Fixed Income Investor Presentation

Transcription

1 AUTO HOME BUSINESS Fixed Income Investor Presentation Ken Anderson Vice President Investor Relations & Treasurer June 15, 2017 Intact Financial Corporation (TSX: IFC)

2 Canada s largest home, auto and business insurer Largest market share in a fragmented industry Distinct brands 10-year outperformance versus the industry IFC #2 10.4% 17.3% Premium growth pts #3 9.1% Combined ratio pts #4 #5 6.4% 5.9% Top 5 represent 49% market share Return on equity pts Industry data: IFC estimates based on MSA Research Inc. Please refer to Important notes on page 3 of the Q MD&A for further information. All data as at December 31, Premium growth includes the impact of industry pools. 2 Combined ratio includes the market yield adjustment (MYA). 3 ROEs reflect IFRS beginning in Since 2011, IFC's ROE is adjusted return on common shareholders' equity (AROE). 2

3 Consistent outperformance Scale advantage Sophisticated pricing and underwriting In-house claims expertise Broker relationships Multi-channel distribution Proven acquisition strategy Tailored investment management FY2016 outperformance (for the period ended December 31, 2016) IFC Industry Five-year average loss ratio outperformance gap (for the period ended December 31, 2016) Premium growth 1 Combined ratio 2 2.4% 95.2% 3.8% 99.6% 4.1 pts 7.4 pts 3.1 pts 3.6 pts Return on equity 3 5.2% 11.0% Personal Auto Personal Property Commercial P&C Commercial Auto Industry data: IFC estimates based on MSA Research Inc. Please refer to Important notes on page 3 of the Q MD&A for further information. 1 Premium growth includes the impact of industry pools. 2 Combined ratio includes the market yield adjustment (MYA). 3 IFC's ROE is adjusted return on common shareholders' equity (AROE). 3

4 What we are aiming to achieve Goal Target Progress Our customers are our advocates Our employees are engaged Two million advocates by 2020 One of Canada s best employers Close to one million advocates Highest broker satisfaction scores ever recorded Unaided brand awareness is at an all-time high and continues to climb Named one of Canada s Top 100 Employers and one of the Best Employers in Canada for second year in a row Recognized as one of Canada's Top Employers for Young People Our company is one of the most respected Outperform industry ROE by 500 basis points every year Grow NOIPS 10% per year over time The Globe and Mail s Board Games ranked us #2 for the quality of our governance Made the Best 50 Corporate Citizens in Canada list for 4th straight year 4

5 Sustaining performance going forward NOIPS growth of 10% per year over time Organic Growth 3-5% Capital Mgmt & Deployment 3-5% Margin Improvement 0-3% Pricing & Segmentation 2 points Investments & Capital Mgmt 2 points Claims Management 3 points * Leaves 2 points to reinvest in customer experience (price, product, service, brand) Beat industry ROE by 500 bps every year 5

6 Financial strength Strong balance sheet and disciplined financial management Strong balance sheet High quality, strategically managed investments Conservative reserving practices In billions of Canadian dollars Investments Total Assets Our balance sheet Q $14.2 $14.4 $22.5 $22.9 Medium Term Notes $1.4 $1.4 Credit Facility - - Total Liabilities $16.4 $16.8 Common shares $2.1 $2.1 Preferred shares $0.5 $0.5 Retained earnings and other $3.6 $3.5 Shareholder s equity $6.1 $6.1 MCT well above 170% Target 20% debt-to-total capital Total capitalization Debt-to-total capitalization Debt plus preferred sharesto-total capitalization MCT Excess Capital (170%)* $7.5 $ % 18.6% 25.0% 25.2% 223% 218% $1,034M $970M * Excess capital at 170% includes net liquid assets in non regulated entities 6

7 Investment portfolio A high quality investment portfolio of $14.2 billion 100% 80% 60% Cash: 2% Loans: 3% Preferred shares: 10% Common equity: 15% Geographic diversification Fixed-Income Portfolio Common Equity US, 10% Canadian, 90% Other, 7% US, 25% Canadian, 68% Fixed income credit rating Preferred shares credit rating 40% 20% Fixed income: 70% BBB 2% A 16% AAA 44% Not rated 1% P3 19% 0% Investment portfolio asset mix * AA 37% P2 81% * Net of hedging positions and financial liabilities related to investments, as of March 31,

