Paul Holden, cover the financials here at CIBC. My pleasure to host, Charles Brindamour, CEO of Intact. Charles, thanks for joining us. Pleasure to see you again.
My pleasure. My pleasure, Paul. Thanks for inviting me.
From my perspective, Intact's coming off a very strong quarter, operating EPS up 19% year-over-year, organic premium growth 7% year-over-year, book value per share up 9% year-over-year, and an LTM operating ROE right around 15%. That's, I'll remind you, well, not you, Charles, but everyone else on the line, despite elevated cat losses over the last year.
Yeah.
Um-
2x what we expected, in fact.
When I look at the financial performance and results segment by segment, growth, investment income, everything just really seems to be humming, from my perspective. Charles, I think you probably must be having the best sleeps of your life.
You know, this is not the Intact spirit, Paul. We're always, you know, on the lookout, and I think that spirit translates into good performance and good outperformance over time. You know, light sleep is the way to go in our business.
Got you. Well, that's actually a good segue for the first topic I wanna talk about, 'cause I get a lot of questions on it still. Like, I've asked you questions multiple times over the years on this topic. I'm sure you get it from investors all the time. I'm gonna start with climate change, 'cause it does feel like it's a topic that keeps some people up at night. I don't think it's the one that necessarily keeps you up at night, but for some investors I talk to, I think it certainly does. Look, I mean, you look at the data, cat losses for the industry are climbing roughly 10% a year. It's real, like, the impact to insurance companies, to Intact is real. No question about that.
I guess, like, the key question people are trying to get at is, what does it really mean for the financial profile of Intact? Is Intact a more risky investment because of climate change? Is there some kind of long-term impact on ROE? Again, you know, love to hear your perspective, on that, and how you're viewing climate change and cat risk, sort of big picture.
I think big picture is the right way to call this. I think that, you know, climate change and the increased incidence of natural disasters is definitely a deep trend that will be with us for a long time, and our strategy at Intact is to combine our strengths with where the world is going. I think climate is, you know, something that the whole society should be focused on. For us, you know, we're in the business of de-risking our customers, and this is not new for us. Paul, as you know, natural disasters have increased by a factor of 4 over the past 30 years.
It became a decade ago, a pressure point for us as a firm, and we've transformed our operation when it comes to property, both in terms of data we collect, how we price, the level of prices, the structure of the product, the structure of the claims operation, and then our supply chain, in addition to prevention. Our perspective is this is a growth opportunity. I think if you look at the last decade, home insurance, which is the line of business that is most sensitive to natural disasters, for CAD 1.00 of premium in home insurance, just to put things in perspective, you expect about CAD 0.10 of natural disasters a year.
Despite the headwind of natural disasters, this is a business we've ran at 89% combined ratio in the last decade, including last year, which was a 2x sort of year. You know, when you look at IFC as a whole, it's not just home insurance, right? I mean, we have now doubled down on commercial lines. You have personal automobile, which is not overly impacted by natural disasters, and then home. For IFC as a whole, natural disasters is only 4 points of premium. That being said, when you go through a year like 2023, and the numbers you quoted exactly, have a 2x amount of natural disasters, at least the ROE gives you a sense that this business is very resilient.
What we've done is we've asked ourselves coming out of last summer: What if the world warms up between 3 to 5 degrees, as opposed to the 2-ish degrees that the world is shooting for? Our perspective is that the cost of natural disasters over 15 years, that's the horizon over which we've worked, will increase by about 50%. Our perspective is you can easily price for that, let alone all the elements we have in the toolbox. The only thing I would point out is that our models show that the unlikely events, so if you go further out the probability curve, they will double. As such, the cost of capital, my expectation, and that's how we see it, should go up a bit to reflect for this additional volatility.
I do expect that this will lift, continue to lift prices. We're in a hard market environment than home. I think this will continue, and it sustains, in my mind, that sort of environment in commercial lines, though there are other factors. Overall, Paul, you know, because we have the power to price, because we have, you know, a fair bit of control over the supply chain, given our track record, we see this as a profitable growth opportunity. That being said, for every dollar insured, there's 3 bucks uninsured, and I think it is a problem that all of society should tackle. That's why we've invested so much in helping cities, provinces, and the Fed deal with that problem.
