CIBC, pleased to host this fireside conversation with Charles Brindamour, CEO of Intact. You know, we're doing this chat one week following, well, I think were pretty strong Q1 results, right? Strong organic premium growth, strong margins in most lines of business, increased guidance for investment income, now also seeing a nice build-in capital margin following the RSA transaction. Of course, also, Charles, you know, you laid out a pretty positive outlook for the next 12 months as well. I think this should be a good conversation, and I will encourage anyone at any time that wants to ask a question, please do raise your hand in Teams. I think we all know how to do this now, after a few years of using Teams extensively. Throw it up anytime.
You don't have to wait for the end of the presentation, and we will, we'll queue you up and get your question into Charles. With that, Charles, I think we really need to start with personal auto. It wasn't my original plan, but I think given the results we saw last week, and also the results we saw out of the U.S., by the way, with Progressive, it's still sort of the topic that the market investors are focused on. Let's start there. I guess the question I wanna ask is, you know, you have visibility on the rate increases you've put in the system, so it's very much unknown in terms of the earned premiums and how they're trending to high single digits.
I think the way I look at least, is really the expectation or the risk you have is the expectation and the claims inflation, and that's kind of what you saw with Progressive, right? They admitted they got it a little bit wrong. Claims inflation is still coming in higher than they would have expected. A few questions sort of along that line: What do you believe is different for Intact versus Progressive in terms of inflation trends or really Intact versus U.S.? Where can Intact have control over rate increases or claims inflation, I should say, or the ability to take offsetting actions to mitigate those inflationary pressures, i.e., what's within your control in terms of cost inflation?
Lastly, what are the primary drivers of claims inflation that are outside of Intact's control that may represent risk to your expectations? A number of questions rolled in there, but I know, Charles, you're good, so you probably can address them all.
Well, I'll stick to your questions. I had to make notes, Paul, because it's a long question, but let me first start by reacting to your introductory comment, which was, results were strong, and that there be no doubt, that's my perspective on it. We're never satisfied. It's our culture here. We're always focused on the areas where we can create upside or where we have issues. You know, we felt this was a quarter that was strong in an environment where this environment plays to our strength, and there was not that much we were surprised by, frankly. If you look at the outlook that we gave in the last year and where we are today, pretty much across all lines, things are largely playing according to what we expected.
As a result, we're not surprised, and the results are good because the actions we've taken, I think are consistent with the environment in which we operate. I won't comment on specific names or competitors, but I would say, Paul, if you look at the environment and what happened in automobile insurance in the past 2, 3 years, I've said it all along, there's lots of moving pieces here. One's ability to read inflation in a world where speed of settlement is changing, you have labor issues in the field, et cetera, et cetera, has been an area where we've been really focused on to understand the difference between the claims coming in today and the claims we're actually settling today. I can tell you, if you use traditional techniques, you'd miss out because there were so many, so many moving pieces.
One of our strengths here is the fact that in claims only, we have close to 40 actuaries, and all they're doing is to figure out speed changes, pattern changes by type of claims. I feel like we've done two things: A, we were focused on speed changes and abnormal patterns to make sure we had a good read on inflation. Then, we were focused on pricing for it. When I compare with the U.S., I think we're seeing from a pure inflation point of view, we're largely seeing the same thing on repairable losses and total losses.
There seems to be, in the U.S., I think speed for a number of players of patterns probably made their read more difficult, and some people might have missed the extent of the real inflation, which is what you observe when you actually settle the claim, not just when you build reserves for the claim. I think the big difference in this environment seems to be inflation in labor and body shop capacity. These are not the only differences between Intact and the U.S. or Canada and the U.S., but right now it seems to be a difference. I think this is an area where our supply chain strategy, which we've been focused on for many years, is making a difference because there is capacity in the network. We're actually dropping our cycle time.
