Intact Financial Corporation’s net operating income for both Q2 and half-year 2015 increase; Q2 net income down slightly

Intact Financial Corporation’s net operating income for 2015 Q2 was $210 million – up 2% from the same quarter of 2014 – aided by all business lines contributing to organic growth in direct premium written (DPW) and higher underwriting income.

Net operating income for the first six months of 2015 was also up, increasing 18% to $396 million from $335 million for the first half of 2014, reflecting the increase in underwriting income, Canada’s largest provider of property and casualty insurance reported in a statement Wednesday.

Net income, however, was down and up for the quarter ending June 30, 2015 and for the first half of the year, respectively.

Net income for 2015 Q2 was $199 million, a 7% decrease from $215 million in the same quarter of 2014. Net income declined “as improved net operating income was offset by lower capital market returns and a higher effective tax rate than a year ago,” notes the statement from Intact. But for the first half of 2015, net income was up slightly to $377 million compared to $375 million in 2014.

2015 Q2 results were helped by all business lines contributing to 5% organic growth in DPW – 6% when the recent all-cash acquisition of Canadian Direct Insurance Inc. in May is included. Specifically, DPW (excluding pools) was $2,346 million in the second quarter of 2015, up 8% from $2,173 million in the same quarter of 2014. The improvement was similar for half-year results, namely $3,918 million in 2015 compared to $3,676 million in 2014, an increase of 7%.

“This can be attributed to organic growth across all business lines as well as the inclusion of two months of premiums from the CDI acquisition,” Intact reports.

DPW (excluding pools) was up 6% to $2,344 million in 2015 Q2 compared to 2014 Q2, and up 5% to $3,919 million for the first six months of 2015. Figures for the first half reflect “organic growth initiatives and the acquisition of CDI, which contributed 0.7 points to underlying growth,” the statement notes.

Overall, underwriting income – excludes market yield adjustment, which is the impact on claims liabilities due to movements in discount rates – for the second quarter of 2015 was $158 million (a 23% increase over 2014 Q2).

“The improvement was primarily attributable to firming market conditions in commercial p&c and personal property, rate actions and higher favourable prior year claims development, offset by the lingering impact of a severe winter in Atlantic Canada on our property lines of business and higher claims severity in commercial auto,” the insurer explains.

2015 Q2 underwriting income by line of business is as follows:

• Personal Property was $31 million compared to $26 million in 2014 Q2, with the combined ratio improving slightly by 0.8 percentage points to 92.7%, helped by lower catastrophe losses of $11 million compared to 2014 Q2;

• Personal Auto was $85 million compared to $72 million for the same period a year ago, while the combined ratio improved 1.2 points to 90.3% over 2014, which included an unusually low level of favourable prior year claims development;

• Commercial p&c was $33 million, benefiting from elevated favourable prior year claims development and rate actions under Intact’s action plan, and improving the combined ratio 8.7 points to 91.8%; and

• Commercial auto was $9 million compared to $32 million for 2014 Q2, with the combined ratio deteriorating 14.9 points to 94.4%, related to claims severity and unfavourable prior year claims development.

Underwriting income for the first half of 2015 was $276 million, 54% higher than the $179 million for the same period of 2014. “The increase was primarily attributable to an $89 million increase in favourable prior year claims development and a $75 million decline in catastrophe losses from last year’s level due to generally better weather this year,” the Intact statement notes. [click image below to enlarge]

“The success of our profitability initiatives supported by firmer market conditions and favourable prior year claims development led to improved underwriting results, despite the prolonged winter conditions in Atlantic Canada,” Intact adds.

Other results include the following:

• net operating income per share was $1.56 in 2015 Q2 (up 2% from 2014 Q2), $2.93 (up 19% from 2014) for the first half of the year;

• combined ratio was 91.6% (1.3 percentage points better than 2014) for the second quarter of 2015, 92.5% (2.5% percentage points better than 2014), for the first half of 2015; and

• earnings per share were $1.47 in 2015 Q2 (down 8% from 2014 Q2), $2.79 for the first half of the year (up 1% from 2014); and

• net investment income of $104 million in 2015 Q2 was essentially flat versus a year ago, while it was $209 million for the first half of 2015, again consistent with the first six months of 2014.

Intact reports the Q2 and half-year results for 2015 illustrate a strong financial position. The company has an estimated Minimum Capital Test of 200% and $564 million in excess capital at quarter end, following the acquisition of CDI.

“Our business continues to yield good results,” Charles Brindamour, chief executive officer of Intact Financial Corporation, says in the statement.

“We experienced organic growth across all regions and all lines of business,” Brindamour says, adding that the insurer remains “in a strong financial position to pursue disciplined growth.”

The company’s expectation is that it will outperform the industry’s return on equity (ROE) by at least 500 basis points over the next 12 months.

Intact further expects that industry premiums will grow at a low single-digit rate. “In personal property, the current hard market conditions should continue as the magnitude of catastrophe losses in recent years weighs on industry results.”

With regard to commercial lines, “continued low interest rates and limited underwriting profitability at the industry level have translated into firmer conditions. Overall, the industry’s ROE is expected to trend back toward its long-term average of 10% in 2015,” the statement adds.