Got it. Charles, I wanna ask a follow-up question on You raised an interesting point on sort of the risks that are at the far end of the tail. Are those the risks that you would say are generally covered by reinsurance? Like, your approach to reinsurance, is that what it's really designed to do, is kind of cut off that tail risk where it might be 2x?
First of all, I would say that reinsurance is there for more than 2x, actually, because 2x was last year. you know, if you can run your business with ROEs close to mid-teen when you have 2x, should you give away a portion of your profits to reduce volatility? We're not sort of thinking along those lines at this stage, but when it gets more intense than that, definitely that's why reinsurance is there. I mean, we view reinsurance mostly, as a way to make sure there's no capital issues, you know. The main peril where reinsurance is relevant is earthquake, actually.
There are very few of the perils that are climate change driven that would get big enough to, you know, to, largely speaking, to call for a meaningful amount of reinsurance protection. Reinsurance would kick in, as it did for Fort McMurray, for instance, a number of years back, to chop that tail. I would say that we don't wanna use reinsurance just for volatilities purposes.
Okay. Well, Fort Mac actually kind of leads me to the next question, which is regarding wildfires, right? Last year was a particularly bad year for wildfires. Already starting to see news headline wildfires, you know, spreading already in Canada this year, which is a little bit earlier, I think, than normal.
Yeah.
On that note, I think what was really interesting to see is Intact launching that agreement with Wildfire Defense Systems. You talked a little bit about it on your call, but maybe some of the people on the line missed it. I think it's worth repeating sort of how that agreement came about, how it works, and what kind of protection it provides for Intact and for Intact's customers, most importantly.
Yeah. I think you're right, Paul. It's last year was a year where the amount of hectare burned was almost 8 times the historical average and was 2x the burn area on record historically. You enter 2024, there were 50 active fire on the ground actually. It's not surprising that there is activity already in the on the West Coast. We've done a fair bit of work in terms of pricing for that. We've invested heavily in prevention. We're actually working with the most at-risk municipalities with either the mayor of the or the fire chief, to share with them how best to protect their cities in relationship with wildfire.
For customers per se, we have a number of prevention measures, but the agreement that we've used, or that we've announced and put in place with Wildfire Defense Systems, is one whereby if an active fire is within a certain number of kilometers from where you live, we will go and protect to the extent we can, your property by doing prevention work. Dealing with flammable materials and shrubs and things like that, to reduce the odds of being exposed to fire and reduce the odds of having the damage in the first place, which is in the customer's self-interest. Obviously for us, we think that it can have an impact, not only on frequency of claims, but also on the severity of the damage itself.
As we often do in building our value proposition, we don't think of what we do as a financial transaction. We think of what we do as, you know, helping our customers de-risk, get back on track, but ideally avoid the claim in the first place. I think this is very consistent with how we think of our business.
Last question from me on this topic. The federal budget included an initiative to start a National Flood Protection Program here in Canada, because we don't have an existing one, so probably something that is good for the population. As you mentioned, a lot of risk is uninsured. Are there any kind of implications for Intact and the insurance industry more broadly as a result of that National Flood Protection Program?
I think that, let's just frame the issue we're trying to deal with here. There's about 15% of the Canadian population that lives in high-risk flood zone. Why that is the case? You know, bad, land use and land use planning. I think we ought not to forget that in a world where natural disasters will expand, we need to be very careful about where we build. I think that's something we haven't been careful before. As an insurer, obviously, we provide flood coverage for the remaining 85%-ish of the Canadian population. In our case, it's 83% of our customer base have access to different levels of flood coverage, depending on the risk. Every time there's a flood, and the frequency of flood has gone up, guess what?
The federal government, with the Disaster Financial Assistance, ends up picking up a big portion of the tab for people who have built in floodplains. The idea here is to be preventative in nature, put in place a flood program where people who live in flood zones actually pay for that coverage. The industry will administer this, but this will be for the account of the government. That's kind of the design at this stage. I think it does make sense because it allows the government to collect a premium to a certain extent, for the risk that they're bearing. Anyways, I don't see a major issue for the industry or a major impact other than we will be fronting the government's effort.
