Intact Financial Corporation (IFC) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for joining us. Charles, I appreciate you doing this. Everyone knows who you are, and so I'm not going to go through a long description of when you've done for Intact. I think it's been an impressive stay as a CEO. Before I get started on questions I want to get into, Charles, why don't you get it started? I'm wondering some of your thoughts about the quarter or the business in general?

Well, Mario, thanks for hosting me, and thanks, everyone, for joining. I mean we're -- us, I think, very strong fourth quarter as we presented yesterday. I mean, bottom line is solid performance across the platform. That's the first point. The second point is that the environment in which we're operating now plays to our strengths. Our strengths in pricing and risk selection, our strengths in claims and supply chain management and the discipline we've applied over the years. And I think that as I look out to 2022, 2023, we feel very good about the opportunities that exist. That being said, the integration of RSA is the #1 priority for the organization, well on track. I'm very happy with where we are as a firm. And the other big element that we need to manage at the same time is to advance the strategic plan of the organization, which is about customer experience transformation, investing in technology, AI and supply chain and investing in our people. And I think what we've shown, Mario, over the years is we manage with an eye on the near term, very focused on what's happening in the marketplace, but we always invest in the mid to long term no matter what. We've done that during the pandemic. We've done that in the past few decades, and we'll do that this year, even though we have a big integration on the plate. But on that, Mario, I'm ready for the questions.

So I'd like to take a slightly different approach right now. What I want to do is this, let's examine why the stock has not performed as well. Now I know that you've delivered a solid quarter in the markets back. You're back in the market good books and in no uncertain terms. But prior to this quarter, there's no doubt that Intact wasn't performing particularly well. Stock had underperformed, the banks, the [indiscernible] underperformed the banks by like 20% over the last year. What I want to do now is examine each of the reasons why I think it's underperformed. See if you agree and then address each of those for me. The first, I don't think there's anything you can do about. Definity went public and attracted some attention. There's nothing Intact can do about that, at least for now. So let's dispose of that. That's one thing that you really have no control. Let's now get to some of the other reasons why the stock maybe didn't perform as well. One is simply interest rates. As the markets start to believe that rates are moving higher, there was clearly more of an emphasis on what it could mean to the banks and the life insurance company. So what would be helpful from you now is to talk about our interest rate -- certainly higher rates than shouldn't be a negative for intact. Let's just talk generally about what it could mean for the company over the next couple of years. And maybe you can discuss interest rates and inflation together.

Yes. Well, let's have a really good way to put it. And first of all, Mario, that's exactly our conclusion. We don't overly trust about market generations in our stock. But quite frankly, we thought there was a mismatch between the earnings power and the traction we were generating in a really good environment and the stock's performance. And if you went back, number one factor is, indeed, you've seen the divergence between the sectors when the yield curve started to shoot up in September. So you've done the work, my team has done the work. What do I say about that? Well, first of all, Intact has done really well in all parts of the economic cycle in good times and in really bad times. Intact has a moat. And the moat -- the ROE outperformance has been an incredible tool, which, in my mind, has worked really well in all cycles. Now inflation and interest rate. So interest rate is not overly impactful for us because we have pricing power, we price based on ROE. And as a result, this certainly should not be a detriment to the Intact story. When it comes to inflation, we're making short-term promises. We have pricing power. We're on top of inflection. And quite frankly, we can do well in this environment. I think it's an opportunity for us to expand the platform to potentially expand our performance because we have been known to act on trends much faster than our peers. And ultimately, cost pressure translate into both opportunities for us. So I mean this is a macro change. There are dynamics, as you know, in the pools of capital, especially in the Canadian context. But if you look in the U.S. and if you look in Europe, P&C stocks didn't react like that. And so I think overall, inflation is something we're on top of -- prices are up faster than the cost pressures in the system. And interest rate is certainly not a detriment to our platform, on the contrary.

