid progress on our integration and synergy capture, and delivered robust operating results in a dynamic market. With that, let me turn the call over to our CFO for Maba.

discuss the results in more detail. Thanks, Rowan. Building on that theme, our financial results highlight the benefits of our increased scale and the discipline of our execution as we continue to integrate the acquired business. Slide 10 summarizes our consolidated insurance results. Gross written premiums for the quarter reached $1.8 billion, representing a 34.7% increase compared to Q2 2025, driven by 24.5% growth from the acquired renewal book as retention rates continue to converge with the underlying DFINITY book. Our underlying growth representing the renewal of the DFINITY business and new business written across the entire platform exceeded 10% and included contributions from all three lines. This underlying pace of growth increased sequentially from the 8% generated in the first quarter, driven by double-digit levels in personal insurance and a pickup from increased commercial underwriting capacity. Our Q2 combined ratio was 93.9%, inclusive of the acquired business. Performance was driven by the strength of our operations, the initial capture of synergies, and catastrophe losses that were somewhat lower than expectations. I'll now provide some more detail on our lines of business, starting with personal auto on slide 11. Gross written premiums grew by 35.1% in the second quarter, inclusive of 22.6% growth from the continued strong retention of the acquired renewal book, as well as robust underlying growth of 12.5%. Looking ahead, we expect the growth trajectory in personal auto to remain relatively consistent through the second half of the year. The combined ratio of 95.1% was above the 94.2% from a year ago, as we absorbed the temporary and expected impact of the acquired business prior to fully realizing synergy benefits. largely offset by a reduction in the expense ratio. In personal property on slide 12, we delivered top line growth of 37.1%, inclusive of 25.5% growth in the quarter from the strong retention of the acquired renewal book. Continued unit growth and rate achievement led to underlying growth of 11.6%. We expect growth in personal property to be in the mid-30s in the back half of 2026, reflecting the smaller relative size of the acquired renewal book. We delivered a combined ratio of 92.8% in Q2, improved from the prior year's 94.3%, driven by lower catastrophe losses. This line of business generated excellent profitability in the first half of 2026 with a combined ratio in the upper 80s. Turning to slide 13 and commercial insurance, top line growth was 32.2% from a year ago, inclusive of 26.3% growth from the continued strong retention of the acquired renewal book in what is its comparatively lowest quarter of volume. As the integration progresses, we expect the larger volume of scheduled renewables to lead to mid to upper 30s premium growth in the second half of the year. Through disciplined execution and an increase in underwriting capacity, we achieved ongoing pricing increases and market share gains in small business and specialty lines. successfully offset continued elevated competition in large accounts, resulting in resulting in sequentially higher underlying growth of 5.9%. As expected, the combined ratio of 93.1% in the second quarter of 2026 increased compared to 89.6% in the second quarter of 2025. As in the first quarter, this result was driven primarily by the inclusion of the acquired business and its associated expenses, which we expect will temporarily increase the claims and expense ratios prior to the full benefits of future plan synergies, as well as a modest increase in catastrophe losses. Turning to slide 14, our strong profitability was supported by our impressive underwriting results, while net investment income grew to $79.5 million, driven by our larger post-acquisition investment portfolio. Our distribution income reached 24.5 million, demonstrating solid organic growth in our broker channel. In total, our operating net income reached $118 million, or 97 cents per share, which represents a 15.5% increase in operating earnings per share over the prior year. Our trailing 12-month operating ROE was 12.5% at the high end of our target range and supported by lower than expected catastrophe losses in Q3 of 2025. Slide 15 illustrates the performance and market position of our national broker platform, which continues to deliver as a key strategic pillar, ranking among the top 10 brokers in Canada with approximately $1.6 billion in gross written premiums under management. momentum positions as well to achieve our target of $2 billion in GWP by the end of 2027. When combining the $24.5 million of distribution income I just discussed with $11.2 million of intercompany commission income, our total broker operating income reached $35.7 million in the second quarter. This represents a 20.2% increase over the prior year, keeping our national broker platform on track to achieve our 20% annual growth guidance. The benefits of our strong operating performance are also clearly visible on our balance sheet, as shown on slide 16. Our debt to capital ratio is already down to 26.5%, approaching our long-term target of 25% well ahead of our initial 24-month guidance. Even after funding the travelers transaction, our total financial capacity remains robust at more than $1.2 billion, putting us in an enviable position to fund future growth and deliver on our capital priorities.

