Intact's profit declined 46 per cent in 2023

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By Alain Castonguay | Feb. 21, 2024, 10:11 a.m.

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Intact Financial Corporation reported a 46 per cent drop in net income for 2023, down to $1.3 billion. This is a decrease of $1.1 billion compared to net income of $2.4 billion as at Dec. 31, 2022.

In the fourth quarter of 2023, net income reached $531 million, a 50 per cent increase compared to the $353 million posted in the same quarter of 2022.

As is the case for all financial results in 2023, any comparison with 2022 results must be made cautiously, as the 2022 figures have been adjusted in accordance with the new IFRS accounting standards, of which version 17 has been in effect since January 1, 2023.

Charles Brindamour, the CEO of the company, points out that 2023 was a challenging year due to the numerous natural disasters affecting its clientele. Considering the high number of claims related to natural disasters, "the business demonstrated tremendous resilience," he stated.

Combined Ratio

Intact's unadjusted combined ratio for the full year 2023 was 94.2 per cent, which is 2.4 points higher than the adjusted combined ratio achieved in 2022, at 91.8 per cent.

In the fourth quarter of 2023, the unadjusted combined ratio was 90.1 per cent, a decrease of 3.1 points compared to the rate of 93.2 per cent obtained in the same quarter in 2022.

All following combined ratios are not adjusted, and the 2022 ratio has been restated. Here are more details:

In Canada, Intact reported a combined ratio of 94.5 per cent in 2023, up by 4.3 points compared to 2022. In the last quarter of 2023, the combined ratio was 86.7 per cent, a decrease of 0.9 point compared to the fourth quarter of 2022;
In the United States, the combined ratio increased by 0.9 point in 2023 to reach 88.7 per cent, compared to the combined ratio of 87.8 per cent in 2022. In the last quarter of 2023, this combined ratio was 86.4 per cent, up by 1.7 points compared to the rate of 84.7 per cent declared in the same quarter of 2022;
In the UK and internationally, the combined ratio was 96.4 per cent in 2023, a decrease of 2.9 points compared to the rate declared in 2022. In the fourth quarter of 2023, the combined ratio reached 104.6 per cent, a decrease of 11.8 points compared to the ratio of 116.4 per cent posted in the same quarter of 2022.

Operating results

Intact's net operating income decreased by $32 million (2 per cent) year-over-year, totaling $2.06 billion.

For the fourth quarter of 2023, the net operating income reached $752 million, compared to $508 million declared in 2022, an increase of 48 per cent. For this last quarter, the company attributes this result to progress made in underwriting, investments, and distribution.

Net underwriting result

The net underwriting result in 2023 reached $2.1 billion, an increase of $67 million or 3 per cent compared to 2022.

In the fourth quarter of 2023, Intact reported a net underwriting result of $787 million, whereas it was $485 million in the same quarter of 2022. This represents an increase of 62 per cent.

In more detail, Intact reported the following results:

Canada: the net underwriting result for the entire year 2023 decreased by $553 million to reach $773 million, compared to $1.3 billion in 2022. In the fourth quarter of the year, this net result was established at $487 million, compared to $428 million in the same quarter of 2022;
United States: the net underwriting result reached $239 million in 2023, compared to $228 million declared in 2022. In the fourth quarter of 2023, the net result was $80 million, compared to $83 million posted in the last quarter of 2022;
RSA (UK and International): the net underwriting result was $151 million in 2023, compared to $27 million declared for the entire fiscal year 2022. In the fourth quarter of 2023, the net result was a negative $47 million compared to a loss of $170 million for the same period in 2022;
Head office and others: Intact reported a net underwriting result of $968 million in 2023, compared to $483 million declared in 2022. In the fourth quarter of 2023, the net result was $787 million, compared to $144 million posted in the last quarter of 2022.

Premiums

For all its activities, Intact's directly written premiums (DWP) in 2023 increased by 5 per cent. They reached $22.4 billion compared to $21 billion declared in 2022.

In the fourth quarter, the growth of DWP was 4 per cent. The directly written premiums were $5.4 billion in 2023, compared to $5.1 billion a year earlier.

The Canadian market still represents the largest share of this volume. Directly written premiums reached $14.9 billion in 2023, up from $14 billion in 2022. This represents an increase of 6 per cent.

In the fourth quarter of 2023, the DWP in Canada were $3.7 billion, an increase of $272 million or 8 per cent compared to the $3.4 billion posted for the same quarter of 2022.

In more detail, in Canada in 2023 compared to the previous year, Intact reported an 8 per cent increase in directly written premiums in personal auto insurance, 7 per cent in personal property insurance, and 4 per cent in business insurance.

In the UK and International sector, the DWP reached $4.7 billion in 2023, practically the same amount as in 2022. However, premium revenues decreased by 3 per cent in constant currency. For the fourth quarter, the decrease in premiums in constant currency was 9 per cent, amounting to $1.1 billion.

On a pro forma ongoing basis, which reflects the impact of the acquisition of DLG's commercial insurance brokerage business for the year and excludes UK personal insurance premiums, the premium volume reached $4.4 billion in this market. The transaction with DLG was closed on October 26, 2023.

In the United States, the DWP increased by 14 per cent in 2023 to reach $2.8 billion, up from $2.3 billion in 2022. In the fourth quarter of 2023, the premiums saw a 9 per cent increase to total $616 million, compared to $565 million posted in the same quarter of 2022.

Distribution Revenues

In its management report, Intact reports that distribution income increased by 16 per cent in the fourth quarter, reaching $109 million, mainly due to recent acquisitions of BrokerLink, combined with strong internal growth.

For the entire fiscal year, distribution income increased by 6 per cent to reach $467 million. In 2024, Intact anticipates growth of at least 10 per cent.

BrokerLink's directly written premium volume reached $3.5 billion, Charles Brindamour notes, adding that the target of $5 billion by 2025 is being maintained. In 2023, the firm completed 20 acquisitions with total premiums of $375 million.

Investments

Intact reported net investment income of $1.3 billion in 2023, an increase of $419 million or 45 per cent compared to $927 million declared in 2022.

These investment-related surpluses amounted to $376 million for the fourth quarter of 2023, a 35 per cent increase compared to the $279 million declared in the same quarter of 2022.

The company explains this progression due to the benefits drawn from the increase in yields and a greater rotation of its portfolio.

Outlook for 2024

In its outlook for the entire industry in Canada in 2024, the company anticipates a 7 per cent to 9 per cent increase in personal auto insurance premiums, 11 per cent to 13 per cent in personal property insurance, and 6 per cent to 9 per cent in business insurance.

"As we look ahead to 2024, we are well positioned for outperformance, given strong top line momentum, continued underwriting discipline, and a refocused UK&I segment," stated Mr. Brindamour. The company announced an increase in dividends to common shareholders for the 19th consecutive year.

Discussion with Analysts

During the discussion with financial analysts held on Feb. 14, Brindamour particularly emphasized the 4 per cent growth in directly written premiums in constant currency in the fourth quarter. The internal growth was 8 per cent year-over-year.

He also mentioned the discontinuation of personal insurance in the UK. This move slightly reduced the return on capital due to costs associated with closing these activities.

Patrick Barbeau, Executive Vice President and Chief Operations Officer, highlights that in terms of automotive repairs, the parts inventory has returned to normal with all suppliers. This helps to slightly slow down the inflation of claim costs, even though labor costs in mechanical workshops continue to rise by more than 5 per cent per year.

Furthermore, on Feb. 15, Intact received approval from the Toronto Stock Exchange to proceed with a public share buyback offer. The insurer intends to repurchase approximately 3 per cent of the outstanding common shares.