Intact Financial Corporation (IFC) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Intact Financial Corporation Q2 2026 Results Conference Call. [Operator Instructions] Also note that this call is being recorded on July 29, 2026. And I would like to turn the conference over to Geoff Kwan, Chief Investor Relations Officer. Please go ahead, sir.

Thank you, Sylvie. Hello, everyone, and thank you for joining the call to discuss our second quarter financial results. A link to our live webcast and materials for this call have been posted on our website at intactfc.com under the Investors tab. Before we start, please refer to Slide 2 for a disclaimer regarding the use of forward-looking statements, which form part of this morning's remarks, and Slide 3 for a note on the use of non-GAAP financial measures and other terms used in this presentation. To discuss our results today, I have with me our CEO, Charles Brindamour; our CFO, Ken Anderson. Patrick Barbeau, our Chief [ Operating Officer ]; [indiscernible], our Senior Vice President, Personal Lines. We will begin with prepared remarks followed by Q&A. And with that, I will turn the call over to Charles.

Thanks, Jeff. Welcome [indiscernible] to your first earnings call, and good morning, everyone, and thanks for joining us. Last night, we released our second quarter results. We generated net operating income per share of $3.17, driven by a combined ratio of 94.9%, which included approximately 4 points of excess catastrophes and large losses. Our top line grew 4% in the quarter, driven by continued strength in Personal Lines. Our ROE was in the upper teens at 17%. Our book value per share grew 13% year-over-year to $111.73. And our balance sheet is very strong with $3.7 billion of excess capital, and that positions us well in an attractive M&A environment. Now this quarter was marked by a higher level of large losses than we've experienced historically and then we expected. Given that we conducted a detailed and thorough review, we did not find any common driver or systemic pattern. We view what happened in Q2 was an anomaly and we're confident that the underlying performance and the fundamentals of our business very strong. Let me now provide some color on each of our segments, beginning with Canada. In personal auto, premiums grew 9% in the quarter, including 1% of unit growth. This reflects sustained hard market conditions supported by our investments in marketing and in the digital channel. With the industry remaining unprofitable still at the end of Q1 2026, we expect industry premium growth remain in the high single digits over the next 12 months. Our combined ratio in personal auto improved 1.5 points year-over-year to 88.8%, a strong result in a seasonally favorable quarter. This performance was driven by an improvement in the current accident year of more than 2 points. On the reform front, we're encouraged by the developments in both Ontario and Alberta. In Ontario, while early, customers are choosing the optional protection, which should help support growth. In Alberta, we like the direction being set for 2027. We'll provide an update later this fall as the reform package is finalized. But in both cases, we think these reforms are excellent for consumers and support a healthy and competitive automobile industry. They should also contribute to bring the industry closer to a more sustainable performance level. In personal property, premiums grew 7%, including a 1% increase in units. We see continued strength in this segment. We expect industry premium growth to be in the upper single to low double-digit range over the next 12 months. The combined ratio of 103 included 22 points of CAT losses in the quarter. This is a reminder of the impact on industry profitability from severe weather events. We believe this will contribute to sustaining hard market conditions. Despite the elevated level of catastrophes in Q2, our year-to-date combined ratio of 93.9% shows our personal property business is positioned to deliver sub-95 performance, even with severe weather. We view this segment as very attractive and a solid source of growth. Our track record of close to 90% combined ratio over 5 and 10 years is quite strong and gives us confidence in our growth strategy in that segment. In commercial lines, premium growth was 1% in the quarter. We see continued traction for our growth initiatives, which drove roughly 3 points of growth. This was partially offset by 2 points of mix shift towards smaller account sizes as we remain selective in the competitive large account space. I'm encouraged not only by the strength of the SME portfolio, but also by sequential improvements in production stats in the mid-market space. We expect industry growth in the low to mid-single digits over the next 12 months. The combined ratio was strong at 85.7% in commercial. This result reflects our continued discipline in applying pricing sophistication and advanced risk selection techniques to retain higher quality accounts. We continue to expect a combined ratio in the low 90s or better. Moving now to our U.K.