Mr. Charles Brindamour reports

INTACT FINANCIAL CORPORATION REPORTS Q1-2023 RESULTS (UNDER IFRS 17)

Intact Financial Corp. has released its first quarter 2023 results.

(in Canadian dollars except as otherwise noted)

Highlights:

• Operating DPW growth of 4 per cent in Q1 2023 despite the exit of United Kingdom personal lines motor, mainly reflecting rate actions in supportive market conditions;
• Combined ratio of 87.4 per cent (91.9 per cent undiscounted), reflected solid underwriting performance in all geographies;
• Net operating income per share up 4 per cent to $3.06 on premium growth, higher investment yields and increased distribution income;
• EPS (earnings per share) decreased to $2.06, due in part to non-recurring U.K. personal lines motor exit expenses, while ROE (return on equity) was 15.4 per cent;
• BVPS (book value per share) decreased 6 per cent from Q4 2022 to $77.72, largely reflecting the U.K. pension derisking actions;
• Balance sheet remained strong with a total capital margin of $2.8-billion and debt-to-total capital ratio on track to return toward 20 per cent by year-end 2023.

Charles Brindamour, chief executive officer, said:

"The business delivered another strong quarter, with a mid-teens operating ROE and solid results in all geographies. Since closing the RSA acquisition, we have been active in improving performance and derisking the transaction. The UK&I segment is now well along the path to outperformance and we expect it to reach a low-90s combined ratio by the end of 2024, a year ahead of schedule. I remain confident in the outlook for Intact as a whole and our strong balance sheet positions us to capture opportunities as they arise."

12-month industry outlook:

• Over the next 12 months, Intact expects firm to hard insurance market conditions to continue in most lines of business, driven by inflation, natural disasters and a hard reinsurance market.
• In Canada, Intact expects firm market conditions to continue in personal property. Personal auto premiums are expected to grow by mid-to-high single digits in response to inflation and evolving driving patterns.
• In commercial and specialty lines across all geographies, Intact continues to expect hard market conditions in most lines of business.
• In the United Kingdom and Ireland (UK&I), the personal property market has begun to firm but further rate increases are required to deal with inflationary pressures, natural disasters and a hard reinsurance market.

Q1 2023 consolidated performance:

• Operating DPW grew by 4 per cent or 5 per cent excluding strategic exits (such as U.K. personal lines motor and certain delegated relationships), reflecting solid rate momentum across all geographies.
• Underwriting performance was solid with an overall combined ratio of 91.9 per cent (undiscounted) despite higher inflation, primarily due to profitability actions, including rate increases, milder weather and the exit of U.K. personal lines motor.
• Including the impact of discounting, the overall combined ratio of 87.4 per cent was 1.5 points better than last year. This is primarily due to $219-million of underwriting discount build at higher interest rates compared with last year, the impact of which is largely offset this quarter with a $226-million discount unwind reported in operating net investment result under IFRS 17 (international financial reporting standards).
• Operating net investment income of $295-million for the quarter increased 44 per cent year over year, following actions to turn over the portfolio at higher reinvestment yields.
• Distribution income grew 14 per cent to $105-million, driven by accretive acquisitions and continued strong profitability.

Lines of business:

P&C (property and casualty) Canada:

• Personal auto premiums increased 5 per cent from the prior year, improving three points from the preceding quarter as a result of rate actions in firming market conditions. The combined ratio of 97.1 per cent reflects winter seasonality and elevated but moderating inflation. Intact expects to remain at a seasonally adjusted sub-95 combined ratio in the next 12 months.
• Personal property premiums grew by 6 per cent in firm market conditions. The combined ratio was strong at 84.5 per cent, improving 3.8 points from the prior year due to profitability actions and favourable weather in the quarter.
• Commercial lines premium growth of 0.4 per cent reflect continued rate increases and strong retention in most lines, offset by targeted actions to optimize the portfolio and increased competition for large accounts in specialty lines. The combined ratio was a solid 90.8 per cent, 0.9 points higher than last year due to a large fire related catastrophe loss and more modest favourable prior-year development.

P&C UK&I:

• Personal lines premiums declined 11 per cent on a constant currency basis. Excluding the impact of the U.K. personal lines motor market exit, growth would have been flat in the quarter. Intact remained disciplined in firming but still competitive market conditions, prioritizing risk selection, improving pricing sophistication and managing partnerships for value. The combined ratio of 107.3 per cent includes a four-point impact from the December, 2022, freeze event as well as inflationary pressures which Intact is actively addressing with the above measures.
• Commercial lines premiums grew 3 per cent on a constant-currency basis, as continued strong rate increases were tempered three points by strategic exits. The combined ratio improved 2.1 points to a strong 88.2 per cent, with benign catastrophe losses in the quarter.

P&C United States:

• U.S. commercial premiums grew 15 per cent on a constant-currency basis, driven by new products (following the Highland MGA acquisition last year), new business and rate increases. The combined ratio remained solid at 89.1 per cent but 2.3 points higher than last year due to a large fire-related catastrophe loss and unfavourable weather.