Sure. You know what else -- let's think about another reason why the stock has underperformed. And by the way, when I say the stock has underperformed, -- let's be very clear. The stock has performed extremely well over the long term. There is plenty of investors that think Intact walks on water. So it's just a short-term period where you fell at a favor. Let's talk a little bit about another issue that comes up a lot. The RSA integration. There's some concern here that, hey, this is not your standard acquisition. This was transformational. And there's a lot of risk associated with particular personal line. So how do you address the no? What do you do to make sure that there isn't going to be some slip up? Because it's happened before. There are plenty of financial services companies that when they integrate something as far put as in the U.K., things go wrong. How do you really get comfortable that RSA isn't going to be an anchor on Intact down the road?

Yes. Well, I totally get it. I'm a big investor in the stock, and we planned the RSA acquisition for 6 years, Mario. And it is a different acquisition because it's the first time we buy a company at 70% of book. And I think people need to keep that in mind. We've shown 12% accretion after 6 months of ownership, 16% in Q4, 3 quarters of the upside comes from Canada. Keep that in mind. We're increasing our presence in the country by 30%. Will be 2.5x bigger than #2, and that's where the synergy is coming from. And you know what, this is process. We have almost half the business converted to our products and systems. It means that the benefits of risk selection advantages, the benefits of claims and supply chain management happen. You don't need huge intellectual contribution to do that. When it comes to our global specialty lines, I mean the opportunity set for us in specialty lines has expanded dramatically at very little cost for the firm. And we've highlighted on the call yesterday that our specialty lines platform is now $5 billion, running sub 90% combined ratio. And there's plenty of upside to improve that business and to grow with the current footprint. They'll pay off over time. But for the next decade, this is quite a platform. And then you come to the U.K., and there's lots of questions about the U.K. The first thing I'll say is that commercial lines in the U.K. is as good as it is here in Canada. And there's a massive mid-market opportunity in the regions in England. And you know what, this is our bread and butter in Canada. And this is an area where we will invest in because we've got a strong team in the U.K., a strong brand and a massive opportunity in the small to mid-market space in Mainland England. And so that is a big opportunity, which was pretty cheap to access. Now first lines, I understand. I was very skeptical about personal lines coming in. And that's reflected in the entry point we've paid. What are we focused on now? Just keep in mind, Motor insurance in the U.K. is 1% of IFC's revenue, okay, 1%. Home insurance in the U.K. is 6% of IFC's revenue. So they are not big elements. That being said, they take energy, they take technology investments. And as a result, we want to make sure we're winning in these segments if we're to play. And that's what we're focused on at the moment. When we took over the organization June 1, we've put in place a pretty robust action plan that started in July, which were focused on the footprint. We have exited a number of distribution relationships where we felt the economics were stacked against us. Starting in July 2021, this will play out in the next year or 2. We focused on pricing and risk selection as well. And we focused on the reforms that are taking place in personal lines in the U.K. at the moment, which are playing out pretty much as we anticipated, which we think is good for the system. But Mario, we're working with the local team now to strengthen the pricing, risk selection, horsepower. We created a team in the lab. And rest assured that if we don't think we can win, we'll find a way to get there.

What's the time frame, though on that? You said that a few times, can't win, we can't maximize and optimize value. We're not afraid to get out. Is it a year or 2 years? How much time you give yourself?

Well, if you look at the nature of the product, you look at the nature of claims. My view is we can create outperformance between 24 and 30 months in the U.K. And that's, for me, the window over which we'll give it our best to win. In the meantime, the performance is quite good. You've seen our UK&I business running at 93.4 year-to-date, 93 in the quarter. That's better than what we thought. The balance sheet is very strong. And the team is really focused on the bottom line. So I feel good about what I'm seeing in the market in general, and more importantly, in the actions that our team are taking in that market.

Okay. Let's go to the last big issue that I said that investors are sensitive to and why the stock maybe didn't perform as well recently. That goes right to personal auto. Before asking the question, I want to draw some numbers for you. So in 2019, personal auto in Canada for this company generated an underwriting income of $85 million, $85 million. In 2020, $559 million. In 2021, $632 million. Clearly, COVID has an effect, but those numbers are outrageously large and these are huge numbers. Now I know RSA certainly had an impact in 2021 to boost that number a little bit because RSA brought with it some personal auto. But that delta from $85 million -- $85 million in 2019 to $632 million in 2020 is a norm. And one of the concerns investors have is that when that normalizes, that's not going to go back to $85 million and there's a huge gap between $85 million and $632 million. So help me think about that. What is the real number? What's the normalized market for this business?