&I segment. Our top line decreased by 1% in the quarter. While growth was solid in specialty lines, our domestic U.K. Commercial Lines business saw pressure driven by the consolidation of products following the NIG acquisition into 1 Intact value proposition. We continue to expect top line to improve in 2026 as we complete this exercise. And we expect the industry premium growth in the low to mid-single-digit range over the next 12 months. A combined ratio of 112% included 15 points of excess CAT and large losses. And we're committed and confident in bringing the combined ratio towards 90%. We're making good progress and expect further improvements as we continue to roll out our pricing sophistication tools but also improve the expense ratio over time. In the U.S., premiums increased by 4% driven by solid new business and strong growth in some of our most profitable verticals. Our top line growth is benefiting from the wider product lineup and continued gains and expanding and deepening broker relationships. At the industry level, we expect premium growth to be in the mid-single digit over the next 12 months. The combined ratio of 85% in the U.S. this quarter improved nearly 3 points year-over-year, reflecting the benefits of our strategy of focusing on profitable growth. This marks our 12th consecutive quarter with a combined ratio below 90%. As we look ahead across all of our lines of business, we're operating in an environment that plays to our strengths, where pricing sophistication and risk action are paramount. We significantly expanded our ROE outperformance in 2025 to 740 basis points as we continue to execute on our strategic road map. That includes investments in data and AI as well as leveraging our scale to build an extensive supply chain network. That allows us to internalize over 90% -- 95% of our claims globally. On the AI front, for instance, this includes realizing recurring benefit from investments faster than expected. Indeed, while our initiatives generate north of $220 million recurring benefits to date, we now expect to achieve $500 million in benefits in 2028, roughly 2 years earlier than we previously announced. On the claims side, the recent catastrophes in Canada illustrated our competitive advantage. In June, there were 5 catastrophes. Our advanced claims and [indiscernible] capabilities and in-house restoration business on site were instrumental in helping us close 47% of the almost 9,000 claims from June CAT, an impressive result. It demonstrates how we're able to get our customers back on track faster while building a loss ratio advantage. We also remain focused on helping build more resilient communities. Initiatives like the kept intact prevention ecosystems are driving proactive risk mitigation. Since the launch of the initiative last year, our customers have recorded over 140,000 prevention actions in our [indiscernible], which help them better protect their homes. These actions also enhance the resilience of our personal property portfolio. And on top of that, [indiscernible], Canada's #1 home maintenance hat and only owned by Intact is well positioned to benefit from increased prevention activity by homeowners. [indiscernible] revenues increased 24% year-over-year. So in closing, although Q2 was a difficult quarter for many of our customers. Our teams continue to do outstanding work getting impacted customers back on track as fast as possible. I want to thank all our employees for their dedication to living our values and delivering for our customers. Our track record demonstrates that external factors such as natural disasters and industry pricing cycles, didn't impact our ability to consistently deliver on our 2 financial objectives. With our net operating income per share growing at a compounded growth rate of 16% over the last 3 years and 12% over the last 10 years, we've exceeded our goal of at least 10% growth annually over time, both near and long term. Our average ROE outperformance has been 600 basis points over the last 3 years and almost 700 basis points over the last 10 years, well above our objective of at least 500 basis points outperformance. Given the environment in which we operate our focus on outperformance and our commitment to profitable growth, there's no doubt in my mind that will exceed our financial objectives in the next decade as we have in the last decade. Thank you. And now I'll turn the call over to our CFO, Ken Anderson.

