All right. Thank you everybody. We're gonna continue the conversation here with Intact Financial Chief Operating Officer Patrick Barbeau joining us again. Patrick, thanks. As always, it's a pleasure.
Thanks for the invite. Thanks to all of you too for attending. Nice to be here.
Let's start with a quick look into how 2026 is shaping up. Obviously, 2025 just a really strong year for Intact. I'll just say almost a 20% ROE is probably the big highlight. How is it looking so far in Q1 2026 for Intact?
Yeah. We're in very good position, overall. I think you look at the performance, the fundamentals are really strong, and I would say pretty much across the board. The market conditions in the areas where we play are, I would say, are playing to our strengths. We've seen momentum from a top-line growth perspective in the last couple of quarters. In terms of how it's going in Q1, you shouldn't expect any real change on that perspective. Let me be a bit more specific by markets. In Canada, we just received two days ago the results for Q4 or the full year for the industry, and it highlights some of the momentum where we have because we're actually growing by...
We've grown over 20-25 by about 3 points more than the industry and produce a combined ratio that is 8 points favorable to the industry. The outperformance on top line, bottom line is on all the lines, including commercial lines. Hard market conditions in Canada are continuing in personal lines. I mean, the industry is running in the 100 zone. There's about 5 points of inflation, so more rates is needed in that line. We've produced a combined sub-95 for fairly sustained period now, so we're in good position. Hard market will also continue in personal property. 2025 was helped with lower volumes of cats, but the industry is really pricing for the deeper trends of climate and is very conscious of the very high cat levels we had in 2023, 2024.
More rates is also needed in this line of business. I would say in commercial lines, there's more competition in the higher type of risks, but we do get the rates needed to cover inflation in the places where we play so in good position. Quickly on U.S. In the U.S., we're only in specialty lines. We don't play in personal lines or regular commercials. The outlook for the industry when we look at the footprint where we operate is, we expect the industry to grow mid-single digit in 2026 there. We've seen growth momentum as well when you look at our own results from a new business perspective. What we like about specialty lines is we run many different specific product lines, and we're growing. We can determine where we grow faster.
2025 was a good example where the lines of business we printed a combined ratio below 90% grew 7 points more than the product lines where the combined ratio was above 90%. That mix is also helping the performance.
Yeah.
Finally, quickly on U.K.&I., we're at the tail end of the remediation work we had to do on the portfolio, especially the part that we acquired from Direct Line. This year is huge because we launched the Intact brand in the fall, and we're now integrating the offer of both RSA and Direct Line into one specific offer under the Intact brand to more than 1,000 brokers in U.K. That's a good overview. Those trends, this trend overall is continuing in Q1.
That's good to hear. Let's talk about AI and technology. First maybe on the upside. Intact, obviously, you know, leader in data analytics. You guys have talked about AI and data and analytics for-
Yeah.
-almost a decade. Where are you seeing the most, let's say, measurable impacts from those investments today?
Yeah.
Where is the upside gonna come from over the next couple of years for Intact?
Yeah, very important question. There's a lot of evolution in AI right now. To your point, we've built a strength in this area over the past decade. You know, over time, we've implemented more than 600 AI models within our system at scale and in the operations. When we measure the impact of that, it's creating today a recurring annual benefits of around CAD 200 million. Our goal is to get this number to around CAD 500 million by 2030, and with the recent acceleration of the tool sets in AI, we think we're gonna exceed that. Where exactly is the upside? In order of priorities where we invest our AI is first on improving the loss ratio in pricing, segmentation, and in claims because that's 50-55 cents in the dollar.
Second is on boosting top line. We invest in improving customer journeys, improving interactions with brokers to boost top line. Third is in software engineering. There's a lot of change there. We develop a lot of software at Intact ourselves. We have large teams, so we use AI to increase the output. Fourth is the efficiency.
Yeah.
Which is a bit reversed to other industries that have a different cost structure. For us, controllable expense is 15 cents in the dollar, and that's why focus goes first on loss ratio and claims operation and underwriting.
Of course. I think the question maybe investors wanna hear a little bit more about is, you know, whether AI is a threat, I guess. As AI tools and adoption accelerates across the insurance industry, do you see that as potentially compressing Intact's advantage and competitive advantage that you've built up over the past decade? Or does it have the potential to increase that gap for, you know, players like yourselves that have the scale to continue to invest and-
Right
... do those complete those projects?
Yeah, we definitely see more the latter, so potential to further increase the gap because scale really does matter in this space. Not only scale in terms of the ability to invest, but the scale of the proprietary data and how much investment you are able to make to use the internal data and to make it available to these new tools. But also the expertise in deploying at scale to change the processes so you adapt your process to fully leverage the potential of AI is a muscle that we've flexed multiple times over the years. You know, just to give a sense of the size of our investment and internal expertise, we have more than 600 data scientists and experts in data that work all day on deploying and developing AI.
