Intact Financial Corporation (IFC) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our fireside chat. I'm Tom MacKinnon with BMO Capital Markets. I cover the insurance companies, asset managers and diversified financials in Canada here. And this morning, we're thrilled to have Charles Brindamour, the CEO of Intact, with us for a fireside chat. Good morning, Charles.

Good morning, Tom, and thanks for inviting me.

Yes, and thanks for having -- or joining us. I want to start off maybe just with the quarter. You had 22 points in CATs. I think that's got to be about the largest Q3 that I've ever seen in terms of CAT losses, yet you were still able to report over $1 per share in operating earnings. And so what are your -- what would you tell investors as some of the takeaways from that quarter?

Well, I must admit, Tom, the first observation I would make, and you take conscience of how resilient that business is, in particular post RSA, with a much bigger footprint and outperformance everywhere. And I think resilience was on display. We're running in the 15, 16 plus sort of ROE range with that level of CAT, Tom. The CAT [ pon ] generation is really strong. The capital margin is really strong. You've seen book value per share increased by 17%. So resilience, I think, is the first message and first observation out of this quarter. Second, we're operating in a very constructive marketplace, I would say, in all markets where we operate. We have outperformance everywhere. So that sort of environment plays to our strength. First line is hard in Canada. And then when you look at commercial lines, pretty much across the board, we're seeing mid-single-digit rate increases. It's a firm environment, plays well to our strength and where we're positioned. And finally, Tom, when I look at the past decade, where Intact outperformed its peers by 670 basis points of ROE and we've grown the earnings power of the firm by 12% per year, the big question for me is what can we do in the next decade. And when I look at our footprint, when I look at our strategies, when you look at the underlying performance of the business, there's no doubt in my mind we can replicate that track record in the next decade.

Going to go through kind of each of your segments and talk about the outlooks there. And I think if we go to Canadian commercial lines, you're talking about still heavier competition in the large employer market, not necessarily seeing that in the SME marketplace. What is driving that? Why are you seeing that increased competition move down into SME? Talk about what you're seeing in Canadian commercial lines.

In Canadian commercial lines, I'd say we're operating in a very constructive environment. It's a hard marketplace, no doubt in my mind. The bulk of our portfolio, Tom, I mean it's close to 90% is indeed SME and mid-market. And there, you're seeing mid-single-digit rate increases, very strong retentions, very good closing ratios, very constructive environment. The large account and the financial lines, you don't see much rates there. In fact, you see rate decreases, you hear of rate decreases. And therefore, it's a flattish sort of environment, as it was for the past 6 months, I would say, Tom, so no major changes there. And so in aggregate, a very good environment to operate in and to grow in, in commercial lines.

So why, being one of the largest insurers in Canada, is there a conscious choice all in your commercial lines evolution to stay away from some of the larger employer market? And talk about that, your thinking there.

Yes. I mean first of all, Tom, if you go back in history, we've been very focused on using the law of large numbers to our advantage and using pricing, risk selection, claims supply chain and commercial lines as well. That's why we've built a meaningful advantage there. And I think there's a historical element to the fact that our positioning is closer to the mid-market space. Now over the years, we've built an excellent specialty lines franchise within which we write large commercial accounts. And this is an area that, over time, along specialties though, not broad market, but along specialties, we want to grow that position. So first, law of large numbers. Second, there's less delegation of authority in the field in the SME and mid-market space. It's far more process-driven, it's far less price sensitive and therefore, this is a space in which we excel, and it's true in the U.S., and it's true in the U.K. But we have capabilities to follow large international customers but on a specialty basis, and we're performing really well. The mix is changing a bit now because the market has changed. But we're very happy with our performance in commercial lines and specialty lines, and I think there's meaningful organic growth ahead of us there.

We hear about social inflation in the U.S., probably a bit more of a litigious environment there. Why don't we see that as much in Canada? And is it perhaps not seen as much with respect to Intact because of your SME focus? Maybe you can talk about some of the geographical differences that we see with respect to social inflation and how it can vary by perhaps the mix of your business as well.

