Intact Financial Corporation (IFC) is the largest provider of property and casualty insurance in Canada and a leading provider of specialty insurance in North America.
The company’s segments are Canada, U.S., and corporate and others. About 85% of its revenues are derived from Canada and the remaining 15% is from the US. In terms of business segments, personal auto accounts for nearly 37% of DPW (direct premium written in 2019), followed by personal property (21%), commercial lines Canada (27%), and commercial lines USA (15%).
The company operates through Intact insurance, BrokerLink, OneBeacon, and Belairdirect banners. Its large coast-to-coast presence and cross-border services help serve customers better. The company offers a comprehensive range of insurance products and caters to the financial needs of a wide range of clients ranging from the personal, business, public sector to institutional clients.
Intact Financial has captured a 17% share in the P&C insurance market in Canada. It serves more than five million personal, business, and public sector clients in Canada and the U.S. About one in every five Canadians is a customer of Intact Financial products and services.Investment Data
- Opportunity Score: 61
- Ticker: TSE:IFC
- Sector: Financial Services
- Industry: Insurance - Property & Casualty
- Market Cap: 20.57B
- P/E: 22.88
- Dividend Yield: 2.31%
- Payout Ratio (Earnings): 52.87%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 7/10
- Dividend Income Fit: 6/10
Revenue Growth & Market Exposure
The company earns close to $11 billion in annual premiums. A multi-channel distribution strategy has helped the company reach different markets and address different customer preferences. Intact Financial operates through a large network of offices and brokers such as BrokerLink and OneBeacon Insurance in Canada and the US, respectively. Belairdirect does not involve brokers and helps Intact to reach its clients directly. Belairdirect is one of the most recognized direct-to-consumer insurance brands in the market.
Intact Financial has a century-old history of operations which has helped the company develop a strong understanding of its clients’ needs. A disciplined approach, large scale, and in-house claims expertise support in retaining and attracting clients. Intact is a customer-centric business; its wide range of products and customized solutions are the keys to its success. Investments in digital transformation will make the customer experience even simpler, faster, and convenient. Intact has more than 1 million customers connecting through digital platforms, increasing by 33% since the end of 2019. The COVID-19 crisis has further reinforced the need to accelerate initiatives towards a seamless digital experience.
The company has been growing through acquisitions and has a successful track record of more than 16 accretive acquisitions since 1988. The acquisition of OneBeacon in 2017 has strengthened Intact Financial as a leading specialty insurer in North America with a strong focus on small and midsize businesses. The acquisitions of Guarantee, Frank Cowan, and On Side acquisitions collectively added 1 cent to NOIPS YTD. The integrations are on track to deliver mild NOIPS accretion in 2020 and mid-single-digit NOIPS accretion by 2021. Strategic acquisitions will consolidate Intact’s footprint in the fragmented specialty lines market.
For the second quarter, Direct Premium written increased by 7% YoY, to Rs. 3,382 million and the combined ratio declined to ~89% from 97% in the year-ago period, including $124 million of weather-related catastrophe losses. No material COVID-19 related losses were recorded in the quarter. Q2 was marked by economic slowdown and premium relief measures. Intact expects hard market conditions to continue in personal property and U.S. commercial. The commercial lines are also expected to witness high demand in the coming months. The personal auto might experience some slack as driving activity returns to a normal level.
Intact Financial is a Canadian Dividend Aristocrat growing its dividend by 9% CAGR over the last decade. The last dividend hike of over 9%, marked the 15th consecutive annual increase since the IPO. The company sports a modest dividend yield of 2.3%. The company paid a quarterly dividend of $0.83 per share to its shareholders. Intact Financial’s sound record of capital generation and disciplined deployment has supported shareholder returns while meeting its growth objectives. Though Intact has a payout ratio of 62%, the company has been growing its earnings at least 8% per year over time.
Intact expects that the COVID-19 crisis will impact DPW growth in the second half of 2020 in the mid-single to low-double-digit range. The company is aiming to double the size of North American specialty operations over the next five years to $6 billion in DPW. With decades of experience in the insurance business, Intact has developed strong advantages that are difficult to replicate. It has helped the company retain its leading position as well as make the most of the organic growth opportunities at hand. Intact is also well-positioned to unlock value through accretive acquisitions. The winning combination of organic growth and strategic acquisitions will drive good performance in the future. Intact is targeting market share growth, through customer-driven transformation, expanding distribution, and massive digital & AI deployments.
Intact witnessed lower claims frequency from reduced driving and better weather conditions. A strong balance sheet, resilient operating income, and reasonable payout ratio support dividends. Intact is on track to achieve its underwriting targets for 2020.
The P&C insurance industry is highly competitive. As Canada’s largest P&C insurer, Intact has a 17% market share in a huge and fragmented industry. The company is nearly 80% bigger than the second largest player and ~17 times larger than the average P&C insurer. Intact Financial competes with a large number of domestic and foreign insurers, as well as several Canadian banks that sell insurance products. Intact Financial is well-positioned to gain market share in the fragmented Canadian market. It is a leading provider of specialty insurance in North America with over $11 billion in annual DPW.
Intact Financial is in a unique position to grow by leveraging its deep distribution partnerships, expanding its geographic footprint, and investing in new specialty markets. Though the company’s business was affected as a result of the crisis it was back in its game supported by the relief rally. Its leading market share position enables it to attract new customers, as well as expand geographies. Intact Financial kept its dividend intact even during the Great Recession. The company has a solid dividend growth streak of 15 years and a safe payout ratio and should continue to outperform in the longer term.