Intact Financial Corporation (IFC) Earnings Call Transcript & Summary

Hello, everyone. Just wanted to double-check, Darren, are you good in terms of audio?

Sounds great at my end. Thanks, Jeff.

Perfect. So I just wanted to introduce, I guess, the listeners to -- and viewers to Darren Godfrey from Intact Financial. We've got our Barclays 2021 Americas Select Conference, as I'm sure many of you are aware, and lucky enough to have Darren from -- I think you mentioned sunny Calgary, it looks like, Canada. So I guess we'll start off maybe, Darren, for those in the group that might not know your background, do you want to start there? And then we can kind of go into a few opening questions?

Yes, absolutely. Thanks for having us, Jeff, and thanks to everybody who's joining online here. So with the organization 20 years now with Intact, obviously, through its various different iterations in terms of life. From my role today, I'm the Senior VP of Commercial Lines. Prior to this role, I was running personal lines in Canada and held many, many seats in the organizations from claims, to underwriting, to broker management, sales to actuarial. So seen a fair bit of the organization over the last 20 years. So really happy to be here today.

Perfect. I should also mention that normally, we'd have Mr. John Aiken, our research expert here moderating, but he is unable to attend given the research restriction we're on with the RSA acquisition.

So it is a pending acquisition, I should mention. I wanted to probably touch on that to start with, Darren. Obviously, a transformational acquisition and many different kind of aspects to it. I guess, in your view, why don't we start with a bit on the strategic rationale and sort of the main benefits and how that kind of propels management's vision of the company into the future?

Yes. Absolutely, Jeff. I mean, obviously, it is a sizable acquisition for the organization. Obviously, as you and the viewers know, obviously, we have done a number of -- significant number of acquisitions in the past. So -- but when we look at RSA itself, I mean, it's a really good fit. We've had a very close eye, obviously, on RSA for a number of years. Obviously, we know them very, very well in Canada, considering the fact that we've competed against them for many, many years now. So we know them exceptionally well. And when you look at the transaction, it's very strategic on a number of fronts. And so if we think about just purely from a Canadian standpoint, bolsters our operation by close to 30%, really sort of fills out some of our platform very, very well. If I look at a number of examples here. So in personal lines, for example, RSA has a great, great business, affinity business in Johnson's. And that's always been a market that we've really sort of struggled to penetrate. And again, that's just another piece that we're adding to our product shelf and our distribution shelf within the affinity market and the ability to really compete in that particular space. On commercial lines, they have a number of areas that are very similar to us. So I mean, SME business, which is, for us, is a good addition to our 1 in 4 Canadians that we insure today and then all the way from mid-market up to specialty lines. I'll get to specialty lines in a moment. So it really fills a great hole from a mid-market standpoint. We are players, existing players in the mid-market space today, but the real strength of RSA that we're looking to leverage moving forward in the mid-market space. Generally, when scale comes, it further enables the business the ability to invest in technology, to invest in enhancing the customer experiences. So really looking to increase our bench from that standpoint. And then ultimately, we're looking at -- from a product offering, from a competitive offering standpoint, the product suite is very, very full now. Obviously -- we obviously had GCNA, which we acquired, which not only in addition to strong surety book and strong specialty lines, also bought a great portfolio of high net worth, which we're now building upon with Intact Prestige. As I say, this enables us to add affinity, strong mid-market, but then also some really interesting specialty lines area in Canada. When we look at specialty lines in totality, not just from a Canadian standpoint, but internationally, it bolsters our specialty lines business by 30% as well. So 30% up in Canada in [ totality ], 30% in specialty lines. So again, very attractive from that standpoint. We obviously pick up a specialty lines business here in Canada. We also have specialty lines business in the U.K. and in Europe as well. And you can think about moving some of our practices to more global practices for now. And you can think about Marine, for example, which will become a very sizable portfolio for us around the world. You can think about specialized property and wholesale international property and the like in the U.K. So that's just a couple of examples of some areas where we'll look to -- obviously, it's very important to continue to operate locally, but really starting to join the dots globally on some of these practices and leverage that to best of our availability. From a specialty line standpoint, we -- pre-acquisition, we finished at about a $3 billion portfolio. This will push us just north of $4 billion. And obviously, we have a stated objective to get to CAD 6 billion by 2025. So this is a good, solid step in terms of our strategy to really build out our specialty lines platform. What the teams, I must admit, both in Canada and the U.S., the Intact teams, are really excited about is the global network that RSA has. They have a really strong presence. There are 100-plus countries around the world to really cater and be able to provide strong product support service for multinational companies. And in fact, a lot of our colleagues in the U.S. have said, since we acquired OneBeacon in the U.S., that we really need some greater global presence, and we're happy that we're able to deliver that with the acquisition. So that's a real jewel for us, along with many others in the acquisition there. So we're very, very happy with that. When we look at...