It's getting shorter and shorter for our insureds to be back on track, which is the business we're in. We've opened up new service centers in the last year, created capacity with our preferred provider network, where we send 65% of our claims, you know, during the pandemic, actually, and as a result, I do think that this is helpful at our end. You know, just a stat, which I think is quite telling, is that you look at the number of claims per employees at Intact, what we call the pending, the load of our employees who are doing an awesome job. It's dropped in the last quarter by close to 10%. The pending of our employees is what we're focused on at the moment, because this drives the quality of the experience.
We're now seeing the Net Promoter Score go up, by the way, the time to repairs come down, and our employees' workload is improving. It's still high, higher than it's been historically, but moving in the right direction. Speed and load, and pressure in the network seems to be a big difference right now. The longer-term differences between the U.S. and Canada, of course, is that we've got 40% of the product, which is long tail, where we're not seeing much inflation at this stage, where reforms have been quite supportive. On the physical damage, I think we're seeing a stabilization of the cost of total losses, and the inflation in repairables has actually dropped. It's still positive inflation, but it actually dropped.
If you look at the overall inflation, you know, it's gone from 13%- 11%,11%- 9% in Q1, and I think April looking decent. That's pretty much in line with what we anticipated and very much in line with what we're pricing for. What's playing in our favor, Paul, in this environment, and I've said it for three years, we're being very cautious 'cause there's lots of pieces moving here. We don't wanna miss a trend. This showed up in the prior year development, which was really strong at 7%. We're building caution in the current year as well. That's why our view is: you ought to look at both these things together.
I think 1 point, I'm not sure we've made that point during the Earnings Call, which is important, is we've seen favorable prior year development for short tail, for physical damage claims as well, which gives me a good sense that we're reserving quite effectively for physical damage inflation. What else is helping in this environment is the fact that the frequency is below what we're pricing for at this stage. It's increased, there's no doubt about that, but not to pre-pandemic level at this stage. You put all that together, and you are in a sub-95 zone, in a world where I think, you know, the balance sheet is pretty cautious. I would say this, we're on this one. This is really a key priority.
With regards to rates, as we've explained, we think we'll be earning nine-ish in a couple of months from now. We're pricing in that zone. If we need to do more, we'll do more. That's the upside of our business. We don't make long-term promises, and we can react pretty quickly. We have a strong Quebec distribution, and Quebec is a province where you don't need regulatory approval, and therefore, our average flexibility in pricing is better than the rest of the industry.
One, I do wanna ask a follow-up on a part of your answer, and a very important part of the answer, which is the control over which you have over the claims, including the physical damage aspect I'm looking at specifically. If you think about, you know, investments in that supply chain or that network, that collision network, does it make sense to increasingly put more of the claims into your own collision centers? Is there an opportunity there to make those investments and have even greater control over those costs over time?
Yes, I think it does make sense. We've built the preferred provider network or what we call the Rely Network, you know, over 20 years. That's why we've got 65-ish% of claims there. We have our own service centers, and then we have Intact-branded service centers where we're in partnership with entrepreneurs. That's how we create capacity in the system. This is where we have deals that are predictable. You know, we provide guarantee to these guys that we will send them business based on quality and service and capacity. Our strategy allows us to be much closer to the experience. We manage 100% of our automobile claims, or 99%. Our customers choose to use the network 65% of the time. We cannot force consumers, right?
I mean, you choose where you repair your car, but our value prop is you're ahead of the queue. There's capacity. We provide a guarantee on repairs for as long as you own the car. It's a much better value proposition. The way for us to steer more customers this way is to have a better offer for them. Because at the end of the day, customers are totally free to choose how they get their cars repairs. We think we've got a pretty good value proposition. Same thing on the home restoration side of things, Paul, where, you know, there we actually, our intent in putting a fair bit of capital. We put a fair bit of capital, nice profit-generating business, and customer experience is awesome.
You don't want the claim in the first place, but if you do, it's good to be with On Side.
All right. Okay. If I kind of look at the personal auto market over time, it's had lots of ups and downs, and I know there were some conversations recently, kind of around pre-pandemic type combined ratios, but I mean, that's just taking a very short period of time.