8 Track record of prudent reserving practices Quarterly and annual fluctuations in reserve development are normal 2005 reserve development was unusually high due to the favourable effects of certain auto insurance reforms Rate of claims reserve development (favourable prior year development as a % of opening reserves) 9% 8% 7% 6% 5% Our consistent track record of positive reserve development reflects our preference to take a conservative approach to establishing and managing claims reserves 4% 3% 2% 1% 0%

9 Strong capital base Very strong levels of capital over time 197% 205% 203% 209% 203% 218% 223% We have a low sensitivity to capital markets volatility $435 $599 $550 $681 $625 $970 $1, Q Excess Capital at 170% MCT Conservative and well managed leverage levels Debt-to-cap IFC Target: 20% As of Q Scenario MCT Sensitivity Interest rates 1% increase (3) pts Common share prices 10% decline (1) pts Preferred share prices 5% decline (2) pts 22.9% 18.9% 18.7% 17.3% 16.6% 18.6% 18.5% U.S. dollar 10% decline (0) pts Q

10 OneBeacon acquisition Strong strategic rationale = C$8.3 Bn in DPW Creating a leading North American specialty insurer Personal Property 24% Commercial 24% Focuses on small to mid-size businesses Specialty 8% ($628M) New growth pipeline Personal Auto 44% New products and cross-border capabilities = C$9.9 Bn in DPW Brings high caliber management team Personal Property 20% Commercial 20% Specialty 23% ($2.3B) Diversifies IFC s business and geographic mix Personal Auto 37% Source: 2016 direct written premium as reported in MSA (Intact) and 10-K (OneBeacon), using April 26 th exchange rate 10

11 OneBeacon acquisition Driving cross market synergies Entertainment Environmental Financial Institutions Accident Technology Import expertise and expand product offering in Canada Cross-Border 1. Ability for both Intact and OneBeacon to service domestic clients that do business in both countries 2. Better compete with other North American insurers by offering a seamless cross-border experience Small to Mid-Size Commercial & Specialty Lines Leverage Intact underwriting and pricing expertise to broaden offering in the US and drive profitable growth 11

12 OneBeacon acquisition Financially compelling & conservatively structured NOIPS neutral in year one and mid-single digit accretive in 24 months Immediately accretive to BVPS Attractive IRR estimated to be in excess of 15% 1 Maintains strong financial position and robust capitalization: MCT above 200% Debt-to-total capital ratio below 25% at closing and below target level of 20% within 24 months Significant downside protection against adverse reserve development Thorough reserve assessment factored in valuation Reinsurance coverage of up to US$200M 1 Internal rate of return based on equity returns per proposed financing plan. 2 Purchase price based on mm outstanding shares as at March 31, Price to book value based on book value as at March 31, Price to earnings based on consolidated earnings for year ended December 31, 2016 Selected financial highlights $2.3 or 1.65x 15.8x >200% at billion total purchase price, in Canadian dollars, US$1.7 billion 2. P/BV 3 purchase price, or P/E 4. estimated MCT close. internal rate of return (IRR) target is expected to be 15% exceeded. 12

13 OneBeacon acquisition Strong financial position maintained At announcement To date Balance Excess capital $700 M - $600M - $700M Debt $425 M Preferred shares $150 M Debt & Preferred shares $1,000 M $575 M $350M - $450M Equity $700 M $754 M Total $2,400 M $1,329 M 13

14 OneBeacon acquisition All credit ratings affirmed following the announcement Financial strength Long term issuer ratings of IFC s credit Outlook OneBeacon adds product and geographic Ratings affirmed on May 3rd (1) A1 Baa1 Stable diversification to Intact. The acquisition represents the first material acquisition outside Canada and will establish a footprint in most US states. Ratings affirmed on May 2 nd AA- A- Stable Fitch's affirmation [ ] reflects a company that is solidly capitalized, with a very strong reserve position and earnings profile. The acquisition [ ] will likely improve the AA (low) A Stable franchise in the medium term. Intact has demonstrated good integration expertise in past Ratings affirmed on May 2 nd acquisitions. IFC s consistent profitability, successful track Ratings affirmed on May 3 rd A+ (superior) a- Stable record of acquisitions and moderate financial leverage limits the company s execution and integration risks. (1) Moody s outlook has been changed to stable from positive 14