Yes. I just want to clarify, Tom, you say SME focus, and many people think that. We have global capabilities in commercial lines. We can occupy the space. We're clearly focused on the mid-market space, and we own the SME space in many of the areas where -- in particular, in Canada, but we have capabilities to cover a broad range of customer profile. Now with regards to liability, Tom, when we made the call to move in the U.S. about a decade ago, the risk around liability was something we were very focused on. So when we entered the U.S., the first thing we did, Tom, was to get out of the lines where we felt the range of outcomes in liability would be really hard to price. So we've exited the entertainment, the health care business -- sorry, we're still in the entertainment business. We've exited the public entities business. We've exited the architect and engineer liability and programs. We wanted to be in control. We wanted to understand the tail. And if you look at our positioning in the U.S., the average duration of our liability is 2.4 years. And the industry is north of 3 years. And so there's a difference there. And that's why we feel that we're better positioned in the U.S. Second, we move really fast when we see inflation, and we've been focused on what people call social inflation for many years, which is the byproduct of having juries and judges that are far more inclined towards plaintiffs than they're balanced. And you add to that nuclear verdicts in particular for punitive damages and you get a tricky environment. Our footprint in the U.S., I think, is in very good shape in that regard. With regards to Canada, we don't have the same sort of outcomes. First of all, you don't -- the legal infrastructure in Canada doesn't lead to nuclear verdicts like we're seeing in the U.S. Second of all, on payment suffering awards and punitive damages, there's common law in Canada which really caps the amount of punitive damages you can get, judgments that date back from the '70s, which I won't get into this morning, but there's meaningful difference in terms of the marketplace in which we operate. I mean the other thing, Tom, is in Canada, we defend with our own people, with our own lawyers, close to -- north of 70% of all lawsuits that our customers receive. We're in the process of building those capabilities in the U.S. as well. We've been at that for a number of years. That's very helpful to us. So we call that supply chain management, if you want, on the legal side of things. And then you look at the U.K., same thing. I mean the frequency and the intensity on the legal side, the environment is much less litigious than it is here in North America and certainly less litigious than it is in the U.S. So overall, we're very comfortable with our footprint, Tom. Speed of pricing for inflation matters, but that's the business we're in.

Talk about the U.K. and commercial, the UK&I. You -- I think you've moved your outlook there to moderating and I think still firm there, but just kind of less firm. What are you seeing there? And why did you change your tone?

I'm wondering why we changed our tone, frankly, after the earnings call because there's been a lot of focus on that word. And I think we've overdone it because really, if you look at the U.K. market now, and I'm headed there tomorrow morning, the SME and mid-market space is generating mid-single-digit rate increases pretty much like what you've seen in the U.S. as well as in Canada. It's when you look at large accounts that we've started the year with mid-single digits, and this has been declining to basically no rates in the last 9 months. And I think there was a change between the end of Q2 and the end of Q3, and that's why the team felt we should use the word moderating, but the bulk of the portfolio is still seeing mid-single-digit rate increases. The NIG portfolio was seeing double-digit rate increases at the moment. So this is a firm environment in which we operate. The London market is softer, no doubt. And that's why we've been shrinking in Q3 because that impact, we don't dance with the market.

Yes. Okay. We'll go into personal property in Canada. I think you continue to -- I think you actually upped what you thought about that market there. And so I think we're moving into, what is it, from high single, maybe to low double, but things quite favorable with respect to personal property here. I mean is this all just rate pass-through from higher CAT losses, capital depletion with reinsurers, higher reinsurance rates? Is just -- is this strictly pass-through? Or can we see increased profitability as a result of these favorable conditions in personal property?