Yes. So Mario, I mean you're throwing all sorts of numbers at me and I don't have the numbers in front of me. But if you go back to 2019, you'll see a combined ratio of 97.7, I think, if I remember well, in personal auto in Canada, okay. The business is much bigger now than it was back then, but 97.7 is not where we want it to be, you'll remember that. We were on a path to bring that performance in the mid-90s. And I think that, that is a real starting point, I think, to make that comparison. So you've got size, you've got a different starting point. And I think that the reason why 97.7 was not fully reflective of the real starting point is that the action plan we've put in place in the years before that were not yet fully earned. Whether it is price, whether it's risk selection, whether it's claims or supply chain management, we were not yet where we want it to be. That's the first point. I think that we're sitting in an environment now much bigger business. These actions have been paying off. The inflation running at about 4% with a lot of mitigating factors. I'm not saying inflation cannot increase, but there's a lot of mitigating factors in the mix. And the balance sheet is very strong. We've taken a very cautious view during COVID about long-tail lines, which have not seen much inflation so far. But we're prepared for that should it materialize. So we've guided, I think, very clearly. Within the next year or 2, we should see lower end of mid-90s in terms of performance. And for me, that's how one should think about where this is going.

Before I move on to my next sort of chunk of questions, let me just read some that came through from an investor. What would be the sign post for us to see that you're winning in the U.K., which is now a key market. And that the RSA platform, there's sufficient scale there, particularly in motor, and perhaps an outdated tech platform. So the gist of it is, what do you need to see? What are some of the early signs you might demonstrate for us that would indicate you're winning in the UK?

Yes. So let's just talk about scale for a moment. We're #2 in home insurance in the U.K. And that business has been performing really well. And as you know, on the property side of things, the risk envelope and the opportunity set is expanding. And I think the track record we have in Canada should give you a sense that we have a good perspective on how to win in home insurance and RSA at scale in the U.K. That's the first point. Motor is very small at this stage. And I think that it boils down to performance, in my mind. The guidepost is that within 2, 3 years, we need to see much better performance in motor. But there is scale in home insurance and when we will leverage.

Okay. Here's some other interesting one. Give me ' second. I'll need to find it again. It has to do with the conversation we had on the call yesterday, it was about how trends in U.S. auto, inflation in U.S. auto are different from some of the trends we're seeing in Canada. I think one of the things in particular that you mentioned was used parts or recycling of parts in Canada is greater than in the U.S., and that's helped to mitigate some of the inflation impact. But the question went something like this, isn't it just a matter of time? Isn't it just a matter of time before those issues that we're seeing in the U.S., higher utilization, people driving again, inflation parts, labor, isn't it simply just a matter of time before it manifests in Canada? Or is there some real structural reason why Canada could really be different from the U.S.

Yes. There are structural reasons and [indiscernible] out on the call yesterday. But the first one is that injuries is 40% of the product in Canada, which is a higher proportion than what you're seeing in the U.S. And therefore, the headline inflation you're seeing in labor parts in the supply chain, you don't see -- it doesn't find its way in a period of a fashion in injuries. The other one is that -- what we're observing today for physical damage is about 7% theft is half that explanation. You don't hear much about theft in the U.S. We've seen a big uptick in theft in Quebec, and it's picking up a little bit in Ontario. We have an action plan to fight that. That's the difference with the U.S. as well, which leaves the physical damage inflation at this stage in the 3% to 4% range, which is 60% of the product. Now the recycled part market and the usage of recycled parts is indeed much greater in Canada. We don't see that changing, in fact. And because we're selling in that market, for me, that's a big structural difference, which has helped absorb a portion of the inflation. The other thing, Mario, is that we have supply chain advantages in automobile insurance, which are very significant. 70% of -- and this is a difference between Intact and the rest of the industry in Canada. But 70% of our repairs are done in our preferred provider network. Second of all, we are buying automobile parts ourselves. Let's not forget that. We haven't talked about that for years, but our preferred provider network orders automotive parts through Intact so that we use our purchasing power. And the other thing is just how we manage capacity in the supply chain and quality. And I think that these are 3 key elements that help absorb the [ bill ]. The other big difference with the U.S., Mario, is that the way we've provided relief was through onetime relief checks, which we've largely earned in '20 and some of it in 2021. And we've taken -- we've given relief through rates. But keep in mind, we didn't know when driving would come back to normal. So giving relief 12 months out was a bit of a risky proposition. And I think the U.S. market went a little more aggressive this way. And I think when you look at the performance in the U.S. versus the performance in Canada, it's not just about inflation, it's also about pricing. And that's why I'm not saying there won't be pressure in automobile insurance in Canada, but that's why there's a big difference between what we're seeing in the U.S. and what we're seeing in Canada. Investors rest assured that we're over on top of these trends day in, day out. We're peeling the onion one layer at a time on a daily basis right up to my level.