Yeah.
I guess the way I look at it is just being a volatile market with a lot of political involvement, regulatory missteps. You're talking about the medium-term outlook with a sub 95% combined ratio. I just, I can't help but get the impression you're more confident in profitability in this product than in the past. Like, am I correct on that? If I am, like, what's driving that confidence?
I think it's correct. In typical Intact confidence, if you look back over a long period of time, you'll see that this line has run at 95%. When I say I think we'll run sub 95, you know, in the near term, I am more confident. I'm not taking a huge leap, you know, from a guidance point of view, here's why I feel, despite the inflation in which we operate, a good degree of confidence about the automobile insurance business. First of all, we're 70% bigger in auto than we were five years ago. The automobile is a scale business, we do have scale. Second of all, we've increased our sophistication in pricing and optimized our pricing strategies through machine learning techniques across the whole portfolio in automobile insurance.
We're at a degree of sophistication that is meaningfully ahead of where we were three years ago. Thirdly, the supply chain activities and the work we've done in supply chain, in my mind, is in a whole different league now. That includes the fact that we're talking about body shops. Paul, we have close to 500 lawyers defending our customers on our payroll. That goes straight to the cost equation. Better indemnity outcomes and then better cost. You know, you put these elements together, I think we're in better shape today in automobile insurance than where we were a number of years back. You look in the next 12 months, frequency is an area where there's room for deterioration beyond you know, what we're anticipating.
There's caution that we've built in the past 24 months. You put all that together, and you get a guidance that is sub what the long-term track record from a combined ratio point of view is, which is 95%.
Yeah. Okay. You know, you mentioned scale, particularly in personal auto, but a big part of the value creation or a part of value creation for Intact over time has been acquisitions. Let's talk a little bit about acquisition potential and where you feel you currently sit in terms of, you know, balance sheet capacity. Is there anything in terms of the RSA integration that's ongoing that would prevent you from doing further M&A? Have you passed that point? How are you viewing valuation multiples out there right now in the market? Are they getting more attractive given some of the economic uncertainty? Are they, you know, multiples high because industry profitability has been pretty good?
Just, if I unpack your question first. We've printed CAD 2.8 billion capital margin, 22% debt to total cap. As you know, when we do an acquisition, we comfortably get in the 25% debt to total cap zone. Before issuing shares, you know, you probably have CAD 1.4 billion of capital we could tap into easily. If we chose to push the debt to total cap past 25, depending on the opportunity, every point of debt to total cap is about CAD 325 million. You know, fair bit of room. Our track record and how we price acquisitions and the outperformance that the business generates means that these acquisitions, you know, have contributed nicely to the earnings growth of the organization and the outperformance.
If you look at the track record of our deals, the IRR of the deals we've done in the past decade starts with the two, and it's double digit, to be clear. You know, why is that? Well, because we see M&A as an accelerator to our strategy first. We're largely intending to stick to what we're good at and where we have outperformance. There have been exceptions over time, but most of the capital has gone there, and that's our intention. We need to remain cautious. Like, we wanna see at least 15% IRR on the capital deployed in these transactions. That's the lens that we use to answer your question, Paul, which is, you know, how about multiples? Well, I find multiples interesting, but they are secondary to us.
What matters is, how are you rewarded to take the risk of doing an acquisition? If the answer is 15% and above, we're in. If the answer is not 15, then we're highly unlikely to be around. As such, we see opportunities in a number of areas at the moment, clearly in distribution, which has been contributing nicely to our business. We would put our first dollar of capital in Canada today to take advantage of the outperformance that we have, but we're in no rush, and I think we have a very strong U.S. business now. We would deploy capital if we found an opportunity that generated this, the right return. Not clear at this stage. There are lots of those, but nothing prevents us from doing an acquisition at this stage, Paul.