You have a number of factors, Tom, that go into this hard market in personal property. One, inflation, and whether it is some insured or whether it is rates, that is an element of the rate environment. Second, the deep trend that we've been observing in natural disasters for the past two decades is really finding its way through the pricing environment. And then third, I think when people put weight on what happened in '23 and '24 when they forecast natural disasters prospectively, that all fuels a higher pricing environment. Indeed, rates are up in the low double-digit zone. I think that will inch upward to reflect 2024. And so I wouldn't say it's passed through. I think it is better pricing for the fact, that's at the industry level, for the fact that there have been more natural disasters and that there is a bit more inflation than there was before. So that's the environment in which we're operating. We're ahead of market. We're growing nicely in this environment. We're using our supply chain to manage cost. We're using segmentation to grow in the best segments of the environment. And so I do think, Tom, if you look at our track record in home insurance, which is 90% in 5 years and 90% over 10 years, I think that sort of pricing environment will really help us maintain that track record and absorb years like this one a bit better. All that being said, my view is we will turn an underwriting profit in the home insurance this year, though not at the level needed to justify capital backing home insurance, hence, an overall firm pricing environment. And when you've got so many things in the toolbox, this will play to our strength and certainly will help the growth of the firm in '24, '25.

I mean what do you say to consumers who just found their home insurance has just gone up through the roof, so to say. And do you think the product evolves to some extent and has a bit more of a piecemeal aspect in terms of some of its coverages? How do you see that product evolving just given the inflated costs that consumers have to bear for it?

Yes. First of all, Tom, the reason why our track record is what it is in home insurance and the reason why we've been able to help Canadians face the increased burden of natural disasters is the fact that a decade ago, we have built a product that is really built by perils. So that depending on where you live and what your needs are, you can insure more or less the product. You can also manage your price accordingly. If you live in a high-risk zone and you're prepared to take some of that risk, that purely drops your premium. So the fact that our product is built around perils gives more choice to consumers and allows us to better manage the risk. Second, supply chain and claims management is a big deal for us. We close claims much faster than our peers at better conditions. And then for north of 40% of all claims, we use our own supplier on site, which really helps customer experience and it really helps the cost as well. So this is not a problem that will be solved with pricing only done. That's a problem that you need to turn into an opportunity by changing your product, your price, the data you collect, your supply chain. I think for consumers, the area we're focused on now is to double down on prevention. If you want to, beyond the optionality that we offer, if you want to manage cost prospectively, society and our consumers, in particular, will need to be way more focused on prevention than what we've been historically, and we think we have a role to play there to help them in that exercise. In terms of affordability, prices have gone up. No doubt, prices will keep going up. It's still -- I mean this is a product that was historically very cheap given the size of the asset that you're trying to protect. The average premium is $1,500 in -- ballpark in home insurance. And I think it is very tangible to people that the cost of insuring their largest asset is going up. You see it in the news, you see it all around you, you are being hit by natural disasters. And -- but price won't be the long-term solution. Prevention, I think, will be really important. This product is unregulated and elected officials understand that the cost of natural disasters is up.

Yes, I agree with you on the -- I think that the ability to close a claim and close a claim quickly and effectively is just as important as the price. So often, there's people who have, hey, my insurance is cheap and then when they actually have to file a claim, it's just a complete hassle. And that to me is where the rubber hits the road with respect to a good insurer, their ability to provide the claim, close the claim quickly and satisfactorily and with good satisfaction to the consumer. And I think that we've got your back logo that you have there is important to underscore that aspect of it. Any thoughts there?

Tom, you're right. I mean the reason why my team and I chose the name Intact is because we're there to get people back on track. It's not just about cutting checks and letting you figure out how best to go forward. And if I just look at the example of this summer, I spent a lot of time with my teams managing those CATs to try to learn how we can push the machine because there was more volume. We managed 50,000 CATs -- claims this summer time as a result of 4 events, Jasper, Calgary, Toronto flood, Quebec flood. 60% of those files are closed at the moment. 100% of these files were managed by our people. And if you take Ontario, for instance, almost 75% of the claims were managed by on-site, which has a cycle time, the speed at which you close a claim is something like 50 days shorter than other suppliers. In Quebec, the flood event, massive event, the largest one we've seen, 75% of claims are closed at the moment. Jasper, 40% as well, and on the hail claim in Alberta, all the appraisals are done for cars. All the cars will be repaired by year-end and we'll have 1,500 homes back on track in Alberta by year-end as well. And that makes a huge difference. And I look at Net Promoter Score, for those who know those metrics, and customer satisfaction, and I think we're in very good shape in that regard.