This is sort of a related question. Assuming that the inflation does kick in, perhaps not as extreme as what we're seeing in the U.S. because of the structural difference that you outlined. But we're going to start to see at some point some level of inflation. The question that goes to, do you think you'll have the wherewithal or even the regulatory approval to raise pricing when it starts to emerge? And I guess maybe an add-on to this, would you have to see the inflation first before you get the pricing? Or can you preempt it?

So I think, Mario, sitting here today, there's 2 elements I think that are important to understand. The first one is the speed at which driving gets back to normal. We're not there yet. There's a gradual movement towards normality. And I think that there is flexibility in the system to correct rates in a very straightforward fashion for return back to normal when it comes to driving. So I'm not concerned about that part. And there's inflation. And inflation, the real question is, what have you baked in your prices versus what's happening in reality. Now prices as well as how you price for each vehicles and how each vehicles are classified, which in itself is an increase in insured value, already takes into account that there will be -- and there is inflation, in particular for new vehicles. So then what you're left with is the inflation that's not priced for were accounted for and what you would call the amount insured. And my experience over the last 30 years being involved in pricing in the Canadian marketplace is that you have markets where you can do what you want and the competition really drives what's happening in the marketplace, Quebec is a good example. And as a result, you basically use your rates, change your rates as quickly as you want. In the markets that are regulated, you've never heard me complain about regulators because we have good relationships with them. They understand the trends. We keep them informed on the trends. And when there's cause for concern that we observe, we have the analytics, the data and the intelligence to sit with regulators and say, look, this is what we're seeing. We want to act on this. And by the way, be prepared because people will see that over time. And I would say regulators, in general, have been constructive at dealing with objective, well-founded observations to modify rates. And so I'm not losing sleep at night for that. The real challenges to pick up the trends when they emerge. And that's why I'm saying we're on that on a daily basis because when you miss the trend, it can take some time to recover.

Let me do a different type of question on the frequency of catastrophic events and what it could mean to property insurance. Questions [indiscernible] are there certain properties that are essentially becoming uninsurable. And what you need to ensure that Intact isn't stuck holding a major, major loss. Maybe you could talk a little bit about reinsurance cover in that respect.