If that program comes to life, we'll be providing the service to a large extent, and I think that is the main implication, because we cover those customers, just not for flood, but their houses are insured for fire, wind and other damages. The additional flood coverage is meant to be provided by the government. I think the question, Paul, you know, if we get philosophical, I'm in England now, it's 5 hours later, you ask yourself bigger questions. I don't know if it's good public policy to encourage by making coverage available, people to build in floodplains.
Mm-hmm.
That's a debate maybe for, a cocktail later tonight.
Sounds good. Okay, well, let's switch topics again. I think climate change is obviously an important one, but let's talk about personal auto. You know, seeing good top line growth, better top line growth than I was expecting. Very good top line growth in personal auto today. Seeing good margins as well. My question is, like, where do you stand in terms of how you're viewing rate adequacy, ex Alberta, and we can talk about Alberta separately in a second, but ex Alberta, sort of rate adequacy, where competition sits and thereby your appetite to grow policies in force?
Bottom line is, this environment plays to our strength. I think you've seen us shed market share when the industry was not pricing for inflation, Paul, and I think we're in the zone now where we're very comfortable with our rates, coast to coast, all provinces in, and benefiting from an environment where the industry's catching up. It happens at the same time as Canadians are shopping way more than they did a couple of years back. What this means in practice is growth is good, retention is good, and we're comfortable with our prices. We're riding at about 10% rate increases at the moment. We're earning upper single-digit rate increases at the moment, and there's very good growth momentum that is slightly above inflation. We've quoted sort of mid-single-digit inflation in this environment.
Environment where we're happy to grow, and clearly that's what we're showing with low teens, growth in the first part of the year.
Mm-hmm. I'd say we'll come back to Alberta. I only wanna ask maybe one question on it, 'cause there was a lot of questions on Alberta on your, on your conference call.
Mm-hmm.
last week. Both you and one of your competitors, a publicly traded competitor, referred to capacity coming out of that market, right? Which at the end of the day, is not good for consumers. It's not, doesn't help balance the market. I don't know, how do you see this likely getting resolved over time?
Well, I think that there's no doubt that capacity is leaving that market. Why? Because I think inflation was higher than the cap that the Alberta government has put in place. Those who were not quick to price for that inflation are kind of in a tough spot at the moment. We've been pricing for inflation, whether it's bodily injury inflation, technology-driven inflation, and then the inflation that followed Covid because of supply chain impacts and so on. We've been pricing proactively that stuff since 2016. Those who have not, they'll find themselves in a tough environment and find all sorts of ways not to write business in Alberta at the moment. Yes, it is not good for consumers because supply of the product is what you aim for, and our industry is super competitive.
There are very few industries in Canada where for every product, in every province, you have about 20 active players. Those are getting tired in the Alberta marketplace. How I think this solves itself, it solves itself when Alberta turns its attention to the real problem in the Alberta marketplace and the problem they can have an influence on, and it is legal representation of claims. The automobile insurance regime next door in British Columbia, public system, got into real trouble a number of years back, clamped down on legal activity, and it drove a bit of pressure. I don't know if you've seen the lights as close here. There you go. I'm not supposed to be in the office, I guess.
There's been a bit of pressure from lawyers coming in the Alberta market and creating inflation and bodily injury, as we have talked about. I think so long as Alberta does not act on that, I think there'll be some inflation in that province, and I think they need to go to the root cause of the issue. I think over time, the cap will be lifted because the inflation that is reflected in the cap, which is the CPI, doesn't have much to do with the automobile insurance inflation. Overall, I'm very pleased we've been proactive in that province, and we are growing in that province, and I'm comfortable with our position at this stage, but we're really happy if we can help the government deal with the issue.
I said I'd only ask one question on that topic, and I shouldn't have said that, because I'm gonna ask another. Something you said kind of tweaked a thought in my mind, which is, you know, another question I always hear on this is like, what is the risk to contagion, right? You've heard the question too. WAMS of Ontario does the same thing, and sort of one of the comments you made that wanted me to go here was on reduced capacity, reduced competition, and everything I've seen and read from FSRA, the regulator in Ontario, is all about increasing competition, right? They're driving to increase competition. I don't know, is that a fair assessment?
