Intact Financial Corporation (IFC) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us today. My name is Geoff Kwan. I'm the research analyst here at RBC Capital Markets that covers the diversified financial sector. Very happy to have with us doing a fireside chat this morning is Intact Financial. And from the company, we have CEO, Charles Brindamour, who I think everyone knows. So I don't think I need to go into any sort of long biography on that. So the format today is going to be a fireside chat, but we do want to try and make it interactive and dynamic as possible. So if you do have questions, feel free to put it into the box and submit it, and we'll look to get it asked. So maybe first off, Charles, thanks much for joining us today.

My pleasure. I'm glad to be here. It's a sunny morning in Toronto. I hope you get the same weather in Vancouver, Geoff.

Well, starting out, I think when I looked out in the morning, it looks like it's hopefully going to stay -- hopefully be a good day out here. Maybe if I can start off. Obviously, there's a lot of discussion around the economic environment today and concerns increasingly about a potential recession. Investors seem to view the P&C insurance industry as being a defensive sector. But that being said, though, if we do wind up going down the path to recession, can you maybe just kind of talk about some of the things that are good and bad that typically happen in a recession within the P&C insurance industry? And how you kind of prepare yourself for that?

Yes. I think it's a fair assessment to say that the sector or the outperformers in the sector do well in periods where there's economic headwinds. I'd make a couple of general points and then go into specifics. The first point I would make is that our product is short term in nature, and we have pricing power. And that really helps navigate all sorts of environment. And I think it's one of the strengths of our model. The second point I would make, Geoff, in aggregate, if you look back, the overall performance of the industry is not highly correlated with GDP, with unemployment and with CPI. Because there's many factors going one way and other factors going the other way, which, in aggregate, you see that there's not a great correlation. I think you can do well in a tough economic environment. You've seen us perform well in tough economic environment. So let me talk about the specifics as to why I don't think it's super correlated and why there are offsetting factors. So in personal lines, there's 2 tailwinds normally that come with a slower economic environment. One, there's reduced driving. It's well proven that the number of kilometer driven by earned units or cars actually goes down when the economy slows down. It's also true when the cost of energy goes up. It's not a recent thing. It's historical in nature. And the other thing we tend to see is that the frequency of claims for home insurance also drops. It might be a function of the fact that people are maybe a little more at home. Now in personal lines, what do you need to watch for? Moral hazard, theft, arson and disability. These are the things where you can see pressure during economic slowdowns. But in aggregate, not a headwind really for PL. In CL, clearly, CL is more sensitive to the economy, growth in particular. You see 2 things that are more sensitive in commercial lines, some ensured, the amount of goods ensured is more sensitive to the economy than it is in personal lines. And on the automobile side, fleets are taken off the road much faster. So you see swings from a top line point of view. Liability tends to do well in periods of economic slowdown. What do you need to watch for in commercial lines, based on my experience, is maintenance diminishes. And as a result, the odds of larger losses, fires and things of that nature because of lesser maintenance, goes up a little bit. The other area you need to be very attentive to is surety. Surety is a great business. But when things go really wrong from an economic point of view, you can have more surety accidents, so to speak. In aggregate, we feel we're very well positioned to perform quite well in an environment with that kind of mixed headwinds.

Perfect. Maybe switching over to another thing that's been topicals inflation. I do have some other inflation questions that we can get to you later. But just given also to the magnitude of what we're seeing in inflation right now that we haven't seen in a very, very long time, how that may or may not kind of impact pricing across your various business lines?

I think at the macro level, inflation, Geoff, should maintain very good rate momentum in all lines of business, I would say. That's my expectation. That's what I'm seeing in the market at the moment. It's a firm to hard market in commercial lines. I see inflation as sustaining. Same thing in personal prop, because there's a fair bit of inflation in personal prop. And I think the same thing in automobile insurance. I think in automobile insurance, though, what we need to balance to figure out what happens to the rate environment is, on one hand, you see inflation. And that's been a source of rate increases across the board. On the other hand, driving is also changing, and frequencies are not yet fully backed to historical averages, and it's harder to predict the rate environment in personal automobile. And that's why we're seeing muted in the coming 12 months. But in aggregate, I think that this will really help the pricing environment, the industry will price for inflation in my mind.

Perfect. I see we do have a question. So great to get it started off with a question early. Thank you for that. The first question is this -- that we've got from an investor. When you do -- sorry. When do you expect hard conditions to abate in property and commercial lines and what would be the factors that would lead to a softening?

