Intact Financial Corporation (IFC) Earnings Call Transcript & Summary

Good morning. I'm Tom MacKinnon, covering insurance, asset managers and diversified financials in Canada here at BMO Capital. And this morning, we're delighted to have Charles Brindamour, CEO of Intact Financial, for a virtual fireside chat.

I'm glad to be with you. Thanks for inviting me.

For sure. And thanks for participating here. Hey, let's start with some recent Intact developments. And that one would be the Direct Line acquisition here, commercial lines business in the U.K. Why the acquisition? What does it bring to the table? And what do you like? And what do you dislike about the U.K. commercial lines market?

I mean first, at the macro level, the U.K. commercial lines market, and in particular, SME and mid-market, is the best area of the U.K. market. Most profitable area of the U.K. market, as far as I'm concerned. This so happens to be an area where RSA has some strength and where performance is quite good. It's been low 90s performance. We were really clear 1 year-plus ago that our intention was to double down in this area, felt that we could expand the distribution channel, go lower in terms of customer size as well, knew the competitive set well, and keep in mind, this is an area we know really well because we've got more than 1/4 of that market in Canada. And so the reason why we did this transaction was really to accelerate the transaction or the strategy on which we were working in the U.K., and I must admit, the complementarity of the product mix and customer mix. So Direct Line is more focused on small to midsize with bias on SME. And of course, RSA is more focused on the mid-market business. Then they have a wide range of brokers. In fact, at the mid- to smaller end of brokers, which is the area we wanted to take the RSA platform, where RSA is at the mid- to larger end of brokers. So the complementarity of those 2 platforms is as good as I've seen in an acquisition. And therefore, we made the move. It's an acceleration of our strategy by a good 5 years, I would say, here in the U.K. It happens to not only be strategically sound, but it's an IRR north of 15%. It will be accretive in the first year. And we're really keen to get going on this.

Yes. I mean is there anything with respect to the U.K. commercial lines that you see as particularly appealing? And on the same thing, what are the -- what do you see as any kind of challenges in the U.K. commercial lines market, because not every market is perfect.

I mean what's appealing is that it's a market that is profitable. There are 4 competitors. Nobody is really greater than the competitive set. There's more than 4, but 4 substantial competitors. It's a market where we have a lot of expertise, where we can bring pricing sophistication in that market pretty quickly. It is broker distributed pretty much across the board. And we feel that this is a much better place to operate in when it comes to commercial lines. And so these are the ingredients that we like. And it's big in the U.K. The mid-market and SME representation of the U.K. GDP is higher than what it is in North America. And therefore, the opportunity available is a bigger, if not much bigger one. I mean what to watch for in the U.K. commercial lines market, I mean it's to stay focused, frankly, and to deliver service of top quartile quality. And therefore, that calls for investments in the technology platform. But frankly, I don't see this as a big problem. I see this as the opportunity and low-hanging fruit, quite frankly. There's not a ton I'm concerned about in U.K. commercial lines, Tom, unlike personal lines, which is a much trickier market.

Yes, that brings me to the next question here. I mean when you bought in RSA, you picked up a good Canadian platform. You expanded your commercial lines presence and your specialty lines presence. But in doing so, you also picked up the RSA personal lines business. I mean you got rid of the motor, that might have been only about 1% or 2% of your total business. And now you've got some other U.K. personal that you have undergoing a strategic review, possibly a potential sale. Why doesn't that fit? And what are some of the issues that you see? Is it particularly with U.K. personal, because you still have other personal lines business, obviously, here in Canada? So as I understood it, it had a pretty good pet insurance business, but has -- there's ongoing issues, I think, in the home, but -- home insurance, but can you elaborate on that and...

Yes. Yes. Absolutely. I mean look, Tom, we have leadership positions in home and pet. There's a good track record of performance. These are competitive marketplaces, though, first. Second -- in other words, there's new capital coming in those markets at good frequency. Second, you have intermediaries in this market like aggregators, for instance, as well as large retailers. And so the distribution itself makes it such that you're one step removed from the customer in the U.K. personal lines marketplace. And the investments needed to compete and remain at the top of that market are demanding. And so for me, Tom, it's a question of focus as well. And it is how many things can you do very, very well at the same time? And my view is, the more focused we are on the U.K. commercial lines market, the greater the odds of success, and it's a big opportunity. But look, these are good positions in personal lines. I just find the market to be way more challenging than it is in commercial lines, and I want to focus the organization on where the prize is.