Yes. So there are 2 pockets of properties in the country that are difficult to insure. One is properties that would have been built in flood plains. And that's a problem. And it's a problem that is played at the municipal level, but those properties are really hard to insure for flood. And as a result, Canada is a bit of an issue. And we've been very clear with the various layers of government in terms of ways to deal with that. But the fact that it's uninsurable. And then quick, I think, is an area where because it is model based, in my view, capacity will become even tighter over time. Beyond that -- and that would be a small fraction of the Canadian market when it comes to property. Beyond that, we have a lot of appetite to protect Canadians. Why? Because we've transformed our product close to a decade ago in terms of pricing data, underwriting prevention and claim supply chain management. And we think that cat, the increase in natural disasters, creates demand for protection and protection is the business we're in. And it so happens that we can do it profitably. In fact, we've expanded the product coverage in the last 5 years. The weight of natural disasters over the last 30 years has increased by a factor of 4 when inflation adjusted. That's why we have to reinvent the business. And when I look at the next 20 years, I do expect the burden of natural disasters to increase. But you know what, the product we have, as you can see in the results, is equipped to deal with that. And so we feel very good about property. We feel very good about property and commercial lines, and personal lines here as well as in the U.K. And so when it comes to reinsurance, we're buying a lot of reinsurance. And the reinsurance we're buying is primarily meant to cover an earthquake, which is way bigger than any natural disasters you can come up with, including forest fires, including flood, including massive hailstorms in Alberta, for instance. So there is solid reinsurance cover in place for an increase in natural disasters. I think the risk from a results point of view that we need to manage are cats that are below the reinsurance retention, but that would be sizable that repeat that high frequency during the year. Think of the $50 million cat which are not subject to reinsurance. But if you have 1 year, 5 of those, where on average you might have had 3, well, that's $100 million spread. And that's why, Mario, we're cautious with the guidance. Like the track record in property is 89% combined ratio roughly in 5 or 6 years. And we're saying, look, we'll run that business sub-95 year in, year out, no matter what. The expected combined ratio of that business is not 95, it's below 95. But keep in mind, there's volatility around it. We don't mind volatility. And you know what, investors understand volatility. We issue a press release at the end of every quarter when there's a load of natural disasters that's above what people expect. People get it. That's the business we're in. If you take a midterm perspective, prop has been a phenomenal business, and I expect it to be in the coming decade as well.

On that point about investors get it and they expect the volatility, I think that's true. But it's -- the reason why investors analysts are able to cope with it is because the rest of the business is doing so well that it's sort of overwhelming that. It would be interesting to see how investors react if there's elevated cat losses and the rest of the business isn't performing well, it might raise -- it will become a bigger issue then. But let's -- that's just a theory of mine.

No, no. But I think it's a good point. Look, business today has a different footprint than a decade ago, Mario. I mean we're bigger in commercial lines, which is less cat problem. We have less exposure in auto than we did. And we have a broader geographic footprint. So solely on the basis of probabilities, the odds of everything going wrong at the same time in the new Intact are lower than the odds of everything going wrong at the same time in Intact a decade ago. So in theory, that concern should be less today if people are rational than it was back then. That being said, we're not about diversification. We're about doubling down on what we're good at. And I think it's important to keep that in mind. That's why we're so focused on expanding the outperformance in the U.S. and creating outperformance in the U.K. For me, that is the first order of business, and that will drive capital deployment over time, not diversification.

Let's go to something that's near and dear to me, and it's the simple fact that as analysts, we haven't been able to forecast your earnings properly now for some time. We've been wrong. And I think everybody is aware of the way we go about estimating these things as we use our own judgment, and then we always go back to what we hear from management and say, does that make sense given what we forecasted in our estimates. And it's that secondary check that isn't working right now, Meaning the numbers are just coming in so much better than we expect and what movie started giving us. And I don't think he stand banking. I just think he is doing it best to give us a reasonable number, but -- maybe let me ask you this. Why are we so bad at it now versus, say, in prior years when we've been a little back. What made us so bad at forecasting numbers right now.

I don't know. You ask yourself that question, Mario. I focused on getting -- becoming a better leader and running Intact better, not figure out what your issues are. No, honestly, I mean, RSA came contribution came faster and better than what we told you and that what we planned for. Obviously, the environment in which we operate, so -- and that is structural, by the way. I think that the RSA performance, if you look at synergy, you look at the performance improvement plan we have in place. And we're just a fraction of the job done there. But we're ahead of where we thought we would be. And we told you last quarter, we said, look, we thought the IRR on this thing would be north of 15%. Now we think it's in the 20% zone. You've seen what happened to the accretion so far this year. So that is one point. I think the second point, Mario, is that we've done a lot of heavy lifting over the past few years. The markets in 2021 and sitting here today, the markets have been very supportive of firm conditions, but we're 2 years ahead of our peers in most lines of business at pricing for inflation. So clearly, in this environment, we are doing better than probably what we thought we would do. The environment is very supportive, and we've done a lot of heavy lifting across all the lines of business. And I think that the third thing that's important to us, and this is a point in the cycle where most industry players are starting to feel pretty good about themselves. And we want to make sure that our investors like us are clear sighted about what's happening in front and understand what some of the headwinds might be. And therefore, we're giving a guidance that is prudent and that bakes in a bit of volatility that one could expect, not that we forecasted necessarily. We want to make sure that we're well anchored on this. We're not marketing, Mario. We're sharing with you how we're seeing the world and we're cautious people.