So at the last Investors Day that we had in-person, which was a couple of years ago, we said we would see hard market conditions for at least 2 years because the industry's combined ratio in commercial lines was above 100%, you had elevated levels of natural disasters, interest rates were low. And as a result, your investment income potential isn't there. 2 years on, this thesis very much played out, but then COVID happened. And what happened during COVID has been tough in commercial lines, quite frankly, globally, because of business interruption, not so much in North America. Our products are very well written in that regard. There's been a reinsurance pressure and liability pressure as well. COVID has hit really on the liability side of things. As you know, we've put up a provision at the start of the pandemic for potential lawsuits against our customers. And so additional factors came in, in my mind in the last 2 years that will lead to a sustained firm to hard market for at least 12 months in my mind at this stage. I certainly see that in the market today. Inflation is picking up, and I think there's general caution globally, and I think that will be helpful in the context of the -- of maintaining at least 12 months of very healthy hard market conditions.

Perfect. And then moving on to the -- maybe the trifecta of things that are on top of, seem to be, people's minds, interest rates. Obviously, we've seen rates come up quite significantly and over a shorter period of time. You talked on the last conference call, the last quarterly results, about kind of turning over the portfolio a little bit faster to take advantage of the yields. Can you kind of talk about how you're thinking about that going forward in terms of expectations around rates and how you plan to position the portfolio and implications for earnings?

Yes. So I guess the first point I would make, Geoff, is that we're not really changing the risk profile of the portfolio at the moment. We're not doing anything different to change the risk that we're taking, other than on the equity side of things, we're below our long-term target because there's a fair bit of headwinds at the moment. The duration of the fixed income portfolio, Geoff, is about 4 years, 4, 4.5 years. It takes about 7 years to fully turn. So all else being equal, if you let things happen, you would pick up the upside over a long period of time. Now in the current environment, the whole RSA portfolio was reset at market yield upon closing. And this gives us opportunity to turn the portfolio faster than we've done historically. And I think the team will likely do that in the coming months, where they see good opportunities, where relevant, but not changing the risk profile of the portfolio. This has led to our new guidance. I think Louis gave new guidance yesterday of $840 million in investment income for 2022. Better -- much better than where I thought we would be, quite frankly. And I think every parallel shift in the curve of 25 bps at the normal churning speed will translate into above $5 million additional. So it's not nothing major. We're clearly turning the portfolio a little faster now. So you can expect some upside greater than $5 million, obviously, for 25 bps, but no big change. I think it's just speed of travel and much where there are losses to be recognized, as I said, they're not as big as they otherwise would be because we've reset the RSA portfolio upon closing.

Perfect. Maybe I wanted to switch over and had a few questions on the personal auto side. So I mean we saw from the Ontario budget recently, they talked about wanting to reduce the cost of auto insurance, increased kind of choice and options for consumers, kind of cracked down on fraud. There weren't a lot of details in the release. And just was wondering if you can talk about what your assessment of how the Ontario government plans to achieve these objectives? And obviously, also recognizing is, if I remember correctly, this year is an election year.

Yes. I think the Ontario government in the past few years rolled out, starting in 2016, good reforms that have been, in my view, effective. Now it so happens that the Ontario product is the richest product across the land. And as a result, has been over the past 2 decades, the portfolio that has seen the most inflation. Because it's rich, there's a lot of people trying to not ot call this car accident, entrepreneurs trying to take advantage of the product. And as a result, our advice to government has been you got to stay on it. You need to keep working on the potential inflation in the system, because if you want the competitive forces to be all out, you want to keep inflation under check. And that's what they're doing. And in my mind, the signals they're sending are very consistent with what they've done before and their intentions. And I think they've done a pretty good job to keep the cost of automobile insurance in Ontario in check because they worked on the cost of the product effectively. And so that's just continuity in my mind, and creating more choice, definitely, the more the product is tailored, the better. Some people have coverage at work that they might not need automobile insurance coverage for. These things need to be better taken into account. Cracking down on fraud, I mean, the government has done a good job. They've canned 200 health practitioners in the last few years when they introduced their last fraud reform, and there's so much more to do and they're acting on it. And so -- and in fairness, I'm quite thrilled with what they have in mind there because historically, the government, to fight inflation, introduced all sorts of strange rules that you'd apply to pricing, for instance, limit the number of territories to 55. We price at the postal code level normally. And so I think they're looking back at some -- they will look back in my mind that some of these archaic rules and make sure that companies can be full out on risk selection that's really based on people's behavior.