Yes. The comments you made about disruptors, aggregators, large retailers making their way into at least in the U.K. and likely some other European places with respect to personal lines. You like personal lines in Canada. Why don't you see any kind of -- or what do you see potentially on the -- with respect to disruptors here in Canada? I mean it's still largely broker controlled here in Canada, which kind of -- that's why you like this commercial line stuff overseas as well as probably everywhere else, but not to mention the better profitability. But what do you see in terms of aggregators or disruptors with respect to personal lines in Canada? And why hasn't it probably progressed as you would have thought in that regard as it has in other markets?

Tom, you'll remember that we've been focused on disruption in personal lines for well over a decade. And that's why over the last decade, we've built the 2 most recognized brands in the Canadian marketplace. That's why we've created, I think, one of the best digital value proposition in the Canadian marketplace. That's why we've invested massively in distribution to really build scale in distribution, which is, in a way, a vulnerability for smaller brokers in personal lines. We helped brokers get bigger and then we built our own distribution arm. And then invested heavily in the supply chain and in the physical experience, which is very hard to disrupt, quite frankly. And that's the position we're in today. I think we've got a very strong position in Canada. We're 2.5x bigger than #2, and we have a lot of optionality for customers. We've also -- I forgot to mention, it's super important, we've increased the size of our direct business in Canada, belairdirect, materially over the last decade. In fact, we've tripled the size of that business in the last decade. So I feel like we've got all the options to compete against disruptors in the Canadian marketplace. But you're right, there hasn't been a ton of change in terms of disruptive forces. We're not sitting on our laurels. We're ready for disruption, but there hasn't been a ton of it. In the meantime, we have scale, strong brands and lots of optionality in disruption -- in distribution. Now there were a number of potential threats. You can think of the large technology players who haven't paid a whole lot of attention to our space. It's very hard to make money. You got to be really focused as a P&C insurer. And then the aggregators, we don't play on these platforms. And so if you have the 2 most recognized brands in the marketplace, not on these platforms, it's harder for these platforms to gain real momentum. The other thing is this is a provincially-driven marketplace in personal lines. And as a result -- and it's regulated in personal automobile. As a result, to build a new brand from scratch, generate traffic the way they do in the U.K., harder to do in the context of Canada. And so it so happens to be my home, but I really love that market.

Yes. Okay. If shutting off the personal lines business kind of in the U.K. would imply that generally what Intact would be, would be a -- it's almost like if it would be a global commercial and specialty lines player with kind of a solid presence in all aspects of personal -- or property and casualty insurance in Canada. But outside of Canada, it's a global and specialty lines player. And it seems like the trend is for -- I mean is that the right way of characterizing what your vision is of Intact over the next, say, 5 years? And what do you see as being the areas you want to -- where do you see the most profitable growth, in what lines and in what geographies, if you will, going forward? And how do you want to frame the company over the next 5 years in that context?

So Tom, I mean we don't see ourselves as global. In fact, we like to compete at the local level and be very close to the ground. And Intact is, first and foremost and in 65% of the business, a leader in the Canadian marketplace with a massive advantage in the Canadian marketplace. We protect 1 in 4 Canadians. We want to protect 1 in 3 Canadians. And I think we've got the tools and the toolbox to get us there. And I would say if there was $1 of capital to invest this morning, I'd invest it in Canada. And I think it's got to be very clear to our investors first. Second, we do have, indeed, a very sizable, credible and outperforming specialty lines business with a very strong North American base and a very good U.K. and European footprint, and a network of partners where we can follow our customers everywhere in the world without putting our capital at risk. In fact, with our current footprint -- manufacturing footprint today in specialty lines, we cover over 70% of the insurance premiums in specialty lines in the world. And I think we can double the size of that business, which is about CAD 5.5 billion. I think we can double the size of that business in the next 6 to 7 years. And we've got all the tools to do that. A large part of that, we can do organically. It's not to say we won't make acquisitions, but frankly, we have lots of tools to grow this business organically, 20 verticals in which -- in every one of them, we can get bigger just doing what we're doing today. We're not using the distribution muscle well enough at this stage. That is the second source of organic growth. And we just acquired global capabilities to serve our customers which we're not using to the extent we can in the context of North America. So global specialty line, I mean we're one of the largest in that space already. We can get much bigger. But what we're working on in parallel and their time is that outperformance is absolutely critical. There is outperformance. The question is how do you expand it and how do you make it sustainable? And part of the answer is to bring our pricing and risk selection techniques and expertise in the global specialty lines business. And we have squads working on that at the moment. So that is the second big growth opportunity. And the third one is really Main Street commercial lines in the U.K. So -- and there, I think that was your first question, so I want to expand beyond that. But the focus in the U.K. is integrating Direct Line, capturing distribution opportunities across the relationships between both organizations, and bringing pricing and risk selection sophistication on the frontline. And I think between those 3 business opportunities, you have a decade worth of 10% net operating income per share growth per year on average, which is our second financial objective. The license to put more capital in those places is 500 basis points of ROE outperformance, and our management teams in each of those 3 buckets are very focused on that, and so am I.