FSRA is still very much on the path of they're unlikely to put through rate caps because they wanna see more capacity in the market, not less.
Yeah, I think so. I think that, they're a sophisticated regulator. They're focused on the sources of inflation. You've seen good reforms in the Ontario market. You know, they've been very proactive, actually, at dealing with the inflation that they can control, which is an accident benefit and bodily injury. The recent budget talked about some reforms. The last thing they want is a capacity issue in the market, because this is when it becomes a real issue for consumers, and that's when it becomes really political. I think that, they get that. They've been through that 20-plus years ago. They don't wanna go there, and they're very proactive and sophisticated, as far as I'm concerned. Well, I don't wanna say that there's no risk of contagion.
I've always been very clear about that, but I'm not overly concerned about that, though.
Got it. Okay, good. A little bit more of a, I don't know, modeling type question, I guess. Premium growth of 11% to start the year, again, very good and better than I was expecting. Does that slow, or can a double-digit pace of growth be sustained through the rest of the year?
I do think that the level of growth, I mean, look, there's close to 10 points of rates approved and baked in when you throw in the increased value in the car pool. Between rates and the increased value of the car pool, you've got about 10 points, I'd be very surprised if we ended up in a negative unit territory before the end of the year. I'm quite positive about the growth in that line of business.
Good. Okay. Auto thefts have been very topical because it has had a real bottom line impact on claims losses. Where are we kind of at in that file, just in terms of progressive progress on reducing claims because of all the initiatives from the insurers, from government, from the police, et cetera? It seems like a lot of effort's been thrown at trying to solve this issue.
Yeah. Theft, real issue, not a new one, but one that's tripled since 2021. It started in Quebec, migrated to Ontario, now we're seeing it in some other provinces, including the Maritimes. We, I think, were quick to price for it. It's been a pressure point, but it's not a pressure point anymore for us. Keep in mind, Paul, that 1% of vehicles drive 40% of the theft. Again, we like to think in highly segmented fashion, and that's a stat that is important. We really zoomed in on that 1%, both from a pricing, risk selection, underwriting. We've asked our insured to tag their vehicles with devices where we can track, actually, if a car has been stolen, and the recovery rate is very high.
I would say not much of a headwind, for us prospectively, very good momentum at the industry and government level and, you know, need to remain focused on it. I think we've acted, you know, decisively on this and, starting to pay off.
I've heard that 1% accounts for 40% stat before, so that's an interesting one. Afterwards, you're gonna tell me which car not to buy.
Yes, I will do it afterwards. I don't wanna reveal competitive advantages at this stage.
Okay. Just kind of a, like, sort of a different angle on not just personal auto growth, but maybe personal property growth as well, right? Like, Canada's seen a big boost to population due to immigration in recent years. Is that an opportunity to grow policies in force across personal lines? Does Intact have any specific strategies in place to target new immigrants to Canada?
Immigration is a big source of growth for the country. It was a massive source of growth in 2022. It's been much talked about. It's a core driver of GDP in the country, and as a result, a growth opportunity for us. You know, when you survey newcomers to Canada, it's very clear that when it comes to insurance, they need help, they need advice, and this is, in my view, a very good opportunity for brokers, as well as for agents and therefore for BrokerLink. We have grown our brands, I think, both Intact Insurance and belairdirect as well. I think tapping into this need for advice and service, in my mind, is a big opportunity, and overall, I think it contributes to our growth. We don't have a specifically newcomer-focused strategy, Paul.
I think we're really focused on going beyond expectations for customers, whether it is through the claims experience or the digital experience. If you look at automobile insurance per se, we have 1 trillion price point in every province where we operate, so you can conclude that we have an offer for everyone.
That's more price points than we have people, so yes. Okay.
Plenty of room for immigration, as far as our algorithms are concerned.