Yes. I'll tell you one of the reasons why I care so much, I know from experience that beating estimates and missing estimates have a bit of a mean reversion to them. And any period that -- where there's a lot of beating of estimates, there seems to be a period down the road where the opposite occurs because we get a little bit too optimistic and then we -- the companies start to miss. So I'm sensitive to that other side of this coin, which could be a period of missing. Well, perhaps that bridge might come to it if it comes up.

No. But as you know, Mario, we printed heavy cat year combined ratio and prop at 84. That's great. And if we can replicate that, you know what, Intact team will try to. But I don't think we should involve that. Was there a good luck? I don't think there was that much good luck, but it's a volatile business. And therefore, we need to remain somewhat sober. But we're making the most of the market every day to make sure that we expand the margins and we grow the business. But we want to be cautious in terms of how we guide people so that we don't get overly excited.

A little bit about capital. One thing that did surprise me this quarter was to hear that the company was contemplating buybacks. I thought it was an outside chance, but frankly, I thought you were going to talk about that later in 2022. I was a little surprised to hear about it so soon. What brought that on? Was it the stock performance, the sale of the Denmark business, faster earnings accretion from RSA? what brought that on?

Well, Mario, a little history on buyback. We don't have a maintenance buyback in place. Go back in our history, we say we'll do a buyback, we do a buyback and -- or we don't. And we don't have this thing sitting there in case. And it's been a debate with my team, to be honest with you. And frankly, my team reminded me this fall that had we had a buyback in place as a maintenance tool, we would have been happy to use it this fall for the reasons you mentioned in the first part of the meeting of the exchange. And right now, we're looking at the world and we're thinking, you know what, yes, we should contemplate buying our shares, absolutely. And that's why we've announced a buyback now.

Now it's my sense, and I can do the back of the envelope calculation like anyone else can, that the proceeds from the sale of the Denmark business will go largely toward getting leverage ratio back to 20%. Does that leave much in the way of excess capital for the company if your leverage ratio is 20%? That's like you can do a little bit of math, you come up with big numbers, but I mean really deployable capital. What's your impression.

Yes. So Mario, the proceeds of Denmark, by the way, 4x book, 1 week after closing, I'll just say that, is $1.3 billion. Half of it we'll get the debt to cap back to 20, so much sooner than the 36-month road map we had planned for. The other half is accretive to capital margin is one way to think about it, which is good. And you've seen the capital margin, Mario, in Q4 being very strong. And as a result, we feel good about where we are from a capital point of view. And from the fact that we're back to our target leverage level much sooner, but it gives margin to explore growth opportunities, no doubt about that. And we think that our shares would be one.

Something just reminded of a question an investor asked of me a while back when the deal was announced, and then we saw Denmark sold for 4x above, and we see all this accretion emerging. But he asked this sort of tongue in cheek, but he said, who were the sellers? Why did they sell it for so little? Were they just -- is Intact just so much smarter than everybody else? I mean it's a legitimate question if we think about it. You buy something for 70% of book, you sell part of it for 4x book. The accretion is huge. Were the sellers just morons?

No.

Okay. Help me think through, how do you get something that cheap and then turn around up 4x book?

Well, I think when you look at this deal, Mario, you got to unpack what RSA was, right? You had a massive Scandinavian business which had 2 components. One, it was super profitable. And two, it was unique. There's a scarcity of opportunity, and I'm not talking about Denmark. I'm talking about the Scandinavian platform. This was worth a lot, and that was a big portion of the purchase price. In fact, close to 60% of the purchase price was the Scandinavian business. So you're then left with very good and very large operation, but at a multiple that's very attractive. And the question is, do you have the benefits to make the most out of it? Well, Canada was a big portion of what was left. And that was worth a lot. That's an acquisition I've been contemplating for 20 years, RSA in Canada. When we started to focus on Corp Dev, we had 2 targets. We were focused on AXA and RSA. And so you can create a lot of value with that. And as a result, we've entered in the U.K. at a very compelling price point. And then the specialty lines upside, we're picking up also at a very good price point. But I think Scandinavia is part of the answer.