So I assume in those 3 categories, Canada, Global Specialty and Main Street commercial lines in the U.K., you would put the U.S -- you put OneBeacon into the global specialty bucket, I assume that's right then?

That's all we do in the U.S., Tom. It's only specialty lines.

Yes. Yes. Yes, and do you -- where do you see some of the -- of those 3, it seems like -- I mean if you look at -- you said $1 to invest, you'd invest it in Canada, but the last dollar you invested, or are going to invest, is in this Main Street commercial lines in the U.K. So I guess it's -- you've got a balance. Maybe it's suffice to say, you've got a balanced approach in terms of these 3 and where you find the best opportunities to manage them?

Yes. I think that there's a question of actionability as well, Tom. But the transaction in the U.K. is meant to accelerate the strategy that we're putting in place in the U.K. There was actionality on this transaction. We were in an exclusive relationship with them and we pulled the trigger because it made complete sense. Sitting here today, if I had to put a dollar of investment, I'd put it in Canada to go from 1 in 4 Canadians to 1 in 3 Canadians because there is a very strong integration muscle that exists in my Canadian team and I want to make sure we use it.

Now one thing about expanding in Canada is you would get more and more -- they -- supposedly more personal auto, which is probably not as high a margin as all the other businesses, more highly regulated. And then you would get more personal property, where you're going to be getting hit with all this stuff about cats. So your thoughts with respect to that? Could an expansion in Canada brings more lower margin stuff and highly regulated stuff, higher cat potential, so thoughts there.

Yes. I think, Tom, I mean where you were going with the previous question, the overall mix of the organization. if you look at those 3 buckets combined, it's clearly tilted towards specialty lines and commercial lines. The opportunity set is 10x bigger than what it was in 2018 when we entered the U.S., 10x bigger. And clearly, the opportunities to grow in commercial lines and specialty lines are bigger in aggregate than they are in Canada. So we shouldn't lose sight of that. But our first lines platform in Canada is an excellent franchise. As I said, it's 2.5x bigger than #2. That's a real scale advantage. It's outperforming. And automobile is long-tail lines. If you run this sub-90 -- sub-95, that generates a very good ROE. Just keep that in mind. And our track record in auto has been one of outperformance and good ROE. So I'm not overly concerned there. It's a tough business to be good in, but I think my team in Canada is actually quite good. In personal property, I think our value proposition is fit for purpose here, taking into account the increase in weather patterns and the increase in natural disasters. Keep in mind that if you look at the last 10 years, starting at the end of Q3, you'll get an average combined ratio of 89.2%. And so yes, there are quarters where natural disasters are high. You've seen that 3 times in the last 30 years. And so you should expect some volatility, but the overall performance of that line pretty much every year has been solid. And then if you look at 3, 5, 10, you have a business that's generating an ROE that starts with a 2. And sitting here today, we're much deeper in the supply chain than we've been historically. So I see personal prop as a very good opportunity. It's not price regulated because it's not a mandatory product, and it's not a product defined by the government. And quite frankly, we're not focused on commercial lines because we don't like Canadian personal lines. We're focused on commercial lines because we've got the capabilities to grow in it. And I would take Canadian -- some more Canadian personal lines tomorrow if it was available. But it's clear that the longer-term big growth opportunities a decade, 2 decades out are commercial lines in nature.