I would say the Canadian team, which had the most heavy lifting to do in the RSA integration, has done an incredible job, as you can tell from the synergy numbers, the retention numbers, and the performance of the Canadian business. While they wouldn't admit it, they're ready for another acquisition, I think. Operationally speaking, we are. It is a long game, and we're choosing our timing carefully. If anything was to materialize, we would be ready to do it, and I don't see constraints for any transaction in the Canadian marketplace. There's plenty of room left.
Hopefully, you're giving the acquisition integration teams a little opportunity to go on vacation between deals. Yeah.
Absolutely. Yeah.
Just speaking to the Canadian opportunities, it's just, you know, it's not just me thinking about this. A lot of investors I talk to seem to be pointing to increased regulatory or political friction when it comes to large companies consolidating the market, right? The most recent example in Canada is Rogers Shaw. You know, it got through at the end of the day, but without its own set of issues. Does what's happening change at all your view that your upper limit in market share in Canada is still 25%, 30%?
Well, I think our upper limit, there's a difference between where we see ourselves, you know, in this decade versus what the upper limit is. I do think the upper limit is above 30% myself. I think Like, the P&C business is super competitive. One should not forget that there's 3,000 brokers, probably 100 insurance groups. Everywhere we compete, there's 15 active competitors, 20 active competitors in the marketplace. The barriers to entry are not very high. There's, there's capital coming in. I mean, there's a fair bit of fluidity. MGAs are tapping into external capital to create competitive pressure. It is a super competitive market, and it's obvious to the Competition Bureau when they look at our deals how much alternatives there are in the market. I'm not really concerned about that.
I think we wanna build a great company that has a customer experience that is second to none. We wanna be amongst the best employer in the country, which we are, and we wanna grow our earnings power, you know, in essence. And I think there's support for that, quite frankly, in the market, whether it's governments, investors, brokers, it's super competitive. The ROE of our industry is like 8%-9%, you know? For a business that's far riskier than many of the other industries you can give as examples. I won't refer to any, but that's why outperformance is so fundamental.
Got it. Okay. You know, you mentioned potential acquisitions in the U.S. as well. It's been six years since you acquired OneBeacon. In some ways, it's hard to believe it's already been six years, but I think you have to be very, and I emphasize, very, happy with the way that acquisition has turned out. Margins look great, delivering very high premium growth today. You know, you're starting to expand into new markets, I think, a little bit there. Like, why not push harder in terms of acquisitions in the U.S.? Like, I guess my question would be like, why not make U.S. the priority over Canada, given you have a lot more white space to play with, and the results are also really strong already in the U.S.?
Yeah. I mean, performance of the U.S. business under Mike's leadership, very strong, no doubt about it. The first order of business, Paul, when we did OneBeacon, which is now called Intact Insurance Specialty Solutions, in the U.S., was to create outperformance. I was very clear, like, we need to prove to ourselves first and to you in the exercise, that we can outperform in the U.S. What were the implications of that? Well, first, get out of the stuff where you don't think you can win, which we've done on closing and a few times after closing. Reflecting upon that, it's interesting to see that the business in the U.S. is approaching $2 billion U.S. now. I think it was a bit above $1 billion U.S. when we acquired. We shut down four lines, yet we almost doubled the business.
It just goes to show the opportunity set that exists in the U.S., primarily organically. First, get out of things where you don't think you can win. Second, bring governance around pricing risk selection, to make sure that, you know, we're pricing and thinking about risk the right way. Third, create sophistication when it comes to pricing and risk selection. Fourth, insource the claims process and then make sure the expenses are in check. That's what we've done with the team in the U.S., and today it's outperforming and running in the 80s, and the lines where we have strength are growing. That, I think, is in good shape. Second, the upside in the U.S. is the organic growth can be pretty impressive. We're risk takers, though.
You need to grow, and I say that, risk managers, but we take risks every time we insure a customer. Once you create outperformance, second, build on your strengths from a growth point of view. We're growing the lines where we're strong, we're expanding the distribution footprint, which is a low-risk way to grow, and then we're tapping into our global capabilities, which we have, A, with the Canadian business, but also now with UK and Europe and the Global Specialty Lines or the global network. You get to acquisitions. You know, Mike came at the Investor Day and said, "I think we can double the business by 2030," and read double the underwriting profit pool. That statement didn't rely on acquisitions.
