Notes to Myself…Intact Financial Corp…One of my Core Holdings

Notes to Myself…Intact Financial Corp…One of my Core Holdings

Intact Financial Corp…125.95 on the TSX

Company profile

Intact Financial Corporation is a holding company, which provides property and casualty (P&C) insurance. The Company operates through P&C insurance operations segment. It offers a range of car, home and business insurance products, including personal auto, personal property, commercial P&C and commercial auto. It offers various levels of coverage to customers for their liability, personal injury and damage to their vehicles through personal auto. Its coverage is also available for motor homes, recreational vehicles and others. Under personal property, it covers individuals for fire, theft and other damages to both their residences and its contents, as well as personal liability coverage. Under commercial P&C, it offers coverage to a group of small and medium-sized businesses, including commercial landlords, manufacturers, transportation businesses, agriculture businesses and service providers. Under commercial auto, it provides the same type of coverage as personal auto category.

Intact Financial Corporation is the largest provider of property and casualty insurance in Canada by annual premiums as of 2017.^[2] Formerly an ING Group subsidiary, ING Canada, Intact changed its name from ING Canada to Intact Insurance in 2009.

The company has over 13,000 employees and insures more than five million individuals and businesses through its insurance subsidiaries. The company distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly owned subsidiary, BrokerLink, and directly to consumers through belairdirect.

The company came together through a series of major acquisitions starting in 2011 when Intact acquired AXA Insurance's Canadian operations for $2.6 billion. The next year Intact acquired Jevco Insurance Company for $530 million, which allowed the company to expand its service to brokers through the opportunity to offer their clients complementary specialized products such as recreational vehicle insurance and specialty lines products to businesses.

In 2014, Intact acquired Metro General Insurance Corporation which operated largely in Newfoundland and Labrador. In 2015, it acquired Canadian Direct Insurance Incorporated (CDI), extending its direct-to-consumer operations from coast to coast.

Business and Business Segments

Intact's multi-channel distribution operates under the following distinct brands:

·                    Intact Insurance

Intact Insurance is Canada’s largest home, auto and business insurance company.

·                    belairdirect

Established in 1955, belairdirect is a direct-to-consumer P&C insurance company. In 1997, belairdirect became the first car insurance company in North America to offer an online car insurance quote directly to consumers. The company became an Intact Financial Corporation company in 1989.

·                    BrokerLink

Established in 1991, the companies, which include Canada Brokerlink Inc., Canada Brokerlink (Ontario) Inc. and Macdonald Chisholm Trask Insurance, together constitute one of the largest Canadian property and casualty insurance brokerage operations with over 115 offices and more than 1,400 employees across Ontario, Alberta and Atlantic Canada. The BrokerLink companies are subsidiaries of Intact Financial Corporation (TSX: IFC).[16]

BNN Comments

Intact Financial is the largest property and casualty insurer in Canada with a mid-teens market share. Its product mix is roughly two-thirds personal lines (auto and home) and one-third commercial lines. The company has well-established track record of outperforming the industry's profitability. Intact’s return on equity (ROE) is over 500 basis points above the industry average over the last 10 years.

They also have a great track record of growth through a series of acquisitions. Since its IPO in 2009, Intact has increased EPS at a 11 per cent compound annual growth rate, exceeding its long-term goal of 10 per cent. Intact is able to leverage its scale to achieve competitive advantages in pricing and segmentation (more data, more actuaries, and better technology), and claims (through internalizing all functions and supply chain savings), which drives margin improvement. Organic growth is supplemented by earnings-accretive insurance company and insurance broker acquisitions. 

Unlike the Canadian banks, Intact also has plenty of opportunities to continue consolidating its still-fragmented industry in Canada. With 70 per cent of Intact’s business in auto (50 per cent) and home (20 per cent) insurance, Intact also provides better downside risk protection if macro conditions worsen, given its defensive attributes operating in the property and casualty insurance industry.

Teal Linde, Linde Equity Report

With an 18 per cent market share, Intact Financial is the largest property and casualty insurer in Canada.  Intact underwrites auto, home, commercial and specialty insurance policies and is best known for the efficiency of its operations and its consistent underwriting profitability, which enables them to target a return on equity 5 per cent higher than its rivals and which currently stands at 13 per cent.

 

As a consolidator of the still-fragmented insurance market, Intact has grown earnings at a 9 per cent compound rate over the last five years and mostly recently made a foray into the U.S. with the purchase of specialty insurer One Beacon.  Macroeconomic forces like climate change risk, rising property values and rising interest rates all advantage Intact through higher policy premiums on higher insured property values and higher income earned on their insurance float. 

It's a growth story with a lower payout ratio than the larger life insurance companies. It's different from the lifecos, because they are the biggest Canadian property and casualty insurer. They've enjoyed significant capital appreciation. Their costs are lower than their peers and they have a strong balance sheet, allowing them to make acquisitions. They recently bought an American company. An excellent CEO. This will continue to grow.

Brian Madden, Goodreid Investment Council