Absolutely. Good. Hey, we still have half an hour left, but I want to remind people, if you do want to ask a question, please email me. Paul.holden@cibc.com. I have my Outlook up here, so email me, and we'll make sure we get your question in. A question, you know, again, a macro-type question, but from a different perspective, Canadian consumers are clearly feeling the pinch of higher cost of living plus higher borrowing costs. What kind of impact might that have on demand for Intact's personal line products?
Paul, when we survey customers, it's very clear that, you know, they want a simple transaction, they wanna be understood, and they want value for money. That last point is coming out stronger in the most recent survey. It's very clear. When you look at our performance and our top line and what we see from customers, I would say, first of all, retention is very strong, but more importantly, Canadians are shopping way more than they used to. I think in the order of 25%, 30% more. That's one thing we see. Because our prices, relative competitive position have improved in the last year, this is a net benefit for us because it's a source. This shopping is actually a source of growth.
I think, you know, the other element here, is the fact that every call is a longer call now. Like, there's way more activity in our operations because people are trying to find ways to save, in their, you know, on their, on their insurance product. More traffic and more time with our customers is how this translates into our operation, but overall, a source of growth. It's important to keep in mind that when it comes to value for money, Intact has a broad range of offering.
In fact, if you take belairdirect, for instance, which is focused on insurance simplified, this business is growing really quickly as well at the moment, because it is a great, you know, value for money is the name of the game in the case of belairdirect. Our digital channels are on fire. I'd say the growth in the digital channel is up almost 75-ish%, I think, in the last few months. As such, within our product range, there's lots of opportunities to find, I think, an offer that suits customers.
Okay, good. I'm gonna ask you, I'm starting to see some questions come in, but I'm gonna ask you one more before I get to the audience question. I think in this whole, this, you know, you talked about all the pricing points you have. You also talked about, you know, more coming through the digital channel, people doing more price shopping. Just kind of wondering, what role is AI playing in this? I know you've talked about investments in AI in the past, so this would seem like an environment where you can exploit AI capabilities even more than sort of the normal environment. Am I correct in that? Maybe you just give a sort of a sense of what you've implemented to date and what kind of impact AI is having on business performance.
For us, it goes straight to strategy, Paul, because if you look at our track record of ROE outperformance over 10 years, this is not random. It comes from a very deliberate strategy with 3 pillars to outperform: pricing and risk selection, and think data and AI, claims and supply chain, capital and investment management. A third of the ROE advantage comes from being smart at using the data we have and then using techniques to model the data we have to better price for risk than our peers. That is about a third of our ROE advantage. Close to a decade ago, we said we really need to double down on that advantage in a world where data was exploding and AI started to become potent. This is not a 2023 phenomenon.
We've built a massive muscle, I would say, in AI over the last decade. It's north of 500 people. That's all they do, between Canada, and we have a development shop in Hong Kong as well. We have today 370 models in the field, and that's generating about CAD 120 million of recurrent earnings. How we used it? The bulk of our usage of AI, and call this machine learning primarily, has been in predictive analytics, namely pricing. We have what we call revolutionized all our pricing algorithms in personal lines, and we're transforming commercial lines at the moment. We've invested a fair bit in natural language processing and speech analytics.
Two different things, but a different bucket for us, and that was aimed at customer experience primarily, and the efficiency of customer interactions. It's been historically 25%, 30% of our efforts. It's becoming an increasing portion of our efforts. Lastly, with the big advances in large language model and generative AI, we have a number of initiatives on this front, but it is primarily targeted to customer experience, and it is primarily targeted at keeping customers in the digital channel, increasing trust in the digital channel and our ability to grow in the digital channel. I would say, Paul, this is a muscle that is well developed, at Intact, and one we've invested in massively over the last decade, and one we will invest in massively in the coming decade. We don't depend on anybody else for that.
We've built that in-house, 'cause we think it's an important competitive advantage.
Okay, great. Turning to some audience questions. The first one is with respect to M&A opportunity. The question is, Intact was proactively talking about being ready to deploy capital into the next acquisition opportunity with RSA being fully digested, and so that message was delivered a couple quarters ago. The specific individual said they didn't hear that same message be repeated on the last conference call, and just wondering if anything has changed.