Yes. If I kind of look at availability of Canadian businesses, if you look historically, if you look at the life businesses, there's all kinds of players in life in Canada years and years ago, and they all left. P&C, they stay around. I get the impression it's a good market. It doesn't necessarily get hit with big cats. It is -- the broker lobby has been pretty good in keeping banks away. Like it's a good place to operate. I mean your comments there with respect to why it's still pretty fragmented and thoughts as to my comments about it being not a bad place to operate in?

Yes. I think it's a good place to operate in, and it's an even better place to operate in when you're 2.5x bigger than #2. So that's the first point. It is fragmented and people have been saying, it will be hard for you to make acquisition. That's what people have been telling me for 10 years. And things change. The external context changes all the time and the owners of those properties change their perspective on Canada from time to time, and we've been able to benefit from that, and I don't see that stopping. And there are no regulatory threshold that prevent us from doing other large transactions in Canada just yet. And when we get to 1 in 3 Canadians, we'll be able to have good organic growth. We're investing heavily in our organic growth muscle, but we're disciplined. When the market we don't think is pricing for the risk or for inflation, whatever you've seen, that we have absolutely no hesitation to let our market share slip a bit. But in the mid- to long term, this has paid off for us.

Yes. Great. Question coming in about the biggest takeaways from your 5-degree warming scenario and how your business will be resilient in light of this.

Yes. Even though the track record is really good, you need to challenge yourself all the time. And that's why we've done that exercise. You have to start with, why is the track record good? And the reason why there's a good track record in home insurance and big outperformance is because a decade ago, we realized that our product was not fit for purpose. And what we get at the time is we unbundled the product to go from the fire protection product to a multi-peril protection product, priced accordingly, collected data accordingly and introduced a number of new pricing and risk selection models, changed the data sets we connected, and that was first order of business. Second order of business was to recognize that the load of natural disasters should not be studied from the past, but rather prospectively. And at that moment, about a decade ago, meaningfully recalibrated the amount of natural disasters we should expect. We then went on to change how we manage claims to have teams that are fully dedicated to managing cats. That's important because our first measure of success is customer advocacy. Second, we tweaked our supply chain, expanded our network of providers and then invested in the supply chain because we think there's a big business opportunity there. That's where On Side comes in. You put all that together, excluding the profit of On Side, that's where the track record is coming from. Now what we've done in the last few months is we have taken the scenario whereby global warming would reach 3 to 5 degrees as opposed to 1.5 to 2 degrees, which is where most -- the zone most people are in at this stage. And did that by perils and by province, and then we looked at what it meant in practice for our product. And so the first thing we need to keep in mind is that in home insurance, which is our most cat-prone product, only 40% of the product of the losses, and therefore, about 23 points of loss ratio is related to natural disasters, okay? So it's not 100% of the product. There's a big portion of the product that is about something else, fire, cat, et cetera. So the conclusion is, over 15 years, the weight of natural disasters is likely to increase by 50%. Not surprising, frankly. And what is surprising is that the curve is very comparable by peril. We also knew and revalidated that the west of the country would get dryer, especially in the summer, and the center in the east of the country would get wetter by a factor of 20-ish percent in both parts of the country. I think the thing that was most surprising to us, Tom, was the fact that -- I'm talking about averages now, when averages should be taken with the full probability curve in mind. And the rare occurrences, so 1 in 10, 1 in 20, 1 in 50, will be more intense than they've been historically. And we think these might potentially double in intensity. And so what it means in practice is the cost of capital, we think, needs to increase in home insurance, and that will be baked in pricing. We think we can withstand the volatility, and we don't want to share the margins that we're making just for volatility. But obviously, we're studying every year how we can pass a portion of the volatility and see if we're prepared to pay for that. At this stage, we're not, but we'll stay close to that.

Yes, that's good. So we'll be waiting for some sort of updated cat guidance, yes, when you announce your fourth quarter results. And the...

My expectation, Tom, at this stage is when we update the cat guidance, we've obviously done a bit of work, there's a difference between cat guidance for '24 and the implications of 15 years' worth of global warming, just to put things in perspective. But you're likely to see a cat guidance that will be covered by our rate position as we enter '24.

Yes. Yes. I mean it's just the volatility of the thing. That's the -- which brings to your point about -- or that you've talked about with respect to reinsurance as well. I get you want to cover tail risk, but you don't want to give away profitability. So...