So what...

Yes, sorry, Jeff.

Sorry, go ahead.

No, I was just going to say -- sorry. Okay. So a couple of other things that I would add, maybe before we go to your next question is, obviously, with RSA, it's not just about Canada, but it's also about the U.K. as well, too. So clearly, RSA has a really strong position in the U.K. today. They have 2 really strong brands with RSA and More Than and 123, obviously, up in Ireland as well, 2 really strong brands that we can leverage there. So when we look at that portfolio, in particular, obviously, it adds specialty lines complement, which we're excited about. But we're entering in scale, both in personal lines and in commercial loans. And we're really happy that Scott Egan and team, who's been leading the U.K. and international portfolio at RSA for a number of years now, is continuing on with us together with his team. So we're really excited about what that can bring to us. I mean, clearly, from a U.K. standpoint, when you look at the total perimeter of everything that we've acquired in this deal, obviously, we're purchasing here, 90% of book value. When you look at the highly synergistic piece of Canada, we're entering the U.K., not only at scale, but also at a very, very good price point. So that sort of helps in the financial equations. And just very quickly around the sort of it's a very financially compelling transaction for us. I mentioned that 90% of book value. Obviously, when you think about a notional value for Canada, obviously, quite strong. 75% of our synergies will be coming from the Canadian operations alone. So incredible value that we can attest to the Canadian operations. Strong NOIPS secretion with upper teens NOIPS accretion by the -- sort of towards the end of 36 months. IRR north of 15% within 3 years. So again, very attractive. In terms of our operating ROE, we're on the path to mid-teens within the 3 years. Obviously, with book value increasing roughly 25% of close there, some pressure on the operating ROE early, but we have a good line of sight in terms of what the operating ROE can look like over the next 36 months. So -- and again, obviously, in terms of financing the deal, everything is secured. Obviously, we are only a couple of weeks away from closing here and obviously looking to get debt-to-cap ratio back to sort of within our benchmark 20% within 36 months. So again, I mean, I threw a lot at you there. But it really ticks a number of strategic boxes, and we're really excited for our RSA colleagues to join us here in a couple of weeks.

So you touched on a lot of things, and certainly specialty, something I think we'd like to dig in a bit deeper, and I'm sure some of the participants would be interested. But why don't we zoom first and talk even just maybe a bit more broadly on technology and a little bit how maybe some lessons learned from sort of the deal and then also how you think about how some of the -- some maybe your experiences putting together such a big acquisition in these sort of tough times and how you can use that with certainly a more broad and more globally significant business.

