What Intact’s next acquisition target might look like

Don’t be surprised if you see Intact Financial Corp. announce the acquisition of a United States-based commercial specialty property and casualty insurer in the future.

During a fireside chat Wednesday with John Aiken, Toronto-based financial service analyst with Barclays, Intact CEO Charles Brindamour was asked about about industry consolidation, acquisitions and how Intact is deploying capital both in distribution (brokerages) and manufacturing (insurance carriers).

Three years ago, Toronto-based Intact bought OneBeacon Insurance Group Ltd., based near Minneapolis, for about US$2.3 billion. “At the manufacturing level, bolstering our position in specialty lines in the U.S., we are given a fair bit of comfort now, three years in [from acquiring OneBeacon], that we can run this in the low 90s,” meaning that through OneBeacon, Intact could expect to have a combined ratio close to 90% in US commercial specialty.

“That’s what we need to see before we deploy capital,” Brindamour said. “I think we are getting very close to that point, and you can see us deploy capital there as well.”

This is a big change from the summer of 2019. During an earnings call last August discussing Intact’s 2019 Q2 financial results, Brindamour told analysts that before buying another large U.S. carrier, he would want the combined ratio in the U.S. to be in the low 90s. “We are making progress, but we are not there yet,” Brindamour said at the time of the U.S. commercial specialty results of 2019 Q2.

Intact reported on May 5 a combined ratio of 100.1% in its U.S. specialty business. But that includes 8.5 points ($33 million) of direct COVID-19 related losses. Excluding that impact, the combined ratio “reflected a solid performance in the U.S.,” Intact said in its management discussion and analysis of its 2020 Q1 financial results. “While the impact of the COVID-19 crisis may add some near-term volatility, the fundamentals of the U.S. commercial business are trending towards a sustainable low-90s combined ratio performance.”

Intact set aside $83 million in reserves in 2020 Q2 – $50 million in Canada and $33 million in the U.S. – in case of COVID-19 related losses. That could include event cancellation, tuition reimbursement, liability, and some business interruption, although Brindamour says about 99.5% of commercial policies are not covered for BI in a pandemic. The other 0.5% have special customized policy wording.

OneBeacon’s coverages include general liability, ocean and inland marine, commercial multiple peril, surety and entertainment lines, among others. Before Intact bought OneBeacon, it was publicly traded with the majority of shares held by Bermuda-based White Mountains.

Feature image via iStock.com/erdikocak