INTACT FINANCIAL CORP. $81.73 (Toronto symbol IFC; TSINetwork Rating: Speculative) (416-341-1464; www.intactfc.com; Shares outstanding: 131.5 million; Market cap: $10.8 billion; Dividend yield: 2.4%) is Canada’s largest provider of property and casualty insurance, based on premiums. Its brands include Intact Insurance, Canada BrokerLink, belairdirect and Grey Power.
In the three months ended September 30, 2014, Intact’s revenue was virtually unchanged from a year earlier, at $1.91 billion. The company earned $204 million, or $1.55 a share, up sharply from $51 million, or $0.39. However, the year-earlier results include a pre-tax loss of $270 million, mostly related to weather. Similar losses in the 2014 quarter were $125 million.
Thanks to the lower catastrophe losses, Intact reported an improved combined ratio, or claims paid out divided by premiums taken in (the lower, the better) of 93.2% in the latest quarter, down from 102.8%.
Personal auto insurance premiums account for 48% of Intact’s total, and Ontario drivers supply 40% of those premiums.
In September 2010, the Ontario government brought in measures targeting fraud by drivers. They were effective, so in August 2013, the government set a target of 15% lower insurance rates by August 2015.
To date, the industry has cut rates by an average of 6%, thanks in part to the lower fraud costs. Insurers have also focused their rate reductions on safer drivers. Intact now feels it can keep raising profit margins at its Ontario auto business.
The stock trades at 12.8 times Intact’s forecast 2015 earnings of $6.39 a share. It yields 2.4%.
Intact Financial is now a buy.