Perfect. My next question on Personal Auto was just kind of getting back to this path to a "normal combined ratio," right? Because we've seen with the pandemic, we saw traffic levels come off. It looked like the early part of this year, we're kind of at or very close to pre-pandemic levels, maybe later in the quarter in terms of Q1 with high gas prices, maybe we saw a bit of a tail off there. Same time, work from home, there's going to be people that will do the hybrid working engagement -- or arrangement and some that are going to completely work at home. Just was wondering your thoughts on the bigger picture around implications for the combined ratio? Is it something where it just may take a little bit more time to kind of get back to that mid-90s combined ratio? And also, too, what have implications, I assume, for your ability kind of thinking about the pricing into the price increases on the product?

Yes. So Geoff, we've guided starting last year on being at the lower end of mid-90s. And I'll let you define what that exactly means. And you look at yesterday's results, what we published Tuesday, you'll see personal automobile combined ratio of 93. And you need to keep in mind that Q1 is high season for personal automobile and you have a few points there of winter. So it's really at the low end of the mid-90s at this stage. Prices are adequate and driving is close to normal. However, driving patterns have changed. And with telematics, we know that the peak accident moments pre-pandemic were at 8 in the morning and 4 in the afternoon weekdays and the peak accident moment now is Saturday at 2:00 p.m. And so frequencies have shifted -- it shifted also based on people's profile. And so there are segmentation opportunities in the marketplace. And I think that we're unlikely to go back to full-fledged historical driving patterns and as a result, historical frequencies. So we're pricing with an anticipation of a return to normal, knowing that the driving patterns have changed a fair bit. You're right. I think that with the cost of energy up, this is likely a tailwind. And the other thing is, as you know, we've not -- we've provided relief as onetime relief in people's pockets as opposed to playing what are rates too much. And what do we have? We have the ability to go back. So when I look at all of that, I'm very comfortable with the view that we will be at the low end of the mid-90s for 12 months. In my mind, that's pretty clear. What do you need to watch for here? One, you need to watch for inflation. We've talked about that during the call. I think we've unpacked where inflation is coming from. We're pricing for it. But that will have an impact between driving and inflation, that will have an impact on the speed at which the combined ratio might migrate back to 95%. And the other thing I would say, Geoff, is that on injuries, which is 40% of the cost of the product, we've taken a cautious stance during the pandemic because injuries take much longer to show their true nature. We've diverged from the industry, I think, meaningfully from a reserving point of view. And you can see that in the PYD in the quarter, which is higher than it's been historically. That gives me comfort that, a, our outperformance will increase in the coming 12 months and, b, that there's -- the odds of being surprised on the wrong side, I think, are less than 50% definitely at this stage.

I see we've got a couple of questions, which is great. And maybe if I can -- before I get to those questions, I just want to kind of follow-up what you're talking about there is. So you talked about kind of being the low end of the mid-90s is the target for this year. Obviously, there's various gives and takes around that. But is the right way to kind of think about that is if you're able to achieve that either this year or even kind of going forward, that, that sort of performance would limit the ability to increase, right? In other words, you would be able to increase rate more if the combined ratio was closer to that 95%? Just trying to understand what the dynamics there between rate and what the combined ratio is.

Yes. I think that there's -- as I said, there's a degree of caution in the balance sheet, which goes to the calendar year results. Now when you price, you price prospectively. And what is driving your prospective price? There's clearly your body of experience from the past, which you should normalize for the pandemic, but then there's inflation. And inflation is very much a forward mechanism. And if you have enough proof that there is inflation, regulators have been quite reasonable in the past to leverage facts and data to let you do what is fair, just and reasonable. And then also, keep in mind, that we don't need to get approvals across the land. It's only in certain provinces where approvals are needed. So I'm not overly concerned by that.

Okay. Perfect. And then we'll go to one of the questions that we received here. And you talked a little bit about it, but the question was on personal auto repairs. When do you see supply chain issues abating, like sourcing auto parts and the like?

That's a hard one. If you unpack the inflation we're seeing, which is 5% in Q1 and 4% in Q4, 40%, we're seeing no inflation in injuries at this stage. We're really well reserved for that. 30% is total losses. We're not seeing inflation there because we've got the salvage business that's offsetting the inflation. The price of the salvage we sell is up. And so really, the only inflation coming out of total losses is theft, and it contributes to 1 point of the 5-point inflation we're seeing. So it really indeed boils down to repairs. And repairs, you've got labor in there, just keep that in mind. And then you've got parts. And I think that's the pain point in the system at this stage. This drives about 3 points of the overall inflation, well in check. In aggregate, it's causing service issues. And as a result, it's driving a bit of inflation as well. And this is where our supply chain really helps deal with that because we don't cash settle. We like for people -- we like to help people get back on track. We have service centers. We have relationships with -- 70% of our customers use our preferred provider network where our customers are in front of the queue. And we have better access to capacity. But people have to wait for parts longer. Well under control, in my mind. When will that get resolved? I have no idea, to be clear. I didn't want to dance around the question. I wanted to give you the context, but I don't know. And there's no sign of abating at this stage. And so my guess would be that we've got 12 months, but it's not super indicated, I guess, so don't put that in your model.