For volatility. For volatility.

Yes. So that's the -- I guess that's the -- and how do you see pricing kind of evolving, just given the fact that you're going to need some reinsurance anyways. Does that continue to kind of firm up pricing as we go forward? Just dovetailing into pricing questions with respect to -- and market conditions with respect to each line. So like how do you see commercial lines? They've been pretty good. I assume you do get some reinsurance there with respect to tail risk. You got to price that in. You've got other kind of social inflation costs, probably not as big in Canada as they would be in some of the U.S. business. But hey, commercial lines has been a good story. How long is that good story going to keep going?

Why don't I just finish on personal prop as you go towards pricing. And in my view, in personal property, and certainly true in the U.K., it's true in Canada, you're in for a hard to firm market for years. And by that, I mean upper single-digit-ish low teens in '24 when you add some insured and rates. But I think it will be a firm environment for many years. In personal prop, we're well positioned. You've seen our growth profile has improved in the last quarter, and I expect that. And it's improved throughout the quarter month by month as well. That didn't really come out in the earnings call. But for me, it's important because I think we're well positioned there. So personal prop, I mean, hard now to firm for years, natural disaster, inflation and the cost of reinsurance being the 3 drivers. In commercial lines, you're right. It's been a good pricing environment. It's been a hard pricing environment everywhere we operate. And it is still a hard pricing environment everywhere we operate. I would say there are pockets of the market where rates are not as firm and, in fact, rates are flat. And you can think of areas like management liability, cyber would be 2 examples of where we're not really seeing rate momentum. These are segments that are quite profitable, but that's where there's not great momentum. For the rest of the market, there's a meaningful amount of rate momentum in Canada and the U.S., U.K. and Europe. And we -- between some insured and the rates we're getting, we feel we're in an excellent position. And I think that the headwinds that exist in commercial lines, reinsurance being one, inflation being another one. And then the cost of natural disasters, which not as sensitive as home insurance would be, but those 3 factors will sustain a firm pricing environment in commercial lines and specialty lines for certainly a year to 2 years.

With respect -- reinsurance seems to be a -- one of the common threads here, reinsurance pricing in terms of keeping markets firm. What is it about the reinsurance market that's -- I mean other than just they're the last line for the cats, but is there just less capital coming in? What, to some extent, has been driving -- in your opinion, driving continued firmness in reinsurance?

Well, I don't think it's been continued firmness. It's -- the firmness really started in late '22 and '23. And I think the answer to your question, Tom, is many years of single-digit ROE. If I get a little more sophisticated about this and maybe a little more theoretical, you could argue that natural disasters and the evolution of natural disasters over the past decade or 2, driven by human activity, has reduced the diversification between countries. And reinsurance is really about diversification, right? I mean that's part of the role that they play. So it certainly is a factor, but I think single-digit ROE for a number if not many players is the trigger behind the sort of firming that we're seeing in commercial lines. We have the benefit of not being overly reliant on commercial lines because, as I said, we do it for tail purposes. Many of our competitors are far more reliant because they like to share the risk with reinsurers at the individual and at the collective level. We -- if we like a risk, we prefer to keep all the risk if we feel it's priced properly. And as a result, the reinsurance pressure point is not as maybe significant on us as it is on others.

Yes. I think you said you're not overly relying on commercial lines. I think you meant to say you're not overly reliant on reinsurance, correct? Want to make sure on that. A pitch on commercial, I didn't want to say your -- okay. A question coming in and always a good one here is, you got a balance between good insurance markets and then this tailwind from investment income. And at one point -- at what point do we see some people or some competitors or some insurers starting to say I'm making too much in investment income, and therefore, I can hit my ROE pricing metric based on that. And I'm going to go get cut and get share or relax my rate hikes and chase for share. So you know the question, and how do you respond to that?

