Intact Financial Corp Fireside Chat Hosted by RBC Capital Markets (Virtual) Transcript

The following is excerpted from the question-and-answer section of the transcript.

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

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

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

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

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

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

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

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

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : All right. And then the other question that we've got right now in the queue, similar on the inflation side in personal auto. The question is, the repair network is experiencing strain because of lack of labor and supply availability. How are you thinking about passing on price increases to help your repair partners? I guess, kind of managing the relationship with your repair partners, I guess, is what the gist of the question is. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. MAY 12, 2022 / 3:00PM, RY.TO - Intact Financial Corp Fireside Chat Hosted by RBC Capital Markets (Virtual)

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

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

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

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

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

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

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

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Perfect. And then that kind of leads a little bit into the second question that we've got coming in. And maybe I'll kind of reposition the question and ask it this way is, your market share is right now at 20%. You talked about -- sorry, in Canada, and you talked about, I think, in -- hopefully not putting words -- too many words in your mouth, but the focus right now is to try and get through the next several quarters in terms of the RSA Canada integration. If something came up, I think maybe you have an ability to do it, but preferably, you'd like to kind of finish up the integration in Canada. But from a limitation, in terms of how big you can get, I know what I think in the past, there's been kind of talk about 30%, maybe even up to kind of 35%. But I mean, how do you think about where you could kind of grow to before you kind of do get maybe a little bit more pushback, whether or not some of the competition bureau or others? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. MAY 12, 2022 / 3:00PM, RY.TO - Intact Financial Corp Fireside Chat Hosted by RBC Capital Markets (Virtual)

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Perfect. Another question that we got coming in is, what do you view as being leading indicators for softening markets? And what are your tactics for when that inevitably hits?

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

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

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Okay. The other question that kind of came through, it was, could part of the hard market be explained by a low return on investments part of the business? In other words, if interest rates and investment income is going up on the investment side, maybe it will mean insurers are accepting higher combined ratios. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies. MAY 12, 2022 / 3:00PM, RY.TO - Intact Financial Corp Fireside Chat Hosted by RBC Capital Markets (Virtual)

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

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

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

Question: Geoffrey Kwan - RBC Capital Markets, Research Division - Analyst : Perfect.