All right. And then the other question that we've got right now in the queue, similar on the inflation side in personal auto. The question is, the repair network is experiencing strain because of lack of labor and supply availability. How are you thinking about passing on price increases to help your repair partners? I guess, kind of managing the relationship with your repair partners, I guess, is what the gist of the question is.

It's very important for us that are preferred providers, which in automobile are largely independent entrepreneur, unlike on the home front where the bulk of the supply comes from us, from on-site. So it's very different dynamic there. It's very important that our preferred providers actually have good margins, make money and are happy to do business with us. So there are levers we can use such as the amount of volume we send them. We're using data and machine learning to steer customers at the best capacity and best quality available in their area, that really helps as well optimize the functioning of our preferred provider network. And then we're involved as well in supplying materials on their behalf. You can think of paint and things of that nature. That helps absorb the blow because we can leverage our purchasing power to a certain extent. And I think where we need to make adjustments to the arrangements we have already and the deals we have with our preferred provider networks will make -- will definitely be fair with them because we want them to succeed and we want their business to do well because it goes straight to the quality of the experience we provide our customers.

Perfect. One last question that I had on the personal auto side, before I switch over to personal property, is on telematics is, how much of an opportunity or how do you think about the growth opportunity here? Because obviously, not all of your competitors offer such a solution, but also to, from a profitability perspective, how that part of your business in auto compares to customers that don't use telematics?

Look, I think we've been on it for many years. We're big believers in telematics. Why? Two reasons: one, better customer experience in our mind; and second, super predictive. There's a high level, if you look at it at the predictive power end of things, the top 1/3 -- the best 1/3 of the drivers compared to the worst 1/3 of the drivers, there's a 50-point loss ratio difference, okay? Forget about all the other pricing variables, just look at the driving and the model we've developed with driving data, massive delta. And so we're big believers in that. The second reason why we're big believers in telematics is because we're using the communication with customers, which is far greater, far more frequent than any other relationships and product relationships we have with customers to add services. You can think of your carbon footprint. You can think of crash proof assistance, et cetera, et cetera. So we're adding services to this application, and I think it makes for a richer, more useful insurance experience as well. And so for those 2 reasons, we think it's great. We have at this stage 1 petabyte of data that we've accumulated since then. So that's 1,000 terabytes. It's the equivalent of 500 billion page of standard text, if you don't know what 1 terabyte is. And so the predictive power, when you combine that with machine learning, is out of this world, and that's why we love telematics.

Perfect. Maybe we can switch over now is on the personal property side. On the inflation side on here, I mean, what are the kind of the key factors that are driving severity, both good and bad, in personal property? And where is that trending or where do you see that trending over the coming quarters?

So there's 2 big drivers of severity. One, the cost of material. Labor, not so much, the cost of material. It's 35% of the cost equation is material, and that's up double digit. And so we've seen 2 years of upper single-digit inflation in personal property. And it's really material driven. The other thing is natural disasters. And Geoff, I've been quite vocal about that for many years. It's up 4x in the last 30 years. We see this carrying on going forward, that's a big source of inflation. It's a big source of opportunity because risk is up and people get it. And as a result, the demand for the product is up. But our perspective is, personal prop, high inflation for an extended period of time because the demand is not only economy driven, it's climate-driven. And as a result, we need to be on top of it. It also means though that there's a great demand for restoration services, and that's why we're trying to build a business where there's a lot of momentum in building on site at the moment, and we'll talk more and more about that, especially at the Investors Day in September.

Perfect. I noticed we actually just got another question coming in, going back to the auto. So we can go back to auto there. The question is this. The change to peak accident time window away from weekday rush hours to Saturday at 2:00 p.m., is that likely to remain the case? Do you expect this to be a permanent change in this multi-question thing? And is the biggest, most significant pattern change post-COVID, what you see across all your businesses?