Yes. No. I mean clearly, I mean, obviously, we're in a virtual environment. And obviously, we'll obviously remain in that for a little bit here. But we are quite optimistic that the light is at the end of the tunnel from this standpoint. But clearly, this was a big deal. This was obviously a multiparty bid with Tryg in Scandinavia. So between Tryg, ourselves, RSA, obviously, everything is done virtually. I mean obviously, data rooms are virtual by their very, very nature. But obviously, we've had none of that face-to-face contact throughout this deal. What was interesting, though, and I think a little bit of a precursor to the work that we've done, both in terms of the deal making itself, the due diligence and now the integration, we pretty much integrated GCNA actually virtually. So that was maybe a precursor to the work. So we learned a lot there. Tools like this have really enabled us. It's not the same as in person, obviously, but with a lot of these advances in technology and virtual and so forth has helped. I think the other thing that was really important, though, even forget about the virtual environment and COVID, we really came into the deal here with a real strong position of strength here. The business, the operations were really strong with a lot of momentum, really strong capital position. Hey, we've got a great team here at Intact. So clearly, the team stepped up here. Incredibly complex deal, as you can imagine, but we're able to pull it off nonetheless. I think what is interesting, though, as we get through integration and what sort of is the transformational piece here, I think it's exactly this. It's the first drill, it's the digital piece. And I think throughout the COVID crisis, one of the things that we've really investing on is that digital interaction with our customers. We've made significant inroads there. And so we're really looking to leverage that post close, bring a lot of that functionality, a lot of that technology onto the RSA platform as we integrate it with Intact. But again, I think that in a way, we were well advanced in our digital journey. But clearly, through the last 12 months, we've been able to accelerate that even further. So I'm straying a little bit away from your question in terms of sort of how do we operate in a virtual environment in terms of the deal itself. But clearly, from a customer standpoint, I think there's definitely parallels there in terms of advancing on the digital strategy here as well.

And what about in terms of earnings and profitability? And I mean that's something that, obviously, investors are extremely focused on for, for companies that are coming out of this pandemic or at least certainly, we hope. What do you think from your, I guess, maybe broad business in the commercial lines section and then maybe specific to RSA might have a transitory effect? And what do you think is going to have a more lasting impact going forward?

Yes. And I think if I want to break that down between, say, the different geographies between Canada and U.S. and even in the U.K. there as well, too. From a Canadian standpoint, I think that the level of support from governments, federally, provincially, obviously, has been very, very strong for businesses. I mean, obviously, it's tough. It's tough times for individuals and businesses right now. But I think with a lot of support the governments have been providing have really sort of been able to create a little bit of buffer for some people to help get them through. I think what's going to be interesting, as I said, the light is coming at the end of the tunnel. I mean I think we're seeing massive improvements in sort of vaccination rollout. Clearly, in the U.S., a lot of momentum here in Canada, great position in the U.K., obviously, as well, too, on the vaccination front. I think what would be interesting from a Canadian perspective is will we have a soft landing, so to speak, from a government support standpoint? I mean obviously, a lot of people are dependent upon that. So I think as we -- as I look back in the last 12 months, I think if you were to ask me this question back in, say, March of last year, we were expecting quite an economic impact in the last 12 months, which, I mean, clearly, for individuals and businesses, people are hurting, but we haven't seen the tough, tough high level of bankruptcies and the like that maybe we're expecting. So -- but so I think that if we have that soft landing, if businesses are able to rebuild, I mean, obviously, a lot of businesses have pivoted, which is fantastic. A lot of that entrepreneurial spirit has arisen and people have been able to pivot their operations. And we've been able to support them as an insurer as well as they've pivoted there, too. So I think at the end of the day, I think coming out of this, I think we'll be in a strong growth environment in terms of economic growth. But clearly, the next, I would say, 3 to 6 months is going to be very, very critical from a support standpoint. I think if you look at the U.S., for example, I mean, again, with specialty lines in the U.S., not so much Main Street. So you don't see as much of a sort of a retail economic impact there. A couple of areas, obviously, I would highlight would be our sharing economy portfolio. As you can imagine, in lockdowns, there's some pressure in that particular sector. And then also on the entertainment side, we have a sizable entertainment book with obviously production shutdowns and the like and not being able to produce television films and shows and the like due to COVID, there's been some pressure there. But I think as we're seeing the U.S. really open up now, we're starting to see some life and some momentum come back into those sectors. So that's quite encouraging from that standpoint. Equally on the U.K. side, obviously, in a great position from a vaccination standpoint. The team in the U.K. saying it's a good, good business environment to operate on. I think the other thing that you should mention that overarching all of this, we're in a hard market. So capacity remains tight. Rates continue to be up, both north and south of the border, also in the U.K. as well, too. So I think you overlay on top of a hard market, on top of a good economic trajectory, I mean, it's a good environment to be operating in. But as I say, the next sort of 3 to 6 months is going to be tricky from that standpoint. I think in terms of -- is there some underlying trends or transitional trends that I think that we're watching, I would highlight a couple of them. I would say, why not, I mentioned before, digital. You got to be strong. You've got to be a key player there. It's got to be part of your strategy. We were well placed before COVID. We've accelerated. We've invested. We've got significant take-up in our digital tools, whether it be in terms of our app, our client center, our big take-up in terms of telematics. So we're quite happy. I mean we continue to double down on investment there and continue to push. But we're very, very happy with the progress that the teams have made in the last 12 months. The other notion is value for money. And I think a lot of the research has shown throughout this crisis, people's perception of value for money is climbing. So -- and I think that's particularly relevant, not just in the personal line space, but in the SME space. And I think one of the things that I talked about in terms of where people have pivoted operations and the entrepreneurial spirit coming up, we see a real growth in that sort of micro small business space. So that's one that we're really paying attention to looking to grow our portfolio, increase our value proposition for that micro that 1, 2, 3 employees sort of organization, a little bit more web-based and the like and so forth and really supporting these entrepreneurs as they're building out businesses for themselves. I think that is a little bit of a pivot in that SME space that we'll watch very, very carefully going forward.