Thanks, Charles, and good morning, everyone. While the second quarter was active from a catastrophe and large loss perspective, our results demonstrate the resilience of our platform. Net operating income per share for the second quarter was $3.17, while operating ROE was strong at 17%, driving a 13% year-over-year increase in our book value per share to $111.73. Let me add some color on second quarter results. The underlying current accident year loss ratio of 59.1% included 3 points of excess large losses. The large losses primarily occurred in our U.K. & I segment with several large property fires occurring across different segments of commercial and specialty lines. Canadian commercial and personal property also experienced increased frequency of large losses primarily driven by property fires. Importantly, we view these losses as discrete in nature. Our underlying performance remains strong. Catastrophe losses in the quarter were $416 million, driven mostly by storms related to water damage in Alberta, Ontario and Quebec as well as property-related fires in the U.K. & I. On a year-to-date basis, CAT losses remain consistent with our expectations and our annual CAT guidance remains unchanged at $1.2 billion. Quarterly CAT activity can create variability, but we manage the business with this in mind and our overall view of long-term climate trends remains unchanged. Our prudent current year reserving practices over time means prior year development remained strong, and we posted favorable PYD of 6.1 points in the second quarter. As always, any assessment of underwriting performance should combine the current accident year and prior year development. But our PYD track record is consistently strong, averaging 4.8%, 3.5% and 4.1% over the last 5, 10 and 15 years. Of note, the introduction of IFRS 17 in 2022 increased PYD by roughly 1 to 2 points with an offset corresponding increase in the current accident year loss ratio. Given our strong long-term track record, the impact of IFRS 17 and the stability of our PYD, we believe recent PYD experience provides the most relevant reference point in assessing near-term PYD levels. Moving to expenses. The consolidated expense ratio was 34.9% for the quarter, an increase of roughly 0.5 point mainly coming from a nonrecurring premium tax item. We expect our 2026 consolidated expense ratio to be in line with our annual guidance of 33% to 34%. Operating net investment income increased to $405 million in the quarter, driven by growth in our investment portfolio from strong capital generation. Our expectation for $1.7 billion of investment income in 2026 is unchanged. Distribution income increased 4% to $172 million, supported by robust organic and inorganic growth, somewhat tempered by our investments to support service levels ahead of the Ontario auto reform. This represents a targeted near-term expense with no change to our expectation for distribution income growth of at least 10% annually over time. The operating effective tax rate of 22.9% was in line with our guidance of 22% to 23%. Nonoperating gains increased by $274 million year-over-year supported by favorable capital market movements as well as lower acquisition and integration costs as these expenses continue to decline. Moving to our balance sheet. We continue to operate with significant financial flexibility with $3.8 billion of total capital margin well in excess of what is required to manage volatility. Our adjusted debt-to-capital ratio improved again to 16.2%. Overall, our balance sheet strength, low leverage and strong capital generation provides significant financial flexibility to capitalize on attractive M&A opportunities, and that landscape continues to improve. Share buybacks also remain an important tool when our shares are undervalued, and we completed over $180 million in share buybacks in the second quarter bringing the year-to-date total to approximately $350 million. We continue to view our shares as undervalued. We calibrate the pace of buybacks based on excess capital levels, the outlook for inorganic growth opportunities and our view of the size of the discount to fair value. With our strong track record of delivering significant value, M&A remains our preferred choice for capital deployment. We are well positioned to continue to deliver on our financial objectives. Over the last decade, we've exceeded our 500 basis point ROE outperformance target by delivering an average of 670 basis points of annual outperformance. We've also surpassed our 10% NOI growth objective by delivering compounded annual growth of 12% over the same period. Our discipline and focus has shifted operating ROE into an upper teens zone, while we maintain 1 of the lowest levels of ROE volatility amongst our global peers. These results reflect the durability of our competitive advantages and the strength of our platform. We are positioned to continue creating significant value over time. With that, I'll turn it back to Geoff.

Thank you, Ken. [Operator Instructions] So Sylvie, we're ready to take some questions now.

[Operator Instructions] First, we will hear from John Aiken at Jefferies.

Charles, you described it as an attractive M&A environments and Ken saying your preferred choice of capital deployment is M&A. I guess a 2-part question for you. What is making this so attractive in an environment? And secondarily, what's holding you back from pulling the trigger on M&A outside of distribution?

Thanks, John. Yes, I think it's a favorable M&A environment. There are, in my mind, 3 vectors that you want to pay attention to when you qualify the M&A environment. From our perspective, the first vector is strategic fit. So in our case, very keen on North America and global specialty lines. Second vector is the economics. Does the target on its own, generate an internal rate of return in excess of 15%, first and foremost. And second, does it increase your earnings follower per share once integrated? And third, actionability. And I would say, sitting here today, John, I think there are more options that take all those boxes today than a year ago. And that's why I think it is a favorable M&A environment and one point I would add is you need operational readiness when you tackle these things because it's in the integration that the value gets created. And I would say from a GSL and North American point of view, the operational readiness is definitely there. Lastly, I think the balance sheet is very supportive of strong economics, but acquisitions need to stand on their own. So what's holding us back? First, you want to see options that hit those 3 vectors. And then its disciplined prudent and making sure you pay yourself. But we like the environment in which we operate.