Yes. It's definitely the biggest behavior change from a claims point of view that we're seeing as a result of COVID. We can get into digital take-up and how we interact with customers, which has changed dramatically with COVID, and it's a good thing. We were super well placed from that point of view. Now it's very hard to predict what normality will look like going forward. But if I have to guess here, I think the accident patterns will migrate back to rush hours between Tuesday and Thursday would be my guess. And so how will Saturday at 2:00 p.m. will compete with midweek rush hour? I'm not sure, but that's what I expect to see from a claiming pattern point of view. And with telematics, we'll be able to figure out when that happens pretty quickly. And as we all know, at least those in Canada, the last month has been a month with meaningful change, and so we're keeping a very close eye on that because I think it's important as we look out 12 months. And as I said, I think it's an opportunity, it's a pricing risk selection opportunity as well.

Perfect. Switching back to the other question I had on the personal property side. I mean, this has been a part of the business and for the industry, it has been, I think, very good for the better part of maybe about 7 or 8 years, like kind of going back post the Fort McMurray wildfires. When you kind of take a look back on and trying to dissect in terms of why property has been generally good, well, for Intact and, to maybe a little lesser extent, the industry. Is it stuff like parallel based pricing? Has it been kind of use more use of more analytics and whatnot in terms of risk selection or what not? And what do you see the key drivers going forward in terms of helping to hopefully maintain the good results you've seen in personal property, notwithstanding the CAT activity that we've seen particularly recently?

Yes. I think the first point at the industry level -- then I'll talk about Intact in a moment, because our performance in personal prop has been -- I'd say I'm surprised by how good it's become over the years. But at the industry level, I think the biggest driver is this general recognition that natural disasters 10 years ago were 15%, 20% of your overall losses and now it's probably more 35%, 40% depending on who you are. And that's a massive shift. And this has led a big pricing -- average price levels shifting upwards. And I think that's been a big contributor to the industry's performance. When it comes to our firm, in particular, perils-based pricing, Geoff, as you say, but also perils-based underwriting and having a product that is built along the peril. So full alignment of product pricing, risk selection at the perils level made a big difference for us. No doubt about that. We've expanded coverage for water, but we've introduced sublimits in areas where the odds were much higher than anticipated. And every risk has been geo coded. So historically, with price using postal codes, now we're using geo coding in our pricing model. So that's a big portion of the equation. Another big portion of the equation is claims. I mean, claims has been a big driver of our performance there. We have full-time natural disaster management teams, teams of people who only are focused on natural disasters. We have supply chain relationships that are geared towards natural disaster. And then lastly, On Side. On Side has yet to pay off to get the full earnings power of that machine, but it certainly does from a service and it's starting to pay off as well from the bottom line point of view in claims. And then On Side, the Net Promoter Score is actually meaningfully higher than it is for our other providers.

Perfect. Maybe we can switch over to commercial lines here. So you recently had merged the RSA Commercial Lines business with your existing kind of North American footprint. Can you talk about where you see the opportunities on the cross-sell and how meaningful that might be from a premium written perspective?

Yes. If I start very high up, Geoff, the RSA transaction, I mean the big upside is the specialty lines sandbox, so to speak. I mean, we've increased our leadership position in Canada. That's great. We've got good positions in the U.K. and Ireland at scale. That's good. But the big upside here, which we haven't really paid for is the access we built in global specialty lines. Our sandbox 4 years ago before our entry in the U.S. was CAD 50 billion. And the sandbox today is easily $400 billion in the markets where we operate. I'm not talking about PL in the U.S. and stuff like that, just where we have a product to compete. So that -- therein lies the big growth opportunity. And to that, I'll say, we have access in specialty lines, 70% of the global market. We don't need more. The other 30% is covered by our global network where we don't put our balance sheet at risk. We have a network of relationships. We're collecting a fee. But the footprint for me is established for the next decade. So the question is, where is growth coming from as you do that from a global SL point of view? The first thing is to rationalize our footprint in Europe and in the London market. We're connecting the dots there. The second key issue is to connect that with our North American platform. That's what we're doing at the moment. And then it's about deepening -- leveraging that network and using our distribution relationships and eventually adding new verticals, which you'll hear about later this year. I think there's a lot of upside in specialty lines. And I think there will be consolidation opportunities in that space as well.

Got it. And in terms of -- similar to the line of question I've done with some of your other business lines is on the inflation side and claims. What are the some of the things on the severity side you've been seeing both good and bad in terms of what's been driving severity in recent quarters and also kind of outlook on what you think is going to drive the severity going forward?