15 Debt profile Balance sheet optimization (20% debt-to-cap.) Acquisition financing Longer tenures preferred Strong credit profile MTN Series 1 Coupon: 5.41% Maturity: 3-Sep-19 MTN Series 4 Coupon: 4.70% Maturity: 18-Aug-21 MTN Series 6 Coupon: 3.77% Maturity: 2-Mar-26 MTN Series 7 Coupon: 2.85% Maturity: 7-Jun-27 MTN Series 2 Coupon: 6.40% Maturity: 23-Nov-39 MTN Series 5 Coupon: 5.16% Maturity: 16-Jun-42 MTN Series 3 Coupon: 6.20% Maturity: 8-Jul-61 $250M $300M US$ 275M OneBeacon Senior unsecured notes Coupon: 4.60% Maturity: 9-Nov-22 $250M $425M $250M $250M $100M

16 Key takeaways Performance Consistent outperformance Financial Strength Strong balance sheet capitalization Risk Management Embedded risk management culture OneBeacon Financially compelling & conservatively structured 16

17 Appendices

18 OneBeacon is a unique pureplay specialty lines insurer OneBeacon is a Bermuda-domiciled company operating in the US and focused on specialty insurance Offers a range of specialty insurance products across 16 diversified business units Differentiated, multi-channel distribution approach with an attractive mix of retail (70% of GPW) and wholesale (30% of GPW) distribution Flexible and scalable technology platform 2016 GPW US$1.2bn 2016 Net income US$107m 2016 & 2017 Q1 combined ratio of 97.3% & 94.5% Book value US$1bn Rated A by AM Best / A- by S&P / A3 by Moody s / A by Fitch GPW 1 by Line of Business Other Professional Lines 3% Specialty Property 3% Financial Services 4% Programs 4% Surety 5% Inland Marine 6% Management Liability Tuition 4% Reimbursement 6% Environmental 3% Financial Institutions 3% Accident 12% Technology 11% Ocean Marine 11% Healthcare 11% Entertainment 7% Total: US$1,190 million Government Risks 7% Operational objective to achieve a combined ratio in the low 90 s for OneBeacon. Cross-border growth opportunity to better serve Canadian client base. Source: OneBeacon 1 Represents gross premiums written from continuing operations which excludes exited or discontinued lines and is further adjusted to exclude $11 million in frontingrelated premiums. 2 Financial strength rating as of March 31,

19 Operational snapshot A strong and diversified base for growth 2016 DPW by Business Line 2016 DPW by Geography 2016 DPW by Distribution Channel 29% 46% 18% 14% 41% 9% 15% 28% 25% 27% 48% Personal Auto Personal Property Commercial Lines Ontario Quebec Alberta Rest of Canada * Excluding pools, as of December 31, 2016 ¹Affiliated brokers are either those in which we hold an equity investment or provide financing. Intact Insurance - Affiliated brokers Intact Insurance - Other brokers BrokerLink Direct to consumer 1 19

20 Strategic capital management Capital management framework Integrated decision making process Excess capital Maintain leverage ratio (target 20% debt-to-total capital) Maintain existing dividends Increase dividends Invest in growth initiatives Share buybacks Capital Allocation Decision Capital Management Target Leverage & Cap Structure MCT% & Excess Capital level 20

21 Contact us General Inquiries Intact Financial Corporation 700 University Avenue Toronto, ON M5G 0A1 1 (416) (toll-free in N.A.) info@intact.net Media Inquiries Stephanie Sorensen Director, External Communications 1 (416) stephanie.sorensen@intact.net Investor Relations Inquiries ir@intact.net 1 (416) (toll-free in N.A.) Ken Anderson VP Investor Relations & Treasurer 1 (855) , ext kenneth.anderson@intact.net Maida Sit Director, Investor Relations 1 (416) ext maida.sit@intact.net 21