Acquisitions is there on the list, and if we could do one, it would need to be financially strong along the lines of what I've mentioned before. I don't feel the need to be more aggressive at this stage, unless we find something where it reinforces our strategy, and we can generate 15%-20% IRR.
Okay. Let's change gears to the more recent acquisition, RSA. Intact recently decided to exit one of the lines of business there, the personal auto or UK motor business. Not really sure that came as a surprise to anyone, or certainly didn't come as a surprise to me, but probably worth a quick review of what drove that decision, and obviously have some follow-up questions on that.
Yeah, we strive not to surprise, Paul. It's never been a winning formula. Look, we entered the U.S., the U.S., the U.K., quickly figured out where we knew we could win. Give ourselves a shot to improve things, to figure out if we had a shot at winning. Then even if you think you can win, you need to make sure the absolute return you get warrants leaving capital there. I think on so many fronts, we didn't see it in motor. I think we could have done this earlier. If anything, I feel like we've been slow on this one, but this is where, you know, you have employees, customers, brokers, et cetera, you wanna manage in as good a fashion as you can, all the stakeholders involved.
That's how we got to it.
Now, if I can contrast that to the UK home and pet insurance lines, which you continue to operate, What are the differences? Like, why do you think you wanna keep the UK property business? I guess I'll probably focus on that one because I think results have been challenging the last number of quarters. Where do you see the room for improvement? What's the argument for retaining capital there?
Yeah. First of all, we have scale. We are in the 3rd position in both these lines, 8% market share in home, 18% market share in pet. Scale is not everything. If you have scale and you don't have good return, that's scale is irrelevant, I would say. It's part of the conditions of winning in my mind. second, the track record of these lines was, home was in aggregate 96-ish, and the pet business was 94-ish, if you look back 5 years. You can work with that, it's clear there's upside from a pricing risk selection point of view. There's upside from a claims insourcing point of view. There's upside from a digital point of view, as a result, you think, okay, maybe we can beat that over time.
It will help the organization focus because there was a lot of juice going towards motor at the expense of home and pet in my mind. The last point I would make, Paul, is one big difference between motor and home and pet is the fact that a big portion of the home and pet book are distributed through partners. By that, think banks, retailers, et cetera. It is about 1/3 of the market in the U.K., it means that, you know, you don't have the same flexibility you do, where in motor we were, in essence, 100% direct. We had two small partnerships, you therefore have far more flexibility to move. I do think that home and pet are good businesses. We do have scale. It has good track record, we will build on it.
I think around the time I started covering the company and maybe around the time you took over as CEO, personal property in Canada actually wasn't that great a line of business, or at least from a profitability viewpoint, right?
Yeah.
It didn't have a great history.
No.
There was a number of actions you took over a number of years. It wasn't a short period of time, but over a number of years, you took to improve that line of business. It's now one of the most profitable.
Mm-hmm
... and with consistent organic growth.
Yeah.
Like, what extent can you use that same playbook in the U.K.?
Yeah. I think, Paul, the first thing I would say is we woke up in 2010 or something. Natural disasters had increased by a factor of 4x in the 30 years, you know, over a 30-year period. What was originally a fire product was covering more than half of the time water losses. This was, for that segment at that time, an existential question mark. What we did is we acknowledged the reality as it was, took a stance that was a little countercyclical from the perspective that we accepted the trend of natural disasters and started to price accordingly. Changed the product structure to embrace the new perils that we were most, you know, serving Canadians with.
Changed the data collection, changed how we priced, how we combined data, changed the claims operation, changed the supply chain and invested in prevention, you know. That's, that was a big transformation. It didn't take that many years. I'll say it happened over maybe 18 months, 24 months. You're right, it's been running now five, six years, sub 90%, fastest growth in good and in bad times. A bit more volatile, but with those kind of returns, I take the volatility day in, day out. I think long preamble, maybe, but what can you bring to the U.K.? I think you can bring to the U.K. your pricing and risk selection, strategies, expertise, and even the variables you use. That's the level of granularity with which, you know, we challenge our strategy, in the U.K.