Nothing has changed. I think that the RSA integration in Canada is largely done, and that was 75% of the synergies. That's why you've seen, you know, upper teens Net Operating Income Per Share accretion. We think this transaction, internal rate of return starts with a 2, and it's double-digit, to be clear. It's north of 20% IRR. Like, a big portion of the anticipated value has been created, and we've been focused on the past 24 months in parallel with the transformation of the UK business. We're in really good shape in the UK. I mean, this was a low single-digit ROE business here in the UK, and we're well into the teens now after the transformation we've done.
We're just starting to expand that business following the acquisition of NIG. When it comes to M&A, number one area of interest is Canada. We think we've got plenty of room to grow in the Canadian context, as an insurer and as a distributor. This is where the first dollar goes. Secondly, we'd like to grow our presence in the US, both from a manufacturing point of view or by buying NGAs, and we've done some of that already. In the UK, at the moment, because we've announced the acquisition of NIG or Direct Line's commercial business or brokered commercial business last year, the next 12 to 18 months will be really focused on integrating that business. In terms of M&A, North America, I would say, you know, is where the focus is, and we're absolutely ready to do something.
At the end of the day, we have, I think, very well-established economic standards. It needs to be strategic in nature, and we don't do deals just to do deals or to create, you know, punctual accretion.
Maybe I just follow that up with, ask you to fill it in a little bit on the, like, the balance sheet, capacity today. You've paid down a lot of the debt that came with the RSA.
Yeah.
Maybe put some numbers behind sort of balance sheet capacity and excess capital.
The capital margin at the end of Q1 was CAD 2.7 billion, Paul, the debt to total cap quickly back to 20%, you know, despite the RSA transaction or the investments we've made in the U.K. I'll remind you, we've disposed of the pension liability last year, we've made the acquisition of NIG, all this is behind us, the debt total cap is 20%. There's plenty of firepower on the balance sheet, as far as I'm concerned, to transact in this environment. We have to keep in mind that the markets are firm or hard pretty much everywhere we operate. Organic growth is getting really interesting. I'm very comfortable with the margins pretty much everywhere we operate, the number 1 opportunity is organic growth.
I think distribution opportunities are significant, and if we find the right opportunity from an M&A point of view, we'll flex that muscle too.
Okay. Okay. Question from a different individual, and they're just looking high level. Outside of M&A, what area of business are you most excited about? I guess they're excluding Canadian Auto from that question. What are you most excited about and why?
Organically, you mean?
Correct. Yeah.
That's what we mean by outside M&A? I think that, excited is a word we don't normally use. It's not in the Intact lexicon, but we're really keen on growing our commercial lines platform in Canada. I'll start there because it's a great franchise. We probably protect 1 in 4 SME and mid-market businesses in the country. We have a very good specialty lines offer. We have massive distribution footprint, and this business, you've seen the numbers, Paul, running in the eighties. We want to grow that business more than we've grown it in the past. I think there are levers we can pull, and we're focused on at the moment, especially that the RS integration is behind us. The US, I think we can grow organically much more than what we've done so far.
We have very strong performance. We need to flex the distribution muscle, Paul. We don't have enough broker relationships. Our verticals in the US, 12 of them, don't leverage enough the existing relationships that we have, and then we can deploy capital to buy NGAs. Just distribution in the US, in my mind, should drive organic growth in a meaningful fashion, and we're very focused on that. Then I'll take you on this side of the pond, the UK. The NIG acquisition moved our strategy five years forward in the UK. Why do I say that? Because RSA historically was focused just on large brokers and on bigger customers. Mid-market customers call this GBP 10,000 and above.
Our thought process coming in was to expand the distribution relationships and to tap into the small mid-market space in the UK, which we felt was underserved. The NIG transaction, all of a sudden, opens up hundreds of broker relationships, and it opens up a product offering that goes from micro businesses, and when you combine that with RSA, to, you know, serious mid-market stuff. I think it's just a question here of, A, integrating NIG, but really leveraging what we have in the toolbox now. I'd say, Paul, the good news story here is the fact that we have everything in the toolbox. We don't need to get creative to really move the needle from an organic growth point of view while protecting the margins, because the markets are supportive, and we've got the tools, and we're really focused on that.