22 Forward-looking statements Certain of the statements included in this presentation about the Company s current and future plans, expectations and intentions, results, levels of activity, performance, goals or achievements or any other future events or developments constitute forward-looking statements. The words may, will, would, should, could, expects, plans, intends, trends, indications, anticipates, believes, estimates, predicts, likely, potential or the negative or other variations of these words or other similar or comparable words or phrases, are intended to identify forward-looking statements. Forward-looking statements are based on estimates and assumptions made by management based on management s experience and perception of historical trends, current conditions and expected future developments, as well as other factors that management believes are appropriate in the circumstances. Many factors could cause the Company s actual results, performance or achievements or future events or developments to differ materially from those expressed or implied by the forward-looking statements, including, without limitation, the following factors: the Company s ability to implement its strategy or operate its business as management currently expects; its ability to accurately assess the risks associated with the insurance policies that the Company writes; unfavourable capital market developments or other factors which may affect the Company s investments, floating rate securities and funding obligations under its pension plans; the cyclical nature of the P&C insurance industry; management s ability to accurately predict future claims frequency and severity, including in the Ontario line of business, as well as the evaluation of losses relating to the Fort McMurray wildfires, catastrophe losses caused by severe weather and other weather-related losses; government regulations designed to protect policyholders and creditors rather than investors; litigation and regulatory actions; periodic negative publicity regarding the insurance industry; intense competition; the Company s reliance on brokers and third parties to sell its products to clients and provide services to the Company; the Company s ability to successfully pursue its acquisition strategy; the Company s ability to execute its business strategy; the Company s ability to achieve synergies arising from successful integration plans relating to acquisitions, as well as management's estimates and expectations in relation to resulting accretion, internal rate of return and debt-to-capital ratio; the Company s participation in the Facility Association (a mandatory pooling arrangement among all industry participants) and similar mandated risk-sharing pools; terrorist attacks and ensuing events; the occurrence of catastrophe events, including a major earthquake; the Company s ability to maintain its financial strength and issuer credit ratings; access to debt financing and the Company's ability to compete for large commercial business; the Company s ability to alleviate risk through reinsurance; the Company s ability to successfully manage credit risk (including credit risk related to the financial health of reinsurers); the Company s ability to contain fraud and/or abuse; the Company s reliance on information technology and telecommunications systems and potential failure of or disruption to those systems, including evolving cyber-attack risk; the Company s dependence on key employees; changes in laws or regulations; general economic, financial and political conditions; the Company s dependence on the results of operations of its subsidiaries; the volatility of the stock market and other factors affecting the Company s share price; and future sales of a substantial number of its common shares. All of the forward-looking statements included in this presentation are qualified by these cautionary statements and those made in the section entitled Risk management (Sections 17-21) of our MD&A for the year ended December 31, These factors are not intended to represent a complete list of the factors that could affect the Company. These factors should, however, be considered carefully. Although the forward-looking statements are based upon what management believes to be reasonable assumptions, the Company cannot assure investors that actual results will be consistent with these forward-looking statements. When relying on forward-looking statements to make decisions, investors should ensure the preceding information is carefully considered. Undue reliance should not be placed on forward-looking statements made herein. The Company and management have no intention and undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 22

23 Disclaimer This Presentation does not constitute or form part of any offer for sale or solicitation of any offer to buy or subscribe for any securities nor shall it or any part of it form the basis of or be relied on in connection with, or act as any inducement to enter into, any contract or commitment whatsoever. The information contained in this Presentation concerning the Company does not purport to be all-inclusive or to contain all the information that a prospective purchaser or investor may desire to have in evaluating whether or not to make an investment in the Company. The information is qualified entirely by reference to the Company s publicly disclosed information. No representation or warranty, express or implied, is made or given by or on behalf of the Company or any of its the directors, officers or employees as to the accuracy, completeness or fairness of the information or opinions contained in this Presentation and no responsibility or liability is accepted by any person for such information or opinions. In furnishing this Presentation, the Company does not undertake or agree to any obligation to provide the attendees with access to any additional information or to update this Presentation or to correct any inaccuracies in, or omissions from, this Presentation that may become apparent. The information and opinions contained in this Presentation are provided as at the date of this Presentation. The contents of this Presentation are not to be construed as legal, financial or tax advice. Each prospective purchaser should contact his, her or its own legal adviser, independent financial adviser or tax adviser for legal, financial or tax advice. The Company uses both International Financial Reporting Standards ( IFRS ) and certain non-ifrs measures to assess performance. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are unlikely to be comparable to any similar measures presented by other companies. Management analyzes performance based on underwriting ratios such as combined, expense, loss and claims ratios, MCT, and debt-to-capital, as well as other non-ifrs financial measures, namely DPW, Underlying current year loss ratio, Underwriting income, NOI, NOIPS, OROE, ROE, AROE, Non-operating results, AEPS, Cash flow available for investment activities, and Market-based yield. These measures and other insurance related terms are defined in the Company s glossary available on the Intact Financial Corporation web site at in the Investor Relations section. Additional information about the Company, including the Annual Information Form, may be found online on SEDAR at 23