Well, I mean the first point I would make is that not everybody is pricing to achieve a certain ROE. Because if it were the case, the industry's ROE, whether it's in the U.S., the U.K. or Canada, would not be upper single digit across the cycle. So there's not an action/reaction here that is taking place. We're pricing on ROE, so you could challenge us. And the reality is the interest rate you use for pricing is a cautious interest rate. You don't price the market yield now. I mean we're selling a product that will be consumed, that will be sold in that when you price, you price for a product that will be sold on average 6 months from now, that will be earned 6 months later and where the product is actually consumed in the 2 years before that. So if you go too quickly to the interest rate or the current yield, you risk missing the right sort of investment income you'll earn. And therefore, there's a degree of caution in the interest rate that you use. But in theory, if the industry makes more money in aggregate because of investment income, now keep in mind, for many of our competitors, it's been a pressure point on the capital of the industry as interest rates shot up. It's all reflected in book value per share. But that is something that holds and creates, I think, some degree of prudence when it comes to pricing. But in my mind, if we go back to your previous question, Tom, between inflation, natural disasters, pressure on reinsurance, the industry is grappling with 3 headwinds that are meaningfully, in my view, calling for rates more so than what higher interest rates might do the other way.

Yes. Yes. I mean there was a good point I think you make here is that the P&C insurance is not really a new money yield product, like the life insurance is often a new money yield product. It's -- so you've got that rationale. It's almost more like a book yield with even probably more of a conservative bent to it. And then you got a rational marketplace here in Canada as well, at least in personal. And then you don't have a lot of mutuals really in here that operate to a different hurdle rate like you might have in the U.S. market as well. So in my opinion, that kind of keeps market conditions pretty rational and pricing pretty rational in that regard. Just...

I'd like to think that the leader in the market is pretty rational too, and that tends to help the market.

That's correct. Yes. Okay. Maybe thoughts with respect to personal auto here in Canada, very much a different product by province. So it's hard to look at it as a -- on a countrywide basis because it's really an Alberta -- Quebec's a good market. Alberta's -- might have some political issues and difficulty there. Ontario seems pretty good. But talk about the nuances as you work across the country with respect to your product and to profitability associated with that? And how do you see that maybe evolving? At what point do you think the -- there's always a political part to this business, and we've seen it in Alberta. Do we have that kind of risk at all in any of the other provinces?

There's always a risk. But my experience being involved in pricing goes back 30 years, working with regulators, helping them shape the product. I mean I was heavily personally involved in shaping the product in Alberta in 2001, which has really kept inflation out of the system for 10, 15 years until it got eroded. My experience is you're dealing with rational regulator. They understand that cost is really important for competitive...

Charles, I think we lost you just for probably about 5 or 6 seconds. Not sure what kind of valuable information you just threw at us then, but if you could just recap.

All right. I guess what I was saying is that I've -- my experience in dealing with regulators goes back 30 years. And for the most part, you're dealing with rational, well-intended people who understand that controlling cost is really important. And when you have cost in check, competition in personal automobile is quite aggressive and people are very happy to reflect that in their pricing. And so our relationships with regulator has been good over that period. And there have been a few situations that were problematic and they tend to be political in nature. You'll remember Ontario 7, 8 years ago, a time when the NDP put pressure on the liberals, rates went down. It eventually came with cost reforms, and those reforms are quite good. And that's why I think the Ontario market has been fairly stable for the past few years. And what you're seeing in Alberta now is exactly that. It's political. It used to be a freeze. Now they've removed the freeze, so I see that as a good thing. There's an indexation details to be revealed later, but to CPI. So that's an improvement. Any cap is bad for consumers because the best deals are found because there's segmentation in the marketplace. And when they put caps like this, people don't segment as much. And as a result, in a highly competitive, there's like 20 active competitors in Alberta, I do think that this is not good public policy when it comes to dealing with customers. But overall, I think regulators understand that cost of repairs have gone up more so than the inflation. Though inflation has come down very nicely, as we anticipated, in the past few quarters, but there's a risk. I'm not super concerned about that, and we'll navigate Alberta as best we can. We'll work with the government. This is a province where we've outperformed, and outperformance is important when it gets a bit political, but it's not one of those things that's keeping me up at night at the moment a, because of size, and b, because I think we've moved quickly in Alberta a few years back when pressure was building in that market. I feel we're in a good position there.

Yes. The personal auto market tends to have claims that get right -- that are driven by something that you've got to catch up on. Like in the past, I kind of see it as there was a catastrophic definition from -- in terms of a bodily injury thing that you had to get ahead of that the lawyers took advantage of. There's tow truck issues that you had. There were some clinics that were elevating some BI claims. And now it seems to be increased at best, like we certainly heard that from another insurer here in Canada. And you guys didn't talk much about it, but I think that's been an issue. How do you deal with that? Do you underwrite differently? Talk about that issue in personal auto.