So hopefully from that then is that the business was worth more in its part than it was in a whole. So that's kind of a logic behind this. It's not that the seller was a moron. It was just the way you packaged it in its parts is worth more, so...

And Mario, both parties, my partners, Tryg, who are very [ savvy ] P&C operators had a lot of synergies they could create and so can we.

Yes, that helps to explain for me that notion that -- yes, it was is more valuable as a part. Let's go to distribution for -- actually the pre distribution, I want to stick with capital for a moment here. Prior to the announcement of the RSA acquisition, I honestly thought the next big deal was going to be in the U.S. I didn't think it was going to be this far put. You did a line being deal. It sounds to me like you're getting the combined ratio of close to 90%, which is what you've committed to doing. You've always said, hey, we need to be really confident. We've got the OneBeacon label knock down. It's out milling you're there. And specialty lines is what you care about. You've been very clear with us over the last few years, you want to be a global specialty player. Is the U.S. market just a good place to continue to expand in specialty? Are there even opportunities for that in the U.S.?

Yes. I think that if you look out, Mario, a decade, you will still see in our footprint a very strong North American weight in specialty lines. And the U.S. has lots of opportunities to offer that are profitable a few picture spots. And the vast majority of the portfolio in the U.S. is performing sub-90. And that portfolio has grown by 16% in 2021 organically, okay? We're still -- we have a lot of room to expand our distribution footprint in the U.S. We have a fair bit of room to put more people in seats to grow the segments that are performing really well. And we like to invest in distribution to accelerate our footprint in specialty lines, and I see a ton of growth just doing that. Then you add the global capabilities that Mike Miller and team just acquired to a certain extent in the RSA transaction. This is something the U.S. team has been asking not say screaming for ever since we took over the company. Now we have the global capabilities. And therefore, it will be -- I don't want to say payback time, but they'll need to show that this is accretive to growth in the U.S. So organically, huge opportunity in the U.S. And yes, we are there. We are in the zone we wanted to be. There are a few lines of business that need work, and they're getting a lot of work. We've seen what we call our performance improvement lines improved by 20 points between '21 and '20, which shows that this recipe is working. So huge organic growth opportunities in the U.S. Inorganic, we're prepared to deploy capital, but we want to stick to where we've created the outperformance at this stage. I think if we expand too much in the U.S. in areas where we don't have the outperformance yet, for me, that's the license to play. And now we have it in the U.S., and we'll build on that and strengthening that position is what we're focused on. The other thing I would say is that our footprint today, if you throw the U.K. in the mix and the global network that we've acquired, we're in 70% of the global SL market, which is a $500 billion opportunity set. We've got a footprint that is performing really well. So we're not going to go and plant flags in other places. We're just doubling down on these positions at this stage. And I think there's a ton of organic growth opportunities. I didn't mean to interrupt.

Okay. It sounds to me then that the U.S., we might actually see that expansion, but it will happen organically because of the interconnections with the global specialty lines. That's an important line of reasoning that we will have to focus on going forward. Here's another sort of interesting question that, frankly, have occurred to me. It's something along the lines to be a preferred provider network, the repair shops in Canada for auto. Is there a risk here that inflation causes such a strain on their end that they need to -- like are these folks going to see their margins come under so much pressure that they need to renegotiate the relationship with Intact? Could we see some pressure with this very valuable preferred provider network?