We have experts who know our product, who work with the U.K. teams. We're investing in technology in the U.K. We'll have a deployment in home insurance in September, August or September, where we will amp up our ability to use our segmentation strategies in that market. We've invested in technology and claims. We're in sourcing claims at the moment in the U.K. I think it's a question of working with governments and the industry to make sure that the product is fit for purpose in a world where natural disasters are increasing. Keep in mind, we're not dealing with the same natural disasters.
Like, the makeup is different. There's a bit of work to do in the U.K. on the product, but certainly there's a number of capabilities which we can bring on the other side of the pond.
Okay. I want to remind those in the audience, and there's a good number of you, of those in the audience, please do raise your hand if you have a question at any time. I'll move on to the next one, and hopefully, we get a question or two from the audience. Charles, just, you know, the management of interest rate risk has obviously come to the forefront, given recent U.S. banking events. Intact is clearly not a bank, the implication of higher rates are different, you still have interest rate-sensitive assets and liabilities. I'd say, you know, more likely than not, some interest rate-sensitive customers, if I had to guess. Well, I guess, first of all, how do you view the risk?
Small, medium, large, I guess, if you wanna, you know, categorize it in a simple buckets, and then sort of, what are you doing to, you know, measure, monitor, and manage that interest rate risk?
Let me start with the macro thesis, and then I'll talk about our profile. We're operating with the perspective that, and we've been operating with that mindset ever since the second half of 2020, that there would be inflation, that inflation would be stubborn, and that interest rates would move up, and we're still in that camp today. In other words, we're operating the business, assuming, in fact, that rates will stay there for longer or potentially go up still. Certainly, what we're seeing on the front line, we talked about automobile insurance earlier. That's real. This is the stuff we're seeing day in, day out. It's coming down, but, you know, there is inflation still in the system. What have we done as a result?
First of all, this creates all sorts of risks. We've been operating on the asset side at the lower end of our risk appetite. You'll see 10% of cash, for instance, on our balance sheet, which, by the way, it's good to invest cash these days. As a result, took a cautious position on the asset side of the house. Very important for us to be on top of pricing for inflation, 'cause there is interest rate, but what's more important in our business is claims inflation. Being focused on pricing for that has been important. If you look at the structure of the balance sheet, Paul, we're making short-term promises, right? Policies are 12 months.
The average duration of our liabilities is, give or take, 2.5 years, where the asset side is a bit longer than the liabilities, but not by that much. If I was to illustrate, 100 bips, parallel move in the yield curve is costing about CAD 100 million of capital margin. About CAD 300 million of book value. 100 basis point upward, parallel move in the yield curve. It's not big in the big scheme of things, in part because both sides of the balance sheet react. Obviously, you've seen the investment income. We're taking advantage of that environment. I think what one need not miss, beyond taking a cautious stance, that's where the cash point I made comes in, is also to de-risk in that sort of environment.
What you've seen us do twice in the last 12 months is, first, we did a pension buy-in for retirees in Canada. Second, you've seen this transaction in the U.K., which we were very happy with, where we've basically completely de-risked the U.K. business from its pension risk, which has been a big drag from a capital and a risk point of view for RSA over time. That's behind us. We therefore have now in the U.K., a very strong hand and a very strong business, in my mind. That's in a nutshell, what we're doing when it comes to interest rate.
A question I think I've asked you before, Charles, and starting to come up more frequently is: At what point the interest rate benefit, i.e., higher investment income, start having an impact on insurance premium pricing? There's no indication. If I look at Canadian industry data points, U.S. industry data points, maybe pricing slowed down a little bit at the margin, but there's still good momentum there. You know, the traditional cycle would suggest it should slow. What are your, what are your thoughts on that?