With that, I will turn the call back over to Rowan. Building on the strong results for just detailed, this quarter provides a powerful proof point of our disciplined strategic, operational, and financial execution. We set out to integrate a transformational acquisition, capture significant synergies, and continue to drive profitable growth across our business, and we are delivering on all fronts. Our integration success to date validates the business case we established for the travelers transaction, which is expected to deliver a more than 200 basis point improvement in our operating ROE on top of our organic plants. powerful accelerator we are highly confident in our progress toward our midterm objective of a sustainable mid-teens operating roe furthermore our proven ability to execute on this complex transaction and our integration success to date gives us increased confidence in our capacity to successfully identify and integrate future acquisitions as we pursue our updated goal of becoming a top three P&C insurer. Our robust capital position continues to provide us with the financial flexibility to support our organic growth fund accretive acquisitions and deliver on our capital price priorities. We remain highly confident in our ability to build on this scale to deliver sustainable long-term value for our shareholders. And with that, I'll turn the call back over to Dennis to begin the Q&A.

Thanks, Roland. With that, we are now ready to take questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the one on your touchtone phone. You will hear a prompt that your hand has been raised. If you wish to decline from the polling process, please press star followed by the two. And if you are using a speakerphone, please lift the handset before you raise your hand. pressing any keys. Bart Jarski with RBC Capital Markets please go ahead.

Great. Good morning. Thanks for taking the questions. I wanted to ask around top line GWP. So, year to date, you're tracking about $3.2 billion. You've got the $6.5 billion plus guidance. So, that presumably implies a back half ramp. I think, Phil, you had mentioned commercial should accelerate. So, could you unpack that in terms of? know what you expect in the back half from pre-engrowth the details and how that ties into the guide for the year thanks.

Yes, happy to do that. So overall for the full year, as you say, six and a half billion is the target. order to get to that we effectively have to deliver about a 35 percent growth rate for the full year so as you as you've noted we're already at that level uh year to date what you'll see in the second half we expect is pretty much a consistent overall growth rate but when you look at the relative sizes of the books of business that we're acquiring from travelers, that's the key, that moves up a little bit, particularly in commercial lines. So when you look at the individual lines of business, anticipate is a pretty good continuance of the underlying growth rates that we've seen. And then you'll see a little bit more in terms of the impact of that acquired book in commercial lines that should take that up a little bit into the mid to upper 30s growth rate. In personal lines, auto should stay pretty consistent with where it's delivered year to date. from a growth rate standpoint. And then personal property might tick down a point or two. And again, that's representative of the relative size of the acquired book. So I think our message overall is, we're pretty much bang on our expectations year to date. We're pretty much bang on our guidance view for the second half of the year. And we're very pleased with what we're seeing from the level of retention on the Travelers book. So I think steady as she goes is the overall message.

Got it. Thanks for that, Phil. Very helpful. Then on the travelers integration, again, another quarter of solid execution and we saw the expense synergy target increased. As you get more familiar with the business, are there other areas that you're potentially you know, where things are conservative and could lead to future upside over time. Thanks.

Well, Bart, thanks for the question there on that one. Maybe just to kick that off, we're delighted with the progress that we're making. Really, from our perspective, this couldn't be going better. If you step back just for a moment, we always said this was going to be a very strategic transaction for us. It helped us get it to the top We said it was going to be financially compelling, and there's a lot of confidence we have about the 200 plus basis points improvement to the operating ROE. I think the new news for us here is that operationally, this integration is going really well, particularly for the size and transformational nature of the deal. When we step back, we look at the retention of customers that are going really well. The retention of talent is excellent. It's a smooth experience for our brokers who are incredibly supportive. And then we're now nicely into the actual heavy lifting of the conversion. conversion and that the team is doing an outstanding job on. So when you step back and look at all of that, that gives us the confidence to increase energy by 25%, as you mentioned, to 125 million run rate. Don't forget, this is when we're talking about the cost synergies of the business. What's still to come is as we transfer this portfolio onto the Affinity platform, we do think that there'll be further loss ratio improvements that'll come over time.

But as I said, the operationally, this is going really well. And maybe it'll help for Fabi just to give you a bit more insights into the integration. Yes, certainly, Roland, glad to do that. So I would say from a big picture point of view that we are really pleased with both the financial and the operational progress. that we've been achieving as respect to that big scale travel integration. We have incredibly talented teams in place that are working pretty much kind of 24-7 as you would expect. It's a big undertaking. We are extremely pleased with the talent that we have, the dedication and the discretionary effort that we have from our employees. As we disclosed, we started the conversion of the acquired business outside of Ontario in Q2. And now in Ontario, the conversion started in Q3 as well. And the conversion process is working really well. Both the loss ratio and retention numbers that we are achieving are in line with our expectations. And obviously we are pleased with that. And then we also have great support from our broker partners across Canada. And as a result of this transaction, we added a little over 100 new broker relationships and that allows us to be comfortable in the growth guidance that Phil mentioned at 6.5 billion. We are also leveraging the additional capabilities that we have in place now, with especially heavy focus on the expanded commercial specialty capabilities, the cross-border capabilities, and we are leveraging that to support additional growth traction with our broker partners. And then maybe the last point I want to mention is that the TSA, the transition service agreement with Travellers is working very well and we are also making the point to exit and in-source as many of those transition services as possible, which will give us an additional financial benefit as well. So overall, very confident that you're achieving the expected financial and operation benefits out of this transaction.