Yes, I think we could. But -- and we would sit down and renegotiate. But we're in a very different position. We have a lot of leverage. We're driving a lot of volume, we want these guys to make money, to be clear. This is part of a healthy ecosystem, and that's how we built this ecosystem over time. And keep in mind that we're helping them use our size in ordering parts in the repair process. So that part of the system, I think we're really making a difference for them. And so yes, I think this is a risk. No doubt about it. Not one I lose too much sleep over in the big scheme of things. I think to watch in terms of inflation is on the property side of things because there was a capacity issue in that segment. There was a quality issue in that segment. You throw inflation, which has an impact on materials, which is about 25% of our cost equation. You're seeing 10% sort of inflation there. And you know that there will be an increase in demand in that space, home restoration space. And this is where we see a big opportunity as a home restorator ourself with the on-site business, which today handles close to 60% of all of our property claims. Think about that. With our own home restoration business, which I'm hoping will be accretive to our earnings because we own both sides of that metal. Now and I think that's the place where one needs to watch inflation because you've got capacity issues, which means that for on site, this is a big business opportunity and one we're focused on, just like Mario, when we started to focus on distribution 10 years ago. And look where it is today.

Yes. I think the last thing you want to see is the quality of the repair stuff or because the repair shops are struggling to meet mark -- to generate a good margin. And I'm sure you're something you want to be sensitive to because that can really hurt [indiscernible].

Yes. And I mean, if you go back to the big objectives we've shared with the Street over the last decade, our first objective is to have 3 out of 4 customers we had looked at some Intact. That's where the [ buck ] stops. The ROE outperformance is hugely important. Growing NOIPS by 10% over time as well. But its customers who decide who wins. And as a result, you need to manage the ecosystem to achieve both satisfaction and strong financial performance.

I've two quick questions I want to finish up with. The second one is a very broad encompassing one that you almost hinted that there a moment ago. But before that, let's go to a very specific one, which is, do you think that the RSA pension scheme could limit your options to exit the U.K.? Let's say you can't win in personnel. Could that pension scheme act as a bit of an anchor for the company and trying to exit the business. Do you see any connection there?

I think it would -- I mean, the surprising thing, let's unpack that one. So the economics of the pension, if you forget about all the kitchening that goes into pensioning and you look at assets, liability, how they are invested and how they'll play out over time, this is a big positive number, let's say this. The accounting picture is also a positive number. Now the market value of it, should we choose to trade, is not in sync with the economics of this. And as a result, you could say, well, this will influence a trade. First of all, none of our intention to trade, to be clear. But there's a lot of appetite for pensions in the U.K. to put things in perspective. There's a number of businesses that are being built purchasing those sorts of obligations. And clearly, we've got our eyes on that, Mario. And there's many ways, I think, to do something on that front, and so it would influence potentially, should we do something, the set of buyers. But to be clear, we want to create outperformance in the U.K. That is job #1.

Yes, I can think of a couple of Canadian companies that would probably be happy to take that pension on your end. Canadian companies with very large operations and are specialists in the risk. [indiscernible]. Let's go to the very last question now before we go and it has to do with the NOIPS, the 10% growth objective that the company has. Over the long term, absolutely. Check that box. But would you say that applies for 2022? Or would you rather take a pass on that one in the short term?

I think Mario, we were very clear with our objective. ROE outperformance 500 bps every year. There is some cyclicality in our business. That's why the NOIPS objective is one that is, yes, annually achieved, but over time. We're coming off a very strong 2021 year. There's no doubt about it. And therefore, it's a high base. When you look at our business, you have to look at the NOIPS growth in 3 different ways. You've got to ask yourself, you think there's margin expansion opportunity. That's the first ingredient of NOIPS growth. The second ingredient of NOIPS growth is growth, organic growth. How will you -- or just growth in general, grow your base at margins? And the third one is capital management. It's the denominator of NOIPS, which is your lever. That's how we've been thinking about that objective and why we think it's a good objective. Because it forces you to think about top, bottom and capital. But clearly, when you build off a year like 2021, you want to be cautious when you think about NOIPS for next year because this was a very, very strong year.

Well, I can tell you one thing, just looking at consensus estimates for 2022, that's certainly not what the Street is building at. So if you get anywhere near that, you'll beat us again because I think the Street is looking for consensus maybe down 6% in 2022 versus 2021. I've got it essentially -- well, down a little bit as well, maybe flattish. So yes, there's a lot of room to beat us if you can get to the 10%. Charles, I want to end it here. Thank you again for joining us and for everyone else joining us on the call. And good luck 2022.

Yes. Thanks, Mario. That was fun. I enjoyed it. Let's do that again.

Sure. I have got [indiscernible].

Okay. Bye.