Net operating income, EPS and ROE:

• Net operating income attributable to common shareholders of $537-million increased 4 per cent from Q1-2022, on premium growth, higher investment yields and increased distribution income.
• Earnings per share of $2.06 were 25 per cent lower than last year. The increase in operating earnings was more than offset by higher exited lines and restructuring costs as a result of the U.K. personal lines motor exit, a temporary increase in effective tax rate as well as mark-to-market losses on equity investments.
• Operating ROE of 14.1 per cent and ROE of 15.4 per cent for the 12 months to March 31, 2023, reflected strong operating performance.

Balance sheet:

• The company ended the quarter in a strong financial position, with a total capital margin of $2.8-billion and solid regulatory capital ratios in all jurisdictions, as solid earnings offset the impact of U.K. pension derisking activities.
• The adjusted debt to total capital ratio increased to 22.4 per cent as at March 31, 2023, in line with Intact's expectations following the U.K. pension buy-in transaction. The company remains on track to return toward its target of 20 per cent by year-end 2023.
• Intact's BVPS was $77.72 at March 31, 2023, down 6 per cent from Q4 2022. Solid earnings and favourable market movements were offset by the impact of U.K. pension derisking actions.

RSA acquisition:

• RSA contributed approximately 16 per cent accretion to NOIPS (net operating income per share) over the last 12 months.
• In the quarter, Intact further derisked the acquisition by entering into a U.K. pension buy-in agreement with Pension insurance Corporation PLC to transfer substantially all remaining economic and demographic risks associated with the U.K. pension schemes to a strong and specialized insurance counterparty. The company also exited the U.K. personal lines motor market to focus on its leading positions in personal lines home and pet insurance.
• Intact is on track to realize at least $350-million of pretax annual run-rate synergies in 2024. As at March 31, 2023, the company estimates that it delivered $285-million in annualized run-rate synergies.
• Integration activities are progressing well. The conversion of policies outside of Johnson and specialty lines to Intact systems has been completed. In direct distribution, 50 per cent of Johnson's retail policies have converted to belairdirect so far. Conversion of specialty lines and Johnson's affinity policies will begin later this year.

Common share dividend:

• The board of directors approved the quarterly dividend to $1.10 per share on the company's outstanding common shares. The dividends are payable on June 30, 2023, to shareholders of record on June 15, 2023.

Preferred share dividends:

• The board of directors also approved a quarterly dividend of 30.25625 cents per share on the company's Class A Series 1 preferred shares, 21.60625 cents per share on the Class A Series 3 preferred shares, 32.50 cents per share on the Class A Series 5 preferred shares, 33.125 cents per share on the Class A Series 6 preferred shares, 30.625 cents per share on the Class A Series 7 preferred shares, 33.75 cents per share on the Class A Series 9 preferred shares and 32.8125 cents per share on the Class A Series 11 preferred shares. The dividends are payable on June 30, 2023, to shareholders of record on June 15, 2023.

Analysts' estimates

The average estimate of earnings per share and net operating income per share for the quarter among the analysts who follow the company was $2.48 and $2.95, respectively.

Management's discussion and analysis (MD&A) and interim condensed consolidated financial statements

This news release, which was approved by the company's board of directors on the audit committee's recommendation, should be read in conjunction with the Q1 2023 MD&A, as well as the Q1 2023 interim condensed consolidated financial statements, which are available on the company's website and later today on SEDAR.

Conference call details

Intact will host a conference call to review its earnings results tomorrow at 11 a.m. ET. To listen to the call via live audio webcast and to view the company's interim consolidated financial statements, MD&A, presentation slides, supplementary financial information and other information not included in this news release, visit the company's website. The conference call is also available by dialling 416-764-8659 or 1-888-664-6392 (toll-free in North America). Please call 10 minutes before the start of the call. A replay of the call will be available on May 11, 2023, at 2 p.m. ET until midnight on May 18, 2023. To listen to the replay, call 416-764-8677 or 1-888-390-0541 (toll-free in North America), entry code 688543. A transcript of the call will also be made available on Intact's website.

About Intact Financial Corp.

Intact is the largest provider of property and casualty insurance in Canada, a leading provider of global specialty insurance, and, with RSA, a leader in the U.K. and Ireland. The company's business has grown organically and through acquisitions to over $21-billion of total annual premiums.

In Canada, Intact distributes insurance under the Intact Insurance brand through a wide network of brokers, including its wholly owned subsidiary, BrokerLink, and directly to consumers through belairdirect. Intact also provides affinity insurance solutions through the Johnson Affinity Groups.

In the U.S., Intact Insurance Specialty Solutions provides a range of specialty insurance products and services through independent agencies, regional and national brokers, and wholesalers and managing general agencies.

In the U.K., Ireland and Europe, Intact provides personal, commercial and specialty insurance solutions through the RSA brands.

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