But I guess when I summarize that, I think we went into this with DFINITY growing nicely and really running in the low 90s. And we picked up Travelers, which was a really around 100% break-even business. And when we now look at this, not only just the synergies that come from cost, but what we think the loss rate will move, we've got a high degree of confidence that by the end of the transition, integration period, we'll have Traveler's portfolio running in the low 90s as well. And I think that was the ultimate outcome. So, so far, that's definitely where we think we will end up.

Thanks Rowan and Fabi. Appreciate the wholesome response. Thank you. Paul Holden with CIBC, please go ahead.

Thank you. Good morning. A few questions. I guess I want to start on potential for more broker acquisitions? And I guess two parts to the question. One is, you know, you've talked about increased balance sheet capacity. influence the pace that you might execute broker transactions at i.e. increasing and two can you give us a flavor sort of what the opportunities that looks like today.

or is it slowing? Thanks. Yes, I think Paul on that perspective we're very happy. Firstly, I would say with our broker platform and as you can see, you know the revenue is pretty is growing nicely the. new acquisitions we may keep flowing through. The guidance was ultimately 20 percent growth in our national broker platform operating income, and we're on that and comfortable with the forecast there. What we see here is that there is still a healthy pipeline of activity. Now, sometimes this is less about do we have the financial capacity and more about the opportunity and timing. Sometimes things happen in different quarters, but I would say that we feel very comfortable with that opportunity ahead of us on the broker side. What really is happening, if you step back for a moment, is the consolidation continues to happen. The top 10 brokers in Canada today control something like 60% of the market share, up from 40% about a decade ago. So you could see there is absolutely a trend towards size and scale. The need for scale, the need for specialization is driving part of the opportunity. There's also aging demographics, which also is driving an opportunity, and I think that means that the pipeline is heavy. like it and we think that we're happy to go. There is no operational HESITANCY. IT'S REALLY JUST ABOUT TIMING THAT HAPPENS IN THE MARKETPLACE. YOU DO POINT OUT THE FACT THAT WE'RE GENERATING CAPITAL RAPIDLY AND THAT'S A GOOD POSITION TO BE. AND AGAIN, It goes back to our overall M&A strategy. We have a goal of top three. We still like to put that to work in carriers, but we do like the broker space. We see opportunity and that programmatic approach is going to continue.

That's good. That's good. And then maybe hopefully it's a quick one, but you know, obviously wildfires in the headlines pretty much every day. It doesn't look like it's touched any major population centers, which is good news. I'm just wondering if you can make any comments sort of on CAT losses or CAT events and how they might have been impacting losses according to the date. Thanks, Paul. It's Paul here.

really my comments to Q2 specifically around the cat activity countrywide and it was more of a flooding event. across the board than it really was a wildfire event. As you've pointed out, the wildfires, although many of them were more in the northerly areas and less populated areas, so from an insurance perspective, they have been less impactful. And so obviously we've been watching the space very carefully. There are some rainfall that has helped mitigate some of the expansion of those wildfires. But as you can tell from our our results, it has been certainly within expectations and we're pleased with the overall quarter and with our performance.

And last one for me, I do want to talk about personal auto a bit so all of us can go to the FISRA website and just see the rate approvals. And it at least suggests to me a deceleration in rate for the industry. I don't see it in your results. And you've also given an outlook that premium growth should maintain around the same level in the second half. So I'm just trying to square those two things that an indication that rates overall remain pretty strong despite the FISRA data. Or is it, you know, the FINITY is gaining market share? could share. Just help me sort of parse that out if you can.

