Intact Financial reports Q1 increased net income of $179 million

Intact Financial Corporation has reported first quarter net operating income of $179 million, up $77 million compared to the first quarter of 2011. On a per share basis, the net operating increased 47 percent to $1.34 compared to the same time period last year.

Intact said the increase was driven by an “exceptional” underwriting performance, with a combined ratio of 92.3%.

Net income was $177 million, compared to $157 million in the first quarter of 2011. Adjusted earnings per share, excluding integration-related costs, was $1.59 per share, up from $1.43 for 2011 Q1.

Direct premiums written increased 49 percent over the same quarter of 2011, reaching $1.4 billion. Intact said this increase reflects both the addition of AXA Canada and organic growth.

“This was a particularly strong quarter as we continued to reap the benefits from our robust auto and home initiatives and our results were helped by the mild winter weather conditions with a significant decrease in claims frequencies across all of our businesses,” said Charles Brindamour, Chief Executive Officer of Intact Financial Corporation.

“As the Ontario government’s reforms prove successful in slowing claims cost inflation, we have taken the opportunity to accelerate our growth initiatives in the Ontario auto marketplace while maintaining our prudence. Furthermore, while our customer retention level following our acquisition will not be fully visible for a number of months, the initial response is positive.”

Intact added that the integration of AXA Canada activities is on track and is expected to be completed by mid-2013.

“The company remains confident that it will progressively reach its $100 million in after-tax synergies by the second half of 2013 which includes a $36 million run rate at the end of the first quarter with a target of $50 million by the end of 2012. The acquisition is expected to be accretive to net operating income per share in 2012 and to provide up to 15% accretion in the mid-term,” a statement said.

Integration expenses amounted to $71 million in 2011 and $23 million in the first quarter. The purchase agreement entails a performance-based contingent consideration of up to $100 million based on the development of AXA Canada’s consolidated reserves. At the end of 2011, the fair value of this contingent consideration was $89 million and in the first quarter of 2012 the remaining $11 million was recorded as a non-operating expense.

“Although we still require time to determine the true customer retention level from the acquired book of business, the retention to date has been strong,” the statement said. ‘To ensure the company continues to offer an outstanding customer experience and top-notch service to brokers, most of AXA Canada’s products and services were integrated into Intact’s offering and nearly all of its front-line employees joined Intact.”

On January 1, 2012, the company completed the sale of AXA Canada’s life insurance business to SSQ Life Insurance Company, Inc. for of $300 million.

Consolidated Highlights

¹ Underwriting income is defined as underwriting income excluding market yield adjustment (MYA). The MYA is the impact on claims liabilities due to movement in discount rates.

² For ROE, Adjusted ROE and Operating ROE in Q1-2012, the average equity calculation has been adjusted on a pro rata basis to account for the $921 million of common shares issued as at September 23, 2011.

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