Yes. I think that people have been -- first of all, we've been focused on trends and inflation in all lines of business. Some of the things you hear about now, we've been focused on these things for many years. I would say that in commercial lines in the U.S. in particular and in Canada to a certain extent, you've heard people refer to social inflation. And that's liability inflation basically, which is driven by the fact that courts in general, tend to be more favorable to plaintiffs than they were historically. This has been a big driver of us exiting a number of lines of business. You'll remember we've exited health care, we've exited architect and engineers and recently public entities. And as a result, our footprint is -- I won't say isolated from inflation, but it's certainly a much better footprint than the average of the industry or where we were a number of years back. I think that as we look at the inflation and liability, we're not seeing much at the moment, we're seeing severity but frequency has come down. The loss costs are well under check at this stage, but we need to be focused on liability inflation. Then we're seeing the same inflation we're seeing in personal property, in commercial lines. The difference is that property is a smaller portion of the overall cost equation in commercial lines than it is in PL, but it's there. And I think that this will help contribute to firm or hard market conditions for at least 12 months.

Perfect. Notice we've got another couple of questions, which is great. So let's maybe ask the first one. If you could discuss the outlook for M&A or is buying back more stock a more attractive alternative to deploying excess capital at this point?

So we've been very clear, Geoff, about our capital deployment hierarchy, right? One is you want to make sure that you have a conservative but increasing dividend every year. And I think we've shown that very clearly twice in the last 6 months and certainly every year ever since we've gone public. Second, I want to make sure that our debt to total cap is close to 20%. With the sale of Codan probably 2 years before we thought we would get there, we're back there. Then there's uncertainty. And I think that it's important to keep in mind, there's a lot of headwind at the moment. We want to make sure that we're cautious in this environment, because often, the best opportunities come out of this environment. And then on the hierarchy, you go to M&A. And M&A, as I mentioned yesterday, I think distribution for us is a no-brainer. We're doing transactions in Canada, we're focused on the U.S. to expand our specialty lines footprint, and we would be keen or comfortable to deploy capital at the manufacturing level either in North American specialty lines or in the Canadian platform. And however, we think that since almost a year now and maybe 9 months, we feel that our share price competes extremely well with the opportunities we have. We want to be there in the market to buy our shares opportunistically, and that's what we've been doing in Q1. And so the size of the envelope is such that we can buy back shares and look at opportunities at the moment. Right now, it's distribution. There's nothing sort of obvious at the manufacturing level right now. We're integrating RSA at the moment. That's why we feel distribution acquisitions, buying back our shares is a good way to use our capital at the moment, and there's lots coming in or that came in last week, as you know.

Perfect. And then that kind of leads a little bit into the second question that we've got coming in. And maybe I'll kind of reposition the question and ask it this way is, your market share is right now at 20%. You talked about -- sorry, in Canada, and you talked about, I think, in -- hopefully not putting words -- too many words in your mouth, but the focus right now is to try and get through the next several quarters in terms of the RSA Canada integration. If something came up, I think maybe you have an ability to do it, but preferably, you'd like to kind of finish up the integration in Canada. But from a limitation, in terms of how big you can get, I know what I think in the past, there's been kind of talk about 30%, maybe even up to kind of 35%. But I mean, how do you think about where you could kind of grow to before you kind of do get maybe a little bit more pushback, whether or not some of the competition bureau or others?

Yes. Yes. So let me just go back to the first part of your question, which is now you're busy integrating RSA. It's true. It's going really well. But if you think about dealmaking, between the time you negotiate, you announce and you close, as far as I'm concerned, we can put a big portion of the RSA integration behind us. So if something came up in the Canadian market now, we'd be there, okay? Just to be clear. And we feel that the competitive -- the P&C industry is super competitive. And Geoff, it's a shame that in BC automobile, you don't take full advantage of that. And it's because of you that I say that, but it's super competitive. Way more than many other industries. You have 100 insurance groups competing. In every product and province, you have at least 20 active competitors day in, day out. And you have more people who actually have the ability to come in. In certain segments, you're actually competing with other products such as lines of credits and so on. I'm thinking surety, for instance. So our market share varies by province. In home and car insurance, I think it's about 1 in 4, 1 in 3 in Quebec. In commercial lines, it depends on the province, but you're not too far from 1 in 4 in the SME space. My own perspective is there's plenty of room to grow. We've worked with the Competition Bureau. Our transactions do not reduce competition. They certainly give us an ability to outperform, an ability to invest, but there's room for more consolidation in the Canadian marketplace. There's no doubt about that. You can look at this industry compared to other industries in Canada or other P&C industries. Globally, there's plenty of room to compete, and there's plenty of room for Intact to be part of that consolidation.