I think there's headwind in the market. You know, whether it is inflation, whether it's natural disasters. Keep in mind, the industry woke up on January first with huge increase in reinsurance costs. We had planned for that for a number of months, but reinsurance costs for us increased by 25%, you know, for less capacity. This is true across the board. Yes, you get a pickup from investment income, but this is an environment where there's lots for the industry to digest. I think that's what explains the rational behavior in the marketplace. In Canada, the leader is rationale, I think that's us. That helps, I think, overall, in the marketplace.
I think it's the headwinds against tailwinds for those, especially those who were slow at pricing for inflation or natural disasters, et cetera, means that you're in an environment which is fairly rational and one that plays very well to our strengths, given, I think, we'll print close to 1,000 basis points of ROE outperformance where we operate this year.
Great. I see a hand up. Stephanie, are you able to open up the line there?
Go ahead, Pascal. You should be able to talk if you unmute your line.
Thank you, Stephanie. Thanks, Charles. Just two question. I want to come, obviously, when you look at your cat loss, then you increased your guidance for this year. When you look at the, I mean, the natural disaster and everything else, just keeps on increasing, what we're seeing in Alberta, the flooding, is it a tendency that we could see just naturally tick upwards? Just how do you manage it going forward? The other thing I want to come back on acquisition. When I look at other companies, we've seen cybersecurity really increasing, when I look at these companies, the combined ratios are just mind-blowing.
I don't know if it's the pricing, if it's something that, you know, with OpenAI, cloud computing, the more, you know, bipolarization, with Russia trying to attack, and we're seeing it more. Do you see it as an opportunity? Thank you.
I think you're If I had to describe the world right now, and you ask me, "What are the two biggest growth opportunities?" That's the essence of your question. You know, natural disasters, the biggest pool of risk in the next few decades, and there's a need to de-risk. That's why, Paul, I'm glad that our property business is doing well. The second biggest pool of opportunity to de-risk is cyber. There's no doubt about it. You can expect the guidance to increase over time. I just look at where we are in the climate transition. There's a deep trend, the speed at which we're able to move the needle to get to net zero isn't steep enough to be able to break the inflation and natural disasters we're seeing at the moment.
That opportunity set is increasing. Our guidance, Pascal, is CAD 700 million per year in absolute terms. The business is growing. Reinsurance, you know, creates a change every year. I do expect that number to change. Will price, so will exposure. I see this as a growth opportunity and certainly an opportunity to help the cities, the provinces, and the federal government make sure that they're well protected, because for every CAD 1 insured, there's CAD 3-CAD 4 uninsured at the moment. Therein lies the opportunity. You look at the profitability of de-risking property, as Paul was pointing out, it's pretty good, but you need to be constantly adapting your business. I would point towards On Side, our home restoration business, which is growing really fast and is profitable and is countercyclical to the underwriting performance.
When there's a lot of demand for home restoration, profit spikes up. It tends to happen when there's lots of claims. That is a double area of opportunities from the perspective that you can protect Canadians, but then you can get Canadians back on track by doing the repairs yourself, and be profitable doing it. On cyber, it is clearly one of the segments that we think can be a Global Specialty Lines. We have today, north of CAD 100 million of cyber business. The performance is quite good. Like, it's very strong combined ratio. The key there is to manage your tail risk, because unlike a natural disaster, the diversification of the cyber risk is much trickier.
That's why reinsurers are, you know, nervous about cyber, because the whole model of country diversification is, does not apply in similar ways. There's a lot of work done at the industry level with reinsurers on the product to make sure that you don't get trapped into a systemic event. That's an area I'm certainly, with my team, very focused on, because it is a huge opportunity, but, you know, you got to keep the tail risk in check, and that is the main challenge. Otherwise, you'll see us try to build a business out of cyber insurance.
Great. Thank you, Charles.
Thank you.