For sure the set of tools with generative AI and agentic AI is adding to the toolkit. We have the expertise to leverage these tools faster than our competitors. The other piece that is hard to replicate, even with these new tools, is the quantum piece. When we automate decisions in underwriting and claims, we do it by leveraging the specific and very precise view of the profitability of every policy. That's a tool that we leverage with the new agentic and AI to further increase our pricing segmentation and underwriting performance. For the moment, it's actually helping us increase the outperformance because we adapt these tools faster than others.
Yeah. Yeah, and to be able to apply it against your scale of data.
Yeah.
Of course, a huge advantage. You know, I mentioned at the top the 20% ROE, obviously a big highlight. Maybe not repeatable at 20%, but certainly there is structurally higher ROE, and it's something that you guys spoke about on the last call as well. You know, walk us through the drivers of that structurally higher ROE and, you know, how would you characterize each one as structural or cyclical? I think that's what investors wanna really
Right. Right
pin down.
Yeah, it's a very good question. Maybe I'll take a minute to talk about the levers of ROE outperformance historically and what we're focused on, and then I'll get into what has made it shift into, in our view, a new zone. There's three main levers at Intact on how we outperform on ROE. The first one, we've talked about it in the AI context, is it's the segmentation and the pricing and risk selection. We have models, we have larger scale, we're disciplined in how we react and implement this in the field. The second lever of outperformance in ROE is how we manage claims. We've pushed the internalization very far. We use only our own people for adjusting. We don't use TPAs.
We have one of the largest legal firm internally to defend our clients in liability claims, and we've gone deep in the supply chain. That's the second lever. The third is how we manage capital and investment, including distribution income. Roughly, it's almost a third, a third, and a third that has produced the outperformance. We have indeed talked in the last couple of calls about our ROE probably now getting into a new zone, you know, from mid-teens to upper teens. There's I would point to three or four key reasons for that, of which we all see as more structural. Maybe the first one I'd point to is the mix of business.
You know, our growth in commercial lines and specialty lines has changed the mix of our portfolio over time. These lines of business are producing higher ROE on average, not only now, but if you look at the longer term. That's creating a shift in the business. Also we have improved the performance of these lines over time. If you look at the example of OneBeacon acquisition in the U.S., it was running in the upper 90s when we acquired it. We were targeting running this business in the low 90s. It has now produced combined ratio in the 80s for 12 quarters in a row. That's contributing to something that we think we can maintain.
Yep.
Okay, I thought you wanted.
No, no, I was just agreeing.
These are the key elements. This is one key element. The AI that we talked about, you know, initially AI and pricing sophistication models were mainly in personal lines. We've been deploying these models into commercial lines and specialty lines and also outside of Canada, and we see that it's producing at least the same kind of benefits in improving the combined ratio. That's another key element that why we think the ROE is in a new zone and more structural than cyclical. We don't really worry about cycle because our pricing decisions are made at the policy level. They're not overall on the portfolio.
Yes, we want to make sure we cover inflation, but the final decision of writing a risk or not is at the policy level, and our underwriters have these indicators on their screen. They know the walkaway price.
Yeah. Like I think the bottom line is through the cycle, even if we do have a softer insurance cycle, upper teens is the view for through the cycle ROE at Intact. Is that fair?
In fact, if you look back, our ROE has been less volatile by a good margin than the industry because of that early reaction to signals and because of that pricing that is at the risk level. I think we have even better tools, better diversification now within the footprint to make it even less volatile on the go-forward basis.
Let's talk about the operating environment a little bit then, and, you know, some of that slowing growth, softening pricing. You know, where are you seeing those pockets of softening across your portfolio, across geographies, and how do you see that playing out?
Overall, the market conditions and I won't go back to personal lines in Canada. I think I laid out that it's very hard market conditions that are likely to be sustained for a while. In commercial lines overall, though we also see constructive marketplaces everywhere we operate. What we mean by that is outside of the large, very large risks where we see more competition, we actually getting the rates we need to cover inflation, so protecting the current margins or profitability level. We don't necessarily see the full impact of that rate increase in the top line because of what we call a mix shift. The average premium is going down because of that retention that is a bit lower on larger risks and better on the smaller one. That mix impact your top line but doesn't impact your margin, which is an important part.
The momentum we've seen in Canada, in global specialty, U.S. in particular, is coming from a healthy pipeline of new business. We see more submissions. We have better results, and it's mainly the fruit of non-rate actions. In Canada, we've been deploying technology with brokers that simplify the quoting process. We are able to quote more and faster, and that's creating more new business. In the U.S., there's many of the verticals that are very strong from a performance as well as rates, and they are growing faster than the areas that see more competition. In the U.S., really the competition, when we look at our footprint, is more intense in the specialty property is mainly where we have more competition. In the liability lines, and surety is a good example that's very strong.
Accident and health has been producing very good results, both top line and bottom line, and we're focusing on these lines for the growth.
Yeah, of course. Let's talk a little bit about M&A. Charles has talked about a growing sandbox for potential M&A, especially as leverage continues to tick lower. Obviously you probably can't talk about any specific transactions or anything in the pipeline, but you know, how would you characterize that opportunity set?
Yeah
today?