Question will be from Alex Scott at Barclays.

I was wondering if you could provide a little more insight into some of the remediation efforts in the U.K. commercial and progress towards the 90 combined ratio. Can you help us think about I don't know how many underwriting cycles it might take to get there? What you'd expect from top line growth as you're doing that any kind of bigger pruning that you got to do. If you can help us out on how to model some of that kind of stuff and how to think about it, it would be great.

Yes. Thanks for your question, Alex, we're not banking on underwriting cycles to improve the performance in the U.K. We're aiming to get towards 90% in the midterms. There are a number of levers that we are pulling. Pricing and risk selection would be at the top of the list, deploying science and deploying tools and governance, we're making really good progress there. Second, we're re-platforming from a technology point of view, that environment. That is a multiyear process. It impacts the speed of the transition, but we want to build a great P&C business, and that requires a modernization effort, which is reflected in the performance. Third, we're focused on making sure that the service for brokers in the U.K. commercial line space is second to none, making excellent progress there. We're seeing broker advocacy being up meaningfully. Fourth, we're bringing the various products that were on the shelves in the U.K. into what we think is a top market product, now branded Intact Insurance. And I would say, lastly, it's about improving the expense base as well. My perspective is this is a midterm effort, I think, to 24 to 36 months, but I'm pleased with the progress we're making. It's heavy lifting, Alex. I mean, I'll be very clear it's heavy lifting and when you do such transformation, there are bumps in the roads from time to time, but I'm very confident with the trajectory we're on.

Got it. That's helpful. And as a follow-up, if I could ask about the U.S. market. I think there's probably a bit more competition there, particularly in some of the products you're in the U.S. So how are you approaching that market? What are the ways you're trying to achieve profitable growth there?

Thanks, Alex. I'll first say, I love the U.S. market. Our platform is really strong. If you look at industry results to date, we're outperforming from a combined ratio, our specialty lines peers by close to 8 points. And we're outperforming from a top line point of view by about a bit less than 1 point at this stage. And so our approach in -- first, our U.S. business is specialty lines only. It's 12 verticals. So the first order of business is to double down on the lines of business that are very profitable. And so if I'm to frame this for you, Alex, about 2/3s of our portfolio operates in the 70s to low 80s combined ratio. And that's the book that we're growing north of 5%. The remainder of the portfolio operates in the mid-90s, and that was largely flat this quarter. So you don't need to be a rocket scientist here to see that because you have optionality across 12 verticals, the growth is coming from the low combined ratio verticals. Then it is about distribution management. It is about going deeper in the relationships that we have. It's about distributing our 12 verticals to the brokers where we have relationships and it is about expanding the number of brokers we operate with in the U.S. One thing we do on the distribution side is we're also buying MGAs. We -- in extensions of segments in which we operate. And lastly, we're bringing global capabilities to our offer in the U.S. market. Now following the RSA acquisition, as you know, we have not only strong cross-border capabilities with Canada, a major trading partner of the U.S. but also global capabilities with our global network. And I would say these are the levers we are pulling. Now when a vertical goes off the rail for some reason or another, we put the brakes and put remediation in place with pro verticals, you can expect you always have 1 or 2 that needs more work. And in aggregate, that's our approach in the U.S. We really like once we see, we like the outperformance. We like the optionality. And if I could deploy capital there in the near term, we would have no hesitation to do so.

Next question will be from Tom MacKinnon at BMO Capital Markets.

Digging a little bit deeper in the U.K.&I, if you take the 112% and subtract 15 points from the higher-than-expected cats and large losses you're out at 97%. Last year, you were running this thing 93-, 94-, 95-ish range. And prior to the year prior to that, it was even a little bit better now. Maybe you can talk about what's happening in this commercial lines marketplace in 2026. Is it a tougher rate cycle you're trying to navigate here and get some of the decommissioning efforts you speak to, but that's kind of a little bit more expense ratio stuff, perhaps you can delve a little bit more into what's happened with this line just over the last 6 months? And what's -- and are those losses -- are those -- is that higher combined we're seeing there? Is that just the normal course? And maybe when would you be able to hit that 90% target?