That was a great answer, very comprehensive. One of the things that surprised me a bit in the answer was on the US and believing that you can get even better organic growth. I mean, you laid out all the reasons why, but from my perspective, I would have thought historical organic growth, once you fixed the profitability, was actually pretty good. I guess my follow-up question there would be, in those lines of business you identified that are performing well and you like long term, can you kinda give us a sense either on, you know, where you sit in terms of market share or where you are versus, like, TAM? Can you give us a sense of what growth could look like going forward?
Well, Paul, when I look at what we've done in the U.S., you know, we have quickly focused on the lines of business that we felt we could price and that we felt we could outperform in, and stripped the very long tail stuff that, you know, big source of social inflation. We tried to really optimize our footprint, and the duration of our liability in the U.S. is 2.1 years. Like, you know, it's surprisingly short. The past few years has been about really focusing the footprint there, and if you look at the lines of business that we wanted to grow in the U.S., those have grown at double digit.
You could say, well, now that a big portion of the heavy lifting is done in the U.S., and there's solid outperformance, I don't see why we couldn't grow that business double-digit. I don't want to establish guidance here, that's because we don't do that. It's a hard environment, but the organic growth potential of the U.S. business is certainly not a single-digit, growth potential. It, in my mind, should be in the teens.
Okay.
But-
Teens with many years of runway ahead.
I think. Yes. I mean, your question on market share, we're in the single digit zone.
Mm-hmm.
-in the US. We've picked our spots, let's just be clear. 12 verticals, leadership positions in the verticals where we operate, you know, you're in the single-digit zone. This is a massive market that is growing. We should grow faster than the market.
Okay. That's helpful. I also wanna have a follow-up question on the M&A discussion. Charles, you still there?
I am still there.
Okay.
The image is gone?
Yeah. Yeah.
Let me just see if I can bring that back. Go ahead with your question.
Okay, yeah.
I'll find a way.
Yeah.
restore the image.
Again, I'm going to ask this one. I've asked you this question in the past, but I get this question all the time, again, I think it's one that's worth repeating. You know, you've long talked about a market share objective of 25%-30%. You just highlighted to us that Canada remains your, you know, is your number 1 priority for M&A. How do you get confidence that that 30% hurdle is sort of the right one, and there won't be no antitrust sort of competition in Canada or OSFI issues with getting to that level of market share?
Well, I will, I'll move to my laptop because the image has disappeared, but, I'll answer your question in the meantime. Our market share, you know, in the products where we operate, you know, is home, auto, as well as commercial lines, is in the 20%-25% sort of zone. There are segments of the market where we are underrepresented. For instance, in other than SME and mid-market, we are, in the, in the teens. In aggregate, I think we can grow our franchise by 50% before having to concentrate on organic growth as the primary growth engine.
The threshold of antitrust regulation is about 35% by product and provinces where you operate, so I think it's uneven across the country, but plenty of room, in my mind, to grow our operation meaningfully and eventually protect way more Canadians than what we do now.
Great. Okay, good. Next question, I think it's an important one, is Intact went through a period in 2023 when book value growth was lower than we expected a normal year, right? There were a number of factors behind that, such as the UK pension de-risking that you'd mentioned earlier. We also saw income mark-to-market losses because of what rates did during the year, also, RSA transaction costs. I think most of those are behind us, but still, I think it's an important point and important question is: How does slower book value growth impact earnings power? Question, because I think that's a key point from a shareholder value creation perspective of book value. Growth slows like it did in 2023. Does that, again, slow shareholder value creation in any way?
I think, Paul, if you look at the book value per share growth into year-over-year, it was 9%. I think some of the elements that were pressure point last year were very much one time in nature. You know, you've talked about them. Exited lines, that should not have, you know, really an impact prospectively. Tension, de-risking, it is done. Obviously, you've had a bit of capital market pressure. I think that the earnings power, in my mind, drives the book value per share, not the other way around. If I take you back to our financial objectives, 500 basis points are we outperformance. Track record is 680 over 10 years.