Yes, that's good. Personal auto, I mean this used to get a lot more traction when it was like 40% of your business, whatever it is, like 26% now in total. But sub-95% combined ratio seems to be an outlook that I suspect you'll continue with. Thoughts there? It looks like we probably have the tailwind from rate hike, the earning those through, and that's probably more than current inflation. So talk about the outlook there, and this is regulated to some extent in Ontario with the pace of approved rate hikes probably declining to some extent as well. What does that mean? How should investors read into that, and thoughts with respect to personal auto here?

So you're right, Tom, that personal automobile is not as big a portion of our business now than it used to be. It's about 1/4 of the business. The outperformance in personal automobile is big. I mean it's north of 5 points of combined ratio, and we're operating in this environment where we're actually growing the franchise now, we're outperforming, and rates are adequate, no doubt about it. The guidance is sub-95% indeed. And I would say I see that easily to the end of 2025. Rates are up. Inflation is mid-single digit at this stage. Cost of repairing cars is in the mid-single-digit range. The cost of replacing cars, we're not seeing much inflation at the moment, and then the cost of bodily injury and liability has gone up so that overall, you have a mid-single-digit sort of inflation rates and some insured in a way are up in the upper single-digit range. And so it's important because the industry is still losing money, just to be clear. We think the combined ratio of the industry at Q2 was above 100%. That's why it's a hard market. We're in this position where we outperform. You've seen our combined ratio. And we're growing in this environment and we're happy to grow in this environment. From a regulation point of view, about 70% of our portfolio would be regulated in automobile insurance. And sitting here today, I think the regulatory risk is lower than it was like 3 months ago. And the reason why I say that is because the Alberta government has done a good job to try to understand what's happening in the space. Some insurers are [ leading ] in Alberta, so they're really taking this seriously now, and I'm encouraged by the direction this is taking in Alberta. The Ontario government has been very focused on class, very proactive, just announced a new round of reforms to create optionality in the product. I do think that this is headed in the right direction. Dialogue is constructive and I like the automobile insurance space at the moment. Did I miss anything in your question? There were many angles there, Tom.

No, I don't think so. Yes, just the trend for rate hikes, I think if we looked a while ago, the rate approvals were pretty big, and now they seem to be down into mid single digit or so. And if I look back a couple of years ago, they were higher. I mean that is -- this stuff ebbs and flows. Is it -- are we -- how do you see that trend? And you still get the tailwind from nice earned rates working through. So you're going to have good results, but the rates of your approvals are probably lower than the rates of your earned increases, if you will.

Yes. we're in the upper single. I think the industry is seeing rates coast to coast in the upper single-digit range. We're in that zone in the industry, because it is losing money, it's still a fair bit of digestion to do, in my mind. So I very much see 2025 for the industry in the upper single-digit zone. And I do expect we'll be able to grow our franchise upper single or low teens in the next 12 months. And frankly, when I look at the guidance, Tom, I would say the odds of being sub-95% are very, very high at this stage given the dynamics. We're not changing the guidance to anything lower because there are moving pieces in automobile insurance, liability inflation being one of them, and we feel that this is prudent guidance, but I feel really good about that guidance.

I want to move into outlook with respect to reinsurance as we kind of move into the potential rate and hikes in reinsurance. And how is your -- how are you thinking about -- do you think about changing anything in terms of your approach to reinsurance? Intact's kind of been one where, while we don't want to give away a lot of the profitability to the reinsurers, so we'll take the volatility. And do you sort of stand by that? Just given these huge CAT losses we've had over the last couple of years, do you want to kind of mitigate any of that? Or how do you see your approach to reinsurance as we move into these new renewal season?

