Canadian Underwriter

Intact Financial Corporation’s net income down in both 2015 Q4 and full year, but outlook positive

February 10, 2016   by Canadian Underwriter

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Intact Financial Corporation reports that its net income for the 2015 Q4 fell 3% to $198 million compared to 2014 Q4, while full-year net income decreased 10% year-over-year.

Intact's net income down in 2015 Q4, full-year 2015

Figures released Tuesday by the company indicate net income for the fourth quarter of 2015 was $198 million compared to $205 million for the same quarter of 2014. For 2015, net income was $706 million compared to $782 million in 2014.

Net operating income for both 2015 Q4 and full-year 2015, however, were both up over prior-year periods. Intact saw net operating income of $265 million in the final quarter of 2015, up 7% from $247 million in the same quarter of 2014. For the full year, net operating income increased 12% to $860 million in 2015 compared to $767 million in 2014, the statement notes.

Underwriting income was also up for both periods, with the insurer seeing $221 million in underwriting income for 2015 Q4 compared to $216 million in 2014 Q4, and $628 million for 2015 compared to $519 million for 2014.

“Premiums grew as a result of our investments in growth initiatives and favourable market conditions,” Intact notes in the statement.

“Our ongoing organic growth initiatives combined with the acquisition of CDI  (Canadian Direct Insurance) helped increase net earned premiums by 6%, while the combined ratio was fairly stable at 88.6%,” the insurer reports. “For 2015, underwriting income of $628 million increased 21% compared to last year, reflecting higher net earned premiums combined with improved margins.”

By line of business, Intact notes the following:

  • Personal auto reported underwriting income of $28 million in 2015 Q4 compared to $53 million a year ago, while the combined ratio of 96.9% was 3.2 points worse than in 2014 mainly due to headwinds from bodily injury trends in Alberta;
  • Personal property reported underwriting income of $123 million in 2015 Q4 compared to $109 million a year ago, while the combined ratio was strong at 72.7% in an environment with no catastrophe losses, weather was benign and Intact’s profitability initiatives have been effective;
  • Commercial P&C reported improved underwriting income of $83 million in 2015 Q4 compared to $53 million a year ago, while the combined ratio was strong at 80.1%, improving by 7 points; and
  • Commercial auto reported an underwriting loss of $13 million in 2015 Q4 compared to an underwriting profit of $1 million last year, while the combined ratio deteriorated by 8.4 percentage points to 107.9%.

With regard to direct premium written (DPW), this was up 8% to $1,897 million in the fourth quarter of 2015 compared to $1,760 million in 2014 Q4, while for the full year, it was $7,907 million in 2015, again 8% up from $7,349 million in 2014.

The 8% increase in DPW was driven by 6 points of organic growth, Intact notes.

[Click chart below to enlarge]

Consolidated highlights for 2015

“Our strong fourth quarter results are indicative of our continued investment in growth initiatives, including branding, digital leadership, product innovation, customer experience and distribution,” Intact CEO Charles Brindamour says in the statement. “Our acquisition of Canadian Direct Insurance  this year extended our direct-to-consumer business from coast to coast, which positively impacted our business. We ended the year with a solid capital position supporting our ability to pursue growth prospects,” Brindamour continues.

Intact reports its current outlook is that industry premiums will grow at a low single-digit rate. “In personal auto, the company expects mild rate reductions in Ontario auto to be offset by increases in other markets. In personal property, the company expects the current hard market conditions to continue as changing weather patterns have negatively impacted industry results,” the insurer notes.

As for commercial lines, Intact is of the view that “continued low interest rates and elevated loss ratio of the past years, driven in part by weather events, have translated into firmer conditions.”

It is anticipated the industry’s combined ratio will continue to improve in 2016, from the recent peak above 100% in 2013, the Intact statement adds.

For the company specifically, the insurer reports that its financial position remains strong, with an estimated Minimum Capital Test of 203% and $625 million in total excess capital as at December 31, 2015. The operating return on equity for the last 12 months was very healthy at 16.6%, Intact adds.

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