So I mean, I guess it sounds like, obviously, in your business, scale is extremely important for a long time and with the Intact story has sort of, as I've known it, consolidation has been a key theme. How do you think about where you're at today post RSA transaction in Canada? And then how do you think of growth more internationally?

Yes. Well, when we look at from a Canadian standpoint, post-closing, we'll be just north of 20% market share. Obviously, one thing that we're very happy about was the -- early on in post signing the deal, we got very, very quick confirmation from a competition bureau standpoint in Canada. So that was very, very encouraging. I think when you look at the Canadian space, we think we can push up towards 30% market share before starting to having to address competition issues. So we still feel as if that we have some runway from that standpoint. And then accordingly, the next dollar of M&A continues to be our #1 priority is Canada. But obviously, as you know, you don't always control timing. You don't always control targets. But clearly, from a Canadian standpoint, when you look at the Canadian business, you're right. I mean, obviously, we have a lot of scale in Canada. What does that bring you? It brings you the ability to really advance from a data or from a rating segmentation standpoint. So it brings tremendous benefits from risk selection; from claims handling; and as I said, from a segmentation standpoint, 3 really key, key strengths that are significant levers for us in terms of our ROE outperformance in Canada. So you now overlay RSA on top of that. Again, I think it just builds out that ability to further advance from those key, key underwriting and pricing and claims attributes. As I mentioned before, I mean, digital is key here. So again, more scale brings greater ability to invest in technology, both internally for our own employees, but also externally for our customers as well, too. So we're very excited about what some of our future investments can -- as we continue to incrementally build out on some of our sort of core capabilities. Obviously, as I said, Canada continues to be #1 priority. So we often get asked the question about, "Well, what happens when you get to 30% or the like? So we still have a fair bit of runway. Obviously, we have significant ambitions from a specialty line standpoint. We closed at about $3 billion for specialty. This will push us to north. We have aspirations to get to $6 billion by 2025. So we've set ourselves some pretty lofty goals there from a specialty land standpoint. So that will be an area that we'll continue to focus on as well, too. Look, we're not an organization that is interested in planting flags. Obviously, U.K. and Ireland and Europe and a few other pieces came with the RSA transaction. But the primary objective is not to plant flags. We do not consider ourselves to be a global insurer. Obviously, we will have certain lines of business in specialty lines, which will be global in nature, but we're not interested in planting flags here. So when we look at expansion beyond Canada, and obviously, as I said, we picked up some of that outside of the U.K. and Ireland with RSA. I think we'll be asking ourselves 2 important questions. Do you have the scale to outperform would be the first question we will ask some of these businesses. And then secondly, do you add capabilities to our specialty lines platform? The answer is no to both of them, but then we'll look at strategic alternatives. One thing, however, when it comes from an RSA standpoint, and I mentioned some of the geographies then, they're all performing quite well. So we're in no rush here in terms of some of those strategic decisions that we may want to make. But again, as I said, when it looks to further our M&A strategy, and really M&A is not a strategy itself, it's more of an enabler of our strategy and accelerator of the strategy. But again, Canada remains our #1 focus.