Yes. You were talking -- you were describing a number of the generations that took place in Ontario, Tom, in the past decade. There have been reforms in 2016 which have really dealt with a number of these things in the Ontario government, and the regulator have done what I think is an excellent job to keep inflation in check. The other thing I'd point out, Tom, and you [ answered ] differences by region, our biggest market in terms of number of customers is Quebec. And Quebec is unregulated when it comes to pricing. It's -- and that's why it's super competitive. And it's a much more stable cost base. Your question about theft, I mean we've been talking about theft with investors for 2 years. And the reality is that 4 years ago, theft was 2 points of loss ratio or a combined ratio. And it's more than doubled since. That's why people are talking about theft, but let's just put theft in perspective. It's a small, if not a very small portion of the envelope. Now anything that moves the needle and that's a headwind, we're on. And so what are we doing? Pricing segmentation is one of these things where we quickly, almost 2 years ago or 18 months ago, segmented our pricing algorithm. Theft started in Quebec, it moved to Ontario. It's indeed an epidemic in Ontario. We're pricing accordingly. Second, we're working with our customers, for those makes and models that are most prone to theft, to put theft detection devices on these vehicles. Recovery rate is well north of 90%. And then we're working with the industry and through the industry enforcement to make sure that we're far more aggressive at dealing with those thieves. And these are done 3 things that we're doing to tackle what was 2% loss ratio point which is now north of 5%, 6%.

I mean the theft detection device, that seems to be an interesting way that insurance product kind of has evolved. It's sort of evolved to some extent as being one that we'll pay you when a claim happens as opposed to here's something to mitigate the cost or the likelihood of a claim. You could think of that maybe in home insurance as well, kind of heat detection or cold detection devices. I mean talk about that a little bit in terms of how that's framing the industry going forward and how you're out there to try to take advantage of it.

So I think as you look out in the next decade, it's clear to me that prevention is fundamental, in particular in home insurance because if the burden of natural disaster is to increase, it's not just about pricing and claims. Prevention needs to be important. That's an area where we've been very focused with our customers. And then we've helped cities, the provinces and the Fed to the Intact Centre on Climate Adaptation to really work on adaptation to be prepared to face a higher burden of natural disasters. So it is one. In automobile insurance, UBI, or our telematics program, which is in the direct channel, more than 50% of new business, is very much focused on helping customers shape their own behaviors by sharing driving information with them. They share information with us. We assess it and then we give scores and tips, et cetera, both in terms of how they drive and the impact they have on the environment. And it's a much better way to communicate with customers as well. From a strategic point of view, if prevention is your angle to communicate with customers, it's much better than just talking about renewing your product. And so I do think, Tom, that this is a opportunity. And if we want to tackle some of the areas where the risk pools are increasing, then prevention needs to be at the forefront of how we think about things.

That's great, Charles. Well, we're coming up to the end of our time. Is there anything else that you think you'd like to add here to -- for investors as we -- just before we sign off?

Well, I think, Tom, we've covered the ground broadly. But I would say sitting here today, Intact's sandbox of opportunities, so to speak, is 10x what it was 7 years ago. We have outperformance that's pretty solid across North America. We're building outperformance in the U.K., Europe and Ireland at the moment. My own view is that growing our earnings per share at a clip of at least 10% per year over time and outperforming by at least 500 basis points is very achievable, as we have in the past decade. The difference is the opportunity set in the next decade is much bigger than what it was in the past decade. So it is about outperformance. And then it is about being smart about growing those 3 big business opportunities. And we've got, Tom, as you know, a lot of depth at Intact. For the top 250 roles, we have 5 successors ready within 3 years. And so the reason why I say that is because if you look out one decade, you want consistency in strategy, consistency in execution and consistency in delivery. And to do that, you want to make sure you have the talent pool to do so. And I think we're the best place when it comes to talent across the organization to capture those opportunities. So that's what I would conclude on, Tom.

All right. With that, we'll bring this virtual fireside chat to a close. On behalf of BMO Capital, I'd like to thank Charles for once again giving us a very insightful discussion on the opportunities here and the -- with respect to Intact Financial. So thanks again, Charles. And good morning or the best of the day to everyone else here. Thanks. Bye-bye.

Thank you. Thanks.