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Intact expects to raise rates for some types of insurance in wake of harsh 2013

TORONTO - Intact Financial Corp. (TSX:IFC) says insurers will raise rates and take other measures this year to compensate for major ice storms and other catastrophic weather-related events of the past year.

Canada's largest property and casualty insurer, which offers Grey Power insurance for mature drivers, Intact home and auto coverage and commercial insurance, said it expects to push through rate increases for some its products — including homeowner insurance.

Chief executive Charles Brindamour told analysts that he was pleased Intact's operating return on equity, or ROE, beat the industry average despite paying out half a billion dollars following catastrophic events — such as the ice storms in Ontario and Quebec in December.

But he said the insurance industry generally, and Intact in particular, will be pushing through various rate, cost and business initiatives to restore their ROE, a measure of profitability.

"Overall, we expect the industry's ROE to trend back towards its long-term average of 10 per cent this year," Brindamour said in a conference call to discuss Intact's fourth-quarter and 2013 results.

He said Intact expects to do better than the industry average "and we intend to continuously improve and insulate our business from natural occurrences, to return to our historical levels of profitability."

Intact's confidence is reflected in the company's decision to announce a dividend increase for the ninth year in a row, with the payouts increasing by nine per cent to 48 cents per share starting in March.

Its customers' rates will be affected to varying degrees depending on a number of factors, such as the type of insurance and location.

For example, Intact's insurance for tenants won't change much but coverage for homeowners and some businesses will be more expensive, while rates for auto insurance in Ontario will fall this year.

Intact executives said the company started pushing through rate increases sooner than competitors but expects them to follow suit, with the pace of change perhaps quickened by the December storms.

Patrick Barbeau, who is Intact's senior vice-president for personal insurance products, said he expects personal property rate increases will be about 10 per cent or higher.

"That's pretty clear that this is flowing through the system," Barbeau said.

"We have seen, just recently, a few of (competitors) start to move with more important actions on underwriting and rates. I think the recent experience will continue to accelerate that."

His counterpart for Intact's commercial insurance lines, Alain Lessard, expected about one-quarter of Intact's commercial policyholders will see increases of about 10 per cent.

As a result, Intact's overall commercial insurance rates increased 3.8 per cent in the fourth quarter, up from a three per cent increase in the third quarter and 1.5 to 1.7 per cent in the year-earlier quarter.

"So we're seen an acceleration of the rate increases throughout the year and we expect to continue at least at that level in 2014," Lessard said.

Brindamour said Intact is also taking measures to improve its profitability without rate increases — such as reducing the amount of earthquake coverage if offers in British Columbia, and offering homeowners discounts if they take precautions.

In Ontario, where the provincial government has mandated lower rates from auto insurers, Intact will start lowering its rates by about five per cent in April.

Brindamour said Intact will be able to maintain its margins despite the lower rates because the Ontario government has brought in some concrete changes to reduce the industry's costs.

"I think the key message and the key point, though, is that further meaningful cost reduction measures are needed and we think the government gets that," Brindamour said.

Intact said Wednesday that its fourth-quarter net operating income was $143 million, down $51 million or 26 per cent from a year earlier.

Its net income fell to $107 million, or 77 cents per share, and its adjusted earnings to 88 cents per share, both down about 40 per cent.

In the fourth quarter of 2012, Intact had $177 million of net income and $1.49 of adjusted income.

— Follow @DavidPaddon on Twitter

The Canadian Press


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