So I know specialty lines have been a focus for investors, and it's certainly been a popular theme in North America. Obviously, OneBeacon has been going well. How do you think about the combination with -- specifically with OneBeacon and RSA? Are there things you can bring from OneBeacon to RSA and vice versa? And I guess on top of that, where do you see things going in the specialty lines at OneBeacon in the U.S.?

Yes, that's a great question, Jeff. And I think if you look at when we acquired OneBeacon, let's say, upper 90s combined ratio business. We're now in a sustainable low 90s performance, which is really the objectives we set ourselves when we acquired OneBeacon. So how do we get there? So robust playbook. So we can think about bringing some of our technical capabilities. So I mentioned some of them around risk selection, pricing, claims and the like. Putting in rigorous governance around certain lines of business or certain sub portfolios that were underperforming relative to expectations, so putting in robust performance improvement plans. So that's a very different playbook to what we have from a Canadian standpoint because obviously, we have a lot of experience with integrating in Canada and bringing teams together, bringing portfolios together. Obviously, when we acquired OneBeacon, it's a new entry point. That playbook is not 100% replicatable into a different country. So again, we've now built up an expertise, a different playbook now which is around, as I said, around governance, around bringing some of our expertise. So I think as we've proven ourselves, from a OneBeacon standpoint, that we can move an upper 90s to a lower 90s performance, we're going to leverage that playbook now for the U.K. as well, too. So again, indirectly, the work we did for OneBeacon is going to support us in terms of the U.K. and international business. Within OneBeacon or now Intact specialty lines as we've rebranded that, we're obviously looking to grow that portfolio. It's a really strong operating environment right now. We have strong growth pipelines for the vast majority of our different verticals, as we call it, within our special lines platform. We've made a couple of MGA acquisitions here to really bolster up distribution. You could see us potentially some bolt-on manufacturing acquisitions here to grow the platform. And there may be also some bigger manufacturing acquisition. But again, Canada remains our #1 focus. But if there is -- and again, as I said, you can't control timing and the like. But if there is an attractive acquisition to be made in the U.S., we'll look to do that. I think one of the interesting things is with the U.S. in particular, when you look at their distribution plan and their broker plan, there's not a lot of cross-selling across the various different lines. It's very vertical in terms of the distribution plan as well, too. So again, we're looking to really, from a business development standpoint, making sure that we have more products on the shelves of more brokers in the U.S. So that will bring a fair bit of that organic growth that we're looking for in the U.S. as well.

So what about -- and I guess another thing that seems to be coming up in investor commentary these days is certainly around insurance and maybe around -- a lot around technology is the benefits of data analytics. Clearly, you're starting to scale your operations. How do you think about, I guess, where you're at today? And then how do you think about the capabilities specifically for things along your purview in terms of commercial lines and maybe more specifically into the specialty markets?