I mean if you look at 2024, the ROE will be north of 15%. The combined ratio in home insurance will be around mid-90s-ish for the year. And we've had one hell of a CAT season, make it 1 in 20, 1 in 25, pick the model. Four of the most populous cities in the country were hit by four of the biggest storms we've had in decades. So this is not the new normal. We're ready for it, but it's not the new normal. And despite that, if you look at the resilience of the business, that's the first input that goes in our thought process. On the second input, take the last 5 years, the ceded loss ratio to reinsurers, we don't see much, 2% of our premium. The ceded loss ratio was 32%. How much more of that do you want to cede? If it was just me, I am wondering if we should cede less to be clear. The ceded loss ratio this year is likely to be [ 1.15%, ] but it's 1 year. Over 5 years, it's 32%. So my appetite to cede more to manage volatility in a quarter when your track record is 90% combined, I'm talking home insurance here, don't have a ton of appetite for that at this stage and open to feedback. I'll tell you, my reinsurance team, awesome team on the reinsurance front, we're doing work to figure out if there are programs or products that can help manage volatility at a reasonable cost. But the cost needs to be reasonable because it's just volatility. The otherwise, the underlying performance, including CATs, if you go beyond the quarter, it's super strong, and how much ROE do you want to give to reinsurers, like I'm not sure. I think our investors understand that, Tom. But we're looking now...

I want to move into some metrics that have evolved with Intact over the years. And one is the underlying loss ratio. I mean you prevented -- that's ex-CATs and reserve development, over the last couple of years, you've said, hey, one, we should be looking at that underlying loss ratio, including the impact of reserve development. Why -- maybe perhaps you're a bit of an outlier there. But what -- why are you -- what are your thoughts around that? And why do you think we should be looking at it? What do you think is the more important metric, the underlying loss ratio or the underlying loss ratio, including PYD?

I think you want to include PYD, and it's just math. If you look at our track record, there's PYD every year. That is the nature of how we build reserves when claims emerge. We build a degree of caution. It's pretty -- there's uncertainty around a product with a liability duration of 2, 3, 4 years depending on the line of business. And as a result, as new claims emerge, there is a degree of caution that is built in the current accident tier over time, some even by line of business, some even by subsegments of line of business. But over time, you've seen favorable development year after year after year, and that's even more true now than it was before. Given our mix is more diversified, we guide 2% to 4% sort of PYD. We said we'll be at the upper end -- in and around the upper end of that range. The current accident tier builds that degree of prudence, I call this prudence. And if you write that it is prudence, it becomes PYD over time. So it doesn't make a whole lot of sense to us just to look at the current accident tier where you built some degree of prudence and ignore when that prudence tends to be released over time. Actuaries operate within a certain margin. There's a best estimate. There's a margin. We take a prudent stance. And it helped absorb headwinds in the past, but you need to look at both these things combined. And this is extraordinary PYD, in which case you want to correct for a portion of that, that I do think if you strip the PYD in the case of Intact that has a consistent track record of favorable development, you miss a portion of the story.

Yes. And I would argue, at the end of the day, the reported ROE is just as important. And as you point out, even with these large CATs, you're still going to be north of 15% ROE. So that -- I think at the end of the day, it really comes down to the reported ROE. By having CAT losses, that's a function of investing in an insurance company as well, so you've got to weather that too. But I do agree that the -- that you should incorporate your consistent track record of PYD, and I think that's important to note. One of the questions we get a lot is, like this has been a great cycle of probably favorable for, I don't know, at least 7 years or so, and how long can this last, in your opinion? And that's always the magical question, but what kind of metrics should investors look at to determine that, okay, maybe this cycle might be turning. Every time we turn around, we just -- each quarter, you just kind of reiterate things are pretty favorable. Fundamentals are pretty strong. But if interest rates were to move up higher, would that have any impact? Should we be watching levels of PYD? What would you tell investors in terms of metrics to look for that might indicate the cycle starting to turn?

