Intact’s take on how COVID-19 could extend the hard market

Pricing relief offered to Canadians who are currently absorbing a financial hit from the pandemic could ultimately have the boomerang effect of prolonging the hard market, Intact’s chief executive suggests.

“It is clear to me that this corrective action [on industry-wide pricing] that started in ‘19 is likely to extend further out,” Intact Financial Corp. CEO Charles Brindamour said during a virtual fireside chat with a TD Securities analyst that was webcast Tuesday.

Mario Mendonca, TD Securities’ managing director of equity research, asked Brindamour whether a drop in rates and maybe investment income have the potential to extend the firm market conditions in the property and casualty industry a little longer than originally contemplated.

“I think this will indeed take it a little further out, because I suspect [there are] certain areas of the market where there will be [a]  temporary pause [in price increases], where relief needs to be given,” said Brindamour. “It is responsible to pause there and make sure we help customers in that environment in particular in the [small to mid-sized enterprise] space.”

States of emergency arising from the COVID-19 pandemic mean non-essential businesses are closed, events have been cancelled several months out, and a wide range of industries are suffering as a result.

“If you go back to late 2019, the industry was firming up both here and in the U.S.,” Brindamour said during the fireside chat.

Related: The pricing relief Intact plans for commercial clients

A major driver, Brindamour said, was that the industry-wide return on equity was about 4.5% before investment gains. “This will need to be corrected over time,” he said. “We hope COVID-19 will be a short-term situation. We are out there for customers, but if you look out 18 to 24 months, when you look at where the industry was in ’19, no doubt in my mind there will be continued rate momentum until the industry is back towards 9% or 10% ROE, its historical level.”

The overall impact of COVID-19 on Intact’s bottom line for 2020 will likely be neutral, Brindamour suggested. The results will vary by quarter and by line of business, with auto, for example, experiencing lower loss frequency.

But overall revenue will be impacted. “On the top line, one could expect an impact ranging from low single digits to low double digits, depending on the duration of lockdowns and the severity of the economic downturn,” he said.

Three factors will determine what impact COVID-19 has on Intact’s revenue: economic scenarios; coverage adjustments as risk profiles change; and temporary pricing relief for small and mid-sized commercial clients.

Intact has about 300 of its 16,000 employees working from offices, so the vast majority are working from home.

“We are not relying on public health to monitor the contagion risk, and we have developed our own monitoring mechanism where we track symptoms as well as actual cases,” said Brindamour. “Overall, I think it is fair to say the team at Intact is healthy.”