April 13, 2020 by Greg Meckbach
Despite the massive disruptions from the COVID-19 pandemic, Intact Financial Corp. is keeping its eye on potential mergers.
“We want to make sure we have capital ready to be deployed for growth – both organic and through mergers and acquisitions,” Intact CEO Charles Brindamour said during a recent virtual fireside chat with Mario Mendonca, managing director of equity research at TD Securities.
Mendonca asked Brindamour whether the pandemic has caused Intact to re-visit its capital deployment strategies or overall enterprise strategy.
“The capital priorities have not changed,” said Brindamour. “We feel like, if the environment improves, we have capital to deploy into attractive opportunities. But if the environment worsens, we have a solid capital cushion to weather the storm. Not a big change in strategy but we remain alert in the current environment to opportunities.”
Intact’s BrokerLink unit has acquired several brokerages in recent months including Major Brothers Limited of Halifax, in a deal announced Feb. 1. Two months earlier, Intact closed its acquisition of The Guarantee Company of North America and managing general agent Frank Cowan Company. Intact closed its acquisition of On Side Restoration this past October.
During the chat with TD Securities, Brindamour suggested the long-term strategy for Intact has not changed due to COVID-19.
“Clearly this is unsettling, and there are lots of things coming at us, and lots of change,” Brindamour said of the pandemic. “With regard to the capital base itself, and whether this leads to change, we manage the capital to make sure it is available on both good days but be resilient in bad days and there is no exception now.”
Brindamour said Intact’s 10-year roadmap is based on four ideas:
Mendonca also asked Brindamour about the impact of the low interest rate environment.
The Bank of Canada overnight rate – at 1.75% throughout 2019 – dropped to 1.25% on March 4, to 0.75% on March 16 and to 0.25% on March 27. COVID-19 was declared a pandemic Mar. 11 by the World Health Organization.
Intact turns over about 15% of its investment portfolio every year, so it would take a couple of years for investment losses to show up on the company’s income statement, Brindamour suggested.
“Our investment portfolio is managed like the rest of the company. It is managed for the long term. So no big change in investment strategy for short-term market volatility,” said Brindamour. “Investment yield is just one factor in determining how we price our product to achieve targeted return on equity. While we don’t expect an impact in the current year, pricing remains ROE-driven and should absorb investment weakness.”