So I'll use my 30-plus years of experience in the industry to answer that question because you need a bit of historical context. In my own experience, Tom, is that the cycles of the insurance industry are more cost driven than supply driven. I'm not saying supply doesn't make a difference. That's not what I'm saying. But the biggest change in cycles have been cost driven. And so from that point of view, the thing you need to watch for is inflation. You need to track inflation to understand where the industry is going. If you look at what happened before the commercial lines market hardened 5-plus years ago, inflation, climate change, and the inflation was both from a physical damage point of view and from a liability point of view and very little rate had been taken to cope with that inflation, and as a result, this triggered a hard market in commercial lines. And I would argue, Tom, the hard market you're seeing now in personal lines is very much a function of cost as opposed to a function of supply. And therefore, keeping an eye on inflation is #1. Keep in mind that the cycles are not synchronized. In other words, PL is going in that direction; CL is going in a different direction. Why? Because the cost equation is different and the competitive set is also different, and so you can't generalize, in a way. The second thing one should keep an eye on, and I'm talking about for investors because we look at hundreds of different metrics embedded in our P&L every month to track the direction of, a, inflation and b, the market, and we can make micro adjustments as we go along which explains a portion of our outperformance. But the second thing to keep an eye on is industry results. And so when I say to you, Tom, the industry is still losing money in personal automobile, and you're saying are rates decelerating, I say, well, look, we're seeing double -- upper single, double-digit rate increases. The industry is still losing money, there's mid-single-digit inflation. You should expect that sort of environment for at least 12 months. That's how we construct our guidance. And the third point that is longer dated in nature is the impact of consolidation. And I would not say consolidation will increase ROE on a structural basis, though you could construct that case. I will say I think consolidation dampens the amplitude of the cycle would be my observation. And so these are, I think, the 3 things to keep in mind when you want to understand the cycles. Tom, if you look at our profile, you can't really see a cycle over the past 10, 15 years. Why? Because we're in PL, we're in CL. But in CL, we have a big book of SME and mid-market, and our global specialty line strategy has a very strong mid-market influence. This is not as price sensitive as large commercial lines. And I do find that it is a unique element of our global specialty lines platform that there's a lot of mid-market business in there. How do we navigate those cycles? First of all, we price using ROE, and that doesn't change during the cycle. We don't dance with the market. Second of all, we segment like there's no tomorrow. For a given product in a given province, we have trillions of price point. We can find growth even in markets that are even more competitive than the already competitive industry. And then third, well, our mix of business, I think, is very favorable, where we have less dependency than others on high delegation of authority in the field.

Well, that was well put. Just when you talk about the cost-driven, what happens if interest rates were really significantly higher? You could run a higher combined ratio, you'd still have some pretty good ROE. Would that move the underwriting cycle in a specific line?

Yes. I think, Tom, interest rate would fit in the cost equation as far as I'm concerned. And you're right to say if interest rates shoot up, in theory, you're going to have a higher combined ratio to generate the same ROE. If you don't push your ROE target up when interest rates go up, and that's for every company to decide, it depends if you believe in the capital asset pricing model or not. I won't take you back to school.

No. I like that one. No, I agree. I think that you would expect a higher ROE, right? I think you should.

Yes, I think you should. But let's assume you don't, to just run with the idea. Interest rate goes up. If you don't change your ROE target because of interest rates, make that assumption, in theory, your combined ratio can go up, meaning your prices can come down, in theory. In practice, when you price, you use a conservative investment assumption. And interest rates would need to increase meaningfully, Tom, for it to create a notable difference in market behavior. And so...

Yes, I agree.

