How much Intact could lose from customers who can’t pay their bills

Intact Financial Corp. took a $34-million charge in bad debt during the three months ending June 30.

This does not mean the insurer will be unable to collect that entire amount. The expectation is that this is the amount it could have to write off as a result of the economic disruption from the ongoing pandemic, Intact chief financial officer Louis Marcotte suggested during a conference call Wednesday discussing the insurer’s financial results.

“We don’t expect to need more unless something really bad were to happen,” Marcotte said in reply to a question from an investment banking analyst.

The intent of the $34-million charge was to estimate how much Intact could fail to collect due to the economic disruption from COVID-19 and take that hit during the second quarter of 2020.

“Our hope here is we are not going to use as much as we have provided for in future quarters, but at this point, that’s our best view of what the cost could be, overall, based on what we are seeing in terms of our data and our intelligence in our relationships with the customers,” Intact CEO Charles Brindamour said Wednesday.

Since COVID-19 was declared a pandemic this past March, Intact has provided more than $350 million in relief so far. Part of that includes $263 million in premium reductions, Intact said in a securities filing released this past Tuesday. Those relief measures reflect changes in driving habits (such as change in kilometres driven in a year, change of use or safety storage of personal and commercial vehicles); tempering rate increase at renewal; premium adjustments for commercial customers that are now closed or have been severely impacted from a sales receipts; and payroll perspective. It also includes rate reductions on renewals and new business.

Another part of its relief measures include $88 million in payment flexibility.

“When people ask for help, it’s because they need it,” said Brindamour. “Eighty percent of people who have asked for a payment deferral paid the second payment, so only 20% of people who asked for help have delayed more than one payment. Even though we have given a lot of financing relief, the bad debt provision is aimed at those that have deferred payment three, four or five times. But the vast majority of people take this very seriously and have stepped up to stay on track with paying their insurance.”

Intact reported Tuesday it had direct premiums written of $2.33 billion in the latest quarter in its Canadian P&C business, up 8% from $2.155 billion in 2019 Q2.

The combined ratio in Canada was 89% in 2020 Q2, down 8.4 points from 97.4% in 2019 Q2.

In its U.S. commercial business, Intact reported direct written premiums increased 14% from $525 million in 2019 Q2 to $486 million in the most recent quarter. The combined ratio in the U.S. business improved 1.6 points from 94.8% in 2019 Q2 to 93.2% in the three months ending June 30, 2020.