Good observation. That segment run rate 93-, 94-ish as we've seen in the past couple of years. I'll let Ken share a bit of perspective on trajectory. Then Patrick and I will pick up the market observation question. So Ken?

Tom, I guess, maybe the first thing, I wouldn't use 1 quarter to sort of anchor on the overall run rate performance beyond the CAT and large losses, you'll have a bit of volatility in other things. I think, for example, in the second quarter and the first half of the year, indeed, the expense ratio is a little higher. But I would go back to the '24 and '25 combined ratio, which overall for those 2 years was about a 94%. That's our view of the most relevant reference point to start from. And clearly, as Charles has laid out, the focus is to drive performance towards the 90% pricing sophistication, Firstly, the expense improvements from modernizing technology. And then over time, top line benefits from the improved broker service proposition and the specialty product expansion, which will also improve the expense base and the expense ratio. And those are really the elements that over time will drive towards 90%. The team in the U.K. are very focused on what they can control and are executing on it. Market conditions can slow down or speed up that time line, but I wouldn't anchor on a specific quarterly road map here, but we certainly should see progress and visible progress year-over-year.

Patrick, do you want to provide a bit of color on the marketplace to Tom's question.

Yes, I don't think we're saying from a rate perspective, a ton of difference compared to the observations we communicated in the past couple of quarters like we've seen more competition in the larger -- the larger size of accounts. From a top line perspective, we're having good momentum from a specialty lines perspective, and it's really an offset in the regular commercial that's really driven by the significant transformation we're doing in the field with the systems and some of the other points that Charles mentioned earlier. Overall, by the way, on top line, this -- the remaining remediation we're applying on the books, plus the drag from the consolidation of the NIG and RSA offer is a drag of about 3 points on the overall UK&I Q2 top line. And we expect that we'll see sequential improvement going forward. There's mix in that as well given pricing sophistication and the fact that we are prudent in the large accounts. I wouldn't see the once you remove 15 points of excess CATs and large losses as a new starting point or deterioration from prior years. But it can be bumpy from one...

Yes. I think the specialty lines growing really well. It's the U.K. CL franchise that is shrinking a bit and the connection between the market and the transformation, I view it as follows, Tom. When you integrate products, that creates dislocation, okay, from a price point of view. Second, we're deploying science on top of that change. So the amount of dislocation that is taking place on the portfolio is meaningful. And in a competitive environment, the more competitive environment the bigger the hit when you've got that dislocation. And I think that's the 3 points that Patrick is talking about. But we're focused on the mid- to long term, and we think bringing science and integrating products is more important than status quo just to avoid this location. And I think bump in the road here and there, trajectory, I'm comfortable with.

Okay. And then one quick one on the -- you're down year-over-year in terms of top line in the U.K. constant currency, you had some momentum maybe in the first quarter, but now you're talking about the rebranding initiative as contributing to that slowdown. I thought the rebranding initiative is actually going to be helpful in terms of a better service proposition to the brokers. I mean, was this expected? And how long would the slowdown in top line as a result of the rebranding initiative lay out?

Yes. I don't think it's the rebranding initiative. It's the migration towards one product that creates a bit of dislocation to which you add the pricing sophistication initiatives that we're deploying in the field in a marketplace that is competitive, I think, in the upper mid space in particular. And so time line, I think the heavy lifting in my mind has probably a 12 sort of month horizon in terms of the amount of loan we will likely see. And so near term, in my mind, and the trajectory, I think 24, 36 months.

I'd maybe add, Tom, if you look at the growth in 2025, you were in the minus 3%, minus 4%, minus 5% zone. We're not -- we certainly made a move in the early part of '26 into more of a flat growth position. So progress there and looking ahead, you should see improvement over time.

Next question will be from Jaeme Gloyn at National Bank Capital Markets.

Just first quick follow-up on the M&A and the balance sheet today. I think you've previously talked about being able to deploy about $6 billion or complete a $6 billion acquisition without other sources of equity capital. Is that -- can you just refresh us on where that sits today?