And then, Tom, you need to ask yourself, why are interest rates going up? So the economics of the business for us is assets, obviously, are mark-to-market. Liabilities are discounted. They might not have the same exact duration, but frankly, the book value per share is not super influenced by interest rates. So then your investment income potential, interest rates go up, in theory, your investment income potential increases. But then why are interest rates going up? If it's inflation-driven, you need to keep an eye on the product. So overall, not super sensitive, but if you're not good at tracking inflation, there's a debate as to whether higher interest rates are good or bad.

Yes. Good. Good discussion there. Where do you see Intact in the next 5 years? If this company has expanded into the U.S., expanded into the U.K., largely in commercial and specialty, even though it went bigger in the U.K., it could fine-tune its focus there. So where do you see this company in the next 5 years? Just a much stronger presence in Canada? A bigger presence in commercial and specialty globally? Help us think through that.

Tom, as you know, we're not targeting a distribution or a mix for the business. What we're targeting as a firm is outperformance everywhere. And the bigger the outperformance, the more of that we want. In simple terms, that's how we think. And the footprint of the firm has not been built to diversify. It's been built to outperform, grow and create value. And so the first element in my mind, at least what I'm thinking about when you asked me that question is, first of all, our sandbox is 10x bigger than what it was 7 years ago. So that's a good starting point. More importantly, there is outperformance everywhere. Canada is outperforming big time. The U.S. is outperforming not only the industry in aggregate, but our peer specialty lines players. In Q2, the outperformance -- combined ratio performance in the U.S. was like 6 points. And now the U.K., after an extraordinary transformation, we're much further than where I thought we would be, we've printed 92% combined in Q3. So sandbox is 10% bigger -- or 10x bigger, and there's outperformance everywhere. It's with that lens that I'll answer your question. I think Canada can get 50% bigger, true consolidation, and we have very strong organic growth muscle, best-known brands in the market, one of the best digital channel in the market, deep supply chain integration and big outperformance. So we want to see our Canadian footprint increase by at least 50% in the coming years. And that's the first place I'd put capital. Second of all, global specialty lines, our positioning there is amazing because it is North American-focused, big outperformance. It's got global capabilities. We have a London market presence. We have U.K. and Europe to tap into. And so in my mind, we can double the size of that business in the next 5, 6 years. I'd be very disappointed if we don't double the size of that business. And I think check of that, I think we can do organically. I think we'll consolidate that space, but consolidation is just an accelerator. And the U.K., the first job in the U.K. is to solidify the outperformance -- or the performance, integrate NIG and complete the exit of personal lines. And until we're done with that, we don't want to add too much in the U.K., but we're well on our way there. So increasing our position in North America, meaningfully increasing our position in specialty lines and global specialty lines, big sources of growth, in my mind. And the U.K. is a big market and we're a leader in the SME and mid-market space, and I see lots of opportunities there. So then, Tom, I ask myself, the sandbox is bigger, there is outperformance, we have a good sense of the roadmap to get there, can we replicate our track record of the last decade, which is what, 670 basis points ROE outperformance, 12% NOIPS growth every year in average? And the answer is, are we outperformance, no doubt. Even though 1/3 of the business is outside Canada, no doubt there. And then it's NOIPS growth. I mean the denominator is bigger. And our view is without capital deployment, we can, over the next decade, grow the earnings base upper single digit. And there's no doubt we'll deploy capital and we'll be north of 10% over the next decade. So that's kind of how I see the next 5 to 10 years, Tom. I don't think we need to plant flags anywhere. We just have to get better and bigger where we play and we'll replicate the track record of the past decade.

Yes, I want to elaborate on that grow your Canada by 50%. What happens if you found something there, let's say, at 20% share, you want to move it to 30%. What happen if you found something you wanted to get, and it was -- 100% of its business was personal auto? It seems to be your lower combined ratio -- or your higher combined ratio business, your lower profitability. Help us walk through the pluses and minuses of potential acquisitions in Canada and is the mix -- I mean you're going to move your whole mix in personal auto up higher as a result of doing such an acquisition. The trend with Intact has been to bring that lower margin business down. How should investors think about that?