Yes. No. And again, that's a great question. I think if I just take a step back a little bit here for the moment in terms of -- I mentioned our scale and our size and so forth and the investments that we've been making from a technology standpoint, but also investments that we're making from a core capability standpoint. So when you look at -- and we presented this at Investor Day, and we've talked about it a fair bit in terms of our past 10 years, really strong ROE outperformance beyond our 500 basis points objectives. And I've talked about some of those skill sets, whether it be in terms of data and segmentation and risk selection and claims and obviously, people. We know that the last 10 year's great but it does not guarantee the next 10 years. So we're really looking to sort of continue to double down in terms of and really sort of transform our competitive advantages. So investing a lot on the data side. We have a significant data lab now pushing north of 300 people. We have an operation, a data lab operation in Hong Kong as well to make sure that we're really exposed in terms of what's happening in terms of developments in Asia as well, too. So really investing heavily and investing heavily in AI as well, too. And not just from a risk selection from a data standpoint, but also from a customer experience standpoint as well, too. We have north of 100-plus models, AI models, in production already. So we're not just in R&D, but we're actually live with models in the field as we speak. And it's really driving further outperformance, further customer experience. So that's been a real big focus of ours. And then the other piece I would highlight is our digital lab as well, too. So we have a data lab and a digital lab. And again, some of that outperformance we've been able to create over the years, we've been able to invest that back in the business. And not just from the data standpoint, but also from the digital side as well, too. So again, I talked about our apps and the like and the degree of interaction that we've been having with customers now digitally has leapt frog in the last 12 months as well, too. So we'll continue to invest there. A number of these advancements or transformations apply not just to personal lines, but also apply in the commercial line space as well, too, when you can think about SME and the like. And you look at, even on the specialty line side, when we talk about moving our U.S. operations from upper 90s to lower 90s, we invested in and used a lot of the techniques that we've been able to create over the years in our Canadian operations into the U.S. And we think about greater sophistication of pricing, greater sophistication around risk selection. And each of them have been a big contributor to our success in the U.S. When I think about from an RSA standpoint, obviously, you can think about From a UK&I standpoint, yes, we're not going to use Canadian data. We're not going to use U.S. data, but you're going to use the playbook, you're going to use the people, you're going to use the techniques. So a lot of that, that definitely is applicable into the U.K. world. So again, we've been spending a lot of time with Scott and team in the U.K., understanding the business, understanding where the strengths are, where the opportunities are and looking to see, okay, of the -- of where there's more importantly where there's opportunities, what are the skill sets, what are the strengths that we can bring from a Canadian and from a U.S. standpoint and equally apply them into the U.K.? So we're making some really good progress from that standpoint.

So I guess we've talked a little bit about your business, certainly some growth aspirations in terms of market share in Canada. How do you see, I guess, the competitive dynamics evolving in Canada with some of your competitors in terms of how they're reacting to -- obviously, we've seen hardening prices and commercial market that's, I'd say, more evolved?

Yes. We're in a tough market environment, as you said. I mean, capacity is tight, rates are up. Industry performance in terms of bottom line performance did improve in 2020, around about a 9% ROE for the industry, ex Intact. So again, that's an improvement. Still short of longer-term returns, and that really follows 3, 4 years of pretty poor single-digit sort of ROEs. So again, it just talks to -- is there still a fair bit of work ahead of the industry to get to longer-term profitability objectives? So within that context, obviously, we're not in that position. Obviously, our combined ratio and our ROE outperformance is incredibly strong. So again, we're in an environment whereby we're looking to grow but grow with quality. And I think you got to be careful in a hard market like this. Because capacity is so tight, you can grow. And you can grow significantly if you wish, but you got to be really, really careful around the quality of the portfolio. And our teams and our underwriters have been really, really careful and really good at that, I would say, in the last 12 months. But -- so again, I think as you look at sort of the industry continues to bounce back towards better levels of profitability. There are selective opportunities to grow here. And -- but again, quality remains key. Look, we're being open for business all through the last 12 months through COVID. We've been providing great relief, levels of relief to our customers, north of $600 million, 1.2 million customers and businesses we've supported over the last 12 months. We obviously announced an additional relief program for some of our auto customers earlier this year, which has been well received. So look, we're open for business. Service levels are strong, relationships are strong. We're supporting Canadians in that regard. And I think that all bodes well for the coming 12, 18, 24 months in terms of our ability to continue to grow organically in Canada.