Let me start that one, Paul. I think when we look at our first lot of results, you look at the quarter, 35 percent growth, the underlying growth at 12 and a half percent, actually slightly better than Q1. We're very happy where we are with our portfolio, with our rating positions. And we're happy to take growth. And so what you're seeing in our portfolio is a nice balance between market share gains, so that's unit count growth, as well as rate going through the portfolio. And if you think about the pricing, and I'm talking about our portfolio here, you know, we've had significant rates over the last year coming through, and it still is mid single debt rates, you know, flowing through the portfolios. What's also helping us, of course, is the strong retention, you know, from travelers. And so that's where it leads us to, you know, be very consistent with the forecast, you know, being in the mid thirties for the rest of the years. There is definitely, you know, change in the marketplace and there's a number of things. There's reforms going on, there's other competitors that have done significant price increases in the past, a lot of trends have stabilized. So I think when you look at a sample of rate filings, it doesn't really tell the full story. I know Paul was just mentioning recently, you know, we've just done another filing. It's a segmentation filing. So sometimes it's not just about taking rates. It's about how you are managing and optimizing your portfolio. But I think when we step back, you know, we think that's an attractive marketplace. We think we're going to continue to gain unit share. And of course, you know, the broker experience really likes the Vine platform. And so our proposition, as long as we're competitive,.

well. Okay, that's it for me. Enjoy your long weekend. Thank you.

Thank you. Doug Young with Desjardins. Please go ahead. Hi, good morning. Just maybe going back to travelers,.

Can you dig into a little bit more about what's driving the additional cost synergies? And then can you maybe quantify the retention rates that you're seeing by business line relative to expectations? Just hoping to get a little bit more color on those items.

Well, why don't you start with the cost synergies? Yes, sure. Thanks, Doug. Overall, what we've seen so far to date is the $52 million that have been triggered. And because we had a really good early starting Q1 and we continued with good momentum into the second quarter, you see about $17 million of that has now earned into the underwriting results in the first half. capture and earlier capture, which is helping drive support. What's behind those numbers? If you look at the three areas that we talked to, about two-thirds of those triggered synergies are coming from the elimination of parent company charges combined with technology savings. About a third is coming through leveraging the economies of scale of our business and just disciplined attrition management that we started pretty early on through the process. So overall, we're seeing very good capture there. I think looking forward, part of the reason we've been able to increase to that 125 million is as we've been able to bring the businesses together on board, the individuals, and importantly, as we're utilizing our tech stacks and capabilities, We're seeing that we don't need to add as much run rate cost to our underlying business to capture the integration of travelers. So effectively, we're not having to add back to our own cost base to capture the elimination of the permanent support that's happening. So that gives us good conviction to drive the 25% increase. from a synergy standpoint. You'll also see that we're pretty positive about the timing of that. So we reckon about a third of that 125 million is going to run into 2026 results. We think about a half is going to run into 2027. The reason for that is that you've got a sizable lump of the savings come at the back end of the integration process. So as Fabi said, we're working hard to get off the TSA support from the US parent, a decent lump of the 125, close to half of it will therefore come at the end of 2027. So you'll really get that full earnings impact coming through into through 2028. So that's really how we've got the conviction and the confidence behind the increase in the Synergy Capture. And then just from a retention standpoint, what we're seeing there is already very good progress. And actually in the second quarter, we've seen a convergence from the customer retention stats in pretty much all the lines of business. So if you look at personal lines overall, I think we're around the mid 80s there. It's a little lower in, also as you normally see, a little higher in personal property, but both of those blocks pretty much at the same convergence level already. And then when you look at commercial lines, we've actually started to close the gap. So you might remember in the first quarter, we were four or five points gap between the two renewal books. We've seen that close in a couple of points already as we're starting to kind of roll that business over. And we've got conviction in the second half you'll see that gap close even further. So overall, I think we're in that mid-80s range, very good convergence across the whole business, and really that's ahead of our expectations when we would have planned this out.

I appreciate the color. And then just Paul, maybe I'm back to the cats this quarter. And I think Phil, you said this, or maybe it was Ron, you said this in your prepared remarks that cats were lower than you expect. And I know they were lower than last year. Like, is there a structural reason why you kind of weathered the storm? better than Pierce on the cat front this quarter. Just a little bit, maybe, if you have some thoughts on that. Yes.

I think when we think about cats, I mean, obviously, there's some variability here, and it depends on the seasons. It also depends on where they are, the geographic location. And we do have a strategy where in some parts of Canada, we are naturally underweight, and primarily that's in the West, in Alberta, and that's by design on our personal property and commercial property portfolio, and we've been well rewarded for doing that. I think the other thing for us is that, particularly in personal property, we've finished now a couple of years of really working hard in terms of portfolio management and watching aggregation limits in higher CAT zone areas. And if you remember that we had lower unit count growth years as we were repopulating growth in more attractive areas and managing cat accumulation and higher cat prone areas. So I think that's another item that helped us. So part of this, quite frankly, is I think the capability and the skill sets of the teams, but also it's where these cats tend to happen.