Well, I think it's a question of price. In a way you're right, Tom. I'm not sure if there's an asset that's 100% personal auto that would [indiscernible] more impact, but if we're having a theoretical discussion, I think what's important here is that it would need to accelerate our personal line strategy. And what does that mean? It would need to move the needle on the digital channel. It would need to move the needle on our distribution. It would need to help us on affinities as well, which is the new distribution channel we've acquired with RSA. And therefore, it would need to be very strategic, first point. Second, it would need to generate north of 15% IRR. And I think if we can do that, that economically would be a very good deal to do. We definitely would sit down and ask ourselves whether the additional exposure to personal automobile is the thing we want to do, but we outperform in automobile insurance. Canadians will move more from point A to point B, and we want to make sure we're the leaders in insuring Canadians. That being said, it is a theoretical discussion because I don't think there is such an asset, but we would definitely look at it, provided we can turn this into a financial home run like most of the M&A activity we've done that have generated IRRs, the track record of our M&A work is north of 20% now.

And in the U.S., would you ever look at anything other than -- you've been able to make good acquisitions with respect to distribution in Canada. Is that an avenue you think you might look at in the U.S.? How does that help your specialty business there as well?

The approach in the U.S. at this stage would be to focus on distribution acquisitions that would advance our specialty lines business in Canada. We know how to manage distribution assets, as you can tell by the earnings power of the distribution business. So we're attracted to that. But it needs to serve the interest of the strategy in the U.S., and that means specialty lines. And the reason why we would be interested in investing in distribution in the U.S., you think MGAs here, is because we want to increase our distribution footprint in the U.S., and MGAs are specialist distributors who have relationships with agents or brokers. And so if you invest in an MGA, Tom, what do you do? You buy distribution, you buy expertise, you buy an opportunity to put your products on the shelf and you buy many more relationships. And we find that very attractive. We've done a number of acquisitions in that space. We have about $1 billion of business under management in our MGA business between the U.S. and Canada, and we'd love to do more of that.

Yes. Yes, perhaps there could be a little bit more enhanced disclosure with -- if that's an avenue you would like to pursue other than just a distribution income line, what are some of those? Where do they exist? How much of them are strictly brokers versus MGAs? Just thinking out loud with respect to that, Charles.

Yes. Tom, I think it's a very good point. And when it comes to disclosure, we want to make sure our investors have the best view of our business and understand our business the way we do. We don't want to tell our competitors everything we're doing. And so it's a fine balance, but I'll take your point into advice.

Yes. All right. I'm not sure if there's any other kind of -- anything else to add here, Charles, kind of addressed a couple of the things that are coming through. And as you can see that -- as you can probably attest to, it's -- the questions from most investors tend to be like timing of cycle and deployment of capital. And certainly that -- those are presence of mind with investors as it stands right now. But it sounds like fundamentals continue to be strong with respect to the business and you're excited about the prospects for future growth. So is there anything closing you'd like to give us before we sign off here?

Well, I think your read is a good one, Tom. And if investors who speak with you are focused on cycle, I think you should look at our track record to see that we're doing well in good and in bad times. We're finding ways to grow, and we're better equipped than most actually to manage the cycles, whether it is segmentation, our discipline, ability to identify trend and the fact that our focus is on lines of business that is less sensitive. Then when it comes to capital deployment, the way I reconcile myself with our strategy and why I'm excited about it is the fact that we have the track record when it comes to consolidation, north 20% IRR on many of the deals we've done in the past. And the opportunity set is much bigger than it used to be, and we outperform in all these places. So -- I say all these places, it's just 3 of them. So I'm quite energized about the next -- the opportunities for the next decade here at Intact.

Okay. Well, thanks so much, Charles, for joining us, and thanks to everyone who's on the line here. I appreciate that. So we're going to end this fireside chat. And hopefully, everybody enjoys the -- as we move into the holiday season here. So thanks again, Charles, and take care. Thanks.

Thank you, Tom.