Second, and this is where I think, earnings power come in, we wanna grow our earnings per share by 10% per year in average. You know, it's been close to 12% in the past, 5 and, 10%-ish in 10 years. As we look out, even though we're much bigger, we very much see our ability to meet both those objectives as they were before.
There was nothing about. From what I can see, there was nothing about, again, that slowdown in book value growth last year, that from a regulatory capital perspective, constrained your ability to grow premiums organically or any impact on sort of investment allocation or capacity to grow investment assets, correct? Charles, do we still have you? There you go. You're coming back on.
Yep. Yep.
I don't know if you heard that last question. Just clarifying again, with the slower book value growth last year, there's nothing from a regulatory capital capacity constraint issue in terms of organic premium growth, capacity or investment allocation capacity. It didn't force you to take any suboptimal capital allocation decisions?
Absolutely not. Absolutely not, Paul. I would say capital margin is really strong. A number of the moves we've made last year, which were pressure points on the book value per share, was de-risking in nature and actually provided capital relief. If I look out prospectively, the earnings growth of the organization is certainly as strong as what our track record has shown, and book value per share in Q1, I think, is a good reflection of the trajectory.
Okay. Well, my conclusion hearing that is like, I don't know why we wouldn't value the company on price to earnings versus price to book. That's just my own, my own plug there. Last question for me.
I agree.
Okay, good. Last question for me, Charles. I find a lot of time, like a lot of time, discussing regulatory capital requirements for the banks. It's been pretty quiet for the P&C sector for a long time now. I hear OSFI spending a lot of time on specific risks like climate change, cyber risk, things that are definitely applicable to your business. Is there anything that we should be aware of or thinking about in terms of pending regulatory capital changes for P&C companies?
No. I think, Paul, you know, if I look at OSFI's behavior in the last decade in relationship with our industry or decades before that, certainly in the last decade, they've become more risk-based, they've become more sophisticated in their assessment of risk. I would say that's good for us as a firm, because that's how we think, that's how we price, that's how we operate. We have a very strong relationship with OSFI. We understand what they're trying to achieve, we're very comfortable with our capital position, not an issue for us. The area where we encourage OSFI, you know, to think about, I think Peter was vocal about that, was: What are the systemic risks here?
Let's make sure that collectively, we're all aware of the systemic risk, and we're trying to tackle those. I think that quake is a good example. In my mind, you know, we're playing defense on quake. As a firm, we think there should be a backstop in Canada, and I think that's the sort of stuff, in my mind, where it's not so much at the company level or the industry level, but it's rather at the systemic level, that we have a bit of work to do in Canada. I think it's an area OSFI is paying attention. Overall, we're in excellent shape, and the fact that they're increasingly risk-based, in my mind, is a very good thing for the industry and plays to our strength.
Good. Obviously, we've covered a lot of ground in the last hour, Charles, I'd love to give you an opportunity to maybe provide some closing thoughts for us.
Thanks, Paul. Apologies for changing environment here, but I think if you think about Intact right now, you start with the macro environment, I would say the macro environment's playing to our strength. If you look at the outcomes in the macro environment, and you look at our track record, I think we can play offense and defense and produce very good performance, no matter the environment in which we operate. That, I think, is an important element of Intact, which is reflected in our track record. The environment really plays to our strength now, when it's showing both from a top-line point of view as well as from a bottom-line point of view.
Then I think there's a fair bit of depth in the team, and that's the thing we don't talk about as much. The track record, Paul, comes from consistency in execution, comes from consistency in the values that we live in the organization, and consistency in the talent pool. For the top 250 position, we have north of five successors ready within three years. These are people we test, we give opportunities that believe in the strategy, and therefore, when I look out for the next decade, Paul, I see our ability to outperform from an ROE point of view and then grow our earnings base north of 10% per year on average over time as strong prospectively as it's been historically.
frankly, I don't use the word excited, as I said before, but when I look out 10 years, I probably could use that word.
Great. That's good. We know you're still not sleeping like a baby at night.
No. No, no.
Anyways, fantastic as always, Charles. Appreciate the time and appreciate everyone, for participating, and thanks for your questions.
Thank you.
Have a great day.
Thanks.