Perfect. Another question that we got coming in is, what do you view as being leading indicators for softening markets? And what are your tactics for when that inevitably hits?

Yes. It's interesting that the word inevitable was used. And I've been reflecting upon that, Geoff, especially as I try to understand how the U.K. market performs. And I look back at the last 13 years at Intact. As you go through a couple of full sort of cycle, so to speak. And what you can see in Commercial Lines at Intact in Canada, you can see that we have CAGR rates at 4% a year, every year for that period. The combined ratio has been pretty strong throughout that period. And you can see that despite swings assigned to the industry, there's 2 years out of that period where units were down by low single digit. And so my observation based on tax would be that, as a firm, we don't swing with the market cycles. We have a perspective on what rate adequacy is. And when we can beat that, we go for it. But when we are not at rate adequate, we're trying not to play, okay? And that is a philosophy that we're bringing to the U.S., we're bringing to the U.K., and it might take some time to bring that perspective. But the team in the U.S. is totally on the ball, have done a tremendous job to create outperformance in this market. And now you step back, you look at $20 billion plus of revenue spread in 3 big jurisdictions in a number of lines of business. If you think of specialty lines, you probably have 20 verticals. And my point to the organization is that there's no need to follow irrational market behavior. First of all, we're a leader. Second of all, we're big enough to find growth everywhere we play without messing with great adequacy. That's our philosophy. My intention is to stick to it as much as I can. And that's why when we say, "What do you bring to other markets?" Governance is one of the things we bring to other markets, making sure the targets are the right one and making sure that we're tracking performance to these targets and then bringing sophistication. And I think that's the name of the game, certainly our game, and that's what we'll be focused on in the coming months and years. Whenever that inevitable moment happens, we'll try to swim against the flow.

And maybe if I could ask a follow-up there, because your response had me thinking about something here. And at least the years that I've been covering, the second -- I definitely don't have the same long-term track record that you do. But it's hard to think about -- In other words, it's been a very long time since we've had really a soft market across the world, like we've had little pockets here and there depending on certain product lines. But as a whole, it's been a very long time of that. And my question was, has consolidation played a little bit of role in that? Because obviously, you've been a consolidator. There are some other players and consolidator that when you take a look at the industry construct today and who are kind of the bigger players in the industry, is there an argument to be made that maybe there's a bit more rational pricing today that maybe reduces the likelihood and maybe it's not inevitable, but reduces the likelihood than what we've seen in prior cycles around kind of getting to a soft market condition.

So soft and hard markets, in our space, are not just a function of supply. They're a function of cost as well. When there's inflation in the system, you see price hardening not because there's a lack of supply, but because people might have missed the trend and all of a sudden prices start to shoot up as opposed to price shoot up because prices have been coming down because of irrational behavior for years. So you've got both dynamics going. And the reason why that's important, when you think about consolidation, is that when I look at the consolidation that took place in Canada, the competitive forces are as strong now as they were back then. There's no doubt in my mind. The difference is the average the leaders are getting better in my mind. You've seen a number of firms take over other firms. In general, the buyers are better operators. Think of Desjardins, very good operator, taking over State Farm, for instance. And I won't go through all these examples, but that's a good one. That helps react to trend at the right speed in my mind and deal with cost inflation in ways that maybe 10 years ago, people would not have dealt with them. I'm not betting on that, to be clear. But I do think if the industry ROE was to migrate in one direction over the long run, consolidation, I think, would be one of the drivers that might help it go upward. But that's something I'm betting on.

All right. I had another question, actually 2 coming in. One of them is going back to personal auto. And obviously, Intact pulled out of BC not too long ago, but the question was how rational is competition from the government-owned auto insurers? I don't know if there's kind of specifics or just kind of general comments you're able to make.

Yes. I guess rationality is a relative thing maybe, when you don't deal with private operators. So it's a hard one for me to answer because we're out of that market now because I don't think the level playing field was fair. And so maybe that gives you what I think. So that's it.

Okay. The other question that kind of came through, it was, could part of the hard market be explained by a low return on investments part of the business? In other words, if interest rates and investment income is going up on the investment side, maybe it will mean insurers are accepting higher combined ratios.