So I guess just shifting gears a bit. One of the key themes that I think investors are thinking about right now is how to protect their portfolio if we start to see a period in time where we have sort of either transitory or consistent inflation. What would you say to either shareholders who own your stock or potential shareholders? And how they should think about inflation as a risk in maybe your commercial line business and then maybe more broadly, the company?

Yes. I think one topic that has been quite in the news of late is construction costs on the property side. And that impacts both on the home business side but also on the commercial business side. So a couple of things I would say there. One is when we look at our total claims cost within those particular lines of business, lumber costs in particular, which is I think we all go down to Home Depot and we see the cost of lumber, it's through the roof. We don't really see that in terms of our particular portfolio. There is some inflationary pressure there but not as dramatic as some of the headlines that you see. So I think there's -- that's an area that we continue to pay close attention to. Look, when you're in a hard market like we are now, we're pushing rates well in advance of claims cost inflation. So -- and we've been in that position for a good 12, 18 months now, and I think we've got some good runway there as well, too. So we're not overly concerned in terms of construction cost inflation there. One area that we're watching very, very carefully is on -- in personal auto in Canada, in particular. And obviously, with COVID and significant reductions in driving, we obviously have seen reductions in frequency accordingly. Now we've counteracted that with some relief. We counteracted that with some rate changes in rates as well. But the other piece that sort of offsets a part of that is inflation. There is inflation in the system. There is severity pressure in the system. So I think one of the risks for the industry -- and we obviously recognize this sort of really back in 2016 when we did a lot of heavy lifting in our personal auto portfolio. And for those of us who were involved, it was heavy lifting for a number of years, and we're not really keen to go back there. So again, we put in a number of action plans that we've really been able to temper and squash inflation in the automobile book. But when frequency returns to normal -- and again, what is normal, when is normal is still the big question, the industry is going to feel some of that pressure. So again, our ability then to outperform, I think, will still remain solid because of the -- a lot of the heavy lifting that we've done across our property portfolio, both in personal lines and in commercial lines, the heavy lifting we did in our personal auto portfolio, that remains today. So when we look at the sort of the foundation and the fundamentals of our portfolios, even though we may feel some pressure from an inflationary standpoint, we're in really good shape. And obviously, we came into the crisis in a position of strength, obviously, RSA acquisition further strengthens the organization. So we're quite excited about the next 12, 24, 36 months.

So let's shift to regulatory and then -- and more of a capital discussion. I guess, firstly, from a restriction perspective, and when shareholders think of return on capital, how do you anticipate Intact sort of changing their philosophy on the business going forward? And then does the size of the acquisition change anything that you kind of previously would have done differently?

So I think since the journey began for Intact, we've increased dividends every single year. Obviously, we communicated earlier this year around pausing the increase in 2021. That was definitely given, as you said, the regulatory environment. I mean, obviously, at the holdco level, we are not regulated entity, but banks and life cos are regulated entity. And obviously with OSFI giving clear direction from those financial services organization about holding on dividends, we took the same position as well, too. Now having said that, even though we have not yet increased our dividend this year, we still intend to increase our dividend this year. So that clearly is front and center for us that we will increase our dividend this year. So that would be the first point I would make. The second point, with the addition of RSA, really does not change our sort of annual dividend increase framework. We don't have explicit targets in terms of what proportion of operating income is for dividends. But again, I don't think you should expect to see a material change in sort of that path forward. I mean, obviously, it's a big organization, greater earnings capability. So the dividend accordingly would increase in terms of dollars, commensurate with the growth in the business. But in terms of our dividend strategy per se, I think the past is very much a very good predictor for the future from that standpoint. Look, post-acquisition, we're going to close very, very well capitalized at all of our regulated entities. We will have a really strong capital margin position of about $2 billion collectively across the organization. So again, I don't really see a material change in our dividend policy going forward.