Sort of, I don't know if it's sticking with the theme of growing pools or risk or a risk in itself. I remember pre-COVID, there was all this discussion around social inflation. If you remember going back then, particularly in the U.S., and for those on the line that don't recall, the social inflation theme is basically, I guess, more judicial awards in the favor of plaintiffs and for bigger amounts. Insurance companies play a role in that in terms of, in some cases, if there's insurance available for those corporates having to pay out, those awards, bigger losses coming from insurance companies. Haven't heard much on that theme recently, because I think there's been lots of other things to talk about. Charles, I'm interested to get your perspective on that one. Has it changed?
Has it simply, you know, sort of melted into the background? Is there opportunity or threat as we think about that, sort of, that social inflation theme?
Oh, by the way, we don't see you, or at least, I don't. Something to look into. We've been focused on inflation, driven by a plaintiff bias by the courts for many years. We've taken action in two ways. One, you'll remember the spike in automobile insurance long tail in 2016. We took a sharp turn. The results were not so good for a couple of years, but really cranked up pricing as a result to price for that, increased our resources on the legal side of things. The reason why we have 500 lawyers on the payroll to defend our customers is, in part, you know, to create an advantage out of that and then work with governments to reform the product, because automobile insurance is a government-issued, mandated product to a large extent.
There have been good reforms that have been introduced, and so overall, we're not seeing inflation in Canada at the moment. I don't think we can count on that forever, but certainly in long tail lines, in automobile insurance, there's very little inflation. In commercial lines in Canada, same thing, not a lot of inflation at the moment. That's probably the area, Paul, where we're really focused to make sure that if something pops up, that we assess what is bad luck and quickly act on a trend, if there's one. At this stage, there's nothing much to report. Frequency has been benign in commercial lines, as well, but an area to watch for. In the US, that's a whole different ballgame. You've seen us exit public entities. You've seen us exit, that was last year, healthcare.
We've exited, you know, the four lines we've exited, Paul, since we acquired OneBeacon. These were lines that we felt were overly exposed to inflation, and we had a real hard time pricing for that risk, and we just got out. I do think that in liability, we need to be really focused on that development. There's no clear signs north of the border. In the U.S., there is some inflation. Frequency is down a bit in the U.S. as well, so understanding all the moving pieces is important. I do think that this is a real risk, and that there's been such a bias over time.
There were talks four, five years ago that as the federal judges were being replaced under a call this conservative administration, that this would have an impact, you know, to mitigate this trend. One, I expected either at the district or circuit level, and frankly, we didn't see much of an impact in the line which we've exited. As a result, we don't count on that change and remain very cautious.
... Well, Charles, it sounds like you've led us into a discussion on U.S. politics, so I think we're gonna go for another hour or two. Of course, I'm just joking.
I'm just back from Washington, actually. Not going to go there is my conclusion after spending two days in Washington.
Okay, well, seriously, we only have a few minutes left, Charles, I don't know if you have some concluding thoughts you wanna leave the group with?
Well, I think, Paul, we've covered the important themes, so thanks for your question. I think you went exactly where we needed to focus. I would say outperformance is strong, and we continue to invest in our outperformance capabilities. I'd say that employee engagement is in very good shape as well. We are a best employer in Canada and in the US. The environment in which we operate is, I think, playing to our strengths at the moment. What we've done, though, in the past five years, Paul, is we've increased the size of the sandbox by a factor of 10, by getting in the US and then doing the RSA transaction. Our thought process at this stage is make sure that the Canadian business is transforming to meet customer expectations, 'cause they're changing really quickly.
It's about getting better and bigger where we play today. We can do that one customer at a time, or we can do that through capital deployment. I feel like the sandbox in which we operate will generate enough growth to meet or exceed the earnings power growth targets that we have, which, as you know, is north of 10% per year over time of earnings growth. I feel like we've got the right sandbox and the right capabilities to achieve that, and I feel very strongly about our outperformance everywhere we operate.
That's great. Charles, as always, been a pleasure.
Thank you.
Thank you for your time. Thanks, everyone, for dialing in to listen.
Thanks, Paul. Appreciate it.
Have a great afternoon.
You too.