It's a very good question. I would say there's more. The M&A environment is more active today than it's been over the 12, 18 months to start with. Our approach to M&A has not changed. The way we approach this, first, there needs to be a good strategic fit. We price M&A with an expected rate of return of minimum 15%. Our track record over the past 15 years on M&A is in the 20% range IRR, but we price at a minimum of 15%. We also take into consideration how much it contributes to our NOIPS growth and ROE outperformance. These are the first criteria. The last one, we're looking for assets that have a very good overlap with what we already do in the geographies we operate.
We're not about trying to plant flags in more geographies. We want a good overlap. It doesn't need to be perfect. You know, RSA was a good example where we focused on the pieces that fit the strategy and the footprint we wanted to be into and we were able to adjust the rest accordingly. In terms of preference, Canada manufacturing and distribution remains the number one priority for us.
Mm-hmm.
Followed closely by global specialty lines. That means U.S. is in particular, but also because of our global capabilities, U.K. and Ireland or Canada. We would look for assets that have a good overlap with the lines of business we're already in. Then UKCL, commercial lines in U.K., would be third. I would say, for the remainder of this year, we're finalizing the integration of the Direct Line integration. In the operations we would prefer to focus on that and then would be more ready for an acquisition in the U.K. That's the order of priority.
In terms of sandbox, our sandbox is now 10 x bigger than what it was 10 years ago because of our presence in the U.S. that we've brought to a level of outperformance that creates more synergy to look at assets, and because of the U.K. and Global's global presence in specialty lines. That also contributes to an increasing opportunity for us.
Yeah, of course. As you look at that opportunity set, can you characterize some of the opportunities maybe you're seeing? Is it the more tuck-in variety like Direct Line-
Mm.
you know, distribution or smaller MGA acquisitions that have been, you know, a little bit more recent? Are you seeing any of the larger scale needle-moving type transactions start to
More transformational?
Yeah, start to come about.
We look at both. We do on a regular basis the smaller ones, especially in distribution. You know, BrokerLink is making acquisitions on a very regular basis, a number of them where we look at MGA in the context of specialty lines in some cases. Also on the larger deals. When you look at our balance sheet and excess capital today, we could deploy around CAD 5 billion in acquisitions before issuing shares. We could issue shares on top
Mm-hmm.
... but it gives an idea of how much dry powder we have. With the current level of capital creation, this CAD 5 billion will likely be in the CAD 7 billion range by the end of the year. We do look at bigger deals. The experience with RSA, this is a deal that is producing north of 20% IRR overall. It was a more complex one than-
Yeah
Some of the prior ones. We went with a partner for the Scandinavia, had good results in selling that part as well as the Middle East operations. We exited personal lines to streamline where we think we can win in the market. I think it has increased our confidence to look at least more complex deals than in the past.
Mm-hmm.
Again, staying disciplined and making sure the overlap with what we do today is high.
Okay. I just want to maybe go back to the Intact outperformance. Outperformance on ROE, outperformance on growth, outperformance on combined ratio versus the industry. You know, I kinda wanna maybe get your take, your views. Where do you see a potential threat where that outperformance narrows? Is there any particular area that keeps you awake at night where that outperformance could shrink? And then maybe conversely, anything that's widening from where it is today?
Right. I mean, we don't take any of that for granted. Obviously, competition is trying to catch up on many of these things. We constantly inject, whether it's in pricing, sophistication, risk selection, claims, in the supply chain, you know, we continue to deploy. We've deployed in 25 many additional service centers. Scale allow us to do that more. The acquisition of On Side, I don't think we're seeing the full benefit of it yet, and we're continue to invest in On Side. I wouldn't point to one area in particular where I'm worried about competition catching up. We're actually worried or well aware that they are trying to catch up on all fronts, and that's why we constantly have plans to further invest.
I think the pricing and risk selection is where, from an upside perspective, we see more gains, even if that's the one that we've focused on a lot in the past. Because we're actively deploying these models into commercial lines, specialty lines, and into the U.S. and the U.K., and we are we have seen only a fraction of the full benefit of that in our current results because we're still in actively deploying it.
With a few seconds left, maybe give us your perspective on what you think investors are missing about the Intact story. It's come off from peak valuations last year and I would argue at attractive levels today, but I'd love to hear your perspectives on this.
Yeah. Thanks for the question. I think it's a key one. We've talked about some of the elements. I think the fact that the ROE has moved into a new zone is one that might be underappreciated by some. The track record of growing NOIPS, you know, we've grown by a compounded 12% over the past decade. We'd certainly feel that there's enough opportunity ahead of us to continue with that track record is a key point. Maybe another one is well, two other one quickly. The PYD, I think we need to be careful. It's been favorable over the past year and a half. I think it's we have to be careful to normalize that.
We operate a very short tail, short duration, so really the favorable development we see in one year usually comes from what was in the
... current accident year, just the prior and not 10 years ago or from an older volume, so that's important to combine the two together. Finally, we're not that worried about state of the cycle. We are able to maintain good ROE even when the industry is in a portion of the cycle that has lower profitability.
Yeah. Agreed. Well, Patrick, that's our time. I appreciate you joining us this year. Thanks very much.
My pleasure. Thank you very much.