Yes. I think interest rates would have to go up big time for that to have any meaningful impact in my mind. And I gave you the sensitivity. In our case, 25 bps parallel shift in the yield curve translates into, I think, $5 million additional income given the 7-year normal turnover. It would take a big shift in the yield curve for me -- for people to start thinking about their combined ratio targets differently would be my guess. And the other thing I would say, Geoff, at least for us as a firm, we price using ROE targets, as you know, and we assume conservative interest rates throughout the period in which we price often lower than what we're generating as a firm. So it wouldn't make a big difference for us, and it would take a big shift in the curve for me -- for the industry to actually shift behavior because of that.

Perfect. Just being cognizant of time here, I'm going to maybe kind of sneak in a few -- couple of more questions. Back on the commercial side, I mean, even before the whole Russia-Ukraine situation and then some of the, I guess, wording and the comments kind of coming out of it. But talk about cyber insurance. It's been an area, at least kind of globally has been, I would say, characterized by high growth but also high losses. And so wondering if you can talk about how Intact approaches it, how meaningful a business line it is for you, but also to how you underwrite it to kind of minimize or mitigate the potential for losses.

Yes. So at the macro level, if you think about the big risk pools that we can derisk and build business opportunities in the next decade, I would point to 2 big risk pools. One is climate, and I think we're on it, quite frankly. And the other one is cyber. So if you're a specialty lines operator, commercial lines operator, more so a specialty lines operator, cyber risk is a pool you want to be close to, okay? And so Mike's team, in particular in the U.S., are looking at that space. It's 3% of our U.S. business at this stage. Just to put things in perspective. There's growth there. And the way we've done it is to partner with experts called Resilience. It's a great business with world-class experts defense trained experts. And so we're putting our underwriting capability to work in partnership with some of the best cyber experts in the world, bar none. So that's the way to do it. Because our perspective is the economics of this is not just insurance, it's prevention. Prevention plays a massive role first in underwriting. But I think in the services, you can offer. And as I think about cyber, for me, it's the full value proposition that you need to be able to put on the table. It's a virtuous circle between the product and the underwriting of it, and then the fees, maybe you can get out of the services you provide.

Perfect. And maybe just an interest time, maybe I'll ask one last question here. As you referenced earlier, you just closed the sale of Codan. You've announced, on the RSA side, the sale of the Middle East business. So for the remaining assets that you have outside of Canada from RSA, you've talked about wanting to take some time post the acquisition closing to kind of assess what you have and what the game plan is that year. Can you kind of give an update here as to how you look at the portfolio today, do you still need some more time? And then how much time do you kind of think you need to assess what you've got and what the strategy is going forward, whether or not you kind of keep it or you do something else with it?

Yes. I mean there's 3 buckets, I would say. The first one is Europe. And so Europe for us is an extension of specialty lines. It's an extension of our London market presence, it's a core element of our global network. And so the work we're doing now is to make sure that our footprint and our game plan in Europe is aligned with specialty lines. That is number one. And we're making good progress there, and we'll give some granularity probably at the Investors Day in September. And you've got Ireland. Ireland, 10% market share. Very good business unit, very good leadership team, good platform, focus on risk and selection, focus on customer experience. We like what we're seeing there, and we're providing a bit of help, especially on the design side of things. But this is a position we're comfortable with at this stage. And then there's the U.K. So the U.K., I would say what's clear to me is that there's a very big mid-market commercial SME and mid-market commercial lines opportunity. It's not a market that is super well served as far as I'm concerned. We're doing well in that space and we could be much, much better without too much effort, quite frankly. It's very clear to us how we can improve our game in commercial lines, and this is a space we like. Then if you look at personal lines. There, I think the question is, can you outperform? And if you outperform, does that generate the right levels of return or not? Because outperformance is great, but if it's single-digit ROE at the end of the day, that's not great. So we have leading positions in home. We're #2 or #3, depending on how you cut it. We have leading position in pet insurance. There, we're #2, I think. Then we have a very small position in motor. And I would say the bulk of our work in terms of strategy at this stage is in U.K. PL, because I think we're clear about commercial lines and where to play and how to win in that space. We're less clear about how that plays out in PL. And we're focused on that. In the meantime, we're involved in pricing. We're involved in risk selection. We have a couple of squads in the beta lab that are focused on U.K. personal lines, trying to navigate the regulatory reform, and I spend a fair bit of time myself in it. And so that's where we're focused on at this stage.

Perfect. I noticed, unfortunately, we are out of time. This has been a really great conversation from my perspective. So Charles, I wanted to thank you so much for taking time out of your busy schedule to be here today with us. And that will conclude today's session. Thank you.

Thank you very much. I enjoyed the session, Geoff, and we'll do that again.

Perfect.

Okay. Bye-bye.