So I guess I'm getting to the end of my formal questions, but I wanted to maybe give you a chance to think about and maybe mention what sort of things other clients are talking about or other conversations with investors. What are the key themes, I guess, that you think come up sort of on a daily basis that the people listening should be interested?

I mean clearly, everybody is talking about the RSA acquisition. Where are we at relative to close? How is integration going? How will you manage through the virtual environment, a number of the topics that we have talked about today. I mean, it's been heavy lifting for the teams, but we're close on it. But I think at the end of the day, come June 1, the rubber hits the road, so to speak. And we move from planning to execution mode. So that's where our focus is, is right now. I think the other area that we didn't really touch on today is on distribution income. We're not just an underwriting company. We're not just an organization that produces investment income, but we also have a very solid, steady stream of what we call distribution income. Now there's a number of pieces of that. Obviously, you can think about BrokerLink, for example, one of the largest brokers in Canada that we 100% own. You can think about our strategic investments that we do with other entrepreneurial brokers. You can think about our investment in On Side that we've made here, which is a great, great business supporting indemnity controls, customer service, but also from an EBITDA standpoint is a very attractive business. Frank Cowan and MGA, which were just recently rebranded as Intact Public Entities, is another one that feeds into that distribution income. So again, good, solid, steady stream of income, not as seasonal as what we see on the underwriting side. So again, I think that it's important to remind investors that there is another solid stream. And we often talk about, through distribution income and investment income, we wake up in the morning with upper single digits ROE before we get to work on underwriting. So it's a big piece of our ROE performance and then ultimately outperformance relative to the industry as well. So that would be another area that I probably would want to highlight. But in terms of our day-to-day right now, it's really -- everyone is full out on integration work right now. As I mentioned, Canada integration work is very different to U.K. And obviously, we're really working on the people side to really raise the bar, strengthen the bank, so to speak, from a people standpoint, really trying to also give some certainty to our future colleagues that as we add 10,000 people here in a couple of weeks, really trying to reduce that time line of uncertainty really across not just in Canada but also in the U.K. and beyond as well. And then ultimately, as I said, looking at from a U.K. standpoint, what are the things that we can help Scott and team with in terms of some of their areas and some of the areas of opportunity, which is where there's a lot of focus of the organization from Charles, myself and many others at the moment.

So I guess we only have 2 minutes left, but I noticed the University of Melbourne was part of your CV. Is Australia a place that Intact might find itself given the kind of similarities in economies and maybe in the types of people that -- the types of countries that might attract a business like Intact?

Being a -- if I could call myself an expat from Australia, I'm sure if that's the right terminology. Yes, that would be fantastic. But no, I don't think so. I mean I think if you look at the Australian marketplace, dominated by a number of dominant players. I think a little bit like U.S. personal lines, tough market to penetrate. Look, as I said before, we're not interested in planting flags. So no, unfortunately, for myself and maybe for the family, I would say no. But hey, I love being here in Canada, been here for 20 years. That's home now. So looking forward to what the organization -- as we grow in the next 10 years because the last 10 years has been pretty impressive. So I'm looking forward to that.

. Fantastic. Well, I think with that, we might close things off. Hopefully, the moderator can help us here. And appreciate your time, Darren. Any kind of follow-up questions, feel free to reach out to Mr. John Aiken or obviously, your sales representative depending on the region.

Thanks, Jeff. Great being with you today.

Thanks, Darren.